2025 (11) TMI 1096 - HC - Central Excise

Writ dismissed: s.11A action allowed when evasion involves fraud; five-year limitation yields to date fraud is revealed

M/s Daulat And Co., Mr. Kamal Kishore Agarwal. Versus The Union of India, The State of Rajasthan, The Additional Director, Directorate General of Goods And Services Tax Intelligence (Hqrs.), Delhi, The Additional Commissioner, Central Goods And Services Tax, Jaipur.

The HC dismissed the writ petition challenging issuance of an SCN under s.11A of the Central Excise Act, finding that where evasion arises from fraud, ... Challenge to SCN issued u/s 11A of Central Excise Act, 1944 beyond limitation - the SCN issued under the Excise Act to the petitioners, who were not the manufacturers, but are the proprietors - HELD THAT:- In terms of Section 11A Sub-Clause (4), if any person evades payment of excise duty by reason of fraud, collusion or any willful mis-statement, suppression of facts, then the action has to be taken and notices ought to be issued - So far as Sub-Clause (e) is concerned, for that purpose, a relevant date as defined in the explanation, may be taken into consideration. However, in cases relating to fraud, collusion, willful mis-statement and suppression of facts, the limitation of five years would have no application, as it is from the date the fraud, collusion or willful mis-statement or suppression of facts is revealed is the relevant date to count the limitation period of five years. The law is well settled that cases where any fraud is found to have been played, the authorities would not be deprived from taking appropriate action against the concerned persons. The Hon’ble Apex Court in the case of Bhor Industries Ltd. vs. Commissioner of Central Excise, Mumbai [2015 (9) TMI 523 - SUPREME COURT] has held 'However, in spite thereof the goods were not cleared as per the classification approved by the Revenue but at a lower rate on the basis of classification which the assessee thought was the correct classification. Thus, on the basis of the misstatement larger period of limitation was invoked. We find that action of the Commissioner on limitation has been upheld by the Tribunal as well after giving the detailed reasons.' Thus, once it is held that a judgment and decree has been obtained by practicing fraud, bar of limitation period will not be applied. Thus, it is essentially on the Provisions of Rules 9 and 49 of the Central Excise Rules, 1944, which do not take into consideration the cases relating to fraud - there are no case to entertain the present Civil Writ Petition - petition dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the show cause notice issued under Section 11A of the Central Excise Act is barred by limitation. 2. Whether persons who are proprietors engaged in trading and who received goods from other manufacturers can be prosecuted under the Central Excise Act as manufacturers or are to be treated as retailers/suppliers for purposes of issuance of notice under Section 11A. 3. Whether allegations or findings of fraud, collusion, wilful misstatement or suppression of facts remove the limitation bar prescribed under Section 11A, and how the relevant date for computation of limitation is to be treated in such cases. 4. Whether reliance on authority construing Central Excise Rules (Rules 9 and 49, 1944) that do not address fraud is applicable to limitation questions under Section 11A as amended. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Limitation under Section 11A Legal framework: Section 11A prescribes time-limits for issuance of show cause notices: ordinarily two years from the relevant date for non-fraud matters (with other specified periods), and five years where evasion is by reason of fraud, collusion, wilful misstatement or suppression of facts; various sub-sections and explanations define 'relevant date' and permit computation adjustments (e.g., stay periods). Precedent Treatment: The Court referred to binding authority recognizing that limitation is to be applied subject to the statutory exceptions for fraud/ collusion/ wilful misstatement/ suppression of facts; an Apex Court decision upholding extended limitation where misstatements enabled invocation of a larger period was cited and followed. Interpretation and reasoning: The Court examined the notice period (FY 2018-19 to FY 2021-22) and observed that whether the notice is within limitation depends on facts and the characterisation of the conduct alleged (fraudulent or otherwise). The statutory text makes clear that where fraud etc. is established the five-year period applies and, crucially, the relevant date for computing the five years is when the fraud/collusion/wilful misstatement/suppression of facts is revealed. Ratio vs. Obiter: Ratio - limitation under Section 11A is subject to statutory exception where fraud/ collusion/ wilful misstatement/ suppression is alleged; the relevant date is the date of revelation of such conduct. Obiter - procedural mechanics of computation (e.g., precise application to the instant fiscal years) not finally determined pending factual enquiry. Conclusions: The limitation objection cannot be sustained as a pure matter of law on the record before the Court because the applicability of the fraud exception must be examined by the authority after considering factual material and replies; limitation will not apply where fraud/ collusion/ willful misstatement/ suppression of facts is established and the period runs from revelation of such conduct. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Characterisation as Manufacturer vs Retailer/Supplier Legal framework: Section 11A applies to 'person chargeable with the duty' and its applicability depends on whether the person is chargeable as a manufacturer (or otherwise liable) under the Act; identification of the role (manufacturer, supplier, retailer) is a factual determination relevant to liability and issuance of notice. Precedent Treatment: No specific precedent was applied to change the standard approach that factual determination of status (manufacturer vs trader/retailer) informs the statutory liability; the Court directed the authority to examine facts rather than resolving the question on writ jurisdiction. Interpretation and reasoning: The petitioners had shown themselves as manufacturers and collected GST; alleged supplying manufacturers were not paid nor issued invoices. These factual ambiguities (receipt of goods, invoice/payment and GST treatment) determine whether petitioners are liable as manufacturers or are merely traders/retailers. The Court held that such issues must be examined by the excise authority on receipt of replies and factual material. Ratio vs. Obiter: Ratio - classification of the petitioners' commercial role is a factual matter for the taxing authority to determine and cannot be resolved on the limited record in writ proceedings. Obiter - observations about invoices, GST collection and non-payment to alleged manufacturers are factual descriptions guiding the authority. Conclusions: The question whether petitioners are manufacturers or retailers/suppliers is not ripe for summary disposal; it requires investigation by the excise authority and determination after hearing and material placement. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Effect of Fraud/Collusion/Willful Misstatement/Suppression on Limitation and Remedy Legal framework: Section 11A(4) removes the ordinary limitation bar where non-payment/short-payment/erroneous refund is by reason of fraud, collusion, wilful misstatement or suppression of facts, permitting issuance of notice within five years from the relevant date; Explanation and subsections further govern computation and consequences if appellate fora find charges unestablished. Precedent Treatment: The Court relied on higher court authorities holding that fraud vitiates procedural protections and limitation bars where fraud is involved, including statements that fraud and collusion vitiate solemn proceedings and that finality cannot be pressed to become an engine of fraud. These precedents were followed to the extent that they support non-application of limitation in fraud cases. Interpretation and reasoning: The Court explained that in fraud-related cases the limitation period of five years is computed from the date the fraud (or other specified conduct) is revealed, not necessarily from the original relevant date. Authorities were cited to demonstrate that the law permits retrospective action where fraud is discovered and that fraud vitiates legal protections including limitation. The Court emphasized that such factual determination must be made by the excise authority in the first instance. Ratio vs. Obiter: Ratio - fraud/ collusion/ wilful misstatement/ suppression of facts, if established, removes the ordinary limitation bar under Section 11A and the limitation is counted from discovery; Obiter - doctrinal statements on finality and the broader equitable maxim that courts will not allow enforcement of rights obtained by fraud. Conclusions: If the excise authority on reviewing factual material finds allegations of fraud/ collusion/ willful misstatement/ suppression established, limitation will not bar the issuance of notice and recovery action can be initiated for the relevant subsequent periods; this determination remains for the authority on merits. ISSUE-WISE DETAILED ANALYSIS - Issue 4: Reliance on Pre-amendment Rules/Judgments Not Addressing Fraud Legal framework: Prior decisions construing Central Excise Rules (e.g., Rules 9 and 49, 1944) may be inapposite where statutory amendments or different statutory provisions govern the question (particularly where fraud exceptions are present under Section 11A). Precedent Treatment: A decision interpreting Rules 9 and 49 was relied upon by petitioners; the Court found this reliance misplaced because those rules did not take into account cases involving fraud and hence do not control the present statutory regimen under Section 11A as amended. Interpretation and reasoning: The Court distinguished the relied authority on the ground that it construed a different statutory framework that did not contemplate the fraud exception; accordingly, that precedent does not preclude action under Section 11A where fraud is alleged or subsequently discovered. Ratio vs. Obiter: Ratio - authorities addressing a different statutory scheme lacking fraud provisos cannot be mechanically applied to bar proceedings under Section 11A where fraud is alleged; Obiter - comment that reliance on such judgment is 'misconceived' in the facts of the present matter. Conclusions: The petitioners' reliance on precedent interpreting rules that do not consider fraud is unsustainable; the issue requires adjudication under the specific text and exceptions of Section 11A by the competent authority. FINAL CONCLUSION AND DISPOSITION The Court dismissed the writ petition: factual issues regarding characterisation of the petitioners' role and the existence/revelation of fraud/ collusion/ wilful misstatement/ suppression of facts are to be examined by the excise authority after affording opportunity to reply; limitation objections based on the record before the Court could not be upheld as a matter of law. The petition was accordingly dismissed and pending applications disposed of.