2018 (9) TMI 1202 - HC - Central Excise

Time Limitation - Whether the demand of duty under the extended proviso to Section 11A(1) of the Central Excise Act 1944 and consequential penalties under Section 11AC of the Act on the assessee and under Rule 209A of the Central Excise Rule 1944 and on the supplier M/s.Bush Boake Allen India Limited as well as demand of appropriate interest under Section 11ab of the Act, is barred by limitation? Held that - There is no infirmity in the order passed by the Tribunal, as there was no malafide pleaded by the appellant, in the show cause notice dated 03.01.2001 against the 1st respondent, to suppress the fact before the authority and ought to have made such statement to lead the Department to hold that the 1st respondent had intention to cause evasion of duty. Apart from that it could be seen from the records that only after the Hon ble Supreme Court dismissed the department appeal in 1997, the 1st respondent had voluntarily applied for excise registration and only thereafter, the factory premises were inspected by the Department. In fact, though the 1st respondent had applied for registration during July 1997, which period itself, the factory premises were inspected by the Department and thereafter, only, the preventive department officials have inspected the respondent premises, i.e. 25 months after registration, and thereafter, 17 months later, the show cause notice dated 03.01.2001 came to be issued against the 1st respondent. It is clear from the plain reading of Section 11A, the Central Excise Officer shall, within 2 year from the relevant date, serve notice on the person chargeable with the duty which has not been so levied or paid or which has been so short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice. In fact, the said two years period of limitation was substituted with effect from 14.05.2016 and prior to that, it was only one year - The show case notice dated 03.01.2001 sent, is belated from the date of registration with the department, during the month of 1997 itself, and therefore, the action of the department is time barred. The authorities have neither pleaded malafide nor suppression in the show cause notice, and moreover acted belatedly, against the 1st respondent. Appeal dismissed.

Summary

Issues Involved:
1. Whether the demand of duty under the extended proviso to Section 11A(1) of the Central Excise Act 1944 and consequential penalties is barred by limitation.
2. Whether the assessee's ignorance of law amounts to suppression within the meaning of proviso to Section 11A(1) of the Central Excise Act.
3. Whether the Tribunal's finding that there is no malafide in the show cause notice and confusion of classification persisted in the industry is correct.

Issue-wise Detailed Analysis:

1. Limitation on Demand of Duty and Penalties:
The appellant argued that the 1st respondent registered with the department only on 19.06.1997 and started paying duty from that date. The demand for duty was made for the period from 16.03.1995 to 18.06.1997, based on the insertion of Chapter Note 7 to Chapter 21 from 16.03.1995. The show cause notice dated 03.01.2001 demanded duty of ?1,55,456/- under proviso to Section 11A(1) of the Central Excise Act, 1944. The Tribunal found that the claim made by the department was time-barred as the notice was issued much later than the period of limitation prescribed under Section 11A, which was one year at the relevant time. The court upheld this finding, noting that the show cause notice was issued belatedly and was thus time-barred.

2. Ignorance of Law and Suppression:
The appellant contended that the 1st respondent's failure to register and pay duty amounted to suppression of facts. However, the 1st respondent explained that there was confusion in the industry regarding the classification of food colour preparations, influenced by disputes and guidance from other companies. The Tribunal held that there was no malafide intention or willful suppression by the 1st respondent. The court agreed, emphasizing that the show cause notice did not explicitly state any malafide intentions or suppression, and the confusion in the industry was a valid reason for the 1st respondent's actions.

3. Tribunal’s Finding on Malafide and Industry Confusion:
The Tribunal found that the confusion in the industry regarding the classification of food colour preparations under Chapter 21 or Chapter 32 of the Central Excise Tariff Act, 1985, led to the 1st respondent's belief that their activities did not amount to manufacture. This confusion was resolved only after the CEGAT and Supreme Court judgments confirmed the classification under Chapter 21. The court upheld the Tribunal's finding, noting that the absence of specific allegations of malafide in the show cause notice and the industry's confusion justified the 1st respondent's actions.

Conclusion:
The court dismissed the appeal, finding no infirmity in the Tribunal's order. The demand for duty was time-barred, and there was no evidence of malafide intention or willful suppression by the 1st respondent. The confusion in the industry regarding the classification of food colour preparations was a valid reason for the 1st respondent's actions, and the extended period for demand under Section 11A(1) was not applicable.