Palsana Fibers Pvt. Ltd. vs Union of India (UOI)

D.A. Mehta, J.—RULE. Mr. Y.N. Ravani, learned Standing Counsel, appears and waives service of rule on behalf of the respondents. With consent of the learned Advocates, the matter is taken up for hearing and final disposal.

This petition challenges orders dated 2nd June, 2005 (Annexure-A) and 5th August, 2005 (Annexure-B) whereunder detention order and seizure order respectively have been made by respondent No. 3 qua the machineries specified in the schedule to the orders. The case of the petitioners, in nutshell, is that the machineries in question have been purchased from respondent No. 4 for a sum of Rs. 5,00,000/-. According to the petitioners, the machineries were initially purchased and owned by respondent No. 4 since calendar year 1998 and were used for the purposes of business of respondent No. 4. That the said machineries have been sold as scrap as per invoice appearing at Annexure-C by respondent No. 4 in favour of the petitioners. That, for no fault of the petitioners, the said machineries have been detained and seized by respondent No. 3.

Mr. Y.N. Ravani appears on behalf of respondent Nos. 1 to 3. He has placed reliance on affidavit-in-reply dated 19th October, 2005 filed by respondent No. 3 to submit that as there is violation of Cenvat Credit Rules, 2004 (the Rules) the respondent authorities are empowered to confiscate the goods of the petitioners under Rule 15 of the said Rules, while by virtue of provisions of Section 110 of the Customs Act, 1962, the respondent authorities are entitled to seize the goods and accordingly the respondent authorities have exercised the said powers of seizure.

As the averments made in Paragraph No. 3 of the affidavit-in-reply did not specify as to who has violated the Rules, a specific query was put to the learned Counsel for the respondent authorities and it was fairly accepted that the violation is by respondent No. 4. During the course of the submissions it was also contended that the value placed on the machineries for the purposes of transaction between respondent No. 4 and the petitioners was also not acceptable to the respondent authorities as stated in Paragraph No. 4.9 of the affidavit-in-reply. Though various averments regarding fraud, collusion, wilful misstatement and suppression of facts with an intent to evade the full reversal of credit in-contravention of the provisions have been made, there is nothing on record to establish, much less point out even prima facie, that any such intention or action can be ascribed to the petitioners.

In these circumstances, it is apparent that the petitioners cannot be visited with the defaults which are exclusive to respondent No. 4. The Court is not required to render any opinion as to whether the allegations against respondent No. 4 are justified or not. Proceeding on the assumption, that whatever is stated is correct, it would apply only qua respondent No. 4, and for this, in absence of any factual foundation to establish a link between the petitioners and respondent No. 4, or an averment supported by any evidence to the effect that the transaction is not at an arm''s length, the petitioners cannot be made to suffer by detention and seizure of the machineries of the petitioners. Though a faint attempt is made by slating that there was connivance between respondent No. 4 and the petitioners, except for bald averment, there is nothing on record to even suggest such a fact.

Rule 15 of the Cenvat Credit Rules provides for confiscation and penalty in case of a person who has taken Cenvat credit in respect of input or capital goods, wrongly or without taking reasonable steps to ensure that appropriate duty on the said input or capital goods has been paid as indicated in the document accompanying the input or the capital goods; or in case of contravention of any of the provisions of rules in respect of any input or capital goods, then, all such goods, are liable to confiscation and such person is liable to a penalty as specified in Sub-rule (1) of Rule 15 of the Rules. Exercise of powers u/s 110 of the Customs Act is only in relation to the aforesaid default i.e. upon such default being established.

In the present case, the respondent authorities have singularly failed to establish in any manner whatsoever as to whether in the first instance the petitioners had availed of any Cenvat credit in respect of any input or capital goods; secondly, whether, even if such Cenvat credit had been availed of, it was taken wrongly or without taking reasonable steps to ensure that appropriate duty on such input or capital goods has been paid as indicated in the accompanying document; and thirdly, it is not shown which provision of the Rules has been contravened by the petitioners. To the contrary, the respondent authorities have categorically admitted that such violation of the Rules has been committed by respondent No. 4. The last sentence of the said paragraph records : "The evaded Credit of Central Excise duty has been demanded from respondent No. 4 only".

Once this is the position, neither can Rule 15 of the Rules be invoked in the case of the petitioners nor can the powers u/s 110 of the Customs Act be exercised against the petitioners for alleged violation of Rules by respondent No. 4.

Thus, it is apparent that the entire action of the respondent authorities is neither supported by facts and evidence on record nor is it in consonance with any provision of law. The provisions on which reliance has been placed by the respondent authorities, on a plain reading, cannot be applied to the facts of the case as available on record. The entire action of the respondent authorities in detaining and seizing the machineries vide orders dated 2nd June, 2005 (Annexure-A) and 5th August, 2005 (Annexure-B) is thus bad in law and cannot be sustained. Accordingly, the said orders dated 2nd June, 2005 (Annexure-A) and 5th August, 2005 (Annexure-B), passed by respondent No. 3, are hereby quashed and set aside.

The petition is, therefore, allowed in the aforesaid terms. Rule made absolute. The respondent authorities are directed to pay costs quantified at Rs. 2,500/- (Rupees Two thousand Five hundred only) to the petitioners.