By TIOL News Service

KOLKATA, JULY 06, 2016 : THE petitioner questions the propriety of an order dated 22.12.2015by which they have been held to be manufacturers within the meaning of Section 2(f) of the CEA, 1944 and found to have evaded excise duty in excess of Rs.11 crore and imposed with substantial penalty.

The petitioner submits that despite there being an appellate remedy u/s 35B of the CEA, they claim that the appeal would not be efficacious in view of the statutory pre-deposit that is required to be made and that, in any event, the challenge is primarily on the ground of the breach of the principles of natural justice.

Inasmuch as it is their claim that the order impugned did not take into account the detailed reply and the documents on record.

The petitioners are engaged in the business of supply of goods pertaining to electricity transmission. The petitioners claim to do business as traders, whether by causing small quantities of goods to be manufactured on jobwork basis or purchasing the goods from suppliers for ultimate sale to end-users. The petitioners say that they have held themselves out as manufacturers to their purchasers, but that would not imply that the petitioners can be deemed to be manufacturers under the said Act for the purpose of making the petitioners liable to pay excise duty on the goods purchased from suppliers and sold to end-users.

It is further submitted by the petitioner that according to the original show-cause notice dated February 21, 2014 the four entities from whom the petitioners claimed to have purchased diverse goods were non-existent and the reason for the department perceiving the four entities to be non-existent was that the Kolkata Municipal Corporation did not have records of such entities, or some of them, having any live trade licence. Though the petitioners attempted to furnish some documents emanating from at least two of such four entities and apparently confirming the transactions between such entities and the petitioners, the Commissioner who authored the impugned order did not take such evidence into account for rendering an omnibus finding to the effect that all of the petitioners' suppliers were non-existent.

Moreover, when the department's team visited the premises (on February 8, 2010) to make an inventory of the manufacturing facility or the raw materials or the finished products thereat, some old and rusted raw materials were discovered and some machines were found but such machines did not convey any impression of being in constant or, at least, recent use.The petitioners also relied on the Chartered Engineer report prepared sometime in 2014, which refers to the 1080 sq. ft premises as found to be poorly lit and without any power back-up facility; machines found “covered with dust, filth and cobwebs and it appears that the machines have not been used for a long period”; there was no water connection or such arrangement found at the premises and the Landis machine was found to be partly lying uninstalled in its outer shell without its integral component; there was no chimney found for the furnace at the facility to be used or operated.

The High Court, therefore, observed –

++ it appears to be elementary that for a person to be held as a manufacturer under Section 2(f) of the said Act, there must be a manufacturing facility and there must not have been any other source for obtaining the goods that were sold by such perceived manufacturer to any purchaser;

++ in the present case, there were several suppliers who were indicated as such by the petitioners, but only four of them were picked out for a sweeping finding that all of the petitioners' suppliers were non-existent and, since the petitioners had admittedly sold goods to their purchasers, the petitioners were, in a sense, presumed to have manufactured the goods somewhere;

++ the petitioners claimed that only a small percentage of the goods sold by them had been manufactured on job-work basis. The order impugned does not contradict such position. Thus, for the Commissioner to come to a conclusion that the petitioners were manufacturers, the manufacturing facility had to be identified;

++ there is no reference in the findings rendered in the order impugned to either the inventory report of the department prepared in 2010 or the private report which may have been procured by the petitioners in 2014. When there is material on record to suggest otherwise than what is concluded, the contrary conclusion cannot be arrived at by disregarding the evidence and without discrediting the same. That is a facet of the principle of natural justice;

++ it is not enough for a deaf ear to be turned to a citizen in the mechanical observation of the rules of natural justice. A citizen has to be listened to and not merely heard. For the compliance of such rules, what is said by a citizen has to be considered on its content and not merely registered as a sound;

++ the meaningful hearing of a citizen would be the appreciation of the evidence contrary to the suspicion of the department that is laid before the decision-making authority. If such evidence is glossed over without being considered or discredited, it amounts to a breach of the fundamental canons of natural justice;

++ the Commissioner has accused the petitioners of not producing any records or documents evidencing that the raw material or semi-finished goods were sent for job-work. It is apparent from the petitioners' reply to the show-cause notice that the petitioners furnished the particulars, not once but twice. Yet again, the Commissioner failed to take into account such evidence as produced or relied upon by the petitioners. It is possible that the evidence may have been utter rubbish, but the Commissioner was obliged to discard or discredit the evidence before proceeding to indict the petitioners;

++ it is only to point out that when a citizen is charged with having done something wrong and some material is provided by such citizen to disabuse the authority of its impression, such evidence has first to be discredited upon a cogent discussion thereon before the original suspicion of wrongdoing is exalted to a final finding. It is such exercise which has been missed in the impugned order;

++ it was incumbent on the Commissioner to have otherwise come to a cogent finding that the petitioners could be regarded as manufacturers within the meaning of the said Act and found liable to pay the duty. That the petitioners may have misrepresented to their purchasers as to their status may not have been the only relevant consideration for the Commissioner.

In fine, the High Court allowed the Writ Petition by setting aside the order impugned subject to the petitioners depositing a sum of Rs.50 lakh with the department within four weeks & upon the deposit being made,the Commissioner is to decide the matter afresh.

(See 2016-TIOL-1293-HC-KOL-CX)