Invocation of Exended peiod of Limitation u/Sec. 11AC on the basis of Balance sheet

PJ/Case Laws/2011-12/1404

Case: KIRLOSKAR OIL ENGINES LTD v/s COMMISSIONER OF CENTRAL EXCISE, NASIK

Citation: 2004 (178) ELT 998 (Tri.-Mumbai)

Issue:- Invocation of extended period of limitation under proviso (1) of Section 11A on the basis of Balance sheet – whether sustainable?

Brief Facts:- M/s Prasant Khosla Pneumatic Ltd had amalgamated with appellant-company w.e.f. 1-4-98. M/s Prasant Khosla Pneumatic Ltd had received certain components under chapter X procedure without payment of duty and these components were to be used in the manufacture of ‘MAN’ diesel engine. Over a period of time these components became obsolete and could not be utilized and became unusable for the anticipated industrial product. Their value was also written down in the balance sheet in July 2000. Hence the appellant applied for the remission of the duty on the said obsolete components but no action was taken by jurisdictional commissioner. Afterwards on 2-10-01 after waiting for a period more than one year, the appellant disposed of the components which were received under chapter X procedure and paid duty under protest.

The said inputs were lying in the factory at the time of issuance of Show cause notice dated 20.06.2000. The second show cause notice was issued on 20.04.2000 supreseding the earlier show cause notice.

The Commissioner (Appeal) held that there was suppression and the extended period is invokable and thus attracting the provisions of Section 11AB and 11AC of the Central Excise Act, 1944. Thereafter, the appellant have not challenged that part of the order of the Original Authority by which he has confirmed the total duty as demanded. Appellant was only challenging the invocation of the provisions of Section 11AB and 11AC of the Central Excise Act, 1944.

Appellant is in appeal before the Tribunal.

Appellant’s Contention:- Appellant contended that in the books of accounts the value had been written down to show the present net present value of the inputs. These inputs were lying in the factory at the time of issue of first show cause notice dated 20-6-2000. Appellant further submitted that on 17-8-2000, the inputs were cleared as such by reversing the credit. As regards the amount of duty, they submitted that M/s. Prasant Khosla Pneumatic Ltd. was amalgamated with M/s. Kiroloskar Oil Engines Ltd. w.e.f. 1-4-98. This Prasant Khosla Pneumatic Ltd. had received certain components under chapter X procedure without payment of duty and these components were to be used in the manufacture of ‘MAN’ diesel engine over a period of time these components became obsolete and could not be utilized and became unusable for the anticipated industrial product. Their value was also written down in the balance sheet in July 2000.

The appellant submitted that since balance sheet of the present companies namely, M/s. Prasant Khosla Pneumatic Ltd. and M/s. Kiroloskar Oil Engines Ltd., being publicly available documents, allegation of such information could not be sustained and therefore extended period under proviso (1) of Section 11A was not invokable and therefore the penalty under Section 11C and interest under Section 11AB cannot be imposed on them. In this connection, appellant referred to the judgment in Hindalco Industries Ltd. v. C.C.E., Allahabad [2003 (161) ELT 346] wherein it was held that if demand has been raised on the basis of information appearing in the balance sheet of the companies being a publicly available documents, allegation of suppression of such information is not sustainable and extended period was not invokable under proviso (1) to section 11A of Central Excise Act, 1944.

Further, the appellant referred the judgment in matter of Bharat Heavy Electronics Ltd. v. C.C.E., Bangalore [2002 (50) RLT 208 (CEGAT-Bangalore)] wherein it was held that if the inputs are still lying in the factory even though they have been written off in the books of accounts the Modvat credit cannot be denied on the supposition that inputs would be used when there was no time limit for such utilization.

Respondent’s Contention:- Revenue argued that the appellant had discontinued production of ‘MAN’ diesel engine long back and they should have cleared obsolete non-moving items to the Department which came to the notice of the departmental officer at the time of scrutiny of the balance sheet for the year 97-98 which indicated that the assessee had written down the value of the goods as they had become obsolete. Therefore they have suppressed this fact from the department, as they have not made any remark in the RT returns regarding the components being obsolete especially when their balance sheet was showing the fact regarding written down value of the goods under schedule 17. Therefore the appeal of appellants deserves to be rejected.

Reasoning of Judgment:- The Tribunal found that in July 2000 the assessee had applied for remission of duty under Rule 196B read with Rule 173P of the Rules ibid and they waited for a considerable period for more than one year for the permission to come from the jurisdictional Commissioner. However, on 02.10.2001 after waiting for said period they disposed off their components which were received under chapter X procedure and paid duty under protest. The Tribunal found that these obsolete items were lying in their factory because Prasant Khosla Pneumatic Ltd., which was amalgamated with M/s. Kiroloskar Oil Engines Ltd. w.e.f. 1-4-98 had stopped manufacturing of MAN diesel engine during 1994. Further the judgment of Hindalco Industries Ltd. v. C.C.E. referred by the assessee was also fully applicable as the demand has been raised on the basis of information appearing in balance sheet. And since the balance sheet of the company being publicly available document, the allegation of such information is not sustainable. Therefore, the extended period cannot be invoked under proviso to Section 11A (1) of the Act. The Tribunal was of the view that the provisions of Section 11AC for imposition of penalty and the provision of Section 11AB for demanding duty are not applicable to the facts of this case. Therefore, the credit cannot be denied on the presumption that input cannot be used when there was no time limit for consumption. The Tribunal followed the judgments given in Bharat Heavy Electricals Ltd. No penalty imposable under Section 11AC and no interest can be demanded under Section 11AB. Impugned order demanding penalty under Section 11AC and demanding interest under Section 11AB set aside.

Decision:- Appeal allowed.

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