Madras High Court
Commissioner Of Central Excise vs M/S.Tamilnadu Petro Products Limited on 28 January, 2005
IN THE HIGH COURT OF JUDICATURE AT MADRAS
RESERVED ON : 17.04.2017
DELIVERED ON : 13.06.2017
Coram
The Honourable Mr.Justice RAJIV SHAKDHER
and
The Honourable Mr.JUSTICE R.SURESH KUMAR
Civil Miscellaneous Appeal Nos.2721 and 3122 of 2005
Commissioner of Central Excise
Chennai I Commissionerate,
121, Uthamar Gandhi Road,
Nungambakkam, Chennai - 34.
.... Appellant in C.M.A.No.2721/2005
R2 in C.M.A.No.3122 of 2005
Vs.
1. M/s.Tamilnadu Petro Products Limited,
Manali Express Highway, Manali,
Chennai - 600 068.
.... Respondent in C.M.A.No.2721/2005
and Appellant in C.M.A.No.3122/2005
2. Customs, Excise and Service tax Appellate
Tribunal, South Zonal Bench,
Shastri Bhavan Annexe, 1st Floor,
36, Haddows Road, Chennai - 600 006.
.... Respondent in both C.M.As
3. Asst. Commissioner, Central Excise,
B Division, Anand Building, Teynampet,
Chennai - 18.
.... Respondent in C.M.A.No.3122/2005
APPEALs filed under Section 35G of the Central Excise Act, 1944 against the final order No.367 of 2005 dated 28.01.2005 on the file of the CESTAT, Chennai Bench.
For Appellant in C.M.A.No.2721/05
and For Respondent in C.M.A.No.3122 of 2005 : Mr.A.P.Srinivas
For 1st Respondent in C.M.A.No.2721 of 2005
and for Appellant in C.M.A.No.3122 of 2005 : Mr.N.Prasad
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C O M M O N J U D G M E N T
(Judgment of the Court was delivered by RAJIV SHAKDHER,J.)
1. The captioned appeals are directed against the judgment and order of the Customs, Excise and Service Tax Appellate Tribunal (in short 'the Tribunal'), dated 28.01.2005.
1.1. As would be evident from the cause title, both the Revenue as well as the Assessee preferred an appeal against the judgment and order of the Tribunal dated 28.01.2005.
1.2. The appeal preferred by the Revenue is numbered as: C.M.A.No.2721 of 2005, while the appeal preferred by the Assessee is numbered as: C.M.A.No.3122 of 2005.
2. These appeals were admitted on different dates. In so far as the Revenue's appeal is concerned, it was admitted on 06.09.2005, when, following question of law was framed for consideration by this Court:
" Whether the imposition of the penalty under Section11AC of the Central Excise Act is mandatory or directory?"
2.1. In so far as the Assessee's appeal is concerned, the following questions of law were framed for consideration, in the first instance, vide order dated 05.10.2005:
"(1) Whether the expression "arising from the processing of inputs" mentioned in Rule 57F(5) is the same as "arising in the course of manufacture of final product" mentioned in Rule 57D and if it is not, was the Appellate Tribunal right in holding that waste arising in the course of manufacture of final product would be treated as waste arising in the processing of inputs under Rule 57F(5)?
(2) Whether the Appellate Tribunal can treat clearances of Spent Pacol Catalyst made to a job worker in Mumbai as per Rule 57F(2) and equate it with clearances made under Rule 9 of the Central Excise Rules and demand duty as if it was sold, particularly when it was subsequently exported by the Appellants in the form of extracted Platinum?"
2.2. The record shows that thereafter, an additional question of law was framed by the Court, vide order dated 23.03.2011, which is as follows:
"Whether the Customs, Excise and Service Tax Appellate Tribunal committed an error of law in sustaining the duty demand to the extent it fell under the proviso to Section 11A(i) of the Central Excise Act, 1944 when in fact, the question of excisability of the waste was itself in doubt on account of conflicting views expressed by the Appellate Forum and the Tribunal and consequently the provisions of the proviso to Section 11A(i) of the Central Excise Act, 1944 would have no applicability when the same required fraud and suppression with intent to evade payment of duty?"
3. We must note at the very outset that Mr.Prasad, who appears for the Assessee, has, in no uncertain terms, indicated to us that he would be pressing before us for consideration only the additional question of law framed in the Assessee's Appeal, i.e., C.M.A.No.3122 of 2005.
3.1. In other words, the learned counsel indicated to us that question Nos.1 and 2, which were framed in the Assessee's appeal vide order dated 05.10.2005 are not being pressed.
4. Therefore, we are required to deal with only one question each in the two appeals filed before us.
5. Before we proceed further in the matter, in our view, the following broad facts are required to be noticed.
5.1. The Assessee, as it appears, during the relevant period, was engaged in the business of manufacture of linear alkyl benzene (in short, "LAB") and Epichloro hydrin, which were classified under sub-heading No.3817.00 and 2910.00 of the Schedule appended to the Central Excise Tariff Act, 1985, respectively.
5.2. The record shows that the Assessee had been availing credit of specified duty paid on the inputs, viz., Lube oil, Hot oil, Activated Alumina, Sulphuric Acid (wrongly adverted as "Hydrofluoric acid" in the Show Cause Notice) and Pacal Catalyst, which were used in the manufacture of LAB.
5.3. The record further shows that upon the use of the aforementioned inputs in the manufacture of final product, i.e., LAB, the said inputs were cleared as waste and scrap.
5.4. The Assessee did not disclose the clearance of the waste and scrap, which emerged on the manufacture of the final product, i.e., LAB, in its returns filed in Form RT-12.
5.5. It appears that in a surprise inspection carried out by the Revenue, this aspect came to fore, which resulted in issuance of a Show Cause Notice, dated 18.02.1999 (in short SCN). In the SCN, a proposal was raised to impose duty in the sum of Rs.12,68,377/- qua the aforementioned waste and scrap, which were cleared during the period, spanning between 01.01.1994 and 31.08.1998.
5.6. Furthermore, in this behalf, the extended period of limitation, as provided in the proviso to Section 11A(1) of the Central Excise Act, 1944 (in short 'the CE Act') (as it then obtained), was sought to be invoked.
5.7. Furthermore, a proposal was made to levy penalty under Section 11AC of the CE Act and Rule 9(2) and 173Q of the Central Excise Rules, 1944.
5.8. In addition thereto, the SCN also referred to the sub-headings, under which, the Revenue proposed to tax the aforementioned waste and scrap.
6. A perusal of the SCN would show that it was pivoted on the application of Rule 57F(5), which at the relevant time, had been renumbered at Rule 57F(18) of the Central Excise Rules, 1944 (in short 'the 1944 Rules').
7. In response to the SCN, the Assessee filed a detailed reply dated 25.03.1999.
7.1. In the reply, the defence, inter alia, taken by the Assessee was that waste and scrap were not excisable goods, since, no event of manufacture had occurred and that they had emerged in the course of manufacture of the final product. Furthermore, it was submitted that the removal of waste and scrap on payment of duty in terms of Rule 57F(5)/57F(18) would be applicable only when waste/scrap arose in the process of manufacture.
7.2. It was further stated that, if, the waste fell in the category of non-excisable goods, or, was, otherwise exempted, no duty could be charged with respect to the same. In other words, the Assessee contended that Rule 57F(5)/57F(18) was not applicable to the facts of the present case.
7.3. It was also contended that, just because waste and scrap was capable of fetching some price, by recycling/or by subjecting it to other treatment, that could not form the basis of holding that an event of manufacture, as contemplated under Section 2(f) of the CE Act, had occurred.
7.4. In support of these submissions, reliance was placed by the Assessee on the following judgments:
(i) Hindustan Lever Ltd. V. Collector of Central Excise, Calcutta, 1985 (22) ELT 232;
(ii) Union of India V. Indian Aluminium Co. Ltd.,, 1995 (77) ELT 268 (Tribunal);
(iii) Collector of Central Excise, Mehta Vegetable Products, 1997 (93) ELT 229;
(iv) M/s.Modi Rubber Ltd. V. Union of India, 1987 (12) ECR 850;
(v) Collector of Central Excise, Kanpur V. Gayathri Glass Works, 1988 (33) ELT 124 and
(vi) Commissioner of Central Excise, Mumbai V. Natural Rayon Corporation Ltd., 1998 (103) ELT 4.
7.5. In so far as the aspect pertaining to non-declaration of waste and scrap and their inclusion in the returns was concerned, the Assessee took the stand that, since, it was their understanding that they were non-excisable goods, no declaration or disclosures were made in the returns.
7.6. Furthermore, it was also indicated by the Assessee that there was no intention on its part to evade payment of duty on waste and scrap, and in this regard, relied upon the fact that it had been raising debit notes as a clearance document at the time of sale of waste and scrap. In other words, what was sought to be highlighted was that there was no attempt to suppress or keep back facts from the Revenue.
8. It appears that, the reply filed by the Assessee did not impress the Adjudicating Authority and, accordingly, an order dated 27.09.1999 was passed by the Commissioner, Central Excise (in short, "Commissioner"), sustaining, almost in entirety, the demand raised in the SCN. The only difference, which as indicated above was not substantial, was that, that the quantum of duty had been reduced from Rs.12,68,377/- to Rs.12,03,578/-. This reduction came about on account of the fact that the Commissioner, while passing the Order-in-Original had excluded the period, which was beyond five years.
8.1. Accordingly, penalty was calculated under Section 11AC of the CE Act for the period after 28.09.1996. The penalty quantified by the Commissioner, keeping this yardstick in mind, worked out to Rs.7,41,499/-. Resultantly, penalty in the said amount was also imposed on the Assessee.
9. The Assessee, being aggrieved by the said order of the Commissioner, carried the matter in appeal to the Tribunal.
10. The Tribunal, vide the impugned judgment and order, partly allowed the appeal of the Assessee.
10.1. The Tribunal, came to the conclusion based on its reading of Rule 57F(5), which, as indicated above, is pari materia to Rule 57F(18), that the waste and scrap were exigible to duty, if: the waste had arisen from processing of inputs and, credit of duty in respect of such inputs had been taken by the Assessee. Since, both conditions, as provided under Rule 57F(5) stood fulfilled, according to the Tribunal, the Assessee was liable to pay duty on waste and scrap.
10.2. The Tribunal went on to say that the argument of the Assessee that the waste and/or scrap were not manufactured "was not available to it". It was the observation of the Tribunal that the benefit availed of could only come with the resultant liability.
11. As regards the other contention raised by the Assessee that the extended period of limitation was not invokable against the Assessee, was also rejected by the Tribunal.
11.1. The reason given by the Tribunal was that the subject goods, as alleged in the SCN, had been cleared without payment of duty and without disclosure of their production and clearance either by way of declarations or in the RT-12 returns.
11.2. The Tribunal, however, while passing the impugned judgment and order, reduced the penalty to Rs.1.00 lakh, as against a sum of Rs.7.00 lakhs imposed by the Commissioner.
12. Aggrieved by the Tribunal's order, the instant appeals have been filed.
13. Therefore, in so far as the Assessee is concerned, the issue, which arises for consideration is, as to whether the failure on the part of the Assessee to file requisite declarations and make disclosures qua clearances of waste and scrap in the returns filed in Form RT-12 would bring the case within the ambit and scope of the proviso to Section 11A(1) of the CE Act. In other words, would such a failure, which essentially amounts to non-disclosure in the given facts and circumstances of the case, entitle the Revenue to trigger the extended period of limitation for issuance of SCN under Section 11A of the CE Act.
14. Mr.Prasad, who made submissions on behalf of the Assessee, stated that the law for most part of the period in issue was in a state of flux with regard to the exigibility of the waste/scrap (which is subject matter of the instant proceedings), to tax, i.e., payment of excise duty.
15. In so far as the spent Sulphuric Acid is concerned, learned counsel tried to demonstrate the uncertainty in law by relying upon the judgments and orders of the Tribunal.
16. Accordingly, our attention was drawn to the judgment of the Principal Bench of the Tribunal in the matter of DCW Ltd. V. Collector of Central Excise, Madurai, 1996 (81) ELT 381 (Tri.).
16.1. This judgment was delivered on 13.09.1995.
16.2. Via this judgment, the Tribunal held that
i) Spent Sulphuric Acid was amenable to excise duty;
ii) This position, evidently, took a different turn, when the Northern Principal Bench of the Tribunal, in the matter of CCE V. Aureola Chemicals Private Limited, 1998 (103) ELT 105 came to the conclusion that Spent Sulphuric Act was not exigible to excise duty.
iii) The aforementioned view taken in Aureola's case was reiterated by the Principal Bench of the Tribunal in Superchem Industries V. Collector of Central Excise, Meerut, 1999 (113) ELT 689. The Tribunal in this case also held that Spent Sulphuric Acid was not amenable to excise duty.
iii) a) A perusal of the judgment shows that in this case, the Tribunal preferred to follow its own decision in Aureola's case as against its judgment delivered in DCW Limited.
iv) It appears that because of the conflict in the decisions, the matter was referred to a Larger Bench of the Tribunal vide Misc. Order No.37/99-C. The reference to the Larger Bench was made with regard to the following question of law:
"Whether Spent Sulphuric Acid (Dilute Sulphuric Acid) was a product distinct from Sulphuric Acid classifiable under Heading 28.07 and was required to be classified as excisable product under Heading 38.23? Consequently, whether the Modvat credit was rightly claimable in such cases where input is Sulphuric Acid and Spent Sulphuric Acid is a By-product of the process involved?
OR Sulphuric Acid and Dilute Sulphuric Acid were essentially the same products classifiable as such under 28.07 and in the process in which the later is simply generated from the former it is required to be considered as unmanufactured product; and consequently no duty is leviable and no question of Modvat arises."
(v) The Larger Bench finally delivered its judgment dated 02.07.1999, in Appeal Nos.E/1653, 1674 and 1814/91-C and put the the controversy to rest. By its judgment, the Larger Bench of the Tribunal held that Spent Sulphuric Acid was amenable to excise duty.
17. In so far as the other three products were concerned, Mr.Prasad referred to the orders passed in the Assessee's case, albeit, for different purposes, which, again, according to the learned counsel, created a doubt, as to whether or not, excise duty was payable on them.
17.1. In so far as the Spent Activated Alumina is concerned, reliance was placed on order dated 19.07.2007 of the Tribunal. This order of the Tribunal pertains to the clearance made in respect of the said product between July and October, 1999. Since, the Commissioner of Central Excise (Appeals), vide order dated 16.03.2000 had ruled that Spent Activated Alumina was not exigible to excise duty and consequently, the demand under Rule 57F(18) had been set aside, the Revenue had preferred an appeal.
17.2. The Tribunal vide the said judgment, i.e., judgment dated 19.07.2007 dismissed the appeal and confirmed the order of the Commissioner of Central Excise (Appeals), whereby, it held that no excise duty could be demanded on the clearance of Spent Activated Alumina.
17.3. In contradiction to the said order of the Tribunal, for another period, i.e., period spanning between 25.08.1994 and 31.10.1997, the Southern Regional Bench of the Tribunal confirmed the demand made under Rule 57F(18) of the Central Excise Rules qua clearance made in respect of the Spent Activated Alumina.
18. Similarly, with respect to waste Lube Oil, learned counsel pointed out that for clearances made between 01.09.1994 and 30.04.1999, the Commissioner of Central Excise (Appeals) vide order dated 20.04.2000 had set aside the demand for duty under Rule 57F(18).
18.1. The Tribunal, in turn, dismissed the Revenue's appeal preferred against the said order, vide judgment dated 19.07.2007.
18.2. Thus, in effect, confirmed the Commissioner Appeal's order dated 20.04.2000.
18.3. This apart, in so far as the waste lube oil was concerned, reliance was placed on the judgment of the Southern Regional Bench of the Tribunal dated 12.09.2006, passed in the matter of Spic Pharmaceuticals Division Vs. Commissioner of C.Ex., Chennai, 2007 (213) ELT 679, whereby, it was held that waste lube oil was not goods, amenable to excise duty.
19. As regards the Spent Pacol Catalyst is concerned, it was pointed out that for the period spanning between 11.02.2000 and 15.11.2000, the Tribunal, vide its judgment dated 13.12.2002, noticed that the said waste product was cleared for job work by the Assessee and, accordingly, sent to an entity by name of Hindustan Platinum.
19.1. Based on this fact, the Tribunal noted that the plea of the Assessee for seeking exemption from payment of excise duty under Section 57A(4) had not been considered by the Commissioner of Central Excise (Appeals). It further held that the said waste product was classifiable under Chapter 71.12 of the Central Excise Tariff Act, 1985. Consequently, the Tribunal, via the very same judgment, directed the Commissioner of Central Excise (Appeals) to consider the Assessee's case for exemption under Rule 57AC [which was subsequently, renumbered as 57F(4)] of the Central Excise Rules, on account of the fact that platinum extracted from the Spent Catalyst by Hindustan Platinum had been returned to the Assessee's factory.
19.2. Apparently, on remand, the Commissioner of Central Excise (Appeals) vide order dated 06.08.2003, held as follows:
"i) no duty was payable on Spent Pacol Catalyst because it is a non-excisable product;
ii) no duty is payable because it has not been removed from the factory but instead it was ultimately exported in the form of Platinum Sponge."
19.3. In this behalf, the Assessee relied upon Rule 57F(4) of the 1944 Rules. Furthermore, it was held that no duty was payable by the Assessee, because the platinum so extracted was ultimately exported out of the Country in the form of Platinum Sponge.
19.4. In an appeal carried to the Tribunal [South Zonal Bench], the Tribunal reversed the finding of the Commissioner of Central Excise (Appeals) contained in order dated 06.08.2003 to the extent that it held that Spent Pacol Catalyst was amenable to excise duty.
19.5. In so far as the other finding of the Commissioner of Central Excise (Appeals) in respect of exemption was concerned, under Rule 57F(4) [erstwhile 57AC], the same was confirmed for the reasons given by the Commissioner of Central Excise (Appeals) in his order.
20. This apart, our attention was drawn to the order dated 07.01.2004, passed by the West Zone Bench Mumbai Tribunal in the matter of Nirma Ltd. V. Commissioner of Central Excise, 2004 (171) ELT 238, whereat, it was held that Spent Pacol Catalyst was not exigible to excise duty, as it was not an excisable article.
21. In this behalf, reliance was also placed on two other judgments of the Western Bench of the Tribunal dated 21.09.2004 and 02.06.2008, whereby, a similar view was held. These judgments were rendered in the following cases:
(i) CCE V. Deepak Fertilizers and Petro Corporation Ltd., 2004 (178) ELT 686 and
(ii) CCE V. Alkyl Amines Chemicals Limited, 2008 (229) ELT 159.
22. Mr.Prasad, in sum, submitted that given this state of law, the Assessee was well within its right to hold bonafide belief that waste and scrap, adverted to in the SCN, were not excisable goods, and, therefore, were not amenable to duty.
22.1. Learned counsel says that, therefore, the mere non-disclosure of clearances made qua such waste/scrap would not necessarily lead to a conclusion that there was suppression by the Assessee with an intention to evade payment of excise duty.
22.2. In support of this submission, learned counsel sought to place reliance on the two judgments of the Supreme Court; these being: Padmini Products V. Collector of C.Ex., 1989 (43) ELT 195 (SC) and Commissioner of Central Excise Jalandhar, V. Royal Enterprises, 2016 (337) ELT 482 (SC).
23. On the other hand, Mr.A.P.Srinivas, largely, relied upon the impunged judgment and order of the Tribunal to contend that the extended period of limitation could be invoked in the present case, as the Assessee had failed to make requisite declarations and disclosures in the returns.
23.1. Learned counsel says that the finding of suppression returned by the Commissioner, which was affirmed by the Tribunal is in order and need not, therefore, be disturbed by the Court.
23.2. In support of his submission, learned counsel relied upon the judgment of the Division Bench of this Court in CEE V. NEPC India Limited, 2016 (341) ELT 33 (Mad); Pure Drinks Ltd. V. Union of India, 2012 (281) ELT 51 (Del.), to which one of us (Rajiv Shakdher,J.) was a party.
24. We have heard the learned counsels for the parties and perused the records filed before us.
25. In order to decide as to whether the extended period of limitation could be invoked, we would have to advert to the provisions of Section 11A of the CE Act, as it was then in place on the Statute book.
"Section 11A Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded. (1)When any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, a Central Excise Officer may, within six months from the relevant date, serve notice on the person chargeable with the duty which has not been levied or paid or which has been 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:
Provided that where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud, collusion or any wilful mis-statement 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, by such person or his agent, the provisions of this sub-section shall have effect, as if [***]] for the words "six months", the words five years were substituted:
Explanation .Where the service of the notice is stayed by an order of a Court, the period of such stay shall be excluded in computing the aforesaid period of six months or five years, as the case may be.
(2) The Central Excise Officer shall, after considering the representation, if any, made by the person on whom notice is served under sub-section (1), determine the amount of duty of excise due from such person (not being in excess of the amount specified in the notice) and thereupon such person shall pay the amount so determined (3) For the purposes of this section
(i) refund includes rebate of duty of excise on excisable goods exported out of India or on excisable materials used in the manufacture of goods which are exported out of India;
(ii) relevant date means,
(a) in the case of excisable goods on which duty of excise has not been levied or paid or has been short-levied or short-paid (A) where under the rules made under this Act a periodical return, showing particulars of the duty paid on the excisable goods removed during the period to which the said return relates, is to be filed by a manufacturer or a producer or a licensee of a warehouse, as the case may be, the date on which such return is so filed;
(B)where no periodical return as aforesaid is filed, the last date on which such return is to be filed under the said rules;
(C) in any other case, the date on which the duty is to be paid under this Act or the rules made thereunder;]
(b) in a case where duty of excise is provisionally assessed under this Act or the rules made thereunder, the date of adjustment of duty after the final assessment thereof;
(c)in the case of excisable goods on which duty of excise has been erroneously refunded, the date of such refund."
26. A perusal of the said Section would show that the duty of excise, which was, as either not levied or paid or had not been short levied or short paid or erroneously refunded, the Central Excise Officer may, within six months from the relevant date, serve a show cause notice for any of the aforesaid purposes on the Assessee to call upon him to pay the requisite amount, as may be specified therein.
26.1. As is evident upon a plain reading of Section 11A of the CE Act, that the proviso incorporated therein empowers the Central Excise Officer to serve the SCN within the extended period of five years, albeit, from the relevant date, in case, any of the circumstances provided for in the main part of the Section, to which we have made a reference above, arose on account of the reason of fraud, collusion or willful mis-statement or suppression of facts or contravention of any of the provisions of the Act or the Rules made thereunder, with an "intention to evade" payment of duty by the noticee or his agent.
26.2. Therefore, the defining principle for invoking the extended period of limitation is, that there should be an "intention to evade payment of duty" by the noticee or his agent. The fact is that, in so far as the subject waste and scrap is concerned, there was, for a long period of time, clearly an uncertainty, as to whether or not they were excisable goods and hence, amenable to duty as claimed by the Revenue.
26.3. While in the impugned judgment and order, the Tribunal has taken the view against the Assessee, a reference to the facts narrated above, in particular the various orders of the Tribunal, would show that the law on the subject was, in fact, in a state of flux.
26.4. Therefore, in our view, as correctly submitted by Mr.Prasad, it could not have been concluded by the Authorities below that the mere failure to make declarations and disclosures in the returns, in the given facts and circumstances, would amount to an "intention to evade payment of excise duty".
27. The view taken by us is backed by good authority. The Supreme Court in the matter of: Padmini products was, broadly, called upon to rule as to whether the Assessee's understanding that dhoopsticks manufactured by it were handicrafts, as these were nothing else but agarbaties was correct, and furthermore, if this understanding of the Assessee was not correct, whether the Revenue was entitled to levy tax for the extended period of five years and as against the ordinary period of six months, as it then obtained.
27.1. On the first aspect, the Supreme Court concurred with the view of the Tribunal that agarbaties were not handicrafts, as was contended by the Assessee.
27.2. In respect of the other aspect, with which we are concerned, the Supreme Court held that before the extended period could be invoked against the noticee "something positive other than a mere inaction or failure on the part of the manufacturer or the producer had to be shown". The Court further observed that, it had to be a case of conscious or deliberate withholding of information by the manufacturer, when he knew otherwise, before he could be saddled with liability beyond the ordinary and normal period of six months.
27.3. These observations are found in paragraph 8 at page 200 of the said judgment, wherein the Court, as a matter of fact affirms the view taken in an earlier judgment, passed by it, in the matter of: Collector of Central Excise, Hyderabad V. M/s.Chemphar Drugs and Liniments, Hyderabad, 1989 (40) ELT 276 (SC).
27.4. For the sake of convenience, the observations made in paragraph 8 of the said judgment, being apposite, are extracted hereafter.
"8....... We are unable to accept this position canvassed on behalf of the revenue. As mentioned hereinbefore, mere failure or negligence on the part of the producer or manufacturer either not to take out a licence in case where there was scope for doubt as to whether licence was required to be taken out or where there was scope for doubt whether goods were dutiable or not, would not attract section 11-A of the Act. In the facts and circumstances of this case, there were materials, as indicated to suggest that there was scope for confusion and the appellants believing that the goods came within the purview of the concept of handicrafts and as such were exempt. If there was scope for such a belief or opinion, then failure either to take out a licence or to pay duty on that belief, when there was no contrary evidence that the producer or the manufacturer knew that these were excisable or required to be licenced, would not attract the penal provisions of section 11-A of the Act. If the facts are otherwise, then the position would be different....... "
(Emphasis is ours) 27.5. Similar view has been taken by the Supreme Court in the case of commissioner of Central Excise, Jalandhar V. Royal Enterprises, 2016 (337) ELT 482 (SC), wherein, the Court, has affirmed the view taken by it in Pushpam Pharmaceuticals Company V. Collector of Central Excise, Bombay, 1995 (78) ELT 401 (SC) and also the judgment, in Padmini Products, which is referred, hereinabove by us.
27.6. The observations made in paragraph 4 being the relevant, the same are extracted hereafter:
"...4. Similarly, in the case of Pushpam Pharmaceuticals Company v. Collector of Central Excise, Bombay [1995 (78) E.L.T.401(S.C.)], it was held that mere omission to disclose the correct information would not amount to suppression of facts unless there was a deliberate attempt made to escape the payment of duty. Where facts are known to both the parties it cannot be held that there was suppression of facts. It was observed in Para 4 as follows:
4.Section 11A empowers the Department to re-open proceedings if the levy has been short-levied or not levied within six months from the relevant date. But the proviso carves out an exception and permits the authority to exercise this power within five years from the relevant date in the circumstances mentioned in the proviso, one of it being suppression of facts. The meaning of the word both in law and even otherwise is well known. In normal understanding it is not different that what is explained in various dictionaries unless of course the context in which it has been used indicates otherwise. A perusal of the proviso indicates that it has been used in company of such strong words as fraud, collusion or wilful default. In fact it is the mildest expression used in the proviso. Yet the surroundings in which it has been used it has to be construed strictly. It does not mean any omission. The act must be deliberate. In taxation, it can have only one meaning that the correct information was not disclosed deliberately to escape from payment of duty. Where facts are known to both the parties the omission by one to do what he might have done and not that he must have done, does not render it suppression.
(Emphasis is ours)
28. Having regard to the aforesaid, in our view, therefore, the mere failure to make declarations/or disclosure of the clearance of waste and scrap in the returns would not amount to suppression in the given facts and circumstances.
29. Our view is fortified by the fact that the Tribunal has simply affirmed the view of the Commissioner without examining the matter in detail. As a matter of fact, the Commissioner has not discussed the matter at all as to whether the extended period could be invoked qua the Assessee. The discussion, which is rather cryptic, is in paragraph 21, where the aspect of penalty is adverted to. Qua this aspect, the failure of the Assessee to declare the waste and scrap in the returns has been taken as the basis for directing imposition of penalty. This aspect will be discussed the latter part of the judgment.
29.1. Therefore, according to us, the SCN, being beyond limitation, is not sustainable in law.
29.2. Since, this issue has been answered in favour of the Assessee, logically, the other issue may not arise, which is, with regard to reduction in the imposition of penalty by the Tribunal.
30. We may only indicate that the judgment of the Division Bench of this Court passed in the matter of CEE V. NEPC India Limited, 2016 (341) ELT 33 (Mad) is distinguishable on facts, as in that case, the Assessee had cleared waste and scrap without raising any bills.
30.1. As noted in our narration, the debit notes had been raised by the Assessee qua sale of waste/scrap.
30.2. Reference in this regard may be made to debit notes of September, 1995 -Rs.42,524.80, 15.10.1994 - Rs.602.80, 07.10.1994 -Rs.4204.20 and 05.10.1994 - Rs.21,450/-.
31. On the question of reduction of penalty, Mr.Srinivas, submitted that the imposition of penalty under Section 11AC of the CE Act was mandatory, once a finding of suppression had been returned, and, therefore, there was no discretion available to the Tribunal to reduce the penalty, as has been sought to be done via judgment and order.
31.1. In support of this submission, he relied upon the judgment of the Supreme Court in the matter of: Union of India V. Rajasthan Spinning & Weaving Mills, 2009 (238) E.L.T.3 (SC).
32. According to us, the judgment of the Supreme Court has to be read in totality. A perusal of the observations made by the Supreme Court in paragraph Nos.18 to 23 would show that, the Court, in no uncertain terms, has said that, in order to levy penalty under Section 11AC, one would have to come to the conclusion that it was a case of conscious and deliberate wrong doing, and it is only, if, such a situation arises, that penalty under Section 11AC can be imposed. In other words, unless such a finding is reached, penalty under Section 11AC cannot be levied.
32.1. To that extent, the Supreme Court explained its decision rendered in Union of India V. Dharmendra Textiles Processors, 2008 (231) ELT 3 (SC).
33. In the given circumstances, as indicated above, the Commissioner proceeded to impose penalty, only for the reason that, the clearance of waste and scrap had not been declared by the Assessee. The rationale provided, which is, reflected in paragraph 21 of the order of the Commissioner, for the sake of convenience is extracted hereafter:
"....21. The Show Cause Notice has sought to impose penalty on the noticee under Section 11 AC of the Central Excise Act. Since this provision in the Act was brought into force only from 28/9/96, it cannot be applied to an offence during a period prior to this date. M/s.TPL never declared the clearance of these goods to the Dept. Therefore it is clear that they suppressed this informations for the dept. with the intention to evade the duty of the goods. I confirm the penalty under Section 11AC to the period after 28/9/96. I find that the duty amount for the period after this date works out to Rs.7,41,499/-. I therefore impose a penalty of Rs.7,41,499/- (Rupees Seven lakhs forty one thousand four hundred and ninety nine only) under Section 11 AC of the Central Excise on M/sTPL."
33.1. Clearly, the reasoning is deficient and does not accord with the position, which, according to us, prevails in law.
34. Therefore, for the foregoing reasons, we are inclined to answer the additional and the only surviving question of law, framed in the Assessee's appeal, in favour of the Assessee and against the Revenue.
35. As regards the question framed in the Revenue's appeal is concerned, our answer to that, is, that the payment of penalty under Section 11AC of the CE Act would follow, only if, the finding of fact is returned that there was an escapement of duty, due to a conscious and deliberate wrong doing on the part of the Assessee. Thus, in other words, the penalty under Section 11AC would follow, as night follows day, only if, such a finding is returned. In other words, it will be mandatory to levy penalty only, if, such a finding is reached in the matter. In the instant case, one has not been able to arrive at such a conclusion, as it would be evident from our discussion above. The question of law is answered accordingly by us.
35.1. The question is, accordingly, answered against the Revenue.
35.2. However, given the fact that, our conclusion is that the extended period could not have been invoked in the instant case, the impugned judgment and order of the Tribunal will have to be set aside.
36. Resultantly, the appeal filed by the Revenue, i.e., C.M.A.No.2721 of 2005 stands dismissed and the appeal filed by the Assessee, i.e., C.M.A.No.3122 of 2005 stands allowed. The impugned judgment of the Tribunal is set aside.
37. However, there shall be no order as to costs.
(R.S.A.,J) (R.S.K.,J)
Speaking order/Non-Speaking order 13.06.2017
Index:Yes/No
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To
1. The Commissioner of Central Excise
Chennai I Commissionerate,
121, Uthamar Gandhi Road,
Nungambakkam, Chennai - 34.
2. Customs, Excise and Service tax Appellate
Tribunal, South Zonal Bench,
Shastri Bhavan Annexe, 1st Floor,
36, Haddows Road, Chennai - 600 006.
3. Asst. Commissioner, Central Excise,
B Division, Anand Building, Teynampet, Chennai - 18.
RAJIV SHAKDHER,J.
AND
R.SURESH KUMAR,J.
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Pre-Delivery Judgment in
C.M.P.Nos.2721 and 3122 of 2005
Dated: 13.06.2017
http://www.judis.nic.in