Pranatharthiharan Sridharan V. Union of India

SCA/17477/2019

AI Insights

The case revolves around a challenge by Pranatharthiharan Sridharan against an ex-parte order imposing a personal penalty for alleged wrongful availment of cenvat credit by Diamond Power Transformers Ltd. (DPTL), where Sridharan was the Director of Operations. The petitioner argued that he was not served with the show cause notice or the notices for personal hearing, thus violating the principles of natural justice. The respondents contended that the notices were served appropriately, including affixing them at the company premises when personal service was not possible. The court, after examining the submissions and evidence, found that the notices were not properly served and quashed the penalty, directing a fresh hearing.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 700398 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 26-03-2021
• Assessment Year: misc
• Laws Referred To: Central Excise Act, 1944, Cenvat Credit Rules, 2004
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: PRIYANK LODHA; ANKIT SHAH; PARTH BHATT
• Assessee Lawyers: DHAVAL SHAH; S S IYER
• Keywords: Cenvat Credit Rules; Ex parte order; Personal penalty; Principles of natural justice; Show cause notice
• Section: 15(1); 35-B; 35(F); 37(c)

Judgement Text

"C/SCA/17477/2019 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 17477 of 2019 ========================================================== PRANATHARTHIHARAN SRIDHARAN 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 PRIYANK LODHA with MR ANKIT SHAH(6371) for the Respondent(s) No. 2 MR. PARTH H BHATT(6381) for the Respondent(s) No. 3,4 NOTICE SERVED(4) for the Respondent(s) No. 1 ========================================================== CORAM: HONOURABLE MS. JUSTICE SONIA GOKANI and HONOURABLE MS. JUSTICE SANGEETA K. VISHEN Date : 26/03/2021 ORAL ORDER (PER : HONOURABLE MS. JUSTICE SONIA GOKANI) 1. This is a petition where the challenge is made to the legality and validity of ex-parte order in original no. VAD- EXCUS-001-COM-22-18-19 dated 11.02.2019 passed by respondent no.3 – Principal Commissioner of Central Excise and GST 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 Page 1 of 18 C/SCA/17477/2019 ORDER 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 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 Page 2 of 18 C/SCA/17477/2019 ORDER 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 respondent nos. 2 to 4 till his date of retirement. 2.5. It is the say of the petitioner that show cause notice issued on 10.10.2017 by the Additional Director General, DGGSTI, Zonal Unit, Surat being No. DGGSTI/SZU/36-13/2017-18 has not been received by the petitioner, the order which is impugned here. Whereas the one which had been issued and replied, on which he has signed, is the Show Cause Notice dated 01.08.2017 being No. DGGSTI/SZU/36-04/2017-18. 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-I. Page 3 of 18 C/SCA/17477/2019 ORDER The petitioner was at USA with his daughter from 20.03.2019 to 10.06.2019. These orders were delivered to the petitioner's servant who handed over the same to the petitioner on his return. 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 11.02.2019, therefore, is questioned on the ground that the imposition of personal penalty to the tune of Rs. 2,28,65,888/- (Rupees Two Crores Twenty Eight Lakhs Sixty Five Thousand Eight Hundred and Eighty Eight Only) under Rule 15(1) of the Cenvat Credit Rules, 2004 on the petitioner is ab-initio-void. 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. It was a penalty Page 4 of 18 C/SCA/17477/2019 ORDER upon the person taking or utilizing the cenvat credit wrongly or illegally under Section 15 of the Cenvat Credit Rules. He being an employee could not have been saddled with the huge responsibility and this is a clear non application of mind, and that too, by clear breach of principles of natural justice. 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 pre-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. 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-I denying all the averments in toto. 3.1. The preliminary objection is with regard to the maintainability of the present petition on the ground of availability of statutory alternative remedies since the challenge is to the adjudication order dated 11.02.2019 passed by the Commissioner. According to this reply, as provided under Page 5 of 18 C/SCA/17477/2019 ORDER Section 35(B) of the Central Excise Act, 1944 the order dated 10.06.2019 passed by the Commissioner is required to be challenged before the Customs, Excise & Service Tax Appellate Tribunal by filing Appeal. It is only in order to avoid the pre- deposit to the tune of Rs. 17.14 lakhs that the writ petition has been chosen to overreach the process mandated under the law, which should not be permitted. It is reiteratively emphasized that the way prescribed by the statute should not be permitted to be overreached. It is further emphasized that the details of service of show cause notice dated 10.10.2017 has been communicated on 19.12.2017 and on 27.11.2019. It was sent by speed post to the present petitioner - the Director of DPTL at his residential address, but, the same has been returned back with remarks 'Left' and in that view of the matter, the show cause notice was served to Mr. Shridharan by affixing the same on the notice board under Section 37(C) of the Central Excise Act, 1944 which permits such service of decisions, orders, summons or notice, if the same is not served in the manner otherwise prescribed as the fixation is one of the ways of doing it. 3.2. It is further the say of the respondent that the assessee – company in its reply dated 15.12.2017 stated that they had received show cause notice dated 10.10.2017 issued by Page 6 of 18 C/SCA/17477/2019 ORDER Additional Director General, DGGSTI, Surat Zonal Unit and with reference to the personal hearing of the said notice, the same was fixed on 29.01.2018 and the company had submitted its reply on 25.01.2018 and thus, the first personal hearing notice was also received by them. Therefore, all allegations of not having served the show cause notice before proceeding with the adjudication is bereft of any merit. Three separate notices have been issued for personal hearing and one of them to the present petitioner. As the premise of the unit was found closed by the Jurisdictional Range Inspector, on a plain reading of the notice, it was seen that this premises belonged to M/s. Apex Electricals and no one was allowed to enter into the premises manned by a security official. In absence of any authorized person to receive the personal hearing notice, the same could not be served upon the person and hence, it was pasted on the door of DPTL. It is therefore the say of the respondent that not only the personal hearing was granted to the all notices, the date of fixing the hearing on four occasions were also send to the last known address of the noticees. 3.3. So far as his having left the services of the company in June, 2016, it is the say of the respondent that it is absurd to believe that the department would have knowledge of his Page 7 of 18 C/SCA/17477/2019 ORDER whereabouts and his having left the services of the company unless the same would have been communicated by the company in their defence reply to the show cause notice. 3.4. According to the respondent, the fraudulent availment of cenvat credit without physical receipt of material was known to both i.e. the present petitioner – Director of Operations and to the Chief Administrative Officer of M/s. DPTL Shamiyala and hence, they have been held liable for penalty separately under Rule 15(1) of the Cenvat Credit Rules 2014. The physical stock verification was done by them and the Panchnama was drawn in presence of independent witnesses which was signed by the company representative and no objection had been raised by the petitioner. He also had agreed to the conditions mentioned in the Panchnama. The actions, therefore, initiated by the respondent are in accordance with law. 4. The additional affidavit is also filed for and on behalf of respondent nos. 3 and 4 pursuant to the order passed by this Court on 26.02.2021. 5. We had directed learned counsel Mr. Priyank Lodha appearing for the respondents to take instructions as to how the change of address came to the notice or knowledge of the Page 8 of 18 C/SCA/17477/2019 ORDER respondents as at no point of time, the personal hearing notice had been communicated to the petitioner due to his change of address on account of his having given resignation from the services of the company. All notices concerning the petitioner had been affixed at the company premise however, once the matter had been adjudicated, the order had been served upon the company's address at Chennai. 6. The principal Commissioner, CGST and Central Excise Mr.Manoj Kumar in the additional affidavit has stated that on inquiring from the concerned Jurisdictional Range Officer posted in the range office during the relevant period, it was found that the concerned Superintendent had taken voluntary retirement and left the department on 01.09.2019. The concerned Range Inspector informed that he was posted in the range office from 31.07.2019 to 09.08.2019 and during this period, he had received two copies of order-in-original with a direction to serve them to the DPTL and the Ex-Director of DPTL – the present petitioner. He visited the address and found the company closed. He therefore, as per given procedure, had pasted both the orders-in-original at the main gate of the said company. By way of additional measure, in order to ensure that the subject order in original reached to the concerned noticee, it was tried to find Page 9 of 18 C/SCA/17477/2019 ORDER out the address by searching different website portals including MCA website, GCT website and All in One Portal of GST etc. Since these exercises were undertaken two years back, he was unable to point out as to how and from which source the Chennai address of the petitioner was found. 6.1. It is reiterated that the show cause notice issued in December, 2017 was sent through the speed post at his residential address and the same had returned with remarks 'Left' and therefore, the notice has been affixed on the last address available with the department on his having left the concerned company. 7. 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 under the Cenvat Credit Rules 2004, 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, Page 10 of 18 C/SCA/17477/2019 ORDER 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. 8. Learned Standing Counsel Mr. Lodha 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. According to him, it is permissible under the law to affix the same if the person is to be duly served either the decisions, order, summons or notice. He relied on Section 37(C)(b) that if the decision, order, summons or notice cannot be served under the manner provided in Clause (a), by fixing the copy of the same in some conspicuous part of the factory or warehouse or other place of the business, Page 11 of 18 C/SCA/17477/2019 ORDER the same can be fixed. He also further has urged that in absence of any intimation to the respondent authority of resignation and when the opportunity of hearing having been also given by way of four notices affixed at the company premise, the order in original should be sustained. 9. 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 Page 12 of 18 C/SCA/17477/2019 ORDER 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 discretion has been vested to relax these provisions to any authority to allow hearing of appeal unless the statutory pre-deposit is paid. 11. 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 Page 13 of 18 C/SCA/17477/2019 ORDER 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 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. Page 14 of 18 C/SCA/17477/2019 ORDER 13. From the reply of the company, 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. 14. 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.2,28,65,888/-. Any penalty imposed personally on the person cannot be saddled, unless due opportunity is given. Here not only there is a question 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 Page 15 of 18 C/SCA/17477/2019 ORDER 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 Page 16 of 18 C/SCA/17477/2019 ORDER statute and they cannot furnish the basis to sustain the 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. 15. Resultantly, 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. 16. 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 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. Page 17 of 18 C/SCA/17477/2019 ORDER 18. 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) (SANGEETA K. VISHEN,J) Bhoomi Page 18 of 18 "