The Gauhati High Court held that proceedings under section 11A of Central Excise Act, 1944 cannot be initiated in absence of any deliberate or willful suppression or mis-statement of facts by the petitioner. The court set aside and quashed the impugned orders, further directed that the amount deposited by the petitioner to the tune of Rs. 2 Crore is permitted to be adjusted against the future duties as may be found to be payable by the petitioner company.
The writ petitions challenged the order-in-original passed by the Principal Commissioner, GST & Central Excise Commissionerate, Guwahati whereby the demand of recovery of Central Excise in terms of the Notice issued under Section 11A (10) of the Central Excise Act, 1944 read with Rule 18 of the Pan Masala Packing Machines (Capacity of Determination and Collections of Duty) Rule, 2008 ( “the Rule of 2008”) as well as recovery of interest and penalty was imposed.
Understand the EPF & ESI Act – Key Supreme Court Judgments Explained – Register Now
Dharampal Satyapal Ltd, the writ petitioner is a company incorporated under the Companies Act 1956, having its registered office in Delhi. The petitioner has an industrial unit in the city of Guwahati in the state of Assam. The petitioner is registered under the Central Excise Act 1944 and is engaged in the manufacture of ‘Pan Masala’. The said item, according to the petitioner, is classified under Tariff Entry 2106 90 20. The petitioner company is represented by its Deputy General Manager of the said company.
It was submitted that the Central Excise Duty payable by the petitioner company for manufacture of its product, i.e., Pan Masala, is based upon the annual capacity of production of its factory determined in accordance to the provisions of the Rules, read with Notification No. 42/2008-CE dated 01.07.2008, which lays down the rate of duty on the basis of which the Central Excise Duty liability is to be calculated. In other words, the duty payable by the petitioner is to be calculated on the basis of a number of operating packing machines and the maximum packing speed of a packing machine.
The petitioner company purchased packing machines from ‘Sanko Machinery Company Limited’, Japan for manufacturing pan masala (without tobacco) pouches. As per the product specification specified in the quotation of the machine, estimated speed of the machine was 900 to 1000 pouches per minute for a pouch length of 90 mm containing 18 to 22 grams of pan masala. During the pre-delivery trial run of the machine in Japan, the machine was found to have encountered some technical issues and the petitioner company was advised by the supplier company namely ‘Sanko Machinery Company Limited’ to operate the machine at optimum speed around 750 pouches per minute and to observe the results before it could be operated at its rated speed of 900 to 1000 pouches per minute.
Understand the EPF & ESI Act – Key Supreme Court Judgments Explained – Register Now
The first declaration for the machine under the rules was filed by the petitioner on 09.01.2014 for operating the machinery with effect from 18.01.2014 for packing pan masala in 20 grams pouches. The maximum packing speed was accordingly declared as required under the Rules in Form-1 as 750 pouches per minute. The said declaration that the maximum packing speed of the machine was 750 pouches per minute as declared by the company was duly approved by the Assistant Commissioner of Central Excise by order dated 17.01.2014.
It was submitted that although the declaration of maximum packing speed of the machines was made at 1000 pouches per minute, because of operational reasons, the company found that it was not capable of efficiently running at the rate of 1000 pouches per minute. After evaluating proper checks and conducting series of tests, the company came to the conclusion that the machine was not capable of running at speeds of 1000 pouches per minute, but would run smoothly at the speed of 740-750 pouches per minute.
Pursuant to the said notifications issued by the Ministry of Finance, Rule 4 of the Rules of 2008 was amended. Under the amended Rule 4 of the Rule of 2008, it was provided that the factors relevant to production of notified goods shall be the number of packing machines in the factory of the manufacturer and the maximum packing speed at which such packing machines can be operated for packing on notified goods of various retail sale prices. Under the said amended Rule 4, the maximum packing speed of the machine was required to be declared for the purpose of calculation of total production and determination of duty liability. The petitioner continued to declare its maximum packing speed of the machine in the highest slab of ‘751’ pouches per minute and above, and was assessed to the highest rate of duty under the amended Rules of Finance Act, 2015.
Understand the EPF & ESI Act – Key Supreme Court Judgments Explained – Register Now
The Assistant Commissioner of Central Excise issued a show cause notice on the petitioner company calling upon it to show cause in its defence to establish that the maximum packing speed of the machine is below the 750 pouches per minute for pouch weight of 18 grms of MRP 50/- per pouch as declared by the petitioner company on 23.11.2015. The petitioner company was called upon to appear personally on 27.11.2015 at 11:00 hours before the Assistant Commissioner of Central Excise to submit such reasons orally and/or in writing.
The appellate authority allowed the appeal filed by the petitioner and held that the maximum speed of the machine would be the production speed of the machine and the same could be re-determined under Rule 6(2). The appellate authority held that all declarations about the maximum speed of the machine were on record and nothing was mis- declared and the orders passed by the Assistant Commissioner of Central Excise from June, 2015 to October, 2015 have remained unchallenged and uncontested.
The Commissioner, GST and Central Excise issued the demand cum show cause notice to the petitioner company to show cause within 30 days as to why the Central Excise Duty amounting to Rs. 27,61,33,589/- should not be demanded and recovered under Section 11A(4) of the Central Excise Act, 1944 read with Rule 18 of the Rules, 2008 and as to why interest at the appropriate rate should not be charged and realized under Section 11AA of the Central Excise Act, 1944 read with the proviso to Rule 9 of the Rule of 2008.
Understand the EPF & ESI Act – Key Supreme Court Judgments Explained – Register Now
It was evident that the first Appellate authority namely the Commissioner (Appeals) on the basis of the materials and records available with the department returned a clear finding on facts that there was no willful or deliberate suppression of material or information. The Commissioner (Appeals) returned a finding that there were amply opportunity prescribed under the provisions available to the adjudicating authority to make necessary enquiries including physical verification before approval of the declaration and which was admittedly not done by the adjudicating authority. The Commissioner (Appeals) recorded a categorical finding that there were no records/evidences of clandestine removal of finished products by the petitioner during the period from June 2015 to October 2015 to show any malafide intention on their part and any such reasoning given by the adjudicating authority was not supported by facts.
A single bench of Justice Soumitra Saikia concluded that there was no willful or deliberate suppression or mis-statement offered by the petitioner resulting in short levy or short paid Central Excise Duty. It was viewed that the invocation of jurisdiction under Section 11A in the absence of any deliberate or willful suppression or mis-statement of facts by the petitioner, no proceedings can be initiated under Section 11A as have been sought to be done.
Further held that an order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances.
Understand the EPF & ESI Act – Key Supreme Court Judgments Explained – Register Now
The Court viewed that the alternative remedy prescribed under the statute will not be an efficacious and effective alternative remedy to the present petitioner in the attending facts and circumstances of the case. The submission of the respondents that the writ petitioner should be dismissed on the ground of alternative remedy cannot be accepted and is therefore rejected.
While allowing the petition, the court set aside and quashed the impugned orders. Further directed that the amount deposited by the petitioner to the tune of Rs. 2 Crore is permitted to be adjusted against the future duties as may be found to be payable by the petitioner company.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
