THE HIGH COURT OF MEGHALAYA AT SHILLONG :

ORDER :

WRIT PETITION (C) NO. 303 OF 2015


Shri R Rajesh Naykar

Versus

The Commissioner of Customs and 3 Others

Date of Order : 27.02.2017


HON’BLE THE CHIEF JUSTICE SHRI DINESH MAHESHWARI
HON’BLE SHRI JUSTICE VED PRAKASH VAISH

Ms. P. Sikdar, for the petitioner.
Shri N. Mozika, for the respondent.


BY THE COURT: (per Hon’ble the Chief Justice) (Oral)

Learned counsel for the petitioner, Mr. N Das Gupta and Ms. P. Sikdar submit that in view of the subsequent events after filing of this petition, particularly the issuance of fresh show cause notice dated 17.03.2016 which is proposed to be challenged, the petitioner seeks permission to withdraw with liberty to file a fresh writ petition comprehensively putting up all the grounds to challenge the action of the respondents. Learned counsel, Shri N. Mozika appearing for the respondents has no objection on the prayer so made. Having regard to the circumstances of the case and looking to the submissions made, permission granted. This petition stands dismissed with liberty to file afresh. In the interest of justice, it is also provided that if any fresh petition is filed by the petitioner, the record of this petition shall be kept attached thereto.

JUDGE                 CHIEF JUSTICE


Sylvana

Item No. 9

Reserved Judgment

IN THE HIGH COURT OF UTTARAKHAND AT NAINITAL

Central Excise Appeal No. 10 of 2015

Commissioner of Central Excise
& Service Tax. ..
………. Appellant

Versus

M/s Tirupati LPG Industries Ltd. ..
.………. Respondent

Central Excise Appeal No. 11 of 2015

Commissioner of Central Excise
& Service Tax. ..
………. Appellant

Versus

M/s Tirupati LPG Industries Ltd. ..
.………. Respondent

Central Excise Appeal No. 25 of 2015
Commissioner of Central Excise
& Service Tax. ..
………. Appellant

Versus

Gyan Chand Goyal. ..
.………. Respondent
Central Excise Appeal No. 21 of 2015
Commissioner of Central Excise
& Service Tax. ..
………. Appellant

Versus

Gyan Chand Goyal. ..
.………. Respondent
Central Excise Appeal No. 22 of 2015
Commissioner of Central Excise
& Service Tax. ..
………. Appellant

Versus

Gyan Chand Goyal. ..
.………. Respondent

Central Excise Appeal No. 27 of 2015
Commissioner of Central Excise
& Service Tax. ..
………. Appellant

Versus

Ankit Garg. ..
.………. Respondent
Central Excise Appeal No. 29 of 2015
Commissioner of Central Excise
& Service Tax. ..
………. Appellant

Versus

Arun Goyal. ..
.………. Respondent
Central Excise Appeal No. 16 of 2015
Commissioner of Central Excise
& Service Tax. ..
………. Appellant

Versus

Arun Goyal. ..
.………. Respondent
Central Excise Appeal No. 14 of 2015
Commissioner of Central Excise
& Service Tax. ..
………. Appellant

Versus

M/s Tirupati LPG Industries Ltd. ..
.………. Respondent
Central Excise Appeal No. 12 of 2015
Commissioner of Central Excise
& Service Tax. ..
………. Appellant

Versus

M/s Tirupati LPG Industries Ltd. ..
.………. Respondent

Central Excise Appeal No. 15 of 2015
Commissioner of Central Excise
& Service Tax. ..
………. Appellant

Versus

Arun Goyal. ..
.………. Respondent
Central Excise Appeal No. 20 of 2015
Commissioner of Central Excise
& Service Tax. ..
………. Appellant

Versus

Ankit Garg. ..
.………. Respondent
Central Excise Appeal No. 17 of 2015
Commissioner of Central Excise
& Service Tax. ..
………. Appellant

Versus

M/s Tirupati LPG Industries Ltd. ..
.………. Respondent
Central Excise Appeal No. 13 of 2015
Commissioner of Central Excise
& Service Tax. ..
………. Appellant

Versus

Arun Goyal. ..
.………. Respondent
Central Excise Appeal No. 18 of 2015
Commissioner of Central Excise
& Service Tax. ..
………. Appellant

Versus

Ankit Garg. ..
.………. Respondent

Central Excise Appeal No. 19 of 2015
Commissioner of Central Excise
& Service Tax. ..
………. Appellant

Versus

Gyan Chand Goyal. ..
.………. Respondent
Central Excise Appeal No. 28 of 2015
Commissioner of Central Excise
& Service Tax. ..
………. Appellant

Versus

Arun Goyal. ..
.………. Respondent
Central Excise Appeal No. 24 of 2015
Commissioner of Central Excise
& Service Tax. ..
………. Appellant

Versus

Ankit Garg. ..
.………. Respondent
Central Excise Appeal No. 26 of 2015
Commissioner of Central Excise
& Service Tax. ..
………. Appellant

Versus

Ankit Garg. ..
.………. Respondent
Central Excise Appeal No. 23 of 2015
Commissioner of Central Excise
& Service Tax. ..
………. Appellant

Versus

Gyan Chand Goyal. ..
.………. Respondent


Mr. Hari Mohan Bhatia, Advocate for the appellants.

Mr. V. Lakshmi Kumaran, with Mr. P.R. Mullick, Advocates for the respondents.


JUDGMENT

Coram: Hon’ble K.M. Joseph, C.J.

Hon’ble Alok Singh, J.

Dated: 5th April, 2017


K.M. JOSEPH, C.J.

These appeals arise from a common order passed by the Customs, Excise & Service Tax Appellate Tribunal, Principal Bench, New Delhi (hereinafter referred to as the “Tribunal”). The substantial questions of law raised are, essentially, the same. We would advert to the following substantial questions of law, which were admitted by the Court and on which notices were issued, as raised in CEXA No. 11 of 2015, which we would treat as the leading case:

“1. Whether by virtue of seeking addition of new items viz. ACSR Conductors and Steel Tubular Poles in the original Central Excise Registration Certificate of the existing unit of M/s Tirupati LPG Cylinders, engaged in the manufacture of LPG Cylinders, with the Conductor Division and Cylinder Division units being part of the same factory (as evident from the party’s action in not seeking a separate registration for the Conductor division), was it not necessary for the party to increase the capacity of the entire factory (comprising of Conductor & Cylinder Division) by 25% to qualify being benefited as per the stipulations of Notification No. 50/2003-CE dated 10.06.200 as the word ‘unit’ or ‘industrial unit’ in common parlance is understood as the factory premises as it was in this context of synonymy that the appellant had on 30.11.2002 sought the addition in their existing certificate of registration?

2. Whether the fact that the Conductor Division of the factory commenced the commercial production before 07.01.2003, does not make the party / respondent not eligible for availing the benefits of Notification No. 50/2003-CE dated 10.06.2003, as it has failed to adhere to its stipulations in having failed to commence commercial production on or after 07.01.2003?”


2. M/s Tirupati LPG Industries Ltd. (hereinafter referred to as the “Company”) was registered with the Central Excise Department and was engaged in the manufacture of LPG Cylinders. The factory is located in the industrial area Selakui, Dehradun. The Company addressed letter dated 30.11.2002 indicating that it wished to start manufacturing of ACSR Conductor and Steel Tubular Poles. A request was made that these products be endorsed in the existing central excise registration certificate. The Company addressed letter dated 11.07.2003. Therein, they indicated that they have started manufacturing of ACSR Conductors w.e.f. 01.04.2003. It was pointed out that they would be availing excise exemption benefits under Notification No. 50/2003-CE dated 10.06.2003 as a new industrial unit. The SSI Registration showing the product ACSR Conductor being endorsed w.e.f. 01.04.2003 was made available (photocopy). The Company addressed another letter dated 27.11.2003 giving description of the goods and giving the date on which the option under Notification No. 76/2003 dated 05.11.2003 was exercised, which was 20.07.2003. It was stated that the unit was a new one. A clarification was sought by the Superintendent of Central Excise vide letter dated 06.08.2004 in regard to the discrepancy noted in letters dated 11.07.2003 and 27.11.2003, as, while on the one hand, in letter dated 11.07.2003, 01.04.2003 was intimated as the date of production of the Conductors, on the other hand, in letter dated 27.11.2003, 20.07.2003 was shown as the date on which the option under the Notification was exercised. Response from the Company came in the form of communication dated 17.08.2004, wherein it inter alia stated that the Company had commissioned the plant and machinery for the manufacture of ACSR Conductors in the month of April, 2003 and also commenced production of the same; and that there was an expansion programme pertaining to cylinders in process and they filed a composite declaration on 06.01.2004, wherein grounds of exemption for both the products were mentioned. The Department took the stand, apparently, that the Company had evaded central excise duty on the clearances of Aluminium Wire with Steel  Core (WEASEL) & Aluminium Wire with Steel Core (DOG), inasmuch as, (i) there was discrepancy in the dates, and (ii) the case of the Company of a new unit (Conductor Division) was not correct, as the Khasra Nos. 238/1, 238/2, 235 & 237, at which the Conductor Division was situated, were the same as the one in which the Cylinder Division was situated and it could not be a new unit. The department’s case, further, was that the Company had started commercial production of the Conductors well before 07.01.2003 and, hence, the contention that the Conductor Division is a new unit was questioned. The Company also claimed the benefit of the Notification in Clause 2(b) on the score that it had undertaken an expansion of its capacity by more than 25 per cent. The stand of the department, apparently, was that condition in Clause 2(b) of the Notification dated 10.06.2003 was not satisfied insofar as the documentary evidence produced by the Company in the form of Engineer’s Certificate did not mention about the enhancement of the installed capacity in regard to the Conductor Division. In other words, the stand of the Department was that there were two types of manufacturing divisions, namely, the Cylinder Division and the Conductor Division.

Therefore, the installed capacity must be of both the Divisions together. The enhancement of installed capacity only relating to the Cylinder Division would not suffice to claim benefit under Clause 2(b). Show-cause notices were issued proposing to levy duty, besides interest and penalty. After giving an opportunity to the Company, the Commissioner proceeded to take the view that the Company had not correctly availed exemption in the clearances of the excisable goods.

It is, inter alia, found with reference to the CBEC’s Excise Manual of Supplementary Instructions that, in respect of provisions for registration under Rule 9 of the Central Excise Rules, 2002, separate registration is required in respect of separate premises, only except in cases where two or more premises are actually part of the same factory (where process are interlinked) but are segregated by a public road, canal, railway line, etc. It was found that, if the intention of the Company was to create a new unit in separate premises, they would  have applied for separate registration. It was found that there was no new unit. In the balance-sheet for the years 2002-2003 and 2003- 2004, both the units were shown simultaneously, wherein, apart from mentioning their depreciation on investment, they are shown together.

The balance-sheet is referred to in order to find that they do not show separate units, but a common balance-sheet. It is, further, found that the Conductor unit is not separate from the Cylinder unit in legal terms. The following finding may be seen:

“22.3 The noticee in his defence put forth a plea that no commercial production of ACSR conductor was commenced before 01.04.2003 and officers of DIC, Dehradun after visiting their unit in March, 2003, added ACSR conductor in their certificate having started commercial production w.e.f. 01.04.2003. On perusal of the certificate, it came to notice that apart from entry for LPG cylinder, there is another entry for AACR/ACSR conductor as additional product (01.04.2003). In this regard, it is observed that the date 01.04.2003 written alongside the words “Additional Product: AACR conductors / ACSR” only signifies that the said endorsement was made on 01.04.2003 and that the production of the said commodity was commenced on 01.04.2003. In this regard, attention may be drawn to date of issue of the initial certificate by DIC, in respect of cylinders which is 30.06.2001 but the date of production is mentioned as 30.01.2001. This proves that the date of production can be earlier to the date of issue of the certificate. As already pointed out above, all main machines were available with the noticee before 04.01.2003 and new Die continues wire drawing machine was purchased only on 05.04.2003. On the basis of machines purchased during October – December, 2002, DIC has endorsed the registration.

Therefore, it may be said that the ACSR conductor division was existing before 07.01.2003 and thus it is not a new unit in terms of notification no. 50/2003-CE dated 10.06.2003.”


The Notifications:

3. It is necessary to have a look at the Notifications. On 10.06.2003, Notification No. 50/2003-CE came to be issued. It reads as follows:

“In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944) read  with sub-section (3) of Section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957) and sub-section (3) of section 3 of the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 (40 of 1978), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the goods specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), other than the goods specified in Annexure-I appended hereto, and cleared from a unit located in the Industrial Growth Centre or Industrial Infrastructure Development Centre or Export Promotion Industrial Park or Industrial Estate or Industrial Area or Commercial Estate or Scheme Area, as the case may be, specified in Annexure-II appended hereto, from the whole of the duty of excise or additional duty of excise, as the case may be, leviable thereon under any of the said Acts.

Provided that the exemption contained in this notification shall apply subject to the following conditions, namely:-

(i) The manufacturer who intends to avail of the exemption under this notification shall exercise his option in writing before effecting the first clearance and such option shall be effective from the date of exercise of the option and shall not be withdrawn during the remaining part of the financial year;

(ii) The manufacturer shall, while exercising the option under condition (i), inform in writing to the jurisdictional Deputy Commissioner of Central Excise or Assistant Commissioner of Central Excise, as the case may be, with a copy to the Superintendent of Central Excise giving the following particulars, namely:-

(a) name and address of the manufacturer;

(b) location / locations of factory / factories;

(c) description of inputs used in manufacture of specified goods;

(d) description of the specified goods produced;

(e) date on which option under this notification has been exercised;

(iii) The manufacturer may, for the current financial year, submit his option in writing on or before the 30th day of November, 2003.

2. The exemption contained in this notification shall apply only to the following kinds of units, namely:-

(a) new industrial units which have commenced their commercial production on or after the 7th day of January, 2003;

(b) industrial units existing before the 7th day of January, 2003, but which have undertaken substantial expansion by way of increase in  installed capacity by not less than twenty five per cent, on or after the 7th day of January, 2003.

3. The exemption contained in this notification shall apply to any of the said units for a period not exceeding ten years from the date of publication of this notification in the Official Gazette or from the date of commencement of commercial production, whichever is later.”


4. Actually, in Notification No. 50/2003-CE dated 10.06.2003, the proviso was not there. The proviso was inserted by Notification No. 76/2003-CE dated 05.11.2003.


5. In Annexure-II relating to the State of Uttaranchal, under district Dehradun, at Serial No. 11, is mentioned “Selakui Industrial Region” in Column 2 under the heading “Name of the Industrial Estate / Area / Region”. In the third column, under the heading “Name of Villages coming in Industrial Estate / Areas”, village “Selakui” is mentioned. Under the heading “Khasra Nos.”, there is reference expressly to Khasra Nos. 235 to 259 and 260. The Tehsil, which is the last column, is indicated as Vikasnagar.


6. Still later, by Notification No. 27/2004-CE dated 09.07.2004, clause (2) was substituted.


7. There is a further amendment vide Notification No. 27/2005- CE dated 19.05.2005. By the said amendment, a new paragraph 2 was substituted. It reads as follows:

“2. The exemption contained in this notification shall apply only to the following kinds of units, namely:-

(a) new industrial units set up in areas mentioned in Annexure-II and Annexure-III, which have commenced commercial production on or after the 7th day of January, 2003, but not later than the 31st day of March, 2007;

(b) industrial units existing before the 7th day of January, 2003 in areas mentioned in Annexure-II, but which have undertaken substantial expansion by way of increase in installed capacity by not less than twenty-five per cent, on or after the 7th day of 11 January, 2003, but have commenced commercial production from such expanded capacity, not later than the 31st day of March, 2007.”


8. Likewise, by the same amendment, in Annexure-II under the sub-heading “district Dehradun”, as against Serial No. 11 in Column 3, it was substituted as follows:

“in column (3), for the existing entry, the entry “Village Selakui, Central Hope Town and Camp Road”


9. Lastly, by Notification issued in the year 2006, the words “not later than the 31st day of March, 2007”, occurring in both clauses (a) & (b) of paragraph 2, stand substituted by the words “not later than the 31st day of March, 2010”.


10. It is on the said basis that the duty was found to be recoverable along with interest and imposition of penalty on the Company including upon the Directors. This led to appeals being filed before the Tribunal. The Tribunal, by its order, has allowed the appeals. The following is the finding recorded by the Tribunal:

“7.1 We do not agree with the contention of the Department.

The notification NO.50/03-CE dated 10.06.03 exempts from duty the goods other than those mentioned in Annexure I of the notification which has been cleared from a unit located in the Industrial Growth Centres or Industrial Infrastructure Development Centres or Export Promotion Industrial Park, or Industrial Estates or Industrial areas or Commercial Estates or Scheme Areas as the case may be specified in Annexure II and Annexure III appended thereto. The Industrial areas, Industrial estates etc. are specified in Annexure II and Annexure III. In the table appended to the notification in Annexure II and III, while the 2nd column mention the name of the Industrial area, Industrial estate etc. the 3rd and 5th columns mention the village and the Tehsil under which the Industrial area/ Industrial estate etc. falls. Column 4 mentions the khasra number of the plots of land of which the Industrial area/ Industrial estate comprises. In this case the appellant s factory is located at khasra No. 235,237,238/1 and 238/2 of Selakui Industrial Region located in Tehsil Vikas Nagar, District Dehradun. Even during period prior to 19/05/05, in Annexure II under the list of  “Existing Industrial Estates /Region of District Dehradun” Selakui Industrial region” of tehsil vikasnagar is mentioned against S.No. 11 and against “Selakui Industrial Region” among the khasra numbers, the khasraNos 235 to 257 are mentioned. Therefore the factory of the appellant unit has to be treated as located in the notified Industrial area and therefore eligible for exemption even during the period prior to 19/5/05.

By notification No. 27/05-CE dated 19.5.05, against S.No 11 of the list of existing Industrial areas of District Dehradun given in Annexure II, only the name of the village mentioned in 3rd column against “Selakui Industrial Region” was changed from “Selakui” to “Village Selakui”, Central Hope Town and Camp Road The amendment by notification No. 27.05-CE dated 19.5.05, by which the name of the village in which the Industrial Area “Selakui Industrial Region” falls was changed, is in our view, only a clarificatory amendment. Though, by the amending notification dated 19.5.05, some minor changes were made, the Khasra No. 235 to 243 still remain covered under this Industrial Area. For the purpose of this exemption notification, what is relevant is as to whether the manufacturing unit is located in the Industrial area/ estate mentioned in Annexure II and III and the khasra no. of the plot of land on which the unit is located is mentioned against that Industrial area. Just because the village in which the Industrial area falls was wrongly mentioned and the village name is corrected by amending notification, it does not mean that before the amendment, the unit was not located in the notified Industrial area and was not eligible for exemption.”


11. In regard to the question relating to the conductor unit being eligible for exemption, the Tribunal held that the conductor unit was set up during October, 2002 to December, 2002 period. It is, further, held that there is no dispute that, during this period, a total of 3000 meters had been manufactured and only 300 meters were cleared on payment of duty. The production increased during January, 2003 to March, 2003 to 46137 meters. During April, 2003 to June, 2003, the production increased to 442100 meters. Adverting to the word “new”, it was held as follows:

“8.3 The word “new”, as per Chambers’ 21sth Century Dictionary means – “recently made, brought, built, ---- ,etc. recently discovered, never having existed, before, just invented, - recently arrived, installed” and as per Little Oxford Dictionary, 7th Edition, the word “new” means – “of recent origin or arrival; made, discovered or acquired or experienced  for the first time, unfamiliar -” In our view, in the context of this notification, the work ‘new’ must be construed as not existing earlier.


8.4 Now, the new industrial unit cannot be the one commencing commercial production on or before after 10/6/03, the date of issue of exemption notification - as, if this meaning is adopted, the condition of commencing commercial production on or after 7/1/03 would become redundant.

Therefore, the word “new” has to be construed with regard to the reference date “7/1/03”. Since a new industrial unit which has commenced production on 7/1/03, has to be set up i.e. erected and installed before 7/1/03, this notification would also cover these unit, which had been set up before 7/1/03, but commenced commercial production on or after 7/1/03.

Therefore, “new industrial unit” would include not only those units set up on or after 7/1/03, but would also include those industrial units which have been set before 7/1/03. But the new industrial unit set up either on or after 7/1/03 or set up prior to 7/1/03, must, for being eligible for the exemption satisfy the condition of having commenced their commercial production on or after 7/1/03. This condition becomes important for the units set up before 7/1/03, as the units set up on or after7/1/03 would naturally have commenced their commercial production on or after 7/1/03 and thereby would satisfy this condition. If an Industrial unit installed prior to 7/1/03 had commenced its commercial production prior to 7/1/03, it would be out of the purview of the notification. For this purpose, distinction has to be made between “Commercial Production” and “Trial Production”. Though the term “commercial production” is not defined in this notification, it should be construed in contradistinction with the term “Trial Production” Trial Production is followed by commercial production. Trial Production is the production during the process of commissioning of a plant. The process of commissioning of a manufacturing plant starts after completion of erection installation. During commissioning, various machinery is run on trial/test basis and if the production is not of the desired quantity and if the desired quality, the necessary adjustments are made. The running of a plant during its commissioning is only a trial run meant to make the necessary adjustments in the machinery and calibrate them to optimise their productivity. Commercial Production starts only when the commissioning i.e. trial run is complete. Though during trial run, there may be some production and the manufacturer may have sold the same, the plant cannot be said to have commenced commercial production during that phase. The plant can be treated as having commenced commercial production only after completion of trial run i.e. commissioning.”


12. It was found that production during the period prior to April, 2003 was only trial production. Merit was found in the contention of the Company that commercial production started in April, 2003 and, therefore, it became eligible for exemption from July, 2003 when the necessary declaration was filed. Thereafter, the Tribunal proceeded to deal with the cylinder unit and found merit in the contention that capacity expansion need not be achieved in each section or part of the factory. A factory manufacturing more commodities in different sections has to be treated as consisting of more than one manufacturing unit. The capacity expansion of the entire factory is not required.


13. Before us, we heard Mr. H.M. Bhatia, learned counsel appearing on behalf of the appellant and Mr. V. Lakshmi Kumaran, learned counsel on behalf of the respondents.


14. Arguments were addressed on the merit of the matter by the learned counsel for both the sides. However, Mr. V. Lakshmi Kumaran, learned counsel for the respondents also raised objections regarding the maintainability of the appeals under Section 35G of the Central Excise Act, 1944 (hereinafter referred to as the “Excise Act”).


Whether these appeals lie under Section 35G of the Excise Act:

15. Section 35G of the Excise Act providing for an appeal to the High Court against an order of the Tribunal came into being on the basis of Act No. 32 of 2003 w.e.f. 14.05.2003. The same reads as follows:

“35G. Appeal to High Court. - (1) An appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal on or after the 1st day of July, 2003 (not being an order relating, among other things, to the determination of any question having a relation to the rate of duty of excise or to the value of goods for purposes of  assessment), if the High Court is satisfied that the case involves a substantial question of law.

(2) The Commissioner of Central Excise or the other party aggrieved by any order passed by the Appellate Tribunal may file an appeal to the High Court and such appeal under this sub-section shall be –

(a) filed within one hundred and eighty days from the date on which the order appealed against is received by the Commissioner of Central Excise or the other party;

(b) accompanied by a fee of two hundred rupees where such appeal is filed by the other party;

(c) in the form of a memorandum of appeal precisely stating therein the substantial question of law involved.

(2A) The High Court may admit an appeal after the expiry of the period of one hundred and eighty days referred to in clause (a) of sub-section (2), if it is satisfied that there was sufficient cause for not filing the same within that period.

(3) Where the High Court is satisfied that a substantial question of law is involved in any case, it shall formulate that question.

(4) The appeal shall be heard only on the question so formulated, and the respondents shall, at the hearing of the appeal, be allowed to argue that the case does not involve such question:

Provided that nothing in this sub-section shall be deemed to take away or abridge the power of the Court to hear, for reasons to be recorded, the appeal on any other substantial question of law not formulated by it, if it is satisfied that the case involves such question.

(5) The High Court shall decide the question of law so formulated and deliver such judgment thereon containing the grounds on which such decision is founded and may award such cost as it deems fit.

(6) The High Court may determine any issue which - (a) has not been determined by the Appellate Tribunal; or (b) has been wrongly determined by the Appellate Tribunal, by reason of a decision on such question of law as is referred to in sub-section (1).

(7) When an appeal has been filed before the High Court, it shall be heard by a bench of not less than two Judges of the High Court, and shall be decided in accordance with the opinion of such Judges or of the majority, if any, of such Judges.

(8) Where there is no such majority, the Judges shall state the point of law upon which they differ and the case shall, then, be heard upon that point only by one or more of the other Judges of the High Court and such point shall be decided  according to the opinion of the majority of the Judges who have heard the case including those who first heard it.

(9) Save as otherwise provided in this Act, the provisions of the Code of Civil Procedure, 1908 (5 of 1908), relating to appeals to the High Court shall, as far as may be, apply in the case of appeals under this section.”


16. We may also notice Section 35L of the Excise Act as it stood prior to the amendment effected by Act No. 25 of 2014 inserting subsection (2) w.e.f. 06.08.2014. It reads as follows:

“35L. Appeal to the Supreme Court — An appeal shall lie to the Supreme Court from — (a) any judgment of the High Court delivered –

(i) in an appeal made under section 35G; or

(ii) on a reference made under section 35G by the Appellate Tribunal before the 1st day of July, 2003;

(iii) on a reference made under section 35H, in any case which, on its own motion or on an oral application made by or on behalf of the party aggrieved, immediately after passing of the judgment, the High Court certifies to be a fit one for appeal to the Supreme Court; or (b) any order passed [before the establishment of the National Tax Tribunal by the Appellate Tribunal relating, among other things, to the determination of any question having a relation to the rate of duty of excise or to the value of goods for purposes of assessment.”


17. Even though the said provisions stood repealed by the National Tax Tribunal Act, 2005 w.e.f. 28.12.2005, the repealing Act, in turn, came to be challenged before the Apex Court and by the decision rendered in Madras Bar Association vs. Union of India & another, reported in (2014) 10 SCC 1, the repealing Act itself came to be struck down as being unconstitutional.


18. Learned counsel for the respondents would point out that the appeals would lie only under Section 35L before the Apex Court. He, originally, relied on the decision of the Apex Court in the cases of Navin Chemicals Mfg. & Trading Co. Ltd. vs. Collector of  Customs, reported in 1993 (68) ELT 3 (SC); CCE, Mangalore Vs. Mangalore Refineries & Petrochemicals Ltd., reported in 2011 (270) ELT 49 (Kar); Commissioner of Customs & C. Ex. Vs. Eco Products (I) P. Ltd., reported in 2015 (315) ELT 561 (All.); and Commissioner of Central Excise, Panchkula vs. Special Machine, reported in 2009 (242) ELT 330 (P&H). The argument is that the question decided by the Tribunal in this case is directly related to the rate of duty. A question having a relation with rate of duty is the exclusive preserve of the Apex Court on a conjoint reading of Sections 35G and 35L. If an exemption is available, the rate of duty will become zero or nil when there is a complete exemption. If there is only a partial exemption, the rate of duty will be reduced from the normal rate in accord with the terms of the exemption notification.

When the Tribunal decides that the goods are exempted under the notification, it would have a direct impact on the rate of duty.

Therefore, the appeal would lie before the Apex Court.


19. The decision of the Apex Court in Navin Chemical’s case (supra) has been the starting point of a line of decisions, which have dealt with the meaning of the words “any question having a relation with rate of duty”. The matter arose under the Customs Act, wherein the words “determination of any question having a relation to the rate of duty for the purpose of assessment” are common to the provisions contained under Sections 35G and 35L. The court held as follows:

“7. The controversy, therefore, relates to the meaning to be given to the expression 'determination of any question having a relation to the rate of duty of customs or to the value of goods for purposes of assessment'. It seems to us that the key lies in the words 'for purposes of assessment' therein. Where the appeal involves the determination of any question that has a relation to the rate of customs duty for the purposes of assessment that appeal mast be heard by a Special Bench.

Similarly, where the appeal involves the determination of any question that has a relation to the value of goods for the purposes of assessment, that appeal must be heard by a Special Bench.

Cases that relate to the rate of customs duty for the purposes of assessment and which relate to the value of goods for the  purposes of assessment are advised treated separately and placed before Special Benches for decision because they, more often than not, are of importance not only to the importers who are parties thereto but also to many other importers who import or propose to import the same or similar goods. Since the decisions of CEGAT in such matters would have wide application they are, by the terms of the statute, to be rendered by Special Benches. The phrase 'relation to" is, ordinarily, of wide import but, in the context of its use in the said expression in Section 129-C, it must be read as meaning a direct and proximate relationship to the rate of duty and to the value of goods for the purposes of assessment.


20. More importantly, the court adverted to Section 129D of the Customs Act. The said section actually dealt with the powers of the Board and the Collector of Customs to revise proceedings of the subordinate authorities. The crucial provision was, however, subsection (5). The same was introduced by the amendment in 1988. The same reads as follows:

“(5) The provisions of this section shall not apply to any decision or order in which the determination of any question having a relation to the rate of duty or to the value of goods for the purposes of assessment of any duty is in issue or is one of the points in issue.

Explanation - For the purposes of this sub-section, the determination of a rate of duty in relation to any goods or valuation of any goods or valuation of any goods for the purposes of assessment of duty includes the determination of a question.- (a) relating to the rate of duty for the time being in force, whether under the Customs Tariff Act, 1975 (51 of 1975), or under any other Central Act providing for the levy and collection of any duty of customs, in relation to any goods on or after the 28th day of February, 1986; or (b) relating to the value of goods for the purposes of assessment of any duty in cases where the assessment is made on or after the 28th day of February, 1986; or (c) whether any goods fall under a particular heading or sub-heading of the First Schedule or the Second Schedule to the Customs Tariff Act, 1975 (51 of 1975), or that any goods are or not covered by a particular notification or order issued by  the Central Government granting total or partial exemption from duty; or (d) whether the value of any goods for the purposes of assessment of duty shall be enhanced or reduced by the addition or reduction of the amounts in respect of such matters as are specifically provided in this Act.”


21. Thereafter, the court held as follows:

“11. It will be seen that Sub-section 5 uses the said expression 'determination of any question having a relation to the rate of duty or to the value of goods for the purposes of assessment' and the Explanation thereto provides a definition of it 'for the purposes of this sub-section'. The Explanation says that the expression includes the determination of a question relating to the rate of duty; to the valuation of goods for purposes of assessment; to the classification of goods under the Tariff and whether or not they are covered by an exemption notification; and whether the value of goods for purposes/of assessment should be enhanced or reduced having regard to certain matters that the said Act provides for. Although this Explanation expressly confines the definition of the said expression to Subsection 5 of Section 129-D, it is proper that the said expression used in the other parts of the said Act should be interpreted similarly. The statutory definition accords with the meaning we have, given to the said expression above. Questions relating to the rate of duty and to the value of goods for purposes of assessment are questions that squarely fall within the meaning of the said expression. A dispute as to the classification of goods and as to whether or not they are covered by an exemption notification relates directly and proximately to the rate of duty applicable thereto for purposes of assessment. Whether the value of goods for purposes of assessment is required to be increased or decreased is a question that relates directly and proximately to the value of goods for purposes of assessment. The statutory definition of the said expression indicates that it has to be read to limit its application to cases where, for the purposes of assessment, questions arise directly and proximately as to the rate of duty or the value of the goods.

12. This, then, is the test for the purposes of determining whether or not an appeal should be heard by a Special Bench of CEGAT, whether or not a reference by CEGAT lies to the High Court and whether or not an appeal lies directly to the Supreme Court from a decision of CEGAT : does the question that requires determination have a direct and proximate relation, for the purposes of assessment, to the rate of duty applicable to the goods or to the value of the goods.”


22. Following the said judgment, in a case decided on 01.09.2010, a Bench of the Karnataka High Court in CCE, Mangalore Vs. Mangalore Refineries & Petrochemicals Ltd., reported in 2011 (270) ELT 49 (Kar.), took the view that an order of the appellate Tribunal deciding the issue whether the goods are entitled to exemption relates to the rate of duty and the appeal before the High Court was not maintainable. We may, incidentally, notice from para 7 of the said judgment that, actually, the order of the Tribunal was that the product in question was not marketable and it is not exigible; but the assessee questioned the maintainability of the appeal also on the ground that, even if the goods were exigible, the further question would arise as to whether the duty payable was completely exempted by way of a notification. The learned Judges proceeded to deal with, inter alia, the meaning of the words “rate of duty” and noted, to begin with, the explanation to Section 35E, which was identical to explanation added under the Customs Act, which was considered in Navin Chemical’s case (supra). The learned Judges also referred to a judgment of the Apex Court in paragraph 27, which reads as follows:

“27. The Supreme Court had an occasion to consider the meaning of the word “rate” in Sundaram and Company (Private) Limited v. Commissioner of Income Tax, Madras [1967 Vol. 66 ITR 604] where it was held as under:-

“The assumption that the expression "rate" has been used in Section 34(1) as meaning a fraction of total income is, in our judgment, not warranted. By the use of the expression "rate" in the context in which it occurs, undoubtedly a relation between the taxable income and the tax charged is intended, but the relation need not be of the nature of proportion of fraction. The expression "rate" is often used in the sense of a standard or measure.

Provided the tax is computable by the application of a prescribed standard or measure, though not directly related to taxable income, it may be called tax computed at a certain rate. We agree with the High Court that the rebate of tax and the reduction of such rebate are essentially matters of measure or standard of rate.”” 23. The court noted that the explanation was, actually, not brought  into force. It purported to refer to the judgment of the Bombay High Court in Commissioner of Central Excise, Nagpur vs. Universal Ferro and Allied Chemicals Ltd., reported in 2009 (234) ELT 220 (Bom.). In paragraph 41 of the judgment, the learned Judges proceeded to take the view that the argument that the rate of tax means only the rate at which the tax is payable or a fraction is unsustainable.

We may refer to paragraphs 41 and 42 of the judgment, which read as follows:

“41. Therefore, the expression ‘rate’ is often used in the sense of standard or measure. ‘Rate’ generally is an impost, usually for current or recurrent expenditure spread over a district or other local area and is distinct from an amount payable for work done upon or in respect of particular premises.

‘Rate’ is defined by Webster to be the price or amount stated or fixed for anything. The word ‘rate’ includes any toll, due, rent, rate of charge. It means the scale of amount of any other charges. The word ‘rate’ is used with reference both to a percentage or proportion of taxes, and to a valuation of property. ‘Rate’ is used in an Act declaring that the Legislative Assembly shall provide by law for a uniform and equal rate of taxation and assessment, applies to the percentage of fixation, as used in connection with ‘taxation’ and to the valuation of the property, as used in connection with ‘assessment’. It is a valuation of every man’s estate or setting down how every one shall pay, or be charge with, to any tax. By the use of the expression ‘rate’ a relation between the taxable income and the tax charge is intended, but the relation need not be of the nature of proportion of fraction. The Explanation to sub-section (5) of Section 35E of the Central Excise Act, the expression includes the determination of a question relating to the rate of duty, to the value of goods for the purposes of assessment; to the classification of goods under the Tariff and whether or not they are covered by an exemption notification; and whether the value of goods for the purposes of assessment should be enhanced or reduced having regard to certain matters that the said Act provides for. Questions relating to the rate of duty an to the value of goods for purposes of assessment are questions that squarely fall within the meaning of the said expression. A dispute as to the classification of goods and as to whether or not they are covered by an exemption notification relates directly and proximately to the rate of duty applicable thereto for purposes of assessment. Whether the value of goods for purposes of assessment is required to be increased or decreased is a question that relates directly an proximately to the value of goods for purposes of assessment. Determination of rate of duty  in relation to any goods include determination of a question whether any goods or not, whether the process if any undertaken in the service centre amounts to manufacture or not, and if the goods produced during that process are excisable goods or not would fall within the meaning of the expression ‘determination of the rate of duty of excise or the value of the goods for the purposes of assessment of duty’ used in Section 35G(1) and Section 35L(b) of the Act. Therefore, the phrase ‘rate of tax’ does not mean fraction of tax payable because what is the tax payable i.e. fraction payable is decided by the legislature. Once that is prescribed by the legislature in the Act, the Court cannot sit in judgment and alter or modify the said rate of tax. The Court has no jurisdiction to go into the correctness or otherwise of the rate of tax payable in the sense the rate prescribed by the legislature. Therefore, the argument that the rate of tax means only the rate at which tax is payable or a fraction is unsustainable.


42. Broadly the following disputes do not fall within the jurisdiction of High Court under Section 35(g) of the Act :-

(a) Dispute relating to the duty of excise payable on any goods.

(b) The value of the goods for the purposes of assessment.

(c) A dispute as to the classification of foods.

(d) Whether those goods are covered by an exemption notification or not.

(e) Whether the value of goods for the purposes of assessment is required to be increased or decreased.

(f) The question of whether any goods are excisable goods or not.

(g) Whether a process is a manufacturing process or not, so as to attract levy of excise duty.

(h) Whether a particular goods fall within which heading, sub-heading or tariff item or the description of goods as mentioned in column No. 3 of the Central Excise Tariff Act, 1985.”


24. It is equally apposite to note the rationale projected in paragraph 44 of the said judgment, which reads as follows:

“44. The intention behind this bifurcation of jurisdiction between the Apex Court and the High Court seems to be that more often than not, any decision on these aforesaid aspects not only affects the interest of the manufacturers who are parties thereto, but also to the manufacturers of those products throughout the country. In a country governed by Parliamentary legislation because of the territorial bifurcation in forming states and because of the divergent opinion which is possible, the excise duty payable would vary from place to place. In  order to, bring uniformity in the levy of excise duty throughout the country and consequently to see that the country’s finance is not affected, the Parliament has vested the jurisdiction to decide the disputes with the Apex Court. Therefore, we see a duty policy underlining this bifurcation of the jurisdiction between the Apex Court and the High Courts. All other matters other than what is set out above, which relates to the individual manufacturers and all disputes based on assessment orders which have attained finality, such as the benefits to which they are entitled to, refunds, duty drawbacks, rebates, etc., which relate to a particular manufacturer falls within the jurisdiction of the High Courts.”


25. The said reasoning has been followed by the Allahabad High Court in Commissioner of Customs and Central Excise vs. Eco Products (I) P. Ltd., reported in 2015 (315) ELT 561 (All.). We may also notice that the judgment of the Punjab & Haryana High Court in Commissioner of Central Excise, Panchkula vs. Special Machine, reported in 2009 (242) ELT 330 (P&H), which was also relied upon by the Allahabad High Court, has taken a similar view. In fact, in the decision of the Punjab & Haryana High Court, the appeal was filed under Section 35G before the High Court. The question of law related to the availability of the exemption notification in a case, where it was the department’s case that there was a clubbing of clearances by various units and in the facts otherwise arising. The Division Bench proceeded to refer to the judgment of the very same court. Besides, it drew support from the judgment of the Apex Court in Navin Chemical’s case (supra) and held that a dispute as to whether or not the assessee is covered by an exemption notification relates directly and proximately to the rate of duty applicable thereto for the purpose of assessment.


26. In the decision of the Bombay High Court in Union of India Vs. Auto Ignation Ltd., reported in 2002 (142) ELT 292 (Bom.), the question was as to whether the writ petition filed by the Government of India challenging the order of the Tribunal could be maintained having regard to the availability of an alternate remedy under Section 35L.

Various authorities on the question relating to existence of alternate  remedy barring the jurisdiction under Article 226 were referred and, on the point, which is relevant to us, the court took the following view:

“23. Having heard the parties at length, it is not possible to accept the contention raised by the learned Counsel for the Revenue. In the light of the findings recorded in the case of Navin Chemicals Mfg. and Trading Co. (supra) and looking to the text of Section 35L of the Act, it is not possible for us to accept the contention of the Revenue that the question of rate of duty is not an issue involved in the present case. The Supreme Court clearly laid down that the dispute as to the classification of goods and as to whether or not they are covered by the exemption notification relates directly and proximately to the rate of duty applicable thereto for purposes of assessment.

Applying the said dicta, the question whether or not the respondent-assessee is well within exemption notification is a question directly involved in this dispute relates directly and proximately to the rate of duty of excise for the purposes of assessment. In other words, the issue raised in these petitions directly relates to dispute whether or not they are covered by the exemption notification, which can conveniently be gone into in an appeal filed under Section 35Lof the Act.”


27. When this matter was being heard, this Court pointed out to the learned counsel for the respondents that the sheet anchor of all these authorities would appear to be the explanation to sub-section (5) of Section 129D of the Customs Act and the explanation to Section 35E of the Central Excise Act, which was inserted by the amendment in the year 1988. But Section 35E has undergone drastic changes. The Court pointed out to the learned counsel that sub-section (5) of Section 35E has been repealed by Act 25 of 2004 and the omission became effective w.e.f. 21.12.2004. Section 35E, itself, has undergone other changes with which we are not concerned. It was brought to the notice of the learned counsel for the respondents that Section 35L, itself, has undergone another amendment, which was inserted by Act 25 of 2014, with the inclusion of the following sub-section (2):

“(2) For the purposes of this Chapter, the determination of any question having a relation to the rate of duty shall include the determination of taxability or excisability of goods for the purpose of assessment.”


28. We pointed it out to the learned counsel that the line of decisions of the High Courts, which have purported to follow the decision in Navin Chemical’s case (supra) and taken the view that the question whether the assessee is entitled to exemption notification, if it is decided by the Tribunal, it will bar the jurisdiction of the High Court as an appeal would be maintainable before the Supreme Court, have proceeded on the basis of the explanation which was inserted under Section 35E of the Excise Act corresponding to identical explanation in the Customs Act and the actual terms of the explanation, namely, clause (c) thereof may not bear out this interpretation insofar as what the legislature has provided by clause (c) was a question whether the goods are or are not covered by an exemption notification or order providing for exemption partially or absolutely. It is not intended to cover the question whether the assessee is actually entitled to the benefit of the notification in a case where there is no dispute about the goods being covered.


29. Thereupon, the learned counsel for the respondents would contend that the excise duty is levied on the taxable event taking place, namely, the manufacture of goods. It is qua goods that exemption is granted. Therefore, the mere fact of vagueness in the use of expression in this regard in the judgments may not matter. He would also submit that, even under the explanation as it stood, the decisions of the High Courts, which are canvassed before us, would support him in contending that, besides the question relating to whether the goods in a particular case are covered by the notification or not, the further question as to whether the assessee is entitled to the terms of the exemption notification by virtue of complying with the various conditions in a particular notification would also be a matter which is covered by clause (c) of explanation to Section 35E as it stood. He frankly admitted that the explanation to Section 35E stood omitted w.e.f. 2004. We may, at once, observe, therefore, that the Karnataka High Court, and as also the various other High Courts, have purported  to follow the decision in Navin Chemical’s case (supra), despite the following:

(i) The explanation, though inserted in Section 35E, was never brought into force.

(ii) The explanation, itself, stands obliterated by the amendment carried out as early as in December, 2004.

(iii) The foundation for the judgments provided by the statutory provision stood removed. Apparently, this aspect was not brought to the notice of the courts.


30. On being confronted with this situation and also the insertion of sub-section (2) in Section 35L, the following arguments were addressed before us:

Learned counsel would submit that even without the aid of the explanation, when the Tribunal decides that a person is not entitled to or is entitled to the benefit of an exemption notification, a decision is necessarily rendered, which has a relation with the rate of duty. He reminds the Court that, what the statute requires to oust the jurisdiction of the High Court, is a decision not on the rate of duty, but a decision which has a relation with the rate of duty, no doubt, arising out of assessment proceedings. He would submit that the said test would be satisfied in every case, where an exemption notification is put in issue and a decision is rendered by the Tribunal either way as it would impact the rate of duty. In other words, denial of exemption means the rate of duty, in the case of an outright exemption, becomes what is provided in law. Depending on the terms of the partial exemption, the rate of duty would stand adjudicated upon. Therefore, he would submit that, even without the aid of the explanation, the principle decided by the High Courts is correct.


31. Turning to sub-section (2) of Section 35L, we may notice that these appeals have been filed after the amendment in Section 35L.


This is inserted w.e.f. 06.08.2014. It purports to lay down that, for the purpose of deciding the expression, the question “having a relation with the rate of duty” would include the question relating to “taxability” and “excisability” of the goods. In this regard, he would submit that, as far as the excisability of the goods is concerned, that would go to question relating to whether there were excisable goods as understood under the Act; whereas, the expression taxability would relate to and comprehend the issues arising out of an exemption notification. Thus, even if it is found that the goods are excisable, since the expression “taxability” is also employed, it would mean that, by virtue of the exemption granted under an exemption notification, it may become non-taxable by virtue of a partial or absolute exemption in accordance with the terms thereof.


32. Per contra, Mr. H.M. Bhatia, learned counsel for the Revenue, would submit that exemption notification is to be interpreted and its scope determined on the basis of the words employed in the notification. It has nothing to do with the rate of duty. The rate of duty is fixed. The Tribunal, as in this case, has only decided the question as to whether the respondent Company has made out a case for exemption.


33. He would further contend that a contrary view has been taken by the Bench of the Jammu and Kashmir High Court in the case of Commissioner of Customs & Excise, J&K Jammu vs. Alu Bond Enterprises J&K, reported in 2008 (2) JKJ 499. The substantial question of law, which was raised in the appeal under Section 35G, was whether, in the absence of a specific mention in the notification, the Tribunal was correct in granting retrospective effect to the said notification. The Division Bench referred to Navin Chemical’s case (supra) and Union of India vs. Auto Ignition Ltd., 2002 (142) ELT 292 (Bom.), which we have already referred to, and proceeded to hold as follows:

“10. The question involved in the case on hand is whether the Unit has satisfied the locational eligibility, which in our view has no relation with the rate of duty or value of goods for the purposes of assessment. That being the factual and legal position, we hold that the appeal filed by the Union of India is maintainable in this Court under section 35G of the Act.”


34. In regard to the state of case-law relating to Section 35L after insertion of sub-section (2) by the Finance Act 2 of 2014, learned counsel relied on the judgment of the Delhi High Court in Commissioner of Central Excise, Delhi-II vs. Pawan Kumar Bansal, reported in 2015 (315) ELT 529. There, the question of law was as to whether the activity involved amounted to manufacture under Section 2(f). The court took the view that, having regard to sub-section (2) of Section 35L, the question having relation to rate of duty includes determination of taxability or excisability and the appeals were filed after the said provision was inserted and the appeals were found to be not maintainable.


35. He further drew our attention to a judgment of the Apex Court in Commissioner of Central Excise, Jaipur vs. M/s Mewar Bartan Nirmal Udyog, reported in 2010 (13) SCC 753, for the proposition that the notification providing for exemption must be construed as it is and it does not involve any question relating to rate of duty. In the said case, the question arose as to whether the assessee was entitled to the benefit of exemption notification 3/2001-CE. The assessee claimed benefit under Serial No. 200 of the said notification, as it was found that the trimmed or untrimmed circles of brass would fall under Serial No. 201, where the rate of duty was Rs. 3500/-. If the product in question fell under Serial No. 200, then the notification provided that the rate of duty is nil. After adverting to the exemption notification, the court held, inter alia, as follows:


“In this case, we are concerned with interpretation of Entries in the Notification. The exemption Notification covers goods which squarely fall under Chapter Heading 74.09. In fact, both S. No. 200 and S. No. 201 of the Notification deal with  Chapter Heading 74.09. A dichotomy was noticed in the Notification and it was found that the circles manufactured by the assessee were made from brass; whereas the exemption notification provided for nil rate of duty for all goods other than trimmed/untrimmed circles of copper intended for use in the manufacture of utensils.”


36. Thereafter, the court proceeded to hold as follows:

“5. We may also point out at this stage that it is well settled position in law that exemption Notification has to be read strictly. A notification of exemption has to be interpreted in terms of its language. Where the language is plain and clear, effect must be given to it. While interpreting the exemption notification, one cannot go by rules of interpretation applicable to cases of classification under the Tariff. Tariff items in certain cases are required to be interpreted in cases of classification disputes in terms of HSN, which is the basis of the Tariff. In this case, we are not concerned with interpretation of Tariff. In fact, as stated above, the product in question falls under Chapter Heading 74.09. It is the dichotomy which is introduced by the exemption Notification which needs to be interpreted. Items made from copper attract duty at the rate of Rs.3500 PMT whereas circles made from brass attract nil rate of duty. As stated above, in this case, the Department has not disputed the fact that the circles were manufactured by the assessee from brass. This is expressly recorded in the findings given by the Tribunal.”


37. Learned counsel for the Revenue also brought to our notice a decision in Collector of Central Excise, Patna vs. Usha Martin Industries, reported in (1997) 7 SCC 47. Therein, the question involved was whether the benefit of exemption granted under certain notifications could be claimed in respect of commodities made out of raw materials on which no excise duty was payable. The notifications provided for final product exemption being exempted if they were produced from material ‘on which appropriate amount of duty had already been paid’. In the notification, it was inter alia provided that iron and steel products were exempted, if they were made from certain materials or a combination thereof on which appropriate duty of excise had already been paid. We may notice paragraph 6 of the said judgment, which reads as follows:

“6. There is no doubt that as per the above notification if any amount of duty has been paid on the raw material, the output product would escape from excise duty. The doubt arose was regarding the expression in the notification i.e. “on which the appropriate amount of duty of excise has already been paid" as to whether it is capable of two interpretations, one as claimed by the assessee and the other as putforth by the revenue”.”


38. It is further relevant to notice paragraphs 9 and 17 of the said judgment, which read as follows:

“9. Even a glance through the said notification would show that the exemption envisaged therein was not total but only partial. What it clearly meant was deduction on duty from the amount of duty already paid and, therefore, that notification is different in content as well as intent and the ratio therein cannot be taken as sufficient to fit in with the notification involved in the present appeals.

17. How the Revenue has understood the notification or made others to understand this position can be seen from the instructions or circulars issued by the Central Board of Excise and Customs (for short "the Board") from time to time. One such circular is dated 15.5.1995 no. 125/36/95-CX. The material portion thereof are extracted below:

“There are a number of notifications which exempt specified goods provided such goods have been made from other goods on which the appropriate duty of excise has already been paid board has issued instructions from time to time that in such cases, even if the issued instructions from time to time that in such cases, even if the inputs are exempted from excise duty, the exemption on the finished goods cannot be denied on that ground.

Still, cases have been brought to notice where exemption is being denied on the ground that the inputs did not bear any excise duty..... It was clarified by the Board that in the case of S.O. dyes made from exempted dyes, the exemption cannot be denied on the ground that the inputs were exempted from the whole of the duty of excise. This logic would apply to other similar cases also where exemption has been given on the consideration that the finished products have been made from inputs on which appropriate duty of excise has already been paid.”” 39. Finally, the court took the following view:

“23. Thus, looking from different angles we are inclined to take the view that benefit of exemption from duty can legitimately be claimed by the respondents in respect of those goods referred to in the notifications under consideration the raw materials of which were not exigible to any excise duty at all. In the result, we dismiss all these appeals.”


40. He pointed out that the said judgment has been overruled by a larger Bench in Collector of Central Excise, Vadodra vs. Dhiren Chemical Industries, reported in (2002) 2 SCC 127, wherein the Bench inter alia noticed the judgment in the case of Motiram Tolaram vs. Union of India, reported in (1999) 6 SCC 375, and held as follows:

“7. In our view, the correct interpretation of the said phrase has not been placed in the judgment in the case of Usha Martin. The stress on the word "appropriate" has been mislaid.

All that the word "appropriate" in the context means is the correct or the specified rate of excise duty.

8. An exemption notification that uses the said phrase applies to goods which have been made from duty paid material.

In the said phrase, due emphasis must be given to the words "has already been paid". For the purposes of getting the benefit of the exemption under the notification, the goods must be made from raw material on which excise duty has, as a matter of fact, been paid, and has been paid at the "appropriate" or correct rate.

Unless the manufacturer has paid, the correct amount of excise duty, he is not entitled to the benefit of the exemption notification.


9. Where the raw material is not liable to excise duty or such duty is nil, no excise duty is, as a matter of fact, paid upon it. To goods made out of such material the notification will not apply.”


41. We may address one argument raised on behalf of the Revenue that these appeals have been admitted and, therefore, the court may decide. May be, the argument is being raised at this stage by the Company. The appeals were filed in the year 2015 and they were admitted on substantial questions of law Nos. 1 & 2. We would think that a question relating to the jurisdiction of the court cannot be brushed aside on the ground that it is being raised late. This is not a question of territorial jurisdiction. This is also not a question relating to pecuniary jurisdiction. This is a question, which goes to the very  root of the matter, namely, it goes to the inherent jurisdiction of the court. If the appeal is one, where the impugned order of the Tribunal has decided a question having a relation with the rate of duty, clearly the appeal would not lie before the High Court and it would be maintainable only before the Supreme Court under Section 35L.

Therefore, we cannot but decide this issue.


42. In Navin Chemical’s case (supra), the Apex Court has enunciated the principle after interpreting the words “question having a relation with the rate of duty” and held that, while the words “having relation with” are capable of wide import, it must be read as meaning a direct and proximate relationship with the rate of duty and to the value of goods for the purpose of assessment. In paragraph 12 of the said judgment, the court has also articulated its opinion and held “does the question that requires determination have a direct and proximate relation, for the purpose of assessment, to the rate of duty applicable to the goods or to the value of goods”. This we can and should accept as the principle laid down by the Apex court. This principle, in our view, would also hold good despite the fact that the Apex Court drew considerable support from the explanation to Section 129D of the Customs Act, which, as we have already noticed, is identical to Section 35E of the Excise Act. It would appear that, just as explanation to Section 35E was never enforced, the explanation to Section 129D of the Customs Act was also not enforced. But, we are confronted with the further development, which is that, in December 2004, Parliament has omitted both the explanations, i.e. explanation to Section 129D of the Customs Act and also the explanation to Section 35E of the Excise Act.


43. We need not, therefore, be detained any longer by the case-law based on the explanation in deciding the appeals before us. But, we would, out of deference to the arguments of the learned counsel for the respondents that, going by clause (c) in the explanation, the issue  relating to availability of benefit of exemption notification would also be a question having a relation to the rate of duty, deal with the same.

Clause (c) reads as follows:

“(c) whether any goods fall under a particular heading or sub-heading of the First Schedule or the Second Schedule to the Customs Tariff Act, 1975 (51 of 1975), or that any goods are or not covered by a particular notification or order issued by the Central Government granting total or partial exemption from duty.”


44. There are two parts to it. The first limb dealt with a situation, where a question is determined whether any goods fall under a particular heading or sub-heading of the First Schedule or the Second Schedule to the Customs Tariff Act. The second limb of clause (c) dealt with the determination of a question that any goods are or are not covered by a particular notification or order issued by the Central Government granting total or partial exemption from duty. The first limb of clause (c) is not attracted; but, we would think that, since it provided company to the second limb of clause (c), it may detain us for a moment. A question whether the goods fall under a particular heading or a sub-heading of the First or Second Schedule to the Act, undoubtedly, often provides a vexed issue for determination.

Depending on the particular heading or sub-heading on which the goods fall, the same would axiomatically lead the court to the rate of duty. We must also bear in mind the rationale for bringing a decision on the said issue before the Apex Court. The issue as to whether the goods fall under a particular heading or sub-heading would have ramifications beyond the parties to the particular dispute. Similar goods may be manufactured by several others. It is, apparently, therefore, that it was felt that such questions must be decided by the Apex Court. The effect of deciding that the goods fall under a particular heading or sub-heading, as already noted, would have a direct and proximate relation to the rate of duty. It is in this context that we must examine the words “any goods are or not covered by a  particular notification or order providing for partial or absolute exemption”. Just as in the first limb, where the question relates to whether the goods come under a particular heading or sub-heading, in our humble view, the intention was that a question as to whether the goods, which are subject matter of the litigation, are or are not covered by a particular notification granting absolute or partial exemption alone is within the extended meaning ascribed to the words “determination of question having relation to the rate of duty”. Exemption notification may provide for a list of goods, which are the subject matter of the notification or order. It may also provide for what is called a negative list, namely, goods, which are excluded from the purview of the exemption notification. It may also provide for different kinds of goods in the notification, some of which are completely exempt and some where there is a lesser amount provided. If we may illustrate with the facts of this case, the exemption notification provides for complete exemption in respect of goods, which are mentioned in the First Schedule to the Customs Tariff Act excluding those goods which are provided in the negative list. This is a case, where there is no dispute that the goods are covered by the exemption notification, in the sense that the goods, which are manufactured by the respondent company, namely, cylinders and conductors, are covered by the notification being goods mentioned in Schedule I to the Act. They are also not goods figuring in the negative list. Therefore, no decision is involved in regard to whether the goods are or are not covered by the particular notification.


45. Learned counsel for the respondents would submit that such disputes are indeed covered by clause (c). According to him, clause (c) must be interpreted as embracing within its scope all questions arising out of the notification and it is not limited to the question whether the goods are or are not covered by the notification or order providing for exemption.


46. In our view, the provision, itself, being in the form of an explanation, we would be straining the words and giving it a meaning, which is not warranted having regard to the scope, which we have also culled out from the words used in its close neighbourhood, namely, the first limb of clause (c). In this context, we have already noticed the substantial questions of law, which have been raised on which notice had been issued.


47. We notice that no substantial question of law is raised as to whether the goods in question are or are not covered by the terms of the notification. The specific question of law, which is raised, goes to the availability of the notification having regard to the fact that the respondent Company has not complied with the terms of the notification. In our humble view, the decisions of the High Courts, which have purported to follow Navin Chemical’s case, have proceeded to overlook the actual words used in the explanation and virtually substituted the words “goods” with “assessee”. In other words, instead of confining the latter limb of clause (c) to a situation where a dispute arise as to whether the goods are or are not covered by the notification, it has been extended to situations where the question arose as to whether the assessee fulfilled the conditions of the exemption notification, which we would think was not warranted by the provisions in clause (c).


48. We have to pass on to the next development presented in the matter, namely, the omission of the explanation itself by Parliament in the year 2004. That is to say, the legislative basis partially for rendering the judgment in Navin Chemical’s case and for the High Courts relying on the explanation was, itself, taken away in the year 2004, as the explanation stood omitted in December, 2004. Therefore, we must also simultaneously notice the inclusion of sub-section (2) in Section 35L. We have to decide on the basis of the provision in Section 35G read with Section 35L, as it stands insofar as the appeals have been filed after the amendment in sub-section (2) of Section 35L  also. Section 35G provides for an appeal against the order of the Tribunal to the High Court. The appeal lies except when a question has been decided by the Tribunal having a relation with the rate of duty or the value of goods. In case, the decision relates to a question, which has a relation with the rate of duty or valuation, appeal is provided directly to the Supreme Court under Section 35L. The further statutory provision, we must bear in mind, is only the provision of sub-section (2) of Section 35L, which provides that, for the purpose of this chapter, the determination of any question having a relation to the rate of duty shall include the determination of taxability or excisability of goods for the purpose of assessment. If an appeal is maintainable before the Supreme Court, quite obviously, an appeal would not be maintainable before the High Court.


The effect of sub-section (2) of Section 35L of the Act:

49. The Legislature must be treated as being aware of the judgment rendered by the Apex Court in Navin Chemical’s case (supra) interpreting explanation to Section 129D of the Customs Act, as also the interpretation placed by various High Courts in decisions in question, which arose under the Central Excise Act. We must also be conscious of the fact that it had omitted the explanation in the year 2004. What then is the purport and object of including sub-section (2) to Section 35L? By virtue of sub-section (2), the Legislature has declared that the question relating to taxability or excisability shall be included within the meaning of the expression “question in relation to rate of duty”. In regard to a clause in a section, which uses the word “include”, it is intended to give an extended meaning to the main provision, which the definition clause intends to define. We cannot possibly proceed on the basis that, after the inclusion of sub-section (2), whatever else may be included within the expression “decision in relation to rate of duty” would not be embraced within its scope.


50. Coming to the expressions “taxability” or “excisability”, there are two ways of looking at it. Since two expressions are used, they bear two different meanings. Ordinarily, the courts would not attribute to the legislature an intention to waste words in a statute. An interpretation would be placed, which would avoid superfluity or deprive the word of all meaning. Words in a statute cannot be afflicted with the vice of surplusage. Or, is it such a case?


Excisability, what it comprehends:


51. Is it sufficient that the goods are excisable goods? What if a person is sought to be visited with excise duty if he contends that they are not goods because nothing new is produced? What is allegedly produced is not capable of being marketed. They are not usable. Can he still be visited with a levy of excise duty? The answers to these questions have been succinctly provided in the judgment of the Apex Court in Moti Laminates Pvt. Ltd. & others vs. Collector of Central Excise, Ahmedabad, reported in (1995) 3 SCC 23. There, the court also was dealing with a case, where the goods were captively consumed. The court held as follows:


“8. The duty of excise is leviable under Entry 84 of List I of the VIIth Schedule on goods manufactured or produced.

That is why the charge under Section 3 of the Act is on all, ’excisable goods’, ’produced or manufactured’. The expression ’excisable goods’ has pl64 been defined by clause (d) of Section 2 to mean, ’goods’ specified in the Schedule. The scheme in the Schedule is to divide the goods in two broad categories - one, for which rates are mentioned under different entry and other the residuary. By this method all goods are excisable either under the specific or the residuary entry. The word ’goods’ has not been defined in the Act. But it has to be understood in the sense it has been used in Entry 84 of the Schedule. That is why Section 3 levies duty on all excisable goods mentioned in the Schedule provided they are produced and manufactured. Therefore, where the goods are specified in the Schedule they are excisable goods but whether such goods can be subjected to duty would depend on whether they were produced or manufactured by the person on whom duty is proposed to be levied. The expression ’produced or manufactured’ has further been explained by this  Court to mean that the goods so produced must satisfy the test of marketability. Consequently it is always open to an assessee to prove that even though the goods in which he was carrying on business were excisable goods being mentioned in the Schedule but they could not be subjected to duty as they were not goods either because they were not produced or manufactured by it or if they had been produced or manufactured they were not marketed or capable of being marketed.

9. The duty of excise being on production and manufacture which means bringing out a new commodity, it is implicit that such goods must be usable, moveable, saleable and marketable. The duty is on manufacture or production but the production or manufacture is carried on for taking such goods to the market for sale. The obvious rationale for levying excise duty linking it with production or manufacture is that the goods so produced must be a distinct commodity known as such in common parlance or to the commercial community for purposes of buying and selling. Since the solution that was produced could not be used as such without any further processing or application of heat or pressure, it could not be considered as goods on which any excise duty could be levied.

11. Although the duty of excise is on manufacture or production of the goods, but the entire concept of bringing out new commodity etc. is linked with marketability. An article does not become goods in the common parlance unless by production or manufacture something new and different is brought out which can be bought and sold. In Union of India & Anr. Vs. Delhi Cloth & General Mill Co. Ltd., AIR 1963 SC 791, a Constitution Bench of this Court while construing the word ’goods’ held as under:-

"These definitions make it clear that to become "goods" an article must be something which can ordinarliy come to the market to be bought and sold".

Therefore, any good to attract excise duty must satisfy the test of marketability. The tariff schedule by placing the goods in specific and general category does not alter the basic character of leviability. The duty is attracted not because an article is covered in any of the items or it falls in residuary category but it must further have been produced or manufactured and it is capable of being bought and sold.In South Bihar Sugar Mills Ltd. & Anr.etc. v. Union of India & Anr. etc., AIR 1968 SC 922 it was held by this Court:

"The Act charges duty on manufacture of goods.

The word ’manufacture’ implies a change but every change in the raw material is not manufacture. There must be such a transformation that a new and different article must emerge having a distinctive name, character or use.

The duty is levied on goods. As the Act does not define  goods, the legislature must be taken to have used that word in its ordinary, dictionary meaning. The dictionary meaning is that to become goods it must be something which can ordinarily come to the market to be bought and sold and Is known to the market. That it would be such an article which would attract the Act was brought out in Union of India vs. Delhi Cloth and General Mills Ltd., 1963 Supp. (1) SCR 586 = AIR 1963 SC…..”

13. Having traced the development of law that any goods produced or manufactured ipso facto do not attract duty unless they are marketable or capable of being marketed, we may now examine the dutiability of goods captively consumed.

Prior to 1979 no duty was levied on such goods. But, as stated earlier, after amendment of rules 9 and 49 captively consumed goods become exigible to duty. The rationale for not treating such goods as excisable was same that since such goods were not brought to the market for buying and selling they could not be subjected to duty. But when the Rules were amended a fiction was created that any article produced or manufactured if captively consumed was statutorily presumed to satisfy the test of marketability. But this presumption can be rebutted if it is established that the article produced and captively consumed was neither goods nor marketable nor capable of being marketed. The duty is attracted not by captive consumption of any article but it must be a good within the meaning of the Act which apart from having a distinctive name and known as such must be marketable or capable of being marketed…” 52. It is also necessary that before the goods are visited with a levy, there is a manufacture of goods. See Union of India vs. Ahmedabad Electricity Co. Ltd. & others, reported in (2003) 11 SCC 129, wherein also the court reiterated that the goods must be manufactured or produced and it is not sufficient that the goods are excisable goods and, in that, the goods figure in the Schedule.


53. The other aspect immediately flowing from this dimension is that disputes may arise as to the exact entry of the Tariff Act in which particular goods fall. Both the issues have a direct connection with the rate of duty. This is one interpretation of the word “excisability”. The other way to look at the word “excisability” is the inquiry as to whether the goods are excisable goods, meaning thereby, they fall in the Tariff Act and, further, even finding out the exact entry in which the goods  fall, and the same would only be one of the questions to be answered before the levy actually can be successfully imposed and collected. It is settled law that the mere mention of the goods in one of the entries would not render the goods exigible to excise duty. There is a whole gamut of issues, which must be posed and considered before that stage is reached. To begin with, excise duty is traceable to Entry 84 of List I of the Seventh Schedule to the Constitution. The same reads as follows:

“84. Duties of excise on tobacco and other goods manufactured or produced in India except - (a) alcoholic liquors for human consumption.


(b) opium, Indian hemp and other narcotic drugs and narcotics, but including medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of this entry.”


54. The Constitution vide the said entry enables levy of excise duty on goods, which are produced or manufactured in India. The courts have consistently taken the view that, in order that the goods are exigible to excise duty, they must possess the attribute of being movable (excise duty cannot be imposed on immovable property).

Further, they must possess the quality of being bought and sold. They must have an identity as a distinct product. They must be capable of being bought and sold. It is not necessary that there should be large number of purchasers or any number of purchases; even a single purchaser would suffice. It also does not matter that, in a particular case, the goods are actually not sold, as what is necessary is the quality that the goods can be bought and sold. The goods must be usable and have a separate identity. All this would not bring the inquiry to an end.

The further question, which must be answered in a case, where it is raised, is whether the goods in question are brought into being by manufacture as is defined in the Act. See in this regard, Union of India vs. Ahmedabad Electricity Co. Ltd. & others, reported in (2003) 11 SCC 129.


55. The decision in Moti Laminates Pvt. Ltd. & others Vs. Collector of Central Excise, Ahmedabad, reported in (1995) 3 SCC 23 has been followed in Commissioner of Central Excise-I, New Delhi vs. S.R. Tissues (P) Ltd. & another, reported in (2005) 6 SCC 310 and Escorts Limited vs. Commissioner of Central Excise, Faridabad, reported in (2015) 9 SCC 109. In Escorts Limited (supra), the Apex Court has inter alia held as follows:

“For excise duty to be chargeable under the constitutional entry read with Section 3 of the Central Excise and Salt Act, two pre-requisites are necessary. First, there must be “manufacture” which is understood to mean the bringing into existence of a new substance. And secondly, the word “goods” necessarily means that such manufacture must bring into existence a new substance known to the market as such which brings in the concept of marketability in addition to manufacture. Marketability is thus essentially a question of fact to be decided in the facts of each case. There can be no generalization. The fact that the goods are not, in fact, marketed is of no relevance. So long the goods arc marketable, they are goods for the purpose of Section 3 of the Central Excise Act. It is not necessary that the goods should be generally available in the market. Even if the goods are available from only one source or from a specified market, it makes no difference so long as they are available for purchasers.

The marketability of articles does not depend upon the number of purchasers nor is the market confined to the territorial limits of this country.

To become ‘goods’ an article must be something which can ordinarily come to the market to be bought and sold.

‘Marketability’ is a decisive test for dutiability. It only means ‘saleable’, or “suitable for sale”. It need not be in fact ‘marketed’. The article should be capable of being sold or being sold, to consumers in the market, as it is — without anything more.

An article does not become goods in common parlance unless by production or manufacture something new and different is brought out which can be bought and sold. to become ‘goods’ an article must be something which can ordinarily come to the market to be bought and sold. Therefore, any goods to attract excise duty must satisfy the test of marketability. The Tariff Schedule by placing the goods in specific and general category does not alter the basic character of leviability. The duty is attracted not because an article is covered in any of the items or it falls in residuary category but it must further have been produced or manufactured and it is capable of being bought and sold.

It is difficult to lay down a precise test to determine marketability of articles. Marketability of goods has certain attributes. The essence of marketability is neither in the form nor in the shape or condition in which the manufactured articles are to be found, it is the commercial identity of the articles known to the market for being bought and sold. The fact that the product in question is generally not being bought and sold or has no demand in the market would be irrelevant.

The product should not be known in the market with any commercial name. The moment a product is commercially known in the sense of fulfilling the practical test of being known to persons in the market who buy and sell, the test is satisfied.

The fact that the product is generally not bought or sold or has no demand in the market is irrelevant.”


56. Lastly, the goods must be produced or manufactured in India. It is only if all these conditions are satisfied that the levy of excise duty, meaning thereby the imposition of excise duty under the Act, becomes available against the manufacturer or producer of the goods. If the word “excisability” is understood in this sense, then, virtually, excisability would be a question, which would be far more comprehensive. If all these questions are answered against the assessee in a given case or, in other words, if the goods are found to be excisable goods, the exact entry under the Tariff Act is located, if the goods are also found to be movable, marketable, manufactured or produced in India; then, on the event of manufacture, excise duty, which is a tax on the manufacture or production of goods, becomes payable. If this is the sense in which the word “excisability” is used, a question may arise what was the need to also use the word “taxability”.

Is it a case of mere surplusage? Ordinarily, the Legislature is not presumed to waste words. One thing is certain that the Legislature has, in one sense, widened the scope of the expression “question having a relation with the rate of duty”. Therefore, now the Apex Court is, after the amendment, the exclusive appellate forum created against the order passed by the Tribunal to deal with all these issues when they are raised and decided by the Tribunal. As far as exempted goods are concerned, we must notice that exempted goods do not become nonexcisable by issuance of a notification or order under Section 5A of the Central Excise Act. The goods would remain excisable. See in this  regard, the judgment of the Apex Court in Wallace Flour Mills Co. Ltd. vs. Collector of Central Excise, Bombay, reported in (1989) 4 SCC 592. Paragraph 2 of the said judgment reads as follows:

“2. The appellant is a manufacturer of various types of food products known as Sapaghetti, Macaroni, Vermicelli, etc., falling under Heading No. 1902.10 of the Central Excise Tariff Act. The appellant filed classification list effective from 1st March, 1987 claiming that their pre-budget stocks of nonexcisable goods, namely, various types of food products declared in the classification list as aforesaid were entitled to duty free clearance being pre-budget stocks. The Assistant Collector of Central Excise, however, held that the question of clearing pre-budget stocks duty free did not arise because the products in question were excisable though exempted from the duty. There was an appeal from the said order of the Assistant Collector before the Collector of Central Excise (Appeals), Bombay. He dismissed the appeal. The appellant went up in appeal before the Tribunal. It was contended before the Tribunal on behalf of the appellant that the goods in question were not leviable to duty under the aforesaid head until 28th February, 1987 and the said goods had been made dutiable only by the Finance Bill, 1987-88 with effect from 1st March, 1987. It was submitted further that on 27th February, 1987, the appellant had in their factory a stock of the said product which were fully manufactured, packed and ready for sale and the inventory of the said stock was prepared by the Supdt. of Central Excise on 1st March, 1987. Reliance was placed on several decisions of the different High Courts, namely, decision of the Madhya Pradesh High Court in Kirloskar Brothers Ltd. v. Union of India, [1978] ELT 33; Union of India v. Kirloskar Brothers Ltd., [1978] ELT 690, decision of the Bombay High Court in Synthetic Chemicals Pvt. Ltd. v.S.C. Coutinho, [1981] ELT 414, decision of the Bombay High Court in New Chemicals Ltd. v. Union of India, [1981] ELT 920 decision of the Madras High Court in Sundaram Textiles Ltd. v. Asstt. Collector of Central Excise, [1983] ELT 909, decision of the Allahabad High Court in Union of India v. Delhi Cloth & General Mills, [1973] ELT 177. On the other hand, the revenue contended that the goods forming the prebudget stocks were very much excisable goods and that for the purpose of collecting duty, date of manufacture was not material under the scheme of the Act even though the taxable event is the manufacture. It was, therefore, contended that at the time of manufacture of the goods in question, the goods were excisable goods and in view of rule 9A of the Central Excise Rules, 1944, though the taxable event is the manufacture and production, the payment of duty is related to and postponed to the date of removal of articles from the manufactury. The Tribunal accepted the said contention.”


57. It is in the said context that the court held as follows:

“Excise is a duty on manufacture or production. But the realisation of the duty may be postponed for administrative convenience to the date of removal of goods from the factory.

Rule 9A of the said rules merely does that. That is the scheme of the Act. It does not, in our opinion, make removal be the taxable event. The taxable event is the manufacture. But the liability to pay the duty is postponed till the time of removal under rule 9A of the said Rules. In this connection, reference may be made to the decision of the Karnataka High Court in Karnataka Cement Pipe Factory v. Supdt. of Central Excise, [1986] 23 ELT 3 13, where it was decided that the words ’as being subject to a duty of excise’ appearing in s. 2(d) of the Act are only descriptive of the goods and not to the actual levy. ’Excisable goods", it was held, do not become non-excisable goods merely by the reason of the exemption given under a notification….

…..We are of the opinion that even though the taxable event is the manufacture or the production of an excisable article, the duty can be levied and collected at a later date for administrative convenience.”


58. We may notice in fact that in Collector of Central Excise, Hyderabad & others vs. Vazir Sultan Tobacco Company Limited & others, reported in (1996) 3 SCC 434, a three-Judge Bench, no doubt, distinguished the judgment in Wallace Flour Mills Co. Ltd. (supra). In this case, undoubtedly, the facts were that by Section 37 of the Finance Act of 1978, a special duty of excise was levied from 01.03.1978, which was to remain in force till 31.03.1979. The goods were manufactured prior to 01.03.1978; but they were removed after 01.03.1978. Therein, the court distinguished the decision in Wallace Flour Mills Co. Ltd. (supra) and proceeded to take the following view:

“12. We are of the opinion that Section 3 cannot be read as shifting the levy from the stage of manufacture or production of goods to the stage of removal. The levy is and remains upon the manufacture or production alone. Only the collection part of it is shifted to the stage of removal. Once this is so, the fact that the provisions of the Central Excise Act are applied in the matter of levy and collection of special excise duty cannot and does not mean that wherever the Central Excise duty is payable, the special excise duty is also payable automatically. That is so as an  ordinary rule. But insofar as the goods manufactured or produced prior to March 1, 1978 are concerned, the said rule cannot apply for the reason that there was no levy of special excise duty on such goods at the stage and at the time of their manufacture/production. The removal of goods is not the taxable event. Taxable event is the manufacture or production of goods.”


59. Referring to the judgment in Wallace Flour Mills Co. Ltd. (supra), the court also inter alia held as follows:

“13. In our opinion, the decision in Wallace Flour Mills does not lay down a contrary proposition – neither does it support the contention of Shri Vellapally. That was a case where the goods were excisable goods prior to 1.3.1987, though by virtue of an exemption notification, the rate of duty was nil.

This does not mean that they were not excisable goods. They were excisable goods. Nil rate of duty is also a rate of duty.

With effect from 1.3.1987, the said goods became excisable to duty at the rate of fifteen per cent and valorem. It is in the above circumstances that the Court held, on the basis of Section 3 and Rule 9-A, that though the goods were produced or manufactured prior to 1.3.1987, still they attracted duty at the rate prevailing on the date of their removal, i.e. fifteen per cent. Para 4 clearly brings out the ratio of the said decision.”


60. Section 5A is the provision under which exemption is granted.

It may be granted by a notification or it may be granted by an order passed by the Central Government. It may provide for absolute exemption or the exemption may be partial. An exemption may be an absolute exemption, as the exemption notification in this case, insofar as the notification provides for complete exemption in respect of the duty payable under Section 3. It is also a case, where complete exemption is provided from payment of the additional duty under the two Acts mentioned in the notification, the details of which we are not to be detained with under the facts of this case. There are exemption notifications, which, instead of providing a complete exemption, use the word “nil rate of duty”. In regard to an exemption notification, the first question would be whether the goods, which are produced by an assessee, are covered by the list of exempted goods mentioned in the notification or the order. We may usefully remind ourselves of clause  (c) of the explanation to erstwhile Section 35E of the Central Excise Act, which reads as follows:

“(c) whether any goods fall under a particular heading or sub-heading of the First Schedule or the Second Schedule to the Customs Tariff Act, 1975 (51 of 1975), or that any goods are or not covered by a particular notification or order issued by the Central Government granting total or partial exemption from duty.”


61. If the word “excisability” is intended to convey a meaning, is it intended to indicate that the court may find that the goods are covered by the Schedule or not? Is it intended to address the issue as to in which specific entry the goods fall or, failing which, it falls in the residuary list? In other words, is the employment of the word “excisability” only intended to deal with the question whether the goods figure in the list? Is the word “excisability” intended to comprehend the question whether the goods in question are both excisable as defined and also intended to address the aspect whether the goods can be visited with excise duty, meaning thereby, that all the questions, which must be answered against the assessee before he can be visited with the excise duty, which is a tax on manufacture of excisable goods? If that is the interpretation to be placed on “excisability”, then what was the need to also use the word “taxability”?


62. A decision on excisability or a decision on taxability by the Tribunal after the amendment in 2014 would confer exclusive jurisdiction on the Supreme Court. First, let us see what is the meaning to be attributed to the word “excisability”. One way of looking at the word “excisability” is whether the goods in question are excisable goods. The starting point of an inquiry as to whether excise duty is payable is whether the goods are excisable goods, as the charge of excise duty under Section 3 is on excisable goods. “Excisable goods” are clearly defined in Section 2(d) of the Central Excise Act, which reads as follows:

“2(d) “excisable goods” means goods specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as being subject to a duty of excise and includes salt;

Explanation. – For the purposes of this clause, “goods” includes any article, material or substance which is capable of being bought and sold for a consideration and such goods shall be deemed to be marketable.”


63. Therefore, we would have to necessarily go to the Central Excise Tariff Act, 1985 (hereinafter referred to as the “Tariff Act”).


64. Clauses (a) & (b) of Section 3(1) of the Excise Act read as follows:

“3. Duties specified in the Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 to be levied.

– (1) There shall be levied and collected in such manner as may be prescribed, - (a) a duty of excise to be called the Central Value Added Tax (CENVAT) on all excisable goods excluding goods produced or manufactured in special economic zones which are produced or manufactured in India as, and at the rates, set forth in the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986);

(b) a special duty of excise, in addition to the duty to excise specified in clause (a) above, on excisable goods (excluding goods produced or manufactured in special economic zones) specified in the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) which are produced or manufactured in India, as, and at the rates, set forth in the said Second Schedule.”


65. We are not concerned with the other provisions of Section 3.

Section 3 clearly is the charging provision. It purports to levy excise duty and also special excise duty at the rates as set forth in the First Schedule and, insofar as it relates to the basic excise duty and special excise duty, at the rates as are mentioned in the Second Schedule to the Tariff Act. The Tariff Act came to be amended w.e.f. 28.02.2005.

Section 3 of the Tariff Act reads as follows:

“3. Emergency power of the Central Government to increase duty of excise. - (1) Where, in respect of any goods, the Central Government is satisfied that the duty leviable thereon under Section 3 of the Central Excise Act, 1944 (1 of 1944) should be increased and that circumstances exist which render it necessary to take immediate action, the Central Government may, by notification in the Official Gazette, direct an amendment of the First Schedule and the Second Schedule to be made so as to substitute for the rate of duty specified in the First Schedule and the Second Schedule in respect of such goods, - (a) in a case where the rate of duty as specified in the First Schedule and the Second Schedule as in force immediately before the issue of such notification is nil, a rate of duty not exceeding fifty per cent ad valorem expressed in any form or method;

(b) in any other case, a rate of duty which shall not be more than twice the rate of duty specified in respect of such goods in the First Schedule and the Second Schedule as in force immediately before the issue of the said notification:

Provided that the Central Government shall not issue any notification under this sub-section for substituting the rate of duty in respect of any goods as specified by an earlier notification issued under this sub-section by that Government before such earlier notification has been approved with or without modifications under sub-section (2).

Explanation:- “Form or method”, in relation to a rate of duty of excise means the basis, namely, valuation, weight, number, length, area, volume or other measure with reference to which the duty may be levied.

(2) Every notification under sub-section (1) shall be laid before each House of Parliament, if it is sitting, as soon as may be after the issue of the notification, and if it is not sitting, within seven days of its re-assembly, and the Central Government shall seek the approval of Parliament to the notification by a resolution moved within a period of fifteen days beginning with the day on which the notification is so laid before the House of the People and if Parliament makes any modification in the notification or directs that the notification should cease to have effect, the notification shall thereafter have effect only in such modified form or be of no effect, as the case may be, but without prejudice to the validity of anything previously done thereunder.

(3) For the removal of doubts, it is hereby declared that any notification issued under subsection (1), including any such notification approved or modified under sub-section (2), may be rescinded by the Central Government at any time by notification in the Official Gazette.”


66. Thus, the Tariff Act contemplates nil rate of duty as the rate of duty. The rate fixed can be increased in an emergency by the Central Government by notifying the same; but subject to the limitations as provided therein. Section 5 of the Tariff Act reads as follows:

“5. Power of Central Government to amend First and Second Schedules. - (1) Where the Central Government is satisfied that it is necessary so to do in the public interest, it may, by notification in the Official Gazette, amend the First Schedule and the Second Schedule:

Provided that such amendment shall not alter or affect in any manner the rates specified in the First Schedule and the Second Schedule in respect of goods at which duties of excise shall be leviable on the goods under the Central Excise Act, 1944.”


67. Thus, while thereunder there is power to amend the Schedule, there is no authority to alter or affect the rates. Under the scheme of the Tariff Act, the goods are brought under Section (i) to (xx). Each section has one or more chapters. There are a total of 96 chapters.

Section (I), for instance, deals with live animals / animal products. The tariff is to be discerned primarily from the headings. No doubt, one has to bear in mind also the section notes, chapter notes, besides the rules of interpretation. A perusal of section (i) Chapter 1, which deals with live animals / animal products, would show that, under the column ‘rate of duty’, it is left blank. Passing on to Chapter 2 of section (i), which deals with meat and edible meat offal, the rate of duty is shown as nil. The same is the position with respect to chapters 3 and 4 of section (i). Thus, for the products in Chapters 2 to 4 of section (i), the rate of duty is nil. But, nonetheless, it is quite clear that it is the rate of duty and capable of being increased vide exercise of powers under Section 3 of the Tariff Act. That nil rate is also a rate of duty is also referred to by the decisions of the Apex Court. Nil rate of duty is also provided for in the exemption notification. Apparently, the exemption notification, which was the subject matter of the decision of the Apex Court in Wallace Flour Mills Co. Ltd. vs. Collector of  Central Excise, Bombay (supra), was one such notification. This is clear from a reference to the decision of the Apex Court in Collector of Central Excise, Hyderabad & others vs. Vazir Sultan Tobacco Company Limited & others, reported in 1996 (3) SCC 434, wherein express reference was made to the notification being as such. Thus, there are goods in the Tariff Act, which are visited with nil rate of duty.

An exemption notification can also provide for a nil rate of duty. On the other hand, an exemption notification can provide for an absolute exemption. General exemptions are of many types. Notification No. 8/03 dated 01.03.2003 was essentially issued for small scale units and it was limited in point of the quantum of clearance. The Annexure containing the list of exempted goods, we may notice, includes all goods falling under Chapters 2, 3 & 4 of Section (i), inter alia, even though the rate of duty of excise therein is shown as nil. No doubt, the notification gives an option to the manufacturer not to avail the exemption, in which case, he is obliged to exercise the option before effecting the first clearance. Another condition mentioned in the said exemption notification is that the manufacturer could not avail CENVAT credit on inputs, subject no doubt to the proviso in the said clause. It may also be noticed that sub-section (1A) has been inserted in Section 5A of the Excise Act, which deals with the power of exemption. Section 5A reads as follows:

“Section 5A. Power to grant exemption from duty of excise. - (1) If the Central Government is satisfied that it is necessary in the public interest so to do, it may, by notification in the Official Gazette exempt generally either absolutely or subject to such conditions (to be fulfilled before or after removal) as may be specified in the notification, excisable goods of any specified description from the whole or any part of the duty of excise leviable thereon:

Provided that, unless specifically provided in such notification, no exemption therein shall apply to excisable goods which are produced or manufactured – (i) in a free trade zone or a special economic zone and brought to any other place in India; or (ii) by a hundred per cent export-oriented undertaking and brought to any place in India.

Explanation. - In this proviso, "free trade zone", "special economic zone" and "hundred per cent export-oriented undertaking" shall have the same meanings as in Explanation 2 to sub-section (1) of section 3.

(1A) For the removal of doubts, it is hereby declared that where an exemption under sub-section (1) in respect of any excisable goods from the whole of the duty of excise leviable thereon has been granted absolutely, the manufacturer of such excisable goods shall not pay the duty of excise on such goods.

(2) If the Central Government is satisfied that it is necessary in the public interest so to do, it may, by special order in each case, exempt from payment of duty of excise, under circumstances of an exceptional nature to be stated in such order, any excisable goods on which duty of excise is leviable.

(2A) The Central Government may, if it considers it necessary or expedient so to do for the purpose of clarifying the scope or applicability of any notification issued under subsection (1) or order issued under sub-section (2), insert an explanation in such notification or order, as the case may be, by notification in the Official Gazette at any time within one year of issue of the notification under sub-section (1) or order under sub-section (2), and every such explanation shall have effect as if it had always been the part of the first such notification or order, as the case may be.

(3) An exemption under sub-section (1) or sub-section (2) in respect of any excisable goods from any part of the duty of excise leviable thereon (the duty of excise leviable thereon being hereinafter referred to as the statutory duty) may be granted by providing for the levy of a duty on such goods at a rate expressed in a form or method different from the form or method in which the statutory duty is leviable and any exemption granted in relation to any excisable goods in the manner provided in this sub-section shall have effect subject to the condition that the duty of excise chargeable on such goods shall in no case exceed the statutory duty.

Explanation. - "Form or method", in relation to a rate of duty of excise means the basis, namely, valuation, weight, number, length, area, volume or other measure with reference to which the duty is leviable.

(4) Every notification issued under sub-rule (1), and every order made under sub-rule (2) of rule 8 of the Central Excise Rules, 1944, and in force immediately before the commencement of the Customs and Central Excises Laws (Amendment) Act, 1987 shall be deemed to have been issued or made under the provisions of this section and shall continue to have the same force and effect after such commencement until it is amended, varied, rescinded or superseded under the provisions of this section.

(5) Every notification issued under sub-section (1) or sub-section 2(A) shall, unless otherwise provided, come into  force on the date of its issue by the Central Government for publication in the Official Gazette.”


68. Sub-section (1A) came into force w.e.f. 13.05.2005. We may notice that, in fact, there are, as already noticed, different types of exemption notifications. General exemptions are granted in exercise of the power under Section 5A. The notification with which we are concerned is general exemption No. 42 brought out by Notification No. 50/2003 dated 10.06.2003. There are exemption notifications made available for carrying out manufacture through job workers.


There are exemption notifications issued, which fixed effective rate of duty. For goods of various chapters, notifications have been issued, namely, Notification No. 1 dated 01.03.2011, where the effective rate of duty has been fixed at 2 per cent. Notification No. 2 provides for effective rate of duty at 6 per cent for specified goods. A general exemption No. 50 has brought out effective rates of duty for goods specified in Chapters 1 to 98 by Notification 12/2012 dated 17.03.2012.


69. We may advert to the CENVAT Credit Rules, 2004. The purport of these Rules is to provide for credit on duty paid on inputs and capital goods as provided therein in the payment of final excise duty and other levies. We notice that “exempted goods” has been defined in Rule 2(d), which reads as follows:

“(d) “exempted goods” means excisable goods which are exempt from the whole of the duty of excise leviable thereon, and includes goods which are chargeable to “Nil” rate of duty and goods in respect of which the benefit of an exemption under Notification No. 1 / 2011-CE, dated the 1st March, 2011 or under entries at serial numbers 67 and 128 of Notification No. 12/2012-CE, dated the 17th March, 2012 is availed.”


70. Thus, it tends to indicate that a distinction may exist between a case, where there is a complete exemption from the whole of the duty and a case, where the goods are chargeable to nil rate of duty. An  instance of its application can be found with reference to Rule 6(2), which provides for circumstances in which a manufacturer could take benefit of CENVAT credit and the word “exempted goods” figures which would obviously take-in, in view of the definition, cases of complete exemption and cases where the goods are chargeable at nil rate. But we need not explore this aspect in view of our finding on the scope of the word “taxability”.


71. Parliament has chosen to use the words “taxability” and “excisability”. We hold that the word “excisability” is better understood in the context as meaning not only a situation, where the goods in question are excisable goods as defined in Section 2(d) of the Excise Act, but also they answer the description of the goods as understood in law and a long line of decisions. This means that the products in question must be goods as understood in law being movable and marketable. It must have an identity in the market as a distinct new product. It must possess the attribute of marketability, which means it is capable of being bought and sold. This is besides also fulfilling the requirement that the goods must be manufactured or produced and, further, that the manufacture or production of the goods must be in India. It is when all these questions are answered in a case, where they are raised, that even if the goods are excisable goods, they become excisable.


72. It is a principle of interpretation that when the words have acquired a legal meaning or, rather, they have been interpreted by courts and they are used by the Legislature, it must be taken that the words are meant to be understood in the legal sense. In our search for authority as to whether courts have employed the word “excisability”, we found the decision in the case of Hindustan Zinc Ltd. Vs. Commissioner of Central Excise, Jaipur, reported in (2005) 2 SCC 662. In the said case, the question which arose was that whether silver chloride, which arose as an intermediate product in the course of manufacture of zinc, would satisfy the legal requirement that duty can  be levied only on goods. The contention taken was that silver chloride was a residue of treatment whereby sulphates of other materials are filtered out and that it was not marketable as there was no company to buy the product and that the purity level of silver chloride sold in the market was different from silver chloride produced in the factory of the assessee, which had silver content of only 50 to 53 per cent. The court noted that marketability is essentially a question of fact. The court further relied on Cadila Laboratories (P) Ltd. vs. CCE, reported in (2003) 4 SCC 12, wherein the court held that the burden would be on the department to show that what was available in the market is the same as the goods manufactured. The court took the view that the department had made no efforts to ascertain whether silver chloride having 50 per cent to 53 per cent silver content had a market. It was found that the department had failed to prove the test of marketability and, thereafter, the court proceeded to hold as follows:

“11. Before concluding, we may point out that since 1990, when the case of Hindustan Zinc Ltd. came to be decided, the question of excisability of silver chloride has been cropping up and yet till this day no steps have been taken by the Department to go to the market and collect proper evidence of marketability. In most of the matters, we find lethargy and reluctance on the part of the Department to collect evidence on marketability and even in cases where market enquiry is made, it is made in a perfunctory manner. Consequently, despite the Department having a good case on classification, we are constrained to allow the appeal of the assessee on marketability for want of evidence.”


73. Thus, in this judgment, the court has used the word “excisability” and this tends to show that it was used in the sense that the question was not whether it figured in the excise tariff alone or in which entry it fell, but it went beyond the same and it essentially went to the issue of leviability and dutiability.


74. Therefore, we would proceed on the basis that when the Tribunal answers a question relating to excisability, it is equivalent to saying  that it finds that the goods are dutiable and can be visited with the levy of excise duty.


75. What then are we to make out of the employment of the word “taxability” separated by the word “or”? Was it intended to convey that taxability is something different from excisability? Is it capable of bearing the meaning that the Legislature intended that when, after it is found to be excisable in a situation where the assessee presses an exemption notification or order before the authority, it could be said that because there is an absolute exemption for instance he is shielded from the levy of excise duty and, therefore, in such a situation, it could be said that relates to taxability. Or, would it not be more appropriate in the context to find that there is no difference between “excisability” and “taxability” as both excisability and taxability refers to the situation, where the conditions are fulfilled for visiting the assessee with the levy. Exemption is granted only of goods, which are excisable. In fact, we have noticed the judgments, which indicate that exempted goods do not cease to be excisable. They do not become non-excisable because of the exemption. The moment the exemption is withdrawn, they not only become excisable, but the actual levy can be pressed against them.


76. This leads us to enquire as to what is the principle to be employed when two words are used. We may profitably refer to Principles of Statutory Interpretation by Justice G.P. Singh, Eighth Edition, under the heading ‘use of different words’ as under:

“When in relation to the same subject-matter, different words are used in the same statute, there is a presumption that they are not used in the same sense.

But much weight to the presumption arising out of use of different words in different parts of a statute cannot be given when dealing with a long complicated statute, for instance, a consolidating Act containing in-congruous provisions lumped together. Even otherwise, the rule is subordinate to context as a less careful draftsman may use different words to convey the  same meaning. A construction deriving support from differing phraseology in different sections of a statute may be negatived on considerations that it will lead to unreasonable or irrational results.”


77. We may, in fact, refer to the judgment of the Apex Court in Kanhaiyalal Vishindas Gidwani vs. Arun Dattatraya Mehta and others, reported in AIR 2000 SC 3681. There, the court was dealing with Section 33 of the Representation of People Act, 1951. The court was dealing with Section 33 and the first proviso thereto. The contention taken by the appellant was that a different meaning is to be attributed to the word ‘subscribe’ and mere signature is not sufficient.

The court held as follows:

“18. The above observations of this Court cannot be accepted as a ratio laid down. In our opinion, it is only an observation without laying down the principle which the petitioner is trying to deduce in his arguments. This view of ours is clear from the following further discussion of this Court in the said case:

“Now if “subscribe” can mean both signing, properly so called, and the placing of a mark (and it is clear that the word can be used in both senses), then we feel that we must give effect to the general policy of the Act by drawing the same distinction between signing and the making of a mark as the Act itself does in the definition of “sign”. It is true the word “subscribe” is not defined but it is equally clear, when the Act is read as a whole along with the form in the second schedule, that “subscribe” can only be used in the sense of making a signature and as the Act tells us quite clearly how the different types of “signature” are to be made, we are bound to give effect to it. Xxx (Emphasis supplied).

19. For this reason also we agree with the finding of the High Court that the expression “subscribe” in the proviso cannot be read differently from the expression ‘sign’ used in S.33.

Therefore, this contention of the petitioner is also rejected. For the reasons stated above, the appeal is dismissed with costs.”


78. After answering the issue against the assessee, necessarily, various questions would arise in regard to whether the assessee fulfills the conditions mentioned in the notification to claim benefit of exemption. An exemption notification is to be construed strictly.

Undoubtedly, when it is an implementing notification, the court will treat it as an exception to the general rule of strict interpretation to be accorded to an exemption notification and a beneficial construction would undoubtedly be employed; but there can be no violence to the language used in the notification.


79. As we have noticed, ordinarily, when different words are used in the same Section, there is a presumption that they are not used in the same sense. Here, we are concerned with the employment of the words “taxability” and “excisability”. We have found that the word “excisability” is intended to cover all issues, namely, whether the goods are excisable and, where a question is raised, whether they are goods being movable, marketable and further, if there is a dispute, relating to whether it is manufactured or produced in India, the same must also be considered and answered. When all these questions are answered, we have also found that the goods are liable to be visited with duty. Legislature has, however, chosen to use the word “taxability”. Here, we must pose the following questions, which are, in our view, enough to unravel the intention of Parliament. In a case, where the goods are found to be excisable as in the sense we have understood, there may be an exemption notification, which is in force.

No doubt, it could be argued that, if the word “excisability” is understood in the same sense as “taxability”, the question relating to the availability of the exemption notification is outside the scope of both “excisability” and “taxability”; in that, it could be said that it only means that the goods, which are excisable or taxable, are outside the net of taxation by virtue of the exemption notification. But, we would think that the better view and the right view could be that, in a case, where the goods are found excisable, Parliament intended in a case, where the Assessing Officer presses for payment, the assessee responds by pointing out that, though the goods are excisable, there is an exemption notification available, which protects him from actual taxation. If we understand the expression “taxability” in the said context, we would be acting in terms of the normal presumption, which  is available when two different words are employed in the same statute and we would give life to both the words. Thus, the word “taxability” would cover a situation, where, though the goods are found dutiable otherwise, they are found to be non-taxable by virtue of the availability of an exemption notification. If a question arises as to the availability of the notification, then it goes to taxability.


80. In this context, we may notice one argument of Mr. H.M. Bhatia.

His contention is that there is no dispute that there is an exemption notification regarding the rate of tax. If the exemption is not available, the full rate of tax will become applicable. Therefore, it is a question, which has no relationship with the rate of duty.


81. We may point out that if this argument is accepted, even under the head “excisability”, if for instance assessee contends that there is no manufacture or that the goods are not marketable and the question is answered against the assessee finding that there is indeed manufacture or the goods are marketable, as the case may be, all that remains in such a case also is to apply the full rate of duty. Therefore, this cannot be a test to decide the question at hand. We must also bear in mind that by virtue of sub-section (2) to Section 35L, the courts are obliged to proceed on the basis that a decision relating to “taxability” or “excisability” is to be treated as a question which has a relation with the rate of duty. This is virtually a deeming provision and, therefore, we need not actually explore the question even as to whether it really has a relation with the rate of duty.


82. In such circumstances, we are of the view that the appeals are not maintainable for the reason that the appeals are maintainable only before the Supreme Court under Section 35L of the Excise Act in the context of the interpretation we have placed on the words “taxability” and “excisability”. We need not, therefore, further explore the question whether de hors sub-section (2), the case would fall under sub-section (1) of Section 35G or Section 35L, as the case may be.


83. Accordingly, the appeals will stand dismissed as not maintainable. Needless to say, the appellants will be at liberty to pursue the matter before the competent forum, if advised. There will be no order as to costs.


(Alok Singh, J.)         (K.M. Joseph, C. J.)
05.04.2017                 05.04.2017

G

Reportable

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.5611 OF 1999

Economic Transport Organization
Appellant…

Vs.

M/s. Charan Spinning Mills (P) Ltd. & Anr.

Respondents

 

J U D G M E N T

R.V.RAVEENDRAN, J.

This appeal was referred by a two-Judge Bench to a larger bench on 30.11.2000, being of the view that the decision of this Court in Oberai Forwarding Agency v. New India Assurance Co. Ltd. – 2002 (2) SCC 407, required reconsideration. In turn, the three-Judge Bench has referred the matter to a Constitution Bench on 29.3.2005.

Factual Background :

2. The first respondent (also referred to as the ‘Assured’ or the ‘consignor’) is a manufacturer of the cotton yarn. It took a policy of insurance from the second respondent (National Insurance Co. Ltd, referred to as the ‘Insurer’), covering transit risks between the period 11.5.1995 and 10.5.1996 in respect of cotton yarn sent by it to various consignees through rail or road against theft, pilferage, non-delivery and/or damage. The first respondent entrusted a consignment of hosiery cotton yarn of the value of Rs.7,70,948/- to the appellant (also referred to as the ‘carrier’) on 6.10.1995 for transportation and delivery to a consignee at Calcutta. The goods vehicle carrying the said consignment met with an accident and the consignment was completely damaged. On the basis of a surveyor’s certificate issued after assessment of the damage, the second respondent settled the claim of the first respondent for Rs.447,436/- on 9.2.1996. On receiving the payment, the first respondent executed a Letter of Subrogation-cum-Special Power of Attorney in favour of the second respondent on 15.2.1996. Thereafter, respondents 1 and 2 filed a complaint under the Consumer Protection Act, 1986 (‘Act’ for short) against the appellant before the District Consumer Disputes Redressal Commission, Dindigul, claiming compensation of Rs.447,436/- with interest at 12% per annum, for deficiency in service, as the damage to the consignment was due to the negligence on the part of the appellant and its servants. It was averred that the insurer as subrogee was the co-complainant in view of the statutory subrogation in its favour on settlement of the claim and the letter of subrogation-cum- special power of attorney executed by the Assured.

3.     The District Forum by its order dated 8.11.1996 allowed the complaint and directed the appellant to pay Rs.447,436/- with interest at the rate of 12% per annum from the date of accident (8.10.1995) till date of payment to the Insurer, on the basis of the subrogation. The District Forum held that the failure to deliver the consignment in sound condition was a deficiency in service, in view of the unrebutted presumption of negligence arising under sections 8 and 9 of the Carriers Act, 1865. The appeal filed by the appellant before the State Consumer Disputes Redressal Commission, Madras, challenging the said order was dismissed on 2.4.1998. The appellant thereafter filed a revision before the National Consumer Disputes Redressal Commission in the year 1999. The National Commission dismissed the appellant’s revision petition by a short non-speaking order dated 19.7.1999 which reads thus:

“We do not find any illegality or jurisdictional error in the order passed by the State Commission.” The said order is challenged in this appeal by special leave.


The Issue

4. The appellant herein resisted the complaint on the following grounds:

(i) The Assured (consignor) had insured the goods against transit risk with the Insurer. The Insurer had already settled the claim of the Assured. As a consequence, the Assured had no surviving claim that could be enforced against the carrier. At all events, as the Assured had transferred all its interest in the claim to the Insurer, it had no subsisting interest or enforceable right.

(ii) The Insurer did not entrust the consignment to the carrier for transportation. The appellant did not agree to provide any service to the Insurer. There was no privity of contract between the Insurer and the appellant. As a result, the Insurer was not a ‘consumer’ as defined in the Act and a complaint under the Act was not maintainable.

(iii) The letter of subrogation was executed by the Assured (consignor), after the goods were damaged. This amounted to a transfer of a mere right to sue by the Assured in favour of the Insurer, which was invalid and enforceable.

(iv) There was no negligence on the part of its driver and the accident occurred due to circumstances beyond his control. The respondents did not place any evidence to prove any negligence, in spite of appellant’s denial of negligence. Having regard to section 14(1)(d) of the Act, liability can be fastened on a carrier, for payment of compensation, only by establishing that the consumer had suffered loss or injury due to the negligence of the carrier as a service provider. In view of the special provision in section 14(1)(d) of the Act, the complainants under the Act were not entitled to rely upon the statutory presumption of negligence available under section 9 of the Carriers Act, 1865 which is available in civil suits brought against carriers. In the absence of proof of negligence, it was not liable to pay compensation for damage to the goods.


5. After leave was granted in this case on 27.9.1999, a three-Judge Bench of this Court rendered its decision in Oberai Forwarding Agency on 1.2.2000, making a distinction between ‘assignment’ and ‘subrogation’. This Court held that where there is a subrogation simpliciter in favour of the insurer on account of payment of the loss and settlement of the claim of the assured, the insurer could maintain an action in the Consumer Forum in the name of the assured, who as consignor was a consumer. This Court further held that when there is an assignment of the rights of the assured in favour of the insurer, the insurer as assignee cannot file a complaint under the Act, as it was not a ‘consumer’ under the Act. This Court held that even if the assured was a co-complainant, it would not enable the insurer to maintain a complaint under the Act, if it was an assignee of the claim. We extract below the relevant portion of the said judgment:

“17. In its literal sense, subrogation is the substitution of one person for another. The doctrine of subrogation confers upon the insurer the right to receive the benefit of such rights and remedies as the assured has against third parties in regard to the loss to the extent that the insurer has indemnified the loss and made it good. The insurer is, therefore, entitled to exercise whatever rights the assured possesses to recover to that extent compensation for the loss, but it must do so in the name of the assured.

x x x x x

19. With the distinction between subrogation and assignment in view, let us examine the letter of subrogation executed by the second respondent in favour of the first respondent. Its operative portion may be broken up into two, namely, (i) “we hereby assign, transfer and abandon to you all our rights against the Railway Administration, road transport carriers or other persons whatsoever, caused or arising by reason of the said damage or loss and grant you full power to take and use all lawful ways and means in your own name and otherwise at your risk and expense to recover the claim for the said damage or loss”; and (ii) ‘we hereby subrogate to you the same rights as we have on consequence of or from the loss of damage”.

20. By the first clause the second respondent assigned and transferred to the first respondent all its rights arising by reason of the loss of the consignment. It granted the first respondent full power to take lawful means to recover the claim for the loss, and to do so in its own name. If it were a mere subrogation,first, the word “assigned” would not be used. Secondly, there would not be a transfer of all the second respondent’s rights in respect of the loss but the transfer would be limited to the recovery of the amount paid by the first respondent to the second respondent. Thirdly, the first respondent would not be entitled to take steps to recover the loss in its own name; the steps for recovery would have to be taken in the name of the second respondent. Thus, by the first clause there was an assignment in favour of the first respondent.

21. The second clause, undoubtedly, used the word “subrogate”, but it conferred upon the first respondent “the same rights” that the second respondent had “in consequence of or arising from the said loss or damage”, which meant that the transfer was not limited to the quantum paid by the first respondent to the second respondent but encompassed all the compensation for the loss. Even by the second clause, therefore, there was an assignment in favour of the first respondent.

22. Learned counsel for the first respondent  submitted that the letter of subrogation and the special power of attorney should be read together and, so read, it would be seen that the first respondent was not an assignee of the second respondent’s rights but was merely subrogated to them. The terms of the letter of subrogation are clear. They cannot be read differently in the light of another, though contemporaneous, document.

23.     Now, as is clear, the loss of the consignment had already occurred. All that was assigned and transferred by the second respondent to the first respondent was the right to recover compensation for the loss. There was no question of the first respondent being a beneficiary of the service that the second respondent had hired from the appellant. That service, namely, the transportation of the consignment, had already been availed of by the second respondent, and in the course of it the consignment had been lost.

The first respondent, therefore, was not a “consumer” within the meaning of the Consumer Protection Act and was, therefore, not entitled to maintain the complaint.

24. By reason of the transfer and assignment of all the rights of the second respondent in the first respondent’s favour, the second respondent retained no right to recover compensation for the loss of the consignment. The addition of the second respondent to the complaint as a co-complainant did not, therefore, make the complaint maintainable.”

6. The referring Bench which heard this appeal considered the decision in Oberai. It was of the view that Oberai required reconsideration by a larger Bench, for the following reasons (vide order dated 30.11.2000) :

“In the case of simple subrogation in favour of an insurance company, there is no difficulty in accepting that the insurance company gets subrogated to the rights of the consumer wherein the insurance company has paid compensation to the consumer pursuant to the contract entered into between the consumer and the insurance company. As per the principle referred to in the judgment in Oberai Forwarding Agency’s case (supra), if there was simple subrogation, then the insurance company could maintain an action in the consumer court but it had to do so in the name of the consumer. It could not sue in its own name. Certainly that was the law laid down earlier by this Court and this is also a part of the common law. That was the position before the National Commission in Transport Corporation of India Ltd vs. Devangara Cotton Mills Ltd., reported in 1998 (2) CPJ 16 (NC), which is referred to in paragraph 16 of the judgment in Oberai Forwarding Agency (supra). But in the earlier judgment in Green Transport Co. vs. New India Assurance Co. Ltd., (1992) 2 CPJ 349 (NC) wherein the insurer had claimed a right of  subrogation or transfer of the right of action which the insured had as against the transporter. There it was held that the complaint in the consumer court was not maintainable. In Transport Corporation of India Ltd’s case, the National Commission distinguished the judgment in Green Transport Co., wherein the complaint was held not to be maintainable. In other words, this Court in Oberai Forwarding Agency’s case (supra) felt that where there was an assignment in addition to subrogation, the complaint was not maintainable even though the original consumer as well as the Insurance Company to whom the rights stood subrogated and assigned were the complainants. The crucial reasoning is set out in paragraphs 23 and 24 of the judgment in Oberai Forwarding Agency (supra) which we have already set out above.

So far as paragraph 23 of the said judgment is concerned, it states that in case the right to recover the compensation is assigned to the Insurance Company, there is no question of the Insurance Company being a ‘beneficiary’ of the services which the consumer had hired through the transport company. Hence, section 2(b) of the Consumer Protection Act, 1988 would not apply. This Court also observed that ‘service’ namely, the transportation of the consignment had already availed of by the consumer. The Insurance Company therefore, was not a consumer within the meaning of the provisions of the Consumer Protection Act, 1986 and therefore, not entitled to maintain the complaint.

It is contended for the appellant, relying on the above passages (para 23 in Oberai) that once the goods are handed over to a transporter for the purpose of transport, the services have already been rendered and that therefore, the consignor ceases to be a consumer. But it is pointed out for the respondent that the contract between the consumer and the transport company is to safely transport the goods through he entire distance and hand them over for delivery to the consignee at the opposite end. If the goods have been lost during transport, services are not fully rendered – and a cause of action has arisen to the consignor (consumer) to recover the same, the consignor continues to be a consumer after the services are rendered and will be a consumer entitled to compensation (rather than goods) against the transport company. He does not, it is contended for the respondent, cease to be consumer. There is a breach of contract and the right of the consignor is to recover compensation. If, therefore, at such a stage the consignor is still a consumer entitled to sue for compensation, he is certainly entitled in that capacity to move the consumer court as a complainant. That is how it is contended for the respondents that the consignor is in the position of a co-complainant.

So far as assignment of the rights in favour of the insurance company is concerned, it is contended for the respondents that one has to keep in mind that a simple assignment of a right to recover may, in law be bad, on the ground of ‘champerty/maintenance’ and that is why, in these formats, it is coupled with subrogation. Once there is subrogation the insurance company is suing in the consignor’s right as ‘consumer’ because the consignor has not got the full services rendered in his favour, the goods not having reached their destination. An assignment coupled with rights of subrogation would be valid in law because then it will not be a case of a mere assignment of a right to sue.

In other words, on the date when the assignment is made, the consignor namely the consumer is still a consumer who has lost his goods and he is entitled to compensation for the loss of the goods by the transport company. Once the consignor receives the money from the Insurance company, the insurance company becomes subrogated as an indemnifier to all the rights of the consumer including the right to sue as a consumer. But the complaint must then be in the name of the consignor. In fact, that is the precise position on Transport Corporation of India Ltd. Vs. Davangere Cotton Mills Ltd. – 1998 (2) CPJ 16. It was held that the consignor could still sue notwithstanding the fact that compensation was paid by the insurance company. The only extra thing that happens in the event of the assignment in favour of the insurance company is that the insurance company becomes entitled to file the complaint in its own name by virtue of the assignment. The insurance company may not be a consumer to start with but it is subrogated to the rights of the consumer (consignor) to whom services were not fully rendered.

When we came to paragraph 24 of the judgment in Oberai Forwarding Agency (supra), it is stated that upon the transfer by assignment of all the rights of the consumer in favour of the insurance company, the consumer retained no right to recover compensation for the loss of consignment and therefore, the addition of the consignee as a co-complainant does not make the complaint maintainable. It is contended for the respondents that the law is well settled that there cannot be a bare assignment of a right to sue. But if such a right is coupled with the right of subrogation the action is maintainable by the assignee, who is suing for those rights and who need no longer implead the consignor. In fact, the principle in Transport Corporation of India Ltd., which has been accepted by the three Judge Bench itself says that if there is subrogation, the insurance company could sue in the name of consignor. The effect of the assignment is not to destroy the character of the insurance company as a person entitled to the rights of the consumer (because of subrogation) but also to provide an independent right to sue in its own name. Merely, because there is an assignment it does not follow that the complainant – insurer was not also clothed with the rights of the consignor as a consumer, if on the date of assignment the consignor was still entitled to compensation as consignor. The reasoning in paragraph 24 of the judgment appears to be closely intertwined with the reasoning in paragraph

23. As long as the goods had not been delivered, the consignor does not lose the right to claim compensation as a consumer and he still remains the consignor and to that rights, the Insurance company becomes subrogated. It is contended for the respondent that thus the insurance company is having the rights of the consignor as consumer by virtue of the rights subrogated to it and is also entitled to maintain the complaint as an assignee in its own right.

It is pointed out for the respondents that, in fact, the result of the judgment of the three judge bench has been that a large number of cases which have been decreed in favour of the consignees in various consumer fora in this country have been rendered infructuous. The insurance company and the consignors became compelled to move the civil court once again after several years and to seek the benefit of section 14 of the Limitation Act. There was no other benefit accruing to the transporter. It is contended that a purposeful interpretation is to be given to the provisions of the Consumer Protection Act and one of the purpose is that consumers might get expeditious relief outside the civil courts.

It is contended alternatively that looking at the matter from another angle, the insurance company as a third party – indemnifier pays compensation to the consumer and redresses an immediate grievance and makes the insured to go back into this business. In such a situation, merely because a third party indemnifier pays money to the insured, the latter does not cease to be a consumer and the status of the consignor as a consumer still continues. Because there is a breach of contract the consumer can sue for compensation along with the insurance company and does not lose his right to sue for compensation. The right to sue before the consumer court is available either with the consignor or with the consignee and does not vanish into thin air, in spite of the assignor and assignee being co-complainants. In this connection, the decision in Compania Colombia De Sequros vs. Pacific Steam Navigation Co. etc., reported in 1964 (1) ALL ER 216 is also relied upon for the respondent. It contains an extensive discussion of the point involved. There the assignment was obtained after the accident and after the Insurance Company paid the money to the consignor.

In our view, the above contention of the respondent are substantial and a case is made out for reconsideration of Oberai Forwarding Agency.

7. The appellant contends that Oberai lays down the law correctly. It is submitted that what is executed in favour of the Insurer, though termed a ‘subrogation’ is an assignment, and therefore, the Insurer was not entitled to maintain the complaint. Relying on the observations in para 23 of Oberai Forwarding Agency, it was contended that once the goods entrusted to the appellant for transportation were lost/damaged, no ‘service’ remained to be rendered or performed by the appellant as carrier; that what was assigned and transferred by the Assured to the Insurer was only the right to recover compensation for the loss and there was no question of Insurer being the beneficiary of any service, for which the Assured had hired the appellant; and therefore such post-loss assignment of the right to recover compensation, did not result in the Insurer becoming a ‘consumer’ under the Act. The Respondents, on the other hand, contended that the decision in Oberai required reconsideration on several grounds, set out in the reference order.

8. On the contentions urged, the following questions arise for consideration:

(a) Where the letter of subrogation executed by an assured in favour of the insurer contains, in addition to words referring to subrogation, terms which may amount to an assignment, whether the document ceases to be a subrogation and becomes an assignment?

(b) Where the insurer pays the amount of loss to the assured, whether the insurer as subrogee, can lodge a complaint under the Act, either in the name of the assured, or in the joint names of the insurer and assured as co- complainants?

(c) Where the rights of the assured in regard to the claim against the carrier/service provider are assigned in favour of the insurer under a letter of subrogation-cum- assignment, whether the insurer as the assignee can file a complaint either in its own name, or in the name of the assured, or by joining the assured as a co-complainant.

(d) Whether relief could be granted in a complaint against the carrier/service provider, in the absence of any proof of negligence?

Re : Questions (a) to (c) and the correctness of Oberai

9.     A ‘complaint’, in the context of this case, refers to an allegation in writing made by a ‘consumer’ that the services availed of or hired (or agreed to be availed of or hired) suffer from ‘deficiency’ in any respect (vide section 2(c) of the Act). A ‘consumer’ is defined under section 2(d) of the Act, relevant portion of which is extracted below :

“Consumer” means any person who –

x x x x x

(ii) hires or avails of any services for a consideration which has been paid or promised or partly paid any partly promised, or under any system of deferred payment and includes and beneficiary of such services other than the person who hires or avails of the services for consideration paid or promised or partly paid and partly promised, or under any system of deferred payment, when such services are availed of with the approval of the first mentioned person …….”

“Deficiency” means any fault, imperfection, short-coming, or inadequacy in the quality, nature and manner of performance which is required to be maintained by or under any law for the time being in force or has been undertaken to be performed by a person in pursuance of a contract or otherwise in relation to any service (vide section 2(g) of the Act).

10. The assured entrusted the consignment for transportation to the carrier. The consignment was insured by the assured with the insurer. When the goods were damaged in an accident, the assured, as the consignor- consumer, could certainly maintain a complaint under the Act, seeking compensation for the loss, alleging negligence and deficiency in service. The fact that in pursuance of a contract of insurance, the assured had received from the insurer, the value of the goods lost, either fully or in part, does not erase or reduce the liability of the wrongdoer responsible for the loss. Therefore, the assured as a consumer, could file a complaint under the Act, even after the insurer had settled its claim in regard to the loss.

11. A contract of insurance is a contract of indemnity. The loss/damage to the goods covered by a policy of insurance, may be caused either due to an act for which the owner (assured) may not have a remedy against any third party (as for example when the loss is on account of an act of God) or due to a wrongful act of a third party, for which he may have a remedy against such third party (as for example where the loss is on account of negligence of the third party). In both cases, the assured can obtain reimbursement of the loss, from the insurer. In the first case, neither the assured, nor the insurer can make any claim against any third party. But where the damage is on account of negligence of a third party, the assured will have the right to sue the wrongdoer for damages; and where the assured has obtained the value of the goods lost from the insurer in pursuance of the contract of insurance, the law of insurance recognizes as an equitable corollary of the principle of indemnity that the rights and remedies of the assured against the wrong-doer stand transferred to and vested in the insurer. The equitable assignment of the rights and remedies of the assured in favour of the insurer, implied in a contract of indemnity, known as ‘subrogation’, is based on two basic principles of equity : (a) No tort-feasor should escape liability for his wrong; (b) No unjust enrichment for the injured, by recovery of compensation for the same loss, from more than one source. The doctrine of subrogation will thus enable the insurer, to step into the shoes of the assured, and enforce the rights and remedies available to the assured.

12. The term ‘subrogation’ in the context of insurance, has been defined in Black’s Law Dictionary thus :

“The principle under which an insurer that has paid a loss under an insurance policy is entitled to all the rights and remedies belonging to the insured against a third party with respect to any loss covered by the policy.”

Black’s Law Dictionary also extracts two general definitions of ‘subrogation’. The first is from Dan B. Dobb’s Law of Contract (2nd Edn. - # 4.3 at 404) which reads thus :

“Subrogation simply means substitution of one person for another; that is, one person is allowed to stand in the shoes of another and assert that person’s rights against the defendant. Factually, the case arises because, for some justifiable reason, the subrogation plaintiff has paid a debt owed by the defendant.”

The second is from Laurence P. Simpson’s Handbook on Law of Suretyship (1950 Edn. Page 205) which reads thus : “Subrogation is equitable assignment. The right comes into existence when the surety becomes obligated, and this is important as affecting priorities, but such right of subrogation does not become a cause of action until the debt is duly paid. Subrogation entitles the surety to use any remedy against the principal which the creditor could have used, and in general to enjoy the benefit of any advantage that the creditor had, such as a mortgage, lien, power to confess judgment, to follow trust funds, to proceed against a third person who has promised either the principal or the creditor to pay the debt.”

‘Right of Subrogation’ is statutorily recognized and described in section 79 of the Marine Insurance Act, 1963 as follows:

(1)Where the insurer pays for a total loss, either of the whole, or in the case of goods of any apportionable part, of the subject-matter insured, the thereupon becomes entitled to take over the interest of the assured in whatever may remain of the subject-matter so paid for, and he is thereby subrogated to all the rights and remedies of the assured in and in respect of that subject-matter as from the time of the casualty causing the loss.

(2) Subject to the foregoing provisions, where the insurer pays for a partial loss, he acquires no title to the subject matter insured, or such part of it as may remain, but he is thereupon subrogated to all rights and remedies of the assured and in respect of the subject matter insured as from the time of the casualty causing the loss, in so far as the assured has been indemnified, according to this Act, by such payment for the loss”.

Section 140 of Contract Act, 1872, deals with the principle of subrogation with reference to rights of a Surety/Guarantor. It reads :

“140. Rights of surety on payment or performance : Where a guaranteed debt has become due, or default of the principal – debtor to perform a guaranteed duty has been taken place, the surety, upon payment or performance of all that is liable for, is invested with all the rights which the creditor had against the principal – debtor.”

The concept of subrogation was explained in the following manner by Chancellor Boyd in National Fire Insurance Co. vs. McLaren – 1886 (12) OR 682 :

“The doctrine of subrogation is a creature of equity not founded on contract, but arising out of the relations of the parties. In cases of insurance where a third party is liable to make good the loss, the right of subrogation depends upon and is regulated by the broad underlying principle of securing full indemnity to the insured, on the one hand, and on the other of holding him accountable as trustee for any advantage he may obtain over and above compensation for his loss. Being an equitable rights, it partakes of all the ordinary incidents of such rights, one of which is that in administering relief the Court will regard not so much the form as the substance of the transaction. The primary consideration is to see that the insured gets full compensation for the property destroyed and the expenses incurred in making good his loss. The next thing is to see that he holds any surplus for the benefit of the insurance company.”

In Banque Financiere de la Cite vs. Parc (Battersea) Ltd. [1999 (1) A.C.221], the House of Lords explained the difference between subrogations arising from express or implied agreement of the parties:

“….there was no dispute that the doctrine of subrogation in insurance rests upon the common intention of the parties and gives effect to the principle of indemnity embodied in the contract. Furthermore, your Lordships drew attention to the fact that it is customary for the assured, on payment of the loss, to provide the insurer with a letter of subrogation, being no more nor less than an express assignment of his rights of recovery against any third party. Subrogation in this sense is a contractual arrangement for the transfer of rights against third parties and is founded upon the common intention of the parties. But the term is also used to describe an equitable remedy to reverse or prevent unjust enrichment which is not based upon any agreement or common intention of the party enriched and the party deprived. The fact that contractual subrogation and subrogation to prevent unjust enrichment both involve transfers of rights or something resembling transfers of rights should not be allowed to obscure the fact that one is dealing with radically different institutions. One is part of the law of contract and the other part of the law of restitution.”

13. An ‘assignment’ on the other hand, refers to a transfer of a right by an instrument for consideration. When there is an absolute assignment, the assignor is left with no title or interest in the property or right, which is the subject matter of the assignment. The difference between ‘subrogation’ and ‘assignment’ was stated in Insurance Law by MacGillivray & Parkington (7th Edn.) thus :

“Both subrogation and assignment permit one party to enjoy the rights of another, but it is well established that subrogation is not a species of assignment. Rights of subrogation vest by operation of law rather than as the product of express agreement. Whereas rights of subrogation can be enjoyed by the insurer as soon as payment is made, as assignment requires an agreement that the rights of the assured be assigned to the insurer. The insurer cannot require the assured to assign to him his rights against third parties as a condition of payment unless there is a special clause in the policy obliging the assured to do so. This distinction is of some importance, since in certain circumstances an insurer might prefer to take an assignment of an assured’s rights rather than rely upon his rights of subrogation. If, for example, there was any prospect of the insured being able to recover more than his actual loss from a third party, an insurer, who had taken an assignment of the assured’s rights, would be able to recover the extra money for himself whereas an insurer who was confined to rights of subrogation would have to allow the assured to retain the excess.

Another distinction lies in the procedure of enforcing the rights acquired by virtue of the two doctrines. An insurer exercising rights of subrogation against third parties must do so in the name of the assured. An insurer who has taken a legal assignment of his assured’s rights under statue should proceed in his own name …”

The difference between subrogation and assignment was highlighted by the Court of Appeals thus in James Nelson & Sons Ltd. Vs. Nelson Line (Liverpool) Ltd. (No.1) – 1906 (2) KB 217 :

“The way in which the underwriters come in is only by way of subrogation to the rights of the assured. Their right is not that of assignees of the cause of action; ….. Therefore, they could only be entitled by way of subrogation to the plaintiffs’ rights. What is the nature of their right by way of subrogation? It is the right to stand in the shoes of the persons whom they have indemnified, and to put in force the right of action of those persons; but it remains the plaintiffs’ right of action, although the underwriters are entitled to deduct from any sum recovered the amount to which they have indemnified the plaintiffs, and although they may have provided the means of conducting the action to a termination. It is not a case in which one person is using the name of another merely as a nominal plaintiff for the purpose of bringing an action in which he alone is really interested; for the plaintiffs here have real and substantial interest of their own in the action.”

The difference between assignment and subrogation was also explained by the Madras High Court in Vasudeva Mudaliar vs. Caledonian Insurance Co. – [AIR 1965 Mad. 159] thus :

“In other words arising out of the nature of a contract of indemnity, the insurer, when he has indemnified the assured, is subrogated to his rights and remedies against third parties who have occasioned the loss. The right of the insurer to subrogation or to get into the shoes of the assured as it were, need not necessarily flow from the terms of the motor insurance policy, but is inherent in and springs from the principles of indemnity.

Where, therefore, an insurer is subrogated to the rights and remedies of the assured, the former is to be more or less in the same position as the assured in respect of third parties and his claims against them founded on tortuous liability in cases of motor accidents. But it should be noted that the fact that an insurer is subrogated to the rights and remedies of the assured of the assured does not ipso jure enable him to sue third parties in his own name. It will only entitle the insurer to sue in the name of the assured, it being an obligation of the assured to lend his name and assistance to such an action. By subrogation, the insurer gets no better rights or no different remedies than the assured himself. Subrogation and its effect are therefore, not to be mixed up with those of a transfer or any assignment by the assured of his rights and remedies to the insurer. An assignment or a transfer implies something more than subrogation, and vests in the insurer the assured’s interest, rights and remedies in respect of the subject matter and substance of the insurance. In such a case, therefore, the insurer, by virtue of the transfer or assignment in his favour, will be in a position to maintain a suit in his own name against third parties.”

14. Subrogation, as an equitable assignment, is inherent, incidental and collateral to a contract of indemnity, which occurs automatically, when the insurer settles the claim under the policy, by reimbursing the entire loss suffered by the assured. It need not be evidenced by any writing. But where the insurer does not settle the claim of the assured fully, by reimbursing the entire loss, there will be no equitable assignment of the claim enabling the insurer to stand in the shoes of the assured, but only a right to recover from the assured, any amount remaining out of the compensation recovered by the assured from the wrongdoer, after the assured fully recovers his loss. To avoid any dispute with the assured as to the right of subrogation and extent of its rights, the insurers usually reduce the terms of subrogation into writing in the form of a Letter of Subrogation which enables and authorizes the insurer to recover the amount settled and paid by the insurer, from the third party wrong-doer as a Subrogee-cum- Attorney. When the insurer obtains an instrument from the assured on settlement of the claim, whether it will be a deed of subrogation, or subrogation-cum-assignment, would depend upon the intention of parties as evidenced by the wording of the document. The title or caption of the document, by itself, may not be conclusive. It is possible that the document may be styled as ‘subrogation’ but may contain in addition an assignment in regard to the balance of the claim, in which event it will be a deed of subrogation-cum-assignment. It may be a pure and simple subrogation but may inadvertently or by way of excessive caution use words more appropriate to an assignment. If the terms clearly show that the intention was to have only a subrogation, use of the words “assign, transfer and abandon in favour of” would in the context be construed as referring to subrogation and nothing more.


15. We may, therefore, classify subrogations under three broad categories: (i) subrogation by equitable assignment; (ii) subrogation by contract; and (iii) subrogation-cum- assignment.

15.1) In the first category, the subrogation is not evidenced by any document, but is based on the insurance policy and the receipt issued by the assured acknowledging the full settlement of the claim relating to the loss. Where the insurer has reimbursed the entire loss incurred by the assured, it can sue in the name of the assured for the amount paid by it to the assured. But where the insurer has reimbursed only a part of the loss, in settling the insurance claim, the insurer has to wait for the assured to sue and recover compensation from the wrongdoer; and when the assured recovers compensation, the assured is entitled to first appropriate the same towards the balance of his loss (which was not received from the insurer) so that he gets full reimbursement of his loss and the cost, if any, incurred by him for such recovery. The insurer will be entitled only to whatever balance remaining, for reimbursement of what it paid to the assured.

15.2) In the second category, the subrogation is evidenced by an instrument. To avoid any dispute about the right to claim reimbursement, or to settle the priority of inter-se claims or to confirm the quantum of reimbursement in pursuance of the subrogation, and to ensure co-operation by the assured in suing the wrongdoer, the insurer usually obtains a letter of subrogation in writing, specifying its rights vis-à-vis the assured. The letter of subrogation is a contractual arrangement which crystallizes the rights of the insurer vis-à-vis the assignee. On execution of a letter of subrogation, the insurer becomes entitled to recover in terms of it, a sum not exceeding what was paid by it under the contract of insurance by suing in the name of the assured. Even where the insurer had settled only a part of the loss incurred by the assured, on recovery of the claim from the wrongdoer, the insurer may, if the letter of subrogation so authorizes, first appropriate what it had paid to the assured and pay only the balance, if any, to the assured.

15.3) The third category is where the assured executes a letter of subrogation-cum-assignment enabling the insurer retain the entire amount recovered (even if it is more than what was paid to the assured) and giving an option to sue in the name of the assured or to sue in its own name.

In all three types of subrogation, the insurer can sue the wrongdoer in the name of the assured. This means that the insurer requests the assured to file the suit/complaint and has the option of joining as co-plaintiff. Alternatively the insurer can obtain a special power of Attorney from the assured and then to sue the wrongdoer in the name of the assured as his attorney.

The assured has no right to deny the equitable right of subrogation of the insurer in accordance with law, even whether there is no writing to support it. But the assured whose claim is settled by the insurer, only in respect of a part of the loss may insist that when compensation is recovered from the wrongdoer he will first appropriate the same, to recover the balance of his loss. The assured can also refuse to execute a subrogation-cum-assignment which has the effect of taking away his right to receive the balance of the loss. But once a subrogation is reduced to writing, the rights inter-se between the assured and insurer will be regulated by the terms agreed, which is a matter of negotiation between the assured and insurer.

16. If a letter of subrogation containing terms of assignment is to be treated only as an assignment by ignoring the subrogation, there may be the danger of document itself becoming invalid and unenforceable, having regard to the bar contained in section 6 of the Transfer of Property Act, 1882 (‘TP Act’ for short). Section 6 of Transport of Property Act, 1882, provides that property of any kind may be transferred except as otherwise provided by that Act or by any other law for the time being in force. Clause (e) of the said section provides that mere right to sue cannot be transferred. Section 130 provides the manner of transfer of actionable claims. Section 3 defines an ‘actionable claim’ as : (i) any debt (other than a debt secured by mortgage of immovable property or by hypothecation or pledge of movable property) or (ii) any beneficial interest is movable property not in the possession, either actual or constructive of the claimant, which the civil courts recognizes as affording grounds for relief. A ‘debt’ refers to an ascertained sum due from one person to another, as contrasted from unliquidated damages and claims for compensation which requires ascertainment/assessment by a Court or Tribunal before it becomes due and payable. A transfer or assignment of a mere right to sue for compensation will be invalid having regard to section 6(e) of the TP Act. But when a letter of subrogation-cum-assignment is executed, the assignment is interlinked with subrogation, and not being an assignment of a mere right to sue, will be valid and enforceable.

17. The principles relating to subrogation can therefore be summarized thus :

(i) Equitable right of subrogation arises when the insurer settles the claim of the assured, for the entire loss. When there is an equitable subrogation in favour of the insurer, the insurer is allowed to stand in the shoes of the assured and enforce the rights of the assured against the wrong- doer.

(ii) Subrogation does not terminate nor puts an end to the right of the assured to sue the wrong-doer and recover the damages for the loss. Subrogation only entitles the insurer to receive back the amount paid to the assured, in terms of the principles of subrogation.

(iii) Where the assured executes a Letter of Subrogation, reducing the terms of subrogation, the rights of the insurer vis-à-vis the assured will be governed by the terms of the Letter of Subrogation.

(iv) A subrogation enables the insurer to exercise the rights of the assured against third parties in the name of the assured. Consequently, any plaint, complaint or petition for recovery of compensation can be filed in the name of the assured, or by the assured represented by the insurer as subrogee-cum-attorney, or by the assured and the insurer as co-plaintiffs or co-complainants.

(v) Where the assured executed a subrogation-cum- assignment in favour of the insurer (as contrasted from a subrogation), the assured is left with no right or interest. Consequently, the assured will no longer be entitled to sue the wrongdoer on its own account and for its own benefit. But as the instrument is a subrogation- cum-assignment, and not a mere assignment, the insurer has the choice of suing in its own name, or in the name of the assured, if the instrument so provides. The insured becomes entitled to the entire amount recovered from the wrong- doer, that is, not only the amount that the insured had paid to the assured, but also any amount received in excess of what was paid by it to the assured, if the instrument so provides.

18. We may clarify the position with reference to the following illustration: The loss to the assured is Rs.1,00,000/-. The insurer settles the claim of the assured for Rs.75,000/-. The wrong-doer is sued for recovery of Rs.1,00,000/-.

Where there is no letter of subrogation and insurer relies on the equaitable doctrine of subrogation (The suit is filed by the assured)

(i) If the suit filed for recovery of Rs.100,000/- is decreed as prayed, and the said sum of Rs.1,00,000/- is recovered, the assured would appropriate Rs. 25,000/- to recover the entire loss of Rs. 100,000/- and the doctrine of subrogation would enable the insurer to claim and receive the balance of Rs.75,000

(ii) If the suit filed for recovery of Rs.100,000/- is decreed as prayed for, but the assured is able to recover only Rs.50,000/- from the Judgment-Debtor (wrong-doer), the assured will be entitled to appropriate Rs.25,000/- (which is the shortfall to make up Rs.100,000/- being the loss) and the insurer will be entitled to receive only the balance of Rs. 25,000/- even though it had paid Rs. 75,000/- to the assured.

(iii) Where, the suit is filed for recovery of Rs.100,000/- but the court assesses the loss actually suffered by the assured as only Rs.75,000/- (as against the claim of the assured that the value of goods lost is Rs.100,000/-) and then awards Rs.75,000/- plus costs, the insurer will be entitled to claim and receive the entire amount of Rs.75,000/- in view of the doctrine of subrogation.

Where the assured executes a letter of subrogation entitling the insurer to recover Rs. 75,000/- (The suit is filed in the name of the assured or jointly by the assured and insurer).

(iv) If the suit is filed for recovery of Rs.1,00,000/-, and if the court grants Rs.1,00,000/-, the insurer will take Rs.75,000/- and the assured will take Rs.25,000/-.

(v) If the insurer sues in the name of the assured for Rs.75,000/- and recovers Rs.75,000/-, the insurer will retain the entire sum of Rs.75,000/- in pursuance of the Letter of Subrogation, even if the assured has not recovered the entire loss of Rs.1,00,000/-. If the assured wants to recover the balance of the loss of Rs.25,000/- as he had received only Rs. 75,000/- from the insurer, the assured should ensure that the claim is made against the wrongdoer for the entire sum of Rs.100,000/- by bearing the proportionate expense. Otherwise the insurer will sue in the name of the assured for only for Rs. 75,000/-.

(vi) If the letter of subrogation executed by the assured when the insurer settles the claim of the assured uses the words that the “assured assigns, transfers and abandons unto the insurer, the right to get Rs.75,000/- from the wrong-doer”, the document will be a ‘subrogation’ in spite of the use of words ‘transfers, assigns and abandons’. This is because the insurer has settled the claim for Rs.75,000/- and the instrument merely entitles the insurer to receive the said sum of Rs.75,000/- which he had paid to the assured, and nothing more.

Where the assured executes a letter of subrogation-cum- assignment for Rs.100,000/-

(vii) If the document executed by the assured in favour of the insured provides that in consideration of the settlement of the claim for Rs.75,000/-, the assured has transferred and assigned by way of subrogation and assignment, the right to recover the entire value of the goods lost and retain the entire amount without being accountable to the assured for any excess recovered (over and above Rs.75,000/-) and provides that the insurer may sue in the name of the assured or sue in its own name without reference to the assured, the instrument is a subrogation-cum-assignment and the insurer has the choice of either suing in the name of the assured or in its own name.

Where the assured executes a letter of assignment in favour of a third party to sue and recover from the carrier, the value of the consignment

(viii) If the assured, having received Rs.75,000/- from the insurer, executes an instrument in favour of a third party (not being the insurer) assigning the right to sue and recover from the carrier, damages for loss of the consignment, such a document will be an Assignment. The assignee cannot file a complaint before the consumer fora, as he is not a ‘consumer’. Further, such a document being a transfer of a mere right to sue, will be void and unenforceable, having regard to section 6(e) of Transfer of Property Act, 1882. It is well settled that a right to sue for unliquidated damages for breach of contract or for tort, not being a right connected with the ownership of any property, nor being a right to sue for a debt or actionable claim, is a mere right to sue and is incapable of being transferred.


19. Whether the document executed by the assured in favour of the insurer is a subrogation simpliciter, or a subrogation-cum-assignment is relevant only in a dispute between the assured and the insurer. It may not be relevant for deciding the maintainability of a complaint under the Act. If the complaint is filed by the assured (who is the consumer), or by the assured represented by the insurer as its attorney holder, or by the assured and the insurer jointly as complainants, the complaint will be maintainable, if the presence of insurer is explained as being a subrogee. Whether the amount claimed is the total loss or only the amount for which the claim was settled would make no difference for the maintainability of the complaint, so long as the consumer is the complainant (either personally or represented by its attorney holder) or is a co-complainant along with his subrogee. On the other hand, if the assured (who is the consumer) is not the complainant, and the insurer alone files the complaint in its own name, the complaint will not be maintainable, as the insurer is not a ‘consumer’, nor a person who answers the definition of ‘complainant’ under the Act. The fact that it seeks to recover from the wrongdoer (service provider) only the amount paid to the assured and not any amount in excess of what was paid to the assured will also not make any difference, if the assured – consignor is not the complainant or co-complainant. The complaint will not be maintainable unless the requirements of the Act are fulfilled. The remedy under the Act being summary in nature, once the consumer is the complainant or is a co- complainant, it will not be necessary for the Consumer Forum to probe the exact nature of relationship between the consumer (assured) and the insurer, in a complaint against the service provider.


20. In this context, it is necessary to remember that the nature of examination of a document may differ with reference to the context in which it is examined. If a document is examined to find out whether adequate stamp duty has been paid under the Stamp Act, it will not be necessary to examine whether it is validly executed or whether it is fraudulent or forged. On the other hand, if a document is being examined in a criminal case in the context of whether an offence of forgery has been committed, the question for examination will be whether it is forged or fraudulent, and the issue of stamp duty or registration will be irrelevant. But if the document is sought to be produced and relied upon in a civil suit, in addition to the question whether it is genuine, or forged, the question whether it is compulsorily registrable or not, and the question whether it bears the proper stamp duty, will become relevant. If the document is examined in the context of a dispute between the parties to the document, the nature of examination will be to find out that rights and obligation of one party vis-à-vis the other party. If in a summary proceedings by a consumer against a service provider, the insurer is added as a co-complainant or if the insurer represents the consumer as a power of attorney, there is no need to examine the nature of rights inter-se between the consumer and his insurer. When the complaint is by the consignor – consumer, with or without the insurer as a co-complainant, the service provider cannot require the consumer forum to consider the nature of relationship between the assured and the insurer or the nature and true purport of the document produced as a letter of subrogation. A wrong-doer cannot sidetrack the issue before the consumer forum. Once the ‘consumer’, that is the assured, is the complainant, the complaint will be maintainable subject to fulfillment of the requirements of the Act.


21. At this juncture we should also take note of the fact that insurance companies, statutory corporations and banks use standardized forms to cover all types of situations and circumstances and several of the clauses in such forms may be wholly inapplicable to the transaction intended to be covered by the document. Necessarily such redundant or inapplicable clauses should be ignored while trying examining the document and make sense out of it. To demonstrate this position, we extract below the letter of subrogation-cum-special power of attorney dated 15.2.1996 executed by the assured in this case, by highlighting the irrelevant clauses by bold letters:

“Letter of Subrogation & Special Power of Attorney”

To
M/s National insurance Co.Ltd.,
Dindigal

In consideration of your paying to us a sum of Rs. 4,47,436.00 (Rupees Four Lakhs Forty Seven Thousand Four Hundred & Thirty Six only) in respect of loss/damage to the under mentioned goods and/or duly payable thereon insured under policy no. 500703/21/24/95/007 issued by National Insurance Co. Ltd., we hereby assign, transfer and abandon to you all our actionable rights, title and interest in and to the said goods and proceeds thereof (to the extent provided by law) and all rights and remedies against Railway Administration and/or sea carriers and/or agents of Sea Carriers and/or Port Authorities and/or Customs Authorities and/or persons or persons whosoever is liable in respect thereof.

We hereby guarantee that we are the persons entitled to enforce the terms of contracts of transportations set forth in the bills of lading and/or railway receipt and/or any other documents of title evidencing the contract of transportation or bailment relating to land covering the property described below for transportation or bailment and agree to indemnify you for all and any losses and consequences should it turn out that we are not the persons to enforce the terms of the contract.

And we hereby subrogate to you that rights and remedies that we have in consequence of or arising from loss/damage to the under mentioned goods and we further hereby grant to you full power to take and use all lawful ways and means to demand, recover and to receive the said loss/damage, customs penalty or refund of customs duty and all and every debt from whom it may concern.

And we also hereby authorize you to use our name in any action or proceedings that you may bring either in your own name or in our name in relation to any of the matters hereby assigned, transferred and/or abandoned to you and we undertake for ourselves to assist and concur in any matters or proceedings which you may deem expedient or necessary in any such actions or proceedings and to execute all deeds, assignments and or documents including any and all pleadings and releases which may be necessary therefor and generally to assist therein by all means in our power.

We hereby authorize you to file a suit or suits in courts of law against the Union of India owning and representing Indian Railways, the Sea Carriers Charterers Agents of Sea Carriers and/or Port Authorities or any other carriers and or bailees and/or person or persons, firm or firms, corporation or corporation, to recover the claim moneys of the aforesaid claim or claims and for the said purposes to join us as a co-plaintiffs if you so intend. We further hereby give you authority to sing, declare, verify and affirm and execute jointly and severally in our name and on our behalf, plaints, affidavits, vakalatnamas, petitions and such other applications and/or notices and documents as may be found necessary for the commencement or continuation of proceedings to recover the claim moneys.

We further undertake if called upon by you to do so ourselves to institute any such action or proceedings that you may direct on your behalf; it being understood that you are to indemnify us and any other persons whose names may necessarily be used, against any costs, charges or expenses which may be incurred in respect of any action or proceeding that may be taken by virtue of this agreement.

The payment received for herein is accepted with the understanding that the said payment shall not enure to the benefit of any carrier or bailees under the provision of any contract of carriage or otherwise; that in making the said payment the underwriter does not waive any rights of subrogation or otherwise against any carrier or bailee and acceptance of this receipt shall not prejudice or take away any rights or remedies which the said underwriter would otherwise have by virtue of such payment.

We further agree that any moneys collected from any carrier port authorities or any persons or persons, shall be your property, and if received in the
first instance by the undersigned we undertake to make over to you immediately the amount so received.

We hereby further agree that in event of the loss packages and/or contents thereof subsequently being traced, we undertake to accept and take delivery of the same and the claim shall then be readjusted on the correct basis of the then loss/damage and in the event of any refund providing to be due to the underwriter, we undertake on demand to make such refund to you.

We hereby appoint you, your officers and agents and there successors severally our agents and attorneys-in-fact with irrevocable power to collect any and all such claims and to begin, prosecute, compromise, arbitrate or withdraw either in our own name or in your name but at your expense any and all legal proceedings which you may deem necessary to enforce such claim or claims including proceedings before any international tribunal and to execute in our name any documents which maybe necessary to carry into effect the purpose of this agreement, and for that purpose we further authorize you to do all or any of the acts, deeds and things herein mentioned, for us, on our behalf and in our name.

xxxxx
(emphasis supplied)

The use of the words “we hereby assign, transfer and abandon to you all our actionable rights, title and interest” in the document, is in regard to rights and remedies against (1) railway administration (2) sea carriers (3) agents of sea carriers (4) port authorities (5) customs authorities and (6) persons whomsoever is liable in respect thereof. Even though, the matter relates to carriage of goods by road, the claims or remedies against a road carrier are not even mentioned. Excluding the irrelevant clauses, the document continues to be a letter of subrogation.


22. A document should be transaction-specific. Or at least an effort should be made to delete or exclude inapplicable or irrelevant clauses. But where a large number of documentation is required to be done by officers not- conversant with the nuances of drafting, use of standard forms with several choices or alternative provisions is found necessary. The person preparing the document is required to delete the terms/clauses which are inapplicable. But that is seldom done. The result is that the documents executed in standard forms will have several irrelevant clauses. Computerisation and large legal departments should have enabled insurance companies, banks and financial institutions to (i) improve their documentation processes and omit unnecessary and repetitive clauses; (ii) avoid incorporation of other documents by vague references; and (iii) discontinue pasting or annexing of slips. But that is seldom done. If documents are clear, specific and self-contained, disputes and litigations will be considerably reduced.

23. Let us now consider the decision in Oberai. The assured therein had executed two documents in favour of the insurer, on settlement of the claim. The first was a letter of subrogation and the second was a special power of attorney. The letter of subrogation stated as follows :

“In consideration of your paying to us the sum of Rs.64,137 only in full settlement of our claim for non-delivery/shortage and damage under Policy No. 2142140400015 issued by you all on the under- mentioned goods, we hereby assign, transfer and abandon to you all our rights against the Railway Administration, road transport carriers or other persons whatsoever, caused or arising by reason of the said damage or loss and grant you full power to take and use all lawful ways and means in your own name and otherwise at your risk and expense to recover the claim for the said damage or loss and we hereby subrogate to you the same rights as we have in consequence of or arising from the said loss or damage.

And we hereby undertake and agree to make and execute at your expense all such further deeds, assignments and documents and to render you such assistance as you may reasonable require for the purpose of carrying out this agreement.”

The special power of attorney authorized the insurer to file a suit in court against the Railway Administration, for recovery of the claim on behalf of the assured, in the name of the assured, and to give a valid discharge and effectual receipt therefor. On the basis of the said documents, the complaint was initially filed by the insurer. Subsequently, the assured was added as a party. Though the claim of the assured therein was settled by the insurer for Rs.64,137/- as against the consignment value of Rs.93,925/-, the insurer appears to have sued for the full value of Rs.93,925/- which was awarded by the District Forum and affirmed by the National Commission. This Court held that where there is a subrogation simpliciter, the insurer can sue the wrong-doer in the name of the assured, and where there is an assignment, the insurer is entitled to sue the wrong-doer in his own name. This Court held that the document executed by the assured though titled as ‘letter of subrogation’ was, in fact, an assignment by the assured of its rights in favour of the insurer. This Court held that the use of the following words in the document amounted to an absolute assignment, as contrasted from subrogation:

“(i) We hereby assign, transferand abandon  to you all our rights against the Railway Administration, road transport carriers or other persons whatsoever, caused or arising by reason of the said damage or loss and grant you full power to take and use all lawful ways and means in your own name and otherwise at your risk and expense to recover the claim for the said damage or loss.

(ii) We hereby subrogate to you the same rights as we have in consequence of or arising from the said loss or damage.”

23.1) There is no doubt that the first portion which stated that all rights were assigned, transferred and abandoned in favour of the insurer and also empowered the insurer to sue in its own name, if read in isolation would amount to an assignment. But if those words are read with the other recitals and the words “in consideration of your paying to us the sum of Rs.64,137/- only in full settlement of our claim for non-delivery/shortage and damage, under policy issued by you….” make it clear that it was a subrogation-cum-assignment. Further, the second operative portion which states that “we hereby subrogate to you the same rights as we have in consequence of or arising from the said loss or damage” are not words of assignment. When the words used are : “we hereby subrogate to you” and not “we hereby transfer or assign in your favour”, having regard to the settled meaning of “subrogate”, the said words could not operate as an absolute assignment, but only as an subrogation. The genesis of the document is subrogation. The inclusion of an assignment is an additional right given to the insurer. The document did not cease to be a subrogation by reason of enlargement of subrogation by granting such additional right. In para 22 of the judgment, this Court negatived the contention that the letter of subrogation and the special power of Attorney should be read together and if so read, the document would be a subrogation. But the special power of attorney when read with the term in the letter of subrogation, “we hereby subrogate to you the same rights as we have in consequence of or arising from the said loss of damage” will certainly show that the document was intended to be a subrogation also and not a mere assignment. With great respect to the learned Judges who decided Oberai, it has to be held that Oberai was not correctly decided, as it held a
‘subrogation-cum-assignment’ as a mere ‘assignment’. It ignored the fact that, shorn of the cover and protection of subrogation, the document, if read as a simple assignment would fall foul of section 6(e) of Transfer of Property Act and thus would be unenforceable. But the ultimate decision in Oberai may be correct as the complaint was filed by the insurer, in its own name and on its own behalf making a claim for the entire value of the goods, in excess of what was paid to the assured. Though the assured was belatedly impleaded as a co-complainant, the nature and contents of the complaint was not apparently changed, and continued to be one by the insurer as assignee. On those peculiar facts, the finding that the complaint under the Act by the insurer (who was not a consumer) was not maintainable, was justified.

23.2) We may also refer to the frequent misconstruction of para 23 of the decision in Oberai by some carriers. The said para does not mean that when the consignment is received by the carrier from the consignor and put it in the course of transportation, the carrier has provided the service and thereafter either ceases to be a service provider or ceases to be responsible for delivery of the goods, and that consequently, the consignor ceases to be a ‘consumer’. All that para 23 of Oberai meant was that in a contract for carriage of goods between the consignor (assured) and the carrier, if the consignor assigns the right to claim damages to an assignee, after the goods are lost or damaged, the assignee cannot claim to be a “consumer” under the Act. It impliedly meant that if the assignment had been done before the loss or damage to the goods, then the assignment would have been in regard to ‘property’ and not a mere right to sue, and the assignee as consignee would be entitled to sue the carrier. Be that as it may.


24. We therefore answer the questions raised as follows:

(a) The insurer, as subrogee, can file a complaint under the Act either in the name of the assured (as his attorney holder) or in the joint names of the assured and the insurer for recovery of the amount due from the service provider. The insurer may also request the assured to sue the wrong doer (service provider).

(b) Even if the letter of subrogation executed by the assured in favour of the insurer contains in addition to the words of subrogation, any words of assignment, the complaint would be maintainable so long as the complaint is in the name of the assured and insurer figures in the complaint only as an attorney holder or subrogee of the assured.

(c) The insurer cannot in its own name maintain a complaint before a consumer forum under the Act, even if its right is traced to the terms of a Letter of subrogation-cum-assignment executed by the assured.

(d) Oberai is not good law insofar as it construes a Letter of subrogation-cum-assignment, as a pure and simple assignment. But to the extent it holds that an insurer alone cannot file a complaint under the Act, the decision is correct.

25. We may also notice that section 2(d) of Act was amended by Amendment Act 62 of 2002 with effect from
15.3.2003, by adding the words “but does not include a person who avails of such services for any commercial purpose” in the definition of ‘consumer’. After the said amendment, if the service of the carrier had been availed for any commercial purpose, then the person availing the service will not be a ‘consumer’ and consequently, complaints will not be maintainable in such cases. But the said amendment will not apply to complaints filed before the amendment.

Re : Question (d)

26. Section 14(1)(d) of the Act provides that the Forum under the Act can direct payment of compensation awarded by it to the consumer for any loss or injury suffered by the consumer due to the negligence of the opposite party. This, according to the appellant, makes it mandatory for the complainant to establish negligence on the part of the opposite party, i.e. the carrier. It is further contended that presumption of negligence under Section 9 of the Carriers Act, 1865 (which provides that in any suit brought against a common carrier for the loss, damage or non- delivery of the goods entrusted to him for carriage, it shall not be necessary for the plaintiff to prove that such loss, damage or non-delivery of goods was owing to the negligence or criminal act of the carrier, his servants and agents) is applicable only to a civil suit, and not to a complaint under the Act which specifically contemplates establishment of negligence by evidence. It is submitted that in this case the compensation has been awarded even though no evidence was led by the complainants about negligence of the driver of appellant.


27.     It is no doubt true that Section 14(1)(d) of the Act contemplates award of compensation to the consumer for any loss suffered by consumer due to the negligence of the opposite party (Carrier). Section 9 of Carriers Act does not lay down a preposition that a carrier will be liable even if there was no negligence on its part. On the other hand, it merely raises a presumption that when there is loss or damage or non-delivery of goods entrusted to a carrier, such loss, damage or non-delivery was due to the negligence of the carrier, its servant and agents. Thus where the consignor establishes loss or damage or non- delivery of goods, it is deemed that negligence on the part of the carrier is established. The carrier may avoid liability if it establishes that the loss, damage or non- delivery was due to an act of God or circumstances beyond its control. Section 14(1)(d) of the Act does not operate to relieve the carrier against the presumption of negligence created under Section 9 of the Carriers Act.

28. The contention of appellant that the presumption under section 9 of the Carriers Act is available only in suits filed before civil courts and not in other civil proceedings under other Acts, is not tenable. This Court in Patel Roadways Ltd. v. Birla Yamaha Ltd. [2000 (4) SCC 91] has observed:

“The principle regarding the liability of a carrier contained in S.9 of Carriers Act namely, that the liability of a carrier is that of an insurer and that in a case of loss or damage to goods entrusted to the carrier the plaintiff need not prove negligence, are applicable in a proceeding before the Consumer Forum. The term “suit” has not been defined in Carriers Act nor it is provided in the said Act that the term ‘suit’ will have the same meaning as in Civil PC. Therefore, the term ‘suit’ has to be understood in its ordinary dictionary meaning. In that sense, term ‘suit’ is a generic term taking within its sweep all proceedings initiated by a party for valuation of a right vested in him under law. It is true that a proceeding before Consumer Forum is ordinarily a summary proceeding and in an appropriate case where the commission feels that the issues raised are too contentious to be decided in summary proceedings it may refer parties to Civil Court. That, however, does not mean that proceedings before the Consumer Forum is to be decided by ignoring the express statutory provision of Carriers Act in a proceeding in which a claim is made against a common carrier. A proceeding before the Consumer Forum comes within the sweep of term ‘suit.”

29. Again in Economic Transport Organization vs. Dharward District Khadi Gramodyog Sangh - 2000 (5) SCC 78, this Court reiterated the principle stated in Patel Roadways and added the following :

“Even assuming that section 9 of the Carriers Act, 1865 does not apply to the cases before the Consumer Fora under Consumer Protection Act, the principle of common law above- mentioned gets attracted to all these cases coming up before the Consumer Fora. Section 14(1)(d) of the Consumer Protection Act has to be understood in that light and the burden of proof gets shifted to the carriers by the application of the legal presumption under the common law. Section 14(1)(d) has to be understood in that manner. The complainant can discharge the initial onus, even if it is laid on him under section 14(1)(d) of the Consumer Protection Act, by relying on section 9 of the Carrier Act. It will, therefore, be for the carrier to prove absence of negligence.”

We reiterate the said settled position and reject the contention of the appellant that the presumption under section 9 of Carriers Act is not available in a proceeding under the Consumer Protection Act and that therefore, in the absence of proof of negligence, it is not liable to compensate the respondents for the loss.

Conclusion

30. The loss of consignment by the assured and settlement of claim by the insurer by paying Rs.4,47,436/- is established by evidence. Having regard to the presumption regarding negligence under section 9 of Carriers Act, it was not necessary for the complainants to prove further that the loss/damage was due to the negligence of the appellant or its driver. The presumption regarding negligence was not rebutted. Therefore, the District Forum was justified in allowing the complaint brought by the assured (first respondent) represented by the insurer and the insurer for recovery of Rs.447,436. The said order was affirmed by the State Forum and the National Forum. We find no reason to interfere with the same. The appeal is, therefore, dismissed.


………………………………..J

[Chief Justice of India]

…………………………………J

[R. V. Raveendran]

………………………………..J

[D. K. Jain]

…………………………………J

[P. Sathasivam]

………………………………..J

[J. M. Panchal]

New Delhi;
February 17, 2010.

REPORTABLE

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 5181 OF 2002

STATE OF BIHAR & ORS.
….APPELLANT(S)

VERSUS

KALYANPUR CEMENTS LTD.
……RESPONDENT(S)

J U D G M E N T

SURINDER SINGH NIJJAR, J.

1. This appeal has been filed by the State of Bihar challenging the judgment and order dated 24.04.2002 of the High Court of Judicature at Patna in CWJC No.6838 of 2000, whereby, the High Court has allowed the writ petition filed by the respondent herein. The respondent – M/s. Kalyanpur Cement Ltd. (hereinafter referred to as ‘the Company’), is a public sector company incorporated in the year 1937 as a Lime-producing Company. It is engaged in the business of cement manufacturing and marketing operations since 1946. It had commenced production with a capacity of 46000 metric tonnes. It underwent a series of expansion in 1958, 1968 and 1980. Nowadays, the Company is operating one-milliontonne cement plant. In view of the changes in the technology worldwide, it has set up a brand new state-ofart ‘dry process’ plant in 1994 at a capital cost of Rs.250- 260 crores. This was made possible with financial assistance of World Bank and the All India Financial Institutions. Its advisor and financial collaborator is Holder Bank (HOLCIM) at Switzerland. The Company claims to be one of the very few large scale surviving industrial units in the State of Bihar. It is the only large scale industry in central part of the State. Over 2000 persons are in the employment of the Company. The Company claims that due to circumstances beyond its control such as recession in the cement industry as well as Government related problems; delayed decision in granting Sales Tax Deferment benefit the Company began to suffer heavy losses. This was accentuated by the nonavailability of the sanctioned working capital from the financial institutions in the absence of the sale tax exemption under the Industrial Policy, 1995. There was continuous loss in production for a number of years.

This has resulted in erosion of Net-Worth of the Company, as the total Net-Worth of the Company was less than its accumulated losses in December, 2002, it has registered with Board for Industrial and Financial Reconstruction (hereinafter referred to as ‘BIFR’) as a sick unit. It has been actually declared as sick Company by BIFR on 28.05.2002. Its reference case is pending with the BIFR. The Company in order to rehabilitate itself sought the assistance from financial institutions for restructuring package. The Company’s proposal for financial assistance and restructuring has been approved by various financial institutions, in principal. However, the same has been made conditional on certain preconditions being met. One of the conditions imposed by the financial institutions was that the restructuring package would be made available only on the Company obtaining a Sales Tax exemption for a period of 5 years from the State Government, in terms of Industrial Policy, 1995. Accordingly, Company submitted an application to the State Government on 21.11.1997 for grant of Sales Tax exemption under the Industrial Policy, 1995 for a period of 5 years w.e.f. 01.01.1998. Thereafter, the matter remained pending for consideration by the State Government and the financial institutions. There were a series of joint meetings of the Government, Financial Institutions and the Company, over the next three years.

In all these meetings, as well as correspondence categoric assurances were given that the necessary Sales Tax exemption notification would be issued shortly. However, no such notification was issued causing great hardship to the Company. It was, therefore, constrained to file writ petition (CWJC No.6838 of 2000) in the High Court at Patna.


2. In this writ petition, the prayer was for issuance of the writ in the nature of mandamus directing the State of Bihar to issue necessary Notification under Clause 24 of the 1995 Policy. The claim of the Company was that Notification under Clause 24 of the Industrial Policy, 1995 ought to have been issued within one month of the release/publication of the Policy in September, 1995.

Voluminous record was produced before the High Court in support of the submission that the Company is entitled to exemption under the 1995 Policy. The State of Bihar contested the writ petition by filing a counter affidavit. Supplementary counter affidavit was filed on behalf of the Government through Secretary-cum- Commissioner, Department of Commercial Taxes (respondent No.4 in the writ petition) on 05.12.2000. In paragraph 5 of the aforesaid affidavit it is stated as under:-

“5. That the Hon’ble Minister, Department of Commercial Taxes has approved the proposal along with draft notification regarding extension of Sales Tax related incentives to sick industrial units.”


3. In paragraph 8 of the affidavit it is averred “That the deponent states that it shall be possible to issue necessary notification after approval of the proposal of the relevant notification by the Hon’ble Chief (Finance) Minister of the Cabinet.” It is also stated in the affidavit “That the deponent has further requested the Secretary-cum-Commissioner, Department of Finance, vide letter dated 28.11.2000 to take necessary approval earliest as the same has to inform to the Hon’ble Court.” Thereafter, yet another supplementary counter affidavit dated 09.01.2001 was filed by Shri Krishan Nand Roy, Assistant Commissioner, Commercial Taxes, Bihar. In the affidavit, it was contended that the State Government in a meeting under the Chairmanship of the Chief Minister held on 06.01.2001 has decided upon due deliberation not to grant any Sales Tax incentives to sick industrial units. Therefore, the claim of the Company has been rejected. The four stated reasons justifying the aforesaid decision were as under:-

“(1) The period of Industrial Policy 1995 was from 1.9.1995 to 31.8.2000. Therefore, this policy is not effective to date.

(2) The question to provide facility to those sick units are mentioned in clause 22 of the above policy. No notification has been issued by the Government to provide facility of Sales Tax till now, on whose basis, there could be right of any specialized person/unit to get the facility.

(3) So far as the question of applicants’ Unit in petition No. CWJC No.6838/2000 is concerned, his matter has not yet been approved by the High Level Empowered Committee under the Chairmanship of Chief Secretary under Clause 22(1) of Industrial Policy, 1995. It is worth mentioning here that in absence of above mentioned, even approval cannot be provided.

(4) Tax reforms at All India Level, which has been continuing last one year it has been decided at the conference of Chief Ministers that except States of Special Category Sales Tax facility must be ended by rest all other States. The States would not do this, there could be possibility of cut down the payable Central Assistance to those States.”


4. Therefore, the Company amended the writ petition and challenged the decision dated 06.01.2001 of the State Government. It was pleaded by the Company that the grounds for rejection of the Company’s case and non-issuance of the Notification was not in accordance with law It appears that another counter affidavit was filed on 16.02.2001 by respondent No.4. This was followed by yet another supplementary counter affidavit filed by Virendra Kumar Singh, Joint Commissioner, Commercial Taxes, Headquarter, Patna on 02.08.2001. In this affidavit it was brought to the notice of the Court that the decision taken on 06.01.2001 was considered by the Cabinet in its meeting held on 05.03.2001 wherein it was decided not to issue any notification for granting any concession/facility to sick industrial units in the State. This decision was duly conveyed by letter dated 05.03.2001 to the IDC Bihar, Patna. In view of the aforesaid decision the Secretary Industries Department rejected the company’s application and communicated the decision to the Company on 14.05.2001. Both the decisions were sought to be justified by the State Government.


5. The High Court considered the entire issue. The Company as well as the State made detailed reference to the documents which were placed on the record. Ultimately, the writ petition has been allowed. The decisions dated 06.01.2001 and 05.03.2001 have been quashed. Further directions issued to the State Government are as follows;

“The concerned departments and organizations are hereby directed to issue follow up notification to give effect to the provisions of the policy within one month from today. After the notification is issued a Committee headed by the Industrial Development Commissioner would be constituted to evolve suitable measures for potentially viable non BIFR sick industrial unit (the present petitioner) and the said Committee would submit its recommendations before the State Level Empowered Committee which in its turn shall place the said recommendations before the Government. After receiving the said recommendations from the State Level Empowered Committee, the Government shall take final decision in the matter. The petition is thus allowed.”


6. This decision has been challenged by the appellant-State.


7. At this stage it would be appropriate to notice the orders passed by this Court during the proceedings. On 18.11.2002, following directions were issued:-

“Heard learned counsel for the parties.

As an interim arrangement during the pendency of this appeal, with a view to protect the interests of either side, we direct the respondent to deposit an amount equivalent to the sale tax payable by it as and when it becomes due in an interest bearing account in a nationalized bank. This amount and the amount accrued during the pendency of the appeal, shall not be withdrawn by either side.

The amount so kept in deposit shall become payable to the party which ultimately succeeds in this appeal.

The appellants are directed to issue the exemption orders and on receipt of such order, the above said amount shall be deposited. The issuance of the exemption orders is without prejudice to the case of the parties in this appeal.

The IA is thus disposed of.”


8. Thereafter IA No.3 of 2006 was filed by the appellant seeking stay of the judgment of the High Court, it has been stated that the application has been necessitated because of the intervening circumstances and the conduct of the Company. It was further stated that pursuant to the direction issued by this Court on 18.11.2002, the appellant issued Notification No.SO-174 dated 18.10.2004 granting exemption to the Company. The Notification was to have effect for five years from the date of publication in the Official Gazette or till the disposal of the Special Leave Petition. The Notification was issued on the following terms:-

“2. Terms and conditions11 (a) Tax payable by M/s Kalyanpur Cement Ltd. shall be deposited per month in an interestbearing account in a nationalized bank.

(b) M/s Kalyanpur Cement Ltd. shall provide information of such bank account to the circle where he is registered.

(c) M/s Kalyanpur Cement Ltd. shall submit the details regarding amount of payment in the bank account as mentioned in para (a) above along with brief abstract each month.


9. Thereafter the appellant requested the company to comply with the directions of this court. The Company, however, informed the appellant that it was unable to comply with the directions because of its ‘sickness’. Since the Company failed to comply with the aforesaid order, a prayer was made for recalling the same.


10. The Company in its reply elaborately explained the efforts being made by the financial institutions to ensure the survival of the Company. It reiterated that the Company had acted honestly and in good faith on assurances/approval given by the appellant at various stages. The Company continued with its operation in anticipation of receiving the appellant’s approval at some point of time. Had the appellant not given the assurances, the Company could have suspended its operation. The Government gave assurances and granted approval on 07.01.1998, 23.01.1998, 12.03.1998, 21.01.1999, 12.07.1999, 29.10.1999, 02.12.1999, 17.12.1999, 25.01.2000, 31.03.2000, 29.05.2000 and 30.06.2000. It was also pointed out that even the officers of the Commercial Taxes Department including Commissioner, Commercial Taxes to the effect that the Notification was in the process of being issued.

It was also pointed out that even after the VAT regime being introduced, Sales Tax related incentives to industries are being given to industries by various States. In fact under the Industrial Policy 2003 as well as the Industrial Policy, 2006, Sales Tax incentives in some form or the other have been retained/provided. It is further pointed out that the Notification dated 18.10.2004 was issued after expiry of two years from the date of the order passed by this Court. The delayed action of the Appellant practically crippled the Company financially and jeopardized efforts for revival as the Sales Tax benefit is crucial for the Company’s revival and continued operations. It is reiterated that the Company is entitled to get the benefit under the Industrial Policy, 1995.

With regard to the non-deposit of the “amount equivalent to the Sales Tax payable by it as and when it becomes due”, it is stated that the Company had bona fide opened the Bank account with a Nationalized Bank but could not deposit the amount equivalent to the Sales Tax due because of circumstances beyond its control.


11. During the pendency of the Interim Application, proposal for the approval of the reconstruction package of the Company was under the active consideration of the State. Therefore, the proceedings were adjourned from time to time.


12. During this period an application was also filed by the Assets Reconstruction Company (I) Ltd. for being impleaded as a party. The aforesaid application has been allowed by this Court on 04.09.2006 and the applicant has been impleaded as respondent No.2.


13. We have heard the Counsel for the parties. Dr. Rajiv Dhawan and Mr. Dinesh Dwivedi, Senior Advocates made the submissions on behalf of the appellant. Dr. Dhawan submits that in the aforesaid judgment the High Court has held that:

i. the petitioner had a right to be granted sales tax exemption under 1995 Industrial Policy;

ii the decision of 6 January 2001 denying such exemption was arbitrary (which was challenged but alleged not to be on record);

iii. the decision of 5 March 2001 was wrong, even though not on record and not challenged.


14. According to Dr. Dhawan the High Court has wrongly quashed the order dated 06.01.2001 on the basis that it was an arbitrary somersault after 05.12.2000. This conclusion is erroneous as the aforesaid order had given four cogent reasons in support of the decisions which have been duly noticed by the High Court. The aforesaid reasons could not be said to be extraneous to the decision dated 06.01.2001. Thereafter, it is submitted that the relevant rule/clauses 22 and 24 were wrongly interpreted because it stated “Clause 22.2 of the policy would come into force after a notification under Clause 24 is issued.” The High Court has wrongly held that the precondition of revival under Clause 22 came into effect after the final decision under Clause 24. According to the learned senior counsel the High Court failed to notice that clause 22.2 was about revival of the Company and not just granting Sales Tax exemptions. Furthermore, Clause 22.3 barred exemption/deferment to be given to such sick and closed industrial units which have once availed of such facilities in the past. This Company has availed the deferment in the past and had not paid the sums due. It is then emphasized that Clause 24 was a monitoring Clause, but the time period of one month was simply a target. Therefore, it was neither mandatory nor directory.


15. Learned Senior counsel then submitted that the High Court has wrongly based its decision on Mangalore Chemical and Fertilizer Ltd. Vs. Deputy Commissioner of Commercial Taxes and others, (1992) Suppl.1 SCC 21.

According to Dr. Dhawan, this case would be inapplicable because in fact, in that case, prior permission had already been granted. He further submitted that the High Court wrongly ignored the significance of the Chief Ministers’ Conference although the High Court notices the Conferences of the Chief Ministers, it failed to give sufficient importance to this national public policy aspect emanating from the Conferences between the Chief Ministers of all States and the Union Government. Dr. Dhawan further submitted that the High Court has wrongly assumed that there was any allurement offered to the Company. In fact the High Court did not properly apply the doctrine of ‘Promissory Estoppel’. At best the High Court only found a case of possible intention on the part of the State to grant exemption to the Company during the limited period from 5th December, 2000 to 6th January, 2001. Yet the High Court issued a writ in the nature of Mandamus directing the State to issue the exemption notification.


16. In support of his submissions, learned senior counsel has made detailed reference to the facts and the documents on record. According to him, the facts in this case are not such as to give rise to a cause of action, relying on the doctrine of ‘promissory estoppel’. There is no material on the record to show that any unequivocal promise was made to the Company and it had acted on such a promise. All the meetings were only exploratory in nature. In any event, no mandamus could have been issued after the Scheme had lapsed and no default by the appellant-State has been established. According to the learned senior counsel, the impugned judgement of the High Court is wrong in law, in respect of the rules, orders of the State and the Scheme of the Industrial Policy. It is also wrong on facts.


17. Learned Senior counsel relied on number of judgments in support of the submissions Central London Property Trust, Ltd. Vs. High Trees House, Ltd. (1956) 1 AII ER 256; Kasinka Trading vs. Union of India (1995) 1 SCC 274; STO vs. Shree Durga Oil Mills (1998) 1 SCC 572; Bakul Cashew Co. vs. STO (1986) 2 SCC 365; Sharma Transport vs. Govt. of AP (2002) 2 SCC 188; Bannari Amma Sugars Ltd. Vs. Commercial Tax Officer (2005) 1 SCC 625 at 637; Shri Bakul Oil Industries vs. State of Gujarat (1987) 1 SCC 31; Motilal Padampat Sugar Mills Co. Ltd. Vs. State of UP (1979) 2 SCC 409; DCM Ltd. Vs. Union of India (1996) 5 SCC 468; Shrijee Sales Corpn. Vs. Union of India (1997) 3 SCC 398; Pawan Alloys & Castings (P) Ltd. UP SEB (1997) 7 SCC 251.


18. Mr. Dinesh Dwivedi, Senior Advocate submitted that there are two categories of cases, where incentive is given (i) to set up or start an industry;(ii) benefits to improve the industry.

The incentive in the second category can be withdrawn as it is only an enabling provision. In such circumstances, the Executive is permitted to resile. Referring to the detailed provisions of the 1995 Policy, he submitted that Clause 16(1) and 16(2) relate to new unit. 16(3) relates to units undertaking expunction/diversification. Clause 22.1 relates to industrial sickness in SSI sector. Clause 22.2 deals with sickness in large and medium scale sector. According to him, under this Clause nothing definite is promised. It permits the Committee to recommend concessions and facilities for revival of the sick units to the State-level Empowered Committee (SLEC).

Therefore, any recommendations made by this Committee cannot be said to be assurances capable of attracting the doctrine of ‘promissory estoppel’. According to the learned Senior Counsel the entire matter is covered against the Company by the judgment of this Court in M.P. Mathur Vs. DTC (2006) 13 SCC 706. Learned Senior Counsel also relied on Kasinka Trading (supra) in support of his submission that clear foundation has to be laid of the assurance that was given. It is further submitted that the claim of the Company cannot possibly succeed by invoking the doctrine of ‘promissory estoppel’ as the Company has not altered its position by relying on the assurances given by the appellant- State. Learned counsel then submitted that the Company has misunderstood the meaning of exemption. They are under the impression that they can collect tax and not pay to the Government. That according to the learned Senior Counsel is not correct. Exemption simply means that no tax shall be chargeable on goods. In the affidavit filed in reply to IA No.3, it is admitted by the Company that the tax collected has not been deposited. Therefore, the Company is in contempt of the interim orders passed by this Court. The Company is liable to refund the amount of Rs.60 crores to the Government.


19. Learned Senior counsel submitted that no relief can be granted to the Company as it had taken advantage of the interim order without complying with the preconditions of the order. In support of this, he relied upon Prestige Lights Ltd. Vs. State Bank of India, (2007) 8 SCC 449. It is submitted that a direction ought to be issued to the Company to refund the amount of tax collected. He relied on Amrit Banaspati Co. Ltd and another vs. State of Punjab (1992) 2 SCC 411.

Mr. Dwivedi, thereafter, submitted that the Policy of granting exemption had lapsed on 31st August, 2000. Therefore, no exemption notification could have been issued thereafter. He further submits that Industrial Policy, 1995 was only a temporary scheme, therefore, no benefit could be given after expiry. He relied on State of UP and another vs. Dinkar Sinha, (2007) 10 SCC 548; M/s. Velji Lakhamsi and Co. and others vs. M/s. Benett Coleman and Co. and others (1977) 3 SCC 160; District Mining Officer and others Vs. Tata Iron and Steel Co. and another (2001) 7 SCC 358.


20. Mr. Ravi Shankar Prashad, Senior Advocate appearing for the respondent No.1 submitted that the Company is only the large scale industry left in the State of Bihar. In the 1990s, the cement industry was in a bad state, as the expectations of the Government of increase in demand did not fructify. The Company is a viable unit. It has been made sick by the inaction of the Government. He further submitted that the exemption has been duly recommended by the Committee under Clause 22.2(i). It cannot be denied the benefit on the basis of Clause 22(3). At the time when earlier benefits were given the Company was not sick. It would be entitled to the benefit in view of Clause 22(1)(vi). According to the learned Senior counsel, the Company has gone into a whirlpool as the rehabilitation package has not been given as the Government has not issued the exemption notification under Clause 24 of the Industrial Policy, 1995. Relying on the facts and figures on the record, it is submitted that the Company would be able to clear its liability within a short period. He further submitted that the doctrine of ‘promissory estoppel’ is fully applicable in the facts of this case. The unequivocal representation is contained in the Industrial Policy, 1995.

This representation is further reinforced in the documents which have been relied upon by the Company. According to him, the eligibility of the Company for exemption is not doubted. In the proceedings before the High Court, the appellants had filed an affidavit admitting that the draft notification has been prepared and it is only to be gazetted.

This affidavit was filed after the expiry of the Industrial Policy, 1995. Therefore, it cannot now be submitted by the appellant that no exemption could be granted since the Policy had lapsed. Learned senior counsel further submitted that for three years the State Government had issued assurances that the notification would be duly issued. The financial institutions had also approved the rehabilitation package, in principal, provided the State Government granted the necessary Sales Tax exemption. It is, therefore, not open to the appellant to submit that the Government can now resile from the promise. According to him, that the justification with regard to the discontinuation of the Sales tax related concessions/exemptions consequent upon introduction of the VAT regime is without any basis. These incentives are continuing even under the Industrial Policy, 2003 and 2006.

It was for these reasons that the High Court set aside the decisions dated 06.01.2001 and 05.03.2001. Mr. Prasad further submits that by now it is settled that promissory estoppel gives a cause of action and also preserves a right. The action of the appellants in passing the impugned orders is arbitrary and whimsical. It cannot be supported on any of the four reasons mentioned in the Order dated 06.01.2001. In support of its submissions, the Learned Senior counsel relied on Mangalore Fertilizer (supra), Union of India and Others vs. Godfrey Philips India Ltd. (1985) 4 SCC 369; State of Punjab vs. Nestle India Ltd. and another (2004) 6 SCC 465; Southern Petrochemical Industries Co. Ltd. Vs. Electricity Inspector & ETIO and others (2007) 5 SCC 447; MRF Ltd., Kottayam vs. Asstt. Commissioner (Assessment) Sales Tax and others (2006) 8 SCC 702; Amrit Banaspati (supra). Relying on the aforesaid judgments, it is submitted that the High Court has estopped the appellant State Government from hiding behind the technicality and deny the Sales Tax exemption to respondent No.1 under the Industrial Policy, 1995. It is further submitted that during the pendency of appeal before this Court the Company had submitted a modified package to the State Government in October, 2006. This was rejected by the Government vide order dated 12th March, 2007, the proposal was rejected only on the ground that the Company has huge liability amounting to Rs.314.12 crores. According to Mr. Ranjit Singh, the aforesaid figure is not a correct present figure of the financial status of the Company making detailed figures to certain facts and figures. He further submitted that the total amount due from the Company is Rs.46.81 crores out of which it is eligible to a relief of Rs.30.04 crores under notification No.24 dated 27.07.2006. The Company is, therefore, viable. The modified package has been arbitrary rejected by the appellants.


21. Mr. Ranjit Singh appearing for respondent NO.2 submits that under the SARFAESI Act, the secured creditor Assets Reconstruction Company (I) Ltd.- respondent No.2 is now the lender instead of the financial institution. Aim of respondent No.2 is to revive the Company by reconstruction. It was submitted that the Company is a ‘sick company’ registered with the BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985 and undergoing a process of restructuring. The Company’s proposal for financial assistance and restructuring was earlier approved by the financial institutions, namely, IFCI IDBI, ICICI and IIBI in the year 1998 subject to the condition of grant of Sales Tax exemption for a period of 5 years in terms of the Industrial Policy, 1995 of the Government of State of Bihar. Respondent No.2 is a Securitization and Reconstruction Company established under Section 3 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 with the mandate to assist the Banks and financial institutions in reducing Non-Performing Assets (NPA) by adopting method for recovery or reconstruction. As such it has been assigned the loan outstandings of a number of financial institutions noted above. Now it is a secured creditor to the extent of approximately 94.2% of the total secured debt of the Company. Therefore, respondent No.2 being an assignee of the outstanding is committed to the rehabilitation and revival of the Company. The Company has already filed a Scheme of Arrangement under Section 391 of the Companies Act, 1956 for revival of the Company. The Scheme has the support of respondent No.2. However, the Scheme is pending approval as it is based on certain relief and concessions to be granted to the Company by the State Government. One such concession is the Sales Tax exemption to be given by the State Government. The claim made by the Company with regard to being one of the most modernized and efficient cement plants is reiterated. It is further stated that the plant has a capacity of about 10 lac tonnes per annum at Rohtas District of the State. It is further pointed that the main reason for the sickness of the Company has been the industry and region specific externalities. It is submitted that the viability studies conducted by the specialized agencies have confirmed the Company’s viability and ability to convert its Net-Worth into positive and repay back Government due another term loan within 8 to 10 years. It is further submitted that any change in the Sales Tax exemption would adversely affect the implementation of the proposed Scheme. However, the modified revival package which was given to the Government has been arbitrarily rejected.


22. We have considered the submissions made by the learned counsel for the parties.


23. We have considered the detailed facts and relevant documents which are on the record. However, in our opinion, before we consider the submissions made on the factual situation of this case, it would be appropriate to consider the primary issue as to whether the Company could have invoked the principle of ‘promissory estoppel’ in support of its claim.


24. It is well-known that the doctrine of promissory estoppel has been recognized and enforced in the Courts in England for a considerable period of time. The principle of ‘promissory estoppel’ was stated by Denning, J in the oft-quoted judgment in Central London Property Trust Ltd. v. High Trees House, Ltd. 1956) 1 All ER 256. In this matter the landlords had let a new block of flats in 1957 to the tenants on a 90-99 lease at a ground rent of ₤2500 (Pound Sterling).

However, in view of war time conditions and without consideration, as a result of discussions, an arrangement was made between the parties to reduce the ground rent to ₤1,250 for the years 1941, 1942, 1943 and 1944 the tenants paid the reduced rent. At the end of the war in September, 1945, the landlord, however, claimed that the original ground rent reserved under the lease had to be paid. The landlord also claimed arrears for the years when the reduced rent was paid in the sum of ₤7916. No payment was received. The landlord, therefore, brought an action to test the proposition of law. The Court notices the plea of the tenant as follows -“The tenants said first that the reduction of ₤1,250 was to apply throughout the term of ninety-nine years, and that the reduced rent was payable during the whole of that time. Alternatively, they said that was payable up to Sept.24, 1945, when the increased rent would start.” Upon consideration of the entire issue, it is observed by Denning, J as follows:-

“If I consider this matter without regard to recent developments in the law there is no doubt that the whole claim must succeed…….”

“As to estoppel, this representation with reference to reducing the rent was not a representation of existing fact, which is the essence of common law estoppel; it was a representation in effect as to the future – a representation that the rent would not be enforced at the full rate but only at the reduced rate…….. “So at common law it seems to me there would be no answer to the whole claim. “ “What, then, is the position in view of developments in the law in recent years? The law has not been standing still even since Jorden v. Money (1854) (5 HL Cas. 185). There has been a series of decisions over the last fifty years which, although said to be cases of estoppel, are not really such. They are cases or promises which were intended to create legal relations and which, in the knowledge of the person making the promise, were going to be acted on by the party to whom the promise was made, and have been so acted on. In such cases the Courts have said these promises must be honoured.”

“I am satisfied that the promise was understood by all parties only to apply in the conditions prevailing at the time of the flats partially let, and the promise did not extend any further than that.”


25. The doctrine of promissory estoppel as developed in the administrative law of this country has been eloquently explained in Kasinka Trading v. Union of India (1995) 1 SCC 274 by Dr. A.S. Anand, J, in the following words:-

“11. The doctrine of promissory estoppel or equitable estoppel is well established in the administrative law of the country. To put it simply, the doctrine represents a principle evolved by equity to avoid injustice. The basis of the doctrine is that where any party has by his word or conduct made to the other party an unequivocal promise or representation by word or conduct, which is intended to create legal relations or effect a legal relationship to arise in the future, knowing as well as intending that the representation, assurance or the promise would be acted upon by the other party to whom it has been made and has in fact been so acted upon by the other party, the promise, assurance or representation should be binding on the party making it and that party should not be permitted to go back upon it, if it would be inequitable to allow him to do so, having regard to the dealings, which have taken place or are intended to take place between the parties.”

“12. It has been settled by this Court that the doctrine of promissory estoppel is applicable against the Government also particularly where it is necessary to prevent fraud or manifest injustice. The doctrine, however, cannot be pressed into aid to compel the Government or the public authority “to carry out a representation or promise which is contrary to law or which was outside the authority or power of the officer of the Government or of the public authority to make”. There is preponderance of judicial opinion that to invoke the doctrine of promissory estoppel clear, sound and positive foundation must be laid in the petition itself by the party invoking the doctrine and that bald expressions, without any supporting material, to the effect that the doctrine is attracted because the party invoking the doctrine has altered its position relying on the assurance of the Government would not be sufficient to press into aid the doctrine. In our opinion, the doctrine of promissory estoppel cannot be invoked in the abstract and the courts are bound to consider all aspects including the results sought to be achieved and the public good at large, because while considering the applicability of the doctrine, the courts have to do equity and the fundamental principles of equity must for ever be present to the mind of the court, while considering the applicability of the doctrine. The doctrine must yield when the equity so demands if it can be shown having regard to the facts and circumstances of the case that it would be inequitable to hold the Government or the public authority to its promise, assurance or representation.”


26. In our opinion, the aforesaid statement of law covers the submissions of Dr. Dhawan and Mr. Dwivedi that in order to invoke the aforesaid doctrine, it must be established that (a) that a party must make an unequivocal promise or representation by word or conduct to the other party (b) the representation was intended to create legal relations or affect the legal relationship, to arise in the future (c) a clear foundation has to be laid in the petition, with supporting documents (d) it has to be shown that the party invoking the doctrine has altered its position relying on the promise (e) it is possible for the Government to resile from its promise when public interest would be prejudiced if the Government were required to carry out the promise (f) the Court will not apply the doctrine in abstract. However, since the judgments have been cited, we may notice the law laid down therein.


27. In STO vs. Durga Oil Mills (1998) 1 SCC 572 it was held that “Moreover, as it has been noted earlier that the IPR itself had not granted any exemption but had indicated that orders will be issued by various departments for granting the exemptions. The exemption order under Sales Tax could only be issued under Section 6 which could be amended or withdrawn altogether. This is expressly provided by Section 6.

If the respondent acted on the basis of a notification issued under Section 6 it should have known that such notification was liable to be amended or rescinded at any point of time, if the Government felt that it was necessary to do so in public interest.”


28. In Bakul Cashew Co. v. STO (1986) 2 SCC 365 “In cases of this nature the evidence of representation should be clear and unambiguous. It “must be certain to every intent”.

The statements that are made by ministers at such meetings, such as, “let us see”, “we shall consider the question of granting of exemption sympathetically”, “we shall get the matter examined,” “you have a good case for exemption” etc. even if true, cannot form the basis for a plea of estoppel.”


29. In Sharma Transport v. Govt. of AP (2002) 2 SCC 188 it is observed that “There is preponderance of judicial opinion that to invoke the doctrine of promissory estoppel, clear, sound and positive foundation must be laid in the petition itself by the party invoking the doctrine and that bald expressions, without any supporting material, to the effect that the doctrine is attracted because the party invoking the doctrine has altered its position relying on the assurance of the Government would not be sufficient to press into aid the doctrine.”


30. In Shri Bakul Oil Industries vs. State of Gujarat, this Court held that “Viewed from another perspective, it may be noticed that the State Government was under no obligation to grant exemption from sales tax. The appellants could not, therefore, have insisted on the State Government granting exemption to them from payment of sales tax. What consequently follows is that the exemption granted by the Government was only by way of concession. Once this position emerges it goes without saying that a concession can be withdrawn at any time and no time limit can be insisted upon before the concession is withdrawn. The notifications of the Government clearly manifest that the State Government had earlier granted the exemption only by way of concession and subsequently by means of revised notification issued on July 17, 1971, the concession had been withdrawn. As the State Government was under no obligation, in any manner known to law, to grant exemption it was fully within its powers to revoke the exemption by means of a subsequent notification. This is an additional factor militating against the contentions of the appellants.”


31. In Motilal Padampat Sugar Mills Co. Ltd. vs. State of UP (1979) 2 SCC 409, it is held that “we do not think it is necessary, in order to attract the applicability of the doctrine of promissory estoppel, that the promisee, acting in reliance on the promise, should suffer any detriment. What is necessary is only that the promisee should have altered his position in reliance on the promise…” “But it is necessary to point out that since the doctrine of promissory estoppel is an equitable doctrine, it must yield when the equity so requires. If it can be shown by the Government that having regard to the facts as they have transpired, it would be inequitable to hold the Government to the promise made by it, the Court would not raise an equity in favour of the promisee and enforce the promise against the Govenrment. The doctrine of promissory estoppel would be displaced in such a case because, on the facts, equity would not require that the Government should be held bound by the promise made by it.

When the Government is able to show that in view of the facts as have transpired since the making of the promise, public interest would be prejudiced if the Government were required to carry out the promise, the Court would have to balance the public interest in the Government carrying out a promise made to a citizen which has induced the citizen to act upon it and alter his position and the public interest likely to suffer if the promise were required to be carried out by the Government and determine which way the equity lies. It would not be enough for the Government just to say that public interest requires that the Government should not be compelled to carry out the promise or that the public interest would suffer if the Government were required to honour it.”


In the same paragraph it is further observed that:-

“24……..the Government cannot, as Shah,J., pointed out in the Indo-Afghan Agencies case, claim to be exempt from the liability to carry out the promise “on some indefinite and undisclosed ground of necessity or expediency”, nor can the Government claim to be the sole judge of its liability and repudiate it “on an ex parte appraisement of the circumstances”. If the Government wants to resist the liability, it will have to disclose to the Court what are the facts and circumstances on account of which the Government claims to be exempt from the liability and it would be for the Court to decide whether those facts and circumstances are such as to render it inequitable to enforce the liability against the Government. Mere claim of change of policy would not be sufficient to exonerate the Government from the liability: the Government would have to show what precisely is the changed policy and also its reason and justification so that the Court can judge for itself which way the public interest lies and what the equity of the case demands. It is only if the Court is satisfied, on proper interest requires that the Government should not be held bound by the promise but should be free to act unfettered by it, that the court would not act on the mere ipse dixit of the Government, for it is the Court which has to decide and not the Government whether the Government should be held exempt from liability. This is the essence of the rule of law.

The burden would be upon the Government to show that the public interest in the Government acting otherwise than in accordance with the promise is so overwhelming that it would be inequitable to hold the Government bound by the promise and the Court would insist on a highly rigorous standard of proof in the discharge of this burden”


32. It is further held that “Lastly, a proper reading of the observation of the Court clearly shows that what the Court intended to say was that where the Government owes a duty to the public to act differently, promissory estoppel cannot be invoked to prevent the Government from doing so. This proposition is unexceptionable, because where the Government owes a duty to the public to act in a particular manner, and here obviously duty means a course of conduct enjoined by law, the doctrine of promissory estoppel cannot be invoked for preventing the Government from acting in discharge of its duty under the law. This doctrine of promissory estoppel cannot be applied in teeth of an obligation or liability imposed by law.”


33. In DCM Ltd. vs. Union of India (1996) 5 SCC 468, this Court reiterated that “It is well settled that the doctrine of promissory estoppel represents a principle evolved by equity to avoid injustice and, though commonly named promissory estoppel, it is neither in the realm of contract nor in the realm of estoppel. The basis of this doctrine is the inter-position of equity which has always proved to its form, stepped in to mitigate the rigour of strict law. It is equally true that the doctrine of promissory estoppel is not limited in its application only to defence but it can also find a cause of action. This doctrine is applicable against the Government in the exercise of its governmental public or executive functions and the doctrine of executive necessity or freedom of future executive action, cannot be invoked to defeat the applicability of this doctrine. It is further well established that the doctrine of promissory estoppel must yield when the equity so requires. If it can be shown by the Government or public authority that having regard to the facts as they have transpired, it would be unequitable to hold the Government or public authority to the promise or representation made by it, the court would not raise an equity in favour of the person to whom the promise or representation is made and enforce the promise or representation against the Government or public authority. The doctrine of promissory estoppel would be displaced in such a case because on the facts, equity would not require that the Government or public authority should be held bound by the promise or representation made by it.”


34. In Shrijee Sales Corpn. Vs. Union of India (1997) 3 SCC 398 it was held that “It is not necessary for us to go into a historical analysis of the case – law relating to promissory estoppel against the Government. Suffice it to say that the principle of promissory estoppel is applicable against the Government but in case there is a supervening public equity, the Government would be allowed to change its stand; it would then be able to withdraw from representation made by it which induced persons to take certain steps which may have gone adverse to the interest of such persons on account of such withdrawal. However, the Court must satisfy itself that such a public interest exits.”


35. In Pawan Alloys & Casting (P) Ltd. v. UP SEB (1997) 7 SCC 251 it is held that “(31). The appellants will not be able to enforce the equity by way of promissory estoppel against the Board if it is shown by the Board that public interest required it to withdraw this incentive rebate even prior to the expiry of three years as available to the appellants concerned. It has also to be held that even if such withdrawal of development rebate prior to three years is not based on any overriding public interest, if it is shown that by such premature withdrawal the appellant-promisees would be restored to status quo ante and would be placed in the same position in which they were prior to the grant of such rebate by earlier notifications the appellants would not be entitled to succeed.”


36. In Shreeji Sales Corpn.( supra) it is also held that “However, in the present case, there is a supervening public interest and hence it should not be mandatory for the Government to give a notice before withdrawing the exemption.”


37. In Bannari Amman Sugars Ltd. vs. Commercial Tax Officer (2005) 1 SCC 625 it is observed that “We find no substance in the plea that before a policy decision is taken to amend or alter the promise indicated in any particular notification, the beneficiary was to be granted an opportunity of hearing. Such a plea is clearly unsustainable. While taking policy decision, the Government is not required to hear the persons who have been granted the benefit which is sought to be withdrawn.”


38. In Rom Industries Ltd. vs. State of J&K (2005) 7 SCC 348, this Court held that “We are not prepared to hold that the government policy by itself could give rise to any promissory estoppel in favour of the appellants against the respondents since the policy itself made it absolutely clear that if would come into effect only on appropriate notification being issued. The notification was issued in exercise of the admitted powers of the State Government under the State General Sales Tax Act. The State Government having power and competent to grant the exemption was equally empowered to withdraw it. As we have also noticed there was nothing either in the notification or in the policy which provided that the Negative List would not be amended or altered. On the contrary clause (vii) of para 7 to GO No.10 of 1995 expressly reserved the Government’s right to amend the Negative List. The right if any of the appellants was a precarious one and could not found a claim for promissory estoppel.”


39. Both the learned Senior counsel had also emphasized that there is a distinction between cases (a) where a policy automatically applies subject to eligibility [e.g. Pawan alloys (supra)] (b) where the idea was to allure people and all persons who set up industries were entitled to an exemption; and (c) where the exemption would apply only after a considered decision is taken to consider eligibility and worthiness [e.g. Rom Industries (supra)].


40. According to the learned Senior counsel there is also a distinction between cases where (a) an exemption is granted but taken away prematurely [e.g. Pawan Alloys (supra)]; (b) an exemption is to be given after due consideration. Thus, in the present appeal, the promise would be considered to be made only when a decision is actually made by the empowered authority after being satisfied that the revival of the Company was possible.


41. The learned Senior counsel also placed reliance on Sharma Transport (supra) wherein it was held that “It is equally settled law that the promissory estoppel cannot be used to compel the Government or public authority to carry out a representation or promise which is prohibited by law or which was devoid of the authority or power of the officer of the Government or the public authority to make.”


42. Learned Senior counsel also relied on the decision in State of Jharkhand vs. Ambay Cements (2005) 1 SCC 368, in support of his submission where promissory estoppel applies only where a person is eligible consistent with the purpose for which the policy was made. In that case, it was held that “In our view, the conditions prescribed by the authorities for grant of exemption are mandatory for availing the exemption and the High Court exercising jurisdiction under Article 226 of the Constitution cannot direct the grant of exemption in favour of the respondent overlooking the statutory conditions prescribed for such grant and that too in the absence of any challenge to the validity of such conditions.”


43. In addition Mr. Dwivedi, learned Senior counsel relied on a number of other decisions which we may notice.


44. In M.P. Mathur (supra), wherein this Court reiterated that in order to invoke the doctrine of promissory estoppel clear, sound and positive foundation must be made in the petition itself by the party invoking the doctrine and bald expressions without any supporting material would not be sufficient.


45. In Excise Commissioner vs. Ram Kumar (1976) 3 SCC 540 this Court reiterated that “it is now well settled by a catena of decisions that there can be no question of estoppel against the Government in the exercise of its legislative, sovereign or executive powers.”


46. With respect to the submissions made by the learned Senior counsel on IA No.3 reliance is placed on Prestige Lights (supra), wherein this Court reiterated the principle that the Court may refuse to hear the parties on merits who has violated the directions issued by the Court. Since not hearing a party on merits is a “drastic step” it should not be taken except in grave and extraordinary situations, “but sometimes such an action is needed in the larger interest of justice when a party obtaining interim relief intentionally and deliberately flouts such order by nor abiding by the terms and conditions on which a relief is granted by the court in his favour.”


47. In Amrit Banaspati (supra), it is observed that “But promissory estoppel being an extension of principle of equity, the basic purpose of which is to promote justice founded on fairness and relieve a promisee of any injustice perpetrated due to promisor’s going back on its promise, is incapable of being enforced in a court of law if the promise which furnishes the cause of action nor the agreement, express or implied, giving rise to binding contract is statutorily prohibited or is against public policy.”

“11. Exemption from tax to encourage industrialization should not be confused with refund of tax. They are two different legal and distinct concepts. An exemption is a concession allowed to a class or individual from general burden for valid and justifiable reason.”

“12. But refund of tax is made in consequence of excess payment of it or its realization illegally or contrary to the provisions of law. A provision or agreement to refund tax due to realize in accordance with law cannot be comprehended. No law can be made to refund tax to a manufacturer realized under a statute. It would be invalid and ultra vires.”


48. In the case of Dinakar Sinha (supra), this Court observed that “31. The 1973 Rules was a temporary statute. It died its natural death on expiry thereof. The 1980 Rules does not contain any repeal and saving clause. The provisions of the relevant provisions of the General Clauses Act will, thus, have no application. Once a statute expires by efflux of time, the question of giving effect to a right arising thereunder may nor arise….”


49. In M/s. Bennett Coleman (supra), this Court held that “This pivotal point canvassed by the learned Counsel for the appellants though it looks attractive at first sight cannot stand a close scrutiny. It is true that the offences committed against a temporary statute have, as a general rule, to be prosecuted and punished before the statute expires and in the absence of a special provision to the contrary, the criminal proceedings which are being taken against a person under the temporary statute will ipso facto terminate as soon as the statute expires. But the analogy of criminal proceedings or physical constraint cannot, in our opinion, be extended to rights and liabilities of the kind with which we are concerned here for it is equally well settled that transactions which are concluded and completed under the temporary statute while the same was in force often endure and continue in being despite the expiry of the statute and so do the rights or obligations acquired or incurred thereunder depending upon the provisions of the statute and nature and character of the rights and liabilities.”


50. In District Mining Officer (supra), this Court observed that “A statute can be said to be either perpetual or temporary. It is perpetual when no time is fixed for its duration and such a statute remains in force until its repeal, which may be express or implied. But a statute is temporary when its duration is only for a specified time and such a statute expires on the expiry of the specified time, unless it is repealed earlier.

The relevant provisions of the different State laws relating to cesses or taxes on minerals having been deemed to have been enacted by Parliament and having been deemed to have been enacted by Parliament and having been deemed to have remained in force up to the 4th day of April, 1991 under the Validation Act, those laws relating to cesses or taxes on minerals must be held to be temporary statutes in the eye of law. Necessarily, therefore, its life expired and it would be difficult to conceive that notwithstanding the expiry of the law itself, the collecting machinery under the law could be operated upon for making the collection of the cess or tax collectable upto 4.4.1991. Admittedly, to a temporary statute, the provisions of Section 6 of the General Clauses Act, 1897 will have no application.”


51. Let us now examine the factual situation in the light of the observations made by this Court in various judgments relied upon by the learned counsel for the parties.


52. The Company applied to the State Government on 21.11.1997 for grant of sales tax exemption under the Industrial Policy, 1995. Even though the Company was entitled under the aforesaid Policy to exemption for 8 years, it made an application only for 5 years’ exemption. This request of the Company was considered by the State-level Committee on Rehabilitation in a meeting held on 07.01.1998. This was attended by the senior Officers of the State Government, representatives of the financial Institutions and the Company.

It was observed as follows:-

“It was felt that the Company is potential sick unit and is fit for consideration for exemption from payment of Sales Tax for a period of 5 years from 1.1.1998.

The Committee recommended that as per the provision of Industrial Policy 1995 the Sales Tax exemption on finished products can be granted to M/s. Kalyanpur Cement Ltd. for a period of five years from 1.1.1998 to 31.12.2002 to improve liquidity of the Company for its rehabilitation and sound financial position and decided to put up the case in the meeting of the High Empowered Committee under the Chairmanship of the Chief Secretary for final decision.”


53. In a meeting held on 23.01.1998 it was noticed that the Company has been provided the facility of deferment of commercial taxes on two earlier occasions. The deferred amount is being repaid even though payment of the unit is not up-to-date. It was also accepted that the benefits under the Industrial Policy, 1995 which are to be given to the new units are also to be given to sick and closed units. However, it was observed that the opinion of the Advocate General should be taken as to whether any amendment is required in the Sales Tax rules. In an another meeting held on the same date i.e. on 12th March, 1998 the reconstruction proposal of the Company was again considered in a meeting of the High Level Authorisation Committee (HLAC) held under the Chairmanship of the Chief Secretary. In this meeting, it was noticed that the Company is running in losses. The main reason for the present position of the Company is sluggishness in the cement market. The Company had, therefore, made an application for Sales Tax exemption from 01.01.1998 to 31.12.2002 under the Industrial Policy, 1995. Upon consideration and discussion, it was decided that before exempting the Company from Sales Tax, opinion of Advocate General should be taken as to whether any amendment is required in the Bihar Finance Act. Subsequently, the Advocate General opined that no amendments are required in the Bihar Finance Act, 1981 and that the exemption can be considered for a class of dealers i.e. sick units in terms of Section 7(3)(b) of that Act.


54. In an another meeting held on 12.07.1999 at IFCI Head Office, New Delhi, the representatives of the State Government clearly stated that the Government of Bihar was committed to the revival of industry in the State in general and that of ACL in particular as it was located in one of the backward districts of Bihar and provided direct employment to over 2000 persons. With regard to the Sales Tax exemption it was stated that the legal opinion of the Advocate General, Bihar had already been obtained and the final decision of the Cabinet sub-Committee is expected within 2-3 months’ time. The Indian promoters of the Company had been invited to join the meeting and were requested to respond to the observations of the participants. It was explained on behalf of the Company that although the performance of the Company was consistently above the rated capacity, it had not been able to achieve optimum level of operations mainly due to lack of adequate working capital. Since the promoters were not to bring any further funds, most of the required amount would have to be met out of the proposed funding and expected Sales Tax exemption. In the summary record of the proceedings of the Joint Meeting, it was recorded that “there was further discussion amongst the participants and there was a general consensus that a restructuring package would be necessary for ensuring the revival of KCL and accordingly, KCL be advised to submit, at the earliest, a revised restructuring proposal with a cut off date of 31.12.1999……”. “It was considered necessary to stipulate preconditions such as the State Government of Bihar granting the Sales Tax exemption and renewal/revalidation of the mining leases for the proposed restructuring packages, as and when sanctioned.”


54. Thereafter, the representatives of the Company were invited to join the meeting held between the Government of Bihar and financial institutions on 29.10.1999. Reference was made, in this meeting, to the deliberations at the previous meeting held on 12.07.1999, when it was decided to undertake revised restructuring exercise in respect of the Company.

Accordingly, a revised restructuring proposal was formulated by the Industrial Finance Corporation of India Ltd. (hereinafter referred to as ‘IFCI’). In this meeting of the representative of the State Government mentioned that the legal opinion of the Advocate General Bihar has been obtained. However, decision of the Sales Tax exemption proposal had been held up due to the Election. It was now expected to be taken up in December, 1999. The financial institutions stated that they would consider granting reliefs only after grant of Sales Tax exemptions by the State Government of Bihar.


55. Thereafter by letter dated 02.10.1999, the State Government informed the financial institutions as under:-

“The State Government has since decided to notify the provisions of providing Sales Tax benefits to “Sick Units” and potentially viable non-BIFR sick units in the meeting of the Economic Sub-Committee held on November 30,1999. We shall forward a copy of the notification as soon as it is gazetted….”


56. From the above it becomes apparent that the State Government had been consistently giving assurances not only to the Company but also to the financial institutions that the necessary Sales Tax exemption notification will be issued. In our opinion the Company had laid a clear, sound and a positive foundation for invoking the doctrine of ‘promissory estoppel’. Therefore, it is not possible to accept the submissions made by Dr. Dhawan and Mr. Dwivedi that no definite promises were ever made. This, however, is not the end of the matter.


57. Even in the meeting held on 17.12.1999 under the Chairmanship of the Minister for Water Resources and Industry, Bihar the problems being faced by the Company were discussed. It was pointed out by the Industrial Development Commissioner that future of thousands of people is linked with the Company and, therefore, positive cooperation of financial institutions/bank is desirable for its rehabilitation. The Chairman of the Company was invited to apprise the meeting of the financial and other difficulties. It was accepted by the whole-time Director of IFCI, Mr. Ganguly that the financial institutions have always been supporting the Company and will support in the future. It was also stated by him that in the Industrial Policy, 1995 there is a provision of giving Sales Tax exemption for 8 years to a sick company.

However, the Company had asked for the above facility only for 5 years. So far as the viability of the Company is concerned, it was stated to have already been established.

After hearing all the concerned parties, the Minister mentioned that the Government of Bihar is very keen for rehabilitation of the Company and that all possible support will be provided for implementation of the rehabilitation package prepared by financial institutions. So far as the Sales Tax relief is concerned, it was stated that “a decision will be taken in a day or two and the notification relating therewith will be issued by 2nd week of January, 2000….”. With this assurance a consensus had emerged among the financial institutions and the Banks that if the Government implements the Industrial Policy, 1995 in its true spirit particularly on the issue relating to deferment/ exemption Sales Tax, the financial institutions and Banks will give their full cooperation. A number of very important decisions were taken in the aforesaid meeting.

Decision No.4 was that “State Government will ensure that the notification regarding Sales Tax exemption is issued by the 2nd week of January, 2000”.


58. On 25th January, 2000, the State Government informed the lead institution (IFCI) that the matter was discussed in the Cabinet Sub-Committee and draft notification was approved therein. It was further pointed out that due to ensuing Assembly Elections, it was being examined whether it was a violation of Model Code of Conduct or not. Once it is sorted out, action will be taken in this regard. Again vide letter dated 31.03.2000, the State Government informed the IFCI that the matter was delayed due to election and the necessary notification shall be issued soon. There was another meeting held on 29.05.2000 under the Chairmanship of the Minister of Industries on problems faced by the Company. The meeting recorded as follows:-

“After intense discussion in the meeting, the following decisions were taken:

1. Under the Industrial Policy, 1995 the Commercial Tax Department shall immediately issue the matching notification to provide the facility of exemption/deferment from Sales Tax to be potentially sick and closed units.

2. The Forest and Environment Deptt. Will take necessary steps immediately to take out the Limestone bearing areas from the Kaimur Wild Life Sanctuary and for grant of Mining Leases to KCL so that the Limestone availability to the Company is ensured uninterruptedly and thousands of workers working are saved from unemployment (given Forest and Environment Deptt.)” 59. All the aforesaid material would lead to a conclusion that the Company as well as the financial institutions were entitled to rely upon the repeated assurances given by the State Government. However, since the promised notification was not forthcoming, the Company was constrained to file the writ petition.


60. Before the High Court the Company had claimed that it was eligible to avail Sales Tax incentive for a period of 8 years under clause 22(ii) of the 1995 Policy. This incentive was necessary for the revival of the Unit. It has been found to be eligible for exemption at the highest level of the Government.

The State Government had held out clear and unequivocal assurances and promises to the Company as also the financial institutions with the necessary Notification under Clause 24 of the Industrial Policy, 1995 would be issued. The assurances/promises are contained in official documents. It was, therefore, submitted that the Government cannot be permitted to resile from the representations.


61. During the course of the proceedings in the writ petition, the State Government in its supplementary affidavit dated 05.12.2000 filed on behalf of respondent No.4 (i.e. Secretary58 cum-Commissioner, Commercial Taxes Department) again categorically reiterated that “the Hon’ble Minister, Department of Commercial Taxes has approved the proposals along with draft notification regarding extension of Sales Tax related incentives to sick industrial units……”. It had been submitted to the Chief (Finance) Minister on 18.11.2000. It shall be possible to issue necessary notification after approval of the proposal by the Chief (Finance) Minister. Having made the aforesaid statements in an affidavit before the High Court, the Government has resiled from the unequivocal representations in the decisions dated 06.01.2001 and 05.03.2001. Therefore, strong reliance was placed on clauses 22 and 24 of the 1995 Policy and the doctrine of ‘promissory estoppel’ in support of the plea that the action of the State Government in issuing orders dated 06.01.2001 and 05.03.2001 are wholly arbitrary and unjust.


62. In reply, it was contended that the decision dated 06.01.2001 had been taken for the four reasons stated earlier.

It was further stated that the decisions taken in the meeting of the Cabinet held on 05.03.2001 was upon thoughtful and due consideration of all the relevant factors. Taking into consideration the totality of the circumstance, a policy decisions had been taken that notification relating to the Sales Tax incentive be not issued. Therefore, the Company was not entitled to any relief. It was on consideration of the entire matter that the High Court concluded as follows:-

“When the State Government gives an assurance and undertaking, in form of a policy then in fact it allures person/industries to enter into the individual ventures, invest money on the assurances contained in the policy, would it be justified on the part of the State Government to say later on that on a second thought they were withdrawing the policy and the benefits flowing from that policy? We are unable to agree to this argument.”


63. We are of the opinion that the aforesaid conclusion reached by the High Court is based on due consideration of the material placed before it. We see no reason to differ with the opinion expressed by the High Court. We are unable to accept the submissions made by Dr. Dhawan and Mr. Dwivedi that no clear-cut assurances were held out to the Company.

We are also unable to accept the submissions of Mr. Dwivedi that the Company has failed to place on the record sufficient material to establish that unequivocal promises and representations had been made by the appellant to the Company by word and by conduct.


64. In our opinion, the matter is squarely covered by the observations made by this Court in the Mangalore Chemicals (supra) “There is, as set out earlier, no dispute that the appellant was entitled to the benefit of the Notification dated June 30, 1969. There is also no dispute that the refunds were eligible to be adjusted against sales tax payable for respective years. The only controversy is whether the appellant, not having actually secured the “prior permission” would be entitled to adjustment having regard to the words of the Notification of August 11, 1975, that “until permission of renewal is granted by the Deputy Commissioner of Commercial Taxes, the new industry should not be allowed to adjust the refunds”. The contention virtually means this: “No doubt you were eligible and entitled to make the adjustments. There was also no impediment in law to grant you such permission. But see language of clause 5. Since we did not give you the permission you cannot be permitted to adjust.” Is this the effect of the law?

“10. The sales tax already paid by the appellant on the raw materials procured by it is the subject matter of the refunds. The sales tax against which the refund is sought to be adjusted is the sales tax payable by appellant on the sales of goods manufactured by it. If the contention of the Revenue is correct, the position is that while the appellant is entitled to the refund it cannot, however, adjust the same against current dues of the particular year but should pay the tax working out its refunds separately. The situation may well have been such but the snag comes here. If the adjustments made by the appellant in its monthly statements are disallowed, the sales tax payable would be deemed to be in default and would attract a penalty ranging from 1 1/2 per cent to 2 1/2 per cent per month from the date it fell due. That penalty, in the facts of this case, would be very much more than the amounts of refund.”

“11. What emerges from the undisputed facts is that appellant was entitled to the benefit of these adjustments in the respective years. It had done and carried out all that was necessary for it to do and carry out in that behalf. The grant of permission remained pending on account of certain outstanding inter-departmental issues as to which of the departments — the Department of Sales Tax or the Department of Industries — should absorb the financial impact of these concessions.

Correspondence indicates that on account of these questions, internal to administration, the request for permission to adjust was not processed.”

“22……There is no dispute that appellant had satisfied these conditions. Yet the permission was withheld — not for any valid and substantial reason but owing to certain extraneous things concerning some inter-departmental issues. Appellant had nothing to do with those issues.

Appellant is now told, “We are sorry. We should have given you the permission. But now that the period is over, nothing can be done”. The answer to this is in the words of Lord Denning:4 “Now I know that a public authority cannot be estopped from doing its public duty, but I do think it can be estopped from relying on a technicality and this is a technicality”.

23. Francis Bennion in his Statutory Interpretation, (1984 edn.) says at page 683:

“Unnecessary technicality: Modern courts seek to cut down technicalities attendant upon a statutory procedure where these cannot be shown to be necessary to the fulfillment of the purposes of the legislation.”


65. The law with regard to the applicability of the doctrine of promissory estoppel was again comprehensively considered by this Court in the case of Nestle India (supra). Ruma Pal, J. speaking for the Bench observed as follows:-

“24. But first a recapitulation of the law on the subject of promissory estoppel. The foundation of the doctrine was laid in the decision of Chandrasekhara Aiyar, J. in Collector of Bombay v. Municipal Corpn. of the City of Bombay………….”

“……….Chandrasekhara Aiyar, J. concurred with the conclusion of Das, J. but based his reasoning on the fact that by the resolution, representations had been made to the Corporation by the Government and the accident that the grant was invalid did not wipe out the existence of the representation nor the fact that it was acted upon by the Corporation.

What has since been recognised as a signal exposition of the principles of promissory estoppel, Chandrasekhara Aiyar, J. said: (AIR p. 476, paras 21 & 22)

“The invalidity of the grant does not lead to the obliteration of the representation.

Can the Government be now allowed to go back on the representation, and, if we do so, would it not amount to our countenancing the perpetration of what can be compendiously described as legal fraud which a court of equity must prevent being committed. If the resolution can be read as meaning that the grant was of rent-free land, the case would come strictly within the doctrine of estoppel enunciated in Section 115 of the Evidence Act. But even otherwise, that is, if there was merely the holding out of a promise that no rent will be charged in the future, the Government must be deemed in the circumstances of this case to have bound themselves to fulfil it. … Courts must do justice by the promotion of honesty and good faith, as far as it lies in their power.”

“25. In other words, promissory estoppel long recognised as a legitimate defence in equity was held to found a cause of action against the Government, even when, and this needs to be emphasised, the representation sought to be enforced was legally invalid in the sense that it was made in a manner which was not in conformity with the procedure prescribed by statute.”

“26. This principle was built upon in Union of India v. Anglo Afghan Agencies where it was said (SCR at p. 385): (AIR p 728, para 23)

“23. Under our jurisprudence the Government is not exempt from liability to carry out the representation made by it as to its future conduct and it cannot on some undefined and undisclosed ground of necessity or expediency fail to carry out the promise solemnly made by it, nor claim to be the judge of its own obligation to the citizen on an ex parte appraisement of the circumstances in which the obligation has arisen.”

xxxx xxxx xxxx xxxx

“44. Of course, the Government cannot rely on a representation made without complying with the procedure prescribed by the relevant statute, but a citizen may and can compel the Government to do so if the factors necessary for founding a plea of promissory estoppel are established. Such a proposition would not “fall foul of our constitutional scheme and public interest”. On the other hand, as was observed in Motilal Padampat Sugar Mills case and approved in the subsequent decisions: (SCC p. 442, para 24)

“It is indeed the pride of constitutional democracy and rule of law that the Government stands on the same footing as a private individual so far as the obligation of the law is concerned: the former is equally bound as the latter. It is indeed difficult to see on what principle can a Government, committed to the rule of law, claim immunity from the doctrine of promissory estoppel.”

“46. ………..The facts in the present case are similar to those prevailing in Godfrey Philips. There too, as we have noted earlier, the statutory provisions required exemption to be granted by notification. Nevertheless, the Court having found that the essential prerequisites for the operation of promissory estoppel had been established, directed the issuance of the exemption notification.”


66. In Petrochemical (supra), this Court has clearly reiterated the promissory estoppel would apply where a party alters his position pursuant to or in furtherance of the promise made by a State. It is also clearly held that such a policy decision can be expressed in notifications under statutory provisions or even by executive instructions. Whenever the ingredients for invoking the principle of promissory estoppel are established, it could give rise to a cause of action. Not only may it give rise to a cause of action but would also preserve a right. The relevant observations are as under:-

“121. The doctrine of promissory estoppel would undoubtedly be applicable where an entrepreneur alters his position pursuant to or in furtherance of the promise made by a State to grant inter alia exemption from payment of taxes or charges on the basis of the current tariff. Such a policy decision on the part of the State shall not only be expressed by reason of notifications issued under the statutory provisions but also under the executive instructions. The appellants had undoubtedly been enjoying the benefit of (sic exemption from) payment of tax in respect of sale/consumption of electrical energy in relation to the cogenerating power plants.”

“122. Unlike an ordinary estoppel, promissory estoppel gives rise to a cause of action. It indisputably creates a right. It also acts on equity. However, its application against constitutional or statutory provisions is impermissible in law.”

“130. We, therefore, are of the opinion that doctrine of promissory estoppel also preserves a right. A right would be preserved when it is not expressly taken away but in fact has expressly been preserved.”


67. This Court in MRF Ltd. Kottayam (supra) considered the legality of a notification withdrawing the exemption granted by an earlier notification. Relying on the representations contained in the earlier notification, MRF had altered its position. Whilst setting aside the subsequent notification withdrawing the exemptions, this Court held that the whole actions of the State including exercise of executive power has to be tested on the touchstone of Article 14 of the Constitution of India. It was held that the action of the State must be fair.

In this context we may notice the observations made in paragraph 38 and 39 of the judgment:-

“38. The principle underlying legitimate expectation which is based on Article 14 and the rule of fairness has been restated by this Court in Bannari Amman Sugars Ltd. v. CTO21. It was observed in paras 8 and 9: (SCC pp. 633-34)

“8. A person may have a ‘legitimate expectation’ of being treated in a certain way by an administrative authority even though he has no legal right in private law to receive such treatment. The expectation may arise either from a representation or promise made by the authority, including an implied representation, or from consistent past practice. The doctrine of legitimate expectation has an important place in the developing law of judicial review. It is, however, not necessary to explore the doctrine in this case, it is enough merely to note that a legitimate expectation can provide a sufficient interest to enable one who cannot point to the existence of a substantive right to obtain the leave of the court to apply for judicial review. It is generally agreed that ‘legitimate expectation’ gives the applicant sufficient locus standi for judicial review and that the doctrine of legitimate expectation to be confined mostly to right of a fair hearing before a decision which results in negativing a promise or withdrawing an undertaking is taken. The doctrine does not give scope to claim relief straightaway from the administrative authorities as no crystallised right as such is involved. The protection of such legitimate expectation does not require the fulfilment of the expectation where an overriding public interest requires otherwise. In other words, where a person’s legitimate expectation is not fulfilled by taking a particular decision then the decision-maker should justify the denial of such expectation by showing some overriding public interest.
(See Union of India v. Hindustan Development Corpn)

9. While the discretion to change the policy in exercise of the executive power, when not trammelled by any statute or rule is wide enough, what is imperative and implicit in terms of Article 14 is that a change in policy must be made fairly and should not give the impression that it was so done arbitrarily or by any ulterior criteria. The wide sweep of Article 14 and the requirement of every State action qualifying for its validity on this touchstone irrespective of the field of activity of the State is an accepted tenet. The basic requirement of Article 14 is fairness in action by the State, and non-arbitrariness in essence and substance is the heartbeat of fair play.

Actions are amenable, in the panorama of judicial review only to the extent that the State must act validly for discernible reasons, not whimsically for any ulterior purpose. The meaning and true import and concept of arbitrariness is more easily visualised than precisely defined. A question whether the impugned action is arbitrary or not is to be ultimately answered on the facts and circumstances of a given case. A basic and obvious test to apply in such cases is to see whether there is any discernible principle emerging from the impugned action and if so, does it really satisfy the test of reasonableness.” (emphasis supplied)”

“39. MRF made a huge investment in the State of Kerala under a promise held to it that it would be granted exemption from payment of sales tax for a period of seven years…….. “…….The action of the State cannot be permitted to operate if it is arbitrary or unreasonable. This Court in E.P. Royappa v. State of T.N observed that where an act is arbitrary, it is implicit in it that it is unequal both according to political logic and constitutional law and is therefore violative of Article 14. Equity that arises in favour of a party as a result of a representation made by the State is founded on the basic concept of “justice and fair play”. The attempt to take away the said benefit of exemption with effect from 15-1-1998 and thereby deprive MRF of the benefit of exemption for more than 5 years out of a total period of 7 years, in our opinion, is highly arbitrary, unjust and unreasonable and deserves to be quashed.”


68. We are also unable to accept the submission with the decisions dated 06.01.2001 and 05.03.2001 had been taken due to the change in the national policy. This was sought to be justified by Dr. Dhawan on the basis of the Conferences of Chief Ministers/Finance Ministers. It is settled law as noticed by Bhagwati, J in Motilal Padampat (supra) that the Government cannot, claim to be exempt from liability to carry out the promise, on some indefinite and undisclosed ground of necessity or expediency. The Government is required to place before the Court the entire material on account of which it claims to be exempt from liability. Thereafter, it would be for the Court to decide whether those facts and circumstances are such as to render it inequitable to enforce the liability against the Government. Mere claim of change of policy would not be sufficient to exonerate the Government from liability. It is only when the Court is satisfied that the Court would decline to enforce the promise against the Government. However, the burden would be upon the Government to show that it would be inequitable to hold the Government bound by the promise.

The Court would insist a highly rigorous standard of proof in the discharge of this burden. In the present case, the claim of the Government is based on a change in policy advocated in the Chief Ministers’ Conference. These Conferences have taken place before the affidavit is filed on 05.12.2001.


Therefore, the High Court concluded that the Government has not been candid in disclosure of the reasons for passing the order dated 06.01.2001. In our opinion, the aforesaid decisions with regard to the discontinuance of the Sales Tax exemptions from 01.01.2000 could not have affected the rights of the Company under the Industrial Policy, 1995. Necessary application was made to the Government seeking exemption on 21.11.1997. For more than 3 years, the Company and the financial institutions had been assured by the Government that the notification will be issued forthwith. However, it was not issued. We are of the opinion that the action of the appellants is arbitrary and indefensible.


69. Learned Senior counsel for the appellants had also submitted that it was not necessary to issue the notification within one month as stipulated in clause 24 of the Industrial Policy, 1995. In order to appreciate the aforesaid submission, it would be necessary to make a reference to the relevant clauses of the Industrial Policy, 1995. Clause 22, 23 and 24 are as under:-

“REVIVAL OF SICK UNITS.

The continuing problems of industrial sickness is a matter of great concern for the Government. Closure of units leads to unemployment and locking up of capital deployed in such ventures. The State Government is determined to take effective measures and to render all possible assistance for the amelioration of this malaise.

22.1. INDUSTRIAL SICKNESS IN SSI SECTION The State Government proposes to take the following measures for the revival of SSI units:

i. there are scores of medium and small scale units which are sick but have the potential of becoming viable. For such SSI units which are outside the purview of the Bureau of Industrial and Financial Reconstruction (BIFR), the State Government proposes to form an apex body on the lines of BIFR with Director of Industries as its Head to consider their revival.

ii. The State level apex body for rehabilitation of sick industry would be vested with adequate powers so that it can effectively implement management and financial restructuring.

iii. The sick SSI units would be identified as per guidelines given by RBI/IDBI. Appropriate packages of reliefs and concessions for such units would be approved for their rehabilitation.

iv. Sick units undergoing rehabilitation will not have to take sickness certificate every year. The approved revival package for each sick unit would indicate the period of revival.

v. The Apex Body shall monitor the progress of the revival package.

vi. A sick unit being revived would be entitled to Sales Tax exemption/deferment exemption from Minimum Guarantee etc. as determined in the revival package.

vii. The State level Apex body would besides representatives of Government Department/ Organisations/ financial institutions will also have its members one representative each of confederation of Indian Industries, Bihar Industries Association and Bihar Chamber of Commerce.

The rehabilitation package would be implemented within a fixed time frame so that the process of revival is not delayed.

22.2 SICKNESS IN LARGE AND MEDIUM SECTOR

i. A committee with Industrial Development Commissioner as its head will be constituted to evolve suitable measures for potentially viable non-BIFR sick industrial units including PSUs in the large and medium sector.

The Committee will recommend concessions and facilities including those in this policy statement if considered necessary for revival of the Unit; These recommendations would be placed before the Government through State level Empowered Committee (SLEC) already constituted under the chairmanship of Chief Secretary for final decision.

ii. Concessions and facilities identified under the Scheme of rehabilitation prepared by the Board for Industrial and Financial Reconstruction (BIFR) or by Inter- Institutional Committee of IRBI, BICICO/BSFC and Bank would be placed before the Committee headed by the Industrial Development Commissioner for consideration and recommendation to Government through SLEC for approval.

iii. Rehabilitation measures for sick but potentially viable industrial units may, inter alia, include reliefs and concessions or sacrifice from various government departments/ organizations and or additional facilities including allocation of power from BSEB/DVC and any other agency/statutory body/local authority.”

22.3 Such closed and sick industrial units which have once availed of the facility of Sales Tax exemption/deferment under a rehabilitation package prepared by BIFR shall not get the same facility again if they turn sick or are closed again. This will also apply to other facilities given to such sick and closed industrial units which have once availed of such facilities in the past. However, the State Government may consider extending such facilities on case to case basis as required.

23. Definition(s) given in the Annexure form(s) part of the policy.

2 4. M ONITORING AND REVIEW All concerned departments and organizations will issue follow up notifications to give effect to the provisions of the policy within a month. This will be appropriately monitored by the Govt.

The State Government may carry out Mid Term Review of this Policy.”


70. A perusal of the aforesaid policy clearly shows that the Government was determined to take effective measures to render all possible assistance for amelioration of the continuing problem of industrial sickness in the State. It was viewed as a matter of great concern for the Government.

Under Clause 22(1), the State Government was to constitute an apex body on the lines of BIFR with Director of Industries to consider the revival of sick Medium and Small Scale Units.

Clause 22(2) deals with sickness in large and medium sector.

Under clause 22(2)(i), a Committee headed by the Industrial Development Commissioner was to evolve suitable measures for potentially viable non-BIFR sick industrial units. Under Clause 22(2)(ii) the Committee was to recommend concessions and facilities which were considered necessary for revival of the unit. The Company was, therefore, eligible under the aforesaid Clause 22(2)(ii). The Industrial Policy, 1995 did not envisage sickness in its strict terms as defined under the Sick Industrial Companies (Special Provisions) Act, 1985. The policy was of a wider application and included industrial sickness not only qua BIFR companies but also in relation to non-BIFR potentially viable sick companies. The Clause 6 of the Annexure attached to the Policy defines a sick unit as under:-


“Sick Unit:

Sick unit means an industrial unit declared sick by the Board of Industrial and Financial Reconstruction under the Sick Industrial Companies (Special Provision) Act, 1985 or by the Apex Body headed by the Director of Industries for SSI or the High Level Empowered Committee headed by the Chief Secretary for large and medium sector.”


71. The aforesaid definition makes it abundantly clear that the sickness of the Company could also be decided by the SLEC headed by the Chief Secretary. The exemption claim of the Company was duly considered by the Committee constituted under Clause 22.2(i). Its recommendations were duly placed before the SLEC under Clause 22.2(ii). The recommendations were not implemented only because the Government failed to issue a notification under Clause 24 of the Industrial Policy, 1995 within the stipulated period of one month. Even if we are to accept the submissions of Dr. Dhawan and Mr. Dwivedi that the provisions contained in Clause 24 was mandatory the time of one month for issuing the notification could only have been extended for a reasonable period. It is inconceivable that it could have taken the Government 3 years to issue the follow up notification. We are of the considered opinion that failure of the appellants to issue the necessary notification within a reasonable period of the enforcement of the Industrial Policy, 1995 has rendered the decisions dated 06.01.2001 and 05.03.2001 wholly arbitrary. The appellant cannot be permitted to rely on its own lapses in implementing its policy to defeat the just and valid claim of the Company.


72. For the same reason we are unable to accept the submissions of the learned senior counsel for the appellant that no relief can be granted to the Company as the Policy has lapsed on 31.08.2000. Accepting such a submission would be to put a premium and accord a justification to the wholly arbitrary action of the appellant, in not issuing the notification in accordance with the provisions contained in Clause 24 of the Industrial Policy, 1995. The entire sequence of meetings adverted to above would clearly indicate that rehabilitation package for the Company was considered by the financial institutions keeping in view the provisions contained in the Industrial Policy, 1995. The two Committees constituted under the aforesaid policy had duly recommended granting of exemptions. This was much before the policy lapsed on 31.08.2000.


73. The assurances given in various meetings were reiterated before the High Court in the Affidavit dated 05.12.2000. It was clearly stated that the draft notification was being prepared and being approved. It was thus obvious that the notification merely had to be published in the Official Gazette.

After making the aforesaid statements in the affidavit, order dated 06.01.2001 was issued. The four reasons given in support of the decision are clearly arbitrary. It was no longer open to the appellant not to issue the notification on the ground that the Policy had lapsed on 31.08.2000. The second reason that the exemption could not be granted to the Company as no notification had been issued under Clause 24 cannot be accepted as the appellant-State cannot be permitted to take advantage of its own wrong. The third reason given is that the State-level Empowered Committee (SLEC) had not approved the rehabilitation package. This clearly is against the record which has been examined by us in the earlier part of the judgment. Not only the exemption was recommended by the competent Committees under the Industrial Policy, 1995, emphatic assurances were given that the notification will be issued within a very short period. The fourth reason with regard to the resolution passed at the Chief Ministers’ Conference is equally extraneous to the issue. The Company had made the application for exemption at a much prior time in 1997. No material has been placed either before the High Court or before this Court about the legal enforceability of the resolutions passed at the Chief Ministers’ Conference. In our opinion the decision making process which culminated in passing of the orders dated 06.01.2001 and 05.03.2001 is seriously flawed, therefore, the same have been justifiably quashed by the High Court.


74. We may now consider the submissions made in IA No.3 of 2006. On 18.11.2002, this Court passed the following order:

“As an interim arrangement during the pendency of this appeal, with a view to protect the interests of either side, we direct the respondent to deposit an amount equivalent to the sale tax payable by it as and when it becomes due in an interest hearing account in a nationalized bank. This amount and the amount accused during the pendency of the appeal, shall not be withdrawn by other side.

The amount so kept in deposit shall become payable to the party which ultimately succeeds in this appeal.

The appellants are directed to issue the exemption orders and on receipt of such order, the above said amount shall be deposited. The issuance of the exemption order is without prejudice to the case of the parties in this appeal.

The I.A. in the disposed of.”


75. It is not in dispute for us that pursuant to the aforesaid directions the appellant has issued the Notification No. SO82 174 dated 18.10.2004 granting exemption to the company.

The notification was to have effect for five years from the date of publication in the official gazette or till the disposal of special leave petition No.5181 of 2002, whichever is earlier.

The notification was issued subject to the terms and conditions notice earlier in the judgment. Under the aforesaid terms and conditions, the company was to deposit the tax payable per month with an interest bearing (wrongly typed in the order as hearing) account in a nationalized bank. The company was also to provide information of the bank account to the circle where it is registered. Details regarding amount of payment made each month was also to be supplied to the appellant.


76. It is now the submission of the learned counsel for the appellant that the company has neither complied with the order passed by this Court on 18.11.2002 nor the conditions stipulated in the notification dated 16.10.2004. It is further submitted that prayers in the application were to recall the order dated 18.11.2002 and to stay the operation of a judgment under appeal dated 24.04.2002. However the application was not finally disposed of, even though the pleadings were complete.


77. During the pendency of the proceedings there have been some further development, which will now need to be taken into consideration by the Court, to do justice between the parties.

78. During the interregnum the company has been collecting the amount equivalent to the tax from the consumers.

According to Dr. Rajiv Dhawan, Mr. Dwivedi during this period the company has collected more than Rs.60 crores on the sale of cement by virtue of the directions issued by this Court in the Order dated 18.11.2002. In view of the law laid down by this Court in Amrit Banaspati (supra) the company cannot be permitted to retain the amount collected from the customers.

This would amount unjust enrichment. Therefore, a direction is required to be issued that the amount deposited by the company with the bank pursuant to the orders of this Court be released to the appellant State. On the other hand, Mr. Parshad has submitted that the delay in issuance of the exemption Notification by the State has crippled the Company financially. Even then the Company is trying to revive itself through financial restructuring. The survival of the Company now depends on the approval of the Financial Restructuring Package prepared by the respondent No.2. This package has been submitted to the Chief Minister of Bihar which is still on the consideration of the Government. With regard to the nondeposit of amount equivalent to the tax due, Mr. Parshad reiterated that the Company had made bona fide efforts, but was unable to deposit the amount due to its ‘sickness’. On the one hand the revised rehabilitation package is kept under consideration, on the other the appellants seeks the vacation of the order dated 18.11.2002. The application, according to the learned senior counsel, deserves outright dismissal.


79. We have considered the submissions made by the learned counsel. It would be not possible to accept the submissions of Mr. Parshad that in view of the financial condition of the company it may be permitted to retain the amount collected under the orders of this Court. The amount was collected from the consumer to offset the tax liability.

Such amount cannot be permitted to be retained by the company. In Amrit Banaspati case (supra) it has been held that exemption and refund of tax are two different legal and distinct concepts. The objective of the exemption is to grant incentive to encourage industrialization. It is to enable the industry to compete in the market. On the other hand, refund of tax is made only when it has been realized illegally or contrary to the provisions of law. Tax lawfully levied and realized cannot be refunded. In view of the settled position of the law, we decline to accept the suggestion made by Mr. Parshad.


80. Direction is, therefore, issued that the amount deposited by the company in the designated account opened and operated pursuant to the order of this Court dated 18.11.2002 together with accrued interest shall be released to the appellant State, forthwith.


81. I.A. No.3 is therefore allowed in the aforesaid terms.


82. In view of the above, the appeal filed by the State challenging the judgment and order dated 24.4.2002 is dismissed, however, I.A. No.3 is allowed to the extent indicated above.



....……….……………………….J
(TARUN CHATTERJEE)

...…………………………………J
(SURINDER SINGH NIJJAR)

NEW DELHI
JANUARY 08, 2010.


REPORTABLE

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.1883 OF 2011
(arising out of S.L.P. (C) No. 2538 of 2009)


Electronics Corporation of India Ltd. …
Appellant(s)

versus

Union of India & Ors.

…Respondent(s)

with
Civil Appeal No. 1903 of 2008


O R D E R

S.H. KAPADIA, CJI


Leave granted.


2. Electronics Corporation of India Ltd. (“assessee” for short) is a Central Government Public Sector Undertaking (“PSU”). It is registered as a Government Company under the Companies Act, 1956. It is under the control of Department of Atomic Energy, Government of India. A dispute had been raised by the Central Government (Ministry of Finance) by issuing show cause notices to the assessee alleging that the Corporation was not entitled to avail/utilize Modvat/Cenvat Credit in respect of inputs whose values stood written off.

Accordingly it was proposed in the show cause notices that the credit taken on inputs was liable to be reversed. Thus, the short point which arose for determination in the present case was whether the Central Government was right in insisting on reversal of credit taken by the assessee on inputs whose values stood written off.


3. The adjudicating authority held that there was no substance in the contention of the assessee that the write off was made in terms of AS-2. The case of the assessee before the Commissioner of Central Excise (adjudicating authority) was that it was a financial requirement as prescribed in AS-2; that an inventory more than three years old had to be written off/derated in value; that such derating in value did not mean that the inputs were unfunctionable; that the inputs were still lying in the factory and they were useful for production and therefore they were entitled to Modvat/Cenvat credit. As stated above, this argument was rejected by the adjudicating authority and the demand against the assessee stood confirmed. Against the order of the adjudicating authority, the assessee decided to challenge the same by filing an appeal before CESTAT. Accordingly, the assessee applied before the Committee on Disputes (CoD). However, the CoD vide its decision dated 2.11.2006 refused to grant clearance though in an identical case the CoD granted clearance to Bharat Heavy Electricals Ltd. (“BHEL”). Accordingly, the assessee herein filed Writ Petition No. 26573 of 2008 in the Andhra Pradesh High Court. By the impugned decision, the writ petition filed by the assessee stood dismissed. Against the order of the Andhra Pradesh High Court the assessee has moved this Court by way of a special leave petition.


4. In a conjunct matter, Civil Appeal No. 1903 of 2008, the facts were as follows.

Bharat Petroleum Corporation Ltd. (“assessee” for short) cleared the goods for sale at the outlets owned and operated by themselves known as Company Owned and Company Operated Outlets. The assessee cleared the goods for sale at such outlets by determining the value of the goods cleared during the period February, 2000 to November, 2001 on the basis of the price at which such goods were sold from their warehouses to independent dealers, instead of determining it on the basis of the normal price and normal transaction value as per Section 4(4)(b)(iii) of Central Excise Act, 1944 (“1944 Act” for short) read with Rule 7 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. In short, the price adopted by the assessee which is a PSU in terms of Administered Pricing Mechanism (“APM”) formulated by Government of India stood rejected. The Tribunal came to the conclusion that the APM adopted by the assessee was in terms of the price fixed by the Ministry of Petroleum and Natural Gas; that it was not possible for the assessee to adopt the price in terms of Section 4(1)(a) of the 1944 Act; and that it was not possible to arrive at the transaction value in terms of the said section. Accordingly, the Tribunal allowed the appeal of the assessee. Aggrieved by the decision of the Tribunal, CCE has come to this Court by way of Civil Appeal No. 1903 of 2008 in which the assessee has preferred I.A. No. 4 of 2009 requesting the Court to dismiss the above Civil Appeal No. 1903 of 2008 filed by the Department on the ground that CoD has declined permission to the Department to pursue the said appeal.


5. The above two instances are given only to highlight the fact that the mechanism set up by this Court in its Orders reported in (i) 1995 Suppl.(4) SCC 541 (ONGC v. CCE) dated 11.10.1991; (ii) 2004 (6) SCC 437 (ONGC v. CCE) dated 7.1.1994; and (iii) 2007 (7) SCC 39 (ONGC v. City & Industrial Development Corpn.) dated 20.7.2007 needs to be revisited.


6. Learned Attorney General has submitted that the above Orders have outlived their utility and in view of the changed scenario, as indicated hereinafter, the aforestated Orders are required to be recalled. We find merit in the submission made by the Attorney General of India on behalf of the Union of India for the following reasons. By Order dated 11.9.1991, reported in 1992 Supp (2) SCC 432 (ONGC and Anr. v. CCE), this Court noted that “Public Sector Undertakings of Central Government and the Union of India should not fight their litigations in Court”. Consequently, the Cabinet Secretary, Government of India was “called upon to handle the matter personally”.


7. This was followed by the order dated 11.10.1991 in ONGC-II case (supra) where this Court directed the Government of India “to set up a Committee consisting of representatives from the Ministry of Industry, Bureau of Public Enterprises and Ministry of Law, to monitor disputes between Ministry and Ministry of Government of India, Ministry and public sector undertakings of the Government of India and public sector undertakings between themselves, to ensure that no litigation comes to Court or to a Tribunal without the matter having been first examined by the Committee and its clearance for litigation”.


8. Thereafter, in ONGC-III case (supra), this Court directed that in the absence of clearance from the “Committee of Secretaries” (CoS), any legal proceeding will not be proceeded with. This was subject to the rider that appeals and petitions filed without such clearance could be filed to save limitation. It was, however, directed that the needful should be done within one month from such filing, failing which the matter would not be proceeded with. By another order dated 20.7.2007 (ONGC-IVth case) this Court extended the concept of Dispute Resolution by High-Powered Committee to amicably resolve the disputes involving the State Governments and their Instrumentalities.


9. The idea behind setting up of this Committee, initially, called a “High-Powered Committee” (HPC), later on called as “Committee of Secretaries” (CoS) and finally termed as “Committee on Disputes” (CoD) was to ensure that resources of the State are not frittered away in inter se litigations between entities of the State, which could be best resolved, by an empowered CoD. The machinery contemplated was only to ensure that no litigation comes to Court without the parties having had an opportunity of conciliation before an in-house committee. [see : para 3 of the order dated 7.1.1994 (supra)]

Whilst the principle and the object behind the aforestated Orders is unexceptionable and laudatory, experience has shown that despite best efforts of the CoD, the mechanism has not achieved the results for which it was constituted and has in fact led to delays in litigation. We have already given two examples hereinabove. They indicate that on same set of facts, clearance is given in one case and refused in the other.

This has led a PSU to institute a SLP in this Court on the ground of discrimination. We need not multiply such illustrations. The mechanism was set up with a laudatory object. However, the mechanism has led to delay in filing of civil appeals causing loss of revenue. For example, in many cases of exemptions, the Industry Department gives exemption, while the same is denied by the Revenue Department. Similarly, with the enactment of regulatory laws in several cases there could be overlapping of jurisdictions between, let us say, SEBI and insurance regulators. Civil appeals lie to this Court. Stakes in such cases are huge. One cannot possibly expect timely clearance by CoD. In such cases, grant of clearance to one and not to the other may result in generation of more and more litigation. The mechanism has outlived its utility. In the changed scenario indicated above, we are of the view that time has come under the above circumstances to recall the directions of this Court in its various Orders reported as (i) 1995 Supp (4) SCC 541 dated 11.10.1991, (ii) (2004) 6 SCC 437 dated 7.1.1994 and (iii) (2007) 7 SCC 39 dated 20.7.2007.


10. In the circumstances, we hereby recall the following Orders reported in :

(i) 1995 Supp (4) SCC 541 dated 11.10.1991
(ii) (2004) 6 SCC 437 dated 7.1.1994
(iii) (2007) 7 SCC 39 dated 20.7.2007


11. For the aforestated reasons, I.A. No. 4 filed by the assessee in Civil Appeal No. 1903/2008 is dismissed.


…..……………………….CJI
(S. H. Kapadia)

……………………………..J.
(Mukundakam Sharma)


……………………………..J.
(K.S. Panicker Radhakrishnan)


……………………………..J.
(Swatanter Kumar)


……………………………..J.
(Anil R. Dave)


New Delhi;
February 17, 2011

HIGH COURT OF ORISSA: CUTTACK

W.P.(C) No.2971 of 2009

In the matter of an application under Articles 226 and 227 of the
Constitution of India.
--------------
M/s Delhi Foot Wear,
Shiv Bazar, Cuttack
..... Petitioner

-Versus-

Sales Tax Officer, Vigilance, Cuttack & others
..... Opposite Parties

For petitioner : M/s. P.K.Jena & S.C. Sahoo
For Opp. Parties : Mr.R.P.Kar, Standing Counsel [For O.P.-Revenue]
------------

P R E S E N T:
THE HONOURABLE MR. JUSTICE I.MAHANTY
AND
THE HONOURABLE MR. JUSTICE B.N. MAHAPATRA

Date of Judgment: 25.09.2014


B.N. Mahapatra, J.

This writ petition has been filed with a prayer for quashing the order of assessment dated 12.01.2007 passed by the Sales Tax Officer, Cuttack-1 Range, Cuttack under Annexure-1 on the ground that the said order is barred by limitation and has been passed without complying with the statutory requirement of Section 42(2) of the OVAT Act.


2. Petitioner’s case in a nutshell is that it is a proprietorship concern dealing with Foot Wear on wholesale basis. It is a registered dealer under the Orissa Value Added Tax Act, 2004 (for short, ‘OVAT Act’). The Sales Tax Officer, Vigilance, Cuttack Division, Cuttack conducted audit investigation at the business premises of the petitioner for the tax period from 01.04.2005 to 31.07.2006 on 12.07.2006. Audit visit report dated 21.07.2006 was submitted before the opposite party No.3-Assistant Commissioner of Sales Tax, Cuttack-1 Range, Cuttack vide letter No.317 dated 22.07.2006 for completion of assessment under Section 42 of the OVAT Act. Basing upon such report, a proceeding under Section 42 of the OVAT Act was initiated by opposite party No.2-Sales Tax Officer, Cuttack I Range, Cuttack by issuing notice in Form VAT 306 dated 30.12.2006 enclosing the audit visit report for the tax period from 01.04.2005 to 31.07.2006 fixing the date to 12.01.2007. Thereafter, opposite party No.2- STO passed the assessment order on 12.01.2007 under Section 42 of the OVAT Act for the tax period from 01.04.2005 to 31.07.2006 and the said order was issued vide Memo No.8041 dated 31.12.2008, which was received by the petitioner on 03.01.2009. Hence, the present writ petition.


3. Mr.P.K. Jena, learned counsel for the petitioner submitted that the impugned order of assessment passed under Annexure-1 is not sustainable in law as the said order of assessment has been antedated and that the notice was issued to produce the books of account to make the  audit assessment without allowing the statutory period of 30 days as provided under Section 42(2) of the OVAT Act. It was submitted that if the statute requires to do a thing in a particular manner, the authority is to follow the same. In support of his contention that the assessment order was passed beyond the period of limitation, Mr. Jena relied upon the judgment of the Hon’ble Supreme Court and the Andhra Pradesh High Court.


4. Mr. Kar, learned Standing Counsel for Commercial Taxes Department supported the order of assessment to be valid and legal.


5. On the rival contentions of the parties, the following questions fall for consideration by this Court:-

(i) Whether the order of assessment has been antedated and passed beyond the period of limitation?

(ii) Whether notice dated 30.12.2006 issued in Form VAT- 306 for production of books of account and documents for assessment of the tax without complying with the mandate of sub-section (2) of Section 42 of the OVAT Act by not allowing the minimum period of 30 days for production of books of account and documents vitiates the assessment proceeding?

(iii) What order?


6. Question No.(i) is whether the order of assessment has been antedated and passed beyond the period of limitation.

To deal with this question, the following facts may be relevant.

The Audit Visit Report was submitted on 22.07.2006 before the Assessing Officer; the last date for completion of audit assessment under Section 42 was expiring on 21.01.2007 and the order of assessment is dated 12.01.2007. Allegation of petitioner is that the order of assessment has been antedated. In support of his contention, it was vehemently argued that the order of assessment was issued vide Memo No.8041 dated 31.12.2008 which was received by the petitioner on 03.01.2009. Thus, there is inordinate delay of 24 months approximately in issuing the order of assessment. When this Court called upon Mr. Kar, learned Standing Counsel for the opposite party-Department to explain the delay of 24 months between the purported date on which the impugned assessment order was passed and the date on which it was issued and served on the petitioner, Mr. Kar failed to satisfy this Court the cause of delay.


7. At this juncture, it would be appropriate to rely on some of the judicial pronouncements, which are referred to hereunder.

The Hon’ble Supreme Court in the case of State of Andhra Pradesh Vs. M.Ramakishtaiah & Co. [1994] 93 STC 406 (SC) held as follows:

“We are of the opinion that this appeal has to be dismissed on the ground urged by the assessee himself.

As stated above, the order of the Deputy Commissioner is said to have been made on January 6, 1973, but it was served upon the assessee on November 21, 1973, i.e., precisely 10 ½ months later. There is no explanation from the Deputy Commissioner why it was so delayed. If there had been a proper examination, it  would have been a different matter. But, in the absence of any explanation whatsoever, we must presume that the order was not made on the date it purports to have been made. It would have been made after the expiry of the prescribed four years’ period. The civil appeal is accordingly dismissed.”


8. Following the aforementioned decision of the Hon’ble Supreme Court (supra), the High Court of Andhra Pradesh in the case of Sanka Agencies Vs. Commissioner of Commercial Taxes, Hyderabad, [2005] 142 STC 496 held as under:

“We have seen the record. Record also shows that while the impugned order bears the date May 17, 1996, the order was sent to the appellant by dispatching it only on November 1, 1996. There is no explanation in the record nor any explanation has been given by the respondent, as no counter is filed. Therefore, there is a strong apprehension that in order to give an impression that the impugned order was passed within the period of limitation; the order bears the date May 17, 1996, whereas it has been passed much after that. In this connection, the learned Counsel for the appellants has placed reliance on a judgment of the Hon’ble Supreme Court in State of Andhra Pradesh Vs. M.Ramakishtaiah & Co. [1994] 93 STC 406, wherein under similar circumstances, the Supreme Court held that in the absence of any explanation, whatsoever, for delayed service on the petitioner, of the order, the court should presume that the order was not made on the date it was purported to have been made.”


9. In the instant case, there is no explanation for inordinate delay of 24 months caused in issuing the assessment order to the petitioner.

Therefore, we have no hesitation to hold that the order of assessment under Annexure-1 was not made on the date it was purported to have been made.

In order to bring the assessment within the period of limitation, the order of  assessment bears the date 12.01.2007, whereas it has been passed much after that.


10. So far as question No.(ii) is concerned, it is necessary to extract sub-sections (1) and (2) of Section 42 of the OVAT Act.

“42.Audit assessment.—(1) Where the tax audit conducted under Sub-section (3) of Section 41 results in the detection of suppression of purchases or sales, or both, erroneous claims of deductions including input tax credit, evasion of tax or contravention of any provision of this Act affecting the tax liability of the dealer, the assessing authority may, notwithstanding the fact that the dealer may have been assessed under Section 39 or Section 40, serve on such dealer a notice in the form and manner prescribed along with a copy of the audit Visit Report, requiring him to appear in person or through his authorized representative on a date and place specified therein and produce or cause to be produced such books of account and documents relying on which he intends to rebut the findings and estimated loss of revenue in respect of any tax period or periods as determined on such audit and incorporated in the Audit Visit Report.

(2) where a notice is issued to a dealer under Subsection (1), he shall be allowed time for a period of not less than thirty days for production of relevant books of account and documents.”
(underlined for emphasis)


11. As per sub-section (1) of Section 42 of the OVAT Act, where the tax audit conducted under Section 41 of the OVAT Act results in the detection of suppression of purchases or sales, or both, erroneous claims of deductions, evasion of tax or contravention of any provisions of this Act affecting the tax liability of the dealer, the assessing authority serves on such dealer a notice in the form and manner prescribed along with a copy of  the Audit Visit Report, requiring him to appear in person and produce or cause to be produced such books of account and documents relying on which he intends to rebut the findings and estimated loss of revenue in respect of any tax period or periods as determined on such audit and incorporated in the Audit Visit Report.


12. Sub-section (2) of Section 42 provides that where a notice is issued to a dealer under sub-section (1) he shall be allowed time for a period not less than thirty days for production of relevant books of account. The use of the expressions “shall” and “not less than thirty days” make it amply clear that the Assessing Officer is bound to allow minimum thirty days time for production of books of account and documents. On a plain reading of sub-section (2), it further reveals that discretion is vested on the Assessing Officer to allow time more than thirty days for production of books of account, but he has no jurisdiction to allow less than thirty days’ time for production of books of account.


13. Law is well-settled that when the statute requires to do certain thing in certain way, the thing must be done in that way or not at all. Other methods or mode of performance are impliedly and necessarily forbidden.

The aforesaid settled legal proposition is based on a legal maxim “Expressio unius est exclusion alteris” meaning thereby that if a statute provides for a thing to be done in a particular manner, then it has to be done in that manner and in no other manner and following other course is not  permissible. [See Taylor v. Taylor, (1876) 1 Ch.D.426; Nazir Ahmed v. King Emperor, AIR 1936 PC 253; Ram Phal Kundu v. Kamal Sharma; and Indian Bank’s Association v. Devkala Consultancy Service, AIR 2004 SC 2615, Gujarat Urja Vikas Nigam Ltd. –v- Essar Power Ltd., (2008) 4 SCC 755)].


14. If the notice issued is invalid for any reason, then the proceeding initiated in pursuance of such notice would be illegal and invalid. Section 42 (2) of the OVAT ACT is a mandatory provision not with regard to any procedural law, but with regard to a substantive right. Any infirmity or invalidity in the notice under Section 42(2) of the OVAT Act goes to the root of jurisdiction of the Assessing Authority. Issue of notice under Section 42(2) of the OVAT Act is a condition precedent to the validity of any assessment under Section 42 of the OVAT Act. Therefore, if the notice issued for assessment is invalid, the assessment would be bad in law. Hence, the notice for assessment of tax without allowing the minimum period of 30 days for production of the books of account and documents is invalid in law and consequentially, the order of assessment and demand notice passed/issued are not sustainable in law.


15. In the instant case, notice for assessment of tax basing on the audit visit report was issued in Form VAT-306 dated 30.12.2006 requiring the petitioner to appear in person or through his authorized agent before the Assessing Officer on 12.01.2007 and produce or cause to be produced the books of account and documents for the period from 01.04.2005 to  31.07.2006. Thus, notice in Form VAT-306 shows that minimum time as provided under sub-section (2) of Section 42 of the OVAT Act has not been granted to the petitioner. Thus, it is a clear case of violation/infraction of mandatory provisions of Section 42(2) of the OVAT Act. Therefore, the notice for assessment of tax in pursuance of audit visit report is invalid.


16. In view of the above, order of assessment passed in pursuance of notice in Form VAT-306 issued in violation of requirement of Section 42(2) of the OVAT Act is bad in law.


17. For the reasons stated above, we quash the impugned order of assessment dated 12.01.2007 passed under Annexure-1 and consequential demand notice for the period from 01.04.2005 to 31.07.2006.


18. In the result, the writ petition is allowed, but in the circumstances without any order as to costs.


…………………………..
B.N. Mahapatra, J.


I.Mahanty, J. I agree.

………………………..
I.Mahanty, J.


Orissa High Court, Cuttack
The 25th September, 2014

/bks/skj/ss

HIGH COURT OF ORISSA: CUTTACK.

W.P.(C) NO.165 OF 2009

In the matter of an application under Articles 226 and 227 of the
Constitution of India.
-----------

M/s. Chandrika Sao, represented
through its proprietor Sri Chandrika Sao
... Petitioner

-Versus-
Sales Tax Officer, Balasore Range, Balasore and another
... Opp. parties

For Petitioner : M/s. Prakash Ku. Jana & S.C. Sahoo
For Opp. Parties : Mr. R.P. Kar, Standing Counsel


P R E S E N T:
THE HONOURABLE SHRI JUSTICE I.MAHANTY
AND
THE HONOURABLE SHRI JUSTICE B.N. MAHAPATRA

Date of Judgment: 26.11.2014


B.N. MAHAPATRA, J.

This writ petition has been filed with a prayer for quashing the order of assessment dated 18.6.2008 (Annexure-1) passed by opposite party no. 2-Assessing Authority under Section 42 of the Orissa Value Added Tax Act, 2004 (hereinafter referred to as “OVAT Act”) for the tax period from 1.4.2005 to 30.11.2006 on the ground that the said order is barred by limitation and has been passed without complying with the statutory requirement of Section 42 (2) of the OVAT Act and is in gross violation of the principles of natural justice.


2. The petitioner’s case in nutshell is that it is a proprietorship concern dealing with gunny bags on wholesale basis and it is registered under the OVAT Act. It has filed its return for the tax period from 1.4.2005 to 30.11.2006. Opposite party no. 1-Sales Tax Officer, who is the head of the Audit Team, after conducting audit at the business premises of the petitioner for the aforesaid tax period submitted the Audit Visit Report to the Assistant Commissioner of Sales Tax on 12.12.2006 for completion of audit assessment under Section 42 of the OVAT Act. On the basis of the Audit Visit Report, opposite party no.2-Assessing Authority issued notice to the petitioner in Form VAT-306 under memo no. 6477 dated 23.8.2007 enclosing the Audit Visit Report dated 12.12.2006 for the aforesaid tax period.

The Assessing Authority vide its order dated 18.06.2008 passed an ex parte assessment order under Section 42 of the OVAT Act for the aforesaid tax period raising a demand of Rs. 38,03,766/- which includes penalty of Rs. 25,35,844/-. The said assessment order was issued under Memo No.4774 dated 24.10.2008 and was received by the petitioner on 24.11.2008. Hence, the present writ petition.


3. Mr. P.K. Jena, learned counsel appearing for the petitioner submitted that as per sub-section (6) of Section 42 of the OVAT Act, an assessment under Section 42 of the OVAT Act shall be completed within a period of six months from the date of receipt of the Audit Visit Report, but the proviso to sub-section (6) says that if for  any reason, the assessment is not completed within the time specified in sub-section (6) i.e. within six months from the date of receipt of the Audit Visit Report, the Commissioner may, on the merit of each such case, allow such further time not exceeding six months for completion of the assessment proceeding. Sub-section (7) of Section 42 provides that no order of assessment shall be made under sub-section (3) or sub-section (4) of Section 42 of the OVAT Act after expiry of the period of one year from the date of receipt of the Audit Visit Report. The Audit Visit Report having been submitted on 12.12.2006, the last date for completion of the audit assessment under Section 42 of the OVAT Act expired on 11.06.2007. The assessment order under Annexure-1 having been passed on 18.6.2008, it is clearly barred by limitation prescribed under sub-section (6) of Section 42 of the OVAT Act.

Hence, the said order of assessment is liable to be quashed.

Mr. Jena further contended that the notice for audit assessment under Section 42 of the OVAT Act was issued on 23.8.2007 enclosing the Audit Visit Report submitted to the Assessing Authority on 12.12.2006, which is much after expiry of the period of limitation of six months on 11.06.2007. He further contended that if the statute requires to do a thing in a particular manner, the authority is to follow the same. In support of his contention, he relied upon the judgment of this Court dated 25.9.2014 passed in W.P.(C) No. 2971 of 2009 in the case of M/s. Delhi Foot Wear –v- Sales Tax Officer and others.

It was also submitted that the order of assessment under Annexure-1 is not sustainable in law as the same has been antedated.


4. Mr. R.P. Kar, learned Standing Counsel appearing for the Revenue, on the contrary, submitted that the notice for audit assessment was issued on 23.8.2007 and the order of assessment has been passed on 18.6.2008, which is within one year from the date of issuance of notice for assessment and therefore the same is not barred by limitation. In similar circumstances, this Court vide order dated 22.8.2013 in W.P.(C) No. 11647 of 2010 in the case of M/s. Chandramani Engineers –v- Commissioner of Sales Tax quashed the order of assessment and remanded the matter back to the Assessing Officer to exercise his power under proviso to Rule 12 (3)(h) of the CST (O) Rules and thereafter pass fresh order of assessment by assigning reasons.

Mr. Kar further submitted that due to clerical mistake, there has been a delay of four months in dispatching the order of assessment. Therefore, the allegation that the order of assessment has been antedated and passed after expiry of the period of limitation is not correct. Since the impugned order of assessment was served within four months, it cannot be said that there is an unreasonable delay. Therefore, no adverse inference can be drawn. In support of his contention, he relied upon the judgment of Andhra Pradesh High Court in the case of Shaw Wallace and Co. Ltd. –v- State of Andhra Pradesh, reported in (1997) 104 STC 497.


5. On the rival contentions of the parties, the following questions arise for consideration by this Court.

(i) Whether the impugned order of assessment dated 18.6.2008 under Annexure-1 has been passed within the period of limitation?

(ii) Whether the impugned order of assessment dated 18.6.2008 under Annexure-1 has been antedated and passed after expiry of the period of limitation?


6. To deal with the Question No. (i), it may be relevant to note that on 12.12.2006, opposite party no. 2-Assessing Authority has received the Audit Visit Report. As per the provisions of sub-section (6) of Section 42 of the OVAT Act, which stood at the relevant time, the assessment under Section 42 of the OVAT Act shall be completed within a period of six months from the date of receipt of the Audit Visit Report. In view of the said provision, the period of limitation of six months for completion of the audit assessment expired on 11.06.2007. It was contended by the Revenue that this Court in the case of M/s. Lalchand Jewellers Private Limited –v- Assistant Commissioner of Sales Tax, Puri Range, Bhubaneswar in W.P.(C) No. 11864 of 2007 disposed of on 9.10.2007 held that the period of limitation of six months shall run from the date of receipt of the Audit Visit Report by the assessee. Further contention of the Revenue is that since the assessment order has been passed within one year from the date of issuance of notice for audit assessment, the assessment is valid in law.

It is true that the order of assessment has been passed within one year from 23.8.2007 i.e. the date of issuance of notice for audit assessment. However, being asked, it was fairly stated by Mr. Kar, learned Standing Counsel for the Revenue that permission of the Commissioner for completion of the assessment proceeding within a further period of six months as provided under proviso to sub-section (6) of Section 42 of the OVAT Act was not obtained prior to or after passing of the assessment order on 18.06.2008.


7. In view of the above, the impugned order of assessment passed under Annexure-1 is bad in law.


8. To deal with the Question No. (ii), it may be relevant to note that the order of assessment was purportedly passed on 18.6.2008 and was communicated to the petitioner on 24.10.2008.

Thus, there is a delay of more than four months in communicating the order of assessment to the petitioner. Explanation of the opposite party-Department is that delay was caused due to clerical mistake and the said delay is not inordinate.


9. The High Court of Andhra Pradesh in the case of Sanka Agencies –v- Commissioner of Commercial Taxes, Hyderabad, (2005) 142 STC 496 held as under.

“We have seen the record. Record also shows that while the impugned order bears the date May 17, 1996, the order was sent to the appellants by despatching it only on November 1, 1996. There is no explanation in the record nor any explanation has been given by the respondent, as no counter is filed. Therefore, there is strong apprehension that in order to give an impression that the impugned order was  passed within the period of limitation, the order bears the dated May 17, 1996, whereas it has been passed much after that. In this connection, the learned Counsel for the appellants has placed reliance on a judgment of the honourable Supreme Court in State of Andhra Pradesh V. M.
Ramakishtaiah & Co. [1994] 93 STC 406, wherein under similar circumstances, the Supreme Court held that in the absence of any explanation, whatsoever, for the delayed service on the petitioner, of the order, the court should presume that the order was not made on the date it was purported to have been made.”


10. In the instant case, there is no explanation for the delay of more than four months caused in issuing the assessment order to the petitioner except stating that due to clerical mistake there has been a delay of four months. Nothing has been stated in detail as to when the order of assessment has been handed over to the dispatch section and who is responsible for such delay. Therefore, we have no hesitation to hold that the order of assessment under Annexure-1 was not made on the date it was purported to have been made. In order to give an impression that the impugned order of assessment was passed within the period of limitation, the order bears the date 18.6.2008 whereas it has been passed much later that.


11. For the reasons stated above, we allow the writ petition and quash the impugned order dated 18.6.2008 passed under Annexure-1 as well as consequential demand notice for the tax period from 01.04.2005 to 30.11.2006.


12. Before parting with the case, we think it proper to bring it to the notice of the Commissioner that this Court in several cases finds that the Assessing Officers are not passing the order in strict  compliance of the provisions of Section 42 of the OVAT Act and/or there is unreasonable delay in communicating the order of assessment to the dealers which often causes huge loss to the Revenue. Therefore, we suggest that the Commissioner may take appropriate steps to block the revenue loss on this account and if necessary, in appropriate cases, Departmental Proceedings may be initiated against the erring officers.

Compliance of the above direction may be intimated to the Registry of this Court within three months from today.


……………....………….
B.N. Mahapatra, J.


I. Mahanty, J. I agree

………....……………..
I. Mahanty, J.


Orissa High Court, Cuttack
Dated 26th November, 2014

/bks/ss/skj

HIGH COURT OF ORISSA: CUTTACK.

W.P.(C) NO.23473 OF 2013

In the matter of an application under Articles 226 and 227 of the Constitution
of India.
-----------

M/s. Jai Balaji Jyoti Steels Ltd.
... Petitioner

-Versus-

Deputy Commissioner of Sales Tax, Rourkela-II Circle, Panposh and others
... Opp. parties

For Petitioner : Mr.J.Sahoo, Sr. Advocate Alok Mohapatra

For Opp. Parties : Mr. R.P. Kar,Standing Counsel

P R E S E N T:
THE HONOURABLE SHRI JUSTICE I.MAHANTY
AND
THE HONOURABLE SHRI JUSTICE B.N. MAHAPATRA

Date of Order: 10.02.2015


B.N. MAHAPATRA, J.

The present writ petition has been filed challenging legality/validity of the order of assessment dated 17.07.2013 passed under Section 43 of the Orissa Value Added Tax Act, 2004 (for short, OVAT Act’) by opposite party No.1-Deputy Commissioner, Sales Tax, Rourkela Circle- 1, Panposh for the tax period 01.04.2008 to 20.05.2011 on the ground that the said order of assessment is illegal, arbitrary, without jurisdiction and has been passed in gross violation of principles of natural justice. The further prayer of the petitioner is to direct the opposite party No.1 to  release the seized documents/statements to the petitioner within a stipulated period of time.


2. Petitioner’s case in a nutshell is that the petitioner at the relevant time was a registered dealer under the provisions of the OVAT Act. For the tax period 01.04.2006 to 30.03.2011, the petitioner had been assessed under Section 42 of the OVAT Act vide assessment order dated 30.03.2011. The petitioner has not been assessed under the OVAT Act under Sections 39, 40, 42 and 44 for the period 01.04.2011 to 25.05.2011. Opposite Party No.2, STO, Investigation Unit, Rourkela Circle-2, Panposh visited the place of business of the petitioner- Company on 20.05.2011. On the date of inspection, without carrying on weighment of the physical stock, Investigating Officer alleged suppression of sale/purchase turnover. Opposite party No.2 without actual verification of the books of account and physical stock at the time of visit wanted production of accounts at his office for which notice in Form VAT 401 was issued to the petitioner fixing the date to 27.05.2011.
In course of inspection, opposite party No.2 seized note books, files, documents vide seizure list dated 20.05.2011. Opposite party No.2 submitted the ex-parte report alleging suppression of purchase/sale turnover against the petitioner suggesting assessment of escaped turnover and tax for the aforesaid tax period. Thereafter, proceeding under Section 43 of the OVAT Act for the tax period 01.04.2008 to 20.05.2011 was initiated by issuing notice dated 28.03.2012 in Form VAT 307 fixing the date for production of regular books of account and documents to 10.05.2012. On the date fixed, i.e., 10.05.2012, the  petitioner appeared through Advocate and filed an application for supply of copies of documents seized by opposite party No.2 on 20.05.2011. The petitioner has also applied to the Assessing Officer for grant of copy of the order sheet and copy of the statement of the Assistant General Manager (Commercial), Sri S.Ladia recorded during inspection and to supply the reasons of reopening the assessment. Opposite party No.1- Deputy Commissioner of Sales Tax, Rourkela-II Circle, Panposh without granting copies of the seized documents and statements merely adjourned the proceeding from time to time and ultimately on 17.07.2013 the impugned order of assessment was passed raising tax and penalty to the tune of Rs.28,43,57,055.00. Hence, the present writ petition.


3. Mr.J.Sahoo, learned Senior Advocate appearing for the petitioner vehemently argued that the Assessing Officer has committed grave error of law in insisting the petitioner to produce the regular books of account and documents, before granting copies of seized documents to the petitioner. The Assessing Officer has legal obligation to release the note books/documents, which were seized from the petitioner and proposed to be utilized in the assessment/reassessment proceeding to the detriment of the assessee. Placing reliance on the orders of this Court in the case of M/s Amar Jyoti Granite (India) Private Ltd. Vs. Sales Tax Officer passed vide order dated 18.01.2007 in W.P.(C) No.15658 of 2006 and M/s. Sarada Store vs. Sales Tax Officer [OJC No.9381 of 1995] disposed of on 11.01.1996, it was submitted that the opposite party No.1 should have granted release of seized documents after  keeping authenticated copy of the same being signed by the assessee. No reasonable opportunity of hearing was afforded to the petitioner to produce the books of account. Placing reliance on the judgment of this Court in the case of Konark Tyres & Trade Vs. State of Orissa & others, (1996) 100 STC 74 (Orissa) and Geeta Industries Ltd. Vs. Commissioner of Sales Tax, (1996) 100 STC 48 (Orissa), it was submitted that the Assessing Officer ought to have communicated the reasons for initiating reassessment proceeding. It was further argued that the learned Assessing Officer has reproduced various figures submitted by opposite party No.2 and without any deliberation and application of judicial mind, as required under Rule 50(4) of OVAT Rules, the Assessing Officer endorsed the allegation raised in the report. Opposite party No.1 has simply noted the seized documents and number of written pages consisting dispatch/sale of sponge iron, iron ore fines, coal fines and accepted the report.


4. The petitioner in the present case cooperated with the Inspecting Officer. The action of opposite party No.1 in retaining seized documents for more than six months is in violation of provisions of Section 73(7) of the OVAT Act. The impugned assessment order has been passed in violation of principles of natural justice as no reason has been assigned for raising such demand. Such action of the Assessing Officer is contrary to the law laid down by the Hon’ble Supreme Court in CCT Vs. Shukla and Brothers, (2010) 4 SCC 785. Placing reliance on the judgment of the Hon’ble Supreme Court in the case of Steel Authority of India Limited Vs. S.T.O., Rourkela (2008) 16 VST 181 (SC) and Raj Kishore  Jha Vs. State of Bihar (2003) 11 SCC 519, Mr.Sahoo submitted that reason is the heart beat of every conclusion and without it the same becomes lifeless. Mr.Sahoo further submitted that as in the meantime, opposite party No.1-Assessing Officer disposed of the assessment proceeding by an ex- parte order, no prejudice will be caused to the interest of the opposite parties to return the seized documents to the petitioner and after granting an opportunity of hearing to the petitioner and examining the regular books of account to redo the assessment.
While concluding his argument, Mr. Sahoo submitted that if this Court is not inclined to grant the relief claimed in the writ petition on merit, the petitioner may be given liberty to avail the alternative statutory remedy by way of filing appeal.


5. Mr.R.P.Kar, learned Standing Counsel for the Commercial Taxes Department submits that there is no infirmity and/or illegality in the impugned assessment order passed under Section 43 of OVAT Act.

The petitioner had been assessed under Section 39 of OVAT Act for the period 01.04.2011 to 25.05.2011 before initiating proceeding under Section 43 of OVAT Act. Placing reliance on the judgment of this Court in the case of Lakhiram Jain and Sons vs. Sales Tax Officer, Rayagada Circle, Rayagada and another, (2009) 21 VST 280 (Orissa), Mr. Kar submitted that in the facts and circumstances of the case, the petitioner is obliged to produce the books of account first and then may ask for copies of the seized documents to give its reply against the allegations raised on the basis of seized documents and physical stock found on the date of inspection. This is necessary as during the course of inspection  and thereafter the petitioner-dealer failed to produce the books of account before the Inspecting Officer. The apprehension of the Department is that the transaction noted in the seized documents were not recorded in the regular books of account maintained by the petitioner and issuance of certified copies of those documents would give scope to the petitioner to manipulate its books of account in line with seized documents. It was further submitted that reasonable and ample opportunities have been afforded to the petitioner to explain the documents seized in course of inspection and thereafter by the Inspecting Officer as well as by opposite party No.1-Assessing Officer.

But the petitioner did not avail the same by producing the books of account on some plea or other which is not legally sustainable. The petitioner having not approached this Court with clean hands it is not entitled to any discretionary relief. The averments made in the writ petition are misleading.


6. On the rival contentions of the parties, following questions fall for consideration by this Court.

(i) Whether in the facts and circumstances of the case, the Assessing Officer is justified in insisting production of books of account before supplying the certified copy of seized document and reason for reopening the assessment?

(ii) Whether reasonable opportunity of hearing has been afforded to the petitioner and thereby the principle of natural justice has been duly complied with before passing the impugned order of assessment?

(iii) Whether opposite party No.1-Assessing Officer is justified in passing the impugned order ex parte?

(iv) Whether the Assessing Officer has passed the impugned assessment order assigning basis/reasoning for determination of the escaped turnover and tax due thereon and thereby the principle of natural justice has been duly complied with?

(v) Whether the Assessing Officer is justified in accepting and relying on the allegations raised in the report in absence of any explanation furnished by the dealer to rebut the same despite availing several opportunities?

(vi) Whether in the facts and in the circumstances of the case, it would be appropriate/legally permissible to set aside the ex parte assessment order and direct the Assessing Officer to return the seized document of the petitioner and after granting an opportunity of hearing to the petitioner and examining the regular books of account with reference to the seized documents to redo the assessment and by that no prejudice will be caused to the interest of the State?

(vii) Whether the prayer of the petitioner to grant it liberty to prefer appeal in case it fails to succeed in the present writ petition can be accepted?


7. Question No.(i) is as to whether the Assessing Officer is justified in insisting production of books of account before supplying certified copies of the seized documents and reason for reopening the assessment.

Undisputed facts are that the dealer-petitioner carries on business in manufacturing and sale of sponge iron & M.S. Ingot. For the purpose of manufacturing of sponge iron the dealer, inter alia, uses iron ore, coal and dolomite as raw materials. For manufacturing of M.S. Ingot, the dealer uses sponge iron, pig iron M.S. Scrap, Ferro waste, scrap, slag, C.I. mould C.P.C. and silicon manganese as raw materials. The dealer effects sales inside the State, in course of Inter-state trade and commerce as well as in course of export.

On 20.05.2011, opposite party No.2-Sales Tax Officer, Investigation Unit, Rourkela-II, Panposh visited the place of business of the petitioner-company and in course of inspection, the Inspecting Officer seized the books of accounts consisting of note books, files and other documents vide Annexure-B/1 attached to the petitioner’s additional affidavit dated 12.01.2015 as he has reason to believe that the transactions noted therein apparently revealed evasion of tax revenue.

The books of account consisting of note books, files and other documents seized vide Annexure-B/1 on the date of inspection shall hereinafter be referred to as “seized documents”. During inspection books of account statutorily required to be maintained were not produced before the Inspecting Officer. Subsequently, on receiving a fraud case report from the Deputy Commissioner of Commercial Taxes, Enforcement Range, Sambalpur (hereinafter referred to as “Inspecting Officer”), a proceeding under Section 43 of the OVAT Act was initiated by issuing notice dated 28.03.2012 for assessment of tax on escaped turnover in Form VAT 307 for the above tax period.

In the said notice dated 28.03.2012, the petitioner was informed that the whole/part of sale and purchase for the aforesaid tax period has escaped assessment for which the dealer was required to appear before the opposite party No.1-Deputy Commissioner of Sales Tax, Rourkela Circle, Panposh, Sundargarh on 10.05.2012 with the books of account relating to his business maintained as per OVAT Act and Rules framed there-under. By the said notice, the dealer-petitioner was further informed that in the event of its failure to comply with the terms of that notice, the opposite party No.1 shall proceed to assess the petitioner under Section 43 of the OVAT Act to the best of his judgment.

The petitioner-dealer was also directed to show cause as to why in addition to the amount of tax that may be assessed on it, a penalty equal to twice the amount of tax assessed shall not be imposed on it under sub-Section (2) of Section 43 of the OVAT Act.


8. On receiving the aforesaid notice dated 28.03.2012, the petitioner made an application on 10.05.2012 before opposite party No.1-Assessing Authority stating therein that, “production of Books of Account could not be possible unless we receive certified copy of the documents seized by the Investigation Unit, Rourkela from our factory at Teinsar dated 20.05.2011. Therefore, we request your goodself to kindly allow us time to produce books of account after we receive certified copy of the documents as applied for.”

At this juncture, it may also be relevant to refer Annexure-4 series attached to the writ petition which contain copies of the applications filed by the petitioner-dealer before the Assessing Officer on  various dates. Copy of the application dated 16.07.2013 contains similar reason for not producing books of account. In that application, it is mentioned that “we have not yet received the certified copy of the documents as applied for on 10.05.2012. Unless and until certified copy of the above documents is received we are unable to clarify the allegations made by the Investigation Unit, Rourkela in the said report.”

Letter dated 18.10.2012 reveals that the dealer asked for the reason of reopening the assessment. Further, vide letter dated 27.08.2012, the petitioner intimated opposite party No.1-Assessing Officer that “we request your goodself to kindly intimate us the reason for reopening the case for the period from 01.04.2008 to 20.05.2011 and after which we shall be able to produce books of account as called for.” Again vide letter dated 30.09.2012, the petitioner intimated opposite party No.1- Assessing Authority that “unless and until the report is confronted, the reasons for reopening the case is intimated as well as certified copy as applied for is issued, we will be not in a position to produce the documents for verification”.


9. Now the question arises whether the dealer-petitioner is justified to impose any pre-condition(s) to produce the books of account, i.e., only after receipt of the certified copy of the seized documents and reason for reopening the assessment etc., the petitioner would produce the books of account.


10. As it appears, the Assessing Officer insisted upon production of the books of account time and again without issuing certified copy of  the seized documents and intimating the reason for reopening the assessment.

Let us also examine whether the Assessing Officer is justified in insisting upon production of regular books of account before supplying the copy of the seized documents and the reasons for reopening the assessment.


11. At this juncture, it would be appropriate to refer to the judgment of this Court in the case of Lakhiram Jain and Sons (supra), wherein, the question that fell for consideration before this Court was whether the Assessing Officer is justified in insisting upon production of the books of account for verification before issuing certified copies of the seized documents.

This Court in the said case, taking note of several judgments of this Court and Hon’ble Supreme Court including judgment in the case of Kanak Cement Pvt. Ltd. vs. Sales Tax Officer, [1997[ 105 STC 112 (Orissa) and G.K.N. Driveshafts (India) Ltd. vs. Income Tax Officer, (2003) 259 ITR 19 (SC), held as follows:

“...Needless to say that an assessing authority is entitled to collect the materials behind the back of the assessee. It is not necessary that all the materials so collected by the assessing authority need be confronted to the assessee. Only those materials which the assessing authority wants to utilize against the assessee in assessment is bound to be disclosed to the assessee. In appropriate cases, the assessee can also demand for cross-examination of any person who stated something adverse to him which the assessing authority wants to utilize against the assessee.”

Thereafter, this Court held at which stage the seized documents are to be supplied to an assessee. The relevant portion of the said judgment is reproduced below:-

“Therefore, it cannot be said that the assessing officer has committed any error in insisting upon production of books of account before issuing the certified copy of the seized materials. Production of books of account prior to issuance of certified copy of the seized materials is necessary to rule out the possibility of preparation of accounts in line with the seized documents. This has become further necessary in this case as at no stage books of account were produced earlier at the time of inspection or before the assessing officer. However, we make it clear that where in the course of inspection the inspecting officer seizes incriminating materials as well as regular books of account from the business premises of a dealer, the assessing officer or the inspecting officer shall supply copies of the seized regular books of account and incriminating material (s) to the dealer if he asks for the same before asking the dealer for furnishing his explanation in connection with any proceeding under the OVAT Act.”
(underlined for emphasis)


12. In the instant case, undisputedly, the petitioner did not produce its regular books of account at the time of inspection in its premises on 20.05.2011. It may be relevant to mention here that Section 61(2) of the OVAT Act requires the dealer to keep all its books of account in its place of business. Thereafter, the Inspecting Officer also allowed sufficient time to the petitioner for production of the books of account for the purpose of examination of the same with reference to the seized documents and for this purpose fixed the date to 18.06.2011 and 15.07.2011 on which dates the dealer-petitioner did not produce the same.

The petitioner also did not produce the regular books of account before the Assessing Officer, though several opportunities were provided to the petitioner. On the other hand, it imposed a precondition that only after receiving copy of the seized documents and reason of reopening it will produce the books of account. Such a plea has no legal support.


13. So far as supply of reason for reopening of assessment is concerned, it may be noted here that vide notice dated 28.03.2012 in Form VAT-307 issued under Sub-rule (1) of Rule 50 for initiating reassessment proceeding, the petitioner was intimated that it appeared to the Assessing Officer that its whole/a part of turnover of sales/purchases for the tax period 01.04.2008 to 20.05.2011 has (i) escaped assessment, (ii) has been under assessed. Needless to say that the petitioner is entitled to be intimated the detailed reason as to why it appeared to the Assessing Office that its turnover of sales/purchases for the aforesaid tax period has escaped assessment and/or has been under assessed. Such detailed reason is nothing but the contents of the seized documents which were seized in course of inspection. In the preceding paragraphs a detailed discussion has been made as to why the contents of the seized documents cannot be supplied before production of the regular books of account. The same reason is applicable as to why before production of the regular books of account the detailed reason for initiating reassessment proceeding cannot be supplied to the dealerpetitioner.


14. At this juncture, it may be appropriate to reproduce here the relevant portion of the judgment of the Hon’ble Supreme Court in the case of G.K.N. Driveshafts (India) Ltd. (supra), wherein, it is held as under:

“....when a notice under section 148 of the Incometax Act, 1961, is issued, the proper course of action for the noticee is to file a return and, if he so desires, to seek reasons for issuing notices. The assessing officer is bound to furnish the reasons within a reasonable time”.
(underlined for emphasis)


15. It needs to be noted that production of the books of account is not dependent on the receipt of copies of seized documents and/or knowing of reasons for reopening the assessment. The regular books of account are required to be maintained statutorily and to be in custody of the petitioner. The Assessing Officer had issued notice for production of the regular books of account in the custody of the petitioner. Issuance of copies and supply of reasons are wholly unconnected with production of the regular books of account. As noted (supra), there is ample scope for manipulation. It was open to the petitioner to contend that all transactions noted in seized documents are entered in the regular the books of account.


16. In view of the above, the Assessing Officer is justified in insisting upon the production of the books of account before supplying certified copy of the seized documents and reason for reopening the assessment and the action of petitioner-dealer in not producing the books of account pursuant to the statutory notice and subsequent  intimation on the plea that the same would be produced after receipt of copies of the seized documents is contrary to law and mala fide.


17. The order of this Court dated 11.01.1996 passed in W.P.(C) No.9381 of 1995 and the order of this Court dated 18.01.2007 passed in W.P.(C) No.15658 of 2006 are of no assistance to the petitioner, since, in those cases the Department has seized the regular books of account of the dealers and in the first case the petitioners had made a prayer to release those regular books of account for the purpose of producing before the Sales Tax Officer in reassessment proceeding under Section 12(8) and in second case for tax audit, this Court directed release of those books of account after keeping authenticated copy of the same. In the instant case, the regular books of account have not been seized by the Department and the same are lying with the petitioner.


18. Questions No.(ii) and (iii) being interlinked, they are dealt with together.

The questions are whether reasonable opportunity of hearing has been afforded to the petitioner and thereby principle of natural justice has been complied with before utilizing the incriminating materials seized from its business premises against the petitioner and Assessing Officer is justified in passing the impugned order ex parte.


19. When a proceeding under Section 43 of the OVAT Act is initiated on the basis of a report submitted by any agency, the assessee is entitled to be heard at two stages, i.e., (i) in course of inspection of the business premises till submission of the report by the inspecting officer, (ii) after commencement of the re-assessment proceeding by issuance of  notice for assessment of tax on escaped turnover till order under Section 43 of the OVAT Act is passed.

20. In the instant case, undisputedly in course of inspection of the business premises of the petitioner on 20.05.2011, the inspecting team found ten sets of written documents indicating materials received and dispatched and stock etc. Since the Asst. General Manager (Commercial) of the Company, on the date of visit did not produce the regular books of account and failed to explain the contents of the said documents, the Inspecting Officer seized those documents, in exercise of power under Section 73(6) of the OVAT Act and the dealer was issued with a notice in Form VAT 401 requiring it to produce the books of account. It may be relevant to mention here that Section 61(2) of the OVAT Act provides that every registered dealer shall keep, at his place of business as recorded in the certificate of registration, all accounts, registers and documents maintained in the course of business: provided that if any such dealer has established branch offices of the business at different places of the State other than the principal place of his business, the relevant accounts, registers and documents in respect of each such branch shall be kept by him at the concerned branch. On the date of inspection, statement was recorded on S.A. from Sanjay Kumar Ladia, the Asst. General Manager (Commercial) of the Company and he undertook to produce books of account/documents as indicated in Form VAT 401 on 27.05.2011. On 27.05.2011, no books of account/documents was produced as required under Form VAT 401 and undertaken by the dealer. However, two petitions were moved on  24.05.2011 and 16.06.2011 seeking time for production of books of account. On these two time petitions, the date was adjourned to 18.06.2011 and 15.07.2011 respectively for production of books of account. But on those two dates, the dealer did not produce his books of account.


21. It may be appropriate to reproduce here the relevant portion of the assessment order:

“In pursuance to the information gathered from a reliable source; as regards to the clandestine business activity and irregular maintenance of the books of account by the above named dealer. The Enforcement Team, headed by the by the Sales Tax Officer along with three Asst. Sales Tax Officers of the Investigation Unit, Rourkela has been visited the place of business on dt. 20.05.2011 at about 1.15 P.M. as per U/s 73(4) of the O.V.A.T. Act, 2004. At the time of visit, to the manufacturing unit, Sri Sanjay Kumar Ladia, Asst. General Manager Commercial of the Company was present in the factory premises and extend all required co-operation to conduct enquiry into the details business activities of the firm, to examine the detail stock of finished product, raw materials and to verify the complete books of account for the tax period from 01.04.2008 to 20.05.2011. Exhaustive stock of Ms Ingot available in the factory premises are recorded in a separate sheet of paper as dictated, counted and reported by the factory supervision who has signed on it and later on validated by the Asst. General Manager Commercial of the company. In course of inquiry 10 sets of written documents, indicating the materials received and dispatched were found in the business premises. In the event of not explained the written contents of the said documents by the Asst. General Manager Commercial of the company on the date of visit, these were seized as per U/s. 73(6) of the OVAT Act and detail copy of it was handed over to him for future reference for production of books of account and for verification of the seized documents. The person contacted failed to produce the complete books of account on the date of visit.

Hence, he was asked to submit the same as per notice in Form VAT 401 issued on that date. A statement in  that regard was recorded on S.A. from Sri Sanjay Kumar Ladia, the Asst. General Manager Commercial Company and he was undertaken to furnish relevant documents as sought in the notice in Form VAT 401 issued on the date of visit, fixing the date on 27.05.2011 at 09 A.M. in the office, Investigation Unit, Rourkela.

In response to the notice, the authorized signatory of the Company filed time petition on 24.05.2011 and 16.06.2011 to adjourn the date for production of books of account as per the date and time intimated on the notice. So, accordingly, the date was adjourned to 18.06.2011 and 15.07.2011 respectively. But in spite of giving adequate opportunity of being heard, the dealer company did not turn up to produce books of account for verification. Thus, in the absence of adequate cooperation received from the seized documents in the file. The report is completed to be prepared on exparte in the above circumstances.”
(underlined for emphasis)


22. In the above circumstances, the Inspecting Officer submitted his report after analyzing the seized documents and treating the transaction of sale and purchase recorded therein as suppressed transactions.


23. Before the Assessing Officer, hearing commences on issuance of the notice for assessment of tax on escaped turnover in Form VAT 307 under sub-rule (1) of Rule 50. Notice for assessment of tax on escaped turnover in Form VAT 307 was issued to the petitioner on 28.03.2012 through process server fixing the date to 10.05.2012.

Pursuant to the said letter, the petitioner filed a time petition and the case was adjourned and posted to 06.06.2012. Since the petitioner did not turn up on the date fixed, one more intimation was issued to the petitioner. On 18.07.2012, the petitioner again moved a time petition.

Thereafter, two more intimations were issued to the petitioner. On those  dates, the dealer did not produce the books of account. However, in response to notice dated 11.10.2012, the petitioner filed a petition to intimate him the reasons of reopening the case. On 27.06.2013, another intimation was issued to the dealer fixing the date to 16.07.2013. On that date, the dealer failed to appear before the Assessing Officer to produce the books of account. Thereafter, the impugned ex parte assessment order was passed.

Thus, it may be seen that though several opportunities were given by the Assessing Officer for hearing, the petitioner-dealer did not produce the books of account on some plea or other, which is not legally sustainable and/or contrary to law.


24. In the above facts situation, we are of the considered view that reasonable opportunity of hearing has been afforded to the petitioner and thereby principle of natural justice has been duly complied with before passing the impugned assessment order and the Assessing Officer is fully justified in passing the said order ex parte.


25. Question Nos.(iv) and (v) being interlinked, they are dealt with together.

The questions are whether any basis/reason has been assigned for determination of the escaped turnover and levy of tax thereon in the impugned assessment order and the Assessing Officer is justified in accepting the allegations raised in the report.


26. Law is well-settled that the Assessing Officer has to assign reasons in support of its determination of escaped turnover and the tax sought to be levied thereon. But where the Assessing Officer  concurs with the conclusions, which are based on materials as expressed by the Inspecting Officer and he has no additional material to record its findings, in its order, the said order cannot be vitiated merely because it concurs with reasons assigned by the Inspecting Officer to determine the escaped turnover and levying tax thereon.


27. It may be relevant to refer here the judgment of the Hon’ble Supreme Court in the case of CIT Vs. K.Y.Pilliah and Sons, 63 ITR 411, wherein it is held that the Income Tax Appellate Tribunal is the final fact finding authority and normally it should record its conclusion on every disputed question raised before it, setting out its reasons in support of its conclusion. But, in failing to record reasons, when the Appellate Tribunal fully agrees with the view expressed by the Appellate Assistant Commissioner and has no other ground to record in support of its conclusion, it does not act illegally or irregularly, merely because it does not repeat the grounds of the Appellate Assistant Commissioner on which the decision was given against the assessee or the Department.

The above decision of the Hon’ble Supreme Court implies that the Tribunal is not required to repeat the reasons, when it agrees with the reasoning given by the learned CIT(A) in the impugned order.


28. The reasons assigned by the Assessing Officer in the assessment order for accepting the allegations raised in the report is reproduced below:

“In view of the above allegation, it was considered necessary to reopen the case for assessment U/s.
43 of the O.V.A.T. Act, 2004. Accordingly, a notice  for assessment of tax on escaped turnover in Form VAT 307 (sub-rule (1) of Rule 50) of the O.V.A.T. Act) was issued to the dealer on dated 28.03.2012 through process server fixing the date to 10.05.2012. The dealer has responded the notice and filed time petition. The case is consider and posted to 06.06.2012. On dt. 06.07.2012 the dealer has not responded, hence issued one more intimation to the dealer. But the dealer has filed time petition on dt. 18.07.2012. Again two more intimation issued to the dealer, at last the dealer Ld. Advocate Mr. D.K. Agarwal appeared and filed petition for reason of reopening the case, the case is partly heard. On dt. 27.06.2013 issued intimation to the dealer fixing date to 16.07.2013.

The dealer has failed to appear before the under signed and not produced the books of accounts for verification. It is clear that, the intention of the dealer is not to cooperate for completion of assessment proceedings. Hence looking no other way, the assessment is completed to the best of judgment. Considering the allegation contained in the tax evasion report submitted by D.C.C.T., Enforcement, Sambalpur as true and correct, the re-assessment order is decided on ex parte basing on the information and materials available in the record on merit.”
(underlined for emphasis)


29. There is no quarrel over the legal proposition that there should be some reasoning recorded for declining or granting relief. The Hon’ble Supreme Court in the case of Shukla and Brothers (supra)
held that requirement of recording of reasoning necessarily does not mean a very detailed or lengthy order.

In the instant case, the Assessing Officer has given the basis/reasons in support of determination of the escaped turnover and tax due thereon.


30. As stated above, in course of inspection on 20.05.2011, the petitioner failed to explain 10 sets of documents found by the  inspecting team in its place of business. After the inspection, though opportunities were afforded to the petitioner to produce the books of account for verification, the dealer did not produce the books of account. Further, the petitioner-dealer also failed to produce the books of account before the Assessing Officer though several opportunities were afforded to it. In the assessment order, the Assessing Officer has reproduced various allegations/ conclusions of the Investigating Officer against the petitioner and calculation of the amount of tax alleged to have been evaded by the petitioner during the tax period. Perusal of the assessment order reveals that the amount of tax alleged to have been evaded is based on the transaction of sales and purchases noted in the seized documents and physical stock found on the date of inspection.


31. In view of the above, it cannot be said that the Assessing Officer without assigning any reason has passed the impugned order of assessment in violation of Rule 50(4) of the OVAT Rules and principles of natural justice has not been duly complied with and the Assessing Officer has committed any wrong in accepting the allegations raised in the report of the Investigation Officer.


32. Question No.(vi) is Whether in the facts and in the circumstances of the case, it would be appropriate/legally permissible to set aside the ex parte assessment order and direct the Assessing Officer to return the seized documents of the petitioner and after granting an opportunity of hearing to the petitioner and examining the regular books of account with reference to the seized documents to redo the  assessment and by that no prejudice will be caused to the interest of the State.


33. Admittedly, in the present case, an ex parte assessment order has been passed due to non-production of the books of account by the petitioner-dealer before the Assessing Officer for the purpose of examination of the same with reference to the seized documents. As stated above, the petitioner also did not produce its books of account before the Inspecting Officer.


34. It may be relevant to mention here that the statute provides under which circumstances an ex parte order can be passed by the Assessing Officer. If such a power is not vested with the Assessing Officer then unscrupulous/ dishonest businessmen who have indulged in clandestine business to evade tax shall escape from payment of legitimate tax due to the State, simply by not producing the books of account /documents for verification with reference to the incriminating materials collected and refraining themselves from participating in the assessment proceeding on some plea or other.


35. Needless to say that all ex parte orders need not be set aside by higher court/authority for giving further opportunity of hearing to the party against whom ex parte order has been passed.

Whether an ex parte order is to be set aside for giving further opportunity of hearing or not, it always depend on facts and circumstances of each case. There are certain cases where if ex parte orders are set aside to give an opportunity of hearing to the aggrieved parties that may amount to granting a boon to such parties, as they  would be able to achieve their unholy purpose and in that case the very purpose of passing ex parte order is frustrated.

For example, in the instant case, the petitioner-dealer did not only fail to produce the regular books of account during inspection of its business premises nor before the Assessing Officer and instead offered to produce the same only after receiving copies of the seized documents and reason of reopening. The obvious reason for putting forward such a pre-condition is that the petitioner wanted to know the contents of seized documents before production of regular books of account so that he could be able to manipulate/prepare its regular books of account, in line with contents of the seized document.

Despite a number of opportunities being allowed to produce the regular books of account, the dealer-petitioner did not produce the same and thereby the Assessing Officer was compelled to pass the assessment order ex parte disclosing the contents of the seized documents in the assessment order. If the said ex parte order is set aside and the dealer would be given an opportunity to produce its regular books of account before the Assessing Officer, the dealer could easily incorporate in its regular books of account the entries recorded in seized documents and thereafter produce the manipulated/ prepared books of account. In that event, the very purpose of conducting surprise visit to the place of business of a dealer to find out as to whether all the business transactions are recorded in regular books of account and tax due thereon has been paid shall be frustrated and a dealer who was indulged in clandestine business will  be benefited due to setting aside of an ex parte order to give him a further opportunity, to produce his regular books of account for the purpose of examining those with reference to seized documents.


36. Further, though the contents of the seized documents have been disclosed in the impugned assessment order (Annexure-3), no averment has been made in the writ petition explaining the contents of the seized documents. No averment has also been made as to how the transactions noted in the seized documents have been accounted for in the regular books of account and whether tax due on those transactions has been paid. In course of hearing also, no material has been brought before us to show as to how the transaction noted in the seized documents are recorded in the regular books of account and that why the determination of escaped turnover and calculation of tax thereon on the basis of seized documents are in any manner wrong/incorrect. Similarly also the physical stock of 71.400 MT of MS ingot found in the business premises of the dealer-petitioner on the date of inspection by the Inspecting Party has not been explained at any point of time with reference to regular books of account.


37. For the reasons stated above, we are of the considered view that serious prejudice shall be caused to the interest of the State, if after disclosure of the entries made in the seized documents in the ex parte assessment order, the said order will be set aside and an opportunity would thereafter be given to the petitioner-dealer to produce its regular  books of account for the purpose of examination of the said accounts with reference to the seized documents.


38. Question No.(vii) is whether the prayer of the petitioner to give it liberty to prefer appeal in case it fails to succeed in the present writ petition on merit can be granted to the petitioner.


39. The above prayer of the petitioner is misconceived and cannot be granted. Needless to say that if the High Court is called upon to decide the legality of an order of assessment on its own merit, it would be a futile exercise to relegate the petitioner-dealer to approach the statutory appellate authority after the High Court deciding the case on merit. Therefore, the plea of the petitioner that this Court can after adjudicating the merits of the issues involved grant liberty to the petitioner to avail statutory remedy is fallacious and such a prayer of the petitioner cannot be allowed. It may be relevant to note that when the above prayer was advanced by Mr. Sahoo, Senior Advocate in course of his argument, he was specifically asked as to whether he wants to withdraw the writ petition and approach the appellate authority, he categorically denied the same and persisted with the above prayer.


40. For the reasons stated above, the writ petition is dismissed.


……………....………….
B.N. Mahapatra, J.


I. Mahanty, J. I agree.

..................………..
I. Mahanty, J.


Orissa High Court, Cuttack
Dated 10th February, 2015

/ss/skj


ORISSA HIGH COURT: CUTTACK

W.P.(C) No.31251 of 2011

In the matter of an application under Articles 226 and 227 of the
Constitution of India.
__________

M/s Balaji Tobacco Store
… Petitioner.

-Versus-

The Sales Tax Officer, Cuttack-I East Circle, Cuttack
… Opposite Party

For petitioner : Mr. B.P.Mohanty, N.Paikray, K.K.Sahoo, J.J.Pradhan & S.K.Patel

For Opp. Parties : Mr.M.S.Raman Addl. Standing Counsel for Commercial Taxes Deptt.
------------

P R E S E N T:
THE HONOURABLE MR. JUSTICE I.MOHANTY
AND
THE HONOURABLE MR. JUSTICE B.N. MAHAPATRA

Date of Judgment 18.03.2015

B.N.Mahapatra, J.


This Writ Petition has been filed with a prayer for quashing the order of assessment dated 27.05.2011 passed under Section 42 of the Orissa Value Added Tax Act, 2004 (for short, ‘OVAT Act’) by the opposite party-Sales Tax Officer, Cuttack-1 East Circle, Cuttack (hereinafter referred to as ‘Assessing Authority’) for the period 29.03.2006 to 30.11.2008 under Annexure-1 on the ground that the Assessing Authority has no authority/jurisdiction to pass the said order.


2. In the Writ Petition, though several grounds have been taken to challenge the order of assessment, Mr.B.P.Mohanty, learned counsel for the petitioner confines his argument to one ground, i.e., the impugned order of assessment dated 27.05.2011 passed under Section 42 of the OVAT Act for the period 29.03.2006 to 30.11.2008 is not sustainable in law since the opposite party-Assessing Authority by order of assessment dated 25.09.2006 has already assessed the petitioner under Section 43 of the OVAT Act and levied tax at the rate of 4% on un-manufactured tobacco for the period 24.01.2006 to 31.07.2006, which was included in the present tax period. According to Mr. Mohanty no assessment order under Section 42 of the OVAT Act can be passed after completion of the assessment under Section 43 of the OVAT Act for the self same period. It was further submitted that this action of the opposite party also amounts to taxing the same turnover twice for which assessment order is bad in law.


3. Mr.M.S.Raman, learned Additional Standing Counsel for the Revenue submitted that both the Sections, i.e., Section 42 and Section 43 operate in different fields for the purpose of assessment under the OVAT Act. The Assessing Authority is vested with the jurisdiction/power to make assessment either under Section 42 or Section 43 of the OVAT Act, as the case may be. There is no legal bar to make assessment under Section 42 of the OVAT Act after completion of assessment under Section 43 of the said Act for the self-same period(s).


4. On rival contentions of the parties, the only question that falls for consideration by this Court is as to whether the Taxing authority has jurisdiction to make audit assessment under Section 42 of the OVAT Act after completion of the assessment under Section 43 of the said Act for the self-same tax period(s) ?


5. The dispute involved in the present writ petition lies in a narrow compass. Undisputed facts are that the petitioner is registered under the OVAT Act. The petitioner has been assessed under Section 43 of the OVAT Act for the period 24.01.2006 to 31.07.2006 vide assessment order dated 25.09.2006 and the said period is again included in the assessment order dated 27.05.2011 passed under Section 42 for the tax period 29.03.2006 to 30.11.2008 impugned in the present writ petition.


6. The Scheme of the OVAT Act read with OVAT Rules provides a complete mechanism for making different types of assessment for the purpose of determination of tax liability under the said Act. Such assessments, as provided under sub-section (5) of Section 2 of the OVAT Act, are self assessment (section 39), provisional assessment (section 40), audit assessment (section 42), assessment of escaped turnover (section 43), assessment of unregistered dealer liable to be registered (section 44) and assessment of casual dealer (section 45). In the present case, we are concerned with audit assessment and escaped assessment.


7. The relevant provisions of those two Sections necessary for our purpose are extracted hereunder:

“42. Audit assessment .— (1) Where the tax audit conducted under sub-section (3) of Section 41 results in the detection of suppression of purchases or sales, or both, erroneous claims of deductions including input tax credit, evasion of tax or contravention of any provision of this Act affecting the tax liability of the dealer, the assessing authority may, notwithstanding the fact that the dealer may have been assessed under Section 39 or Section 40, serve on such dealer a notice in the form and manner prescribed along with a copy of the Audit Visit Report, requiring him to appear in person or through his authorized representative on a date and place specified therein and produce or cause to be produced such books of account and documents relying on which he intends to rebut the findings and estimated loss of revenue in respect of any tax period or periods as determined on such audit and incorporated in the Audit Visit Report.”

xx xx xx
(Underlined for emphasis)

43. Turnover escaping assessment.—

(1) Where, after a dealer is assessed under Section 39, 40, 42 or 44 for any tax period, the assessing authority, on the basis of any information in his possession, is of the opinion that the whole or any part of the turnover of the dealer in respect of such tax period or tax periods has—


(a) escaped assessment, or
(b) been under-assessed, or
(c) been assessed at a rate lower than the rate at which it is assessable; or that the dealer has been allowed—

(i) wrongly any deduction from his turnover, or (ii) input tax credit, to which he is not eligible, the assessing authority may serve a notice on the dealer in such form and manner as may be prescribed and after giving the dealer a reasonable opportunity of being heard and after making such enquiry as he deems necessary, proceed to assess to the best of his judgment the amount of tax due from the dealer.
xx xx xx”
(Underlined for emphasis)


8. It may also be necessary for our purpose to extract here the relevant portion of Rule 49 and Rule 50 of the OVAT Rules, 2005.

“49. Audit assessment.—

(1) If the tax audit conducted under Section 41 results in findings, which the assessing authority considers to be affecting the tax liability of a dealer for a tax period or tax periods, such authority shall serve a notice in Form VAT-306 along with a copy of the audit visit report, upon such dealer, directing him to appear in person or through his authorized representative on such date, time and place, as specified in the said notice for compliance of the requirements of sub-rules (2) and (3).

xx xx xx

50. Assessment of escaped turnover.—

(1) Where a dealer has already been assessed under Section 39, 40, 42 or 44 and it is required to reopen the assessment under sub-section (1) of Section 43 for occurrence of any or more of the events specified in that sub-section, the assessing authority shall serve a notice in Form VAT-307 upon the dealer.

xx xx xx”
(Underlined for emphasis)


9. The language of Section 43 of the OVAT Act read with Rule 50 of the OVAT Rules contemplates that assessment under Section 43 of the OVAT Act can be made after a dealer is assessed either under Sections 39, 40, 42 or 44 for any tax period, on the basis of information in possession of the assessing authority, and he is of the opinion that the whole or any part of the turnover of the dealer in respect of such tax period or tax periods has (i) escaped assessment, or (ii) has been under-assessed, or (iii) has been assessed at a rate lower than the rate at which it is assessable, or (iv) that the dealer has been allowed.— (a) wrongly any deduction from his turnover, (b) input tax credit to which he is not eligible.


Therefore, assessment of escaped turnover under Section 43 of the OVAT Act can be made even after completion of audit assessment under Section 42 of the said Act for selfsame tax period. But, this does not mean that no assessment under Section 43 of the OVAT Act can be made without completion of assessment under Section 42 of the said Act. As stated above, assessment under Section 43 can be made after a dealer is assessed under Sections 39, 40, 42 or 44 for any tax period on fulfillment of the condition (s) stated in Section 43.


10. Needless to say that escapement of turnover from assessment cannot be predicted before the assessment is completed. Therefore, only in case of completion of assessment either under Section 39, 40, 42 or 44, the escaped assessment as provided under Section 43 can be invoked for the  occurrence of any or more of the events stated in Section 43. Thus, a turnover cannot be said to be escaped assessment if proceeding in respect of assessment under either of the Sections referred to in Section 43 are pending and no final order of assessment has been passed. A proceeding is said to be pending as soon as it commences and until it is concluded. Only after final order of assessment, it can be said whether the whole or any part of the turnover of the dealer has escaped assessment.


11. At this juncture, it would be beneficial to look at the beginning words appearing in Section 43 of OVAT Act and Rule 50(1) of the OVAT Rules. Section 43 starts with “where, after a dealer is assessed under Section 39, 40, 42 or 44.....” and Rule 50 starts with “where a dealer has already been assessed under Section 39, 40, 42 or 44 and it is required to reopen....”. Use of the above words in Section 43 and Rule 50(1) makes the legislative intent clear that only after a dealer is assessed or has already been assessed under Sections 39, 40, 42 or 44 of the OVAT Act, reassessment proceeding can be initiated under Section 43 of the OVAT Act.


12. Now, if we closely look at Section 42, which speaks of audit assessment, we will find that where the tax audit conducted under subsection (3) of Section 41 results in detection of suppression of purchase or sale or both, erroneous claims of deduction including input tax audit, evasion of tax or contravention of any provision of the Act affecting the tax  liability of the dealer, the assessing authority may notwithstanding the fact that the dealer may have been assessed under Section 39 or 40, serve on such dealer a notice as prescribed under the Rules along with a copy of the audit visit report for making an audit assessment. Therefore, if audit assessment has to be made after completion of any other assessment provided under the OVAT Act, the same is restricted to assessment made under Section 39 or Section 40 of the OVAT Act and all other types of assessment provided under the said Act are impliedly excluded. If the Legislature in its wisdom has taken away assessment as contemplated under Section 43 from Section 42 for the purpose of making audit assessment, after completion of any other assessment under the OVAT Act, Section 43 cannot be read into Section 42 by the State.


13. At this juncture, it would be beneficial to refer to the following decisions of the Hon’ble Supreme Court.

The Hon’ble Supreme Court in the case of P.K. Unni Vs. Nirmala Industries and others, AIR 1990 SC 933, held as under:

“14. The Court must indeed proceed on the assumption that the legislature did not make a mistake and that it intended to say what it said: See Nalinakhya Bysack v. Shyam Sunder Haldar & Ors., [1953] SCR 533 at 545 : (AIR 1953 SC 148 at p.152).

Assuming there is a defect or an omission in the words used by the legislature, the Court would not go to its aid to correct or make up the deficiency. The Court cannot add words to a statute or read words into it which are not there, especially when the literal reading produces an intelligible result. "No case can  be found to authorise any court to alter a word so as to produce a casus omissus": Per Lord Halsbury, Mersey Docks v. Henderson. [1888] 13 App. Cas. 595, 602. "We cannot aid the legislature's defective phrasing of an Act, we cannot add and mend, and, by construction, make up deficiencies which are left there": Crawford v. Spooner, [1846] 6 Moore P.C. 1, 8,9.

Where the language of the statute leads to manifest contra- diction 489 Of the apparent purpose of the enactment, the Court can, of course, adopt a construction which will carry out the obvi- ous intention of the legislature. In doing so "a judge must not alter the material of which the Act is woven, but he can and should iron out the creases." : Per Denning, L.J., as he then was, Seaford Court Estates v. Asher, [1949] 2 All ER 155 (at 164). See the observation of Sarkar, J. in M. Pentiah & Ors. v. Muddala Veeramallapa & Ors., [1961] 2 S.C.R. 295 at 314 : (AIR 1961 SC 1107 at page 1115).”


14. In Union of India vs. Deoki Nandan Aggarwal, AIR 1992 SC 96, the Hon’ble Supreme Court held as under:

“7.1. It is not the duty of the Court either to enlarge the scope of the legislation or the intention of the legislature when the language of the provision is plain and unambiguous. The Court cannot rewrite, recast or reframe the legislation for the very good reason that it has no power to legislate. The power to legislate has not been conferred on the courts. The Court cannot add words to a statute or read words into it which are not there. Assuming there is a defect or an omission in the words used by the legislature the Court could not go to its aid to correct or make up the deficiency. Courts shall decide what the law is and not what it should be. The Court of course adopts a construction which will carry out the obvious intention of the legislature but could not legislate itself. But to invoke judicial activism to set at naught legislative judgment is subversive of the constitutional harmony and comity of instrumentalities. [885A-D]” 


15. In view of the above settled legal position, Section 43 cannot be read into Section 42 by the State when the Legislature in its wisdom excluded Section 43 from the provisions of Section 42 of the OVAT Act.

Consequentially, no assessment under Section 42 can be made after completion of the assessment under Section 43 for the self-same tax period.


16. The matter can be looked at from a different angle. Under Section 42 of the OVAT Act, audit assessment has to be completed on the basis of the materials available in the audit visit report. There was no scope for the Assessing Authority to utilize any material other than the materials available in the audit report while making the audit assessment. (See Bhusan Power & Steel Ltd. vs. State of Orissa and others, (2012) 47 VST 466 (Orissa).


17. Now, let us see the scope of the assessment under section 43.

Scope of assessment under Section 43 is wider than the assessment provided under Section 42. In a proceeding under Section 43 of the OVAT Act, the Assessing Authority may bring to charge the turnover which had escaped assessment other than or in addition to that turnover which has led to issuance of the notice under Section 43. (See Commissioner of Income Tax vs. Sun Engineering Works Ltd. (1992) 198 ITR 297).


18. At this juncture, it will be relevant to refer to Section 41 of the OVAT Act which provides “Identification of tax payers for tax audit”. Sub- Section (2) of Section 41 of the OVAT Act reads as follows:

“(2) After identification of individual dealers or class of dealers for tax audit under sub-section (1), the Commissioner shall direct that tax audit in respect of such individual dealers or class of dealers be conducted in accordance with the audit programme approved by him.

Provided that the Commissioner may direct tax audit in respect of any individual dealers or class of dealers on out of turn basis or for more than once in an audit cycle to prevent evasion of tax and ensure proper tax compliance.” (Underlined for emphasis)

Rule 41 of the OVAT Rules, 2005 deals with “Selection of dealers for tax audit”. Sub-Rule (2) of Rule 41 provides as follows:

“(2) The Commissioner, where considers it necessary to safeguard the interest of revenue or where any enquiry is required to be conducted on any specific issue or issues relating to any dealer, or class or classes of dealer, on being referred by an officer appointed under sub-section (2) of Section 3, may direct audit to be taken up.” (Underlined for emphasis)


19. Perusal of the above provisions reveals that Section 41(2) of the OVAT Act read with Rule 41(2) of the OVAT Rules empowers the Commissioner to direct audit on any specific issue or issues relating to any dealer or class or classes of dealers on being referred to by subordinate officers to check tax evasion.

Therefore, in case of an assessee, if the Revenue authorities decide not to exercise the power conferred under Section 41(2) of the OVAT Act read with Rule 41(2) of the OVAT Rules to make audit assessment for particular tax period and choose to proceed to complete the assessment under Section 43 of the OAVT Act, it is thereafter not permissible to assess the petitioner under Section 42 of the OVAT Act.


20. The Hon’ble Supreme Court in the case of Institute of Chartered Accountants of India vs. Price Waterhouse and Another, (1997) 6 SCC 312, held as under:

“15. .....It is settled rule of interpretation that all the provisions would be read together harmoniously so as to give effect to all the provisions as a consistent whole rendering no part of the provision as surplusage. Otherwise, by process of interpretation, a part of the provision or a clause would be rendered otiose.”


21. Law is also well-settled that when the statute requires doing certain thing in certain way, the thing must be done in that way or not at all. Other methods or modes of performance are impliedly and necessarily forbidden. The aforesaid settled legal proposition is based on a legal maxim “Expressio unius est exclusion alteris”, meaning thereby that if a statute provides for a thing to be done in a particular manner, then it has to be done in that manner and in no other manner and following other course is not permissible. (See Taylor v. Taylor, (1876) 1 Ch.D.426; Nazir Ahmed v. King Emperor, AIR 1936 PC 253; Ram Phal Kundu v. Kamal Sharma, (2004) 2 SCC 759; and Indian Bank’s Association v. Devkala Consultancy Service, AIR 2004 SC 2615).


22. For the reasons stated above, we are of the considered view that audit assessment under Section 42 cannot be made after completion of the assessment of escaped turnover under Section 43 of the OVAT Act read with Rule 50 of the OVAT Rules for the self-same tax period(s).


23. In view of the above, the order of assessment dated 27.05.2011 passed under Section 42 of the OVAT Act for the period 29.03.2006 to 30.11.2008 under Annexure-1 is hereby set aside. However, it is open to the Assessing Authority to assess the petitioner under Section 42 of the OVAT Act excluding the period from 24.01.2006 to 31.07.2006 for which the dealer has already been assessed under Section 43 of the OVAT Act.


24. With the aforesaid observations and directions, the writ petition is allowed.


……………....………….
B.N. Mahapatra, J.


I. Mahanty, J. I agree.
………....………….
I.Mahanty, J.

Orissa High Court, Cuttack
Dated 18th March, 2015

/ss/skj/bks

THE HIGH COURT OF ORISSA : CUTTACK

W.P.(C) No.22697 of 2014

In the matter of an application under Articles 226 & 227 of the
Constitution of India.
--------------

M/s. Veena House
…… Petitioner

-Versus-

Sales Tax Officer, Assessment Unit, Nayagarh and others
…… Opp. Parties


For Petitioner : M/s. Jagabandhu Sahoo, Sr. Adv. A.Mohapatra, D.Panda, B.K.Nayak, S.C.Mohanty.

For Opp. Parties : Mr.R.P.Kar (Standing Counsel)

P R E S E N T :
THE HON’BLE MR. JUSTICE INDRAJIT MAHANTY
&
THE HON’BLE MR. JUSTICE B.N.MAHAPATRA

Date of Order : 30.03.2015
______________________________________________________________________

I.Mahanty, J.

The present writ application has been filed by the petitionercompany seeking direction to Opposite Party No.1 (Sales Tax Officer, Assessment Unit, Nayagarh) to refund the amount due to the petitioner for the period from 1.4.2005 to 31.1.2006 pursuant to order dated 2.5.2009 passed by the learned Sales Tax Tribunal in S.A. No.30 (VAT) of  2006-07 along with interest within a stipulated time as may be directed by this Court.


2. Mr. J.Sahoo, learned Senior Advocate appearing for the petitioner submits that the assessment order under the OVAT Act (hereinafter referred to as the ‘Act’) for the period from 1.4.2005 to 31.01.2006 had been challenged by the petitioners before the Orissa Sales Tax Tribunal in S.A. No.30 (VAT) of 2006-07. The said Second Appeal filed by the petitioner came to be allowed vide order dated 02.05.2009 with a direction to the appropriate Assessment Authority to complete re-assessment after service of proper notice on the petitionerdealer and giving a reasonable opportunity of being heard. He further submits that in spite of such order being passed by the Tribunal, no notice was issued by the Assessing Officer which in terms of Section 49 of the Act has became barred by limitation and consequently, the prayer for refund of the amount has been made in the writ application.


3. After notice in the present writ application came to be issued, a letter came to be issued by the Asst. Commissioner (O.P.2) dated 13.02.2015 calling upon the petitioner to appear before his office for producing Books of Accounts etc. for the purpose of assessment under Section 43 of the Act. This notice was brought on record by way of an amendment sought for by the petitioner during pendency of the writ application.


4. The petitioner places reliance on Section 49 of the OVAT Act, 2004 which is quoted hereinbelow:

“49(1) Where any order passed by the assessing authority in respect of a dealer for any period is found to be erroneous or prejudicial to the interest of revenue consequent to, or in the light of, any judgment or order of any Court or Tribunal, which has become final and binding, then, notwithstanding anything contained in this Act, the assessing authority may proceed to reassess the tax payable by the dealer in accordance with such judgment or order, at any time within a period of three years from the date of the judgment or order.

(2) Where any Court or Tribunal passess an order in appeal or revision to the effect that any tax assessed under this Act or the Central Sales Tax Act, 1956 (74 of 1956) should have been assessed under the provision of a law other than that under which it was assessed, then, in consequence of such order or to give effect to the finding or direction contained in such order, the turnover or any part thereof as relates to such assessment may be assessed or reassessed as the case may be, to tax at any time within five years from the date of such order, notwithstanding the applicability of any period of limitation to such assessment or reassessment under this Act.”


5. Mr. Sahoo, learned Senior Advocate for the petitioner submits that Section 49(2) of the Act as noted hereinabove clearly indicates that while the consequence of order in Appeal or Second Appeal, re-assessment is required to be made “within five years from the date of such order”. The order of Sales Tax Tribunal in Second Appeal having been passed on 2.5.2009, the period of five years came to be lapse on 1.5.2014 and this writ application came to be filed by the petitioner thereafter on 20.11.2014. Consequently, by operation of limitation prescribed under Section 49(2) of the Act, the opposite party have no authority to withhold any money due to the petitioner and consequently, the prayer of the petitioner to grant refund along with the interest under Section 59 of the Act ought to be allowed.


6. Mr.Kar, learned Standing Counsel for the Commercial Tax Department submits that the Sales Tax Tribunal in its order dated 2.5.2009, appended as Annexure-1 to the writ application, did not adjudicate the matter on merits and instead, came to a conclusion that the Sales Tax Officer (Opposite Party No.1) not being “the Assessing Authority of the Range” as required under Rule 34(12) of the OVAT Rules (pre-amendment) had no jurisdiction to assess the dealer under Section 43(1) of the OVAT Act. Consequently, he submits that this was not adjudication by the Tribunal on merits of the case but only a judgment of the Tribunal based on the lack of inherent jurisdiction of the Officer who had passed the assessment order under Section 43(1) of the Act. He also drew our attention to the fact that Rule 33(4) of the OVAT Rule has undergone in the amendment thereafter and post amendment, the Opposite Party No.1 is competent to make assessment under Section 43(1) of the Act but, he fairly admits that at the relevant time when the order of assessment was passed, Opposite Party No.1 lack necessary jurisdiction/competence.

Learned Standing Counsel further submits that the subsequent notice issued by the Asst. Commissioner of Commercial Taxes under Annexure-4 dated 13.2.2015 was in purported compliance of the direction issued by the Sales Tax Tribunal.


7. Having heard the learned counsel for the respective parties and in particular, having taken note of Section 49(2) of the Act as has been extracted hereinabove, clearly, the order of the Tribunal having  been passed on 2.5.2009 in terms of the extended period of limitation granted under the said provision, the period of limitation expired on 1.5.2013. Consequently, any notice for assessment under Section 43 of the Act made thereafter cannot save the power or authority for assessment, once, it becomes barred by the law of limitation. We are, therefore, of the considered view that the writ application ought to be allowed and the notice under Annexure-4 having been issued beyond the period of limitation and that too, not in statutory Form 307, is non-est in the eyes of law. We order accordingly and direct refund of any amount that may be due to the petitioner along with the statutory interest as may be applicable in terms of Section 59 of the Act within a period of three months from today.


8. Free Copy of this order be handed over to the learned Standing Counsel for the Commercial Tax Department. Urgent certified copy of this order be granted on proper application.



………………….……
I.Mahanty, J.


………………….……
B.N.Mahapatra, J.


ORISSA HIGH COURT;
CUTTACK

30th March, 2015

/ RKS.

HIGH COURT OF ORISSA: CUTTACK.

O.J.C. Nos.14041 & 14042 of 2001
In the matter of applicationS under Articles 226 and 227 of the Constitution of India.
---------

M/s.Bawa Trading Co
….…… Petitioner.

- Versus-

Sales Tax Officer and others
…….… Opposite Parties.
___________

Counsel for Petitioner: M/s.Jagabandhu Sahoo, S.K.Mohanty & S.K.Burma
Counsel for Opp.Parties: Standing Counsel for Sales Tax Department

PRESENT:
THE HONOURABLE KUMARI JUSTICE SANJU PANDA
&
THE HONOURABLE SHRI JUSTICE SUJIT NARAYAN PRASAD
-------------------------------------------------------------------------------------

Date of hearing & Judgment : 06.01.2017
-------------------------------------------------------------------------------------

S. N. Prasad, J.

In both these writ applications, since common questions of law and fact are involved, they are heard together and are being disposed of by this common judgment.


2. In both the writ applications, the order passed under Section 12(a) of the Orissa Sales Tax Act, 1947 (in short, “the Act”) has been challenged with a consequential direction upon the opposite parties to grant interest under Section 14-C of the Act as per the principles decided by this Court in OJC No. 4920 of 2000 vide order dated 14.9.2000 in case of M/s. Hemanta Kumar Chhatoi v. Asst. Commissioner of Sales Tax, on the basis of  the petitioner’s first application for grant of  refund.


3. The brief fact of the case is that the petitioner is a registered dealer under the provisions of the Act, assessed by opposite party no.1 under the provisions of Section 4 (4) of the Act for the assessment year 1993-94, determined the refundable amount to the tune of Rs.2,53,438/- in OJC No.14041 of 2001 and Rs.2,41,132/- in OJC No. 14042 of 2001, being the excess deposit of sales tax by the petitioner. Opposite party no.1 had initiated assessment proceeding and in the assessment order, the refundable amount was determined at Rs.2,25,038/- in OJC No.14041 of 2001 and Rs.2,13,592/- in OJC No. 14042 of 2001. The petitioner being aggrieved, filed appeal before opposite party no.2 and opposite party no.2 vide its order determined the refundable amount at Rs.2,25,038/- and Rs.2,34,292/- in OJC Nos. 14041 of 2001 and 14042 of 2001 respectively. The petitioner after the assessment, had submitted applications for refund, but no order has been passed for refund of the amount on the garb of pendency of reassessment under Section 12(a) of the Act. When the reassessment under Section 12(8) has been passed determining the refundable amount, the petitioner had again filed an application afresh for refund of the amount along with interest. It is the case of the petitioner that the amount has been refunded, but interest has not been paid while it is entitled to get the interest from the date of first application as per the statutory provision.


4. Per contra, learned counsel representing the Revenue has  vehemently opposed the prayer made on  behalf of the petitioner by  submitting that interest cannot be paid from the date of first application submitted after the order of assessment, rather interest can only be paid after the assessment would finally be settled. In these cases, although the petitioner is claiming that it is entitled to get interest over the amount, which has been refunded from the date of first application, the same is not sustainable in view of the fact that there is an order for reassessment to be initiated under Section 12(8) of the Act, which itself suggests that the assessee, the petitioner herein, had not submitted it’s returns properly and that is the reason the authorities have gone into reassessment by exercising the power under Section 12(8) of the Act and in that situation since it is the fault on the part of the assessee in not submitting the returns by disclosing the true proceeds, which led the authorities for reassessment, hence, the petitioner cannot be awarded by making interest from the date of first application. He further submits that in view of the second proviso to Section 14, interest is not liable to be paid in case there is an order for reassessment.


5. Rebutting the argument regarding the statutory provision as contained in Section 14-C of the Act, learned Sr.counsel representing the petitioner has submitted that the said provision is not to disburse the amount of interest from the date of first application, rather the simple interpretation of the said statutory provision would be that when the assessment would be finally determined and came to a stop, then only it can be determined that excess payment has been paid by the assessee in  course of assessment and it is only thereafter,  if the authorities would  come to a conclusion that there is excess payment of return, then the amount can be refunded and in that situation, the assessee would be entitled to get the interest if the amount will not be refunded within the period of ninety days and if refunded within the period of ninety days, the assessee will not be entitled to get any interest and if not refunded within a period of ninety days, then it will be entitled to get interest from the date of order till the date of payment excluding the period of ninety days. In the light of this submission, it has been submitted by the learned counsel representing the Revenue that the authorities after determining the assessment on the basis of the provision as contained in Section 12(8) of the Act, has refunded the excess amount paid by the assessee within a period of ninety days in OJC No.14041 of 2001 while in OJC No. 14042 of 2001 since it has been paid after seven day from the date of expiry of ninety days, hence, interest for the 97 days has been paid to the assessee. Therefore, it has been submitted that the assessee is not entitled to get further interest.


6. We have heard the learned counsel for the parties and perused the documents available on record.


7. Before appreciating the rival submission advanced on behalf of the parties, we thought it proper to have a discussion with respect to the statutory provisions. It is necessary for the purpose of adjudication of the  issue involved in this case. The relevant provision for the purpose is the  provision of Section 11, which contains for  filing of returns requiring  every registered dealer and every other dealer, who is liable to pay tax under the Act, or who may be required so to do by the Commissioner by notice served in the prescribed manner, shall furnish such returns, by such dates and to such authorities, as may be prescribed.

Section 12 contains a provision for assessment of tax, which stipulates that if the Commissioner is satisfied, without requiring the presence of a registered dealer or the production by him of any evidence, that the returns furnished in respect of any period are correct and complete, he shall assess the amount of tax due from the dealer on the basis of such returns. but however, if the Commissioner is not satisfied without requiring the presence of a registered dealer who furnished the returns or production of evidence that the returns furnished in respect of any period are correct and complete, he shall serve on such dealer a notice in the prescribed manner requiring him on a date and at a place to be specified therein either to attend in person or to cause to be produced there any evidence on which such dealer may rely in support of such returns.

Section 12(8) contains a provision that if for any reason the turnover of a dealer for any period to which the Act applies has escaped assessment or has been under assessed or, where tax has been compounded when composition is not permissible under this Act and the rule made thereunder the Commissioner may at any time within 2(five 6 years) from the expiry of the year to which that period relates call for return under sub-section (1) of section 11 and may proceed to assess the amount of tax due from the dealer in the manner laid down in sub-section (5). Section 14 contains a provision for return, which speaks that the Commissioner shall in the prescribed manner refund to a dealer applied in this behalf any amount of tax (penalty or interest) so paid by such dealer in excess of the amount due from him under the Act. Section 14-C stipulates payment of interest on refundable amounts, which reads follows: “Amounts refundable under section 14, if not refunded within ninety days from the date of receipt of an application in that behalf from the date of receipt of an application in that behalf from the dealer shall carry interest at the rate of six per cent per annum, with effect from the date of expiry of the period specified above.”

Section 14-D deals with power to withhold refund in certain cases, which reads as follows: “Where an order giving rise to a refund is the subject matter of an appeal or further proceeding under this Act, the Commissioner may, if he is of the opinion that the grant of refund is likely to adversely affect the revenue, withhold the refund till such time as he deems proper.”


8. It is evident from the provision as contained in Section 14 of the Act that the amount would be refunded if paid excess of the amount over and above the amount of tax provided that no claim to refund of any tax penalty or interest paid under the Act shall be allowed unless it is made within  twenty-four months from the date on which the order of assessment or order  imposing penalty as the case may be was passed or from the date of  the final order passed on appeal, revision or reference in respect of the order earlier mentioned whichever period is later.

Further provided that no claim to refund of any tax or penalty or interest paid under the Act shall be allowed in cases where there is order for reassessment, until the reassessment is finalized. Section 14-C provides for payment of interest on refundable amount under Section 14 of the Act, if not refunded within a period of ninety days from the date of receipt of the application in that behalf from the dealer, shall carry interest applicable.


9. The fact of the case in hand is that the assessee-petitioner in both the writ applications, had submitted its returns, which has been assessed by the Sales Tax Officer, Cuttack-I East Circle, Cuttack relating to the year 1993-94 raising refund of Rs.2,53,438/- in OJC No.14041 of 2001 and Rs.2,41,192/- in OJC No. 14042 of 2001 for the reason that the assessee in these cases were assessed originally under Section 12(4) of the Act for the year 1993-94, which has been subjected to reassessment under the provisions of Section 12(8) alleging the sale suppression on the basis of the reports submitted by the Sales Tax Officer (Intelligence) and completed assessment against which the appellant had preferred first appeal before the Asst. Commissioner of Sales Tax wherein the order of assessment has been confirmed. Again the Sales Tax Officer has received a fraud report   from the Sales Tax Officer (Vig.) Cuttack alleging purchase suppression of beetle nuts by the applicant, hence, the Sales Tax Officer initiated proceeding under Section 12(8) of the Act, in response to which the appellant appeared before him, the Sales Tax Officer is found to have confronted the alleged report to the assessee, who denied the allegation, determined at the time of assessment under Section 12(4) resulting reduction of refund amount against which the assessee being aggrieved filed first appeal. The first appellate authority has passed order by which after finalizing the reassessment, the fact of suppression having been proved, the amount of refund has been reduced. The assessee has filed an application for getting refund and accordingly, the amount has been refunded in favour of the assessee. Hence, the assessee- petitioner herein is not pressing its grievance regarding refund of the excess amount paid by it in view of the assessment. But however, its grievance is for payment of interest in view of the provisions as contained in Section 14-C of the Act, which according to the assessee, it is entitled to get from the date of the assessment order, but the same has been denied by the authorities on the plea that the refund is not maintainable since the same was subject to reassessment under the provisions of Section 12(8) of the Act. Moreover, refund has been made within the stipulated period as provided under Section 14-C.


10. The sole question fell for determination in these two cases is as to whether during the pendency of the reassessment order in exercise of the powers conferred under Section 12(8) of the Act, the assessee is entitled to get interest from the date of first assessment order under  Section 12(1) of the Act.


11. Learned counsel representing the petitioner in both the cases, apart from the factual aspects, has relied upon the unreported orders passed by this Court in OJC No. 4920 of 2000(Sri Hemanta Kumar Chhatoi v. Asst.Commissioner of Sales Tax and others) and WPC No. 5139 of 2002 (Sri Radheshyam Agarwala v. Sales Tax Officer, Cuttack-I East Circle and another) and the Full Bench judgment of this Court rendered in the case of Ideal Industries Limited v. State of Orissa and others rendered in OJC No. 9087 of 1997. While on the other hand, learned counsel representing the Revenue has relied upon the unreported judgment delivered by this Court in OJC No. 8920 of 1999 disposed of on 27.11.2015 (M/s.Dabur India Ltd. V. Sales Tax Officer and another) and reported judgment of the Apex Court in the case of Commissioner, Commercial and Sales Taxes and others v. Orient Paper Mills and another, 2004 (vol.135) STC at page 19.


12. The factual aspect, which is not in dispute in these cases is that the assessee had submitted its returns and subsequently, the authorities have exercised their power under Section 12(8) of the Act on the basis of the report of the Vigilance wing of the Sales Tax Department containing a report regarding suppression of material fact in showing the gross turn-over of the unit in question, as such, it cannot be said, on the basis of the fact of these cases, that the assessment has finally been concluded for the particular year which is subject matter of assessment. Since the assessment  can only be said to be concluded if on the basis of the returns  submitted by the dealer it will be accepted subject to the condition that no decision/ order has been taken by the competent authority in this regard under the provisions of Section 12 (8) of the Act, which contains a provision for reassessment of the returns submitted by the dealer if found that there is suppression of material aspect, then within a period of five years from the date of submission of the return, it can be re-opened under the said provisions. Hence, the simple interpretation of the provision as contained in Section 12 if taken together along with all sub-sections is that the assessment for a particular period would be said to be concluded if there is no order for reassessment in exercise of the powers conferred under Section 12(8) of the Act. If that would be the situation and if it is found that the assessee have paid excess amount having been assessed in course of assessment and if not refunded in view of the provisions of Section 14 of the Act, then the assessee would be entitled to get interest if the amount would not be refunded within a period of ninety days and the interest will be payable after expiry of the period of ninety days inclusive of the period of ninety days.


13. The fact of the cases in hand is that the order of assessment initially has been accepted by the competent authority, but subsequently within the statutory period as provided under Section 12(8) of the Act, the order of reassessment has been directed to be conducted and accordingly, the authorities have finally passed the order reducing the amount of refund, which goes to suggest that there was suppression of material facts in  showing the return. It is gathered from the  record of the case that the assessing authority has refunded the excess amount paid by the assessee within the statutory period and in one of the case it was after seven days of expiry of the period of ninety days, hence, the interest of ninety seven days has been paid.


14. Learned Sr.Counsel for the petitioner has relied upon the unreported judgment, i.e. one passed in OJC No. 4920 of 2000 by a coordinate Bench of this Court, but we after going through the said order have found that this Court has passed order holding therein that the refund flows from the first order, but we have not found from the said order as to whether the said case was also subjected to reassessment under the provisions of Section 12(8) of the Act and as such, the same cannot be said to be applicable to the facts and circumstances of the present case.

The judgment passed by this Court in WPC No. 5139 of 2002, relied upon by the petitioner, although has been passed in the pretext of the provisions of Section 12(8) of the Act, but in that case the order for refund was passed on 2.6.1998 and without refunding the amount, a proceeding under Section 12(8) of the Act has been initiated, but the factual aspect of that case is also distinct from the facts of these cases since in that case the order of reassessment has been passed by the revisional authority by appreciating the fact on merit, but here in the instant case, the order of reassessment under Section 12(8) of the Act has been passed on the basis of a vigilance report submitted by the Vigilance Wing of the Sales Tax Department regarding misrepresentation and suppression of fact having been confronted to the assessee in course of submission of report and taking into consideration this aspect of the matter, the authorities have taken decision to resort to the provisions of Section 12(8) of the Act since it provides for re-assessment if there is any escape assessment or assessment based upon suppression of fact showing forged gross turn-over to be initiated within a period of five years from the date of assessment. Hence, the fact of the case of W.P.(C) No.5139 of 2002 is distinct from the fact of this case, hence not applicable. The petitioner has also relied upon the un-reported judgment passed by the Full Bench of this Court in the case of Ideal Industries Ltd. V. State of Orissa (supra), but the issue, which has been raised in the instant case, pertains to disbursement of the amount of interest as provided under Section 14-C and the Full Bench of this Court has agreed with the statutory provisions that the assessee is liable to be paid interest in view of the provisions of Section 14-C, but what would be the date for disbursement of the amount of interest in the factual aspect of these case was not the subject matter in the said judgment. Hence, it is not applicable with the issue involved in these cases.


15. Learned counsel representing the Revenue has relied upon the judgment rendered in the case of Dabur India Ltd. V. Sales Tax Officer passed in OJC No. 8920 of 1999 disposed of on 27.11.2015, but the factual aspect of the said case is also distinct since the order of reassessment was  on the basis of suo motu revision by the Assistant Commissioner, but however, a coordinate Bench of this Court has directed to refund the amount from the date of the final assessment, i.e. after the assessment having been closed for that particular year.

So far as the judgment relied upon by the Revenue in the case of Orient Paper Mills and another (supra) is concerned, although the factual aspect of the said case is altogether different, the same is not relevant for the purpose of determination of the issue involved in this case.


16. There is no dispute about the settled proposition that the provision for charging interest is introduced in order to compensate for the loss occasioned to the revenue due to delay in payment of tax as also payment of interest on the excess payment of tax liability, the assessee is entitled to get refund of the amount along with interest, the purpose being is to compensate the assessee. It is also not in dispute that it is only after determination of the questions of fact, the Assessing Officer having the order holding that the assessee is liable to pay the tax, which he had not paid and vice versa, the assessee is also entitled to get refund of the amount after the final assessment having been made by the Assessing Officer, and if on final determination, found that the assessee is entitled to get refund, certainly the interest will be paid to compensate the assessee.


17. As we have observed herein-above that it is a case of misrepresentation and suppression of fact leading the authorities to resort to the provisions of Section 12(8) of the Act and for that reason there was an order for reassessment and as such, the second proviso to Section 14 will be applicable, which provides that no claim for refund of any tax, penalty or interest paid under this Act shall be allowed in cases where there is an order for reassessment, until the reassessment is finalized.

The specific provision contained in the second proviso to Section 14 as referred to above, stipulates a condition that in course of pendency of reassessment, the amount would not be refunded either the excess amount paid, penalty or interest until the reassessment is finalized. This clarifies the intent of the legislation that till assessment for a particular year is finalized, the amount would not be refunded since the same is the subject matter of scrutiny and it is only after finalization of the assessment in its entirety for a particular assessment year, the question of payment of interest on the refundable amount as provided under Section 14-C would come.


18. Moreover, it is not a case herein that due to the power exercised by the appellate authority or the revisional authority in the suo motu revision, the order of reassessment has been made by appreciating the factual aspect of the assessee, but the fact here is that it is due to the misrepresentation and suppression of material fact in declaring the return, the order of reassessment has been passed under Section 12(8) of the Act and in course of the reassessment the fact of commission of suppression and misrepresentation has been proved.


19. The fact in the instant case is that the assessee has submitted  its return, which was assessed, but  subsequently it was found  that there is some suppression in submission of return so far as it relates to gross turn-over of the assessee and as such, reassessment order has been directed to be initiated under the provisions of Section 12(8) of the Act. Thus, the assessee was conscious about the tax liability and intentionally he has not furnished proper return before the Assessing Officer and subsequently, it was found that the assessee has suppressed the material facts from the Assessing Officer in submission of return and accordingly, the amount of return has been reassessed and the refund amount has been reduced, which has never been disputed by the assessee, rather it has been accepted, which goes to suggest that there is suppression and misrepresentation by the assessee in submitting the return.

Taking into consideration this aspect of the matter, the assessee cannot be allowed to get the interest from the date of first order passed for refund of the excess amount, otherwise, there would be no meaning to go for reassessment, rather it will be said to be rewarding the assessee by making payment of interest from the date of first order showing refund of the excess amount even in the case of suppression and misrepresentation in submitting the return by the dealer.


20. Accordingly, we are of the considered view that the assessee would be entitled to get interest only when the assessment for the particular year would be concluded finally. Hence, the contention of the petitioner that it is entitled to get interest from the date of first application,  which has been filed by it after the first order  of refund of amount has  been passed, is not acceptable to this Court for the aforesaid reason. As has been submitted by the learned counsel for the parties, after the final order having been passed by the competent authority in exercise of the powers conferred under Section 12(8) of the Act, the amount has been refunded within the statutory period in OJC No.14041 of 2001 while in another case, i.e. OJC No.14042 of 2001 it has been paid after seven days from expiry of ninety days along with interest.


21. In view of the facts stated hereinabove, according to our considered view, the writ applications lack merit and accordingly dismissed.


….…………………                 ….…………………
S. N. Prasad, J.                 Sanju Panda, J.


Orissa High Court, Cuttack,
Dated the 6th January, 2017/PKSahoo

HIGH COURT OF ORISSA,CUTTACK

STREV Nos.101, 42, 80, 83, 84, 95, 98, 131 and 132 of 2011
And
STREV No.458 of 2008
And
STREV Nos.37, 38, 41, 42, 43 and 44 of 2010
And
STREV Nos.47, 49 and 50 of 2013

In the matter of applications under Section 24 of the Orissa Sales Tax
Act, 1947 read with Rule 52A of the Orissa Sales Tax Rules, 1947.
-------

State of Orissa
Represented by Commissioner of Sales Tax, Orissa
... Petitioner
(In STREV Nos.101, 42, 80, 83, 84, 95, 98, 131 and 132 of 2011 and STREV Nos.47, 49 and 50 of 2013)
M/s.Sriram Minerals ... Petitioner (In STREV No.458/2008)
M/s.Hindustan Minerals ... Petitioner (In STREV No.37/2010)
M/s.Esskay Stone ... Petitioner (In STREV No.38/2010)
M/s.Sriram Minerals ... Petitioner
(In STREV Nos.41 & 42 of 2010)
M/s.Hindustan Minerals ... Petitioner (In STREV No.43/2010)
M/s.Esskay Stones ... Petitioner (In STREV No.44/2010)

VERSUS

M/s.D.K.Construction
(In STREV No.101 of 2011)
M/s.Mahashakti Granite Crusher Private Limited
 (In STREV No.42 of 2011)
M/s.Shiva Minerals
(In STREV Nos.80 & 83 of 2011)
M/s.Hindustan Minerals
(In STREV No.84 of 2011)
M/s.Sriram Minerals
(In STREV No.95 of 2011)
M/s.D.K.Construction ... Opposite Party
(In STREV No.98 of 2011)
M/s.C.C.Sahu & Sons (Construction)
Private Limited
(In STREV Nos.131 & 132 of 2011)
M/s.Khushraj Enterprises
(In STREV No.47 of 2013)
M/s.Narayani Traders
(In STREV Nos.49 and 50 of 2013)
... Opposite Parties
State of Orissa represented by the Commissioner of Sales Tax, Orissa
 ... Opposite Party
(In STREV No.458 of 2008 and STREV No.37, 38, 41, 42, 43 and 44 of 2010)

For Petitioner : Mr.R.P.Kar, Standing Counsel (CT) Mr.M.S.Raman, Addl. Standing Counsel (CT)
(In STREV Nos.101, 42, 80, 83, 84, 95, 98, 131 and 132 of 2011 and STREV Nos.47, 49 and 50 of 2013)
M/s.Damodar Pati, S.K.Mishra and P.Panigrahi (In STREV No.458/2008)
M/s. Damodar Pati, S.K.Mishra and S.N.Sharma
(IN STREV No.37, 38, 41, 42,43 and 44 of 2010)
For Opp. Parties :M/s.Damodar Pati, S.K.Mishra and S.N.Mishra.
(For O.P. in STREV No.101/2011)
M/s.A.K.Roy and C.R.Das
(For O.P. in STREV Nos.80 & 83 of 2011)
M/s.Damodar Pati, S.K.Mishra and S.C.Bairiganjan.
(For O.P. in STREV No.98/2011)
M/s.Satyajit Nanda and G.R.Verma
(For O.P. in STREV Nos.131 & 132 of 2011)

PRESENT :
THE HON’BLE MR. JUSTICE I.MAHANTY
AND
THE HON’BLE DR. JUSTICE D.P.CHOUDHURY
-------------------------------------------------------------------------------

Date of judgment: 01.03.2017
-------------------------------------------------------------------------------

Dr. D.P.Choudhury, J.

Challenge has been made in all these revisions to the order of the Orissa Sales Tax Tribunal (hereinafter called “the Tribunal”) for reversing the concurrent order passed by the First Appellate Authority and the Assessing Officer under the provision of Section 12(4) of the Orissa Sales Tax Act, 1947 (hereinafter called “the Act”) read with Orissa Sales Tax Rules, 1947 (hereafter called “the Rules”). Since common question of law arose in all these revisions, they are being disposed of by this common judgment.


FACTS

2. The factual matrix leading to filing of STREV No.101 of 2011 is that the opposite party is the assessee and it has entered into an agreement with the South Eastern Railway for supply of machine crushed track ballast for laying the same on both the sides of railway track in different locations as per the tender call notice. The tender schedule specifies loading of ballast into any type of railway wagon/hopper with contractor’s own arrangements including all lead lift crossing of railway line as per the direction of the Engineer-in-charge of the work.


3. During the assessment year 2001-2002, the Assessing Officer demanded under Section 12(4) of the Act for Rs.36,15,448/- on 31.3.2003. The Assessing Officer has treated the entire receipt by the opposite party to be sale of chattel qua chattel and made the same exigible to tax at the rate of 12% of the taxable list. Challenging the assessment order, the opposite party preferred First Appeal before the concerned Assistant Commissioner of Sales Tax on the ground that the supply of machine crushed track ballast would come within the fold of works contract and accordingly claimed 85% deduction towards labour and service charges and the rest was claimed to be taxed at the rate of 8% as tax under works contract. The First Appellate Authority disposed of the First Appeal keeping in view the order of this Court passed in P.K.Satapathy –V- State of Orissa, reported in (1999) 116 STC 494 (Ori) with the observation that the scope of contract, being supply of machine crushed ballasts, would be liable to be exigible to tax at the rate of 12%.

So, the First Appellate Authority confirmed the order of the Assessing Officer.


4. Against the order passed by the First Appellate Authority, the opposite party carried Second Appeal before the Tribunal in the year 2005-2006. The State did not file any cross-objection before the Tribunal as the order of the Assessing Officer has been confirmed by the First Appellate Authority. The Tribunal, after hearing both the parties, allowed the Second Appeal preferred by the opposite party by holding that supply of ballast to the Railway in question is sale falling within the scope of Section 2(g) of the Act and “ballast” supplied to the Railway falls within the ambit of “mineral” for which it is exigible to tax at the rate of 4% as per Entry 117 of the taxable list by not agreeing to make same exigible at the rate of 12% under Entry 189 of the taxable list.

Challenging such order of the Tribunal, the State-petitioner has preferred revisions on various grounds.


5. Likewise in STREV Nos.41, 98, 131 and 132 of 2011 and STREV Nos.49 and 50 of 2013, opposite parties-assessees in different years of assessment have supplied ballasts and delivered ballasts to S.E.Railway and accordingly, the Assessing Authority and First Appellate Authority made the sale of those materials of these assessees exigible to tax at the rate of 12% whereas the Tribunal decided the same exigible to at the rate of 4% of taxable list.


6. Similarly, in STREV No.458 of 2008, STREV Nos.37, 38, 41, 42, 43 and 44 of 2010, STREV Nos.42, 80, 83, 84 and 95 of 2011 and STREV No.47 of 2013, the opposite parties-assessees have purchased the ballast and after crushing the same, made boulders and chips and accordingly they are engaged in selling those products to different buyers. But the Assessing Authority demanded sales tax by taking such materials exigible to tax at the rate of 12% of taxable list and the First Appellate Authority also confirmed such order of the Assessing Authority. Again on the intervention in the Second Appeals, the Tribunal decided said material as “minor mineral”, being exigible to tax at the rate of 4% in the taxable list.


7. SUBMISSIONS

Mr.R.P.Kar, learned Standing Counsel for the Revenue in all the revisions submitted that the Tribunal has committed gross irregularity by reversing the concurrent finding and conclusion arrived at by both First Appellate Authority as well as the Assessing Authority by erroneously deciding the question of law as borne out from the facts available on record. The Tribunal committed allowing deduction of amount received by the opposite parties in respect of loading of the supplied ballasts from the gross receipts because without analyzing the convenants of contracts, the Tribunal jumped to the conclusion on the basis of schedule of rates and fact that the loading charges of supplied ballasts into Railway wagons would be deducted from assessment under the Act as the same is purely labour work. The Tribunal ought to have considered all clauses of the contract. The Tribunal, being the final fact finding authority, should have taken into consideration the relevant statutory provisions along with the convenants of the contract in order to independently arrive at the conclusion whether the loading charges would form part of the consideration so that the sales tax could be levied on taxable turnover.


8. Mr.Kar, learned Standing Counsel for the Revenue further submitted that the Tribunal erred by considering the claim of the opposite parties that the ballast supplied by it to the Railway is “mineral” which is exigible to tax at the rate of 4% as per Entry 117 of the taxable list because the Tribunal has transgressed its jurisdiction and authority by deciding the facts which has never before any of the authorities below raised. The Tribunal should not have considered such plea of the opposite parties as the Department was not given any chance to lead evidence in the forums. Thus, the Tribunal has violated the principles of natural justice by deciding such issue. According to him, when the intention of both the parties was to treat the goods in question as “ballast” qua “ballast” which being separate, distinctly identifiable commodity having marketability and not as “minerals”, the opposite parties-assessees cannot claim the same to be falling within the scope of Entry 117 of the taxable list, but it being not in any other list, could have been chargeable to tax at the rate of 12% of the taxable list as there was no contract between the parties to buy and sell the goods as minerals, but “ballast” simpliciter. The Tribunal has traversed its jurisdiction by holding that ballasts are minerals. He further submitted that the Tribunal went wrong to conclude that ballast obtained from spalls would be minerals inasmuch as the basis of such conclusion being the definitions contained in the Mines and Minerals (Regulation and Development) Act, 1957 (hereinafter called as “the Act, 1957”) and the Orissa Minor Mineral Concession Rules, 2004 (in short “the Rules, 2004”). The Tribunal erred in law by taking the aid of definition contained in another statute which has no nexus with the Act.


9. Mr.Kar, learned Standing Counsel for the Revenue submitted that since the ballast in no way is connected with the minerals but it is a specific material in the process as known to the commercial world, the same has been wrongly interpreted by the Tribunal being exigible to tax at the rate of 4% of the taxable list. Further, the Tribunal has erred in law by admitting the Second Appeal which has been filed beyond the period of limitation contemplated under Section 23 of the Act. The Tribunal has also acted with material irregularity by coming to the wrong conclusion without proper independent application of mind for which the same should be quashed and the order passed by the First Appellate Authority and Assessing Officer should be restored.


10. Per contra, Mr.Damodar Pati, learned counsel for the opposite party submitted that the order of the Tribunal is legal and correct because the agreement between the parties is to supply and delivery in stacks of machine crushed track ballast and laying the same into both sides of track in different locations and the opposite party has received the gross bill, which has been treated as contract for sale as against works contract as per agreement for which the works contract tax has been deducted at source by the Railways. He further contended that the “ballast” being the material and the same having been deduced from the quarry which is made out of minerals, the ballast qua ballast is a mineral, the same has been specifically exigible under the Entry 117 of taxable list. As the ballast is deducible like boulder and other material from the quarry by using the dynamite and specifically processed through machine or by manual work, the same is rightly observed by the Tribunal to be classified as minerals being exigible to tax at the rate of 4% of taxable list.


11. Mr.Pati, learned counsel for the opposite parties submitted that the Tribunal, in its Full Bench, has considered that the opposite parties have supplied ballast made out of spall to the Railways and the ballast being the material used as to the bed of a road or a Railways with specific size, the same cannot be a stone as pointed out by the State. The Tribunal, after analyzing in detail under the Act, 1957, has rightly held that the ballast or boulder or chips are minerals and the Tribunal has also considered the dictionary meaning of such mineral which is a solid homogenous crystalline chemicals element or compound that results from inorganic process of nature and it has a characterstic crystal structure, chemicals composition and rational or composition.


12. Mr.Pati, learned counsel for the opposite party further contended that since ballasts or boulder or chips are prepared from quarry and ballasts being crushed to prepare size ballast and then supplies to Railways, the same being “minor mineral” as defined in Section 2(jj) of the Mines Act, 1952 read with Section 3(a) of the Act, 1957, the Tribunal justified in charging the ballast or boulder or chips exigible to tax at the rate of 4% of the taxable list. He further submitted that the Tribunal, being the second appellate authority, has got powers to decide the facts and law for which there is no bar for the Department to adduce evidence when plea of the opposite party was raised before it that the material, i.e, ballast or boulder or chips is exigible to tax at the rate of 4% of the taxable list but not at the rate of 12% of tax list.

According to him, the plea of the State that the arguments advanced by the opposite party for the first time as to the plea that the ballast as mineral is a misnomer and there is no bar for the State to produce evidence contrary to the plea taken by the opposite parties. On the other hand, whether ballast or its different size is exigible to 12% tax or 4% being a question of law can be raised at any stage before any forum. Be that as it may, according to the learned counsel for the opposite parties that the contention of the learned counsel for the petitioner would not stand in the eye of law on this score. He further submitted that the appeal has been admitted by the Tribunal being filed within time and contention of learned Standing Counsel for the Revenue is untenable. So, he supported the impugned judgment of the Tribunal and prayed for a direction to implement the judgment by the State.


13. POINTS FOR DETERMINATION

After going through the contentions of both the parties, it appears that the question of law has not been formulated but the same is being formulated now for discussion as the revisions can be allowed on the question of law raised. So, in these revisions, the questions of law are formulated as under:

“(1) Whether the ballast or boulder or chips is exigible to tax at the rate of 4% or 12% of the taxable list?

(2) Whether such fresh plea can be raised in the second appeal without the same being raised in the forums below.”


14. DISCUSSIONS

Point No.(1)

It is not in dispute that the opposite party in STREV No.101 of 2011 is an assessee having undertaken the work of supplying, delivering, stacking and loading of one lakh Cum of machine crushed track ballast to Railways. It is also not in dispute that there was an agreement between the opposite parties and the S.E.Railways for supply and delivery in stacks of machine crushed track ballast and laying the same into both side of track in different locations at Balangir Depot including all costs of materials, loading, unloading, handling, transportation including crossing of Railway lines, if required and royalty, octroi, sales taxes, cess charges and any taxes imposed by the Central/State Government and local bodies on one lakh Cum of loading of ballast supplied into any type of Railway wagons/hoppers with contractor’s own loading arrangements including all lead lift cross of Railway lines. Similarly, it is not in dispute that the opposite party in other revisions have been dealing with ballast or boulder of chips by selling the same to Railway and other private parties.


15. On going through the assessment order, it appears that the Assessing Authority has gone through the deed of agreement executed between the parties and come to a conclusion that the payment received by the dealer is inclusive of charges like cost of materials, loading, unloading, handling, transportation charges, royalty, octroi, sale taxes, cess charges and any other taxes to be imposed by different authorities from time to time and the dealer has not been given any charge/responsibility of spreading machine-crushed track ballast in any place under the S.E.Railway. Accordingly, the Assessing Officer held that the delivery of ballast is purely a sale and not a works contract as pleaded by the petitioner. The Assessing Officer has also found that there was no evidence adduced by the opposite parties to show that there was a express stipulation between the parties that freight and other charges were to be borne by the purchaser and since the opposite party has got received the gross payment which is inclusive of all cost of materials, loading, unloading and transporting including crossing of Railway line, he considered the same amount to be entire sale which is liable to be taxed at the rate of 12% of the taxable list. In other revision cases, the Assessing Authority has taken the rates by assessing of boulder, chips and ballasts and made them exigible to tax at the rate of 12% of the taxable list.


16. The First Appellate Authority in STREV No.101/2011, after hearing both parties, came to the conclusion that the contract between the parties should be interpreted whether it is a sale of good or for work or labour basically. According to him, to constitute sale, there must be an agreement express or implied relating to sale of goods and completion of the agreement by passing of title in the very goods contracted to be sold. He has referred to the tender schedule, which is reproduced as under:


“SOUTH EASTERN RAILWAY
TENDER SCHEDULE
SCHEDULE OF RATES AND QUANTITIES
(East No.(1)33/SBP/97), (2) 34/SBP/97 (3) 35/SBP/96 (4) 34/SBP/96 (5)

Schedule of rates & conditions accepted for the work of “Supply, delivery, stacking and loading of 1,00,000 cum of machine crushed track ballast (as per RDSO’s specifications-January-99) of BALANGIR DEPOT in Sambalpur Division”.

NOTE.1. The entire work is to be completed within a period of 24 (twenty four months from the date of issue of acceptance letter as per the under mentioned programme.

2. The contractor will be required to strictly adhered to “QUARTERLY SCHEDULE OF SUPPLY” failing which the penalty as per clause-09 of 30/SBP/97, (6) 35/SBP/97
Sl. No
Description of work
Approximate
Qnty.
Rate accepted
both in Figures
& in words

Supply and delivery in stacks of machine crushed track ballast and laying the same into both side of track in different locations. (as per RDSO’s specifications Jan-99) at Balangir Depot including all
costs of materials loading, unloading, handling, transportation including crossing of Railway lines if
required and royalty, actroi, sales taxes, cess charges and any other taxes imposed by Central/State Govt. and local bodies including all other incidental charges with all lead, lift, etc. complete as per the directions of the Engineer-incharge of the work.
1,00,000 Cum Rs567/-
(Rupees five hundred & sixty seven only) per cum.
Loading of ballast, supplied
vide Srl. No.1 above into any
type of Railway
Wagons/hoppers with
contractor/s own loading
arrangements including all lead
lift crossing of Railway lines
etc. complete as per the
directions of the Engineer-incharge
of the work.
1,00,000 cum Rs.54/- (Rupees
fifty four only)
per cum.

“Special condition for supply and loading of ballast Annexure-IV” shall be recovered. The “QUARTERLY SCHEDULE OF SUPPLY” is indicated below:-

1st Quarter 10,000 cum 5th quarter 15,000 cum
2nd Quarter 10,000 cum 6th quarter 15,000 cum
3rd Quarter 15,000 cum 7th quarter 15,000 cum
4th Quarter 15,000 cum 8th quarter 05,000 cum
Total =1,00,000 cum

Sd/-             Sd/-
K.C. Agrawal Additional Divl. Railway
Manager
Notary, Balangir S.E. Railways, Sambalpur”


17. After going through the agreement and discussing various judgments of the Hon’ble Supreme Court and High Courts including of this Court, the First Appellate Authority reached at a conclusion that the rates stipulated in the agreement were inclusive of all charges incurred by the opposite party and were paid after the supply and delivery of the stacks. He found that the contract is for supply of ballast and amount received is to be taxed at rate of 12% but not to be treated as works contract for which he entirely agreed with the finding of the learned Assessing Officer. In other revision cases, the First Appellate Authority has confirmed the order of the Assessing Officer as ballast, boulder and chips are exigible to the tax at the rate of 12% of the taxable list.


18. On perusal of the order of the Second Appeal, it appears that the Full Bench of the Tribunal has considered the argument of both parties. After going through the contract executed between the parties, Tribunal found that the present opposite party has received Rs.54/- per Cum towards loading charges of the supplied ballast into any type of Railway wagons as per his own loading arrangement, which is purely a labour work and hence directed to deduct the loading of supplied ballast from the total amount of computation of sales tax liability of the opposite party. Moreover, the Tribunal went on discussion whether the ballast is a mineral exigible to sales tax at the rate of 4% of the taxable list. The Tribunal has discussed about the dictionary meaning of mineral and has also considered the definition of minor mineral under the Act, 1957 and Rules made thereunder. According to Section 2(jj) of the Mines Act, 1952, mineral means all substance which can be obtained from earth by mining, digging, drilling, dredging, laying, draulicing, quarrying or by any other operation and includes mineral oil which in term included defines minerals include all minerals except mineral oils which in term included natural gas and petroleum. But, as per the Act, 1957, the mineral is defined under Section 3(a) which includes all minerals except mineral oil. Similarly, Section 3(e) of the said Act, 1957 defines minor minerals means building stones, gravel, ordinary clay, ordinary sand other than sand used for prescribed purpose and any other mineral which the Central Government, may by notification, declare the same to be a minor mineral.


19. The Tribunal has opined that according to Orissa Minor Minerals Concession Rules, 2004 (in short “the Rules, 2004”) which provides for granting quarry lease by the Government for extraction, collection or removal of minor minerals. The learned Assessing Officer in his order categorically has mentioned that appellant took quarry located at Basupali on lease from the Tahasildar, Balangir on payment of royalty and extracted spalls from that quarry and crushed those spalls into ballasts and supplied the same to S.E.Railways. These facts led to the Tribunal to come to a conclusion that the ballast is nothing but a mineral. The Tribunal opined that since the ballasts are obtained by quarrying from the earth and its minerals according to the Act, 1957, which found the same to be exigible to tax as per Entry No.117 of the taxable list and accordingly exgible to tax at the rate of 4% of the taxable list. Thus, the Tribunal allowed the appeal in part by directing the learned Assessing Officer to reassess the sales tax liability accordingly after deducting the amount received by the opposite parties towards loading charges from the payment received by it and to refund rest of the amount according to the provisions of law.


20. In other revisions, the Tribunal has simply arrayed the boulder, ballast, stone chips as minor mineral under the Act, 1957 and Rules made thereunder.


21. In the case of Union of India –V- The Central Indian Machinery Manufacturing Co. Limited and others; 40 STC 246, the Hon’ble Supreme Court has observed in the following manner:

“The question, whether a contract is one for sale of goods or for executing works or rendering services is largely one of the fact, depending upon the terms of the contract, including the nature of the obligations to be discharged thereudner and the surrounding circumstances.”


22. The Hon’ble Supreme Court, in the case of Patnaik & Company –V- State of Orissa; 16 STC 364, has observed as follows:

“The primary difference between a contact for work or service and a contract for sale of goods is that in the former there is in the person performing work or rendering service no property in the thing produced as a whole notwithstanding that a part or ever the whole of the materials used by him may have been his property. In the case of a contract for sale, there is in the first instance a chattel which belongs exclusively to a party and under the contract property therein passes for money consideration.”


23. Further, the Hon’ble Supreme Court, in the case if Sentinel Rolling Shutters and Engineering Company Pvt. Ltd –V- the Commissioner of Sales Tax; 42 STC 409, has observed as follows:

“To distinguish between a contract for sale and contract for work and labour there is no rigid or inflexible rule applicable alike to all transactions. They do not give any magic formula by the application of which one can say in every case whether a contract is a contract for sale or a contract for work and labour. They merely focus on one or the other aspect of the transaction and afford some guidance in determining the question.”


24. From a perusal of the aforesaid decisions with due regard, it appears that whether a contract is one for the sale of goods or for executing works or rendering services are all questions of fact which depend on the terms of the contract including the nature of work discharging. Moreover, in case of contract for works or services, the person performing work or rendering services has no property produced whereas for contract of sale in the first instance a chattel which belongs exclusively to a party and under the agreement, it passes for money consideration. The sole idea to distinguish between the contract for sale and contract for work or labour is to find out the same from the transactions to determine the questions. Keeping in mind these principles, the present case is to be scrutinized with reference to the agreement made between the parties.


25. In the aforesaid paragraphs, the tender schedule clearly shows that for supply and delivery of stacks of machine crushed track ballast and laying the same into both side of track in different locations at Balangir Depot including all costs of materials, loading, unloading, handling transportation including crossing of Railway lines if required and royalty, octroi, sales taxes, cess charges and any other taxes imposed by Central/State Government and local bodies including all other incidental charges with all lead, lift or complete as per the direction of the Engineer-in-charge for one lakh Cum of ballasts at the rate of Rs.567 per Cum. Similarly, for loading of the said quantity of ballasts into any type of Railway wagons/hoppers with contractor’s own loading arrangements including all lead lift cross of Railway lines etc. complete as per the direction of the Engineer-in-chief, the rate will be Rs.54 per Cum of ballasts. Thus, the agreement is very defensible as to all charges as per Serial No.1, i.e, Rs.567/- per Cum for supply and delivery and for loading and unloading of ballasts has different charges and the same is not included with the rate as specified in Serial No.1 although the ballasts supplied at Serial No.1 are also required to be loaded to the Railway wagons. It is needless to opine that the loading of ballasts supplied is a labour charge and the same cannot be termed as a sale after going through the contents of the deed of contract. On the other hand, the supply and delivery of stacks including all other nature of works as agreed to between the parties as per Serial No.1 is a sale.

The order of the Tribunal is correct for deducting the loading charges while computing the sales tax.
26. Next question comes in all revisions as to whether the sale of ballasts or boulders or chips including all incidental charges as per Serial No.1 of the tender schedule stated above “mineral” or not. Under the Act, OST schedule as amended vide Finance Department Notification dated 31.3.2001 is as follows:

“Under the Orissa Sales Tax (OST) Act, 1947 OST Schedule (Ad amended vide Finance Department Notification dated 31.3.2001)
Sl. No. Description of Goods Rate of tax

1         2         3
117     Ores and minerals     4%
189     All other goods         12%”


27. It appears from the aforesaid table that ores and minerals as per Entry No.117 is exigible to 4% tax whereas all other goods which are not mentioned in the schedule is exigible to 12% of tax. Now, both learned Assessing Officer and First Appellate Authority have placed the ballasts as exigible to 12% of tax but the Tribunal after taking the cue from the fact that the ballasts being prepared from the spalls which are stones being quarried from the mines Basupali in the district of Balangir is a mineral liable to 4% sales tax. Similarly, the Tribunal in other cases came to a conclusion that boulder, chips prepared from spalls which are quarried from mines also mineral by making the same exigible to tax at the rate of 4% of taxable list.


28. In the Assessment Order, the learned Assessing Officer admitted that the present opposite party in STREV No.101 of 2011 has taken a quarry located at Basupali on lease from the Tahasildar, Balangir on payment of royalty and extracted the spalls from the quarry and then crushed same into ballasts as per the specification and then supplied to the Railways. Of course, the learned Assessing Officer has mentioned that except payment of royalty, the ballasts supplied have not suffered any tax under the provisions of the Act. Even if it had not suffered from any tax, the fact remains that the ballasts have been extracted from the quarry if it had not suffered any tax, definitely it would be chargeable but question arises as to what is the rate of tax?

So, the conclusion of the learned Assessing Officer that since it had not suffered from payment of sales tax, it should be treated as entire sale exigible to 12% of tax is not correct.


29. Similarly in other cases, boulder, chips having not suffered from payment of sales tax must be at the rate of 12% of taxable list under the Act as observed by Assessing Officer is not correct because they are made extracted from quarry even if purchased from M/s.OCL.


30. The First Appellate Authority, without going to the facts but by only relying upon the decisions of the Courts, agreed with the view of the learned Assessing Officer that same are to be taxed at the rate of 12% under the Act. Thus, the concurrent finding of the fact by the learned Assessing Officer as well as by the First Appellate Authority that the ballasts supplied to S.E.Railway or chips, boulders supplied to Railway or private parties are nothing but extracted from the quarry which was leased out to the opposite party and in other cases to their vendors. Of course, the Tribunal has taken aid of the Act, 1957 because of the fact that the ballasts or boulders or chips supplied spalls being cut to size and spalls have been extracted from quarry. It is a fact that the ballasts, boulders and chips are to be interpreted under the Act but by not taking aid of any other Act. The ballasts, boulders and chips have not been defined under the Act. The question of taking aid of other Act will only arise if there is no use of the same on common parlance.


31. It is reported in the case of Banarasi Dass Chadha and others –V- L.T. Governor, Delhi Administration and others; AIR 1978 SC 1587 where Their Lordships at paragraphs 4 to 7, have observed as follows:

“4.We agree with the learned Counsel that a substance must first be a mineral before it can be notified as a minor mineral pursuant to the power vested in the Central Government under Section 3(e) of the Act. The question, therefore, is whether brick-earth is a mineral.

The expression "Minor Mineral" as defined in Section 3(e) includes 'ordinary clay' and 'ordinary sand'. If the expression "minor mineral" as defined in Section 3(e) of the Act includes 'ordinary clay' and `ordinary sand', there is no reason why earth used for the purpose of making bricks should not be comprehended within the meaning of the word "any other mineral" which may be declared as a "minor mineral" by the Government. The word "mineral" is not a term of art. It is a word of common parlance, capable of a multiplicity of meaning depending upon the context. For example the word is occasionally used in a very wide sense to denote any substance that is neither animal nor vegetable.
Sometimes it is used in a narrow sense to mean no more than precious metalls like gold and silver. Again, the word "minerals" is often used to indicate substances obtained from underneath the surface of the earth by digging or quarrying. But this is not always so as pointed out by Chandrachud, J (as he then was) in Bhagwan Dass v. State of Uttar Pradesh, AIR 1976 SC 1393 where the learned judge said (at p.1397):

‘'It was urged that the sand and gravel are deposited on the surface of the land and not under the surface of the soil and therefore they cannot be called minerals and equally so, any operation by which they are collected or gathered cannot properly be called a mining operation. It is in the first place wrong to assume that mines and minerals must always be sub-soil and that there can be no minerals on the surface of the earth. Such an assumption is contrary to informed experience. In any case, the definition of mining operations and minor minerals in section 3(d) and (e) of the Act of 1957 and Rule 2(5) and (7) of the Rules of 1963 shows that minerals need not be subterranean and that mining operations cover every operation undertaken for the purpose of "Winning" any minor mineral. "Winning" does not imply a hazardous or perilous activity. The word simply means extracting a mineral" and is used generally to indicate any activity by which a mineral is secured. "Extracting" in turn means drawing out or obtaining. A tooth is 'extracted' as much as the fruit juice and as much as a mineral. Only that the effort varies from tooth to tooth, from fruit to fruit and from mineral to mineral".


5. We may also refer to Northern Pacific Railway Company v. John A. Sedrbarg; (1902) 47 Law Ed 575) where the Supreme Court of United States observed as follows (at page 581):

"The word 'mineral' is used in so many senses, dependant upon the context, that the ordinary definitions of the dictionary throw but little light upon its significance in a given case.

Thus, the scientific division of all matter into the animal, vegetable, or mineral kingdom would be absurd as applied to a grant of lands, since all lands belong to the mineral kingdom, and therefore, could not be excepted from the grant without being destructive of it. Upon the other hand, a definition which would confine it to the precious metals-gold and silver-would so limit its application as to destroy at once half the value of the exception. Equally subversive of the grant would be the definition of minerals found in the Century Dictionary: as "any constituent of the earth's crust" ; and that of Beinbridge on Mines: "All the Sub- stances that now form, or which once formed, a part of the solid body of the earth". Nor do we approximate much more closely to the meaning of the word by treating minerals as substances which are “”mined”” as distinguished from those are "quarried", since many valuable deposits of gold, copper, iron, and coal lie upon or near the surface of the earth, and some of the most valuable building stone, such for instance, as the Caen stone in France, is excavated from mines running far beneath the surface. This distinction between under ground mines and open workings was expressly repudiated in Midland C. v. Haunchwood Brick & Tile Co. ((1882) 20 Ch Div 552) and in Hext v. Gill ((1872) 7 Ch 699)”

6.The Supreme Court of United States also referred to several English cases where stone for road making or paving was held to be 'minerals' as also granite, sandstone, flint stone, gravel, marble, fire clay, brick clay, and the like. It is clear that the word 'mineral' has no fixed but a contextual connotation.

7.xxx xxx xxx

That is why we say the word mineral has no definite meaning but has a variety of meanings, depending on the context of its use. In the context of the Mines and Minerals (Regulation & Development) Act, we have no doubt that the word 'mineral' is of sufficient amplitude to include 'brick-earth'. As already observed by us, if the expression 'minor mineral' as defined in the Act includes 'ordinary clay' and 'ordinary sand', there is no earthly reason why 'brick-earth' should not be held to be 'any other mineral' which may be declared as 'minor mineral. We do not think it necessary to pursue the matter further except to say that this was the view taken in Laddu Mal v. State of Bihar; AIR 1965 PAT 491, Amar Singh Modilal v. State of Haryana; AIR 1972 PUNJ & HAR 356 (FB) and Sharma & Co. v. State of U.P.; AIR 1975 ALL 386.

Xxx xxx xxx xxx”


32. With due regard to the aforesaid decision, it appears that the mineral not necessary to be viewed with reference to the provisions of the Act but it depends on the use of the same on different context.

Although the minerals under the Act, 1957 is discussed in the aforesaid judgment, but Their Lordships took “brick earth” to be any other mineral. The aforesaid decision has also been followed in the decision rendered in the case of Stonecraft Enterprises –V- Commissioner of Income Tax; (1999) 237 ITR 131 SC where Their Lordships have observed as follows:

“It is necessary immediately to note that the Mines and Minerals (Regulation and Development) Act covers granite as a minor mineral. This Court in the State of Mysore vs. Swamy Satyanand Saraswati; AIR 1971 SC 1569 has held that granite is a mineral. The Court quoted Habbury Laws of England, thus (page 1575):

'"The test of what is a mineral is what, at the date of instrument in question, the word meant in the vernacular of the mining world, the commercial world, and among land owners, and in case of conflict this meaning must prevail over the purely scientific meaning.”

No material was laid by the assessee before the Tribunal to suggest that in the export world granite was treated as anything but a mineral.

Reference was made to the judgment of this Court in Banarsi Dass Chadha & Bros. –V- Lt. Governor.
Delhi Administration AIR 1978 1587; (1979) 1 SCR 271. It was there held that the word 'mineral' is a word of common parlance, capable of a multiplicity of meanings depending upon the context. For example, the word is occasionally used in a very wide sense to denote any substance that is neither animal or vegetable. Sometimes it is used in a narrow sense to mean no more than precious metals like gold and silver. Again, the word 'minerals' is often used to indicate substances obtained from underneath the surface of the earth by digging or quarrying.

It is at this stage appropriate to refer to the argument of learned counsel for the assessee based upon the doctrine of noscitur a sociis which as he submitted, has been explained by this Court in Pardeep Aggarbatti –VState of State of Punjab & Ors. (1997) 107 STC 567’ (1997) 8 SCC 511 (pages 565 of 107 STC):

“Entries in the Schedules of sales tax and excise statutes list some articles separately and some articles are grouped together. When they are grouped together, each word in the entry draws colour from the other words therein. This is the principle of noscitur a sociis.”


33. With due regard to the said decision, it appears that the word “mineral” is a word of common parlance used in various way but cannot be used in narrow sense. Similarly, it appears from the aforesaid decision that entries in the schedules of sales tax and excise statutes draws colour from the other words therein because of the principle of noscitur a sociis. Thus depending on the aforesaid doctrine in the present context, we have to see whether the ballast is a mineral even if it is not to be defined as mineral under the Act, 1957 or Rules made thereunder. Since the facts are clear in this case to show that the ballast has been prepared from the spalls which are extracted from the quarry taken by the opposite parties on payment of royalty and it has not been defined separately in the tax list, it is to be understood with common parlance.


34. It is reported in the case of Porritts & Spencer (Asia) Ltd –V- State of Haryana; AIR 1979 SC 300 where Their Lordships have decided as to whether “Dryer felts” are “textiles” within the meaning of that expression in Item 30 of Schedule ‘B’ to the Punjab General Sales Tax, 1948. In that judgment, Their Lordships have considered the meaning of “Common parlance” in the following manner:

“1. 'Dryer felts' are 'textiles' within the meaning of that expression in Item 30 of Schedule 'B' to the Punjab General Sales Tax Act, 1948.

2. In a taxing statute words of everyday use must be construed not in their scientific or technical sense but as understood in common parlance, meaning "that sense which people conversant with the subject-matter with which the statute is dealing would attribute to it.”

Ramavtar Bhudhaiprasad etc. V Assistant Sales Tax Officer, Akola and another; AIR 1961 SC 1325, M/s.Motipur Zamindary Co. (Pvt) Ltd and another V Superintendent of Taxes, Muzafarpur and another; AIR 1962 SC 660, State of West Bengal and others V Washi Ahmed etc. (1977) 3 SCR 149 and Madhya Pradesh Pan Merchant’s Association, Santara Market, Nagpur V State of Madhya Pradesh (Sales Tax Department) and others, 7 STC 99 at 102 referred (1 to E Gretfell V IR.C. (1876) I Ex. D. 242 at 248, Planters Nut and Choco Co. Ltd V. The Kind (1951) 1 DLH 385 and 200 Chest of Tec (1824) 9 Wheaton (U.S.) 430 at 438; quoted with approval.

Where a word has a scientific or technical meaning and also an ordinary meaning according to common parlance, it is in the latter sense that in a taxing statute the word must be held to have been used, unless contrary intention us clearly expressed by the Legislature. The reason is that the Legislature does not suppose our merchants to be 'naturalists, or geologists, or botanists". In the instant case the word 'textiles' is not sought by the assessee to be given a parlance.

3. The concept of 'textiles' is not a static concept.
It has, having regard to newly developing materials, methods techniques and processes, a continually expanding content and new kinds of fabric may be invented which may legitimately, without doing any violence to the language be regarded as textiles.

The word 'textiles' is derived from Latin 'texere' which means 'to weave' and it means woven fabric.
When yarn, whether cotton, silk. woollen rayon, nylon or of any other description or made out of any other material is woven into a fabric, what comes into being is a 'textile' and is known as such. Whatever be the mode of weaving employed, woven fabric would be 'textile'. What is necessary is no more than meaning of yarn and weaving would mean binding or putting together by some process so as to form a fabric. A textile need not be of any particular size or strength or weight. The use to which it may be put is also immaterial and does not bear on its character as a textile. The fact that the 'dryer felts' are used only as absorbents of moisture in the process of manufacture in a paper manufacturing unit, cannot militate against 'dryer felts' falling within category of textiles, if otherwise they satisfy the description of textiles. The Customs, Tariff Act, 1975 refers to textile fabrics in this sense.”


35. With due respect to the aforesaid decision, it is clearly observed that whether the word has a scientific and technical meaning and also it is in the later sense that in a taxing statute, the word must be held to have been used unless contrary intention is expressed by the legislature. Similarly, it is reported in the case of Commissioner of Central Excise, New Delhi –V- Connaught Plaza Restaurant (P) Ltd; 2012 (286) E.L.T. 321 (S.C.) where a similar question arose and Their Lordships, at paragraphs 18, 19 and 31, have observed as under:

“18. Time and again, the principle of common parlance as the standard for interpreting terms in the taxing statutes, albeit subject to certain exceptions, where the statutory context runs to the contrary, has been reiterated. The application of the common parlance test is an extension of the general principle of interpretation of statutes for deciphering the mind of the law maker;

“it is an attempt to discover the intention of the legislature from the language used by it, keeping always in mind, that the language is at best an imperfect instrument for the expression of actual human thoughts.”

19. A classic example on the concept of common parlance is the decision of the Exchequer Court of Canada in The King Vs. Planter Nut and Chocolate Company Ltd; (1951) CLR (Ex. Court) 122. The question involved in the said decision was whether salted peanuts and cashew nuts could be considered to be "fruit" or "vegetable" within the meaning of the Excise Tax Act. Cameron J., delivering the judgment, posed the question as follows:

“...would a householder when asked to bring home fruit or vegetables for the evening meal bring home salted peanuts, cashew or nuts of any sort? The answer is obviously `no'.” Applying the test, the Court held that the words “fruit” and “vegetable” are not defined in the Act or any of the Acts in pari materia. They are ordinary words in every-day use and are therefore, to be construed according to their popular sense.

Xx xx xx xx

31. Therefore, what flows from a reading of the aforementioned decisions is that in the absence of a statutory definition in precise terms; words, entries and items in taxing statutes must be construed in terms of their commercial or trade understanding, or according to their popular meaning. In other words they have to be constructed in the sense that the people conversant with the subject-matter of the statute, would attribute to it. Resort to rigid interpretation in terms of scientific and technical meanings should be avoided in such circumstances. This, however, is by no means an absolute rule. When the legislature has expressed a contrary intention, such as by providing a statutory definition of the particular entry, word or item in specific, scientific or technical terms, then, interpretation ought to be in accordance with the scientific and technical meaning and not according to common parlance understanding.”


36. In the aforesaid decision, Their Lordships have also relied on the decisions in the case of Ramavatar Budhaiprasad Etc. Vs. Assistant Sales Tax Officer, Aloka (1962) 1 SCR 279, Commissioner of Sales Tax, Madhya Pradesh Vs. Jaswant Singh Charan Singh; (1967) 2 SCR 720, Dunlop India Ltd. Vs. Union of India & Ors; (1976) 2 SCC 241, Shri Bharuch Coconut Trading Co. and Ors. Vs. Municipal Corporation of the City of Ahmedabad & Ors: 1992 Suppl. (1) SCC 298, Indian Aluminium Cables Ltd. Vs. Union of India & Ors; (1985) 3 SCC 284, Collector of Central Excise, Kanpur Vs. Krishna Carbon Paper Co; (1989) 1 SCC 150, Reliance Cellulose Products Ltd., Hyderabad Vs. Collector of Central Excise, Hyderabad-I Division, Hyderabad; (1997) 6 SCC 464, Shree Baidyanath Ayurved Bhavan Ltd. Vs. Collector of Central Excise, Nagpur, (1969) 9 SCC 402, Naturalle Health Products (P) Ltd. Vs. Collector of Central Excise, Hyderabad; (2004) 9 SCC 136 and B.P.L. Pharmaceuticals Ltd. Vs. Collector of Central Excise, Vadodara; (1995) Suppl. (3) SCC 1.


37. After analyzing all the above decisions, Their Lordships have made it clear as to what is “Common Parlance Test”. Thus, in the absence of a statutory definition in precise terms; words, entries and items in taxing statutes must be construed in terms of their commercial or trade understanding, or according to their popular meaning. In other words they have to be constructed in the sense that the people conversant with the subject-matter of the statute, would attribute to it.


38. Now adverting to the present cases, the ballasts are deduced from the spalls which are extracted from quarry. The ballasts may be different size to make it boulder or chips. Neither ballasts nor chips or boulders are found in the taxable list but in ordinary sense, one can understand that it is nothing but the mineral as in the aforesaid paragraphs, the meaning of mineral has been well decided in the case of Banarasi Dass Chadha and others –V- L.T. Governor, Delhi Administration and others (Supra). When the ballasts, boulders and chips have got “common parlance” with the minerals as available in Entry 117 even without taking the aid of the Act, 1957 or Rules made thereunder, the facts remain that the quarry leased out to opposite party in STREV No.101 of 2011 or the chips or boulders purchased by other opposite parties from the M/s.OCL who have also got the same from quarry by taking the mining of the same on “common parlance” is nothing but “mineral”. It is, therefore, the opinion of the Tribunal in this regard in all the revisions that they are all mineral cannot be said to be incorrect. Of course, the finding of the Tribunal is based on the definition of mineral in the Act, 1957 or Rules made thereunder. Even if taking the “common parlance test” without going to the reasons by the Tribunal, the result is same to the effect that the ballasts, boulders or chips are nothing but “mineral” under Sales Tax Act exigible to tax at the rate of 4% as per Entry 117 of the taxable list. The Point No.(1) is answered accordingly.


39. POINT No.(2)

Section 23(3) of the Act states as follows:

“23.(3)(a) Any dealer or as the case may be, the State Government dissatisfied with an appellate order made under sub-section (2) may within sixty days from the date of receipt of such order prefer an appeal in the prescribed manner to the Tribunal against such order.

Provided that an appeal under this clause may be admitted after the aforesaid period of limitation if the Tribunal is satisfied that the appellant had sufficient cause for not preferring the appeal within such period.

(b)The dealer or the State Government as the case may be on receipt of notice that an appeal has been preferred under clause (a) may notwithstanding that the said dealer or the State Government may not have appealed against such order or any part thereof, within sixty days of the service of the notice file a memorandum of cross objections and such memorandum shall be disposed of by the Tribunal as if it were an appeal presented within time under clause (a)

(c) While disposing of an appeal under this sub-section the Tribunal shall have the same powers subject to the same conditions as are enumerated in sub-section (2) and any order passed under this sub-section shall, except as otherwise provided in section 24 be final.”


40. Section 23 of the Act speaks about appeal and revision and there is no bar for the party to file cross-objection. In the revision petitions, the State-petitioner admitted that they have not filed any revision as there are concurrent finding in their favour. So, question of giving opportunity to the State-petitioner to file cross-objection by the Tribunal as argued by the petitioner is of no substance.


41. The contention of the learned Standing Counsel for the State-petitioner that the opposite parties raised for the first time about the exigibility of the ballast or boulder or chips under Entry 117 of the tax list has no substance because the Tribunal is a Court of fact and law as per Section 23 of the Act. When such fact is pleaded, there is no bar for the State to rebut the facts by filing cross-objection. Moreover, it appears from the orders of the learned Assessing Officer and First Appellate Authority that the argument as has already been advanced before the forums below that it is a work contract but not a contract for sale and it should be chargeable to 8%.


42. It is further clear from the assessment order and the First Appellate Authority’s order that sales tax has been demanded for dealing in ballasts or boulders or chips by the respective opposite parties. So, the question is whether they are to be exigible to tax at the rate of 4% or 12% of taxable list in the schedule attached to the Act is a question of law as per the interpretation made by the parties. It is trite in law that the question of law can be raised at any stage. Moreover, the contention of the State that such plea of exigibility to tax at the rate of 4% of the taxable list before the Tribunal is barred by limitation is not acceptable as the said being question of law can be raised at any stage, as discussed above. Point No.(2) is answered accordingly.


43. CONCLUSION

From the foregoing discussions, we are of the view that ballasts or boulders or chips being mineral as per Entry 117 of the taxable list are exigible to tax at the rate of 4% of taxable list. Moreover, the appeal has been purportedly filed before the Tribunal with proper perspective and there is no defect in raising any such plea before it. It has already been observed that rightly the Tribunal has excluded the loading charges from the computation of the sales tax in STREV No.101 of 2011. Thus, the findings of the Tribunal in all the second appeals are correct and legal and we confirm the said orders of the Tribunal.

In the result, these Revisions, being devoid of any merits, stand dismissed.


…....…………………..……
Dr.D.P.Choudhury,J.


I.Mahanty,J. I agree.

.................................
I.Mahanty,J

Orissa High Court, Cuttack
Dated the 1st Day of March, 2017/B.Nayak

ORISSA HIGH COURT: CUTTACK

O.J.C. No. 9397 of 1999

In the matter of an application under Articles 226 and 227
of the Constitution of India.
----------

M/s. Sagarmal Agarwalla.
… Petitioner

-versus-

Commissioner of Sales Tax,Orissa, Cuttack and 2 others
… Opp. Parties

For petitioner : Mr. Jagabandhu Sahoo, Sr. Advocate along with M/s S.K.Mohanty, P.K. Das and G.K. Sahu, Advocates
For opp. parties : Dr. C.R.Mishra, Advocate


P R E S E N T :
THE HON’BLE THE CHIEF JUSTICE MR. VINEET SARAN
AND
THE HON’BLE DR. JUSTICE B.R.SARANGI

Decided on : 10.01.2018


VINEET SARAN, C.J.

The petitioner is a registered dealer under the provisions of Central Sales Tax Act as well as Orissa Sales Tax Act dealing with petrol, diesel, kendu leaves  and jute, having its place of business at Dhenkanal under the administrative territorial jurisdiction of the Sales Tax Officer, Dhenkanal-I Circle, Angul. The petitioner was initially assessed under Rule 12(5) of the Central Sales Tax (Orissa) Rules, (in short “CST(O) Rules”) in the year 1991 by the Sales Tax Officer-opposite party no.3, who, vide order dated 05.03.1993, after examining the books of accounts and related documents, allowed the claim of exemption made by the petitioner under Section 6(2) of the Central Act and determined to refund an amount of Rs.12,814/-. But, subsequently, on receipt of objection raised by the audit party questioning grant of exemption under the Central Act, opposite party no.3 reopened the assessment, called upon the petitioner to participate in the reassessment proceeding and, by order dated 25.08.1993, disallowed the claim of exemption and demanded a sum of Rs.7,696/- under the Central Act.


The Assistant Commissioner of Sales Tax, Cuttack-II Range, Cuttack-opposite party no.2 initiated a proceeding under Rule 80 of the Orissa Sales Tax Rules to revise the  reassessment already made, vide order dated 25.08.1993, in the year 1990-91 and held, by order dated 05.09.1996, that claim for exemption made by the petitioner is not allowed and that the entire claim of exemption on the said transaction was put to sales tax under the Central Act.


Against the said revisional order dated 05.09.1996, the petitioner preferred an appeal before opposite party no.1, who dismissed the same by order dated 05.06.1999 without assigning any reason, hence this application.


2. Sri J. Sahoo, learned Senior Counsel appearing along with Sri S.K. Mohanty, learned counsel for the petitioner raised various questions, but confined his argument only to the question of limitation stating inter alia that the order dated 05.09.1996 passed by opposite party no.2 is beyond the prescribed period of limitation as provided under Section 23 of the Orissa Sales Tax Act read with Rule 80 of the Orissa Sales Tax Rules. It is contended that Rule 80 provides for suo motu revision by the Commissioner of Sales Tax within a period of three years from the date of passing of the order by the Sales Tax  Officer, but the reassessment having been made by the Sales Tax Officer on 25.08.1993, the order dated 05.09.1996 passed by opposite party no.2 is beyond the period of limitation and, as such, the same is liable to be quashed.


3. Dr. C.R. Mishra, learned counsel appearing for the opposite parties contended that under the Orissa Sles Tax Act and Orissa Sales Tax Rules initiation of suo motu revision should be within three years and the conclusion can be thereafter. It is further contended that limitation of three years would apply only to the first part of the Rule which relates to calling for the records of the proceedings and not with regard to passing of the revisional order as the two sections of the Rule are joined with the word ‘and’ would mean that limitation of three years would be applicable for the first part only and not for the second part which is for passing of the order.


4. We have heard Sri J.Sahoo, learned Senior Counsel appearing along with Sri S.K.Mohanty for the  petitioner as well as Dr. C.R.Mishra, learned counsel for the opposite parties and perused the record.


5. The fact delineated above being undisputed, for just and proper adjudication of the case in hand, it may be proper to reproduce the relevant Section 23(4)(a) of the O.S.T. Act and the relevant Rule-80 of the O.S.T.Rules.


“23. Appeal and Revision

xxx xxx xxx

(4) (a) Subject to such rules as may be made and for reasons to be recorded in writing, the Commissioner may, upon application by a dealer (or person) or on his own motion revise any order made under this Act or the rules made thereunder by any person other than the Tribunal, appointed under sub-section (3) of Section 3 to assist him :

Provided that the Commissioner shall not entertain any such application for revision if the dealer (or person) filing the same having a remedy by way of appeal under sub-section (1), or sub-section (3) did not avail of such remedy or the application is not filed within the prescribed period.

xxx xxx xxx

“Rule 80. Revision by the Commissioner Suo Motu-

The Commissioner may on his own motion at any time within three years from the date of passing of any order by the Sales Tax Officer or within two years from the date of passing of any order by the Additional Commissioner, Special Additional Commissioner or Assistant Commissioner, as the case may be, call for records of the proceedings in which such order was passed and if he considers that any order  passed therein is erroneous in-so-far-as it is prejudicial to the interest of the revenue he may after giving the dealer an opportunity of being heard and after making or causing to be made such enquiry as he deems necessary revise any such order:

Provided that the Commissioner shall not revise any order under this rule-
(1) Where an appeal against the order is pending before the appellate authority under section 23, or (2) Where time limit for filing an appeal under Section 23 has not expired.”


6. In view of the aforementioned provisions, taking into consideration the factual aspect of the case in hand, the only dispute which is to be resolved by this Court in the present writ petition is with regard to interpretation of Section 23(4)(a) of O.S.T.Act read with Rule 80 of the O.S.T.Rules wherein the limitation for the suo motu revision has been provided for.


7. The power of the Commissioner to revise an order either on application by the dealer on his own motion has been provided for under sub-section (4)(a) of Section 23 of the O.S.T.Act which is subject to limitation provided under Rule 80 of the Rules. There is no dispute  with regard to the power of the Commissioner to initiate suo motu proceedings for revision.


8. The only question which remains for determination of this Court is as to whether under Rule 80 of the Rules, revisional proceedings are to be concluded from the date of passing of the final orders passed within a period of three years sought to be revised or the proceedings if initiated within three years can be concluded beyond the period of three years.


9. For the purpose of this case, the relevant Rule 80 can be read in the manner that the Commissioner may on his own motion at any time within three years from the date of passing of any order by the Sales Tax Officer……., call for records of the proceedings in which such order was passed and if he considers that any order passed therein is erroneous………he may after giving the dealer an opportunity of being heard and after making or causing to be made such enquiry as he deems necessary revise any such order.


10. Any interpretation contrary to the above would mean that even though initiation of proceedings for revision may be done within three years, final order can be passed after years of such initiation which would keep the matter hanging for years together, which cannot be the intention of the Act. The purpose of Rule 80 is to give finality to the suo motu proceedings initiated by the Asst.


Commissioner within a specified period and the same can be done after proper interpretation is given that the proceedings are to conclude and revision orders passed within a period specified in the Rule.


11. In our view, the entire Rule 80 cannot be read in a disjoined manner. On reading of the Rule in a joint manner would make it clear that for revising an order within a period of three years after providing opportunity to the assessee and calling for the records, the revision order itself has to be passed within a period of three years.


12. The decision of this Court rendered in the case of Commissioner of Sales Tax vs. Nilei Sahoo,  (1961) XII STC 728 as relied on by Dr. Mishra, learned counsel for the opposite party would not be applicable to the facts of the present case, as the same has been rendered while interpreting the provisions of Section 12(7) of the OST Act which only dealt with the re–opening of the assessment within a period of 36 months and there was no mention in the said Section with regard to passing of the of the final order within a period of 36 months. As such, since the wordings of Section 12(7) of the O.S.T.Act as then stood are distinct from those of Rule 80 of the Rules which is interpreted in this case. The said decision would not relevant for the purpose of deciding the present case.


13. In view of the aforesaid, we are of the opinion that passing of the order dated 05.09.1996 in Annexure-3 which was beyond the period of three years from the date of the order sought to be revised, is liable to be quashed as also the order of the Commissioner dated 05.06.1999 in Annexure-4.


14. For the foregoing reasons, this writ petition stands allowed. The orders dated 05.09.1996 in Annexure-3 and dated 05.06.1999 in Annexure-4 are accordingly quashed. No order as to cost.


Sd/-
(VINEET SARAN)
CHIEF JUSTICE

Sd/-
(DR. B.R.SARANGI)
JUDGE


Orissa High Court, Cuttack
The 10th January, 2018

/dm/GDS/Ashok/Alok
True Copy
P.A.

ORISSA HIGH COURT, CUTTACK

W.P.(C) No.10715 of 2014


In the matter of an application under Articles 226 and 227 of the
Constitution of India.
--------------------

M/s. Subas & Company, Bhubaneswar
…… Petitioner

-versus-

Deputy Commissioner of Sales Tax, Bhubaneswar II Circle & others

…... Opp. Parties

For Petitioner : M/s. Prakash Kumar Jena, S.P. Dalei, S.C. Sahoo, L.N. Sahoo & A.R. Mishra
For Opp. Parties : Mr. Debadutta Beura Standing Counsel (Sales Tax Department)
---------------

Date of Judgment: 20.02.2018
-----------------

P R E S E N T:
THE HONOURABLE SHRI JUSTICE I. MAHANTY
AND
THE HONOURABLE SHRI JUSTICE BISWAJIT MOHANTY
---------------------------------------------------------------------------------


Biswajit Mohanty, J.


An assessee has filed this writ application with prayers to quash the assessment order dated 19.3.2014 (Annexure-1) passed under Section 43 of the Odisha Value Added Tax Act, 2004 and the demand notice under Annexure-2 both passed by the Deputy Commissioner of Sales Tax, (Opposite Party No.1). The assessee has also prayed for a direction to the Assessing Officer to re- compute / reassess the turnover and tax after accepting the revised returns and allowing the petitioner all his rights to file returns revising the turnover as permitted under law. In the alternative, it has prayed for a direction to waive the precondition of payment of 20% of the disputed tax and interest in the event a direction is given for filing of the appeal under the Odisha Value Added Tax Act, 2004, for short “the OVAT Act”.


2. According to the petitioner it operates a sole Proprietorship business and deals in Gold Bullion and Ornaments. Most of its purchases are made from the Punjab National Bank, for short, “the Bank”. The petitioner-assessee purchases Gold Bullion under a rate cutting contract and “the Bank” in turn purchases Bullion from the foreign dealers. As per the Bullion agreement with “the Bank” under Annexure-3, the petitioner places order for Bullion with “the Bank” in the form of an indent and “the Bank” negotiates with the foreign Bullion dealers for the consignment. On receiving the same, “the Bank” informs the petitioner to take delivery of it. When the petitioner takes delivery of stock, a delivery challan is issued at the rate of gold price prevailing on that day. But according to the petitioner, the same is not final sale price. Since the transaction of purchase of Gold bullion by “the Bank” from the foreign Bullion dealers are in terms of international rates of Bullion and foreign exchange rates, both of which keep fluctuating; as per terms of business with “the Bank”, “the Bank” allows a grace period of 11 days to the petitioner for choosing the price as per the lowest Bullion rate in the international markets at London/New York and also gives the assessee a choice for choosing prevailing rate of foreign exchange. “The Bank” permits the petitioner to fix the price as per its choice when the rates are the lowest which is termed as “Rate Cutting”.


When the petitioner communicates to “the Bank” about the finalization of the rate on a particular day during the grace period, “the Bank” concludes the sale on its part and raises the Invoice, which may be days after the transaction and receipt of the stock by the petitioner. For accounting purposes, the petitioner accounts for the purchase as soon as it receives the Bullion from “the Bank” along with the delivery challan and records it at the price shown in the challan, which is as per the rate prevailing on that day and also computes the tax and accounts for it. Accordingly, it files monthly VAT returns. When finally the sale price is fixed as indicated earlier and on receiving the tax invoice from “the Bank”, which are often issued after 15 days; the petitioner files the revised returns to adjust the actual sale price of the goods and tax thereon. Further, according to the petitioner the opposite parties conducted the tax audit under Section 41 of “the OVAT Act” for the period 1.4.2007 to 31.10.2012. In its Audit Visit Report under Annexure-4, the method of fixing the sale price and the rate cutting have been reflected. According to the petitioner on the basis of the above noted Audit Visit Report, audit assessment was completed under Section 42 of “the OVAT Act” for the period 1.4.2007 to 30.11.2012 and accordingly, the assessment order under Annexure-5 was issued on 18.5.2013. Subsequently, in the very next month the opposite party no.1 vide letter no.5476/CT dated 6.6.2013 informed the Joint Commissioner of Commercial Taxes, Bhubaneswar Range, Bhubaneswar that discrepancies have been detected in the VAT return filed for the period 1.4.2013 to 30.4.2013 by the petitioner, which necessitated further investigation. Accordingly, the opposite party no.1 informed the Joint Commissioner of Commercial Taxes that the matter has been discussed with DCCT Enforcement, Bhubaneswar for detailed enquiry and for submission of enquiry report. Accordingly, the report dated 29.6.2013 under Annexure-6 was prepared, which fallaciously showed that return filed by the assessee claiming input tax credit continuously resulted in eating away the output tax actually generated thereby defaulting in payment of output tax by claiming erroneous input tax credit. Hence, the Sales Tax Officer, Enforcement Range, Bhubaneswar recommended for initiation of action under Section 43 of “the OVAT Act” under Annexure-6. According to the petitioner, basing on the report under Annexure-6, the Assessing Officer passed the impugned order of Assessment under Section 43 of “the OVAT Act” as per Annexure-1 on the ground that the petitioner-assessee is continuously claiming excess input tax credit than what was actually admissible. Consequently, the impugned demand notice under Annexure-2 has been issued.


3. Heard Mr. Dalei, learned counsel for the petitioner and Mr.


Debadutta Beura, learned Standing Counsel for Commercial Taxes.


4. Mr. Dalei, learned counsel for the petitioner submitted that the entire decision making process resulting in passing of assessment order under Annexure-1 and consequential demand notice under Annexure-2 has been vitiated as the Officer/Deputy Commissioner of Commercial Taxes, Bhubaneswar-II Circle, Bhubaneswar, who vide letter no.5476 dated 6.6.2013 addressed to the Joint Commissioner of Commercial Taxes, Bhubaneswar Range, Bhubaneswar with copy endorsed to Deputy Commissioner of Commercial Taxes, Enforcement Range, Bhubaneswar highlighted about the discrepancies detected on verification of VAT returns filed for the period 1.4.2013 to 30.4.2013 filed by the petitioner as well as Punjab National Bank and who accordingly recommended further investigation; has himself passed the assessment order under Section 43 of the OVAT Act under Annexure-1.


Thus, according to Mr. Dalei, the opposite party no.1 has become a judge in his own cause. In other words, he pointed out that since at his instance enquiry for the investigation was initiated after he detected the so-called huge mismatch and excess claim of ITC by the petitioner, therefore, the said opposite party no.1 ought not to have acted as an Assessing Officer while passing the order under Section 43 of “the OVAT Act” under Annexure-1. He strenuously submitted the officer recommending further investigation and the officer passing the assessment order under Annexure-1 are one and the same. In such background, he prayed that since the impugned assessment order under Annexure-1 has been issued in violation of the principles of natural justice, the same is liable to be quashed along with consequential demand notice under Annexure-2. In this connection, he relied upon a decision of this Court as rendered in ABB India Limited – v- State of Odisha and Others as reported in (2015) 77 VST 124 (Orissa).


5. Mr. Debadutta Beura, learned Standing Counsel for commercial Taxes defended the impugned order of assessment and submitted that the said order under Annexure-1 did not suffer from any illegality or infirmity. However, upon instruction he fairly submitted that the officer, who has issued letter no.5476 dated 6.6.2013 to the Joint Commissioner of Commercial Taxes, Bhubaneswar Range, Bhubaneswar highlighting the discrepancy in the VAT returns filed for the period 1.4.2013 to 30.4.2013 and huge mismatch and excess of claim of ITC recommending further investigation, has acted as an Assessment Officer under Section 43 of “the OVAT Act” resulting in issuance of Assessment Order under Annexure-1. He further submitted that the said officer has been transferred from the said post and a different Assessing Officer is presently posted.


6. Having heard the parties, the sole issue that falls for our consideration is whether the opposite party no.2, who on finding discrepancies in the VAT returns had recommended further investigation and wanted submission of detailed enquiry report/evasion report, was competent to assess the petitioner under Section 43 of “the OVAT Act”? As per direction of this Court, Mr. Beura, learned Standing Counsel produced the relevant records including the letter dated 6.6.2013 referred to above.


7. In order to appreciate the issue in a proper manner, we think it appropriate to extract the letter dated 6.6.2013 written by opposite party no.2 to the Joint Commissioner of Commercial Taxes in full as hereunder:-


“OFFICE OF THE DEPUTY COMMISSIONER OF COMMERCIAL
TAXES, BHUBANESWAR II CIRCLE, BHUBANESWAR.

No._________________CT., Date__________________

To

The Joint Commissioner of Commercial Taxes,
Bhubaneswar Range, Bhubaneswar.


Sub: Discrepancies detected on verification of Column No.57 of M/s. Subash & Company, Bhubaneswar, TIN-21191106567 and M/s. Punjab National Bank, Bhubaneswar, TIN-21301117904, in the VAT return filed for the period 01.04.2013 to 30.04.2013, both the dealers registered in Bhubaneswar II Circle, Bhubaneswar.

Sir,

In inviting a reference to the subject stated above, I am to say that M/s. Subash & Company, TIN-21191106567 is a registered dealer under Bhubaneswar II Circle engaged in trading of Gold Bullion and God Ornaments. On verification of Column 57 of VAT return for the period 01.04.2013 to 30.04.2013, it is found that the dealer has purchased goods of value Rs.81,34,49,267/- with payment of VAT Rs.81,34,495/- from M/s Punjab National Bank, Bhubaneswar, Tin-21301117904. Cross verification of sale invoice issued by the selling dealer M/s Punjab National Bank, Bhubaneswar, TIN-21301117904 at Column 57 reveals that the total sale vide invoice no.229-236, 238-242, 244-249, 255-258 to M/s Subash & Company, TIN-21191106567 for Rs.67,43,30,468/- with collection of VAT of Rs.67,43,306/-.

Hence, prima facie, there is a huge mismatch and excess claim of ITC by M/s Subash & Company, Tin-21191106567 necessitating further investigation.
The matter has been discussed with the DCCT, Enforcement, Bhubaneswar for detailed enquiry at both the ends and submission of enquiry report/evasion report.

This is submitted for kind information.

Yours faithfully,


Deputy Commissioner of Commercial Taxes
Bhubaneswar II Circle, Bhubaneswar

Memo No:5477/CT, Dt:06.06.2013


Copy submitted to the Deputy Commissioner of Commercial Taxes, Enforcement Range, Bhubaneswar for information for necessary action.


Sd/- 6.6.2013
Deputy Commissioner of Commercial Taxes
Bhubaneswar II Circle, Bhubaneswar”.(underlined for emphasis)


The above letter clearly shows the opposite party no.1 has clearly highlighted the discrepancies and accordingly wanted further investigation in the matter. As indicated earlier as admitted by the learned counsel for the Revenue, the same officer, who made the above noted communication has later acted as the Assessing Officer resulting in issuance of the assessment order under Annexure-1. A perusal of the assessment order shows that he himself has referred to his own proposal sent vide above noted letter dated 6.6.2013 for conducting further investigation regarding mismatch in claim of ITC and consequential loss of revenue. The assessment order further shows that the gist of letter dated 6.6.2013 has been reflected in the 2nd and 3rd Paragraphs of the assessment order itself. In such background, the likelihood of bias of opposite party no.2 while doing assessment cannot be ruled out. It is well settled that the principles of natural justice demand that nobody shall be a judge of his own cause. It is equally well settled that justice should not only be done but also should be manifestly be seen to have been done. In this context, it would be appropriate to quote the observations made by this Court in Tata Sponge Iron Limited –v- Commissioner of Sales Tax, Orissa and Others reported in (2012) 49 VST 33 (Orissa) has held as follows:-

“Therefore, we are of the view that in order to maintain transparency, any officer who is involved in any manner or has acted with the process of audit and preparation of the audit report in respect of the dealer should not be the assessing officer of that dealer. Otherwise, there will be violation of cardinal principles of natural justice. Our view is fortified by the judgment of this court in National Trading Co. [2001] 122 STC 212 (Orissa) wherein this court held as follows:- (page 213 in 122 STC) :

“…Although many contentions were raised in support of the writ petition, we need not examine them as the matter can be decided on the following: short point being that the reporting officer himself cannot be the assessing officer. It is said that justice should not only be done but should manifestly be seen to be done. Justice can never be seen to be done if a person acts as a Judge in his own cause or is himself interested in its outcome.

This principle applies not only to judicial proceedings but also to quasi-judicial and administrative proceedings. In the case at hand, there is no dispute that the reporting officer himself took up the impugned assessment proceedings and completed the same. This he could not have done”.


9. Lastly, in ABB India Limited (supra) this Court has also made it clear that when a Deputy Commissioner involved in the audit process passes an assessment order based on that report the same clearly results in passing an order in violation of principles of natural justice.

In the present case, the undisputed facts as indicated earlier show that the officer at whose instance further investigation was initiated on the basis of his prima facie finding relating to huge mismatch and excess claim of inputs tax credit by the petitioner, has himself conducted the assessment resulting in issuance of impugned assessment order under Annexure-1 and consequential demand notice under Annexure-2. Thus as stated earlier here the reasonable likelihood of bias cannot be ruled out. The officer, who was the author of letter dated 6.6.2013 quoted supra should not have acted as the Assessment Officer. In such background, this Court has no hesitation in quashing both the assessment order under Annexure-1 and demand notice under Annexure-2. However, we make it clear that we have expressed no opinion on the merits of this case. Accordingly, we direct the competent authority to re-assess the assesse and complete the reassessment, preferably, within a period of eight weeks from today, after giving reasonable opportunity of hearing to the petitioner keeping in mind the observations made above.


The writ application is accordingly disposed of. No costs.


……………………………….
Biswajit Mohanty,J.


I.Mahanty,J. I agree.

……………………..………….
I. Mahanty,J.


Orissa High Court, Cuttack


The 20th February, 2018

/RNS

ORISSA HIGH COURT, CUTTACK

W.P.(C) No.9628 of 2016

In the matter of an application under Articles 226 and 227 of the
Constitution of India.
--------------------

Kay Pan Sugandh Pvt. Ltd.
…… Petitioner

-versus-

Commissioner of Central ExciseCustoms & Service Tax,
…... Opp. Party

Rourkela.
For Petitioner : Mr. Arshad Hidayatullah, Senior Advocate
For Opp. Party : Sh. Choudhury Satyajit Misra Senior Standing Counsel (Central Excise Department)
---------------

Date of Judgment: 05.07.2017
-----------------

P R E S E N T:

THE HONOURABLE SHRI JUSTICE I. MAHANTY
and
THE HONOURABLE SHRI JUSTICE BISWAJIT MOHANTY
---------------------------------------------------------------------------------

Biswajit Mohanty, J.

The petitioner has filed the present writ application with a prayer to quash the impugned order-in-original dated 29.2.2016 (Annexure-1) passed by the learned Commissioner of Central Excise, Rourkela.


2. The petitioner is an assessee registered as manufacturer with the Central Excise Department and is engaged in manufacture of  ‘Pan Masala containing Tobacco’ commonly known as “Gutkha” with retail sale prices of Rs.1, Rs.1.50 and Rs.2/- per pouch with effect from 7.4.2010. The case of the petitioner is that it is clearing the above noted goods under the brand name “Safal”, which is owned by M/s. Kamlakant and Company, Kanpur. The owner has given the right to use the said brand to different companies across the Country as per agreements under which the user companies like the petitioner are required to pay royalty to the above noted brand owner. Such “Gutkha” manufactured with the aid of packing machine and packed in pouches has been notified as goods falling within the purview of Section-3A of the Central Excise Act, 1944, for short, “the Act” for the purpose of levy and collection of excise duty vide notification under Annexure-3. Further, the Central Government in exercise of powers conferred by sub-sections (2) and (3) of Section- 3A of “the Act” has notified “Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008, for short, “the Rules”. The said rule was amended during 2010. As per “the Rules”, the factor relevant to the production of notified goods which is “Gutkha” in the present case shall be the number of packing machines in the factory of manufacturer. According to the petitioner, the said Rules also indicate the number of pouches deemed to be produced per operating/packing machine per month. Further, as per Rule-6 of “the Rules”, a manufacturer is required to declare a number of particulars in the prescribed Form-I, which include inter  alia the number of single track packing machine, the number of multiple track packing machine and number of multiple track multiple line packing machines installed in the factory, which the manufacturer intends to operate. On receipt of such declaration, the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, shall after making such enquiry as required including physical verification, approve the declaration and determine and pass order concerning the annual capacity of production of the factory in accordance with “the Rules”. In case the manufacturer wishes to make subsequent changes, it is required to file fresh declaration at least three working days in advance to the authorities. In tune with the above requirement, the petitioner filed the requisite declaration in Form-I during the relevant period before the Assistant Commissioner of Central Excise, Sambalpur-II, Division clearly indicating the number of single track packing machines available/installed in the factory and the number of such machines, which it intends to operate in its factory for production of notified goods. In the declaration Form, according to the petitioner, it was specifically indicated therein that it would be manufacturing “Gutkha” of retail sale prices Rs.1/-, Rs.1.50, and Rs.2/- per pouch during the relevant period. On receipt of such declaration, after making the required enquiry, the Deputy Commissioner of Central Excise passed orders determining the annual capacity of production of the petitioner’s factory for the  relevant period. Further, according to the learned Senior Counsel appearing for the petitioner almost every month during the relevant period a number of Officers from the Central Excise Department visited the factory premises and none found any discrepancy relating to the sale price of “Gutkha”. However, on 10.9.2011 a search was conducted by the Officers of Central Preventive Unit, Bhubaneswar-II acting on some alleged information that the petitioner was also manufacturing and clearing “Gutkha” of MRP Rs.5/- per pouch under the brand name “Safal”.


3. On 10.9.2011, the department also carried out simultaneous searches at the premises of the dealers of the petitioner, namely, Shri Jagabandhu Chell, Proprietor M/s. J.B.Chell, daily market, Rourkela and Shri Babajee Charan Biswal, Shop No.36, Unit-I Market, Bhubaneswar. From these two dealers “Safal” brand “Gutkha” pouches bearing MRP Rs.5/- were seized. Mr. Jagabandhu Chell in his statement recorded under Section-14 of “the Act” stated that he had received the seized pouches from M/s. Jagannath Enterprise of Seeraj Bhawan, Bhati Road, Rourkela. Mr. Tapan Chandra Dey, Proprietor M/s. Jagannath Enterprise in turn stated that he has received these pouches from the petitioner.


4. Shri Babajee Charan Biswal, the other dealer in his statement under Section-14 of “the Act” stated that he procured “Safal” brand “Gutkha” pouch bearing MRP Rs.5/- from Mitu Sahoo @ Soumendra Kumar Sahoo, Kalinga Market, Bhubaneswar. Mr. Soumendra  Kumar Sahoo in turn stated that he had procured “Safal” brand “Gutkha” pouches having MRP Rs.5/- manufactured by the petitioner from a person as instructed by Shri Neeraj Sharma, Director of the petitioner by paying cash.


5. During course of investigation, the authorities got hold of some advertisements in print and electronic media relating to advertisement of “Safal “Gutkha” pouch of MRP of Rs.5/- indicating involvement of the petitioner. After the completion of investigation, the department issued a show cause notice dated 18.9.2012 under Annexure-20 series. The petitioner vide letter dated 25.12.2012 (Annexure-21) requested the opposite party for supply of certain documents and more particularly the photo copy of the outer packet which contained “Safal” “Gutkha” pouches of MRP Rs.5/-. The Assistant Commissioner (Preventive), Central Excise, Bhubaneswar vide letter dated 27.2.2013 under Annexure-22 series supplied photo copy of the “Gutkha” pouches of MRP Rs.5/- along with other documents. However, since the photo copy of outer packet in which the pouches were packed was not made available to the petitioner, on 14.3.2013 (Annexure-23), the petitioner again requested the opposite party to supply a copy of the outer packet in which the pouches were packed. When the above noted outer packet was not supplied to the petitioner, the petitioner reiterated its prayer on 3.12.2013 vide Annexure-24. Ultimately, in absence of the photo copy of the outer packet containing pouches, the petitioner  submitted its interim reply on 12.12.2013 vide Annexure-25 praying for vacating the show cause notice under Annexure-25 after highlighting the following points.


6. In the interim reply, the petitioner made it clear that during course of search, there was no seizure of “Safal” pouch containing “Gutkha” showing Rs.5/- as retail price in the factory premises. The authorities have also not found any laminating material of the size used in packing of “Gutkha” of MRP Rs.5/-. The petitioner also took the plea that no pouch making machine for packing of “Gutkha” of MRP Rs.5/- was seized during seach. Further, no Feeding Disk, no Sealing Roller, no Differential Gears and no Electronic speed controller were found as required to alter the packing machine of the petitioner to manufacture “Gutkha” pouches of MRP Rs.5/-. Further no documents, diary, note book, computer print out showing manufacture and clearance of “Safal” brand “Gutkha” of MRP Rs.5/- were seized by the officers of the department. It also took the plea that no employee, factory worker of the petitioner made any statement to the effect that the petitioner was engaged in manufacture of “Gutkha” of MRP Rs.5/-. The petitioner also disputed the statements made by Tapan Chandra Dey, Proprietor of M/s Jagannath Enterprises and Saumendra Kumar Sahoo. There the petitioner made it clear that it reserved the right to file a reply after receipt of the photocopy of the outer packet and after crossexamination of Tapan Chandra Dey and Saumendra Kumar Sahoo  as it disputed its version. It further took the stand in Annexure-25 that the brand name “Safal” belongs to M/s. Kamlakant and Company, Kanpur which has assigned the use of said brand name to various companies like the petitioner. Besides the petitioner one such company was/is M/s. Kay Pan Masala Pvt. Ltd., Ghaziabad.

There the petitioner invited the attention of the authorities to a letter dated 12.9.2011 written by M/s. Kay Pan Masala Pvt. Ltd. to the Assistant Commissioner, Division-V, Central Excise, Ghaziabad informing him that M/s. Kanodia Technoplast Ltd., was the manufacturer of laminated products used by it and in the month of April, 2011 it had sent for lamination meant for manufacture of its newly launched products, i.e., “Safal” brand “Gutkha” of MRP Rs.5/-.

According to the learned Senior Advocate for the petitioner, the said laminations were wrongly printed with the name of the petitioner on account of inadvertent mistake on the part of the labour supervisor.

Since those pouches were released to the market during May, 2011, therefore, those goods could not be recalled. According to learned Senior Counsel for the petitioner, the said letter further made it clear that M/s. Kay Pan Masala Pvt. Ltd., Ghaziabad was still left with 237 Kgs. of said wrongly printed pouches. With regard to print media advertisement, the petitioner took the stand that the said advertisement was never released by the petitioner. With regard to advertisement in electronic media, the petitioner took the stand that since M/s. Kay Pan Masala Pvt. Ltd., Ghaziabad started marketing  of “Safal’ brand “Gutkha” of MRP Rs.5/-, the petitioner also thought that it could also manufacture and market “Safal” brand “Gutkha’ of MRP Rs.5/-. Accordingly, it gave advertisement in electronic media in July, 2011. As the response was not encouraging, the petitioner did not proceed further with the idea and dropped the same. In any case, the petitioner took the stand that advertisement ipso facto did not imply manufacture of “Safal” brand “Gutkha” pouch of MRP Rs.5/-.

Besides the above stand the petitioner also took a number of alternative pleas.


7. Vide letter dated 13/15.1.2014 the petitioner was supplied with the photo copy of the outer packet. According to it such outer packet contained the name and address of manufacture to be M/s. Kay Pan Masala Pvt. Ltd., Ghaziabad and not that of the petitioner.

Accordingly, on 29.1.2016 the petitioner filed its written submission reiterating his stand that there existed no evidence to establish manufacture of “Safal” brand of “Gutkha” of MRP Rs.5/- by the petitioner as “Safal” brand “Gutkha” pouch of MRP Rs.5/- was never found from the factory premises. Further, no pouch making machine manufacturing “Safal” brand “Gutkha” of MRP of Rs.5/- was found during search of the factory premises. Since the case of the department was mainly based on the statements of Tapan Chandra Dey and Soumendra Kuamr Sahoo, their cross-examination was very vital. It also took the plea that the goods seized from the dealers were manufactured by M/s. Kay Pan Masala Pvt. Ltd., Ghaziabad. It also  reiterated the alternative pleas in its written submission dated 29.1.2006 under Annexure-27.


8. However, according to the learned Senior Counsel for the petitioner, without meeting the points raised by the petitioner under Annexures-25 and 27 and without allowing the cross-examination of Tapan Chandra Dey and Soumendra Kumar Sahoo, the impugned order under Annexure-1 has been passed confirming the demand of Central Excise duty of Rs.237,92,85,000/-. Further, the opposite party has directed for recovery of interest at an appropriate rate on the above demanded amount with penalty i.e., equivalent to the demanded amount. The opposite party has further imposed penalty of Rs.5,00,00,000/- each on two directors of the company. Mr. Hidayatullah, learned Senior Advocate submitted that the impugned order under Annexure-1 ought to be quashed as the same has been passed in violation of principles of natural justice as the petitioner has not been allowed to cross-examine Tapan Chandra Dey and Soumendra Kumar Sahoo, whose statements form the backbone of the case of the department/revenue. Though, he pointed out very many facts relating to non seizure of “Gutkha” pouch of MRP Rs.5/- from the factory premises, non seizure of machines with capacity to manufacture of “Gutkha” pouch of MRP Rs.5/- from the factory premises and non seizure of any document whatsoever from the factory premises showing manufacture and clearance of “Safal” brand “Gutkha” of MRP Rs.5/- during search and that mere  advertisement cannot imply manufacture of the disputed goods; however, he mainly attacked the impugned order under Annexure-1 on the ground of violation of principles of natural justice. According to him the impugned order was/is legally vulnerable as no opportunity was granted to the petitioner to cross-examine the above noted two persons, whose statements on the facts and circumstances constitute the backbone of the case of the revenue. If the version of these two persons are demolished in the cross-examination, then the case of the department would collapse. In such background, he prayed that the impugned order be quashed and the opposite party be directed to give an opportunity to cross-examine the above noted two persons before passing order afresh. In this context, he relied on a decision of the Supreme Court in the case of Andaman Timber Industries –vrs- Commissioner of C. Ex., Kolkata-II, reported in 2015 (324) E.L.T. 641 (S.C.).


9. Per contra, Mr.Choudhury Satyajit Misra, learned Senior Standing Counsel appearing on behalf of the department defended the impugned order and submitted that there has been no violation of principles of natural justice in the present case. He relied on a decision of the Supreme Court in the case of Kanungo and Co. – vrs- Collector of Customs, Calcutta and others, reported in 1983 (13) E.L.T.1486 (S.C.).


10. In reply, Mr. A. Hidayatullah, learned Senior Counsel submitted that the facts as indicated in Kanungo and Co. (supra) are factually distinguishable as in that case there is nothing to show that the prayer for cross-examination was made by the petitioner therein at the earliest possible instance as has been done in the present case while filing the interim reply under Annexure-25.

According to him, in that case such a plea was taken at a much belated stage. Therefore, according to Mr. A.Hidayatullah, learned Senior Counsel that case has no application to the facts of the present case. Secondly, he submitted that though Kanungo and Co. (Supra) has been published in 1983, however, the Supreme Court in that case rendered its decision on 7.2.1972 and after that frontiers of natural justice has been expanded much by the Supreme Court itself.


11. In the present case, it appears that the main edifice of the case of the department rests on the statements of Mr. Tapan Chandra Dey and Soumendra Kumar Sahoo, who state that they got the “Safal” brand “Gutkha” of MRP Rs.5/- from the petitioner. Since the petitioner has taken a stand that during course of investigation neither any pouch of MRP Rs.5/- of “Safal” brand “Gutkha” was seized nor any machinery with capacity to manufacture of “Safal” brand “Gutkha” pouch of MRP Rs.5/- was seized and that there was no seizure of any document/diary/note book/computer printout showing manufacture and clearance of “Safal” brand “Gutkha” of MRP of Rs.5/- from the petitioner Unit, in the fitness of things the authorities should have allowed cross-examination of the above two  persons to test the veracity of their statements. By not doing so, in our considered view there has been violation of principles of natural justice. The facts in Kanungo and Co. (Supra) show that there the petitioner was given enough opportunity including personal hearing.

Moreover, as rightly contended by Mr.A. Hidayatullah, learned Senior Counsel in that case there is nothing to show that the petitioner therein had demanded to cross-examine the persons, who have made statement against it at the very initial stage like the present case.

Therefore, it appears that in the facts and circumstances of the case, there the Supreme Court rejected the plea of the petitioner praying for cross-examination. But here as would appear while filing the interim show cause under Annexure-25, the petitioner has wanted to cross-examine Mr. Tapan Chandra Dey and Soumendra Kumar Sahoo before filing their final reply. Since the same was not acceded to, in our considered view, the entire decision making process has been vitiated. This is because in case during cross-examination the petitioner is able to demolish the statements of Mr. Tapan Chandra Dey and Soumendra Kumar Sahoo then the entire foundation of the case of the department would collapse. In such background, the opposite party ought to have permitted cross-examination of the above noted two witnesses. In this context, we are satisfied that the decision cited by Mr. A.Hidayatullah, learned Senior Counsel in Andaman Timber Industries (supra) applies in all fours to the present case. There also the statement of the witnesses, whom  Andaman Timber Industries (supra) wanted to cross-examine, formed the basis of impugned show cause. After discussing the facts of the case, the Supreme Court held as follows:-

“xxx xxx xxx

6. According to us, not allowing the assessee to crossexamine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to crossexamine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them.

xxx xxx xxx”


12. In such background, the Supreme Court concluded by saying that if the testimony of those two witnesses is discredited then there would no material for the department on the basis of which they can justify their action and accordingly allowed the appeal. Taking a cue from that, this Court has no hesitation in quashing the impugned order under Annexure-1, which, this Court hereby does. Further,  this Court remands the matter back to the opposite party directing him to give opportunity to the petitioner to cross-examine Mr. Tapan Chandra Dey and Soumendra Kumar Sahoo vis-à-vis their statements and conclude the entire proceeding within three months in accordance with law. However, it is made clear that this Court has expressed no opinion on the merits of this case and no observation made herein should in any way influence the opposite party in coming to a conclusion afresh after taking into account the versions of Mr. Tapan Chandra Dey and Soumendra Kumar Sahoo after they are cross-examined.


The writ application is allowed. No costs.


………….….………….….
(Biswajit Mohanty, J.)


I. Mahanty, J. I.agree

………….….………….….
(I. Mahanty, J.)


High Court of Orissa, Cuttack
Dated 5th July, 2017

/ RNS

IN THE HIGH COURT OF KERALA AT ERNAKULAM

PRESENT:

THE HONOURABLE MR. JUSTICE P.B.SURESH KUMAR

THURSDAY, THE 12TH DAY OF APRIL 2018 / 22ND CHAITHRA, 1940

WP(C).No. 11200 of 2018
-----------------------
PETITIONER(S):
--------------
1 KERALA CO-OPERATIVE DEPOSIT
GUARANTEE FUND BOARD,
TC 25/1955(4), MANJALIKULAM ROAD,
THIRUVANANTHAPURAM - 695 001,
REPRESENTED BY THE SECRETARY - TREASURER.

2 SECRETARY - TREASURER,
KERALA CO-OPERATIVE DEPOSIT
GUARANTEE FUND BOARD,
TC 25/1955(4), MANJALIKULAM ROAD,
THIRUVANANTHAPURAM - 695 001.
BY SRI.ASHOK M.CHERIAN, SC

Vs

RESPONDENT(S):
--------------
1. COMMISSIONER OF CENTRAL GST AND CENTRAL EXCISE,
GST BHAVAN, PRESS CLUB ROAD,
THIRUVANANTHAPURAM - 695 001.

2. THE SUPERINTENDENT OF CENTRAL GST AND CENTRAL EXCISE,
STATUE RANGE, SREYAS BUILDING,
GPO LANE, PULIMOODU, STATUE,
THIRUVANANTHAPURAM - 695 001.
BY SRI. SREELAL N. WARRIER, SC

 

THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 12-04-2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

21.04.2018.

P.B. SURESH KUMAR, J.
=======================

W.P.(C) No.11200 of 2018
---------------------------------------
Dated this the 12th day of April, 2018

JUDGMENT

First petitioner is the Board constituted by the Government of Kerala for administration of the Deposit Guarantee Fund constituted under the Kerala Co-operative Deposit Guarantee Scheme, 2012 and the second petitioner is the Secretary of the first petitioner Board. In terms of Ext.P9 summons, the second respondent has called upon the second petitioner in his capacity as the Secretary of the first petitioner Board to give evidence and produce the documents mentioned therein concerning the enquiry against the first petitioner relating to their liability to pay service tax under the Finance Act, 1994. Ext.P9 summons is under challenge in the writ petition.


2. Heard the learned counsel for the petitioners as also the learned Standing Counsel for the respondents.


3. The jurisdiction of the second respondent to issue a summons in the nature of one impugned in the writ petition under Section 14 of the Central Excise Act, 1944 read with Section 83 of the Finance Act, 1994, is not in dispute. On the other hand, the petitioners challenge the impugned summons on the ground that the first petitioner Board has no liability to pay service tax in respect of its transactions under the Finance Act, 1994.


4. It is seen that proceedings have been initiated earlier by the first respondent against the first petitioner for realisation of the service tax payable by them under Finance Act, 1994 and orders have been issued repelling the contention as to their liability to pay service tax. The first petitioner challenged the said orders in appeal before the Customs, Central Excise and Service Tax Appellate Tribunal, Bangalore in Exts.P3 and P4 appeals on the very same ground that they have no liability to pay service tax, and the said appeals are pending. In other words, the issue to be decided in the said appeals as also in the writ petition is one and the same. In the circumstances, I am of the view that it may not be appropriate to permit the petitioners to raise the said issue collaterally in this proceedings. On the facts of this case, it would have been appropriate for the petitioners to approach the Appellate Tribunal referred to above for relief in respect of the summons which is impugned in the writ petition.


The writ petition, in the circumstances, is dismissed without prejudice to the right of the petitioners to move the Appellate Tribunal for appropriate relief, if so advised.


Sd/-
P.B. SURESH KUMAR,

JUDGE
//True Copy//
P.A. To Judge
mbr/
WP(C).No. 11200 of 2018 (Y)
--------------------------
APPENDIX
PETITIONERS' EXHIBITS:
---------------------
EXHIBIT P1. A TRUE COPY OF THE NOTIFICATION S.R.O NO.28/2012
WITH G.O.(P) NO.03/2012/CO-OP. DATED 11.01.2012
ISSUED BY THE CO-OPERATION (A) DEPARTMENT,
GOVERNMENT OF KERALA.

EXHIBIT P2. A TRUE COPY OF THE ORDERS-IN-ORIGINAL
NO.TVM-EXCUS-000-COM-64 & 65-17-18 DATED 17.10.2017
PASSED BY THE 1ST RESPONDENT.

EXHIBIT P3. A TRUE COPY OF THE APPEAL NO.ST/20164/2018-DB,
WITHOUT ANNEXURE, FILED BY THE 1ST PETITIONER
AGAINST ORDER IN ORIGINAL
NO.TVM-EXCUS-000-COM-64-17-18 DATED 17-10-2017 OF
THE 1ST RESPONDENT BEFORE THE CESTAT, BANGALORE.

EXHIBIT P4. A TRUE COPY OF THE APPEAL NO.ST/20162/2018-DB,
WITHOUT ANNEXURE, FILED BY THE 1ST PETITIONER
AGAINST ORDER IN ORIGINAL
NO.TVM-EXCUS-000-COM-65-17-18 DATED 17.10.2017 OF
THE 1ST RESPONDENT BEFORE THE CESTAT, BANGALORE.

EXHIBIT P5. A TRUE COPY OF THE LETTER OC NO.36/2018
DATED 22.01.2018 ISSUED BY THE 2ND RESPONDENT
TO THE 2ND PETITIONER.

EXHIBIT P6. A TRUE COPY OF THE LETTER NO.KCDGFB/G1/2017
DATED 14.02.2018 SUBMITTED BY THE 2ND PETITIONER
TO THE 2ND RESPONDENT.

EXHIBIT P7. A TRUE COPY OF THE LETTER OC NO.62/2018
DATED 14.02.2018 ISSUED BY THE 2ND RESPONDENT TO THE
2ND PETITIONER.

EXHIBIT P8. A TRUE COPY OF THE LETTER NO.KCDGFB/1037/2017
DATED 03.03.2018, SUBMITTED BY THE 2ND PETITIONER
TO THE 2ND RESPONDENT.

EXHIBIT P9. A TRUE COPY OF THE SUMMONS NO.16/2017-18 UNDER
OC NO.97/2018 DATED 21.03.2018 ISSUED BY THE
2ND RESPONDENT TO THE 2ND PETITIONER.

 

RESPONDENTS' EXHIBITS: NIL
---------------------
/TRUE COPY/
P.S.TO JUDGE
mbr/
sp

IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION

CENTRAL EXCISE APPEAL NO.14 OF 2017

Jubilant Life Sciences Ltd.,
(formerly known as Jubilant Organosys
Limited), a company incorporated
under the Companies Act, 1956
having its registered office at
Nimbut Nira, Baramati,
Pune – 412 102.
.... Appellants

Versus

The Commissioner of Central Excise, Pune III,
having office at ICE House,41A,
Sassoon Road, Opp. Wadia
College, Pune – 411 001.
.... Respondent

Mr. Prakash Shah with Mr. Jas Sanghvi i/by PDS Legal for the Appellants.
Ms P.S. Cardozo with Ms Ruju R. Thakker for the Respondent.

CORAM:
S.C. DHARMADHIKARI &
PRAKASH D. NAIK, JJ.

DATE : APRIL 16, 2018


ORAL JUDGMENT ( Per Shr i S.C. DHARMADHIKARI, J .):

1. By this appeal, the assessee challenges an order passed by the Customs, Excise & Service Tax Appellate Tribunal, West Zonal Bench, Mumbai, dated 932016.


2. After hearing both sides and perusing this order, we are of the opinion that the appeal raises the following two substantial questions of law:

“(a) Whether in the facts and circumstances of the case, the Appellate Tribunal is justified in rejecting the refund claim on the ground that the Appellants have correctly reversed cenvat credit in terms of Rule 6(3)(ii) of Cenvat Credit Rules, 2004 inspite of the fact that the Appellants had never opted for any option provided in the rule and followed the procedure prescribed under Rule 6(3)(ii) read with Rule 6(3)(A) of Cenvat Credit Rules, 2004?


(b) Whether in the facts and circumstances of the case, the Appellate Tribunal is justified in holding that there is no excess reversal of cenvat credit in terms of Rule 6(3)(ii) even after noting the fact that the Appellants reversed the entire cenvat credit @ Rs.750/pmt.


on the molasses used in the manufacture of RS & ENA which is not proportionate reversal of cenvat credit as required under Rule 6(3)(ii) of Cenvat Credit Rules, 2004?”


Hence, admit. The respondent waives service.


3. In the light of the fact that the matter must go back to the Tribunal for determination afresh, we only refer to brief facts.


4. The appellants before us, inter alia, manufacture organic chemicals like Glacial Acetic Acid, Ethyl Acetate, Acetic Anhydride, Piperidine falling under Chapter 29 of the First Schedule to the Central Excise Tariff Act, 1985 and clear these final products on payment of central excise duty at the applicable rate. The appellants claim that they take CENVAT credit of excise duty paid on capital goods, inputs and service tax paid on input services used in or in relation to manufacture of their final products.


5. Apart from the manufacture of organic chemicals, the appellants also manufacture Rectified Spirit and Extra Neutral Alcohol. The molasses are used as input in the manufacture of Rectified Spirit. The assessee purchases molasses on payment of excise duty at specific rate on per tonne basis.

The Rectified Spirit so manufactured is either captively consumed in the manufacture of Extra Neutral Alcohol or sold as such in the domestic market.


6. The Extra Neutral Alcohol manufactured is either captively consumed in the manufacture of dutiable goods or sold as such in the domestic market. This is classifiable under CSH 2207 of the Central Excise Tariff Act, 1985 and is exempted from payment of excise duty.


7. The appellants have specifically urged that they followed the procedure laid down under the erstwhile Rule 6(3)(a) of the CENVAT Credit Rules, 2004. As per this Rule, a manufacturer engaged in the manufacture of goods falling under Chapter Heading 2207 of the Central Excise Tariff Act, 1985 was required to pay an amount equivalent to the CENVAT credit attributable to inputs used in the manufacture of exempted final products. Bearing in mind the nature of the operation and the manufacturing process, the appellants stated that it was not feasible to maintain separate accounts for receipt, consumption and inventory of molasses for manufacture of dutiable and exempted goods in accordance with the erstwhile Rule 6 of the CENVAT Credit Rules.


8. That is how they reversed the CENVAT credit equivalent to the duty paid on molasses used in the manufacture of exempted goods. They relied upon a Notification dated 132008, pursuant to which an amendment was brought to Rule 6(3) of the CENVAT Credit Rules. After setting out as to how this amendment has impacted the availment of CENVAT credit, what the appellants allege is that during the course of internal audit they realised that from April, 2008 to September, 2009, they paid an amount in respect of molasses used in the manufacturer of Rectified Spirit and Extra Neutral Alcohol which were not applicable for the said period. They realised the error that they had paid/reversed higher amount of CENVAT credit in respect of the molasses.


9. They relied upon Section 11B of the Central Excise Act, 1944 and made a claim for refund but not for the period April, 2008 to March, 2009. What they did was they filed a refund claim on 3132010 seeking recredit of excess reversal of CENVAT credit in the sum of Rs.17,29,019/.

Annexure “D” is a copy of the refund claim. The relevant portion of the same reads as under:

“Jubilant Organosys Ltd., ECC No. AABCV0200HXM001 (the Company) having factory at Nimbut, Railway Station Nira, Taluka Baramati, District Pune412 102, is engaged in the manufacture of organic chemicals using molasses as input. The molasses is used as a raw material for manufacture of rectified spirit (RS) which is further used in manufacturer of final products and also sold in the open market. Similarly, the RS manufactured using molasses is also used for manufacture of Extra Neutral Alcohol (ENA) with faint spirit emerging as byproduct.

The faint spirit is further used for manufacture of final products whereas ENA is sold in the market as well as used for further manufacture of non excisable goods in another unit of the Company. ENA and RS are exempted goods as defined in Rule 2(d) of the CENVAT Credit Rules, 2004 (the CENVAT Rules).

Considering the nature of the operation and the manufacturing process it is not feasible to maintain separate accounts for receipt, consumption and inventory of molasses for manufacture of dutiable and exempted goods in accordance with Rules 6(2) of the CENVAT Rules. Accordingly, the Company paid an amount equal to the prescribed percentage of the value of the exempted goods (Rule 6(3) of the CENVAT Rules) during the period from April09 to Sep09.

While closing of the half yearly accounts and internal audit it was noticed that the Company has paid Rs.1729019/in excess of the prescribed amount during the period.

It is submitted that the amount paid has not been recovered from the customers as it evident from the invoices for sale of the exempted products. Therefore, it is requested that the amount may be permitted to be credited to the CENVAT account. A personal hearing may be granted before taking any decision on the issue.”


10. However, they were served with a Show Cause Notice dated 2452010 proposing to reject this refund claim. A reply was claimed to be filed in which also a specific plea was raised by the assessee that they were required to pay only an amount equivalent to 10% / 15%, as the case may be, of the value of the exempted goods during the period April, 2009 to September, 2009. However, by mistake, they have followed the procedure prevailing prior to 142008 and reversed credit equivalent to the amount of credit taken on molasses as per Rule 6(3)(a) of the CENVAT Credit Rules, 2004, then prevailing.


11. That is how the principle of unjust enrichment is inapplicable.


12. The orderinoriginal passed on 1672010 confirmed this Show Cause Notice. The finding in that orderinoriginal is specific and the Assistant Commissioner holds that as per Rule (3A) of the CCR, 2004, if the assessee opts to pay an amount equivalent to the CENVAT attributable to input, they should intimate to the Range Superintendent, in writing, the description of the dutiable as well as exempted goods, CENVAT credit of the input lying in the balance as on the date of exercising the option. The Assistant Commissioner found that at the beginning of the financial year, the assessee was at liberty to pay duty as per the provision of Rule 6(3)(i) or 6(3)(ii) of the CENVAT Credit Rules, 2004. He held that it is amply clear from the facts and circumstances of the case that the assessee opted to pay the duty in terms of Rule 6(3)(ii) of the CENVAT Credit Rules, 2004. Since it is a wellreputed company, it cannot be said that they were not aware of the rules and regulations prevailing in the disputed period. They may say that it was a mistake but that stand or contention has no force. The specific finding is that in terms of the Explanation to Rule 6(3)(ii) of the CENVAT Credit Rules, 2004, the assessee cannot switch to the other option in midst of the financial year. Thus, this claim is an afterthought and by switching the options, the assessee is seeking to derive benefit. Hence, the claim of recredit of Rs.17,29,019/is incorrect and inadmissible.


13. Now, when the matter was carried in appeal before the Appellate Authority, the Appellate Authority was to decide a specific ground of appeal and that is to be found in the Memo of Appeal as grounds A.2, A.3 and alternatively ground B.2 on pages 82 & 83 of the paperbook.


14. There was a specific ground raised that principle of unjust enrichment is inapplicable.


15. We could have understood that these grounds were raised in the Memo of Appeal but never pressed. However, that is not the position as is apparent from the arguments noted by the Appellate Authority in para 3 of its order and the submission in para 4. The point framed for determination was rejection of the refund claim in respect of excess CENVAT credit reversed by the assessee on the exempted goods cleared by the assessee.

That is rejected on the ground that they have to discharge the duty liability under Rule 6(3)(ii) of the CENVAT Credit Rules, 2004 and the same was credited as per law. The very fact that this credit was reversed, is an option exercised ipso facto. Hence, the reversal was correct. The question of excess duty having been reversed does not arise. The Adjudicating Authority does not have to produce any evidence. Relying upon Explanation1 to Rule 6(3), the order of the Adjudicating Authority was maintained.


16. Aggrieved by both orders, an appeal was taken to the CESTAT in which as well there is a specific ground of appeal and to be found as grounds A.3, A.4, A.5 and insofar as the option is concerned, ground A.6 at pages 103104 reads as under:

“ A.6 Thus, in order to follow the option under Rule 6(3) (ii), an assessee has to mandatorily comply with the prescribed procedure, without which the said option cannot be exercised. In the present case, the Appellant never intended to exercise option under Rule 6(3)(ii) and therefore did not follow any of the prescribed procedures/conditions. In view of the same, the Commissioner (Appeals)'s contention that the Appellant has followed Rule 6(3)(ii) is not correct. The facts remain that the Appellant intended to follow Rule 6(3)(i) with effect from 01/04/2008 for which no intimation is required but by mistake reversed credit following the earlier provisions, leading to excess reversal.”


17. The finding of the Appellate Authority was referred in grounds A.7 and A.8 and it was argued that the assessee had even assuming without admitting that the Commissioner is correct, clear evidences on record. The assessee had already filed before the Commissioner (Appeals) a declaration from the management certifying that option under Rule 6(3)(ii) has not been exercised. However, that submission was not considered in the impugned order and no specific findings have been rendered in respect of the same.


18. To our mind, such an argument of the assessee and based on this ground was specifically raised, as noted in para 3 of the order under challenge. The CESTAT notes the arguments of the assessee's Advocate as also that of the respondent's representative.


19. It renders a finding in para 6 on running pages 37 & 38, entirely agreeing with the Commissioner (Appeals) and reproducing the finding from the Appellate Authority's order and endorsing its reliance on Explanation1 to Rule 6(3). We have not seen any independent application of mind by the Tribunal.

The Tribunal was expected, as the last fact finding authority, to render specific finding. We do not think that the case could have been disposed of even if the revenue involved was not substantial, by a mere endorsement of the Appellate Authority's finding, particularly on the interpretation of the Rule prevailing at the relevant time. The Tribunal is not expected to endorse legal findings by the Adjudicating Body/Authority and that of the First Appellate Authority. Since the Tribunal comprises of both a Judicial Official and an Administrative Member, it is expected to apply its independent mind and particularly on the question/issue of interpretation of the Rule. This has precisely not been done in the instant case.


20. As a result of the above and particularly because it was argued before us by Ms Cardozo that at no time the assessee raised any ground and of the nature noted by us, that this lengthy order was necessitated.


21. In the light of the above, we proceed to quash and set aside the order of the CESTAT. We restore the appeal of the assessee to the file of the Tribunal for a decision afresh on merit and in accordance with law. The Tribunal must render its independent conclusion on the issues involved and should not be influenced by its earlier findings and it is not expected to merely endorse what the Appellate Authority has done in the instant case. The Tribunal must allow both sides to place materials on record. It should also call for the original files before the authorities in the event it is necessary.


22. The appeal is allowed in the aforesaid terms with no order as to costs.


(PRAKASH D. NAIK, J.)                 (S.C. DHARMADHIKARI, J.)







HIGH COURT OF JUDICATURE FOR RAJASTHAN
BENCH AT JAIPUR

D.B. Civil Writ (Habeas Corpus) Petition No. 41/2018

Arpit Jain

S/o Shri Anil Kumar Jain, Aged About 22 Years, R/o.
Plot No.36, Ramdwara Colony, Mahaveer Nagar, Durgapura
Railway Station, Jaipur (Rajasthan) (Presently Confined At
Central Jail, Jaipur) Through His Mother And Next Friend
Mrs.Renuka Jain, Aged 44 Years.

----Petitioner

Versus

Union Of India

Through Superintendent (AIU), Customs,
International Airport, Sanganer, Jaipur (Rajasthan)
----Respondent

For Petitioner(s) : Mr. Swadeep Singh Hora with  Mr. Dharmendra Gurjar
For Respondent(s) : Mr. R.D. Rastogi, Additional Solicitor  General with Mr. C.S. Sinha for
respondent Union of India


HON'BLE MR. JUSTICE MOHAMMAD RAFIQ
HON'BLE MR. JUSTICE GOVERDHAN BARDHAR


Judgment

//Reportable//

17/04/2018

Per Hon’ble Mr. Justice Mohammad Rafiq:

This habeas corpus petition under Article 226 of the Constitution of India has been filed by Arpit Jain with the prayer that respondent Union of India be directed by issuance of writ of habeas corpus to release him from illegal detention and custody on such terms and conditions as may be deemed just and proper in respect of Case No.F.No.VIII(48)AP/12/2017 registered by the Customs Department, Jaipur, pertaining to Criminal Complaint No.48/2017 pending before the Chief Metropolitan Magistrate (Economic Offences), Jaipur Metropolitan, in which cognizance has been taken vide order dated 15.01.2018.


Mr. Swadeep Singh Hora, learned counsel for petitioner, submitted that the petitioner is in jail in a matter where cognizance against him has been taken for bailable offences under Sections 132 and 135 of the Customs Act, 1962 (for short, ‘the Act of 1962’). The cognizance has been taken by the court only for bailable offence. Section 132 of the Act of 1962 provides for punishment, which may extend to two years and that is a bailable offence. So far as Section 135 of the Act of 1962 is concerned, the penalty provided therein is depended on the value of the goods and the tax evaded, which would determine whether it is bailable or not. If the market value of the goods exceeds one crore of rupees or the duty evaded or attempted to be evaded exceeds fifty lakhs rupees, it is non-bailable otherwise it is bailable.


Learned counsel for petitioner argued that the petitioner was allegedly taken into custody by the Customs Department at Jaipur Airport at around 3:30 AM on 12.11.2017. He was not immediately presented before the Court of the concerned Magistrate. However, on 13.11.2017 at 2:00 pm the petitioner was presented by one Mr. Prem Raj Jogwal, Inspector (Customs) Airport Jaipur, before the Court of Chief Metropolitan Magistrate, Jaipur Metropolitan, who remanded the petitioner in judicial custody. While the petitioner was in custody on 12.11.2017, he was beaten and subjected to assault. His statement was recorded under Section 108 of the Act of 1962 under duress and coercion.


The petitioner, by way of an application, pointed out this to the Magistrate concerned and also submitted that his signatures have been obtained on blank and typed written pages and that his mother and brother have also been threatened. The medical examination of the petitioner indicated that there was abrasion on his right knee. The petitioner moved a bail application before this Court while the investigation was pending. This Court, by order dated 18.12.2017, dismissed the bail application. After completion of investigation, a complaint was filed in the competent court on 15.01.2018. The allegations made against the petitioner therein is to the effect that the petitioner was carrying foreign currency notes equivalent of the value of INR 96,24,012/- and Indian Currency Notes of the value of Rs.26,400/-, without any approval or permission from the Reserve Bank of India as per the provisions of Section 3 of the Foreign Exchange Management Act, 1999 (for short, ‘the Act of 1999’) read with Regulations 3, 5 and 7 of the Foreign Exchange Management (Export and Import of Currency) Regulations, 2015 (for short, ‘the Regulations of 2015’).


Two cellphones were recovered from the petitioner, out of which one cellphone model Samsung Galaxy Note-3, allegedly carried pictures of calculation sheets of foreign currency. The Customs Department, based on these calculation-sheets, allegedly concluded that those pertained to foreign currency that were carried abroad earlier from foreign currency that were carried abroad earlier from India and amounted to Rs.5,89,35,511.03 and therefore maintained that the value of currency notes, after clubbing previous transactions, was over Rs.1 crore, and therefore the offence was bailable.


It is submitted that so-called slips found in the digital form in the mobile of the petitioner and recovery thereof are all concocted and no certificate under Section 138C of the Act of 1962 or Section 65B of the Evidence Act was filed along-with the complaint. Further loose slips are in note books and in any case not admissible under Section 34 of the Evidence Act. The petitioner moved second application for grant of bail before this Court on 30.01.2018, which was rejected vide order dated 14.02.2018 on the ground that filing of charge-sheet/complaint does not amount to change of circumstance. At that time, the learned counsel, who argued the second bail application, was not aware of the fact that cognizance in the matter has been taken on 15.01.2018. Copy of the order dated 14.02.2018 has been placed on record of the petition. This order sows that the cognizance has been taken only for the offence that foreign currency seized from the petitioner on 12.11.2017 was only worth Rs.96,24,012/- and for no other currency. In these circumstances, the petitioner moved third bail application before this Court, which was rejected vide order dated 27.02.2018 on the ground that fact of taking cognizance was available to the petitioner even when the second bail application was filed and decided on 14.02.2018.


As to what is the order of cognizance, learned counsel for petitioner cited two judgments of the Supreme Court in S.R. Sukumar Vs. S. Sunaad Raghuram – (2015) 9 SCC 609 and Fakhruddin Ahmad Vs. State of Uttaranchal and Another – (2008) 17 SCC 157. Learned counsel also relied on the judgments of the Supreme Court in State of Bihar Vs. Deokaran Nenshi and Another – (1972) 2 SCC 890 and Udai Shankar Awasthi Vs. State of Uttar Pradesh and Another – (2013) 2 SCC 435, and argued that the offence is complete when it is done and that the act of the petitioner in the present case was not continuing offence. Relying on the judgment of the Supreme Court in Tofan Singh Vs. State of Tamil Nadu – (2013) 16 SCC 31, learned counsel argued that even after dismissal of three bail applications by this Court, habeas corpus petition would be maintainable.


Mr. R.D. Rastogi, learned Additional Solicitor General appearing for the respondent Union of India, opposed the writ petition and argued that filing of the present petition is nothing but an abuse of process of the law. The petitioner has already preferred three consecutive bail applications under Section 439 of the Code of Criminal Procedure before this Court detailing each and every facts, which he has raised in the present petition. This Court, after affording full opportunity of hearing to the petitioner each time, rejected those bail applications respectively vide orders dated 18.12.2017, 14.02.2018 and 27.02.2018. The argument which the petitioner is now taking that cognizance was confined to Rs.96.5 lakhs only and not the total amount of Rs.6.85 crores, was very much available when the second bail application was argued before this Court on 14.02.2018 as the order of cognizance has been passed much before that on 15.01.2018.


Learned Additional Solicitor General argued that Regulations 3, 5 and 7 of the Regulations of 2015 and Regulation 2A(iii) of the Foreign Exchange Management (Possession and Retention of Foreign Currencies) Regulation, 2015, prohibits any traveler, visiting abroad, to possess foreign currency beyond US $2000 or approximately Rs.1,31,000/-, which clearly has been violated by the petitioner. It is impermissible under the Customs Act to carry such prohibited items under the provisions of Sections 132 and 135(1)(A), 135(1)(B), 135(1)(C) of the Act of 1962. So far as merits of the case including applicability of Section 65B of the Evidence Act is concerned, the petitioner can raise the same before the learned trial court.


Learned Additional Solicitor General cited judgment of the Supreme Court in Manubhai Ratilal Patel Vs. State of Gujarat and Others – (2013) 1 SCC 314, to argue that habeas corpus petition is not to be entertained when a person is committed to judicial custody or police custody by the competent court by an order which prima facie does not appear to be without jurisdiction or passed in an absolutely mechanical manner or wholly illegal.


Upon considering the rival submissions and perusing the material on record, we find that filing of the present petition is indeed nothing but sheer abuse of the process of the court. When already three consecutive bail applications of the petitioner have been rejected by this Court, his contention that the complaint of which cognizance has been taken by the trial court refers to the amount which being less than rupees one crore, would be cognizable offence, whereas a careful reading of the complaint, copy of which has been produced on record as Annexure-5, clearly discloses that the complaint in its para 4.1 refers to the amount of Rs.96.5 lakhs approximately, and the foreign currency notes were found in his possession on 12.11.2017 but also refers to the amount of foreign currency notes worth Rs.5,89,35,511/- with reference to the print out of the slips obtained from his Samsung Galaxy Note-3 mobile, which were signed by the petitioner and also by the attesting witnesses. This Court in the habeas corpus petition cannot go beyond legality or otherwise of those allegations to hold that the offence in the present case would be bailable if the aforesaid amount is excluded from consideration.


There is absolutely no justification to take such a view for this Court in the present case particularly when this argument was raised in the consecutive three bail applications before this court, which have been dismissed. The remedy of the petitioner in these circumstances, as held by the Supreme Court in Manubhai Ratilal Patel, supra, would be to assail orders of rejection of bail applications before the Supreme Court or assail the order of cognizance before this Court. The present habeas corpus petition is therefore dismissed with costs of Rs.50,000/- (Rupees Fifty Thousand only) to be deposited by the petitioner with the Rajasthan High Court Legal Services Authority within a period of one month, failing which the matter be again listed before this Court for enforcement of the order.


This also disposes off the Stay Application No.3664/2018.


(GOVERDHAN BARDHAR),J                 (MOHAMMAD RAFIQ),J


//Jaiman//

IN THE HIGH COURT OF JUDICATURE AT MADRAS

Dated     :  25.04.2018

Coram
The Hon'ble Mr.Justice T.S.Sivagnanam
Writ Petition No.9237 of 2018
and
W.M.P.No.11049 of 2018

M/s. Sai Industries,
rep. by Proprietor Mr.S.Vinoth Kumar
...Petitioner

Vs.

Senior Intelligence Officer,
Directorate General of Goods and
Services Tax Intelligence,
Chennai Zonal Unit,
C-3, C-Wing, II Floor,
Rajaji Bhavan, Besant Nagar,
Chennai - 600 090. 
...Respondent

Writ Petition, filed under Article 226 of the Constitution of India, for  issuance of Writ of Certiorarified Mandamus to call for records in proceedings, in F.No.INV/DGGSTI/CZU/ST/30/2018, dated 22.02.2018, on the file of the respondent herein and to quash the same and to direct the respondent to return the records maintained in the annexure to the Mahazar, dated 01.02.2018, to the petitioner Institution.


For Petitioner    :    Mr.S.Sadasharam
For Respondent :   Mr.V.Sundareswaran Senior Standing Counsel


O R D E R

Heard Mr.S.Sadasharam, the learned counsel appearing for the petitioner and Mr.V.Sundareswaran, the learned Senior Standing Counsel appearing for the respondent.


2.The petitioner has questioned the communication, dated 22.08.2018, which appears to be in the nature of summons, directing the petitioner to approach the jurisdictional Range Officer, and obtain registration under the provisions of the Finance Act, 1994.


3.The petitioner would state that, already they obtained registration. However, it is pointed out by the learned Senior Standing Counsel for the respondent that the registration was obtained only under the General Sales Tax Act.  In the written instructions received by the learned Senior Standing Counsel for the respondent, dated 16.04.2018, it is stated that, the Zonal Unit had registered an offence case against the petitioner Institutions vide IR. No.58 of 2018, dated 20.03.2018, and brief note on the facts relating to the offence case is also submitted before this Court. In any event, the impugned proceeding is only a direction given to the petitioner to approach the jurisdictional Range Officer, which is in the nature of summons or direction, it cannot be quashed.  If, for any reason, the petitioner is of the opinion that, they need not obtain registration under the Finance Act, it is for them to explain the same to the Range Officer. Therefore, on the grounds raised by the petitioner, the impugned proceedings cannot be quashed.


4. For the above reason, the Writ Petition is disposed of, by directing the petitioner to appear before the Range Officer, and take whatever stand, which is permissible in law.  No costs. Consequently, connected Writ Miscellaneous Petition is closed.  

25.04.2018

sd

HIGH COURT OF JUDICATURE FOR RAJASTHAN
AT JODHPUR

D.B. Central/Excise Appeal No. 189 / 2017

M/s. Reliance Chemotex Industries Limited,
Village Kanpur, P.O.
Box. No. 73, Udaipur (Rajasthan),
Through Its Law Officer, Shri
Anupam Tiwari S/o V.N. Tiwari, Aged 43 Years.
----Appellant

Versus

1. The Commissioner, Customs and Central Excise, Jaipur-II,
N.C.R. Building, Statue Circle, "C" Scheme, Jaipur.

2. The Custom, Excise and Service Tax Appellate Tribunal,
New Delhi,  Through : Registrar, West Block, Now R.K. Puran, New
Delhi.

3. The Assistant Commissioner, Central Excise and Service Tax
Division, 142-B, Sector-11, Hiran Magri, Udaipur-313001.
----Respondents

_____________________________________________________

For Appellant(s) : Mr. Niraj Kumar Jain.
_____________________________________________________

HON'BLE MR. JUSTICE GOPAL KRISHAN VYAS
HON'BLE MR. JUSTICE RAMCHANDRA SINGH JHALA


J U D G M E N T


26/04/2018

The instant central excise appeal has been filed by the appellant/assessee under Section 35 G of the Central Excise Act, 1994 read with Section 83 of the Finance Act, 1994, so as challenge the order No.ST/A54337/2017-CU (DB) dated 26.04.2017 in STA No.152/2011 (DB) passed by Customs, Excise & Service Tax Appellate Tribunal, New Delhi (CSTATE).


Briefly stated, the facts of the case are that the Assistant Commissioner vide its order dated 07.10.2009 denied the refund claim filed by the appellant, and being aggrieved by the said order, the appellant preferred an appeal before the Commissioner Customs & Central Excise (Appeals), Jaipur-II, Jaipur. The learned Commissioner (Appeals) after going through the submissions made by the appellant rejected the said appeal vide order dated 27.10.2010. Being aggrieved and dissatisfied with the order dated 27.10.2010, the appellant further preferred an appeal before the learned CSTATE, New Delhi and the learned CESTAT, New Delhi by final order dated 26.04.2017 rejected the appeal filed by the appellant, which is under challenge in this appeal.


The appellant is claiming exemption for refund under the Notification dated 06.10.2007 but the CESTAT, New Delhi held that the appellant is not entitled for exemption in the light of its own judgment in the case of “Jodhana Arts Crafts -- 2017 (47) STR 351.” Therefore, the learned counsel for the appellant argued that the impugned orders passed by the authorities below are incorrect and unsustainable because the appellant has not availed drawback on service tax paid on the services for which refund is filed under Notification No.41/2007-ST. The crux of argument of learned counsel for the appellant is that as per Notification No.41/2007-ST dated 06.10.2007 he is entitled for refund but it has wrongly been denied by the subordinate authorities, therefore, the orders impugned deserves to be quashed and substantial question of law arises for consideration as to whether the learned CESTAT is justified in arriving at the conclusion that the service on which the appellant claimed refund is input service and the appellant claimed drawback under the drawback Rules.


After hearing the learned counsel for the appellant, we have perused the order passed by the learned CESTAT. Admittedly, the appellant is claiming refund under the Notification No.41/2007-ST dated 06.10.2007, in which there is Condition No.1 (e), which provides that refund would not be admissible, if the goods have been exported under the chain of drawback. The said restriction was removed on 07.12.2008 vide Notification No.33/2008-ST dated 07.12.2008. Admittedly the refund claimed by the appellant pertains to the period from July, 2008 to September 2008, which is prior to removal of restriction, therefore, learned CESTAT rejected the appeal.


In our opinion as per factual aspect of the matter, the appellant is not entitled for refund claim under the Notification No.41/2017-ST dated 06.10.2007 because restriction was removed on 07.12.2008 vide Notification No.33/2008-ST and the refund claim relates to the period from July, 2008 to September 2008, which is prior to the removal of restriction.


In view of above, we are of the opinion that it is not a case in which any substantial question of law emerges for consideration. Consequently, the instant appeal is hereby dismissed.


(RAMCHANDRA SINGH JHALA) J.             (GOPAL KRISHAN VYAS) J.


DJ/-






IN THE HIGH COURT OF JUDICATURE AT BOMBAY

CIVIL APPELLATE JURISDICTION

WRIT PETITION NO. 7210 OF 2017

Sarla Performance Fibers }
Limited }
a company registered under }
the Companies Act, 1956, }
having its office at 304, }
Arcadia, 195, Nariman Point,}
Mumbai – 400 021 } Petitioner

versus

1. The Union of India }
through the Secretary, }
Ministry of Commerce and }
Industry, Department of }
Commerce, Udyog Bhavan, }
New Delhi 110 107 }}

2. The Joint Director }
General of Foreign Trade, }
Ministry of Commerce and }
Industry, Department of }
Commerce, having his office }
at Directorate General of }
Foreign Trade, Udyog Bawan, }
New Delhi 110 011 }}

3. The Development }
Commissioner, }
SEEPZ-SEZ, Ministry of }
Commerce and Industry, }
having his office at Andheri }
(East), Mumbai – 400 096 } Respondents

Mr. Prakash Shah i/b. M/s. PDS Legal for the petitioner.
Mr.Anil C. Singh-Additional Solicitor General with Mr.Pradeep S. Jetly and
Mr.M.S. Bharadwaj for respondent nos. 1 to 3.


CORAM :- S. C. DHARMADHIKARI &
PRAKASH. D. NAIK, JJ.


DATED :- APRIL 27, 2018


ORAL JUDGMENT :- (Per S. C. Dharmadhikari, J.)

1. Rule. Respondents waive service. By consent, Rule is made returnable forthwith.


2. The petitioner, by this petition, claims the following two reliefs:-

“(a) this Hon'ble Court be pleased to issue a Writ of Certiorari or a writ in the nature of Certiorari or any other writ, order or direction under Article 226 of the Constitution of India calling for the records pertaining to the Petitioners case and after going into the validity and legality thereof to quash and set aside (i) Policy Circular No. 9(RE-2013)/2009-14 dated 30.10.2013 issued by the Respondent No. 2; and (ii) Order No. SEEPZ-SEZ/I-AII/ DBK/978/WP/SPFL/2014-15/03290 dated 15.02.2017 passed by Respondent No. 3;

(b) this Hon'ble Court be pleased to issue writ of Mandamus or a writ in the nature of Mandamus or any other appropriate writ, order or direction under Article 226 of the Constitution of India, ordering and directing the Respondents, their subordinate servants and agents - (i) to forthwith sanction and grant to the Petitioner the deemed export drawback at the rate mentioned in column “B” of the Schedule of the All Industry Rate of Duty Drawback published vide Notification No. 68/2011-Customs (N. T.) dated 22.09.2011;

(ii) to forthwith sanction and grant the drawback of Rs.7,87,837/- and Rs.50,54,299/- in respect of POY supplied by the DTA units to the Petitioners at the rate of 4 per cent specified in column “B” of Serial No. 540203 of the Schedule of All Industry Rate of Duty Drawback as claimed in Applications for duty drawback dated 09.11.2013 and 10.03.2014 of the Petitioners (Exhibits “H” & “Q” hereto)”


3. It is the case of the petitioner that in terms of a letter/permission dated 29th July, 1994 and as amended from time to time, the petitioner has established, inter alia, an Export Oriented Unit (EOU) for the manufacture of synthetic yarn at its factories, details of which are set out in para 6 of the petition. The petitioner is engaged in the manufacture and export of all types of synthetic yarns and of the nature described in para 7 of the petition. It is claimed that Unit-I of the petitioner has been licenced under section 58 of the Customs Act, 1962 as Private Bonded Warehouse vide licence dated 18th October, 1994. This licence is renewed from time to time. The Unit-II has been licenced under section 58 of the Act as Private Bonded Warehouse vide a licence dated 14th November, 2003. The validity of this licence is extended from time to time. Both these units are also registered under section 6 of the Central Excise Act, 1944. The petitioner purchased polyester yarn from the units located in domestic tariff area (for short “DTA”). The purchase orders are relied upon by the petitioner in this behalf.


4. It is stated that the Foreign Trade Policy (FTP) 2009-2014 under Chapter 6 provides for an Export Oriented Unit Scheme (hereinafter referred to as “the EOU Scheme”). Chapter 6 of the Hand Book of Procedures (HBP) Volume-I deals with the procedure, inter alia, of EOUs. The claim of the petitioner is that the supply of goods at the said units located in DTA is a deemed export in terms of Para 8.5 of FTP 2009-2014. In terms of Para 8.3(b) of the FTP, the supplier of the goods to EOU is entitled to duty drawback at the rates specified in the Schedule of the All Industry Rate of Duty Drawback issued by the Department of Revenue. The extracts from these paragraphs are set out in the petition. It is then stated that section 74 of the Act provides for grant of the drawback on both, Customs Duties as well as Central Excise Duties paid on goods (raw materials or inputs) used in the manufacture of export goods. Under section 75 of the Act, the exporter is entitled to drawback based on All Industry Drawback Rates, Brand Rate Drawback and Special Brand Rate Drawback.

Then, it is stated that by section 75 of the Customs Act, 1962, section 37 of the Central Excise Act, 1944 and section 93A read with section 94 of the Finance Act, 1994, the first respondent to this petition, namely, the Union of India made the Customs, Central Excise and Service Tax Drawback Rules, 1995 (hereinafter referred to as “the Drawback Rules”).


5. Rule 3 and Rule 7 of the Drawback Rules are relied upon together with a notification dated 22nd September, 2011, copy of which is at Exhibit 'E', to urge that the petitioner is entitled to such drawback. However, a policy circular has been issued by the authorities under the Foreign Trade (Development and Regulation) Act, 1992, which says that the deemed export drawback in terms of Para 8.3(b) of the FTP, including as per Column 'B' of All Industry Rate of Duty Drawback under the Duty Drawback Schedule of the Department of Revenue is not admissible if the facility of CENVAT Credit/rebate is availed.

However, if the basic customs duty has been paid, then, that is refundable in terms of para 8.5 of the FTP. However, Para 8.5 prescribes that such supplies shall be eligible for deemed export drawback on customs duty paid on inputs/components. Thus, there is a clarification that basic customs duty paid can be taken back as brand rate of duty drawback, based on actual duty paid documents as per the procedure prescribed in Chapter 8 of the FTP and Chapter 8 of the HBP Volumn-I. It is in these circumstances that the petitioner stated that in the past, drawback at the rate mentioned in this Schedule (Column 'B') of the Schedule of the All Industry Rate of Duty Drawback was granted.


6. For the period October, 2012 to March, 2013, the petitioner claimed drawback of 7,87,837/- in respect of polyester yarn supplied by the DTA units to the petitioner at the rate of 4% under serial number 540203 of the Schedule to All Industry Rate of Duty Drawback Schedule specified in Box 'B' as the suppliers were availing CENVAT facility. A copy of this application is marked as Exhibit 'H'.


7. On 27th November, 2013, the office of the third respondent pointed out certain discrepancies and those were intimated by this letter, copy of which is at Annexure 'I'. The petitioner furnished relevant documents on 15th January, 2014. However, by Exhibit 'K', which is a copy of the letter dated 27th March, 2014, the office of the third respondent rejected the justification provided by the petitioner. Once again, the petitioner corresponded by letter dated 18th April, 2014, to which, a similar reply was given on 9th May, 2014. Thus, Exhibits 'L' and 'M' are relied upon to urge that the petitioner was once again requested to depute their person to collect the original documents for claiming fixation of brand rate, if required, in terms of the Policy Circular No. 9 (RE-2013)/2009-2014 dated 30th October, 2013, received from the Directorate General of Foreign Trade, Ministry of Commerce, New Delhi (Exhibit 'N').


8. The petitioner continued the correspondence and finally, on 21st July, 2014 (Exhibit 'P'), the application of the petitioner was returned by the office of the third respondent. For a period from April, 2013 to September, 2013, similar application for duty drawback in the sum of Rs.50,54,299/- dated 10th March, 2014 was forwarded, to which as well, there was a similar response and identical correspondence.


9. A writ petition was filed in this court being Writ Petition No. 1480 of 2015 challenging the impugned circulars and the purported denial of the deemed export drawback, but when this petition was placed before this court, the respondents gave an undertaking through their counsel that the third respondent will grant a personal hearing to the petitioner and pass a reasoned order.


10. It is in terms of this direction that a personal hearing was held, at which, detailed submissions were canvassed, but on 15th February, 2017 (impugned order), the petitioner's claim for deemed export drawback as per Column 'B' of All Industry Rate of Duty Drawback Schedule was rejected.


11. The findings to the extent relevant and to be found in the impugned order read thus:-

“8. I have carefully gone through the available material on record and the written submissions made by the Applicants during the Course of personal hearings.
…..

10. It is not a dispute that the applicants are entitled to claim the refund of duty drawback as per para 8.5 of FTP for custom duty paid on inputs/components. The only issue is the route through which they are entitled to claim the refund. The applicants are insisting that they are entitled to claim the duty drawback as per column 'B' of AIR schedule notified by D/O Revenue, whereas the department's view is that the applicants can get the refund only after submission of documentary evidence in respect of custom duty paid and getting the same fixed through route of brand rate fixation.

11. On perusal of the provisions it is noted that for refund of drawback Para 8.5 of the FTP categorically provides that, “supplies will be eligible for deemed export drawback in terms of Para 8.3(b) of FTP on Central Excise paid on inputs/components, Provided CENVAT credit facility/rebate has not been availed by applicant”. It further provides that “.....Such supplies will however be eligible for deemed export drawback on customs duty paid on inputs/components”.

12. In this case the Applicants claim are based only on the premise that the applicants have options to seek the refund of duty drawback through fixation of brand rate and are entitled to get the refund of Drawback as per All Industry Rate Column 'B' of Duty Drawback Schedule, even if the CENVAT credit has been availed.

13. In this context, it need to be noted that D/O Revenue has notified All Industry Rate of Duty Drawback Schedule for physical export. DGFT has adopted these rates, to the extent applicable, for deemed exports, so that wherever it is admissible under FTP, for deemed exports, DGFT does not have to re-fix these rates. If, the supplier does not claim CENVAT credit then it has the clear option to claim the duty drawback as per Column 'A' of All Industry Rate of Duty Drawback Schedule and these rates are applied for deemed exports mutatis-mutandis. It is a simple straight option available to the domestic supplier. However, in case a supplier opts to avail CENVAT credit then also option has been provided that basic Custom Duty paid can be taken back as Brand Rate of duty drawback, based upon documents evidencing payment of actual duty.

14. After careful reading of para 8.5 of FTP, it is noted that para 8.5 of FTP categorically provides that supplies will be eligible for deemed exports drawback provided CENVAT credit/rebate has not been availed of. Para 8.3.3 of Handbook of Procedure further provides that in case the applicants are not satisfied with the All Industry Rate, then it has facility to apply for fixation of brand rate. On the other hand para 8.5 of FTP does not provide for any scenario where the CENVAT credit has been availed. As this scenario visualized fixation of brand rate, therefore, para 8.3.3 of HBP does not provide any flexibility for such cases where CENVAT credit has been availed. From close reading of para 8.5 of FTP and para 8.3.3 of HBP, it is clear that provisions of FTP do not visualize the application of column 'B' of All Industry Rate Schedule where the CENVAT Credit has already been availed. This position was specifically clarified by DGFT through its Policy Circular No. 9 dated 30.10.2013.

…..

17. It has been further contended that no such prohibition or bar was in FTP 2009-2014, and the prohibition/bar has come for the first time in the FTP 2015-2020. In this connection, its noteworthy that the Policy Circular No. 9(RE-2013)/2009-14 dated 30.10.2013 was issued to clarify the aforesaid position. The FTP 2015- 20 only takes into account the clarified position of FTP 2009-14 and in no way can be considered as the amendment of policy provision. Therefore, the contention of the applicants is not tenable.”


12. When this petition was filed and a copy served on the respondents, the Join Development Commissioner in the office of the Development Commissioner, SEEPZ, Special Economic Zone (SEZ), Andheri (East), Mumbai – 400 096 has filed an affidavit in reply. In that affidavit in reply, the stand is that deemed export scheme has been devised to neutralise the duty components, namely, terminal excise duty on the finished products and the excise duty/customs duty on the inputs (raw materials/ components). The excise duty on finished products is either abinitio exempted or the same is reimbursable. On the inputs, there may be two components, namely, excise duty on the domestic inputs and customs duty on the imported inputs. In case of deemed exports, domestic supplier has the option of claiming all duties on inputs back through All Industry Rate of Duty Drawback, Column 'A' of Drawback Schedule of the Department of Revenue, if it has not claimed CENVAT Credit. However, in case it opts to take excise duty back through CENVAT Credit, the customs duty on the imported inputs is reimbursable by way of a brand rate based upon the documentary evidence of having actually paid the customs duty. It is claimed that the Directorate General of Foreign Trade (DGFT) is vested with the power under Para 2.3(a) of FTP 2009-2014 to interpret the policy to clarify such kind of misunderstanding as forwarded by the applicants.

The DGFT vide Policy Circular No. 9(RE-2013)/2009-2014 dated 30th October, 2013 clarified that whenever CENVAT Credit has been claimed, the only route available for claiming drawback is by way of fixation of brand rate. If the petitioner is aggrieved by this order, then, it can approach the next higher authority, namely, the Additional Secretary in the Ministry of Commerce and Industry, Government of India, which remedy has not been exhausted by the petitioner. Thus, the impugned order has been justified on these lines.


13. Mr. Prakash Shah learned counsel appearing for the petitioner would submit that the impugned order is contrary to law. The requirement that the respondents insist upon is not to be found in the relevant documents and particularly the provisions enabling duty drawback. In that regard, Mr. Shah relied upon the annexures to this petition and particularly para 4 of the circular dated 30th October, 2013. He would submit that para 4 of this circular, far from assisting the respondents, would denote as to how the petitioner is entitled to the drawback.


Mr.Shah would submit, therefore, that the impugned order is contrary to law. It is clearly beyond the powers of the authorities.

Mr. Shah would submit that it is not in dispute that the petitioner is otherwise entitled to drawback in view of the suppliers having taken CENVAT Credit. The drawback under Column 'B' was denied mainly relying upon the policy circular referred above and Para 8.5 of the FTP 2009-2014. However, para 8.3.3 of the HBP provides that when All Industry Rate of Duty Drawback is not available or same is less than 4/5th of duties actually paid on materials or components used in production or manufacture of the said goods, an application in ANF 8 along with prescribed documents may be made to the Regional Authorities or Development Commissioner for fixation of brand rate. It was not required to file an application to ANF 8 for fixation of brand rate.

Mr. Shah was at pains to point out that Para 8.5 of the FTP 2009- 2014 read with Para 8.3.3 of HBP Volume–I makes it clear that while claiming deemed export drawback in terms of Para 8.3(b) of FTP 2009-2014 that the applicant has an option to claim drawback at the rate specified in the Schedule of All Industry Rates of Duty Drawback published by respondent no. 1. The applicant has further option to seek fixation of brand rate in case the condition mentioned in Para 8.3.3 of the HBP Volume–I is satisfied. Once a notification has been issued being Notification No. 68/2011-Customs (NT) dated 22nd September, 2011 and respondent no. 1 has published the revised Schedule of All Industry Rates of Duty Drawback for 2011-12, then, that has two columns, namely, Column 'A' and Column 'B'. The Column 'A' is applicable when credit is not taken and Column 'B' is applicable when credit is taken. Thus, respondent no. 1 has consciously specified two separate rates of drawback in the schedule of the All Industry Rate of Duty Drawback. In Column 'A' the rates of drawback are specified considering the CENVAT Credit is not availed. In Column 'B', the rates of drawback are specified considering the CENVAT Credit is availed. The recipient EOU is allowed to claim drawback under Column 'B' on production of a suitable disclaimer from supplier along with a self-declaration in Appendix 22C of HBP Volume–I regarding non-availment of CENVAT Credit in addition to prescribed documents. Hence, respondent no. 3 was not empowered to reject refund/drawback specified in Column 'B' of All Industry Rates of Duty Drawback under the drawback Schedule of the Department of Revenue, once the facility of CENVAT Credit has been availed. In these circumstances, he would submit that a combined reading of FTP and HBP would denote that application of Column 'B' would be ruled out. The provisions of FTP 2009-2014 do not visualise the application of Column 'B' of the All Industry Rate Schedule where the CENVAT Credit has already been availed. It is in these circumstances, the findings in the impugned order are perverse.


14. Mr. Shah placed strong reliance upon the Drawback Rules, Chapter 5402-03 of Schedule to the All Industry Rates of Duty Drawback and a Division Bench Judgment of this court in the case of Alfa Laval (India) Ltd. vs. Union of India1.


15. On the other hand, Mr. Jetly learned counsel appearing for the respondents would submit that the impugned order does not call for any interference in this courts writ jurisdiction. He would submit that the impugned order correctly summarises the issue and the controversy. Mr. Jetly would submit that it is not in dispute that the petitioner/applicant is entitled to claim the refund of duty drawback as per Para 8.5 of the FTP for customs duty paid on inputs. The only issue is the route through which they are entitled to claim the refund. The petitioner is insisting that it is entitled to claim the duty drawback as per Column 'B' of the All Industry Rate of Duty Drawback Schedule notified by the Department of Revenue, whereas, the respondents are of the view that the petitioners can obtain refund only after submission of documentary evidence in respect of the customs duty paid and getting the same fixed through the route of brand rate fixation. It is in these circumstances that the interpretation placed on these policies is neither perverse nor vitiated by an error of law apparent on the face of the record warranting interference of this court in writ jurisdiction. Mr.Jetly would submit that this is not a court of appeal, but in writ jurisdiction this court is concerned with only one aspect, namely, whether the application of the petitioner was duly considered and consistent with the policy, a decision has been taken or not. If the view taken by the respondents is in consonance with the terms, then, the interpretation of the policy by the respondents does not call for any interference in writ jurisdiction merely because another view is possible. Hence, the writ petition is devoid of merits and it be dismissed.


16. With the assistance of the learned counsel appearing for both sides, we have perused the petition and all annexures. We have also perused the affidavit in reply and the materials in the compilation tendered by Mr. Shah. In the case of Alfa Laval (India) Ltd. (supra), this court was concerned with a contention of the petitioner that it is entitled to brand rate of drawback in terms of Rule 7 if the All Industry Rate of Drawback notified in Rule 3 is less than 4/5th of the actual duties suffered on the inputs.

Once the brand rate of drawback is not determined in terms of Rule 7, the amount of drawback is disbursed after adjusting the amount of drawback already granted/disbursed to the petitioner under Rule 3. Thus, the petitioner does not get drawback under Rule 3 as well as Rule 7. The petitioner in that case could get difference between the All Industry Rate (under Rule 3) and the brand rate (under Rule 7), provided that the All Industry Rate notified under Rule 3 is less than 4/5th (80%) of the actual duties suffered on the inputs. This method was being followed by the petitioner for a long period of time and the Revenue was accepting the petitioner's applications under Rule 7 even after they had claimed drawback at the All Industry Rate under Rule 3.

After verification and scrutiny of the said applications, the Respondents have in the past sanctioned the brand rate of drawback under Rule 7 after deducting the drawback already granted/disbursed under Rule 3. This was not disputed.


17. However, deviating from this practice, when applications were filed by the petitioner under Rule 7 seeking determination of brand rate of drawback, those applications were rejected on the ground that it had already claimed drawback under Rule 3 and therefore, these applications invoking Rule 7 and seeking to determine the brand rate of drawback for the very same export were not maintainable. It was this view of the Revenue/ Respondents, which was challenged in the writ petition.


18. After hearing both sides, this court referred to the provisions of the Customs Act, 1962, the Drawback Rules and the notifications issued. After reproducing Rule 3, this court held as under:-

“19. The drawback claimed under Rule 3 is known as the “All Industry Rate of Duty Drawback”. For a large number of export products, the All India Rate of duty drawback are notified every year by the Central Government after an assessment of average incidence of customs and central excise duties suffered on inputs/input services utilized in the manufacture of the said exported products. This facility is generally availed of by the exporters as no proof of actual duties suffered on the inputs/input services used, is required to be produced. After the announcement of the Budget, various Export Promotion Councils/ Associations are consulted and their suggestions as well as their requests and justifications for suitable enhancement of rates and also any changes sought in the scheme of the Drawback Table or the entries therein, are taken note of whilst finalizing and announcing the new All Industry Rates and which generally are fixed as a percentage of the FOB price of the exported goods. Thereafter, the new All Industry Rate of drawbacks are notified every year after factoring in the changes in duty rates effected by the Budget. This is generally the procedure followed whilst arriving at the All Industry Rate and at which rate the exporter can claim drawback under Rule 3. It is for this reason that Rule 3 provides that subject to the provisions of (a) the Customs Act, 1962 and the Rules made thereunder; (b) the Central Excise and Salt Act, 1944 and the Rules made thereunder; (c) the Finance Act, 1994 and the Rules made thereunder; and (d) the Drawback Rules, a drawback may be allowed on the export of goods at such amount, or at such rates, as may be determined by the Central Government. This is obviously, subject to the other provisions set out in Rule 3.


20. Rule 4 deals with the revision of rates and empowers the Central Government to revise the amounts or rates determined under Rule 3. Rule 5 deals with the determination of the date from which the amount or rate of drawback is to come into force and the effective date for application of the amount or rate of drawback. Rule 6 deals with goods where the amount or rate of drawback has not been determined.

In effect, Rule 6 comes into play where no All Industry Rate is determined under Rule 3 in respect of any goods. Thereafter comes Rule 7 and with which we are really concerned. Rule 7 deals with goods where the amount or rate of drawback determined is low, and reads as under :-

“RULE 7. Cases where amount or rate of drawback determined is low. - (1) Where, in respect of any goods, the manufacturer or exporter finds that the amount or rate of drawback determined under rule 3 or, as the case may be, revised under rule 4, for the class of goods is less than four-fifth of the duties or taxes paid on the materials or components or input services used in the production or manufacture of the said goods, he may within sixty days from the date relevant for the applicability of the amount or rate of drawback in terms of sub-rule (3) of rule 5, make an application in writing to the Commissioner of Central Excise or the Commissioner of Customs and Central Excise having jurisdiction over the manufacturing unit, of the (manufacturer) or, of the supporting manufacturer, as the case may be, for determination of the amount or rate of drawback thereof stating all relevant facts including the proportion in which the materials or components or input services are used in the production or manufacture of goods and the duties or taxes paid on such materials or components or input services;

Provided that the Commissioner of Central Excise or the Commissioner of Customs and Central Excise may, if he is satisfied that the manufacturer or exporter was prevented by sufficient cause from making the application within the aforesaid time, allow such manufacturer or exporter to make such application within a further period of thirty days;

(2) On receipt of the application referred to in sub-rule (1), the Commissioner of Central Excise or the Commissioner of Customs and Central Excise, as the case may be, may, after making or causing to be made such inquiry as it deems fit, allow payment of drawback to such exporter at such amount or at such rate as may be determined to be appropriate, if the amount or rate of drawback determined under rule 3 or, as the cased may be revised under rule 4, is in fact less than four-fifth of such amount or rate determined under this sub-rule.

(3) Where an manufacturer or exporter desires that he may be granted drawback provisionally, he may, while making an application under sub-rule (1), apply to the Commissioner of Central Excise or the Commissioner of Customs and Central Excise, as the case may be, in writing in this behalf in the manner as has been provided in clause (a) of sub-rule (2) of rule 6 for the applications made under that rule and the grant of provisional drawback shall be considered in the manner and subject to the conditions specified in clauses (b) and (c) of sub-rule (2) and sub-rule (3) of rule 6, subject to the condition that bond required to be executed by the claimant shall only be for the difference between amount or rate of drawback determined under rule 3 or, as the case may be, revised under rule 4 by the Central Government and the provisional drawback authorised by the Commissioner of Central Excise or the Commissioner of Customs and Central Excise, as the case may be, under this Rule;

(4) …….

(5) …….” (emphasis supplied)


21. In a nutshell, what Rule 7(1) stipulates is that where in respect of any goods, the manufacturer or exporter finds that the amount or rate of drawback determined under Rule 3 or as the case may be, revised under Rule 4, is less than 4/5th (80 %) of the duties or taxes paid on the inputs/input services used in the production or manufacture of the said goods, he may within sixty days, subject to the other conditions laid down therein, make an application in writing to the Commissioner of Central Excise or the Commissioner of Customs and Central Excise, for determination of the amount or rate of drawback thereof stating all the relevant facts as required under Rule 7. Rule 7(2) provides that on receipt of an application under Rule 7(1), the concerned authority, after making such enquiries as it deems fit, allow the payment of drawback to such exporter at such rate as may be determined to be appropriate if the amount or rate of drawback determined under Rule 3 or as the case may be, revised under Rule 4, is in fact less than 4/5th of such amount or rate determined under Rule 7(2).

…..

26. On reading the Circular, and particularly paragraph (d) thereof, it is clear that the Circular seeks to interpret the Rules to mean that an exporter once having availed the All Industry Rate of drawback at the time of export, cannot file an application for determination of the Brand Rate of drawback under Rule 7. As discussed earlier, on a plain reading of the Drawback Rules, we do not find any such prohibition as is sought to be culled out by the CBEC in its Circular dated 30th December, 2011. The CBEC whilst clarifying the said Drawback Rules, has imposed limitations/restrictions which are clearly not provided for in the Rules and has the effect of whittling down the Drawback Rules. Under the garb of clarifying the Rules, the CBEC cannot incorporate a restriction / limitation, which does not find place in the Drawback Rules. In clause (d) of the Circular cannot be reconciled with clauses (b) and (c) thereof.

Hence, read together and harmoniously it will have to be held that the Circular cannot override the Rules and particularly Rules 3 and 7 of the Drawback Rules and the sub-rules thereunder. This being the case, clause (d) of the said Circular is clearly unsustainable and has to be struck down. On the same parity of reasoning, and more so because the orders/letters impugned herein, rely upon the said Circular to reject the applications of the Petitioner seeking determination of the Brand Rate of drawback under Rule 7, even the said impugned orders/letters will have to be set aside.”


19. In the instant case, the petitioner's applications at pages 68 and 91 to 95 of the papers book in clearest terms stated that they have purchased partially polyester yarn during the period 1st October, 2012 to 31st March, 2013 by making payment of excise duty and education cess from M/s. Beekaylon Synthetics Private Limited and B. F. Industries Limited, which is treated as deemed export and entitled for benefit of duty drawback at All Industry Rate. The drawback of 4% is specified in Box 'A' (when no CENVAT Credit is availed) and also 4% in Box 'B' (when CENVAT Credit is availed). When same rate is presented in Box 'A' and 'B', the exporter is entitled for drawback and issue of input credit availed or not is not relevant. Accordingly, the petitioner stated that they are claiming drawback in respect of polyester filament yarn supplied to their EOU and they enclosed the documents, which are to be found at pages 68 and 91 of the paper book. The petitioner was aggrieved and dissatisfied with the fact that its application was rejected without application of mind earlier.

Later on, they approached this court and this court directed a fresh consideration of its applications. Respondent no. 3 agreed to such a course and pursuant to the directions in the earlier writ petition, a speaking order has been passed. The speaking order though refers to the two applications made by the petitioner, proceeds on the footing that the FTP and HBP and the clarification issued by the DGFT would have to be taken into consideration. Then, it is stated that the petitioner is entitled to claim the refund of duty drawback as per para 8.5 of the FTP on customs duty paid on inputs. That is not disputed at all. The only issue is the route through which the petitioner is entitled to claim the refund. The reliance was placed on para 8.5 of the FTP and particularly the words “supplies will be eligible for deemed export drawback in terms of Para 8.3(b) of FTP on Central Excise paid on inputs/components, provided CENVAT Credit facility/rebate has not been availed by the applicant”. It further provides that “....such supplies will, however, be eligible for deemed export drawback on customs duty paid on inputs/components”. In this case, the applicant's claim is based only on the premise that they have option to seek the refund on duty drawback even if the CENVAT Credit has been availed. It is observed in the impugned order that if the supplier does not claim CENVAT Credit, then, it has the clear option to claim the duty drawback as per Column 'A' of All Industry Rate of Duty Drawback Schedule and these rates are applied for deemed exports mutatis-mutandis. It is simple straight option available to the domestic supplier. However, in case a supplier opts to avail CENVAT Credit, then also option has been provided that basic customs duty paid can be taken back as brand rate of duty drawback, based upon documents evidencing payment of actual duty. It is in these circumstances that the order proceeds on the footing that there is a bar now in the FTP of 2015-2020. However, there is a policy circular dated 30th October, 2013 issued to clarify the aforesaid position. Thus, the FTP 2015-2020 only takes into account the clarified position of FTP 2009-2014 and in no way can be considered as the amendment of policy provision. Therefore, the contention of the applicant is not tenable.


20. In the applications made by the petitioner, it has very clearly stated that it has purchased partial polyester yarn during the period for which the application for duty drawback is made by making payment of excise duty and education cess from the two suppliers. That is treated as deemed export and entitled for benefit of duty drawback at All Industry Rate. The drawback is 4% as specified in Box 'A' when no CENVAT Credit is availed and 4% in Box 'B' when CENVAT Credit is availed. When the same rate is presented in Box 'A' and 'B', the exporter is entitled for drawback and the issue of input credit availed or not is not relevant.


21. It was this simple aspect of the matter, which should have been taken into consideration. However, what we find is that there is a reference to the whole policy and every time, the petitioner was informed that the route chosen is the real issue.

We are not concerned with the route chosen for in respect of both, the percentage is the same. That was not an aspect, therefore, really necessary to be gone into. Apart therefrom, what we find from a reading of Rule 3 of the Drawback Rules is that subject to the provisions of the Customs Act, 1962 and the Rules made thereunder, the Central Excise and Salt Act, 1944 and the Rules made thereunder, the Finance Act, 1994 and the Rules made thereunder and the Drawback Rules, a drawback may be allowed on the export of goods at such amount or at such rates, as may be determined by the Central Government. Then, there are provisos and by sub-rule (2) of Rule 3, in determining the amount or rate of drawback under this Rule, the Central Government shall have regard to the matters set out in sub-rule (2) of Rule 3. Then, Rules 4, 5 and 6 speak of revision of rates, determinate of date from which the amount or rate of drawback is to come into force and effective date for application of amount or rate of drawback and cases where amount or rate of drawback has not been determined. Rule 7 follows, where the aspect of those cases where amount or rate of drawback determined is low. It is that aspect which is dealt with and Rule 7 reads as under:-

“RULE 7. Cases where amount or rate of drawback determined is low. - (1) Where, in respect of any goods, the manufacturer or exporter finds that the amount or rate of drawback determined under rule 3 or, as the case may be, revised under rule 4, for the class of goods is less than four-fifth of the duties or taxes paid on the materials or components or input services used in the production or manufacture of the said goods, he may within sixty days from the date relevant for the applicability of the amount or rate of drawback in terms of sub-rule (3) of rule 5, make an application in writing to the Commissioner of Central Excise or the Commissioner of Customs and Central Excise having jurisdiction over the manufacturing unit, of the (manufacturer) or, of the supporting manufacturer, as the case may be, for determination of the amount or rate of drawback thereof stating all relevant facts including the proportion in which the materials or components or input services are used in the production or manufacture of goods and the duties or taxes paid on such materials or components or input services;

Provided that the Commissioner of Central Excise or the Commissioner of Customs and Central Excise may, if he is satisfied that the manufacturer or exporter was prevented by sufficient cause from making the application within the aforesaid time, allow such manufacturer or exporter to make such application within a further period of thirty days;

(2) On receipt of the application referred to in subrule (1), the Commissioner of Central Excise or the Commissioner of Customs and Central Excise, as the case may be, may, after making or causing to be made such inquiry as it deems fit, allow payment of drawback to such exporter at such amount or at such rate as may be determined to be appropriate, if the amount or rate of drawback determined under rule 3 or, as the cased may be revised under rule 4, is in fact less than four-fifth of such amount or rate determined under this sub-rule.

(3) Where an manufacturer or exporter desires that he may be granted drawback provisionally, he may, while making an application under sub-rule (1), apply to the Commissioner of Central Excise or the Commissioner of Customs and Central Excise, as the case may be, in writing in this behalf in the manner as has been provided in clause (a) of sub-rule (2) of rule 6 for the applications made under that rule and the grant of provisional drawback shall be considered in the manner and subject to the conditions specified in clauses (b) and (c) of sub-rule (2) and sub-rule (3) of rule 6, subject to the condition that bond required to be executed by the claimant shall only be for the difference between amount or rate of drawback determined under rule 3 or, as the case may be, revised under rule 4 by the Central Government and the provisional drawback authorised by the Commissioner of Central Excise or the Commissioner of Customs and Central Excise, as the case may be, under this Rule;

(4) Where the Central Government considers it necessary so to do, it may - (a) revoke the rate of drawback or amount of drawback determined under sub-rule (2) by the commissioner of Central Excise or the Commissioner of Customs and Central Excise, as the case may be, or (b) direct the Commissioner of Central Excise or the Commissioner of Customs and Central Excise, as the case may be, to withdraw the rate of drawback or amount of drawback determined.

(5) No amount or rate of drawback shall be determined in respect of any of the goods (falling within heading 1006 or 2523) of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975).”


22. The petitioner's applications very clearly stated that there are schemes, one is the Export Promotion Scheme and which is very clearly referable to Chapter 22, whereunder relief of customs and excise duty suffered on the inputs used is allowed to the exporters. In that, there is a scheme for All Industry Rate of Duty Drawback. The fixation of such rates is as a percentage of FOB price of export product Very often, the export prices are obtained for a product or class of products which have no corelation with the actual duties suffered on inputs used, which is sought to be refunded to exporters as drawback. In order to safeguard Government revenue but also to be fair to exporters, reasonable duty drawback caps have been imposed in respect of many export products having rates on FOB basis. These caps essentially reflect the average duty incidence suffered on the inputs used in the manufacture of the particular goods exported by several exporters with different prices and they are fixed on the basis of data supplied by the Export Promotion Councils and collected by Directorate from other sources. What we found from the compilation tendered is that there are duty drawback rates effective from 1st October, 2011. In that, there is a Schedule and that Schedule under heading Chapter 3 includes Polyester Filament Yarn. The tariff item is 540203. Box 'A', drawback is when CENVAT facility has not been availed and Box 'B', drawback is when CENVAT facility has been availed. There is drawback rate and drawback cap per unit. What we have been shown is the judgment of this court and which clearly holds that the scheme is not to deny the benefit by placing obstacles and hurdles. In the instant case, Chapter 8 of the HBP is titled as “Deemed Exports”.

In that, there is a procedure for claiming deemed export drawback and terminal excise duty refund/exemption. That is in Para 8.3.1. In that, it is stated in Para 8.3.3 that where All Industry Rate of Drawback is not available or same is less than 4/5th of duties actually paid on materials or components used in production or manufacture of the said goods, an application in ANF 8 along with prescribed documents may be made to RA or DC for fixation of brand rate. The recipient may claim benefits on production of a suitable disclaimer from the supplier along with a self declaration in the format given in Annexure II of ANF 8, regarding non-availment of CENVAT credit in addition to prescribed documents. Then, it is stated in Para 8.3.6 that subject to procedure laid down in HBP, Customs and Central Excise Duty Drawback Rules, 1995 shall apply mutatis mutandis to deemed exports. It is on this basis, and to our mind, the petitioner rightly claimed that they are entitled to claim this drawback. That is not disputed either. It is in these circumstances that we are of the opinion that the issue was unnecessarily confused and compounded further by the respondents. Once there was no dispute about the entitlement of the petitioner, then, we do not see why the petitioners were denied the benefit. The petitioner has also pointed out, and to our mind, rightly, in the application as also the grounds of this petition that they are otherwise entitled to drawback at the rate mentioned in Column 'B'. That could not have been denied by relying upon the policy circular dated 30th October, 2013 and relying upon Para 805 of FTP 2009-2014. In that regard, the petitioner also rightly placed reliance on Para 8.3.3 of the HBP.

Thus, Para 8.5 of the FTP read with Para 8.3.3 of HBP makes it clear that while claiming deemed export drawback in terms of 8.3, there is an option to claim drawback at the rate specified in the Schedule of All Industry Rate of Duty Drawback or the fixation of brand rate. Once the respondent no. 1 has published revised Schedule of All Industry Rates of Duty Drawback for 2011-2012 and that Schedule of All Industry Rates published by respondent no. 1 has two columns, namely, Column 'A' and Column 'B', then, this conscious specification of two separate rates would enable the recipient EOU to claim drawback under Column 'B' on production of suitable disclaimer. That condition has been prescribed. It is in these circumstances that we are of the opinion that the petitioner's claim could not have been rejected. In any event, the rejection is not in tune with the policy and the HBP. An unnecessary and uncalled for controversy was generated only because of the route chosen by the petitioner. We do not see how merely for this alleged fault or deficiency could the whole claim have been denied. It is in these circumstances that the conclusion of the respondents that the refund of duty drawback for customs duty on inputs can be made only by way of brand rate of fixation and hence, the claim for refund as per Column 'B' of the All Industry Rates of Duty Drawback Schedule is rejected cannot be sustained.


23. As a result of the above discussion, the writ petition succeeds. We proceed to quash and set aside the impugned order.


Rule is made absolute in terms of prayer clauses (a) and (b).


There would be no order as to costs.


(PRAKASH.D.NAIK, J.)             (S.C.DHARMADHIKARI, J.)


1 2014 (309) ELT 17




HIGH COURT OF JUDICATURE FOR RAJASTHAN AT
JODHPUR

D.B. Central/Excise Appeal No. 59 / 2017

Union of India
Through the Commissioner, Central Excise &
Service Tax,, 142B Hiran Magri Sector 11 Udaipur.
----Appellant

Versus

M/s. Arihant Tiles and Marbles (P) Ltd., Amberi, Udaipur, Rajasthan.
----Respondent

_____________________________________________________

For Appellant(s) : Mr. Vipul Singhvi
For Respondent(s) : Mr. Sanjeev Johari, Mr. Jitendra Maheshwari
and Mr. Lalit Parihar
_____________________________________________________

HON'BLE MR. JUSTICE GOPAL KRISHAN VYAS
HON'BLE MR. JUSTICE RAMCHANDRA SINGH JHALA


Judgment / Order

Per Hon'ble Mr. Justice Gopal Krishan Vyas

10/05/2018

The instant appeal has been filed by the Union of India through Commissioner of Central Excise and Service Tax, Udaipur under Section 35 G(1) of the Central Excise Act, 1944 against the final order No.ST/A/54815-54816/2016 –SM (BR) dated 2.11.2016 whereby the Customs, Excise and Service Tax Appellate Tribunal (hereinafter referred to as the CESTATE for short) disposed of the appeal in following terms:

“(i) The assessee is entitled for refund of Rs.17,87,445/- and the impugned order to that extent is set aside and the appeal is allowed.

(ii) with regard to refund claim of Rs.15,46,270/- filed by the revenue, the matter is remanded to the original authority for verification of the agreements along with Lorry receipts, evidencing transportation of goods from the place of removal to the port of export. If the said documents are in order, the benefits of refund of Rs.15,46,270/- shall be extended to the assessee.”

 

As per facts of the case, the respondent assessee M/s. Arihant Tiles and Marbles Pvt Ltd, Udaipur filed a refund claim of Rs.33,33,715/- for the period from Jan., 2008 to March, 2008 in terms of notification No.41/2007-ST dated 6.10.2007 as amended claiming refund of service tax paid by them on the specified taxable services namely port services, terminal handling charges (THC), handling charges, technical testing and analysis service inspection and certification services, CHA service and transport of goods by road service classified under Section 65(105)(zn), (zzh), (zzi), (h) and (zzp) of the Finance Act, 1994. The Assistant Commissioner, Central Excise and Service Tax Division, Udaipur vide order No.174/08/R-ST(Ref) dated 17.7.2008 sanctioned the refund of the same amount. The Commissioner, Central Excise, Commissionarate, Jaipur-II reviewed the said order and in terms of provisions of Section 84 of the Finance Act, sent revision notice on 26.4.2010 to the assessee for recovery of said amount alongwith interest under Section 73(1) of the Income Tax Act.

Thereafter, the Commissioner, Central Excise, Commissionarate Jaipur-Second passed the revisonal order dated 9.7.2010, against which the respondent assessee preferred an appeal before the CESTAT and that appeal was disposed of as mentioned above.

The order dated 7.7.2010 was challenged before the CESTATE by the respondent assessee on various grounds but the learned CESTATE while considering the notification no.41/2007 gave finding that it is an admitted fact of the record that the services towards terminal and other handling services were availed by the assessee within the port area, in connection with export of the goods. Thus, irrespective of classification of service, since the same are provided within the port for export of goods, the benefit of refund should be available under the head port services in terms of notification dated 6.10.2017. the tribunal held that in case of Shivam Exports, SRF Ltd., and AIA Engineering it has been held that irrespective of the classification of service, if the services are provided within the port, the same should qualify as port service for the purpose of benefit of refund.

Whiling giving aforesaid finding, the CESTATE held that in view of the factual position, the assessee is eligible for refund of Rs.16,72,923/-.

In our the finding recorded by the learned CESTATE is based upon factual aspect of the matter and therefore, no substantial questions of law emerges for consideration in this regard. With regard to the JTA service availed for transportation of goods fro the place of removal to the port of export, the learned tribunal held that refund claim was filed after issuance of the notification no.3/2008 dated 19.2.2008 and in identical situation in case of East India Minerals Ltd the refund claim was allowed, therefore, assessee is entitled for refund of Rs.1,00,742/- paid on transportation charges for transport of goods from place of removal to the port of export.

In our opinion, there is no error in the finding given by the learned CESTATE for refund of GTA services, therefore, no substantial question of law emerges for consideration in this appeal for the said amount.

After examining the order in the light of arguments advanced by the learned counsel for the parties, we are of the opinion that learned CESTAE has not committed any wrong to remand the matter with regard to remaining amount of refund of Rs.15,46,270/- and therefore no substantial question of law emerges for consideration.


Consequently, the instant appeal is hereby dismissed.


(RAMCHANDRA SINGH JHALA) J.                  (GOPAL KRISHAN VYAS) J.


cpgoyal/ps



COURT OF JUDICATURE FOR RAJASTHAN AT
JODHPUR

D.B. Central/Excise Appeal No. 23 / 2018

M/s Suzuki Spinners, Unit-II, (A Unit of Suzuki Taxtiles Ltd.),
Village - Khari Ka Lamba, Tehsil Hurda, Gulabpura, District -
Bhilwara Through Its Manager Accounts Shri Arjun Sharma S/o
Shri Madhav Sharma, Aged About 52 Years.
----Appellant

Versus

1. The Commissioner of Central Excise, 142-B, Sector-11, Hiran
Magri, Udaipur-I

2. The Custom Excise and Services Tax Appellate Tribunal, New
Delhi, Through : Registrar, West Block, Now R.K. Puran, New
Delhi.
----Respondents

_____________________________________________________

For Appellant(s) : Mr. Niraj Jain
For Respondent(s) : Mr. Rajvendra Sarswat
_____________________________________________________

HON'BLE MR. JUSTICE GOPAL KRISHAN VYAS
HON'BLE MR. JUSTICE RAMCHANDRA SINGH JHALA


Judgment / Order


Per Hon'ble Mr. Justice Gopal Krishan Vyas

10/05/2018

The instant central excise appeal has been filed by the appellant under Section 35G of the Central Excise Act, 1944 read with Section 83 of the Finance Act, 1994 against the final order No.A/57678/2017-EX(DB), dated 7.11.2017 in Appeal No.E/52315/2016 passed by the Customs, Excise and Service Tax Appellate, New Delhi (hereinafter referred to as CESTAT for short) whereby the order dated 3.9.2015 passed by the Commissioner of Central Excise, Udaipur-I was upheld.


As per brief facts of the case, the appellant company is engaged in manufacture of P/V Yarn having registration No.AABCS9142FXM006. In the month of June, 2011, certain capital goods were received by the appellant on which CENVAT Credit amounting to Rs.50000611/- was availed by the appellant company. The department issued show cause notice and passed impugned order in which CENVAT Credit was denied for the reason that appellant was availing full exemption from excise duty in terms of notification no.30/2004 dated 9.7.2004. The credit was denied in terms of rule 6(4) of the Central CENVAT Credit Rules, 2004. Sine no credit is allowed on capital goods, which are exclusively used in the manufacture of exempted goods, the appellant preferred appeal before the CESTAT against the said order.


Learned counsel for the appellant argued that though the appellant was mostly clearing the goods after availing the exemption under notification no.30/2004, they have manufactured goods and cleared the same on duty payment using the same machine in terms of notification no.29/2004, consequently, claimed that the appellant is entitled to CENVAT Credit. The learned counsel for the appellant invited our attention towards the judgment of the Gujarat High Court in the case of Commissioner of Central Excise Vs. Ashima, decided on 8.9.2008 in Tax Appeal No.1032/2017 alongwith other connected appeals.


The counsel for the respondents supported the impugned order and submits that the appellant has availed the CENVAT Credit in the month of June, 2011 when the appellant was availing full exemption. Further, as per the record after Sept., 2011, the appellant was availing the same exemption, therefore, submits that no error has been committed by the subordinate authorities and therefore, substantial questions of law emerges for consideration.


After hearing learned counsel for the parties it is revealed from the judgment impugned that at the time of receipt of capital goods in the factory of the appellant in June, 2011, the appellant was availing exemption under notification no.30/2004 dated 9.7.2004. The procured capital goods were installed and utilized exclusively in the manufacture of exempted goods. However, the appellant subsequently filed a declaration dated 12.1.2012 to the effect that they proposed to utilize the machine also for manufacture of goods to be cleared on payment of duty.


Admittedly, the appellant has used it for manufacture of one consignment which was cleared on payment of duty. The learned CESTAT observed in para no.6 of the order that issue which is to be decided in this appeal is that, what is relevant date for deciding the CENVAT Credit eligibility, whether date of receipts of capital goods or the date of its utilization. The learned CESTATE held that this issue is no more res-integra in view of thejudgment of tribunal in case of Ankit Roofings Pvt Ltd- 2016 (341) ELT 351 (Tri.Del.) and dismissed the appeal.


We have perused the sub-rule 4 of Rule 6 of the Cenvat Credit Rules which provides that no CENVAT Credit shall be allowed on capital goods which are used exclusively in the manufacture of exempted goods or in providing exempted services, other than the final products which are exempted from the whole of the duty of excise leviable thereon under any notification where exemption is granted based upon the value or quantity of clearances made in a financially.


In our opinion, upon factual aspect of the matter no substantial question emerges for consideration because none of the judgments sited by the learned counsel for the appellant are relevant for the controversy in question.


Consequently, the instant appeal is hereby dismissed because no substantial question of law emerges for consideration.



(RAMCHANDRA SINGH JHALA) J.


(GOPAL KRISHAN VYAS) J.



cpgoyal/ps

IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH

CWP-13927-2018

Date of Decision: 29.5.2018

Silicon Constructions Pvt. Ltd., Manimajra, Chandigarh
....Petitioner.


Versus

Union of India and others
...Respondents.

 

CORAM:-
HON'BLE MR. JUSTICE AJAY KUMAR MITTAL,
ACTING CHIEF JUSTICE.

HON'BLE MR. JUSTICE TEJINDER SINGH DHINDSA

PRESENT: Mr. Amit Jhanji, Advocate for the petitioner.



AJAY KUMAR MITTAL, ACJ.

1. In this writ petition filed under Articles 226/227 of the Constitution of India, the petitioner has prayed for issuance of a writ in the nature of mandamus directing the respondents to reopen the online portal enabling the petitioner to file its Trans-1 return on the portal and credit the Input Tax Credit (ITC) being the transitional credit as the same was filed within the time but could not be uploaded and accepted due to technical error. In the alternative, the respondents be directed to entertain the application of the petitioner manually and accept Trans-1 Return and credit the ITC being the transitional credit.


2. The Goods and Service Tax (GST) was implemented w.e.f. 1.7.2017 and all indirect taxes including Service Tax, VAT and others were brought under the GST. The services provided by the petitioner had also came under the GST and, therefore, the petitioner had got the VAT and Service Tax Registration Certificate dated 25.6.2017 (Annexure P-1). The petitioner had uploaded the Trans-1 Returns to be filed and had tried to submit the same on 23.12.2017 (Annexure P-2) which was processed with error. The petitioner contacted the jurisdictional officer who informed the petitioner to sent a mail. Accordingly, the petitioner sent a mail dated 23.12.2017 (Annexure P-3) at This email address is being protected from spambots. You need JavaScript enabled to view it. . In response thereto, the petitioner had received e-mail dated 23.12.2017 acknowledging the mail and allotted the request ID. It was mentioned in the said e-mail that they were working on the issue and would update the same to the petitioner.

Further, vide e-mail dated 25.1.2018 (Annexure P-4), the petitioner was informed that since the last date of filing the Trans-1 Return was 27.12.2017 and, therefore, the same had been disabled. Accordingly, the petitioner sent a letter dated 8.3.2018 (Annexure P-5) to respondent No.2 to manually allow to carry forward the credit in their GSTR-3B. Another letter dated 1.3.2018 (Annexure P-6) was also sent to respondent No.3 in this regard, but no response has been received till date. Hence, the present writ petition.


3. Learned counsel for the petitioner submitted that for the relief claimed in the writ petition, the petitioner has sent the letters dated 8.3.2018 and 1.3.2018 (Annexures P-5 and P-6, respectively) to respondents No.2 and 3, but no action has so far been taken thereon.


4. After hearing learned counsel for the petitioner, perusing the present petition and without expressing any opinion on the merits of the case, we dispose of the present petition by directing respondent No.2 to take a decision on the letter dated 8.3.2018 (Annexure P-5), in accordance with law by passing a speaking order and after affording an opportunity of hearing to the petitioner within a period of one week from the date of receipt of the certified copy of the order.


(AJAY KUMAR MITTAL)
ACTING CHIEF JUSTICE


(TEJINDER SINGH DHINDSA)
JUDGE


May 29, 2018
gbs

IN THE HIGH COURT OF PUNJAB AND HARYANA AT

CHANDIGARH

CWP No.9181 of 2018

Date of decision: 01.06.2018

Paramjit Kaur & ors.
.... Petitioners

versus

Union of India and others
.... Respondents

CORAM:
HON'BLE MR. JUSTICE AJAY KUMAR MITTAL,
ACTING CHIEF JUSTICE
HON'BLE MR. JUSTICE TEJINDER SINGH DHINDSA


Present:
Mr. R.S.Sekhon, Advocate for the petitioners.
Mr. Saurabh Goel, Advocate for the respondents.



Ajay Kumar Mittal, Acting Chief Justice (Oral)

1. In this writ petition filed under Articles 226/227 of the Constitution of India, the petitioners have prayed for issuance of a writ in the nature of Mandamus directing respondent No.3 to stay the notice of recovery under Section 87-B of the Finance Act, 1994 dated 25.10.2017 (Annexure P-4) for a sum of Rs.29,62,297/- during the pendency of appeal filed before Central Excise Service Tax Appellate Tribunal, Chandigarh.

Further, a direction has been sought to respondent No.4 to not transfer the amount of Rs.29,62,297/- to the account of Government of India.


2. Learned counsel for the respondents submitted that the petitioners have already approached the Appellate Court and filed an appeal along with deposit of 7.5% pre deposit amount as required by the statute.

He has also placed on record the letter dated 31.05.2018 from the office of the Superintendent, Goods and Services Tax, Division Ferozepur.


3. In view of the above communication, no recovery shall be effected during the pendency of appeal.

4. Accordingly, the present writ petition is disposed of. In pursuance to Annexure P-4 passed by respondent No.4, the account, if any, frozen by respondent No.4, shall be released and will be operative.


(AJAY KUMAR MITTAL)
ACTING CHIEF JUSTICE


(TEJINDER SINGH DHINDSA)
JUDGE

01.06.2018

sonia

IN THE HIGH COURT OF KERALA AT ERNAKULAM

PRESENT:
THE HONOURABLE MR. JUSTICE P.B.SURESH KUMAR

THURSDAY, THE 7TH DAY OF JUNE 2018 / 17TH JYAISHTA, 1940

WP(C).No. 18629 of 2018

PETITIONER(S)

1 K.GOKULKUMAR,
M/S. K. GOKULKUMAR TEXTILES,
10.92, RAJEEV NAGAR,
DODDAMPALAYAM POST,
SATHY TALUK, TAMIL NADU.

2 M/S. GRTV SPEED PARCEL SERVICE,
7/669, OPP. VRT MILL,
SATHY MAIN ROAD, P. PULIYAMPATTY,
TAMIL NADU, REPRESENTED BY V. LATHA,
PROPRIETRIX.

BY ADVS.SRI.HARISANKAR V. MENON
SMT.MEERA V.MENON
SMT.K.KRISHNA

Vs

RESPONDENT(S):
ASST. STATE TAX OFFICER,
SQUAD NO. VII, STATE GST DEPARTMENT,
PALAKKAD - 678 001.

 

BY SR.GOVERNMENT PLEADER SRI.V.K.SHAMSUDHEEN THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 07-06-2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:


P.B.SURESH KUMAR, J.
--------------------------------------------
W.P.(C).No.18629 of 2018
---------------------------------------------------------------

Dated this the 7th day of June, 2018


JUDGMENT

Petitioners seek release of the goods detained by the respondent under Section 129 of the Central Goods and Services Tax Act as also the Kerala State Goods and Services Tax Act.


2. It is seen that an identical matter has been disposed of by a Division Bench of this Court in W.A.No.1802 of 2017, directing expeditious completion of the adjudication of the matter and permitting release of the goods detained pending adjudication, in terms of Rule 140(1) of the Kerala Goods and Services Tax Rules, 2017.

In the light of the decision of the Division Bench in W.A.No.1802 of 2017, the writ petition is disposed of directing the competent authority to complete the adjudication provided for under Section 129 of the statutes referred to above, within a week from the date of production of a copy of the judgment. It is also directed that if the petitioners comply with Rule 140(1) of the Kerala Goods and Services Tax Rules, 2017, the goods detained shall be released to them forthwith.

Sd/-
P.B.SURESH KUMAR
JUDGE

rsr
Msd.
07.06.2018

WP(C).No. 18629 of 2018 (C)

APPENDIX

PETITIONER(S)' EXHIBITS
EXHIBIT P1. COPY OF INVOICE NO. 25 ISSUED BY THE 1ST
PETITIONER DATED 03.06.2018.
EXHIBIT P2. COPY OF E-WAY BILL ISSUED BY THE 1ST PETITIONER
DATED 03.06.2018.
EXHIBIT P3. COPY OF NOTICE UNDER SECTION 129 ISSUED BY THE
RESPONDENT DATED 04.06.2018.
EXHIBIT P3 (A). COPY OF ORDER OF DETENTION IN FORM GST MOV-06
ISSUED BY THE RESPONDENT DATED 04.06.2018.
EXHIBIT P3 (B). COPY OF STATEMENT OF THE DRIVER OF THE CARRIER
DATED 04.06.2018.

RESPONDENT(S)' EXHIBITS :
NIL
 //TRUE COPY//
 P.S.TO JUDGE
Msd.
07.06.2018

IN THE HIGH COURT OF KERALA AT ERNAKULAM

PRESENT:
THE HONOURABLE MR.JUSTICE ANTONY DOMINIC
&
THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU
WEDNESDAY, THE 30TH DAY OF AUGUST 2017/8TH BHADRA, 1939

WA.No. 1802 of 2017
IN WP(C).28154/2017
-------------------------------------------------
AGAINST THE JUDGMENT IN WP(C) 28154/2017 of HIGH COURT OF KERALA
DATED 25-08-2017
-------------

APPELLANTS/RESPONDENTS:
--------------------------------

1.     THE COMMERCIAL TAX OFFICER,
SGST SECOND CIRCLE, PERUMBAVOOR,
DEPARTMENT OF COMMERCIAL TAXES,
ERNAKULAM DISTRICT. PIN - 683 542.

2.     THE INTELLIGENCE INSPECTOR, SQUAD-III,
DEPARTMENT OF COMMERCIAL TAXES,
POOTHOLE, THRISSUR, PIN - 680 004.
BY SR. GOVERNMENT PLEADER SRI.MUHAMMED RAFIQ

Vs

RESPONDENT/PETITIONER:
------------------------------

MADHU.M.B., PROPRIETOR, HARITHA ENTERPRISES,

XVII/230-F,
ARACKAPPADY, VENGOAL, PIN - 683 556,
ERNAKULAM DISTRICT.
BY SRI.R.MURALEEDHARAN

THIS WRIT APPEAL HAVING COME UP FOR ADMISSION ON 30-08-2017, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ANTONY DOMINIC,
&
DAMA SESHADRI NAIDU, JJ.
------------------------------------------------

W. A. No.1802 of 2017
------------------------------------------------

Dated this the 30th day of August, 2017


JUDGMENT

Antony Dominic, J.


1. This appeal is filed by the respondents in W.P.(C) No.28154 of 2017.


2. We heard the learned Government Pleader for the appellants and the learned counsel appearing for the respondent/writ petitioner.


3. The respondent herein, a dealer registered under the KVAT Act and migrated to CGST Act, had purchased a consignment of plywoods from a   manufacturer at Perumbavoor, and was transporting the same. The goods were detained by the appellants and Ext.P5 notice under Section 129(3) of the Central/State Goods and Services Tax Act, 2017 was issued. The notice contains the irregularities which led to the detention and the irregularity, in substance, is that there were no nexus between the documents accompanied and the actual goods under transport. It was challenging Ext.P5, the writ petition was filed. By the judgment under appeal, the writ petition was disposed of directing the second appellant to make a fresh assessment computing the value of the goods and the tax payable under the CGST Act and SGST Ordinance together with penalty. It was also ordered that on payment of 50% of such demand along with execution of a simple bond, the goods shall be released. It is this judgment which is challenged before us.


4. On hearing the rival submissions made at the Bar, we find that Section 129 of the CGST Act and SGST ordinance provides for detention, seizure and release of goods and conveyances in transit. The amounts payable on the passing of the final order are those specified in sub- section 1. Sub-section 5 provides that on payment of the amount referred to in sub-section 1, all proceedings in respect of the notice specified in sub-section 3 shall be deemed to be concluded. The statute also make provisions for release of the goods pending passing of the order under sub-section 1. Section 129(2) provides that, the provisions of Section 67(6) shall apply for detention and seizure of goods and conveyances. Section 67(6) provides that, the goods seized shall be released, on a provisional basis, upon execution of a bond and furnishing of a security, in such manner and of such quantum, respectively, as may be prescribed or on payment of applicable tax, interest and penalty payable, as the case may be. Rule 140 provides that, the seized goods may be released on a provisional basis upon execution of a bond for the value of goods in FORM GST INS-04 and furnishing of a security in the form of a Bank Guarantee equivalent to the amount of applicable tax, interest and penalty payable.


5. The above statutory provisions, therefore, provide a mechanism for adjudication following detention of goods including for the provisional release thereof pending adjudication. When the statute itself provides for such a mechanism, a deviation therefrom cannot be ordered. If that be so, the provisional release in the manner as is ordered in the judgment under appeal cannot be sustained.


6. However, taking note of the provisions of Rule 140 (2) obliging a dealer to produce the goods as and when demanded, and considering the inconvenience and prejudice that is likely to be caused on account of the delay, we need hardly emphasise  the  necessity  for   an   expeditious adjudication even in cases goods are released provisionally.

However, in this case, it is unnecessary for us to deal with that issue at greater length as the Government Pleader himself has agreed that the adjudication will be completed, within one week.


7. In such circumstances, we set aside the judgment under appeal and direct that the respondent shall produce a copy of this judgment before the second appellant, who thereupon, will issue necessary notice and conduct physical verification in the presence of the respondent and complete adjudication, at any rate, within one week.


8. We also give liberty to the petitioner to comply with Rule 140(1) and get provisional release on that basis.


Writ appeal is disposed of accordingly.


Sd/-
ANTONY DOMINIC
JUDGE


Sd/-
DAMA SESHADRI NAIDU
JUDGE


kns/-
//TRUE COPY//
P.S. TO JUDGE

In The High Court At Calcutta

Criminal Miscellaneous Jurisdiction

Date : 7th June, 2018

CRM 3327 of 2018

Sanjay Kumar Bhuwalka

Vs

Union of India

Mr. Debasish Roy
Mr. Rajdeep Mazumdar
Mr. Danish Haque
Mr. Arindam Dey
Mr. Moyukh Mukherjee
Ms. Aroshi Rathore
Ms. Kriti Mehorotra
… for the Petitioner.

Mr. K.K.Maity
…. for the opposite party.

This is an application for bail under Section 439 of CrPC praying for enlarging the accused on bail, who is in jail custody in connection with case under Section 132(1)(a),(b) and (c) of the Central Goods and Services Tax Act, 2017 pending in the Court of learned Additional Chief Judicial Magistrate, Sealdah.

Learned Magistrate has already rejected the bail application, although, he has given liberty to the investigating agency to hold custodial interrogation and he was also directed that the order so passed be communicated to the superintendent concerned Central Correctional Home. It is submitted on behalf of the opposite party that custodial interrogation is needed under Section 70 of the GST Act which is yet to be taken. So, the authority of the opposite party will take endeavour to record or to interrogate the accused/petitioner in custody in the correction home as per the order passed by the learned Additional Chief Judicial Magistrate by recording his statement. So, this application is kept pending as deferred in the next week.

List this matter on June 14, 2018.

sh ( Shivakant Prasad, J.)

Calcutta High Court
Appellate Side

Date : 08.06.2018
W.P. 6633 (W) of 2018

Gati-Kintetsu Express Private Limited.

Versus

Assistant Commissioner of State Tax,
Kharagpur Range & Ors.

Mr. Rajarshi Chatterjee …for the petitioner

Mr. Abhrotosh Majumder, Ld. A.A.G.
Mr. P. Dudhoria
Mr. Debasish Ghosh
…for the State

An order of seizure passed under Section 129(1) of the Central Goods and Services Tax Act, 2017 is under challenge in the present writ petition. The order is appealable under Section 107 of the Act of 2017.


Learned advocate for the petitioner submits that, the order comes within the purview of Section 121 of the Act of 2017. He submits that, Section 121 of the Act of 2017 carves out an exception of non-appealable decisions and orders and that the impugned order comes within the purview of such Section. Therefore, the writ petition is not maintainable. In support of such contention he relies upon a judgment and order dated February 1, 2018 passed Writ Tax No.111 of 2018 (M/s. R.K. Overseas – Versus- Union of India & Ors.) by the Allahabad High court.


Learned Additional Advocate General appearing for the respondents submits that, the writ petitioner proceeds on the basis of that the appellant authority has not been constituted. He submits on instructions that, appellate authority has since been constituted. He refers to Section 121 of the Act of 2017 and submits that, the exception is in relation to books of accounts, registers and other documents that may be seized and retained by the authorities. An order of seizure or retention of books of account, register and other documents may not be appealable. In such circumstances, he submits that, the writ petitioner should be required to prefer the statutory appeal.


Learned advocate for the petitioner submits that, the Goods and Service Tax Act portal does not have provision for filing an appeal.


In response, learned Additional Advocate General submits that, Rule 109 of the West Bengal Goods and Services Tax Rules, 2017 allows an appeal to be filed either electronically or otherwise. He submits that, the petitioner may file the appeal either electronically or otherwise.


The petitioner is aggrieved by an order of seizure of vehicle passed by the authorities exercising jurisdiction under Section 129(3) of the Central Goods and Services Tax Act, 2017. Such an order is appealable under Section 107 of the Act of 2017. Section 107 of the Act of 2017 is as follows :-

“107. Appeals to Appellate Authority.

(1) Any person aggrieved by any decision or order passed under this Act or the Central Goods and Services Tax Act by an adjudicating authority may appeal to such Appellate Authority as may be prescribed within three months from the date on which the said decision or order is communicated to such person.
……………………………………………..”


Section 107 of the Act of 2017 allows any person aggrieved by any decision or order passed under the Act of 2017 or the State Goods and Services Tax Act to file an appeal before the appellate authority as may be prescribed. It appears that, the State has prescribed the appellate authority who is the senior Joint Commissioner (Appeals) as the appellate authority.


Section 121 of the Act of 2017 craves out an exception to the appellate orders and decisions. It is as follows :-

“121. Non-appealable decisions and orders.

Notwithstanding anything to the contrary in any provisions of this Act, no appeal shall lie against any decision taken or order passed by an officer of State tax if such decision taken or order passed relates to any one or more of the following matters, namely :-

(a) an order of the Commissioner or other authority empowered to direct transfer of proceedings from one officer to another officer; or (b)an order pertaining to the seizure or retention of books of account register and other documents; or (c) an order sanctioning prosecution under this Act; or (d) an order passed under section 80.”


Section 121 is an exception to Section 107 of the Act of 2017. While Section 107 of the Act of 2017 makes every decision or order passed under the Act of 2017 to be appealable, Section 121 makes an exception thereto and states that, few which are recognized in Sub-section (a) to (d) would not be appealable.


In the facts of the present case, the petitioner relies upon Section 121(b) and submits that, an order of seizure is not appealable. With respect, Sub-section (b) relates to an order of seizure of books of account, register and other documents. Any other reading of the Sub-section would do violence to the Sub-section itself. If the contention of the petitioner is upheld, any order of seizure, irrespective of the fact as to whether the seizure relates to an immovable property or any other object, apart from books of account, register and other documents would become appealable. That in my view, is not what Sub-section (b)of Section 121 specifies. Consequently, I am unable to concur with the view expressed in M/s. R K Overseas (Supra).


The petitioner has a statutory alternative remedy available. It would be appropriate to permit the petitioner to prefer an appeal from the impugned order before the designated appellate authority, either electronically or otherwise, in terms of Rule 109 of the West Bengal Goods and Serves Tax Act, 2017. In the event, such appeal is filed within a period of ten days from date, the appellate authority will treat the same to be within the time period stipulated for the purpose of preferring an appeal and, will proceed to hear such appeal and dispose of the same, in accordance with law.


Learned Additional Advocate General appearing for the respondents submits that, an order of imposition of penalty is also under challenge. More is the reason that the petitioner should be asked to file a statutory alternative appeal.

W.P. 6633(W) of 2018 is disposed of accordingly.

No order as to costs.

Urgent certified Website copy of this order, if applied, be supplied to the parties, upon compliance of all requisite formalities.



(Debangsu Basak, J.)



BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT

DATED: 08.06.2018

CORAM
THE HONOURABLE MR.JUSTICE K.RAVICHANDRABAABU
AND
THE HONOURABLE MRS.JUSTICE T.KRISHNAVALLI

C.M.A(MD)NO.969 of 2009

The Commissioner of Central Excise,
Lal Bahadur Sastri Street,
Bibikulam,
Madurai- 625 002.                             
Appellant/Appellant

Vs

M/s.Renuga Soft-X-Towels,
Spinning Division,
Mariammankoilpatti,
                            Theni- 625531.                                 
Respondent/Respondent

PRAYER:  Writ Appeal  filed under Section 35-G of the Central Excise Act praying this Court to set aside the Final Order Nos.967/07, dated 03.08.2007 passed by the Customs, Central Excise and Service Tax Appellate Tribunal, Chennai in Appeal No.E/765 of 2004(arising out of Order in Appeal No.73-74/2004, dated 27.2.2004 passed by the Commissioner(Appeals),Madurai) on the file of this Court.

For Appellant           :Mr.R.Aravindan
For Respondent       :Mr.S.P.Maharajan


JUDGEMENT

[Judgement  of the Court was made by K.RAVICHANDRABAABU,J.]

This Civil Miscellaneous Appeal is directed against the order  of the CESTAT in Appeal No.E/765 of 2004, dated 03.08.2007.


2.Both sides fairly submitted that the quantum of duty involved in this appeal  is Rs.1,79,155/- and in view of the policy decision taken by the Government of India, which culminated into issuing a Circular  in F.No.390/Misc/163/2010-JC, dated 17.12.2015 not to allow the appeals before the Tribunal,High Court and Supreme Court  if the monetary limit is below Rs.10 lakhs, Rs.15 lakhs and Rs.25 lakhs respectively and such circular was sought to be  applied even in respect of pending appeals in High Courts/CESTAT, the present Civil Miscellaneous Appeal can be disposed of, on the reason that  the duty involvement in this appeal is below the said monetary limit of Rs.15 lakhs.


3.The learned counsel for the respondent also relied on a decision in the case of the Commissioner of Central Excise, Pondicherry .vs. CESTAT, Chennai reported in 2015(329)E.L.T.55(Mad) in support of such contention.


4.The learned counsel for the appellant/Department is not disputing the above said fact.


5.considering the above-stated submissions and considering the very fact that the duty involvement in this appeal is less than the monetary limit fixed in the above said Circular, the present Civil Miscellaneous Appeal is dismissed, without expressing any view on the merits  and only on the ground that duty involvement in the present case is  below the monetary limit as stated supra. No costs.


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