Extended Period Wrongly Invoked for Misclassification and Undervaluation: CESTAT Sets Aside Demand Citing Full Disclosure [Read Order]

The Allahabad Bench of Customs, Excise and Service Tax Appellate Tribunal(CESTAT)  set aside the extended period of limitation invoked against the assessee for alleged misclassification and undervaluation of dry fruit sharbats, syrups, and squashes, finding that the assessee had fully disclosed the nature, classification, and ingredients of its goods at registration and in quarterly returns accepted during the initial audit.

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Mishrambu Beverages Pvt. Ltd.,appellant-assessee,manufactured and cleared dry fruit sharbats, drinks, syrups, and squashes. It paid duty at 2% under Section 4 of the Central Excise Act by classifying the goods under tariff item 2106 9011 and claimed SSI exemption.

The assessee got central excise registration in January 2015 and filed quarterly returns showing details of manufacture, clearances, and exemptions. An initial audit found no issues with classification or exemption claims.

Later, a second audit by Central Goods and Service Tax(CGST) and Central Excise officers found that the goods should have been assessed under Section 4A with duty at 6%, based on retail sale price. It also found that the assessee wrongly claimed SSI exemption as turnover exceeded the limit.

A Show Cause Notice was issued in June 2019 alleging wrong valuation, wrongful exemption claim, delayed registration despite high turnover, and non-cooperation during audit. The demand for duty along with interest and penalties was raised.

The Order-in-Original passed in May 2020 confirmed the duty demand and penalties. It also upheld the extended period of limitation, noting the appellant did not submit price lists and wrongly claimed SSI exemption despite turnover above the threshold.

The assessee appealed against the order. During the appeal, the assessee said that only some syrups like rose and khus syrup came under tariff 2106 9011. Other products like premium thandai, kesaria pista, badam pista were under tariff 2008 1990, and squash under 2008 99. The assessee also disagreed with the use of the extended period of limitation.

The Commissioner (Appeals) partly agreed and said the classifications were correct. The Commissioner said all goods were taxable under Section 4A with duty based on retail price, allowing abatements of 25% or 35%. The duty demand was reduced to Rs. 8,54,720. The case was sent back to check the retail prices and recalculate duty.

The Commissioner rejected the claim against the extended period of limitation. It was said the assessee wrongly classified and valued the goods and did not disclose this in returns. This was found during the audit, so the extended period was valid.

The assessee then filed an appeal before the tribunal only against the extended period of limitation.

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The two member bench comprising P.K.Choudhary(Judicial Member) and P.Anjani Kumar(Technical Member) examined whether the extended period of limitation was properly applied. The original order said the assessee suppressed facts and evaded duty by not submitting a price list and wrongly claiming SSI exemption despite high turnover.

The tribunal disagreed. It found the assessee had disclosed the goods’ nature, classification, and ingredients when registering and filed returns showing clearances and exemption claims. The department knew this and did not object in the first audit.

Since the department was aware of these facts, the appellate tribunal said there was no suppression or intent to evade duty. Simply paying duty under the wrong section did not count as suppression.

The bench also said not submitting a price list was not a valid reason for extending the limitation period because the assessee paid duty under Section 4A without objection.

The tribunal noted the order relied on reasons not mentioned in the original decision, which was not allowed.

Therefore, the CESTAT set aside the part of the order that confirmed the extended limitation period and the appeal was allowed.

To Read the full text of the Order CLICK HERE

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