Case Law Details
Elora Tobacco Company Ltd. Vs Union of India (Madhya Pradesh High Court)
Held that the machine and two DG sets are under seal for more than two years. The impugned action of the department is wholly without jurisdiction for which the petitioner is liable to be compensated
Fact-
The petitioner has filed the present petition to challenge the order dated 27.05.2021 whereby the respondents have refused to de-seal cigarette manufacturing machines and DG sets. The petitioner has also challenged the validity of the declaration of trade notice dated 18.01.2021 as arbitrary, a violation of Article 14 of the Constitution of India and also inconsistent and contrary to the provision of the Central Excise Act, 1944.
Conclusion-
The respondents have completed the search and investigation and thereafter issued a show cause notice to the petitioner, therefore, there is no need to keep the machine and DG sets under seal. The respondents have already assessed the capacity of the machine by calling Chartered Engineers. When the respondents have already assessed the capacity then there is no question of seeking a declaration about the capacity of the machine under seal from the petitioner. Since there is no mandatory provision in the statute to give production as per the capacity of the machine then the respondents cannot compel any manufacturer to give a declaration or run the factory up to its 50% capacity. The Excise is levied only when the finished goods are removed from the factory and as per the provisions of the Central Excise Act, it is mandatory for manufacturers to maintain the record and issue a get pass. The Excise officer is posted there 24×7 hours to check the production and accordingly, charged the excise duty, therefore, no purpose would be served by keeping the record or insisting the manufacturer to declare the capacity of the machine. It is the responsibility of the Excise Officer to watch 24×7 hrs and check the capacity of production in the factory before removing the goods.
So far as W.P. No.23624/2021 is concerned, the petitioner has challenged the action of the respondents by which they called the Chartered Engineer to assess the capacity of the machine.
In view of the above discussion, nothing is required to adjudicate the said issue. Even otherwise, Section 145 of the GST Act gives the authority to seek an opinion from an expert, hence this writ petition is devoid of substance hence dismissed.
Held that the machine and two DG sets of the petitioner are under seal since the date of the raid and now more than two years have lapsed still the respondents are not ready to release them. The petitioner is unable to do the production, this has not only caused business loss to the petitioner but to the Central Government also in respect to the revenue. The impugned action of the respondents is wholly without jurisdiction for which the petitioner is liable to be compensated, hence instead of assessing losses caused in this writ petition, we leave it to the petitioner to take recourse available under the law against the respondents. As far as loss of revenue to the Government is concerned, the higher officials of the respondents shall take appropriate action against the responsible officers.
FULL TEXT OF THE JUDGMENT/ORDER OF MADHYA PRADESH HIGH COURT
The petitioner has filed the present petition to challenge the order dated 27.05.2021 whereby the respondents have refused to de-seal cigarette manufacturing machines and DG sets. The petitioner has also challenged the validity of the declaration of trade notice dated 18.01.2021 as arbitrary, a violation of Article 14 of the Constitution of India and also inconsistent and contrary to the provision of the Central Excise Act, 1944.
The facts of the case in short are as under:
[2] The petitioner is a company incorporated and registered under the Companies Act, 1956 (now the Companies Act, 2013). The petitioner is engaged in the manufacture and sale of cigarettes in its factory established at 14-B, Sector F, Industrial Area, Sanawer Road, Indore. Cigarettes are covered under the Central Excise Act, 1944, hence the petitioner has obtained the registration under the Act. After the introduction of GST, the petitioner became liable to levy of Central Excise as also levy of Goods and Service Tax as Cigarettes is specified in HSN Code Heading 2402 and sub-heading 2402 20. So far as Central Excise is concerned, the levy continues under the Central Excise Act, 1944 and the Rules made thereunder and so far as GST is concerned the levy is governed under the Central Goods & Service Tax Act, 2017 and M.P. goods and Service Tax Act, 2017.
[3] Section 3 of the Central Excise Act, 1944 deals with the levy of duty on goods which are produced or manufactured. Rule 94 of the Central Excise Rules, 1944 mandates the manufacturer of tobacco products to maintain a record of production and dispatch in the manner specified therein. Rule 6 of CE Rules, 2017 mandates that the assessee shall himself assess the duty payable on any excisable goods shall be removed from a factory or a warehouse except under an invoice signed by the owner of the factory or his authorized agent and such invoice shall also be countersigned by the Inspector of Central Excise or the Superintendent of Central Excise. According to the petitioner since the product cigarette is a sensitive matter for levying excise duty, therefore, the respondents in order to monitor the production and sale have deputed an adequate number of Excise Officers at the premises round the clock 24 X 7.
[4] The respondents have issued trade notice 40/95 dated 25.08.1995 whereby the instructions were given for the procedure to be followed for effective physical control of production Cigarettes in the factories. Vide instructions dated 24.12.2008, the duties and responsibilities of the range officers and Central Officer were fixed.
[5] It is further submitted that the Commissioner of Customs Central Excise and Service Tax Indore issued a trade notice being No.07/2009 dated 25.11.2009 in the exercise of the powers conferred under Rule 31 of the Central Excise Rules, 2002 has prescribed a procedure for filing details of machines installed by Cigarette manufacturing units. Thereafter a fresh Trade Notice No.02/2015 dated 04.02.2015 has been issued in order to check the production capacity of the machines, and the production of cigarettes through the said machines. In this Trade Notice, a provision was there about sealing off the machine when the unit operated at a capacity lower than 50% of the total capacity of the machine.
[6] According to the petitioner, its unit was in operation 24*7 hrs. under the vigilance and supervision of the Central Excise Officers and no such complaints have ever been made regarding violation of the above trade notices. During the Covid-19 pandemic, the petitioner vide letter dated 23.03.2020 requested the respondents to seal all the machines of the factory as the petitioner was unable to carry on the activity of the manufacturer for want of sale. Panchnama dated 23.03.2020 and 24.03.2020 were prepared after sealing the machines, after some time at the request of the petitioner machine were de-sealed and production of the cigarettes commenced.
[7] That on 12.06.2020 and 13.06.2020 the petitioner’s unit was searched by the authorities of GST in exercising power under Section 67(2) of the said Act. The authorities have seized computer hard discs, books, documents and two generators (DG) sets. According to the petitioner, the authorities conducting the search have not only sealed the generator sets but cigarette manufacturing machines under the provisions of Trade Notice No.2/15 dated 04.02.2015 only on the ground that the nonfunctioning of the machine for more than 24 hours and were not giving production as per its capacity.
[8] After the search was over, vide letter dated 12.10.2020 the petitioner requested the Assistant Commissioner to de-seal the machine and DG sets. A reply was given to the petitioner on 06.11.2020 that the directions of the higher authorities are awaited. Thereafter vide letters dated 25.11.2020 and 26.11.2020 the Superintendent and Assistant Commissioner demanded some details as a condition before de-sealing. According to the petitioner, all the details were already on record, which has been seized by the respondent. Despite furnishing all the details, the respondents have not de-sealed the machines and DG sets due to which the petitioner was unable to start the production to date.
[9] Vide impugned notice dated 27.05.2021 (Annexure P/1), the request for de-sealing of the machine and DG sets have been declined by the respondents as the petitioner did not file a fresh declaration in compliance with Trade Notice 04/2020-2021 dated 18.01.2021. Being aggrieved by the aforesaid denial, the petitioner has approached this Court by way of this petition challenging not only the validity of the order dated 27.05.2021 as well as the Trade Notice No.04/2020-21 dated 18.01.2021.
Submissions of the petitioner’s counsel
[10] Shri Abhinav Malhotra, learned counsel appearing for the petitioner submitted that the respondents have kept the machine and DG under seal arbitrarily for an indefinite period for which there is no provision in the Act and Rules. There is no such provision under the Central Excise Act as well as GST Act for keeping the machine or restraining the manufacturing unit for production for an indefinite period. The respondents have already seized the entire record, the search has been completed, and now the show cause notice has already been issued, therefore, there is no reason to keep the machine and DG sets under seal relying on Trade Notice No.04/2020-21.
[11] The petitioner has also challenged the action of respondents regarding the appointment of a panel of chartered engineers for verification of the production capacity of the machine, by way of Writ Petition No.23624/2021 before this Court. According to learned counsel for the petitioner, the respondents have no right to bring a third person to the premises of the petitioner to check the production capacity of the machine for that there is no such provision under the CE Act and Rules. Even otherwise, now the production capacity has been verified then keeping the petitioner out of the business of production is totally unconstitutional being violative of Article 14 of the Constitution of India. Hence, such an action is liable to be condemned and impugned letter dated 27.05.2021 as well as Trade notice 04/2020-21 dated 18.01.2021 are liable to be set aside and respondents are directed to de-sealed the machines and compensate the petitioner for the loss caused to the petitioner by way of an illegal act.
[12] Learned counsel for the petitioner has submitted that the primary reliefs that the petitioner by way of this writ petition is seeking for de-sealing of the cigarette manufacturing machines by the respondents and permission to carry out its manufacturing business in the usual manner in terms of section 3 of Central Excise Act read with Rule 6 and 11 of Central Excise Rules 2017. It is further submitted by the learned counsel that the excise duty is always levied on the quantity of the goods manufactured and does not depend on the production capacity of the machine. Tax is levied in terms of Rule 6,8 and 11 when a manufacturer of cigarettes takes his goods out of the factory. It is also a clear and accepted position between the parties that Rule 6 and 11 require every single input to be cross verified and acknowledged by the Inspector of Central Excise or Superintendent of Central Excise and no single cigarette which is ready for sale can be taken out of the factory unless the tax on it is paid and audit is cross verified and certified by the Superintendent under Rule 11 of the Rules. Finally learned counsel submitted that the the action of the respondents to keep the petitioner’s machines in the factory sealed on the ground of non-compliance with the Trade Notice dated 18.01.2021 is illegal and violative of the petitioner’s fundamental rights under Article 14, 19(1) (g) and 21 of the Constitution, in addition, to the impugned Trade notice being contrary to the provisions of the Act and the Rules be set aside.
Reply of the respondents
[13] Initially, the respondents filed a preliminary reply questioning the maintainability of the Writ Petition, however, as per direction issued by the Court, a parawaise reply has also been filed. The respondents have not disputed the search conducted on the premises and the sealing of machines and DG sets during the investigation carried out by GST Intelligence. In order to justify the action, the respondents are contending that the search conducted in furtherance of Trade Notice dated No.02/2015 as the key persons of the company did turn incommunicado and the machines were found not in operation, therefore as per paragraph No.4.1 of the Trade Notice No.02/2015 which was in operative at that point of time, a proper panchnamas were drawn and machines and DG sets were sealed. It is further submitted that after four months the petitioner submitted a representation requesting de-sealing of the machine and DG sets. During the same period, ADG, DGGI vide letter dated 29.10.2020 pointed out various irregularities noticed during the investigation such as:- (a) Declaration of different production capacities to different agencies by the petitioner. (b) the petitioner has under-declared the production capacity to the department, (c) the production is even less than 1% of the declared production capacity, (d) and the meter of the DG set was found tampered in order to suppress the actual production from the machine. After Trade Notice No.02/2015 Commissioner CGST Ujjain issued Trade Notice No.02/2016 dated 06.10.2016 and same has been applied for the petitioner as it was applicable at the time of the search was applied which provides that ” Where the unit is operating at a capacity lower than 50% of the total machine hours in a shift available for the machines installed, the machine will be sealed after the production is over for the shift. The desealing of the machine will be done only after the written submission by the party that they will utilize at least 50% of the total installed capacity.”[15] It is further submitted by the respondents that in view of the aforesaid condition clarification and declaration were sought from the petitioner. Since the production capacity submitted by the petitioner was incorrect on the face of the record, it became pertinent for the department to get it verified by the team of experts, therefore, at that time the request for de-sealing the machines was declined.
[16] The respondents have supported the validity of Trade Notice No.04/2021 dated 18.01.2021 as it does not travel beyond the scope and power of delegated authority of the commissioner given under Rule 13 of CE 2017. The respondents have also relied on sections 37 (2) (v) of the Central Excise Act,2017 which authorise them to regulate the production or any process of the production or manufacture, storage, or sale for the purpose of collection of the proper duty imposed under the Act.
Submissions of respondents’ counsel
[17] Shri Prasanna Prasad learned counsel appearing on behalf of the respondents has argued that the manufacturing and sale of cigarettes is a sensitive commodity under the Central Excise Act and GST Act. It also attracts National Calamity Contingent Duty (NCCD). The petitioner has a checkered history as one case of clandestine manufacturing and clearance of cigarettes was registered in the year 2011-12, wherein duty demand of Rs. 28,39,43,195/- was confirmed against the petitioner. The respondents are taking more care and caution by seeking a declaration from the petitioner about the production from sealed machines which should not be less than 50% of its capacity. If the machines and DG sets are de-sealed, the petitioner would again indulge in the manufacturing of cigarettes and the future possibility of evasion of the excise duty and GST cannot be ruled out. It is further submitted by the learned counsel that a detailed show cause notice has been issued to the petitioner and now the matter is under adjudication. The authority has doubted the conduct of 67 Excise Officers who were posted round the clock in the unit of the petitioner, hence the officials of the department have reasons to believe that the petitioner with the convenience of those officers evaded the huge amount of excise/duty. It is further submitted by Mr Prasad learned counsel that Section 67 (1) (2) of the GST Act gives power to the officer to conduct the inspection and search. Section 71 governs the field and gives authority during the search to the officers. Under Section 153 of the GST Act, the department can take the assistance of a technical person and finally section 160 of the GST Act provides protection that no action in pursuant to that shall be invalid. The authorities are acting only in order to protect the evasion of huge revenue by the petitioner, therefore, there cannot be allegations of malafide against the respondents. In support of his contention, learned counsel has placed reliance on the judgment passed in the cases of Dr. Pratap Singh and another Vs. Directorate of Enforcement, Foreign Exchange Regulation Act and Others (1985) 3 SCC 752 and Dr. Vinod Shivappa Vs. Nanda (2006) 6 SCC 456 and prayed for dismissal of both the writ petitions.
Heard.
18. Undisputedly after conducting the search on the premises of the petitioner, the respondents have issued detailed show cause notice to the petitioner, which is not under challenge in this petition, therefore, whether the petitioner has evaded the excise duty during that relevant period is the subject matter of show cause notice for which the adjudicating is going to be completed by the competent authority. The limited issue involved in this petition is whether the action of the respondents is legal in keeping the manufacturing machine and DG set under seal and depriving the petitioner to start the business?
19. According to the respondents, a search was conducted and machine and DG sets were sealed under the provisions of Trade Notice No.02/2015 dated 04.02.2015 which was under operation/ effect at the relevant. Clause -C of the Trade Notice is relevant which provides that the seal shall be removed by the authorised officer when the production is scheduled to start on the next working shift/day. The relevant clause -C is reproduced below:
C. Procedure for Non-working/Partially working machine.
4.1 Where the unit is operating at a capacity lower than 50% of the total machine hours available for the machines installed the machine will be sealed after the production is over by the Inspector or any other officer authorized by the Commissioner. This seal shall be removed by the authorised officer scheduled when the production is scheduled to start on the next working shift/day. It is clarified that the machines should be sealed in such a manner that no commercial production is possible without removing such seal.
4.2 In case the unit does not propose to operate any of the machines for the day or for any specified/expected period the same should be informed in writing along with the reasons to the Deputy/Assistant Commissioner having jurisdiction over the manufacturing unit with a copy of jurisdictional Range Officer, such machine shall be sealed in accordance with the procedure laid in Para 4.2. above.
4.3 The authorized representative of the manufacturing unit shall inform the officer posted in the unit in writing well in advance about the time and date they intend to start the machine for production and get the machine de-sealed by the Range Officer or any other authorized Central Excise Officer.
4.4. In case the installed machines require any repair/maintenance, such machines such shall be de-sealed by the authorized officer and entire maintenance/repar work shall be strictly in physical presence of the Range Officer/Inspector or any other officer authorized by the Commissioner for the purpose. After completion of repair/maintenance such machines(s) shall be sealed in accordance with the procedure laid down in para 4.1 above. The assesses shall intimate undertaking of such repair/maintenance at least 24 hours in advance to the jurisdictional Assistant/Deputy Commissioner.
Therefore, it is clear from the aforesaid clause Clause -4.1 that the manufacturing machine of the concerned unit shall remain under seal between the last production and the next day’s working shift so that production may not be affected. Beyond that period the respondents have no authority to keep the machine under the seal to halt production. Shri Prasad has relied on Section 37 (2) (v) of Central Excise Act, 1944 under which the Central Excise Authorities can regulate the production or manufacture, storage, sale for the proper levy and collection of the duties imposed by this Act. The aforesaid argument is not acceptable for the simple reason that Section 37 gives power to Central Government to make rules to regulate the production or manufacturing and unless the Central Government makes the rules but in this case there is no such rules have and notified by the Central Government under Section 37 (v) to regulate the production, sale and storage of the goods.
20. Learned counsel for the petitioner has argued that there is no such provision under the Central Excise Act for issuing Trade Notices from time to time. The petitioner has never challenged the earlier Trade Notices issued by the respondents from time to time. The petitioner is aggrieved by only Trade Notice dated 18.01.2021 issued by the Office of Commissioner CGST & Central Excise. Rule 34 of the Central Excise Rules, 2017 gives power to Board or the Principal Chief Commissioner or Chief Commissioner, to issue written instructions for any incidental or supplemental matters, consistent with the provisions of the Act and rules. Therefore, the Excise authority gets jurisdiction to issue Trade Notices under the Act and rules but the only rider is that such written instructions in the Trade Notice should be consistent with the act and provision of the rules.
21. Now the next grievance of the petitioner is about clause 6.3 which is produced below:-
”Whether any machine is operating at a capacity lower than 50% of total machine hours in a shift available or less than 50% of the declared capacity for a machine installed, the machine will be sealed after the production record is submitted on the next day. The de-sealing of the said machines will be done only after the written undertaking by the manufacturer that they will utilize at least 50% of the total machine hours in a shift and the declared capacity of the machine. Further, if the condition then the machines will be sealed till further orders by the jurisdiction Deputy/Assistant Commissioner.”
22. In our view, the above clause does not apply in the case of the petitioner as the impugned action of sealing was done under Trade Notice No.02/2015 dated 04.02.2015 which was applicable at the relevant point of time. But the respondents are denying the de-sealing of the machines and DG sets under Trade Notice dated 18.1.2021 hence we shall also examine the validity of the above clause of this latest Trade Notice. After hearing the learned counsel for the respondents who have failed to highlight any provision in the Excise Act and rules and even in the CGST Act which gives authority to the competent authority to seal the machines of a running manufacturing unit. Hence above clause 6.3 is wholly unreasonable and inconsistent with the provision of the Central Excise Act and Rules and liable to be struck down.
23. The Central Excise Authorities cannot compel any manufacturer to utilize 50% of the machine hours in shift based on the declared capacity of the machine. The production of any goods always depends on demand in markets, availability of raw material, availability of electricity, manpower, working capital etc. The only provision under the Excise Act is section 3A under which the Central Government can charge the excise duty on the basis of capacity of production in respect of notified goods and admittedly, the cigarette is not notified goods under Section 3A, therefore, apart from Section 3A, Shri Prasad has failed to point out any provision under the Act and Rules under which the Central Government can insist the manufacture to operate the machine up to 50% of its total production capacity machine hours. Hence, condition No.6.3 is liable to be struck down.
24. The respondents have completed the search and investigation and thereafter issued a show cause notice to the petitioner, therefore, there is no need to keep the machine and DG sets under seal. The respondents have already assessed the capacity of the machine by calling Chartered Engineers. When the respondents have already assessed the capacity then there is no question of seeking a declaration about the capacity of the machine under seal from the petitioner. Since there is no mandatory provision in the statute to give production as per the capacity of the machine then the respondents cannot compel any manufacturer to give a declaration or run the factory up to its 50% capacity. The Excise is levied only when the finished goods are removed from the factory and as per the provisions of the Central Excise Act, it is mandatory for manufacturers to maintain the record and issue a get pass. The Excise officer is posted there 24×7 hours to check the production and accordingly, charged the excise duty, therefore, no purpose would be served by keeping the record or insisting the manufacturer to declare the capacity of the machine. It is the responsibility of the Excise Officer to watch 24×7 hrs and check the capacity of production in the factory before removing the goods.
25. So far as W.P. No.23624/2021 is concerned, the petitioner has challenged the action of the respondents by which they called the Chartered Engineer to assess the capacity of the machine.
In view of the above discussion, nothing is required to adjudicate the said issue. Even otherwise, Section 145 of the GST Act gives the authority to seek an opinion from an expert, hence this writ petition is devoid of substance hence dismissed.
26. Before parting we would like to observe about the conduct of the competent authorities of the respondents that the machine and two DG sets of the petitioner are under seal since the date of the raid and now more than two years have lapsed still the respondents are not ready to release them. The petitioner is unable to do the production, this has not only caused business loss to the petitioner but to the Central Government also in respect to the revenue. The impugned action of the respondents is wholly without jurisdiction for which the petitioner is liable to be compensated, hence instead of assessing losses caused in this writ petition, we leave it to the petitioner to take recourse available under the law against the respondents. As far as loss of revenue to the Government is concerned, the higher officials of the respondents shall take appropriate action against the responsible officers.
27. Hence, W.P. No.23618/2021 is allowed. Annexure P/1 is hereby quashed with a cost of Rs 50,000/ (Fifty Thousand only) payable to the petitioner. The respondents are directed to de-seal the machine and two DG sets forthwith.
In view of the above No.23624/2021 is dismissed , No. order as to cost.
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