By TIOL News Service

AHMEDABAD, MAY 18, 2016: THE appellant, M/s. Premier Heavy Engineering Corporation (alleged dummy unit) is before the High Court challenging the order passed by the CESTAT, by which the Tribunal directed the excise authorities to serve a copy of show cause notice to the appellant company and further directed that all parties to the proceedings be re-heard by the original authority and thereafter, the issues liability, duty and penalty, etc. may be determined.

The Excise Department had issued show cause notice to one Foundry Agriculture & Mining Equipment Pvt. Ltd. ("the noticee"). In such notice, the Department alleged that the appellant company is a dummy unit of the noticee and no manufacturing facilities are available at the site of the appellant company. The noticee was called upon to show cause why excise duty of Rs.4,97,348/- already paid should not be recovered and confirmed under the Central Excise Act and why interest and penalty should not be levied. The appellant was not issued any notice.

On appeal, the Tribunal disposed of the same with direction that M/s Premier Heavy Engineering Corporation should be served with the copy of the notice and all the parties to be re-heard by the original authority and thereafter the issues of liabilities of duty, penalty, interest etc. are to be determined.

The appellant contended that the Tribunal committed a grave error in expanding the scope of the appeal. The Department never served copy of the show cause notice to the appellant company. There was no proposal under the show cause notice of any tax or penalty against the appellant. The Tribunal could not have expanded the scope of the show cause notice by including the appellant company within the sweep of such proceedings.

Revenue contended that the appellant company and the noticee were one and the same entities and the appellant company is dummy of the noticee company. It was therefore not necessary to hear the appellant separately before taking final decision of appropriation of the duty amount.

After hearing both sides, the High Court held:

+ Merely because the notice was issued on the so called parent company, requirement of hearing the appellant company would not be done away with. It was on this basis that the Tribunal found that the Department had committed an error and had therefore directed service of copy of the notice to the appellant company. These findings of the Tribunal and the ultimate directions have not been challenged by the Department. The conclusion that the order of recovery of tax, interest and penalty could not have been passed without hearing the appellant, thus becomes final. If that be so, the question is mere supply of copy of the show cause notice to the company be sufficient? The show cause notice was issued against the original noticee company and there was neither any proposal against the appellant company nor a copy was served to the appellant. Under the circumstances, by supplying a mere copy thereof, the Department cannot initiate proceedings against the appellant. In any case, it was neither the duty nor the authority of the Tribunal to direct so. If, after the Tribunal found that no order adverse to the appellant company could have been passed without a hearing, the Department was inclined to initiate the proceedings against the appellant, it had to take its own decision and issue notice, if even otherwise permissible in law, particularly having regard to the period of limitation prescribed. At any rate, the Tribunal could not have directed to do so and further, such requirement would not be fulfilled by mere supply of a copy of notice in case of another entity.

+ The contention that the appellant, being the dummy of the original noticee , no such separate notice or hearing was needed, simply begs the question. Whether the appellant was dummy or not is a central question and cannot be decided without full participation of the alleged dummy.

Accordingly, the High Court allowed the appeal.

(See 2016-TIOL-950-HC-AHM-CX)