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Customs Act,- “28. Notice for payment of duties, interest, etc. = whether duty on the supply and receipt of furnace oil and electricity respectively was required to be paid. The Development Commissioner, referring to a circular dated 12.10.1999 of the Ministry of Commerce, said as follows: – “They are procuring surplus power from their sister concern M/s. Uniworth Ltd. (Unit- 1, LOP dated 31.01.1989) under Permission No. 248(93) dated 01.11.1994 and the unit transferred 2590.30 KL of furnace oil to M/s. Uniworth Ltd. (Unit- 1) for their captive power consumption. No permission is required from this office for duty free import/ procurement of POL products for captive power consumption. It is further to clarify as per the Exim Policy provision, one EOU may sell/ transfer surplus power to another EOU duty free in terms of Ministry of Commerce Letter No. 1/1/98-EP dated 12.10.1999 (sic)” [Emphasis supplied] The relevant portion of the Ministry of Commerce Letter No.1/98-EP is extracted below: “2. No duty is required to paid (sic) on sale of surplus power from an EOU/EPZ unit to another EOU/EPZ unit. Development Commissioner of EPZ concerned would be informed in writing for such supply and proper account of consumption of raw material would be maintained by the supplying unit for calculation of NFEP.” = Yet, the appellant received a show cause notice from the Commissioner of Customs, Raipur, demanding duty for the period during which the appellant imported furnace oil on behalf of Uniworth Ltd. = in order to attract the proviso to Section 11- A(1) it must be alleged in the show-cause notice that the duty of excise had not been levied or paid by reason of fraud, collusion or willful misstatement or suppression of fact on the part of the assessee or by reason of contravention of any of the provisions of the Act or of the Rules made thereunder with intent to evade payment of duties by such person or his agent. There is no such averment to be found in the show cause notice. There is no averment that the duty of excise had been intentionally evaded or that fraud or collusion had been practiced or that the assessee was guilty of wilful misstatement or suppression of fact. In the absence of any such averments in the show-cause notice it is difficult to understand how the Revenue could sustain the notice under the proviso to Section 11- A(1) of the Act.’ = the show cause notice must put the assessee to notice which of the various omissions or commissions stated in the proviso is committed to extend the period from six months to five years. That unless the assessee is put to notice the assessee would have no opportunity to meet the case of the Department. It was held: …There is considerable force in this contention. If the department proposes to invoke the proviso to Section 11-A(1) , the show-cause notice must put the assessee to notice which of the various commissions or omissions stated in the proviso is committed to extend the period from six months to 5 years. Unless the assessee is put to notice, the assessee would have no opportunity to meet the case of the department. The defaults enumerated in the proviso to the said sub-section are more than one and if the Excise Department places reliance on the proviso it must be specifically stated in the show-cause notice which is the allegation against the assessee falling within the four corners of the said proviso….” = the burden of proof of proving mala fide conduct under the proviso to Section 28 of the Act lies with the Revenue; that in furtherance of the same, no specific averments find a mention in the show cause notice which is a mandatory requirement for commencement of action under the said proviso; and that nothing on record displays a willful default on the part of the appellant, we hold that the extended period of limitation under the said provision could not be invoked against the appellant. 27. In view of the afore-going discussion, the appeal is allowed and the decisions of the authorities below are set aside, leaving the parties to bear their own costs.

 

English: Central Excise India

English: Central Excise India (Photo credit: Wikipedia)

REPORTABLE
|IN THE SUPREME COURT OF INDIA |
|CIVIL APPELLATE JURISDICTION |
|CIVIL APPEAL NO. 6060 OF 2003 |
| |
|M/S. UNIWORTH TEXTILES LTD. |— |APPELLANT |
|VERSUS |
|COMMISSIONER OF CENTRAL EXCISE, RAIPUR |— |RESPONDENT |

 
J U D G M E N T

 

D.K. JAIN, J.

 

1. This appeal under Section 130-E of the Customs Act, 1962 (for short “the
Act”) arises from the final Order No. 142/03-B dated 18.02.2003, passed
by the Customs, Excise & Gold (Control) Appellate Tribunal, New Delhi
(for short “the Tribunal”). By the impugned order, the Tribunal has
upheld the levy of customs duty on the import of furnace oil as also the
penalty under Section 112 of the Act, rejecting the plea of the
appellant that demand of the duty along with the penalty was barred by
limitation.

 
2. The appellant, an Export Oriented Unit (for short “EOU”), is engaged in
the manufacture of all wool and poly-wool worsted grey fabrics. It was
granted the status of EOU by the Government of India, Ministry of
Industry, Department of Industrial Development by way of a Letter of
Permission (for short “the LOP”) dated 31.08.1992 as amended by letter
dated 4.5.1993. The appellant applied for a license for private bonded
warehouse, which was granted to it under C. No. V (Ch.51) 13-
01/92/100%EOU dated 30.09.1992 by the Assistant Collector, Central
Excise Division- Raipur for storing inputs, raw materials, etc. either
imported duty-free by availing concessions available for 100% EOU or
procured locally without payment of duty for use in manufacture of all
wool, poly-wool and other fabrics.

 
3. For interaction with the appellant, its sister unit, Uniworth Ltd.,
another EOU, engaged in the generation of power from a captive power
plant, obtained another LOP dated 1.11.1994. The said LOP, dated
1.11.1994, permitted usage of electricity generated by the captive power
plant by both, Uniworth Ltd. and the appellant Uniworth Textiles Ltd.
The appellant purchased electricity from Uniworth Ltd. under an
agreement which continued till 1999.

 
4. Prior to January-February, 2000, the sister unit i.e. Uniworth Ltd.
procured furnace oil required for running the captive power plant. This
purchase of furnace oil was exempted from payment of customs duty under
Notification No. 53/97-Cus., the relevant portion of which reads as
follows: –
“Notification No. 53/97-Cus., dated 3-6-1997

Exemption to specified goods imported for production of goods for
export or for use in 100% Export-Oriented Undertakings — New Scheme —
Notification No. 13/81-Cus. rescinded
In exercise of the powers conferred by sub-section (1) of section 25
of the Customs Act, 1962 (52 of 1962), the Central Government being
satisfied that it is necessary in the public interest so to do, hereby
exempts goods specified in the Table below (hereinafter referred to as
the goods), when imported into India, for the purpose of manufacture
of articles for export out of India, or for being used in connection
with the production or packaging or job work for export of goods or
services out of India by hundred per cent Export Oriented units
approved by the Board of Approvals for hundred per cent Export
Oriented Units appointed by the notification of Government of India in
the Ministry of Industry, Department of Industrial Policy and
Promotion for this purpose, (hereinafter referred to as the said
Board), from the whole of duty of customs leviable thereon under the
First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and the
additional duty, if any, leviable thereon under section 3 of the said
Customs Tariff Act…”
Entry 11 of the said notification at the relevant time read as follows:

“11. Captive power plants including captive generating sets and their
spares for such plants and sets as recommended by the said Board of
Approvals.”

 
5. In January-February, 2000, Uniworth Ltd. exhausted the limit of letter
of credit opened by it for the duty-free import of furnace oil. It made
an alternative arrangement of procuring duty free furnace oil under
Notification No. 01/95 titled “Specified goods meant for manufacture and
packaging of articles in 100% EOU or manufacture or development of
electronic hardware and software in EHTP or STP” dated 04.01.1995. The
said notification reads as follows :-

“Notification No. 1/95-Central Excise
In exercise of the powers conferred by sub-section (1) of section 5A
of the Central Excises and Salt Act/ 1944 (1 of 1944), read with sub-
section (3) of section 3 of the Additional Duties of Excise (Goods of
Special Importance) Act, 1957 (58 of 1957), the Central Government
being satisfied that it is necessary in the public interest so to do,
hereby exempts excisable goods, specified in Annexure I to this
notification (hereinafter referred to as the said goods), when brought
in connection with –
a) the manufacture and packaging of articles, or for production or
packaging or job work for export of goods or services out of
India into hundred percent export oriented undertaking
(hereinafter referred to as the user industry); or;
XXX XXX XXX
from the whole of,
(i)    the duty of excise leviable thereon under section 3 of
the Central Excise Act, 1944 (1 of 1944), and
(ii)    the additional duty of excise leviable thereon under sub-
section (1) of section 3 of the Additional Duties of Excise
(Goods of Special Importance) Act, 1957 (58 of 1957),
XXX XXX XXX
ANNEXURE I
3.    Captive power plants including captive generating sets and
transformers as recommended by the Development
Commissioner/Designated Officer.
3B.    Spares, fuel, lubricants, consumables and accessories for
captive power plants including captive generating sets and
spares, consumables and accessories for transformers as approved
by the Assistant Commissioner or Deputy Commissioner of Central
Excise.
3C.    Furnace oil required for the boilers as approved by the
Assistant Commissioner of Customs or Central Excise on the
recommendation of the Development Commissioner.”

 
6. Therefore, Uniworth Ltd. informed the appellant that it would require
the arrangement for running the captive power plant for its own use, and
hence, would be compelled to stop the supply of electricity to the
appellant. Consequently, as a temporary measure, for overcoming this
difficulty, the appellant, while availing the benefit of Notification
No. 53/97-Cus, procured furnace oil from Coastal Wartsila Petroleum Ltd.,
a Foreign Trade Zone unit. It supplied the same to Uniworth Ltd. for
generation of electricity, which it continued to receive as before.

 
7. Since the appellant was procuring furnace oil for captive power plant of
another unit, it wrote to the Development Commissioner seeking
clarification that whether duty on the supply and receipt of furnace oil
and electricity respectively was required to be paid. The Development
Commissioner, referring to a circular dated 12.10.1999 of the Ministry
of Commerce, said as follows: –

“They are procuring surplus power from their sister concern M/s.
Uniworth Ltd. (Unit- 1, LOP dated 31.01.1989) under Permission No.
248(93) dated 01.11.1994 and the unit transferred 2590.30 KL of
furnace oil to M/s. Uniworth Ltd. (Unit- 1) for their captive power
consumption. No permission is required from this office for duty free
import/ procurement of POL products for captive power consumption. It
is further to clarify as per the Exim Policy provision, one EOU may
sell/ transfer surplus power to another EOU duty free in terms of
Ministry of Commerce Letter No. 1/1/98-EP dated 12.10.1999
(sic)”

[Emphasis supplied]

 
The relevant portion of the Ministry of Commerce Letter No.1/98-EP is
extracted below:

“2. No duty is required to paid (sic) on sale of surplus power from an
EOU/EPZ unit to another EOU/EPZ unit. Development Commissioner of EPZ
concerned would be informed in writing for such supply and proper
account of consumption of raw material would be maintained by the
supplying unit for calculation of NFEP.”

 

 

 

8. Yet, the appellant received a show cause notice from the Commissioner of
Customs, Raipur, demanding duty for the period during which the
appellant imported furnace oil on behalf of Uniworth Ltd. It gave the
following reason for the same: –

“1.1. M/s. Uniworth Ltd. (Power Division), Raipur, is engaged in the
generation of power. M/s. Uniworth Textiles Ltd. and M/s. Uniworth
Ltd. both are distinct companies having different LOP Central Excise
Registration No. and different board of directors. They are different
companies as per Companies Act and they prepare separate balance
sheet…

 
4.2. Therefore it appears that the noticees had not received 742.5 KL
of furnace oil … from M/s. Coastal Wartsila Petroleum Ltd… in their
factory at all as neither they had storing facility to store the
furnace oil so procured nor they had any power plant to utilize the
said furnace oil to generate electricity. They also did not have LOP
from Government of India… to procure and use furnace oil to generate
electricity as they did not have any power plant in their factory…
Considering the above fact it is clear that the procurement of 742.5
KL of furnace oil under shipping bill, without payment of customs
duty, is against the provisions of Customs Act, 1962 and rules made
hereunder (sic).”

 

 

 

9. The show cause notice was issued on 02.08.2001, more than six months
after the appellant had imported furnace oil on behalf of Uniworth Ltd.
in January, 2001. This time period of more than six months is
significant due to the proviso to Section 28 of the Act. The Section,
at the relevant time, read as follows: –

“28. Notice for payment of duties, interest, etc.

(1) When any duty has not been levied or has been short-levied or
erroneously refunded, or when any interest payable has not been paid,
part paid or erroneously refunded, the proper officer may,-
(a) in the case of any import made by any individual for his personal
use or by Government or by any educational, research or charitable
institution or hospital, within one year;
(b) in any other case, within six months, from the relevant date,
serve notice on the person chargeable with the duty or interest which
has not been levied or charged or which has been so short-levied or
part paid or to whom the refund has erroneously been made, requiring
him to show cause why he should not pay the amount specified in the
notice:
Provided that where any duty has not been levied or has been short-
levied or the interest has not been charged or has been part paid or
the duty or interest has been erroneously refunded by reason of
collusion or any wilful misstatement or suppression of facts by the
importer or the exporter or the agent or employee of the importer or
exporter, the provisions of this sub-section shall have effect as if
for the words “one year” and “six Months”, the words “five years” were
substituted.
Explanation.– Where the service of the notice is stayed by an order
of a court, the period of such stay shall be excluded in computing the
aforesaid period of one year or six months or five years, as the case
may be.”
[Emphasis supplied]

 
10. The Section imposes a limitation period of six months within which the
concerned authorities must commence action against an importer/assessee
in case of duties not levied, short-levied or erroneously refunded. It
allows the said limitation period to be read as five years only in some
specific circumstances, viz. collusion, willful misstatement or
suppression of facts. Since the said show-cause notice was issued after
the elapse of six months, the revenue, for its action to be legal in the
eyes of law, can only take refuge under the proviso to the section.

 
11. Both the appellate authorities, viz. the Commissioner of Customs and
Central Excise (Appeals) and the Tribunal, rejected the claims of the
appellant and affirmed payment of duty and penalty. They reasoned that
since the appellant procured the furnace oil not for its own captive
power plant, but for that of another, it could not claim exemption from
payment of duty; entitlement of duty free import of fuel for its captive
power plant lies with the owner of the captive power plant, and not the
consumer of electricity generated from that power plant. Little or no
attention was paid to the issue of limitation, which in our opinion, is
the primary question for consideration in this case. The Tribunal only
made the following observations in this regard:

“2. … He however, submitted that the demand of duty is barred by
limitation as the show cause notice was issued on 02.08.2001 by
demanding the duty for the period January/February 2001; that the
Department was aware that the appellants do not have power plant and
as such furnace oil could not have been used by them captively; that
this is evident from letter dated 17.07.2001…

 
4… The appellants have also not brought on record any material in
support of their contention that the Department was aware of the fact
that the appellants did not have captive power plant. In view of this
the demand cannot be held to be hit by the time limit.”

 

 

 

Hence, the appellant is before us in this appeal.

 
12. We have heard both sides, Mr. R.P. Bhatt, learned senior counsel,
appearing on behalf of the appellant, and Mr. Mukul Gupta, learned senior
counsel appearing on behalf of the Revenue. We are not convinced by the
reasoning of the Tribunal. The conclusion that mere non-payment of duties
is equivalent to collusion or willful misstatement or suppression of
facts is, in our opinion, untenable. If that were to be true, we fail to
understand which form of non-payment would amount to ordinary default?
Construing mere non-payment as any of the three categories contemplated
by the proviso would leave no situation for which, a limitation period of
six months may apply. In our opinion, the main body of the Section, in
fact, contemplates ordinary default in payment of duties and leaves cases
of collusion or willful misstatement or suppression of facts, a smaller,
specific and more serious niche, to the proviso. Therefore, something
more must be shown to construe the acts of the appellant as fit for the
applicability of the proviso.

 

 
13. This Court, in Pushpam Pharmaceuticals Company Vs. Collector of Central
Excise, Bombay[1], while interpreting the proviso of an analogous
provision in Section 11A of The Central Excise Act, 1944, which is pari
materia to the proviso to Section 28 discussed above, made the following
observations:

 

“4. Section 11A empowers the Department to re-open proceedings if the
levy has been short-levied or not levied within six months from the
relevant date. But the proviso carves out an exception and permits the
authority to exercise this power within five years from the relevant
date in the circumstances mentioned in the proviso, one of it being
suppression of facts. 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.”

 
[Emphasis supplied]

 

 

 

14. In Sarabhai M. Chemicals Vs. Commissioner of Central Excise,
Vadodara[2], a three- judge bench of this Court, while referring to the
observations extracted above, echoed the following views:

“23. Now coming to the question of limitation, at the outset, we wish
to clarify that there are two concepts which are required to be kept
in mind for the purposes of deciding this case. Reopening of
approvals/assessments is different from raising of demand in relation
to the extended period of limitation. Under section 11A(1) of the
Central Excise Act, 1944, a proper officer can reopen the
approvals/assessments in cases of escapement of duty on account of non-
levy, non-payment, short-levy, short- payment or erroneous refund,
subject to it being done within one year from the relevant date. On
the other hand, the demand for duty in relation to extended period is
mentioned in the proviso to section 11A(1). Under that proviso, in
cases where excise duty has not been levied or paid or has been short-
levied or short-paid or erroneously refunded on account of fraud,
collusion or wilful mis-statement or suppression of facts, or in
contravention of any provision of the Act or Rules with the intent to
evade payment of duty, demand can be made within five years from the
relevant date. In the present case, we are concerned with the proviso
to section 11A(1).
24. In the case of Cosmic Dye Chemical v. Collector of Central Excise,
Bombay (1995) 6 SCC 117, this Court held that intention to evade duty
must be proved for invoking the proviso to section 11A(1) for extended
period of limitation. It has been further held that intent to evade
duty is built into the expression “fraud and collusion” but mis-
statement and suppression is qualified by the preceding word “wilful”.
Therefore, it is not correct to say that there can be suppression or
misstatement of fact, which is not wilful and yet constitutes a
permissible ground for invoking the proviso to section 11A.
25. In case of Pushpam Pharmaceuticals Company v. C.C.E. [1995 (78)
ELT 401(SC)], this Court has held that the extended period of five
years under the proviso to section 11A(1) is not applicable just for
any omission on the part of the assessee, unless it is a deliberate
attempt 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 constitute suppression of fact.”

 

15. In Anand Nishikawa Co. Ltd. Vs. Commissioner of Central Excise,
Meerut[3], while again referring to the observations made in Pushpam
Pharmaceuticals Company (supra), this Court clarified the requirements of
the proviso to Section 11- A, as follows:-

“26…This Court in the case of Pushpam Pharmaceuticals Company
v. Collector of Central Excise, Bombay (supra), while dealing with the
meaning of the expression “suppression of facts” in proviso to
Section 11A of the Act held that the term must be construed
strictly, it does not mean any omission and the act must be deliberate
and willful to evade payment of duty. The Court, further, held :-
‘In taxation, it (“suppression of facts”) can have only one
meaning that the correct information was not disclosed
deliberately to escape 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.’

 
27. Relying on the aforesaid observations of this Court in the case
of Pushpam Pharmaceutical Co. v. Collector of Central Excise,
Bombay [1995 Suppl. (3) SCC 462], we find that “suppression of facts”
can have only one meaning that the correct information was not
disclosed deliberately to evade payment of duty. When facts were known
to both the parties, the omission by one to do what he might have done
and not that he must have done, would not render it suppression. It is
settled law that mere failure to declare does not amount to willful
suppression. There must be some positive act from the side of the
assessee to find willful suppression. Therefore, in view of our
findings made herein above that there was no deliberate intention on
the part of the appellant not to disclose the correct information or
to evade payment of duty, it was not open to the Central Excise
Officer to proceed to recover duties in the manner indicated in the
proviso to Section 11A of the Act.”
16. In Collector of Central Excise Vs. H.M.M. Ltd.[4], this Court held that
mere non- disclosure of certain items assessable to duty does not
tantamount to the mala fides elucidated in the proviso to Section 11A(1)
of the Central Excise Act, 1944. It enunciated the principle in the
following way: –

“The mere non-declaration of the waste/by-product in their
classification list cannot establish any wilful withholding of vital
information for the purpose of evasion of excise duty due on the said
product. There could be, counsel contended, bonafide belief on the
part of the assessee that the said waste or by-product did not attract
excise duty and hence it may not have been included in their
classification list. But that per se cannot go to prove that there was
the intention to evade payment of duty or that the assessee was guilty
of fraud, collusion, mis-conduct or suppression to attract the proviso
to Section 11A(1) of the Act. There is considerable force in this
contention.

 
Therefore, if non- disclosure of certain items assessable to duty does not
invite the wrath of the proviso, we fail to understand how the non-payment
of duty on disclosed items, after inquiry from the concerned department
meets, with that fate.

 

17. In fact, the Act contemplates a positive action which betrays a
negative intention of willful default. The same was held by Easland
Combines, Coimbatore Vs. The Collector of Central Excise, Coimbatore[5]
wherein this Court held:-
“31.It is settled law that for invoking the extended period of
limitation duty should not have been paid, short levied or short paid
or erroneously refunded because of either fraud, collusion, wilful
misstatement, suppression of facts or contravention of any provision
or rules. This Court has held that these ingredients postulate a
positive act and, therefore, mere failure to pay duty and/or take out
a licence which is not due to any fraud, collusion or willful
misstatement or suppression of fact or contravention of any provision
is not sufficient to attract the extended period of limitation.”
[Emphasis supplied]

 

18. We are in complete agreement with the principle enunciated in the above
decisions, in light of the proviso to Section 11A of the Central Excise
Act, 1944. However, before extending it to the Act, we would like to
point out the niceties that separate the analogous provisions of the two,
an issue which received the indulgence of this Court in Associated Cement
Companies Ltd. Vs. Commissioner of Customs[6] in the following words:-

“53…Our attention was drawn to the cases of CCE v. Chemphar Drugs and
Liniments (1989) 2 SCC 127, Cosmic Dye Chemical v. CCE (1995) 6 SCC
117, Padmini Products v. CCE (1989) 4 SCC 275, T.N. Housing Board v.
CCE 1995 Supp (1) SCC 50 and CCE v. H. M. M. Ltd. (supra). In all
these cases the Court was concerned with the applicability of the
proviso to Section 11-A of the Central Excise Act which, like in the
case of the Customs Act, contemplated the increase in the period of
limitation for issuing a show-cause notice in the case of non-levy or
short-levy to five years from a normal period of six months…

54. While interpreting the said provision in each of the aforesaid
cases, it was observed by this Court that for proviso to Section 11-A
to be invoked, the intention to evade payment of duty must be shown.
This has been clearly brought out in Cosmic Dye Chemical case where
the Tribunal had held that so far as fraud, suppression or
misstatement of facts was concerned the question of intent was
immaterial. While disagreeing with the aforesaid interpretation this
Court at p. 119 observed as follows: (SCC para 6)

‘6. Now so far as fraud and collusion are concerned, it is
evident that the requisite intent, i.e., intent to evade duty is
built into these very words. So far as misstatement or
suppression of facts are concerned, they are clearly qualified
by the word ‘wilful’ preceding the words ‘misstatement or
suppression of facts’ which means with intent to evade duty. The
next set of words ‘contravention of any of the provisions of
this Act or Rules’ are again qualified by the immediately
following words ‘with intent to evade payment of duty’. It is,
therefore, not correct to say that there can be a suppression or
misstatement of fact, which is not wilful and yet constitutes a
permissible ground for the purpose of the proviso to Section 11-
A. Misstatement or suppression of fact must be wilful.’
The aforesaid observations show that the words “with intent to evade
payment of duty” were of utmost relevance while construing the earlier
expression regarding the misstatement or suppression of facts
contained in the proviso. Reading the proviso as a whole the Court
held that intent to evade duty was essentially before the proviso
could be invoked.

55. Though it was sought to be contended that Section 28 of the
Customs Act is in pari materia with Section 11-A of the Excise Act, we
find there is one material difference in the language of the two
provisions and that is the words “with intent to evade payment of
duty” occurring in proviso to Section 11-A of the Excise Act which are
missing in Section 28(1) of the Customs Act and the proviso in
particular…

56. The proviso to Section 28 can inter alia be invoked when any duty
has not been levied or has been short-levied by reason of collusion or
any wilful misstatement or suppression of facts by the importer or the
exporter, his agent or employee. Even if both the expressions
“misstatement” and “suppression of facts” are to be qualified by the
word “wilful”, as was done in the Cosmic Dye Chemical case while
construing the proviso to Section 11-A, the making of such a wilful
misstatement or suppression of facts would attract the provisions of
Section 28 of the Customs Act. In each of these appeals it will have
to be seen as a fact whether there has been a non-levy or short-levy
and whether that has been by reason of collusion or any wilful
misstatement or suppression of facts by the importer or his agent or
employee.”

[Emphasis supplied]

 

19. Thus, Section 28 of the Act clearly contemplates two situations, viz.
inadvertent non-payment and deliberate default. The former is canvassed
in the main body of Section 28 of the Act and is met with a limitation
period of six months, whereas the latter, finds abode in the proviso to
the section and faces a limitation period of five years. For the
operation of the proviso, the intention to deliberately default is a
mandatory prerequisite.

 

20. This Court in Aban Loyd Chiles Offshore Limited and Ors. Vs.
Commissioner of Customs, Maharashtra[7] observed:-

“The proviso to Section 28(1)can be invoked where the payment of duty
has escaped by reason of collusion or any willful misstatement or
suppression of facts. So far as “misstatement or suppression of facts”
are concerned, they are qualified by the word “willful”. The word
“willful” preceding the words “misstatement or suppression of facts”
clearly spells out that there has to be an intention on the part of
the assessee to evade the duty.”

 

 
21. The Revenue contended that of the three categories, the conduct of the
appellant falls under the case of “willful misstatement” and pointed to
the use of the word “misutilizing” in the following statement found in
the order of the Commissioner of Customs, Raipur in furtherance of its
claim:

“The noticee procured 742.51 kl of furnace oil valued at Rs.
54,57,357/- without payment of customs duty by misutilizing the
facility available to them under Notification No. 53/97-Cus. dt.
3.6.1997”

 

 
22. We are not persuaded to agree that this observation by the
Commissioner, unfounded on any material fact or evidence, points to a
finding of collusion or suppression or misstatement. The use of the word
“willful” introduces a mental element and hence, requires looking into
the mind of the appellant by gauging its actions, which is an indication
of one’s state of mind. Black’s Law Dictionary, Sixth Edition (pp 1599)
defines “willful” in the following manner: –

“Willful. Proceeding from a conscious motion of the will; voluntary;
knowingly; deliberate. Intending the result which actually comes to
pass…

 
An act or omission is “willfully” done, if done voluntarily and
intentionally and with the specific intent to do something the law
forbids, or with the specific intent to fail to do something the law
requires to be done…”

 
23. In the present case, from the evidence adduced by the appellant, one
will draw an inference of bona fide conduct in favour of the appellant.
The appellant laboured under the very doubt which forms the basis of the
issue before us and hence, decided to address it to the concerned
authority, the Development Commissioner, thus, in a sense offering its
activities to assessment. The Development Commissioner answered in favour
of the appellant and in its reply, even quoted a letter by the Ministry
of Commerce in favour of an exemption the appellant was seeking, which
anybody would have found satisfactory. Only on receiving this
satisfactory reply did the appellant decide to claim exemption. Even if
one were to accept the argument that the Development Commissioner was
perhaps not the most suitable repository of the answers to the queries
that the appellant laboured under, it does not take away from the bona
fide conduct of the appellant. It still reflects the fact that the
appellant made efforts in pursuit of adherence to the law rather than its
breach.

24. Further, we are not convinced with the finding of the Tribunal which
placed the onus of providing evidence in support of bona fide conduct, by
observing that “the appellants had not brought anything on record” to
prove their claim of bona fide conduct, on the appellant. It is a
cardinal postulate of law that the burden of proving any form of mala
fide lies on the shoulders of the one alleging it. This Court observed in
Union of India Vs. Ashok Kumar & Ors.[8] that “it cannot be overlooked
that burden of establishing mala fides is very heavy on the person who
alleges it. The allegations of mala fides are often more easily made than
proved, and the very seriousness of such allegations demand proof of a
high order of credibility.”

 

25. Moreover, this Court, through a catena of decisions, has held that the
proviso to Section 28 of the Act finds application only when specific and
explicit averments challenging the fides of the conduct of the assessee
are made in the show cause notice, a requirement that the show cause
notice in the present case fails to meet. In Aban Loyd Chiles Offshore
Limited and Ors. (supra), this Court made the following observations:

 

“21. This Court while interpreting Section 11-A of the Central Excise
Act in Collector of Central Excise v. H.M.M. Ltd. (supra) has observed
that in order to attract the proviso to Section 11-A(1) it must be
shown that the excise duty escaped by reason of fraud, collusion or
willful misstatement of suppression of fact with intent to evade the
payment of duty. It has been observed:

 

 

 

‘…Therefore, in order to attract the proviso to Section 11-
A(1) it must be alleged in the show-cause notice that the duty
of excise had not been levied or paid by reason of fraud,
collusion or willful misstatement or suppression of fact on the
part of the assessee or by reason of contravention of any of the
provisions of the Act or of the Rules made thereunder with
intent to evade payment of duties by such person or his agent.
There is no such averment to be found in the show cause notice.
There is no averment that the duty of excise had been
intentionally evaded or that fraud or collusion had been
practiced or that the assessee was guilty of wilful misstatement
or suppression of fact. In the absence of any such averments in
the show-cause notice it is difficult to understand how the
Revenue could sustain the notice under the proviso to Section 11-
A(1) of the Act.’

 

 

It was held that the show cause notice must put the assessee to notice
which of the various omissions or commissions stated in the proviso is
committed to extend the period from six months to five years. That
unless the assessee is put to notice the assessee would have no
opportunity to meet the case of the Department. It was held:

 
…There is considerable force in this contention. If the
department proposes to invoke the proviso to Section 11-A(1) ,
the show-cause notice must put the assessee to notice which of
the various commissions or omissions stated in the proviso is
committed to extend the period from six months to 5 years.
Unless the assessee is put to notice, the assessee would have no
opportunity to meet the case of the department. The defaults
enumerated in the proviso to the said sub-section are more than
one and if the Excise Department places reliance on the proviso
it must be specifically stated in the show-cause notice which is
the allegation against the assessee falling within the four
corners of the said proviso….”

(Emphasis supplied)

 

 

26. Hence, on account of the fact that the burden of proof of proving mala
fide conduct under the proviso to Section 28 of the Act lies with the
Revenue; that in furtherance of the same, no specific averments find a
mention in the show cause notice which is a mandatory requirement for
commencement of action under the said proviso; and that nothing on record
displays a willful default on the part of the appellant, we hold that the
extended period of limitation under the said provision could not be
invoked against the appellant.

 

 

27. In view of the afore-going discussion, the appeal is allowed and the
decisions of the authorities below are set aside, leaving the parties to
bear their own costs.

 
| |……..…………………………………. |
| | (D.K. JAIN, J.) |
| | |
| |……..…………………………………. |
| | (MADAN B. LOKUR, J.) |
|NEW DELHI, | |
|JANUARY 22, 2013. | |
RS

 

 

 

 

 

 

 

 

 

 

 

 

 

———————–
[1] 1995 Supp(3) SCC 462
[2] (2005) 2 SCC 168
[3] (2005) 7 SCC 749
[4] 1995 Supp(3)SCC 322
[5] (2003) 3 SCC 410
[6] (2001) 4 SCC 593, at page 619
[7] (2006) 6 SCC 482
[8] (2005) 8 SCC 760

 

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