1994 (9) TMI 86 - SC - Central Excise

Whether there has been a mis-statement in so far as there has been a failure to include the quantity of Rapidogens manufactured during the relevant period in the statement furnished alongwith the classification list as well as the declaration appended thereto? Held that - Considering the appellant s case that he thought bona fide that he need not include the value of the Rapidogens in his declaration for the reason that the said product was fully exempt from duty under Notification No. 180/61 dated November 23 1961 it is also brought to our notice that on the date of filing of his declaration two High Courts had taken the view that the goods exempted from duty are not includible within the definition of excisable goods as defined in clause (d) of Section 2. No doubt two other High Courts had taken a contrary view. The appellant s factory is in the State of Maharashtra and the Bombay High Court had not taken a view one way or the other. In the above circumstances and because the facts establish that the mis-statement of facts in the declaration filed by the appellant - or the suppression of facts therein as the case may be - cannot be called wilful the appeal is allowed.

Summary

The core legal questions considered in this judgment include:

1. Whether the appellant's failure to include the value of a fully exempted excisable good (Rapidogens) in a declaration for claiming exemption under a different Notification constitutes a wilful mis-statement or suppression of facts under Section 11A of the Central Excise Act.

2. Whether the limitation period for recovery of duty can be extended from six months to five years based on the alleged mis-statement or suppression of facts, and if so, whether intent (wilfulness) is a necessary element for such extension.

3. The interpretation of the proviso to Section 11A regarding the requirement of intent to evade duty in cases of fraud, collusion, wilful mis-statement, or contravention of the Act or rules.

4. The applicability and scope of exemption notifications, specifically whether goods exempted from duty under one notification must be included in declarations filed under another notification.

Issue 1: Wilful Mis-statement or Suppression of Facts under Section 11A

The legal framework centers on Section 11A of the Central Excise Act, which prescribes a six-month limitation period for recovery of duty but extends it to five years where non-levy or short-levy of duty occurs "by reason of fraud, collusion or any wilful mis-statement or suppression of facts or contravention of any of the provisions of this Act or of the rules with intent to evade payment of duty." The key interpretative question was whether the appellant's omission was wilful and intended to evade duty.

The Court analyzed the statutory language, emphasizing that the words "wilful mis-statement or suppression of facts" are qualified by the phrase "with intent to evade payment of duty." The Court rejected the Tribunal's view that intent is immaterial in cases of mis-statement or suppression of facts. It held that mis-statement or suppression must be wilful and accompanied by intent to evade duty for the extended limitation period to apply.

In applying this to the facts, the appellant had excluded the value of Rapidogens from the declaration, believing in good faith that since Rapidogens were fully exempt under Notification No. 180/61, their value need not be included for the purpose of claiming exemption under Notification No. 71/78. The Court noted that at the time of filing the declaration, there was no settled legal position, with different High Courts taking opposing views on whether exempt goods must be included within "excisable goods" under the statute. The Bombay High Court had not ruled on this issue.

Given these circumstances, the Court concluded that the appellant's mis-statement or suppression was not wilful, as it was based on a bona fide and reasonable interpretation of the law. Therefore, the extended five-year limitation period could not be invoked.

Issue 2: Extension of Limitation Period under Section 11A

The Court clarified the scope of Section 11A, emphasizing that the main limb provides a six-month limitation period for recovery of excise duty. The proviso extends this period to five years only if the non-payment or short payment of duty is due to fraud, collusion, wilful mis-statement, or contravention of provisions with intent to evade duty.

The Court held that the requirement of intent is explicit and must be established for the extended limitation to apply. The Court rejected the Tribunal's reasoning that intent is irrelevant for mis-statements or suppression of facts, underscoring that the statute's language clearly demands wilfulness and intent.

This interpretation safeguards against penalizing mere errors or bona fide misunderstandings as fraud or wilful evasion, ensuring that only deliberate acts to evade duty attract the extended limitation and penalties.

Issue 3: Interpretation of Exemption Notifications and Declaration Requirements

The appellant's contention rested on the interpretation of two notifications: Notification No. 180/61, which exempted Rapidogens from duty, and Notification No. 71/78, which provided exemption based on the total production value of excisable goods.

The question was whether the value of Rapidogens, being fully exempt, should have been included in the declaration for claiming benefit under Notification No. 71/78.

The Court acknowledged the appellant's bona fide belief that exempt goods need not be included in such declarations. It noted the absence of any explicit provision requiring inclusion of exempt goods in the calculation of total excisable goods for exemption purposes. The Court also took into account the conflicting judicial opinions at the time, which further supported the appellant's reasonable misunderstanding.

While the Tribunal had held that the appellant's failure to include Rapidogens constituted a mis-statement, the Court found that the appellant's interpretation was not unreasonable or contrary to the statutory scheme.

Issue 4: Treatment of Competing Arguments and Evidence

The Tribunal emphasized that mis-statement or suppression of facts attracts the extended limitation period regardless of intent. It relied on the fact that the appellant failed to include the value of Rapidogens in the declaration and that the excise authorities had information about the manufacture of Rapidogens from other sources.

The Court rejected this approach, holding that mere failure to disclose information, without wilful intent to evade duty, cannot trigger the extended limitation. It also considered the appellant's explanation and the legal uncertainty prevailing at the relevant time, which negated the element of wilfulness.

The Court gave due weight to the appellant's bona fide belief and the absence of settled law, concluding that the mis-statement was not deliberate or fraudulent.

Significant Holdings and Core Principles

"Mis-statement or suppression of fact must be wilful," and "the words 'wilful mis-statement or suppression of facts' are qualified by the words 'with intent to evade payment of duty'." The Court emphasized that "it is not correct to say that there can be a suppression or mis-statement of fact, which is not wilful and yet constitutes a permissible ground for the purpose of the proviso to Section 11A."

The Court established the principle that the extended five-year limitation period under Section 11A applies only where there is clear evidence of fraud, collusion, or wilful mis-statement or suppression of facts with intent to evade duty. Mere errors, bona fide misunderstandings, or non-wilful omissions do not suffice.

On the facts, the Court held that the appellant's failure to include the value of Rapidogens in the declaration was not wilful and was based on a bona fide interpretation of the law, especially in light of conflicting judicial opinions. Consequently, the extended limitation period could not be invoked, and the appellant was entitled to the benefit of the exemption Notification No. 71/78.