Factors to be considered for Grant of Stay in appeal against Clandestine Removal

PJ/Case Laws/2012-13/1097

Case: EXPLOSION PROOF ELECTRICAL CONTROL v. COMMR. OF C. EX. & CUSTOMS

Citation: 2012 (276) E.L.T. 340 (Guj.)

Issue:- Clandestine Removal – appeal – Conditions for considering while passing order of stay and waiver of pre-deposit.

Brief Facts:- Petitioner is a partnership firm, which is engaged in manufacturing and selling of flame proof and weather proof electrical equipments is located at Silvasa. On the basis of intelligence gathered by the DGCEI of alleged indulgence of the petitioner, in clandestine removal of finished goods under the sale invoices of two units, namely, M/s. Fenil Control Gears and M/s. EXEC, search was carried out at the factory premises of the petitioner as well as at the residential premises of partners as also at the units allegedly used as conduits in carrying out illegal activities and also at the premise of M/s. Megha Parcel Services (Transporters).

On the basis thereof, a show cause notice was issued to petitioner. The Adjudicating Authority passed the Order-in-Original confirming the demand of excise duty to the tune of Rs. 1, 60, 43, 273/- and equal amount of interest and penalty on the firm and penalty of Rs. 10.00 Lakhs on each partner, on confirming large scale evasion of excise duty on excisable goods.

Aggrieved by the order of Adjudicating Authority, appeals were filed before the Tribunal by the petitioner-firm and all its partners. An application was filed for waiver of pre-deposit of duty of Rs. 1,60,43,273/- and interest and penalty of identical amount and other penalties against the Directors.

The Tribunal did not find prima facie case of the petitioner to allow stay application unconditionally. It directed Petitioner to deposit 50% of the duty amount by taking note of the fact that petitioner had already deposited the amount of Rs. 14.50 Lakhs during the course of investigation. Thus, Tribunal directed petitioner-firm to deposit total sum of Rs. 80.00 Lakhs being 50% of the duty amount and with 14.50 Lakhs already having been deposited by the petitioner, remaining amount of Rs. 65.00 Lakhs (which ought to have been Rs. 65.50 Lakhs considering the total sum of Rs. 80.00 Lakhs) were directed to be deposited within a period of 12 weeks from the date of this order.

The impugned order of the Tribunal is under challenge before the High Court by way of present petition, seeking relief of modification/setting aside of stay order.

Petitioner’s Contention:- Petitioner argued that there was acute financial hardship suffered by them. The Tribunal had simply disregarded that aspect while considering their request. The second challenge is to the calculation made by the Commissioner, Central Excise in the order-in-original. It has been forcefully submitted that many of the vouchers are calculated more than once, which resulted in inflating the total demand of duty. Petitioner also raised the contentions that during the search conducted of various premises of the firm, all the material documents have been seized by the department. Despite repeated requests, no copy of such seized documents has been furnished, so as to make it possible for the petitioner to defend its case before the Adjudicating Authorities. Petitioner also objected to the manner in which his application for stay of recovery, pending the appeal has been dealt with.

Respondent’s Contention:- Department urged that this is a gross case of clandestine manufacturing and sale by petitioner-firm using two other proprietary firms as conduits in large scale illegality committed from the year 2002-03. They also further urged that Tribunal has aptly dealt with all the aspects raised before it and concluded correctly that there was no financial hardship. Moreover, the unaccounted income earned by way of illegal activities could not have found place in the books of account of petitioner. Therefore, Tribunal rightly did not consider this request of the petitioner. They also attempted to raise the contention before this Court painting out at the Order-in-Original that the Commissioner has extensively noted and held to have received proof of such illegal activities. Reliance is placed on the judgment of Apex Court in case of Benara Valves Ltd. and Others v. Commissioner of Central Excise [2006 (13) SCC 347 = 2006 (204) E.L.T. 513 (S.C.) = 2008 (12) S.T.R. 104 (S.C.) and also reported in 2010 (256) E.L.T. 701 of Punjab & Haryana to substantiate his submissions. It has been all along emphasized from Counsel of the Revenue that Tribunal while considering the request of petitioner to forgo direction of pre-deposit pending the appeal has scrupulously considered these two requirements. As can be noted from the order of Tribunal, it in terms has held that neither the financial hardship was pleaded before it nor was any record placed before it to reflect upon poor financial condition of the petitioner. It has been all along emphasized from Counsel of the Revenue that Tribunal while considering the request of petitioner to forgo direction of pre-deposit pending the appeal has scrupulously considered these two requirements. As can be noted from the order of Tribunal, it in terms has held that neither the financial hardship was pleaded before it nor was any record placed before it to reflect upon poor financial condition of the petitioner. Revenue strenuously pointed out that not only there is sufficiency of material on record which led the Order-in-Original to entertain and confirm the demand of duty, but, there is also further confirmation of large scale illegality in terms of records of various statements

Reasoning of Judgment:- The High Court noted that the objection of the petitioner is that the Tribunal has pre-judged the issue of clandestine removal at the time of stay hearing.

The Court noted that the twin requirements to be considered at the time of directing pre-deposit under Section 35 laid down by the Apex Court in Benara Valves Ltd were – 1. Undue financial hardship of the party and 2. safeguarding interest of Revenue.

The High Court perused the order of the Tribunal and noted that while rejecting the plea of financial hardship of the appellant, what also weighed with the Tribunal while passing its impugned order is that there is overwhelming evidence against the petitioner and there is no prima facie case existing. Thus, neither there was prima facie case not the presence of twin requirements as laid down by the Apex Court these led it to deny the request of waiver of pre-deposit.

It was noted that the material on record has not shown that any submission was made about petitioner being sick or needed to resort to fund for pumping life for working of the firm. But from the record it is clear that their financial condition has become stronger every year.

The High Court observed that the deciding the stay application on the basis of balance sheet by observing that it would not reflect the correct figure, would amount to denying to the petitioners a right to appeal without adjudicating question of alleged clandestine removal.

It was held that no interference is required with the stay order of the Tribunal.

The High Court perused the judgments given in Benara Valves Ltd, Mehsana District Co-operative Milk P. U. Ltd v/s Union of India [2003 (154) ELT 347 (SC); Indu Nissan Oxo Chemicals Industries Ltd v/s Union of India /2008 (221) ELT 7 and Special Prints Ltd v/s Union of India [2009 (238) ELT 738 Guj).

In the light of these judgments, the High Court held that the Tribunal has duly considered the requirements while dealing with such issues and it has taken good care of these principles and therefore, the petition is not sustainable.

With regard to argument about non-supply of documents and wrong calculations on part of authority, the High Court held that the huge record produced when examined by this Court for Prima facie satisfaction, it can be said that even if there is some amount of repetition of calculation presently what the Court is concerned with the order of pre-deposit which is only to the extent of 20% and all the questions on merits shall need to be gone into by the Tribunal in the appeals that had been preferred before it. Needless to mention here that the requisite documents needed by the petitioner to substantiate its submission on merits would be furnished by the Tribunal on request made to it. This issue of non-supply in the opinion of this Court does not have vital bearing on the quantum of amount directed to be deposited as they were not for establishing poor financial condition of the petitioner. In this premise, request made by the petitioner in the present petition for dispensing with the condition of pre-deposit of duty of Rs. 65.00 Lakhs as directed by the Tribunal in his impugned order is not found sustainable and therefore cannot be acceded. While dismissing this petition, the petitioner was offered time of eight weeks to allow the petitioner to deposit the amount before the Tribunal and on its so doing, all the four appeals preferred by the petitioner to be directed to be revived and these appeals to be heard on merits by the Tribunal, after considering the request of documents as also on after availing due opportunities to both the sides. However, he has chosen not to avail the said offer.

Decision:- Petition dismissed.

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PJ/Case Laws/2012-13/1097

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