Katyal Industries vs Union of India

We have heard Sri Rahul Agarwal for the petitioner. Sri S.P. Kesarwani, Additional Chief Standing Counsel appears for the Central Excise Department.

The petitioner is a manufacturer of rubber sheets, used in the soles and heels of footwear. The rubber sheets manufactured and sold by the petitioner are classifiable under Tariff Heading 4008 21 10 of the Schedule to the Central Excise Tariff Act, 1985. It is alleged, that the petitioner does not use resin in manufacture of the rubber sheets. The rubber sheets containing resin, also used for soles and heels, is separate item classifiable under Tariff Entry 4008 29 10, and attracts 10% duty.

On 23-7-2010 and 29-7-2010, a team of Central Excise officials visited the unit of the petitioner and drew samples to verify the ingredients of rubber sheets manufactured by the petitioner. They wrote letters, for ascertaining the chemical properties of one of the chemicals used by the petitioner, to the suppliers of the raw materials. They also sent the samples to the Chemical Examiner, CRCL, New Delhi; the Director FDDI, Noida and the Rubber Institute Thane, Maharashtra, to examine the chemical composition in the samples.

On 29-4-2011, a show cause notice was issued by the Commissioner, Central Excise & Service Tax, Kanpur stating that as per the test reports, and other statements in the possession of the department, the rubber sheets manufactured by the petitioner were classifiable under Tariff Entry 4008 29 10, and attracted duty @ 16%, 14%, 8% and 10% (depending upon the rate in force at the relevant time) during the period 2006-07 to January, 2011. The department relied upon the test report dated 5-8-2010, given by the Director, FDDI, Noida, and the test report dated 29-3-2011, given by the Rubber Institute, Thane, Maharashtra.

It is alleged that both the reports did not give the percentage of resin in the samples or the physical and chemical properties of the goods, and that the reports made available to the petitioner were too vague. The petitioner requested on 19-5-2011, to give complete reports given by the testing institutes, detailing the percentage of resin and the physical and chemical properties of the samples, so as to enable the petitioner to prepare and submit a proper reply in defence. It is alleged that when no reply was received, the petitioner was constrained to seek extension for submission of its reply to the show cause notice and thereafter on 6-7-2011, the petitioner requested Respondent No. 2, to carry out retesting of the product. The petitioner did not accept the vague and unreliable test reports made. By way of abundant caution, the petitioner also submitted interim reply on 25-7-2011, to the show cause notice. The petitioner''s request for re-testing the samples was rejected by the Additional Commissioner (Technical), Central Excise, Kanpur, which decision was communicated to the petitioner on 18-8-2011 by Superintendent of Central Excise (Tech.), Kanpur and subsequently by order dated 14-10-2011, the petitioner was informed that his request for retesting of samples has been declined by the Commissioner, Central Excise, Kanpur, as the test report is very clear, complete and there is no doubt and also since testing has been done by IRMRA, which is a Central Government recognised institution.

The petitioner''s clearances were stopped by order dated 18-8-2011.

On 9-12-2011, we passed an order as follows :-

"The petitioner has earlier filed a Writ Petition No. 678 of 2011, in which orders were passed to allow the petitioner to lift the goods on furnishing security other than cash and bank guarantee, on the ground that the time to file reply to the show cause notice had not expired. The Court, however, provided that the petitioner shall file reply to the show cause notice.

By this writ petition the petitioner has prayed for quashing the order dated 18-8-2011, by which petitioner''s request, for re-testing the sample, which according to the department after testing of the samples drawn by it were found to contain resin, on which the manufactured item will attract excise duty of 10%, has been rejected. The petitioner has also challenged the order dated 14-10-2011, by which the reasons for rejection have been communicated to him, by the Superintendent (Technical), Central Excise, Kanpur.

It is contended that the petitioner has a right for re-testing of the samples under C.B.E. & C.''s Excise Manual of Supplementary Instruction 2005, Chapter XI on SAMPLE para 8.89 which provides as follows :-

"Whenever the assessee is dissatisfied with the test carried out by chemical examiner he can apply to Deputy/Assistant Commissioner of Central Excise concerned for retest within 90 days from the date on which the test result was communicated to him after payment of the prescribed fees..."

We are not prima facie satisfied with the reasons given for rejecting the request for retesting namely that the test report obtained by the department is very clear, complete with no doubt as the retesting has been done by I.R.M.R.A., which is a Central Government recognised institution. The right of retesting given by the statute cannot be prima facie denied on the ground that the reports obtained by the department are complete and that the department has no doubt, to its correctness.

Shri S.P. Kesarwani, Additional Chief Standing Counsel prays for and is allowed a short adjournment to seek instructions in the matter. He will also produce complete test report on the basis of which a show cause notice has been given.

Put up this matter on 23-1-2012 in the additional cause list."

Sri S.P. Kesarwani, learned Additional Chief Standing Counsel for the department has received instructions from the Superintendent (Preventive), Central Excise, Agra on 17-1-2012, in which, he has been informed as follows :

"1. The request for re-testing of the samples was denied on the ground that the testing of samples were done by the two Government recognised independent labs. Both the test reports are clear and complete. These test report itself speaks the rubber sheet manufactured by the petitioner contains High Styrene Resin (by IRMARA, Thane) and Resin rubber sheet by FDDI, Noida). Hence there is no doubt about the constituent of the produce so the request of the party was denied.

Complete test reports are enclosed.

Re-testing was denied only on the ground that the department has already got tested the samples from two different test labs and the test report of both the test labs are similar."

The Superintendent (Preventive), Central Excise, Agra has also enclosed the complete evaluation report from Indian Rubber Manufacturers Research Association (IRMRA), and which has been supplied to the learned counsel for the petitioner, today in Court.

In the present case, we are concerned with the petitioner''s right to the samples retested, conferred by the Statutes, C.B.E. & C. Excise Manual of Supplementary Instruction 2005, Chapter XI on SAMPLES, Para 8.89, which has been reproduced in the interim order. We are informed that four samples were drawn in accordance with Paras 8.1. to 8.4 of the instruction issued under the Central Excise Rules, 2004, which are quoted hereunder for the purpose of the case :-

"8. Procedure for testing and re-testing of samples drawn by the Department.

8.1. Except where there are special instructions for particular kind of samples, the representative samples from such or any lot must be drawn in quadruplicate in the presence of the owner/manager of the factory or his representative.

8.2. The quantities of excisable goods or materials taken for testing should be minimum necessary for testing and the Commissioner will, in consultation with the Chemical Examiner concerned, specify for each kind of excisable goods or materials the size of samples for this purpose.

8.3. The samples should be sealed with Excise seals and a declaration obtained from the owners (manufacturers) to the effect that the samples drawn are representative of the lot and that he is satisfied with the manner of drawing of the sample. The assessee, if he so desires, may also be permitted to affix his seal on the samples.

8.4. The four samples drawn for test should be clearly marked as :

(a) Original for Chemical Examiner (to be dispatched to him along with the declaration and the relative test memorandum under intimation to the Assistant/Deputy Commissioner concerned).

(b) Duplicate to be sent to the Deputy/Assistant Commissioner of Central Excise (to be forwarded to him for safe custody for further use in case a dispute arises.

(c) Triplicate for Range Officer (to be retained for any further reference or to cover loss by post or other emergency).

(d) Quadruplicate to be given to the manufacturer (for his own record).

8.5. Before dispatch of sample to the Deputy/Assistant Commissioner of Central Excise and the Chemical Examiner, the samples should be packed properly, sealed and marked in such a way that they suffer no loss or deterioration in transit or subsequent storage.

8.6. The Chemical Examiner after test, will return the remnant sample, if fit for re-test and not in other cases, together with his test report, to the Assistant Commissioner concerned. The Chemical Examiner will be in position to indicate whether or not a remnant is fit for re-test and the Deputy/Assistant Commissioner of Central Excise or other adjudicating authority will in most cases be able to anticipate whether the assessee will demand a re-test or not. The test results should be speedily communicated to the assessee.

8.7. The Department shall carefully preserve the remnant sample.

8.8. Whenever the assessee is dissatisfied with the test carried out by Chemical Examiner he can apply to Deputy/Assistant Commissioner of Central Excise concerned for re-test within 90 days from the date on which the test result was communicated to him after payment of the prescribed fees. The prescribed fee for retesting of the samples in the laboratories of Central Board of Excise and Customs have been prescribed in Appendix A of the Central Manual of Chemical Laboratories in the Custom Houses containing procedure, rules and regulations by Directorate of Publication, Customs and Central Excise, New Delhi 1983�.."

The provisions of the Central Excise Act provide for imposition of penalty and interest, for non-payment of duty. The consequence may also result into quasi criminal liability on the manufacturer. In the circumstances, we are of the opinion that the denial of the statutory right for retesting the sample amounts to violation of principles of natural justice resulting into serious civil and criminal liability.

Whenever a right is given by a Statute for retesting, the reasons for dissatisfaction of the manufacturer with the test carried out by the chemical examiner are not relevant. It is sufficient to state that the assessee is dissatisfied with the test carried out by the chemical examiner. In such case, his application to Deputy/Assistant Commissioner, Central Excise within the prescribed period of 90 days and deposit of prescribed fee is sufficient for direction to retest the samples in the laboratories of Central Board of Excise and Customs, prescribed in Appendix A of the Central Manual of Chemical Laboratories in the Custom Houses containing procedures, rules and regulations by Directorate of Publication, Customs and Central Excise, New Delhi 1983.

Where the application for retesting, comply with these conditions, it should be invariably allowed. The application may not be rejected on the ground that the testing was done by Government recognised independent labs, and that the test reports are clear and complete.

In the present case, we find that the reasons given for denial of retesting are not relevant. The right of retesting, for which samples are specifically drawn by the department in accordance with Paras 8.1 to 8.4 of the instructions issued under the Central Excise Rules, 2004, could not be denied, to the petitioner.

The writ petition is allowed, with directions that sample ''B'' or ''C'' may be sent for retesting by the Central Excise Department and in case samples ''B'' & ''C'' are not available with the department for any reason, sample ''D'', given to the manufacturer, may be sent for retesting. In case sample ''D'' is not in a condition for testing for any reason, or is not available with the manufacturer, the department may draw fresh samples from the manufacturer in the manner, which is provided for sending it for retesting.

We are informed that petitioner has filed a Writ (Tax) Petition No. 679 of 2011, in which an interim order has been passed, allowing the petitioner to clear the goods on furnishing security other than cash and bank guarantee. Since the petitioner has already been protected by interim order, we do not propose to give any further protection. We, however, provide that final hearing pursuant to the show cause shall remain stayed until reports on the retesting are available to the department, and copies of which are given to the petitioner.