CIVIL APPEAL 5 of 2005 on 31 October 2003

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH.

CEA No.5 of 2005 Date of Decision:-February ,2010

Commissioner of Central Excise Commissionerate, Delhi-IV ...Appellant

Versus

M/s Orient Steel Industries, 25[th] Miles Stone, Mathura Road, Jharsetli, Ballabgarh,District Faridabad. ...Respondent CORAM: HON'BLE MR.JUSTICE ASHUTOSH MOHUNTA HON'BLE MR.JUSTICE MEHINDER SINGH SULLAR

Present:-Mr.Sanjeev Kaushik, Advocate for the appellant.

Mr.A.K.Jain, Advocate for the respondent.

Mehinder Singh Sullar, J.

The matrix of the facts, culminating in the commencement andrelevant for disposal of present appeal filed by the revenue and emanating fromthe record, is that the respondent-assessee-M/s Orient Steel Industries Limited (forbrevity “the assessee”) is engaged in the manufacturing of Hot re-rolled and flatrolled products of Iron or non alloy steel and was paying Central Excise duty at therate of Rs.300/- per metric tonne per month by availing the benefit of CompoundLevy Scheme under section 3A of the Central Excise Act, 1944 (for short “the Act”)and sub Rule 3 of Rule 96 ZP of Rule 3 of the Central Excise Rules, 1944(hereinafter to be referred as “the Rules”). The assessee ostensibly availed thebenefit of abatement under sub-section (3) of section 3-A of the Act to the tune ofRs.3,05,956/- for the period October and November 1998 and Rs.5,25,117/- for theperiod January, 1999 to May, 1999.

2. The revenue claimed that the assessee did not pay the duty,therefore, show cause notices were issued as to why the duty short paid/not paidbe not demanded under section 11A of the Act and Rules alongwith interest. The imposition of penalty was also proposed under Rule 96 ZP of the Rules. In the wakeof show cause notices, the assessee filed the reply, in which it admitted the non-payment of duty, but tried to explain that the short payment was on account ofdifference of opinion, as the assessee claimed the relief for the period when itsunit remained closed for more than seven days continuously under section 3A (3)of the Act and this benefit could not be taken away by the Rules. According to theassessee that since there was conflict between the main Act and Rules, so the shortpayment was only on account of the difference of opinion.

3. The explanation of the assessee did not find favour and theAdjudicating Authority observed that the assessee had wrongly availed theabatement benefit in this case and negatived its claim, vide impugned order dated25.10.2001 (Annexure P1), the operative part of which is, as under:- “I confirm the demand of Rs.3,05,956/- for the periodOctober and November 98 and Rs.5,25,717/- for the periodJanuary 99 to May 99 under proviso to Sub-Rule 3 of theRule 96 ZP read with Section 11-A of the Central ExciseAct, 1944. I also impose a penalty of Rs.8,31,600/- underSub Rule 1(1) of Rule 96ZP of the Central Excise Rules,1944. The party is also directed to pay the interest at theappropriate rate under Rule 96ZP read with Section 11ABof the Central Excise Act, 1944.”October and November 98 and Rs.5,25,717/- for the periodJanuary 99 to May 99 under proviso to Sub-Rule 3 of theRule 96 ZP read with Section 11-A of the Central ExciseAct, 1944. I also impose a penalty of Rs.8,31,600/- underSub Rule 1(1) of Rule 96ZP of the Central Excise Rules,1944. The party is also directed to pay the interest at theappropriate rate under Rule 96ZP read with Section 11ABof the Central Excise Act, 1944.”

4. Aggrieved by the impugned order (Annexure P1), the assessee filedthe appeal, which was rejected by the Commissioner (Appeals) Central Excise, videorder dated 31.10.2003 (Annexure P2).

5. In the wake of appeal filed by the assessee, the Customs, Excise &Service Tax Tribunal, New Delhi set aside the impugned order (Annexure P2) andallowed its appeal, vide impugned order dated 3.6.2004 (Annexure P3).

6. The revenue did not feel satisfied with the impugned order AnnexureP3 of the Tribunal and filed the present appeal, invoking the provisions of section35-G of the Act.

7. At the very outset, the learned counsel appearing on behalf of theassessee has raised a preliminary objection, with regard to the maintainability ofthe appeal. In this regard, the main argument of learned counsel for theassessee that since the question of determination of the value of the goods forthe purpose of assessment is involved, so the instant appeal under section 35-Gof the Act is not maintainable in this Court, is not only devoid of merit, butmisplaced as well. It cannot possibly be denied that two points were urgedbefore the Tribunal i.e. firstly, that both the show cause notices were issued bythe Superintendent of Central Excise and not by the competent authority andsecondly, that no penalty and interest could be imposed on the assessee undersub-rule 1(A) when the duty had been demanded under sub-rule (3) of Rule96ZP. The Tribunal, while deciding the first issue, has held that as per circulardated 27.2.1999, only Assistant Commissioner was competent to issue thenotices and as the Superintendent was not at all competent to issue show causenotices, so the proceedings taken on the strength of these show cause noticesstand vitiated. The Tribunal answered the second issue as under:- “But in the instant case this is not the position. No penaltyas observed above has been imposed under sub-rule (3) ofRule 96ZP under which differential duty had beendemanded from the appellants. Rather penalty has beenimposed under another sub-rule i.e. 1 (A) of Rule 96 ZPunder which no duty had been demanded from theappellants.”

8. It means, question of valuation of the goods does not arise, onlylaw points (legal interpretations) are involved in this appeal. Moreover, thepresent appeal was admitted to decide the following substantial question of law:- “Board's Circulars being administrative circulars, whethersuch circulars could take precedence over the Notificationand Show Cause Notices issued by virtue of Notifications,rendering the Show Cause Notices invalid if not issued as perBoard's Circular.”

Thus, it would be seen that pure substantial questions of law are

involved in this appeal. Since the pure question of law (legal interpretations) areinvolved, so question of determination of the value of the goods for the purposeof assessment did not arise at all. Therefore, the appeal is very muchmaintainable under section 35-G of the Act and the contrary arguments oflearned counsel for the assessee “stricto sensu” deserve to be and are herebyrepelled, under the present set of circumstances.

10. Once it is held that the instant appeal is maintainable, then the nextshort and significant question, though important, arises for determination in thisappeal is whether the show cause notices issued by the Superintendent ofCentral Excise to the assessee are legal or not.

Issues

11. Assailing the impugned order (Annexure A3), the learned counselfor the revenue has submitted that as any Central Excise Officer is empoweredto issue show cause notices, therefore, show cause notices issued even by theSuperintendent were legal and valid. In order to substantiate his argument, hehas placed reliance on the judgment of Hon'ble Apex Court in case PahwaChemicals Pvt. Ltd.v. Commissioner of Central Excise, Delhi2005 (181) E.L.T.339 (SC).

12. Hailing the impugned order (Annexure A3), on the other hand, ithas been argued on behalf of the assessee that as the Board vide circular dated27.2.1999 had authorized only the Assistant Commissioner to issue show causenotices, then the show cause notices issued by the Superintendent to theassessee in this case are illegal and the entire subsequent proceedings standvitiated. He has placed reliance on the judgment in case Paper Products Ltd. v.Commissioner of Central Excise1999 (112) E.L.T. 765 (S.C.), in this regard.

13. Possibly, no one can dispute about the law laid down by theHon'ble Apex Court in Paper Products Ltd.'s case (supra)that the circular issuedby the C.B.E. & C. is binding on the departmental authorities and they areprecluded from challenging the correctness of the circular even on the ground ofsame being inconsistent with the statutory provisions. The ratio of the judgmentfurther precludes the right of the Department to file an appeal against thecorrectness of the binding nature of the circulars and whatever action

department has to take, the same will have to be consistent with the circular,which is in force at the relevant point of time. At the same time, it was alsoobserved that however, the assessee can challenge the validity and legality ofdepartmental instructions.

14. After considering the matter deeply, we are of the view that theobservations in Paper Products Ltd.'s case (supra)would not come to the rescueof the assessee in this respect, in view of the law laid down by the Hon'ble'Supreme Court in Pahwa Chemicals Pvt. Ltd.s case (supra). Having interpretedthe relevant provisions, it was ruled in para Nos.12, 13 and 14 as under:-

“12. As noted above, the Legislature has purposely omitted theword “Collector” from the proviso to Section 11A andreplaced it with the words “Central Excise Officer”. It isthe Act which confers jurisdiction on the concernedOfficer/s. The Act permits any Central Excise Officer toissue the show cause notices even in cases where thereare allegations of fraud, collusion, willful misstatementand suppression of facts. The question therefore is: Canthe Board override the provisions of the Act by issuingdirections in the manner in which it is done and if theBoard cannot do so then what is the effect of suchCirculars?word “Collector” from the proviso to Section 11A andreplaced it with the words “Central Excise Officer”. It isthe Act which confers jurisdiction on the concernedOfficer/s. The Act permits any Central Excise Officer toissue the show cause notices even in cases where thereare allegations of fraud, collusion, willful misstatementand suppression of facts. The question therefore is: Canthe Board override the provisions of the Act by issuingdirections in the manner in which it is done and if theBoard cannot do so then what is the effect of suchCirculars?

13. In order to consider the powers of the Board one needs tosee certain provisions of the Act. Section 2(b) defines the“Central Excise Officer” and it is mentioned therein thatany Officer of the Central Excise Department or anyperson who has been invested by the Board with any ofthe powers of the Central Excise Officer would be aCentral Excise Officer. Thus, the Board has power toinvest any Central Excise Officer or any other Officerwith powers of Central Excise Officer. By virtue ofSection 37B the Board can issue orders, instructions orsee certain provisions of the Act. Section 2(b) defines the“Central Excise Officer” and it is mentioned therein thatany Officer of the Central Excise Department or anyperson who has been invested by the Board with any ofthe powers of the Central Excise Officer would be aCentral Excise Officer. Thus, the Board has power toinvest any Central Excise Officer or any other Officerwith powers of Central Excise Officer. By virtue ofSection 37B the Board can issue orders, instructions or

directions to the Central Excise Officers and suchOfficers must follow such orders, instructions ordirections of the Board. However, these directions canonly be for the purpose of uniformity in the classificationof excisable goods or with respect to levy of duties ofexcise on such goods. It is thus clear that the Board hasno power to issue instructions or orders contrary to theprovisions of the Act or in derogation of the provisions ofthe Act. The Board can only issue such directions as isnecessary for the purpose of and in furtherance of theprovisions of the Act. The instructions issued by the Boardhave to be within the four corners of the Act. If, therefore,the Act vests in the Central Excise Officers jurisdiction toissue show cause notices and to adjudicate, the Boardhas no power to cut down that jurisdiction. However, forthe purposes of better administration of levy andcollection of duty and for purpose of classification ofgoods the Board may issue directions allocating certaintypes of works to certain Officers or classes of Officers.The Circulars relied upon are, therefore, nothing morethan administrative directions allocating various types ofworks to various classes of Officers. These administrativedirections cannot take away jurisdiction vested in aCentral Excise Officer under the Act. At the highest allthat can be said is Central Excise Officer, as a matter ofpropriety, must follow the directions and only deal withthe work which has been allotted to them by virtue ofthese Circulars. But if an Officer still issues a notice oradjudicates contrary to the Circulars it would not be aground for holding that he had no jurisdiction to issue theshow cause notice or to set aside the adjudication.

14. The Tribunal has in its order dated 25[th] June, 2003, inter-alia, held as follows:- “.....Further, at the relevant time as per theprovisions of Section 11A(1) proper officerwhich includes Superintendent is competent toissue the show cause notice. Board's Circularis only the administrative direction whichdoes not cause any prejudice to theAppellants....”

In our view this is absolutely correct. We, therefore, seeno infirmity in the judgment dated 25[th] June, 2003. Wehold that the Superintendent had jurisdiction to issueshow cause notice and the Deputy Commissioner hadjurisdiction to adjudicate.”

15. Meaning thereby, it has been authoritatively held by the Hon'bleSupreme Court that the Superintendent had jurisdiction to issue show causenotice and the Deputy Commissioner had jurisdiction to adjudicate the matter.Therefore, in view of the pronouncement of the Hon'ble Apex Court, it is heldthat there is no legal infirmity in issuing show cause notices by theSuperintendent to the assessee in the present case as well. Hence, the contraryfindings recorded by the Tribunal deserve to be and are hereby reversed.16.As regards the question of determination of non-payment of dutyand on that account, the imposition of penalty is concerned, again, it is not amatter of dispute that the assessee did not pay the entire amount of duty. Theexplanation put forth by the assessee, with regard to short payment, was thatsince there was conflict between the Act and the Rules, the benefit grantedunder any provisions of the Act cannot be taken away by the Rules and,therefore, the short payment of duty was on account of conflict/differences of theopinion and the assessee was not at fault. The plea of the assessee wasnegatived by the authorities, but the Tribunal did not ostensibly decide the realcontroversy between the parties in this respect.

17. The matter did not rest there. In some what similar circumstances,the bunch of appeals were decided in favour of the assessee by this Court. Thematter was taken to Hon'ble Supreme Court by the revenue and the view takenby this Court was not accepted by the Hon'ble Apex Court. The orders werequashed and the appeals have been remitted back for fresh decision in the lightof the judgments of Hon'ble Supreme Court in cases of Union of India and othersv. Dharmendra Textiles Processors (2008) 306 ITR 277 (SC) and Union of India

v. Rajasthan Spinning & Weaving Mills 2009 (238) E.L.T. 3 (SC).

18. After remand of the matter, the following two questions of law weredecided by this Court on 15.12.2009 in Central Excise Appeal No.60 of 2006(O&M) titled as “Commissioner of Central Excise Commissionerate, Ludhiana v.M/s B.T.Steels Limited, Village Budhewal, Ludhiana:-

ii) Whether penalty imposed under Rule 96ZO (3)(ii) upona manufacturer of non-alloy steel ingots/billets fallingunder sub heading Nos.7206.90 and 7207.90 of theSchedule of the Central Excise Tariff Act, 1985 (5 of1986) and who opted to pay duty under Section 3A of theCentral Excise Act, 1944 read with induction FurnaceAnnual Capacity Determination Rules, 1997, but fails topay the whole of the amount payable for any month by the15th day or the last day of such month, as the case maybe, is mandatory or discretionary in nature?a manufacturer of non-alloy steel ingots/billets fallingunder sub heading Nos.7206.90 and 7207.90 of theSchedule of the Central Excise Tariff Act, 1985 (5 of1986) and who opted to pay duty under Section 3A of theCentral Excise Act, 1944 read with induction FurnaceAnnual Capacity Determination Rules, 1997, but fails topay the whole of the amount payable for any month by the15th day or the last day of such month, as the case maybe, is mandatory or discretionary in nature?

iii)Whether mandatory equal penalty imposed under Rule 96ZO (3) (ii) can be reduced?

19. Having interpreted the relevant provisions of the Act vis-a-vissection 3-A and Rule 96 ZP, and judgment of Hon'ble Apex Court inDharmendra Textiles Processors and Rajasthan Spinning & Weaving Mills'scases (supra) it was held as under:- RE:QUESTION NOS. 2 & 3

However, on the aforesaid two questions, the judgmentrendered by the Hon'ble the Supreme Court in DharmendraTextiles case (supra), has direct bearing. It has beencategorically held that Rule 96ZO and 96ZQ of the Rules donot contemplate exercise of discretion and the plea that theRules have inbuilt concept of discretion, has been rejected.

Hon'ble the Supreme Court has specifically overruled thejudgment rendered in Dilip N. Shroff v. Joint Commissionerof Income Tax, 2007 (219) ELT 15. In that case it was heldthat an element of mens-rea was necessary before penaltycould be imposed. However, in Dharmendra Textile's case(supra), the aforesaid view has been overruled on the groundthat it has failed to take into account the provisions of Section271 (1)(c) of the Income Tax Act, 1961. It has been laid downthat the aforesaid provision was rightly interpreted in the caseof Chairman, SEBI v. Shriram Mutual Fund, 2006 (5) SCC361. Accordingly, in the concluding part, Hon'ble the SupremeCourt in Dharmendra Textile's case (supra) has held asunder:- “Above being the position, the plea that the Rules96ZQ and 96ZO have a concept of discretioninbuilt cannot be sustained. Dilip Shroff's case(supra) was not correctly decided but Chairman,SEBI's case (supra) has analysed the legalposition in the correct perspectives. The referenceis answered.............”

The judgment in Rajasthan Spinning and Weaving Mill's case(supra) has not deviated from the aforesaid view in respect ofRule 96ZO and, therefore, it continues to hold the field. It is adifferent matter that in Rajasthan Spinning and Weaving Mill'scase (supra), the view taken in Dharmendra Textile's case(supra) in respect of Section 11AC has been further explained.Then it would not result into a conclusion that DharmendraTextile's case (supra) in so far as Rule 96ZO is concerned,would not hold the field. The aforesaid position has been putbeyond any controversy by paragraph no.5 of the judgmentsubsequently rendered by Hon'ble the Supreme Court in Union of India v. Krishna Processors, 2009 (237) ELT 641.Accordingly, we find nothing in the judgment of Hon'ble theSupreme Court in Rajasthan Spinning and Weaving Mill's case(supra) to form an opinion that Rule 96ZO is not mandatory.

In view of the aforesaid discussion, the provisions forimposing penalty under Rule 96ZO (3)(ii) of the Rules are heldto be mandatory and there is no discretion vested in anyauthority to reduce the aforesaid amount of penalty on theground that there was no intention of evading payment of dutyor commission of fraud, misrepresentation etc. Accordingly,

both the questions no. 2 and 3 are answered against the dealer-respondent and in favour of the appellant-revenue.”

20. That means, the provisions of Rule 96 of the Rules were held to bemandatory, but all these aspects have not been considered by the Tribunal inright perspective. Therefore, we are of the view that it would be expedient toremit the matter to the Tribunal for deciding the appeal afresh.21.In the light of the aforesaid reasons, the present appeal is acceptedand the impugned order (Annexure P3) of the Tribunal is hereby set aside. Thematter is remitted back to the Tribunal for its decision afresh, in the light of theaforesaid conclusion that the show cause notices issued by the Superintendentare legal and valid and the judgments of Hon'ble Supreme Court in DharmendraTextiles Processorsand Rajasthan Spinning & Weaving Mills's cases (supra)'and this Court in M/s B.T.Steels Limiteds case (supra). The parties are directedto appear before the Tribunal on 25.3.2010.

(Mehinder Singh Sullar)

Judge

(Ashutosh Mohunta)Judge

February ,2010AS

Whether to be referred to reporter? Yes/No