2020 (8) TMI 864 - HC - Central Excise

Court upholds document access, overturns penalty under Central Excise Act.

The court found that there was no violation of the Principles of Natural Justice as the petitioner had received reasonable opportunities to inspect and ... Levy of penalty - Rebate of duty - failure to issue a show cause notice for a proposal to impose penalty under Section 11AC of the Act - relevancy of documents sought for - principles of natural justice - HELD THAT:- In the present case, the petitioner had claimed and received rebate of duty by production of a Disclaimer Certificate issued by M/s.ERTP. On investigation by the department, it was found that production particulars submitted by M/s.ERTP to the department was less when compared to the actual production, since M/s.ERTP had suppressed the same. The issue therefore before the department, at that point of time, was as to whether M/s.ERTP suppressed the production during the relevant time and thereby, enabling the petitioner to claim rebate based on such suppressed production. The fact of suppression was revealed to the department through a private file seized by them, which contained details of processed fabrics, dispatched by M/s.ERTP during January 1997 to July 2000. When the disclaimer certificate issued by M/s.ERTP was based on suppression of production details, it is for M/s.ERTP to substantiate the issue raised by the department in this regard. However, M/s.ERTP neither replied to the show cause notice nor participated in the hearing conducted by the department thereafter, but had rather accepted the contents of the documents relied upon by the department and admitted their guilt. Thus, the proceedings initiated against M/s.ERTP was never challenged and had become final - the petitioner instead of availing the opportunities to peruse and take copies of the documents relied upon by the department, had been insisting the department to give them the copies, even after the period stipulated in the show cause notice had expired. Relevancy of the documents sought for by the petitioner for establishing his case and their bonafides in making such a request - HELD THAT:- This issue that requires to be answered by the petitioner was as to why the excess rebate amount claimed on the basis of suppressed production furnished by M/s.ERTP, should not be demanded from the petitioner. The proposal to recover was only on the basis of suppression of production details by the petitioner's processor namely M/s.ERTP. The documents relied upon by the department are the ones depicting the actual production and clearance of goods made by M/s.ERTP - there are no bona-fides on the part of the petitioner in insisting for the copies of documents which may not relevant or sufficient to enable them to give a reply. The petitioner, had not only refrained from availing the opportunities given to them for perusing and taking copies of the documents, but had, after obtaining some of the copies, chosen to seek for further documents, which will not assist them in anyway for giving an effective reply to the show cause notice. Consequently, it can be held that there were reasonable opportunities extended to the petitioner and therefore, there is no violation of principles of natural justice in this regard - It is a settled proposition of law that whenever a penalty of such a nature is imposed, the same should be preceded with a prior notice of proposal. In the absence of the same, it would be appropriate to give an opportunity to the petitioner to put forth his objections with regard to the imposition of penalty under Section 11 AC of the Act alone. However, the petitioner shall not once again indulge in seeking for the documents relied upon by the department for the purpose of giving a reply to the proposal for penalty under Section 11AC, but, shall address this issue independently on its legal permissibility. The revisions filed stands confirmed, except the portion of the order imposing penalty of ₹ 15,84,083/- under Section 11AC of the Central Excise Act, which is set aside - petition disposed off. Issues Involved:1. Violation of Principles of Natural Justice due to non-furnishing of documents.2. Imposition of penalty under Section 11AC of the Central Excise Act without prior proposal in the show cause notice.Detailed Analysis:1. Violation of Principles of Natural Justice due to non-furnishing of documents:The petitioner claimed that the non-furnishing of documents requested in connection with M/s.ERTP's Disclaimer Certificate amounted to a violation of the Principles of Natural Justice. The petitioner argued that these documents were essential for their defense. The court acknowledged that non-furnishing of requested documents, on which the department relies for making a demand, could typically be termed a violation of the Principles of Natural Justice, thus invalidating the consequential demand. However, the court emphasized that the relevance and nature of the documents, along with the conduct of the party, play a significant role in such considerations.The court found that the petitioner had received reasonable opportunities to inspect and take copies of the documents. The show cause notice dated 12.12.2003 explicitly allowed the petitioner to peruse the records and take copies within 15 days. The petitioner, however, did not avail this opportunity within the stipulated period and instead insisted on receiving copies via mail. Further opportunities were provided during personal hearings on 01.08.2006 and 02.08.2006, where the petitioner’s representative inspected and took copies of some documents but continued to request additional documents. The court noted that the petitioner’s insistence on further documents, which were not relevant to their defense, indicated a lack of bona fides.The court concluded that the petitioner had not been denied reasonable opportunities and thus there was no violation of the Principles of Natural Justice. The court cited the Hon’ble Supreme Court's ruling in Sahara India Real Estate Exchange Corporation Limited Vs. SEBI, emphasizing that the rules of natural justice have limitations and are applicable only to parties acting fairly.2. Imposition of penalty under Section 11AC of the Central Excise Act without prior proposal in the show cause notice:The petitioner contended that the imposition of a penalty under Section 11AC of the Central Excise Act was unjustified as there was no prior proposal for such a penalty in the show cause notice. The court agreed with the petitioner, noting that the authorities had imposed the penalty without addressing the lack of a prior proposal in the show cause notice. The court highlighted that it is a settled proposition of law that any penalty of this nature must be preceded by a notice proposing such a levy, allowing the affected party to respond.The court set aside the portion of the order imposing the penalty of Rs. 15,84,083/- under Section 11AC of the Central Excise Act. The court directed the second respondent to issue a fresh show cause notice proposing the penalty under Section 11AC and to provide the petitioner an opportunity to respond. This process, from issuing the show cause notice to passing final orders, was to be completed within 12 weeks from the date of receipt of the court's order.Conclusion:The Writ Petition was disposed of with the confirmation of the original demand of Rs. 15,84,083/- and the associated penalties, except for the penalty under Section 11AC of the Central Excise Act, which was set aside. The second respondent was instructed to reissue a show cause notice for the penalty under Section 11AC and complete the proceedings within the specified timeframe. The connected Miscellaneous Petition was closed, and no costs were awarded.