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Union of India Versus Sudarshan Plywood Industries Ltd.

Writ Appeal 168, 169 and 170 of 1995 - Dated:- 9-4-1997 - V. D. Gyani And D. N. Chowdhury, JJ. JUDGMENT D. N. Chowdhury, J. These three appeals are preferred by the Revenue assailing the judgment and order of the learned Single Judge dated 16.2.1995 passed in Civil Rule Nos. 650, 856 and 1072 of 1987. The learned Single Judge disposed of the Civil Rules by a common judgment and order. The three appeals were therefore taken up together for disposal since the appeals involve the common question of .....

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n the Civil Rule No. 856 of 1987. By notice bearing No. V-16B/3/Adj/85/73966-76 (B) dated 9th October, 1985 the writ petitioners were called upon to show cause to the Collector of Central Excise, Shillong for the following reasons:- (a) Central excise duty amounting to ₹ 1,63,922.50 (Rupees one lakh sixty three thousand nine hundred twenty two & fifty paise) being the differential duty as detailed in Annexure-'A' should not be demanded from and paid by the said company under Ru .....

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B' should not be demanded from and paid by the said company under Rule 9(2) of the said rules read with Section 11A of the said Act since the said company had charged and realised additional amount in the name of different heads such as forwarding, handling, packing and consolidated amount over and above the basic price in respect of stock transfer quantities sent to their branches, consignment sale agents, and marketing agents for the period from January 1981 to March, 1982. (c) Central exc .....

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e said Act since the said company had effected some token ex factory sales on fictitious assessable values declared to the department, to the local buyers and to the buyers outside Assam for the purpose of procuring some invoices to that effect with a view to substantiating those values during the period from April, 1982 to February, 1984. (d) Central excise duty amounting to ₹ 42,32,224.00 (Rupees forty two lakhs thirty two thousand two hundred and twenty four) being the differential duty .....

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incorporated in the said company's internal price lists published' and circulated secretly to their branch offices and sale agents for the: period ff 6m'April, 1982 to February, 1984. (e) Central excise duty amounting to ₹ 42,889.00 (Rupees forty two thousand eight hundred and eighty nine) being the differential duty as detailed in Annexure-'E' should not be demanded from and paid by the said company under Rule 9(2) of the said Rules read with Section 11A of the said A .....

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from and paid by the said company under Rule 9(2) of Central Excise Rules read with Section 11A of the said Act since the said company had declared the so called brand "Kitply Marine" grade to the department as classifiable under marine grade plywood by deliberate suppression of material facts and got approval of their Kit Ply Marine grade as marine plywood for the purpose of duly liability as per SI. No. 4 of the table appended in notification No. 55/79-CE dt. 1.3.1979 as amended by .....

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and paid by the said company under Rule 9(2) of Central Excise Rules read with Section 11A of the said Act since the said company had removed the grade concrete shuttering plywood under the garb of marine plywood deliberately by availing of concessional rate of duty applicable on marine plywood for the period from January, 1981 to February, 1984. (h) Central excise duty amounting to ₹ 47,20,604.00 (Rupees forty seven lakhs twenty thousand six hundred and four) being the differential duties .....

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period from April, 1982 to February, 1984. The notice indicated, about the simultaneous searches conducted at the factories, registered office, central office/head office, godowns and residences of the directors, managers and branch offices/consignment sale agents, offices at Tinsukia, Margherita of the petitioners company and the collection of records and documents in those searches. According to the Revenue the company was resorting to the devious method of realising additional amount from the .....

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ere issued. The notices contained [details?] about The alleged instances of non-levy/short-Ievy. The thematic contents of the allegations as cited, in the notices were about the alleged deceit perpetrated on the Revenue with a view to evade the excise duties. A number of alleged instances were specified to establish that the bills submitted to the, Department by the assessee for substantiating the assessable value were procured from the buyers after much persuasion and the differential amount in .....

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epresentation committed by the assessee by citing documentary evidence. According to the Department the excise duty was not levied/short-levied/short-paid by reason of fraud, collusion or wilful misstatement or suppression of facts and accordingly the aforesaid notices were issued. As narrated earlier, the said notices were assailed in the Civil Rules and the learned Single Judge upon hearing the parties and on consideration of the materials on record quashed the notices and allowed the Civil Ru .....

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sue notice only when it finds that the person concerned is guilty of suppression of material facts or misstatement or misrepresentation. (iii) When the factory gate sale is admitted, the department is duty-bound to assess the tax on the basis of the factory gate sale as provided under Section 4(1)(a) of the Act. Hence, the appeals. It was contended on behalf of the Revenue that whether on the basis of factual materials there was any fraud, collusion or wilful misstatement or suppression or contr .....

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proceeding without adjudicating the facts, that too of disputed nature instead of allowing the fact finding authority to adjudge the same on evaluation of the factual elements. Mr. K.N. Chowdhury, the learned Counsel appearing on behalf of the appellants submitted that the Legislature authorised the Revenue for the recovery of the duties not levied or not .paid of short-levied or short-paid. When the Legislature authorised the; Revenue with a machinery section for recovery of the duties not levi .....

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ce to issue notice on the ground of suppression of material facts or misstatement, in the absence of any "finding arrived by the learned Single Judge that there was no misstatement or suppression of facts, the question of setting aside or quashing the impugned notices did not arise. The learned Counsel further submitted that the finding of the learned Single Judge in reaching his conclusion in sub-paragraph (iii) of paragraph 21 was vitiated by non-application of mind; Mr. M.L. Lahoty, the .....

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y, the learned Counsel appearing for the respondents writ petitioners strenuously submitted that once the price list and classifications were approved and finalised under Rules 173-B and 173-C after a due adjudication, the question of issuing the purported show-cause notices did not arise. Mr. Lahoty took the pain in placing all the material facts and brought to our attention to the catena of decisions of the Supreme Court, various High Courts including this Court and some of the decisions of th .....

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in Section 4. The price at which the goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal is the normal price mentioned in Section 4(1)(a) of the Act where the buyer is not a related person and the price is the sole consideration for the sale. The value of excisable goods determined under Section 4(1)(a) are likely to vary according to circumstances as evident from Clauses (i), (ii), (iii) of Section 4(1)(a) of the A .....

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. The purport of Section 4 both old and new was summarised by the Supreme Court at para 47 pp. 503-04 (ECC page 107): (i) The price at which the excisable goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal as defined in Sub-section (4)(b) of Section 4 is the basis for determination of excisable value provided, of course, the buyer is not a related person within the meaning of Sub-section (4)(c) of Section 4and the p .....

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epresentation the excisable value of the goods; (iii) Where wholesale price of any excisable goods for delivery at the place of removal is hot known and the value thereof is determined with reference to the wholesale price for delivery at a place other than the place of removal, the cost of transportation from the place of removal to the place of delivery should be excluded from such price; (iv) Of course, these principles cannot apply where the tariff value has been fixed in respect of any exci .....

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ed to the increase of the value till the date of sale which would be the date of delivery are liable to be included where the sale is effected at the factory gate, the expenses incurred by the assessee up to the date of delivery on account of storage charges, outward handling charges, interest on inventories, charges for other services after delivery to the buyer, namely, after-sales service and marketing and selling organisation expenses including advertisement expenses cannot be deducted. In G .....

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elling organisation expenses cannot be deducted from the price, and (ii) where the sale is effected through the assessee's sales organization at a place or places outside the factory gate, even there the aforesaid expenses cannot be deducted. The Supreme Court in Madras Rubber Factory (supra) accordingly made the following observations: We agree that it is for each assessee to decide where to sell his goods. He can choose to sell his goods at the gate, i.e., at the place of removal or he may .....

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ges and hence cannot be deducted. Where, however, the freight charges are equalised in the manner indicated in the preceding paragraph, such charges can be deducted from the normal price; it is obvious that such deduction will be common to the price at the gate and at the depots outside the gave-because of the equalisation, the price will equally be uniform at the gate as well as at the depots. This aspect will become clearer once we deal with the permissibility of the deductions claimed. This a .....

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paid or erroneously refunded, a Central Excise Officer may, within six months from the relevant date, serve notice on the person chargeable with the duty which has not been levied or paid or which has been short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice. The proviso to Section 11A empowered the authority concerned to initiate proceeding for recovery of duties not levied or not paid or .....

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o fraud, collusion or wilful misstatement or suppression of facts, or contravention of any of the provisions of the Act or the Rules made there under with the intent to evade payment of duty. The gist of exercising the proviso is fraud, collusion or wilful misstatement or suppression of facts with the intent to evade payment of duty. The limitation for recovery of duties under Section 11A is prescribed by the main provision and the said limitation can be extended to five years only in the except .....

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nt or suppression of facts or contravention of any provisions of the Act or of the Rules with the intent to evade payment of duty, the authority may initiate a proceeding within the period prescribed in the proviso. Whether the excise duty has not been levied or has been short-levied or short-paid, etc., by reason of fraud, collusion or wilful misstatement or suppression of facts or contravention of any provision of the Act or Rules with the intent to evade payment of duty is a question of fact .....

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re failure to pay duty shall not attract the rigour of the proviso. Something positive other than mere inaction or failure on the part of the manufacturer or producer, conscious or deliberate withholding of information, when the manufacturer knew it otherwise, is the essential requisite of law for initiation of a proceeding under the proviso. The legal position in this regard is crystallised in Collector of Central Excise, Hyderabad v. Chemphar Drugs and Liniments, Hyderabad, reported in (1989) .....

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the price lists were submitted and approved under the Rules, the same cannot be reopened and revised. According to the learned Single Judge, once approval was given and finalised, the same cannot be reopened without the same being set aside on appeal. The learned Single Judge, therefore, held that once the price list is approved and subjected to adjudication by judicial authority, the same cannot be revised or modified without following the due process of law. The learned Single Judge, therefore .....

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udgment did not also reach any conclusion on the analysis of the facts that the writ petitioners-respondents were not responsible for any of those situations as visualised in Section 11A, even prima facie. The learned Single Judge while arriving at the aforesaid conclusion also took note of the fact that in order to entitle the Department to issue the show-cause notice in the absence of any amendment in law, the Department can issue notice only when it finds that the person concerned is guilty o .....

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article for delivery at the time and place of removal, i.e., the factory gate. If the price under Section 4(1)(a) is not ascertainable, the price in that event will be determined under Section 4(1)(b). In the event of fraud or misstatement, it is open for the Revenue to reopen the matter in accordance with law. Mr. Lahoty, the learned Counsel appearing for the respondents brought our attention to the decision of the Supreme Court in Calcutta Discount Co. Ltd. v. Income-tax Officer, reported in .....

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rd cannot lead to an inference that the allegations referred to in the show-cause notices are wholly non-existent and that there is no foundation or basis of the allegations of fraud, collusion, misstatement or suppression of facts. In the writ petitions there was no challenge as to the vires of the statutory provisions governing the matter nor there was any question regarding violation of fundamental rights involved in the said proceedings. On examination of the materials on record we could not .....

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ini Products and Tamil Nadu Housing Board (supra), relied on [by] the counsel for the respondents, observed that whether in a particular set of facts and circumstances there was any fraud, collusion or wilful misstatement or contravention of any provisions of the Act is a question of fact depending upon the facts and circumstances of a particular case. Rainbow Industries (P) Ltd. v. Collector of Central Excise, Vadoddra, reported in (1994) 6 SCC 563 cited by Mr. Lahoty is not applicable in the f .....

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reported in (1996) 11 (sic) SCC 122 the Supreme Court made the following scathing observations in the matter of entertaining of the writ petition-in such matter: We find it difficult to sustain the judgment of the learned Single Judge and of the Division Bench, for more than, one reason. But first we 'must mention that the filing of, and entertaining, tie writ petition straightaway against a notice of demand issued by a Central Excise Officer (Superintendent of Central Excise) in a matter i .....

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from the following opinion of Lord Sumner in I.R. v. Fisher's Executors, reported in 1929 AC 195-"My Lords the highest authorities have always recognised that the subject is entitled so to arrange his affairs as not to attract taxes imposed by the Crown so far as he can do so within the law, and that he may legitimately claim the advantage of any expressed term or of emotions that he can find in his favour in taxing Acts. In so doing he neither comes under any liability nor incurs blame .....

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an increased tax." However a perceptible shift of the paradigm with change of front became perceivable since the early forties of this century. Lord Green, M.R. in Lord Howard De Waldan v. I.R.C. reported in (1942) 1 KB 389 held,-"For years a battle of manoeuvre has been waged between the Legislature and those who are minded to throw the burden of taxation off their shoulders on to those of their fellow subjects. In that battle the Legislature has been worsted by the skill, determinat .....

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3) 1 All ER 481, Greenberg v. I.R.C. (1971) 3 All ER 136. The most significant change in the approach of the House of Lords towards the tax avoidance is discernible in W.T. Ramsay v. I.R.C. reported in (1981) 1 All ER 863. Lord Wilberforce cogently observed:- While the techniques of tax avoidance progress and are technically improved, the Courts are not obliged to stand still. Such immobility must result either in loss of tax, to the prejudice of other tax payers, or to parliamentary congestion .....

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to 1936 and not forward from 1982. They do not appear to have appreciated the true significance of the passages in the speeches in Ramsay's case of Lord Wilberforce and Lord Fraser, and, even more important, of the warnings in the Bunnah Oil case given by Lord Diplock arid Lord Scarman in the passages to which my noble and learned friend Lord Brightman refers and which I will not repeat. It is perhaps worth recalling the warning given, albeit in another context by Lord Atkin, who himself di .....

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