Rathi Ispat Ltd. vs Commissioner of Central Excise

Since all the four appeals by the assessee raise a similar issue, they have been heard together and would be disposed of by this judgment. The assessee manufactures stainless steel billets (S.S. Billets), S.S. Flats, steel castings and other alloy steel falling under Chapter Heading No. 72 of the Central Excise Tariff Act, 1985. On the basis of intelligence information that the assessee was indulging in a suppression of production and clandestine clearance of S.S. Billets/flats by showing excessive consumption of Chromium for the purpose of evading Central Excise Duty, a search took place at the premises of the assessee and of the residential premises. During the course of the search, samples were drawn and were sent to the National Metallurgical Laboratory, Jamshedpur for testing to determine the percentage of Chromium. A test report was obtained. During the course of an investigation, statements of the representatives of the assessee were recorded. During the course of the investigation, it was brought to the notice of the department that the assessee had earned a huge amount by way of commission namely Rs. 21.19 crores during 1996-97. Several transactions in connection therewith were examined. Eventually, a notice to show cause was issued to the assessee on 21 March, 2000 alleging that during the period December 1995 to January 1999 the assessee had clandestinely cleared 5871.17 metric tons of S.S. Flats valued at Rs. 17.80 crores, on which Central Excise Duty of Rs. 2.67 crores was evaded. The extended period of limitation was invoked under Section 11A(1) of the Central Excise Act, 1944. By an order of adjudication of the Commissioner of Central Excise (the Adjudicating Authority) dated 29 March 2007, the duty demand of Rs. 2.67 crores was confirmed, besides which a penalty of Rs. 3.41 crores was imposed on the assessee and a penalty of Rs. 50 lacs on its Director.

The assessee filed an appeal before the Customs, Excise and Service Tax Appellate Tribunal (the Tribunal) together with an application for waiver of pre-deposit. By an order dated 6 January 2009 the Tribunal directed the assessee to deposit an amount of Rs. 40 lacs as against the duty demand of Rs. 2.67 crores in two equal installments each of Rs. 20 lacs to be paid by 5 February 2009 and 20 March 2009. Subject to the aforesaid deposit, the balance was stayed. The Tribunal granted a dispensation in respect of the deposit of the penalty.

The assessee challenged the order of the Tribunal before this Court in Central Excise Appeal No. 44 of 2009 (M/s. Rathi Ispat Ltd., Ghaziabad v. Customs, Excise & Service Tax Appellate Tribunal, New Delhi & Anr.). At the hearing of the appeal, the learned Counsel appearing on behalf of the assessee raised a submission on the ground of financial hardship stating that the assessee had invoked the jurisdiction of the Board for Industrial and Financial Reconstruction (BIFR). A Division Bench of this Court by an order dated 17 April 2009 observed that since the Tribunal had deferred the date of compliance till 5 May 2009 in view of the pendency of the appeal, it was open to the assessee to take such a plea before the Tribunal. The Division Bench, therefore, did not consider it necessary to interfere with the order of the Tribunal at that stage and observed that the order would be effective subject to the decision, if any, on the application of the assessee before the Tribunal on the date of compliance.

The assessee thereupon moved the Tribunal again. On 7 January 2013, the Tribunal held that no case was made out prima facie for the waiver of pre-deposit in its entirety and reiterated its earlier order for the deposit of a sum of Rs. 40 lacs in two instalments of Rs. 20 lacs each payable on or before 14 February 2013 and 7 March 2013. On remand, the Director was called upon to deposit a further sum of Rs. 10 lacs by 14 February 2013.

Aggrieved by the order of the Tribunal, two appeals (Central Excise Appeal No. 27 of 2013 & Central Excise Appeal No. 77 of 2013) have been filed one by the assessee and another by its Director. These appeals were initially listed on 18 February 2013, 20 February 2014 and 31 March 2014 and have been adjourned on several occasions. In the meantime, the matter was placed before the Tribunal for recording compliance. Since the assessee had not complied with the order of pre-deposit, the Tribunal has directed by its order dated 2 April 2014 that the appeals would stand dismissed for failure of pre-deposit. Hence, two further appeals (Central Excise Appeal Defective No. 106 of 2014 and Central Excise Appeal Defective No. 107 of 2014) have been filed for challenging the final order of the Tribunal.

In support of two appeals filed for grant of a waiver of pre-deposit, the following questions of law have been raised and pressed:

"(i) Whether the Hon''ble Tribunal is justified in directing the Appellants to deposit Rs. 40 Lakhs and 10 Lakhs in compliance of Section 35-F of the Central Excise Act, 1944 during the pendency of the Appeal when the interest of the Revenue is completely secured as the land, plant, machinery, material and vehicles etc. valued on much more than the duty and penalty demanded and are lying confiscated and the Appellants are not able to redeem the same on payment of a redemption fine of Rs. 50 Lakhs till date;

(ii) Whether the Hon''ble Tribunal is justified in directing the Appellants to deposit Rs. 40 Lakhs during the pendency of the Appeal when admittedly the factory is lying closed and the factory has been declared a sick unit and is registered before the BIFR;

(iii) Whether the Hon''ble Tribunal is justified in directing the Appellants to deposit Rs. 40 Lakhs in compliance of Section 35-F of the Central Excise Act, 1944 in the background of its own observation made in the earlier stay order that prima facie the case requires extensive examination both on the facts as well on the question of law raised by the counsel of the Appellants;

(iv) Whether the Hon''ble Tribunal is justified in directing to deposit Rs. 40 Lakhs during the pendency of the Appeal when the entire demand raised is time barred, when in fact no ingredients have been attracted for extending the larger period of limitation contemplated in Section 11A of the Central Excise Act, 1944;

(v) Whether the Hon''ble Tribunal is justified in directing the Appellants to deposit Rs. 40 Lakhs when the principles of natural justice were sacrificed by the Commissioner while adjudicating the case as the cross-examination of the experts and the witnesses on whose evidence the charges were framed were not allowed;

(vi) Whether the Hon''ble Tribunal is justified in placing reliance on the report of the National Metallurgical Laboratory when the same was under challenge before it in the Appeal without giving any finding of its own on the issue;

(vii) Whether the Hon''ble Tribunal is justified in not taking into account the various contentions raised and argued and various judgments cited by the Appellants in support of their case;

(viii) Whether the Hon''ble Tribunal is justified in passing an interim order contrary to the provisions and spirit of Section 35F of the Central Excise Act 1944, and

(ix) Whether the Hon''ble Tribunal is justified in accepting suppression of production and its clandestine removal merely on the basis of one input alleged to be used on the higher side."

On merits, at this stage, we may note that the Adjudicating Authority, in confirming the demand of duty, has come to the conclusion that the claim of the assessee to have earned commission in lieu of the services rendered by it is factually incorrect and that, as a matter of fact, such a plea was unfounded. The Adjudicating Authority has found that the assessee had suppressed its actual production with a view to clandestinely remove the excisable goods without the payment of Excise Duty. When the matter had travelled before the Division Bench of this Court in the previous proceedings, the only point which had been urged, as would be evident from the order of the Division Bench, was the issue of financial hardship. Nonetheless, the Tribunal has also considered the prima facie case and has discussed the issue in a considerable amount of detail in various heads including (i) fictitious commission earning; (ii) disproportionate consumption of chrome & clandestine removal of unaccounted finished goods; (iii) falsification of record showing disproportionate consumption of chromium; and, (iv) undervaluation of job worked goods. After considering the case of the assessee the Tribunal has found that there is no reason or justification to grant complete waiver of pre-deposit. We find no substantial question of law that would warrant the Court to interfere since the submission which has been urged on behalf of the assessee essentially requires the Court to re-appreciate the evidentiary material. This is not the scope of the present appeal, which can be entertained only on a substantial question of law.

On the issue of financial hardship, the attention of the Court has been drawn to a judgment of this Court in the case of the assessee itself in another appeal, being Central Excise Appeal No. 132 of 2014 (M/s. Rathi Ispat Limited v. The Commissioner of Central Excise, Ghaziabad) decided on 11th August 2014, where it has been noted that the application filed by the assessee before the B1FR has been dismissed.

The Tribunal by its original order dated 6 January 2009 had not directed any pre-deposit by the Director in respect of a penalty which was imposed. However, after the order of the Division Bench dated 17th April 2009 requiring the Tribunal to consider the issue of financial hardship, the Tribunal while reiterating the earlier order has also imposed an additional requirement of pre-deposit of Rs. 10 lacs by the Director. In our view, it would be appropriate and proper to waive the requirement of pre-deposit of Rs. 10 lacs by the Director.

We are, accordingly, of the view that the order of the Tribunal does not warrant interference save and except that the requirement of pre-deposit of Rs. 10 lacs on account of the penalty imposed upon the Director shall stand waived. The appeals have been dismissed by the Tribunal for want of compliance with the order of pre-deposit. As a result of dismissal of the appeals, the assessee would lose a substantive right of appeal before the Tribunal. In the circumstances, we are of the view that the ends of justice would be met by extending the time for effecting the pre-deposit by a further period of three weeks from today. The central excise appeals are, accordingly, disposed of. There shall be no order as to costs.