2015 (10) TMI 1921 - HC - Central Excise

Abatement of duty - manufacturing activity of Pan Masala - Demand of duty without following the procedure - Lack of Jurisdiction - alternative statutory remedy - Held that - In the facts of the present case, the writ petition has been filed alleging violation of the principles of natural justice as well as on the ground that the impugned communications are wholly without jurisdiction. Under the circumstances, the existence of an alternative remedy would not preclude this court from entertaining the present petition having regard to the facts and circumstances of the case and the reliefs prayed for in the present petition. On a bare perusal of the communications / letters, it is apparent that prior to issuance thereof, no inquiry whatsoever has been carried out by the Deputy Commissioner of Central Excise as envisaged under sub-rule (2) of rule 6 of the Pan Masala Rules and that the impugned communications are based solely upon the instructions of the Additional Director, DGCEI, Delhi. Clearly therefore, the impugned communications are violative of the provisions of sub-rule (2) of rule 6 of the Pan Masala Rules, inasmuch as, the Annual Production Capacity of the petitioner s factory has been determined without following the procedure as provided under those rules. In case the duty paid by the petitioners for the months of March 2015 to June 2015 was short-paid, the respondent authorities were required to resort to the provisions of section 11A of the Central Excise Act and without following the procedure as prescribed thereunder, could not have sought to recover the differential rate of duty by the impugned communications. In fact, the impugned communications do not refer to any provision of law under which the same have been issued. Whereas the subject under which the impugned communications have been issued is fixation of Annual Production Capacity of the Pouch Packing Machines, by the impugned communications, the petitioner has been called upon to pay the differential duty with interest for the months of March 2015 to June 2015. Evidently, therefore, the impugned communications suffer from various infirmities, inasmuch as, the same are in breach of the principles of natural justice as no opportunity of hearing has been given to the petitioner prior to revising the Annual Production Capacity of the petitioner; due procedure as prescribed under sub-rule (2) of rule 6 of the Pan Masala Rules has not been followed for the purpose of re-determining the Annual Production Capacity of the petitioner s Pouch Packing Machines; the procedure as prescribed under section 11A of the Central Excise Act has not been followed while seeking to recover the differential amount of duty by the impugned communications. Under the circumstances, the impugned communications being contrary to the provisions of law, as well as being in breach of the principles of natural justice, cannot be sustained. - Decided in favour of assessee.

Issues Involved:
1. Breach of principles of natural justice.
2. Non-compliance with statutory procedures.
3. Jurisdictional errors.
4. Recovery of differential duty without following due process.

Detailed Analysis:

1. Breach of Principles of Natural Justice:
The petitioner argued that the Annual Production Capacity of the Pouch Packing Machines was fixed in the third slab without affording any opportunity of hearing, thus violating the principles of natural justice. The court noted that the impugned communications were issued without any inquiry or verification post-March 2015, and without giving the petitioner any opportunity to be heard. This was a clear violation of the principles of natural justice.

2. Non-compliance with Statutory Procedures:
The petitioner contended that the impugned directions were issued in noncompliance with the mandatory procedure prescribed under the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008. The court observed that the Deputy Commissioner of Central Excise revised the Annual Production Capacity based solely on a communication from the Additional Director, DGCEI, without conducting any physical verification or inquiry as required under sub-rule (2) of rule 6 of the Pan Masala Rules. This non-compliance rendered the impugned communications violative of the statutory provisions.

3. Jurisdictional Errors:
The petitioner claimed that the assessment and determination of duty payable is a quasi-judicial function and should be made objectively. The court highlighted that the impugned communications were issued based on the instructions of the DGCEI authorities without any independent inquiry by the Deputy Commissioner of Central Excise. This overreach by the DGCEI authorities without proper jurisdictional basis was deemed unauthorized and without jurisdiction.

4. Recovery of Differential Duty Without Following Due Process:
The petitioner argued that the differential duty was sought to be recovered without following the due procedure of law as per section 11A of the Central Excise Act, which mandates a show-cause notice and an opportunity of hearing. The court noted that the impugned communications directed the petitioner to pay the differential duty for the months of March to June 2015 without following the procedure under section 11A. This procedural lapse invalidated the recovery process.

Conclusion:
The court concluded that the impugned communications were in breach of the principles of natural justice, non-compliant with statutory procedures, issued without proper jurisdiction, and sought to recover differential duty without following due process. Consequently, the impugned communications were quashed and set aside. However, the court allowed the respondents to re-determine the Annual Production Capacity and take appropriate action under section 11A of the Central Excise Act and sub-rule (2) of rule 6 of the Pan Masala Rules, if justified. The petition was allowed with no order as to costs.

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