Invokation of extended period of Limitation

PJ/Case Study/2010-11/21

CASE STUDY

Prepared By:

CA. Ridhi Anchalia

Sukhvinder Kaur, LLB [FYIC]

And Megha Jain

Introduction:

Mistake is a human tendency. It can be committed by everyone. The complicacy of the law sometimes makes an assessee to commit mistakes. But if the assessee has no malicious intent of violating the law then also the penal provisions of the Act should be made applicable to him? Does the provision of extended period should be made applicable to such an assessee who unintentionally committed a mistake? Mere mistake on the part of the assessee in such a case can be called as suppression? When all the facts were in front of the department then also can it be said that there was suppression of the facts by the assessee? Can a public document like a Notification can be suppressed by an assessee? These were the issues involved in the case under study.

Super Life Care Pvt. Ltd v/s Assistant Commissioner, Ahmedabad

[Order-in-Appeal No. 178/2010 (ahd-II) CE/CMC/Commr (A)/Ahd/S/61(A-II)/10, Dated: 26.07.2010}

Relevant Legal Provisions:

11A. Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded:

(1) When any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, a Central Excise Officer may, within one year from the relevant date, serve notice on the person chargeable with the duty which has not been levied or paid or which has been short-levied or short-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 of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made there under with intent to evade payment of duty, by such person or his agent, the provisions of this sub-section shall have effect.

Brief Facts:

- The appellant are engaged in the manufacture and sale of disposable surgical products & bulk drugs falling under Chapter 90, 39 and 29 of the First schedule of Central Excise Tariff Act, 1985.

- Appellants were clearing the components of I.V. / B.T. /.S.V. set falling under Chapter sub-heading 90183290 on payment of Central Excise Duty of 8%/4% along with 2% Edu. Cess and 1% Higher Secondary and availing the benefit under Notification No. 10/2006-CE dated 01.03.2006.

- Department issued a letter dated 18.12.2009 to the appellant pointing out that they were wrongly availing the benefit under Notification No. 10/2006-CE. It was contended that actually, the product i.e. components of I.V. / B.T/S.V. Set fell under Sr. No. 59 of General Exemption Notification No. 6/2006-CE dated 01.03.2006. Thus, as the appellant were manufacturing and clearing both dutiable as well as exempted products and therefore, the provision of Rule 6(3)(i) of Cenvat Credit Rules, 2004 were applicable. Accordingly, it was alleged that they were actually required to pay an amount equal to 10% of the value of exempted goods upto 06.07.2009 and thereafter from 07.07.2009 onwards 5% of the value of exempted goods. Appellants filed reply to the said letter.

- Show cause notice were issued for demanding of differential duty amounting for the period from May-2007 to December 2008 and duty was also demanded for the period from January-2009 to November-2009 from the appellant.

- Impugned order-in-original was passed confirming the demand of differential duty.

- Being aggrieved by the impugned order, the appellant preferred an appeal before the Commissioner (Appeal).

Appellant’s Contention:

Ø They appellants were a small scale manufacturer. They do not have consultants at their disposal. As such, they were not able to know the exact exemption notification for their product. In all the records including the invoices and returns they have very clearly mentioned the finished goods as “Components of I.V. /B.T. /S.V. Set”. The only mistake on the part of the appellant was that they were ignorant about the Exemption Notification and so they have applied the wrong Notification.

Ø The appellant had right from the beginning mentioned everywhere, the goods to be Components of I.V./B.T./S.V. Set. From the time of the registration of the assessee under the Central Excise Act or filing of the ER-1 returns everywhere the same finished goods were mentioned. Even this fact was clearly stated in their invoices also.

Ø The Central Excise Audit Team had also conducted audit during the period. They have also gone through this fact while conducting the audit of the unit. If there is a mistake while interpreting the law by the assessee it is the duty of the Department to guide the assessee and make the assessee aware of what the law says. Merely because the Department once saw an ER-1 return and said that the assessee is claiming benefit under wrong Notification, demand of duty is raised from the assessee by the Department. Further it was also alleged that there was willful suppression made by the assessee. The extended period of limitation was invoked on the appellant. The appellant submit that the Exemption Notification which is clearly provided in the statue book cannot be suppressed by the appellant from the department.

Ø The appellant also submitted that they had not committed any mistake in filing the returns. They were regularly filing the ER-1 returns. The ER-1 return contains the description of the goods as “components/parts of IV sets”. The tariff heading of these goods was also clearly mentioned as 9018. Thus, the Department was very well aware that the appellant was describing the goods as such and is paying the duty accordingly. If there is an Exemption Notification then the Department should have pointed out the same to the appellant for availing its benefit. But the Department is alleging that the appellant have willfully suppressed the facts from them. There was no suppression. The only thing was that they have not claimed the benefit of correct Notification. But a Notification cannot be suppressed from the Department. It is clearly available and the Department dealing this particular subject should be aware of the same. Thus, the allegation of willful suppression is totally baseless.

Ø The appellant submit that they have produced all the documents at the time of audit of the unit to the Audit team. They have also seen the invoices and ER-1 returns. They have seen all these records and were well aware of the rate of duty and the Notifications that were applied by the appellant. Even the Audit party did not point the fact that it was wrong notification and an exemption notification is available to appellant and they should pay the duty or reverse the Cenvat credit accordingly. If the Department officers are not aware of the exemption notification on a particular product when they are expert in the field then poor Small scale assessee like the appellant cannot be expected to know the same. But the learned Adjudication Officer did not adhere to the submissions of the appellant. Thus, the order is not legally sustainable in the eyes of law.

Appellant in this regard relied upon the following cases: -

§ M/s Alembic Ltd v/s CCE & CC, Vadodara-I [2009-TIOL-590-CESTAT-AHM]

§ CCE, Hyderabad v/s Santom Enterprises [2010-TIOL-818-CESTAT-BANG]

§ Aurangabad v/s Trans Delta Electricals [2010-TIOL-765-CESTAT-MUM]

§ Commissioner of Customs v/s Gaurav Enterprises [2006 (193) ELT 0532 (Bom)]

§ Suruchi Dyeing Udyog Pvt Ltd v/s Commissioner of Central Excise, Ghaziabad [2005 (191) ELT 0252 (Tri-Del)]

Ø Further the appellant submit that Notification are issued by the Government of India. This is a fact that everyone is aware of. The order is alleging that the assessee has willfully suppressed the facts. If the assessee has classified its goods wrongly and availed the wrong Notification this was a fact that was not hidden by the appellant from the Department. Further the Department was quite aware of what the notification said. The appellant cannot suppress any Notification. The Notification can be referred by any one.

Ø The appellant submit that the extended period limitation was wrongly invoked demanding the duty for the period May-2007 to December-2008 because the appellant has not intentionally availed the wrong notification. It was submitted that analysis of Section 11A provided that in the case of duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud, collusion or any wilful mis-statement or suppression of facts with intent to evade payment of duty provisions of this sub-section shall have effect. But here neither the intention of the appellant was to evade payment of duty or to violate any provisions of the act by wilful mis-statement or suppression of any facts. Everything was disclosed to the Department and everything was in front of the Department.

Ø The appellant further submit that the appellant does not deny the mistake committed on their part. They have deposited the duty, interest and 25% penalty pertaining to the show cause notice dated 21.1.20109 by which demand for the period from January-2009 to November-2009 was raised. The appellant agreed to its mistake of availing the benefit of wrong Notification. This step of the appellant shows that they want to act legally. They are contesting the impugned show cause notice on the limitation ground only. They have paid the duty, interest for the normal period. They have started the availing the Exemption for the future period also.

Ø Further the appellant submit that the allegation of wilful suppression is totally baseless and everything was in knowledge of the Department. The demand is barred by time of limitation. In this regard reliance is placed on following case law:-

§ Continental Foundation Jt. Venture v/s Commr. of C. Ex., Chandigarh - I [2007 (216) ELT-177(SC)]

§ Tamil Nadu Housing Board v/s Collector of Central Excise, Madras [1994 (74) ELT-9 (SC)]

§ Cosmic Dye Chemical v/s Collector of Central Excise, Bombay [1995 (75) E.L.T. 721 (S.C.)]

§ Jaiprakash Industries Ltd. v/s Commissioner of C. Ex., Chandigarh [2002 (146) E.L.T. 481 (S.C.)]

§ C. B. Maheshwari v/s Commissioner of C. Ex., Valsad [2007 (218) E.L.T. 555 (Tri. - Ahmd.)]

§ CCE & CC, Surat v/s MTZ Polyfilms Limited [2010-TIOL-421-HC-AHM-CX]

§ M/s Lanco Industries Ltd v/s CCE, Tirupathi [2010-TIOL-726-CESTAT-BANG

§ M/s Delta Aromatics Pvt Ltd v/s CCE, New Delhi [2010-TIOL-487-CESTAT-DEL]

§ CCE, Thane-II v/s M/s Aries Pharmaceuticals [2009-TIOL-821-CESTAT-MUM]

§ Nestle India Ltd v/s Commissioner of Central Excise, Chandigarh [2009 (235) ELT 0577 (SC)]

Thus from the above cases it is clear that when the department is aware of the activities of the assessee then the department cannot invoke extended period on the assessee.

Ø Further it is contended by the appellant that there is a large balance of Cenvat credit available in their account. So if there was any duty liability to pay any amount of duty it could be easily paid from the Cenvat credit available with them. As a large balance of Cenvat credit is available with them so where was the need for the appellant to hide any fact from the Department and wrongly evade the payment of duty? If any duty liability was there then also it could be easily disposed off utilizing the Cenvat credit available with them.

Ø Further the appellant submit that no interest could be demanded from them under the provisions of Section 11 AB of Central Excise Act, 1944 read with Rule 14 of Cenvat Credit Rules, 2004 because when the demand invoking the extended period is not sustainable on the assessee then how can the interest on that amount be demanded.

As such the appellant have not utilised the accumulated cenvat credit. Hence no harm has taken place to the Revenue and hence interest cannot be demanded. Reliance is placed on decision of Maruti Udyog Ltd [2006-TIOL-308-HC-P&H-CX] in this regard which has been upheld by the Apex Court [2007 (214) ELT A50]. Reliance was also placed on the recent decision in cases of Ashoka Metal Décor (P) Ltd v/s Commissioner of C. Ex., Ghaziabad [2010 (250) ELT 40 (Tri-Del)], Rana Sugar Ltd v/s Commissioner of C. Ex., Meerut-II [2010 (249) ELT 247 (Tri-Del)] and Lafarge India Pvt Ltd v/s Commissioner of C. Ex., Raipur [2009 (245) ELT 533 (Tri-Del)].

The appellant further submit that the impugned order has imposed penalty under the provisions of Section 11AC of the Central Excise Act, 1944 read with Rule 15 of Cenvat Credit Rules, 2004. In this regard, the appellant wants to submit that when the duty liability invoking the extended period is not sustainable, then the penalty can also not be imposable. Further the appellant relied upon the judgments given in the following cases in support of their contention: -

§ Commissioner of Customs v/s Gaurav Enterprises [2006 (193) E.L.T. 532 (Bom.)]

§ Asoka Spintex Ltd. v/s Commissioner of Central Excise, Ahmedabad [2004 (171) E.L.T. 59 (Tri. - Mumbai)]

Issue Involved:

The issue involved in this case was that

Whether there was any willful suppression, fraud or mis-declaration on the part of appellant in availing the benefit under wrong Notification when the department was aware of this fact? Whether the extended period of limitation could be invoked in such a case?

Reasoning of the Commissioner (Appeal):

v The Commissioner (Appeal) noted that the appellant had accepted their mistake and had paid the duty for the normal period with interest and 25% penalty.

v The Commissioner (Appeal) held that with regard to invoking extended period of limitation, there was no suppression of facts with intent to evade the payment of duty on part of the appellant as they had mentioned the material facts in the ER-1 returns and in their records.

v The Commissioner (Appeal) found that the appellant have availed benefit under Sr. No. 28 of Notification No. 10/2006-CE dated 01.03.2006 and discharged the duty but the same goods were fully exempted at Sr. No. 59 of Notification No. 6/2006-CE dated 01.03.2006. This is the case of interpretation of admissibility of Notification. The appellant had not suppressed any facts from the Department. Therefore, extended period was not sustainable.

Decision:

Part of the impugned order invoking extended period of Limitation set aside. Part of the order demanding differential duty for the normal upheld along with interest and penalty.

Conclusion:

The Commissioner (Appeal) rightly held that the extended period could not be invoked when there was no willful suppression on the part of the appellant with intent to evade payment of duty. A mistake could be genuinely be made by an assessee. The assessee had no mala fide intentions. When all the facts were in the knowledge of the department then, extended period of limitation could not be invoked against the assessee. An assessee cannot be penalized for a genuine mistake.

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PJ/CASE STUDY/2010-11/21
13 September 2010

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PJ/CASE STUDY/2010-11/21 13 September 2010

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PJ/CASE STUDY/2010-11/21
13 September 2010