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1997 Supreme(Mad) 637
High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE RAJU AND THE HONOURABLE MR. JUSTICE V. KANAGARAJ
Limenaph Chemicals - Appellant
Versus
Union of India - Respondents
Writ Appeal No. 472 of 1993
Decided On : 23 June 1997
The proviso to Section 11A of the Central Excises and Salt Act, 1944, can only be invoked in cases where there is a wilful mis-statement or suppression of facts with intent to evade payment of duty. Mere inaction or failure on the part of the manufacturer or producer, or conscious or deliberate withholding of information when the manufacturer knew otherwise, is not sufficient.
Headnote:
CENTRAL EXCISE - RECOVERY OF DUTIES NOT LEVIED OR NOT PAID OR SHORT-LEVIED OR SHORT-PAID OR ERRONEOUSLY REFUNDED - EXTENDED PERIOD OF LIMITATION - MIS-STATEMENT OR SUPPRESSION OF FACTS - WILFULNESS - INTENT TO EVADE DUTY - ESSENTIAL PRE-REQUISITES - INTERPRETATION OF SECTION 11A OF THE CENTRAL EXCISES AND SALT ACT, 1944.
Fact of the Case:
The appellant, Limenaph Chemicals, manufactured a product marketed as "Janathacem," which they claimed to be sagol cement and cleared under Tariff Item No. 23 of the Central Excises and Salt Act, 1944. The appellant availed of the exemption of excise duty under Notification No. 5/70, dated 31-1-1970, for sagol cement. The authorities were aware of the manufacturing process and the nature of the product. In 1984, the jurisdictional Superintendent of Central Excise directed the appellant to classify the sagol cement under Tariff Item No. 14-I 2(i) as a cement-based water paint. The appellant objected, citing earlier test reports and their classification under Tariff Item No. 23. Show cause notices were issued in 1984 and 1985, demanding duty and penalty for the period from November 1979 to March 1985. The appellant filed an appeal, which resulted in a de novo adjudication. The Collector of Central Excise, Madurai, confirmed the demand and imposed a penalty under Rule 173Q of the Central Excise Rules, 1944. The appellant challenged this order in the High Court.
Finding of the Court:
The High Court dismissed the appellant's writ petition, holding that the proviso to Section 11A of the Central Excises and Salt Act, 1944, applied, allowing the Department to invoke the extended period of limitation of five years due to the appellant's deliberate misrepresentation of facts and intentional evasion of duty.
Issues: 1. Whether the proviso to Section 11A of the Central Excises and Salt Act, 1944, can be invoked in a case where the Department was aware of the nature of the product and the process of manufacture and sale by the appellant and allowed the appellant to clear the product as sagol cement after drawing samples and obtaining expert reports? 2. Whether the appellant's actions constituted a mis-statement or suppression of facts, either wilfully or with intent to evade payment of duty, as required under the proviso to Section 11A?
Ratio Decidendi: 1. The proviso to Section 11A of the Central Excises and Salt Act, 1944, allows the Department to invoke an extended period of limitation of five years for recovery of duties not levied or paid, or short-levied or short-paid, or erroneously refunded, in cases of fraud, collusion, or any wilful mis-statement or suppression of facts, or contravention of any provision of the Act or rules made thereunder with intent to evade payment of duty. 2. The mis-statement or suppression of facts must be shown to be wilful and with intent to evade duty to attract the proviso to Section 11A. Mere inaction or failure on the part of the manufacturer or producer, or conscious or deliberate withholding of information when the manufacturer knew otherwise, is not sufficient. 3. In the present case, the Department was fully aware of all the relevant facts and even after drawing samples of the product and receiving technical reports, was satisfied and had no grievance with the classification claimed by the appellant. Therefore, the appellant cannot be accused of any suppression of facts or mis-statement of facts, either wilfully or with intent to evade payment of duty.
Final Decision: The High Court's order dismissing the appellant's writ petition was set aside. The impugned proceedings of the Collector of Central Excise were quashed, and the demand could be sustained against the appellant only for the period within six months as stipulated in the main provision of Section 11A.
Raju, J.
The above writ appeal has been filed against the order of the learned single Judge of this Court dated 29-1-1993 in W.P. No. 3788 of 1989, whereunder the learned single Judge was pleased to dismiss the writ petition filed for the issue of a writ ofcertiorarito call for and quash the proceedings of the Collector of Central Excise in Order No. 43/89, dated 31-1-1989.
2.The learned Judge has elaborately narrated the relevant facts and also extracted certain paragraphs from the order of the Collector of Central Excise in appreciating the contentions of parties on either side.
3.The appellant - Limenaph Chemicals, carrying on business at Rajapalayam, is engaged in the manufacture of a product marketed under the name "Janathacem" and the product is said to be manufactured by burning lime stone. The appellant claimed the product to be conforming to 'Sagol cement' and was clearing the product under Tariff Item No. 23 of the I schedule to the Central Excises and Salt Act, 1944, as it originally stood, till it was replaced by Central Excise Tariff Act, 1985. The appellant claim to have availed the exemption of the excise duty under Notification No. 5/70, dated 31-1-1970, under which cement commonly known as sagol and obtained by heating lime stone and burnt coal in a kiln is exempted from the whole of duty of excise leviable thereon. The appellant would contend that at all relevant time right from the inception of the manufacture of the said product by the appellant - firm, the authorities were fully aware of the fact relating to the manufacturing process and the nature of the product. In 1976 the jurisdictional Inspector of Central Excise appears to have sent sample of the petitioner - appellant's product for a test report to ascertain whether the product should be classified under Tariff Item No. 14 (paints) or any other tariff item. By a communication dated 25-2-1978, the Superintendent of Central Excise appears to have informed the appellant that the product was not cement based water paint, but calcium hydroxide in powder and the authorities on that account dropped the idea of classification under Tariff Item No. 14, which related to paints. The authorities continued to permit the appellant to clear its product as sagol and claim the exemption. In the various letters exchanged between the appellant and the Department also, it appears, the same stand has been taken. It is further stated for the appellant that its product was subjected to another test in 1982 after getting the details of manufacture, culminating in the report dated 1-1-1983 and on getting the information about the character of the product, the Chemical Examiner appears to have recommended that the sample could be considered as sagol. Even thereafter, without objections, the appellant was said to have been clearing the product manufactured by it as sagol cement. But, at the same time, by the communication dated 5-11-1984, the jurisdictional Superintendent of Central Excise appears to have directed the appellant to classify the sagol cement under Tariff Item No. 14-I 2(i) as a cement based water paint. The appellant appears to have submitted a reply inviting his attention to the earlier test reports and contended that the product was classified only under Tariff Item No. 23. Again on 22-11-1984, sample appears to have been drawn from the product of the appellant for testing and show cause notices dated 22-11-1984 and 20-4-1985 were served on the appellant to show cause as to why the product should not be classified under Tariff Item No. 68. This was on the view that the product, according to the Department, was not conforming to sagol cement and on the other hand, it was hydrated lime powder and the Department demanded Rs. 6, 93, 814.56 and Rs. 2, 67, 236.18 for the period from November, 1979 to October, 1984 and November, 1984 to March, 1985 respectively, and the proposals as above were confirmed, ultimately.
4.Thereupon, the appellant filed an appeal
