2010 (11) TMI 98 - HC - Central Excise

Penalty - For evasion of Duty - Payment of excise duty by utilization of CENVAT Credit as provided under rule 3(4) of the CENVAT Credit Rules, 2004, is ordered to be stopped with effect from 27.8.10 to 28.2.11. During this period, they are required to pay excise duty without utilizing CENVAT Credit. - Held that - As regards the validity of the impugned provisions, the matter has been considered by this Court on 5.10.2010 in CWP No. 16796 of 2010 (M/s Saviton Metplast (P) Ltd. v. Union of India and others), wherein it was held that legislature power to levy tax included incidental power to check evasion. Whether or not existing provisions for recovery of duty, interest and penalty were sufficient to deal with the evasion was a matter which normally could not be interfered with in exercise of power of judicial review. However for exercise of such a drastic power just, fair and reasonable procedure was the requirement of Article 21 of the Constitution which includes compliance with natural justice unless such requirement is expressly or impliedly excluded. It was further held that the power to take decision was conferred on the representative of the Board without providing any opportunity or consideration of view point of the assessee. In absence of express exclusion, it was held that there was no ground to impliedly exclude opportunity of hearing to the assessee before adverse recommendation by the Chief Commissioner was accepted. To make such opportunity meaningful, a copy of the recommendation of the Chief Commissioner is required to be furnished to the assessee. The writ petition is disposed of accordingly

Issues:
1. Challenge to notification inserting new rules in Central Excise and Cenvat Credit Rules.
2. Allegations of evasion and misuse of facilities under the Rules.
3. Validity of impugned provisions restricting facilities.
4. Compliance with natural justice and opportunity of hearing.
5. Consideration of view point of the petitioner by the Board.
6. Relief to be granted in the case.

Analysis:

1. The petition challenged the notification inserting Rule 12CC in Central Excise Rules, 2002, Rule 12AA in Cenvat Credit Rules, 2004, and the procedure for action under these rules. The petitioner, a manufacturer, objected to the restrictions imposed on monthly payment of excise duty, utilization of CENVAT Credit, and other provisions for duty collection. These restrictions were based on allegations of duty evasion and misuse of facilities provided by the Rules.

2. The petitioner was accused of availing Cenvat Credit without actual receipt and use of inputs in the manufacturing process. A show cause notice was issued for recovery of duty with interest and penalty. Simultaneously, the Chief Commissioner proposed action under the impugned rules, leading to the order by the Member of the Board imposing restrictions on the petitioner.

3. The High Court previously held that the legislature's power to levy tax includes measures to prevent tax evasion. The impugned rules were deemed valid, but it was emphasized that fair procedure, including an opportunity for a hearing, is essential under Article 21 of the Constitution. The Court highlighted the importance of providing the affected party with a copy of any adverse recommendation for a meaningful opportunity to respond.

4. In this case, the Board made its decision without considering the petitioner's viewpoint or providing a copy of the Chief Commissioner's recommendation. As a result, the petitioner was deprived of an effective opportunity to challenge the findings. The Court ruled in favor of the petitioner, emphasizing the need for a fair hearing and compliance with natural justice principles.

5. The Court rejected the suggestion to file a review petition, as there was no provision for it. Instead, the Board was directed to reconsider the matter after allowing the petitioner to provide comments on the Chief Commissioner's recommendation. The petitioner was given a week to submit comments, following which a fresh order was to be passed within two weeks by the Member of the Board.

6. The relief granted involved the Board passing a fresh order after considering the petitioner's viewpoint, ensuring compliance with natural justice and providing a fair opportunity to respond. The impugned order would cease to operate if a new order was not passed within two weeks of receiving the petitioner's comments. The status quo was to be maintained until the fresh order was issued, ensuring a fair and just resolution to the dispute.

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