2025 (4) TMI 881 - AT - Central Excise

Calculation of Excise Duty - inclusion of total quantity of Washed coal and Middlings supplied to the JSPL plant as Washed coal so as to raise the differential demand of central excise duty - invocation of extended period of limitation. Inclusion of total quantity of Washed coal and Middlings supplied to the JSPL plant as Washed coal so as to raise the differential demand of central excise duty - HELD THAT - There is substance in the submission advance by the learned counsel for the appellant that till 24.03.2011 there was exemption available in respect of all coal raised in mines. It is thereafter that upon withdrawal of the exemption levy was introduced. This fact has been overlooked in the show cause notice as well as in the impugned order while confirming the demand raised for the quantity cleared in the month of March 2011. Even otherwise the Principal Commissioner could not have ignored the returns filed by the appellant before the Coal Controller. These returns clearly bifurcate the ROM coal Washed coal and Middlings. A conjoint reading of both the ER-1 returns and the returns filed before the Coal Controller leave no manner of doubt that the appellant had disclosed all the relevant facts. Invocation of Extended period of limitation - HELD THAT - In the present case the Principal Commissioner merely observed that since the appellant had not reflected the correct transaction value in the ER-1 returns the appellant suppressed material facts from the department and deliberately did not pay central excise duty on the appropriate transaction value of the coal extracted from mines. It needs to be pointed out that the appellant had according to it s wisdom and bona-fide belief reflected the correct transaction value. According to the appellant the value of Middlings was not be included in the value of Washed coal and therefore it cannot be alleged that merely because the value of Middlings was not included the appellant had suppressed facts with intention to evade payment of central excise duty. It would be pertinent to refer to the judgment of the Supreme Court in Commissioner of C. Ex. Customs vs. Reliance Industries Ltd. 2023 (7) TMI 196 - SUPREME COURT . The Supreme Court held that if an assessee bona-fide believes that it was correctly discharging duty then merely because the belief is ultimately found to be wrong by a judgment would not render such a belief of the assessee to be malafide. If a dispute relates to interpretation of legal provisions it would be totally unjustified to invoke the extended period of limitation. The Supreme Court further held that in any scheme of self-assessment it is the responsibility of the assessee to determine the liability correctly and this determination is required to be made on the basis of his own judgment and in a bona-fide manner. It is therefore clear that the appellant had not suppressed relevant facts from the department and in any case it cannot be alleged that suppression was with an intent to evade payment of duty. The extended period of limitation as contemplated under section 11A(4) of the Central Excise Act could not have been invoked in the facts and circumstances of the case. Conclusion - The show cause notice was issued on 08.04.2016. It pertains to the demand from March 2011 to March 2015. Except for the period of one month i.e. March 2015 the rest of the demand is for the extended period of limitation. Thus the demand for the period from March 2011 to February 2015 also deserves to be set aside as the extended period limitation could not have been invoked. It has also been found as a fact that central excise duty could not have been confirmed. Appeal allowed.

Summary

The core legal questions considered in this judgment are:

1. Whether the department was justified in treating the entire quantity of coal cleared to the related steel manufacturing unit, except the ROM coal cleared directly, as Washed coal and thereby raising a differential demand of central excise duty by ignoring the clearance of by-product Middlings separately.

2. Whether the extended period of limitation under section 11A(4) of the Central Excise Act, 1944 was rightly invoked by the department to recover alleged short-paid central excise duty for the period 2011-12 to 2014-15.

Issue-wise Detailed Analysis

Issue 1: Classification of Coal Clearances and Valuation for Central Excise Duty

Legal Framework and Precedents: The valuation of excisable goods captively consumed is governed by rule 8 of the Central Excise Valuation Rules, 2000, which requires assessable value to be computed at 110% of the cost of production determined as per CAS-4 prescribed by the Institute of Cost Accountants of India. The Central Excise Act, 1944 and the Central Excise Rules, 2002 regulate the filing of returns and payment of duty.

Court's Interpretation and Reasoning: The appellant, a captive coal mine, raised ROM coal which was either directly cleared to the steel manufacturing facility or subjected to washing to produce Washed coal, Middlings, and Rejects. The appellant paid duty on ROM coal and Washed coal based on cost of production computed under CAS-4, deducting the value of Middlings as a by-product from the cost of Washed coal. The assessable value of Middlings was calculated separately based on market price plus applicable cesses.

The department issued a show cause notice alleging that the appellant treated the entire quantity of coal cleared (other than ROM coal) as Washed coal, ignoring the clearance of Middlings, and raised a demand on this presumed excess quantity. The Principal Commissioner upheld this demand, relying heavily on the ER-1 returns filed by the appellant which did not segregate Washed coal and Middlings, and held that the entire quantity must be treated as Washed coal.

The appellant countered by producing monthly returns filed in Form B with the Coal Controller, which clearly detailed quantities of ROM coal, Washed coal, and Middlings cleared to the steel plant. These returns were submitted to the department in response to its earlier queries and were not disputed by the department during the appeal proceedings.

The Tribunal found that the Principal Commissioner erred by ignoring these returns and relying solely on ER-1 returns, which were not required under the Central Excise Rules to segregate varieties of coal. The Tribunal emphasized that Middlings are recognized by the Coal Controller as a by-product of coal washing, supported by official statistical publications. The department's contention that Middlings are not by-products was thus untenable.

Further, since the appellant deducted the value of Middlings while computing the cost of production of Washed coal and paid duty separately on Middlings, the demand for differential duty based on treating Middlings as Washed coal was incorrect.

Key Evidence and Findings: The undisputed Form B returns filed with the Coal Controller, the CAS-4 cost statements prepared by the appellant, and official coal industry publications recognizing Middlings as by-products.

Application of Law to Facts: The valuation rules and CAS-4 methodology were correctly applied by the appellant. The department's failure to consider the Form B returns and insistence on the ER-1 returns alone, which did not require such segregation, led to an erroneous demand.

Treatment of Competing Arguments: The department argued that the ER-1 returns were the primary self-assessment documents and that Middlings were not separately disclosed therein, justifying their treatment as Washed coal. The Tribunal rejected this, holding that the Form B returns were valid documentary evidence and the department had prior knowledge of the quantities involved.

Conclusion: The department was not justified in treating the entire quantity of coal cleared other than ROM coal as Washed coal. Middlings are a distinct by-product, and duty was correctly paid on them separately. The differential demand based on this flawed premise was unsustainable.

Issue 2: Invocation of Extended Period of Limitation under Section 11A(4) of the Central Excise Act

Legal Framework and Precedents: Section 11A(1) of the Central Excise Act mandates issuance of show cause notices within one year of the relevant date for recovery of duty short-paid or not paid, except where the extended period under section 11A(4) applies. Section 11A(4) allows a five-year period if the duty short levy is due to fraud, collusion, wilful mis-statement, suppression of facts, or contravention with intent to evade duty.

Supreme Court precedents emphasize that "suppression of facts" must be deliberate and with intent to evade duty. Mere omission or difference of opinion does not amount to suppression. The burden lies on the department to prove deliberate suppression or fraud to invoke the extended period.

Court's Interpretation and Reasoning: The show cause notice alleged suppression of cost of production and incorrect disclosure of assessable value in ER-1 returns, invoking extended limitation. The appellant demonstrated that the department was aware of the detailed returns filed with the Coal Controller as early as 2012, and audits of appellant's records were conducted regularly during the disputed period. The appellant argued that there was no concealment or suppression with intent to evade duty, but rather a bona fide belief in the correctness of its valuation methodology.

The Tribunal noted that the department's reliance on the absence of segregation in ER-1 returns was misplaced since the department had access to more detailed data. The appellant had not suppressed facts; the department's knowledge of the facts was established by the audits and prior correspondence. The Tribunal relied on authoritative Supreme Court rulings which held that invocation of extended limitation requires positive proof of deliberate suppression or fraud, which was lacking here.

Key Evidence and Findings: The appellant's submission of Form B returns, regular audits conducted by the department, correspondence showing department's awareness of the valuation methodology and quantities, and absence of any allegation or evidence of fraud or collusion.

Application of Law to Facts: The department failed to establish deliberate suppression or intent to evade duty. The appellant's bona fide belief in its valuation and disclosure negated the applicability of extended limitation. The demand, except for the last month of the period, was barred by limitation.

Treatment of Competing Arguments: The department contended that omission in ER-1 returns and differences in valuation amounted to suppression. The Tribunal rejected this, emphasizing that mere difference in opinion or failure to disclose information not required by law does not constitute suppression. The department's failure to detect any discrepancy during audits weakened its case.

Conclusion: The extended period of limitation under section 11A(4) was wrongly invoked. The demand for the period from March 2011 to February 2015 is barred by limitation and cannot be sustained.

Significant Holdings

"The Principal Commissioner committed an error as Middlings could not have been considered as Washed coal and added to the quantity of Washed coal cleared to JSPL."

"The quantity of Middlings cleared to JSPL could not have been treated as Washed coal."

"The appellant had not suppressed relevant facts from the department and in any case it cannot be alleged that suppression was with an intent to evade payment of duty."

"Mere failure to declare does not amount to wilful suppression. There must be some positive act from the side of the assessee to find willful suppression."

"If an assessee bona-fide believes that it was correctly discharging duty, then merely because the belief is ultimately found to be wrong by a judgment would not render such a belief of the assessee to be malafide."

"The extended period of limitation as contemplated under section 11A(4) of the Central Excise Act could not have been invoked in the facts and circumstances of the case."

"The demand for the period from March 2011 to February 2015 also deserves to be set aside as the extended period limitation could not have been invoked."

"The appeal is, accordingly, allowed."