2013 (1) TMI 616 - SC - Customs

Levy 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.

Summary

Issues Involved:
1. Levy of customs duty on the import of furnace oil.
2. Imposition of penalty under Section 112 of the Customs Act, 1962.
3. Applicability of the limitation period under Section 28 of the Customs Act, 1962.

Issue-wise Detailed Analysis:

1. Levy of Customs Duty on the Import of Furnace Oil:
The appellant, an Export Oriented Unit (EOU), imported furnace oil duty-free under Notification No. 53/97-Cus. The furnace oil was procured to generate electricity by a sister unit, Uniworth Ltd., which had exhausted its duty-free import limit. The Tribunal upheld the levy of customs duty, reasoning that the appellant procured furnace oil not for its own captive power plant but for another unit's plant, thus not qualifying for duty exemption. The appellant argued that the import was within the permissible limits as per the Development Commissioner's clarification.

2. Imposition of Penalty under Section 112 of the Customs Act, 1962:
The Tribunal also upheld the imposition of a penalty under Section 112, rejecting the appellant's plea that the demand for duty and penalty was barred by limitation. The penalty was imposed because the appellant did not have a captive power plant and thus was not entitled to duty-free import of furnace oil. The appellant contended that they acted in good faith based on the Development Commissioner's clarification.

3. Applicability of the Limitation Period under Section 28 of the Customs Act, 1962:
The core issue revolved around whether the demand for duty and penalty was barred by limitation. Section 28 of the Customs Act prescribes a six-month limitation period for actions unless there is collusion, willful misstatement, or suppression of facts, extending the period to five years. The show cause notice was issued after more than six months, and the Tribunal did not adequately address the limitation issue, focusing instead on the non-entitlement to duty exemption.

Detailed Analysis:

Levy of Customs Duty:
The Tribunal upheld the customs duty levy, stating that the appellant could not claim exemption as the furnace oil was for another unit's captive power plant. The appellant argued that they acted based on the Development Commissioner's clarification, which allowed duty-free import for captive power consumption. The Supreme Court noted that the appellant sought clarification from the Development Commissioner and acted on the advice received, reflecting bona fide conduct rather than an intent to evade duty.

Imposition of Penalty:
The penalty under Section 112 was imposed because the appellant imported furnace oil without a captive power plant. The Supreme Court observed that the appellant's actions were based on the Development Commissioner's clarification and the Ministry of Commerce's letter, indicating no willful misstatement or suppression of facts. The appellant's conduct showed efforts to comply with the law rather than breach it.

Limitation Period:
The Supreme Court focused on the limitation period under Section 28. The Tribunal's conclusion that mere non-payment of duties equated to collusion or willful misstatement was deemed untenable. The Court emphasized that the proviso to Section 28 requires a deliberate intention to evade duty, which was not evident in the appellant's case. The show cause notice lacked specific averments of mala fide conduct, a mandatory requirement for invoking the extended limitation period. The Court referred to several precedents, including Pushpam Pharmaceuticals and Sarabhai M. Chemicals, underscoring that mere non-payment does not constitute willful suppression or misstatement.

Conclusion:
The Supreme Court allowed the appeal, setting aside the decisions of the lower authorities. The Court held that the extended limitation period could not be invoked against the appellant due to the absence of willful default and specific averments in the show cause notice. The appellant's actions were found to be bona fide, and the burden of proving mala fide conduct lay with the Revenue, which failed to meet the requirement. The parties were directed to bear their own costs.