Customs, Excise and Gold Tribunal - Delhi
Chloride India Ltd. vs Collector Of Central Excise on 6 July, 1992
Equivalent citations: 1993(43)ECC99, 1994(72)ELT435(TRI-DEL)
ORDER S.L. Peeran, Member (J)
1. In these appeals, the appellants have challenged the orders in original passed by the Collector of Central Excise, Pune, dated 21-2-1984, by which he has confirmed the demand raised in the show cause notice dated 6-4-1979 for recovery of Central Excise duty amounting to Rs. 7,57,385/- for the period 25-2-1978 to 31-5-1978 on the parts of storage electric batteries used in the manufacture of electric storage batteries which the assessee is alleged to have cleared free of duty for the period not covered by the remission granted under Section 11C of the Central Excises and Salt Act, 1944 under Notification No. 115/83, dated 2-4-1983 and has also imposed a penalty of Rs. 10,000/- under Rule 173Q of the Central Excise Rules, 1944.
2. By another order under 56A(3)(v) of Central Excise Rules, 1944 passed on 21-2-1984, the same Collector has disallowed the proforma credit of Rs. 2,14,125/- towards basic duty and Rs. 1,693/- towards special excise duty for the period from April 1976 to May, 1978 and has ordered the assessee to remit back either by way of a debit entry in the PLA or in cash. He has also imposed a penalty of Rs. 2,000/- under Sub-rule (4) of Rule 57A of Central Excise Rules, 1944.
3. The first order in original resulted from the show cause notice dated 6-4-1979 by which the assessees were asked to show cause as to why penalty should not be imposed upon them, under the provisions of Rule 173Q and as to why Central Excise duty amounting to Rs. 43,25,221/- should not be recovered from them under Rule 9(2) of Central Excise Rules, 1944 for the contraventions of Rules 9(1), 173G(1), 173G(2) read with Rule 52A of the Central Excise Rules, 1944 on the ground that the assessee had cleared the parts of batteries falling under Tariff Item 31(3) of the erstwhile Central Excise Tariff without payment of duty for the period 16-3-1976 to 31-5-1978 for use in the manufacture of electric storage batteries cleared by availing the exemption from payment of duty vide Notification No. 96/76, dated 16-3-1976, Notification No. 164/76, dated 12-5-1976 and Notification No. 155/77, dated 18-6-1977. It was also alleged that the assessee was fully aware that the exemption from the payment of duty on the parts of electric storage batteries granted under Notification No. 5/64, dated 25-1-1964 was available only in respect of the parts of storage batteries which were not exempted from Central Excise duty leviable thereon.
4. It appears that the Superintendent of Central Excise on checking the records of the unit, had noticed that the appellants were availing two exemptions at a time viz. exemption for the parts of storage batteries under Notification No. 5/64 as well as the exemption for the parts of storage batteries Notification No. 96/76, 164/76 and 155/77. Therefore, the Superintendent by his letter dated 29-5-1978, called upon them to furnish the names of parts falling under TI 31(3) which they had manufactured and used without payment of duty in the storage batteries cleared under exemption. As the assessee did not reply the Superintendent by his letter dated 8-11-1978, asked them as to why duty should not be demanded on the parts manufactured in their factory and used in the manufacture of storage batteries, which had been cleared at nil rate of duty. The assessee by their reply dated 7-11-1978, had contended that they had no scope to guess while manufacturing storage batteries which of them would be supplied for fitment. They had further contended that parts of storage batteries are treated as intermediates which were not sold and as such were not to be considered as finished goods and hence no duty was leviable. They had further stated that the Central Govt. had issued a notification granting exemption and hence the right conferred upon them to clear storage batteries for O.E. fitment could not be restricted by paying duty on parts of storage batteries, while complete exemption had been granted on electric storage batteries. They had further stated that complete exemption would definitely suggest that electric storage batteries and all its parts were exempted from payment of duty; as electric storage batteries cannot be said to be complete without its parts. The removal of batteries without payment of duty for original equipment (O.E.) purpose is not a final clearance and that they are finally cleared with or without payment of duty from the premises of consumer working under Chapter X Procedure. They also urged that the demands were time-barred. It was further urged by them that Notifications No. 96/76, dated 16-3-1976 and No. 164/76, dated 12-5-1976 clearly stipulated that storage batteries intended to be used as original equipment parts by the manufacturers of cars and tractors did not attract payment of excise duty provided the procedure set out in Chapter 10 of Central Excise Rules, 1944 was followed. They contended that the concession granted can be enjoyed only when the batteries cleared are used on OE fitment in cars and tractors which are in a different excise classification from batteries. It was urged that this leaves no doubt that the purpose of granting this concession to the cars and tractor manufacturers was to avoid double taxation under the two excise classifications. If duty was levied on the battery parts, this double taxation will remain, thereby defeating the intentions of the above-mentioned notifications. Further by Notification No. 5/64, dated 25-1-1964, the battery parts falling under TI 31(3) had been treated as 'intermediates' for continuance process of manufacture and such parts will only attract payment of excise duty in case of its removal as such from the factory. They further stated that the parts of OE batteries do not have separate entities either at the point of storage as finished batteries in non-duty paid bonded store room or at the point of removal from the factory. Therefore, it was contended that it is not possible that parts of storage batteries which had no separate entities at the time of removal from the factory to attract duty under TI 31(3) in terms of Notification No. 5/64. They also stated that by Notification No. 165/78, the Central Govt. had clarified that it is not the intention to levy duty on parts of batteries supplied to original equipment manufacturers of cars and tractors. In view of the clear intention of the fiscal authorities to exempt OE batteries fully from excise duty, as evidenced by the said notifications, the demands made in the show cause notice would defeat the objective of the Central Govt. and therefore, levy of duty on OE batteries is not justified.
5. The learned Collector (Appeals) after taking into consideration their submissions, held that on a reading of Notification No. 165/78, it is clear that in case the electric storage batteries, wherein the non-duty paid parts falling under TI 31(3) are used, are exempt or cleared free of duty under any other notification, then such parts of electric storage batteries are dutiable in terms of the said notification. The learned Collector has observed that in the classification list No. 36/76 which the department had approved, the assessee had stated in the remarks Col., "the said parts of electric storage batteries will be used for captive consumption", and the assessee had referred to Notification No. 5/64. The learned Collector has observed that there was no mention that the said parts were also to be used in exempt purpose. Therefore, the assessee was for certain proviso of notification under which they were claiming the exemption and hence, their argument that they had no scope to guess while manufacturing the storage batteries, as to which of them would be supplied for OE fitment, is not acceptable to him. He further held that as regards the contention that parts of storage batteries are treated as intermediates, which are not sold and as such, could not be considered as finished goods and no duty could be leviable; the Collector has held that this argument is not acceptable as the insertion of TI 31(3) in the tariff itself, indicated that the parts of storage electric batteries were dutiable but certain exemptions were given on certain specific usages like captive consumption etc. provided the end-product is to pay duty in order to avoid double taxation. He has also rejected their contention that the parts are intermediates, as they were to be considered as finished goods so far as TI 31(3) is concerned. He further held that parts of electric storage batteries and the electric storage batteries are two items under the same heading both of which were dutiable as per the schedule. Therefore, looking into different usages, they were put into different types of exemptions which had been granted to these parts under different notifications, which had bearing on each other. Therefore, the learned Collector held that it cannot be said that granting exemption to batteries cannot be restricted by paying duty on parts of storage batteries while complete exemption had been granted to electric storage batteries. He has overruled the contention of the assessee that the department had knowledge and that there was no suppression of facts. However, he has modified the order and held the duty to be sustainable and recoverable for the period from 25-2-1978 to 31-5-1978. However, with regard to the period 16-3-1976 to 24-2-1978, he has granted remission of duty in view of Notification No. 115/83, dated 2-4-1983 issued under Section 11C of the Act.
6. The facts of the case leading to the passing of the second order are that the show cause notice dated 6-4-1979 was issued to the assessee calling upon them as to why proforma credit of Rs. 2,14,125.43 P. towards basic duty and Rs. 1,693.74 P. towards special duty which had been wrongly availed by them during the period from 1-4-1976 to 31-5-1978 should not be demanded from them under Rule 56A(3)(v) of Central Excise Rules, 1944 and why penalty should not be imposed on them under Rule 56A(4) of Central Excise Rules, 1944 for contravention of the provisions of Sub-rule (2) of Rule 56A of Central Excise Rules, 1944 inasmuch as, they had availed proforma credit by useful mis-statement and suppression of facts on containers and covers which they had used in the manufacture of electric storage batteries cleared by them during the period from April 1976 to May 1978 at nil rate of duty by availing exemptions under the various exemption notifications.
7. The assessee by their reply dated 8-11-1978 had stated that they had no scope to guess while manufacturing storage batteries which of them would be supplied for OE fitment, Electric storage batteries were cleared for use in the OE fitment after fulfilling the conditions laid down in Notification No. 96/76, dated 16-3-1976, No. 164/76, dated 12-5-1976 and No 154/77, dated 18-6-1977. It was further contended that a plain reading of these notifications would lead to an inescapable conclusion that electric storage batteries intended for use in OE fitment is completely exempt from payment of duty if the conditions laid down therein were fulfilled. Complete exemption does not mean partial exemption and as such no duty can be charged on the parts used in the batteries supplied by the manufacturers of motor cars/agricultural tractors for use in OE fitment which includes the parts of such batteries; as complete exemption from payment of all the duties on the whole i.e. storage batteries means and includes exemption from payment of duty on parts of storage batteries used in the manufacture of storage batteries, they are treated as intermediates which are not sold as such and not to be considered as finished goods and no duty was leviable. They have further contended that there was no wilful mis-statement or suppression of facts. The learned Collector after giving the personal hearing has rejected their contention by almost following the same reasons as in the previous case and has upheld the charge of wilful mis-statement and suppression of facts.
8. We have heard shri V. Sridharan, learned advocate for the appellants and Shri M.S. Arora, learned DR for the respondents, in both the appeals which were heard together for common disposal as per law. Shri Sridharan submitted that there was scope for erroneous interpretation of law and the notification as it stood at that time. The fact that the Govt. had issued a Notification No 11-C in the matter, gave a presumption that there was a genuine misunderstanding of law and hence, there cannot be a charge of wilful suppression of facts. He contended that Notification No 165/78, dated 9-9-1978 amended the previous Notification No. 5/64 deleting the requirement that final product should pay duty. Therefore, this also clearly shows the legislative intention that levy was not to be imposed. He further contended that it was not possible for the assessee to note at the time of manufacture of parts as to whether the said parts would be used in exempted batteries or in the non-exempted batteries. In view of such a situation, the allegation of wilful mis-declaration and suppression is not attributable to the assesee. In this context, he has relied on the following rulings -
Standard Batteries Ltd., Bombay v. Collector of Central Excise, Bombay (Order No. 146/86-B1, dated 13-3-1986) Amco Batteries Ltd.., Bangalore v. Collector of Central Excise, Bangalore (Order No. 469/86-B1, dated 30-6-1986) Jai Plastics v. Collector of Central Excise, Jaipur (Order No. 342/89-C, dated 20-4-1989) Travancore Rayons Ltd., Kerala v. Collector of Central Excise, Cochin (Order No. 582/84-C, dated 24-8-1984 Merck Sharp & Cohme of India Ltd. v. Collector of Central Excise, Bombay (Order No. 589/84-C, dated 16-8-1984) With regard to the second demand pertaining to proforma credit, Shri Sridharan, learned advocate attempted the same arguments and contended that the RT-12 and RG-23 had been filed which had been accepted by the department and credit had been allowed and therefore, the larger period cannot be invoked in this case also.
9. Shri Arora, learned DR appearing for the department, submitted that the Superintendent had by his letter dated 29-5-1978, made aware to the asses-see and therefore, it cannot be said that they held a bona fide belief in the matter. He further contended that duty is however, imposable for 6 months in the matter.
10. We have carefully considered the submissions made by both the sides and have perused the records and the rulings laid down by the learned advocate in the matter. The learned advocate has not argued the case on merits but has only contended that the larger period in the present case is not applicable and in this context, has relied on the rulings referred to above. As regards the merits, the matter is convered by the ruling rendered in the case of Standard Batteries Ltd. v. Collector of Central Excise (supra), wherein the Bench held:
"That the tariff item refers to electric batteries and parts thereof. It is not open to the appellants to contend that the parts were not marketable as the legislature has included parts also to be liable for duty. Moreover, such a plea has not been taken on the earlier occasion. Hence, we do not allow the plea to be raised at this stage.
We see that the show cause notice was actually received by the appellants on 18-1-1978. Shri Kohli is justified in submitting that the demand should be restricted to the clearances between 19-5-1978 to 16-8-1978. We accept the plea"
The above case refers to the same Notification No. 5/64, dated 25-1-1964 and No. 164/76, dated 12-5-1976.
11. In case of Amco Batteries (supra), the Bench again considered the same notifications. The appellants had also made a contention that the demands were time-barred on the ground that there was no suppression and all clearances were with the full knowledge of the Central Excise authorities who were in control of their factory. The RT 12 assessments had already been made and they had filed classification list giving full details. It was also urged in that case that there was strong anomaly which had to be removed through amending of Notification No. 5/64 by Notification No. 165/78-C.E., dated 9-9-1978. On this submission, the Bench has held in paras 3 to 7 as follows :-
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12. In the case of Collector of Central Excise v. East Coast Packaging Ltd. (Order No. 111/91-C, dated 4-2-1991) the assessee therein had taken a plea that the demands were barred by limitation as the notification under Section 11C had been issued by the department thereby admitting a general practice of remand from 25-11-1978 regarding the treatment of LDPE sheets as flexible sheets. It had been urged that in these facts and circumstances and admission of this general practice in the country, by the Government itself, no allegation of wilful suppression or mis-statement of facts can be led against the assessee. They had also relied on the ruling rendered in the case of Mechanical Packaging Industries Pvt. Ltd. v. C.L. Nangia and Ors. [1981 (8) E.L.T. 144 (Bom.)]. The Bench after taking into consideration the plea of the learned advocate in this case, accepted the plea of demand being barred by limitation on the ground of general practice prevailing in the country which had been accepted by the Government by issue of notification under Section 11C.
13. In the case of Jai Plastics v. Collector of Central Excise (Order No. 342/89-C) (supra), the Bench held, by taking into consideration the issue of notification under Section 11C in para 8 as follows :-
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14. We have considered the ruling given by this Bench in Merck Sharp & Cohme of India Ltd v. Collector of Central Excise (Order No. C-589/84, dated 16th August 1984). By this order, the Bench has expressed its view that the Department's letter dated 9-11-1973 (issued prior to show cause notice) cannot be considered as demand but it is only threat that demand will be issued. The findings given by this Bench in paras 7 and 8 are reproduced below:
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15. The findings given by this Bench in paras 8 and 9 in the case of Travancore Rayons Ltd. v. Collector of Central Excise, Cochin (Order No. 582/84-C, dated 24-8-1984) on the demands raised under Rule 9(2) are also reproduced -
"The notice was issued under Rule 9(2), but it does not say that there had been any clearances contrary to Rule 9(1) of Central Excise Rules, 1944. The grounds for the notice are given as being that as per the orders of the Board dated 5-9-1972, a gist of which was communicated on 5-12-1972 the entire quantity to be produced and taken into use, irrespective of the quantity actually used in the coating cellophane or of the quantity of solvent recovered after coating, was liable to payment of duty under Tariff Item No. 14(III)(i). These orders were received only on 7-2-1973.
It is clear to us that Rule 9(2) was employed only because a demand under Rule 10 would have been time-barred. But demand under Rule 9(2) cannot be issued unless the clearances were in contravention of Rule 9(1). Of this there is nothing either in the notice or in the order of the Asstt. Collector. Neither the Asstt. Collector nor the Appellate Collector said that there had been falsification or suppression as to bring in Rule 9(2) into operation. Rule 9(2) provides for penalty to be imposed for clearances made contrary to Rule 9(1). We can find no penal action against the factory. The factory was not even told it had made itself liable to penalty under Rule 9(2). It is clear, therefore that the Central Excise do not hold that the clearances were contrary to Rule 9(1). Therefore, the only appropriate rule would be Rule 10 of Central Excise Rules. Therefore, the demand must be held to be time-barred. Other arguments were advanced before the Bench. But it is not necessary now to discuss them".
16. Taking the various rulings cited above into consideration and applying the ratios thereof, the contention of the appellants that there is no wilful mis-declaration or wilful suppression in the case has to be accepted. The Tribunal has already accepted that when Section 11C notification is issued, then there is a scope of holding a bona fide belief and extended period cannot be invoked. Applying these ratios, the demands for larger period are set aside but however, the assessee will be liable to pay those demands which are within time. The appeals are disposed of on the above terms with the said modification.