SCA/7640/2008 1/15 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 7640 of 2008 With MISC.CIVIL APPLICATION No. 1708 of 2008 For Approval and Signature: HONOURABLE THE ACTING CHIEF JUSTICE MR. M.S.SHAH Sd/- HONOURABLE MR.JUSTICE D.H.WAGHELA Sd/- ========================================= = 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ========================================= = TRISUN CHEMICAL INDUSTRIES LTD - Petitioner(s) Versus UNION OF INDIA THROUGH SECRETARY & 2 - Respondent(s) ========================================= = Appearance : MR V SRIDHARAN with MR BL NARASIMHAN with MR ABHISKEJ ANAND for Petitioner : 1, MR HARIN P RAVAL for Respondents : 1, 3, None for Respondent(s) : 2, ========================================= = CORAM : HONOURABLE THE ACTING CHIEF JUSTICE MR. M.S.SHAH and SCA/7640/2008 2/15 JUDGMENT HONOURABLE MR.JUSTICE D.H.WAGHELA Date : 06/08/2008 CAV JUDGMENT (Per : HON'BLE MR JUSTICE MR. D.H.WAGHELA) 1. The petitioner has invoked Article 226 of the Constitution with the prayer to set aside orders dated 30.08.2007 and 10.12.2007 of the Customs, Excise & Service Tax Appellate Tribunal, West Zonal Bench, Ahmedabad ("CESTAT" for short) and order-in-original dated 30.03.2007 of the Commissioner of Customs, Kandla ("the Commissioner" for short). By the latter order, the Commissioner has, inter alia, confirmed demand for duty amounting to Rs.201,80,46,133/- under sections 3 (1) and 11-A of the Central Excise Act, 1944 and imposed penalty of the like amount; also confirmed demand for duty amounting to Rs.1,05,17,210/- under the proviso to section 28 of the Customs Act, 1962, imposed penalty of the like amount and imposed penalties upon several companies and individuals on various other counts. Challenging that order-in-original before CESTAT in appeal, the petitioner has also filed application for stay with prayers not to insist upon pre-deposit of duty, interest and penalty, and such applications are partly allowed by CESTAT by the impugned order dated 30.08.2007. Application for modification of that order is dismissed by the order dated 10.12.2007. Thus, the main prayer in the present petition is for a direction to CESTAT to hear and decide the petitioner's appeal without insisting upon any pre-deposit, even as it was directed by the order dated 30.08.2007 to deposit only 15% of the duty demanded SCA/7640/2008 3/15 JUDGMENT from them within 12 weeks and, subject to pre-deposit of that amount, balance duty demanded and penalties imposed were waived and recovery thereof was stayed. In view of high stakes of revenue involved, the appeals were ordered to be taken up on 28.11.2007. Admittedly, even after dismissal on 10.12.2007 of the modification application of the petitioner, 15% of the duty demanded were not deposited; and even 10% of the duty amount required to be deposited as condition precedent for the ad-interim relief granted herein were not paid, due to which, no stay or ad-interim relief operates in favour of the petitioner, as clarified by order dated 16.06.2008. After the last impugned order dated 10.12.2007, the present petition was moved for urgent orders on the last working day before commencement of summer vacation and, therefore, hearing of the petition was adjourned to 16.06.2008 after granting interim stay of coercive recovery on condition of depositing within two weeks 10% of the duty amount, which was also not deposited. 2. The main contention on behalf of the petitioner, strenuously canvassed before this court, was that the petitioner was a bona fide exporter of castor oil produced from indigenous raw material on which no duty was payable and, in view of its financial sickness, it was not possible for them to deposit even 15% or 10% of the duty amount for having its appeal heard and decided on merits. 3. According to the petition, the petitioner had established its unit in Kandla Free Trace Zone ("KFTZ" for short) without availing any benefit of customs duty in respect of the capital goods and had utilized only indigenously produced raw material for the goods produced for export. It SCA/7640/2008 4/15 JUDGMENT had set up in the year 1995 another unit at Bhachau in the domestic tariff area (DTA) for the same purpose of extraction of oil for export. It had earned net foreign exchange of Rs.641 crores in the period of last five years without availing any benefit of any kind in setting up the unit or procuring raw material. The export was either by removing oil directly to the port or mostly after storing in tank near jetti notified for loading and unloading of liquid cargo. In short, all the operations for export were under the surveillance of customs authorities and independent surveyors and, during the relevant period, the company had exported goods worth more than Rs.600 crores out of which goods of the value of Rs.300 crores were exported from the zone under physical control of the department. 3.1 Various premises of the petitioner were searched on 12.01.2004 by officers of Directorate of Revenue Intelligence and several statements were recorded and panchnamas were drawn. Pursuant thereto, show cause notice dated 27.07.2004 was issued and communications had ensued. After affording to the petitioner reasonable opportunities of being heard, the first impugned order-in-original dated 30.03.2007 was made by the Commissioner. 3.2 According to the aforesaid elaborate impugned order dated 30.03.2007 of the Commissioner, admittedly, both the units of the petitioner produced castor oil intended for export and, by arrangement with tank owners, goods were unloaded into a common tank which was not bonded and no separate accounts showing unit-wise receipt of castor oil from one or the other unit were maintained. The proprietor of the transporter firm had admitted that blank lorry receipt books SCA/7640/2008 5/15 JUDGMENT were given to both the units. The Bhachau unit of the petitioner was always in a position to clear the goods meant for export and load them in lorries and bring them to the common storage tank where they lost their identity and the goods produced by both the units were cleared for export as goods of "TCIL". The unit within the zone used to make payment for raw materials received by Bhachau unit and applications for obtaining DEPB licences were made in the common name of TCIL. 3.3 As for demand of duty amounting to Rs.19,30,85,283/- on 5814.710 MT of castor oil valued at Rs.17,24,52,308.00 on account of clandestine removal of castor oil in excess of the quantity shown in transshipment permit (TP) during the period from August 1999 to March 2002, it was observed that the quantity entered in the despatch register maintained by the unit exceeded the quantity shown in the TP. According to the statement of transporter, actual quantity transported against several TPs was more than the quantity shown therein. The Commissioner found sufficient evidence to show that excess goods were removed by the zone unit from bonded premises of the zone in a clandestine manner, without payment of duty, for which no documents were filed. Thus, above quantity of goods was found to have been removed in contravention of the relevant Central Excise Rules and held to be liable for confiscation. 3.4 As for demand of duty amounting to Rs.163,44,63,995/- on 40476.400 MT castor oil valued at Rs.168,96,88,466/- on account of removal of castor oil after sailing of vessels corresponding to which shipping bills were SCA/7640/2008 6/15 JUDGMENT filed during the period from August 1999 to December 2003, it was alleged that goods were removed from the zone on the strength of AR.4/TP without preparing shipping bills. In such AR.4/TP, details of shipping bills were also not mentioned and hence no co-relation between AR.4/TP and shipping bills could be established for ascertaining actual export of goods removed under AR.4/TP, particularly when such indigenous goods were also purchased and exported. It was found by the Commissioner that undisputably castor oil was removed from the zone by filing AR.4/TP for export even while the vessels through which export was meant had sailed off. The allegation that AR.4/TP was prepared without giving any reference of the shipping bill through which goods would cross the customs barrier was not rebutted by the petitioner. The entire scheme of dealing with the goods, once they were removed by either of the units, was clearly intended to ensure that nobody was in a position to ascertain the origin of such goods. Thus, in short, it was found that the petitioner had removed goods from the zone for export with a view to earn DEPB benefit even if the goods were produced at either of the petitioner's units. 3.5 As for demand of duty amounting to Rs.13,52,72,384/- on 4574.640 MT castor oil valued at Rs.13,78,28,121/- on account of removal of castor oil under AR.4 without filing any corresponding shipping bill during the period from August 1999 to December 2003, it was urged before the Commissioner by the petitioner that the goods may be treated as export by Bhachau unit. That plea was found to be not acceptable in absence of any enabling provision to cover up the legal anomaly. SCA/7640/2008 7/15 JUDGMENT 3.6 As for the proposal for confiscation of 61,151 MT castor oil valued at Rs.199,88,47,462/- entered for export by TCIL and 5045 MT castor oil (FSG) valued at Rs.13,59,12,284/- entered for export at TCIL (B) by mis-declaring for export and demand of duty amounting to Rs.40,76,058/- equal to DEPB credit, it was found that false declarations were made in the shipping bills and forged bills of lading were prepared by the petitioner. The DEPB licences so obtained were transferred to different importers who utilized them against clearance of imported goods. Therefore, demands for duty were confirmed by invoking proviso to section 28 (1) of the Customs Act, 1962. 3.7 Similarly, 852.759 MT Bleaching Earth valued at Rs.1,63,40,284/- was held to be liable to confiscation under section 111 (o) of the Customs Act, 1962 and payment of duty amounting to Rs.1,05,17,210/- was also upheld in terms of the proviso to section 28 (1) of the Customs Act, 1962. And, demand of import duty amounting to Rs.2,59,33,522/- equal to DEPB credit fraudulently earned by the petitioner was also confirmed by invoking the proviso to section 28 (1) of the Customs Act, 1962. 3.8 Having regard to the deliberate, clandestine and illegal removal of excess quantity of goods by the petitioner partly admitted in their own statements by director and officers of the company, they were also found to be liable for penal action. 4. In view of the above salient features of the impugned order of the Commissioner, CESTAT recorded in its impugned order dated 30.08.2007 that, while clearances from SCA/7640/2008 8/15 JUDGMENT TCIL (zone) unit were with the knowledge and approval of the customs officers, it was not shown that there was similar contraventions in respect of the clearances made from the domestic unit and, therefore, details of actual export by both the units had to be examined in detail. However, certain claims of export based upon bogus bills of lading cast serious doubts about genuineness of such exports. Major discrepancies arising from the documents showing loading of consignments on the vessel even before its arrival or such loading after the vessel having left the port were not properly explained by the petitioner. It was, however, prima facie, found that duty demand of Rs.13.5 crores may not be sustainable on account of contradictory stand of the department and that DEPB licence was not shown to have been cancelled by the DGFT authorities. In view of such prima facie findings, the petitioner was held to have not made out a strong prima facie case for total waiver of the dues as per the order-in-original. But, taking into account the financial hardship, the petitioner was directed to deposit 15% of the duty demanded from them; and subject to such pre-deposit, balance duty and penalties were waived and recovery thereof was stayed. 5. It was stated at the bar that, due to failure of the petitioner in making pre-deposit, recoveries were being made by attaching properties of the petitioner, even as the petitioner had made fresh applications for being registered and recognized as a sick unit before BIFR after rejection of its first application on the grounds, inter alia, of acts of misappropriation and mis-representation by the company. A grievance is also made by filing an additional affidavit of the director of the petitioner company stating that their entire SCA/7640/2008 9/15 JUDGMENT factory in the zone, including plant and machinery, worth Rs.7.22 crores, are under detention of the customs authorities and they are not permitted to effect any export clearances of the goods for third parties on job-work basis, which was seriously hampering their functioning and the livelihood of more than 150 workers employed in the factory. 6. Learned counsel for the petitioner vehemently argued that the entire basis of the main demand of duty of Rs.163,44,63,995/- was that both the units of the petitioner were storing the goods in a common storage tank prior to export and the petitioner was not able to co-relate the exact transport document with the corresponding shipping bill. There was no positive evidence of any sale in the domestic market. He submitted that analysis of details of the goods removed from the zone unit and the DTA unit would show that actual quantity exported had exceeded the total quantity removed as per the transport documents and the difference for the entire period came to 39,702.26 MT. The entire quantity of castor oil removed from the zone unit and the DTA unit were exported, though allegedly not unloaded in Russia, but diverted to other countries. But castor oil having never been chargeable to excise duty, there could not be any cause for diversion, according to the submission. It was emphasized that, while raising the demand of Rs.163 crores, the department had itself chosen to take the value of goods from the export documents and hence it cannot dispute the factum of export. It was further submitted that the burden was upon the revenue to establish that excisable goods alleged to have been produced or manufactured in special economic zone and cleared as such was brought to any other place in India. The petitioner had not SCA/7640/2008 10/15 JUDGMENT availed any customs duty or excise duty benefits either in the zone unit or in the dutiable area. Thus, the proviso to section 3 of the Central Excise Act was used as an oppressive tool to demand 100% customs duty on the castor oil produced in India even though no benefit of customs duty or excise duty on the imports or local procurement was availed by the petitioner. It was further submitted that, prior to 01.04.2002, the Export- Import Policy did not prohibit availment of DEPB by the zone unit. The presentation to the bank of forged bills of lading showing exports to Russia amounted to violation of various circulars issued by the Reserve Bank of India and did not have anything to do with demand of duty, according to the submission. As for financial hardship, it was submitted that net worth of the petitioner was in the negative as per audited balance sheet as on 31.3.2007 and the company was again registered with B.I.F.R. for being declared as sick. 6.1 Learned counsel for the petitioner relied upon order dated 07.03.2007 of the Supreme Court in Sagarika Acoustronics Pvt. Ltd. v. Union of India pointing out the direction to the Tribunal that it should record its findings regarding the net worth of the company and, if it were found to be negative, it should re-consider restoration of the appeal. It was submitted that total plant and machinery of both the units of the petitioner worth Rs.22.47 crore have already been detained and attached and the petitioner had no objection to the attachment being continued till disposal of the appeal. However, it was not possible for the petitioner to comply with the condition of pre-deposit of 15%. 7. By filing an affidavit of Specified Officer of Customs, SCA/7640/2008 11/15 JUDGMENT KSEZ, it is submitted for the respondent that the petition under Article 226 of the Constitution was not maintainable as the petitioner had availed of statutory alternative efficacious remedy wherein only a discretionary order granting interim relief in favour of the petitioner was made. It was after receipt of intelligence about various irregularities, detailed investigation and recording of statements under section 108 of the Customs Act that show cause notice dated 27.7.2004 was issued to both the units of the petitioner. The petitioner had initially suppressed details of that notice. It is submitted that the Tribunal has specifically held that the petitioner's unit did not have strong prima facie case for total waiver of dues as per the order-in-original. Considering the financial hardship and other contentions of the petitioner, substantial relief was granted after considering the contentions of the petitioner. However, in respect of the demand related to the period from August 1999 to March 2002, the petitioner had prolonged the proceedings and, instead of complying with the direction of the Tribunal, it had only filed a modification application, in which again the Tribunal had extended time for pre-deposit upto 21.1.2008. Thereafter, even though the petition was prepared in January 2008, it was not moved immediately but moved for urgent orders only on 16.5.2008. The ad-interim relief granted by this Court on that day was also not availed by the petitioner by depositing even 10% of the duty amount within two weeks. While pursuing the present proceeding since 16.5.2008, the petitioner had filed another application for modification in Customs Appeal No.3/C/294/07 and that fact was suppressed from this Court. 7.1 It was submitted by learned Assistant Solicitor SCA/7640/2008 12/15 JUDGMENT General Mr.H.P.Raval that the facts found during investigation and discussed in the order-in-original of the Commissioner clearly reveal that the petitioner had masterminded a modus operandi for clearing of castor oil produced in their KSEZ unit without valid permission and without payment of duty; and resorted to forgery of documents to claim exports to Russia. There were huge discrepancies in the documents related to exports and DEPB licences were fraudulently obtained by the petitioner by mis-declaring to DGFT authorities that the export was made to Russia while some companies in Russia to which the exports were claimed to have been made were found to be not even in existence. There was clandestine and illegal removal of 40476.400 MT of goods valued at Rs.163,44,63,995/- during August 1999 to December 2003 from KSEZ unit of the petitioner much before and after sailing of vessel for shipment on which the oil was claimed to have been exported. It was claimed on behalf of the petitioner that all such castor oil cleared after the date of sailing of the ship, which was declared as the vessel for export, was subsequently exported on other vessels; but no such evidence was found or produced. 7.2 Mr.Raval further submitted that balance sheet of the petitioner indicated that the company had been each year making sales to local markets. The company had removed castor oil in an indiscriminate manner by resorting to various irregularities. 7.3 Mr.Raval also submitted that waiver of pre-deposit is only an exception since, in view of the provisions of section 129-E of the Customs Act, it is mandatory that duty and SCA/7640/2008 13/15 JUDGMENT interest demanded in respect of goods which are not under the control of Customs authorities, have to be deposited. The allegation of violation of principles of natural justice was elaborately considered by the Tribunal at the time of disposal of the modification application. He submitted that the ground of sickness and financial hardship was not available to the petitioner as the petitioner had approached B.I.F.R. only with a view to seeking protection under the Sick Industrial Companies Act and the reference was rejected by order dated 8.11.2005 after noting that the company was not able to effectively rebut the charge relating to speculative losses and acts of misappropriation and mis-representation were resorted to by the company with a view to getting itself registered with the B.I.F.R. in order to avoid financial obligations under the law. 8. Having heard learned counsel appearing on both sides and upon perusal of the elaborate written submissions, it was clear that, prima facie, there were various anomalies and discrepancies in the claims of export made by the petitioner and huge quantities of castor oil was removed without being properly accounted for in the related documents and records required to be maintained under the law. There is prima facie evidence of excess removal of goods and contradictory stand of exporting excess goods as well as removing excess quantities in the domestic market. In that view of the matter, all the demands of duty, interest and penalties are not without any substance and the Tribunal was justified in recording the finding that the petitioner had failed to establish a good prima facie case. As for the financial hardship, only pendency of a fresh application before BIFR after rejection of the earlier one with strictures would not be sufficient to assume that the SCA/7640/2008 14/15 JUDGMENT petitioner is a sick company. 9. As recently held by the Supreme Court in Benara Valves Ltd. & Others v. Commissioner of Central Excise & Another [(2006) 13 SCC 347] and Indu Nissan Oxo Chemicals Industries Ltd. v. Union of India [2008 (221) E.L.T. 7 (SC): "...Undue hardship means something which is not merited by the conduct of the claimant, or is very much disproportionate to it. Undue hardship is caused when the hardship is not warranted by the circumstances. For a hardship to be "undue", it must be shown that the particular burden to observe or perform the requirement is out of proportion to the nature of the requirement itself, and the benefit which the applicant would derive from compliance with it. While dealing with an application for waiving pre-deposit, twin requirements of considering undue hardship and conditions to safeguard the interests of Revenue have to be kept in view". As held in Union of India v. Adani Exports Ltd. [2007 (218) ELT 164 (SC), while dealing with challenge to an order relating to pre-deposit, the High Court would not be justified in going into merits and expressing its view on the subject-matter in appeal before the Tribunal. 10. Having regard to the huge liability imposed upon the petitioner by the order-in-original and even 15% of the demand of duty being an amount larger than the total assets of the company as also in view of the statement at the bar that, with co-operation of the parties, the appeal could be heard and disposed by the Tribunal within a short time and in view of the other reliefs already granted by the Tribunal, we deem it just and proper to modify the impugned order of pre- deposit by the order as under: SCA/7640/2008 15/15 JUDGMENT (a) The impugned order dated 30.8.2007 shall stand modified to the extent that, instead of 15%, the petitioner shall be required to deposit 10% of the duty amount on or before 30.08.2008; (b) The parties shall appear before the Tribunal on such date as may be fixed by the Tribunal, on or before 30.08.2008; and (c) If the amount is deposited as aforesaid, the Tribunal shall take up for hearing the appeal of the petitioner, as far as practicable on day-to-day basis, and decide it as expeditiously as practicable. The petition is partly allowed in the above terms and Rule is made absolute accordingly with no order as to costs. The miscellaneous civil application does not survive in view of the order passed in the petition. It accordingly stands disposed. Sd/- ( M.S.Shah, Actg.C.J.) Sd/- ( D.H.Waghela, J.) (KMG Thilake)