M/S Kay Pan Sugandh Pvt. Ltd vs Director General Of Gst ...
2022 Latest Caselaw 1522 Chatt

                                      1

                                                                      AFR
            HIGH COURT OF CHHATTISGARH, BILASPUR
                                             Order Reserved on 15.03.2022
                                             Order delivered on 24/03/2022

                           WPT No.10 of 2022
    • M/s Kay Pan Sugandh Pvt. Ltd. Through its Authorized Signatory,
      Mr. Ramgopal Agnihotri, S/o Late Dhani Ram Agnihotri, aged
      about 59 years, Plot No.75-76, Sector-A, Sirgitti Industrial Area,
      Bilaspur - 495004 (CG)
                                                            ---- Petitioner
                                    Versus
    •   Director General of GST Intelligence, Through the Principal
        Additional Director General, West Block-8, Wing No.6, 2 nd Floor,
        RK Puram, New Delhi -110066.
                                                          ---- Respondent

For Petitioner : Mr. G. Tushar Rao, Sr. Advocate assisted by Mr. Aditya Kumar & Mr. Pankaj Agrawal, Advocates.

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For Respondent : Mr. Maneesh Sharma, Advocate.

Hon'ble Mr. Justice Parth Prateem Sahu

CAV Order

1. Petitioner, who is engaged in manufacturing of pan masala of

various brands and retail sale price, is served with show-cause

notice, Annexure P-1, under Section 11A (4) of the Central

Excise Act, 1944 (for short 'the Act of 1944') read with Section

174 of the Chhattisgarh Goods Service Act, 2017 (for short 'the

Act of 2017') stating therein that petitioner misdeclared maximum

packing speed of pan masala pouch packing machines installed

at petitioner's factory premises and thereby short paid central

excise duty. In show-cause notice central excise duty of

Rs.41,10,34,000/- is demanded as also imposition of penalty in

terms of Section 11AC of the Act of 1944 read with Rules 17 &

25 of the Central Excise Rules, 2002 (for short 'the Rules of

2002') is proposed. Aggrieved by service of show-cause notice

dated 30.3.2020, petitioner filed instant writ petition seeking for

following reliefs:-

"i. That, this Hon'ble Court may kindly be pleased to quash and set aside the impugned show cause notice dated 30/03/2020 issued vide F. No.574/CE/47/2016/Inv. by the Principal Additional Director General, Directorate General of GST Intelligence, New Delhi.

ii. Cost of the petition may also be granted to the petitioner.

iii. Any other relief, which this Hon'ble Court deem fit and proper, may also kindly be granted to the petitioner, in the interest of justice."

2. Mr. G. Tushar Rao, learned Senior Advocate for petitioner would

submit that product in which petitioner is dealing is classified

under Tariff Heading- 21069020 of the First Schedule to the

Central Excise Tariff Act, 1985 (for short 'the Act of 1985') and it

was brought under the Compounded Levy Scheme. The central

excise duty is to be paid and collected on the basis of production

capacity (deemed manufacture) of notified goods and not on the

basis of manufacture and removal of excisable goods. The

Central Government in exercise of its power conferred by

Section 3A of the Act of 1944, issued Notification dated 1.7.2008

notifying 'Pan Masala Packing Machine (Capacity Determination

and Collection of Duty) Rules, 2008 (for short 'the Rules of

2008'). The Rules of 2008 in itself is a complete Code. Under

Rule 4 of the Rules of 2008 the only factor relevant to production

is based on number of pouch packing machines available and

operational in factory premises of manufacturer. In the year

2015, vide Notification No.6/2015-CE dated 1.3.2015, central

excise duty is to be levied in proportionate with speed of pouch

packing machines installed at factory premises of a

manufacturer. After issuance of Notification dated 1.3.2015,

petitioner submitted Form-1 declaring number of packing

machines available and installed at factory premises of petitioner

also specifying speed of each Pan Masala Packing Machine (for

short 'PMPM'). Pursuant to declaration made, the officers of

respondent-Department visited factory premises of petitioner and

in presence of independent witnesses conducted panchnama

proceedings, verifying correctness of declaration made by

petitioner. Based on verification panchnama, the Assistant

Commissioner, Central Excise, Division-I, Bilaspur provisionally

re-determined capacity of PMPM available in factory premises of

petitioner, without there being any technical opinion/report. The

authorities of department sent a qualified Chartered Engineer for

inspection at factory premises of petitioner and to ascertain

actual speed of PMPM, who conducted detailed inspection in

presence of Senior Officers; considered efficiency of PMPM in

marketable condition and submitted report. The Assistant

Commissioner, Central Excise, Division-1, Bilaspur upon

considering technical opinion / report of the Chartered Engineer,

passed the order dated 27.5.2015 determining final capacity of

machines installed and operational at factory premises of

petitioner. On 27.5.2015 petitioner submitted declaration Form-1

for installation of another machine for manufacturing of pan

masala of different weight based on MRP of Rs.1.50 paise,

which was also inspected by a Chartered Engineer, who after

conducting inspection submitted report on 8.6.2015 based upon

which capacity re-determination order was passed on 30.6.2015.

Likewise, petitioner got installed new PMPM of MRP Rs.4/-. It

was also inspected by Chartered Engineer and based on report,

final capacity redetermination order was passed. Respondent

Department behind the back of petitioner engaged a Consultant

to prepare sweeping general report for determination of

maximum packing speed of PMPM (FFS Rotary Machine). Said

Consultant based on new formula proposed by respondent,

arrived at a speed at which PMPM can be operated and pack

pouches per minute. Said technical opinion renders a formula

which is materially different from that which had been proposed

by respondent as there is mention of multiplication factor of .80.

He submits that aforementioned report was by a Assistant

Professor from IIT, Delhi. After submission of said report,

petitioner submitted an application under the Right to Information

Act, 2005 on 24.7.2020 for supply of report submitted by

Consultant because that was the sole basis for issuance of

impugned show-cause notice to petitioner. However, information

as sought for has been denied to petitioner mentioning Section 8

(1) (h) of the Right to Information Act, 2005 against which

petitioner preferred an appeal. Impugned show-cause notice is

issued by the Principal Additional Director General, Directorate

General of GST Intelligence, New Delhi who is having no

jurisdiction to determine capacity of PMPM. Re-determination of

capacity of PMPM was as per order of the Assistant

Commissioner of Central Excise, hence respondent is having no

jurisdiction to issue impugned show-cause notice to petitioner.

Provisions of Rule 6 (2) of the Rules of 2008 specifically

authorizes Deputy Commissioner or Assistant Commissioner of

Central Excise to direct modification in the plan submitted by a

manufacturer. The Assistant Commissioner has re-determined

capacity of PMPM based on report of Chartered Engineer, which

was never challenged or disturbed by any process of law, and

thus it has attained finality. In show-cause notice reliance is

placed on the report submitted by the Assistant Professor of IIT,

Delhi but report based upon which show-cause notice is issued

to petitioner, is denied. Even there is no mention as to which of

the officers of department has been authorized to seek such

report. As impugned show-cause notice has been issued by

authority not competent and having no jurisdiction, it is bad in

law and liable to be quashed. In support of his contention, he

places reliance on judgment rendered in case of Union of India

v. Vicco Laboratories reported in (2007) 13 SCC 270; Poona

Bottling Co. Ltd. vs. Union of India reported in 1992 (61) ELT

364 (Kar.); Godrej & Boyce Mfg. Co. Ltd. vs. Union of India

reported in MANU/MH/3528/2021; Union of India vs. ITC

Limited reported in 1985 (21) ELT 655 (Kar.); order dated

8.10.2021 in WPT No.2444/2021 (M/s Nkas Services Pvt. Ltd.

State of Jharkhand & ors); Applied Industrial Products Pvt.

Ltd. v. CCE reported in 1992 (61) ELT 364 (Kar.) and Victory

Glass and Industries Ltd. vs. CCE reported in 1990 (47) ELT

540 (Kar.).

3. Mr. Maneesh Sharma, learned counsel for respondent

Department would submit that petitioner has filed this writ

petition challenging show-cause notice, which is not

maintainable as alternative remedy is available to petitioner of

approaching authority concerned by filing reply to show-cause

notice. In support of his contention, he places reliance upon

judgment of Hon'ble Supreme Court in case of Trade Tax

Officer, Saharanpur vs. Royal Trading Co. reported in (2005)

11 SCC 518; Commissioner of Income Tax, Gujarat vs.

Vijaybhai N Chandrani reported in (2013) 14 SCC 661; order

dated 26.6.2019 passed by this High Court in WPT No.22/2019

(M/s RK Associates & Hoteliers Pvt. Ltd. vs. UOI & ors); order

dated 27.6.2019 in WPT No.94/2019 (Veer Bhadra Singh vs.

UOI & ors).

With respect to authority and jurisdiction of the Principal

Additional Director General to issue show-cause notice, he

submits that vide Notification dated 10.2.2015 the officers of

various ranks of Directorate General of Central Excise

Intelligence have been appointed by the Board as the officers of

Central Excise of the corresponding ranks for exercise of all

powers under the Act of 1944 and the Rules made thereunder.

Exercising the powers conferred vide Notification dated

10.2.2015, respondent based on intelligence information of mis-

declaration by petitioner of maximum packing speed of PMPM at

which they can be operated, had conducted investigation and

found that there is difference in number of funnels mentioned in

report provided by Chartered Engineer from that provided by

PMPM manufacturers. All machines installed and operated at

factory premises of petitioner are having capacity of packing

more than 700 pouches per minute, which the petitioner was

aware but made declaration of less capacity. Due to wrong

mentioning of number of funnels in report of Chartered Engineer

than what provided by machine manufacturer, capacity / speed

of PMPM has been reduced. Detailed show-cause notice has

been issued mentioning all facts as to on what basis show-cause

notice is issued; assessing proposed liability and penalty

thereupon. Petitioner is having efficacious alternative remedy of

approaching authority by way of submitting reply to show-cause

notice. Hence, in light of above rulings of Hon'ble Supreme

Court as also of this High Court, writ petition challenging show-

cause notice is not maintainable.

4. I have heard learned counsel for the parties and perused record

of writ petition.

5. Petitioner is engaged in the business of manufacturing of pan

masala of various brand names and retail sale price. From the

pleadings made in writ petition, it is clear that petitioner got

installed different PMPMs of different MRPs at its factory

premises. Main grievance raised by learned Senior Counsel for

petitioner is with respect to jurisdiction of authority issuing

impugned show-cause notice to petitioner. Perusal of impugned

show-cause notice would show that detailed investigation has

been conducted by respondent before issuing show-cause notice

to petitioner. Investigation was conducted based on intelligence

information. In show-cause notice, there is specific mention

about difference in speed of PMPM; giving wrong information in

report of Chartered Engineer regarding number of funnels in

PMPM than that of number of funnels as per report of

manufacturer of machines. As per explanation offered by

manufacturer of FFS Rotary Pouch Packing Machine, password

for enhancing speed of PMPM is also provided to manufacturer

of pan masala i.e. petitioner, and thus petitioner is well aware of

the fact that PMPM can be operated at a higher speed than the

speed declared by petitioner. Reasons assigned in show-cause

notice are factual and based on evaluating scientific method. In

impugned show-cause notice there is prima facie material which

warrant explanation from petitioner as to why proposed excise

duty should not be charged with penalty.

6. So far as jurisdiction of respondent to issue impugned notice is

concerned, Paragraph 1 to 4 of the Circular dated 10.2.2015

read as under:-

"1. Attention is invited to Notification no 38/2001 - C.E (N.T) dt 26-6-2001 as amended from time to time whereby the officers of various ranks of Directorate General of Central Excise Intelligence have been appointed by the Board as the officers of Central Excise of the corresponding ranks for exercise of all powers under the Central Excise Act, 1944 and rules made thereunder, throughout the territory of India.

2. Officers of DGCEI, as Central Excise Officers, issue show cause notices in cases investigated by them.

These Show Cause Notices are adjudicated by either the field Commissioners or by the Commissioner (adjudication). Cases to be adjudicated by Commissioner (adjudication) were specified by the orders of the Board.

3. Pursuant to the Cadre structuring and reorganization of CBEC, new posts in the rank of Principal Commissioners of Central Excise or Commissioners of Central Excise have been created in DGCEI, for various purposes including for adjudication of cases. Additional Director General (Adjudication) in DGCEI shall adjudicate cases where the show cause notices are issued by the officers of DGCEI. The practice of adjudication of DGCEI cases by field Commissioners shall also continue.

7. 4. Powers of the Board under sub-rule 2 of rule 3 of the Central Excise Rules, 2002, have been conferred on Chief Commissioners of Central Excise by notification no. 11/2007-C.E (N.T) dt. 1-3-2007 to specify the jurisdiction of the Commissioner of Central Excise for the purposes of adjudication within his jurisdiction. Director General of CEI has jurisdiction over the ADGs. Now, the jurisdiction of Director General has been extended over to Principal Commissioners/ Commissioners of Central Excise vide notification number 2/15 -C.E. (N.T) dt. 10-02-15 so that he may assign cases, where show cause notices have been issued by the officers of the DGCEI, for adjudication to the field Commissioners also."

8. In view of Circular dated 10.2.2015 issued by the Government of

India, Ministry of Finance (Department of Revenue), Central

Board of Excise & Customs, New Delhi, submission of learned

Senior Counsel for petitioner that impugned show-cause notice

has been issued by an incompetent authority or authority having

no jurisdiction, has no substance and it is hereby repelled.

9. Hon'ble Supreme Court in case of Union of India vs. Bajaj

Tempo Ltd. reported in (1998) 9 SCC 281 has held thus:-

"3.It is clear that the question of exigibility to the duty demanded depends on the facts found relating to the process by which the end-product on which duty is demanded came into existence. The items in

question are several and in each case a finding has to be given on the facts pertaining to the particular item. This has not been done by any authority in respect of any of these items or goods. There is thus no finding of fact on which the question of exigibility to excise duty on any of the items or goods can be decided. The appropriate course for the assessee in each case was to reply to the show-cause notice enabling the authorities to record their findings of fact in each case and then if necessary, the matter should have been proceeded to the Tribunal and thereafter to this Court. The trade notice was not decisive of the question either before the Tribunal or in this Court.

4. We are satisfied that the question of excise duty which has been raised in these matters can be decided only after recording the findings of fact in each case in respect of goods or items given by the appropriate authority."

10. Hon'ble Supreme Court in case of Special Director & anr Vs.

Mohd. Ghulam Ghouse & anr reported in (2004) 3 SCC 440

has held thus:-

"5.This Court in a large number of cases has deprecated the practice of the High Courts entertaining writ petitions questioning legality of the show cause notices stalling enquiries as proposed and retarding investigative process to find actual facts with the participation and in the presence of the parties. Unless the High Court is satisfied that the show cause notice was totally non est in the eye of law for absolute want of jurisdiction of the authority to even investigate into facts, writ petitions should not be entertained for the mere asking and as a matter of routine, and the writ petitioner should invariably be directed to respond to the show cause notice and take all stands highlighted in the writ petition. Whether the show cause notice was founded on any legal premises, is a jurisdictional issue which can even be urged by the recipient of the notice and such issues also can be adjudicated by the authority issuing the very notice initially, before the aggrieved could approach the Court. Further, when the Court passes an interim order it should be careful to see that the statutory functionaries specially and specifically constituted for the purpose are not denuded of powers and authority to initially decide the matter and ensure that ultimate relief which may

or may not be finally granted in the writ petition is not accorded to the writ petitioner even at the threshold by the interim protection granted."

11.In case of Trade Tax Officer (supra), Hon'ble Supreme held

thus:-

"1.These appeals are against the judgment of the Allahabad High Court dated 21-1-2000. The respondent Company were clearing their goods on the basis that they were leather sheets within the meaning of Section 14 of the Central Sales Tax Act. A show-cause notice was issued to them claiming that the items cleared by them were not leather sheets and that a higher duty was required to be paid. The respondents filed a writ petition challenging the issuance of the show-cause notice. The High Court ignoring the well-settled law that against a mere issuance of a show-cause notice a court should be reluctant to interfere, purported to go into the facts and quashed the show-cause notice in a mechanical way. In our view, the approach of the High Court was entirely wrong. All that had been done was that a show cause was issued. After the respondents filed their reply, the notice may have been dropped or if the reply was not satisfactory based on the reply further inquiries could have been made by the appellants. Adjudication proceedings must not be stalled in the manner done by the High Court."

12. In case of Oryx Fisheries Pvt. Ltd. vs. UOI reported in 2011

(266) E.L.T. 422 (SC), it was observed as under:-

"28. It is no doubt true that at the stage of show cause, the person proceeded against must be told the charges against him so that he can take his defence and prove his innocence. It is obvious that at that stage the authority issuing the charge- sheet, cannot, instead of telling him the charges, confront him with definite conclusion of his alleged guilt. If that is done, as has been done in this instant case, the entire proceeding initiated by the show cause notice gets vitiated by unfairness and bias and the subsequent proceeding become an idle ceremony."

13. In view of above dictum of Hon'ble Supreme Court, if the facts of

present case are considered, it would reveal that respondent

conducted investigation based on intelligence information. Upon

detailed investigation, as appearing in show-cause notice, it

revealed that there was mis-declaration by petitioner, based

upon which show-cause notice is issued to petitioner calling

upon petitioner to submit reply within a particular period.

Respondent has been authorized under Circular dated

10.2.2015 to issue show-cause notice. Hence, in the considered

opinion of this Court, impugned show-cause notice cannot be

stated to be issued by an authority not having jurisdiction.

Petitioner is having efficacious remedy of approaching the

authority issuing impugned show-cause notice by submitting

reply explaining his case.

14. Case laws relied upon by learned Senior Counsel for petitioner

are on different facts. In case of Vicco Laboratories (supra),

challenge to notice was made on the ground that authority

issuing notice is seeking to reopen and re-litigate the issues

which have been finally concluded by decision of the High Court

as well as by Hon'ble Supreme Court in favour of writ petitioner

therein, therefore, notice has been issued in arbitrary exercise of

powers and is an abuse of process of law. Hon'ble Supreme

Court considering submissions of learned counsel for parties has

held that show-cause notice was nothing but repetition of earlier

show-cause notices with slight variations and dismissed appeal.

15. In case of Poona Bottling Co. Ltd. (supra) the authority served

notice upon petitioner to show-cause why full rate of duty should

not be charged on the products, which was replied by petitioner

therein. A Division Bench of Delhi High Court came to

conclusion High Court in exercise of powers under Article 226 of

the Constitution of India can interfere if there is total lack of

jurisdiction or complete non-application of mind and interdicted

show-cause notice.

16. In case of Godrej & Boyce Mfg. Co. Ltd. (supra), a Division

Bench of High Court of Bombay considering the grounds on

which High Court in exercise of jurisdiction under Article 226 of

the Constitution of India can interfere with a show-cause notice,

came to conclusion that notice issued was by authority who was

having no jurisdiction.

17. In case of M/s Nkas Services Pvt. Ltd. (supra), show-cause

notice was interdicted by High Court of Jharkhand on the ground

that it does not fulfil ingredients of proper show-cause notice.

18. In preceding paragraph this Court came to conclusion that

respondent was having jurisdiction to issue notice as per Circular

dated 10.2.2015. In impugned notice reasons for issuing show-

cause notice have been discussed in very detail. Hence, I am of

the opinion that rulings relied upon by learned Senior Counsel

for petitioner will not apply to facts of present case.

19. For the foregoing, this writ petition at this stage is pre-mature, it

is liable to be and is hereby dismissed at admission stage itself.

Sd/-

(Parth Prateem Sahu) Judge roshan/-