2022 (4) TMI 70 - HC - Central Excise

Demerger/amalgamation of unit - Liability of predecessor / successor - Extended Period of limitation - Failure to make proper invoices indicating the amounts to be paid towards the central excise duty - Contravention of provisions contained in Rule 11 of the Central Excise Rules, 2002 - failure to file the monthly return within the prescribed time - contravention of Rule 12 of Central Excise Rules, 2002 - HELD THAT - The impugned Show cause notice has been issued on 31st December 2018, raising duty demand for the period December 2013 to March 2014. This is beyond the normal period of limitation of two years prescribed under Section 11A(1) of the Central Excise Act, 1944. The Extended/longer period of limitation of 5 years has been prescribed under Section 11A(4) of the Central Excise Act, 1944. The extended period of limitation of 5 years, applies when the duty of excise had not been levied or paid or short levied or short-paid by reason of either fraud or collusion or wilful misstatement or suppression of facts or contravention of any provisions of the Act or the Rules made thereunder with an intent to evade payment of duty - If in a given case, ex-facie, the ingredients for invoking the extended period of limitation are not attracted based on the very averments in the show cause notice, the notice would be ex-facie barred by limitation - It is now well settled that the question of limitation is a question of jurisdiction. In STATE OF PUNJAB VERSUS BHATINDA DISTRICT CO-OP. MILK P. UNION LTD. 2007 (10) TMI 300 - SUPREME COURT the Supreme Court held that the question of limitation being a jurisdictional question, a writ petition challenging the validity of a notice of revision of an order of assessment of sales tax, on the ground of the same being barred by limitation, would be maintainable, notwithstanding availability of an alternative statutory remedy. Thus, in the case on hand, the facts are not in dispute. A pure question of law is to be decided based on the very averments made by the Respondent in the show cause notice. Therefore, the present writ application could be said to be maintainable. Jurisdiction of the Central Excise authorities to question the legality and validity of the scheme approved by the High Court - HELD THAT - In the present case, the Central Government was a party to the scheme through the Office of the Regional Director, Ministry of Corporate Affairs, Western Region Mumbai. Thus, the respondent No. 1 was aware of the Scheme at all times. Once, the Scheme has been approved by the High Court and has attained finality, the Respondent is now barred to raise any objection to the said scheme in the present proceeding. Absence of mandatory pre-show cause notice consultation is fatal to the present SCN - HELD THAT - Merely because in the present case, the case originated on account of investigation of the DGGI will not be a sufficient ground for not following the mandatory procedure prescribed by the Board which is binding on the department. Therefore, it was mandatory for the adjudicating authority in the present case to conduct the pre-show cause notice consultation and in absence of the same the present proceedings could be said to be bad in law and deserves to be quashed and set aside. The Central Excise Department could be said to be aware of the fact that the new entity applied for registration in April 2014. The department could also be said to be aware of the fact that for the earlier period (F. Y. 2013-14), the old registration continued and the old entity i.e. the predecessor had issued invoices and filed monthly ER-1 return for the factory with the department for F. Y. 2013-14. It was within the knowledge of the department that the dispatches and payment of duty for the F. Y. 2013-14 had been done by the Larsen Toubro. The writ applicant herein also applied for the transfer of the CENVAT Credit balance on 30th June 2014 and the same was allowed vide the order-inoriginal dated 30th April 2015 - we fail to understand why the department did not raise any objection as early as in the month of April or May 2014 itself. The writ applicants could be said to have had a bonafide belief and that since the predecessor has discharged the excise duty liability wherever applicable and complied with the central excise provisions like issuing the invoice and filing of returns during the period in dispute, the writ applicant itself is not required to do so in its own name. Also, in terms of the Clause 4.5(a), the excise registration in the name of the predecessor stood vested in name of the writ applicant automatically and without anything more. Hence, none of the ingredients of Section 11A(4) are applicable to the present case. The Revenue received the duty on the very same dispatches covered under the Annexure A to the show cause notice at the time of initial clearance by the predecessor. Whether it be predecessor or successor, the excise duty liability is identified to both. There is no difference in the excise duty or interest in the present matter. There is no claim by anybody (including in particular by the predecessor) for any refund of duties already paid by the predecessor). Hence, the duty paid by predecessor ought to have been adjusted against the central excise duty, if any, payable by the writ applicant. Declining to do so, would lead to double taxation of the same transaction clearly impermissible. Demand of Excise Duty of ₹ 96,20,02,091/- - goods cleared availing the benefit of exemption vide Sl. No. 336 of Notification No.12/2012-CE dated 17th March 2012. as detailed in Annexure B to the show cause notice - HELD THAT - During the Financial year 2013 2014 also, the predecessor i.e., the Larsen Toubro supplied goods against the very same ICB contracts by availing exemption and cleared the goods without payment of the central excise duty. This is evident from the Excise Invoice No. 1000003536 dated 4th March 2014 (Annexure-4 of Rejoinder affidavit) issued by the predecessor against the Contract Note No.300068 dated 31st December 2012. This invoice is part of the Annexure B to the present show cause notice. However, the department has now raised the present demand in respect of the goods supplied against the very same ICB contracts during the F. Y. 2013 2014 - thus the sole basis to demand the excise duty of ₹ 96,20,02,091/- is that the writ applicant should have issued the invoice instead of the predecessor i.e., Larsen Toubro Ltd. The present impugned notice is raising excise duty demand on the very same goods on which the duty has already been paid by the L T (albeit at nil rate availing the exemption) and accepted by the department. This also is a clear case of double taxation in the sense that same goods are being subject to excise duty against two person which is impermissible - despite the appointed date being 1st April 2013, the supplies already affected by the predecessor L T Ltd. before 1st April 2013, to 16th January 2014 remain unaffected. Thus, without anything more, the registration granted by the central excise department to the predecessor Larsen Toubro Limited could be said to have automatically stood vested as a registration in favour of the writ applicant. The formal application made on 1st April 2014 by the writ applicant for fresh registration could be said to be a compliance of the procedural requirement out of the abundant caution and was an unnecessary step. It is more in the nature of intimation of the department to formally correct the name of the writ applicant in its record. Hence, the objection that the writ applicant has not taken a registration in its name prior to 1st April 2014 is also invalid. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Absence of pre-show cause notice consultation.
2. Applicability of the extended period of limitation under Section 11A(4) of the Central Excise Act, 1944.
3. Compliance with Central Excise laws by the predecessor entity.
4. Double taxation and procedural compliance.
5. Jurisdiction of Central Excise authorities to question the legality and validity of a scheme of demerger approved by the High Court.
6. Demand of excise duty on goods cleared under the International Competitive Bidding (ICB) contracts.

Detailed Analysis:

1. Absence of Pre-Show Cause Notice Consultation:
The court highlighted that the CBEC master circular No.1053/2/2017-CX dated 10th March 2017 mandates pre-show cause notice consultation for demands above ?50 lakhs. The respondents argued that the consultation was not required as the case originated from intelligence gathered by the DGGI, but the court rejected this argument, citing a recent clarification from the Board stating that the exclusion from pre-show cause notice consultation is case-specific, not formation-specific. The absence of this mandatory consultation rendered the show cause notice procedurally flawed.

2. Applicability of the Extended Period of Limitation:
The court examined whether the extended period of limitation under Section 11A(4) was applicable. The extended period can be invoked in cases of fraud, collusion, wilful misstatement, suppression of facts, or contravention of provisions with intent to evade duty. The court found that the writ applicants had a bona fide belief that compliance by the predecessor entity was sufficient, and there was no intent to evade duty. Therefore, the extended period of limitation was not applicable.

3. Compliance with Central Excise Laws by the Predecessor Entity:
The court noted that the predecessor entity, Larsen & Toubro Ltd., had complied with all Central Excise laws, including issuing invoices, paying duty, and filing returns. The writ applicants applied for new central excise registration upon demerger, and the predecessor continued to comply with excise laws until the effective date of the demerger. The court found no procedural breach by the predecessor or the writ applicants.

4. Double Taxation and Procedural Compliance:
The court observed that the demand of ?19,61,06,399/- was for goods cleared during December 2013 to March 2014, for which the predecessor had already paid the excise duty. Demanding the same duty from the successor entity would amount to double taxation, which is impermissible. The court emphasized that the duty paid by the predecessor should be adjusted against any duty payable by the successor.

5. Jurisdiction of Central Excise Authorities to Question the Legality and Validity of a Scheme of Demerger:
The court held that once a scheme of demerger is approved by the High Court, it has statutory force and becomes binding on statutory authorities. The Central Excise authorities cannot question the legality and validity of such a scheme. The court cited various judgments to support this view and concluded that the respondents were bound by the order of the Bombay High Court approving the scheme.

6. Demand of Excise Duty on Goods Cleared under ICB Contracts:
The court found that the goods supplied under ICB contracts were exempt from excise duty as per Notification No.12/2012-CE dated 17th March 2012. The predecessor had duly complied with the exemption notification, and the supplies made by the successor entity post-demerger were also exempt. The court held that the demand for excise duty on goods cleared under ICB contracts was baseless and amounted to double taxation.

Conclusion:
The court quashed and set aside the impugned show cause notices, finding them procedurally flawed, barred by limitation, and lacking jurisdiction. The court emphasized that compliance by the predecessor entity was sufficient and that the scheme of demerger approved by the High Court was binding on the Central Excise authorities.