Ruchi Soya Industries Ltd. vs Union of India

Akil Kureshi, J.—The petitioner is a company registered under the Companies Act, 1956 presently called Ruchi Soya Industries Limited. Previously, one-M/s. Sunshine Oleochem Private Limited, which was also a registered company, now stands merged with M/s. Ruchi Soya Industries Limited with effect from 16th December 2010. This is relevant for the limited purpose since some of the transactions on record have been entered into by M/s. Sunshine Oleochem Private Limited, on the basis of which, the present petitioner-company seeks Excise Duty exemption in the Kutch region of the State of Gujarat. The petitioner has challenged the show-cause notice dated 18th October 2010 along with Corrigendum dated 29th December 2010 issued by the Joint Commissioner of Central Excise, Ahmedabad in the following factual background.

Since some of the transactions; as already noted, were executed by M/s. Sunshine Oleochem Private Limited, and thereafter upon its merger with the present company, by such company, they shall be referred to as "the industry" at the appropriate place in this order.

The industry seeks benefit of exemption notification issued by the Central Government granting exemption on all excisable goods cleared from the industrial units located in Kutch region of the State of Gujarat; subject to certain conditions. Such exemption Notification No. 39/2001-C.E. was issued on 31st July 2001. Such exemptions were granted primarily bearing in mind the devastating earthquake which took place in the region on 26th January 2001.

The Notification provides that on all goods, other than those specified in the Annexure appended to the notification and cleared from a unit located in Kutch district of Gujarat would be exempt from payment of excise or additional duty of excise leviable thereon on the manufacture of goods, other than the amount of duty paid by utilization of CENVAT credit.

Para 2 of the Notification provides for methodology for granting the exemption. Para 3 provides conditions; subject to which, such exemption would be available. Para 3 of the Notification reads as under :-

The exemption contained in this notification shall be subject to the following conditions, namely :-

(i) It shall apply only to new industrial units, that is to say, units which are set up on or after the date of publication of this notification in the Official Gazette but not later than the 31st day of December 2005.

(ii) In order to avail of this exemption, the manufacturer shall produce a certificate from the Committee consisting of the Chief Commissioner of Central Excise, Ahmedabad and the Principal Secretary to the Government of Gujarat, Department of Industry to the jurisdictional Assistant Commissioner or the Deputy Commissioner of Central Excise, as the case may be, that the unit in respect of which exemption is claimed is a new unit and has been set up during the time period specified in condition (i) above.

(iii) Before effecting clearances under this notification, the manufacturer shall also furnish a declaration regarding the original value of investment in plant and machinery installed in the factory as on the date of commencement of commercial production to the Assistant Commissioner or the Deputy Commissioner of Central Excise, as the case may be.

(iv) The manufacturer shall also produce a certificate from the said Committee confirming the original value of investment and such a certificate shall be produced within a period of one month from the date of commencement of commercial production or such extended period as the Assistant Commissioner or Deputy Commissioner may allow.

(v) In case on the basis of such certification or otherwise, the original value of investment in plant and machinery,

(a) is found to be less than Rs. 20 Crore but was declared to be Rs. 20 crore or more, the manufacturer shall be liable to pay back the entire amount of duty exemption availed under the Notification at the rate of 24% per annum as if no exemptions were available, or

(b) is found to be less than the declared value and was declared to be below Rs. 20 Crore, the manufacturer shall be liable to pay duty on the goods cleared, if any, in excess of twice the actual value of original investment in each of the year during which exemption has been claimed under this notification along with interest @ 24% per annum, as if no exemptions were available to those clearances under this notification.

(vi) The exemption shall apply for a period not exceeding [five] years from the date of commencement of commercial production by the unit.

The industry applied for grant of Central Excise Registration on 18th July 2005. Such registration was granted on 25th September 2005. On 29th December 2005, the industry intimated to the Central Excise Department that the commercial production had commenced on 29th December 2005 and that the investment in the plant and machinery was valued at Rs. 35.65 crores. On 19th January 2006, a certificate of the Chartered Accountant was submitted certifying the investment in the plant and machinery at Rs. 39.66 Crores. On 31st January 2006, a team of the officials of Central Excise Department visited the unit of the petitioner-industry to verify its claim with respect to investment made and the commencement of the commercial production on 29th December 2005.

There appears to be series of reports, letters and communications, with respect to which we are not directly concerned. However, suffice it to state that on 24th November 2006, the Excise Department issued a show cause notice to the petitioner calling upon it to show cause why the exemption be not rejected since the following two conditions were not satisfied : (a) that out of stated investment of Rs. 39.66 Crores, investment of Rs. 25.15 Crores was liable to be deducted. Thus, the total investment of the petitioner-company stood below Rs. 20 Crores; and (b) that the commercial production had in fact not commenced on or before 31st December 2005, which was the last date prescribed in the exemption notification.

The industry replied to the show cause notice under its communication dated 13th December 2006 contending, inter alia, that the total investment was in excess of Rs. 20 Crores and that the commercial production of one of the products had already commenced on 29th December 2005 and a sizeable production had already been achieved of Toilet soap and split fatty acid.

On 5th February 2007, a personal hearing was granted to the petitioner-industry. The authorities were prepared to grant exemption only with respect to the petitioner''s products viz., Fatty Act & Toilet Soap, such certificate was also issued. With respect to other products, exemption certificate was not granted. Only to record the chain of events, we may note that such issue was decided in favour of the petitioner at the level of CEGAT wherein, by an Order dated 12th February 2009, the Tribunal was pleased to confirm the order of the Commissioner (Appeals) granting benefit of exemption for other products also. The Tribunal relied on the Circular of C.B.E. & C. providing that if the investment was already made in installing the plant and machinery before 31st December 2005, simply because addition of new product, of which production had commenced after the cut-off date, such product cannot be kept out of purview of the exemption. With reference to this issue, we are not directly concerned. We may, however, record that the question of validity of the claim of the petitioner with respect to the exemption itself and the question whether the petitioner had made investment in plant and machinery in excess of Rs. 20 Crores and commenced commercial production before 31st December 2005 were not at large before the Tribunal.

Having once granted the request of the petitioner for exemption under the said Notification No. 39/2001-C.E., it appears the authorities were of the opinion that the entire claim of the petitioner was not sustainable, since the petitioner had not made investment in the plant and machinery in excess of Rs. 20 Crores and commenced commercial production before the last date. The Committee, which previously processed the claim of the petitioner, had misdirected itself. In fact, a detailed report was drawn by the Additional Director General [Vigilance], Western Regional, unit-Mumbai, who in his detailed investigation report noted several irregularities in the claim of the petitioner. He was of the opinion that the Committee did not examine the material on record properly and thereby wrongly accepted the claim of the petitioner for exemption.

A fresh show cause notice dated 18th October 2010 was therefore issued calling upon the industry to show cause why exemption application should not be rejected. On 20th December 2010, the petitioner replied to the show cause notice and raised strong objection to any such proposal. On 29th December 2010, a corrigendum was issued to the previous show cause notice and certain further averments were added.

It is this show cause notice, which the petitioner has challenged in the present petition, mainly on the ground that previously a full and detailed examination of the case of the petitioner was done and exemption was granted. The same authorities thereafter could not issue a fresh show cause notice. Such action would be liable to be quashed as is without jurisdiction.

Respondents have appeared and filed detailed replies contending primarily that previously the material on record was not properly examined by the Committee. The petitioner''s case was not covered under the Exemption Notification. Exemption was wrongly granted. It is in fact the case of the respondents that the members of the Committee had mis-conducted and misdirected themselves.

Learned counsel for the petitioner vehemently contended that the exemption once granted could not be withdrawn. Previously, show cause notice was issued why the request for exemption be not rejected. The petitioner made a detailed representation. Detailed enquiry was conducted. Only thereafter, exemption was granted. There cannot be a review of the said decision.

Counsel further submitted that the previous show cause notice as well as the present impugned show cause notice both refer to and rely on the same set of materials. He submitted that when no new material was available, the previous decision could not be re-opened.

It was also submitted that the High Power Committee has no authority to re-open the issue. The Department, without challenging the previous decision granting exemption to the petitioner, could not re-open the entire issue by issuing a fresh show cause notice. In short, counsel submitted that the entire proceedings are wholly without jurisdiction and may, therefore, be quashed.

Counsel relied on the following decisions in support of his contentions :

In case of Core Healthcare Limited v. Union of India reported in 2006 (198) E.L.T. 121 to contend that in absence of any jurisdiction to issue a show cause notice, the proceedings should be quashed.

This was, however, a case where the adjudicating authority in exercise of statutory powers, had granted certain claim. Without challenging such an order, afresh show cause notice was issued. It was in this background the decision is rendered.

Reliance was placed on the decision in the case of Jai Hind Oil Mills and Co. Vs. Union of India, wherein, the show cause notice and the order passed thereon were set aside on the ground that the order passed by the Collector (Appeals) on the assessee''s appeal had become final.

As is apparent, this was also a case wherein, the Collector (Appeals), in exercise of statutory powers, had ruled in favour of the assessee. The Department, without challenging the decision of the Collector (Appeals) before the Tribunal, had sought to raise demands contrary to such an order. It was in this background, held and observed that once the order of the Collector (Appeals) has become final and binding, show cause notice could not be issued which could undo the effect of the Collector''s order.

Reliance was placed in case of Associated Cement Companies Limited Vs. Union of India, wherein the Karnataka High Court deprecated the practice of issuing repeated show cause notices, after completion of the adjudication process.

This was also a case wherein the proceedings under the Central Excise Act were being pursued even after the issue having attained finality in the Departmental appeal.

Reliance was placed in case of Dee Kay Exports Vs. Union of India (UOI) and Another, wherein the Punjab & Haryana High Court was examining the situation where after the first adjudicating process, a second show cause notice on the same facts was issued. The High Court held that there was no power to issue second show cause notice and the only remedy available would be to file appeal against the said order.

Reliance was also placed in case of Rewa Gases Pvt. Ltd. Vs. Assistant Collector of C. Ex., Satna, . It touches the aspect of the power of the High Court to issue writ even when alternative remedy is available.

Reliance was also placed on the decision in the case of Union of India v. Food Specialties Limited reported in 1998 (97) E.L.T. 402 (S.C.) to contend that the principle of res judicata would apply in the present case also.

Reliance was placed in case of Commissioner of Customs Vs. Millat Fibers, , wherein the Gujarat High Court was considering a situation where the refund claim was initially allowed without verifying the question of undue enrichment. After implementation of the order, show cause notice was issued for rejecting the claim. It was held that this would amount to reviewing the earlier orders passed by the adjudicating authorities, which was not permissible.

Reliance was also placed on the decision of the Apex Court in case of Sushila Rani Vs. Commissioner of Income Tax and Another, contend that when the authority had no jurisdiction to issue the show cause notice, the same can be quashed in a writ proceeding.

Reliance was yet placed on another decision of the Apex Court in case of Pancham Chand and Others Vs. State of Himachal Pradesh and Others, to contend that any authority, other than the specified authority, cannot govern the discretion of the statutory authority. In the present case, since the Additional Director [Vigilance] has drawn a report, it was the contention of the petitioner that the empowered committee would not be guided by such a report.

On the other hand, learned counsel Mr. Ravani, appearing for the Department opposed the petition. He contended that the petitioner does not satisfy the conditions of the exemption notification. He submitted that the petitioner''s investment in plant and machinery was less than Rs. 20 Crores. The commercial production had not commenced by the last date envisaged i.e., 31st December 2005. There was voluminous evidence to come to such a conclusion, despite which, wholly wrongfully the petitioner was granted benefit of exemption. He submitted that the Committee did not look into the voluminous evidence to demonstrate that the petitioner did not satisfy the above noted conditions. The entire issue was examined by the Additional Director and a detailed report was drawn.

Counsel further submitted that in any case, the present proceedings are at the stage of show cause notice. The petitioner would have sufficient opportunity to reply to the contents of the notice and to defend itself.

Counsel further submitted that the issues are highly debatable and disputed question of facts are involved. Writ petition, at this stage therefore, should not be entertained.

Having thus heard learned counsel for the parties, first of all we may notice that the exemption notification provides for exemption from payment of excise duty and additional duty to an industry which sets up its unit in Kutch region. Such exemption was, however, subject to certain conditions. In the notification itself, it is provided that the exemption shall be available to only new industries which set up industrial unit on or after publication of the notification but not later than 31st December, 2005. Second condition to avail exemption was, the manufacturer shall produce a certificate from the specified authority that the unit is a new unit and has been set-up during the time specified in the notification. Further condition was that the manufacturer has to furnish a declaration of the original value of investment made in plant and machinery installed in the factory as on the date of commencement of commercial production.

Notification also provides that in case value of the investment in plant and machinery is found to be less than Rs. 20 Crores but was declared to be more than Rs. 20 crores by the industry, the manufacturer shall be liable to pay back the entire amount of exemption availed under the scheme with interest @ 24% per annum; as if no exemption was available. On the other hand, if the declared value of investment itself was below Rs. 20 Crores, but upon verification was found to be less than declared, the manufacturer would be liable to pay duty in excess of twice the actual value of original investment for which exemption was granted. This formula was provided since the exemption is made available in two blocks viz., with respect to those industries which have made investment in excess of Rs. 20 crores - the entire value of excise duty and additional duty are waived. In case of industries which have made investment less than Rs. 20 crores, the total exemption limit fixed is twice the value of investment made.

In clause (v) of Paragraph 3 of the Notification, it is stated that in case on the basis of such certification or otherwise, such investment is found to be less, than eventuality discussed hereinabove would follow. Meaning thereby, the source of the decision that the investment was less than what was declared could either be the certification of the Committee provided in clause (iii) of para 3, or any other source.

From the notification, therefore, it clearly emerges that the exemption is meant only for new industries which are set up after the publication of the Notification. Equally important condition for availing exemption under the said Notification is that such industry should have been set-up not later than 31st December 2005 and only the investment made till such cut off date is eligible for exemption. The exemption is envisaged in two slabs : for those industries which have made investment in plant and machinery in excess of Rs. 20 Crores, exemption is granted on all goods cleared from such units from so much of the duty of excise or the additional duty of excise; as the case may be, leviable thereon under the said Acts as is equivalent to the amount of duty paid by the manufacturer of goods other than the amount of duty paid by utilization of CENVAT credit. In other words, with respect to industries having investment of more than Rs. 20 Crores, the exemption from payment of excise duty and additional duty on the goods cleared from such units was without any limit. In case of the units having investment in plant and machinery of less than Rs. 20 Crores on the date of commencement of commercial production, the exemption is limited to the first clearances up to an aggregate value not exceeding twice the value of such investment from the date of commencement of commercial production, in each year.

It is because of this distinction in the exemption provided for units having investment in plant and machinery less than Rs. 20 Crores and those having investment more than Rs. 20 Crores that sub-clause (v) of Clause (3) of the said Notification makes a clear demarcation in the treatment to be given in case of mis-declaration of investments made by the industry. Sub-para (a) of sub-clause (v), therefore, provides that if the declared investment was more than Rs. 20 Crores or more, but on the basis of certificate issued by the Committee or otherwise, the value of investment in plant and machinery is found to be less than Rs. 20 Crores, the manufacturer shall be liable to pay back the entire amount of duty exemption availed under the notification along with interest at the specified rate, as if no exemptions were available. In other words, if the declaration of the manufacturer that it had made investment in excess of Rs. 20 Crores in plant and machinery is found to be inaccurate, the entire exemption made available would stand withdrawn; and benefits available would have to be re-paid with interest.

On the other hand, as per sub-clause (b) clause (v) of para-3 of the Notification, when it is found that the declared value of investment in plant and machinery is less than Rs. 20 Crores but upon ultimate ascertainment it is found to be less than what is declared, the manufacturer would be liable to pay duty on the goods cleared in excess of twice the actual value of original investment in each of the years during which exemption was claimed. In other words, in a case falling under the said sub-para (b), even when the declaration made by the manufacturer is found to be inaccurate, the unit does not surrender the very right to enjoy exemption but that the computation of exemption would be made on the basis of ultimate investment made in plant and machinery, found on the basis of certificate or otherwise and not on the basis of higher declaration made by the manufacturer.

This distinction is vital since the notification attaches considerable importance on whether the manufacturer has made investment in plant and machinery in excess of Rs. 20 Crores or less than the said amount.

The case of the petitioner is that it had made investment in plant and machinery far in excess of Rs. 20 Crores, well before the cut off date and also commenced commercial production before the last date envisaged under the exemption notification i.e., 31st December, 2005. The case of the respondents, however, is that the petitioner had made mis-declarations, that it could not have commenced commercial production since essential machinery was not installed before the last date.

In the present petition, it is not necessary, not even possible for us to go into these highly disputed questions of fact. What we need to ascertain is -whether the respondents are within their right in issuing the show cause notice and seeking explanation from the petitioner with respect to correct value of investment made in plant and machinery and whether actually the commercial production had commenced before 31st December, 2005. In this regard, as already noted, counsel for the petitioner vehemently contended that having previously issued such a notice and after having obtained the replies from the petitioner, the respondents had dropped the proceedings. Such decision could not have been re-opened by issuing a fresh show cause notice, that too on the same material upon which the previous show cause notice was based. On the other hand, stand of the respondents is that the previous proceedings were not conducted in proper manner. In fact, it is the case of the respondents that there was a serious lapse on part of the Committee in such proceedings. There are strong reasons to prima facie believe that the petitioner had not made investment in excess of Rs. 20 Crores, and further that the commercial production had not commenced before 31st December 2005.

It is true that previously a detailed show cause notice was issued to the petitioner on both the issues viz., with respect to the actual investment made as also whether the commercial production had commenced before the last date or not. It is also true that such show cause notice was dropped, taking into consideration the replies of the petitioner. However, in the facts of the present case, we are of the opinion that fresh proceeding should not be terminated at this stage.

From the decisions cited before us, we are conscious that ordinarily even the administrative authorities would not be in a position to re-open the close issue, particularly when sufficient reasons and on the same set of materials based upon which the previous decision was taken. However, we are inclined to permit the respondents to examine the entire issue at length for the following reasons :

(a) What is challenged before us is the show cause notice issued to the respondents. It is by now well-settled, through series of decisions by the Apex Court, that Courts should not encourage litigations against a mere show cause notice and should normally leave the authorities to adjudicate on all issues raised in such a notice.

In case of Special Director & Anr. v. Mohd. Ghulam Ghouse & Anr. reported in AIR 2004 SC 1467 = 2004 (164) E.L.T. 141 (S.C.), the Apex Court deprecated the practice of entertaining writ against the show cause notice and in granting interim relief. It was observed as under :-

This Court in a large number of cases has deprecated the practice of the High Court entertaining writ petitions questioning legality of the show cause notices stalling enquiries as proposed and retarding investigative process to find actual facts with the participation and in the presence of the parties. Unless, the High Court is satisfied that the show cause notice was totally Honest in the eye of law for absolute want of jurisdiction of the authority to even investigate into facts, writ petitions should not be entertained for the mere asking and as a matter of routine and the writ petitioner should invariably be directed to respond to the show cause notice and take all stands highlighted in the writ petition. Whether the show cause notice was founded on any legal premises is a jurisdictional issue which can even be urged by the recipient of the notice and such issues also can be adjudicated initially, before the aggrieved could approach the Court. Further, when the Court passes an interim order it should be careful to see that the statutory functionaries specially and specifically constituted for the purpose are not denuded of powers and authority to initially decide the matter and ensure that ultimate relief which may or may not be finally granted in the writ petition is accorded to the writ petitioner even at the threshold by the interim protection, granted.

In case of Mahanagar Telephone Nigam Ltd. Vs. Chairman, Central Board, Direct Taxes and Another, , the Apex Court held and observed as under :-

In this case this is absolutely what has happened. The Appellants wanted to approach the Court only against a show-cause-notice. It is settled law that against a show cause notice litigation should not be encouraged. The decision of the High Powered Committee, set out hereinabove, merely emphasizes the well settled position. It is an eminently fair and correct decision. The purpose of the decision was to prevent frivolous litigation. No right of the Appellants is being affected. It has been clarified that the Appellants could move a Court of law against and appealable order. By not maintaining discipline and abiding by the decision, the Appellants have wasted public money and time of the Court. The clarificatory order, relied upon by Mr. Andhyarujina, clarifies in Para 5 as to what is to happen if clearance is not given by the Committee. It is set out that in the absence of the clearance the proceedings must not be proceeded with. This position is further clarified in Chief Conservator of Forests'' case (supra) where again this Court has held that the decision taken by such a Committee is binding on all Departments concerned and it is the stand of the Government.

It is not necessary to refer to large number of other decisions of Apex Court taking a similar view.

The issue involves number of disputed questions of fact - whether the petitioner had made investment in plant and machinery in excess of Rs. 20 Crores or not; and whether the commercial production had actually commenced or not are questions of fact and must be judged and allowed to be judged by the respondents on the basis of material that may be brought on record by both the sides. In exercise of writ jurisdiction under Article 226 of the Constitution, we would not be justified in undertaking such an exercise before us nor do we have full material before us to undertake any such exercise.

The contention that the entire proceedings are sought to be reopened on the same evidence and set of documents, in the present case, would not permit us to terminate the proceedings prematurely. The respondents have made serious allegations of irregularities and impropriety in the previous round of show cause notice and hearing proceedings. A detailed report of the Addl. Director General [Vigilance] is also placed on record. The stand of the respondents is that from the very documents on record, admitted facts and circumstances and materials which were available before the previous committee, it was impossible to come to the conclusion that the petitioner had in fact made investment in plant and machinery in excess of Rs. 20 Crores, and further that the commercial production had commenced before 31st December 2005. Additionally, counsel for the respondents had placed before us communications which would indicate that the question of taking disciplinary action departmentally against the members of the committee is under active consideration of the appropriate authority.

We should not be understood to have accepted such a stand of the respondents. Suffice it to say that when such serious allegations of impropriety are brought to our notice, we would be wholly unjustified in terminating the proceedings at the show cause notice stage. It is true that much of the evidence sought to be relied on in the second round of hearing was very much before the previous committee when the proceedings were dropped, however, that by itself would not be sufficient to permit us to prevent the respondents from examining such materials threadbare.

In case of United India Insurance Co. Ltd. Vs. Rajendra Singh and Others, , the Apex Court observed as under :-

Therefore, we have no doubt that the remedy to move for recalling the order on the basis of the newly discovered facts amounting to fraud of high degree, cannot be foreclosed in such a situation. No court or Tribunal can be regarded as powerless to recall its own order if it is convinced that the order was wangled through fraud of misrepresentation of such a dimension as would affect the very basis of the claim.

We have perused the report of the Additional Director General of Vigilance. We have also noted the correspondence seeking action against the members of the Committee. Counsel for the respondents, however, submitted that the respondents have reason to state that no such permission has been granted. We are not basing our conclusion on whether any disciplinary action has been ultimately taken or if taken what is the out come. We may only note that the department has raised several issues of totally irregular and improper exercise of jurisdiction by the previous members of the Committee. We must be conscious that the Committee is not a judicial or even a quasi judicial body. The strict requirement of power of review and finality of its own decision may not attach to a body which only exercises executive functions, particularly when it is prima facie pointed out to the Court that the entire issues require a proper consideration; that the petitioner''s declarations were totally false; that the Committee despite sufficient evidence on record did not pursue the show cause notice proceedings; that the petitioner had neither made investment in excess of Rs. 20 Crores in plant and machinery nor started its commercial production before 31st December 2005. Under such circumstances, we would not be justified in interfering at the stage of show cause notice.

As already noted, the fact whether the manufacturer has invested more than Rs. 20 Crores in its plant and machinery or less is of great significance insofar as the scheme of exemption notification is concerned. If it is found that the declaration that the investment in plant and machineries exceed Rs. 20 Crores is found to be incorrect, the manufacturer renders himself totally ineligible to claim any exemption at all. Additionally, we also noticed that para-3 of the Notification provides for such facts being ascertained on the basis of certificate issued by the Committee, or even otherwise. The power of the respondents therefore to make thorough inquiry into the declarations made by the manufacturer cannot be curtailed. When the question of granting exemptions and resultant considerable amount of duty waiver is at issue, we would not like to terminate the proceedings at the show cause notice and even without permitting of full inquiry. By way of abundant caution, we clarify that nothing stated in this order would come in the way of the petitioner in raising all contentions before the Committee in response to the show cause notice. We have expressed no opinion whatsoever on the issues raised by the respondents with respect to eligibility of the petitioner to claim exemption. All issues will be decided on the basis of evidence that may be brought on record. With above observations, petition is dismissed. Counsel for the petitioner, at this stage requests that interim relief previously granted be continued for four weeks. Respondents may proceed further with the proceedings. The petitioner shall cooperate with the same, however, final order shall not be passed till 30th November 2011.