Customs, Excise and Gold Tribunal - Delhi
Secals Limited vs Collector Of Central Excise on 15 January, 1986
Equivalent citations: 1986(7)ECC43, 1986(8)ECR353(TRI.-DELHI), 1986(24)ELT64(TRI-DEL)
ORDER
S.D. Jha Member (J)
1. Appellants have filed this appeal against order dated 24-4-84 passed by the Collector of Central Excise, Madras. By the said order the Collector demanded differential duty from the appellants in respect of Bastalloys B & C Rs. 3,25,464.52 for the period six months prior to 3-8-1979 to 31-10-1982 and for contravention of various provisions of the Central Excises and Salt Act, 1944, and rules made thereunder imposed penalty of Rs. 250.
2. The proceedings against the appellants are outcome of search dated 22-10-82 by Excise preventive unit, Madras, in the administrative offices of the appellants. The appellants in the factory had been manufacturing stainless steel alloy castings from 1-10-74 and were licensed under Tariff Hem 22AA. During search the preventive officers of Excise on examining the appellants' invoices found that between September 1977 and October 1982 the appellants had manufactured and cleared Hastelloys B & C 14586.045 Kgs valued at Rs, 44,98,144.04. On these goods the appellants had paid duty at the rates applicable to Steel castings under Tariff Item 26-AA(v) when they ought to have paid duty on the aforesaid quantity of Hastelloys B & C under Tariff Item 68. After usual investigation by notice dated 7-7-83 the Collector of Central Excise called upon the appellants to show cause why differential duty of Rs. 3,43,929.10 on goods aforementioned by not demanded from them applying the extended time limit under Rule 10 of the Central Excise Rules, 1944 in respect of clearances made up to 17-11-80 and under Section HA of the Central Excises and Salt Act, 1944 for clearances after this date and, further, why penalty be not imposed under Rule 173-Q for contravention of various provisions of the Act and the rules. The appellants filed reply dated October 18, 1983 which is described as a preliminary reply (pp. 10-17 of the Paper Book). Apart from this reply there is no other reply on record. In this reply the appellants submitted that they had been paying central excise duty for all castings on the basis of classification filed by them and approved by the Central excise authorities and earlier no discrepancy was pointed out or the classification questioned or disputed at any stage. Among the many alloy castings manufactured by the appellants two items were Hastelloys B & C with castings. The classification with respect to these two was filed in accordance with advice and guidance of Central Excise authorities. Central Excise authorities had been inspecting the appellants factory and the process of manufacture since the date of licensing was well known to them. All their records of production, stock and clearances and documents of trading clearly displayed the fact of manufacture of Hastelloys B & C and these records were scrutinised, examined and checked on several occasions by Central Excise Audit Inspecting officers and the classification of the goods under Tariff Item 26AA was not questioned earlier. They protested against the seizures of their documents which they called unwarranted and unauthorised. They also referred to their letters dated 22-10-1982, 21-12-1982, 10-2-1983 and 21-3-1983 wherein they had furnished the statement of composition of their manufacture which included Hastelloys B & C. They challenged the show cause notice as not maintainable. About reference to Trade Notice No. 170/79, dated 3-8-79 of Madras Collectorate referred to in paragraph 3 of the show cause notice the appellants submitted that they had not been informed of this Trade notice nor was the Trade notice brought to their notice. They denied other material allegations in the show cause notice. The appellants further submitted that on the facts and circumstances of the case, as the goods had been cleared after the approval of the classification lists and RT 12 returns, and other records had been inspected from time to time by Excise authorities, the time limit applicable to the demand could be the shorter time limit of six months and not five years which could be invoked only in case of fraud, mis-statement, suppression of facts and the like. After following the usual procedure the Collector by the impugned order confirmed the demand for the period six months prior to 3-8-1979 (the date of Trade Notice) to 31-10-1982, and reducing the demand for a shorter amount set out in pira 1 of the order. He also imposed penalty as already set out. Aggrieved, appellants have filed appeal to the Tribunal.
3. At the hearing of the appeal on 31-5-1985 Shri Jagdeesan, learned Advocate for the appellants, stated that he did not dispute the classification of Hastelloys B & C under Tariff Item 68 in view of the Tribunal decision in Messrs Precision Tools and Castings Pvt Ltd, Lucknow v. C.C. Bombay- 1983 ECR 1024- D (CEGAT). He also did not address any arguments about penalty imposed. His entire arguments were addressed to showing that on the facts and circumstances of the case the time limit for raising demands for differential duty could only be six months and not five years. In that connection he submitted that it was well known that the appellants were engaged in the manufacture of Hastelloy castings as would be evident from letters dated 19-8-1977, 13-10-1980 and 3-2-1981 from Government of India addressed to the appellants (pp. 18, 22-27 and 28 of the Paper book). He also referred to number of dates when officers of Central Excise had checked RG-3 registers of the appellants and done stock-taking in the appellants' factory between 14-3-1977 till the date of search. The documents in support of this contention are Items 9 to 37 of the Paper book under the heading 'checks by the officials of Central Excise of RG-1 register and stock-taking'. He also referred to verification of production report of the appellants between 15-5-1979 and 3-4-1981 (Items 39 to Item 56 of the Paper book). Reference was also made to classification lists of the appellants filed between the period 22-1-1976 and 5-5-1982 (Items 57 to 64 of the Paper book at pp. 132 to 149). Attention was also drawn to intimation regarding visit of Audit parties between 2-3-1976 and 21-11-1981 (Items 66 to 71 of the Paper book at pages 151 to 157). It was also submitted that in purchase orders received from buyers the goods in question were described as Hastelloys B & C castings and, therefore, Central Excise authorities could easily have known or were expected to know that the goods were Hastelloy B & C castings even though the classification lists may not have given the necessary details. These purchase orders for the period 3-4-1976 to 15-7-1981 are Items 73 to 90 of the Paper book at pp. 159 to 179. For the same argument, four invoices bearing date 31-7-1982 at pages 180 to 184 have also been filed. Shri Jagdeesan thus argued that the whole activity of the appellants was within the knowledge of the Excise department, manufacture and clearances were made on the basis of classification lists approved by the Central Excise officers. All their accounts, invoices and records were examined from time to time by the Excise officers and audited and scrutinised. In such a case time limit applicable would be six months and not five years and the Collector committed an error in invoking the longer time limit. About the Trade Notice, he submitted that it was not within the knowledge of the appellants nor could it operate as constructive notice about classification to the appellants. For all these reasons, he submitted that time limit of six months should be applied to the demand for differential duty. On application of this time limit no demands survived against the appellants. Therefore, the whole demand of duty should be set aside.
4. On behalf of the respondents Shri H.L. Verma, SDR, submitted that in the classification lists all that was stated was a reproduction of the item Iron or Steel products; AH other steel castings not otherwise specified. Steel castings manufactured with the aid of electric furnace from old iron or steel melting scrap. No details about the ingredients which had gone into manufacture of the to items were given in the classification lists or any document accompanying the same. This amounted to omission in mentioning essential matters in the classification lists and in such case time limit of five years for raising demand would be applicable. In support of the argument Shri Verma relied on the following two decisions of the Tribunal :
Metal Extruders (T) Pvt. Ltd., Thane v. Collector of Central Excise, Bombay 1984 (16) ELT 148 (Tribunal).
V.S.T. Tillers Tractors Ltd., Bangalore v. Collector of Central Excise, Bangalore 1984 ECR 1333 (CEGAT).
5. During arguments Shri Jagdeesan submitted with reference to his arguments that the appellants' R.T. 12 Returns had been assessed by the excise authorities from time to time and while doing so the authorities had occasion to go through the invoices of the appellants which described the goods as Hastelloys B & C. The Bench called upon Shri Jagdeesan to tell the Bench from R.T. 12 Returns on which he strongly relied or any other documents that the excise officers could have known that the goods cleared were Hastelloys B & C and that such documents were examined by them. The Bench also questioned Shri Jagdeesan why copy of invoices prior to the year 1982 had not been supplied in the Paper Book on the date of hearing 31-5-1985. Shri Jagdeesan could not give any satisfactory reply to the queries raised and the appeal was then closed for orders on 27-6-1985. Well before the date fixed for pronouncement of orders the appellants addressed communication application dated 14-6-1985, inter alia, stating that as their documents were seized by the excise authorities they could not produce invoices prior to the year 1982 and that they were doing so now. Copies of a number of invoices obtained from excise authorities were filed along with the application in the form of supplementary paper book. About another query made by the Bench regarding composition statement at pages 8 and 9 the appellants filed copy of letter dated 11-6-1985 from the Collector of Central Excise, Madras stating that composition statement had been referred to the Senior Departmental Representative, New Delhi, along with other records. After receipt of this communication and perusal of the same, the Bench felt that for decision of the question whether shorter time limit of six months or longer time limit of five years would be applicable to the case, a perusal of R.T. 12 Returns filed by the appellants appeared necessary. In view of this, by order dated 18-6-1985 the hearing of the appeal was reopened and the appellants asked to supply for the period in dispute copies of R.T. 12 Returns along with enclosures which the appellants claimed to have been approved by the excise authorities. In obedience to this direction, the appellants filed additional paper book in two volumes bearing volume numbers 1 and 2 on 17-7-1985. R.T. 12 Returns are for a number of months beginning June 1979 and ending May 1983 as detailed in para 2.1 of application dated 15-7-1985, personal ledger account for the years 1979-80 to 1982-83 along with other relevant documents like gate passes and challans as detailed in para 2 of the application. The application further states that under Notification No, 152/77-C.E., dated 18-6-1977 (as amended) the appellants were exempts from payment of excise duty on the steel castings manufactured by them and, therefore, they: were not required to file the monthly R.T. 12 Returns since July 1977. However, on the advice of Superintendent, Central Excise, Ranipet vide letter dated 1-5-1979 by virtue of Government of India Notification No. 159/79-C.E., dated 9-4-1979, the appellants were filing periodical Returns since June 1979. Further averment in the application is that R.T. 12 Returns for the months of February 1980, June to August 1981, October 1981 to April 1982 and January 1983 to February 1983 (which is the period in dispute) were submitted to the office of the Superintendent of Central Excise Range-II, Ranipet within the time limit. They were completely assessed and no discrepancy was noticed. A certificate to this effect dated 5th July, 1985 given by the office of the Superintendent of Central Excise, Range-II, is also enclosed with the application dated 15-7-1985. After receipt of these papers the hearing of the appeal which had been reopened was fixed for 20-9-1985 when Shri N. Ramasubrmanyan, Secretary of the appellants appeared for the appellants and Shri H.L. Verma, SDR for the respondent. They Were again heard.
6. As already stated, Shri K.P. Jagdeesan learned advocate for the appellants in view of the Tribunal decision in M/s. Precision Tools and Castings Pvt. Ltd. (supra) did not dispute that the appropriate classification for Hastelloys B & C would be under Tariff Item 68. All that has now to be seen is whether demand for duty should be for 5 years or for six months from the relevant date, ft may be mentioned that the show cause notice against the appellants invoked both Rule 10 of the Central Excise Rules, 1944 as it then stood and Section 11A of the Central Excises and Salt Act, 1944, but in view of the Five Member decision of the Tribunal in Atma Steel Pvt. Ltd. and Ors. V. Collector of Central Excise, Chandigarh and Ors. -1984 (17) ELT 331-the provision to be invoked is the one in force on the date of issue of show cause notice, which in the instant case would be Section 11A of the Act. Section 11A of the Central Excises and Salt Act, 1944 provides for a time limit of six months if recovery of duty is not levied or not paid or short levied or short paid or erroneously refunded, from the relevant date. Under the proviso where such non-levy, non-payment are due to reasons of fraud, collusion, wilful mis-statement or suppression of facts or contravention of any of the provisions of the Act or Rules made thereunder with intent to evade payment of duty, the time limit instead of six months is five years. It has to be seen whether the ingredients of the proviso for invoking five years' time limit to the demand are made out.
7. The demand of duty from the appellants, according to the impugned order, is for the period 4-2-1979 to 31-10-1982 (six months prior to 3-8-1979 would commence from 4-2-1979). For this period the relevant classification lists filed by the appellants would be those of 23-8-1977 (at pages 138 and 139 of the Paper Book), 23-5-1979 at pages 140 to 142 of the Paper Book, 27-6-1980 (at pages 143 to 145 of the Paper Book), 20-3-1981 at pages 146 and 147 of the Paper Book and 5-5-1982 at pages 148 arid 149 of the Paper Book. In all these lists the product and Tariff Item No. were described by the appellants as follows:
All other steel castings, not otherwise specified. 26 AA (V) Steel castings manufactured with the aid of electric furnace from old iron or steel melting scrap.
It is true that under Column No. 2 of the proforma the appellants were expected to give full description of the goods but they only reproduced the words of the Tariff Item and did not give precise description of the goods manufactured by them. This, however, in the facts and circumstances of the case, cannot have much importance because from the order of the Collector himself (para 19) it appears that the question of classification of alloy steel was under consideration of the Department and after taking into account the various aspects it was decided that Hastelloys B & C among others cannot be considered as steel products and are not liable to be classified under Tariff Item 26AA. This led to clarification through Trade Notice of 170/79, dated 3-8-1979 in Madras Central Excise Collectorate. Even though the classification lists which the appellants had been filing for a number of years described Hastelloys B & C as steel castings, there is overwhelming material on record which would show that the Department either knew that the appellants were manufacturing Hastelloys B & C or could have known of the same. The documents accompanying R.T. 12 Returns leave no manner of doubt that the appellants had not hidden the fact of manufacturing Hastelloys B & C. In fact, from the order of the Collector himself it appears that this was so and was not under dispute by the Department. The precise reason why the Collector invoked five year time limit under Section 11A is to be found in paras 19-20 of the Order. For proper appreciation it would be useful to extract the relevant portions of the order.
"...This classification was issued under Trade Notice (CE) No. 170/79, dated 3-1-1979 in Madras Central Excise Collectorate. It has been clarified more than once by the various Courts that the Trade Notice is binding on the trade as far as the classification is concerned. The contention of the party that they had not received the Trade Notice is irrelevant to the issue. It is their responsibility to get a copy either directly from the Department or through their Association or Chamber of Commerce. It is also their responsibility to classify their products under the correct heading of the Central Excise Tariff. Although Hastelloy B & C might have been classified under T.I. 26AA prior to issue of this Trade Notice No. 170/79, dated 3-8-1979, after the issue of this Trade Notice these goods are not to be classified under T.I. 26AA and the alternative is T.I. 68 which covers all other goods not elsewhere specified. Thus, from 3-8-1979, Hastelloys B & C are classifiable under T.I. 68. However, in this case the party continued to classify Hastelloys B & C under T.I. 26AA till October 82. It is only after visit of the Hqrs. Preventive Officers to their factory they had changed the classification from T.L 26AA to T.I. 68 and it is only thereafter they had taken out a licence for manufacturing T.I. 68 goods."
"...Thus, for invoking this provision, it has to be proved that there has been a wilful mis-statement or suppression of facts. After the issue of Trade Notice 170/79, dated 3-8-1979, it was incumbent on the party to file a revised classification list classifying Hastelloys B & C under T.I. 68, This was not done by them."
"...The party has pointed out that they have furnished this information in the invoice and as such, they cannot be charged with suppression of any information since the products under T.I. 26AA(V) are subjected to a specific rate of duty of Rs. 200 per M.T. there was no need for the Officers to refer to any invoice. It was the responsibility of the assessee, especially after the issue of the Trade notice to indicate the correct description of their products in the classification list and to classify them also correctly. By not giving the full description of their products Hastelloys B & C in the classification list as required they have withheld the relevant information deliberately and as such the application of proviso to Section MA is justified."
8. From the foregoing extracts, it would be seen that the Collector held the appellants guilty of wilful mis-statement or suppression of facts because they did not file revised classification lists after issue of the Trade Notice on 3-8-1979. He also held that it was the appellants' duty to have obtained a copy of the Trade Notice. In the earlier portion extracted he had also referred to various Court decisions holding that Trade Notice is binding on the trade so far as classification is concerned. It is unfortunate that the learned Collector did not refer to any particular decision of the High Court so that we could have looked into and applied the same if it were applicable. The Collector, in the extracts above, after stating that as the products are subjected to a specific rate of duty of Rs. 200 per MT, there was no need for the officer to refer to any invoice through the responsibility to file proper classification list on the appellants on the basis of Trade Notice. According to our understanding, such Trade Notices have no statutory force and on their basis enhanced liability against the party cannot be fixed. Besides, the proviso is attracted only in a case of wilful mis-statement, collusion, fraud and suppression of facts. The appellants denied the knowledge of the Trade Notice but the Collector raised the presumption against them about knowledge of the Trade Notice. On the basis of such constructive knowledge of a Trade Notice which has no statutory force, we do not think that the appellants can be said to be guilty of fraud, collusion, suppression of facts or wilful mis-statement so as to attract liability for demand of duty for a higher period of five years.
9. The Collector invoked the proviso but restricted the demand to a period of six months prior to 3-8-1979, i.e., the date of Trade Notice. This would mean that for the period prior to the issue of Trade Notice on 3-8-1979 he did not feel that description by the appellants in the classification lists of Hastelloys B & C as steel castings was not sufficient or proper description. The whole basis for holding this description for a subsequent period as incomplete and thus wilful mis-statement is the Trade Notice which, as already slated, has no statutory force and cannot be used to charge the appellants with liability for payment of duty for five years. Apart from the foregoing, Section 11A of the Central Excises and Salt Act, 1944 makes a specific provision of six months or five years to be computed from the relevant date and what is 'relevant date' is defined in Clause (ii) of Sub-section. (3) of Section 11 A, The Collector having regard to this proposition could not have combined both five years and six months and invented a different concept of 'relevant date' otherwise than as provided in the provision (supra). On the facts and circumstances of the case we find that the appellants cannot be held guilty of fraud, collusion, wilful mis-statement or suppression of facts so as to incur liability for demand of duty for five years under proviso to sub-section (1) of Section 11A and the demand would have to be restricted to a period of six months from the 'relevant date' as defined in Clause (ii) of Sub-section (3) of Section 11 A. In the instant case, the show cause notice is dated 7-7-1983 and the surviving period of demand relates to 3-8-1979 to 31-10-1982. 'Relevant Date' would be the date when the appellants under Clause A of Section HA(3)(ii)(a) should have filed monthly return under Rule 173G(3) of the Central Excise Rules, 1944, which would be the provision applicable, in case of the appellants following self removal procedure. Return should have been filed within 7 days after close of each month. Under Sub-clause (ii) of this provision, the filing of return could be extended by the Collector for a period not exceeding 21 days. Even making allowance for 21 days in each month during the aforesaid period, no part of the demand of Central Excise duty would survive against the appellants on the strength of show cause notice dated 7-7-1983 and the whole demand of duty would have to be set aside as time barred. During arguments it was not disputed by the Revenue that if six months' time limit were applied to the demand of duty, no part of the demand of duty would survive against the appellants.
10. As for penalty, we have already said that no arguments were addressed by Shri Jagdeesan, Advocate for the appellants. It has also not been disputed that Hastelloys B & C fall under Tariff Item 68 and would have, therefore, required a licence under Rule 174 of Central Excise Rule 1944 read with Section 6 of Central Excises and Salt Act, 1944. The penalty is even otherwise modest. Considering all these no interference in this part of the order is called for.
11. As a result, demand of duty against the appellants is set aside. The penalty is upheld.
12. The appeal is thus partly allowed.