Himgiri Plastics vs Commissioner Of Central Excise
2012 Latest Caselaw 339 Del

*             IN THE HIGH COURT OF DELHI AT NEW DELHI

+              CEAC 1/2012

%                        Date of Decision : 18th January, 2012


       HIMGIRI PLASTICS                                  ..... Petitioner
                     Through:          Mr. Naveen Mullick and
                                       Mr. Daman Preet singh, Advs.

                    versus

    COMMISSIONER OF CENTRAL EXCISE        ..... Respondent

Through: Mr. Satish Kumar, Adv.

CORAM:

HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE R.V. EASWAR

1. Whether Reporters of local papers may be allowed to see the judgment?

2. To be referred to the Reporters or not ?

3. Whether the judgment should be reported in the Digest?

SANJIV KHANNA,J: (ORAL)

CM No.1023/2011

This is an application for condonation of delay of 105 days in filing

the appeal under Section 35G of the Central Excise Act, 1944. In the

appeal the appellant has impugned two orders passed by the Customs,

Excise and Service Tax Appellate Tribunal dated 14.3.2011 and

10.10.2011. Order dated 10.10.2011 was passed on an application for

modification/rectification. It is stated that as the rectification application

was pending consideration before the Tribunal, there has been delay in

preferring the present appeal.

2. Mr. Satish Kumar, Advocate who appears for the Central Excise

has been heard on this application for condonation of delay. He waives

right to file reply.

3. Considering the facts and the reasons given, we allow the present

application and the delay in filing the appeal is condoned.

4. Application is disposed of.

CEAC 1/2012

1. A limited issue arises for consideration and therefore we have heard

the counsel for the appellant and the respondent. The following

substantial question of law is framed:-

"Whether the Customs, Excise and Service Tax Appellate Tribunal is right in directing the appellant to deposit Rs.70 lakhs as a pre-condition for hearing of the appeal vide order dated 28.3.2011?"

2. The appellant herein is a partnership firm of two brothers Joginder

Kumar Talwar and Sanjeev Kumar Talwar. They are engaged in

manufacture of lay-flat-tubing, plastic bags, fillers and master batches in

their factory at 364A, Hastasal Industrial Area, Delhi. There was another

factory located in plot No. 24 khasra No.107/1 Hastasal Village, Uttam

Nagar, Delhi. The case of the appellant is that this second factory is the

manufacturing unit of another partnership firm M/s. Himalayan

Polycolours of which Neelam Talwar and Rimi Talwar are partners.

Neelam Talwar is the wife of Joginder Kumar Talwar and Rimi Talwar is

the wife of Sanjeev Kumar Talwar. On 11.12.2007 a search was

conducted in the premises of Himgiri Plastics. Subsequently, search was

also conducted on the premises of Himalayan Polycolours on the same

day. Thereafter, show cause notice was issued to the appellant herein. It

was alleged in the show cause notice that the entire production of the

partnership firm M/s. Himalayan Polycolours was required to be clubbed

with the production carried out by the appellant. The second allegation

made in the show cause notice was that there was clandestine removal of

manufactured goods and the appellant and M/s. Himalayan Polycolours

had incorrectly under declared their production.

3. The appellant herein filed a detailed reply to the show cause notice

raising several contentions. It was submitted that the so-called exercise

copy found during the search was a production diary and did not reflect

sales of additional production which was removed clandestinely. The

exercise book contained details of production which were also duly

recorded in the books of account maintained on regular basis. With

regard to the first allegation it was submitted that the two partnership

firms are independent entities, manufacturing different products and

clubbing of production of the two separate entities was not permissible

without financial flow back or common administration. Mere relationship

of the partners of the two firms, cannot be a ground to club their

production.

4. Commissioner vide order dated 13.9.2009 rejected the contentions

of the appellant and held that the production of the two units i.e. Himgiri

Plastics and M/s. Himalayan Polycolours should be clubbed. He also

computed the clandestine sales with reference to the excise book. He held

that the figures mentioned in the excise book have to be added to the

figures of the actual production recorded in the regular books. This has

created the demand of Rs.1,28,26,111/- for the period 2003-04 to 2007-

08. The appellant was also liable to an equal amount towards penalty and

pay interest. In addition personal penalty of Rs.1,30,000/- each has been

imposed on the four partners and against the authorised signatory of

Himalayan Polycolours, Puneet Talwar.

5. In the impugned order dated 14.3.2011 the Tribunal has examined

the contention of the appellant that there was no common administrative

control or financial flow back between the two firms but has prima facie

rejected the said contention. With regard to the clandestine removal, the

Tribunal has observed that once there was seizure of unofficial or private

documents, the clandestine removal stands proved. It has also been

recorded that the appellant had failed to file complete copy of the balance

sheet for the year 31.3.2009 and therefore they have not been able to

establish and show the financial difficulty. At any rate, the appellant did

not file balance sheets for the year 31.3.2011.

6. Learned counsel for the appellant has taken us to the order passed

by the Commissioner and has pointed out that the figures and computation

of alleged clandestine sales and the findings with regard to common

administrative control and financial flow back. It is highlighted that the

findings are not correct. He submits that the law does not bar or prohibit a

wife of a partner setting up and doing partnership business. He states that

the decisions in the case of Poly Printer vs. C.C.E., Delhi I, 2002 (139)

ELT 295 and Kiran Biscuits and Foods Ltd. vs. C.C.E., Hyderabad,

2005 (179) ELT 566 have been referred to in the impugned order but the

ratio and impact has not been properly appreciated. With regard to the

trade names under which goods were sold, it is submitted that this did not

prove or establish that there was common administrative control or

financial flow back. He states that insignificant loans of Rs.36,000/- or

Rs.20,000/- were later on repaid and even otherwise this does not show

and establish that there was financial flow back. In this regard our

attention has been drawn to the figures and computation of alleged

clandestine sales mentioned by the Commissioner in his order and to the

turnover as declared in the books. It is submitted that the Commissioner

had made assumptions without dealing with the defences raised.

7. A small scale industrial unit which has turnover of Rs.1,00,00,000/-

(Rs.1,50,00,000/- w.e.f. 2007-08) are exempt from payment of excise

duty. It is stated that in case the turnover of Himalayan Polycolours is not

clubbed with the turnover of Himgiri Plastics, the excise duty payable on

the alleged clandestine sale as per the figures and computation of the

Commissioner would come down drastically to Rs. 50 lakhs. In case the

figure of clandestine sales is interfered with, there would further

reduction.

8. With regard to the clandestine sales and figures computed by the

Commissioner it is submitted that the Commissioner has not discussed

and examined the contention of the appellant that the figures given in the

exercise book include the turnover recorded in the books of accounts

regularly maintained. He has drawn our attention to the findings of the

search party. It is stated that as per search report/panchnama total

inventory was valued at about Rs.4 lakhs in the case of appellant-Himgiri

Plastics and Rs.9 lakhs in the case of Himalayan Polycolours. He further

submits that as per the show cause notice, Himgiri Plastics was operating

from the premises which was taken on rent of Rs.8,000/- per month. He

submits that the figures with regard to clandestine sales mentioned by the

Commissioner are exorbitant and are not realistic.

9. During the course of hearing it was put to the counsel for the

appellant whether the appellant or their partners have immovable property

and they are ready and willing to furnish surety or create a charge so that

recovery can be made in case the demand is accepted and the appeal filed

by the appellant is dismissed. The appellant has accepted the suggestion.

10. We may also note that the appellant has stated that the total

turnover of the appellant has come down drastically due to constraints and

adverse market conditions as manufacture and sale of plastic bags is

discouraged by the Government in view of the environmental concerns.

Our attention has been drawn to the balance sheet which has been placed

on record. As per the balance sheet the annual turnover of the appellant is

about Rs.14 lakhs. It is submitted that the appellant is not in a position to

pay the pre-deposit of Rs. 70 lakhs and thus would be deprived of his

right to be heard and press their appeal.

11. Learned counsel for the respondent has submitted that the

clandestine removal and production has been established. Clubbing was

justified and the appellant must pay for their lapses.

12. Having considered the rival contention we are of the view that the

appellant has made out the prima facie case. Even the tribunal has

accepted the same as waiver of pre-deposit has been allowed to some

extent. The primary question is whether the turnover of the two

partnership firms should be clubbed does merit consideration. The

Revenue has emphasized that prima facie there is material with regard to

clandestine removal but the main or core issue is the quantum of the

clandestine removal on which excise duty has been evaded. The appellant

should be given an opportunity to press their appeal. At the same time,

interest of Revenue has to be protected and some payment must be made.

13. Keeping in view the aforesaid factors, we are inclined to modify the

directions of the tribunal and direct as under:-

1. The appellant will pay a sum of Rs.40 lakhs to the respondent as

per the following schedule:-

(i) Rs.10 lakhs will be paid on or before 10.2.2012;

(ii) Thereafter, the appellant will deposit a sum of Rs. 5 lakhs

every two months. The first deposit will be made on or before

16.4.2012.

We have fixed the aforesaid schedule as we are informed that the

present appeal will be taken up for hearing only after three years.

(iii) The appellant will deposit the papers/title documents of the

property bearing No.364-A, Hastasal Industrial Area, Delhi with

the respondent Excise Department (concerned Divisional

Commissioner) by 10.2.2012. The appellant will also file an

undertaking that they shall not dispose of, sell, or encumber or rent

out property No. 364A, Hastasal Industrial Area, Delhi till the

disposal of the appeal before the Tribunal. In case of any adverse

order and non payment of the demand after disposal of the appeal,

it will be open to the respondent-Excise Authorities to sell the

property to recover the amount payable.

14. The question of law is accordingly answered. The appeal is allowed

to the extent indicated above. No costs.

SANJIV KHANNA,J

R.V.EASWAR, J JANUARY 18, 2012 mm