Clarification sought in affirmative to claim exemption is to be treated as bonafide conduct to restrict invocation of extended period.

Case: - M/s UNIWORTH TEXTILES LTD Vs COMMISSIONER OF CENTRAL EXCISE, RAIPUR

Citation: - 2013-TIOL-13-SC-CUS

Brief facts: - The Appellant, an Export Oriented Unit (for short “EOU”), is engaged in the manufacture of all wool and poly-wool worsted grey fabrics. It was granted the status of EOU by the Government of India, Ministry of Industry, Department of Industrial Development by way of a Letter of Permission (for short “the LOP”) dated 31.08.1992 as amended by letter dated 4.5.1993. The appellant applied for a license for private bonded warehouse, which was granted to it under C. No. V (Ch.51) 13- 01/92/100% EOU dated 30.09.1992 by the Assistant Collector, Central Excise Division- Raipur for storing inputs, raw materials, etc. either imported duty-free by availing concessions available for 100% EOU or procured locally without payment of duty for use in manufacture of all wool, poly-wool and other fabrics. For interaction with the appellant, its sister unit, Uniworth Ltd., another EOU, engaged in the generation of power from a captive power plant, obtained another LOP dated 1.11.1994. The said LOP, dated 1.11.1994, permitted usage of electricity generated by the captive power plant by both, Uniworth Ltd. and the appellant Uniworth Textiles Ltd. The appellant purchased electricity from Uniworth Ltd. under an agreement which continued till 1999. Prior to January-February, 2000, the sister unit i.e. Uniworth Ltd. procured furnace oil required for running the captive power plant. This purchase of furnace oil was exempted from payment of customs duty under Notification No. 53/97-Cus., the relevant portion of which reads as follows: -

“Notification No. 53/97-Cus., dated 3-6-1997Exemption to specified goods imported for production of goods for export or for use in 100% Export-Oriented Undertakings -- New Scheme -- Notification No. 13/81-Cus. Rescinded In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962), the Central Government being satisfied that it is necessary in the public interest so to do, hereby exempts goods specified in the Table below (hereinafter referred to as the goods), when imported into India, for the purpose of manufacture of articles for export out of India, or for being used in connection with the production or packaging or job work for export of goods or services out of India by hundred per cent Export Oriented units approved by the Board of Approvals for hundred per cent Export Oriented Units appointed by the notification of Government of India in the Ministry of Industry, Department of Industrial Policy and Promotion for this purpose, (hereinafter referred to as the said Board), from the whole of duty of customs leviable thereon under the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and the additional duty, if any, leviable thereon under section 3 of the said Customs Tariff Act...”

Entry 11 of the said notification at the relevant time read as follows:-

“11. Captive power plants including captive generating sets and their spares for such plants and sets as recommended by the said Board of Approvals.”

In January-February, 2000, Uniworth Ltd. exhausted the limit of letter of credit opened by it for the duty-free import of furnace oil. It made an alternative arrangement of procuring duty free furnace oil under Notification No. 01/95 titled “Specified goods meant for manufacture and packaging of articles in 100% EOU or manufacture or development of electronic hardware and software in EHTP or STP” dated 04.01.1995.The said notification reads as follows

“Notification No. 1/95-Central Excise

In exercise of the powers conferred by sub-section
(1) of section 5A of the Central Excises and Salt Act/ 1944 (1 of 1944), read with sub- section (3) of section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of
1957), the Central Government being satisfied that it is necessary in the public interest so to do, hereby exempts excisable goods, specified in Annexure I to this notification (hereinafter referred to as the said goods), when brought in connection with -
a) the manufacture and packaging of articles, or for production or packaging or job work for export of goods or services out of India into hundred percent export oriented undertaking (hereinafter referred to as the user
industry); or;
XXX XXX XXX
from the whole of,
(i) the duty of excise leviable thereon under section 3 of the Central Excise Act, 1944 (1 of 1944), and
(ii) the additional duty of excise leviable thereon under sub- section (1) of section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957),
XXX XXX XXX

ANNEXURE I

3. Captive power plants including captive generating sets and transformers as recommended by the Development Commissioner/Designated Officer.

3B. Spares, fuel, lubricants, consumables and accessories for captive power plants including captive generating sets and spares, consumables and accessories for transformers as approved by the Assistant Commissioner or Deputy Commissioner of Central Excise.

3C. Furnace oil required for the boilers as approved by the Assistant Commissioner of Customs or Central Excise on the recommendation of the Development Commissioner.”

Therefore, Uniworth Ltd. informed the appellant that it would require the arrangement for running the captive power plant for its own use, and hence, would be compelled to stop the supply of electricity to the appellant. Consequently, as a temporary measure, for overcoming this difficulty, the appellant, while availing the benefit of Notification No. 53/97-Cus, procured furnace oil from Coastal Wartsila Petroleum Ltd., a Foreign Trade Zone unit. It supplied the same to Uniworth Ltd. for generation of electricity, which it continued to receive as before.

Since the appellant was procuring furnace oil for captive power plant of another unit, it wrote to the Development Commissioner seeking clarification that whether duty on the supply and receipt of furnace oil and electricity respectively was required to be paid. The Development Commissioner, referring to a circular dated 12.10.1999 of the Ministry of Commerce, said as follows: -

“They are procuring surplus power from their sister concern M/s. Uniworth Ltd. (Unit- 1, LOP dated 31.01.1989) under Permission No. 248(93) dated 01.11.1994 and the unit transferred 2590.30 KL of furnace oil to M/s. Uniworth Ltd. (Unit- 1) for their captive power consumption. No permission is required from this office for duty free import/ procurement of POL products for captive power consumption. It is further to clarify as per the Exim Policy provision, one EOU may sell/ transfer surplus power to another EOU duty free in terms of Ministry of Commerce Letter No. 1/1/98-EP dated 12.10.1999 (sic)”

Further the appellant received a show cause notice from the Commissioner of Customs, Raipur, demanding duty for the period during which the appellant imported furnace oil on behalf of Uniworth Ltd. It gave the following reason for the same: -

“1.1. M/s. Uniworth Ltd. (Power Division), Raipur, is engaged in the generation of power. M/s. Uniworth Textiles Ltd. and M/s. Uniworth Ltd. both are distinct companies having different LOP Central Excise Registration No. and different board of directors. They are different companies as per Companies Act and they prepare separate balance sheet.

4.2. Therefore it appears that the noticees had not received 742.5 KL of furnace oil … from M/s. Coastal Wartsila Petroleum Ltd… in their factory at all as neither they had storing facility to store the furnace oil so procured nor they had any power plant to utilize the said furnace oil to generate electricity. They also did not have LOP from Government of India… to procure and use furnace oil to generate electricity as they did not have any power plant in their factory… Considering the above fact it is clear that the procurement of 742.5 KL of furnace oil under shipping bill, without payment of customs duty, is against the provisions of Customs Act, 1962 and rules made hereunder (sic).”

The show cause notice was issued on 02.08.2001, more than six months after the appellant had imported furnace oil on behalf of Uniworth Ltd. in January, 2001. This time period of more than six months is significant due to the proviso to Section 28 of the Act. The Section, at the relevant time, read as follows: -

“28. Notice for payment of duties, interest, etc. (1) When any duty has not been levied or has been short-levied or erroneously refunded, or when any interest payable has not been paid, part paid or erroneously refunded, the proper officer may,-

(a) in the case of any import made by any individual for his personal use or by Government or by any educational, research or charitable institution or hospital, within one year;

(b) in any other case, within six months, from the relevant date, serve notice on the person. chargeable with the duty or interest which has not been levied or charged or which has been so short levied or part paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice:

Provided that where any duty has not been levied or has been short- levied or the interest has not been charged or has been part paid or the duty or interest has been erroneously refunded by reason of collusion or any willful misstatement or suppression of facts by the importer or the exporter or the agent or employee of the importer or exporter, the provisions of this sub-section shall have effect as if for the words “one year” and “six Months”, the words “five years” were substituted.

Explanation.-- Where the service of the notice is stayed by an order of a court, the period of such stay shall be excluded in computing the aforesaid period of one year or six months or five years, as the case may be."

The Section imposes a limitation period of six months within which the concerned authorities must commence action against an importer/assessee in case of duties not levied, short-levied or erroneously refunded. It allows the said limitation period to be read as five years only in some specific circumstances, viz. collusion, willful misstatement or suppression of facts. Since the said show-cause notice was issued after the elapse of six months, the revenue, for its action to be legal in the eyes of law, can only take refuge under the proviso to the section. Both the appellate authorities, viz. the Commissioner of Customs and Central Excise (Appeals) and the Tribunal, rejected the claims of the appellant and affirmed payment of duty and penalty. They reasoned that since the appellant procured the furnace oil not for its own captive power plant, Both the appellate authorities, viz. the Commissioner of Customs and Central Excise (Appeals) and the Tribunal, rejected the claims of the appellant and affirmed payment of duty and penalty. They reasoned that since the appellant procured the furnace oil not for its own captive power plant, but for that of another, it could not claim exemption from payment of duty; entitlement of duty free import of fuel for its captive power plant lies with the owner of the captive power plant, and not the consumer of electricity generated from that power plant. Little or no attention was paid to the issue of limitation, which is the primary question for consideration in this case. Aggrieved by the same, the appellant is before the supreme court

Respondent Contentions:- The Revenue contended that of the three categories, the conduct of the appellant falls under the case of “willful misstatement” and pointed to the use of the word “misutilizing” in the following statement found in the order of the Commissioner of Customs, Raipur in furtherance of its claim:

“The noticee procured 742.51 kl of furnace oil valued at Rs. 54,57,357/- without payment of customs duty by misutilizing the facility available to them under Notification No. 53/97-Cus. dt. 3.6.1997”

Hence, the demand is correctly raised by invoking the extended period of limitation.

Reasoning of Judgment: The Hon’ble Supreme Court held that the reasoning of the Tribunal that mere non-payment of duties is equivalent to collusion or willful misstatement or suppression of facts is, in their opinion, untenable. In their opinion, the main body of the Section, in fact, contemplates ordinary default in payment of duties and leaves cases of collusion or willful misstatement or suppression of facts, a smaller, specific and more serious niche, to the proviso. Therefore, something more must be shown to construe the acts of the appellant as fit for the applicability of the proviso. In the present case, from the evidence adduced by the appellant, one will draw an inference of bona fide conduct in favour of the appellant. The appellant laboured under the very doubt which forms the basis of the issue before them and hence, decided to address it to the concerned authority, the Development Commissioner, thus, in a sense offering its activities to assessment. The Development Commissioner answered in favour of the appellant and in its reply, even quoted a letter by the Ministry of Commerce in favour of an exemption the appellant was seeking, which anybody would have found satisfactory. Only on receiving this satisfactory reply did the appellant decide to claim exemption. Even if one were to accept the argument that the Development Commissioner was perhaps not the most suitable repository of the answers to the queries that the appellant laboured under, it does not take away from the bona fide conduct of the appellant. It still reflects the fact that the appellant made efforts in pursuit of adherence to the law rather than its breach.

Further the finding of the Tribunal is not convincing which placed the onus of providing evidence in support of bona fide conduct, by observing that “the appellants had not brought anything on record” to prove their claim of bona fide conduct, on the appellant. It is a cardinal postulate of law that the burden of proving any form of malafide lies on the shoulders of the one alleging it. This Court observed in Union of India Vs. Ashok Kumar & Ors.((2005) 8 SCC 760)that “it cannot be overlooked that burden of establishing malafide is very heavy on the person who alleges it. The allegations of malafide are often more easily made than proved, and the very seriousness of such allegations demand proof of a high order of credibility.”

The Hon’ble Supreme Court has placed reliance on the various decision to support their Contention which is hereunder:-

·         Pushpam Pharmaceuticals Company Vs. Collector of Central Excise, Bombay (1995 Supp(3) SCC 462) = (2002-TIOL-235-SC-CX)
·         Sarabhai M. Chemicals Vs. Commissioner of Central Excise, Vadodara[2] ((2005) 2 SCC 168) = (2004-TIOL-104-SC-CX)
·         Cosmic Dye Chemical v. Collector of Central Excise, Bombay (1995) 6 SCC 117 = (2002-TIOL-236-SC-CX)
·         Anand Nishikawa Co. Ltd. Vs. Commissioner of Central Excise, Meerut ((2005) 7 SCC 749) = (2005-TIOL-118-SC-CX)
·         Collector of Central Excise Vs. H.M.M. Ltd. (1995 Supp(3)SCC 322) = (2002-TIOL-120-SC-CX)
·         Easland Combines, Coimbatore Vs. The Collector of Central Excise, Coimbatore ((2003) 3 SCC 410) = (2003-TIOL-26-SC-CX)
·         Associated Cement Companies Ltd. Vs. Commissioner of Customs ((2001) 4 SCC 593, at page 619) = (2002-TIOL-08-SC-CUS)
·         Aban Loyd Chiles Offshore Limited and Ors. Vs. Commissioner of Customs, Maharashtra ((2006) 6 SCC 482) = (2006-TIOL-97-SC-CUS)

Moreover, this Court, through a catena of decisions, has held that the proviso to Section 28 of the Act finds application only when specific and explicit averments challenging the bonafides of the conduct of the assessee are made in the show cause notice, a requirement that the show cause notice in the present case fails to meet. In Aban Loyd Chiles Offshore Limited and Ors. (supra), this Court made the following observations:

“21. This Court while interpreting Section 11-A of the Central Excise Act in Collector of Central Excise v. H.M.M. Ltd. (supra) has observed that in order to attract the proviso to Section 11-A(1) it must be shown that the excise duty escaped by reason of fraud, collusion or willful misstatement of suppression of fact with intent to evade the payment of duty. It has been observed:

‘...Therefore, in order to attract the proviso to Section 11- A(1) it must be alleged in the show-cause notice that the duty of excise had not been levied or paid by reason of fraud, collusion or willful misstatement or suppression of fact on the part of the assessee or by reason of contravention of any of the provisions of the Act or of the Rules made thereunder with intent to evade payment of duties by such person or his agent. There is no such averment to be found in the show cause notice. There is no averment that the duty of excise had been intentionally evaded or that fraud or collusion had been practiced or that the assessee was guilty of willful misstatement or suppression of fact. In the absence of any such averments in the show-cause notice it is difficult to understand how the Revenue could sustain the notice under the proviso to Section 11- A(1) of the Act.’

It was held that the show cause notice must put the assessee to notice which of the various omissions or commissions stated in the proviso is committed to extend the period from six months to five years. That unless the assessee is put to notice the assessee would have no opportunity to meet the case of the Department. It was held:

...There is considerable force in this contention. If the department proposes to invoke the proviso to Section 11-A(1) , the show-cause notice must put the assessee to notice which of the various commissions or omissions stated in the proviso is committed to extend the period from six months to 5 years. Unless the assessee is put to notice, the assessee would have no opportunity to meet the case of the department. The defaults enumerated in the proviso to the said sub-section are more than one and if the Excise Department places reliance on the proviso it must be specifically stated in the show-cause notice which is the allegation against the assessee falling within the four corners of the said proviso....”

Hence, on account of the fact that the burden of proof of proving malafide conduct under the proviso to Section 28 of the Act lies with the Revenue; that in furtherance of the same, no specific averments find a mention in the show cause notice which is a mandatory requirement for commencement of action under the said proviso; and that nothing on record displays a willful default on the part of the appellant, thus the extended period of limitation under the said provision could not be invoked against the appellant. In view of the afore-going discussion, the appeal is allowed and the decisions of the authorities below are set aside, leaving the parties to bear their own costs.

Decision:- Appeal allowed

Comment:- The essence of this case is that the extended period of limitation has to be carefully invoked only when there is malafide intention on the part of the assessee and where the conduct of the assessee indicates its innocence and will to abide by the provisions enshrined in the Act, the larger period cannot be invoked. In the instant case also, the appellant sought clarification from the Development Commissioner regarding the admissibility of the exemption which indicated its genuineness irrespective of the fact that the replies given by the Development Commissioner held less force.

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