M/S Albert David Ltd vs Union Of India Thru' Secy. Min. Of ...
2012 Latest Caselaw 5161 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD
 
 

					   Judgment reserved on   11.9.2012						   Judgment delivered on 16.10.2012
 

 
    CIVIL MISC. WRIT PETITION (TAX) NO. 556 OF 2005
 
                   M/s Albert David Ltd vs. Union of India & ors
 

 
Hon'ble Sunil Ambwani, J.

Hon'ble Aditya Nath Mittal, J.

1. By this writ petition the petitioner-company has prayed for declaring Notification No. 68/63 CE dated 4.5.1963 as amended vide Notification No. 48/97-CE dated 2.9.1997 as ultra vires Section 12 of the Central Excise Act in so far as it applies the provisions of Section 142 (b) and 142 (c) (ii) of the Customs Act to the Central Excise Act. The petitioner has also prayed for lifting the attachment of the petitioner's property at B-12 and 13, Meerut Road, Ghaziabad and to quash the demand notice dated 8.10.2003.

2. By an amendment application the petitioner has prayed for declaring the auction held on 8.11.2005, as null and void and to quash the certificate dated 9.1.2006, by which the auction sale was continued. The petitioner has also prayed for writ of mandamus directing the respondents to return the attached/auctioned goods or compensate the petitioner with the import cost of the goods in question. In this amendment application, the petitioner has also prayed for quashing the letter dated 12.1.2006 to recover Rs.1,75,277/- towards balance amount and interest.

3. We have heard Shri Abhishek Anand assisted by Shri Nishant Mishra for the petitioner. Shri Ashish Shukla appears for the Central Excise Department.

4. The petitioner is a Public Limited Company engaged in the manufacture of generic as well as patent and proprietary medicines (exisable goods) falling under Chapter-30 of the Central Excise Tariff Act, 1985. The petitioner is also availing the benefit of MODVAT/CENVAT credit of duty paid on inputs used in the manufacture of excisable goods under Rule 57-AA to 57-AK of the Central Excise Rules, 1944.

5. By a Notification No.36/2000-CE dated 4.5.2000, one of the excisable goods manufactured by the petitioners namely Intravenous Fluides (I.V. fluids) was exempted from payment of excise duty. On 3.5.2000 the petitioner had a closing balance of inputs for I.V. fluids in which inputs were used and on which the petitioner had availed MODVAT/CENVAT credit. A show cause notice was issued on 16.4.2001 proposing to recover CENVAT credit of Rs. 38,22,164/- involved on the inputs lying in stock as on 3.5.2000, and on inputs contained in I.V. fluids lying in stock as on 3.5.2000. The show cause notice gave the credit attributable to inputs lying in stock and inputs contained in finished goods separately. The petitioner deposited Rs.17,26,179/- involved on the inputs lying in stock as on 3.5.2000, under protest.

6. An order-in-original was passed by the Deputy Collector of Excise on 29.5.2001 confirming the demand of Rs. 38,22,164/- under Section 11-A of the Act. The amount already deposited was adjusted against the demand. Besides a penalty of Rs. 3,00,000/- was imposed on the petitioner by the Deputy Commissioner, who also directed the petitioner to pay interest at the rate of 24% per annum.

7. The petitioner filed an appeal before the Commissioner of Central Excise (Appeals) Meerut on 27.7.2001. The appeal was dismissed on 8.5.2002 upholding the order of the Deputy Commissioner. Aggrieved the petitioner filed an appeal in the Customs, Excise and Gold (Control) Appellate Tribunal (for short, CEGAT), New Delhi challenging the recovery of the credit involved on inputs lying in stock as well as inputs contained in I.V fluid in stock as on 3.5.2000. The CEGAT by its final order dated 28.11.2002 (reported in 2003 (151) ELT 443) disposed of the appeal and set aside the penalty. The CEGAT held that as the inputs have been utilized in the manufacture of wholly exempted goods credit taken in respect of such inputs is recoverable. It also held that the demand was only in respect of inputs, which were lying unuitlised. The petitioner challenged the order of the CEGAT in Supreme Court with regard to inputs lying in stock in Civil Appeal No. 1852/2003. It is alleged that the petitioner did not take up the issue in the Supreme Court with regard to inputs contained in I.V fluides in stock as on 3.5.2000 as the petitioner understood the order of the CEGAT that it has not decided the issue with regard to the inputs contained in I.V. fluids in stock as on 3.5.2000. This understanding was based on the order of the CEGAT that the revenue has sought to demand only in respect to the inputs, which were lying unutilised.

8. The Supreme Court by its order dated 13.3.2003 dismissed the appeal filed by the petitioner. A review petition filed by the petitioner was also dismissed by the Supreme Court on 9.9.2003.

9. By a letter dated 21.2.2003 the Superintendent, Central Excise, Range-V, Ghaziabad asked the petitioner to deposit Rs.38,22,164/- which according to him was the demand as confirmed by the CEGAT. The petitioner replied on 3.3.2003 that the CEGAT has confirmed the demand only to the extent of inputs lying in stock. The demand on inputs contained in finished goods was not confirmed by the CEGAT and therefore, there was no question of depositing the amount.

10. The Assistant Commissioner, Central Excise, Division-V, Ghaziabad issued a notice on 8.10.2003 informing the petitioner that he has been authorised by the Commissioner under Section 142 (1) (c) (ii) of the Customs Act read with Rule 4 of the Customs (Attachment of Property of Defaulters for Recovery of Government Dues) Rules, 1995, to recover Rs. 20,95,985/- from the petitioner. The petitioner submitted a reply on 21.10.2003, alleging that the CEGAT has confirmed the demand only to the extent of inputs lying in stock as such. On the finished goods, the demand was not confirmed by the CEGAT. The petitioners by its letter dated 19.11.2003 also informed the Commissioner of Central Excise, Ghaziabad that CENVAT credit availed at the time when the goods were excisable, but latter exempted, is not required to be reversed. The demand of the revenue was only in respect of inputs which were lying unutilised.

11. The Assistant Commissioner, Central Excise Division-V, Ghaziabad visited the factory on 25.10.2004 and made an inventory of the goods lying in the factory. He attached 60 MTs of LDPE Granules valued at Rs. 42,00,000/- vide notice of attachment dated 25.10.2004. An auction notice dated 9.3.2005 was thereafter served on the petitioner on 14.3.2005 fixing 21.3.2005 as the date for auction. The bids were not confirmed upto 25.3.2005, giving rise to this writ petition, which was filed on 22.3.2005. There is no interim order in the writ petition.

12. By the amendment application filed on 13.2.2006 the petitioner seeks to amend the writ petition by adding paragraphs 19-A to 19-J; ground nos. H to Q and prayers (f) to (j). The amendment application was allowed on 11.9.2012. A counter affidavit has already been filed to the amendment application.

13. In the amended writ petition it is stated that the Assistant Commissioner, Central Excise, Ghaziabad thereafter fixed the date of sale of attached goods, which could not be sold, by way of public auction on 8.11.2005. The reserve price of the goods was fixed at Rs.64,008/- per metric tonne which comes to Rs. 38,40,480/- for 60 metric tonnes. The auction was held on 8.11.2005 and the sale concluded on 9.1.2006. The goods were purchased by one M/s Mittal Enterprises for Rs. 34,34,000/- in accordance with the procedure prescribed under Rule 15 of the Customs (Attachment of Property for Defaulters of Government Dues) Rules, 1995.

14. It is stated in paragraph 19-H that the goods cannot be sold in the auction at a price lesser than the reserve price and thus the subsequent demand of Rs. 1,75,277/- by letter dated 12.1.2006 is grossly illegal. The current cost of the attached goods was not less than Rs.90,000/- per metric tonne. In ground nos. M, N and O it is stated that there are specific provisions for recovery of interest in the Income Tax Act, 1961 by attachment of the property of the defaulters. There are no similar or corresponding provisions under Section 142 of the Customs Act, 1962, and the Rules of 1995, and therefore these cannot be made applicable to the recovery of interest.

15. In the counter affidavit of Shri Chandan Kumar Jain, Assistant Commissioner, Central Excise Division-V, Ghaziabad it is stated that 1.V Fluid was exempted from whole of central excise duty vide notification No. 36/2000 dated 4th May, 2000. The petitioner by its letter GCS/MCV dated 5th May, 2000 informed that they will clear their goods (I.V Fluid) at nil rate of duty as per notification dated 4.5.2000 and also declared that their stock of inputs and inputs contained in the manufactured product. In the said letter the petitioner reversed the credit of Rs.17,62,940/- involved in inputs used for the manufacture of finished goods and Rs. 17,38,571/- on the stock of raw material lying as on 3.5.2000. The petitioner did not work out the amount of reversal on the basis of "first in and first out". The petitioner on being asked by the Range Superintendent revised the said chart and the final amount which was to be reversed on the stock of inputs contained in the exempted final product came to Rs.20,95,985/-. On scrutiny it was found that the petitioner had included an amount of Rs.16,078/- in the amount shown to be reversed but that the petitioner had not availed the credit of that amount and therefore the amount was reduced by Rs. 13,38,571/-. It was also found that by mistake an amount of Rs.3686/- was included and therefore, the final amount, which is to be reversed came to be Rs.17,26,179/- and that as per Rule 57-AB of the Central Excise Rules, the credit should not be allowed on inputs which were used in or in relation to the manufacture of exempted goods. Since I-V fluids were exempted completely from whole of the excise duty by notification dated 4.5.2000, the said goods come under the category of exempted goods. The CENVAT credit on the inputs lying in stock intended to be used in or in relation to the manufacture of exempted goods as well as on the stock of inputs contained in finished goods could not be allowed to be availed by the petitioner under Rule 57-AB. Thus the CENVAT credit amounting to Rs.38,22,164/- on the stock of unused inputs and stock of inputs contained in the exempted finished goods was not admissible and was recoverable under Rule 57-AH.

16. It is further stated in the counter affidavit that as per Rule 57-AD (1) of the Central Excise Rule the credit is not allowed on such input which is used in manufacture of exempted goods. The amount of CENVAT credit of Rs. 20,95,985/- involved on the stock of inputs used in manufacturing of closing stock of I.V Fluid on 3.5.2000 has not been reversed/deposited and therefore the penalty notice was issued in addition to the recovery under Rule 97-AH.

17. It is further stated in the counter affidavit that there is a specific provision in Rule 57-AD which clearly provides that the CENVAT be allowed on such quantity of inputs, which are used in manufacture of exempted goods. In the present case the final product has been removed on nil rate of duty and therefore, CENVAT credit availed on inputs contained in the said exempted goods is recoverable from the petitioner.

18. It is stated that the show cause notice was confirmed upto the CEGAT and that the Supreme Court did not interfere with the order of the CEGAT and also dismissed the review petition.

19. In paragraph-14 of the counter affidavit, it is stated that Section 142 of the Customs Act is duly adopted under Section 12 of the Central Excise Act, 1944. The said provision is applicable for the recovery of all dues related to central excise.

20. In reply to the amendment application, it is stated in paragraphs 7, 10, 12 and 16 of the counter affidavit of Shri Chandan Kumar Jain, Assistant Commissioner, Central Excise Division-V, Ghaziabad as follows:-

"7. That content of para 19-B (a), (b), (c), (d) it is admitted as minimum price was fixed to protect the interest of the petitioner to realize the maximum price by way of auction and it was in accordance with law and the procedure laid down in the Circular issued by C.B.E.C i.e. Circular No. 365/81/97-Cx dated 15.12.97 and sale conducted as per guideline given in C.B.E.C letter dated 2.4.1952 i.e. 27 (1) CUS/1/51. The averment contrary under para reply is vehemently denied as it being misconceived.

10.That in reply to the content of para 19 (f) it is stated that it is incorrect to allege that procedure were flouted in conducting the auction. In facts auction was conducted circular issued by C.B.E.C i.e circular No. 365/81/97 Cx dated 15.12.97 and sale conducted as per guideline given in C.B.E.C letter dated 02.4.52 i.e 27 (1) CUS/1/51. The averment contrary under para reply is vehemently denied as it being misconceived incorrect.

12. That the content of para 19 (h) it is not admitted as the 1st auction was conducted on 21.3.1995 with the reserved price of Rs. 71,120/- only P.M.T. where in the highest bid was for Rs. 58,917/-PMT which was not accepted by the competent authority. Subsequently in the second auction on 8.11.05 reserved price was fixed at Rs.64,008/- PMT where as the highest bid was 57,233/- PMT. The guideline contained in CBEC letter dated 02.04.52 i.e 27/(1)CUS/1/51 states as "if this price is not realized at the first auction the goods may be allowed to be sold for what ever they can fetch in the next auction." Accordingly the goods were sold to the highest bidder of second auction with the approval of Commissioner, Central Excise, Ghaziabad. The averment contrary under para reply is vehemently denied as it being misconceived incorrect.

16. That the contents of para 5 (6-I,J) of the writ petition is not admitted. It is further stated that as per the guideline contained in CBEC letter dated 02.4.52 i.e 27/(1)CUS/1/51 states "if this price is not realized at the first auction the goods may be allowed to be sold for whatever they can fetch in the next auction." Accordingly the goods were sold to the highest bidder of second auction with the approval of Commissioner, Central Excise, Ghaziabad. The averment contrary under para reply is vehemently denied as it being misconceived incorrect."

21. Shri Abhishek Anand, appearing for the petitioner submits that CENVAT on finished product cannot be realised after the exemption of the goods from Central Excise. CENVAT credit is not a duty to be recovered. The Central Excise Department cannot use provisions of the Customs Act for recovering the inputs. The notice of recovery/attachment is bad in law. He submits that after the Supreme Court dismissed the appeal, the principle of merger will apply and that the object of the CEGAT confirming the demand only to the extent of inputs lying in stock subject to deduction of the amount deposited, would not leave any excisable duty to be recovered from the petitioner.

22. Shri R.C. Shukla, learned counsel appearing for the Central Excise department submits that the CEGAT observed that the revenue has sought demand only in respect of the inputs, which were lying unutilised. The CEGAT subsequently observed in the order as follows:-

"5......... We agree with the findings in the impugned order that the decision in Premier Tyres Ltd and consequently decision in Ashoka Iron and Steel case, is not applicable as these decisions were passed on the ground that there was no provision for reversal of credit. Now there is a specific provision in Rule 57-AD which clearly provides that "CENVAT Credit shall not be allowed on such quantity of inputs, which is used in the manufacture of exempted goods." Rule 57-AH contains the provision for the recovery of CENVAT Credit utilized wrongly. As the inputs have been utilized in the manufacture of wholly exempted goods credit taken in respect of such inputs is recoverable. The demand is not hit by the time limit as the recovery is related in the instant matter to utilization of inputs for manufacture of exempted goods. As the show cause notice has been issued within one year of such utilization, demand is within the time limit specified in the Act and Rules. We are, however, of the view that in the facts and circumstances of the case, no penalty is imposable on the appellants. We order accordingly.

6. The Appeal stands disposed of in above terms."

23. The CEGAT confirmed the demand of Rs.38,22,164/- against the petitioner under Section 11-A of the Central Excise Act. Since the amount of Rs. 17,26,179/- was already deposited, the same was adjusted against the demand. The CEGAT allowed the relief to the petitioner only to the extent of penalty. The demand of Rs.28,22,164/- included both the CENVAT on the inputs as well as the inputs contained in I.V. fluids in the stock as on 3.5.2000.

24. The objection against the show cause notice in respect of both the inputs which were utilised in the manufacture of the goods and the inputs contained in the stocks was rejected. The amount of rs. 38,22,164/- includes both the inputs used for manufacturing the finished goods and on the stock of raw material lying with the petitioner on 3.5.2000. The argument, that the revenue had only pressed in respect of inputs, which were lying unutilised, is misconceived. The CEGAT clearly held that the credit is available only and only if the final product attracts the excise duty. If no excise duty is payable in respect of any final product, the incident of availing the CENVAT credit does not arise as the excise duty is not leviable at more than one level. CENVAT credit is not allowed on such quantity of input, which is used in the manufacture of exempted goods. The CEGAT further held, in no uncertain terms, that since there is specific provision in Rule 57-AD that CENVAT credit shall not be allowed on such quantity of inputs which is used in the manufacture of exempted goods. The inputs, which have been utilised in the manufacture of such wholly exempted goods, are recoverable.

25. So far as argument against the applicability of the provisions of the Customs Act for attachment and recovery under Section 12 are concerned, we do not find any good ground to interfere in the matter. This Court did not grant any interim order against the attachment and sale to recover the amount. In the first auction conducted on 21.3.1995 with reserve price of Rs. 71,120/- per metric tonne, the highest bid was for Rs. 58,917/- per metric tonne, which was not accepted. In the second auction held on 8.11.2005 against the reserve price of Rs. 64,008/- per metric tonne, the highest bid of Rs. 57,233/- per metric tonne. The guidelines issued by C.B.E.C. dated 2.4.1952 provide that if the reserve price is not realised in the first auction, the goods may be allowed to be sold for whatever they can fetch in the next auction. The respondents, therefore, did not commit any error of law in selling the goods at a price of Rs. 57,233/- per metric tonne, which was very close to the highest bid in the first auction, and which was not accepted and on the ground that the reserve price was much higher.

26. It is not uncommon for a statute to adopt by reference the provisions of other statute in so far as the incidental matters are concerned. In the present case, the provision of Section 142 of the Customs Act are duly adopted by Section 12 of the Central Excise Act, 1944 for the purposes of recovery of excise duty by attachment and sale. Consequently the provisions of the Customs (Attachment of Property of Defaulters for Recovery of Government Dues) Rules, 1995 are applicable for attachment of the property for its sale.

27.We do not find any error of law in the proceedings of attachment and sale of the stocks of the petitioner.

28. The writ petition is dismissed

Dt.16.10.2012

RKP/