2007 (8) TMI 11 - SC - Central Excise

Applicability of extended period of limitation under Section 11A - fraud and collusion - intention to evade duty - mis-statement or suppression of facts - Whether Mix Concrete manufactured and used at the site of construction is Ready Mix Concrete ? - HELD THAT - Section 11A of the Act postulates suppression and therefore involves in essence mens rea. The expression suppression has been used in the proviso to Section 11A of the Act accompanied by very strong words as fraud or collusion and therefore has to be construed strictly. Mere omission to give correct information is not suppression of facts unless it was deliberate to stop the payment of duty. Suppression means failure to disclose full information with the intent to evade payment of duty. When the facts are known to both the parties omission by one party to do what he might have done would not render it suppression. When the Revenue invokes the extended period of limitation under Section 11-A the burden is cast upon it to prove suppression of fact. An incorrect statement cannot be equated with a willful misstatement. The latter implies making of an incorrect statement with the knowledge that the statement was not correct. Factual position goes to show the Revenue relied on the circular dated 23.5.1997 and dated 19.12.1997. The circular dated 6.1.1998 is the one on which appellant places reliance. Undisputedly CEGAT in Continental Foundation Joint Venture case - 2002 (1) TMI 236 - CEGAT COURT NO. III NEW DELHI was held to be not correct in a subsequent larger Bench judgment. It is therefore clear that there was scope for entertaining doubt about the view to be taken. The Tribunal apparently has not considered these aspects correctly. Contrary to the factual position the CEGAT has held that no plea was taken about there being no intention to evade payment of duty as the same was to be reimbursed by the buyer. In fact such a plea was clearly taken. The factual scenario clearly goes to show that there was scope for entertaining doubt and taking a particular stand which rules out application of Section 11A of the Act. As far as fraud and collusion are concerned it is evident that the intent to evade duty is built into these very words. 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 intent to evade duty. The next set of words contravention of any of the provisions of this Act or Rules are again qualified by the immediately following words with intent to evade payment of duty. Therefore there cannot be suppression or mis-statement of fact which is not wilful and yet constitute a permissible ground for the purpose of the proviso to Section 11A. Mis-statement of fact must be wilful. That being so the adjudicating authorities were not justified in raising the demand and CEGAT was not justified in dismissing the appeals. On the ground of adjudication beyond the normal period of limitation and non-availability of the extended period of limitation the appeals are allowed.

Summary

The core legal questions considered in these appeals revolve around the applicability of central excise duty on Ready Mix Concrete (RMC) manufactured at a construction site, the classification of the product under the Central Excise Tariff Act, 1985, the legitimacy of invoking the extended period of limitation under Section 11A of the Central Excise Act, 1944, and the interpretation of "suppression" and "intent to evade duty" in the context of excise duty demands and penalties.

One primary issue is whether the product manufactured and supplied by the construction companies qualifies as dutiable Ready Mix Concrete under the Central Excise Tariff Act or as exempt "mix concrete" made at site. This involves examining the nature of the manufacturing process, the standards and specifications followed, and the nomenclature used by the appellants.

A second significant issue concerns the validity of the extended period of limitation invoked by the Revenue under Section 11A of the Central Excise Act. This raises questions about the existence of "suppression of facts" or "fraud" by the appellants, the requisite mens rea for such suppression, and the burden of proof on the Revenue to establish such suppression to justify the extended limitation period.

Additional issues include the relevance and interpretation of various circulars issued by the Central Board of Excise and Customs (CBEC) at different times, the applicability of exemption notifications, the bona fide belief of the appellants regarding the excisability of their product, and the question of whether the appellants had any intention to evade duty given contractual provisions for reimbursement of any additional costs.

Regarding the classification of the product, the legal framework includes the Central Excise Tariff Act, 1985, which specifically includes Ready Mix Concrete under Chapter Heading 3824.20 as a dutiable product. The Central Excise Act, 1944, empowers the levy and collection of excise duty on such goods. The Board's circular dated 6.1.1998 clarified that RMC is a dutiable product, and the Bureau of Indian Standards (BIS) confirmed that the manufacturing process described by the Revenue is consistent with the IS:4926 specification for Ready Mix Concrete.

The Court noted that the appellants manufactured concrete strictly in accordance with IS:456-1978 as stipulated in their contract and contended that their product was "mix concrete" exempt from duty. However, the Revenue's position, upheld by the Commissioner and the Tribunal, was that the appellants deliberately misclassified RMC as "mix concrete" to evade duty. The Tribunal rejected the appellants' plea of bona fide belief, pointing out the clear tariff entry and exemption notification distinctions, the absence of any clarification sought from authorities by the appellants, and the timing of the Board's circular relative to the tariff notification.

On the issue of the extended period of limitation under Section 11A of the Central Excise Act, the Court emphasized the stringent requirements for invoking this provision. Section 11A allows extended limitation only in cases involving "suppression of facts" or "fraud" or "collusion" with intent to evade duty. The Court interpreted these terms strictly, holding that mere omission or incorrect statements do not constitute suppression unless deliberate and with intent to evade duty. The Court clarified that suppression involves failure to disclose full information with the intent to evade payment of duty and that the burden lies on the Revenue to prove such suppression.

The Court found that the Revenue relied on circulars dated 23.5.1997 and 19.12.1997, while the appellants relied on the circular dated 6.1.1998, which introduced doubt and ambiguity about the excisability of the product. The existence of conflicting circulars and a subsequent larger Bench decision overruling the earlier Tribunal view created a reasonable doubt about the appellants' intent. The Court also noted that the appellants had taken the plea that any excise duty liability would be reimbursed by the Power Corporation under the contract, indicating absence of intent to evade duty, a plea the Tribunal had erroneously held was not raised.

The Court further elaborated on the meaning of "wilful mis-statement or suppression," emphasizing that such acts must be done with intent to evade duty. The language of Section 11A's proviso, which couples suppression with strong terms like "fraud" and "collusion," demands a high threshold of culpability. Without evidence of wilful intent, invocation of the extended limitation period is not justified.

Balancing the competing arguments, the Court found that the adjudicating authorities and the Tribunal did not properly consider the ambiguity created by the conflicting circulars and the bona fide belief of the appellants. The Court held that the Revenue failed to discharge the burden of proving suppression of facts with intent to evade duty necessary for extended limitation. Consequently, the demands raised beyond the normal limitation period were not sustainable.

On the question of classification and duty liability, while the Revenue's position that RMC is dutiable was supported by tariff entries and BIS confirmation, the Court refrained from deciding this issue conclusively, as the appeals succeeded on limitation grounds.

In conclusion, the Court allowed the appeals on the sole ground that the extended period of limitation under Section 11A of the Central Excise Act was not applicable due to absence of wilful suppression or intent to evade duty. The Court held that demands raised beyond the normal limitation period were barred, and the penalties imposed were not justified. No costs were awarded.

Significant holdings include the following verbatim legal reasoning:

"Section 11A of the Act postulates suppression and, therefore, involves in essence mens rea... The expression 'suppression' has been used in the proviso to Section 11A of the Act accompanied by very strong words as 'fraud' or 'collusion' and, therefore, has to be construed strictly. Mere omission to give correct information is not suppression of facts unless it was deliberate to stop the payment of duty."

"Suppression means failure to disclose full information with the intent to evade payment of duty... When the Revenue invokes the extended period of limitation under Section 11-A the burden is cast upon it to prove suppression of fact. An incorrect statement cannot be equated with a willful misstatement. The latter implies making of an incorrect statement with the knowledge that the statement was not correct."

"...the adjudicating authorities were not justified in raising the demand and CEGAT was not justified in dismissing the appeals."

Core principles established include the strict construction of provisions allowing extended limitation periods, the requirement of mens rea (wilful intent) for suppression or mis-statement to trigger extended limitation, and the need for the Revenue to prove such suppression beyond reasonable doubt. The judgment underscores the importance of clarity and consistency in circulars and notifications issued by authorities to avoid legitimate doubts about tax liability.