Demand for extended period not invokable in absence of suppression of fact or Mis Declaration with intention to Evade Payment of Customs Duty: CESTAT [Read Order]

The Ahmedabad bench of the Customs, Excise & Service Tax Appellate Tribunal,( CESTAT ) has held that demand for an extended period is not invokable in the absence of suppression of fact or misdeclaration to evade payment of customs duty.

Gujarat Ambuja Exports Ltd, the appellant is a 100% EOU and engaged in the manufacture of ring-spun cotton yarn. For the manufacture of ring spun yarn, appellants are importing duty-free raw cotton as well as procuring raw cotton from domestic manufacturers without payment of duty.

In the process of manufacture of ring spun yarn, cotton waste emerges which is further used by the appellant for the manufacture of open-end cotton yarn which is cleared in the domestic tariff area (DTA). During the period the appellant had cleared the open-end yarn to DTA by availing the benefit of concessional rate of duty under Notification No. 8/97-CE dated 01.03.1997 and during the period from 01.04.2003 to 31.03.2005, the appellant has cleared open-end yarn to DTA by availing the benefit of concessional rate of duty under Sr. No. 3 of Notification No. 23/2003-CE dated 31.03.2003.

Both the Notifications are pari materia and provide an effective rate of duty on goods cleared by 100% EOU in DTA as equivalent to the normal rate of Excise Duty payable by any non-EOU unit. However, the benefit of the said notifications was available subject to the conditions that the goods cleared in DTA shall be manufactured wholly out of indigenous raw materials. 

A search was carried out at the premises of the appellant by the preventive team of the Central Excise officers on the pretext that the appellant was wrongly availing the benefit of a concessional rate of duty in respect of their finished goods.

After the detailed investigation appellant was issued a show cause notice dated 31.05.2005 proposing to demand of Central Excise Duty of Rs. 1,15,34,689/- on clearances of ring spun yarn to DTA during the period April 2000 to November 2001 on the ground that they had wrongly availed benefit of Notification No. 8/97 –CE by paying concessional rate of duty.

Subsequently, the appellant was issued a Show Cause notice dated 15.02.2005 proposing to demand of Central Excise Duty of Rs. 3,27,41,199/- on clearance of open end yarn to DTA during the period April 2000 to November 2004; and a Show Cause notice dated 21.07.2005 proposing to demand of  Central Excise Duty of Rs. 25,91,989/- alongwith applicable interest and penalty on the ground that they have wrongly availed benefit of Notification No. 8/97-CE by paying concessional rate of duty. 

In September 2005, the appellant approached the Settlement Commission, Mumbai to settle the show cause notices so issued. Since there were differences in the duty liability calculated by the appellant and the department in SCNs, the Settlement Commission directed the Commissioner (Investigations) to investigate the matter.

After verification, the Commissioner (Investigations) submitted his report and the Settlement Commission passed the order. The aforesaid order passed by the settlement commission was challenged by the appellant before the Bombay High Court which was disposed of with the direction that the appellant shall go through the entire process of replying to SCNs dated 15.02.2005 and 21.07.2005.

Shri Anand Nainawati  Advocate appearing on behalf of the appellant submitted that the open-end cotton yarn cleared into DTA is not manufactured out of imported raw cotton and thus benefits under S.No. 3 of Notification No. 23/2003 is rightly claimed by the appellant. The entire quantity of open-end cotton yarn is manufactured from cotton waste wholly produced in India and thus condition No. 3 of the said Sl. No. stands satisfied by the appellant. 

It was argued that there is no suppression and hence, an extended period of limitation cannot be invoked in respect of SCN dated 15.02.2005. The period involved in the present case is from 01.04.2000 to 30.11.2004 and the SCN was issued on 15.02.2005, thus, the demand for the period April 2000 to February 2004 is time-barred.

The appellant is under bona fide belief that they are entitled to avail the benefit of Notification No. 8/97-CE and thus, there is no suppression or misstatement on the part of the appellant and therefore the extended period of 5 years is not applicable.

It is settled law that the extended period of limitation of five years can only be invoked in the case of fraud, collusion, wilful misstatement, suppression of facts or contravention of any provision of the act or rules thereunder to evade payment of duty, and such intentional non-compliant conduct on the part of the assesse has to be specifically brought out by the department as opposed to mere allegation to such effect.

The aforesaid decision of the Tribunal was taken to the Bombay High Court by the revenue, the Bombay High Court in Commissioner of C. Ex., Pune-I v. Emcure Pharmaceuticals Ltd. held “Merely because that incidental question has been dealt with, we cannot lose sight and shift the focus from the main question. The main question was the applicability of Section 11A and the invocation of the extended period thereunder. The extended period could not have been invoked in the absence of the requisite ingredients and to be found in Clauses (a) to (e) of sub-section (4) of Section 11A of the Central Excise Act, 1944.”

 A two-member bench of Mr Ramesh Nair, Member (Judicial) and Mr C L Mahar, Member (Technical)observed that since there was no suppression of fact on the part of the appellant as all the information was available to the department, the demand for an extended period is not sustainable also on limitation. 

The Tribunal viewed that the demand of duty is not sustainable on merit as well as on limitation and set aside the impugned order. The appeal filed by the appellant is allowed with consequential relief, if any, as per the law. 

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