Patna High Court
Ashirvad Enterprises Pvt.Ltd vs Customs,Excise And Service Tax on 14 March, 2012
Author: Navaniti Prasad Singh
Bench: Navaniti Prasad Singh, Ashwani Kumar Singh
Civil Writ Jurisdiction Case No 929 of 2009
In the matter of an application under Article 226 of the
Constitution of India.
Ashirvad Enterprises Pvt Ltd, a company registered under the Companies
Act having its office at Rupaspur, West of Canal through its Managing
Director Shri Laxmi Niwas Poddar, son of late Dwarik Pd Poddar, resident
of Khajpura, off Bailey Road, P S - Aerodrome, District - Patna
.... .... Petitioner/s
Versus
1 Customs, Excise And Service Tax Appellate Tribunal, Eastern Zonal
Bench, Kolkata
2 Commissioner of Central Excise, Central Revenue Building, Patna
3 Commissioner of Central Excise (Appeals), Central Revenue Building,
Patna
4 Additional Commissioner of Central Excise, Central Revenue Building,
Patna
.... .... Respondent/s
====================================================
Appearance :
For the Petitioner/s : Mr D V Pathy with
M/s Abhi Sarkar & Uttam Kumar Mishra
For the Respondent/s : Mrs Nivedita Nirvikar with
Mrs Archana Sinha
======================================================
CORAM: HON'BLE MR JUSTICE NAVANITI PRASAD SINGH
AND
HON'BLE MR JUSTICE ASHWANI KUMAR SINGH
CAV Judgment
(Per: HONOURABLE MR JUSTICE NAVANITI PRASAD SINGH)
By this writ petition, the petitioner has challenged the
demand -cum- show cause notice dated 27.01.1999 (Annexure-4)
Patna High Court CWJC No.929 of 2009 dt.14-03-2012
2
as issued by the Additional Commissioner of Central Excise,
Patna by which notice a demand for alleged short payment of
excise duty has been raised alongwith interest and penalty of the
equal amount as also to the order passed by the Customs, Excise
and Service Tax Appellate Tribunal dated 17.06.2008 (Annexure
10) by which it has upheld the demand in relation to the excise
duty while disallowing levying of penalty and other connected and
consequential reliefs.
The petitioner-Company is a private limited
Company and has a small scale industry at Patna, inter alia,
manufacturing PVC pipes, filters and what is popularly known as
Tara handpumps. The period in dispute is 01.03.1997 to
18.10.1997. In this regard, it may be noticed that initially two identical notices were issued for the period 01.03.1997 to 18.10.1997 and the other for 05.05.1997 to 18.10.1997 but ultimately the authorities, having realized that there was undisputed overlapping of period, the larger of the two periods is taken to be the period in dispute.
It is not in dispute that PVC pipes are independent commercial goods which attract, at the relevant time, central excise duty of 25% ad valorem. Handpumps are also distinct items but, considering its usage, the rate of duty is nil. PVC pipes are covered under Chapter 39 of the Central Excise Tariff and, in particular, sub heading tariff item No 3917 whereas handpumps under Chapter 84 and, in particular sub heading tariff item No 8413 and, in particular, 8413.20. Thus the petitioner, upon manufacture and clearance of PVC pipes, was liable to account for duty at the rate of 25% but in respect of handpumps, the duty was nil. To this, there is no dispute. The problem has arisen because Patna High Court CWJC No.929 of 2009 dt.14-03-2012 3 for manufacturing Tara handpumps which, as stated above, attracts nil duty, the petitioner uses PVC pipes and filters as it is integral part and component which, as noticed above, attracted duty at the rate of 25% at the relevant time. Under the Central Excise Rules 1944 and, in particular, Rule 57CC which came into force with effect from 01st September, 1996, for the period under consideration, as the assessee was not maintaining separate books of accounts with regard to the PVC pipes and filters which were used for manufacturing the handpump as envisaged under Rule 57CC (9), the petitioner filed declarations that in respect of PVC pipes and filters, which were used in manufacturing the Tara handpump which attracted nil duty, their liability would be 8%, as envisaged under Rule 57CC (1) instead of 25%. It is not in dispute that upon this declaration and calculation, the petitioner paid duty on the captive consumption of PVC pipes and filters at 8% and cleared the Tara handpump at duty nil. This is undisputedly reflected in Annexure-3 series.
The dispute arose when the notice dated 27.01.1999 (Annexure-4) was issued. The impugned notice was issued by the respondent-Additional Commissioner of Central Excise, Patna. According to the Department, in terms of Rule 57CC (4) (a), the provisions of sub-rule (1) of Rule 57CC would not apply if articles of plastic falling under Chapter 39 were manufactured and used in producing final goods which attracted nil duty. In other words, PVC pipes and filters being used would disentitle the petitioner from claiming benefit under Rule 57CC (1). Accordingly, the petitioner was noticed to pay up the difference of 25% duty payable and 8% duty paid for the period in question that is 01.03.1987 to 18.10.1997 which comes to Rs 4,02,801/- in terms Patna High Court CWJC No.929 of 2009 dt.14-03-2012 4 of proviso to Section 11A (1) of the Central Excise Act, 1944. It was required to show cause as to why penalty in terms of Section 11AC of equal amount be not imposed for the said alleged contravention and interest at the rate of 20% be not charged till payment in terms of Section 11AB of the Central Excise Act, 1944.
Petitioner, upon receipt of this demand -cum- notice, filed its show cause primarily on two counts. It firstly contended that the petitioner had not committed a fraud or made any willful misstatement or suppressed facts or willfully contravened any of the provisions of the Act or the Rules with an intent to evade payment of duty and, as such, the demand -cum- show cause was clearly barred by limitation. It then contented that if the provisions of Chapter 84 were correctly taken into account then the PVC pipes and filters, being integral part and component of the handpump, the duty liability on it would be that of the final product nil but as they were not maintaining separate accounts, they had rightfully admitted liability and paid to the extent of 8%. It may be noted that while the matter was being considered, to avoid heavy interest liability and penal consequences, they deposited the required duty of Rs 4,02.801/- on 29.10.1999.
The Additional Commissioner, Central Excise (Headquarters), Patna heard the party and disposed of the matter by order dated 24.11.1999 (Annexure-5) clearly finding that the assessee-petitioner had made no suppression of fact as it was never alleged by the Department that they had cleared the manufactured goods without payment of duty. He held that there was, thus, no ground for proceeding against the assessee-petitioner who had, in the meantime, deposited the differential duty demand Patna High Court CWJC No.929 of 2009 dt.14-03-2012 5 as well.
It appears that the Commissioner, Central Excise, Patna then ordered the Assistant Commissioner to file an application under Section 35E (4) to the Commissioner (Appeals) with regard to legality and propriety of the said order passed on 24.11.1999 (Annexure 5) and, accordingly, an appeal was filed on 12.01.2001 by the Additional Commissioner of Central Excise to the Commissioner (Appeals) who then heard the petitioner- assessee and allowed the appeal only on the finding that, without affirming the demand of duty to be valid, it could not appropriate the voluntary deposit made by the petitioner and, thus, he held the order (Annexure 4) passed by the adjudicating authority to be not legal and proper. It may be noted that the Commissioner (Appeals) did not give a finding that there was any suppression or willful default on the part of the petitioner in compliance with the provisions of the Act or the Rules in order to evade liability.
It appears that the petitioner-assessee then preferred an appeal before the appellate Tribunal being the Customs Excise and Gold (Control) Appellate Tribunal, Eastern Bench, Kolkata, as it then was, being Appeal No ER 579 of 2001 which was heard and disposed of by order dated 11.02.2002 (Annexure-7). The Tribunal clearly held that the revenue had filed no appeal against the order of the Commissioner (Appeals). The consequential effect was that the petitioner-assessee was liable to get a refund of the amount deposited but noticing that in view of the order of the Commissioner (Appeals), as no order of the adjudicating authority survives, while entitling the assessee to get the refund, it directed that the show cause notice, as originally issued, be decided as per law. Thus effectively, without disturbing the fact that there was Patna High Court CWJC No.929 of 2009 dt.14-03-2012 6 no suppression, the matter was remitted to the original adjudicating authority.
This time, when the matter came back to the Additional Commissioner, Central Excise, the Additional Commissioner, by his order dated 19.05.2003 (Annexure-8), held, inter alia, that handpump is simply the upper part which is visible and is used for lifting water and does not include PVC pipe, filter and casing and, as such, they could not be classified in Chapter 84 as an integral part of the handpump. Thus, petitioner had evaded duty by ignoring Rule 57CC (1) (4) (a). The demand of Rs 4,02,801.00 was confirmed and as the amount had already been paid by the assessee, it was appropriated. A penalty of the same amount was imposed under the provisions of Section 11AC of the Act and interest was ordered to be levied in accordance with Section 11AB of the Act.
The petitioner-assessee then filed an appeal before the Commissioner (Appeals) against this adjudicatory order which was finally disposed of by order dated 08.10.2004 (Annexure-9) affirming the order and the appeal was, thus, dismissed. Against this, the petitioner appealed to the Customs, Excise and Service Tax Appellate Tribunal, Eastern Zone Bench, Kolkata being Appeal No EDM - 41 of 2005. The Tribunal disposed of the matter by order dated 17.06.2008 (Annexure 10). The Tribunal held that the longer period of limitation, as invoked, was valid and, thus, the demand of differential duty and the interest was not interfered with but when it came to penalty, they held that the dispute was of technical nature and they took a lenient view of the matter and set aside the penalty as imposed on the petitioner- assessee.
Patna High Court CWJC No.929 of 2009 dt.14-03-2012 7 It appears that against that part of the order of the Tribunal, by which the demand in relation to differential duty had been sustained, petitioner filed this writ petition before this Court whereas Department filed SLP before the Apex Court apparently against that part of the order by which imposition of penalty had been disapproved. The Apex Court disposed of the SLP by order dated 20.07.2009 clearly holding that the impugned order, in so far as it relates to penalty, is set aside and the matter was remitted to the Tribunal for reconsidering the question of penalty in the light of the judgment of the Apex Court in the case of Union of India - Versus- Rajasthan Spinning and Weaving Mills, since reported in (2009) 13 Supreme Court Cases 448.
Thus seen, so far as the substantive matter is concerned with regard to duty liability, the matter is now before this Court but with regard to penalty, the matter is before the Appellate Tribunal.
We are of the considered opinion that the matter before the Tribunal is consequential to the matter before this Court inasmuch as if this Court were to hold that the extended period under proviso to Section 11A (1) was not applicable then neither would there be any occasion for invocation of Section 11AB in respect of interest on delayed payment of duty nor penalty, as envisaged under Section 11AC. The reason for saying so would be apparent if the three provisions aforesaid are read together which three provisions, in so far as relevant, are quoted hereunder:
"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 Patna High Court CWJC No.929 of 2009 dt.14-03-2012 8 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 willful 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.
SECTION 11AB. Interest on delayed payment of duty.- (1) 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 willful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or the rules made thereunder with intent to evade payment of duty, the person liable to pay duty as determined under sub-section (2) of section 11A shall, in addition to the duty, be liable to pay interest at such rate not below ten per cent and, not exceeding thirty per cent per annum, as is for the time being fixed by the Board, from the first day of the month succeeding the month in which the duty ought to have been paid under this Act or the rules made thereunder or from the Patna High Court CWJC No.929 of 2009 dt.14-03-2012 9 date of such erroneous refund, as the case may be, but for the provisions contained in sub-section (2) of section 11A, till the date of payment of such duty. ... ...
...
SECTION 11AC. Penalty for short-levy or non-levy of duty in certain cases.- Where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reasons of fraud, collusion or any willful 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, the person who is liable to pay duty as determined under sub-section (2) of section 11A, shall also be liable to pay a penalty equal to the duty so determined : ... ... ..."
(Emphasis supplied) A reference to the provisions, quoted above with the emphasis supplied, would show that the condition precedent for the applicability of the three provisions is the same. It is to be found in the phrase used in the three provisions which have been emphasized which is the same. It is only by reason of fraud, collusion or any willful mis-statement of suppression of fact or contravention of any provision of this Act or the Rules made with the intent to evade payment of duty that these three provisions come into play. The first, in point of time, would be Section 11A, a duty determination upon the finding aforesaid. That would be followed by next liability in terms of Section 11AB and simultaneously there would be a penalty in terms of Section 11AC.
Here, we would like to point out that if the condition Patna High Court CWJC No.929 of 2009 dt.14-03-2012 10 for invocation of proviso to Section 11A is not present or not found then action for recovery of duty can only be taken with reference to the substantive of Section 11A (1) and that too only within the time prescribed therein and not the extended time made available by the proviso thereof. In such a situation, the interest liability would be governed by Section 11AA. The difference between the interest on delayed payment of duty, as under Section 11AA and Section 11AB , is that the interest under Section 11AA starts after three months of the date of such determination under the substantive part of Section 11A (1) whereas the interest under Section 11AB starts from the date when duty was found due and payable irrespective of the date of determination under th proviso to Section 11A (1).
Here, we would also like to point out the difference between the substantive parts of Section 11A (1) and the proviso thereto. If we refer to the substantive part of Section 11A (1), it would be seen that if it is found for any reason the duty has been short levied, proceeding can be initiated for collecting the same within six months of the due date which has now become one year by subsequent amendment. But if it is found that it was deliberate act of the assessee to evade duty then the proceedings can be initiated in a longer period, as provided by the proviso to Section 11A (1).
The Department has sought to invoke the proviso to Section 11A (1) and have relied on the observations as made by the Apex Court in the case of Union of India & Others Versus Dharmendra Textile Processors & Others since reported in (2008) 13 Supreme Court Cases 369 and, in particular, what is said in paragraphs 19 and 20 of the reports. What is submitted by Patna High Court CWJC No.929 of 2009 dt.14-03-2012 11 the Department, if we have understood it clearly, is that once escapement of duty is established then it has to be recovered alongwith penalty and penal interest. At the very outset, we may point out that apparently, relying on the language used in the case of Dharmendra Textile Processors (supra), they submit that the provisions are mandatory and recoveries with penalty and penal interest leaves them no discretion in the matter. This is apparently not correct. These provisions of extended period of limitation, penalty and penal interest, as envisaged under proviso to Section 11A (1), Section 11 AC and Section 11AB respectively, come into play only upon finding that the assessee knowingly and deliberately tried to evade tax and not merely by reason of tax being short levied. Here, we may point out that in the case of Rajasthan Spinning and Weaving Mills (supra), the Apex Court considered virtually the same argument of the Department in the case of Dharmendra Textile Processors (supra) with the aid of Dharmendra Textile Processors (supra) and clearly pointed out as under:
"30. At this stage, we need to examine the recent decision of this Court in Dharmendra Textile. In almost every case relating to penalty, the decision is referred to on behalf of the Revenue as if it laid down that in every case of non-payment or short-payment of duty the penalty clause would automatically get attracted and the Authority had no discretion in the matter. One of us (Aftab Alam, J) was a party to the decision in Dharmendra Textile and we see no reason to understand or read that decision in that manner."
Then they noticed the observations, as made in Patna High Court CWJC No.929 of 2009 dt.14-03-2012 12 Dharmendra Textile Processors (supra) in paragraphs 31 and 32 of the reports in relation to Rajasthan Spinning and Weaving Mills (supra) and held thus:
"From the above, we fail to see how the decision in Dharamendra Textile can be said to hold that Section 11-AC would apply to every case of non-payment or short-payment of duty regardless of the conditions expressly mentioned in the section for its application. There is another very strong reason for holding that Dharamendra Textile could not have interpreted Section 11-AC in the manner as suggested because in that case that was not even the stand of the Revenue."
Ultimately, this is what their Lordships said in paragraph 34 of Rajasthan Spinning and Weaving Mills (supra):
"34. The decision in Dharamendra Textile must, therefore, be understood to mean that though the application of Section 11-AC would depend upon the existence or otherwise of the conditions expressly stated in the section, once the section is applicable in a case the Authority concerned would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under sub- section (2) of Section 11-A. That is what Dharamendra Textile decides. It must, however, be made clear that what is stated above in regard to the decision in Dharamendra Textile is only insofar as Section 11-AC is concerned. We make no observations (as a matter of fact there is no occasion for it!) with regard to the several other statutory provisions that came up for consideration in that decision."
Patna High Court CWJC No.929 of 2009 dt.14-03-2012 13 We then have the decision of the Apex Court in the case of Commissioner of Central Excise, Pune Versus SKF India Limited since reported in (2009) 13 Supreme Court Cases 461 wherein the view taken in the case of Rajasthan Spinning and Weaving Mills (supra) was reiterated. While doing so, this is what their Lordships held in paragraph-11 of the reports in the case of SKF India Limited (supra).
"11. Section 11-A puts the cases of non-levy or short-levy, non- payment or short-payment or erroneous refund of duty in two categories. One in which the non-payment or short- payment, etc of duty is for a reason other that deceit; the default is due to oversight or some mistake and it is not intentional. The second in which the non-payment or short-payment, etc of duty is "by reason of fraud, collusion or any willful misstatement or suppression of facts, or contravention of any of the provisions of the Act or of Rules made thereunder with intent to evade payment of duty"; that is to say, it is intentional, deliberate and/or by deceitful means. Naturally, the cases falling in the two groups lead to different consequences and are dealt with differently."
Thus, from the law as enunciated in the decisions as above, it is clear that in absence of any deceitful practice by the assessee if there is short levy/payment of duty then, within the short period of six months (now one year), duty could be ordered to be recovered with interest under Section 11AA. There would be no liability to penalty or penal interest. The period for recovery of short levied duty can only be extended beyond six months (now one year) if the Department comes to a finding that the assessee, Patna High Court CWJC No.929 of 2009 dt.14-03-2012 14 by his intent and purposeful deceitful act, tried to evade duty as a consequence whereof duty was short levied/paid. In such a case, not only would the duty be recoverable by initiation of proceedings in the elongated time provided but it would automatically follow with penalty of equal amount with no discretion and penal interest from the date when the duty was due.
Now coming to what is the meaning of the phrase "by reason of fraud, collusion or any willful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or the rules made thereunder with intent to evade payment of duty". Apart from what has been said by the Apex Court in the case of Rajsthan Spinning and Weaving Mills (supra) and in the case of SKF India Limited (supra) explaining the aforesaid, we may note two other decisions. The first being Continental Foundation Joint Venture Holding, Nathpa, HP Versus Commissioner of Central Excise, Chandigarh-I since reported in (2007) 10 Supreme Court Cases 337, the relevant is paragraphs 11, 12 and 14 of the reports which are quoted hereunder:
"11. We are not really concerned with the other issues as according to us on the challenge to the extended period of limitation ground alone the appellants are bound to succeed. Section 11-A of the Act postulates suppression and, therefore, involves in essence mens rea.
12. The expression "suppression" has been used in the proviso to Section 11-A of the Act accompanied by very strong words as "fraud" or "collusion" and, therefore, has to be construed strictly. Mere omission to give correct information is not suppression of facts unless it was deliberate to stop (sic evade) the payment of duty. Suppression Patna High Court CWJC No.929 of 2009 dt.14-03-2012 15 means failure to disclose full information with the intent to evade payment of duty.
When the facts are known to both the parties, omission by one party to do what he might have done would not render it suppression. When the Revenue invokes the extended period of limitation under Section 11-A the burden is cast upon it to prove suppression of fact. An incorrect statement cannot be equated with a willful misstatement. The latter implies making of an incorrect statement with the knowledge that the statement was not correct.
14. As far as fraud and collusion are concerned, it is evident that the intent to evade duty is built into these very words. So far as misstatement or suppression of facts are concerned, they are clearly qualified by the word "willful", preceding the words "misstatement or suppression of facts" which means with intent to evade duty. The next set of words "contravention of any of the provisions of this Act or Rules" are again qualified by the immediately following words "with intent to evade payment of duty".
Therefore, there cannot be suppression or misstatement of fact, which is not willful and yet constitute a permissible ground for the purpose of the proviso to Section 11-A. Misstatement of fact must be willful."
We may then refer to the case of Nestle India Limited Versus Commissioner of Central Excise, Chandigarh since reported in (2009) 12 Supreme Court Cases 294 and, in particular, paragraph 24 thereof which is quoted hereunder:
Patna High Court CWJC No.929 of 2009 dt.14-03-2012 16 "24. Secondly, as held in the judgment of this Court in Padmini Products v CCE as well as in CCE v Chemph Drugs & Liniments extended period of limitation is applicable only when there is some positive act other than mere inaction or failure on the part of the manufacturer.
There must be conscious or deliberate withholding of information by the manufacturer to invoke larger period of limitation."
Thus seen, for the Department to avail the extended period of limitation for recovery of duty with penalty and penal interest, it is upon the Department to establish that the assessee had made a conscious and deliberate effort to evade tax and intentional misstatement or a mistake or a mere technical breach of obligations would not be sufficient.
These legal principles we have to keep in mind to judge the legality of the demand from the petitioner. The first thing we would like to notice is that the demand is in relation to the period 01.03.1997 to 18.10.1997 and the notice is dated 27.01.1999 which is clearly beyond the period of six months, as was then prescribed under the substantive provisions of Section 11A (1). Thus, it was for the Department to establish the conditions of delinquency, as stipulated under proviso to the said Section 11A (1) in order to sustain the demand and consequently the penalty and interest.
Now, there are two aspects of the matter in the facts and circumstances of the case. Firstly, the finding of the Department in respect of the demand and secondly the defence of the petitioner-assessee as against the demand.
As noticed earlier, the demand -cum- show cause Patna High Court CWJC No.929 of 2009 dt.14-03-2012 17 notice dated 27.01.1999 (Annexure-4) only states that in respect of PVC pipes and filters used in the manufacture of Tara handpump, petitioner had claimed benefit under Rule 57CC wrongly ignoring Rule 57CC (4) (a) which clearly provided that the benefit of Rule 57CC (1) would not apply in case of articles of plastic falling under Chapter 39 and, as such, this resulted in short-payment of duty for the period in question that is 01.03.1997 to 18.10.1997 amounting to Rs 4,02,801/-. The only material in the show cause notice to show deliberate concealment is RT-12 return for the month of June, 1997 which did not mention clearance figures in respect of Tara handpump. As noted above, petitioner immediately protested, in its reply, stating that the notices were clearly barred as there was no intentional suppression or such other delinquent act with intention to evade duty. It showed that before the period under consideration, the petitioner-assessee had clearly disclosed that they would be charging the PVC pipes and filters manufactured by them but used in the production of the Tara handpump at 8% duty. The invoices under Rule 52A in regard to payment of duty for the period under consideration, whenever they were so used, showed this fact clearly and duty was paid accordingly. Nothing was suppressed, much less deliberately, with the intent to avoid duty. Upon this show cause being filed and hearing, the Additional Commissioner, Central Excise, who had issued the demand -cum- show cause notice, accepted the explanation and dropped the proceedings. This order was passed on 24.11.1999 (Annexure-5). The adjudicatory authority has noted and accepted the fact that assessee had informed the Department about this prior to the period in question. It has further noticed that it was only for the month of June 1997 Patna High Court CWJC No.929 of 2009 dt.14-03-2012 18 that the figures of Tara handpump clearance was not mentioned but at no stage, it was alleged that the petitioner had cleared manufactured duty free goods during this period in RT-12 return but nothing like that had been said about returns for the other months of the said period. The adjudicatory authority, thus, came to a clear finding that there was no suppression much less intentional suppression with intent to evade duty. He came to a finding that if at all it would be at best a technical failure on part of the petitioner-assessee which mistake appeared to be genuine. He noted that the bona fides of the assessee is established from the fact that they had agreed to pay the amount of differential duty. He, thus, held the notices to be barred by limitation and dropped the proceedings.
Thus, the finding of the adjudicatory authority, at the first instance itself, was that there was no guilty mind for the actions of the assessee.
Curiously against this order, the Commissioner (Appeals) exercised jurisdiction in terms of Section 35E (4) of the Act in respect of which departmental appeal was filed on 12.01.2001 and curiously, without disturbing the findings of the adjudicatory authority, held that the adjudicatory authority could not have allowed appropriation of the differential duty deposited without first holding the petitioner-assessee liable. It, accordingly, gave the finding and passed the following order:
"FINDINGS:- I have gone through the case records and the submission of the respondents.
I agree with the views of the reviewing authority that without confirming the demand, it can't be appropriated even if it is deposited Patna High Court CWJC No.929 of 2009 dt.14-03-2012 19 voluntarily by the party. Therefore, the order passed by the adjudicating authority is not legal and proper and hence it needs to be reviewed.
ORDER Accordingly, I allow the appeal."
Again, it would be seen that this order of the Commissioner (Appeals) did not give any finding of any suppression on part of the petitioner-assessee much less with an intention to evade tax.
As the Commissioner (Appeals) had set aside the order of the adjudicatory authority, petitioner preferred appeal before the appellate Tribunal which was disposed of by order dated 11.02.2002 (Annexure-7). The Tribunal clearly noticed that the Revenue had not filed any appeal against the order of the Commissioner (Appeals) wherein it was observed that the amount could not be appropriated even if deposited voluntarily by the party which was the reason for allowing the appeal by the Commissioner of Appeals. The Tribunal, accordingly, held that the assessee was entitled to claim refund of the amount deposited but as the order of the adjudicatory authority had been set aside, the adjudicatory authority should pass a fresh order. Again, it would be seen that even the Tribunal was not invited by the Department to give any finding with regard to deliberate suppression with intent to evade duty nor was any such finding recorded rather Tribunal gave liberty to the petitioner-assess to claim refund.
Now when the matter, pursuant to order of Tribunal, came back to the adjudicating authority, the petitioner-assessee Patna High Court CWJC No.929 of 2009 dt.14-03-2012 20 was again heard. The petitioner-assessee reiterated its stand. It also submitted that PVC pipes and filters are integral part of the Tara handpump which is sold as one composite unit and, therefore, if one were to refer to Note 4 of Section XVI being Chapter 84 of the Tariff in which handpump falls, it would show that where a machine (including a combination of machines) consist of individual components (whether separate or interconnected by pipe, by transmission devices, by electric cables or by other devices) intended to contribute together to a clearly defined function cover by one of the headings in Chapter 84 then the whole falls to be classified in the heading appropriate to that function. Apparently, it was submitted that if this taken into account then PVC pipes and filters form an integral part of the Tara handpump which is classified under Chapter 84 and, therefore, the whole of it, notwithstanding it being a plastic part, would fall under Chapter 84. They would in fact not be chargeable even to 8% duty. This time, the adjudicatory authority first held that handpump does not include the portion of pipe dug into earth. It only refers to what is visible above and, therefore, rejected the contention that the petitioner was entitled to classify the whole of the handpump under Chapter 84 attracting nil duty. It held that Rule 57CC (4) (a) disentitle plastic parts. It then held that by not disclosing the correct particular in RT-12 return, it had managed to evade payment of duty. It held that the fact alone that the Department was aware that the assessee had paid duty at the rate of 8% on such PVC pipes and fittings was not sufficient to prove that there was no suppression of fact on the part of the assessee. It then held that there were some informations missing from some returns but it was not said that how it was relevant for Patna High Court CWJC No.929 of 2009 dt.14-03-2012 21 the issue in question and further that they were deliberately not furnished. It, accordingly, held that the assessee was liable to pay the differential duty and its claim of benefit under Rule 57CC was not available. It had suppressed facts or misdeclared material facts. He, therefore, confirmed the demand under Section 11A (1), imposed penalty under Section 11AC of the equal amount and ordered for charging penal interest under Section 11AB of the Act by its order dated 19.05.2003 (Annexure-8).
Here, we may notice that the adjudicatory authority has virtually proceeded on the ground that duty has been short- levied because of wrong claim or misstatement by the petitioner but there is no finding that it was so deliberately done by the petitioner to evade duty which a condition precedent for invocation of powers to realize the same with penalty and penal interest. Unfortunately, in view of the judgment as noticed above, a technical breach or a wrong claim or a mistake by itself cannot give longer period jurisdiction for recovering penalty and penal interest unless it is shown that there was a deliberate attempt to evade tax. This was lost sight by the adjudicatory authority.
The matter was then taken in appeal before the Commissioner (Appeals) by the petitioner-assessee which confirmed the order of the adjudicatory authority and dismissed the appeal.
The matter was then taken by the petitioner-assessee to the appellate Tribunal in Appeal No EDM - 41 of 2005 which was disposed of on 19.06.2008 (Annexure-10). The Tribunal first, in its order, dealt with the duty demand in the following words:
"The ground taken by the Appellants that the demand is time barred has also been adequately dealt by Authorities below as the appellants had adopted the procedure Patna High Court CWJC No.929 of 2009 dt.14-03-2012 22 of paying 8% on their own without making a proper disclosure to the Department. The demand for longer period is therefore valid on the ground of misstatement and suppression of facts."
But when it came to penalty, the Tribunal held thus:
"However, as regards penalty, we find that in the initial proceedings when the show cause notice was dropped, no penalty was proposed to be imposed on the Appellants and considering the disputed technical nature of the issue involved regarding non-coverage under Rule 57CC, we take a lenient view and set aside the equal penalty imposed on the Appellants."
The appeal was partly allowed by setting aside the penalty and confirming the duty demand.
As noted above, the Department took the matter striking down the penalty to the Apex Court which has remanded the matter to the Tribunal to decide afresh in view of its judgment in the case of Rajasthan Spinning and Weaving Mills (supra). The assessee impugned the part of the order of the Tribunal by which demand of duty was sustained before this Court in these proceedings.
In our view, the Tribunal has again fallen into the same error as the other authorities, as would be apparent from its order, as quoted above. It assumed that the moment there was a misstatement or failure to disclose information of any kind leading to escapement of duty the longer period for raising demand was available which we do not think is the correct position inasmuch it has to be shown and found that it was a deliberate misstatement or suppression with intent to evade tax. This, even the Tribunal was Patna High Court CWJC No.929 of 2009 dt.14-03-2012 23 conscious seeing the facts because when it came to penalty, it itself held that the dispute was technical in nature meaning thereby it was a technical violation and, therefore, there being no mens rea, penalty, should not be imposed.
Here, we may once again note that the conditions for raising a demand with respect to extended period, imposition of penalty and penal interest are the same. If the Tribunal thought that it was a technical breach and a technical dispute then the condition precedent for assumption of jurisdiction was lacking because there was no deliberate attempt to evade tax. If that be so then neither the duty demand in longer period could be sustained nor consequential penalty or penal interest imposed.
Thus, in our view, the Department is unable to establish any deliberate act on part of the petitioner-assessee to evade tax. All it could establish was that a claim after full disclosure was made, which was later, after the period of limitation found unsustainable and, as such, all penal actions taken. That is not correct and could not have been done. The duty demand sustained by the Tribunal is, thus, not correct and that part of the order cannot be sustained.
Now, we come to the claim, as put forward by the assessee though not necessary to be decided. The petitioner- assessee has annexed the monthly invoices of payment of duty in respect of PVC pipes, filters and fittings manufactured by it and used in the manufacture of Tara handpump. That has also been annexed to the writ petition as Annexure 3 series. These invoices, on basis of which duty was deposited, clearly disclosed that they were plastic parts being used in the manufacturing of Tara handpump and was self-clearance on which duty was paid at the Patna High Court CWJC No.929 of 2009 dt.14-03-2012 24 rate of 8%. It is apparent that if the petitioner-assessee had any intention to evade duty, such disclosures would not have been made. Department has never disputed these specific disclosures. Further, we find that there are two apparently conflicting instructions. If we refer to Note 4 to Chapter 84 Section XVI of the Tariff, it virtually states that if a machine consists of individual components to make it complete then the whole would be classified under Chapter 84 which, inter alia, deals with handpump. If plainly read, plastic pipes and fittings, which form the Tara handpump, are taken into consideration, they would, as a whole, fall under Chapter 84. We then have Rule 57CC (4) (a) excluding plastic parts. Petitioner-assessee, making a disclosure that they were using the PVC pipes and fittings to make Tara hadpump, claimed that they were liable to only 8% duty which they had always paid. It is to get over this that the adjudicating authority, on remand, had to hold that handump is what is visible above the ground and not what is submerged in the ground. We understand it differently as commonly, there cannot be a handpump without its casing filter etc without which water cannot be brought over ground. In the facts aforesaid, we find there are no facts justifying holding that there was any deliberate suppression or misstatement with intent to evade tax. We may note that even the adjudicatory authority, on remand, was unable to point as to what was the specific information suppressed and how it was connected with the tax sought to be evaded. Mere misstatement in some form or the other, not relevant with full disclosure of relevant facts in other forms, cannot by itself lead to finding of deliberate attempt to evade tax. At best, what can be said is that the claim of assessee was misconceived which resulted Patna High Court CWJC No.929 of 2009 dt.14-03-2012 25 in short-payment of duty. This would be actionable within the shorter period of limitation available under Section 11A (1) and not relevant for the longer period under proviso thereto. In fact, even the Tribunal held it to be a technical breach involving no mens rea when it came to penalty. We fail to see if that were so in respect of penalty, how the demand could be sustained within the longer period of limitation in absence of mens rea.
Thus, in our view, the order of the Tribunal, in so far as it sustains the duty demand with reference to the longer period available under the proviso to Section 11A (1) is unsustainable and to that extent, the order of the Tribunal is set aside. The writ application is, thus, allowed.
(Navaniti Prasad Singh) Ashwani Kumar Singh. I agree.
Patna High Court, (Ashwani Kumar Singh) The 14thMarch, 2012, NAFR, M E Haque/