2008 (9) TMI 604 - HC - Central Excise

Demand of duty on the ground that the manufacturer was not entitled to small scale exemption benefit of notification dated 20-5-1988 - Tribunal concluded that it cannot be said that the manufacturer suppressed any factual position from the department with the intent to evade payment of duty. We are of the opinion that the Tribunal came to the aforesaid conclusion on the basis of the materials on record and correct interpretation of law. As the manufacturer s act was not intended to evade payment of duty, the proviso will not govern the field and extended period of five years shall not be available to the Central Excise Officer. no merit in the application and it is dismissed accordingly.

Summary

Issues:
1. Interpretation of Central Excise Tariff for small scale exemption benefit.
2. Validity of misinterpretation and misclassification as a defense.
3. Application of Section 11A of the Central Excise Act for duty recovery.

Analysis:
1. The case involved a dispute regarding the entitlement of a manufacturer to small scale exemption benefit under a specific notification. The manufacturer had correctly described the product in the return but was later issued a show cause notice for duty demand. The Tribunal observed that misclassification based on the manufacturer's interpretation did not constitute misdeclaration, and the manufacturer had not suppressed any facts to evade duty payment.

2. The Commissioner of Central Excise filed an application under Section 35H(1) of the Central Excise Act, seeking a reference to the High Court on the question of whether misinterpretation and misclassification of the tariff head could provide a valid defense for the manufacturer. The Court directed the Tribunal to refer this question, emphasizing the importance of correct declaration before the competent authority for exemption from duty payment.

3. The Central Government Counsel argued that the manufacturer had contravened the Central Excise Rules by not getting the return cleared by the Assistant Collector but by an incompetent authority, i.e., the Superintendent. He contended that this contravention allowed action under Section 11A of the Act within five years. However, the manufacturer's counsel argued that as the correct product description was provided, there was no intent to evade duty payment, thus the extended period under Section 11A did not apply.

4. The Court analyzed Section 11A of the Central Excise Act, noting that the provision allowed a five-year period for duty recovery in cases of fraud, collusion, willful misstatement, or suppression of facts with intent to evade duty. Since the manufacturer had not intended to evade payment and had correctly declared the product, the Court held that the extended period did not apply. The Tribunal's decision to allow the appeal was upheld, and the application was dismissed without costs.