1999 (8) TMI 1006 - AT - Central Excise

Issues Involved:
1. Whether the appellants wilfully mis-stated or suppressed any material fact, thereby contravening Rule 173B with intent to evade duty.
2. Whether the imposition of penalty is barred by time since recovery of duty is barred by time under Section 11A.

Issue-Wise Detailed Analysis:

1. Wilful Misstatement or Suppression of Facts:
The appellants, manufacturers of dried cell batteries, were accused of wrongly availing the benefit of Notification No. 94/76-C.E. by classifying aluminium foil jacketed batteries as metal jacketed batteries. The show cause notice issued by the department raised a demand of Rs. 3,43,89,568.49, which was dropped on the technical ground of limitation as the demand was raised beyond the extended period of 5 years provided under Section 11A of the Central Excises and Salt Act, 1944. However, a penalty of Rs. 1 Crore was imposed under Rule 173Q(1) of Central Excise Rules, alleging deliberate suppression by the appellants.

The appellants argued that they had disclosed all relevant information in the classification lists filed under Rule 173B, including the fact that the batteries were jacketed with aluminium foil. They contended that the classification lists were verified and approved by the department, indicating no mala fide intent. The appellants relied on various judicial decisions to support their claim that providing incorrect information in the classification list does not attract penal provisions if the department had the opportunity to verify and modify the classification.

2. Imposition of Penalty and Time Bar:
The primary contention was whether the penalty could be imposed when the demand for duty was barred by time under Section 11A. The appellants argued that penalty proceedings are ancillary to the assessment proceedings and should be subject to the same limitation period. They cited judicial precedents to support their argument that penalty cannot be imposed if the demand for duty is time-barred.

The respondent argued that the appellants were fully aware that aluminium foil jacketed batteries did not qualify as metal jacketed batteries and that there was a deliberate attempt to evade duty. The respondent relied on statements of the appellants' officers and various judicial decisions to support the imposition of penalty, asserting that there is no time limit for imposing penalties under Rule 173Q.

Judgment Analysis:

Majority Opinion:
The majority held that there was no deliberate suppression by the appellants. It was noted that the classification lists were filed with full disclosure, including the fact that the batteries were jacketed with aluminium foil, and were verified and approved by the department. The majority relied on judicial precedents to conclude that providing incorrect information in the classification list does not constitute suppression if the department had the opportunity to verify and correct it. Consequently, the imposition of penalty was deemed unjustified, and the appeal was allowed with consequential relief to the appellants.

Separate Opinion by P.C. Jain:
P.C. Jain, Member (T), dissented, holding that the appellants wilfully mis-stated the description of goods as metal jacket batteries, knowing that they were not. He argued that the approval of the classification list by the department does not negate the wilful misstatement and suppression by the appellants. He further contended that the penalty under Rule 173Q(1)(d) is applicable even if the recovery of duty is barred by time under Section 11A, as the liability to duty remains, and the penalty is an independent liability.

Third Member's Opinion:
C.N.B. Nair, Member (T), focused on whether the imposition of penalty was time-barred. He concluded that penalty proceedings should be initiated within a reasonable time, which should not exceed the time limit for recovery of duty. He relied on the Supreme Court's decision in the HMM Ltd. case, which held that penalty cannot be imposed if the demand for duty is time-barred. Consequently, he concluded that the penalty proceedings in the instant case were time-barred, and the appeal should be allowed on this ground alone.

Final Order:
In view of the majority opinion, the impugned order was set aside, and the appeal was allowed with consequential relief to the appellants. The decision emphasized that penalty proceedings are subject to the same limitation period as the recovery of duty and cannot be sustained if the demand for duty is time-barred.

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