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2012 DIGILAW 874 (BOM)

X v. Director General, DGCEI Mumbai Zone Unit

2012-04-26

D.Y.CHANDRACHUD, MRIDULA BHATKAR

body2012
Judgment (Dr. D.Y. Chandrachud, J.) 1. The Petitioner has in these proceedings under Article 226 of the Constitution sought a direction to the Respondents to release a reward which he claims to be due to him under a scheme of the Union Government in the Ministry of Finance, Department of Revenue issued on 20 June 2001. The Petitioner has moved these proceedings stating that he has submitted information to the Director General of Central Excise Intelligence (DGCEI) pointing out a case of service tax evasion by a company by the name of Punj Lloyd Ltd. According to the Petitioner on receipt of that information supplied by him, a notice to show cause was issued and an amount of Rs.11.33 Crores was recovered by the Government during the course of the investigation in 200506. However, though the recovery was made in 2006, the reward which is due to him has not been paid and it is on this basis that the Petitioner has moved this Court under Article 226. 2. An affidavit in reply has been filed in these proceedings by the Assistant Director working in the office of the DGCEI. The affidavit states that the department did receive information to the effect that Punj Lloyd Ltd. Had constructed a pipeline for ONGC at the JNPT Terminal, New Mumbai. An informer informed the department that though the amount was paid by ONGC to Punj Lloyd Ltd, service tax dues to the extent of Rs.80 Crores were not paid. A notice to show cause was issued on 19 December 2007 to Punj Lloyd Ltd. Stating that it had provided taxable services under the category of “commercial or industrial construction services” and the company was liable to pay service tax dues under the Finance Act, 1994. During the course of the investigation the company paid a sum of Rs.10.80 Crores as service tax and an amount of Rs.52.59 lacs as interest. However, according to the department, Punj Lloyd replied to the notice to show cause and contended that service tax was made applicable to the laying of a pipeline project with effect from May 2005 whereas the price bid was submitted prior to that date and the job was awarded on 13 June 2005. The Commissioner by his order dated 26 February 2009 confirmed the demand of service tax in the amount of Rs.10.80 Crores and imposed a penalty in the like amount. The Commissioner by his order dated 26 February 2009 confirmed the demand of service tax in the amount of Rs.10.80 Crores and imposed a penalty in the like amount. The assessee filed an appeal in May 2009 before the CESTAT (Delhi Bench) which is pending. In that appeal, it has been contended that the assessee became classifiable under the new taxable category of execution of works contract service only with effect from 1 June 2007 and that no service tax was payable during the relevant period of time. On this ground, it has been urged that unless the order passed by the Commissioner of Central Excise (Adjudication) is confirmed in appeal and attains finality, the quantum of the reward cannot be calculated and may not even become payable. Hence, according to the department unless finality is reached, the reward would not be payable and the proposal of the informer would be taken up immediately once that stage has been attained. 3. The guidelines for the grant of rewards were initially issued under a circular dated 20 June 2001 of the Union Ministry of Finance. Subsequently by a further circular dated 16 April 2004 the guidelines have been made inter alia applicable in regard to information provided by informers and government servants in regard to the evasion of service tax dues. Under the earlier circular and as amended subsequently, committees have been constituted for considering the sanction of rewards to informers and government servants. The jurisdiction of each committee is circumscribed by monetary limits. 4. Counsel appearing on behalf of the Petitioner has sought to place reliance on Clause 6.3 of the circular dated 20 June 2001. Clause 6 reads as follows “6. Payment of advance / interim reward 6.1 Advance /Interim reward may be paid to informers and Govt. servants upto 50% of the total admissible reward immediately on seizure in respect of the following categories of goods, namely : a) gold/silver bullion; b) arms and ammunition, explosives; and c) opium and other narcotic drugs. 6.2 In other case of outright smuggling, involving seizures of contraband goods, including foreign currency, advance/interim reward upto 25% of the total admissible reward may be paid to the informers & Govt. 6.2 In other case of outright smuggling, involving seizures of contraband goods, including foreign currency, advance/interim reward upto 25% of the total admissible reward may be paid to the informers & Govt. servants, immediately after seizure, if the authority competent to sanction reward is satisfied that the goods seized are reasonably expected to be confiscated on adjudication and the adjudication order is likely to be sustained in appeal /revision proceedings. 6.3 In all other cases, including Customs appraising cases, cases of town-seizures and Central Excise duty evasion cases, normally, no advance/interim reward will be granted. However, in cases where the parties/persons involved have voluntarily paid the amount of duty evaded during the course of investigation, admitting their liability, 25% of the voluntary deposits may be considered for payment as advance /interim reward to the informers, after the issue of the show cause notice (SCN), provided the authority competent to sanction reward is satisfied that there is reasonable chance of confiscability / infringement / evasion, as the case may be, being established in adjudication and sustained in appeal / revisionary proceedings. However, in such cases, the Govt. servants will become eligible for payment of advance / interim reward only after adjudication of Show Cause Notice resulting in confirmation of duty. 6.4 In exceptional cases, the Heads of Department may, having regard to the value of the seizures, effected and magnitude of the evasion of duty / infringement detected and special efforts or ingenuity displayed by the officers concerned, sanction suitable reward on the spot to be adjusted against the advance / interim reward that may be sanctioned subsequently.” 5. As a matter of first principle, it is now a settled principle of law that a reward under the policy of the Union Government is purely an ex-gratia. There is no vested right as such to the payment of a reward. This is abundantly clear in Clause 5 of the policy which lists out various circumstances which have to be borne in mind in determining as to whether a reward should be sanctioned in the facts of a particular case. Clause 5.1 reads as follows : “5.1 Reward is purely an ex-gratia payment which, subject to guidelines, may be granted on the absolute discretion of the authority competent to grant rewards and cannot be claimed by anyone as a matter of right. Clause 5.1 reads as follows : “5.1 Reward is purely an ex-gratia payment which, subject to guidelines, may be granted on the absolute discretion of the authority competent to grant rewards and cannot be claimed by anyone as a matter of right. In determining the reward which may be granted, the authority competent to grant reward will keep in mind the specificity and accuracy of the information, the risk and trouble undertaken, the extent and nature of the help rendered by the informer, whether information gives clues to persons involved in smuggling, or their associates etc., the risk involved for the Govt. servants in working out the case, the difficulty in securing the information, the extent to which the vigilance of the staff led to the seizure, special initiative, efforts and ingenuity displayed, etc. and whether, besides the seizure of contraband goods, the owners / organizers / financiers / racketeers as well as the carriers have been apprehended or not.” 6. Now clause 6.1 provides for the payment of an interim or advance reward of upto 50% of the total admissible reward in the case of certain stipulated categories of cases. In other cases involving outright smuggling, including seizure of contraband goods including foreign currency, an award at the interim stage upto 25% of the total admissible reward is contemplated if the authority competent to sanction the reward is satisfied that the goods seized are reasonably expected to be confiscated on adjudication and the adjudication order is liable to be sustained in appeal or revision. For all other cases Clause 6.3 lays down that ordinarily no advance or interim reward will be granted. The Petitioner seeks to bring his case under the purview of Clause 6.3. Admittedly, neither Clauses 6.1 or 6.2 apply. However, even clause 6.3 requires the fulfillment of four conditions : (i) The persons or parties involved must have voluntarily paid the amount of duty evaded during the course of investigation; (ii) The liability must be admitted; (iii) A notice to show cause should have been issued and (iv) The authority competent to sanction the reward must be satisfied that there is reasonable chance of obtaining an order of confiscation or a finding of infringement or evasion in adjudication and which would be sustained in appeal or revision. 7. 7. Counsel appearing on behalf of the Petitioner submitted that if within the meaning of Clause 6.3 the assessee has admitted the liability to pay the dues, there would be no occasion for a determination as to whether the confiscation, infringement or evasion would be upheld in appeal or revision. A suggestion was therefore made that there appears to be some internal conflict in the circular. That would not be a fair and proper reading of the circular. What the circular postulates is that the duty evaded ought to have been paid upon the admission of liability by the person against whom information was supplied. Notwithstanding this, as experience suggests, assessees after making payment of the duty, still contest proceedings before every possible forum and challenge their liability. In certain cases, the assessee may allege that the duty it paid was paid under duress or coercion. It is in this background that the circular requires an assessment to be made of the likelihood of the action to be sustained in appeal or revision. Since the clause refers to the payment of a reward at an interim or advance stage before finality is reached, care and caution has to be exercised by the competent authority. It is hence that the relevant clause requires a considered exercise of discretion on the part of the competent authority in regard to the likelihood of the action being sustained in appeal or revision. This discretion of the competent authority is to be exercised not by the Court, but by that authority. The Court is certainly not in a position to prejudge as to whether the proceedings which have been initiated are likely to be sustained in appeal or revision and would not undertake that exercise in the exercise of its writ jurisdiction under Article 226. 8. The Union Government in its affidavit in reply has adverted to the fact that the assessee in respect of whom information was furnished has not as a matter of fact admitted its liability. 8. The Union Government in its affidavit in reply has adverted to the fact that the assessee in respect of whom information was furnished has not as a matter of fact admitted its liability. During the course of the hearing, counsel appearing on behalf of the Respondent submits that if at this stage, a reward were to be paid to the Petitioner, (even assuming that he is established to be the person who had supplied information which led to the detection of evasion), a situation may well result, if the assessee succeeds in the pending proceedings before the CESTAT that the department would have, in the mean time, parted with the reward to the Petitioner which cannot thereafter be recovered. We find merit in the contention which has been urged on behalf of the Respondents that granting rewards is not a matter of a vested right. What Clause 6.3 contemplates is that a case which does not fall under Clauses 6.1 or 6.2 may be considered for the payment of an interim award. The primary requirement is the payment of the duty evaded by the assessee admitting its liability and a satisfaction of the competent authority that there is a reasonable chance that the issue of confiscability, infringement or evasion would be established in adjudication or sustained in appeal or revision. These are not matters in which the Court can exercise its perception to determine as to whether there is a reasonable possibility of the action being sustained in appeal or revision. That is ultimately a matter which has to be determined by the competent authority which is constituted in the form of a committee by the circulars. In the present case, the grievance of the Petitioner is that the case of the Petitioner has not even been considered by the designated committee. We would have been inclined to consider the prayer for a direction to the committee to consider the request of the Petitioner, but in the facts of this case do not accede to the request for the simple reason that the issue as regards the culpability of the assessee is still pending in appeal before the CESTAT. Though the department has recovered the duty evaded on account of service tax dues together with interest, the matter has not attained finality. Though the department has recovered the duty evaded on account of service tax dues together with interest, the matter has not attained finality. The payment of a reward at this stage cannot be directed, less so by the Court in the exercise of its extra ordinary jurisdiction under Article 226 of the Constitution. So long as the proceedings initiated by the Assessee are pending, the issue as regards the liability of the assessee is still at large before the CESTAT which has to decide the issue. For this reason, we do not accept the basic request of the Petitioner to the effect that the committee should be directed to consider the case or that the reward should be disbursed at the interim stage. This is also consistent with the law laid down by the Supreme Court in Union of India v. C. Krishna Reddy( 2004(163) E.L.T. 4 (SC).and the decision in D.G. Revenue Intelligence & Invest v. Amrillal Mehta(2007 (220) E.L.T. 9 (SC). 9. However, we consider the alternate request of the Petitioner to the effect that the CESTAT be requested to expedite the disposal of the pending appeal to be fair and proper. Counsel appearing on behalf of the Union of India has also joined in this request, submitting that once the issue does attain finality, the request of the Petitioner would be taken up and considered at the appropriate level. In the circumstances, we dispose of the Petition by requesting the CESTAT to list the appeal filed by the assessee for disposal within an expeditious time frame, after due notice to the assessee. A copy of the present order may be produced on the record of the Tribunal by the Union of India through its authorized representative so as to facilitate expeditious hearing and final disposal of the appeal. The CESTAT may endeavour a disposal within a period of six months after a copy of this order is placed on its record. The Petition is accordingly disposed of. There shall be no order as to costs.