TaxTMI 
TaxTMI 
2013 (1) TMI 331
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....allenging the show cause notice dated 05.11.2009. Subsequently, an order was passed by this court on 14.05.2010, whereby this court felt that the ends of justice would be served by directing the petitioner to file his reply to the said show cause notice dated 05.11.2009 within three weeks and, on such reply being filed, the adjudicating authority would grant an opportunity of hearing to the petitioner and / or his authorized representative. It was further directed that thereafter, the adjudicating authority shall pass a reasoned order deciding as to whether to confirm the allegations mentioned in the show cause notice or to reject the same. It was also directed that the adjudication order-inoriginal, which may be passed, shall not be given effect to till further orders from this court. Pursuant thereto, the petitioner filed its reply on 03.06.2010. This was followed by a personal hearing and, ultimately, by the adjudication order dated 24.09.2010. Thereafter, the petitioner sought permission of this court, which was granted, to amend the writ petition. The amended writ petition challenges both the show cause notice dated 05.11.2009 and adjudication order dated 24.09.2010. 3. The....
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.... which, the CBI caught two officers red-handed and arrested them on the charges of demanding a bribe from the petitioner. Thereafter, the Central Excise officers of Delhi-II Commissionerate, Anti-Evasion Branch conducted searches on the two factory premises of the petitioner on 11.06.2009. The search resulted in seizure of records and seizure of several thousand pre-recorded audio CDs/VCDs/DVDs and MP3s valued at Rs 83,750/- vide panchnama dated 11.06.2009. The petitioner filed a criminal writ petition being WP(Crl) 795/2009 before this court, inter alia, seeking quashing of the panchnama and summons both dated 11.06.2009. That petition is pending. 6. Shortly thereafter, that is, on 05.11.2009, the impugned show cause notice was issued to the petitioner requiring it to show cause as to why: "(i) Central Excise duty amounting to Rs.10,16,09,833/- along with Ed. Cess amounting to Rs.20,32,197/- and H.S. Ex. Cess amounting to Rs.5,57,336/- evaded during the period April, 2005 to March, 2009 as detailed in the table given above, should not be demanded and recovered from them by invoking extended period of five years under proviso to sub-section (1) of Section 1....
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....dio CDs/VCDs/DVDs. It was further stated that polycarbonate was the basic raw material which was dehumidified ina drier and then fed into the moulding machine which itself was loaded with a nickel stamper containing the data. In the process of moulding, the data on the stamper was transferred on to the discs as they were moulded in the form of small pits and lands (Bumps). Thereafter, the said discs are fitted into the finishing line automatically and the discs are coated (sputtered) with a semi-transparent coating of reflective layer of aluminium and again coated with a protective layer of lacquer. Thereafter, the discs are checked for optical defects. Thereafter, the discs are labelled and packed in cartons and are despatched to customers. It was also stated that the discs were manufactured against specific orders and agreements and were supplied to customers, who are normally the copyright holders of various titles of films / songs etc. 9. The impugned show cause notice dated 05.11.2009 also noted that the statement of Mr. Surender Wadhwa, Managing Director of the petitioner, was also recorded on 22.07.2009, wherein he, inter alia, stated that he was looking after the affairs....
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....nce and thus it can be reasonably concluded that blank CDs/DVDs also get manufactured at intermediate stage even though they may not come into existence separately. Sh. Jose Joseph, Technical Consultant for the party has also in his voluntary statement recorded on the spot and ratified by Sh. Surender Wadhwa, Managing Director of M/s Siddharth Optical Discs (P) Ltd., stated, inter-alia that "the moulding machine was loaded with nickel stamper containing the date to be produced and the data from the stamper was transferred to the Discs in the form of small pits and lands and given to CD (1.2mm) finishing line automatically". Therefore, it can be rightly concluded that first a blank Disc is generated and thereafter the said data is transferred thereupon. (iv) Blank CDs/DVDs are a distinct commodity and separately classifiable and are also dutiable under the Central Excise Tariff Act, 1985 and there is no exemption thereon. In terms of Notification No.67-95-CE dated 16.3.1995, in case the final product is exempted from payment of Central Excise duty, then duty ought to be paid at intermediate stage on clearances of blank CDs which are consumed captively by the pa....
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.... ought to have paid duty on the blank CDs manufactured by it. 14. The petitioner submitted a detailed reply on 03.06.2010 after the filing of the writ petition, as indicated above. In the reply, the petitioner set out the detailed process of manufacture of pre-recorded audio CDs/VCDs/DVDs and categorically stated that it does not manufacture any blank CDs/DVDs. It also stated that its machines are not capable of manufacturing blank CDs/DVDs. The petitioner also took the point that the show cause notice had been issued purely as vendetta on the part of the respondents because of the fact that the petitioner had got two of the respondents' officers caught in a bribery case. 15. We have already indicated above that during the pendency of the writ petition, this court had directed the petitioner to file a reply and the respondents to pass an adjudication order, though the same would not be given effect to till further orders from this court. Consequently, the adjudication order dated 24.09.2010, which is also impugned in WP(C) 13231/2009, was passed. The said adjudication order sets out the entire show cause notice as also the contentions of the petitioner in the reply dated 03.0....
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.... "35. In this background I have carefully considered the matter. I find the argument that they do not manufacture blank CDs is misplaced and misconstructed. This is because production and clearance of blank CDs as an independent visible physical product is not the issue in hand. The departmental case is that in the integrated process of manufacture of recorded CDs/DVDs, at the intermediate stage blank CDs/DVDs are manufactured and captively consumed. The blank CDs and DVDs are distinct excisable commodity chargeable to Central Excise duty. The blank CDs/DVDs that get manufactured in the process are captively used for recording the data/songs. The emphasis of the noticee that for charging Central Excise duty it is necessary that first blank CDs/DVDs must be manufactured and same need to be physically cleared. In the manufacturing process explained by the Technical Consultant it has been clearly mentioned that Polycarbonate Granules are the basic raw material for manufacturing CDs. In the composite integrated manufacturing assembly line the Optical Grade Polycarbonate Granules are fed in the hopper which travel to moulding unit of the machines for liquification. T....
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....adable data/ material is recorded on CDs/DVDs only. Can there be an argument that the songs etc. are not recorded on the CDs/DVDs. The obvious answer is big no. The data on stamper is transferred on the CDs/DVDs that come into existence during the manufacturing process. The process of manufacturing of CDs/DVDs and transfer of the data on the discs take place simultaneously without any distinguishable and observable time gap and physical activity in the composite integrated process. I also note that the expert opinion relied upon by the notice nowhere denies that CDs do not come into existence. In other words the transfer of data from Stamper takes place on the discs only and unless such blank discs come into existence at the intermediate stage during the integrated manufacturing process, no such recorded CDs can be manufactured. The very fact that recorded CDs are cleared as final product, it shows that in the composite integrated manufacturing facility the blank CDs get manufactured and same are captively used for recording of the data. The case laws cited by the notice are distinguishable on facts and are not applicable to the very unique and distinct set of facts involved in the....
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....entral Excise duty. (iv) I impose penalty of Rs. 10,16,09,833/- (Rs. Ten Crores Sixteen Lacs Nine Thousand Eight Hundred and Thirty Three only) on M/s Siddharth Optical Discs (P) Ltd. under Section 11AC olf the Central Excise Act, 1944 and under Rule 25 of the Central Excise Rules, 2002 for the various acts of omission and commission as discussed above. (v) I impose penalty of Rs. 25,00,000/- (Rs. Twenty Five Lacs only) on Sh. SurenderWadhwa under Rule 26 of the Central Excise Rules, 2002 for his being knowingly concerned with the fraudulent evasion of Central Excise duty as detailed above. (vi) I do not impose any penalty on Shri Jose Joseph, the technical consultant of M/s Siddharth Opticals Discs Pvt. Ltd." 18. From the above, it is clear that the key question is whether the petitioner manufactures blank CDs/DVDs as an intermediate product or not? The petitioner has produced evidence to show that it does not manufacture any blank CDs or DVDs. The learned counsel for the petitioner submitted that no blank CDs / DVDs come into existence which are capable of sale to a consumer. It was submitted by the learned coun....
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....the respondents supported the issuance of the show cause notice as also the adjudication order dated 24.09.2010. For the arguments with regard to the petitioner being relegated to pursue the alternative remedy of appeal, the learned counsel for the respondents placed reliance on the following decisions of the Supreme Court:- 1) ITC Limited and Another v. Union of India& Others: 1998 (8) SCC 610; 2) United Bank of India v. Satyawati Tondon and Others: 2010 (8) SCC 110; 3) Union of India v. Zalcon Electronics: 2010 (255) ELT 490 (SC); 4) Kanaiyalal Lalchand Sachdevand Others v. State of Maharashtra and Others: 2011 (2) SCC 782. 21. Before we examine the factual position on the basis of material on record, it would be appropriate for us to consider the decisions cited by the learned counsel for the parties. First, we shall consider the decisions cited by the learned counsel for the petitioner. In Union Carbide (supra), the Supreme Court considered the question as to whether aluminium cans, which ultimately constituted torch bodies, could be regarded as "goods" manufactured or produced. The Supre....
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....lity is not fulfilled. The Supreme Court alsoheld that the burden is on the department to prove whether there exists the process which constitutes manufacture and, secondly, whether the product is marketable. 24. In Bata India (supra), the Supreme Court was considering the question as to whether unvulcanised sandwiched fabric assembly produced in the assessee's factory and captively consumed by it could be termed as "goods". The Supreme Court observed in the facts of the case that the productin question was used as an intermediate product and went into the making of a component for the final product. But, the burden to show that the product in question was marketed or was capable of being bought or sold in the market so as to attract Central Excise duty was entirely on the revenue. The Supreme Court also observed that in the case before it, the revenue had not produced any material to show that the product in question was either being marketed or capable of being marketed, but only expressed an opinion unsupported by relevant materials and, therefore, the same could not be held to be "goods". The Supreme Court reiterated that in order to establish that the "goods" are liable to ....
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....ically stated that it does not manufacture any blank CD/DVD. It has supported this contention by an expert opinion of M/s Truth Labs. There is nothing on the part of the revenue to show that the petitioner does, in fact, manufacture blank CDs/DVDs. It was incumbent upon the revenue to have discharged its burden of establishing that the petitioner, in fact, manufactures blank CDs and DVDs. Mere surmises and conjectures on the part of the revenue would not lead to the revenue discharging this burden. There must be some material on record on which the revenue can rest its opinion. We find that in the present case, there is no such material. On the contrary, in the show cause notice, it is admitted that the CDs/DVDs do not come into existence separately. The same position has been accepted in the adjudication order dated 24.09.2010. In our view, the conclusion of the Commissioner in the adjudication order that the petitioner manufactures blank CDs/DVDs is merely based on his own ipse dixit and is not supported by any material on record. The Commissioner has wrongly held that liquefied polycarbonate is injected to the cavity of the moulds that create component discswhich cool and solidi....
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....unted stage by stage, it is absolutely clear that at no point of time in the manufacturing process employed by the petitioner, does a blank CD/DVD come into existence. The very first test of manufacture is not satisfied in the present case. When no such product comes into existence at all, then, obviously, the second test of marketability cannot also be satisfied. Consequently, no excise duty can be demanded from the petitioner for blank CDs/DVDs. The entire show cause notice as also the adjudication order is, therefore, without any substance. 30. We now come to examine the legal position with regard to the exercise of writ jurisdiction in a matter such as this. The learned counsel for the respondents had placed reliance on ITC Limited(supra) to submit that the writ petition ought to be dismissed as the petitioner has an adequate alternative remedy by way of an appeal. Reliance had also been placed on United Bank of India (supra) and, particularly, on the following observations of the Supreme Court:- "43. Unfortunately, the High Court overlooked the settled law that the High Court will ordinarily not entertain a petition under Article 226 of the Constitutio....
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....medy was available to the Appellants under Section 17 of the Act. It is well-settled that ordinarily relief under Articles 226/227 of the Constitution of India is not available if an efficacious alternative remedy is available to any aggrieved person. (See: SadhanaLodh v. National Insurance Co. Ltd. and Anr.:(2003) 3 SCC 524; Surya DevRai v. Ram ChanderRai and Ors.: (2003) 6 SCC 675; State Bank of India v. Allied Chemical Laboratories and Anr.: (2006) 9 SCC 252. 24. In Cityand Industrial Development Corporation v. Dosu Aardeshir Bhiwandiwala and Ors.: (2009) 1 SCC 168, this Court had observed that: 'The Court while exercising its jurisdiction under Article 226 is duty-bound to consider whether: (a) adjudication of writ petition involves any complex and disputed questions of facts and whether they can be satisfactorily resolved; (b) the petition reveals all material facts; (c) the Petitioner has any alternative or effective remedy for the resolution of the dispute; (d) person invoking the jurisdiction is guilty of unexplained delay and laches; ....
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....vant to notice that the said decision in Calcutta Discount Company Ltd (supra) is a Constitution Bench decision and that it was also a case where an assessment order had been passed, yet, the Supreme Court held as under:- "The fact that the assessment orders have already been made does not therefore affect the company's right to obtain relief under article 226.In view however of the fact that the assessment orders have already been made we think it proper that in addition to an order directing the Income-tax Officer not to take any action on the basis of the impugned notices a further order quashing the assessment made be also issued." 37. We feel that a similar direction is necessary in the present case also. The show cause notice is completely misconceived and so, too, is the adjudication order dated 24.09.2010. Thus, in our view, both the show cause notice as also the adjudication order are liable to be quashed. 38. Another decision relied upon by the learned counsel for the petitioner was that of the Supreme Court in the case of Brij Fertilizers (supra). In that case, the Supreme Court was of the view that though the High Court should "normally" not ....
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....wed relief by the High Court itself instead of driving them to the need of initiating arbitration proceedings." 40. Finally, in Siemens Ltd (supra), the Supreme Court held that when a show cause notice was issued with pre-meditation, a writ petition would certainly be maintainable and a hearing by the revenue in such circumstances would not yield any fruitful purpose. The exact words used by the Supreme Court were as under:- "8. Although ordinarily a writ court may not exercise its discretionary jurisdiction in entertaining a writ petition questioning a notice to show cause unless the same inter alia appears to have been without jurisdiction as has been held by this Court in some decisions including State of Uttar Pradesh v. Brahm Datt Sharma and Anr.: (1987) 2SCC 179, Special Director and Anr. v. Mohd. Ghulam Ghouse and Anr.:(2004) 3 SCC 440 and Union of India and Anr. v. Kunisetty Satyanarayana: (2006) 12 SCC 28, but the question herein has to be considered from a different angle, viz, when a notice is issued with pre-meditation, a writ petition would be maintainable. In such an event, even if the courts directs the statutory authority to hear the matter ....