2010 (4) TMI 304 - HC - Central Excise

Related party - Demand and recovery Held that - there is no material to show that the profits of both the Companies were shared by the family members of the petitioner and M/s. Dagger International.- there is no material to show that the profits of both the Companies were shared by the family members of the petitioner and M/s. Dagger International. - The price should be unreasonably low to conclude that the two Bodies are related. In the instant case, even the show cause notice did not make out such an allegation. A related person must be a person who is so associated with the assessee that they have interest directly or indirectly in the business of each other. But, unfortunately, the respondents could not establish that the petitioner and M/s. Dagger International are related persons. - the show cause notice issued by the respondents is bad in law. There is violation of principles of natural justice in issuing the show cause notice and taking the subsequent proceedings by the respondents. The petitioner and M/s. Dagger International are found not to be related persons.

Issues Involved:
1. Time-barred show cause notice
2. Allegations not contained in the show cause notice
3. Violation of principles of natural justice
4. Relationship between petitioner and M/s. Dagger International
5. Jurisdiction of High Court under Article 226
6. Alternative remedy under Section 35-L of the Central Excise Act, 1944

Detailed Analysis:

1. Time-barred Show Cause Notice:
The petitioner contended that the show cause notice issued by the first respondent was time-barred as it was sent after the one-year period prescribed in law. The court found that the show cause notice, issued on 19.5.2000 demanding duty for the transaction during the period 1995-2000, did not substantiate the charge of suppression. No averment was made in the show cause notice that there was contravention of relevant provisions with the intention to avoid payment of excise duty. The court held that essential ingredients of the proviso under section 11A of the Central Excise Act, 1944, were not present to justify the invocation of the extended period of limitation.

2. Allegations Not Contained in the Show Cause Notice:
The court observed that the second respondent referred to additional grounds not found in the show cause notice issued to the petitioner. The petitioner is bound to answer only the grounds alleged in the show cause notice. Introduction of additional grounds after the issuance of the show cause notice was against the principles of natural justice. The second respondent's decision was based on these additional grounds, which the petitioner had no opportunity to counter.

3. Violation of Principles of Natural Justice:
The court found that the second respondent introduced new grounds during the appeal process without affording the petitioner an opportunity to respond. This constituted a violation of the principles of natural justice. The petitioner was not given an opportunity to answer and explain the additional grounds raised by the second respondent.

4. Relationship Between Petitioner and M/s. Dagger International:
The court analyzed whether M/s. Dagger International, run by the husband of the Proprietrix of the petitioner, was a 'related person'. It concluded that there was no mutuality of interest between the petitioner and M/s. Dagger International. The two entities were found to be separate and distinct, with no financial flow or backup from one to another. The court held that the petitioner and M/s. Dagger International are not related persons.

5. Jurisdiction of High Court Under Article 226:
The court addressed the argument that its power of judicial review under Article 226 of the Constitution of India is limited. It held that while the High Court does not act as a court of appeal, it has the power to weigh the materials on record to test whether the order under challenge is perverse. The court emphasized that it has jurisdiction to correct jurisdictional errors committed by the Tribunal while exercising its power.

6. Alternative Remedy Under Section 35-L of the Central Excise Act, 1944:
The respondents argued that the final order passed by the second respondent is subject to appeal before the Supreme Court under section 35-L of the Central Excise Act, 1944. The court found that the issues involved in the present case did not relate to the rate of duty of excise or the value of goods for the purpose of assessment. Therefore, section 35-L was not applicable. The court also noted that, even if an appeal remedy was available, the writ court has jurisdiction to deal with the matter when violation of principles of natural justice is alleged. The court held that dismissing the writ petition on the ground of alternative remedy after entertaining it for about seven years was not justified.

Conclusion:
The court quashed the entire impugned proceedings of the respondents, allowed the writ petition, and closed the connected Miscellaneous Petitions. There was no order as to costs.

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