2024 (12) TMI 733 - AT - Central Excise

Recovery of central excise duty - evasion of payment of duty on the quantity of SKO which was cleared from refinery for intended purpose of distribution under public distribution system - willful suppression, misdeclaration of facts and circumstances with an ulterior motive to defraud the government exchequer - Time limitation - HELD THAT - Hon ble Supreme Court in Nizam Sugar Factory vs. Collector of Central Excise, A.P. 2006 (4) TMI 127 - SUPREME COURT has held that when the first show cause notice was issued, all the relevant facts were in the knowledge of authorities and that while issuing the second and third show cause notices, the same and similar facts would not be taken as suppression of fact on the part of the assessee as these facts were already in the knowledge of the authorities. Therefore, Hon ble Supreme Court has held that in respect of second and third show cause notices, there was no suppression of fact on the part of the appellant. It is noted that in the above stated show cause notices dated 27.01.2016 and 22.12.2017 the same facts as that in show cause notice dated 30.01.2015 were stated and was stated that there were suppressions of fact. Hon ble Supreme Court has held that in respect of second and third show cause notices, there was no suppression of fact on the part of the appellant. It is noted that in the above stated show cause notices dated 27.01.2016 and 22.12.2017 the same facts as that in show cause notice dated 30.01.2015 were stated and was stated that there were suppressions of fact. In the present case the goods were intended for use in public distribution system. There is no evidence that there was any clandestine removal of the goods by any of the authorities. There was no end-use condition required for availment of exemption. It is noted that intermixing was inevitable - Revenue also did not draw samples and obtain a report from Central Revenue Laboratory as to the content of SKO in intermix. By following the judgment in the case of State of Haryana vs. Dalmia Dadri Cement Ltd. 1987 (11) TMI 94 - SUPREME COURT it is held that there was no case for recovery of central excise duty on SKO after SKO was cleared for the intention of use in public distribution system by availing exemption allowing full exemption of duty. Appeal allowed.

Issues Involved:

1. Invocation of extended period of limitation for demanding central excise duty.
2. Applicability of exemption notifications on intermixed SKO.
3. Allegations of willful suppression and misdeclaration by the appellant.
4. Interpretation of the term "for use" in exemption notifications.
5. Validity of reliance on CBEC circular dated 22.04.2002.

Issue-wise Detailed Analysis:

1. Invocation of Extended Period of Limitation:

The central issue was whether the extended period of limitation under sub-section (4) of Section 11A of the Central Excise Act, 1944, could be invoked. The appellant argued that being a Public Sector Undertaking, there was no mala fide intention to evade duty, and thus, the extended period could not be applied. The Tribunal, relying on the Supreme Court's ruling in Nizam Sugar Factory, held that since the facts were already known to the authorities at the time of the first show cause notice, subsequent notices could not claim suppression. Therefore, the demands based on the extended period in the second and third show cause notices were not sustainable.

2. Applicability of Exemption Notifications on Intermixed SKO:

The appellant contended that SKO cleared for public distribution was exempt from duty under specific notifications. The Tribunal examined whether intermixed SKO, which was not ultimately consumed by the public distribution system, could still enjoy the exemption. The Tribunal referred to the Supreme Court's interpretation in the State of Haryana vs. Dalmia Dadri Cement Ltd., which held that "for use" should be interpreted as "intended for use." Since the SKO was intended for public distribution, the exemption was applicable despite the intermixing during transportation.

3. Allegations of Willful Suppression and Misdeclaration:

The Revenue alleged that the appellant willfully suppressed facts to evade duty on intermixed SKO. The appellant argued that intermixing was a technical inevitability during pipeline transportation and was beyond their control. The Tribunal found no evidence of clandestine removal or fraudulent intent, and the mere occurrence of intermixing did not constitute willful suppression or misdeclaration. Thus, the allegations were not upheld.

4. Interpretation of the Term "For Use" in Exemption Notifications:

The interpretation of "for use" was crucial in determining the applicability of the exemption. The Tribunal, relying on the Supreme Court's ruling, concluded that "for use" implies "intended for use." Therefore, as long as the SKO was intended for public distribution, the exemption applied, irrespective of whether the intermixed SKO reached the public distribution system.

5. Validity of Reliance on CBEC Circular Dated 22.04.2002:

The appellant challenged the reliance on the CBEC circular, arguing it was not relevant post-2004 when warehousing provisions were withdrawn. The Tribunal agreed that the circular was not applicable to the exemption notifications in question, which were issued later and pertained specifically to SKO for public distribution. Consequently, the orders based on this circular were not sustainable.

Conclusion:

The Tribunal set aside the orders-in-original for all three appeals, allowing the appeals and concluding that the demands for central excise duty on intermixed SKO were not justified under the circumstances. The Tribunal emphasized the lack of evidence for suppression or misdeclaration and the applicability of exemptions based on intended use.

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