2025 (6) TMI 761 - AT - Central Excise

Time limitation for demand - demand raised for the period August 2015 to March 2016 is barred by limitation given the date of issuance of the show cause notice on 17.05.2017 or not - Revenue submits the expression wholly figuring in the notification could not be taken as providing any scope for usage of any imported raw material and therefore the decision relied upon by the appellants is incorrect in its contents to that extent and is sub-silentio - HELD THAT - In view of the findings of 2018 (2) TMI 2016 Cestat-Mumbai in the case of Eurotex Industries and Exports Limited vs CCE Pune 2018 (2) TMI 216 - CESTAT MUMBAI this court find that there was sufficient scope of interpreting even if the submission of the learned Authorised Representative that the expression wholly cannot be construed to provide for any usage of imported raw material. This court at the moment is refraining from giving the decision on merits. However it is found that there was sufficient scope for legal interpretation encoupled with the fact of the situation in which audit was conducted and everything was found from the records as also the stated position that there was an earlier show cause notice also. This court is inclined to accept that the matter involved legal interpretation and therefore intent to evade cannot be surmised. This court allows the benefit on the ground of limitation and allows the appeal with consequential relief. Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal include:

• Whether the demand raised for the period August 2015 to March 2016 is barred by limitation, given the date of issuance of the show cause notice on 17.05.2017.
• The interpretation of the phrase "wholly from the raw material produced or manufactured in India" in the relevant notification, specifically whether the use of imported raw materials disqualifies the unit from claiming exemption under the notification.
• The applicability and scope of prior show cause notices and audit findings in relation to the limitation and merits of the current demand.
• Whether the department's failure to verify the appellant's segregation of goods manufactured from indigenous versus imported raw materials affects the entitlement to exemption.
• The presence or absence of any intent to evade duties, considering the legal interpretation of the notification and facts of the case.

2. ISSUE-WISE DETAILED ANALYSIS

Limitation of Demand

Relevant legal framework and precedents: The limitation period for issuance of a show cause notice is governed by the relevant statutory provisions under the Customs and Excise laws. The law requires that the notice must be issued within a prescribed time frame from the date of the alleged contravention or demand.

Court's interpretation and reasoning: The Tribunal noted that the show cause notice for the period August 2015 to March 2016 was issued on 17.05.2017, which was beyond the limitation period, as the demand should have been initiated by 10.04.2017 to protect any part of the claim. The earlier show cause notice issued on 24.05.2016 for the period July 2013 to July 2015 indicated that the department was aware of the facts and circumstances well before the limitation period expired.

Key evidence and findings: The appellant relied on the prior show cause notice and audit reports to demonstrate that the department had knowledge of the matter, and the delay in issuance of the later notice was fatal to the demand.

Application of law to facts: The Tribunal accepted that the demand was time barred as the show cause notice was issued after the limitation period, and the prior notice did not extend or revive the limitation for the subsequent period.

Treatment of competing arguments: The department did not dispute the limitation issue but focused on merits. The Tribunal found the limitation argument to be decisive and favored the appellant on this ground.

Conclusions: The demand for the period August 2015 to March 2016 is barred by limitation and cannot be sustained.

Interpretation of "Wholly from the raw material produced or manufactured in India"

Relevant legal framework and precedents: The notification in question (No. 23/2003 CE) provides exemption conditions for goods produced wholly from indigenous raw materials. The Tribunal relied heavily on the Division Bench decision in Eurotex Industries and Exports Limited vs CCE Pune, which interpreted the phrase and the scope of exemption.

Court's interpretation and reasoning: The Tribunal noted that the Division Bench held that the condition does not exclude the use of imported raw materials altogether. The exemption is available if the goods cleared into the Domestic Tariff Area (DTA) are made up solely of indigenous raw materials. The appellant had provided charts segregating goods produced from indigenous raw materials and those from imported raw materials, but the department failed to verify these claims.

Key evidence and findings: The appellant's submission of detailed charts and the absence of departmental verification were significant. The Tribunal observed that the department's adjudicating authority had refused to accept the alternate submission without proper verification, which was a procedural lapse.

Application of law to facts: The Tribunal found that the notification's language and the precedent allowed for an interpretation that does not categorically bar usage of imported raw materials by the unit, provided the goods cleared into DTA are made from indigenous materials only.

Treatment of competing arguments: The department's representative contended that "wholly" excludes any imported raw material usage, but could not counter the precedent or show any departmental appeal challenging that decision. The Tribunal found this argument unpersuasive.

Conclusions: There is sufficient scope for legal interpretation allowing the appellant's claim for exemption, and the department's denial without verification was unjustified.

Intent to Evade and Legal Interpretation

Relevant legal framework and precedents: The question of intent to evade duty is critical in excise and customs matters, especially where legal interpretation of notifications is involved.

Court's interpretation and reasoning: The Tribunal emphasized that the matter involved legal interpretation of the notification's terms. Given the prior show cause notice, audit records, and the ambiguity in the notification's language, the Tribunal was reluctant to infer any intent to evade duty.

Key evidence and findings: The existence of prior show cause notices, audit findings, and the appellant's submissions indicated transparency and absence of willful evasion.

Application of law to facts: The Tribunal applied the principle that where a matter is open to legal interpretation, penal consequences or adverse inferences of evasion should not be drawn lightly.

Treatment of competing arguments: The department did not present evidence of fraudulent intent or concealment, relying only on the interpretation that the exemption was not available.

Conclusions: No intent to evade duty was found, reinforcing the appellant's entitlement to relief.

3. SIGNIFICANT HOLDINGS

The Tribunal held that the entire demand for the period August 2015 to March 2016 was barred by limitation, as the show cause notice was issued beyond the prescribed period. It observed that the prior show cause notice and audit findings demonstrated departmental awareness but did not extend limitation.

The Tribunal relied on the Division Bench decision in Eurotex Industries and Exports Limited vs CCE Pune, reproducing para 13 verbatim, which clarified that the exemption notification does not prohibit the use of imported raw materials by the unit, so long as goods cleared into DTA are made solely from indigenous raw materials:

"The above conditions nowhere debars the EOU from availing exemption in case where the EOU is manufacturing goods from indigenous raw material as well as imported raw material. It is only to be ensured that the goods cleared in DTA are made up of indigenous raw material only. The Appellant had given the charts showing the goods manufactured from indigenous raw material and goods manufactured from imported raw material separately to the adjudicating authority and the department also. No verification of the same was conducted by the revenue. The same should have been verified by the department. There is no stipulation under notification no. 23/2003 CE that if a unit has produced the goods from imported raw material in that case it would lose its eligibility to claim exemption in terms of serial no. 3."

The Tribunal concluded that the matter involved a legal interpretation and that the department's failure to verify the appellant's submissions was a procedural lapse. It further held that no intent to evade duty could be surmised, given the circumstances and prior proceedings.

Accordingly, the Tribunal allowed the appeal on the ground of limitation and legal interpretation, granting consequential relief to the appellant.