2016 (7) TMI 234 - HC - Central Excise

Waiver of pre-deposit - Demand of duty - clandestine removal of goods - Maintainability of writ petition - alternative appellant remedy - Despite there being an appellate remedy under Section 35B of the Act, the petitioners claim that the appeal would not be efficacious in view of the statutory pre-deposit that is required to be made and that, in any event, the challenge is primarily on the ground of the breach of the principles of natural justice. - Appellant had misrepresented himself before its customers as manufacturer. Held that - The object of the present exercise is not to dissect the order or tear it to shreds. The Commissioner has otherwise exercised his jurisdiction with consummate aplomb; except that he may have slipped on prejudice. It is only to point out that when a citizen is charged with having done something wrong and some material is provided by such citizen to disabuse the authority of its impression, such evidence has first to be discredited upon a cogent discussion thereon before the original suspicion of wrongdoing is exalted to a final finding. It is such exercise which has been missed in the impugned order. It is for such reason that the decision-making process cannot stand the scrutiny in this extraordinary jurisdiction of overall superintendence. That does not mean that these petitioners are paragons of virtue. It is evident from the material obtained by the department from respectable organisations, including government companies and private sector undertakings, that the petitioners held themselves out of as manufacturers of the electrical and transmission goods that the petitioners sold to such purchasers. It was incumbent on the Commissioner to have otherwise come to a cogent finding that the petitioners could be regarded as manufacturers within the meaning of the said Act and found liable to pay the duty. That the petitioners may have misrepresented to their purchasers as to their status may not have been the only relevant consideration for the Commissioner. However, to the extent it is evident from even the submission of the petitioners as recorded in the order impugned that the petitioners may have represented themselves as manufacturers to their purchasers, it is necessary that the petitioners be put on terms and required to make a deposit for the matter to be considered afresh by the concerned Commissioner. Petitioner directed to deposit a sum of ₹ 50 lakh (against the demand of ₹ 11 crore) with the department within four weeks from date. - Decided partly in favor of petitioner.

Issues Involved:
1. Propriety of the order holding petitioners as manufacturers under Section 2(f) of the Central Excise Act, 1944.
2. Alleged evasion of excise duty by the petitioners.
3. Breach of principles of natural justice in the impugned order.
4. Consideration of evidence and documents submitted by the petitioners.
5. Validity of the show-cause notices issued to the petitioners.
6. Requirement for the petitioners to deposit a sum for the matter to be reconsidered.

Issue-wise Detailed Analysis:

1. Propriety of the Order Holding Petitioners as Manufacturers:
The petitioners challenged the order dated December 22, 2015, which classified them as manufacturers under Section 2(f) of the Central Excise Act, 1944. The petitioners argued that their business activities did not constitute manufacturing, as they either procured goods from suppliers or had them manufactured on a job-work basis. The court noted that for a person to be held as a manufacturer, there must be a manufacturing facility, which was not conclusively established in this case.

2. Alleged Evasion of Excise Duty:
The petitioners were accused of evading excise duty exceeding ? 11 crore. Several show-cause notices were issued for the period from February 2011 to March 2013 and subsequent periods up to the financial year 2014-15. The court scrutinized the evidence and found that the department's findings were based on incomplete assessments and did not consider all suppliers.

3. Breach of Principles of Natural Justice:
The petitioners claimed a breach of natural justice, arguing that the impugned order did not consider their detailed replies and supporting documents. The court emphasized that a meaningful hearing requires the consideration of evidence presented by the petitioners. It found that the Commissioner failed to appreciate the evidence, leading to a breach of natural justice.

4. Consideration of Evidence and Documents Submitted by Petitioners:
The petitioners presented evidence, including an internal report by the department and a private expert's report, indicating that their perceived manufacturing facility was not operational. The court noted that the Commissioner disregarded this evidence without proper discussion or discrediting it, which was a violation of natural justice principles.

5. Validity of Show-Cause Notices:
The court examined the show-cause notices, particularly the one dated February 21, 2014, which highlighted four suppliers as non-existent. The court found that the Commissioner did not consider other suppliers or the documents provided by the petitioners, leading to an incomplete and prejudiced conclusion.

6. Requirement for Petitioners to Deposit a Sum:
The court allowed the petition, setting aside the impugned order, subject to the petitioners depositing ? 50 lakh with the department within four weeks. This deposit was deemed necessary for the matter to be reconsidered afresh by the Commissioner. The court instructed the Commissioner to pass a reasoned order within eight weeks after providing the petitioners a hearing.

Conclusion:
The court found that the Commissioner failed to consider the evidence presented by the petitioners, leading to a breach of natural justice. It set aside the impugned order, subject to the petitioners depositing ? 50 lakh, and directed the Commissioner to reconsider the matter afresh. The court's observations should not influence the fresh exercise or prejudice the petitioners. No costs were ordered, and urgent certified website copies were to be supplied upon compliance with requisite formalities.

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