2006 (12) TMI 150 - HC - Central Excise

Tribunal's Conclusion Overturned; Court Demands Evidence for Excise Duty Charges, Remands Case for Reconsideration.

The Court found the Tribunal's conclusions unsustainable, as it failed to consider the Assessee Company's explanations regarding discrepancies in records ... Modvat credit - duty paid - Demand - Clandestine removal - Shortage of raw material - Reference to High Court - manufacture of the final products - whether the shortage of raw material as allegedly detected in the difference between the alleged consumption of those items by the Company and the record of such consumption in the relevant books amounts to clandestine removal of those items ? - HELD THAT:- In the instant case, no evidence has been adduced by the Revenue to prove its case on clandestine removal except relying on the alleged difference in the stock based on a comparison between the statutory records and the privately maintained records. This aspect of the matter was not considered by the tribunal at all. Imposition of penalty under Rule 173Q, learned counsel for the Company submitted that neither in the show cause notice nor the order of the Commissioner indicated under which clause of Rule 173Q the penalty has been imposed. The learned counsel submitted that whenever penalty is imposed, the particulars of the provision which have been violated must be furnished in the show cause notice and without furnishing those particulars penalty cannot be imposed. Learned counsel in support of the said contention relied on the judgment in the case of Amrit Foods v. Commissioner of Central Excise, U.P.[2005 (10) TMI 96 - SUPREME COURT]. From a perusal of the said judgment it appears that the Tribunal has set aside the order of the Commissioner on the ground that neither the show cause notice nor the order of the Commissioner specified which particular clause of Rule 173Q had been allegedly contravened by the appellant. The Apex Court held that the finding of the Tribunal is correct. The Apex Court also found that Rule 173Q contains six clauses and the contents of which are not same. Therefore, it was necessary for the assessee to be put on notice as to the exact nature of contravention for which the assessee was liable under the provisions of Rule 173Q. Since this has not been done, the finding of the Tribunal cannot be faulted. Unfortunately in the instant case the imposition of penalty appears to have been vitiated on that ground. But despite non-furnishing of the particulars of contravention of the exact clause in 173Q, the penalty orders have been sustained by the Tribunal. The said finding of the penalty is clearly in violation of the settled law as has been reiterated by the Supreme Court in Amrit Foods case. In explaining the nature of Reference Jurisdiction of the High Court, the learned counsel for the Company referred to the decision of the Supreme Court in the case of Omar Salay Mohamed Sait v. Commissioner of Income Tax,[1959 (3) TMI 2 - SUPREME COURT]. By referring to the said judgment of the Hon'ble Supreme Court, the learned counsel urged that in a case where a fact finding Tribunal arrives at its own conclusions of fact after due consideration of the evidence before it, the High Court may not interfere but where the Tribunal does not consider the materials which are furnished before it and come to a conclusion without consideration of the relevant materials, even though on questions of fact, in such a case its finding can be set aside by the High Court. Reliance was also placed on a judgment of the Gujarat High Court in the case of Anant Mills Ltd. v. Commissioner of Income Tax [1992 (9) TMI 27 - GUJARAT HIGH COURT]. The said decision was also rendered by the High Court in its reference jurisdiction u/s 256 of the Income Tax Act, 1961. Learned Judges of the Gujarat High Court found that when the Tribunal ignores material evidence on record and an inferential finding is reached, based on one fact alone and in disregard of voluminous documentary evidence to the contrary, it can be said that the finding reached by the Tribunal is patently unreasonable. In view of such finding reached by the Tribunal, the High Court can be of the opinion that the Tribunal was not justified in reaching the finding it had reached and as such, the Court can answer the question in favour of the assessee. This Court finds that the aforesaid principles are applicable to the exercise of Reference Jurisdiction by the High Court u/s 35K of the Act. Following the aforesaid principles, this Court is unable to uphold the finding, by the majority decision, of the Tribunal and this Court is of the opinion that the Tribunal misdirected itself in law by not considering the explanation given by the petitioner-Company about the alleged shortage of the raw materials between the two sets of records. Without considering the explanation furnished by the Company, the Tribunal's finding cannot be sustained in the eye of law. As such, this Court answers the first question in the affirmative and in favour of the Company and the second question in the negative and also in favour of the Company. In view of this Court's answer on these questions, the other two questions need not be answered. All the three reference cases are answered and disposed of accordingly. Issues Involved:1. Whether the Tribunal's conclusion about the discrepancy in the Assessee Company's records is based on evidence and materials on record.2. Whether the Tribunal correctly upheld the finding of clandestine removal of input materials without payment of Central Excise duty.3. Whether the Tribunal erred in law by prioritizing the private records over statutory records.4. Whether the penalty imposed under Rule 173Q of the Central Excise Rules was justified.Issue-wise Detailed Analysis:1. Tribunal's Conclusion on Record Discrepancy:The Tribunal concluded that the Assessee Company had not satisfactorily explained the difference in quantities between the statutory records under the Central Excise Act and the private records maintained in terms of ISO 9002. The Company argued that the Member (Technical) correctly found the variance negligible and permissible, while the Member (Judicial) erroneously ignored the Company's explanation. The Court found substance in the Company's contention that the specific explanations regarding the discrepancies were not considered by the Tribunal, thus rendering the Tribunal's conclusion unsustainable.2. Tribunal's Finding on Clandestine Removal:The Tribunal upheld the Commissioner's finding that the Company clandestinely removed input materials without paying Central Excise duty. The Company provided detailed explanations for the discrepancies in MEG, PP Chips, and PTA consumption, arguing that the differences were minimal and within permissible limits. The Court noted that the Tribunal failed to consider these explanations and relied solely on assumptions. Citing precedents like Union of India v. Indian Aluminum Co. Ltd. and Oudh Sugar Mills Ltd. v. Union of India, the Court emphasized that charges of clandestine removal must be based on concrete evidence, not assumptions.3. Tribunal's Preference for Private Records:The Tribunal concluded that the private records maintained under ISO 9002 should be taken into account over statutory records. The Company contested this, arguing that the Member (Technical) correctly considered the explanations and found the differences negligible. The Court found that the Tribunal misdirected itself by not considering the explanations provided by the Company, thus making the finding unsustainable.4. Penalty Under Rule 173Q:The Tribunal upheld the penalty imposed under Rule 173Q of the Central Excise Rules. The Company argued that neither the show cause notice nor the Commissioner's order specified which clause of Rule 173Q was violated. Citing Amrit Foods v. Commissioner of Central Excise, the Court held that the exact nature of the contravention must be specified for a penalty to be imposed. The Court found that the penalty orders were vitiated due to the lack of specific particulars of contravention.Additional Points on Penalty:The Court also addressed the penalty imposed under Section 11AC of the Central Excise Act, 1944, noting that the provision came into effect after the period in question. Citing Commissioner of Central Excise, Coimbatore v. Elgi Equipments Ltd., the Court held that Section 11AC is prospective and cannot apply to acts committed before its insertion.Conclusion and Remand:The Court concluded that the Tribunal misdirected itself in law by not considering the explanations provided by the Company. The Court answered the first question in the affirmative and the second in the negative, both in favor of the Company. The remaining questions were deemed unnecessary to answer. The case was remanded to the Tribunal for reconsideration, directing that the exercise be completed within six months.Disposition:All three reference cases were answered and disposed of accordingly, with no order as to costs.