Commissioner of Central Excise vs Supreme Industries Ltd.

R. Sudhakar, J.�Aggrieved by the order of the Appellate Tribunal in allowing the appeal filed by the assessee, the Revenue is before this Court challenging the said order by filing the present appeal. This Court, vide order dated 26.10.07 admitted the appeal by framing the following substantial questions of law:--

"(1) Whether the CESTAT is right in giving the relief to the assessee with reference to the excisability and durability of plastic waste and scrap based on the Order-in-Original No. 12/95 dated 15.9.1995 which had been set aside by the Commissioner (Appeals) and CESTAT, wherein both the authorities had held that plastic waste and scrap are excisable and dutiable?

(2) Whether the CESTAT is right in holding that the demand made invoking extended period under proviso to Section 11-A of Central Excise Act, 1944, is hit by time bar when the assessees had suppressed the facts of reprocessing of waste and scrap of plastics into reprocessed/reground materials and cleared the same under private delivery challans without entering in the statutory records resulting in evasion of Central Excise duty on the plastic waste and scrap?"

The respondent assessee who is registered under the Central Excise Act and was operating a self-promoted scheme, was visited with a show cause notice, inter alia, demanding duty of Rs. 7,96,040/- payable on waste and scrap cleared during the period 6.9.95 to 6.1.97 and for other related claims like penalty, interest, etc. The Commissioner, in the adjudication proceedings, held as under:--

"14. As regards the demand of Rs. 7,96,040/- raised on the ground that the assessee cleared the waste and scrap of plastic without payment of duty during the period from 06.09.95 to 16.01.97, the assessee submitted that they were under the bona fide belief that the scrap was not liable to any central excise duty and therefore, no central excise duty was paid by them on the said scrap generated in their factory premises and used in the manufacture of reprocessed granules. Even if they had paid the central excise duty, the job worker would have claimed the same and thereafter the job worker also would have paid the central excise duty on the moulded articles manufactured on job charge basis and for which further processing was done in their factory premises and consequently whatever duty was paid on the said scrap, they would have also got the benefit of modvat credit and in the process, the whole exercise of paying the duty and later on claiming the equivalent amount of modvat credit would have been totally revenue neutral. I do not agree with this contention of the assessee as they themselves have admitted that the said waste and scrap was cleared without payment of duty. The fact remains that the said waste and scrap was chargeable to duty during the relevant period but they cleared the same without payment of duty of Rs. 7,96,040/-.

They have further submitted that Sections 11AB and 11AC were not applicable prior to 28.09.96 and therefore no penalty can be imposed under the said Section 11AC. I agree with this contention of the assessee as the provisions of Section 11AB and 11AC were brought into effect only from 28.09.96 and in this connection I rely upon the Tribunal''s order in the case of Marcandy Prasad Radhakrishna Prasad (P.) Ltd. (1998 (102) ELT 705) wherein it was held by the Tribunal that Section 11AB for recovery of interest and Section 11AC for mandatory imposition of penalty equal to 100% of duty evaded are not to be applied retrospectively since the provisions contained therein are of substantive character and not just procedural. The departmental Civil Appeal No. D 18869 of 1998 filed by the Commissioner of Central Excise, Calcutta against the said order of the Tribunal was dismissed by the Hon''ble Supreme Court on 25.01.99 (1999 (107) ELT 121) . As regards imposition of penalty, they submitted that penalty was not imposable in the absence of mens rea as held in 1978 (2) ELTJ 159. They also relied upon the Order-in-Revision of the Government of India in the case of Dharmpur Sugar Mills (1990 (46) ELT 400) wherein it has been held that penalty was not imposable if duty had already been paid by adjustment in PLA before issue of show cause notice. It is a fact that they had voluntarily paid the duty of Rs. 12,20,641/- but they had not paid the duty leviable on waste and scrap cleared during the period from 06.09.95 to 16.01.97 which works out to Rs. 7,96,040/-. To that extent they had contravened the provisions as alleged in the show cause notice. Thus, the charges levelled against them are proved."

The Commissioner (Appeals) held against the assessee despite the assessee''s plea that they were under the bona fide impression that no duty is payable on waste and scrap. The Commissioner passed the following order:--

"(i) I confirm the demand of Rs. 12,20,641/- leviable on the modvat inputs cleared without payment of duty. The said amount has already been paid by the assessee.

(ii) I demand duty of Rs. 7,96,040/- on waste and scrap.

(iii) Taking into account the facts and circumstances of the case, I impose a penalty of Rs. 4,00,000/- (Rupees Four Lakhs only) for the contraventions as aforesaid under Rule 173Q.

(iv) The duty demand of Rs. 1,31,745/- in respect of HDPE reground/HDPE reprocess and Polypropylene reprocess is hereby withdrawn as the same were exempt from duty under the Notifications mentioned above."

Against the said order of the Commissioner (Appeals), the assessee went on appeal before the Tribunal. The main contention of the assessee before the adjudicating authority as well as before the Tribunal was primarily on the plea of limitation stating that for the earlier period from 1.3.94 to 30.9.94, similar claim for duty on removal of waste and scrap was made by the Deputy Commissioner, who, subsequently dropped the same vide proceedings dated 15.9.95. Therefore, the assessee was under the bona fide impression that no duty is payable on removal of waste and scrap of plastic. However, the Department, not satisfied with the order of the Deputy Commissioner of Central Excise, pursued the matter in appeal. The Commissioner (Appeals), however, decided the issue later in order in Appeal No. 37/02 on 8.6.02, which was set aside by the Tribunal vide its final order dated 03.12.03 by remanding the matter back to the adjudicating authority.

The point raised by the assessee is that for the period prior to the passing of the order by the Commissioner (Appeals) on the show cause notice adjudicated by the Deputy Commissioner, it was clear that there is no question of paying duty on removal of waste and scrap of plastic. On this bona fide plea, the assessee did not pay the duty on waste and scrap of plastic cleared by them. The Department, on the other hand, in the instant case, issued the show cause notice on 12.2.99 on the assessee invoking proviso to Section 11A. The assessee, therefore, seriously contended that it was well within the knowledge of the Department that waste and scrap has been cleared without payment of duty based on the order of the Deputy Commissioner and, therefore, the assessee at no point of time had an intention to clear those goods by fraud, collusion or any wilful mis-statement or suppression of facts.

The Tribunal dealt with the issue relating to removal of scrap in pages 5 and 6 of its order and, thereby allowed the appeal. For better clarity, the relevant portion of the order- of the Tribunal is extracted hereunder:--

"5. ...The challenge is against the demand of duty of Rs. 7,96,040/- on waste and scrap of plastics as also against the imposition of penalty and this challenge is, by and large, based on the ground of limitation. The SCN invoked the proviso to Section 11A(1) of the Central Excise Act for demanding the above duty, by alleging that waste and scrap had been removed by the assessee in contravention of the provisions of the Central Excise Act and the Rules made thereunder with intent to evade payment of duty. A similar allegation had been raised against the party in earlier SCN dated 24.10.94 issued by the department for the period 1.3.94 to 30.9.94. In adjudication of this earlier SCN, the original authority held the waste and scrap of plastics to be not excisable and, accordingly, dropped the demand of duty as per Order-in-Original No. 12/95 dt. 15.9.95. The period of dispute in the instant case, covered by SCN dated 12.2.99 is 6.9.95 to 16.1.97. The appellants have argued through counsel that during this period, they believed bona fide on the strength of the above Order-in-Original dated 15.9.95 that the waste and scrap of plastics removed from their factory during the said period were not dutiable. It is difficult to brush aside this plea of bona fide belief in the facts and circumstances of this case. It was only as late as on 8.5.2002 that the above Order-in-Original dated 15.9.95 was set aside by the appellate Commissioner (Order-in-appeal No. 37/2002). Till then, the appellants had valid reason to believe that waste and scrap of plastics removed by them during the period 6.9.95 to 16.1.97 were not dutiable. In the case of Jaiprakash Industries (supra), the Hon''ble Supreme Court held that where the assessee had a bona fide doubt as to excisability of the goods during the period of dispute, the extended period of limitation was not invocable to demand duty from them in the absence of evidence of fraud, collusion, wilful misstatement or suppression of fact by them. In the case of Sural Textiles (supra), the Court, while remanding the case to the Tribunal, observed that the extended period of limitation was not attracted if the assessee was under bona fide belief that their products were exempted from duty. A similar view was taken in the case of Ugam ChandBhandari(supra) also. In the case of Bhanu IVRCL Associates (supra), this Tribunal set aside a demand of duty (which had been raised by the Department by invoking the extended period of limitation under the proviso to Section 11A(1) of the Central Excise Act) on the ground that the assessee had acted under bona fide belief that they were eligible for the benefit of Exemption Notification. In the case of DCW Ltd. (supra) also, the plea of bona fide belief was accepted and the Revenue''s appeal for invoking the extended period of limitation for demanding duty from the assessee was dismissed.

Following the above line of decisions, we hold that in the facts and circumstances already stated, it was not open to the department to invoke the extended period of limitation for demanding duty from the appellants in respect of waste and scrap of plastic for the period 6.9.95 to 16.1.97. The demand is set aside on the ground of limitation. Consequently, the penalty also gets vitiated. The appeal stands allowed."

Aggrieved by the said order of the Tribunal, the Revenue is before this Court by filing the present appeal.

Heard the learned standing counsel appearing for the Revenue and the learned counsel appearing for the respondent/assessee and perused the documents available on record.

On a perusal of the order of the Tribunal, the facts, as is evident, make it clear that on and from 1.3.94, Le., period post the order of the Deputy Commissioner of Central Excise dated 15.9.95, till the order in Appeal No. 37/02 dated 8.6.02, the assessee was under the bona fide impression that removal of waste and scrap does not attract duty. The Department had chosen not to issue notice pending appeal, for which failure thereof, they are not entitled to invoke the proviso to Section 11-A, as has been rightly held by the Tribunal.

The decisions of the various Courts referred to in the order of the Tribunal clearly justify the order of the Tribunal that the present case is a case hit by limitation. Accordingly, the Tribunal was justified in allowing the appeal on the question of limitation. The first substantial question of law is answered accordingly.

The second question of law is totally irrelevant as we find from para 14 of the Order-in-Original No. 15/99, there is no such finding of fact by the Commissioner (Appeals), for invoking the extended period in terms of proviso to Section 11A of the Central Excise Act and, therefore, a question of fact, which was not the subject matter of finding by the Commissioner (Appeals) and not dealt with therein, ought not to have been raised and, therefore, the said question does not require to be answered by this Court. In the light of the discussions as made above, finding no grounds warranting interference with the order passed by the Tribunal, this appeal is dismissed. However, there shall be no order as to costs.