2005 (3) TMI 154 - HC - Central Excise

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

The HC quashed the show cause notices against the auditors, finding them without jurisdiction and failing to meet the requirements of Section 9(1)(bbb) of ... Penalty - Writ jurisdiction - Show cause notice stage - Whether Auditors of the Company could be subjected to the action u/s 9(1)(bbb) of the Central Excises and Salt Act, 1944 ('Act') read with Rule 209A of the Central Excise Rules ('said Rules') framed under the provisions of the Act - HELD THAT:- It is too much to allege or to presume that the advocates or the legal advisers or auditors of the company to handle muchless deal with the excisable goods as contemplated u/s 9(1)(bbb) of the Act or Rule 209A of the Rules while discharging their professional duties. The cases at hand are the cases wherein the show cause notices are absolutely without jurisdiction muchless they do not make out any case of any of the noticees having dealt with the excisable goods with specific knowledge so as to stand to the test of either Section 9(1)(bbb) of the Act or Rule 209A of the Rules as such each show cause notice, in our opinion, is non est and liable to be quashed and set aside. Issuance of show cause notice with material facts and particulars is a basic requirement of principles of natural Justice. Underlying the rules of natural justice is to prevent miscarriage of justice and secure fair play in action. Thus, the show cause notice must contain all necessary allegations with material particulars forming cause of action for the action initiated. The contents of show cause notice, thus, cannot be supplemented by an additional affidavit, especially, when the legality of the show cause notice is being tested in the Court of law. Of course, issuance of additional or supplementary show cause notice may be permissible in a given case subject to the compliance of law for the time being in force but, certainly, not the affidavit at the stage when the matter is in the Court for judicial scrutiny of the very same show cause notice. So far as the submission to relegate the parties to the departmental adjudication is concerned, the submission at this stage is misplaced. In our view, having entertained these petitions on merits this Court will not be justified in dismissing them as not maintainable on the ground of not availing alternate remedy of departmental adjudication, that too, after having noticed glaring illegality in the show cause notices impugned in these petitions. In the result, impugned show cause notices are quashed and set aside. Petitions are allowed. Rule is made absolute in both petitions in terms of prayer clause (a) with no order as to costs. 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.