2003 JTR(SC) 236
2003 5 AIC 227 ; 2003 AIR(SC) 1853 ; 2003 AIR(SCW) 1314 ; 2003 153 ELT 7 ; 2003 2 JT 291 ; 2003 2 RCR(Civ) 203 ; 2003 2 Scale 440 ; 2003 4 SCC 41 ; 2003 2 SCR 342 ; 2003 KHC 942 ; 2003 2 Supreme 267
2003(2) Supreme 267
SUPREME COURT OF INDIA
(From Central Excise, Customs and Gold (Control) Appellate Tribunal, New Delhi)
M.B. Shah and D.M. Dharmadhikari, JJ.
M/s. Amco Batteries Ltd., Bangalore -Appellant
versus
Collector of Central Excise, Bangalore -Respondent
Civil Appeal Nos. 5941-5942 of 1999
Decided on 26-2-2003
Counsel for the Parties :
For the Appellant : V. Lakshmikumaran, T. Viswanathan, V. Balachandran, Advocates.
For the Respondent : Raju Ramachandran, Additional Solicitor General, N.K. Bajpai, Ms. Smita Inna and B.K. Prasad, Advocates.
IMPORTANT POINT
As there was no wilful suppression on the part of the appellant, the extended period under proviso to Section 11A(1) of the Central Excise Act, 1944 ought not to have been invoked.
Act Referred :CENTRAL EXCISE ACT : S.11(a), S.11(a)(1)
(A) The Central Excise Act provisions, specifically Section 11 read with Section 11A, govern the liability for payment of excise duty on waste and scrap in cases involving exemptions notified under the Central Excise Tariff Act, 1985. Section 11(a) and its read-down provision apply where the question is whether the period of limitation can be extended due to fraud, collusion, or wilful suppression. The notifications (37/81-CE, 186/84-CE, and 246/87-CE) establish that waste and scrap of lead are exempt from excise duty if manufactured from dutiable inputs and proper credit mechanisms like MODVAT are utilized. The interplay between exemption notifications, input credit recovery, and the requirement of non-suppression determines the applicability of extended limitation periods.
(B) Key legal principles include that mere negligence or failure to levy duty does not attract extended limitation under Section 11A; positive evidence of wilful suppression or fraud is required. The MODVAT scheme can render the transaction revenue neutral, negating any incentive for suppression. Proper documentation and record-keeping are critical in determining whether excise duty has been evaded. The onus lies on the authority to prove wilful concealment before invoking extended limitation.
Facts of the case:
The appellant manufactured lead acid batteries using lead ingots sourced from imports, MMTC, refiners, and job workers who recovered metal from waste and scrap. The waste and scrap generated during manufacturing were sent to job workers, who returned processed ingots without any sale transaction. All movements were documented. The authorities imposed excise duty and penalty, alleging non-payment, but the appellant relied on exemption notifications and MODVAT credit.
Findings of Court:
The court found no material evidence of fraud, collusion, or wilful suppression. The appellant operated in good faith believing the scrap was exempt and was entitled to MODVAT benefits, making suppression unjustifiable. The extended limitation period under proviso to Section 11A(1) could not be invoked.
Issues:
Whether excise duty is payable on waste and scrap sent to job workers when exemptions apply and MODVAT credit is available. Whether the limitation period can be extended under Section 11A in the absence of proven wilful suppression.
Ratio Decidendi:
Absence of wilful suppression, combined with proper documentation and legitimate reliance on exemption notifications and MODVAT, prevents the invocation of extended limitation periods under Section 11A.
Result:
The appeals are partly allowed, and the matter is remitted to the Adjudicating Authority to modify the demand to the last six months preceding the show cause notice, with consequential orders.
(A) The Central Excise Act provisions, specifically Section 11 read with Section 11A, govern the liability for payment of excise duty on waste and scrap in cases involving exemptions notified under the Central Excise Tariff Act, 1985. Section 11(a) and its read-down provision apply where the question is whether the period of limitation can be extended due to fraud, collusion, or wilful suppression. The notifications (37/81-CE, 186/84-CE, and 246/87-CE) establish that waste and scrap of lead are exempt from excise duty if manufactured from dutiable inputs and proper credit mechanisms like MODVAT are utilized. The interplay between exemption notifications, input credit recovery, and the requirement of non-suppression determines the applicability of extended limitation periods.
(B) Key legal principles include that mere negligence or failure to levy duty does not attract extended limitation under Section 11A; positive evidence of wilful suppression or fraud is required. The MODVAT scheme can render the transaction revenue neutral, negating any incentive for suppression. Proper documentation and record-keeping are critical in determining whether excise duty has been evaded. The onus lies on the authority to prove wilful concealment before invoking extended limitation.
Facts of the case:
The appellant manufactured lead acid batteries using lead ingots sourced from imports, MMTC, refiners, and job workers who recovered metal from waste and scrap. The waste and scrap generated during manufacturing were sent to job workers, who returned processed ingots without any sale transaction. All movements were documented. The authorities imposed excise duty and penalty, alleging non-payment, but the appellant relied on exemption notifications and MODVAT credit.
Findings of Court:
The court found no material evidence of fraud, collusion, or wilful suppression. The appellant operated in good faith believing the scrap was exempt and was entitled to MODVAT benefits, making suppression unjustifiable. The extended limitation period under proviso to Section 11A(1) could not be invoked.
Issues:
Whether excise duty is payable on waste and scrap sent to job workers when exemptions apply and MODVAT credit is available. Whether the limitation period can be extended under Section 11A in the absence of proven wilful suppression.
Ratio Decidendi:
Absence of wilful suppression, combined with proper documentation and legitimate reliance on exemption notifications and MODVAT, prevents the invocation of extended limitation periods under Section 11A.
Result:
The appeals are partly allowed, and the matter is remitted to the Adjudicating Authority to modify the demand to the last six months preceding the show cause notice, with consequential orders.
JUDGMENT
Shah, J.-It is apparent that in taxation matters, amendments, clarifications, exemption notifications or their withdrawal play an important role in increasing litigation. Repeatedly, it is stated that law and procedure thereunder is required to be streamlined and simplified, yet clarifications, amendments and notifications are issued creating confusion and leaving Judges and Lawyers to search for their exact meaning. In such a state of affairs, in some cases, it is difficult to draw inference of fraud, wilful concealment or suppression of facts so as to attract penal consequences.
2. Short facts of the case are that appellant is engaged in manufacture of lead acid electric storage batteries and parts thereof falling under Tariff Heading 85.07 in its two factories, one at Hebbal and other at Mysore Road plant. Lead in the form of ingots is the main raw material required for manufacture of the batteries. During the course of manufacture of the parts, certain quantities of waste and scrap is sent to the job workers who manufacture ingots out of that and return its ingots to the appellant who use the same in the manufacture of their final products. The question is with regard to payment of excise duty on waste and scrap sent to the job workers. After issuance of show cause notice and adjudicating the matter, the authority confirmed demand of duty and imposed penalty for the period from 1st March 1986 to 13th August 1989. That order was challenged before the Tribunal.
3. Admittedly, appellant obtains lead ingots from following four sources:-
(1) imports by appellant on payment of additional duty of customs.
(2) Duty-paid lead ingots obtained through MMTC.
(3) Ingots purchased from refiners.
(4) Ingots received from job workers to whom waste & scrap of lead was sent without payment of duty to convert them into lead ingots.
4. For the purchase of ingots from first and second source, there is no dispute. With regard to the third source, namely, ingots purchased from refineries, it is exempted under Notification 37/81-CE. The relevant part of the said notification which is quoted by the Tribunal is as under:-
"The Central Government hereby exempts lead unwrought, falling under heading No. 78.01 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), if such lead unwrought is produced out of one or more of the following materials, from the whole of the duty of excise leviable thereon, namely:-
(a) old scrap of lead;
(b) scrap obtained from lead unwrought on which appropriate amount of duty of excise, or, as the case may be, the additional duty leviable under section 3 of the Customs Tariff Act, 1975 (51 of 1975) has been paid;
(c) lead waste and scrap, falling under heading No. 78.02 on which appropriate amount of duty of excise, or, as the case may be, the additional duty leviable under section 3 of the Customs Tariff Act, 1975 (51 of 1975), has been paid;
(d) lead ash, lead slag and lead residues."
5. Thereafter, scrap was exempted under notification No. 186/84-CE dated 1.8.1984. Relevant part of the Notification is as under:-
The Central Government hereby exempts wastes and scrap of lead, falling under sub-heading No. 7802.00 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) from the whole of the duty of excise leviable thereon under section 3 of the Central Excise and Salt Act, 1944 (1 of 1944):
Provided that such waste and scrap-
(i) are manufactured from goods, falling under the Heading Nos. 78.01 to 78.05 of the said Schedule on which the duty of excise leviable under the said section 3 of the additional duty leviable under the Customs Tariff Act, 1975 (51 of 1975), as the case may be, has already been paid, or
(ii) arise from goods, falling under any Heading or sub-heading No. of the same Schedule other than Heading Nos. 78.01 to 78.05 thereof manufactured or produced in India.
Explanation:-For the purpose of this notification all stocks of lead and products thereof in the country, except such stocks as are clearly recognisable as being non-duty-paid, shall be deemed to be lead and products thereof on which the duty has already been paid."
6. Further, by notification 246/87-CE dated 2.11.1987, 2nd proviso to the notification 186/84-CE (as amended) was added immediately before the existing Explanation. Said proviso is also reproduced below:-
"Provided further that the exemption contained in this notification shall apply only if:-
No credit has been taken on the input from which such scrap has been generated under rule 57A of the Central Excise Rules, 1944; or
(ii) an amount equivalent to the credit taken, if any, on the input from which such scrap has been generated, has been debited back in the RG 23A account or the current account maintained by the assessee."
7. At the time of hearing of these appeals, learned counsel for the appellant has only submitted that there was no wilful suppression on the part of the appellant and hence, extended period under proviso to sub-section (1) of Section 11A of the Central Excise Act (hereinafter referred to as "the Act") ought not to have been invoked.
8. It is admitted that during the manufacture of batteries from the ingots received by first and second source, waste and scrap of lead emerges. Such scrap is removed by the appellant and sent to the job workers which are small units engaged in recovery/reclaiming of metal from the scrap. The recovered metal in the form of lead ingots is returned by the job workers to the appellant and the appellant uses the same for manufacture of batteries. Admittedly, there is no sale of scrap by the appellant to the job workers. The entire movement of the scrap to the job workers and receipt of the ingots from the job workers is recorded in the regular books of accounts and proper documentation is maintained in the form of delivery challans.
9. It has also been pointed out that lead ingots, scrap and batteries are all covered by the MODVAT scheme even during the relevant period. Since the scrap is ultimately used in the manufacture of batteries, even if any duty is paid/payable on the scrap, the same is available as MODVAT credit to the appellant. Thus the exercise of payment of excise duty was entirely revenue neutral.
10. From the facts stated above, particularly the fact that entire movement of waste and scrap to the job workers and receipt of ingots manufactured by the job workers is recorded in regular books of accounts and proper documentation is maintained in form of delivery challan and that there was no reason for the appellant to suppress as it was entitled to have facility of MODVAT Scheme, it would be difficult to hold that there was any wilful suppression on the part of the appellant which would empower the authorities to invoke extended period of limitation under proviso to Section 11A(1) of the Act. This has been made clear repeatedly by this Court. In M/s Padmini Products v. Collector of Central Excise, Bangalore [(1989) 4 SCC 275] this Court has held that something positive other than mere inaction or failure on the part of the manufacturer or producer of conscious or deliberate withholding of information when the manufacturer knew otherwise, is required to be established before it is saddled with any liability beyond the period of six months. The Court pertinently observed that mere failure or negligence on the part of the producer or manufacturer either not to take out a licence in case where there was scope for doubt as to whether licence was required to be taken out or where there was scope for doubt whether goods were dutiable or not, would not attract Section 11-A of the Act.
11. In the present case also, there is no material on record from which it could be inferred or established that duty of excise was not levied or paid by reason of any fraud, collusion or any wilful misstatement or suppression of facts, or contravention of any of the provisions of the Act or the Rules made thereunder with intent to evade payment of duty. It was a bonafide belief on the part of the appellant that scrap and waste, which was recovered while manufacturing batteries, was exempt from levy of excise duty. Further, appellant was entitled to get benefit of MODVAT scheme, therefore, there was no justifiable reason for the appellant to suppress any fact.
12. In the result, the appeals are partly allowed. The matters are remitted to the Adjudicating Authority to modify the demand by confining it to the period of six months prior to issue of show cause notice and pass consequential orders.
13. Ordered accordingly. There shall be no order as to costs.
(N.K.R.) Ordered accordingly.
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