The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) Bench in New Delhi has ruled that merely using an exemption notification incorrectly does not imply that the use was made to avoid paying central excise duty.
Since December 25, 2004, Aglowmed, the assessee, which manufactures food products and allopathic medications, has been using an Area Based Exemption for excisable goods. The audit team noticed that the assessee had not paid enough excise tax since it was unable to receive the benefits of the exemption notification.
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The assessee received a show-cause notice, which claimed that they had fraudulently cleared their finished goods without paying the appropriate duty under the aforementioned notification, which was not available to them, and that they had wrongfully used the exemption to avoid paying the appropriate Central Excise duty with malicious intent.
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The assessee submitted a thorough response. The Commissioner, however, rejected the arguments. As a result, the assessee has appealed the Commissioner’s order to the Tribunal. The assessee argued that section 11A(4) of the Central Excise Act’s extended period of limitation applied to the whole dispute period in the show cause notice. However, the case’s facts and circumstances precluded the use of the extended period of limitation.
According to the Tribunal, the Commissioner determined that the deliberate clearance of goods at a lower duty rate was necessary since the assessee had failed to meet the requirements outlined in the Exemption Notification. The Commissioner has not given the assessee’s response the proper consideration. Therefore, the prolonged term of limitation under section 11A (4) of the Central Excise Act could not have been used if the assessee had not intended to avoid paying the service.
Although it may eventually be decided that the assessee is not entitled to the benefit of the Exemption Notification, the Tribunal accepted the assessee’s argument that it genuinely believed it was entitled to do so. Therefore, it cannot be said that the belief was mala fide.
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The two members of the bench, Dilip Gupta (President) and P.V. Subba Rao (Technical), have noted that the suppression of facts should be intentional and that it can only suggest that the right information was not purposefully withheld in order to avoid paying taxes.
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While allowing the appeal, the Tribunal held that “Mere wrong availment of an Exemption Notification would not lead to a conclusion that it was with an intent to evade payment of central excise duty unless the department is able to not only allege but substantiate that the said suppression was deliberate with an intent to evade payment of central excise duty.”
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