Customs, Excise and Gold Tribunal - Delhi
Indian Iron And Steel Co. Ltd. vs Collector Of Central Excise on 25 October, 1983
Equivalent citations: 1984(15)ELT211(TRI-DEL)
ORDER H.R. Syiem, Member (J)
1. This is an appeal against the order of the Appellate Collector of Central Excise, Calcutta No. 167/WB/80 dated 5-5-1980. One of the arguments put forward on behalf of the appellant is that the demand was time barred under rule 10 and since there was no clandestine removal, there cannot be said to have been any removal in contravention of rule 9 (1) of Central Excise Rules which calls into action rule 9 (2). The Appellate Collector did not deal with the question of time bar. He merely held that the goods namely, coke oven gas, burnt dolomite and blast furnance slag were not goods which fall under exemption notification No. 58/ 75-CE and therefore would have to pay duty.
2. At the hearing on 24-10-1983, the learned counsel presented a process sheet which illustrates the progress from one shop to another and the materials input and output at each shop. This process sheet is reproduced at the end It shows the inputs and outputs in the coke oven battery, the blast furnace Bessemer Converter, and the rolling mill complex. These different shops of the steel plant take inputs and yield the outputs shown on the right against each shop. It will be seen from this that it is a continuous process each leading to the next till the finished goods steel ingots/steel products are obtained. The learned counsel for the appellant said that these products have been obtained and have been emerging in the steel plant for years and this fact was well known to the Central Excise authorities, who had their own office in the plant. They were even informed on 18th March, 1976 by a letter from the Assistant Collector of Central Excise, Asansol Division, Burdwan that the coke fell outside the purview of tariff item 68 and therefore the question of maintenance of R. G. 1 did not arise. This letter itself was a reply to a query from the steel plant regarding the status of coke and whether any action was needed by the steel plant under the Central Excise laws in respect of that product. It is there-fore with no little surprise that they received the show cause notice dated 16-11-1977 from the Assistant Collector demanding payment of Rs. 602, 117.57. He argued that the coke, coke oven gas and burnt dolomite etc. were all intermediate goods which fell under item 68. He argued that under notification No. 58/75-CE as amended by notification No. 77/75-CE, the Board had given exemption to intermediate goods falling under item 68 used in the manufacture of other goods. By subsequent notification 118/75-CE, the Government of India enlarged the scope of the exemption to all 68 goods used in the factory irrespective of the finished goods they are used for. This proves the intention of the Government that such goods should not be leviable to duty but should be exempted. Such a liberal view is supported by a judgement of the Board No, 106/1982 dated 23-4-82. In this order the Board ruled that the expression intermediate goods has not been clearly defined and this would not permit the interpretations made by the Collector that this must be intermediate in the process of the manufacture of the final product. In a liberal way many of the products which help in the manufacture of the ultimate finished products could be covered by this expression. The fact that such a liberal interpretation was intended by the Government is established by subsequent notification No. 118/75-CE permitting exemption in respect of these products. The Board accordingly held that the goods, though not intermediate in the usual accepted sense, were covered by exemption notification No. 77/75-CE.
3. The learned counsel then referred to rule 173 PP. A look at the rule would show that the provisions of rules 10 and 11 would apply so that the period of six months or five years are counted from the close of the accounting year followed by the assessee. This provision was inserted by a notification dated 6-8-77. Therefore, it was a part of the law when the show cause notice was issued on 16-11-77. The learned counsel for the appellants urged that under this rule the demand must be deemed to be time-barred. They had submitted their return for the year 1975-76 on 20th February, 1976. The close of the accounting year would be 31st March, 1976. Therefore, rule 173 PP Sub-rule 10 gave the Central Excise up to 31st March, 1977 to issue a demand for the accounting year which ended on 31st March, 1976. They issued the show cause notice only on 16-11-77 but purporting to demand duty under rule 9(2). The facts, however, are against a demand under rule 9(2) because such demands must be only in respect of clearances made in contravention of rule 9(1) of the Central Excise Rules. The Central Excise cannot suggest that there has been contravention of rule 9(1) because the removal and use of the burnt dolomite, blast furnace slag, coke oven gas and Ors. were well-known to Central Excise not only after item 68 appeared on the tariff on 1-3-75 but much before that. After all, the processes in which the dolomite, slag, etc. are created and are used in the steel plant were the same from the beginning and were not new phenomena that appeared only on 1-3-75. The removal therefore cannot be said to have been in contravention of rule 9(1) and therefore rule 9(2) cannot be enlisted to help in the recovery of the duty.
4. The learned counsel for the department argued that the goods are not intermediates nor are the finished goods assessable under item 68. Therefore, till the appearance of notification No. 118/75-CE exemption will have to be given only to intermediate goods or component parts. The goods of the appellant, burnt dolomite, blast furnace slag, coke oven gas and Ors. which are the subject of dispute in this appeal are by no stretch of the imagination intermediate in the manufacture of the finished goods, steel ingots or steel products. For example, the fact that coke oven gas goes into the blast furnace during the production of liquid iron and eventually of the steel or that the burnt dolomite is consumed in the open hearth furnace from which steel ingots are obtained will not make burnt dolomite and coke oven gas intermediate products in the production of the steel ingots. She argued that if such were the case, then even a catalytic agent or a catalyst used in the hydrogenation of oil and fats would qualify as an intermediate product of the hydrogenated product and everybody knows it is nothing of the kind. It would do too much violence to common sense to say that coke oven gas or blast furnace slag are intermediate products in the manufacture of steel products.
5. In respect of the appellants submission about the time-bar, the learned counsel for the department presented the argument that under Sub-rule 10 of rule 173 PP, one year is given from the close of the accounting year followed by the assessee, for the Central Excise to issue a demand. This was changed to 6 months in August, 1977. But in order to issue a demand, it is first necessary that the assessment be completed; hence the demand of 16-11-77 issued by the Superintendent of Central Excise at Indian Iron and Steel Co. Ltd., Burnpur was not time-barred.
The above arguments of the learned counsels for the two sides were presented before this Tribunal on 24-10-1983.
6. We will first deal with the time-bar because we consider that this question is more crucial than the others to a decision on this appeal. Indian Iron and Steel claim that they submitted their return for 1975-76 on 20-2-1976. There is a passage in the Assistant Collector's order No. 32/Pearl Coke/ASN/ 79 dated 19-6-1979 which runs thus :
"They also argued that the monthly return was submitted on 20-2-1976 and there should not be any difficulty in assessing the duty on the quantity cleared if that was required within the period as prescribed under the rule."
This goes uncontradicted by the Assistant Collector. A little further on he says :
"The assessee's argument that the monthly returns were submitted on 20-2-1976 i.e. within the period as prescribed for assessing the duty on quantity cleared during the period as aforementioned under the provision of rule 173 PP and rule 9 (1) is not applicable in their case."
We can take it as a fact, therefore, that the factory submitted its return on 20-2-1976 as claimed. The Assistant Collector however held that rule 173 PP was only procedural and would not interfere with the provision of rule 9(1) which prescribes the time and manner of payment of duty for excisable goods removed "as also that of 173 F and 173 G (1)". He ruled that 173 PP was for assessment purposes and not with regard to payment of duty. He came to the conclusion that rule as 9 (1) was applicable and that this rule prescribes no time-limit for raising the demand and that accordingly, the demands raised under 9 (2) were correct in law. However, towards the end of his order, the Assistant Collector says-
"But considering the facts and circumstances I find that the assessee had cleared those goods with a mistaken conception about the intention of notification No. 58/75-CE dated 1-3-1975 as amended by notification No. 77/7 5-CE dated 6-3-1975 and there was no mala fide intention to evade payment of Central Excise duty."
On this he took a lenient view and refrained from imposing penalty.
The Appellate Collector in his order dated 5-5-1980 gave no finding about the factory's plea on time-bar. He merely rejected the appeal on the ground that the exemption notification No. 58/75-CE was not applicable as the end product was not assessable under Item 68.
7. We are unable to agree that rule 173 PP was merely a procedural rule and that rule 9(1) would overrule it. There is nothing in rule 173 PP to support the Assistant Collector's reasoning that in question of time, rule 9 (1) would override it. We have seen how Sub-rule (10) of rule 173 PP makes a very definite provision about the time-bar and even provides how it should be computed. The Assistant Collector himself says that there was no mala fide on the part of Indian Iron and Steel when they cleared the burnt dolomite, blast furnace slag, coke oven gas, etc. for use in their steel plants. He was very categorical in declaring that "there was no mala fide intention to evade payment of Central Excise duty." We have always held that only mala fide, fraudulent intentions and dishonest motives can call forth into action the limitless power of rule 9 (2) for demanding duty. The clearances must have been in contravention of rule 9 (1). Rule 9 (1) is contravened only when the removal and clearances were made with intention to evade payment of duty, the process involving deception of the Central Excise officer, secrecy in the manner of removal so that Central Excise department should be kept in the dark about the removal. The removals of the dolomite and the gas, etc. by Indian Iron and Steel could not have been more open, or unsecret ; from the very nature of the steel plant processes, the removals and clearances would have been going on for a long time in full view and with the complete knowledge of the Central Excise officers who, as part of their duties, always familiarize themselves with the technology of the production process of the factories they control. It is not something that took the Central Excise officers by surprise or which they came upon suddenly one dark moonless night. They had even been corresponding back and forth with the steel plant about these products as we can see from the ill-informed letter dated 18-3-1976 written by the Assistant Collector, to which we have already referred. We are not satisfied that there has been removal and clearances in contravention of rule 9 (1) for Central Excise to employ rule 9 (2) to recover the duty.
The department is therefore left with only rule 173 PP (1C). The close of the financial year for the assessment of these goods was 31-3-1976 and according to the rule, the demand should have been issued not later than 31-3-1977. This demand was issued on 16-11-1977 nearly two years after the close of the accounting year : by any account barred by limitation.
Nor can we agree that a demand can be issued only after assessment is made and that the time-limit should be reckoned only from that date. That is to forget that the assessing officer has been given one full year (or six months, if we goby the amendment of August, 1977) within which to assess and, should such assessment make it necessary, to issue a demand. It would be giving too much latitude to the executive officers to say that they can delay the assessment for, say, 10 months whereupon they would start recovery proceedings at any time within one year from such assessment if they discover a short payment. Such a procedure would be incorrect in our view, not to mention the fact that the rule says very categorically one year (or six months) from the close of the accounting year. We must take the law as we find it.
8. Since the demand was time-barred, we set aside the order of the Appellate Collector and allow the appeal. Any money recovered from M/s. Indian Iron and Steel Co. as a result of that order should be refunded within three months. As for the other arguments raised by the appellants, we leave them untouched since it is no longer necessary to discuss their merits now'that we have allowed their appeal.
M. Gauri Shankar Murthy, Member (T)
9. I entirely agree with the above order of my learned Brother Syiem. I wish only to add that Rule 10 of the Rules is inapplicable to the facts of this case seeing that the assessment was completed as per the statement of the learned counsel on 23-11-1977 while the show-cause notice was issued earlier on 16/17-11-1977. It cannot be, therefore, that it is a notice to recover short levy or unpaid duty in consequence of assessment in terms of Rule 10.
G. Sankaran, Member (T)
10. I agree with both my Brothers.