2014 (6) TMI 1072 - HC - Central Excise

Process amounting to manufacture or not - what prompted the petitioner to surrender its registration as a dealer and switches over to apply for a registration as manufacturer? - suppression of facts or not. It is tried to be contended that since the identity of the manufacturer of the product is disclosed in the prescribed form, the dealer losses the future business because of the direct contact with the manufacturer. HELD THAT - If the petitioner stood firm on its contention that it does not amount to manufacturing activities, the conduct of surrendering the registration as a dealer and obtaining a fresh registration as manufacturer amounts to suppression of facts and percolating false statements to the statutory authority. If the petitioner's stand appears to be correct, the process which was undertaken amounts to manufacturing of new product for which the registration was subsequently obtained then it leaves no ambiguity in arriving at the inference that the process undertaken by the petitioner amounts to manufacture and the excise duty applicable to such activities are attracted. It leaves no room for doubt in my mind that the petitioner is prevaricating his stand which suits him to wriggle out from the provisions, which affects adversely. Had it been a case that the authority have raised a doubt and disputes over the process of dealing the material purchased by the petitioner, the proposition of law tired to be canvassed before this Court does not admit any quarrel. But in the instant case, the petitioner voluntarily approached the authority and surrendered his registration as a dealer and opted the registration as a manufacturer meaning thereby the petitioner itself treated the process to be a process of manufacture and, therefore, the authority has proceeded on the basis of the stand taken by the petitioner and issued the show-cause notice treating the transactions entered into during the relevant period when the petitioner held the registration as a dealer as manufacturing activities. It is not in dispute that the so called final product sold by the petitioner in the market is well-known as such and there is no dispute as was raised in the noted report involved in the instant case. The ratio which could be culled out therefrom is that the excise duty is payable on the final product known in the market which in my opinion is no longer res integra. The suppression signifies a conscious and deliberate act with an intention to gain something. Mere omission and failure to disclose cannot be brought within the expression suppression of fact . In the instant case, the petitioner made transaction of the caveatable inputs and passing of the CENVAT credits and did not disclose the identity as manufacture. Such disclosure came voluntarily after March 2009 when the petitioner applied for registration as manufacturer after surrendering the registration as dealer. The intention to gain by such suppression is manifest and, therefore, the authorities did not commit any infirmity and/or illegality applying the extended period as enshrined under Section 11A(4) of the Central Excise Act, 1944. Considering the conduct of the petitioner as shown before the authorities and the act by which the factum of manufacturing activities was suppressed during the period when the petitioner was having the dealer registration, this Court feels that the petitioner should be saddled with the costs to be paid to the department - the writ-petition is dismissed with exemplary costs assessed at Rs. 50,000/- to be paid within a week from date.

Summary

Issues Involved:
1. Whether the activities undertaken by the petitioner amounted to manufacturing.
2. Whether the petitioner's change from dealer to manufacturer registration was justified.
3. Whether the extended period of limitation for issuing a show-cause notice was applicable.

Detailed Analysis:

1. Whether the activities undertaken by the petitioner amounted to manufacturing:

The petitioner held a registration as a dealer with the Excise Department and later switched to a manufacturer registration. The petitioner contended that the activities undertaken did not amount to manufacturing and thus excise duty was not attracted. The court referred to the definition of 'manufacturer' under Section 2(f) of the Central Excise Act, 1944, which includes any process incidental or ancillary to the completion of a manufactured product. The court found that the transformation of goods by the petitioner constituted manufacturing, as the final product sold in the market was distinct and known as such. The petitioner's own actions of changing registration indicated an acknowledgment of engaging in manufacturing activities.

2. Whether the petitioner's change from dealer to manufacturer registration was justified:

The petitioner argued that the change was due to business reasons, such as the adverse impact on business activities due to the disclosure of the manufacturer's identity in prescribed forms. The court rejected this justification, stating that the petitioner's conduct of surrendering the dealer registration and obtaining a manufacturer registration amounted to suppression of facts and false statements to the statutory authority. The court emphasized that the petitioner's actions were inconsistent and aimed at evading the provisions adversely affecting them.

3. Whether the extended period of limitation for issuing a show-cause notice was applicable:

The petitioner contended that the extended period of limitation under Section 11A of the Central Excise Act, 1944, was not applicable as there was no positive act of suppression. The court referred to the Supreme Court judgment in Nestle India Limited v. Commissioner of Central Excise, Chandigarh, which held that extended limitation applies only with conscious or deliberate withholding of information. The court found that the petitioner's actions of not disclosing the manufacturing activities and later registering as a manufacturer constituted suppression of facts with intent to evade payment of duty. Thus, the authorities were justified in invoking the extended period of limitation.

Conclusion:

The court dismissed the writ petition, finding no grounds to interfere with the impugned order. The petitioner's conduct of switching registrations and the suppression of manufacturing activities justified the extended period of limitation. The petitioner was ordered to pay exemplary costs of Rs. 50,000 to the department and was granted an extension of four weeks to deposit the duty as directed by the Tribunal.