2025 (5) TMI 1364 - AT - Central Excise

Invocation of extended period of limitation - suppression of facts knowingly and willfully - evasion on payment of duty - non-submission of price list - claiming wrong valuation and wrongly availing benefit of SSI exemption under the Notification No.8/2003-CE - classification of goods - failure to take registration and file monthly Returns - demand and recovery of duty along with interest penalties - HELD THAT - Now once the revenue was aware of the material facts regarding classification under tariff item 2106 9011 and also the claim under the exemption notification we find that there was no suppression on the part of the Appellant as the Appellant disclosed the correct information. Merely because the goods classifiable under tariff item 2106 9011 were assessable under Section 4A and not under Section 4 will not make out a case of suppression as the relevant facts were already in the knowledge of the revenue. Therefore no case of suppression with intent to evade duty is made out against the Appellant which is in consonance with the law laid down in Pushpam Pharmaceuticals Co. vs. CCE 1995 (3) TMI 100 - SUPREME COURT . So far as non-submission of price list is concerned we find that price list is relevant for the purposes of valuation under Section 4A of the Act and once the Appellant was paying duty under Section 4A without there being any objection of the revenue the question of submission of price list does not arise and consequently it cannot be a ground for invoking extended period. We also cannot approve the finding in paragraph 5.4 that it is already proved that the assessee had suppressed the facts as the adjudication order prior to paragraph 5.4 nowhere deals with the issue of suppression. The fact that during 2016-17 the Appellant cleared goods of more than Rs.4 crores also does not lead to suppression when the Appellant had admittedly paid duty on turnover in excess of Rs.4 crores. The fact that the Appellant did not paid duty in 2017-18 by claiming SSI exemption also cannot be a ground for alleging suppression when the said fact was already in the knowledge of the revenue and non-payment of duty was under the bona-fide belief that the Appellant is still entitled for SSI exemption. It is important to note here that mere non-payment of duty is not sufficient to sustain the charge of suppression since for suppression there must be intent to evade payment of duty which is not there in the present case. We further find that in the impugned order the charge of suppression has been sustained on grounds which were not there in the adjudication order. This is clearly impermissible in law as the case of the revenue cannot be sustained on a ground which was not there in the adjudication order and therefore the impugned order to this extent is not sustainable in law. Thus the impugned order to the extent challenged is set-aside and the appeal is allowed with consequential relief as per law.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in the present appeal are:

(a) Whether the extended period of limitation under the Central Excise Act, 1944, was rightly invoked against the Appellant for reassessment of excise duty liability;

(b) Whether there was suppression of material facts by the Appellant with intent to evade payment of duty, justifying the extended period of limitation;

(c) Whether the classification of goods and the consequent valuation and exemption claims made by the Appellant were correctly assessed by the Department;

(d) Whether the invocation of extended period of limitation can be sustained on grounds not explicitly stated in the adjudication order but raised in the appellate order.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Invocation of Extended Period of Limitation and Alleged Suppression of Facts

Relevant Legal Framework and Precedents: Under Section 11A of the Central Excise Act, 1944, the Department is empowered to reopen assessments within six months from the relevant date. However, the proviso to this section permits reopening within five years if there is suppression of facts or intent to evade duty. The Supreme Court in Pushpam Pharmaceuticals Co. vs. CCE (1995 Supp. (3) SCC 462) clarified that "suppression" must be deliberate and intentional nondisclosure of material facts to evade duty, not mere omission or error. This principle was reiterated in Anand Nishikawa Co. Ltd. v. Commissioner of Central Excise (2005) 7 SCC 749.

Court's Interpretation and Reasoning: The Tribunal examined whether the Appellant had suppressed material facts. The Appellant had obtained central excise registration disclosing the goods as food mixes under tariff item 2106 9011, along with the list of ingredients. Quarterly returns were filed disclosing manufacture details, HSN numbers, and exemption claims. The Department conducted an initial audit without objection to classification or exemption claims.

The Department alleged suppression on grounds that the Appellant did not submit a price list, cleared goods exceeding the SSI exemption turnover limit, and claimed exemption beyond eligibility. The adjudication order held that non-submission of price list, turnover exceeding Rs. 4 crores, and claiming SSI exemption despite this, amounted to suppression with intent to evade duty.

The Tribunal rejected these findings, holding that the Department was aware of the classification and exemption claims, as these were disclosed in registration and returns. The absence of a price list was deemed irrelevant since valuation under Section 4A was accepted without objection. The turnover exceeding Rs.4 crores was disclosed and duty was paid accordingly; thus, there was no concealment. The claim of SSI exemption during 2017-18 was under bona fide belief, and mere non-payment of duty without intent does not constitute suppression.

Key Evidence and Findings: The Appellant's registration documents, ingredient lists, returns with HSN codes and exemption details, and audit reports were examined. No prior objection was recorded by the Department before the second audit. The Appellant's turnover figures and duty payments were on record. The Department's allegation of suppression was based on retrospective reclassification and valuation.

Application of Law to Facts: The Tribunal applied the strict interpretation of "suppression" as deliberate nondisclosure. Since the Department had knowledge of the relevant facts and the Appellant had disclosed classification and exemption claims, there was no deliberate concealment. The extended period of limitation could not be invoked without such suppression.

Treatment of Competing Arguments: The Department argued that failure to submit price list, turnover exceeding exemption limits, and claiming exemption constituted suppression. The Appellant contended full disclosure and bona fide belief in exemption eligibility. The Tribunal favored the latter, emphasizing the Department's prior knowledge and absence of intent to evade duty.

Conclusions: The extended period of limitation was wrongly invoked as no suppression of facts with intent to evade duty was established.

Issue (c): Classification, Valuation and Exemption Claims

Relevant Legal Framework and Precedents: Classification of goods under the Central Excise Tariff Act and valuation under Section 4 or Section 4A of the Central Excise Act are fundamental to duty liability. Notification No.49/2008-CE(NT) provides for valuation with reference to Retail Sale Price (MRP) under Section 4A. SSI exemption under Notification No.8/2003-CE is subject to turnover thresholds.

Court's Interpretation and Reasoning: The Commissioner (Appeals) partly allowed the appeal, holding that certain syrups (rose syrup, khus syrup) merit classification under tariff item 2106 9011, while other products like premium thandai, kesaria pista, and squash fall under different tariff items (2008 1990 and 2008 99). Both chapter 20 and 21 goods are assessable under Section 4A with respective abatements of 35% and 25%. The duty liability was re-quantified accordingly but remanded for verification of MRP genuineness.

Key Evidence and Findings: The Appellant's submissions on classification and ingredient lists, audit findings, and valuation methods were considered. The Department's valuation based on retail sale price and abatement was accepted with adjustments.

Application of Law to Facts: The Tribunal noted that classification disputes and valuation under Section 4A do not themselves amount to suppression or mis-declaration if the Department was aware of the facts. The Appellant's disclosure of classification and exemption claims in returns negated suppression.

Treatment of Competing Arguments: The Department argued misclassification and incorrect exemption claims justified reassessment and extended limitation. The Appellant argued proper classification and bona fide exemption claims. The Tribunal accepted partial reclassification and valuation adjustments but rejected suppression allegations.

Conclusions: Classification and valuation issues were appropriately addressed with remand for further verification, but did not justify extended limitation invocation.

Issue (d): Legality of Invoking Grounds Not Raised in Adjudication Order

Relevant Legal Framework and Precedents: It is a settled principle that an appellate authority cannot sustain a case on grounds not raised in the adjudication order. The appellant must be given an opportunity to meet all grounds.

Court's Interpretation and Reasoning: The Tribunal found that the impugned appellate order sustained suppression allegations on extraneous grounds absent in the original adjudication order. This was held impermissible in law.

Key Evidence and Findings: Comparison of grounds in the adjudication order and appellate order revealed additional grounds introduced at the appellate stage.

Application of Law to Facts: The Tribunal applied the principle of natural justice and fairness, disallowing reliance on new grounds not previously adjudicated.

Treatment of Competing Arguments: The Appellant challenged the appellate order on this basis; the Department did not dispute the principle but relied on the findings. The Tribunal sided with the Appellant.

Conclusions: The appellate order's reliance on new grounds was not sustainable, warranting setting aside of the impugned order to that extent.

3. SIGNIFICANT HOLDINGS

"The meaning of the word both in law and even otherwise is well known. In normal understanding it is not different that what is explained in various dictionaries unless of course the context in which it has been used indicates otherwise. A perusal of the proviso indicates that it has been used in company of such strong words as fraud, collusion or wilful default. In fact it is the mildest expression used in the proviso. Yet the surroundings in which it has been used it has to be construed strictly. It does not mean any omission. The act must be deliberate. In taxation, it can have only one meaning that the correct information was not disclosed deliberately to escape from payment of duty. 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 Tribunal established the core principle that invocation of the extended period of limitation requires clear proof of deliberate suppression of facts with intent to evade duty, not mere error or omission.

The Tribunal concluded that since the Appellant had disclosed classification, ingredients, and exemption claims in registration and returns, and the Department was aware thereof, no suppression existed. Therefore, the extended period of limitation was wrongly invoked.

The Tribunal further held that reliance on grounds not raised in the adjudication order is impermissible, and such findings in the appellate order are unsustainable.

Consequently, the appeal was allowed to the extent of setting aside the invocation of extended limitation period, granting relief to the Appellant on this ground, while remanding classification and valuation issues for further verification.