2024 (11) TMI 125 - HC - Central Excise

Clandestine manufacture and its clearance - Recovery of Central Excise Duty along with interest and penalty as well as for appropriation of the amount deposited by the petitioner during the investigation against differential duty payable - suppression of facts and misrepresentation by the petitioner - adjudicating authority did not consider the reply submitted by the petitioner while passing the impugned order as no reference to the materials placed by the petitioner by way of the reply has been referred to in the impute order - assessment period is covered by earlier orders passed by the co-ordinate authorities - Principles of natural justice - principles of res-judicata. HELD THAT - A careful perusal of the order of the first appellate authority reveals that the core issue before the appellate authority was the capacity of production of the concerned machine. The appellate authority, on the basis of the materials available for the authority, concluded that the capacity of the machine was 301-750 pouches per minute and which was a finding recorded by the adjudicating authority for the earlier periods. The subsequent order passed by the adjudicating authority vide order dated 27.11.2015, whereby the capacity of the machine was found to be above 751 pouches minute was held to be not based on correct information/evidence. The questions which are raised in the present petition are essentially questions of facts based on the records and the evidences available before the Departmental authorities. There is no dispute that for several periods earlier the petitioner filed in the proper form the speed of the packing machines and which was duly approved by the adjudicating authority. The first appellate authority by its order dated 30.08.2016 interfered with the order passed on 27.11.2015 by the adjudicating authority holding the same to be not based on the evidences/the records available. There is clear finding that there was no element of suppression or misrepresentation as could be inferred from the records available - The findings of fact arrived at by the first appellate authority as seen from the order dated 30.08.2016 has not yet been interfered with by a still higher authority, namely the second appellate authority as prescribed in the statute, namely the CESTAT, Kolkata before which the appeal being appeal No. E/7689/2016-EX (DB) preferred by the respondent authority is presently stated to be pending. Therefore, the findings arrived by the first appellate authority are binding on the adjudicating authority and the adjudicating authority is duty bound in law to maintain the judicial discipline and accept the findings of the first appellate authority unless the same are interfered with by a still higher authority and/or an appropriate judicial forum. Such is not the position as on date and which is not in dispute. In ABDUL KUDDUS VERSUS UNION OF INDIA (UOI) AND ORS. 2019 (5) TMI 1856 - SUPREME COURT , the Apex Court while examining the orders passed by collateral quasi- judicial bodies held that where a judicial or a quasi judicial tribunal gives a finding on law or fact, its findings cannot be impeached collaterally or in a second round and are binding until reversed in appeal by way of writ proceedings. The characteristic attitude of the judicial act or a decision is that it binds, whether right or wrong. Thus, any error either of fact on law committed by such bodies cannot be controverted otherwise than by way of an appeal or a writ unless the erroneous determination relates to the jurisdictional matter of that body. The Act and power of judicial review vested with the constitutional courts provide sufficient safeguards, in the present context. Mere submissions by the counsel appearing for the respondents without supporting facts and materials before the Court cannot be accepted to arrive at a conclusion that the reply filed by the petitioner was suitably considered by the respondent authority. Under such circumstances, prime facie, it appears that the impugned order passed by the Principal Commissioner was passed in violation of the basic principles of natural justice as the reply filed by the petitioner was not found to have been duly considered by the respondent authority upon careful perusal of the impugned order. In COMMISSIONER OF CUSTOMS, KANDLA VERSUS M/S. ABM INTERNATIONAL LTD. ANR. 2015 (8) TMI 1118 - SC ORDER on the question of principle of res judicata, the Apex Court held that it is not in dispute that the first round of litigation, the matter had come up to this Court and was decided in favour of the respondent assessee. While dismissing the appeal of the Revenue, considering the facts of this case, no doubt this Court left the question of law open. However, that could not be a ground to reopen the case of the Revenue. The Apex Court is therefore of the opinion that the Customs, Excise and Service Tax Appellate Tribunal has rightly applied the principle of res judicata. The first Appellate authority namely the Commissioner (Appeals) on the basis of the materials and records available with the department returned a clear finding on facts that there was no willful or deliberate suppression of material or information. The Commissioner (Appeals) returned a finding that there were amply opportunity prescribed under the provisions available to the adjudicating authority to make necessary enquiries including physical verification before approval of the declaration and which was admittedly not done by the adjudicating authority. The Commissioner (Appeals) recorded a categorical finding that there were no records/evidences of clandestine removal of finished products by the petitioner during the period from June 2015 to October 2015 to show any mala fide intention on their part and any such reasoning given by the adjudicating authority was not supported by facts - the very foundation on the basis of which the show cause notice and the enquiry proceeded against the petitioner under Section 11A of the Central Excise Act ceases to exist. Such action by the department will amount to invocation and/or usurpation of jurisdiction when the circumstances clearly indicate that the departmental authorities ought not to have invoked its jurisdiction under Section 11A of the Central Excise Act. This Court having arrived at a conclusion that until the findings of fact in the Commissioner (Appeals) in its order are not interfered with by a higher statutory forum or an appropriate Court of law, this finding of fact cannot be ignored by the departmental authorities and consequently the invocation of jurisdiction under Section 11A in the absence of any deliberate or willful suppression or mis-statement of facts by the petitioner, no proceedings can be initiated under Section 11A as have been sought to be done. This Court is of the view that the writ petitioner cannot be non-suited on the ground of availability of alternative remedy. This court is of the considered view that the alternative remedy prescribed under the statute will not be an efficacious and effective alternative remedy to the present petitioner in the attending facts and circumstances of the case. The submission of the respondents that the writ petitioner should be dismissed on the ground of alternative remedy cannot be accepted and is therefore rejected. Petition allowed.

Summary

Issues Involved:
1. Legality of the demand for recovery of Central Excise Duty, interest, and penalty.
2. Alleged suppression of facts and misrepresentation by the petitioner.
3. Applicability of the principle of res judicata.
4. Compliance with principles of natural justice.
5. Validity of penalty imposed under the Central Excise Rules.

Issue-Wise Analysis:

1. Legality of the Demand for Recovery of Central Excise Duty, Interest, and Penalty:
The writ petitions challenge the order-in-original issued by the Principal Commissioner demanding recovery of Central Excise Duty, interest, and penalty under Section 11A of the Central Excise Act, 1944. The petitioner argued that the demand was based on incorrect assumptions about the production capacity of the packing machines, which had been previously determined and accepted by the authorities. The appellate authority had earlier concluded that the duty determination was incorrect due to lack of proper enquiry and evidence, and this finding was pending appeal before the CESTAT, Kolkata. The court found that the Principal Commissioner's order was in violation of judicial discipline, as it contradicted the findings of the appellate authority without being overturned by a higher judicial forum.

2. Alleged Suppression of Facts and Misrepresentation by the Petitioner:
The department alleged that the petitioner had suppressed facts and misrepresented the speed of the packing machines to evade duty. However, the appellate authority had found no evidence of suppression or misrepresentation, and this finding was not challenged by the department. The court held that the invocation of Section 11A was unjustified as the department failed to establish deliberate suppression or misstatement by the petitioner. The court reiterated that suppression under Section 11A requires a deliberate act to evade duty, which was not proven in this case.

3. Applicability of the Principle of Res Judicata:
The petitioner argued that the principle of res judicata applied, as the issues had been previously decided by the appellate authority and were pending appeal. The court agreed, stating that the findings of the appellate authority were binding unless overturned by a higher authority. The court emphasized that reopening the case on the same facts and materials was contrary to the principle of res judicata and judicial discipline.

4. Compliance with Principles of Natural Justice:
The petitioner contended that the impugned order was passed without considering their detailed reply, violating principles of natural justice. The court noted that the impugned order lacked reference to the petitioner's submissions, indicating a failure to consider relevant materials. The court held that such omission amounted to a violation of natural justice, warranting interference with the order.

5. Validity of Penalty Imposed Under the Central Excise Rules:
The penalty imposed on the petitioner was challenged as being mechanical and without a finding of mens rea or guilty intention. The court held that penalty proceedings are quasi-criminal in nature and require a finding of deliberate intent to evade duty. The court found that the penalty was imposed without establishing such intent, rendering it invalid. The court cited precedents emphasizing the need for a deliberate act or mens rea for penalty imposition.

Conclusion:
The court set aside the impugned order dated 24.03.2022, quashing the demand for recovery of duty, interest, and penalty. The court allowed the adjustment of the amount deposited by the petitioner against future duties. The writ petitions were allowed, with no order as to costs.