2000 (5) TMI 47 - HC - Central Excise

Summary

Issues Involved:
1. Validity of show cause notices issued to the petitioner.
2. Determination of excise duty liability under the Central Excise Act.
3. Legitimacy of the lease agreement between Suzuki Processors and PGO Processors.
4. Status of PGO Processors as an 'independent processor' under Notification No. 36 of 1998.
5. Jurisdiction and procedure for revocation of registration under Rule 174(11) of the Central Excise Rules.
6. Allegations of tax evasion through colorable devices.

Detailed Analysis:

1. Validity of Show Cause Notices:
The petitioner challenged multiple show cause notices issued by the Commissioner and Assistant Commissioner of Central Excise. The notices aimed to determine and raise excise duty liability from 3rd June 1997 onwards, excluding a specific period. The petitioner contended that the notices lacked jurisdiction and necessary ingredients for revocation or suspension of registration under Rule 174(11).

2. Determination of Excise Duty Liability:
The court examined the basis for determining excise duty, referencing the Supreme Court's decision in Ujagar Prints case, which clarified that the duty should be based on the manufacturing cost, job work value, and manufacturing profit, excluding post-manufacturing profits. The court noted that the excise duty was initially paid by PGO Processors based on this principle until a search led to a shift in the basis for determining duty.

3. Legitimacy of Lease Agreement:
The petitioner claimed that the processing section was leased to PGO Processors, making PGO liable for excise duty. The court noted that the lease agreement's validity was questioned in the show cause notices, alleging it was a sham transaction intended to evade duty. The court emphasized that the real nature of the transaction needed to be established through proper adjudication.

4. Status of PGO Processors as an 'Independent Processor':
PGO Processors sought benefits under Notification No. 36 of 1998, claiming to be an 'independent processor.' The court ruled that as long as PGO's registration under Rule 174 was valid, it should be treated as an independent processor. The court directed the respondents to allow clearance of excisable goods provisionally under the notification until a final decision was made.

5. Jurisdiction and Procedure for Revocation of Registration:
The court highlighted that the respondents had issued show cause notices for cancellation of PGO's registration but had not yet revoked or suspended it. The court stated that until the registration was formally revoked following due process, PGO should be recognized as a distinct and separate manufacturer.

6. Allegations of Tax Evasion through Colorable Devices:
The court discussed the principles of tax avoidance and the legitimacy of tax planning. It emphasized that while tax planning within the framework of law is permissible, colorable devices designed solely for tax evasion are not. The court noted that the show cause notices aimed to investigate whether the lease agreement was a colorable device to evade excise duty.

Conclusion:
The court dismissed the petition, allowing the continuation of proceedings under the show cause notices. It emphasized that the respondents must adhere to due process and provide adequate opportunities for the petitioner to defend itself. The court also noted that no recovery of the proposed levy would be enforced until the adjudication of the show cause notices was complete.