2003 (11) TMI 114 - SC - Central Excise

Supreme Court Upholds Excise Act Amendment, Directs Tribunal on Limitation and Modvat Credit

The Supreme Court upheld the validity of the amendment to Section 11A of the Central Excise Act, 1944, allowing for rectification of short-levy or ... Whether the demand made by revenue was barred by limitation? Held that:- The question of limitation involves a question of jurisdiction. The findings of fact on the question of jurisdiction would be a jurisdictional fact. Such a jurisdictional question is to be determined having regard to both fact and law involved therein. The Tribunal, in our opinion, committed a manifest error in not determining the said question, particularly, when in the absence of any finding of fact that such short-levy of excise duty related to any positive act on the part of the appellant by way of fraud, collusion, wilful mis-statement or suppression of facts, the extended period of limitation could not have been invoked and in that view of the matter no show cause notice in terms of Rule 10 could have been issued. Furthermore, even if the short-levy, if any, is to be recovered, the appellant was entitled to raise a question that he is entitled to adjust the duty upon taking Modvat credit of the duty paid on cold rolled steel strips. These aspects of the matter, in our opinion, required to be gone into by the Tribunal. Appeal allowed. The impugned judgment cannot be sustained which is set aside and the matter is remitted to the Tribunal for consideration thereof afresh Issues Involved:1. Effect of a validating statute.2. Classification of box strappings under the Central Excise Tariff.3. Applicability of Section 11A of the Central Excise Act, 1944, post-amendment.4. Limitation period for issuing show cause notices under Section 11A.5. Entitlement to Modvat credit.Issue-wise Detailed Analysis:1. Effect of a Validating Statute:The Supreme Court examined the impact of the amendment to Section 11A of the Central Excise Act, 1944, introduced by the Finance Act, 2000, which was given retrospective effect from 17th November 1980. The amendment aimed to address judicial pronouncements that had previously invalidated certain actions taken under Section 11A by clarifying that short-levy or non-levy, even if based on approved classification lists, could be rectified within the prescribed period. The Court upheld the validity of this amendment, stating that it effectively removed the basis of the earlier judgment in Cotspun Ltd., which had held that differential duty could not be recovered on the ground of short-levy based on an approved classification list.2. Classification of Box Strappings:The appellant contended that the processes undertaken on duty-paid cold rolled steel strips did not amount to manufacture and that the resultant product, box strappings, should be classified under Tariff Item 26AA(iii) or 7211.31 as strips, not under 7308.90 as articles of iron or steel. The Tribunal had previously classified box strappings under Heading 73.08, but the Supreme Court did not delve into this issue due to the need to address the question of limitation and availability of Modvat credit first.3. Applicability of Section 11A Post-Amendment:The amendment to Section 11A allowed for the reopening of approved classification lists and recovery of short-levy or non-levy even if such approval had been previously granted. The Court recognized that the amendment changed the legal landscape, allowing Central Excise Officers to issue show cause notices to correct errors or mistakes in classification or valuation within the prescribed period, thus removing the basis of the judgment in Cotspun Ltd.4. Limitation Period for Issuing Show Cause Notices:The Supreme Court emphasized that the limitation period for issuing show cause notices under Section 11A is six months from the relevant date unless the short-levy was due to fraud, collusion, willful misstatement, or suppression of facts, in which case the period extends to five years. The appellant argued that their classification had been made with the department's knowledge and that there was no suppression of facts. The Court noted that the Tribunal had failed to address this issue, which was crucial to determining the validity of the show cause notice.5. Entitlement to Modvat Credit:The appellant claimed entitlement to Modvat credit for the duty paid on cold rolled steel strips if the product was held to be dutiable. The Supreme Court observed that this issue, along with the question of limitation, had not been considered by the Tribunal and needed to be addressed upon remand.Conclusion:The Supreme Court set aside the impugned judgment and remitted the matter to the Tribunal for fresh consideration, specifically directing it to address the issues of limitation and the appellant's entitlement to Modvat credit in accordance with the observations made in the judgment. The appeal was allowed in part, without any order as to costs.