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Judgment
The appellant is assailing Order-in-Appeal No. 35/CKJ/CE/UDR/2018 dated 31.01.2018 passed by the Commissioner of Central Excise (Appeals),
Udaipur.
The facts of the case are that the appellant manufactures power driven submersible pumps and motors thereof falling under Chapter Heading 8413
and 8501 of the Central Excise Tariff. It availed the benefit of exemption Notification No.8/2003-CE dated 1.3.2003 whereby goods manufactured
and cleared up to value of Rs. 1.5 crores during the financial year were exempted from payment of duty subject to some conditions. The appellant had
not paid any duty for the period 1.4.2010 to 8.8.2011. On 22.7.2011, on crossing threshold limit of Rs. 1.5 crores, it got itself registered with the
Central Excise department and also started paying duty on the goods cleared from 9.8.2011 onwards. From 9.8.2011 it also started availing Cenvat
credit on the duty paid on inputs as well as capital goods.
It is undisputed that the entire production of the appellant was recorded and an audit of the records culminated into the issue of a Show Cause
Notice dated 11.9.2013 and Order-in-Original by the Joint Commissioner on 31.3.2015 which was upheld by the impugned order by the Commissioner
(Appeals) dated 31.1.2018.
The case of the Revenue is that as per Serial Number (xi) of Annexure to Notification No. 8/2003-CE dated 1.3.2003 as amended, “all goods
falling under Chapter 84 (other than power driven pumps primarily designed for handling water which do not conform to standards specified by BIS
(Bureau of Indian Standards) for such pumps†are not eligible for the exemption notification.
The appellant does not dispute this provision of the exemption notification. It is undisputed that during the period, the appellant did not have the BIS
certification. The appellant produced before us a copy of the certification “Endorsement No. 1 dated 2014-03-24 to Licence No. CM/L/2557867
whereby the BIS license issued to it was renewed for a period of one year from 29.1.2014 to 28.1.2015.
Learned Chartered Accountant representing the appellant fairly concedes that they did not have a BIS license for the period of dispute 1.4.2010 to
8.8.2011. He also concedes that he cannot produce any evidence to show that an application was made for BIS license which was pending before the
authorities during the relevant period. However, he submits that since the goods were subsequently certified to conform to BIS standards, they should
be given the benefit of exemption notification even for the previous period.
As an alternative submission, he argues that during the period of dispute if the appellant had paid duty, it would have been eligible for Cenvat credit
of Rs. 17,75,752/- on the inputs and capital goods received against the demand of Rs. 12,53,304/-. He submitted a statement along with copies of
relevant invoices. If it was liable to pay excise duty, then it was also entitled to the benefit of Cenvat credit and, therefore, the net excise duty payable
is negative. He relies on the following case laws to assert that if exemption is denied, Cenvat Credit is admissible:
(a) Meta Pack Vs. CCE â€" 2003 (161) ELT 1052 (Trib.);
(b) Shriji Chemicals Vs. CCE â€" 1998 (98) ELT 375 (Trib.)’
(c ) Veejay Tools & Die Ltd. â€" 2009 (247) ELT 508 (Trib.);
(d) CCE Vs. Bhawani Weaving Factory â€" 2010 (255) ELT 206 (P&H);
(e) CCE Vs. P.V. Nitha â€" 2007 (212) ELT 161 (SC);
(f) CCE Vs. Marine Electricals â€" 2006 (205) ELT 261 (Trib.).
As another alternate submission, learned Counsel submits that the Show Cause Notice was time barred as it was issued on 11.9.2013 covering the
period 1.4.2010 to 8.8.2011. In order to invoke the extended period of limitation, the Department has to establish fraud or collusion or wilful mis-
statement or suppression of facts with an intent to evade payment of duty. It is undisputed that on 27.7.2011 the appellant had applied for registration
with the Central Excise authorities. It was its understanding until that time that it was eligible for the benefit of exemption notification during the
relevant period and, therefore, it had not obtained the Central Excise registration nor paid any duty. The goods were cleared under invoices and were
duly recorded in books of account which fact has also been recorded by the Commissioner (Appeals) in the impugned order in para 6.4.1. On this
ground, learned Commissioner (Appeals) has imposed lower penalty as per Section 11AC. Since it is undisputed that the entire demand was based on
own records, the Department cannot allege suppression of facts. Once the elements necessary for invoking extended period of limitation are not
established, the entire demand is hit by limitation and, therefore, needs to be set aside.
He would argue that it is now well established that the intention to evade payment of duty must be established when alleging suppression of facts.
Mere omission to take registration during the relevant period is not sufficient. While Revenue was not able to establish intention, if the facts are
considered, it can easily be seen that it would have profited by taking registration and paying duty during the relevant period, as the total amount of
Cenvat credit available was much more than the duty now demanded. Therefore, this is not only a case of Revenue neutrality but a case where the
credit is higher than the alleged duty liability. This was due to inverse duty structure and the duty on their inputs was 10% or 12%, while the duty on
their final products was 4% or 6%. He relies in the case of M/s Fabtech Projects And Engineers Ltd. Vs. CCE - 2013-TIOL-1374-CESTAT-BANG
to assert that where the Cenvat credit available was more than the duty payable, Revenue cannot allege intention to suppress and evade payment of
duty. He relies on in the case of Jay Yuhshin Ltd. Vs. CCE - 2000 (119) ELT 718 (Tribunal-LB), to assert that in a Revenue neutral situation due to
admissibility of Cenvat credit demand is hit by limitation of time and extended period of limitation cannot be invoked. He, therefore, prays that the
appeal may be allowed and the impugned order may be set aside with consequential relief.
Learned Departmental Representative forcefully reiterates the findings of the impugned order. He asserts that it is undisputed that the appellant
manufactured goods which were not certified by BIS during the period and had not paid duty claiming the benefit of an exemption notification which
was not available to them. Therefore, the appellant was not entitled to the exemption notification as it has not till date produced BIS certification
applicable for the products for the relevant period.
As regards, invoking extended period of limitation, he submits that non-payment of duty was detected by the Department only on audit of the
records of the appellant and verification of the records. The appellant never sought any clarification from the Department nor it produced any
documents before the Department, prior to audit of their records. It was aware that small scale exemption notification is admissible only if the goods
conform the standards of BIS but never disclosed to the Department that it was claiming the exemption on goods which were not certified by BIS nor
did it disclose in the ER returns filed with the Department. The details were suppressed by the appellant and the Department was not aware of the
wrongful availment of exemption. In the case of Continental Foundation Jt. Venture Vs. CCE, Chandigarh - 2007 (216) ELT 177 (SC), it was held by
the Hon’ble Apex Court that suppression means failure to disclose full information with intent to evade payment of duty. In this case, the appellant
has not disclosed the fact that the products were not certified by BIS and despite not fulfilling the requirement it was availing the benefit of exemption
notification. He, therefore, prays that the appeal may be dismissed.
We have considered the arguments on both sides and perused the records.
It is undisputed that the appellant manufactured products which were not eligible for exemption Notification No. 8/2003-CE dated 1.3.2003, as
amended, unless their products met the BIS standards. For the relevant period, the appellant had no certification from BIS and no such certificate has
been produced till date. It has also not been established that an application for certification was pending before the BIS authorities and it has been
issued subsequently. Therefore, it is not possible to agree with the contention of the learned Chartered Accountant for the appellant that the appellant
was eligible for the benefit of exemption notification even though it had no BIS certificate, because the certificate was issued much later in 2014
which means that their products met the standards of BIS all through.
The Department could have raised a demand within the normal period of limitation denying the benefit of the exemption notification. However, in
this case, the demand was raised after the normal period of limitation. In order to invoke the extended period of limitation either fraud or collusion or
wilful mis-statement or suppression of facts or violation of Act or Rules with an intent to evade payment of duty must be established.
The case of the Department is that the appellant has not disclosed full facts to the Department and before the appellant obtained registration there
was no way for the Department to know that the appellant was availing ineligible exemption notification. The fact that the goods were not certified by
BIS was in the exclusive knowledge of the appellant and they have not disclosed it to the Revenue. This shows that the appellant had an intention to
evade payment of duty. It also establishes that the appellant has suppressed the information from the Department. It is only an audit and verification of
records which got these facts to light.
We do not agree with this contention of the Revenue. It is true that the appellant had not disclosed full facts to the Department inasmuch as the
appellant had not said that goods were not certified by the BIS. However, this does not mean that the appellant had an intention to evade payment of
duty. On the contrary, in the factual matrix of this case, the appellant would have been eligible for Cenvat credit for an excess of the duty liability had
they taken registration and paid duty. The duty structure in this case is inverted inasmuch as the inputs carried a duty of 10 or 12% while the final
products were liable to duty @ 4% or 6% only. There is nothing which the appellant could have gained by evading 4% / 6% and losing 10%/ 12% of
the inputs.
It has been recorded by the Commissioner (Appeals) in the impugned order the transactions were recorded in the books of account of the
assessee and all goods were cleared under an invoice. This also establishes that the appellant had no intention to evade payment of duty. Learned
Departmental Representative relied upon the judgement of the Hon’ble Supreme Court in the case of Continental Foundation Jt. Venture (supra)
to assert that suppression means failure to disclose full information with intent to evade payment of duty.
In the factual matrix of this case, the intent to evade payment of duty is missing and has not been established by the Revenue. Therefore, in our
considered view, the impugned order cannot be sustained and needs to be set aside and we do so.
The appeal is allowed and the impugned order dated 31.01.2008 is set aside with consequential relief, if any.
(Pronounced in Court on 29.06.2021)