By TIOL News Service

NEW DELHI, MAY 19, 2017: THE issue concerns availment of exemption under Notification No. 12/2012-CE. From the ER-3 Returns for the period of April to December, 2016 it appeared that the unit had cleared mobile phone batteries valued at Rs.13,76,75,874/- on payment of duty of central excise at 2% ad valorem whereas as per the Revenue it was liable to pay a differential duty of 10.5% ad valorem. Likewise, it cleared the LED bulbs by paying a differential duty at 6% while it was allegedly required to pay differential duty at 6.5%.

Pursuant to permission granted by the Additional Commissioner on 10.03.2017, the petitioner's premises was visited by the officers from Anti-Evasion "to safeguard the revenue."

In the panchanama dated 10.03.2017, it is mentioned:

In the noting dated 14.03.2017 made in the case file, it is inter alia recorded that there was a purported admission by Mr. Jain "that above notification exemption was not applicable in their case." The note states that - "ShriRohit Jain was ready to deposit the differential duty of 10.5% as they had short-paid the duty on all the clearances of mobile phone battery. Accepting his offence, he voluntarily tendered five undated cheques towards their duty liability amounting to Rs.1,25,00,000/-…

The Petitioner's version of what happened on 10.03.2017 is - all of a sudden on 10th March, 2017, a team of the Anti Evasion, Central Excise, Delhi visited the office; conducted search; seized some of the documents and thereafter collected five cheques "all dated nil" bearing the aforementioned numbers and for the same amount i.e. Rs.1.25crores.

On 30.03.2017, the Petitioner's counsel requested the Department not to encash the cheques claiming to have rightly availed of the benefit of exemption notification in question.

The Petitioner thereafter filed a Writ petition alleging illegalities committed by the Department and prayed for a declaration that the Petitioner is entitled to the benefit of exemption and for a mandamus to the Respondent No.3 i.e. the Commissioner of Central Excise, Delhi-II not to encash the five cheques dated 'nil'.

When this writ petition was listed for hearing on 12.04.2017 an order came to be passed wherein the High Court sought to know on what instructions, orders and circulars the practice of collecting undated cheques from parties is being undertaken by the officers of the Anti Evasion Wing of the Central Excise Department.The High Court also drew the attention of the counsel of the respondent department to the Delhi High Court order in Capri Bathaid Private Limited v. Commissioner of Trade & Taxes = 2016-TIOL-781-HC-DEL-VAT and wherein a similar practice followed in the Department of Trade and Taxes of the Government of the NCT of Delhi was directed to be stopped forthwith. The respondent was also directed to produce the cheques on the next date of hearing and that till the next date, no coercive action should be taken against the petitioner.

The five cheques were produced before the Court during the hearing on 08.05.2017. The counsel for the Respondent also submitted that he could not point out any provision or notification or circular that permitted the officers of the Department to collect 'undated cheques' constituting the differential duty liability and in particular authorising officers to collect such differential duty liability during the process of a visit/search or survey. Moreover, since the Petitioner expressed its difficulty in making the payment of the entire duty liability, it was at the Petitioner's insistence that the officers agreed that no date would be put on the cheques, emphasized the counsel for the department.

After considering the various submissions made, the High Court observed -

+ It appears (from the affidavit) that officers of the Department who go on a visit/survey etc. to detect evasion of CE duty have the discretion to decide on the spot what the evaded duty amount is; to collect such duty by way of cheques; to decide again on the spot the terms on which such duty should be paid; to decide again on the spot whether to grant such duty evader the facility of postponement/late payment by 'agreeing' not to put any date on such cheques.

+ It is indeed extraordinary that officers at the level of a Superintendent would have such vast powers of collecting duty on the spot without even a quantification of the duty amount preceded by a show cause notice (SCN). No attempt has been made to demonstrate that the above is a procedure known to law. It actually points to the opposite. And that is what makes it inexcusable.

+ It requires to be noted that the Court has come across instances where a similar practice of 'collecting' purported differential duty/tax from dealers/assessees alleged to have evaded payment of statutory duties/taxes has come to the notice of the Court in the context of the proceedings under the Delhi Value Added Tax Act, 2004 ('DVAT Act') as well as the Finance Act, 1994. [Capri Bathaid Private Limited v. Commissioner of Trade & Taxes = 2016-TIOL-781-HC-DEL-VATrefers]

+ The ADC has been unable to point out any provision of law or any notification or any circular that permitted the officers who visited the Petitioner's business premises to collect undated cheques which purportedly constitute the differential duty . He is further unable to explain how these undated cheques were kept with the Department and why indulgence was shown by the Department to the Petitioner when the Petitioner requested for some time to arrange for the duty amount.

+ This illegal practice adopted by the Anti-Evasion Department of Central Excise requires a deeper investigation… There will be serious ramifications if this practice is allowed to continue unchecked . In the first place, it must be realised that the officers of the Anti Evasion Wing of the Central Excise Department have to function within the four corners of the law… There is no scope at all to collect duty and that too without even quantifying the extent of duty evasion .

In respect of the instructions of the ADC in response to the noting made on the file, the High Court noted -

++ One is that since there is nothing written down anywhere, the unscrupulous officers who constitute the survey/search team can 'negotiate' an amount of evaded duty and also agree to waiver of interest and penalty. This is without quantification and without a SCN. The duty evader gets away with a lighter amount and this is prejudicial to the interest of the Revenue.

++ The second scenario is where an Assessee refuses to comply with an illegal demand and under threat and coercion is compelled to issue cheques or pay cash which is supposed to constitute the differential duty. This is undoubtedly prejudicial to the Assessee and is harmful to public interest. It is not rule of law but anarchy unleashed by holders of public office . Neither is it an acceptable scenario in a system governed by the rule of law. It metamorphises into a system of rule by law and, worse still, by abuse of law. It has to be stopped.

The following directions were issued by the High Court -

++ The cheques brought to the Court are to be kept in a sealed cover with the Registrar General of this Court. The Court would like the Commissioner of Central Excise, Delhi-II to personally file an affidavit in this Court in light of the present order to explain to the Court what steps he proposes to take to immediately stop this illegal practice adopted by his officers of collecting undated cheques . This affidavit should be filed on or before 29th May, 2017. The Commissioner is also requested to remain personally present in Court on the next date to assist the Court with the queries that the Court may have.

++ The Commissioner of Central Excise, Delhi-II is directed to immediately institute an enquiry to ascertain which of the officers were involved in this illegal exercise . He will seek a proper explanation from them as to how they proceeded to collect undated cheques in the manner indicated above and that too without any authorisation to do so under the CE Act, the rules made thereunder or under any circular/notification etc. In his affidavit to be filed in pursuance to the present order, the Commissioner of Central Excise, Delhi-II will detail all the consequential steps that he has taken in this regard including fixing responsibility on such of those officials who have crossed the line.

++ A copy of this order to be sent forthwith to the Central Vigilance Commissioner (CVC) in view of the seriousness of the issue.… The extent of harm this can cause to the government exchequer and the harassment it can cause to innocent persons is immense. It symbolises what economists term as 'rent seeking behaviour' of public servants. It also raises serious issues about accountability and transparency of the functioning of these Departments. It is imperative for the CVC to issue clear guidelines.

Upon being informed by the counsel for the respondent that a SCN would be issued to the Petitioner in all probability within a week, the High Court ordered that the Writ Petition be kept pending to ensure compliance of the directions issued.

In passing: Please also see - 2016-TIOL-3230-HC-DEL-CUS .

(See 2017-TIOL-955-HC-DEL-CX)