SCA/5769/2008 1/23 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 5769 of 2008 For Approval and Signature: HONOURABLE MR.JUSTICE D.A.MEHTA Sd/- HONOURABLE MS.JUSTICE H.N.DEVANI Sd/- ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? YES 2 To be referred to the Reporter or not ? YES 3 Whether their Lordships wish to see the fair copy of the judgment ? NO 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 ? NO 5 Whether it is to be circulated to the civil judge ? NO ========================================================= DHARIYAL CHEMICALS - Petitioner(s) Versus UNION OF INDIA & 3 - Respondent(s) ============================================================== Appearance : MR PARESH M DAVE for Petitioner(s) : 1, NOTICE SERVED for Respondent(s) : 1 - 2. MR HARIN P RAVAL for Respondent(s) : 1, NOTICE SERVED BY DS for Respondent(s) : 3 - 4. ========================================================= CORAM : HONOURABLE MR.JUSTICE D.A.MEHTA and HONOURABLE MS.JUSTICE H.N.DEVANI Date : 11/07/2008 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE D.A.MEHTA) 1 This petition has been preferred by one Yogesh SCA/5769/2008 2/23 JUDGMENT Dhariyal, sole proprietor of Messrs Dhariyal Chemicals. The following prayers have been made in the petition : “(A) That Your Lordships may be pleased to issue a Writ of Mandamus or a writ in the nature of Mandamus or any other appropriate writ, direction or order, striking down as ultra-vires Rule 12CC of the Central Excise Rules, 1944 and Notification No.32/2006-CE (NT) dated 30.12.2006; (B) That Your Lordships may be pleased to issue a Writ of Mandamus or a Writ of Certiorari or any other appropriate writ, direction or order, quashing and setting aside Order No. 6/2008-M (CX)/DA dated 22.2.2008 (Annexure-'N') issued by the second respondent thereby directing the respondents, their servants and agents to permit the petitioner to utilize cenvat credit for paying excise duties on the goods cleared for home consumption during the period from 27.2.2008 to 26.5.2008 and even thereafter; (C) That Your Lordships may be pleased to issue a writ of Mandamus or a Writ in the nature of Mandamus or any other appropriate writ, direction or order, directing the respondents, their servants and agents to forthwith give to the petitioner copies of SCA/5769/2008 3/23 JUDGMENT all the seized documents and also the statements on which signatures of the petitioner as well as Shri Ganesh Dutt Joshi are taken by the Preventive Officers functioning under respondent no.4 herein; (D) Pending hearing and final disposal of the present petition, Your Lordships may be pleased to stay implementation and execution of Order No.6/2008-M (CX)/DA dated 22.2.2008 (Annexure-'N') issued by the second respondent thereby allowing the petitioner to utilize cenvat credit for discharing duty liabilities on the goods cleared by the petitioner for home consumption; (E) An ex-parte ad-interim relief in terms of Para 9(C) above may kindly be granted; (F) Any other further relief as may be deemed fit in the facts and circumstances of the case may also please be granted”. 2. On 29.08.2007 the officers of the preventive wing of Central Excise Department visited the factory premises of the petitioner and seized certain documents and records. A panchnama had been duly drawn up. The said documents and records also included certain records of another manufacturing unit named M/s. Ganesh Enterprises, a proprietary SCA/5769/2008 4/23 JUDGMENT concern of one Shri Ganesh Dutt Joshi, cousin of the present petitioner. It is the say of the petitioner that on 31.08.2007 both the petitioner and Shri Ganesh Dutt Joshi were called by the officers of the preventive wing and pressurised to sign certain documents and statements prepared by the said officers. Therefore, regarding the aforesaid events, the petitioner swore an affidavit on 5.9.2007 and filed the same in the office of the Additional Commissioner (Preventive) under certificate of posting. It appears that similar exercise took place on 6.9.2007 and 11.9.2007 followed by affidavits dated 10.9.2007 and 13.9.2007 by the petitioner. 3. On 16.10.2007 the petitioner was addressed a letter from the office of the Chief Commissioner of Central Excise which reads as under : “OFFICE OF THE CHIEF COMMISSIONER OF CENTRAL EXCISE, 7th floor : CENTRAL EXCISE BHAVAN, AMBAWADI, AHMEDABAD – 380 015. BY SPEED POST Date : 16.10.2007 F.No.IV/30-88/CCO/Tech/2007 To, SCA/5769/2008 5/23 JUDGMENT Shri Yogesh Chandradutt Dharaiyal, M/s.Dhariyal Chemicals, 4,Prabhudas Estate, Nr. Sabar Tiles, Danilimda, Ahmedabad. Gentleman, Sub : Central Excise Case against M/s. Ganesh Enterprises, Plot No.2, Prabhudas Patel Estate, Nr. Sabar Tiles, Danilimda, Ahmedabad. The Chief Commissioner, Central Excise, Ahmedabad has fixed the personal hearing on 29.10.07 at 3.00 p.m. in the Office of the Chief Commissioner, 7th Floor, Central Excise Bhavan, Ambawadi, Ahmedabad. It is therefore requested to attend the same on the date and time mentioned above. Yours faithfully, Sd/- Additional Commissioner”. 4. The said appointment was postponed to 30.10.2007 vide letter dated 26.10.2007. Thereafter, the Chief Commissioner of Central Excise (CCCE) personally heard the petitioner as well as Mr. Ganesh Dutt Joshi and one Dr.C.D.Dhariyal, the father of the petitioner on 30.10.2007. At the said hearing the purpose of the hearing was disclosed by the CCCE and the said fact has been recorded in the following words by the CCCE : “On being asked to tender their submissions on SCA/5769/2008 6/23 JUDGMENT the issue relating to withdraw of facility of monthly payment of excise duty and also the payment of Central Excise duty by utilization of CENVAT credit, Shri Yogesh Dhariyal submitted that the facility extended to them under Central Excise Law should not be withdrawn as the same would put them under financial constraint, and since they had not done any wrong.” 5. Thereafter, it appears that CCCE forwarded a proposal to the Central Board of Excise & Customs (CBEC). On 22.08.2008 Order No.6/08-M(CX)/DA came to be made by Member of CBEC whereunder following directions were issued : “ ORDER 5. In view of the above, I hereby pass the following order :- (i) The facility of monthly payment of excise duty by M/s. Dhariyal Chemicals, as provided under rule 8(1) of the Central Excise Rules, 2002, is ordered to be withdrawn and they are required to pay excise duty for each consignment at the time of removal of the goods with effect from 27.02.2008 to 26.05.2008. (ii) Payment of excise duty by utilisation of CENVAT credit as provided under rule 3(4) of the CENVAT Credit SCA/5769/2008 7/23 JUDGMENT Rules, 2004, is ordered to be stopped with effect from 27.02.2008 to 26.05.2008. During this period, they are required to pay excise duty without utilising CENVAT credit. However, they are permitted to take CENVAT credit during this period which can be utilised for payment of duty with effect from 27.05.2008”. 6. The learned Advocate for the petitioner has assailed the aforesaid order dated 22.02.2008 (hereinafter referred to as impugned order) by reiterating the facts narrated in the petition and also challenged the validity of Rule 12CC of the Central Excise Rules, 1944 (the Rules) and Notification No. 32/2006-CE(MT) dated 30.12.2006 (the Notification). It was contended that respondent No.2 has made an order which is exparte and hence, it is required to be struck down as being in violation of principles of natural justice. That Rule 12CC of the Rules and the aforesaid Notification are ultravires Article 14 of the Constitution of India because :(1) the scheme envisaged by the Notification has no nexus with the objective sought to be achieved; (2) is in SCA/5769/2008 8/23 JUDGMENT utter violation of principles of natural justice;(3) deprives assessee of its legitimate right of utilising CENVAT credit. 6.1. According to the learned Advocate the impugned order is required to be struck down because the same has been made without granting an opportunity of hearing. Not only this, it was submitted, even the CCCE had formulated reasonable belief that the facilities available to the petitioner were required to be withdrawn without proper opportunity. In this connection, attention was invited to paragraph No.4(2) of the Notification to submit that the Notification itself provides for granting an opportunity of hearing to the person against whom the proceedings have been initiated but no such opportunity was granted. That the notice in the form of letter dated 16.10.2007 merely invited the petitioner for hearing without specifying as to why and for what purpose the hearing was granted. It was therefore urged that in light of the aforesaid fact situation the impugned order was required to be struck down. SCA/5769/2008 9/23 JUDGMENT 7. On behalf of the respondent authorities learned Counsel submitted that in so far as the challenge to validity of Rule 12CC of the Rules and the Notification is concerned no case was made out by the petitioner as to how and in what manner the said Rule and the Notification are ultravires the Constitution. 7.1 In relation to the requirement of paragraph No.4(2) of the Notification granting an opportunity of hearing, it was submitted that such an opportunity was granted as could be seen from communication dated 16.10.2007 and bearing in mind the object and purpose of the Notification no case was made out for conducting a full-fledged proceeding as in case of regular assessment by issuing Show Cause Notice etc. That in the facts of the present case, in fact, the petitioner was aware about the purpose for which the petitioner was called and this was apparent from written submissions dated 30.10.2007 filed by the petitioner before CCCE. That the said written submissions referred to the SCA/5769/2008 10/23 JUDGMENT Notification in question and therefore it was apparent that the procedure adopted by CCCE was in accordance with the requirement of Notification and there can be no violation of provisions of paragraph No.4(2) of the Notification as contended. 7.2. It was further submitted that the principles of natural justice did not warrant that in each and every case a person is required to be granted a full-fledged hearing accompanied by documents etc., especially when the person concerned is aware about the purpose for which the hearing is granted. That every violation complained of, need not be entertained by the Court unless and until the person complaining of the violation establishes prejudice caused to the person. It was further submitted that in the present case the petitioner cannot complain of being prejudiced by the procedure adopted by CCCE when one considers the record and therefore, the petitioner was not entitled to any relief whatsoever. 8. Before adverting to relevant paragraphs of the Notification, it is necessary to note certain SCA/5769/2008 11/23 JUDGMENT undisputed facts. The petitioner and Mr. Ganesh Dutt Joshi are cousins. The units of the petitioner and Shri Joshi are respectively located at (1) 4, Prabhudas Estate, Nr. Sabar Tiles, Dani Limbda, Ahmedabad and (2) 2, Prabhudas Estate, Nr. Sabar Tiles, Dani Limbda, Ahmedabad. Both the units manufacture the same goods viz. Cellulose and its derivatives which are substitutes to such imported products. The petitioner was enjoying (1) facility of monthly payment of excise duty as provided under Rule 8(1) of the Central Excise Rules, 2002, and (2) facility of payment of excise duty by utilization of CENVAT credit as provided under Rule 3(4) of the Cenvat Credit Rules,2004. Mr. Ganesh Dutt Joshi has gone on record to state that the activities of M/s. Ganesh Enterprises were looked after by Mr.Yogesh Dhariyal since more than five years, including opening and operating the Bank Account of M/s. Ganesh Enterprises in Bank of Baroda and other bank. At one stage Mr.Joshi has stated that a power of attorney has been executed in favour of Mr. Yogesh Dhariyal and at another place Mr.Joshi has denied having executed such power of attorney. In the backdrop of SCA/5769/2008 12/23 JUDGMENT the aforesaid facts CCCE moved a proposal upon which the impugned order came to be made by Member, CBEC on 22.2.2008. 9. In so far as challenge to validity of Rule 12CC of the Rules and the Notification is concerned, it is not possible to accept the contention raised on behalf of the petitioner. Rule 12CC of the Rules grants power to the Central Government to issue a Notification whereunder specific restrictions may be placed on the specified category of persons having regard to the extent of evasion of duty, nature and type of offence or such other factors as may be relevant in order to prevent such evasion, default in payment of excise duty etc. In exercise of these powers Notification No. 32 of 2006-CE(NT) dated 30.12.2006 has been issued. The Notification provides for a summary scheme which is to act as a deterrent against tax evaders by withdrawal of facilities from such persons. 10. On a plain reading of Rule 12CC of the Rules and the impugned Notification it becomes apparent SCA/5769/2008 13/23 JUDGMENT that the Rule and the Notification have been framed for a specified class of persons having reasonable nexus with the object sought to be achieved, and this becomes abundantly clear when one considers paragraph No.3 of the Notification which lays down the monetary limit in which class of cases the Notification shall be made applicable. Therefore, there is no merit in the challenge to constitutional validity of the Rule and the Notification. 11. In so far as the grievance ventilated regarding lack of opportunity before passing of the impugned order by Member,CBEC, it is necessary to consider the procedure prescribed by paragraph No.4 of the Notification. The relevant part of the Notification reads as under : “4. Procedure.-(1) The Commissioner of Central Excise or Additional Director General of Central Excise Intelligence, as the case may be, after examination of records and other evidence, and after satisfying himself that the person has knowingly committed the offence as specified in para 1, may forward a proposal to the Chief Commissioner of Director SCA/5769/2008 14/23 JUDGMENT General of Central Excise Intelligence, as the case may be, specifying the facilities to be withdrawn and restriction to be imposed and the period of such withdrawal or restrictions, within 30 days of the detection of the case, as far as possible. (2) The Chief Commissioner of Central Excise or Director General of Central Excise Intelligence, as the case may be, shall examine the said proposal and after satisfying himself that the records and evidence relied upon in the said proposal are sufficient to form a reasonable belief that a person has knowingly committed the offences specified in para 1, may forward the proposal along with his recommendations to the Board. However, the Chief Commissioner of Central Excise or Director General of Central Excise Intelligence, before forwarding his recommendations, shall give an opportunity of being heard to the person against whom the proceedings have been initiated and shall take into account any representation made by such person before he forwards his recommendations to the Board. (3) An officer authorized by the Board shall examine the SCA/5769/2008 15/23 JUDGMENT recommendations received from the Chief Commissioner of Central Excise or Director General of Central Excise Intelligence and issue an order specifying the type of facilities to be withdrawn or type of restrictions imposed, along with the period for which said facilities will not be available or the period for which the restrictions shall be operative.” 12. Paragraph No. 4(1) provides for either CCE or Additional Director General to forward a proposal to CCCE or Director General as to the nature of offence committed by the person in whose case a satisfaction is arrived at after examination of records and other evidence that specified facilities be withdrawn for a specified period and such proposal has to be made within 30 days of the detection of the case, as far as possible. In sub-paragraph No.(2) of paragraph No.4 of the Notification CCCE is required to examine the proposal placed before him, and after satisfying himself that the records and the evidence relied upon in the proposal are sufficient to form a reasonable belief that a person has knowingly committed the offence specified in paragraph No.1 of the SCA/5769/2008 16/23 JUDGMENT Notification, may forward the proposal along with his recommendations to the Board. The latter part of the said sub-paragraph states that however, before the CCCE forwards his recommendations he shall give an opportunity of being heard to the person against whom the proceedings had been initiated and shall take into account any representation made by such person before forwarding the recommendations. Sub- paragraph No.(3) of paragraph No.4 of the Notification provides for an officer, authorised by the Board, to examine the recommendations received from CCCE and issue an order specifying the type of facilities to be withdrawn or the type of restrictions to be imposed, along with the period for which such facilities will not be available or the period for which the restrictions shall be operative. 13. The scheme that unfolds, therefore, is that the stage at which a proposal is made by the authority subordinate to CCCE, it is not necessary to grant any opportunity to the person concerned. However, CCCE is not bound by the proposal and if after considering SCA/5769/2008 17/23 JUDGMENT the records and the evidence in support of the proposal CCCE finds that the evidence and the record are not sufficient to form a reasonable belief that the person has knowingly committed the offence, he has the discretion not to forward the proposal. Similarly even after forming a reasonable belief, if after hearing the person concerned and after considering the representation made by the person concerned, if the CCCE comes to the conclusion that the records and evidence are not sufficient in light of the representation and the hearing to form a reasonable belief the proposal may not be forwarded by the CCCE. This becomes abundantly clear when one reads the last portion of the first part of sub- paragraph No.(2) of paragraph No.4 of the Notification which stipulates: “may forward the proposal along with his recommendations to the Board”. The use of the term “may” itself indicates that the CCCE is not expected to act mechanically and approve the proposal placed before him. Thus a discretion is vested in the CCCE: either to forward the proposal, or refuse to forward the proposal, or forward the proposal with modification as to the SCA/5769/2008 18/23 JUDGMENT withdrawal of facilities and restrictions to be imposed or the period during which there may be withdrawal of facilities or imposition of restrictions. 14. In the circumstances, an opportunity of hearing which is granted to the person concerned cannot be termed to be an idle formality once the provisions of the Notification itself have provided for this situation, viz. vesting CCCE with a discretion, with or without hearing. It cannot be stated that the hearing that is required to be granted to the person concerned is only for a limited purpose. If such opportunity of hearing is to be meaningful the notice calling upon the person concerned to represent his case must indicate briefly the gravamen of the charge which the person is to meet with and the nature of evidence on the basis of which the proposal is moved so as to enable the person concerned to make an effective representation either to reject the proposal, or modify the proposal considering the offence committed, the period of offence, etc., including any special circumstances that might be SCA/5769/2008 19/23 JUDGMENT within the knowledge of the person concerned and may not have come on record of the proceedings of proposal. The respondent authority cannot be heard to state, in such circumstances, that because the person concerned was aware of the proceedings taken prior to making of the proposal by CCE no further opportunity is required and it would suffice if only the person concerned is invited for hearing. 15. The aforesaid view is fortified by language of sub-paragraph No.(3) of paragraph No.4 of the Notification which does not provide for any hearing by the authorised officer before issuing order specifying type of facilities to be withdrawn or type of restrictions to be imposed along with the period for which such facilities will not be available or the restrictions shall operate. Therefore, when at the first stage, viz. making of a proposal the person concerned has no voice, and at the final stage, when the order is issued the person concerned has no voice, the second stage, viz. when CCCE makes his recommendations the opportunity of hearing which is granted to the person concerned has to be a meaningful opportunity, and cannot be treated as a SCA/5769/2008 20/23 JUDGMENT mere formality. Because that is the only stage at which the opportunity of hearing is granted. 16. Even if one accepts the fact that the scheme provided under the impugned Notification is a summary scheme in relation to class of persons who may be treated as tax evaders, once the Notification itself provides for an opportunity of hearing the same cannot be taken away on the specious plea, as canvassed by revenue, that the object and purpose of the Notification is to act as a deterrent. By merely referring to the object and purpose of the Notification, the respondent authorities cannot be permitted to wish away the procedure prescribed under the very Notification. One part of the Notification cannot be so read as to make another part thereof redundant. 17. In these circumstances, the contention on behalf of the petitioner that the impugned order made by respondent No.2 authority without granting an opportunity of hearing is bad in law cannot be accepted, but at the same time it has to be recorded SCA/5769/2008 21/23 JUDGMENT that before forwarding the proposal with recommendations CCCE had not complied with the statutory requirements and the procedure adopted was bad in law. In the normal circumstances, the Court would have, at this stage, quashed and set aside the order made on the basis of such a proposal with recommendations, but in light of the facts and circumstances which have come on record the petitioner is not entitled to such an equitable relief in exercise of powers under Article 226 of the Constitution of India. The question, that would then survive is, as to what should be the final relief, if any, that should be made available to the petitioner in the peculiar facts and circumstances of the case. As noted hereinbefore, the final order made by respondent No.2 authority has withdrawn the facility of monthly payment of excise duty and restricted payment of excise duty by utilization of CENVAT credit for the period 27.02.2008 to 26.05.2008. In so far as the first part of the order is concerned viz. paragraph No.5(i) of the impugned order, suffice it to state that the said order has been permitted to operate and has exhausted itself SCA/5769/2008 22/23 JUDGMENT considering the period was from 27.02.2008 to 26.05.2008. 18. In so far as the restriction imposed vide paragraph No. 5(ii) of the impugned order, vide order dated 03.04.2008 the High Court had granted ad interim stay of operation and implementation of the said direction. 19. In the circumstances, considering the fact that on facts the petitioner does not deserve to be granted any relief the operation of paragraph No.5(ii) of the impugned order which was stayed with effect from 03.04.2008 till date shall stand revived from tomorrow i.e. 12.07.2008 and shall continue to operate for the remainder of the period after deducting the period from 27.02.2008 to 03.04.2008, bearing in mind that the restriction was for a period of 90 days in the impugned order. Accordingly, ad- interim stay of operation and implementation of paragraph No.5(ii) of the impugned order dated 22.02.2008 made by respondent No.2 authority stands vacated. SCA/5769/2008 23/23 JUDGMENT 20. The petition is accordingly rejected. Notice discharged. There shall be no order as to costs. 21. At this stage, the learned Advocate for the petitioner prays for staying operation of the order of vacation of ad-interim relief which is operating since 03.04.2008 for a period of three weeks from today. Request is rejected in light of the facts and circumstances of the case. Sd/-