( Per MS Sonak J) :-

1. Heard learned counsel for the parties.

2. On 30 June 2014, a co-ordinate bench comprising S C Dharmadhikari and B P Colabawalla JJ made the following order:-

“Having heard the counsel appearing for the parties and perusing the order of the Tribunal, we are of the opinion that the matter requires consideration.

2 Rule.

3 Respondents waive service. Hearing expedited.”

3. The challenge in this petition is to the following orders:-

"(a) Order dated 16 October 2007 (Exhibit E) made by CESTAT allowing the Respondents’ appeal against the Commissioner's order dated 24 October 2006.

(b) Order dated 22 February 2008 rejecting Petitioner's application for rectification of mistake (ROM) in the above order dated 16 October 2007."

4. Earlier, the Petitioner (revenue) had instituted Central Excise Appeal (L) No. 218 of 2008 in this Court to challenge the CESTAT’s order rated 22 February 2008. However, the co-ordinate bench, comprising Dr D Y Chandrachud and A A Sayed JJ, by their order dated 12 October 2011, pointed out that the remedy of the revenue against such an order does not lie in the form of an appeal, but in a writ proceeding under Article 226 of the Constitution. Accordingly, the appeal was dismissed as not being maintainable on that ground, leaving it open to the Revenue to pursue an appropriate proceeding in accordance with law.

5. This petition was instituted based on the liberty in the above-referred order dated 12 October 2011. As noted above, the rule was issued in this petition on 30 June 2014 after hearing Mr M H Patil, the learned counsel for the Respondents(assessee).

6. Technically, we think that the revenue should have filed an appeal under Section 35G of the Central Excise Act, 1944 (“Said Act”) to impugn CESTAT’s order dated 16 October 2007 and a writ petition to impugn the CESTAT’s order dated 22 February 2008. The appeal and writ petition could then have been heard together. However, the revenue appears to have instituted this writ petition, perhaps because this would be a comprehensive remedy to challenge both orders.

7. Now that this petition was admitted on 30 June 2014 after hearing the learned counsel for the respondent, it would not be appropriate to non-suit the revenue on the grounds of alternate remedy qua the CESTAT’s order dated 16 October 2007, which is also impugned in this petition. Quite reasonably, such an objection was not even raised on behalf of the assessee.

8. Still, considering the revenue’s challenge to the CESTAT’s order dated 16 October 2007, we propose following the discipline under Section 35G of the Said Act. This Section, inter alia, provides that an appeal would be allowed only if the High Court is satisfied that the case involves a substantial question of law. We propose to consider the challenge to the impugned order dated 22 February 2008 by applying the usual parameters of judicial review.

9. On hearing the counsel for the parties, we are satisfied that the challenge to the order dated 16 October 2007 raises substantial questions of law because the records show that the assessee classified the same type of goods under headings 3197 when cleared/removed officially and under 8424 when cleared allegedly unofficially or clandestinely. The classification under heading 3197 entails duty/tax @ 20%, whereas 8424 was exempt. However, the CESTAT did not consider this substantial issue or the impact of such contradictory declarations concerning the same goods.

10. Mr Patil explained that the assessee was forced to classify the goods under heading 3197 even though Supreme Court decisions favoured classification under 8424. He also submitted that there was no clandestine removal as alleged.

11. However, even these factual issues necessary for the adjudication were glossed over in the CESTAT’s “single paragraph order” by observing that they were “irrelevant”. There is no discussion of why they were irrelevant or why any decision on these issues would not impact the conclusion. The CESTAT order is cursory and does not discuss any findings in the Commissioner’s order.

12. Accordingly, in the context of the challenge to the CESTAT’s impugned order dated 16 October 2007, the following substantial questions of law arise: -

"(A) What could be the impact of the Respondent classifying and paying duty under Heading 3917 in respect of officially cleared goods and, after that, insisting that the very same goods, which are allegedly clandestinely removed, should have been treated as goods under the Heading 8424, which were exempted from the payment of duty

(B) Was the CESTAT justified in not addressing the clandestine removal of goods issue, but proceeding on the premise that such clandestine removal was irrelevant and granting the assessee relief without disturbing the Commissioner’s finding regarding the clandestine clearance of goods

(C) Was the CESTAT’s approach in this matter consistent with the law declared by the Hon’ble Supreme Court in Santosh Hazare v. Purushottam Tiwari AIR 2001 SC 965"

13. Ms Cardozo and Mr Patil were accordingly heard on the above substantial questions of law involved. The grounds in the writ petition also raised these questions, though not in the form of substantial questions of law or, rather, not by precisely styling them as substantial questions of law. Thus, there was no surprise, and none was claimed. The Counsel addressed us on both issues.

14. In any event, the revenue urged these issues through its rectification application, but the CESTAT rejected this application by order dated 22 February 2008. This petition challenges even this order since no appeal lies against it.

15. In this case, prima facie investigations revealed that the assessee removed/cleared poly tubes, microtubes, and HDPE pipes (goods) for the period under Assessment. The assessee classified the goods, officially cleared some quantities under heading 3917, and paid necessary duties/taxes. However, other quantities of the goods were unofficially or clandestinely cleared. On apprehension, the assessee claimed that the very same goods were classifiable under heading 8424 and hence were exempted goods not exigible to any tax or duties.

16. Therefore, a show-cause notice giving full particulars was issued on 26 February 1999. The notice alleged that the assessee evaded duties/taxes of Rs.8,91,58,843/— on the clandestinely removed goods (Exhibit “C”). The assessee responded. After considering the reply and the material on record and hearing the assessee, the Commissioner confirmed the demand in the show-cause notice by a detailed order dated 24 October 2006(Exhibit “D”). The Commissioner also recorded a finding of fact about the clandestine clearance of the goods without payment of any duty.

17. The assessee appealed, and the CESTAT, by the impugned judgment and order dated 16 October 2007, allowed the appeal by passing virtually a “single-paragraph order”. The entire order comprises five paragraphs. The first paragraph introduces the order impugned in the appeal, and paragraphs 3 and 4 contain the single-sentence conclusions. The so-called reasoning is in paragraph 2, which reads as follows: -

“2. We have heard both sides. We find that there is no dispute that the products on which duty has been confirmed fall for classification under chapter heading 84.24 of the Schedule to the Central Excise Tariff Act and are eligible to benefit of exemption from payment of duty in terms of Notification No.46/94-CE, dated 1.3.1994 and Notification No.56/95-CE, dated 16.3.1995. The classification and the eligibility to benefit of exemption has been accepted by the Commissioner in the impugned order in para 84. However, it is the finding of the Commissioner that the question of classification and exemption are extraneous to the issue before him viz. of clandestine removal. Once the products in dispute were not required to discharge duty liability for the reason that they were eligible to exemption under the above notifications, the demand confirmed in the impugned order, cannot be sustained. The contention of the Representative for the Revenue that the appellants had availed modvat credit of duty paid on the products in dispute and hence the duty demand requires to be confirmed, is not tenable, for the reason that the credit has been taken by the appellants of the duty paid by them, and it is the settled position that the payment of duty on the products which are not required to discharge duty liability, amounts to reversal of credit. Further the issue before the Tribunal is whether the duty confirmed by the Commissioner is required to be upheld or not and the issue of recovery of credit is not the issue in the appeal before us. In this view of the matter, further submission of the appellants that the duty paid by them on the products in dispute under protest is in excess of credit taken, is not required to be examined.

3. Since the demand is being set aside, the penalties also cannot be sustained and we accordingly set aside the same.

4. In the result, the impugned order is set aside and the appeals are allowed.”

18. The revenue filed a rectification application on 07 December 2007, which was rejected by an order dated 22 February 2008. The revenue’s main contention before the Tribunal was that the assessee classified the goods officially cleared under Heading 3917 and paid duty at 20%. However, the investigation revealed that the assessee clandestinely cleared a substantial amount of identical goods, and no duty was paid on such goods.

19. The CESTAT, as is evident from the above-quoted paragraph 2 of its order dated 16 October 2007, has not at all addressed itself to the central question of the impact of the assessee classifying the goods under Heading 3917 and paying duty of 20% when such goods were officially declared and cleared but avoiding to pay any duty whatsoever on the very same goods when they were allegedly unofficially or clandestinely cleared. The CESTAT, in our opinion, was required to address this central issue, and the assessee’s appeal could not have been summarily allowed without even adverting to this central issue.

20. Mr. Patil submitted that despite the Supreme Court’s judgment in favour of the assessee, the revenue authority forced the assessee to classify these goods under Heading 3917. He submitted that the goods are classifiable under Heading 8424 and exempt from any duty payment. It is impossible to note from the CESTAT’s order whether such a plea was ever raised. At least the CESTAT has not considered this plea of the revenue authority allegedly forcing the assessee to classify the goods under Heading 3917.

21. In any event, even assuming that such a plea was raised, a decision was necessary on this issue. Despite Mr Patil’s persuasion, we cannot decide on this plea of revenue, having allegedly forced the assessee to classify the goods under heading 3917 regarding the officially cleared goods. If such an issue was indeed raised, as was now sought to be raised before us, then the CESTAT, as the final fact-finding authority, was duty-bound to address the same.

22. Similarly, the CESTAT was duty-bound to decide on the issue of the assessee’s differential treatment of the same goods in the context of such goods being officially or (allegedly) clandestinely cleared. The failure to address these issues, which squarely arose, warrants interference with the CESTAT’s order. Without any decision on these issues, CESTAT was not justified in allowing the assessee’s appeal by cursorily observing that such issues were irrelevant.

23. Besides, Mr Patil argued that there was no clandestine removal as alleged and submitted that this was a case of moving the goods from the factory to the depot. He urges all this because he realised that much turns on this factual aspect. The revenue relies on documents and circumstances to support its contention of clandestine removal of goods. Again, the CESTAT simply does not consider this issue. Without considering it, the impugned order was made by observing that clandestine removal was an irrelevant issue. This is, again, not correct.

24. The CESTAT’s order is quite cursory and fails to come into close quarters with the Commissioner's order, which was appealed before it. Certain portions of the Commissioner’s order are referred to say that there was no dispute that the products on which the duty has been confirmed fall under Heading 8424. There is no discussion about the assessee paying duty on the same goods when officially cleared but claiming that these goods were exempted when the clandestine clearances were detected and investigated. Ms Cardozo referred to several statements made by and on behalf of the assessee in the Commissioner's order, which was appealed before the CESTAT She also discussed logbooks and the modus operendi for clearing goods without payment of duty.

25. We do not wish to go into rival contentions about clandestine removal or the impact of the assessee paying duty on the goods officially removed and not paying duty on the allegedly clandestinely removed goods for the order we propose to make. We do not wish to prejudice the rival parties at this stage because an appeal before the CESTAT is a valuable right. The CESTAT is the final fact-finding authority. This being a case for reversal, the CESTAT was duty-bound to come into close quarters with the reasoning of the Commissioner’s order before setting it aside in a “single paragraph order”. The CESTAT should have gone into all these issues, and on account of the failure of CESTAT to go to these issues, the impugned orders deserve to be set aside.

26. In Santosh Hazare v. Purushottam Tiwari (supra), the Hon’ble Supreme Court noted that “ the first appellate Court has, in a very cryptic manner, reversed the finding on the question of possession and dispossession as alleged by the plaintiff as also the question of adverse possession as pleaded by the defendant. The appellate Court has the jurisdiction to reverse or affirm the findings of the trial Court. First appeal is a valuable right of the parties and unless restricted by law, the whole case is therein open for rehearing both on questions of fact and law. The judgment of the appellate Court must, therefore, reflect its conscious application of mind, and record findings supported by reasons, on all the issues arising along with the contentions put forth, and pressed by the parties for the decision of the appellate Court.”

27. The Court has also held that “The appellate Court while writing a judgment of reversal must remain conscious of two principles. Firstly, the findings of fact based on conflicting evidence arrived at by the trial Court must weigh with the appellate Court, more so when the findings are based on oral evidence recorded by the same presiding judge who authors the judgment. This certainly does not mean that when an appeal lies on facts, the appellate Court is not competent to reverse a finding of fact arrived by a trial judge…..”

28. The Court held that “ Secondly, while reversing a finding of fact the appellate Court must come into close quarters with the reasoning assigned by the trial Court and then assign its own reasons for arriving at a different finding. This would satisfy the Court hearing a further appeal that the first appellate Court had discharged the duty expected of it. We need only remind the first appellate Courts of the additional obligation cast upon them by the scheme of present Section 100 substituted in the Code. The first appellate Court continues, as before, to be a fial Court of facts; pure findings of fact remain immune from challenge before the High Court in second appeal. Now the first appellate Court is also the final Court of law in the sense that its decision on a question of law even if erroneous may not be vulnerable before the High Court in second appeal because the jurisdiction of the High Court has now ceased to be available to correct errors of law or the erroneous finds of the first appellate Court even on questions of law unless such question of law be a substantial one.”

29. Applying the above principles to the present case, the CESTAT’s order warrants interference because the CESTAT has not discharged the duties and obligations expected of a first appellate Court in this case. The central and crucial issues were not considered. The findings of fact were not addressed. The CESTAT failed to address, much less come into close quarters with the reasoning of the Commissioner. The impugned order, with respect, is a cryptic single-paragraphed order. None of the principles in Santosh Hazare (Supra) are followed, and the CESTAT’s approach is contrary to the law declared by the Hon’ble Supreme Court.

30. The CESTAT should have considered the rectification application in the facts of this case. The ROM application tried to bring to the notice of the CESTAT that factual issues were raised, and they were not decided. The CESTAT’s attention was drawn to the material on record, which was not even referred to in the “single paragraph” order and was much less considered. Failing to address vital issues or even look into crucial material is grounds for judicial review. Accordingly, the impugned order dated 22 February 2008 warrants interference.

31. For all the above reasons, we answer the three substantial questions of law referred to in paragraph 11 above, in favour of the revenue and against the assessee. We quash and set aside the impugned orders and remand the matter before the CESTAT to consider the assessee’s appeal afresh and in accordance with the law.

32. The CESTAT must now address all the issues, including the above three issues, that arise in the Appeal and pass a reasoned order dealing with all the issues. Both parties must be given full opportunity of hearing before the CESTAT disposes of the remanded appeal. All contentions of the parties are left open. Parties should appear before the CESTAT on 23 January 2025 at 11.00 am. We would strongly encourage the CESTAT to dispose of this appeal expeditiously.

33. The Rule is made absolute in the above terms without any cost order.

34. All concerned to act on the authenticated copy of this order.