IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 5.3.2010 CORAM: THE HONOURABLE MR.JUSTICE ELIPE DHARMARAO AND THE HONOURABLE MR.JUSTICE N.PAUL VASANTHAKUMAR Writ Appeal No.1386 of 2008 and M.P.No.1 of 2008 M/s.Australian Foods Ltd., Plot No.22 & 23, Ambattur Industrial Estate, Chennai-600058. ... Appellant/1st Respondent Vs. 1.The Commissioner of Central Excise, Chennai-II Commissionerate, 692, MHU Complex, Anna Salai, Nandanam, Chennai-600035 2.The Customs and Central Excise Settlement Commission, Additional Bench, 2nd Floor, Narmada Block, Customs House, 60, Rajaji Salai, Chennai-600 001. ... Respondents/ Petitioner & 2nd Respondent Writ Appeal preferred under Clause 15 of the Letters Patent as against the order of the learned single Judge dated 23.9.2008 made in W.P.No.11028 of 2007 writ of certiorari, calling for the records relating to the Admission-cum-Final order No.66/2006-C.Ex.dated 6.12.2006 passed by the 2nd respondent and quash the same. For appellant : Mr.Aravind P.Duttar, Senior Counsel for Mr.V.S.Jayakumar https://hcservices.ecourts.gov.in/hcservices/ For R.1 : Mr.K.Ravichandra Babu, S.C.G.S.C. JUDGMENT The appellant is having its factory premises at Plot Nos.22 and 23, Ambattur Industrial Estate, Chennai-58 and registered as manufacture of 'Cookies', falling under Chapter and sub-heading 19053100 of Central Excise Tariff Act, 1985. They also manufacture 'dough' falling under Chapter sub-heading 19012000, the main ingredient used in the manufacture of their final product 'Cookies' and the product 'Dough' had been charged to excise duty with effect from 1.3.2005, by virtue of amendment made in the Finance Act, 2005. 2. On the intelligence gathered that the appellant/assessee are manufacturing and clearing the product 'dough', without payment of duty, to their franchisee/outlets, their unit was visited by the officers of the Central Excise Department on 19.1.2006 and the preliminary scrutiny of the records collected by the Department showed that the assessee are maintaining separate sets of invoices for different customers and no assessable value or duty payment particulars were mentioned in the invoices but only invoices for clearances made to M/s.Britannia Industries have been properly invoiced, showing the Excise Duty. Therefore, with further intelligence, the factory-cum-registered office of the assessee was surprised by the officers attached to the Divisional Preventive, Chennai-II Division on 21.1.2006 and two computer systems along with certain records were recovered from the assessee under mahazar and the assessee's own outlet at Spencer's Plaza, Mount road, Chennai was also surprised on the same day by the officials and certain records were also recovered from there, under mahazar. 3. According to the Revenue, the assessee is manufacturing 'Dough' which is used as raw material for manufacture of 'Cookies' and after the introduction of the eight digit tariff heading, with effect from 1.3.2005, the dough was brought under specific tariff entry under 19012000 as 'mixes and dough for the preparation of baker wares of heading 1905' attracting excise duty at the rate of 16% and education cess @ 2% on such excise duty; that the assessee manufactures the dough in their factory premises and for storage purposes they send the same in a packed condition to deep freezer, transported through cold storage vehicle (for storage at minus 20 degrees centigrade) to M/s.Snowman Frozen Foods Ltd., Sriperambadur Taluk of Kancheepuram District; that the goods have been cleared to their cold storage under a letter marked 'to whomsoever it may concern' wherein the details of the goods being despatched have been annexed; that the assessee has not raised proper documents like https://hcservices.ecourts.gov.in/hcservices/ delivery challan for movement of these goods; that the assessee also did not inform the Department nor did he obtain necessary permission for storage of non-duty paid excisable goods outside the factory premises (godown/cold storage); that the dough, whenever necessary, is brought back to the factory for baking or sent to the own outlets of the assessee or sold to their franchisees for use in the manufacture of cookies; that the assessee has cleared the dough to their franchisee/outlets under invoices without payment of duty and this fact of clearance of dough, without payment of duty, has not been reflected in their ER-1 returns filed and thus the assessee suppressed the fact of clearance of dough to their outlets/franchisee. 4. It is the further case of the Revenue that during the course of investigation, the assessee furnished a detailed worksheet showing clearance of dough from March, 2005 to December, 2005, the quantity and the value cumulated based on the invoices raised during the period; that the said figures represented the month-wise value of dough cleared to their franchisees such as M/s.Soniraj Confectionary, M/s.Mom's Delight, M/s.SSR Foods and to their own outlet at Spencer's Plaza, Chennai and Mumbai; that the investigation conducted has revealed that the assessee has manufactured and cleared a total quantity of 2,20,813 kgs. of dough to the extent of value of Rs.1,49,04,162/= without payment of duty during the period from March, 2005 to December, 2005 to their various franchisees and their outlets. 5. The further case of the Revenue is that the assesseee has availed CENVAT Credit from April, 2005 onwards for the inputs and packing materials used for packing of their final products viz. 'Cookies'; that the scrutiny of the records of the assessee has revealed that during the period from 1.4.2005 to 28.2.2006, the assessee has cleared various CENVAT availed packaging materials without expunging the credits involved thereon amounting to Rs.3,17,323/=. 6. The further case of the Revenue is that the assessee has cleared their final products viz. 'Cookies' to M/s.Taj Group of Hotels; M/s.GRT Grand Hotels, M/s.Jet Airways etc. in bulk based on specific contract with each of the parties; that these institutional customers are not selling these cookies, but are supplying the same to their customers free for consumption; that the assessee knowing very well that these goods were sold in bulk, and are not meant for retail sale and also no Maximum Retail Price (MRP) was mentioned on the packages and thus are not covered under Section 4-A of the Central Excise Act, 1944, but, in order to avail the benefit of 35% abatement on the purchase order value of the cookies, he has mis- declared the contract (purchase order) price of cookies as MRP and availed the said abatement, instead of adopting 'Transaction value' https://hcservices.ecourts.gov.in/hcservices/ under Section 4 of the Central Excise Act; that the differential duty payable on this count for the clearances effected during the period from February 2004 to April 2006 comes to Rs.7,04.697/= and cess Rs.14,094/= and during the course of investigation, the assessee admitted the same and also furnished a detailed worksheet showing the goods cleared and the duty involved thereon, by their letter dated 12.5.2006 and 31.5.2006. According to the Revenue, the sales value mentioned in the worksheet is inclusive of all taxes such as Sales Tax, surcharge on sales tax, excise duty, education cess; that assessable value has been arrived at from the sales value after deducting the sales tax and surcharge on sales tax for local sales and sales tax for outstation sales and after deducting excise duty and cess from 1.7.2004 onwards, the assessable value has been arrived at and in total the duty payable for the entire period from 1.2.2004 to 30.4.2006 was worked out at Rs.7,04,697/= and cess at Rs.14,094/=. 7. On the above said imputations, the assessee was issued with a show-cause notice dated 31.7.2006 requiring the assessee to show- cause, within 30 days from the date of receipt of the notice, why action should not be initiated against them and it has also been mentioned therein that '... or having shown cause if they do not appear for personal hearing when the case is posted for hearing before the adjudicating authority, the case will be decided exparte on the basis of evidences available on record.' 8. However, without giving any explanation to this show-cause notice, the assessee straight away approached the second respondent Commission. By the time the assessee approached the second respondent Commission, the assessee has paid the duties regarding the dough clearance and the important question that was left for consideration before the second respondent/Commission was 'whether the assessee is entitled to claim benefits under Section 4-A of the Central Excise Act, as has been claimed by him?' 9. Since the second respondent/Commission has upheld the contention of the assessee that he is entitled for the benefits under Section 4-A of the Central Excise Act, aggrieved, the Revenue has filed W.P.No.11028 of 2007 before this Court and as the learned single Judge of this Court has allowed the said writ petition, thereby setting aside the order passed by the second respondent Commission, the assessee has come forward to prefer this writ appeal. 10. Heard Mr.Aravind P.Duttar, learned senior counsel appearing for the appellant and Mr.K.Ravichandra Babu, learned Senior Central Government Standing Counsel appearing for the first respondent/Revenue. 11. Since the assessee has already paid the duty regarding the dough clearance, as has been claimed by the Revenue in the show-cause https://hcservices.ecourts.gov.in/hcservices/ notice, the issue that has now been required to be decided by us is regarding the levy of duty payable on the wholesale price of cookies and whether the assessee is eligible to avail the benefits under Section 4-A of the Central Excise Act. 12. As has already been observed supra, the assessee, on receipt of the show-cause notice, instead of submitting his explanation to the same, has straight away approached the second respondent Commission, which has been found fault with by the Revenue. 13. Section 32-E of the Central Excise Act deals with 'Application for settlement of cases'. For better appreciation, we shall now extract Section 32-E of the Central Excise Act, which reads as follows: "32-E Application for settlement of cases - (1) An assessee may, at any stage of a case relating to him make an application in such form and in such manner as may be prescribed, and containing a full and true disclosure of his duty or liability which has not been disclosed before the Central Excise Officer having jurisdiction, the manner in which such liability has been derived, the additional amount of excise duty accepted to be payable by him and such other particulars as may be prescribed including the particulars of such excisable goods in respect of which he admits short levy on account of misclassification or otherwise of such excisable goods, to the Settlement Commission to have the case settled and any such application shall be disposed of in the manner hereinafter provided: Provided that no such application shall be made unless, - (a) the applicant has filed returns showing production, clearance and central excise duty paid in the prescribed manner; (b) a show cause notice for recovery of duty issued by the Central Excise Officer has been received by the applicant; and (c) the additional amount of duty accepted by the applicant in this application exceeds two lakh rupees: Provided further that application shall be entertained by the Settlement Commission under this sub-section in cases which are pending with the Appellate Tribunal or any Court: Provided also that no application under this sub- section shall be made for the interpretation of the classification of excisable goods under the Central Excise Tariff Act, 1985 (5 of 1986). (2) Where any excisable goods, books of account, other https://hcservices.ecourts.gov.in/hcservices/ documents have been seized under the provisions of this Act or rules made thereunder, the assessee shall not be entitled to make an application under sub-section (1), before the expiry of one hundred and eighty days from the date of the seizure. (3) Every application made under sub-section (1) shall be accompanied by such fees as may be prescribed. (4) An application made under sub-section (1) shall not be allowed to be withdrawn by the applicant." 14. From this Section, it is seen that the assessee may approach the Settlement Commission, before adjudication to settle the case, disclosing his duty liability which has not been disclosed by him before the Central Excise Officer. But, it nowhere provides that the assessee could approach the Settlement Commission, regarding a disputed question, particularly regarding a disputed question of fact and law as to the applicability of a provision of law, like the one in hand wherein the issue centres around the applicability of whether Section 4 or Section 4-A of the Central Excise Act. Though the assessee has admitted the short levy on dough and paid the duty thereof, since he is raking up the plea that he is eligible to claim benefits under Section 4-A of the Central Excise Act instead of Section 4, that point goes out of the jurisdiction of the Settlement Commission, since it has not been vested with the power to decide such a question of direct assessment. By such an act, the Settlement Commission has usurped the jurisdiction of the adjudicating authorities and as has been rightly commented on the part of the Revenue, by the impugned order, the Settlement Commission has set a bad precedent. 15. Even if it is presumed, without accepting, that the Settlement Commission has been vested with such powers, a prescribed procedure has been mandated under Section 32-F of the Central Excise Act to be adopted by the Settlement Commission after receipt of an application under Section 32-E of the Central Excise Act. Section 32-F of the Central Excise Act has been amended w.e.f. 1.6.2007 and since the dispute arose well prior to the said amendment, Section 32-F as it stood then has to be considered, which is extracted hereunder for better appreciation: "32-F. Procedure on receipt of an application under Section 32-E: (1) On receipt of an application under sub-section (1) of Section 32-E, the Settlement Commission shall call for a report from the Commissioner of Central Excise having jurisdiction and on the basis of the materials contained in such report and having regard to the nature and circumstances of the case or the complexity of the investigation involved therein, the Settlement Commission https://hcservices.ecourts.gov.in/hcservices/ may, by order, allow the application to be proceeded with or reject the application: Provided that an application shall not be rejected under this sub-section, unless an opportunity has been given to the applicant of being heard: Provided further that the Commissioner of Central Excise shall furnish such report within a period of one month of the receipt of the communication from the Settlement Commission, failing which it shall be presumed that the Commissioner of Central Excise has no objection to such application; but he may raise objections at the time of hearing fixed by the Settlement Commission for admission of the application and the date of such hearing shall be communicated by the Settlement Commission to the applicant and the Commissioner of Central Excise within a period not exceeding two months from the date of receipt of such application, unless the presiding officer of the Bench extends the time, recording the reasons in writing. (2) A copy of every order under sub-section (1) shall be sent to the applicant and to the Commissioner of Central Excise having jurisdiction. (3) Subject to the provisions of sub-section (4), the applicant shall within thirty days of the receipt of a copy of the order under sub-section (1) allowing the application to be proceeded with, pay the amount of additional duty admitted by him as payable and shall furnish proof of such payment to the Settlement Commission. (4) If the Settlement Commission is satisfied, on an application made in this behalf by the assessee that he is unable for good and sufficient reasons to pay the amount referred to in sub-section (3), within the time specified in that sub-section, it may extend the time for payment of the amount which remains unpaid or allow payment thereof by instalments, if the assessee furnishes adequate security for the payment thereof. (5) Where the additional amount of duty referred to in sub-section (3) is not paid by the assessee within the time specified or extended period, as the case may be, the Settlement Commission may direct that the amount which remains unpaid, together with simple interest at the rate of eighteen per cent per annum or at the rate notified by the Central Board of Excise and Customs from time to time on the amount remaining unpaid, be recovered, as the sum due to Central Government by the Central Excise Officer having jurisdiction over the assessee in accordance with the provisions of Section 11. (6) Where an application is allowed to be proceeded with https://hcservices.ecourts.gov.in/hcservices/ under sub-section (1), the Settlement Commission may call for the relevant records from the Commissioner of Central Excise having jurisdiction and after examination of such records, if the Settlement Commission is of the opinion that any further inquiry or investigation in the matter is necessary, it may direct the Commissioner (Investigation) to make or cause to be made such further inquiry or investigation and furnish a report on the matters covered by the application and any other matter relating to the case. (7) After examination of the records and the report of the Commissioner of Central Excise received under sub-section (1), and the report, if any, of the Commissioner (Investigation) of the Settlement Commission under sub- section (6), and after giving an opportunity to the applicant and to the Commissioner of Central Excise having jurisdiction to be heard, either in person or through a representative duly authorised in this behalf, and after examining such further evidence as may be placed before it or obtained by it, the Settlement Commission may, in accordance with the provisions of this Act, pass such order as it thinks fit on the matters covered by the application and any other matter relating to the case not covered by the application, but referred to in the report of the Commissioner of Central Excise and Commissioner (Investigation) under sub-section (1) or sub-section (6). (8) Subject to the provisions of Section 32-A, the materials brought on record before the Settlement Commission shall be considered by the Members of the Bench concerned before passing any order under sub-section (7) and, in relation to the passing of such order, the provisions of Section 32-D shall apply. (9) Every order passed under sub-section (7) shall provide for the terms of settlement including any demand by way of duty, penalty or interest, the manner in which any sums due under the settlement shall be paid and all other matters to make the settlement effective and shall also provide that the settlement shall be void if it is subsequently found by the Settlement Commission that it has been obtained by fraud, or misrepresentation of facts. (10) Where any duty payable in pursuance of an order under sub-section (7) is not paid by the assessee within thirty days of the receipt of a copy of the order by him, then, whether or not the Settlement Commission has extended the time for payment of such duty or has allowed payment thereof by instalments, the assessee shall be liable to pay simple interest at the rate of eighteen per cent per annum or at such other rate as notified by the Central https://hcservices.ecourts.gov.in/hcservices/ Board of Excise and Customs on the amount remaining unpaid from the date of expiry of the period of thirty days aforesaid. (11) Where a settlement becomes void as provided under sub-section (9) the proceedings with respect to the matters covered by the settlement shall be deemed to have been revived from the stage at which the application was allowed to be proceeded with by the Settlement Commission and the Central Excise Officer having jurisdiction may, notwithstanding anything contained in any other provision of this Act, complete such proceedings at any time before the expiry of two years from the date of the receipt of communication that the settlement became void." 16. Thus, a specific procedure to be followed by the Settlement Commission has been contemplated under this Section, upon receiving an application under Section 32E(1) of the Act. From the materials placed on record it is seen that to the application dated 25.9.2006 filed by the assessee, the first respondent/Department has forwarded their para-wise remarks on 30.10.2006, wherein in para No.8, the Revenue has submitted as follows: "It appears that the assessee is making the valuation aspect of the issue only to score ineligible leverage and also to delay the proceedings. If the assessee is genuinely having a point over the valuation aspect, then, he should have waited for the completion of adjudication proceedings where he should have sought for remedy since it is strongly felt that under the proceedings of Honourable Settlement Commission, it is only a remedial forum after having accepted the allegations in the Show Cause Notice and it cannot entertain an issue contesting the allegations in the Show Cause Notice. On the above point, it is felt that the impugned application of the assessee filed before the Settlement Commission merits no consideration and falls outside the scope of the Hon'ble Settlement Commission and deserves rejection." 17. But, this specific question regarding the jurisdiction of the Settlement Commission has not at all been considered by the Settlement Commission in its order dated 6.12.2006. The said order of the Settlement Commission, made available from page No.32 of the typed set, clearly shows that the same has been passed at the stage of admission since it bears the caption 'admission-cum-final order No.66/2006-C.Ex.' 18. It is the settled legal position that in any proceeding if a question of jurisdiction of the authority deciding the issue is raised, prior to dealing with other issues involved, the question of https://hcservices.ecourts.gov.in/hcservices/ jurisdiction must be dealt with as a preliminary issue by the authorities. But, in the case on hand, the Settlement Commission, which has been established as a quasi-judicial body under the Statute, has proceeded to deal with an aspect which is completely out of its purview and jurisdiction. 19. At this juncture, we feel it apt to quote the rulings of the Honourable Supreme Court on the aspect of jurisdiction. In Arun Kumar v. Union of India [(2007) 1 SCC 732] the Honourable Apex Court has held: “74. A ‘jurisdictional fact’ is a fact which must exist before a court, tribunal or an authority assumes jurisdiction over a particular matter. A jurisdictional fact is one on existence or non-existence of which depends jurisdiction of a court, a tribunal or an authority. It is the fact upon which an administrative agency’s power to act depends. If the jurisdictional fact does not exist, the court, authority or officer cannot act. If a court or authority wrongly assumes the existence of such fact, the order can be questioned by a writ of certiorari. The underlying principle is that by erroneously assuming existence of such jurisdictional fact, no authority can confer upon itself jurisdiction which it otherwise does not possess.” It was further observed: “76. The existence of jurisdictional fact is thus sine qua non or condition precedent for the exercise of power by a court of limited jurisdiction.” Drawing the distinction between “jurisdictional fact” and “adjudicatory fact”, the Honourable Apex Court has held in the above judgment as follows: “84. … it is clear that existence of ‘jurisdictional fact’ is sine qua non for the exercise of power. If the jurisdictional fact exists, the authority can proceed with the case and take an appropriate decision in accordance with law. Once the authority has jurisdiction in the matter on existence of ‘jurisdictional fact’, it can decide the ‘fact in issue’ or ‘adjudicatory fact’. A wrong decision on ‘fact in issue’ or on ‘adjudicatory fact’ would not make the decision of the authority without jurisdiction or vulnerable provided essential or fundamental fact as to existence of jurisdiction is present.” https://hcservices.ecourts.gov.in/hcservices/ 20. This principle was reiterated in Carona Ltd. v. Parvathy Swaminathan & Sons [(2007) 8 SCC 559] and in Ramesh Chandra Sankla v. Vikram Cement, [(2008) 14 SCC 58]. Applying the above principles enunciated by the Honourable Apex Court to the case on hand, we have no hesitation to hold that the second respondent/Commission has proceeded to decide a question without there being any jurisdiction conferred on it and thus, the order passed by the second respondent/Commission is bad in law. Though, on this short