2005 (9) TMI 83 - SC - Central Excise

Additive mixture excisable under 2404; contraventions found but no intent to evade duty, extended limitation under Section 11A(1) not invoked.

GOPAL ZARDA UDYOG Versus COMMISSIONER OF CENTRAL EXCISE, NEW DELHI

SC held that the additive mixture was excisable and classifiable under Chapter sub-heading 2404.49/2404.40, but on the facts there was no intent to evade ... Excisability and classification of 'additive mixture' under Chapter sub-heading 2404.49 - Whether, the Tribunal was justified in holding that the 'additive mixture' processed by the three appellants herein was excisable and classifiable under Chapter sub-heading 2404.49 of Central Excise Tariff Act, 1985 and that the Department was right in invoking the extended period of limitation under the proviso to Section 11A(1) of Central Excise Act, 1944? Held that:- We find that the substance of the show cause notices issued in the present case was based on clandestine removal of the kimam from the units in Delhi with an intention to evade payment of excise duty or assessment. The show cause notices also alleged contravention of the provisions of the Act and the Rules on the part of the appellants in failing to get their units registered under Section 6 read with Rule 174 of the 1944 Rules. However, we find from the facts that on 14-7-1992, stock verification was carried out by the Department inside the premises of the appellants by anti-evasion department as also by the jurisdictional Central Excise officer. On 20-10-1992, the partner of the appellant was required to remain present before the Superintendent, Central Excise, New Delhi. His statement was recorded under Section 14. In that statement, he has stated that in their units in New Delhi, there were three rooms in which raw material was stored. In the said statement, he has further stated that the appellants were blending and mixing the additive mixture which was then transferred to their factories at UP and HP for manufacture of branded chewing tobacco. In the panchnama dated 20-10-1992, under which the premises of the appellants in Delhi were searched, the manufacturing process of additive mixture was specifically indicated. Even at that time, there was stock verification of the various raw materials used in the manufacture of chewing tobacco. Under Item 59 of that panchnama, the stock of additive mixture has been specifically indicated. Further, on 30-4-1993, the Superintendent of Central Excise had also visited the factory of the appellants and had actually studied the process of manufacture in Delhi. On 3-5-1993, a letter was addressed to the appellants in which the appellants were called upon to supply all information regarding the process of obtaining additive mixture which was used in the manufacture of chewing tobacco. On receipt of the said letter, the appellants clearly indicated the ingredients used by them in the manufacture of additive mixture. On 20-9-1993, the officers of the department again visited the various premises of the appellants. They conducted physical stock checking. They saw registers maintained by the appellant in respect of different types of additive mixtures. All the registers were checked and verified on that day. There is no finding in the present case that the appellants did not answer the queries made by the Department. Moreover, the Tribunal in the connected appeal has recorded a finding that the appellants were maintaining transfer challans under which the said kimam was transferred to other units. The Tribunal has further recorded a finding in the connected Civil Appeal Nos. 1878-1880 of 2004 that the appellants were maintaining Form-IV register as well stock register regarding receipt of kimam in their factories in UP and HP from their factories in Delhi. That, after the change in the entries in 1994, no show cause notice was ever issued. In the circumstances, although there was contravention of the provisions of Section 6 read with Rule 174 and although there was contravention in not obtaining registration of the units in Delhi, we are of the view that there was no intent to evade payment of duty. 'Additive mixture' (kimam) was excisable and classifiable under Chapter sub-heading 2404.49/2404.40 of 1985 Tariff Act, as held in the case of Dharampal Satyapal [2005 (4) TMI 66 - SUPREME COURT], however, on the facts and circumstances of this case, the department was not entitled to invoke the extended period of limitation under the proviso to Section 11A(1) of the said Act. Accordingly, these civil appeals are partly allowed, Issues Involved:1. Excisability and classification of 'additive mixture' under Chapter sub-heading 2404.49 of Central Excise Tariff Act, 1985.2. Invocation of the extended period of limitation under the proviso to Section 11A(1) of Central Excise Act, 1944.3. Compliance with Notification No. 121/94-C.E. regarding exemption.Issue-wise Detailed Analysis:1. Excisability and Classification of 'Additive Mixture':The Tribunal held that the 'additive mixture' processed by the appellants was excisable and classifiable under Chapter sub-heading 2404.49/2404.40 of the Central Excise Tariff Act, 1985. The appellants argued that the additive mixture was not a final product, was transient, not noticeable to the naked eye, and unsaleable for any other purpose. However, the Commissioner found that the mixture was a distinct, identifiable product known as kimam, marketable, and thus excisable. The Supreme Court upheld this classification, referencing the case of Dharampal Satyapal, where a similar product was deemed excisable.2. Invocation of Extended Period of Limitation:The main issue was whether the department was justified in invoking the extended period of limitation under Section 11A(1) of the Central Excise Act, 1944. The appellants argued that they had disclosed their manufacturing processes to the Department since 1992-93 and had no intent to evade duty. The Commissioner, however, found that the appellants failed to get their units registered and suppressed their manufacturing activities. The Tribunal initially agreed but later found substantial compliance with Chapter X procedures, granting exemption under Notification No. 121/94-C.E. The Supreme Court, applying the test from Padmini Products and Cosmic Dye Chemical, concluded that there was no intent to evade duty. The appellants had disclosed their processes and maintained records, thus the extended period of limitation was not applicable.3. Compliance with Notification No. 121/94-C.E.:The Tribunal remanded the case to the Commissioner to ascertain substantial compliance with Chapter X procedures, which was later confirmed. The Supreme Court noted that the appellants maintained transfer challans and stock registers, indicating receipt and utilization of the additive mixture. The Tribunal's finding of substantial compliance was upheld, and the additive mixture was entitled to exemption under Notification No. 121/94-C.E.Conclusion:The Supreme Court held that while the 'additive mixture' (kimam) was excisable and classifiable under Chapter sub-heading 2404.49/2404.40, the department was not entitled to invoke the extended period of limitation under Section 11A(1) of the Central Excise Act, 1944. The civil appeals were partly allowed, affirming the excisability but rejecting the extended limitation period due to lack of intent to evade duty.