2013 (6) TMI 142 - HC - Central Excise

Extended period of limitation - mens rea - classification of handpump - held that - in absence of any deceitful practice by the assessee if there is short levy/payment of duty then, within the short-period of six months (now one year), duty could be ordered to be recovered with interest under Section 11AA. There would be no liability to penalty or penal interest. Department is unable to establish any deliberate act on part of the petitioner-assessee to evade tax. All it could establish was that a claim after full disclosure was made, which was later, after the period of limitation found unsustainable and, as such, all penal actions taken. That is not correct and could not have been done. The duty demand sustained by the Tribunal is, thus, not correct and that part of the order cannot be sustained. Even the adjudicatory authority, on remand, was unable to point as to what was the specific information suppressed and how it was connected with the tax sought to be evaded. Mere misstatement in some form or the other, not relevant with full disclosure of relevant facts in other forms, cannot by itself lead to finding of deliberate attempt to evade tax. At best, what can be said is that the claim of assessee was misconceived which resulted in short-payment of duty. This would be actionable within the shorter period of limitation available under Section 11A(1) and not relevant for the longer period under proviso thereto. In fact, even the Tribunal held it to be a technical breach involving no mens rea when it came to penalty. We fail to see if that were so in respect of penalty, how the demand could be sustained within the longer period of limitation in absence of mens rea. The order of the Tribunal, in so far as it sustains the duty demand with reference to the longer period available under the proviso to Section 11A(1) is unsustainable - decided in favor of assessee.

Issues Involved:
1. Validity of the demand-cum-show cause notice dated 27-1-1999.
2. Applicability of Rule 57CC(1) and Rule 57CC(4)(a) of the Central Excise Rules, 1944.
3. Liability for differential duty, penalty, and interest.
4. Invocation of the extended period under proviso to Section 11A(1) of the Central Excise Act, 1944.
5. Determination of mens rea (guilty mind) in evasion of duty.
6. Interpretation of Chapter 84, Section XVI of the Central Excise Tariff.

Detailed Analysis:

1. Validity of the Demand-Cum-Show Cause Notice:
The petitioner challenged the demand-cum-show cause notice dated 27-1-1999, which alleged short-payment of excise duty on PVC pipes and filters used in manufacturing Tara handpumps. The notice demanded the differential duty of Rs. 4,02,801/- along with interest and penalty. The petitioner argued that the notice was barred by limitation and that there was no willful misstatement or suppression of facts.

2. Applicability of Rule 57CC(1) and Rule 57CC(4)(a):
The petitioner contended that they had rightfully paid 8% duty on PVC pipes and filters used in manufacturing Tara handpumps, which attract nil duty, under Rule 57CC(1). The Department argued that Rule 57CC(4)(a) excluded plastic articles from this benefit, making the petitioner liable for the full 25% duty.

3. Liability for Differential Duty, Penalty, and Interest:
The initial adjudicating authority found no suppression of facts by the petitioner and dropped the proceedings. However, on appeal, the Commissioner (Appeals) and later the Tribunal upheld the demand for differential duty but set aside the penalty, considering the issue to be technical in nature.

4. Invocation of the Extended Period Under Proviso to Section 11A(1):
The Department invoked the extended period under the proviso to Section 11A(1) for recovery of duty, arguing that the petitioner had suppressed facts. The petitioner countered that there was no deliberate suppression or intent to evade duty, and thus, the extended period was not applicable.

5. Determination of Mens Rea in Evasion of Duty:
The Courts analyzed whether the petitioner had a guilty mind (mens rea) in evading duty. The adjudicating authority initially found no mens rea, stating that any misstatement was at best a technical failure. The Tribunal, while upholding the duty demand, also acknowledged the technical nature of the issue, indicating no deliberate intent to evade duty.

6. Interpretation of Chapter 84, Section XVI of the Central Excise Tariff:
The petitioner argued that PVC pipes and filters, being integral parts of the Tara handpump, should be classified under Chapter 84, which attracts nil duty. The adjudicating authority, however, held that only the visible part of the handpump above ground could be classified under Chapter 84, excluding PVC pipes and filters.

Conclusion:
The High Court found that the Department could not establish any deliberate act by the petitioner to evade tax. The demand for differential duty was based on a technical interpretation of the rules, and there was no evidence of intentional suppression or misstatement with the intent to evade duty. Consequently, the extended period under the proviso to Section 11A(1) was not applicable, and the demand for differential duty was unsustainable. The order of the Tribunal sustaining the duty demand was set aside, and the writ application was allowed.

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