C.E.A. No. 28 of 2005 [ 1] IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH (1) Central Excise Appeal No. 28 of 2005 Date of decision: August 21,2008 Commissioner of Central Excise Commissionerate, Jalandhar. .. Appellant. v. M/s Vardhman India Products, S-240, Industrial Area, Jalandhar City. .. Respondent. (2) Central Excise Appeal No. 32 of 2005 Commissioner, Central Excise Commissionerate, Jalandhar. .. Appellant. v. M/s Aman Engg. Works, 30-31, Aman Nagar, Indl. Area, Jalandhar. .. Respondent (3) Central Excise Appeal No. 69 of 2005 Commissioner, Central Excise Commissionerate, Jalandhar. .. Appellant. v. M/s V. K. Valves (P) Ltd., C-106, Focal Point Extension, Jalandhar. .. Respondent. (4) Central Excise Appeal No. 110 of 2006 Commissioner, Central Excise Commissionerate, Jalandhar. .. Appellant. v. M/s Leader Engineering Works, S-3, S-4, Industrial Town, Jalandhar & another. .. Respondents. CORAM: HON'BLE MR. JUSTICE HEMANT GUPTA HON'BLE MR. JUSTICE RAJESH BINDAL Present: Mr. Gurpreet Singh, Advocate for the appellant. None for the respondents. .. C.E.A. No. 28 of 2005 [ 2] Rajesh Bindal J. This order will dispose of the above mentioned four appeals, as common questions of law and facts are involved. The facts have been extracted from CEA No. 28 of 2005. The Revenue is in appeal against the order dated 11.6.2004, passed by the Customs, Excise and Service Tax Appellate Tribunal, New Delhi (for short, `the Tribunal') in Appeal No. E/505/03-NB (SM) raising the following substantial question of law: “Whether non invoking/quoting of extended period of limitation and by not quoting the relevant Section or Rule vitiates the proposed action when the charges of fraud practiced and suppression of facts resorted to by the party in wrong availment of modvat credit have been discussed clearly in detail in the show cause notice ?” Briefly, the facts are that a show cause notices were issued to the respondent-assessees in all the aforesaid four appeals on 17.6.1999 with the allegations that they have contravened the provisions of Rule 57A and 57G of the Central Excise Rules, 1944 (for short, `the Rules') for having fraudulently availed modvat credit to the tune of lacs of rupees. The fraud came to the notice of the department during the course of inspection. On 22.7.1998, search was conducted on the premises of M/s Shobhit Impex, Abohar, M/s Gandhi Chem-fert Industries, Old Fazilka Road, Abohar and M/s Gandhi Metal (P) Ltd., Old Fazilka Road, Abohar on 23.7.1998. It was found that M/s Shobhit Impex had a godown located at Chak Sidhu Complex, Malout Road, Abohar of the size of 12 feet x 18 feet where large quantity of imported copper scrap was claimed to have been stored. Statements of various persons were recorded. Surinder Kamra, Proprietor of M/s Kamara Traders, who was also having a godown space at Chak Sidhu Complex, in his statement recorded on 23.7.1998 stated he never saw any movement of goods in the godown of M/s Shobhit Impex. Similar were the statements of Ashwani Kumar and Mangat Ram. Even Om Parkash Gandhi, General Power of Attorney holder of M/s Shobhit Impex also admitted in his statement that the godown as such was never used for bringing and C.E.A. No. 28 of 2005 [ 3] disposing of the imported goods. The same were directly disposed of from the ports. He further admitted that G.R. in respect of movement of goods from Abohar to buyer's destination was issued by him on the blank G.Rs. handed over to him by the proprietor. Show cause notice was issued with the clear allegation of fraudulently availing of the modvat credit by the respondent-assessees. The Commissioner, adjudicating authority, vide order dated 21.11.2002 raised the demand and imposed penalty on the assessees. Relevant part of the order of the Commissioner is extracted below: “ I confirm the demand of Central Excise duty detailed in the cited show cause notice in respect of following noticees and order the adjustments of amount paid by them against the confirmed demand of Central Excise duty as detailed hereunder and also order its recovery under Rule 9(2) read with Rule 57(I) 1 of Central Excise Rules, 1944 and Section 11A of Central Excise Act, 1944: Sr. No. Name of the party Amount of duty Amount of duty Balance amount (M/s) confirmed as already of Central per show cause reversed (Rs.) Excise duty notice (Rs.) payable (Rs.) ................................................................................................................. 1. Leader Engg. 3,94,502.00 2,59,789.00 Nil Works, Jalandhar xx xx xx 3. Vardhman India 57,119.78 57,119.78 Nil Products, Jalandhar xx xx xx 6. Aman Engg. 61,527.00 61,527.00 Nil Works, Jalandhar xx xx xx 12. V.K. Valves (P) 43,746.00 43,746.00 Nil Ltd. Jalandhar. xx xx xx” As the assessees had reversed the modvat credit wrongly availed of by them, no demand as such on account of excess duty was raised. However, for violation of the provisions of the Act and the Rules, penalty was imposed on the assessees. The relevant part of the order is extracted below: “2. I impose penalty on the following noticees, as detailed against each, under Rule 57I(4) of Central Excise Rules, 1944 on noticee Sr. No. 1 to 3, 6 to 12; under Rule 173Q of Central Excise Rules, 1944 on Noticee Sr. No.4 and 5 and under Rule 209A of Central Excise Rules, 1944 on noticee Sr. No. 13 and 14. C.E.A. No. 28 of 2005 [ 4] Sr. No. Name of the party C.E. duty Amount of In words (Rs.) (M/s) payable penalty imposed (Rs.) .................................................................................................................................. 1. Leader Engg. Works, 3,94,502.00 3,94,502 Three lacs ninety Jalandhar four thousand five hundred and two only. xx xx xx 3. Vardhman India 57,119.78 57,119 Fifty seven Products, Jalandhar thousands one hundred and nineteen only. xx xx xx 6. Aman Engg.Works, 61,527.00 61,527 Sixty one thousand Jalandhar five hundred and twenty seven only. xx xx xx 12. V. K. Valves (P) Ltd. 43,746.00 43,746 Forty three thousand Jalandhar seven hundred and forty six only.” Aggrieved against the order passed by the Commissioner, the assesses preferred appeals before the Tribunal, who relying upon the judgment of Hon'ble the Supreme Court in Commissioner of Central Excise v. H. M. M. Ltd., (1995) 76 ELT 497, accepted the appeals by holding that in the case in hand, the extended period of limitation in terms of Section 11A of the Act could not be invoked for the reason that there was no whisper in the show cause notice regarding the fraud having been played by the assessees. Heard learned counsel for the Revenue. No one has put in appearance on behalf of the assessees. Learned counsel for the Revenue submitted that the finding recorded by the Tribunal in the impugned order is totally contrary to record and is perverse. He referred to the show cause notice issued to the assessees and submitted that there are clear allegations of fraud against the assessees, to whom a common notice had been issued, pointing out the fraud committed by them in availing the modvat credit. He submitted that it is not at one place, rather, a number of places that such type of allegations have been made in the show cause notice. Still further, the submission is that C.E.A. No. 28 of 2005 [ 5] non-mention of fraud in the show cause notice itself may not be a good ground to quash the same once it can be found from the facts stated in the show cause notice that it was a clear case of fraud. Finally, the submission is that the impugned order passed by the Tribunal deserves to be set aside as the same is based on presumption of wrong facts. The relevant part of the show cause notice containing allegations of fraud is extracted below: “Whereas it appears that: (i) M/s Leader Engineering Works, Jalandhar holding Central Excise Registration No. J-1/CH.84/46/92, under Rule 174 of Central Excise Rules, 1944 and engaged in the manufacture of Valves & Corks falling under Chapter Sub-heading 8481.80 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) xx xx xx iii) M/s Vardhman India Products, Jalandhar holding Central Excise Registration No. J-1/CH.84/55/96, under Rule 174 of the Central Excise Rules, 1944 and engaged in the manufacture of Valves & Corks falling under Chapter Sub-heading 8481.80 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) xx xx xx vi) M/s Aman Engg. Works, Jalandhar holding Central Excise Registration No. J-II/Ch.90/117/92, under Rule 174 of the Central Excise Rules, 1944 and engaged in the manufacture of water meters falling under Chapter Sub-heading 9028.00 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) xx xx xx xii) M/s V. K. Valves (P) Ltd., Jaladhar holding Central Excise Registration No. J-1/RBC/PBC/CH-84/1/95, under Rule 174 of Central Excise Rules, 1944 and engaged in the manufacture of Valves & Corks falling under Chapter Sub-heading 8481.80 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) have contravened the provisions of Rule 57A, 57G of the Central Excise Rules, 1944 (hereinafter referred to the `Rules') C.E.A. No. 28 of 2005 [ 6] in as much as the aforesaid have wrongly/fraudulently availed/ passed on Modvat credit to the tune of : xx xx xx 2. During the course of inspection of Central Excise Range, Abohar on 22.7.98 when alleged wrongful/fraudulent availment of modvat was noticed, the Hqr. Central Excise Preventive team, Chandigarh-II in association with the Central Excise staff of Jalandhar & Sangrur Divisions searched the registered office situated at Gandhi Lodge, College Road, as well as godown at Chak Sidhu Complex, Malout Road, Abohar of M/s Shobhit Impex, Abohar. xx xx xx Sh. Om Parkash Gandhi, as Managing Partner of M/s Gandhi Chem-fert Industries, in his statement dated 23.7.98 (copy enclosed as `annexure'), admitted the recovery of records pertaining to M/s Shobhit Impex, from the premises of M/s Gandhi Chem-fert Industries, Abohar. Sh. Om Parkash Gandhi reiterated that all the goods imported through different ports of import have been disposed off by them from the ports of import only without actually bringing the goods into their registered godown. He further admitted that GRs in respect of movement of goods from Abohar to buyer's destinations were issued by him only, as the transporters had given blank GRs to them. He further admitted that these GRs were issued to cover the invoices as a statutory requirement although there was no physical movement of goods from their godown at Abohar. The scrutiny of the records of M/s Shobhit Impex, Abohar resumed from the premises of M/s Gandhi Chem-fert Industries, Abohar reveal that: (a) M/s Shobhit Impex, Abohar have imported six consignments as per details given against S. No.1 to 6 of Annexure `A' (enclosed) of copper rods/ copper scrap/ brass scrap through Container Freight Station, Ludhiana since 1995. Modvatable invoices have been C.E.A. No. 28 of 2005 [ 7] issued by M/s Shobhit Impex, Abohar against these consignments to various buyers in Punjab under Rule 57-GG(3)(i) of the Rules. It appears that at the time of issuing of the said invoices, M/s Shobhit Impex, Abohar had the conscious knowledge that the said invoices were fake and not genuine and were intentionally and wilfully issued to enable the manufacturer buyers to avail the credit of duty as shown in column 12 of the Annexure `A'. By allowing the buyer manufacturer to take the credit wrongly/fraudulently, which was not admissible under the Rules and therefore M/s Shobhit Impex, Abohar have facilitated and abetted the evasion of Central Excise duty.” (Emphasis supplied) Section 11A(1) of the Act, which is extracted below, provides for recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded: “ Section 11A(1) (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 thereunder, a Central Excise Officer may, within one year from the relevant date, serve notice on the person 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 C.E.A. No. 28 of 2005 [ 8] mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder 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.” The period of limitation provided for dealing with a case in the normal circumstances is one year from the relevant date. However, in case it is found that the duty has not been levied or paid or short-levied or short- paid by reason of fraud, collusion or any wilful mis-statement or suppression of facts or contravention of any of the provisions of the Act and the Rules framed thereunder, the period of limitation to initiate the proceedings is five years. A perusal of the show cause notice issued to the assessees in the present case clearly shows that at more than one place in the show cause notice, the allegations of fraud have been levelled against the assessees, besides violation of the provisions of the Act and the Rules. The Commissioner, while dealing with the contentions raised by the parties/ assessees to the show cause notice, discussed the matter in the following manner: “ (i) M/s Leader Engg. Works, Jalandhar have availed modvat credit to the tune of Rs. 2,59,789.00 on 1 (one) invoice issued by M/s Shobhit Impex, Abohar. However, as discussed in the previous paras, M/s Leader Engg. Works, Jalandhar have never received goods of invoice no.1 dated 28.4.98 issued by M/s Shobhit Impex. In fact as per the statement dated 25.7.98 of Sh. Jaspal Singhs/o Sh. Joginder Singh (Partner M/s Samra Transport Traders Ludhiana also partner M/s Ludhiana Trailor Syndicate upto 20.2.98), the goods corresponding to invoice no.1 were delivered to M/s Annapurna Impex (P) Ltd., Ludhiana. This fact has also been admitted by Sh. Navneet Aggarwal s/o Sh.Vinod Aggarwal, Director M/s Annapurna Impex (P), Ludhiana in his statement dated 25.7.98. Further Sh. J.K. Beri S/o Sh. P.N. Beri, Managing Director of M/s Leader Engg. Works, Jalandhar admitted in his statement dated 26.7.98 C.E.A. No. 28 of 2005 [ 9] that they have received only the invoice and not the goods pertaining to the said invoice, in their factory. He has further stated that because of the forged/ fake documents issued by M/s Shobhit Impex, Abohar he was ready to debit/reverse the amount of modvat credit so availed. xx xx xx I find that they have wrongly availed the Modvat credit amounting to Rs. 3,94,502/- and is recoverable from them under Rule 57I(1) and are also liable to penal action under Rule 57I(4) of Central Excise Rules, 1944. The amount of modvat credit of Rs. 40,000/- and Rs. 2,19,789/- has already been debited by M/s Leader Engg. Works, Jalandhar in RG-23A Part-II vide entry No. 1312 dated 26.7.98 and PLA entry No. 102 dated 27.7.98. The balance amount of Rs. 1,03,060/- and Rs. 31653/- taken as modvat credit by M/s Leader Engg. Works, Jalandhar have also been deposited by M/s Ruby Impex, Jalandharand M/s Satish Metal Co., Jalandhar on account of M/s Leader Engg. Works (Leader Valves), Jalandhar, through TR-6 Challan No. 1/98 and 2/98 both dated 1.8.98 and through TR-6 Challan No. 1/98 dated 1.8.98. xx xx xx (iii) M/s Vardhman India Product, Jalandhar have availed modvat credit to the tune of Rs. 57,119.78 on 1 (one) invoice issued by M/s Shobhit Impex, Abohar. However, as discussed in the previous paras, the goods of invoice no. 52 dated 22.12.97 have never reached M/s Vardhman India Product, Jalandhar. Sh. Sandeep Jain of M/s Vardhman India Product has admitted in his statement dated 31.7.98 that they had received only the invoice without any goods. I find that they have wrongly availed and utilized Modvat credit amounting to Rs. 57,119.78 and is recoverable from them under Rule 57I(1) and are liable to penal action under Rule 57I(4) of Central Excise Rules, 1944. This amount has already been deposited vide their TR-6 Challan No.1 dated 1.8.98. xx xx xx C.E.A. No. 28 of 2005 [ 10] vi) M/s Aman Engg. Works, Jalandhar have availed modvat credit to the tune of Rs. 61,527.04 on 1 (one) invoice issued by M/s Shobhit Impex, Abohar. However, as discussed in the previous paras, the goods of invoice no. 56 dated 26.12.97 issued by M/s Shobhit Impex, Abohar have not been received by M/s Aman Engg. Works, Jalandhar as Sh. Ashok Sharma S/o Sh. Des Raj Sharma Prop. M/s Aman Engg. Works, Jalandhar has admitted in his statement dated 31.7.98 that they had received only the invoice and not the goods pertaining to this invoice. He further admitted the incorrectness of invoice issued by M/s Shobhit Impex, Abohar and agreed to reverse the amount of Modvat credit so wrongly availed by him on the said invoice. I find that the amount of Rs. 61,527.04 is recoverable from them under Rule 57I(1) of Central Excise Rules, 1944 and has already been debited by them in PLA vide E. No. 247 and 250 dated 31.7.98 and 1.8.98. They are also liable for penal action under Rule 57I(4) of Central Excise Rules, 1944 for contravention of aforesaid provisions of Central Excise Law. xx xx xx xii) M/s V. K. Valves (P) Ltd., Jalandhar have availed modvat credit to the tune of Rs. 43,746.00 on 1 (one) invoice issued by M/s Satish Metal & Co., Jalandhar (out of a total credit of Rs. 75,411.41, available with M/s Satish Metal Co., Jalandhar in respect of 1 (one) invoice i.e. invoice no. 13 dated 21.5.97 issued by M/s Shobhit Impex, Abohar to them). However, as discussed in the previous paras, the goods of invoice no. 13 dated 21.5.97 issued by M/s Shobhit Impex, Abohar could not have been received by M/s Satish Metal Co., Jalandhar as Sh. Satish Kumar S/o Sh. Madan Lal Jain Prop. M/s Satish Metal Co. Jalandhar has admitted in his statement dated 31.7.98 that he had received only the invoice and not the goods pertaining to this invoice. He further admitted the incorrectness of invoice issued by M/s Shobhit Impex, Abohar. Thus M/s Satish Metal Co., Jalandhar have wrongly passed on the Modvat credit to the C.E.A. No. 28 of 2005 [ 11] tune of Rs. 43,746.00 to M/s V. K. Valves (P) Ltd., Jalandhar. I find that they have wrongly availed/utilized Modvat credit amounting to Rs. 43,746/- and is recoverable from them under Rule 57I(1) of Central Excise Rules, 1944. This amount of Rs. 43,746/- has already been debited vide RG-23A Part-II entry No. 221 dated 1.8.98. They are also liable to penal action under Rule 57I(4) of Central Excise Rules, 1944 for the contravention of aforesaid provisions of Central Excise Law.” In H. M. M. Limited's case (supra), Hon'ble the Supreme Court opined that in case the extended period of limitation is to be invoked by the department by placing reliance on the proviso to Section 11A of the Act, the same should be made out from the allegations made in the show cause notice. Relevant para thereof is extracted below: “The mere non-declaration of the waste/by-product in their classification list cannot establish any wilful withholding of vital information for the purpose of evasion of excise duty due on the said product. There could be, counsel contended, bona fide belief on the part of the assessee that the said waste or by- product did not attract excise duty and hence it may not have been included in their classification list. But that per se cannot go to prove that there was the intention to evade payment of duty or that the assessee was guilty of fraud, collusion, mis- conduct or suppression to attract the proviso to Section 11A(1) of the Act. There is considerable force in this contention. If the Department proposes to invoke the proviso to Section 11A(1), the show cause notice must put the assessee to notice which of the various commissions or omissions stated in the proviso is committed to extend the period from six months to 5 years. Unless the assessee is put to notice, the assessee would have no opportunity to meet the case of the department. The defaults enumerated in the proviso to the said sub-section are more than one and if the excise department places reliance on the proviso it must be specifically stated in the show cause notice which is the allegation against the assessee falling within the four corners of the said proviso.” C.E.A. No. 28 of 2005 [ 12] In Collector of Central Excise, Hyderabad v. M/s Chemphar Drugs & Liniments, Hyderabad, AIR 1989 SC 832 considering the issue of application of extended period of limitation under the Act, Hon'ble the Supreme Court opined that it would be a question of fact depending on the circumstances of the particular case as to whether the assessee had evaded on account of fraud, collusion or wilful mis-statement or suppression of facts or contravention of any provision of the Act. Relevant para thereof is extracted below: “Aggrieved thereby, the Revenue has come up in appeal to this Court. In our opinion, the order of the Tribunal must be sustained. In order to make the demand for duty sustainable beyond a period of six months and up to a period of 5 years in view of the proviso to sub-section 11A of the Act, it has to be established that the duty of exercise has not been levied or paid or short-levied or short-paid, or erroneously refunded by reasons of either fraud or collusion or wilful misstatement or suppression of facts or contravention of any provisions of the Act or Rules made thereunder, with intent to evade payment of duty. Something positive other than mere inaction or failure on the part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, is required before it is saddled with any liability, before the period of six months. Whether in a particular set of facts and circumstances there was any fraud or collusion or wilful misstatement or suppression or contravention of any provision of any Act, is a question of fact depending upon the facts and circumstances of a particular case.” It is a matter of common knowledge that those who resort to foul acts, ordinarily do so with a thick cover and camouflage. To locate the black spots and unravel the ugly aspects is not all that easy. It is only for this reason that extended period of 5 years limitation has been provided to bring such wilful defaulters to book. The discovery or detection of an unseemly act slyly carried out by these unscrupulous evaders would necessarily entail C.E.A. No. 28 of 2005 [ 13] some time. If the facts and circumstances of the present case are considered in the light of the enunciation of law, as referred to above, the inescapable conclusion would be that the impugned order passed by the Tribunal is not in conformity with the same. The only contention raised by learned counsel for the assessee before the Tribunal was that in the show cause notice, there is no allegation about the suppression of facts with intention to evade payment of tax. Referring to the judgment of Hon'ble the Supreme Court in H. M. M. Limited's case (supra), the Tribunal opined that it must be alleged