| SooperKanoon Citation | sooperkanoon.com/373897 |
| Subject | Excise |
| Court | Karnataka High Court |
| Decided On | Jul-28-1989 |
| Case Number | Writ Petition No. 5852/1988 |
| Judge | S.R. Rajasekhara Murthy, J. |
| Reported in | 1990(25)ECC72; 1990(47)ELT540(Kar); ILR1989KAR3302; 1989(2)KarLJ484 |
| Acts | Customs Act, 1962 - Sections 2, 2(34) and 105; Central Excise Rules, 1944 - Rule 2 and 4; Central Excise Act, 1944 - Sections 2, 4, 12, 18 and 37A; Central Excise Tariff Act, 1985; Code of Criminal Procedure (CrPC) , 1973 - Sections 165 |
| Appellant | Victory Glass and Industries Ltd. |
| Respondent | Collector of C. Ex. |
| Appellant Advocate | S.G. Sundaraswamy and ;S.S. Nagananda, Advs. |
| Respondent Advocate | Padmarajaiah, Central Govt. Standing Counsel and ;H. B. Datar, Adv. |
1. The petitioner is a Company manufacturing glass bottles of various sizes in its factory situated in Bommasandra Industrial Estate, near Bangalore. The petitioner is a licensee under the Central Excise Act, ('the Act'), for the manufacture of 'Glass and Glass products' falling under Chapter 70 of the Central Excise and Tariff Act, 1985 ('the Tariff Act').
2. There was a search in the premises of the factory and the Registered Office of the Company, and at the residence of the Executive Director of the Company by the Intelligence wing of the Central Excise Department on the 15th, 17th and 22nd September, 1987. Large number of documents, registers and other papers were seized at the three places referred to above.
3. Exhibits F1 to F5 are the copies of the mahazars drawn by the Search Officers at the several places where the search was conducted.
4. Pursuant to the said search a show cause notice dated 18-1-1988 was issued by the Collector of Central Excise to the 1st petitioner Company on the 2nd petitioner, the Managing Director, besides the other seven persons connected with the Company and several other distributors of the products of the petitioner's Company referred to in the said show cause notice (Annexure J). This show cause notice is challenged by the petitioners on several grounds which will be dealt with later in their order. On the basis of the material and the information gathered from the documents and other records seized from the petitioners' various premises and on the basis of the further investigation and statement recorded, the Collector has proposed to quantify the excise duty on the suppressed value of the glass bottles removed, excess stock found, suppression of actual production figures, clandestine removal without paying its duty etc., in a sum of Rs. 51,51,656-96 P.
5. The several grounds urged challenging the search and seizure and also the show cause notice, are :-
(i) that the search conducted in the factory, Office and the residence of the Executive-Director on several dates was mala fide;
(ii) the search is liable to be quashed on account of the several procedural irregularities and non-conformity with the provisions of Section 105-C of the Customs Act read with Section 165 Cr.P.C.;
(iii) that the show cause notice is liable to be quashed for vagueness and the search was a roving search without any specific purpose; and
(iv) that the proceedings of inquiry before that 1st respondent, the adjudicating authority should be stayed since the 1st respondent is proceeding with the enquiry without furnishing the copies all the documents and other information sought to be relied upon against the petitioners.
6. Elaborating these contentions, it is argued by Sundara Swamy, learned senior counsel for the petitioners that the petitioners bona fide believe that the search was conducted in several factories engaged in the manufacture of glass and glass products throughout the Country, only as a result of a general policy decision taken by the 2nd respondent, the Director of Anti-Evasion, Central Excise, New Delhi, and the search of the petitioner' premises is, therefore, illegal. It is also urged that to the best information and knowledge of the petitioners, there was no intelligence report to conduct a search in case of each one of the manufactures including the petitioner's factory and other premises.
7. In support of this contention, it is also urged by the learned counsel that the court may call for the records in order to satisfy whether any separate reasons are recorded before the search of the petitioner's factory and its offices was ordered.
8. One other contention advanced challenging the validity of the search is that it was a roving search and a large number of books of accounts, records, files, documents, registers and papers which were wholly unnecessary, were taken away. Apart from the search being challenged on the ground of mala fides, being vexatious and excessive, it is argued that there was no valid reason to search, much less any reason was recorded before the search was ordered; the search is also challenged as illegal for flouting the procedural safeguards which are required to be observed under Section 165-Cr.P.C.
9. Regarding the illegality of the search and the mahazar, it was submitted by Shri Sundara Swamy that the signatures of the witnesses to the mahazars were taken by coercion and in support of this, affidavits of two of the mahazar witnesses are filed (Annexures F and F1). It is also alleged that no receipt for the document seized was issued by the search officer immediately after the seizure.
10. The petitioners have raised an additional ground regarding the competency of the search officers who conducted the search (Vide Additional-ground 11.JA raised in I.A. filed on 9-9-1987.). It was contended that the respondents 2 and 3 who conducted the search cannot be 'Proper Officers' as defined in S. 2(34) of the Customs Act read with Rule 2(xi) of the Central Excise, Rules. The argument that proceeded on that basis was that there was no proper delegation of powers by the Central Government in accordance with Section 37A of the Central Excise Act and the delegation of powers in favour of respondents 2 and 3 under Notification No. 215/86 dated 27-3-1986 issued by the Central Board of Excise and Customs under Section 2(b) is also not in accordance with law.
11. Regarding the merits of the case, it was argued that there was no basis for the tentative conclusion by the 1st respondent, as is shown in the show-cause notice, about the alleged suppression of production figures and undervaluing the products cleared from the factory and the additions proposed to be made under other several-heads detailed in Exhibit-'D', which is an abstract of the various additions and differential-duty payable on the revised assessable value.
12. The last contention urged by the petitioners is that the proceedings of the adjudicating authority have to quashed on the ground of violation of principles of natural justice.
13. Respondent-1 is represented by Sri Shivappa, learned Standing Counsel for Central Excise Department, and respondents-2 and 3 are represented by Shri H. B. Datar, learned senior Advocate, and separate statement of objections are filed by them in reply to the several averments made in the writ petition.
14. The writ petition is contested both on the merits as well as on the other infirmities and illegalities of the search alleged by the petitions.
15. Dealing with the contention raised in the application filed on 9-9-1988 as to the competency of the officers who conducted the search, it is argued by Sri Datar that officers who conducted the search were duty authorised by the Central Board of Excise and Customs under Notification No. 215/86, which came into force on 1-4-1986. It is argued that reliance on Section 37A of the Act by the petitioners relating to the delegation of powers, is misplaced. It is pointed out that by virtue of the powers conferred on the Board under Section 2(b) of the Act read with Rule 4, the officers of the Directorate of Anti-Evasion are conferred with all the powers of a Collector, Deputy Collector and other officers of the Directorate corresponding to the officers of the Central Excise, as mentioned in the Notification No. 215/86.
The validity of the notification issued under Section 2(b) of the Act was upheld by Justice Mohan in W.P. 5004/87 (A copy of the order of the Madras High Court is produced in the above decision and this view was confirmed into writ appeal reported in 1988 (33) ELT 279 (Madras) - in para-3. (Asia Tobacco Co. Ltd. v. Union of India and Anr.). It was held that the notification invested the officers of the Directorate of Anti-Evasion (Central Excise) with the powers to be exercised throughout the territory of India and therefore inconformity with Rule 2(ii).
(ii) In I.T.C. Ltd. v. Union of India - [1988 (34) E.L.T. 473 (Cal.)], Justice B. P. Bannerji agreed with the Madras High Court on Asia Tobacco Company case, and upheld the validity and legality of the Notification No. 215/86.
(iii) In Dunkan Agro Industries v. Union of India - : 1989(39)ELT211(Del) , the vesting of powers under the Central Excise Act on the Directorate (Audit), under Section 2(b) of the Act came up for interpretation before the Delhi High Court. Agreeing with the views expressed by the Madras and Calcutta High Courts in the decisions mentioned above, their Lordships upheld the power of the Central Government to appoint and invest the Directorate (Audit) to exercise the powers of investigation and adjudication of cases that may be assigned to him.
16. In reply to the contention urged by the petitioners as to one other preliminary point, namely - that the search was mala-fide since it was carried out pursuant to a policy decision taken by the Central Government to raid all glass manufacturing units throughout the country and not as a result of any reliable information or material which prompted issue of search warrants in the petitioners case, Sri Datar produced for my perusal the relevant files relating to the issue of warrants of search in the case.
17. I have gone through the records produced by the learned counsel for respondents-2 and 3. I am satisfied that the warrant of search issued in the present case was preceded by recording of reasons, not only by the 2nd respondent, the Directorate of Anti-Evasion, Central Excise, but also by the concerned jurisdictional assistant Collector, who ordered issue of search warrants in the present case in several places. Therefore, this contention has to be rejected.
18. As regards the validity of search, Sri Datar has argued in the light of several decisions that both Supreme Court and the other High Court have held that no strict compliance with the provisions of Section 165 Cr.P.C. is called for, so far as the requirement of a search with reference to Section 105 of the Customs Act read with Sections 12 and 18 of the Central Excise Act are concerned, and which are made applicable to searches under the Central Excise Act. The learned Counsel has, in support of his argument, cited before me the following decisions :-
(i) Pukhraj v. Kohli - : 1983(13)ELT1360(SC) ;
(ii) State of Maharashtra v. Natwarlal Damodardas Soni - : 1980CriLJ429 ;
(iii) Ganeshmal Gandhi v. Central Excise - (AIR 1968 Mysore 89);
(iv) Collector of Customs v. Lal M. Budrani - (1982)(2) Kar. L.J.P. 73;
(v) B.P.L. v. Asstt. Collector of Central Excise - (1983) (14) E.L.T. 227); and
(vi) (1988) Crl. L.J. (Karnataka) 1217) August-part.
19. The last contention urged by the learned Counsel for the petitioners is about the validity of the show-cause notice. It is argued that the show-cause notice is bad in law, and it is liable to be quashed at the preliminary stage for more than one reason, namely, on the ground of vagueness of the allegations and non-furnishing of the particulars of evasion or the basis for concluding that the petitioner is guilty of evading a huge-duty of more than Rs. 50,00,000/-
20. The ground urged in this behalf in the Writ petition is that the show cause notice is liable to be quashed, for violating the principles of natural justice, in that, the petitioner has not been furnished with all the necessary particulars for the alleged evasion, both as to the suppression of production and under valuation. The learned Counsel has vehemently argued and has demonstrated with reference to the Annexures to the show cause notice that it is impossible to make out the case of the Department from the abstract of the gross-duty and the liability which has escaped assessment, as per Annexure-'D' to the show-cause notice.
21. The petitioners have filed the copies of the Memos served on the Department's Counsel, and the matter was adjourned more than once so that the Department may furnish all the particulars to enable the petitioner to file a proper reply. The Department has furnished to the petitioners copies of the documents on the basis of which the revised assessable value was determined, and has set out how, according to the department, the petitioner-systematically undervalued its products in the invoices raised.
22. In the detailed statement filed on behalf of the respondents, the modus operandi adopted by the petitioners both as to the clandestine removal of goods without payment of duty and as to the flow-back, and, the additional realisations made in the form of debit-notes raised for over-due interest, washing charges, transportation and special packing etc., has been explained. The Department has also produced some sample work-sheets to show how the Departments arrived at the revised assessable value.
23. It is necessary to deal with these contentions in some detail since the general modus operandi adopted by the petitioners has been stated in extenso in the Annexures to the show cause notice. Normally it would be for the adjudicating authority to confront the petitioner in the course of the enquiry with all the material and information collected from the seized documents before any order of adjudication is made.
24. After the statement of objections was filed on behalf of the Collector, the petitioners took time and filed an additional statement on 28-10-1988. The statement is filed covering mainly the differential duty relatable to under valuation of goods vide Annexure D7. The computation made as per Annexure D7 is attacked on several grounds after the Department furnished the basis of the method employed in arriving at the revised assessable value and the differential duty.
25. This is the biggest addition made by the Department as per the abstract among other additions, as disclosed in Annexure D. The petitioners have, after verification of the records, viz, the invoices and debit-notes, have arrived a different figure so far as the additional realisations are concerned. In the statement filed along with the additional affidavit the details are given viz., the total sales, interest charged and other charges like, washing, packing and transportation etc.
According to the petitioners, the actual realisations from all the debit-notes admitting without prejudice to their contentions comes to Rs. 36,75,351-60ps. The petitioners have shown how they have arrived at this figure in a tabular-statement filed along with their affidavit dated 28-10-1988. It was, therefore, contended by the learned Counsel for the petitioners that the additional realisations shown by the Department in their show-cause notice, the aggregate of which is Rs. 3,57,91,070/-, is an imaginary figure and the suppressed value is arrived at on the assumption that in respect of all the bottles manufactured and cleared by the company, the petitioners have levied and collected additional charges.
26. This is an important aspect on which the Department took time to file a reply. An additional statement of objections was filed on 27-6-1989 setting out their definite case on this aspect thus :-
'In the present case since in vast majority of the cases the Company has issued debit-notes as per Section 4 of the Central Excises & Salt Act, 1944 read with Rule 5 of the valuation Rules, the procedure adopted by the department to redetermine the assessable value in respect of each variety of glass bottles manufactured and cleared by the petitioner is correct and as per law'.
The question that, therefore, arises for decision so far as D7 is concerned is :
Whether there is any legal basis for arriving at the revised assessable value in respect of all the clearances made by the petitioner during the relevant period
27. The case of the Department is made clear in their additional statement extracted above, that the Department has arrived at the revised assessable value on the presumption that the petitioner 'must have undervalued the goods in respect of all clearances made'. The method adopted by the Department has been subjected to serve criticism and attack by the petitioners, as arbitrary, whimsical and that the show cause notice is issued without application of mind.
28. The first thing that strikes anyone who looks at the figures of clearances as against the total value of realisations, it is more than 10 times the actual realisations, worked out from the invoice and debit-notes. Can it be said, in view of these figures that the petitioner had collected additional charges on all its clearances and thus evaded excise duty
29. That the Department is proceeding on the hypothetical assumption that the petitioner must have undervalued the goods in respect of all clearances, is clearly brought out in its additional statement of objections and the differential duty is demanded on this basis.
30. On these admitted facts, in so far as additional duty demanded, a per D.7, the petitioner's allegation that the show cause notice is vague, and vexatious and the notice should be quashed even before the adjudication by the Collector, deserves to be upheld.
31. Coming to the other items in Annexure-D covered by Annexures-D1, D2 and D3, viz, the work sheets showing clearance without gate passes (Annexure D1), Suppressed production (Annexure D2) and stock shortage (Annexure D3), the aggregate of the differential duty comes to about Rs. 20 lakhs and more. The contention of the petitioner's is that there is overlapping while revaluing under these three-heads and the same figures are taken twice over under over under different headings, in the abstracts furnished by the Department. It is also submitted by Sri Sundara Swamy that this compilation of the figure is the result of lack of application of mind and it is demonstrable from the statement filed by the Department that it is impossible to arrive at any definite and precise number of bottles produced and not shown in RG I Register, clearance bottles shown in RG I Register but cleared without payment of duty, excess production detected from production slips seized and not taken into account. The argument of the petitioners is that having regard to huge quantities of bottles of various sizes produced every day and stocked at various places all over the factory premises before sorting out the sound bottles meant for clearance, it is impossible to conclude that all the bottles which are found in the factory premises on physical stock verification (even if the imaginative figure of over 30 lakhs of bottles given by the Department is to be accepted as true), that all the bottles had reached the stage of packing and delivery. It is also explained that the bottles after the production stage include seconds, rejects and defective bottles besides the usual breakages while handling. It is, therefore, argued with some emphasis that it was well nigh impossible for the Department to count all the bottles in the premises and take a total figure of 30,29,745 bottles for adopting the same as unaccounted or excess production cleared without payment of duty. It is therefore, vehemently argued by Sri Sundara Swamy that this Court should interfere at the stage of show cause notice for more than one reason and the same is to be struck down.
32. As regards items covered by Annexures-D4, D5 and D6 in Annexure-'D' the basis for arriving at the revised assessable value on the assumption of some discrepancies in the size of the bottles, is again challenged on the ground that there are no supporting documents for making the said additions.
33. So far as realisation by way of interest is concerned, the petitioners contention is that such a levy of interest on the consumers for the delayed payments is customary in the commercial field to charge interest for delayed payment and such recovery is only a collection of post sale interest, and that, therefore, it does not form part of the assessable value. It is also demonstrated from the debit notes raised for levy of interest, the interest is calculated at the end of each month on the delayed payment. It is also argued on this premise that the Department is not justified in making additions straightway taking the aggregate of all such collected.
34. The following decisions are relied upon behalf of the petitioners in support of this contention :-
(i) 1983 (14) E.L.T. 1896 (S.C.) (Union of India & Ors. v. Bombay Tyre International Ltd.)
The Supreme Court has laid down the principle in that case in the following words :-
'Para-49. .............
Now, the price of an article is related to its value (using this term in a general sense) and into that value how poured several components including those which have enriched its value and given to the article is marketability in the trade. Therefore, the expenses incurred on account of the several factors which have contributed to its value upto the date of sale, which apparently would be the date of delivery, are liable to be include.'
(ii) : 1987(27)ELT553(SC) . (Assistant Collector of Central Excise and Others v. Madras Rubber Factory Ltd. and Others) (See Paras 14 & 16).
It is reiterated by the Supreme Court in the said paragraphs that interest and expenses on sundry-debtors or interest on receivables is an expense subsequent to the date of sale and removal or delivery of goods, and they would be eligible for deduction. The contention of the assessee in that case was, that the interest was levied on account of the time factor between the time the goods were delivered and the monies were realised.
35. But it is brought to my notice by Sri Padmarajaiah, the learned Counsel for the respondents that the decision of the Supreme Court in M.R.F. case is recalled [1989 (41) E.L.T. 703], and the case is restored to be considered and reheard.
36. However, the fact remains that the Department, on the facts of the present case, has proposed to add a sum of Rs. 11 lakhs and odd, realised by way of interest, which cannot be permitted to be done since the controversy on this aspect is still at large before the Supreme Court.
37. One other new ground is sought to be introduced by the Collector in his additional statement of objections filed on 27-6-1989, that is, a sum of Rs. 26 lakhs represents the suppressed value of packing charges (it is not clear whether it has reference to packing materials). This addition represents the cost of packing materials and the invoices taken in fictitious names, according to the Department's case, which it was really the petitioner company which ordered, received and made payments for the same.
38. This addition is not one of the items referred to (in) the abstract of differential duty proposed to be added under various heads referred to in Annexure-D. Hence, this new ground should be rejected as an after thought and no allegation is shown to have been made in the show cause notice, either. Hence, I reject this new ground and the explanation put forward by the Department for rejection the same.
39. The next contention which required consideration is the criticism of the show cause notice itself read along with the statement of objections filed on behalf of the adjudicating authorities, the Collector. My attention is drawn to Paragraph 4 of the statement filed on behalf of respondent-1. The apprehension expressed by the petitioners is that the show cause notice and the statement made on behalf of the Collector are indicative of the basis or the prejudged conclusion as to what would be the inevitable and ultimate finding to be recorded by the Collector and no useful purpose would be served by participating in the adjudication proceedings.
40. Sri Sundara Swamy has cited the following decisions in support of this argument and also in support of his contention that this Court should interfere at the stage of show cause notice, on grounds of the notice being vague, issued as a result of non-application of mind and arbitrary, etc.
(i) : 1981(8)ELT389(Del) (Poona Bottling Co. Ltd. & Anr. v. Union of India and Others)
(ii) 1981 (8) E.L.T. 476 (Cal.) (Raghunandan Jalan v. Collector of Central Excise, West Bengal and Ors.)
(iii) 1985 (21) E.L.T. 655 (Kar.) (Union of India and Ors. v. I.T.C. Limited and Another)
(iv) : 1984(17)ELT319(Kar) (Mysore Acetate and Chemicals Co. Ltd. v. Assistant Collector, Central Excise, Mysore).
(v) 1981 (8) E.L.T. 565 (Mad.) (Madras Rubber Factory Ltd. v. Assistant Collector of Central Excise, Madras and Another).
(vi) 1989 (24) E.L.T. 23 (Kar.) (Alembic Glass Industries Limited v. Union of India and Others).
Reliance is also placed on the decision of the Supreme Court in :-
Calcutta Discount Co. Ltd. v. Income Tax Officer, Companies District I, Cal. : [1961]41ITR191(SC) . wherein, their Lordship have expressed the view that the Court can issue a writ to prevent unnecessary harassment in appropriate cases.
41. Both the parties have argued, at length, on the several items of additions proposed to be made as per the show cause notice and a lot of paper work is done by the learned Counsels appearing on both sides and very persuasive arguments were advanced in support of their respective contentions. I have myself spent considerable time over this case, having regard to the voluminous pleadings built up from time to time, and other materials and information produced by both sides, I have, therefore, considered in detail the arguments on each one of the items in some detail and have recorded my view on each of the items of under valuation. I agree with the contentions advanced by the learned Counsel for the petitioners on all other aspects of the challenge made to the show cause notice.
42. On a careful consideration of the pleadings, the arguments, and the decisions relied upon by the petitioners and on behalf of the respondent, I am of the opinion that this is a fit-case to interfere at the stage of show cause notice. The petitioners have succeed in making out a case that they should not be exposed to unnecessary harassment, and on the admitted facts on several items as demonstrated, the proposed adjudication would be without jurisdiction.
43. In the result, the writ petition is allowed in part, and the show cause notice in so far as it relates to the proposed additions to be made under the several heads and the demand made to pay the differential duty of Rs. 51,51,656-96ps., is quashed. Liberty is, however, reserved to the Department to issue a fresh show cause notice in the light of this order, and in accordance with law.
44. The challenges made as to the validity of the search, the order of seizure made pursuant to the warrants issued and the competency of the officers who issued warrant, and all the contentions touching the jurisdiction and validity up to stage of issue of show cause notices, is rejected.