By TIOL News Service

MUMBAI, DECEMBER 05, 2018: THE case of the department is that the assessee had manufactured articles of fabrics and sold the same to various customers without payment of central excise duty and to adjust the payments received against such sales, it had raised commercial invoices reflecting the sale of design software to evade payment of duty on fabrics.

In the first proceeding, in the matter of CE duty liability of Rs.1.0 crores, the Tribunal directed the appellant to pre-deposit 25% of the amount. Six lakhs was deposited and then the appellant knocked the doors of the High Court. The Court set aside the order of CESTAT on 26.6.2006 and remanded the matter with direction to consider the plea of 'technical hardship' raised by the present petitioner. After remand, the aforesaid amount was reduced by CESTAT to make it Rs. 12 lakh. As already an amount of Rs. six lakh was deposited, the remaining amount was deposited by the petitioner and then the appeal was decided by CESTAT. The CESTAT, thereafter, remanded the matter. In denovo proceedings, the Asstt. Commr. maintained the previous order and when the order was challenged before CESTAT, the Tribunal directed the appellant to make a pre-deposit of Rs.20 lakhs.

In the second proceeding, the CE duty involved was Rs.2.73 crore and here too the CESTAT directed pre-deposit of 50% of the Customs as well as CE duty. Again, the appellant took the matter to the High Court and the matter was remanded back for considering the ground of technical hardship raised by the present petitioner. CESTAT has thereafter reduced the pre-condition amount to make it 25% in place of 50%.

Both these orders are challenged before the High Court. The appellant submits that on 5.11.2014 the petitioner company came to be declared as sick industry under Sick Industrial Companies (Special Provisions) Act, 1985 (S.I.C.A.) by the Board of Industries and Financial Reconstruction (B.I.F.R.) and the petitioner is preparing scheme for rehabilitation. It is the contention of the petitioner company that this circumstance is not considered by CESTAT and, therefore, the orders are liable to be set aside.

The High Court considered the submissions and inter alia observed –

“…In addition to present two petitions, there are three other petitions of the petitioner company like Writ Petition No. 2492/12, 2493/13 and 2532/12. The submissions made and the record show that total liability of the company to the respondents is more than Rs. 20 Crore at present and the liability may be more if the interest amount is considered. The submissions made and the record show that the other Court had made order in one petition to deposit amount of Rs. 21 lakh for getting the interim relief, but this order is not complied with. There was interim relief in the present two proceedings granted by this Court due to which the two proceedings remained pending and the appeals pending before CESTAT did not make progress. It appears that due to pendency of these proceedings the amount due is also not deposited by the petitioner company. Only when this Court vacated the interim relief as the counsels were changed atleast on two occasions in the present matters, the argument was advanced in both the matters.”

After extracting the provisions of section 35F of the CEA, 1944, the High Court further observed –

++ The aforesaid provision of Central Excise Act shows that discretionary power is given to CESTAT, the appellate forum and the appellate forum can dispense with the pre-condition of depositing the amount of duty, penalty etc. if such condition would cause 'undue hardship' to the appellant.

++ When the matter involves use of discretion by Court/Tribunal, in ordinary course, the appellate Court or this Court in a proceeding like present one is not expected to interfere with such order. This Court can only ascertain as to whether for refusal to use discretion, there were some circumstances including the conduct of the party and whether case of undue hardship is made out by the appellant.

++ When the Court is expected to use the discretion, the Court is expected to consider to some extent the merits of the grounds also. In the present case, that was more necessary due to peculiar facts of the present matter.

++ The submissions made and the record show that the appellant company had imported material for manufacturing of goods in India and for that 100% exemption in duty was taken at the time of importing the material.

++ There was no record to show that the goods which were cleared in domestic market were manufactured from indigenous domestic material alone. Further, there was no D.T.A. permission and goods were cleared in domestic market in the names of various fictitious units.

++ Three units found on record were being managed by the same family. These manufacturing units were not having manufacturing facilities of their own and they had tried to show that goods were manufactured by outsourcing. This claim was found to be false and it was noticed that the units of the petitioner were used for manufacturing of the goods of these fictitious units and then the goods were cleared in domestic market. There was no satisfactory account of utilization of imported material of the petitioner company.

++ Thus, the goods manufactured by the petitioner company were sold by using the names of some fictitious units. Thus, the peculiar modus operandi was used for evasion of duty. The assessing authority has imposed penalty not only on the petitioner company, but also on the other units which were shown to be managed by the same family. Thus, the activity involved fraud, criminal wrong and it was not only irregularity or mistake.

++ Such circumstances, conduct of the party cannot be ignored by the Court or Tribunal while using discretionary power.

++ The aforesaid circumstances show that false record was created, there was criminal wrong committed to avoid the liability to pay the duty to respondents. Even when sales had increased, by creating false record of aforesaid nature, the liability was avoided and money was diverted to other fictitious units. In view of these circumstances, the contention of the petitioner company that it was declared as sick unit cannot be considered. The discretionary power cannot be used in favour of such company, persons.

++ It can also be said that due to the orders made by this Court of allowing the petitions, the Tribunal gave more concession and the pre-condition amount was reduced.

++ By filing proceedings in this Court and by filing applications for waiver of the pre-condition, the petitioner has apparently misused the process of law and petitioner has successfully avoided the payment of huge amount of duty, penalty and interest for more than 10 years.

Concluding that no interference is possible in the orders made by CESTAT, the petitions were dismissed.

(See 2018-TIOL-2530-HC-MUM-CX)