Court quashes show cause notices & adjudication order, petitioner not liable for Central Excise duty

The court quashed the show cause notices and the adjudication order, holding that the petitioner did not manufacture blank CDs/DVDs and was not liable for Central Excise duty. The court exercised its jurisdiction under Article 226, deeming the alternative remedy not equally efficacious. The writ petitions were allowed, and parties were directed to bear their own costs.

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Issues Involved:
1. Legality of the Show Cause Notices.
2. Validity of the Adjudication Order.
3. Allegations of Vendetta.
4. Manufacture and Marketability of Blank CDs/DVDs.
5. Jurisdiction of High Court under Article 226.

Issue-wise Detailed Analysis:

1. Legality of the Show Cause Notices:
The petitioner challenged the show cause notices dated 05.11.2009 and 23.09.2011, alleging that they were issued as a vendetta following a bribery complaint against two officials. The notices demanded Central Excise duty on blank CDs/DVDs, which allegedly came into existence during the manufacturing process of pre-recorded audio CDs/VCDs/DVDs. The petitioner argued that no blank CDs/DVDs were manufactured at any stage, and thus, no excise duty was applicable.

2. Validity of the Adjudication Order:
The adjudication order dated 24.09.2010 confirmed the demand for Central Excise duty on the basis that blank CDs/DVDs were manufactured at an intermediate stage and were captively consumed. The petitioner contended that the adjudication order was based on mere conjectures and lacked any material evidence to prove the existence of blank CDs/DVDs. The court noted that the revenue failed to discharge its burden of proof regarding the manufacture and marketability of blank CDs/DVDs.

3. Allegations of Vendetta:
The petitioner claimed that the show cause notice was issued as a vendetta because the petitioner had filed a bribery complaint against two officials of the respondents. The court observed that the issuance of the show cause notice shortly after the bribery incident indicated a possible vendetta.

4. Manufacture and Marketability of Blank CDs/DVDs:
The petitioner argued that it did not manufacture blank CDs/DVDs and provided an expert opinion from M/s Truth Labs, which supported this claim. The court examined the manufacturing process and concluded that at no point did blank CDs/DVDs come into existence. The court emphasized that for an article to be subjected to Central Excise duty, it must pass the twin tests of manufacture and marketability, which were not satisfied in this case.

5. Jurisdiction of High Court under Article 226:
The respondents argued that the petitioner should exhaust the alternative remedy of appeal under the Central Excise Act. However, the court held that the existence of an alternative remedy does not bar the High Court from exercising its jurisdiction under Article 226, especially when the show cause notice and adjudication order are wholly without basis. The court cited several Supreme Court decisions to support this position, emphasizing that the rule of exhaustion of alternative remedies is a matter of prudence, not compulsion.

Conclusion:
The court quashed the show cause notices dated 05.11.2009 and 23.09.2011 and the adjudication order dated 24.09.2010, holding that the petitioner did not manufacture blank CDs/DVDs and thus was not liable for Central Excise duty. The court also exercised its jurisdiction under Article 226, deeming the alternative remedy not equally efficacious in the factual backdrop of the case. The writ petitions were allowed, and the parties were directed to bear their own costs.

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