2018 (5) TMI 780 - HC - Central Excise

Extended period of limitation - suppression of facts - section 11A(1) of the Central Excise Act, 1944 - Whether the CESTAT erred in confirming the duty invoking the extended period of limitation when the finding on suppression by the CESTAT falls way short of the requirements of proviso to section 11A(1) of the Central Excise Act, 1944? Held that - There is a reference to the declarations made by the appellants for the years 1987- 88 to 1994 -95. In reply, a legislative history of classification of articles of plastic has been set out. It was pointed out in the reply that majority of the demand has been raised in respect of goods classified as battery parts. It was contended in the reply that so called battery parts are nothing but filters. It was contended that the same are made wholly out of plastic by using plastic granules. The appellants never declared manufacture or clearance of Plastic Spill, Proof Vent Plugs, Microporous Vent Plugs, Aqua Trap Vent Plugs etc. in their declarations. As regards clubbing, the Appellate Tribunal held that the appellants in these appeals are two different manufactures, but finished goods are produced using the machinery and product facilities in the unit of the appellant in appeal no. 196 of 2005. We must note here that even in the reply of the appellants in both the appeals to the show cause notice, this factual allegation is not disputed. Therefore, it was rightly held that the clearances are required to be aggregated in terms of the Notification No.1/93 CE. - on the aspect of clubbing, it is not possible to find fault with the finding. There is a specific allegation in the show cause notice that the goods actually manufactured were not declared which amounts to willful suppression of material facts with the intention of evading the duty on Battery parts. The show cause notice is based on what was revealed in the visit of the Preventive Section to the factories and investigation carried out thereafter. The Appellate Tribunal held that it was not merely a question of wrong classification, but it was a case of suppression. Appeal dismissed - decided against appellant.

Summary

Issues Involved:
1. Extended period of limitation under proviso to Section 11A(1) of the Central Excise Act, 1944.
2. Clubbing of clearances of two units for duty demand.

Detailed Analysis:

1. Extended Period of Limitation:
The primary issue was whether the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) erred in confirming the duty by invoking the extended period of limitation under the proviso to Section 11A(1) of the Central Excise Act, 1944, given that the finding on suppression by the CESTAT allegedly fell short of the requirements.

The appellants argued that there was no suppression of material facts with the intention of evading tax, relying on several Supreme Court decisions, including Cosmic Dye Chemical v. Collector of Central Excise, Pushpam Pharmaceuticals Company v. Collector of Central Excise, and Densons Pultretaknik v. Commissioner of Central Excise. They contended that the declarations made from time to time disclosed the manufacture of articles of plastic and that there was a common understanding with the Department regarding the classification under Chapter 39.

The show cause notice alleged that the appellants had not declared the manufacture of specific items such as Plastic Spill Proof Vent Plugs, Flame Retardant Microporous Vent Plugs, and others, which were used as battery parts, thus amounting to suppression of facts. The Commissioner and the Appellate Tribunal found that the appellants had not properly described these items in their declarations, justifying the invocation of the extended period of limitation.

The High Court upheld the findings of the Appellate Tribunal, agreeing that there was willful suppression of facts with the intent to evade duty, as the appellants did not disclose the manufacture of battery parts in their declarations.

2. Clubbing of Clearances:
The second issue was whether the CESTAT erred in demanding duty from both the appellant (M/s. Shansuk Industries) and M/s. Shankar Products after holding that the clearances of both units should be clubbed, contrary to the Supreme Court's decision in Gajanan Fabrics Distributors.

The show cause notice and subsequent findings indicated that M/s. Shandar Products only carried out the initial processes of pulverizing and sieving, while the further processes of molding, heating/sintering, and packing were conducted at M/s. Shansuk Industries. The Commissioner and the Appellate Tribunal found that the two units were functionally interdependent and did not operate as independent manufacturers.

The High Court agreed with the Appellate Tribunal's findings that the clearances should be aggregated in terms of Notification No.1/93-CE, as both units were not independent manufacturers. The Court noted that the appellants did not dispute the factual allegations of interdependency in their replies to the show cause notice.

Conclusion:
The High Court dismissed the appeals, finding no merit in the arguments presented by the appellants. The Court upheld the CESTAT's decision to invoke the extended period of limitation due to willful suppression of facts and confirmed the clubbing of clearances based on the functional interdependence of the two units.