Madras High Court
Limenaph Chemicals vs Union Of India on 29 January, 1993
Equivalent citations: 1993(44)ECC79, 1993(68)ELT77(MAD)
ORDER
1. The petitioner has filed this writ petition challenging the correctness and validity of the order dated 31-1-1989 passed by the second respondent in the petition. The petitioner is engaged in the manufacture of a product marketed in the brand name "Janatha Cem". According to the petitioner, it is a kind of cement obtained by heating limestone and charcoal in a kiln. As per the affidavit of the petitioner, the product was being cleared as Sagol under Tariff Item No. 23 of the First Schedule of the Central Excises and Salt Act, 1944 as it stood till it was replaced by the Central Excise Tariff Act, 1985. The petitioner has also availed of exemption from excise duty under Notification No. 5/1970 dated 31-1-1970. The Notification exempted "cement commonly known as Sagol and obtained by heating limestone and burn coal in a kiln" from the whole of duty of excise leviable thereon. In 1976, sample of the petitioner's product was drawn by the Superintendent of Central Excise, Rajapalyam and the petitioner was informed that the sample is calcium hydroxide in powder form and it is not cement based water paint. In 1981, the petitioner was called upon to submit his profit and loss account from the year 1974 to 1980 to the Superintendent of Central Excise, Rajapalyam. On 30-4-1982 the petitioner wrote to the Superintendent of Central Excise that the production was eligible for exemption under Notification No. 5/70 and it was not to be classified under tariff Item No. 68. The petitioner furnished details of investment like machinery, building etc., in August 1982. In September 1982 the petitioner was called upon to furnish a certified copy of the total sales of its products for the year 1981-82 duly certified by the auditor of the company so as to enable the department to determine the duty liability of its product under Tariff Item No. 68. The petitioner sent a reply that the product would fall under Tariff Item No. 23 and not under Tariff Item No. 68 and it was entitled to exemption as stated already. In October 1982, samples were drawn by the department to find out whether it was Sagol cement and eligible for exemption under the aforesaid notification. Further details were called for the they were also furnished. It is stated that no communication was sent to the petitioner thereafter till 1984. In 1984 the petitioner wrote to the Superintendent of Central Excise as to the classification of the product as tested by the Department. The Department called for further details and they were also furnished by the petitioner. Further samples were drawn in November 1984 of determine the classification.
2. On 22-11-1984 a show cause notice was issued to the petitioner on the basis that the product would fall under Tariff Item No. 68 and he was called upon to show cause why duty should not be levied from November 1979 to October 1984. The provisions of Section 11A of the Central Excises and Salt Act was also invoked in that notice. In paragraph 15 of the notice it was stated that the petitioner deliberately misdeclared the goods as "wall painting cement" and misrepresented to the department that it was sagol exempted under Notification No. 5/70 dated 31-1-1970. A reply was went by the petitioner in December 1984, A second show cause notice was issued on 20-4-1985 for the period 1-1-1984 to 31-3-1985. It was stated in paragraph 15 thereof that the petitioner had misdeclared the goods and made misrepresentations to the department as to the classification of the product. Again the petitioner sent a reply denying the statements contained in the show cause notice.
3. An order was passed by the Assistant Collector of Central Excise on 26-7-1985 holding that the petitioner was guilty of misrepresentation and misdeclaration and classifying the product as one falling under Tariff Item No. 68. The order directed the petitioner to pay a duty of Rs. 6,93,814.56 for the period 1979-80 to 1984-85. Another order was passed on 19-8-1985 by the Assistant Collector of Central Excise, Rajapalayam for the subsequent period directing the petitioner to pay a duty of Rs. 2,67,236.68 from 1-1- 1985. In that order it was stated that there was no question of limitation as the show cause notice dated 20-4-1985 was well within the period of six months mentioned in Section 11A of the Central Excises and Salt Act. In the earlier order dated 26-7-1985 it was stated that the period of limitation was five years as contained in the proviso to Section 11A in view of the fact that the petitioner had made misdeclaration and misrepresentations.
4. The aggrieved petitioner preferred appeals to the Collector. The latter passed an order on 31-3-1986 setting aside the orders of the Assistant Collector and remanding the matter for fresh consideration. The Collector held that the question could be decided only after the result of the test samples drawn already was communicated to the party and the market name of the item, as distinct from the name used by the manufacturers should also be considered. Hence, the Collector directed de novo enquiry into the matter and has directed the authorities to make enquiries in the market and collect trade enquiry reports.
5. By virtue of Section 8 of the Central Excise Amendment Act of 1985, the power to issue show cause notice invoking the extended period of five years stood transferred to the Collector of Central Excise. Hence, the Collector issued a final show cause notice on 17- 9-1988 in continuation of the earlier show cause notices. By that time, the market enquiries had also been made and it is the case of the department that `Janatha Cem' was used for while-washing the walls. The Collector held an enquiry and ultimately passed an order on 31-3- 1989 confirming the demands made in the show cause notices and directed the petitioners to pay a duty of Rs. 9,61,050.74 and imposed a penalty of Rs. 1,00,00/-. It is that order which is challenged by the petitioner in the present writ petition
6. Though the petitioner has challenged in the petition the classification of his product under Tariff Item No. 68, in the course of arguments, learned counsel for the petitioner stated that he was not challenging the classification in these proceedings. He confined his arguments to the question of limitation. According to him, the extended period of five years would not apply in this case and the proviso to Section 11A of the Central Excises and Salt Act cannot be invoked by the authorities. It is contended that the authorities were always aware of the manufacture of the product by the petitioner and they had taken samples on more than one occasion and they could have very easily found that the petitioner's case was not true and taken action earlier.
7. Section 11A(1) and the proviso thereto read as follows :-
"When any duty of excise has not been levied or paid or his been short levied or short paid or erroneously refunded, a Central Excise Officer may, within six months from the relevant due, 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 wilful misstatement 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."
8. Under the proviso, if any duty of excise has not been levied by reason of fraud, collusion or any wilful misstatement or suppression of facts, or contravention of any of the provisions of the Act or any of the rules made thereunder with intent to evade payment of duty, then the period is five years for issuing show cause notice and not six months as provided in the main part of the Section viz., clause (1) of Section 11A of the Act. The question is whether the petitioner is guilty of misstatement of fact or suppression of fact or contravention of any of the provisions of the Act. Inasmuch as the petitioner has not chosen to challenge the classification in these proceedings, I have to proceed on the footing that the petitioner's product will fall under Tariff Item No. 68 and not Tariff Item No. 23 as claimed by the petitioner. I have also to proceed on the footing that the petitioner's product cannot be claimed to be Sagol entitled to the exemption from duty under the notification of 1970.
9. In those circumstances, the only question will be whether there was misstatement of facts by the petitioner. There is no doubt about the same as the petitioner has throughout been making a claim before the Department that his product is nothing but Sagol and is entitled to exemption under Notification of 1970. The said contention having been found against and not challenged in these proceedings, I have to hold that there was a misstatement of facts on the part of the petitioner and consequently, the proviso to Section 11A(1) of the Act can be invoked by the Department.
10. Moreover, the order which is challenged by the petitioner has referred to some other circumstances which go to prove that there was a deliberate misdeclaration and misstatement of facts, Paragraphs 12 and 13 of the impugned order read as follows :-
"12. The fundamental question to be decided in this case is the classification of the product manufactured by the party. It is clear from the records that the party has been manufacturing hydrated lime power for very long. In fact once in 1976 and then in 1982, the sample of the product was tested and the Chemical Examiner's test report revealed that what is manufactured and cleared by them is nothing but calcium hydroxide which is totally distinct from cement or sagol. In order to appreciate facts in its proper perspective, it is necessary to trace back the history of the unit. The present unit M/s. Limenaph Chemicals, Rajapalayam was constituted under a partnership deed executed on 1-4-1978 between the various partners. Clause (3) of the partnership deed clearly lays down as to what the firm intended to manufacture, viz., "The partnership business shall be that of manufacture of Lime Powder and other allied Industrial Chemicals."
13. It is seen from a copy of their letter dated 27-3-1979 of M/s. Limenaph Chemicals addressed to the Branch Manager, State Bank of India that they did convey a copy of the partnership deed to the State Bank. In this copy, it is seen that the word `Lime Powder' appearing in clause (3) was corrected to read as `SAGOL'. It is clear that this correction was carried out.
"Subsequently, but this correction is not noticed in the partnership deem submitted by the party to the Department. Obviously as the correction in the copy submitted to the Bank was deliberately manipulated by them, this was not brought to the notice of the Department. I had asked the party to supply me a copy of the Project Report in respect of this unit and a copy of which they had submitted to the Bank. Though they promised to furnish the same within 15 days of the personal hearing they failed to do so, their failure in this regard is deliberate as production of the Project Report would have exposed their wrong claim.
11. The question of limitation is considered ultimately in paragraph 19 of the order. The relevant part of it reads thus :-
"19. The party has contested the Department's steps in invoking the proviso to Section 11A(1) of the Central Excises and Salt Act, 1944 in raising the demand for the period November 1979 to March 1985. As already mentioned above the party was manufacturing and clearing time power right from 1974 onwards. It was classified as sagol in 1979, solely for the purpose of availing the exemption contained in Notification No. 5/70. This was done by manipulation of the records through correction in the partnership deed and misrepresentation of the facts before the Departments relating to the correct classification of the product manufactured by them. Under the self removal procedure scheme, manufacturers of excisable goods are bound to declare the correct nature description and classification of the product manufacture by them in their classification list under Rule 173C of the Central Excise Rules, 1944. In this case the party manipulated the records to show the department that what they manufactured and cleared is 'Sagol' whereas it was well known to them that sagol and lime powder are not the same. This clever misrepresentation of fact was carried out with the sole intention to evade payment of duty on the lime powder manufactured by them."
12. A perusal of the above passages in the order show that there was a deliberate misstatement on the part of the petitioner with regard to the classification of the product and the entitlement of the same to exemption under the notification of 1970. Once it is made out that there was misstatement of facts has regards the eligibility of the product for exemption, it follows that the proviso to Section 11A of the Act would apply.
13. Even though a remedy by way of appeal is available to the petitioner, it has not chosen to avail of it but has come to this court under Article 226 of Constitution of India. The scope of the enquiry under Article 226 of the Constitution is limited and it is not possible for this Court to reverse the conclusions of facts which are based on materials available before the authorities. In fact, an objection is taken by the respondents that as an efficacious alternative remedy is available to the petitioner, the writ petition is not maintainable. No doubt the petitioner has not stated in the affidavit filed in support of the writ petitioner as to why the remedy of appeal is not efficacious and why it has chosen not to avail of the same. On the other hand, the statement in the affidavit as found in paragraph 20 is that the petitioner has no efficacious alternative remedy. But, the writ petition was admitted in 1989 and nearly four years have elapsed since the filing of the writ petition. It is not proper for this Court at this state to conclude that the petition is not maintainable.
14. As the question of limitation depends on the facts of the case and it has to be decided whether there was a misstatement of facts on the part of the petitioner, the conclusions of fact arrived at by the concerned authority in the impugned order have to be accepted as they do not suffer from any error apparent on the face of the record. There is no error of jurisdiction.
15. The fact that the Department was aware of the manufacture by the petitioner and that samples have been taken by the Department on more than one occasion would not alter the situation. What is required for the proviso is a misstatement of fact on the part of the person concerned and not the knowledge of the Department about the manufacture of the particular product.
16. In the result, the writ petition has to fail and it is dismissed. There will be no order as to costs.