2024 (4) TMI 1333 - HC - Central Excise

Appeal dismissed; extended limitation under s.11AC of CA not available due to no willful evasion or suppression

HC dismissed the appeal, upholding the tribunal's finding that the extended limitation under s.11AC of the CA could not be invoked. The court accepted the ... Invocation of extended period of limitation under section 11AC of CA - imposition of excise duty and penalty - date of cancellation of the contract between the respondent and the customer can be considered as relevant date for calculation of the period of limitation when removal of goods was effected in piece-meal, or not - HELD THAT:- The factual position has been brought out by the assessee as to how the department has put on notice about all the proceedings as early as March, 2023. Therefore, the question would be as to whether there was any willful intention on the part of the assessee to evade payment of duty, was there any suppression of material fact with an intention to evade payment of duty, the adjudicating authority having noted this contention raised by the assessee, has now sought to pick holes in the cancellation order which was issued by concerned agency which had engaged the services of the respondent/assessee. Such a plea cannot be entertained and the same cannot save limitation. Therefore, the learned tribunal was fully justified in considering the facts of the case and held that the extended period of limitation could not have been invoked. Thus, there is no question of law much less substantial question of law arises for consideration in this appeal - Appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the appellate tribunal was required to appreciate the provisions of Section 11A of the Central Excise Act before setting aside the order-in-original. 2. Whether the date of cancellation of the contract between the assessee and the customer can be treated as the relevant date for computation of the period of limitation where removal of goods was effected piecemeal and additional consideration received from the customer was not reflected in invoices and ER-1 returns. 3. Whether the department could invoke the extended period of limitation under Section 11AC of the Central Excise Act to demand excise duty and impose penalties given the factual matrix of prior disclosures to the department and absence of clear willful suppression or intent to evade duty. ISSUE-WISE DETAILED ANALYSIS Issue 1: Requirement to appreciate Section 11A before setting aside the order-in-original Legal framework: Section 11A (as referenced) deals with statutory requirements relating to assessment and show-cause procedures under the Central Excise Act; appellate authorities are expected to consider relevant statutory provisions when deciding appeals that affect limitation or liability. Precedent Treatment: The judgment does not cite or distinguish any binding precedent on the precise obligation to expressly advert to Section 11A in the appellate order; no contrary precedent was relied upon by the revenue. Interpretation and reasoning: The Court notes that the central question in the appeal related to limitation and invocation of extended limitation under Section 11AC rather than a technical non-application of Section 11A. The Tribunal considered the factual matrix (including contemporaneous disclosure to the department and ER-1 returns) and determined that the extended period could not be invoked. The Court held that given the issues decided by the Tribunal, there was no legal deficiency in the Tribunal's approach that required reversal on the ground of failure to explicitly recite Section 11A. Ratio vs. Obiter: Ratio - an appellate forum is not faulted where it addresses the operative legal and factual points determining limitation and extended period questions even if it does not separately traverse every statutory provision such as Section 11A, provided the decision logically flows from the considered statutory and factual analysis. No obiter was recorded on ancillary aspects of Section 11A. Conclusions: The Tribunal was not required to set aside its conclusion for failing to separately appreciate Section 11A where its decision on limitation and extended period was founded on the factual disclosures and legal principles germane to the extended limitation issue. Issue 2: Relevance of contract cancellation date for computation of limitation when removals were piecemeal and additional consideration not shown in invoices/ER-1s Legal framework: Limitation for excise demands is determined by reference to the date when duty became exigible or when relevant events giving rise to liability occurred; extended limitation under Section 11AC applies where there is willful mis-statement or suppression of facts to evade duty. Precedent Treatment: No specific precedents were invoked by the Court in its reasoning on the relevance of contract cancellation date; the Court relied on factual record and established principles concerning disclosure and mens rea for invoking extended limitation. Interpretation and reasoning: The assessee's case, accepted by the adjudicating authority and not successfully controverted on appeal, was that (a) the main contract was cancelled after over twelve years; (b) the cancellation and compensation order and payment of duty on escalation were communicated to the Department in March 2003 and acknowledged; (c) all dispatches related to cancellation were completed by October 2003 and returns (ER-1) reflected the payments and particulars. The Tribunal examined whether the department could treat the contract cancellation date as the relevant date for limitation in view of piecemeal removals and alleged unreflected additional consideration. The Court found that where the Department had been placed on notice by contemporaneous communication and returns, and there was no material to show suppression or intent to evade, the mere fact of piecemeal removals or that certain additional consideration was not duplicated in invoices/returns did not make the cancellation date irrelevant for limitation. The Tribunal was justified in holding that the extended period could not be invoked on that basis. Ratio vs. Obiter: Ratio - where the revenue has contemporaneous acknowledgement and returns reflecting the relevant transactions, piecemeal removal and imperfect mirroring of additional consideration in invoices/ER-1s do not, without more, displace the relevant date for limitation or justify invocation of extended limitation. Obiter - not applicable as no broader rule about every form of undocumented consideration was laid down beyond the facts. Conclusions: The Court concluded that the date of cancellation could be considered the relevant date for limitation in the circumstances before it, and that the presence of piecemeal removals and non-identical invoice/ER-1 entries did not, absent evidence of suppression or intent to evade, permit invocation of extended limitation. Issue 3: Invokation of extended period under Section 11AC - willful suppression and intent to evade duty Legal framework: Section 11AC authorises extended period of limitation where there is fraudulent or willful mis-statement/suppression of facts with intent to evade payment of duty; proof of mens rea and concealment is fundamental to apply extended limitation and penalties for evasion. Precedent Treatment: The Court did not rely on any new precedents to modify the settled principle that extended limitation requires evidence of suppression or fraudulent intent; no precedent was overruled or distinguished. Interpretation and reasoning: The factual findings recorded by the adjudicating authority and upheld by the Tribunal showed that the assessee had (i) communicated cancellation/compensation and paid duty on escalation to the Department in March 2003 with departmental acknowledgement; (ii) filed ER-1 returns reflecting relevant particulars; and (iii) completed dispatches by October 2003. The Court emphasised that the department's subsequent attempt to 'pick holes' in the cancellation order issued by the contracting authority did not amount to proof of willful suppression or intent to evade duty. Given these facts, the Tribunal properly concluded that the extended period under Section 11AC could not be invoked and that demand and penalties premised on extended limitation were unsustainable. Ratio vs. Obiter: Ratio - extended limitation under Section 11AC cannot be invoked where contemporaneous disclosure to the department and returns negate a finding of willful suppression or intent to evade; mere discrepancies or subsequent departmental scrutiny of contractual documents do not suffice. Obiter - the Court briefly noted that the department's attempt to challenge the cancellation order's propriety cannot be used to create a case of suppression; this is an explanatory remark ancillary to the ratio. Conclusions: The Tribunal's finding that the extended period could not be invoked was sustained. In the absence of cogent material demonstrating willful suppression or intent to evade duty, demand and penalties under an extended limitation theory were not legally tenable, and the appeal by the revenue was dismissed.