Customs, Excise and Gold Tribunal - Mumbai
Kirloskar Oil Engine Ltd. vs Collector Of Central Excise And Customs on 6 August, 1991
Equivalent citations: 1993(65)ELT371(TRI-MUMBAI)
ORDER R. Jayaraman, Member (T)
1. This is an appeal directed against the order passed by the Addl. Collector of Central Excise & Customs, Pune, bearing No. 49/CEX/90 dated 31-12-1990.
2. The facts of the case are that, the appellants claimed modvat credit in respect of the inputs - Bi-metal strips used in the manufacture of bearings. Accordingly, they were availing of this benefit. However, it came to the notice of the Department on a perusal of the RT 12 and RG 23 etc., that they were taking modvat credit even in respect of the inputs used in the manufacture of bearings, which were removed under Chpt. X procedure under Nil rate of duty as OE equipments cleared to other manufacturers. Hence, the Supdt. issued a notice on 9-4-1987, covering the period from April, 1986 to Oct. 1986, denying modvat credit in respect of the duty paid on Bi-metal used in the manufacture of bearings, which were cleared under Chpt. X procedure at Nil rate of duty. The Asst. Collector adjudicated upon the show cause notice and the matter went up before the Collector (Appeals). The Collector (Appeals) held in his order dated 4-5-1989, stating that the show cause notice demanding duty for extended period under Section 11A of the Central Excises Act and Rule 57-I has been issued by the Supdt. on 9-4-1987 and the same has been adjudicated upon by the Asst. Collector. In view of the amended proviso to Section 11A with effect from 27-12-1985, the said show cause notice is to be issued and decided by the Collector only. Though, there was no provision for extended period in Rule 57-I itself, prior to amendment on 6-10-1988, all recovery of wrongly taken credit is governed by Section 11A of the Central Excises Act. In view of the aforesaid reasonings, he set aside the order of the Asst. Collector with a remark that the Asst. Collector is free to send all the relevant papers to his Collector for taking suitable action as he deems necessary. On this, a corrigendum was issued by the Addl. Collector on 22-11-1989, referring to the order of the Collector (Appeals) and stating that the assessee have cleared the goods under Chpt. X procedure without payment of duty and this fact was suppressed by the assessee and provisions of Section 11A are rightly invoked. On the basis of the corrigendum, the Addl. Collector adjudicated the case and passed the impugned order confirming the demand for a sum of Rs. 3,60,029/-, subject to verification of certain amount of duty, which has been paid under AR-3As. The present appeal is against the aforesaid order.
3. Shri Bodas, the Ld. Consultant for the appellants, took us through the copies of the show cause notice, issued by the Supdt., the order of the Collector (Appeals) and the corrigendum issued by the Addl. Collector and pleaded that the Addl. Collector's order is without basis of a valid show cause notice. Hence, the entire order is liable to be set aside on this ground. He also contended that even during the period when Rule 57I was not containing the specific provisions of time limit, it is always subject to provisions of Section 11 A. This is the view, which has been held by the Karnataka High Court in the case of Thungabhadra Steel Products Ltd. reported, in 1991 (33) ECC 140 (Kar.). Even in the case decided by the Gujarat High Court, reported in 1990 (30) ECC 142 (Guj.) - Torrent Laboratories Pvt. Ltd. that court has held that there is a need for issue of show cause notice and the show cause notice is required to be issued within a reasonable period. The High Court also has held that what was implicit in the rule has been made explicit with little more precision, by introducing the amendment. Hence, in the context of the amended rule, the reasonable period could only be six months in the normal circumstances and 5 years in the case of fraud, mis-statement, suppression etc. He also contended that the notice issued by the Supdt. does not allege any suppression or fraud on their part. On the contrary, the allegation is based only on their own RT.12, RG.23, GP.I & GP.II. The Department, having missed the opportunity of raising the demand at the time of assessment on RT.12 returns cannot justify the longer period by throwing the allegation of suppression on the assessee. He, therefore, stated that the demand is time barred, and it has been adjudicated even without a valid show cause notice existing as on date.
4. Shri Naik, the Ld. JDR, for the Department, pleaded that the show cause notice issued by the Supdt. is very much valid. The notice has been issued within a reasonable period and that is what is required to be done as per the decision of the Gujarat High Court in the case of Torrent Laboratories Pvt. Ltd. The Supdt. has clearly indicated that the goods were removed under bond without payment of duty and modvat credit to that extent has to be proportionately reduced. The appellants are assessees working under SRP and hence they ought to have done this, since they know that modvat credit is not admissible, if they have been used in the exempted final product. He also contended that the corrigendum makes a specific mention of suppression of the fact of removal without payment of duty under bond, wherein the inputs have been used and hence that communication, though styled as corrigendum, is to be treated as a valid show cause notice. He also heavily relied on the decision of the Gujarat High Court in the case of Torrent Laboratories (supra), and pleaded that when Rule 57-I did not prescribe any time limit, the notice issued within a reasonable time can be enforced against them, whether there is suppression or otherwise. Hence, the appeal is required to be rejected.
5. After hearing both the sides, we find that in this case, the following issues can be identified for a decision by us:
(i) Whether, there exists a valid show cause notice for adjudication by the Addl. Collector;
(ii) If it so existed, whether, the adjudication done on the basis of the alleged suppression for invoking the extended period could be justified.
6. As seen from the order of the Collector (Appeals), he has set aside the order of the Asst. Collector on the ground that the show cause notice has been issued beyond a period of six months and this can be done only by the Collector, after the amendment to Section 11A. Shri Naik's plea is that the show cause notice has not been set aside and only the order of the Asst. Collr. is set aside. The show cause notice issued by the Supdt. is perfectly valid and it also covers part of the demand within the period of six months. We have carefully looked into the position, in the context of the Collector (Appeals') order. The Collector (Appeals') order contains two parts; one is setting aside the Asst. Collector's order and another is, giving liberty to the Asst. Collector to send the relevant papers to his Collector for taking suitable action as deemed necessary. Taking this second part of the order, there could be more than one course of action, which is open for the Administrative Collector in the circumstances given:
(i) The Collector could have directed the Asst. Collr. to confirm only that part of the demand, which is within the period of six months, giving a finding that this is not a case of suppression justifying the extended period;
(ii) If the Administrative Collector is of the view that a suppression has been committed for defrauding the revenue, he would have directed the issue of a fresh show cause notice, especially, when the Supdt. has not made any fresh specific allegation.
7. In this case, the Addl. Collector has only chosen to issue a corrigendum for directing the appellants to show cause to him and in that corrigendum, he has also included the allegation that the assessee has cleared the goods under Chpt. X procedure without payment of duty and according to him this fact was suppressed by them. Otherwise, he totally accepts the factual position as narrated in the show cause notice, issued by the Supdt. If that is the position, on a perusal of the notice issued by the Supdt., the allegation of wrong utilisation of modvat credit is entirely the basis of RT.12, RG.23 and G.P.I and G.P.II. There is no whisper about any other private records not revealed to the Department. The fact that the removal under Chpt. X is evident from the GP 2 attached to RT.12. In the circumstances, even the fact of suppression alleged by the Addl. Collector in the corrigendum, is not supported by the other facts mentioned in the show cause notice issued by the Supdt., which is not sought to be discarded by the Addl. Collector. We are of the view that, on a belated assessment of RT.12 returns, the officers have found that the modvat credit has been taken even in respect of final product cleared under Chapter X procedure. Hence, they have issued a demand for recovery of this modvat credit. Unfortunately, when the demand was issued, major part of the demand had become time barred. Only a period of one month or so was within time. The Asst. Collector has confirmed the demand without going into the aspect of time bar. When the Collector (Appeals) has given a finding that the order is to be set aside because it is based on a notice issued beyond six months by the Supdt., after amendment of Section 11 A, the notice itself is wiped out. The subsequent action by the Addl. Collector alleging suppression does not anywhere exist in the original show cause notice issued by the Supdt. Hence the Addl. Collector ought to have issued a fresh notice. In this view of the matter, we hold that the issue raised at Sr. No. (i) is to be answered in favour of the appellants and the appeal is required to be allowed on this ground alone. In view of this, we do not propose to go into the issue at S. No. (ii), though arguments were advanced on this legal issue. We will await for another opportune moment for considering this legal issue.
In the result, we allow the appeal and set aside the order of the Addl. Collector.