TMI Blog1970 (8) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... erent trading firms mentioned in paragraph 3 of the petition between March and May 1963 and seized articles and things. In connection with this seizure, petitions challenging the seizure were filed in this Court. By a show cause notice dated March 5/6, 1964, the 1st Petitioner Company was called upon to show cause in connection with the alleged removal by the petitioner Company of the cotton fabrics mentioned in the notice without payment of excise duty and also to show cause as to why the said cloth should not be confiscated under Rules 9(2) and 210 of the Central Excise Rules, 1944. The petitioners have referred to this notice in paragraph 4 of the petition and contended that the notice has not been issued in accordance with the provisions of law. Between March and April 1964, 35 notices of demand calling upon the petitioners to pay the aggregate sum of Rs. 92,12,772.75 were served on the 1st petitioner Company. In connection with recovery of the amounts mentioned in these notices, 8 different detention orders were also served on the 1st petitioner Company. These notices, of demand were challenged by several writ petitions which are mentioned in paragraph 5 of the petition. The m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to the grounds made in sub-paragraphs (m) and (n), for convenience, what is stated in sub-paragraph (g) and (h) requires to be noticed. The contention in that sub-paragraph is towards pleading that the 1st petitioner Company, hereinafter referred to as the Mills Company, had not engaged any powerloom owners and/or weavers either in Madanpura sector or in Worli and Malad sector or in Kurla and Curry Road sector or any other sector at Bombay and/or any powerloom owners and/or weavers at Bhiwandi for the manufacture of cloth in respect whereof duty was demanded under the above 5 notices of demand. The contention was that the Mills Company had not got produced or manufactured cloth in any of the above sectors on its own account or on any one else's account. The Mills Company being not manufacturers of any cloth in any of the sectors mentioned in the above 5 impugned notices of demand was not liable for payment of excise duty as claimed in these notices of demand. Further specific contention was that "x x x there is no finding x x x in the x x demand notices x x x that the petitioners are the manufacturers of the x x cloth. The said notices are vitiated and disclose error apparent on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing would have been afforded to the Mills Company. The case of the Mills Company that no hearing was given or an opportunity to show cause had not been afforded was not correct. In fact I.B. Palit the General Manager of the Mills Company had been summoned and various documents seized from the business premises of the Mills Company were shown to the General Manager. He was asked to explain the contents of these documents as these documents clearly showed that the Mills Company was manufacturing cotton fabrics on about 1400 powerlooms at Madanpura, Bhiwandi, Malad and Worli sectors by supplying raw-materials such as yarn and getting back finished products, i.e., cloth, on payment of weaving charges. The documentary evidence showed that in respect of the cloth manufactured at Worli and Malad the powerlooms were owned by the Mills Company. The General Manager had admitted that the account books contained entries pertaining to the manufacture of cloth on powerlooms at Madanpura, Bhiwandi, Malad and Worli sectors and had stated that the books shown to him did not belong to the Mills Company. The 1st respondent emphasised that the documentary evidence in his possession showed that all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inquiry and in that connection to serve a notice on the Mills Company enabling the Mills Company to give explanation in respect of each of the circumstance on which he depended for his conclusions. It was wrong for the 1st respondent to act upon information collected by him which had not been completely disclosed to the Mills Company. He also relied upon the decision of the Supreme Court in the case of A.K. Kraipak v. Union of India, A.I.R. 1970 S.C. 150, and on the basis of observations in that case argued that it is now well settled that principles of natural justice must not be violated even when administrative orders made visitable consequences on a defaulting citizen. 26th August 1970. 7.He drew pointed attention to the statements given by I.B. Palit, General Manager of the Mills Company, to the 1st respondent on January 21 and February 21 and 24, 1964, to prove that the statement made by the 1st respondent in paragraph 36 of his affidavit in reply that the General Manager had been shown the documents on which reliance had been placed by the 1st respondent and was asked to explain the same was entirely incorrect. He relied upon the statements of Gulam Dastagir, R.K. Sharma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany was not manufacturer of cotton fabrics on these powerlooms had shifted to the Mills Company. In that connection, instead of producing materials to show its innocence, the Mills Company wholly obstructed the investigations which were being held by the 1st respondent. He strongly relied upon the fact that three officers of the Mills Company viz. the General Manager, I.B. Palit, the Director Mohanlal Jalan and the Legal Adviser Banwarilal had been summoned and had given statements. These witnesses were put material questions on the very same charge which was being investigated. These high officials of the Mills Company refused to disclose any material facts and even refused to admit that the documents on which the 1st respondent was relying and which were shown to them were documents of the Mills Company. As these high officials refused to give correct information and as the burden in respect of the charge had shifted to the Mills Company, the 1st respondent was entitled to make his own conclusions on the basis of the documents belonging to the Mills Company. These documents had been seized from the premises of the office and factory of the Mills Company. These documents were o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave no relief in the present petition. He, therefore, submitted that the petition should be dismissed. According to Mr. Bhabha observation of Supreme Court in the case of Orient Paper Mill on which reliance was placed were casual and have no effect. 10.Now, in connection with these rival contentions, it is convenient first to refer to the provisions in Rule 9 and the general scheme of the rules relating to enforcement and collection of excise duty. In that very connection, it is necessary to refer to Sections 6, 9 and 33 of the Central Excises and Salt Act, hereinafter referred to as "the Act". 11.Under Section 3 of the Act, duty of excise is charged on all excisable goods produced or manufactured in India. The word "manufacture" is defined in clause (f) of Section 2 to include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his own account. Under Rule 7, it is incumbent on every person who manufactures excisable goods to pay excise duty. In that connection, under Rule 9, there is prohibition against removal of excisable goods from the place of their manufacture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal, the offending manufacturer can be held to be guilty of offence under Section 9 and can be sentenced to imprisonment and fine. The finding to be made for imposing excise duty under sub-rule (2) of Rule 9 thus will be of extremely serious kind and character. Having regard to these facts, it is difficult to hold that investigations which must be made before imposing duty under sub-rule (2) cannot be of quasi-judicial character and are administrative character. Now, in this connection, the department may be considered to be one party to the list wherein its claim is that the manufacturer has wilfully and fraudulently evaded payment of duty and has for the purpose illegally committed breach of statutory rules. The other party to that list would be the offending manufacturer. The result of the findings made in the inquiry under sub-rule (2) would be levy of (i) heavy excise duty and (ii) penalty and confiscation. It would be difficult to hold that in such an inquiry conclusions can be made and findings can be arrived at without giving an appropriate opportunity to show cause to the offending manufacturer. The nature of the opportunity to be afforded to such a manufacturer cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en given." These cases go to show that the Supreme Court was of the view that assessment of excise duty involved determination of issues in a quasi-judicial manner. Inquiries in connection with imposing of excise duties must be held upon giving information to the person charged with full details of the evidence in support of the charges and an opportunity to meet those charges must always be afforded to the offending party. 15.In the case of A.K. Kraipak v. Union of India (A.I.R. 1970 S.C. 150) reference is made to the case of State of Orissa v. Dr. (Miss) Binapani Devi, A.I.R. 1967. S.C. 1269. In that case dealing with an inquiry as regards the correct age of a Government servant, Shah, J. speaking for the Court observed : "We think that such an enquiry and decision were contrary to the basis concept of justice and cannot have any value. It is true that the order is administrative in character, but even an administrative order which involves evil consequences, as already stated must be made consistently with the rules of natural justice after informing the first respondent of the case of the State x x x x." The Court proceeded to decide the case of A.K. Kraipak v. Union o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntality of various bogus or benami firms floated by them had supplied yarn to several hundred powerloom factories. The other set of account books showed that the Mills Company had prepared bogus purchase invoices and through the instrumentality of the bogus or benami firms floated by them had purchased the powerloom fabrics from several powerloom factories. Owners of several powerloom factories were asked to sign on two types of vouchers which were bogus through the instrumentality of bogus firms floated by the Mills Company. The owners of these powerloom factories had delivered the cotton fabrics through the instrumentality of various bogus or benami firms floated by the Mills Company on payment of manufacturing expenses. The documentary evidence showed that all the powerlooms located at Malad and Worli centres and some powerlooms located at Bhiwandi were ownerd by the Mills Company, whilst the powerlooms located at Madanpura, Bhiwandi, etc., were owned by different individuals, but at all the above centres the cloth was being manufactured on behalf of the Mills Company. Apparently, it is on the basis of these findings that the 1st respondent issued the impugned notices of demand. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpugned notices of demand had been issued. Banwarilal gave his statement on February 22, 1964. It requires to be noticed that the statements given by these three officers are in response to the querries and/or questions addressed to them by the 1st respondent and are not by way of general information or evidence tendered in defence of any charge levelled against the Mills Company. I.B. Palit stated that he could not give any information as to why books of different concerns were found in the office and factory premises of the Mills Company. He was not connected with Messrs. Loknath Tolaram and he had not seen Kekre who was Textile Expert, Powerlooms, Government of Maharashtra, Industrial Co-operative Societies, or Rakshit in connection, with supply of yarn by Messrs. Loknath Tolaram to various co-operative societies. He was falsified in this connection when he gave his statement at a later stage. On February 21, 1964, he was shown books of accounts, papers and vouchers itemized as 1 to 84 in connection with the query that these books had been seized on March 7, 1963, from the premises of the Mills Company. He admitted that fact, but added that so far as his knowledge went, these bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company had not got branch office or godown at Bhiwandi as far as he knew. He also stated that Gyarasilal Agarwal had no connection with the Mills Company and he had no business connection with Gyarasilal and had not seen him. He admitted that the Mills Company was sending powerloom cloth for processing to Messrs. Jalan Dyeing and Bleaching Mills and certain facts about the pledge of the cloth. He was shown a statement in his own handwriting containing certain figures. He stated that he did not remember under what circumstances he had prepared the statement and that such types of statements he usually prepared to in connection with his business activities. He also explained that he was a shareholder in the companies mentioned in the statement and he had accordingly prepared the statement. Banwarilal gave 11 names of Jalan group of concerns. He attended to the work of these concerns as legal adviser. He stated that Agarwal Yarn Agency and Textile Trading Company were not in the group of Jalan group of concerns. He stated that employees of different sister concerns were withdrawn and employed in other concerns. He was shown a letter dated August 30, 1961, addressed by Megharaj Patodi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents. The question is as to whether in respect of these documents and the ultimate finding that the Mills Company was manufacturer of all these goods, adequate opportunity for defending has been offered to the Mills Company. 18.It is clear that the statements which were recorded by the 1st respondent and on which reliance has now been placed by Mr. Bhabha were in the nature of investigations in the inquiry to be held under Rule 9(2) for ultimate findings against an offending manufacturer. Because these investigations were carried on, an impression must have been formed in the Mills Company that there was a possibility that provisional conclusions may be made for holding the Mills Company liable in respect of certain lots of powerloom goods of its ownership. Possibly, a claim to payment of excise duty might provisionally be formulated against the Mills Company. The question is whether under those circumstances it was necessary for the Mills Company voluntarily by making representations to come forward and prove its positive case that it was not the manufacturer of any powerloom goods. The question is whether before taking the ultimate decision and action of issuing the impugned de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances was given and the offenders (Mills Company) were given an opportunity to meet the inferences arising therefrom and to comment thereon, x x x x." It was the duty of the 1st respondent to inform the Mills Company of the charges against it with full details of the evidence in support of the charges and to give them an opportunity to meet those charges and the offences alleged against it. 19.It requires to be stated that we have come to the above conclusion reluctantly, because, since the date of the issuance of the impugned notices much time has lapsed. Several documents which are exhibits to the affidavit in reply contain substantial material for investigation of the fact that the powerloom cloth in respect were of these notices are issued might have been got manufactured by the Mills Company. This, however, does not mean that we have formed any opinion at all on the questions involved, which are complicated questions of law and fact. 20.In our view, the impugned notices having been issued without giving any proper opportunity to the Mills Company are invalid and liable to be struck off. The impugned detention order dated June 17, 1964, was the result of the impugne ..... X X X X Extracts X X X X X X X X Extracts X X X X
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