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2024 (9) TMI 1645 - AT - Central ExciseRecovery of Central Excise duty with interest and penalty - plastic waste or not - popcorn waste used by the appellant for manufacturing PSF - benefit of NIL rate of duty under Serial No. 172A of the N/N. 17.03.2012 and concessional rate of duty @ 2% under Serial No. 70A of the Notification dated 01.03.2011 - Extended period of limitation under section 11A(4) of the Central Excise Act - suppression of facts or not - Imposition of penalty on Director. HELD THAT - It is not in dispute that PET bottles scrap constitutes 90 percent of the raw material that is used and the percentage of popcorn waste used in the manufacture of PSF is less than 10 percent. In Tata Iron and Steel 1975 (12) TMI 79 - SUPREME COURT , the Notification of which benefit was claimed granted exemption to duty paid pig iron but duty paid pig iron was also mixed with other non duty paid materials. It is in this context that the Supreme Court held that if the intention of the government was to exclude exemption to duty paid pig iron when mixed with other materials, then the Notification would have used the expression, only or exclusively or entirely in regard to duty paid pig iron but these expressions were not used. Thus, the benefit of the exemption could not have been denied. In the absence of the word only , exclusively , wholly or entirely in the two Notifications, the benefit of the two Notifications could not have been denied to the appellant merely for the reason that apart from using 90 percent PET bottles scrap, the appellant also used approximately 10 percent of popcorn waste in the manufacture PSF. Whether popcorn is plastic waste? - whether denial of nil/concessional duty to PSF manufactured by the appellant on the ground that popcorn in not plastic waste, is justified? - HELD THAT - The benefit of the Notifications has also been denied to the appellant for the reason that popcorn is recycled PET material and not plastic waste and, therefore, would not fall within the scope of the Notifications. It should not be forgotten that the purpose of the Notifications is to encourage manufacturers to use plastic material and help in recycling of plastic waste. The view taken by the adjudicating authority defeats this very purpose. The adjudicating authority has examined popcorn to see whether it is a plastic waste, classifiable under Customs Tariff Heading 3915 of the Customs Tariff Act, 1975. The Notifications do not provide that only plastic waste or plastic scrap falling under Customs Tariff Heading can be used as inputs in the manufacture of PSF. There is no dispute that popcorn waste used by the appellant is manufactured from waste of plastic, yarn and textile. The adjudicating authority has failed to appreciate that plastic scrap or plastic waste is not restricted to Chapter 39 only, and such an interpretation has the effect of adding words or conditions in the said Notifications. Extended period of limitation - HELD THAT - The present appeal relates to the period from March 2013 to 02.01.2017. The show cause notice was issued on 21.03.2018. The demand raised for period up to February 2016 amounting to Rs. 53,56,90,049/- out of the total demand of Rs. 66,44,69,751/- would be beyond the normal period of limitation. This demand has, however, been confirmed by invoking the extended period of limitation contemplated under section 11A(4) of the Central Excise Act on the ground that the appellant had procured popcorn in the guise of PET bottle flakes and mis-declared the description of the goods in the invoices with intent to evade payment of duty and avail the benefit of the Notifications, which fact would otherwise have gone unnoticed if the investigation had not been carried out. An audit of the records of the appellant had also been conducted, but objection relating to wrong availment of the benefit under the exemption Notifications was never raised. It had also been stated by the appellant in the reply to the show cause notice that the appellant had never denied using miniscule quantity of popcorn for manufacturing PSF and in this connection, the appellant had referred to the various statements tendered to the department at the time of investigation. It was, therefore, stated in the reply that once all the facts were available with the department, the department cannot allege that the appellant had suppressed any material fact. The impugned order merely mentions that it is not the case of the noticee that they had produced all the relevant records to the audit team . This finding is merely based on a presumption. It is expected that when an audit is carried out, all the relevant documents are examined by the officers who conduct the audit. The adjudicating authority cannot draw an inference that since an objection was not raised by the audit team, the appellant must not have disclosed all the documents to the audit team. The department, at all stages, had an opportunity to question the appellant within the stipulated time but that was not done. Even otherwise, the appellant had in the reply clearly mentioned that from the various statements tendered to the department at the time of investigation, the appellant had never denied that it was using minuscule quantity of popcorn for manufacture of the final product. It must also be remembered that mere suppression of fact is not enough. There has to be a deliberate attempt to evade payment of excise duty. The show cause notice must specifically deal with this aspect and the adjudicating authority is also obliged to examine this aspect in the light of the facts stated by the assessee in reply to the show cause notice. The provisions of section 11A (4) of the Central Excise Act came up for interpretation before the Supreme Court in PUSHPAM PHARMACEUTICALS COMPANY VERSUS COLLECTOR OF C. EX., BOMBAY 1995 (3) TMI 100 - SUPREME COURT . The Supreme Court observed that section 11A(4) empowers the Department to reopen the proceedings if levy has been short levied or not levied with in six months from the relevant date but the proviso carves out an exception and permits the authority to exercise this power with in five years from the relevant date in the circumstances mentioned in the proviso, one of it being 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 VERSUS COLLECTOR OF C. EX., 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. In the present case, the show cause notice alleged that the appellant had suppressed using popcorn in the manufacture of PSF and this fact was suppressed from the department with the sole intent to evade payment of duty by availing the benefit of the two Notifications - the appellant had filed ER-1 returns and disclosed the necessary facts required to be disclosed. There is, therefore, no suppression by the appellant of material facts from the department, much less with an intent to evade payment of central excise duty. The extended period of limitation contemplated under section 11A(4) of the Central Excise Act, therefore, could not have been invoked in the facts and circumstances of the case. Penalty upon the Director - HELD THAT - The imposition of penalty upon the Director of the appellant under rule 26(1) of the Central Excise Rules has also been questioned by the learned counsel for the appellant. It has been stated that no evidence has been disclosed by the department to prove that the Director dealt with the goods which were liable to confiscation with knowledge about the liability to confiscation. According to the learned counsel for the appellant, such a finding has not been recorded nor evidence was brought on record by the department. The impugned order dated 16.09.2020 passed by the adjudicating authority deserves to be set aside and is set aside. The two appeals are, accordingly, allowed.
Issues Involved:
1. Admissibility of exemption from central excise duty under specific notifications. 2. Classification of 'popcorn' as plastic waste. 3. Invocation of the extended period of limitation under section 11A(4) of the Central Excise Act. 4. Imposition of penalty upon the Director under rule 26(1) of the Central Excise Rules. Detailed Analysis: 1. Admissibility of Exemption from Central Excise Duty: Issue: Whether the appellant is entitled to the benefit of exemption from central excise duty under Serial No. 172A of Notification dated 17.03.2012 and Serial No. 70A of Notification dated 01.03.2011, despite using 'popcorn' waste along with PET bottle scrap in manufacturing PSF. Analysis: - The appellant used PET bottle scrap (90%) and 'popcorn' waste (10%) to manufacture PSF. - The adjudicating authority denied the exemption, interpreting that the benefit under the Notifications was available only if PSF was manufactured from specified inputs (plastic scrap, plastic waste, and PET bottle waste) exclusively. - The appellant contended that the Notifications did not use restrictive terms like 'only,' 'exclusively,' 'wholly,' or 'entirely,' and hence, the benefit could not be denied for using a small quantity of 'popcorn' waste. - The Tribunal relied on Supreme Court judgments in Tata Iron and Steel Co. Ltd. and JMK Energy, which held that in the absence of restrictive terms in the Notification, the benefit should not be denied even if other materials are used. - The Tribunal concluded that the appellant is entitled to the benefit of the Notifications, as the Notifications did not explicitly restrict the use of 'popcorn' waste. 2. Classification of 'Popcorn' as Plastic Waste: Issue: Whether 'popcorn' used by the appellant qualifies as plastic waste under the Notifications. Analysis: - The adjudicating authority, based on CRCL reports, inferred that 'popcorn' is a primary form of PET and not plastic waste. - The appellant provided reports from expert institutions (CIPET, MANTRA, IIT Roorkee) stating that 'popcorn' is a recycled PET plastic waste material. - The Tribunal found that these reports clearly establish 'popcorn' as recycled PET plastic waste, which should qualify under the Notifications. - The Tribunal noted that the purpose of the Notifications was to encourage recycling of plastic waste, and denying the benefit for using 'popcorn' contradicts this purpose. 3. Invocation of Extended Period of Limitation: Issue: Whether the extended period of limitation under section 11A(4) of the Central Excise Act was correctly invoked. Analysis: - The show cause notice alleged that the appellant suppressed the use of 'popcorn' to evade duty. - The appellant argued that it had disclosed all necessary information in the ER-1 returns and during audits, and there was no intent to evade duty. - The Tribunal cited Supreme Court judgments in Pushpam Pharmaceuticals and Anand Nishikawa, stating that suppression must be deliberate to evade duty. - The Tribunal found no evidence of deliberate suppression by the appellant and noted that the department had opportunities to scrutinize the returns and audit findings. - The Tribunal concluded that the extended period of limitation could not be invoked as there was no deliberate suppression by the appellant. 4. Imposition of Penalty upon the Director: Issue: Whether the imposition of penalty upon the Director under rule 26(1) of the Central Excise Rules is justified. Analysis: - The appellant contended that no evidence was provided to prove that the Director dealt with goods liable to confiscation with knowledge of such liability. - The Tribunal noted that since the demand itself was found unsustainable, the penalty on the Director could not be justified. Order: - The impugned order dated 16.09.2020 passed by the adjudicating authority was set aside. - The appeals were allowed, and the demand of central excise duty, interest, and penalties were quashed. (Order Pronounced on 25.09.2024)
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