1989 (11) TMI 51 - HC - Central Excise

Summary

Issues Involved:

1. Whether the show cause notice was barred by limitation.
2. Whether the Assistant Collector was justified in revoking the approval granted to the petitioner earlier and demanding differential duty.

Detailed Analysis:

1. Limitation of Show Cause Notice:

The petitioner argued that the Department's finding of short-levy due to the failure to supply full information at the time the classification list was approved is unjustified. The petitioner had filed monthly returns in Form RT 12 and included invoices showing that the entire cement paint manufactured under the brand name 'Blucem' was supplied to M/s. Garware Paints. The petitioner contended that the Department could not invoke the proviso to Section 11A, which pertains to fraud, wilful mis-statement, or suppression of facts, as there was no suppression on their part. The petitioner also argued that the show cause notice lacked the necessary ingredients required under Section 11A proviso, citing the Supreme Court decision in *Collector of Central Excise v. M/s. Chemphar Drugs & Liniments* and the Bombay High Court decision in *Universal Auto Craft Ltd. v. Union of India*.

The Department, however, maintained that the petitioner did not disclose their agreement with M/s. Garware Paints Ltd. in the classification list, justifying the invocation of the proviso to Section 11A. The Department's counsel argued that the notice issued under the proviso to Section 11A was valid, as the petitioner had erroneously availed of the concessional rate of duty.

The court found that the show cause notice did not contain any allegations of suppression or mis-statement and thus did not meet the requirements of Section 11A proviso. The court concluded that the notice was defective and did not justify invoking the extended period of limitation.

2. Justification of Revoking Approval and Demanding Differential Duty:

The petitioner contended that the supply to M/s. Garware Paints Ltd. was on a principal-to-principal basis, supported by several clauses in the agreement. The petitioner relied on Supreme Court decisions in *Union of India v. Cibatui Limited* and *Union of India v. Play-world Electronics Private Limited*, which emphasized that the Department must establish that transactions were not on a principal-to-principal basis.

The Assistant Collector had concluded that the manufacture by the petitioner was 'for and on behalf of' M/s. Garware Paints Ltd., thereby denying the concessional rate under Notification No. 74/78 and demanding differential duty based on the price of M/s. Garware Paints Ltd. The Assistant Collector emphasized certain clauses in the agreement, such as minimum off-take, quality control, and financial arrangements, to justify his decision.

The court, however, found that the Assistant Collector's reliance on the phrase 'for and on behalf of' was misplaced and that there was no clear finding that the petitioner acted as an agent or contractor of the brand name owner. The court noted that the agreement was considered by the Assistant Collector, indicating that the necessary information was available to the Department at the time of the initial approval.

The court concluded that the Department failed to prove that the manufacture and supply were not on a principal-to-principal basis and that the Assistant Collector's order was based on irrelevant considerations. The court upheld the petitioner's case, finding that the Department was not justified in revoking the approval and demanding differential duty.

Conclusion:

The Writ Petition was allowed, and the order passed by the Assistant Collector was quashed. The petitioner was awarded costs of Rs. 1,000/-.