2010 (10) TMI 310 - HC - Central Excise

Clandestine removal - Rule 12CC to the Central Excise Rules 2002 - Search and seizure - the evasion of duty alleged is not more than Rs. 2.87 lacs and on such an admitted case the provision for preventive action could not be invoked in view of monetary limit of Rs. 10 lacs of alleged evasion - This being the settled legal position mere fact that a provision was made for a preventive action cannot be held to be arbitrary or beyond the scope of the Statute - Normal principle of law is that the authority which takes a decision should itself give a hearing and even if such procedure is deviated from the authority hearing must consider the view point of the affected parties with regard to recommendations made to it which implies that the adverse material which is made foundation of the order is confronted to the affected parties - Petition is allowed

Summary

Issues:
Quashing of notification adding Rule 12CC to Central Excise Rules, 2002 and withdrawal of excise duty facility and Cenvat Credit utilization.

Analysis:
The petitioner sought the quashing of a notification adding Rule 12CC to the Central Excise Rules, 2002, and an order withdrawing the facility of paying excise duty on a monthly basis and stopping the utilization of Cenvat Credit. The petitioner was alleged to have engaged in evasion of Central Excise Duty through clandestine manufacture of goods, leading to a search and subsequent Show Cause Notices. The petitioner challenged the validity of Rule 12CC, arguing that it conferred arbitrary power and violated principles of natural justice. The petitioner contended that the preventive action taken was excessive and lacked guidelines for its exercise. The respondents defended the rule and actions as necessary to deter evasion, especially in cases of significant evasion exceeding Rs. 10 lacs. The Court considered the admitted evasion amount, which did not meet the threshold for preventive action under Rule 12CC, and concluded that the impugned order was unjustified. The Court emphasized the importance of fair procedure in exercising penal powers, ensuring a proportionate response to the fault, and the need for compliance with principles of natural justice.

The Court noted that the impugned rule and action were not justified based on the admitted evasion amount, leading to the quashing of the order. Despite the unnecessary nature of further analysis, the Court delved into the validity and scope of Rule 12CC. Referring to a previous judgment, the Court highlighted that preventive actions could act as a deterrent against tax evasion, provided they were within the monetary limits and complied with natural justice principles. The Court emphasized that any taxing power inherently carried the power to penalize tax evasion, including preventive actions, as long as they followed a fair and reasonable procedure. The Court stressed the importance of giving a hearing, considering the defense, and ensuring proportionality in the action taken. The Court also discussed the procedural aspects of decision-making, emphasizing the need for affected parties to be heard and adverse material to be confronted to them. Ultimately, the Court allowed the petition and quashed the impugned order, Annexure P-8.