Custom, Excise & Service Tax Tribunal
M/S. Surya Fine Chemicals vs Cce, Chennai Iv on 8 January, 2015
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, CHENNAI
E/1174 & 1175/2004
(Arising out of Order-in-Original No. 6/2004 dated 11.6.2004 passed by the Commissioner of Central Excise, Chennai - IV)
1. M/s. Surya Fine Chemicals
2. M/s. International Flavours and
Fragrance India Ltd. Appellants
Vs.
CCE, Chennai IV Respondent
Appearance Shri R. Raghavan, Advocate for the Appellant Shri M. Rammohan Rao, DC (AR) for the Respondent CORAM Honble Shri D.N. Panda, Judicial Member Honble Shri R. Periasami, Technical Member Date of Hearing/Decision: 08.01.2015 Final Order No. 40020-40021 / 2015 Per D.N. Panda The chronology of events submitted by learned counsel in the paper book today shows that the appellant was all along under bonafide belief that due to dispute of M/s. Roha Dychem before various forums food colour preparation shall fall under Chapter 21 while Revenue was claiming classification under Chapter 32 of Central Excise Tariff Act, 1985. But M/s. Roha Dychem was successful before Apex Court holding that goods in question shall be classifiable under Chapter 21 of CETA, 1985. Learned counsel further submits that appellant was given an impression by M/s. International Flavours and Fragrance India Ltd. for whom appellant was job working similar goods, that the goods manufactured on job work shall fall under Chapter 32 of the Central Excise Tariff Act, 1985. Such confusion in the industry prevented appellant to seek registration under Central Excise Act, 1944 even though it was manufacturing food colour preparations both as a manufacturer as well as job worker.
2. To resolve the controversy, legislature intended that insertion of Chapter Note 7 to Chapter 21 to CETA, 1985 with effect from 16th March, 1995 was necessary. But that note related to labeling and relabelling and any other process amounting to manufacture. Learned counsel says that even carrying out any other process was legislated as manufacturing activity for the first time on 16th March, 1995 by Chapter Note 7 of Chapter 21. Therefore, the appellant was all along under bona fide belief that its activities shall not amount to manufacture and not liable to duty and no registration under Central Excise Act, 1944 is warranted.
3. The period involved in this appeal is December 1995 to June 1997. Appellant explains that show-cause notice was issued on 3.1.2001 and they sought registration in June 1997. It is also the submission of the appellant that the appellant has never committed any evasion of duty intentionally.
4. There was no malafide on the part of the appellant to suppress any fact to the Department when it was all along submitting classification list to the Department for the impugned period. It was well within the knowledge of both sides about the classification sought by the appellant under bonafide belief on the factual scenario aforesaid. No doubt the goods ultimately is held to fall under Chapter 21 of CETA, 1985 but industry had conflict of opinion on classification of the goods in question. Therefore, the appellant may be given benefit of doubt holding that under aforesaid circumstances adjudication is time-barred.
5. Revenue on the other hand supports the order of the authorities below.
6. Heard both sides and perused the records.
7. This is an established fact on record that there is nothing malafide on the part of the appellant either to suppress the fact before the authority or to make any statement to lead to the Department to hold that appellant has intention to cause evasion of duty. When the bonafide of appellant is patent from records in view of the confusion persisting in the industry it would not be proper to hold the adjudication made is within the limitation period. The principle of law laid down by Apex Court in Anand Nishikawa Co. Ltd. Vs. CCE, Meerut 2005 (188) ELT 149 (SC), as to suppression of fact is reproduced below for appreciation of the genesis of the case aforesaid leading to no suppression to cause evasion intentionally.
27. Relying on? the aforesaid observations of this Court in the case of Pushpam Pharmaceutical Co. v. Collector of Central Excise, Bombay [1995 Suppl. (3) SCC 462], we find that suppression of facts can have only one meaning that the correct information was not disclosed deliberately to evade payment of duty, when facts were known to both the parties, the omission by one to do what he might have done not that he must have done would not render it suppression. It is settled law that mere failure to declare does not amount to willful suppression. There must be some positive act from the side of the assessee to find willful suppression. Therefore, in view of our findings made herein above that there was no deliberate intention on the part of the appellant not to disclose the correct information or to evade payment of duty, it was not open to the Central Excise Officer to proceed to recover duties in the manner indicated in proviso to Section 11A of the Act. We are, therefore, of the firm opinion that where facts were known to both the parties, as in the instant case, it was not open to the CEGAT to come to a conclusion that the appellant was guilty of suppression of facts. In Densons Pultretaknik v. Collector of Central Excise [2003 (11) SCC 390], this Court held that mere classification under a different sub-heading by the manufacturer cannot be said to be willful mis-statement or suppression of facts. This view was also reiterated by this Court in Collector of Central Excise, Baroda v. LMP Precision Engg. Co. Ltd. [2004 (9) SCC 703]. [Emphasis supplied]
8. The ruling above was also followed in latest decision of the Honble Supreme Court in the case of Uniworth Textiles Ltd. Vs. CCE, Raipur 2013 (288) ELT 161 (SC). It would be beneficial to reproduce para 13 to 18 of the judgment as to law relating to suppression of the facts as under:-
13.?This Court, in Pushpam Pharmaceuticals Company v. Collector of Central Excise, Bombay - 1995 Supp (3) SCC 462 = 1995 (78) E.L.T. 401 (S.C.), while interpreting the proviso of an analogous provision in Section 11A of The Central Excise Act, 1944, which is pari materia to the proviso to Section 28 discussed above, made the following observations :
4.?Section 11A empowers the Department to re-open proceedings if the levy has been short-levied or not levied within six months from the relevant date. But the proviso carves out an exception and permits the authority to exercise this power within five years from the relevant date in the circumstances mentioned in the proviso, one of it being suppression of facts. The meaning of the word both in law and even otherwise is well known. In normal understanding it is not different that what is explained in various dictionaries unless of course the context in which it has been used indicates otherwise. A perusal of the proviso indicates that it has been used in company of such strong words as fraud, collusion or wilful default. In fact it is the mildest expression used in the proviso. Yet the surroundings in which it has been used it has to be construed strictly. It does not mean any omission. The act must be deliberate. In taxation, it can have only one meaning that the correct information was not disclosed deliberately to escape from payment of duty. Where facts are known to both the parties the omission by one to do what he might have done and not that he must have done, does not render it suppression. ?????????????????????[Emphasis supplied]
14.?In Sarabhai M. Chemicals v. Commissioner of Central Excise, Vadodara - (2005) 2 SCC 168 = 2005 (179) E.L.T. 3 (S.C.), a three-judge Bench of this Court, while referring to the observations extracted above, echoed the following views:
23.?Now coming to the question of limitation, at the outset, we wish to clarify that there are two concepts which are required to be kept in mind for the purposes of deciding this case. Reopening of approvals/assessments is different from raising of demand in relation to the extended period of limitation. Under section 11A(1) of the Central Excise Act, 1944, a proper officer can reopen the approvals/assessments in cases of escapement of duty on account of non-levy, non-payment, short-levy, short-payment or erroneous refund, subject to it being done within one year from the relevant date. On the other hand, the demand for duty in relation to extended period is mentioned in the proviso to section 11A(1). Under that proviso, in cases where excise duty has not been levied or paid or has been short-levied or short-paid or erroneously refunded on account of fraud, collusion or wilful mis-statement or suppression of facts, or in contravention of any provision of the Act or Rules with the intent to evade payment of duty, demand can be made within five years from the relevant date. In the present case, we are concerned with the proviso to section 11A(1).
24.?In the case of Cosmic Dye Chemical v. Collector of Central Excise, Bombay (1995) 6 SCC 117, this Court held that intention to evade duty must be proved for invoking the proviso to section 11A(1) for extended period of limitation. It has been further held that intent to evade duty is built into the expression fraud and collusion but mis-statement and suppression is qualified by the preceding word wilful. Therefore, it is not correct to say that there can be suppression or misstatement of fact, which is not wilful and yet constitutes a permissible ground for invoking the proviso to section 11A.
25.?In case of Pushpam Pharmaceuticals Company v. C.C.E. [1995 (78) E.L.T. 401 (S.C.)], this Court has held that the extended period of five years under the proviso to section 11A(1) is not applicable just for any omission on the part of the assessee, unless it is a deliberate attempt to escape from payment of duty. Where facts are known to both the parties, the omission by one to do what he might have done and not that he must have done does not constitute suppression of fact.
15.?In Anand Nishikawa Co. Ltd. v. Commissioner of Central Excise, Meerut - (2005) 7 SCC 749 = 2005 (188) E.L.T. 149 (S.C.), while again referring to the observations made in Pushpam Pharmaceuticals Company (supra), this Court clarified the requirements of the proviso to Section 11-A, as follows :-
26... This Court in the case of Pushpam Pharmaceuticals Company v. Collector of Central Excise, Bombay (supra), while dealing with the meaning of the expression suppression of facts in proviso to Section 11A of the Act held that the term must be construed strictly, it does not mean any omission and the act must be deliberate and willful to evade payment of duty. The Court, further, held :-
In taxation, it (suppression of facts) can have only one meaning that the correct information was not disclosed deliberately to escape payment of duty. Where facts are known to both the parties the omission by one to do what he might have done and not that he must have done, does not render it suppression.
27.?Relying on the aforesaid observations of this Court in the case of Pushpam Pharmaceutical Co. v. Collector of Central Excise, Bombay [1995 Suppl. (3) SCC 462], we find that suppression of facts can have only one meaning that the correct information was not disclosed deliberately to evade payment of duty. When facts were known to both the parties, the omission by one to do what he might have done and not that he must have done, would not render it suppression. It is settled law that mere failure to declare does not amount to willful suppression. There must be some positive act from the side of the assessee to find willful suppression. Therefore, in view of our findings made herein above that there was no deliberate intention on the part of the appellant not to disclose the correct information or to evade payment of duty, it was not open to the Central Excise Officer to proceed to recover duties in the manner indicated in the proviso to Section 11A of the Act.
16.?In Collector of Central Excise v. H.M.M. Ltd. - 1995 Supp (3) SCC 322 = 1995 (76) E.L.T. 497 (S.C.), this Court held that mere non-disclosure of certain items assessable to duty does not tantamount to the mala fides elucidated in the proviso to Section 11A(1) of the Central Excise Act, 1944. It enunciated the principle in the following way:-
The mere non-declaration of the waste/by-product in their classification list cannot establish any wilful withholding of vital information for the purpose of evasion of excise duty due on the said product. There could be, counsel contended, bona fide belief on the part of the assessee that the said waste or by-product did not attract excise duty and hence it may not have been included in their classification list. But that per se cannot go to prove that there was the intention to evade payment of duty or that the assessee was guilty of fraud, collusion, misconduct or suppression to attract the proviso to Section 11A(1) of the Act. There is considerable force in this contention. Therefore, if non-disclosure of certain items assessable to duty does not invite the wrath of the proviso, we fail to understand how the non-payment of duty on disclosed items, after inquiry from the concerned department meets, with that fate.
17.?In fact, the Act contemplates a positive action which betrays a negative intention of willful default. The same was held by Easland Combines, Coimbatore v. The Collector of Central Excise, Coimbatore - (2003) 3 SCC 410 = 2003 (152) E.L.T. 39 (S.C.) wherein this Court held :-
31.?It is settled law that for invoking the extended period of limitation duty should not have been paid, short levied or short paid or erroneously refunded because of either fraud, collusion, wilful misstatement, suppression of facts or contravention of any provision or rules. This Court has held that these ingredients postulate a positive act and, therefore, mere failure to pay duty and/or take out a licence which is not due to any fraud, collusion or willful misstatement or suppression of fact or contravention of any provision is not sufficient to attract the extended period of limitation. ?????????????????????[Emphasis supplied]
18.?We are in complete agreement with the principle enunciated in the above decisions, in light of the proviso to Section 11A of the Central Excise Act, 1944. However, before extending it to the Act, we would like to point out the niceties that separate the analogous provisions of the two, an issue which received the indulgence of this Court in Associated Cement Companies Ltd. v. Commissioner of Customs - (2001) 4 SCC 593, at page 619 = 2001 (128) E.L.T. 21 (S.C.) in the following words :-
53 Our attention was drawn to the cases of CCE v. Chemphar Drugs and Liniments - (1989) 2 SCC 127, Cosmic Dye Chemical v. CCE - (1995) 6 SCC 117, Padmini Products v. CCE - (1989) 4 SCC 275, T.N. Housing Board v. CCE - 1995 Supp (1) SCC 50 and CCE v. H.M.M. Ltd. (supra). In all these cases the Court was concerned with the applicability of the proviso to Section 11-A of the Central Excise Act which, like in the case of the Customs Act, contemplated the increase in the period of limitation for issuing a show-cause notice in the case of non-levy or short-levy to five years from a normal period of six months...
54.?While interpreting the said provision in each of the aforesaid cases, it was observed by this Court that for proviso to Section 11-A to be invoked, the intention to evade payment of duty must be shown. This has been clearly brought out in Cosmic Dye Chemical case where the Tribunal had held that so far as fraud, suppression or misstatement of facts was concerned the question of intent was immaterial. While disagreeing with the aforesaid interpretation this Court at p. 119 observed as follows : (SCC para 6) 6.?Now so far as fraud and collusion are concerned, it is evident that the requisite intent, i.e., 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 wilful 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. It is, therefore, not correct to say that there can be a suppression or misstatement of fact, which is not wilful and yet constitutes a permissible ground for the purpose of the proviso to Section 11-A. Misstatement or suppression of fact must be wilful. The aforesaid observations show that the words with intent to evade payment of duty were of utmost relevance while construing the earlier expression regarding the misstatement or suppression of facts contained in the proviso. Reading the proviso as a whole the Court held that intent to evade duty was essentially before the proviso could be invoked.
55.?Though it was sought to be contended that Section 28 of the Customs Act is in pari materia with Section 11-A of the Excise Act, we find there is one material difference in the language of the two provisions and that is the words with intent to evade payment of duty occurring in proviso to Section 11-A of the Excise Act which are missing in Section 28(1) of the Customs Act and the proviso in particular...
56.?The proviso to Section 28 can inter alia be invoked when any duty has not been levied or has been short-levied by reason of collusion or any wilful misstatement or suppression of facts by the importer or the exporter, his agent or employee. Even if both the expressions misstatement and suppression of facts are to be qualified by the word wilful, as was done in the Cosmic Dye Chemical case while construing the proviso to Section 11-A, the making of such a wilful misstatement or suppression of facts would attract the provisions of Section 28 of the Customs Act. In each of these appeals it will have to be seen as a fact whether there has been a non-levy or short-levy and whether that has been by reason of collusion or any wilful misstatement or suppression of facts by the importer or his agent or employee. ?????????????????????[Emphasis supplied]
9. Where there is specific and explicit averments challenging fids and conducts of assessee brought out in the show-cause notice, the notice is said to have brought such fides to the knowledge of the assessee for defence. In absence of malafide expressly stated in the show-cause notice, it cannot be presumed that appellant had acted malafide. It would be proper to reproduce para 25 of the judgment in Uniworth Textiles Ltd. (supra) as under to appreciate the principle governing such aspect.
25.?Moreover, this Court, through a catena of decisions, has held that the proviso to Section 28 of the Act finds application only when specific and explicit averments challenging the fides of the conduct of the assessee are made in the show cause notice, a requirement that the show cause notice in the present case fails to meet. In Aban Loyd Chiles Offshore Limited and Ors. (supra), this Court made the following observations :
21.?This Court while interpreting Section 11-A of the Central Excise Act in Collector of Central Excise v. H.M.M. Ltd. (supra) has observed that in order to attract the proviso to Section 11-A(1) it must be shown that the excise duty escaped by reason of fraud, collusion or willful misstatement of suppression of fact with intent to evade the payment of duty. It has been observed :
...Therefore, in order to attract the proviso to Section 11-A(1) it must be alleged in the show-cause notice that the duty of excise had not been levied or paid by reason of fraud, collusion or willful misstatement or suppression of fact on the part of the assessee or by reason of contravention of any of the provisions of the Act or of the Rules made thereunder with intent to evade payment of duties by such person or his agent. There is no such averment to be found in the show cause notice. There is no averment that the duty of excise had been intentionally evaded or that fraud or collusion had been practiced or that the assessee was guilty of wilful misstatement or suppression of fact. In the absence of any such averments in the show-cause notice it is difficult to understand how the Revenue could sustain the notice under the proviso to Section 11-A(1) of the Act. It was held that the show cause notice must put the assessee to notice which of the various omissions or commissions stated in the proviso is committed to extend the period from six months to five years. That unless the assessee is put to notice the assessee would have no opportunity to meet the case of the Department. It was held :
...There is considerable force in this contention. If the department proposes to invoke the proviso to Section 11-A(1), the show-cause notice must put the assessee to notice which of the various commissions or omissions stated in the proviso is committed to extend the period from six months to 5 years. Unless the assessee is put to notice, the assessee would have no opportunity to meet the case of the department. The defaults enumerated in the proviso to the said sub-section are more than one and if the Excise Department places reliance on the proviso it must be specifically stated in the show-cause notice which is the allegation against the assessee falling within the four corners of the said proviso.... ????????????????????(Emphasis supplied)
10. It would also be proper to appreciate that this is the consistent view of the Honble Supreme Court beginning from Anand Nishikawa Co. Ltd. (supra) that when facts are within the knowledge of both sides there cannot be presumption that there was suppression of fact by one to the other. Paras 10, 11 and 12 of the judgment in the case of Continental Foundation Jt. Venture Vs. CCE, Chandigarh 2007 (216) ELT 177 (SC) is reproduced for appreciation.
10. The expression?suppression has been used in the proviso to Section 11A 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 the payment of duty. Suppression 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 11A 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.
11. Factual position goes to show the Revenue relied on the circular dated 23-5-1997 and dated 19-12-1997. The circular dated 6-1-1998 is the one on which appellant places reliance. Undisputedly, CEGAT in Continental Foundation Joint Venture case (supra) was held to be not correct in a subsequent larger Bench judgment. It is, therefore, clear that there was scope for entertaining doubt about the view to be taken. The Tribunal apparently has not considered these aspects correctly. Contrary to the factual position, the CEGAT has held that no plea was taken about there being no intention to evade payment of duty as the same was to be reimbursed by the buyer. In fact such a plea was clearly taken. The factual scenario clearly goes to show that there was scope for entertaining doubt, and taking a particular stand which rules out application of Section 11A of the Act.
12. 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 mis-statement or suppression of facts are concerned, they are clearly qualified by the word wilful, preceding the words mis-statement 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 mis-statement of fact, which is not wilful and yet constitute a permissible ground for the purpose of the proviso to Section 11A. Mis-statement of fact must be wilful.
11. In view of the law stated above and our finding that there was no malafide in the show-cause notice and confusion of classification persisted in the industry having led the appellant to be in confusion, the adjudication can be said to be time-barred. Accordingly, appellant succeeds and the appeals is allowed.
E/1175/2004
12. This appeal is against penalty levied on the appellant. For the elaborate reason stated in Appeal No. E/1174/2004, there shall be no penalty on this appellant also. Appeal is allowed accordingly.
(Dictated and pronounced in open court) (R. PERIASAMI) (D.N. Panda) Technical Member Judicial Member Rex 8 11