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Commr. of C. Ex., Cus. & S.T., Bharuch v/s Shree Krishna Industries

    Tax Appeal No. 548 of 2015, 516 & 549 of 201

    Decided On, 10 March 2016

    At, High Court of Gujarat At Ahmedabad

    By, THE HONOURABLE MS. JUSTICE HARSHA DEVANI & THE HONOURABLE MR. JUSTICE G.R. UDHWANI

    For the Appellant: R.J. Oza, SSC. For the Respondent: Devan Parikh, Senior Advocate with Harshal M. Shah, Advocate.



Judgment Text

Harsha Devani, J. (Oral)

1. All these appeals arise out of a common impugned order of the Customs, Excise and Service Tax Appellate Tribunal, West Zonal Bench at Ahmedabad (hereinafter referred to as "the Tribunal") dated 9th January, 2015, under the circumstances, the same were taken up for hearing together.

2. Mr. R.J. Oza, Senior Advocate, learned senior standing counsel for the appellant addressed the Court on the merits of the appeals at length with reference to the findings recorded by the Tribunal as well as by the lower appellate authorities.

3. Mr. Devan Parikh, Senior Advocate, learned counsel appearing on behalf of the respondent, at this belated stage, raised a preliminary objection to the maintainability of the appeals on the ground that the controversy involved in the present cases involves the determination of a question having relation to the rate of duty of excise or to the value of goods for the purposes of assessment and hence, in view of the provisions of Section 35G of the Central Excise Act, 1944 (hereinafter referred to as "the Act"), this Court does not have the jurisdiction to entertain these appeals.

4. Since the question of maintainability touches the very jurisdiction of this Court to entertain the appeals, even though raised at a belated stage, such question would be required to be addressed at the outset.

5. Mr. Parikh submitted that in the present case, the controversy relates to the entitlement of the respondent-assessee to the benefit of the exemption Notification No. 8/2002-C.E., dated 1st March, 2002. It was pointed out that it is the case of the appellant that there are clandestine clearances which exceed the limit provided for availing of the benefit under the exemption notification and hence, the respondent is not entitled to the benefit of the said notification to the extent the clearances exceed the exemption limit. It was submitted that another aspect of the matter is that it is the case of the appellant that the respondent has two units namely, the Vadu factory and the Jambusar factory, and that the clearances are split and unaccounted removals have been made and that if the clearances are clubbed together, the respondent is not entitled to exemption. It was contended that any issue with regard to rate of duty can be one of fact or law. Any issue which leads to the levy of additional duty or which renders clearances dutiable is necessarily a question having relation to the rate of duty and it might not be necessary to restrict the interpretation of a notification or tariff. It was submitted that various High Courts have taken a view in the context of factual aspects and even if a view is taken that it is a case of clandestine removal, if the issue is one of availment of an exemption notification, it is a question relating to the rate of duty.

5.1 In support of his submissions, the learned counsel placed reliance upon the decision of the Andhra Pradesh High Court in the case of Sridhar Paints Co. Pvt. Ltd. v. Commr. of Cus. & C. Ex., Hyderabad-III, 2009 (246) E.L.T. 29 (A.P.), wherein the Court had considered the content

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s of the show cause notice issued in that case and had found that the second show cause notice also related to the question as to whether the company was entitled to claim the benefit of concessional rate of duty or not. The Court held that as per clause (b) of Section 35L of the Act, an appeal from any order passed by the Appellate Tribunal relating, among other things, to the determination of any question having a relation to the rate of duty of excise or to the value of goods for the purpose of assessment lies only to the Apex Court. The Court found that the decision of the adjudicating authority in that case related to the rate of duty of excise and also to the value of goods for the purpose of assessment and accordingly, held that the appeal would lie before the Supreme Court and not before the High Court.

5.2 The decision of the Punjab & Haryana High Court in Commissioner of Central Excise, Panchkula v. Special Machine, 2009 (242) E.L.T. 330 (P & H), was cited wherein the Court placed reliance upon its earlier decision wherein a similar controversy as to whether an assessee is covered by an exemption notification relating to rate of duty or not, came up for consideration before a Division Bench in the case of Commissioner of Central Excise, Ludhiana v. A.S.T. Paper Mills Ltd., 2008 (227) E.L.T. 189 (P & H) and the Division Bench discussed the matter in detail especially in the light of the judgment of the Supreme Court in the case of Navin Chemicals Manufacturing and Trading Company Limited v. Collector of Customs, 1993 (68) E.L.T. 3 (S.C.), and found that the question of law formulated by the Revenue in the said case referred to exemption under the Notification No. 175/86-C.E. as amended by other notifications relating to the rate of duty of excise. The Court found that the substantial questions of law raised in the appeals which were stated to arise from the order of the Tribunal related to determination of a question having relation to the rate of duty of excise and, therefore, was of the view that for determination of such a question, remedy lies to the Supreme Court under Section 35L of the Act.

5.3 Reliance was placed upon the decision of the Punjab & Haryana High Court in the case of Commissioner of Central Excise, Ludhiana v. AST Paper Mills Ltd. (supra) wherein the question before the Court was whether a plant which was entirely dependent on another unit for its operation having common power connection, common boiler, common storage for raw material, common water treatment plant, common entrance and sharing common financial status and when the capital goods were purchased in the name of the old unit who had also availed credit of duty paid thereon, can be treated as an independent factory for allowing the benefit of the exemption notifications referred to therein. An objection was raised to the maintainability of the appeal before the High Court under Section 35G of the Act as the issue raised was that the assessee was not entitled to the benefit of the exemption notification. The Court, after referring to the decision of the Supreme Court in the case of Navin Chemicals Manufacturing and Trading Co. Ltd. (supra), observed that it has been categorically held in that decision that the expression "determination of any question having relation to the rate of duty or to the value of goods for the purposes of assessment" used in the other part should be interpreted similarly. It was further observed that a dispute as to whether or not the assessee is covered by an exemption notification relates directly and proximately to the rate of duty applicable thereto for the purpose of assessment. The Court observed that in view of the above legal position, the substantial question raised in the appeal related to the determination of a question having relation to the rate of duty of excise and, therefore, for determination of such question, the appeal would not lie before the High Court but before the Supreme Court under Section 35L of the Act.

5.4 Reliance was placed upon the decision of the Allahabad High Court in the case of Commissioner, Customs and Central Excise, Commissionerate v. Eco Products (India) Pvt. Ltd., 2015 (315) E.L.T. 561, wherein one of the questions on which the appeal was filed was whether the water purifier manufactured by M/s. Eco Products (India) Pvt. Ltd. in the brand name of "AQUARIUS II" which was owned by M/s. Singer India Ltd., was not a branded goods in terms of the Notification No. 1/93-C.E., dated 28th February, 1993 and if it was so, whether exemption/concession to the said goods was available under the notification? The Court, after referring to various decisions in this regard, was of the view that since the question raised in the appeal relates to eligibility of the goods manufactured by the assessee for exemption under Notification No. 1/93-C.E., dated 28th February, 1993 and goods were manufactured without payment of duty and no assessment had taken place, the proceedings initiated under Section 11A were for determination of duty liability in which the eligibility of the said goods for exemption was disputed. The Court held that the question of exemption is directly and proximately related to the rate of duty for the purposes of assessment of excise duty payable by the respondent and, therefore, the appeal on the said question was clearly excluded under Section 35G and could be filed before the Apex Court under Section 35L of the Act. Reliance was also placed upon a decision of the Karnataka High Court reported in 2015 (319) E.L.T. A186, wherein the Revenue had preferred an appeal challenging the order of the Tribunal holding that denial of SSI exemption to the assessee was erroneous and granting the benefit of exemption. The Tribunal also proceeded to determine the rate of duty payable in respect of hammer assembly. The question involved in the appeal was whether the Tribunal was justified in extending the benefit of the notification granting exemption to the assessee and also adjudicating the rate of duty payable. The Court held that such question is to be adjudicated before the Supreme Court in an appeal under Section 35L of the Act and the High Court under Section 35G of the Act cannot go into the said question.

5.5 Reference was made to the decision of the Karnataka High Court in the case of Commissioner of Central Excise, Bangalore-II v. Bremels Rubber Industries Pvt. Ltd., 2011 (269) E.L.T. 45, wherein the order passed by the Tribunal holding that the confirmation of demand on clandestine removal of goods from the factory premises of the assessee does not hold any merit as there was no evidence before it to show that the goods which were alleged to have been clandestinely removed were in fact manufactured by the assessee in the absence of any flow of raw materials from the so called units from whom the purchases were recorded by the assessee. The Court was of the view that the substantial question was as to whether these goods were manufactured by the assessee and were excisable. According to the Court, the said questions fall within the phrase "among other grounds, for determination of rate of duty for value of goods" which the Apex Court alone is exclusively entitled to decide.

5.6 Reference was also made to the decision of the Karnataka High Court in the case of Commissioner of Central Excise v. Abinandan Petro Pack Pvt. Ltd., 2011 (267) E.L.T. 579, wherein the substantial question of law proposed was whether the Revenue was justified in demanding the duty on the ground of clandestine removal of goods. The Court held that the said determination to be done by the Court fell squarely within the phrase "among other things, to the determination of any question having a relation to the rate of duty of excise or to the value of goods for the purposes of assessment". The said question was outside the purview of an appeal to the High Court and fell squarely within Section 35L of the Act to be determined by the Apex Court. It was submitted that the said decision would be squarely applicable to the facts of the present cases.

5.7 The learned counsel also very fairly invited the attention of the Court to the decision of the Punjab & Haryana High Court in the case of Commissioner of Central Excise, Delhi-III v. Vee Gee Faucets Pvt. Ltd., 2015 (329) E.L.T. 76 (P & H), wherein the Court held that the issue in the said lis was regarding benefit of exemption under Notification No. 8/2001 available to an assessee, a small scale industry. It was not an issue relating to rate of duty or the value of goods, but only to the effect as to whether the assessee was entitled to exemption granted to a small scale industrial unit on the basis of trademark of another concern. The Court held that any decision thereon is relevant only inter-parties and has no wider ramification within the jurisdiction of the Court much less, in the country. Therefore, such localized dispute does not fall within the exception to Section 35G of the Act and thus, the High Court will have jurisdiction to entertain the appeal in respect of clandestine removal of goods claiming benefit of exemption as per Notification No. 8/2001. The learned counsel further drew the attention of the Court to the findings recorded by the Court in the above decision to point out that the earlier decisions of the Punjab & Haryana High Court taking a contrary view were not referred to nor dealt with therein.

5.8 The learned counsel further submitted that the notification in question provides that if the turnover is more than rupees one crore, the assessee is not entitled to the benefit thereof. It was submitted that even if it is a pure issue of fact, that if inter-party there lies an answer with regard to rate of duty and excisability of the goods, in effect and substance, the entire case relates to rate of duty if one of the questions relates to the rate of duty. It was submitted that as to whether clearances from Jambusar and Vadu units can be clubbed is a question relating to rate of duty. It was, accordingly, urged that the appeals deserve to be dismissed on the ground of maintainability alone and the appellant is required to be relegated to avail of the remedy before the Supreme Court under Section 35L of the Act.

6. On the other hand, Mr. R.J. Oza, learned senior standing counsel for the appellant, submitted that these are appeals under Section 35G of the Act. If the substantial question of law raised in the appeals does not relate to the rate of duty or value of goods, the High Court has the jurisdiction to entertain and decide the appeals. Reference was made to the common question proposed in all the appeals to point out that the said question does not in any manner relate to the determination of any question having relation to the rate of duty or value of goods. Referring to the show cause notice issued to the respondent, it was pointed out that there is no dispute regarding entitlement to the benefit of the exemption notification and that the question is whether the goods above the value prescribed in the notification which have been clandestinely cleared by the respondent are liable to duty. In support of his submission, the learned counsel placed reliance upon the decision of this High Court in the case of Ruchi Soya Industries Ltd. v. Union of India, 2014 (307) E.L.T. 852 (Guj.), wherein one of the questions was as to whether or not, the benefit of Notification No. 21/2002-Cus., dated 1st March, 2002 as amended could have been granted to the respondents, ignoring the test report of the Chemical Examiner and the Chief Chemist of the Government and relying upon the opinion of the private laboratory. The Court noted that as there was no dispute that if the total carotenoid oil (as beta carotene) is found to be in the range of 500-2500 mg./kg. in the very Palm Oil it attracts concessional rate of basic Customs duty of 65% and if the above requirement is not met, the Crude Palm Oil would be classified under Heading 151190.90 of the Customs Tariff Act attracting higher rate of Customs duty at 75%. Thus, as such there was no dispute with respect to rate of duty at all. The Court observed that the main issue was with respect to the percentage of carotenoid content in the imported goods viz., Crude Palm Oil. After considering the expression "determination of any question having relation to the rate of duty of Customs or to the value of goods for the purposes of assessment" as well as to the decision of the Supreme Court in the case of Navin Chemical Manufacturing and Trading Company Ltd. (supra) as well as the decision of the Supreme Court in the case of New India Assurance Company Limited v. M/s. Zuari Industries Limited, (2009) 9 SCC 70, the Court held that in the aforesaid facts and circumstances, it could not be said that the question involved in the appeals had a direct and proximate relationship to the rate of duty and value of goods for the purpose of assessment. The Court, accordingly, held that the appeals are maintainable before this Court. Mr. Oza submitted that the above decision of this Court is squarely applicable to the facts of the present cases, inasmuch as, one of the questions raised therein was as to whether the assessee is entitled to the benefit of the exemption notification.

7. For the purpose of appreciating the nature of the controversy in issue in the appeals, it would be necessary to refer to the question as proposed by the appellant, which is common in each of the appeals and reads thus :-

(a) Whether in the facts and circumstances of the case, the Tribunal has committed substantial error of law to set aside demand of duty, interest and imposition of penalty imposed on the respondent assessee on the ground that charges levelled against him are not proved, in ignorance of relevant material and evidence placed on record in the adjudication while confirming demand and proposal made in the show cause notice by the adjudicating authority?

The question raised, therefore, is whether the demand of duty, interest and penalty, have been rightly set aside on the ground that the charges levelled against the respondent assessee are not proved. A perusal of the show cause notice dated 17th November, 2004 issued to the respondent reveals that the charge levelled against the respondent is that the respondent is engaged in illicit manufacture and clandestine removal of Ceramic Glaze Fritz on which Central Excise duties were not paid by it. The case against the respondent is that out of the maximum production that was obtained on any day, the respondent had accounted for only a small portion of the production in its books of account, while majority of the production so obtained was deliberately kept unrecorded with an intent to clear the same without including its value in the aggregate clearance value prescribed under the exemption notifications issued for small scale units from time to time and thereby maintaining the clearance value within the exemption limit of Rs. 1 crore. In the aforesaid premises, it was alleged that the respondent had contravened Rule 9 of the Central Excise Rules, 2001 and Central Excise Rules, 2002 as it failed to obtain Central Excise Registration, though required to be taken and failed to calculate and discharge appropriate Central Excise duty payable on finished goods. The allegations relate to non-maintenance of account of stock of finished excisable goods manufactured and clandestinely removed by the respondent. It is the case of the appellant that the entire amount of sales for which invoices had been issued/chits prepared and recovered from the factories of the respondent situated at Vadu and Jambusar and recovered from other premises and the sale proceeds collected by way of cash/cheques/demand drafts against clandestine sale of illicitly removed ceramic glaze fritz shall be considered as constituting the amount of assessable value and appropriate duties of Central Excise are required to be recovered from the respondent. The aggregate clearances for both the units during the period 2002-03 and 2003-04 have been worked out at Rs. 2,44,07,713/- and Rs. 2,98,97,843/- respectively, which is more than Rs. 2,00,00,000/- (rupees two crores) and out of the same, the aggregate value of clearances of Rs. 1,00,00,000/- (rupees one crore) is exempted in terms of the notification and for the balance clearances out of the two units, Central Excise duties are recoverable. It was the case of the respondent before the Central Excise authorities that the goods manufactured by M/s. Associated Industries in the Vadu factory cannot be included in the clearance value of the respondent's factory at Jambusar.

8. As is evident from the record of the case, the adjudicating authority and the first appellate authority confirmed the demand raised in the show cause notice and these appeals arise out of the impugned order of the Tribunal. As can be seen from the impugned order, the Tribunal, upon appreciation of the evidence on record, has found that the charges of clandestine removal against the respondent do not stand proved and consequently, the clearances do not exceed the limit provided for availing of the benefit under the exemption notification and the respondent is, therefore, entitled to the benefit of SSI exemption for the year under consideration.

9. Section 35G of the Central Excise Act, 1944 makes provision for appeal to the High Court. Sub-section (1) of Section 35G which is relevant for the present purpose reads thus :

35G. Appeal to High Court. - (1) An appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal on or after the 1st day of July, 2003 (not being an order relating, among other things, to the determination of any question having a relation to the rate of duty of excise or to the value of goods for the purposes of assessment), if the High Court is satisfied that the case involves a substantial question of law.

Section 35L of the Act provides for appeal to Supreme Court. Sub-section (1) of Section 35L of the Act to the extent the same is relevant for the present purpose provides that an appeal shall lie to the Supreme Court from any order passed by the Appellate Tribunal relating, among other things, to the determination of any question having a relation to the rate of duty of excise or to the value of goods for purposes of assessment. Sub-section (2) thereof provides that for the purposes of that Chapter, the determination of any question having a relation to the rate of duty shall include the determination of taxability or excisability of goods for the purpose of assessment.

10. Thus, Section 35G of the Act expressly excludes orders passed by the Appellate Tribunal relating, among other things, to the determination of any question having a relation to the rate of duty of excise or to the value of goods for purposes of assessment. Correspondingly, Section 35L of the Act provides for appeal to the Supreme Court against an order passed by the Appellate Tribunal relating, among other things, to the determination of any question having a relation to the rate of duty of excise or to the value of goods for purposes of assessment. Thus, on the conjoint reading of Sections 35G and 35L of the Act, it is crystal clear that an appeal shall not lie before the High Court against an order passed by the Appellate Tribunal relating, among other things, to the determination of any question having a relation to the rate of duty of excise or to the value of goods for purposes of assessment.

11. The question that, therefore, arises is as to whether the controversy before the Tribunal relates to the determination of any question having a relation to the rate of duty or value of goods for the purposes of assessment. The lead decision in this regard is the decision of the Supreme Court in Navin Chemicals Manufacturing and Trading Company Ltd. v. Collector of Customs (supra) wherein it has been held thus :-

"6. It is, upon a plain reading of the section, clear that appeals against orders which involve 'determination of any question having a relation to the rate of duty of customs or to the value of goods for purposes of assessment' are specially treated and are required to be heard by a Special Bench. This is what sub-section (3) of Section 129C provides. Appeals in other matters are to be heard by a Bench consisting of one judicial member and one technical member, subject to the provisions of sub-section (4). Sub-section (4) carves out an exception to the general provisions of sub-section (2) and provides that a member of CEGAT sitting singly can hear appeals in the matters enumerated therein provided that they are not cases where the 'determination of any question having a relation to the rate of duty of customs or to the value of goods for purposes of assessment' is in question.

7. The controversy, therefore, relates to the meaning to be given to the expression 'determination of any question having a relation to the rate of duty of customs or to the value of goods for purposes of assessment'. It seems to us that the key lies in the words 'for purposes of assessment' therein. Where the appeal involves the determination of any question that has a relation to the rate of customs duty for the purposes of assessment that appeal must be heard by a Special Bench. Similarly, where the appeal involves the determination of any question that has a relation to the value of goods for the purposes of assessment, that appeal must be heard by a Special Bench. Cases that relate to the rate of customs duty for the purposes of assessment and which relate to the value of goods for the purposes of assessment are advised treated separately and placed before Special Benches for decision because they, more often than not, are of importance not only to the importers who are parties thereto but also to many other importers who import or propose to import the same or similar goods. Since the decisions of CEGAT in such matters would have wide application they are, by the terms of the statute, to be rendered by Special Benches. The phrase 'relation to' is, ordinarily, of wide import but, in the context of its use in the said expression in Section 129C, it must be read as meaning a direct and proximate relationship to the rate of duty and to the value of goods for the purposes of assessment."

Thus, the Court has held that the phrase "relating to" is ordinarily of wide import but in the context of its use in Section 129C of the Customs Act, it must be read as meaning a direct and proximate relationship to the rate of duty and to the value of goods for the purpose of assessment. The Court also observed that cases that relate to the rate of customs duty for the purpose of assessment and which relate to the value of goods for the purpose of assessment are advisably treated separately and placed before Special Benches for decision because, they, more often than not, are of importance not only to the importers who are parties thereto but also many other importers who import or propose to import the same or similar goods. Since the decision of CEGAT in such matters would have a wide application, they have, by the terms constituted, to be rendered by Special Benches.

12. From the principles propounded in the above decision what emerges is that for the purpose of falling within the ambit of the phrase "relation to" the controversy involved must have a direct and proximate relationship to the rate of duty and to the value of goods for the purpose of assessment and that the controversy must be such that the decision rendered thereon would have a wide application. The facts of the present case are required to be examined in the light of the above principles.

13. In the opinion of this Court, from the facts as appearing from the record, the controversy before the Tribunal did not relate to the determination of any question having a relation to the rate of duty or value of goods for the purposes of assessment. Under the relevant exemption notification, an SSI unit is not entitled to the benefit thereof for the clearances exceeding rupees one crore. The respondent being an SSI unit, its entitlement to the benefit of the exemption notification is not otherwise in dispute. The only question involved in this case is a pure question of fact as to whether the clearances made by the respondent for the period under consideration, in fact, exceeded the limit stipulated under the exemption notification or were within such limit.

14. The Central Excise Act is an Act relating to central duties of excise on goods manufactured or produced in certain parts of India. By its very nature, therefore, in any matter relating to Central Excise, it is but natural that the same would in some manner or other touch the question of Central Excise duty. However, what is taken out of the ambit of the jurisdiction of the High Court are orders relating, among other things, to the determination of any question having relation to the rate of duty of excise or to the value of goods for the purposes of assessment. In the facts of the present cases, the question involved does not relate to any issue as regards whether or not, the respondent is covered by the exemption notification, inasmuch as, it is an admitted position that the respondent is an SSI unit and entitled to the benefit of the exemption notification. Nonetheless, even a person like the respondent, who is covered by an exemption notification, is entitled to the benefit thereof only to the extent the clearances fall within the limits prescribed in the notification. The moment the clearances exceed the limit, to the extent the clearances exceed such limit, the respondent would not be entitled to the benefit of the exemption notification in respect thereof. The question as to whether or not in fact the clearances of the SSI unit are within the limit specified or have exceeded such limit cannot be placed on the pedestal of a question having a relation to the determination of the rate of duty or value of goods for the purposes of assessment as contemplated under Section 35G read with Section 35L of the Act. The question of law raised in the present appeals only relates to the correctness of the findings of fact recorded by the Tribunal and the applicability of such decision is limited to the present case and does not have any wide application and as such cannot be said to be relating, among other things, to the determination of any question having a relation to the rate of duty of excise or to the value of goods for purposes of assessment.

15. The learned counsel for the respondent has placed reliance upon decisions of various High Courts as referred to herein above. In Commissioner of Central Excise & Customs, v. AST Paper Mills (supra) on which reliance has been placed by the learned counsel for the respondent, it has been observed that a dispute as to whether or not the assessee is covered by exemption notification relates directly and proximately to the rate of duty applicable thereto for the purpose of assessment. In the facts of the present case, as discussed herein above, the question of applicability of the exemption notification does not arise, inasmuch as, it is not the case of the Revenue that the assessee is not entitled to the benefit of the exemption notification. At the cost of repetition, it is reiterated that the only question that arises for consideration in these appeals is as to whether the clearances made by the assessee for the period under consideration have exceeded the limit specified for being entitled to the exemption notification.

16. For the reasons recorded herein above, the Court does not find it necessary to discuss the other decisions on which reliance had been placed by the learned counsel for the respondent.

17. The upshot of the above discussion is that the controversy involved in the present cases does not relate to the determination of any question having a relation to the rate of duty or value of goods for the purposes of assessment, and as such, the appeals have rightly been filed before this Court under Section 35G of the Act. Accordingly, the preliminary objection to the maintainability of the petition is rejected.

18. S.O. to 16th March, 2016.

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