2023 (11) TMI 610 - AT - Central Excise

SCN issued after 3 years 8 months held time-barred following Mafatlal Industries precedent on revenue limitation

The CESTAT Kolkata allowed the appeal, finding that the SCN dated 22/02/1996 was issued belatedly. The appellant had followed a finalized price list from ... Seeking approval of price list by including the JPC Cess in the assessable value - belated SCN - HELD THAT:- It is seen that the Price List was provisionally assessed on 10/3/1992 and was Finally Approved on 11/12/1992. The Assistant Commissioner has passed an Order allowing deduction of JPC from the assessable value. The Appellant has followed this Order for their clearance during March 1992 to May 1993. In the absence of any Stay or adverse Order against this OIO during the period March 1992 to May 1993, it has to be concluded that the Appellant has followed the finalized price list which was available with them during that period. This being so, the Commissioner (Appeals) has set aside the OIO dated 11/12/1992 vide his OIA dated 19/04/1994. On going through this OIA, it is seen that he has given direction to the Assistant Commissioner to approve the price list after adding the JPC Cess. The Department has not brought out any evidence that this was done by the Assistant Commissioner by passing a suitable order to this effect. The Show Cause Notice dated 22.02.1996 was issued in belated manner after about 3 years 8 months from the date of initial finalization done by AC on 11/12/1992. If it is taken that the Department had challenged this OIO and the price list approved by the Assistant Commissioner was finalized only after the OIA was passed on 19/04/1994, even from this date of OIA i.e. 19/04/1994, there is delay of more than 22 months in issuing the Show Cause Notice. After going through the relevant paragraph of the judgment of the Hon’ble Supreme Court, in the case of MAFATLAL INDUSTRIES LTD. VERSUS UNION OF INDIA [1996 (12) TMI 50 - SUPREME COURT], it is seen that the Apex Court has made it clear that what is applicable to the assesse is made equally applicable to the Revenue also. Therefore, the Revenue cannot take the pleading that the provisions of Section 11A are not applicable to them in case of finalization of provisionally assessed RT-12 Returns. There are force in the Appellant’s arguments that the Show Cause Notice issued on 22/02/1996 has to be assumed as premature if the RT-12 assessment date is taken as the date of final assessment - the impugned OIA is legally not sustainable - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether a Show Cause Notice (SCN) seeking differential excise duty after provisional assessment of price lists is time-barred under the limitation provisions applicable to provisional assessments (Section 11A) when the final adjustment/finalization of provisional assessment (RT-12 returns) occurred before or after the date of SCN. 2. Whether the Revenue is bound by the same limitation rules as the assessee (i.e., applicability of the principle in Mafatlal Industries Ltd.), in respect of issuance of SCNs arising out of finalization of provisional assessments. 3. Whether an SCN issued prior to finalization of RT-12 returns (i.e., before the date when provisional assessments were finally adjusted) is premature and therefore invalid. 4. Whether the adjudicating authority/appeal authority can levy interest (under Rule 7 of the Central Excise Rules, 2002) when the SCN itself did not propose interest and the demand is otherwise time-barred or beyond the scope of the SCN. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Limitation for SCN after provisional assessment: Legal framework Legal framework: Provisional assessment under the relevant rules (Rule 9B context referenced) permits clearance pending final assessment; sub-rule (5) provides for adjustment between provisional and final duty. Section 11A (and its contemporaneous limitation regime) prescribes time limits for issuance of SCNs in respect of duty liability, with the relevant triggering date being the date of final assessment/adjustment for provisionally assessed goods. Precedent Treatment The Supreme Court in Mafatlal Industries Ltd. treated the limitation consequences of finalization of provisional assessments and held that the rules applicable to the assessee (refund/adjustment claims under Rule 9B) apply equally to the Revenue; the date of final adjustment/finalization governs the limitation for consequential demands or refunds. Interpretation and reasoning The Tribunal examined the chronology: provisional price list assessed 10/03/1992; Assistant Commissioner finally approved price list on 11/12/1992 (allowing deduction of JPC Cess); Commissioner (Appeals) later set aside that OIO on 19/04/1994 directing re-approval after adding JPC Cess; RT-12 returns were finalized by Superintendent only on 31/10/1996; the SCN was issued on 22/02/1996. The Court reasoned that where provisional assessment was finalized earlier (11/12/1992) and acted upon by the assessee, any SCN issued after the relevant limitation period (counting from the final assessment/adjustment date) would be barred. Alternatively, if the Department contends finalization occurred only upon completion of RT-12 formalities, then the SCN issued before RT-12 finalization (22/02/1996 v. RT-12 finalization 31/10/1996) was premature. Thus, whether counted from 11/12/1992 or from 19/04/1994 (date of Commissioner (Appeals) OIA), the SCN was significantly delayed (3 years 8 months from 11/12/1992; over 22 months from 19/04/1994), and in the converse view the SCN preceded formal RT-12 finalization, rendering it premature. Ratio vs. Obiter Ratio: The legally operative ratio is that limitation under Section 11A (and the logic of Mafatlal) governs issuance of SCNs arising from provisional assessments; an SCN issued after expiry of the applicable limitation measured from the date of finalization/adjustment is time-barred, and an SCN issued before finalization (premature) is invalid. This is dispositive of the matter. Conclusions The Court held the impugned demand unsustainable on limitation grounds: the SCN dated 22/02/1996 was either belated (if finalization taken as 11/12/1992 or 19/04/1994) or premature (if finalization taken as RT-12 completion 31/10/1996). Applying the Mafatlal principle that the Revenue is bound by the same limitation rules as the assessee, the SCN/demand was declared time-barred/invalid and the impugned order was set aside. This conclusion is ratio decidendi of the judgment. Issue 2 - Applicability of Mafatlal principle to Revenue Legal framework Principle that procedural and limitation consequences flowing from provisional assessment/final adjustment apply symmetrically to claims by assessee and to demands by Revenue where final orders are contested. Precedent Treatment The Court relied on the Supreme Court's ruling in Mafatlal which states that whatever position is applicable to the assessee regarding finalization/adjustment under Rule 9B(5) is equally applicable to the Revenue; 'position would be the same in the converse situation.' Interpretation and reasoning Applying Mafatlal, the Tribunal rejected the Department's contention that Section 11A did not bind the Revenue in this context. The Tribunal found no material to show that the Commissioner (Appeals)'s direction was executed by the Assistant Commissioner by a suitable order within a time that would sustain the SCN; the absence of such evidence and the timeline established rendered the Revenue's SCN impermissible under the limitation framework. Ratio vs. Obiter Ratio: Affirmation that Revenue is equally bound by limitation rules per Mafatlal; this is central to the decision and part of the binding ratio. Conclusions Mafatlal was followed: the SCN could not be sustained because the Revenue could not invoke a more favourable limitation posture than available to the assessee; the SCN was therefore invalid on limitation/prematurity grounds. Issue 3 - Prematurity of SCN where RT-12 not finalized Legal framework Where provisional assessments require finalization (e.g., RT-12 returns), the triggering date for issuance of SCNs is the date of final adjustment; issuance prior to that date is premature unless extended-period provisions are validly invoked and cited. Precedent Treatment Mafatlal's logic and the statutory scheme for provisional assessment/adjustment were applied to determine the proper triggering event for limitation. Interpretation and reasoning Because the RT-12 returns for the months in question were not finalized when the SCN was issued (RT-12 finalization occurred on 31/10/1996, SCN dated 22/02/1996), the Tribunal accepted the submission that the SCN was premature on the stand that finalization had not occurred. Further, the SCN did not invoke extended period provisions; absence of statutory grounds for extended limitation reinforced prematurity/time-bar status. Ratio vs. Obiter Ratio: An SCN issued before final adjustment/finalization of provisional assessments is premature and invalid unless the statutory extended limitation is properly invoked; this formed part of the operative decision. Conclusions The SCN was premature if measured against RT-12 finalization; in all event the SCN could not be saved by any properly pleaded extended period, and therefore the demand could not be maintained. Issue 4 - Interest under Rule 7 when not proposed in SCN and when demand time-barred Legal framework Principles that adjudication must remain within the scope of SCN; authorities caution against embellishing a SCN by imposing liabilities (such as interest) not fairly within the notice's scope. Supreme Court precedents (Ballarpur, Brindavan Beverages) address limits on adjudicatory expansion beyond SCN. Precedent Treatment The appellant relied on Ballarpur and Brindavan Beverages which restrict imposition of reliefs/penalties/interest beyond SCN scope. The Tribunal acknowledged these precedents. Interpretation and reasoning The Tribunal observed that the Commissioner (Appeals) confirmed interest under Rule 7 though the SCN did not propose interest; however, the Tribunal's primary decision rested on limitation/prematurity. The Court did not need to make a definitive separate ruling on the correctness of imposing interest in circumstances where the foundational demand was time-barred; the interest issue was thereby rendered moot by the disposal on limitation grounds. Ratio vs. Obiter Obiter: Observations about interest being beyond scope of SCN and reliance on Ballarpur/Brindavan were noted but not dispositive; treatment of interest in this appeal is effectively obiter since the decision to set aside the impugned order was grounded on limitation/prematurity. Conclusions Because the primary demand was set aside as time-barred/premature, any claim for interest under Rule 7 did not survive; the Tribunal did not uphold the interest component and allowed consequential relief as per law. Final Disposition The impugned order confirming the differential duty (and interest) was set aside as legally unsustainable on limitation/prematurity grounds; the appeal was allowed and consequential relief granted to the appellant as per law. The Court applied Mafatlal to hold the Revenue bound by the same limitation rules as the assessee; observations on interest beyond the scope of the SCN were treated as unnecessary to decide and thus obiter.