Duty demand set aside where good-faith doubt exists if crushing boulders into bajari is "manufacture" - Section 11A applies with fraud

SC set aside the duty demand in the show-cause notice dated 3 May 1993, finding a bona fide doubt existed because various HCs had taken divergent views on whether crushing boulders into bajari constitutes "manufacture" and creates a new product; therefore Section 11A could not be invoked absent evidence of fraud, collusion, wilful misstatement or suppression. The earlier show-cause demand dated 26 Feb 1992 was not pressed by the appellants and said amount was represented as paid. The Court left open the substantive question whether crushing stones amounts to manufacture.

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Issues: (i) Whether the extended period of limitation under Section 11A of the Central Excise Act is invocable for the excise demand in the show cause notice dated 3rd May, 1993.

Analysis: The Court applied settled law that the extended period under Section 11A is attracted only where there is evidence of fraud, collusion, wilful mis-statement, suppression of fact or contravention of provisions leading to duty being not paid, short levied, short paid or erroneously refunded. Where divergent judicial views create a bona fide doubt as to whether the activity (here, crushing boulders into bajari) amounts to manufacture and thus is excisable, mere failure to take out a licence or to pay duty, absent positive evidence of fraudulent or suppressive conduct, does not invoke the extended period. The Court relied on the principle in Padmini Products and noted the existence of conflicting High Court decisions which established a bona fide doubt on the question of manufacture.

Conclusion: The extended period under Section 11A is not attracted; the demand in the show cause notice dated 3rd May, 1993 is set aside in favour of the assessee.

Ratio Decidendi: Where there exists a bona fide doubt on excisability arising from divergent judicial views, the extended limitation under Section 11A cannot be invoked in absence of evidence of fraud, collusion, wilful mis-statement or suppression of fact.

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