Telangana High Court

Stackline Systems Pvt Ltd, Hyd And ... vs Dy. Commissioner Legal, Customs, ... on 20 October, 2023

Bench: K.Surender

      HIGH COURT FOR THE STATE OF TELANGANA
                  AT HYDERABAD

                             *****
             Criminal Petition No.6826 OF 2016

Between:

Stackline Systems Private Ltd & other       ... Petitioners/Accused

                                    And

Deputy Commissioner (legal),
Customs, Central Excise and Service Tax,
Hyderabad-I Commissionerate, Hyderabad
Represented by the Special Public Prosecutor,
Customs and Central Excise, Hyderabad.
                                           ...Respondent/Complainant



DATE OF JUDGMENT PRONOUNCEMENT:             20.10.2023

Submitted for approval.

THE HON'BLE SRI JUSTICE K.SURENDER

  1 Whether Reporters of Local
    newspapers may be allowed to see the                 Yes/No
    Judgments?

  2 Whether the copies of judgment may
    be marked to Law Reporters/Journals                  Yes/No

  3 Whether Their Ladyship/Lordship
    Wish to see their fair copy of the                    Yes/No
    Judgment?




                                              __________________
                                              K.SURENDER, J
                                    2




        * THE HON'BLE SRI JUSTICE K. SURENDER

                    + CRL.P. No. 6826 of 2016

 % Dated 20.10.2023

# Stackline Systems Private Ltd & other            ...Petitioners/Accused

                                 And

$ Deputy Commissioner (legal),
Customs, Central Excise and Service Tax,
Hyderabad-I Commissionerate, Hyderabad
Represented by the Special Public Prosecutor,
Customs and Central Excise, Hyderabad.
                                          ... Respondent/Complainant


! Counsel for the Petitioners:         Sri Ch. Pushyam Kiran

^ Counsel for the Respondents:         Sri Domnic Fernandes
                                             &
                                        Gadi Praveen Kumar

>HEAD NOTE:

? Cases referred

1. (1997) 7 Supreme Court Cases 622
2. 2023 SCC Online SC 269
3. (2015) 14 Supreme Court Cases 186
                                  3



        THE HONOURABLE SRI JUSTICE K.SURENDER

                CRIMINAL PETITION No.6826 of 2016

O R D E R:

This Criminal Petition is filed under Section 482 of the Code

of Criminal Procedure, 1973 (for short 'Cr.P.C.') by the

petitioners/Accused, to quash the proceedings against them in

CC.No.32/2015 on the file of Special Judge for Economic Offences

at Hyderabad. The offence alleged against the petitioners are

under Section 9 of the Central Excise Act, 1944.

2. Heard learned Counsel for the petitioners and Sri Domnic

Fernandes, learned Special Senior Standing Counsel for the

respondent.

3. The Deputy Commissioner (Legal) of Central Excise and

Service Tax, filed a complaint before the Special Judge for

Economic Offences alleging that the 1st petitioner represented by

the 2nd petitioner who is the Managing Director, evaded Central

Excise duty in the guise of trading of Modular Furniture, falling

under the heading 9403 of the first schedule to the Central Excise

Tariff Act, 1985, even after crossing the threshold exemption limit

prescribed under notification No.8/2003-CE, dated 01.03.2003,

as such liable under Section 9 of the Central Excise Act, 1944.

The period of offence was during the year 2005-2006. The said

fact was known to the agency, when the officers of the Central

Excise (Hyd-1) Commissioner visited the factory premises of

Accused No.1 on 20.02.2008 and scrutinized the records of the

company. It was found that the 1st petitioner company maintained

records with respect to production of finished goods, receipt and

usage of raw material and they had not paid duty on the

clearances made during the financial year 2005-2006 over and

above the limit of Rs.1 crore as specified in the notification dated

01.03.2003. Resultantly, non-payment of duty was to an extent of

Rs.32,29,153/- on the valuation of Rs.1,97,86,473/-.

4. The petitioners aggrieved by the show-cause notice and

thereafter the Commissioner passing an order on 24.06.2011,

confirming the show-cause notice, filed an appeal before the

Commissioner (Appeals). The Commissioner (Appeals) passed

order dated 16.09.2011 waiving 50% of the amount confirmed in

the original, directing the petitioner to deposit remaining 50% on

or before 22.10.2011.

5. A letter dated 01.07.2014 was addressed to the Chief

Commissioner, Customs & Central Excise, Hyderabad Zone,

Hyderabad, requesting approval for launching prosecution. Along

with the said letter of the Commissioner dated 01.07.2014,

Investigation Report dated 24.06.2011 was also filed. According to

the Investigation Report, the petitioner evaded Central Excise

Duty in the guise of trading of Modular Furniture. The office note

was put up on 17.07.2014. In the said office note it is mentioned

that Prosecution against the petitioner company may be

sanctioned since it is a case of serious nature and there is

sufficient evidence to prove fraudulent intention. Further, the

notes are to the effect that there was penalty of Rs.5,000/-

imposed against the 2nd petitioner who is the Managing Director

and no proposal for prosecution of the Managing Director was

suggested as the said penalty was set aside by the Commissioner

(Appeals) vide OIA 89 & 90/2011 (H-I) CE, dated 14.11.2011. The

proposal for launching prosecution submitted by the Hyderabad-

1, Commissioner was put up for perusal and approval on

31.07.2014.

6. Thereafter, a letter was addressed to the Commissioner,

Customs and Central Excise, Hyderabad-1 by the Assistant

Commissioner Sri K.Chandra Sekhar vide letter dated 1.08.2014

which reads as follows;

" Please refer to your letters O.R.No.108/2010-Hyd.1.Adj, dated 01.07.2014 and 25.072014, wherein proposal for

launching prosecution against M/s.Stackline Systems Private Limited was submitted to this office.

2. The Chief Commissioner of Customs, Central Excise & Service Tax, Hyderabad Zone, has accorded administrative approval for launching prosecution against M/s.Stackline Systems Private Limited, Islampur Village, Toorpan Mandal, Medak District as proposed by the Commissioner of Customs & Central Excise, Hyderabad-1 Commissionerate, Hyderabad in respect of the order in Original No.22/2011-(C.E.) dated 24.6.2011.

3. Necessary prosecution proceedings may please be initiated against the above mentioned firm immediately and the date of filing of criminal complaint may be intimated to this office at an early date.

7. The learned Counsel appearing for the petitioners would

submit that the Prosecution is bad in law since no proposal was

made for prosecuting the second petitioner. Further, the sanction

orders were not filed along with the complaint.

8. Sri Domnic Fernandes, Learned Senior Standing Counsel

appearing for the respondent/complainant, would submit that

letter dated 01.08.2014 along with the letter of Commissioner-

S.N.Saha dated 01.07.2014 and the note which was put up

seeking sanction, would suffice to prosecute the petitioners. It is

clearly mentioned in the complaint and also in the letter that the

Chief Commissioner has accorded administrative approval for

launching prosecution against the 1st petitioner. In accordance

with the Circular No.1009/16/2015-CX an order conveying the

sanction issued by the sanctioning authority and forwarded to the

Commissionerate concerned for appropriate action would suffice.

The said letter dated 01.08.2014 and the other communication is

the 'sanction' that was required for prosecution and there are no

separate sanction orders.

9. Having gone through the circular No. 1009/16/2015-CX,

dated 23.10.2015, the relevant provisions to sanction prosecution

are as under:

"5. Authority to sanction prosecution 5.1) The Criminal complaint for prosecuting a person should be filed only after obtaining the sanction of the Principal Chief/Chief Commissioner of Central Excise or Service Tax as the case may be.

5.2) In respect of cases investigated by the Directorate General of Central Excise Intelligence (DGCEI), the criminal complaint for prosecuting a person should be filed only after obtaining the sanction of Principal Director General/Director General, CEI. 5.3) An order conveying sanction for prosecution shall be issued by the sanctioning authority and forwarded to the Commissionerate concerned for taking appropriate action for expeditious filing of the complaint."

10. In clause-5 of the aforesaid circular, it is specifically

mentioned that a criminal complaint can be filed only after

obtaining the sanction of the Chief Commissioner of Central

Excise. In the present case, admittedly there is no sanction order

which was issued by the Chief Commissioner of Central Excise. A

letter addressed by the Assistant Commissioner informing that the

Chief Commissioner had accorded administrative approval for

launching prosecution, will not suffice and it cannot be said that

such communication would amount to sanction accorded by the

Chief Commissioner of Customs.

11. Any sanction required to be issued by a specified authority

which would be the competent authority, the documents

pertaining to the case have to be examined by such competent

authority and proceedings have to be issued by giving reasons as

to why prosecution has to be launched. A duty is cast upon the

competent authority to apply its mind to the facts of the case to

grant sanction. A statute requiring sanction to be made is for the

purpose or ensuring that criminal prosecution is not launched

vexatiously or improperly or in a routine manner or when no

offence is made out. The competent authority has to shoulder

responsibility of scrutinizing the available material and record its

satisfaction to criminally prosecute a person. The grant of

sanction was described as a solemn and sacrosanct act by the

Honourable Supreme Court in various Judgments.

12. The Honourable Supreme Court in Mansukhlal Vithaldas

Chauhan v. State of Gujarat 1 held that whether a sanction is

valid would depend upon the material placed before the

sanctioning authority. Grant of sanction is not an idle formality or

an acrimonious exercise but a solemn and sacrosanct act.

13. Similar view was taken by the Honourable Supreme Court in

S.Athilakshmi v. State rep. by the Drug Inspector 2 and in

Nanjappa v. State of Karnataka 3 .

14. The prosecution instituted without a proper sanction would

fail since the proceedings would be void for want of a valid

sanction. The Court cannot take cognizance of an offence until

pre-requisite of sanction is fulfilled by the prosecution and filed

before the Court.

15. In the present case, except the office communication dated

01.08.2014, there is no separate sanction order which is accorded

(1997) 7 Supreme Court Cases 622

2023 SCC OnLine SC 269

(2015) 14 Supreme Court Cases 186

by the Chief-Commissioner. A mere letter conveying that the Chief

Commissioner had accorded administrative approval for launching

criminal prosecution cannot be a valid document to launch

prosecution against the petitioners.

16. Clause-6.7 of the Circular;

"6.7) ...............A criminal complaint in a court of law should be filed by the jurisdictional Commissionerate only after the sanction of the Principal Chief/Chief Commissioner or Principal Director General/Director General of DGCEI has been obtained.

6.9) Once the sanction for prosecution has been obtained, criminal complaint in the court of law should be filed as early as possible by an officer of the jurisdictional Commissionerate authorized by the Commissioner. 6.10)............It shall be the responsibility of the officer who has been authorized to file complaint, to take charge of all documents, statements and other exhibits that would be required to be produced before a Court."

17. It is specifically mentioned that i) Sanction has to be

obtained and ii) An offence has to be 'authorized' by

Commissioner.

18. The letter dt.01.08.2014 which the Special Standing Counsel

for respondent, claims to be a sanction order does not reflect that

any person was authorized to file a complaint. The said aspect is

also an infirmity in launching the prosecution. Even in the

complaint, it is mentioned that sanction was granted vide letter

dated 01.08.2014. No authorization is filed to show that the

'Deputy Commissioner (legal)' was authorized to file complaint.

19. For the aforesaid reasons, since there is no valid sanction as

required, the proceedings against the petitioners in