IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED:23.09.2008 CORAM: THE HON'BLE MR. JUSTICE P.JYOTHIMANI WRIT PETITION NO.11028 of 2007 and other connected miscellaneous petitions. The Commissioner of Central Excise Chennai II Commissionerate No.692, MHU Complex, Anna Salai Nandanam, Chennai 600 035. .. Petitioner vs. 1.M/s.Australian Foods Ltd., Plot No.22 & 23, Ambattur Industrial Estate, Chennai 600 058. 2.Customs & Central Excise Settlement Commission, Additional Bench, II Floor, Narmada Block, Custom House, No.60 Rajaji Salai Chennai 600 001. .. Respondents For petitioner : Mr.T.S.Sivagnanam Sr.Central Govt. Standing Counsel For respondents : Mr.Aravind P.Datar,Sr.Counsel for M/s.V.S.Jayakumar for R.1 ORDER By consent of both parties, the main writ petition itself is taken up for final disposal. 2. The writ petition is filed by the Commissioner of Central Excise, Chennai II Commissionerate against the impugned order of the second respondent dated 06.12.2006, which has been passed as admission-cum-final order on an application filed by the first respondent for settlement of the proceedings initiated against it by means of a show cause notice issued by the writ petitioner dated 31.07.2006. 3. The short facts leading to passing of the impugned order by the second respondent are as follows: https://hcservices.ecourts.gov.in/hcservices/ (a) The first respondent is a manufacturer of Cookies and Dough falling under Sub-heading 1905.3100 and 1901.2000 of the Central Excise Tariff Act,1985. It is stated that Dough is the main ingredient used in the manufacture of Cookies and the same had been charged with excise duty from 01.03.2005 by virtue of the amendment made in the Finance Act,2005. (b) On the basis of the report gathered that the first respondent had been clearing Dough to their franchises and outlets without payment of duty, certain investigations were carried on and it came to light that the first respondent was clearing Dough for preparation of Cookies to their outlets and franchises without payment of duty and that they have cleared CENVAT availed packing materials to their franchises/outlets without expunging the credit taken on the same. (c) When it was also noticed that the first respondent has cleared excisable goods in bulk to institutional customers by wrongly assessing the same on Maximum Retail Price (MRP), a show- cause notice was issued to it on 31.07.2006, demanding a total duty of Rs.33,82,246/- and education cess amount of Rs.67,645/- along with interest. That apart, the penal provision under the Central Excise Act,1944 (in short, "the Act") was also invoked against the first respondent. (d) It is the case of the writ petitioner that on the visit by the officials of the Central Excise Department to the factory of the first respondent on 19.01.2006 and 21.01.2006 and by scrutinising the records it was revealed that the first respondent has removed a quantity of 2,20,813 Kgs. of Dough to the value of Rs.1,49,04,162/- without payment of duty from 01.03.2005 to 31.12.2005 to its franchises; removed CENVAT credit availed packing materials without payment of an amount equal to duty as required under the provisions of CENVAT Credit Rules,2004; and also removed Cookies for sale to institutional customers, such as M/s.ITC, M/s.Jet Airways Ltd. etc. by wrongly assessing the goods under Section 4-A of the Central Excise Act,1944, without mandatorily affixing the MRP on the packages, however, the sale is at contractual price. (e) It is the case of the petitioner that during the course of investigation the first respondent has in fact paid the duty and interest and in the show cause notice while demanding the above said amounts, the petitioner included for the appropriation of the said amount apart from the proposed appropriation of Rs.2,42,888/- paid towards interest on the central excise duty. Further, penal action was proposed under Section 11-AC of the Central Excise Act,1944 and under Rule 25 of the Central Excise Rules apart from Rule 15(2) of the CENVAT Credit Rules, 2004. (f) The first respondent, without replying to the show cause notice, has filed an application before the second respondent for a relief under Section 32 of the Central Excise Act,1944, for settlement of case as contemplated under Section 32E of the Act. According to the petitioner, the second respondent/Settlement Commission, instead of applying Section 4 of the Act, has applied https://hcservices.ecourts.gov.in/hcservices/ Section 4-A of the Act. Under Section 4, the valuation of goods is to be made on the transaction value as per the contract between the parties while under Section 4A the value is arrived at on the basis of MRP declared on the packages. In addition to that, under Section 4A, the goods must be in conformity with the provisions of the Standards of Weights and Measures Act,1976. (g) The goods in question, viz., Cookies were not having MRP declared on the packages and that is sufficient to say that the value has to be assessed under Section 4 of the Act, since MRP must be found on the packages in conformity with Section 4-A(1) of the Act. The petitioner has opposed the application for settlement filed by the first respondent stating that the decision of the Tribunal rendered in M/s.Ishaan Research Laboratories Pvt.Ltd., [2004 (172) ELT 484 (TRI) ] relied on by it is not relevant, since in that case it was held that the provisions of the Packaged Commodities Rules,1977 are not applicable, as no materials have been adduced by the Revenue to show that the marking on the package indicates in clear terms that it has been specially packed for any industry as a raw-material or for the purpose of servicing any industry, while in the instant case, the goods were supplied for servicing in the industries. (h) It was also brought to the notice of the second respondent – Commission that the first respondent has specifically stated that the institutional customers are not selling the Cookies, but are supplying the same to their customers for consumption and therefore, the decision of the Tribunal relied upon by the first respondent is not applicable, since the decision relates to the goods affixed with MRP while in the present case there was no affixture of MRP, but the package contains a word "specially packed for Jet Airways and not for sale", "date of manufacture", "product name", etc. (i) It was also opposed by the petitioner that the first respondent ought to have waited till the adjudication proceedings regarding valuation is completed as to whether the same would fall under Section 4 or 4-A instead of approaching the Settlement Commission. It is also the case of the petitioner that the second respondent Commission has passed the admission-cum-final order, granting partial immunity from interest and full immunity from penalty and prosecution, having found that there was a clandestine removal of goods by the first respondent. 4. The impugned order of the second respondent is assailed by the petitioner on various legal grounds, including that the second respondent has no jurisdiction and it failed to consider the facts and circumstances of the case; that the second respondent has also failed to take into account that the first respondent has never indicated MRP on the packages and sold the goods in question on transaction value, which represents the wholesale contract value, which attracts Section 4 of the Act, and therefore, the consideration of the case by the second respondent under Section 4- A, which applies to cases where the value actually represents the MRP is not proper and therefore, the order is erroneous; that the second respondent Commission has exceeded its jurisdiction by https://hcservices.ecourts.gov.in/hcservices/ virtually acting as an executing authority by granting leave to the first respondent to which it is not entitled especially in the confirmed case of clandestine removal; that the second respondent is not empowered to decide whether the goods would come under Section 4 or 4-A of the Act and the same is beyond its jurisdiction; that the power of the second respondent to grant immunity from fine or penalty or interest would arise only in cases where the assessees make full and true declaration of their liability for payment of the duty; that the second respondent is not entitled to consider the legality of the orders and by deciding the issue of assessment of clearings under Section 4-A, the second respondent has exceeded the jurisdiction; that the second respondent failed to consider Rule 34 of the Standards of Weights and Measures (Packaged Commodities) Rules,1977, and in view of the same it ought to have decided that the lability is under Section 4 of the Act; that the second respondent has failed to consider the clarification letter of the Central Board of Excise and Customs dated 28.02.2002, wherein in respect of goods which are not statutorily required to print/declare the retail sale price on the package under the provisions of Standards of Weights and Measures Act,1976 or the Rules, valuation should be done under Section 4 of the Act and that similar circular was issued on 31.07.1998, which requires to indicate MRP under Standards of Weights and Measures (Packaged Commodities) Rules,1977; that the decision in M/s.Ishaan Research Laboratories (P) Ltd., [2004 (172) ELT 484 (Tri.Delhi)] is not applicable and that the granting of immunity of penalty and prosecution is without jurisdiction and the second respondent ought to have taken into consideration various decisions of the Supreme Court. 5. The first respondent, who has filed affidavit in support of the petition to vacate stay granted by this Court has stated that the writ petition is not maintainable since the Settlement Commission has exercised its discretion under Section 32-K of the Act. It is also stated that the writ petition becomes infructuous by relying upon the judgement of the Supreme Court in Jayanthi Food Processing Pvt. Ltd. vs. Commissioner, Central Excise, Rajasthan [2007 (8) SCC 34 ]. It is the case of the first respondent that when any product has been notified under Section 4-A of the Act, it has to pay duty on bulk sales on the basis of MRP under Section 4-A of the Act. 5(a). It is the case of the first respondent that it manufactures Dough in its factory premises and it has no proper shelf life for storage purposes and they send the same in packed condition for storage at minus 20 degrees centigrade to M/s.Snowman Frozen Foods Ltd., situated at Sriperumbudur under a delivery challan. It is admitted by the first respondent that it was not aware of the change made in Central Excise Tariff Act,1985 by the amendment Act,2005 and therefore, it was under the bona- fide impression that the Dough made by it was not liable to duty, since it was not in a marketable condition. 5(b). On advice, the first respondent came to know that the liability for payment of duty for Dough arose from 01.03.2005 and approached the officer having jurisdiction and made enquiry about the payment of duty. Taking advantage of the said conduct of the first respondent, the petitioner officials have foisted a false https://hcservices.ecourts.gov.in/hcservices/ case of clandestine removal, suppression etc., while it is admitted that at the relevant point of time the first respondent/assessee was not paying duty on Dough and cleared Dough without payment and at the time of inspection, the officials of the writ petitioner seized two computer systems along with certain records from the first respondent Company and certain documents were also taken away from the first respondent company at Spencer's Plaza, Mount Road, Chennai. 5(c). It is stated by the first respondent that it was not able to maintain proper documents for movement of Dough and the movement was made due to the reason that it was not having sufficient storage facility and therefore, without permission it was sent outside for cold storage since the same had to be kept in minus 20 degree centigrade and whenever necessary it was brought back to the factory for baking, etc. and thereafter for manufacturing Cookies. 5(d). It is also the case of the first respondent that the petitioner has also found on checking with M/s.Snowman Frozen Foods Ltd., that the Dough clearance has been made in accordance with the detailed working sheet as per which the first respondent manufactured and cleared a total quantity of 2,20,813 Kgs. of Dough valued at Rs.1,49,04,162/- during the period from March,2005 to December,2005 to its various franchises/outlets and the same was confirmed in its letters dated 20.01.2006 and 24.01.2006 and the first respondent has voluntarily paid an amount of Rs.21,89,237/- along with an interest to the tune of Rs.1,50,485/- and also paid an amount of Rs.2,43,122/- towards CENVAT credit and altogether, paid a sum of Rs.23,84,666/- towards total excise duty and Rs.47,693/- towards cess. 5(e). It is also the case of the first respondent that the Department noticed that it had cleared its final product viz., Cookies to hotel industry like Taj Group of Hotels, GRT Grand Hotel and airlines like Jet Airways etc. in bulk, based on specific contract with each one of the parties. The sale was effected on the basis of the purchase orders from the above said purchasers. It is admitted that the excise duty had been paid not on the contract price, but on the MRP based assessment. For the period from 01.02.2004 to 31.03.2005, the excise duty comes to Rs.4,88,200/- and the duty already paid works out to Rs.3,59,621/- and therefore, the difference in payment works out to Rs.1,28,579/-. Likewise, it is stated that for the period from 01.04.2005 to 30.04.2006, the duty works out to Rs.5,90,212/- and the above said amounts were paid by the first respondent during investigation. 5(f). It is the case of the first respondent that the second respondent Commission while giving benefit to the first respondent under Section 4-A of the Act, has not granted complete immunity from interest, but directed payment of interest at 10% from the date when the duty became due till the date of actual payment and the impugned order granting immunity has been passed in terms of Section 32-K(1) of the Act, after considering various aspects of the case. It is also reiterated that by virtue of the judgement of https://hcservices.ecourts.gov.in/hcservices/ the Supreme Court in Jayanthi Food Processing Pvt.Ltd., the duty would be payable only under Section 4-A and not under Section 4 of the Act and therefore, the writ petition filed by the petitioner- Department is infructuous. 6. Mr.T.Sivagnanam, learned Senior Central Government standing counsel appearing for the petitioner would submit that the officials of the petitioner Department when visited the first respondent Company on 19.01.2006 and 21.06.2006, scrutinised its records and found that the Dough of 2,20,813 Kgs. having the value of Rs.1,49,04,162/- were removed during the period from 01.03.2005 to 31.12.2005 without payment of duty and without payment of an amount equal to duty as required under CENVAT Credit Rules, 2004 and Cookies were also removed to various customers, and it was a contractual sale not coming under MRP sale, and it was based on the said investigation, a show cause notice came to be issued on 31.07.2007. 6(a). According to the learned counsel, in normal circumstances, the first respondent ought to have replied to the show cause notice for adjudication, but the first respondent has resorted to remedy under Section 32-E of the Act and in spite of the fact that the petitioner Department has raised an objection about maintainability of such a petition under Section 32-E of the Act, the second respondent has granted partial immunity from interest and full immunity from penalty and prosecution. According to the learned counsel, the transaction value has to be taken as the basis for assessment without abatement, but the second respondent has given abatement of 40% by applying Section 4-A of the Act. 6(b). It is also his further submission that under the provisions of the Standards of Weights and Measures Act, 1976, which do not mandate disclosure of MRP, the valuing of goods under Section 4-A of the Act does not arise. In the absence of any requirement under the Standards of Weights and Measures Act,1976 to declare MRP and admittedly, when the first respondent has not declared MRP on the packing, the second respondent Commission ought not to have applied Section 4-A of the Act. 6(c). It is also submitted by him that Rule 2-A, which has been inserted to Standards of Weights and Measures (Packaged Commodities) Rules,1977, excludes the applicability of the rules to the institutional customers, including Airways, Railways, Hotels, etc. which has been given effect from 13.01.2007 and the said Rule makes it clear that the intention of the legislature is to exclude institutional customers from the purview of the Rules. 6(d). It is his further contention that even though the second respondent/Settlement Commission has called for a report as required under Section 32-F(1) of the Act, no investigation has been carried out, especially when the Department has raised a serious issue regarding the valuation, particularly when the MRP was not indicated on the packing and therefore, by applying the legal principles, Section 4 should have been made applicable. It is also his contention that the second respondent ought to have https://hcservices.ecourts.gov.in/hcservices/ referred it for adjudication to the Commissioner of Central Excise. 6(e). Further, according to him, the judgement of the Supreme Court relied upon by the first respondent in Jayanthi Food Processing (P) Ltd., vs. Commissioner, Central Excise, Rajasthan (2007 (8) SCC 34) is applicable only to the facts of the case which relates to the Mineral Water Bottles, in respect of which MRP was declared on the package of 12 bottles, whereas in the present case, there was no declaration of MRP. It is his further submission that inasmuch as there is no adjudication, on the facts of the present case, the judgement relied upon by the first respondent has no application. It is also his submission that in the absence of any material that the goods were made for retail distribution, the Settlement Commission ought to have arrived at such a conclusion that there is no Dough made for retail distribution. 7. On the other hand, it is the contention of Mr.Arvind P.Datar, learned senior counsel appearing for the first respondent that it is true that the first respondent was not aware of the duty payable on Dough from 01.03.2005 and it was for the first time when the petitioner officials visited the factory on 19.01.2006, the same was revealed and accordingly, for the Dough cleared by the first respondent between 01.03.2005 and 31.12.2005 to the extent of Rs.23,84,000/-, the first respondent accepted the full liability and paid the entire duty. However, the dispute which is in existence is only in respect of liability to pay duty on whole sale price of Cookies supplied to Jet Airways, Taj Group of Hotels, GRT Grand Hotels, etc. which depends upon the question as to whether the duty has to be paid on whole sale price or retail price. 7(a). According to the learned senior counsel, the product is notified under Section 4-A of the Act and therefore, duty is payable only on MRP irrespective of the nature of customer and that was the point decided by the Supreme Court in Jayanthi Food Processing (P) Ltd., vs. Commissioner, Central Excise, Rajasthan (2007 (8) SCC 34). Therefore, according to the learned senior counsel, the decision of the second respondent-Settlement Commission arriving at the duty under Section 4-A of the Act, is perfectly in order. It is also his submission that the latest judgement of the Supreme Court in Jayanthi Food Processing (P) Ltd., is dated 22.08.2007, and the order of the Settlement Commission is dated 06.12.2006 and upto the date of the Supreme Court judgement, there has been divergent opinion among the members of the Tribunal. 7(b). He would also rely upon some of the orders of the Tribunals, viz., (i) Bharati Systel Ltd. vs. Commissioner [2002 (145) ELT 626]; (ii) Catrol India Ltd., vs. Commissioner [2003 (159) ELT 575]; (iii) Commissioner vs. Trishul Research Lab (P) Ltd. [2002 (144) ELT 204 (T)]; and (iv) Commissioner vs. Kraftech Products Inc. [2004 (174) ELT 396 (T)], wherein the Tribunals have held that when the products were not sold in retail but in bulk or to institutional buyers, Section 4 would apply. On the other hand, in https://hcservices.ecourts.gov.in/hcservices/ (i) ITEL Industries Pvt.Ltd. vs. Commissioner [2004 (163) ELT 219 (T)]; (ii) Jayanthi Food Processing (P) Ltd., vs. CCE,Rajasthan (2002 (141) ELT 162 :2007 (8) SCC 34)]; (iii) Kwality Biscuits (P) Ltd. vs. CCE [2008 (226) ELT 382 (T)]; (iv) Eastern Safety vs. CCE [2007 (217) ELT 374 (T)]; and (v) CCE vs. Liberty Shoes Ltd., [2007 (216) ELT 692 (T)], the Tribunals in similar circumstances have taken the stand that the duty is liable to be paid under Section 4-A of the Act. It was in those circumstances, while dealing with the mineral water bottles packed for Jet Airways, the Supreme Court held that it should be valued under Section 4-A and not under Section 4 of the Act, holding that the same was not meant for retail sale, but meant for supply to the passengers and according to the learned senior counsel, after the judgement rendered by the Supreme Court in Jayanthi Food Processing (P) Ltd., the issue is settled and therefore, there is absolutely no irregularity or illegality in the order of the Settlement Commission, which is impugned in this writ petition. 7(c). Therefore, according to the learned senior counsel for the first respondent, when the first issue, viz., the liability to pay duty on Dough does not survive since the amount has been paid in full and the second issue as to whether Section 4 or 4-A of the Act is applicable, by virtue of the judgement of the Supreme Court in Jayanthi Food Processing (P) Ltd., the matter has been settled and there is no illegality or infirmity in the impugned order of the second respondent. It is also his contention that the Settlement Commission, being the quasi-judicial authority, passed orders on appreciation of facts and interpretation of law and inasmuch as the proceedings before this Court is not an appeal, but a writ petition under Article 226 of the Constitution of India, even if the view of the Settlement Commission is not plausible, the same cannot be interfered under Article 226 of the Constitution of India by relying upon the judgement of the Supreme Court in Jyotendrasinghji vs. S.I.Tripathi [AIR 1993 SC 1991]. 8. On a reference to the factual matrix in this case, it is found that the basic issue that is to be decided is twofold, viz., (i) the alleged conduct of the first respondent in clearing Dough without payment of duty during the period between 1.3.2005 and 31.12.2005; and (ii) the levy of duty payable on the wholesale price of Cookies supplied by the the first respondent to Jet Airways, Taj Group of Hotels, G.R.T. Hotels, etc. is either under section 4 or 4-A of the Central Excise Act, 1944. 9. As far as the first issue is concerned, it is the case of the first respondent that it was under the bona fide belief that Dough made by it was not liable to duty since it was not in marketable condition and it was due to the mistake committed by the first respondent in not noticing the change made in the Central Excise Tariff Act, 1985 by virtue of amendment of the year 2005, and immediately after the first respondent was informed that Dough https://hcservices.ecourts.gov.in/hcservices/ has become liable for duty, the first respondent paid the entire amount which is not in dispute. Therefore, the only point which remains to be decided is about the assessment of price of Cookies supplied as stated above. 10. In this regard, it is the case of the first respondent that the supply of Cookies was made by them to the hotels like, Taj Group of Hotels, etc. who as institutional customers are only supplying to their customers for consumption. The first respondent also relies upon the communication from its institutional customers like M/s.Taj Coromandel, M/s.Jet Airways, who have confirmed the words on the package, 'date of manufacture', 'best before 60