Phool Prakash vs Union of India

Naheed Ara Moonis, J.—The present bail application has been filed by the applicant in Case Crime No. 1 of 2009 under Section 9 of Central Excise Act Police Station CommissionerateII Meerut with a prayer that he may be admitted to bail.

The prosecution unfolded the case in its application for judicial remand of the applicant on 2142009 when he was produced; before the Special Chief Judicial Magistrate Meerut and the same was numbered as case crime No. 1 of 2009.

According to the prosecution version, the applicant Phool Prakash is Managing Director of M/s Hindustan Mint and Agro Products (Pvt.) Ltd. Deverkhera Chandausi District Moradabad (U.P.) which shall in brevity hereinafter referred to as H.M.A.P.P.L The applicant is alleged to be engaged in the manufacture of Menthol Crystals, Menthol Powder, Liquid Menthol. Terpeneless Menthol Oil, Mint Terpene, Menthol Flakes, Dementholised Oil, Mentha oil and terpeness and like products and like products which are the raw materials for the manufacture of those goods. Mentha oil is also stated to be the basic raw material for the manufacture of Menthol Flakes and Dementholised Oil. The goods manufactured by H.M.A.P.P.L. are alleged to be liable to Central Excise Duty and the raw material for the goods manufactured by H.M.A.P.P.L. i.e. Menthol Flakes and Dementholised Oil which are manufactured from Mentha oil are also excisable materials.

The applicant being Managing Director of M/s H.M.A.P.P. Ltd. fraudulently availed CENVAT credit amounting to Rs, 76,08,939 on the strength of bogus invoices of "Inputs". During investigation, it was found that no such goods were received by M/s. H.M.A. P.P.Ltd. Chandausi. CENVAT credit was used for payment of duty on the clearance of its finished goods for export/home clearance. On account of fraudulent availment of CENVAT credit in the above manner and by clearing the finished goods on payment of duty out of such CENVAT credit, the said Firm had infringed the provisions of Rule 3,4,9 and 12 of the CENVAT Credit Rules 2004 and Rules 4,6,8,10, and 12 of the Central Excise Rules 2002. The aforesaid firm is alleged to have claimed rebate and received a sum of Rs. 79,56,543 from Meerut CommissionerateII Meerut. The payment of duty on the finished goods exported by H.M.A.P.P. Ltd. out of the fraudulently availed CENVAT credit and claiming rebate thereon is against the provisions of Rule 18 of the Central Excise Rules. During investigation it has also come in light that during the period from September 2005 to March 2006 M/s. HMAPPL has shown the procurement of inputs from M/s Vaishno International Gangyal Jammu which is also alleged to be run by the son of applicant Sri B.K. Varshney who is Director in M/s. H.M.A.P.P.L. On the purchase so shown by HMAPPL, the applicant and other persons have fraudulently availed CENVAT credit amounting to Rs. 54,13,266. During investigation, it came into light that during the period May 2005 to July 2005, M/s. HMAPPL has again fraudulently availed CENVAT Credit amounting to Rs. 10,54,305 on the basis of two invoices issued by M/s. S.B. Aromatics Bari Brahamna Jammu against which no such goods have been received by them. Some purchases were also made from 182005 to 3132006 M/s Vaishno International had shown the purchase of 31 consignments of raw material i.e. Mentha Oil, spear mint oil, and pepreta oil either directly from the farmers of Chandausi, Sambhal, Baduan and Bareilly through Kishan Kharid Patra or from M/s. Sachin and Nitin Enterprises and M/s. Rapti Commission Agency both belonging to District Barabanki. On verification of Kishan Kharid Patra in the respective villages it was also found that the details of all vendors mentioned in the Kishan Kharid Patra were fake and bogus. Even the transport of Mentha Oil from Chandausi to Jammu whose purchase was already found to be forged and fictitious on the basis of random verification was fabricated. During the investigation, the officers of Excise Department seized Menthol, Peppermint Oil and Thymol in the premises of M/s Siddhar Enterprises situate at M/s Sandeep Warehousing Corporation, Bhiwandi and the applicant has surreptitiously removed the seized goods from their factory premises at Chandausi. In that case, it was found that HMAPPIL had evaded duty of Central Exercise to the tune of Rs. 25,38,830 by way of clandestine removal of parallel invoices during the period 200304,20042005 and 20052006. It was further found that M/s HMAPPL had availed CENVAT credit on the bogus invoices issued by Jammu based suppliers. It also revealed during investigation that from 142006 to November 2008, the applicant and others had availed a credit of Rs. 8,58,11,189.00 on the inputs received from Jammu based units on 168 invoices/consignments therefore, it has contravened the provisions of CENVAT credit rules 2004 in relation to credit of duty allowed to be utilized, towards payment of excise duty on final products which amounts to an offence under Section 9(1) (bbbb) of the Central Excise Act. Further evading payment of duty payable under the Central Excise Act, 1944 is an offence under Section 9 (1) (b)of the Act and removal of the excisable goods is in contravention of provisions of Central Excise Act and the Rules made thereunder is an offence under Section 9(1) (bb) of the said Act.

A joint showcause notice dated 2432008 was issued to 15 persons including the applicant to showcause within thirty days as to why CENVAT (Central Value Added Tax) credit amounting to Rs. 76,08,939 which was fraudulently availed by the applicant including other persons during the period from 142005 to 3132006 should not be recovered with interest and penalty may also be imposed under the provisions of Rule 15 of CENVAT Credit Rules 2004, Central Excise Duty amounting to Rs. 25,38,830 and the rebate amounting to Rs. 79,56,543 may also be recovered with interest besides other penalties may also be imposed. The applicant had failed to give any reply to the showcause notice, the aforesaid liability was fixed by the prosecution in terms of the provisions of Central Excise Act as well as Rules enacted therein. Tile Central Excise duty paid on the raw materials as well as inputs used in the manufacture of any excisable is available as CENVAT credit and such manufacturer can discharge the liability on the finished goods from such accumulated CENVAT credit.

On account of aforesaid offences, the applicant is liable to punishment under Section 9 of the Act hence the applicant was arrested on 21st April, 2009 in pursuance of Section 13 of the Central Excise Act and on the same day, he was produced before the Court below where an application was moved by the prosecution for remand to judicial custody for 14 days. The relevant provisions considered in the present case are being quoted hereunder:

Section 9. Offences and penalties.(1) Whoever commits any of the following offences, namely:

(a) contravenes any of the provisions of Section 8 or of a rule made under clause (iii) or clause (xxvii) of subsection (2) of Section 37;

(b) evades the payment of any duty payable under this Act;

(bb) removes any excisable goods in contravention of any of the provisions of this Act or any rule made thereunder or in anyway concerns himself with such removal;

(bbb) acquires possession of, or in any way concerns himself in transporting, depositing, keeping, concealing, selling or purchasing, or in any other manners deals with any excisable goods which he knows or has reason to believe are liable to confiscation under this Act or any rule made thereunder;

(bbbb) contravenes any of the provisions of this Act or the rules made thereunder in relation to credit of any duty allowed to be utilised towards payment of excise duty on final products

(c) fails to supply any information which he is required by rules made under this Act to supply, or (unless with a reasonable belief, the burden of proving which shall be upon him, that the information supplied by him is true) supplies false information

(d) attempts to commit, or abets the commission of, any of the offences mentioned in clauses (a) and (b) of this Section 6 shall be punishable;

(1) in the case of an offence relating to any excisable goods, the duty leviable thereon under this Act exceeds one lakh of rupees, with imprisonment for a term which may extend to seven years and with fine

Provided that in the absence of special and adequate reasons to the contrary to be recorded in the judgment of the Court such imprisonment shall not be for a term of less than six months;

(ii) in any other case, with imprisonment for a term which may extend to three years or with fine or with both.

(2) If any person convicted of any offence this Section is again convicted of any offence tinder this Section, then, he shall be punishable for the second and for every subsequent offence" with imprisonment for a term which may extend to seven years and with fine:

Provided that in the absence of special and adequate reasons to the contrary to be recorded in the judgment of the Court such imprisonment shall not be for a term of less than six months.

(3) For the purposes of subsections (1) and (2), the following shall not be considered as special and adequate reasons for awarding a sentence of imprisonment for a term of less than six months, namely:

(1) the fact that the accused has been convicted for the first time for an offence under this Act;

(ii) the fact that in any proceeding under this Act, other than a prosecution, the accused has been ordered to pay a penalty or the goods in relation to such proceedings have been ordered to be confiscated or any other action has been taken against him for the same act which constitutes the offence;

(iii) the fact that the accused was not the principal offender and was acting merely as a carrier of goods or otherwise was a secondary party in the commission of the offence;

(iv) the age of the accused.

9A. Certain offences to be noncognizable.(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1898 (5 of 1898) offences under Section 9 shall be deemed to be noncognizable within the meaning of that Code.

(2) Any offence under this Chapter may either before or after the institution of prosecution, he compounded by the Chief Commissioner of Central Excise on payment, by the person accused of the offence to the Central Government of such compounding amount as may be prescribed.

Searches and arrests how to be made.All searches made under this Act or any rules made thereunder and all arrests made under this Act shall be carried out in accordance with the provisions of the Code of Criminal Procedure, 1898 (5 of 1898) 1, relating respectively to searches and arrests made under that Code.

Power to arrest.Any Central Excise Officer not below the rank of Inspector of Central Excise may, with the prior approval of the Commissioner of Central Excise, a rest any person whom he has reason to believe to be liable to punishment under thi Act or the rules made thereunder.

Aggrieved by the aforesaid unjust and unfair act of the excise authorise with regard to arrest and seizure of goods application on behalf of the applicant was moved before the Court below praying to granting bail and the Court below rejectee the bail application of the applicant giving detailed reasons vide order dated 125 2009 hence the present bail application.

Heard Sri G.S. Chaturvedi, learned Senior Advocate assisted by Sri K.M Tripathi learned Counsel appearing on be half of applicant Sri Satish Trivedi, learned Senior Advocate assisted by Sri Surys Prakash Kesarwani Additional Standing Counsel appearing on behalf of Customs Central Excise and Service Tax Department and perused the record.

It is contended by the learned Counsel for the applicant that the applicant is Managing Director of H.M.A.P.P.L which is one of the most reputed export company having assets of several crores. The applicant was arrested without any formal complaint presented/registered before Special Chief Judicial Magistrate Meerut nor any First Information Report was registered anywhere. The applicant was arbitrarily arrested on 2142009 and produced before the Special Chief Judicial Magistrate Meerut and or the same day an application for remand was moved by the prosecution which was registered as Case Crime No. 1 of 2009 Police Station CommissionerateII Meerut a copy of the remand application was supplied to the applicant containing all the charges levelled against him. The copy of the remand application dated 2142009 has been annexed with bail application as Annexure2. It was assiduously argued by learned Counsel for the applicant the show cause notice which was basis of the prosecution was duly replied by the applicant and at the instance of the department, the matter was prolonged by the department itself by demanding one document or another while all the relevant papers were already available in the office. Without taking final decision on the showcause notice neither any demand can be raised against the applicant nor the applicant can be prosecuted without following the procedure of law. It is also contended that in respect of the charge that the applicant''s company has availed CENVAT credit amounting to Rs. 76,08,939 on the basis of bogus and fake invoices of inputs issued by Vaishno International is totally false and frivolous. It has been alleged that any of the goods imported from other State into State of U.P. would be accompanied by Form 31 issued by Trade Tax Department to the purchaser of the goods and are duly verified at the entry check posts of the Trade Tax Department of U.P. The invoices are genuine and the transaction done on the basis of those invoices are legal and valid as all the invoices have been duly verified by the Officers of Excise Department at Jammu, Moradabad and Charidausi and also by the U.P. Trade Tax Department. It is further submitted that claiming rebate told receiving of a sum of Rs. 79,50,543 from CommisisionerateII Meerut under the Central Excise Act and the Rules framed thereunder were received only after proper verification from the concerned Commissionerate. Documents relating to export of goods were also duly endorsed by the Custom Department in consonance with Rule 18 of Central Excise Rules, thereafter, rebate/refund was granted. Thus the claim of refund made by the applicant was genuine, legal and valid though the same has not been paid till date, ft has also been slated that availing CENVAT credits amounting to Rs. 54,13,266 for the inputs (raw material) from Vaishnav International Jammu are genuine. They were not fake purchase as in the purchase vouchers the name and address of formers as given by them is entered. The aforesaid charges were found to be baseless as it was duly verified by the letter of Superintendent Excise Jammu dated 3042007. In support of his contention, the applicant has filed letter dated 3042007 vide Annexure5 to the bail application. It is further contended that on the basis of two invoices issued by M/s S.B. Aromatic Jammu regarding CENVAT credit amounting to Rs. 10,54,305, this fact is clear that the transporter had received the commission for booking the goods and the freight was also paid after paying the truck owners/drivers the commission for goods. The aforesaid transactions were shown in the income tax return of one Atul Agarwal owner of vehicle is well within the knowledge of Excise Department. It is also alleged that Rs. 16,00,000 was paid by the applicant to M/s Jai Ambey Corporation Jammu and on the same day i.e. 21112005 M/s Jai Ambey Corporation paid Rs. 16,00,000 to M/s Vishal Trading Company which after withdrawing from the account of Vishal. Trading Company being deposited in the account of applicant''s company is merely a coincidence as the company had many transactions every day. The allegations that the aforesaid companies colluded with each other and chose a single day for exchanging money is vague and concocted. The account statement of the applicant''s company at I.C.I.C.I. Bank from the period 1112005 to 30112005 has been annexed with bail application vide Annexure6 indicating deposit and withdrawal to several firms within the country. It is further contended that the allegations with regard to 11 consignments of input rawmaterial received from M/s Jindal Drugs Jammu on account of no manufacturing activity will not make the supply suspect or fake as every firm has to maintain some stock balance for manufacturing/maintenance. The stock registers are presented monthly before the Jammu Excise Authorities and was duly verified therefore, the charge of supplying fake and bogus materials are not tenable. So far as the charge of evasion of Central Excise Duty amounting to Rs. 25,38,830 is concerned, separate adjudication proceedings are going on before the appropriate forum for which the applicant cannot be made solely responsible. So far as 168 invoices/consignments in respect of raw materials received from Jammu based unit during the period 142006 to November 2008 is concerned, it is stated that the Excise Department has certified that 95 consignment were identified and rest of the consignments were duly certified and still investigation is being carried out. Learned Counsel for the applicant strenuously argued that so called investigation has illegally been initiated against the applicant so as to harass as well as to effect the business. It has also been emphasised that all the charges levelled upon the applicant are in violation of the provisions of Central Excise Act and CENVAT Credit Rules. The fact remains that the investigation is v going on. The department has levelled charges by fixing the liability of evasion to the tune of Rs. 1,18,05,312. It has also claimed that investigation is also pending regarding alleged evasion of excise duty to the tune of Rs. 14,27,90,255, therefore, arrest of the applicant in arbitrary manner by the respondent authorities is not only unjust and illegal but also in violation of the provisions of the Act as well as rules and is in utter violation of the provisions of Criminal Procedure of Code. Learned Counsel for the applicant has drawn the attention of the Court that the applicant had moved an application on 1342009 vide Annexure4 to the bail application stating therein that the computers which were seized by the department, hard disc drive of both the computers were opened and in the process of which hard disc drive was destroyed making data retrieval impossible hence it was not possible to reply the documents which were provided by the department containing 300 pages therefore, the applicant sought time for preparing reply as it was not possible to retrieve the data so as to verify the genuineness and correctness of hard disc which were damaged at the time of seizure but instead of giving some reasonable time to the applicant, the applicant was arrested on 2142009 and has been languishing in Meerut Jail since then. Considerable time has passed away but the respondent authorities have not concluded the proceedings till now and the applicant has every apprehension that the matter will be prolonged deliberately by the authorities and the applicant''s right to liberty would without any justifiable cause be abridged which will amount to denial of fundamental rights enshrined in Constitution of India. It has further been contended by the learned Counsel for the applicant that the applicant is an old infirm person aged about 66 years and is suffering with acute ailment and his wife also bedridden under coma and there is noone to look after her. The applicant is a man of status and there is no chance of tampering or absconding. He has no criminal history and is ready to furnish adequate sureties in case he may be enlarged on bail. In support of his contention, learned Counsel for the applicant has drawn attention of the Court on supplementary affidavit wherein it has been stated that the applicant has been arrested pursuant to the show cause notice dated 2432008 pending before the Central Excise Department. The allegations that the applicant has not cooperated with the adjudication proceedings stands fully falsified that without concluding the adjudication proceedings the arrest of the applicant has been made on 2142009 and thereafter no steps have been taken to conclude the adjudication proceedings. It was also pointed out that no coercive steps have been taken against other fourteen persons who are also similarly charged therefore, on the mere suspicion of the respondent authorities, the arrest of the applicant without concluding the adjudication proceedings is totally in contravention of the Act and Rules enshrined in the Central Excise Act as well as Code of Criminal Procedure.

On the other hand, Sri Satish Trivedi, Senior learned Counsel appearing on behalf of respondent department controverted the submissions made by learned Counsel for the applicant that there is strong evidence against the applicant about evasion of central excise duty to the tune of Rs. 1.81 crores. He has reaffirmed the charges levelled against the applicant as mentioned in the remand application. It has also been strenuously argued that the allegations made in the bail application is not admitted in the form they stand. The applicant has been arrested on the basis of sanction of arrest given by the Commissioner Custom and Central Excise on 1342009 and was arrested on 2142009. The applicant being President of U.P. Mint Exporters Association Chandausi shall misuse and tamper with the evidence and will try to thwart investigation which is still going on. The grant of bail would not be proper at this stage. The remand of the applicant has also been extended by Chief Judicial Magistrate Meerut upto 11 62009 keeping in view the provisions of Section 167, Cr.P.C. The applicant not only violated the provisions of Excise Act and Rules but also has tampered with the evidence and influenced the witnesses on account of which the investigation is being delayed. While languishing in jail, the applicant is unduly influencing the investigation and in case he is enlarged on bail, he will win over the witnesses and tamperwith the evidence. The applicant is solely liable to pay the excise duty. In contradiction to the averments made in supplementary affidavit filed by the applicant, respondent has fifed supplementary counteraffidavit alleging therein that investigation in respect of fraud of Rs. 14.00 crores committed by the applicant''s firm is still going on therefore, his arrest was just, legal and in accordance with spirit of law. In opposition to the averments made by learned Counsel for the respondent, learned Counsel for the applicant submitted that instead of completing the documents to facilitate earlier disposal of the case, the applicant was arrested and has been put behind the bars so as to compel him to accede, their illegal demands. Reply to the showcause notice was duly given by the applicant in respect of which the respondent department has not taken any conclusive steps rather took rigorous steps of arresting the applicant on the mere subjective satisfaction of the authorities. The conduct of the respondent authorities reveals that they had formed mala fide intention so as to put the applicant behind the barsand to impel him to accede their illegal exaggerated demands. It has also been strenuously argued on behalf of the applicant that no case of fraud is pending and the investigation is going on and the adjudication proceeding has also not concluded, in case the applicant is not enlarged on bail, he will be deprived of right to liberty without any justifiable cause only with an aim to pacify the subjective satisfaction of authorities which is not permissible under the law.

Having heard the submissions advanced by leaded Counsel for the parties this Court found that the adjudication proceedings are still pending before the appropriate forum and the said dispute can very well be adjudicated upon by determining the liability for payment of excise duty. This Court abstains from recording any finding on the issue of payment of excise duty levied upon the applicant and others which is subjudice before the appropriate forum. This Court is proceeding to record its finding only to the extent of bail matter. Since the arrest of the applicant was made for the offence under Section 9 of the Central Excise Act and the arrest was effected under Section 13 of the Central Excise Act. This Court cannot delve into the issue of fixing the liability of excise duty as the adjudication proceedings are still going on before the appropriate Forum which will determine the liability of excise duty taking into account the evidence led by the parties. Section 9A of the Central Excise Act contemplates that the offences under Section 9 of the Act shall be deemed to be noncognizable. The matter is also compoundable as per Section 9A (2) of the Act as amended be Finance Act 23 of 2004 making the offences of the Act compoundable either before or after the institution of prosecution. The provision of enquiry by summoning the person is also engrafted under Section 14 of the Act. Inspite of existence of such provision without ascertaining the facts the respondent resorted to Section 13 of the Act and arrested the applicant and exceeded by taking steps to remand thus in my opinion, it will not be justifiable to keep the applicant behind the bars ignoring that the adjudication proceedings are pending. So far as the liability of tax is concerned, whatsoever liability is determined by the appropriate forum, the applicant cannot escape from it. Since the offence is noncognizable there is no chance of misuse of bail, tampering with the witnesses or absconding. The offence is also compoundable therefore, the applicant is entitled to be enlarged on bail.

Taking into account the facts and circumstances of the case without entering into the merits of the case it is directed, that the applicant Shri Phool Prakash involved in Case Crime No. 1 of 2009 under Section 9 of Central Excise Act Police Station CommissionerateII Meerut be enlarged on bail on his executing a personal bond and two heavy sureties each in the like amount to the satisfaction of the Court concerned with following conditions:

(i) The applicant will not temper with the evidence during trial.

(ii) The applicant will not pressurise with the prosecution witnesses.

(iii) The applicant will appear before the trial Court on the date fixed and will cooperate during trial.

(iv) The applicant shall not leave the district without the prior permission of the concerned authority.

In defiance of any of conditions, the Court below will be at liberty to cancel the bail.

This application stands disposed of finally is above. Application allowed.