w w w . L a w y e r S e r v i c e s . i n



Surya Alloy Industries Limited & Another v/s Union of India & Another


Company & Directors' Information:- SURYA ALLOY INDUSTRIES LIMITED [Active] CIN = U27104WB1990PLC050102

Company & Directors' Information:- SURYA INDUSTRIES PRIVATE LIMITED [Active] CIN = U17120GJ2008PTC053221

Company & Directors' Information:- THE INDIA COMPANY PRIVATE LIMITED [Active] CIN = U74999TN1919PTC000911

Company & Directors' Information:- M. P. ALLOY PRIVATE LIMITED [Strike Off] CIN = U28111UP1995PTC018405

Company & Directors' Information:- INDIA CORPORATION PRIVATE LIMITED [Active] CIN = U65990MH1941PTC003461

Company & Directors' Information:- B D K ALLOY PRIVATE LIMITED [Amalgamated] CIN = U27106KA1973PTC002355

Company & Directors' Information:- ALLOY INDUSTRIES PVT LTD [Strike Off] CIN = U51420WB1957PTC023457

    W.P. 32331 (W) of 2013 (Appellate Side)

    Decided On, 31 January 2014

    At, High Court of Judicature at Calcutta

    By, THE HONOURABLE MR. JUSTICE HARISH TANDON

    For the Petitioner: P.S. Sengupta, Shyamal Sarkar, Rajesh Gupta, Rajshree Kajaria, Advocates. For the Respondents: P.K. Roy, K.K. Maiti, Advocates.



Judgment Text

The subject matter of challenge in this writ petition is the show cause notice, dated 30th April 2013, issued by the Commissioner, Central Excise, Bolpur, against the petitioner alleging evasion of Central Excise Duty on clandestine clearance of the goods without recording the productions in the Daily Stock Account Register.

The show cause notice was issued after incriminating documents, recovered during search and seizure, showing discrepancies; leading to suspicion of clandestine clearance of the goods from the factory of the petitioner without payment of the excise duty.

According to the department, a pen drive was recovered from the factory premises of the petitioner containing data/information relating to production of the M.S. Billet between the periods 1.7.2009 to 14.1.2010 which did not tally with the Daily Stock Account Register maintained in the factory. Perusing those data/records suggest that excess production was made for which excise duty is not paid. The authorities, thereafter, made extensive investigation and recorded the statement of the person authorised to maintain those accounts and subsequently, issued the show cause notice. The petitioner appeared before the authority, as directed in the said show cause notice, and asked for supply of certain documents. Subsequently challenge to the show cause notice is made in this writ petition.

At the time of moving this writ petition, the petitioner demonstrated before this Court that the entire basis of the show cause is on assumption and presumption and there is no corroborative evidence produced justifying the alleged clandestine removal of the goods. This Court, therefore, admitted the writ petition and allowed the parties to exchange affidavits, which have been filed by the respective parties.

Mr. Sengupta, the learned advocate for the petitioner, at the outset submits that ordinarily a writ Court does not interfere against issuance of a show cause notice unless the same, ex facie or on the basis of the facts, does not disclose the offence, alleged to have been committed; show cause notice is otherwise without jurisdiction; suffers from incurable infirmity; is contrary to the judicial decisions or decisions of the Tribunal and lack of material justifying issuance of the show cause notice.

In support of the above, reliance is placed upon a judgment of this Court in the case of Indian Cardboard Industries Limited -vs- Collector of Central Excise, reported in 1992 (58) E.L.T. 508 (Cal).

Mr. Sengupta further submits that the purported show cause notice is liable to be quashed and set aside as it is issued contrary to the judicial decisions or the decisions of the Tribunals and lacks material particulars justifying issuance thereof.

Mr. Sengupta further submits that the show cause notice lacks material particulars relating to the alleged clandestine manufacturing and its clandestine clearance; which is one of the vital ingredients, as held by the Tribunal in the cases of R.A. Castings Private Limited -vs- Commissioner of Central Excise, Meerut-I, reported in 2009 (237) E.L.T. 674, and Vishwa Traders Private Limited -vs- Commissioner of Central Excise, Vadodara, reported in 2012 (278) E.L.T. 362.

Mr. Sengupta further submits that the judgment of the Tribunal, rendered in the case of Vishwa Traders Private Limited (supra), was challenged before the Gujarat High Court where the Division Bench refused to interfere with the findings recorded therein which logically infers that the ratio decided by the Tribunal in the said case was affirmed.

Mr. Sengupta strenuously argues that the show cause notice does not depict corroborative evidences relating to the purchase of raw material, sale of the finished goods as well as variance in the consumption of electricity which are some of the tests for proving clandestine removal of the goods, as held by the Tribunal in the cases of Gian Castings Limited -vs- Commissioner of Central Excise, Chandigarh, reported in 2007 (220) E.L.T. 139 and Rawalwasia Ispat Udyog Limited -vs- Commissioner of Central Excise, Delhi, reported in 2005 (186) E.L.T. 465.

On the point that the private note book maintained by a person containing unauthorized entries is not a dependable record for proving clandestine removal unless it is corroborated by other evidences, viz. consumption of raw material, manufacturing of goods and its clandestine sale and in support thereof reliance is placed upon a judgment of the Tribunal in the case of M.T.K. Gurusamy -vs- Commissioner of Central Excise, Madurai, reported in 2001 (130) E.L.T. 344.

Mr. Sengupta strenuously submits that the show cause notice is bereft of all such material and, therefore, is liable to be quashed and set aside, in exercise of the powerof judicial review under Article 226 of the Constitution of India.

Mr. Sengupta relies upon the provisions contained under Section 35A of the Central Excise Act, 1944 in support of his contention that presumption as to the genuineness of the contents in the documents can only be raised if the said person is jointly tried with the other person. To elaborate the same, he submits that it is alleged In the show cause notice that the said pen drive is recovered from Mr. Ansari who is not tried with the petitioner and, therefore, presumption cannot be raised under Section 35A of the said Act.

Lastly, it is submitted that the show cause notice is otherwise bad in view of the ratio laid down in the case of India Indian Cardboard Industries Limited (supra), and is, therefore, liable to be struck down.

Mr. Roy, the learned advocate appearing for the respondent authorities, submits that the extraordinary jurisdiction, under Article 226 of the Constitution of India, should not be exercised by the High Court where a challenge is made to a show cause notice as the authority has not adjudicated the issue and all the points, which the petitioner tried to take before this Court, can very well be taken in reply thereto and places reliance upon the judgment of the Allahabad High Court in the case of K.K. Kohawal -vs- Additional Collector of Central Excise, reported in 1993 (64) E.L.T. 182.

By placing reliance upon a judgment of the Supreme Court, rendered in the case of Geep Flashlight Industries Limited -vs- Union of India and Others, reported in AIR 1977 SC 456, Mr. Roy submits that no mandamus or certiorari could be issued against a notice which requires the parties to represent their case. It is strenuously submitted that Court should not undertake the onerous duty of adjudicating the questions which are required to be decided on merit by the authorities themselves and in support thereof reliance is placed upon the following judgments :

1. Assistant Collector of Central Excise, Chandan Nagar, West Bengal -vs- Dunlop India Limited & Others, reported in AIR 1985 SC 330.

2. Union of India -vs- Polar Marmo Agglomerates Limited, reported in 1997 (96) E.L.T. 21.

3. Union of India -vs- Hindustan Development Corporation Limited, reported in 1998 (100) E.L.T. 14.

4. Commissioner of Customs And Central Excise, -vs- Charminar Nonwovens Limited, reported in 2004 (167) E.L.T. 372.

5. State of Uttar Pradesh & Another -vs- Anil Kumar Ramesh Kumar Chandra Glass Works And Another, reported in (2005) 11 S.C.C. 451.

6. Standard Chartered Bank And Others -vs- Directorate of Enforcement And Others, reported in AIR 2006 SC 1301.

Having heard the respective submissions this Court feels that before proceeding to decide the other points, agitated before this Court, the scope of judicial review, against the show cause notice, is required to be dealt with first.

In the case of Geep Flashlight Industries Limited (supra) the matter relates to a classification dispute. According to the department, the consignment of manganese dioxide attracts levy of duty under Tariff Item 28 which, according to the petitioner, should be assessed under Tariff Item 26. The appellate authority affirms the order of the assessing authority but the said order was reversed by the revisional authority accepting the stand of the assessee and directed refund of the duty. The department issued a notice under Section 131(3) of the Customs Act, 1962 which provides for a suo motu revision. Challenge is made to the said notice on the plea that suo motu revision can only be exercised provided the provisions, contained under Section 131 (5) of the Act, are satisfied. A plea of limitation was also taken by the petitioner in the writ petition wherein challenge to the aforesaid notice is made. In the above perspective, it is held :

'22. Once the provisions contained in Section 131 (3) are attracted, the central Government may of its own motion annul or modify any order passed under Section 128 or Section 130. This provision is the power of Central Government to annul or modify any order. This power is exercised by the Central Government suo motu. Of course the power is to be exercised on giving notice to the person concerned.

23.The provisions contained in Section 131 (5) of the Act speak of limitation only with regard to non-levy or short-levy. It is significant that Section 131 (5) does not speak of any limitation in regard to revision by the Central Government of its own motion to annul or modify any order of erroneous refund of duty. The provisions contained in Section 131 (5) with regard to non-levy or short-levy cannot be equated with erroneous refund inasmuch as the three categories of errors in the levy are dealt with separately.

24. The appellant’s prayers for writs of certiorari and mandamus are misconceived. There is no order either judicial or quasi-judicial which can attract certiorari. No mandamus can go because there is nothing which is required to be done or for-borne under the Act. The issue of the notice in the present case requires the parties to re-present their case. There is no scope for mandamus to do any duty or act under the statute. W writ of prohibition cannot be issued for the obvious reason that he Central Government has jurisdiction to revise.'

In the case of Standard Chartered Bank (supra) it is held that ordinarily the Court should be reluctant to interfere with the show cause notice unless the notice is shown to have been issued apparently without any authority of law in these words :

'23. The prayer for the issue of a writ of prohibition restraining the authorities under the Act from proceeding with the adjudication and the prosecution is essentially based on the constitutional challenge to the relevant provisions of the Act on the ground that they violate Articles 14 and 21 of the Constitution of India. Once we have held, as the High Court did, that the provisions are constitutional, the basis on which the writ of prohibition is sought for by the appellants disappears. It is settled by the decisions of this Court that a writ of prohibition will issue to prevent a Tribunal or Authority from proceeding further when the Authority proceeds to act without or in excess of jurisdiction; proceeds to act in violation of the rules of natural justice; or proceeds to act under a law which is itself ultra vires or unconstitutional. Since the basis of the claim for the relief is found not to exist, the High Court rightly refused the prayer for the issue of a writ of prohibition restraining the Authorities from continuing the proceedings pursuant to the notices issued. As indicated by this Court in State of Uttar Pradesh v. Brahm Datt Sharma [(1987) 2 SCC 179] when a show cause notice is issued under statutory provision calling upon the person concerned to show cause, ordinarily that person must place his case before the Authority concerned by showing cause and the courts should be reluctant to interfere with the notice at that stage unless the notice is shown to have been issued palpably without any authority of law. On the facts of this case, it cannot be said that these notices are palpably without authority of law. In that situation, the appellants cannot successfully challenge the refusal by the High Court of the writs of prohibition prayed for by them.'

In the case of Commissioner of Customs And Central Excise, Madurai -vs- Charminar (supra) dispute involved therein was a classification dispute and challenge was made to a show cause notice wherein it is held that the High Court should remit the matter to the concerned authority for adjudication. However, in the case of Anil Kumar Ramesh Kumar Chandra Glass Works (supra) the Apex Court carved out an exception that if the facts, narrated in the show cause notice, are not accepted to be correct; if it can be demonstrated that offence is not disclosed; or the show cause notice is without jurisdiction, the Court should not entertain the writ petition under Article 226 of the Constitution of India in the following words :

'6. In our view, the High Court proceeded on an incorrect basis. Hence, the decision cannot stand. In any event, this Court had repeatedly held that Article 226 should not be permitted to be invoked in order to challenge show-cause notices unless accepting the fact in the show-cause notices to be correct, either no offence is disclosed or the show-cause notices are ex facie without jurisdiction. That could not be said as far as the eight show-cause notices in question are concerned. The High court, therefore, should not have interfered and should have left the respondents to pursue their remedy by way of an appeal under Section 9 of the Act from the order of assessment which, according to the High Court, had admittedly been passed before the writ petition had been filed by the respondent.'

The Apex Court judgment, in the case of Polar Marmo Agglomerates Limited (supra), involved disputed question of fact and, therefore, it is held that such disputed question of fact should not be resolved by the High Court in exercise of the power of judicial review. Similar view is expressed by the Allahabad High Court in the case of the K.K. Kohawal in these words :

'5. Upon giving our anxious consideration, we are clearly of the opinion that the contention of the petitioners can better be appreciated by the authorities before whom they are required to show cause inasmuch as adjudication of the controversy depends upon the investigation of facts and appreciation of evidence thereon which cannot be done by this Court in exercise of its extraordinary jurisdiction under Article 226 of the Constitution of India.

7. There is another aspect of the matter, namely, the petitioners have approached this court rather prematurely without even answering the show cause notices issued to them. Hitherto no orders adverse to them have been passed.

8. For the foregoing reasons, we are not inclined to interfere in the matter at this stage. However, considering the fact that the period stipulated in the impugned notices for furnishing reply has expired, we permit the petitioners to file reply within thirty days from today and if they do so filed their reply, the same shall be treated to be within time.'

The ratio which could be culled out from the aforesaid judgment is that the power of judicial review, under Article 226 of the Constitution of India, can be exercised where challenge to a show cause notice is made provided it is patently demonstrated that the same is issued without jurisdiction or it does not disclose any offence to have been committed. Ordinarily High Court should not embark to decide the factual disputes but relegate the party to submit the reply before the authority concerned who is obliged to decide the same. The aforesaid rule is, however, not free from exception. The exception, carved out in the case of Indian Cardboard Industries Limited (supra), in my opinion, still holds the field. The aforesaid exception can be aptly quoted hereunder :

'15. On the basis of the decisions cited it appears that the court in exercise of its jurisdiction under Art. 226 of the Constitution will interfere with a show cause notice in the following circumstances :

(1) When the show cause notice ex facie or on the basis of admitted facts does not disclose the offence alleged to be to be committed;

(2) When the show cause notice is otherwise without jurisdiction;

(3) When the show cause notice suffers from an incurable infirmity;

(4) When the show cause notice is contrary to judicial decisions or decisions of the Tribunal;

(5) When there is no material justifying the issuance of the show cause notice.'

Therefore, to sum up, the High Court can interfere under Article 226 of the Constitution of India against a show cause notice where the same is issued by an authority in exercise of the power which is absent; the facts does not lead to commission of any offence; the show cause notice is otherwise without jurisdiction; it suffers from incurable infirmity; against the settled judicial decisions or the decisions of the Tribunal and bereft of material particulars justifying commission of offence.

The Supreme Court, in the case of Union of India -vs- Vicco Laboratories, reported in 2007 (13) S.C.C. 270, also deprecates interference at the stage of issuance of show cause notice by the authorities unless it is without jurisdiction or in abuse of process of law in these words :

'31. Normally, the writ court should not interfere at the stage of issuance of show-cause notice by the authorities. In such a case, the parties get ample opportunity to put forth their contentions before the authorities concerned and to satisfy the authorities concerned about the absence of case for proceeding against the person against whom the show-cause notices have been issued. Abstinence from interference at the stage of issuance of show-cause notice in order to relegate the parties to the proceedings before the authorities concerned is the normal rule. However, the said rule is not without exceptions. Where a show-cause notice is issued either without jurisdiction or in an abuse of process of law, certainly in that case, the writ court would not hesitate to interfere even at the stage of issuance of show-cause notice. The interference at the show-cause notice stage should be rare and not in a routine manner. Mere assertion by the writ petitioner that notice was without jurisdiction and/or abuse of process of law would not suffice. It should be prima facie established to be so. Where factual adjudication would be necessary, interference is ruled out.'

Let me now see whether the show cause notice, issued by the authority, which is the subject matter in this writ petition, lacks material particulars justifying commission of offence or it is contrary to the settled proposition of law laid down in judicial pronouncements either by the Supreme Court or High Court or the Tribunals.

By relying on various judgments of the Tribunals, the petitioner tried to impress upon this Court that mere suspicion does not raise presumption as to commission of an offence in absence of any corroborative evidence. It is a consistent view of the Tribunals in the judgments cited by the petitioner, as indicated hereinabove, that the charge of clandestine removal cannot be proved only on the basis of the entries made in the note book maintained by the labourer in absence of any supporting evidence relating to consumption of raw material, manufacturing of goods and clearance without payment ofduty. Excessive consumption of electricity is also one of the factors relating to manufacturing of goods, which is clandestinely removed without payment of duty. The aforesaid proposition can be fortified from the finding recorded by the Tribunal in the case of Rawalwasia Ispat Udyog Limited (supra) which as follows:

'10. The learned Advocate has also vehemently contended that the Revenue has not adduced any evidence regarding purchase of raw-materials required to manufacture the alleged quantity of pipes nor any material has been produced regarding consumption of electricity. We find substantial force in these submissions of the learned Advocate as there is nothing on record to show whom the various raw-materials were purchased from. It has been held by the Tribunal in the case of Kashmir Vanaspati Pvt. Ltd. V. C.C.E., 1989 (39) E.L.T. 655 (T) that charge of clandestine removal can not be proved only on the basis of entries in the notebook maintained by the labourers unless the same is supported by other evidence such as raw-material consumed, goods actually manufactured and cleared without payment of duly. Regarding the use of electricity the Revenue has not controverted the submission of the learned Advocate that during the material period, their consumption of electricity has remained more or less the same. It is also not the case of Revenue that the Appellants were showing excess consumption of electricity than required. There is also no material/evidence on the record to even suggest theft of the electricity by the Appellants. The Adjudicating Authority’s finding that it is a matter of common knowledge that the persons who indulge in clandestine manufacture and removal of goods, also indulge in clandestine purchasing of raw-materials and indulge in theft of electricity and otherwise also they can use unaccounted diesel to hide the production, by using their generator is based on surmises and conjectures. The charge of clandestine removal has to be proved by the Revenue by bringing positive evidence on record and not by presumptions and assumptions. The Supreme Court has held in the judgment in the case of Oudh, Sugar Mills Ltd. V. U.O.I., 1978 (2) E.L.T. (J 172) that no show cause notice or an order can be based on assumptions and presumptions. 'The findings based on such presumptions and assumptions without any tangible evidence will be vitiated by an error of law.' Similarly, in the case of Poly Printers v. C.C.E., Delhi-I, 2002 (139) E.L.T. 295, the Tribunal did not find the charge of clandestine manufacture and clearances of the final product by the assessee sustainable as 'no evidence has also been collected by recording the statement of any buyers to establish the clandestine sale of the final product by the appellants without payment of duty ….. No unaccounted printing ink was found lying in the factory premises of the firm….' The Tribunal also in the case of Laxmi Engg. Works v. C.C.E., Delhi, 220 (139 E.L.T. 573 (T) wherein the charge of clandestine manufacture and removal was made on the basis of statements, which were retracted subsequently has observed that 'Even otherwise there is nothing on record to suggest if statements of suppliers of the raw-material i.e. sellica/ingots which were not accounted for in the statutory record by the appellants and of the buyers to whom the final product i.e. copper wire rods were allegedly supplied by them without the payment of duty, during the period in question, were recorded. No evidence regarding consumption of electricity during the period in question more than what it was consumed in the normal course by the appellants was collected during the investigation.' The Tribunal has held that no capital out of the statement could be taken as the same had remained uncorroborated from any other reliable and concrete substantive evidence. In the present matters also, the statements and the invoices have remained uncorroborated by any independent unimpeachable evidence, such as purchase of raw-materials/consumption of electricity/purchase of goods by buyers, etc. In view of these facts and circumstances, the Revenue has not succeeded in proving the allegation of clandestine manufacture and clearance of pipes by the appellants on the basis of 143 invoices in question. We, therefore, set aside the demand of duty on this count.'

In the case of Vishwa Traders Private Limited -vs- Commissioner of Central Excise, Vadodara, (supra), the Tribunal held that if there is no clandestine manufacture, there cannot be any clandestine clearance which is also reiterated by the Gujarat High Court in these words :

'7. The Tribunal in Paragraph Nos. 12, 13 and 16 has recorded clear finding that when the premises of the respondent were visited, the stock of raw-material and finished goods were tallying with the recorded goods. Further, nothing on record was found by the authority, which showed that unrecorded raw-materials were purchased or consumed by the respondent or that the respondent had clandestinely manufactured or removed the goods. It is necessary to extract Paragraph Nos. 12, 13 and 16 of order of the Tribunal, which reads as under :-

'12. Be that as it may be, it is to be noted that there is no dispute that to manufacture of said final product ‘Frit’ requires the use of Quartz, Feldspar, Zinc, Borax Powder, Calcium and Dolomite as inputs/raw material. On the date of visit of the officers to the factory premises of the appellant, it is undisputed that the stock of raw materials as well as finished goods was tallying with recorded balances. This conclusion can be reached from perusal of records, as there is nothing on record to indicate otherwise.

13. On careful perusal of the entire records of the case, we find that there is nothing on record as to unrecorded purchases or consumption of various other raw material in the manufacture of Frit, there is also nothing on record to indicate that the appellant had purchased the Quartz, Feldspar, Zinc, Borax Powder, Calcium and Dolomite and without accounting them used for the manufacture of Frit for clandestine removal. There is also nothing on record nor there is any statement of the suppliers of other raw materials, which would indicate that the appellant had received unaccounted raw material from the suppliers of these raw materials. There is a solitary evidence in the form of statement of supplier of one of the raw material i.e. Borax Powder, who indicated that the appellant had procured Borax Powder and not accounted the same in his record; and the said entries and information were deduced from the documents of the premises of Shri Anil Jadav and whose evidence has been discarded for having not been produced for cross examination; in the absence of any other tangible evidence to show that the appellant had been procuring the other major raw materials required for manufacture of Frit without recording in books of accounts, we are unable to accept the contentions of the ld. AR appearing for the Revenue and the findings of the adjudicating authority, that there was clandestine manufacture and clearance of the finished goods. The investigation has not proceeded further to

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bring on record unaccounted purchases of all the raw materials required for manufacturing of ‘Frit’. 16. In the absence of any tangible evidence which would indicate that there was clandestine manufacture and clearance of the goods from the factory premises of M/s VTPL, in the peculiar facts and circumstances of this case, we hold that he impugned order which confirms the demand on the appellant M/s. VTPL and imposes penalty on them is not sustainable and is liable to be set aside and we do so.' 8. From the aforesaid findings of the Tribunal, it is clear that the appellant has not made any clandestine manufacture, which he has removed clandestinely and on which duty was payable.' Let me now examine whether the show cause notice contains the material particulars, which prima facie justify commission of an offence. The authorities have elaborately and extensively indicated the information derived from the pen drive as well as other registers seized during search. The authorized persons were called to explain such discrepancy and the statements were recorded and the same are depicted in the said show cause notice. There was no satisfactory explanation offered therein. The show cause notice, running in several pages, cannot, at any rate, be said to be lacking material particulars if otherwise proved for commission of offence. All the judgments relied upon by the petitioner relating to the proof of corroborating evidence pertaining to the consumption of raw materials, manufacturing of goods and clandestine removal of the goods without payment of duty were challenged after the assessee had fully disclosed its stand and the authorities had adjudicated the matter in the context of available evidences. Such stage has not reached as the petitioner has come up against the show cause notice. Furthermore, the petitioner itself has submitted to the jurisdiction of the authority after receiving the show cause notice and asked for supply of certain documents for the purpose of giving an elaborate and extensive reply. This Court, therefore, does not find that the exception, carved out in the aforesaid decisions, has been satisfied. This Court, therefore, does not find any ground to interfere with the show cause notice. Considering the fact that the petitioner has asked for supply of certain documents for the purpose of filing reply, the respondents are directed to supply those documents to the petitioner within two weeks from the date of communication of this order. After receiving those documents, the petitioner shall file the reply to the show cause notice within three weeks from the date of receipt of the documents. The authorities shall, thereafter, decide the issues on merit, as expeditiously as possible, in accordance with law. With the aforesaid observations, the writ petition is disposed of. There shall, however, be no order as to costs.
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