Madras High Court
The Commissioner Of Central Excise vs Surya Fine Chemicals on 11 September, 2018
Equivalent citations: AIRONLINE 2018 MAD 1416
Author: V.Bhavani Subbaroyan
Bench: V.Bhavani Subbaroyan
IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated: 11.09.2018 CORAM THE HON'BLE MR.JUSTICE S.MANI KUMAR & THE HON'BLE MRS.JUSTICE V.BHAVANI SUBBAROYAN C.M.A.No.3011 of 2017 The Commissioner of Central Excise, Chennai IV Commissionerate, 692, MHU Complex, Anna Salai, Nandanam, Chennai - 600 035. ... Appellant / Respondent Vs.
1. Surya Fine Chemicals, No.14, Self Help Industrial Estate, Keelkattalai, Chennai - 600 117.
2. The Customs, Excise and Service Tax Appellate Tribunal South Zone Bench,' Shastri Bhavan Annexe - 1st Floor, 26, Haddows Road, Chennai - 600 006. ... Respondents/Appellants Civil Miscellaneous Appeal is filed under Section 35(G) of the Central Excise Act, 1944, to consider the substantial questions of law raised by the Appellant and to set aside the Final Order No.40020 of 2015 in E/1174/2004 dated 18.01.2015 on the file of the Customs, Central Excise and Service Tax Appellate Tribunal, South Zonal Bench, Chennai - 6.
For Appellant : Mr.A.P.Srinivas For R1 : Mr.P.R.Ranganathan R2 - Tribunal Judgment (Judgment of the Court was delivered by V.BHAVANI SUBBAROYAN,J.,)
This Civil Miscellaneous Appeal is filed, to set aside the Final Order No.40020 of 2015 in E/1174/2004 dated 18.01.2015 on the file of the Customs, Central Excise and Service Tax Appellate Tribunal, South Zonal Bench, Chennai - 6.
2. The brief facts of the case are that M/s.Surya Fine Chemicals, the 1st respondent herein, is a manufacturer of Food Colour Preparations (hereinafter called as "FCP" in short). Having agreed to make Food Colour Preparation from Food Colours (hereinafter called as "FC" in short) sent by M/s.Bush Boake Allen India Limited (hereinafter referred to as "M/s.BBA India Limited" in short) based on the agreement dated 07.09.1993, the 1st respondent engaged themselves in the manufacture of FCP, on job work basis to M/s.BBA India Limited during the period from September 1993 to June 1997, out of the raw materials i.e. FC, supplied by M/s.BBA India Limited as per their specifications and under the brand name of M/s.BBA India Limited and clear of the same from their factory. The 1st respondent got themselves registered with the Department only on 19.06.1997 and started paying duty on the clearance of the said products manufactured by them from 19.06.1997 onwards.
3. The case of the appellant herein is that they have made a prima facie case against the 1st respondent for non payment of duty in respect of the manufacture and clearance of the above said products during the period from 16.03.1995 (the date of insertion of Chapter Note 7 to Chapter 21) to 18.06.1997. The said matter was investigated by the Headquarters Preventive Unit of the Central Excise Department, which culminated in issuing of Show Cause Notice No.2/2001 dated 03.01.2001, demanding duty of Rs.1,55,56,454/- under proviso to Section 11A(1) of the Central Excise Act 1944, for the period from 01.12.1995 to 18.06.1997, besides demanding appropriate interest under Section 11(a)(b) and sought to impose penalty under Section 11(a)(c) and Rule 52(a), 173(q) and 226 of the Central Excise Rule 1944. The appellant had also sought to impose penalty under Rule 209A of the Central Excise Rule 1944 on M/s.BBA India Limited for their alleged collusion.
4. Based on the allegations that the 1st respondent had contravened the provisions of Rule 9(1) read with Rule 173F, 52A, 173B, 173G and 226 of the Central Excise Rule, 1944, the above notice was issued by invoking proviso to Section 11A(1) of the CEA, 1944, to cover the extended period of demand. These provisions of the Central Excise Rules, 1944, prescribe certain set of procedures to be followed by a manufacturer of excisable goods, from declaration of goods produced or manufactured in a factory to store the said goods, determine the duty liability, prepare documents such as invoice for the clearance of said goods, make payment to the Government Account, and also the time and manner of remittance to the Government Account.
5. Due to non appearance of the 1st respondent in the personal hearing granted, the Adjudicating Authority has passed an ex-parte order vide Order-in-Original No.12/2002 dated 27.05.2002, confirming the duty demanded in the Show Cause Notice dated 03.01.2001, besides imposing equal penalty under Section 11(a)(c) read with Rule 173q and interest under Section 11(a)(b) on the 1st respondent. Further, a penalty of Rs.15,55,000/- was also imposed on M/s.BBA India Limited, under Rule 209A of the Central Excise Rule, 1944.
6. Aggrieved by the order of the Adjudicating Authority, both the 1st respondent and M/s.BBA India Limited, have filed appeals before the CEGAT, and CEGAT vide Final Order No.1335 & 1336/2002 dated 05.12.2002, has remitted the case back to the Adjudicating Authority for de-novo consideration with a direction to give all reasonable opportunity to the 1st respondent, as well as to M/s.Bush Boake Allen India Limited, for producing additional evidence. Thereafter, the Commissioner of Central Excise, Chennai IV Commissionerate, after observing the due process of law and taking into consideration of the directions of the Tribunal, has passed Order-in-Original No.6/2004 dated 11.06.2004, confirming the duty liability as Rs.35,55,780/- as against the original demand of duty of Rs.1,55,56,456/- under Section 11A(2) and imposed equal penalty under Section 11(a)(c) besides charging appropriate interest under Section 11(a)(b) of the Act. The Commissioner has also imposed penalty of Rs.3,50,000/- on M/s.BBA India Limited under Section 209A of the Central Excise Rule, 1944. Thus, the duty demand was re-determined as Rs.35,55,780/-.
7. Aggrieved by the order of the Commissioner of Central Excise, Chennai IV Commissionerate, the respondent filed Appeal No.E/1174/2004-DB, E/1175/2004-DB on various grounds before the CESTAT, 'Chennai. The Appellate Tribunal, by its order dated 08.01.2015, set aside the order passed by the Commissioner of Central Excise, Chennai IV Commissionerate, dated 11.06.2004 on the ground that in the show cause notice, there was no allegation of malafide and at the relevant period, confusion of classification of the goods, persisted in the industry. Tribunal held that the appellant therein was in confusion. That apart, the Tribunal held that the claim made by the department was time-barred.
8. As against the order of the CESTAT, the Commissioner of Central Excise, Chennai IV Commissionerate, has preferred this Civil Miscellaneous Appeal on the following substantial questions of law:-
"(i) Whether the demand of duty under the extended proviso to Section 11A(1) of the Central Excise Act 1944 and consequential penalties under Section 11AC of the Act on the assessee and under Rule 209A of the Central Excise Rule 1944 and on the supplier M/s.Bush Boake Allen India Limited as well as demand of appropriate interest under Section 11ab of the Act, is barred by limitation.
(ii) When the assessee has not taken registration under the Act on the guise of ignorance of law would not amount to suppression within the meaning of proviso to Section 11A(1) of the Central Excise Act.
(iii) Whether in the facts and circumstances of the case the finding of the Tribunal is not perverse in holding that there is no malafide in the show cause notice and confusion of classification persisted in the industry having led the assessee to be in confusion and therefore demand of duty under the extended proviso to Section 11A(1) of CEA 1944, is hit by limitation of time, is correct or not?"
merely because the assessee has not properly understood the law when the provisions of the Act makes the assessee liable to pay duty.
9. Heard the learned counsel for the appellant and the learned counsel for the respondents, and perused the materials available on record.
10. Section 11A(1) of the Central Excise Act 1944, which reads as follows:
"(1) Where any duty of exercise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, for any reason, other than the reason of fraud or collusion or any willful misstatement or suppression of facts or contravention of any of the provisions of this Act or of the Rules made thereunder with intent to evade payment of duty, -
a) the Central Excise Officer shall, within one year from the relevant date, serve notice on the person chargeable with the duty which has not been so levied or paid or which has been so short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice;
b) the person chargeable with duty may, before service of notice under clause (a), pay on the basis of, -
(i) his own ascertainment of such duty; or
(ii) the duty ascertained by the Central Excise Officer, the amount of duty along with interest payable thereon under Section 11AA.
It would be appropriate to refer the Section which the appellant invoked to make a demand on the respondent under 11A(1) of the Central Excise Act, 1944.
11. The main grievance of the appellant before this Court is that the 1st respondent, despite entering into an agreement dated 07.09.1993 with M/s.Bush Boake Allen India Limited, registered themselves with the department only on 19.06.1997 and started paying duty on the clearances of the Food Colour Preparations manufactured by them only from the said date, and hence, the appellant has made a prima-facie case against them for non-payment of duty, in respect of the manufacture and clearances of the said products during the period from 16.03.1995 to 18.06.1997 and therefore, issued a show case notice dated 03.01.2001 demanding duty of Rs.1,55,456/- under proviso to Section 11a(1) of the CEA, 1944, for the period from 01.12.1995 to 18.06.1997.
12. According to the appellant, the insertion of Chapter Note 7 to Chapter 21 was from 16.03.1995, empowering the appellant to assess from 16.03.1995 to 18.06.1997. As the 1st respondent registered themselves only on 19.06.1997, provision under Section 11(a) for recovery of duty not levied or not paid, is attracted.
13. It could be seen from the explanation given before the Appellate Tribunal that the 1st respondent was under the bonafide belief that due to the dispute raised by M/s.Roha Dychem before various forums "food colour preparation" shall fall under Chapter 21 while the Revenue was claiming that it would fall under the Chapter 32 of Central Excise Tariff Act, 1985. Further, the 1st respondent was given an impression by M/s.International Flavours and Fragrance India Limited, for whom they were job working, similar goods, that the goods manufactured on job work would fall under Chapter 32 of the Central Excise Tariff Act, 1985. Such confusion in the industry prevented the 1st respondent to seek for registration under the Central Excise Act, 1944, even though, it was manufacturing food colour preparations, both as a manufacturer, as well as job worker.
14. It could be further seen from the explanation given by the the 1st respondent that to resolve the controversy, legislature intended that inserted of Chapter Note 7 to Chapter 21 to CETA, 1985 with effect from 16th March 1995. But, the note related to labeling and relabelling and any other process amounting to manufacture. The 1st respondent has further stated that even carrying out any other process was legislated, as manufacturing activity for the first time on 16.03.1995, by Chapter Note 7 of Chapter 21. Therefore, the 1st respondent was under the bonafide belief that its activities shall not amount to manufacture, not liable to duty and no registration under Central Excise Act, 1944 was warranted at that point of time.
15. Furthermore, the 1st respondent has stated in their explanation that the disputed period in the appeal is well explained to the show cause notice dated 03.01.2001 and they have not evaded duty, much less intentionally.
16. The predominant question to be answered in this appeal would be whether the 1st respondent has intentionally committed any evasion of duty, and if so, whether the appellant before this Court was justified in making assessment belatedly and such demand as against the 1st respondent as well as M/s.Bush Boake Allen India Limited is within the limitation.
17. To substantiate their contention, the 1st respondent has relied on the Judgment of the CEGAT, Special Bench 'D', New delhi, reported in 1989 (41) E.L.T.667 (Tribunal), in the case of [Collector of Customs, Excise Vs Roha Dye Chem Pvt Ltd]. The said case was pertaining to a dispute, as to whether Food Colours was to be classified under the Heading No.2107.99 or under the Heading No.3204.90 of the Central Excise Tariff Act, 1985. The CEGAT at Delhi, while dismissing the appeal filed by the Customs Department, held as follows:
"12. Though it is true that Chapter titles by virtue of the Rules for the interpretation of the Central Excise Tariff Schedule are provided for an ease of reference only and, for legal purposes, classification shall be determined according to the terms of headings and any relative section or Chapter notes, they do provide a broad indication of the good;
sought to be covered within the respective chapters. Chapter 21 is entitled "Miscellaneous edible preparations" and Chapter 32 "Tanning and Dyeing Extracts; Tannins and their Derivatives; Dyes, Colours, Paints and Varnishes; Putty, Fillers and other Mastics; Inks". Broadly speaking, therefore, edible preparations must find classification under one or the other of the headings in Chapter 21 in preference to Chapter 32. We have already referred to the Supreme Court's observations with reference to food colours in relation to the Sales Tax entry "dyes and colours and compositions thereof". The Department seeks to bring the subject goods under the description "synthetic organic colouring matter, whether or not chemically defined" under Heading 3204.90. In our Opinion, there is no real difference between colours and colouring material. What applies to colours would apply to colouring material also. If food colours are not "dyes and colours", they would not be colouring matter either, if the Supreme Court's observations in the S.N.Brothers case were to be applied to the present case. On the other hand, Ch. Note 5 to Chapter 21 shows that Heading No.21.07 inter alia includes flavouring powders for making bevarages, whether or not sweetened. The said Note 5 is not an exhaustive one but an inclusive one and if flavouring powders for making beverages are included in Heading No.21.07, we do not see any reason why food colours should not also be deemed to be covered by the said heading. Of course, Ch. Note 5(j) is a specific one and does not cover the present food colours. The respondents' contention that the goods are akin to coloured syrups is not tenable because the goods are powders.
13. As between the two Headings 2107.99 and 3204.90, we are of the view that the former is more appropriate to cover food colours."
18. The above order of the Special Bench of CEGAT, was challenged before the Hon'ble Supreme Court by the department, wherein, the Hon'ble Supreme Court, on 07.05.1997, upheld the order of the CEGAT reported in 1997 (93) ELT 329 (SC), stating that no interference whatsoever is called for with the finding that food colours are classifiable under Tariff Entry 21.07, being "edible preparations, not elsewhere specified or included".
19. Learned counsel for the appellant, relied upon the Judgment of this Court, reported in 2015 (319) E.L.T.631 (Mad.), in the case of [Commissioner of Central Excise, Chennai Vs. Peter & Miller Packers]. The said case was regarding the issue of ignorance of law for non payment of duty, wherein, this Court held as follows:
"17. The element of mens rea is one of the components that will be relevant for the purpose of invoking proviso to Section 11A of the Central Excise Act. In the present case, merely pleading ignorance of law, the assessee cannot wriggle out of the duty liability for the larger period. The Tribunal has been kind enough to remand the matter for de novo adjudication on a claim of Modvat credit and that has been allowed. However, the fact remains that duty liability has to be worked out for the larger period if the ingredients of Section 11A has been made out."
20. The only relevant factor, in the case cited by the appellant counsel, to the present case is that the 1st respondent pleaded before the Appellate Authority that there was confusion in the industry which prevented them to seek registration under the Central Excise Act, 1944, even though it was manufacturing food colour preparation both as a manufacturer as well as job worker. Due to their bonafide belief as to the dispute raised by M/s.Roha Dychem before various forum where such food colour preparation would fall under Chapter 21, when the Revenue was claiming classification under Chapter 32 of Central Excise Tariff Act, 1985. However, on a conjoint reading of the pleadings and going through the observations made in the case reported in 2015 (319) E.L.T. 631 (Mad.) for invoking Section 11(A) of the Central Excise Act, the authorities ought to have satisfied themselves with regard to the element of mens rea which is one of the component for invoking Section 11(A) of the Central Excise Act.
21. The Appellate Tribunal while deciding such issue, has given reasons for its finding that in the show cause notice, there are no specific and explicit averments attributing malafides and conduct of assessee in contravention of the statutory provisions. The notice sent should specify the averments and to have brought to the knowledge of the assessee for raising their defence. In the absence of malafide intention expressly stated in the show cause notice, the 1st respondent cannot be presumed to have acted in a malafide manner to abstain itself from registering with the department prior to 19.06.1997.
22. These factual aspects and circumstances, have been considered by Tribunal, and going through the same, we do not find any infirmity in the order passed by the Tribunal, as there was no malafide pleaded by the appellant, in the show cause notice dated 03.01.2001 against the 1st respondent, to suppress the fact before the authority and ought to have made such statement to lead the Department to hold that the 1st respondent had intention to cause evasion of duty. It is an admitted fact that the confusion as to whether the goods would fall under Chapter 21 or Chapter 32 would be cleared only after the finding of the Judgment rendered by the CEGAT, Special Bench, in the case of [Collector of Customs, Excise Vs Roha Dye Chem Pvt Ltd] reported in 1989 (41) E.L.T.667 (Tribunal), which later came to be confirmed by the Hon'ble Supreme Court in 1997 (93) E.L.T.329 (S.C), when the order passed by the CEGAT, Special Bench was challenged by the Department.
23. Apart from that it could be seen from the records that only after the Hon'ble Supreme Court dismissed the department appeal in 1997, the 1st respondent had voluntarily applied for excise registration and only thereafter, the factory premises were inspected by the Department. In fact, though the 1st respondent had applied for registration during July 1997, which period itself, the factory premises were inspected by the Department and thereafter, only, the preventive department officials have inspected the respondent premises, i.e. 25 months after registration, and thereafter, 17 months later, the show cause notice dated 03.01.2001 came to be issued against the 1st respondent.
24. With regard to the question of limitation is concerned, it is clear from the plain reading of Section 11A, the Central Excise Officer shall, within 2 year from the relevant date, serve notice on the person chargeable with the duty which has not been so levied or paid or which has been so short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice. In fact, the said two years period of limitation was substituted with effect from 14.05.2016 and prior to that, it was only one year. Even on this account, the show case notice dated 03.01.2001 sent, is belated from the date of registration with the department, during the month of 1997 itself, and therefore, the action of the department is time barred. The authorities have neither pleaded malafide nor suppression in the show cause notice, and moreover acted belatedly, against the 1st respondent.
25. On the facts and circumstances of the case, we find no infirmity in the order passed by the 2nd respondent and hence, the Civil Miscellaneous Appeal filed by the Commissioner of Central Excise, fails and accordingly, the same is dismissed.
(S.M.K.J.,) (V.B.S.J.,)
11.09.2018
S.MANI KUMAR.J.,
and
V.BHAVANI SUBBAROYAN.J.,
raja
raja
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To
The Customs, Excise and Service Tax Appellate Tribunal
South Zone Bench,'
Shastri Bhavan Annexe - 1st Floor,
26, Haddows Road,
Chennai - 600 006.
Pre-delivery order in
C.M.A.No.3011 of 2017
11.09.2018