2014 (10) TMI 802 - HC - Central Excise

Classification of goods - Classification of rexin cloth under Clause 19(i) of the Tariff Act or under Clause 19(iii) - Held that - Section11-A of the Act, as it stood then, prescribes the period of limitation, within which the Department can recover the arrears of excise duty. One year was stipulated for this purpose. Where however, the default is committed or failure of recovery was on account of acts of fraud or misrepresentation or misstatement, the prescribed limitation is five years from the date on which the amount became due. Department was disabled from recovering the difference of duty between the items that fall under Clause 19(iii) on the one hand and Clause 19(i) on the other hand only on account of the interim orders passed by this Court in W.P.No.2199 of 1981. Once that writ petition ended in the form of a direction to the respondent therein to pass an order and an order was passed on 04.05.1987, affirming the original classification, the question as to whether the period deserves to be excluded in the process of reckoning limitation under - Decided in favour of Revenue.

Summary

Issues:
1. Interpretation of Section 11-A of the Central Excise Act, 1944 regarding limitation for recovering arrears of excise duty.
2. Applicability of limitation when goods were cleared pursuant to an interim court order.
3. Permissibility of pleading limitation after obtaining interim orders preventing duty collection.
4. Exclusion of the period during court proceedings for computation of limitation.
5. Debarment from raising limitation plea due to res judicata principles.

Analysis:
The judgment by the Andhra Pradesh High Court involved reference cases filed by the Central Excise Department under Section 35G(3) of the Central Excise Act, 1944. The respondent, a manufacturing unit, sought reclassification of a product, rexin cloth, under a different clause of the Central Excise Tariff Act. A writ petition was filed, resulting in interim orders directing the reclassification subject to conditions. Subsequent orders confirmed the original classification, leading to appeals and a Supreme Court dismissal upholding the classification.

The dispute arose when the Department issued a demand notice for excise duty arrears during the writ petition's pendency, which the respondent objected to based on limitation under Section 11-A of the Act. Appeals challenging the demand notice and order of attachment were allowed on limitation grounds by the Commissioner of Central Excise (Appeals). However, divergent opinions on limitation by Tribunal members led to a reference to a Third member, who opined in favor of limitation under Section 11-A.

The High Court considered the questions referred by the Department, emphasizing the exclusion of the period during court proceedings for limitation computation. The Court highlighted the relevance of excluding the period of proceedings for calculating limitation, drawing parallels with provisions in other enactments like the Land Acquisition Act. The Court found merit in the Department's case, allowing the references and directing the Tribunal to refer the questions for consideration.

In conclusion, the judgment delved into the intricacies of limitation under Section 11-A of the Central Excise Act, emphasizing the importance of excluding the period of court proceedings for calculating limitation. The Court's analysis focused on the impact of interim orders on limitation issues and highlighted the need to consider the circumstances of the case for determining the validity of demands based on limitation grounds.