2005 (3) TMI 154 - HC - Central Excise

Court Quashes Invalid Notices Against Auditors; Highlights Jurisdictional Errors and Legal Deficiencies.

JAYANTILAL THAKKAR & COMPANY Versus UNION OF INDIA

JAYANTILAL THAKKAR & COMPANY Versus UNION OF INDIA - 2006 (195) E.L.T. 9 (Bom.) Issues Involved:1. Whether the Auditors of the Company can be subjected to action under Section 9(1)(bbb) of the Central Excises and Salt Act, 1944, read with Rule 209A of the Central Excise Rules.Issue-wise Detailed Analysis:1. Maintainability of the Petitions:Mr. R.V. Desai, representing the Revenue, raised a preliminary objection regarding the maintainability of the petitions, arguing that the show cause notices could only be challenged before a writ court if no case was made out against the noticees, even assuming the facts to be correct. He contended that the notices were issued by authorities with jurisdiction and should be adjudicated by the departmental authorities. Mr. Desai cited several Supreme Court judgments to support his argument, emphasizing that the High Court should not interfere in the legality of the notices at the writ petition stage.In response, Mr. Shroff, representing the petitioners, argued that the petitions had been pending for about 13 years and that it would be improper not to adjudicate the legality of the show cause notices. He contended that the notices were unsustainable and lacked jurisdiction, and thus, the writ petitions were rightly admitted. He also argued that the respondents should not be allowed to proceed with defective notices and took the court through the contents of the notices to demonstrate their deficiencies.2. Statutory Provisions Analysis:The court examined the relevant statutory provisions, particularly Section 9(1)(bbb) of the Central Excises and Salt Act, 1944, and Rule 209A of the Central Excise Rules. Section 9(1)(bbb) penalizes anyone who deals with excisable goods knowing or having reason to believe they are liable to confiscation. Rule 209A imposes penalties on anyone who deals with excisable goods with knowledge or reason to believe they are liable to confiscation.3. Consideration of Legal Precedents:The court referred to various Supreme Court judgments that discouraged High Courts from entertaining writ petitions challenging the legality of show cause notices, emphasizing the need for statutory authorities to investigate facts. The court noted that writ petitions should not be entertained unless the show cause notice was non est in the eye of law due to a lack of jurisdiction.4. Examination of Show Cause Notices:The court scrutinized the show cause notices issued to the petitioners. The notices alleged that the petitioners, as auditors, certified the books of accounts of G.T.C. Industries Ltd. despite noticing discrepancies in invoices and delivery challans. The court found that the notices did not establish that the petitioners had handled or dealt with the excisable goods with the required knowledge under Rule 209A. The court concluded that the notices did not meet the mandatory requirements of Section 9(1)(bbb) or Rule 209A.5. Professional Duties of Auditors:The court emphasized that it was unreasonable to allege that auditors or legal advisers of a company handled or dealt with excisable goods while discharging their professional duties. The court held that the show cause notices were without jurisdiction and did not make out a case under Section 9(1)(bbb) or Rule 209A.6. Supplementary Affidavits:The court rejected the use of additional affidavits to supplement the show cause notices, citing the principle that the validity of a statutory functionary's order must be judged by the reasons mentioned in the order itself. The court held that the contents of the show cause notice could not be supplemented by an additional affidavit, especially when the legality of the notice was being tested in court.7. Relegation to Departmental Adjudication:The court dismissed the submission to relegate the parties to departmental adjudication, stating that it would be unjustified to dismiss the petitions on the ground of not availing alternate remedies, especially after noticing glaring illegality in the show cause notices.Conclusion:The court quashed and set aside the impugned show cause notices, allowing the petitions and making the rule absolute with no order as to costs.