Elora Tobacco Company Ltd VS Union Of India

The petitioner in this case is a company established and registered under the Companies Act of 1956, now superseded by the Companies Act of 2013. The company specializes in the production and sale of cigarettes, operating from a factory located at 14-B, Sector F, Industrial Area, Sanawer Road, Indore. Given that the manufacturing and sale of cigarettes fall under the Central Excise Act of 1944, the petitioner holds registration under this Act. With the introduction of the Goods and Services Tax (GST), the company became subject to both Central Excise and GST liabilities, as cigarettes are classified under HSN Code Heading 2402 and sub-heading 2402 20.

On June 12 and 13, 2020, the petitioner’s factory was inspected by GST authorities exercising powers under Section 67(2) of the GST Act. During this inspection, the authorities seized various items, including computer hard discs, books, documents, and two diesel generator sets. The seizure was documented through the preparation of panchnamas, which are formal records of the seized items. The petitioner contends that the authorities not only sealed the generator sets but also the cigarette manufacturing machines. This action was taken in accordance with Trade Notice No.2/15 dated February 4, 2015, which outlines the procedures and guidelines related to such seizures.

The petitioner’s grievance centers around the claim that the actions taken by the GST authorities, including the sealing of essential equipment and machinery, were conducted under questionable circumstances and potentially without proper adherence to procedural norms as specified in the aforementioned trade notice.

The petitioner has brought forth a case challenging the refusal to de-seal a machine and DG sets, which were non-functional for over 24 hours, affecting production capacity. The dispute arises from the refusal of the respondents, based on the petitioner’s failure to submit a fresh declaration in line with Trade Notice 04/2020-2021 dated 18.01.2021, which led to the denial communicated via a notice dated 27.05.2021. This denial prompted the petitioner to approach the Court, seeking to invalidate both the order dated 27.05.2021 and the aforementioned Trade Notice.

The petitioner had previously filed two writ petitions, No. 23618/2021 and No. 23624/2021, before this Court. On 21.07.2022, the Court ruled in favor of the petitioner in writ petition No. 23618/2021 while dismissing writ petition No. 23624/2021. The issue escalated after a series of searches conducted by the respondents on the petitioner’s premises, which included dates such as 15.06.2020, 17.06.2020, 04.07.2020, and 06.07.2020. These searches culminated in a show cause notice issued on 08.06.2022.

The petitioner argues that these searches violated Section 67(1) & (2) of the CGST Act, rendering them unlawful and subject to being overturned. However, it is crucial to note that this show cause notice was served while both writ petitions were still pending, yet the petitioner did not disclose this fact during those proceedings. The petitioner had the opportunity to contest the validity of these searches and the associated panchanamas in the earlier writ petitions but failed to do so. Now, following the final decisions in the earlier petitions, the petitioner has initiated this current petition, once again raising the issue of alleged violations during the inspections and searches carried out by the respondents.

This legal case revolves around the petitioner’s grievances related to the non-functioning of a machine for over 24 hours, which resulted in a loss of production. The petitioner had earlier submitted a request for the de-sealing of the machine and DG sets, which was denied by the respondents through a notice dated May 27, 2021. The denial was based on the petitioner’s failure to file a fresh declaration as mandated by Trade Notice 04/2020-2021, issued on January 18, 2021. Aggrieved by this decision, the petitioner has approached the court, challenging the validity of both the order dated May 27, 2021, and the Trade Notice itself.

The petitioner had earlier filed two writ petitions, numbered 23618/2021 and 23624/2021, before the same court. The court delivered its judgment on July 21, 2022, allowing the first writ petition (23618/2021) but dismissing the second one (23624/2021). During this period, the respondents conducted multiple inspections and searches of the petitioner’s premises on June 15, 2020, June 17, 2020, July 4, 2020, and July 6, 2020. These inspections resulted in the issuance of a show-cause notice to the petitioner on June 8, 2022. The petitioner claims that these inspections were in violation of Section 67(1) and 67(2) of the Central Goods and Services Tax (CGST) Act, thereby rendering the subsequent show-cause notice invalid.

Notably, the show-cause notice was issued while the two writ petitions were still pending before the court. However, the petitioner did not disclose the issuance of this show-cause notice in those petitions. The petitioner had the opportunity to challenge the actions taken by the respondents during the earlier writ petitions but did not do so. After the final resolution of the writ petitions, the petitioner has now filed the present petition, once again alleging violations of Sections 67(1) and 67(2) of the CGST Act. Additionally, the petitioner has also filed a review petition to reconsider the court’s decision in W.P. No. 23624/2021, which was dismissed with an imposed cost of Rs. 25,000. Despite the dismissal, the petitioner continues to press the same grounds in the current writ petition.

To bolster the case, the petitioner’s counsel, Shri Malhotra, has cited several precedents from the Supreme Court and other courts, including:

1.Ms. S. Ganga Saran and Sons Ltd. Vs. Income Tax Officer and Others (1981)

2.Dr. Anita Sahai Vs. Director of Income Tax (Investigation) and Others (2004)
3. Mapsa Tapes Pvt. Ltd. Vs. Union of India (2006)
4. Dr. Pratap Singh and Another Vs. Director of Enforcement, Foreign Exchange Regulation Act and Others** (1985)
5. Cannon India Pvt. Ltd. Vs. Commissioner of Customs (2021)
6. R.J. Trading Co. Vs. Commissioner of CGST and Others (2021)

The court documents, including the Panchnamas attached as annexures P/1 to P/4, indicate that these Panchnamas were publicly displayed at the front gate of the petitioner’s factory during the searches. A security guard was reportedly present during these searches, which implies that the petitioner should have been aware of these inspections. Given the two-year delay in challenging the Panchnamas, and the subsequent issuance of the show-cause notice, the court suggests that the petitioner’s challenge may be inconsequential. The court advises that the petitioner should raise all relevant defenses in response to the show-cause notice before the adjudicating authority, rather than through continued litigation.

The petitioner, aggrieved by the non-functioning of machinery for over 24 hours and its failure to produce at full capacity, faced a significant setback when their request for the de-sealing of the machinery and DG sets was denied by the respondents on 27.05.2021. This denial was based on the petitioner’s failure to file a fresh declaration in accordance with Trade Notice 04/2020-2021, dated 18.01.2021. Consequently, the petitioner approached the Court, challenging not only the order dated 27.05.2021 but also the validity of the aforementioned Trade Notice.

In the backdrop of this, the petitioner had previously filed two writ petitions—writ petition no. 23618/2021 and writ petition no. 23624/2021. On 21.07.2022, the Court ruled in favor of the petitioner in writ petition no. 23618/2021 while dismissing writ petition no. 23624/2021. Following a series of searches conducted at the petitioner’s premises on various dates—15.06.2020, 17.06.2020, 04.07.2020, and 06.07.2020—a show-cause notice was issued to the petitioner on 08.06.2022. The petitioner argued that these multiple inspections and searches violated Section 67(1) & (2) of the CGST Act, rendering the show-cause notice liable to be set aside.

However, the petitioner failed to disclose the issuance of the show-cause notice during the pendency of the aforementioned writ petitions, despite having the opportunity to challenge the panchanamas (official records of the searches) in those petitions. After the final disposal of the writ petitions, the petitioner filed a new petition on the same grounds, alleging violations of Sections 67(1) & (2) of the CGST Act. The petitioner also sought a review of the Court’s order dated 21.07.2022 in W.P. No.23624/2021, which was dismissed with a cost of Rs. 25,000/-. Despite this, the petitioner filed the current writ petition, relying on various judgments from the Apex Court to support their case.

The petitioner’s arguments were centered around precedents set in cases like *Ms. S. Ganga Saran and Sons Ltd. Vs. Income Tax Officer and Others (1981)*, *Dr. Ms. Anita Sahai Vs. Director of Income Tax (Investigation) and Others (2004)*, *Mapsa Tapes Pvt. Ltd. Vs. Union of India (2006)*, *Dr. Pratap Singh and Another Vs. Director of Enforcement, Foreign Exchange Regulation Act and Others (1985)*, *Cannon India Pvt. Ltd. Vs. Commissioner of Customs (2021)*, and *R.J. Trading Co. Vs. Commissioner of CGST and Others (2021)*.

The contents of the panchanamas, attached as Annexure-P/1 to P/4 in the writ petition, indicated that these documents were posted at the front gate of the factory premises, and a security guard was present during the searches. Therefore, the Court found it hard to believe that the petitioner was unaware of these searches. Furthermore, challenging the panchanamas after a two-year delay, especially after the issuance of the show-cause notice, was deemed inconsequential. The petitioner was advised that they could raise all available grounds in their response to the show-cause notice before the adjudicating authority.

Ultimately, the Court dismissed the present petition, finding it devoid of substance and merit, and did so without issuing notice to the other party. The Court concluded that the petitioner failed to demonstrate any prejudice caused by the searches, which culminated in the issuance of the show-cause notice. The panchanamas were recognized as a legitimate part of the search and investigation process, and the petitioner was assured of a full opportunity to contest their contents during the adjudication proceedings.

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