2015 (3) TMI 592 - SC - Central Excise

Extended period of limitation - Suppression of facts - Manufacturing activity or not - Assessee is engaged in the business of cutting larger steel plates into smaller size and shapes as required by the customers - appellant, under the belief that the aforesaid process does not amount to manufacture did not get himself registered - Held that - Even as per the Department, there were certain doubts relating to excisability of the process of profile cutting - if the appellant also had nurtured this belief that the process carried out by him does not amount to manufacture and did not pay the excise duty, we can safely infer that this conduct of the appellant was a bona fide conduct and cannot be treated as contumacious or willful suppression. Thus, we are of the opinion that on the facts of this case, proviso to Section 11A(1) of the Act would not be attracted. Once that is held, it is obvious that the period of limitation for serving show cause notice shall be six months. In the present case, the show cause notice covered the period from October, 1991, to September, 1996 and the show cause notice was given on 01.11.1996. In the said show cause notice when only a period of six months could be covered from the date of show cause notice, it will go back to period from May, 1996 onwards. - imposition of penalty upon the appellant is unwarranted. - Decided partly in favour of assessee.

Summary

Issues:
- Whether the process of cutting larger steel plates into smaller sizes amounts to "manufacture" under Section 2(f) of the Central Excise Act, 1985?
- Whether the show cause notice issued to the appellant was barred by limitation under Section 11A of the Act?
- Whether the imposition of penalty on the appellant is justified?

Analysis:
1. Manufacture under Section 2(f) of the Central Excise Act:
The appellant, engaged in cutting steel plates into smaller sizes, argued that this process did not amount to "manufacture." Initially, the appellant disputed this, but later focused on the limitation and penalty aspects. The appellant cited a case where doubts existed regarding the excisability of a similar process, indicating a lack of clarity in the law. The Court noted that the appellant's belief that the process did not amount to manufacture was bona fide, as supported by the doubts raised by the Department itself. Consequently, the Court held that the process did not attract excise duty as it was not deemed as "manufacture" under the Act.

2. Limitation under Section 11A of the Act:
The show cause notice issued to the appellant covered a period from October 1991 to September 1996, dated 01.11.1996. The appellant contended that the notice was barred by limitation, as per Section 11A, which allows a notice period of only six months. The Adjudicating Authority had extended the limitation period to five years due to alleged suppression and misrepresentation. However, the Court disagreed, stating that the proviso to Section 11A(1) did not apply as there was no willful suppression by the appellant. Therefore, the show cause notice was limited to the period from May 1996 onwards, and the earlier period was excluded.

3. Imposition of Penalty:
The appellant argued that the penalty imposed was unwarranted, citing a previous case where no penalty was levied due to doubts regarding the excisability of a similar process. The Court agreed, noting that the doubts surrounding the process indicated a lack of clarity in the law. Consequently, the penalty imposed on the appellant was set aside, and the duty for the period from May 1996 onwards was upheld, along with applicable interest.

In conclusion, the Court partly allowed the appeals, quashing the show cause notice for the period from October 1991 to April 1996, setting aside the penalty, and upholding the duty liability for the period from May 1996 onwards. The judgment provided clarity on the definition of "manufacture," the limitation period for show cause notices, and the imposition of penalties in cases of excise duty disputes.