CESTAT Quashes Rule 6 Demand on Zinc Ash After CBIC Circular Withdrawal

Mahesh Chemicals Allied Industries Vs Commissioner of Central Excise and Central Goods & Service Tax (CESTAT Chandigarh)

Material Facts

The appellant, a manufacturer of Zinc Ingots and Zinc Sulphate fertilizer, challenged a common order confirming a demand of Rs.71,68,232 along with interest and equivalent penalty. The order also appropriated Rs.1,61,30,759 under Section 11D(1A) of the Central Excise Act, 1944 read with Sections 142(6)(a) and 174 of the CGST Act, 2017, and imposed a penalty of Rs.5,00,000 on the partner under Rule 26 of the Central Excise Rules, 2002.

The DGGI initiated an investigation after recording that zinc skimming was pulverized into zinc metal and zinc ash. Zinc metal was converted into zinc ingots, while zinc ash was either captively consumed for manufacture of zinc sulphate or sold on payment of Central Excise duty.

The Department relied upon the Supreme Court’s decision in Union of India v. DSCL Sugar Ltd. and CBIC Circular No.1027/15/2016-CX dated 25.04.2016 to contend that zinc ash was a non-excisable by-product which should be treated as exempted goods for Rule 6 purposes. It alleged that the appellant had neither maintained separate accounts nor reversed CENVAT credit under Rule 6(3), and also sought appropriation of duty collected under Section 11D.

Procedural History

A show cause notice dated 20.05.2019 proposed recovery under Rule 6(3), interest, penalties and appropriation under Section 11D.

The Commissioner confirmed the proposals, following which the appellant filed appeals before CESTAT Chandigarh.

Legal Issues

• Whether Rule 6(3) of the CENVAT Credit Rules, 2004 applied to zinc ash treated as a non-excisable by-product.
• Whether the demand based on CBIC Circular No.1027/15/2016-CX dated 25.04.2016 remained sustainable after subsequent judicial developments.
• Whether appropriation under Section 11D was justified.
• Whether the extended period of limitation had been validly invoked.

Relevant Statutory Provisions

• Rule 6(2) of the CENVAT Credit Rules, 2004.
• Rule 6(3) of the CENVAT Credit Rules, 2004.
• Rule 15(1) of the CENVAT Credit Rules, 2004.
• Rule 25 and Rule 26 of the Central Excise Rules, 2002.
• Section 11A, Section 11AC and Section 11D(1A) of the Central Excise Act, 1944.
• Sections 142(6)(a) and 174 of the CGST Act, 2017.

Appellant’s Submissions

The appellant submitted that:

• The entire demand was founded on CBIC Circular No.1027/15/2016-CX dated 25.04.2016, which had subsequently been held unsustainable by the Supreme Court in Union of India v. Indian Sucrose Limited.
• CBIC thereafter rescinded the earlier circular through Circular No.1084/05/2022-CX dated 07.07.2022.
• Zinc Ash imported by the appellant attracted CVD and SAD, entitling it to CENVAT credit and utilisation for payment of duty.
• The Department itself treated Zinc Ash as excisable at the import stage by levying CVD.
• The appellant had already paid Rs.1,61,30,759 as duty, whereas the Department simultaneously sought reversal of Rs.71,68,232 under Rule 6(3).
• Section 11D was inapplicable because, according to the Department itself, Zinc Ash was a non-excisable product.
• There was no suppression of facts, all transactions were reflected in the books of account, departmental audits had been conducted, and the show cause notice was barred by limitation.

Department’s Submissions

The Department contended that:

• Following insertion of Explanation 1 to Rule 6(1), non-excisable goods cleared for consideration were treated as exempted goods.
• Since the appellant had not maintained separate accounts, it was liable to pay 6% of the value of Zinc Ash cleared.
• The demands, interest and penalties were legally sustainable.

Tribunal’s Findings and Reasoning

The Tribunal held that the proceedings were entirely based on Union of India v. DSCL Sugar Ltd. and CBIC Circular No.1027/15/2016-CX dated 25.04.2016.

It observed that the Supreme Court subsequently held in Union of India v. Indian Sucrose Limited that the Circular dated 25.04.2016 was unsustainable in law. CBIC thereafter rescinded the circular through Circular No.1084/05/2022-CX dated 07.07.2022.

The Tribunal further observed that the appellant had paid CVD and SAD on imported Zinc Ash and was entitled to avail CENVAT credit. Once CVD had been levied treating Zinc Ash as manufactured goods, there was no illegality in payment of excise duty on sale of Zinc Ash.

It also noted that the appellant had already paid Rs.1,61,30,759 as duty, whereas the Department sought reversal of only Rs.71,68,232 under Rule 6(3). It held that Section 11D was not applicable because, according to the Department itself, Zinc Ash was a non-excisable product.

The Tribunal referred to departmental orders in Haryana Agro Chemicals and Shri Ram Agro Chem Pvt. Ltd., where proceedings had been dropped after the decision in Indian Sucrose Limited and issuance of the subsequent CBIC Circular.

On limitation, the Tribunal held that all relevant facts were recorded in the appellant’s books, departmental audits had been conducted, there was no suppression with intent to evade duty, and the show cause notice issued on 20.05.2019 for the period March 2015 to June 2017 was time-barred.

Final Ruling

The Tribunal:

• Set aside the impugned order.
• Allowed both appeals.
• Granted consequential relief in accordance with law.

Cases Discussed

• Union of India Vs. DSCL Sugar Ltd. (Supreme Court of India), 2015 (322) ELT 769 (SC)
• CCE, Pune-III Vs. Ajinkya Enterprises (Bombay High Court), 2013 (294) ELT 203 (Bom.)
• CCE, Surat-III Vs. Creative Enterprises (Gujarat High Court), 2009 (235) ELT 785 (Guj.)
• Uniworth Textiles Ltd Vs. CCE, Raipur (Supreme Court of India), 2013 (288) ELT 161 (SC)
• Hyderabad Industries Ltd Vs. Union of India (Supreme Court of India), 1999 (108) ELT 321 (SC)
• Grasim Industries Ltd Vs. Union of India (Supreme Court of India), 2011 (273) ELT 10 (SC)
• CCE, Patna Vs. Tata Iron & Steel Co. Ltd. (Supreme Court of India), 2004 (165) ELT 386 (SC)
• Padmini Products Vs. Collector of Central Excise (Supreme Court of India), 1989 (43) E.L.T. 195 (S.C.)
• Collector of Central Excise Vs. Chemphar Drugs & Liniments (Supreme Court of India), 1989 (40) E.L.T. 276 (S.C.)
• Cosmic Dye Chemical Vs. Collector of Central Excise (Supreme Court of India), 1995 (75) E.L.T. 721 (S.C.)
• Gopal Zarda Udyog Vs. Commissioner of Central Excise, New Delhi (Supreme Court of India), 2005 (188) E.L.T. 251 (S.C.)
• Anand Nishikawa Co. Ltd. Vs. Commissioner of Central Excise, Meerut (Supreme Court of India), 2005 (188) E.L.T. 149 (S.C.)
• Mahindra & Mahindra Ltd. Vs. Collector of Central Excise, Aurangabad (Tribunal), 2000 (125) E.L.T. 477
• Kolety Gum Industries Vs. Commissioner of Central Excise, Vapi (Tribunal), 2005 (183) E.L.T. 440 (Tri.-Mumbai)
• Domino Printech India Pvt Ltd Vs. CCE, Delhi-III (CESTAT Chandigarh), 2020 (372) ELT 96
• Markwell Paper Plast Pvt Ltd Vs. CC & CE, Noida (CESTAT Delhi), 2012 (285) ELT 76
• M/s Sandeep Laminators Pvt Ltd Vs. CCE, Delhi-III, Final Order No. 60067/2024 dated 22.02.2024

FULL TEXT OF THE CESTAT CHANDIGARH ORDER

These two appeals are directed against a common impugned order dated 13.12.2019 passed by the Commissioner of Central Excise and Central Goods & Service Tax, Rohtak, whereby the demand of duty of Rs.71,68,232/- has been confirmed along with interest and equivalent penalty and an amount of Rs.1,61,30,759/-has been appropriated under Section 11D(1A) of the Central Excise Act, 1944 read with Section 142(6)(a) read with Section 174 of the CGST Act, 2017. A penalty of Rs.5,00,000/- was also imposed on Shri Suresh Goyal, Partner under Rule 26 of the Central Excise Rules, 2002 read with Section 174 of the CGST Act, 2017.

2. Briefly stated facts of the present case are that the appellant was engaged in the manufacture of Zinc Ingots and Zinc Sulphate fertilizer falling under Chapter Heading No. 7901 and 2833 of the Central Excise Tariff Act, 1985. The officials of DGGI initiated investigation and visited factory premises of the appellant. Statement of Shri Suresh Goyal, Partner was recorded, in which it was inter alia submitted that their firm manufactures Zinc Ash and Zinc Skimming fertilizers; they pulverize Zinc Skimming which results into Zinc Metal and Zinc Ash; the metal portion is melted in furnace and converted into Zinc Ingots; Sulfuric Acid is added in Zinc Ash powder which results into Zinc Sulphate; Zinc Ash powder is captively consumed as well as sold on payment of Central Excise Duty; the captively consumed Zinc Ash is cleared on payment of Central Excise Duty. Thereafter, it was observed that as per judgment of Hon’ble Supreme Court in the case of Union of India Vs. DSCL Sugar Ltd – 2015 (322) ELT 769 (SC) and subsequent Board Circular No. 1027/15/2016-CX dated 25.04.2016, it has been clarified that the products including bagasse, dross and skimming are non-excisable goods. As per explanations 1 & 2 inserted w.e.f. 01.03.2015, exempted goods shall include non-excisable goods cleared for consideration from the factory. Thereafter, on the basis of factual position of the product, procedure adopted by the appellant and above legal provision, the DGGI formed an opinion that the appellant could not have whimsical chosen to clear Zinc Ash on payment of duty when no such duty is leviable. An Invoice for captive consumption can be issued if a new, distinct and excisable product emerges after the manufacturing process which was not in the present case. The residual Zinc Ash was non-excisable, therefore, there was no legal requirement to issue invoice for captive consumption and as such no duty was required to be paid. The payment of duty through Cenvat account on clearance of Zinc Ash as such or captive consumption was contrary to law in force. An invoice can be issued only when right to ownership is transferred between two legal persons but in the present case transaction was not between two legal persons nor any right to ownership was transferred. The invoice for captive consumption was not a valid transaction and appellant could not have issued it. Therefore, when the goods were not removed from the premises of the manufacturer, no Central Excise Duty was required to be paid. The duty on Zinc Ash was paid from Cenvat account so as to encash their Cenvat by passing on the incidence to their final buyer and also justify/avoid the reversal of Cenvat Credit. As per Circular dated 25.04.2016, Zinc Ash and Skimming are non-excisable goods and need to be treated as exempted goods for the purpose of reversal of credit of input or input services in terms of Rule 6 of the Cenvat Credit Rules, 2004. The appellant did not avail option under Rule 6(2) and under Rule 6(3) of the Cenvat Credit Rules, 2004 and did not maintain separate register for quantity of Zinc Ash used in the manufacture of their dutiable products and their exempted products. As per data submitted by the appellant, they have sold/captively consumed Zinc Ash upto June 2017. The appellant during March 2015 to June 2017 sold/consumed 3061.22 MT Zinc Ash. The value of sold/captively consumed Zinc Ash comes to Rs.12,90,45,999/- upon which the appellant was required to reverse credit amounting to Rs.71,68,232/ in terms of Rule 6(3) of the Cenvat Credit Rules, 2004. The appellant during aforesaid period charged and collected Central Excise Duty on exempted by product i.e. Zinc Ash. As per Section 11D of the Act, every person is required to deposit any amount which is collected in excess of duty assessed or determined and paid. The appellant during aforesaid period sold/consumed 3061.22 MT Zinc Ash where upon duty amounting to Rs.1,61,30,759/- was charged and paid which is liable to be appropriated under Section 11D of the Act. On these allegations, a show cause notice dated 20.05.2019 was issued to the appellant to show as to why:-

(i) the amount of Rs.71,68,232/- on the clearance of Zinc Ash and its use in the manufacture of exempted Zinc Sulphate should not be recovered from them under Rule 6(3) of the Cenvat Credit Rules, 2004 read with Section 11A of the Central Excise Act, 1944 and Section 174 of the CGST Act, 2017.

(ii) Interest at the appropriate rate should not be charged.

(iii) Penalty should not be imposed on them under Rule 15(1) of the Cenvat Credit Rules, 2004 and Rule 25 of the Central Excise Rules, 2002/Rule 28 of Central Excise Rules, 2017 read with Section 11AC(1) of the Central Excise Act, 1944 read with Section 174 of CGST Act, 2017.

(iv) Central Excise duty of Rs.1,61,30,759/- which was charged and collected on exempted goods without the authority of law should not be appropriated under Section 11D(1A) of the Central Excise Act, 1944 read with Section 174 of the CGST Act 2017.

The appellant filed detailed reply to the show cause notice. After following the due process, the learned Commissioner confirmed the demand as made in the show cause notice. Hence, the present appeal.

3. Heard both the parties and perused the material on record.

4.1 The learned Counsel for the appellant submits that the impugned order is not sustainable in law and is liable to be set aside as the same has been passed contrary to the facts and the law; and binding judicial precedents on the identical issue.

4.2 He further submits that in the present case, demand was raised and confirmed on the ground that Zinc Ash manufactured and cleared/captively consumed by the appellant was non-excisable goods and since it was cleared for a consideration, the same is to be treated as exempted goods for the purpose of reversal of credit of input and input services, in terms of Rule 6 of the Cenvat Credit Rules, 2004.

4.3 He further submits that the department has relied upon the judgment of Hon’ble Supreme Court in the case of Union of India Vs. DSCL Sugar Ltd (supra) and subsequent Board Circular No. 1027/15/2016-CX dated 25.04.2016.

4.4 He further submits that subsequently the identical issue came up before the Hon’ble Supreme Court in case of Union of India Vs. Indian Sucrose Limited – SLP(C) No. 1700/2021 wherein the Hon’ble Supreme Court vide its order dated 04.03.2022 has held that Circular No. 1027/15/2016-CX dated 25.04.2016 is unsustainable in law as bagasse is non-excisable goods to which cenvat credit has no application. Further, on the basis of said decision of Hon’ble Apex Court, the Board has now rescinded the Circular dated 25.04.2016 by issuing fresh Circular No. 1084/05/2022-CX dated 07.07.2022, in which it has been clarified that the law laid down by the Apex Court is to be followed. Therefore, the issue in the present case is now squarely covered with the Board Circular dated 07.07.2022 and hence, Rule 6 is not applicable in the present case.

4.5 He further submits that during the entire period in question, the appellant captively consumed 490 MTs Zinc Ash and assessed its value Rs.2,37,60,000/- and paid excise duty plus education cess amounting to Rs.29,70,003/-. The duty was paid on normal rate i.e. 12% plus cess. The appellant also sold 2571.245 MTs Zinc Ash in the domestic market and assessed its value Rs.10,52,85,999/- and paid excise duty amounting to Rs.1,31,60,750/-.

4.6 He further submits that at the time of import of Zinc Ash, the appellant paid CVD and SAD. As per the impugned order Zinc Ash/Skimming/Dross is not subject to Central Excise Duty but the lower authorities have ignored the important fact that same item was subjected to CVD at the time of import, hence the appellant was bound to avail Cenvat Credit and utilize for the payment of duty on sale of Zinc Ash.

4.7 He further submits that it is surprising that the DGGI is holding that duty was not payable on Zinc Ash whereas another wing of the department i.e. Customs is charging CVD on the same product; and once CVD is charged treating Zinc Ash as manufacture, there was no illegality on the part of the appellant to pay duty on the sale of Zinc Ash. The appellant had paid duty amounting to Rs.1,61,30,759/-whereas as per the impugned order, the credit amounting to Rs.71,68,232/- was required to be reversed as per Rule 6(3) of the Rules. The appellant paid duty @12%/12.5% whereas as per department, the appellant was required to reverse credit @5%/6%. He further submits that it is again very surprising that the duty paid by the appellant has been proposed to be appropriated under Section 11D of the Act whereas additional duty is demanded under Rule 6(3) of Rules. Once it is undisputed that the appellant has paid duty amounting to Rs.1,61,30,759/-, there seems no justification to demand a sum of Rs.71,68,232/- as reversal of the credit under Rule 6(3) of the Rules.

4.8 He further submits that Section 11D is not applicable in the present case and the contention of the department is self-contradictory because the appellant has paid the duty @12%, whereas as per impugned order, the appellant was supposed to reverse the credit @6% which means lesser amount of duty was payable.

4.9 He further submits that it is not in dispute that the appellant had paid duty on the final product and thus, cenvat credit cannot be denied when duty has already been paid on final product.

4.10 He further submits that in the present case, the demand has been confirmed by invoking extended period of limitation. In the impugned order, it has been held that the appellant availed credit in spite of judgments and Board Circular on the issue involved, thus intent to evade duty is plausible; had the DGGI not pointed out, this matter would not have come to the notice of the department. In reply to this allegation, the learned Counsel submits that the appellant did not suppress any fact from the knowledge of the department. Each and every fact was recorded in books of accounts and on the basis of the said record only, the demand has been quantified. There is no dispute of even value and value determined by the appellant has been accepted by the department. It is settled law that suppression of facts without any intention to evade tax cannot lead to invoke extended period of limitation. For invoking extended period of limitation, there has to be malafide intention to evade tax. From the facts on record, it is clearly coming out that the appellant was paying duty suo moto on Zinc Ash, either cleared on sale or when captively consumed. The appellant has been adopting said practice for more than a decade and on so many occasions Revenue officers visited the factory premises of the appellant and conducted the audit; therefore, it is not only highly arbitrary and unreasonable but also caprice & cavalier to allege that there was suppression or mis-statement on the part of the appellant. Further, the appellant had paid duty amounting to Rs.1,61,30,759/- whereas as per impugned order, the appellant was required to pay Rs.71,68,232/- which means the appellant had already paid approximately Rs.90 Lakhs in excess.

4.11 In support of his submissions, the learned Counsel relies on the following judgments:

• Uniworth Textiles Ltd Vs. CCE, Raipur – 2013 (288) ELT 161 (SC)
• M/s Sandeep Laminators Pvt Ltd Vs. CCE, Delhi-III – Final Order No. 60067/2024 dated 22.02.2024 in Excise Appeal No. 59092 of 2013
• Domino Printech India Pvt Ltd Vs. CCE, Delhi-III – 2020 (372) ELT 96 (Tri- Chan.)
• Markwell Paper Plast Pvt Ltd Vs. CC & CE, Noida – 2012 (285) ELT 76 (Tri-Del)
• CCE, Pune-III Vs. Ajinkya Enterprises – 2013 (294) ELT 203 (Bom)
• CCE, Surat-III Vs. Creative Enterprises – 2009 (235) ELT 785 (Guj)
• Hyderabad Industries Ltd Vs. Union of India – 1999 (108) ELT 321 (SC)
• Grasim Industries Ltd Vs. Union of India – 2011 (273) ELT 10 (SC)
• CCE, Patna Vs. Tata Iron & Steel Co. Ltd – 2004 (165) ELT 386 (SC)

5. On the other hand, the learned Authorized Representative for the department reiterates the findings of the impugned order and submits that after the addition of explanation 1 to Rule 6(1) of CCR, 2004, it can be seen that even non-excisable goods which are cleared for consideration, would fall within the category of exempted products. Thus, the Zinc Ash cleared by the appellant is an exempted product and therefore, the appellant ought to have maintained separate accounts, which they did not do so. On failure to maintain separate accounts, the appellant is liable to pay 6% of the value of Zinc Ash cleared by them. The leaned AR also justifies as legal the demand of duty, interest and imposition of penalty.

6. After considering the submissions made by both the parties and perusal of the material on record, we find that the entire proceedings in this case was initiated on the investigation conducted by the DGGI and the same was based on the judgment of Hon’ble Supreme Court in the case of Union of India Vs. DSCL Sugar Ltd (supra) and subsequent Board Circular No. 1027/15/2016-CX dated 25.04.2016, wherein it has been clarified that the products including bagasse, dross and skimming are non-excisable goods. Further, as per the explanations 1 & 2 inserted w.e.f. 01.03.2015, exempted goods shall include non-excisable goods cleared for consideration from the factory. As per the Circular dated 25.04.2016, it was provided that Zinc Ash and Skimming are non-excisable goods and need to be treated as exempted goods for the purpose of reversal of the credit of inputs or input services in terms of the Rule 6 of the CCR, 2004. As per the department, the appellant did not avail the option under Rule 6(2) and under Rule 6(3) and further did not maintain separate register for quantity of Zinc Ash used in the manufacture of their dutiable products and their exempted products.

7. Further, we find that the department has confirmed the demand solely relied upon the judgment of Hon’ble Supreme Court in the case of Union of India Vs. DSCL Sugar Ltd (supra) and subsequent Board Circular No. 1027/15/2016-CX dated 25.04.2016. We also note that subsequently the same issue came up before the Hon’ble Supreme Court in the case of Union of India Vs. Indian Sucrose Limited (supra) wherein the Hon’ble Supreme Court vide its order dated 04.03.2022 has held that Circular dated 25.04.2016 is unsustainable in law as bagasse is non-excisable goods to which cenvat credit has no application. It is pertinent to note that subsequent to the decision of the Hon’ble Supreme Court in the case of Union of India Vs. Indian Sucrose Limited (supra), the Board has issued fresh Circular No. 1084/05/2022-CX dated 07.07.2022 and has rescinded the Circular dated 25.04.2016 on the basis of which, the entire demand was created. Here, it is pertinent to reproduce the Circular dated 07.07.2022, which is reproduced herein below:

“Circular No. 1084/05/2022-CX dated 07-07-2022
F.No. CBIC-110267/33/2022-CX-VIII SECTION-CBIC

Government of India
Ministry of Finance
Department of Revenue
Central Board of Indirect Tax & Customs, New Delhi

Subject: Excisability of waste/residue arising during the process of manufacture – Withdrawal of Circular No. 1027/15/2016-CX dated 25.04.2016 – Reg.

Excisability of bagasse and similar other by-products or waste arising during the course of manufacture of an excisable product has been brought to the attention of the Board.

2. It may be recalled that Rule 6 of the CENVAT Credit Rules, 2004 was amended with effect from 1.03.2015 by inserting Explanation 1 and 2 in sub-rule (1) of Rule 6, which provides that exempted goods or final product shall include non-excisable goods cleared for consideration from the factory.

3. Accordingly, Circular No. 1027/15/2016-CX dated 25.04.2016 was issued highlighting that Bagasse, Dross and Skimmings of non-ferrous metals or any such by-product or waste, which are non-excisable goods and are cleared for a consideration from the factory need to be treated like exempted goods for the purpose of reversal of credit of input and input services, in terms of Rule 6 of the CENVAT Credit Rules, 2004. This circular was issued in the background of judgement of the Hon’ble Supreme Court in the case of Union of India Vs. M/s. DSCL Sugar Ltd [2015 (322) E.L.T. 769 (S.C.)] holding that Bagasse is only an agricultural waste and residue and it is not a result of any process which can be termed as ‘manufacture’. Similar conclusion was also drawn by the Hon’ble High Court of Bombay in the case of M/s Hindalco Industries Ltd. Vs. Union of India [(2015 (315) E.L.T.10 (Bom.)] in relation to dross and skimming of aluminium, zinc or other non-ferrous metals.

4. The issue again came before the Hon’ble Supreme court in the case of Union of India Vs. M/s. Indian Sucrose Limited [SLP(C) No. 1700/2021], wherein the Hon’ble Supreme Court vide its judgment dated 04.03.2022, referred to its observations in the Union of India vs. M/s. DSCL Sugar Ltd & Ors. (supra) holding that Bagasse is non-excisable to which the CENVAT Credit Rules have no application, and held that the Circular dated 25.04.2016 is unsustainable in law.

5. In light of the above judgment, Circular No. 1027/15/2016-CX dated 25.04.2016 has become non-est and is hereby rescinded. Cases kept in Call Book on the above issue, if any, may be taken out and adjudicated in light of the law decided by the Apex Court.

6. Difficulty experienced, if any, in implementing the circular should be brought to the notice of the Board.

7. Hindi version will follow.”

8. Further, we find that when the appellant imported the Zinc Ash, they paid CVD and SAD and once they have paid CVD, they are entitled to avail the Cenvat Credit and utilize the same for payment of duty on sale of Zinc Ash; and once CVD is charged treating Zinc Ash as manufacture, there was no illegality on the part of the appellant to pay duty on sale of Zinc Ash. In all, the appellant admittedly has paid Rs.1,61,30,759/- whereas as per the impugned order, the Credit amounting to Rs.71,68,232/- is sought to be reversed under Rule 6(3) of the CCR, 2004. Further, the duty amounting to Rs.1,61,30,759/- paid by the appellant is sought to be appropriated under Section 11D(1A) whereas Section 11D is applicable to excisable goods which are exempt or chargeable to nil rate of duty, but in the present case, Zinc Ash as per the department is non-excisable goods; therefore, Section 11D is not applicable in this case.

9. Further, we also find that the identical issue was involved in the case of M/s Haryana Agro Chemicals, wherein vide Order dated 12.04.2021, the Additional Commissioner of Central Excise & GST, Chandigarh by relying upon the judgments in the cases of CCE, Surat-III vs. Creative Enterprises (supra) and CCE, Pune-III vs. Ajinkya Enterprises (supra) has dropped the proceedings initiated against the assessee and also dropped the penalty on the partner. Further, in the case of M/s Shri Ram Agro Chem Pvt Ltd, wherein vide Order dated 26.03.2024, the Assistant Commissioner, Central Excise & GST Division, Sirsa by relying upon the decision of Hon’ble Supreme Court in the case of Union of India Vs. Indian Sucrose Limited (supra) and also relying upon the Board Circular No. 1084/05/2022-CX dated 07.07.2022 has dropped the proceedings initiated against the assessee.

10. As regards the invocation of extended period of limitation, we find that the appellant has not suppressed any information from the department. Each and every fact was recorded in books of accounts and on the basis of the same records, demand has been quantified. Further, we find that the appellant has been subject to internal audit from time to time. One audit report dated 05.04.2018 for the audit conducted on 4th, 5^th & 6^th January 2018 is on record and in the said report, it is mentioned that prior to this audit, the appellant’s books of accounts were audited on 10.07.2014 and no such allegation of suppression was ever alleged against the appellant. For invoking the extended period of limitation, the Hon’ble Supreme Court has laid down the law from time to time. In this regard, it is pertinent to mention that:

a) The Hon’ble Supreme Court has in the case of Padmini Products v/s Collector of C. EX. cited as 1989 (43) E.L.T. 195 (S.C.) held that unless there is evidence that the manufacturer knew that goods were liable to duty or he was required to take out a licence, intention to evade payment of excise duty cannot be alleged. For invoking extended period of five years limitation duty should not had been paid, short levied or short paid or erroneously refunded because of either any fraud, collusion or willful mis-statement or suppression of facts or contravention of any provision of the Act or Rules made thereunder. These ingredients postulate a positive act, therefore, failure to pay duty or take out a licence is not necessary due to fraud or collusion or willful mis- statement or suppression of facts or contravention of any provisions of the Act.

b) The Hon’ble Supreme Court has in the case of Collector of Central Excise v/s Chemphar Drugs& Liniments cited as 1989 (40) E.L.T. 276 (S.C.) held that extended period of five years is applicable only when something positive other than mere inaction or failure on the part of manufacturer is proved. It further held that conscious or deliberate withholding of information by manufacturer is necessary for invoking extended period. If the Respondent had full knowledge or manufacturer had reasonable belief that he is not required to give particular information, only normal period of limitation is applicable.

c) The Hon’ble Supreme Court has in the case of Gopal Zarda Udyog v/s Commissioner of Central Excise, New Delhi cited as 2005 (188) E.L.T. 251 (S.C.) held that mere failure or negligence on part of manufacturer either not to take out licensee or not to pay duty in cases where there is a scope for doubt, does not attract extended period of limitation. Failure to pay duty or to take out a license, not necessarily due to fraud, collusion etc.

d) The Hon’ble Supreme Court has further in the case of Cosmic Dye Chemical v/s Collector of Central Excise, Bombay cited as 1995 (75) E.L.T. 721 (S.C.) held that for invoking extended period of limitation, there should be an intent to evade duty. The mis-statement or suppression must be wilful and it is not correct to say that there can be a suppression or mis­statement, which is not wilful and yet constitutes a permissible ground for invoking the extended period of limitation. The same view was taken by Hon’ble Tribunal in the case of Mahindra & Mahindra Ltd. v/s Collector of C. Ex., Aurangabad cited as 2000 (125) E.L.T. 477 (Tribunal).

e) The Hon’ble Supreme Court has in the case of Anand Nishikawa Co. Ltd. v/s Commissioner of Central Excise, Meerut cited as 2005 (188) E.L.T. 149 (S.C.) held 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 not that he must have done would not render it suppression. It is settled law that mere failure to declare does not amount to willful suppression. There must be some positive act from the side of the assessee to find willful suppression.

f) The Hon’ble Tribunal in the case of Kolety Gum Industries V/S Commissioner of Central Excise, Vapi cited as 2005 (183) E.L.T. 440 (Tri.-Mumbai) has held that invocation of extended period of limitation is not sustainable as the party has bonafide belief that goods in question are not dutiable. No suppression of facts or contravention with intent to evade payment of duty can be upheld in such case.

As the appellant has not suppressed any material fact from the department with intent to evade payment of tax and was subject to internal audit from time to time as cited above; therefore, invoking extended period of limitation is not warranted. Further, in the present case, the period involved is from March 2015 to June 2017 whereas the show cause notice was issued on 20.05.2019, which is entirely time barred.

11. In view of our discussion above and by following the ratio of the judgment of Hon’ble Apex Court in the case of Union of India Vs. Indian Sucrose Limited (supra) and further relying upon the subsequent Board Circular No. 1084/05/2022-CX dated 07.07.2022, we are of the considered opinion that the impugned order is not sustainable in law and is liable to be set aside and we do so by allowing both the appeals of the appellant with consequential relief, if any, as per law.

(Order pronounced in the court on 30.07.2024)