Jammu & Kashmir High Court
Commissioner Of Central Gst And vs Narbada Industries Lane No. 2 on 31 December, 2024
Bench: Sanjeev Kumar, Puneet Gupta
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IN THE HIGH COURT OF JAMMU & KASHMIR AND LADAKH
AT JAMMU
CEA No. 7/2020
Reserved on 13.12.2024
Pronounced on 31.12.2024
.
Commissioner of Central GST and ...Petitioner(s)/Appellant(s)
Central Excise, Jammu and Kashmir Jammu
Through: Mr. Rohan Nanda Advocate
Vs.
Narbada Industries Lane No. 2, Phase-II, Sidco ...Respondent(s)
Industrial Complex, Bari Brahmana, Jammu
Through: Mr. Sudhir Malhotra Advocate with
Ms. Snigdha Shekhar Advocate
CORAM:
HON'BLE MR. JUSTICE SANJEEV KUMAR, JUDGE
HON'BLE MR. JUSTICE PUNEET GUPTA, JUDGE
JUDGMENT
Sanjeev Kumar J
1 This appeal under Section 35G of the Central Excise Act, 1944
[„the Act‟] is directed against the final order dated 28.08.2018 passed in
Appeal No.E/60004/2018 whereby the Customs, Excise & Service Tax
Appellate Tribunal [„CESTAT‟], Chandigarh has set aside the order of the
Central Excise Commissioner, Chandigarh II, dated 05/06.05.2016.
2 Vide order dated 27.01.2020, this appeal was admitted for
hearing on the following substantial questions of law:
(i) Whether the Tribunal can ignore inquiry/investigations
conducted and statements recorded under Section 14 of the
2Central Excise Act, 1944 read with Section 193 and Section 228
of the Indian Penal Code (45 of 1860) ?
(ii) Whether the Tribunal is correct in allowing the appeal of
the respondent with consequential relief where so called
supplier of crude Menthol oil were found non-existence/fake
during investigation?
(iii) Whether the Tribunal is correct in allowing the appeal of
the respondent with consequential relief, by holding the demand
on account of assumption and presumption is not sustainable,
without going into the facts of the case, emerged during
investigation, searches of premises of concerned and follow up
investigation of the case ?
(iv) Whether the Tribunal is correct in allowing the relief
when the party had indulged into fraud, wilfully
suppressed/mis-declared the material facts and also resorted to
issue invoice without manufacturing and passing the CENVAT
Credit to downstream.
(v) Whether the impugned order passed by the Tribunal is
justified in accordance with the provisions of notification No.
56/2002-CE dated 14.11.2002 ?
3 Before we advert to the arguments advanced by the learned
counsel appearing on both sides and proceed to determine the substantial
questions of law framed by this Court, we deem it appropriate to allude to
the factual antecedents leading to the filing of this appeal by the Revenue.
4 The respondent, having Central Excise Registration
No. AABC6468GXMQQ3, was engaged in the manufacture of “Menthol
Flakes”. It was entitled to and was availing the benefit of area based
exemptions in terms of Notification No.56/2002-CE dated 14.11.2002 as
amended. The respondent, during the relevant period i.e from Nov 2007 to
March 2010, procured raw material i.e crude mentha oil against invoices
from various suppliers, mostly based in the State of U.P. Since the
respondent had paid the excise duty on the manufactured goods removed
from its unit by utilization of CENVAT Credit/PLA, as such, in terms of
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Notification dated 14.11.2002 (supra), it availed the refund/self-credit of
Central Excise Duty paid through PLA amounting to Rs.23,61,38,350 under
self credit option.
5 While the respondent was enjoying the benefits of area based
exemptions under the Notification dated 14.11.2002 (supra), the appellant
received some intelligence inputs that the respondent was
mis-utilising the exemption scheme in order to avail refund of the Central
Excise Duty. The investigation was undertaken by the Commissionerate,
Central Excise Meerut-II [„Commissionerate‟] in which it came to be
established that the respondent had actually not manufactured goods, but had
fraudulently shown production and clearance thereof with an intent to avail
illegal monetary benefits at the cost of the Government exchequer. The
investigation concluded that the respondent had adopted a modus operandi
of showing production and clearance of excisable goods without actually
manufacturing the same and, thus, misused the provisions of Exemption
Notification dated 14.11.2002 (supra).
6 The investigation by the Commissionerate revealed that during
the relevant period, the respondent had procured the raw material from M/S
Sachin and Nitin Enterprises, Lucknow, M/S Neeraj Traders, Lucknow and
M/S Rapti Commission Agency, Lucknow. The investigation by the
Commissionerate focussed on verifying the farmers who had allegedly
supplied goods to certain suppliers of the respondent. Based upon the
investigation, the Commissionerate issued show cause notices to the buyers
and manufacturers falling within its jurisdiction. A specific inquiry in
respect of M/S Sachin and Nitin Enterprises, Lucknow was also conducted.
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The summons issued to M/S Sachin and Nitin Enterprises, Lucknow were
not complied with. The officers of the Commissinerate, Central Excise
Meerut-II searched various branches of M/S Sachin and Nitin Enterprises
located at different places of District Barabanki in U.P. Some of the
premises were found closed and locked. The Head office of M/S Sachin and
Nitin Enterprises, situate at Indira Nagar, Lucknow too was searched on
26.08.2009 in which 45 books containing 100 vouchers each, showing
different payments made to the farmers for the purchase of crude menthe oil,
for the year 2007-08, were recovered. The farmers, who were named in the
vouchers, and had allegedly supplied the crude mentha oil to M/S Sachin
and Nitin Enterprises, were verified through jurisdictional officers of the
Central Excise. The farmers randomly selected from the purchase vouchers
were found non-existent. It is on the basis of this investigation conducted by
the Commissionerate, the jurisdictional Commissioner concluded that the
J&K based units were not purchasing raw materials, so there was no
question of manufacture of finished goods as had been shown by the
respondent to avail the area-based exemptions. The jurisdictional Authority,
thus, initiated the proceedings by issuing a show cause notice to the
respondent, raising a demand for the duty refunded in terms of Notification
dated 14.11.2002 (supra).
7 The Adjudicating Authority confirmed the demand on the
ground that the farmers who had allegedly supplied the raw material i.e,
mentha oil were, non- existent and that, in the absence of any supply of raw
material, there was no manufacturing process undertaken by the respondent.
Therefore, by way of order impugned before the CESTAT, the excise duty
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refunded to the respondent was sought to be demanded. Against the order of
Adjudicating Authority, an appeal was preferred before CESTAT,
Chandigarh which has been accepted by the CESTAT and the impugned
order passed by the Adjudicating Authority has been set aside.
8 The impugned order of CESTAT has been challenged by the
appellant primarily on the ground that the CESTAT erroneously ignored the
Inquiry/investigation conducted by the Commissionerate and also that the
impugned order passed by the CESTAT is not in conformity with the
provisions of Notification dated 14.11.2002 (supra). On facts, it was argued
by Mr. Nanda, learned counsel for the appellant that once it was firmly
established that the origin of the raw material used by the respondent in its
alleged manufacturing process was fabricated, the jurisdictional Authority
had no option, but to hold the entire transaction, starting from the
procurement of raw material to the manufacturing of finished products and
their removal from the unit, was fake and manipulated to claim the benefit of
area-based exemptions under the Excise Notification dated 14.11.2002
(supra).
9 Per contra, Mr. Sudhir Malhotra learned counsel appearing for
the respondent, would argue that the entire case of the appellant against the
respondent is based upon the investigation conducted by the
Commissionerate from the farmers who allegedly supplied the crude mentha
oil to some of the suppliers of the respondent. He would argue that the
suppliers of the respondent were traders and that the respondent did not
procure any goods directly from the farmers. He submits that the entire
case of the Revenue is that the respondent had neither procured crude
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mentha oil, nor produced excisable goods during the relevant period, and
that the respondent wilfully fabricated the records in respect of raw material
procurement, production, and clearance. Mr. Malhotra would argue that, in
the absence of any independent investigation conducted by the jurisdictional
Central Excise Authorities into the functioning of the respondent, the
jurisdictional Authority could not have raised the demand for refund of
excise duty paid by the respondent on the clearance of goods from its unit.
He submits that, in response to the show cause notice, the respondent had
submitted its reply clarifying its position, as is reproduced in paragraphs No.
5, 6 and 7 of the impugned order passed by the CESTAT. However, the
same was neither referred to by the Adjudicating Authority, nor
controverted by the Revenue department. He, therefore, submits that the
CESTAT correctly appreciated the issue and came to the conclusion that
there was no evidence on record proving that the respondent was not the
manufacturer and had not produced the excisable goods during the relevant
period. Consequently, the CESTAT held that there was no illegality or fraud
committed by the respondent in availing the refund of excise duty paid by it
on the removal of goods manufactured in its unit.
10 Having heard learned counsel for the parties and perused the
material on record, we are of the considered opinion that the CESTAT has
very correctly appreciated the entire controversy and has rightly concluded
that the action of the appellant, based solely on the investigation conducted
by the Commissionerate, was not sustainable in law.
11 With a view to deny the benefit of the exemptions envisaged
under Excise Notification dated 14.11.2002(supra), the appellant was
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required to demonstrate and prove that during the relevant period, when the
refund was claimed by the respondent, it had not procured any raw material,
nor had it undertaken any manufacturing process. This could have been
determined by the appellant by conducting an inquiry/investigation
specifically focused on these aspects of the matter.
12 Indisputably, in the inquiry conducted by the Commissionerate,
the respondent was not associated. The clear case of the respondent is that it
procured raw material for its unit i.e, crude menthe oil, from various
suppliers in Lukcnow and, therefore, it was not for the respondent to further
find out and inquire as to how and from whom the suppliers had procured
the raw material. The Commissionerate has undoubtedly conducted an
elaborate inquiry, but could only conclude that the farmers, whose names
were appearing on the vouchers seized from the possession of M/S Sachin
and Nitin Enterprises were non-existent. The Commissionerate has, thus,
seriously doubted the procurement of raw material by the suppliers of the
respondent. That apart, the entire investigation conducted by the
Commissionerate was at the back of the respondent and, therefore, could not
have been made the sole basis for action against the respondent. The
respondent had produced several documents before the Adjudicating
Authority to prove that it had not only procured the raw materials, but had
also manufactured finished goods from these materials, which were cleared
from the unit upon payment of excise duty. These documents included a
certificate from the Commercial Tax Officer, Jammu dated 28.04.2006; a
certificate from the General Manager; District Industries Centre, Jammu
dated 27.06.2006; permission for running the factory into three shifts
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throughout the year from the Inspector of Factories and Boilers, Jammu
dated 13.02.2008; permission for installation of additional machinery for
enhancing its capacity/manufacturing additional product, inter alia, on the
condition that the unit will operate on DG sets; Annual financial statements;
audited financial statements for the relevant period and periodic returns
submitted to Inspector of Factories. The CESTAT has rightly taken note of
the fact that most of the consignments of the raw material procured by the
respondent were entered at the toll barrier. The officers of the District
Industries Centre, who had assessed and fixed the capacity of the
respondent, had regularly verified the purchase consignments. The
Adjudicating Authority has also ignored the fact that the respondent had
installed two DG sets of 125 KVA to supplement the power. The case was
clearly set up by the respondent before the Adjudicating Authority, but the
same was not enquired into or investigated and the Adjudicating Authority
rather placed sole reliance upon the investigation conducted by the
Commissionerate. The CESTAT has rightly not approved the manner in
which the proceedings were conducted by the Adjudicating Authority.
13 We, at the cost of repetition, would say that with a view to
claim payment of refund availed by the respondent under Notification dated
14.11.2002 (supra), it is necessary for the jurisdictional Excise Authority to
establish the following:
(i) That no raw material has been procured by the respondent;
(ii) That the unit has not undertaken any manufacturing activity
involving the use of raw material during the relevant period;
(iii) That no excisable goods were removed by the respondent
from the unit and that the refund was fraudulently claimed.
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14 With a view to prove the aforesaid, an in-depth investigation is
required to be conducted by the jurisdictional Authority by providing the
respondent with a fair opportunity to explain and put up its defence. The
report of the Commissionerate may form the basis for suspecting
malpractices indulged in by the respondent but cannot be the sole basis for
taking action. The investigation conducted by the Commissionerate could, at
the most, be taken as a prima facie material to initiate action against the
respondent. However, any action, to be taken against the respondent, must
satisfy the requirements of law and, in particular, the compliance with the
principles of natural justice.
15 In reply to the show cause notice issued by the jurisdictional
Authority, the respondent had brought on record some evidences clearly
demonstrating that not only the raw material stood procured, but the goods
were also manufactured in the unit of the respondent from the procured raw
material. The raw material was transported in trucks from outside the State
of Jammu and Kashmir into the State. The jurisdictional officers of the
Central Excise, the State Industries Department, and other statutory
authorities had inspected the premises of the respondent from time to time
and had never reported that the respondent‟s unit was defunct and was not
engaged in the permitted manufacturing activity. All these evidences could
not have been ignored by the jurisdictional Authority only on the ground that
there was investigation report from the Commissionerate belying the claim
of suppliers of the respondent that they had procured the crude mentha oil
from different farmers in Barabanki District of U.P.
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16 For the aforesaid reasons, we fully concur with the view taken
by the CESTAT. The substantial questions of law raised by the appellant,
and framed by this Court vide order dated 27.01.2020, are essentially the
disputed questions of fact and cannot even be termed as “substantial
questions of law”.
17 Viewed from any angle and for the reasons stated above, we do
not find the order and judgment impugned passed by the CESTAT suffering
from any error or legal infirmity. The appeal is, thus, found to be without
any merit and is, accordingly, dismissed. We, however, leave it open to the
Authority concerned to conduct a fresh investigation in the matter in
consonance with the principles of natural justice and, of course, in
accordance with law. The Authority may take appropriate action against the
respondent if it is found to have indulged in any malpractices leading to a
fraudulent refund of excise duty paid allegedly on the excisable goods
removed from its unit.
(PUNEET GUPTA) (SANJEEV KUMAR)
JUDGE JUDGE
JAMMU
31 .12.2024
Sanjeev
whether order is reportable:Yes/No