TMI Blog1999 (8) TMI 1006X X X X Extracts X X X X X X X X Extracts X X X X ..... he exemption under the aforesaid notification were aluminium foil jacketed batteries. As per the view entertained by the department metal jacket battery is the one whose jacket was made of tin or iron and the batteries cannot be considered as metal jacketed batteries if the jacket of the battery is made of aluminium foil. The show cause notice issued by the department raising demand of duty of ₹ 3,43,89,568.49 was dropped by the adjudicating authority on the technical ground of limitation inasmuch as the demand was raised beyond even the extended period of 5 years provided under Section 11A of the Act. However, he observed that though the demand cannot be confirmed on the ground of limitation, nevertheless the appellants were guilty of deliberate suppression on their part, which resulted in evasion of duty to the tune of ₹ 3,43,89,568.49. Accordingly he imposed a penalty of ₹ 1 Crore on the appellants under Rule 173Q(1) of Central Excise Rules. 2. Shri V. Sridharan, ld. Advocate appearing on behalf of the appellants submitted that he is not disputing the fact that the battery manufactured by the appellants was not metal jacketed battery and as such they were no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of aluminium foil was disclosed to the department. A sample of the battery was also given to the department. He submitted that after conducting necessary verifications the classification list was approved and no mala fides can be attributed to the appellants so as to justify the imposition of penalty of ₹ 1 Crore. He submitted that the observations of the adjudicating authority that the appellants are leader in this industry and they should not have misguided the department by holding out a battery manufactured with aluminium foil as a metal jacketed battery are against the facts on records, inasmuch as the appellants and the department were entertaining a bona fide belief that the aluminium foil batteries are to be considered as metal jacketed batteries in the absence of any definition of metal jacketed batteries in the notification. He argued that though the duty has been dropped by the Commissioner on the technical ground of demand having been raised after a period of five years, the fact remains that there was no suppression on the part of the appellants. As such the imposition of penalty in the absence of any such ingredients in the proviso to Section 11A, was not justif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to prevail. As regards the imposition of penalty he submitted that the Hon ble Supreme Court in the famous case of Charandas Malhotra has held that there is no time limit for imposition of penalty. He submitted that the adjudicating authority has come to a clear finding that there is suppression on the part of the appellants with intent to evade duty inasmuch as the evidence brought on record by way of statements of the appellants officers clearly shows that the appellant was fully aware with the character of the specific inputs used by them and of the fact that the paper backed aluminium foil did not grant the character of metal jacketed batteries to their product. Relying upon the Tribunal s decision in the case of Shri Ram Drinks (P) Ltd. v. Collector of Central Excise BBSR reported in 1994 (72) E.L.T. 427 (para 7), he submitted that the imposition of penalty in Rule 173Q has been held to be justifiable where the appellants had taken the Modvat credit wrongly noting that the same was not admissible to him. He submits that in the instant case also the appellants have availed the exemption with the full knowledge that the same was not available to the appellants. Elaborating on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... connection it is relevant to note that Section 9 of the Central Excises and Salt Act, which provides for offences and penalty, makes a person liable to a criminal offence not only when he removes an excisable goods in contravention of any of the provisions of the Act or any rule made thereunder, or when he fails to supply any information which he is required by Rules made under this Act to supply but also when he supplies false information. Rule 173Q on the other hand does not say that a person shall be liable to penalty when the information supplied by him is false. The omission in this respect in Rule 173Q is pertinent and it shows that the rule does not intend to penalise a person for giving false information. Further, under sub-rule (2) of Rule 173C the proper officer while approving the price list can modify the value shown in the list so as to bring it to the correct value. Now if the Rule requires the manufacturer to enter the correct price, he would become liable to penalty under Rule 173Q on every occasion the proper officer modifies the list. Such a consequence could not have been intended, which supports the view that omission to enter correct price is not a contraventio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w :- It prescribed two periods of limitation, viz., six years and four years, applicable in two different situations. Sub-section (4) further provided for levying of penalty by the assessing authority in addition to the tax assessed. The section did not expressly provide for any period of limitation for levying penalty. It was, therefore, argued that there is no period of limitation for levying penalty and that, such a penalty can be levied even beyond the periods prescribed in the said sub-section. This argument was negatived by the Bench, which held that the penalty proceedings are not independent proceedings, but are dependent upon a finding by the assessing authority that the whole or any part of the turnover of the business of a dealer has escaped assessment, and that only on arriving at that finding are the penalty proceedings taken up as a deterrence. It was further observed that, while the penalty proceedings are distinct from the assessment proceedings, they are not wholly independent of the assessment proceedings, and further that the power to levy penalty is ancillary to the power to levy the tax. Accordingly, it was held that, when the assessment itself is barred, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary enquiries. It seems that the appellants as well as the department was entertaining a belief that even the aluminium foil covered batteries would classify under the exemption. The appellants cannot be held guilty of any contravention on their part in making the department belief that the battery in question was metal jacketed battery. The observation and finding of the Commissioner that the appellants were aware of the character of the battery and persuaded the department in believing that the jacket was made of only aluminium foil with intend to evade payment of Central Excise duty, do not appeal to us. The ruling of the Hon ble High Court of Madhya Pradesh which is based upon the judgment of the Supreme Court in the case of Union of India v. Shri Ram Durga Puri (P) Ltd. reported in AIR 1970 S.C. 1597 is to the effect that giving of incorrect information in the declarations under Section 12(1) of the Foreign Exchange Regulation Act, 1947 cannot be said to be contravention of that rule inasmuch as the declarations satisfied requirements of that section. It was also held that the declarations could not be considered as non est although did not correctly furnish all the inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of contemporary record of the Central Excise department in which the classification list was approved, it cannot be said whether the Revenue did not make any enquiry before approving the classification list. What is material for proving the contravention of rule with intent to evade duty is whether an assessee has wilfully mis-stated certain material facts or not having a bearing on payment of duty. Approval of classification list by the Revenue on the strength of such a wilful mis-statement does not in any manner detract from the wilful mis-statement of the appellants herein. I rely for this proposition on Apex Court s judgment in the case of Jaishree Engineering Co. (P) Ltd. v. C.C.E., 1989 (40) E.L.T. 214 -para 10. It was found in the facts and circumstances of that case that the appellant had declared one of their products as end fittings whereas it ought to have made the declaration as nuts . The fact that the department approved the classification list or that it should have been aware of the production of the goods did not dilute the misleading description given by the appellants therein. I am of the opinion that in the present case too, the appellants herein have wilfu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n made in the Rules. Therefore, wilful giving of false or misleading information attracts penalty. In respect of breach of not giving correct information knowingly, in respect of a commodity governed under Chapter VII-A, provisions of Rule 173Q(1)(d) read with Rule 198 would be attracted. 21. Next contention of the learned Advocate is that where no duty is required to be recovered from an assessee under the provisions of the Central Excises Act and the Rules made thereunder, no penalty would be sustainable against such an assessee. For this proposition learned Advocate relies on Apex Court s judgment in the case of HMM Ltd. (supra). 22. As against the above contention, learned SDR, Shri T. Premkumar urges that this contention is not correct. In all cases, including that of HMM where penalty has not been sustained/imposed, it is so because finding of wilful mis-statement or suppression of fact has not been reached by the concerned authority. It is not so in the present case. Here wilful mis-statement and suppression is clear and apparent and a finding to that effect has been given by the adjudicating authority. 23. I find substantial force in the submission of the learned S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment. It is only on the finding that the turnover has escaped assessment, as a deterrent for the dealer, the penalty proceedings are taken up. While these proceedings may be distinct from the assessment proceedings themselves, they are not wholly independent of the assessment proceedings. It is also significant to note that this power to levy penalty conferred by sub-section (4) of Section 14 is vested in the assessing authority to direct the dealer to pay the amount in addition to tax. The word also and the words in addition to tax occurring in that sub-section give an indication that this power is ancillary to the power to levy the tax, and not an independent one. That being so, when the power to levy the tax itself can be exercised within a period of six years from the assessment year, it could not have been the intention of the Legislature to vest this ancillary power in the assessing authority to be exercised at some indefinite distant future. If such a power were to be given, a dealer who has been validly assessed to tax within a period of six years under sub-section (4) of Section 14 would still be exposed to the levy of penalty at some distant future. It could not have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that penal liability arises as soon as a rule has been contravened intentionally and the intention in contravention of rule was to evade duty. Clause (d) ibid, as it stands, on its plain and strict construction is attracted even before any evasion of duty has taken place and there is merely a contravention of rule with intent to evade duty. In other words, evasion may not have taken place, because that intention may not have, as yet, been implemented. It is a different thing that evidence of such an unimplemented intention may be difficult to get. 27. On the other hand, even if there is escape of a levy or a short-levy, it cannot be recovered by invoking larger period of five years unless mens-rea on the part of an assessee is proved in that non-levy or short-levy. 28. It is to be further noted that Section 11A merely provides two periods of limitation under different circumstances for recovery of duty where there is a short-levy or non-levy. Law of limitation, it is well settled, bars the remedy to enforce the liability but does not extinguish the said liability. Therefore, Section 11A comes in the way of recovery of duty only but does not extinguish the liability to duty of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r imposition of penalty was within time. Answering of the question relating to whether the imposition of the penalty was time barred would be sufficient for the purpose of disposing of this appeal, if the answer is that the penalty proceeding also became time barred alongwith the demand for duty. Accordingly, I am taking up the question as to whether there was time bar in the case of penalty under Rule 173Q for consideration first. 31. On the aforesaid question it has been submitted by learned Counsel Shri V. Sridharan on behalf of the appellants that even if no period of limitation is prescribed for initiating penalty proceeding, it is well settled that in such a case proceeding should be initiated within reasonable time. He has relied upon the following judgments in supports of this submission : (a) 1969 (2) SCC 187 at page 193-194 of the report (paras 11 12) The question arises whether the Commissioner can revise an order made under Section 65 at any time. It is true that there is no period of limitation prescribed under Section 211, but it seems to us plain that this power must be exercised in reasonable time and the length of the reasonable time must be determined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act and penalty is to sub-serve and facilitate the imposition of duty. Shri Sridharan has also submitted that as the maximum time limit contemplated by the legislature for levy of duty is only 5 years, it is unthinkable that reasonable period for initiating penalty proceedings can be beyond 5 years. He has relied on the following judgments in support of the proposition that limitation for duty/tax will apply to penalty also. (a) 1974 (33) STC 144 at 147 In these circumstances, we are inclined to take the view that the period of limitation of six years provided for the assessment of tax where whole or any part of the turnover has escaped assessment is also the period of limitation for purposes of levying the penalty on such escaped assessment. (b) 1983 (53) STC 169 at 171 The Section did not expressly provide for any period of limitation for levying penalty. It was, therefore, argued that there is no period of limitation for levying penalty and that, such a penalty can be levied even beyond the periods prescribed in the said sub-section. This argument was negatived by the Bench, which held that the penalty proceedings are not independent proceedings, but are depe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he has relied on the decision of Supreme Court in AIR 1975 SC 1549. He has referred to the decision of the CEGAT in the case of Amar Processors v. Collector of Central Excise - 1993 (68) E.L.T. 134 in support of the submission that penalty is impossible under Rule 173Q even when demand is held to be barred by time. He has also referred me to the decision of the CEGAT in Basant Industries and Others v. Collector of Customs, Bombay reported in 1987 (29) E.L.T. 155 in support of the submission that confiscation and penalty in fiscal statutes are aspects separate from assessment of duty under such proceedings, penalty proceedings being another and quasi-criminal in character, penalty is an independent liability. With regard to the applicability of the decision of the Supreme Court in HMM Ltd. case - 1995 (76) E.L.T. 497 he has submitted that the learned Member (T) has correctly distinguished this judgment and held that this judgment is not applicable in the facts of this case. Learned SDR also submitted that the learned Member (T) has rightly placed reliance on the decision of the Supreme Court in J.K. Bardoria Mills v. M.L. Khungur, Deputy Collector - 1994 (72) E.L.T. 813 in support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A and the Proviso thereto. The judgment makes no reference to time bar or any other reasons, which makes it not possible to sustain the duty demand. Instead, it is a universal rule, if duty cannot be sustained penalty does not arise. Therefore, I am of the opinion that it is not correct to limit the application of the judgment in HMM case to cases other than relating to misstatement etc. The reliance placed on the judgment of the Supreme Court in J.K. Bardoria Mills case also would not be correct as that judgment related to provisions of the Customs Act relating to seizure, confiscation and penalty and not to the provisions relating to time limit prescribed for recovery of duty and imposition of penalty. Moreover, the said decision in HMM case directly covers the issue of relationship between time limit for recovery of duty and imposition of penalty under Central Excise Law as in the present case. Therefore, that judgment has to be followed as laying down the law on the submit. Further, it would be contrary to legislative policy also to hold that while there are specific provisions relating to time bar of duty demands, penalty provisions are valid ad infinitum. Law of limitation is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w. In case of Collector of Central Excise, Bombay v. S. D. Fine Chemical Pvt. Ltd. - 1995 (77) E.L.T. 49 (S.C.), the Hon ble Apex Court held as under :- It would be evident from the opinion of the Third Member that he did not deal with the several aspects dealt with in the opinions of the two differing Members. He did not also indicate whether he agrees or disagrees with the findings recorded by Member (Judicial), viz; that after the processes undertaken by the respondent, the chemicals bears a different chemical name and have altogether different use. The Third Member did not also deal with the holding of Member (Judicial) that after the processes undertaken by the respondent, the chemical became a different commercial commodity. [para 2] The Hon ble Apex Court after observing that the Third Member to whom the difference of opinion was referred has not dealt with the case in full and proper manner and therefore remitted the matter for fresh opinion of the Third Member of the Tribunal who was directed to render opinion afresh on the question referred to him within six months. In the present case, the opinion of the Third Member was sought on the following points :- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecovery of duty it does not extinguish the duty liability and that there is no time limit for initiating proceedings for imposing penal liability under Rule 173Q. It was in the light of this background that first question framed was whether there was suppression which amounted to contravention of Rule 173B and if so whether even then penalty was not imposable as barred by time since the recovery of duty under Section 11A was barred by time. Relying on Hon ble Apex Court Judgment in case of M/s. HMM, 1994 (76) E.L.T. 497 (S.C.), the Third Member observed that the Rule laid down in the judgment is that the question of penalty would arise only if the department is able to sustain its demand. He also held that judgment makes no reference to time bar or any reasons which makes it not possible to sustain the duty demand and conclude that time limit for imposition of penalty does not go beyond the period for levy and collection of duty. Concluding Third Member held as my opinion on this aspect can dispose of the appeal, I am not going into the other issue as to whether there was violation of Central Excise Rules with intent to evade payment of duty . As indicated earlier, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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