2005 (4) TMI 66 - SC - Central Excise

Whether, in the facts and circumstances of this case, the Tribunal was justified in upholding the order of the commissioner dated 28-4-1998 with respect to (a) the excisability of the kimam and classification thereof under sub-heading 2404.49 prior to 23-7-1996 and under sub-heading 2404.40 w.e.f. 23-7-1996; (b) rationale for invoking the extended period of limitation under the proviso to section 11A(1); and (c) eligibility for the benefit of proforma/modvat credit in respect of the chewing tobacco kimam, is the question which arises for determination in these civil appeals filed by the appellant-assessee under section 35-L(b) of the Central Excise Act, 1944? Held that - the adjudication in this case was confined to the question of excisability and concealment of the existence of two units in which the compound (kimam) was manufactured. No explanation has been given by the assessee for not disclosing the affairs of these units, particularly when the assessee was in business for couple of years and when the assessee had been dealing with other traders who operated from licensed factories. It was for the assessee to explain the reasons for not getting the units registered or licensed. It was for the assessee to explain its failure to maintain the records under the 1944 Act and rules thereunder. In this connection, no evidence was put before the commissioner about receipt and utilization of the compound in the manufacture of Tulsi Zafrani Zarda. No evidence was led to show that the amount of proforma/modvat credits was equal to the duty demanded, although it was urged that after 3/94, the liability to duty on inputs stood shifted to the final product. A right to claim proforma/modvat credit against duty on final product was different from the defence of bonafides in a case where circumstances mentioned in the proviso to section 11A(1) stands proved by the department for invoking larger period of limitation. The burden to prove the defence of bonafides was on the assessee and the assessee in this case has failed to prove its bonafides. Under modvat, excisable finished products made out of duty-paid inputs are given relief of excise duty to the extent of duty paid on inputs. In the circumstances, we are satisfied that the department was justified in invoking the extended period of limitation under the proviso to Section 11A(1). .On the applicability of the Notification No. 121/94, dated 11-8-1994, the tribunal remanded the case back to the commissioner for re-examination of the limited question of its applicability. The tribunal also directed the commissioner to reconsider the quantum of penalty, fine etc. in the light of its findings on the applicability of the said notification. We do not wish to express any opinion on the applicability of the notification dated 11-8-1994. Civil appeals filed by the assessees are dismissed

Issues Involved:
1. Excisability and classification of the compound (kimam).
2. Rationale for invoking the extended period of limitation under the proviso to Section 11A(1).
3. Eligibility for the benefit of proforma/modvat credit.
4. Applicability of Notification No. 121/94-C.E., dated 11-8-1994.

Detailed Analysis:

Excisability and Classification:
The main contention of the assessee was that the compound (kimam) was neither chewing tobacco nor a preparation for chewing tobacco under chapter sub-heading 2404.49 prior to 23-7-1996 and under 2404.40 w.e.f. 23-7-1996. The assessee argued that the compound was not edible or consumable and was made using a secret formula, with the entire production being captively consumed by their three factories.

The court found no merit in these submissions. It emphasized that marketability is an attribute of manufacture and is essential for charging duty. The product must be marketable in the condition in which it emerges. The court cited previous judgments to support this view, including Moti Laminates Pvt Ltd v. Collector of Central Excise, Ahmedabad, Union of India v. Delhi Cloth & General Mills Co. Ltd., and Cadila Laboratories Pvt Ltd. v. Commissioner of Central Excise, Vadodara.

Applying these tests, the court found that the compound (kimam) was a distinct, identifiable product known to the market. The assessee admitted that the compound was not edible but was used as a preparation in the manufacture of Tulsi Zafrani Zarda, a branded chewing tobacco. The court concluded that the compound (kimam) was marketable and classifiable as chewing tobacco or a preparation for chewing tobacco under chapter sub-heading 2404.49/2404.40.

Rationale for Invoking the Extended Period of Limitation:
The investigation focused on the excisability, manufacture, and clearance of the compound (kimam) without payment of duty from the two unlicensed units at 96, Okhla Industrial Estate, Phase-III, New Delhi, and E-1, Maharani Bagh, New Delhi. The court noted that the assessee was in the business of manufacturing Tulsi Zafrani Zarda for several years and bought similar compounds from the market from time to time. Other traders who produced similar compounds had their units licensed or registered and maintained records in accordance with the rules.

The assessee, however, did not disclose the existence of their units, did not get them licensed or registered, and did not maintain any records under the excise law. The court found that these circumstances constituted evidence of suppression, justifying the invocation of the extended period of limitation.

Eligibility for Proforma/Modvat Credit:
The assessee argued that they were under a bona fide impression that no duty was leviable on the goods and that the full quantity of disputed goods was used captively, making proforma credit/Modvat credit available. The court, however, found no merit in these submissions. It emphasized that the words "wilfulness" and "intent" in Section 11A are expressions of mental state at the time of manufacture and clearance of the goods.

The court noted that the assessee had been in business for several years and had dealt with other traders who operated from licensed factories. The assessee failed to explain the reasons for not getting the units registered or licensed and for not maintaining records under the 1944 Act and rules. The court concluded that the department was justified in invoking the extended period of limitation under the proviso to Section 11A(1).

Applicability of Notification No. 121/94-C.E., dated 11-8-1994:
The tribunal remanded the case back to the commissioner for re-examination of the limited question of the applicability of Notification No. 121/94-C.E., dated 11-8-1994. The tribunal also directed the commissioner to reconsider the quantum of penalty, fine, etc., in light of its findings on the applicability of the notification. The court did not express any opinion on the applicability of the notification but upheld the tribunal's judgment on the issues of excisability and clandestine manufacture and removal of the compound (kimam).

Conclusion:
The civil appeals filed by the assessee were dismissed with no order as to costs. The court upheld the tribunal's judgment on the excisability and classification of the compound (kimam), the rationale for invoking the extended period of limitation, and the inadmissibility of proforma/modvat credit. The case was remanded to the commissioner for re-examination of the applicability of Notification No. 121/94-C.E., dated 11-8-1994.

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