Case: M/S. Uniworth Textiles Ltd Vs. Commnr. Of Central Excise, Raipur

The appellant, an Export Oriented Unit (for shortis engaged in the manufacture of all wool and poly-wool worsted grey fabrics. It was granted the status of EOU by the Government of India, Ministry of Industry, Department of Industrial Development by way of a Letter of Permission (for short) dated 31.08.1992 as amended by letter dated 4.5.1993. The appellant applied for a license for private bonded warehouse, which was granted to it under C. No. V (Ch.51) 13-01/92/100%EOU dated 30.09.1992 by the Assistant Collector, Central Excise Division- Raipur for storing inputs, raw materials, etc. either imported duty-free by availing concessions available for 100% EOU or procured locally without payment of duty for use in manufacture of all wool, poly-wool and other fabrics.3. For interaction with the appellant, its sister unit, Uniworth Ltd., another EOU, engaged in the generation of power from a captive power plant, obtained another LOP dated 1.11.1994. The said LOP, dated 1.11.1994, permitted usage of electricity generated by the captive power plant by both, Uniworth Ltd. and the appellant Uniworth Textiles Ltd. The appellant purchased electricity from Uniworth Ltd. under an agreement which continued till 1999.4. Prior to January-February, 2000, the sister unit i.e. Uniworth Ltd. procured furnace oil required for running the captive power plant. This purchase of furnace oil was exempted from payment of customs duty under Notification No. 53/97-Cus., the relevant portion of which reads as follows:No. 53/97-Cus., dated 3-6-1997Exemption to specified goods imported for production of goods for export or for use in 100% Export-Oriented Undertakings -- New Scheme --Notification No. 13/81-Cus. RescindedIn exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962), the Central Government being satisfied that it is necessary in the public interest so to do, hereby exempts goods specified in the Table below (hereinafter referred to as the goods), when imported into India, for the purpose of manufacture of articles for export out of India, or for being used in connection with the production or packaging or job work for export of goods or services out of India by hundred per cent Export Oriented units approved by the Board of Approvals for hundred per cent Export Oriented Units appointed by the notification of Government of India in the Ministry of Industry, Department of Industrial Policy and Promotion for this purpose, (hereinafter referred to as the said Board), from the whole of duty of customs leviable thereon under the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and the additional duty, if any, leviable thereon under section 3 of the said Customs Tariff11 of the said notification at the relevant time read asCaptive power plants including captive generating sets and their spares for such plants and sets as recommended by the said Board of Approvals.In January-February, 2000, Uniworth Ltd. exhausted the limit of letter of credit opened by it for the duty-free import of furnace oil. It made an alternative arrangement of procuring duty free furnace oil under Notification No. 01/95 titledgoods meant for manufacture and packaging of articles in 100% EOU or manufacture or development of electronic hardware and software in EHTP ordated 04.01.1995. The said notification reads as followsNo. 1/95-Central ExciseIn exercise of the powers conferred by sub-section (1) of section 5A of the Central Excises and Salt Act/ 1944 (1 of 1944), read with sub- section (3) of section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957), the Central Government being satisfied that it is necessary in the public interest so to do, hereby exempts excisable goods, specified in Annexure I to this notification (hereinafter referred to as the said goods), when brought in connection with –a) the manufacture and packaging of articles, or for production or packaging or job work for export of goods or services out of India into hundred percent export oriented undertaking (hereinafter referred to as the user industry); or;XXX XXX XXXfrom the whole of,(i) the duty of excise leviable thereon under section 3 of the Central Excise Act, 1944 (1 of 1944), and(ii) the additional duty of excise leviable thereon under sub- section (1) of section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957),XXX XXX XXXANNEXURE I3. Captive power plants including captive generating sets and transformers as recommended by the Development Commissioner/Designated Officer.3B. Spares, fuel, lubricants, consumables and accessories for captive power plants including captive generating sets and spares, consumables and accessories for transformers as approved by the Assistant Commissioner or Deputy Commissioner of Central Excise.3C. Furnace oil required for the boilers as approved by the Assistant Commissioner of Customs or Central Excise on the recommendation of the Development Commissioner.Therefore, Uniworth Ltd. informed the appellant that it would require the arrangement for running the captive power plant for its own use, and hence, would be compelled to stop the supply of electricity to the appellant. Consequently, as a temporary measure, for overcoming this difficulty, the appellant, while availing the benefit of Notification No. 53/97-Cus, procured furnace oil from Coastal Wartsila Petroleum Ltd., a Foreign Trade Zone unit. It supplied the same to Uniworth Ltd. for generation of electricity, which it continued to receive as before.7. Since the appellant was procuring furnace oil for captive power plant of another unit, it wrote to the Development Commissioner seeking clarification that whether duty on the supply and receipt of furnace oil and electricity respectively was required to be paid. The Development Commissioner, referring to a circular dated 12.10.1999 of the Ministry of Commerce, said as follows:are procuring surplus power from their sister concern M/s. Uniworth Ltd. (Unit- 1, LOP dated 31.01.1989) under Permission No. 248(93) dated 01.11.1994 and the unit transferred 2590.30 KL of furnace oil to M/s. Uniworth Ltd. (Unit- 1) for their captive power consumption. No permission is required from this office for duty free import/ procurement of POL products for captive power consumption. It is further to clarify as per the Exim Policy provision, one EOU may sell/ transfer surplus power to another EOU duty free in terms of Ministry of Commerce Letter No. 1/1/98-EP dated 12.10.1999supplied]The relevant portion of the Ministry of Commerce Letter No.1/98-EP is extractedNo duty is required to paid (sic) on sale of surplus power from an EOU/EPZ unit to another EOU/EPZ unit. Development Commissioner of EPZ concerned would be informed in writing for such supply and proper account of consumption of raw material would be maintained by the supplying unit for calculation of NFEP.M/s. Uniworth Ltd. (Power Division), Raipur, is engaged in the generation of power. M/s. Uniworth Textiles Ltd. and M/s. Uniworth Ltd. both are distinct companies having different LOP Central Excise Registration No. and different board of directors. They are different companies as per Companies Act and they prepare separate balance sheet…4.2. Therefore it appears that the noticees had not received 742.5 KL of furnace oil … from M/s. Coastal Wartsila Petroleum Ltd… in their factory at all as neither they had storing facility to store the furnace oil so procured nor they had any power plant to utilize the said furnace oil to generate electricity. They also did not have LOP from Government of India… to procure and use furnace oil to generate electricity as they did not have any power plant in their factory… Considering the above fact it is clear that the procurement of 742.5 KL of furnace oil under shipping bill, without payment of customs duty, is against the provisions of Customs Act, 1962 and rules made hereunder (sic).The show cause notice was issued on 02.08.2001, more than six months after the appellant had imported furnace oil on behalf of Uniworth Ltd. in January, 2001. This time period of more than six months is significant due to the proviso to Section 28 of the Act. The Section, at the relevant time, read as follows:Notice for payment of duties, interest, etc.(1) When any duty has not been levied or has been short-levied or erroneously refunded, or when any interest payable has not been paid, part paid or erroneously refunded, the proper officer may,-(a) in the case of any import made by any individual for his personal use or by Government or by any educational, research or charitable institution or hospital, within one year;(b) in any other case, within six months, from the relevant date, serve notice on the person chargeable with the duty or interest which has not been levied or charged or which has been so short-levied or part 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 has not been levied or has been short- levied or the interest has not been charged or has been part paid or the duty or interest has been erroneously refunded by reason of collusion or any wilful misstatement or suppression of facts by the importer or the exporter or the agent or employee of the importer or exporter, the provisions of this sub-section shall have effect as if for the words, the wordsre 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 six months or five years, as the case maysupplied]10. The Section imposes a limitation period of six months within which the concerned authorities must commence action against an importer/assessee in case of duties not levied, short-levied or erroneously refunded. It allows the said limitation period to be read as five years only in some specific circumstances, viz. collusion, willful misstatement or suppression of facts. Since the said show-cause notice was issued after the elapse of six months, the revenue, for its action to be legal in the eyes of law, can only take refuge under the proviso to the section.11. Both the appellate authorities, viz. the Commissioner of Customs and Central Excise (Appeals) and the Tribunal, rejected the claims of the appellant and affirmed payment of duty and penalty. They reasoned that since the appellant procured the furnace oil not for its own captive power plant, but for that of another, it could not claim exemption from payment of duty; entitlement of duty free import of fuel for its captive power plant lies with the owner of the captive power plant, and not the consumer of electricity generated from that power plant. Little or no attention was paid to the issue of limitation, which in our opinion, is the primary question for consideration in this case. The Tribunal only made the following observations in this… He however, submitted that the demand of duty is barred by limitation as the show cause notice was issued on 02.08.2001 by demanding the duty for the period January/February 2001; that the Department was aware that the appellants do not have power plant and as such furnace oil could not have been used by them captively; that this is evident from letter dated 17.07.2001…4… The appellants have also not brought on record any material in support of their contention that the Department was aware of the fact that the appellants did not have captive power plant. In view of this the demand cannot be held to be hit by the timethe appellant is before us in this appeal.

Court's reasoning:
In the present case, from the evidence adduced by the appellant, one will draw an inference of bona fide conduct in favour of the appellant. The appellant laboured under the very doubt which forms the basis of the issue before us and hence, decided to address it to the concerned authority, the Development Commissioner, thus, in a sense offering its activities to assessment. The Development Commissioner answered in favour of the appellant and in its reply, even quoted a letter by the Ministry of Commerce in favour of an exemption the appellant was seeking, which anybody would have found satisfactory. Only on receiving this satisfactory reply did the appellant decide to claim exemption. Even if one were to accept the argument that the Development Commissioner was perhaps not the most suitable repository of the answers to the queries that the appellant laboured under, it does not take away from the bona fide conduct of the appellant. It still reflects the fact that the appellant made efforts in pursuit of adherence to the law rather than itswe are not convinced with the finding of the Tribunal which placed the onus of providing evidence in support of bona fide conduct, by observing thatappellants had not brought anything onto prove their claim of bona fide conduct, on the appellant. It is a cardinal postulate of law that the burden of proving any form of mala fide lies on the shoulders of the one allegingproviso to Section 28 of the Act finds application only when specific and explicit averments challenging the fides of the conduct of the assessee are made in the show cause notice, a requirement that the show cause notice in the present case fails toon account of the fact that the burden of proof of proving mala fide conduct under the proviso to Section 28 of the Act lies with the Revenue; that in furtherance of the same, no specific averments find a mention in the show cause notice which is a mandatory requirement for commencement of action under the said proviso; and that nothing on record displays a willful default on the part of the appellant, we hold that the extended period of limitation under the said provision could not be invoked against the appellant.