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Petitioner: Messrs PUNJAB BEVERAGE COMPANY (PVT.) LTD. VS Respondent: CENTRAL BOARD OF JUDGMENT
Court Name: Lahore High Court Judge(s): Jawwad S. Khawaja Title:Messrs PUNJAB BEVERAGE COMPANY (PVT.) LTD. vs CENTRAL BOARD OF
JUDGMENT
Reported As: 2001 PTD 1446 Result: Petition dismissed Judgment JUDGMENT JAWWAD S. KHAWAJA, J.---The petitioner produces and markets aerated beverages under various brand names including Pepsi Cola. This, it is authorized to do, under a franchise agreement with a foreign Company, named Pepsi Cola International (PCI). Such agreement, inter alia, requires the petitioner to purchase concentrate from PCI which is used by the petitioner in its production of beverages. The concentrate is sold by PCI in units and is used by the petitioner in quantities prescribed by formulations provided by PCI. As such, each unit of concentrate is sufficient, together with other inputs, to produce a particular number of bottles of aerated beverages. It is., therefore, possible, with reasonable accuracy to calculate the production of the petitioner on the basis of the number of concentrate units consumed by it. These facts are not disputed between the parties. 2. The C.B.R., it appears, received an anonymous' complaint alleging that the production of beverages reported by the petitioner to the Central Excise and Sales Tax Department (and also to the Income Tax Department), was under-stated as it was not commensurate with the units of concentrate purchased by the petitioner from PCI. As a result, it was alleged, substantial amounts of Central Excise and Sales Tax were evaded by the petitioner. 3. According to the learned counsel for the petitioner, the complaint was investigated by the Central Excise and Sales Tax Department (and the Income Tax Department) on various occasions. Particulars of the purported investigations are reported in the following documents:-- (i) Letter, dated 30-10-1999 addressed by Mr. Yasim Tahir, Collector, Central Excise to the Member, Central Excise, C.B.R.
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(ii) Letter, dated 6-12-1999 addressed by the Director-General of Intelligence and Investigation (Customs and Excise) to the Member, Central Excise, C.B.R. (iii) Letter, dated 14-4-2000 again from the Director-General (Customs and Excise) to the Member, Central Excise, C.B.R. (iv) Letter, dated 9-8-1999 from the Deputy Commissioner of Income-tax, to the Commissioner of Income-tax, Faisalabad. (v) Letter, dated 10-9-1999 from the Commissioner of Income-tax, Faisalabad, to the Regional Commissioner of Income-tax, Central Region, Multan. (vi) Letter, dated 6-4-2000 from the Commissioner, Income-tax, Faisalabad, to the Regional Commissioner of Income Tax, Central Region, Multan. (vii) Document, dated 9-4-1999 which.Appears to be a note in RCIT's file to the effect that proceedings be dropped. (viii)Report, dated 10-8-1999 by the, Inspecting Commissioner of Income-tax. 4. The nature, content and adequacy of the documents referred to in the preceding paragraph, are discussed below to the extent the same are relevant for the decision of this petition. It will suffice for the present to say that the said documents contain at best cursory and superficial reports in respect of the allegations made in the anonymous complaint. The reports in the aforesaid documents did not result in the institution of any contravention case by the Central Excise and Sales Tax Department against the petitioner. 5. Thereafter, it appears that information was obtained by the C.B.R. From PCI's Dubai office showing definite monthly sales figures of the petitioner for the period between July, 1997 and December, 1998. In a letter, dated 31-7-2000 addressed by PCI, Dubai to the Secretary, C.B.R., among other things, it was mentioned that the aforesaid sales figures had been communicated by the petitioner to PCI and also that such figures were an accurate representation of the sales made by the petitioner as they were consistent with the quantities of concentrate sold by PCI to the petitioner. The figures of sale, disclosed by PCI to the C.B.R, are substantially more than the figures which the petitioner had reported in its Central Excise and Sales Tax records. More specifically, if the figures furnished by PCI are correct, it would follow that production of 2508112 crates, each containing 24 bottles of 250 ml., was suppressed in the petitioner's excise and sales tax records. It was on the basis of this material information that the C.B.R. Through the Secretary, Central Excise, directed the Collector of Central Excise and Sales Tax, by letter, dated 2-8-2000 to immediately initiate a contravention case against the petitioner. The wording of the letter, dated 2-8-2000, to which objection has been taken by learned counsel for the petitioner, has been discussed in a later part of this judgment. 6. The Superintendent, Central Excise City Circle, Faisalabad, thereupon prepared contravention case No.01 of 2000, dated 9-8-2000 and submitted it for adjudication. A notice, dated 12-8-2000 was consequently issued to the petitioner by the Collector (Adjudication) respondent No.4 requiring the petitioner to show cause, inter alia, as to why excise duty amounting to Rs.50,569,608 and sales tax amounting to Rs.42,095,129 in respect of the under reported production, be not recovered from the petitioner. In response to the said show-cause notice, the petitioner has already entered appearance before the Collector (Adjudication) and has also submitted a comprehensive reply. It is the show-cause notice, dated 12-8-2000 which has been impugned by the petitioner in the present proceedings. 7. The respondents have raised a preliminary objection to the maintainability of the present petition on the ground that the petitioner has only been asked to show cause in a contravention case and in response the petitioner has already joined the proceedings before the Collector (Adjudication) by submitting a reply to the impugned show-cause notice. According to learned counsel for the respondents, no adverse order has been passed against the petitioner which can
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be impugned in writ jurisdiction. The petitioner will, according to learned counsel, be afforded a full and adequate hearing by the Controller (Adjudication). 8. Learned counsel for the petitioner, on the other hand, has made various submissions to contend that the present writ petition is maintainable against the impugned show-cause notice in the circumstances of this case. The main thrust of the petitioner's contention is that the petitioner has already faced eight inquiries. This, according to him, is sufficient to preclude any fresh inquiry of the nature as has now been embarked upon by the Collector. (Adjudication) through the issuance of impugned notice. Learned counsel has also argued that the principles of res judicata are applicable in the present case which bar the issuance of the impugned show-cause notice. Furthermore, it has been contended that there is no fresh information available with the Central Excise and Sales Tax Department to justify issuance of the show-cause notice. 9. I have considered the above contentions of learned counsel for the petitioner and will take up the last one first. 10. Great stress was laid by learned counsel for the petitioner on his contention that the letter, dated 31-7-2000 received by the C.B.R. From PCI's Dubai Office did not contain any such information which was not available to the Central Excise and Sales Tax Department when the anonymous complaint against the petitioner, was earlier investigated. In order to appreciate this submission it would be useful to reproduce the relevant part of the aforesaid letter which reads as under:--- " Mr. Shuj a-ud-D in , Secretary (CEJ) Central Board of Revenue, Islamabad. Fax:92 51 9205316 Dear Mr. Shuja-ud-Din, Thank you for your letter of July 24th. I would first of all like to confirm that we will support your efforts, in whatever way we can, to conclude your investigations. Response to your specific questions: (a) ...... (b) The sale of concentrate to a non-franchised party is not allowed by Pepsi Cola Inc. Under any circumstances and contravenes its Franchise Agreement. (2) We have compiled the sales data you requested and it is detailed in the attachment. These are the monthly sales figures as communicated by Punjab Beverages. We believe them to be an accurate representation of the sales as they reconcile, within reason, to concentrate sales made by Pepsi Cola International (Pvt.) Ltd. I sincerely hope the above helps. If you require any further assistance please do not hesitate to contact me or the Pepsi Cola Office in Lahore. Yours sincerely, Saad Abdul Latif cc: Mr. Zein Abdalla Mr. Mashkoor Alam." 11. Alongwith the above letter a table showing month-wise sales of the petitioner for the period between July, 1997 to December, 1998, had been enclosed. It was for the. Very first time since the initiation of any investigation against the petitioner that this specific information had come to the knowledge of the Central Excise and Sales Tax Department. What is also significant is that the sales figures, given in the attachment to PCI's letter, were stated by PCI to have been communicated to it by Punjab Beverages. 12. Learned counsel for the petitioner was unable to substantiate from any material on record, his assertion that the information contained in the abovenoted letter, dated 31-7-2000, was available with any of the officers conducting the inquiries referred to in para. 3 above. It will be evident from the discussion of the purported reports of inquiry that not only was the aforesaid information
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unavailable in the earlier inquiries, no diligent effort was made by the concerned officers to gather this material data through inquiries from PCI, Dubai. On the contrary, a vague and evasive letter with no sales figures had been issued by PCI's Lahore Office which finds mention in some of the so- called inquiry reports referred to in para. 3 above. 13. I am in no manner of doubt that the information contained in PCI's letter of 31-7-2000 and the data enclosed therewith containing specific monthly sales figures, was at no time prior to 31-7- 2000, available with the respondent department. Furthermore, the nature and source of the information, prima facie, lend credibility to it. This circumstance alone is sufficient to demolish the petitioner's argument that the earlier inquiries provide immunity to the petitioner against any further investigation, on account of their thoroughness and completeness. The case-law cited by learned counsel for the petitioner in support of his contention, which has been discussed below, goes against the argument of the learned counsel for the petitioner, in the circumstances of the present case because, according to the ratio of the cited precedents, new information will always justify a fresh A inquiry even where earlier inquiries have been conducted with due diligence. This finding by itself would be sufficient to dismiss the present petition and to direct the petitioner to proceed with its defence in the pending show cause proceedings before the Collector (Adjudication). 14. However, because of the great emphasis placed on them by the petitioner, I consider it necessary to examine and discuss the various documents referred to in para. 3 above Which, learned counsel for the petitioner contends, are detailed, thorough and complete inquiry reports. At the outset I would like to say that the said documents are nothing of the sort. At best, the same can be termed as cursory and superficial probes which are lacking in depth and diligence, as discussed below. 15. As a backdrop to the discussion of the aforesaid documents, it is important to note that the total number of units of concentrate purchased by the petitioner from PCI during the relevant period between July, 1997 and December, 1998, is not in dispute.. It is also not disputed that if the entire concentrate, so purchased, had been consumed by the petitioner in the manufacture of aerated beverages, the production would have corresponded to the data of monthly sales provided by PCI, Dubai with its letter of 31-7-2000. Furthermore, it is not in contention between the parties that the sales figures, reported by the petitioner in its Central Excise and Sales Tax Record, is short, in aggregate, by 2508112 crates when compared to the figures furnished by PCI. The details of the difference between the figures furnished by PCI and those reported to the respondent, department by the petitioner, are given in the table which forms part of the impugned show-cause notice. The reason advanced by the petitioner to explain the difference between the two figures, is that the total number of concentrate units purchased by it from PCI, were not, in fact, consumed by it for the purpose of manufacturing aerated beverages. According to the petitioner, 2638 units of concentrate out of the total purchased from PCI, were sold by the petitioner to M/s. Al-Raza Traders, Karachi, before the said units had entered the premises of the petitioner. It is for this reason that the said 2638 units of concentrate had not been shown in the Excise and Sales Tax Record maintained by the petitioner. The reason given by the petitioner for making the aforesaid sale, is that the said units were in excess of the requirements of the petitioner and had only been purchased from PCI with the object of showing increased sales and good performance to PCI in order to protect and renew the franchise of the petitioner. 16. To the extent necessary, the various documents referred to in para. 3 above, are discussed as under:--- (i) Letter, dated 30-10-1999 addressed by Mr. Yasin Tahir, Collector, Central Excise to the Member, Central Excise, C.B.R.
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This document relates only to the eleven months' period from January, 1998 up to November, 1998 rather than the period between July, 1997 and December, 1998 which is subject-matter of the impugned show-cause notice. It is thus, clear from the face of this document that it does not even purport to cover the entire scope of the contravention case against the petitioner which is subject- matter of the said notice. Furthermore, there is no in-depth examination of the matter purportedly being investigated, nor is there any concerted attempt to ferret out information from PCI and M/s. Al-Raza Traders. The document itself concludes by saying that there is, prima facie, no evasion of Central Excise and Sales Tax. (ii) Letter, dated 6-12-1999 addressed by the Director-General of Intelligence and Investigation (Customs and Excise ) to the Member, Central Extise, C.B.R. This document relates to the period between 1-1-1998 and 28-2-1999. As such, this document also does not cover the entire period which is subject-matter of the show-cause notice. It does appear from .The document that certain information was sought by the Director-General Intelligence and Investigation, from PCI Lahore and from Mr. Saeed Ullah Khan, Proprietor of M/s. Al-Raza Traders. A verbal explanation proffered by the petitioner to explain the apparent discrepancy in figures, was accepted without further probe. A written statement submitted by Mr. Saeed Ullah Khan, was also considered. This written statement admits the purchase by Al-Raza Traders of 2638 units of concentrate from the petitioner. But it is stated therein that the said units of concentrate were further sold to purchasers. It is noted in the report that Mr. Saeed Ullah Khan did not provide any names, addresses or particulars of the buyers who had purchased the concentrate from Al-Raza Traders. Mr. Saeed Ullah Khan was not questioned any further nor was he pressed to furnish information relating to the alleged purchasers. Certain information was sought from PCI's Office in Lahore, which responded evasively by means of an imprecise letter containing no figures in respect of sales targets fixed by PCI or sales reported by the petitioner. PCI was not questioned any further either in relation to sales figures or in relation to the franchise agreement and violations thereof, if any. (iii) Letter, dated 14-4-2000 again from the Director-General (Customs and Excise) to the Member, Central Excise, C.B.R. This document contains a brief and superficial probe into certain queries raised by the C.B.R. Relating to the period between October, 1997 and June, 1998. As such, the period of inquiry, which is subject-matter of the impugned show-cause notice, is not covered in its entirety. It is noted in the document that although information was sought from M/s. Al-Raza Traders the names, addresses and other particulars of persons who allegedly purchased the concentrate from M/s. Al-Raza Traders, were not furnished by it. It is admitted in the document that Al-Raza Traders was not pressed to provide the requisite information relating to sale by it of 3470 units of concentrate. The reasons given for not pressing Al-Raza Traders for further information, are, firstly, that Al-Raza Traders was not required to maintain any record under the Central Excise Rules, 1944; secondly, that registration of wholesalers had become effective from 1-7-1998 while the transactions being inquired into preceded that date and, thirdly, that the assessee (presumably AlRaza Traders) is enjoying the status of an individual and is not required to maintain records. At this point, it is important to note that each unit of concentrate, as stated by the petitioner's representative in Court, costs Rs.60,000 and, as such, the 3470 units sold by Al-Raza Traders would have a total worth of Rs.20,82,00,000. As in the case of Al-Raza Traders, PCI was also not diligently questioned. No information at all was sought from PCI, Dubai. Even the PCI office in Lahore was not pressed to furnish figures, agreements and correspondence which would have been relevant for the inquiry. The conclusion has been reached in this document that the allegations contained in the anonymous complaint, are based on presumptions and neither evidence has been furnished with
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the complaint nor can the same be obtained directly because of the anonymous nature of the complaint. Only the above noted three documents originate from the Central Excise and Sales Tax Department. The remaining five documents, referred to in para.3 (iv) to (viii), which are considered below, relate to the Income Tax Department. The relevance of this observation is considered after the discussion on the following documents: (iv) Letter, dated 9-8-1999 from the Deputy Commissioner of Income-tax, to the Commissioner of Income-tax, Faisalabad. The period covered by. This document is from 1-1-1998 to 30-11-1998 and, as such, does not cover the period which is subject-matter of the impugned show-cause notice. It contains, in essence, the same information which has been mentioned in the document referred to in para. 3 (i) and which has been examined above. However, what is significant is that the conclusion in the document is based in material part on the production figures contained in a table taken from the petitioner's own report to the Sales Tax Department. As such, in a circular manner the disputed figures, which are subject-matter of the inquiry by the respondent-department, have been used by the Deputy Commissioner of Income-tax for the purpose of verifying the figures reported to the Income Tax Department. (v) Letter, dated 10-8-1999 from the Commissioner of income-tax, Faisalabad, to the Regional Commissioner of Income-tax, Central Region, Multan. This document is nothing more than a forwarding letter from the Commissioner of Income-tax. Faisalabad, to the Regional Commissioner of Income-tax enclosing the report, dated 9-8-1999 of the DCIT which has been referred to in the preceding sub-para. It merely reproduces and paraphrases the contents of the DCIT' s report and also makes reference to the Inspecting Assistant Commissioner's letter referred to in para. 3(viii) above. The document does not even purport to be an inquiry or investigation. (vi) Letter, dated 6-4-2000 from the Commissioner, Income-tax, Faisalabad to the Regional Commissioner of Income-tax, Central Region, Multan. This document is not an investigation report at all and does not claim to be one. It merely contains comments on the document referred to in para.3(iv) above and on certain assessment/appellate proceedings before the Income-tax hierarchy relating to the petitioner. (vii) Document, dated 9-4-1999 which appears to be a note in RCIT's file to the effect that proceedings be dropped. This whole document comprises of two sentences which are reproduced as under: "I agree with the suggestions of the CIT suggesting dropping of proceedings and passing of information to Karachi." and "As proposed, proceedings should be dropped." (viii)Report, dated 10-8-1999 by the Inspecting Assistant Commissioner of Income-tax. This document is a half page letter forwarding the report of the Deputy Commissioner of Income tax referred to in para. 3(iv) to the Regional Commissioner of Income-tax. 17. From the discussion of the above-referred documents it is obvious that the full extent of the alleged evasion of Central Excise Duty and Sales Tax, which is subject-matter of the impugned show-cause notice, has never been investigated so far. Even to the extent that any investigations have been held, they show a remarkable degree of apathy and lack of diligence on the part of the officers of the respondent-department who were responsible for investigating the complaint made against the petitioner. It is, in particular, worth noting that none of the means, permissible to the officers of the respondent-department under law, to compel the production of evidence and
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witnesses was used effectively or with requisite vigors to gather such facts which are material to the case or which arose naturally from the, initial probe into the matter. 18. It is equally apparent that there are at least three key sources of information relevant to the inquiry against the petitioner, namely, M/s. AlRaza Traders, PCI and the petitioner itself. In addition, material information could potentially be available with such other sources as banks, goods carrier etc. None of these sources has been properly tapped. Leads naturally arising have not been pursued. Only to illustrate this point it may, firstly, be seen that Al-Raza Traders has not been pressed to furnish a list of the names of such persons who allegedly have purchased concentrate from it. The reasons for not pressing Al-Raza Traders have been noted in para. 16(iii) above. The said reasons are wholly irrelevant and show an extraordinary lack of diligence on the part of the officer concerned, namely, the Director-General, Intelligence and investigation. The mere fact that Al-Raza Traders is not required to maintain any record under the Central Excise Rules, does not in any manner, preclude the Excise Department from pressing Al-Raza Traders to furnish the names, addresses and other particulars of purchasers of concentrate. Likewise, the fact that registration of wholesalers etc., under the Sales Tax Act, became effective from 1-7-1998 furnishes no basis for not seeking the requisite information from Al-Raza Traders. The same can be said for the third reason given for not pressing Al-Raza Traders for the aforesaid information. It is difficult to believe that the proprietor of Al-Raza Traders could have forgotten the names, addresses and other particulars of the purchasers to whom, in aggregate, concentrate worth Rs.20,82,00,000 (Rupees twenty Crores and Eighty-Two lakhs) was sold by Al-Raza Traders. In fact the proprietor of Al-Raza Traders has not claimed that it does not have or cannot furnish the requisite information. He simply has not been asked for the information. Furthermore, registration requirements in respect of wholesalers etc. Became effective on 1-7-1998 even according to the Director-General's own report of 14-4- 2000. As such, there was nothing to prevent the concerned officer from seeking information for the period subsequent to the said date. Such information also would have identified the alleged purchasers of concentrate. In any event, in respect of at least six months of period (1-7-1998 to 31- 12-1998) which is covered in the impugned show-cause notice, the information about purchasers of concentrate is or should be available. No attempt whatsoever appears to have been made to get hold of this crucial information. The information would be significant as the veracity of the story put forth by Al-Raza Traders, on which much rests, can be tested on the basis of the said information. 19. Likewise no serious and diligent efforts appear to have been made to gather information PCI. In particular, it would appear that the contents of the franchise agreement between PCI and the petitioner would be relevant, especially those terms and conditions which relate to breaches of the…
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