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PETITIONER: COLLECTOR OF CENTRAL EXCISE, HYDERABAD.

       Vs.

RESPONDENT: CHEMPHAR DRUGS & LINIMENTS, HYDERABAD.

DATE OF JUDGMENT14/02/1989

BENCH: MUKHARJI, SABYASACHI (J) BENCH: MUKHARJI, SABYASACHI (J) RANGNATHAN, S.

CITATION:  1989 AIR  832            1989 SCR  (1) 711  1989 SCC  (2) 127        JT 1989 (1)   417  1989 SCALE  (1)436  CITATOR INFO :  RF         1989 SC2278  (12)

ACT:     Central Excise and Salt Act, 1944/Central Excise  Rules, 1944: Section 11A/Rules 10 and 173 Q--Manufacturer of patent and   proprietary  medicines--Levy  and  demand  of   excise duty--When arises-Limitation period of five years for  rais- ing demand--Condition for applicability.

HEADNOTE:     The respondent-firm manufactured patent and  proprietary (P & P) medicines failing under T.I. 14E and also  pharmaco- poeial  preparations  falling under T.I. 68 of  the  Central Excise  Tariff of an aggregate value of Rs.20,59,338.60  and cleared the same during the period 1.4.79 to 31.3.80 without payment of duty, availing the benefit of exemption of excise duty under Notification No. 80 of 1980. The respondent  also cleared,  during  the period from 1st April,  1980  to  29th October, 1980 (P & P) medicines failing under T.I.14E valued at Rs.4,32,050.09.     The respondent filed a declaration for exemption,  under Notification  No. 71 of 1978 dated 1.3.1978,  and  furnished particulars  of only the value of P & P  medicines  manufac- tured and cleared during the preceding financial year  1979- 80  and did not furnish the particulars of the value of  the goods  under Tariff Item 68 during that financial year.  The manufacturer also did not file any declaration under Notifi- cation  No. 111 of 1978 dated 9.5.1978,  claiming  exemption from  the licensing control. However, on July 30,  1980  the firm  filed a classification list in respect of P & P  medi- cines claiming exemption under Notification No. 80/80.     The appellant issued a show cause notice to the respond- ent  to explain as to why excise duty in respect  of  patent and  proprietary  medicines manufactured and cleared  by  it should  not be demanded under proviso (a) to Rule  10(1)  of the  Central  Excise  Rules and why penalty  should  not  be imposed under Rule 173Q of the Central Excise Rule, 1944 for having cleared the goods without payment of duty in  contra- vention of Rule 173Q(a) and (d) of the Rules. On receipt  of reply,  the appellant held the respondent to  be  ineligible for the benefit of the

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712 two notifications and demanded duty in respect of the  goods cleared by them for the period 1.4.1980 to 29.10.80. He also held  that  in view of the respondent’s  failure  to  reveal correct  position, the firm was liable to pay the duty,  and that the time limit for the recovery of the duty under  Rule 10  (Section 11A) of the Central Excise Rules would run  for five years.     The  respondent  filed  an appeal  before  the  Tribunal contending that the demand for the period beyond six  months from  the receipt of the show cause notice  was  time-barred inasmuch  as  there was no suppression or  mis-statement  of facts by the appellant with a view to evade payment of duty. The  Revenue’s  plea was that there was  suppression  and/or misdeclaration  and/or  wrong information furnished  in  the declaration itself. Hence the appeal by the Revenue. Dismissing the appeal,     HELD: 1.1 In order to make the demand for duty  sustain- able  beyond a period of six months and up to a period of  5 years,  in view of the proviso to sub-s. 11A of the Act,  it has  to be established that the duty of excise had not  been levied or paid or short-levied or short-paid, or erroneously refunded  by reasons of either fraud or collusion or  wilful mis-statement  or suppression of facts or  contravention  of any  provision  of the Act or Rules  made  thereunder,  with intent  to evade payment of duty. Something  positive  other than mere inaction or failure on the part of the manufactur- er  or  producer or conscious or deliberate  withholding  of information  when  the manufacturer knew otherwise,  is  re- quired  before it is saddled with any liability, beyond  the period of six months. [717A-C]     1.2  Whether  in a particular set of facts  and  circum- stances  there  was any fraud or collusion  or  wilful  mis- statement  or suppression or contravention of any  provision of  any Act, is a question of fact depending upon the  facts and circumstances of a particular case. [717C-D]     In  the instant case the assessee declared the goods  on the  basis  of  their belief of the  interpretation  of  the provisions  of  the  law that the exempted  goods  were  not required to be included and these did not include the  value of the exempted goods which the assessee manufactured at the relevant time. The Tribunal found that that the  explanation was  plausible, and also noted that the Department had  full knowledge  of the facts, about manufacture of all the  goods manufactured  by  the respondent when  the  declaration  was filed by the respondent. The  713 respondent  did not include the value of the  product  other than those falling under Tariff Item 14E manufactured by the respondent  and this was in the knowledge, according to  the Tribunal,  of the authorities. The findings of the  Tribunal have not been challenged before this Court. [717D-F]     The  Tribunal also found that the facts of case did  not warrant any inference of fraud. [717D]     Having regard to these, and in view of the  requirements of  s.  11A  of the Act, the claim had to he  limited  to  a period  of  six months, prior to the date of issue  of  show cause  notice.  The Tribunal was right  in  its  conclusion. [717G]

JUDGMENT:     CIVIL  APPELLATE JURISDICTION: Civil Appeal No. 1632  of 1988.

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   From the Order dated 8.1.1988 of the Customs Excise  and Gold  (Control) Appellate Tribunal, New Delhi in Appeal  No. SD SB/T 716/81-C (Order No. 17/88-C.)     A.K. Ganguli, A. Subba Rao and Mrs. Sushma Suri for  the Appellant.     A.N.  Haksar, R. Karanjawala, Ms. M. Arora and  Mrs.  M. Karanjawala for the Respondent. The Judgment of the Court was delivered by     SABYASACHI  MUKHARJI,  J. This appeal is  under  section 35(L)(b) of the Central Excises and Salt Act, 1944  (herein- after called ’the Act’) against the order dated 8th January, 1988  passed by the Customs, Excise & Gold (Control)  Appel- late Tribunal. The issue involved in this appeal was whether in the facts and the circumstances of the case, the Tribunal was  legally justified in restricting the demand of duty  to six months prior to the date of issue of show-cause  notice, particularly  in a case where longer period was  invoked  on the ground of suppression of information in the  declaration furnished by the respondent.     The respondent manufactured patent and proprietary (P  & P) medicines falling under T.I. 14E and also  pharmacopoeial preparations  falling  under T.I. 68 of the  Central  Excise Tariff of an aggregate 714 value  of Rs.20,59,338.60 and cleared during the  period  of 1.4.1979  to  31.3.1980, the same without payment  of  duty, availing the benefit of exemption notification No. 80/80.     Under  the provisions of sub-clause (ii) of clause 2  of notification No. 80/80 dated 19th June, 1980 and  sub-clause (iii) of clause (a) of notification No. 71/78 dated 1.3.1978 the  manufacturer would not be eligible for exemption  under the  two notifications in respect of clearance of patent  or proprietary medicines from 1st April, 1980 since the notifi- cation  would not apply to a manufacturer  who  manufactures excisable goods falling under more than one item of the  1st Schedule  of the Act, and the aggregate value of the  clear- ness  of all such excisable goods by the manufacturer or  on his behalf are cleared for home consumption from one or more factories  during the preceding financial year had  exceeded Rs.20 lakhs.     The  factory  had  cleared during the  period  from  1st April, 1980 to 29th October, 1980 (P & P) medicines  falling under T.I. 14E valued at Rs.4,32,050.09. The central  excise duty  payable  on the goods removed  was  Rs.55,302.01.  The respondent filed a declaration for exemption under notifica- tion No. 71/78 dated 1.3.1978, and furnished particulars  of only  the value of P & P medicines manufactured and  cleared by it during the preceding financial year i.e. 1979-80,  and the respondent did not furnish the particulars of the  value of the goods cleared under Tariff item 68 during the  finan- cial year 1979-80. It was noticed that the manufacturer  did not  file  any declaration under Notification  No.  111/  78 dated  9.5. 1978 claiming exemption from the licensing  con- trol.     However, on 30th July, 1980 the firm filed a classifica- tion  list in respect of P & P medicines claiming  exemption under notification No. 80/80. A show-cause notice was issued to  the  respondent  who  was asked to  explain  as  to  why excise-duty  in  respect of Patent &  Proprietary  medicines manufactured and cleared by it should not be demanded  under proviso  (a) to Rule 10(1) of the Central Excise  Rules  and why  penalty should not be imposed on it under rule 173Q  of the Central Excise Rules, 1944 for having cleared the  goods without  payment of duty in contravention of Rule  173Q  (a) and (d) of the Central Excise Rules.

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   After  submission of the reply by the  respondents,  the Collector  of  Central  Excise held the  respondents  to  be ineligible  for  the benefit of the  two  notifications  and therefore  duty  was demanded from them in  respect  of  the goods cleared by them for the period 1.4.1980 to  715 29.10.  1980. The Collector Was of the view that in view  of the  respondents’  failure to reveal the  correct  position, they  were  liable. The Collector was of the view  that  the time  limit  under  rule 10 (section 11A) would  run  for  5 years. The relevant portion of section 11A of the Act is  as follows:               "(11-A). Recovery of duties not levied or  not               paid or short-levied or short-paid or  errone-               ously  refunded.--(1) when any duty of  excise               has  not  been  levied or  paid  or  has  been               short-levied  or  short-paid  or   erroneously               refunded, a Central Excise Officer may, within               six  months  from  the  relevant  date,  serve               notice on the person chargeable with the  duty               which has not been levied or paid or which has               been short-levied or short-paid or to whom the               refund  has erroneously been  made,  requiring               him  to show cause why he should not  pay  the               amount specified in the notice:               Provided that where any duty of excise has not               been  levied or paid or has been  short-levied               or  short-paid  or  erroneously  refunded   by               reason  of  fraud,  collusion  or  any  wilful               misstatement  or  suppression  of  facts,   or               contravention of any of the provisions of this               Act  or  of  the rules  made  thereunder  with               intent  to  evade  payment of  duty,  by  such               person  or his agent, the provisions  of  this               sub-section shall have effect, (as if for  the               words  "Central  Excise  Officer",  the  words               "Collector  of Central Excise", and)  for  the               words  "six  months", the words  "five  years"               were substituted."     The respondent filed an appeal before the Tribunal.  The Tribunal  considered  the matter and noted that  the  appel- lant’s  case  was that the demand for duty  for  the  period beyond six months was time barred; and the respondent’s case was that the demand for the period beyond 6 months from  the receipt  of show-cause notice, was time barred  inasmuch  as there  was  no suppression or misstatement of facts  by  the appellant  with a view to evade payment of duty. In  support of  its  claim the respondent produced  classification  list approved by the authorities during the period 1978-1979, and also produced extracts from the survey register showing that the officers had been visiting its factory from time to time and  also taking note of the previous goods manufactured  by the  respondent. The plea of the revenue was that there  was suppression and/or mis-declaration and/or wrong  information furnished in the declaration itself. The Tribunal noted  the facts as follows:  716               "We  observe it is not denied by  the  Revenue               that the appellants had been submitting  their               classification lists from time to time showing               the  various  products  manufactured  by  them               including those failing under 14E and 68  also               these  containing  alcohol.  The  officer  who               visited  the factory as seen from  the  survey               register at the factory also took note of  the

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             various  products  being manufactured  by  the               appellants. It cannot be said that the  appel-               lants had held back any information in  regard               to  the  range  and the nature  of  the  goods               manufactured  by  them.  The  appellants  have               maintained  that  the value  of  the  exempted               goods  under T.I. 68 and also value  of  medi-               cines  containing alcohol, according to  their               interpretation,  were not required to  be  in-               cluded  for  the purpose of reckoning  of  the               total  excisable goods cleared by them.  There               is  nothing on record to show that the  appel-               lants  non-bonafidely  held  back  information               about the total value of the goods cleared  by               them  with  a view to evade payment  of  duty.               Their  explanation  that it was  only  on  the               basis  of their interpretation that the  value               of the exempted goods were not required to  be               included  that they did not include the  value               of the exempted goods which they  manufactured               at the relevant time and failing under T.I. 68               is  acceptable in the facts of that case.  The               Departmental  authorities were in full  knowl-               edge of the facts about manufacture of all the               goods  manufactured by them when the  declara-               tion  was filed by the appellants.  That  they               did not include the value of the product other               than these falling under T.I. 14E manufactured               by the appellants has to be taken to be within               the  knowledge of the authorities. They  could               have  taken  corrective  action  in  time.  We               therefore find there was no warrant in  invok-               ing longer time limit beyond six months avail-               able  for  raising the demand. So far  as  the               demand for the period within six months  reck-               oned  from  the date of receipt  of  the  show               cause notice is concerned, we observe that the               appellant’s  case is that value of  the  goods               under  68 was not required to be included  but               the  Revenue’s plea is that only value of  the               specified  goods under notification No.  71/78               and 80/80 was not required to be excluded."     On  the aforesaid view the Tribunal came to the  conclu- sion  that the demand raised on this for a period  beyond  6 months was not maintainable. 717     Aggrieved thereby, the revenue has come up in appeal  to this  Court. In our opinion, the order of the Tribunal  must be sustained. In order to make the demand for duty  sustain- able  beyond a period of six months and up to a period of  5 years  in view of the proviso to subsection 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  erro- neously 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. Something  positive  other than mere inaction or failure on the part of the manufactur- er  or  producer or conscious or deliberate  withholding  of information  when  the manufacturer knew otherwise,  is  re- quired  before it is saddled with any liability, beyond  the period  of six months. Whether in a particular set of  facts and circumstances there was any fraud or collusion or wilful misstatement  or suppression or contravention of any  provi- sion  of any Act, is a question of fact depending  upon  the

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facts  and circumstances of a particular case. The  Tribunal came to the conclusion that the facts referred to  hereinbe- fore  do  not warrant any inference of fraud.  The  assessee declared  the  goods  on the basis of their  belief  of  the interpretation of the provisions of the law that the exempt- ed goods were not required to be included and these did  not include the value of the exempted goods which they  manufac- tured  at  the relevant time. The Tribunal  found  that  the explanation  was plausible, and also noted that the  Depart- ment  had full knowledge of the facts about  manufacture  of all the goods manufactured by the respondent when the decla- ration  was filed by the respondent. The respondent did  not include  the value of the product other than  those  falling under  Tariff  Item 14E manufactured by the  respondent  and this was in the knowledge, according to the Tribunal, of the authorities.  These findings of the Tribunal have  not  been challenged before us or before the Tribunal itself as  being based on no evidence.     In  that view of the matter and in view of the  require- ments of section 11A of the Act, the claim had to be limited to  a  period  of six months as the Tribunal  did.  We  are, therefore, of the opinion that the Tribunal was fight in its conclusion.  The appeal therefore fails and  is  accordingly dismissed.     In  the  facts and the circumstances of  the  case,  the parties will pay and bear their own costs. N.P.V.                                          Appeal  dis- missed. 718