TaxTMI 
TaxTMI 
1999 (8) TMI 1006
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....tteries manufactured by the appellants and cleared by them by availing the exemption under the aforesaid notification were aluminium foil jacketed batteries. As per the view entertained by the department metal jacket battery is the one whose jacket was made of tin or iron and the batteries cannot be considered as metal jacketed batteries if the jacket of the battery is made of aluminium foil. The show cause notice issued by the department raising demand of duty of Rs. 3,43,89,568.49 was dropped by the adjudicating authority on the technical ground of limitation inasmuch as the demand was raised beyond even the extended period of 5 years provided under Section 11A of the Act. However, he observed that though the demand cannot be confirmed on the ground of limitation, nevertheless the appellants were guilty of deliberate suppression on their part, which resulted in evasion of duty to the tune of Rs. 3,43,89,568.49. Accordingly he imposed a penalty of Rs. 1 Crore on the appellants under Rule 173Q(1) of Central Excise Rules. 2. Shri V. Sridharan, ld. Advocate appearing on behalf of the appellants submitted that he is not disputing the fact that the battery manufactured by the a....
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.... all the materials facts that the cover of the batteries is made up of aluminium foil was disclosed to the department. A sample of the battery was also given to the department. He submitted that after conducting necessary verifications the classification list was approved and no mala fides can be attributed to the appellants so as to justify the imposition of penalty of Rs. 1 Crore. He submitted that the observations of the adjudicating authority that the appellants are leader in this industry and they should not have misguided the department by holding out a battery manufactured with aluminium foil as a metal jacketed battery are against the facts on records, inasmuch as the appellants and the department were entertaining a bona fide belief that the aluminium foil batteries are to be considered as metal jacketed batteries in the absence of any definition of metal jacketed batteries in the notification. He argued that though the duty has been dropped by the Commissioner on the technical ground of demand having been raised after a period of five years, the fact remains that there was no suppression on the part of the appellants. As such the imposition of penalty in the absence of an....
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.... and 57 of the paper book, he impressed upon that the batteries cleared by the appellants were not metal jacketed batteries. Referring to the various decisions he argued that in the absence of any definition of metal jacketed batteries, trade parlance has to prevail. As regards the imposition of penalty he submitted that the Hon'ble Supreme Court in the famous case of Charandas Malhotra has held that there is no time limit for imposition of penalty. He submitted that the adjudicating authority has come to a clear finding that there is suppression on the part of the appellants with intent to evade duty inasmuch as the evidence brought on record by way of statements of the appellants' officers clearly shows that the appellant was fully aware with the character of the specific inputs used by them and of the fact that the paper backed aluminium foil did not grant the character of metal jacketed batteries to their product. Relying upon the Tribunal's decision in the case of Shri Ram Drinks (P) Ltd. v. Collector of Central Excise BBSR reported in 1994 (72) E.L.T. 427 (para 7), he submitted that the imposition of penalty in Rule 173Q has been held to be justifiable where the appellants ha....
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....y Rule 173-C, he cannot be said to have contravened the provisions of that rule within the meaning of Rule 173Q even if the price stated by him is not correct. The relevant paragraph of the said judgment is reproduced below for better appreciation. In this connection it is relevant to note that Section 9 of the Central Excises and Salt Act, which provides for offences and penalty, makes a person liable to a criminal offence not only when he removes an excisable goods in contravention of any of the provisions of the Act or any rule made thereunder, or when he fails to supply any information which he is required by Rules made under this Act to supply but also when he supplies false information. Rule 173Q on the other hand does not say that a person shall be liable to penalty when the information supplied by him is false. The omission in this respect in Rule 173Q is pertinent and it shows that the rule does not intend to penalise a person for giving false information. Further, under sub-rule (2) of Rule 173C the proper officer while approving the price list can modify the value shown in the list so as to bring it to the correct value. Now if the Rule requires the manufacturer to en....
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.... proceedings and being ancillary to the assessment proceedings, cannot stand on a higher footing and that the period of limitation prescribed for making the assessment equally applies to the levying of penalty. The relevant para from the said judgment is reproduced below :- "It prescribed two periods of limitation, viz., six years and four years, applicable in two different situations. Sub-section (4) further provided for levying of penalty by the assessing authority in addition to the tax assessed. The section did not expressly provide for any period of limitation for levying penalty. It was, therefore, argued that there is no period of limitation for levying penalty and that, such a penalty can be levied even beyond the periods prescribed in the said sub-section. This argument was negatived by the Bench, which held that the penalty proceedings are not independent proceedings, but are dependent upon a finding by the assessing authority that the whole or any part of the turnover of the business of a dealer has escaped assessment, and that only on arriving at that finding are the penalty proceedings taken up as a deterrence. It was further observed that, while the penalty p....
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....on is being claimed are jacketed with the aluminium foils. The same were verified by the Inspector and the Superintendent. The remarks column in the classification list filed in the year 1977 also shows that a sample of the battery was given to the department. The same were approved after making necessary enquiries. It seems that the appellants as well as the department was entertaining a belief that even the aluminium foil covered batteries would classify under the exemption. The appellants cannot be held guilty of any contravention on their part in making the department belief that the battery in question was metal jacketed battery. The observation and finding of the Commissioner that the appellants were aware of the character of the battery and persuaded the department in believing that the jacket was made of only aluminium foil with intend to evade payment of Central Excise duty, do not appeal to us. The ruling of the Hon'ble High Court of Madhya Pradesh which is based upon the judgment of the Supreme Court in the case of Union of India v. Shri Ram Durga Puri (P) Ltd. reported in AIR 1970 S.C. 1597 is to the effect that giving of incorrect information in the declarations under ....
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....knew that the batteries made by them were not metal jacket batteries but at best metallised barrier batteries of the paper-backed aluminium foil. In view of this knowledge on the part of the concerned authorised persons, it is futile to argue, as the learned Advocate Shri V. Sridharan has done, that in the absence of contemporary record of the Central Excise department in which the classification list was approved, it cannot be said whether the Revenue did not make any enquiry before approving the classification list. What is material for proving the contravention of rule with intent to evade duty is whether an assessee has wilfully mis-stated certain material facts or not having a bearing on payment of duty. Approval of classification list by the Revenue on the strength of such a wilful mis-statement does not in any manner detract from the wilful mis-statement of the appellants herein. I rely for this proposition on Apex Court's judgment in the case of Jaishree Engineering Co. (P) Ltd. v. C.C.E., 1989 (40) E.L.T. 214 -para 10. It was found in the facts and circumstances of that case that the appellant had declared one of their products as 'end fittings' whereas it ought to have ma....
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....ve that Rule 198 envisages imposition of penalty on a person who wilfully gives false or misleading information to an authorised officer of Central Excise. Instead of incorporating the duty of a person to give correct information in each document required to be filed by him under various rules, this general provision has been made in the Rules. Therefore, wilful giving of false or misleading information attracts penalty. In respect of breach of not giving correct information knowingly, in respect of a commodity governed under Chapter VII-A, provisions of Rule 173Q(1)(d) read with Rule 198 would be attracted. 21. Next contention of the learned Advocate is that where no duty is required to be recovered from an assessee under the provisions of the Central Excises Act and the Rules made thereunder, no penalty would be sustainable against such an assessee. For this proposition learned Advocate relies on Apex Court's judgment in the case of HMM Ltd. (supra). 22. As against the above contention, learned SDR, Shri T. Premkumar urges that this contention is not correct. In all cases, including that of HMM where penalty has not been sustained/imposed, it is so because finding....
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....six years prescribed by sub-section (4) of Section 14 is confined to the assessment proceedings and not to the penalty proceedings. It must be pointed out that penalty proceedings do not stand by themselves, but are dependent upon a finding by the assessing authority that the whole or any part of the turnover of the business of a dealer has escaped assessment. It is only on the finding that the turnover has escaped assessment, as a deterrent for the dealer, the penalty proceedings are taken up. While these proceedings may be distinct from the assessment proceedings themselves, they are not wholly independent of the assessment proceedings. It is also significant to note that this power to levy penalty conferred by sub-section (4) of Section 14 is vested in the assessing authority to direct the dealer to pay the amount in addition to tax. The word "also" and the words "in addition to tax" occurring in that sub-section give an indication that this power is ancillary to the power to levy the tax, and not an independent one. That being so, when the power to levy the tax itself can be exercised within a period of six years from the assessment year, it could not have been the intention of....
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....s entirely different; penal proceedings are different from assessment proceedings. Clause (d) of Rule 173Q(1) ibid, with which we are concerned here, imposes a penal liability on a manufacturer who has contravened any rule with intent to evade payment of duty. It does not read "where there is contravention of a rule causing (or leading to) evasion of duty'', a manufacturer would be liable to penalty. It is to be noted that penal liability arises as soon as a rule has been contravened intentionally and the intention in contravention of rule was to evade duty. Clause (d) ibid, as it stands, on its plain and strict construction is attracted even before any evasion of duty has taken place and there is merely a contravention of rule with intent to evade duty. In other words, evasion may not have taken place, because that intention may not have, as yet, been implemented. It is a different thing that evidence of such an unimplemented intention may be difficult to get. 27. On the other hand, even if there is escape of a levy or a short-levy, it cannot be recovered by invoking larger period of five years unless mens-rea on the part of an assessee is proved in that non-levy or short-....
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....tice for recovery of duty has to be issued within six months from the relevant date or within 5 years from the relevant date. Accordingly, the impugned order has dropped demand for duty. However, penalty under 173Q(1)(d) has been imposed for contravention of the provisions of Central Excise Rules with intent to evade payment of duty. Therefore, the questions raised are whether such contravention of Rules (Rule 173-B) relating to filing of classification list has taken place and if so whether imposition of penalty was within time. Answering of the question relating to whether the imposition of the penalty was time barred would be sufficient for the purpose of disposing of this appeal, if the answer is that the penalty proceeding also became time barred alongwith the demand for duty. Accordingly, I am taking up the question as to whether there was time bar in the case of penalty under Rule 173Q for consideration first. 31. On the aforesaid question it has been submitted by learned Counsel Shri V. Sridharan on behalf of the appellants that even if no period of limitation is prescribed for initiating penalty proceeding, it is well settled that in such a case proceeding should b....
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....er under that Section has to be exercised, in order to avoid prejudice and hardship to the assessee it should be exercised within a reasonable time once the assessment becomes final, lest it be a Damocles' sword hanging over the head of the assessee for all time." 32. Shri Sridharan has also submitted that no period of limitation can be more reasonable that the period provided in the statute for levy of duty. His contention is that the primary purpose of the Excise Act is to levy and collect duty, imposition of penalty is not the primary purpose of the Act and penalty is to sub-serve and facilitate the imposition of duty. Shri Sridharan has also submitted that as the maximum time limit contemplated by the legislature for levy of duty is only 5 years, it is unthinkable that reasonable period for initiating penalty proceedings can be beyond 5 years. He has relied on the following judgments in support of the proposition that limitation for duty/tax will apply to penalty also. (a) 1974 (33) STC 144 at 147 "In these circumstances, we are inclined to take the view that the period of limitation of six years provided for the assessment of tax where whole or a....
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....20 wherein the Supreme Court held that Sections 110 and 124 are independent, distinct and exclusive of each other, resulting in the survival of the proceedings under Section 124 even though the seized goods may have to be returned or stand returned in terms of Section 110 of the Act, after the expiry of the permissible period of seizure. He has also submitted that the reliance placed by the appellants on judgments in income tax and sales tax cases cannot be applied in a blind way to Central Excise cases as each law has its own specific provisions on recovery of tax and imposition of penalty. In support of this, he has relied on the decision of Supreme Court in AIR 1975 SC 1549. He has referred to the decision of the CEGAT in the case of Amar Processors v. Collector of Central Excise - 1993 (68) E.L.T. 134 in support of the submission that penalty is impossible under Rule 173Q even when demand is held to be barred by time. He has also referred me to the decision of the CEGAT in Basant Industries and Others v. Collector of Customs, Bombay reported in 1987 (29) E.L.T. 155 in support of the submission that confiscation and penalty in fiscal statutes are aspects separate from assessment....
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....overs only cases where there is no finding of wilful mis-statement or suppression of facts. The difference of opinion has arisen because of this. The judgment therefore needs close study. The rule laid down in the judgment is that "Question of penalty would arise only if the department is able to sustain its demand". Thus, the correct ratio of the judgment is that if duty demand cannot be sustained, penalty would not arise. The judgment makes no distinction between whether the duty demand is on account of wilful mis-statement or suppression of facts or for fraud, collusion or other reasons as mentioned under main part of Section 11A and the Proviso thereto. The judgment makes no reference to time bar or any other reasons, which makes it not possible to sustain the duty demand. Instead, it is a universal rule, if duty cannot be sustained penalty does not arise. Therefore, I am of the opinion that it is not correct to limit the application of the judgment in HMM case to cases other than relating to misstatement etc. The reliance placed on the judgment of the Supreme Court in J.K. Bardoria Mills case also would not be correct as that judgment related to provisions of the Customs Act r....
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....ribunal to whom a point of difference of opinion has been referred are very limited. He has to agree either with Member (T) or Member (J). The Tribunal, for this proposition relied on Hon'ble Allahabad High Court Judgment in case of Jan Mohammed v. C.I.T. reported in AIR 1953 Allahabad 119. The Third Member cannot formulate a new point and base his decision thereon. In case of Hanutram Chandanmul v. Commissioner of Income Tax - 1953 Vol. 23 ITR 505, it was held that the Third Member to whom the case referred is bound to agree with one or other of the different Member and is not entitled to take a third view. In case of Collector of Central Excise, Bombay v. S. D. Fine Chemical Pvt. Ltd. - 1995 (77) E.L.T. 49 (S.C.), the Hon'ble Apex Court held as under :- "It would be evident from the opinion of the Third Member that he did not deal with the several aspects dealt with in the opinions of the two differing Members. He did not also indicate whether he agrees or disagrees with the findings recorded by Member (Judicial), viz; that after the processes undertaken by the respondent, the chemicals bears a different chemical name and have altogether different use. The Third Member d....
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....eld that once the price list in the prescribed form was submitted even an incorrect information given therein would not attract penal liability, held that once the classification list under Rule 173B had been filed in the manner or form prescribed assessee cannot be said to have contravened the provisions of Rule 173B. Member (T) on the other hand held that once there was a deliberate misstatement and suppression on the part of appellants, there was contravention of Rule 173B and therefore penalty could be imposed under Rule 173Q(1)(d) read with Rule 198 of Central Excise Rules, 1944. He also held that while limitation provisions under Section 11A bars recovery of duty it does not extinguish the duty liability and that there is no time limit for initiating proceedings for imposing penal liability under Rule 173Q. It was in the light of this background that first question framed was whether there was suppression which amounted to contravention of Rule 173B and if so whether even then penalty was not imposable as barred by time since the recovery of duty under Section 11A was barred by time. Relying on Hon'ble Apex Court Judgment in case of M/s. HMM, 1994 (76) E.L.T. 497 (S.C.)....