2015 (12) TMI 669 - SC - Central Excise

Valuation - manufacture of items of furniture on job work basis - inclusion of cost of raw materials, job-charges paid to M/s. SJA, plus drawings and design charges for the furniture items - handicraft items or not - banafide belief - Extended period of limitation - Held that - Assessees had taken a specific plea to the effect that they bona fide believed that the manufacture of wooden furniture manually by artisans/craftsmen were wholly exempt from payment of duty under Notification No. 76/86-CE. It was also pleaded that as early as in the year 1986 the assessees had sought opinion from an expert and it was clarified by the expert that such furniture items were exempt from payment of duty. A specific declaration to this effect was furnished with the Central Excise Department at New Delhi vide letter dated 16.07.1987 about the activity carried out by the assessees and on that basis, it was claimed that the said furniture items supplied by the assessees under the aforesaid contract to M/s. ITC Ltd. were exempt for payment of excise duty. Thus, insofar as the appellants are concerned, they had taken a particular stand in the declaration filed as early as on 16.07.1987 disclosing all relevant facts. However, the Central Excise Department at New Delhi did not take any action thereof. Issuance of show cause notice on 22.10.1996, after a long gap, would clearly be time barred and under the aforesaid circumstances, it is not a case where the proviso to Section 11A(1) of the Act could be invoked inasmuch as there was neither any misrepresentation nor any misstatement for concealment of relevant facts on part of the appellants. - Decided in favour of assessee.

Issues:
1. Assessment of excise duty on a partnership firm after dissolution.
2. Liability of partners for duty on goods manufactured by the firm post-dissolution.
3. Validity of duty demand on partners under the Central Excise Act and relevant rules.
4. Applicability of Notification No. 76/86 CE to the goods in question.
5. Imposition of penalty and redemption fine.
6. Limitation period for issuing show cause notice.

Analysis:

1. Assessment of Excise Duty on a Partnership Firm after Dissolution:
The case involved the assessment of excise duty on a partnership firm, M/s SJA, after its dissolution. The appellant argued that there were no provisions in the Central Excise Act for assessing duty on a dissolved partnership firm. They relied on previous legal decisions to support their stance. The Commissioner had confirmed a demand for duty against the erstwhile partners of the firm. The Tribunal, however, differed in opinion on this issue, leading to further appeals.

2. Liability of Partners for Duty on Goods Manufactured Post-Dissolution:
The key question raised was whether partners of a dissolved firm could be held liable for duty on goods manufactured post-dissolution. The Tribunal's Member (Judicial) opined that duty demand on partners for goods manufactured after dissolution was not valid unless the dissolution was unlawful or fraudulent. On the other hand, the Member (Technical) held partners liable for duty even after dissolution. The President concurred with the Member (Technical) based on a previous Tribunal decision.

3. Validity of Duty Demand under Central Excise Act:
The show cause notice issued to the appellant was challenged on the grounds of limitation. The Supreme Court found that the notice was time-barred as the Department had not taken action on the appellant's earlier declaration seeking exemption from duty. The proviso to Section 11A(1) of the Act could not be invoked due to the absence of misrepresentation or concealment of facts by the appellants.

4. Applicability of Notification No. 76/86 CE:
The issue of whether the goods manufactured by M/s SJA were entitled to the benefit of Notification No. 76/86 CE was raised. The Tribunal did not provide a clear finding on this aspect, but the Supreme Court did not delve into this issue as the appeals were allowed on other grounds.

5. Imposition of Penalty and Redemption Fine:
The Commissioner had imposed penalties on the appellant and M/s Hotel Rajputana Sheraton. The Tribunal had varied decisions on penalties and redemption fines. However, the Supreme Court did not delve into this aspect as the appeals were allowed on the limitation ground.

6. Limitation Period for Issuing Show Cause Notice:
The Supreme Court primarily allowed the appeals on the basis that the show cause notice was time-barred. The Department's invocation of the extended period of limitation was deemed impermissible as the appellants had acted in good faith and had previously sought clarification on duty exemption, which was not acted upon by the Central Excise Department.

In conclusion, the Supreme Court allowed the appeals solely on the ground of the show cause notice being beyond the limitation period, emphasizing the appellants' good faith actions and the absence of misrepresentation. The judgment did not delve into the merits of the case but focused on the procedural aspect of limitation.

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