No suppression of fact when reliance placed on judgement was later overturned

[CA Bimal Jain]

The Hon’ble Supreme Court in THE COMMISSIONER, CENTRAL EXCISE AND CUSTOMS AND ANOTHER VERSUS M/S RELIANCE INDUSTRIES LTD. AND COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX VERSUS M/S RELIANCE INDUSTRIES LTD. - 2023 (7) TMI 196 - SUPREME COURT held that the assessee was bonafide and has correctly discharged duty liability by relying on the CESTAT decision even though the same was later overturned by the Hon’ble Supreme Court.

Facts:

M/s. Reliance Industries Ltd. (“the Respondent”) on the basis of the CESTAT judgment IFGL REFRACTORIES LTD. VERSUS COMMISSIONER OF C. EX., BHUBANESWAR-II - 2000 (7) TMI 175 - CEGAT, KOLKATA wherein it was held that duty benefits received by the assessee under the exemption scheme cannot be considered as part of the consideration flowing from the buyer, either directly or indirectly.

However, the judgement of the CESTAT was overturned by the Hon’ble Supreme Court in the case of IFGL Refractories Ltd. on August 09, 2005 and held that monetary value of duty benefits obtained by the customers constituted additional consideration flowing to the assessee from the customers.

On the basis of Hon’ble Supreme court judgement, the Revenue Department issued a Show Cause Notice to the Respondent on September 28, 2005 (“the SCN”) demanding tax on the monetary value of the duty benefits that it had obtained from its customers and further alleged that the Respondent has deliberately suppressed relevant facts and had made wilful misstatements withholding material information and documents from the departmental officer.

The allegations in the SCN were confirmed by the Ld. Commissioner of Central Excise vide an order dated October 30, 2006 (“the Order”).

Aggrieved by the order of the Commissioner of Central Excise the Respondent challenged the Order before the CESTAT.

The CESTAT vide order no. M/419-21/WZB/AHD/08 dated March 17, 2009 (“the Impugned order”) set aside the demand and inter alia held that that during the relevant period the Respondent have entertained a bonafide belief that it had correctly discharged its duty liability in view taken by the Kolkata Tribunal in the case of IFGL Refractories Ltd (supra) which was later overturned by Hon’ble Supreme Court on August 09, 2005.

Aggrieved by the Impugned order the Revenue Department filed an appeal before the Hon’ble Supreme Court.

Issue:

Whether the Respondent is liable to pay penalty on account of suppression fact by relying on the judgement which was later overturned by higher authority?

Held:
The Hon’ble Supreme Court in THE COMMISSIONER, CENTRAL EXCISE AND CUSTOMS AND ANOTHER VERSUS M/S RELIANCE INDUSTRIES LTD. AND COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX VERSUS M/S RELIANCE INDUSTRIES LTD. - 2023 (7) TMI 196 - SUPREME COURT held as under:

• Noted that, the Respondent has self-assessed the liability on the assessable value on the basis of an interpretation given by the CESTAT in its order in the case of IFGL Refractories Ltd.
• Observed that, the Respondent had communicated to the Revenue Department about their pricing policy by giving separate letters, which holds a bonafide belief that the Respondent has correctly discharged the liability.
• Opined that, the mere fact that the belief was ultimately found to be wrong by the judgment IFGL Refractories Ltd, does not render make the belief malafide, more particularly when such a belief was originate from the view taken by a division bench of the CESTAT.
• Clarified that, the term “suppression of facts” should not be interpreted as a mere act of omission. It should be considered a deliberate act of non-disclosure aimed at evading duty.
• Held that, the Respondent’s conduct during the period 2000 to 2005, of not including the monetary value of the duty benefits in assessable value, could not be considered to be malafide when it merely followed the view taken by the Tribunal.

Our Comments:

The above judgement highlights the important ratio-decendi that the higher authority’s judgement will not give any effect on the act done before the date of pronouncement of judgement.

In other words, the lower authority’s judgement will be treated as valid till the time any adverse decision is passed by the higher authority and only from that point of time when judgment (passed by the higher authority) would be made applicable.

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