Ludhiana Steel Ltd. and R.K. Jain and Dharam Paul Jain V. Assistant Collector, Central Excise Division, Ludhiana

CRM/56542/2004

AI Insights

The case involves M/s Ludhiana Steel Ltd. and its directors, who were accused by the Assistant Collector, Central Excise Division, Ludhiana, of willfully suppressing the production of steel ingots to evade central excise duty between October 1989 and July 1991. The initial departmental proceedings led to a demand for duty and penalties, which were later contested and partially reduced by the Customs Excise and Gold (Control) Appellate Tribunal (CEGAT). However, the criminal proceedings continued based on different evidence, leading to this petition to quash the criminal complaint. The High Court's decision emphasized the independence of criminal proceedings from departmental adjudications, allowing for the continuation of criminal cases even if the departmental charges are not substantiated.

• Counselvise Citation: [2010] 140 COUNSELVISE.COM (IT) 799714 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 28-05-2010
• Assessment Year: misc
• Other Referred Cases: G.L. Didwania v. Income Tax Officer, Jagan Nath Nagpal & Co. v. Asstt. Collr. of C. Ex., Amritsar, M/s Ajay Tent House and others v. Income Tax Officer, Gurgaon, S.G. Chandra (Dr.) v. Enforcement Officer, DTE, FERA, Standard Chartered Bank v. Directorate of Enforcement
• Laws Referred To: Central Excise & Salt Act, 1944, Central Excise Rules, 1944, Criminal Procedure Code, 1973
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: H P S GHUMMAN
• Assessee Lawyers: OP GOYAL; KANWALJEET KAUR
• Keywords: Adjudication; Central Excise Duty; Clandestine Removal; Criminal Proceedings; Prosecution
• Section: 9; 245; 482

Judgement Text

"IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Criminal Misc. No. 56542-M of 2004 Date of decision: 28th May, 2010 M/s Ludhiana Steel Ltd. and others … Petitioners Versus Assistant Collector, Central Excise Division, Ludhiana … Respondent CORAM: HON'BLE MR. JUSTICE KANWALJIT SINGH AHLUWALIA Present: Mr. O.P. Goyal, Senior Advocate with Ms. Kanwaljeet Kaur, Advocate for the petitioners. Mr. H.P.S. Ghumman, Advocate for the respondent. KANWALJIT SINGH AHLUWALIA, J. Shorn off all minute details, suffice it to say M/s Ludhiana Steel Limited – petitioner No.1 and its Directors – petitioners No.2 to 4, were sought to be prosecuted by Assistant Collector, Central Excise Division, Ludhiana on the allegation that during the period October, 1989 to 20.7.1991, M/s Ludhiana Steel Ltd., Ludhiana had willfully suppressed production of 683.045 M.T. steel ingots with an intent to evade payment of central excise duty thereon. It removed a quantity of 666.400 M.T. clandestinely in violation of rule 9(1), 52A, 173F, 173G and 226 of the Central Excise Rules, 1944 evading central excise duty amounting to Rs.4,05,264.30 (Rs.3,85,966/- BED and Rs.19,298.30 as SED). Thus, for intentional evasion of excise duty to the tune of Rs.4,05,264.30, the accused petitioners are said to have committed an offence punishable Criminal Misc. No. 56542-M of 2004 under Section 9 of the Central Excise & Salt Act, 1944 (hereinafter referred to as, ‘the Act’). The prayer made in the present petition filed under Section 482 Cr.P.C. is to quash the complaint (Annexure P-1) instituted by Assistant Collector, Central Excise Division, Ludhiana in the Court of Chief Judicial Magistrate, Ludhiana, along with all subsequent proceedings, including the summoning order, especially the order (Annexure P-10) dated 25th September, 2004, whereby the application submitted by the petitioners under Section 245 Cr.P.C. for dropping the proceedings was dismissed. The main plea for seeking the relief prayed for is that the criminal complaint (Annexure P-1) was preferred on the basis of order (Annexure P-2) dated 30th November, 1992 passed by the Collector of Central Excise, Chandigarh, whereby the Collector had imposed and demanded a duty of Rs.4,05,264.30 from the petitioners and had also imposed a penalty of Rs.1,00,000/- on petitioner No.1 – Company besides a penalty of Rs.10,000/- each on R.K. Jain and Dharam Paul Jain – petitioners No.3 and 4 respectively. The order of the Collector was impugned in an appeal before Customs Excise and Gold (Control) Appellate Tribunal (hereinafter referred to as, ‘CEGAT’), which vide its order dated 13th May, 1997 arrived at the following conclusion: “In the circumstances we hold that the allegation of clandestine removal has not been proved. In the circumstances the demand for duty amounting to Rs.4,05,256.30 is set aside. In so far as imposition of penalty on M/s Ludhiana Steel Ltd. is concerned we find that in view of our findings the personal penalty on M/s Ludhiana Steel Ltd. is not commensurate with the offence but is on the higher side. In the result the same is reduced to Rs.25,000/-. So also by 2 Criminal Misc. No. 56542-M of 2004 imposition of penalty on Dharam Pal Jain and R.K. Jain is reduced to Rs.5,000/- each.” It was pleaded before the trial Court that once CEGAT had absolved the petitioners of the allegations of clandestine removal, continuation of the criminal proceedings in pursuance of complaint (Annexure P-1) is misuse and an abuse of process of law. An application (Annexure P-6) was filed under Section 245 Cr.P.C. for dropping the proceedings and the following ground was vehemently pressed: “8. That the matter has become final and it has been conclusively held against the accused that they have not committed any offence and as such the present proceedings cannot be maintained against the accused and are liable to be dropped immediately.” Another plea raised, during the course of arguments, before the Chief Judicial Magistrate, Ludhiana was that the Government had issued a notification on 31st December, 1997, whereby it decided to enhance the monetary limit for launching prosecution from Rs.1.00 lac to Rs.5.00 lacs. Therefore, the prosecution of the petitioners is bad and contrary to the notification. Both these arguments were negated by the Chief Judicial Magistrate, Ludhiana in the impugned order (Annexure P-10) dated 25th September, 2004 by observing as under: “4. … … … But this is a criminal complaint filed by the Asstt. Collector of Cen. Excise Division, Ludhiana. Therefore, this Court is to decide independently on the evidence to be adduced by both the parties. So, decision of the tribunal is not binding on this Court. So far as notification dt. 31.12.97 is concerned whereby it is alleged that the Board has decided to further enhance the monetary limit for launching prosecution from Rs.1 lac to Rs.5 lac and has further decided to further enhance the monetary limit of Rs.5 lacs to Rs.25 lacs prospectively so as to ensure better 3 Criminal Misc. No. 56542-M of 2004 utilization of manpower, time and resources of the department but this complaint was filed in 1994 much before this notification was issued. So, in these circumstances, I am of the view that criminal Court have to decide the complaint independently of the decision of Customs, Excise and Gold (Control) Appellate Tribunal. So, this application being without any merits is hereby dismissed.” Mr.O.P. Goyal, Senior Advocate assisted by Ms.Kanwaljeet Kaur, Advocate has urged that in view of the judgment of Hon’ble the Apex Court rendered in ‘G.L. Didwania v. Income Tax Officer’ 1999 (108) E.L.T. 16 (S.C.), on the same allegation of which the accused were absolved by the Tribunal, the prosecution cannot be sustained. In G.L. Didwania’s case (supra), Hon’ble the Apex Court observed as under: “4. In the instant case, the crux of the matter is attracted and whether the prosecution can be sustained in view of the order passed by the Tribunal. As noted above, the assessing authority held that the appellant-assessee made a false statement in respect of income of Young India and Transport Company and that finding has been set aside by the Income-tax Appellate Tribunal. If that is the position then we are unable to see as to how criminal proceedings can be sustained. 5. Mr. A. Raghuvir, learned Senior Counsel appearing for the department, submitted that the fact whether the firm is a genuine firm, still remains as a question to be resolved and, therefore, the proceedings cannot be quashed at this stage. We do not agree. The whole question is whether the appellant-assessee made a false statement regarding the income which according to the assessing authority has escaped assessment. So far as this issue is concerned, the finding of the Appellate Tribunal is conclusive. Therefore, as held in Uttam Chand’s case [1982] 133 ITR 909 (S.C.), the prosecution cannot be sustained. Accordingly, the proceedings are quashed and the appeal is allowed.” 4 Criminal Misc. No. 56542-M of 2004 In support of the above contention, further reliance has been placed upon a judgment of Single Bench of this Court rendered in ‘Jagan Nath Nagpal & Co. v. Asstt. Collr. of C. Ex., Amritsar’ 1994 (70) E.L.T. 63 (P&H), wherein it was observed as under: “5. Since the Appellate Authority had quashed the order of the Collector Annexure P.2, the net result of the order was that the plea of the department that the petitioners had indulged in clandestine removal of the sodium silicate was not accepted and thus, no default had been committed by the petitioner in payment of the excise duty. In this situation, the matter having been finally settled by the Appellate Authority, no prosecution on the same facts was legally competent, and the complaint cannot terminate in an order of conviction, the continuation of such a complaint is thus abuse of process of Court.” To similar effect, the judgment cited before this Court is ‘M/s Ajay Tent House and others v. Income Tax Officer, Gurgaon’ 2003(2) RCR (Criminal) 49, the relevant portion of which reads as under: “11. It is not in dispute that the order imposing the penalty has been set aside by the Income Tax Appellate Tribunal vide order dated April 4, 1991 Annexure P-2. The relevant findings given by the Tribunal have been reproduced by me above. It is apparent that the Tribunal has not quashed the order of penalty merely on some technicality but on firm finding of fact recording that there was no concealment by the assessees and under these circumstances the question of imposing the penalty did not arise. Another order of the Tribunal dated August 29, 1991 is appended as Annexure P-3, vide which the Tribunal declined to refer the matter to the High Court. 12. In these circumstances, the observations made in G.L. Didwania’s case (supra) are fully attracted to the fact of 5 Criminal Misc. No. 56542-M of 2004 this case. It was observed by the Apex Court in G.L. Didwania’s case as follows:- ‘In the instant case, the crux of the matter is attracted and whether the prosecution can be sustained in view of the order passed by the Tribunal. As noted above, the assessing authority held that the appellant-assessee made a false statement in respect of income of Young India and Transport Company and that finding has been set aside by the Income-tax Appellate Tribunal. If that is the position then we are unable to see as to how criminal proceedings can be sustained.” To similar effect is the judgment of another Single Bench of this Court rendered in ‘S.G. Chandra (Dr.) v. Enforcement Officer, DTE, FERA’ 2004 (170) E.L.T. 402 (Kar.). From the submissions made by Mr.Goyal and the judgments relied, the only question which this Court has to answer can be formulated as under: “Whether continuation of criminal proceedings initiated for evasion of tax have to be terminated because in departmental proceedings the charge of evasion of tax has not been proved ?” In answer to the above question, Mr. H.P.S. Ghumman, Advocate appearing for the respondent, has submitted that adjudication and prosecution are two separate and distinct procedures with distinct purposes. It has been contended that the law has permitted it by providing two separate modes for dealing with the persons who contravene the law 6 Criminal Misc. No. 56542-M of 2004 in relation to evasion of excise duty. There is no bar either in the Central Excise & Salt Act, 1944 or any other law to an adjudication and prosecution being laid in respect of the same set of allegations. In ‘Standard Chartered Bank v. Directorate of Enforcement’ 2006 (2) RCR (Criminal) 85, it was observed as under: “20. The act was enacted, as indicated by its preamble, for the conservation of foreign exchange resources of the country and the proper utilization thereof in the economic development of the country. When interpreting such a law, in the absence of any provision in that regard in the Act itself, we see no reason to restrict the scope of any of the provisions of the Act, especially in the context of the presence of the “without prejudice” clause in Section 56 of the Act dealing with offences and prosecutions. We find substance in the contention of the learned Additional Solicitor General that the Act subserves a twin purpose. One, to ensure that no economic loss is caused by the alleged contravention by the imposition of an appropriate penalty after an adjudication under Section 51 of the Act and two, to ensure that the tendency to violate is curbed by imposing an appropriate punishment after a due prosecution in terms of Section 56 of the Act. The contention that as a matter of construction – since the provisions could not be attacked as violative of the rights under Part III of the Constitution – we should interpret the provisions of the Act and hold that an adjudication has to precede a prosecution cannot be accepted as we see nothing in the provisions of the Act justifying such a construction. On the scheme of the Act, the two proceedings are seen to be independent and the launching of the one or the other or both is seen to be controlled by the respective provisions themselves. In the context of the inclusion of this Act in the Ninth Schedule, the reliance placed on the decision in Rayala Corporation (P) Ltd. & Ors. v. Director of Enforcement, New Delhi, (1962 (2) SCC 412) cannot enable this Court to deem the provisions as arbitrary and to read them down or understand them in the manner suggested by the learned 7 Criminal Misc. No. 56542-M of 2004 senior counsel. The very purpose of the Act and the very object of inclusion of the Act in the Ninth Schedule justifies an interpretation of the provisions as they stand on the basis that there is nothing arbitrary or unreasonable in the provisions and in the scheme as enacted. We may also notice that Section 23D of the Foreign Exchange Regulation Act, 1947 which was considered in Rayala Corporation (P) Ltd. & Ors. had a proviso, which indicated that the adjudication for the imposition of penalty should precede the making of a complaint in writing to the concerned Court for prosecuting the offender. The absence of a similar proviso to Section 56 or to Section 51 of the present Act, is also a clear indication that the legislature intended to treat the two proceedings as independent of each other. Obviously, the legislature must be taken to have been conscious of the interpretation placed on the corresponding provisions by this Court in the decisions above referred to when the 1973 Act was enacted and it was also included in the Ninth Schedule to ward off any challenge on the ground that it would be violative of Article 14 of the Constitution, unless understood or read in a particular fashion.” Therefore, continuation of adjudication proceedings and prosecution simultaneously was upheld. In this context, it is to be seen as to whether after adjudication of the proceedings, prosecution can continue or not on the facts of the case. CEGAT absolved the Company regarding the allegation of clandestine removal of steel ingots for the reason that except, Dharam Kanta Slips, no other material was placed before the Tribunal. The following finding of the CEGAT is required to be noticed: “23. In so far as clandestine removal of 653.945 MT of steel ingots is concerned, we find that no evidence except Dharamkanta slips have been placed before us on record, even Dharamkanta slips do not indicate that the materials weighed were steel ingots. No evidence in the form of 8 Criminal Misc. No. 56542-M of 2004 investigation report as to whom these steel ingots were sold has been placed on record. We do not see any evidence has been produced by the department to show that excess raw material was procured for the manufacture of 653.945 MT of ingots and the same was clandestinely removed. Admittedly the appellants had 8 trucks with them but these trucks were used by the appellants for carrying steel ingots and disputed slag. A lot of controversy arose about the disposal of slag. Slag was generated in the manufacture of steel ingots. What percentage of slag in the manufacture of steel ingots is generated depends on a number of factors namely quality, standard and type of raw material used is the determinative of generation of slag. A reference to the balance sheet of the appellants company was made. In the balance sheet an amount of expenditure was shown as outward freight. The adjudicating authority had held that it cannot be the amount spent on disposal of slag and also that the trade practice was that slag was not weighed. However, the appellants submitted that they were selling slag at very nominal cost to their employees; that employees were using their trucks while trucks were being taken out they were being weighed. Thus, there is probability of use of the trucks for that purpose and weighment thereof. Thus, even if it is treated as not convincing reply what is produced by the department to show that 653.945 MT of steel ingots were illicitly manufactured or clandestinely removed except Dharamkanta slips. As indicated previously that these dharamkanta slips did not show the description of the good weighed therefore, they cannot be accepted as sole evidence to prove that the goods weighed under Dharamkanta slips were steel ingots. In the circumstances we hold that the allegation of clandestine removal has not been proved. In the circumstances the demand for duty amounting to Rs.4,05,256.30 is set aside.” A perusal of the impugned complaint (Annexure P-1) that for prosecuting the accused petitioners, complainant had relied upon voluntary 9 Criminal Misc. No. 56542-M of 2004 statement of Dharampal Singh, Driver; voluntary statement made by Ajit Singh, Director of M/s Sudershan Steel Re-rolling Mills, Ludhiana and the statement of Santokh Singh, Gate Supervisor of M/s Sudershan Steel Re- rolling Mills, Ludhiana; besides the observations of the Investigating Officers, who had conducted search of the premises of the petitioner- Company and the factory premises of M/s Sudershan Steel Re-rolling Mills, Ludhiana. They had carried physical verification and had taken various documents into possession, which incriminate the petitioners. They had scrutinized the record also, from which willful suppression of the production of 683.045 MT steel ingots was evident. In ‘Mohd. Ali Jabiullah v. A.K. Maurya’ 2008 (221) E.L.T. 501 (Del.), the Delhi High Court, touching the question formulated above, had observed as under: “11. I need not deal with the rival judgments cited for the reason taking note of the various judgments on the issue including the ones noted above and especially the judgment of the Supreme Court in the Standard Chartered Bank’s case (supra), A.K. Sikri, J. of this Court in Sunil Gupta’s case (supra) has held as under: ’25. …. In fact, various cases of the Supreme Court note whereof is taken above, deal with different situations. The principles which can be culled out from the aforesaid judgments, when all these judgments are read out harmoniously, would be the following: 1. On the same violation alleged against a person, if adjudication proceedings as well as criminal proceedings are permissible, both can be initiated simultaneously. For initiating criminal proceedings one does not have to wait for the outcome of the adjudication proceedings as the two proceedings are independent in nature. 10 Criminal Misc. No. 56542-M of 2004 2. The findings in the departmental proceedings would not amount to res judicata and initiation of criminal proceedings in these circumstances can be treated as double jeopardy as they are not in the nature of ‘prosecution’. 3. In case adjudication proceedings are decided against a person who is facing prosecution as well and the Tribunal has also upheld the findings of the adjudicators/assessing authority, that would have no bearing on the criminal proceedings and the criminal proceedings are to be determined on its own merits in accordance with law, uninhibited by the findings of the Tribunal. It is because of the reason that in so far as criminal action is concerned, it has to be proved as per the strict standards fixed for criminal cases before the criminal Court by producing necessary evidence. 4. In case of converse situation namely where the accused persons are exonerated by the competent authorities/ Tribunal in adjudication proceedings, one will have to see the reasons for such exoneration to determine whether these criminal proceedings could still continue. If the exoneration in departmental adjudication is one technical ground or by giving benefit of doubt and not on merits or the adjudication proceedings were on different facts, it would have no bearing on criminal proceedings. If, on the other hand, the exoneration in the adjudication proceedings is on merits and it is found that allegations are not substantiated at all and the 11 Criminal Misc. No. 56542-M of 2004 concerned person(s) is/are innocent, and the criminal prosecution is also on the same set of facts and circumstances, the criminal prosecution cannot be allowed to continue. The reason is obvious criminal complaint is filed by the departmental authorities alleging violation/ contravention of the provisions of the Act on the part of the accused persons. However, if the departmental authorities themselves, in adjudication proceedings, record a categorical and unambiguous finding that there is no such contravention of the provisions of the Act, it would be unjust for such departmental authorities to continue with the criminal complaint and say that there is sufficient evidence to foist the accused with criminal liability when it is stated in the departmental proceedings that ex-facie there is no such violation. The yardstick would, therefore, be to see as to whether charges in the departmental proceedings as well as criminal complaint are identical and the exoneration of the concerned person in the departmental proceedings is on merits holding that there is no contravention of the provisions of any act.’ 12. From a perusal of the Sunil Gupta’s case (supra), it is apparent that a distinction has been drawn where exoneration in an adjudicating proceeding on a given set of facts and evidence is on merits vis-à-vis where exoneration in adjudicating proceeding is either not on merits or criminal proceeding is based upon different set of facts and evidence. 12 Criminal Misc. No. 56542-M of 2004 13. Therefore, to ascertain the effect of the exoneration in the adjudication proceedings on the criminal proceedings, in a given case it has to be seen whether: (i) The criminal prosecution is based on same set of facts/allegations and evidence which was before the adjudicating authority or not; and (ii) Whether exoneration by the adjudicating authority is on merits or not;” In view of the above said legal principles, this Court has to determine as to whether exoneration of the petitioners by the adjudicating authority is sufficient to hold that criminal prosecution cannot continue against the petitioners. As stated earlier, before the CEGAT the charge could not be established as the department had only relied upon Dharam Kanta slips and on Dharam Kanta slips it was not indicated that the material weighed was steel ingots. Whereas, in the complaint, various pieces of evidence have been divulged to prove the guilt of the accused petitioners. Thus, in sum and substance, CEGAT exonerated the petitioners because of insufficiency of evidence. This in itself, is no ground to quash the criminal proceedings, especially when there is specific material disclosed in the complaint, from which prima-facie opinion can be formulated that conviction of the petitioners can be secured. Hence, the question formulated above is hereby answered against the petitioners. There is no merit in the present petition and the same is hereby dismissed. [KANWALJIT SINGH AHLUWALIA] JUDGE May 28, 2010 rps 13 "