WP/27619/2005 of M/s. Vijay Prestressed Products (P) Limited, Vs The Commissioner of Customs AND Central Excise, on 27 December 2005

HONOURABLE SRI G.S.SINGHVI, THE CHIEF JUSTICE

ANDHONOURABLE SRI JUSTICE R.SUBHASH REDDY

W.P.NO.27619 OF 2005BETWEENM/s. Vijay Prestressed Products (P) Ltd and another… PetitionersAndThe Commissioner of Customs & Central Excise,Visakhapatnam-I Commissionerate,Port Area, Visakhapatnam and another…. Respondents:: JUDGMENT::Counsel for the Petitioners : Mr.A.Swarveswara RaoCounsel for the Respondents : Mr.A.Rajasekhara Reddy, AssistantSolicitor General for RR 1 & 2.

Dated 27.12.2005

Per G.S.Singhvi, CJ

This petition filed for quashing order dated 22.8.2005 passed by the Customs,Excise and Service Tax Appellate Tribunal, South Zonal Bench, Bangalore canappropriately be termed as an attempt by the petitioners to bypass the statutoryremedy of appeal available to them under Section 35-G of the Central Excises and Salt Act, 1944 (for short ‘the Act’).

Petitioner No.1 M/s Vijaya Prestressed Products (P) Limited, is engaged in themanufacturing of prestressed cement concrete sleepers in it’s factory at Pendurthy,District Visakhapatnam. The goods manufactured by it fall under chapter headingNo.6807.00 of the Schedule to the Central Excise Tariff Act, 1985. After about threeyears of the incorporation of petitioner No.1, its managing director Shri M.S. Rajuestablished sole proprietorship concern under the name and style of M/s UshaPrestress Udyog (petitioner No.2). On 4.3.1993, the premises of the petitioners weresearched by the officers of Central Excise, Division-II, Visakhapatnam andHeadquarters Anti Evasion Unit, Visakhapatnam. As a follow-up action, show causenotices were issued to the petitioners for levy of duty on the sleepers cleared bypetitioner No.2. This was done by invoking Section 11A(1) of the Act. Penalty noticeunder Rule 173Q read with Rule 209 of the Central Excise Rules, 1944 was alsoissued. After considering the objections filed by the petitioners, Commissioner ofCentral Excise and Customs, Visakhapatnam-1 (hereinafter described as ‘theCommissioner’) passed order dated 13.2.1995 whereby he created a demand ofRs.8,18,313/-. On appeal, the Tribunal set aside the order of the Commissioner andremanded the case for de novo adjudication.

In compliance of the direction given by the Tribunal, the Commissioner issued freshnotices to the petitioners, heard the arguments of their advocate, examined therecord and passed order dated 31.12.2002 vide which he reiterated the demand ofduty. He negatived the petitioners’ plea that they were separate and independentunits and the goods manufactured by petitioner No.2 could not be treated as thegoods manufactured by petitioner No.1 for the purpose of levy of duty. TheCommissioner considered the plea of the petitioners in the back drop of evidencebrought on record and concluded that the two units were intrinsically connected witheach other and the so called manufacturing of prestressed sleepers by petitionerNo.2 was a sham transaction and in fact the goods were manufactured by petitionerNo.1. The discussion made by the Commissioner on this issue is contained inparagraphs 13, 14, 15, 18 and 19 of order dated 31.12.2002, which are extractedbelow.

“13. In determining the status of a manufacturer for the purpose ofclubbing, it has to be seen whether the units are companies

under the Companies Act or a firm or an individual. In this Case, Ifind that VPP is a private limited company and UPU is aproprietorship firm owned by Shri MS Raju as the proprietor. ShriM.S.Raju also owns shares in VPP as a Karta of HUF as also heis the Managing Director in VPP. The proprietorship firm is notseparate from the individual who, in this case, is Shri MSR Raju.Thus UPU has no separate identity than that of M.S.Raju. ThusM.S.Raju has a three tier association in VPP, as HUF Karta, asManaging Director, as proprietor of UPU which has taken loansfrom VPP of appx. 30 lacs unsecured and without any interest tieup as normal in commercial trade for such finance. I find that theyare so inextricably associated that separate of identity is notpossible. When separation of their identity is not possible, there isfree flow of funds and UPU are described as their sister concernor their subcontractor or their production unit 2, the exemptionunder notification 175/86 cannot be made available to UPU as allclearances have to be taken by VPP or on their behalf.

14. I further find that, even though VPP is a private limitedcompany, yet there are provisions in the Companies Act whichrequire the directors to disclose their interest if any, in other firmsor companies or individuals with which they enter transactions inthe name of the company. There is no such evidence on recordthat any approval was obtained by VPP as a limited company forpassing on their contract to UPU. It is also seen from the casefacts that the goods were manufactured by VPP out of its own rawmaterials. Only they were removed in the name of UPU. Thisremoval under the name of UPU was for no other reasons thanthat of evasion of duty payable by them otherwise if theclearances were in VPP’s name.

15. It is also seen that Shri Raju cannot act differently as aproprietor in UPU and as MD in VPP. If both were limitedcompanies, the issue would have been different. Thus, by thevery nature of the constitution of the two, UPU cannot claim to bean independent firm unless it could show that apart from statutoryregistration under different laws, they had independentmanufacturing facilities, independent financial and managementcontrol and independent infrastructure to manufacture goods.There is no such evidence on record except the fact that atransaction is entered in the name of UPU for which VPP hadprocured orders, paid for the raw materials, manufactured in theirown premises but clearance is made in the name of UPU. Theevidences adduced by the parties are mainly on separateregistration under various laws, separate filing of returns, interunit transactions being of commercial nature etc., These becomeover ruled in the fact of the over riding facts as discussed above.The CEGAT however observed that there was no finding thatthere was nay flow back or mutuality of interest between the two.Thus, the case stands, if it was proved that there was flow back

18. In the backdrop of above, I find that it would be further relevantto concentrate on the single transaction of clearance of 12000sleepers which is the core to the issue and which will bar out theabove view that UPU were only a subterfuge to VPP. Except forthis, there are no other clearances during the year 1992-93. Thefacts as made out in the notice are that VOO had responded tothe tender dated 5.3.1991 of Visakhapatnam Port Trust for 12000sleepers and paid the EMD of Rs.90,000/- and had quoted pricesinclusive of excise duty payable. However, later, they vide theirletter dated 3.7.1991 requested VPT to place the said order ontheir sister concern UPU located in the same premises inconsequence of which VPT placed the order for the said 12000sleepers for a total value of Rs.94,80,000/- inclusive of exciseduty and sales tax @ of Rs.790/- per sleeper in the name of UPUand in the acceptance letter, they informed that EMD ofRs.90,000/- paid by VPP shall be retained for them. In the showcause notice, it is stated that VPP were obliged to manufacturesleepers for Railways only as they were given the land on leaseexclusively for manufacture of sleepers for them and certainguidelines were agreed for acting upon for this consideration. Inpursuance of these guidelines, VPP approached Railways togiven them permission to execute the order for VPT through theirsub contractor UPU who have been entrusted to look after theproduction of their Unit No.2 and that such production through thesub contractor was permissible as per the guidelines. The letterdated 12.12.1992 to this effect is reproduced in the show causenotice in para 6. In para 7 of the notice, the facts are made moreclear in that VPT had to ask Railways to give permission to VPPfor supply of 120000 sleepers in view of urgency as VPP wereobliged in terms of the agreement with Railways to manufactureand supply sleepers for Railways only on the leased land. Thesupplies to VPT commenced in the name of UPU just one dayafter the permission from Railways was made. Thus, it is clearthat VPP had already made supplies ready, that it as only a bookadjustment in that the contract was shifted in the name of UPU forno reasons.

19. Further, the statement dated 4.3.1993 of Shri T.B.GangadharaRao, Typist-cum-clerk, UPU as stated in para 2(iii) of the noticeshows that w.e.f. 1.1.1993 they used the raw material of VPP, thatsleepers were manufactured out of their material and wereentered in UPUs account, that debit entries were made in the RG23 register of VPP as if the raw materials were used by VPP andthat until 18.2.1993, there was no raw material account for UPU.The defence of VPP and UPU is silent on this. If UPU were anindependent manufacturer, they would never be in a position toobtain the contract, they would never be able to start theiroperations from the premises as these premises were licensed

only to VPP, they had no financial capability to undertakesupplies for 98,80,000/-, they had no raw materials of their own,the goods were already manufactured using their (VPP) own rawmaterials and were supplied in the name of UPU next day of thepermission received from the Railways. VPP had tendered thequotation and deposited 90,000/- as EMD and they were able tochange to the UPU account by citing UPU as their sister concern.UPU, on their own never came forward to respond to the tenderand offer the supplies. It was only manipulation of the contract ortender through citing UPU as their subcontractor or a sisterconcern. This mode of supply, in a way, itself proves that VPPwere the manufacturer who were supplying the goods under thetender through their subcontractor or the sister concern from theirproduction unit No.2. Unit 2 is what is called UPU and thus VPPquoted in their letter that UPU were their subcontractor lookingafter their production unit No.2. Since the transaction is through atender, if UPU were an independent manufacturer, they wouldhave made offer to the tender. This was not done. Thus, withregard to the clearance of 12000 sleepers, it can, by no means,be held that there was any independent manufacture by UPU.The entire manufacture and supply was arranged by VPP. UPUwas thus, only a dummy for VPP in this case.”

The appeal filed by the petitioners against the aforementioned order of theCommissioner was dismissed by the Tribunal vide its order dated 22.8.2005.

The petitioners have challenged the order of the Tribunal mainly on theground that the ex parte order passed by it is vitiated due to violation of the rules ofnatural justice. They have averred that the appeal was listed for hearing before theCircuit Bench of the Tribunal at Hyderabad on 12.10.2004 but on that day, the casewas adjourned because the same did not reach for hearing. Thereafter, the casewas posted for hearing at Bangalore on 8-6-2005, but the same was adjourned attheir request. On the next date of hearing i.e. 22.8.2005, the petitioners sent atelegram to the Tribunal seeking adjournment on the ground of illness of theiradvocate. The petitioners’ case is that notwithstanding the bona fide request madeby them, the Tribunal proceeded to hear the appeal on merits and dismissed thesame.

Learned counsel for the petitioners fairly conceded that under Section 35-G of the Act an appeal can be filed before this Court against the order of the Tribunal, butargued that the remedy of appeal provided under that section cannot be treated asan effective alternative remedy because the appeal under that section can be filedonly if a substantial question of law arises for determination by the High Court. Hethen argued that the reason assigned by the Tribunal for declining his clients’request for adjournment is legally untenable and, therefore, the Court may quash theorder under challenge and remand the case for fresh adjudication of the appeal.

Arguments

We have considered the submissions of the learned counsel but have not feltpersuaded to agree with him. In our opinion, when the statute, viz., 1944 Actcontains a provision for remedy of appeal, the petitioners cannot be allowed tobypass the statutory remedy and invoke the jurisdiction of this Court under Article226 of the Constitution of India on the spacious ground that the appeal can beentertained by the High Court only if substantial question of law arises. At this stage,it is not proper for us to express an opinion whether order dated 22-8-2005 passedby the Tribunal gives rise to substantial question of law because that can be seenonly when the petitioners file appeal under Section 35-G. However, we do not haveany doubt that once the legislature has made a provision for appeal against an orderpassed by the Tribunal, the aggrieved party cannot be allowed to bye-pass thatremedy by filing petition under Article 226 of the Constitution of India.

De hors the aforementioned conclusion, we are satisfied that the petitioners havefailed to make out a case for interference with the order under challenge. Admittedly,the appeal had been adjourned by the Tribunal on two previous occasions. The thirdadjournment was sought by the petitioners by sending a telegram that their advocatewas not well. From the record, it does not appear whether the petitioners had sentmedical certificate in support of their request for adjournment. Before this Court,certificate showing illness of his client and his consequential inability to go toBangalore has not been produced. It has also not been disclosed as to what was theailment, which prevented the advocate of the petitioners from appearing before theTribunal. During the course of hearing, we enquired from the learned counsel for thepetitioners whether the petitioners are in possession of any such evidence but hecould not produce the same for our perusal. In this view of the matter, we areinclined to take a view that the petitioners had conjectured the ailment of theiradvocate only for the purpose of seeking adjournment and the Tribunal did not commit any jurisdictional error by refusing to entertain their request and dispose ofthe appeal keeping in view the provisions of Section 35-A of the Act.

At this stage, learned counsel for the petitioners submitted that his clients may begiven liberty to avail the remedy of appeal under Section 35-G of the Act.

For the reasons mentioned above, the writ petition is dismissed. However givingliberty to the petitioners to avail remedy of appeal under Section 35-G of the Act.

G.S.SINGHVI, CJ

Dated 27.12.2005

R.SUBHASH REDDY, J

Msv / vtv / svs