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2013 (1) TMI 616 - SC - CustomsLevy of customs duty on the import of furnace oil - also the penalty u/s 112 - assessee contested aginst demand of the duty along with the penalty being barred by limitation - Held that - Not convinced by the reasoning of the Tribunal on arriving at the conclusion that mere non-payment of duties is equivalent to collusion or willful misstatement or suppression of facts. If that were to be true failure to understand which form of non-payment 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. The main body of the Section in fact contemplates ordinary default in payment of duties and leaves cases of collusion or willful 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. As decided in Pushpam Pharmaceuticals Company Vs. Collector of Central Excise Bombay 1995 (3) TMI 100 - SUPREME COURT OF INDIA 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. Extended period of five years under the proviso to section 11A(1) is not applicable just for any omission on the part of the assessee unless it is a deliberate attempt to escape from payment of duty. Section 28 of the Act clearly contemplates two situations viz. inadvertent non-payment and deliberate default. The former is canvassed in the main body of Section 28 of the Act and is met with a limitation period of six months whereas the latter finds abode in the proviso to the section and faces a limitation period of five years. For the operation of the proviso the intention to deliberately default is a mandatory prerequisite. Hence on account of the fact that the burden of proof of proving mala fide conduct under the proviso to Section 28 lies with the Revenue; that in furtherance of the same no specific averments find a mention in the show cause notice which is a mandatory requirement for commencement of action under the said proviso and that nothing on record displays a willful default on the part of the appellant we hold that the extended period of limitation under the said provision could not be invoked against the appellant - in favour of assessee.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court in this appeal under Section 130-E of the Customs Act, 1962, are:
2. ISSUE-WISE DETAILED ANALYSIS Limitation under Section 28 of the Customs Act: Legal Framework and Precedents: Section 28(1) of the Customs Act imposes a six-month limitation period for issuing a show cause notice demanding duty where duty has not been levied or short-levied, except where the non-levy arises from collusion, wilful misstatement, or suppression of facts, in which case the limitation extends to five years. The proviso requires a positive act of mala fide conduct to justify the extended period. Precedents interpreting analogous provisions under the Central Excise Act (Section 11A) were extensively relied upon, including Pushpam Pharmaceuticals Co. v. Collector of Central Excise, Sarabhai M. Chemicals v. Commissioner of Central Excise, Anand Nishikawa Co. Ltd. v. Commissioner of Central Excise, and Collector of Central Excise v. H.M.M. Ltd., which collectively establish that mere non-payment or omission does not constitute wilful suppression or misstatement. The act must be deliberate, with intent to evade duty. Court's Interpretation and Reasoning: The Court held that the Tribunal's conclusion equating mere non-payment of duty with collusion or wilful suppression was untenable. The Court emphasized that the proviso to Section 28 requires a deliberate and positive act of suppression or misstatement with intent to evade duty. Mere default or failure to pay duty, without evidence of mala fide intent, falls within the ordinary six-month limitation. Key Evidence and Findings: The show cause notice was issued after more than six months from the date of import of furnace oil. The Revenue contended that the appellant misutilized the exemption facility, but no concrete evidence of collusion or wilful suppression was produced. The appellant had sought and obtained clarification from the Development Commissioner, who referred to a Ministry of Commerce circular supporting the exemption claim. Application of Law to Facts: Since the show cause notice was issued beyond the six-month period and the Revenue failed to prove any wilful misstatement or suppression of facts, the extended limitation period under the proviso could not be invoked. The appellant's bona fide conduct in seeking official clarification and relying on it negated any inference of mala fide intent. Treatment of Competing Arguments: The Revenue argued that the appellant's procurement of furnace oil for a sister unit's captive power plant was a misuse of exemption and constituted wilful misstatement. The Court rejected this, noting that the mere use of the word "misutilizing" in the Commissioner's order was unsupported by evidence and insufficient to establish intent. The Court also criticized the Tribunal for shifting the burden of proving bona fide conduct onto the appellant, reiterating that the burden of proving mala fide conduct lies with the Revenue. Conclusion: The demand was barred by limitation as the extended five-year period was inapplicable due to absence of any wilful default or suppression. The six-month limitation applied, and the show cause notice was issued too late. Entitlement to Duty Exemption on Furnace Oil for Captive Power Plant: Legal Framework and Precedents: The appellant was an EOU engaged in manufacture of wool fabrics, holding a Letter of Permission (LOP) allowing duty-free import of inputs. The sister unit, also an EOU, operated a captive power plant and held a separate LOP permitting duty-free procurement of fuel for captive power generation under Notifications No. 53/97-Cus. and 1/95-Central Excise. These notifications exempted customs duty on goods imported for use in 100% EOUs, including captive power plants and associated fuel. Court's Interpretation and Reasoning: The Tribunal and lower authorities held that the appellant could not claim exemption on furnace oil procured for use in a captive power plant belonging to another company, even if a sister unit, as the exemption is available only to the owner of the captive power plant. The Court did not specifically overturn this finding but focused primarily on the limitation issue, deeming it the primary question. Key Evidence and Findings: The appellant procured furnace oil under exemption notifications and supplied it to the sister unit's captive power plant, receiving electricity in return under an agreement. The Development Commissioner's letter and Ministry of Commerce circular indicated that sale or transfer of surplus power between EOUs was duty-free, supporting the appellant's position. Application of Law to Facts: The appellant's procurement and supply arrangement was in good faith, supported by official clarifications. However, the Revenue's case was that such procurement was not permissible without the LOP for captive power plant held by the unit actually running the plant. Treatment of Competing Arguments: The appellant argued that the exemption extended to the use of furnace oil for captive power generation benefiting the EOU, irrespective of which unit procured it. The Revenue contended that exemption is unit-specific and cannot be transferred or misused. The Court did not conclusively resolve this issue but noted the primary focus on limitation. Conclusion: While the Tribunal upheld the duty and penalty on this ground, the Court's decision to allow the appeal on limitation grounds effectively negated the demand. The issue remains significant but was subsidiary to the limitation question in this judgment. Burden of Proof and Requirements for Invoking Extended Limitation: Legal Framework and Precedents: The burden of proving mala fide conduct to invoke the extended limitation period under the proviso to Section 28 lies on the Revenue. The show cause notice must specifically allege which of the grounds-fraud, collusion, wilful misstatement, or suppression of facts-is relied upon to extend limitation. Precedents such as Union of India v. Ashok Kumar and Aban Loyd Chiles Offshore Ltd. emphasize the heavy burden of proving mala fide and the necessity of explicit allegations in the notice. Court's Interpretation and Reasoning: The Court held that the show cause notice in this case lacked specific averments of fraud, collusion, or wilful misstatement, and therefore, the extended limitation period could not be invoked. The Court criticized the Tribunal's expectation that the appellant prove bona fide conduct, reiterating that the onus lies with the Revenue to prove mala fide conduct. Key Evidence and Findings: The show cause notice did not contain explicit allegations of wilful misstatement or suppression with intent to evade duty. The appellant's correspondence with the Development Commissioner and reliance on Ministry of Commerce circular demonstrated good faith. Application of Law to Facts: The absence of specific allegations and proof of mala fide conduct meant that the extended limitation period was not applicable. The Revenue failed to meet its burden of proof. Treatment of Competing Arguments: The Revenue argued that the appellant's conduct amounted to "willful misstatement" based on the term "misutilizing" in the Commissioner's order. The Court rejected this as an unsupported assertion without evidentiary basis. Conclusion: The extended limitation period was not attracted due to lack of proof of mala fide conduct and absence of specific allegations in the show cause notice. 3. SIGNIFICANT HOLDINGS "The conclusion that mere non-payment of duties is equivalent to collusion or willful misstatement or suppression of facts is, in our opinion, untenable. If that were to be true, we fail to understand which form of non-payment would amount to ordinary default?" "The proviso to Section 28 can inter alia be invoked when any duty has not been levied or has been short-levied by reason of collusion or any wilful misstatement or suppression of facts by the importer or the exporter, his agent or employee. Even if both the expressions 'misstatement' and 'suppression of facts' are to be qualified by the word 'wilful', as was done in the Cosmic Dye Chemical case while construing the proviso to Section 11-A, the making of such a wilful misstatement or suppression of facts would attract the provisions of Section 28 of the Customs Act. In each of these appeals it will have to be seen as a fact whether there has been a non-levy or short-levy and whether that has been by reason of collusion or any wilful misstatement or suppression of facts by the importer or his agent or employee." "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." "The burden of establishing mala fides is very heavy on the person who alleges it. The allegations of mala fides are often more easily made than proved, and the very seriousness of such allegations demand proof of a high order of credibility." "If the department proposes to invoke the proviso to Section 11-A(1), the show-cause notice must put the assessee to notice which of the various commissions or omissions stated in the proviso is committed to extend the period from six months to 5 years. Unless the assessee is put to notice, the assessee would have no opportunity to meet the case of the department." Core principles established include:
Final determinations:
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