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2016 (5) TMI 1108 - DELHI HIGH COURT

2016 (5) TMI 1108 - DELHI HIGH COURT - 2016 (344) E.L.T. 857 (Del.) - Validity of demand raised invoking Extended period of limitation in the Second Show Cause notice - Second SCN was issued for the earlier period than which was covered by the first SCN - Held that:- Department was indeed aware of the fact that the Petitioner was clearing PAA, made from captively consumed BeCN cleared by paying nil duty and further that PAA was also being cleared upon payment of nil duty. The fact that it asked .....

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al that was not already available with the Department when the first SCN was issued. - In such circumstances, the ratio of the decision in Nizam Sugar Factory [2006 (4) TMI 127 - SUPREME COURT OF INDIA] applies. - in the present case, the conditions for invoking the extended period of limitation in terms of the proviso to Section 11 A (1) of the CE Act were not fulfilled and that the demand raised in respect of the BeCN used in the manufacture of PAA for the extended period of 1st March 198 .....

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rit petitions by the Petitioner, DCM Shriram Industries Ltd., challenging the orders dated 15th April 1998 and 14th March 2000 passed by the Customs, Excise & Gold (Control) Appellate Tribunal ( CEGAT ). While the first mentioned order dated 15th April 1998 of the CEGAT emanated from a Show Cause Notice (SCN) dated 19th February 1991 issued by the Central Excise Department ('Department') to the Petitioner, pertaining to the period 1st March 1986 to 31st December 1989, the second orde .....

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enge is confined to the CEGAT's order dated 15th April 1998 emanating from the SCN dated 19th February 1991 pertaining to the period 1st March 1986 to 31st December 1989. Background facts 3. The facts are that the Petitioner, inter alia, owns and operates a manufacturing unit in Meerut District, Uttar Pradesh and known as Daurala Sugar Works. The Petitioner has been operating a chemical plant at the said factory at Daurala where it is engaged in the manufacture and sa .....

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empt from payment of excise duty and its 'Aqueous Layer' which is classified under the heading 38.23 of the CET and is subject to 15% excise duty chargeable ad valorem. 4. The Petitioner states that the manufacture of PAA involves the following process: (a) Toluene, Chlorine and Caustic Soda (all of which are inputs purchased from outside) are used to obtain BeCL (which is produced in-house) (b) BeCL (produced and captively consumed) along with Sodium C .....

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unstable and therefore cannot be marketed as such. In an affidavit dated 14th January 1992 filed before the CEGAT by Mr. Ajay Gupta, Assistant Plant Superintendent of the Petitioner at its chemical plant at Daurala, it is explained that the crude BeCN that is captively consumed in the manufacture of PAA "is debited in the column for other purposes and for such removal, serial numbered captive gate passes of the Company is used. These gate passes are duly pre-authenticated by the Central Ex .....

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olumn for removal on payment of duty for home use in the Central Excise daily stock account (RG. 1)." 6. Initially chemicals that were classifiable under Tariff Item (TI) 68 in the Schedule to the Central Excise Act, 1944 (CE Act) were, in terms of Notification No. 118/75 dated 30th April 1975 exempt from payment of excise duty if they were captively used in the factory of production. It is stated that in 1976 and 1982, the Petitioner applied to the Assistant Collector of Centra .....

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following: (a) Toluene (b) Chlorine (c) Sodium Cyanide (d) Sodium Hypo Chloride (e) Bleaching Powder (f) Triethylamine (g) Sulphuric Acid (h) Caustic Soda 8. The CET Act replaced the Schedule to the CE Act with effect from 28th February 1986. On 1st March 1986 chemicals that were hitherto classified under TI 68 in the Schedule to the CE Act were described in different Chapters of the CET. .....

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Column 3 of this notification. Under a proviso to Rule 57 A of the CE Rules it was clarified that the exemption would not be available if the final products were exempt from duty. 9. On 7th March 1986 the Petitioner filed a Classification List in terms of Rule 173 B of the CE Rules. The Petitioner in the said list disclosed the following: (a) Manufacture of PAA cleared upon Nil rate of duty under Notification No. 147/84. (b) Production of the Aqueous Layer from PAA (class .....

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duty. 10. The Inspector of Central Excise by a letter dated 31st March 1986 directed that the MODVAT credit taken on the inputs should be reversed. In its reply dated 18th April 1986, the Petitioner clarified that the PAA was cleared after availing exemption from payment of duty in terms of Notification No. 147/84-CE dated 18th June 1984. The Petitioner undertook to reverse the MODVAT input credit qua the PAA and debit the amounts so claimed in the RG-23A register on clearance of PAA .....

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inter alia it disclosed the following information: (a) Manufacture of PAA cleared upon Nil rate of duty under Notification No. 147/84. (b) Production of the Aqueous Layer from PAA (classified under Chapter 38 to the Schedule) on which BED of 15% ad valorem was paid. (c) Production of BeCL and BeCN for captive consumption, which were exempt from duty in terms of Notifications 171, 172 and 176 dated 1st March 1986 as well as Notification No. 217/86 dated 2nd Apri .....

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sed captively was different from the one that was marketed. Another classification list was filed on 1st March 1989 in which again the information disclosed by the Petitioner in the lists filed on 7th March and 7th May 1986 was disclosed. 13. The Department states that on noticing that the name of the final product was not indicated in the Classification list dated 1st March 1989, a letter dated 1st March 1990 was addressed to the Petitioner asking it to furnish the name of the final .....

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thcoming, the Superintendent of the Range and his team visited the factory of the Petitioner and since no responsible officer of the factory was present, the RG 1 registers for the period 1st March 1986 onwards were resumed. Thereafter, the Petitioner submitted a letter dated 27th March 1990 disclosing the process of manufacture and stating that BeCL and BeCN used in the manufacture of PAA were being cleared without payment of duty in terms of Notifications 171, 172 and 176/86 dated 1st March 19 .....

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was further explained that since BeCN was also used in the manufacture of Aqueous Layer, which was dutiable, the Petitioner would be entitled to claim exemption on BeCN under Notification No. 217/86. The said representation also mentioned the cases of other assessees undertaking the same process of production and on whom there had been no levy of excise duty on BeCN. The first SCN dated 5th July 1990 15. A show cause notice ( SCN ) dated 5th July 1990 was issued to the P .....

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d 2nd April 1986, the Petitioner was asked to show cause why it should not be asked to pay BED and SED on the BeCL so cleared on payment of Nil duty. Likewise the Petitioner was also asked to show cause why it should not be asked to pay BED and SED on the BeCN cleared on payment of Nil Duty as per Notification No. 217 dated 2nd April 1986 since such BeCN was used in the manufacture of PAA which was also cleared on payment of Nil duty under Notification No. 147/84 dated 18th June 1984. The demand .....

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dutiable, duty could only be levied on its manufacturing cost. Further, reversal of MODVAT credits on account of the exemption benefit to PAA should be restored in such a case. Since BeCN and BeCL were used in a composite process to produce PAA and the Aqueous Layer, and the latter being cleared on payment of duty, the benefit of Notification No. 217/86 could not be denied. It was further pointed out that all the above facts were in the knowledge of the Department, having been brought to its no .....

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. This was for the period 1st March 1986 to 31st December 1989 and therefore, was by way of invocation of the extended period of limitation under the proviso to Section 11 A (1) of the CE Act as it stood prior to the passing of the Finance Act, 2011. 18. The case of the Department in this SCN was similar to the first SCN dated 5th July 1990. The allegation was that the fact of the use of BeCL and BeCN in PAA exempted from payment of duty was suppressed by the Petitioner. The paragrap .....

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vely and misstated the facts by quoting wrong notification without declaring the actual name of the final products with the intention of evading central Excise duty. Therefore the provisions of the proviso to Section 11-A for demanding duty beyond six months also appears to be applicable in this case." 19. The Petitioner filed a reply to the above SCN on 19th April 1991. The Petitioner again pointed out that the Department was already aware of that BeCL and BeCN were manufactured .....

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erent from that part of the BeCN which was subjected to further processing and thereafter packed for sale. On clearance of such marketable BeCN, duty was paid. The Petitioner submitted that the benefit of MODVAT credit taken on the inputs already reversed should be restored and adjusted towards the duty held to be payable on BeCN. Order-in-original dated 12th August 1991 20. For some reason, the second SCN dated 19th February 1991 was adjudicated first by the Collector of .....

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e' in the classification list. However, the CCE agreed that in such event if BeCN was dutiable, then no duty could be demanded on BeCL used in its manufacture in terms of Notification No. 217/86. The CCE also rejected the contention that since one of the final products, i.e. Aqueous Layer was dutiable, the benefit of Notification 217/86 could not be denied on BeCN. It was observed that Aqueous Layer was only 'spent sulphuric acid' and had no BeCN content in it. BeCN used as a reactan .....

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that the above intermediate products were used in manufacturing a exempted final product i.e. PAA. Orders in the first SCN 23. Subsequently on 24th October 1991, the Assistant CCE (ACCE) passed an order-in-original in respect of the first SCN dated 5th July 1990. Incidentally, the discussion and findings in the said order were on the same lines as the order dated 12th August 1991 of the CCE in respect of the second SCN dated 19th February 1991. The ACCE therefore confirme .....

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o MODVAT credit in view of the conclusion that BeCN was dutiable. CEGAT's order dated 15th April 1998 25. The Petitioner filed appeals against both orders in original before the CEGAT. By the final order dated 15th April 1998, CEGAT upheld the order dated 12th August 1991 of the CCE as regards the second SCN dated 19th February 1991 except for certain modifications. The conclusions reached by the CEGAT were as follows: (i) The classification list filed on 1 .....

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rade and for the second time as other grade . In both the cases the basic duty claimed was nil in terms of Notification No. 147/84. The two substances i.e. BeCL and BeCN were shown to the attracting duty at 15%. There was no mention of either of these substances being captively consumed. In the classification list dated 7th May 1986, no exemption was claimed in respect of BeCL or BeCN. Therefore, it could not be said that the Department was aware of the captive consumption of the above substance .....

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by the Inspector of Central Excise, they mentioned Notification No.118/75 in which there was no condition as to the necessity of the final product being dutiable. The notification that applied was Notification No. 217/86 which had such a condition built into it. (v) The contention that crude BeCN was not marketable and therefore not dutiable could not be accepted in the absence of any technical evidence to show the difference in the two products. (vi) Since the demand was .....

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8th November 1999 26. The Petitioner filed an application before the CEGAT seeking rectification of some factual errors in the above order dated 15th April 1998. Meanwhile the Petitioner also filed the present writ petition W.P. (C) No. 3951 of 1998 in this Court challenging the above order dated 15th April 1998 of the CEGAT. On 6th October 1998, while reserving the Department's objection to the maintainability of the petition in view of the remedy of appeal available to the Peti .....

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h May 1990. By the said order dated 18th November 1999, the CEGAT accepted the plea of the Petitioner and made the following corrections to page 4 its order dated 15th April 1998: (i) The sentence "this price list does not speak of captive consumption of either of these two input s" shall be substituted with the sentence: "This classification list does not speak of captive consumption of either of the two inputs." (ii) The sentence "In the next cla .....

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15th April 1998 the sentence: "the claim was also made that part of the Benzyl Cyanide used in the manufacture of Phenyl Acetic Acid went into the bye-products which were cleared free of duty" shall be substituted by the sentence: "The claim was also made that part of the Benzyl Cyanide used in the manufacture of Phenyl Acetic Acid went into the by-products which were cleared on payment of duty." CEGAT's order dated 14th March 2000

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9. By order dated 27th April 2000 in W.P. (C) No. 1926 of 2000, while issuing Rule, the Court directed it to be heard along with W.P. No. 3951 of 1998. However, since the Petitioner has not pressed W.P. (C) No. 1926 of 2000, no further discussion of the said order dated 14th March 2000 of the CEGAT is necessary. Preliminary Objection 30. A preliminary objection has been raised by Ms. Sonia Sharma, learned Standing counsel for the Department, to the maintainability of W.P. .....

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/2013 (Commissioner of Service Tax v. Ernst & Young Pvt. Ltd.). She accordingly urged that this Court should not entertain these petitions. 31. As far as the above preliminary objection is concerned, it requires to be noticed that W.P. (C) No. 3951 of 1998 was admitted on 21st September 1999 by issuing Rule DB. At the hearing previous to the said date, i.e., on 6th September 1999, the Court noted in its order as under: After some hearing learned counsel for the Partie .....

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n this Court for nearly two decades. 33. Consequently, this Court does not consider it appropriate at this stage to relegate the Petitioner to the alternate remedy of an appeal. Apart from interminably delaying the resolution of the dispute that started two decades ago, it will add to the burden of huge pendency of cases and would not serve any useful purpose. Consequently, the preliminary objection raised by Ms. Sonia Sharma is hereby rejected. Was the extended period of .....

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been levied, or paid, or has been short-levied or short-paid or erroneously refunded. The normal period of limitation for the service of such notice is six months from the relevant date. In terms of the proviso to Section 11 A (1), where any duty of excise has not been levied or paid, or has been short-levied or short-paid and erroneously refunded 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 Rul .....

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rtment is that the Petitioner was claiming the benefit of exemption in respect of the BeCL and BeCN captively consumed by paying Nil rate of duty without disclosing that they were being used to manufacture PAA which was not dutiable. 37. Mr. C. Hari Shankar, learned Senior counsel appearing for the Petitioner, contested the above stand of the Department and pointed out that the documents on record showed that the following facts were in the knowledge of the Department throughout:

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output of each commodity during the year , the Petitioner mentioned: as per Annexure 1 . In Column 5 as regards manner of manufacture the Petitioner filled up: as per Annexure 2 . Annexure 1 set out the products that were proposed to be manufactured. As regards 'the manner of manufacture' it was stated as under: Toluene & Chlorine is reacted in all glass plant to produce Benzyl Chloride which is converted to Benzyl Cyanide on reaction with Sodium Cyanide. Benz .....

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om Daurala Chemical Industries to Daurala Sugar Works (Chemical Plant), in the application form the Petitioner stated that it may be granted licence to obtain (without payment of whole or part of the central excise duty thereon) Toluene to be used for the manufacture of BeCL, BeCN which were used for the manufacture of PAA and allied chemicals. 40. After the introduction of MODVAT Scheme, the Petitioner cleared PAA and BeCL without payment of any excise duty in terms of Notification .....

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he incidence of excise duty on various inputs per tonne of phenyl acetic acid shall be debited back in the RG-23A register on clearance of PAA and Benzyl Alcohol against credit already obtained on receipt of such inputs. The Petitioner further undertook that the "debit entries will be commenced after we complete despatches of phenyl acetic acid and Benzyl Alcohol which were manufactured from inputs on which we have not obtained any credit under MODVAT. We shall make such debit entries so lo .....

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l Cyanide in the plant, Benzyl Chloride, Sodium Cyanide, Tri Ethyl Amine, Bleaching Powder and caustic soda are inputs. - For manufacture of Benzyl Chloride in the plant, Toluene, Chlorine and caustic Soda are inputs. We confirm that the figures mentioned in the above statement are correct to the best of our knowledge and belief. 41. Significantly, while in the counter affidavit the Department has stated that the application submitted in 1976 does not contain .....

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d copies of the serially numbered gate passes pre-authenticated by the proper officer of the Department indicating how much BeCN was captively consumed in the manufacture of PAA and the quantity that was cleared on payment of duty. These gate passes in turn formed the basis of making entries in the statutory RG 1. The Petitioner is right in its contention that the gate passes were pre-authenticated in September 1986 and were issued in October 1986. Notification No. 118/75 was rescinded with effe .....

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was being cleared upon payment of Nil duty in terms of Notification 147/84 dated 18th June 1984. The CEGAT in its order dated 18th November 1999 corrected the error in the order dated 15th April 1998 and agreed that in the classification list dated 7th May 1986 "exemption is claimed on both the substances in terms of Notification 217/86 for captive consumption". With this correction, the CEGAT's conclusion that there was a deliberate suppression of information by the Petitioner in .....

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does not mean any omission. It must be deliberate. In other words, there must be deliberate suppression of information for the purpose of evading of payment of duty. It connotes a positive act of the Assessee to avoid paying excise duty. The mere fact that the wrong notification number may have been mentioned will not ipso facto attract the proviso to Section 11 A (1) of the CE Act. As pointed out by Mr Hari Shankar, the Department was aware of the factual situation and therefore was not justif .....

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1998. However, the facts in that case were different. The fact that the Assessee there was registered with the DGTD, which would disentitle it to exemption, was not disclosed to the Department and no revised classification list was filed. In the instant case, however, the order dated 18th November 1999 of the CEGAT itself acknowledges that the relevant information about BeCL and BeCN that were captively consumed were being cleared on payment of nil duty and that PAA was also being cleared after .....

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hat the Department was within its right to issue the second SCN for an earlier extended period since at the time of the first SCN, the investigation was still in progress and more and more facts" remained to be unearthed. She stated that prior to the issuance of the SCN dated 5th July 1990, the Department was not aware of the process being adopted by the Petitioner to manufacture PAA. She sought to distinguish the decision in Nizam Sugar Factor (supra) by pointing out that the subsequent SC .....

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Petitioner complied, belies the Department's case to the contrary. Secondly, a comparison of the two SCNs shows that the second SCN for the extended earlier period 1st March 1986 till 31st December 1989 is a virtual repeat of the first SCN dated 19th February 1991 except for one paragraph extracted hereinbefore. This merely sets out the language of the proviso to Section 11 A (1) and makes no reference to material that was not already available with the Department when the first SCN was iss .....

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