TAXAP/150320/2007 1/6 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL No. 1503 of 2007 For Approval and Signature: HONOURABLE MR.JUSTICE D.A.MEHTA HONOURABLE MS.JUSTICE H.N.DEVANI ========================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ========================================= COMMISSIONER, CENTRAL EXCISE &CUSTOMS, SURAT-II Versus HEUBACH COLOUR PVT. LTD. ========================================= Appearance : MR HARIN P RAVAL for the Appellant None for the Opponent ========================================= CORAM : HONOURABLE MR.JUSTICE D.A.MEHTA and HONOURABLE MS.JUSTICE H.N.DEVANI Date : 22/07/2008 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE D.A.MEHTA) 1. Appellant revenue has proposed the following question: TAXAP/150320/2007 2/6 JUDGMENT “Whether Hon'ble CESTAT is right in allowing party's appeal unconditionally by saying in para 9 of the CESTAT Order as above that: “There was no suppression or misstatement on the part of the appellant. The extended period of limitation is not applicable. We do not find any justification for imposition of penalties on both the applicants. Accordingly, penalties imposed upon them are set aside.” Thereafter, once again in paragraph No.4, the following questions have been proposed. “(a) Whether contravention of the terms of Notification No.8/97 CE with regard non conformity to its substantive condition, shall be deemed as contravention of the Central Excise Act 1944 and Rules issued there under, as is envisaged for applying extended time limit of 5 years under proviso to Sec. 11 A (I) of the Central Excise Act, 1944. (b) Whether non-disclosure of the fact that such goods were not manufactured wholly from raw materials manufactured in India does not amounts to suppression of material facts as envisaged under proviso to Sec. 11A(1) of Central Excise Act 1944.” 2. It is the case of the appellant that respondent assessee, a 100% export oriented unit engaged in manufacture of Copper Phthalo Cyanine Green and Blue, had evaded payment of Central Excise Duty by way of deliberate suppression of facts, willful non-submission about the actual manufacturing process of their by-products and the nature and source of raw materials used for manufacturing the by-products, which in turn were used for manufacturing the final products, all with the intent to avail and utilize the benefit of exemption notification to which respondent assessee, according to be appellant, was not entitled. 3. The show cause notice issued by the adjudicating authority proposed confirmation of duty demanded during the period July 1999 to TAXAP/150320/2007 3/6 JUDGMENT September 2003 by invoking the extended period as provided under the Proviso to section 11A of the Central Excise Act, 1944 (the Act). After hearing respondent assessee, not only was the duty amount confirmed but penalty under section 11AC of the Act, under Rule 173 of Central Excise Rules, 1944 etc. was also levied, and order for recovering interest under section 11AB of the Act was also made. The order made by the adjudicating authority was carried in appeal before Tribunal. Insofar as demand on merits under the principal provisions of section 11A of the Act is concerned, the Tribunal upheld the stand of the adjudicating authority. However, insofar as the demand for the extended period i.e. beyond period of six months is concerned, the Tribunal held that there were conflicting decisions of various Benches of Tribunal recording different opinions as regards eligibility to exemption under Notification No.8/97-CE and therefore, a Larger Bench of the Tribunal had been constituted to resolve the said conflicts. That in the circumstances, it could not be stated that the respondent assessee could be held to have made any willful misstatement or deliberately suppressed facts with intent to evade duty. Penalties were also cancelled on the parity of reasoning. 4. The learned counsel for the appellant has invited attention to the allegations made in the show cause notice and the findings recorded by the adjudicating officer to submit that respondent assessee was purchasing the intermediate products from local manufacturers but having started importing copper bars/scraps from July 1999 and Aluminium ingots from November, 2000, the manufacture of intermediate products and utilizing the same for manufacturing the final product would tantamount to willful misstatement and suppression of facts. That the raw material which was procured by way of import had been used in the manufacture of final product disentitling respondent TAXAP/150320/2007 4/6 JUDGMENT assessee from the benefit under the notification. 5. Respondent assessee had raised a defence explaining the entire manufacturing process, which has been summarized by the adjudicating authority in the following words: “It is submitted that even in their clients case Cupric Chloride and Aluminium Chloride (first product) is manufactured out of imported Copper/scrap and Aluminium ingots. CPC green (second product) is manufactured out of Cupric Chloride and Aluminium Chloride. Mother Liquor is then used in the manufacture Aluminium Hydroxide and Copper Sludge (third product). It is therefore submitted that imported Copper bars/scrap and Aluminium ingots are used in the manufacture of Cupric Chloride and Aluminium Chloride (first product). Though, the first product is then used in the manufacture of second product and thereafter the Mother Liquor generated during the process in the manufacture of third product. If their clients had procured the Mother Liquor from another producer located in India and that producer had used imported raw materials in the manufacture of Mother Liquor, their clients could not be denied the benefit of Notification No.8/97 for Aluminium Hydroxide and Copper Sludge, since it is made from raw material namely Mother Liquor manufactured or produced in India. In this situation, it would not be suggested that Mother Liquor is not wholly made from indigenous raw material, merely because the producer has manufactured Mother Liquor using imported raw materials. Therefore, the position would be no different if the Mother Liquor, instead of being purchased from another indigenous producer, has been produced by our clients himself in its own factory.” 6. The Tribunal in its impugned order dated 21.2.2007 has reproduced the manufacturing process in paragraph No.4 of the impugned order and then referred to the three decisions of the Tribunal rendered by different Benches of Tribunal to point out that the said three decisions supported the stand of respondent assessee. Thereafter, the TAXAP/150320/2007 5/6 JUDGMENT Tribunal has taken note of Larger Bench decision of the Tribunal in case of Jayant Agro Organic Limited v. CCE, Vadodara vide Order No.M/398 & 399/WZ /2005/C-1/EB dated 9.12.2005 to point out that in similar fact situation, the Larger Bench had held that the benefit under the notification was not available to an assessee carrying on similar type of manufacturing activity. The Tribunal therefore, upheld the demand on merits in terms of provisions of section 11A of the Act. 7. However, insofar as applicability of the extended period of limitation as stipulated by the Proviso under section 11A of the Act is concerned, the Tribunal has recorded thus: “8. Admittedly, there were conflicting decisions and different opinions, as regards the eligibility of the assessees to Notification No.8/97-CE. It was in view of the said conflicts that the matter was referred to Larger Bench, it is well settled that when two views are holding the field, the assessee adopting interpretation favourable to him can be said to be under a bonafide belief of his entitlement to the Notification. In as much as the law was declared by Larger Bench on 9.12.2005, the appellant cannot be charged with any willful misstatement or deliberate suppression of facts with intent to evade duty. In any case, we find that while dealing with the said aspects, Commissioner has not referred to any positive attempt on the part of the appellant to keep the said vital information away from the Department. As such, we are of the view that the demand of duty raised beyond the normal period of limitation is barred and hence not sustainable. For quantification of the demand within the period of limitation, the matter is being remanded to the original adjudicating authority.” 8. Thus, it is apparent that the question revolves round the fact as to whether there was any non levy of Excise Duty or short levy or short payment by reason of fraud, collusion or any willful misstatement or suppression of facts, made with an intent to evade payment of duty. Fraud and collusion have not been alleged and hence, it is not necessary TAXAP/150320/2007 6/6 JUDGMENT to deal with the same. Whether in light of facts which have come on record any willful misstatement or suppression of facts can be ascribed to the respondent assessee is the question. The fact that in similar fact situation, the stand of respondent assessee was supported by three decisions of Tribunal till 9.12.2005 when the Larger Bench of the Tribunal decided the issue, itself would indicate that the position of law was not free from doubt and if the assessee adopted one modality for claiming exemption on the basis of decisions favouring the assessee, the charge as to willful misstatement or suppression of facts cannot be sustained. The finding of Tribunal referred to hereinbefore indicates that there was no information available on record to show that respondent assessee had made any attempt to keep away any vital information from the department. 9. In the aforesaid set of facts and circumstances of the case, it is apparent that the impugned order of Tribunal is based on appreciation of facts and evidence on record. In light of the position of law declared subsequently no infirmity can be found in the said order. 10. In absence of any question of law, as proposed or otherwise, much less a substantial question of law, the appeal is dismissed. (D.A. MEHTA, J.) (HARSHA DEVANI, J.) shekhar/-