Smt K Aruna Kumari

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IN THE COURT OF THE SPECIAL JUDGE FOR ECONOMIC OFFENCES:

AT HYDERABAD.

Dated: This the 21st day of October, 2022.

Present: Smt.Aruna Kumari

Special Judge for Economic Offences,

Hyderabad.

CC.No.8 of 2015

Between: The Deputy Commissioners(Legal) Customs, Central Excise and Service Tax Hydrabad-1, Clommissionerate, Hyderabad.

... Complainant

And

1)M/s Sri Sai Ram Industrial Equipments Pvt Ltd Survey No.180/7,IDA, Kazipally, Jinnaram Mandal Medak District-502 325.(Represented by its Managing Director Shri K.Ram Babu).

2. Shri K.Ram Babu, Managing Director, M/s Sri Sai Ram Industrial Equipments Pvt. Ltd Hyderabad.

..Accused No.1 and 2.

This case coming before me for hearing and upon perusing the complaint and other material papers on record and upon hearing the arguments of Sri Dharmesh Polavarapu Special Public Prosecutor for Customs and Central Excise and of Sri V.Surender Rao and B.Venkateshwar Rao, Counsels for the accused and having stood over for consideration till this day, the Court delivered the following:- and upon hearing the arguments, the Court made the following:- -: J U D G M E N T :-

1. The Prosecution in this case is launched by the Deputy

Commissioner (Legal and prosecution), Customs and Central Excise,

Hyderabad-1 Commissionerate, Hyderabad. The Chief Commissioner,

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Hyderabad Zone, Hyderabad has accorded necessary sanction to prosecute the aforesaid person, as required under Section 9 of Central Excise

Act,1944 which is filed along with this complaint. Assistant Commissioner (Prosecution), Customs Commissionerate, (PW1) has filed the present

Complaint against the accused.

2. The facts of the complaint are:-

M/s. Sri Sai Ram Industrial Equipments Private Limited (hereinafter also referred as 'M/s. SSRIEPL) located at Survey No.180/7, IDA. Kazipally,

Jinnaram Mandal, Medak District are the manufacturers of fabricated engineering products & steel structures ie. MS Structures, Monel Vats, EOT cranes, parts of de-acidifying section etc. falling under Chapter 73 of the first schedule to Central Excise Tariff Act, 1985. They are registered with

Central Excise Department vide Registration No.AALCS5136KXM001. The

Managing Director of the above said firm is Shri K.Ram Babu.On gathering intelligence that M/s. SSRIEPL were evading duty on the fabricated MS

Structures falling under chapter heading No.7308 of Central Excise Tariff

Act, 1985, in the guise of job work, the Departmental Officers visited the factory of M/s SSRIEPL on 21.10.2010 and recovered certain records for further investigation.

During the course of investigation, M/s SSRIEPL submitted relevant records, viz., invoices, delivery challans, ledger accounts, agreements, drawings etc., vide their letters dated 16.11.2010, 18.04.2011 and 02.11.2011 in respect of the clearances made by them on payment of

Service Tax. As seen from the documents/records submitted by the M/s.

SSRIEPL, the following facts emerged:

M/s. SSRIEPL were paying the Central Excise duty on the finished goods when the raw materials were purchased by them on their account:

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M/s. SSRIEPL were not paying the Central Excise duty on the finished goods when the raw materials were supplied by the customers.

M/s. SSRIEPL were not paying Central Excise duty when the material was received by them under job work challans.

Examination of all the documents and relevant records pertaining to the cases where M/s SSRIEPL paid the Service Tax revealed that in some cases, they did not pay the excise duty even though the activity undertaken by them amount to manufacture in terms Section 20 of the Central Excise

Act, 1944 and the resultant products are excisable goods. Instead they paid

Service Tax in some cases. It is pertinent to mention that in some cases they did not pay Service Tax even after collecting the same from their customers which was not warranted. The details of the customers along with work orders to whom M/s SSRIEPL raised Service tax invoices of Excise invoices were given hereunder:

The issue relating to each of the above customers is detailed as here under:

I. M/s. Sandvik Asia Ltd., 1B, KC Plaza, 23C, Asutosh Choudhury Avenue,

Kolkata-700 019:

With respect to the goods fabricated/manufactured and cleared to M/s. Sandvik Asia Ltd. it is seen that M/s. NMDC, Hyderabad awarded contract to M/s. Sandvik for "Design, Engineering, Supply,

Storage, Handling at site, Erection, Testing and Commissioning, P.G.

Tests along with Civil works, etc., for Down Hill Conveying System on lump sum Turnkey Basis -Package-II" for NMDC Bailladila Iron ore

Project. M/s. Sandvik, in turn, issued a work order bearing

No.SAL/KOL/ND / 3135/2300 dated 26.05.2008 read with purchase order No.V-010943 dated July, 2008 to M/s. SSRIEPL for fabrication, shop assembly, dismantling and delivery of steel structures based on

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manufacturing drawings to be released progressively for galleries, walkways (Chq plates), trestles, short posts, stringers, stools/frames, chutes/skirts, hoppers, ladders, hand railing, etc. for Conveyor. The raw materials i.e. channels, angles, sheets etc., were purchased by

M/s. Sandvik from M/s. S.R. Industries, Hyderabad and delivered to

M/s. SSRIEPL under returnable delivery challans. The fabrication work of steel structures was to be carried out as per the norms/ specifications/ drawings provided by M/s Sandvik.

As seen from the manufacturing process of the impugned goods as narrated by Sri K.Rambabu, Managing Director of M/s SSRIEPL in his statement dated 16.11.2010 and as confirmed by Sri Biswaranjan Mishra,

Commercial Manager, Projects, M/s Sandvik Asia Limited in his statement

dated 07.01.2011, the raw material viz., MS plates, beams, angles, channels

etc undergo various processes like cutting, shearing, straightening, drilling & punching, painting, assembly for fabrication, welding etc., to emerge as required structures. Before delivery of goods the same are inspected by the representatives of customers and subject to their clearance, the goods are accepted by the customers. The MS structures so fabricated at the factory premises of M/s. SSRIEPL acquired a distinctly different shape to suit the structural design given by M/s Sandvik. The goods cleared in such a prepared form for erection of structures at the client's site attained distinct character from the raw material used and understood as a distinct product for all purposes. The said processed goods cleared from the factory are erected at the respective sites.

From the above, it would be evident that at the time of clearance from the factory, the goods are not immovable. Undisputedly, the conveyor systems came into existence at the site of M/s. Sandvik Asia/NMDC and not at the time of clearance from the factory premises of M/s SSRIEPL. The goods manufactured and cleared by the M/s SSRIEPL for M/s. Sandvik Asia

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are the pre-assembled structures in movable condition required for conveyor system and not the conveyors. Thus, the movable structures in their disassembled state are rightly classifiable under chapter heading 7308 of the first schedule to Central Excise Tariff Act, 1985.

While, M/s SSRIEPI, contend that the activity of fabrication undertaken by them on the raw materials received from M/s Sandvik Asia

Ltd does not amount to manufacture, it is seen that they were discharging

Central Excise duty on similarly finished goods when the raw materials were purchased by them on their account. This in itself disproves the contention of M/s SSRIEPL that the activity undertaken by them does not amount to manufacture and the goods in question were excisable and M/s

SSRIEPL intentionally evaded the Central Excise Duty in the guise of job work and thereby committed an offence u/s 9(1)(b) central excise act 1944.

II. M/s. Lanco Infratech Ltd., Hyderabad:

M/s Lanco Infratech Ltd., Hyderabad (M/s.LIL) awarded a contract bearing No LITL/HYD/WO/LH(ARPP)/07-08/13 dated 18.03.2008 to M/s. SSRIEPL for "Fabrication & Erection of shed for

Automatic Bar Bending & Cutting Machine". M/s. LIL supplied the raw material required for the above fabrication. M/s. SSRIEPL manufactured the structures at their factory premises and cleared the same for erection of shed at the site of M/s. LIL

On perusal of the records and depositions made by Sri

Parachuri Chenna Kesava Rao of M/s. LIL in his statement dated 18.01.2012 which were also admitted by Shri K.Ram Babu, Managing

Director of M/s SSRIEPL. vide his statement dated 22.03.2012, it is clear that M/s. SSRIEPL manufactured the structures and cleared the same to the site of M/s. LIL which were consumed for erection of shed. It is also clear that the MS structures so fabricated by M/s.

SSRIEPL acquired a distinctly different shape to suit the requirements

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of M/s. LIL. in fabrication and erection of shed. M/s SSRIEPL.

fabricated MS structures out of raw materials by way of assembling, cutting, fabrication, punching, drilling, welding etc., so as to constitute a new distinct goods having its own identity marketability. These structures are movable structures having identity as a distinct marketable commodity. Hence, the MS structures so fabricated merit classification under tariff item 73089090 of the first schedule to the

Central Excise Tariff Act, 1985 and are dutiable.

It was also observed that a scrap of 24,15 MTs that has emerged during the course of manufacture of excisable goods was also cleared to M/s LIL. On delivery challans without discharging

CENVAT duty. The said scrap was classifiable under tariff item 7204 49 00 and chargeable to excise duty

I.M/s. Abhay Solvents Private Ltd., Koppal, Karnataka:

M/s. Abhay Solvents Private Ltd., Koppal, Karnataka (hereinafter also referred to as "M/s. ASPL") issued a work order

dated 01.12.2008 to M/s.. SSRIEPL for fabrication and supply of de-

aerator, pre-distillator, Super-heater, final oil cooler, scrubber, FA

Cooler, heat-exchanger and de acidifier. The required MS raw materials were purchased by M/s. ASPL and M/s.SSREIPL fabricated the ordered goods at their factory. The said fabricated equipment was cleared raising delivery challans and Service Tax invoices.

M/s. Agrifine Technologies Ltd (hereinafter also referred to as "M/s.ATL") issued a work order bearing No. Job Work/05/08- 09/Agrifin dated 16.02.2009 to M/s. SSRIEPL for fabrication and supply of (1) De-aerator, (2) Pre-distillator, (3) Super heater, (4) Final

Oil Cooler, (5) Scrubber, (6) Fatty Acid Cooler and (7) Heat Exchanger.

The required MS raw materials were purchased by M/s.ATL and delivered at the factory of M/s. SSREIPL who in turn fabricated the

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ordered goods at their factory. The said fabricated equipment were cleared by M/s. SSRIEPL to M/s ATL by raising delivery challan and

Service Tax invoice No.04 dt.25.6.2009.

In the both the cases above the required MS raw materials were purchased by ASPL and ATI, and delivered to the factory of M/s.

SSREIPL who in turn fabricated the ordered goods in their factory.

M/s.SSREIPL have worked upon the raw materials received resulting in the emergence of a distinct product which is excisable in terms of

Section 2(d) of the Central Excise Act, 1944.

Statements in this regard were recorded under Section 14 of the Central Excise Act, 1944 from Shri. Mahaveer Mehta, Director of

M/s. ASPL and Shri. M. Srinivas, Chief Executive officer of M/s. ATL on 21.12.2011 and 19.01.2012 respectively who deposed that M/s.

SSRIEPL fabricated the ordered goods at their factory and fully fabricated goods were delivered to them and that they did not file any declaration with the jurisdictional Assistant/Deputy Commissioner of

Central Excise having jurisdiction over M/s SSRIEPL as required under Notification No.214/86-CE. These statements were corroborated by the statement dated 22.03.2012 of Sri K. Ram Babu,

Managing Director, also recorded under Section 14 of the Act, ibid.

In both the above referred cases, the goods in question being parts of the de-acidifying section are rightly classifiable under tariff entry No.8419 40 90 of the first Schedule to Central Excise Tariff Act, 1985 and livable to Central Excise duty.

IV. M/s Swatick Sulphides, Chittoor:

M/s. Swastik Sulphides, Chitoor District, AP (herein after also referred to as "M/s.SS” placed work order No.SS/WO/SRIPL/06

dated 21.04.2009 for "fabrication of supply and welding of Monel

Vats (8 nos) for a value of Rs.1.00 lakh on M/s SSRIEPL M/S S.S.

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purchased the required raw materials viz., Monel (special copper & nickel alloy) sheets, plates etc. falling under Chapter 75 of CETA 1985, and delivered the same at the factory of M/s. SSRIEPL who in turn fabricated the equipment viz. Monel Vats at their factory and dispatched the same to M/s. SSREIPL.

In this regard, a statement was recorded from Shri G, Heman

Kumar, authorized person of M/s 88 under Section 14 of the Central

Excise ANE 044 21.12.2011. He agreed fiat M/s. SS purchased the required raw materials from M/Jay Steel Corporation and delivered the same for fabrication and supply of eight numbers of Mantel Vats which is like a iron bowl used by sugar cane factories for stirring sugar cane juice to get jaggery. These facts were corroborated by the statement dated 22.03.2012 of Sri K. Ram Babu, Managing Director, of

M/s SSRIEPI also recorded under Section 14 of the Act, ibid.

The raw materials in question undergo processes of bending, plasma welding, punching, drilling, testing etc resulting in the emergence of Monel Vats. The process of manufacture resulted into the emergence of excisable goods namely Monel Vats, which are articles of nickel alloy and thus classifiable under Tariff item 7508 90 90 attracting the appropriate Central Excise duty.

V. M/s Sri Panchajanya Power Limited, Hyderabad:

M/s. Sri Panchajanya Power Private Ltd., (herein after referred to M/s.SPPPL) placed No SPPL/SAIRAM/PO/015/09-10 bearing with

dated 01.07.2009 read SPPPL/SAIRAM/PO/014/09-10 dated

01.07.2009 on M/s. SSRIEPL for supply of certain electrical items and fabrication & erection of one 15 Ton EOT Crane. M/s. SSRIEPL fabricated the EOT Crane at the factory of M/s. SSRIEPL as per the given specifications by using the MS Plates (Raw Material) supplied to them and after fabrication of EOT Crane, M/s. SSRIEPL dispatched

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the same to the site of M/s. SPPPL at Hingoli District in Maharashtra for further erection and commissioning of the same

In this regard, a statement under Section 14 of the Central

Excise Act, 1944 was recorded from Shri Bolleni Obulapathi, Senior

Manager of M/s. SPPPL on 15.12.2011, who interalia, deposed that

M/s. SSRIEPL fabricated the EOT Crane as per the given specifications mentioned in the purchase order by using the MS Plates (Raw

Material) delivered by them through M/", SR Industries and after fabrication of EOT Crane, the same was dispatched to their site at

Hingoli District in Maharashtra for further erection and commissioning. These facts were corroborated by Sri K.Ram Babu,

Managing Director, M/s SSRIEPL vide his statement dt. 22.03.2012.

The EOT crane manufactured in the premises of M/s. SSRIEPI.

are new goods with distinct identity characteristic and the same is rightly classifiable under tariff item 8426 19.00 of Central Excise

Tariff attracting the applicable Central Excise duty.

VI. M/s M.S.M.Energy Limited, Hyderabad

M/s SSRIEPL entered into a contract with M/s. MSM Energy

Limited vide work orders No.MSM/SRI/PO/030/2009-10 dated 01.07.2009 read with P.O No. MSM/SRI/PO/028/2009-10 dated 01.07.2009 and MSM/SRI/PO/ 030/ 2009-10 dated 1.07.2009 read with PO/MSM/SRI/PO/ 027/ 2009-10 dated 01.07.2009 for fabrication of two EOT Cranes and for further erection and commissioning of the same at the customer's sites at Parbhani and

Amaravathi Districts both in Maharashtra.

M/s. MSM supplied the raw materials to M/s. SSRIEPL and got two EOT cranes manufactured by them. As per the purchase orders,

M/s. SSRIEPL were required to purchase electric motors, electric starters, cables and chain blocks required for the cranes on their own

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account and supply the same as per the agreed upon prices. The EOT cranes manufactured and were cleared to the principal manufacturer in knocked down condition. M/s SSRIEPL also undertook the work relating to erection and commission of EO cranes for the composite job work charges mentioned in the purchase orders, The EOT cranes manufactured in the premises of M/s.SSRIEPL are to be new goods with distinct identity characteristic and the same are classifiable under tariff item 8426 19 00 of the first schedule to Central Excise

Tariff attracting appropriate Central Excise duty.

In this regard, a statement under Section 14 of the Central

Excise Act, 1944 was recorded from Shri Bolleni Obulapathi, Senior

Manager, M/s. MSM on 15.12.2011 which was corroborated with the statement of Sri K.Ram Babu, Managing Director, M/s. SSRIEPL

VII. In all the above said cases, the process involved amounts to manufacture and resulting in the energence of a distinct product which is excisable in terms of Section 2(d) of the Central Excise Act, 1944. M/s

SSRIEPL cleared the said goods in the guise of job work in terms of

Notification No:214/86 CE. The manufacturer of excisable goods, who produce the goods on job work basis, is exempted from duty at the time of clearance under Notification No.214/86-CE dated 25.3.1986, as amended.

However, one of the principal conditions of Notification No. 214/86 is that the supplier of raw material should give an undertaking to the Deputy/

Assistant Commissioner of Central Excise, having jurisdiction over the factory of job worker, that the duty liabilities on the finished products shall be discharged. However, no such undertaking has been furnished by the customers. In the instant case, the raw materials were not sent on job work challans as prescribed in Central Excise law but on returnable delivery challans Further, the customers did not file any mandatory/statutory declaration in terms of Notification No. 214/86-CE with the jurisdictional

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Assistant/Deputy Commissioner of M/s SSRIEPL. A bare reading of the said exemption Notification reveals that the job worker can avail the said exemption only if the supplier of the inputs undertakes the responsibility of discharging the liabilities in respect of Central Excise duty leviable on the finished products. It can be appreciated that conditional exemptions can be availed only after fulfillment of the conditions stipulated in the exemption notification.

VIII. Further, M/s SSRIEPL in some cases have paid Service Tax on the job charges paid to them. In some cases they did not pay Service Tax even after collecting the same from their customers which was not warranted.

As the activity of 'manufacture' is specifically excluded from the ambit of Service Tax, M/s SSRIEPL were not required to pay Service Tax on the said activity. The practice adopted by M/s SSRIEPL to the extent of payment of Service Tax on the processing/fabrication charges is uncalled for. Thus, they intentionally evaded the Central Excise Duty in the guise of job work though they have not fulfilled the requirements under Notification

No.214/86-CE.

In view of the above, a Show Cause Notice vide HQAE NO.112/2010

dated 30.03.2012 was issued to M/s Sri Sai Ram Industrial Equipments

Private Limited, and Shri K.Ram Babu, Managing Director of M/s Sri Sai

Ram Industrial Equipments Private Limited, asking them to show cause as why:-

(i) The structures manufactured and cleared to M/s. Sandvik Asia as detailed above should not be classified under Tariff Entry No. 7308 90 90 of the first Schedule to CETA 1985.

(ii) The structures manufactured and cleared to M/s. Lanco

Infratech Ltd., as detailed above should not be classified under Tariff

Entry No.7308 90 90 of the first Schedule to CETA 1985.

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(iii) The parts of De-acidifying System Manufactured and cleared to

M/s Abhay Solvents Pvt Ltd., as detailed above should not be classified under Tariff Entry No.8419 4090 ofl the first Schedule to

CETA 1985.

(iv) The parts of De-acidifying System manufactured and cleared "M/s. Agrifine Lid, as detailed above should not be classified under

Tariff Entry No.8419 4090 of the first Schedule to CETA 1985;

(v) The monel vats manufactured and cleared to M/s. Swastik

Sulphides as detailed above should not be classified under Tariff

Entry No.7508 9090 of the first Schedule to CETA 1985;

(vi) The EOT Crane manufactured and cleared to M/s. Sri

Panchajanya Power Pvt Ltd., as detailed above should not be classified under Tariff Entry No.8426 19 00 of the first Schedule to

CETA 1985;

(vii) The EOT Cranes manufactured and cleared to M/s. MSM

Energy Ltd., as detailed above should not be classified under Tariff

Entry No. 8426 19 00 of CETA 1985;

(viii) An amount of Rs.2,53,76,851/- (including Cesses) as Central

Excise duty payable on the goods manufactured and cleared by them to various customers as detailed above during the period from May, 2008 to February, 2011 should not be recovered from them under provision to Section 11A(1) of the Central Excise Act, 1944;

(ix) interest as applicable from time to time on the duty (including

Cesses) determined at (viii) as above, should not be recovered from them in terms of Section 11AB of Central Excise Act, 1944;

(x) penalty equivalent to duty mentioned at (viii) as above, should not be imposed on them in terms of Section 11AC of Central Excise

Act, 1944;

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(xi) penalty should not be imposed on them under Rules 25 of

Central Excise Rules, 2002 for contravention of Rules cited above.

(xii) an amount of Rs.2,50,065/ towards Service Tax (including

Cesses) under the service category of Transport of Goods by

Road' Service for the period from March, 2008 to February, 2012 should not be recovered from them in terms of proviso to sub-section (1) of Section 73 of the Finance Act, 1994;

(xiii) An amount of Rs. 26,51,065/- collected towards Service Tax by them from their customers and not paid to Government should not be demanded in terms of Sub Section (3) of Section 73A of

Finance Act, 1994;

(xiv) Interest at appropriate rates on the Service Tax payable mentioned at Sl. No. (xii) above should not be recovered from them under Section 75 of the Finance Act, 1994;

(xv) Interest at appropriate rates on the Service Tax collected and retained by them as mentioned at Sl. No. (xiii) above should not be recovered from them under Section 73B of the Finance Act, 1994;

(xvi) penalties should not be imposed on them under Section 76, 77 and 78 of the Finance Act, 1994 for the various contraventions detailed supra.

IX. The Commissioner of Central Excise, Hyderabad I Commissionerate adjudicated the Show Cause Notice basing on the evidence available on record vide Order-in-Original No. 12/2012(C.E)-Commr. dated 18.12.2012.

The commissioner confirmed:

(i)Structures manufactured and cleared by M/s. Sri Sai R Industrial Equipments Private Limited to M/s. Sandvik Asin detailed above are rightly classifiable under Tariff Entry No. 7308 90 90 of the first schedule to Central Excise Tariff Act, 1985;

(ii)Structures manufactured and cleared by M/s. Sri Sai Ram Industrial Equipments Private Limited to M/s: Lanco Infratech Ltd., as detailed above are rightly classifiable under Tariff Entry No. 7308 90 90 of the first schedule to Central Excise Tariff Act, 1985:

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[iii] Parts of De-acidifying System manufactured and cleared by M/s. Sri Sai Ram Industrial Equipments Private Limited to M/s. Abhay Solvents Pvt Ltd., as detailed above are rightly classifiable under Tariff Entry No.8119 40 90 of the first schedule to Central Excise Tariff Act, 1985.

(iv) Parts of De-acidifying System manufactured and cleared by M/s. Sri Sai Ram Industrial Equipments Private Limited to M/s.Agrifine Ltd., as detailed above are rightly classifiable under Tariff Entry No.8419 40 90 of the first schedule to Central Excise Tariff Act, 1985;

(v)Monel vats manufactured and cleared by M/s. Sri Sai Ram Industrial Equipments Private Limited to M/s. Swastik Sulphides as detailed above are rightly classifiable under Tariff Entry No.7508 90 90 of the first schedule to Central Excise Tariff Act, 1985;

(vi) EOT Crane manufactured and cleared by M/s. Sri Sai Ram Industrial Equipments Private Limited to M/s. Sri Panchajanya Power Pvt Ltd, as detailed ping are rightly classifiable under Tariff Buty No.8426 19 00 of the first schedule to Central Excise Tariff Act, 1985;

(vii) EOT Cranes manufactured and cleared by M/s. Sri Sai Ram Industrial Equipments Private Limited to M/s. MSM Energy Ltd., as detailed above are rightly classifiable under Tariff Entry No. 8426 19:00 of first schedule to Central Excise Tariff Act, 1985, and demanded

(i) Demand of Central Excise duty amounting to Rs.2,53,76,851/ [Rupees Two Crore Fifty Three Lakh Seventy Six Thousand Eight

Hundred and Fifty One Only) including Education Cess & Secondary and Higher Education Cess) payable on the above said goods under

Section 11A(2) of Central Excise Act, 44 read proviso to Section 11A(1) and also Section 38A of the Act, ibid.

(ii) Interest at applicable rate(s) on the duty confirmed at (viii) above is ordered for recovery from M/s. Sri Sai Ram Industrial

Equipment Private Limited under Section 11AB of Central Excise 1044 read with Section 38A of the Act ibid.

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also imposed

(i)Penalty of Rs.2,53,76,851/- Rupees Two Crore Fifty Three L Seventy Six Thousand Eight Hundred and Fifty One Only equivalent to duty confirmed above on M/s. Sri Sai Ram Industrial Equipments Private Limited under Section 11AC of Central Excise Act, 1944. They may exercise the option of paying reduced penality Equal to 25% of the said amount in terms of Section 11AC ibid subject to fulfilling the conditions thereof.

(ii)Penalty of Rs 5,00,000/ (Rupees Five Lakh only) is imposed on Sri K.Ram Babu, Managing Director of M/s. Sri Sai Ram Industrial Equipments Private Limited under Rule 26 of the Central Excise Rules, 2002; X. From the fore goings, it is clear that M/s. SSRIEPL deliberately indulged in evasion of excise duty in the guise of job work activity. M/s.

SSRIEPL were very well aware that the activity undertaken by them amounted in manufacture since they have discharged duty liability on similar goods manufactured with their own raw material. They devised this modus operandi of charging Service Tax only on the job charges instead of payment of excise the value of the goods cleared by them. They have even cleared, foods without payment of appropriate Central Excise duty by paying the service Tax only on job charges. M/s SSRIEPL have been in the business for long time and were in knowledge of the Central Excise Act and

Rules and procedures made there under. From the above, it appeared that

M/s. SSRIEPL suppressed the facts, mis-led the department with an intention to evade Central Excise duty on such clearances. Thus they have violated the provisions of Central Excise Act, 1944 and Rules made there under and hence are liable to be punished under Section 9 of the Central

Excise Act, hence the complaint filed against the accused.

3. The complaint has been taken on file against A1 and A2 and on their appearance copies furnished to them. Prosecution examined PWs 1 and 2

before framing charges and they are also cross examined on behalf of

accused before charge.

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4. This Court framed Charges under Sections 9(1)(b) of Central Excise

Act,1944 against A1 and under Sections 9(1)(b) R/w 9AA of Central Excise

Act,1944 against A2 has been framed read over and explained to them and

A2 representing A1 pleaded not guilty and claimed to be tried and summons are issued to PWs 1 and 2 for cross examination on behalf of accused after the charge but PW1 and 2 were not produced by the prosecution, even after several adjournments are given and finally the

Court closed the evidence of PWs 1 and 2.

Later examined PWs 3 to 5 and in total got marked Ex.P1 to P22. On closure of evidence by the complainant A2 representing A1 was examined under Section 313 of Cr.P.C. by putting incriminating evidence appearing against them and A2 denied the evidence.

5. On the side of A1 and A2 no oral evidence was adduced but defence statement of accused No.2 filed Under Section 243(1) of Cr.p.C and Ex.D1 got marked.

6. Heard arguments from the both sides. The defence counsel submitted written submissions along with citations.

7. To decide whether A1 and A2 are guilty on the following points would emerge for consideration are:-

1. Whether A1 company and its managing Director A2 in charge were responsible for the conduct of the business of A1 company, evaded Central

Excise duty of Rs.2,53,76,851/- on the goods manufactured and cleared to various customers during the period from May-2008 to February 2011 ?

2. To what relief?

Point No.1:-

8. The burden of proof is on the complainant to prove that A1 company and A2 managing director of A1 company evaded the central Excise Duty of

Rs.2,53,76851/-on the goods manufactured and cleared by A1 company to various customers namely M/s Sandvik Asia Ltd., M/s Lanco Infratech Ltd.,

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M/s Abhay Solvents Pvt. Ltd M/s Agfri Fin Technologies M/s Swastick

Sulphides M/s Sri Panchajanya Power(p) Ltd., and M/s M.S.M. Energy Ltd., during the period from May 2008 to February 2011. To prove the said evasion by accused prosecution relied on the oral evidence of PWs 1 to 5 and documentary evidence under Ex.P1 to P22.

9. PW1 is the then Joint commissioner of Customs and Central Excise

Hyderabad-1 commissonerate, Hyderabad. He deposed that, the chief commissioner of Central excise and Customs and service Tax Hyderabad has accorded permission for launching of prosecution vide C.No.1/ 10/03 / 2014-CC-HZ prosecution dated 8-7-2014 and it is Ex.P1. He further deposed that, the show cause notice dated 30-3-2012 issued to A1 and A2 by the office of the Commissioner of the Customs and Central Exicse

Hyderabad-1 Commissionerate demanding an amount of Rs.

Rs.2,53,76851/-payable by the accused as Central Excise duty under

Proviso to Section 11A(1) of the Central Excise act,1944 on the goods manufactured and cleared by them to various customers and the penalty.

PW1 further deposed that, under Ex.A3 the commissioner of Customs,

Central Excise and Service Tax, adjudicated the show cause notice basing on evidence on record vide order-in-original No.12/2012(EC.E Commr)

Dated 18-12-2012 confirmed the total duty of Rs.2,53,76,851/- against A1

company and imposed personal penality of five lakhs against A2.

10. It is to be noted from the evidence of PW1 that PW1 does not stated in his evidence how A1 Company evaded Central Excise duty by giving the details the quantity of raw material purchased by A1 Company the quantity of finished goods manufactured and sold by A1 company and also not given the value of raw material purchased and the value of the finished goods. It can be said without any hesitation PW1 is silent on the material facts of the case charged against A1 comp-nay. What all PW1 is deposed that the sanction was granted under Ex.P1. Secondly show cause notice was issued

CC. No. 8 of 2015 Page No.18

to A1 and A2 demanding the payment of duty and penalty and thirdly under Ex.P3 passing adjudication order against A1 and A2. The above said facts are enough to constitute and prove the offence charged against A1 and

A2. The evidence of PW1 in total lacks the details which are required and relevant to prove the charged offecnes, against A1 and A2.

11. In addition to the above facts the defence counsel vehemently argued that, the complaint of this case, which was filed by the prosecution, is not legally valid because no sanction is given to file the complaint and Ex.P1 is not the sanction order issued by the chief Commissioner to launch complaint of this case in the Court.

12. In the instance case, Whether Ex.P1 the sanction order is accorded to file the complaint of this case and the complaint filed is legally valid or not has to be verified from the evidence on record. According to the evidence of PW1 in page No.6 of his deposition, PW1 admitted that, “Chief commissioner is the competent authority to accord sanction. It is true that I have not placed any material to show that chief commissioner has accorded sanction. The witness voluntaries that in para-2 of Ex.P1 clearly stated that chief Commissioner accorded administrative approval for launching prosecution. It is true that Ex.P1 proceedings are based on the proceedings signed by Chief Commissioner. I did not file said proceedings before the Court. It is true that there is no reference of the transaction of A1 Company. We did not file the list of total transaction for A1 company for financial year 2007-08, 2008-09 and 2009-10”

13. In view of the above admission of PW1 it is clear that, the Chief

Commissioner of Customs & Central Excise is the competent authorities to accord sanction to prosecute the accused. Whereas prosecution failed to place on record the alleged sanction issued by the Chief commissioner. On perusal of Ex.P1 it discloses that Ex.P1 is not the sanction order issued by the chief Commissioner but it is letter dated 08/07/2014 of one

K.Chandrashekar, Assistant Commissioner referring purposed sanction of the Chief Commissioner and Ex.P1 does not bear the date or any other

CC. No. 8 of 2015 Page No.19

particulars relating to the purported sanction. In addition to that, Ex.P1 contents are not proved by primary evidence under the provisions of evidence Act. Secondary evidence Under Section 65 of the Evidence Act it not permissible in this Case because the prosecution not explained reasons for not filing the primary evidence and not even produce a copy to legally admit Ex.P1 under evidence Act.

14. Therefore in view of above admission of PW1 it prove the present complaint is filed only in pursuance of the purported sanction of the Chief commissioner who is only the competent person to institute prosecution, and in absence of the said sanction order being placed on record for the inspection of the Court, Ex.P1 is not the sanction order to rely upon to say that the complaint filed is legally valid. So for the above reasons that the

Ex.P1 Sanction order is not issued by the competent person i.e, the Chief

Commissioner and in absence of the sanction order issued by the competent person being placed on record for the inspection of the Court the entire proceedings of this complaint are not legally valid to adjudicate the guilt of the accused for the charges framed against them.

15. The evidence of PW1 to 5 oral evidence and documentary evidence

Ex.P4 to P22 are to be grouped together to consider the case of the complainant. As already discussed above PW1 is the complainant filed the complaint basing on Ex.P1. PW1 though has no personal knowledge about the transaction and subject matter of the case in any manner got marked

Ex.P2 show cause notice and Ex.P3 adjudication order and further claim that basing on Ex.P3 the present complaint is filed.

16. PW2 who worked as Superintendent of Central Excise Anti Evasion

Wing, Hyderabad-1 Commissionerate during the period from 2010 to 2013 deposed on gathering intelligence that A1 company is evading duty on the fabricated M.s Structures in the guise of Job work, the departmental officers visited the factory of A1 company on 21-10-2010 and resumed certain

CC. No. 8 of 2015 Page No.20

records for further investigation,. During the course of investigation, A1 company submitted relevant records, viz invoices, delivery challan, ledger accounts, agreements, purchase orders and drawings etc., On perusal of said documents it is observed that A1 company are not paying Central

Excise duties on furnished goods when the raw materials are supplied by their customers. PW2 deposed that he recorded statement of accused No.2 are Ex.P6 and P9, recorded statements of Customers of A1 who gave job work to A1 under Ex.P7, P8, P13, P15,P17,19 and 22,and collected documents of job work under Ex.P4,P5, Ex.P10,P12, 16,P18 and P20 are the purchase orders. PW2 further deposed all the above mentioned documentary evidence and statements of the concern persons proved the fact that A1 company has manufactured excisable furnished goods and supplied to their customers in the guise of job work activity.

17. Whereas PW3 to 5 deposed that their signatures were obtained by the Central Excise Authorities on the documents are Ex.P13,15 and Ex.P19 and further they did not deposed that they gave any documents to PW2 or to the Central Excise authorities. Un-doubtedly PW3 to 5 did not support the case of the prosecution and only admitted they signed on the documents Ex.P13,15,19. So their evidence is not corroborating the evidence of PW2 and the case of prosecution, their evidence not helpful to prove the case of prosecution.

18. So the oral evidence of PW1 and 2 is only in support to the case of prosecution. On the other side the another argument of defence counsel is the evidence of PW1 and 2 has to be eschewed. Because the accused were not given opportunity to cross examine the prosecution witnesses Pws 1 and 2 after framing the charges and they relied on the Judgments in the citations reported :-1 to 3 where in it was held that:-

CC. No. 8 of 2015 Page No.21

(i) Judgment in the case of between C.Giriprasad Babu Vs. The State

ACB of Hon’ble High court of Telangana reported in 2022(1) ALD (Crl)

96(TS) wherein it held that:- “But in view of the fact that the evidence of pW1 was eschewed, there was no other evidence with the prosecution regarding demand excepting for section 164 of Cr.p.C. Statements of PWs 1 and 2 and Ex.P1 complaint which as noted above are not admissible in evidence”.

ii) Judgment in the case of Gopal Saran Vs Satyanarayana of Hon’ble

Supreme Court reported in 1989 Lawsuit(SC) 109 Para-5 it is held

that:- “ It may be mentioned that the plaintiff had not subjected himself to cross examination in spite of the order of the Court after the remand. Therefore, it would not be safe to rely on the examination-in-chief recorded which was not subjected to cross examination before the remand was made. If that is so, it will appear that there is no evidence of the plaintiff in respect of allegations in the plaint. This position appears established from the facts on record. When the plaintiff appeared for evidence in rebuttal he could have been cross examined on these points. It was submitted that in rebuttal the plaintiff had stated only with regard to the default in payment of rent but the plaintiff had not chosen to support his plaint case, before the defendant went to the witness box. There was no question of cross-examining the plaintiff travelling beyond the evidence of the plaintiff given in examination in-chief and thereby giving an opportunity to make out a case in cross examination.”

iii) Judgment in the case of between Food Inspector Vs

Seetharam Rice and Oil Mills of Honble High Court of Kerala

reported in 1974 Lawsuit(Kerala) 71 where in it is held that:

“Admittedly the first accused was denied an opportunity to cross examine PW1 who was recalled and re-examined and PW3 who was examined after the impalement of the additional accused. The counsel for the First accused contended that the right of Cross examination is a very valuable one that the denial of this right has resulted in great prejudice and miscarriage of justice. That the examination of PWs 1 and 3 has brought out materials prejudicial to the First accused and that, in these circumstances, the court below should have allowed the request of the first accused to cross examine PWs 1 and 3 and also to adduce further defence evidence on his side.”

CC. No. 8 of 2015 Page No.22

“The Statutory right of Cross examination granted to an accused is a very valuable one, as however slender the material for Cross examination may be, the effect of it cannot be gauged. In these Circumstances,.The conviction of the Ist accused cannot be sustained.”

19. To know whether the said allegation of the defence counsel is true or not on perusal of the case file it reveals that, prosecution examined Pw.1 on 13-8-2015 and PW2 on 26-8-2015 and they are also cross examined on behalf of accused before framing charges. This Court framed charges against accused A1 and A2 on 24-1-2019. As this complaint is filed as a warrant case in accordance with Chapter XIX B of Cr.P.C. this Court issued summons for cross examination of pW1 and 2 on behalf of accused after framing charges and posted to 19-2-2019 but the PW1 and 2 were not produced for cross examination on that given date and again summons were issued, like wise several adjournments and opportunities were given to the prosecution for the production of Pws 1 and 2 for cross examination but they failed to appear before this court for cross examination, this Court finally closed the evidence of Pws 1 and 2 and prosecution and prior to that examined Pws 3to 5 are in Chief and cross. In the said circumstances as per the rulings of the Hon’ble Appex Courts in the above Judgments, and as per the settled law the cross examination of a prosecution witness is the statutory right of the accused and it is very valuable one and effect of it cannot be gauged. Therefore the evidence of Pws 1 and 2 in the instance case has to be eschewed as the accused is not given the opportunity for the cross examination of Pws 1 and 2, as prosecution is failed to produce Pws 1 and 2 for cross examination on behalf of the accused. Hence the evidence of Pws 1 and 2 is eschewed, there is no oral evidence in support of the prosecution to prove the guilt of the accused.

20. With regard to the documentary evidence the documents

Ex.P4,P5,P10,P12,P16,P18,P20,which were marked through PW2 are collected from the customers of A1 company are not confronted to Pws 3 to 5 and the said witnesses did not spoken in the evidence of furnishing any

CC. No. 8 of 2015 Page No.23

documents and other customers of A1 was not examined. So the said documents are not attracting the provisions of Sec 36 A of the Central

Excise Act because the documents seizes from the custody and control of any person or documents produced by any person when tendered before any Court have evidentially value. But in this case the documents which are seized and collected by PW2 from the A1 Customers were not confronted to the witnesses Pws 3 to 5 and they did not depose about furnishing of any documents to the PW2 or to the Central Excise Authority, the above said documents marked through PW2 are not valid to consider them to support of the prosecution case.

21. In addition to the above facts, the visit of PW2 to the factory of A1

Company on 21-10-2010 giving doubt whether the said visit is legal under

Section 12 of the I.T. Act. Because in the present case there is no officer said to be leader of the team which visited the A1 Factory on 21-10-2010 is examined, no proceedings relating to the said visit are recorded and no inventory relating to the collection of any document is made and the said documents which are collected from the A1 company are not placed on record by the prosecution creates on adverse inference to the case of prosecution.

22. In this case the complaint is based mainly on Ex.P3 Adjudication order relating to the transactions of A1 company represented by A2 with 7 customers namely Viz:- M/s Sandvik Asia Ltd., M/s Lanco Infratech Ltd.

M/s Abhay Solvents Pvt Ltd. M/s Agri Fin Technologies, M/s Swastick

Sulphides M/s Sri Panchajaya Power (p) Ltds., and M/s M.S.M. Energy Ltd during the period from May-2008 to February 2011, and failed to pay the

Central Excise duty of Rs.2,53,76,851/- on the goods manufactured and cleared to the above 7 Customers. But in view of Ex.D1 the order, finding given by the customs Excise & Service Tax appellate Tribunal South zonal

Bench, Banglore at page No.3 para No4 of D1 that

CC. No. 8 of 2015 Page No.24

“ We note that the confirmation of Excise duty by invoking longer

period of limitation, without going into the legal issue as to whether the

activity amounts to manufacture or not, would not be appropriate

inasmuch as the appellant was admittedly discharging the service Tax

liability on the activity under taken by them with the due knowledge of

the Revenue”.

23. On this aspect the accused counsel also relied on the Judgment between Special Public prosecutor for enforcement Directorate Vs

M.Mishan Rao and another by the Hon’ble High Court for the state of

Telangana and A.P. in Criminal Appeal No.670/2015 which was held on 21st July,2015 that in para 23 & 24:- “In Radheshyam Kejriwal Vs State of West Bengal Case Discussion”

By a three judge Bench of the Supreme Court held that in a case of exoneration on merits in such adjudication proceedings,Where the allegations are found to be not sustainable at all and person concerned is held innocent, criminal prosecution on the same set of facts and circumstance cannot be allowed to continue, underlying principle being the higher standard of proof in Criminal Cases. The Supreme Court held that where allegations in both proceedings are identical and exoneration in adjudication proceedings is not on technical grounds but on finding that there was no contravention of the provisions of the Act held that such findings are relevant in Criminal proceedings and prosecution of person concerned would be unjust and abuse of process of Court. The Supreme court quashed the Criminal proceedings on the ground that the appellant having been exonerated in adjudication proceedings on merits cannot be prosecuted in Criminal proceedings.” “The above authority of the Supreme Court is clearly applicable to the facts of the present case. In the instant case also, as already stated the nature of allegations, the evidence both oral and documentary; the contentions of the prosecution and the respondents/accused were one and the same. The proceedings went on parallel one before the adjudication

CC. No. 8 of 2015 Page No.25

Tribunal and the Criminal prosecution before the Special Judge for

Economic Offences. Both the appellate authority in the adjudicating proceedings and the Special judge for Economic offences in Criminal proceedings has held that the respondents/ accused are not liable for any punishment.”

24. In view of the finding in Ex.D1 order by the Appellate Tribunal and the ruling of the Judgment cited above which clearly applicable to the facts of the present case, because in the instance case also Ex.P3 is not legally maintainable because this Criminal Court has to give due regard to the finding of the technical bodies in adjudicating the matters before it, therefore the case of prosecution is not maintainable.

25. Moreover in light of D1 findings the prosecution face at the most prima-facie is a bonafide dispute between assesse and department with regard to classification and not willful evasion of Excise duty. As per admission of PW1 for both the taxes i.e under Central Excise and service tax A1 Company is registered under Jurisdiction of Commissionerate,

Hyderabad. It is further admitted by PW1 that he has mentioned in the complaint that A1 Company is complying with Central Excise duty when ever raw material was supplied by the Customer. PW1 further deposed that, A1 Company can avail Central Excise duty credit paid on the raw material used by them. The Central Excise duty at the relevant time was at 12% rate relating the business of A1. The above admission prove the fact that, A1 have paid lesser duty and he chosen to clear the transaction by paying Central excise after deducting the, allowable credit elaborating on raw materials from the Central Excise Duty which was at the rate of 12%.

26. Though the A1 company is registered for payment of both the taxes under Central Excise and service Taxes, whereas the department having allowed the accused to pay the service Tax in relation to the transaction of subject matter of accused after verification of all the documents since so

CC. No. 8 of 2015 Page No.26

many years w.e.f 2008 onwards and also filing returns regularly, the department did not raise any objection and never point out the accused are required to pay Central Excise duty. Now the department is legally es- topped claiming the accused to pay the Central Excise Duty. The accused transaction are also not coming under the provisions of Sec 9 and 9C of

Central Excise Act, because they are paying the service tax by filing proper returns along with relevant documents of the transactions with due approval of the department and it shows the accused had no intention (mensrea) from evasion of duty. As per evidence of PW2 to 5 and statement of the customers and other documents on record categorically showing that the, seven transactions of A1 company with the customers where on the basis of job work, mention only about the service tax component relating to such transactions which were paid by the accused is admitted by the department that the accused were paying the service tax by filing proper returns along with relevant documents. PW1 also admitted that A1 paid 30,00,000/- (thirty lakhs) towards service tax as ordered under Ex.A1.

27. Therefore in the light of the discussion made above this court of the opinion that, prosecution failed to prove the guilt of the accused A1 and A2 for the charges framed against them. Because the evidence of PW1 and 2 is eschewed, the evidence of Pws 3 to 5 not supported the prosecution and the documents placed before the court by PW2 were not confronted to the

Pws 3 to 5 and they did not speak of furnishing of any document to the

PW2 or to the Central Excise Department persons, there is no legal evidence either oral or document to prove the charges of the accused. In addition to the above facts in the absence of the sanction order issued by the Competent person not placed on record for inspection of the court, the proceedings of the complaint are not legally valid. Moreover the department is estopped from collecting the Central Excise duty in view of accused (assesee) being allow to pay service tax even after due filing of

CC. No. 8 of 2015 Page No.27

returns before them and Ex.P3 which was passed against accused for taking several transactions of preceding 5 yrs of relevant transaction in fixing the quantum ect., was found fault by CEST Appellant Tribunal under Ex.D1. For these and other grounds discussed elaborately above, the complainant failed to prove that the A1 company evade Central Excise Duty of 2,53,76,851/- to attract the charges Under Section 9(1)(b) of Central Excise

Act against A1 company and Under Sections 9 (1)(b) r/w 9AA of Central

Excise Act 1944 against A2. A1 and A2 are entitled to benefit of doubt.

Hence this point No-1 is answered against the complainant.

Point No.2: In the result A1 company is not guilty for the offence U/s 9(1)(b) and

A2 is not guilty for the offence under Sections 9(1)(b) R/w 9AA of Central

Excise Act 1944 and they are acquitted under Section 248(1) of Cr.p.C.

Directly typed to my dictation by Stenographer of this Court, Corrected and pronounced by me in the Open court, on this the 21st day of October-2022.

Sd/-

SPECIAL JUDGE FOR ECONOMIC OFFENCES

HYDERABAD

APPENDIX OF EVIDENCE

List of witnesses examined

FOR PROSECUTION FOR DEFENCE

PW1:-P.C.Nayak. –Nil--- PW2: B.Subhas Chandra Bose. PW3: Mahaveer Mehta. PW4:Srinivasa Rao. PW5: Bolleni Obulapathi.

LIST OF DOCUMETNS MARKED FOR PROSECUTION

Ex.P1: is the Sanction order dated 8-7-2014 issued by Chief Commissioner of Customs & Central Excise. Ex.P2: is the Show cause notice dated 30-3-2012. Ex.P3: is the Order in Original No.12/2012 (C.E) passed by Commissioner. Ex.P4: is the Purchase order Statement 26/5/2008. Ex.P5: is the Purchase order statement dated: 19/5/2008. Ex.P6: is the Statement of K.Rambabu 16-11-2010.

CC. No. 8 of 2015 Page No.28

Ex.P7: is the Statement of Bishwaranjan Mishra dated 7-1/2011. Ex.P8: is the Statement of Biswarajan Mishra Dated 12-1-2012. Ex.P9: is the Statement of K.Rambabu dated:22/3/2012. Ex.10: is the Work order of Lanco Infra Tech Ltd. Dated 18/3/2008. Ex.P11: is the Statement of P.Channa Keshava Rao dated 18/1/2012. Ex.P12:is the Letter dated 1/12/2008. Ex.P13: is the Statement of Mahaveer Mehtha dated 21-12-2011. Ex.P14: is the Purchase order dated 15/1/2009. Ex.P15: is the Statement of M.Srinivasa Rao dated `19/1/2012. Ex.P16: is the Purchase order dated 21/4/2009. Ex.P17: is the Statement of G.Hemanth Kumar dated 21/12/2011. Ex.P18: is the Purchase order dated 01/07/2009. Ex.19: is the Statement of B.Obulapathi dated 15/12/2011. Ex.20: is the work order dated 01/07/2009. Ex.21: is the Statement of B.Obulapathi dated 15/12/2011. Ex.22: is the Statement of K.Sheshadri dated 19/1/2012.

Document marked on behalf of Defence

Ex.D1: is the Stay order passed by Appellate Tribunal No.20190- 20191/2015.

Sd/-

SPECIAL JUDGE FOR ECONOMIC OFFENCES

HYDERABAD

1 CC.No.187 of 2017

IN THE COURT OF THE SPECIAL JUDGE FOR ECONOMIC

OFFENCES: AT HYDERABAD.

Present: Smt.K. Aruna Kumari,

Special Judge for Economic offences,

Hyderabad.

Dated this the 21st day of December-2022

CC.No.187 of 2017

Between: The State Central Bureau of Investigation, Anti corruption Branch, Hyderabad, represented its Superintendent of police, Hyderabad.

... Complainant.

And

1.Sri B.Chanranpal Reddy (A1), Managing Partner, M/s Pearl Pharma,D.No.5-35/196, Prashantnagar, Industrial Estate, Kukatpally, Hyderabad.

2.Sri Janjanam Sambasiva Vara Prasad(A2) R/o:Plot No.931, Ist floor,Vivekananda Colony, Kukatpally, Hyderabad. (The case against Accused No.2 was abated since he Died)

... Accused No.1 &2.

This case is coming on for final hearing before me in the presence of Sri B.Raghavendra Special Public Prosecutor for state(CBI) and Sri J.Venugopal, counsel for the accused and having stood over the matter for consideration till this day the Court made the following: -: J U D G M E N T:-

1. The accused are charged and tried for the offences Punishable under Section 120-B,420 IPC and Section 132,135(1)(i)(D)of Customs

Act,1962.

2 CC.No.187 of 2017

2. The CBI, ACB, Hyderabad has filed ,charge sheet against the accused in Crime No.17(A) 2005-CBGI Hyderabad alleging Public

Servants of Customs and Central Excise Department have conspired with the above mentioned two private persons and helped them in export of starch powder in the guise of bulk drug Omerprazole. During the course of investigation LWs 1 to 15 were examined and their statements were recorded U/s 161 of Cr.P.C. and documents were collected as shown in the list of documents. Whereas investigation revealed that, Sri B.Charanpal Reddy (A1), is managing partner of M/s

Pearl Pharma. Sri JSSV Prasad (A2) is the person who represented on behalf of M/s Pearl Pharma. On 04-02-2005 Sri JSSV Prasad (A2)n n submitted ARE-1 form before the Central Excise officers at Range-II,

Kukatpally, Hyderabad for the export of bulk drug Omeprazole. The

Central Excise officials visited the factory premises of M/s Pearl

Pharma, Industrial Estate, Kutapally, Hyderabad and collected samples and forwarded the goods to ICD Sanathnagar. On 4-2-2005 the goods was examined by the Customs officials at ICD Sanathnagar Hyderabad and as the samples collected at Factory premises were not sufficient enough to forward the same to Chemical Examination, the factory seals were broke opened and samples were collected from all the shipping billed goods, viz 2001799 to 2001803, then let export order was given and the goods was exported to Malaysia, pending the Chemical

Examination report, regarding the confirmation of the genuineness of the goods exported. The samples were forwarded to SGS Lab, by DRI authorities and the result was negative as the percentage of presence of

Omeprazole is negligible. Both A1 & A2 have also confessed the offences committed by them before the DRI officials vide their statements recorded U/s 108 of Customs Act. They have also not 3 CC.No.187 of 2017 received any proceeds from M/s Royal corporation, Malaysia for the export of the five consignments which shows that they have not done any genuine exports. During the searches conducted by DRI in the office and residence of A2, Several incriminating documents fake bills about the purchase of Omeprazole drug as well as 265 kgs of starch were recovered. The Chemical analysis report showed the exported item was starch powder. The sixth consignment of the accused which was detained at Chennai by DRI was also containing starch powder and not the bulk drug Omeprazole. By declaring the goods dishonestly and fraudulently the accused tried to cheat the Government of India and wrongfully claim the benefit under DEPB Scheme prosecution sanction order against Sri B.Chanranpal Reddy (A1) and Sri JSSV Prasad (A2),

U/s 132 & 135(1) (a) & (b)(ii)of the Customs Act,1962.

3. The case was taken on the file for the offences Under Section 120

B R/w 420,511 IPC and under Sections 132 and 135 of Customs

Act,1962.

4. On appearance of the accused, they were furnished with the copies of documents U/s 207 Cr.P.C. and they were examined U/s 239 of

Cr.P.C. charges U/s 120 B,420 IPC and Section 132 and 135 of Customs

Act, 1962 have been framed read over and explained to them. The accused have pleaded not guilty and claimed to be tried.

5. During the course of trial, in support of the prosecution case,

PWs 1 to PW16 are examined and Ex.P1 to P37 and Ex.X1 to Ex.5 are marked.

6. Now the point for consideration is:-

1.Whether the A1 being managing partner of M/s Pearl Pharma along with A2 (deceased) have conspired together and exported starch powder from ICD Sanath Nagar Hyderabad to M/s Royal Corporation, Malaysia under the guise of Omeprazole drug?

4 CC.No.187 of 2017

2.Whether the A1 being managing partner of M/s Pearl Pharma along with A2 (deceased) have exported starch powder to M/s Royal Corporation Malaysia though proceeds received from them under the guise of Omeprozole drug claimed exports incentive under the duty entitlement passbooks scheme to a tune of 55,00,000/- and cheated the Government of India?

3.Whether the A1 being managing partner of M/s Pearl Pharma along with A2 (deceased) have submitted ARE -1 form before Central Excise officers at Range –II Kukatpally, Hyderabad for the export of Drug Omeprozole to M/s Royal Corporation Malaysia, but on examination of samples it was found exported item was starch powder and A1 violated the provisions of customs Act by creating fake bills and other documents?

4.Whether the A1 being managing partner of M/s Pearl Pharma along with A2 (deceased) have exported starch powder to M/s Royal Corporation Malaysia under the guise of Omerporzole drug by creating fake bills with an intention to evade the payment of customs duty and contravened the provisions of Customs Act?

5.Whether the prosecution have proved the guilt of the accused A1 for the offences under Section 120B, 420IPC and Section 132 and 135 of Customs Act beyond all reasonable ?

7. The case against A2 is abated since he died. To prove the guilt of the accused A1 prosecution has examined PW1 to 16 and got marked

Ex.P1 to Ex.P37 and Ex.X1 to X5.

8. On analyzing the evidence adduced by the prosecution PW1 working as Superintendent of Central Tax, Hyderabad Audit-II,

Hyderabad and previously worked as inspector of Central Excise at

Jeedimetla-IV Range, Hyderabad Division deposed that, on the instructions of his commissioner he appeared before Sri N.A Raghu

Inspector of Police C.B.I, Hyderabad on 21-07-2006, 22-07-2006 and 24-07-2006 and explained the procedure involved in the export of excisable goods and handed over photo copies of the Central excise manual for the year 2004-05. PW1 also stated that he has submitted 5 CC.No.187 of 2017

Central Excise manual for 2004-05 from which he had extracts the statutory provisions and identified the ARE-1 submitted to Central

Excise at the time of export bys the exporter, Sl.No.1/2005, total five sheets. Ex.P1 is the Xerox copy of Central Excise manual. PW1 further stated that he has examined by CBI and his statement was recorded by them.

9. In the cross examination PW1 has admitted that, Central Excise officials were also accused in FIR and the Central Excise officials has to verify the goods at the place of export and manufacturing Unit. PW1 further stated, as per the declaration they found the goods and that is why they allowed the goods to export. They retained one sample with them and sent other two samples to the customs authorities for examination. At the time of his examination the CBI did not take the sample retained by them.

10. PW2 worked as appraiser in Customs from Aug-2005 to 2008.

PW2 deposed that, after scrutiny the shipping bills come to him for assessment in computer system. After generation of shipping bills, the shipping bills filed under the schemes like duty exemption, entitlement cerficate (DEEC) duty entitlement pass book scheme (DEPB), duty fee replenishment certificate(DFRC) and export promotion capital Goods

Scheme(EPCG). PW2 stated, he know Laxminarayan appraiser who worked prior to him and identified the signature of Laxminarayan in office note proceedings No.S/26/13/2005. Ex.P2 is the said office note.

PW2 further stated the said office note prepared for the bills of M/s

Pearl Pharma, Prashanth Nagar, Kukatpally, Hyderabad Assistant

Commissioner by name Isaiah accepted the Ex.P2 Note. In the cross examination PW2 admitted that, Ex.P2 note was made before his joining. He has not handed over the Ex.P2 to the CBI 6 CC.No.187 of 2017

11. PW3 is working as Superintendent in the office of

Dy.Commissioner Sangareddy GSI Division, Miyapur, Hyderabad and previously worked as Inspector ICD Sanathnagar from May-2005 to

June-2006. PW3 deposed that, during his tenure CBI officials examined with regard to procedure of shipping bills and duties of Inspectors, with regard to the samples whether the product confirms to the specification given in the invoice is to be verified for that sample was drawn. DEFB benefit will be given to exporter subject to export product will be confirmed by chemical examiner. Ex.P3 to P7 are details of export goods for registration at the examination shed of ICD submitted by exporter

M/s Pearl Pharma respectively.

12. In the cross examination PW3 deposed that, ICD inspectors never go to factory of the accused. Ramesh is the jurisdictional Central

Excise Inspector for the factory. At that time, the Ramesh was the inspector. It is true that the samples will be collected by concerned

Jurisdictional Inspector from the material supplied by the exporter. It is true that the materials are kept in the drums. It is true that the shipping bill was assessed provisionally. It is true that after getting test report only the shipping bill will be finally assessed. He does not know whether even in this case also after receiving chemical examination report, it was finally assessed.

13. PW4 working as Dy.Commissioner of Central GSI Kollan

Division, Kerala. Previously worked as Supt of Central Excise IST

Sanathnagar Hyderabad from 2005 to 2006. PW4 deposed that, during this tenure Laxminarayana was appraiser and his duties are appraising of shipping bills. He know one Y.Isaiah the Asst Commissioner. The duty of Asst commissioner is the Incharge of ISED and CFS. As per the shipping bills submitted by the accused the name of export is M/s Pearl 7 CC.No.187 of 2017

Pharma. B.Chanrnapal Reddy is representing M/s Pharma. PW4 unable to identify the signatures of Isaiah and Laxminarayana in the shipping bills, as the PW4 not supported the prosecution version with regard to the relevant portion of 161 statements. The said statement was marked as Ex.P8. The said relevant portion was read over and shown to the

PW4 and pW4 denied when CBI officials shown the office note Ex.P2 he identified the signature of Isaiah,P.Laxminarayana and Vijay Kumar and now deposing false by not identifying the said signatures.

14. PW5 is working as recruitment consultant, people prime world wide Kukatpally since 2006. He worked as Head of operations Indus

Ing Bank Limited, Begumpet Branch from 2004 to 2007.PW5 deposed in the year 2006 CBI officials approached him and requested him for some documents then he furnished the documents relating to the account of M/s Pearl Pharma maintained in their branch through letter

dated 14-6-2006 i,e Ex.P9 PW5 furnished the documents Ex.P10 to P18

to the CBI.

15. PW6 A.V.S. Malikarjuna, worked as Superintendent of Central

Tax and Customs, Chief commissioner’s office, Vishakapatnam since July, 2021. Previously he worked as Senior Intelligence Office, Directorate of

Revenue Intelligence, Regional Unit, Hyderabad from 2001-2007.

During his tenure at Hyderabad he received the intelligence report that

M/s Pearl Pharma, Hyderabad are exporting Omeprazole to Malaysia through inland container Deport, Sanathnagar, Hyderabad and that they are highly over invoicing Free on Board (FOB) value and that he conducted searches at the Factory premises, at the residential premises of A2 and A1 and also the residential premises of connected person seized the letter dated 27-01-2005 given by M/s pearl Pharma addressed to Asst Commissioner Central Excise Division L CLS building 8 CC.No.187 of 2017

Hyderabad, the said letter is marked as Ex.P19 consist of (13) sheets and seized (88) fabricated bills showing M/s Pearl Pharma purchased

Omeprazole (88) fabricated bills. PW6 further deposed during his investigation he came to know an amount of Rs.56,000/- was lying in the account of M/s Pearl Pharma in the Indus Ing Bank, Begumpet

Branch. PW6 recorded the statements of Prashath Marparia is Ex.P21 recorded the statement of A.V.Vishwanatham is Ex.P22, and recorded the statement of B.V.Sharma is Ex.P23 who sold starch powder to the accused no-1 and 2. During the investigation PW6 also recorded the statements of A1 B.Charanpal Reddy and A2 J.S.S.V Prasad are Ex.P24 and P25 and he forwarded the documents and the statements recorded by him to the CBI and identified B.Charan pal Reddy(A1) partner of M/s

Pearl Pharma the accused present in the court hall.

16. In the cross examination PW6 has deposed that, he registered the case against A1 and A2 arrested them and produced before this

Court and do not remember whether any complaint is filed before the

PRI against the A1 and A2 in the above case. PW6 also admitted that, sample will be drawn at ICD Sanathnager before export of the case. In this case also officials of the ICD Sanathnagar had drawn samples before export of the goods. Further PW6 deposed that, the starch powder is necessary for preparing Pellats of Omeprazole and he did not lodged any complaint with the CBI in this case.

17. PW7 working as managing director of RMS research Lab private

Limited deposed that, that he was called by the CBI officials in the year 2006 or 2007 and accordingly he went to CBI office. CBI inspector inquired him about Pearl Pharma. PW7 also told that he sold one kg

Omeprazole to Pearl Pharma.

9 CC.No.187 of 2017

18. PW8 deposed that, on 31-1-2005 he supplied (3) tones of starch powder to Pearl Pharma vide billNo.2116 dated: 01-02-2005

Ex.P26 is the said bill, Ex.P27 is the delivery challan dated 31-1-2005 showing the supply of 1500 Kgs starch to Thiru Pharmaceuticals.

Ex.P28 is the delivery challan dated 31-1-2005 showing supply of 1500

Kgs starch to Thiru Pharmaceuticals. In the cross examination PW8 admitted that there is no mention of invoice number on Ex.P27 and P28 delivery challan.PW9 deposed that, he was managing partner of Lancer

Pharma doing business in manufacture of pellets. During the year 2004-05 he sold 40 kgs of Omeprazole powder worth of 80,000/- to A2 who was running Pearl Pharma.PW10 one of the partner of M/s Thiru

Pharma-cuticles, Hyderabad deposed that, in the year 2005 A1 approached him and asked for the conversion of startch powder into pellets. At the request of A1 he supplied 3 tones of starch powder to A1 and they have purchased the said 3 tones of starch powder from PW8 under Ex.P26 bill. The original of Ex.P26 bill is marked as Ex.P29 which bears PW10 signature. In the cross examination PW10 deposed that, they used to prepare pellets of Omeprazole by using starch powder.

19. PW11 worked as Asst commissioner of Customs ICD Sanathnagar from 2005 to 2007 has deposed that, in case of export from the factory the examination will be done by the concerned Central Excise officer on duty and the container will be sealed by the same Central Excise Officer and sealed sample will be forwarded to the Chief examiner for analysis.

PW11 identified Ex.P3 to P7 after shipping bills submitted by Pearl

Pharma represented by B.Charanpal reddy regarding export of

Omeprazole bulk drug to Malaysia. PW11 also admitted that, on showing Ex.P2 that it is the office note prepared for the above bills by the Laxminarayana Superintendent and accepted by the Isaiah Assistant 10 CC.No.187 of 2017

Commissioner for opening the containers for drawing of samples from

Ex.P3 to P7. PW11 identified the signatures of Laminarayna on Ex.P2 to

P7 and filed Ex.P30 the certified copy of circular dated 23-1-2002 issued by Ministry of Finance regarding the examination norms for export goods at port of export.

20. PW12 worked as quality assurance Manager SGS India

Private Limited Chennai from 2006 to 2011 deposed that, in the year 2007 the CBI officials called him to the CBI office Hyderabad and shown five certificates for analysis relating to Pearl Pharma and asked whether said certificates were issued from SGS private Limited Chennai or not and to verify whether those certificate were issued from his Lab. PW12 deposed that he verified those certificate and identified that they were issued by their Lab Ex.P31 is the five certificates of Analysis dated 25-7- 2005 issued by his Manager Ashwini Kumar Srivasthava. As per Ex.P31 certificate Omeprezole founded 3.45 % 4.89%, 2.54%, 2.10% and 3.02%. As per the standard requirement it could be 99% to 101%.

Omeprezole is a bulk drug. As per Ex.P31 certificates the material is starch powder and it is not Omeprezole. In the cross examination PW12 has stated as per the Ex.P31 certificates the samples were received in their Lab on 04-06-2005. Generally it will take 1 or 2 days to analyze the sample and to give report. There is no mention in Ex.P31 as to where the samples were collected.

21. PW13 proprietor of Lalitha Enterprises deposed that, in the year 2005 he supplied 4 tones of Starch powder to A1 and they purchased the said starch powder from Kisan Sahakari search

Manufacturing Society Limited and Vijay trading company. Ex.P32 are the Delivery challan, transport receipts and invoices.

11 CC.No.187 of 2017

22. Pw14 worked as Central Excise and Customs Hyderabad from 2004 to 2007 he deposed that he issued sanction order for prosecution of A1 and A2 for the offence punishable under Section 132 and 35 of 1(a)b(ii) of Customs Act 1962 U/s 137 (1) of Customs Act 1962. Ex.P33 is the sanction order for prosecution of Accused No-1 dated 19-12- 2006. Ex.P34 is the Sanction order for prosecution of A2 dated 19-12- 2006.

23. PW15 worked as Intelligence officer DRI Hyderbad from 2003 to 2007 deposed that, on 23-3-2005 as per the authorization for search issued by the Dy.Director DRI to the then Senior Intelligence officer he along with other officials of DRI and two independent witnesses namely

Ramakrishna Raju and Sathyanaraya raju proceeded to the house of A2 conducted search regarding availment of duty entitlement passbooks scheme Duty entitlement pass books schemes benefits by making fraudulent exports and seized documents listed in the annexure to the panchanama and also recovered 6 rubber stamps and also seized cash of 2 lakhs under the cover of panchanama dated 23-3-2005, Ex.P35 is the said panchanama and handed over the seized cash and rubber stamps from the house of A2 to Arup Dass Senior Intelligence officer.

The department issued show cause notice after the search conducted in the house of A2. Ex.P36 is the said show cause notice dated 20-9-2005.

24. PW16 worked as inspector CBI Hyderabad from 17-3-2003 to 31-5-2007 deposed basing on source information and as per the orders of the then SP CBI Hyderabad on 29-6-2005 he registered a case in Crime No.17(A)/2005 CBI Hyderabad U/s 120 B, 420,471,511 of IPC and U/s 13(2) r/w 13(1)(d) of prevention of corruption Act 1988 and issued FIR Ex.P37 is the F.I.R. During the course of investigation on 29- 6-2005 he filed a petition before Spl. Judge for CBI Cases, Hyderabad 12 CC.No.187 of 2017 with a request to issue search warrants and obtained the same. On 30- 6-2005 he conducted search at the residential premises of Mr.Isaiah and also at the office premises of Mr.Isaiah at the residential premises of

Mr.P.Lamxinarayana simultaneously on the same day. On his endorsement search were conducted at the residence of Mr.Isaiah, at

Kurnool and at the residence Mr.K.Vijayamumar, at Hyderabad. On 05- 07-2005 he returned the original warrants along with search reports to the Hon’ble Special Judge for CBI cases, Hyderabad. On 08-12-2005 he examined and recorded the statement of PW8 and collected the documents. On 23-12-2005 he examined and recorded the stamen of

PW2. On 31-12-2005 he examined and recorded the statements of

PW1,PW3, PW4,PW5,PW6,PW7,PW9,PW10,PW11,PW12,PW13. On 14-6-2006 PW5 produced documents and he collected the same. Later after obtaining sanction for prosecution of accused No-1 & 2 from

PW14 under Ex.P33 and P34, he filed charge sheet against the accused.

25. The learned Special A.PP appearing before this Court submitted his written arguments apart from oral arguments. The learned APP argues that, A1 along with A2(died) started company in the name of

M/s Pearl Pharma and exported starch powder in the name of

Omeprazole from ICD Sanathnagar Hyderabad to M/s Royal

Corporation Saroornagar at Malaysia though no proceed form was received from them thereby cheated the Government of India by claiming export incentives under duty entitlement passport scheme.

The prosecution also argues that the statements of A1 and A2 were recorded by PW6 under Section 108 of Customs Act which are admissible of evidence Act and the accused confessed that he had committed offence before PW6. So from the evidence on record the prosecution proved beyond the reasonable doubt, both from oral and 13 CC.No.187 of 2017 documentary evidence offences charged against A1 and prays this Court to punish the accused A1 with Maximum sentence besides imposing heavy fine.

26. On the other side the defence counsel argues that, prosecution has not been proved Whether A1 and A2 are conspired together and exported starch powder under the guise of bulk drug Omeprazole from

Hyderabad to M/s Royal corporation Malaysia and there is no evidence that A1 and A2 are the partners of the Pearl Pharma and accused has represented the firm under the bank. There is no evidence on record that the accused has derived the benefits under DEPB scheme. Ex.X1 to

X5 issued by the customs office at Chennai showing that they were exported Omeprazole but not the starch powder as contested by

Prosecution is not proved from the evidence of concerned persons who initially collected the samples from the container and given opinion under Ex.P3 to 7 were not obtained as per the procedure and those persons are also not examined. Prosecution failed to prove from their witnesses that A1 and A2 are conspired together done business as a partners and they have for the export of bulk drug Omeprazole to Royal

Cooperation of Malaysia exported starch powder and claimed export incentive under DEPB scheme and contravened the provisions of

Customs Act. The defence council also argues there is no incriminating material found against the accused from the evidence of PW8 to 10 and

13. It was also alleged that the prosecution must not rely upon the statement of A1 i.e Ex.P24 recorded under 108 of Customs Act without having supporting evidence to the statement, as there is no incriminating material from the prosecution. The defence counsel vehemently argues that the prosecution failed to prove the offences alleged against the accused beyond all reasonable grounds and prays 14 CC.No.187 of 2017 the Hon’ble Court to acquit the accused A1.

Points No.1 to 4

27. On the scrutiny of the prosecution evidence on record PW1 the inspector of Central Excise evidence reveals that, that the inspector of police CBI has narrated the fact of the case to him in order as per the procedure involved in the export of excisable goods and he has handed over a copy of Central Excise manual for the year 2004-05 that is Ex.P1.

According to the PW1 in the present case N.Shiva Kumar,

Superintendent and M.Ramesh worked as Kukatpally Range-II did not deviate from the afore said Rules and procedures in connection with the export of Bulk drug of Omeprazole under ARE1 which was sent by M/s

Pearl Pharma, Hyderabad and declaration filed by Shri JSSV Prasad with the Assistant Commissioner of Central Excise & Customs, Hyderabad-

Division. Further, since the said two officers verified the assessable value of export goods declared by the exporter in the ARE1 with the purchase order placed by the Overseas Buyer and found tallied, it appeared that the said two offers have adhered to the guidelines prescribed in respect of the valuation of the goods exported.

28. PW1 has identified the ARE1 submitted to Central excise at the time of export by the exporter Sl.No.1 of 2005 total five sheets. The copy of Central Excise Manual marked through PW1 with Ex.P1. From the evidence of PW1 there is no procedure violation in the present case.

29. PW2 worked as appraiser in customs, his evidence reveals that, Ex.P2 office note prepared for the shipping bills of the A1 firm M/s

Pearl Pharma by Laxminarayana appraiser who worked prior to him.

and it was accepted by Isaiah Asst Commissioner, Hyderabad. PW2 identified Laxminarayana signature in office note Ex.P2 proceedings.

Ex.P2 office note prepared for the shipping bills Ex.P3 to P7 for opening 15 CC.No.187 of 2017 of containers for drawer of samples from Ex.P3 to P7. PW2 also stated that Central Excise inspector collected the samples. PW3 evidence reveals that, Ex.P3 to P7 are details of export goods for registration at the examination shed of ICD submitted by exported M/s Pearl Pharma.

Ex.P2 note relating to M/s Pearl Pharma signed by Superintendent.

PW3 also confirmed that the shipping bills were finally assessed provisionally.

30. PW4 Superintendent of Central Excise evidence reveals that, during his tenure P.Laxminarayana is an appraiser know to him and his duties are appraising the shipping bills. As per the shipping bills submitted by the accused, the name of the exporter is M/s Pearl Pharma and B.Chanranpaul reddy is representing the M/s Pearl Pharma.

Whereas PW4 not identified the signatures of Laxminarayana and

Isaiah the Asst Commissioner on Ex.P2 which was identified by him as stated in Ex.P8 the 161 of Cr.p.C. statement. Though PW4 not identified the signatures of Laxminarayana but they were identified by PW2.

31. In connection to the above evidence PW6 Superintend Central

Excise and Customs deposed that he conducted simultaneous searches at the factory premises, also at the residential premises of accused No-2 (died), and accused No-1 Charan Pal Reddy and also the residences of other connected persons as per the information given by M.Ramesh

Inspector of Central Excise Kukatpally Range-II. During the said search

PW6 seized ARE I copies, shipping bills relating to export made by M/s

Pearl Phara and corresponding relating to export under the letter dated 27-1-2005 given by M/s Pearl Pharma addressed to the Asst commissioner is Ex.P19. They also found (88) fabricated bills i.e Ex.P20 showing M/s Pearl Pharma purchased Omeprazole from various parties. PW6 further revealed that during their investigation it came to 16 CC.No.187 of 2017 notice that an amount of 56,00,000/- and odd was laying in the account of M/s Pearl Pharma at the Indus ING bank Begumpet branch. A1 voluntarily gave letter to the Manager of the said bank and issued DD for the said amount in-favour of Commissioner, Customs Hyderabad.

PW6 also recorded the statements of PW8 is Ex.P21,PW10 is Ex,P22, statement of PW11 is Ex.P23 and also recorded the statement of A1 and

A2 are Ex.P24 and P25 under Section 108 of Customs Act.

32. PW3 to P7 are the relevant shipping bills of A1 firm and those are verified by PW3 as per the procedure. On perusal of Ex.P20 the 88 bills showing the purchase of Omeprazole from various parties by the accused. On perusal of the statement under Ex.24 and 25 discloses the export of starch powder by M/s Pearl Pharma by A1 and A2 under

DEPB scheme. So all the above documentary evidence confirm of export of Omeprazole as alleged, the prosecution by A1 and A2 under Ex.P3 to

P7 is proved and there are no procedure regularities by the concerned officers as per the evidence of prosecution witnesses. Because according to pW2 the note was prepared inEx.P2 contains the signature of Laxminarayna the then the apperizer. PW2 identified the signature of

Laxminarayana. According to the PW3 and 4 the exporter as per Ex.P3 to P7 shipping bills is M/s Pearl Pharma and also Ex.P3 to P7 seals represented by M/s Pearl pharma. Ex.P20 the bunch of 88 bills showing the purchase of Omeprazole from various parties.PW7 sold one Kg of

Omeprazole drug to Perl Pharma. PW9 deposed that, he sold 40 kgs of

Omeprazole worth of 80,000/-toA2(died)who was running pearl

Pharma.PW8 deposed that he supplied 3 tones of starch to Thiru

Pharma as per the delivery challan of Ex.P27,P28 and the bill Ex.P26.

PW10 deposed that, at the request of A1 he supplied 3 tones of starch powder to A1 under the original bill PW29 and the copy of that bill is 17 CC.No.187 of 2017

P26.

33. PW13 evidence is that, he supplied 4 tons of Starch powder to

A1 under Ex.P32 of delivery challans, transport receipts and invoices.

The statements of PW8 to 10,13 are recorded by PW6 are Ex.P21 to 23 proves the purchase of starch powder by the accused. The evidence of

PW12 the quality assurance Manager of SGS India private limited reveals that Ex.P31 certificate issued by the Manager of PW12 the material is starch powder and it is not the Omeprazole. So Ex.P31 establish the fact that, the exporter goods contains starch powder in spite of bulk Omeprazole drug. Ex.P3 to P7 which are also marked as

EX1 to X5 discloses the consignment to Malaysia consisting of bulk of

Omeprazole. The factory seals container shows that the exporter was

M/s Pearl Pharma and other details of the consignment. Here the consignment was Omeprazole as per the Ex.P3 to P7 whereas Ex.P31 discloses the consignment are testing contains starch powder and less quantity of Omeprazole found at 3,45%,4.89%,2.54%,2.10%, and 3.02% instead of stranded requirement of 99% per 101%. Therefore as per the documents it indicates in the consignment exported was

Omeprazole but on examination of the same found to be starch powder.

Ex.P20 the bills which were seized by PW6 from the premises of accused Pearl Pharma Premises. The statements of Ex.P21 to 25 of Pws 8,9,10 and A1 to A2 discloses about the supply of starch to M/s Pearl

Pharm and A1 and A2 also stated in their statement the same that they purchased the search powder during the relevant time and Ex.P26 to

P29 establish the purchase of starch powder by the accused for the export purpose proved that A1 and A2 in conspire together exported the starch powder in the year 2005 under guise of Omeprazole bulk drug from ICD Hyderabad to M/s Royal Corporation Malaysia by 18 CC.No.187 of 2017 creating the fake bills and other implicating documents to wrongfully claimed benefit under the DEPB scheme and there by cheated the

Government and violated the provisions of Customs Act.

34. The contention of the accused for the non examination of the officials who seized the export materials and non examination of the Laxminarayana apprizer and Isaiah the Asst Commissioner is not fatal to the case of prosecution because their signatures are identified by PW2 the appraiser who succeeded the Laxminarayana. The other contentions of the accused that the analysis report Ex.P31 is not reliable to relay on it by the prosecution because there is a delay in between 5- 2-2005 to 4-6-2005 in sending the samples for examination after the sample is drawn. The said delay is not unreasonable delay in the facts and circumstances of the case. Ex.P31 analysis report make clear that the consignment export is not Omeprazole but it is starch powder contain very less of Omeprazole and the consignment is not as per terms. The contention of accused that they have not supply Omeprazole for DEPB scheme is not acceptable for the reason, the evidence of PW6 reveals that, the goods exported in the DEPB scheme. The evidence of

PW15 discloses the seized documents, recovery of stamps and cash of 2 lakhs under Ex.P35 panchanama on 23-03-2005. As per the evidence of PW16 the search was conducted at the premises of M/s Pearl Pharma and samples were drawn. The oral evidence of PW6,PW15, and documentary evidence of Ex.P19,P20, coupled with Ex.P21 to 25 and 35 proves the prosecution story of export of starch powder against the

Omeprazole drug under the DEPB scheme. The another contention of the accused is that prosecution must not rely only upon the statements

Ex.P24 and 25 given by the accused under Section 108 of Customs Act without any supporting evidence is also not maintainable. Because 19 CC.No.187 of 2017

Ex.P3 to P7 submitted by A1 prove the fact that the consignment of export of Omeprazole bulk drug to M/s Royal corporation, Malaysia.

Ex.P19 the letter given by the Pearl Pharma prove for the claim of DEPB scheme, A1 along with the A2 exported the Omeprazole drug. But search conducted by PW15 and P16, from the panchanama Ex.P35 and analysis report Ex.P31 from the samples collected at the accused firm discloses the consignment of the accused was with more starch powder against the Omeprazole bulk drug. So the above oral evidence and the documentary of the prosecution corroborates the statements given by the accused Under Section 108 of Customs Act and also supports the prosecution case, so they are reliable.

35. Therefore in this case, the prosecution proved beyond reasonable doubt from oral and documentary evidence that A1 along with A2 who is no more started a Company in the name of M/s Pearl Pharma and exported starch powder in the name of Omeprazole drug and claimed export intensive under DEPB scheme. Because the amount is lying in the account of Pearl Pharma at Indus ING Bank to the tune of

Rs.52,16,380/- was given to Commissioner of Customs being the balance amount in the account. The non claiming of the said amount by the accused since 2005 shows the accused made false claim for the intensive under DEPB scheme. The Ex.P24 statement of A1 along with

Ex.P25 statement of A2 (died) contents recorded by PW6 under Section 108 of Customs Act corroborates to the prosecution case as discussed above, so the said statements are admissible under the evidence Act.

36. So all the points No-1 to 4 are answered against the accused.

20 CC.No.187 of 2017

Point No-5:-

37. IN THE RESULT:- A1 found guilty for the offences under Section 120-B,420 IPC,132, 135(1)(i)(D) of the Customs Act.

Directly typed to my dictation by Stenographer of this Court, Corrected and pronounced by me in the Open court, on this the 21st day of December-2022.

Sd/-

SPECIAL JUDGE FOR ECONOMIC OFFENCES

HYDERABAD.

38. A1 is heard with regard to the quantum of sentence for the said offences.

39. A1 has stated that, he is only person look after his entire family, consist of old aged mother, aged about 75 years, suffering with old age aliments like diabetics, hypertension (BP), his wife , unmarried daughter, studying 5th class and her mother in law and he is also suffering with Diabetics and pray to take lenient view in awarding the sentence.

40. I have gone through the record, the offences proved against accused A1 Under Section 120-B, 420 of IPC and Section 132, 135(1)(i)(D) of Customs Act 1962. It is not a fit case invoke Section 360 of Crp.C or Section 3 and 4 of probation offenders act as the offences proved against accused are Economic offences . Therefore considering the age of the accused A1 and his family back ground, dependency of the family on him andA1 facing the proceedings since 2005, I am inclined to imposed lesser sentence to meet the ends of justice.

41. Accordingly A1 is found guilty for the offence U/s 120-B, 420 of IPC and 132, 135(1)(i)(D) of Customs Act 1962 and he is convicted under Section248(2) of Cr.P.C.

42. A1 is sentence to Rigorous imprisonment for 2 years and to pay a fine of Rs.2,000/- for the offence Under Section 120-B of IPC in default of payment of fine, A1 has to undergo simple imprisonment for 3 months. A1 is sentence to undergo Rigours imprisonment of 2 years and to pay a fine of Rs.2,500/- for the offence Under Section 420 of IPC in default of payment of fine, A1 has to undergo simple imprisonment 21 CC.No.187 of 2017 for 3 months. A1 is sentence to undergo Rigorous imprisonment of 2 years and to pay a fine of Rs.2,000/- for the offence Under Section 132 of customs Act, 1962 in default of payment of fine, A1 has to undergo simple imprisonment for 3 months. A1 is sentence to undergo Rigorous imprisonment of 2 years and to pay a fine of Rs.2,500/- for the offence Under each of the Section 135(1)(i)(D) of customs Act, 1962 in default of payment of fine, A1 has to undergo simple imprisonment for 3 months. The total fine amount payable is 9,000/-(Nine thousand only) the above sentences shall run concurrentently.

Directly typed to my dictation by Stenographer of this Court, Corrected and pronounced by me in the Open court, on this the 21st day of December-2022.

Sd/-

SPECIAL JUDGE FOR ECONOMIC OFFENCES

HYDERABAD.

APPENDIX OF EVIDENCE

List of witnesses examined

FOR PROSECUTION FOR DEFENCE

PW1:-Sri N.V Vidya Sagar. PW2: A.Satyanarayana. PW3:Sri K.Mahendranath. PW4: Sri Shaji John PW5:Sri K.Nookaraju. PW6:Sri AVS.Mallikharjuna Rao PW7:Sri Ramakoti Reddy. PW8:Sri Prashant Morparia. PW9:Sru Appireddy. PW10:Sri A.VVishwanatham. PW11: Sri A.Gopa Kumar. PW12:Sri N.Ramesh. PW13:Sri B.Vishwanatha Sharma. PW14: Sri C.P.Rao. PW15:Sri K.Parthasarathi Reddy. PW16: Sri Raghuveer Vishnu.

22 CC.No.187 of 2017

LIST OF DOCUMETNS MARKED FOR PROSECUTION

Ex.P.1: is the Xerox copy of Central Excise Manual. Ex.P.2: is the office note. Ex.P.3 to Ex.P7: are the details of Export goods for registration at examination shed of ICD submitted by exporter M/s Pearl Pharma. Ex.P.8: is the 161 Statement relevant portion. Ex.P.9: is the letter dated 14/6/2006. Ex.P10: is the attested copy of account opening form relating Pearl Pharma. Ex.P.11: is the arrested copy of Specimen Signature Card. Ex.P12: is the attested copy of Declaration of firm. Ex.P13: is the attested copy of partnership deed. Ex.P14: is the attested copy of Certificate of incorporation of firm. Ex.P15: is the attested copy of letter dated 10-2-2005. Ex.P16:is the letter dated: 08-12-2004 issued by Government of India/Ministry of commerce O/o of Joint director General of Foreign Trade, Hyderabad. Ex.P17: is the Original partnership deed of M/s Pearl Pharma (4 sheets) Ex.P18: is the True extract of the statement of account of M/s Pearl Pharma (5 sheets) Ex.P19: letter dated: 27/1/2005 given by M/s pearl Pharma Addressed to Asst. Commissioner Central Excise, Division-2, CLS building, Hyderabad (13 sheets). Ex.P20: Fabricated bills showing that M/s Pearl Pharma Purchased Omeprazole from various parties. Ex.P21: is the Statement of Prashant U/s 108 Customs Act,1962. Ex.P22: is the Statement of A.V.Vishwanatham U/s 108 of Customs Act,1962. Ex.P23: is the Statement of B.V Sharma U/s 108 of Customs Act,1962. Ex.P24: is the Statement of Charan pal reddy U/s 108 of Customs Act, 1962. Ex.P25: is the Statement of J.S.S.V Prasad U/s 108 of Customs Act. Ex.P26: is the bill invoice No.2116 dated: 1/2//2005. Ex.P27: is the delivery challan bearing.No.4371 dated 31/1/2005. Ex.P28: is the Delivery challan bearing. No. 4372 dated 31/1/2005. Ex.P29: is the Original of Ex.P26. Ex.P30: is the Certified copy of Circular No.6/2002 dated 23/1/2002 issued by ministry of finance (3 sheets). Ex.P31: is the (5) certificates issued by SGS Lab.

23 CC.No.187 of 2017

Ex.P32: delivery challans, transport receipts and invoices (7) sheets. Ex.P33: Sanction order for prosecution of accused No.1. Ex.P34: Sanction order for prosecution of accused No.2. Ex.P35:Panchanama dated 23/3/2005 along with annexure. Ex.P36: is the show cause notice dated 20/9/2005. Ex.P37: is the FIR dated 29/6/2005.

For Prosecution side

Ex.X1 is the Shipping Bill No.200 1799 dated 05/2/2005. Ex.X2 is the Shipping Bill No.200 1802 dated 04/2/2005. Ex.X3 is the Shipping Bill No.200 1800 dated 04/2/2005. Ex.X4 is the Shipping Bill No.200 1801 dated 04/2/2005. Ex.X5 is the Shipping Bill No.200 1802 dated 04/2/2005.

Sd/-

SPECIAL JUDGE FOR ECONOMIC OFFENCES

HYDERABAD

1 CC.No. 61 of 2017

IN THE COURT OF THE SPECIAL JUDGE FOR ECONOMIC

OFFENCES: AT HYDERABAD.

Dated: This the 30th day of November, 2022.

Present: Smt.K. Aruna Kumari

Special Judge for Economic Offences,

Hyderabad.

CC.No.61 of 2017

Between: The Dy.Commissioner of Income tax, Circle-3(1) Room No.714, 7th floor, Signature Towers,Opp.Botanical Garden, Kondapur, Hyderabad.

... Complainant

And

1.M/s Rudvin Corporation India Pvt Ltd Having its Regd Office at 8-2-601/A/3/A., Plot No.221/A,Panchavati colony road, Hyderabad-500034, represented by its Managing Director.

2.Dr.P.Vikram, S/o: Madan Mohan Road Pillarisetty, Aged about 40 yrs, Managing Director M/s Rudvin Corporation Indian Pvt Ltd, R/o:Flat No.201, Rajagruha Apartments, D.D Colony, Hyderabad.

3.Mr.G.Diwakar, S/o: Sri G.Krishna Mohan Aged about 46 yrs Director M/s Rudvin Corporation India Pvt Ltd, R/o: 2-2-1144/14/3, Ramalayam Post Office Road, Nallakunta, Hyderabad.

4.Dr.P.Madan Mohan Rao, S/o: Sri P.Lakshmipathi Rao, Aged about 68 yrs, Director M/s Rudvin Corporation India Pvt Ltd, R/o:15/16, Brindavan,Nellore-524001.

..Accused No.1 to 4.

This case coming before me for hearing and upon perusing the complaint and other material papers on record and upon hearing the arguments of Sri J.Basava Raju, Special Prosecution counsel for lncome Tax Department and of Sri A.V.Raghu Ram and other Counsels for the Accused No-1 to 4 and having stood over for 2 CC.No. 61 of 2017 consideration till this day, the Court delivered the following:- -: J U D G M E N T :-

1. The present compliant has been filed by Income Tax Officer,

Circle-3(1), Hyderabad (herein after called as “Complainant”) against

M/s Rudvin Corporation India Pvt Ltd and its Managing Directors and its Directors for the offences Under Section 276C(2), & 278B of the

Income Tax Act,1961.

2. The brief facts of the case are that, the accuse No-1 is a company registered under the Indian Companies Act, 1956, engaged in the business of dealing in Herbal Extracts. The accused No-2 to 4 are the

Managing Director/Directors of the company and they are responsible for the day today affairs of the Company. The accused No.1 Company filed its original returns of Income for the Assessment year 2014-15 on 30-09-2014 declaring Total Income at Rs.38,24,165/-. The accused filed the return of income without making any payment of the aforesaid taxes. The accused filed its original return of income for the Assessment year 2014-15 admitting total income of Rs.38,58,930/- without paying self assessment tax of Rs.13,24,165/-. Self assessment tax is a tax which is voluntarily declared and paid by the assessee while filing the return of income. In this case, the accused declared that he has to pay self assessment tax of Rs.13,24,165/-, but the assessee has not paid any amount. Admittedly the accused failed to pay self assessment tax. A show cause notice was issued by the Principal Commissioner of Income tax-3, Hyderabad vide dated 17-06-2016 and served upon the accused.

In response to the show cause notice, the accused no-1 company has given a reply dated 27-06-2016 stating that due to extreme financial crunch and due to lack of business the asessee company has not paid taxes for the Assessment year 2014-15. However, the accused company 3 CC.No. 61 of 2017 had requested (60) days time but till date the accused company has not paid any taxes.

3. It is further averred that the accused company is a habitual evader and they are not paying any taxes for the previous years.

Accused No-2 to 4 also being the managing directors they are willfully evade the tax and responsible for the day to day affairs of the accused

No-1 company. Therefore the accused No-1 to 4 are committed an offence punishable Under Section 276(2) R/w 278B and 278E of the income Tax Act, 1961.

4. Responding to the summons, the accused put up his appearance and thereafter copies as required under Section 207 of Cr.p.C. were furnished to the accused.

5. After hearing the prosecution as well as the accused, this Court had framed charges under Section 276(2) R/w 278B and 278E of the

Income Tax Act and explained to the accused who pleaded not guilty and claimed to be tried.

6. In support of their case, prosecution has examined PW1 and relied on Ex.P1 to P6.

7. The incriminating evidence found in the prosecution evidence was brought to the notice of the accused by examining under Section 313 of Cr.P.C. The incriminating evidence has been denied by the accused.

8. On behalf of the accused DW1 to 3 are examined and relied upon Ex.D1 and D2.

9. Heard the arguments of Special prosecutor of complainant and defence counsel. Written argument and Additional Written Arguments along with citations are submitted by defence counsel.

10. In the back ground of the evidence and submissions the point for determination are :- 4 CC.No. 61 of 2017

1.Whether the prosecution established A1 Company being represented by A2 its managing director failed to pay the Tax on the admitted income willfully for the Assessment year 2014-15 in spite of issuing show-cause notice by the complainant?

2. Whether A2 is the managing director and A3 and a4 being the directors of A1 Company were responsible for the conduct of the business of A1 company will fully failed to pay the tax on the admitted income for the Assessment year 2014-15 in-spite of issuing show-cause notice by the complainant?

3. Whether the prosecution established that A1 committed the offence Under Section 276 C(2) of Income Tax 1961 and A2 to A4 committed an offences Under Section 276C(2) R/W 278B of Income Tax Act?

4. To what result?

11. Point No.1 & 2:- The points No-1 and 2 are discussed together because the material on record for both the points was inter linked. Before adverting to the proof of requirement of the both the charges it is required to be establish whether A1 company liable for the offence

Under Section 276C(2) and A2 to A4 are liable for the offence Under

Section 276C(2) R/w 278B of the Income Tax Act. For the benefit of ready reference the Section 276C(2) of the Income Tax Act is placed on record here under as:- 276©: Willful attempt to evade tax:-

Clause (2):-If a person willfully attempts in any manner whatsoever to evade the payment of any tax, penalty or interest under this Act, he shall without prejudice to any penalty that may be imposable on him under any other provision of this Act, be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to two years and shall, in the discretion of the Court, also be liable to fine.

5 CC.No. 61 of 2017 “Explanation: For the purposes of this section, a willful attempt to evade any tax, penalty or interest chargeable or imposable under this Act or the payment thereof shall include a case where any person. Has in his possession or control any books of account or mother documents (being books of account or other documents relevant to any proceeding under this act containing a false entry or statement or Makes or causes to be made any false entry or statement in such books of account or other documents or Willfully omits or causes to be omitted any relevant entry or statement in such books of account or other documents: or Causes any other circumstances to exist which will have the effect of enabling such person to evade any tax, penalty or interest chargeable or imposable under this act or the payment there of” Section 278 B: Offences by companies:-

1. Where an offence under this act has been committed by a company. Every person who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company as well as the company shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall rented any such person liable to any punishment if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence.

2. Notwithstanding anything contained in sub-section (1) where an offence under this act has been committed by a company and it is roved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary of the officer of the company, such director, manager, secretary of other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.

3. Where an offence under this Act has been committed by a person, being a company, and the punishment for such offence is imprisonment and fine, then, without prejudice to the provisions contained in sub-section (1) or sub-section (2) such company shall be punished with fine and every person, referred to in Su- Section (1) or the director, manager, secretary or other officer of the company referred to in sub-Section (2), shall be liable to be 6 CC.No. 61 of 2017 proceeded against and punished in accordance with the provision of this Act.

12. As per the averments of the complaint and evidence of PW1, the case of complainant is that, the accused No-1 is a company, registered under the Indian Companies Act (formerly known as M/s Madvik

Research Labs Private Limited) having it registered office at 8-2-601/A3/A4, Plot No.22/A, Panchavati Colony Road, Hyderabad engaged in the business of dealing in Herbal Extracts. The accused No.1

Company being represented by its Managing Director, Accused No-2 the accused No.3 and 4 are the Directors. The accused No.2 to 4 are in overall control over the affairs of the company and a decision making authority in the financial matter, in charge and responsible for day to day affairs of the accused No.1 company. Accused No-1 Company submitted the original return of income Ex.P1 for Assessment year 2014-15, declaring the total income at Rs.38,58,930/-and the tax liability as per the return filed by the accused was Rs.13,24,165/-. The accused filed the return of income without making any payment of the aforesaid taxes. The challan details report filed by the accused is Ex.P2.

13. The accused declared the payment of assessment Tax of

Rs.13,24,165/- but the accused admittedly failed to pay the self assessment tax prescribed as per law. As the accused failed to credit the assessment tax amount into the account of Central Government, a show cause notice dated 17-6-2016 i.e Ex.P3 served upon the accused company. To that A1 company has given a reply dated 27-6-2016 is

Ex.P4 admitting the liability and stated due to esteem financial crunch and due to lack of business could not pay the taxes and requested 60 days time for payment.

14. As the accused failed to comply the provisions of income tax

Act, the Principal Commissioner of income Tax-3 accorded sanction 7 CC.No. 61 of 2017 ordered.P5 on 14-10-2016 to prosecute the accused Under Section 276C-(ii) r/w 278-B of I.T Act. Ex.P6 is the signature of the Principal

Commissioner of the income Tax on Ex.P5.

15. On the other side Accused No-2 examined as DW2 deposed that he is the Managing Director of A1 Company and deals with trading of

Herbal products from 2008. Since 2008 they are regularly filing I.T returns of the Accused No-1 Company, in the year 2014 also they have filed I.T returns of A1 Company. They suffered huge loss in business therefore they are unable to pay the income along with the returns filed for the assessment year 2014-15 and there is no willful intention to evade payment of income tax to the department.

16. In the cross examination DW2 admitted that they have to pay self assessment Tax along with the income Tax returns and he verified and filed Ex.P1 income tax returns for the year 2014-15. DW2 also admitted that, they have not paid any amount towards the tax till date for the assessment year 2014-15 to show their bonafides. Dw2 recalled for further evidence on 1-11-2022 and on defence side got marked

Ex.D2 challan of Rs.13,24,165/- paid on 16-8-2022 towards self assessment tax. DW2 admitted he paid tax on 16-8-2022 as per Ex.D2 which has to be paid as per Ex.P1 on 30-9-2014. DW2 also admitted he has not paid any interest or penalty along with Ex.D2. Further DW2 admitted that after paying tax underEx.D2 he has not approached any officials of income tax. DW2 has not filed any proof from the department that he has updated the payment of the Tax under Ex.D2.

17. From the evidence of PW1, DW2 and documentary evidence of

Ex.P1 to P6, it prove that A2 on behalf of A1 company filed Ex.P1 return of income for the assessment year 2014-15 on 30-9-2014 without paying self assessment tax of Rs.13,24,165/-. After two years I,e on 17- 6-2016 Ex.P3 show-cause notice was served upon A1 company, as the 8 CC.No. 61 of 2017 accused failed to pay the self assessment of tax amount into the account of Central Government. To that A1 Company has given reply ex.A4 due to financial crunch and due to lack of business could not pay the taxes and requested 60 days time of payment. But the A1 Company has not paid the taxes within that period of 60 days, accorded sanction order

Ex.P5 against accused. Even after filing this complaint the A1 company not paid the self assessment tax of Rs. Rs.13,24,165/-. Even after giving the notice and filing the complaint the A1 company not paid the tax for the admitted income of the assessment year 2014-15, it establish the accused intentionally, voluntarily and deliberately avoided the payment of self assessment Tax, even though they have knowledge about the payment of the self assessment Tax for the A.Y year 2014-15. After the lapse of 8 years on 16-8-2022 under Ex.D2 challan, A2 paid income tax which has to be paid as per the Ex.P1 on 30-9-2014. Here A1 company has not paid any interest or penalty after due payment of self assessment tax for the assessment year 2014-15 and not approached officials of the income Tax and not filed any proof from the department that they have updated the payment of the tax under Ex.D2.

18. In the said facts and circumstances though due to loss in business A1 company unable to pay the self assessment tax for the assessment year 2014-15 and paid the said tax after (8) years i.e on 16- 8-2022 under Ex.D2 for Ex.P1 without paying penalty and interest and not updated the payment of the tax under ExD2by the department, the evade of self assessment of tax for the assessment year 2014-15 by A1 company by its managing director A2 attracting the ingredients of

Section 276C(2) Against A1, and Under Section 276C(2) r/w 278 B against A2 that they are found guilty for committing said offences.

19. Whereas the defence counsel from oral and written arguments submits that, A1 has filed return of income offering income 9 CC.No. 61 of 2017 of 38,58,930/- but it unable to pay tax of Rs.13,24,165/- on the same as

A1 company went into losses and it is beyond the control of the A1 company. It is further submitted that the very filing of the return of income itself evidences the fact that accused does not have mala fide intention to evade tax or the payment thereof. The non-payment of self assessment tax at the time of filing return of income is only defect even as per provisions of section 139(9) of the income tax Act, which attracts interest liability under Section 220 of the income tax act. It is submitted that the complainant is using the present proceedings for recovery of the TA dues which is impermissible in-law. It is submitted that the nonpayment of admitted tax liability at the time of filing of return of income does not lead to evasion of TA or the payment thereof, in as such as the income tax act enables for filing of return of income without payment of self assessment tax.

20. The accused relied upon the Judgments passed by the Hon’ble

High court of Karnataka in the matter of Vyalikava House building

Co-operative society Ltd & Ors Vs Deputy commissioner of income

tax wherein it was held that:- “The only circumstance relied on by the respondent in support of the charge leveled against the petitioners is that, even though accused filed the returns? Yet it failed to pays the self assessment tax along with the returns,. This circumstances even if accepted as true, the same does not constitute the offence under sec. 276C(2)of the Act. The act of filing the returns by itself cannot be constructed as an attempt to evade tax rather the submission of the returns would suggest that petitioner No.1 had voluntarily declared his intention to pay tax. The act of submitting returns is not connected with the evasion of tax. It is only an act which is closely connected with the intended crime that can be construed as an act in attempt of the intended offence. In the backdrop of this legal principle, the Hon’ble Supreme Court in the case of Prem Dass Vs.ITO cited (Supra) has held that a positive act on the part of the accused is required to be established to bring home the charge against the accused for the offence Under s 276C(2) of the Act.”

21. In another case of Bejan Singh Eye Hospital Pvt Ltd held by

Madras High court reported as (2020) 428 ITR 206 (Mad) held that:-

10 CC.No. 61 of 2017

22. There has to be some positive act on part of the accused in causing circumstances which lead to evade payment of taxes. In the present case, the prosecution failed to point out any positive act as required under Section 276C (2) of the Act. Therefore the complaint deserves to be dismissed, and it is prayed accordingly. The ruling of above citations are not applicable to the facts and circumstance of this case because in the above Ist citation the facts are, the petitioner No-1 is the co-operative Society registered under the provisions of the

Karnataka Co-operative act, petitioner No-2 is the society and the petitioner No-3 is the ex-vice president of the said society. The premises of the petitioner No-1 has submitted to the search and seizure on 5th July 2011. Consequences of search assessment proceedings initiated by the A.O by issuing a notice on 27-09-2011 calling upon the petitioner No-1 to file its returns of income for the assessment year 2006-07 to 2011-12. Since there is no complying of the said notice A.O.

issued show cause notice calling upon petitioner No-1, as to why prosecution for the offence punishable under Section 276CC of the Act could not be initiated in response to the said notice petitioner no-1 filed returns of income declaring the total income Rs.3,49,93,300/- and the total tax payable at Rs.10,54,420/- for the assessment year 2010 and 2011 and income of Rs.3,78,36508/- and the tax payable thereon at

Rs.1,03,88,310/-for the assessment year 2011-12 respectively petitioner No-1 though filed returns, failed to pay the self assessment tax along with the return of income under s 140 A of the IT Act. In the meanwhile, the property owned by petitioner No-1 was attached under s 281B of the Act. The attachment was later lifted on condition that the sale proceeds of the attached property would be directly remitted to the

Department. Thereafter, petitioner No-1 sent a cheque for

Rs.1,25,00,000 towards self assessment tax due for the asst year 2010- 11 CC.No. 61 of 2017 11 and 2011-12 on the back of the said cheque. It was instructed that

Cheque to be presented at the time of registration of the property in view of the instruction, department did not en-cash the said cheque.

Contending that the petitioners have willfully land lodged before the

Court of Economic Offences, Beguluru, seeking prosecution of the petitioners for the offences punishable under s 276C(2) of the Act. The special court took cognizance of the offence and issued summons to the petitioner. Aggrieved by the impugned action, the petitioners have invoked the jurisdiction of this Court under s 482 of Cr.P.C seeking to quash the impugned proceedings. The Hon’ble High of Karnataka quashes the proceedings.

23. The same judgment was followed by the Hon’ble High Court of

Madras in the 2nd citation relied by the defense counsel. The facts of the above said citations referred above are not similar to the facts of the case in hand, because in the present case the accused No-1 company represented by A2 managing director has filed his return of income for the assessment year 2014-15 and arriving tax and interest payable at

Rs.13,24,165/- the tax and interest not paid at the time of filing of return of income in the year 2014. After two years the show cause notice served upon the A1 company, the reply Ex.A4 given by A1 company admitting the liability that due to extreme financial crunch and due to lack of business could not pay the taxes and requested 60 days of time for payment. Accused No-1 Company failed to pay the taxes even in the required period of 60 days, then prosecution accorded sanction order against the accused.

24. The defence taken by the accused that A1 Company unable to pay the self assessment tax along with return of income because of losses suffered by the A1 Company subsequently. The said defence is not acceptable because A1 company and its MD A2 had knowledge at 12 CC.No. 61 of 2017 the time of filing returns that they have to pay the self assessment tax and interest Rs.13,24,165/- but not paid the said tax. Only after giving show-cause notice by the prosecution two years after to the date of

Ex.P1 came with the reply that A1 company is in losses and requested for 60 days of payment and after completing 60 days also not paid the self assessment tax, even after filing of this complaint and paid recently in August-2022 which clearly prove and establish that,A1 company and its managing director had knowledge about the payment of Self assessment tax for the year 2014-15 and it prove the presumption with culpable mental state not paid the due tax within the time and after receiving the show cause notice and even after filing of this complaint.

25. The A1 company is in financial losses as such not paid the tax and they have no willful intention to evade the payment of tax is stated by the accused only after serving show-cause notice by the prosecution raises a presumption of culpable mental state and malafide intention on the part of accused to evade the payment of tax. Though the A1

Company and its managing director A2 admitted the return of income

Ex.P1 and also from their reply Ex.P4 to the show-cause notice that A1 company has to pay the self assessment, but due to financial position A1 company unable to pay the tax. The said admission of the accused A1 and A2 will not evade the liability of the said accused from the provisions of 276C (2) of the Income tax act because having knowledge and admitted by the accused that they are in due of the self assessment tax and not paid the tax at the time of Ex.P1 is itself is a offence and accused are liable for the said offence.

26. The one of the explanation given to the Sec 276C(2) of the IT

Act is “Causes any other circumstances to exist which will have the effect of enabling such person to evade any tax, penalty or interest chargeable or impossible under this Act or the payment thereof.” As 13 CC.No. 61 of 2017 per the above provisions of explanation given under 276C of IT Act, the prosecution consider the circumstances of the A1 company unable to pay the self assessment tax for the year 2014-15 as it is in financial crises and given time (60) days as requested by the A2 on behalf of A1 company. Even after completing the said time period and after filing the complaint by the prosecution and till 8 years the accused A1 and A2 were not paid the self assessment tax for the year 2014-15. The conduct of the said accused A1 and A2 not showing the positive act on the part of accused, which is required to be establish for the offence

Under Section 276C(2) of the Act. Hence the act of the A1 company in nonpayment of the self assessment Tax willingly and deliberately at the time of filings of returns for the assessment year 2014-15 and also not paying the same tax after receiving the show-cause notice from the prosecution within the period of 60 days as requested by the A1 company. Not paid the said due of tax after filing the said complaint and paid the said due as per the Ex.D2 on 16-8-2022 without paying penalty, interest on the tax due amount and not updated the payment of

Tax proved that A1 committed an offence punishable Under Section 276C(2) of the IT Act. This court is not meant for the recovery of tax from the assessee but consider whether the offence committed by the assessee by nonpayment of the tax as per the provisions of the IT Act. In this case the basis requirement of I.T Act 276C (2) of the Act that A1 evade payment of tax for the assessment year 2014-15 is satisfied against A1 company and A2 committed the offence Under the provisions of Section 276B of the IT Act. The complainant/prosecution had made out the case against the A1 under Section 276C(2) of the IT

Act and against A2 Under Sections 276C(2) and 276B for evading the payment of self assessment tax for the year 2014-15 in-spite of issuing show-cause notice and also filing of this complaint. Therefore A1 14 CC.No. 61 of 2017 company is found guilty for the offence Punishable under section 276C(2) and A2 is found guilty for the offence Under Section 276C (2)

R/w 278B of the I.T.Act.

27. Coming to the liability of A3 for the offence Under Section 276C (2)R/w 276B of income tax Act, as per the contents of complaint and evidence of PW1 A3 is one of the director of the A1 company and had power overall the affairs of the company and decision making authority in the financial matter and in-charge and responsible for the day to day affairs of A1 company. Whereas PW1 not stated any specific

Act, omission or allegations made by A3 along with A2 controlling the affairs of the A1 company in the financial matters. A3 examined as DW1 deposed that, he joined in the A1 Company in the year 2009 without specified share and submitted his resignation in the year 2010 for personal reasons but statutory compliance before ROC was completed on 06-08-2012. Accordingly Form-32 was filed before Registrar of

Companies (ROC). Hence his directorship is withdrawn w.e.f 6-8-2012

DW1 no way concerned with the allegations leveled by the complainant against him in this case. Since he has not the Director of accused No-1 company as on the date of alleged offences mentioned in the complaint.

The complainant unnecessarily dragged him in the present complaint.

In the cross examination of DW1 nothing was elicited against A3 that he is one of the director of the A1 company, on the date of Ex.D1 by filing returns for the assessment year 2014-15 on 30-9-2014. As per evidence of A3/DW1 he has resigned from the A1 Company in the year 2010 and completed the statutory compliance before ROC on 6-8-2012 as per ExD1. It clearly establish that A3 is not a director of A1 company and not involved in the control of the affairs of the A1 company in the financial matter and also in filing Ex.D1 income tax returns by Accused

No-1 company in the year 2014-15. Hence this Court is of opinion that 15 CC.No. 61 of 2017 the prosecution failed to prove from the material on record that

Accused No-3 is one of the directors of A1 Company in the year 2014- 15, when A1 Company filed Ex.P1 returns and A3 is involved in control of A1 company affairs and its financial matter. So no case is made out against Accused No-3 by the prosecution that Accused No-3 committed an offence Under Section 276C (2) and 276B of IT Act, A3 is found not guilty for the charge framed against him under above Sections.

28. Coming to the liability of A4 for the offence under Section charged against him, the contents of complaint and evidence of PW1 is that Accused No-4 is one of the director of Accused No-1 company have overall control over the affairs of company and decision making authority in the financial matters and in-charge and responsible for the day to day affairs of Accused No-1 company. Whereas PW1 not stated any specific Act, omission or allegations made by Accused No-4 along with A2 in controlling the affairs of the Accused No-1 company in the financial matters and at the time of filing of the Ex.P1 returns by

Accused No-2 on behalf of Accused No-1 company and other transactions for Accused No-2 as managing director of A1 company with prosecution.

29. Accused No-4 also gave evidence on his behalf by examining as

DW3. DW3 deposed his son asked him to be one of the directors of

Accused No-1 Company but he does not know anything about the company. He did not know anything about this case. He never participated in any of the meetings of the Accused No-1 company. He never actively participated in the day to day affairs of the accused No-1 company. In the cross examination DW3 stated that, he signed on all the forms connected to Accused No-1 Company at the time of joining as director of company on the request of his son i.e Accused No-2. DW3 16 CC.No. 61 of 2017 also stated that, he has not filed any document to show that he had participated in any of the meetings of the Accused No-1 Company.

30. From the evidence of DW3/Accused No-4 who is father of

Accused No-2 it prove that, though Accused No-4 is one of the director of Accused No-1 company, there is no material on record or evidence from prosecution that Accused No-4 participated in meetings involved in decision making of Accused No-1 company. There is no proof that

Accused No-2 filed Ex.P1 returns on behalf of Accused No-1 Company for the assessment year 2014-15 and also given reply Ex.P4 to the show-cause notice issued by the prosecution with the concern and support of Accused No-4.

31. On this aspect the accused relies on the judgment passed by

the Hon’ble High Court wherein it was held that,(Judgment passed

by the Hon’ble High Court of Karnataka in the matter of confident

projects(India) (p) Ltd., & Ors Vs. DCIT dated 28-01-2021. The

Hon’ble Court held that :-

“All the directors of the company cannot be automatically prosecuted for any violation of the IT act. There has to be specific allegations made against each of the directors who is intended to be prosecuted and such allegation would have to amount to an offence and satisfy the requirement of that particular provision under which the prosecution is sought to initiated, more so when the prosecution is initiated by the IT department who has all the requisite material in its possession, and a preliminary investigation has been concluded by the IT department before filing of the criminal complaint. It is submitted that aggrieved by the order of the Hon’ble Court the I.T department filed SLP before the Hon’ble Supreme Court and the Hon’ble Supreme Court vide their order

dated 13-12-2021 dismissed the SLP filed by the I.T department.”

17 CC.No. 61 of 2017

32. In view of the ruling of the above citation in this case also

Accused No-3 and Accused No-4 are the directors of the Accused No-1

Company, there are no specific allegations made against Accused No-3 and Accused No-4 to be prosecuted for the charges framed against them. Therefore from the material on record it proved that, A4 is one of the director of A1 company and but not involved in the control of the affairs of the A1 company in the financial matter and also in filing Ex.P1 income tax returns by Accused No-1 company for the Assessment year 2014-15 by Accused No-2. Hence this Court is on opinion that the prosecution failed to prove from the material on record that Accused

No-4 as one of the directors of Accused No-1 Company in the year 2014-15, when Accused No-1 Company filed Ex.P1 returns involved in control of Accused no-1 company affairs and its financial matter. So no case is made out against A4 by the prosecution that A4 committed an offence Under Section 276C (2) R/w 276B of IT act Accused No-4 is found not guilty for the charge framed against him under above

Sections. So the points-No-1 and 2 are answered accordingly.

33. Point No-3:-

In view of the discussion held in point No-1 and 2 this court is of opinion that, the Accused No-1 and A4 are found not guilty for the charge framed against them under Section 276C(2) r/w 278 B of

Income tax Act.

In view of the discussion held above all the circumstances establish that there was evasion of payment of tax interest and penalty.

With regard to presumption under Section 278E has to the culpable mental state, it can be safely presumed that the accused A1 and A2 willfully made such attempt to evade payment of tax. Regarding culpable mental state which is requirement of offence under Section 276-C(2) and it is for the accused A1 and A2 to rebut such presumption 18 CC.No. 61 of 2017 by leading evidence with the standard of proof like that of beyond reasonable doubt. Absolutely, no evidence has been placed by the

Accused No-1 and 2 to rebut the factum of presumption of mental state as such the prosecution proved the requirement of offence under

Section 276-C (2) of Income Tax Act. A1 Company and the 2nd accused being the officer in-charge of business of A1 Company and responsible for running of A1 Company at the time of offence in the capacity of

Managing director are liable and found guilty. A1 company is found guilty for the offence Punishable under Section 276C (2). Accused No-2 is found guilty for the offence Under Section 276C(2) R/w 278B of the

Income Tax Act are liable for conviction for the present offences.

34. Point No-4:

In the result, this court found A3 and A4 are found not guilty for the charge framed against them under Section 276C(2) r/w 278 B of

Income tax Act and they are acquitted from the said offences charged against them under Section 248(1) of Cr.P.C. A1 Company is guilty for the offence Punishable under Section 276C(2). Accused No-2 is found guilty for the offence Under Section 276C(2) R/w 278B of the Income

Tax Act and they are convicted under Section 248(2) of Cr.P.C.

Directly typed to my dictation by Stenographer of this Court, Corrected and pronounced by me in the Open court, on this the 30th day of November-2022.

SPECIAL JUDGE FOR ECONOMIC OFFENCES

HYDERABAD

This Court is not inclined to invoke the benefit of Section 360 of Cr.P.C. as the offence is white collared and has effect on Indian economic structure. Hence, A2 representing A1 was questioned on the quantum of punishment. A2 represented that his entire family is depending on A1 Company. Now A1 Company is not in existence due to losses, so the A2 is in financial crisis and pray to show mercy in imposing the sentence 19 CC.No. 61 of 2017 and fine and prayed to take lenient view. Considering the explanation offered by the accused the following sentences are passed.

i) Accused No-1 is sentenced to pay fine of Rs.5,000/- (Rupees five thousand only) for the offence Under Section 276C(2) of Income tax Act.

ii) A2 is sentence to undergo Rigorous Imprisonment for three months in respect of offence Under Section 276C(2)R/w 278B of I.T Act, iu801961 and to a fine of Rs.5,000/- (Rupees five thousand only). In default of payment of fine imposed on A1 and A2, A2 shall undergo S.I for 15 days each. A3 and A4 are not found guilty for the offences charged against them under Section 276C(2) R/w 278B of Income Tax

Act and they are acquitted under Section 248(2) of Cr.P.C.

Directly typed to my dictation by Stenographer of this Court, Corrected and pronounced by me in the Open court, on this the 30th day of November-2022.

Sd/-

SPECIAL JUDGE FOR ECONOMIC OFFENCES

HYDERABAD

APPENDIX OF EVIDENCE

List of witnesses examined

FOR PROSECUTION FOR DEFENCE

PW1:-V.Aparna. DW1: Sri Govinda Raju Diwakar. DW2: P.Vikram. DW3: P.Madan Mohan Rao.

LIST OF DOCUMETNS MARKED FOR PROSECUTION

Ex.P1: is the return of income filed by the accused for Assessment year 2014. Ex.P2: is the challan details report filed by the accused. Ex.P3: is the show cause notice dated 17-06-2016. Ex.P4: is the copy of the reply dated 27-06-2016. Ex.P5: is the Sanction order dated 14-10-2016. Ex.P6: is the Signature of the Pr.Commissioner of Income Tax-3.

Document marked on behalf of Defence

Ex.D1: is the Form No.32. Ex.D2: is the challan.

Sd/-

SPECIAL JUDGE FOR ECONOMIC OFFENCES

HYDERABAD

CC.No.105 of 2018

1

IN THE COURT OF THE SPECIAL JUDGE FOR ECONOMIC OFFENCES:

AT HYDERABAD.

Dated: This the 16th th day of February, 2023.

Present: Smt.Aruna Kumari

Special Judge for Economic Offences,

Hyderabad.

CC.No. 105 of 2018

Between: Registrar of Companies, (For Andhra Pradesh and Telangana), II floor, Corporate Bhavan, Bandlaguda, Nagole, Hyderabad.-500 068. Complainant.

And

1.M/s AMEYA LABORATORIES LIMITED H.No. A-49, Madhura Nagar, Yousufguda, lHyderabad-500038 Telangana, India) (represented by A2 and A3 herein Within the jurisdiction of SR Nagar PS)

2.Hari Babu Kosaraju(Managing Director) Aged about 62 years, S/o; Subba Rao Koswaraju A-49, Madhura Nagar, Vengal Rao Nagar, Hyderabad – 500038 Telangan, India.

3.Satyanarayna Maddali Sri Sai Venkata (Whole Time Director)Aged about -60 yrs, S/o: Maddali Babu Raja Venkata Krishna Rao, 61-16-11 A, Patamata, Vijayawada- 521151 Andhra Pradesh, India. (The case against A3 is Split-up as CC.No.77 of 2022)

…Accused A1 and A2)

CC.No.105 of 2018

2

This case is coming before me for hearing and upon perusing the complaint and other material papers on record and upon hearing the arguments of Sri T.Bharat Ratna, Company Prosecutor for Complainant and of Sri G.Mallikarjun, Advocate for accused and having stood over for consideration till this day, this Court delivered the following:-

-: J U D G M E NT :-

1. The Registrar of companies (herein after referred as “ROC”

Hyderabad, filed this Complaint filed against A1 Company and its

Directors Under Section 233 B(7) of the companies Act, 1956 R/w The companies (Cost Audit Report) Rules,.2011.

2.The alleged in the complaint is that, the Accused No.1 is a Public

Limited Company limited by shares, registered in the erst while State of

Andhra Pradesh (Now State of 'Telangana') on 20.02.1996 under the

Companies Act, 1956 vide CIN: L24230TG1996PLC023283 and having its registered office at the address mentioned against the Accused No.1 above. The name of the A-1 company has been changed from M/s. Anu's

Laboratories Limited to M/s. Ameya Laboratories Limited w.e.f.

16.09.2013. That the Accused No's. 2 and 3 were at all relevant times to which the complaint relates are the Directors/Officers-in-default of the

Company.

3.It is further averred that the Ministry of Corporate Affairs vide

No. 52/26/CAB-2010 dated 2 May 2011, as stated in General Circular

No. 12/2012 dated 04.06.2012 had instructed in accordance with the

Cost Accounting Records Rules, 2011 that every company to which any of the following rules apply. and wherein, the aggregate value of net worth as on the last date of the immediately preceding financial year

CC.No.105 of 2018

3 exceeds five Crore of rupees; or wherein the aggregate value of the turnover made by the company from sale or supply of all products or activities during the immediately preceding financial year exceeds twenty Crore of rupees; or wherein the company's equity or debt securities are listed or are in the process of listing on any stock exchange, whether in India or outside India, shall get its cost accounting records, in respect of each of its financial year commencing on or after the 1 day of April, 2011, audited by a cost auditor who shall be, either a cost accountant or a firm of cost accountants, holding valid certificate of practice under the provisions of Cost and Works Accountants Act, 1959.

4. That as per the above Circulars issued by the Government of

India, the turnover of the Al company from sale or the aggregate value of the turnover from sale or supply of all products or activities during the immediately preceding financial year exceeds twenty Crores of rupees i.e. Rs. 269,41,37,610, as evident from the Profit and Loss as at 31.03.2011 which is the last filed., Preceding balance sheet (Profit and

Loss) before the office of complainant. The e-Form 23ACA along with its attachments for the financial year 2010-2011 and as well as the

Company's Master Data available from the Ministry of Corporate Affairs

Website are submitted herewith. Therefore, since the Al company is falling under one of the criteria's envisaged by the Central Government which should get its cost accounting records to be audited by a cost auditor appointed by the Al company and failed to file the cost audit report to the Central Government within 30 days from the date of receipt of a copy of the report furnished by the Cost Auditor for the financial year 2013- 2014 and therefore the accused are liable for the default committed.

CC.No.105 of 2018

4

5. That in view of the above failure by the Accused No.1, A2 and

A3 being the officers of the Company have committed default and are liable as per Sub Section 11 of Section 233B of the Companies Act, 1956 for non filing of cost audit report with the Central Government for the financial year ending 31.03.2014. Therefore the Accused No's. 2 and 3 are the officers-in-default within the meaning of Section 5 of the

Companies Act, 1956 during which period the default was committed i.e. A2 is the Managing Director and A3 is the Whole Time Director of the Al Company. As such the above named accused are knowingly and wilfully guilty of the contravention of the provisions of Section 233B(7) of the Companies Act, 1956. That the Complainant, therefore, states that the Accused have committed an offence punishable under Section 233B (11) of the Companies Act, 1956 .

6. It is further averred that, the Complainant issued a Show Cause

Notice to the accused on 05.01.2018 through speed post with AD card to show-cause why penal action should not be initiated for contravention of the Act Read with Rules. The show cause notices sent to A-1 to A-3 are neither returned undelivered nor served with proofs of acknowledgment cards. Hence, the show cause notices may be deemed to have been served to A-1 to A-3. However, the Accused have preferred not to reply to the Show cause notices issued till date. That the Competent Authority under the Ministry of Corporate Affairs is the

Central Government to issue instructions to the Complainant for filing the prosecution under this provision before this Hon'ble Court. The

Ministry of Corporate Affairs, Cost Audit Branch Government of India vide F.No.52/20/CAB-2015 dated 23.11.2017 had given its sanction to

CC.No.105 of 2018

5 file prosecution for the violations committed herein. Therefore, this complaint is well within the limitation period as envisaged under

Sections 468 and 469 of Cr.P.C, and hence the complaint is not barred by limitation since the complaint is filed within three years from the date of knowledge of offence i.e. 23.11.2017. Therefore pray this Court to:-

a) That the process be issued against the accused and they may be punished for the subject violation according to the law and direct the accused herein to comply with the above provisions within the stipulated period as stipulated by this Hon'ble Court.

b) That the Complainant's costs of and incidental to these proceedings may be provided for under section 626 of the Companies Act, 1956.

c) It is also prayed that under section 63 of the Criminal Procedure Code, 1973, the service of summons on the Accused No.1 may be effected by serving it on Accused No's.2 and 3 at his/their given addresses as he/she appears to be that Company's Principal Officers as its Managing Director and Whole Time Director respectively.

d) The Complainant is a Public Servant and he is filing this complaint in his official capacity. Again this complaint is mostly based on the records maintained in this office and he is being represented by the Company Prosecutor and therefore prayed that his attendance may be dispensed with under provision to section 256 and 200(A) of the Criminal Procedure Code, 1973. This Hon'ble Court may be pleased to permit the Complainant to examine an official of ROC as witness in place of Complainant pursuant to section 621(1A) of the Companies Act, 1956.

8. The complaint was taken on file for the offence under Section 148(6) of the Companies Act, 2013 against the accused on 05-06-2018 and the summons were issued to the accused.

9. In response to the summons received from the Court, A2 and a3 representing A1 Company made their appearance and they were

CC.No.105 of 2018

6 furnished with the copies of documents as contemplated under Section 207 of Cr.P.C. The case against A3 is split-up as CC.No.77 of 2022.

10. During the course of trial, the complainant/ROC examined its,

Junior Technical Assistant by name Sri S.Dinish Kumar as PW1 and got marked Ex.P1 to Ex.P8 and charges were framed against the accused

Under Section 233 B(7) of Companies Act,1956.

11. After closure of the evidence for the complainant, Accused examined under Section 313 of Cr.P.C. By explaining the incriminating circumstances that are appearing against him in the evidence of PW1, for which he denied. On behalf of the accused No evidence adduced.

12. Heard the learned counsel for the complainant and learned counsel appearing for the accused .Perused the entire evidence brought on record, both oral and documentary.

13. The learned company prosecutor submitted that, A1 company

A2 its managing director have committed default for non filing of cost audit report with the Central Government for the financial year ending 31-03-2013 Therefore A1 company and A2 is the managing director of the company are in default and liable for punishment as per Sub

Section 11 of 233 (B) of the Companies Act 1956. The complaint is filed within the limitation period. As per the instructions issued by the

Ministry of Co-operative affairs filed the complaint under the Old

Companies Act 1956 and the complaint filed under the Old companies

Act 1956. According to the notification of the repealing section in the new companies Act came into effect 30-1-2019 Hence A1 the company and A2 its Managing director are liable to be punished.

14. The learned defence counsels argues, the complainant not issued any show cause notice to the accused as such not filed any

CC.No.105 of 2018

7 receipt or proof that the said show-cause notice issued to the accused.

The defence counsel further argues the new companies Act came into force from the date of issuance of show-cause notice to the accused and the said notice issued under the Act was not in force at that time.

Finally the defence counsel argues no fault committed by the accused and complaint filed false against the accused to satisfy the higher authorities. Further the compliant is barred by the limitation, hence A2 is entitled for acquittal.

15. In the light of above rival contentions, the following points would arise for determination:-

(i). whether the complaint is barred by Limitation?

(ii). whether the compliant is not filed as per the sanction order issued by the Ministry of corporate affairs Government of India?

(iii) Whether the complainant has been able to prove the case against the A1 company and A2 its managing director for the offence U/s 233B(7) of the Companies Act 1956 beyond all reasonable doubt?

16. The facts which are not in dispute are that, M/s Ameya

Laboratories Limited (A1) is the Public Limited Company registered on 20-02-1956, A2 was its Managing director, at all relevant time to which the complaint relates the directors in-default of the A1 company. The

A1 Company failed to gets its cost accounting records audited by cost auditor appointed by A1 company and failed to file the cost audit report to the Central Government within 30 days from the date of receipt of copy for the financial year ending 31-03-2013

17. On that complainant/ROC issued show cause notice to the accused on 5-1-2018 to A1 company, A2 for the contravention of the provisions and rules under the companies Act 1956 and the same is served on A1 and A2 under acknowledgments.

CC.No.105 of 2018

8

18. To prove the case, the complainant examined its senior technical Asst as PW1 and marked Ex.P1 to P8. PW1 deposed that, in support to the averments of the complaint.

19. POINT No-1:- It is the contention of the defence counsel that the complaint is barred by limitation. It is pointed out by the defence counsel that, PW1 has cited new sections under the Companies Act 2013 in the show cause notice. New companies Act 2013 is in force on the date of issuance of show cause notice to the accused on behalf of the complainant to the offences under the old companies Act 1956 which was not in force on the date of issuance of the notice. On perusal of the record it reveals that there is no much force in the above contention of the accused counsel. Because the complaint is filed under Section 233

B(7) of the Companies Act,1956. The prosecution was contemplated against the accused after the commencement of the new Act of the companies Act 2013 on 05-06-2018, as per the notification of the repealing section the new companies Act 2013 came into effect on 30-01-2019.

The complainant counsel relied on the citation reported in :-

In the case of Delhi High Court Sanjay Suri & Ors Vs State &

Anr.On 29 th Janaury-2010 where in it was held that:-

In the case of Mishra Dhathu Nigam Ltd. (supra), Andhra

Pradesh High Court, while reject the contention that mere filing of

Balance Sheet is sufficient to impute knowledge of the offence the

Registrar of Companies, inter alia, observed as under:- "Mere filing of the balance-sheets with voluminous annexures does not necessarily mean that the offence can be detected by the Registrar immediately. As there are a number of limited companies, it is humanly impossible for the Registrar to closely scrutinise each and every

CC.No.105 of 2018

9 balance-sheet the moment it is filed and to find out whether any offence has been committed by a particular company. It is only after close scrutiny, which is done as in the case of inspection, that any offence committed by the company can be detected. Moreover, whether the particular deployment of funds is in the nature of investment or deposit cannot be detected by a mere look at the balance- sheets with its annexures and can be detected only after due inspection and close Scrutiny. Thus, I respectfully disagree with the decision of the Madras High Court in Asst. Registrar of Companies v. H. C. Kothari [1992] 75 Comp Case 688. Accordingly.” “Even otherwise, in my view, it cannot be said that all the offences against Companies Act come to the knowledge of Registrar, on the date Balance Sheet or other relevant document is filed in his office. The number of companies, in our country, may be running into lakhs. It would be impractical and unrealistic to expect the Registrar or his office to carry out a detailed scrutiny and cross-checking of the Balance Sheets and other documents filed in his office, on the date the documents are filed or even soon thereafter. The Registrar does not possess the requisite infrastructure and manpower to carry out such an exercise. If two views are possible, the Court must take the view which would advance the course of justice and discourage commission of offence such as contraventions of Companies Act. If the Directors, officers or employees of the company know that knowledge of offence would be attributed to Registrar of Companies from the date the Balance Sheet or other documents, as the case may be, is filed in his office, they would be encouraged to violate the provisions of the Act with impunity, since they would be knowing that it is neither possible nor practical for the Registrar or his office to come to know the offence committed by them, within a short period of filing of the documents in his office. Such a view, if taken, would only frustrate the legislative intent behind enactment of various penal provisions in the Companies Act and, therefore, should not be taken.)”

CC.No.105 of 2018

10

In another citation held by Karnataka High Court in ROC –Vs

Fair growth Agencies Limited on 12 th April-2006 in para-12 th

para:- ” On a perusal of all these decisions, the following principle of law can be culled out for computing the period of limitation. In a case registered on the complaint lodged by the Registrar of Companies in respect of an offence against the Companies Act, one has to consider the date on which such offence came to his knowledge. In one case, it maybe that the Registrar may have come to know about the offence on the date when the Inspecting Officer detects the contravention of the Act. In t another case, he may not be aware of offence until a report is made by the Inspecting Officer to him. Determination of this date of knowledge of the Registrar depends on facts of each case. In cases where the inspection of books of accounts and other books of the Company is done under Clause (11) of Section 209-A(1) of the Companies Act, a report of the inspection will have to be made to the Central Government under Sub-section (6) of Section 209-A of the Companies Act and the Registrar of Companies may come to know about the commission of such offence against the Companies Act only when he receives a communication from the concerned officer of the Department of Company Affairs. In such cases, the date on which he receives communication in this regard will have to be taken as the starting point for limitation under Section 469(1)(b) of the Code of Criminal Procedure”

The defence counsel relied on the citation reported in Kavi

Arora Vs Registrar of companies 2015 SCC On Line Del 12300:-

“Thus, the time period taken by the Regional Director to take the decision to direct the Registrar of Companies to launch prosecution cannot be excluded for the purpose of computing the period of Limitation as both the Regional Director, i.e the Central Government as well as the Registrar of the Companies was competent to launch prosecution once they had knowledge of the commission of the offences as on 24 th June,2013 i,e when the inspection reports were filed with either of them. Since for the offences Under Section211(7), 211(3A), (3B) and (3C) of the Act, no Consent/Sanction for prosecution form the Central Government is required. Section 470(3) Cr.P.C. cannot be relied upon by the respondents.”

CC.No.105 of 2018

11

Therefore this case was filed under the old companies Act 1956 and offenses committed under the 1956 of the Companies Act, for the default committed under Section 233B(7) of the companies Act the punishment was explained under Section 233B(11) of the companies

Act 1956 which stipulates as under:- “if default is made in complying with the provisions of this section, the company shall be likable to be punished with fine which may extend to fifty thousand rupees) and every officer of the company who is in default, shall be liable to be punished with imprisonment for a term which may extend to three years, or with fine which may extend to fifty thousand rupees or with both”.

As the complaint filed under Section 233 B(7) of the Companies

Act 1956 to which the punishment described under the 233B(11) of the companies Act for three years. The point is whether the complaint is filed within three years from the date of knowledge of offence i.e 23-11- 2017. In this case the complaint is filed within three years from the date of knowledge of the offence i,e 23-11-2017, the complainant has issued show-cause notice to the accused on 5-01-2018 and this complaint is filed on 05-06-2018 is within three years from the date of knowledge of the offense i.e 23-11-2017 to the complainant/ROC therefore it cannot be said that the complaint barred by limitation.

Thus the point number No-1 answered accordingly.

Point No-2:- The important fact in this case is that, the complaint authorities under the Ministry of Corporate affairs is the Central

Government to issue instructions to the compliant for filing the prosecution before the Hon’ble Court, in this case the Ministry of

CC.No.105 of 2018

12 cooperative authorities has given its sanction Ex.P4 dated 23-11-2017 to the complainant for filing prosecution against the A1 company and to the A2 its Managing Director under Section 233B(7) of the companies

Act 1956 for non filing of the audit report to the Central Government for the financial year ending i,e 31-03-2014. The contention of the accused counsel is the prosecution was contemplated against the accused after the commencement of the new company Act in the year 2013. The show cause notices issued to the accused under the old companies Act when the news Companies act is in force on the date of issuance of show- cause notice is not correct. It is true the prosecution has contemplated against the accused under the old companies’ Act 1956 after the new companies act 2013 came into force in the year-2013. Because as per the notification, the repealing Section in the new companies Act came into effect on 30-1-2019 this complaint is filed under the old companies

Act 1956 and offences are committed under the old companies Act 1956. Therefore the complaint is filed by the complainant as per the instructions of the Ministry of cooperative affairs by the complainant and also as per the sanction order Ex.P4 issued by the Ministry of corporate affairs Government of India on 23-11-2017. This point is answered in-favor of the complainant.

Point No.3:-

In this case on perusal of evidence of PW1 along with Ex.P1,

P3 to P8. A1 is the company which is public relating company registered into ROC on 20-2-1996 and has changed the company name to M/s AMEYA LABORATARIES LIMITED from the Anu’s Laboratories limited and obtained fresh certificate of incorporation about the chance of name on 16-9-2013 is also evident from Ex.P2 attested true copy of

CC.No.105 of 2018

13 the certificate of incorporation. As per the circulars issued by the government of India in Circular No.12/2012 dated 04-6-2012 every company aggregate value of net worth as on the last rate of presiding financial year exceed 5 Crores rupees or aggregate rate of the turnover made by the company from the sale or supply of all products or activities immediately preceding during the financial exceeds 20 Crores of rupees shall get its cost accounting records in-respect of each of its financial year commencing on or after first day of April 2011 audited by a cost auditor and to file a copy of report to central Government within 30 days from the date of receipt of the copy of a report. Otherwise they are liable for default committed.

In view of the above circular issued by the Government of

India the turnover of A1 company from the sale or the aggregate value of the turn over from the sale or supply of all products or activities during the immediately presiding financial year exceed 20 cores of rupees and it is 269,41,37,610/- evidence from profit and loss balance sheet before the office of the complainant. Since the A1 company is falling under the one of the criteria’s envisaged by Central Government should get its cost accounting records audited by the cost audited appointed by the A1 company and failed to file the cost audit report to the central Government within 30 days from the date of receipt of a copy of a report furnished by the cost auditors for the financial year 2013-2014 the A1 company and it s director A2 are liable for default committed under the provisions of Act Us 233B (7) of the companies act 1956. Then complainant issued show-cause notice (Ex.P3)to the accused on 5-1-2018 for contravention of the provisions of the

CC.No.105 of 2018

14

Companies Act in not filling the cost audit report within the prescribed period.

The show cause notice sent to A1 Company and A2 are neither returned or delivered nor served with proof of acknowledgment cards.

The defence counsel contention is as there is no proof of issuing of show-cause notice filed in the court; the show-cause notice was not issued by the complainant to the accused. The said contention is not correct because the show-cause notices deemed to have been served to

A1 and A2 once they are send to the accused A1 and A2 to their correct address. Hence the complainant has send the show cause notice to A1 and A2 as per PW1 evidence. A1 and A2 not given the reply to the said show-cause notices. Then the Ministry of corporate affairs cost audit branch Government of India had given its sanction Ex.P4 on 23-11- 2017 to lunch prosecution against-as the accused for violation of the provisions of the companies act by the accused for not filing cost audit report within 30 days to the Central government after receiving the said report.

Though PW1 is cross examined the defence counsel unable to elicit any fact in their favour to prove the accused is not found guilty for the offence alleged against him. No evidence adduced on behalf of accused to prove this case of prosecution against accused is false.

Therefore from the oral evidence of PW1 and with the support of the document evidence Ex.P1, Ex.P3 to P8 the prosecution has proved beyond all reasonable doubt that Accused company A1 and A2 its managing director committed the default in non filing of the audit report with the Central Government within the 30 days from the date of receipt of the copy of the report furnished by the cost auditor for the

CC.No.105 of 2018

15 financial year ending 2013-2014. Hence A1 and A2 company are found guilty for the offence Charged under Section 233B(7) of the companies

Act, and are liable for punishment under Section 233B(11) of the

Companies Act.

IN THE RESULT, Accused No-1 company and its Director Accused

No-2 companies are found guilty for the offence Charged under Section 233B(7) of the companies Act, liable for punishment under Section 233B(11) of the Companies Act.

Directly typed to my dictation by Stenographer of this Court, corrected and pronounced y me in the Open Court, on this the 16th day of February -2023.

SPECIAL JUDGE FOR ECONOMIC OFFENCES

HYDERABAD.

This court is not inclined to invoke the benefit of Section 360 of Cr.P.C. as the offence is white collared and has effect on Indian Economic Structure. Hence, A2 representing A1 was questioned on the quantum of punishment.

Before imposing sentence A2 as representative of A1 company

heard on the sentence and A2 prays to show mercy while imposing sentence on A1 and A2 because A1 company is not in existing as it is in liquidation and himself(A2) is in debts and undergoing conviction in cheque bounce cases since 2018 and still has to undergo the sentence for another two years and suffering with diabetics. Considering explanation offered by the accused that the A1 company is not in existence and A2 is in debts and undergoing sentences since 2018 and

A2 family is depending on him, I am inclined to impose lesser sentence to meet the ends of justice

CC.No.105 of 2018

16

Accordingly A1 found guilty for the offence punishable 233B(11) of the companies Act 1956 convicted under Section 248(2) of Cr.P.C. A1 sentenced to pay fine of Rs.3,000/- for the offence under section 233

B(11) of Companies Act, 1956.

A2 is sentenced to undergo Rigorous imprisonment for five months in respect of offence under Section 233B(11) of Companies Act 1956 and to pay a fine of Rs.2,000/-. In default of payment of fine imposed on A2, A2 shall undergo simple imprisonment for 15 days. As the accused is in judicial custody in this case since 25-8-2022. i.e 176 days sentence imposed against A2 is covered sentence is set off under

Section 428 of Cr.P.C. If A2 has to undergo any sentence imposed by other courts the jail authorities shall take custody of the accused (A2).

That out of the total fine Amount imposed on the accused, ¼ th amount of the fine amount shall be paid to the Complainant as cost

Under Section 626 of Companies Act,1956.

Directly typed to my dictation by Stenographer of this Court, corrected and pronounced y me in the Open Court, on this the 16th day of February -2023.

SPECIAL JUDGE FOR ECONOMIC OFFENCES

HYDERABAD.

APPENDIX OF EVIDENCE

LIST OF WITNESSES EXAMINED

For prosecution: For defence:

PW1: Sri Dinesh Kumar. –Nil—

CC.No.105 of 2018

17

LIST OF DOCUMENTS MARKED FOR PROSECUTION

Ex.P1: is the original authorization letter dated 09-01-2023. Ex.P2: is the Attested true copy of fresh certificate. Ex.P3: is the Show cause notice sent to A1. Ex.P4 is the sanction letter. Ex.P5 & P6: is the Financial year E-Form. Ex.P7& P8: is the Attested true copies of order.

SPECIAL JUDGE FOR ECONOMIC OFFENCES

HYDERABAD.

CC.No.106 of 2018

1

IN THE COURT OF THE SPECIAL JUDGE FOR ECONOMIC OFFENCES:

AT HYDERABAD.

Dated: This the 16th th day of February, 2023.

Present: Smt.Aruna Kumari

Special Judge for Economic Offences,

Hyderabad.

CC.No. 106 of 2018

Between: Registrar of companies, (For Andhra Pradesh and Telangana), II floor, Corporate Bhavan, Bandlaguda, Nagole, Hyderabad.-500 068. Complainant.

And

1.M/s AMEYA LABORATORIES LIMITED H.No. A-49, Madhura Nagar, Yousufguda, lHyderabad-500038 Telangana, India) (represented by a2 and A3 herein Within the jurisdiction of SR Nagar PS)

2.Hari Babu Kosaraju(Managing Director) Aged about 62 years, S/o; Subba Rao Koswaraju A-49, Madhura Nagar, Vengal Rao Nagar, Hyderabad – 500038 Telangan, India.

3.Satyanarayna Maddali Sri Sai Venkata (Whole Time Director)Aged about -60 yrs, S/o: Maddali Babu Raja Venkata Krishna Rao, 61-16-11 A, Patamata, Vijayawada- 521151 Andhra Pradesh, India. (The case against A3 is Split-up as CC.No.78 of 2022)

…Accused A1 and A2)

CC.No.106 of 2018

2

This case is coming before me for hearing and upon perusing the complaint and other material papers on record and upon hearing the arguments of Sri T.Bharat Ratna, Company Prosecutor for Complainant and of Sri G.Mallikarjun, Advocate for accused and having stood over for consideration till this day, this Court delivered the following:-

-: J U D G M E NT :-

1. The Registrar of companies (herein after referred as “ROC”

Hyderabad, filed this Complaint filed against A1 Company and its

Directors Under Section 233 B(7) of the companies Act, 1956 R/w The companies (Cost Audit Report) Rules,.2011.

2.The alleged in the complaint is that, the Accused No.1 is a Public

Limited Company limited by shares, registered in the erst while State of

Andhra Pradesh (Now State of 'Telangana') on 20.02.1996 under the

Companies Act, 1956 vide CIN: L24230TG1996PLC023283 and having its registered office at the address mentioned against the Accused No.1 above. The name of the A-1 company has been changed from M/s. Anu's

Laboratories Limited to M/s. Ameya Laboratories Limited w.e.f.

16.09.2013. That the Accused No's. 2 and 3 were at all relevant times to which the complaint relates are the Directors/Officers-in-default of the

Company.

3.It is further averred that the Ministry of Corporate Affairs vide

No. 52/26/CAB-2010 dated 2 May 2011, as stated in General Circular

No. 12/2012 dated 04.06.2012 had instructed in accordance with the

Cost Accounting Records Rules, 2011 that every Company to which any of the following rules apply. and wherein, the aggregate value of net worth as on the last date of the immediately preceding financial year exceeds five Crore of rupees; or wherein the aggregate value of the turnover made by the company from sale or supply of all products or

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3 activities during the immediately preceding financial year exceeds twenty Crore of rupees; or wherein the company's equity or debt securities are listed or are in the process of listing on any stock exchange, whether in India or outside India, shall get its cost accounting records, in respect of each of its financial year commencing on or after the 1 day of April, 2011, audited by a cost auditor who shall be, either a cost accountant or a firm of cost accountants, holding valid certificate of practice under the provisions of Cost and Works Accountants Act, 1959.

4. That as per the above Circulars issued by the Government of

India, the turnover of the Al company from sale or the aggregate value of the turnover from sale or supply of all products or activities during the immediately preceding financial year exceeds twenty crore of rupees i.e. Rs. 269,41,37,610, as evident from the Profit and Loss as at 31.03.2011 which is the last filed., Preceding balance sheet (Profit and

Loss) before the office of complainant. The e-Form 23ACA along with its attachments for the financial year 2010-2011 and as well as the

Company's Master Data available from the Ministry of Corporate Affairs

Website are submitted herewith. Therefore, since the Al company is falling under one of the criteria's envisaged by the Central Government which should get its cost accounting records to be audited by a cost auditor appointed by the Al company and failed to file the cost audit report to the Central Government within 30 days from the date of receipt of a copy of the report furnished by the Cost Auditor for the financial year 2013- 2014 and therefore the accused are liable for the default committed.

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4

5. That in view of the above failure by the Accused No.1, A2 and

A3 being the officers of the Company have committed default and are liable as per Sub Section 11 of Section 233B of the Companies Act, 1956 for non filing of cost audit report with the Central Government for the financial year ending 31.03.2013. Therefore the Accused No's. 2 and 3 are the officers-in-default within the meaning of Section 5 of the

Companies Act, 1956 during which period the default was committed i.e. A2 is the Managing Director and A3 is the Whole Time Director of the Al Company. As such the above named accused are knowingly and wilfully guilty of the contravention of the provisions of Section 233B of the Companies Act, 1956. That the Complainant, therefore, states that the Accused have committed an offence punishable under Section 233B (11) of the Companies Act, 1956 .

6. It is further averred that, the Complainant issued a Show Cause

Notice to the accused on 05.01.2018 through speed post with AD card to show-cause why penal action should not be initiated for contravention of the Act Read with Rules. The show cause notices sent to A-1 to A-3 are neither returned undelivered nor served with proofs of acknowledgment cards. Hence, the show cause notices may be deemed to have been served to A-1 to A-3. However, the Accused have preferred not to reply to the Show cause notices issued till date. That the Competent Authority under the Ministry of Corporate Affairs is the

Central Government to issue instructions to the Complainant for filing the prosecution under this provision before this Hon'ble Court. The

Ministry of Corporate Affairs, Cost Audit Branch Government of India vide F.No.52/20/CAB-2015 dated 23.11.2017 had given its sanction to file prosecution for the violations committed herein. Therefore, this

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5 complaint is well within the limitation period as envisaged under

Sections 468 and 469 of Cr.P.C, and hence the complaint is not barred by limitation since the complaint is filed within three years from the date of knowledge of offence i.e. 23.11.2017. Therefore pray this Court to:-

a) That the process be issued against the accused and they may be punished for the subject violation according to the law and direct the accused herein to comply with the above provisions within the stipulated period as stipulated by this Hon'ble Court.

b) That the Complainant's costs of and incidental to these proceedings may be provided for under section 626 of the Companies Act, 1956.

c) It is also prayed that under section 63 of the Criminal Procedure Code, 1973, the service of summons on the Accused No.1 may be effected by serving it on Accused No's.2 and 3 at his/their given addresses as he/she appears to be that Company's Principal Officers as its Managing Director and Whole Time Director respectively.

d) The Complainant is a Public Servant and he is filing this complaint in his official capacity. Again this complaint is mostly based on the records maintained in this office and he is being represented by the Company Prosecutor and therefore prayed that his attendance may be dispensed with under provision to section 256 and 200(A) of the Criminal Procedure Code, 1973. This Hon'ble Court may be pleased to permit the Complainant to examine an official of ROC as witness in place of Complainant pursuant to section 621(1A) of the Companies Act, 1956.

8. The complaint was taken on file for the offence under Section 148(6) of the Companies Act, 2013 against the accused on 05-06-2018 and the summons were issued to the accused.

9. In response to the summons received from the Court, A2 and a3 representing A1 Company made their appearance and they were

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6 furnished with the copies of documents as contemplated under Section 207 of Cr.P.C.

10. During the course of trial, the complainant/ROC examined its,

Junior Technical Assistant by name Sri S.Dinish Kumar as PW1 and got marked Ex.P1 to Ex.P8 and charges were framed against the accused.

11. Heard the learned counsel for the complainant and learned counsel appearing for the accused .Perused the entire evidence brought on record, both oral and documentary.

12. The learned company prosecutor submitted that, A1 company

A2 its managing director have committed default for non filing of cost audit report with the Central Government for the financial year ending 31-03-2013 Therefore A1 company and A2 is the managing director of the company are in default and liable for punishment as per Sub

Section 11 of 233 (B) of the Companies Act 1956. The complaint is filed within the limitation period. As per the instructions issued by the

Ministry of Cooperative affairs filed the complaint under the Old

Companies Act 1956 and the complaint filed under the Old companies

Act 1956. According to the notification of the repealing section in the new companies Act came into effect 30-1-2019 Hence A1 the company and A2 its Managing director are liable to be punished.

13. The learned defence counsels argues, the complainant not issued any show cause notice to the accused as such not filed any receipt or proof that the said show-cause notice issued to the accused.

The defence counsel further argues the new companies Act came into force from the date of issuance of show-cause notice to the accused and the said notice issued under the Act was not in force at that time.

Finally the defence counsel argues no fault committed by the accused

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7 and complaint filed false against the accused to satisfy the higher authorities. Further the compliant is barred by the limitation, hence A2 is entitled for acquittal.

14. In the light of above rival contentions, the following points would arise for determination:-

(i). Whether the complaint is barred by Limitation?

(ii). Whether the compliant is not filed as per the sanction order issued by the Ministry of corporate affairs Government of India?

(iii) Whether the complainant has been able to prove the case against the A1 company and A2 its managing director for the offence U/s 233B(7) of the Companies Act 1956 beyond all reasonable doubt?

11. The facts which are not in dispute are that, M/s Ameya

Laboratories Limited (A1) is the Public Limited Company registered on 20-02-1956, A2 was its Managing director, at all relevant time to which the complaint relates the directors in-default of the A1 company. The

A1 company failed to gets its cost accounting records audited by cost auditor appointed by A1 company and failed to file the cost audit report to the Central Government within 30 days from the date of receipt of copy for the financial year ending 31-03-2013

15. On that complainant/ROC issued show cause notice to the accused on 5-1-2018 to A1 company, A2 for the contravention of the provisions and rules under the companies Act 1956 and the same is served on A1 and A2 under acknowledgments.

16. To prove the case, the complainant examined its senior technical Asst as PW1 and marked Ex.P1 to P8. PW1 deposed that, in support to the averments of the complaint.

17. POINT No-1:- It is the contention of the defence counsel that the complaint is barred by limitation. It is pointed out by the defence

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8 counsel that, PW1 has cited new sections under the Companies Act 2013 in the show cause notice. New companies Act 2013 is in force on the date of issuance of show cause notice to the accused on behalf of the complainant to the offences under the old companies Act 1956 which was not in force on the date of issuance of the notice. On perusal of the record it reveals that there is no much force in the above contention of the accused counsel. Because the complaint is filed under Section 233

B(7) of the Companies Act,1956. The prosecution was contemplated against the accused after the commencement of the new Act of the companies Act 2013 on 05-06-2018, as per the notification of the repealing section the new companies Act 2013 came into effect on 30-1- 2019.

The defence counsel relied on the citation reported in Kavi

Arora Vs Registrar of companies 2015 SCC On Line Del 12300:-

Thus, the time period taken by the Regional Director to take the decision to direct the Registrar of Companies to launch prosecution cannot be excluded for the purpose of computing the period of Limitation as both the Regional Director, i.e the Central Government as well as the Registrar of the Companies was competent to launch prosecution once they had knowledge of the commission of the offences as on 24 th June,2013 i,e when the inspection reports were filed with either of them. Since for the offences Under Section211(7), 211(3A), (3B) and (3C) of the Act, no Consent/Sanction for prosecution form the Central Government is required. Section 470(3) Cr.P.C. cannot be relied upon by the respondents.

Therefore this case was filed under the old companies Act 1956 and offenses committed under the 1956 of the Companies Act, for the default committed under Section 233B(7) of the companies Act the punishment was explained under Section 233B(11) of the companies

Act 1956 which stipulates as under:-

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9 “if default is made in complying with the provisions of this section, the company shall be likable to be punished with fine which may extend to fifty thousand rupees) and every officer of the company who is in default, shall be liable to be punished with imprisonment for a term which may extend to three years, or with fine which may extend to fifty thousand rupees or with both”.

As the complaint filed under Section 233 B(7) of the Companies

Act 1956 to which the punishment described under the 233B(11) of the companies Act for three years. The point is whether the complaint is filed within three years from the date of knowledge of offence i.e 23-11- 2017. In this case the complaint is filed within three years from the date of knowledge of the offence i,e 23-11-2017, the complainant has issued show-cause notice to the accused on 5-01-2018 and this complaint is filed on 05-06-2018 is within three years from the date of knowledge of the offense i.e 23-11-2017 to the complainant/ROC therefore it cannot be said that the complaint barred by limitation.

Thus the point number No-1 answered accordingly.

Point No-2:- The important fact in this case is that, the complaint authorities under the Ministry of Corporate affairs is the Central

Government to issue instructions to the compliant for filing the prosecution before the Hon’ble Court, in this case the Ministry of cooperative authorities has given its sanction Ex.P4 dated 23-11-2017 to the complainant for filing prosecution against the A1 company and to the A2 its Managing Director under Section 233B(7) of the companies

Act 1956 for non filing of the audit report to the Central Government for the financial year ending i,e 31-03-2013 the contention of the accused counsel is the prosecution was contemplated against the accused after

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10 the commencement of the new company Act in the year 2013. The show cause notices issued to the accused under the old companies Act when the news Companies act is in force on the date of issuance of show- cause notice is not correct. It is true the prosecution has contemplated against the accused under the old companies’ Act 1956 after the new companies act 2013 came into force in the year-2013. Because as per the notification,the repealing Section in the new companies Act came into effect on 30-1-2019 this complaint is filed under the old companies

Act 1956 and offences are committed under the old companies Act 1956. Therefore the complaint is filed by the complainant as per the instructions of the Ministry of cooperative affairs by the complainant and also as per the sanction order Ex.P4 issued by the Ministry of corporate affairs Government of India on 23-11-2017. This point is answered in-favor of the complainant.

Point No.3:-

In this case on perusal of evidence of PW1 along with Ex.P1,

P3 to P8. A1 is the company which is public relating company registered into ROC on 20-2-1996 and has changed the company name to M/s AMEYA LABORATARIES LIMITED from the Anu’s Laboratories limited and obtained fresh certificate of incorporation about the chance of name on 16-9-2013 is also evident from Ex.P2 attested true copy of the certificate of incorporation. As per the circulars issued by the government of India in Circular No.12/2012 dated 04-6-2012 every company aggregate value of net worth as on the last rate of presiding financial year exceed 5 Crores rupees or aggregate rate of the turnover made by the company from the sale or supply of all products or activities immediately preceding during the financial exceeds 20 Crores

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11 of rupees shall get its cost accounting records in-respect of each of its financial year commencing on or after first day of April 2011 audited by a cost auditor and to file a copy of report to central Government within 30 days from the date of receipt of the copy of a report. Otherwise they are liable for default committed.

In view of the above circular issued by the Government of

India the turnover of A1 company from the sale or the aggregate value of the turn over from the sale or supply of all products or activities during the immediately presiding financial year year exceed 20 cores of rupees and it is 269,41,37,610/- evidence from profit and loss balance sheet before the office of the complainant. Since the A1 company is falling under the one of the criteria’s envisaged by Central Government should get its cost accounting records audited by the cost audited appointed by the A1 company and failed to file the cost audit report to the central Govenment within 30 days from the date of receipt of a copy of a report furnished by the cost auditors for the financial year 2012-2013 the A1 company and it s director A2 are liable for default committed under the provisions of Act Us 233B (7) of the companies act 1956. Then complainant issued show-cause notice(Ex.P3)to the accused on 5-1-2018 for contravention of the provisions of the Companies Act in not filling the cost audit report within the prescribed period.

The show cause notice sent to A1 Company and A2 are neither returned or delivered nor served with proof of acknowledgment cards.

The defence counsel contention is as there is no proof of issuing of show-cause notice filed in the court, the show-cause notice was not issued by the complainant to the accused. The said contention is not correct because the show-cause notices deemed to have been served to

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A1 and A2 once they are send to the accused A1 and A2 to their correct address. Hence the complainant has send the show cause notice to A1 and A2 as per PW1 evidence. A1 and A2 not given the reply to the said show-cause notices. Then the Ministry of corporate affairs cost audit branch Government of India had given its sanction Ex.P4 on 23-11- 2017 to lunch prosecution against-as the accused for violation of the provisions of the companies act by the accused for not filing cost audit report within 30 days to the Central government after receiving the said report.

Though PW1 is cross examined the defence counsel unable to elicit any fact in their favour to prove the accused is is not found guilty for the offence alleged against him. No evidence adduced on behalf of accused to prove this case of prosecution against accused is false.

Therefore from the oral evidence of PW1 and with the support of the document evidence Ex.P1, Ex.P3 to P8 the prosecution has proved beyond all reasonable doubt that Accused company A1 and A2 its managing director committed the default in non filing of the audit report with the Central Government within the 30 days from the date of receipt of the copy of the report furnished by the cost auditor for the financial year ending 2012-2013. Hence A1 and A2 company are found guilty for the offence Charged under Section 233B(7) of the companies

Act, and are liable for punishment under Section 233B(11) of the

Companies Act.

IN THE RESULT, Accused No-1 company and its Director

Accused No-2 are found guilty for the offence Charged under Section 233B(7) of the companies Act, liable for punishment under Section 233B(11) of the Companies Act.

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Directly typed to my dictation by Stenographer of this Court, corrected and pronounced y me in the Open Court, on this the 16th day of February -2023.

SPECIAL JUDGE FOR ECONOMIC OFFENCES

HYDERABAD.

This court is not inclined to invoke the benefit of Section 360 of Cr.P.C. as the offence is white collared and has effect on Indian Economic Structure. Hence, A2 representing a1 was questioned on the quantum of punishment.

Before imposing sentence A2 as representative of A1 company

heard on the sentence and A2 prays to show mercy while imposing sentence on A1 and A2 because A1 company is not in existing as it is in liquidation and himself(A2) is in debts and undergoing conviction in cheque bounce cases since 2018 and still has to undergo the sentence for another two years and suffering with diabetics. Considering explanation offered by the accused that the A1 company is not in existence and A2 is in debts and undergoing sentences since 2005 and A2 family is depending on him, I am inclined to impose lesser sentence to meet the ends of justice

Accordingly A1 found guilty for the offence punishable 233B(11) of the companies Act 1956 convicted under Section 248(2) of Cr.P.C. A1 sentenced to pay fine of Rs.3,000/- for the offence under section 233 B(11) of Cr.P.C. 1956.

A2 is sentenced to undergo Rigorous imprisonment for five months in respect of offence under Section 233B(11) of Companies Act 1956 and to pay a fine of Rs.2,000/-. In default of payment of fine imposed on A2, A2 shall undergo simple imprisonment for 15 days. As the accused is in judicial custody in this case since 25-8-2022.The sentence imposed against A2 is set off under Section 428 of Cr.P.C. If A2 has to undergo any sentence imposed by other courts the jail authorities shall take custody of the accused (A2).

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That out of the total fine amount imposed on the accused that 1/4th amount of the fine amount shall be paid to the Complainant as cost Under Section 626 of Companies ,1956.

Directly typed to my dictation by Stenographer of this Court, corrected and pronounced y me in the Open Court, on this the 16th day of February -2023.

SPECIAL JUDGE FOR ECONOMIC OFFENCES

HYDERABAD.