Van Shah Fragrance Pvt. Ltd. Vs Commissioner of Central Excise (CESTAT Kolkata)
CESTAT Kolkata held that bona fide belief that goods manufactured and cleared were not subject to excise duty needs to be established. Duty demand is sustainable in case the bona fide belief is not established.
Facts-
Revenue was of the view that Appellant 1, will not be eligible for the benefit of SSI Exemption under the Notifications 8/2002 dated 01/03/2002 as well as 8/2003 dated 1/3/2003, in as much as the assessee had manufactured and cleared Soya Products bearing the brand name of another person. After conclusion of investigation, Show Cause Notice dated 07/04/2008 was issued to the Appellant 1 as well as the two directors (Appellant 2 and Appellant 3) proposing the demand of Central Excise Duty for the disputed period, without the benefit of SSI Notification.
The show cause notice was adjudicated and demand was confirmed. Being aggrieved, the appellants have preferred the present appeal.
Conclusion-
Held that appellants have not been able to show any ground by which they could claim that they entertained a bona fide belief that goods manufactured and cleared by them were not subject to excise duty or attracted nil rate of duty or were exempt from payment of duty. It is settled law that the bona fide belief is not the blind belief and need to be established before that plea can be taken.
FULL TEXT OF THE CESTAT KOLKATA ORDER
These three appeals filed by the Appellants are directed against Order-in-Original No. CCE/Shillong/03/2009 dated 16/03/2009 of the Commissioner of Central Excise, Shillong. By the impugned order following is held:
“ORDER
4.1 Having regards to the above discussions and findings, I confirm the demand of Rs.2,14,11,650.00 (rupees two crores fourteen lakhs eleven thousands six hundred and fifty only) [Rs.2,11,75,964.00 as Сenvat duty and Rs.2,35,686.00 as Education Cess) and order for recovery of the differential amount of Rs. 1,91,71,111.00 (Rupees one crore ninety one lakh seventy one thousand one hundred eleven only) [Rs. 1,89,79,356.00 as Сenvat duty and Rs. 1,91,755.00 as Education Cess) for the year 2002-03 (for March 2003) to 200607 (upto January 2007) from M/s. Vansha Fragrances (Pvt.) Ltd. 13th Mile, Tamulikuchi, G.S. Road, Byrnihat, Meghalaya in terms of proviso to Section 11A of Central Excise Act, 1944.
4.2 I also order for appropriation of the amount of Rs.23,84,947.00 (Rupees twenty three lakhs eighty four thousand nine hundred forty seven only) [ Central Excise Duty Rs.21,96,608.00, Education Cess Rs.43,931.00] and Interest Rs.1,44,408.00 ] which is paid by the said TR. 6 Challan No. 01/06-07 dated 26.02.07 for the period from March ’06 bk W section 11 of the Central Excise Act, 1944.
4.3 I also order for recovery of interest in terms of Section 11AB of the Act ibid from the said factory.
4.4 I also impose a penalty of Rs.2,14,11,650.00 (rupees two cores fourteen lakhs eleven thousands six hundred and fifty only) on M/s. Vansha Fragrances (Pvt.) Ltd. 13th Mile, Tamulikuchi, G.S. Road, Byrnihat, Meghalaya under Section 11AC of the Act ibid.
4.5 I also impose a penalty of Rs. 2,00,000/- (Rupees Two Lakhs) only each on Shri Shiw Bhagwan Sharma S/o. Late Mohanlal Sharma, (ii) Shri Pawan Kumar Sharma S/o. Shri Shiw Bhagwan Sharma in terms of Rule 26 of Central Excise Rules 2002. However, I refrain from imposing any penalty on Smt Suzanne Langstieh.”
2.1 Appellant 1 was manufacturing the Soya Products with the brand name “Gulab”, but did not obtain registration from the Central Excise Authorities and did not pay the Central Excise Duty payable on such goods. On investigation it was found that the brand name “Gulab” was registered in the name of M/s. Vinita Soya Products, a partnership firm in which Shri S. B. Sharma as well as Shri P. K. Sharma were partners.
2.2 Revenue was of the view that Appellant 1, will not be eligible for the benefit of SSI Exemption under the Notifications 8/2002 dated 01/03/2002 as well as 8/2003 dated 1/3/2003, in as much as the assessee had manufactured and cleared Soya Products bearing the brand name of another person. After conclusion of investigation, Show Cause Notice dated 07/04/2008 was issued to the Appellant 1 as well as the two directors (Appellant 2 and Appellant 3) proposing the demand of Central Excise Duty for the disputed period, without the benefit of SSI Notification.
2.3 The show cause notice was adjudicated as per the impugned order referred in para 1, above.
2.4 Aggrieved appellants filed the appeals before CESTAT which were decided by the CESTAT as per its Order No E D/75189-75191/2019 dated 23.01.2019, holding as follows:
“8. The demand for Central Excise Duty confirmed in the impugned order has been seriously contested by the appellant only on the ground of time bar. It has been submitted on behalf of the appellant that they were under the bonafide belief that the goods manufactured by them were not liable to payment of duty, in view of the fact that the item Soya Bari did not find specific mention in the Tariff under Chapter 21. They have claimed that they became aware of the duty liability only with the issue of Notification No. 3/2006 dated 01/03/2006. In this connection, we observe that the Chapter Note 9 to Chapter 21 (upto 28/2/2005) as well as chapter note 5 for the subsequent period make it clear that textured protein substances would be classifiable under 2108 of the tariff (upto 28/02/2005) and 2106 for the subsequent period. Accordingly, we are unable to accept the plea of the appellant that they were under the bonafide belief that the goods manufactured by them would not come under levy of Excise Duty. From record, it is seen that the appellant, who started manufacture of the products similar in 2003, did not approach the department with intimation of the same and did not take registration with the Jurisdictional Central Excise Authorities. Only in 2006, they appeared to have got in touch with the Central Excise Superintendent who issued clarification dated 28/02/2006 to the effect that they were not required to obtain Central Excise Registration. In these circumstances, we are of the view that the appellant cannot be absolved of the allegation of suppression. Consequently, we uphold the findings of the lower authority justifying the demand of Central Excise by invoking the extended period of time limit under Section 11A.
9. The other argument which is required to be considered is the submission that the appellant unit is situated in the North East Area where the benefit of exemption Notification No. 32/1999 dated 8/7/1999 was available to units set up in the area. However, it is not clear whether the appellant has claimed the benefit of such Notification before the Jurisdictional Authorities. Since, this is a conditional notification, the benefit of the same is required to be claimed and duly examined by the Jurisdictional Authorities before allowing the benefit. As such, we are unable to entertain these arguments at this stage.
10. The appellant has also pleaded that the penalties imposed on the assessee as well as the directors is exorbitant. The penalty imposable under the Provision of Section 11AC is equal to the total duty demanded under the provisions of Section 11A. There is no discretion involve in the levy of such penalty. We have upheld the finding of the Lower Authority justifying suppression, hence, the penalty under Section 11 AC cannot be waived.
11. In the facts and circumstances of the case, we are of the view that the penalties imposed on the two directors, merits reduction. Penalties imposed on Shri S. B. Sharma as well as Shri P. K. Sharma both directors are reduced from Rs. 2 lakh to Rs. 50,000/- (Fifty Thousand only) each.
12. In view of the above discussions, the impugned order is upheld, but for the above reduction in the penalties on the directors. The appeals are disposed off as above.”
2.5 Aggrieved by the order of tribunal appellant 1 filed the Central Excise Appeal No 4/2019 before the Hon’ble High Court of Meghalaya. Hon’ble High Court vide its order dated 08.02.2022, disposed of the appeal stating as follows:
“5. The first issue that arises is as to whether such demand could have been made at all, particularly in respect of the period more than a year prior to the date of the demand. As noticed in the previous order, ordinarily a demand may be made to realise the duty for a period of one year from the date that the duty became payable; but an exception is carved out for a demand to be made for an earlier period if it is demonstrated by the department that the manufacturer intended to evade the duty.
6. According to the appellant, since the appellant was entitled to an exemption, in the sense that it would be reimbursed the excise duty that it had paid, in view of the existing Central Excise notifications, the question of intending to evade duty could not have arisen since the appellant would have been reimbursed the excise duty paid for the relevant product. On behalf of the department it is submitted that it may not be absolutely correct to say that the entire quantum of the excise duty would be reimbursed to the manufacturer and the scheme was modified from time to time. According to the department, the excise duty component would be reimbursed upon deducting the cenvat credit already claimed. The department also says that at a subsequent stage, the extent of exemption granted was that the amount reimbursed would be only to the extent of the excise duty on the value added to the product in the course of the manufacture.
7. More importantly, the department points out that not every manufacturer in Meghalaya would be entitled to the exemption by way of reimbursement or otherwise. In such context, several notifications published by the Central Excise authorities have been relied upon to demonstrate that the initial scheme was restricted to certain areas of Assam and Tripura and, later, designated places in Meghalaya were also included. According to the department, the manufacturing unit of the appellant is not located within any area designated by the applicable notification for the appellant to claim exemption by way of reimbursement.
8. This aspect of the matter was not taken into consideration, whether in the course of the order-in-original being passed or in the appellate order of the Tribunal. This is a question of fact on which there can be no two opinions and a physical verification is necessary to ascertain whether the manufacturing unit of the appellant falls within the area designated in the applicable notification for the appellant to be entitled to exemption by way of reimbursement.
9. The second aspect of the matter on which there is no discussion in the order of the Appellate Tribunal pertains to the disqualification of the appellant to be entitled to exemption on the ground that the appellant manufactured the product under the brand name of another. According to the appellant, it started manufacturing the soya chunks under the Gulab brand name with effect from December 1, 2006. The Appellate Tribunal has referred to the oral evidence of a regular customer of the appellant which appears to be a rather sweeping statement to the effect that the appellant has always been engaged in manufacturing soya chunks under the Gulab brand. The Appellate Tribunal placed great credence on such statement though there were no documents in support of the assertion nor any bill or voucher or the like relied upon by the department that would reveal that the appellant had manufactured soya chunks under the Gulab brand prior to December 1, 2006. The Appellate Tribunal also referred to the statements of two Sharma directors of the appellant, but such statements do not reveal the manufacture of the Gulab brand by the appellant prior to December 1, 2006.
10. When a person claims a benefit under any government scheme and the authorities seek to deny the eligibility of such person to obtain such benefit, the onus is on the authorities to demonstrate why the person would not be entitled to the benefit. As noticed above, it has been the consistent stand of the appellant that it did not manufacture the Gulab brand soya chunks prior to December 1, 2006. It was, thus, incumbent on the department to deny the appellant exemption for the period prior to December 1, 2006 only upon cogent material being produced in such regard, whether by way of bills or vouchers or unimpeachable statements or otherwise.
11. The third issue that requires to be looked into and answered is related to the appellant being entitled to the exemption or not. The wording of the applicable notification exempts a manufacturing unit as an SSI till such time it attains a turnover of Rs.1 crore. In the present case, the initial turnover in 2003-04 was extremely low and same picked up only in 2004- 05. In the event the appellant was entitled to exemption as claimed, it requires to be ascertained when the appellant’s manufacturing unit exceeded the turnover of Rs.1 crore for the excise duty to be claimed only thereafter.
12. The three key aspects of the matter have not been addressed in the order of the Appellate Tribunal dated January 23, 2019 in the appeal arising out of the order-in-original of March 16, 2009. These issues cannot be conveniently addressed in the present proceedings which are conducted on summary basis on affidavit evidence. Further, as to whether a person is entitled to an exemption or not based on the geographical location of the manufacturing unit, is essentially question of fact that has to be ascertained. 13. Accordingly, the order impugned dated January 23, 2019 is set aside and the matter is remanded to the Appellate Tribunal with a request to render the opinion on the three key aspects indicated herein and on any other issue that may be relevant for the purpose of adjudication. The Tribunal is also requested to pass its reasoned order within three months of the receipt of the authenticated copy of this order, particularly since the demand pertains to the period of 2003-04, 2004-05 and 2005-06.”
2.6 Appellants 2 & 3 also filed the Central Excise Appeal No 3/2019 and 5/2019 before the Hon’ble High Court of Meghalaya. Hon’ble High Court vide its order dated 08.02.2022held as follows:
“These matters are connected with Central Excise Appeal No.4 of 2019 and pertain to the penalty imposed on the directors of the company owning the manufacturing unit for perceived evasion of excise duty. By an order passed earlier today, the manufacturer‟s appeal has been allowed by setting aside the order impugned passed by the Appellate Tribunal on January 23, 2019 and remanding the matter for a fresh consideration on certain key issues that have been elaborately indicated in the order passed by this Court.
As a consequence, the orders of penalty imposed on the present appellants stand set aside and these matters are also remanded for a fresh consideration by the Appellate Tribunal upon answering the issues indicated in the order pertaining to Central Excise Appeal No.4 of 2019.
Central Excise Ap.No.3 of 2019 and MC (Central Excise Ap) No.2 of 2019 along with Central Excise Ap.No.5 of 2019 and MC (Central Excise Ap) No.4 of 2019 are disposed of.”
2.7 As directed by the Hon’ble High Court, the three appeals were taken up for consideration, in respect of the three aspects highlighted by the Hon’ble High Court.
3.1 we have heard Shri Devraj Sahu, Ld. Advocate representing all the three appellants and Shri S Mukhopadhyay Assistant Commissioner, Authorized Representative for the revenue.
3.2 Arguing for the appellants learned Counsel submitted as follows:
“For that the Appellant’s Unit is eligible to claim benefit of SSI exemption under Notification No. 8/2003-CE, dated 01.03.2003 as it fulfils all the conditions of SSI exemption. It is pertinent to mention here that the initial year’s aggregate value of clearance (2002-03) is Rs. 14,00,251/-and 2nd year’s (2003-04) Turnover is Rs. 4,79,35,216/-and the appellant unit is eligible to avail at full rate of exemption for the Financial Year 2003-04 upto the progressive clearance of Rs. 1.00 Crore and thereafter, the appellant will automatically switch over to normal clearance at normal rate of duty. This exemption under Notification has not been discussed in the impugned Final Order by the Hon’ble Tribunal which requires to be discussed allowing exemption to the appellants. Further, the Appellant has not manufactured “Soya Bari” using “Gulab Brand” prior to 1st December,2006. Hence, the appellant unit is eligible for claiming SSI exemption for the financial Year 2002-03, 2003-04 to the extent of maximum benefit of exemption allowed under the Notification No. 8/2003 CE, dated 01.03.2003 upto maximum of progressive clearance of Rs.1.00 Crore at Nil rate of duty in the financial year 2003-04. This aspect has not been considered by the Tribunal in its Final Order dated 01.03.2019 which required to be considered by the Hon’ble Tribunal.
“For that the demand raised by the Ld. Commissioner, Central Excise, Shillong, invoking extended period of limitation and raising demand for the period from March, 2003 to January, 2007 is not sustainable in law. The impugned Order in-Original is liable to be set aside on the Grounds of limitation. It is submitted that in normal case, the demand is to be raised within One (1) Year from the due date of filing of Statutory Returns ER-I under Sec. 11A of the Central Excise Act, 1944 and extended period of limitation is applicable in case of wilful suppression of material facts intending to evade payment of Central Excise duty. In the present case, the manufacturing activity of the appellant was in the knowledge of the department on written intimation the department seeking clarification on dutiability of Soya Bari, by its letter dated 23rd August,2006. (Copy of the letter dated 23.08.2006 is enclosed as Ext. – J). The Range Superintendent in its reply issued a certificate dated 13.09.2006 that “Soya Nugget (Soya Chunk) falling under Central Excise Tariff Heading 23.04 and the product attracts “Nil” rate of duty and Central Excise Registration is not required. (Copy of the Department Certificate dated 13.09.2006 is marked as Ext.- K). In the present circumstances, the normal period of limitation to raise demand is one year from the due date of filing ER-I Return and invoking extended period of limitation is not sustainable in the present situation under Sec. 11A of the Central Excise Act, 1944.
The impugned Order confirmed demand invoking extended period of limitation is not sustainable in law. In the case of Continental Foundation [ 2007 (216) ELT 177 (S.C)], wherein the Hon’ble Apex Court has held as – From the above interpretation of Sec. 11A by the Apex Court, there is no suppression of facts caused by the appellants and invoking extended period of limitation is not sustainable in law and the present impugned Order-in-Original is liable to be set aside on the grounds of limitation.
> For that the product “Soya Bari” with Brand name has been classified by the Department under CETH 2108. 99 from March, 2003 to February, 2005 attracting Central Excise Duty at 16 % Ad valorem, for non-branded “Soya Bari” is classified 2108.91 attracts “Nil” rate of duty. The product “Soya Bari” has been classified under 2106.10.00 under the revised 8-digit Tariff, the Tariff Rate of Duty – 16% Ad valorem, w.e.f 1st March, 2005 and on words. In the present case, the appellant has cleared unbranded goods prior to 1st December,2006. Hence, the duty on the unbranded goods so cleared shall be at Nil rate of duty therefore, no duty shall be charged on the appellants. The Goods “Soya Bari” has been classified by the department under CETH – 2106.10.00 attracting 16% Ad valorem w.e.f 1st of March 2005. However, the said demand is subjected to limitation u/s. 11A of the Central Excise Act, 1944 as applicability of extended period of limitation is applicable in the present case. There will be no demand of duty for the period from March, 2005 to November 2006 as the period is beyond limitation of one year.
> For that the Appellants discharged their Central Excise Duty liability w.e.f 1st March, 2006 from the date of enforcement of exemption Notification No. 3/2006-CE, dated 01.03.2006 at 8% Ad valorem till January, 2007. Vide Notification No. 3/2006-CE, dated 01.03.2006 (Ref. SI.No.28, CETH – 2106 – Rate of Duty -8 %, Condition – No.] The Appellants are entitled to refund of whole of the duty paid under North East Area based exemption Notification No. 32/1999-CE, dated 08.07.1999.
> For that the Appellants unit is located in the exempted area covered under Notification No. 32/99-CE, dated 8th July, 1999. Hon’ble Supreme Court in the case of Union of India Vs. V.V.F Ltd. and Others reported in 2020 (372) ELT. 495 (S.C), wherein the Hon’ble Apex Court settled the law, referred Paragraph -16. ………….. The present case in hand the situation of dutiability and claiming refund under North East Area based Exemption is a complete revenue neutral situation and there cannot be any possibility of suppression of fact with mala fide intention intending to evade payment of duty by the appellant. It is a settled law that in case of revenue neutral situation, there cannot be any possibility of evasion of payment of duty by the appellant and the extended period of limitation cannot be invoked. The appellant relies on the ratio of the Apex Court as held in the case of Nirlon Ltd. Vs. Commissioner of Central Excise, Mumbai, reported in 2015 (320) ELT 22 (S.C), wherein the Hon’ble Apex Court has held at para 9 and 10 as – ………… . From the above interpretation of the provisions of Sec….. 11A of Central Excise Act, 1944 by the Hon’ble Apex court, there is no mala fide intention in the present case intending to evade payment of duty and the demand from March, 2003 to 31st March, 2007 is beyond limitation and the demand is liable to be set aside in the ends of justice.
> For that that the goods “Soya Bari” was not specified under the 6 Digit Central Excise Tariff Act,1985 as there is no specific entry in Tariff in the First Schedule attracting duty for the product in question and not liable for payment of Central Excise Duty under the Central Excise Act,1944 and there is no contravention of the Central Excise Act or Rules made thereunder by the Appellants as alleged in the Show Cause Notice.
According to Sec. 2 of the Central Excise Tariff Act, 1985, Duty specified in the Schedule to be levied. “The rate at which duties of excise shall be levied under the Central Excise Act, 1944 (1 of 1944) are specified in the First Schedule and Second Schedule. Since, no rate has been specified for the product ‘Soya Bari’ in the First and Second Schedule to the Tariff Act,1985 no duty is levied and as such, the impugned order-in-original is not maintainable in the eye of law and liable to be dropped for the ends of justice.
> For that the department wrongly classified the product ‘Soya Bari’ under Chapter Sub-Heading 2108.99 which is not in accordance with the Rule of Interpretation of the Excise Tariff. As per rule 4 of the Rule of interpretation goods which cannot be classified in accordance with the above rules shall be classified under the heading appropriate to the goods to which they are more akin. As per Rule 6 “for legal purpose, the classification of goods in the sub-heading of a heading shall be determined according to the terms of those sub-headings and any related sub-heading Notes and, mutatis mutandis, to the above rules, on the understanding that only sub-headings at the same level are comparable. For the purposes of this rule, the relative Section and Chapter Notes also apply, unless the context otherwise requires.” In the present circumstances the product ‘Soya Bari’ was not specifically classified in the First Schedule to Central Excise Tariff Act,1985 upto 28.02.2006. Hence, no duty is payable by the Appellants classifying under a wrong Chapter Sub-Heading determined by the department which is not in accordance with Sec.2 of the Central Excise Tariff Act 1985.
> For that the department has committed an error in classifying the goods ‘Soya Bari’ on the basis of the classification mentioned in the Exemption Notification No.3/2006 CE. dated 01.03.2006 as shown at Sl. No. 29 – Texturised vegetable Product (Soya Bari) classified under Tariff Heading 2106 90 and demanding duty prior to the date of Notification is not tenable in the eye of law. It is submitted that issue of classification disputes is to be decided independently on the basis of words and language used in the relevant Tariff Entry and not in the description in the Notification. It is further submitted that an exemption notification is not an indicator to correct classification; it may be looked into, but cannot be made the basis for determining classification. While a statutory notification may be looked up to ascertain scope of an entry in the Tariff, it could not be used to determine or settle disputed classification of goods. The Appellants relies on the settled case as held in the case of –
