1. Dispute regarding the applicability of the extended limitation period under the proviso to Section 11-A of the Central Excises & Salt Act, 1944, for unlicensed manufacturing. (Para 1 , 2 )
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1994 Supreme(SC) 959
SUPREME COURT OF INDIA
(BEFORE R.M. SAHAI AND N. VENKATACHALA, JJ.)
TAMIL NADU HOUSING BOARD
Versus
COLLECTOR OF CENTRAL EXCISE, MADRAS AND ANOTHER
Civil Appeal No. 2081(NM) of 1986
Decided on 28-9-1994
Appeal allowed
Advocates appeared:
A.K. Ganguli, Senior Advocate (A. Mariarputham and Ms Aruna Mathur, Advocates, with him) for the Appellant;
M. Chandershekran, Additional Solicitor General (Pradeep Kumar Jain, V.K. Verma and P. Parameswaran, Advocates, with him) for the Respondents.
Advocates:
A.K.GANGULY, A.MARIAPUTHAM, ARUNA MATHUR, M.CHANDRASEKHRAN, P.PARMESHVARAN, PRADIP JAIN, V.K.VARMA
A.K.GANGULY, A.MARIAPUTHAM, ARUNA MATHUR, M.CHANDRASEKHRAN, P.PARMESHVARAN, PRADIP JAIN, V.K.VARMA
Important Points
To invoke the extended five-year limitation period under the proviso to Section 11-A of the Central Excises & Salt Act, 1944, the department must prove both a specific irregularity (such as suppression of facts) and a deliberate intent to evade payment of duty, not mere failure to pay.
Subject
Taxation Law - Central Excise Duty
Act Referred
Headnote
Central Excises & Salt Act, 1944 - Section 11-A - Factories Act, 1948 - Board obtained registration for two units, one, a concrete unit and other, a wood unit - Both units manufactured finished products - But wood frames, shutters etc. manufactured in wood working unit were not sold - They were fixed in buildings constructed by Board - Licence under Act was obtained for concrete unit as finished products manufactured in this unit were sold to outsiders - But no licence was obtained for wood unit as appellant was advised that no licence was needed for wood unit - Officers of Central Excise Department visited premises - Notice to show cause of Central Excise Rules was issued - In reply one of objections, amongst others, raised was that there was no suppression of facts nor was there any intention to evade payment of duty and notice issued was liable to be quashed on this ground alone - Objection was rejected - In appeal it was held by Tribunal that appellant had taken a licence for manufacturing concrete products, as sale of them was made even to outsiders - But in respect of wood products it held that even though manufacture was for captive consumption yet claim of appellant that it was not required to take any licence, was not correct as it was carrying on manufacturing activity – Held, No licence was taken out for wood products as according to it was advised so by Excise Department itself - It would have been better if appellant would have examined officer who was advised not to take licence - But mere non-examination of officer could not give rise to an inference that appellant was intentionally evading payment of duty - When appellant was found not to have been making any profit and it had taken out licence for concrete unit then in absence of any other material to prove any deliberate act of appellant presumption of reasonable doubt of appellant cannot be said to have been successfully rebutted - Finding of Tribunal that there was an intention on part of appellant to evade payment of duty, is not based on any material - It was an inference drawn for which there was no basis – Appeal Allowed.
Legal Category Hierarchy
Table of Contents
2. Whether the failure to obtain a license for captive consumption constituted suppression of facts or an intention to evade payment of excise duty. (Para 2 )
3. The proviso to Section 11-A requires both a specific situation like suppression and a deliberate intent to evade duty, which must be strictly construed. (Para 3 )
4. To invoke the extended limitation period under Section 11-A, the department must prove both the existence of suppression or fraud and a deliberate intent to evade duty. (Para 3 )
5. Appeal allowed; the Tribunal's order set aside and the show cause notice for levy of duty and penalty quashed. (Para 4 )
6. When is the extended limitation period under the proviso to Section 11-A of the Central Excises & Salt Act, 1944, applicable?
It applies when duty is not levied or short-levied due to fraud, collusion, wilful misstatement, or suppression of facts, or contravention of the Act or rules, specifically with the intent to evade payment of duty. (Para 3 )
7. What is the required standard for proving intent to evade duty under Section 11-A?
Intent to evade requires more than a mere failure to pay duty; the assessee must be aware that the duty was leviable and must deliberately avoid paying it to defeat the provision of law. (Para 3 )
8. Who bears the burden of proof regarding the applicability of the proviso to Section 11-A?
The initial burden is on the department to prove the existence of situations like fraud or suppression. Once material is brought on record, the burden shifts to the assessee. (Para 3 )
9. Does the failure to examine a witness or officer automatically imply an intention to evade duty?
No, the mere non-examination of an officer who provided advice does not give rise to an inference that the assessee was intentionally evading payment of duty. (Para 3 )
ORDER
1. This appeal filed by a statutory body, registered under the Factories Act, raises an important question of law relating to scope of the proviso to Section 11-A of the Central Excises & Salt Act, 1944 (in brief the Act).
2. The Board obtained registration under the Factories Act, 1948 for two units, one, a concrete unit and other, a wood unit. Both the units manufactured finished products. But the wood frames, shutters etc. manufactured in the wood working unit were not sold. They were fixed in the buildings constructed by the Board. Licence under the Act was obtained for the concrete unit as the finished products manufactured in this unit were sold to outsiders. But no licence was obtained for the wood unit as the appellant was advised that no licence was needed for the wood unit. The officers of Central Excise Department visited the premises on 11-5-1984. On 29-6-1984 notice to show cause under Rule 173 of the Central Excise Rules, 1944 was issued. In reply one of the objections, amongst others, raised was that there was no suppression of facts nor was there any intention to evade payment of duty and the notice issued was liable to be quashed on this ground alone. The objection was rejected. In appeal it was held by the Tribunal that the appellant had taken a licence for manufacturing concrete products, as sale of them was made even to outsiders. But in respect of wood products it held that even though the manufacture was for captive consumption yet the claim of the appellant that it was not required to take any licence, was not correct as it was carrying on manufacturing activity. The plea of honest belief was not accepted as there was no proof that it acted with normal diligence. It was further held that the Board failed to produce any person in-charge of wood working unit who consulted the Excise Authorities, as claimed by the appellant, and assured that the wood manufacturing unit was not exigible to any duty. From these, an inference was drawn that even though the appellant was a non-profit-making body it could not be held that it did not intend to evade payment of duty.
3. Section 11 -A of the Act empowers the Central Excise Officer to initiate proceedings where duty has not been levied or short-levied within six months from the relevant date. But this period to commence proceedings under proviso to the section stands extended to five years if the duty could not be levied or it was short-levied due to fraud, collusion, wilful misstatement or suppression of facts etc. The proviso to Section 11-A reads as under:
"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 Central Excise Officer, the words Collector of Central Excise, and for the words six months, the words five years were substituted."
A bare reading of the proviso indicates that it is in nature of an exception to the principal clause. Therefore, its exercise is hedged on one hand with existence of such situations as have been visualised by the proviso by using such strong expression as fraud, collusion etc. and on the other hand it should have been with intention to evade payment of duty. Both must concur to enable the Excise Officer to proceed under this proviso and invoke the exceptional power. Since the proviso extends the period of limitation from six months to five years it has to be construed strictly. The initial burden is on the department to prove that the situations visualised by the proviso existed. But once the department is able to bring on record material to show that the appellant was guilty of any of those situations which are visualised by the section, the bu
