When show cause notice is issued after the normal period of time, demand will be allowed or not ?

PJ/Case Law /2016-17/3409

Case- ASTRA MICROWAVE PRODUCTS LTD. VersusCOMMR. OF C. & C.E., HYDERABAD-IV

Citation- 2016 (342) E.L.T. 300 (Tri. - Hyd.)

Brief Facts- The appellants are manufacturers of electronic and electrical machinery and cleared part of them to M/s. Bharat Electronics Ltd., Banglore (BEL) availing exemption under Notification No. 63/1995-C.E., dated 16-3-1995. Appellants had been intimating in advance the clearances to be made to BEL to the department and also reflecting those clearances in the monthly ER 1 Returns showing availment of exemption. Present appeal relates to denial of exemption for the clearances made between Dec., 2009 to Feb., 2011, by Notice dated 4-9-2013, invoking extended period inter alia proposing demand of Rs. 1,24,09,283/- with interest, along with imposition of penalties.
Notice was issued on the following grounds :
(a)          Availment of exemption is not applicable to the supplies made by the appellants, and is available only to those goods manufactured by BEL, but not to the vendors;
(b)          Benefit of exemption under Notification No. 63/95-C.E., dated 16-3-1995 cannot be extended as per Board’s letter in F. No. 110/32/2009-CX-3, dated 27-10-2009;
(c)           That goods were cleared without payment of duty against Board’s Circular with a mala fide intention to evade payment of duty, hence extended time was invoked under proviso to Section 11A of the Act;
(d)          Since the facts were suppressed with intent to avail the ineligible benefit, liable to penalty under Section 11AC of the Act.

Appellant’s Contention- Ld. Counsel for appellant, Sh. Y. Srinivasa Reddy stated that in fact, Bharat Electronics had received written confirmation dated 19-3-2009 from Joint Commissioner, LTU, Bangalore informing that benefit of notification is available to all job workers and vendors who supply inputs used in the manufacture of finished goods which is in turn supplied to the Ministry of Defence. Only based on such clarification from department BEL had issued excise duty exemption certificate to the appellant for the purchase order placed by them. The ld. Counsel pointed out that all such exemption certificates were produced with acknowledgement to the jurisdictional Superintendent. He also pointed out that in the monthly returns filed by appellant clearly disclosed/declared availment of exemption under Notification No. 63/95. The allegation of suppression is without any basis. For these reasons he urged that the demand is unsustainable on merits and limitation.

Respondent’s Contention- On behalf of department ld. AR Sh. P.S. Reddy submitted that the Board had issued Circular in December, 2009 wherein it was clearly indicated that the exemption benefit under Notification No. 63/95 is applicable only for goods manufactured by units, inter alia, BEL and not by vendors.

Reasoning of Judgement- The Notification No. 63/95 clearly restricts the exemption in Serial No. 2 thereof only to manufacture of goods, inter alia, BEL for supply to Ministry of Defence for official purposes. There is no extension of this benefit to vendors or job workers. The appellant’s argument that they started availing exemption after clarification by a departmental officer will not help their case. An erroneous clarification cannot be taken shelter of to claim erroneous benefit. Interestingly the appellant has also produced a letter dated 27-10-2009 from the Board to Chief Commissioner, LTU, Bangalore clarifying that vendors would not be covered by the notification. Therefore, we are of the considered opinion that appellants are not entitled to the benefit of exemption under the Notification 63/95. Hence on merits the appellants do not have a case.
Coming to the issue of limitation, it is however seen that, the appellant had all along kept the department informed about the availment of benefit under the notification, not only through their monthly returns but also in written communication to the jurisdictional Range Superintendent. On such score, the SCN covering the period December, 2009 to February, 2011 should have been issued within normal period of limitation provided under Section 11A of the Central Excise Act, 1944. However, said notice was issued only on 4-9-2013, hence the entire demand in the impugned order is hit by limitation and has to be set aside.
Appeal No. 20717/2014 relates to refund claim of Rs. 1,23,95,319/- paid by appellant under protest in response to audit note proposing denial of exemption benefit under Notification No. 63/95 to the clearances made by them. The appellant had informed department vide their letter dated 11-6-2013 about the said payment made by them. The refund claim was filed on 2-9-2013 which was rejected by original authority vide order dated 4-11-2013, inter alia, on the ground that issue is pending before Commissioner in view of the SCN dated 4-9-2013 and that there is no scope to refund duty at that juncture. The appeal filed by appellant was dismissed by Commissioner (Appeals) vide the order impugned herein. Hence this appeal.

Decision- Appeal allowed

Comment- The gist of the case is that appellant is supplying electronic and electrical machinery to Bharat electronics ltd which in turn supply to Ministry of Defence for official purposes and also availing benefit of notification no 63/95 but the Notification No. 63/95 clearly restricts the exemption in Serial No. 2 only to manufacture of goods by BEL for supply to Ministry of Defence for official purposes. Therefore show cause covering the period December, 2009 to February, 2011 has been issued to appellant on 04.09.2013 but according to section 11A of Central Excise Act, the Central Excise Officer shall, within one year from the relevant date, serve notice to the person. Therefore entire demand in the impugned order is hit by limitation and has to be set aside.

Prepared by- Akshit Bhandari

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PJ/Case Law /2016-17/3409

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