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TMI Blog2010 (7) TMI 331X X X X Extracts X X X X X X X X Extracts X X X X ..... ter of the entire quantity of samples of cigarettes drawn for various tests and thereby duty on the quantity of samples not accounted in the statutory records would amount to suppression with an intent to evade payment of duty? (b) Whether the Tribunal was correct in allowing the appeal, though the assessee prior to 1-10-2003 was not maintaining separate accounts in respect of cigarettes drawn to check the quality of cigarettes, without maintaining their accounts as contemplated vide Circular F. No. 112/36/90-CX.3, dated 4-1-1991 and Para 3.2 Chapter 11 to Excise Manual of Supplementary Instructions, 2005? (c) Whether non-maintaining of the accounts in respect of the cigarettes drawn to the quality tests would amount to willful suppression and mis-statement of facts with an intent to evade payment of appropriate duty would attract the extended period of limitation under proviso to Section 11A and interest under 11B as also penalty under Section 11C is recoverable and imposable under the Central Excise Act, 1944? 2. The facts of the case leading to the filing of this appeal are that the respondent/assessee is a manufacturer of various brands of machine-rolled cig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng for the appellant and Sri K.S. Ravishankar, learned counsel appearing for the respondent/assessee. 5. It is submitted on behalf of the appellant that show-cause notice dated 22-9-2004 was issued to the assessee since the assessee had not maintained proper accounts in respect of the entire quantity of sample of cigarettes drawn for test purposes and as a result, there was non-payment of duty on the samples and that the demand made for the period from September 1999 to November 2002 was justified in view of the proviso to Section 11-A of the Act as the respondent had suppressed the quantity of the cigarettes which were drawn for testing and which had escaped assessment of tax; that as per the various circulars of the Board, proper accounts had to be maintained with regard to the samples drawn for testing in the laboratory by the assessee and that prior to 1-10-2003, there was no maintenance of separate accounts in respect of the quantity of cigarettes drawn for test purposes. As a result, the assessee had willfully suppressed and mis-stated the facts to the Department; that the jurisdictional Range Officer issued two letters dated 23-7-2004 and 6-8-2004 requesting the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our attention to various decisions in support of the assessee's case with regard to the question of payment of duty prior to the Apex Court decision and orders passed in the assessee's case to contend that there has been no suppression or intention to evade payment of duty. He has further submitted that the contents of the show-cause notice is with reference to the period from September 1999 to November 2002 but the allegations are based on letters dated 6-8-2004 and 16-9-2004 and the judgment of the Apex Court, that in the absence of there being any evasion of duty, the question of suppression does not arise at all and that the Tribunal was justified in quashing the impugned show-cause notice and granting relief to the respondent, which order does not call for any interference in this appeal. 8. Having heard the learned counsel on both sides and on perusal of the material on record, the only point that arises for our consideration is, as to - Whether, the order of the CESTAT calls for any interference in this appeal? 9. In order to appreciate the questions raised, it is necessary to note that the Apex Court decision referred to supra, in the case of the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ex Court held that quantity of cigarettes that are destroyed in the course of quality control test is not liable to Excise Duty but since no account had been maintained as to how much quantity was destroyed during the process of testing, the Apex Court held that entire stock of sticks sent for laboratory for quality control test was excisable to Excise Duty. It is on the basis of the said decision that the show-cause notice has been issued by the appellant in the instant case. However, the Apex Court clearly held that in respect of the cigarettes which are destroyed during the course of test, no Excise Duty is leviable. 12. Since the principal contention of the counsel for the appellant in the instant case is that the assessee had not maintained any account of the quantity of cigarettes sent for testing the quantity that was destroyed during the course of test and the quantity of cigarettes that was not destroyed, the demand made in the show-cause notice was justified and since there was suppression, the extended period of limitation was rightly invoked under the proviso to Section 11-A of the Act, it is necessary to answer as to whether there were suppression with an inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e enclosing a note on the cigarettes testing and stating that records were maintained with regard to smoking analysis and QUIS tests regarding moisture content loose shorts, firmness and PQRS i.e. Product Quality Rating System and the parameters and characteristic features of certain tests. 15. Subsequently, by letter dated 8-8-2000, the respondent informed the Department and subsequently, by letter dated 29-11-2000, the assessee wrote to the Range Superintendent, I.T.C. Meenakunte Range. 16. When things stood thus, show-cause notice dated 31-5-2001 was issued to the respondent stating that respondent-assessee had cleared Cigarettes for payment of duty on the ground that cigarettes were required for carrying out various tests and the said show-cause notice was for the period from July 2000 to February 2001, which was replied to by the assessee on 6-6-2001 and subsequently, an order dated 10-9-2001 was passed confirming the demand, against which respondent filed an appeal before the Commissioner (Appeals). 17. Subsequently, another show-cause notice dated 5-11-2001 was issued to the assessee for the period from March 2001 to June 2001, which was replied to on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the receipt of the said reply, the impugned show-cause notice dated 29-9-2004 was issued to the respondent by the Department, demanding duty of Rs. 1,65,80,915/- of cigarettes removed for testing during the period from September 1999 to November 2002, which was replied to by the assessee on 28-1-2005. Thereafter, by order dated 7-4-2005 the Commissioner confirmed the said duty demand against which the respondent filed an appeal before the CESTAT, which by its letter dated 3-1-2006 granted waiver of pre-deposit and disposed of the appeal on 20-7-2006 by setting aside the order-in-original of the Commissioner dated 7-4-2005. It is the said order which is in challenge before us in this appeal. 21. A detailed narration of the aforesaid facts has been made in order to ascertain as to whether the assessee had suppressed the facts and material before the Department with an intention to evade payment of excise duty, so as to justify the invoking of Section 11A of the Central Excise Act, 1944 (hereinafter, referred to as "the Act"). Section 11A(1) of the Act which deals with recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded, in which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h was brought to the notice of the Department by the assessee by letter dated 9-10-1999. Thereafter, there has been continuous correspondence between the assessee and the Department and also for the period from July 2002 to September 2003 there has been issuance of show-cause notice demanding payment of excise duty which was contested by the assessee and thereafter, payments have also been made which are acknowledged by the assessee in the show-cause notice dated 29-9-2004. It is just after the impugned period i.e., September 1999 to November 2002 that the decision of the Apex Court in the assessee's case was rendered on 10-12-2002 and till 6-8-2004 there was no correspondence by the Department with the assessee. It is only on 6-8-2004, that a letter was written by the Department to the assessee with regard to the account maintained in respect of the QUIS tests from the year 1999 onwards, which was replied to giving of the details. Subsequently, impugned notice dated 29-9-2004 has been issued invoking proviso to Section 11A. From the aforesaid material, we do not think that the circumstances mentioned under Section 11A are present in the instant case, so as to justify the extended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irretrievably lost during the course of testing instead of duty being paid on samples on other tests and therefore, the net differential duty of Rs. 65,38,263/- was being paid on 9-9-2004. This is of course, relating to the period subsequent to the period mentioned in the notice. 27. With regard to the allegation that the assessee had not maintained proper accounts and were not paying appropriate duty on the cigarettes drawn for various tests in their laboratory and that the assessee had willfully suppressed and mis-stated the facts to the Department for the period prior to 1-10-2003 with an intent to evade payment of duty, by reply dated 28-1-2005 the respondent had stated that the Department was aware of the facts and that the Officers of the Department had been visiting the factory on a day-to-day basis and had access to all registers and documents relating to manufacture of cigarettes; that there was no supression or mis-statement made to the Officers of the Department and that the issue with regard to the payment of duty on samples drawn for testing reached finality only with the Apex Court's decision; that in respect of the show-cause notices issued, after contest, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 1,65,80,914.74 has been demanded. In fact, the entire basis of the demand is based on presumptions and surmises and not on the basis of the records. 29. Further, when there was a bona fide doubt on the payment of duty with regard to the samples of cigarettes drawn for testing and the same was eleared only with the decision of the Apex Court, it cannot be held that there was suppression of facts or any wilful intention to evade duty. In fact, intention to evade duty by invoking the extended period of limitation has to be proved by the Department. When there is a bona fide doubt on the excisability of the goods, the extended period of limitation cannot be invoked. Further, when the facts are known to the Department and when the Officers of the Department have been inspecting the products and have also been in constant correspondence with the assessee, who has in turn replied to the various letters of the Department, it cannot be held that there is suppression on the part of the assessee, so as to justify invokation of proviso to Section 11A of the Act. In arriving at this conclusion, we are fortified by several decisions in this context. 30. Therefore, the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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