Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 6
PETITIONER:
COLLECTOR OF CENTRAL EXCISE, HYDERABAD.
Vs.
RESPONDENT:
CHEMPHAR DRUGS & LINIMENTS, HYDERABAD.
DATE OF JUDGMENT14/02/1989
BENCH:
MUKHARJI, SABYASACHI (J)
BENCH:
MUKHARJI, SABYASACHI (J)
RANGNATHAN, S.
CITATION:
1989 AIR 832 1989 SCR (1) 711
1989 SCC (2) 127 JT 1989 (1) 417
1989 SCALE (1)436
CITATOR INFO :
RF 1989 SC2278 (12)
ACT:
Central Excise and Salt Act, 1944/Central Excise Rules,
1944: Section 11A/Rules 10 and 173 Q--Manufacturer of patent
and proprietary medicines--Levy and demand of excise
duty--When arises-Limitation period of five years for rais-
ing demand--Condition for applicability.
HEADNOTE:
The respondent-firm manufactured patent and proprietary
(P & P) medicines failing under T.I. 14E and also pharmaco-
poeial preparations falling under T.I. 68 of the Central
Excise Tariff of an aggregate value of Rs.20,59,338.60 and
cleared the same during the period 1.4.79 to 31.3.80 without
payment of duty, availing the benefit of exemption of excise
duty under Notification No. 80 of 1980. The respondent also
cleared, during the period from 1st April, 1980 to 29th
October, 1980 (P & P) medicines failing under T.I.14E valued
at Rs.4,32,050.09.
The respondent filed a declaration for exemption, under
Notification No. 71 of 1978 dated 1.3.1978, and furnished
particulars of only the value of P & P medicines manufac-
tured and cleared during the preceding financial year 1979-
80 and did not furnish the particulars of the value of the
goods under Tariff Item 68 during that financial year. The
manufacturer also did not file any declaration under Notifi-
cation No. 111 of 1978 dated 9.5.1978, claiming exemption
from the licensing control. However, on July 30, 1980 the
firm filed a classification list in respect of P & P medi-
cines claiming exemption under Notification No. 80/80.
The appellant issued a show cause notice to the respond-
ent to explain as to why excise duty in respect of patent
and proprietary medicines manufactured and cleared by it
should not be demanded under proviso (a) to Rule 10(1) of
the Central Excise Rules and why penalty should not be
imposed under Rule 173Q of the Central Excise Rule, 1944 for
having cleared the goods without payment of duty in contra-
vention of Rule 173Q(a) and (d) of the Rules. On receipt of
reply, the appellant held the respondent to be ineligible
for the benefit of the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 6
712
two notifications and demanded duty in respect of the goods
cleared by them for the period 1.4.1980 to 29.10.80. He also
held that in view of the respondent’s failure to reveal
correct position, the firm was liable to pay the duty, and
that the time limit for the recovery of the duty under Rule
10 (Section 11A) of the Central Excise Rules would run for
five years.
The respondent filed an appeal before the Tribunal
contending that the demand for the period beyond six months
from the receipt of the show cause notice was time-barred
inasmuch as there was no suppression or mis-statement of
facts by the appellant with a view to evade payment of duty.
The Revenue’s plea was that there was suppression and/or
misdeclaration and/or wrong information furnished in the
declaration itself. Hence the appeal by the Revenue.
Dismissing the appeal,
HELD: 1.1 In order to make the demand for duty sustain-
able beyond a period of six months and up to a period of 5
years, in view of the proviso to sub-s. 11A of the Act, it
has to be established that the duty of excise had not been
levied or paid or short-levied or short-paid, or erroneously
refunded by reasons of either fraud or collusion or wilful
mis-statement or suppression of facts or contravention of
any provision of the Act or Rules made thereunder, with
intent to evade payment of duty. Something positive other
than mere inaction or failure on the part of the manufactur-
er or producer or conscious or deliberate withholding of
information when the manufacturer knew otherwise, is re-
quired before it is saddled with any liability, beyond the
period of six months. [717A-C]
1.2 Whether in a particular set of facts and circum-
stances there was any fraud or collusion or wilful mis-
statement or suppression or contravention of any provision
of any Act, is a question of fact depending upon the facts
and circumstances of a particular case. [717C-D]
In the instant case the assessee declared the goods on
the basis of their belief of the interpretation of the
provisions of the law that the exempted goods were not
required to be included and these did not include the value
of the exempted goods which the assessee manufactured at the
relevant time. The Tribunal found that that the explanation
was plausible, and also noted that the Department had full
knowledge of the facts, about manufacture of all the goods
manufactured by the respondent when the declaration was
filed by the respondent. The
713
respondent did not include the value of the product other
than those falling under Tariff Item 14E manufactured by the
respondent and this was in the knowledge, according to the
Tribunal, of the authorities. The findings of the Tribunal
have not been challenged before this Court. [717D-F]
The Tribunal also found that the facts of case did not
warrant any inference of fraud. [717D]
Having regard to these, and in view of the requirements
of s. 11A of the Act, the claim had to he limited to a
period of six months, prior to the date of issue of show
cause notice. The Tribunal was right in its conclusion.
[717G]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1632 of
1988.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 6
From the Order dated 8.1.1988 of the Customs Excise and
Gold (Control) Appellate Tribunal, New Delhi in Appeal No.
SD SB/T 716/81-C (Order No. 17/88-C.)
A.K. Ganguli, A. Subba Rao and Mrs. Sushma Suri for the
Appellant.
A.N. Haksar, R. Karanjawala, Ms. M. Arora and Mrs. M.
Karanjawala for the Respondent.
The Judgment of the Court was delivered by
SABYASACHI MUKHARJI, J. This appeal is under section
35(L)(b) of the Central Excises and Salt Act, 1944 (herein-
after called ’the Act’) against the order dated 8th January,
1988 passed by the Customs, Excise & Gold (Control) Appel-
late Tribunal. The issue involved in this appeal was whether
in the facts and the circumstances of the case, the Tribunal
was legally justified in restricting the demand of duty to
six months prior to the date of issue of show-cause notice,
particularly in a case where longer period was invoked on
the ground of suppression of information in the declaration
furnished by the respondent.
The respondent manufactured patent and proprietary (P &
P) medicines falling under T.I. 14E and also pharmacopoeial
preparations falling under T.I. 68 of the Central Excise
Tariff of an aggregate
714
value of Rs.20,59,338.60 and cleared during the period of
1.4.1979 to 31.3.1980, the same without payment of duty,
availing the benefit of exemption notification No. 80/80.
Under the provisions of sub-clause (ii) of clause 2 of
notification No. 80/80 dated 19th June, 1980 and sub-clause
(iii) of clause (a) of notification No. 71/78 dated 1.3.1978
the manufacturer would not be eligible for exemption under
the two notifications in respect of clearance of patent or
proprietary medicines from 1st April, 1980 since the notifi-
cation would not apply to a manufacturer who manufactures
excisable goods falling under more than one item of the 1st
Schedule of the Act, and the aggregate value of the clear-
ness of all such excisable goods by the manufacturer or on
his behalf are cleared for home consumption from one or more
factories during the preceding financial year had exceeded
Rs.20 lakhs.
The factory had cleared during the period from 1st
April, 1980 to 29th October, 1980 (P & P) medicines falling
under T.I. 14E valued at Rs.4,32,050.09. The central excise
duty payable on the goods removed was Rs.55,302.01. The
respondent filed a declaration for exemption under notifica-
tion No. 71/78 dated 1.3.1978, and furnished particulars of
only the value of P & P medicines manufactured and cleared
by it during the preceding financial year i.e. 1979-80, and
the respondent did not furnish the particulars of the value
of the goods cleared under Tariff item 68 during the finan-
cial year 1979-80. It was noticed that the manufacturer did
not file any declaration under Notification No. 111/ 78
dated 9.5. 1978 claiming exemption from the licensing con-
trol.
However, on 30th July, 1980 the firm filed a classifica-
tion list in respect of P & P medicines claiming exemption
under notification No. 80/80. A show-cause notice was issued
to the respondent who was asked to explain as to why
excise-duty in respect of Patent & Proprietary medicines
manufactured and cleared by it should not be demanded under
proviso (a) to Rule 10(1) of the Central Excise Rules and
why penalty should not be imposed on it under rule 173Q of
the Central Excise Rules, 1944 for having cleared the goods
without payment of duty in contravention of Rule 173Q (a)
and (d) of the Central Excise Rules.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 6
After submission of the reply by the respondents, the
Collector of Central Excise held the respondents to be
ineligible for the benefit of the two notifications and
therefore duty was demanded from them in respect of the
goods cleared by them for the period 1.4.1980 to
715
29.10. 1980. The Collector Was of the view that in view of
the respondents’ failure to reveal the correct position,
they were liable. The Collector was of the view that the
time limit under rule 10 (section 11A) would run for 5
years. The relevant portion of section 11A of the Act is as
follows:
"(11-A). Recovery of duties not levied or not
paid or short-levied or short-paid or errone-
ously refunded.--(1) when any duty of excise
has not been levied or paid or has been
short-levied or short-paid or erroneously
refunded, a Central Excise Officer may, within
six months from the relevant date, serve
notice on the person chargeable with the duty
which has not been levied or paid or which has
been short-levied or short-paid or to whom the
refund has erroneously been made, requiring
him to show cause why he should not pay the
amount specified in the notice:
Provided that where any duty of excise has not
been levied or paid or has been short-levied
or short-paid or erroneously refunded by
reason of fraud, collusion or any wilful
misstatement or suppression of facts, or
contravention of any of the provisions of this
Act or of the rules made thereunder with
intent to evade payment of duty, by such
person or his agent, the provisions of this
sub-section shall have effect, (as if for the
words "Central Excise Officer", the words
"Collector of Central Excise", and) for the
words "six months", the words "five years"
were substituted."
The respondent filed an appeal before the Tribunal. The
Tribunal considered the matter and noted that the appel-
lant’s case was that the demand for duty for the period
beyond six months was time barred; and the respondent’s case
was that the demand for the period beyond 6 months from the
receipt of show-cause notice, was time barred inasmuch as
there was no suppression or misstatement of facts by the
appellant with a view to evade payment of duty. In support
of its claim the respondent produced classification list
approved by the authorities during the period 1978-1979, and
also produced extracts from the survey register showing that
the officers had been visiting its factory from time to time
and also taking note of the previous goods manufactured by
the respondent. The plea of the revenue was that there was
suppression and/or mis-declaration and/or wrong information
furnished in the declaration itself. The Tribunal noted the
facts as follows:
716
"We observe it is not denied by the Revenue
that the appellants had been submitting their
classification lists from time to time showing
the various products manufactured by them
including those failing under 14E and 68 also
these containing alcohol. The officer who
visited the factory as seen from the survey
register at the factory also took note of the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 6
various products being manufactured by the
appellants. It cannot be said that the appel-
lants had held back any information in regard
to the range and the nature of the goods
manufactured by them. The appellants have
maintained that the value of the exempted
goods under T.I. 68 and also value of medi-
cines containing alcohol, according to their
interpretation, were not required to be in-
cluded for the purpose of reckoning of the
total excisable goods cleared by them. There
is nothing on record to show that the appel-
lants non-bonafidely held back information
about the total value of the goods cleared by
them with a view to evade payment of duty.
Their explanation that it was only on the
basis of their interpretation that the value
of the exempted goods were not required to be
included that they did not include the value
of the exempted goods which they manufactured
at the relevant time and failing under T.I. 68
is acceptable in the facts of that case. The
Departmental authorities were in full knowl-
edge of the facts about manufacture of all the
goods manufactured by them when the declara-
tion was filed by the appellants. That they
did not include the value of the product other
than these falling under T.I. 14E manufactured
by the appellants has to be taken to be within
the knowledge of the authorities. They could
have taken corrective action in time. We
therefore find there was no warrant in invok-
ing longer time limit beyond six months avail-
able for raising the demand. So far as the
demand for the period within six months reck-
oned from the date of receipt of the show
cause notice is concerned, we observe that the
appellant’s case is that value of the goods
under 68 was not required to be included but
the Revenue’s plea is that only value of the
specified goods under notification No. 71/78
and 80/80 was not required to be excluded."
On the aforesaid view the Tribunal came to the conclu-
sion that the demand raised on this for a period beyond 6
months was not maintainable.
717
Aggrieved thereby, the revenue has come up in appeal to
this Court. In our opinion, the order of the Tribunal must
be sustained. In order to make the demand for duty sustain-
able beyond a period of six months and up to a period of 5
years in view of the proviso to subsection 11A of the Act,
it has to be established that the duty of excise has not
been levied or paid or short-levied or short-paid, or erro-
neously refunded by reasons of either fraud or collusion or
wilful misstatement or suppression of facts or contravention
of any provision of the Act or Rules made thereunder, with
intent to evade payment of duty. Something positive other
than mere inaction or failure on the part of the manufactur-
er or producer or conscious or deliberate withholding of
information when the manufacturer knew otherwise, is re-
quired before it is saddled with any liability, beyond the
period of six months. Whether in a particular set of facts
and circumstances there was any fraud or collusion or wilful
misstatement or suppression or contravention of any provi-
sion of any Act, is a question of fact depending upon the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 6
facts and circumstances of a particular case. The Tribunal
came to the conclusion that the facts referred to hereinbe-
fore do not warrant any inference of fraud. The assessee
declared the goods on the basis of their belief of the
interpretation of the provisions of the law that the exempt-
ed goods were not required to be included and these did not
include the value of the exempted goods which they manufac-
tured at the relevant time. The Tribunal found that the
explanation was plausible, and also noted that the Depart-
ment had full knowledge of the facts about manufacture of
all the goods manufactured by the respondent when the decla-
ration was filed by the respondent. The respondent did not
include the value of the product other than those falling
under Tariff Item 14E manufactured by the respondent and
this was in the knowledge, according to the Tribunal, of the
authorities. These findings of the Tribunal have not been
challenged before us or before the Tribunal itself as being
based on no evidence.
In that view of the matter and in view of the require-
ments of section 11A of the Act, the claim had to be limited
to a period of six months as the Tribunal did. We are,
therefore, of the opinion that the Tribunal was fight in its
conclusion. The appeal therefore fails and is accordingly
dismissed.
In the facts and the circumstances of the case, the
parties will pay and bear their own costs.
N.P.V. Appeal dis-
missed.
718