Rathi Re-Rollers (India) Ltd. vs Central Board of Excise and Customs

H.N. Devani, J.—This petition under Articles 226 and 227 of the Constitution of India has been filed with the following substantive prayers:

37 For the reasons stated herein above and those which may be urged at the time of hearing the Petitioners respectfully pray that this Hon''ble court may be pleased to;

YOUR Lordships may please to issue writ of mandamus or a writ in the nature of mandamus of any other writ, order or direction to quash/set-aside the Order No. 29 of 2010 dated 28-8-2010 passed by the Central Board of Excise and Customs.

YOUR Lordships may please to direct the Respondents to restore the facility under Rule 8(1) of the Central Excise Rules, 2002.

YOUR Lordship may please to direct the Respondents to allow the Petitioner to pay of excise duty by utilization of CENVAT Credit as provided under Rule 3(4) of the CENVAT Credit Rules, 2004.

The Petitioner, a public limited company, is engaged in the activity of manufacturing Mild Steel Bars (MS Bars) for which the main raw material is Mild Steel Ingots (MS Ingots), Billets. The raw material is obtained from various suppliers by availing CENVAT Credit facility and the CENVAT Credit is, in turn, utilized towards payment of excise duty against the finished goods. The Petitioner''s unit from the very inception in January, 2007 has been regularly availing the facilities as provided under Rule 8(1) of the Central Excise Rules, 2002 (C.E. Rules) and utilizing the same towards payment of excise duty on a monthly basis under Rule 3(4) of the CENVAT Credit Rules, 2004 (C.C. Rules). On 3rd/4th April, 2009, officers of the Vapi Commissionerate visited the factory premises of the Petitioner and drew up a panchnama recording shortage of raw materials and finished goods. Certain other documents in the nature of chits and papers were also recovered and statements were also recorded u/s 14 of the Central Excise Act, 1944 (the Act). Under the panchnama, it was recorded that there was an evasion of duty totally amounting to Rs. 76 lakhs (approximately). The Petitioner, at the first instance, deposited Rs. 50 lakhs under protest and in due course, the entire amount of Rs. 83,84,000/- came to be deposited by 24th February, 2010 without prejudice to the rights and contentions of the Petitioner Company.

A communication dated 21st January, 2010 came to be issued to the Petitioner by the Additional Commissioner (CCO), Central Excise and Customs, Vadodara stating that it had been reported that the Petitioner had knowingly committed the offence as specified in Para 1(a) of the Notification No. 32/2006-C.E. (N.T.), as amended, regarding clandestine removal of finished goods. It was, therefore, proposed that the facilities of monthly payment of duties as well as payment of duty by utilization of CENVAT credit may be restricted and the Petitioner shall be required to pay excise duty for each consignment at the time of removal of goods without utilizing the CENVAT credit and would also be required to maintain/intimate records of the principal inputs on which CENVAT credit has or has not been taken. The Petitioner was also informed that personal hearing in the matter has been granted on 2-2-2010. The nature of the offence was specified in Annexure-A to the said communication. It was stated that the unit had evaded central excise duty by way of procuring raw materials, i.e., MS Ingots, and not accounting for the same in their books and accounts, manufactured MS Bars from the same and removed/cleared the same clandestinely without preparation of Central Excise invoices and without payment of Central Excise duty. That the unit had also procured raw materials, that is, MS Ingots, availed CENVAT Credit on it and manufactured finished goods, viz. MS Bars and cleared the same clandestinely without preparation of Central Excise invoices and without payment of Central Excise duty. The unit had also cleared finished goods, i.e., MS Bars clandestinely without preparation of Central Excise invoices and without payment of Central Excise duty. In response to the said communication, the Petitioner submitted a preliminary reply on 27th January, 2010 stating that the action was premature and that the provisions of Rules 12CC and 12AA had wrongly been invoked. Vide communication dated 30th June, 2010 of the Superintendent of Central Excise, which referred to Order No. 29/2010-M dated 28th June, 2010 issued by Member (Central Excise), Central Board of Excise and Customs, the Petitioner was asked to strictly adhere to the said order and to take the four matters enumerated therein in its day-to-day working with effect from 1st July, 2010. A copy of the order was also annexed with the communication. Being aggrieved by the order dated 28th June, 2010 made by the Member (Central Excise), Central Board of Excise and Customs, the Petitioner has moved the present petition challenging the same.

On 14th July, 2010, the Court had made an order in the following terms:

(1) Heard learned Senior Advocate appearing on behalf of the Petitioners.

(2) The main grievance ventilated is that the Chief Commissioner has only forwarded the proposal received from the first authority to the Board but has not forwarded his recommendations along with the proposal, as contemplated under the Rules because the order does not say so. NOTICE returnable on 4th August, 2010. Direct service is permitted.

In response to the petition, an affidavit-in-reply has been filed on behalf of the Respondents No. 2, 3 and 4 wherein it had been stated that the contention of the Petitioner that the Chief Commissioner had only forwarded the proposal received from the first authority to the Board but has not forwarded his recommendation alongwith the proposal as contemplated under the Rules is contrary to the record inasmuch as the Chief Commissioner, by his letter F. No. IV/16-4/CCO/T/2010/544 dated 3rd February, 2010 had forwarded the proposal to the Respondent No. 1 alongwith proposal in the prescribed format, submissions of the Assessee dated 27th January, 2010, report dated 6th January, 2010 of the Commissioner of Central Excise, Vapi and documents relied upon. It is also averred that the case is under investigation and that the show-cause notice will be issued within the statutory time limit. At this stage, it would be premature to issue the show-cause notice before completion of investigation in the case. It is further stated that the shortage of raw material and finished goods and clandestine removal of finished goods as established by panchnama dated 3rd/4th December, 2009 clearly indicates that the Petitioner had misused the CENVAT Credit availed and utilized on raw material used in the manufacture of clandestinely removed finished goods. It is also averred that the panchnama dated 3rd/4th December, 2009 clearly shows that the Petitioner had evaded central excise duty of Rs. 76.59 lakhs and violated the provisions of Rule 12CC of the C.E. Rules and Rule 12AA of the C.C. Rules.

Mr. M.L. Lahoty, learned senior advocate appearing on behalf of the Petitioner vehemently assailed the impugned order submitting that the same had been passed without following due procedure as required under the Notification No. 32/2006-C.E. (N.T.) (hereinafter referred to as ''the subject notification''). Referring to the subject notification, it was pointed out that the procedure laid down thereunder requires the Commissioner of Central Excise or the Additional Director General of Central Excise Intelligence, as the case may be, after examination of records and other evidence and after satisfying himself that the person has knowingly committed the offence as specified in Para 1, to forward a proposal to the Chief Commissioner or Director General of Central Excise Intelligence, as the case may be, specifying the facilities to be withdrawn and restrictions to be imposed and the period of such withdrawal or restrictions, within 30 days of the detection of the case, as far as possible. It was strenuously argued that the search was conducted on 3rd December, 2009 whereas the proposal was forwarded on 7th January, 2010 which is beyond the period of 30 days prescribed under subject notification. The learned Counsel invited the attention of the Court to Circular No. 224/40/2006-CX.6 dated 30th December, 2006, pertaining to "Measures to provide deterrence for tax evaders in the manufacturing sector". Referring to paragraph 2.7 thereof, it was submitted that under the said Circular the Chief Commissioner is required to forward comprehensive proposal to the Member (Central Excise) within 20 days of the receipt of the proposal, along with the copy of the record of personal hearing conducted by the Chief Commissioner whereas in the facts of the present case, though the proposal was received by the Chief Commissioner on 11th January, 2010, the Chief Commissioner had forwarded the proposal only on 3rd February, 2010 which is beyond the prescribed period of 20 days. It was, accordingly, submitted that at both stages, the proceedings stand vitiated on account of delay.

Inviting attention to the impugned order, it was pointed out that the said order has been passed for commission of the offence covered under Clause (a) of Para 1 of the subject notification. Referring to the subject notification, it was submitted that Clause (a) of Para 1 of the notification can be invoked in case where a manufacturer, first stage or second stage dealer or an exporter including a merchant exporter is prima facie found to be knowingly involved in "[a] removal of goods without the cover of an invoice and without payment of duty". Referring to Para 2 of the subject notification which provides for facilities to be withdrawn and imposition of restrictions, it was submitted that in respect of an offence under Para 1(a) of the notification, resort can be had to Clause (1)(i) of Para 2 of the subject notification, whereas it is only in case of an offence in relation to Clauses (c), (d) and (g) of the subject notification, that the provisions of Para 2(1)(ii) would be attracted.

Inviting attention to the proposal made by the Commissioner, the recommendations of the Chief Commissioner as well as the impugned order, it was submitted that none of the said orders refer to any mis-utilization of CENVAT credit. According to the learned Counsel, the Notification No. 32/2006 has been issued pursuant to Rule 12CC of the C.E. Rules and Rule 12AA of the C.C. Rules, hence, in case of any contravention in relation to the C.E. Rules, the facilities to be withdrawn would be in connection with the Central Excise Rules, whereas in respect of mis-utilization of CENVAT credit, the facilities to be withdrawn or imposition of restrictions can be made under CENVAT Credit Rules. That in the facts of the present case, there being no allegation as regards mis-utilization of CENVAT credit, it was not permissible for the Respondent Board to place restrictions against utilization of CENVAT credit under Rule 3(4) of the C.C. Rules. In support of his submissions, the learned Counsel placed reliance upon a decision of this Court in the case of Dhariyal Chemicals Vs. Union of India (UOI) and Others,

On the other hand, Mr. R.J. Oza learned Senior Standing Counsel appearing on behalf of the Respondents opposed the petition and reiterated the averments made in the affidavit-in-reply. It was submitted that Rule 12CC of the C.E. Rules deals with evasion of central excise duty whereas Rule 12AA of the C.C. Rules deals with the misuse of CENVAT credit and that the Petitioner has violated the provisions of both the rules. Inviting attention to the first paragraph of the subject notification, it was submitted that the same only stipulates that when any manufacturer is prima facie found to be knowingly involved in committing the offence in Clauses (a) to (f) thereof, then the restrictions stipulated in Para 2 of the notification can be imposed. In this case the Petitioner is found to be involved in the offence described under Para 1 (a) of the subject notification, viz., removal of goods without the cover of any invoice and without payment of duty and as such the restrictions have rightly been imposed on the Petitioner. Dealing with the contention as regards delay at both stages, viz., in forwarding the proposal as well as the recommendations, it was submitted that in the light of the provisions of Para 4 of the notification, it is apparent that restrictions can be imposed on the recommendations of the Chief Commissioner who is required to make recommendation after satisfying himself that the record and evidence relied upon are sufficient to form a reasonable belief that the person has knowingly committed an offence specified in Para 1 of the notification. In the circumstances, completion of investigation or issuance of show-cause notice is not a necessary precondition for imposing restrictions. It was further submitted that the requirement of forwarding the proposal within 30 days under Para 4 of the notification is a procedural requirement and that the same has to be forwarded as far as possible within 30 days and as such, the said provision is not mandatory. Insofar as forwarding the proposal from the Chief Commissioner to the Member within a period of 20 days is concerned, it was submitted that there is no such stipulation in the notification and that the Circular dated 30th December, 2006 is merely in the nature of administrative instructions for implementation of the subject notification and as such is not mandatory in nature. It was submitted that in any case, the Chief Commissioner had received the proposal on 13th January, 2010 and had forwarded the same to the Member alongwith his recommendations on 3rd February, 2010, that is, on the 21st day and as such, all requirements have been duly satisfied and that due procedure has been followed prior to making the impugned order. It was submitted that the Board had considered all the material placed before it and thereafter, passed the impugned order. Referring to the decision of this High Court in the case of Dhariyal Chemicals v. Union of India (supra) it was submitted that the said decision would have no applicability to the facts of the present case inasmuch as in the said case, the Court had set aside the order impugned therein on the ground that no opportunity of hearing as contemplated under the notification had been afforded to the Petitioner therein, whereas in the facts of the present case, the Petitioner had been afforded ample opportunity of hearing and it was thereafter that the impugned order had been passed. It was, accordingly, urged that the impugned order has been passed in accordance with law and does not warrant interference.

Having regard to the submissions advanced by the learned advocates for the parties, it is apparent that the principal contentions raised on behalf of the Petitioner are: (i) the procedure as required under the subject notification has not been followed; (ii) there has been delay at both stages, firstly while forwarding of the proposal from the first authority to the Chief Commissioner and secondly while forwarding the recommendations from the Chief Commissioner to the Member; (iii) that the offence alleged against the Petitioner is under paragraph 1(a) of the subject notification and that there is no allegation as regards mis-utilization of CENVAT credit hence, in absence of any contravention of the CENVAT credit rules, or mis-utilization of the facilities under the CENVAT credit rules, it was not permissible for the Board to place restrictions against utilization of CENVAT credit under Rule 3(4) of the C.C. Rules; (iv) in the light of the of the contents of Para 3 of the Circular dated 30th December, 2006, the provisions of the subject notification would be applicable only if the evasion is of more than Rs. 10 lakhs. That, till the first two requirements are satisfied, namely that there is a case of evasion and mis-utilization and the monetary value is not less than Rs. 10 lakhs, the provisions of the subject notification cannot be invoked. According to the learned Counsel for the Petitioner, even taking the panchnama at its face value, the shortage of raw material and finished goods works out to Rs. 7 lakhs (approx.) only Rs. 4,04,726/- as shortage of raw material and Rs. 3,14,555/- as shortage of finished goods). In the circumstances, the shortage of raw material and finished goods being only to the extent of Rs. 7 lakhs (approx.), which was clearly less than the minimum stipulated monetary limit, the provisions of the notification could not have been invoked.

Examining the contention regarding requirements of following the due procedure under the notification having not been satisfied, it is an admitted position that the search was conducted on 3-12-2009 whereas the first authority forwarded his proposal to the Chief Commissioner on 7-1-2010 after a delay of about three days. As per the averments made in the affidavit-in-reply filed on behalf of the Respondents, the factor of delay had been considered by the Chief Commissioner and the same had been condoned. In any case from the language employed in the notification which lays down that the first authority shall forward the proposal within 30 days of the detection of the case, as far as possible, it is apparent that the same is not couched in mandatory terms, hence, the delay of 3 days cannot in any manner be termed to be so excessive so as to vitiate the entire proceedings. As regards the delay on the part of the Chief Commissioner in forwarding the comprehensive proposal along with the copy of the record of the personal hearing conducted by Gujarat High Court Case Information System the Chief Commissioner to the Board, a perusal of the averments made in the affidavit-in-reply, indicates that the Chief Commissioner received the proposal made by the first authority on 13th January, 2010 and forwarded the same along with his recommendations, the submissions of the Assessee dated 27th January, 2010, report dated 6th January, 2010 of the Commissioner of Central Excise, Vapi as well as the relied upon documents in the prescribed format on 3rd February, 2010, that is on the 21st day. In this regard it may be noted that the subject notification does not prescribe any time limit for forwarding the comprehensive proposal to the Member, this prescription is found in the Circular dated 30th December, 2006 which is more in the nature of procedural guidelines/administrative instructions and in absence of any prescription in the parent notification, cannot be termed as mandatory. In the circumstances, it is not possible to state that the delay of one day in forwarding the comprehensive proposal would vitiate the entire proceedings.

As recorded in the above referred order dated 14th July, 2007 made by this Court at the time of issuance of notice in the matter, the main grievance ventilated was that the Chief Commissioner had only forwarded the proposal received from the first authority to the Board but had not forwarded his recommendations along with the proposal. In this regard, a perusal of the averments made in paragraph 4.1 of the affidavit-in-reply along with the Annexures thereto indicates that the Chief Commissioner had vide letter No. F. No. IV/16-4/CCO/T/2010/544 dated 3-2-2010 forwarded the proposal to the Respondent No. 1 Board, along with the proposal in the prescribed format, submissions of the Assessee dated 27-1-2010, report dated 6-1-2010 of the Commissioner of Central Excise Vapi and relied upon documents. Thus, the said contention does not merit acceptance, inasmuch as the proposal had been forwarded to the Board as contemplated under the notification and as such the provisions of the subject notification stand duly complied with.

As regards the contention that in case of involvement in an offence described in Para 1(a) of the notification viz. removal of goods without the cover of invoice and without payment of duty, it is not permissible to place restrictions against utilization of CENVAT credit under Rule 3(4) of the C.C. Rules is concerned, it may be germane to refer to the relevant provisions of the subject notification which read as under:

In pursuance of Rule 12CC of the Central Excise Rules, 2002, and Rule 12AA of the CENVAT Credit Rules, 2004, the Central Government, hereby declares that where a manufacturer, first stage or second stage dealer, or an exporter including a merchant exporter is prima facie found to be knowingly involved in any of the following -

(a) removal of goods without the cover of an invoice and without payment of duty;

(b) removal of goods without declaring the correct value for payment of duty, where a portion of sale price, in excess of invoice price, is received by him or on his behalf but not accounted for in the books of account;

(c) taking of CENVAT Credit without the receipt of goods specified in the document based on which the said credit has been taken;

(d) taking of CENVAT Credit on invoices or other documents which a person has reasons to believe as not genuine;

(e) issue of excise duty invoice without delivery of goods specified in the said invoice;

(f) claiming of refund or rebate based on the excise duty paid invoice or other documents which a person has reason to believe as not genuine,

an officer authorized by the Board may order for withdrawal of facilities or impose certain restrictions as specified in para 2 of this Notification.

Facilities to be withdrawn and imposition of restrictions:

(1) Where a manufacturer is prima facie found to be knowingly involved in committing the offences as specified in para 1, the following restrictions may be imposed on the facilities, namely:

(i) the facility of monthly payment of duties may be withdrawn and the Assessee shall be required to pay excise duty for each consignment at the time of removal of goods;

(ii) payment of duty by utilisation of CENVAT credit may be restricted and the Assessee shall be required to pay excise duty without utilising the CENVAT credit:

Thus, Para 1 of the subject notification provides for withdrawal of the facilities or impositions of the restrictions as provided under Para 2 thereof by an officer authorised by the Board, in case a manufacturer, first stage or second stage dealer, or an exporter including merchant exporter is prima facie found to be knowingly involved in any of the circumstances stipulated thereunder. Para 1 does not specify that in case of involvement in a particular offence enumerated thereunder, the consequence would be under a particular clause of Para 2. In other words, Para 1 of the subject notification does not lay down that in respect of involvement in an offence under the C.E. Rules, the facilities withdrawn or restrictions imposed will be in terms of sub-para (i) of Para 2 and in case of involvement in an offence under the C.C. Rules, the facilities withdrawn and restrictions imposed will be in terms of sub-para (ii) of Para 2 of the subject notification. Thus, on a plain reading of the provisions of the subject notification, it is clear that in case of involvement in any of the circumstances enumerated in Para 1 thereof, facilities can be withdrawn and restrictions can be imposed under either under sub-para (i) or (ii) of Para 2 or both. Even in case of violation of the provisions of the C.E. Rules, the facilities withdrawn or restrictions imposed may be under sub-para (ii) or vice versa. Para 2 of the notification does not draw any distinction in respect of offences in relation to which restrictions may be imposed on the facilities as provided under Sub-clause (i) or Sub-clause (ii) thereof. It is within the discretion of the concerned authority to impose such restrictions on the facilities as it may deem fit whether under Sub-clause (i) or Sub-clause (ii) of sub-para (1) of Para 2 or both. In the circumstances, the Court does not find any force in the contention put forth on behalf of the Petitioner that facility under Sub-clause (ii) can be withdrawn and restriction can be imposed only in case there is a finding of mis-utilization of CENVAT credit. The notification does not say that restrictions in Para 2 have to be co-related with the offence under para 1. To read it as contended on behalf of the Petitioner would be to read something more into the notification than what the plain meaning suggests.

As regards the contention that the monetary value involved in the present case being less than Rs. 10 lakhs, the provisions of the subject notification could not have been invoked, apart from the fact that the parent notification does not provide for such a limitation, which is provided by way of administrative instructions, a perusal of the panchnama as well as the proposal indicate that the estimated duty involved in the evasion is Rs. 83.22 lakhs. In paragraph 7 of the petition, it has been averred that according to the panchnama there was an evasion of total duty amounting to Rs. 76 lakhs (approx.) and that in due course, the entire alleged amount of Rs. 81,84,000/- stood deposited by 24th February, 2010. In the circumstances, it is apparent that the evasion is much more than the monetary limit of Rs. 10 lakhs and not about 7 lakhs, as is sought to be contended on behalf of the Petitioner, and as such, the said contention also does not merit acceptance.

In the light of the aforesaid, it is apparent that while making the impugned order dated 29th June, 2010, the Board has duly followed the procedure as required under the subject notification and has passed the impugned order whereby certain restrictions have been placed upon the facilities to be availed of by the Petitioner. The impugned order is a discretionary order, which has been passed by the Board after considering the facts and circumstances of the case after following due procedure in accordance with law. In the circumstances, in absence of any material to indicate that the said discretion has not been properly exercised, there is no warrant for any interference by this Court. Besides,under the CENVAT Credit Rules as well as the Central Excise Rules, certain facilities as to mode of payment are given to the Assessee. Therefore, in case of noncompliance of the provisions of the Act and the Rules, it is well within the authority of the Respondents to place restrictions on the utilization of such facilities for payment. The Petitioner does not have any absolute right to avail of such facilities for payment of duty.

Insofar as the decision of this High Court in the case of Dhariyal Chemicals v. Union of India (supra) on which reliance has been placed upon on behalf of the Petitioner, as has been rightly contended on behalf of the Respondents, in the facts of the said case the Court had set aside the order impugned therein on the ground that no opportunity of hearing as contemplated under the notification had been afforded to the Petitioner therein, whereas in the facts of the present case, it is not the case of the Petitioner that it has not been afforded an opportunity of hearing. In the circumstances, the said decision does not carry the case of the Petitioner any further.

In the light of the aforesaid discussion, the Court does not find any infirmity in the impugned order so as to warrant interference. The petition, therefore, fails and is accordingly rejected. Notice is discharged with no order as to costs.