NEW DELHI, JAN 15, 2013: IN the year 2007, some officers of the Delhi Central Excise Department had threatened the petitioner of implicating them in some false cases with a view to extract a bribe from the petitioner. The petitioner did not succumb to the demand for bribe, but filed a complaint with the Central Bureau of Investigation (CBI), as a result of which, the CBI caught two officers red-handed and arrested them on the charges of demanding a bribe from the petitioner.

Coincidence or otherwise, shortly thereafter, the Central Excise officers of Delhi-II Commissionerate, Anti-Evasion Branch conducted searches on the two factory premises of the petitioner on 11.06.2009. The search resulted in seizure of records and seizure of several thousand pre-recorded audio CDs/VCDs/DVDs and MP3s under a panchnama dated 11.06.2009. The petitioner filed a criminal writ petition before the Delhi High court, inter alia , seeking quashing of the panchnama and summons both dated 11.06.2009. That petition is pending.

The search proceedings quickly culminated in issuance of a SCN dated 05.11.2009 to the petitioner inter alia requiring them to show cause as to why:

"(i) Central Excise duty amounting to Rs.10,16,09,833/- along with Ed. Cess amounting to Rs.20,32,197/- and H.S. Ex. Cess amounting to Rs.5,57,336/- evaded during the period April, 2005 to March, 2009 as detailed in the table given above, should not be demanded and recovered from them by invoking extended period of five years under proviso to sub-section (1) of Section 11A of the Central Excise Act, 1944 by manufacturing excisable goods i.e. Blank CDs/DVDs which arise at an intermediate stage and clearing the same for captive consumption without payment of Central Excise duty since the final product is exempt from payment of Central Excise duty vide Notification No. 6/2006-CE."

The SCN was adjudicated on 24.09.2010 by confirming the allegations levelled and imposing interest and penalty. Thereafter another SCN dated 23.09.2011 also made its appearance demanding duty for the latter period.

The appellant had filed Writ petitions against both the SCNs and the order-in-original and the same were decided two days ago. And…we bring you the order today.

The petitioner at the outset submitted that the entire proceeding is by way of a vendetta against them for having got two of the officers trapped by the CBI. As for the case, the petitioner explained the manufacturing process in detail with the aid of photographs of the various machines employed and submitted that it does not manufacture blank audio CDs/VCDs/DVDs, whether, as a final product or as an intermediate product and, therefore, there is no question of levying any Excise Duty on a non-existent product. It is also submitted that the revenue has not discharged its burden by bringing any material on record to show that the petitioner's factory was even capable of manufacturing blank audio CDs/VCDs/DVDs or that it had ever done so. Inasmuch as it is submitted that since no blank audio CD/VCD/DVD comes into existence during the manufacturing process of pre-recorded audio CDs/VCDs/DVDs, there is no question of there being any liability towards Central Excise Duty on such imagined blank audio CDs/VCDs/DVDs. The petitioner in adjudication proceedings had also submitted an expert opinion of M/s Truth Labs where it is stated that the pre-recorded CD manufacturing facilities of the petitioner have six stages in the process of manufacture and they are – (a) Moulding process; (b) Stamping with a nickel stamper; (c) Aluminium coating; (d) Lacquer coating; (e) Drying under an UV Lamp; and (f) Collection of the final product for label printing. The expert opinion specifically mentions that the manufacturing lines of the petitioner are capable of producing pre-recorded CDs or DVDs only. It also records that the existing machinery of the petitioner was unfit for making blank CDs either "simultaneously or alternatively". Another clarification was also obtained from M/s Truth Labs where it is categorically stated that the manufacturing facilities examined at the petitioners' premises cannot manufacture unrecorded blank CDs at any intermediate stage during the course of manufacture or recorded VCDs and DVDs. It was also clarified that the production of blank CDs was not a prerequisite for the manufacture of pre-recorded CDs/VCDs and DVDs in the manufacturing facility of the petitioner.

The petitioner also submitted that the Writ Petition was maintainable for quashing of show cause notice as also of the adjudication order and that the rule of exhaustion of alternative remedies was not a compulsion, but only a matter of prudence and, in deserving cases, the High Court ought to exercise its power under Article 226/227 of the Constitution for setting aside show cause notices as also adjudication orders.

The Respondent Revenue submitted that the petitioner did, in fact, manufacture blank CDs/DVDs and, in any event, since there is an adjudication order, the petitioner has the remedy of appeal under the Central Excise Act, 1944 and the petitioner ought to exhaust its alternative remedy. Inasmuch as the Court should not entertain the Writ Petition.

Following are the extracts from the findings recorded by the High Court -

# Dutiability of blank CDs/DVDs – SCN and O-in-O is without any substance

"12. From the said show cause notice dated 05.11.2009, it is clear that the case against the petitioner is that the petitioner manufactures blank CDs/VCDs/DVDs at an intermediate stage and that the said blank CDs/VCDs are exigible to Central Excise duty. However, what is of importance is that the show cause notice recognizes the fact that the blank CDs/VCDs/DVDs do not come into existence separately. This is clear from the following expression used in the show cause notice itself:-

"And thus, it can be reasonably concluded that blank CDs/DVDs also get manufactured at intermediate stage even though they may not come into existence separately."

13. It is on this basis that the show cause notice alleges that – therefore it can be rightly concluded that "first the blank disc is generated and thereafter the said data is transferred thereupon". On this premise, it is alleged that as blank CDs/DVDs are a distinct commodity and separately classifiable and are exigible to duty and there is no exemption in respect thereof, the petitioner ought to have paid duty on the blank CDs manufactured by it.

25. From the above extract, it is clear that before a product can be classified as "goods", it must be shown to be a complete product, having a commercial identity and capable of being sold to a consumer. And, all this must be established by the revenue.

26. On the basis of the aforesaid decisions of the Supreme Court, it is apparent that before any article can be considered to be "goods" within the Central Excise regime, the twin tests of manufacture and marketability would have to be satisfied. The burden of fulfilling the tests is on the revenue. The revenue has to establish that the article has been manufactured and it has to establish that the said article, which has been manufactured is marketable or, in other words, capable of being bought or sold in the market.

27. We shall have to examine the facts of the case in the light of this position in law. We have already noticed above that the petitioner has categorically stated that it does not manufacture any blank CD/DVD. It has supported this contention by an expert opinion of M/s Truth Labs. There is nothing on the part of the revenue to show that the petitioner does, in fact, manufacture blank CDs/DVDs. It was incumbent upon the revenue to have discharged its burden of establishing that the petitioner, in fact, manufactures blank CDs and DVDs. Mere surmises and conjectures on the part of the revenue would not lead to the revenue discharging this burden. There must be some material on record on which the revenue can rest its opinion. We find that in the present case, there is no such material. On the contrary, in the show cause notice, it is admitted that the CDs/DVDs do not come into existence separately. The same position has been accepted in the adjudication order dated 24.09.2010. In our view, the conclusion of the Commissioner in the adjudication order that the petitioner manufactures blank CDs/DVDs is merely based on his own ipse dixit and is not supported by any material on record. The Commissioner has wrongly held that liquefied polycarbonate is injected to the cavity of the moulds that create component discs which cool and solidify and the pressed discs, after cooling, are captively used for data transfer from the stamper. This is not borne out by the facts and the manufacturing process. The stamping and the moulding takes place simultaneously. It is not as if, first, a blank disc is created and then it is stamped. The process is simultaneous. While liquefied polycarbonate solidifies, it is imprinted with data by the stamper. Therefore, at no stage does a blank CD/DVD come into existence. This will be clear from the process of manufacture stage by stage with photographs as under:-

X x x

28. The CD manufacturing flow chart is as under:-

29. From the above process of manufacture, which has been recounted stage by stage, it is absolutely clear that at no point of time in the manufacturing process employed by the petitioner, does a blank CD/DVD come into existence. The very first test of manufacture is not satisfied in the present case. When no such product comes into existence at all, then, obviously, the second test of marketability cannot also be satisfied. Consequently, no excise duty can be demanded from the petitioner for blank CDs/DVDs. The entire show-cause notice as also the adjudication order is, therefore, without any substance."

# Writ Petition, whether Maintainable - Affirmative

30. … The learned counsel for the respondents had placed reliance on ITC Limited(supra) to submit that the writ petition ought to be dismissed as the petitioner has an adequate alternative remedy by way of an appeal. Reliance had also been placed on United Bank of India (supra) and, particularly, on the following observations of the Supreme Court:-

"43. Unfortunately, the High Court overlooked the settled law that the High Court will ordinarily not entertain a petition under Article 226 of the Constitution if an effective remedy is available to the aggrieved person and that this rule applies with greater rigour in matters involving recovery of taxes, cess, fees, other types of public money and the dues of banks and other financial institutions. In our view, while dealing with the petitions involving challenge to the action taken for recovery of the public dues, etc., the High Court must keep in mind that the legislations enacted by Parliament and State Legislatures for recovery of such dues are code unto themselves inasmuch as they not only contain comprehensive procedure for recovery of the dues but also envisage constitution of quasi judicial bodies for redressal of the grievance of any aggrieved person. Therefore, in all such cases, High Court must insist that before availing remedy under Article 226 of the Constitution, a person must exhaust the remedies available under the relevant statute."

31. But, we must not forget the emphasis on the words, "ordinarily" and "effective" which are employed in the above extract. We feel that in the present case, the show cause notice as also the adjudication order are wholly without any basis. And, we say this on the basis of the material on record to which we have already alluded above. Moreover, we also cannot ignore what is stated in the Supreme Court decision in United Bank of India (supra) itself that these are only rules of self-restraint.

32. Zalcon Electronics (supra) was also relied upon by the learned counsel for the appellant to submit that where an adjudication takes place, the assessee should carry the matter by way of an appeal and should not approach the High Court by way of a writ petition. In that case also, the Supreme Court, in the facts and circumstances of that case, directed that the assessee should have exhausted the statutory remedy and that the High Court should not have interfered with the adjudication order. This, however, does not mean that in no case, can the High Court interfere with an adjudication order even where the situation warrants its interference as in the present case.

33. Lastly, the learned counsel for the respondent had placed reliance on Kanaiyalal Lalchand(supra) and, particularly, on paragraphs 23, 24 and 25 which read as under:-

"x x x"

34. Here again, we must not lose sight of the fact that the Supreme Court has carefully used the words "ordinarily" and "efficacious" in the above extracts. The Supreme Court also felt, in the case before it, that there were disputed questions of fact and, therefore, the High Court was fully justified in declining to exercise its jurisdiction under Articles 226 and 227 of the Constitution. But, in the present case, there are virtually no disputed questions of fact. All the material is available on record and even the revenue accepts the position that the blank CDs/DVDs do not come into existence separately. When this fact is admitted, where is the question of there being any dispute that the blank CDs/DVDs are not manufactured at all?

35. We are left to consider the decisions cited by the learned counsel for the petitioners in support of its plea that the existence of an alternative remedy would not bar the High Court from exercising its jurisdiction under Article 226 of the Constitution of India.

36. In Calcutta Discount Company Ltd (supra), the Supreme Court held that the existence of an alternative remedy is not always a sufficient reason for refusing a party a quick relief by a writ. Furthermore, the Supreme Court held as under:-

"xxx"

It would be relevant to notice that the said decision in Calcutta Discount Company Ltd (supra) is a Constitution Bench decision and that it was also a case where an assessment order had been passed, yet, the Supreme Court held as under:-

"The fact that the assessment orders have already been made does not therefore affect the company's right to obtain relief under article 226.In view however of the fact that the assessment orders have already been made we think it proper that in addition to an order directing the Income-tax Officer not to take any action on the basis of the impugned notices a further order quashing the assessment made be also issued."

37. We feel that a similar direction is necessary in the present case also. The show cause notice is completely misconceived and so, too, is the adjudication order dated 24.09.2010. Thus, in our view, both the show cause notice as also the adjudication order are liable to be quashed.

41. After considering the decisions referred to by the learned counsel for the parties, it is apparent that the existence of an alternative remedy does not constitute a bar against the exercise of jurisdiction under Article 226 and, in certain cases, it is open to the High Court to exercise that jurisdiction. In fact, in Calcutta Discount Company (supra), the Constitution Bench has gone so far as to state that when the Constitution confers on the High Court the power to give relief, it becomes the duty of the court to give such relief and that the existence of an alternative remedy is not always a sufficient reason for refusing a party quick relief by way of a writ. We must also not forget the circumstances in which the show cause notice was issued to the petitioner. By this, we mean the previous history of the petitioner having got two officers of the revenue arrested on charges of bribery. Considered in totality, we feel that this is a fit case for exercise of jurisdiction under Article 226 of the Constitution despite the fact that the petitioner has an alternative remedy. Of course, according to us that remedy in the factual backdrop of this case is certainly not an equally efficacious one."

Both the Writ Petitions were allowed and the show-cause notices dated 05.11.2009 and 23.09.2011 as also the adjudication order dated 24.09.2010 were quashed.

In passing: Before you embark on a journey of revenge, dig two graves - Confucius.

(See 2013-TIOL-37-HC-DEL-CX)