2025 (8) TMI 1655 - AT - Service Tax

Appeal allowed: five-year extension under s.11A(4) not established; demand notice deficient, duty, interest and penalty quashed

M/s. AAM India Manufacturing Corporation Pvt. Ltd. Versus Commissioner of GST & Central Excise, Chennai

Appeal allowed. The tribunal found the adjudicating authority failed to establish the statutory ingredients required to invoke the five-year extended ... Applicability of time limitation - relevant date for periodical returns - whether the demand confirmed along with applicable interest and imposition of penalty is tenable? - HELD THAT:- The ingredients mentioned in Section 11A(4) for invoking the extended period of limitation of five years has come up for analysis repeatedly by the Honourable Supreme Court, even in the earlier avatars of section 11A, when the proviso to Section 11A specified the very same ingredients for invoking the extended period of limitation. As early as in 1989 the Honourable Apex Court in CCE v Chemphar Drugs & Linments, [1989 (2) TMI 116 - SUPREME COURT], has laid down that in order to make the demand for duty sustainable beyond a period of six months and up to a period of five years in view of the proviso to sub-section 11A of the Act, it has to be established that the duty of excise has not been levied or paid or short-levied or short-paid, or erroneously refunded by reasons of either fraud or collusion or wilful misstatement or suppression of facts or contravention of any provision of the Act or Rules made thereunder, with intent to evade payment of duty. The adjudicating authority has not rendered any finding in the impugned OIO of any positive or deliberate act of wilful misstatement or suppression of facts with intent to evade payment of duty on the part of the appellant, so as to substantiate the invoking of the extended period of limitation. The impugned OIO is liable to be set aside on this count alone. In fact, it is seen that even the SCN dated 15.10.2018 demanding the differential duty payable for the period from September 2012 to March 2013, does not put the appellant to notice as to how the relevant date for invoking the extended period of limitation has been determined and also does not explain how the notice is within the extended period of limitation. The present SCN dated 15.10.2018 issued to the appellant, raising the demand of differential duty for the period from September 2012 to March 2013, being more than six months even beyond the outer limit of the extended period of limitation that could possibly have been invoked, is wholly illegal and cannot sustain. The impugned Order in Original is therefore liable to be set aside in toto on this count too. As the demand is unsustainable and liable to be set aside, the consequential demand of interest and penalty imposed is also found to be untenable and liable to be set aside. Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the demand for differential excise duty and penalty is barred by limitation under Section 11A(4) of the Central Excise Act, having regard to the 'relevant date' for periodical returns. 2. If the demand is not barred by limitation, whether the reassessment of transaction value on the basis that declared prices were below cost of production (and the imposition of differential duty, interest and penalty) is sustainable on merits. ISSUE-WISE DETAILED ANALYSIS - ISSUE A: Limitation under Section 11A(4) Legal framework: Section 11A(4) permits issuance of notice within five years from the relevant date where duty was not levied/short-paid by reason of fraud, collusion, wilful misstatement, suppression of facts or contravention of the Act/Rules with intent to evade duty. Explanation 1(b) defines 'relevant date' for cases where periodical returns are filed as the date on which such return has been filed; where no periodical return is filed it is the last date on which such return was required to be filed. Precedent treatment (followed): The Court followed long-standing Supreme Court authority holding that invocation of the extended five-year period requires proof of positive, deliberate conduct - not mere omission or failure - and that the burden of proving mala fide is heavy and rests on revenue. Authorities require strict construction of the proviso and that mere non-payment or ordinary errors do not attract the extended period. Interpretation and reasoning: The Tribunal examined which return (monthly ER-1 v. annual ER-4) constitutes the 'relevant date' for the period September 2012-March 2013. It found: (a) ER-1 (monthly periodical return) was the statutorily prescribed periodical return under Rule 12(1) and Explanation 1(b)(ii) requires using the date of filing such periodical return; (b) ER-4 is an annual statement introduced later and not a substitute for monthly returns for determining the relevant date; (c) the appellant had filed ER-1 for March 2013 on 10-04-2013 (e-filed and acknowledged), so the relevant date for the impugned period was 10-04-2013; (d) the outer limit for invoking the five-year period was therefore 10-04-2018, whereas the SCN was issued on 15-10-2018, beyond even the extended period; (e) the SCN did not explain how it was within five years nor allege or establish positive/wilful suppression or intent to evade duty; and (f) the adjudicating authority erred in ignoring or distrusting the ER-1 filing and in imputing mala fide for non-production of a physical ER-4 when online filing could have been verified by the Department. Ratio vs. Obiter: Ratio - (i) The relevant date for computation of limitation under Section 11A(4) where periodical returns are filed is the date of filing the periodical return (ER-1), and extended limitation cannot be invoked beyond five years from that date unless ingredients of fraud/collusion/wilful misstatement/suppression with intent are established; (ii) mere non-production of a physical annual return when online filing exists is not sufficient to infer suppression or mala fide. Obiter - observations criticizing the Department's conduct and exhortations about compliance by authorities, though grounded in authority, are advisory in tone. Conclusions: The extended five-year limitation under Section 11A(4) was not invokable. The SCN dated 15-10-2018 was issued after the outer limit of five years from the ER-1 filing date (10-04-2013) and thus the demand was wholly barred by limitation. The adjudicating authority's contrary approach (relying on ER-4 or imputing suppression) was legally untenable and factually unsupported. The demand, interest and penalty were set aside on this ground. ISSUE-WISE DETAILED ANALYSIS - ISSUE B: Merits of Reassessment of Transaction Value (brief, consequential) Legal framework: Valuation for central excise is governed by provisions distinguishing transaction value (Section 4(1)(a)) and deeming provisions where transaction value is not acceptable (Section 4(1)(b)) read with valuation rules. Extended valuation/reassessment may be invoked where declared transaction value is not the 'normal price' because of additional considerations, non-arm's length transactions, or other indicia. Precedent treatment (referred to): The Court noted and considered authorities that (i) allow rejection of transaction value in cases of deliberate under-pricing aimed at market domination or where additional consideration/flowback exists; and (ii) hold that sale below cost alone is not sufficient to reject transaction value absent evidence of non-arm's lengthness or additional consideration (including administrative clarifications and rule amendments clarifying that sales below cost with no additional consideration do not ipso facto invalidate transaction value). Interpretation and reasoning: The Tribunal refrained from adjudicating the merits because the limitation conclusion rendered merits inconsequential. It observed that the adjudicating authority had applied Fiat-type reasoning (inferring additional consideration from expectation of future business) without findings of deliberate under-pricing or flowback; however, since the demand was time-barred, the Tribunal did not decide whether reassessment under valuation rules on facts would have been justified. Ratio vs. Obiter: Ratio - where an appellate forum holds a demand time-barred, it should not proceed to decide merits; the mandate and precedents cited require disposal on limitation alone and prohibit entering into merits thereafter. Obiter - critique of applying Fiat-type reasoning to genuine business loss scenarios and reference to administrative clarifications and rule amendments are explanatory and not adjudicative in this appeal. Conclusions: Merits were not adjudicated due to the limitation bar. As a corollary, the differential duty, interest and penalty confirmed in the original order were set aside. Any contention on valuation remains open for future consideration only if limitation and jurisdictional prerequisites are satisfied in appropriate proceedings. CROSS-REFERENCES AND PRACTICAL HOLDINGS 1. The 'relevant date' under Explanation 1(b)(ii) of Section 11A for cases where periodical returns are filed is the date the periodical return is filed (monthly ER-1 in the present statutory regime), and limitation calculations must proceed from that date. 2. The extended five-year limitation under Section 11A(4) is an exception to the principal limitation rule and must be strictly construed; invocation requires proof of positive, deliberate acts (fraud, collusion, wilful misstatement or suppression of facts) with intent to evade duty; mere omission, business loss or failure to disclose absent a statutory requirement to disclose does not suffice. 3. When a demand is held to be time-barred, the appellate forum should confine itself to that jurisdictional finding and not decide merits; consequential relief (including setting aside interest and penalty) follows.