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DHARAMPAL AND SATYAPAL SONS PVT LTD Vs. CIT DELHI II
May, 27th 2013
$~3

       THE HIGH COURT OF DELHI AT NEW DELHI
%                                      Judgment delivered on: 01.04.2013

+      CEAC 46/2012 & CM 18227/2012

       DHARAMPAL AND SATYAPAL SONS PVT LTD..... Petitioner
                   Versus

       CIT DELHI II                                             ..... Respondent
Advocates who appeared in this case:
For the Petitioner           : Mr S K Bagaria, Sr. Adv. with Dr Prabhat Kumar,
                             Adv.
For the Respondent           : Through Mr Kamal Nijhawan, sr. standing counsel
                             with Mr Sumit Gaur, Adv.

CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE R.V.EASWAR

                                  JUDGMENT

BADAR DURREZ AHMED, J (ORAL)

       We have heard the learned counsel for the parties. The counsel are

agreed that this appeal be disposed of at this stage itself. Two substantial

questions of law arise for our consideration in this appeal. They are :-


       (1) Whether, in the facts and circumstances of the case, the
       Customs, Excise and Service Tax Appellate Tribunal was
       correct in law in upholding the penalty of `2 crores under
       Rule 173Q(1)(d) of the Central Excise Rules, 1944?




CEAC 46/2012                                                           Page 1 of 15
       (2) Whether the finding of the Tribunal in confirming the
       penalty under Rule 173Q(1)(d) of the Central Excise Rules,
       1944 was not perverse inasmuch as the evidence produced
       by the appellant before the Commissioner in remand
       proceedings was not considered either by the Commissioner
       or by the Tribunal?

2.     As can be noticed from the above questions, this appeal is only

concerned with the question of penalty under Rule 173Q(1)(d) of the

Central Excise Rules, 1944 (hereinafter referred to as ,,the said Rules).

The issue with regard to the payment of central excise duty on the

production of raw kimam and other ingredients such as saffron, musk,

perfumes and other spices stands settled by the Supreme Court by virtue

of its judgment dated 21.04.2005 in civil appeal Nos.1506-1508/2000 in

the case of the present appellant itself. The issues raised before the

Supreme Court in that round of litigation were relating to (a) the

excisability of kimam and classification thereof under sub-heading

2404.40 (w.e.f. 23.07.1996) and 2404.49 (prior to 23.07.1996); (b) the

rationale for invoking the extended period of limitation under Section

11A(1); and (c) eligibility for the benefit of proforma and modvat credit

classification of chewing tobacco kimam. All these issues were decided

against the appellant and in favour of the revenue. This would be clear

from the following extracts of the Supreme Court decision :-






CEAC 46/2012                                                   Page 2 of 15
       "It was urged that the assessee was under a bonafide
       impression that no duty was leviable on the goods; the full
       quantity of disputed goods was used captively and, therefore,
       proforma credit / modvat credit was available in respect
       thereof and, therefore, there was no intent to evade payment
       of duty. In support of the aforestated submissions, it was
       urged that suppression or breach of rules by itself would not
       amount to intention to evade; that some positive act of
       deliberate suppression or breach of rules was required to be
       shown by the department; that, if the assessee showed that
       credit available to it was equal to the demand then there may
       not be the case of intention to evade payment of duty. In this
       connection, reliance was also placed on the judgments of this
       Court in Amco Batteries Ltd. v. Collector of Central Excise,
       Bangalore reported in 2003 (153) ELT 7; Padmini Products
       v. Collector of Central Excise reported in 1989 (43) ELT
       195; and Formica India Division v. Collector of Central
       Excise reported in 1995 (77) ELT 511.

              We do not find merit in the above contentions. In this
       matter, we are concerned with the application of the above
       judgments to the facts of this case. The words "wilfulness"
       and "intent" in section 11A are expressions of mental state at
       the time of manufacture and clearance of the goods. The
       situs of the levy of central excise is on manufacture. Pricing
       and value of clearances are matters specially within the
       knowledge of the assessee. As stated above, the assessee
       herein was in the business of manufacture of chewing
       tobacco and its preparations for last couple of years. In the
       course of business, the assessee had dealt with similarly
       situated traders. It was fully aware that those traders who
       produced similar compounds had their units licensed or
       registered and yet the assessee herein did not take steps to
       get the above two units, in which the impugned compound
       (kimam) was manufactured, registered or licensed. As stated
       above, it has been buying a similar kimam from various
       traders. These circumstances constituted evidence of
       suppression brought on record by the department in answer



CEAC 46/2012                                                     Page 3 of 15
       to which it was contended on behalf of the assessee that they
       were under a bonafide impression that the compound was
       not excisable and that the benefit of proforma and modvat
       credit together with the benefit of exemption under
       notification no.121/94 dated 11.8.1994 was substantially
       equal to the demand for duty herein and, therefore, there was
       no intention to evade payment of duty.

              We do not find any merit in these submissions. As
       stated above, the adjudication in this case was confined to
       the question of excisability and concealment of the existence
       of two units in which the compound (kimam) was
       manufactured. No explanation has been given by the
       assessee for not disclosing the affairs of these units,
       particularly when the assessee was in business for couple of
       years and when the assessee had been dealing with other
       traders who operated from licensed factories. It was for the
       assessee to explain the reasons for not getting the units
       registered or licensed. It was for the assessee to explain its
       failure to maintain the records under the 1944 Act and rules
       thereunder. In each of the above decisions, we find that there
       was substantial compliance of the rules under the said Act.
       In each of the decisions the findings indicate technical non-
       compliance and not total non-compliance of the rules. It was
       for the assessee to explain the basis of its alleged bonafide
       impression. In this connection, no evidence was put before
       the commissioner about receipt and utilization of the
       compound in the manufacture of Tulsi Zafrani Zarda. No
       evidence was led to show that the amount of proforma /
       modvat credits was equal to the duty demanded, although it
       was urged that after 3/94, the liability to duty on inputs stood
       shifted to the final product.

              Modvat is basically a duty collecting procedure which
       provides relief to the manufacturer on the duty element
       borne by him in respect of the inputs used by him. The relief
       is given under the modvat scheme on the actual payment of
       duty on the input. On such payment, the assessee gets a right
       to claim adjustment/set-off against the duty on the final


CEAC 46/2012                                                       Page 4 of 15
       product. The question of duty adjustment/set-off against duty
       on the final product was not in issue. In any event, no record
       on credit entitlement was produced. A right to claim
       proforma/modvat credit against duty on final product was
       different from the defence of bonafides in a case where
       circumstances mentioned in the proviso to section 11A(1)
       stands proved by the department for invoking larger period
       of limitation. The burden to prove the defence of bonafides
       was on the assessee and the assessee in this case has failed to
       prove its bonafides. Under modvat, excisable finished
       products made out of duty-paid inputs are given relief of
       excise duty to the extent of duty paid on inputs. In the
       circumstances, we are satisfied that the department was
       justified in invoking the extended period of limitation under
       the proviso to section 11A(1).

              On the applicability of the notification no.121/94
       dated 11.8.1994, the tribunal remanded the case back to the
       commissioner for re-examination of the limited question of
       its applicability. The tribunal also directed the commissioner
       to reconsider the quantum of penalty, fine etc. in the light of
       its findings on the applicability of the said notification. We
       do not wish to express any opinion on the applicability of the
       notification dated 11.8.1994. Suffice it to state, that, on the
       issue of excisability and clandestine manufacture and
       removal of the compound (kimam) from the two unlicensed/
       unregistered units at 96, Okhla Industrial Estate, Phase-III,
       New Delhi / E-1, Maharani Bagh, New Delhi, we do not find
       any infirmity in the impugned judgment.

              Accordingly, these civil appeals filed by the assessees
       are dismissed with no order as to costs."


3.     From the above it will be seen that on merits, the issue had been

settled except with regard to the applicability of notification No.121/94-

CE dated 11.08.1994. The Supreme Court had observed that the Tribunal



CEAC 46/2012                                                      Page 5 of 15
had remanded the case to the Commissioner for re-examination of the

limited question of its applicability. The Supreme Court further noted

that the Tribunal had also directed the Commissioner to consider the

quantum of penalty, fine etc. in the light of its findings on the

applicability of the said notification. The Supreme Court made it clear

that it did not wish to express any opinion on the applicability of

notification dated 11.08.1994.     However, it confirmed the issue of

excisability and clandestine manufacture and removal of kimam from the

two unlicensed/unregistered units at 96, Okhla Industrial Estate, New

Delhi and E-1, Maharani Bagh, New Delhi. To that extent, the Supreme

Court did not interfere with the decision of the Tribunal dated 1.10.1999.


4.     The learned counsel for the appellant fairly stated that insofar as

the question of applicability of notification No.121/94-CE was concerned,

that issue had subsequently been settled by the Supreme Court by virtue

of its decision in Commissioner of Central Excise, New Delhi Vs. Hari

Chand Shri Gopal : 2010 (260) ELT 3 (SC.) He submitted that in view

of the said decision, the said notification No.121/94-CE dated 1.10.1999

would not be applicable in the present case of the appellant. It is for this

reason that the issue with regard to the applicability of the said




CEAC 46/2012                                                     Page 6 of 15
notification was not raised as a subject matter of challenge even before

the Tribunal in the second round.


5.     The learned counsel for the appellant submitted that the only issue

that he seeks to raise in the present appeal, as would be evident from the

questions which have been formulated, is that of the penalty under Rule

173Q(1)(d) of the said Rules. He submitted that once the Tribunal in the

first round by virtue of its order dated 1.10.1999 had remitted the matter

for examination of the applicability of notification No.121/94-CE and for

consequent reworking of the quantum of penalty, fines, etc., the penalty

order initially imposed by the Commissioner no longer survived and the

penalty had to be reworked. It is another matter that the notification No.

121/94-CE does not now apply to the case of the appellant due to the

subsequent decision of in Hari Chand Shri Gopal (supra). However, the

learned counsel for the appellant says that this does not mean that it is not

open to the appellant to place its point of view with regard to the question

of penalty. According to the learned counsel, the entire issue of the levy

of penalty as also the quantum of penalty was remitted to the

Commissioner of Central Excise for re-examination. While it is true that

the Supreme Court in the first round, had examined the question of




CEAC 46/2012                                                      Page 7 of 15
contravention of the provisions of the Act and Rules alongwith the issue

of intent to evade duty, that was in the context of the proviso to Section

11A(1) of the Central Excise Act, 1944 (hereinafter referred to as ,,the

said Act). The learned counsel for the appellant submitted that at that

point of time the Supreme Court had concluded that it was for the

appellant to have demonstrated its bona fides by producing the relevant

evidence to, inter alia, show a one-to-one relationship between the

clearances of perfumed kimam from the two units in question and the

receipt of the same by its other units which produced chewing tobacco

from the perfumed kimam processed in the two units which are in

question. He further submitted that at that point of time the appellant had

not produced any evidence and it is for this reason that the Supreme

Court concluded that the appellant was not able to demonstrate its bona

fides and, therefore, the Supreme Court did not interfere with the

Tribunals findings that extended period of limitation prescribed in the

proviso to Section 11A of the said Act had been correctly invoked. The

learned counsel for the appellant however submitted that because the

appellant had been given a second opportunity on account of the remand

made by the Tribunal on the issue of penalty, the appellant was able to




CEAC 46/2012                                                     Page 8 of 15
produce evidence to show that the perfumed kimam produced at its two

units in question had been captively consumed by the appellant itself in

the manufacture of chewing tobacco, on which full duty was paid.


6.     The learned counsel submitted that this evidence would go to show

that the appellant did not have an intention to evade duty inasmuch as,

had the appellant complied with the statutory provisions and got the two

units in question registered and paid central excise duty on the clearances

of perfumed kimam, the appellant would have got credit for the same in

its other units which were producing chewing tobacco and, therefore, the

revenue effect would be neutral. That being the position, the learned

counsel for the appellant submitted that the appellant could not be said to

have an intent to evade duty which was a necessary ingredient for Rule

173Q(1)(d) of the said Rules. It is another matter that the Supreme Court,

on virtually the same considerations, held against the appellant when it

considered the question of invocation of the extended period of limitation

under the proviso to section 11A of the said Act. But, at that point of

time the Supreme Court held against appellant because the appellant did

not produce any material or evidence to demonstrate its bona fides.




CEAC 46/2012                                                     Page 9 of 15
7.     In this backdrop, the limited question raised by the appellant is that

when the issue of penalty was open before the Commissioner because of

the remand order passed by the Tribunal on 1.10.1999 and the appellant

had produced certain evidence in the remand proceedings, the same ought

to have been considered by the Commissioner before levying the penalty

of `2 crores. He submitted that the Commissioner imposed the penalty of

`2 crores in the following manner :-


       "III. Penalty under Rule 173Q

       28. Rule 173Q of the Central Excise Rules, 1994 provided
       for a penalty upto three times the value of the goods or
       `5000/- whichever higher, inter alia for manufacture of
       excisable goods without registration or removal of excisable
       goods in contravention of any of the provisions of the
       Central Excise Rules with the intention to evade payment of
       duty.

       29. It has already been upheld by the Honble Tribunal in
       their Final Order dated 1-10-1999 that the goods in dispute
       were excisable/dutiable, that these goods had been
       manufactured without obtaining registration from the Central
       Excise department and that the conduct of the party
       amounted to suppression of facts with intent to evade
       payment of duty, justifying demand of duty beyond the
       normal period of six months. Clearly, the elements of
       offence envisaged under Rule 173Q are present in the case
       of the party. I, therefore, have no hesitation in holding that
       the conduct of the party warranted imposition of penalty
       under Rule 173Q."


CEAC 46/2012                                                      Page 10 of 15
       XXXX        XXXX         XXXX          XXXX         XXXX

       "38. XXXX          XXXX         XXXX         XXXX

       ii.   I impose a penalty of Rupees two crores on the party
       under Rule 173Q(1) of the Central Excise Rules, 1994 read
       with Section 38 A of the Central Excise Act, 1994 ...."

8.     Being aggrieved by this order the appellant filed an appeal being

Excise Appeal No.1463/2005 before the said Tribunal. The appeal was in

respect of other grounds as also on the point of penalty. By virtue of an

order dated 07.04.2011 the Tribunal dismissed the appellants appeal.

However, since the said order only dealt with the other issues and the

question of penalty had not been considered by the Tribunal in the said

order dated 07.04.2011, the appellant filed an application (rectification of

mistake application) before the Tribunal which was disposed of by the

impugned order dated 17.07.2012 whereby the Tribunal specifically

addressed the issue of penalty under Rule 173Q(1)(d) of the said Rules.

By virtue of the said order, the Tribunal quoted the portions of the

Supreme Court decision dated 21.04.2005, which we have already

extracted above. After setting out the said extract, the Tribunal held that

the Supreme Court had held that the appellant was fully aware that other

persons who had produced similar compounds (perfumed kimam) had

applied for registration and yet the appellant had not taken any steps to



CEAC 46/2012                                                     Page 11 of 15
get its units registered. The Tribunal further observed that the Supreme

Court had held that these units of the appellant were manufacturing

kimam without registration or licence and therefore, there was violation

of the Rules as also there was evidence of suppression. The Tribunal

further observed as under :-


       "8. When the Apex Court itself has given a finding that
       the non-payment of duty was deliberate and not a bonafide
       mistake, penalty under Rule 173Q(1)(d) would be attracted
       and looking to the quantum of duty demand upheld against
       the appellant, the penalty of `2,00,00,000/- cannot be called
       excessive.

       9.    In view of the above discussion, we do not find any
       merit in the appellants plea with regard to imposition of
       penalty. The appeal is, therefore, dismissed."

9.     We have also heard the learned counsel for the respondent who has

reiterated the findings returned by the Tribunal. He also submitted that

once the Supreme Court had returned a clear finding with regard to the

lack of bona fides of the appellant in the context of the proviso to Section

11A of the said Act there was no option left with either the Commissioner

or the Appellate Tribunal to return a contrary finding.          Therefore,

according to the learned counsel for the respondent the impugned order

ought not to be interfered with.




CEAC 46/2012                                                     Page 12 of 15
10.    Having considered the rival contentions of the learned counsel for

the parties and also the history of the litigation it appears to us that when

the matter travelled to the Supreme Court, the question of penalty was not

in issue. It was only the quantum proceedings which were before the

Supreme Court and the Supreme Court had settled the issue with regard

to the excisability of the perfumed kimam produced by the appellant. The

issues with regard to the applicability of notification No.121/94-CE and

the reworking of the penalty under Section 173Q(1)(d) of the said Rules

were not touched upon by the Supreme Court as the Tribunal had

remanded the matter to the Commissioner for a consideration of those

very issues. Now, we have already observed above that the issue of

applicability of notification No.121/94-CE was subsequently concluded

by the Supreme Court by virtue of its decision in Hari Chand Shri Gopal

(supra). As a result, the learned counsel for the appellant conceded that

the said notification would not apply even in the appellants case. That

left only the issue with regard to penalty to be decided. We feel that since

the question of penalty had been reopened in view of the remand made by

the Tribunal by virtue of its order dated 1.10.1999 and penalty

proceedings being generally separate and independent of the quantum







CEAC 46/2012                                                      Page 13 of 15
proceedings, it was incumbent upon the Commissioner to have examined

the evidence that was produced at the stage of remand by the appellant

which would in any way alter the case for levy of penalty on the

appellant. In the first round the Supreme Court had observed that the

bona fides of the appellant were not established inasmuch as the appellant

had failed to prove the same.     The Supreme Court had come to the

conclusion inasmuch as it felt that the burden to prove the defence of

bona fides was on the appellant, which it had failed to discharge. In the

second round when the penalty issue was being considered by the

Commissioner some material/evidence was produced by the appellant in

an attempt to discharge its burden and to establish its bona fides. That

material/evidence has not been considered by the authorities below.

Neither by the Commissioner of Central Excise nor by the Tribunal.

Therefore, we are of the view that the impugned order ought to be set

aside and the matter ought be remitted to the Tribunal for considering the

said material while taking a view on the levy of penalty under Rule

173Q(1)(d) of the said Rules.


11.    Accordingly, we set aside the impugned order dated 17.07.2012

and remit the matter to the Tribunal to consider the question of imposition




CEAC 46/2012                                                     Page 14 of 15
of penalty under Rule 173Q(1)(d) of the said Rules in the light of the

material available on record including the material which had been

furnished by the appellant before the Commissioner at the stage of

remand. We make it clear that we have not expressed any opinion as to

what effect such material would have on the question of imposition of

penalty. That is entirely for the Tribunal to consider. All that we have

stated is that the Tribunal ought to have considered the said material

before it arrived at the conclusion that the penalty imposed by the

Commissioner was in accordance with law. With these observations the

two questions are decided in favour of the appellant and the matter is

remitted to the Tribunal as indicated above.

       The appeal stands disposed of.



                                        BADAR DURREZ AHMED, J



                                        R.V.EASWAR, J
APRIL 01, 2013
vld




CEAC 46/2012                                                  Page 15 of 15
 
 
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