Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 7
CASE NO.:
Appeal (civil) 5747-5749 of 2000
PETITIONER:
M/s Gopal Zarda Udyog etc.
RESPONDENT:
The Commissioner of Central Excise,New Delhi.
DATE OF JUDGMENT: 30/09/2005
BENCH:
S.N. VARIAVA,Dr. AR. LAKSHMANAN & S.H. KAPADIA
JUDGMENT:
J U D G M E N T
KAPADIA, J.
Whether, in the facts and circumstances of the case, the
tribunal was justified in holding that the ’additive mixture’
processed by the three appellants herein was excisable and
classifiable under chapter sub-heading 2404.49 of Central
Excise Tariff Act, 1985 and that the department was right in
invoking the extended period of limitation under the proviso to
section 11A(1) of Central Excise Act, 1944 (hereinafter referred
to as "the Act").
Briefly, the facts of the case are that M/s Hari Chand Shri
Gopal, M/s Gopal Industries and M/s Gopal Zarda Udyog were
the three assessees engaged in the manufacture of Chewing
Tobacco (Final Product) falling under sub-heading 2404.40 of
Tariff Act, 1985. In the manufacture of the final product, they
were using an inter-mediate product known as "additive
mixture". An intelligence was collected by the officers of the
preventive wing of the Commissionerate to the effect that the
appellants were manufacturing the said "additive mixture"
without obtaining registration certificate under section 6 of the
1944 Act read with rule 174 of the Central Excise Rules, 1944;
that they have been removing the said goods clandestinely from
their factories situated in Delhi; that they were unauthorisedly
clearing the said goods under transfer challans to their factories
in UP and HP (where the final product was manufactured). On
the basis of the aforestated intelligence, various premises
belonging to the three appellants were searched. Enquiries
were also made from traders dealing in the kimams as well as
from the manufacturers and the suppliers of the raw material.
The partners of the three appellant firms were also examined.
The department was informed that the said "additive mixture"
consisted of various ingredients like raw-kimam, menthol,
aromatic chemicals, spices, gulab jal, attar and perfumes etc.
The process of preparing additive mixture was explained in
detail by the partners. On the aforestated investigations, three
separate show-cause notices were issued, all dated 25.3.1997.
In the said show-cause notices, it was alleged that the appellants
were clandestinely manufacturing and clearing additive mixture
falling under sub-heading 2404.49 (up to 22.7.1996) and falling
under sub-heading 2404.40 on and after 22.7.1996, in
contravention of the provisions of the said 1944 Act and the
Rules with intention to evade duty/assessment. The show-cause
notices further record that on 15.10.1996 M/s Gopal Industries
and M/s Hari Chand Shri Gopal voluntarily obtained
registration certificates for the manufacture of the said mixture
under rule 174. The three show-cause notices were in respect
of the period 18.3.1994 to 26.9.1996 under the proviso to
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 7
section 11A(1) of the 1944 Act. In the case of M/s Gopal Zarda
Udyog, the department demanded duty for the period 18.3.1994
to 15.4.1995; in the case of Hari Chand Shri Gopal, the demand
was for the period 14.6.1995 to 24.9.1996; but in the case of
M/s Gopal Industries, the department demanded duty for the
period 16.6.1995 to 26.9.1996.
On dated 21.11.1997, replies were given to the three
show-cause notices. The appellants submitted that they were
engaged in the activity of manufacturing chewing tobacco,
which was an excisable product on which they have been
paying duty. In the reply, the appellants explained at length
the process by which the additive mixture came to be produced
in the three factories in Delhi. According to the appellants, the
additive mixture was not a final product; that it was a transient
product; it was not noticeable to the naked eye and that it was
unsaleable and useless for any other purpose. According to the
appellants, the composition of additive mixture was known only
to the blender. According to the appellants, the entire process
was shrouded in secrecy and was known only to the blender.
In the said reply, the appellants alleged that the details of the
process of manufacturing the final product as well as the
formulation of the additive mixture at the intermediate stage
was known to the department since 1992-93; that their records
and registers stood verified by the department since 1992-93;
that the said records indicated the receipt and utilization of the
additive mixture in the manufacture of the branded chewing
tobacco (final product) and that the said records were duly
checked by the department from time to time. That, the
partners of the appellants were also examined in 1992 by
Superintendent of Central Excise, New Delhi, when the entire
process of mixing and blending of the raw-material and the
status of transfer of the additive mixture from their units in New
Delhi to their factories in UP and HP was explained. In support
of what is stated above, the appellants placed reliance on the
panchnama dated 20.10.1992, under which their units were
searched by the department and which indicated the stock
position of the raw-material, additive mixture and the branded
chewing tobacco. According to the department, in 1993, the
Superintendent of Central Excise had personally visited their
factories and had also studied in detail the process of
manufacturing the branded chewing tobacco. The appellants
further contended that there was no intent to evade as the said
mixture was non-dutiable. In this connection, they relied on the
notification no.121/94-CE dated 11.8.1994 under which
additive mixture (input) falling under chapter sub-heading
2404.49 captively consumed in the manufacture of chewing
tobacco (final product) stood exempted from payment of duty.
That, the department had not denied their entitlement to
exemption under the said notification in the show-cause notices.
That, in fact, after seizure the said mixture was released/cleared
under the above notification without levy of duty and, therefore,
the department was not entitled to invoke the extended period
of limitation.
By order dated 20.5.1998, the commissioner confirmed
the demand. On the question of excisability, the commissioner
found that the additive mixture was a kimam, which was
manufactured by mixing sada kimam with spices, menthol,
aromatic chemical and perfumes etc. Further, the commissioner
found that the said kimam was marketable as a distinct
identifiable product. In this connection, he relied upon the
statements recorded under section 14 of M/s Globe Traders,
M/s Laxmi Fragrances (P) Ltd., M/s Gulab Gandhi Tobacco
Co. etc. That, after 1994, the said mixture (kimam) became
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 7
classifiable under chapter sub-heading 2404.49/2404.40 and
that despite the said changes, the appellants failed to get their
units registered with the department. That, the evidence
brought forth by the appellants regarding inspection of their
factories pertained to the years 1992 and 1993, during which
period the said mixture was not chargeable to duty. That, the
appellants were in the business of manufacturing and marketing
of chewing tobacco and, therefore, the fact that kimam was
chargeable to duty must have been in their knowledge and that
by bringing the above facts on record, the department had
discharged its initial burden of proving the conditions
mentioned in the proviso to section 11A(1) of the Act.
Aggrieved by the decision of the commissioner dated
20.5.1998, the matter was carried in appeal by the assessees to
the Customs, Excise and Gold (Control) Appellate Tribunal,
New Delhi (hereinafter referred to as "the tribunal"). The
appeals filed by the appellants herein were heard along with the
appeals filed by M/s Dharampal Satyapal.
By judgment dated 1.10.1999, the tribunal held that the
said additive mixture was a kimam; that it was excisable under
chapter sub-heading 2404.49/2404.40 of 1985 Tariff Act and
that the appellants had failed to disclose their activities in their
Delhi Units. In this connection, the tribunal expressly relied
upon the statement of Shailender Kumar Aggarwal, partner of
M/s Gopal Industries dated 28.9.1996 recorded under section
14 of the Act in which he has stated that M/s Gopal Industries
did not obtain registration certificates under a mistaken belief
that the activity of mixing/blending did not constitute
"manufacture". The tribunal further found that the
manufacturing activities in Delhi units were suppressed from
the department; that the appellants had failed to obtain excise
registration; and that the appellants had not fully complied with
the procedure of chapter X of 1944 rules subject to which the
benefit of exemption under notification no.121/94-CE was
available. The tribunal thereafter took note of the various
decisions of the tribunal which has taken the view that even
substantial compliance of the chapter X procedure was
sufficient for exemption and accordingly, the tribunal remitted
the matter to the commissioner to ascertain the question of
substantial compliance.
On remand, the commissioner came to the conclusion
vide his order dated 16.7.2002 that there was no substantial
compliance of the procedure under chapter X of 1944 rules.
Aggrieved by the said decision dated 16.7.2002, the
appellants herein preferred appeals to the tribunal. By
judgment and order dated 7.7.2003, the tribunal held that there
was substantial compliance of chapter X as there was evidence
on record indicating receipt and utilization of additive mixture
(input) in the manufacture of branded chewing tobacco (final
product) and following the judgment of this court in the case of
Thermax Private Ltd. v. Collector of Customs reported in 1992
(61) ELT 352, the tribunal held that the said additive mixture
was entitled to exemption under notification no.121/94-CE.
Against the said decision of the tribunal dated 7.7.2003,
the department has come to this Court by way of Civil Appeals
No.1878-1880 of 2004, which is a matter of separate judgment.
Therefore, the present civil appeals are filed by the assessees on
the question of excisability and limitation whereas the Civil
Appeals No.1878-1880 of 2004 are filed by the department on
the question of compliance of exemption notification
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 7
no.121/94-CE.
At the outset, we may point out that in the case of
Dharampal Satyapal v. Commissioner of Central Excise, New
Delhi reported in 2005 (183) ELT 241, this Court held that the
compound manufactured by M/s Dharampal Satyapal was a
kimam which was moved in balties on stock transfer basis to
their branded chewing tobacco factories located in UP and HP
constituted independent, distinct and identifiable product
known to the market as such and, therefore, the said kimam was
excisable and classifiable under sub-heading 2404.49/2404.40.
On the question of limitation, this Court on examination of facts
found that M/s Dharampal Satyapal used to buy from the
market a compound, similar to the compound which it used to
manufacture in its own units, and such similar compound was
used in the manufacture of Tulsi Zafrani Zarda (final product).
This court further found that M/s Dharampal Satyapal had
failed to disclose the existence of their units, they did not
maintain any records under the excise law, they clandestinely
manufactured their compound without informing the
department, and in the circumstances, the department was right
in invoking the extended period of limitation. It was argued on
behalf of the assessee in that case that there was no intent to
evade duty as the entire quantity of kimam was captively
consumed; that the assessee was entitled to modvat credit equal
to the demand and, therefore, the department was not entitled to
invoke the extended period. This argument was rejected by this
Court on the ground that no explanation was given by the
assessee for not disclosing the affairs of the units in which
kimam was manufactured; no explanation was given for not
getting the units registered or licensed; and no explanation was
given for failure to maintain the records under the 1944 Act. In
the circumstances, this Court found in the case of M/s
Dharampal Satyapal total non-compliance of the 1944 rules.
This Court observed that it was for M/s Dharampal Satyapal to
explain the basis of its alleged bona fide impression. It was
further found in that case that there was no evidence of receipt
and utilization of the kimam in the manufacture of Tulsi Zafrani
Zarda. In the circumstances, this Court dismissed the civil
appeals filed by M/s Dharampal Satyapal. This court held that
the burden to prove the defence of bona fides was on the
assessee and that the assessee in that case, M/s Dharampal
Satyapal, had failed to prove its bona fides. However, on the
question of applicability of notification no.121/94-CE dated
11.8.1994, this Court upheld the directions of the tribunal
remanding the case back to the commissioner for re-
examination. This remand was made by the tribunal because it
was argued on behalf of M/s Dharampal Satyapal, as by the
appellants herein, that there was no revenue implication as the
assessee was entitled to the benefit of the exemption under the
notification no.121/94.
The main point which arises for determination in these
civil appeals is whether the department was right in the facts
and circumstances of this case in invoking the extended period
of limitation.
In the case of Padmini Products v. Collector of
Central Excise reported in 1989 (43) ELT 195, this Court held
that in a given case where there is a scope for believing that the
goods were not excisable and consequently no license was
required to be taken then the extended period of limitation was
inapplicable. Mere failure or negligence on the part of the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 7
manufacturer either not to take out the licence or not to pay
duty in cases where there is a scope for doubt, does not attract
the extended period of limitation. Unless there is evidence that
the manufacturer knew that the goods were liable to duty or he
was required to take out a licence, there is no scope to invoke
the proviso to section 11A(1). For invoking the extended
period of limitation, duty should not have been paid or short-
levied or short-paid or erroneously refunded on account of
fraud, collusion or wilful suppression or mis-statement of facts
or wilful contravention of the Act or the Rules with the
intention to evade payment of duty. These ingredients postulate
a positive act, therefore, failure to pay duty or to take out a
licence is not necessary due to fraud, collusion etc. Likewise,
suppression of facts is not a failure to disclose the legal
consequences of a certain provision.
In case of M/s Dharampal Satyapal (supra), the assessee
used to buy Lucknowi Kimam from the market from time to
time and used the same in the manufacture of branded chewing
tobacco (final product). In the case of M/s Dharampal
Satyapal, apart from compound prepared in its unit, it used to
buy Lucknowi Kimam from the market which was similar to
the compound produced by the assessee and the same was
cleared to the licensed factories in UP and HP, where it was
diluted and used in the manufacture of Tulsi Zafrani Zarda. In
that matter, the commissioner had recorded a categorical
finding that the assessee M/s Dharampal Satyapal knew that
kimam was liable to duty and that it was required to obtain ’L-
6’ licence because M/s Dharampal Satyapal used to buy
Lucknowi Kimam from the other manufacturers, who used to
manufacture Lucknowi Kimam after obtaining registration and
the requisite licence. There is no such finding by the
commissioner in the present case. In the circumstances, on the
question of invocation of extended period of limitation, the
judgment of this Court in the case of M/s Dharampal Satyapal
(supra) will not apply.
In the case of Cosmic Dye Chemical v. Collector of
Central Excise, Bombay reported in [1995 (75) ELT 721], this
Court held that so far as fraud and collusion are concerned,
intent to evade duty is built into these words. However, so far
as "mis-statement" or "suppression of facts" are concerned,
they are clearly qualified by the word "wilful" preceding the
words "mis-statement or suppression of facts", which means
"with the intent to evade duty". It was further observed that
the next set of words in the proviso to section 11A(1) which
refers to contravention of the provisions of the Act or the Rules
are qualified by the words "with intent to evade payment of
duty". Therefore, this Court has held that there cannot be a
suppression or mis-statement of fact which is not wilful. Mis-
statement or suppression of facts must be wilful. In that case,
on facts, this court found that the assessee was under a bona
fide impression that the value of its product was not includible
in its declaration for the reason that the said product was
exempt from duty under the notification dated 23.11.1961,
because two High Courts have taken the view that the product
was exempt from duty whereas two other High Courts had
taken contra-view. In the aforestated circumstances, this court
held that the mis-statement in the declaration filed by the
assessee or the suppression of facts therein was not wilful.
Applying the above test to the facts of the present case,
we find that the substance of the show-cause notices issued in
the present case was based on clandestine removal of the
kimam from the units in Delhi with an intention to evade
payment of excise duty or assessment. The show-cause notices
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 7
also alleged contravention of the provisions of the Act and the
Rules on the part of the appellants in failing to get their units
registered under section 6 read with rule 174 of the 1944 Rules.
However, we find from the facts that on 14.7.1992, stock
verification was carried out by the department inside the
premises of the appellants by anti-evasion department as also
by the jurisdictional central excise officer. On 20.10.1992, the
partner of the appellant was required to remain present before
the Superintendent, Central Excise, New Delhi. His statement
was recorded under section 14. In that statement, he has stated
that in their units in New Delhi, there were three rooms in
which raw-material was stored. In the said statement, he has
further stated that the appellants were blending and mixing the
additive mixture which was then transferred to their factories at
UP and HP for manufacture of branded chewing tobacco. In the
panchnama dated 20.10.1992, under which the premises of the
appellants in Delhi were searched, the manufacturing process of
additive mixture was specifically indicated. Even at that time,
there was stock verification of the various raw-materials used in
the manufacture of chewing tobacco. Under item 59 of that
panchnama, the stock of additive mixture has been specifically
indicated. Further, on 30.4.1993, the Superintendent of Central
Excise had also visited the factory of the appellants and had
actually studied the process of manufacture in Delhi. On
3.5.1993, a letter was addressed to the appellants in which the
appellants were called upon to supply all information regarding
the process of obtaining additive mixture which was used in the
manufacture of chewing tobacco. On receipt of the said letter,
the appellants clearly indicated the ingredients used by them in
the manufacture of additive mixture. On 20.9.1993, the officers
of the department again visited the various premises of the
appellants. They conducted physical stock checking. They saw
registers maintained by the appellant in respect of different
types of additive mixtures. All the registers were checked and
verified on that day. There is no finding in the present case that
the appellants did not answer the queries made by the
department. Moreover, the tribunal in the connected appeal has
recorded a finding that the appellants were maintaining transfer
challans under which the said kimam was transferred to other
units. The tribunal has further recorded a finding in the
connected civil appeals no.1878-1880 of 2004 that the
appellants were maintaining form-IV register as well stock
register regarding receipt of kimam in their factories in UP and
HP from their factories in Delhi. That, after the change in the
entries in 1994, no show-cause notice was ever issued. In the
circumstances, although there was contravention of the
provisions of section 6 read with rule 174 and although there
was contravention in not obtaining registration of the units in
Delhi, we are of the view that there was no intent to evade
payment of duty.
For the aforestated reasons, we hold that "additive
mixture" (kimam) was excisable and classifiable under chapter
sub-heading 2404.49/2404.40 of 1985 Tariff Act, as held in the
case of Dharampal Satyapal (supra), however, on the facts
and circumstances of this case, the department was not entitled
to invoke the extended period of limitation under the proviso to
section 11A(1) of the said Act. Accordingly, these civil appeals
are partly allowed, with no order as to costs.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 7