2025 (4) TMI 175 - AT - Central Excise

Clandestine removal - violation of principles of natural justice - proceedings held ex-parte in quick succession - demand for central excise duty on exports - non-compliance of the conditions prescribed in Rule 19(3) of the Rules - denial of benefit of SSI exemption - extended period of limitation - penalty. Violation of principles of natural justice - impugned order passed ex-parte without affording sufficient opportunity of being heard - HELD THAT - The scope of the suo moto petition before the Supreme Court as is evident from the Order dated 10.01.2022 is that the Court took cognizance of the difficulties that might be faced by litigants in filing petitions /applications/suits/appeals/all other quasi-proceedings within the period of limitation prescribed under the General Law of Limitation or under any special laws due to the outbreak of the COVID-19 Pandemic and thereafter due to surge of the virus on public health it was directed that the period from 15.03.2020 till 28.02.2022 shall stand excluded for the purposes of limitation as may be prescribed under the General or Special laws. The matters were taken up for hearing virtually before all the forums. The appellant could have availed the facility of appearing online during the various opportunities granted by the Adjudicating Authority. Therefore there is no substance in the arguments of the appellant that there is violation of the mandate of the Supreme Court or that sufficient opportunity has not been granted in terms of Section 33A of the Act. The impugned order does not suffer from any infirmity in this regard. Demand for central excise duty on exports - HELD THAT - The appellant is engaged in the manufacture of articles of jewellery and was therefore liable to pay central excise duty pursuant to the Union Budget 2016 17 imposing basic excise duty of 1% without credit and 12.5% with credit on articles of jewellery. In compliance to the Public Notice No.07/2016 dated 26th July 2016 extending the time limit for taking Central Excise registration upto 31 July 2016 the appellant was registered with the Central Excise Department on 29th July 2016. It implies that the appellant had understood the liability towards Central excise duty on manufacture of articles of jewellery and therefore there is no reason for them not to discharge the central excise duty liability w.e.f. 1st March 2016 - The appellant having admitted that they had knowledge about the excise duty levied on gold jewellery the necessary corollary is that the appellant is liable to pay excise duty w.e.f. 1st March 2016. The invoices for sale from Chandni Chowk branch and Karol Bagh branch with the description of the goods as gold ornaments/gold chain in respect of which the appellant had claimed exemption from Central excise duty was admitted by Siri Ajay Goyal that they had mistakenly claimed exemption on the clearance under the said invoices and accepted their duty liability. The goods under and these invoices were covered under the definition of articles of gold jewellery. The excise duty has been rightly confirmed on account of non-inclusion of the value of goods sold on invoices having description 24 Carat Ornaments/Gold Chain valued at Rs.3, 42, 904/- during the period from 1.03.2016 to 30.06.2017. Benefit of SSI Exemption - HELD THAT - The total clearances of the appellant for the FY 2015 16 was Rs.1, 198.64 crores as per the balance sheet and out of which Rs.793 crores was pertaining to the sale of articles of jewellery as per the statement of Shri R.R. Singla and the sale of excisable goods for the month of March 2016 was Rs.1.71 Cr. as per the Trial Balance. In view of the notification the threshold limit for SSI exemption was Rs.85 lakhs for the month of March 2016 and Rs.15 crores (as amended) for the preceding financial year. Resultantly the appellant is not entitled to avail the benefit of SSI exemption either for March 2016 or for FY 2015-16 and FY 2016-17. There are no error in the findings recorded by the Adjudicating Authority in view of the clear and simple wordings of the notification. Cum-duty benefit towards demand of central excise duty - HELD THAT - It appears from the documents made available the appellant had not charged the central excise duty from their customers any time during 1.03.2016 to 31.12.2016 in view of the prevailing circumstances at that time. The net sale value of articles of jewellery amounting to Rs.274, 28, 94, 752/- has to be assessed giving the benefit of cum-duty value. By virtue of an amendment an explanation was added to section 4 w.e.f. 14.05.2003 which provides that when duty is not collected separately the price actually realised is deemed to be cum-duty price. Whether the demand of Rs.65, 69, 207/- on exported goods is sustainable as these clearances did not qualify as export under Rule 19 of Central Excise Rules 2002? - HELD THAT - For facilitating exports safeguards in the form of procedural requirements were provided whereby the exporter is required to furnish the Bond and the Letter of Undertaking (LUT). The purpose is to ensure that the goods cleared from the manufacturing premises without payment of duty are not diverted in transit and are actually exported however in the event the goods are not exported the duty which would be leviable thereon maybe recovered by enforcing the bank guarantee. Coming to the present case it is an undisputed fact that exports have been physically effected under the supervision of the Proper Officer of Customs and documentary evidence such as invoices and shipping bills have been duly produced by the appellant however the appellant has not furnished any Letter of Undertaking/Bank Guarantee/Bond before the Customs or Central Excise authorities - It is not the case of the Revenue that the goods have not been exported rather the only allegation is that the procedure laid down for availing the benefit of exporting the goods without payment of excise duty have not been followed by the appellant while making the export which is contrary to the principle that a substantive right cannot be denied for want of procedural formalities - there are no substance in raising the demand on the goods exported merely on the ground that the conditions prescribed for export of excisable goods without payment of duty has not been fulfilled. Extended period of limitation - HELD THAT - The law on invoking the extended period of limitation has been settled over the period by various decisions of the Apex Court and other forums - The extended period of limitation is applicable only when something positive other than mere inaction or failure on the part of assessee is proved. Conscious or deliberate withholding of information by manufacturer is necessary to invoke larger limitation of five years. Similar view was expressed by the Apex Court in Uniworth Textiles Ltd versus Commissioner of Central Excise Raipur 2013 (1) TMI 616 - SUPREME COURT where the Court was concerned with the invocation of extended period under Section 28 of the Customs Act and it was observed the conclusion that mere non-payment of duties is equivalent to collusion or willful mis-statement or suppression of facts is untenable. In the case of Mahanagar Telephone Nigam Ltd versus Union of India Ors. 2023 (4) TMI 216 - DELHI HIGH COURT the Delhi High Court observed that merely because MTNL had not declared the receipt of compensation as payment for taxable service does not establish that it had wilfully suppressed any material fact and therefore no intent to avoid tax can be inferred by non-disclosure of the receipt in the service tax returns. Penalty - HELD THAT - The failure to file service tax returns is a violation but the said violation cannot be attributed with intent to evade payment of duty and therefore the penalty imposed under section 11AC Is not sustainable however since no general penalty has been imposed by the Adjudicating Authority there is no reason for us to impose any such penalty on the appellant. Personal penalty u/r 26 on Director - HELD THAT - Since the demand is not sustainable being time barred consequently the penalty would also not survive. Conclusion - i) The impugned order is not in violation of natural justice as sufficient opportunities are provided. ii) The demand for duty on exported goods is unjustified as substantive compliance is met. iii) Pendants of 24CT purity are liable for duty as they are classified as articles of jewellery. iv) The appellant is entitled to cum-duty benefit but not SSI exemption due to turnover limits. v) The demand is time-barred and the extended limitation period is inapplicable. vi) Penalties under Section 11AC(1)(c) and Rule 26 are unsustainable. Appeal allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the impugned order was passed in violation of the principles of natural justice due to ex-parte proceedings.
• Whether the demand for central excise duty on exports is justified given the procedural compliance by the appellant.
• Whether pendants of 24CT purity are exempt from duty under the relevant notifications.
• Whether the appellant is entitled to the benefit of cum-duty value and SSI exemption.
• Whether the demand is barred by limitation under Section 11A of the Central Excise Act, 1944.
• Whether the imposition of penalties under Section 11AC(1)(c) and Rule 26 is justified.

ISSUE-WISE DETAILED ANALYSIS

1. Violation of Natural Justice

The appellant argued that the proceedings were conducted ex-parte, violating principles of natural justice. The Court noted that the appellant failed to appear despite multiple opportunities and that the Supreme Court's extension of time during COVID-19 was limited to filing petitions, not hearings. Thus, the Court found no merit in this argument.

2. Demand on Exports

The appellant contended that exports were physically affected under customs supervision, and the demand was erroneous. The Court agreed, noting that the substantive right of export should not be denied due to procedural lapses, especially when the goods were indeed exported.

3. Duty on 24CT Pendants

The appellant claimed exemption for 24CT pendants, arguing they were akin to gold coins. The Court referenced Chapter Note 9, which includes pendants as articles of jewellery, and found the appellant's claim misleading. The pendants were liable for duty.

4. Cum-Duty Value and SSI Exemption

The appellant sought cum-duty benefit, asserting no duty was collected from customers. The Court upheld this claim, citing the principle that sale prices are deemed inclusive of duty when not collected separately. Regarding SSI exemption, the Court found the appellant ineligible due to exceeding turnover limits.

5. Limitation Period

The appellant argued the demand was time-barred. The Court noted the appellant's cooperation and lack of intent to suppress facts. Citing precedents, the Court concluded the extended limitation period under Section 11A(4) was inapplicable, rendering the demand unsustainable.

6. Imposition of Penalties

The Court found the penalty under Section 11AC(1)(c) unwarranted due to the absence of intent to evade duty. Similarly, the penalty on the director under Rule 26 was set aside, consistent with the finding on limitation.

SIGNIFICANT HOLDINGS

The Court held that:

• The impugned order was not in violation of natural justice as sufficient opportunities were provided.
• The demand for duty on exported goods was unjustified as substantive compliance was met.
• Pendants of 24CT purity are liable for duty as they are classified as articles of jewellery.
• The appellant is entitled to cum-duty benefit but not SSI exemption due to turnover limits.
• The demand was time-barred, and the extended limitation period was inapplicable.
• Penalties under Section 11AC(1)(c) and Rule 26 were unsustainable.

The Tribunal concluded by allowing the appeals, setting aside the demand and penalties due to the time-barred nature of the show cause notice.