2011 (8) TMI 536 - AT - Central Excise

Demand - limitation - whether suppression can be alleged and extended period and penal provisions can be invoked, in cases where exemption is claimed for supplies to Projects financed by an Organization, which was declared as not notified subsequent to clearances, consistent view has been taken by the Hon ble Tribunal (some cases upheld by Supreme Court and High Court) that in such cases, extended period is not invocable and penalties are not imposable - reliance was placed in the case of Bharat Heavy Electricals Ltd. 2005 -TMI - 54919 - CESTAT, PRINCIPAL BENCH, NEW DELHI - Hence, the exemption under Notification 108/95 is not available to the project financed by JBIC but demand beyond the period of one year from the date of show-cause notice are not sustainable and penalties under Section 11AC on the assessee firm and penalty on GM of the assessee firm is also not sustainable.

Summary

Issues Involved:
1. Admissibility of exemption under Notification No. 108/95-CE for supplies to a project financed by JBIC.
2. Sustainability of demands for the period beyond the normal period of one year.
3. Imposability of penalties under the given circumstances.
4. Validity of letters issued by the Superintendent as show-cause notices.

Detailed Analysis:

1. Admissibility of Exemption under Notification No. 108/95-CE:
The core issue was whether the exemption under Notification No. 108/95-CE for supplies to the Simadhri Vizag Transmission System Project financed by JBIC was admissible. The assessee had filed the necessary CL declarations, purchase orders, and certificates from the project implementing authority, which were duly countersigned by the Principal Secretary of Andhra Pradesh. These documents were verified and accepted by the department, allowing the clearances under the said notification. However, the Central Board of Excise and Customs (CBEC) later clarified that JBIC was not notified as an international organization under the United Nations (Privileges and Immunities) Act, 1947. Consequently, the certificates issued by APTRANSCO were canceled, leading to the denial of the exemption and the initiation of proceedings against the assessee.

2. Sustainability of Demands Beyond Normal Period:
The Tribunal examined whether the demands for the period beyond the normal period of one year were sustainable. The assessee argued that all requisite documents were submitted and assessed by the departmental authorities, and the clearances were made under valid certificates until their cancellation. The Tribunal noted that the certificates were canceled after the clearances were effected, and the department had accepted the returns filed by the assessee. Citing various judgments, including PolyCab Wires Pvt. Ltd., Bharat Heavy Electricals Ltd., and others, the Tribunal held that the extended period of limitation was not invocable as the assessee had a bona fide belief, supported by valid certificates, that they were entitled to the exemption.

3. Imposability of Penalties:
The Tribunal also addressed whether penalties were imposable under the given circumstances. The Commissioner of Central Excise, Nashik, had imposed penalties on the assessee firm and its General Manager under Section 11AC, alleging suppression of facts. However, the Tribunal found that the assessee had acted in good faith, relying on the certificates issued by the project implementing authority and countersigned by the Principal Secretary. The Tribunal referred to several judgments, including those in the cases of PolyCab Wires Pvt. Ltd. and Bharat Heavy Electricals Ltd., which held that penalties were not imposable when the assessee had a bona fide belief in their entitlement to the exemption. Consequently, the Tribunal ruled that the penalties under Section 11AC were not sustainable.

4. Validity of Superintendent's Letters as Show-Cause Notices:
An additional issue arose regarding whether the letters dated 22.2.2002 and 26.2.2002 issued by the Superintendent directing the assessee to pay duty could be treated as show-cause notices. The Tribunal referred to the judgments in Merchant Impex and Ram Vilas Services Ltd., which held that such letters could not be considered as show-cause notices as they did not provide an opportunity for the assessee to be heard. The Tribunal concluded that the letters issued by the Superintendent did not meet the criteria for show-cause notices, and thus, the argument that these letters should be treated as such was not sustainable.

Conclusion:
The Tribunal concluded that while the exemption under Notification No. 108/95-CE was not available for the project financed by JBIC, the demands beyond the period of one year from the date of the show-cause notice were not sustainable. Additionally, the penalties imposed under Section 11AC on the assessee firm and its General Manager were also not sustainable. The appeals filed by the revenue were dismissed, the appeal filed by S.K. Sadanand was allowed, and the appeal E/2143/03 was remanded to quantify the demand within one year from the date of the show-cause notice. The cross objections were disposed of accordingly.