2005 (1) TMI 625 - SC - Central Excise

Whether the department was justified in invoking the extended period of limitation under the proviso to section 11A(1) of the Central Excise Act, 1944? Held that - Appeal dismissed. The extended period of limitation under the proviso can be invoked in cases of positive acts of fraud, collusion, wilful misstatement or suppression of fact on the part of the assessee and that such a positive act must be in contradistinction to mere inaction. The present case is not a case of simple omission. It is a case of wilful misstatement leading to under-estimation of value of goods cleared by the appellant. In the circumstances, we do not find any merit in this appeal.

Issues Involved:
1. Justification of invoking the extended period of limitation under the proviso to section 11A(1) of the Central Excise Act, 1944.
2. Applicability of rule 7 of the Central Excise (Valuation) Rules, 1975.
3. Allegation of wilful misstatement and suppression of facts by the appellant.
4. Correctness of the price declaration by the appellant.
5. Validity of the demand for differential duty and penalty.

Detailed Analysis:

1. Justification of invoking the extended period of limitation under the proviso to section 11A(1) of the Central Excise Act, 1944:
The primary issue was whether the department was justified in invoking the extended period of limitation under section 11A(1) due to alleged wilful misstatement and suppression of facts by the appellant. The court referenced several precedents, including *Collector of Central Excise, Hyderabad vs. M/s Chemphar Drugs & Liniments* and *Pushpam Pharmaceuticals Company vs. Collector of Central Excise, Bombay*, to outline that wilful misstatement involves a positive act of omission or deliberate withholding of information. The court concluded that the appellant had wilfully misdeclared the prices at a lower rate, thus justifying the invocation of the extended period of limitation.

2. Applicability of rule 7 of the Central Excise (Valuation) Rules, 1975:
The court examined whether rule 7 was rightly invoked by the department. Rule 7 is a residuary rule used when valuation cannot be determined under other rules. The court found that rules 1 to 6 were not applicable in this case, and since rule 6(b) was not attracted, the department was correct in making a best judgment assessment under rule 7. This was supported by the precedent *United Glass vs. Collector of Central Excise*.

3. Allegation of wilful misstatement and suppression of facts by the appellant:
The court scrutinized whether the appellant had intentionally misled the department by declaring that RCC pipes and collars were captively consumed. The Collector's findings indicated that the appellant was aware of the comparable prices and had misled the department by using a hybrid system to price RCC pipes and collars on a cost basis without estimating profits. The court upheld the Collector's conclusion that the appellant had wilfully misstated and suppressed facts to mislead the department.

4. Correctness of the price declaration by the appellant:
The appellant contended that the RCC pipes and collars were not marketed but used in the Lift Irrigation Scheme, and hence, the prices of comparable goods were not available. The court found that the appellant had filed the price list under part VI(a) of the proforma, indicating knowledge of comparable prices, but had mischievously priced the goods on a cost basis. This hybrid system was adopted to mislead the department, thus constituting a wilful misstatement.

5. Validity of the demand for differential duty and penalty:
The court upheld the demand for differential duty of Rs. 18,34,464/- and a penalty of Rs. 2 lacs. The appellant's argument that omission to enter correct prices did not amount to contravention of rule 173-C was rejected. The court distinguished the present case from *Universal Cables Ltd. Satna vs. Union of India & Others*, noting that there was a contravention of rule 6(b) of the Valuation Rules, 1975 read with part VI(a) of the price list proforma.

Conclusion:
The court dismissed the appeal, affirming the Tribunal's judgment. It found no merit in the appellant's arguments and upheld the department's actions, including the invocation of the extended period of limitation and the application of rule 7 for valuation. The court also noted the department's failure to appeal the demand for Rs. 21,74,963/- under section 11-D, highlighting a lapse in revenue collection practices.

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