Evasion of Central Excise duty by bulk drug manufacturers on drug intermediates - Adjustment of duties period voluntarily - Regarding - Central Excise - 2/93-CX.6

Evasion of Central Excise duty by bulk drug manufacturers on drug intermediates - Adjustment of duties period voluntarily - Regarding Circular No. 2/93-CX.6 Dated 15-1-1993 [From F. No. 208/41/92-CX.6] Government of India Ministry of Finance (Department of Revenue) Central Board of Excise Customs, New Delhi Subject : Evasion of Central Excise duty by bulk drug manufacturers on drug intermediates - Adjustment of duties period voluntarily - Regarding. The Director-General of Anti-Evasion had, during the search of the premises of an assessee, recovered incriminatory documents concerning non-payment of duty on a particular drug intermediate, manufactured by it and captively consumed in exempted drugs. Confronted with the evidence regarding non-discharge of duty liability, the company paid-up duty not only for the period of five years, prior to detection but also for the prior period, demand in respect of which had otherwise, become barred by limitation. 2. The question of adjustment of amounts so deposited was examined by the Directorate in consultation with the Senior Government Counsel, Shri M.T. Sethha of Bombay who opined that the provisions under Section 11A of Central Excises and Salt Act, 1944 are formal in nature and, therefore, should not be resorted to and advised that the assessment should be completed under Rule 173-I of the Central Excise Rules, 1944. Copy of his opinion is enclosed. 3. It would appear that where the assessee makes payment of duty voluntarily, even for the period which is otherwise time-barred, the preferable course would be to request him to submit RT-12 Returns for the period and to complete the assessment under Rule 173-I, as provisions of Section 11A cannot be invoked for the time-barred amount. As regards penalty, a notice could be issued under the relevant rules, if the facts of the case, warrent. 4. It is requested to look into cases of probable evasion by bulk manufacturers of drug intermediates in your Collectorate (s). The opinion of the Senior Government Counsel given above regarding assessment may also be noted. OPINION 1. Querist is office of the Directorate General of Anti-Evasion, Bombay (hereinafter referred to as the Department). The Additional Director General had held discussions with me. It appears that a few Drug Companies had not paid the requisite Excise Duty during the period 28-2-1986 to 1-3-1988 in respect of certain drug intermediates manufactured by them and captively consumed. In view of the provisions of the Central Excise Act/Rules, it is now well settled that captive consumption tantamounts to removal and therefore liable to the payment of Excise Duty. However, it appears that these Companies had not accounted for such removal and had not paid the duty therein, this fact came to light during the scrutiny of records undertaken by the Directorate General of Anti-Evasion, Bombay. 2. Redeeming feature of this episode is that all the four concerned Companies have volunteered to pay the dues in its entirety. Letters to this effect have also been issued by them to the Department. In fact even the payment has been made. Thus the only question that remains is which would be the proper course under the statute to appropriate this amount towards the dues. I had held discussion and have also considered whether the Department can invoke provisions of Section 11A (Proviso) and claim the balance amount and appropriate the same towards short-levy of Excise duty. However, it appear to me that the better course would be to appropriate the said amount by following the procedure prescribed under Rule 173(I) of the Central Excise Rules. The said Rule specifically entitles the "Proper Officer" to complete the assessment and for completing such assessment contemplate two specific basis :- (i) The information contained in the Return filed by the assessee, and (ii) Such further enquiry as the said Proper Officer may consider necessary. 3. The self removal procedure, as the term is well known in Excise parlance is described with adequate details in Chapter VII A which incorporates inter alia Rules 173A to 173(I), Under Rule 173B, infact, it is the statutory liability of the manufacturer to file inter alia, the relevant returns in respect of the goods manufactured and removed by such manufacturer. As stated above, the drug intermediates which are subject matter of the goods manufactured and removed by such manufacturer. As stated above, the drug intermediates which are subject matter of the present opinion were manufactured and were removed by the manufacturer. The relevant Notification (217 of 1986), which otherwise exempts the captively consumed goods provides that such exemption would not be permissible for such captively consumed goods in the event of the final product itself is exempt or chargeable to Nil rate of duty. It appears further that in the returns filed under Rule 173(I) in respect of such final products the Assessee Companies had claimed exemption/Nil rate of duty. It was therefore their statutory duty to file returns, the information that became available from the returns filed in respect of the finished product (the information namely that the finished product was subject to exemption/Nil rate of duty) and the information and further enquiry have brought to light the assessee's failure in respect of the statutory liability primarily flowing from said Rule 173B. The failure of the assessee to discharge the statutory obligation flowing from Rule 173B also resulted in their failure to comply with the provisions of Rule 173F. 4. However, as the concerned assessee Companies have voluntarily admitted their liabilities and have in fact paid, it should suffice the requirement of law if the amount of duty so paid is adjusted and appropriated in accordance with the provisions of Rule 173(I). This would of course necessitate the compliance with formal documentation by the assessees as required under various provisions of Chapter VII A. I understand that the assessee companies would be willing to do so. 5. In view of the peculiar facts and circumstances mentioned hereinabove, it would be, as stated above, preferable for the Department not to invoke the statutory source contemplated by Section 11A. The said route is more formal in nature. Further it is true that, though the assessee companies have themselves volunteered not to demand a show cause notice, still provisions of the statute regarding short-levy (in respect of the extended period) pre-supposes existence of one or more of the conditions prescribed in that Section. In fact certain demands could be even beyond five years. 6. I am therefore of the opinion that if the assessee adequately co-operates to comply formal documentation, in that event the Department can conclude the proceedings by following the procedure prescribed in Chapter VII-A of the Central Excise Rules. Papers are returned herewith.