The court established that suppression of facts for extending limitation requires deliberate intent to evade duty, not mere failure to act.

JUDGMENT :

BHARGAV D. KARIA, J.

1. Heard learned advocate Mr. Utkarsh Sharma for the appellant and learned Senior Advocate Mr. Prakash Shah with learned advocate Mr. Anand Nainawati for the respondent.

2. The appellant Revenue has preferred this appeal under Section 35G of the Central Excise Act, 1944 (for short “the Act”) on the following substantial questions of law which were formulated by order dated 26.03.2009 by this Court arsing from the judgment and order dated 29.08.2007 in Appeal No. E/64, 2981 to 2984 of 2006 passed by the Customs, Excise and Service Tax Appellate Tribunal, West Zonal Bench, Ahmedabad (CESTAT).

“(a) Whether in the facts and circumstances of the present case, the Tribunal is justified in holding that there were no grounds for invoking extended period of limitation available under the proviso to Sub Section (1) of Section 11A of the Central Excise Act, 1944, despite suppression of material facts with intent to evade payment of duty and despite show cause notice having been issued in the year 1998, demanding duty relating to the period 04.07.1995 to 22.10.1996?

(b) Whether in the facts and circumstances of the present case, the Tribunal was justified in holding that the demand was barred by limitation, despite evasion of central excise duty amounting to Rs.11,05,67,466/ involved in clearance of 11,61,099 Kgs. of Draw Warped Polyester Yarn of the value of Rs.19,87,87,595/ manufactured and removed clandestinely by the respondent by the recourse to fraud/willful misstatement of facts/suppression of facts and in contravention of provisions of the Central Excise Act, 1944 and the Rules made thereunder, entitling the invocation of the larger period of limitation under the provisions of Subsection (1) of Section 11A of the Central Excise Act, 1944 read with Rule 9(2) of the Central Excise Rules, 1944?

(c) Whether in the facts and circumstances of the case, the Tribunal is justified and has committed a substantial error of law in holding that the demands raised beyond the normal period of limitation of six months are to be barred on the ground of the department's knowledge subsequent to the alleged suppression/mis-declaration by the assessee?

(d) Whether in the facts and circumstances of the case, the Tribunal has committed substantial error of law in setting aside consequential order of the jurisdiction commissioner imposition of penalty on respondent of Rs.7,92,11,173/ under rule 173Q f the Central Excise Act, 1944 and interest at the applicable rate on delayed payment of central excise duty under Section 11AB of the Central Excise Act, 1944?”

3. The relevant facts can be summarized as under :-

3.1. The respondent Company was engaged in manufacture of the draw warping of partially oriented polyester yarn out of indigenously purchased partially oriented yarn of polyester falling under Chapter 54 Heading 5402 of the Central Excise Tariff Act, 1985. The respondent Company manufactured 11,61,099 kgs. of yarn valued at Rs. 19,87,87,595/- during the period from 04.07.1995 to 22.10.1996.

3.2. The Jurisdictional Superintendent by letter dated 25.10.1994 informed the respondent Company that if only draw warping process is done, no registration is required as no duty is payable by the respondent Company. Thereafter by letter dated 22.11.1994 issued by the Superintendent of Central Excise, it was informed to the respondent Company that a clarification has been received that units having draw twister, draw winder and drawing of polyester filament yarn are required to be registered with Central Excise Department even though there is no duty liability.

3.3. The respondent Company thereafter app