Commissioner of Central Excise and Customs vs ACCRAPAC (India) Pvt. Ltd.

H.N. Devani, J.—The appellant revenue has challenged order dated 4.2.2009 made by the Customs, Excise And Service Tax Appellate Tribunal (the Tribunal) proposing the following three questions:

(A) Whether or not in the facts and circumstances of the case ''Denatured Ethyl Alcohol'' manufactured and consumed by the respondent-assessee in the manufacture of alcohol based cosmetics is chargeable to excise duty?

(B) Whether or not in the facts and circumstances of the case the Tribunal has committed substantial error of law in observing that invocation of larger period by the Department is not justified ?

(C) Whether or not in the facts and circumstances of the case the Tribunal has committed substantial error of law in remanding case back to the adjudicating authority with finding/observations adverse to the Department ?

The facts stated briefly are that the respondent-assessee is engaged in manufacture of various toilet preparations such as after-shave lotion, deospray, mouthwash, skin creams, shampoos, etc. One of the main ingredients used in the manufacture of various items is Extra Natural Alcohol (ENA). The respondent procures ENA from the local market on payment of duty, to which Diethyl Phthalate (DEP) is added so as to denature it and render the same unfit for human consumption. The officers of DGCEI visited the factory of the respondent on 29.8.2001 and found that the addition of DEP to ENA results in the manufacture of an intermediate product i.e. Diethyl Alcohol, which is a specified product liable to central excise duty under chapter sub-heading 2204.10 of the First Schedule to the Central Excise Tariff Act, 1985. Pursuant to investigation, show cause notice came to be issued to the respondent for discharging the duty burden in respect of Denatured Ethyl Alcohol. The said proceedings culminated into an order dated 30.4.2003 made by the Commissioner confirming duty demand of Rs. 19,23,896/- and imposing penalty of identical amount. Separate penalty was also imposed on the Managing Director.

Being aggrieved the respondent preferred appeal before the Tribunal. The Tribunal vide order dated 19.12.2003, remanded the matter to the original authority with a direction to re-examine the matter in the light of the Tribunal''s decision in case of Commissioner of Central Excise, Thane v. Charishma Cosmetics Pvt. Ltd. and Helene Curtis Ltd.. It was also directed that the respondent should be given an opportunity to put forth its case during the process of re-adjudication. In remand proceedings, the Commissioner, vide order dated 20.10.2004 confirmed the duty demand and penalty etc. in terms of the earlier order. In the said order the Commissioner observed that the Order-in-Original passed by him had not been quashed and set aside by the Tribunal but he had been directed to reexamine the case in the light of the decision in case of Commissioner of Central Excise, Thane v. Charishma Cosmetics Pvt. Ltd. and Helene Curtis Ltd. The Commissioner held that since his earlier order has not been set aside, he reinstates his findings relating to excisability, dutiability and confirmation of demand of duty on DEA, demand of interest on the duty so confirmed, confirmation of demand of Cenvat credit availed on the inputs found short and imposition of penalty contained in the Order-in-Original dated 30.4.2003 and observed that the only aspect that remains to be examined by him is whether a similar situation as regards manufacture of DEA in the case of M/s Charishma Cosmetics Pvt. Ltd. and Helene Curtis Ltd. also occurs in the factory of the assessee or otherwise. For this purpose the Commissioner got prepared a spot examination report through Assistant Commissioner of Central Excise. However, copy of the said report was not supplied to the respondent assessee. The assessee had also requested for cross examination of certain persons, however, the said request had been turned down by the Commissioner.

The respondent carried the matter in appeal before the Tribunal, who vide the impugned order held in favour of the assessee in so far as question of invocation of the larger period of limitation is concerned and as regards other period remanded the matter to the Commissioner to decide the same on merits.

Mr. R. J. Oza, learned Senior Standing Counsel for the appellant revenue, assailed the impugned order contending that the Tribunal was not justified in holding that larger period of limitation could not have been invoked. It was submitted that the respondent had filed declarations under Rule 173-B of the Central Excise Rules, 1944 in respect of excisable good manufactured by it. However, despite being aware that ''Denatured Ethyl Alcohol'' is chargeable to excise duty, the respondent had not declared Denatured Ethyl Alcohol manufactured and consumed by it in the manufacture of alcohol based cosmetics. That non-disclosure as regards manufacture of Denatured Ethly Alcohol amounts to suppression of material facts attracting the larger period of limitation. .

Before the Tribunal, on behalf of the respondent-assessee it was contended that the report of the Assistant Commissioner on which reliance had been placed by the Commissioner had not been supplied to it, which had resulted in serious prejudice to it. The assessee also challenged the order on the ground of limitation contending that there was no mis-statement or deliberate suppression of facts on its part so as to invoke the larger period of limitation.

As can be seen from the impugned order of the Tribunal, as regards reinstating the earlier order made by the Commissioner is concerned, the Tribunal rightly held that the observations made by the Commissioner that the earlier order was not quashed or set aside by the Tribunal were clearly against the basic jurisprudence of law.

On merits, the Tribunal found that no proper inquiry had been made by the Commissioner as regards the process adopted by the assessee as compared to the process of manufacture adopted by Charishma Cosmetics and J.K. Helene Curtis. The Tribunal also found that non supply of the Assistant Commissioner''s report was in violation of principles of natural justice, and accordingly remanded the matter to the Commissioner to verify all the aspects and to supply Assistant Commissioner''s report to the respondent, to re-examine its plea of cross-examination and to re-decide the matter after affording reasonable opportunity of hearing to the respondent.

As regards invocation of the extended period of limitation, the Tribunal noted that denaturing process in the Cosmetic Industry is a statutory requirement under the Medicinal & Toilet Preparations (M&TP) Act. Thus addition of DEP to ENA to make the same unfit for human consumption was a statutory requirement. The fact that the respondent was manufacturing cosmetics, was admittedly known to the department. Hence, failure on the part of the respondent to declare that it was adding DEP to ENA cannot be held to be suppression, since this was a well known fact, which the excise authorities are required to be in knowledge of. That such facts known to the both sides would not render omission, if any, on the part of the assessee into suppression or mis-statement with an intention to evade payment of duty. The Tribunal also noted that as similarly situated assesses were not paying duty on denatured ethyl alcohol, the respondent entertained a reasonable belief that it was not liable to pay excise duty on such product. The Tribunal was accordingly of the view that the department was not justified in invoking the larger period of limitation and remanded the matter to the Commissioner to decide the same on merits for the period within limitation.

In the light of the facts noted hereinabove, it cannot be said that the Tribunal has committed any legal error in holding that the department is required to be aware of the fact that in light of the statutory requirements under the Medicinal & Toilet Preparations (M&TP) Act, it is obligatory for a manufacturer to denature ENA to make it unfit for human consumption. Hence, non disclosure of the said fact on the part of the assessee would not amount to suppression so as to call for invocation of the extended period of limitation. As regards the merits of the case, non-supply of the report of the Assistant Commissioner which has caused serious prejudice to the respondent certainly amounts to breach of the principles of natural justice. Moreover, in light of the findings of fact recorded by the Tribunal upon appreciation of the evidence on record to the effect that no proper inquiry had been made as regards the process of manufacture carried out by the respondent as compared to M/s Charishma, it cannot be stated that there is any infirmity in the approach adopted by the Tribunal in remanding the matter with a direction to supply copy of the report which had not been supplied to the assessee as well as to re-examine its plea regarding cross examination and re-decide the matter after affording reasonable opportunity of hearing to the respondent .

In view of the above discussion, there being no infirmity in the impugned order of the Tribunal, the same does not warrant interference. No question of law much less any substantial question of law as proposed or otherwise, can be stated to arise out of the impugned order of the Tribunal. The appeal is accordingly, dismissed.