L and T Hydrocarbon Engineering Ltd Vs Union of India (Gujarat High Court)
Gujarat High Court has held that-
[a] The Revenue is not correct in its stance that in the case on hand, the pre-show cause notice consultation was not necessary as the impugned show cause notice is for preventive / related to an offence. Just because, the origin of the show cause notice is the intelligence gathered from the Additional Director General, the same by itself would not bring the show cause notice within the ambit of preventive / offence.
[b] The extended period of limitation under Section 11A(4) of the Act, 1944 is not applicable in the case on hand as it is the case of the Revenue that the goods were removed illicitly without a statutory invoice. The failure to follow any procedure may be an error or omission on the part of the assessee, but the same by itself would not amount to suppression. The question of suppression would arise only when an assessee makes an attempt to obtain a benefit not available to him under the law.
[c] The amalgamation has its origin in the statute and is statutory in character, the transfer and vesting is by operation of law and not an act of a transferor – company nor an assignment by it, but is the result of a statutory instrument. A scheme of amalgamation when sanctioned by the company court under the relevant provisions of the Companies Act is distinct and different from a mere agreement signed by the necessary parties. When an agreement takes place, the transfer of assets takes place by the force of the company’s court order and/or by operation of law; it ceases to be a contractual or a consensual transfer. The respondents are bound by the order dated 20th December 2013 passed by the Bombay High Court approving the scheme of demerger.
[d] The writ application challenging the legality and validity of the show cause notice is maintainable as no disputed questions of fact are involved and the legal issues have been decided on the basis of the facts as admitted by the parties. The impugned show cause notice could be said to be lacking inherent jurisdiction and therefore, asking the writ applicant to avail of an alternative remedy, therefore, could not arise.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
Since the issues raised in both the captioned writ applications are the same and the challenge is also to the selfsame show cause notice, those were taken up for hearing analogously and are being disposed of by this common judgement and order.
2 For the sake of convenience, the Special Civil Application No.11208 of 2019 is treated as the lead matter.
3 By this writ application under Article 226 of the Constitution of India, the writ applicant has prayed for the following reliefs:
“(a) writ of mandamus or certiorari or writ in the nature of mandamus or certiorari or any other appropriate writ, order or direction calling for records of impugned Show Cause Notice F. NO.XIV/233/2018 dated 31.12.2018 issued by the respondent No.2 and quashing and setting aside the same.
(b) Writ of mandamus or writ in the nature of prohibition restraining the respondents from proceeding further.
(c) pending the hearing and final disposal of the above petition, the respondents be directed by an interim order and injunction of this Hon Court not to proceed further in the show cause notice.
(d) for ad-interim relief in terms of prayer (c) above.
(e) for costs of the petition.
(f) such other and further order or orders as may be deemed just and proper in the facts and circumstances of the present case.”
4 The case put up by the writ applicant may be summarized as under:
5 The writ applicant No. 1 was formerly known as the L&T Technologies Limited. The name of the Company was changed from the L&T Technologies Limited to the L&T Hydrocarbon Engineering Ltd. on 21st May 2013. The writ applicant was, however, not carrying on any effective business activity either prior to or after 21.5.2013 including during the Financial Year 2013–2014.
6 The Larsen & Toubro Ltd. is a public limited company. It comprises of the various divisions. One of the divisions was the Hydrocarbon Division. The hydrocarbon division carried out its activities as an independent business unit. The Hydrocarbon Division was engaged in the business of “design to build” engineering, procurement and construction solutions on the turnkey basis in the sectors like the oil and gas, petroleum refining, etc. The Hydrocarbon Division in turn had, inter alia, one factory/unit located at the Hazira Manufacturing Complex (MFF Block), Hazira Road, Mora, Surat – 394270. Since each factory has to be separately registered under the Central Excise Act, 1944, the factory obtained registration under the Central Excise Act, 1944 being the registration No.AAACL0140PXM012. Self-evidently, the Registration was in the name of the legal entity viz. The Larsen & Toubro Ltd.
7 Being a unit registered under the central excise, the factory complied with all the formalities under the Central Excise Act, 1944. Thus, for the removal of goods from the factory an invoice in a statutory format as required under the Rule 11 of the Central Excise Rules, 2002 was duly issued at the time of removal of the goods from the factory. The invoice contained description of goods, value, rate of duty, time and date of removal, quantity, duty payable, classification and all other particulars required under the Rule 11 of the Central Excise Rules, 2002.
8 The next requirement of the central excise law is to pay duty by around 5th of the following month against the treasury challan indicating the central excise registration number and the name of the assessee. The factory duly discharged the excise duty liability as applicable accordingly.
9 The next requirement of the central excise law is to file monthly return in the Form ER-1 by around 10th of the next month. The ER-1 return would indicate the goods cleared during the month, duty payable, exemption availed, serial number of excise invoices issued during the month etc. The factory also duly filed these monthly ER-1 returns regularly. Thus, the factory duly complied with all the formalities like issuing of invoice for each removal, monthly duty payment and filing of the monthly returns in the Form ER-1 return periodically.
10 The Central Government, in larger public interest, granted an exemption from the payment of excise duty. The exemption was based on the nature of the goods and status of the customer. Sl. No. 336 of exemption Notification 12/2012–CE dated 17.3.2012 conferred complete exemption for certain supplies effected under the International Competitive Bidding. In terms of this exemption notification, some of the clearances of the goods manufactured by the factory were exempted from the central excise duty. The factory duly followed the procedure prescribed in the exemption notification. The factory entered into certain contracts for supply under the International Competitive Bidding. Due intimation of the same was given to the central excise department vide the writ applicants letter dated 10th May 2012. Along with this letter, the central excise department was given a copy of the certificate issued by the Director General of Hydrocarbons being the project authority. In respect of such clearances from the factory also, the excise invoice in the statutory form was issued declaring the rate of duty, as nil. These invoices duly showed that the clearances of these goods were exempt from duty.
11 The Larsen & Toubro Ltd. proposed to hive off/demerge its Hydrocarbon Division as a going concern to a separate legal entity. The demerger is governed by the procedure as prescribed under the Companies Act, 1956 particularly Section 394 thereof. As required under the said Companies Act, the Larsen & Toubro Ltd. filed the Company Scheme Petition on 28th June 2013 before the Bombay High Court.
12 The Scheme filed by the Larsen & Toubro Ltd. was approved by the Bombay High Court vide its Order dated 20th December 2013.
13 As per 1(a) of the Scheme, the appointed date meant opening of business hours on 1st April 2013.
Definition
(c) ‘Appointed Date’ means opening of business hours on April, 1 2013.
14 The effective date was defined in 1(g) of the scheme to have meaning as per the Clause 19.2 of the scheme. Para 19.2 of the scheme is reproduced below:
“19.2 This Scheme, although to come into operation from the Appointed Date, shall not become effective until the last of the following dates, namely, that on which the last of the aforesaid consents, approvals, permissions, resolutions and orders as mentioned in the above sub-clause 19.1 is obtained or passed. Such date shall be the “Effective Date” for the purpose of this Scheme.”
15 The copy of the order dated 20th December 2003 passed by the High Court was filed with the Registrar of companies on 16.1.2014. Therefore, 16th January 2014 became the effective date.
16 Pending the filing of the scheme with the High Court and its approval, the business of Larsen & Toubro Ltd. including its Hydrocarbon Division continued as in the past. Thus, the manufacture and dispatches of the goods continued from the factory. Under the central excise law, the procedural formalities regarding the issue of invoices, etc. are to be complied with at the time of removal. Therefore, the Larsen & Toubro Ltd. which was a legal entity registered with the central excise department for this factory, duly effected the dispatches on the strength of the excise invoices issued by it. The invoices duly contained the description of goods, value, rate of duty, time and date of removal, quantity, duty payable, classification, name of customer and all other particulars.
17 Further, pending the filing of the scheme with the High Court and pending approval of the same, the excise duty had to be paid by around 5th of the following month and the ER-1 return had to be filed before the 10th of the following month. The duty liability was so discharged, and the ER-1 returns, so filed by the legal entity Larsen & Toubro Ltd. qua the central excise registration held by it for this factory.
18 The writ applicant (i.e. the successor entity) vide the application dated 1st April 2014 formally applied to the jurisdictional central excise authority for the new central excise registration in its own name as a new legal entity. Along with the said application dated 1st April 2014, the writ applicant also submitted copy of the Order dated 20th December 2013 passed by the Bombay High Court sanctioning the scheme.
19 The Jurisdictional Central Excise officer accepted the said application of the writ applicant and granted fresh central excise registration no. AABCL5967DEM001 on 7th April 2014.
20 After obtaining the formal fresh registration on 7th April 2014, all the dispatches were effected by the writ applicant by issuing statutory invoices in its own name. The monthly returns in the Form ER-1 were also duly filed in its own name by the writ applicant for the period after April 2014 onwards.
21 The Rule 10 of the CENVAT Credit Rules, 2004, permits transfer of the CENVAT credit lying unutilised in the account of manufacturer of final products (i.e. the transferor company) to the transferee company, under the circumstances specified in the said Rules.
22 Accordingly, the writ applicant filed an application dated 30th June 2014 to the central excise department. The writ applicant requested for transfer of the unutilised cenvat credit lying with the Larsen & Toubro Ltd to the writ applicant to the extent it related to the hydrocarbon engineering division. The jurisdictional Assistant Commissioner vide the order-in-original dated 30th April 2015 permitted transfer of the unutilised cenvat credit lying in the account of the predecessor Larsen & Toubro to the writ applicant.
23 The online facility for the filing of the monthly central excise returns in the Form ER-1 only enabled return to be filed in the very name under which the treasury challans for the payment of central excise duty stood. Since these challans were issued in or around 5th of every month for the payment of central excise duty, they were in the name of the predecessor entity i.e. the Larsen & Toubro Ltd. Hence, the revised returns in the Form ER-1 in the name of the new entity could not be filed by the writ applicant for the financial year 2013-14. This was a procedural hitch in the online system developed and implemented by the central excise department.
24 For the financial accounting purposes, the balance sheet, profit loss account and other related documents were actually prepared much after the close of the financial year 2013 – 2014 by the Larson & Toubro Ltd. The same did not include the transactions of the Hydrocarbon Division. The Profit & Loss Account, Balance Sheet and other related documents prepared by the L&T Hydrocarbon Engineering Ltd. for the FY 2013-14 duly considered and took into account all the transactions carried out by the Hydrocarbon Division as a part of the Larsen & Toubro Ltd. for the financial year 2013 – 2014.
25 The Income tax return for the FY 2013-2014 was to be filed much after the closure of the FY 2013- 2014. The Income tax return filed by the Larsen & Toubro Ltd. for the financial year 2013-14 did not include the affairs of the Hydrocarbon Division. Those were duly incorporated in the income tax returns filed by the writ applicant for the financial year 2013-2014.
26 The Central excise audit of the factory popularly called as the EA 2000 Audit was undertaken for the Financial Years 2012-13 and 2013 – 2014 (upto February 2014) by the officers of the central excise department. During the course of audit, the departmental officers verified all the records maintained by the Hydrocarbon Division of the Larsen & Toubro Ltd. The Audit report dated 31st March 2014 raised diverse discrepancies perceived by the audit. None of those observations relate to the present demand or controversy. In other words, the audit did not raise any objection whatsoever (that payment of excise duty and following the procedure of central excise law by the Larsen & Toubro Ltd. during the FY 2013 – 2014 [upto February 2014]) was irregular or incorrect. The Audit at no point of time said that the compliance should have been by the L&T Hydrocarbon Ltd. i.e., the successor entity.
27 Two summons dated 15th November 2018 and 5th December 2018 resply were issued by the officers of the central excise department (at the behest of DGCEI, Madras) to the writ applicant requesting to provide documents and give statement. The statement of Vaidyanath Shastri, DGM (Finance & Accounts) (writ applicant No.2) was recorded on 12th December 2018. The following queries were raised:
(a) whether the writ applicant was registered with the central excise department and filed ER-1 returns during the financial year 2013 – 2014;
(b) who was the main contractor / sub-contractor for the supply of goods to the projects made under the ICB during the FY 2013– 2014, etc.
Mr. Shastri, in his statement dated 12.12.2008 specifically clarified that all the contracts and invoices during the FY 2013 – 2014 were entered into and raised respectively by the Larsen & Toubro Ltd. It was also clarified that the payment of excise duty on the said clearances and filing of the ER–1 return was done by the Larsen & Toubro Ltd. during the FY 2013 – 2014. The writ applicant No.2 also stated in his statement that the hydrocarbon division acted on behalf of the Larsen & Toubro Ltd. till 16th January 2014 and thereafter on behalf of the L&T Hydrocarbon Engineering Ltd.
28 Ultimately, the impugned show cause notice dated 31st December 2018 came to be issued to the writ applicant raising the demand of Rs.19,61,06,399/- towards the excise duty as detailed in the Annexure A to the show cause notice for the clearances between December 2013 and March 2014. The demand of excise duty of Rs.96,20,02,091/- as detailed in the Annexure B to the show cause notice for the clearances effected from December 2013 to March 2014 availing exemption for the supplies against the ICB contract was also sought to be raised.
29 In such circumstances referred to above, the writ applicant is here before this Court with the present writ application.
