Excise Demand Set Aside as SCN Failed to Allege Wilful Suppression: Delhi CESTAT

Sunshine Steel Industries Vs Commissioner of CGST (CESTAT Delhi)

CESTAT Delhi allowed the appeal filed by Sunshine Steel Industries against the order of the Commissioner (Appeals), which had upheld the adjudicating authority’s confirmation of excise duty demand.

The appellant manufactured S.S. Circles and S.S. Utensils. According to the Department, the appellant’s partners were also Directors of M/s Ramdev Stainless Strips Pvt. Ltd. (RSSL), making RSSL a sister concern and related unit under Section 4(3)(b) of the Central Excise Act, 1944. The Department consequently considered that the value of S.S. Utensils sold to RSSL should have been determined under Rule 8 of the Central Excise Valuation Rules, 2000.

A Show Cause Notice dated 09.12.2015 raised a demand of Rs. 87,31,992/-. The adjudicating authority confirmed short-paid duty of Rs. 85,396/- with interest and penalty by order dated 08.03.2017. The Commissioner (Appeals) upheld the order on 08.06.2018.

Before the Tribunal, the appellant challenged the demand on merits and limitation. It contended that the normal one-year limitation under Section 11A(1) applied and that the extended five-year period under Section 11A(4) could not be invoked because there was no suppression of facts with intent to evade payment of duty.

The Department submitted that the appellant had not disclosed the required information in its ER-1 returns and supported invocation of the extended period.

The Tribunal first examined limitation because the entire confirmed demand related to the extended period. It noted that the Show Cause Notice merely alleged that the appellant had not informed the Department about its relationship with RSSL and had not disclosed the information in ER-1 returns. The notice did not allege that the information was suppressed with intent to evade payment of excise duty.

The Tribunal further examined the ER-1 form and found that there was no designated space requiring disclosure that the assessee was a related party. It therefore held that the Department could not contend that the appellant had suppressed information in the ER-1 form.

The Tribunal also noted that under Rule 12 of the Central Excise Rules, officers were required to scrutinize returns and could call for documents and records to verify the correctness of self-assessment. Departmental instructions likewise required scrutiny of returns.

The Tribunal held that the appellant could not be blamed merely because the alleged short payment was detected during audit. The Department could have scrutinized the returns and raised a demand within the normal limitation period.

Relying on Supreme Court decisions, the Tribunal observed that suppression for invoking extended limitation must be deliberate and connected with an intent to evade payment of duty. Mere omission, failure to disclose or non-payment of duty was insufficient.

Since the Show Cause Notice did not allege and substantiate suppression with intent to evade payment of duty, the extended period under Section 11A(4) could not be invoked. As the demand covered only the extended period, it could not be confirmed.

The Tribunal accordingly set aside the impugned order and allowed the appeal.

FULL TEXT OF THE CESTAT DELHI ORDER

The order dated June 08, 2018 passed by the Commissioner (Appeals) upholding the order dated March 08, 2017 passed by the adjudicating authority confirming the demand raised in the show cause notice dated December 08, 2015 has been assailed in this appeal filed by M/s Sunshine Steel Industries¹.

2. The appellant is engaged in the manufacture of S.S. Circles and S.S. Utensils. According to the Department, the partners of the appellant were also Directors of M/s Ramdev Stainless Strips Pvt. Ltd.² and, therefore, RSSL would be a sister concern and a related unit of the appellant in terms of section 4(3)(b) of the Central Excise Act, 1944³. The Department, therefore, believed that the value of S.S. Utensils sold to RSSL should have been valued under rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000⁴. A show cause notice dated December 09, 2015 was, accordingly, issued to the appellant raising a demand of Rs. 87,31,992/-. A reply was filed by the appellant to the aforesaid show cause notice contesting the demand both on merits and also on the ground that the extended period of limitation contemplated under section 11A(4) of the Excise Act could not have been invoked. The adjudicating authority, however, by the order dated March 08, 2017 confirmed the short paid duty demand of Rs. 85,396/- with interest and also imposed penalty. It is against the said order dated March 08, 2017 that the appellant filed an appeal before the Commissioner (Appeals) again contesting the demand both on merits and also on the ground that the extended period of limitation could not have been invoked. The Commissioner (Appeals) upheld the order of the adjudicating authority and dismissed the appeal. It is against this order dated June 08, 2018 of the Commissioner (Appeals) that the present appeal has been filed.

3. Shri O.P. Agarwal, learned consultant appearing for the appellant submitted that the demand could not have been confirmed and even otherwise the extended period of limitation could not have been invoked in the facts and circumstances of the case.

4. Shri Rakesh Agarwal, learned authorized representative appearing for the Department has, however, supported the impugned order and stated that not only the confirmation of the demand was justified but the extended period of limitation was correctly invoked as the appellant did not disclose the required information to the Department in the ER-1 form submitted by it.

5. The submissions advanced by the learned consultant appearing for the appellant and the learned authorized representative appearing for the Department have been considered.

6. As the entire demand that has been confirmed pertains to the extended period of limitation, it would be necessary to first examine this issue because if the appellant succeeds on this issue, then it would not be necessary to examine the issue on merits.

7. The submission of the learned consultant appearing for the appellant is that under section 11A (1) of the Excise Act, the Central Excise Officer could have served a notice upon the appellant within one year from January 02, 2014 on which date the return for the month of December 2013 was filed but in the instant case the show cause notice was issued on December 09, 2015 without there being any reason for invoking the extended period of limitation contemplated under sub­section (4) of section 11A of the Excise Act.

8. To appreciate this submission, it would be appropriate to reproduce the relevant provisions of sub-sections (1) and (4) of section 11A of the Excise Act and they are as follows:

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

(1) Where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, for any reason, other than the reason of fraud or 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 thereunder with intent to evade payment of duty,-

(a) the Central Excise Officer shall, within one year from the relevant date, serve notice on the person chargeable with the duty which has not been so levied or paid or which has been so 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;

(4) Where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, by the reason of-

(a) fraud; or

(b) collusion; or

(c) any wilful mis-statement; or

(d) suppression of facts; or

(e) contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty.

by any person chargeable with the duty, the Central Excise Officer shall, within five years from the relevant date, serve notice on such person requiring him to show cause why he should not pay the amount specified in the notice along with interest payable thereon under section 11AA and a penalty equivalent to the duty specified in the notice.”

9. In order to examine whether the conditions specified in sub-section (4) of section 11A were satisfied, it would be appropriate to first refer to the allegations made in the show cause notice dated December 09, 2015 on this aspect and they are reproduced below :

“14. Whereas, the assessee M/s SSI has never informed the department that they and their buyer of the goods are related and the assessee has also not shown in their ER-1 returns or any other records/information provided to the department and such facts came to the notice of department during the course of audit of the records of the assessee conducted by the AG, audit party, Jaipur. As such extended period is invokable in the present case.”

10. In reply to the show cause notice the appellant specifically stated that facts had not been suppressed but even if it is assumed that facts had been suppressed, then too suppression of facts would not be sufficient to invoke the extended period because suppression has to be with intent to evade payment of duty. The appellant, therefore, submitted that the basic ingredient for invoking the extended period of limitation was not satisfied.

11. The adjudicating authority considered this issue relating to the extended period of limitation in paragraph 30 of the order and the same is reproduced below :

“30. Now taking up argument of the assessee contesting that the instant case is time barred as they have not suppressed any material facts from the department. The demand of duty was issued in pursuant of an Audit objection raised by the Audit team on the basis of records maintained by them in regular course of business. Had the audit of records not undertaken by the Department, the short payment of duty would have remained unearthed. I therefore find that the fact that assessee had suppressed material facts from the department with intent to evade payment of duty is clearly established and accordingly, the extended period of limitation as invoked in the SCN under Section 11A(4) of Central Excise Act, 1944 is justifiable.”

(emphasis supplied)

12. In the appeal before the Commissioner (Appeals), the appellant specifically raised the issue relating to invocation of the extended period of limitation and the submissions of the appellant have been noticed by the Commissioner (Appeals) in paragraph 3.15 of the order in the following manner :

“3.15 Even otherwise also, mere suppression is not sufficient to invoke extended period. The suppression should have been with intent to evade payment of duty. Para 14 of impugned notice, the allegation is that we had never informed the department that we and RSSPL are related persons and that we had never shown the details in ER-I returns or not shown the same in any other records or information provided to the department and that the same came to the notice of the department during the course of audit of the records of our firm. But it has no where been alleged that we have suppressed these facts with an intent to evade payment of duty. It is being repeatedly held by the Hon‟ble Supreme Court that mere suppression is not sufficient to invoke extended period. Suppression must be by reasons of fraud, collusion or willful misstatement with intent to evade payment of duty. Something positive other than mere inaction or failure on the part of the manufacturer or conscious or deliberate withholding of information when the manufacturer knew otherwise, is required for covering extended period.”

13. The Commissioner (Appeals), however, has not given any finding on this issue raised by the appellant relating to invocation of the extended period of limitation, as is clear from the order.

14. What, therefore, needs to be decided is whether for invoking the extended period of limitation under section 11A(4) of the Excise Act, facts had been suppressed by the appellant and even if they had been suppressed then whether suppression of facts is enough or it should be with an intent to evade payment of duty.

15. Learned consultant for the appellant submitted, which fact is not disputed by the Department, that the period of one year would commence from January 02, 2014 and so the notice that was issued on December 09, 2015 was beyond the period of one year. It has, therefore, to be seen whether the extended period of five years could have been invoked in the facts and circumstances of the case.

16. A perusal of section 11A (1) of the Excise Act shows that where any duty of excise has not been paid for any reason, other than the reason of fraud or collusion or any wilful mis-statement or suppression of facts or contravention of any of the provisions of the Excise Act with intent to evade payment of duty, the Central Excise Officer shall, within one year from the relevant date, serve notice on the person requiring him to show cause why he should not pay the amount specified in the notice. However, sub-section (4) of section 11A of the Excise Act provides that where any duty of excise has not been levied or short paid by reason of fraud or collusion or any wilful misstatement, the notice can be issued by the Central Excise Officer within five years from the relevant date.

17. The show cause notice, in the present case, merely makes reference to an audit conducted without even mentioning the date. The notice should have been issued within one year from the relevant date i.e. January 02, 2014 and there is no good reason as to why the Central Excise Officer should have waited till December 09, 2015 to issue the show cause notice unless it can be established by the Department that the appellant had suppressed facts with intent to evade payment of service tax.

18. An assessee is called upon to provide only that information that is required to be furnished in the self-assessment form. There is no averment in the show cause notice, nor there is any finding in the order passed by the Commissioner (Appeals), that the appellant had concealed or provided incorrect information to any matter required to be stated in the self-assessment form with intent to evade payment of service tax. Suppression in self-assessment matters can arise only when information sought in the prescribed form is not supplied or incorrect information is supplied.

19. With the assistance of the learned authorized representative appearing for the Department Form ER-I that has to be submitted online has been perused. There is no space designated for the assessee to disclose that it is a related party and indeed the learned authorized representative appearing for the Department has not been able to point out any space where this information was required to be disclosed by the appellant. What has been alleged in the show cause notice is that the appellant had suppressed this information in the ER-I Form. As the said form does not require an assessee to disclose this information, it is not open to the Department to contend that the assessee had suppressed any information.

20. The Department cannot be permitted to invoke the period of limitation by merely stating that it is a case of self-assessment as even in a case of self-assessment, the Department can always call upon an assessee and seek information. It is under sub-rule (1) of rule 6 of the Central Excise Rules, 2002⁵ that the assessee is expected to self-assess the duty and sub-rule (3) of rule 12 of the Rules provides that the proper officer may, on the basis of information contained in the return filed by the assessee under sub-rule (1), and after such further enquiry as he may consider necessary, scrutinize the correctness of the duty assessed by the assessee. Sub-rule (4) of rule 12 also provides that every assessee shall make available to the proper officer all the documents and records for verification as and when required by such officer. Hence, it was the duty of the proper officer to have scrutinized the correctness of the duty assessed by the assessee and if necessary call for such records and documents from the assessee, but that was not done. It is, therefore, not possible to accept the contention of the learned authorized representative appearing for the Department that the appellant should have filed a proper assessment return under rule 6 of the Rules.

21. Departmental instructions to officers also emphasise upon the duty of officers to scrutinize the returns. The instructions issued by the Central Board of Excise & Customs⁶ on December 24, 2008 deal with “duties, functions and responsibilities of Range Officers and Sector Officers”. It has a table enumerating the duties, functions and responsibilities and the relevant portion of the table is reproduced below:

“LIST OF DUTIES, FUNCTIONS AND RESPO
NSIBILITES OF RANGE OFFICER AND SECTOR OFFICER

SCRUTINY OF RETURNS

24. The Central Excise Manual published by CBEC on May 17, 2005, which is available on the website of CBEC, devotes Part VI to SCRUTINY OF ASSESSMENT. Paragraphs 2.2,2.3 and 2.4 of this Part are reproduced below:

“2.2 The Superintendent of Central Excise in-charge of the Range Office, with assistance of the Inspectors in-charge of the factory of an assessee, will scrutinize all the returns. They shall in selected cases, call all connecting documents including invoices and the records and scrutinize the correctness of assessment.

2.3. The Deputy/Assistant Commissioner of Central Excise will scrutinize the returns of the units, which pay duty exceeding rupees one crore but less than Rs. 5 crores from PLA per annum every six months. They shall requisition all connected documents including invoices and the records and scruntinse the correctness of assessment.

2.4 The Additional/Joint Commissioner of Central Excise will scrutinize the returns of the units which pay duty of Rs. 5 crores or more from PLA per annum every six months. They shall requisition all connected documents including invoices and the records and scrutinize the correctness of assessment.”

(emphasis supplied)

25. It is thus evident that not only do the Rules mandate officers to scrutinise the Returns to verify the correctness of self assessment and empower the officers to call for documents and records for the purpose, Instructions issued by the department also specifically require officers at various levels to do so.

26. If the scrutiny by officers reveals short payment or non-payment of duty, a demand can be raised under section 11A. As per section 11A of the Excise Act, the relevant date prescribed for reckoning the time limit is ^„the date of filing of the return‟ and if no return is filed, ^„the last date on which the return should have been filed‟. This is the date on which the officer acquires knowledge of the activities of the assessee in the form of the Return, if it is filed. The Officer can scruntinise and call for documents and records which he considers necessary. The Officer has a period of one year within which to issue the show cause notice under section 11A of the Excise Act. If no Return is filed by the due date, the officer can initiate appropriate action. The Audit examined the returns and because of the objections raised, the show cause notice was issued. The Officers of the Department could also have scrutinized the returns and raised a demand within the normal period of limitation. The assessee cannot be blamed by merely stating that it was only when the Audit pointed out that suppression was noted or by stating that it was a case of self assessment.

27. This apart, as noticed above, the show cause notice only alleges that the appellant had suppressed facts. It does not allege that the appellant had suppressed facts with intent to evade payment of excise duty. In the absence of any allegation made in the show cause notice that the appellant had suppressed facts with intent to evade payment of duty, the Department could not have invoked the extended period of limitation under section 11A(4) of the Act. This issue was raised by the appellant before the Commissioner (Appeals), but no finding has been recorded.

28. The provisions of section 11A(4) of the Excise Act came up for interpretation before the Supreme Court in Pushpam Pharmaceuticals Company Collector of Central Excise, Bombay⁷. The Supreme Court observed that section 11A empowers the Department to reopen the proceedings if levy has been short levied or not levied within six months from the relevant date but the proviso carves out an exception and permits the authority to exercise this power within five years from the relevant date in the circumstances mentioned in the proviso, one of it being suppression of facts. It is in this context that the Supreme Court observed:-

“2. ****** The Department invoked extended period of limitation of five years as according to it the duty was short levied due to suppression of the fact that if the turnover was clubbed then it exceeded Rupees Five lakhs.

********

4. A perusal of the proviso indicates that it has been used in company of such strong works as fraud, collusion or willful default. In fact it is the mildest expression used in the proviso. Yet the surroundings in which it has been used it has to be construed strictly. It does not mean any omission. The act must be deliberate. In taxation, it can have only one meaning that the correct information was not disclosed deliberately to escape from payment of duty. Where facts are known to both the parties the omission by one to do what he might have done and not that he must have done, does not render it suppression.”

(emphasis supplied)

29. It is, therefore, clear that the suppression of facts should be deliberate and in taxation laws it can have only one meaning, namely that the correct information was not disclosed deliberately to escape payment of duty.

30. This decision of the Supreme Court in Pushpam Pharmaceuticals was followed by the Supreme Court in Anand Nishikawa Co. Ltd. Commissioner of Central Excise, Meerut⁸ and the relevant paragraph is as follows:-

“27. Relying on the aforesaid observations of this Court in the case of Pushpam Pharmaceuticals Co. v. CCE we find that “suppression of facts” can have only one meaning that the correct information was not disclosed deliberately to evade payment of duty. When facts were known to both the parties, the omission by one to do what he might have done and not that he must have done, would not render it suppression. It is settled law that mere failure to declare does not amount to wilful suppression. There must be some positive act from the side of the assessee to find willful suppression. Therefore, in view of our findings made hereinabove that there was no deliberate intention on the part of the appellant not to disclose the correct information or to evade payment of duty, it was not open to the Central Excise Officer to proceed to recover duties in the manner indicated in the proviso to Section 11-A of the Act. We are, therefore, of the firm opinion that where facts were known to both the parties, as in the instant case, it was not open to CEGAT to come to a conclusion that the appellant was guilty of “suppression of facts.”

(emphasis supplied)

31. In Easland Combines, Coimbatore vs. Collector of Central Excise, Coimbatore⁹, the Supreme Court observed that for invoking the extended period of limitation, duty should not have been paid because of fraud, collusion, wilful statement, suppression of fact or contravention of any provision. These ingredients postulate a positive act and, therefore, mere failure to pay duty which is not due to fraud, collusion or wilful misstatement or suppression of facts is not sufficient to attract the extended period of limitation.

32. The aforesaid decisions of the Supreme Court were relied upon by the Supreme Court in Uniworth Textiles Ltd. Commissioner of Central Excise, Raipur¹⁰ and the relevant portion of the judgment is reproduced below:

“12. We have heard both sides, Mr. R.P. Batt, learned senior counsel, appearing on behalf of the appellant, and Mr. Mukul Gupta, learned senior counsel appearing on behalf of the Revenue. We are not convinced by the reasoning of the Tribunal. The conclusion that mere non-payment of duties is equivalent to collusion or willful misstatement or suppression of facts is, in our opinion, untenable. If that were to be true, we fail to understand which form of nonpayment would amount to ordinary default? Construing mere non-payment as any of the three categories contemplated by the proviso would leave no situation for which, a limitation period of six months may apply. In our opinion, the main body of the Section, in fact, contemplates ordinary default in payment of duties and leaves cases of collusion or wilful 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.”

(emphasis supplied)

33. The Supreme Court in Continental Foundation Joint Venture vs. Commissioner of Central Excise, Chandigarh¹¹ also observed in connection with section 11A of the Excise Act, that suppression means failure to disclose full information with intention to evade payment of duty and the observations are as follows:-

“10. The expression “suppression” has been used in the proviso to Section 11A of the Act accompanied by very strong words as “fraud‟ or “collusion” and, therefore, has to be construed strictly. Mere omission to give correct information is not suppression of facts unless it was deliberate to stop the payment of duty. Suppression means failure to disclose full information with the intent to evade payment of duty. When the facts are known to both the parties, omission by one party to do what he might have done would not render it suppression. When the Revenue invokes the extended period of limitation under Section 11A the burden is cast upon it to prove suppression of fact. An incorrect statement cannot be equated with a wilful misstatement. The latter implies making of an incorrect statement with knowledge that the statement was not correct.”

(emphasis supplied)

34. In such circumstances, the extended period of limitation could not have been invoked. The demand, which covers only the extended period of limitation, therefore, could not have been confirmed.

35. The contention of Shri Rakesh Agarwal, learned authorized representative appearing for the Department that it is not necessary for the Department to allege in the show cause notice that suppression was with an intent to evade payment of excise duty, cannot be accepted as it has been settled by the Supreme Court and the High Courts that mere allegation relating to suppression of facts is not sufficient and it has to be specifically alleged and substantiated that facts were suppressed with intent to evade payment of excise duty.

36. In this view of the matter, the impugned order, therefore, cannot be sustained and is, accordingly, set aside. The appeal is allowed.

(Dictated & pronounced in open Court)

Notes:

¹ the appellant

² RSSL

³ the Excise Act

⁴ the Valuation Rules

⁵ the Rules

⁶ CBEC

⁷ 1995 (78) E.L.T. 401 (SC)

⁸ (2005) 7 SCC 749

⁹ (2003) 3 SCC 410

¹⁰ 2013 (288) E.L.T. 161 (SC)

¹¹ 2007 (216) E.L.T. 177 (SC)