Limenaph Chemicals vs Union of India

Raju, J.—The above writ appeal has been filed against the order of the learned single Judge of this Court dated 29-1-1993 in W.P. No.

3788 of 1989, whereunder the learned single Judge was pleased to dismiss the writ petition filed for the issue of a writ of certiorari to call for and

quash the proceedings of the Collector of Central Excise in Order No. 43/89, dated 31-1-1989.

The learned Judge has elaborately narrated the relevant facts and also extracted certain paragraphs from the order of the Collector of Central

Excise in appreciating the contentions of parties on either side.

The appellant - Limenaph Chemicals, carrying on business at Rajapalayam, is engaged in the manufacture of a product marketed under the

name ""Janathacem"" and the product is said to be manufactured by burning lime stone. The appellant claimed the product to be conforming to

''Sagol cement'' and was clearing the product under Tariff Item No. 23 of the I schedule to the Central Excises and Salt Act, 1944, as it originally

stood, till it was replaced by Central Excise Tariff Act, 1985. The appellant claim to have availed the exemption of the excise duty under

Notification No. 5/70, dated 31-1-1970, under which cement commonly known as sagol and obtained by heating lime stone and burnt coal in a

kiln is exempted from the whole of duty of excise leviable thereon. The appellant would contend that at all relevant time right from the inception of

the manufacture of the said product by the appellant firm, the authorities were fully aware of the fact relating to the manufacturing process and the

nature of the product. In 1976 the jurisdictional Inspector of Central Excise appears to have sent sample of the petitioner - appellant''s product for

a test report to ascertain whether the product should be classified under Tariff Item No. 14 (paints) or any other tariff item. By a communication

dated 25-2-1978, the Superintendent of Central Excise appears to have informed the appellant that the product was not cement based water

paint, but calcium hydroxide in powder and the authorities on that account dropped the idea of classification under Tariff Item No. 14, which

related to paints. The authorities continued to permit the appellant to clear its product as sagol and claim the exemption. In the various letters

exchanged between the appellant and the Department also, it appears, the same stand has been taken. It is further stated for the appellant that its

product was subjected to another test in 1982 after getting the details of manufacture, culminating in the report dated 1-1-1983 and on getting the

information about the character of the product, the Chemical Examiner appears to have recommended that the sample could be considered as

sagol. Even thereafter, without objections, the appellant was said to have been clearing the product manufactured by it as sagol cement. But, at the

same time, by the communication dated 5-11-1984, the jurisdictional Superintendent Central Excise appears to have directed the appellant to

classify the sagol cement under Tariff Item No. 14-I 2(i) as a cement based water paint. The appellant appears to have submitted a reply inviting

his attention to the earlier test reports and contended that the product was classified only under Tariff Item No. 23. Again on 22-11-1984, sample

appears to have been drawn from the product of the appellant for testing and show cause notices dated 22-11-1984 and 20-4-1985 were served

on the appellant to show cause as to why the product should not be classified under Tariff Item No. 68. This was on the view that the product,

according to the Department, was not conforming to sagol cement and on the other hand, it was hydrated lime powder and the Department

demanded Rs. 6,93,814.56 and Rs. 2,67,236.18 for the period from November, 1979 to October, 1984 and November, 1984 to March, 1985

respectively, and the proposals as above were confirmed, ultimately.

Thereupon, the appellant filed an appeal before the Collector (Appeals), Madras, who, it appears, has set aside the orders of the Assistant

Collector and directed a de novo adjudication after making market enquiries as to the end use of such product. In addition to that, he directed that

the result of the test samples drawn should be communicated to the appellant while deciding the case de novo. The market enquiries were said to

have been conducted at Madurai, by obtaining written opinion from two main dealers and it transpired from the same that the product is known as

''Janathacem'' and it is used for white washing the walls. A chemical test was also said to have been conducted of the product to know whether it

conforms to all properties of sagol cement and the chemical expert''s report dated 16-6-1987 revealed that the product was composed mainly of

calcium oxide, calcium carbonate, [silica] and little amount of iron oxide. At the same time, analysing the properties of the respective products,

Janathacem on the one hand and the sagol cement on the other hand, it appears, the authorities came to the conclusion that the physical and

chemical properties of the two samples were widely different and they could not be treated as identical. On that basis and consequent upon the

amendment to Section 11A by the Amendment Act, 1985, show cause notices were said to have been issued invoking the extended period of

limitation of five years and the proceedings stood also transferred to the Collector of Central Excise, for further consideration. The earlier two

show cause notices issued by the Assistant Collector of Central Excise, Rajapalayam, dated 22-11-1984 and 20-4-1985, as noticed supra, was

taken up for de novo enquiry by the Collector of Central Excise, Madurai, in view of Section 11A as amended in the year 1985. A further notice

dated 17-9-1988 also appears to have been issued in continuation of the earlier show cause notices issued by the Assistant Collector, calling upon

the appellant to show cause as to why the product ''Janathacem'' manufactured by it during the period from November, 1979 to March, 1985 be

not classified under Tariff Item No. 69 of the erstwhile Central Excise Tariff and why a total sum of Rs. 9,61,050.74 be demanded as per the two

show cause notices from the appellant as the duty leviable on the product for the period from November, 1979 to March, 1985 under Rule 9(2) of

the Central Excise Rules, 1944 and penalty should not be imposed under Rule 173Q for having violated the provisions of Rules 9(1) and 173B of

the Rules. A copy of the market enquiry details and also the chemical analysis report also were said to have been furnished to the appellant.

The appellant submitted a reply contending that its product has got the essential ingredients of sagol cement and as such the end use is not

relevant to determine, whether a product is sagol or not, that its product is manufactured as per the process given in the definition of sagol'' in the

notification, that charcoal could be considered as burnt coal, as charcoal is obtained by burning or heating carbonaceous matter, which is coal and

there is no contrary definition or reference of burnt coal, and consequently, for classification of their product as ''sagol'', market enquiry is not

relevant. It was also contended that when the goods were being cleared with the knowledge of the Department, Rule 9(1) is inapplicable and for

that reason, Rule 9(2) does not come into effect and inasmuch as all the relevant and basic materials were available with the Department itself, and

if the Department had failed to take appropriate action, proviso to Section 11A(1) cannot be invoked for realisation of duty for the period beyond

six months. Thereupon, a personal hearing appears to have been granted at the request of the appellant.

After all these, the Collector of Central Excise, Madurai, overruled the objections of the appellant and on the view that the duty evasion by the

appellant was by deliberate mis-representation of facts and intentional, the Department is entitled to invoke the extended period of limitation and

also levy penalty under Rule 173Q and consequently, a demand for a sum of Rs. 9,61,050.74 came to be issued, for the period from November,

1979 to March, 1985 under Rule 9(2) of the Rules read with proviso to Section 11A(1) of the Central Excises and Salt Act. A penalty of Rs.

1,00,000/- was levied under Rule 173Q of the Central Excise Rules. It is the said order of the Collector of Central Excise, which came to be

challenged in the above writ petition.

The learned single Judge, as noticed earlier, did not agree with the grounds of challenge urged by the learned counsel before him. After adverting

to the consideration and conclusions arrived at by the Collector of Central Excise in Paragraphs 12, 13 and 19 of the order under challenge, the

learned single Judge rejected the writ petition expressing his agreement with those conclusions. The learned single Judge observed that from a

perusal of Paragraphs 12, 13 and 19 of the order of the Collector of Central Excise, a deliberate mis-representation on the part of the petitioner is

obviously disclosed and having regard to the fact that there had been a mis-statement of facts regarding the eligibility of the product for exemption,

it inevitably follows that the proviso to Section 11A of the Act would apply. The learned single Judge was also of the view that the fact that the

Department was aware of the manufacture of the product and samples have been taken on more than one occasion, would not alter the situation

and that what is required for the proviso to be applied is mis-statement of fact on the part of the person concerned and not the knowledge of the

Department about the manufacture of a particular product. The learned single Judge further was of the view that the scope of enquiry under Article

226 of the Constitution is very limited and it is not possible for the Court to reverse the conclusions on facts even on materials available before

Court. Hence, the above writ appeal.

Mr. Sriram Panchu, learned Senior Counsel appearing for the appellant forcefully contended that there was no sufficient basis for invoking the

proviso to Section 11A(1) of the Act in this case and that in a case where the Department was not only aware of the nature of the product and the

process of manufacture and sale of the product by the appellant, but allowed the appellant at all relevant points of time to clear the product as

sagol cement, after drawing samples and after getting reports of the experts, there is hardly any scope for accusing the appellant of having mis-

stated or mis-represented or mis-declared before the authorities with a deliberate intention to mislead the authorities or to evade the duty under the

Act and therefore, the learned single Judge was not right in rejecting the challenge of the appellant to the order of the Collector of Central Excise.

The learned Senior Counsel in support of the said stand contended that the appellant had not withheld the relevant information from the knowledge

of the Department, that the Department was also well conversant with the process of production of the product, the properties and character of the

product and had drawn on more than one occasion samples and obtained analysis report and continued to allow the appellant to clear the goods

as sagol cement and that, therefore, there was no scope for invoking the extended period of limitation under the proviso to Section 11A of the Act.

Adverting to the observations of the learned single Judge that the knowledge of the Department of such facts has no relevance and would not alter

the situation, the learned Senior Counsel submitted that the approach adopted in this regard is not in conformity with the law on the subject and on

the other hand, is opposed to the well settled principles in this regard. The learned Senior Counsel further contended that merely from the fact that

the Department has come to the conclusion that the product is not sagol cement and the appellant has now not questioned such classification, there

is no justification for the learned single Judge to come to the conclusion that the case is one of deliberate mis-statement on the part of the appellant

of the relevant facts with regard to the classification of the product and entitlement of the exemption. Our attention has been invited to some of the

relevant decisions of the Apex Court in support of the stand taken that the case on hand will not attract the proviso to Section 11A of the Act and

that the Department cannot invoke the extended period of limitation.

Per contra, Mr. Venkatasubramanian, learned Additional Central Government Standing Counsel, appearing for the Department, with equal

vehemence and force and in adopting the reasons assigned by the learned single Judge, contended that no interference is called for in this appeal at

the instance of the appellant and that the reasons assigned by the learned single Judge are well merited and based on relevant materials adverted to

by him in the order. The learned counsel also contended that the decisions relied upon for the appellant only declared the position and principles of

law. The learned single Judge has not committed any error so as to warrant interference with his order. The learned Additional Central

Government Standing Counsel also invited our attention to the relevant portions of the order of the Collector of Central Excise and other materials

available on record, in addition to inviting our attention to the findings recorded by the learned single Judge.

Before adverting to the contentions raised, it would be proper to refer to some of the decisions, though not all the decisions, relied upon by the

learned Senior Counsel for the appellant and all the relevant provisions of law.

Section 11A of the Act with the proviso thereof, reads as follows :

11A. Recovery of duties not levied or not [paid] or short-levied or short-paid or erroneously refunded. - (1) When any duty of excise has not

been levied or paid or has been short-levied or short-paid or erroneously refunded, a Central Excise Officer, may, within six months from the

relevant date, serve notice on the person chargeable with the duty which has not been levied or which has been short-levied or short-paid 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 of excise has not been levied or paid or has been short-levied or 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 rules made thereunder with intent

to evade payment of duty, by such person or his agent, the provisions of this sub-section shall have effect, as if for the words ""Excise Officer"", the

words ""Collector of Central Excise"", and ""six months"" the words ""five years"" were substituted.

In the decision reported in Collector of Central Excise, Hyderabad Vs. Chemphar Drugs and Liniments, Hyderabad, , the Apex Court was

concerned with the scope of Section 11A, particularly about the circumstances under which the extended period of five years of limitation can be

invoked in a given case. In that context, Their Lordships of the Apex Court observed as hereunder :

Aggrieved thereby, the revenue has come up in appeal to this Court. In our opinion the order of the Tribunal must be sustained. In order to make

the demand for duty sustainable beyond a period of six months and up to a period of five years in view of the proviso to sub-section 11A of the

Act, it has to be established that the duty of excise has not been levied or paid or short-levied or short-paid, or erroneously refunded by reasons of

either fraud or collusion or wilful mis-statement or suppression of facts or contravention of any provision of the Act or Rules made thereunder, with

intent to evade payment of duty. Something positive other than mere inaction or failure on the part of the manufacturer or producer or conscious or

deliberate withholding of information when the manufacturer knew otherwise, is required before it is saddled with any liability, before the period of

six months. Whether in a particular set of facts and circumstances, there was any fraud or collusion or wilful mis-statement or suppression or

contravention of any provision of any Act, is a question of fact depending upon the facts and circumstances of a particular case. The Tribunal came

to the conclusion that the facts referred to hereinbefore do not warrant any interference of fraud. The assessee declared the goods on the basis of

their belief of the interpretation of the provisions of the law that the exempted goods were not required to be included and these did not include the

value of the exempted goods which they manufactured at the relevant time. The Tribunal found that the explanation was plausible, and also noted

that the Department had full knowledge of facts about manufacture of all the goods manufactured by the respondent when the declaration was filed

by the respondent. The respondent did not include the value of the product other than those falling under Tariff Item 14E manufactured by the

respondent and this was in the knowledge, according to the Tribunal, of the authorities. These findings of the Tribunal have not been challenged

before us or before the Tribunal itself as being based on no evidence.

In Pushpam Pharmaceuticals Company Vs. Collector of Central Excise, Bombay, , the question came to be once again considered by

construing the expression ""suppression of fact"" used taking into account the strong words used in the proviso to Section 11A. The Apex Court

observed as hereunder :

Section 11A empowers the Department to reopen 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 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.

In M/s. Rainbow Industries (P) Ltd. Vs. Collector of Central Excise, Vadodara, the Apex Court observed that once the Department accepted the

price list, acted upon it and the goods were cleared with the knowledge of the Department, then in absence of any amendment in law or judicial

pronouncement the reclassification should be effective from the date the Department issued the show cause notice. It was further observed that the

clearance with the knowledge of the Department would indicate that there was no intention to evade payment of duty.

In Cosmic Dye Chemical Vs. Collector of Central Excise, Bombay, , the necessary ingredients to appreciate the right to avail the extended

period of limitation under the proviso to Section 11A, once again came up for consideration of the Apex Court. The words ""mis-statement or

suppression of facts"" were construed thus :

Now so far as fraud and collusion are concerned, it is evident that requisite intent, i.e. intent to evade duty is built into these very words. So far as

mis-statement or suppression of facts are concerned, they are clearly qualified by the word ""wilful"" preceding the words ""mis-statement 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 mis-statement of fact, which is not wilful, and yet constitutes a permissible ground for the purpose of the proviso to Section 11A.

Mis-statement or suppression of fact must be wilful.

We have carefully considered the submissions of the learned counsel on eitherside in the light of the principles repeatedly laid down by the

Apex Court with reference to the scope and applicability of the proviso to Section 11A of the Act and the essential pre-requisite, which should be

established by the Department before invoking the extended period of limitation. A careful analysis of the principles laid down in the various

decisions noticed supra would go to show that the Apex Court has laid emphasis on the language used in the proviso as also congregation of

words of serious import and consequences, which have been specifically used by the Legislature, to mean that the mis-statement or suppression of

facts must be shown to be wilful and with intent to evade duty. Consequently, the mis-statement of fact, which cannot be said to be or proved to

be wilful, cannot be considered to constitute a permissible ground for invoking the extended period of limitation and mis-statement must be shown

to be wilful to attract the proviso to Section 11A of the Act.

So far as the facts and circumstances of the case are concerned, the fact that from the inception, the appellant has been making a claim that its

product was sagol cement and that on more than one occasion, samples of the product were also drawn and on the basis of the test report

submitted by the experts, the Department was satisfied of the nature and classification of its product as sagol and has allowed the appellant to avail

of the exemption continuously cannot be seriously doubted or disputed. The question, therefore, for our consideration would be, as to whether

merely on account of the fact that now the Department has chosen to classify the product on the basis by the latest expert and technical advice as

falling under Item No. 68, can the appellant to accused guilty of any of the acts visualised under the proviso to Section 11A of the Act, so as to

justify the Department to invoke the extended period of limitation in a case where the Department was fully aware of all the relevant facts and even

after drawing samples of the product and then received technical reports was satisfied and had no grievance of the classification claimed. The

Department having initially been convinced of the fact that the product answered the description of ''Sagol'' cement as claimed by the appellant and

allowed the appellant to clear the goods by availing of the exemption inspite of being possessed of full facts of the manufacturing process and the

nature of the product it is not given to the Department to now claim or attribute to the appellant any suppression of facts or mis-statement of facts,

either wilfully or with intent to evade payment of duty which have been held to be essential pre-requisites to attract the proviso to Section 11A of

the Act. The learned single Judge, in our view, has committed a serious error in assuming that there was mis-statement of fact and that has

obviously and merely carried away by the observations contained in the very order impugned in the writ petition that there was mis-statement of

fact, without objectively considering as to whether on the facts available on record and in the teeth of the Department''s full knowledge of all the

facts relevant to the classification of the product, whether a case of mis-statement or in the light of the well settled principles and declaration of law

categorically made by the Apex Court in the catena of cases noticed above, suppression of fact could be countenanced at all. The fact that the

learned Judge observed in Paragraph 15 that the knowledge of the Department in this regard would not alter the situation, would only go to show

that the relevant principles laid down by the Apex Court on more than one occasion in appreciating a claim or accusation of mis-statement of facts

against a manufacturer has not been borne in mind and has not been given due weight and consideration. The views expressed by the learned single

Judge in Paragraphs 13 to 15, to say the least, run counter to the firm and sound principles laid down in unmistakable terms in the various decision

noticed supra and it needs no serious exercise to come to the conclusion on our part that there has been a serious error in properly dealing with the

claim of the appellant regarding the applicability of the proviso to Section 11A of the Act to the case on hand. This serious error would, in our

view, vitiate the conclusions arrived at by the learned single Judge. Therefore, we are not able to subscribe to, or approve of the view taken by the

learned single Judge in rejecting the challenge to the impugned proceedings.

Consequently, we allow the writ appeal, set aside the order of the learned single Judge and quash the impugned proceedings of the Collector

of Central Excise dated 31-1-1989, holding that the demand could be sustained against the appellant only in so far as it is within six months period

as stipulated in the main provision and not for the extended period of limitation of 5 years and the Department shall be at liberty to re-determine the

same accordingly. The amount, if any, remitted pursuant to the interim orders of this Court, subject to adjustment of any amount due for the period

well within the limitation, as indicated in our judgment, is liable to be refunded to the appellant. There will be no orders as to costs.