Customs, Excise and Gold Tribunal - Delhi
Parle Exports (P) Ltd. vs Collector Of Central Excise on 15 June, 1990
Equivalent citations: 1990ECR238(TRI.-DELHI), 1990(50)ELT442(TRI-DEL)
ORDER I.J. Rao, Member (T)
1. These four appeals came up for hearing before us under the judgment of the Supreme Court in Civil Appeal No. 379/88 with Civil Appeals No. 3680-82/87. Very briefly the background is that by order No. 786-788/86 dated 26-9-1986 the Tribunal held that non-alcoholic beverage bases manufactured by the appellants were eligible for duty exemption in terms of SI. No.1 of the Schedule to Notification No. 55/75. Following the ratio of the same order the Tribunal passed order No. 838/87-D dated 26th October 1987. In both the matters totally involving 4 appeals the appellants were M/s. Parle Exports Private Ltd., Bombay.
2. The Collector of Central Excise, Bombay appealed against the four orders under Section 35L of the Central Excises and Salt Act. The Supreme Court allowed the appeals and reversed the decision of the Tribunal. However the Supreme Court in their common order dated November 22, 1988 recorded that "we, however, need not go into the question of penalty as well as the question of limitation which have been left open by the Tribunal by its order. It will be open to the parties to urge these points before the Tribunal. We express no opinion on these aspects".
3. We, therefore, heard the appellants in all the four matters on the limited questions of penalty and limitation.
4. At the outsset Shri Ganesh, the learned Advocate clarified that appeals No. 411/81 and 412/81 relate only to classification lists and there is neither any demand made nor penalty imposed, in these two matters. Therefore, while this order relate to all the four appeals in view of the judgment of the Supreme Court, in effect it would be applicable only to appeals No. 943/85-D and 787/80-D.
5. Common arguments were advanced in both appeals.
6. Pleading that both the demands are not sustainable under Rule 10 being substantially hit by limitation Shri Ganesh submitted that in appeal No. 943, show cause notice dated 13-8-1979 demanding duty for the period 1-3-1975 to 18-4-1979 was issued on 13-8-1979 but was withdrawn on 16-10-1979 and a fresh notice was issued on 16/18-10-1979. In appeal No.787/80 show cause notice seeking to demand duty for the period 8-6-1977 to 5-10-1978 was issued on 29-6-1979.
7. Pleading that only normal period of limitation should apply the learned Advocate submitted that the appellants had every reason to proceed with clearances in the bona fide belief that the concentrate manufactured by them was a food product/preparation not liable to duty as it was exempted under Notification No. 55/75-CE. In support of this proposition Shri Ganesh submitted that there were seven circumstances which justified the bona fides. These were :
1. The Central Excise Trade Notice No.103/75 dated 18-6-1975 wherein, inter alia, it was stated that the preparations for use because of their nutritional or flavouring purpose in the making of beverages or foodstuffs for human consumption are classifiable as food preparations. The learned Advocate submitted that the appellants' product had flavouring properties and, therefore, the appellants believed that the product was covered by the Trade Notice.
2. Order-in-Appeal No.VI-1584/75 dated 4-2-1976 was passed by the Appellate Collector of Central Excise, Bombay holding that flavouring agent manufactured by the appellants therein (M/s. Naardan (India) Ltd. was exempt under Notification No.55/75. Order-in-Appeal No.578/78 dated 6-4-1978 passed by the Appellate Collector of Central Excise, Madras in respect of M/s. Bush Boake Allen (India) Ltd. held that flavouring essences for edible food products was exempt under Notification.
3. The Gujarat High Court on 3-11-1980 granted an interim stay (SCA 2864/80) to the same appellants. This stay was admittedly an interim relief and admittedly there were no observations on the merits of the matter.
4. Appendix 17 to Import Policy of 1981-82 considered non-alcoholic beverage bases under the heading Foods. This was taken note of with approval, in the Tribunal's order dated 26-9-1986, which was later followed.
5. The CCCN (Heading 21.07) covered food preparations not elsewhere specified are included. The explanatory notes for the heading made it clear that the Heading included inter alia flavouring powder for making beverages. This was taken note by the Tribunal in para 7 of their order.
6. The opinion of Dr. Rege was given to the appellants.
7. The definition in the prevention of Food Adulteration Act which supports the appellants' view (however, the Tribunal in their order agreed with the lower authorities that the definitions in the said Act are of no avail in the present context because the object of that act is different).
8. The next proposition advanced by Shri Ganesh was that the appellants acted bona fide and therefore, there should be no penalty. He submitted that they did not obtain L4 licence nor followed other requirements of Central Excise law as they were under the bona fide belief that their product was exempt. In this context the learned Advocate advanced the following arguments:
(1) the show cause notice having been issued on 16-10-1979 (and 29-6-1979) limitation should be according to Rule 9 (2) as on that date read with Rule 10. To support this argument the learned Advocate referred to para 5 of the Supreme Court's judgment in Mysore Rolling Mills Private Ltd. v. Collector of Central Excise reported in 1987 (28) ELT 50 S.C. (2) Larger period of limitation is applicable only if there is mala fide acts on the part of the manufacturer and not when there is only a simple omission. In support of this plea, the learned Advocate relied on two judgments both of the Supreme Court, viz. Padmini Products v. Collector of Central Excise reported in 1989 (43) ELT 195 SC and Collector of Central Excise, Hyderabad v. Chemphar Drugs and Liniments reported in 1989 (40) ELT 276 S.C. The learned Advocate argued that in the case of Padmini Products there was at least scope for doubt but the appellants' case is better because there was no scope for doubt at all that their product was exempt from duty.
(3) Rule 9(2) can be invoked only when there is clandestine removal and cited a judgment of the Supreme Court 1978 ELT J 399/407 S.C. (4) Penalty is called for only when there is intention of evasion of assessment. To support this proposition the learned Advocate cited a judgment in Murugan and Company v. Dy. Collector of Central Excise reported in 1977 ELT J 193 Madras. He submitted that this judgment was followed by the Tribunal in Basant Pran Electric Company reported in 1984 (17) ELT 499 T. The learned Advocate further submitted that in the show cause notice there was no allegation of suppression of facts or misstatement and pleaded that in such circumstances there cannot be a demand for more than six months.
9. Finally Shri Ganesh argued that the penalties are called for only in respect of quasi-criminal activity and cited a judgment in the cast of Hindustan Steels v. State of Orissa reported in 1978 ELT 159 S.C. For all these reasons, the learned Advocate pleaded that there should be neither penalty nor demand for duty beyond the normal period of limitation. He concluded by submitting that where the Department changes its view the demand can be only prospective.
10. Shri Chakraborty, the learned DR in reply submitted that the appellants had no reason to believe that Notification No. 55/75 was available to them. He argued that the trade notice cited by the appellants was issued by the Bangalore Collector of Central Excise and was available only for that Collectorate. He further submitted that the products of the appellants were non-alcoholic beverage bases which were not mentioned in the trade notice and, therefore, there is no question of the appellants being misguided by the said notice. He further submitted that for the periods of demand 1-3-1975 to 15-4-1979 and 18-6-1977 to 15-10-1978 the appellants did not show whether they had the requisite knowledge and if so since when.
11. Referring to the two appellate orders Shri Chakraborty argued that these orders dealt with flavouring agents whereas the product of the appellants was nonalcoholic beverage bases. Therefore, there could be no ground for misunderstanding on account of these two appellate orders. He further pointed out that the Appellate Collector's order was passed on 4-2-1976 and there could be no misunderstanding prior to this date. He also submitted that the appellate orders were for other assessees and the appellants did not show as to when they came to know of this order. He also made light of the appellants' plea of the interim order passed by the Gujarat High Court submitting that this order was passed after the period of demand and, therefore, could not have retrospective effect or misguide the appellants. He opposed the reference to CCCN submitting that this was not before the Collector. The Import Policy 1981-82 referred to by the appellants was also beyond the demand period and, according to the learned DR, could not give any support to the appellants' case. Similar is the case of the report of the Chief Chemist's given on 21-9-1979. Referring to the definitions given in Food Adulteration Act Shri Chakraborty submitted that it is not clear if the definitions include concentrates. He also argued that it is not "food" that is the subject matter here but food products/preparations mentioned in the Notification. The learned Representative also opposed any relevance of Dr. Rege's report which was given on 5-3-1981, after the relevant period.
12. Referring to the legal grounds, Shri Chakraborty submitted that the argument of Shri Ganesh that there could be no demand under Rule 9 (2) is not sustainable. He submitted that wrong rules do not matter if right rule is available and it could be invoked. He submitted that Rule 10 applies and could have been invoked by the Department and may be applied at this stage. At the same time he supported Rule 9 (2) invoked in the show cause notice arguing that where there is clandestine removal this rule is applicable to demand duty. He further argued that when removals are made without the knowledge of the concerned authorities they are clandestine. Referring to the show cause notices the learned DR argued that the show cause notice listed six circumstances of contravention of Central Excise provisions including non-maintenance of accounts and submitted that these allegations made quite clearly amount to allegations of suppression or misstatement. The essential ingredients were there. In this context Shri Chakraborty relied on a judgment of the Tribunal reported in 1986 (25) ELT 727 in the case of British India Corporation v. Collector of Central Excise, Chandigarh. He justified the demand for duty and the imposition of penalty.
13. In his rejoinder Shri Ganesh submitted that the appellants took a reasonable and tenable view as was proved by the subsequent events. He pleaded that when larger period of limitation is invoked the burden of proving the justifiability is on the Department. He relied and referred to the Chief Chemist's report and his view. He submitted that the trade notices issued by a Collector are circulated all over India and these notices are normally issued under the direction of Central Board of Excise and Customs. They are applicable to all parts of the country. Referring to the show cause notices Shri Ganesh submitted that the notices merely listed the rules which were alleged to have been violated and did not allege dishonesty, conscious/wilful evasion or such. He submitted that in such cases the show cause notice cannot be sustained for the extended period and relied on a judgment in British India Corporation (supra). He denied that the allegations made amounted to suppression of facts, etc.
14. We have considered the submissions of both sides. The two questions before us relating to justifiability of the extended period of limitation and of penalty are interrelated. Only when there is a deliberate attempt to evade duty through resorting to suppression of facts and misstatement can there be demand of duty for extended periods. By and large it is such circumstances which would warrant an imposition of penalty.
15. The seven circumstances listed by Shri Ganesh as justification for bona fide belief on the part of the appellants were examined by us. We also note the objections and oppositions to these points ably put forward by the learned DR Shri Chakraborty. We have also perused the Tribunal's order especially the first order (786-788/86 dated 26-9-1986) which was later followed. In this order the Tribunal did take into consideration the evidence of the trade notice, explanatory notes in CCCN, the contents of the import policy (observing that "if it shows non-alcoholic beverage bases as an item under the category of "food", it is as good as an evidence as in support of the appellants' contention are such categories of food products and food preparations). In addition Encyclopaedia Britannica (wherein it was seen that the beverages including soft drinks were classified under the category of foods) and submissions made by the appellants. These pieces of evidence were considered by the Tribunal with apparent approval (unlike the contents of Food Adulteration Act) though it was for the purpose of deciding the eligibility to exemption. These bits of evidence are relied on by appellants to justify an argument that the appellants had reasons to believe, bona fides, that their product was covered by the exemption notification. But in our view, this argument cannot be accepted for, as mentioned by the learned Departmental Representative. Much of the events took place subsequent to the period in question. Even the appellate orders were not timely or misleading.
16. We, however, agree with the plea of the appellants that for invoking extended period of demand the Department has to conclusively prove the necessary elements. It is immaterial whether Rule 9 (2) as it stood then or Rule 10 read with the proviso is applicable. What is material is whether the appellants deliberately misstated the facts or suppressed information to evade duty. If they did so the demand has to be for the extended period. For this purpose the most important document to be examined is the show cause notice. Shri Chakraborty's argument is that the show cause notice contains the necessary ingredients. Shri Ganesh equally strongly denied it.
17. We perused the show cause notices. The show cause notice dated 16/18-10-1979 (the notice dated 13-8-1979 having been withdrawn) listed 5 allegations:
1. Whereas it appears that M/s. Parle (Exports) Pvt. Ltd., Andheri have contravened the provisions of Rules 9 (i), 53,173PP (i), 173PP (3), 173PP (6) and 174 of the Central Excise Rules 1944, in as much as that during the period from 1-3-1975 to 18-4-1979.
(i) they manufactured without a valid licence as required under Section 6 of CES Act, 1944, read with Rule 174 of C. Ex. Rules 1944, goods not elsewhere specified and falling under Item No. 68 of 1st schedule to the Central Excises & Salt Act, 1944 viz. Non-alcoholic beverage bases (hereinafter called "said goods").
(ii) they cleared the said goods without payment of central excise duty (as per annexure B) as required under Rule 9 (i) read with Rule 173PP (i) of Central Excise Rules, 1944.
(iii) they cleared the said goods without filing list of goods manufactured, as required by Rule 173PP (3) of Central Excise Rules, 1944.
(iv) they cleared the said goods without preparing gate passes as required under Rule 173PP (6) of Central Excise Rules, 1944.
(v) they cleared goods without maintaining account as required under Rule 53 of Central Ex. Rules, 1944.
2. The said M/s. Parle (Exports) Pvt. Ltd. are required to show cause to the Assistant Collector of Central Excise Division 'K' Bombay as to why duty amounting to Rs. 3,50,963.22 (See Annexure I & II) should not be recovered from them and why a penalty should not be imposed on them under Rules 9(2), 173Q and 210 of C. Ex. Rules, 1944 for contravening the provisions of Rules 9(i), 53, 173PP (i), 173PP (6) and 174.
3. M/s. Parle (Exports) Pvt. Ltd. Andheri are further directed to produce at the time of showing cause, all the evidence upon which they intend to rely in support of their defence.
4. M/s. Parle (Exports) Pvt. Ltd. Andheri, should also indicate in the written explanation whether they wish to be heard in person before the case is adjudicated.
5. If no cause is shown against the action proposed to be taken within 30 days of the receipt of this notice or they do not appear before the adjudicating officer when the case is posted for hearing, the case will be decided ex parte."
Do these allegations amount to suppression of facts or misstatement? We cannot overlook the explanation given by Shri Ganesh that as the appellants believed, bona fide that their product was exempt from duty they need not have followed any of the Central Excise Rules. Regarding documentation, payment of duty, etc. in allegation No.5 the Department refers to non-maintenance of accounts required by them under Rule 53 CER. Annexure B to the show cause notice gives the value of the goods in Rupees and paise for the period 1-3-1975 to 18-4-1979. There is no allegation in the show cause notice that no accounts of any kind were maintained. Such an allegation was not made, even during the hearing before us. Therefore, it has to be presumed that whatever goods were cleared by the appellants were cleared only in an accounted manner though such accounts were not those prescribed by Excise Law.
18. We also keep in mind that the Tribunal's judgment went in favour of the appellants but the Supreme Court decided against them. We mention this to note that the issue involved is not a simple one and it is quite possible that the appellants might have bona fide believed that they are eligible to exemption. We recall Shri Chakraborty's reliance on the Tribunal's judgment in British India Corporation Ltd. (supra). In that judgment the Tribunal held that the words fraud, suppression etc. need not be directly mentioned in the show cause notice and that is enough for invoking special period of limitation of 5 years if the statement of allegations contained therein brings out the charge of fraud, suppression etc. It also held that such special period of limitation is applicable when declaration/classification list is not filed. In view of what we have observed earlier, about exempted units not having to obtain licence and follow other central excise formalities the ratio of this judgment does not appear to be applicable to the facts of the case. Besides a reading of the judgment in British India Corporation shows that there was some deliberate action on the part of the appellants therein, in the matter of filing S3 intimations, which lead the Tribunal to take the viewa it did. We have also to keep in mind the ratio of the Madras High Court in Murugan and Company (supra). In this judgment the High Court held, inter alia that "mere non-payment of duty under a bona fide impression that the goods are not excisable cannot lead to a finding that the goods have been cleared from the factory contrary to Rule 9(1) especially when there has been no specification of time, place and the manner when the duty is to be paid...." That Rule 9(2) could be invoked only in a case where the goods manufactured had been brought in for central excise levy and the time, place and the manner for payment of excise duty and for clearance of the goods had already been fixed by the Collector and the petitioner cleared the goods contrary to the said procedure prescribed by the Excise authorities.
19. Nor can we ignore the contents of the Supreme Court's judgment in Padmini Products v. Collector of Central Excise cited by Shri Ganesh.
In paragraph 8 the S.C. inter alia observed as follows:
"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 the 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 penal provisions of Section 11-A of the Act. If the facts are otherwise, then the position would be different".
We note that at no stage was it alleged or held that the appellants knew that they were clearing excisable goods without a licence and without payment of duty and without observance of other formalities. It is quite possible, in our opinion, that the seven bits of circumstances might have created and sustained a plea in the minds of the appellants that their product was exempt.
20. Taking all the circumstances together we hold that in these cases it is only the normal period of limitation that should be applied. For the same reasons we further hold that there is no warrant for penalty.
21. The four appeals are disposed of accordingly.