Case Law Details
Show cause notice issued beyond the period of six months from the date of knowledge is barred by limitation is clearly contrary to the provisions of section 11A of the Act and as such cannot be sustained
In the facts of the present case the record indicates that the Director of the respondent has admitted shortage of Grey fabrics as well as illicit clearance thereof without issuance of central excise invoices or any other duty paying documents, without payment of central excise duty and without entering in the Daily Stock Account Register and Lot Register during the months May-2002 and June 2002.
The merchant manufacturers from whom the short found Grey fabrics were received and resultant processed fabrics cleared illicitly without cover of central excise invoices and without payment of central excise duty had also been summoned by the Central Excise Officers. Statements of those merchant manufacturers who appeared indicate that they had agreed that they had sent the grey fabrics to the respondent and received the resultant processed fabrics, without cover of central excise invoices and without payment of central excise duty leviable thereon during the relevant period. Thus, in the facts of the present case suppression stands admitted by the respondent assessee and established by evidence on record and as a natural corollary, the proviso to sub-section (1) of section 11A would stand attracted. In the circumstances, the impugned order of the Tribunal whereby it has been held that the show cause notice issued beyond the period of six months from the date of knowledge is barred by limitation is clearly contrary to the provisions of section 11A of the Act and as such cannot be sustained.
IN THE HIGH COURT OF GUJARAT
AT AHMEDABAD
Tax Appeal No. 338 of 2009
COMMISSIONER OF CENTRAL EXCISE SURAT- I
Vs
NEMINATH FABRICS PVT. LTD.
Dated: April 22, 2010
Central Excise- Limitation under Section 11 A- Show cause notice issued beyond one year from the date of knowledge of the Department- The concept of knowledge by the departmental authority is entirely absent in the provisions of Section 11A- If one imports such concept in sub-section (1) of section 11A of the Act or the proviso there under it would tantamount to rewriting the statutory provision and no canon of interpretation permits such an exercise by any Court – If it is not open to the superior court to either add or substitute words in a statute such right cannot be available to a statutory Tribunal – The reasoning that once knowledge has been acquired by the department there is no suppression and as such the ordinary statutory period of limitation prescribed under sub-section (1) of section 11A would be applicable is fallacious inasmuch as once the suppression is admitted, merely because the department acquires knowledge of the irregularities the suppression would not be obliterated- The order passed by the Tribunal is quashed. Appeal allowed.
JUDGEMENT
Per: H N Devani:
1. The Appellant- Revenue has challenged order dated 26.08.2008 made by the Customs, Excise And Service Tax Appellate Tribunal (the Tribunal), proposing the following three questions:
(a) Whether in the facts and circumstances of this case, the date of completion of investigation has any bearing in deciding period of limitation to issue show cause notice in case covered by first proviso to Section 11A of the Central Excise Act, 1944?
(b) Whether in the facts and circumstances of this case, the Tribunal has committed substantial error of law in holding that show cause notice issued in the present case is barred by limitation under Section 11A of the Central Excise Act, 1944?
(c) Whether in the facts and circumstances of this case, the Tribunal has committed substantial error of law in allowing appeal of the respondent assessee with consequential relief to the said assessee?
2. On 03.03.2010 this Court had passed an order in the following terms:
1. Heard learned Counsel for Appellant-Revenue. While passing impugned order dated 25.8.2008, Customs, Excise & Service Tax Appellate Tribunal (the Tribunal), correct legal principles have been enunciated as to operation of Provisions of Section 11A (1) and the Proviso there under of the Central Excise Act, 1944. However, prima facie it appears that the Tribunal has fallen into error in applying principles to the facts of the case.
2. Hence, Notice for final disposal returnable on 25.03.2010.
3. In response to the notice issued by this Court, Mr. Paresh Dave learned advocate has put in appearance on behalf of the respondent.
4. Heard the learned advocates.
5. Admit. The following substantial question of law arises for consideration :
Whether the Tribunal was justified in importing the concept of knowledge in the provisions of Section 11A of the Central Excise Act, 1944 read with sub-section (1) and the proviso thereto?
6. Briefly stated the facts of the case are that the respondent is engaged in the manufacture of Man-made Fabrics on job work basis falling under Chapter 54 of the Central Excise Tariff Act, 1985. Officers of the Central Excise visited the factory of the respondent on 21.06.2002 for preventive checks. The officers took physical stock of grey fabrics, semi-finished fabrics and finished fabrics lying in different sections of the unit and on comparing the same with the Lot Register and the Daily Stock Register maintained by the unit, found that there was a shortage of 193717.50 L. Mtrs . of Grey fabrics. In relation to the shortage, the statement of one Arunkumar Trivedi , Director of the unit was recorded who admitted the shortage and deposed that they had illicitly cleared the Grey fabrics without issuing central excise invoices and without payment of any duty. Statements of the merchant manufacturers from whom the short found Grey fabrics were received and resultant processed fabrics cleared without cover of Central Excise invoices and without payment of Central Excise duty also came to be recorded, who admitted that the Grey fabrics were sent for process illicitly without payment of duty.
7. Subsequently a Show Cause Notice dated 09.05.2009 came to be issued to the respondent unit which came to be adjudicated vide order-in-original dated 22.02.2006 whereby demand of central excise duty amounting to Rs. 4,01,693/- came to be confirmed with interest under section 11AB of the Act. Penalty of Rs. 4,01,693/- was also imposed under section 11 AC of the Act read with Rule 25 of the Central Excise Rules, 2002 (the Rules). The respondent carried the matter in appeal before Commissioner (Appeals), who for the reasons stated in her order dated 25.02.2008, dismissed the appeal. The respondent carried the matter in further appeal before the Tribunal, who vide the impugned order allowed the appeal on the ground of limitation.
8. Assailing the impugned order of the Tribunal Mr. R.J. Oza , learned Senior Standing Counsel for the appellant-revenue has invited attention to the provisions of section 11A of the Act. It is submitted that in view of the proviso to section 11A of the Act, in case 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 the Act, or of the rules made there under with intent to evade payment of duty, the period of one year prescribed for service of show cause notice under sub-section (1) of section 11A gets extended to five years. Hence, once it is found that any excise duty has not been paid or short levied etc, for any of the reasons stipulated under the proviso, the period of limitation for service of show cause notice would automatically stand extended to five years. Adverting to the facts of the present it is pointed out that non-payment of central excise duty by reason of suppression is admitted, hence, the ingredients of the proviso stand duly satisfied. It is submitted that the Tribunal has imported the concept of knowledge and a limitation of six months from the date of knowledge into section 11A of the Act to hold that the show cause notice was barred by limitation, which is not permissible in law. In support of his submissions, the learned counsel has placed reliance upon the decision of the Apex Court in the case of Mathania Fabrics Vs. Commissioner of Central Excise, Jaipur, – 2008 (221) E.L.T.481 (S.C.), as well as the decision of the Apex Court in the case of Union of India Vs. Rajasthan Spinning and Weaving Mills, – 2009 (238) E.L.T.3 (S.C.).
9. On the other hand, Mr. Paresh Dave learned advocate for the respondent has vehemently opposed the appeal. It is submitted that the Tribunal has placed reliance upon the decision of the Supreme Court in the case of Nizam Sugar Factory Vs. Collector of Central Exci se, A.P., – 2006 (197) E.L.T.465 (S.C.), for holding that the show cause notice was barred by limitation . Attention is invited to the decision of the Larger Bench of the Tribunal in the case of Nizam Sugar Factory v. Collector of Central Excise, -1999 (114) ELT 429, wherein the Tribunal held that relevant date has been defined under sub-section (3) of section 11A and that the said sub-section does not provide that the relevant date means the date of acquiring the knowledge by the Department. It is further held that once show cause notice was beyond the extended period of limitation, any reference to date of acquiring knowledge has no relevance. It is pointed out that the said decision of the Tribunal was carried before the Supreme Court in the case of Nizam Sugar Factory (supra) and that the impugned orders of the Tribunal had been set aside on the question of limitation only. It is further submitted that the impugned order of the Tribunal is also in consonance with the decision of this Court in case of Commissioner of Central Excise And Customs Vs. Kwality Tube Industries -2009 (240) E.L.T.20 ( Guj.). It is submitted that in the circumstances, the impugned order of the Tribunal is just, legal, proper and does not warrant interference.
10. Section 11A of the Central Excise Act, 1944 in so far as the same is relevant for the present purpose reads thus:
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, whether or not such non-levy or non-payment, short-levy or short payment or erroneous refund, as the case may be, was on the basis of any approval, acceptance or assessment relating to the rate of duty on or valuation of excisable goods under any other provisions of this Act or the rules made there under, a Central Excise Officer may, within one year from the relevant date, serve notice on the persons 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, as if for the words one year, the words, five years were substituted :
Explanation- Where the service of the notice is stayed by an order of a Court, the period of such stay shall be excluded in computing the aforesaid period of [one year] or five years, as the case may be.
(1A) xxxxxxx.
(2) xxxxxxx.
(3) For the purposes of this section –
( i ) refund includes rebate of duty of excise on excisable goods exported out of India or on excisable materials used in the manufacture of goods which are exported out of India;
(ii) relevant date means-
(a) in the case of excisable goods on which duty of excise has not been levied or paid or has been short levied or short paid –
(A) where under the rules made under this Act a periodical return, showing particulars of the duty paid on the excisable goods removed during the period to which the said return relates, is to be filed by a manufacturer or a producer or a licensee of a warehouse, as the case may be, the date on which such return is so filed;
(B) where no periodical return as aforesaid is filed, the last date on which such return is to be filed under the said rules;
(C) in any other case, the date on which the duty is to be paid under this Act or the rules made there under ;
(b) in a case where duty of excise is provisionally assessed under this Act or the rules made there under, the date of adjustment of duty after the final assessment thereof;
(c) in the case of excisable goods on which duty of excise has been erroneously refunded, the date of such refund.
11. A plain reading of sub-section (1) of section 11A of the Act indicates that the provision is applicable in a case where any duty of excise has either not been levied/ paid or has been short levied/ short paid, or wrongly refunded, regardless of the fact that such non levy etc. is on the basis of any approval, acceptance or assessment relating to the rate of duty or valuation under any of the provisions of the Act or Rules there under and at that stage it would be open to the Central Excise Officer, in exercise of his discretion to serve the show cause notice on the person chargeable to such duty within one year from the relevant date.
12. The Proviso under the said sub-section stipulates that in case of such non levy, etc. of duty which is by reason of fraud, collusion, or any mis -statement or suppression of facts, or contravention of any provisions of the Act or the rules made there under , the provisions of sub-section (1) of section 11A of the Act shall have effect as if the words one year have been substituted by the words five years.
13. The Explanation which follows stipulates that where service of notice has been stayed by an order of a Court, the period of such stay shall be excluded from computing the aforesaid period of one year or five years, as the case may be.
14. Thus the scheme that unfolds is that in case of non levy where there is no fraud, collusion, etc., it is open to the Central Excise Officer to issue a show cause notice for recovery of duty of excise which has not been levied, etc. The show cause notice for recovery has to be served within one year from the relevant date. However, where fraud, collusion, etc., stands established the period within which the show cause notice has to be served stands enlarged by substitution of the words one year by the words five years. In other words the show cause notice for recovery of such duty of excise not levied etc ., can be served within five years from the relevant date.
15. To put it differently, the proviso merely provides for a situation where under the provisions of sub-section (1) are recast by the legislature itself extending the period within which the show cause notice for recovery of duty of excise not levied etc. gets enlarged. This position becomes clear when one reads the Explanation in the said sub-section which only says that the period stated as to service of notice shall be excluded in computing the aforesaid period of one year or five yearsas the case may be.
16. The termini from which the period of one year or five years has to be computed is the relevant date which has been defined in sub-section (3)(ii) of section 11A of the Act. A plain reading of the said definition shows that the concept of knowledge by the departmental authority is entirely absent. Hence, if one imports such concept in sub-section (1) of section 11A of the Act or the proviso there under it would tantamount to rewriting the statutory provision and no canon of interpretation permits such an exercise by any Court. If it is not open to the superior court to either add or substitute words in a statute such right cannot be available to a statutory Tribunal.
17. The proviso cannot be read to mean that because there is knowledge the suppression which stands established disappears. Similarly the concept of reasonable period of limitation which is sought to be read into the provision by some of the orders of the Tribunal also cannot be permitted in law when the statute itself has provided for a fixed period of limitation. It is equally well settled that it is not open to the Court while reading a provision to either rewrite the period of limitation or curtail the prescribed period of limitation.
18. The Proviso comes into play only when suppression etc. is established or stands admitted. It would differ from a case where fraud, etc. are merely alleged and are disputed by an assessee. Hence, by no stretch of imagination the concept of knowledge can be read into the provisions because that would tantamount to rendering the defined term relevant date nugatory and such an interpretation is not permissible.
19. The language employed in the proviso to sub-section (1) of section 11A, is clear and unambiguous and makes it abundantly clear that moment there is non-levy or short levy etc. of central excise duty with intention to evade payment of duty for any of the reasons specified there under, the proviso would come into operation and the period of limitation would stand extended from one year to five years. This is the only requirement of the provision. Once it is found that the ingredients of the proviso are satisfied, all that has to be seen as to what is the relevant date and as to whether the show cause notice has been served within a period of five years therefrom .
20. Thus, what has been prescribed under the statute is that upon the reasons stipulated under the proviso being satisfied, the period of limitation for service of show cause notice under sub-section (1) of section 11A, stands extended to five years from the relevant date. The period cannot by reason of any decision of a Court or even by subordinate legislation be either curtailed or enhanced. In the present case as well as in the decisions on which reliance has been placed by the learned advocate for the respondent, the Tribunal has introduced a novel concept of date of knowledge and has imported into the proviso a new period of limitation of six months from the date of knowledge. The reasoning appears to be that once knowledge has been acquired by the department there is no suppression and as such the ordinary statutory period of limitation prescribed under sub-section (1) of section 11A would be applicable. However, such reasoning appears to be fallacious in as much as once the suppression is admitted, merely because the department acquires knowledge of the irregularities the suppression would not be obliterated.
21. It may be noticed that where the statute does not prescribe a period of limitation, the Apex Court as well as this Court have imported the concept of reasonable period and have held that where the statute does not provide for a period of limitation, action has to be taken within a reasonable time. However, in a case like the present one, where the statute itself prescribes a period of limitation the question of importing the concept of reasonable period does not arise at all as that would mean that the Court is substituting the period of limitation prescribed by the legislature, which is not permissible in law.
22. The Apex Court in the case of Rajasthan Spinning and Weaving Mills (supra) has held thus :
“From sub-section 1 read with its proviso it is clear that in case the short payment, non payment, erroneous refund of duty is unintended and not attributable to fraud, collusion or any wilful mis -statement or suppression of facts, or contravention of any of the provisions of the Act or of the rules made under it with intent to evade payment of duty then the Revenue can give notice for recovery of the duty to the person in default within one year from the relevant date (defined in sub-section 3). In other words, in the absence of any element of deception or malpractice the recovery of duty can only be for a period not exceeding one year. But in case the non-payment etc. of duty is intentional and by adopting any means as indicated in the proviso then the period of notice and a priory the period for which duty can be demanded gets extended to five years.”
23. This decision would be applicable on all fours to the facts of the present case, viz. when non-payment etc. of duty is intentional and by adopting any of the means indicated in the proviso, then the period of notice gets extended to five years.
24. The decision of the Apex Court in the case of Nizam Sugar Factory (supra) on which reliance has been placed upon by learned advocate for the respondent was rendered in totally different set of facts wherein when the first show cause notice was issued all the relevant facts were in the knowledge of the authorities. The Court has held that later on, while issuing the second and third show cause notices the same/ similar facts could not be taken as suppression of facts on the part of the assessee as those facts were already in the knowledge of the authorities. Thus, it was in these circumstances, that the Apex Court had held that there was no suppression of facts on the part of the assessee and set aside the order impugned before it on the question of limitation only. The ratio of the said judgement cannot be deduced to mean that concept of knowledge is applicable even in a case of first show cause notice. Thus, once the Court had come to the conclusion that there was no suppression, it is but natural that the proviso would not come into play and the ordinary the period of limitation would be applicable.
25. The decision of this Court in the case of Commissioner of Central Excise And Customs Vs. Kwality Tube Industries (supra) also does not carry the case of the respondent any further inasmuch as in the facts of the said case the Court had inter alia found that in absence of weighment slips the alleged shortage itself was doubtful and the finding to that effect arrived at by the Tribunal was neither unreasonable nor unjustified. Thus, as discussed above, when fraud, suppression etc., are not established the matter stands on a different footing.
26. In the facts of the present case the record indicates that the Director of the respondent has admitted shortage of Grey fabrics as well as illicit clearance thereof without issuance of central excise invoices or any other duty paying documents, without payment of central excise duty and without entering in the Daily Stock Account Register and Lot Register during the months May 2002 and June 2002. The merchant manufacturers from whom the short found Grey fabrics were received and resultant processed fabrics cleared illicitly without cover of central excise invoices and without payment of central excise duty had also been summoned by the Central Excise Officers. Statements of those merchant manufacturers who appeared indicate that they had agreed that they had sent the grey fabrics to the respondent and received the resultant processed fabrics, without cover of central excise invoices and without payment of central excise duty leviable thereon during the relevant period. Thus, in the facts of the present case suppression stands admitted by the respondent assessee and established by evidence on record and as a natural corollary, the proviso to sub-section (1) of section 11A would stand attracted. In the circumstances, the impugned order of the Tribunal whereby it has been held that the show cause notice issued beyond the period of six months from the date of knowledge is barred by limitation is clearly contrary to the provisions of section 11A of the Act and as such cannot be sustained.
27. In light of the aforesaid, the questions stand answered accordingly. The impugned order dated 26th August, 2008 bearing No. A.1676-1677/WZB/Ahmedabad/08 made by the Tribunal in Central Excise Appeals No. 569 and 570 of 2008 is hereby quashed and set aside. The Appeal is, accordingly, allowed with no order as to costs.
