Sri Ganesh Chandra Mrig vs The Superintendent (Prev.), Commissionerate of Central Excise, Customs and Service Tax

B.N. Mahapatra, J.—The Petitioner who is the Managing Director of Mis Aryan Ispat Power Pvt. Ltd. (for short ''the Company'') has filed this Writ Petition for declaring the summons issued to him by the Opp. Party vide Annexure-9 as arbitrary & illegal & for quashing the said summons.

Bereft of unnecessary details, the facts & circumstances giving rise to this Writ Petition are that the Company in which the Petitioner is the Managing Director is engaged in manufacture of sponge iron & generation of electricity by captive power plant at the factory premises at Bomblai, Sambalpur. On 04.11.2009, the officials of the Preventive Unit of Central Excise Commissionarate, Bhubaneswar-II (for short ''PUCEC'') conducted search in the premises of the Company, &, in course of search, some documents relating to manufacturing & despatch of sponge iron were seized. Consequent upon such search operation, the PUCEC initiated proceedings to enquire into the alleged violation of provisions of the Central Excise Act, 1944 (for short ''the Act'') & the Rules framed thereunder against the Company. In course of enquiry, the Superintendent of the PUCEC issued summons dated 2,6.11.2009 (Annexure-1) u/s 14 of the Act to the Petitioner to appear before him in person or through an authorized agent on 11.12.2009. In response to the said summons under Annexure-1, vide letter dated 21.12.2009 (Anneuxre-2) addressed to Opp. Party, the Petitioner authorized one Bijendra Kumar Chandrakar, Senior Manager (Finance) of the Company to appear & depose before the Opp. Party on behalf of the Company on the ground that the Petitioner wasstaying at New Delhi & was not looking after the day-to-day operation of the factory. Another similar letter dated 02.01.2010 (Annexure-3) was also communicated authorizing the said Senior Manager (Finance) to appear & depose before the Opp. Party on behalf of the Company. Thereafter, Opp. Party issued summons dated 14.01.2010 (Annexure-4) to Sri Chandrakar, Senior Manager (Finance) to adduce evidence & produce documents. Pursuant to which, the Senior Manager (Finance) had appeared before the Opp. Party on different dates produced various documents as per letters dated 05.01.2010, 14.01.2010 & 18.01.2010. The statements of said Senior Manager (Finance) were also recorded. On 18.01.2010, said Sri Chandrakar, Senior Manager (Finance) of the Company was arrested by the Department on the basis of the grounds raised in the Grounds of Arrest dated 18.01.2010 (Annexure-6). On the same day, i.e., 18.01.2010, the Opp. Party issued another summons (Annexure-7) u/s 14 of the Act asking the Petitioner to appear before him in person on 04.02.2010 at 1.1 A.M. In response to the said summons (Annexure-7), the Petitioner by a letter dated 03.02.2010 (Annexure-8) addressed to the Opp. Party reiterated that the Senior Manager (Finance), who deals with the Excise matters of the Company, is the right person to depose on behalf of the Company. Again on 05.02.2010, the Opp. Party issued another summons (Annexure-9) u/s 14 of the Act asking the Petitioner to appear before him in person on 25.02.2010 at 11.0 AM. Hence, the Writ Petition.

Mr. L. Pangari, Learned Counsel appearing on behalf of the Petitioner vehemently argued that the Petitioner is 72 years old & living in Delhi & is suffering from various old-age ailments. He is unable to look after the day-to-day administration, business affairs, accounts, manufacturing process of the Company etc. Stating all this in the letters addressed to Opp. Party under Annexures-2 & 3, Petitioner authorized Sri Bijendra Kumar Chandrakar, the Senior Manager (Finance) of the company who deals with Excise & Finance related matters of the Company to appear & depose before the Opp. Party on behalf of the Company with the declaration that his statement would be binding on the Company. The Company has been fully co-operating with the Department in the process of enquiry of the alleged violation of the provisions of the Central Excise Act & the Rules framed thereunder. Since the Department has already examined the Senior Manager (Finance), there is absolutely no need to summon any other officers of the Company including the Petitioner. The Opp. Party being well aware that the Petitioner is not looking after the affairs of the Company particularly the matters relating to Central Excise, with ulterior motive & mala fide intention has summoned the Petitioner vide Annexure-9 enforcing his personal appearance. The Central Excise Board has issued instruction to the Department not to summon the Managing Directors/Directors of any Company for enquiry. In support of his contention, Mr. Pangari relying upon a circular bearing C.B.E. & C Letter F. No. 208/122/89-CX.6 dated 13.10.1989 forcefully argued that the said circular is binding on the Departmental authorities. To strengthen his argument, he relied upon decisions of the Calcutta High Court in Srei Infrastructure Finance Limited Vs. Union of India (UOI), & Collector of Central Excise, Patna Vs. Usha Martin Industries, etc., . The Petitioner has deposited Rs. 93.0 lakhs under protest because of harassment & coercive method adopted by the Opp. Party pending enquiry on allegation of non-payment of duty to the Government much before issuance of show cause notice u/s 11-A of the Act. The Opp. Party has already examined all the persons who were engaged in manufacturing & despatch of sponge iron in the factory. Powers vested u/s 14 of the Act have been misutilized against the Petitioner by the Opp. Party. When the Petitioner informed the Opp. Party that he is not looking after the business activities of the Company & cannot say anything about that, even if he is made to appear before the Department, he cannot but reiterate the same thing. It is the case of colourable exercise of powers by the Opp. Party vested u/s 14 for extraneous consideration.

On being noticed, a counter affidavit has been filed by the Opp. Party. Mr. P.K. Ray, Learned Senior Advocate appearing on behalf of the Opp. Party- Department strongly repudiated the averments made in the Writ Petition & contended that the Opp. Party is enquiring a case against the Petitioner in connection with evasion of Central Excise duty. Since calling for records & recording of evidence are parts & parcels of investigation under the authority of law, the Petitioner has been summoned for necessary clarification. Therefore, issuance of summons u/s 14 of the Act is neither without any authority of law nor violative of Article 14 of the Constitution. The questioning of legality of summons stalling enquiries & retarding investigation process to find out actual facts with the participation & in the presence of parties is deprecated by the Apex Court. Paragraph 4 of the Writ Petition reveals that the Petitioner has authorized Senior Manager (Finance) only to deal with Excise & Finance related matters & no such authorization has been given to the said Senior Manager with regard to administration, day-to-day business affairs of the Company, manufacturing process etc. Nobody appeared in response to the summons dated 26.11.2009 on 10.12.2009 & also the summons dated 18.01.2010 fixing the date of appearance to 04.02.2010. Sri Bijendra Kumar Chandrakar, the Senior Manager (Finance) stated before the Opp. Party on 05.01.2010 that he only dealt with accounts, Finance & Excise matters of the Company & could not reply to queries with regard to operational activities of the Company for which the Petitioner had authorized him. The said Senior Manager denied his knowledge about the purchase of raw materials, production & despatch of sponge iron from the factory. On the other hand, he told that he receives such information from other Department/Section of the plant & accordingly he maintains records. Sri B.K. Chandrakar, Senior Manager (Finance) was arrested as per the provisions of Section 9 & 9AA of the Act for violating various provisions of the Act & the Rules under reasonable belief that he was responsible for commission of offences with conscious knowledge & not just because he was authorized by the Petitioner-Managing Director under his letters dated 21.11.2009 & 02.01.2010. The Petitioner did not appear before the summoning authority even though he had been summoned for four times. So, it is not correct to say that the Petitioner-Company is cooperating fully in the enquiry. It is necessary to examine the Managing Director as the alleged clandestine removal of goods from the factory premises appeared to have happened with the knowledge & approval of the Company, who is the beneficiary of such illegal activities. The Company has paid the Central Excise duty on their own which they realized. Ascribing mala fide design, extraneous consideration, harassment & colourable exercise of the powers as alleged by the. Petitioner is nothing but a figment to get rid of the provisions of the statute.

In the rejoinder, it is stated that the Petitioner has never questioned the powers of the Central Excise Authorities to summon anybody they consider necessary & to give evidence and/or to produce documents which are in his possession that may be relevant for the purpose of enquiry. The Petitioner vide his letter dated 05.04.2010 (Annexure-12) addressed to the Opp. Party furnished the list showing names of the employees engaged in various Departments of the Company. Pursuant to summons of the Opp. Party, Sri Bijendra Kumar Chandrakar, Senior Manager (Finance), Sri G.S. Garcha, Executive Director, Sri Dhananjay Swain, Deputy Manager (Process) appeared before the Opp. Party, who examined them on various dates. They produced all the documents they were asked to produce by the Opp. Party for the purpose of enquiry as per the details given in Annexure-13. These documents were filed in addition to the documents seized under Panchanama dated 04.11.2009 (Annexure-14). Regarding the operational activities of the plant, Sri G.S. Garcha, Executive Director has been thoroughly examined on 25.02.2010 & 25.03.2010. Sri Dhananjay Swain, Deputy Manager (Process) has also been examined on 5th & 6th January, 2010 & Sri Swain has also given his statement regarding manufacturing process & operational activities of the plant. The Petitioner with all bona fide & truthfulness indicated his inability to give any statement regarding any activity in the plant or to produce any documents since he is not looking after day-to-day affairs of the company & not in possession of any document relating to any business activity of the Company. The Opp. Party has issued summons to the Petitioner in mechanical manner. Insisting upon personal appearance of the Petitioner, who is neither able to give any statement nor can produce any document regarding the day-to-day operation, accounts, central excise matter, production process, finance etc. of the company is an abuse of process causing harassment to the Petitioner who is an old man of 72 years & is suffering from various old-age ailments.

To appreciate the rival contentions, it is necessary to consider what is contemplated in Section 14 of the Central Excise Act, 1944, which runs as under:

Power to summon persons to give evidence & produce documents in inquiries under this Act. (1) Any Central Excise Officer duly empowered by the Central Government in this behalf, shall have power to summon any person whose attendance he considers necessary either to give evidence or to produce a document or any other thing in any inquiry which such office is making for any of the purposes of this Act. A summons to produce documents or other things may be for the production of certain specified documents or things or for the production of all documents or things of a certain description in the possession or under the control of the person summoned.

(2) All persons so summoned shall be bound to attend, either in person or by an authorized agent, as such officer may direct; & all persons so summoned shall be bound to state the truth upon any subject respecting which they are examined or make statements & to produce such documents & other things as may be required:

Provided that the exemptions under Sections 132 & 133 of the Code of Civil Procedure, 1908 (5 of 1908) shall be applicable to requisitions for attendance under this Section.

(3) Every such inquiry as aforesaid shall be deemed to be a "judicial proceeding" within the meaning of Section 193 & Section 228 of the Indian Penal Code, 1860 (45 of 1860).

A plain reading of Section 14 reveals that the said Section vests power in the Central Excise Officer who has been empowered by the Central Government to that behalf to summon any person whose attendance he considers necessary either to give evidence or to produce documents in course of the enquiry or any other thing in any enquiry which such office is making for any of the purposes of the Act. A summons to produce documents or other thing, may be for the production of certain specified documents or things or for the production of all documents or things of certain description in the possession or under the control of the person summoned. In other words, a summons can be issued to any person to give evidence or to produce document or a thing or anything in any enquiry which the concerned Central Excise Officer is making for any of the purposes of this Act. This Act has been enacted relating to Central Excise Duty on goods manufactured or produced in certain parts of India.

In the case in hand, search & seizure operation was conducted in the business premises of the Petitioner on 04.11,2009 by the officials of PUCE. Consequent upon such search & seizure, summons were issued to the Petitioner, who is the Managing Director of the Company, in exercise of powers u/s 14 of the Act. In response to such summons, the Petitioner under Annexure-2 intimated the Opp. Party that he was stationed at New Delhi & was not looking after the day-to-day operations of the factory. Therefore, he could not be able to depose in detail regarding accounts/records/operations of the factory & authorized Sri Bijendra Kumar Chandrakar, Senior Manager (Finance), who was responsible for looking after the Excise matter of the Company having detailed knowledge about the books of account, operations of the factory, to appear before him to depose on behalf of the Company which shall be binding on the Company. Stating the above reason, the Petitioner requested the Opp. Party to dispense with his personal appearance.

Perusal of the Writ Petition, counter affidavit, rejoinder affidavit reveals that summons were issued to different employees of the Company to appear & produce various documents & books of account. Their statements were recorded in respect of the books of account, documents seized in course of search & seizure operation as per Panchanama & the documents produced relating to the operational activities of the plant. Opp. Party issued summons to Bijendra Kumar Chandrakar, Senior Manager (Finance), Sri G.S. Garcha, Executive Director, Sri Dhananjay Swain, Deputy Manager (Process), who appeared & were examined on various dates & produced documents as were asked for by the Opp. Party. Apart from this, the Petitioner by letter dated 05.04.2010 has supplied to the Opp. Party a list showing the names of employees with their designations engaged in various departments. In case the Opp. Party feels it necessary, he can issue summons to any person & record their statements.

Needless to say that to achieve the objective of unearthing the amount of excise duty evaded by any person liable to pay such excise duty & to plug leakage of excise duty legitimately due to the public exchequer, various measures have been provided in the Central Excise Act, 1944 & the Rules framed thereunder. One of such measures is search & seizure operation in the business premises of the assessee who is suspected to have committed economic offences for illegal pecuniary benefits. In course of the search, books of account, document suspected to throw light on the unscrupulous activities of a business concern are seized. Stock taking of raw materials, finished products are taken to find out discrepancy with reference to books of accounts maintained by the assessee. Once this measure is adopted, the role of the departmental, authority becomes more significant than the role of the assessee. The departmental authority mainly needs the assistance of the persons connected with the business activities of the assessee to understand the contents of the seized books of account. In the process, the empowered officer Issues summons to any person whose attendance he considers necessary either to give evidence or produce document or things in his possession. In case, the departmental authority does not get proper assistance from the assessee in respect of whom search & seizure operation has been conducted & documents & books of accounts have been seized, he adopts his own methods to understand the contents of the seized documents to find out the modus operandi adopted by the assessee & discover the quantum/magnitude/extent of clandestine business carried on by the assessee & amount of excise duty evaded. Everybody knows that barring a few small business concerns, all medium & big business organizations are managed by various personnels having expertise in different activities of business. Thus, division of work & responsibility is inevitable for successful running of a business. This is more so in case of a manufacturing concern. One person certainly cannot manage/look after various activities involved in a manufacturing process. Different persons having specialized knowledge & experience are engaged to look after different business activities like purchase of raw materials, manufacturing process, sale of finished products, maintenance of accounting, payment of various duties & taxes, labour, electricity, environment etc. Very often it is seen that the Managing Director of a company, who holds very responsible post & looks after the over all management of the company, finds it difficult to explain any activity of the company in detail & for which other persons having expertise are engaged to deal with that activities of the Company. In that event, it will be inconvenient for the Managing Director to appear in person & explain "about any document, record of the company pertaining to any particular activity only because he holds a very important post in the Company.

In S.M.S. Pharmaceuticals Ltd. Vs. Neeta Bhalla and Another, , the Apex Court categorically held that there may be a large number of Directors, but some of them may not assign themselves in the management of the day-to-day affairs of the company & thus are not responsible for the conduct of the business of the company.

In National Small Industries Corporation Ltd. v. Harmeet Singh Paintal and Anr. (2070) 3 SCC 330, the Apex Court while dealing with a matter under the Negotiable Instruments Act, 1881 with reference to Sections 141, 138 & 142 of the said Act held that the Apex Court had distinguished the case of the persons who are in charge of & responsible for the conduct of the business of the company at the time of offence & the persons who are merely holding the post in a company & are not in charge of & responsible for the conduct of the business of the Company.

In the instant case, the Managing Director expresses his inability to explain the day-to-day affairs of the Company. The specific reason for which the Petitioner has expressed his inability to appear & depose before Opp. Party in response to the summons issued is that he is stationed at New Delhi & is not looking after day-to-day affairs of the Company. In such circumstance, even if the Petitioner appears before Opp. Party, he would simply take the same stand as before & no useful purpose would be served by his mere appearance before the Opp. Party.

We find no reason as to why the Opp. Party after conducting search & seizure in the business premises of the Company is insisting upon personal appearance of the Managing Director who has specifically informed that he is stationed at New Delhi & is not looking after the affairs of the Company due to old age. The purpose for which summons u/s 14 of the Act under Annexures-1, 7 & 9 were issued to the Petitioner, as revealed from those summons, is that the Opp. Party believes that the Petitioner was in possession of certain documents & records that were material for the purpose of enquiry with regard to the allegation of violation of provisions of the Central Excise Act, 1944 & the Rules framed thereunder against the Company. The summons as wen as the counter is silent as to any particular fact and/or document & record that is material for the purpose of enquiry, is in possession of the Petitioner.

In course of hearing, Learned Counsel appearing for the Department also could not satisfy us by showing any specific reason for issuing summons to the Petitioner-Managing Director. Mr. Ray also failed to satisfy as to whether the Managing Director is in possession of the books of account, documents of the Company that he is hiding/concealing from the Department. It is, therefore, not sufficient to make a statement that personal appearance of the Managing Director is necessary for which summons u/s 14 has been issued to him to appear personally. It appears, the Opp. Party is more interested in the personal appearance of the Managing Director than to apply his mind to the books of account, documents seized in course of search & seizure & the documents, produced thereafter to find out the amount/quantum of Excise Duty evaded, if any. In this context, we feel it necessary to refer to the Circular bearing C.B.E. & C Letter F. No. 208/122/89-CX.6, dated 13.10.1989 though it has been issued in a different factual scenario, i.e., with regard to collection of arrear dues. The relevant portion of the said Circular which will throw light on the present context is as follows:

Complaints have been received from the trade that in some of the Collectorates summone u/s 14 of the Central Excises & Salt Act, 1944 are being issued to the Managing Directors & other high officers with a view to enforce recovery of dues which are under dispute. Action under this Section is to be taken only as a last resort in cases where assesses are not cooperating or investigations are to be completed expeditiously. This Section should not be used for harassing the top management for forcing them to pay up demands which are disputed by them. For recovery of demands normal procedure under the law ''should be followed. If any instance of issue of summons to Managing Directors & other Directors without justification is noticed, a serious view will be taken by the Board, Collectors will be held personally responsible for enforcing these instructions in their charges.

The Gujarat High Court in A.S. Corporation v. Union of India 2008 (223) O.L.T. 26 (Guj.) while dealing with an issue relating to summon u/s 14 of the Act held that the Petitioner not be issued any further summons in relation to same subject matter unless & until Respondent-Department is in possession of any specific evidence requiring presence of the Petitioner.

Law is well settled that every action of the State or its instrumentality should be fair, legitimate & above board & without any affection or aversion. (See Haji T.M. Hassan Rawther Vs. Kerala Financial Corporation, ; E.P. Royappa Vs. State of Tamil Nadu and Another, ; State of Andhra Pradesh and Another Vs. Nalla Raja Reddy and Others, ) Since the purpose of conducting a search & seizure in any business house particularly in a company is to unearth the tax concealed/evaded due to the State''s exchequer, the Revenue authorities should apply their mind to the records seized & statements recorded from the various employees of the company mcourse of search & seizure operation & post search period & may summon any person of the company having knowledge about the activities of the company & the records maintained by the Company. Central Excise authorities should not summon any person in exercise of powers u/s 14 of the Act in a mechanical manner.

In the fact situation, we direct the Managing Director to furnish a resolution passed by the Board of Directors ratifying the stand taken by the Managing Director under Annexure-2 & also authorizing the persons who are looking after various business activities of the Company as claimed & appear before the Opp. Party as & when required to answer the queries to be made by Opp. Party, adduce evidence on behalf of the Managing Director/Company to which he/the Company will have no objection & the same shall be binding on him/Company. In addition to the above, the Managing Director shall also furnish an undertaking by way of an affidavit to that effect. This precaution is necessary for further progress in the proceedings & verification of the evidence.

The Opp. Party after being satisfied that the Petitioner has acted in accordance with the direction issued by this Court, he shall dispense with personal appearance of the Managing Director. If the Managing Director fails to act according to the direction of this Court, it will be open to Opp. Party to proceed with the summons dated 05.02.2010 (Annexure-9) issued against the Petitioner in accordance with law.

With the above observations, the Writ Petition is disposed of.

A.S. Naidu, J.

I agree.