2013 (3) TMI 233 - HC - Central Excise

Kattha (Catechu) excluding Gambier - Exemption - held that - Department cannot adopt discriminatory approach the manufactured goods from Gambier cannot be treated as Kattha (and exempt it from excise duty) at some places and at others as an excisable item. The Department has to adopt one standard; either it is treated as Kattha and a non-excisable item by the excise department or is not treated as Kattha consequently an excisable item there cannot be discrimination areawise. - matter remanded back. Search - reason to believe - held that - The reasons are there in the note of the Superintendent. They are relevant and were in existence prior to the order for the search. It is on their basis, the search was ordered by the empowered officer on 25-3-2003. Thereafter, some officials were authorised and search was conducted on 4-9-2003. However, the question is, should they be personally recorded by the empowered office? The order for conducting the search cannot be voided on the ground that the empowered officer has not personally recorded the reasons. Regarding search in respect of units not mentioned - intelligence report to cover the similar units within jurisdiction of other commissionerates. - held that - The search is a serious matter. There cannot be general order for search either the report should have indicated the names of such units and then agreed upon by the empowered officer, or the empowered officer should have indicated the same. The search conducted on M/s. N.K. Laminates and Brij Kattha Industries is valid; whereas the search conducted on Kanchan Udyog is illegal.

Issues Involved:
(i) Whether the goods manufactured by the petitioners are exempt from excise duty?
(ii) Whether there is any reason to believe for conducting the search?
(iii) Whether the reasons should be personally recorded by the empowered officer?
(iv) Whether the approval for search was to be obtained from the Director General, Central Excise Intelligence (DGCEI)?
(v) Whether there was no application of mind for ordering search?

Detailed Analysis:

1. Whether the goods manufactured by the petitioners are exempt from excise duty?

The petitioners claimed that their product, Kattha, manufactured from Gambier, is exempt from excise duty as per the exemption notification dated 10-2-1986, which was amended on 1-3-2003 to exclude Gambier. The Department disputed this claim, leading to searches and subsequent notices requiring the petitioners to register their product under chapter sub-heading 1301.10. The Court held that the question of excisability requires an investigation into facts, which cannot be addressed in writ jurisdiction. The Department must adopt a consistent approach nationwide regarding the treatment of Kattha manufactured from Gambier. The petitioners were directed to present their objections and evidence before the Department, which should consolidate the proceedings and decide the matter through a reasoned order.

2. Whether there is any reason to believe for conducting the search?

The Court confirmed that reasons to believe must exist and be relevant before a search is ordered. The Department produced records showing that doubts about the excisability of the petitioners' product existed even before the amendment of the exemption notification. A note by the Superintendent on 22-3-2003 cited multiple reasons, including clarifications from the Food and Adulteration Department and ISI specifications, indicating that the product from Gambier is not Kattha and is liable for excise duty. The empowered officer approved the search based on these reasons. The Court found the reasons to be relevant and existing prior to the search order.

3. Whether the reasons should be personally recorded by the empowered officer?

The petitioners argued, citing the Ramkishan case, that the empowered officer must personally record the reasons for the search. However, the Court distinguished this case from the Ramkishan case, noting that the latter dealt with the constitutionality of a different statute. The Court referred to the Gopikishan case, which held that the conditions of Section 165 CrPC do not apply to searches under the Customs Act, and by extension, the Excise Act. The Court concluded that it is sufficient for the empowered officer to approve the reasons recorded by another officer, provided there is evidence of application of mind.

4. Whether the approval for search was to be obtained from the DGCEI?

The petitioners contended that approval from the DGCEI was required for the search, as indicated in the Superintendent's note. The Court clarified that the note referred to informing the DGCEI to cover similar units nationwide, not for the search approval itself. The Court found no requirement for DGCEI approval for the search conducted by the Department.

5. Whether there was no application of mind for ordering search?

The petitioners argued that the search order was a general one without specific application to individual units. The Court found that the Superintendent's note named three specific units, and the empowered officer approved the search for these units. However, there was no specific approval for searching Kanchan Udyog. The Court held that the search of M/s. N.K. Laminates and Brij Kattha Industries was valid, but the search of Kanchan Udyog was illegal. The Department was directed to return the seized goods and documents of Kanchan Udyog, retaining photocopies for use in proceedings.

Conclusions:

(a) The reasons to conduct the search existed and were relevant.
(b) The empowered officer need not personally record the reasons but must approve them.
(c) The search of M/s. N.K. Laminates and Brij Kattha Industries was valid; the search of Kanchan Udyog was illegal.
(d) The Department must return the goods and documents seized from Kanchan Udyog but may keep photocopies.
(e) The petitioners should appear before the relevant officers to present their objections and evidence, and the Department should consolidate the cases and decide the excisability issue through a reasoned order.

The writ petitions were disposed of with these observations.

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