UNLESS THERE IS ASSESSMENT AND DEMAND THE AMOUNT DEPOSITED BY PETITIONERS CANNOT BE APPROPRIATED

[Mr. M. GOVINDARAJAN]

                        Central Excise Rules, 2002 provides for search and seizure Jurisdiction to conduct search or investigation and make demand of duty, though exist, the same has to be done by following reasonable procedure. The goods cannot be detained for a longer period. Without prima facie case continued detention of goods or imposition of such conditions makes release of goods impossible. Detaining goods for a long period cannot be held to be part of fair procedure.

                        The case law referred to in this article is 'Century Metal Recycling Private Limited V. Union of India' - [2009 -TMI - 32427 - PUNJAB AND HARYANA HIGH COURT]. In this case the petitioner firm is manufacturing Aluminium and zinc alloy ingots falling under Chapter heading Nos. 76 and 79 of the Central Excise Tariff Act, 1985. The raw material is mainly imported for which the custom duty is paid. The same is availed under CENVT Credit Rules against the liability to pay the excise duty on the finished product. A search was conducted at the factory of the petitioner firm which was followed by further search and for some other dates by Commissioner of Central Excise.

                        The petitioner requested the authorities to provide copies of the documents which were seized or to allow them to take photocopies of the same. During the search, the petitioners were informed that excess stock of raw material was found, for which the petitioners gave explanation. The petitioners sought provisional release of seized material against bond without bank guarantee, but the goods were not released..

                        The petitioners made a deposit of Rs.1,10,75,019/- under duress. The Department also seized dross, apart from raw material. Dross is not excisable and on that account not required to be entered in the record.

                        The petitioners filed this case before the High Court seeking to quash the search and seizure conducted by the Commissioner of Central Excise and for a direction to refund a sum of Rs.1,10,75,019/- deposited by the petitioners under the threat of arrest. The petitioners further prayed for the return of the records and not to take any coercive action or arrest or detention against the petitioners and his employees.

                        The petitioners submitted the following contentions before the Court:

§         The search was conducted without any reason;

§         The petitioners were forced to make the deposit even before the assessment;

§         Continued detention of goods by offering to release them on arbitrary conditions was illegal;

§         Reasons were required to be recorded for search as well as for seizure and the said reasons were required to be furnished to the petitioners;

§         Condition for provisional release of goods by requiring bond was applicable only to release of finished goods and demand of bank guarantee or cash security equal to 25% of the value of goods was unreasonable.

                        The Department submitted that the search and seizure were conducted on account of evasion of duty which was inferred from the following:

§         Received fake bills without actually receiving the material from its sister concern dealer namely M/s Grand Metal Industries, Delhi & Faridabad;

§         The removal of CENVATable inputs without reversing the credit;

§         Unaccountable sale of Dross, a bye product of aluminium ingot manufacturing;

§         Unaccounted diversion of finished goods and unaccounted use; and

§         Sale of other metals recovered from imported inputs;

§         It has been admitted that there was shortage of finished goods and that CENVAT credit has been taken wrongly;

§         Most of the copies of the documents were with the petitioners;

§         The petitioners were directed to furnish bond for value of seized goods with security of 25% of the face value byway of Fixed Deposit or bank guarantee;

§         The amount deposited by the petitioner is voluntarily against the duty which may arise during the course of assessment.

The department further submitted that the matter was being investigated and investigations would be completed within one month.

                        The High Court considered the following issues in this case:

Ø      Whether the search and seizure called for is valid?

Ø      Whether the petitioners were entitled to refund of the amount deposited?

Ø      Whether the conditions for provisional release of seized goods are valid?

The case of the petitioners is that the amount was deposited under coercion. The case of the department is that the same was deposited voluntarily. The Court held that whatever be the position, unless there is assessment and demand, the amount deposited by the petitioners cannot be appropriated. The department has not shown any justification for retaining the amount deposited, except saying that it was voluntarily deposited.  In view of this admitted position the Court held that the petitioners are entitled to get the refund of the amount deposited.

                        As regard the release of goods, the object of seizure admittedly is to ascertain facts and to safeguard the interest of the revenue against any possible evasion of duty. The goods cannot be detained for indefinite period pending investigation nor any harsh or unreasonable condition can be imposed for release thereof. There can also be no presumption that the goods will be forfeited. Question of securing against the value of goods can arise only if a clear prima facie case for confiscation is made out. Mere hypothetical existence of power or provision for forfeiture cannot be a ground to require security to be furnished for the value of goods which normally will be onerous condition.

                        In regard to omission to make entry of dress, the Hon'ble Supreme Court held that 'dross' was no result of manufacture.  The other ground for inference of evasion of duty is that the petitioner has shown low value addition to the cost of raw material while valuing the final product. This inference may be a ground to investigate the matter but not a ground to confiscate the goods. The court further held that the seizure took place almost three months earlier and no demand has so far been raised. In these circumstances, without making out a clear prima facie case, continued detention of goods or imposition of such conditions as make release of goods impossible, will be arbitrary. Even though, the Court held, that there may be jurisdiction to conduct search or investigation and make demand of duty, the same has to be done by following reasonable procedure. Detaining goods for a long period cannot be held to be part of fair procedure. There is nothing to show that any loss will be suffered by the revenue if the goods are released against undertaking of the petitioner to pay duty which may be found due as a result of investigation. It has not also been show that for release of raw material conditions of bond are applicable.

                        The court directed to return the amount deposited by the petitioners and release the goods on furnishing undertaking terms identical to the terms of bond under Rule 20 of Central Excise Rules without any bank guarantee or cash security. The petitioners will also be allowed to take copies of all the records which they may seek at their cost.