Supermax Personal Care Pvt. Ltd vs The Union Of India And Ors
2021 Latest Caselaw 6245 Bom

(7)-WPST-5922-20.doc.

          IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                  CIVIL APPELLATE JURISDICTION

                 WRIT PETITION (STAMP) NO.5922 OF 2020

Supermax Personal Care Pvt. Ltd.,
a Company incorporated
under the Companies Act, 1956
and having its factory at
L.B.S. Road, Wagle Industrial Estate,
Teen Hath Naka, Opp. Eternity Mall,
Thane (West)-400 604.                                 ..Petitioner

       Versus

1. Union of India,
   Through its Secretary,
   Department of Revenue,
   Ministry of Finance, Government of
   India, Central Secretariat, North Block,
   New Delhi-110 001.

2. Commissioner CGST & CEX
   Audit-Thane, having office at
   Piramal Chambers, 9th Floor,
   Jijibhoy Lane, Lalbaug, Parel,
   Mumbai-400 012.

3. Commissioner CGST & CE
   Thane Commissionerate, having office
   at Nav Prabhat Chambers, 9th Floor,
   Ranade Road, Dadar (W), Mumbai-28.                 ..Respondents


Mr. Prakash Shah a/w Mr. Mihir Mehta and Mr. Jas Sanghavi i/by PDS Legal,
for for the Petitioner.

Mr. Pradeep S. Jetly, Senior Counsel a/w Mr. J. B. Mishra, for the Respondents.

                                    CORAM : UJJAL BHUYAN &
                                            MILIND N. JADHAV, JJ.

                           RESERVED ON : 11.02.2021
                        PRONOUNCED ON : 08.04.2021



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JUDGMENT (Per Ujjal Bhuyan, J.)

Heard Mr. Prakash Shah, learned counsel for the petitioner and

Mr. Pradeep S. Jetly, learned senior counsel for the respondents.

2. By filing this petition under Article 226 of the Constitution of

India, petitioner seeks quashing of show cause-cum-demand notice dated

26.05.2020 issued by the Commissioner of Central Goods and Services Tax and

Central Excise, Audit-Thane i.e. respondent No.2.

3. Case of the petitioner is that it is a company registered under the

Companies Act, 1956 and is engaged in the business of manufacturing of

excisable goods, such as, safety razors, blades and shaving system as well as

cold rolled stainless steel strips falling under Chapters 82 and 72 of the Central

Excise Tariff Act, 1985 (briefly "the 1985 Act" hereinafter). It is stated that

petitioner has its factories at Wagle Industrial Estate, Thane-400 604; Pritesh

Complex, Dapoda Road, Bhiwandi; Thane Nasik Highway, Bhiwandi; and also

at Hyderabad. Apart from such factories petitioner has depots and clearing and

forwarding (C & F) agents at various locations across India.

4. In the ordinary course of business petitioner had availed CENVAT

credit of the excise duty/service tax paid on inputs/inputs services and utilized

the same for payment of excise duty on the goods manufactured by the

petitioner. Be it stated that the assessable value for payment of excise duty on

the final produce, namely, safety razor blades and shaving system are

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determined under section 4A of the Central Excise Act, 1944 (briefly "the

Central Excise Act" hereinafter) i.e. maximum retail price declared on the

package less prescribed abatement.

5. Petitioner has described the process of manufacturing carried out

by it in converting the raw material i.e. cold rolled stainless steel strips into the

finished product i.e. safety razor blade and shaving system. It is stated that

petitioner had entered into an agreement dated 07.10.2011 with Tigaksha

Metallics Pvt. Ltd. ("Tigaksha" for short) for the purpose of processing of the

goods on job work basis as per the terms and conditions contained therein. This

agreement was renewed by three successive agreements dated 07.10.2012,

07.10.2013 and 01.04.2014. It is stated that petitioner had entered into another

agreement dated 01.04.2015 with Tigaksha for further processing of petitioner's

goods including packaging for retail sale. The agreement dated 01.04.2015 was

for the period 01.04.2015 to 31.03.2018.

5.1. Petitioner has stated that the language and clauses of all the

agreements entered into by the petitioner with Tigaksha were identical.

6. Petitioner had transferred some of the intermediate/semi-finished

goods on payment of excise duty at 110% of the cost of production under Rule 8

of the Central Excise Valuation (Determination of Price of Excisable Goods)

Rules, 2000 (referred to hereinafter as "the Valuation Rules") to one of its

depots situated at Garget, Una, Himachal Pradesh. The goods were consigned

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to Tigaksha at Garget, Una, Himachal Pradesh for further processing under the

aforesaid agreements i.e. agreement dated 01.04.2014 and agreement dated

01.04.2015.

7. Petitioner has explained that the main input/raw material used by

the petitioner is the cold rolled stainless steel coils which the petitioner receives

on payment of duty from its suppliers at its factory at Thane. Petitioner had

availed credit of the excise duty paid thereon under Rule 3 of the CENVAT

Credit Rules, 2004 (also referred to as "the CENVAT Credit Rules"). Thus,

petitioner processed the said cold rolled stainless steel coils into strips and

further processed into blades and other components of shaving system

transferring those to its branch at Una, Himachal Pradesh where those were

consigned to Tigaksha on payment of excise duty under Rule 8 of the Valuation

Rules i.e. @ 110% of the cost of production. Invoices for such clearance of the

processed goods were billed to its own depot at Garget, Una, Himachal Pradesh

and were consigned directly to Tigaksha for further manufacturing. Such

clearances were treated as branch transfer and as such no Central Sales Tax was

payable and paid by the petitioner on such branch transfer.

8. Tigaksha claimed exemption from payment of excise duty on the

goods manufactured by it including for the job work done for the petitioner in

terms of Notification Nos.49/2003 and 50/2003, both dated 10.06.2003. Those

notifications being area based notifications, Tigaksha did not take credit of the

duty paid by the petitioner on the goods supplied by it to Tigaksha for job work

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at the time of removal of the goods from the petitioner's factory at Thane as

Tigaksha had claimed exemption from payment of duty on the goods

manufactured by it. Tigaksha manufactured final products, namely, safety razor

blades and shaving system from out of goods supplied by the petitioner on job

work and cleared those goods for home consumption without payment of excise

duty. Tigaksha delivered the final products to the petitioner at its depot at

Garget, Una, Himachal Pradesh. The final products manufactured by Tigaksha

were packaged commodity with maximum retail price affixed on the package as

per the Legal Metrology Act, 2009 under which the maximum retail price was

inclusive of all taxes. The final products are transferred by the petitioner from

Garget, Una, Himachal Pradesh to its various depots and C & F agents across

India from where the goods are sold by the petitioner on payment of Value

Added Tax/Central Sales Tax, as may be applicable

9. The package of the goods manufactured by Tigaksha clearly

declared Tigaksha as manufacturer and packer at Himachal Pradesh. Name of

the petitioner appears only as "marketed by". In contrast, in case of finished

goods manufactured by the petitioner at Thane, the declaration on the package

reads as "manufactured, packed and marketed by". The finished goods

manufactured by the job worker i.e. Tigaksha are brought to the factory of the

petitioner at Thane over which respondent No.2 exercises jurisdiction under the

Central Excise Act.

10. Central Excise Revenue Audit (CERA) in respect of the petitioner

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was initiated by the Central Excise Department for the period from 2013-14 to

2017-18 (upto June 2017). Objections raised by the auditors included

allegations to the effect that petitioner had collected excise duty from the

customers but had not deposited the same with the government; finished goods

manufactured at the factory of the job worker were cleared to various depots of

the petitioner for onward sale in the market without payment of excise duty;

petitioner also manufactured similar goods at its factory at Thane and other

places which were sold upon payment of excise duty; maximum retail price of

the goods cleared/manufactured by Tigaksha and other factories of the petitioner

was the same etc. Such objections were communicated to the petitioner vide

letter dated 28.09.2016.

11. Responding to such audit objection communicated to the

petitioner vide letter dated 28.09.2016, petitioner submitted a detailed

explanation on 19.10.2016. Thereafter there were exchange of correspondence

between the auditors and the petitioner. Ultimately, notice to show cause-cum-

demand dated 26.04.2018 was issued to the petitioner by the Commissioner of

Central Goods and Services Tax (CGST) and Central Excise, Thane

Commissionerate i.e. respondent No.3 calling upon the petitioner to show-cause

as to why central excise duty amounting to Rs.82,02,22,391.00 should not be

demanded and recovered from the petitioner under section 11A(4) and section

11D(2) of the Central Excise Act being the duty payable for the period 2013-14

to 2017-18 (upto June 2017); interest as applicable on the amount of duty

determined to be payable under section 11DD of the Central Excise Act; and as

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to why penalty under section 11AC of the Central Excise Act read with Rule 25

of the Central Excise Rules, 2002 should not be imposed.

12. By letter dated 27.08.2019, petitioner showed cause by making a

detailed representation and requested for dropping of proceedings.

13. Vide the order in original dated 20.11.2019, respondent No.3 held

that the goods in question were manufactured by Tigaksha at Himachal Pradesh

which was beyond the jurisdiction of respondent No.3. Hence, the demand was

not maintainable under section 11A(4) of the Central Excise Act. Further it was

held that the demand notice failed to bring out any evidence to establish that any

amount was collected by the noticee (petitioner) as representing duty of excise.

Therefore, section 11D of the Central Excise Act was not attracted. For the

aforesaid reasons, the notice to show cause-cum-demand dated 26.04.2018 was

set aside.

14. In the meanwhile, excise audit was again conducted around

October, 2019 in respect of the records of the petitioner for the period 2015-16

to 2017-18 (upto June 2017) whereupon objection to non-payment of duty under

section 4A of the Central Excise Act on the clearance made by Tigaksha was

taken. This was communicated to the petitioner vide letter dated 25.10.2019. It

was alleged that as principal manufacturer, petitioner had failed to discharge the

duty in terms of the provisions of section 4A of the Central Excise Act on the

goods cleared by Tigaksha from its factory at Una, Himachal Pradesh.

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According to the auditors, duty of Rs.44,87,53,889.00 is payable by the

petitioner on account of such clearance made during the period 2015-16 to

2017-18 (upto June 2017).

14.1. This was explained to by the petitioner vide letter dated

19.11.2019 requesting the authority to drop the proceeding.

15. As part of pre show-cause notice consultation, a hearing was given

to the petitioner on 18.03.2020. Besides making oral submissions petitioner

also furnished written submissions.

16. According to the petitioner, such consultation was a mere

formality as it is the requirement under circular dated 10.03.2017 of the Central

Board of Indirect Taxes and Customs that in cases where the duty allegedly not

paid exceeds Rs.50,00,000.00 an opportunity for pre-show cause notice

consultation should be given. This became evident when respondent No.2

issued show cause-cum-demand notice dated 26.05.2020. By the said show

cause-cum-demand notice, petitioner was called upon to show-cause as to why

the extended period envisaged under sub section (4) of section 11A of the

Central Excise Act read with the Taxation and other Laws (Relaxation of

Certain Provisions) Ordinance, 2020 dated 31.03.2020 should not be invoked to

demand central excise duty evaded by the petitioner; as to why central excise

duty amounting to Rs.44,87,53,889.00 being the aggregate of the central excise

duty involved should not be jointly and severally demanded and recovered

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under the proviso to sub section (4) of section 11A of the Central Excise Act

being the aggregate central excise duty involved on the suppressed production

and clandestine clearances of twin type blades, razor blades, shaving

components, blade cartridge collectively effected by the petitioner from and at

Una, Himachal Pradesh and cleared during the period from April 2015 to June

2017; as to why interest at the appropriate rate should not be charged and

recovered under the provisions of section 11AA of the Central Excise Act read

with Rule 8 of the Central Excise Rules, 2002; and as to why penalty should not

be imposed on the petitioner under section 11AC of the Central Excise Act.

17. Aggrieved by issuance of the impugned show cause-cum-demand

notice, present writ petition has been filed seeking the reliefs as indicated above.

18. This Court by order dated 15.12.2020 had issued notice and

passed an interim order to the effect that respondents should not take any further

steps pursuant to show cause-cum-demand notice dated 26.05.2020 issued by

respondent No.2.

19. An affidavit in reply has been filed by Shri. Binod Bihari Rath,

Assistant Commissioner of CGST and Central Excise, Division-VI, Thane

Commissionerate. It is stated that petitioner migrated as an assessee from the

central excise and services tax legacy laws to Goods and Services Tax (GST)

and is registered under GST with the Thane Commissionerate. Office of the

Commissioner of CGST and Central Excise, Audit-Thane Commissionerate

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during the course of excise audit conducted on the records of the petitioner for

the period from 01.04.2015 to 30.06.2017 observed that vide a job work

conversion agreement dated 01.04.2015 between the petitioner (principal

manufacturer) and Tragaksha, petitioner was getting excisable goods assembled

and retail packed under job work at Una, Himachal Pradesh by supply of inputs/

components and packing materials required in the said assembly of retail

products. The finished goods were transferred from Tigaksha to the petitioner's

sale depots wherefrom it was sold by the petitioner under commercial invoices

without discharging the due central excise duty under section 4A of the Central

Excise Act.

19.1. As the principal manufacturer, petitioner during the audit period

sold the job worked finished goods valued at Rs.552 crores from their sale

depots without payment of applicable central excise duty specified under section

4A of the Central Excise Act involving aggregate central excise duty of

Rs.44.87 crores. This was pointed out by the auditors whereafter show cause-

cum-demand notice dated 26.05.2020 was issued.

19.2. Referring to the statements made in paragraphs 24 and 25 of the

show cause-cum-demand notice, it is stated that goods were procured by the

petitioner from Tigaksha and sold from its sale depots without payment of

central excise duty and hence recoverable under section 11D of the Central

Excise Act. Accordingly, a show cause-cum-demand notice was issued to the

petitioner on 26.04.2018. The above show cause-cum-demand notice was

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dropped vide the order in original dated 20.11.2019 passed by the adjudicating

authority on the ground that the demand notice was not maintainable as it failed

to bring out any evidence to establish that any amount was collected by the

noticee (petitioner) as representing duty of excise for section 11D of the Central

Excise Act to get attracted. It is contended that the show cause-cum-demand

notice dated 26.04.2018 was raised for the period from 2013-14 to June 2017 on

the basis of CERA objection which was in turn based on loan licensee

agreement dated 25.07.2012 between the petitioner and Tigaksha as against the

instant audit objection based on job conversion agreement dated 01.04.2015

between the same parties. The modification and development under the new

agreement which resulted in the change of status of Tigaksha from a loan

licensee to that of job worker and the consequent change in the onus of

discharge of central excise liability from the licensee manufacturer (Tigaksha) to

the principal manufacturer (petitioner) was never disclosed by the petitioner to

the department. Till the time show cause-cum-demand notice dated 26.04.2018

was issued, the department was only privy to the facts covered under the

licensee agreement dated 25.07.2012 based on which the show cause-cum-

demand notice dated 26.04.2018 was issued. Unknown and undeclared to the

department with effect from 01.04.2015, the modalities of the operations and

status of Tigaksha was converted from a licensee to that of a job work

contractor. Till the conduct of the revenue audit in October 2019, the

department was not privy to such significant material facts which were

suppressed and never declared to the department by the petitioner.

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19.3. Referring to the show cause-cum-demand notice dated 26.04.2018,

it is submitted that the same was based upon loan licensee agreement dated

25.07.2012 for amounts collected by the petitioner representing its central

excise duty and not central excise duty per se which is proposed to be demanded

under the impugned show cause-cum demand notice. Thus, the earlier show

cause-cum-demand notice and principle of res-judicata would not come into

play in so far the impugned show cause-cum-demand notice is concerned.

Since there is a clear, distinct and deliberate mis-statement and suppression of

facts by the petitioner, it is contended that the impugned show cause-cum-

demand notice is not barred by limitation in view of section 11A(4) of the

Central Excise Act read with the Taxation and other laws (Relaxation of Certain

Provisions) Ordinance, 2020 dated 31.03.2020.

19.4. Referring to Rule 10A(ii) of the Valuation Rules, it is stated that

contrary to the contention of the petitioner it is the principal manufacturer who

has to discharge the central excise liability.

19.5. In the circumstances, it is contended that the writ petition is devoid

of merit and therefore, should be dismissed.

20. Petitioner has filed rejoinder affidavit reiterating the averments

made in the writ petition. It is asserted that central excise duty is once again

sought to be demanded on the very same goods manufactured and cleared by

Tigaksha which was the subject matter of dispute in the previous show cause-

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cum-demand notice dated 26.04.2018. Denying that petitioner has evaded

central excise duty, it is submitted that provisions of sub section (4) of section

11A of the Central Excise Act has no application in the present case. The same

is without jurisdiction and against settled position of law. Allegations of the

respondents that petitioner has resorted to mis-representation has been denied.

20.1. A plain reading and comparison of the earlier show cause-cum-

demand notice dated 26.04.2018 and the impugned show cause-cum-demand

notice dated 26.05.2020 would go to show that excise duty is sought to be once

again demanded on the same goods manufactured by Tigaksha on the same set

of facts. Department was aware of the agreement dated 01.04.2015 even prior

to issuance of the earlier show cause-cum-demand notice dated 26.04.2018.

20.2. Referring to the earlier show cause-cum-demand notice dated

26.04.2018 and the order passed thereafter it is contended that there is a clear

finding by respondent No.3 that he had no jurisdiction to demand duty under

section 11A(4) of the Central Excise Act. There is no fraud, collusion, willful

mis-statement or suppression of facts by the petitioner. That being the position

the extended period of limitation covered by sub section (4) of section 11 of the

Central Excise Act cannot be invoked and therefore the impugned show cause-

cum-demand notice is barred by limitation.

20.3. It is submitted that invocation of Rule 10A of the Valuation Rules

itself is evident of the fact that the goods are manufactured by Tigaksha as the

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job worker and the duty is to be paid by Tigaksha; duty is not to be paid by the

petitioner as Rule 10A of the Valuation Rules does not provide that the supplier

of raw material i.e., the petitioner is liable to pay duty on the goods

manufactured by the job worker.

20.4. Denying all allegations made by the respondents, it is submitted

that there is merit in the writ petition, which should therefore be allowed with

cost.

21. Mr. Prakash Shah, learned counsel for the petitioner at the outset

has taken us to the earlier notice to show cause-cum-demand dated 26.04.2018

and submits that the said notice was issued on the premise that maximum retail

price of the goods cleared by Tigaksha and goods cleared from other plants of

the petitioner were the same. Therefore, a view was taken that the goods

manufactured at Tigaksha though exempted from payment of excise duty in

view of the exemption notifications and cleared without payment of duty

included the duty element in the maximum retail price which were recovered

from the ultimate consumers. It was held that petitioner was recovering excess

excise duty without passing on the benefit of exemption to the ultimate

consumers. The excess recovery was required to be deposited with the

government along with interest which was not done. Therefore, respondent

No.3 took the view that petitioner had contravened the provisions of sub section

(1A) of section 11D of the Central Excise Act. It was noted that had CERA not

audited the records of the petitioner, the relevant facts would have remained

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unnoticed. Following CERA objection, respondent No.3 held that excise duty

was recoverable under section 11A(4) and 11D of the Central Excise Act along

with interest under section 11AA of the said act. He submits that in the said

notice to show cause-cum-demand, respondent No.3 had taken the view that

since petitioner had contravened the provisions of the Central Excise Rules,

2002 by clearing goods without payment of appropriate central excise duty and

by not disclosing the same to the central excise department with an intention to

evade payment of duty had rendered itself liable to penalty under section 11AC

of the Central Excise Act and Rule 25 of the Central Excise Rules, 2002. In the

circumstances, by the said notice petitioner was asked to show cause as to why

central excise duty amounting to Rs.82,02,22,391.00 covering the period from

2013-14 to 2017-18 (upto June 2017) should not be demanded and recovered

under section 11A(4) and section 11D(2) of the Central Excise Act besides levy

of interest and imposition of penalty.

21.1. Mr. Prakash Shah has also highlighted the reply given by the

petitioner to the above notice to show cause-cum-demand. He submits that in

the said reply, petitioner had submitted details of show cause notices issued to

Tigaksha by the Principal Commissioner, Central Excise and Services Tax,

Chandigarh-1 and also questioned the jurisdiction of respondent No.3 to issue

the said notice to show cause-cum-demand, besides contending that petitioner

would not be covered by section 11A of the Central Excise Act in respect of the

goods manufactured by the job worker of Tigaksha. In this connection, learned

counsel for the petitioner submits that objections of the petitioner to issue of

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notice to show cause-cum-demand dated 26.04.2018 were upheld by respondent

No.3 vide order dated 20.11.2019. A categorical finding of fact was recorded by

respondent No.3 that the goods in question were manufactured by Tigaksha at

Himachal Pradesh and not within the jurisdiction of its office. Further it was

held that the said notice to show cause-cum-demand was premised on the notion

that since the goods were covered under maximum retail price, therefore,

incidence of central excise duty was included in the maximum retail price.

Though exemption was claimed from payment of central excise duty by virtue

of the exemption notifications, even then central excise duty was collected since

the maximum retail price was not lowered. Other than this notion, there was no

evidence in the demand notice to establish that any amount was collected by the

petitioner as representing duty of excise. Therefore, respondent No.3 held that

provisions of section 11D of the Central Excise Act would not be attracted in the

present case. Consequently, the notice to show cause-cum-demand dated

26.04.2018 was set aside.

21.2. Referring to the order dated 20.11.2019, Mr. Prakash Shah submits

that this order has attained finality. Though under section 35E of the Central

Excise Act the committee of commissioners could have directed respondent

No.3 to apply to the Central Excise and Service Tax Appellate Tribunal

(CESTAT), no such exercise was carried out; therefore the matter has attained

finality. Viewed in the above context, it was not open to respondent No.2 to

have issued the impugned show cause-cum-demand notice dated 26.05.2020.

Therefore, the impugned show cause-cum-demand notice is clearly hit by the

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principle of res-judicata. On a comparison of the two show cause notices, he

submits that both the notices are identical and there is no difference between the

two show cause notices on facts.

21.3. In support of his contention that the impugned show cause-cum-

demand notice is hit by the principle of res-judicata, he has placed reliance on a

decision of this Court in Union of India Vs. East and West Shipping Agency,

2010 (253) E.L.T. 12.

21.4. Mr. Prakash Shah, learned counsel for the petitioner has

specifically drawn our attention to Notification No.13/2017 dated 09.06.2017

issued by the Central Board of Excise and Customs demarcating territorial

jurisdiction of the Principal Chief Commissioners and Chief Commissioners in

India. He submits therefrom that Chief Commissioner, Chandigarh has

jurisdiction over Commissioner, Shimla who in turn has jurisdiction over the

entire State of Himachal Pradesh. Commissioner, Thane is under the

jurisdiction of Principal Chief Commissioner, Mumbai and is confined to areas

falling under Thane Metropolitan areas in the State of Maharashtra. Therefore,

respondent No.2 cannot have territorial jurisdiction over manufacturing

activities of Tigaksha at Una, Himachal Pradesh. On the ground of lack of

territorial jurisdiction itself impugned show cause-cum-demand notice is liable

to be appropriately interfered with.

21.5. Mr. Prakash Shah submits that the taxable event for central excise

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is the manufacture of excisable goods. Where manufacture takes place, liability

to excise duty is attracted. Sale or ownership of the product is absolutely

irrelevant for the purpose of the taxable event under central excise. To support

this contention, he has placed reliance on a decision of the Supreme Court in

Collector of Central Excise, Baroda Vs. M. M. Khambatwala, 1996(84) ELT

161 as well as on a decision of this Court in Commissioner of Central Excise

and Customs Vs. Mahyco Seeds Limited, 2005(182) ELT 163 (Bom).

21.6. Learned counsel for the petitioner further submits that

Commissioner of Central Excise, Chandigarh had issued several show cause

notices to Tigaksha proposing to deny benefit of exemption by levying

appropriate central excise duty. This is being contested by Tigaksha. For the

same cause of action, parallel proceedings cannot be initiated against the

petitioner by the Thane commissionerate. Additionally, he submits that there is

no fraud or collusion or any willful mis-statement or suppression of facts or

contravention of any of the provisions of the Central Excise Act with the intent

to evade payment of duty by the petitioner. Therefore, it would not be open to

respondent No.2 to invoke the provisions of section 11A(4) of the Central

Excise Act.

21.7. He therefore submits that the impugned notice to show cause-cum-

demand being totally without jurisdiction and non est in law is liable to the set

aside and quashed.

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22. Mr. Pradeep S. Jely, learned senior counsel for the respondents at

the outset submits that challenge made by the petitioner is to a show cause

notice. He submits that petitioner should comply with the show cause notice

and convince the authority that the said notice has been erroneously issued. For

that invoking the writ jurisdiction of this Court under Article 226 of the

Constitution of India is unwarranted. Petitioner will be provided all procedural

safeguards in the adjudication process. If for any reason, the adjudicatory

process results in an order adverse to the petitioner, the same can be assailed

before the appellate forum. In such circumstances, petitioner should be

relegated to the forum of adjudicating authority rather than availing the remedy

of writ jurisdiction.

22.1. Mr. Pradeep S. Jetly has extensively referred to the reply affidavit

filed by the respondents and has justified issuance of the impugned show cause-

cum-demand notice. He therefore submits that there is no merit in the writ

petition which should accordingly be dismissed.

23. Submissions made by learned counsel for the parties have been

duly considered.

24. At the outset, it would be apposite to deal with the first notice to

show cause-cum-demand dated 26.04.2018. Referring to CERA audit, it was

stated that valuation of the goods manufactured was based on maximum retail

price under section 4A of the Central Excise Act which consist of all elements of

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cost and margins including duties and taxes. Referring to Explanation-1 to

section 4A, it was mentioned that retail sale price would mean the maximum

price at which the excisable goods in packaged form may be sold to the ultimate

consumer which would include all taxes, local or otherwise, freight, transport

charges, commission payable to dealers and all charges towards advertisement,

delivery, packing, forwarding and the like and the price being the sale

consideration for such sale. The functional relationship between the petitioner

and Tigaksha was described as follows :-

"3. The assessee has a related job-worker M/s. Tigaksha Metallics Pvt. Ltd. (TMPL) in the state of Himachal Pradesh enjoying area based exemption. As per the agreement, the assessee provides raw materials to M/s. TMPL and gets finished goods i.e. safety blades and shaving systems manufactured. The finished goods after printing with MRP are cleared without payment of duty to the various depots of the assessee from where they are sold in the market. The assessee also manufactures similar goods from Thae and other plants on which excise duty is payable. It was observed that the MRP of the goods cleared by M/s. TMPL and by other plants of the assessee were same. Thus it was apparent that the goods manufactured at M/s. TMPL, though exempted and cleared without payment of duty, included the duty element in the MRP was recovered from the ultimate consumers."

24.1. Thus, it was observed that maximum retail price of the goods

cleared by Tigaksha which enjoys area based exemption and those cleared from

other plants of the petitioner were the same. Therefore, it was apparent that

goods manufactured at Tigaksha though exempted and cleared without payment

of duty, included the duty element in the maximum retail price which were

recovered from the ultimate consumers. From the CERA audit report, it was

noted that petitioner was recovering the excess excise duty without passing on

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the benefit of exemption to the ultimate consumers. Though this excess

recovery was required to be deposited to the central government along with the

interest, the same was not done. Respondent No.3 also referred to the

explanations given by the petitioner to CERA and thereafter observed that had

CERA not audited the records of the petitioner all these facts would have

remained unnoticed. The allegation against the petitioner in addition to what

has been extracted above was summed up in the following manner :-

"4. In accordance with the provisions of sub-section (1A) of Section 11D of Central Excise Act 1944, every person who has collected any amount in excess of duty assessed or determined and paid on any excisable goods or has collected any amount as representing duty of excise on any excisable goods which are wholly exempt or chargeable to nil rate of duty from any person in any manner, shall forthwith pay the amount so collected to the credit of Central Government. As per the general exemption applicable to the industries in the state of Himachal Pradesh, the assessee is claiming full exemption from payment of excise duty for the goods manufactured in the sate of Himachal Pradesh.

5. It was also observed by CERA from the cost data of the assessee submitted to the Ministry of Corporate Affairs (MCA) for the year 2013-14 that there was excess recovery of the duty to the tune of Rs.5 Crores. This showed that the assessee was recovering the excess excise duty more than that paid to the government without passing on benefit of exemption to the ultimate consumers. This excess recovery was required to be deposited to the government along with interest as per the above stated provisions which was not done. Therefore, it appears that the assessee has contravened the provisions of sub-section (1A) of section 11D of Central Excise Act 1944. Had the CERA not audited the assessee's records, these facts might have remained unnoticed. The assessee at no point of time has informed the foregoing facts to the department."

24.2. Therefore, petitioner was asked to show cause as to why central

excise duty amounting to Rs.82,02,22,391.00 payable during the period from

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2013-14 to 2017-18 (upto June 2017) should not be demanded and recovered

under section 11A(4) and section 11D(2) of the Central Excise Act besides levy

of interest and imposition of penalty.

25. Petitioner submitted detailed reply dated 27.08.2019 to the notice

to show cause-cum-demand dated 26.04.2018. Petitioner was also heard.

26. Respondent No.3, being the adjudicating authority, vide the order-

in-original dated 20.11.2019 summed up the admitted facts in the following

manner :-

"6. The noticee was engaged in manufacturing of excisable goods. They were getting the same manufactured on job work basis from job workers located at places where area based exemption was available. The excisable goods were covered under MRP based valuation as per provisions of section 4A of the Central Excise Act, 1944. The excisable goods which were manufactured at locations which were covered under area based exemption and thus cleared without payment of central excise duty were then sold by the noticee under their brand at the same MRP as that of goods manufactured and cleared by them on payment of central excise duty. These are admitted facts and there is no dispute regarding the same."

26.1. Contention of the respondents were also summed up as follows :-

"8. It is the contention of the demand notice that since the goods were manufactured and cleared from factories which were availing area based on exemption, therefore, the MRP of such goods should have been less than those manufactured and cleared on payment of duty and by not reducing the MRP, the noticee had effectively collected the element of central excise duty which was included in the MRP from the customers, and hence, the same is recoverable under section 11D of the Central Excise Act, 1944. * * * * "

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26.2. After examining the provisions of section 11D of the Central

Excise Act, respondent No.3 found that there was nothing on record to show

that the amount collected was being collected as duty of excise. The entire

contention of the respondents was based on the premise that since the maximum

retail price of the goods was the same as those manufactured elsewhere central

excise duty was included thereunder and collected from the consumers.

However, it was found that there was no evidence to establish that such amount

was collected by the petitioner as representing duty of excise. Therefore,

section 11D of the Central Excise Act would not be applicable. Further, as a

matter of fact, it was found by respondent No.3 that the goods in question were

manufactured by Tigaksha at Himachal Pradesh which was outside the territorial

jurisdiction of respondent No.3. On the above two grounds, the notice to show

cause-cum-demand dated 26.04.2018 was set aside by respondent No.3 vide the

order dated 20.11.2019. Relevant portion of the order dated 20.11.2019 reads as

under :-

"9. On perusal of the provisions of section 11D, ibid, it is clear that any amount which has been collected as representing duty of excise is required to be deposited to the credit of central government by such person who has collected the amount. In the instant case, there is nothing on record to show that the amount collected was collected as being 'duty of excise'.

10. As per provisions of section 11D of the Central Excise Act, 1944, the amount collected as central excise duty is required to be deposited with the central government by a person who has collected such amount. In the instant case, it has been alleged that the amount was collected by the noticee, and hence, on the basis of this allegation, the demand is issued by the appropriate jurisdictional authority of the noticee company. It is not alleged that M/s. Tigaksha Metallics Pvt. Ltd. had collected any amount

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as being central excise duty, and therefore, the jurisdiction as per location of M/s. Tigaksha Metallics Pvt. Ltd. is immaterial. It is seen from the demand notice, that provisions of section 11A(4) of the Central Excise Act, 1944 have also been invoked to demand this amount. On perusal of the demand notice it is seen that the goods in question were manufactured by M/s Tigaksha Metallics Pvt Ltd at Himachal Pradesh and not in the jurisdiction of this office. Hence, the demand is not maintainable even under the provisions of section 11A(4) of the Central Excise Act, 1944.

11. The demand notice however, fails to bring out any evidence to establish that an amount was collected by the noticee as 'representing duty of excise'. The provisions of section 11D of the Central Excise Act, 1944 get attracted only in the event of a person collecting any amount as representing duty of excise but not deposited to the treasury. The demand notice is based on notion that since the goods were covered under MRP, therefore, incidence of central excise duty was included in the MRP and as a result of such inclusion, whenever, exemption was claimed from payment of central excise duty by virtue of exemption notification, then the incidence of central excise duty was collected since the MRP was not lowered. Besides, this notion, there is no evidence in the demand notice to establish that the amount was collected by the noticee as representing duty of excise. Hence, the provisions of section 11D of the Central Excise Act, 1944 are not attracted in the present case. The demand notice is, therefore, not maintainable for this reason alone."

27. Having noticed the above, we may now advert to the impugned

show cause-cum-demand notice dated 26.05.2020 issued by respondent No.2.

Referring to clause (8) of the job work conversion agreement dated 01.04.2015

between the petitioner and Tigaksha, it has been observed that petitioner was

getting excisable goods i.e. safety razor blades etc. assembled and retail packed

at Tigaksha in Himachal Pradesh by supply of inputs/components and packing

materials required in the said assembly of consumer retail products. However,

harping on clause (8), it is stated that at no stage of the job work conversion of

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the said excisable goods were the title of the goods ever stood transferred. The

ownership and all other rights in the product continued to remain with the

petitioner. Till such time the retail packed blades were not sold from the sales

depot of the petitioner, petitioner as the principal manufacture had the

responsibility of discharging the liability in respect of central excise duty

leviable and payable on the following products which had not been discharged

by the petitioner from the inception of the job conversion agreement dated

01.04.2015 i.e. from April 2015 to June 2017. Since the goods were

cleared/sold from the sales depot of the petitioner under commercial invoices

without payment of applicable central excise duty specified under section 4A of

the Central Excise Act involving an aggregate central excise duty of

Rs.44,87,53,889.00, audit objection was raised. Thereafter reference has been

made to the submissions made by the petitioner to the audit observations

whereafter it has been remarked that there is no dispute that the principal

manufacturer and brand holder of the goods in question is the petitioner. This

factum is not disturbed in terms of the job conversion agreement dated

01.04.2015 wherefrom it is contended that with effect from 01.04.2015

petitioner is the principal owner of the goods manufactured and Tigaksha is the

job worker in respect of the goods in question.

27.1. Regarding the objection raised by the petitioner that in view of the

decision of respondent No.3 dated 20.11.2019 the impugned notice to show

cause-cum-demand has become untenable in law on the touchstone of the

principle of res-judicata, respondent No.2 has negated the same on two grounds.

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Firstly, referring to the notice to show cause-cum-demand dated 26.04.2018, it

has been pointed out that the same was issued without prejudice to any other

action that might be taken against the recipient of the notice. Secondly, the

notice to show cause-cum-demand dated 26.04.2018 covered the period from

the year 2013-14 to June 2017 on the basis of CERA objection which was in

turn based on loan licensee agreement dated 25.07.2012 between the petitioner

and Tigaksha whereas the impugned notice to show cause-cum-demand is on

the basis of CERA audit objection which in turn is based on the job work

conversion agreement dated 01.04.2015. Facts and circumstances leading to the

issuance of the two notices are distinct and different. Alleging that there was

contravention of relevant provisions of the Central Excise Act and Central

Excise Rules, 2002 through willful suppression of actual facts and

circumstances with an ulterior motive to evade payment of central excise duty,

sub section (4) of section 11A of the Central Excise Act has been invoked to

avail the extended period of limitation. Consequently, petitioner has been asked

to show cause as to why central excise duty amounting to Rs.44,87,53,889.00

being the aggregate central excise duty involved on the suppressed production

and clandestine clearance of twin type blades, razor blades, shaving components

etc. collectively affected by the petitioner from and at Una, Himachal Pradesh

during the period from April 2015 to June 2017 should not be demanded and

recovered from the petitioner along with interest thereon and imposition of

penalty.

28. A comparison of the first notice to show cause-cum-demand dated

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26.04.2018 and the impugned show cause-cum-demand notice dated 26.05.2020

would go to show that the basic premise for issuing the notices remained the

same. According to the respondents, petitioner was getting excisable goods i.e.

safety razor blades etc. assembled and retail packed by Tigaksha at its factory in

Una, Himachal Pradesh by supply of inputs/components and packing materials

required in the said assembly of consumer retail products. While issuing the

impugned show cause-cum-demand notice, respondent No.2 placed heavy

reliance on clause (8) of the job work conversion agreement dated 01.04.2015

which reads as under :-

"the ownership and all other rights in the product, other materials and work in progress shall always remain with SPCPL".

29. On this basis, it is asserted that ownership of the goods continued

to remain with the petitioner till such time the retail packed blades were not sold

from the sales depot of the petitioner. Therefore, petitioner was the principal

manufacturer of the goods and as such had the responsibility to discharge the

liability in respect of central excise duty leviable and payable on the final

products under section 4A of the Central Excise Act which had not been

discharged by the petitioner.

30. Before we analyze the correctness of the above proposition, it

would be apposite to have the comparative statements of details of finished

goods and the proposed excise duty leviable covered by the two show cause

notices. As per Annexure-A appended to the notice to show cause-cum-demand

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dated 26.04.2018 the value of the goods in question and the duty liability were

as follows :-

  Year           Value (₹)                     Duty liability (₹)                 Total Duty
                                         Basic         EC           HEC              (₹)
2013-14      1,39,37,25,166          16,72,47,020 33,44,940       16,72,470     17,22,64,431
2014-15      1,65,23,47,212          19,82,81,665 39,65,633       19,82,817     20,42,30,115
2015-16      1,64,41,06,142          19,72,92,737 39,45,855       19,72,927     20,32,11,519
2016-17      1,53,51,55,302          18,42,18,636 36,84,373       18,42,186     18,97,45,195
2017-18        41,07,69,666           4,92,92,360 9,85,847         4,92,924      5,07,71,131
(Upto
June
2017)
TOTAL        6,63,61,03,488 79,63,32,419 1,59,26,648 79,63,324 82,02,22,391

30.1. On the other hand, as per the impugned show cause-cum-demand

notice dated 26.05.2020 the value of the goods and duty liability have been

worked out as under :-

STATEMENT SHOWING JOB WORK CONVERSION OF MRP GOODS CLEARED FROM UNA AND SOLD FROM VARIOUS SPCPL SALES DEPOT IN INDIA WITHOUT PAYMENT OF CE DUTY U/S 4A OF CEA FY MRP (₹) Assessable Value ( ₹) Total Duty @ 12.5% (₹)

2015-16 2,52,93,94,065 1,64,41,06,142 20,55,13,268 2016-17 2,36,17,77,388 1,53,51,55,302 19,18,94,413 2017-18 63,19,53,332 41,07,69,666 5,13,46,208 (06/17) Total 5,52,31,24,785 3,59,00,31,110 44,87,53,889

31. From a comparison of the two statements as extracted above, a

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view may be taken that to enable the respondents from availing the extended

period of limitation of five years under sub section (4) of section 11A of the

Central Excise Act, the period covered by the impugned show cause-cum-

demand notice has been curtailed by excluding the years 2013-14 and 2014-15.

32. Be that as it may, at this stage, we may briefly refer to some of the

relevant provisions of the Central Excise Act. The word "factory" is defined

under section 2(e) of the Central Excise Act to mean any premises, including the

precincts thereof, wherein or in any part of which excisable goods are

manufactured, or wherein or in any part of which any manufacturing process

connected with the production of these goods is being carried on or is ordinarily

carried on. The word "manufacture" is defined in clause (f) of section 2.

Amongst others, "manufacture" includes any process incidental or ancillary to

the completion of a manufactured product. However, it may not be necessary

for us to delve deep into what constitutes a manufacturing process. This is

because respondent No.3 in his order in original dated 20.11.2019 had recorded

a categorical finding of fact that the goods in question were manufactured by

Tigaksha at Himachal Pradesh.

33. Valuation of excisable goods with reference to retail sale price is

dealt with in section 4A. As per Explanation-1 to section 4A, retail sale price

means the maximum price at which the excisable goods in packaged form may

be sold to the ultimate consumer and includes all taxes, local or otherwise,

freight, transport charges etc. and the price is the sole consideration for such

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sale. Section 11A deals with recovery of duties not levied or not paid or short

levied or short paid or erroneously refunded. As per sub section (1), such

recovery can be made by the concerned central excise officer within one year

from the relevant date, if it is not a case of fraud or collusion or willful mis-

statement or suppression of facts or contravention of any of the provisions of the

Central Excise Act or of the rules made thereunder with intent to evade payment

of duty. However, under sub section (4), the limitation extends to five years, if

such non-levy or non-payment or short levy or short payment etc. is by reason

of fraud, collusion etc.. Under section 11D, every person who is liable to pay

excise duty under the Central Excise Act or the rules made thereunder and has

collected any amount in excess of the duty assessed or determined and paid on

any excisable goods shall forthwith pay the amount so collected to the credit of

the central government.

34. Supreme Court in Empire Industries Ltd. Vs. Union of India,

1985 (20) E.L.T. 179 had held in categorical terms that the taxable event for

central excise is the manufacture of excisable goods. The moment there is

transformation into a new commodity commercially known as a distinct and

separate commodity having its own character, use and name, whether be it the

result of one process or several processes "manufacture" takes place and

liability to duty is attracted. The sale or the ownership of the end-product is

absolutely irrelevant for the purpose of the taxable event under central excise

which is manufacture.

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35. The above view taken in Empire Industries Ltd. (supra) was

affirmed by a constitution bench of the Supreme Court in Ujagar Prints Etc.

Vs. Union of India, 1988 (38) E.L.T. 535 by holding that the view taken in

Empire Industries Ltd. (supra) is an eminently plausible view and does not

suffer from any fallacy. It does not call for any reconsideration.

36. Subsequently, in Collector of Central Excise, Baroda, Vs. M. M.

Khambatwala, 1996 (84) ELT 161, Supreme Court while reiterating the above

proposition held that even though sale proceeds may go to the respondents that

would not alter the character of manufacture. In the facts of that case, it was

held as under :-

"7. We have considered the submissions advanced before us by the learned counsel on both the sides. We find force in the arguments of the learned counsel for the respondents : on the admitted facts which we will set out immediately the respondents cannot be considered as manufacturers of agarbatti, amlapodi and dhup etc. manufactured in the premises of house- hold ladies as described above without the aid of power. The undisputed facts are that the respondents supplied raw materials for rolling incense sticks etc. to outside manufacturers and paid wages to them on the basis of number of pieces manufactured.

Such manufacture was without the aid of power. There was no supervision over the manufacture. Incense sticks were put in packets and such packets were sold from the premises of the house-hold ladies and they did not go to the factory premises of the respondents. No doubt the sale proceeds went to the respondents but that will not change the character of manufacture. If the conclusion is that the house-hold ladies were the real manufacturers then the decision of the Tribunal cannot be faulted. CEGAT after considering the materials before it concluded that the respondents are not the manufacturers of agarbatti, amlapodi, dhup etc.. manufactured by various cottage type manufacturers on job work basis. On the facts narrated above, we do not think that the assumption of the Collector that the respondents got the goods in question manufactured by

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'hired labourers' can be sustained. On the other hand we find, on the facts, the house-hold ladies are the manufacturers of the goods in question and the liability to excise duty will be attracted on their manufacture of the goods and therefore, it cannot be clubbed with the goods manufactured in the factory premises of the respondents to deny the exemption claimed."

37. Undoubtedly, manufacturing process of the goods in question was

carried out by Tigaksha at its factory at Una, Himachal Pradesh and in so far

central excise is concerned, the taxable event is manufacture of the goods.

Concepts like ownership, title holder, ultimate manufacturer etc. have no

bearing on the taxable event.

38. Reverting back to the order in original dated 20.11.2019,

respondent No.3 had recorded a clear finding of fact that since the goods in

question were manufactured by Tigaksha at Himachal Pradesh, it was beyond

the jurisdiction of the Thane Commissionerate to demand central excise on such

manufacture. Both the findings i.e. that the goods in question were

manufactured by Tigaksha at Himachal Pradesh and that such manufacturing

process was beyond the jurisdiction of Thane Commissionerate have not been

challenged by the respondents and thus have attained finality. As alluded to by

the petitioner, Central Board of Excise and Customs has vested territorial

jurisdiction upon various central excise officers vide Notification No.13/2017

dated 09.06.2017. From the said notification, it is evident that Commissioner of

Central Excise, Shimla has territorial jurisdiction over the entire State of

Himachal Pradesh. He in turn is under the administrative jurisdiction of Chief

Commissioner, Chandigarh. On the other hand, Commissioner, Thane who is

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under the administrative jurisdiction of Principal Chief Commissioner, Mumbai

has territorial jurisdiction over the areas falling under the following pin-codes

which are in the State of Maharashtra :-

"The areas falling under following pin codes: 400066, 400067, 400068, 400091, 400092, 400101, 400103, 400601, 400602, 400604, 400605, 400606, 400609, 400610, 400613, 400616, 401101, 401104 to 401107."

39. Therefore, it is evidently clear that the taxable event i.e.

manufacture of the goods in question had taken place in the factory premises of

Tigaksha at Una in Himachal Pradesh. Thus, neither respondent No.2 nor

respondent No.3 has the territorial jurisdiction to issue any notice to show

cause-cum-demand for levy of central excise duty on such products.

40. Though on this point itself a clear conclusion can be reached that

the impugned show cause-cum-demand notice dated 26.05.2020 is without

jurisdiction, we may also add that in the order in original dated 20.11.2019 the

adjudicating authority had recorded a clear finding that the only presumption for

the demand was that because the maximum retail price of the goods

manufactured at Una, Himachal Pradesh and those manufactured elsewhere by

the petitioner, which included excise duty, were the same, therefore the

maximum retail price of the goods manufactured at Una, Himachal Pradesh

included central excise duty which were collected from the ultimate consumers

but not deposited in the government treasury. Negating the fallacy of this

presumption the adjudicating authority held that other than such a presumption,

there was no evidence at all to establish that any amount was collected by the

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petitioner as representing duty of excise. In such a case, provisions of section

11D of the Central Excise Act would not be applicable. This again is a

conclusive finding of fact which has remained undisturbed.

41. In view of the conclusions reached on the above two aspects, it

may not be necessary to dilate on the other aspects of the challenge made.

42. Consequently and in the light of the discussions made above, we

are of the opinion that the impugned show cause-cum-demand notice dated

26.05.2020 is clearly without jurisdiction and is an attempt to reopen an issue

which was concluded by the adjudicating authority vide the order in original

dated 20.11.2019 which is not permissible

43. That being the position, the impugned show cause-cum-demand

notice dated 26.05.2020 is hereby set aside and quashed.

44. Writ petition is accordingly allowed. However, there shall be no

order as to cost.

[MILIND N. JADHAV, J.]                                  [UJJAL BHUYAN, J.]




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