2024 (5) TMI 1194 - HC - Central Excise

Scope of SCN - Extended period of Limitation - process of manufacture was not disclosed and that it came to the knowledge of the Department only when the officers visited the premises of the Appellant - around half of the processes undertaken were by machinery and were not manual, which was never the case made out in the SCN - suppression of facts or not - HELD THAT - When the issue is to be decided in this appeal is not with reference to valuation per se but with reference to the validity of the show-cause notice the order-in-original as well as the decision of the Tribunal, this Court is not precluded from entertaining this appeal as the grounds canvassed before the adjudicating authority as well as the Tribunal was not on the valuation issue per se but with regard to the scope of the show cause notice, whether the extended period of limitation could have been invoked and the correctness of the decision arrived at by the adjudicating authority. Therefore, this appeal is maintainable before this Court. In no uncertain terms, the appellant/assessee informed the department that they will be availing exemption under notification dated 10.02.1986 in respect to the products manufactured by them, which are handicrafts in the light of the circular issued by the Board. On receipt of the said communication, the department addressed a letter to the appellant/assessee dated 25.03.2004 seeking certain clarification as regards applicability of the circular issued by the Board. The assessee by reply dated 13.04.2004 set out in detail as to how their stand taken in their letter dated 16.03.2004 was justified. There was no further response from the department and the assessee appears to have been availing the benefit of the exemption notification. However, on a perusal of the order-in-original dated 29.01.2007, it is seen that adjudicating authority proceeded beyond the scope of show-cause notice. In fact, the allegations contained in the show-cause notice have not been the basis for the decision arrived at and the decision was solely based upon an inspection stated to have been conducted in the business premises of the assessee that to after the reply was submitted by the assessee. Extended period of limitation - suppression of facts or not - HELD THAT - The department should have material to come to a conclusion that there has been a misdeclaration or a willful misstatement which should be coupled with the intention to evade payment of duty. In the absence of material to establish the same, would not entitle the department to invoke the extended period of limitation. In other words, mere use of these expressions would not be sufficient as there should be material available with the department which should be manifest in the show cause notice as to how in the prima facie view of the department there was misdeclaration, misstatement with intention to evade payment of duty. This being conspicuously absent, it has to be necessarily held that the department could not have been invoked the extended period of limitation. The order passed by the learned Tribunal as well as the adjudicating authority and the show-cause notice are set aside and the substantial questions of law are answered in favour of the appellant/assessee - Appeal allowed.

Summary

Issues:
- Scope of show-cause notice and order-in-original
- Maintainability of appeal before the High Court
- Validity of extended period of limitation invoked by the department

Scope of show-cause notice and order-in-original:
The appellant challenged the Tribunal's order under Section 35G of the Central Excise Act, 1944, questioning the Tribunal's findings beyond the scope of the show-cause notice (SCN) and the Order-in-Original. The appellant contended that the Tribunal erred in concluding that the manufacturing process was undisclosed until a departmental visit. Additionally, the Tribunal's decision on the proportion of manual versus machinery processes deviated from the SCN. The High Court emphasized the importance of adjudicating within the confines of the SCN and Order-in-Original to ensure procedural fairness and adherence to natural justice principles.

Maintainability of appeal before the High Court:
The respondent raised a preliminary objection on the appeal's maintainability, arguing that the issue pertained to the classification for excise duty exemption eligibility. Citing precedents, the High Court clarified that the appeal's maintainability hinges on the impugned order's nature. Rulings in similar cases highlighted that High Courts can entertain appeals concerning the validity of orders rather than valuation or duty-related issues. The Court distinguished between challenges to the order's nature and challenges related to valuation or duty payment, affirming the appeal's maintainability.

Validity of extended period of limitation:
The department issued a show-cause notice alleging duty evasion based on the appellant's delayed claim for excise duty exemption. The appellant refuted these claims, citing precedents to challenge the department's invocation of the extended period of limitation. The Court emphasized that mere allegations of misdeclaration or intent to evade duty are insufficient without substantive evidence. The department must demonstrate willful misstatement coupled with an intention to evade duty to justify invoking the extended limitation period. As the department failed to substantiate these claims, the High Court allowed the appeal, setting aside the Tribunal's order and the show-cause notice in favor of the appellant/assessee.