2025 (2) TMI 741 - AT - Central Excise

Area Based Exemption - Denial of benefit of central excise duty exemption under N/N. 01/2011-CE dated 01.03.2011 as amended by Notification dated 17.03.2012 - Invocation of extended period of limitation - suppression of facts or not - whether the provisions of section 11A(4) of the Central Excise Act dealing with the invocation of the extended period of limitation could have been invoked? - HELD THAT - In the present case all that has been stated in the show cause notice regarding invocation of the extended period of limitation is that the appellant wrongly availed the benefit of the Exemption Notification deliberately with the sole intent to evade payment of central excise duty. The Commissioner also held that there was an intent to evade payment of central excise duty merely because the benefit of the Exemption Notification was wrongly availed - Mere wrong availment of an Exemption Notification would not lead to a conclusion that it was with an intent to evade payment of central excise duty unless the department is able to not only allege but substantiate that the said suppression was deliberate with an intent to evade payment of central excise duty. The provisions of section 11A of the Central Excise Act as it then stood came up for interpretation before the Supreme Court in Pushpam Pharmaceuticals Company vs. Collector of Central Excise Bombay 1995 (3) TMI 100 - SUPREME COURT . The Supreme Court observed that the proviso to section 11A empowers the Department to reopen the proceedings if levy has been short levied or not levied within six months from the relevant date but the proviso carves out an exception and permits the authority to exercise this power within five years from the relevant date in the circumstances mentioned in the proviso one of which is suppression of facts. It is in this context that the Supreme Court observed that the act must be deliberate to escape payment of duty. In Easland Combines Coimbatore vs. Collector of Central Excise Coimbatore 2003 (1) TMI 107 - SUPREME COURT the Supreme Court observed that for invoking the extended period of limitation duty should not have been paid because of fraud collusion wilful statement suppression of fact or contravention of any provision. These ingredients postulate a positive act and therefore mere failure to pay duty which is not due to fraud collusion or wilful misstatement or suppression of facts is not sufficient to attract the extended period of limitation. It is therefore clear that the suppression of facts should be deliberate and in taxation laws it can have only one meaning namely that the correct information was not disclosed deliberately to escape payment of duty. The show cause notice issued to the appellant however merely mentions that the appellant wrongly availed the benefit of the Exemption Notification with intent to evade payment of central excise duty. It does not elaborate why the appellant intended to evade payment of duty - in the absence of any intent by the appellant to evade payment of service the extended period of limitation under section 11A(4) of the Central Excise Act could not have been invoked. The contention of the appellant is also that it bona fide believed that it was entitled to avail the benefit of the Exemption Notification and it cannot be said that the belief of the appellant is mala fide merely because it may ultimately be held that the appellant is not entitled to the benefit of the Exemption Notification. This contention deserves to be accepted. It also needs to be noticed that in the present case three Audits had been conducted. The first Audit was conducted in March 2016 for the period from April 2011 to March 2015. All the relevant facts were disclosed by the appellant and even otherwise the Audit Team could have required the appellant to provide all the information. No infirmity was found by the Audit Team and the Audit Team gave a Fair Audit Report to the appellant - The Department therefore cannot allege that the appellant had suppressed any facts. The show cause notice could have been issued within the normal period contemplated under section 11A(1) of the Central Excise Act but it was issued only on 26.06.2020. The appellant had also been regularly filing the excise returns. The Commissioner observed that mere filing of the returns does not mean any kind of approval or validation by the department since in an era of self-assessment the party has to correctly disclose the facts. Conclusion - The extended period of the limitation could not have been invoked in the facts and circumstances of the case. The entire period covered under the show cause notice is for the extended period of limitation. The impugned order would therefore have to be set aside for the sole reason that the extended period of limitation contemplated under section 11A(4) of the Central Excise Act could not have been invoked. The impugned order dated 30.09.2021 passed by the Commissioner is accordingly set aside and the appeal is allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

• Whether the appellant was entitled to the benefit of the central excise duty exemption under Notification No. 01/2011-CE dated 01.03.2011, as amended.
• Whether the extended period of limitation under section 11A(4) of the Central Excise Act, 1944, was correctly invoked for the demand of central excise duty.

ISSUE-WISE DETAILED ANALYSIS

1. Entitlement to Exemption Notification

• Relevant Legal Framework and Precedents: The appellant claimed the benefit of the Exemption Notification, which was contested by the department on the grounds that the appellant's products did not qualify under the notification.
• Court's Interpretation and Reasoning: The Commissioner held that the appellant's products, specifically food/health supplements, did not qualify as 'food' under the notification, thus denying the exemption.
• Key Evidence and Findings: The Commissioner relied on the nature of the products and their classification under the Central Excise Tariff Act, 1985.
• Application of Law to Facts: The products were assessed against the description and conditions of the notification, leading to the conclusion that they were not eligible.
• Treatment of Competing Arguments: The appellant argued that their products were covered under the notification, but the Commissioner found this interpretation to be a misapplication of the notification's terms.
• Conclusions: The exemption was not applicable to the appellant's products.

2. Invocation of Extended Period of Limitation

• Relevant Legal Framework and Precedents: Section 11A(4) of the Central Excise Act allows for an extended limitation period in cases of fraud, collusion, wilful misstatement, suppression of facts, or contravention of provisions with intent to evade duty.
• Court's Interpretation and Reasoning: The Tribunal focused on whether the appellant's actions constituted deliberate suppression of facts or intent to evade duty.
• Key Evidence and Findings: The appellant had undergone multiple audits where relevant documents were provided, and no issues were flagged by the audit teams.
• Application of Law to Facts: The Tribunal found that mere non-payment or incorrect availment of exemption does not automatically imply intent to evade duty. The appellant's belief in their entitlement to the exemption was considered bona fide.
• Treatment of Competing Arguments: The department argued that the appellant's actions were deliberate, while the appellant contended that there was no intent to evade duty, as evidenced by their transparency during audits.
• Conclusions: The extended period of limitation was not applicable as there was no deliberate suppression of facts or intent to evade duty.

SIGNIFICANT HOLDINGS

• The Tribunal held that the extended period of limitation under section 11A(4) of the Central Excise Act could not be invoked as there was no evidence of deliberate suppression or intent to evade duty by the appellant.
• It emphasized that the burden of proving suppression with intent to evade duty lies with the department, which was not met in this case.
• The Tribunal noted that the appellant's actions were consistent with a bona fide belief in their entitlement to the exemption, and mere incorrect availment does not equate to intent to evade duty.
• The Tribunal set aside the impugned order on the grounds of improper invocation of the extended period of limitation, without needing to address the merits of the exemption claim.