Pranatharthiharan Sreedharan V. Union of India

SCA/17478/2019

AI Insights

The case involves Pranatharthiharan Sreedharan, a technocrat with extensive experience in the manufacturing industry, who challenged an ex-parte order imposing a personal penalty on him. The order was issued by the Principal Commissioner of Central Excise and GST, Vadodara-II, without proper service of show cause notice or personal hearing. The petitioner argued that he was only an employee and not liable for the company's contraventions, and that the principles of natural justice were not followed. The respondents contended that the notices were served as per legal provisions, including affixing them on the notice board due to failed postal deliveries. The court found that the service of notices was inadequate and violated the principles of natural justice, leading to the quashing of the penalty imposed on the petitioner.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 802361 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 08-09-2021
• Assessment Year: misc
• Other Referred Cases: Regent Overseas Pvt. Ltd. Vs. Union of India, Messers CTM Technical Textiles LTD Versus Union of India, M/s.Darshan Boardlams Ltd. v/s. Union of India
• Laws Referred To: Central Excise Act, 1944
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: ANKIT SHAH; UTKARSH SHARMA
• Assessee Lawyers: DHAVAL SHAH; S S IYER
• Keywords: Audi alteram partem; Ex parte order; Personal penalty; Principles of natural justice; Show cause notice
• Section: 35-B; 35(F); 37C

Judgement Text

"C/SCA/17478/2019 ORDER DATED: 08/09/2021 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 17478 of 2019 ========================================================== PRANATHARTHIHARAN SREEDHARAN Versus UNION OF INDIA ========================================================== Appearance: MR DHAVAL SHAH(2354) for the Petitioner(s) No. 1 MR. S S IYER(6553) for the Petitioner(s) No. 1 MR ANKIT SHAH(6371) for the Respondent(s) No. 2 MR UTKARSH R SHARMA(6157) for the Respondent(s) No. 3,4 NOTICE UNSERVED(8) for the Respondent(s) No. 1 ========================================================== CORAM: HONOURABLE MS. JUSTICE SONIA GOKANI and HONOURABLE MR. JUSTICE RAJENDRA M. SAREEN Date : 08/09/2021 ORAL ORDER (PER : HONOURABLE MR. JUSTICE RAJENDRA M. SAREEN) 1. This is a petition where the challenge is made to the legality and validity of ex-parte order in original no. VAD- EXCUS-002-COM-018-18-19 dated 28.02.2019 passed by respondent no.3 – Principal Commissioner of Central Excise and GST, Vadodara-II imposing personal penalty on the petitioner without service of show cause notice and without service of notices of personal hearing. 2. Briefly the facts shorn of details are as follows: - 2.1. The petitioner is a technocrat with over 37 years experience in manufacturing industries. He is an electrical engineer having experience in manufacturing of electric products. The petitioner was with one M/s. W.S. Industries Unit for over three decades. M/s. W.S. Industries Group was manufacturing range of products for Transmission and Page 1 of 15 C/SCA/17478/2019 ORDER DATED: 08/09/2021 Distribution Applications of Power Sector. 2.2. The petitioner joined Diamond Power Transformers Ltd. (DPTL), Vadodara in August, 2012 as a Director (Operations). He was only an employee with designation as Director (Operations) and has no Board of Directors level position in DPTL. He was heading the operations of the transformer business, more on power transformer business for power transformer of unit-II and overseeing operation of distribution transformer of unit-I. It was 100% subsidiary of the Diamond Power Infrastructure Ltd. (DPIL), Finance and Accounts, Excise, Sale Tax, Service Tax, etc. under the preview of corporate office. 2.3. The DPTL owned two units, first one located at Ranoli, District Vadodara, Gujarat and the second unit located at Village Samiyala, Padra Taluka, District Vadodara. The petitioner was functioning from Samiyala factory of DPTL. 2.4. It is the case of the petitioner that the officers of the Directorate General of Goods and Services Tax Intelligence, Vadodara Regional Unit undertook search operations at the factory premises of DPTL on 23.09.2014. It is urged that the officer searched both the factory premises of DPTL and resumed voluminous documents alleged to be incriminating in nature. Various statements have been recorded of the different persons which included the petitioner also. He later on left DPTL in June 2016 due to ailment of his mother and settled in Chennai. He has filed form No. 26AS with Income Tax Department to substantiate this version of his. According to him, no notice had been received from the Page 2 of 15 C/SCA/17478/2019 ORDER DATED: 08/09/2021 respondent nos. 2 to 4 till his date of retirement. 2.5. It is the say of the petitioner that show cause notice issued in the year 2017 by the respondent No.2 – The Additional General of DGGSTI, Zonal Unit, Surat, has not been received by the petitioner and it was the duty of the respondent No.3 to to verify the service of show cause notice and replied upon the documents on the petitioner but also ensure service of personal hearing to the petitioner before proceeding with adjudication against the petitioner. 2.6. It is his grievance that on 08.04.2019 the Superintendent of Central Excise, Range – V, Division-II of Vadodara-I Commissionerate – respondent no.4 herein forwarded two original order copies, one of which have been passed by the respondent no.3 - Commissioner of Central Excise, Vadodara-II. The petitioner was away from Chennai and was aet USA with his daughter from 20.03.2019 to 10.06.2019. These orders were delivered to the petitioner's servant maid Smt. Panchali, who handed over the same to the petitioner on his return from USA. He came to know that he was subjected to the penal proceedings by respondent no.3 by passing the order which is ex-parte, without even serving the show cause notice. The impugned order dated 28.02.2019, therefore, is questioned on the ground that the imposition of personal penalty to the tune of Rs. 4,50,000/- (Rupees Four Lac Fifty Thousand) under Rule 26(2)(i) and Rule 26(2)(ii) and personal penalty to the tune of Rs. 15,00,000/- (Rupees Fifteen Lacs) under Rule 26(2)(i) and Rule 26(2)(ii) of the Central Excise Rules is illegal and void ab-initio. Page 3 of 15 C/SCA/17478/2019 ORDER DATED: 08/09/2021 2.7. He has emphasized that he had left services of the company in June, 2016. The show cause notice was issued by the respondent no.2 in the year 2017, therefore, without verifying as to whether there had been a due service of show cause notice to the petitioner, the proceedings could not have been proceeded ex-parte, more particularly, when the personal penalty has been imposed on the petitioner without following any principles of natural justice. He has reiterated his stand that he was only a technocrat in the company and for any contravention made by the company, he cannot be held liable. 2.8. It is also his case that though the appeal is available against this order in original before the CESTAT, there is a mandate of ore-depositing of 7.5% of the amount of penalty. Moreover, this being a challenge to the non-observation of the principles of natural justice, there is a need for the Court to entertain this petition without insisting on the taking recourse to the alternative remedy. 2.9. It is also the case of the petitioner that the respondent Nos.2 and 3 have acted against the petitioner in complete breach of principles of natural justice and order of imposing personal penalty on the petitioner is illegal and unfair, as there can be no adjudication of show cause notice without service of notice with all relied documents and personal hearing of the notices. Moreover, this being a challenge to the non-observation of the principle of “audi alterum partum” there is need for the court to entertain this petition. Page 4 of 15 C/SCA/17478/2019 ORDER DATED: 08/09/2021 3. On issuance of notice, the respondents have appeared and filed the affidavit-in-reply. The same has been filed by Dr. Satish Dhavale, Commissioner, Central GST & Central Excise, Vadodara-II denying all the averments in toto. 3.1. The preliminary objection is with regard to the maintainability of the present petition is raised by the learned counsel for the department and has stated that as per Section 35(B) of the Central Excise Act, 1944, the petitioner has alternative remedy before the Customs, Excise & Service Tax Appellate Tribunal by filing Appeal. It is only in order to avoid the pre-deposit to the that the writ petition has been chosen to overreach the process mandated under the law, which should not be permitted. It is also emphasized that the way prescribed by the statute should not be permitted to be overreached. 3.2. It is further the say of the respondent department that the petitioner was Director (Operation of M/s.Diamond Power Transformers Ltd, Unit-I, Ranoli and Unit-II, Samiyala and was looking after the day-to-day affairs of the company. Therefore, he is liable for issuance of fake invoices without delivery of goods and passing on intelligible Cenvat Credit to M/s.DPIL. It is also the say of the respondent Department that it wa M/s. Diamond Power Transformers Ltd., Unit-I Ranoli has abetted in issuing fraudulent invoice and passing on CENVAT credit to M/s. DPIL to the tune of Rs.46,22,797 and M/s.Diamond Power Transformers Ltd., Unit-II Samiyala has abetted in issuing fraudulent invoice and passing on CENVAT credit to Ms/.DPIL to the tune of Page 5 of 15 C/SCA/17478/2019 ORDER DATED: 08/09/2021 Rs.1,49,45,777/-. 3.3. It is also further say of the respondent department that the show cause notice was sent to the factory address and residential address of the petitioner by Speed Post and the same were returned with endorsement “left”. In that view of the matter, show cause notice was deemed to be served to the petitioner by affixing the same on the Notice Board of the DGGSSTI under section 37C of Central Excise Act, 1944, which permits such service of decision, orders, summons or notice, if the same is unserved in the manner otherwise prescribed as fixation is one of the way to convey the order. It is also the say of the respondent Department that three letters of personal hearing were sent to the petitioner at the address shown in the show cause notice, and the same have returned “unattended”. Morever, The Assistant Director, Directorate General of Goods and Service Tax, Intelligence, Regional Unit, Vadodara vide No.Letter No.INV/DGCEI/BRU/11/2014-15 dated 06.12.2017 informed the office of respondent No.3 that copy of show cause notice in respect of co-noticee No.15, i.e. the petitioner under instant petition has been served through affixing the same on the Notice Board of DGGSTI, Regional Unit, Vadodara. 3.4. It is also the say of the respondent department that the respondent No.3 have acted against the petitioner in complete breach of principle of natural justice and imposed penalty is not factually correct. The respondent No.3 has acted in accordance with law as the adjudicating authority has sent the letters of personal hearing to the known Page 6 of 15 C/SCA/17478/2019 ORDER DATED: 08/09/2021 address of the petitioner and the same have been returned undelivered by the postal department. As per the records of the Adjudicating Authority, the respondent No.3, the residential address of the petitioner at Chennai was not available and hence letters of personal hearing could not send to the said address and hence there is no violation of principle of natural justice. 4. We have extensively heard learned advocate Mr. S.S. Iyer, for the petitioner who has emphasized on various issues, however, his essential emphasis was on the breach of principle of natural justice. He along the line of memo of petition has urged that since it is a personal penalty imposed upon the petitioner, the issuance of show cause notice to the petitioner and the availment of opportunity of personal hearing was a must. According to him, there was no role played in the evasion of duty by the petitioner and any of the contraventions of the provisions of law or the rules cannot in any manner saddle any liability upon the petitioner. However, without entering into the merits of the matter, he has urged this Court that the order in original cannot be sustained for not having issued the show cause notice and in absence of any such proof of service on the part of the respondent. And also, for not having availed any opportunity of hearing, the order-in-original needs to be quashed so far as the present petitioner is concerned. He must be given the personal hearing and after availing the opportunity as required under the law, the matter should be decided. Learned advocate therefore has earnestly urged this Court to show the indulgence. Page 7 of 15 C/SCA/17478/2019 ORDER DATED: 08/09/2021 5. Learned Standing Counsel Mr. Utkarsh Sharma appearing for the respondents has urged that there is no intimation to the respondent of his not continuing to work with the company. It is with much difficulty, the office could find the address of the petitioner . The only issue is that the show cause notice of the company have been affixed as provided under the law. 6. Learned advocate Mr. Iyer for the petitioner has urged that the resolution professional also has been appointed. The company is under liquidation. According to him, the imposition of penalty upon the Director (Operations) would not have been for any suppression of material facts on the part of the company. Even if there are serious allegations against the officer, they are ought to have been availed the opportunity as is required under the law. 10. Taking firstly the issue of alternative remedy which is emphasized on the part of the respondent authority, we are conscious of the fact that under Section 35(F) of the Central Excise Act, 1944 which is applicable in the instant case, there will be a requirement of deposit of certain percentage of duty demanded or the penalty imposed before filing the appeal. It is the tribunal or the Commissioner (Appeals) as the case may be, who is not required to entertain any appeal against the decision unless the appellant has deposited seven and a half percent of the duty are in dispute, or penalty, where such penalty is in dispute, in pursuance of the decision or order appealed against. The Central Excise Act, 1944 were amended by the Parliament of India in the year 2014 and the right to appeal has been restricted till an appellant pays the pre-deposit. These provisions are absolute and no Page 8 of 15 C/SCA/17478/2019 ORDER DATED: 08/09/2021 discretion has been vested to relax these provisions to any authority to allow hearing of appeal unless the statutory pre-deposit is paid. 7. On the part of the respondent, it is urged that indirectly by invoking extraordinary powers of this Court under Article 226 of the Constitution of India what is being sought is to overreach the process of Section 35(F) of the Central Excise Act. We are conscious of the fact that the provisions of Section 35(B) stipulates that any person if is aggrieved by the decision or order passed by the Principal Commissioner of Central Excise or Commissioner of Central Excise acted as adjudicating authority, can appeal before the CESTAT. This Court could have relegated the present petitioner to CESTAT instead of entertaining this petition, however, noticing the settled position of law that when there is a gross and clear violation of principles of natural justice, despite the availability of the alternative remedy, writ petition under Article 226 requires to be entertained. The petitioner when claimed violation of natural justice and non affording of opportunity of hearing, to that limited extent, this Court can entertain writ petition. It, however, would allow the liberty to the respondent to follow the law and proceed. 12. We have chosen not to enter into the merits of the matter but having noticed from the entire gamut of facts that the petitioner had already left the services of DPTL way back in the year 2016 and when the same is substantiated by the documents which is of none other than the Income Tax Department of the year 2017-18, there is nothing to doubt in the version of the petitioner. It is also not being disputed by the respondent authority that all attempts to Page 9 of 15 C/SCA/17478/2019 ORDER DATED: 08/09/2021 serve the petitioner, the show cause notice had failed and therefore, the notice which was issued was sent by the speed post and the same had been affixed as per Section 37(C) of the Central Excise Act. As has been admitted by the respondent in its own reply also that the show cause notice was sent at the address of his residence and when he was not found and was noticed to have left the services of the DPTL, the only option was to affix the same on the notice board under Section 37(C). Moreover, other notices and the notices of the personal hearing also had been affixed at the company premise. 8. From the reply of the respondent department, it can be deduced unequivocally that the show cause notice and the personal hearing notices have not been served upon the petitioner. It has a reference of the first show cause notice served upon the company and therefore, it assumed that the show cause notice and the personal hearing notices have been served upon the present petitioner also. 9. In our opinion, this stand on the part of the respondent of not having known the changed address of petitioner on his having failed to put to the notice of department is wholly unacceptable. Failure to send the show cause notice and the notices of personal hearing therefore, upon the last known address of the petitioner is also unsustainable as the department of Income Tax already had details. The penalty imposed upon the petitioner in the order in original is to the tune of Rs.4,50,000/-. Any penalty imposed personally on the person cannot be saddled, unless due opportunity is given. Here not only there is a question Page 10 of 15 C/SCA/17478/2019 ORDER DATED: 08/09/2021 of availing opportunity of hearing, the very service of the show cause notice is also seriously questioned and we also could notice from the pleadings before us that neither the show cause notice was served upon the petitioner nor was he served notice of personal hearing. As the director of the company, even if his conduct is found questionable and worthy of initiating any legal proceedings personally, giving of opportunity to the company or affixing show cause notice and the notices of personal hearing of the director at the company premise would not simply amount to appropriate or sufficient service to the present petitioner. It is to be noted that show cause notice is of the year 2017 and the petitioner was in service only till 2016. Till he was in the service, as averred in the petition, no show cause notice had been issued and this aspect remains undisputed from the reply of the respondent authority. More particularly, when the order impugned is duly served upon his personal address at Chennai and if that could be done, there was no earthly reason as to why at an earlier point of time, show cause notice and other notices of hearing could not have been served upon him. Again, there is nothing to indicate as to how this affixing at company premise should be construed as sufficient notice to the petitioner nor is it found on record from any document that he was made aware of the show cause notice which led to the order impugned and therefore, merely because in reply to another show cause notice, he has been made aware also cannot furnish the ground to assume that he was aware of the show cause notice, the order of which is impugned in this matter. Such assumption and presumption are absent in the statute and they cannot furnish the basis to sustain the Page 11 of 15 C/SCA/17478/2019 ORDER DATED: 08/09/2021 order of huge amount of personal penalty. The foundation of principle of natural justice is audi alteram partem, the necessity of grant of opportunity of hearing and no party is to be condemned unheard. Here, there appears to be a flagrant violation of the said principle which necessitates indulgence. 10. As observed in the case of Regent Overseas Pvt. Ltd. Vs. Union of India, reported in 2017(6) GSLT 15 (Guj.), in para 8 has observed and held as under :- 8. Thus, under clause (a) of sub-section (1) of Section 37C of the Act, in case of service of notice by speed post, the same has to be with proof of delivery. To put it differently, service by speed post is valid provided there is proof of delivery. In the present case, it is an admitted position that the letter of personal hearing was sent to the petitioners through speed post; however, though details of date of despatch, etc., have been produced on record by the learned counsel for the respondents, including tracking number, there is no material by way of proof of delivery to the petitioners; whereas, on the other hand, it is the specific case of the petitioners that they have not received the notice for personal hearing. Thus, in view of the mandate of Section 37C of the Act, which provides for notice by speed post with proof of delivery, it is incumbent upon the respondents to furnish proof of delivery. In the absence of any proof of delivery, it cannot be said that there is Page 12 of 15 C/SCA/17478/2019 ORDER DATED: 08/09/2021 effective service of notice, as contemplated under Section 37C of the Act. In the absence of service of notice of personal hearing, the petitioners or their representative could not remain present before the adjudicating authority during the course of personal hearing and hence, the impugned order which has been passed ex parte is clearly in breach of principles of natural justice. 11. So far as maintainability of the petition is concerned as per the objection rasied by the rewspondent department that alternative remedy of preferring appeal has not been availed, is concerned in the case of Messers CTM Technical Textiles LTD Versus Union of India, reported in 2020 (12) TMI 1100 this Court has observed and held as under :- “When the statute provides for a particular procedure, the authority has to follow the same and cannot be permitted to act in contravention of the same. It has been hitherto uncontroverted legal position that where a statute is required to do something in a certain way, the thing must be done in that way or not at all. The other methods or mode of performance are impliedly and necessarily forbidden. The aforesaid settled legal position is based on a legal maxim \"expressio unius est exclusio atlerius\", meaning thereby that if a statute provides for a thing to be done in a particular way, then it has to be done in that manner and in no other manner and following other course is not permissible. Page 13 of 15 C/SCA/17478/2019 ORDER DATED: 08/09/2021 12. Following the principle explained by this Court, in the case of M/s.Darshan Boardlams Ltd. v/s. Union of India, 2013 (287) ELT 401 (GUJ.) we are of the view that we should not decline to entertain this writ-application on the ground that the writ-applicants have a remedy of preferring an appeal before the appellate tribunal under Section 35B of the Act. We are saying so keeping in mind the following : (1) The manner in which the Order in Original came to be passed by the respondent no.2. (2) Prima facie, it appears that no opportunity of hearing was given to the writ- applicants before passing the Order in Original. 13. Reluctantly, without touching the merits of the matter and leaving it to the parties to decide it before the appropriate forum, the order in original to the extent concerning the present petitioner is quashed and set aside. 14. The show cause notice issued by the respondent no.3 is forming part of the record. The same shall be the notice which is to be construed as the show cause notice. The same shall be served to the present petitioner on his official email ID, which shall be furnished by the petitioner within one week to the department. His address, as mentioned in the cause title, shall be the address for the future correspondence, if needs to be sent physically. 17. Matter Page 14 of 15 C/SCA/17478/2019 ORDER DATED: 08/09/2021 shall be decided by the authority concerned by giving the fullest opportunity without being influenced by any other aspects. None of the findings and observations here would in any manner influence or prejudice either side. 15. The Court has chosen not to enter into the merits of the matter and all contentions with regard to the merits are open for the parties to agitate. (SONIA GOKANI, J) (RAJENDRA M. SAREEN,J) R.H. PARMAR... Page 15 of 15 "