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Messrs Vadilal Gases Ltd. Versus Union Of India

2015 (10) TMI 1845 - GUJARAT HIGH COURT

Writ petition - Valuation - related person - Short payment of duty - revenue neutral exercise since the recipient is able to avail Cenvat Credit - Appellant contended that order passed by the Appellate Commissioner is a non speaking one to the extent it has not considered and dealt with the most important contentions raised before it - Held that:- in the absence of any reasons having been assigned for not accepting the principal contention raised by the petitioner, it is evident that the impugne .....

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iolation of the principles of natural justice or where the order of proceedings are wholly without jurisdiction or the vires of an Act is challenged. The present case, therefore, clearly falls within the categories enumerated in the above decision viz. violation of the principles of natural justice. - writ petition admitted.

Thus, under rule 8 of the Valuation Rules if the assessee does not sell excisable goods but such goods are used for his own consumption or on his behalf in the pr .....

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uyers, to buyers (being related person), who sells the goods in retail.

Appellate Commissioner has lost sight of the main contention raised by the petitioner that it is not liable to pay duty either under rule 8 or rule 9 of the Valuation Rules, because the related party has already paid central excise duty on the transaction value of the goods sold by it. The facts reveal that the petitioner had made reference to rule 8 of the Valuation Rules only by way of an alternate submission an .....

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the same do not deal with the main contention raised by the petitioner.

Since the requirement to record reasons emanates from the broad doctrine of fairness in decision making, the said requirement is now virtually a component of human rights. Thus, giving sufficient reasons to demonstrate that the relevant factors having considered objectively is a primary requirement to be satisfied by a judicial or quasi judicial authority. The requirement of reasons has been considered to be virt .....

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s. Harsha Devani And Mr. A.G.Uraizee, JJ For the Petitioner : Mr Paresh M Dave, Advocate For the Respondent : Mr RJ Oza, Advocate JUDGMENT PER : MS. HARSHA DEVANI 1. Rule. Mr. R. J. Oza, learned senior standing counsel waives service of notice of rule on behalf of the respondents. Having regard to the controversy involved in the present case which lies in a very narrow compass, with the consent of the learned counsel for the respective parties, the matter was taken up for final hearing. 2. This .....

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respondents to consider and verify the documentary and other evidence and decide the said issue. 3. The above reliefs have been prayed in the backdrop of the following facts. The petitioner company is inter-alia engaged in the business of filling in cylinders, various industrial gases like Argon, Nitrogen, Hydrogen, etc. for another company viz. M/s. Vadilal Chemicals Limited. The petitioner company and M/s. Vadilal Chemicals Limited (VCL) are separate companies but belong to the same group. VCL .....

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hen filled in cylinders of 7 cubic metres capacity by the petitioner company. Under the Cenvat Credit Rules, 2004, excise duty paid on the inputs is allowed as credit while paying excise duty on the final products. Accordingly, the petitioner company has been availing of the benefit of cenvat credit on duties paid by manufacturers like Gujarat Fertilizers Ltd. on the above industrial gases, and such credit is utilised while paying excise duty on purified gases filled in cylinders and sold by the .....

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titioner company and such cenvat credit is utilised by VCL while paying excise duty on labelled/re-labelled cylinders sold by it to its customers. 3.2 It was the case of the revenue against the petitioner company that the petitioner company and VCL were related persons because they were group companies having common Directors and shareholders and, therefore, the price at which VCL (i.e. alleged related person) sold the goods to its buyers was to be considered as the value of the goods for assess .....

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ded Hydrogen gas cleared during June, 2013 to December, 2013. 3.3 In response to the show cause notice, the petitioner filed its reply dated 7.7.2014, wherein it was explained that when it was revenue s case that VCL and the petitioner company were related persons then the duty payment made by VCL was to be considered as payment of duty by the petitioner company and since VCL had admittedly paid excise duty on their sale price, demand of differential excise duty from the petitioner company on th .....

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iginal dated 23.3.2014 whereby the third respondent confirmed the demand of duty with interest and also imposed a penalty of ₹ 1,00,000/- on the petitioner company. Against the order-in-original, the petitioner company filed a substantive appeal before the second respondent, inter-alia, emphasizing in the appeal proceedings that excise duty was admittedly paid on the price charged by VCL when this buyer company sold the goods to their buyers and, therefore, there was no short payment of ex .....

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e impugned order dated 17.6.2015, the Commissioner (Appeals) dismissed the appeal and upheld the adjudication order without considering the above referred contention raised by the petitioner. Being aggrieved by the orders passed by the respondents demanding differential excise duty from the petitioner company, without taking into consideration the above referred submission advanced on behalf of the petitioner, which, according to the petitioner, is a grave error of jurisdiction on the part of th .....

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their actual selling price as an assessable value for assessing excise duties thereon. It was pointed out that despite the fact that all the material was placed before the adjudicating authority showing the clearances of Hydrogen gas from their premises as well as the excise duty paid by VCL on the goods so sold by the petitioner, the adjudicating authority while passing the orderin- original has failed to take into consideration such submission. Referring to the order-in-original, it was point .....

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e 9 of the rules is that in case the assessee sells the goods to a related buyer at a lesser price and pays excise duty on such lesser price, and the related person sells such goods at a higher rate, the Government is deprived of its revenue, whereas in the facts of the present case, the related person, namely, VCL has sold goods at a higher price, but as VCL has re-labelled the goods, which amounts to a manufacturing activity, it has paid excise duty on the price at which it has sold the goods .....

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t considering the submission advanced by the petitioner. It was urged that in good faith the petitioner had made submissions, but neither the adjudicating authority nor the first appellate authority have considered and dealt with the same. It was urged that the relevant submission made on behalf of the petitioner needs to be verified because the related person has paid the duty on the transaction under a deeming fiction. It was urged that the facts are required to be verified and a finding is re .....

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such submission has not been considered and hence, there is a clear breach of the principles of natural justice. 4.2 Reliance was placed upon a decision of the Supreme Court in the case of Kranti Associates Private Limited v. Masood Ahmed Khan, (2010) 9 SCC 493, wherein the court observed that it has always opined that the face of an order passed by a quasi-judicial authority or even an administrative authority affecting the rights of parties, must speak. It must not be like the inscrutable face .....

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ecision making process as observing principles of natural justice by judicial, quasi-judicial and even by administrative bodies; recording of reasons also operates as a valid restraint on any possible arbitrary exercise of judicial and quasi-judicial or even administrative power; judicial or even quasi-judicial opinions these days can be as different as the judges and authorities who deliver them. All these decisions serve one common purpose which is to demonstrate by reason that the relevant fa .....

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out the matter independently and give adequate reasons for its conclusion. It was urged that a similar course of action is required to be adopted in the facts of the present case and that the matter is required to be remanded either to the appellate authority or to the adjudicating authority as may be deemed fit by the court. 5. Opposing the petition, Mr. R. J. Oza, learned senior standing counsel for the respondents reiterated the averments made in the affidavit in reply filed on behalf of the .....

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ch has been correctly applied by the department in the order-inoriginal. It was submitted that the order passed by the Joint Commissioner, Central Excise and Customs, Vadodara is just and legal and in accordance with the principles of natural justice as well as jurisdiction. It was argued that the impugned order contains the reasoning for arriving at the final conclusion and cannot in any manner be considered to be a non-speaking order. It was, accordingly, urged that no case has been made out f .....

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as well as the decisions cited by the learned counsel for the respective parties. 7. Since an objection has been raised as to the maintainability of the petition, it would be necessary to deal with the same at the outset. In the present case, the petitioner has come before this court directly against the order passed by the Appellate Commissioner on the ground that the order passed by the Appellate Commissioner is a non speaking one to the extent it has not considered and dealt with the most imp .....

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e principles as propounded by the Supreme Court is that since the requirement to record reasons emanates from the broad doctrine of fairness in decision-making, the said requirement is now virtually a component of human rights. The court held that reasons have virtually become as indispensable a component of a decision-making process as observing principles of natural justice by judicial, quasi-judicial and even by administrative bodies. Thus, reasons have been equated with the observance of pri .....

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satisfied that the aggrieved party can have an adequate or suitable relief elsewhere, it can refuse to exercise its jurisdiction. The court, in extraordinary circumstances, may exercise the power if it comes to the conclusion that there has been a breach of the principles of natural justice or the procedure required for decision has not been adopted. The court observed that while it can be said that it has recognised some exceptions to the rule of alternative remedy, that is, where the statutory .....

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eved person or the statute under which the action complained of has been taken itself contains a mechanism for redressal of grievance still holds the field. The court further held that the remedy under the statute, however, must be effective and not a mere formality with no substantial relief. 9. In the present case, it has been contended on behalf of the petitioner that the impugned orders passed by the Appellate Commissioner as well as by the adjudicating authority are non-reasoned orders for .....

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ve to remand the case to the authorities below to examine the contentions in the light of evidence produced by the petitioner. The appeal would be a mere formality as the Tribunal would not be in a position to grant any substantial relief. 10. At this juncture, reference may be made to the decision of the Supreme Court in the case of Assistant Commissioner of Commercial Tax Department v. Shukla and Brothers, (2010) 4 SCC 785, on which reliance has been placed by the learned counsel for the petit .....

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e the order itself. 11. Examining the facts of the present case in the light of the above decision, while it cannot be said that the impugned orders are totally non-reasoned orders, at the same time, the main contention advanced on behalf of the petitioner has not been dealt with and no reasons have been assigned for not accepting the same. The impugned order does not show that the authority concerned has applied its mind to the contention raised by the petitioner. Therefore, as held by the Supr .....

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orted by reasons recorded in it. Thus, while deciding an issue, the court is bound to give reasons for its conclusion. It is the duty and obligation on the part of the court to record reasons while disposing of the case. It was held that the reason is the heartbeat of every conclusion. It introduces clarity in an order and without the same, the order becomes lifeless. Reasons substitute subjectivity with objectivity. The absence of reasons renders an order indefensible/unsustainable particularly .....

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ples of natural justice. 13. In the facts of the present case, in the absence of any reasons having been assigned for not accepting the principal contention raised by the petitioner, it is evident that the impugned order suffers from the vice of breach of principles of natural justice. It is settled legal position as held by the Supreme Court in the case of Whirlpool Corporation v. Registrar of Trade Marks, Mumbai, AIR 1999 SC 22, that the alternative remedy has been consistently held by the Sup .....

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he circumstances, the contention that the present petition under Article 226 of the Constitution is not maintainable does not merit acceptance. 14. Adverting to the merits of the case, for the purpose of better appreciating the controversy in issue, reference may be made to certain statutory provisions. The industrial gases under which the petitioner deals with are classified under Chapter 28 of the First Schedule to the Central Excise Tariff Act, 1985. Note 9 thereunder lays down that in relati .....

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ch removal of the goods, such value shall - (a) in a case where the goods are sold by the assessee, for delivery at the time and place of the removal, the assessee and the buyer of the goods are not related and the price is the sole consideration for the sale, be the transaction value; (b) in any other case, including the case where the goods are not sold, be the value determined in such manner as may be prescribed. Clause (b) of sub-section (3) of section 4 of the Central Excise Act provides fo .....

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d 9 which are relevant for the present purpose read thus:- RULE 8. Where the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value shall be one hundred and ten per cent of the cost of production or manufacture of such goods. RULE 9. When the assessee so arranges that the excisable goods are not sold by an assessee except to or through a person who is related in the manner specified in either .....

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or manufacture of articles, the value shall be determined in the manner specified in rule 8. 16. Thus, under rule 8 of the Valuation Rules if the assessee does not sell excisable goods but such goods are used for his own consumption or on his behalf in the production or manufacture of other articles, the value of such goods shall be 110% of the cost of production or manufacture of such goods. Under rule 9 of the Valuation Rules, when the arrangement of assessee is such that the excisable goods .....

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dit on the inputs used by it. Thereafter the goods are sold to VCL, at which point of time, the excise duty on the cost at which goods are sold to VCL is paid. VCL, in turn, re-labels the goods which is termed to be manufacturing activity and avails of cenvat credit on the goods purchased from the petitioner and pays central excise duty on the goods sold by it. Therefore, on the normal transaction value at which the goods are sold by the related person central excise duty has been paid. Accordin .....

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the transaction value at which the related person has sold the goods which would amount to recovering central excise duty twice on the same goods, does not arise. An alternative contention has also been raised that since VCL is a related person, the transaction could be considered as one under rule 8 whereby the goods could be said to be consumed by the assessee or on its behalf, in the manufacture and production of other articles, in which case the value of the goods would be 110% of the cost .....

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e Commissioner does not appear to have understood the controversy in issue and has observed that the issue to be decided in the present case is in the limited scope of the appeal as to whether the appellant (petitioner herein) should have paid duty on the basis of rule 8 of the Valuation Rules, 2000 that is at the rate of 110% of the cost of production or manufacture of excisable goods as claimed by the appellant, or otherwise, they (the petitioner) should have paid duty on the basis of section .....

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way of an alternate submission and the controversy was not as to which of the two rules would apply. The petitioner has also produced before the concerned authorities, documentary evidence to co-relate the sales made by the petitioner to VCL at which point of time, central excise duty was paid on the transaction value, which however, have not been considered by either authority. Therefore, as rightly submitted by the learned counsel for the petitioner, the impugned orders suffer from the infirmi .....

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even by administrative bodies; judicial or even quasi-judicial opinions these days can be as different as the judges and authorities who deliver them. All these decisions serve one common purpose which is to demonstrate by reason that the relevant factors have been objectively considered. This is important for sustaining the litigants faith in the justice delivery system. Since the requirement to record reasons emanates from the broad doctrine of fairness in decision making, the said requirement .....

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