2012 (11) TMI 959 - HC - Central Excise

Period of limitation - demand of duty as no manufacturing activity to bring into existence gauze fabrics - Held that - it is true that in the show cause notice it was conveyed that the respondent had not registered itself with a view to evading duty and that therefore larger period of limitation would be invoked. It may be that such issue of allegation was not in so many words denied by the respondent. However, in the show cause notice and during personal hearing before the Commissioner, the central defence of the respondent was that the respondent undertook no manufacturing activity to bring into existence gauze fabrics. Further that before further process, such fabric could not be marketed. On such twin grounds, the assessee held a belief that no duty was required to be paid. It was also pointed out that the assessee did not avail of any Cenvat credit on the inputs used. Under the circumstances, the respondent had put up a case of bonafide belief. Also the Commissioner upheld such view of the assessee, larger period of limitation could not be applied - in favour of assessee.

Summary

Issues:
1. Whether the Tribunal was justified in holding that the demand was barred by limitation?
2. Whether the matter should have been remanded for fresh adjudication due to no case of limitation raised initially?
3. Whether CESTAT can entertain a plea on the issue of limitation for the first time in an appeal filed by the revenue?

Analysis:

Issue 1:
The respondent, engaged in manufacturing gauze fabrics, contended that no manufacturing process was involved until bleaching and additional processes were completed. The Commissioner upheld this view, leading to an appeal by the Revenue. The Tribunal partially reversed the decision, ruling in favor of the Revenue on excisability but considering the respondent's belief in no manufacturing activity, limited the demand beyond one year from the show cause notice date. The Department challenged this decision. The appellant argued that the limitation issue was not raised earlier and should not be entertained at the appellate stage. However, the Court found that the respondent's bonafide belief and defense were crucial in the case, leading to the Tribunal's decision. The Court upheld the Tribunal's ruling, stating no error was committed.

Issue 2:
The show cause notice alleged duty evasion due to non-registration, indicating a larger limitation period. Although the respondent did not explicitly deny this allegation, their defense centered on the absence of manufacturing activity until further processes were completed. The respondent's belief in no duty requirement before marketability and non-utilization of Cenvat credit were key arguments. The Tribunal considered these factors in determining the limitation issue, concluding that the Department was not entitled to the larger limitation period. The Court agreed with the Tribunal's decision, emphasizing the respondent's bonafide belief and the Commissioner's favorable ruling based on the facts presented.

Issue 3:
The Tribunal's decision was based on the respondent's bonafide belief, supported by the facts and the Commissioner's ruling in their favor. The Department's challenge focused on the Tribunal's consideration of the limitation issue raised for the first time at the appellate stage. However, the Court found that since the respondent's belief was central to the case and addressed by the authorities, the Tribunal's decision was justified. As no legal question arose, the Tax Appeal was dismissed. The Court emphasized the importance of the facts and the respondent's bonafide belief in determining the outcome, supporting the Tribunal's decision.