Karnataka H.C : Where assessee was issued a show cause notice alleging that it had evaded duties under both Customs Act and Central Excise Act and said allegations appeared to be of serious nature and were based on fresh revenue intelligence inputs which may not have been on record of Assessing Authorities at earlier point of time and show cause notice was not found to be ex-facie illegal and without jurisdiction, it could not have been interfered with

High Court Of Karnataka

Hindustan Granites vs. Additional Director General, Directorate of Revenue Intelligence

Section 73

Dr. Vineet Kothari, J.

Writ Petition Nos. 53862-865 Of 2015 (T-Tar)

August 29, 2017

ORDER

1. The 1st Petitioner M/s. Hindustan Granites represented by its Proprietor Mr. Anand Reddy M.G, and two others namely Mr. D. Ramesh and Mr. M. Srinivasa have jointly field these petitions under Article 226 of the Constitution of India against the Respondents- Addl. Director General, Directorate of Revenue Intelligence, Bangalore and Prl. Commissioner of Central Excise, Bangalore, aggrieved by the 166 page Show Cause Notice issued by the 1st Respondent- Addl. Director General of Revenue Intelligence vide Annexure-M dated 12.08.2015 to show cause before the 2nd Respondent – Prl. Commissioner of Central Excise, Bangalore, on various grounds narrated in this probably the longest show cause notice assailed before this Court in writ jurisdiction. The said notice has been issued invoking Section 11A of the Central Excise Act, 1944 and Section 72 of the Customs Act, 1962.

2. Shorn of unnecessary details, the sum and substance of the said Show Cause Notice covering the period of 10 years from August 2004 to May 2014 is that on account of Revenue Intelligence Reports, the said Authority has reasons to call upon the petitioner, a Proprietary concern that it has not only violated the conditions of import of marble and granite from other countries free from payment of customs duty and then instead of re-exporting the finished products manufactured out of this marble and granite blocks, since it was a 100% Exported Oriented Unit (EOU) and since it diverted the finished goods through its sister concerns into the domestic market and therefore, it is not only liable to pay customs duty for such violations, but also such central excise duty with interest and penalty under the provisions of the Central Excise Act, 1944, as well as Customs Act, 1962.

3. Some portion of the said Show Cause Notice are quoted below to give a brief idea of the proceedings which are intended to be undertaken by the Prl. Commissioner of Central Excise at the instance of the said Addl. Director of General of Revenue Intelligence for ready reference:—

“23.2:

The said SCN was adjudicated by the Commissioner of Customs, Bangalore vide OIO No.16/2009 dated:21.05.2009. The original adjudicating authority at Para 81 to 84 of the said OIO has noticed and discussed the undervaluation aspect and observed that The SCN has alleged that there is gross under valuation of the goods for the purpose of payment of duty on DTA sales which are effected from M/s HG to M/s HMG. “However the subsequent invoices raised by M/s HMG on buyers have indicated that there is under valuation to the extent of 90.71%”. This order was appealed against and the Hon’ble CESTAT sent back the OIO for De novo adjudicated the SCN and has once again upheld the demand made in the SCN. On going through the SCN issued by DGCEI, it is seen that Central Excise Valuation Rules were invoked in place of Customs Valuation Rules. However, while adjudicating the case, Commissioner of Customs, Bangalore vide OIO Sl.No.16/2009 dated:22.05.2009 confirmed the same under Customs Valuation Rules holding that misquoting of Rules would not anyway vitiate the proceedings. Secondly, DGCEI had on the basis of evidence obtained by them in respect of clearances made in one transaction and applied the same to all the clearances for the entire period of 9/04 to 10/06, alleging that there was undervaluation to the extent of 90.71%. Moreover, for the purposes of arriving at the value of goods clandestinely removed, the SCN adopted a value of Rs 125/Sq.ft. However, the goods under discussion in that SCN were both Marble slabs as well as Granite slabs. Moreover, the order is pending before CESTAT for final decision after the completion of adjudication in de novo proceedings. In view of the fresh/new facts, more details about prices and evidences unearthed during the present investigation it appears that, there is a clear need to reconsider the method of valuation adopted in the SCN issued by DGCEI. Moreover, present investigation has revealed substantial data/information relating to prices at which contemporaneous imports of Marble slabs of like kind and quality took place during the period from 2004-2001 which provides an indication as to the prices at which HMG would have sold Marble slabs in DTA.

25.1:

It appears from the above, both DGCEI and Commissioner of Central Excise, cannot be adopted in the instant case, as new facts and evidences have emerged in light of the same the period covered is considerably wider. The present SCN proposes to cover the period from 2004-2014 whereas the SCNs issued by DGCEI and Central Excise were for a limited period as stated above and were in respect of undervaluation of permitted DTA clearances and clandestine removal for the period to April-June 2006. It could be seen that the value declared by M/s HMG for marble slabs cleared by them varies from Rs.250 to Rs.2500. It could also be seen that M/s HG have imported marble slabs at the rate of Rs.303.16 per Sq. ft & Rs.393.206 per Sq. ft during 2011-12 & 2013-14 respectively. As far as clearances of marble slabs fare concerned, it is to be noted that the values adopted in the present SCN based on fresh facts/evidence, invariably higher than the values adopted by the DGCEI/CCE for the relevant periods.

Thus the present SCN covers the period from August 2004 to May 2014, which includes the period already covered in the SCNs issued by DGCEI and Commissioner of Central Excise. The reason for such inclusion is essentially to ensure a uniform approach to valuation of marble slabs cleared by HG in the DTA. Irrespective of whether the values adopted in the aforesaid SCNs are ultimately upheld or otherwise by the appellate/adjudicating authority it appears that there would still arise the requirement of payment of differential duty even for the period covered by the aforesaid SCNs. In other words if the duty demands raised in the aforesaid SCNs are fully upheld, the amounts thereof would appear to call for adjustment towards the total duty demand raised in this SCN would appear to merit consideration in view of the fresh/new facts and evidence adduced in this SCN.

37:

From the above paras, it is evident that M/s HG a 100% EOU unit imported marble blocks from 2004-05 to 2014-15 for export of Marble Slabs. However documents obtained during investigation reveal that M/s HG over invoiced exports in the shipping bills, misdeclared the contents of exports as marble slabs in the shipping bills, interchangeably used the abbreviations of granite for marble in the shipping bills during exports, changed the description of marble as granite in the export invoice by hand at US, raised bogus and false invoices for sale of Granite Slabs during export to SEZ units, misdeclared the import as rough marble block in the Bills of Entry instead of dressed marble blocks, declared falsely the quantum of export of Marble Slabs before CSEZ & Customs to obtain permission for DTA sale of Waste Slabs, Inflated the amount of Scrap generated, failed to declared the variety, colour etc of both the imported marble blocks and marble slabs sold in any of the documents in order to avoid detection & correlation of documents, didn’t maintain proper records as a EOU, Diversion of Marble Slabs to DTA in the guise of Stock Transfer & Job Work and creation of documents such as Annexure-9 challans, Delivery Challans, e-sugam and registers for such clearances, created documents for sale of waste slabs to nonexistent companies and created documents for sale of scrap to nonexistent company all with an intent to divert marble slabs to DTA and thereby evade legitimate duties to the government amounting to willful misdeclaration and suppression of facts. The above acts of Omission and Commission justifies/demands, invoking extended period of time and also to go well beyond the extended period by invoking the provisions of the Bond executed by M/s HG as a 100% EOU binding itself to make good/pay all duties on demand”.

4. While issuing notice in the present writ petition, the coordinate bench of this Court vide order dated 03.12.2015 had stayed all further proceedings in pursuance of the said show cause notice Annexure-M and that interim order is still continuing and the Respondents have filed the Statement of Objections thereafter and today, the matter was heard finally at the admission stage which is listed in ‘B’ group category before this Court.

5. Mr. S.S. Naganand, learned Senior counsel for the petitioners has essentially raised the following contentions with great emphasis:—

(i) that the impugned show cause notice ex-facie is illegal and without jurisdiction, as the same is clearly hit by the provisions of Section 11A of the Central Excise Act, 1944. in so far as the maximum limitation period prescribed under this provision is 5 years, even if such an action is taken by the Respondent Authority on the allegations of misrepresentation, misstatement, fraud or collusion by the assessee and therefore, there is no way that the Respondents-Authority can wriggle out of this maximum limitation of 5 years from the ‘relevant date’ from the removal of the goods in question, which is the taxable even under the provisions of Central Excise Act, 1944 and admittedly, the impugned show cause notice covers the period from 10 years back August 2004 to May 2014, and the same has been now issued on 12.08.2015, therefore it is ex- facie much beyond the said period of limitation of 5 years and to this extent, the show cause notice deserves to be quashed.

(ii) that the said show cause notice flies in the face of the earlier six show cause notices issued by the said authority which have resulted in adjudication orders passed by the competent authorities and which are the subject matter of appeals filed by the assessee which are pending at the higher Appellate forums and therefore, the Prl. Commissioner of Central Excise now cannot undertake any proceedings with regard to those periods which are already adjudicated upon and are subject matter of pending appeals and it would be absolutely contrary to not only the provisions of the Act but in breach of principles of judicial discipline and therefore, the said notice deserves to be quashed by this Court.

The learned Senior counsel has relied upon the following judgments in support of his contention:—

(a) Associated Cement Co. Ltd. v. Union of India 1996 (88) E.L.T.348 (Kar),

(b) Dharampal Lalchand Chug v. CCE [2015] 62 taxmann.com 121 (Bom.).

6. On the contrary, Mr. Jeevan J. Neeralgi, learned counsel for the Respondents-Revenue has vehemently submitted before this Court that:—

(i) it would be premature for this Court to embark upon the enquiry and merits of the various allegations and contentions raised in the impugned show cause notice, which is of-course long one and covers all varied intelligence inputs and events and since the said authority of the Revenue Intelligence has found new material which has thrown light on the huge evasion of duty by the petitioner, not only under the provisions of Central Excise Act, but violated the provisions of the Customs Act and the relevant Import and Export Policy, whereby even though it being 100% of EOU, it has violated with impunity those provisions and diverted the imported marbles and granite blocs by misrepresentation and mis-declaration made during the contemporary period to the domestic market (DTA) and that the said allegations need to be looked into afresh and adjudicated upon for which only a show cause notice has been issued by the said Addl. Director General with a clear stipulation and direction to the petitioners to go before the 2nd Respondent-Authority who is competent to pass appropriate adjudication orders in the matter.

(ii) He has emphatically submitted that the issues covered by the show-cause notice are not overlapping and they pertain to mainly the violations committed by the assessee, the illegal diversion of finished goods, which was imported under Customs law and then surreptitious removal of goods for domestic market evading excise duty and customs duty as well.

(iii) As far as the adjudication orders already passed are concerned, the learned counsel for the Respondents-Department has submitted that such orders cannot come in the way of fresh adjudication on the basis of fresh material which has not only been indicated in the impugned show cause notice, but otherwise also the adverse material which is used against the petitioner-assessee would be supplied to the petitioner to meet the principles of natural justice, fairness and transparency in the assessment proceedings which may now be undertaken in pursuance of the said show cause notice and therefore, invoking the writ jurisdiction at this stage to cut short such investigation and proceedings would not be proper.

(iv) on the question of limitation also, the learned counsel for the Respondents-Department has relied upon the two judgments of Hon’ble Supreme Court in the case of Commissioner of Customs v. Jagdish Cancer & Research Centre 2001 taxmann.com 455 and Commissioner of Customs v. C.T. Scan Research Centre (P) Ltd. 2003 taxmann.com 390 (SC), which held that a limitation of 5 years prescribed under Section 28(1) of the Customs Act, 1962, would not apply in the case where the show cause notice is issued despite previous adjudication on the basis of such Revenue Intelligence inputs.

(v) He has also relied upon the Bond conditions in the Bonds furnished by the Assessee at the time of import of marble and granite blocks.

7. Mr. Jeevan J. Neeralgi has drawn the attention of the Court to the following extract from his Statement of Objections (paras 8-10) filed in the Court:—

“Though the number of notices are issued against the petitioner, it can be seen from the above table that only two notices are issued against the petitioner involving marble slabs. Moreover, only one notice is issued to the petitioner for clandestine removal of marble slabs for 3 months only. In the this connection it is to bring to the notice of this Hon’ble Court that the subject matter in DRI Notice and other notices are different. It is pertinent to bring to the notice of this Hon’ble Court that DRI has covered clandestine removal/clearances of marble slabs manufactured out of imported duty free marble blocks by the petitioner unit which is 100% EOU unit and the other notices have covered only permitted clearances known as DTA clearances.

9. The Petitioner instead of exporting the marble slabs manufactured out of duty free marble blocks, has sold the same domestically which is prohibited from sale. Thus, the petitioner has evaded huge customs duty by way of claiming exemption at the time of import of blocks and also in the form of selling manufactured slabs without payment of duty.

10. The Respondent submits that none of the Show cause notices mentioned by the petitioner are disposed off and are pending at various levels. However, the issue covered in DRI notices is covered only in two show cause notices and since even these two notices had not covered the issue of clandestine clearance (except for only 3 months covered by DGCEI) and the Central Excise & DGCEI authorities have issued notices mainly covering DTA Permitted clearances. In most of the notices issued by the Commissioner/DGCEI, the issue covered is Granite clearance in DTA by the petitioner. However, DTA clearance of Marble Slabs, which was obtained based on falsified export by the petitioner is only a small portion of the total demand made. The allegation in the notice is that the petitioner has not exported any goods and hence they are not eligible for any DTA clearance, for which they have obtained permission from authorities and cleared the same. Therefore, the facts of this case is entirely different. Further, the notice has also made provision or an inbuilt mechanism for taking note of the notices issued by the DGCEI and Commissioner of Central Excise and their decision/final outcome”.

8. Having heard the learned counsels and upon perusal of the bulky record and dispassionate consideration of the rival contentions, this Court is of the view that the present writ petitions do not deserve to be entertained further and are liable to be dismissed. The reasons are as follows:—

(i) that all the contentions which are sought to be raised by the petitioners before this Court for assailing the impugned show cause notice can very well be raised before the said Respondent No.2-concerned authority also and the said authority can also very well decide these objections and contentions in accordance with law.

(ii) Because this Court does not find the impugned show cause notice issued by the Respondent-authority as tainted with total lack of jurisdiction and therefore, interference in the same under Article 226 of the Constitution of India is not considered appropriate;

(iii) the mixed question of facts and law about the limitation under Section 11A of the Act and the period of 10 years covered under the show cause notice, various stages of adjudication and appellate proceedings pending before the different authorities of the Respondents-Department, their inter se effect on each other, are all complex cobweb of facts which requires adjudication by the competent authority only and this Court cannot be called upon to pronounce upon the allegations, their merit, the possible defence its reply and reasons to be assigned by the concerned authority for adjudicating the same in a particular manner. The dissection of the contents of the impugned show cause notice at this stage is neither called for nor justified in the opinion of this Court. All the facts or allegations are interdependent on each other and which may have a combined effect on the result to be found in the adjudication process only.

(iv) It would be premature and undesirable to cut short the said enquiry and adjudication process at this stage. The allegations made in the impugned show cause notice appear to be of serious nature and are based on some fresh Revenue Intelligence inputs which may not have been on the record of the Assessing Authorities at the earlier point of time. The investigation into the affairs of the petitioners’ business who is alleged to have evaded duties under both enactments, both Customs Act and Central Excise Act requiring investigation and adjudication cannot be cut short at the threshold as requested in the present writ petitions.

(v) This Court is of the further opinion that it does not appear from the impugned said show cause notice that the Respondent Authorities concerned have tried to sit over the judgment of the previous authorities who passed adjudication orders, which the said authority cannot do, but the effect of the impugned proceedings on the already passed adjudication orders is inter- dependent and such an effect, though is not barred in law and the same can always be taken into account even by appellate authorities as and when such developments take place in the process of the present impugned adjudication proceedings.

(vi) While the higher authorities at the Appellate forums can also take note of subsequent adjudication orders now to be passed, at the same time, the adjudicating authority can also take note of the appellate orders passed for the previous periods in the proceedings now pending before them. Such interdependence of facts and law cannot be shred and placed in water tight compartment period wise or year wise assessments of the assessee in the present case.

(vii) This Court cannot lose sight of the allegations that the petitioners, a 100% EOU is alleged to have misused the very import of marble and granite blocks as exempted imports and by diverting the finished goods of such marbles and granites as finished goods into domestic market, which apparently may disentitle him from availing that exemption from custom duty and such diversion of the finished goods may also result in evasion of excise duty and an investigation into the affairs of the petitioner’s business might have resulted into these Revenue Intelligence inputs which forms the very basis of the present impugned show cause notice issued by the Addl. Director General of Revenue Intelligence.

(viii) This Court would not express any opinion in the merits of contention raised as both sides as the right to defend is available to the petitioners-assessees which cannot be ruled out by putting the block of limitation, estoppel and res judicata and the judicial interference in such cases may result in miscarriage of justice and evasion of duty under both the laws may go un-adjudicated.

(ix) While on the one hand, the assessee has a valuable right to defend its case and be heard in the matter in compliance with the principles of natural justice. At the same time, the Revenue’s interest of collecting due tax and duty in accordance with the provisions of both the Acts also cannot be lost sight of. While the assessees rights are private and individual rights, the Revenue’s interest is much larger public interest and it is nobody’s case that all the assessees or tax payers should not abide by the provisions of the laws punctually and meticulously, but also fairly and transparently. If the petitioners-assessee have nothing to hide, why should they avoid any such enquiry.

(x) The period of 5 years extended limitation as prescribed under Section 11A(4) of the Central Excise Act, 1944 r/w provisions of Section 28(1)(4) of the Customs Act, 1962, will apply in the present case or not or whether the impugned Show Cause Notice can be questioned on this ground of part of period is barred by limitation or not, is the question, which still requires examination by the Respondents-Authority. If the material against the petitioners-assessees’ has been gathered upon investigation by Revenue Intelligence at a later stage, should this limitation period defeat further enquiry into the matter at all or not. Whether the Bonds given by the Assessee will give extended period or not, is also a relevant consideration. That process of adjudication cannot be cut short at the threshold by putting the block of limitation at the front gate of such investigation at this stage.

(xi) The period of investigation and assessment under the impugned show cause notice may be apparently fall 10 years from 2004-2014 and may be it is the 7th round of litigation by the 7th show cause notice as contended at bar by the learned Senior counsel for the petitioners, but this Court does not find such a show cause notice to be ex-facie illegal and without jurisdiction and to be quashed out of hand.

(xii) Ultimately, it is the quest of truth and truth alone being the guiding star in the process of the judicial dispensation and that should be the touch stone for testing such challenges at the preliminary stages of the proceedings.

(xiii) The case laws cited at bar turning on their own facts cannot be invoked and applied at this stage and this Court is not inclined to hold on the basis of such case laws that the impugned show cause notice will be rendered as patently without jurisdiction on that basis.

9. For these reasons, this Court does not find any good ground for interference in the Show Cause Notice at this stage. The present petitions are liable to be dismissed and accordingly they are dismissed. No costs.

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