2016 (6) TMI 769 - HC - Central Excise

Estimation of substantial shortage of goods through visual joint stock verification - accurate verification of the stock was not conducted - Anomaly in the show cause notice - Held that - There is no doubt that in course of the joint verification of the stock at the petitioner s manufacturing facility conducted on September 22-23, 2015 substantial shortage of goods was discovered. However, such discovery has not culminated in any adjudication finding the petitioner guilty of actually evading duty. The demand raised by the authorities has been promised to be paid by the petitioner, though only a third of the amount may have been tendered by now. The petitioner only knows that stock shortage was discovered in course of the raid in September, 2015, but the petitioner is not aware of any other misgivings that the authorities may harbour against the petitioner. Since the opportunity afforded to the petitioner appears to have been a meaningless exercise without the petitioner being confronted with the material against the petitioner as may have been contained in the proposal forwarded by the Durgapur Commissionerate to the Chief Commissioner, the order impugned dated March 15, 2016 cannot be sustained. Accordingly, such order is liable to be set aside. However, since it is evident that the petitioner has not tendered payment of the entire sum of ₹ 1,50,05,658/- pursuant to the joint stock verification conducted in September, 2015, the order of March 15, 2016 will remain unconditionally stayed till the close of working hours of April 5, 2016 and, thereafter, the same will stand set aside, subject to the entire balance payment in respect of the above amount having been tendered by the petitioner to the respondent authorities. Matter remanded back.

Issues:
1. Lack of disclosure of proposal and allegations against the petitioner.
2. Alleged shortage of goods and demand of excise duty.
3. Notice issued by Chief Commissioner and subsequent order.
4. Compliance with the notification of March 21, 2014.
5. Lack of meaningful representation and material confrontation with the petitioner.
6. Setting aside the impugned order and stay on payment.
7. Entitlement to issue a fresh notice and constitutionality challenge.

1. Lack of disclosure of proposal and allegations against the petitioner:
The petitioner raised concerns regarding an order made by the Chief Commissioner without providing a copy of the proposal forwarded by the Durgapur Commissionerate. The petitioner was not informed of the allegations against them contained in the proposal, leading to a lack of transparency in the process.

2. Alleged shortage of goods and demand of excise duty:
Following a raid at the petitioner's manufacturing facility, a substantial shortage of goods was visually estimated, leading to a demand of excise duty amounting to ?1,50,05,658. The petitioner did not object to the payment under the condition that it would be subject to adjudication regarding the shortage of goods.

3. Notice issued by Chief Commissioner and subsequent order:
A notice was issued to the petitioner in November 2015, requiring them to show cause regarding the allegations. The petitioner responded in February 2016, highlighting the lack of access to the Durgapur Commissionerate's proposal. Subsequently, an order was passed based on the allegations without providing the petitioner an opportunity to inspect the proposal.

4. Compliance with the notification of March 21, 2014:
The notification allows the Chief Commissioner to examine proposals for forming a reasonable belief of contravention by an individual, with the requirement of affording an opportunity of hearing before passing an order. The petitioner argued that they were not given a fair chance to respond to the allegations.

5. Lack of meaningful representation and material confrontation with the petitioner:
The petitioner was not provided with the contents of the Durgapur Commissionerate's proposal or the allegations against them during the hearing. This lack of disclosure hindered the petitioner's ability to make a meaningful representation and defend against the accusations.

6. Setting aside the impugned order and stay on payment:
The court found fault with the order dated March 15, 2016, for considering prejudicial matters without informing the petitioner. The order was set aside, with a stay on payment until the petitioner tenders the entire due amount by a specified date.

7. Entitlement to issue a fresh notice and constitutionality challenge:
While the impugned order was set aside, the Chief Commissioner was granted the right to issue a fresh notice, provided that the petitioner is made aware of the material against them contained in any report or proposal relied upon. The constitutionality challenge of the notification of March 21, 2014 was left open for future consideration.

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