2012 (7) TMI 445 - AT - Central Excise

Demand invoking extended period of limitation u/s 11A - wrong claim of Exemption Notification No.7/94-CE - Held that - The appellants have been procuring the sulphuric acid for the manufacture of magnesium sulphate under Chapter X obtaining a CT2 certificate from the jurisdictional officer having control over their factory and who was well aware of what was being manufactured by the appellants. This position was also borne out from the earlier Board s circular of 1994 and that there was a change in the situation with the issue of the circular in 1998 was obviously not known to both sides - it would not be proper to uphold the demand for the extended period of limitation under Section 11A - the appellants are liable to pay the demanded duty only for the normal period of one year counting the same backwards from the date of issue of SCNs along with interest thereof - partly in favour of assessee.

Summary

Issues:
1. Procurement of sulphuric acid under Chapter X procedure for manufacturing magnesium sulphate.
2. Applicability of duty exemption under Exemption Notification No.7/94-CE.
3. Invocation of extended period of limitation for duty demand.
4. Application of Section 11A to demands made under Chapter X procedure.
5. Interpretation of the change in circulars regarding duty-free procurement.
6. Liability of the appellants for demanded duty and interest.

Analysis:

1. The appellants procured sulphuric acid under Chapter X procedure for manufacturing magnesium sulphate, claiming duty-free status under Exemption Notification No.7/94-CE due to magnesium sulphate being a micronutrient specified in the Fertilizer (Control) Order, 1985. The appellants and excise officers were unaware of the change in circulars regarding the classification of magnesium sulphate, leading to a misunderstanding about duty-free procurement.

2. The advocate argued that no duty could be demanded until the revised circular of 19.5.98 was issued. The appellants were willing to pay the demanded amount with interest for the normal period. The Department, however, contended that the limitation under Section 11A did not apply to demands under Chapter X procedure, citing Rule 192 & 196 of the Central Excise Rules, 1944.

3. The advocate referred to a judgment by the Hon'ble Allahabad High Court stating that the limitation under Section 11A applied to demands made under Chapter X procedure. Considering the arguments, the Tribunal found that the appellants procured sulphuric acid under Chapter X with the necessary CT2 certificate, believing magnesium sulphate to be a fertilizer eligible for duty-free procurement.

4. The Tribunal acknowledged that both parties were unaware of the change in circulars, leading to the misunderstanding about duty-free procurement. Therefore, the demand for the extended period of limitation under Section 11A was not upheld, following the precedent set by the Hon'ble Allahabad High Court. The appellants were held liable to pay the demanded duty only for the normal one-year period from the date of the Show Cause Notices, along with interest.

5. In conclusion, the Tribunal partially allowed the appeals, modifying the impugned orders to hold the appellants responsible for paying the demanded duty for the normal period with interest. The decision was based on the understanding that the appellants acted in good faith under the belief that magnesium sulphate was classified as a fertilizer, justifying their duty-free procurement of sulphuric acid under Chapter X procedure.