2011 (6) TMI 685 - AT - Central Excise

Duty demand - Redemption fine - SSI exemption under Notification No. 176/77-C.E., dated 18-6-1977 - Suppression of facts - Extended period of limitation - Held that - exemption notification are to be complied with strictly and the substantial compliance means the actual compliance in respect to the substance essential to every reasonable objective of the statute. Therefore as contended by the appellants that they have substantially complied with the conditions of the exemption Notification is not acceptable and the appellants are required to comply with the conditions of exemption notification strictly. Whether the Assistant Collector have the power to issue show cause notice or not for which we have to go through Section 11A of the Act which was enforced at the time of issuance of the show cause notice - Held that - As per Section 11A, the Central Excise officer was empowered to issue show cause notice - There is no merit in the contention of the learned Advocate that the Assistant Collector was not having any power to issue show cause notice. Whether the show cause notice can be issued under Rule 10 or Rule 10A which were omitted w.e.f. 6-8-1977 and new Rule 10 was enforced from 6-8-1977 to 16-11-1980 - Held that - The show cause notice was issued on 2-6-1981. By invoking the provisions of Section 38A, the revenue has power to issue show cause notice under Rule 10/10A during the relevant period. Appellants were claiming the SSI exemption under Notification No. 176/77-Central Excise, dated 18-6-1977 on the ground that the parts and accessories of motor vehicles were supplied to M/s. Ideal Jawa (I) Ltd., and M/s. Bajaj Auto Ltd., for further use in the manufacture of two wheelers, subject to Chapter X Procedure, value of these goods had to be excluded for the purpose of allowing exemption under Notification No. 89/79-C.E., dated 1-3-1979, 167/79-C.E., dated 19-4-1979 as amended by Notification No. 187/79-C.E., dated 10-5-1979. If the value of exempted goods is excluded duty liability would come down to be marginal. Therefore, the appellants were under an Impression/bona fide belief that they have complied with the conditions of the exemption notification substantially by obtaining certificates from M/s. Bajaj Auto Ltd. and Ideal Jawa (I) Ltd., the exemption is available to them. Therefore, in the absence of any of the ingredients of fraud, collusion, wilful misstatement, suppression of facts and contravention of provisions of Central Excise law with an intent to evade duty, the extended period of limitation is not invokable. Therefore, we hold that in this case the extended period of limitation is not invocable. Therefore, the demands for the period 18-6-1977 to 31-10-1980 are barred by limitation - Matter remanded back - Decided in favour of assessee.

Issues Involved:
1. SSI exemption under Notification No. 176/77-C.E., dated 18-6-1977.
2. Legality of the show cause notice invoking the extended period on the ground of suppression of facts.
3. Authority of the Assistant Collector to issue the show cause notice.
4. Validity of the show cause notice under Rule 10 or Rule 10A.
5. Compliance with the conditions of the exemption notification.
6. Applicability of the extended period of limitation.
7. Revenue neutrality and its impact on the demand.
8. Imposition of penalty and fine.

Detailed Analysis:

1. SSI Exemption under Notification No. 176/77-C.E.:
The appellants contested that they were entitled to SSI exemption as they complied with the conditions of Notification No. 176/77-C.E., dated 18-6-1977. The Tribunal referred to the Supreme Court's judgment in Commissioner of C. Ex., New Delhi v. Hari Chand Shri Gopal, which emphasized strict compliance with exemption notifications. The Tribunal concluded that the appellants did not strictly comply with the conditions, thus, they were not entitled to the exemption.

2. Legality of the Show Cause Notice Invoking Extended Period:
The appellants argued that the extended period for issuing the show cause notice was not sustainable due to a lack of suppression of facts. The Tribunal cited the Supreme Court's decision in Gopal Zarda Udyog, which held that the extended period is not invocable in the absence of fraud, collusion, willful misstatement, or suppression of facts. The Tribunal found that the appellants were under a bona fide belief regarding the exemption and thus, the extended period was not applicable.

3. Authority of the Assistant Collector to Issue the Show Cause Notice:
The appellants contended that only the Collector was empowered to issue the show cause notice under the proviso to Section 11A of the Central Excise Act, 1944. The Tribunal examined Section 11A and concluded that the Central Excise officer, including the Assistant Collector, was empowered to issue the notice. Therefore, the notice issued by the Assistant Collector was valid.

4. Validity of the Show Cause Notice under Rule 10 or Rule 10A:
The appellants argued that Rules 10 and 10A were omitted w.e.f. 6-8-1977, and thus, the show cause notice issued under these rules was invalid. The Tribunal agreed with the revenue's contention that Section 38A, which has retrospective effect, allowed the issuance of the show cause notice under the omitted rules. Hence, the notice was valid.

5. Compliance with the Conditions of the Exemption Notification:
The Tribunal found that the appellants did not strictly comply with the conditions of the exemption notification. The Supreme Court in Hari Chand Shri Gopal emphasized that substantial compliance is not sufficient; actual compliance with all conditions is required. Therefore, the appellants were not entitled to the exemption.

6. Applicability of the Extended Period of Limitation:
The Tribunal held that the extended period of limitation was not invocable as the appellants did not willfully suppress facts or contravene provisions with intent to evade duty. The demand for the period 18-6-1977 to 31-10-1980 was thus barred by limitation. However, the demand for the normal period was sustained.

7. Revenue Neutrality and Its Impact on the Demand:
The appellants argued that the duty paid on parts of motor vehicles was available as set-off against duty payable on goods falling under TI-1 to TI-67, making the exercise revenue neutral. The Tribunal acknowledged that the duty paid was available as set-off, but this did not negate the demand for the normal period.

8. Imposition of Penalty and Fine:
The Tribunal concluded that no penalty was imposable under Section 11AC of the Central Excise Act, 1944, as the extended period was not applicable. The matter was remanded back to the adjudicating authority for re-quantification of the demand for the normal period.

Conclusion:
The Tribunal remanded the matter for re-quantification of demand for the normal period and held that no penalty was imposable on the appellants. The appeals were disposed of accordingly.

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