2022 (7) TMI 1062 - HC - Central Excise

Court quashes order, directs de-sealing. Upholds appointment authority, dismisses lack of jurisdiction.

M/s Elora Tobacco Company Ltd. Versus Union of India, Superintendent CGST And Central Excise Range-II, Assistant Commissioner CGST And Central Excise Division III, Commissioner CGST And Central Excise, Joint Commissioner, CGST, The Additional Assistant Director, The Commissioner of Goods And Service Tax

The court allowed W.P. No.23618/2021, quashing the impugned order and directing the de-sealing of machines and DG sets. The court dismissed W.P. ... Refusal to de-seal cigarette manufacturing machines and DG sets - validity of the declaration of trade notice dated 18.01.2021 - arbitrary and violation of Article 14 of the Constitution of India or not - inconsistent and contrary to the provision of the Central Excise Act, 1944 or not - whether the action of the respondents is legal in keeping the manufacturing machine and DG set under seal and depriving the petitioner to start the business? HELD THAT:- The Central Excise Authorities cannot compel any manufacturer to utilize 50% of the machine hours in shift based on the declared capacity of the machine. The production of any goods always depends on demand in markets, availability of raw material, availability of electricity, manpower, working capital etc. The only provision under the Excise Act is section 3A under which the Central Government can charge the excise duty on the basis of capacity of production in respect of notified goods and admittedly, the cigarette is not notified goods under Section 3A, therefore, apart from Section 3A, Shri Prasad has failed to point out any provision under the Act and Rules under which the Central Government can insist the manufacture to operate the machine up to 50% of its total production capacity machine hours. The respondents have completed the search and investigation and thereafter issued a show cause notice to the petitioner, therefore, there is no need to keep the machine and DG sets under seal. The respondents have already assessed the capacity of the machine by calling Chartered Engineers. When the respondents have already assessed the capacity then there is no question of seeking a declaration about the capacity of the machine under seal from the petitioner. Since there is no mandatory provision in the statute to give production as per the capacity of the machine then the respondents cannot compel any manufacturer to give a declaration or run the factory up to its 50% capacity - The Excise officer is posted there 24x7 hours to check the production and accordingly, charged the excise duty, therefore, no purpose would be served by keeping the record or insisting the manufacturer to declare the capacity of the machine. It is the responsibility of the Excise Officer to watch 24x7 hrs and check the capacity of production in the factory before removing the goods. The impugned action of the respondents is wholly without jurisdiction for which the petitioner is liable to be compensated, hence instead of assessing losses caused in this writ petition, it is left to the petitioner to take recourse available under the law against the respondents. As far as loss of revenue to the Government is concerned, the higher officials of the respondents shall take appropriate action against the responsible officers. The respondents are directed to de-seal the machine and two DG sets forthwith - application disposed off. Issues Involved:1. Legality of the respondents' refusal to de-seal cigarette manufacturing machines and DG sets.2. Validity of Trade Notice dated 18.01.2021.3. Authority of respondents to appoint a panel of chartered engineers for verification of production capacity.4. Alleged violation of Articles 14, 19(1)(g), and 21 of the Constitution of India.Detailed Analysis:1. Legality of the Respondents' Refusal to De-seal Cigarette Manufacturing Machines and DG Sets:The petitioner challenged the order dated 27.05.2021, where respondents refused to de-seal cigarette manufacturing machines and DG sets. The petitioner argued that there is no provision under the Central Excise Act or GST Act for keeping the machines sealed indefinitely. The respondents justified their action based on Trade Notice No.02/2015, which mandates sealing machines operating below 50% capacity. However, the court found that the Trade Notice only allows sealing between production shifts and does not authorize indefinite sealing. The court concluded that the respondents' action was illegal and beyond their jurisdiction, directing the immediate de-sealing of the machines and DG sets.2. Validity of Trade Notice Dated 18.01.2021:The petitioner contended that Clause 6.3 of the Trade Notice dated 18.01.2021, which requires machines to operate at least 50% of their capacity, is unreasonable and inconsistent with the Central Excise Act and Rules. The court agreed, stating that production depends on market demand and other factors, and there is no statutory provision compelling manufacturers to operate machines at a specific capacity. The court struck down Clause 6.3, deeming it inconsistent with the Central Excise Act and Rules.3. Authority of Respondents to Appoint a Panel of Chartered Engineers for Verification of Production Capacity:The petitioner also challenged the respondents' action of appointing chartered engineers to verify the production capacity of machines. The court noted that Section 145 of the GST Act allows authorities to seek expert opinions. Therefore, the court dismissed the petition challenging the appointment of chartered engineers, finding it within the respondents' authority.4. Alleged Violation of Articles 14, 19(1)(g), and 21 of the Constitution of India:The petitioner argued that the respondents' actions violated their fundamental rights under Articles 14, 19(1)(g), and 21 of the Constitution. The court acknowledged that the indefinite sealing of machines deprived the petitioner of their right to conduct business, causing significant business loss and loss of revenue to the government. The court directed the respondents to de-seal the machines and DG sets and awarded costs of Rs. 50,000 to the petitioner, emphasizing the need for appropriate action against responsible officers for the loss of revenue to the government.Conclusion:The court allowed W.P. No.23618/2021, quashing the impugned order and directing the de-sealing of machines and DG sets. The court dismissed W.P. No.23624/2021, upholding the respondents' authority to appoint chartered engineers. The court emphasized the respondents' lack of jurisdiction in indefinitely sealing the machines and highlighted the resultant business and revenue losses.