Godrej Food Ltd. vs Union of India (UOI)

V.S. Kokje, J.—The petitioners are manufacturers of a product named ''Soya Milk Great Shake''. A dispute as to the classification of the product under the Central Excise Tariff and its exemption from payment of Excise Duty, was pending with the Excise Authorities as also in the High Court. According to the petitioners, in view of the controversy, the petitioners stopped manufacturing the Soya Milk since June, 1989. They were, however, in possession of unsold stock. Since the stock became unfit for the human consumption, the petitioners desired to destroy the stock. They, therefore, addressed a letter dated 20th April, 1990 to the Assistant Collector, Central Excise, Bhopal, informing him about the stock of 5886 trays of Soya Milk, which had become unfit for human consumption. They also intimated the Department of their intention to destroy the stock because it had become unfit for human consumption. It was also brought to the notice of the Department that according to the Petitioners the product was exempt from payment of the Excise Duty. It was also stated in the letter that if nothing was heard within a fortnight, the stocks would be destroyed. According to the petitioners, no action was taken on this letter and no reply was received by them. However, on 16-5-1990 the Superintendent, Central Excise Range-V, sought certain information which was supplied by the petitioners on the same day.

On 24-6-1990 Shri R.K. Singh, Food Inspector District Raigar visited the premises of the petitioners, wherein the old stock of Soya Milk was kept. The said Food Inspector in the course of his inspection observed that the said stock was unfit for human consumption and was likely to create harm to the human life and it was not advisable to keep the stock as it was. He, therefore, instructed the petitioners to immediately destroy the product, failing which the licence for manufacturing food products would be withdrawn. The inspection report dated 24-6-1990 has been filed with the petition. On 25-5-1990 the petitioners brought to the notice of the Assistant Commissioner, Central Excise that the product had started bloating and had started spoiling other products kept in the godown, which was objected by the Pollution Board officials and, therefore, the petitioners were constrained to destroy the stock. It was also reminded that the petitioners'' intention to destroy the stock was already communicated to the Department and the Department had not replied, presumably because the product was exempt from the duty.

Even after this, the petitioners waited till 8-6-1990, on which day they destroyed the stocks in the presence of panchas, after preparing a Panchanama. On 22-6-1990 the fact of destruction of the stock was reported to the Asstt. Collector, Central Excise, Bhopal along with a copy of the Panchanama. On 22-6-1990 itself, the Supdt. Central Excise, Bhopal wrote to the petitioners objecting to the destruction on the ground that the petitioners failed to obtain any permission to do so and the destruction was done without supervision of the proper officer. In this letter dated 22-6-1990 the petitioners were called upon to explain the circumstances under which 5886 trays of the Soya Milk Great Shake, having the production value of Rs. 1,86,763.92 and excisable value of Rs. 2,05,374.30 were destroyed without payment of the Central Excise Duty, totalling Rs. 32,346.46. The petitioners were also called upon to give reasons as to why action for violation of Central Excise Rules, should not be initiated against them. The explanation given by the petitioners was not found satisfactory and a show cause notice dated 20-11-1991 was issued. It is this show cause notice, which is under challenge in this petition, though the prayers are general.

In the return filed on behalf of the Union of India, it was contended that the petitioner had rushed to this court at the show cause notice stage itself and the petition is, therefore, premature. It is stated that the petitioners should get the Departmental adjudication first and go through the entire hierarchy including statutory appeal provided. It was contended that the destruction of unusable material and other waste material has to be done in accordance with Rule 149 of the Central Excise, Rules, 1944.

It was contended by the learned counsel for the petitioners that if the show cause notice is shown to be without jurisdiction, it could be challenged in a writ petition under Article 226 of the Constitution and the bar of alternate remedy would not be attracted. It was also submitted that the bar of alternate remedy is not absolute and has to be applied depending on the circumstances of each case. It was further submitted that this is a case in which it is obvious that the goods were unfit for human consumption and were actually destroyed. If a manufacturer claims any goods to be unfit for marketing or for consumption and seeks destruction of the goods to avoid liability of Excise Duty, there is not much for the Authorities to probe into such a claim and refusing permission to destroy the goods would be untenable. It was further submitted that in view of the proviso to Sub-rule (1) of Rule 49 of the Central Excise Rules, the goods are not liable to duty, if they are unfit for consumption or marketing. The substantive claim for remission of duty would be that the goods are destroyed in a manner so that these are irretrievable as such goods. It was further submitted that in view of the bona fides of the petitioners, which are evident from the conduct in informing the Department and waiting for the Department to react and grant permission to destroy the goods, imposition of liability to duty for breach of procedure is not called for and the payment of duty was liable to be quashed. On behalf of the Union of India the stand taken in the return has been reiterated.

The circumstances in which interference under Article 226 of the Constitution at the show cause notice stage can be made, has been discussed by us in our decision in Misc. Petition No. 1320/90 reported as Godrej Foods Ltd. and Anr. v. Union of India and Ors. in 1993 (68) E.L.T. 28 (M.P.), with which this case was heard. We therefore, need not reiterate the law on the point again. The only question is to be considered in this case is whether in the circumstances of the case, the respondent could have issued the show cause notice in question. As we have already noted that the show cause notice was issued after receiving information about the destruction of the concerned goods along with a panchanama. Actually an explanation was sought after the panchanama was received and then the show cause notice was issued. In the impugned show cause notice itself in paragraph 2, it was stated that it appears that although the notice applied for the permission on 20-4-1990 to destroy 5886 trays of Great Soya Milk beverages, the petitioners destroyed the said goods on 8-6-1990 without obtaining any permission from the proper officer on the ground that the goods in question were unfit for human consumption. Actually the show cause notice proceeded on the assumption that even if the goods were unfit for human consumption, they would still be goods attracting excise duty. The duty was demanded on the assumption that the goods were excisable goods.

The contention of the petitioner is that simply because certain article fell within the Schedule, it would not be dutiable under the Excise Law if the article was not "goods" known to the market. If the goods were unfit for consumption and, therefore, not marketable, they were not goods for the purposes of the Act and would not attract Excise Duty at all irrespective of whether the same goods if they were fit for human consumption would attract Excise Duty or not. The petitioners contend that even assuming that the product was not exempt from Excise Duty, if some of the products becomes unusable or unmarketable because it is not fit for human consumption that much quantity of the product would not attract Excise Duty at all. The decision of the Supreme Court in Godrej Food Ltd. and Another Vs. Union of India (UOI) and Others, was cited in support of the contention. It was further contended that second proviso to Rule 49(1) of the Central Excise Rules, makes it clear that when the manufacturer claims any goods as unfit for consumption or for marketing, duty cannot be demanded on them.

It is clear in this case that well before destruction of the goods, the petitioner wrote to the respondents repeatedly informing that 5886 trays of the Great Soya Milk Shake were to be destroyed as they were unfit for human consumption. There is no explanation as to why the Department did not take timely action in the matter. A perusal of the letter dated 20-4-1990 (Annexure P-5) to the petition shows that it was categorically stated in the letter that the stock was an year old and was not fit for human consumption and the petitioner intended to destroy them. The Asstt. Collector, Central Excise, Bhopal, to whom the letter was written, was also asked to depute his representative at the time of the destruction. It was also stated in the letter that in case no response was received, the petitioners shall presume that no Departmental Representative would be deputed and the petitioners shall be free to destroy the goods by their convenience. On 16-5-1990 vide Annexure P-6 the Supdt. Central Excise, Bhopal, asked for the date of manufacture of the product, date of expiry, value of the product and quantity. This was specifically in response to the letter dated 20-4-1990 but without answering the question whether the Department agreed to destruction of the goods without a Departmental Representative being deputed. The required information was submitted on 16-5-1990 itself. The petitioners had still not destroyed the goods but on 24-5-1990 the Food Inspector in his inspection took objection to storing of the goods and demanded their destruction. On 25th May, 1990 the petitioners again wrote to the Asstt. Collector, Central Excise, Bhopal asking for a reply to their request for permission to destroy the goods. When no response was received to this letter also, ultimately on 8-6-1990 the goods were destroyed. The Departmental Officers became active only on the information that the goods were destroyed. Actually, it can be said that the officers of the Central Excise Department kept silent till the goods were destroyed despite repeated requests being made to depute Departmental Representative to supervise the destruction and when ultimately the goods were destroyed, they pounced upon the petitioner with the show cause notice. The action cannot be said to be just and fair. The petitioner has acted bona fide, has given due notice of the intention to destroy the product because it was unfit for human consumption. The requirements of the second proviso to Sub-rule (1) of Rule 49 of the Central Excise Rules, were, therefore, complied with. In the circumstances of the case, the Department cannot take advantage of its own wrong by now claiming duty and penalty from the petitioner on the goods so destroyed. In such circumstances the petitioners could legitimately expect that the Central Excise Department agreed that the goods were unfit for human consumption and did not attract any excise duty.

In such circumstances, the petition cannot be thrown out on the ground of alternate remedy. The petition deserves to be allowed. It is hereby allowed. The impugned show cause notice is quashed and the respondents are restrained from claiming any duty or penalty on the 5886 trays of Great Shake of Soya Milk, destroyed as unfit for human consumption by the petitioners. There shall be no orders as to costs. Security deposit, if any, be refunded after verification.