2009 (1) TMI 375 - HC - Central Excise

Whether Tribunal was right in accepting the plea of the assessee that provision of Section 11-A for extended period of limitation was not rightly invoked? - there was divergence of opinion amongst various High Courts whether crushing of bigger stones or boulders into smaller pieces amounts to manufacture. Accordingly, there was bona fide doubt as to whether or not such an activity could attract the payment of duty and the dealer-respondent did not apply for licence. Held that extended period of limitation of five years provided by the proviso to Section 11A would not be attracted to the facts and circumstances of the instant case.

Issues Involved:
1. Whether the Tribunal was right in accepting the plea of the assessee that the provision of Section 11-A for the extended period of limitation was not rightly invoked.
2. Whether in cases where the extended period of 5 years is not invokable under the proviso of Section 11-A of the Central Excise Act, 1944, demand even for the normal period of limitation is not valid.

Issue-wise Detailed Analysis:

Issue 1: Invocation of Extended Period of Limitation under Section 11-A
The revenue challenged the Tribunal's decision that the extended period of limitation under Section 11-A of the Central Excise Act, 1944, was not rightly invoked. The dealer-respondent was engaged in the manufacture of PCC Websole Panels and crushed aggregate stones without obtaining Central Excise Registration and without paying excise duty. The Tribunal had previously remanded the case for de novo adjudication on the marketability of the goods, the invocation of the extended period of limitation, and the applicability of a notification dated 20-3-1990.

The Tribunal's decision was based on the Supreme Court's interpretation in cases such as Cosmic Dye Chemical v. C.C.E., Bombay, and Jaiprakash Industries Ltd. v. C.C.E., where it was held that "mis-statement or suppression of fact must be wilful" to invoke the extended period of limitation. The Tribunal found that the respondent did not consider the activities of crushing boulders into bajri to be a manufacturing activity and thus did not apply for a license or pay excise duty. This was supported by the fact that there was a divergence of opinion among various High Courts on whether such activity amounted to manufacture, creating a bona fide doubt.

The Tribunal concluded that there was no evidence of wilful suppression of facts or intent to evade duty, thus the extended period of limitation of five years under the proviso to Section 11-A was not applicable. The High Court upheld this view, stating that the Tribunal had correctly applied the principles concerning the invocability of the proviso to Section 11-A.

Issue 2: Validity of Demand for Normal Period of Limitation
The revenue argued that even if the extended period of five years was not invokable, they should still be entitled to recover the amount within the normal period of limitation of six months. The show cause notice was issued on 31-3-1994, and the revenue contended that they should be allowed to recover duties for the period from 1-10-1993 to 31-3-1994.

The High Court agreed with this argument, stating that the levy of duty on the crushed stones and websoles manufactured by the dealer-respondent was legally recoverable for the period within the normal limitation. Therefore, the duty for the period from 1-10-1993 to 31-3-1994 was deemed recoverable from the dealer-respondent.

Conclusion
In conclusion, the High Court decided:
1. The first question against the revenue and in favor of the dealer-respondent, confirming that the extended period of limitation under Section 11-A was not applicable due to the absence of wilful suppression of facts.
2. The second question against the dealer-respondent and in favor of the revenue, allowing the recovery of duty for the period within the normal limitation of six months.

This judgment underscores the importance of establishing wilful suppression of facts to invoke the extended period of limitation and clarifies that the normal period of limitation remains valid for duty recovery even if the extended period is not applicable.

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