TMI Blog2010 (6) TMI 249X X X X Extracts X X X X X X X X Extracts X X X X ..... same petitioner M/s. Rajam industries (P) Ltd., Chennai. 2. W.P. No. 13863 of 2005 is filed by the petitioner against the show-cause notice issued by the first respondent, the Additional Director General, Directorate of Central Excise, Intelligence, South Zonal Unit, pointing out certain omissions and commissions constituting contraventions of various provisions of Central Excise Rules in the manufacture and removal of excisable goods viz., Oorvasi Brand detergent soap and washing powder without payment of duty and noting that the petitioner is liable for payment of Central Excise duty as per the Rules apart from penal action, penalty and interest, under Section 11AC and 11AB of the Central Excise Act, 1944 and directing the petitioner to show-cause as to why SSI exemption availed from time to time in 1999, 2000, 2001 and 2002 should not be denied as the turnover exceeded Rs. 3 crores and as to why the excise duty amounts should not be waived during the relevant periods on the SSI exemptions stated to have been claimed wrongly and as to why penalty and interest should not be recovered. 3. W.P. No. 32046 of 2004 relates to the consequential proceedings of the Deputy Commercial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is supplied to the petitioner, it would not be 15% of the monthly requirement of the petitioner. (d) Likewise, it is stated that the consumption of LAB by the said M/s. Chitra Industries is also of low quantity. It is stated that the other tenant, M/s. Mano industries is manufacturing Sodium silicate and its supply is 20% of the monthly requirement of the petitioner. (e) It is stated that the first respondent issued various notices about certain irregularities about which the petitioner used to attend the office of the first respondent and explain. However, the impugned show-cause notice dated 30-6-2003 was issued by the first respondent to the effect that the petitioner evaded Central Excise duty to the tune of crores of rupees, asking the petitioner to show-cause. (f) It is the case of the petitioner that along with the show-cause notice no document was enclosed and no opportunity was given to the petitioner to examine witnesses or to verify documents and in spite of requesting for various documents, the first respondent did not furnish the same and even for the purpose of providing Xerox copies of documents mentioned in the show-cause notice, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner filed return for the year 1998-99 under the Tamil Nadu General Sales Tax Act, and accepting the same, the assessment order was passed on 31-5-2000. It is stated that thereafter, certain documents were seized form the petitioners office and the Enforcement Officials of the Sales-tax Department inspected the place of business on 6-12-2000 and sales registers, purchase register and sales invoices maintained by the petitioner after 13-11-2000 were seized and after 6-12-2000, there was no communication from the respondent. 8. In the meantime, in the year 2003, the Central Excise Department issued a notice dated 30-6-2003, which is impugned in W.P. No. 13863 of 2005 and the show-cause notice is now pending and no adjudication order has been passed. However, the respondent issued a revised assessment order dated 2-8-2004, which was received on 25-10-2004 through registered post. The said order was sent by the respondent on 21-10-2004 only, as it is evident from the postal cover. The said revised assessment order was passed solely based on the show-cause notice issued by the Central Excise Department, without any independent materials, when the show-cause notice issued by the cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ominated as Manager or authorized to receive notice alone are entitled to receive and in the case of companies, notice has to be served on the Principal Officer, that only to avoid such doubts Rule 52 provides for the mode of service by registered post and the said procedure has not been followed and that the respondent having passed the order on 2-8-2004, chose to send the same through registered post on 21-10-2004 which was received by the petitioner on 25-10-2004 and there is delay at every stage. 12. On merit also, it is stated that no independent material is available to take action against the respondent for revision of assessment order, that the mere pendency of show-cause notice issued by the Central Excise Department is not a ground for the purpose of revision of assessment, unless there is a direct evidence or the purpose of revision, that the allegation that the petitioner purchased raw materials from bogus and fictitious dealers is not correct for the reason that the purchase was effected from Tamil Nadu Petro Products Limited which is a Government of Tamil Nadu undertaking and that the revised assessment order has been passed on assumptions and presumptions. 13. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ai is controlled by its Managing Director, D. Selvaraj, who has also controlled M/s. Raji Industries at Trichy which has been functioning in the name of his employee, Thiru.Veerasamy. While explaining the modus operandi of the petitioner, it is stated that Linear Alky Benzene (LAB) and Sulphuric Acid are the major raw materials in the manufacture of detergents and Soda ash, Soapstone powder, Silicate, aromatic chemicals, etc. are other raw materials. The raw material viz., Linear Alkyl Benzene (LAB) was procured from Tamil Nadu Petro Products Ltd., and in the process of manufacture, LAB is sulphonated with Sulphuric Acid to get Acid slurry and Acid slurry is mixed with other raw materials to get detergents in a particular ratio. 17. It is stated that the evidence collected during investigation revealed that the petitioner was procuring the raw materials, viz., (i) LAB from Tamil Nadu petro Products Limited through its consignment agents, M/s. Industrial Chemical Agency, Chennai, (ii) soda Ash from its consignment agents/dealers, M/s. Tuticorin Alkali Chemicals Ltd., M/s. Gujarat Heavy Chemicals Ltd., M/s. Tata Chemicals Ltd. and M/s. Saurashtra Chemicals Ltd., (iii) Sulphuric Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court in Crl. O.P. No. 10630 of 2002 and Crl. M.P. No. 5560 of 2002 was also filed before the learned Principal Sessions Judge for cancellation of bail since there was failure on the part of the petitioner in appearing before the police daily and the same is pending. 20. It is stated that the petitioner indulged in procuring raw materials viz., LAB, Sulphuric acid, Acid slurry and other raw materials in fictitious names which were put to use in the manufacture of excisable goods, viz., detergent soap powder with the brand name, Oorvasi. It is stated that the evidence recorded shows that there was clandestine removal of goods by the petitioner. The seizure of several documents and goods was explained in detail in the impugned show-cause notice dated 30-6-2003 and the petitioner was examined from time to time and statements were recorded on 23-4-2001, 18-10-2001, 14-2-2002 and 6-5-2002 by the Senior Intelligence Officer and the entire investigation spanned over a period of two years culminated in the issuance of show-cause notice dated 30-6-2003 demanding duty of Rs. 28.87 crores after conducting searches covering 53 premises leading to seizure of documents and offending goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y taking into account all documentary evidence collected in the matter and the petitioner would be afforded adequate opportunity to defend itself by way of reply and personal hearing by the adjudicating authority. It is stated that quantification of duty liability was made on scientific and rational manner commensurate with potential of the petitioner who had indulged in offences in successive manner unmindful of investigatory process. There was no harassment of the petitioner by the respondent, it is stated that the petitioner without submitting its explanation to the show-cause notice, approached this Court by filing the writ petition, which is not maintainable. The show-cause notice was issued within the extended period of limitation as per proviso to Section 11A(1) of the Central Excise Act based on the documentary evidence available. 24. In the reply affidavit filed by the petitioner, it is stated that the Managing Director of the petitioner company is a prominent public service oriented person who was even elevated as Member of Legislative Assembly from Srivaikuntam constituency and Oorvasi products were sold for lesser price for the benefit of the people while compared to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mity or violation on the part of the assessing authority in passing the assessment order and the assessing authority considered the objections in judicious manner and therefore, the petitioner has no locus standi to file the writ petition against the order of assessment. While it is admitted that for the year 1998-99 the assessment order was passed on 31-5-2000, it is stated that there was an inspection conducted by the Enforcement Wing in the place of the petitioner on 6-12-2000 and it was found that the dealers purchased raw materials like, stone powder, acid slurry, sodium silicate, soda ash and aromatic compounds such as lemon oil, etc. and the raw materials were used in such a way putting into a proportionate ratio and the mixture was then put into the extruder machine and detergent was brought out and the entire process was being done with the help of machines only and hence, the products were machine made soaps taxable at 16%. 27. It is stated that after processing various records recovered on 30-10-2000 and 13-11-2000, the Additional Director General of Central Excise, Chennai issued the show-cause notice on 30-6-2003 proposing to levy penalty as per Rule 209A of the er ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ior counsel has submitted that the revision of commercial tax was made by the authority and also show-cause notice was issued for subsequent years 1999-2000, 2000-01. He would rely upon the judgments of the Supreme Court in A.I. Lawyers Forum for Civil Liabilities v. Union of India [(1999) 9 SCC 281] and State of U.P. v. Anil Kumar Ramesh Chandra Glass Works [(2005) 11 SCC 451]. 30. On the other hand, by relying upon the judgment of the Supreme Court in Special Director and Another v. Mohd. Ghulam Ghouse and Another [2004 (164) E.L.T. 141 (S.C.) = (2004) 3 SCC 440], it is the contention of Mr. V. Manoharan, learned Special Government Pleader that when there are voluminous documents, the non-furnishing of documents will not be lethal to show-cause notice. Learned Special Government Pleader would also submit that the transactions clearly show the evasion of tax and therefore, the petitioner cannot find fault with the authority. 31. I have heard the learned senior counsel for the petitioner and the learned Special Government Pleader for the respondents and given my anxious thoughts to the issues involved in the matter. 32. First of all, in respect of the impugned show-cause n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties such as, M/s. Star Trading Corporation and New Udayam Enterprises. The show-cause notice also shows the evidence gathered regarding removal on the part of the petitioner and Raji Industries, stated to have been run by the Managing Director of the petitioner, though run in the name of one of the employees. On verification with various transport companies, evidence was gathered from such transport companies regarding various vehicles, it also shows that various statements were obtained from persons at the helm of affairs of the establishments supplying raw-materials to Oorvasi Brand detergent manufacturing units, transporters of LAB, Sulphuric Acid, Soda Ash and finished goods, landlords of the premises taken on rent in the name of Star Trading Corporation and New Udayam Enterprises, dealers of Oorvasi detergents at several places and transportation of raw materials procured by RIPL as well as finished goods dispatched by RIPL who were enquired under summons on various dates. 37. The case of the petitioner in respect of those statements obtained during investigation is that the concerned individuals were not examined in the presence of the petitioner or its authorized repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompel the authorities to furnish copies of statements documents which are relevant before proceeding with the adjudicating process. On the facts of the present case, admittedly the process of adjudication has not commenced and the entire case stands at preliminary stage of giving show-cause notice. 41. As stated above, the preliminary investigation itself has taken a period of nearly two years during 2001 to 2003 and then, the show-cause notice has been issued, it has been the case of the petitioner that the petitioner was approaching the first respondent for the purpose of various documents and in that process, two years had gone and the petitioners approached this Court by filing the present writ petition against the show-cause notice in the year 2005 mainly on the ground that the first respondent has arrived at a conclusion against the petitioner and therefore, there is no question of submitting any explanation to the show-cause notice. 42. It is relevant to point out that in the counter affidavit filed by the first respondent, the first respondent has clearly stated that various documents including the statements obtained from various persons have been furnished to the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) Rule 9(1) of the erstwhile Central Excise Rules, 1944, Rule 4 of the erstwhile Central Excise (No. 2) Rules, 2001, read with Section 38A of the Central Excise Act, 1944 and Rule 4 of the Central Excise Rules, 2002 inasmuch as they manufactured and clandestinely removed the excisable goods (Oorvasi brand detergent soaps and powder) without payment of duty with an intent to evade duty; (b) Rule 52A of the erstwhile Central Excise Rules, 1944, Rule 11 of the erstwhile Central Excise (No. 2) Rules 2001, read with Section 38A of the Central Excise Act, 1944 and Rule 11 of the Central Excise Rules, 2002 inasmuch as they clandestinely removed the excisable goods (Oorvasi brand detergent soaps and powder) without cover of Central Excise documents such as invoice; (c) Rule 53 of the erstwhile Central Excise Rules, 1944, Rule 10 of the erstwhile Central Excise (No. 2) Rules, 2001 read with Section 38A of the Central Excise Act, 1944 and Rule 10 of the Central Excise Rules, 2002 inasmuch as they failed to maintain proper daily stock accounts as to production and clearance; (d) Rule 173C of the erstwhile Central Excise Rules, 1944, Rule 11 of the ers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... why duty should not be demanded under Rule 9(2) of the erstwhile Central Excise Rules, 1944 read with first proviso to Section 11A(1) and Section 38A of the Central Excise Act, 1944; (b) an amount of Rs. 24,32,19,251/- Rupees twenty four crores thirty two lakhs nineteen thousands and two hundreds fifty one only being the Central Excise duty not paid on the Oorvasi brand detergent soaps and washing powder manufactured and clandestinely cleared from their Chennai units (Iyyappanthangal, Kattuppakkam, Porur, Poonamallee) during the period June 1998 to March 2002 and an amount of Rs. 44,77,439/- being the Central Excise differential duty on the SSI exemptions claimed wrongly during the said periods should not be demanded under Rule 9(2) of the erstwhile Central Excise Rules, 1944 (read with Section 38A of the Central Excise Act, 1944) in terms of proviso to Section 11A(1) of the Central Excise Act, 1944; (c) why spent acid should not be classified under the heading Chapter Heading 2807 of CET. (d) why duty of Rs. 16,68,391/- payable on spent acide for the period June, 1993 to March 2001 as detailed in Annexure-D - should not be demanded under proviso to Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... demanded under Rule 9(2) of the erstwhile Central Excise Rules, 1944 (read with Section 38A of the Central Excise Act, 1944) in terms of first proviso to Section 11A(1) of the Central Excise Act, 1944 and; (b) a penalty should not be imposed on them separately under Rule, 9(2), 52A(8), 173Q, 226 of the erstwhile Central Excise Rules, 1944, Rule 25 of the Central Excise (No. 2) Rules, 2001 read with Section 38A of the Central Excise Act, 1944; Rule 25 of the Central Excise Rules 2002; (c) a penalty should not be imposed on them under Section 11AC of the Central Excise Act, 1944; and (d) interest should not be demanded under Section 11AB of the Central Excise Act, 1944. 15.4 Now therefore, Shri D. Selvaraj, Managing Director of RIPL, is required to show cause to the Commissioner of Central Excise, Chennai-iv Commissionerate, Chennai-35 as to why penalty should not be imposed on him under Rule 209A of the erstwhile Central Excise Rules, 1944, Rule 26 of the erstwhile Central Excise (No. 2) Rules 2001, read with Section 38A of the Central Excise Act, 1944, Rule 26 of the Central Excise Rules, 2002 for the omissions and commissions committed in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Commissionerate of Central Excise, Chennai-IV Commissionerate, Chennai-35, Commissioner of Central Excise, Pondicherry, Commissioner of Central Excise No. 1, Williams Road. Tiruchirappalli as to why a separate penalty should not be imposed on them under Rule 209A of the erstwhile Central Excise Rules, 1944, Rule 26 of the erstwhile Central Excise (No. 2) Rules, 2001, read with Section 38a of the Central Excise Act, 1944 and Rule 26 of the Central Excise Rules 2002 for the offence committed in respect of alleged abetting the evasion of Central excise duty by suppression of production and clandestine removal of Oorvasi branded detergent soaps and powder from the Chennai (Kattuppakkam, iyyappanthangal, Porur, PoonamaTlee) Pondicherry Units of RIPL and Raji Industries, Trichy by supplying the raw materials in fictitious buyers names to the aforesaid Oorvasi detergent soap manufacturing units. and thereafter directed the petitioner to file its reply within 30 days from the date of receipt of the notice. 46. The main grievance of the petitioner appears to be that in paragraph-15 of the impugned show-cause notice, the first respondent has quantified the amount of Central ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jurisdiction of the Bombay Municipal Corporation in respect of which supplies were directly made to the dealers and the Corporation gave a direction to the appellant establishment at Kalwe to pay tax. That demand was given in the form of show-cause notice based on certain complaints and routine investigations with vendors regarding transactions from the appellant factory at Kalwe and by the show-cause notice, the appellant was directed to make payment of cess with interest with the following words, 'you are also requested to attend hearing at above address at 11.00 a.m. on 4-7-2005. I am enclosing herewith the photocopies of the bills raised by Aurangabad-Daman divisions to the Navi Mumbai vendees.' When the High Court refused to interfere by exercising its jurisdiction under Article 226 of the Constitution of India, stating that it is always open to the petitioner to file its reply to the show-cause notice and produce documents, it was, taking note of the contents of the counter affidavit filed wherein the Corporation has clearly stated that the appellant was liable to pay cess, the Supreme Court held as follows : 9. Although ordinarily a writ court may not exer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned senior counsel for the petitioner in Messrs. Madurai Metal Industries v. Union of India [1991 (52) ELT. 495 (Mad.) = 1991 Writ L.R 59], show cause notice which was impugned reads as follows : Thus it is proved beyond any shadow of doubt that the dealers have been clandestinely indulging in massive purchases and sales suppressions by manoeuvring and manipulating their accounts deliberately and willfully not only to evade payment of Excise duty, but also the tax legitimately due to the Commercial Taxes, Department . It was in that context, the Division Bench held that even though at the stage of issuing show-cause notice whether it is a disciplinary action or under any other statute, it is premature for the High Court to examine the propriety or otherwise of such proceedings and held that if the show-cause notice has foreclosed the entire issue by prejudged mind, the Court could interfere. The relevant portion of the judgment is as follows : 9. The above principle obliges us to countenance the case of the petitioner. As rightly contended by the learned counsel for the petitioner, the impugned show cause notices cannot be allowed to stand by merely directing the third r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal and thereafter to this Court. The trade notice was not decisive of the question either before the Tribunal or in this Court. 51. Again, while dealing with the Foreign Exchange Management Act, 1999 and Foreign Exchange Regulation Act, 1973, it was held that against show-cause notice issued for violations of statutory requirements, the High Court cannot interfere under Article 226 of the Constitution of India unless it is satisfied that the show-cause notice should be treated as a nullity for jurisdiction of the authority even to investigate about the facts. That was in Special Director v. Mohd. Ghulam Ghouse, 2004 (164) E.L.T. 141 (S.C.) = [(2004) 3 SCC 440] and the relevant paragraph is as follows : 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 the law for absolute want of jurisdiction of the authority to even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot a constitutional bar to the High Court jurisdiction. As it was held by the Supreme Court in Whirlpool Corporation v. Registrar of Trade Marks [(1998) 8 SCC 1], it is a self-imposed restriction, in that case, the Supreme Court reiterated that where there is violation of fundamental rights including the principles of natural justice or want of jurisdiction, the writ petition is maintainable. The findings of the Apex Court in the above said judgment are as follows : 14. The power to issue prerogative writs under Article 226 of the Constitution is plenary in nature and is not limited by any other provision of the Constitution. This power can be exercised by the High Court not only for issuing writs in the nature of habeas corpus, mandamus, prohibition, quo warranto and Certiorari for the enforcement of any of the Fundamental Rights contained in Part III of the Constitution but also for any other purpose . 15. Under Article 226 of the Constitution, the High Court, having regard to the facts of the case, has discretion to entertain or not to entertain a writ or petition. But the High Court has imposed upon itself certain restrictions one of which is that if an effective and eff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y applying the judicial dictum laid down as narrated above, even though an overall reference to the show-cause notice shows that various materials have been relied upon which are culled out during the investigation by the first respondent and that the first respondent has found prima facie that there has been violation of the provisions of Central Excise Rules, especially relating to payment of duty since SSI exemptions were availed and reduced quantum of duty was paid, while the liability is to the extent of 11%, in the ultimate paragraphs, especially in paragraph-15, which I have elicited above, the first respondent has arrived at the quantum of excise duty stated to have been evaded by the petitioner which can only be consequential to the decision that SSI exemption availed by the petitioner has been misused and even before such a decision regarding SSI exemption whether the same has been used by the petitioner in proper manner or not, certainly the quantifying of tax evasion by saying that the petitioner clandestinely removed the goods from its Chennai unit, amounts to prejudging the issue. 56. Even though the second respondent is an authority below in rank to the first resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of being given to the petitioner to cross-examine the persons who gave statements against him, such act, in my considered view, is a clear violation of the principles of natural justice which cannot be said to be an empty formality, in spite of such conclusion arrived at by the first respondent, it cannot be presumed that the adjudicating authority will independently apply his mind and decide the issue. Moreover, on an analysis of the entire show-cause notice, as I have elicited earlier, even though a large portion of it, is relating to the factual finding arrived at after investigation, the various indiscriminate words like, clandestine removal, deliberate conduct, etc., by the first respondent investigating authority, is not expected to be used, for maintaining a healthy trend at the time of issuing show-cause notice. 59. A show-cause notice, as it was held by a Division Bench of this court presided over by Nainar Sundaram, (as His Lordship then was), is the basis and it must be impartial and its fairness and impartiality can be culled out. On the facts and circumstances of the present case the first respondent, on being prima facie satisfied with the facts, and after maki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal practitioner appointed to represent him or to his authorised representative; or Explanation. - Endorsement by person who delivers the notice, etc. of having tendered or given it will be proof for the purpose of this sub-rule. Rule 52(1)(b) if such dealer or his manager or agent or the legal practitioner appointed to represent him, or his authorised representative is not found, by giving or tendering it to any adult member of his family; Rule 52(1)(c) if the address of such dealer is known to the assessing authority, by sending it to him by registered post; or Rule 52(1)(d) if none of the modes aforesaid is practicable, by affixing it in some conspicuous place at his last known place of business or residence. 63. On the facts of the case, it is the case of the department that affixture was effected. It is the case of the petitioner that no notice was received under anyone of the modes stated in Rule 52(1)(a), (b) and (c) and in the absence of any averment made by the respondent in the counter affidavit that efforts were taken to send the notice by registered post, it is not possible to accept the contention raised by the respondent in the counter affidavit. ..... 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