CEA NO. 95 OF 2009 [ 1 ] IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH CEA NO. 95 OF 2009 DATE OF DECISION: 19.2.2010 M/S NATIONAL ENGINEERING CORPORATION, FARIDABAD ............................................................. A PPELLANT VERSUS COMMISSIONER OF CENTRAL EXCISE, FARIDABAD ........................................................... RESPONDENT CORAM: HON'BLE MR. JUSTICE ASHUTOSH MOHUNTA HON'BLE MR. JUSTICE MEHINDER SINGH SULLAR PRESENT: MR. JAGMOHAN BANSAL, ADVOCATE FOR THE APPELLANT. MR. SANJEEV KAUSHIK, SR. STANDING COUNSEL FOR THE RESPONDENT. ..... ASHUTOSH MOHUNTA, J. The Appellant has filed the present Appeal before this Court under Section 35G of the Central Excise Act (in short, ‘the Act’) against the Order dated 13.08.2008 (ANNEXUREA-10) and Order dated 05.12.2008 (ANNEXURE A-12) passed by the Customs Excise and Service Tax Appellate Tribunal, New Delhi (for short, ‘the Tribunal’) in Excise Appeal No. 4116/2004-Ex (BR) raising the following substantial questions of Law: (i) Whether the Extended period of limitation can be invoked in respect of the period of 07.07.1992 to March’ 1994 when a doubt has been entertained with regard to the exigibility of lancing oxygen pipes? (ii) Whether conversion of pipe/tube of oxygen lancing pipe amounts to ‘manufacture’ within the meaning of Section 2 (f) of the Central Excise Act, 1944? The appellant is engaged in the process of threading and affixing of socket at the end of pipes and tubes. The Appellant is also carrying out process of CEA NO. 95 OF 2009 [ 2 ] cold drawing and re-drawing the pipes and tubes. The Appellant is selling these pipes to Industrial Units for carrying oxygen in the process of cutting heavy sections of steel. The process of cutting heavy sections of steel is commonly called as lancing. Therefore, the pipes used for this purpose are called Oxygen Lancing Pipes. In other words, the appellant is converting normal pipes and tubes into Oxygen Lancing Pipes. The appellant on 17.03.1994 wrote a letter to the Deputy Collector of Excise, Faridabad seeking clarification with regard to the levy of duty on lancing pipes manufactured by them. The Appellant in the said letter disclosed the process carried out by them. The Deputy Collector vide its letter dated 24.09.1994 informed the Appellant that process carried out by them amounts to manufacture as per Section 2 (f) of the Central Excise Act, 1944. The Respondent Department on 28.07.1995 issued a Show Cause Notice raising the demand and proposing the penalty. The demand was raised invoking the extended period of limitation as provided under Section 11A of the Central Excise Act, 1944. The Appellant filed its reply dated 08.01.1996 whereby the appellant contested the demand on various grounds apart from limitation. The Respondent confirmed the demand and imposed penalty. The Appellant filed Appeal before the Tribunal and the Tribunal vide its Order dated 26.08.1997 remanded the matter to the Respondent. The Respondent again vide its Order dated 30.06.2004 confirmed the demand and imposed equal amount of penalty under rules 173 Q of the Central Excise Rules, 1944. The demand was confirmed invoking the extended period of limitation. The Appellant again filed Appeal before the Tribunal and the Tribunal vide its Order dated 13.08.2008 (ANNEXURE A-10) rejected the Appeal of the Appellant. The Tribunal upheld the invoking extended period of limitation holding that the Appellant entertained the doubt after the introduction of Budget 1994 which was clarified to them promptly by the Department and this cannot lead to an inference that they acted bonafide in the past in April’ 1990 to March’ 1994. The Appellant filed Rectification of Mistake Application before the Tribunal which the Tribunal vide its Order dated 05.12.2008 CEA NO. 95 OF 2009 [ 3 ] (ANNEXURE A-12) dismissed taking a view that there is no mistake warranting the rectification. We have heard both the Counsels and perused the record. We find that the whole controversy moves around the limitation period provided under Section 11A of the Act. Relevant extracts of Section 11 A as prevailing during the relevant period are as under: “ 11A. Recovery of duties not levied or not paid or short-levied or short paid or erroneously refunded (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 willful mis-statement or suppression of [acts or contravention of any of the provisions of this Act or of the rules made thereunder with an 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. Explanation. - Where the service of the notice is stayed by an order of a Court, the period of such stay shall be excluded in computing the aforesaid period of (one year) or five years, as the case may be.” As per above quoted Section the demand can be normally raised for the period of six months but in case fraud, collusion, mis-statement of facts or contravention of the provisions of the Act with intent to evade payment of duty, demand can be raised for a period of five years. The extended period can be invoked only in case of fraud, collusion, mis-statement etc. CEA NO. 95 OF 2009 [ 4 ] The Counsel for the Appellant would contend that there was doubt about the duty liability of the lancing pipes during the period in question. The Appellant has supported his contention with the letter dated 02.01.1995 (ANNEXURE A-4) written by Assistant Collector (Technical) to the Deputy Collector, Central Excise whereby the Assistant Collector has doubted the duty liability of lancing pipes. The Assistant Collector has also stated that a reference to Board seeking clarification is contemplated. Mr. Bansal stated that apart from Appellant a number of other units had manufactured the same product during the period in question but no demand was raised from any other party. The Counsel for the appellant drew our attention to the Circular dated 27.03.1996 issued by the Board and judgement of Hon'ble supreme Court in the case of Padmini Products vs. Collector of Central Excise, 1989 (43) ELT 195 (S.C). The said Circular is reproduced hereunder: Oxygen Lancing Pipes - Dutiability [Chapter 73] Circular No. 190/24196-CX, dated 27-3-1996 [From F. No. 139114195-CX. 4] Government of India Ministry of Finance (Department of Revenue) Central Board of Excise & Customs, New Delhi Subject: Central Excise - Oxygen lancing pipes - Whether it amounts to manufacture or not - Regarding. Doubts have been expressed as to whether the conversion of steel tubes into oxygen lancing pipes amount to manufacture or not. 2. The steel pipes and tubes are classifiable under Chapter 73 of the Central Excise Tariff Act, 1985. The Steel tubes are cold drawn and in the process, the outer diameters get reduced. After cleaning the end of the tubes and removing the burs, the same are threaded and a steel socket is fixed thereon. These end products are called oxygen lancing pipes. 3. The matter has been examined. The oxygen lancing pipes are used for feeding oxygen in the process of oxygen lancing. The process of oxygen lancing is used principally for cutting heavy section steel and cast iron. The oxygen is fed to the cutting zone through such pipes and such pipes get consumed as the cutting action I proceeds. The final product viz. oxygen lancing pipe has a different name, character and use as compared to the raw material viz. steel tube. CEA NO. 95 OF 2009 [ 5 ] 4. It is, therefore, clarified that conversion of steel pipes/tubes into oxygen lancing pipes would amount to "manufacture" as the final product has a distinctive name, character and use. 5. Trade and field formations may be informed accordingly. From the letter dated 02.01.1995 written by Assistant Collector (Technical) and Board Circular dated 27.03.2006, it appears that there was certainly doubt about the levy of duty on lancing pipes. As there was doubt about the duty liability, it cannot be concluded that there was fraud or suppression of facts or willful mis-statement by Appellant for invoking the extended period of limitation. Even it is not the case of the Respondent that Appellant did not pay duty on account of fraud, suppression of facts or willful mis-statement of facts. The Hon'ble Supreme Court in the case of Padmini Product (supra) as pointed out by the Ld. Counsel for the Appellant in para 8 has held as under: “8. Shri V. Lakshmikumaran, Learned Counsel for the appellant drew our attention to the observations of this Court in Collector of Central Excise, Hyderabad v. M/s Chemphar Drugs and Liniments, Hyderabad 1989 (40) E.L.T 276 (S.C.) = 1989 (2) SCC 127 where at page 131 of the report, this Court observed that in order to sustain an order of the Tribunal beyond a period of six months and up to a period of 5 years in view of the proviso to sub-section (1) of Section 11-A of the Act, it had to be established that the duty of excise had not been levied or paid or short-levied or short-paid, or erroneously refunded by reasons of either fraud or collusion or willful mis- statement or Suppression of facts or contravention of any provision of the Act or Rules made there under, with intent to evade payment of duty. It was observed by this Court that 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 beyond the period of six months had to be established. Whether in a particular set of facts and circumstances there was any fraud or collusion or willful mis-statement 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. The Tribunal, however, had held contrary to the contention of the appellants. The Tribunal noted that dhoop sticks are different products from agarbaties even though they belonged to the same category and the Tribunal was of the view that these were to be treated differently. Therefore, the clarification given in the context of the agarbaties could not be applicable to dhoop sticks etc., and the Tribunal came to the conclusion that inasmuch as the appellant had CEA NO. 95 OF 2009 [ 6 ] manufactured the goods without informing the Central Excise authorities and had been removing these without payment of duty, these would have to be taken to attract the mischief of the provisions of rule 9(2) and the longer period of limitation was available. But the Tribunal reduced the penalty. Counsel for the appellants contended before us that in view of the trade notices which were referred to by the Tribunal, there is scope for believing that agarbaties were entitled to exemption and if that is so, then there is enough scope for believing that there was no need of taking out a licence under rule 174 of the said Rules and also that there was no need of paying duty at the time of removal of dhoop sticks, etc. Counsel further submitted that in any event apart from the fact that no licence had been taken and for which no licence was required because the whole duty was exempt in view of Notification No. 111/78, referred to hereinbefore, and in view of the fact that there was scope for believing that it was exempt under Schedule annexed to the first notification, i.e., 55/75, being handicrafts, the appellants could not be held to be guilty of the fact that excise duty had not been paid or short-levied or short-paid or erroneously refunded because of either any fraud or collusion or willful misstatement or suppression of facts or contravention of any provision of the Act or Rules made there under. These ingredients postulate a positive act. Failure to pay duty or take out a licence is not necessarily due to fraud or collusion or willful mis-statement or suppression of facts or contravention of any provision of the Act. Suppression of facts is not failure to disclose the legal consequences of a certain provision. Shri Ganguly, appearing for the revenue, contended before us that the appellants should have taken out a licence under rule 174 of the said Rules because all the goods were not handicrafts and as such were not exempted under Notification No. 55/75 and therefore, the appellants were obliged to take out a licence. The failure to take out the licence and thereafter to take the goods out of the factory gate without payment of duty was itself sufficient, according to Shri Ganguly, to infer that the appellants came within the mischief of Section 1 I-A of the Act. We are unable Lo accept this position canvassed on behalf of the revenue. As mentioned herein before, mere failure or negligence on the part of the producer or manufacturer either not to take out a licence in case where there was scope for doubt as to whether licence was required to be taken out or where there was scope for doubt whether goods were dutiable or not, would not attract Section 11-A of the Act. In the facts and circumstances of this case, there were materials, as indicated to suggest that there was scope for confusion and the appellants believing that the goods came within the purview of the concept of handicrafts and as such were exempt. If there was scope for such a belief or opinion, then failure either to take out a licence or to pay duty on that belief, when there was no contrary evidence that the producer or the manufacturer knew that these were excisable or required to be licensed, would not attract the penal provisions of Section 11-A of the Act.” CEA NO. 95 OF 2009 [ 7 ] The case of the Appellant is squarely covered by the above quoted judgement of Hon'ble Supreme Court. In the present case, it was the Appellant who approached the Respondent Department and thereafter Respondent Department initiated proceedings against the Appellant. In these facts and circumstances, we find merit in the contention of the Appellant that extended period of limitation has been wrongly invoked as there was doubt about the dutiability of the lancing pipes. Therefore, we answer the first question in favour of the Appellant and against the Revenue. As Appellant has succeeded on the first question so there is no need to answer the second question. In view of the above, Appeal is allowed and impugned Order dated 13.08.2008 (ANNEXURE A-10) and Order dated 5.12.2008 (Annexure A-12) are hereby quashed. ( ASHUTOSH MOHUNTA ) JUDGE ( MEHINDER SINGH SULLAR ) JUDGE 19.2.2010 rupi