COMMISSIONER OF CENTRAL EXCISE, DELHI-1 vs. M/S KANDHARI RADIO CORPORATION & ORS.

* THE HIGH COURT OF DELHI AT NEW DELHI

% Judgment delivered on: 26.09.2011

+ CEAC 6/2007


COMMISSIONER OF CENTRAL EXCISE, DELHI - I ...... APPELLANT


Vs

M/S KANDHARI RADIO CORPORATION & ORS. ..... RESPONDENTS


Advocates who appeared in this case:
For the Appellant: Mr Mukesh Anand, Advocate
For the Respondents: Mr Naveen Mullick, Advocate

CORAM :-
HON’BLE MR JUSTICE SANJAY KISHAN KAUL
HON'BLE MR JUSTICE RAJIV SHAKDHER

1. Whether the Reporters of local papers may
be allowed to see the judgment ?
2. To be referred to Reporters or not ? Yes
3. Whether the judgment should be reported
in the Digest ?

RAJIV SHAKDHER, J
1. The captioned appeal, which has been filed by the revenue,
impugns the order of the Customs Excise Service Tax Appellate
Tribunal (hereinafter referred to as the ‘Tribunal’) dated 02.12.2005.
The Tribunal has passed a common order in five (5) appeals. Out of
the five (5) appeals, four (4) appeals had been preferred by the
following entities: i.e., M/s Kandhari Radio Corporation (in short
‘KRC’), M/s Jeet Enterprises (in short ‘Jeet’), M/s Hi-Tech Electrical
Industries (in short ‘Hi-Tech’) and M/s Kandhari Separator Industries
(in short ‘KSI’). The four (4) appeals filed by them bear numbers
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th
E/24-27/02. The fifth (5 ) appeal was that of the revenue, which
bears the number E/164/02.
2. The appeals before the Tribunal were preferred against a
common order dated 24.09.2001, passed by the Commissioner of
Central Excise (Appeals) [hereinafter referred to as ‘Commissioner
(Appeals)’]. The Commissioner (Appeals) by order dated 24.09.2000
disposed of by a common order two separate appeals against two
(2) separate orders passed by the adjudicating authority (i.e., the
Additional Commissioner) in order-in-original numbers 86/2000 and
87/2000. Both orders were passed by the adjudicating authority on
the same date i.e., 17.11.2000.
3. In order to decide the captioned appeal the following brief
facts are required to be noticed. Information was received by the
revenue that KRC was manufacturing chargeable accumulators
falling under Central Excise Tariff Heading No. 8507, which was
being evidently cleared without obtaining central excise registration.
Consequently, the Anti-Evasion Branch of the Central Excise
Commissionerate conducted a search on the premises of the KRC
located at B-103, Naraina Industrial Area, Phase-I, New Delhi.
Search was also carried out simultaneously at the office premises,
as also, the residential premises of the partner of KRC, Avtar Singh.
During the search it got revealed that all four units, i.e., Jeet, Hi-
Tech, KSI and KRC were located at B-103, Naraina Industrial Area,
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Phase-I, New Delhi. It further came to light that goods in issue,
which were manufactured at the said factory premises, were cleared
under the brand name ‘KRC’. Consequently, goods valued at Rs
99,950/- were seized under a proper punchnama in respect of which
a show cause notice was issued albeit at a subsequent date, i.e.,
12.01.1999. During the search, records and documents were also
resumed. Inquiries were conducted both with the transporters and
the customers of the aforementioned entities, i.e., KRC, Hi-Tech, Jeet
and KSI. Statements of the persons controlling the affairs of the
client entities as well as Avtar Singh, who was the common entity
managing and controlling KRC, KSI, Hi-Tech and Jeet, were also
recorded.
4. Pursuant to the aforesaid, three separate show cause notices
were issued of even date qua Hi-Tech, KSI and Jeet. All three show
cause notices were dated 25.02.2000. The details with respect to
the said show cause notices, in respect of the duty demanded, is as
follows:

5. Upon opportunity being given the adjudicating authority
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sustained the demand raised in the aforementioned show cause
notices and imposed penalty equivalent to the duty demanded
under the provisions of Section 11AC of the Central Excise Act, 1944
(in short ‘C.E. Act’). Interest under Section 11AB was also levied.
Furthermore, personal penalty in the sum of Rs 10,000/- was
imposed in all 3/4 cases. The adjudicating authority passed three
separate orders-in-original, the details with respect to which are as
follows:

5. Against the said orders-in-original appeals were filed with the
Commissioner (Appeals), details of which are as follows:

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6. The aforementioned appeals were disposed of by a common
order by the Commissioner (Appeals) dated 24.09.2001. By this
order the Commissioner (Appeals) concluded as follows:
“6.7 Admittedly, the show cause should have been
served on M/s Kandhari Radio Corporation, demanding
duty from them under Section 11A, particularly in the
circumstances when the showcause notice for seizure
was given to them. The others should have been only
notices for penal action under Rule 209A as the brand
name belongs to M/s KRC. By some strange coincidence,
KRC were not even made noticees whereas they should
have been so in terms of Rule 9 and Rule 49 which bind
them for payment of duty on all goods leaving their
factory premises. However, with Shri Avtar Singh being a
noticee in both the notices, the damage has been
contained to a large extent. With KRC being considered
as the manufacturers, they would also be the
beneficiaries of the exemption notification NO. 1/93
earlier being denied to them through this manipulation. I,
accordingly, am clubbing the so called production/
clearance made by the separate units, namely, M/s
Kandhari Separator Industries, M/s Jeet Enterprises and
M/s Hi-TeK taking them as the clearances effected by M/s
Kandhari Radio Corporation.
6.8 Shri Avtar Singh, who was in control of everything and
functioned as Managing Partner for M/s Kandhari Radio
Corporation and others also, again came to submit
certain records on 11.09.2001. He made a submission
that he was prepared to pay duty chargeable over the
exemption limit.
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6.9 From the above discussion, I hold that M/s KRC
should be treated as the manufacturers. The condition of
the SSI availment as per the Notification No. 1/93 should
be applied to the total value of the goods manufactured
and cleared by them in the relevant financial year. They
shall be entitled to the normal SSI exemption for duty
free clearance upto the value of Rs 30 lacs or more as
admissible in a given financial year and above that the
goods have to suffer duty. Accordingly, the duty payable
is worked out as under:-

As the period for which the duty liability arises is the
financial years 95-96 to 97-98, penalty under Section
11AC is applicable only for a limited period, i.e., 1996-97
and 1997-98. Although the same came into effect from
28.09.1996, yet the duty demanded for the financial year
1996-97 falls fully within the purview of Section 11AC as
the earlier part of the year is covered by the exemption
limit. Thus, the penalty under Section 11AC read with
Rule 173Q would get reduced substantially. I propose to
reduce the said penalty under Section 11AC red with Rule
173Q to Rs 2,25,000/- against a duty liability of Rs
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3,72,769/- which is to be deposited individually severally
by the units/ partners. (It is noted that for the purposes
of mandatory penalty under Section 11AC, the amount of
duty not paid for the period 1996 to 1998 is the main
consideration.)
6.10 Shri Avtar Singh in any case is concerned as dealing
in the goods on which the duty was payable but was not
paid. Since he is a partner not separate from the
partnership firm, no separate penalty under Rule 209A is
warranted against him.
6.11 It has been brought out that a pre-deposit of Rs
50,000/- has been made in the case by Shri Avtar Singh
on behalf of M/s Kandhari Radio Corporation. It is
directed that the above amount shall be adjusted against
the total duty liability as re-determined here-in-before.”

7. As noticed right at the beginning of our judgment, five appeals
were preferred, one by the revenue and four others by the entities
referred to above, i.e., Hi-Tech, Jeet, KRC and KSI. The Tribunal by
the impugned order has allowed the appeal of Hi-Tech, Jeet, KRC
and KSI, while the revenue’s appeal has been dismissed.
8. In support of the captioned appeal, we have heard Mr Mukesh
Anand for the revenue, while on behalf of respondents Mr Navin
Mullick advanced arguments. Mr Anand has argued that the
Tribunal’s observation that since no show cause notice was served
on KRC and hence liability could not be fastened on it, was not
sustainable in view of the fact that at the stage of seizure of goods a
show cause notice dated 12.01.1999 had been issued. He further
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submitted that Avtar Singh being the common thread in respect of
the four (4) entities, i.e., Hi-Tech, Jeet, KRC and KSI, there was
sufficient notice and hence, the provision of Section 11A of the C.E.
Act had been complied. In these circumstances, Mr Anand
submitted that the reason supplied by the Tribunal for allowing the
appeals of the said four entities, i.e., Hi-Tech, Jeet, KRC and KSI are
not sustainable. Mr Anand also submitted that the Tribunal did not
deal with that part of their grievance made before it that the
Commissioner (Appeals) could not have clubbed the production/
clearances made by KSI, Jeet and HI-Tech in the hands of KRC. It is
submitted that this aspect, which had been raised by the revenue in
its appeal, had not been addressed by the Tribunal.
9. On the other hand, learned counsel for the respondents
submitted that the provisions of Section 11A of the C.E. Act were
mandatory and the revenue not having served a show cause notice
on KCR no liability could be fastened on it. In support of this
submission reliance was placed on the judgment of the Supreme
Court in the case of Metal Forgings vs UOI 2002 (146) E.L.T. 241
(SC). The learned counsel also referred to the provisions of Rule
233A of the Central Excise Rules, 1944 to buttress his point that no
confiscation of property or imposition of penalty on any person can
take place unless a show cause notice was issued and a reasonable
opportunity was given of making a representation in writing as to
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why property ought not to be confiscated or penalty imposed,
followed by a hearing in the matter. Learned counsel submitted
that since the show cause notice admittedly was not issued, the
demand against KRC could not be sustained.
10. Having heard the learned counsels for the parties, we are of
the view that in so far as the issue raised in the appeal filed by KRC,
that no liability could be fastened on it as a show cause notice was
not issued, is an issue which will have to be found in favour of the
respondent. The reason is that the provisions of Section 11A of the
C.E. Act are mandatory in nature, as held by the Supreme Court in
Metal Forging (supra). The relevant observations in this regard are
contained in paragraph 10 at page 245 of the judgment. For the
sake of convenience the same are extracted hereinbelow:
“….10. It is an admitted fact that a show cause notice as required
in law has not been issued by the revenue. The first contention of
the revenue in this regard is that since the necessary information
required to be given in the show cause notice was made available
to the appellants in the form of various letters and orders, issuance
of such demand notice in a specified manner is not required in law.
We do think that we cannot accede to this argument of the learned
counsel for the revenue. Herein we may also notice that the
learned Technical Member of the tribunal has rightly come to the
conclusion that the various documents and orders which were
sought to be treated as show cause notices by the appellate
authority are inadequate to be treated as show cause notices
contemplated under Rule 10 of the Rules or Section 11A of the Act.
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Even the Judicial Member in his order has taken almost a similar
view by holding that letters either in the form of suggestion or
advice or deemed notice issued prior to the finalisation of the
classification cannot be taken note of as show cause notices for the
recovery of demand, and we are in agreement with the said
findings of the two Members of the tribunal. This is because of the
fact that issuance of a show cause notice in a particular format is a
mandatory requirement of law. The law requires the said notice to
be issued under a specific provision of law and not as a
correspondence or part of an order. The said notice must also
indicate the amount demanded and call upon the assessee to show
cause if he has any objection for such demand. The said notice
also will have to be served on the assessee within the said period
which is either 6 months or 5 years as the facts demand. Therefore,
it will be futile to contend that each and every communication or
order could be construed as a show cause notice. For this reason
the above argument of the revenue must fail….”
(emphasis is ours)

11. As regards other aspect of the matter, which is, whether the
Commissioner (Appeals) could have directed clubbing of clearances
made by KSI, Jeet and Hi-Tech in the hands of KRC; is an aspect,
which the Tribunal in our view has not dealt with. It is important to
note the net effect of the order passed by the Commissioner
(Appeals) was broadly that even though show cause notice ought to
have been served on KRC, the fact that it was not served was saved,
by virtue of Avtar Singh being a common thread in respect of the
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aforementioned entities. The Commissioner (Appeals) thus
proceeded to club the clearances of KSI, Jeet and Hi-Tech in the
hands of KRC. The Commissioner (Appeals) also directed that since
KRC was considered as the manufacturer of the goods in issue, it
would get the benefit of the SSI exemption notification number
1/1993. Based on this the duty, for the period March, 1995 to
1998, in the sum of Rs 3,72,760/- was calculated. A penalty was
imposed under Section 11AC read with Rule 173Q, in the sum of Rs
2,25,000/- against duty liability of Rs 3,72,760/-. In respect of
penalty appellants were held jointly and severally liable. As far as
Avtar Singh was concerned, the Commissioner (Appeals) observed
that since he was a partner no separate penalty could be imposed
on him under Rule 209A. The sum of Rs 50,000/- paid in the form
of pre-deposit by Avtar Singh on behalf of KRC was also directed to
be adjusted against total duty liability as re-determined by him. In
the aforesaid circumstances, it was incumbent on the Tribunal to
decide as to whether the Commissioner (Appeals) had erred in
clubbing the production/ clearances in the hands of ERC.
12. This aspect of the matter as indicated hereinabove, did not
receive the attention of the Tribunal. In these circumstances, we
are of the opinion that while no question of law is required to be
framed as regards the issue which is: whether the Tribunal was right
in holding that no duty or penalty could be imposed on KRC on the
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ground that a show cause notice was not issued to it? The Tribunal
was certainly duty bound to examine the issue raised in the
revenue’s appeal as to whether the Commissioner (Appeals) could
have clubbed the clearances of KSI, Jeet and Hi-Tech in the hands of
KRC. In respect of this aspect, we set aside the order of the Tribunal
and remand this issue to the Tribunal for appropriate orders in that
regard. It is ordered accordingly. The appeal, accordingly, stands
disposed of.



SANJAY KISHAN KAUL,J




RAJIV SHAKDHER, J
SEPTEMBER 26, 2011
kk

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