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TMI Blog2014 (5) TMI 1103X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioners. The concerned respondents shall forthwith, and in any case within two months from the date of receipt of a certified copy of this order, refund the penalty amount paid by and/or realized from the respective writ petitioners. - W.P. No. 20905 (W) of 2011 - - - Dated:- 8-5-2014 - Indira Banerjee, J. Shri Sudipto Sarkar, S.K. Bagaria, Sr. Advocates, P.K. Jhunjhunwala, Mrs. Mousumi Bhattacharya and Kishore Kuna, Advocates, for the Petitioner. Shri Rajarshee Bharadwaj and K.K. Maiti, Advocates, for the Respondent. JUDGMENT In this writ application the petitioner has challenged a Final Order No. F-282/CE/11-SC(KB), dated 23rd September, 2011, passed by the Customs and Excise Settlement Commission, Additional Bench, Kolkata, to the extent the same purports to levy penalty of ₹ 4 crores on the petitioner No. 1 and ₹ 5 lakhs each upon the petitioner Nos. 2, 3, 4 and 5 and also an appropriation order dated 2nd November, 2011 issued by the Commissioner of Central Excise, Customs and Service Tax, ordering appropriation of the amounts paid by the noticee as specified in the said order. 2. The petitioner-company, Vedanta Aluminium Limited, hereina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... na price as the base price. The successful bidder is supplied a certain quantity for a specific period at the price agreed on the basis of the tender. 10. The second method is the Global Spot Sale Tender price of NALCO for selling their surplus alumina on spot pricing method to whoever offers the highest price for the tender quantity. In this case the bidders have to guide the price of alumina, unlike the earlier case, which is based on current international price. 11. In respect of the quantities of alumina stock transferred by Vedanta to its own unit at Jharsuguda, the value was 110% of the cost of production and/or, in other words, the cost of production plus notional profit of 10% as required under Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, hereinafter referred to as the Valuation Rules. 12. In case of supply of alumina to BALCO, whether as conversion agent, or on direct sale basis, the valuation of alumina was not determined according to Rules 9 and 10 of the Valuation Rules. During the period from August, 2007 to November, 2008 the valuation was determined on the basis of the formula linked to the alumina price a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be selling the processed goods in the market, would include only the price or deemed price at which the processed fabrics would leave the processor s factory plus his profit. The Supreme Court made it clear that it was necessary to include the processor s expenses and charges plus processor s profit but it was not necessary to include the trader s profits, because those would be post-manufacturing profits. 17. It is the case of the petitioners that excise duty paid by Vedanta was available as Cenvat credit to the recipient units and the entire duty whether in respect of clearance to its own unit or in respect of clearance to BALCO was by debit of Cenvat credit balance. 18. The disputes in the instant case pertain to clearance of alumina for supply to BALCO. The department contended that for the clearance of goods to BALCO, Vedanta should have adopted the same mode of valuation as adopted for clearance of alumina to its own unit at Jharsuguda. 19. Mr. S.K. Bagaria, Senior Advocate, appearing on behalf of the petitioner emphatically argued that the entire excise duty paid by Vedanta on account of clearance to BALCO was available as Cenvat credit to BALCO. Mr. Bagaria submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from various other international sources along with the LME price trend during the period in question has been annexed to the petition as Annexure P-13 . 25. According to the petitioners, the entire quantity of alumina received by BALCO from Vedanta as also the alumina purchased by BALCO from other sources was used by BALCO for manufacture of aluminium and/or aluminium products which were later cleared on payment of appropriate duty of excise as leviable thereon. The petitioners have annexed a chart showing the total duty paid by BALCO on the alumina purchased, manufactured and cleared by them by utilizing alumina cleared by the petitioners as also alumina purchased elsewhere. The chart shows that BALCO was discharging substantial amount of duty through PLA in respect of the aluminium manufactured and cleared by BALCO. 26. The petitioners have contended that during the period in which the disputes arose, Vedanta was in the process of testing and commissioning its new alumina factory and hence there is no account of initial pre-operative expenses incurred. Vedanta was separately incurring losses as reflected in the Profit and Loss Account and Balance Sheets of the respective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se authorities of the methodology adopted by them for arriving at the valuation of the alumina cleared to BALCO. It was also pointed out that the entire excise duty was revenue neutral and that the duty paid by Vedanta was available as credit to BALCO. 34. Mr. Bagaria further submitted that the officials of Vedanta also explained the method followed for computing the value on goods, transferred to Vedanta s own unit at Jharsuguda, on which the duty was paid. 35. The department contended that for clearance of goods to BALCO on job work basis, Vedanta should have adopted the same valuation as adopted for clearance to its own unit at Jharsuguda. Thereupon Vedanta discharged further differential duty of ₹ 21,19,23,250/-, Education Cess of ₹ 42,38,465/- and Secondary Education Cess of ₹ 21,19,231/-. This differential duty was arrived at by Vedanta by taking into account the valuation at which duty was paid by Vedanta for clearance of alumina to its own unit at Jharsuguda. This differential duty was deposited by Vedanta on 31st July, 2010 by utilizing the Cenvat Credit Balance available with them. 36. Vedanta deposited interest of ₹ 5,80,95,354/- on 11th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w cause notice dated 11th October, 2010 alleging that Vedanta had resorted to under-valuation of alumina cleared to BALCO as conversion agent and on direct sales basis. In the show cause notice it is also alleged that alumina cleared by the applicants BALCO was required to be valued on the basis of cost of production plus 10 per cent in terms of Rule 9 read with Rule 8 of the Valuation Rules. It is alleged that without arriving at the correct cost of production, the value on which duty was paid by Vedanta for clearance of alumina to its own unit at Jharsuguda was taken as the basis for arriving at the cost of production. 43. By the show cause notice the department demanded differential duty of ₹ 66,64,19,436/- as detailed in Annexure D on total quantity of 5,43,603.133 MTs. of alumina cleared to BALCO as conversion agent during the period from August, 2007 to November, 2009 and on the quantity of 2,48,544,969 metric tonnes of alumina cleared to BALCO on direct sales basis from August, 2007 to July, 2010. In the show cause notice it was alleged that Vedanta had resorted to misdeclaration and wilful suppression of facts with intent to evade payment of duty. 44. The show c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed was not sold to or through BALCO, Vedanta was of the view that Rules 3, 9 or 10 of the Valuation Rules would not be applicable. 51. Mr. Bagaria submitted that commercial invoices for recovery of conversion price from BALCO was also private record in respect of which no information was required to be given to the departmental authorities. Moreover, through these commercial invoices, Vedanta was only recovering conversion charges plus the excise duty paid on the quantity of alumina cleared to BALCO. 52. Mr. Bagaria emphatically argued that during the entire period the total Cenvat credit lying unutilized and ran into crores of rupees at any point of time, as detected in the petition, which could have been utilized by Vedanta for discharging differential duty, if any, on the clearances made to BALCO. 53. Mr. Bagaria argued that even if Vedanta had adopted higher value for the clearances to BALCO, they could still have utilized the available credit and could have passed on the same to BALCO. 54. Mr. Bagaria further argued that, the fact that the method followed by Vedanta for arriving at the value of alumina cleared to BALCO was on the basis of the comparable price avail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e notice issued to the writ petitioners. 61. Mr. Sarkar further argued that the respondent No. 1 failed to appreciate that the entire base of the valuation adopted by the petitioners related to a question of interpretation of the Valuation Rules. Mr. Sarkar also emphatically argued that the entire duty was paid by utilization of Cenvat credit to BALCO. The Cenvat credit available being far in excess of the differential duty, there could not have been any mala fide intention on the part of the petitioner-company. 62. Mr. Sarkar argued that the manner in which the order impugned has been passed makes it clear that the Settlement Commission has not sufficiently applied its mind to the submissions made on behalf of the petitioners and the evidence on record. The impugned order is, therefore, arbitrary, discriminatory, and in breach of the rights of the petitioners under Articles 14, 19(1)(g), 265 and 300A of the Constitution of India. 63. Mr. Sarkar submitted that the very fact that Vedanta did not settle for negotiative price with BALCO or any other entity, but adopted the internationally accepted quoted price of London Metal Exchange in itself shows the bona fides of the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and shall also become liable to the imposition of any penalty under this Act to which such person would have been liable had no such immunity been granted. 66. As submitted by Mr. Bagaria the Settlement Commission has power and discretion under Section 32K of the Central Excise Act, 1944 inter alia to grant immunity from penalty either wholly or in part. Exercise of such discretion is subject to the conditions laid down in [Section] 32K itself. The conditions are that the assessee should have cooperated with the Settlement Commission in the proceedings before it and the assessee should have made a full and true disclosure of its duty liability. Mr. Bagaria rightly submitted that the twin conditions for exercise of discretion under Section 32K of the Central Excise Act, 1944 were fully satisfied. 67. The Settlement Commission duly recorded that Vedanta had made a true and full disclosure of its duty liability and had co-operated fully with the Commission during the settlement proceedings. There was, therefore, no reason for the Settlement Commission to decline the exercise of discretion conferred upon it under Section 32K to grant full immunity to the petitioners from penal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Commission was final, Mr. Bharadwaj cited Jyotendrasinhji v. S.I. Tripathi and Ors. reported in 1993 Supp (3) SCC 389. However, in the aforesaid case the Supreme Court held that the finality clause contained in Section 245-I of the Income-tax Act did not and could not bar the jurisdiction of the High Court under Article 226 of the Constitution of India or the jurisdiction of the Supreme Court under Article 32 or under Article 136 of the Constitution of India as the case might be. The Supreme Court, however, observed that the petitioner should have first approached the High Court under Article 226 and then come up in appeal under Article 136. 74. The respondents also objected to the territorial jurisdiction of this Court to entertain the writ petition. Mr. Bharadwaj submitted that only because the Eastern Zonal Bench of the Settlement Commission sits at Calcutta and the order of the Settlement Commission was passed from Calcutta, the writ petition could not be entertained by this High Court. In support of his submission Mr. Bharadwaj cited the judgment of the Bombay High Court in Sun Pharmaceuticals Ltd. v. Union of India Ors. reported in 2007 (218) E.L.T. 495 (Bom.) and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) International Auto Ltd. v. CCE reported in 2005 (183) E.L.T. 239 (S.C.); (iii) CCE v. Narayan Polyplast Ltd. reported in 2005 (179) E.L.T. 20 (S.C.); (iv) CCE v. Narmada Chematur Pharma reported in 2005 (179) E.L.T. 276 (S.C.); (v) CCE v. Textile Corporation reported in 2008 (231) E.L.T. 195 (S.C.). 79. The petitioners have cited several instances where an assessee in similar circumstances as the petitioners have been granted full immunity from penalty. The petitioners cited the instances of Nasa Continental Exporters Ltd. reported in 2007 (216) E.L.T. 471; Kitex Garments Ltd. reported in 2007 (212) E.L.T. 254; Kakatiya Textiles Ltd. reported in 2007 (214) E.L.T. 583; Silicon Graphic Systems (I) Pvt. Ltd. reported in 2007 (210) E.L.T. 289; Chandra Industries reported in 2004 (177) E.L.T. 775; Springfeel Polyurethane Foams Ltd. reported in 2007 (220) E.L.T. 622; Platirum Exports reported in 2003 (160) E.L.T. 779. 80. As argued by Mr. Bagaria, discretionary power of the Settlement Commission was required to be exercised in a consistent manner and not arbitrarily. The proposition finds support from the judgment of the Supreme Court in Vishnu Trader ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that the petitioner had deliberately suppressed the value of alumina supplied to BALCO with intent to evade duty, without at all considering or dealing with the question of how in a revenue neutral situation, where excess Cenvat credit was available, it could be said that there had been suppression to evade duty. 86. As observed above, an order of the Settlement Commission is amenable to judicial review as held by the Supreme Court in Jyotendrasinghji v. S.I. Tripathi (supra). The Court might in exercise of its power of judicial review under Article 226 of the Constitution of India to set aside that part of the decision of the Settlement Commission which is illegal, unconstitutional or in violation of the principles of natural justice. 87. In CIT, Calcutta v. Paharphur Cooling Towers Pvt. Ltd. reported in (1996) 8 SCC 154 the Supreme Court set aside the order of the Settlement Commission under the Income-tax Act, only to the extent that the Settlement Commission had dropped the penalty proceedings relating to the Assessment Years in question and to the extent the Settlement Commission had waived the penalties for the said Assessment Years. 88. It is true that ordinarily ..... X X X X Extracts X X X X X X X X Extracts X X X X
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