By TIOL News Service

MUMBAI, MAR 22, 2017: AN appeal against the Tribunal's Order was admitted by the Bombay High Court on the following substantial question of law: -

"Whether M/s Neha Refrigeration was a necessary and/or proper party in the adjudication of the show cause notice which was issued to Respondent No.1 and therefore whether the Tribunal was right in interfering with the original order dated 29th January 2004 passed by the Commissioner (Adjudication) and in allowing the appeals preferred there from?"

At the outset the High Court observed thus - We do not think that the question, as framed, requires any answer for it did not arise in the facts and circumstances peculiar to this case.

On the allegation that the goods were manufactured by M/s. Sapna Engineering and were cleared to companies like M/s. Voltas Limited (who made payments through cheques) without payment of duty under documents of M/s. Neha Refrigeration and two other fictitious companies, and the materials required for the production of these goods were purchased in cash, SCDN was issued for recovery of CE duty.

An Order-in-Original was passed on these allegations and holding them to be proved. Penalties were also imposed.

In appeal, the CESTAT came to the following conclusions -

(i) The Show Cause Notice was issued to the Appellants M/S. SAPNA ENGINEERING, demanding duty in respect of the goods cleared under the invoices of M/S. NEHA REFRIGERATION - alleging that it was floated by the appellants and it existed only on paper as it did not have any factory or manufacturing facility for manufacture of condensers or evaporator coils or other parts of Air-Conditioning and refrigerating appliances. That the goods on which duty had been demanded were cleared in the documents of M/S. NEHA REFRIGERATION. However, No Show Cause Notice has been issued to M/S. NEHA REFRIGERATION asking them to show cause as to why M/S. NEHA REFRIGERATION should not be considered a dummy unit of the appellants.

(ii) The Commissioner in his findings, has considered M/S. NEHA REFRIGERATION as an existing entity potentially capable of engaging in any business but did not exist as a unit engaged in the manufacture of condensers, evaporators etc. Thus, when the Commissioner himself agrees and finds nothing amiss about the existence of M/S. NEHA REFRIGERATION as an existing entity potentially capable of engaging in business, the Show Cause Notice ought to have been issued to M/S. NEHA REFRIGERATION as to why it should not be considered as a dummy unit of the Appellants. That not having been complied, the entire proceedings initiated by the Show Cause Notice are vitiated and bad in law and accordingly the impugned order is required to be set aside the same on this ground alone.

Revenue is of the view that the premise on which the Tribunal proceeded is erroneous in law.

After considering the submissions made by the counsel for the Revenue, the High Court held that it is unable to agree with the same.

The High Court added -

+ The Tribunal held that the central excise duty being what it is, namely, a duty on manufacture, and once the Commissioner concluded that the goods were manufactured and cleared through a fictitious unit which was very much capable of carrying on business and indeed carried on business, then, it should have been independently proceeded against by issuing a notice and calling for its explanation . That is how the Commissioner should have proceeded once he found that M/s. Neha Refrigeration is not a fictitious unit. Once M/s. Neha Refrigeration did not have the opportunity to establish the genuineness of the contents of the documents, then, all other findings of the Commissioner are vitiated.

+ In any event, the appeals have been allowed also by holding that this is not a case where M/s. Sapna Engineering have carried out activities of manufacturing coils on which the duty has been demanded. Such evidence does not exist. The finding of fact is that the appellants did not have the capacity to manufacture all the parts of air-conditioner and refrigerator appliances on which duty has been demanded.

+ The finding further goes that there is independent evidence supporting the contention of M/s. Sapna Engineering that defective coils were repaired by M/s. Neha Refrigeration and duly confirmed by all employees of M/s. Voltas Limited. M/s. Voltas Limited have been completely exonerated. It is in these circumstances that the Commissioner's Order was set aside. Thus, these are findings not just on any legal issues but on merits.

+ Its detail finding would indicate that show cause notice should have been issued to M/s. Neha Refrigeration asking them as to why they should not be termed as a dummy unit. That show cause notice was not issued. However, apart from this, even on merits there was no material to hold that M/s. Neha Refrigeration was a dummy unit. That is how the Tribunal proceeded and once it proceeds on this line, we do not see any basis for the apprehension that the Tribunal's understanding of the legal provision is flawed.

The High Court concluded - We do not see how the substantial question, as framed, would arise from any factual findings in the Tribunal's Order. By clarifying that this question does not arise from the impugned Order of the Tribunal, and if at all it arises in any future case, it shall not be taken to have been decided by this Court by mere confirmation of the Tribunal's Order impugned in this case, we, therefore, dispose of this appeal.

(See 2017-TIOL-533-HC-MUM-CX)