IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH Civil Writ Petition No. 15198 of 2003 Date of Decision: 20.5.2010 N.K.Jain ..Petitioner Versus Union of India and others ..Respondents CORAM: HON'BLE MR. JUSTICE MUKUL MUDGAL, CHIEF JUSTICE HON'BLE MR. JUSTICE JASBIR SINGH 1. Whether Reporters of local papers may be allowed to see the judgment? 2. Whether to be referred to the Reporters or not? 3. Whether the judgment should be reported in the Digest? Present: Mr.N.K.Jain, petitioner in person Mr.Rupinder Khosla, Additional Advocate General, Punjab Mr.Kamal Sehgal, Senior Standing Counsel for respondent Nos.7 and 8 Mr.Atul Chitale, Senior Advocate with Mr.Sunil Chadha, Advocate for respondent No.10 Mr.Rajiv Atma Ram, Senior Advocate with Mr.Yashraj Singh Dogra, Advocate for respondent No.11 ____ MUKUL MUDGAL C.J. 1. The present case is a classic example as to how public exchequer can be depleted by nefarious methods by the Civil Writ Petition No. 15198 of 2003 indifference/acquiescence/connivance of the government officials. The private respondents continued to purloin the public money, by not paying amount of tax due, for years together but no action was taken till such time the matter was agitated and raised in the Parliament by its members. Even thereafter, by taking recourse to the technicalities, as contained in the provisions of the Standard of Weights and Measures Act, 1976 (in short 1976 Act) and the Standard of Weights and Measures (Enforcement) Act, 1985 (in short 1985 Act), the private respondents were let off by giving them a very light punishment. Under the pressure of proceedings pending in this Court, for committing default in payment of tax due, licence to manufacture measuring tapes, of private respondent Nos.10 and 11, was cancelled. With a view to get it restored, in appeal they deposited part of the amount claimed by the government without reserving any liberty with them, however, now they have started asking for refund of the same by picking holes in the provisions of 1976 Act. 2. This writ petition is pending in this Court since from the year 2003. It was allegation of the petitioner that private respondent Nos.10 and 11, in connivance with the government officials had failed to pay amount of tax, in crores, which was due on account of non-verification and non- stamping of the measurement tapes. It was further alleged that the private respondents have also committed default in payment of Income Tax and also committed default in paying Sales Tax and Excise and Customs Duty as per norms. It was stated by the petitioner that the private respondents have illegally concealed true and exact figure of production of manufacturing tapes which has resulted into evasion of verification fee payable under the 1976 Act. It was further the allegation of the petitioner that without making payment of the tax due, the private respondents had been adding the amount 2 Civil Writ Petition No. 15198 of 2003 towards tax due in the selling price of the measuring tapes (in short tapes). The amount recovered from the sellers towards tax was never deposited in the exchequer. To say that there is a big difference so far as number of tapes manufactured by the private respondents are concerned, vis-a-vis the number of tapes presented by them for verification and stamping under the 1976 Act reference was made to the balance sheets filed by the private respondent Nos.10 and 11 before the Registrar of Companies at Jalandhar (Annexure P4). 3. In this writ petition, facts and figures have been given regarding manufacture of tapes by the private respondents. Details given by them in their returns submitted before Registrar of the Companies at Jalandhar have been noticed. Further details have been given regarding number of tapes presented for verification by the private respondents before the competent authority under the 1976 Act. Still further facts have been given as to how the private respondents had committed default in not paying Sales Tax, Excise and Custom Duty etc. For this judgment, facts averred against respondent No.11 (M/s FMI Ltd.) will be mentioned. 4. It is also evident from the records that respondent Nos.10 and 11 are the companies managed by one family. The petitioner, after mentioning detail of the provisions of 1976 and 1985 Act has leveled following allegations against respondent No.11:- “32. M/s FMI Ltd.: That in the year 1997, a few family members of Nayars who were running the business of FREEMANS, the respondent No.10, floated another company under the name and style of M/s FMI Limited- respondent No.11, who carried on the same activities of the same business and the style of business also did not change as the previous/ parent company i.e. M/s Freemans Measures Ltd. The said company, since it was being managed by the old and elderly persons who had been instrumental in running the business of Freemans, continued indulging in malpractices of concealment of true and exact production, evasion of Verification & Stamping Fees, Income Tax, Sales Tax, Excise and Custom 3 Civil Writ Petition No. 15198 of 2003 Duty and other Government dues. The petitioner submits a few instances of such misdeeds, acts of omission and commission, and hereby is tendering the following instances and evidence of such illegal activities and acts for the last almost five years since the said company M/s FMI Ltd., came into existence only in the year 1997: (a) As per the balance sheet for the year 1998-99 submitted in the office of Registrar of Companies, Jalandhar, respondent No.11 manufactured 45,02,188 pcs. of measuring tapes out of which 18,68,086 Pcs. were exported. As per their own showing the Excise Duty was paid on the remaining 26,88,622 Pcs. out of which 5,37,724 were the long tapes in the ratio of 20% (when split into length wise 25% 10M + 50% 15M + 25% 30M) and about 21,50,898 were Steel Tapes in the ratio of 80% (when split into length wise 95% Pocket Tape + ½% 10M + ½% 50M + 3% 15M + 1% 30M). But it is most unfortunate that the respondent No.11 concealed the aforesaid figures from the Department of Weights & Measures and shown less number of Measuring Tapes to the aforesaid department. Upon the aforesaid number of Measuring Tapes respondent No.11 paid a sum of Rs.5,59,958.00 as Verification & Stamping Fees to the Department of Weights & Measures whereas the actual amount payable comes to Rs.2,73,56,691.00 (as per their Balance Sheet submitted in Registrar of Companies, Jalandhar) thus, there is an evasion of Rs.2,67,96,733.00 (Rs.Two crores Sixty Eight lac approx.) (b) Likewise the respondent No.11 submitted the balance sheet for the year 1999-2000 in the office of Registrar of Companies, Jalandhar showing that the said respondent had manufactured 42,90,082 Pcs. of measuring Tapes out of which 17,41,682 pcs were shown as exported. As per their own showing the Excise Duty was paid on the remaining 25,81,717 pcs out of which 5,16,343 were the Long Tapes in the ratio of 20% (when split into length wise 25% 10M + 50% 15M + 25% 30M) and about 20,65,374 were Steel Tapes in the ratio of 80% (when split into length wise 95% Pocket Tape + ½% 10M + ½% 50M + 3% 15M + 1% 30M). While acting with malafide and dishonest intentions the respondent No.11 concealed the aforesaid figures from the Department of Weights & Measures and showed less number of Measuring Tapes to the aforesaid department. Upon the aforesaid number of Measuring Tapes respondent No.11 paid a sum of Rs.7,57,203.00 as Verification & Stamping Fees to the Department of Weights & Measures whereas the actual amount payable comes to Rs.2,62,68,998.00 (as per their Balance Sheet submitted in Registrar of Companies, Jalandhar) thus, there is an evasion of Rs.2,55,11,795.00 (Rs.Two crores Fifty Five Lac approx.) 4 Civil Writ Petition No. 15198 of 2003 (c) Next year the Respondent No.11 submitted the balance sheet for the year 2000-01 in the office of Registrar of Companies, Jalandhar showing that it had manufactured 38,84,735 pcs of Measuring Tapes out of which 7,24,626 pcs were shown as exported. As per their own showing the Excise Duty was paid on the remaining 31,68,749 pcs out of which 6,33,750 were the Long Tapes in the ratio of 20% (when split into length wise 25% 10M + 50% 15M + 25% 30M) and about 25,34,999 were Steel Tapes in the ratio of 80% (when split into length wise 95% Pocket Tape + ½% 10M + ½% 50M + 3% 15M + 1% 30M). Again the respondent No.11 with malafide and dishonest intentions concealed the aforesaid figures from the Department of Weights & Measures and showed less number of Measuring Tapes in connivance with the officials of respondent No.6 and the Department of Weights & Measures and paid a sum of Rs.12,39,535.00 as Verification & Stamping Fees whereas the actual amount payable comes to Rs.3,22,41,997.00 (as per their Balance Sheet submitted in Registrar of Companies, Jalandhar) thus, there is an evasion of Rs.3,10,02,462.00 (Rs.Three Crores Ten Lac approx.) (d) That the Respondent No.11 continued in its malpractices of concealment of the true and exact production and submitting the false and incorrect figures to the respondent No.6. The respondent No.11 submitted the balance sheet for the year 2001-02 in the office of Registrar of Companies, Jalandhar showing that it had manufactured 35,32,838 pcs of Measuring Tapes out of which 5,74,003 pcs were shown as exported. As per their own showing the Excise Duty was paid on the remaining 29,87,540 pcs out of which 5,97,508 were the Long Tapes in the ratio of 20% (when split into length wise 25% 10M + 50% 15M + 25% 30M) and about 23,90,032 were Steel Tapes in the ratio of 80% (when split into length wise 95% Pocket Tape + ½% 10M + ½% 50M + 3% 15M + 1% 30M). However, the respondent No.11 with malafide and dishonest intentions concealed the aforesaid figures from the Department of Weights & Measures and showed less number of Measuring Tapes in connivance with the officials of respondent No.6 and paid a sum of Rs.12,68,375.00 (Rupees Twelve Lac Sixty Eight Thousand Three Hundred Seventy Five only) as Verification & Stamping Fee to the Department of Weights & Measures whereas the actual amount payable comes to Rs.3,03,98,197.00 (Rupees Three Crores Three Lac Ninety Eight Thousand One Hundred Ninety Seven only) (as per their Balance Sheet submitted in Registrar of Companies, Jalandhar) thus, there is an evasion of Rs.2,91,29,822.00 (Rs.Two Crores Ninety one Lac Twenty Nine Thousand Eight Hundred Twenty Two only) 5 Civil Writ Petition No. 15198 of 2003 (e) The Respondent No.11 who had been concealing true and exact production since long, indulged and continued in the malpractices of concealment of the true and exact production and submitted the false and incorrect figures to the respondent No.6. The Respondent No.11 submitted the balance sheet for the year 2002-03 in the office of Registrar of Companies, Jalandhar showing that it had manufactured 39,26,798 pcs of Measuring Tapes out of which 6,86,082 pcs were shown as exported. As per their own showing the Excise Duty was paid on the remaining 32,36,419 pcs out of which 6,47,284 were the Long Tapes in the ratio of 20% (when split into length wise 25% 10M + 50% 15M + 25% 30M) and about 25,89,135 were Steel Tapes in the ratio of 80% (when split into length wise 95% Pocket Tape + ½% 10M + ½% 50M + 3% 15M + 1% 30M). But, the respondent No.11 with malafide and dishonest intentions concealed the aforesaid figures from the Department of Weights & Measures and showed less number of Measuring Tapes in connivance with the officials of respondent No.6 and paid a sum of Rs.10,69,340.00 (Rupees Ten Lac Sixty Nine Thousand Three Hundred Forty only) as Verification & Stamping Fees to the Department of Weights & Measures whereas the actual amount payable comes to Rs.3,29,30,478.00 (Rupees Three Crores Twenty Nine Lac Thirty Thousand Four Hundred Seventy Eight only) (as per their Balance Sheet submitted in Registrar of Companies, Jalandhar) thus, there is an evasion of Rs.3,18,61,138.00 (Rs.Three Crores Eighteen Lac Sixty One Thousand One Hundred Thirty Eight only). 5. It was further stated by the petitioner that on a measurement tape upto 15 meters, verification and stamp duty (in short the duty) was payable @ Rs.18.75 each tape and on pocket tapes @ Rs.6.25 each tape. By giving an imaginary figure of manufactured tapes, the petitioner alleged that total evasion of fee/tax, at the instance of respondent No.11, comes to Rs.14,43,01,950, Serious allegations of connivance were leveled against the officers, who were responsible to recover duty under the 1976 Act. To strengthen the aforesaid plea, reference was made to copies of the balance sheets filed by respondent No.11 with the Registrar of Companies at Jalandhar (Annexure P7). Further, it was alleged as under:- 6 Civil Writ Petition No. 15198 of 2003 “40. That the Respondent No.10 & 11 are also exporting their products to various countries and thus getting benefits against such exports viz. duty drawback, exemption from paying the Central Excise Duty @ 16%, exemption from paying the Central Salex Tax @ 10% and certain rebates in Income Tax. It shall not be out of place to mention here that income from the export sale is tax-free and also the Respondent No.10 & 11 are claiming the expenditure over foreign traveling in the name of export promotion; commission on exports are shown having been paid and the rebate/ exemption from paying the Income Tax. Moreover, while importing the Respondent No.10 & 11 are claiming duty drawback and DEPB (Duty Exemption Pass Book) as such benefit of custom duty is taken. In addition to the above, they are charged special concessional rate of bank interest. The petitioner bona-fide believes that the Respondent No.10 & 11 are indulging in malpractice and misusing the above provisions for their selfish gains and causing wrongful loss to the State Exchequer. It is pertinent to mention here that the format of the Sale Invoice for both the Domestic market and Export are different which is not observed by the Respondent No.10 & 11 and the petitioner most respectfully seeks that they both be asked to produce their records so that the amount of total evasion and exemption is arrived. 41. That the respondent No.10 & 11 are claiming that they sell their products within the State, outside the State within the territory of India and Exporting to other countries. It is stated that the export sales are made against Form ‘H’ whereas the local sales i.e. the domestic market sales are made against Form ‘ST XXII’ in case, the same are made within the state of Punjab without charging any Sales Tax. But in the absence of aforesaid declaration form, the Local Salex Tax @ 8% has to be charged and deposited with the Sales Tax Department. In case the sales are made outside the state then Central Sales Tax @ 10% has to be charged/ paid and against Form ‘C’ the Central Sales Tax @ 4% is to be charged/ paid. The Respondent No.10 is indulging in stock transfer to branch and thus evading the payment of Central Sales Tax. In the same manner the Respondent No.10 is indulging in stock transfer against Form ‘F’ and thus not paying any Central Sales Tax. It is respectfully submitted that due to such stock/ branch transfer of stocks there is a huge evasion of Central Sales Tax and Local Sales Tax by Respondent No.10 to 13, which amount the petitioner, presently, is unable to quantify because this practice is continuing for decades together and there is a perpetual loss to the State Exchequer amounting to hundreds of crores of Rupees.” 6. It was further stated that on coming to know about the irregularities committed, a question was raised in the Parliament by its members, whereupon it transpired that even a licence, to manufacture non- 7 Civil Writ Petition No. 15198 of 2003 standard measuring tapes was given to respondent No.11 for a period of six months and thereafter it was extended for a further period of one year. In reply to the questions, it was further stated that selling of non-standard tapes within the country is a violation of the 1976 Act and the 1985 Act. It was further alleged that above said licence was granted to respondent No.11 and 10 subject to the following conditions:- (a) No non-standard tapes manufactured for export purposes shall be sold or otherwise distributed within the territory of India; (b) The firm shall submit to the Central Government, at the end of six months, a statement as to the quantity of non- standard tapes exported by it and the particulars of the persons to whom such exports has been made; (c) The firm shall maintain a monthly record of the number of such non-standard tapes manufactured by it, number of non-standard tapes exported by it and number of non- standard tapes in stock or under production. The records so maintained shall be open to inspection by an officer authorize by the Central Government in this behalf. The firm shall submit to the Central Government, at the end of every six months, a statement as to the quantity of the non-standard tapes exported by it and the particulars of the person to whom such exports have been made; (d) Each of non-standard tapes shall carry a declaration that it is meant “for export purposes only”, and (e) A six monthly statement in the following proforma shall be submitted to the Central Government. 7. It is the allegation of the petitioner that the private respondents failed to comply with the terms and conditions as stipulated above, however, despite that their licence was extended for a further period of one year. In reply to the question put in the Parliament, it was stated that no measurement tape can be put to use unless it is verified and stamped by collecting verification and stamping fee at the spot as per Section 41(7) of the 1976 Act. It was further stated that the aforesaid fee is collected on the basis of type and length of each measuring tape. Further following details 8 Civil Writ Petition No. 15198 of 2003 were given regarding tapes got verified and stamped by respondent Nos.10 and 11:- Period Number of Steel tapes and fibre glass tapes verified in pieces (length varies from 1m to 100m) Verification fees paid in Rupees FMI Ltd. Freeman s Ltd FMI Ltd. Freemans Ltd. 2000-01 135730 154579 1239535 1059835 2001-02 141332 201462 1268375 1434300 2002-03 110612 164412 1069340 1179821 8. It is further stated that again question No.6924 was put by Shri Adhir Chowdhury, Member Parliament, raising the following queries:- (a) the percentage of Central Excise payable on product, measuring tapes (CETSH No.9017-90); (b) the details of the amount of Central Excise duty paid along with the amount CENVAT credit claimed by each manufactures of measuring tapes from Ludhiana and Mumbai during each of the last three years; (c) the details of the quantities manufactured with their assessable value by each of the above manufacturers during each of the last three years; and (d) the details of the quantities cleared/ removed, on payment and without payment of excise duty i.e. under full exemption or lat nil rate of duty for exports separately with their assessable value by each of the above manufacturers during each of the last three years along with the amount of Excise paid on both types of above clearances/ removals? 9. To the said queries, the following answer was given by the Minister of State in the Ministry of Finance:- (a) 16% Advelorum (b) As in Annexure I at (b) (c) As in Annexure I at (c) (d) As in Annexure I at (d) Annexure –I (b) 9 Civil Writ Petition No. 15198 of 2003 S. No. Name of Manufacturer Financia l Year Duty PLA (in Rs. Thousand ) Paid CENVAT (in Rs. Thousad ) Cevat credit claimed (in Rs. Thousand ) 1. M/s Skanan Hardware Pvt. Ltd., Mumbai 2000-01 2001-02 2002-03 363 470 730 1205 1127 1316 1205 1373 1316 2. Freemans Measures Ltd. Ludhiana 2000-01 2001-02 2002-03 9100 10100 9000 6100 6400 9300 7100 7300 8300 3. Festo Measuring Ind. Ltd.,Ludhiana 2000-01 2001-02 2002-03 7900 6900 6000 9400 9800 11500 1100 9300 11100 (c) S. No . Name of Manufacture r Financia l Year Quantity Manufacture d (in Nos.) Assessabl e value (in Rs. Thousand ) 1. M/s Skanan Hardware Pvt. Ltd., Mumbai 2000-01 2001-02 2002-03 1188437 1356397 1319136 13284 17174 15386 2. Freemans Measures Ltd. Ludhiana 2000-01 2001-02 2002-03 3177923 3029109 3447101 105800 110900 125100 3. Festo Measuring Ind. Ltd.,Ludhian a 2000-01 2001-02 2002-03 3884735 3532838 3926798 132600 123600 132700 (d) S. No. Name of Manufacturer Financial Year Quantity cleared on payment of duty Assessabl e value (in Rs. Thousand ) Quantity cleared without payment of duty Assessable value (in Rs. Thousand) 1. M/s Skanan Hardware Pvt. Ltd., Mumbai 2000-01 2001-02 2002-03 1160347 1243267 1391400 12970 15741 16229 Nil Nil Nil Nil Nil Nil 2. Freemans Measures Ltd. Ludhiana 2000-01 2001-02 2002-03 2864297 2802963 3154508 98000 103400 114200 333358 219782 229013 16500 11500 16100 3. Festo Measuring Ind. Ltd.,Ludhiana 2000-01 2001-02 2002-03 3168749 2987540 3236419 108200 104600 109400 724626 574003 686082 48100 45700 47400 10 Civil Writ Petition No. 15198 of 2003 10. By referring to the aforesaid figures, it was alleged that there is evasion of payment of duty towards verification and stamping charges under 1976 Act. Reference has also been made to the subsequent question put in the Parliament and answers given thereon. By stating as above, the following prayer was made:- iii Since it is an apparent case of connivance of officials of respondent No.1 to 9, with respondent No.10 to 13, the enquiry be entrusted to Central Bureau of Investigation (CBI), who should be directed to look into the past and ongoing evasion by respondent No.10 to 13 in which the petitioner be allowed to participate and assist and the CBI be directed to submit its report after assessing the true and exact number of pieces produced, type and length-wise and also quantifying the concealment and damage caused by such concealment of production and its effect upon the payment of Verification & Stamping Fees, other Taxes, Duty and Levies etc. Further, the CBI be directed to identify the officials who have/ had been instrumental in the evasion of Verification & Stamping Fees, other Taxes, Duty and Levies etc. iv And Respondent No.1 to 9 be directed to take appropriate steps to recover the Verification & Stamping Fees, other Taxes, Duty and Levies etc. which has been evaded alongwith interest from the respective dates of evasion along with penalty as provided under the relevant provisions of Law within a fixed time frame, from Respondent No.10 to 13. v The respondent No.1 to 9, be directed to take appropriate and suitable legal action against the Respondent No.10 to 13, and prosecuting them for violation of Sections 22, 23, 35, 36, 37, 38, 41 & 46 of Standard of Weights and Measures, 1976 and Sections 19, 22, 23, 24, 26, 56 & 60 of Standard of Weights and Measures (Enforcement) Act, 1985 and Rules 19, Standard of Weights and Measures (General) Rules, 1987.” 11. Upon notice, separate replies have been filed by all the respondents. Respondent No.11 in its reply has raised serious objection regarding locus standi of the petitioner to maintain this writ petition. It has been stated with vehemence that this writ petition has been filed at the instance of one Ashok Jain, who at an earlier point of time, was distributor 11 Civil Writ Petition No. 15198 of 2003 of respondent No.11. On account of some mischief committed by the person mentioned above, his agency was terminated. With a view to settle the scores, he has projected the petitioner as a front man to harm the interest of respondent Nos.10 and 11. On merits, it has specifically been denied that any evasion of duty has been