2016 (5) TMI 1108 - HC - Central Excise

Validity of demand raised invoking Extended period of limitation in the Second Show Cause notice - Second SCN was issued for the earlier period than which was covered by the first SCN - Held that - Department was indeed aware of the fact that the Petitioner was clearing PAA, made from captively consumed BeCN cleared by paying nil duty and further that PAA was also being cleared upon payment of nil duty. The fact that it asked the Petitioner to reverse the MODVAT credit on inputs purchased from outside and the Petitioner complied, belies the Department s case to the contrary. Secondly, a comparison of the two SCNs shows that the second SCN for the extended earlier period 1st March 1986 till 31st December 1989 is a virtual repeat of the first SCN dated 19th February 1991 except for one paragraph extracted hereinbefore. This merely sets out the language of the proviso to Section 11 A (1) and makes no reference to material that was not already available with the Department when the first SCN was issued. In such circumstances, the ratio of the decision in Nizam Sugar Factory 2006 (4) TMI 127 - SUPREME COURT OF INDIA applies. - in the present case, the conditions for invoking the extended period of limitation in terms of the proviso to Section 11 A (1) of the CE Act were not fulfilled and that the demand raised in respect of the BeCN used in the manufacture of PAA for the extended period of 1st March 1986 till 31st December 1989 was barred by limitation. - Decided in favor of assessee.

Issues Involved:
1. Maintainability of the writ petition.
2. Invocation of the extended period of limitation under Section 11 A (1) of the Central Excise Act (CE Act).
3. Justification of demands raised in the Show Cause Notices (SCNs) dated 5th July 1990 and 19th February 1991.
4. Marketability and dutiability of Benzyl Chloride (BeCL) and Benzyl Cyanide (BeCN).
5. Entitlement to MODVAT credit.
6. Imposition of penalties.

Issue-wise Detailed Analysis:

1. Maintainability of the Writ Petition:
The Department raised a preliminary objection regarding the maintainability of W.P. (C) No. 3951 of 1998, arguing that the petitioner had an efficacious statutory remedy of an appeal before the Supreme Court under Section 35 L of the CE Act. However, the Court noted that the writ petition was admitted on 21st September 1999 after considering the question of maintainability. Given the long pendency and potential delay in resolution, the Court rejected the preliminary objection.

2. Invocation of the Extended Period of Limitation:
The main issue was whether the Department was justified in invoking the extended period of limitation under the proviso to Section 11 A (1) of the CE Act for the SCN dated 19th February 1991. The Court found that the Department was aware of the facts regarding the manufacture and clearance of PAA and the captive consumption of BeCL and BeCN. The Department had earlier directed the petitioner to reverse MODVAT credits, indicating its awareness. The Court concluded that there was no deliberate suppression or misstatement by the petitioner, and thus, the extended period of limitation was not justified.

3. Justification of Demands Raised in the SCNs:
The SCN dated 5th July 1990 demanded duty on BeCL and BeCN for the period 1st January to 31st March 1990, alleging that the petitioner wrongly availed exemptions. The SCN dated 19th February 1991 extended this demand to the period 1st March 1986 to 31st December 1989. The Court found that the Department's case was based on information already available and that the second SCN was a repetition of the first. The Court held that the demands for the extended period were barred by limitation.

4. Marketability and Dutiability of BeCL and BeCN:
The petitioner argued that BeCL and BeCN used captively were not marketable and thus not dutiable. The CEGAT had rejected this contention due to a lack of technical evidence. However, the Court noted that the Department had accepted gate passes and records indicating captive consumption and that the petitioner had complied with MODVAT credit reversals. The Court found no basis for treating the intermediate products as dutiable.

5. Entitlement to MODVAT Credit:
The CEGAT had restored the MODVAT credit taken by the petitioner, which was earlier reversed. The Court upheld this restoration, noting that the petitioner had complied with the Department's directions regarding MODVAT credits and that the inputs used in the manufacture of PAA were disclosed.

6. Imposition of Penalties:
The CCE had imposed a penalty of ?20 lakhs on the petitioner. Given the Court's findings that there was no deliberate suppression or misstatement and that the extended period of limitation was not justified, the penalty was set aside.

Conclusion:
The Court set aside the impugned order of the CEGAT dated 15th April 1998 (as corrected on 18th November 1999) and the corresponding order of the CCE dated 12th August 1991, to the extent they upheld the demand in respect of BeCN. The penalty of ?20 lakhs imposed by the CCE was also set aside. W.P. (C) No. 3951 of 1998 was allowed, and W.P. (C) No. 1926 of 2000 was dismissed as not pressed.

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