1997 (6) TMI 29 - HC - Central Excise

Appellate Court Sets Aside Central Excise Order, Quashes Proceedings, Limits Demand Period

The appellate court allowed the writ appeal, setting aside the Collector of Central Excise's order and quashing the proceedings. The court held that the ... Demand - Limitation Issues Involved:1. Classification of the product 'Janathacem'2. Applicability of exemption under Notification No. 5/703. Invocation of the extended period of limitation under Section 11A of the Central Excises and Salt Act, 19444. Allegation of deliberate misrepresentation by the appellant5. Imposition of penalty under Rule 173Q of the Central Excise RulesDetailed Analysis:1. Classification of the product 'Janathacem':The appellant, Limenaph Chemicals, claimed their product 'Janathacem' was 'sagol cement' and classified it under Tariff Item No. 23 of the I schedule to the Central Excises and Salt Act, 1944. Initially, the product was cleared under this classification, and the authorities accepted it as sagol cement. However, subsequent tests and market enquiries revealed that the product did not conform to sagol cement but was instead hydrated lime powder. The authorities then reclassified it under Tariff Item No. 68.2. Applicability of exemption under Notification No. 5/70:The appellant availed of the exemption of excise duty under Notification No. 5/70, which exempted sagol cement obtained by heating limestone and burnt coal in a kiln. The appellant argued that their product met these criteria and that charcoal used in their process could be considered burnt coal. However, the authorities, based on chemical analysis and market enquiry, concluded that the product did not meet the properties of sagol cement and thus was not eligible for the exemption.3. Invocation of the extended period of limitation under Section 11A of the Central Excises and Salt Act, 1944:The Collector of Central Excise invoked the extended period of limitation of five years under the proviso to Section 11A, alleging deliberate misrepresentation by the appellant. The appellant contended that they had not withheld any information and that the Department was fully aware of the product's nature and manufacturing process. The court referred to precedents from the Apex Court, emphasizing that for the extended period to apply, there must be a 'wilful' misstatement or suppression of facts with intent to evade duty.4. Allegation of deliberate misrepresentation by the appellant:The learned single Judge and the Collector of Central Excise concluded that there was deliberate misrepresentation by the appellant. However, the appellate court found that the Department had full knowledge of the product's nature and manufacturing process from the beginning and had allowed the product to be cleared as sagol cement. The court held that there was no evidence of wilful misstatement or suppression of facts by the appellant, and thus the extended period of limitation could not be invoked.5. Imposition of penalty under Rule 173Q of the Central Excise Rules:The Collector of Central Excise imposed a penalty of Rs. 1,00,000/- under Rule 173Q, alleging that the appellant had violated Rules 9(1) and 173B. The appellate court, however, quashed the penalty, holding that the Department's initial acceptance of the product as sagol cement and the lack of evidence of wilful misstatement or suppression of facts did not justify the imposition of the penalty.Conclusion:The appellate court allowed the writ appeal, set aside the order of the learned single Judge, and quashed the impugned proceedings of the Collector of Central Excise dated 31-1-1989. The court held that the demand could be sustained against the appellant only for the period within the six months limitation as stipulated in the main provision of Section 11A and not for the extended period of five years. The Department was directed to re-determine the demand accordingly, and any amount remitted pursuant to interim orders, subject to adjustment for the period within limitation, was to be refunded to the appellant. No orders as to costs were made.