2016 (9) TMI 984 - HC - Central Excise

Validity of order directing special audit - Section 14AA of the Central Excise Act, 1944 - breach of principles of natural justice - petitioner was not afforded any opportunity of hearing - non-specification of any ground that the petitioner has availed of duty credit or utilised cenvat credit beyond the normal limits - Held that - Section 14AA of the said Act empowers the Principal Commissioner or the Commissioner of Central Excise to have the accounts of a manufacturer audited by a cost accountant or a chartered accountant nominated by them in the event he finds any of the grounds enumerated therein to be satisfied. As the impugned order stands, the Commissioner has not specified the materials on the basis of which he has formed the opinion that the petitioner has availed of duty credit or utilised cenvat credit beyond the normal limits having regards to the nature and quantity of finished goods manufactured and cleared. The Commissioner has not discussed the nature of finished goods manufactured and cleared by the petitioner. The Commissioner has not discussed of the quantum of the duty credit or utilised cenvat credit by the manufacturer. The foundational basis for the assumption of jurisdiction by the Commissioner under Section 14AA of the said Act has not been stated in the impugned order. Therefore, the impugned order is unreasoned. Section 14AA of the said Act does not contemplate that the assessee is entitled to a right of hearing before a decision is taken thereunder. By applying the ratio of decision of Hon ble Supreme Court in the case of Sahara India (firm) vs. Commissioner of Income-Tax & Another 2008 (4) TMI 4 - Supreme Court and more particularly when Section 14AA of the said Act entails civil consequences and where such section does not specifically debar the application of the principles of natural justice, the authorities are, therefore, required to afford a reasonable opportunity of hearing to an assessee before a decision is arrived at under such section. In the present case, it does not appear from the materials made available on record that the authorities have afforded the petitioner an opportunity of hearing prior to the issuance of the impugned order. Therefore, the impugned order is set aside. - Appeal disposed of

Summary

Issues involved:
1. Breach of principles of natural justice in passing an order under Section 14AA of the Central Excise Act, 1944.
2. Lack of reasoning in the impugned order under Section 14AA.
3. Requirement of affording an opportunity of hearing to the petitioner under Section 14AA.
4. Interpretation of the principles of natural justice in statutory provisions entailing civil consequences.

Detailed Analysis:
1. The petitioner challenged an order passed under Section 14AA of the Central Excise Act, 1944, alleging a breach of natural justice principles and lack of reasoning in the order. The petitioner contended that the impugned order was passed without granting an opportunity of hearing, which is mandatory when civil consequences are involved. The impugned order failed to specify the grounds forming the opinion that the petitioner exceeded duty credit limits, rendering it unreasoned.

2. Section 14AA empowers the authorities to audit a manufacturer's accounts if duty credit utilization exceeds normal limits. The impugned order did not detail the basis for the Commissioner's opinion on the petitioner's duty credit utilization. It lacked discussion on the nature of goods manufactured, quantity produced, or the extent of duty credit utilized. The order did not establish the foundational basis for invoking Section 14AA, leading to it being deemed unreasoned.

3. The petitioner argued that despite Section 14AA not explicitly requiring a right to a hearing, the principles of natural justice must be followed when civil consequences are at stake. Citing the Sahara India case, it was emphasized that where a statutory decision impacts civil rights and lacks a specific bar on natural justice principles, a right to a hearing should be implied. As the petitioner was not given a hearing before the impugned order, it was deemed procedurally flawed.

4. Following the principles outlined in Sahara India, the court held that Section 14AA of the Act, entailing civil consequences, necessitates affording a reasonable opportunity of hearing to the assessee. As the authorities did not provide the petitioner with a hearing before issuing the impugned order, it was set aside. However, the order clarified that this decision did not prevent the authorities from proceeding lawfully under Section 14AA against the petitioner in the future.

In conclusion, the High Court of Calcutta found in favor of the petitioner due to the failure to adhere to natural justice principles and the lack of reasoning in the impugned order under Section 14AA of the Central Excise Act, 1944. The judgment underscores the importance of affording a fair hearing when civil consequences are involved, even if not explicitly mandated by the statute.