M/S. UNIWORTH TEXTILES LTD. vs. COMMNR. OF CENTRAL EXCISE, RAIPUR

Page 1 JUDGMENT REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURI ICTION CIVIL APPEAL NO. 6060 OF 2003 M/S. UNIWORTH TEXTILES LTD. — APPELLANT VERSUS COMMISSIONER OF CENTRAL EXCISE, RAIPUR — RESPONDENT J U D G M E N T D.K. JAIN, J.

Page 2 JUDGMENT fabrics. It was granted the status of EOU by the Government of India, Ministry of Industry, Department of Industrial Development by way of a Letter of Permission (for short “the LOP”) dated 31.08.1992 as amended by letter dated 4.5.1993. The appellant applied for a license for private bonded warehouse, which was granted to it under C. No. V (Ch.51) 13-01/92/100%EOU dated 30.09.1992 by the Assistant Collector, Central Excise Division- Raipur for storing inputs, raw materials, etc. either imported duty-free by availing concessions available for 100% EOU or procured locally without payment of duty for use in manufacture of all wool, poly-wool and other fabrics.

Page 3 JUDGMENT customs duty under Notification No. 53/97-Cus., the relevant portion of which reads as follows: - “Notification No. 53/97-Cus., dated 3-6-1997 Exemption to specified goods imported for production of goods for export or for use in 100% Export-Oriented Undertakings -- New Scheme -- Notification No. 13/81-Cus. rescinded In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962), the Central Government being satisfied that it is necessary in the public interest so to do, hereby exempts goods specified in the Table below (hereinafter referred to as the goods), when imported into India, for the purpose of manufacture of articles for export out of India, or for being used in connection with the production or packaging or job work for export of goods or services out of India by hundred per cent Export Oriented units approved by the Board of Approvals for hundred per cent Export Oriented Units appointed by the notification of Government of India in the Ministry of Industry, Department of Industrial Policy and Promotion for this purpose, (hereinafter referred to as the said Board), from the whole of duty of customs leviable thereon under the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and the additional duty, if any, leviable thereon under section 3 of the said Customs Tariff Act...” Entry 11 of the said notification at the relevant time read as follows: - “11. Captive power plants including captive generating sets and their spares for such plants and sets as recommended by the said Board of Approvals.”

Page 4 JUDGMENT meant for manufacture and packaging of articles in 100% EOU or manufacture or development of electronic hardware and software in EHTP or STP” dated 04.01.1995. The said notification reads as follows :- “Notification No. 1/95-Central Excise In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excises and Salt Act/ 1944 (1 of 1944), read with sub-section (3) of section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957), the Central Government being satisfied that it is necessary in the public interest so to do, hereby exempts excisable goods, specified in Annexure I to this notification (hereinafter referred to as the said goods), when brought in connection with - (a) the manufacture and packaging of articles, or for production or packaging or job work for export of goods or services out of India into hundred percent export oriented undertaking (hereinafter referred to as the user industry); or; XXX

XXX XXX from the whole of, (i) the duty of excise leviable thereon under section 3 of the Central Excise Act, 1944 (1 of 1944), and (ii) the additional duty of excise leviable thereon under sub-section (1) of section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957), XXX

XXX XXX ANNEXURE I

Page 5 JUDGMENT 3B. Spares, fuel, lubricants, consumables and accessories for captive power plants including captive generating sets and spares, consumables and accessories for transformers as approved by the Assistant Commissioner or Deputy Commissioner of Central Excise. 3C. Furnace oil required for the boilers as approved by the Assistant Commissioner of Customs or Central Excise on the recommendation of the Development Commissioner.”

Page 6 JUDGMENT Permission No. 248(93) dated 01.11.1994 and the unit transferred 2590.30 KL of furnace oil to M/s. Uniworth Ltd. (Unit- 1) for their captive power consumption. No permission is required from this office for duty free import/ procurement of POL products for captive power consumption. It is further to clarify as per the Exim Policy provision, one EOU may sell/ transfer surplus power to another EOU duty free in terms of Ministry of Commerce Letter No. 1/1/98-EP dated 12.10.1999 (sic)”

[Emphasis supplied] The relevant portion of the Ministry of Commerce Letter No.1/98-EP is extracted below:

“2. No duty is required to paid (sic) on sale of surplus power from an EOU/EPZ unit to another EOU/EPZ unit. Development Commissioner of EPZ concerned would be informed in writing for such supply and proper account of consumption of raw material would be maintained by the supplying unit for calculation of NFEP.”

Page 7 JUDGMENT Petroleum Ltd… in their factory at all as neither they had storing facility to store the furnace oil so procured nor they had any power plant to utilize the said furnace oil to generate electricity. They also did not have LOP from Government of India… to procure and use furnace oil to generate electricity as they did not have any power plant in their factory… Considering the above fact it is clear that the procurement of 742.5 KL of furnace oil under shipping bill, without payment of customs duty, is against the provisions of Customs Act, 1962 and rules made hereunder (sic).”

Page 8 JUDGMENT the agent or employee of the importer or exporter, the provisions of this sub-section shall have effect as if for the words “one year” and “six Months”, 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 six months or five years, as the case may be." [Emphasis supplied]

Page 9 JUDGMENT consumer of electricity generated from that power plant. Little or no attention was paid to the issue of limitation, which in our opinion, is the primary question for consideration in this case. The Tribunal only made the following observations in this regard:

“2. … He however, submitted that the demand of duty is barred by limitation as the show cause notice was issued on 02.08.2001 by demanding the duty for the period January/February 2001; that the Department was aware that the appellants do not have power plant and as such furnace oil could not have been used by them captively; that this is evident from letter dated 17.07.2001… 4… The appellants have also not brought on record any material in support of their contention that the Department was aware of the fact that the appellants did not have captive power plant. In view of this the demand cannot be held to be hit by the time limit.” Hence, the appellant is before us in this appeal.

Page 10 JUDGMENT default? Construing mere non-payment as any of the three above, made the following observations:

“4. Section 11A empowers the Department to re-open proceedings if the levy has been short-levied or not levied within six months from the relevant date. But the proviso carves out an exception and permits the authority to exercise this power within five years from the relevant date in the circumstances mentioned in the proviso, one of it being suppression of facts. The meaning of the word both in law and even otherwise is well known. In normal understanding it is not different that what is explained in various dictionaries unless of course the context in which it has been used indicates otherwise. A perusal of the proviso indicates that it has been used in company of such strong words as fraud, collusion or wilful default. In fact 1 1995 Supp(3) SCC 462 10

Page 11 JUDGMENT it is the mildest expression used in the proviso. Yet the surroundings in which it has been used it has to be construed strictly. It does not mean any omission. The act must be deliberate. In taxation, it can have only one meaning that the correct information was not disclosed deliberately to escape from payment of duty. Where facts are known to both the parties the omission by one to do what he might have done and not that he must have done, does not render it suppression.” [Emphasis supplied]

“23. Now coming to the question of limitation, at the outset, we wish to clarify that there are two concepts which are required to be kept in mind for the purposes of deciding this case. Reopening of approvals/assessments is different from raising of demand in relation to the extended period of limitation. Under section 11A(1) of the Central Excise Act, 1944, a proper officer can reopen the approvals/assessments in cases of escapement of duty on account of non-levy, non- payment, short-levy, short- payment or erroneous refund, subject to it being done within one year from the relevant date. On the other hand, the demand for duty in relation to extended period is mentioned in the proviso to section 11A(1). Under that proviso, in cases where excise duty has not been levied or paid or has been short-levied or short-paid or erroneously refunded on account of fraud, collusion or wilful mis-statement or suppression of facts, or in contravention of any provision of the Act or Rules with the intent to evade payment of duty, demand can be made within five years from the relevant date. In the present case, we are concerned with the proviso to section 11A(1).

Page 12 JUDGMENT that intention to evade duty must be proved for invoking the proviso to section 11A(1) for extended period of limitation. It has been further held that intent to evade duty is built into the expression "fraud and collusion" but mis-statement and suppression is qualified by the preceding word "wilful". Therefore, it is not correct to say that there can be suppression or misstatement of fact, which is not wilful and yet constitutes a permissible ground for invoking the proviso to section 11A.

Page 13 JUDGMENT

Excise, Bombay

[1995 Suppl. (3) SCC 462], 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 done and not that he must have done, would not render it suppression. It is settled law that mere failure to declare does not amount to willful suppression. There must be some positive act from the side of the assessee to find willful suppression. Therefore, in view of our findings made herein above that there was no deliberate intention on the part of the appellant not to disclose the correct information or to evade payment of duty, it was not open to the Central Excise Officer to proceed to recover duties in the manner indicated in the proviso to Section 11A of the Act.” 16. that mere non- disclosure of certain items assessable to duty does not tantamount to the mala fides elucidated in the proviso to Section 11A(1) of the Central Excise Act, 1944. It enunciated the principle in the following way: - “The mere non-declaration of the waste/by-product in their classification list cannot establish any wilful withholding of vital information for the purpose of evasion of excise duty due on the said product. There could be, counsel contended, bonafide belief on the part of the assessee that the said waste or by-product did not attract excise duty and hence it may not have been included in their classification list. But that per se cannot go to prove that there was the intention to evade payment of duty or that the assessee was guilty of fraud, collusion, mis-conduct or suppression to attract the proviso to Section 11A(1) of the Act. There is considerable force in this contention. 4 1995 Supp(3)SCC 322 13

Page 14 JUDGMENT Therefore, if non- disclosure of certain items assessable to duty does not invite the wrath of the proviso, we fail to understand how the non-payment of duty on disclosed items, after inquiry from the Coimbatore5 wherein this Court held:- “31.It is settled law that for invoking the extended period of limitation duty should not have been paid, short levied or short paid or erroneously refunded because of either fraud, collusion, wilful misstatement, suppression of facts or contravention of any provision or rules. This Court has held that these ingredients postulate a positive act and, therefore, mere failure to pay duty and/or take out a licence which is not due to any fraud, collusion or willful misstatement or suppression of fact or contravention of any provision is not sufficient to attract the extended period of limitation.” [Emphasis supplied]

Page 15 JUDGMENT indulgence of this Court in Associated Cement Companies Ltd. Vs. Commissioner of Customs6 in the following words:- “53…Our attention was drawn to the cases of CCE v. Chemphar Drugs and Liniments (1989) 2 SCC 127, Cosmic Dye Chemical v. CCE (1995) 6 SCC 117, Padmini Products v. CCE (1989) 4 SCC 275, T.N. Housing Board v. CCE 1995 Supp (1) SCC 50 and CCE v. H. M. M. Ltd. (supra). In all these cases the Court was concerned with the applicability of the proviso to Section 11-A of the Central Excise Act which, like in the case of the Customs Act, contemplated the increase in the period of limitation for issuing a show- cause notice in the case of non-levy or short-levy to five years from a normal period of six months...

Page 16 JUDGMENT or suppression of facts contained in the proviso. Reading the proviso as a whole the Court held that intent to evade duty was essentially before the proviso could be invoked.

[Emphasis supplied]

Page 17 JUDGMENT

Page 18 JUDGMENT Law Dictionary, Sixth Edition (pp 1599) defines “willful” in the following manner: - “Willful. Proceeding from a conscious motion of the will; voluntary; knowingly; deliberate. Intending the result which actually comes to pass… An act or omission is “willfully” done, if done voluntarily and intentionally and with the specific intent to do something the law forbids, or with the specific intent to fail to do something the law requires to be done…”

Page 19 JUDGMENT made efforts in pursuit of adherence to the law rather than its breach.

Page 20 JUDGMENT “21. This Court while interpreting Section 11-A of the Central Excise Act in Collector of Central Excise v. H.M.M. Ltd. (supra) has observed that in order to attract the proviso to Section 11-A(1) it must be shown that the excise duty escaped by reason of fraud, collusion or willful misstatement of suppression of fact with intent to evade the payment of duty. It has been observed: ‘...Therefore, in order to attract the proviso to Section 11-A(1) it must be alleged in the show-cause notice that the duty of excise had not been levied or paid by reason of fraud, collusion or willful misstatement or suppression of fact on the part of the assessee or by reason of contravention of any of the provisions of the Act or of the Rules made thereunder with intent to evade payment of duties by such person or his agent. There is no such averment to be found in the show cause notice. There is no averment that the duty of excise had been intentionally evaded or that fraud or collusion had been practiced or that the assessee was guilty of wilful misstatement or suppression of fact. In the absence of any such averments in the show-cause notice it is difficult to understand how the Revenue could sustain the notice under the proviso to Section 11-A(1) of the Act.’ It was held that the show cause notice must put the assessee to notice which of the various omissions or commissions stated in the proviso is committed to extend the period from six months to five years. That unless the assessee is put to notice the assessee would have no opportunity to meet the case of the Department. It was held: ...There is considerable force in this contention. If the department proposes to invoke the proviso to Section 11-A(1) , the show-cause notice must put the assessee to notice which of the various commissions or omissions stated in the proviso is committed to extend the period from six months to 5 years. Unless 20

Page 21 JUDGMENT the assessee is put to notice, the assessee would have no opportunity to meet the case of the department. The defaults enumerated in the proviso to the said sub-section are more than one and if the Excise Department places reliance on the proviso it must be specifically stated in the show-cause notice which is the allegation against the assessee falling within the four corners of the said proviso....” (Emphasis supplied)

Page 22 JUDGMENT ……..…………………………………. (MADAN B. LOKUR, J.) NEW DELHI, JANUARY 22, 2013. RS 22