Customs, Excise and Gold Tribunal - Delhi
Pushpam Pharmaceutical vs C.C.E. on 31 July, 1987
Equivalent citations: 1989(40)ELT74(TRI-DEL)
ORDER
S.D. Jha, Vice-President
1. The questions for decision in these three appeals disposed of by this common order are -
(a) whether Tariff Item 68 goods unconditionally and fully exempted from duty under Notification No. 55/75-C.E., dated 1.3.1975 as amended were not includible for computing the aggregate value of clearances for judging the eligibility of the appellants to benefit of exemption under Notification No. 71/78 or No. 80/80 dated 19.6.80;
(b) whether the fact that the goods falling under Tariff Item 68 manufactured by the appellants were totally and unconditionally exempted from payment of duty and consequently the appellants exempted from licensing control under Notification No. 111/78 would make such goods falling under Tariff Item 68 non-excisable and the value of their clearance not includible in determining eligibility of the appellants to benefit of exemption under Notification No. 71/78 or No. 80/80.
(c) whether on the facts and circumstances of the case, invoking the longer time limit of 5 years for raising demand of duty against the appellants is not legal and justified; and
(d) whether the imposition of penalty in the 3 cases is on the facts and circumstances of the cases not justified and called for.
2. These three appeals arise out of orders-in-original Nos. 8 of 1985, 9 of 1985 and 10 of 1985 passed by Collector of Central Excise, Bombay-I all dated 24.6.85. These are the outcome of three show cause notices (1) dated 26.2.1983 read with corrigendum dated 7.12.1983, (2) dated 19.7.83 read with corrigendum dated 7.12.1983 and (3) dated 7.12.1983. The first show cause notice raising in all a demand of Rs. 38,276.31 P. relates to the period 1.4.1982 to 31.1.1983. The second show cause notice dated 19.7.1983 read with corrigendum dated 7.12.1983 raised in all a demand of Rs. 4,492.82 P. for the period 1.2.83 to 31.3.83. The third show cause notice dated 7.12.83 raised a demand in all of Rs. 1,28,162.97 P. for the period 1.4.79 to 18.6.80 (relatable to Notification No. 71/78 dated 1.3.78) and 19.6.80 to 31.3.1982 (relatable to Notification No. 80/80-C.E., dated 19.6.80). The notice also called upon the appellants to show cause why penalty be not imposed against them for breach of various rules set out in the notification. The gist of the allegations against the appellants in brief was that the appellants were manufacturer of P & P medicines falling under Tariff Item 14-E (of the First Schedule of the Central Excises and Salt Act, 1944) were exempt from licence control as far Notification No. 71/78-C.E., dated 1.3.73 read with Notification No. 111/78-C.E., dated 9.5.78 as according to the declaration filed by them for the year 1978-79, their turnover was less than Rs. 5 lakhs. The appellants did not file any declaration for the subsequent years 1979-80, 1980-81 and 1981-82. During verification of the declaration filed by the appellants for the year 1982-83 for goods falling under Tariff Item 14-E the Central Excise officers found that the appellants were also manufacturing and clearing goods falling under Tariff Item 68 i.e. Pharmacopoeial products. The appellants had however, not filed any declaration under Tariff Item 68 for the Pharmacopoeial products claiming exemption from licencing control as required under Notification No. 111/78 dated 9.5.78 nor show the value of clearance of these products both under Tariff Item 68. In the declarations filed by them under Tariff Item 14-E, they claimed exemption for the years 1978-79,1982-83. It is common ground that if value of clearance of goods falling under Tariff Item 68 which in each year is far in excess of Rs. 20 lakhs, be added to appellants clearance of goods falling under Tariff Item 14-E, the same would exceed Rs. 20 lakhs and appellants would be ineligible to benefit of exemption under Notification No. 71/78 till the period 18.6.80 and No. 80/80 for the period 19.6.82 to 31.3.82 as detailed above. After usual investigation, 3 show cause notices, as set out above were issued alleging that the appellants had not filed classification list, price list and list of products manufactured by them, nor determined nor paid the Central Excise duty on the goods cleared, cleared the goods without cover of valid documents, licence and failed to make statutory records and documents and had thus committed breach of Rule 173-E, 173-F, 173-C, 173-G(1) read with Rule 9(1), 173-G(2) read with Rule 51-A, 173-G(4), 173-G(3) read with Rule 53 and 226 of the Central Excise Rules, 1944.
3. The notices raised demand of duty and proposed penalty as already set out above. The appellants filed replies dated 27.2.85, 20.5.83 and 18.8.83 to the show cause notices. In the replies, the appellants denied the charges as being totally false, misconceived and untenable. In the replies to the notices, the appellants urged that pharmacopoeial products falling under Item 68 of the Central Excise Tariff were wholly and unconditionally exempted from payment of Central Excise duty under Notifications No. 55/75 and 104/82. The appellants factory was also exempted from Central Excise Licensing control. The appellants therefore, submitted that there was no legal and statutory obligation upon the appellants to follow any Central Excise procedure and make any declaration. It was also submitted that prior to introduction of Notification No. 71/78-C.E., dated 1.3.78, the appellants were holding Central Excise licence but on account of exemption from payment of Central Excise duty and Central Excise licence control under the two Notifications No. 71/78 and No. 111/78, the appellants surrendered their licence and the same were cancelled by the Central Excise Department. It was further submitted that wholly and unconditionally exempted goods falling under Tariff Item 68, i.e. Pharmacopoeial goods cannot be clubbed into aggregate value of clearance for purposes of determining eligibility to exemption under Notification No. 71/78 and No. 80/80. For this argument, they referred to besides Section 2-D of the Central Excises and Salt Act, 1944, to a number of decisions in the reply. It was also urged that the claim was time-barred as there were 3 High Court decisions in favour of the appellants stand and in such a case, demand could not be for more than 6 months. Show cause notice was liable to be quashed on the ground of limitation. About penalty, the appellants relying on a decision of the Tribunal, urged that the contraventions, if any, took place in view of unsettled policy of law with conflicting decisions, hence no penalty should be imposed in these cases. The Collector afforded an opportunity of hearing to the appellants and then passed orders as aforesaid confirming demand of duty for the periods set out above. He also imposed a penalty of Rs. 10,000/-, Rs. 1,000/- and Rs. 25,000/- in the 3 cases by the 3 orders respectively. Aggrieved with these orders, the appellants have filed 3 appeals before the Tribunal which have been heard together.
4. At the hearing of the appeals, Shri R.K. Jain, learned Consultant for the appellants submitted that excisable goods ceased to be excisable goods after full exemption from duty. According to him, Tariff Item 68 goods Pharmacopoeial medicines manufactured by the appellants falling under Tariff Item 68 were fully and unconditionally exempted under Notification No. 55/57-C.E., dated 1.3.75 or No. 104/82 dated 28.2.82 and therefore, the value of clearance of these goods could not be clubbed for judging the eligibility of the appellants to benefit of exemption under Notification No. 71/78 or No. 80/80 dated 19.6.80. For this legal proposition, Shri Jain, in all fairness, placed before the Bench, the decisions in his favour and decisions against. Shri Jain submitted that decisions supporting the appellants view are -
(i) Sulekh Ram & Sons v. U.O.I. - 1978 ELT (J 525) (Del.)
(ii) Nagrath Paints Pvt. Ltd. v. U.O.I. - 1978 Tax Law Reporter No. 645
(iii) Eseptori & Co. P. Ltd. v. Superintendent of Central Excise - 1985 (19) ELT 57 (All.)
(iv) Tata Export v. Union of India - 1985 (22) ELT 732 (MP)
(v) Shri Madhav Mills P. Ltd. v. Collector - 1984 (17) ELT 310 (Pat.)
5. For the contrary view, he brought to the notice of the Bench, the following two decisions -
(i) Tamil Nadu (Madras) State Handloom Weavers Cooperative Society v. Assistant Collector - 1978 ELT (J 57) (Mad.)
(ii) Vishal Andra Industries v. U.O.I. - 1983 ELT 2265 (Del.)
6. Relying on Madhav Mills Pvt. Ltd. and Tata Exports (supra), Shri Jain submitted that wholly exempted goods were not includible in the value of clearance of all excisable goods. He however, in fairness, drew attention of the Bench to Delhi High Court decision in Vishal Andhra Industries case (supra) where contrary view is taken. Relying on State of Tamilnadu v. Kandaswami [1975 (36) STC 191 (SC)], Shri Jain submitted that taxable goods ceased to be taxable goods after full exemption. He also submitted that 5 year time limit could hot be applied in the case of the appellants as the non-filing of declaration by the appellants with respect to Tariff Item 68 goods was due to unsettled position of law and thereafter conflicting decisions of the High Court and plea of bonafide on the part of the appellants. Proceeding further, Shri Jain submitted that in view of this unsettled legal position, penalty was not imposable against the appellants. For the purpose, he relied on a decision of the Supreme Court in Cement Marketing Ltd. v. Assistant Commissioner [1980 ELT 295 SC]. Besides the Supreme Court decision, he also relied on the following four decisions -
1. Chibramau Cold Storage v. Collector of Central Excise - 1985 (19) ELT 269 (Tribunal)
2. Jayashree Textiles & Industries and Ors. v. Collector of Central Excise 1985 (22) ELT 708 (Cal.)
3. Indian Record Manufacturing Co. Ltd. v. Collector of Central Excise, Calcutta - 1984 (16) ELT 324 (Tribunal)
4. Basant Pran Electric Co., Calcutta v. Collector of Central Excise, Calcutta 1984 (17) ELT 499 (Tribunal)
5. Raja Industries v. Assistant Collector - 1986 (24) ELT 9 (Karnataka) Relying on Raja Industries v. Assistant Collector 1986 (24) ELT 9 (Karnataka), Shri Jain submitted that demand against the appellants was liable to be set aside for the period as data relied on by the Department does not support the allegations. Proceeding further, Shri Jain submitted that appellants manufacture of goods falling under Tariff Item 68 had also been exempted from Licensing Control without the requirement of even filing the declaration in respect of these goods. Shri Jain further submitted that as the appellants were not only exempt from payment of duty with respect to Tariff Item 68 goods but were also exempt from Licensing Control, goods falling under Tariff Item 68 must be held to be non-excisable and this was a distinctive feature from the decisions against the appellants contention (already referred to above). In this connection, Shri Jain referred to a Supreme Court decision in Healthway Dairies 1978 ELT J-457. Reference in this connection was also made to Hindustan Brown Boveri v. State of Gujrat - AIR 1981 SC 1055.
7. Smt. Chander learned Departmental Representative representing the respondents, controverting Shri Jain's arguments, submitted that fully unconditionally exempted goods do not cease to be excisable goods and the value of their clearance would have to be included for the purpose of determining aggregate value of clearance under the two notifications. For the purpose, she relied on the Delhi High Court decision in Vishal Andhra Industries v. Union of India - 1983 ELT 2265 (Del.) and the Karnataka High Court decision in Karnataka Cement Factory v. Superintendent of Central Excise and Ors. - 1986 (23) ELT 313. She submitted that Supreme Court decision in State of Tamilnadu v. Kandaswami (supra) had been taken note of by the Tribunal in 1986 (25) ELT 843 and in spite of this decision, the Tribunal following the Karnataka High Court decision held that fully and unconditionally exempted goods do not cease to be excisable. Therefore, value of such goods would be includible for finding out the aggregate value of clearance under the two notifications. She submitted that merely because the manufacturer was exempt from Licensing Control would not mean that the goods manufactured by the manufacturer would cease to be excisable. She also referred to two decisions of the Tribunal Order No. 576/86-C dated 3.10.86 M/s. Techno Chemical Industries v. Collector of Central Excise, Cochin where the Tribunal had taken a similar view. According to her, licencing and excisability were two different concepts. About time-bar, she submitted that the appellants had not filed any declarations with respect to Tariff Item 68 goods and in the declarations filed in respect of 14-E goods, they had not disclosed anything about clearance of Tariff Item 68 goods. It was thus a clear case of suppression of fact or wilful mis-statement to evade payment of duty. She also submitted that on the facts and circumstances of the case, penalty was rightly imposed against the appellants. She urged for dismissal of the appeals.
8. We have carefully considered these submissions made by both the parties. Taking up first, the question whether the goods in question having been fully and unconditionally exempted under Notification No. 55/75-C.E., dated 1.3.75 as amended and the argument that on this being done, goods ceased to be excisable goods, the question need not detain us long. We have already referred to divergent decisions on the point to which Sh. Jain for the appellants has, in all fairness, referred during his arguments. Smt. Chander has referred to a very recent decision of High Court of Karnataka in Karnataka Cement Pipe Factories case [1986 (23) ELT 313 (Karnataka)]. The decision refers to almost all the divergent decisions of different High Courts on the point including some of those referred to by Shri Jain during arguments (paras 7,8,9 and 10 of the order). The High Court following the decisions of Delhi, Andhra Pradesh and Madras High Courts held that excisable goods exempted from excise duty by virtue of notifications issued by the Central Government do not cease to be 'excisable goods'. The Hon'ble High Court held -
"The character of a product, as excisable goods, does not depend upon the actual levy of duty, but depends on the description as 'excisable goods' as contained in the First Schedule to the Act."
After referring to Rule 8(1) of Central Excise Rules, the High Court further held as under -
"The submissions made on behalf of the petitioner that the moment a manufacturer is allowed exemption in respect of any goods by virtue of a notification, it ceases to be 'excisable goods."
"The contention advanced on behalf of the respondents that the words, "as being subject to a duty of excise" in Section 2(d) is only descriptive of the goods and not to the actual levy, is the correct approach to the question."
As for Shri Jain's reliance on the Supreme Court decision in State of Tamilnadu v. M.K. Kandaswamy - AIR 1975 SC 1987 for the argument that after exemption the goods ceased to be taxable goods, it may be stated that the Tribunal in 1986 (25) ELT 843 (Tribunal) in Shri Krishna Tiles & Pottery case on which Smt. Chander has placed reliance in para 7 of the decision, repelled the contention placing reliance on the Supreme Court judgment in Healthway Dairies v. Union of India - (AIR 1976 SC 2271 -1978 J-457) and held that even on exemption excisable goods continue to be excisable goods. Shri Jain's reliance therefore, on Kandaswamy's case does not help the appellants.
9. It may also be stated that the Tribunal in Techno Chemical Industries v. Collector of Central Excise, Cochin - Order No. 576/86-C dated 3.10.86 inter alia following the Karnataka High Court decision and Delhi High Court decision in Vishal Andhra Industries v. Union of India - 1983 ELT 2265 (Del.) had taken a similar view.
9A. In view of the foregoing, we hold that excisable goods on being exempted from payment of duty by exemption notification issued under Rule 8(1) of Central Excise Rules, do not cease to be excisable goods and for that reason, unless the relevant notification specifically so provides, would not be excludible from the value of clearances.
10. Shri Jain during arguments submitted that the goods manufactured by the appellants were free from excise control and were exempt from licensing therefore, it be held that goods manufactured by them were not excisable. He argued that exemption from duty is distinct from licensing. According to him, in this case, the appellants with respect to the goods were not only exempt from duty but also exempt from licensing. For this argument, he placed reliance on certain observations of the Supreme Court in Healthways Dairies v. Union of India - (1978 ELT J-457). On the same ground, he sought to distinguish the Tribunal decision in M/s. Techno Chemical Industries case Order No. 576/86-C. According to him, the fact that the appellants were exempt from licensing distinguished their case from the decision in Techno Chemicals Industries case.
11. We do not accept Shri Jain's argument on the point. The Karnataka High Court decision in Karnataka Cement Pipe Factory case which we have followed is clear that character of a product as excisable goods depends on the description as "excisable goods" as contained in the First Schedule to the Act. In view of this decision, the fact that the appellants manufacture of goods was exempt from excise control or from licensing would make no difference to the question of goods being excisable or their inclusion in the value of clearance unless as already said, the notification itself make such exclusion permissible. It is nobody's case that notification in question provides for such exclusion.
12. As for Shri Jain's strong reliance on the Patna High Court decision in Madhav Mills Pvt. Ltd. v. Collector - 1984 (17) ELT 310 for the argument that unconditionally exempted goods is not includible for the value of clearance and the argument that such value could not be said to be 'cleared' within the meaning of word 'clearances' used in the notification, it is sufficient to say that Delhi High Court decision in Vishal Andhra Industries case (supra) held the value of such clearance to be includible. Besides, we observe that in Shree Shanker Industries, Bombay v. Collector of Central Excise, Bombay -1984 (17) ELT 402 (Tribunal), in spite of the Madhav Mills case having been cited before the Tribunal (para 24 and 25 of the decision) followed the Vishal Andhra Industries decision and the Madras High Court decision in Tamilnadu (Madras) State Handloom Weavers Society Ltd. and held the value includible. It would therefore, not be proper to differ from this Special Bench decision. Madhav Industries case therefore, does not help the appellants.
13. Shri Jain submitted that the appellants activity of manufacture was within the knowledge of the Department as earlier the appellants held a licence prior to introduction of Notification No. 71/78 After issue of this notification, the appellants surrendered the licence which was cancelled by the Central Excise authorities. According to him, on these facts, invoking the longer time limit of 5 years under Section 11A of the Central Excises and Salt Act, 1944 which is applicable in the case of mis-statement, suppression of facts, collusion, fraud and the like, should not be invoked in the appellants case and the time limit for raising the duty, if any, should be the normal and shorter time limit of 6 months. We cannot agree with Shri Jain's submissions of the point. The mere fact that in some distant past one was engaged in manufacturing activity and for the par-pose held a licence, would in our view, be not sufficient to attribute knowledge to the Central Excise authorities about the appellants manufacturing activity during the period in question. On the other hand, it is common ground that the appellants did not bring the fact of their manufacture under Tariff Item 68 goods to the knowledge of the Central Excise authorities and at the same time continued to avail of the exemption in respect of Tariff Item 14-E goods which would otherwise, have not been available to them. In our view, on these facts, the lower authorities have rightly invoked the longer time of 5 years in raising demand of duty against the appellants.
14. As (or Shri Jain's argument about penalty, that in view of divergent view of the High Court as to unconditionally exempted goods being excisable for non-excisable and such value being includible or otherwise in !he value of clearance, we do see considerable force in the argument. From the impugned order, we observe that in all the years, the value of clearance of specified goods for the purpose of Notification No. 71/78 was within exemption limit. The appellants became ineligible for exemption only when value of clearance of goods falling under Tariff Item 68 unconditionally exempted under Notification No. 55/75 dated 1.3.75 is included in determining the value of aggregate clearances. About such includibility, (as already said,) there are divergent High Court decisions.
15. It may be that the appellants may not have filed a declaration mentioning about manufacture of such goods in the belief that they were not includible in the value of clearances based on a number of decisions of High Court. (To us also it appears that) but on these facts owing to uncertain legal position about value of clearances of unconditionally exempted goods being includible in determining the value of aggregate clearances (having regard to the Supreme Court decision and other decisions referred to in para 6 of the order above), the case does not call for imposition of any penalty. We, therefore, set aside the penalty imposed against the appellants in all the 3 cases.
Except as to relief of setting aside penalties, we dismiss these appeals.