NIRLON LTD. Vs. COMMNR. OF CENTRAL EXCISE, MUMBAI

Supreme Court of India (Division Bench (DB)- Two Judge)

Appeal (Civil), 7642 of 2004, Judgment Date: Apr 23, 2015

                                                                  'REPORTABLE'

                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL NO. 7642 OF 2004

NIRLON LTD.                                                     ... Appellant

                                   VERSUS


COMMISSIONER OF CENTRAL EXCISE, MUMBAI                         ... Respondent


                               J U D G M E N T

A. K. SIKRI, J.

            The appellant herein is  the  manufacturer  of  Tyre  Cord  Yarn
(TCY) and Tyre Cord Fabric (TCB) falling under Chapter  54  and  59  of  the
Central Excise Tariff Act respectively.  The aforesaid  goods  TCY  and  TCB
are manufactured by the appellant at its Goregaon factory.  The products  so
manufactured are sold by the appellant  at  the  factory  gate  as  well  as
removed for captive consumption to  its  another  factory  at  Tarapur.   At
Tarapur  factory,  the  said  yarn  are  utilised  for  manufacturing  final
products.

            The dispute has arisen in respect of the valuation  of  the  TCY
which are removed for captive consumption and to be used at Tarapur  factory
of the respondent.

            The appellant has been filing  the  price  list  proforma  under
Section 4(1) of the Central Excise Act,  1944,(hereinafter  referred  to  as
'Act') declaring the wholesale price of TCY for such goods  by  showing  the
same price at which the goods are sold by the appellant at the factory  gate
to the third parties.  Such price list in Proforma Part I  under  Section  4
of the Act was filed on 01.03.1994 and 28.03.1994.  It was  again  filed  on
01.03.1998.   The  price  declaration  so  made  was  looked  into  by   the
Superintendent of  Central  Excise  and  he  was  not  satisfied  with  this
declaration as according to him, the price could  not  be  declared  at  the
same rate at which the goods are sold by the appellant at the  factory  gate
to others.  According to him, there  was  a  difference  between  the  goods
which were cleared at the factory gate to be sold to the third  parties  and
removed for captive consumption by the  appellant  itself  for  its  Tarapur
factory.  This resulted in the appointment  of  a  cost  accountant  by  the
Commissioner to go into this issue.

            It appears that the cost accountant had  given  some  report  in
which he had opined that the two goods are different  from  each  other  and
therefore, price declaration which was filed by the appellant  in  terms  of
Section 4(2) of the Act read with Rule 6(b)(i) of Central  Excise  Valuation
Rules, 1975 (hereinafter referred to as Rules) was incorrect.  This  led  to
the issuance of two show cause notices to the appellant.  First  show  cause
notice is dated 25.02.2000 covering period from  August,  1999  to  January,
2000.   In  this  show  cause  notice,  amount  of  Rs.78,20,365/-  for  the
aforesaid period was demanded as differential duty under  Rule  6(b)(ii)  of
the aforesaid Rules.  The second show cause notice was issued on  03.03.2001
which was for the period from February, 1996, to  June,  2000.   Both  these
notices resulted in confirmation of the demands mentioned in the show  cause
notices  as  well  as  imposition  of  penalties  upon  the  appellant.  The
appellant filed appeal  against  the  orders  passed  by  the  Commissioner.
However,  the  Customs,  Excise   and   Service   Tax   Appellate   Tribunal
(hereinafter referred to as 'CESTAT')  has  dismissed  this  appeal  by  the
common judgment dated 01.10.2004.  It  is  against  this  judgment,  present
appeal is preferred by the appellant.

            After going through the  material  on  record  as  well  as  the
orders of the Commissioner and the CESTAT, we find that  findings  of  facts
are recorded by the authorities below that the two kinds of goods  were  not
comparable with each other and therefore, the goods which were  removed  for
captive consumption to be used by Tarapur Factory were to  be  valued  under
Rule 6(b)(ii) of the Rules and the price declaration given by the  appellant
applying Rule 6(b)(i) of the said rules was erroneous.  We  also  find  that
the appellant had even admitted some variations in the two  types  of  goods
in its reply to the show cause  notices  itself.   In  these  circumstances,
insofar as the opinion of the authorities with regard  to  different  nature
of the goods is concerned, that does not call for any interference  by  this
court.

            Faced with the aforesaid situation, Mr. S. K.  Bagaria,  learned
senior counsel appearing  for  the  appellant,  has  pressed  the  issue  of
limitation.  His submission is that  the  second  show  cause  notice  dated
03.03.2001 covered the period from February, 1996 to June,  2000,  and  most
of this period would be time barred if extended period of limitation is  not
invoked in the present case.  His argument is that there was  no  mala  fide
on the part of the appellant and no intention to evade the duty.   In  order
to buttress this submission, the learned senior counsel has pointed out  the
 following aspects in his favour: -
(i)   The products sold at the factory gate and the products transferred  to
Tarapur factory were using identical raw materials  and  identical  process.
For this reason, the appellant believed that the  products  were  comparable
goods in terms of Rule 6(b)(i).
(ii)  Both the goods fall under the same sub-heading of the tariff entry  as
both are admittedly TCY.
(iii) The price list which was filed by the appellant in the year 1994,  and
thereafter repeatedly, was accepted by the Central Excise  Department  after
scrutiny and this gave a reasonable impression in the mind of the  appellant
that the price declarations filed by the appellant was correct.
(iv)  The appellant could not have taken any undue advantage, in  any  case,
by filing declaration under Rule 6(b)(i) instead of Rule  6(b)(ii)  inasmuch
as even if there was higher duty payable in terms of declaration under  Rule
6(b)(ii) of the Rules, the appellant was entitled to take credit thereof  in
its entirety.  Therefore, the entire exercise was revenue neutral.
(v)   In order to support his submission, it is pointed out that as soon  as
the second  show  cause  notice  was  issued  and  the  Revenue  wanted  the
appellant to file  price  declaration  under  Rule  6(b)(ii)  the  appellant
complied therewith and   with  effect  from  01.04.2000,  i.e.,  immediately
after the issuance of the show cause notice dated 25.02.2000, it  is  paying
duty accordingly and taking credit thereof, as well. This is so accepted  by
the Department in the second show cause notice dated 3.3.2001 itself.

            From the aforesaid circumstances narrated by the learned  senior
counsel, we are inclined to accept the  submission  of  the  appellant  that
there could not have been any mala fides on the part  of  the  appellant  in
filing the declaration under Rule 6(b)(i)  in  order  to  evade  the  excise
duty.

            We may note that Mr. K. Radhakrishnan,  learned  senior  counsel
appearing for the Revenue, vehemently countered the aforesaid submission  of
the appellant and argued that there was clear intention to evade the  excise
duty.  His submission was that the clearance of the goods  which  were  sold
at the factory gate were totally different as  they  differed  in  technical
specifications  from  those  removed  for  captive  consumption  which   was
confirmed by the appellant itself vide its letter dated 21.02.2000 and  this
would depict clear intention on the part of  the  appellant  to  remove  the
goods by paying lesser duty.

            We have ourselves indicated that the two  types  of  goods  were
different in nature.  The question is about the intention,  namely,  whether
it was done with bona fide belief or there was some mala fide intentions  in
doing so.  It is here we agree with the contention  of  the  learned  senior
counsel for the appellant, in the circumstances which are explained  by  him
and recorded above.  It is stated at the cost of repetition  that  when  the
entire exercise was revenue neutral, the appellant could not  have  achieved
any purpose to evade the duty.

            Therefore, it was not permissible for the respondent  to  invoke
the proviso to Section 11A(1) of the Act and apply the  extended  period  of
limitation.  In view thereof, we confirm the demand insofar as  it  pertains
to show cause notice dated  25.02.2000.   However,  as  far  as  show  cause
notice dated 03.03.2001 is concerned, the demand from  February,  1996  till
February, 2000 would be beyond limitation and that part  of  the  demand  is
hereby set aside.  Once we have found that there was no mala fide  intention
on the part of the appellant, we set aside the penalty as well.

            The appeal is allowed in part and disposed of in  the  aforesaid
terms.

            No costs.


                                  .........................., J.
                                  [ A.K. SIKRI ]


                                  .........................., J.
                                  [ ROHINTON FALI NARIMAN ]

New Delhi;
April 23, 2015.