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SCA/5769/2008 24/ 24 JUDGMENT
IN
THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL
CIVIL APPLICATION No. 5769 of 2008
For
Approval and Signature:
HONOURABLE
MR.JUSTICE D.A.MEHTA Sd/-
HONOURABLE
MS.JUSTICE H.N.DEVANI
Sd/-
=========================================================
1
Whether
Reporters of Local Papers may be allowed to see the judgment ?
YES
2
To be
referred to the Reporter or not ? YES
3
Whether
their Lordships wish to see the fair copy of the judgment ? NO
4
Whether
this case involves a substantial question of law as to the
interpretation of the constitution of India, 1950 or any order
made thereunder ? NO
5
Whether
it is to be circulated to the civil judge ? NO
=========================================================
DHARIYAL
CHEMICALS - Petitioner(s)
Versus
UNION
OF INDIA & 3 - Respondent(s)
==============================================================
Appearance :
MR
PARESH M DAVE for Petitioner(s) : 1,
NOTICE SERVED for
Respondent(s) : 1 - 2.
MR HARIN P RAVAL for Respondent(s) :
1,
NOTICE SERVED BY DS for Respondent(s) : 3 -
4.
=========================================================
CORAM
:
HONOURABLE
MR.JUSTICE D.A.MEHTA
and
HONOURABLE
MS.JUSTICE H.N.DEVANI
Date
: 11/07/2008
ORAL
JUDGMENT
(Per
: HONOURABLE MR.JUSTICE D.A.MEHTA)
1 This
petition has been preferred by one Yogesh Dhariyal, sole
proprietor of Messrs Dhariyal Chemicals. The following prayers have
been made in the petition :
?S(A) That Your Lordships may
be pleased to issue a Writ of Mandamus or a writ in the nature of
Mandamus or any other appropriate writ, direction or order, striking
down as ultra-vires Rule 12CC of the Central Excise Rules, 1944 and
Notification No.32/2006-CE (NT) dated 30.12.2006;
(B) That Your Lordships may be
pleased to issue a Writ of Mandamus or a Writ of Certiorari or any
other appropriate writ, direction or order, quashing and setting
aside Order No. 6/2008-M (CX)/DA dated 22.2.2008 (Annexure-‘N’)
issued by the second respondent thereby directing the respondents,
their servants and agents to permit the petitioner to utilize cenvat
credit for paying excise duties on the goods cleared for home
consumption during the period from 27.2.2008 to 26.5.2008 and even
thereafter;
(C) That Your Lordships may be
pleased to issue a writ of Mandamus or a Writ in the nature of
Mandamus or any other appropriate writ, direction or order,
directing the respondents, their servants and agents to forthwith
give to the petitioner copies of all the seized documents and also
the statements on which signatures of the petitioner as well as Shri
Ganesh Dutt Joshi are taken by the Preventive Officers functioning
under respondent no.4 herein;
(D) Pending hearing and final
disposal of the present petition, Your Lordships may be pleased to
stay implementation and execution of Order No.6/2008-M (CX)/DA dated
22.2.2008 (Annexure-‘N’) issued by the second respondent thereby
allowing the petitioner to utilize cenvat credit for discharing duty
liabilities on the goods cleared by the petitioner for home
consumption;
(E) An ex-parte ad-interim
relief in terms of Para 9(C) above may kindly be granted;
(F) Any other further relief
as may be deemed fit in the facts and circumstances of the case may
also please be granted??.
2.
On 29.08.2007 the officers of the preventive wing of Central Excise
Department visited the factory premises of the petitioner and seized
certain documents and records. A panchnama had been duly drawn up.
The said documents and records also included certain records of
another manufacturing unit named M/s. Ganesh Enterprises, a
proprietary concern of one Shri Ganesh Dutt Joshi, cousin of the
present petitioner. It is the say of the petitioner that on
31.08.2007 both the petitioner and Shri Ganesh Dutt Joshi were
called by the officers of the preventive wing and pressurised to
sign certain documents and statements prepared by the said officers.
Therefore, regarding the aforesaid events, the petitioner swore an
affidavit on 5.9.2007 and filed the same in the office of the
Additional Commissioner (Preventive) under certificate of posting. It
appears that similar exercise took place on 6.9.2007 and 11.9.2007
followed by affidavits dated 10.9.2007 and 13.9.2007 by the
petitioner.
3. On
16.10.2007 the petitioner was addressed a letter from the office of
the Chief Commissioner of Central Excise which reads as under :
?SOFFICE OF THE CHIEF
COMMISSIONER OF CENTRAL EXCISE, 7th floor : CENTRAL
EXCISE BHAVAN, AMBAWADI, AHMEDABAD ? 380 015.
BY SPEED POST
Date
: 16.10.2007
F.No.IV/30-88/CCO/Tech/2007
To,
Shri Yogesh Chandradutt
Dharaiyal,
M/s.Dhariyal Chemicals,
4,Prabhudas Estate,
Nr. Sabar Tiles,
Danilimda, Ahmedabad.
Gentleman,
Sub : Central Excise Case
against M/s. Ganesh Enterprises, Plot No.2, Prabhudas Patel Estate,
Nr. Sabar Tiles, Danilimda, Ahmedabad.
The Chief Commissioner,
Central Excise, Ahmedabad has fixed the personal hearing on 29.10.07
at 3.00 p.m. in the Office of the Chief Commissioner, 7th
Floor, Central Excise Bhavan, Ambawadi, Ahmedabad. It is therefore
requested to attend the same on the date and time mentioned above.
Yours faithfully,
Sd/-
Additional
Commissioner??.
4. The
said appointment was postponed to 30.10.2007 vide letter dated
26.10.2007. Thereafter, the Chief Commissioner of Central Excise
(CCCE) personally heard the petitioner as well as Mr. Ganesh Dutt
Joshi and one Dr.C.D.Dhariyal, the father of the petitioner on
30.10.2007. At the said hearing the purpose of the hearing was
disclosed by the CCCE and the said fact has been recorded in the
following words by the CCCE :
?SOn being asked to tender
their submissions on the issue relating to withdraw of facility of
monthly payment of excise duty and also the payment of Central
Excise duty by utilization of CENVAT credit, Shri Yogesh Dhariyal
submitted that the facility extended to them under Central Excise
Law should not be withdrawn as the same would put them under
financial constraint, and since they had not done any wrong.??
5. Thereafter,
it appears that CCCE forwarded a proposal to the Central Board of
Excise & Customs (CBEC). On 22.08.2008 Order No.6/08-M(CX)/DA
came to be made by Member of CBEC whereunder following directions
were issued :
?S ORDER 5. In view of the above, I hereby pass the following order :- (i) The facility of monthly
payment of excise duty by M/s. Dhariyal Chemicals, as provided under
rule 8(1) of the Central Excise Rules, 2002, is ordered to be
withdrawn and they are required to pay excise duty for each
consignment at the time of removal of the goods with effect from
27.02.2008 to 26.05.2008.
(ii) Payment of excise duty by
utilisation of CENVAT credit as provided under rule 3(4) of the
CENVAT Credit Rules, 2004, is ordered to be stopped with effect
from 27.02.2008 to 26.05.2008. During this period, they are required
to pay excise duty without utilising CENVAT credit. However, they
are permitted to take CENVAT credit during this period which can be
utilised for payment of duty with effect from 27.05.2008??.
6. The
learned Advocate for the petitioner has assailed the aforesaid order
dated 22.02.2008 (hereinafter referred to as impugned order) by
reiterating the facts narrated in the petition and also challenged
the validity of Rule 12CC of the Central Excise Rules, 1944 (the
Rules) and Notification No. 32/2006-CE(MT) dated 30.12.2006 (the
Notification). It was contended that respondent No.2 has made an
order which is exparte and hence, it is required to be struck down as
being in violation of principles of natural justice. That Rule 12CC
of the Rules and the aforesaid Notification are ultravires Article
14 of the Constitution of India because :(1) the scheme envisaged by
the Notification has no nexus with the objective sought to be
achieved; (2) is in utter violation of principles of natural
justice;(3) deprives assessee of its legitimate right of utilising
CENVAT credit.
6.1. According
to the learned Advocate the impugned order is required to be struck
down because the same has been made without granting an
opportunity of hearing. Not only this, it was submitted, even the
CCCE had formulated reasonable belief that the facilities available
to the petitioner were required to be withdrawn without proper
opportunity. In this connection, attention was invited to paragraph
No.4(2) of the Notification to submit that the Notification itself
provides for granting an opportunity of hearing to the person against
whom the proceedings have been initiated but no such opportunity was
granted. That the notice in the form of letter dated 16.10.2007
merely invited the petitioner for hearing without specifying as to
why and for what purpose the hearing was granted. It was therefore
urged that in light of the aforesaid fact situation the impugned
order was required to be struck down.
7. On
behalf of the respondent authorities learned Counsel submitted that
in so far as the challenge to validity of Rule 12CC of the Rules and
the Notification is concerned no case was made out by the petitioner
as to how and in what manner the said Rule and the Notification are
ultravires the Constitution.
7.1
In relation to the requirement of paragraph No.4(2) of the
Notification granting an opportunity of hearing, it was submitted
that such an opportunity was granted as could be seen from
communication dated 16.10.2007 and bearing in mind the object and
purpose of the Notification no case was made out for conducting a
full-fledged proceeding as in case of regular assessment by issuing
Show Cause Notice etc. That in the facts of the present case, in
fact, the petitioner was aware about the purpose for which the
petitioner was called and this was apparent from written submissions
dated 30.10.2007 filed by the petitioner before CCCE. That the said
written submissions referred to the Notification in question and
therefore it was apparent that the procedure adopted by CCCE was in
accordance with the requirement of Notification and there can be no
violation of provisions of paragraph No.4(2) of the Notification as
contended.
7.2. It
was further submitted that the principles of natural justice did not
warrant that in each and every case a person is required to be
granted a full-fledged hearing accompanied by documents etc.,
especially when the person concerned is aware about the purpose for
which the hearing is granted. That every violation complained of,
need not be entertained by the Court unless and until the person
complaining of the violation establishes prejudice caused to the
person. It was further submitted that in the present case the
petitioner cannot complain of being prejudiced by the procedure
adopted by CCCE when one considers the record and therefore, the
petitioner was not entitled to any relief whatsoever.
8. Before
adverting to relevant paragraphs of the Notification, it is necessary
to note certain undisputed facts. The petitioner and Mr. Ganesh Dutt
Joshi are cousins. The units of the petitioner and Shri Joshi are
respectively located at (1) 4, Prabhudas Estate, Nr. Sabar Tiles,
Dani Limbda, Ahmedabad and (2) 2, Prabhudas Estate, Nr. Sabar Tiles,
Dani Limbda, Ahmedabad. Both the units manufacture the same goods
viz. Cellulose and its derivatives which are substitutes to such
imported products. The petitioner was enjoying (1) facility of
monthly payment of excise duty as provided under Rule 8(1) of the
Central Excise Rules, 2002, and (2) facility of payment of excise
duty by utilization of CENVAT credit as provided under Rule 3(4) of
the Cenvat Credit Rules,2004. Mr. Ganesh Dutt Joshi has gone on
record to state that the activities of M/s. Ganesh Enterprises were
looked after by Mr.Yogesh Dhariyal since more than five years,
including opening and operating the Bank Account of M/s. Ganesh
Enterprises in Bank of Baroda and other bank. At one stage Mr.Joshi
has stated that a power of attorney has been executed in favour of
Mr. Yogesh Dhariyal and at another place Mr.Joshi has denied having
executed such power of attorney. In the backdrop of the aforesaid
facts CCCE moved a proposal upon which the impugned order came to be
made by Member, CBEC on 22.2.2008.
9. In
so far as challenge to validity of Rule 12CC of the Rules and the
Notification is concerned, it is not possible to accept the
contention raised on behalf of the petitioner. Rule 12CC of the
Rules grants power to the Central Government to issue a Notification
whereunder specific restrictions may be placed on the specified
category of persons having regard to the extent of evasion of duty,
nature and type of offence or such other factors as may be relevant
in order to prevent such evasion, default in payment of excise duty
etc. In exercise of these powers Notification No. 32 of 2006-CE(NT)
dated 30.12.2006 has been issued. The Notification provides for a
summary scheme which is to act as a deterrent against tax evaders by
withdrawal of facilities from such persons.
10.
On a plain reading of Rule 12CC of the Rules and the impugned
Notification it becomes apparent that the Rule and the Notification
have been framed for a specified class of persons having reasonable
nexus with the object sought to be achieved, and this becomes
abundantly clear when one considers paragraph No.3 of the
Notification which lays down the monetary limit in which class of
cases the Notification shall be made applicable. Therefore, there is
no merit in the challenge to constitutional validity of the Rule and
the Notification.
11. In
so far as the grievance ventilated regarding lack of opportunity
before passing of the impugned order by Member,CBEC, it is necessary
to consider the procedure prescribed by paragraph No.4 of the
Notification. The relevant part of the Notification reads as under :
?S4. Procedure.-(1) The
Commissioner of Central Excise or Additional Director General of
Central Excise Intelligence, as the case may be, after examination of
records and other evidence, and after satisfying himself that the
person has knowingly committed the offence as specified in para 1,
may forward a proposal to the Chief Commissioner of Director
General of Central Excise Intelligence, as the case may be,
specifying the facilities to be withdrawn and restriction to be
imposed and the period of such withdrawal or restrictions, within
30 days of the detection of the case, as far as possible.
(2) The Chief Commissioner of
Central Excise or Director General of Central Excise Intelligence, as
the case may be, shall examine the said proposal and after
satisfying himself that the records and evidence relied upon in the
said proposal are sufficient to form a reasonable belief that a
person has knowingly committed the offences specified in para 1,
may forward the proposal along with his recommendations to the
Board. However, the Chief Commissioner of Central Excise or Director
General of Central Excise Intelligence, before forwarding his
recommendations, shall give an opportunity of being heard to the
person against whom the proceedings have been initiated and shall
take into account any representation made by such person before he
forwards his recommendations to the Board.
(3) An officer authorized by
the Board shall examine the recommendations received from the Chief
Commissioner of Central Excise or Director General of Central Excise
Intelligence and issue an order specifying the type of facilities
to be withdrawn or type of restrictions imposed, along with the
period for which said facilities will not be available or the period
for which the restrictions shall be operative.??
12. Paragraph
No. 4(1) provides for either CCE or Additional Director General to
forward a proposal to CCCE or Director General as to the nature of
offence committed by the person in whose case a satisfaction is
arrived at after examination of records and other evidence that
specified facilities be withdrawn for a specified period and such
proposal has to be made within 30 days of the detection of the case,
as far as possible. In sub-paragraph No.(2) of paragraph No.4 of the
Notification CCCE is required to examine the proposal placed before
him, and after satisfying himself that the records and the evidence
relied upon in the proposal are sufficient to form a reasonable
belief that a person has knowingly committed the offence specified in
paragraph No.1 of the Notification, may forward the proposal along
with his recommendations to the Board. The latter part of the said
sub-paragraph states that however, before the CCCE forwards his
recommendations he shall give an opportunity of being heard to the
person against whom the proceedings had been initiated and shall
take into account any representation made by such person before
forwarding the recommendations. Sub-paragraph No.(3) of paragraph
No.4 of the Notification provides for an officer, authorised by the
Board, to examine the recommendations received from CCCE and issue an
order specifying the type of facilities to be withdrawn or the type
of restrictions to be imposed, along with the period for which such
facilities will not be available or the period for which the
restrictions shall be operative.
13. The
scheme that unfolds, therefore, is that the stage at which a proposal
is made by the authority subordinate to CCCE, it is not necessary to
grant any opportunity to the person concerned. However, CCCE is not
bound by the proposal and if after considering the records and the
evidence in support of the proposal CCCE finds that the evidence and
the record are not sufficient to form a reasonable belief that the
person has knowingly committed the offence, he has the discretion
not to forward the proposal. Similarly even after forming a
reasonable belief, if after hearing the person concerned and after
considering the representation made by the person concerned, if the
CCCE comes to the conclusion that the records and evidence are not
sufficient in light of the representation and the hearing to form a
reasonable belief the proposal may not be forwarded by the CCCE. This
becomes abundantly clear when one reads the last portion of the first
part of sub-paragraph No.(2) of paragraph No.4 of the Notification
which stipulates: ?Smay forward the proposal along with his
recommendations to the Board??. The use of the term ?Smay??
itself indicates that the CCCE is not expected to act mechanically
and approve the proposal placed before him. Thus a discretion is
vested in the CCCE: either to forward the proposal, or refuse to
forward the proposal, or forward the proposal with modification as to
the withdrawal of facilities and restrictions to be imposed or the
period during which there may be withdrawal of facilities or
imposition of restrictions.
14. In
the circumstances, an opportunity of hearing which is granted to the
person concerned cannot be termed to be an idle formality once the
provisions of the Notification itself have provided for this
situation, viz. vesting CCCE with a discretion, with or without
hearing. It cannot be stated that the hearing that is required to be
granted to the person concerned is only for a limited purpose. If
such opportunity of hearing is to be meaningful the notice calling
upon the person concerned to represent his case must indicate briefly
the gravamen of the charge which the person is to meet with and
the nature of evidence on the basis of which the proposal is moved so
as to enable the person concerned to make an effective representation
either to reject the proposal, or modify the proposal considering the
offence committed, the period of offence, etc., including any special
circumstances that might be within the knowledge of the person
concerned and may not have come on record of the proceedings of
proposal. The respondent authority cannot be heard to state, in such
circumstances, that because the person concerned was aware of the
proceedings taken prior to making of the proposal by CCE no further
opportunity is required and it would suffice if only the person
concerned is invited for hearing.
15. The
aforesaid view is fortified by language of sub-paragraph No.(3) of
paragraph No.4 of the Notification which does not provide for any
hearing by the authorised officer before issuing order specifying
type of facilities to be withdrawn or type of restrictions to be
imposed along with the period for which such facilities will not be
available or the restrictions shall operate. Therefore, when at the
first stage, viz. making of a proposal the person concerned has no
voice, and at the final stage, when the order is issued the person
concerned has no voice, the second stage, viz. when CCCE makes his
recommendations the opportunity of hearing which is granted to the
person concerned has to be a meaningful opportunity, and cannot be
treated as a mere formality. Because that is the only stage at which
the opportunity of hearing is granted.
16. Even
if one accepts the fact that the scheme provided under the impugned
Notification is a summary scheme in relation to class of persons who
may be treated as tax evaders, once the Notification itself provides
for an opportunity of hearing the same cannot be taken away on the
specious plea, as canvassed by revenue, that the object and purpose
of the Notification is to act as a deterrent. By merely referring to
the object and purpose of the Notification, the respondent
authorities cannot be permitted to wish away the procedure
prescribed under the very Notification. One part of the Notification
cannot be so read as to make another part thereof redundant.
17. In
these circumstances, the contention on behalf of the petitioner that
the impugned order made by respondent No.2 authority without
granting an opportunity of hearing is bad in law cannot be accepted,
but at the same time it has to be recorded that before forwarding the
proposal with recommendations CCCE had not complied with the
statutory requirements and the procedure adopted was bad in law. In
the normal circumstances, the Court would have, at this stage,
quashed and set aside the order made on the basis of such a proposal
with recommendations, but in light of the facts and circumstances
which have come on record the petitioner is not entitled to such an
equitable relief in exercise of powers under Article 226 of the
Constitution of India. The question, that would then survive is, as
to what should be the final relief, if any, that should be made
available to the petitioner in the peculiar facts and circumstances
of the case. As noted hereinbefore, the final order made by
respondent No.2 authority has withdrawn the facility of monthly
payment of excise duty and restricted payment of excise duty by
utilization of CENVAT credit for the period 27.02.2008 to 26.05.2008.
In so far as the first part of the order is concerned viz. paragraph
No.5(i) of the impugned order, suffice it to state that the said
order has been permitted to operate and has exhausted itself
considering the period was from 27.02.2008 to 26.05.2008.
18. In
so far as the restriction imposed vide paragraph No. 5(ii) of the
impugned order, vide order dated 03.04.2008 the High Court had
granted ad interim stay of operation and implementation of the said
direction.
19. In
the circumstances, considering the fact that on facts the petitioner
does not deserve to be granted any relief the operation of paragraph
No.5(ii) of the impugned order which was stayed with effect from
03.04.2008 till date shall stand revived from tomorrow i.e.
12.07.2008 and shall continue to operate for the remainder of the
period after deducting the period from 27.02.2008 to 03.04.2008,
bearing in mind that the restriction was for a period of 90 days in
the impugned order. Accordingly, ad-interim stay of operation and
implementation of paragraph No.5(ii) of the impugned order dated
22.02.2008 made by respondent No.2 authority stands vacated.
20. The
petition is accordingly rejected. Notice discharged. There shall be
no order as to costs.
21. At
this stage, the learned Advocate for the petitioner prays for staying
operation of the order of vacation of ad-interim relief which is
operating since 03.04.2008 for a period of three weeks from today.
Request is rejected in light of the facts and circumstances of the
case.
Sd/- Sd/-
(D.A.Mehta,
J.) (H.N.Devani, J.)
M.M.BHATT
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