NIRLON LTD. Vs. COMMNR. OF CENTRAL EXCISE, MUMBAI
Supreme Court of India (Division Bench (DB)- Two Judge)
Appeal (Civil), 7642 of 2004, Judgment Date: Apr 23, 2015
'REPORTABLE'
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 7642 OF 2004
NIRLON LTD. ... Appellant
VERSUS
COMMISSIONER OF CENTRAL EXCISE, MUMBAI ... Respondent
J U D G M E N T
A. K. SIKRI, J.
The appellant herein is the manufacturer of Tyre Cord Yarn
(TCY) and Tyre Cord Fabric (TCB) falling under Chapter 54 and 59 of the
Central Excise Tariff Act respectively. The aforesaid goods TCY and TCB
are manufactured by the appellant at its Goregaon factory. The products so
manufactured are sold by the appellant at the factory gate as well as
removed for captive consumption to its another factory at Tarapur. At
Tarapur factory, the said yarn are utilised for manufacturing final
products.
The dispute has arisen in respect of the valuation of the TCY
which are removed for captive consumption and to be used at Tarapur factory
of the respondent.
The appellant has been filing the price list proforma under
Section 4(1) of the Central Excise Act, 1944,(hereinafter referred to as
'Act') declaring the wholesale price of TCY for such goods by showing the
same price at which the goods are sold by the appellant at the factory gate
to the third parties. Such price list in Proforma Part I under Section 4
of the Act was filed on 01.03.1994 and 28.03.1994. It was again filed on
01.03.1998. The price declaration so made was looked into by the
Superintendent of Central Excise and he was not satisfied with this
declaration as according to him, the price could not be declared at the
same rate at which the goods are sold by the appellant at the factory gate
to others. According to him, there was a difference between the goods
which were cleared at the factory gate to be sold to the third parties and
removed for captive consumption by the appellant itself for its Tarapur
factory. This resulted in the appointment of a cost accountant by the
Commissioner to go into this issue.
It appears that the cost accountant had given some report in
which he had opined that the two goods are different from each other and
therefore, price declaration which was filed by the appellant in terms of
Section 4(2) of the Act read with Rule 6(b)(i) of Central Excise Valuation
Rules, 1975 (hereinafter referred to as Rules) was incorrect. This led to
the issuance of two show cause notices to the appellant. First show cause
notice is dated 25.02.2000 covering period from August, 1999 to January,
2000. In this show cause notice, amount of Rs.78,20,365/- for the
aforesaid period was demanded as differential duty under Rule 6(b)(ii) of
the aforesaid Rules. The second show cause notice was issued on 03.03.2001
which was for the period from February, 1996, to June, 2000. Both these
notices resulted in confirmation of the demands mentioned in the show cause
notices as well as imposition of penalties upon the appellant. The
appellant filed appeal against the orders passed by the Commissioner.
However, the Customs, Excise and Service Tax Appellate Tribunal
(hereinafter referred to as 'CESTAT') has dismissed this appeal by the
common judgment dated 01.10.2004. It is against this judgment, present
appeal is preferred by the appellant.
After going through the material on record as well as the
orders of the Commissioner and the CESTAT, we find that findings of facts
are recorded by the authorities below that the two kinds of goods were not
comparable with each other and therefore, the goods which were removed for
captive consumption to be used by Tarapur Factory were to be valued under
Rule 6(b)(ii) of the Rules and the price declaration given by the appellant
applying Rule 6(b)(i) of the said rules was erroneous. We also find that
the appellant had even admitted some variations in the two types of goods
in its reply to the show cause notices itself. In these circumstances,
insofar as the opinion of the authorities with regard to different nature
of the goods is concerned, that does not call for any interference by this
court.
Faced with the aforesaid situation, Mr. S. K. Bagaria, learned
senior counsel appearing for the appellant, has pressed the issue of
limitation. His submission is that the second show cause notice dated
03.03.2001 covered the period from February, 1996 to June, 2000, and most
of this period would be time barred if extended period of limitation is not
invoked in the present case. His argument is that there was no mala fide
on the part of the appellant and no intention to evade the duty. In order
to buttress this submission, the learned senior counsel has pointed out the
following aspects in his favour: -
(i) The products sold at the factory gate and the products transferred to
Tarapur factory were using identical raw materials and identical process.
For this reason, the appellant believed that the products were comparable
goods in terms of Rule 6(b)(i).
(ii) Both the goods fall under the same sub-heading of the tariff entry as
both are admittedly TCY.
(iii) The price list which was filed by the appellant in the year 1994, and
thereafter repeatedly, was accepted by the Central Excise Department after
scrutiny and this gave a reasonable impression in the mind of the appellant
that the price declarations filed by the appellant was correct.
(iv) The appellant could not have taken any undue advantage, in any case,
by filing declaration under Rule 6(b)(i) instead of Rule 6(b)(ii) inasmuch
as even if there was higher duty payable in terms of declaration under Rule
6(b)(ii) of the Rules, the appellant was entitled to take credit thereof in
its entirety. Therefore, the entire exercise was revenue neutral.
(v) In order to support his submission, it is pointed out that as soon as
the second show cause notice was issued and the Revenue wanted the
appellant to file price declaration under Rule 6(b)(ii) the appellant
complied therewith and with effect from 01.04.2000, i.e., immediately
after the issuance of the show cause notice dated 25.02.2000, it is paying
duty accordingly and taking credit thereof, as well. This is so accepted by
the Department in the second show cause notice dated 3.3.2001 itself.
From the aforesaid circumstances narrated by the learned senior
counsel, we are inclined to accept the submission of the appellant that
there could not have been any mala fides on the part of the appellant in
filing the declaration under Rule 6(b)(i) in order to evade the excise
duty.
We may note that Mr. K. Radhakrishnan, learned senior counsel
appearing for the Revenue, vehemently countered the aforesaid submission of
the appellant and argued that there was clear intention to evade the excise
duty. His submission was that the clearance of the goods which were sold
at the factory gate were totally different as they differed in technical
specifications from those removed for captive consumption which was
confirmed by the appellant itself vide its letter dated 21.02.2000 and this
would depict clear intention on the part of the appellant to remove the
goods by paying lesser duty.
We have ourselves indicated that the two types of goods were
different in nature. The question is about the intention, namely, whether
it was done with bona fide belief or there was some mala fide intentions in
doing so. It is here we agree with the contention of the learned senior
counsel for the appellant, in the circumstances which are explained by him
and recorded above. It is stated at the cost of repetition that when the
entire exercise was revenue neutral, the appellant could not have achieved
any purpose to evade the duty.
Therefore, it was not permissible for the respondent to invoke
the proviso to Section 11A(1) of the Act and apply the extended period of
limitation. In view thereof, we confirm the demand insofar as it pertains
to show cause notice dated 25.02.2000. However, as far as show cause
notice dated 03.03.2001 is concerned, the demand from February, 1996 till
February, 2000 would be beyond limitation and that part of the demand is
hereby set aside. Once we have found that there was no mala fide intention
on the part of the appellant, we set aside the penalty as well.
The appeal is allowed in part and disposed of in the aforesaid
terms.
No costs.
.........................., J.
[ A.K. SIKRI ]
.........................., J.
[ ROHINTON FALI NARIMAN ]
New Delhi;
April 23, 2015.