2003 (1) TMI 122 - HC - Central Excise

Court rules against Department's extended limitation claim due to lack of evidence of fraud by appellant. Appeal successful.

DCW LTD. Versus COLLECTOR OF CENTRAL EXCISE, MADURAI

The High Court held that the Department could not utilize the extended period of limitation as there was no evidence of fraudulent conduct by the ... Demand - Limitation Issues Involved:1. Classification and valuation of Hydrochloric acid.2. Allegations of suppression of material facts by the appellant.3. Legality of the extended period of limitation under Section 11A of the Central Excise Act, 1944.Detailed Analysis:1. Classification and Valuation of Hydrochloric Acid:The appellant, a manufacturer of Caustic Soda, produces Hydrochloric acid as a by-product. Initially, Hydrochloric acid was exempt from Central Excise until 28-2-1979. The appellant filed classification and price lists for 100% Hydrochloric acid in April 1979, which were approved by the appropriate officer after revising the value to Rs. 175 per metric tonne. This value was later revised to Rs. 205 and Rs. 225 per metric tonne based on the price charged by another manufacturer, Mettur Chemicals. The Department adopted the price of similar goods sold by other manufacturers under Rule 6(b)(i) of the Central Excise Valuation Rules, 1975.2. Allegations of Suppression of Material Facts:The Commissioner issued a show cause notice on 12-5-1983, alleging that the appellant mis-declared the product as 100% Hydrochloric acid, while commercially it exists only in 30-33% dilution. This led to a demand for Rs. 36.18 lakhs as short-levied duty, later scaled down to Rs. 20.40 lakhs. The initial adjudication upheld the demand and imposed a penalty, but was set aside due to non-observance of natural justice. Subsequent adjudications and appeals eventually led to the Tribunal remanding the matter for fresh adjudication. The Assistant Commissioner issued another show cause notice on 27-8-1990 for the period from 1-6-1981 to 21-6-1983, assuming suppression without a definitive finding.3. Legality of the Extended Period of Limitation:The Commissioner, in his order dated 23-4-1997, concluded that there was no suppression of material facts by the appellant. The records indicated that the appellant maintained production records on a 100% basis, and the Department was aware of this practice. The Tribunal upheld the Commissioner's findings, stating that the Department officials had scrutinized the manufacturing process and the classification lists, and there was no intention to evade duty by the appellant. The Tribunal emphasized that the Department's ignorance of the commercial concentration of Hydrochloric acid could not justify invoking the extended period of limitation under the proviso to Section 11A of the Central Excise Act, 1944. The Department failed to prove any fraud, collusion, or wilful misstatement by the appellant.Conclusion:The High Court concluded that the Department could not take advantage of the extended period of limitation as the appellant had not indulged in any fraudulent activities. The appeal was allowed, and the impugned order of the Assistant Commissioner dated 31-5-1991 was set aside. The dismissal of the writ petition filed by the appellant was also overturned.