The Commissioner Of Central Excis ... vs M/S Sapna Engineering And Anr
2017 Latest Caselaw 700 Bom

 suresh                                            7-CEXA-90.2006.doc


          IN THE HIGH COURT OF JUDICATURE AT BOMBAY
              ORDINARY ORIGINAL CIVIL JURISDICTION
                CENTRAL EXCISE APPEAL NO.90 OF 2006


 The Commissioner of Central Excise,
 Mumbai-I, having its office at 
 Commissionerate of Central Excise, 
 Mumbai-I, Opp: Churchgate Railway
 Station, Mumbai - 400 020.                           ....  Appellant

          - Versus -

 1. M/s. Sapna Engineering,
     313, Rgakkhar Industrial Estate,
     20, Chapsi Bhimji Road, Mazgaon,
     Mumbai - 400 010.

 2. Shitala Prasad Sharma,
     Manager of M/s. Sapna Engineering
     and Proprietor of Neha Refrigeration,
     313, Thakkar Industrial Estate,
     20, Chapsi Bhimji Road, Mazgaon,
     Mumbai - 400 010.                                ....  Respondents


 Ms P.S. Cardozo with Mr. Joel A. Carlos for the 
 Appellant.
 Mr. V.M. Doiphode i/by M/s. V.M. Doiphode & Co.
 for the Respondents.




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  suresh                                                  7-CEXA-90.2006.doc

                                     CORAM: S.C. DHARMADHIKARI &
                                                    B.P. COLABAWALLA, JJ.

DATE : MARCH 14, 2017

ORAL JUDGMENT (Per Shri S.C. DHARMADHIKARI, J.) :

1. By this appeal, which was admitted on a substantial

question of law, the Tribunal's Order is challenged.

2. The appeal is admitted on the following substantial

question of law:-

"Whether M/s Neha Refrigeration was a necessary and/or proper party in the adjudication of the show cause notice which was issued to Respondent No.1 and therefore whether the Tribunal was right in interfering with the original order dated 29th January 2004 passed by the Commissioner (Adjudication) and in allowing the appeals preferred therefrom?"

3. Upon hearing both sides, we do not think that the

question, as framed, requires any answer for it did not arise in

the facts and circumstances peculiar to this case.

4. The Revenue brought this appeal thinking that the

Tribunal will proceed hereafter and in all matters that a show

suresh 7-CEXA-90.2006.doc

cause notice addressed by it to a sole proprietor does not meet

the requirement of law. A notice and independently be

addressed to the sole proprietary concern. Addressing a notice to

the sole proprietor does not serve the purpose of law.

5. We do not see how the Revenue can entertain this

apprehension and in every given case.

6. The respondents before us, and particularly the

second respondent, an individual, were proceeded against on

the allegation that they are engaged in the manufacture of parts

of air-conditioning and refrigerating appliances. These goods fall

under Chapter Heading Nos.84.15 and 84.18 of the Central

Excise Tariff Act, 1985. During the period under consideration -

from 3-9-1993 to 21-7-1997 - they manufactured and cleared

the said goods without payment of duty in the guise of repaired

goods and using documents of a fictitious firm, M/s. Neha

Refrigeration. Acting on this intelligence which was received, the

premises of the respondents and other group concerned were

searched on 22-7-1997 and which revealed that the four entities

suresh 7-CEXA-90.2006.doc

are manufacturing concerns. The individual, Shitala Prasad

Sharma, is the Manager of M/s. Sapna Engineering. M/s. Sapna

Engineering is one of the four units holding a central excise

registration. It was a manufacturing concern. They were all

controlled by one Subhash Chandra Sharma. Mr. Shitala Prasad

Sharma was proceeded against as Manager of M/s. Sapna

Engineering. Upon all these allegations and namely that the

goods manufactured were supplied to companies like

M/s. Voltas Limited, who made payments through cheques, and

the materials required for the production of these goods were

purchased in cash, the goods were manufactured by M/s. Sapna

Engineering and were cleared without payment of duty under

documents of M/s. Neha Refrigeration and two other fictitious

companies.

7. The show cause notice, copy of which is at page 50

of the paper-book, is addressed to M/s. Sapna Engineering,

Mr. Subhash Chandra Sharma, one Mr. Manoj Sharma and

respondent No.2 Mr. Shitala Prasad Sharma, Manager of

M/s. Sapna Engineering.

suresh 7-CEXA-90.2006.doc

8. The allegations are that, the central excise duty in

respect of goods manufactured and then cleared under the

invoices of M/s. Neha Refrigeration, without payment of duty,

ought to be recovered with interest and penalty. The penalty

that was imposed on respondent No.2, natural person Shitala

Prasad Sharma, was for violating Rule 209A of the Central

Excise Rules, 1944.

9. An Order-in-Original was passed on these allegations

and holding them to be proved. The penalty was imposed on

Shitala Prasad Sharma for the acts and held to be proved in

terms of para 45 of the Order-in-Original. That Order-in-Original

was passed on 29-1-2004.

10. Aggrieved and dissatisfied with this, appeals were

brought before the Tribunal. The appeals were filed by

M/s. Sapna Engineering. One of the grounds and raised in the

memo of appeals was that the Commissioner ought to have gone

through the entire record, and particularly the materials which

denote that M/s. Neha Refrigeration is an entity potentially

suresh 7-CEXA-90.2006.doc

capable of engaging into any business, but not engaged in

manufacture of repairing of condensers. When the

Commissioner found that M/s. Neha Refrigeration did exist as

an entity potentially capable of engaging into any business, he

should have held further that the present proceedings alleging

that M/s. Neha Refrigeration is a fictitious non-existing entity,

cannot be sustained. That cannot be sustained without issuing a

notice to M/s. Neha Refrigeration and further calling upon it to

explain the charges against it. The confirmation of the charges

by holding that M/s. Neha Refrigeration did not engage in

repairs and reconditioning coils and that the goods cleared

under the documents of M/s. Neha Refrigeration in the guise of

repaired coils and condensers were manufactured by M/s. Sapna

Engineering is, therefore, not tenable in law because M/s. Neha

Refrigeration was not a party to the proceedings.

11. The Tribunal, after hearing both sides, came to the

following two conclusions:-

"(i) The Show Cause Notice issued to the Appellants M/S. SAPNA ENGINEERING, demanding

suresh 7-CEXA-90.2006.doc

duty in respect of the goods cleared under the invoices of M/S. NEHA REFRI- alleging that it was floated by the appellants and it existed only on paper as it did not have any factory or manufacturing facility for manufacture of condensers or evaporator coils or other parts of Air-Conditioning and refrigerating appliances. That the goods on which duty had been demanded were cleared in the documents of M/S. NEHA REFRIGERATION. However, No Show Cause Notice has been issued to M/S. NEHA REFRIGERATION asking them to show cause as to why M/S. NEHA REFRIGERATION should not be considered a dummy unit of the appellants. The Ld. Advocate for the appellants have referred to the Judgments cited above in the case of Ogesh Industries, K.R. BALACHANDRAN and Poly Resins in support of his contention that the Show Cause Notice is vitiated and bad in law as no Show Cause Notice was issued to M/S. NEHA REFRIGERATION and therefore M/S. NEHA REFRIGERATION did not have opportunity to establish genuineness of the contents recorded in the documents. Therefore, the proceedings should fail on this account.

(ii) The Ld. Commissioner in his findings, has considered M/S. NEHA REFRIGERATION as an existing entity potentially capable of engaging in any business but did not exist as a unit engaged in the manufacture of condensers, evaporators etc. Thus, when the Ld Commissioner has himself agrees and finds nothing amiss about the existence of M/S. NEHA REFRIGERATION as an existing entity, potentially capable of engaging in business The Show Cause Notice ought to have been issued to M/S. NEHA REFRIGERATION should not be considered as a dummy unit of the Appellants. That not having been complied, we would hold that the entire proceedings initiated by the Show Cause Notice are vitiated and

suresh 7-CEXA-90.2006.doc

bad in law and accordingly the impugned order is not sustainable in law and accordingly the impugned order is required to be set aside the same on this ground alone."

12. It is upon these findings of the Tribunal that the

Revenue feels that the premise on which the Tribunal proceeded

is erroneous in law.

13. After hearing Ms Cardozo at great length, we are

unable to agree with her. The Tribunal did not proceed on the

line suggested by the Revenue to this Court at the stage of

admission of this appeal. The Tribunal did not proceed on the

footing that a sole proprietary concern does require a notice to

be addressed not only to the concern but also to the proprietor

and the notice being addressed to the proprietor alone will not

suffice. The Tribunal did not proceed on the footing that the sole

proprietary concern has an existence independent of the sole

proprietor. This is a complete mis-reading of the Tribunal's

factual findings.

14. The Tribunal held that the central excise duty being

what it is, namely, a duty on manufacture, and once the

suresh 7-CEXA-90.2006.doc

Commissioner concluded that the goods were manufactured and

cleared through a fictitious unit which was very much capable of

carrying on business and indeed carried on business, then, it

should have been independently proceeded against by issuing a

notice and calling for its explanation. Then that would proceed

on the footing that it manufactured excisable goods. It

manufactured excisable goods and yet it allowed the goods to be

cleared as belonging to some other unit by permitting the usage

of its own premises and that violates the law. That is how the

Commissioner should have proceeded once he found that

M/s. Neha Refrigeration is not a fictitious unit. Once M/s. Neha

Refrigeration did not have the opportunity to establish the

genuineness of the contents of the documents, then, all other

findings of the Commissioner are vitiated. That is how it has

been held to be prejudiced. In any event, the appeals have been

allowed also by holding that this is not a case where M/s. Sapna

Engineering have carried out activities of manufacturing coils on

which the duty has been demanded. Such an evidence does not

exist. The finding of fact is that the appellants did not have the

suresh 7-CEXA-90.2006.doc

capacity to manufacture all the parts of air-conditioner and

refrigerator appliances on which duty has been demanded. The

finding of fact about absence of co-relation appearing in paras

4(iv) and 4(v) would denote that the allegations in the show

cause notice could not be substantiated against M/s. Sapna

Engineering as well. The finding further goes that there is

independent evidence supporting the contention of M/s. Sapna

Engineering that defective coils were repaired by M/s. Neha

Refrigeration and duly confirmed by all employees of

M/s. Voltas Limited. M/s. Voltas Limited have been completely

exonerated. It is in these circumstances that the Commissioner's

Order was set aside. Both the appeals were allowed. Thus, these

are findings not just on any legal issues but on merits. The

appreciation and appraisal of the documentary and oral

evidence by the Commissioner was faulted by the Tribunal. Its

detail finding would indicate that show cause notice should have

been issued to M/s. Neha Refrigeration asking them as to why

they should not be termed as a dummy unit. That show cause

notice was not issued. However, apart from this, even on merits

suresh 7-CEXA-90.2006.doc

there was no material to hold that M/s. Neha Refrigeration was

a dummy unit. That is how the Tribunal proceeded and once it

proceeds on this line, we do not see any basis for the

apprehension that the Tribunal's understanding of the legal

provision is flawed. The Tribunal will not and necessarily in

every matter of this nature proceed to hold that a notice to the

sole proprietor would not suffice in law and in addition an

independent notice should be addressed and to the sole

proprietary concern. That is not how the Tribunal has

proceeded. We do not see how the substantial question, as

framed, would arise from any factual findings in the Tribunal's

Order. By clarifying that this question does not arise from the

impugned Order of the Tribunal, and if at all it arises in any

future case, it shall not be taken to have been decided by this

Court by mere confirmation of the Tribunal's Order impugned in

this case, We, therefore, dispose of this appeal.

15. We clarify that the substantial question of law on

which this appeal was admitted and arising in any other case

would be decided by this Court independent of the disposal of

suresh 7-CEXA-90.2006.doc

this appeal and any findings in the present Judgment. Once the

question does not arise at all from the impugned Order, then, it

does not require any answer. That question, as framed, is kept

open for decision in an appropriate case.

16. The appeal stands disposed of accordingly.

(B.P. COLABAWALLA, J.) (S.C. DHARMADHIKARI, J.)