Bombay High Court
Commissioner Central Excise & ... vs M/S India Containers Ltd on 23 June, 2017
Bench: T.V. Nalawade
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
BENCH AT AURANGABAD
WRIT PETITION NO.1662 OF 2004
The Commissioner,
Central Excise and Customs,
N-5, Town Centre, CIDCO,
Aurangabad 431 003 ..Petitioner
Vs.
1. M/s. India Containers Ltd.,
Plot No.B-10/2, MIDC, Waluj
Aurangabad, at and District
Aurangabad through its
Managing Director,
2. Shri Alex Rodriguez,
Age-Major, Occ. Director
of respondent no.1
Company, r/o. Waluj
r/o. Waluj, Aurangabad
3. Shri. A.M.Kulkarni,
Age-Major, Occ. Commercial
and HRD of respondent no.1
Company, r/o. Waluj,
Aurangabad
4. V.D.Bindu,
Age-Major, Occ. Plant Manager,
of respondent no.1 Company
r/o. Waluj, Aurangabad ..Respondents
--
Mr.D.S.Ladda, Advocate for petitioner
Mr.P.R.Patil, Advocate for respondent nos.1 to 4
--
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CORAM : T.V. NALAWADE AND
SANGITRAO S. PATIL, JJ.
JUDGMENT RESERVED ON: 8th June, 2017
JUDGMENT PRONOUNCED ON: 23rd June, 2017
JUDGMENT (PER SANGITRAO S. PATIL, J.)
The legality and correctness of the order
dated 28.02.2003 in Appeal Nos.E/1369, 1370, 1371
and 1372 of 2000 passed by the Customs, Excise and
Gold (Control) Appellate Tribunal, West Region,
Bench at Mumbai ("the Tribunal", for short) has
been challenged by this Writ Petition to the
extent it quashed and set aside the order, by
which the petitioner, i.e. the Commissioner,
Central Excise and Customs, Aurangabad, disallowed
MODVAT credit for Rs.23,87,575/- obtained by
respondent no.1, imposed penalty of Rs.50,00,000/-
on respondent no.1 and further imposed penalty of
Rs.5,00,000/- Rs.1,00,000/- and Rs.50,000/-
against respondent nos.2, 3 and 4, respectively.
2. Respondent no.1 is a company holding
Central Excise registration certificate for the
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manufacture of "oval tin cans for Colgate Tooth
Powder" falling under Chapter 73, sub-heading no.
7310.00 of Central Excise Tariff Act, 1985
("CETA", for short). Respondent no.2 is the
Director, respondent no.3 is the Manager
(Commercial and HRD) and respondent no.4 is the
Plant Manager of respondent no.1.
3. The required thickness of tin plates for
manufacturing oval tin cans ranges between 0.14
mm. and 0.24 mm. Respondent no.1 was getting the
said tin cans painted from M/s.Divecha Glass
Company being a job worker of respondent no.1. It
was noticed that the tin plates were directly
delivered at the job worker's end i.e. M/s.Divecha
Glass Company for printing. The printed tin plates
received from M/s.Divecha Glass Company were
inspected to check their thickness, width and
print quality whereon, it was noticed that the
printed tin plates were of the thickness ranging
between 0.18 mm. and 0.26 mm. (inclusive of
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thickness of print i.e. 0.02 mm.). The tin plates
having thickness over 0.26 mm. were not found to
have been used for manufacturing oval tin cans.
However, it was noticed that during the period
1993-94 to 1997-98, respondent no.1 received
MODVAT credit on the tin plates having thickness
above 0.26 mm., which, in fact, was not used for
manufacturing oval tin cans. It was, therefore,
alleged that respondent no.1 availed of MODVAT
credit on the tin plates of having thickness more
than 0.26 mm. and replaced them by tin plates of
lower thickness purchased from local traders.
Respondent no.1 - Company availed of irregular
MODVAT credit of Rs.69,66,185/- during the period
from 1993-94 to 1997-98. It was alleged that the
modus-operandi of respondent nos.1 to 4 and their
employees was to import the tin plates of
thickness of more than 0.24 mm., to send them
directly to the job worker for printing, to
replace them at job worker's end and to receive
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back the printed tin plates of lesser thickness
than 0.26 mm.
4. The learned Counsel for the petitioner
submits that the petitioner issued notice dated
05.09.1998 to the respondents calling upon them to
show cause as to why the amount of Rs.69,66,185/-
towards availment of inadmissible MODVAT credit,
during the period from 1993-94 to 1994-98 should
not be disallowed and recovered from them under
Rule 57-I of the Central Excise Rules, 1944 ("the
Rules", for short) read with the proviso to
Section 11A (1) of the Central Excise Act, 1944
("the Act", for short) after adjusting the amount
of Rs.4,64,000/-, which was already paid by them,
with interest under the proviso to Section 11 AB
of the Act; and further why penalty should not be
imposed upon them under Rules 57-I and 209 A of
the Rules and Section 11AC of the Act for
contravention of the Rules. The learned Counsel
submits that after considering the replies filed
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by the respondents and the statements of
respondent nos.3 and 4 as well as that of other
employees of respondent no.1, the petitioner, by
passing a detail and reasoned order on 14.02.2000,
rightly disallowed the MODVAT credit of
Rs.38,38,569.34 and further imposed penalties of
Rs.50,00,000/- on respondent no.1, and
Rs.5,00,000/- on respondent no.2, Rs.1,00,000/- on
respondent no.3 and Rs.50,000/- on respondent
no.4.
5. The order passed by the petitioner was
challenged before the Tribunal by filing the above
numbered four separate appeals by respondent nos.1
to 4. The Tribunal, after hearing both sides,
allowed partly the appeal filed by respondent no.1
and set aside the order of the petitioner
disallowing MODVAT credit availed of by respondent
no.1 to the extent of Rs.23,87,575/- and also
imposing penalty of Rs.50,00,000/- on respondent
no.1. The Tribunal further fully allowed the
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appeals of respondent nos.2 to 4 and set aside the
order of the petitioner directing them to pay
penalties. The part of the order of the petitioner
directing respondent no.1 to pay duty of
Rs.14,50,994.34 on account of the MODVAT credit
wrongly obtained, came to be confirmed.
6. The learned Counsel for the petitioner
submits that the Tribunal erroneously set aside
the part of order passed by the petitioner though
it was evident from the statements of respondent
nos.3 and 4 as well as other employees that the
thickness of the tin plates used for manufacturing
oval tin cans, was ranging between 0.14 mm. and
0.24 mm., while respondent no.1 availed of MODVAT
credit on the tin plates having thickness of more
than 0.26 mm. According to him, the Tribunal
wrongly ignored the statements of respondent nos.3
and 4 and that of other employees. He submits that
the Tribunal wrongly held that respondent no.1 was
not required to pay penalty since Rule 173-Q of
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the Rules was not applicable to the present case.
He submits that wrong mention of the Rule would
not come in the way of inflicting penalty under
the relevant Rules applicable to the established
facts. He further submits that the modus-operandi
adopted by respondent no.1 in replacing the tin
plates was the brain-child of respondent
nos.2 to 4. They played fraud in order to enable
respondent no.1 to claim MODVAT credit illegally.
Therefore, the Tribunal was not correct in setting
aside the order of the petitioner inflicting
penalty on respondent nos.2 to 4. He, therefore,
submits that the impugned part of the order of the
Tribunal may be set aside and that of the
Commissioner, may be restored.
7. On the other hand, the learned Counsel
for the respondents submits that the Writ Petition
is not maintainable since there was an efficacious
alternate remedy available to the petitioner to
challenge the order of the Tribunal. He submits
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that the Tribunal has given specific reasons for
setting aside the part of the order passed by the
petitioner. The learned Counsel supports the
reasons given in the impugned order and prays that
the Writ Petition may be dismissed.
8. The learned Counsel for the petitioner
submits that he has specifically mentioned in
paragraph 10 of the Writ Petition that this High
Court has held that the judgment of the Tribunal
can be challenged by filing Writ Petition instead
of availing circuitous route by making reference
at the behest of the department. He has referred
to a judgment of the Hon'ble Apex Court in L.
Chandrakumar Vs. Union of India and others,
(1997)3 SCC 261, wherein it has been held that the
judgment of the Tribunal is subject to judicial
review under Articles 226 and 227 of the
Constitution of India. This legal position
remained uncontroverted. In this view of the
matter, we are not inclined to accept the
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contention of the learned Counsel for the
respondents that the Writ Petition is not
maintainable for challenging the judgment of the
Tribunal before the High Court. The Writ Petition
is, thus, maintainable.
9. The MODVAT credit was introduced in the
budget of the Central Government in the financial
year 1986-87. A perusal of the MODVAT scheme shows
that it is a system in which a manufacturer is
entitled and allowed to take instant credit of the
central excise duty paid on the inputs which are
subsequently to be used by him for manufacture of
finished products liable to excise duty. The said
scheme avoids the payment of duties on earlier
duties paid. It allows the manufacturer to obtain
instant and complete reimbursement of the excise
duty paid on the components and the raw materials.
Under the said scheme, respondent no.1 is stated
to have obtained MODVAT credit in respect of the
material worth Rs.17,86,655/- as described in
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Anx.'B-1', Rs.23,87,575/- on the material
described in Anx.'B-2' and Rs.27,91,955/- on the
material as described in Anx.'B-3' having total of
Rs.69,66,185/-. According to the petitioner,
respondent no.1 wrongly obtained the MODVAT credit
of the said amount. Therefore, as per the show-
cause notice dated 05.09.1998, the said amount was
proposed to be disallowed and recovered from
respondent no.1 on account of wrong availment of
MODVAT credit.
10. As seen from the order passed by the
petitioner, the petitioner himself did not confirm
the demand for Rs.27,91,955/- in respect of the
material described in Anx.'B-3' on the ground that
the thickness of the tin plates was not mentioned
in the record maintained by respondent no.1. The
petitioner, however, disallowed the MODVAT credit
in respect of the amounts mentioned in Anx.'B-1'
and Anx.'B-2'.
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11. The Tribunal firstly considered the
question of limitation and specifically held that
respondent no.1 never disclosed the vital
information of specifications of the tin plates
required for manufacture of oval tin cans, which
led the department to believe that the credit has
been availed correctly. The Tribunal further
observed that no arguments had been advanced by
the respondents regarding time barred nature of
the demand made by the petitioner. These findings
of the Tribunal have not been challenged by the
respondents by filing any proceedings and have
attained finality. Therefore, it would not be open
for the respondents to challenge the demand made
by the petitioner for refund of the MODVAT credit,
on the ground that it is beyond the period of
limitation. The petitioner has rightly held that
the demand of refund of the MODVAT credit wrongly
obtained during the period from 1993-94 to 1997-
13 WP-1662-04
98, is well within the limitation as contained in
the proviso to Section 11A of the Act.
12. The Tribunal confirmed the order passed
by the petitioner disallowing the MODVAT credit of
Rs.17,86,655/- as described in Anx.'B-1'. After
giving benefit of Rs.3,35,660/-, being the amount
already paid on the invoice while clearing the tin
plates, the amount of Rs.14,50,994/- was held to
be due and payable from respondent no.1 out of the
amount mentioned in Anx.'B-1'. This part of the
order of the Tribunal has not been challenged by
respondent no.1. It has got finality.
13. The petitioner had disallowed the MODVAT
claim of Rs.23,87,575/- in respect of the material
described in Anx.'B-2' and ordered recovery
thereof from respondent no.1. However, the
Tribunal set aside this part of the order on the
ground that the description of the tin plates
given in that annexure can also cover inputs (tin
14 WP-1662-04
sheets/tin plates) below 0.24 mm. in thickness.
Therefore, in the absence of any independent
finding that these inputs were found to be of
thickness exceeding 0.24 mm., the demand made in
respect of this amount is not sustainable.
Anx.'B-2' shows thickness of tin plates in Column
No.5, which is ranging between 0.30 mm. and 0.49
mm. and thinner. It is true that the description,
as to thickness of tin plates as has been given in
Column No.5, is somewhat ambiguous in the sense
the word 'thinner' is suffixed to the specific
thickness of the tin plates. However, for
considering thickness of the tin plates described
in Anx.'B-2', the petitioner has referred to the
statements of Sanjay Kurkute, Store-Assistant;
Pradeep Vaishnav, In-charge of Production
Department; H.T.Mahajan, Ex. Commercial Officer,
K.L.Santosh, In-charge of Raw Material Purchase
and that of respondent nos.2 to 4, recorded by the
petitioner under sub-Section (2) of Section 14 of
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the Act. It is well settled that the statements of
the persons recorded under the said provision, if
not retracted subsequently, would be of binding
nature and can be acted upon.
14. K.L.Santosh has stated that there was no
documentary proof to show that the tin plates of
thickness of 0.14 mm. and 0.24 mm. only were
received vide bills of entry and invoices having
description as 0.40 mm. and below. H.T.Mahajan
deposed that tin plates were sold to
M/s.K.P.Electricals, M/s.Shamwik Industries and
M/s.Inamide Engineering, which were of more than
0.26 mm. thickness and were cleared from
M/s.Divecha Glass Company. He deposed that the
sale invoices were issued from respondent no.1. He
admits that respondent no.1 availed of the MODVAT
credit which was inadmissible as the tin plates
were not received in the factory and the same were
cleared from their job worker's end i.e.
M/s.Divecha Glass Company.
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15. Respondent no.4 deposed that they had
prepared fake Goods Inspection Request (GR) for
bare tin plates even when they had not received
the tin plates in the factory physically. He
further deposed that the tin plates were sold to
M/s.Divecha Glass Company, M/s.Shamvik Containers
Pvt. Ltd. and M/s. K.P.Electricals and delivery
was effected from M/s.Divecha Glass Company.
However, they availed the MODVAT credit on the
total quantity received. He further deposed that
respondent no.1 has availed and utilised the
MODVAT credit on the tin plates which were not
used for manufacture of oval tin cans.
16. K.L.Santosh, in his statement recorded on
06.01.1998, deposed that during the years 1994-95
and 1995-96, respondent no.1 received some bare
tin plates of thickness of more than 0.24 mm.,
which were not used, but the MODVAT was
irregularly availed of in the sum of
Rs.7,69,270/-.
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17. The above-named persons examined by the
petitioner disclosed that the necessary record was
not maintained and fake record was created in
respect of the tin plates of which, MODVAT credit
was obtained.
18. As per Rule 173-G, it was incumbent on
the part of respondent no.1 to maintain accounts
of production, manufacture, storage, delivery or
disposal of goods including the material received
for or consumed in the manufacture of excisable or
other goods. The purpose of maintaining the
accounts of raw material was obviously for
checking of evasion of excise duty. Respondent
no.1 was required to follow the procedure
prescribed in the Rule for maintaining the
accounts. However, as seen from the statements of
the persons referred to above, respondent no.1 did
not follow the prescribed procedure in maintaining
the accounts. It was necessary for respondent no.1
to mention the correct description of the tin
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plates purchased for manufacture of oval tin cans
of which, MODVAT credit was proposed to be
obtained or obtained.
19. The thickness of the tin plates seems to
have been deliberately kept ambiguous in
Anx.'B-2'. However, from Column No.5 of Anx.B-2',
it is clear that the tin plates having thickness
ranging from 0.30 mm. to 0.49 mm. also were
purchased by respondent no.1. It was, therefore,
necessary for respondent no.1 to specifically
classify and state the quantity of the tin plates,
which were having thickness below 0.24 mm. as well
as above 0.24 mm. The petitioner has rightly held
that respondent no.1 has deliberately suppressed
the said information. If that be so, respondent
no.1 cannot be allowed to take benefit of its own
wrong and it will have to be held that the tin
plates described in Anx.'B-2' were of thickness
above 0.24 mm. and were not used by respondent
no.1 for manufacturing oval tin cans.
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20. The Tribunal has totally ignored the
statements of the persons referred to above
recorded by the petitioner under sub-section (2)
of Section 14 of the Act, which have evidenciary
value. The impugned order passed by the Tribunal
is totally silent as to why the said statements
were not accepted by the Tribunal. There is
absolutely no reference of these statements in the
impugned order passed by the Tribunal. The
Tribunal has rejected the demand in the sum of
Rs.23,87,575/- by giving a single-sentenced reason
that the description as to thickness of the
material described in Anx.'B-2', can also cover
the tin plates below 0.24 mm. The petitioner has
given sound reasons for disallowing the MODVAT
credit in the sum of Rs.23,87,575/- in respect of
the tin plates described in Anx.'B-2'. We are not
inclined to subscribe to the single-sentenced
reasoning of the Tribunal for rejecting the demand
for the said amount. We, therefore, hold that
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respondent no.1 is liable to repay the said amount
since respondent no.1 has wrongly obtained the
MODVAT credit in respect of the said amount.
21. The petitioner has inflicted penalty of
Rs.50,00,000/- under Rule 173-Q of the Rules on
respondent no.1. As per sub-rule (1) Clause (bb) of
Rule 173-Q of the Rules, if any manufacturer,
producer or licensee of warehouse takes credit of
duty in respect of inputs used in the manufacture
of final products wrongly or does not utilise the
inputs in the manner provided for in the Rules or
utilises the credit of duty in respect thereof in
an irregular manner, then all such goods shall be
liable to confiscation and the manufacturer,
producer or the licensee of the warehouse shall be
liable to a penalty not exceeding three times the
value of the excisable goods in respect of which,
such contravention has been committed or
Rs.5,000/-, whichever is greater.
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22. As discussed above, respondent no.1 has
obtained MODVAT credit wrongly in the sum of
Rs.14,50,994/- plus Rs.23,87,575/- having total of
Rs.38,38,569/-. Consequently, in view of this Rule,
respondent no.1 was liable to pay penalty as
contemplated under this Rule. The Tribunal has set
aside the order for payment of penalty merely on
the ground that in the show-cause notice, the
petitioner has proposed penalty under the
provisions of Rule 57-I of the Rules read with
proviso to Section 11A(1) of the Act and not under
Rule 173-Q of the Rules.
23. The learned Counsel for the petitioner
cited the judgment in the case of J.K.Steel Ltd.
Vs. Union of India, 1978(2) E.L.T. J 355(S.C.),
wherein it has been held that if the exercise of a
power can be traced to a legitimate source, the
fact that the same was purported to have been
exercised under a different power does not vitiate
the exercise of the power in question. The learned
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Counsel for the petitioner further cited the
judgment in the case of Collector of Central
Excise, Calcutta Vs. Pradyumna Steel Ltd., (2003)9
SCC 234, wherein it has been held that mere mention
of a wrong provision of law when the power
exercised is available even though under a
different provision, is by itself not sufficient to
invalidate the exercise of that power.
24. Thus, mention of wrong Rule in the demand
notice would not be an impediment in the way of the
petitioner in inflicting penalty under the correct
Rule though the said Rule was not quoted in the
demand/show-cause notice. From the contents of the
show-cause notice, it is clear that respondent no.1
was made aware that it would be liable to pay
penalty for obtaining MODVAT credit wrongly.
Respondent no.1 has put forth its defence against
the demand for penalty and has got an opportunity
to contest that claim. As such, no prejudice can be
said to have been caused to respondent no.1 because
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of wrong mention of Rule in the show-cause notice
under which, penalty was sought to be imposed on
respondent no.1
25. As stated above, the total amount of
Rs.38,38,569.34/- was wrongly availed of by
respondent no.1 on account of MODVAT credit.
Therefore, we are of the view that respondent no.1
should pay penalty at least to the extent of this
sum, though not in the sum of Rs.50,00,000/- as has
been ordered by the petitioner.
26. So far as the order of the petitioner
passed against respondent nos.2 to 4 directing them
to pay penalty in the sum of Rs.5,00,000/-,
Rs.1,00,000/- and Rs.50,000/- respectively, is
concerned, we subscribe to the findings of the
Tribunal setting aside that part of the order. The
Tribunal has observed that respondent nos.2 to 4
looked-after the affairs of respondent no.1 -
Company in Aurangabad, while substitution of the
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imported inputs is stated to have been done at
Mumbai at the end of the job-worker M/s.Divecha
Glass Company. We, therefore, do not think it fit
to interfere with the order passed by the Tribunal
setting aside the order passed by the petitioner
directing respondent nos.2 to 4 to pay the penalty.
27. The Writ Petition is liable to be allowed
partly. Respondent no.1 will have to be directed to
repay the amount of Rs.38,38,569/- towards wrong
availment of MODVAT credit with penalty in the
equal sum i.e. Rs.38,38,569/-. The amount, if any,
repaid by respondent no.1 would liable to be
adjusted against the amount that has been directed
to be repaid by this order. Respondent no.1 shall
repay the said amount within three months from
today, failing which it would be liable to pay
interest on that amount at the rate of Rs.10% per
annum.
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28. In the result, we pass the following
order:-
(i) The Writ Petition is partly allowed.
(ii) The impugned order passed by the Tribunal
is partly quashed and set aside.
(iii) Respondent no.1 shall repay the amount of
Rs.38,38,569/- towards the MODVAT credit wrongly
availed of plus penalty of Rs.38,38,569/-, i.e.
total amount of Rs.76,77,138/-, within a period of
three months from today, failing which respondent
no.1 shall pay it with interest at the rate of 10%
per annum from the date of this order, till the
repayment of the said amount.
(iv) The amount, if any, repaid by respondent
no.1 earlier on account of MODVAT wrongly availed
of, shall be adjusted towards repayment of the
amount that has been directed to be repaid by this
order.
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(v) Rule is made partly absolute accordingly.
(vi) No costs.
[SANGITRAO S. PATIL, J.] [T.V. NALAWADE, J.]
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