REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 3860 OF 2006

The Commissioner of Central Excise, Aurangabad    .....……Appellant

Versus

M/s Bajaj Auto Ltd., Waluj, Aurangabad, through             its Vice President (Materials) and Ors.                 ……...Respondents

J U D G M E N T

H.L. Dattu, J.

1) The  appellant,  being  aggrieved  by  the  order  passed  by  the  

Customs,  Excise  and  Service  Tax  Appellate  Tribunal,  West  

Zonal  Bench  at  Mumbai,  (for  short  ‘Tribunal’)  in  Appeal  

No.A/75-78/WZB/06/C-II/EB dated  13.01.2006, is before us in  

this appeal filed under Section 130-E of the Customs Act, 1962  

(hereinafter referred to as ‘the Act’).

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2) The issue in this appeal relates to the valuation of aluminum  

castings manufactured by M/s. Anurang Engineering Co. Ltd.  

(for short ‘Anurang’) which in turn is based on the purchase  

price  of  aluminum ingots  supplied  by  M/s.  Bajaj  Auto  Ltd.,  

Waluk,  Aurangabad  (for  short  ‘Bajaj’).  Anurang,  who  is  

Respondent no. 4 in this appeal, is engaged in the manufacture  

of aluminium castings, commonly known as “handle bar body”,  

“crank case clutch”, and castings used as motor vehicle parts,  

classifiable under Chapter Sub-heading 8708.00 and 8714.00 of  

the  Central  Excise  Tariff  Act,  1985.   Bajaj,  the  Respondent  

no.1, was supplying inputs - aluminum ingots after purchasing  

the same from other manufacturers to Anurang for the relevant  

period under the cover of invoices issued under Rule 57F(2)  

and  Rule  57(3)  of  the  Central  Excise  Rules,  1994,  after  

reversing the MODVAT credit availed on the said input.

3) A  show  cause  notice  dated  05.03.2001  was  issued  by  the  

Commissioner of Customs and Central Excise, Aurangabad, in  

which it was alleged that Anurang was receiving inputs from  

Bajaj at an under-valued landed cost by not including expenses  

on  account  of  sales  tax,  octroi,  freight,  insurance,  loading-

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unloading  charges  and  handling  charges,  and  that  Bajaj  was  

charging only the basic price of such inputs equal to the basic  

price charged by the original manufacturers of the said inputs to  

Bajaj,   and  since  the  additional  cost  of  loading-unloading,  

freight etc. was not included in the input supplied to Anurang,  

there  was  consequent  reduction  in  the  landed  cost  of  such  

inputs.  It was also alleged that the price charged by Bajaj was  

depressed price although the same was coloured as negotiated  

price  and  the  price  indicated  in  the  purchase  orders  was  

influenced by the supply of inputs by Bajaj at a lower landed  

cost and by this business arrangement, Bajaj had compensated  

Anurang  for  depressed  prices  of  Anurang’s  finished  goods  

supplied to Bajaj.   Thus, both of them were aiding each other  

for mutual business interest so that the production cost of each  

other was kept at minimum and the Central Excise Duty was  

discharged  at  lower  value.   The  view  of  the  adjudicating  

authority  was  that  the  price  charged  in  the  Central  Excise  

invoices by Anurang for their finished goods was not the sole  

consideration  for  sale,  since  the  proportionate  landed  cost  

charges  were  not  included  by  Bajaj  which  is  additional  

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consideration under Rule 5 of the Central  Excise (Valuation)  

Rules, 1975.  Hence, expenses incurred by Bajaj, in addition to  

the price, were required to be loaded in the assessable value for  

payment of Central Excise Duty.  It was in these circumstances  

that  they  were  asked  to  show  cause  why  differential  duty  

amounting to `27,71,594/- due to undervalued clearances of the  

finished  goods  effected  during  the  period  with  effect  from  

02.06.1998  to  30.09.1999  should  not  be  recovered  under  

Proviso to Section 11AC(1) of the Act read with Rule 5 of the  

Central  Excise  (Valuation)  Rules,  1975,  why  penalty  under  

Section  11AC  and  interest  under  Section  11AB  of  the  Act  

should  not  be  levied  and  recovered  and  penalty  under  Rule  

209A of the Central Excise Rules, 1944, should not be imposed  

and  recovered  from  Respondent  Nos.  1  to  3  viz.  Bajaj,  

Sh.Ranjit  Gupta,  Vice President  (Materials)  of Bajaj  and Sh.  

Anurag Naresh Chandra, Director of Anurang.   

4) In reply to the notice, Bajaj had stated that the sale of inputs -  

aluminum ingots to Anurang was on the basis of fair market  

price mutually agreed between the parties.  It also claimed that  

there was no provision in Central Excise Laws which imposed  

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an obligation on a person to sell his goods at a particular price  

in such transactions.  They also claimed that the notice and the  

demand therein was time-barred as it had been issued beyond  

the time prescribed under  Section 11A of the Act  (since the  

notice was for the period June 1998 to September 1999, and the  

notice  date  was  05.03.2001  and  was  served  by  post  on  

22.03.2001),  and  that  jurisdictional  officers  of  the  specific  

division of the Department were well aware of these facts, since  

both the units  are situated under the jurisdiction of the same  

division.   It  was also contended that  there  was no deliberate  

suppression  of  facts,  or  mis-statements  or  intention  to  evade  

Central Excise Duty on their part.  Anurang, in their reply, had  

stated that the price charged by Bajaj to them was for sale of  

ingots and similarly, final product sold by Anurang to Bajaj was  

contracted/negotiated  prices  and,  therefore,  they  have  not  

contravened any provisions of  the Act and the Rules framed  

thereunder.   

5) After  adjudication,  the  adjudicating  authority  held  that  the  

prices charged by Anurang were depressed prices coloured as  

negotiated  prices.  Further,  Bajaj  was  supplying  

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drawings/designs/specifications free of cost to Anurang to get  

the goods manufactured according to their specifications from  

them, which the Department claimed was for aiding each other  

for mutual business interest so that the production cost of each  

other  is  kept  at  a  minimum and  the  Central  Excise  Duty  is  

discharged  at  a  lower  rate.   The  adjudicating  authority  has  

further observed that by providing inputs at lower landed cost  

and drawings and designs free of cost, Bajaj was incurring part  

of the production cost of the finished goods manufactured and  

supplied exclusively to it. Thus, the adjudicating authority has  

concluded that Anurang contravened Rule 5 of Central Excise  

(Valuation) Rules, 1975 read with Section 4 of the CE Act, and  

Rule 9 read with Rules 52A, 54,  173F and 173G of the CE  

Rules.  Accordingly, the adjudicating authority vide Order-in-

Original  No.  12/CEX/2002  dated  31.03.2002,  levied  duty  of  

`27,71,594/-  under  Section  11A(1),  penalty  of  `27,71,594/-  

under Section 11AC, and interest under Section 11AB against  

the  assessee  -  Anurang.   The  adjudicating  authority  also  

imposed penalty on Bajaj of `2.7 lakhs, and personal penalties  

of  `50,000 on Mr. Anurag Nareshchandra, Director, Anurang,  

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and Mr. Ranjit Gupta, Vice-President, Bajaj, under Rule 209A  

of the Central Excise Rules, 1944.

6) Aggrieved by the said order, the parties before the adjudicating  

authority  filed Appeal Nos.E/1817, 1879, 2142 and 2143/02  

before the Tribunal.  The Tribunal by its common Order No.  

A/75-78/WZB/06/C-II/EB  dated  13.01.2006  has  allowed  the  

appeals and has set aside the order passed by the adjudicating  

authority.   The  Tribunal  inter-alia  adopted  the  following  

reasoning while allowing the appeal:    

                     “However, while adjudicating the matter the  Commissioner,  in  para  16  of  the  order  has  observed that:

                     “In  this case there is no allegation that while  paying  duty  on  ingots  under  Rule  57F(3)  M/s.  Bajaj Auto Ltd. have undervalued the ingots.  The  payment of duty under this rule is not the subject  matter, therefore, on this account the pleadings of  the  assessee  and  other  notices  are  not  relevant.  This  matter  is  regarding under valuation of final  product”.

The  above  observations  made  by  the  Commissioner  are  in  contrast  to  the  findings  arrived at by him.  If the ingots have been sold at  the correct value, how the value of the same can be  enhanced  at  the  manufacturers  end  by  some  hypothetical  additions  on  various  grounds.   It  is  also on record that the statement of the Authorized  Representative of M/s. Bajaj Auto Ltd. as also of  M/S. Anurang Egg. Co. Ltd. are to the effect that  the  prices  of  ingots  were  negotiated  prices.  

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However the adjudicating  authority  has observed  that though the prices were agreed but they were  not genuine and were adopted for under valuation  of  the  final  product.   This  is  nothing  but  self  contradiction. In any case, we find that whatever  duty was being paid by M/s. Anurang Engg. Co.  Ltd. was being taken as credit by M/s. Bajaj Auto  Ltd.   thus leading to revenue neutral  situation in  which case the appellants cannot be attributed with  any  intention  to  evade  payment  of  duty.   The  burden to prove under valuation is on the revenue  and is required to be discharged by production of  sufficient evidence.  Ordinarily, the court, should  proceed on the basis that the apparent tenor of the  agreements reflected  the real  state  of  affairs  and  what is required to be examined is as to whether  the  revenue  has  succeeded  in  showing  that  the  apparent  is  not  real  and  the  price  shown in  the  invoice does not reflect the true price.  Nothing has  been shown in the present case.  The entire case is  based  on  assumptions  and  presumptions  as  such  we are of the view that the confirmation of duty  against  M/s.  Anurang  Engg.  Co.  Ltd.  is  not  sustainable.”

7) Mr.  V.  Shekhar,  learned  senior  counsel  for  the  Revenue  

submitted that Bajaj has under-valued inputs which were being  

sold to Anurang by incurring all the landed costs such as freight  

charges, loading, unloading and handling charges etc: Anurang  

in turn has sold the manufactured goods in its factory only to  

Bajaj after paying the Excise Duty under the Act.  Therefore,  

the learned senior counsel would submit that since the inputs  

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were received at a lesser price, the manufacturing cost would  

also  be less  and thereby Anurang has  paid the  lesser  Excise  

Duty.   It  is  also  contended  that  it  is  for  this  reason  the  

adjudicating  authority  has  come  to  the  conclusion  that  the  

declarations filed by Anurang under the Rules is misstatement  

of  facts.   Alternatively,  it  is  contended  that  Bajaj  while  

supplying  the  inputs  to  Anurang  has  undervalued  the  goods  

without  including certain  expenses  incurred  by it,  which has  

resulted in short  payment  of Excise Duty by Anurang on its  

supply of manufactured goods to Bajaj.  The learned counsel, in  

aid of his submission, has relied on the principles settled by this  

Court regarding the importance of landed cost of raw materials  

in determining assessable value of the manufactured goods, and  

according to him the same must be included in the value of the  

final product. He further submits that the concept of ‘revenue  

neutrality’ is not applicable in the present case, and that there  

were no contrary findings of the Commissioner in this regard.  

He  also  submits  that  the  finding  of  the  Tribunal  that  the  

findings and conclusions reached by the adjudicating authority  

is  on  mere  assumptions  and  presumptions  is  erroneous.  

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According  to  the  learned  counsel,  the  findings  of  the  

adjudicating  authority  was  after  thorough  enquiry  and  

investigation of the records of the assessee and also based on  

the statements of the Vice President of Bajaj and Director of  

Anurang  during  investigation.   The  learned  counsel  further  

points  out  that  the extended period of  limitation as  provided  

under Section 11 A(1) of the Act would come to the aid of the  

Department since the respondents did not disclose the correct  

facts before the Department  with intention to evade payment of  

duty under the Act.

8) Per contra,  Mr. Joseph Vellapally,  learned senior counsel for  

the  respondents  would  contend  that  the  assumption  of  

adjudicating  authority  that  Anurang in  their  invoices  has  not  

given true and correct declaration, is not only contradictory but  

also  not  based  on  any  evidence  whatsoever.   It  is  further  

contended  that  on  mere  presumption  and  assumption,  the  

adjudicating authority cannot create demands under the Act and  

then proceed to recover them by adopting coercive measures.  It  

is  also  contended  that  Bajaj  and  Anurang  are  under  the  

jurisdiction  of  the  same  division  and  as  such,  it  cannot  be  

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reasonable to conclude that the revenue was not aware of the  

transactions of both the units and therefore, the revenue cannot  

invoke  the  extended  period  of  limitation  to  demand  of  duty  

under the Act.   

9) The Tribunal, while considering the issue of limitation in the  

impugned order has concluded as under:-

“Apart  from  the merit of the case we also note that the demand is   hopelessly  barred  by  limitation.   Notice  for  the  period June 1998 to September, 1999was issued on  05.03.2001.  The ingots were being cleared by M/s   Bajaj  Auto  Ltd.  on  their  invoices  and  the  final   casting products were being cleared by M/s Anurag  Engg. Co. Ltd. on proper invoices.  Both the units   are situated under the jurisdiction of same division  and as such it cannot be reasonable concluded that   revenue was not aware of the said transactions and   the value of the same.  As such we are of the view   that the demand is also barred by limitation.”

10) In our view, the aforesaid issue was one of the important issues  

that  fell  for  the  consideration  before  the  Tribunal.   The  

Tribunal, in our view, while considering and deciding the same,  

has  overlooked  the  language  employed  in  the  Statute.  

Therefore, we deem it proper to remand the entire matter to the  

Tribunal for reconsideration and decision not only on this issue,  

but also the other issues which were canvassed before us by  

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learned senior counsel for the parties.  Therefore, we now take  

up that issue for our consideration and decision.

11) As we have already observed, the Tribunal, while considering  

this  issue,  has  neither  looked into  the  ingredients  of  Section  

11A of the Act nor the construction placed by this Court on this  

Section.  Section 11A of the Act reads :-  

Section 11A. – Recovery of duties not levied or  not  paid  or  short-levied  or  short-paid  or  erroneously refunded. —  

(1) When any duty of excise has not been levied or  paid  or  has  been  short-levied  or  short-paid  or  erroneously refunded, whether or not such non-levy  or  non-payment,  short-levy  or  short  payment  or  erroneous refund,  as the case may be,  was on the  basis  of  any  approval,  acceptance  or  assessment  relating  to  the  rate  of  duty  on  or  valuation  of  excisable goods under any other provisions of this  Act or the rules made thereunder, a Central Excise  Officer may, within one year 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 mis-statement 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  

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effect, as if for the words one year, the words “five  years” were substituted: Explanation. — Where the service of the notice is  stayed by an order of a court, the period of such stay  shall be excluded in computing the aforesaid period  of [one year] or five years, as the case may be. (1A)    When 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 mis-statement or suppression of facts,  or contravention of any of the provisions of this Act  or  the  rules  made thereunder  with  intent  to  evade  payment  of  duty,  by  such  person or  his  agent,  to  whom a notice is served under the proviso to sub- section (1) by the Central Excise Officer, may pay  duty in full or in part as may be accepted by him,  and the interest payable thereon under section 11AB  and penalty equal to twenty-five per cent of the duty  specified in the notice or  the  duty so accepted by  such person within thirty days of the receipt of the  notice.

12) Section 11A of the Act empowers the central excise officer to  

initiate  proceedings  where  duty has not  been levied or  short  

levied  within  six  months  from  the  relevant  date.   But  the  

proviso  to  Section  11A(1),  provides  an  extended  period  of  

limitation provided  the duty is not levied or paid or which has  

been short-levied or short-paid or erroneously refunded, if there  

is fraud, collusion or any wilful mis-statement 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.  

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The extended period so provided is of five years instead of six  

months.  Since the proviso extends the period of limitation from  

six months to five years, it needs to be construed strictly.  The  

initial burden is on the department to prove that the situation  

visualized by the proviso existed.  But the burden shifts on the  

assessee  once  the  department  is  able  to  produce  material  to  

show  that  the  appellant  is  guilty  of  any  of  those  situations  

visualized in the Section.

13) Interpreting this provision, this Court in  Collector of Central   

Excise,  Hyderabad v.  Chemphar  Drugs  and  Liniments,   

Hyderabad,  (1989)  2  SCC  127,  held:  (when  the  period  

prescribed was six months prior to it being made one year by  

the Finance Act, 2000, with effect from 12.05.2000):

“In order to make the demand for duty sustainable  beyond a period of six months and up to a period  of 5 years in view of the proviso to sub-section (1)  of 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  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  manufacturer  or   producer  or conscious  or  deliberate  withholding  of  information  when  the  manufacturer  knew  

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otherwise, is required before it is saddled with any  liability, before the period of six months. Whether  in a particular set of facts and circumstances 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.”  

14) In the case of  Cosmic Dye Chemical v.  Collector of Central   

Excise, Bombay, (1995) 6 SCC 117, it is held:

“Now so far as fraud and collusion are concerned,  it is evident that the requisite intent, i.e., intent to  evade duty is built into these very words. So far as  mis-statement  or  suppression  of  facts  are  concerned, they are clearly qualified by the word  "wilful"  preceding  the  words  "mis-statement  or  suppression of facts" which means with intent to  evade duty. The next set of words “contravention  of  any of  the  provisions  of  this  Act or  rules”  is  again  qualified  by  the  immediately  following  words "with intent to evade payment of duty".  It   is, therefore, not correct to say that there can be a   suppression or mis-statement of fact, which is not   wilful and yet constitute a permissible ground for  the purpose of the proviso to Section 11-A. Mis- statement or suppression of fact must be willful.”

15) In  Anand  Nishikawa  Co.  Ltd. v.  Commissioner  of  Central   

Excise, Meerut, (2005) 7 SCC 749, this Court has observed:

“…we find  that  "suppression  of  facts"  can  have  only one meaning that the correct information was  not  disclosed  deliberately  to  evade  payment  of   duty, when facts were known to both the parties,  the  omission  by  one  to  do  what  he  might  have  

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done not that he must have done would not render  it suppression. It is settled law that mere failure to  declare  does  not  amount  to  wilful  suppression.   There must be some positive act from the side of   the assessee to find wilful suppression.”  

16) In our view, on a reading of the relevant provision the extended  

period  of  limitation  as  provided  by  the  proviso  to  Section  

11A(1)  of  the  Act,  can  only  be  invoked  when  there  is  a  

conscious act of either fraud, collusion,  wilful mis-statement,  

suppression of fact,  or contravention of the provisions of the  

Act  or  any  of  the  rules  made  thereunder  on  the  part  of  the  

person  chargeable  with  duty  or  his  agent,  with  the  intent  to  

evade payment of duty. In the present case, the Tribunal while  

considering this issue has not stated whether or not there were  

any such circumstances which would not allow the revenue to  

invoke  extended period of limitation.  It only observes in its  

order since both the assessees are situated under the jurisdiction  

of  the  same division and as  such it  cannot  be reasonable  to  

conclude that  the revenue was not  aware of the transactions.  

Since this is not what is envisaged under the proviso to Section  

11A(1) of the Act, we cannot agree with the reasoning and the  

conclusion reached by the Tribunal.   

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17) In  view of  the  above,  we  set  aside  the  order  passed  by  the  

Tribunal, and remand the matter to the Tribunal to determine  

whether on the facts of the case, any of the grounds enumerated  

in the proviso to sub-section (1) of Section 11A of the Act are  

made out by the Revenue and thereby the Revenue is justified  

in invoking the extended period of limitation to make demand  

of duty under the Act.

18) In so far as other issue that was canvassed by learned counsel  

for the Revenue, in our view, those are all disputed facts which  

require to be re-examined by the Tribunal, since the Tribunal  

under the Statute is the final fact finding authority.   

19) In view of the above discussion, we allow this appeal and set  

aside the impugned order passed by the Tribunal and remand  

the matter for fresh consideration of all the issues raised by both  

the parties.  Liberty is reserved to both the parties to place on  

record  such  other  material,  which  is  available  in  their  

possession in support of their case.  We clarify that we have not  

expressed any opinion on the merits of the claim of either of the  

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parties in this appeal. In the facts and circumstances of the case,  

parties are directed to bear their own costs.   

           …………………………J.                                                                            [ D.K. JAIN ]

           ....………………………J.  [ H.L. DATTU ]

New Delhi, November 12, 2010.

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