High Court · 2007

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 23.01.2007CORAM :THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIANWrit Petitions Nos.9655 to 9658 of 2000Sri Ambal Mills Private Limitedrepresented by its DirectorC.D.Menon28-C, Bharathi Park Cross RoadNo.5, Coimbatore - 641 011. Petitioner in all W.Ps v.1. The Commissioner of Central Excise, Coimbatore2. The Customs, Excise and Gold (Control) Appellate Tribunal represented by its Assistant Registrar, 26, Haddows Road Chennai - 600 006. Respondents in all W.PsPetitions in W.P.Nos.9655 to 9658 of 2000 are filed under Article 226of the Constitution of India praying for the relief of issuance of writ ofcertiorarified mandamus and certiorari respectively as stated therein.For Petitioner:Mr.N.PrasadFor Respondents :Mr.K.Ramakrishna Reddy,ACGSCORDERWrit petitions Nos.9655 and 9656 of 2000 are filed seeking for therelief of issuance of writ of certiorarified mandamus to quash the ordersof the second respondent herein in Final Order No.572, 571/99 dated16.3.1999 and direct the second respondent herein to refer the case underSection 35-G of the Act to this Court. Writ petitions Nos.9657 and 9658of 2000 are filed seeking for the relief of issuance of writ of certiorarito quash the orders of the second respondent herein in Ref. Order No.101,100/99 dated 5.10.1999.2. The case of the petitioner is as follows : The petitioner is aCompany, inter alia, engaged in the manufacture of polyester/viscose (PV https://hcservices.ecourts.gov.in/hcservices/ yarn) as well as staple fibre (SF) yarn. On 15.01.1986 when therespondents authorities made an inspection of the godown premises of thepetitioner's transporters M/s. Kerala Transport Company situated atBhiwandi. 263 bags containing 13,150 kgs of man made yarn ofpolyester/viscose blend of the petitioner company was available. Sincethe transporters could not produce any documentary evidence to show thatthe said blended yarn had discharged the central excise duty, the goodswere detained. The authorities also took possession of certain documents.Samples were drawn from the detained goods and sent for chemical analysis.On the same day, i.e., on 15.01.1986 the respondents detained 20 bags ofpolyester/viscose yarn; 3 bags of spun yarn; and 28 bags of spun yarn texfrom the processing unit of the petitioner's mill at Dahisar, Bombay.Representative samples were drawn and sent for chemical analysis. Thepetitioner's mill, on 04.03.1986 produced copies of relevant gate passesunder which goods were sent through their transporters – Kerala TransportCompany and goods which were available in the processing unit originallycleared from the petitioner's mill at Coimbatore, except lot Nos.769 and1010. The test report received from the chemical analyst confirmed thedescription declared by the petitioner's mills in the relevant document.All the lots except lots Nos.769 and 1010 were released. The test reportin respect of the two lots did not conform with the petitioner'sdeclaration, inasmuch as the lot No.769 which was declared aspolyester/viscose/blend, on testing, was found to be blendpolyester/viscose/silk attracting duty at Rs.11.25 per kg videnotification No.50/85. The yarn of lot No.1010 had been declared as 32sblend staple fibre (SF), but the test result showed aspolyester/viscose/silk blended yarn attracting duty at Rs.9/- per kg. Theduty was paid by the petitioner at the rate of Rs.0.68 paise per kg. Theabove said two lots were detained on 31.03.1986 and 03.04.1986respectively. Investigation was conducted which revealed that thepetitioner's mill was engaged in the manufacture of excisable goodsfalling under the erstwhile T.I.18III, 18B, 18E and 68. Their sales forBombay market was routed through their Bombay office situated at No.195,D.N.Road, Saheb Building, Bombay 1. The goods were transported to Bombayby way of stock transfer. Sales to customers were made by the Bombayoffice under delivery memos and invoices. From August 1984 onwards oneM/s. Commercial Fibres, a sister concern of the petitioner's mill wasintroduced as the consignment agents for Bombay on 1¼% commission andsales invoices were raised by them. The directors of the petitioner'smill are also partners of M/s. Commercial Fibres. 3. The scrutiny of the records of the Bombay office revealed that theywere receiving blended yarn of different blends such as 48/52 P/V(Polyester/viscose) 67/83 P/V 15/85 P/V and SF (Staple Fibre) yarn andacrylic yarn from the mill at Coimbatore. The scrutiny of the purchaseinvoices of the Bombay office of the petitioner mill revealed that theirmarket in Bombay office was only for blended yarn of polyester/viscose andacrylic yarn. During the year 1982 no consignments of SF yarn appear tohave been received by the Bombay office. From 1983, yarn under the https://hcservices.ecourts.gov.in/hcservices/ description of 2/40s S.F. (Staple fibre) yarn also were received by theBombay office in addition to blended yarn of polyester/viscose 15/85 PV,48/52 PV etc. The scrutiny of the sales invoices issued during the periodfrom June 1983 onwards by the Bombay office revealed that the descriptionoriginally shown in delivery memo was 2/40s, 15/85 (shirting or suiting)yarn. But the office copies of the same invoices revealed the goods as2/40s SF yarn. Thus it appeared that the modus operandi adopted by themill was to issue proper delivery orders and invoices showing correctdescription of the goods to their customers and maintain a separate set ofinvoices having the same invoice numbers and giving the wrong descriptionof the yarn for office purpose. In the invoices, recovered from thetraders the duty has been correctly shown as Rs.11.25 per kg asrecoverable on the said yarn and the duty is also recovered as such fromthe traders separately. However, in the invoices issued by the mill inrespect of the very same goods lesser rate of duty has been paid as if thegoods were SF yarn. Show cause notices were issued on the above saidgrounds calling for the petitioner to show cause as to why thedifferential excise duty should not be recovered and as to why the goodsshould not be confiscated and penalty under the provisions of the Actshould not be levied. 4. On adjudication, it was confirmed that the petitioner was adoptinga modus operandi of issuing more than one set of bills to the dealers atBombay and keeping another set of invoice in their Bombay office, which isin tandem with their blend cleared from Coimbatore mill and that thepetitioner was adopting different price pattern on their invoice issuedfrom the Bombay branch office stating that the price shown was inclusiveof excise duty at a higher rate equivalent to that of PV yarn, whereas theduty paid by their Coimbatore mill was less and was that of staple fibreyarn. Hence, the first respondent by its order dated 04.12.1999 in orderNo.45/89 confirmed the show cause notice and imposed the differential dutyof Rs.44,32,897.61, apart from personal penalty of Rs.1,00,000/- on ShriC.D.Menon, Resident director of the company and Rs.10,000/- each on othertwo partners of M/s. Commercial Fibres, a sister concern of M/s. Sri AmbalMills (P) Ltd. 5. Aggrieved by the order of the first respondent, the petitionerfiled an appeal to the second respondent in appeal No.E/1724 and E/1725 of1990 D. The second respondent, by its order dated 16.03.1999 in appealNos.571 and 572/1999 rejected the appeal and thereby confirmed the orderof the first respondent. Not satisfied with the order of the firstrespondent, the petitioner filed reference application under section 35Gof the Central Excise Act, 1944 to the second respondent to refer thematter to the High Court on substantial questions of law. The referenceapplication has been rejected on the ground that the issue pertained inthe case was one of classification, valuation and determination of duty.Aggrieved by the same, the present writ petitions.6. It is contended on behalf of the petitioner, that the second https://hcservices.ecourts.gov.in/hcservices/ respondent has concluded its finding confirming the order of the firstrespondent on a totally different reasoning independent of what was statedby the first respondent. Further, the alleged finding either the allegednon maintenance of private records or the alleged industrial practice tomaintain proper mixing up records at the blow room stage were findingsbased on no evidence. The petitioners were not given any opportunity evento prove the negative since that was not the base on which the show causenotice was issued or adjudication completed by the first respondent. Inorder to buttress this submission, Rule 10 of the Customs, Excise and Gold(Control) Appellate Tribunal (Procedure) Rules, 1982 has been relied on bythe petitioner. The Rule provided that the appellant before the Tribunalshall not, except by leave of the Tribunal, urge or be heard in support ofany grounds not set forth in the memorandum of appeal, but the Tribunal,in deciding the appeal, shall not be confined to the grounds set forth inthe memorandum of appeal or those taken by leave of the Tribunal underthose rules, Provided that the Tribunal shall not rest its decision onany other grounds unless the party who may be affected thereby has had asufficient opportunity of being heard on that ground. 7. I am not able to concur with the submission made on behalf of thepetitioner. The second respondent has not rested its finding solely onthe finding of non maintenance of private records or blow room practice.Further, that reasoning stated is not a conclusive finding. TheTribunal, after setting out all the arguments advanced on either side, hasrecorded a finding to the effect that the Tribunal could not subscribe tothe main defence of the petitioner that the invoice issued describing theproduct as P/V yarn were actually for SF yarn because of the collusionbetween their manager Sri Ramchandran and some other customers on thepremise that it was difficult to believe that when a company had postedtheir resident Director Sri C.D. Memon at their Bombay office, in thenormal course of duty he would be able to keep full control over theactivities of his manager Ramachandran and it was nobody's case that onlya few stray invoices were misdescribed due to collusion. The invoices ofP/V yarn continued to be raised from 29.04.1983 over a year. Therefore,the Tribunal found that it was hard to believe that such a collusion couldbe continued over such a period of time under the very nose of anexperienced resident Director sitting in the same office. With regard tovisual distinction factor raised by the petitioner also the Tribunal hasgiven a finding that the weaving characteristics of the two yarns would bedifferent. The weavers would have found out this change in the qualityvery soon after weaving the product itself. The Tribunal gave a furtherreason that it was common knowledge in the textile industry that staplefibre yarn is much weaker yarn than polyester viscose yarn and once theweavers had so found out, they would have seen through this game andstopped purchasing it.8. While rejecting all the contentions by giving cogent reasons, theTribunal has stated that the petitioner has not followed the normalpractice followed by the spinning mill industry and explained the same by https://hcservices.ecourts.gov.in/hcservices/ observing that the appellant did not give lot number to each category yarnat the blow room stage itself. The user of various fibres in terms of theweight of the blend was established by each mills at the blow room stageitself and the particulars of these would be contained in the lot numbers.Therefore, the lot number has got clear nexus with the raw materialaccounts and only when the two are read together, could the use of the rawmaterials and accuracy of the raw material account be examined by theofficials. The Tribunal further observed that in the case of thepetitioner the time honoured practice was not followed and therefore, thepetitioner has deliberately broken the nexus between the use of variousfibres at the blow room stage itself and their raw material account andfound that that made the accuracy and authenticity of the raw materialaccount highly questionable. This observation was made to explain thecontention of the petitioner that the raw materials required to produce4,55,196 kgs of polyester viscose yarn would be substantial and itsquality is not reflected in the raw material account. But for thecontention so raised by the petitioner, there was no occasion for theTribunal to observe the same and thus the said observation is invited bythe petitioner. Hence, this Court is of the considered view that theabove referred to finding recorded by the Tribunal is not in violation ofRule 10 of the Customs, Excise and Gold (Control) Appellate Tribunal(Procedure) Rules, 1982 and the contention that the second respondentcompletely rested its finding on a different ground and the petitioner wasnot given an opportunity to rebut the same falls to ground. 9. Learned counsel relied on the case of Union of India v. M/s.Chaturbhai M.Patel & Co., AIR 1976 SC 712. That was a case filed fordamages against the defendant Union of India under section 83(f) of theRailways Act on the allegation that the plaintiff therein despatchedconsignment containing tobacco at Banaras for Gaya in Bihar for deliveryto the plaintiff company and due to negligence of the railways, theidentical goods despatched by the plaintiff did not reach the consignee atGaya, but the goods containing inferior type of tobacco reached therewhich caused serious loss to the plaintiff. In the above said facts ofthe case, the Supreme Court upheld the finding of the High Court thatfraud like any other charge of a criminal offence whether made in civil orcriminal proceedings must be established beyond reasonable doubts. 10. In the present case mis-declaration in respect of two lots hasbeen established by the report of the chemical analyst and other witnessesand it was, to certain extent, admitted by the petitioner himself bycontending that the manager in collusion with some traders committed themistake. Further, the fiscal statute of the present nature containvarious measures for taking action against misdeclaration and nondeclaration and under-valuation for taking remedial measures in the Actitself. 11. It is well settled that under Article 226 of the Constitution ofIndia judicial review can be made in respect of the order passed by any https://hcservices.ecourts.gov.in/hcservices/ Court or Tribunal subordinate to it. But at the same time, thatjurisdiction cannot be regarded as converting the High Court as anappellate Court to sit on appeal over the order passed by the Tribunal,when there being no arbitrariness, discrimination or mala fide explicit inthe order. So far as the facts of the case is concerned, it is the caseof the department that the petitioner, during the period between29.04.1983 and 07.05.1985 cleared 4,55,195 kgs of polyester viscose underthe guise of being staple fibre and thus evaded a huge amount of dutypayable to the Government. All due formalities such as issuance ofnotice, gathering of materials as prescribed under the Act, issuance ofshow cause notice making available the person from whom statements wererecorded for cross examination and after giving due opportunity andfollowing the principles of natural justice. Elaborate adjudication wasconducted and adjudication order has been passed on merits. As alreadystated, to some extent, the petitioner has also accepted that the invoicehas been manipulated at the instance of the manager of the petitioneroutlet at Bombay in collusion with some of the traders as contended by theDepartment. That factual finding has been upheld and the only contention,as stated above, raised before the Court was that without giving anopportunity to the petitioner on a new ground the second respondentconfirmed the order of the first respondent. That has also been rejectedin the earlier paragraphs. Hence, this Court is of the view that thepetitioner has not made out any case for interference by the Court in thewrit jurisdiction. 12. Now let me come to the writ petitions in respect of rejection ofreference. Section 35G(1) of the Central Excise and Salt Act, 1944provides as follows :35G Statement of case to High Court :-- (1) The Collector ofCentral Excise or the other party may, within sixty days of thedate upon which he is served with notice of an order under section35C (not being an order relating, among other things, to thedetermination of any question having a relation to the rate of dutyof excise or to the value of goods for purposes of assessment), byapplication in the prescribed form, accompanied, where theapplication is made by the other party, by a fee of two hundredrupees, require the Appellate Tribunal to refer to the High Courtany question of law arising out of such order and subject to theother provisions contained in this section, the Appellate Tribunalshall, within one hundred and twenty days of the receipt of suchapplication, draw up a statement of the case and refer it to theHigh Court : provided that the Appellate Tribunal may, if it issatisfied that the applicant was prevented by sufficient cause frompresenting the application within the period hereinbeforespecified, allow it to be presented within a further period of notexceeding thirty days. https://hcservices.ecourts.gov.in/hcservices/

13. The questions of law which were sought to be referred to are:1.Whether the Honourable Tribunal was correct in taking on recordand entering findings on those facts which was forming neither apart of the show cause notice nor a part of the order inoriginal?2.Whether the Honourable Tribunal was correct in discussing issuesand giving its findings on issues which neither form part of theshow cause notice nor the order in original?3.Whether the Honourable Tribunal was correct in having enteredfindings of facts incorrectly with reference to its findings atpara 9 and para 12?4.Whether the Honourable Tribunal was correct in confirming thedemand in its entirety when evidence if at all was availableonly against supplies made to 12 dealers?5.Whether the Honourable Tribunal was correct in confirming thedemand on the entire quantum of 4,55,196 kgs., instead ofconfirming the same only to 55,600 kgs?6.Whether the Honourable Tribunal was correct in holding that thestatements of the witnesses given during investigation wouldprevail over the depositions given during the cross examinationby holding the original statements are written statements andthe statements during cross examination are oral statements andtherefore written statements would prevail over the oralstatements?7.Whether the Honourable Tribunal was correct in holding the aboveview on cross examination, even when the original adjudicatingauthority not even dealt this aspect while passing the order inoriginal ?8.Whether the Honourable Tribunal was correct in holding thatnotwithstanding the fact that department could not prove or showthe receipt and use of excess raw material of PV fibre toproduce 4,55,196 kgs of PV yarn, the demand made by thedepartment is sustainable?9.Whether the Honourable Tribunal was correct in confirming thedemand on the ground that the applicants did not issue lotnumbers at the blow room stage, especially when neither theinvestigation officer nor the order in original nor any adversestatement given by the company officials are available onrecord?10.Whether the Honourable Tribunal was correct in holding that theprice difference found in the Techno Trend publication betweenSF yarn and PV yarn is not relevant in view of the lower invoiceprice of the applicants products, without appreciating theentire evidence on record in the form of invoices for differentperiods and Techno Trend publications for different periods? https://hcservices.ecourts.gov.in/hcservices/

11.Whether the Honourable Tribunal was correct in upholding theorder in original contrary to the settled principles of law,that suspicions however grave cannot substitute proof?14. On a reading of the very questions of law it is clear that thoseare all questions of facts, which have been adjudicated and answered bythe authorities below. The Tribunal has rejected the reference applicationon the premise that the issue pertained in the case is classification,valuation and determination of duty and also exemption notification and assuch no reference under section 35G of the Act can be made, which findingis in accordance with the statutory provisions. 15. For the reasons stated above, the writ petitions are dismissed.No costs.Sd/-Asst. Registrar./true copy/Sub Asst. Registrar.mfTo1. The Commissioner of Central Excise, Coimbatore2. The Assistant Registrar, Customs, Excise and Gold (Control) Appellate Tribunal, 26, Haddows Road Chennai - 600 006. + 4 CCs To Mr.N.Inbarajan, Advocate SR NO. 4395+ 1 CC To Mr. K.Ramakrishna Reddy, Advocate SR NO. 4644WP Nos.9655 to 9658 of 2000gv[co]gp/9.2.