Full Judgment
2. In their reply dated 25.10.89, they stated that the condition stipulated in the above two notifications for availing exemption in respect of raw material falling under heading Nos. 39.01 to 39.15 of Central Excise Tariff applies only to the raw material manufactured in India and that the virus of this condition is not attracted to the imported goods and in the case of imported goods, the condition is that the additional duty or Countervailing Duty had been paid. It is submitted by them that they submitted classification lists from time to time, which had been approved. They had also written a letter dated 22.7.86 by which they requested the authorities to confirm the classification. They denied having suppressed facts or having wrongly declared about any aspect in the matter. As according to them, they had themselves sought clarifications from the department and corresponded on this issue. They further stated that whenever they purchased indigenous raw material on GP1, they paid duty on laminated pouches They stated that they would have availed Modvat credit. They additional duty on the imported material which was more than the duty on the finished products and therefore, they did not gain any benefit by availing of the exemption. They again stated that they acted under bona fide belief that the restrictions pertaining to the headings of the raw material in these above two notifications were limited only to indigenous raw material manufactured in India and did not extend to imported goods. They submitted that they maintained RG1 to clear goods under NIL GP1, filed RT.12 returns which were assessed by Range Supdt.
and there was no mala fide on their part.
3. Ld. Additional Collector did not agree with their contention. He rejected their pleas both on merits as well as on time bar and held that the Notification in question did not apply to the facts of the imported goods and hence they were not entitled to the benefit of the same. Even with respect to the plea of the bona fide belief and to the plea that there was no suppression or mis-declaration, the Additional Collector did not agree with their contention but instead confirm the duty and imposed penalty.
4. Arguing for the appellants, Ld. Advocate Shri L.R. Attar pointed out to the correspondence in the matter with the department and about the classification List filed by them declaring the details of the goods and about the approval of the same from time to time. It is his contention that the appellants themselves had approached the department by their letters and given all the details pertaining to the benefit available to them in respect of the said notification. They had also by their letters dated 16.7.86 and 22.7.86 sought clarification about the matter pertaining to the classification and availment of the benefit and the same had been acknowledged by the department and therefore approved the classification list by granting the benefit. It is his contention that the Modvat Credit was available to them on the inputs which was much higher than the duty liability and therefore, they had no intention to evade duty at all. Ld. Counsel submits that the party had paid duty for the six months period prior to the date of show cause notice and they do not wish to contest in the matter. The contest raised by the party is only pertaining to invocation of larger period and imposition of penalty. He cited Hon'ble Supreme Court judgments rendered in the case of Collector of Central Excise v. H.M.M. Ltd. as reported in 1995 (76) ELT 479 (SC) and Cosmic Dye Chemical v. Collector of Central Excise, Bombay he submits that there is no case made out by the department for confirming the duty by invoking larger period or for imposing penalty in the matter.
5. Ld. DR reiterated the departmental arguments in terms of the order passed by the lower authorities.
6. We have carefully considered the submissions made by both the sides and perused the impugned order and the correspondence and the classification list approved from time to time. The appellants have not contested the matter on merits. They have also deposited duty for six months period and the department has granted the Modvat credit for the said duty paid. However, the contest is only with regard to invocation of larger period and imposition of penalty. In this regard the appellants have pointed out to their letters and the classification list filed by them. They have stated that they have not suppressed any facts and disclosed all the materials' details. It is their contention that it was for the department to have scrutinised the correspondence as well as the classification list at the initial stage and should have guided them. There is lot of force in this submission. As can be seen from the classification list, the same has been approved from time to time. We have perused the correspondence as well it is clear from all the material on record that there is no suppression or mis-declaration.
Therefore, the plea raised by the department that there is no mis-statement leading to grant of notification wrongfully is not sustainable. It was for the department to have scrutinised all the details and satisfied itself about the applicability of the notification before granting the same. It appears that the department itself was not clear about the applicability. It is cleared from the conduct of the party that they had no intention to evade duty, as they would have been eligible for Modvat Credit which is more than the duty liability and therefore, their submission that they would have paid the duty by availing Modvat Credit is acceptable. It was mentioned by the appellants that the department while accepting the payment of duty for six months period, has granted them the benefit of Modvat Credit. In that view of the matter, the plea of the appellants that their is no cause for invocation of larger period and imposing the penalty is required to be accepted. Taking into consideration the citation referred to by the appellants, the impugned order is modified to the extent that the demand for extended larger period is to be held as unsustainable. The penalty is also set aside. The appeal is allowed in the above terms.
7. It is observed that the appellants have not pressed their case on merits and have only pleaded w.r.t. time bar and on the question of bona fide.
8. This brings to the fore two things--(i) The department's contention that the benefit of the exemption notification in question was not available to them and had been wrongly claimed deliberately (ii) the issue of time bar which has to be viewed in this context and is intertwined with the question of bona fides as we have to deal with the extended period of time.
9. The appellants letter dated July 22, 1986 does not advance their cause in this respect because in this letter they have asked for their advice regarding classification of laminated pouches i.e. the final product and not w.r.t. the raw material for manufacturing such pouches the classification of which was important for the purpose of claiming the benefit of notification. This notification allowed the benefits only on the articles made out of goods falling under heading 39.01 to 39.15 and the appellants had claimed the benefit in the classification list on this ground whereas now it stands admitted that the raw material namely coated polyester film did not fall under any of these headings. In other words, the declaration made in the classification list was factually incorrect. Simply mentioning that the imported raw material was used in the manufacturing of the final product was not sufficient for the purpose. The Bill of Entry against which the goods were imported clearly shows the classification (of the imported raw material) under 3920.69 and therefore it is evident that the appellants had knowingly and consciously made the mis-declaration. That it missed the eye of the Inspector and other officers is no defence.
10. In view of this position, I observed that the authorities below were justified in coming to the conclusion that there was a deliberate mis-statement of facts with intention to evade duty and therefore extended period of time was available to the department.
11. The eligibility or otherwise to Modvat is entirely different matter and is required to be considered on its own merits and subject to fulfilment of conditions regarding Modvat provisions. It can however, not be disallowed merely on the ground that it is not a case of bona fide or genuine mistake. Therefore, while the appellants are liable to pay the duty and penalty, their plea of Modvat is required to be considered and its grant or otherwise considered subject to verification and satisfaction of the proper officer.
12. Therefore, while the operative portion of the order regarding confirmation of demand of duty and imposition of penalty is required to be upheld, at the same time matter is required to be remanded for consideration of the aspect of Modvat in accordance with law.
In view of difference of opinion between Hon. Member Judicial and the Vice President, the matter is submitted to the Hon. President for reference to a third Member on the following point: Whether in view of the observations and findings of Hon. Member (J) the impugned order is required to be modified to the extent that the demand for extended (larger period) period is required to be held as unsustainable and the penalty is required to be set aside and the prayer regarding Modvat credit is required to be accepted.
Whether in the light of observations and findings of the Vice President the extended period of time was available to the department and therefore the impugned order was required to be upheld regarding confirmation of demand and imposition of penalty; And further whether Modvat aspect could be considered separately and subject to verification and satisfaction of the proper officer only, and therefore the matter was required to be remanded for this purpose? 13. The appellants were manufacturing laminated pouches (falling under TSH 3922.90 till February 1987 and thereafter under TSH 3926.90 of the Central Excise Tariff) from imported raw material (plastic laminated film) during the relevant period (August 1986 to March 1989). In the classification lists filed from time to time since August 1986, they claimed classification of their product as above and exemption of the same from Central Excise duty under Notification No. 132/86-CE dated 1.3.86 upto 28.2.88 and thereafter under Notification No. 53/88-CE dated 1.3.88. Such classification lists were duly approved by the proper officer also.
14. The Department, later on, alleged that the party had mis-declared in their classification lists that their product (pouches) was made out of goods falling under Tariff Headings 39.01. to 39.15 and had suppressed the fact that the product was manufactured from imported plastic laminated film falling under Customs Tariff Heading 3920.69.
Alleging further that the appellants had indulged in such misdeclaration and suppression with intent to evade payment of duty, the department issued show cause notice (SCN) dated 27.9.89 proposing to recover from them Central Excise duty amounting to Rs. 1,46,892.50 on their clearances of the period August 1986--March 1989, invoking the extended period of limitation under Section 11A of the Central Excises & Salt Act (CESA). The show cause notice further proposed to impose penalty on the party for alleged contravention of Central Excise Rules.
The party contested the proposed actions of the Department through their reply to the show-cause notice. The dispute was adjudicated upon by the Additional Collector of Central Excise, who confirmed the demand of duty and imposed a penalty of Rs. 10,000 on the party. It was this adjudication which was challenged in appeal before the Tribunal. The learned Members of the Tribunal's Bench which heard the case arrived at different conclusions and recorded separate orders. The following point of difference, thus, arose before me as Third Member.
Whether in view of the observations and findings on Hon. Member (J) the impugned order is required to be modified to the extent that the demand for extended (larger period) period is required to be held as unsustainable and the penalty is required to be set aside and the prayer regarding Modvat credit is required to be accepted, Whether in the light of observations and findings of the Vice President the extended period of time was available to the department and therefore the impugned order was required to be upheld regarding confirmation of demand and imposition of penalty; And further whether Modvat aspect could be considered separately and subject to verification and satisfaction of the proper officer only, and therefore the matter was required to be remanded for this purpose? 15. I have carefully examined the records and heard learned Advocate Shri L.R. Attar for the appellants and learned JDR Shri Ravinder Babu for the Revenue. It is borne on record that the appellants deposited duty for the period of six months preceding the date of the show-cause notice and that the Department allowed Modvat credit in respect of the same. The only issues which have survived for consideration in the appeal is whether the larger period of limitation under Section 11A of the CESA could have been validly invoked for demand of duty for the period prior to the above period of six months and whether penalty could have been validly imposed on the party.
16. Adverting to the first issue, the learned Advocate has submitted that the proviso to Section 11A of the CESA could not have been invoked against the appellants in the absence of suppression of facts on their part and that the lower authority's finding of "suppression of facts with intent to evade payment of duty is quite erroneous inasmuch as the party could have taken Modvat credit of the duty paid on the imported inputs and utilised the same for payment of duty on their clearances of the laminated pouches even if the benefit of exemption under any Notification was not available to them. The party had, while filing their classification lists, believed that the condition (for exemption under Notifications 132/86 and 53/88 ibid) that the raw materials should be made out of goods falling under CET Headings 39.01 to 39.15 applied only to indigenous raw materials and not to imported ones.
After pointing out this, learned Counsel has further submitted that the Department acquiesced in the appellants' understanding of the provisions of the Notifications and; approved the Classification Lists, wherein they had claimed the benefit of such Notifications.
17. He has further pointed out that the proper officer did so after examining the product samples produced by the party. Learned Advocate has also referred to the correspondence between the appellants and the Department while contending that nothing was suppressed before the latter by the former. Learned Advocate has then sought to draw support (for his challenge against invocation of the larger period of limitation against the appellants by the lower authority) from the Apex Court's decisions in the cases of Rainbow Industries (P) Ltd. v. CCE, Vadodara and CCE, Baroda , He has also relied on the Apex Court's judgment in the case Prabhu Steel Industries Ltd. v. CCE Nagpur and the Tribunal's CCE v. Muzzafarnagar Steels .
18. Learned Departmental Representative has reiterated the findings of the lower authority and, relying on the Apex Court's observation contained in the last sentence of para (4) of the judgment in Rainbow Industries (supra), he has submitted that the appellants cannot get support from the said judgment by banking on the approval of classification lists by the Department without proving that the clearances of their product were made with the Department's knowledge and without intent t evade duty.
19. I have carefully considered the rival submissions and the case law cited. The Additional Collector's finding that the party deliberately misled the Department for getting approval of their classification lists and benefit of the Notifications cannot be sustained inasmuch as the onus of classification of their product was on the Department and such onus should be presumed to have been discharged duly and regularly (i.e. in accordance with the provisions of Rule 173-B of the Central Excise Rules). There is no rebuttal of this presumption in the present case. The facts and circumstances of the case have hardly smacked of suppression of any material fact by the party. Since the party would, otherwise, have availed the facility of Modvat credit on their imported input, any intent to evade payment of duty on their clearances of the finished products is improbable. The Department has failed to prove existence of the elements necessary for invocation of the extended period of limitation (under the proviso to Section 11A(1) of the Act) for demanding duty.
20. In the case of Prabhu Steel Industries (supra), the removal of the goods was in accordance with the approved classification list and there was no concealment of the material facts. The apex court held that the case did not fall within the ambit of the proviso to Section 11A(1) of the Act and therefore the show cause notice (in that case) was beyond the period of limitation. In Muzzaffarnagar Steels (supra), the Assistant Collector had admittedly approved classification list, in view of which fact the Tribunal held that it could not be said that the assessee had suppressed any material fact.
21. In Cot spun Limited (supra) a Constitution Bench of the Supreme Court, approving the ratio of the decision in Rainbow Industries (supra), held that any demand of duty contrary to approved Classification List would only be prospective from the date of issue of the show-cause notice. The case law cited by the learned Advocate is, clearly, applicable to the present case, in favour of the appellants.
22. Following the above case law as applied to the facts of the present case, I must decide the first issue against the Department holding that the disputed demand of duty is barred by limitation. Consequently, the second issue relating to penalty also shall stand decided in favour of the appellants.
23. As regards Modvat credit of the countervailing duty paid on the inputs it has to be held that the denial of such credit by the lower authority is not sustainable inasmuch as that authority's finding of suppression etc., has already been reversed. Further, I do not see any reason for remanding the matter as proposed by the learned Vice President.
24. In the light of the foregoing discussion and findings, I would concur with the conclusion arrived at by the learned Member (Judicial).
The referred point of difference stands answered accordingly.
1. In the light of the majority view, we hold that the demand for the extended period of limitation is unsustainable and that penalty is also unsustainable and accordingly set aside the same.