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2015 (10) TMI 1921 - GUJARAT HIGH COURT

2015 (10) TMI 1921 - GUJARAT HIGH COURT - 2016 (332) E.L.T. 211 (Guj.) - Abatement of duty - manufacturing activity of Pan Masala - Demand of duty without following the procedure - Lack of Jurisdiction - alternative statutory remedy - Held that:- In the facts of the present case, the writ petition has been filed alleging violation of the principles of natural justice as well as on the ground that the impugned communications are wholly without jurisdiction. Under the circumstances, the existence .....

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ns are based solely upon the instructions of the Additional Director, DGCEI, Delhi. Clearly therefore, the impugned communications are violative of the provisions of sub-rule (2) of rule 6 of the Pan Masala Rules, inasmuch as, the Annual Production Capacity of the petitionerís factory has been determined without following the procedure as provided under those rules.

In case the duty paid by the petitioners for the months of March 2015 to June 2015 was short-paid, the respondent author .....

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achines, by the impugned communications, the petitioner has been called upon to pay the differential duty with interest for the months of March 2015 to June 2015.

Evidently, therefore, the impugned communications suffer from various infirmities, inasmuch as, the same are in breach of the principles of natural justice as no opportunity of hearing has been given to the petitioner prior to revising the Annual Production Capacity of the petitioner; due procedure as prescribed under sub-ru .....

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ural justice, cannot be sustained. - Decided in favour of assessee. - special civil application no. 12154 of 2015 - Dated:- 16-9-2015 - Ms. Harsha Devani And Mr. A.G.Uraizee, JJ For the Petitioner : Mr Paresh M Dave, Advocate For the Respondent : Mr. YN Ravani, Advocate JUDGMENT PER : MS. HARSHA DEVANI) 1. Rule. Mr. Y. N. Ravani, learned senior standing counsel waives service of notice of rule on behalf of the respondents. 2. Since the matter was heard at length at the admission stage, with the .....

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eas the other units are permitted to be closed down by the proper central excise officers upon the requests/applications of the Petitioner Company. Pan Masala is in the nature of excisable goods falling under Heading No.2106 of the First Schedule to the Central Excise Tariff Act, 1985 (hereinafter referred to as the Act ) and accordingly, such goods are chargeable to excise duty. Excise duty was chargeable on Pan Masala on advalorem basis till financial year 2008, however, subsequently, Pan Masa .....

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ng Pan Masala and also matters relating to calculation of duty, abatement from payment of duty, etc. It is the case of the petitioner that it has been complying with the said rules and has been filing declarations from July, 2008 onwards, inasmuch as, the scheme of payment of duty under section 3A of the Act, popularly known as Compounded Levy Scheme has been brought into operation for Pan Masala with effect from 01.07.2008. On 01.03.2015, the Central Government has issued Notification No.5/2015 .....

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as to provide three different slabs of duty depending upon the maximum packing speed of the packing machines. The manufacturer of notified goods was required to declare in Form-1, among other details, the maximum packing speed of the concerned machines also so as to enable the Assistant/Deputy Commissioner of Central Excise to calculate and determine the duty payable under rule 7 of the Pan Masala Rules. Various Pouch Packing Machines of manufacturers like M/s Uflex Ltd., M/s Jawala Advance Tec .....

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uch details in Form-1. 4. Since the maximum speed of packing machines was now a relevant factor, the office of the Commissioner of Central Excise constituted a team comprising of a few Central Excise Officers, two Videographers and a Chartered Engineer appointed by the Department; and this team along with two independent panchas visited the petitioner s factory on 4th/5th March, 2015. In the presence of the Chartered Engineer Shri D.P. Jani, Central Excise Officers as well as the panchas, the pa .....

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, between 301 to 750 pouches per minute as specified in the second slab of the table under rule 5 of the Pan Masala Rules. The team of Central Excise Officers had also asked the petitioner to obtain from the manufacturer/supplier of Pouch Packing Machines the details of maximum packing speed at which the machines could be operated and accordingly, the petitioners requested the manufacturer M/s Uflex Ltd. for such details, and the said manufacturer has confirmed that the maximum packing speed of .....

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er that it had, accordingly, discharged the excise duty liability in accordance with the rates specified under the second slab of rule 5 of the Pan Masala Rules. For the subsequent months of April and May, 2015 also, the petitioner Company has declared all the details in Form-1 and discharged the duty liability in accordance with the second slab for the said period. 6. On 18th May, 2015, a group of officers of the DGCEI, Delhi (the fourth respondent herein) visited the petitioner s factory and c .....

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ch alleged incorrect information, the petitioner filed affidavits of Shri Ashok Kumar Dagga, Shri Sandeep M. Malviya, Shri Sunil Kumar and Shri Nilesh J. Yadav to place the correct facts on record. 7. On 18th May, 2015, the packing machines installed in the petitioner s factory were sealed by the DGCEI officers. After submitting a representation for removing seals, the petitioner Company had filed a writ petition before this court being Special Civil Application No.8814 of 2015. However, during .....

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24.05.2015. The petitioner Company filed ER-1 and Form-2 for May 2015, which came to be accepted and assessed by the Range and Divisional Officers upon payment of duty on the notified goods manufactured by the petitioner Company under the second slab without any objection. For the month of June, 2015 also, the declaration in Form-1 submitted by the petitioner Company for excise duty under the second slab was accepted and the petitioner Company was allowed to remove the notified goods from its f .....

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2015 was fixed in the third slab and consequently, the petitioner Company was also requested to pay differential duty along with interest. By virtue of such communication, the third respondent had also directed the Range Superintendent to recover the differential duty for all the above months under the Compounded Levy Scheme. It appears that simultaneously, the third respondent also allowed the petitioner Company to close three factories/units, namely, Unit-7, Unit-8 and Unit-10 and the Pouch Pa .....

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also directing to make duty payment according to Annual Production Capacity fixed vide letters dated 30.06.2015. Thus, for the factories that the petitioner Company is to operate in July 2015 and onwards, the third respondent had directed the petitioner to make duty payment under the third slab of rule 5 of the Pan Masala Rules. Being aggrieved, the petitioners have filed the present petition challenging all the above communications dated 30.06.2015 (Annexures Q , R and S to the petition). 9. M .....

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scribed under the statute and, therefore, are unauthorized and without jurisdiction; the assessment and determination of duty payable is a quasi-judicial function and, therefore, any assessment order adverse to the assessee could be passed only after allowing a reasonable opportunity of being heard to the assessee and such assessment has to be made objectively and without being influenced by any external phenomenon. It was further submitted that in the present case, physical verification of the .....

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erification of the machines as well as the maximum packing speed at which such machines could be operated. However, no enquiry or verification has been undertaken by the third respondent for revising the approval of the declarations and also the assessment of the petitioner s production capacity after March 2015. It is also apparent that the revision in the quantum of duty payable and also the production capacity is being ordered only at the instance of the DGCEI authorities. It was argued that .....

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aration filed by the manufacturer, and there is a specific prohibition under the scheme for modifying such deemed approval beyond a period of thirty days of filing the declaration. In the present case, there has been no specific communication from the third respondent rejecting or modifying any of the declarations filed by the petitioner Company, and therefore, declarations for the months of April 2015 to June 2015 stood approved by virtue of the fiction created under the second proviso to rule .....

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physical verification of the maximum packing speed at which the Pouch Packing Machines available in the petitioner s factory could be operated, and therefore also, the fixation of the rate of duty under the third slab, which is in the nature of modification of approved declarations, is ex-facie illegal and without jurisdiction. It was further submitted that the second and third respondent herein, who are the proper Central Excise Officers for enforcing the provisions of the Act in the Ahmedabad .....

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y to pay duty under the second slab of the said rules. It was pointed out that M/s Uflex Ltd., manufacturer of the Pouch Packing Machines, has sold and supplied absolutely similar machines to various manufacturers like (i) M/s Som Pan Products Pvt. Ltd., Delhi, (ii) M/s Kays Fragrance Pvt. Ltd., Sonepat etc., who are actually operating similar machines in their factories which are located around New Delhi where the office of the fourth respondent is situated, to submit that despite the fact that .....

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n Form-1, ER-1 return and also declarations in Form-2 submitted by the petitioner Company from March 2015 onwards have been accepted and assessed by the office of the third respondent herein without any objection. Therefore, if it is the case of the respondents that there was any short payment of excise duty during this period, then notice under section 11A of the Act has to be served upon the petitioner and an opportunity of hearing has to be afforded, as contemplated under the said statutory p .....

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s Pouch Packing Machines if they desire to revise the Annual Production Capacity of the petitioner s Pouch Packing Machines. 9.3 In support of his submissions, the learned counsel placed reliance upon the decision of the Supreme Court in the case of Assistant Collector of Central Excise, Calcutta v. National Tobacco Co. of India Ltd., 1978 (2) ELT (J 416) (SC), the decision of the Bombay High Court in the case of Godfrey Phillips India Ltd. v. Union of India, 2012 (275) ELT 384 (Bom), the decisi .....

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t provisions of the statute and therefore, this petition under Article 226 of the Constitution of India is not maintainable. The attention of the court was invited to the panchnama which came to be drawn on 05.03.2015 by the central excise authorities, to point out that it is recorded therein that the Chartered Engineer, in the presence of the panchas, had stated that the speed as recorded above is the optimal speed of the machine and he is not able to determine the maximum speed of the machine .....

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mitted that, therefore, while physical verification had been carried out, in the absence of the relevant material, the proper Annual Production Capacity could not be determined. Referring to the panchnama dated 18th May, 2015 drawn by the DGCEI authorities at the time when the premises of the petitioner Company came to be visited, it was pointed out that the concerned officers had recorded that they were informed by the operators that the machines were running at a higher speed than the speed of .....

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king Machines, in order to ascertain the maximum speed of every Pouch Packing Machine, the officers decided to use the information displayed on various motors fitted in the Pouch Packing Machine by applying the formula mentioned in the said panchnama. It was submitted that therefore, the investigation carried out by the DGCEI authority reveals that the petitioners are engaged in evasion of central excise duty by mis-declaration of production capacity of their Pouch Packing Machines. 10.1 Referri .....

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tter dated 30.06.2015 to various units of the petitioner and fixed the production capacity of the Pouch Packing Machines installed and operated at the factory premises for the relevant period, in the third slab in terms of notification dated 01.03.2015. It was submitted that the process initiated with regard to fixing of Annual Production Capacity of Pouch Packing Machines was not finalized till 29.06.2015. Therefore, the Annual Production Capacity of the petitioner in the third slab under rule .....

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before the appropriate authority and the present petition should not be entertained. 10.2 In support of his submissions, the learned counsel placed reliance upon the decision of the Supreme Court in the case of Raj Kumar Shivhare v. Assistant Director, Directorate of Enforcement, 2010 (253) ELT 3 (SC), for the proposition that writ petition should not be entertained ignoring statutory forum created by law for redressal of grievance, particularly in a fiscal statute. Reliance was also placed upo .....

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f Virendra Lime Company v. Union of India and others, 1985 (22) ELT 690 (Raj.), was cited for the proposition that classification of a product is a mixed question of law and fact, it is proper to go to the Assistant Collector and avail of alternative remedy and appellate procedure if necessary, and that the petitioner is not entitled to invoke writ jurisdiction, which was premature. 11 This court has considered the submissions advanced by the learned counsel for the respective parties and has pe .....

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on the ground of breach of principles of natural justice as well as lack of jurisdiction, on the ground that the differential duty is sought to be recovered without following the due procedure of law in accordance with section 11A of the Central Excise Act; as well as on the ground that the impugned communications have been issued at the instance of the DGCEI authorities without the respondents following the due procedure in accordance with law. 12.2 It is by now well settled that the existence .....

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at 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 petition. But the High Court has imposed upon itself certain restrictions, one of which is that if an effective and efficacious remedy is available, the High Court would not normally exercise its jurisdiction. But the alternative remedy has been consistently held by the court not to operate as a bar in at least three contingencies, namely, where .....

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stances, the existence of an alternative remedy would not preclude this court from entertaining the present petition having regard to the facts and circumstances of the case and the reliefs prayed for in the present petition. 13. For the purpose of better appreciating the controversy in issue, it may be apposite to refer to certain statutory provisions. The Central Government, in exercise of the powers conferred by sub-sections (2) and (3) of section 3A of the Central Excise Act, 1944, has made .....

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for quantity deemed to be produced and provides for three slabs for the number of pouches per operating packing machine per month. The first slab is comprised of packing machines having the capacity of producing upto 400 pouches per minute; the second slab is comprised of packing machines having the capacity of producing 301 to 750 pouches per minute; and the third slab is comprised of packing machines having the capacity of producing 751 pouches per minute and above. Rule 6 of the Pan Masala Ru .....

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making such inquiry as may be necessary including physical verification, approve the declaration including that of the maximum packing speed at which each of the packing machines available in his factory can be operated for packing of notified goods of various retail sale prices and determine and pass order concerning the annual capacity of production of the factory within three working days in accordance with the provisions of those rules. The second proviso thereto provides that if the manufa .....

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ommissioner of Central Excise, as the case may be, is required to determine the Annual Production Capacity of the factory and pass an order thereon within three working days from the date of receipt of declaration under sub-rule (1) of rule 6 of the Pan Masala Rules. In case the manufacturer does not receive the approval within a period of five working days, the approval is deemed to have been granted. Such approval, however, is subject to modification which the Deputy Commissioner of Central Ex .....

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b-rule (1) of rule 6 thereof. Subsequently, a committee of Central Excise officers, along with Shri D. P. Jani, Government Approved Chartered Engineer, visited the premises of the petitioners on 5th March, 2015 and drew a panchnama. At the time of the visit, physical verification was carried out and the number of pouches produced per minute and the speed of the Pouch Packing Machines was carried out. In the presence of the panchas and the team officers, the speed of each of the machines was foun .....

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Rules. Therefore, pursuant to the physical verification of the Pouch Packing Machines at the petitioner s factory as contemplated under sub-rule (2) of rule 6 of the Pan Masala Rules, the Annual Production Capacity thereof came to be determined under the second slab by the concerned officer of the Central Excise Department. Subsequently, for the months of April 2015 and May 2015, Form-1 filed by the petitioner came to be accepted, which amounts to a deemed approval under the proviso to sub-rule .....

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ident that insofar as the Form-1 submitted by the petitioners for the months of March 2015, April 2015, May 2015 and June 2015 are concerned, such forms have been accepted and the petitioners have paid duty in terms thereof. Subsequently, the Annual Production Capacity of the petitioner s Pouch Packing Machines is sought to be revised by the impugned communications, which is based upon a letter dated 19.06.2015 of the Additional Director, DGCEI, Delhi wherein, a formula has been referred to and .....

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evised the Annual Production Capacity of the petitioner which was previously determined on the basis of physical verification of the Pouch Packing Machines, merely on the basis of a communication dated 19.06.2015 issued by the Additional Director, DGCEI which refers to a particular formula and based thereon, the Annual Production Capacity of the petitioner s Pouch Packing Machines has been placed in the third slab. On a bare perusal of the impugned communications, it is apparent that prior to is .....

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etermined without following the procedure as provided under those rules. 19 Another notable aspect of the matter is that the petitioner has been directed to pay the differential duty in relation to the months of March to June 2015 in respect of which, Form-1 submitted by the petitioners had already been accepted and the duty had already been paid. 20 At this juncture, reference may be made to the provisions of section 11A of the Central Excise Act, 1944, which provides for Recovery of duties not .....

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he relevant date, serve notice on the person chargeable with the duty which has not been so levied or paid or which has been so short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause as to why he should not pay the amount specified in the notice. Sub-section (1) of section 11A of the Act provides that the Central Excise Officer shall, after allowing the concerned person an opportunity of being heard, and after considering the representation, if an .....

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