Integral Coach Factory vs Commissioner of GST&CCE (Chennai South)

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
CHENNAI
REGIONAL BENCH - COURT No. I


Excise Appeal No.41012 of 2018

(Arising out of Order in Appeal No.30/2018 (CTA-I), dated 16.01.2018, passed by the Commissioner of
GST & Central Excise (Appeals I), 26/1, Mahatma Gandhi Road, Nungambakkam, Chennai 600 034)



M/s. Integral Coach Factory ...Appellant
Ministry of Railways
Perabmbur
Chennai 600 038

Versus

Commissioner of GST & Central Excise ...Respondent
No.26/1, Mahatma Gandhi Road
Nungambakkam, Chennai 600 034

AND

Excise Appeal No.41739 of 2018

(Arising out of Order in Original No.59/2018 CH.N.GST, dated 28.03.2018, passed by the Principal
Commissioner of GST & Central Excise, Chennai North Commissionerate, 26/1, Mahatma Gandhi Road,
Nungambakkam, Chennai 600 034)

M/s. Integral Coach Factory ...Appellant
Ministry of Railways
Perabmbur
Chennai 600 038

Versus

Commissioner of GST & Central Excise ...Respondent
No.26/1, Mahatma Gandhi Road
Nungambakkam, Chennai 600 034


APPEARANCE:

Ms. V. Pooja, Advocate for the Appellant
Mr. Sanjay Kakkar, Authorised Representative for the Respondent


CORAM :
HON’BLE MR. VASA SESHAGIRI RAO, MEMBER (TECHNICAL)
HON’BLE MR. AJAYAN T.V. MEMBER (JUDICIAL)


FINAL ORDER Nos.41142-41143/2026

DATE OF HEARING : 29.05.2026
DATE OF DECISION : 29.10.2026

2

Per AJAYAN T.V.

The two appeals before us are by M/s. Integral Coach Factory, a
production unit of the Ministry of Railways. Excise Appeal No.41012 of
2018 assails the Order in Appeal No.30/2018 (CTA-I) dated
16.01.2018, by which the Commissioner of GST & Central Excise
(Appeals I), Chennai upheld the rejection of the appellant's claim for
refund of Rs.5,45,11,106/- in so far as it related to waste and scrap
arising in the manufacture of goods of headings 8601 to 8606. Excise
Appeal No.41739 of 2018 assails the Order in Original No.59/2018
CH.N.GST dated 28.03.2018, by which the Principal Commissioner of
GST & Central Excise, Chennai North Commissionerate confirmed a
demand of Rs.5,19,00,124/- on the very same waste and scrap, with
interest and an equal penalty. Both appeals arise from one audit
objection and arise from interpretation of applicable notifications. They
were heard together and are disposed of by this common order.

Relevant Facts
2. The appellant manufactures railway coaches falling under
headings 8601 to 8606, principally sub headings 8603 and 8605, and
parts of railway coaches falling under heading 8607 of the First
Schedule to the Central Excise Tariff Act, 1985, at its factory at
Perambur, Chennai. It is a factory belonging to the Central
Government and functions under the Ministry of Railways. During the
period in dispute, namely 30.05.2012 to 31.03.2014, the coaches were
cleared on payment of duty at 1% under Sl.No.106 of Notification
No.1/2011-CE dated 01.03.2011, without availing CENVAT credit. The
parts of heading 8607 were cleared without payment of duty. Their
exemption had been restored with retrospective effect from
20.04.2011 by Section 139 of the Finance Act, 2012, which inserted
Sl.No.20 in Notification No.62/95-CE dated 16.03.1995, and had been
extended for the interim period by Notification No.23/2012-CE dated
08.05.2012. The waste and scrap of iron and steel generated in the
factory was cleared without payment of duty, the appellant treating it
as covered by Notification No.27/2011-CE dated 24.03.2011.

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3. In the course of audit of the appellant's records, the Internal
Audit Wing of the then Chennai II Commissionerate raised two
objections. The first was that the parts of heading 8607 were dutiable.
The second was that Notification No.27/2011-CE was not available to
the waste and scrap, since its proviso denies the benefit where the
factory also manufactures excisable goods other than those cleared
under Notification No.1/2011-CE or Notification No.20/2011-CE, and
the appellant also manufactured goods of heading 8607. The appellant
paid Rs.6,60,13,687/- and thereafter Rs.14,26,699/- and
Rs.84,28,396/- during January to March 2014, in all Rs.7,58,68,782/-,
towards both objections. Of this sum, Rs.5,45,11,106/- represents the
duty on waste and scrap for the period from 30.05.2012 to
31.03.2014, which was paid on 07.03.2014, 17.03.2014 and
29.03.2014.

4. On 18.12.2014 the appellant sought refund of the entire sum of
Rs.7,58,68,782/-. By its letter dated 09.02.2015 it specifically claimed
that the waste and scrap arising in the manufacture of goods of
headings 8601 to 8606 was exempt under Sl.No.17 of Notification
No.62/95-CE, because goods cleared under Notification No.1/2011-CE
are exempted goods, as Rule 2(d) of the CENVAT Credit Rules, 2004
(CCR), as amended by Notification No.3/2011-CE (NT) dated
01.03.2011, recognises. The Assistant Commissioner, Chennai I
Division, by Order in Original No.01/2015-RF dated 08.04.2015,
sanctioned Rs.2,13,57,676/-, being the duty of Rs.1,84,11,789/- and
interest of Rs.29,45,887/- paid on the parts of heading 8607. He
rejected the refund of Rs.5,45,11,106/-. In his view the expression
exempted goods in Sl.No.17, being undefined in the Central Excise
Act, 1944 (the Act) and in the notification, bears its dictionary
meaning of goods fully exempted or chargeable to nil rate of duty,
while the definition in Rule 2(d) is confined to the CCR. He accepted
that the waste and scrap arising in the manufacture of goods of
heading 8607 was eligible under Sl.No.17, but declined refund even of
that portion because it had not been separately worked out.

5. On appeal, the Commissioner (Appeals), by the Order in Appeal
No.30/2018 (CTA-I) dated 16.01.2018, upheld the rejection in so far
as it concerned the waste and scrap of goods of headings 8601 to
8606. He held that Notification No.27/2011-CE was barred by its

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proviso, the appellant also manufacturing goods of heading 8607, and
that goods cleared at 1% under Notification No.1/2011-CE cannot be
construed as exempted goods for the purpose of Sl.No.17, the CCR
definition being meant only for matters relating to CENVAT credit. As
regards the waste and scrap of goods of heading 8607, he directed the
original authority to call for the appellant's workings and to extend a
pro rata refund after verification. Excise Appeal No.41012 of 2018 is
preferred against this order.

6. While that appeal was pending before the Commissioner
(Appeals), the Commissioner of Central Excise, Chennai II issued Show
Cause Notice No.4/2017 dated 06.06.2017 on the same audit
objection. The notice alleged that the proviso to Notification
No.27/2011-CE disentitled the appellant to the exemption. It proposed
recovery of Rs.5,21,04,932/-, comprising duty of Rs.5,05,87,313/-,
Education Cess of Rs.10,11,746/- and Secondary and Higher Education
Cess of Rs.5,05,873/-, on waste and scrap cleared from June 2012 to
February 2014, by invoking the extended period under Section 11A(4)
of the Act. It further proposed appropriation of the amount already
paid, recovery of interest of Rs.77,73,433/- under Section 11AA and
imposition of penalty under Section 11AC. The only foundation laid for
the extended period was that the appellant, working under self
assessment, had not furnished details of the scrap removed, which
came to light only on audit, and had thereby suppressed facts with
intent to evade duty.

7. The appellant did not file any written reply. At the personal
hearing on 31.01.2018, the appellant contended that the subject
matter stood covered by the refund proceedings and that the notice
was therefore void, relying on Atul Ltd v. CCE, Surat II, 2009 (237)
E.L.T. 287 and National Aluminium Company Ltd v. CCE, 2017 (357)
E.L.T. 873 . The Principal Commissioner, by the Order in Original dated
28.03.2018, rejected that plea on the reasoning that the refund
proceedings had a different scope. He held Notification No.27/2011-CE
to be unavailable and confirmed duty of Rs.5,19,00,124/- on waste
and scrap of goods of headings 8601 to 8606 for June 2012 to
February 2014. He appropriated that sum from the Rs.5,21,04,932/-
already paid, demanded interest under Section 11AA, and imposed an
equal penalty under Section 11AC(1)(b) with the option of a reduced

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penalty under Section 11AC(1)(c). The extended period was sustained
on the ground that the clearances of scrap ought to have been shown
in the monthly ER-1 returns, and would not have come to the
knowledge of the Department but for the audit. The demand of
Rs.2,04,808/- on waste and scrap of goods of heading 8607 was
dropped as exempt under Sl.No.17 of Notification No.62/95-CE. Excise
Appeal No.41739 of 2018 is preferred against this order.

Submissions on behalf of the appellant
8. Ms. V. Pooja, learned Counsel for the appellant, contended that
the waste and scrap generated in the factory was wholly exempt,
whether one looked to Notification No.27/2011-CE or to Sl.No.17 of
Notification No.62/95-CE. The proviso to Notification No.27/2011-CE,
she argued, is attracted only where other excisable goods are also
manufactured, and goods of heading 8607, being exempt, are not
goods subject to a duty of excise within Section 2(d) of the Act. The
lower authorities were said to have erred in reading the expression
exempted goods in Sl.No.17 narrowly. That expression is not defined
in the Act or in the notification, and its meaning may legitimately be
drawn from Rule 2(d) of the CCR, which forms part of the same code
of central excise law and expressly includes goods cleared under
Notification No.1/2011-CE. Reliance was placed on the decision of the
jurisdictional High Court in the appellant's own case, CCE, Chennai II
v. Integral Coach Factory, 2015 (322) E.L.T. 434 (Mad.) , for the
proposition that the character of exempted goods is not lost by an
erroneous payment of duty or treatment by the assessee.

9. Ld. Counsel pointed out that the Revenue itself accepts that the
waste and scrap of goods of heading 8607 is exempt under Sl.No.17.
Without prejudice to the principal contention, she urged that the
Assistant Commissioner, having accepted that position, ought at least
to have granted a pro rata refund, and that the Commissioner
(Appeals) ought to have directed refund rather than relegate the
matter for verification.

10. In the Appeal preferred against the demand, Ld. Counsel
contended that the notice dated 06.06.2017, issued for the period
June 2012 to February 2014, is barred by limitation. There is no
allegation, much less proof, of any deliberate act of suppression with

6

intent to evade. The appellant is a Government factory, registered with
the Department and paying duty ever since the levy was imposed. It
was maintained that the value of scrap and the exemption claimed
were reflected in the ER-1 returns, and that the appellant had paid the
amounts at the instance of Audit and sought refund in good faith. Ld.
Counsel further argued that a fresh notice on a cause of action already
the subject of the refund proceedings was not maintainable, relying on
Atul Ltd and National Aluminium Company Ltd, supra , and that neither
interest nor a penalty equal to the duty could be visited on an amount
which had remained with the Department since 2014.

Submissions on behalf of the Revenue
11. Shri Sanjay Kakkar, learned Authorised Representative for the
Revenue, reiterated the findings in the impugned orders. He placed
reliance on Dhanrajamal Gobindram v. Shamji Kalidas and Co., AIR
1961 SC 1285, State of Rajasthan v. J.K. Udaipur Udyog Ltd, (2004) 7
SCC 673 and Associated Cement Companies Ltd v. State of Bihar,
(2004) 7 SCC 642 .

Analysis
12. Heard both sides and perused the material available on record,
including the decisions cited.

13. Three issues arise for our decision, namely,
i.Whether the waste and scrap arising in the course of
manufacture of goods of headings 8601 to 8606, cleared by the
appellant between 30.05.2012 and 31.03.2014, was exempt
from duty, either under Notification No.27/2011-CE or under
Sl.No.17 of Notification No.62/95-CE?

ii.Whether in Excise Appeal No.41739 of 2018, the extended
period of limitation under Section 11A(4) of the Act was validly
invoked?

iii.Whether the demand of interest and the penalty under Sections
11AA and 11AC of the Act are tenable?

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Issue I. Whether the waste and scrap was exempt
14. This issue is common to both appeals and is decisive of the
refund appeal. Sl.No.17 was inserted in the Table to Notification
No.62/95-CE by Notification No.11/2002-CE dated 01.03.2002. The
entry describes the goods as waste and scrap and prescribes, in the
column of conditions, the following.
“If arising in the course of manufacture of exempted goods
in a factory belonging to the Indian Railways.”

15. The condition has two limbs. The waste and scrap must arise in
a factory belonging to the Indian Railways, and it must arise in the
course of manufacture of exempted goods. The first limb is not in
dispute. The controversy is confined to the second, and within it to the
single question whether coaches cleared at 1% under Notification
No.1/2011-CE are exempted goods. Neither the Act nor Notification
No.62/95-CE defines that expression.

16. We are of the view that the answer must begin with the source
of the power. Section 5A(1) of the Act empowers the Central
Government to exempt excisable goods “from the whole or any part of
the duty of excise leviable thereon”. Parliament thus conceived of
exemption as embracing partial exemption. Notification No.1/2011-CE
is issued under that very provision, and its operative words are that
the Central Government “hereby exempts” the specified goods “from
so much of the duty of excise leviable thereon under the said Central
Excise Act, as is in excess of the amount calculated at the rate of 1%
ad valorem”. Coaches of headings 8601 to 8606 figure at Sl.No.106 of
that notification. In the language of the statute, and of the very
notification under which the Revenue assessed them, these goods are
exempted goods, though not exempted from the whole of the duty.

17. Sl.No.17 does not qualify the expression. It does not speak of
goods wholly exempted, or of goods chargeable to nil rate of duty, or
of goods exempted under the same notification. Where the Central
Government intended to confine the expression to goods wholly
exempt, it said so in specific terms. Notification No.89/95-CE dated
18.05.1995, which exempted waste, parings and scrap arising in the
course of manufacture of exempted goods generally, carried an

8

Explanation defining exempted goods as goods chargeable to nil rate
of duty or exempted from the whole of the duty. The Assistant
Commissioner noticed this Explanation and reasoned that a similar one
would have been added to Notification No.62/95-CE had the
Government intended otherwise. We are unable to concur. To our
mind, the inference runs the other way. When the same delegate, i.e.
the Central Government, restricted the expression in one notification
and left it unrestricted in another, the restriction cannot be supplied in
the second by interpretation.

18. We are conscious that an exemption notification is to be
construed strictly, that the burden of bringing the case within it lies on
the assessee, and that the benefit of any ambiguity goes to the
Revenue. That is the settled position after the decision of the
Constitution Bench in Commissioner of Customs (Import), Mumbai v.
Dilip Kumar and Company, 2018 (361) E.L.T. 577 (S.C.) and para 52
refers in this regard. Strict construction, however, means fidelity to
the words used. It does not license the addition of words that are
absent. The reading adopted by the Revenue would require Sl.No.17 to
be read as if it said wholly exempted goods. That is not strict
construction but a rewriting of the entry. On the words actually
employed, read with Section 5A, there is no ambiguity of which the
Revenue could claim the benefit.

19. The Constitution Bench itself affirmed the settled distinction that
the question whether a subject falls within an exemption is construed
strictly, and that once the threshold is crossed the notification is given
full play. This bench applied that approach in RKM Powergen Pvt. Ltd.
v. Principal Commissioner of Customs, 2025 (9) TMI 1286- CESTAT
CHENNAI . In Government of Kerala v. Mother Superior Adoration
Convent, 2021 (376) E.L.T. 242 (S.C.) , paras 20 to 24, the Supreme
Court further held that Dilip Kumar did not, sub silentio, displace the
line of authority under which beneficial exemptions are construed in
accord with their object, and we followed that view in SPI Technologies
India Pvt. Ltd. v. Commissioner of GST & Central Excise , 2026 (6) TMI
528- CESTAT CHENNAI . The threshold condition of Sl.No.17, that the
factory belongs to the Indian Railways, is admittedly met. The entry
forms part of a notification granting exemption to goods manufactured
in factories of the Central Government. Its evident object is to relieve

9

the incidental waste and scrap of a Railway factory from duty where
the principal manufacture is itself under exemption. Construed in that
light also, nothing warrants confining its benefit to goods exempted
from the whole of the duty.

20. The lower authorities held that the definition in Rule 2(d) of the
CCR is confined to those Rules, which open with the words “In these
rules, unless the context otherwise requires”. To that extent they are
correct, and we do not rest our conclusion on transplanting that
definition into Notification No.62/95-CE. The amendment to Rule 2(d)
is nonetheless telling. By Notification No.3/2011-CE (NT) dated
01.03.2011, issued on the very day Notification No.1/2011-CE was
issued, the Central Government inserted in Rule 2(d), with effect from
01.03.2011, the words “and goods in respect of which the benefit of
an exemption under notification No. 1/2011-CE, dated the 1st March,
2011 is availed”. The Government thus itself described the benefit
under Notification No.1/2011-CE as an exemption and treated the
goods as exempted goods within the scheme of central excise. A
Division Bench of this Tribunal in Centuary Fibre Plates Pvt. Ltd. v.
CCE, Hyderabad, 2014 (313) E.L.T. 278 (Tri.-Bang.) likewise observed
that goods cleared at 1% under Notification No.1/2011-CE continue to
be exempt in the eyes of the statute. This corroborates the plain
reading we have adopted.

21. On this aspect the reasoning of the Commissioner (Appeals) is
not internally consistent. To hold that exempted goods means goods
wholly exempt or chargeable to nil rate, he drew upon the first limb of
the very definition in Rule 2(d), while declining to give effect to the
inclusive limb of the same definition, which expressly covers goods
under Notification No.1/2011-CE. A definition cannot be invoked in
part to support a conclusion and disowned in part when it points the
other way. Likewise, the resort of the Assistant Commissioner to the
dictionary is also unsustainable, when the statute under which the
exemption was granted itself contemplates exemption from a part of
the duty. A dictionary is an aid where the statute is silent, not a
substitute for its text.

22. A further circumstance reinforces this view. Goods of Chapter 86
manufactured by a factory of the Central Government had earlier

10

enjoyed exemption from the whole of the duty under Sl.No.16(i) of
Notification No.62/95-CE, which was omitted by Notification
No.32/2011-CE dated 20.04.2011. When the Central Government
brought coaches under the 1% regime of Notification No.1/2011-CE
and amended Rule 2(d) of the CCR, it left Sl.No.17 untouched.
Parliament itself, by Section 139 of the Finance Act, 2012, amended
Notification No.62/95-CE by inserting Sl.No.20 with retrospective
effect, and again left Sl.No.17 unqualified. Both the legislature and its
delegate must be taken to have known the entry they were dealing
with. When neither thought it fit to exclude goods under Notification
No.1/2011-CE from the reach of Sl.No.17, the adjudicating authorities
could not achieve that exclusion by construction.

23. The decisions cited by the learned Authorised Representative do
not advance the case of the Revenue. Dhanrajamal Gobindram arose
under the Indian Arbitration Act, 1940, in the context of the Foreign
Exchange Regulation Act, 1947. In para 13 the Supreme Court noticed
that the word exempt shows that a person is put beyond the
application of the law, while permission shows that he is granted leave
to act in a particular way. It nonetheless rejected the contention built
on that verbal distinction, holding that permission is a word of wide
import, that exemption is just one way of giving leave, and that to go
only by the word would reduce the relevant provisions to a dead letter,
which could not have been intended. The decision thus cautions
against confining an expression to a narrow verbal sense at the cost of
the scheme of the enactment, which is precisely the error in the
reading urged by the Revenue. It was, in any event, not addressed to
a fiscal power which, like Section 5A, in its terms contemplates
exemption from part of a duty. In J.K. Udaipur Udyog Ltd , the
Supreme Court described an exemption as, by definition, a freedom
from an obligation which the exemptee is otherwise liable to discharge,
and as a concession which may be withdrawn in exercise of the power
that granted it. Goods relieved of the obligation to pay duty in excess
of 1% answer that description squarely. In Associated Cement
Companies Ltd , the Supreme Court observed in para 12 that literally
exemption is freedom from liability, tax or duty, and that fiscally it
may assume varying shapes. It reiterated in the same paragraph that
while the question whether a subject falls within the notification is
construed strictly, once ambiguity or doubt about applicability is lifted

11

full play should be given to it, calling for a wider and liberal
construction. In para 17 it held that exemption presupposes a liability.
A concession which relieves a liable manufacturer of all duty beyond
1% is one of those varying shapes. Far from supporting the Revenue,
these decisions are comfortably in consonance with the view we take.

24. We may also notice that the Revenue has accepted, in the
refund proceedings as well as in the Order in Original, that the waste
and scrap arising from goods of heading 8607 is exempt under
Sl.No.17, because those goods are exempt under Sl.No.20. The entry
draws no distinction between goods whose exemption takes the form
of a nil rate and goods whose exemption takes the form of a
concessional effective rate. The appellant cannot be placed in a worse
position in respect of the scrap of its coaches on a distinction which the
entry does not make.

25. When we examine Notification No.27/2011-CE, we find that the
proviso to that notification excludes waste, parings and scrap cleared
from a factory in which any excisable goods, other than goods in
respect of which the benefit of Notification No.1/2011-CE or
Notification No.20/2011-CE is availed, are also manufactured. Section
2(d) of the Act defines excisable goods as goods specified in the
Schedule as being subject to a duty of excise. Goods of heading 8607
are so specified. An exemption under Section 5A relieves the liability to
pay the duty, but it does not remove the goods from the Schedule. As
Associated Cement Companies Ltd explains in para 17, exigibility
depends on the charge created by the statute, liability is distinct from
it, and exemption presupposes liability. The parts of heading 8607
therefore remained excisable goods, and the proviso was attracted. On
this aspect the lower authorities were right.

26. That the appellant initially cleared the scrap under an
inapplicable notification does not, however, defeat its entitlement
under the applicable one. The reliance placed by Counsel on CCE,
Chennai II v. Integral Coach Factory, 2015 (322) E.L.T. 434 (Mad.) is
well founded. In the appellant's own case, this Tribunal in Integral
Coach Factory v. CCE, Chennai, 2008 (223) E.L.T. 333 (Tri.-Chennai)
had held that goods exempted under Notification No.62/95-CE did not
lose that character because duty had been paid on them by mistake,

12

and that the scrap arising from them remained exempt. The
jurisdictional High Court affirmed that view, holding that so long as the
goods manufactured are exempted goods, the waste and scrap arising
in the course of their manufacture is entitled to exemption,
notwithstanding the erroneous payment of duty. That decision binds
us, and nothing has been placed before us to show that it has been
unsettled. Its principle is that the character of the goods is determined
by the notification, and not by the manner in which the assessee treats
them. By parity of reasoning, the citation of an inapplicable notification
at the time of clearance cannot extinguish an exemption which the law
in fact confers. The claim under Sl.No.17 was, moreover, expressly
made before the original authority by the letter dated 09.02.2015 and
was adjudicated on merits. It is not a new case set up in appeal. Even
if such a benefit under a particular notification has not been claimed at
the initial stage, the Honourable Supreme Court in Share Medical Care
v Union of India, 2007 (209) ELT 321 (SC) , has held that the claimant
is not debarred, prohibited or estopped from claiming such a benefit at
a later stage and noticing the said Apex Court decision, this Tribunal in
Cipla Ltd v. Commissioner of Customs, Chennai, 2007 (218) E.L.T. 547
(Tri.-Chennai) has held that such a claim may be entertained at the
appellate stage.

27. We therefore hold that the goods of headings 8601 to 8606
cleared under Notification No.1/2011-CE are exempted goods within
the meaning of Sl.No.17 of Notification No.62/95-CE, and that the
waste and scrap arising in their manufacture in the appellant's factory
was exempt from duty during the period in dispute. Taken with the
waste and scrap of goods of heading 8607, which the Revenue accepts
to be exempt, the entire duty of Rs.5,45,11,106/- paid on waste and
scrap was not payable. The rejection of refund cannot stand. For the
same reason the demand confirmed by the Order in Original dated
28.03.2018 fails on merits.

28. In view of this conclusion, the alternative plea for a pro rata
refund and the objection to the Commissioner (Appeals) having sent
the portion relating to heading 8607 for verification do not arise. They
were urged only in the event of the principal contention failing, and we
do not express any opinion on them. For the same reason, i.e. that
the demand fails on merits and, as we shall presently hold, on

13

limitation as well, we find it unnecessary to decide whether the show
cause notice was incompetent for having been issued on a cause of
action already the subject of the refund proceedings. We are not
expressing any view on that contention either.

Issue II. Extended period of limitation
29. Although our finding on merits disposes of the demand,
limitation was fully argued, and the manner in which the extended
period came to be invoked against a factory of the Union of India calls
for a finding.

30. The notice dated 06.06.2017 covers clearances from June 2012
to February 2014. The relevant date for the last of those months,
being the date of filing of the return, fell in or about March 2014. The
normal period under Section 11A(1)(a) of the Act, whether reckoned
at one year or at two years as substituted with effect from
14.05.2016, had expired long before the notice was issued. The
demand could survive only if the ingredients of Section 11A(4) were
established.

31. Section 11A(4) is attracted only where duty has not been paid
by reason of fraud, collusion, wilful misstatement, suppression of facts,
or contravention of the Act or the rules with intent to evade payment
of duty. In Lipi Boilers Ltd v. Commissioner of Central Excise,
Aurangabad, 2025 INSC 1297 : (2025) 36 Centax 210 (SC), in paras
76 to 80, the Hon’ble Supreme Court, reiterating Pahwa Chemicals Pvt.
Ltd. v. CCE, (2009) 4 SCC 658 and Continental Foundation Joint
Venture Holding v. CCE, (2007) 10 SCC 337 , held that the proviso
contemplates a state of mind in which the assessee knowingly and
deliberately does or omits something. Mere failure to declare is not
wilful suppression. When the facts are known to both parties, the
omission of one to do what he might have done is not suppression.
The burden of proving suppression lies on the Revenue.

32. Measured against these principles, the invocation of extended
period of limitation cannot be sustained. The very facts which the
notice describes as suppressed were ascertained by the Department's
own audit, which quantified the duty and collected it by March 2014.
They then formed the subject of the refund claim filed on 18.12.2014

14

and of the letter dated 09.02.2015, and were adjudicated upon by the
Assistant Commissioner on 08.04.2015. The notice came more than
three years after the Department had collected the duty and more
than two years after it had adjudicated the claim. In Nizam Sugar
Factory v. Collector of Central Excise, A.P., 2006 (197) E.L.T. 465
(S.C.) , the Supreme Court held that where the relevant facts were
within the knowledge of the authorities when the earlier notice was
issued, the same facts could not be treated as suppressed while
issuing later notices. This Bench has applied that principle in
Sundaram Finance Ltd., 2026 (6) TMI 9 – CESTAT CHENNAI , and in
Orient Flight School, 2026 (8) TMI 1072- CESTAT CHENNAI . The
principle applies with greater force where, as in the instant case, the
Department had not merely known the facts but had acted upon them.
In Commissioner of Central Excise, Bangalore v. Pragathi Concrete
Products (P) Ltd., 2015 (322) E.L.T. 819 (S.C.) , the Supreme Court
declined to countenance a plea of suppression where the unit had been
audited during the period in question. The present case stands on a
similar footing.

33. The notice, besides, contains no particulars of any positive act
and merely echoes the statutory words. Its allegation that details of
the scrap were not furnished is a bare assertion. The stand of the
appellant, that the scrap was exempt, was a claim to the benefit of
exemption notifications on a tenable construction, which we have
upheld. In Commissioner of Customs, Calcutta v. G.C. Jain, 2011
(269) E.L.T. 307 (S.C.) , para 24, the Supreme Court held that availing
the benefit of a notification on the understanding of the assessee is not
a misdeclaration, and that it is for the Department to ascertain the
correct legal position and to allow or disallow the same. The finding of
the Principal Commissioner that non disclosure of the exempt
clearances in the ER-1 returns amounted to suppression treats, at
most, an omission as though it were a deliberate act to evade duty.
That is precisely the equation the Supreme Court has repeatedly
disapproved. It is not in dispute that the appellant was filing its
periodical returns regularly, for the grievance of the Principal
Commissioner is only that the exempt clearances were not shown in
them. The appellant asserts that even these were reflected, though
nothing turns on that assertion in view of what we have held.

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34. Nor can the requisite intent be ascribed to the appellant. It is a
production unit of the Ministry of Railways, a factory of the Union of
India itself, and any duty it pays to the Union passes from one arm of
the Union to another. A Special Bench of this Tribunal in O.N.G.C. v.
Collector of Central Excise, Vadodara, 1995 (79) E.L.T. 117 (Tribunal)
observed, in the case of a Government undertaking, that evasion of
duty would not have enriched anybody other than the Government and
that the facts disclosed no intention to evade. Similar views were
taken in Commissioner of Central Excise, Allahabad v. Bharat Yantra
Nigam Ltd., 2014 (36) S.T.R. 554 (Tri.-Del.) and Rajasthan Renewable
Energy Corpn. Ltd. v. Commissioner of Central Excise, Jaipur I, 2017
(51) S.T.R. 269 (Tri.-Del.) , and by this Bench in Bharat Heavy
Electricals Ltd. v. Commissioner of GST and Central Excise, Trichy,
2025 (7) TMI 1779 – CESTAT CHENNAI . We do not suggest that public
ownership is by itself an immunity from Section 11A(4). But where the
assessee is a department of the Government, its liability was
ascertained and paid at the instance of the Department, and the
dispute is one of pure construction, the attribution of an intent to
evade is wholly untenable.

35. We are constrained to observe that the Order in Original reflects
a disquieting approach. The Principal Commissioner was dealing with a
factory of the Ministry of Railways which had paid the entire amount at
the instance of Audit in 2014, whose claim on the identical question
had been adjudicated by the jurisdictional Assistant Commissioner in
2015, and whose appeal on that question was pending before the
Commissioner (Appeals) when the notice was issued. He nonetheless
sustained a notice issued in 2017 under the extended period, on an
allegation of suppression of facts which the Department had itself
unearthed, quantified and collected years earlier, and imposed a
penalty equal to the duty. The earlier proceedings were brushed aside
as having a different scope, without any consideration of the fact that
the knowledge they evidenced was fatal to the very allegation of
suppression. Proceedings of this kind serve no purpose of the revenue,
and expose a limb of the Government to avoidable litigation and penal
consequences at the hands of another. The extended period is an
exceptional power, and its exercise demands a fidelity to the statutory
preconditions that was conspicuously absent here.

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36. We accordingly hold that the extended period under Section
11A(4) of the Act was not invokable, and that the demand in Excise
Appeal No.41739 of 2018 is barred by limitation in its entirety. This
finding is independent of, and in addition to, the finding on merits
recorded in paragraph 27 above.

Issue III. Interest and penalty
37. The demand failing both on merits and on limitation, the demand
of interest under Section 11AA of the Act, which is consequential,
cannot survive. The penalty under Section 11AC presupposes the very
ingredients of fraud, suppression or intent to evade which we have
found to be absent. The penalty of Rs.5,19,00,124/- is therefore
unsustainable.

38. In conclusion, the waste and scrap arising in the manufacture of
goods of headings 8601 to 8606 in the appellant's factory was exempt
under Sl.No.17 of Notification No.62/95-CE during the period in
dispute, though the benefit of Notification No.27/2011-CE was not
available by reason of its proviso. The Order in Appeal, in so far as it
upheld the rejection of refund of the duty paid on such waste and
scrap, cannot be sustained. The Order in Original, which confirmed the
same duty with interest and an equal penalty, fails on merits and is in
any event barred by limitation. The duty of Rs.5,45,11,106/- paid on
waste and scrap was not payable and is refundable to the appellant in
accordance with law. Since the sum appropriated under the Order in
Original forms part of that very amount, the appellant is entitled to a
single refund of it, and not to a duplication.

39. In view of our aforesaid analysis, Excise Appeal No.41012 of
2018 is allowed. The Order in Appeal No.30/2018 (CTA-I) dated
16.01.2018 is set aside in so far as it upholds the rejection of refund of
the duty paid on waste and scrap arising in the manufacture of goods
of headings 8601 to 8606. The appellant is held entitled to refund of
the duty of Rs.5,45,11,106/- paid on waste and scrap for the period
from 30.05.2012 to 31.03.2014, less any amount already refunded in
pursuance of that Order in Appeal, with interest as admissible in law.
The Excise Appeal No.41739 of 2018 is allowed. The Order in Original
No.59/2018 CH.N.GST dated 28.03.2018 is set aside in so far as it
confirms the demand of duty of Rs.5,19,00,124/-, appropriates that

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amount, demands interest under Section 11AA and imposes penalty
under Section 11AC of the Act. The amount of Rs.5,19,00,124/-
appropriated under the Order in Original forms part of the refund
which we have allowed as aforestated and shall be refunded only once.
The original authority concerned shall give effect to this order and
process the refund, after such verification as Section 11B of the Act
requires, within ninety days from the date of receipt of a copy of this
order.

(Order pronounced in the open court on 29.10.2026)




(AJAYAN T.V.) (VASA SESHAGIRI RAO)
Member (Judicial) Member (Technical)

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