2013 (1) TMI 331 - HC - Central Excise

Excise duty on Blank CDs/DVDs - movable and marketable commodity - assessee availing the benefit of exemption under Notification No.6/2006-CE dated 01.03.2006 in respect of pre-recorded audio CDs/DVDs/VCDs - assessee never disclosed the fact of manufacturing blank CDs/DVDs at intermediate stage thus deliberately suppressing the vital fact from the Department - Held that - Before a product can be classified as goods , it must be shown to be a complete product, having a commercial identity and capable of being sold to a consumer. And, all this must be established by the revenue as decided in Bata India Limited v. Commissioner of Central Excise, New Delhi 2010 (4) TMI 58 - SUPREME COURT - the twin tests of manufacture and marketability would have to be satisfied. As in the present case the petitioner has categorically stated that it does not manufacture any blank CD/DVD. It has supported this contention by an expert opinion of M/s Truth Labs. There is nothing on the part of the revenue to show that the petitioner does, in fact, manufacture blank CDs/DVDs. It was incumbent upon the revenue to have discharged its burden of establishing that the petitioner, in fact, manufactures blank CDs and DVDs. Mere surmises and conjectures on the part of the revenue would not lead to the revenue discharging this burden. There must be some material on record on which the revenue can rest its opinion. On the contrary, in the show cause notice, it is admitted that the CDs/DVDs do not come into existence separately. The same position has been accepted in the adjudication order dated 24.09.2010. Thus the conclusion of the Commissioner in the adjudication order that the petitioner manufactures blank CDs/DVDs is merely based on his own ipse dixit and is not supported by any material on record as wrongly held that liquefied polycarbonate is injected to the cavity of the moulds that create component discswhich cool and solidify and the pressed discs, after cooling, are captively used for data transfer from the stamper. This is not borne out by the facts and the manufacturing process. The stamping and the moulding takes place simultaneously. It is not as if, first, a blank disc is created and then it is stamped. The process is simultaneous. While liquefied polycarbonate solidifies, it is imprinted with data by the stamper. Therefore, at no stage does a blank CD/DVD come into existence also concluded by flowchart of process of manufacture as submitted by assessee - The very first test of manufacture is not satisfied no excise duty can be demanded for blank CDs/DVDs - in favour of assessee. Legal position with regard to the exercise of writ jurisdiction in a matter such as this - Held that - Existence of an alternative remedy does not constitute a bar against the exercise of jurisdiction under Article 226 and, in certain cases, it is open to the High Court to exercise that jurisdiction. In fact, in Calcutta Discount Company (1960 (11) TMI 8 - SUPREME COURT), the Constitution Bench has gone sofar as to state that when the Constitution confers on the High Court the power to give relief, it becomes the duty of the court to give such relief and that the existence of an alternative remedy is not always a sufficient reason for refusing a party quick relief by way of a writ. Not forgetting the circumstances in which the show cause notice was issued to the petitioner & the previous history of the petitioner having got two officers of the revenue arrested on charges of bribery this is a fit case for exercise of jurisdiction under Article 226 of the Constitution despite the fact that the petitioner has an alternative remedy.

Issues Involved:
1. Legality of the Show Cause Notices.
2. Validity of the Adjudication Order.
3. Allegations of Vendetta.
4. Manufacture and Marketability of Blank CDs/DVDs.
5. Jurisdiction of High Court under Article 226.

Issue-wise Detailed Analysis:

1. Legality of the Show Cause Notices:
The petitioner challenged the show cause notices dated 05.11.2009 and 23.09.2011, alleging that they were issued as a vendetta following a bribery complaint against two officials. The notices demanded Central Excise duty on blank CDs/DVDs, which allegedly came into existence during the manufacturing process of pre-recorded audio CDs/VCDs/DVDs. The petitioner argued that no blank CDs/DVDs were manufactured at any stage, and thus, no excise duty was applicable.

2. Validity of the Adjudication Order:
The adjudication order dated 24.09.2010 confirmed the demand for Central Excise duty on the basis that blank CDs/DVDs were manufactured at an intermediate stage and were captively consumed. The petitioner contended that the adjudication order was based on mere conjectures and lacked any material evidence to prove the existence of blank CDs/DVDs. The court noted that the revenue failed to discharge its burden of proof regarding the manufacture and marketability of blank CDs/DVDs.

3. Allegations of Vendetta:
The petitioner claimed that the show cause notice was issued as a vendetta because the petitioner had filed a bribery complaint against two officials of the respondents. The court observed that the issuance of the show cause notice shortly after the bribery incident indicated a possible vendetta.

4. Manufacture and Marketability of Blank CDs/DVDs:
The petitioner argued that it did not manufacture blank CDs/DVDs and provided an expert opinion from M/s Truth Labs, which supported this claim. The court examined the manufacturing process and concluded that at no point did blank CDs/DVDs come into existence. The court emphasized that for an article to be subjected to Central Excise duty, it must pass the twin tests of manufacture and marketability, which were not satisfied in this case.

5. Jurisdiction of High Court under Article 226:
The respondents argued that the petitioner should exhaust the alternative remedy of appeal under the Central Excise Act. However, the court held that the existence of an alternative remedy does not bar the High Court from exercising its jurisdiction under Article 226, especially when the show cause notice and adjudication order are wholly without basis. The court cited several Supreme Court decisions to support this position, emphasizing that the rule of exhaustion of alternative remedies is a matter of prudence, not compulsion.

Conclusion:
The court quashed the show cause notices dated 05.11.2009 and 23.09.2011 and the adjudication order dated 24.09.2010, holding that the petitioner did not manufacture blank CDs/DVDs and thus was not liable for Central Excise duty. The court also exercised its jurisdiction under Article 226, deeming the alternative remedy not equally efficacious in the factual backdrop of the case. The writ petitions were allowed, and the parties were directed to bear their own costs.

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