Madras High Court
Dcw Ltd., Rep. By The Senior ... vs The Collector Of Central Excise And The ... on 22 January, 2003
Equivalent citations: 2003(159)ELT57(MAD), (2003)1MLJ608
Author: R. Jayasimha Babu
Bench: R. Jayasimha Babu
JUDGMENT R. Jayasimha Babu, J.
1. The appellant is a manufacturer of Caustic Soda by electrolysis of the brine solution. Hydrogen and Chlorine fumes are released in that process of electrolysis. Those fumes when dissolved in water result in the production of Hydrochloric acid. The appellant thus produces Hydrochloric acid as a byproduct. The industrial licence which the appellant had obtained when it established the manufacturing facility in the year 1962 specified one of the items of manufacture as 100% Hydrochloric acid.
2. The appellant commenced manufacture in January 1963. As Hydrochloric acid was exempt from the levy of Central Excise upto 28.2.1979, there was no occasion for the appellant to file any price list for that byproduct till then. It is the case of the appellant and that is also accepted by the Department that almost all of the Hydrochloric acid so manufactured was captively consumed.
3. The appellant filed classification list and price list for that 100% Hydrochloric acid on 16.4.1979 and 17.4.1979. Those lists were approved by the appropriate officer after he revised the value to Rs.175 per metric tonne. The price list filed as also the list that was approved mentioned the strength of the acid as 100%. Though the appellant had claimed the cost of production per metric tonne of that concentration as Rs.25.27, the appropriate officer had revised that upward to Rs.175/-, by relying upon the sale which the appellant had effected a short time prior to 1.3.1979 on which date the exemption was withdrawn. On 25.8.1981, the price of Rs.175/- was revised upward to Rs.205/- per metric tonne for the period from 1.3.1979 to 18.6.1980 and to Rs.225/- per metric tonne from 19.6.1980 onwards. Such upward revision was effected by taking into account the price charged by another manufacturer, Mettur Chemicals, which also produced hydrochloric acid. Under Rule 6 (b) (i) of the c, it is open to the Department to adopt the price of similar goods sold by other manufacturers in cases where excisable goods are captively consumed by the assessee which manufactures those goods subject to the other conditions referred to in that provision. On 12.11.1981 the appellant accepted the price so revised and paid the amount of duty demanded.
4. About a year and a half later, on 12.5.1983, the appellant was served with a notice from the Commissioner, making a demand for Rs.36.18 lakhs as duty that had been allegedly short levied for the period from 1.3.1979 to 30.11.1982. Reliance was placed by the Commissioner on the proviso to Section 11-A of the Act, by alleging that the appellant had intentionally mis-declared the product as 100% hydrochloric acid even though the hydrochloric acid can exist and is commercially used only in 30-33% dilution. The period mentioned in that show cause notice was later limited to 31.5.1981 and the quantum of duty demanded was scaled down to Rs.20,40 lakhs. An adjudication order, which overruled the objections that the appellant had filed to that show cause notice, was made on 10.6.1988 upholding the demand and also imposing penalty. That order was set aside by this Court on 30.1.1989 in W.A. No. 121 of 1989 and the matter was remanded for fresh adjudication as it was found that the principles of natural justice had not been observed. After such remand, a fresh adjudication order was made on 6.3.1989 again upholding the demand, but reducing the penalty from rupees one crore to rupees one lakh. That order was challenged by the appellant initially before this Court and subsequently before the Tribunal by way of an appeal, this Court having declined to examine that order in view of the availability of an alternate remedy. The Tribunal allowed the appellant's appeal on 29.7.1993 and once again remanded the matter for fresh adjudication.
5. When such adjudication was still pending, on 27.8.1990, the Assistant Commissioner issued another show cause notice seeking to revise the approved price list of Rs.220/- per metric tonne for the period from 1.6.1981 to 21.6.1983. As already noticed, the notice that had been issued by the Commissioner on 12.5.1983 was subsequently modified restricting the period to 31.5.1981. In that notice also it was alleged that the appellant had been guilty of suppression of material facts and of having maintained the records improperly and that, therefore, the extended period of limitation under the proviso to Section 11-A was available to the Revenue. In that show cause notice, the claim so made for duty was at the rate of Rs.220.56 per metric tonne of hydrochloric acid at 33% concentration, which in effect meant three times that figure for hydrochloric acid of 100$ concentration. A reply was sent by the appellant contesting the allegations of suppression, in which it was also pointed out inter alia that the same allegation of suppression had been made for the earlier period also and that that issue was pending adjudication.
6. The Assistant Commissioner, however, proceeded with the adjudication and made the order dated 31.5.1991, wherein he held inter alia thus:-
"The allegation made in the show cause notice that the RGI was not maintained as per the law has not been satisfactorily explained by the assessee. Taking the Excise procedure with licencing procedure does not give any extra powers to the assessee to maintain the Central Excise records as they like. Probably to show that it was not a mistake; but in practice the assessee continued to indicate the concentration as 100% in addition to 30-33%. The continual does not legalise the wrong procedure adopted. I am not discussing this point, since the matter is subjudice."
The Assistant Commissioner thus left that question as to whether or not there was suppression to be decided in the proceedings which were already pending before the Commissioner for the earlier period upto 31.5.1981. The Assistant Commissioner, however, upheld the claim of the Department for duty at the rate of Rs.220/- per metric tonne of hydrochloric acid of 30-33% concentration for this period assuming that there was suppression even without having given a finding to that effect and even without awaiting the decision of the Commissioner on that question. The tenor of the Assistant Commissioner's order clearly shows that he intended that this question of suppression be determined for this period also by the order of the Commissioner who was to deal with that question in the proceeding before him for the period upto 31.5.1981.
7. Subsequent to this order, the Commissioner to whom the matter had been remanded by the Tribunal with regard to the legality of the claim that had been raised by the Commissioner by his show cause notice on 12.5.1983 completed his adjudication. The order of the Commissioner, dated 23.4.1997 dealt with the question of suppression. It is necessary to set out that portion of the order of the Commissioner which dealt with this question:-
" The only question to be decided in this case is whether or not there is wilful suppression of any material information warranting invoking the larger period of limitation. The records disclose that M/s DCW have been maintaining production records of hydrochloric acid on 100% basis. Their balance sheet, industrial licence, the classification list and price list filed by them, all have indicated that hydrochloric acid produced is on 100% basis. To a specific query by Superintendent of Central Excise vide his letter dated 29.4.1981 as to why they have declared hydrochloric acid on 100% basis in the classification list filed by them, M/s DCW had replied vide their letters dated 15.5.81 and 19.1.82 that they were accounting at all stages hydrochloric acid on 100% basis and that is why they have mentioned on 100% basis in the classification list filed by them. Further the assessable value sought for approval at the rate of Rs.25.84 per M.T. had also been revised upwardly to Rs.175 per Mt on the basis of comparable goods sold by M/s Mettur Chemical Corporation. On 28.2.79, 15.12.79, 28.2.80, 26.6.81 and again on 18.2.82, stock taking had been conducted and the closing stock of HCL has been ascertained with not discrepancies.
In the above background, could it be alleged that the Department was not aware that the assessee is recording production on 100% basis and that the approval given by the Department for the assessable value MT was not on 100% basis but on the actual diluted quantity. To clarify, 100% basis would mean that although the concentration of the hydrochloric acid might be varying from 30 to 33 or 35%, the production is recorded by dividing the above quantity with the factor of 3.28. For example, if 328 tonne of a concentration of hydrochloric acid varying between 30 to 35% is manufactured in a day, it will be accounted as 100 tonne of hydrochloric acid on 100% basis. This was the practice adopted by the assessee and this was known to the Department. Therefore, when the Department approved the price for one MT, they should have made it clear as to whether the MT represents 100% basis hydrochloric acid or 30 to 35% concentration of hydrochloric acid. The prices should have been approved accordingly. In addition during the relevant period RT 12s have been regularly filed indicating production, consumption of HCL with its value and duty paid. It would have been simple matter to verify whether the production and clearance shown in these returns are correct and whether there is any short levy. Therefore I am not able to sustain the allegation that the assessee concealed the actual production from the Department. Before approving the price, the Department should have made it specific that the approval is for a MT of 100% concentration or 30 to 33% concentration of hydrochloric acid. In view of the above discussions I hold that there is no suppression of any material information and, therefore, the demand made for the period from 1.3.79 to 31.5.81 by the show cause notice dated 12.5.83 is time barred."
8. That order of the Commissioner was challenged by the Revenue before the Customs Excise and Gold (Control) Appellate Tribunal. That challenge was unsuccessful, the Tribunal having dismissed the Revenue's appeal by its order dated 31.10.2002. The Tribunal in the course of its order upheld the reasons given by the Commissioner for holding that there was no suppression. The Tribunal, at paragraph 6 of its order, has observed thus:-
The Revenue is required to show that the assessee had suppressed material facts. In the present case, it is on record that assessee had been filing the classification list and the price lists which had been approved from time to time. The RT-12 returns also had been filed which have been scrutinised and approved. The Department officials have visited the assessee's firm and the manufacturing process has been observed and seen. Before the classification list is approved, it is the duty of the proper officer to ascertain the manufacturing process and verify the declarations filed by them. Although, the declaration made in the classification list is "Hydrochloric Acid (on 100% basis)" and duty has been paid as such, but the department's contention is that 100% HCL acid does not exist and they are manufacturers of 30 to 33%. All these aspects of the matter have been explained by the assessee and they have clearly contended that HCL does not exist as 100% as it will be in gaseous stage and requires to be liquified on lesser percentage. The Hydrochloric acid fumes are taken to the Hcl absorber where it is absorbed by water to form hydrochloric acid of 30 to 33% concentration and the unabsorbed fumes along with the inert gas are vented out through the discharge side of the tail end blower. It is the assessee's case that absorption of Hcl fumes with water is an exothermic reaction and hence the Hcl absorber is necessarily cooled by water. The manufacturing process has been filed with the Department in November 1979 itself which clearly disclosed the formation of HCL of 30 to 33% concentration and that the other materials are also produced. It shows about the correct manufacture and entries which have been checked by the Inspector of Central Excise. Therefore, it cannot be said that Department was not fully aware of the manufacturing process and the assessee had suppressed any material facts with an intention to evade duty. There has been scrutiny of documents on several occasions and it is only at a later date the department intended to change their view regarding tariff classification. The Commissioner has duly examined the matter and clearly upheld the assessee's contention that there was no misdeclaration, misrepresentation or suppression of material facts in the matter with an intention to evade duty. The order is legal and proper...."
9. Thus, the Commissioner as also the Tribunal have concurrently held that there was no suppression by the appellant regarding its manufacturing process or the nature of the product, the strength at which the product could be commercially utilised and also the fact that the records were being maintained by showing the product at 100% strength in conformity with what had been mentioned in the industrial licence which mentioned that the licence had been granted to the appellant for the manufacture of 100% hydrochloric acid. What has been said by the Commissioner and the Tribunal for the period upto 31.5.1981 is applicable with equal force for the period for which the show cause notice was issued by the Assistant Commissioner, viz., 1.6.1981 to 21.6.1983.
10. Though it is a matter of surprise that the Department should have been as ignorant as it has shown itself to be in not realising that Hcl can only be manufactured and sold at a strength not exceeding 33%, such ignorance on its part cannot form the foundation for extending the period of limitation for claiming duty short levied, by invoking the proviso to Section 11-A of the Central Excise Act, 1944. The period of limitation available to the Department within which to act when it seeks to recover duties not levied or not paid or short levied or short paid or erroneously refunded is only a period of six months as provided in Section 11-A(1) of the Act. The extended period for which provision is made in the proviso to Section 11-A(1) can be invoked only in cases where the fault lies with the assessee and the reason for the amount due to the Department not having been paid to it is "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"
11. The Department has been unable to establish that the appellant before us has indulged in or was guilty of any one of the factors mentioned in the proviso to Section 11-A. The Department, therefore, cannot take advantage of the extended period of limitation to justify the demand made by it under the show cause notice issued in the year 1990, seven years after the end of the period for which the price list had been filed. Even if for a moment it were to be assumed that the proviso can be invoked, even the extended period was over by the time the show cause notice was issued.
12. The dismissal of the writ petition filed by the appellant, challenging the adjudication order of the Assistant Commissioner, therefore, cannot be sustained. The appeal and consequently the writ petition are allowed. The impugned order of the Assistant Commissioner dated 31.5.1991 is set aside.