Case: Kalpena Industries Limited Vs. The Union of India, Through The Secretary Ministry of Finance Department of Revenue

1. The present writ petition is filed by the Petitioner Company, incorporated under the provisions of the Companies Act, 1956 and engaged in the manufacturing of polyethylene/ polypropylene compound and PVC compound, seeking a writ in the nature of mandamus, directing the Respondent No. 2 to permit the petitioners to11 truck owners, whose statements are relied upon in the show cause notice issued to the petitioner, alleging that the goods imported by the Company have not reached the factory of the petitionerThe petitioner is served with the show cause notice by the Commissioner of Customs (Exports), Jawaharlal Nehru Custom House, Nhava Sheva, asking it to show cause as to why penalty should not be imposed on the Managing Director, Assistant Manager, Commercial Head & Companyd Signatory of the Petitioners Company and also the partners of the said Company since they have indulged in evasion of central excise duty and customs duty by diverting the indigenously procured inputs as well as imported inputs in local market and by clandestine removal of the finished goods. The show cause notice sets out that the raids were conducted at the factory premises at Dadra and Daman, godown of the petitioner and also at residential premises of the Managing Director and Assistant Manager cum Authorized Signatory at Vapi and Mumbai Head Office of the Petitioners on 3rd / 4th February, 2010 and various documents were seized under the distinct panchanamas and the stock position of raw material and finished goods was recorded. During the course of the investigation, the officers of the department also recorded the statements of various persons including the employees of the petitioner company as also the transporters engaged in transportation of raw materials goods. Premises of all the transporters were also searched during the course of the investigation and certain documents were procured from them by executing panchanamas to M/s. KIL from different consignees and make arrangement for delivery of finished goods as parcel to other transporters for onward transportationBased on the said material, the show cause notice alleges that the petitioners company have been habitually indulged in diversion of the imported goods, imported by them on payment of duty and Imported duty free against Advance Authorization / Licences. It was alleged that in order to fulfill export obligation, they are showing fake clearance / deemed exports under CT3 to M/s. Tara Holdings Ltd. (100% EOU), West Bengal2. Paragraphs 43.9 to 43.20 of the show cause notice refer to the statements of the transporters and it is alleged that these truck transporters assisted the petitioners company to sell all raw materials under the guise of clearance of finished goods to one M/s. Tara Holdings Pvt. Ltd. (100% EOU) at Kolkata, Howrah (WB) and M/s. Sarla Gems Limited at Kolkata without physical delivery of the same, by providing vehicle numbers and lorry receipts without actually transporting the goods. It is alleged that these transporters have assisted M/s. KIL to conceal their illicit sale of raw materials in guise of clearances of finished goods to M/s. Tara Holdings. It is also alleged that these transporters have concerned themselves in storing, depositing, removing, selling and purchasing the duty free imported goods which they knew and had reasons to believe that such goods are liable for confiscation under the Act and invite penalty under section 112 of Customs Act, 19623. Based on the aforesaid statement, theask the petitioners to show cause as to why action should not be initiated against them to the following effect : (i.e. as per para 44 of the show cause notice) –Para 44 : Now therefore, M/s Kalpena Industries Limited, Survey No.24/3, Village : Demini, Dadra, Silvassa, are hereby called upon to Show Cause to the Commissioner (Port Export) of Customs, Jawaharlal Nehru Customs House, Nhava Sheva, having his office situated at Jawaharlal Nehru Customs House, Nhava Sheva, PoUran, District Raigad (MH), as to why :i 702 MT of PVC Resign valued at Rs.3,29,80,357/( as detailed in Annexure A8 to the Show Cause Notice) should not be confiscated under Section 111 (O)of Customs Act,962ii Customs Duty amounting to Rs.61,42,270/( as detailed in Annexure A8 to the show cause notice), should not be demanded and recovered under proviso to Section 28 (4) of Customs Act, 1962, and the bonds executed by them against the said Advance Authorisations at the time of imports of the said goods be enforced for recovery of the said duty as per the conditions of the Notification No. 93/2004Cus dtd 10/9/2004 and No.96/2009Cus dtd 11/9/2009iii 944 MT of LLDPE and Silicon Fluids (VTMOS) valued at Rs.6,69,18, 426/(as detailed in Annexure A13 to the Show Cause Notice) should not be confiscated under Section 111 (O) of Customs Act, 1962iv Customs Duty amounting to Rs. 1,49,08,584/( as detailed in Annexure A13 to the Show Cause Notice), should not be demanded and recovered under proviso to Section 28 (4) of Customs Act, 1962 and the bonds executed by them against the said Advance Authorisations at the time of imports of the said goods be enforced for recovery of the said duty as per the conditions of the Notification No. 91/2004Cus dtd 10/9/2004 and No. 93/2004Cus dtd 10/9/2004v Interest at appropriate rate should not be demanded and recovered on the customs duty evade by them at paras (ii) & (iv)vi Penalty should not be imposed under Section 112/114A of the Customs Act, 1962 for (I), (ii), (iii) and (iv) above4. The Petitioners by their letter dated 15.12.2015 showed cause to the said notice, responding that there is no diversion of exempted material and requested for dropping of the proceedings initiated against them since the goods were not diverted and it was specifically contended that the entire quantity of PVC Resign was physically brought to the Dadra Factory and the entire quantity was utilized for manufacturing purpose of the dutiable production of the Dadra factory. Relying upon several pronouncements from various authorities, it was canvassed that the goods cannot be confiscated and no redemption fine can be imposed when the goods are not physically available and not seized and released against enforceable security5. In response to the personal hearing intimation dated 24.08.2015, personal hearing was fixed on 09.09.2015 and a notice of which was served on the petitioner on 05.09.2015. For want of sufficient time, the petitioner expressed inability to appear at the personal hearing fixed on 09.09.2015 and addressed a communication to permit the petitioner to11 vehicle owners since their statements were relied upon for issuance of the show cause notice. In the communication addressed to Commissioner of Customs on 08.09.2015, the petitioner invited attention to their specific request forof 11 vehicle owners, who denied the transportation of imported goods from Bhiwandi godown to Dadra factory and whose statements were relied upon by the department, for raising the demands. The Petitioners reiterated their demand on 19.01.2016 by inviting attention of the Honble Commissioner of Customs to the judgment of the Honble Gujarat High Court in the case of Mahek Glazes Pvt. Ltd., vs. Union of India, reported in 2014 (300) E.L.T. 25 (Guj)., where the Gujarat High Court had held that the party had a right to be told whether his application foris granted or refused before final order is passed. The attention of the Commissioner was invited to that portion of the judgment, where the Honble High had held that without dealing with and disposing of the partys application for cross examination, the adjudicating authority could not have adjudicated the issues. The request was, therefore, made to decide the application for6. The Assistant Commissioner of Customs on 14.09.2016 informed the decision of the Adjudicating Authority i.e. Commissioner of Customs (NSIV), JNCH, Nhava Sheva, on the application, seekingin relation to the show cause notice issued to the petitioner. The communication addressed to the petitioner, mentions that the request of the noticee for permission ofof persons indicated in their letter dated 15.1.2016 and reiterated in the letter dated 19.01.2016, is not supported by valid reasons. The communication sets out the following reasons :I find that the request of noticee for permission of cross examination of persons as indicated in their letter dated 15.01.2016 and again vide letter dated 19.01.2016 is not supported by valid reasons. It is noticed that all the relied upon documents including statements of the concerned persons, whosehas been sought have already been provided to the Noticee and instead of making submission on merits, attempt has been made to delay the proceedingsg cross examination without any valid reasons. It is also noticed that it is not obligatory on the adjudicating authority in such quasi judicial proceeding to accede to such unreasonable demandsReliance was placed on the following judgments :i. Union of India Vs. Rajendra Bajaj (2010 (253) E.L.T. 165 (Bom)]ii. Kanungo & Co. Vs. Collector of Customs, Calcutta & others (1993(13)E.L.T.1486 (SC)iii. Fortune Impex Vs. Commissioner of Customs, Calcutta (2001 (138) E.L.T. 556 (TriKolkata)]iv. Suman Silk Mills Pvt. Ltd., Vs. Commissioner of Customs & C.Ex. Baroda (2002 (142) E.L.T. 640 (TriMumbai)] Tribunalv. Jagdish Shanker Trivedi Vs. Commissioner of Customs, Kanpur (2006 (194) E.L.T. 290 (TriDel)] vi. Liyakat Shah Vs. Commissioner of C.Ex.I (Bhopal) (2000 (120) E.L.T. 556 (Tribunal)]By placing reliance on the said judgments, the communications mentions that it was not obligatory on the part of the adjudicating Authority to accede to such unreasonable demandsIt is this impugned communication dated 14.09.2016, which is assailed by the petitioner in the present petition7. The said communication is assailed on the ground that the impugned decision is in utter violation of the principles of natural justice. It is further contended that it is incumbent on the part of the Respondent No. 2 to permit the petitioner topersons whose statements are sought to be relied upon in the show cause notice and this is in conformity with the principles of natural justice. It is further stated that the purported rejection of the request toe unjustified and contrary to the binding principles of law. It is further alleged that the respondent no. 2 has committed grave error of law in holding that all the relied upon documents including the statements of concerned persons, whosehas been sought have already been provided to the petitioner. The reliance placed on the judgment mentioned in the impugned order is alleged to be erroneous and on the other hand the petitioner placed strong reliance on the judgment of the Honble Apex Court in the case of Ayaab Khan Noor Khan Pathan vs. State of Maharashtra (2013) 4 SCC 465.

Court's reasoning:
11. The Adjudication procedure contemplated in Chapter 14, thus mandates the adjudicating authority to follow the principles of natural justice before issuing an order of confiscation of any goods or imposition of any penalty on any person and it mandates issuance of notice in writing, informing the owner of the goods or such person of the grounds on which it has proposed to confiscate the goods or to impose the penalty and on affording an opportunity to make a representation in writing within such reasonable time, as may be specified and also offer the reasonable opportunity of being heard in the matter. Thus what we find is that the principles of natural justice are implicitly engrafted in the said provision with a view to offer an opportunity to the owner of the goods to justify that the goods are not smuggled goods and they are not liable for confiscation or imposition of penalty12. Section 124 of the Customs Act, 1962 under which show cause notice has been issued to the petitioner contemplates a notice in writing informing the grounds on which it has proposed to confiscate the goods or impose a penalty and giving an opportunity of making representation in writing within a reasonable time as may be specified in the notice against the grounds of confiscation or imposition of penalty. Section 124 also contemplates a reasonable opportunity of being heard in the matter. The learned counsel for the petitioner emphasizes that this reasonable opportunity would bring within its ambit following of principles of natural justice and which would extend a right tothe witnesses. It is no doubt true that right ofis vital and can be put to use to shake the credit of a party and the trustworthiness or veracity of his evidence. Though right ofis not an indefeasible right vested in a party, exercise of such right would depend on the facts of each case and would depend on the language used in the statute and also the scheme of an particular enactment and even if there is no specific provision in the statute, such right can be exercised or permitted to be exercised. The petitioner before us intends totruck owners whose statements have been heavily relied upon to arrive at a prima facie opinion on the basis of which a show cause notice under the Customs Act, 1962 came to be issued13. The well known principles of natural justice which have been evolved the judicial process including the administrative and quasi judicial process constitute the basic elements of a fair hearing and ensure fairplay and justice in the decision making process and they are recognized as fundamental principles of justice, ensuring that the authority conducting the proceedings acts fairly. The said principles which have been so recognized and evolved through the process of judicial interpretation and are sacrosanct to the proceedings and any infraction of the said principles, invite an action of striking down the decision making process, being violative of principles of natural justice. This corollary and weightage attached to the principles of natural justice would also include a right toand through various judicial pronouncements the said right has been evolved as part and parcel of the principles of natural justiceThe Honble Apex Court in the case of M/s. Barelilly Electricity Supply Co. Ltd. vs. The Workmen and Others, reported in 1971 (2) SCC 617 , while applying the principles contained in the Evidence Act to the procedure contemplated under the Industrial Disputes Act and was confined to with an issue about the applicability of the said principles in the proceedings in relation to the workmen and the Honble Apex Court was dealing with an enquiry into misconduct by a public servant in which he complains that he was not permitted to. In fact though he was allowed to put questions and evidence was recorded in his presence and the procedure prescribed in the Evidence Act of recording then first and then allowing the delinquent to exercise his right towas not followed but the enquiry officer himself16. Though we are conscious of the fact that right ofmay not be construed as an indispensable right under the scheme of the Customs Act, we are of the view that the right ofis not infringeable rule. We would not hesitate to hold that the said right necessarily attributed by reasonable opportunity and by principles of natural justice, its availment would depend on the nature of proceedings involved and the provisions of the statute; though we do not intend to lay down that it is an absolute right vested in a partyIn the backdrop of these facts before us and since the statements of the truck owners were heavily relied upon to attribute that the petitioner company had illicitly acquired raw materials as LDPE/ LLDPE in the open market without payment of applicable CENVAT duty in guise of duty free clearance and modified the LLDFE to one M/s. Tara Holdings Pvt. Ltd., which is 100% EOU. It is alleged that the said fake deemed exports shown by the petitioner company to fulfill export obligation towards imports done by them as duty free under advance licence / authorization scheme with payment of custom duty. It is alleged that the entire exercise undertaken by the petitioner company where the subject goods were diverted elsewhere and export obligation has been tried to be fulfilled is the said fake deemed exports by reasonably raising collusion or deliberate mismiss statement or suppressing of the facts which warrant confiscation of the said goods and also rendered the petitioner company liable for penalty under section 112 (a) of the Customs Act, the role played by the various persons / company and the transporters etc. and evasion of central excise duty by the petitioner company is specifically carved out. As far as the transporters are concerned, it is alleged that they have assisted the petitioner to conceal their illicit sale of raw materials17. Heavy reliance has been placed on the judgment delivered in the case of Patel Engineering (Supra). Perusal of the facts referred in the said judgments are distinct and the Honble Division Bench of this court was dealing with the very peculiar facts and circumstances of the case and the assessee had filed a bill of entry for clearance of two tower cranes under EPCG license, claiming benefit of the notification dated 1st April, 2003. As per the declaration, the tower cranes were shown as of 1995 make and of German Origin, whereas the port of loading was declared as Belgium and as per the licence bills, it was permitted to import two second hand tower cranes. The examination of the goods revealed lot of discrepancies and which were put across to the assessee and thereafter, the Assistant Chief Engineer was called and goods were shown to him and his statement was recorded under section 108 of the Customs Act, 1962, wherein he admitted that certain parts might be of 1988 origin but he could give a clearcut Borey 38/45 ::: Uploaded on03/03/2018 ::: Downloaded on06/03/2018 10:40:29 ::: spb/c opinion lateron after further examination. The Division Bench noted that there was a contradiction in the Chartered Engineers certificate and contents of the bill of entry and that there was a clear suspicion that the inspection appears to have been done even before the containers were opened. Even Chartered Engineer was summoned and he admitted that he had issued the Chartered Engineers Certificate without inspecting the machines. The high rank officers such as of the rank of Vice President of the assessee, the suppliers were also summoned and their statements were recorded and show cause notices were issued and then adjudicatedIn this background, the Division Bench observed that no prejudice has been caused to the assessee by not permitting the panel members to be. The court concluded that the Tribunal did not commit any error in holding that right to defend the proceedings which are inherent in such adjudication are in no way prejudiced and the assessee could have in the teeth of this material, which was placed by us before, the department was in a position to defend itself effectively. It is in these circumstances, the Honble Court observed that where the assessee had several opportunities to make his submissions with regard to the findings of the report of the expert panel, the refusal to permit18 No doubt the principles of natural justice have been held to be sacrosant and have been placed at a highest pedestal in the adjudication proceedings which are judicial,l or administrative. However, there is no straightjacket formula in which the principles of natural justice can be confined and which principles of natural justice or which facets of it is applicable, would depend upon the nature of the lis and statute under which adjudication is undertaken and several other factors. Further every departure from principles of natural justice may not result in miscarriage of justice and the Honble Apex Court has at times refused to strikeout an action, not being in conformity with the principles of natural justice, unless the prejudice caused is demonstrated. In the words of the Honble Apex Court, it will be useless formality, if the resultant situation would be the same even after due adherence to the principles of natural justice. The question as to what extent the principles of natural justice need to be stretched as they cannot be moulded and are not to be construed with stringent strictness but needs to be dealtwith the flexibility. The principles of natural justice is necessary concomitant in any lis andn thereof have been held to be infringement of right to defend effectively and the courts have come upon heavily and have struck down such action19. The grievance made by the learned counsel for the petitioner is about the denial of right totransporters, specifically when their statements have been relied upon in the form of opinion, leading to show cause, in relation to the liability under the provision of the Customs Act. The learned counsel would argue that the said statements have been specifically relied upon and if they have been relied upon then fairness and equity demands that the petitioners be afforded an opportunity to cross examine those witnesses, when the specific allegation is that the customs duty to the tune of Rs. 61,42,270 and Rs. 1,49,08,584/has been evaded and not only the duty but interest and penalty has also been sought to be imposed on the petitioners by the impugned show cause notice. According to the learned counsel, the revenue was not justified in denying the said opportunity only on the ground that it would delay the proceedings. The learned counsel for the petitioner would rely upon the judgment of the Delhi High Court in the case of Shahid Balwa, Vinod Goenka vs. Directorate of Enforcement, reported in [201 (2013) Delhi Law Times 211  DB] and also on the judgment delivered by the Division Bench of this Honble Court (Coram : S.C. Dharmadhikar and B. P. Colabawalla,JJ) in the case of Nirmal Seeds Pvt. Ltd., vs. The Union of India & Anr. (Writ Petition No. 1643 of 2017). The learned counsel would argue that though a right tois not an indefeasible right, the same could be availed of depending upon the facts and circumstances of each case20. In these peculiar circumstances, in order to effectively defend itself the petitioner is entitled totransporters as that would offer the petitionera reasonable opportunity as contemplated under section 124 (c) of the Customs Act, 1962. The Petitioner company is entitled for the said opportunity since the Revenue Authority specifically relied on the statements of the transporters in support of the show cause notice, proposing confiscation of the goods and levying of penalty and foisting the liability on the petitioner company under the said Act.