TMI Blog2013 (1) TMI 331X X X X Extracts X X X X X X X X Extracts X X X X ..... ture blank CDs/DVDs. It was incumbent upon the revenue to have discharged its burden of establishing that the petitioner, in fact, manufactures blank CDs and DVDs. Mere surmises and conjectures on the part of the revenue would not lead to the revenue discharging this burden. There must be some material on record on which the revenue can rest its opinion. On the contrary, in the show cause notice, it is admitted that the CDs/DVDs do not come into existence separately. The same position has been accepted in the adjudication order dated 24.09.2010. Thus the conclusion of the Commissioner in the adjudication order that the petitioner manufactures blank CDs/DVDs is merely based on his own ipse dixit and is not supported by any material on record as wrongly held that liquefied polycarbonate is injected to the cavity of the moulds that create component discswhich cool and solidify and the pressed discs, after cooling, are captively used for data transfer from the stamper. This is not borne out by the facts and the manufacturing process. The stamping and the moulding takes place simultaneously. It is not as if, first, a blank disc is created and then it is stamped. The process is simul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show cause notice dated 05.11.2009. Subsequently, an order was passed by this court on 14.05.2010, whereby this court felt that the ends of justice would be served by directing the petitioner to file his reply to the said show cause notice dated 05.11.2009 within three weeks and, on such reply being filed, the adjudicating authority would grant an opportunity of hearing to the petitioner and / or his authorized representative. It was further directed that thereafter, the adjudicating authority shall pass a reasoned order deciding as to whether to confirm the allegations mentioned in the show cause notice or to reject the same. It was also directed that the adjudication order-inoriginal, which may be passed, shall not be given effect to till further orders from this court. Pursuant thereto, the petitioner filed its reply on 03.06.2010. This was followed by a personal hearing and, ultimately, by the adjudication order dated 24.09.2010. Thereafter, the petitioner sought permission of this court, which was granted, to amend the writ petition. The amended writ petition challenges both the show cause notice dated 05.11.2009 and adjudication order dated 24.09.2010. 3. The case against t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aught two officers red-handed and arrested them on the charges of demanding a bribe from the petitioner. Thereafter, the Central Excise officers of Delhi-II Commissionerate, Anti-Evasion Branch conducted searches on the two factory premises of the petitioner on 11.06.2009. The search resulted in seizure of records and seizure of several thousand pre-recorded audio CDs/VCDs/DVDs and MP3s valued at Rs 83,750/- vide panchnama dated 11.06.2009. The petitioner filed a criminal writ petition being WP(Crl) 795/2009 before this court, inter alia, seeking quashing of the panchnama and summons both dated 11.06.2009. That petition is pending. 6. Shortly thereafter, that is, on 05.11.2009, the impugned show cause notice was issued to the petitioner requiring it to show cause as to why: (i) Central Excise duty amounting to Rs.10,16,09,833/- along with Ed. Cess amounting to Rs.20,32,197/- and H.S. Ex. Cess amounting to Rs.5,57,336/- evaded during the period April, 2005 to March, 2009 as detailed in the table given above, should not be demanded and recovered from them by invoking extended period of five years under proviso to sub-section (1) of Section 11A of the Central Excise Act, 1944 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier and then fed into the moulding machine which itself was loaded with a nickel stamper containing the data. In the process of moulding, the data on the stamper was transferred on to the discs as they were moulded in the form of small pits and lands (Bumps). Thereafter, the said discs are fitted into the finishing line automatically and the discs are coated (sputtered) with a semi-transparent coating of reflective layer of aluminium and again coated with a protective layer of lacquer. Thereafter, the discs are checked for optical defects. Thereafter, the discs are labelled and packed in cartons and are despatched to customers. It was also stated that the discs were manufactured against specific orders and agreements and were supplied to customers, who are normally the copyright holders of various titles of films / songs etc. 9. The impugned show cause notice dated 05.11.2009 also noted that the statement of Mr. Surender Wadhwa, Managing Director of the petitioner, was also recorded on 22.07.2009, wherein he, inter alia, stated that he was looking after the affairs of the petitioner and that the petitioner had been manufacturing audio CDs/VCDs and CD ROMs of aneducational nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant for the party has also in his voluntary statement recorded on the spot and ratified by Sh. Surender Wadhwa, Managing Director of M/s Siddharth Optical Discs (P) Ltd., stated, inter-alia that the moulding machine was loaded with nickel stamper containing the date to be produced and the data from the stamper was transferred to the Discs in the form of small pits and lands and given to CD (1.2mm) finishing line automatically . Therefore, it can be rightly concluded that first a blank Disc is generated and thereafter the said data is transferred thereupon. (iv) Blank CDs/DVDs are a distinct commodity and separately classifiable and are also dutiable under the Central Excise Tariff Act, 1985 and there is no exemption thereon. In terms of Notification No.67-95-CE dated 16.3.1995, in case the final product is exempted from payment of Central Excise duty, then duty ought to be paid at intermediate stage on clearances of blank CDs which are consumed captively by the party but M/s Siddharth Optical Discs (P) Ltd. are not paying any Central Excise duty at any stage. (v) In spite of clearance running into several crores of Rupees, the party did not obtain Central Excise Regist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /VCDs/DVDs and categorically stated that it does not manufacture any blank CDs/DVDs. It also stated that its machines are not capable of manufacturing blank CDs/DVDs. The petitioner also took the point that the show cause notice had been issued purely as vendetta on the part of the respondents because of the fact that the petitioner had got two of the respondents officers caught in a bribery case. 15. We have already indicated above that during the pendency of the writ petition, this court had directed the petitioner to file a reply and the respondents to pass an adjudication order, though the same would not be given effect to till further orders from this court. Consequently, the adjudication order dated 24.09.2010, which is also impugned in WP(C) 13231/2009, was passed. The said adjudication order sets out the entire show cause notice as also the contentions of the petitioner in the reply dated 03.06.2010. It also records the fact that by a letter dated 06.08.2010, the learned counsel for the petitioner had forwarded to the Commissioner, Central Excise, Delhi-II, i.e., the adjudicating officer, a copy of an expert opinion from M/s Truth Labs. The said report has been extensive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the integrated process of manufacture of recorded CDs/DVDs, at the intermediate stage blank CDs/DVDs are manufactured and captively consumed. The blank CDs and DVDs are distinct excisable commodity chargeable to Central Excise duty. The blank CDs/DVDs that get manufactured in the process are captively used for recording the data/songs. The emphasis of the noticee that for charging Central Excise duty it is necessary that first blank CDs/DVDs must be manufactured and same need to be physically cleared. In the manufacturing process explained by the Technical Consultant it has been clearly mentioned that Polycarbonate Granules are the basic raw material for manufacturing CDs. In the composite integrated manufacturing assembly line the Optical Grade Polycarbonate Granules are fed in the hopper which travel to moulding unit of the machines for liquification. The liquefied polycarbonate is injected to the cavity of the moulds that create compact disc which cools and solidifies. Pressed discs after cooling are captively used for data transfer from the stamper. After the data is transferred from stamper to the disc the next stage is the metalizing process. In this the active surface of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntegrated process. I also note that the expert opinion relied upon by the notice nowhere denies that CDs do not come into existence. In other words the transfer of data from Stamper takes place on the discs only and unless such blank discs come into existence at the intermediate stage during the integrated manufacturing process, no such recorded CDs can be manufactured. The very fact that recorded CDs are cleared as final product, it shows that in the composite integrated manufacturing facility the blank CDs get manufactured and same are captively used for recording of the data. The case laws cited by the notice are distinguishable on facts and are not applicable to the very unique and distinct set of facts involved in the present case. In the light of the aforesaid discussions and findings, I reject the contentions raised by the notice and hold that in the composite integrated manufacturing machinery installed by the assessee during the process of manufacturing of recorded CDs/DVDs, blank CDs came into existence. Since the final finisher recorded ACDs/ VCDs/DVDs/MP3 are exempted from payment of Central Excise duty because of Notification No. 6/2006-CE dated 01.03.2006, the blank C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingly concerned with the fraudulent evasion of Central Excise duty as detailed above. (vi) I do not impose any penalty on Shri Jose Joseph, the technical consultant of M/s Siddharth Opticals Discs Pvt. Ltd. 18. From the above, it is clear that the key question is whether the petitioner manufactures blank CDs/DVDs as an intermediate product or not? The petitioner has produced evidence to show that it does not manufacture any blank CDs or DVDs. The learned counsel for the petitioner submitted that no blank CDs / DVDs come into existence which are capable of sale to a consumer. It was submitted by the learned counsel for the petitioner that before a particular product is exigible to Central Excise duty, it must pass the twin tests of manufacture and marketability. It was submitted that in the present case, both the tests were not satisfied. This is so because there was no manufacture of blank CDs/DVDs and, therefore, the question of marketability did even not arise. Reliance was placed by the learned counsel for the petitioner on the following decisions for the proposition that the twin tests of manufacture and marketability should be satisfied before any goods could be sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actual position on the basis of material on record, it would be appropriate for us to consider the decisions cited by the learned counsel for the parties. First, we shall consider the decisions cited by the learned counsel for the petitioner. In Union Carbide (supra), the Supreme Court considered the question as to whether aluminium cans, which ultimately constituted torch bodies, could be regarded as goods manufactured or produced. The Supreme Court held that before articles are recognized as goods for the purposes of excise duty, they must be capable of sale to a consumer and if the articles are not marketable, then they cannot be regarded as goods . The Supreme Court, in this context, observed as under:- 5. The only contention urged by the appellant before us is that the aluminium cans produced by the appellant cannot be described as "goods" for the purposes of excise duty inasmuch as they are not marketable and are prepared entirely by the appellant for the flashlights manufactured by it. 6. It does seem to us that in order to attract excise duty the article manufactured must be capable of sale to a consumer. Entry 84 of List I of Schedule VII to the Constitut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue. The Supreme Court also observed that in the case before it, the revenue had not produced any material to show that the product in question was either being marketed or capable of being marketed, but only expressed an opinion unsupported by relevant materials and, therefore, the same could not be held to be goods . The Supreme Court reiterated that in order to establish that the goods are liable to duty, two tests have to be satisfied (a) manufacture; and (b) marketability. The Supreme Court also observedthat marketability cannot be established by mere stability of the product and that something more would have to be shown to establish that the products are known in the market as commercial products. The Supreme Court also observed as under:- 18. Revenue in this case has not succeeded in establishing that the product in question was either marketed or was capable of being marketed. The test of marketability is that the product which is made liable to duty must be marketable in the condition in which it emerges. No evidence has been produced by the Revenue to show the product unvulcanised sandwiched fabric as such is capable of being marketed, without further pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judication order dated 24.09.2010. In our view, the conclusion of the Commissioner in the adjudication order that the petitioner manufactures blank CDs/DVDs is merely based on his own ipse dixit and is not supported by any material on record. The Commissioner has wrongly held that liquefied polycarbonate is injected to the cavity of the moulds that create component discswhich cool and solidify and the pressed discs, after cooling, are captively used for data transfer from the stamper. This is not borne out by the facts and the manufacturing process. The stamping and the moulding takes place simultaneously. It is not as if, first, a blank disc is created and then it is stamped. The process is simultaneous. While liquefied polycarbonate solidifies, it is imprinted with data by the stamper. Therefore, at no stage does a blank CD/DVD come into existence. This will be clear from the process of manufacture stage by stage with photographs as under:- "CD Manufacturing Process. STAGE - 1 Plastic Granules and fed into the machine. STAGE-2 A Stamper containing Audio / Video data is fitted into the mould cavity of the machine. The Stamper has the Audio / ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cise of writ jurisdiction in a matter such as this. The learned counsel for the respondents had placed reliance on ITC Limited(supra) to submit that the writ petition ought to be dismissed as the petitioner has an adequate alternative remedy by way of an appeal. Reliance had also been placed on United Bank of India (supra) and, particularly, on the following observations of the Supreme Court:- 43. Unfortunately, the High Court overlooked the settled law that the High Court will ordinarily not entertain a petition under Article 226 of the Constitution if an effective remedy is available to the aggrieved person and that this rule applies with greater rigour in matters involving recovery of taxes, cess, fees, other types of public money and the dues of banks and other financial institutions. In our view, while dealing with the petitions involving challenge to the action taken for recovery of the public dues, etc., the High Court must keep in mind that the legislations enacted by Parliament and State Legislatures for recovery of such dues are code unto themselves inasmuch as they not only contain comprehensive procedure for recovery of the dues but also envisage constitution of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction under Article 226 is duty-bound to consider whether: (a) adjudication of writ petition involves any complex and disputed questions of facts and whether they can be satisfactorily resolved; (b) the petition reveals all material facts; (c) the Petitioner has any alternative or effective remedy for the resolution of the dispute; (d) person invoking the jurisdiction is guilty of unexplained delay and laches; (e) ex facie barred by any laws of limitation; (f) grant of relief is against public policy or barred by any valid law; and host of other factors. 25. In the instant case, apart from the fact that admittedly certain disputed questions of fact viz. non-receipt of notice under Section 13(2) of the Act, non-communication of the order of the Chief Judicial Magistrate etc. are involved, an efficacious statutory remedy of appeal under Section 17 of the Act was available to the Appellants, who ultimately availed of the same. Therefore, having regard to the facts obtaining in the case, the High Court was fully justified in declining to exercise its jurisdiction under Articles 226 and 227 of the Constitution. 34. Here again, we must not lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.09.2010. Thus, in our view, both the show cause notice as also the adjudication order are liable to be quashed. 38. Another decision relied upon by the learned counsel for the petitioner was that of the Supreme Court in the case of Brij Fertilizers (supra). In that case, the Supreme Court was of the view that though the High Court should normally not interfere at the stage of issuance of a show cause notice, but where, from the facts, it is apparent that there was no material available with the department to doubt the statement on behalf of the assessee, the court could interfere. The position in the present case is somewhat similar. There is no material available with the department to controvert the factual position vis- -vis the manufacturing process as narrated by the petitioner. In that manufacturing process, at no stage, does a blank CD/DVD come into existence. The whole basis of the impugned show cause notice and the impugned adjudication order is that the petitioner manufactures blank CDs/DVDs at an intermediate stage. When this assumption is nothing but a mere ipse dixit on the part of the revenue, without any foundation, the show cause notice as well as the adjudica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Union of India and Anr. v. Kunisetty Satyanarayana: (2006) 12 SCC 28, but the question herein has to be considered from a different angle, viz, when a notice is issued with pre-meditation, a writ petition would be maintainable. In such an event, even if the courts directs the statutory authority to hear the matter afresh, ordinarily such hearing would not yield any fruitful purpose [See: K.I. Shephard and Ors. v. Union of India and Ors.: (1987) 4 SCC 431. It is evident in the instant case that the respondent has clearly made up its mind. It explicitly said so both in the counter affidavit as also in its purported show cause. 41. After considering the decisions referred to by the learned counsel for the parties, it is apparent that the existence of an alternative remedy does not constitute a bar against the exercise of jurisdiction under Article 226 and, in certain cases, it is open to the High Court to exercise that jurisdiction. In fact, in Calcutta Discount Company (supra), the Constitution Bench has gone sofar as to state that when the Constitution confers on the High Court the power to give relief, it becomes the duty of the court to give such relief and that the existence ..... 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