Delhi High Court
M/S Abilities India P. Ltd. vs Union Of India & Ors. on 11 July, 2011
Author: A.K. Sikri
Bench: A.K. Sikri, M.L. Mehta
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ Writ Petition (Civil) No.2501 of 1983
RESERVED ON: 07.04.2011
% PRONOUNCED ON: 11.07.2011
M/S ABILITIES INDIA P. LTD. . . . PETITIONER
Through : Mr. Shyam Moorjani, Advocate
with Ms. Anuradha Anand,
Advocate.
VERSUS
UNION OF INDIA & ORS. . . .RESPONDENTS
Through: Mr. Mukesh Anand, Advocate
with Mr. RCS Bhadoria,Mr.
Shailesh Tiwari, Advocates.
CORAM :-
HON'BLE MR. JUSTICE A.K. SIKRI
HON'BLE MR. JUSTICE M.L. MEHTA
1. Whether Reporters of Local newspapers may be allowed to see the
Judgment?
2. To be referred to the Reporter or not?
3. Whether the Judgment should be reported in the Digest?
A.K. SIKRI, J.
1. This petition filed by the petitioner under Article 226 and 227 of the Constitution of India impugns the Order No. 907/1983-B passed by the Customs, Excise & Gold (Control) Appellate Tribunal (hereinafter referred to as „the Tribunal‟). By the impugned order the Tribunal has dismissed the appeal of the petitioners herein, wherein the petitioners had sought quashing of the orders of the Collector (Appeals) and the Assistant Collector. The Assistant Collector had passed the orders dated 31st January, 1981 raising a demand of duty on certain W.P.(C) No.2501/1983 Page 1 of 18 goods manufactured and secured by the petitioners. This demand was upheld by the Collector (Appeals) and is affirmed by the Tribunal as well. According to the petitioner, no such excise duty was payable on the goods manufactured by the petitioners namely „pistons‟, if the same were appropriately classified.
2. Before we enter into the arena of controversy, the facts as pleaded in the writ petition may be recapitulated:
The petitioner is engaged in the manufacturing of parts and accessories of motor vehicles and tractors including trailers. One of the products manufactured and cleared by the petitioners is „pistons‟ which is used in the motor vehicles. The petitioner avers that it holds a valid L-4 licence No. M/A/GZB/72 dated 28th March, 1972 falling under Tariff Item No. 34-A (Pistons) of First Schedule to the Central Excises & Salt Act, 1944. In the year 1971 in order to give a boost in the motor vehicle industry to the manufacturers of such motor vehicles covered under Tariff Item 34 of the First Schedule to the Act, and in order to assist them to increase their production, and regulate the cost, granting exemption to original equipment manufacturers in the form of remission of duties on the product falling under Tariff Item No. 34-A if used in the manufacturing of the products, the Government of India (Ministry of Finance) issued a Notification, being Notification No. 101/71-CE dated 29th May, 1971 in exercise of the powers conferred under sub rule 1 of the Rule 8 of W.P.(C) No.2501/1983 Page 2 of 18 the Central Excise Rules, 1944 (hereinafter referred to as „the Rules‟). As per the said Notification, motor vehicle parts, covered under Tariff Item No. 34-A of the First Schedule to the Act, were exempted from the whole of excise duty leviable thereon. It was subject to the condition that it is proved to the satisfaction of the Collector of Central Excise that the said parts are to be used as original equipment parts by manufacturers of the motor vehicles falling under Tariff Item No. 34 of the First Schedule to the Act and provided further that in relation to availing any concession, the procedure laid down in Chapter X of the Rules is to be followed. The relevant Rule 192 of the Chapter X of the Rules is reproduced hereunder:-
"192. Application for concession- Where the Central Government has by notification under rule 8 sanctioned the remission of duty on excisable goods, other than salt, used in a specified industrial process any person wishing to obtain remission of duty on such goods, shall make application to the Collector in the proper Form stating the estimated annual quantity of the excisable goods required and the purpose for and the manner in which it is intended to use them and declaring that the goods will be used for such purpose and in such manner. If the Collector is satisfied that the applicant is a person to whom the concession can be granted without danger to the revenue, and if he is satisfied, either by personal inspection or by that of an officer subordinate to him that the premises are suitable and contain a secure store-room suitable for the storage of the goods, and if the application agrees to W.P.(C) No.2501/1983 Page 3 of 18 bear the cost of such establishment as the Collector may consider necessary for supervising operation in his premises for the purposes of this Chapter, the Collector may grant the applicant and the application shall then enter into a bond in the proper Form with such surety or sufficient security, in such amount and under such conditions as the Collector approves. (Where, for this purpose, it is necessary for the applicant to obtain in Excise Licence, he shall submit the requisite application alongwith the proof for payment of licence fee and shall then be granted a licence in the proper Form. (The concession shall, unless renewed by the Collector, cease on the expiry of the licence).
(Provided that, in the event of death, insolvency or insufficiency of the surety or where the amount of the bond is inadequate, the Collector may, in his discretion, demand a fresh bond; and may; if the security furnished for a bond is not adequate demand additional security.)"
3. According to the petitioner, as per the aforesaid Rule it is the Original Equipment Manufacturer (hereinafter referred to as „the OEM‟) to whom the concession becomes accruable when the procedure under Chapter-X of the Rules is to be followed by the respective OEMs and not the petitioners. By such exemption the OEMs are in a position to buy the parts to be used in the original equipment at a lower price i.e. without excise duty. The procedure further mandates that for availing of the exemption from payment of total excise duty, the OEM, under Chapter-X have to obtain a licence in Form L-6, submit surety W.P.(C) No.2501/1983 Page 4 of 18 or security bond as required, for the satisfaction of the Assistant Collector, Central Excise of their Range, apply for the CT-2 form to the proper officer of the Central Excise of their Division and after obtaining the same, the OEM have to send the said CT-2 forms to the manufacturer from whom they desire such parts to be supplied without payment of any excise duty. Thereafter the manufacturer of such motor vehicle parts/supplier on receiving of such CT-2 form have to submit the same to the Superintendent of Central Excise of their area. The suppliers then have to get the prices of such goods meant for the OEMs passed, as contract prices with respective OEMs under the Act. The suppliers then have to prepare Form AR-3A and GP-2 and get the GP-2s pre- authenticated from the officer of Central Excise of their area. The suppliers thereafter within 24 hours of the dispatch of the goods to the respective OEMs, through a copy of AR-3A have to inform the proper officer of the Central Excise that the goods have been dispatched to the respective OEM. The suppliers then have to submit monthly statement of all clearances (i.e. removal of OEM and that for home consumption/replacement market shown separately) in form RT- 12 to the Superintendent of Central Excise for final assessment. The said RT-12 is then assessed by the Superintendent, Central Excise, a copy whereof is returned to the supplier duty assessed.
3. It is the case of the petitioner that pursuant to coming in force the aforesaid Notification No.101/71-CE the goods of the petitioner as used by the W.P.(C) No.2501/1983 Page 5 of 18 OEMs were being cleared from time to time. The petitioner used to submit their classification list in Form No.1 (i.e. Classification list of the excisable goods produced, manufactured or warehoused and other goods produced or manufactured and intended to be removed by the assessee) from time to time for approval by the Assistant Collector, Central Excise Division II, Ghaziabad and the same were approved without any hindrance. In support of this plea, the petitioner has annexed the copies of the approval of the Assistant Collector on 13th October, 1977 as Annexure P-3, as per which the OEM availed the benefit and not the petitioner. Whichsoever OEM followed the procedure of Chapter-X and approached the petitioner, thereafter the petitioner provided the goods to them.
4. Further, in order to give incentive to the small scale units, the Government of India announced a general exemption scheme vide its Notification No.71/78-CE dated 1st March, 1978 exempting various "specified goods" from the payment of total excise duty for the first clearance upto Rs. 5 lakhs which includes pistons (Entry 41) also. This is called clearance for home consumption whereunder alone the petitioner avails the benefits. The petitioner filed the classification list (Form-1) on 30th March, 1978 where in column 5 it was mentioned the notification 71/78-CE whereunder it intended to clear goods for home consumption alongwith same inscriptions in column 6 as in previous years which was duly approved by the Assistant Collector on 3rd October, 1978. W.P.(C) No.2501/1983 Page 6 of 18 The petitioner was, accordingly, clearing goods under the aforesaid classification list by submitting the RT-12 return for the period 1978-79 showing clearance of home consumption and those given to OEMs following the procedure under Chapter-X. The Department have been allowing these clearances. During this period, the petitioner had cleared the goods worth `4,99,805/- towards home consumption and worth Rs. 41,358/- for OEMs.
5. Para 2 of the Notification No. 71-78-CE which has become bone of contention between the parties reads as under:-
"Nothing contained in this notification shall, insofar as goods of the description specified against serial number 41 of the said Table, apply to manufacturers of such goods who avail of the exemption under the notification of the Government of India in the Ministry of Finance (Department of Revenue and Insurance) No.101/71- Central Excises, dated the 29th May, or under the notification of the Government of India in the Ministry of Finance (Department of Revenue and Insurance) No. 153/71-Central Excises, dated the 26th July, 1971".
6. We may mention at this stage itself that the Government of India vide Notification No. 237/79-CE amended the aforesaid Notification No. 71/78-CE thereby deleting the aforesaid clause altogether. The operative portion of this Notification reads as under:-
"NOTIFICATION NO.237/79-CE dt.30.7.79 T-I/34A MV Parts - In exercise of the powers conferred by sub-rule (1) of rule 8 of the Central Excise W.P.(C) No.2501/1983 Page 7 of 18 Rules, 1944, the Central Government hereby makes the following further amendments in the notification of the Government of India in the Ministry of Finance (Dept. of Revenue) No. 71/78-CE dt. 1st March, 1978, namely:-
In the said notification,-
(i) In the first paragraph, after condition (c) the following condition shall be inserted, namely:-
"(d) where a manufacturer, in so far as goods of the description specified against S. No.41 of the said Table, has availed of the exemption before the 1st day of August, 1979, or avails of the exemption on or after the said date, under the notification of the Govt. Of India in the Ministry of Finance (Department of Revenue) No. 74/79-CE dt 1st March, 1979 or No. 75/79-CE dt. 1st March, 1979, the exemption contained in this notfn.
Shall, during the period commencing on the 1st day of Aug., 79 and ending on the 31st day of March, 1980 apply only to the first clearances of the said goods for home consumption by or on behalf of such manufacturer from one or more factories, upto an aggregate value not exceeding rupees three lakhs and thirty three thousand".
(ii) Paragraph 2 shall be omitted.
2. This notification shall come into force on the 1st day of August, 1979."
7. On 6th April, 1979, the Superintendent, Central Excise issued show cause notice to the petitioner alleging therein that the petitioner had availed the exemption on the goods valued at `4,99,895/- wrongly and irregularly through mis-statement of facts and contrary to the provisions of Notification No. 71/78- CE dated 1st March, 1978. It was stated in the said show cause notice that in proviso to Notification No. 71/78 dated 1st March, 1978, it has been laid down that the exemption contained under this Notification shall not be applicable to W.P.(C) No.2501/1983 Page 8 of 18 manufacturers of such goods who avail of exemption under Notification No. 101/71 dated 29th May, 1971/153/71 dated 26th July, 1971 in respect of clearances to original equipment manufacturers which were contrary to the notification. The petitioner was accordingly asked to show cause as to why duty of `99,979.10 (basic) and ` 4998.95 (spl.) should not be demanded from them under Rule 10 of the Central Excise Rules, 1944 on the goods cleared from 1st April, 1978 to 30th November, 1978. The petitioner submitted its reply dated 12th April, 1979 to the said show cause notice refuting the allegations made therein. The petitioner pleaded in this representation that there was no willful mis-statement and the demand raised was illegal. According to the petitioner, Notification No. 101/71 pertains to the OEMs whereas Notification No. 71/78- CE was available to the manufacturers like the petitioner. Insofar as para 2 of the Notification No. 71/78 is concerned that was creating confusion and for this reason this para was even deleted by the Government itself vide Notification No. 237/79. The Assistant Collector, however, did not agree with the aforesaid submissions of the petitioner and confirmed the demand made in the show cause notice vide his orders dated 31st January, 1981. Appeals of the petitioner before the Collector (Appeals) as well as the Tribunal also failed and it is in these circumstances, the present writ petition is filed.
8. The submission of the petitioner on which the impugned demand is questioned can be summarised as under:-
W.P.(C) No.2501/1983 Page 9 of 18
(i) The show cause notice (SCN) is barred by time. The classification list was submitted as back on 30th March, 1978 whereupon clearances begin, whereas the SCN has been issued on 6th April, 1979 after eleven months thereof whereas limitation is six months.
(ii) The department in SCN has alleged availing of exemption wrongly and irregularly through mis- statement and has sought to invoke Rule 10 which cannot be invoked the provisions of the said Rule 10 as it then was contemplated „fraud, collusion, willful misstatement or suppression‟ for invoking five years clause which is not the case of the department in the SCN and also could not be because they were well aware that there was nothing done by the petitioner willfully. Rule 10 extended clause therefore is not attracted. In fact knowingly well this aspect all the three authorities passing the impugned orders have wrongfully improved upon the case of the department by adding and reading „willfully‟ into the SCN which otherwise is non-existent.
(iii) The demand made by the department is even otherwise misconceived and not maintainable. It is the case of the department that the petitioner has mentioned about Notification No. 71/78-CE in the classification list.
Therefore, admittedly all the clearances made by the petitioner for home consumption amounting to `4,99,805.41 are correct and declared and no dispute can be raised about the same. Therefore, the demand in this regard is unfounded.
W.P.(C) No.2501/1983 Page 10 of 18
(iv) It is further the case of the department that the petitioner has not mentioned Notification No. 101/71- CE and goods for OEMs have been cleared of the value of ` 41,358/- without declaring the notification.
However, the department has not raised any demand of duty in respect of this clearance which it states has been made without declaring the notification. The SCN therefore is bad in law.
(v) The case of the department is also that by the statement in column 6 of classification list to the effect that „this also includes the pistons meant for original equipment‟ it was understood by them that such goods as cleared by the petitioner under exemption upto 5 lacs would also include those meant for OEMs. Such an impression being portrayed by department is rather unbelievable and clearly an afterthought who understood everything very clearly at the time the classification was filed with it and while it approved it. However, it is submitted that even if assuming that be correct then also the department could at best have added the value of OEMs of `41358/- to the value of home consumption of `4,99,805.41 which thus total to `5,41,253.41 and could have charged duty only to the remainder of `41,253.41 after reducing therefrom the amount of `5 lacs allowed for clearance without payment of excise duty under Notification 71/78 to the small scale units. However, the department has not raised any demand of duty in respect of this clearance which it states has been W.P.(C) No.2501/1983 Page 11 of 18 made beyond limit of Notification 71/78. The SCN therefore is bad in law.
9. The respondents have filed their counter affidavit controverting the aforesaid pleas raised by the petitioner. The respondents have obviously relied upon the para 2 of the Notification and the argument predicated thereon is that since the petitioner had availed the exemption under Notification No. 101/71 dated 29th May, 1971 as well as 153/71 dated 26th July, 71 it was not entitled for exemption in respect of first clearance of `5 lacs under Notification No.71/78 dated 1st March, 1978. In substance, the plea is that as per the said para, exemption is not allowed under both the Notifications at the same time. It is also emphasized that a willful statement was made by the petitioner in Form-1 dated 30th March, 1978 inasmuch as in column No.5 of the Classification List dated 30th March, 1978 Notification N o. 71/78 has been mentioned and in remarks column words "this also includes the pistons" are inserted which would mean that equipment had been stated in the column rate of duty nil. For this reason, it is submitted that the provisions of Rule 10 of the Act can be invoked and the action was not time barred. It is also argued that the learned Tribunal had correctly interpreted the two notifications and, therefore, the petition filed by the petitioner challenging the said order is misconceived. The contention of the petitioner that Notification No. 237/79 dated 30th July, 1979 whereby para 2 is deleted is only clarificatory is refuted. As per the respondents, the said Notification clearly stipulates that it would be effective only from the date of W.P.(C) No.2501/1983 Page 12 of 18 issuance of Notification and, therefore, is prospective in nature. It is argued that vehicle policy of the Government can be changed from time to time for their own reasons and merely because para 2 is deleted prospectively, it cannot be said that para -2 is to be ignored when it was very much in existence for the period in question.
10. We have considered the aforesaid submissions of Mr. Shyam Moorjani, learned counsel for the petitioner and Mr.Mukesh Anand, learned counsel for the respondent department.
11. The first question which needs to be addressed as to whether the impugned show cause notice was barred by time. It is not in dispute that Classification List was submitted on 30th March, 1978 whereupon clearance began and show cause notice was issued 6th April, 1979. The limitation provided is six months. Proviso to Rule 10 of the Excise Rules as it then was, provides limitation of five years for taking such an action if it is found that the manufacturer had levied or paid or had been short levied or had not been paid in full, by reason of fraud, collusion or any willful mis-statement or suppression. This Rule reads as under:-
"Recovery of duties not levied or not paid, or short- levied or not paid in full or erroneously refunded -(1) where any duty has not been levied or paid or has been short-levied or erroneously refunded or any duty assessed has not been paid in full, the proper officer may, within W.P.(C) No.2501/1983 Page 13 of 18 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 not been short-levied, or to whom the refund has erroneously been made, or which has not been paid in full, requiring him to show cause why he should not pay the amount specified in the notice:
Provided that-
(a) Where any duty has not been levied or paid or has been short-levied or has not been paid in full, by reason of fraud, collusion or any willful misstatement or suppression of facts by such person or his agent, or
(b) Where any person or his agent contravenes any of the provisions of these rules with intent to evade payment of duty and has not paid the duty in full or
(c) Where any duty has been erroneously refunded by reason of collusion or any willful misstatement or suppression of facts by such person or his agent.
The provisions of this sub-rule shall, in any of the cases referred to above, have effect as if for the words "six months", the words "five years" were substituted.
12. The moot point is that as to whether this condition laid in the proviso to Rule 10 of the Act has been specified or not? The Tribunal has held in the affirmative pointing out that a note in the remark column "this also includes pistons meant for original equipment" that cannot lead to an inference that the petitioner was availing benefit of Notifications No. 101/71-CE and 153/71-CE in respect of original equipment. These were vague remarks and in fact misled the Excise authorities. It is further opined that had the Notification Numbers been mentioned the position would have been different. By not mentioning the said W.P.(C) No.2501/1983 Page 14 of 18 notification, the petitioner became guilty of suppression. We agree with this view of the Tribunal. Thus, the limitation of five years as prescribed in the proviso to Rule 10 of the Act is applicable. The action of the respondent was, therefore, not barred by time.
13. Para 2 of the Notification No. 71/78-CE categorically provides that nothing in this notification shall apply to manufacturer of the goods who availed the exemption under Notification No. 101/71-CE and 153/71-CE insofar as goods in Items No. 41 are concerned. Since the petitioner had availed the benefit under Notification No. 101/71-CE, if this para is applicable the benefit of Notification No.71/78-CE shall not be permissible to the petitioner. The argument of the petitioner, however, is that this para is deleted vide Notification 237/79-CE which is clarificatory in nature and should be given retrospective effect. We have already extracted para 2 of the said notification as well as Notification no. 237/79. This notification dated 30th July, 1979 amends Notification No. 71/78-CE and categorically provides that the same shall come into force w.e.f 1st August, 1979. Thus, the date on which the amendment is to come into force, where under para 2 was deleted is categorically mentioned. It, therefore, cannot be said that the Notification is only clarificatory in nature and is to be applied retrospectively W.P.(C) No.2501/1983 Page 15 of 18
14. So far so good. At the same time, we find some force in the arguments of the learned counsel for the petitioner that para 2 of the notification had created some confusion and for this reason it is deleted as well by the Government itself. Therefore, even when para 2 of Notification 71/78-CE stipulates that nothing therein shall, so far as goods in Item No.41 are concerned apply, manufacturer of goods could avail the exemption under Notification 107/71-CE and 153/71- CE, there has to be a harmonious construction of the two. We say this for the reason that the two Notifications namely 101/71 on the one hand and Notification No. 71/78 on the other hand operate in different fields. Whereas, under Notification 101/71, it is the OEM who avails the benefits and not the manufacturer, under the latest modification benefit is to be given to the manufacturer. When we look into the matter from this angle, we find strength and justification in the argument advanced by the learned counsel for the petitioner that the department could at best have added the value of OEMs at `43158 to the OEMs of ` 41358/- to the value of home consumption of `4,99,805.41 and after reducing therefrom the amount of `5 lacs allowed for clearance without payment of excise duty under Notification 71/78 to the small scale units. It is because of the reason that Notification No. 71/78-CE dated 1st March, 1978 provides that clearance for original equipment manufacturer shall be made at nil rate and in all cases, the value shall not exceed Rs. 5 lacs. The petitioner availed remainder of excess duty under Notification No. 101/71 to the tune of `43158 but for this, he would have been entitled to avail the duty W.P.(C) No.2501/1983 Page 16 of 18 exemption on the entire value of home consumption of `4,99,805.41 under Notification No. 71/78 as this figure was below `5 lacs. When Notification No. 107/71 is intended to give benefit to OEMs, by availing benefit on the value of OEMs of ` 43158/- the denial of the commission provided in Notification No. 71/78 would be clearly unjust and unreasonable. It is clear that the petitioner was under the impression because of the two notifications operating in two different fields that it was entitled to benefit under both the Notifications. Otherwise, the petitioner would not have availed the benefit of Notification 101/71-CE on a value of `43158/- only to deprive itself of much substantial duty exemption on value of home consumption of `4,99,805.41. Therefore, even when it is to be treated as a case of non-disclosure under Notification 71-78, it occurred due to bonafidee error on the part of the petitioner in mis understanding the provisions of two notifications.
15. The interest of justice, therefore, demand that instead of denying the petitioner benefit of notification no. 71/78, the petitioner be deprived of the benefit which he has received under notification 101/71 on the value of `43158/- .
16. This petition is thus partly allowed. Order of the authorities below is set aside and it is held that the department would be entitled to recover the excise on the value of OEMs of `43158/- and the benefit claimed by the petitioner W.P.(C) No.2501/1983 Page 17 of 18 under Notification No. 71/78 shall be maintained. In the above circumstances no penalty or interest would be charged.
17. This writ petition is disposed of in the aforesaid terms without any order as to cost.
(A.K. SIKRI) JUDGE (M.L. MEHTA) JUDGE JULY 11, 2011 skb W.P.(C) No.2501/1983 Page 18 of 18