1994 (9) TMI 69 - SC - Central Excise

Statutory body wins appeal as Supreme Court quashes duty evasion notice under Section 11A proviso requiring proof of intent

TAMIL NADU HOUSING BOARD Versus COLLECTOR OF CENTRAL EXCISE, MADRAS

The SC allowed an appeal by a statutory body regarding the scope of proviso to Section 11A of the Central Excises & Salt Act, 1944. The appellant ... Demand - Limitation for extended period - `Intent to evade payment of duty' - Evasion of duty - Scope of proviso to Section 11A of the Central Excises & Salt Act, 1944 - Meaning of word 'evade' - HELD THAT:- A bare reading of the proviso indicates that it is in nature of an exception to the principal clause. Therefore, its exercise is hedged on one hand with existence of such situations as have been visualised by the proviso by using such strong expression as fraud, collusion etc. and on the other hand it should have been with intention to evade payment of duty. Both must concur to enable the Excise Officer to proceed under this proviso and invoke the exceptional power. Since the proviso extends the period of limitation from six months to five years, it has to be construed strictly. The initial burden is on the Department to prove that the situations visualised by the proviso existed. But once the Department is able to bring on record material to show that the appellant was guilty of any of those situations which are visualised by the Section, the burden shifts and then applicability of the proviso has to be construed liberally. When the law requires an intention to evade payment of duty then it is not mere failure to pay duty. It must be something more. That is, the assessee must be aware that the duty was leviable and it must deliberately avoid paying it. The word `evade' in the context means defeating the provision of law of paying duty. It is made more stringent by use of the word `intent'. In other words the assessee must deliberately avoid payment of duty which is payable in accordance with law. In the result, this appeal succeeds and is allowed. The order passed by the Tribunal is set aside and the notice issued by the Department for levy of duty and penalty shall stand quashed. There shall be no order as to costs. Issues:Scope of proviso to Section 11A of the Central Excises & Salt Act, 1944.Detailed Analysis:The appeal filed by a statutory body under the Factories Act raised a question regarding the scope of the proviso to Section 11A of the Central Excises & Salt Act, 1944. The appellant had two units - a concrete unit and a wood unit. The concrete unit's finished products were sold to outsiders and had a license under the Act. However, the wood unit's products were used internally, and the appellant believed no license was required for it. The Central Excise Department issued a notice under Rule 173 in 1984, alleging duty evasion. The Tribunal found that while the concrete unit was compliant, the wood unit required a license as it was engaged in manufacturing. The Tribunal rejected the appellant's claim of honest belief, stating there was no proof of acting diligently. The Tribunal inferred an intention to evade duty due to the lack of evidence that the wood unit was exempt from duty.Section 11A of the Act empowers Central Excise Officers to initiate proceedings within six months, extendable to five years for fraud or suppression of facts. The proviso to Section 11A requires both specific situations (fraud, collusion, etc.) and intent to evade duty for its application. The burden of proof lies with the Department to establish the existence of situations under the proviso. Once proven, the burden shifts to the appellant to show no deliberate evasion of duty. The term 'evade' implies a deliberate avoidance of paying duty known to be leviable. The case law clarifies that doubt regarding duty liability precludes invoking the proviso. In this case, the appellant, a non-profit body, had a license for the concrete unit but not the wood unit based on advice from the Excise Department. The Tribunal's finding of an intention to evade duty lacked a factual basis, as no deliberate act was proven.In conclusion, the Supreme Court allowed the appeal, setting aside the Tribunal's order and quashing the duty and penalty notice. The Court found no basis for inferring an intention to evade duty by the appellant, given the lack of concrete evidence supporting such a conclusion.