Calcutta High Court
Siliguri vs M/S. The W.B. State Handloom on 24 February, 2023
OD-23
CEXA/5/2007
IN THE HIGH COURT AT CALCUTTA
SPECIAL JURISDICTION (CENTRAL EXCISE)
ORIGINAL SIDE
COMMISSIONER OF CENTRAL EXCISE,
SILIGURI
-Versus-
M/S. THE W.B. STATE HANDLOOM
WEAVERS CO-OPERATIVE SOCIETY
LTD.
BEFORE :
THE HON'BLE JUSTICE T.S. SIVAGNANAM
And
THE HON'BLE JUSTICE HIRANMAY BHATTACHARYYA
Date : 24th February, 2023
Appearance:
Mr. Uday Sankar Bhattacharyya, Adv.
Ms. Manasi Mukherjee, Adv.
...for the appellant.
The Court : This appeal filed by the revenue under
Section 35G of the Central Excise Act, 1944 (the 'Act' for
brevity) is directed against a composite order dated 14th July,
2006 singed on 18th August, 2006 passed by the Customs, Excise
& Service Tax Appellate Tribunal, East Zone Bench at Kolkata
(the Tribunal).
The appeal was admitted on the following substantial
question of law:
2
"Whether the order of the Tribunal setting aside
the order of penalty on the respondent was
correct in law ?"
We have heard Mr. Uday Sankar Bhattacharyya learned
counsel assisted by Ms. Manasi Mukherjee, learned Advocate for
the appellant/revenue.
A connected appeal arising out of the very same
impugned order was heard by the Division Bench in CEXA/4/2007
and by judgment dated 9th September, 2022, the appeal was
allowed and the substantial question of law was answered in
favour of the revenue. The operative portion of the said order
reads as follows:
"The short question involved in the instant
case is whether the benefit of certain notifications
issued by the Department were misused and the
respondent/assessee being a party to the modus. The
order of the adjudicating authority dated 29th
December, 2003 is a very elaborate order. After
considering the facts as well as the evidence which
was available before the authority, it is pointed
that the spinning mill used to remove the plan reel
hank yarn and cones directly to various traders
while the product cotton yarn cross reel which is
dutiable but for the said exemption were consigned
to the respondent and the third noticee by availing
the benefit of the notification issued by the
Government. The adjudicating authority on analysing
the documents available on seizure and on scrutiny
of the statements which were recorded from various
persons, pointed out that the purchasing bills
instead of delivering the cross reel hank yarn to
the respondent and the noticee no.3, the apex
bodies, delivered them directly to various trading
concern who appear to be merchants and traders of
yarn and not handloom weavers. The respondent
contended before the adjudicating authority that the
private traders were engaged by them for lifting
yarn from the mills on their behalf for subsequent
delivery to the weavers even in some cases on credit
basis and even though the goods were lifted by the
private dealers, the ownership continued to remain
with the respondent and the sale and purchase took
place between the producing mill and the respondent
(Apex Bodies) and the private traders had no role to
play in the matter of sale and purchase. The
adjudicating authority examined the stand taken by
the respondent and the other noticee namely, the
noticee no.3 and pointed out that not only the stand
taken by the respondent but also the spinning mill
is not in tune with the general policy notified by
the Yarn Committee in the matter of purchase of yarn
from the mills and for distribution amongst handloom
weavers. The following factual finding has been
recorded by the adjudicating authority :
"................. The following facts clearly
revealed from the scrutiny of the documents
and also depositions made by the various
persons. It has been clarified that in the
event of fixing the minimum rate of sale by
Noticee No. 1 at Rs. 50/- per unit and
quoting of Rs. 70/- per unit by a trader
against such minimum rate. Tantuja /
Tantusree would have sent authorization for
that traders for Rs. 70/- per unit and
accordingly the mill (Noticee No. 1) would
have issued Central Excise Invoices in the
name of trader at the sale rate of Rs. 70/-
per unit and Tantuja would get 1.5%
commission for such sale. This indicates
that Tantuja / Tantusree had no role for
negotiation with the traders, since,
otherwise. If Tantuja / Tantusree were the
real purchasers, they would have definitely
preferred to purchase the yarn from the
Mill at a rate of Rs. 50/- per unit and
would have collected Rs. 70/- per unit from
the Trader thereby making a straight profit
of Rs. 20/- per unit instead of getting
only 1.5% of Rs. 70/- i.e. Rs. 1.05 p. per
unit as commission. This point has not been
controverted by the Noticee and there has
been no effective defence against the said
findings. It has also been found that the
role of two Apex Bodies is that if a
Commission Agent of Noticee No. 1 as well
as of other spinning mills of the
Government of West Bengal and their
function, with reference to the sale of
cross reel hank cotton yarn produced by
various Spinning Mills including Noticee
No. 1 is only for routing the payments from
the traders who are the real
purchasers/buyers of such yarn. The Noticee
could not explain satisfactorily as to why
commission / margin has to be paid to the
Apex Bodies in relation to cross reel hank
yarn when they are claiming that the Apex
Bodies are the real purchasers of the yarn
and not merely a commission or selling
agent."
From the above finding it is seen that
the respondent has not controverted by producing any
evidence to this alleged conclusion that a modus has
been adopted by which the respondent received a
commission and ultimately the yarn which was to be
distributed to handloom weavers were taken of by the
trades and other agencies. Thus, on analysing the
evidence the adjudicating authority held that the
system was evolved only to ensure that the sale
should look like a sale from the spinning mill, the
noticee no.1 to the respondent, the noticee no.2 and
this was done in order to avail the benefit of
exemption whereas the actual sale took place between
the spinning mill and the private traders while the
respondent and the other apex society merely acted
as a commission/selling agent thereby earning
commission at the rate of 1.5% as profit. Thus, the
adjudicating authority records that this point could
not be controverted by the respondent neither at the
time of making written submission nor at the time of
personal hearing.
With regard to the second contention to
be eligible to the benefit of the notification
relating to issuance of certificate that the yarn is
to be used only in handlooms, the adjudicating
authority pointed out that such certificates had
been issued by two apex bodies namely, the
respondent herein and the other apex body, the
noticee no.3 and such certificates were issued not
before effecting clearance of such yarn from the
spinning mill (noticee no.1.) but on a later date.
Further, the adjudicating authority, as a matter of
fact, found that the certificates were issued by the
respondent based on the certificates issued by the
spinning mill (noticee no.1) and not on the basis of
verification of facts. Further, the adjudicating
authority found that the respondent was not at all
aware as to where the yarn is ultimately going since
they do not have any control on the sales of the
traders to whom the yarns are actually sold.
Therefore, it was held that the very spirit and the
intention for which the notification has been issued
giving benefit of duty of excise of cross reel hank
yarn meant for the use of weavers belonging to
handloom sector, has been totally defeated by the
manner in which the transactions have taken place.
Further, the adjudicating authority pointed out that
even the traders who are the real buyers of the said
hank yarn manufacturer and marketed by the spinning
mill, noticee no.1, did not know and could not give
any guarantee that the yarn is going to be used only
on handlooms and factually it was established that
the yarn is subsequently sold to various authorities
in and outside the State on which the respondent had
no control. Therefore, the adjudicating authority
held that the certificates declaring that the yarn
is going to be used only on handlooms as issued by
the respondent and the other apex society are not
based on factual verification but only based upon
the certificate issued by the spinning mill
concerned. Thus, the adjudicating authority held
that the conditions stipulated in the notification
for the purpose of exemption are not favourable in
the case on hand. Accordingly, the proposal in the
show cause notice was affirmed and a penalty of
Rs.10,00,000/- was imposed against the respondent.
The learned tribunal while interfering
with the order has not taken note of the
notification in its entirety but only quoted a
portion of the notification which appears to be in a
truncated form. The tribunal observed that the
goods were purchased by the respondent, apex body
for further distribution to traders who further sold
the same to ultimate handloom weavers but might be
located at the interior of the country having no
access to the respondent/apex body for direct
purchase of the goods.
It is not clear as to how the tribunal
had rendered such a finding. The tribunal has not
rendered any finding as to the evidence which was
available before the adjudicating authority who has
clearly brought out the modus operandi which was
adopted in the entire process. The evidence also
pointed out that the respondent and other apex
society have merely acted as a commission agent by
receiving commission at the rate of 1.5% and by
their conduct have defeated the very purpose for
which the notification was issued. With regard to
the certification which was also one of the
conditions under the notification, the learned
tribunal has not examined the aspect pointed out by
the adjudicating authority that the certificate
issued by the respondent and the other apex body was
not based on any verification done by them, but
solely based upon the certificate issued by the
spinning mill. That apart, evidence has been
brought on record to show that in the transaction,
the respondent had no role and the transaction took
place between the spinning mill and the traders and
all that the respondent no.1 did was to lend their
name thereby being entitled to a commission of 1.5%.
Thus, we find that the order passed by
the tribunal is utterly perverse, as it has not
dealt with any of the findings which has been
rendered by the adjudicating authority by
appreciating the facts and evidence brought on
record. Thus, we have no hesitation to hold that
the tribunal committed a serious error in
interfering with the order of the adjudicating
authority.
For the above reasons, the appeal
(CEXA/4/2007) is allowed and the substantial
question of law is answered in favour of the
revenue."
Following the above decision, this appeal
(CEXA/5/2007) is allowed and the substantial question of law is
answered in favour of the revenue.
(T.S. SIVAGNANAM, J.)
(HIRANMAY BHATTACHARYYA, J.)
S.Das/As.
