2023 (8) TMI 791 - HC - Central Excise

Extended period of limitation - penalty - items supplied are finished goods or not - correctness of remanding the case - HELD THAT - The issue as to whether the items being supplied by the assessee to KEL are fully finished goods or not does not appear to have been specifically dealt with by the Commissioner in his order which was challenged before the Tribunal - there are no error in the decision of the Tribunal in remitting the matter back to the Commissioner to examine this aspect. The view of the Tribunal also agreed upon that the longer period of limitation under proviso to Section 11A(1) cannot be invoked nor can the department invoke penalty under Section 11AC when there is a doubt as to whether the items being supplied by the assessee to KEL are semi-finished or fully finished products. This is because if such a doubt exists then the assessee cannot be accused of committing any fraud collusion or making any willful misstatement or suppression of facts or can it be accused of contravention of any of the provisions of this Act in which situations only the extended period of limitation can be applied - When there is no intention to evade payment of duty by the assessee because of a doubt entertained by the assessee the extended period of limitation under the proviso to Section 11A(1) cannot be invoked. There are no merit in the appeal and the same is accordingly dismissed.

Summary

Issues involved:
The appeal by Revenue challenging final order in Excise Appeal, assessee challenging Order-in-Original, manufacturing of new product, liability to pay Central Excise duty, contention on machine rotors, invocation of extended period of limitation, imposition of duty or penalty, findings on finished goods, remand to Original Adjudicating Authority, correspondence regarding semi-finished/raw material, de-novo adjudication, confirmation of duty demand, imposition of penalty, questions to be considered.

Manufacturing of New Product and Liability to Pay Central Excise Duty:
The assessee had a manufacturing unit in Himachal Pradesh and was engaged by M/s Khaitan Electricals Ltd. to make stamping rotors, aluminum metal, and dies. The Commissioner had determined that the assessee was manufacturing a new product with distinct identity and character, which was marketable, and thus liable to pay Central Excise duty. However, the assessee contended before the CESTAT that the machine rotors prepared for KEL were not fully finished goods and required further processing before being used in electrical fans. The Tribunal found that the Commissioner's order lacked findings on whether the items supplied were fully finished goods, leading to a remand for further examination by the Original Adjudicating Authority.

Invocation of Extended Period of Limitation and Imposition of Penalty:
The Tribunal held that there was doubt regarding whether the items supplied were semi-finished or fully finished products, and thus, the extended period of limitation under Section 11A(1) could not be invoked. Correspondence between the assessee, Department, and KEL supported this position, leading to the conclusion that penalty under Section 11AC could not be imposed. The Tribunal emphasized the need for de-novo adjudication by the Commissioner to determine if the process resulted in marketable goods subject to duty demand within the normal limitation period.

Remand to Original Adjudicating Authority and Observations on Finished Goods:
The Department challenged the Tribunal's decision to remand the matter, arguing that the items prepared by the assessee were marketable. However, the Tribunal was convinced by the assessee's submission that the goods were not fully finished products but intermediate items requiring further processing. As the Commissioner's order did not address this specific aspect, the Tribunal's decision to remand for a fresh examination was deemed appropriate by the High Court.

Decision on Extended Period of Limitation and Penalty Imposition:
The High Court upheld the Tribunal's decision, stating that in cases where doubt existed regarding the nature of supplied goods, the extended period of limitation could not be invoked. The absence of intent to evade duty due to such doubt precluded the application of the proviso to Section 11A(1). Consequently, the appeal by the Department was dismissed, affirming the Tribunal's findings and disposing of any pending applications accordingly.