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TMI Blog2025 (4) TMI 881X X X X Extracts X X X X X X X X Extracts X X X X ..... eparate central excise registration for the iron and steel manufacturing facility at Raigarh. 3. Coal, being a natural product, has different physio-chemical properties with reference to the extent of ash content, volatile matter and carbon percentage present in it. To segregate coal with reference to minimum level of ash content, volatile matter and carbon percentage, coal is subjected to a process of washing, which is a process of physically segregating coal of different grades. 4. The entire coal raised from the mines is generally called "Raw"/"Run-of-Mine" coal [ROM coal]. A part of such ROM coal, which can be directly used by the JSPL steel manufacturing facility, is cleared as such and the remaining coal is subjected to a process of washing for physical segregation of the required composition. This coal is referred to as "Washed coal". During the process of segregating coal though washing, two by-products, namely, Middlings and Rejects are generated. These by-products are also coal, but the composition is not suitable for use in metallurgical operations. Middlings are coal with high density which are generally used for power generation, while Rejects contain high ash and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the quantity of production of coal from COAL WASHERY is higher than that of coal fed into COAL WASHERY. Why it so? Please make available the same by 10.04.12" 9. The appellant sent a reply dated 10.04.2012 enclosing copy of the monthly returns of coal submitted to the Coal Controller for the period from July 2011 to March 2012. The relevant portion of the letter is reproduced: "In response to your letter bearing no. 898 dated 30.03.2012 we enclose herewith copy of monthly return of coal submitted to the Coal Controller, Kolkata for the period from July 2011 to March 2012." 10. According to the appellant, as the ROM coal and Washed coal were captively consumed for steel manufacturing at JSPL, the appellant computed the assessable value of such ROM coal and Washed coal in terms of rule 8 of the Central Excise Valuation Rules, 2000 [the 2000 Valuation Rules], which requires the value to be computed at 110% of the cost of production, determinable in terms of CAS-4 prescribed by the Institute of Cost Accountants of India. 11. The appellant claims that for this reason it prepared two separate statements of cost of production for each financial year. The first being for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,16,71,23,142 1,83,72,03,554 67,00,80,412 2014-15 1,39,06,97,395 2,05,33,28,555 66,26,31,160 15. Thus, according to the appellant, as a lower value towards the by-product was deducted while computing the value of the Washed coal, higher central excise duty was paid by the appellant on Washed coal than what should have been actually discharged. 16. A show cause notice dated 08.04.2016 was issued to the appellant. It alleges that the entire coal cleared to the steel manufacturing facility of JSPL, other than the quantity of ROM coal cleared to the steel manufacturing facility of JSPL, represents clearance of Washed coal, though according to the appellant part of the coal that was cleared to JSPL included Middlings. The show cause notice, therefore, computes the differential central excise duty liability by multiplying the presumed quantity of Washed coal cleared by taking 110% of the CAS-4 value for each year in question. The show cause notice also invokes the extended period of limitation for the reason that but for the audit, the factum of short-payment of duty would not have come to light and would have remained unnoticed. 17. The appellant filed a reply to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ati made the following submissions: (i) It is an undisputed position that the appellant had effected clearance of ROM coal, Washed coal and Middlings during the period in dispute, as verified by the department from the data filed with the Coal Controller and on comparison with the figures disclosed in the ER-1 return. From the said verification report, it is evident that the appellant had effected clearances of by-product Middlings, which the show cause notice erroneously presumes to be Washed coal while raising the demand of differential central excise duty against the appellant; (ii) Even if clearance of Middlings is regarded as part of clearance of Washed coal, then too there can be no demand of differential central excise duty as the total cost of production considered while computing the CAS-4 value for Washed coal was not disputed. The only consequence would be that the per unit cost of production of Washed coal would reduce substantially, if the quantum of Middlings is added to the quantity cleared as Washed coal; (iii) In March 2012 itself, the department had called for information/copies of the returns filed with the Cost Controller and thereafter on 18.04.2012 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of production and clearances, value of goods cleared, tariff heading, exemption notification and availment of CENVAT credit; and (vi) The extended period of limitation was correctly invoked in the facts and circumstances of the case. 23. The submissions advanced by the learned counsel for the appellant and the learned special counsel appearing for the department have been considered. 24. Central excise duty on coal was introduced from 01.03.2011, but in terms of an earlier notification dated 16.03.1995 all goods manufactured in a mine were exempted from duty. However, w.e.f. 24.03.2011 the said Notification was amended to exclude "coal" and so w.e.f. 24.03.2011 coal produced and cleared from a mine became leviable to central excise duty. 25. The appellant is a captive coal mine of JSPL. It is engaged in raising coal and the entire coal raised by the appellant is captively consumed at the JSPL steel manufacturing facility. The coal that is raised from the mine is known as ROM coal. Part of this ROM coal is directly used in the manufacturing of steel by JSPL. The balance of the ROM coal is washed by the appellant. After washing, three products emerge, namely, Washed coal, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dlings is treated as Washed coal "3.5.2 On perusal of the CAS-4 submitted by the Noticee for the period 2011-12 to 2014-15, it is observed that they are maintaining CAS-4 under two categories (i) CAS-4 for ROM coal (ii) CAS-4 for washed Coal separately. The CAS-4 for ROM coal for the said period indicate quantity of production and clearance of ROM coal, its cost of production and 110% of cost of production including royalty amount. Whereas the CAS-4 for Washed Coal for the said period does not mention the clearance quantity of Washed Coal ***** but indicates the consumption of raw coal in washery and its cost of production along with 110% of cost of production including royalty amount. 3.6 The Noticee in its defense mainly contested the demand raised under the impugned Show Cause Notice on the ground that "the value of by-product cannot be determined under CAS-4, rather on the basis of its transaction value and the quantity of its by-products [said to be middlings and pond slurry] are also included under the ibid demand of duty which is improper and not demandable". In this regard, on perusal of copy of ER-1 available on record, it is observed from the body of ER-1, that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed unit M/s. Jindal Steel and Power Ltd., Raigarh in terms of Rule 8 of the Valuation Rules, 2000 read with Section 4(1)(b) of the Central Excise Act, 1944. Accordingly, the demand raised under the impugned Show Cause Notice is liable to be confirmed on this count. Held Accordingly." (emphasis supplied) 30. The findings recorded by the Principal Commissioner in respect of the second issue are as follows: (ii) Invocation of extended period "3.10. The Noticee in its defense also contested the invocation of extended period of limitation. In the instant case, it is observed that the Noticee has not disclosed the removal of impugned goods for the captive consumption/to the related persons. It has also suppressed the cost of production and failed to discharge the correct duty payable on 110% of CAS-4 value on coal cleared to its unit in terms of Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000; the Central Excise Rules, 2002 read with Section 4(1)(b) of Central Excise Act 1944. Further, it has not reflected the correct "transaction value" in their ER-1 Returns filed for the said period. These omissions of the Noticee came to the kno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rought on record by the appellant and on verification have not been disputed by the department. These returns furnish complete details of the quantity of Middlings cleared to JSPL on a month to month basis. The Principal Commissioner was required to examine this issue, more particularly when such a contention was raised by the appellant in response to the show cause notice. In fact, the Principal Commissioner has recorded a finding that apart from ER-1 returns the appellant did not submit any document to substantiate the claim that the by-product Middlings were also cleared to JSPL. Failure to examine the returns filed by the appellant in Form B before the Coal Controller has vitiated the findings recorded by the Principal Commissioner. The quantity of Middlings cleared to JSPL could not have been treated as Washed coal. 36. It also needs to be noted that the Principal Commissioner has not disputed that Middlings also emerge together with Washed coal and Rejects after ROM coal is washed. All that has been stated by the Principal Commissioner is that the appellant did not disclose the figure of Middlings cleared to JSPL in the ER-1 returns filed before the department. 37. The co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducted while computing the cost of production of Washed coal. In any view of the matter, the appellant had in the returns filed before the Coal Controller clearly indicated the amount of Middlings that were supplied to JSPL plant on a month to month basis. 44. Learned special counsel for the department also urged that the appellant did not separately furnish details of ROM coal, Washed coal and Middlings in the ER-1 returns. 45. According to the learned counsel of the appellant, rule 12 of the Central Excise Rules does not require disclosure of each variety of coal cleared in the ER-1 returns for the disputed period. 46. There is substance in the submission advance by the learned counsel for the appellant that till 24.03.2011 there was exemption available in respect of all coal raised in mines. It is thereafter that upon withdrawal of the exemption levy was introduced. This fact has been overlooked in the show cause notice as well as in the impugned order while confirming the demand raised for the quantity cleared in the month of March 2011. Even otherwise, the Principal Commissioner could not have ignored the returns filed by the appellant before the Coal Controller. These r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom a perusal of sub-section (1) of section 11A of the Central Excise Act that where any duty of excise has not been levied or paid, for any reason, other than the reason of fraud or collusion or any wilful mis-statement or suppression of facts or contravention of any of the provisions of the Central Excise Act or the Rules made thereunder with intent to evade payment of duty, the Central Excise Officer, shall within one year from the relevant date, serve notice on the person chargeable to the duty which has not been paid. However, sub-section (4) of section 11A of the Central Excise Act provides that where any duty of excise has not been levied by reason of fraud or collusion or any wilful mis-statement or suppression of facts or contravention of any of the provisions of the Central Excise Act with intent to evade payment of duty, the Central Excise Officer, shall within five year from the relevant date, serve notice on the person to show cause why he should not pay the amount specify in the notice. 50. To examine whether the extended period of limitation could have been invoked, it would be appropriate to first reproduce allegations made in the show cause notice on this issue a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... phasis supplied) 51. The appellant filed a detail reply on this aspect and the relevant portions are as follows: "2.4 The records of the Noticee are regularly audited by the Internal Audit, Central Excise Headquarters, Raipur, including the period involved in the present case. The following table provides information as to dates when audits were conducted: Dates of Audit Period covered 30-8-2012 to 6-9-2012 March 2011 to March 2012 24-3-2014 to 25-3-2014 April 2012 to December 2013 16-3-2015 to 19-3-2015 January 2014 to February 2015 1-3-2016 March 2015 to January 2016 F.4 ***** There is no allegation that the Noticee had not filed the statutory returns or the returns were incomplete or the relevant cost of production statement were not submitted. The only charge against the Noticee is that correct assessable value was not furnished in the returns and said statements. F.5 The Noticee has sufficiently explained hereinbefore as to correctness of the figures mentioned in the returns and the erroneous basis taken in the SCN for raising the present demand. If at all, there is any alleged discrepancy, the same is entirely attributable to the incorrect u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h circumstances, invoking the ingredients of fraud, suppression, wilful misstatement etc. with intention to evade payment of duty, in an attempt to sustain a demand issued covering extended period of limitation, is bound to be rejected in view of the precedents." (emphasis supplied) 52. The Principal Commissioner did not accept the submissions made by of the appellant on this issue, and recorded the following findings: "3.10. The Noticee in its defense also contested the invocation of extended period of limitation. In the instant case, it is observed that the Noticee has not disclosed the removal of impugned goods for the captive consumption/to the related persons. It has also suppressed the cost of production and failed to discharge the correct duty payable on 110% of CAS-4 value on coal cleared to its unit in terms of Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000; the Central Excise Rules, 2002 read with Section 4(1)(b) of Central Excise Act 1944. Further, it has not reflected the correct "transaction value" in their ER-1 Returns filed for the said period. These omissions of the Noticee came to the knowledge of the depa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e value according to the understanding of the appellant had been furnished, as Middlings cannot be treated as Washed coal and, therefore, it cannot be said that the appellant had suppressed any fact from the department. Learned counsel also submitted that in any view of the matter, even if it is presumed that the appellant had suppressed facts, suppression was not with an intention to evade payment of excise duty. 55. Learned special counsel appearing for the department, however, supported the invocation of the extended period of limitation and contended that it was clearly invokable. 56. The show cause notice issued to the appellant merely mentions that the appellant had not determined the correct assessable value in the ER-1 returns and this would amount to suppression of facts with intent to evade payment of duty. The show cause notice also mentions that this fact came to the notice of the department only when an enquiry was initiated. 57. The appellant had not only pointed out that audits of its records had been conducted in 2012 and 2014 but also pointed out that complete details had been furnished to the department and merely because a different opinion may have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts. It is in this context that the Supreme Court observed that the act must be deliberate to escape payment of duty. The relevant observations are: "2. ***** The Department invoked extended period of limitation of five years as according to it the duty was shortlevied due to suppression of the fact that if the turnover was clubbed then it exceeded Rupees Five lakhs. ***** 4. A perusal of the proviso indicates that it has been used in company of such strong works as fraud, collusion or willful default. In fact it is the mildest expression used in the proviso. Yet the surroundings in which it has been used it has to be construed strictly. It does not mean any omission. The act must be deliberate. In taxation, it can have only one meaning that the correct information was not disclosed deliberately to escape from payment of duty. Where facts are known to both the parties the omission by one to do what he might have done and not that he must have done, does not render it suppression." (emphasis supplied) 60. This decision of the Supreme Court in Pushpam Pharmaceuticals was followed by the Supreme Court in Anand Nishikawa Co. Ltd. vs. Commissioner of Central Excise, Meerut-(2005 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or suppression of facts is, in our opinion, untenable. If that were to be true, we fail to understand which form of nonpayment would amount to ordinary default? Construing mere non-payment as any of the three categories contemplated by the proviso would leave no situation for which, a limitation period of six months may apply. In our opinion, the main body of the Section, in fact, contemplates ordinary default in payment of duties and leaves cases of collusion or wilful misstatement or suppression of facts, a smaller, specific and more serious niche, to the proviso. Therefore, something more must be shown to construe the acts of the appellant as fit for the applicability of the proviso." (emphasis supplied) 63. The Supreme Court in Continental Foundation Joint Venture vs. Commissioner of Central Excise, Chandigarh -2007 (216) E.L.T. 177 (S.C.) also observed, in connection with section 11A(4) of the Excise Act, that suppression means failure to disclose full information with intention to evade payment of duty and the observations are as follows: "10. The expression "suppression" has been used in the proviso to Section 11A of the Act accompanied by very stro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The Delhi High Court further observed that the contention of MTNL that receipt was not taxable under the Act is a substantial one and no intent to evade tax can be inferred by non-disclosure of the receipt in the service tax return. The relevant portion of the observations are: "28. In terms of the proviso to Section 73(1) of the Act, the extended period of limitation is applicable only in cases where service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud, or collusion, or wilful misstatement, or suppression of facts, or contravention of any provisions of the Act or the Rules made thereunder with an intent to evade payment of service tax. However, the impugned show cause notice does not contain any allegation of fraud, collusion, or wilful misstatement on the part of MTNL. The impugned show cause notice alleges that the extended period of limitation is applicable as MTNL had suppressed the material facts and had contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Middlings was not included, the appellant had suppressed facts with intention to evade payment of central excise duty. 68. In this connection, it would be pertinent to refer to the judgment of the Supreme Court in Commissioner of C. Ex. & Customs vs. Reliance Industries Ltd.- 2023 (385) E.L.T. 481 (S.C.). The Supreme Court held that if an assessee bona-fide believes that it was correctly discharging duty, then merely because the belief is ultimately found to be wrong by a judgment would not render such a belief of the assessee to be malafide. If a dispute relates to interpretation of legal provisions, it would be totally unjustified to invoke the extended period of limitation. The Supreme Court further held that in any scheme of self-assessment, it is the responsibility of the assessee to determine the liability correctly and this determination is required to be made on the basis of his own judgment and in a bona-fide manner. The relevant portion of the judgment of the Supreme Court is reproduced below: "23. We are in full agreement with the finding of the Tribunal that during the period in dispute it was holding a bona fide belief that it was correctly discharging its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uctions Private Limited vs. The Commissioner, Central Excise Commissionerate, Udaipur - Service Tax Appeal No. 54385 of 2015 decided on 15.11.2023, wherein it was observed: "11. Both the SCNs further state that had the audit not conducted scrutiny of the records, the short paying the service tax would not have come to notice. It is a matter of fact that all the details were available in the records of the appellant. The appellant was required to furnish returns under section 70 with the Superintendent of Central Excise which it did. It is for the Superintendent to scrutinize the returns and ascertain if the service tax had been paid correctly or not. If the assessee either does not make the returns under section 70 or having made a return, fails to assess the tax in accordance with the provisions of Chapter or Rules made thereunder, the Superintendent of Central Excise can make the best judgment assessment under section 72. For this purpose, he may require the assessee to produce such accounts, documents or other evidence, as he may deem necessary. Such being the legal position, if some tax has escaped assessment which came to light later during audit, all it shows is that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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