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TAXAP/338/2009 1/22 JUDGMENT

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

TAX APPEAL No. 338 of 2009

For Approv! "# $%&"'(r)*

HONOURABLE MR.JU$TICE D.A.MEHTA Sd/-

HONOURABLE M$.JU$TICE H.N.DE+ANI Sd/-

=========================================================

1Whether Reporters of Local Papers may be allowedto see the judgment ? !S

" #o be referred to the Reporter or not ? !S

$Whether the%r Lordsh%ps w%sh to see the fa%r copyof the judgment ? &'

(

Whether th%s case %n)ol)es a substant%al *uest%onof law as to the %nterpretat%on of theconst%tut%on of +nd%a, 1. or any order madethereunder ? &'

. Whether %t %s to be c%rculated to the c%)%l judge? &'

=========================================================COMMI$$IONER OF CENTRAL EXCI$E $URAT,I , App)!!"'-/

+)r(NEMINATH FABRIC$ P+T LTD , Oppo")"'-/

=========================================================App)r") *0R R '23for 3ppellant4s5 6 1,0R P3R!S7 0 839! for 'pponent4s5 6 1,

=========================================================

CORAM * HONOURABLE MR.JU$TICE D.A.MEHTA

"#

HONOURABLE M$.JU$TICE H.N.DE+ANI

D') * 22101200

ORAL JUDGMENT

-P)r * HONOURABLE M$.JU$TICE H.N.DE+ANI/

Page 1 ofNIC Created On Fri Nov 06 22:22:13 IST 201522


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1: #he 3ppellant-Re)enue has challenged order dated

";:


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1 eard learned Counsel for Appellant*

+evenue While passing impugned order dated

-.//., Customs, !cise 0 Service %a! Appellate

%ribunal (the %ribunal), correct legal principles

have been enunciated as to operation of rovisions

of Section 11A (1) and the roviso thereunder of

the Central !cise Act, 1"## owever, prima facie

it appears that the %ribunal has fallen into error

in applying principles to the facts of the case

ence, 2otice for final disposal returnable

on -/3/1/'

$: +n response to the not%ce %ssued by th%s

ourt, 0r: Paresh 8a)e learned ad)ocate has put

%n appearance on behalf of the respondent:

(: 7eard the learned ad)ocates:

.: 3dm%t: #he follow%ng substant%al *uest%on of law

ar%ses for cons%derat%on 6

Whether the %ribunal was 4ustified in

importing the concept of 5nowledge in the

provisions of Section 11A of the Central

!cise Act, 1"## read with sub*section (1)

and the proviso thereto$'

;: r%efly stated the facts of the case are that



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the respondent %s engaged %n the manufacture of 0an-

made @abr%cs on job worA bas%s fall%ng under hapter

.( of the entral !>c%se #ar%ff 3ct, 1


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B: Subse*uently a Show ause &ot%ce dated

:.:" came to be %ssued to the respondent un%t

wh%ch came to be adjud%cated )%de order-%n-or%g%nal

dated "":":"; whereby demand of central e>c%se duty

amount%ng to Rs:(,1,;$/- came to be conf%rmed w%th

%nterest under sect%on 113 of the 3ct: Penalty of

Rs:(,1,;$/- was also %mposed under sect%on 11 3 of

the 3ct read w%th Rule ". of the entral !>c%se

Rules, "" 4the Rules5: #he respondent carr%ed the

matter %n appeal before omm%ss%oner 43ppeals5, who

for the reasons stated %n her order dated ".:":"


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le)%ed or pa%d or has been short le)%ed or short pa%d

or erroneously refunded by reason of fraud, collus%on

or any w%lful m%s-statement or suppress%on of facts,

or contra)ent%on of any of the pro)%s%ons of the 3ct,

or of the rules made thereunder w%th %ntent to e)ade

payment of duty, the per%od of one year prescr%bed

for ser)%ce of show cause not%ce under sub-sect%on

415 of sect%on 113 gets e>tended to f%)e years:

7ence, once %t %s found that any e>c%se duty has not

been pa%d or short le)%ed etc, for any of the reasons

st%pulated under the pro)%so, the per%od of

l%m%tat%on for ser)%ce of show cause not%ce would

automat%cally stand e>tended to f%)e years: 3d)ert%ng

to the facts of the present %t %s po%nted out that

non-payment of central e>c%se duty by reason of

suppress%on %s adm%tted, hence, the %ngred%ents of

the pro)%so stand duly sat%sf%ed: +t %s subm%tted

that the #r%bunal has %mported the concept of

Anowledge and a l%m%tat%on of s%> months from the

date of Anowledge %nto sect%on 113 of the 3ct to hold

that the show cause not%ce was barred by l%m%tat%on,

wh%ch %s not perm%ss%ble %n law: +n support of h%s

subm%ss%ons, the learned counsel has placed rel%ance



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upon the dec%s%on of the 3pe> ourt %n the case of

Mathania Fabrics Vs. Commissioner of Central Excise,

Jaipur, //. (1) 6%#.1 (SC), as well as the

dec%s%on of the 3pe> ourt %n the case of Union of

India Vs. Rajasthan pinnin! and "ea#in! Mills, //"

(3.) 6%3 (SC):

: 'n the other hand, 0r: Paresh 8a)e learned

ad)ocate for the respondent has )ehemently opposed

the appeal: +t %s subm%tted that the #r%bunal has

placed rel%ance upon the dec%s%on of the Supreme

ourt %n the case of $i%am u!ar Factor& Vs.

Collector of Central Excise, '.(.,//7(1"8) 6%#7-

(SC), for hold%ng that the show cause not%ce was barred

by l%m%tat%on: 3ttent%on %s %n)%ted to the dec%s%on of

the Larger ench of the #r%bunal %n the case of$i%am

u!ar Factor& #. Collector of Central Excise, 1"""

(11#) 6% #", where%n the #r%bunal held that

rele)ant date has been def%ned under sub-sect%on 4$5

of sect%on 113 and that the sa%d sub-sect%on does not

pro)%de that the rele)ant date means the date of

ac*u%r%ng the Anowledge by the 8epartment: +t %s

further held that once show cause not%ce was beyond



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the e>tended per%od of l%m%tat%on, any reference to

date of ac*u%r%ng Anowledge has no rele)ance: +t %s

po%nted out that the sa%d dec%s%on of the #r%bunal

was carr%ed before the Supreme ourt %n the case of

$i%am u!ar Factor& 4supra5 and that the %mpugned

orders of the #r%bunal had been set as%de on the

*uest%on of l%m%tat%on only: +t %s further subm%tted

that the %mpugned order of the #r%bunal %s also %n

consonance w%th the dec%s%on of th%s ourt %n case of

Commissioner of Central Excise 'nd Customs Vs. )*alit&

+ube Industries, //" (#/) 6%/ (9u4): +t %s

subm%tted that %n the c%rcumstances, the %mpugned

order of the #r%bunal %s just, legal, proper and does

not warrant %nterference:

1: Sect%on 113 of the entral !>c%se 3ct, 1(( %n

so far as the same %s rele)ant for the present

purpose reads thus6

'. Reco#er& of duties not le#ied or not paid

or short-le#ied or short-paid or erroneousl&

refunded *(1) When any duty of e!cise has not

been levied or paid or has been short*levied or



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short*paid or erroneously refunded, whether or

not such non*levy or non*payment, short*levy or

short payment or erroneous refund, as the case

may be, was on the basis of any approval,

acceptance or assessment relating to the rate of

duty on or valuation of e!cisable goods under any

other provisions of this Act or the rules made

thereunder, a Central !cise :fficer may, within

one year from the relevant date, serve notice on

the persons chargeable with the duty which has

not been levied or paid or which has been

short*levied or short*paid or to whom the refund

has erroneously been made, re&uiring him to show

cause why he should not pay the amount specified

in the notice;

rovided that where any duty of e!cise has not

been levied or paid or has been short*levied or

short*paid or erroneously refunded by reason of

fraud, collusion or any wilful mis*statement or

suppression of facts, or contravention of any of

the provisions of this Act or of the rules made

thereunder with intent to evade payment of duty,

by such person or his agent, the provisions of

this sub*section shall have effect, as if for the

words one year, the words, five years' were



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substituted ;

!planation * Where the service of the notice is

stayed by an order of a Court, the period of such

stay shall be e!cluded in computing the aforesaid

period of


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manufacturer or a producer or a

licensee of a warehouse, as the case

may be, the date on which such return

is so filed@

() where no periodical return as aforesaid

is filed, the last date on which such

return is to be filed under the said

rules@

(C) in any other case, the date on which

the duty is to be paid under this Act

or the rules made thereunder@

(b) in a case where duty of e!cise is

provisionally assessed under this Act or

the rules made thereunder, the date of

ad4ustment of duty after the final

assessment thereof@

(c) in the case of e!cisable goods on which

duty of e!cise has been erroneously

refunded, the date of such refund'

11: 3 pla%n read%ng of sub-sect%on 415 of sect%on

113 of the 3ct %nd%cates that the pro)%s%on %s

appl%cable %n a case where any duty of e>c%se has

e%ther not been le)%ed/pa%d or has been short



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le)%ed/short pa%d, or wrongly refunded, regardless of

the fact that such non le)y etc: %s on the bas%s of

any appro)al, acceptance or assessment relat%ng to

the rate of duty or )aluat%on under any of the

pro)%s%ons of the 3ct or Rules thereunder and at

that stage %t would be open to the entral !>c%se

'ff%cer, %n e>erc%se of h%s d%scret%on to ser)e the

show cause not%ce on the person chargeable to such

duty w%th%n one year from the rele)ant date:

1": #he Pro)%so under the sa%d sub-sect%on

st%pulates that %n case of such non le)y, etc: of

duty wh%ch %s by reason of fraud, collus%on, or any

m%s-statement or suppress%on of facts, or

contra)ent%on of any pro)%s%ons of the 3ct or the

rules made thereunder, the pro)%s%ons of sub-sect%on

415 of sect%on 113 of the 3ct shall ha)e effect as %f

the words Eone yearF ha)e been subst%tuted by the

words Ef%)e yearsF:

1$: #he !>planat%on wh%ch follows st%pulates that

where ser)%ce of not%ce has been stayed by an order

of a ourt, the per%od of such stay shall be e>cluded



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from comput%ng the aforesa%d per%od of one year or

f%)e years, as the case may be:

1(: #hus the scheme that unfolds %s that %n case of

non le)y where there %s no fraud, collus%on, etc:, %t

%s open to the entral !>c%se 'ff%cer to %ssue a show

cause not%ce for reco)ery of duty of e>c%se wh%ch has

not been le)%ed, etc: #he show cause not%ce for

reco)ery has to be ser)ed w%th%n one year from the

rele)ant date: 7owe)er, where fraud, collus%on, etc:,

stands establ%shed the per%od w%th%n wh%ch the show

cause not%ce has to be ser)ed stands enlarged by

subst%tut%on of the words Eone yearF by the words

Ef%)e yearsF: +n other words the show cause not%ce

for reco)ery of such duty of e>c%se not le)%ed etc:,

can be ser)ed w%th%n f%)e years from the rele)ant

date:

1.: #o put %t d%fferently, the pro)%so merely

pro)%des for a s%tuat%on whereunder the pro)%s%ons of

sub-sect%on 415 are recast by the leg%slature %tself

e>tend%ng the per%od w%th%n wh%ch the show cause

not%ce for reco)ery of duty of e>c%se not le)%ed etc:



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gets enlarged: #h%s pos%t%on becomes clear when one

reads the !>planat%on %n the sa%d sub-sect%on wh%ch

only says that the per%od stated as to ser)%ce of

not%ce shall be e>cluded %n comput%ng the aforesa%d

per%od of Eone yearF or Ef%)e yearsF as the case may

be:

1;: #he term%n% from wh%ch the per%od of Eone yearF

or Ef%)e yearsF has to be computed %s the rele)ant

date wh%ch has been def%ned %n sub-sect%on 4$54%%5 of

sect%on 113 of the 3ct: 3 pla%n read%ng of the sa%d

def%n%t%on shows that the concept of Anowledge by the

departmental author%ty %s ent%rely absent: 7ence, %f

one %mports such concept %n sub-sect%on 415 of

sect%on 113 of the 3ct or the pro)%so thereunder %t

would tantamount to rewr%t%ng the statutory pro)%s%on

and no canon of %nterpretat%on perm%ts such an

e>erc%se by any ourt: +f %t %s not open to the

super%or court to e%ther add or subst%tute words %n a

statute such r%ght cannot be a)a%lable to a statutory

#r%bunal:

1B: #he pro)%so cannot be read to mean that because



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there %s Anowledge the suppress%on wh%ch stands

establ%shed d%sappears: S%m%larly the concept of

reasonable per%od of l%m%tat%on wh%ch %s sought to be

read %nto the pro)%s%on by some of the orders of the

#r%bunal also cannot be perm%tted %n law when the

statute %tself has pro)%ded for a f%>ed per%od of

l%m%tat%on: +t %s e*ually well settled that %t %s not

open to the ourt wh%le read%ng a pro)%s%on to e%ther

rewr%te the per%od of l%m%tat%on or curta%l the

prescr%bed per%od of l%m%tat%on:

1


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and maAes %t abundantly clear that moment there %s

non-le)y or short le)y etc: of central e>c%se duty

w%th %ntent%on to e)ade payment of duty for any of

the reasons spec%f%ed thereunder, the pro)%so would

come %nto operat%on and the per%od of l%m%tat%on

would stand e>tended from one year to f%)e years:

#h%s %s the only re*u%rement of the pro)%s%on: 'nce

%t %s found that the %ngred%ents of the pro)%so are

sat%sf%ed, all that has to be seen as to what %s the

rele)ant date and as to whether the show cause not%ce

has been ser)ed w%th%n a per%od of f%)e years

therefrom:

": #hus, what has been prescr%bed under the statute

%s that upon the reasons st%pulated under the pro)%so

be%ng sat%sf%ed, the per%od of l%m%tat%on for ser)%ce

of show cause not%ce under sub-sect%on 415 of sect%on

113, stands e>tended to f%)e years from the rele)ant

date: #he per%od cannot by reason of any dec%s%on of

a ourt or e)en by subord%nate leg%slat%on be e%ther

curta%led or enhanced: +n the present case as well as

%n the dec%s%ons on wh%ch rel%ance has been placed by

the learned ad)ocate for the respondent, the #r%bunal



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has %ntroduced a no)el concept of date of Anowledge

and has %mported %nto the pro)%so a new per%od of

l%m%tat%on of s%> months from the date of Anowledge:

#he reason%ng appears to be that once Anowledge has

been ac*u%red by the department there %s no

suppress%on and as such the ord%nary statutory per%od

of l%m%tat%on prescr%bed under sub-sect%on 415 of

sect%on 113 would be appl%cable: 7owe)er, such

reason%ng appears to be fallac%ous %n as much as once

the suppress%on %s adm%tted, merely because the

department ac*u%res Anowledge of the %rregular%t%es

the suppress%on would not be obl%terated:

"1: +t may be not%ced that where the statute does

not prescr%be a per%od of l%m%tat%on, the 3pe> ourt

as well as th%s ourt ha)e %mported the concept of

reasonable per%od and ha)e held that where the

statute does not pro)%de for a per%od of l%m%tat%on,

act%on has to be taAen w%th%n a reasonable t%me:

7owe)er, %n a case l%Ae the present one, where the

statute %tself prescr%bes a per%od of l%m%tat%on the

*uest%on of %mport%ng the concept of reasonable

per%od does not ar%se at all as that would mean that



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the ourt %s subst%tut%ng the per%od of l%m%tat%on

prescr%bed by the leg%slature, wh%ch %s not

perm%ss%ble %n law:

"": #he 3pe> ourt %n the case of Rajasthanpinnin!

and "ea#in! Mills(supra) has held thus 6

E>rom sub*section 1 read with its proviso

it is clear that in case the short payment,

non payment, erroneous refund of duty is

unintended and not attributable to fraud,

collusion or any wilful mis*statement or

suppression of facts, or contravention of

any of the provisions of the Act or of the

rules made under it with intent to evadepayment of duty then the +evenue can give

notice for recovery of the duty to the per*

son in default within one year from the

relevant date (defined in sub*section 3)

?n other words, in the absence of any ele*

ment of deception or malpractice the recov*

ery of duty can only be for a period not

e!ceeding one year ut in case the non*

payment etc of duty is intentional and by

adopting any means as indicated in the pro*

viso then the period of notice and a priory

the period for which duty can be demanded

gets e!tended to five years:F



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"$: #h%s dec%s%on would be appl%cable on all fours

to the facts of the present case, )%D: when non-pay-

ment etc: of duty %s %ntent%onal and by adopt%ng any

of the means %nd%cated %n the pro)%so, then the per%-

od of not%ce gets e>tended to f%)e years:

"(: #he dec%s%on of the 3pe> ourt %n the case of

$i%am u!ar Factor& 4supra5 on wh%ch rel%ance has

been placed upon by learned ad)ocate for the

respondent was rendered %n totally d%fferent set of

facts where%n when the f%rst show cause not%ce was

%ssued all the rele)ant facts were %n the Anowledge

of the author%t%es: #he ourt has held that later on,

wh%le %ssu%ng the second and th%rd show cause not%ces

the same/s%m%lar facts could not be taAen as

suppress%on of facts on the part of the assessee as

those facts were already %n the Anowledge of the

author%t%es: #hus, %t was %n these c%rcumstances,

that the 3pe> ourt had held that there was no

suppress%on of facts on the part of the assessee and

set as%de the order %mpugned before %t on the

*uest%on of l%m%tat%on only: #he rat%o of the sa%d

judgment cannot be deduced to mean that concept of



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Anowledge %s appl%cable e)en %n a case of f%rst show

cause not%ce: #hus, once the ourt had come to the

conclus%on that there was no suppress%on, %t %s but

natural that the pro)%so would not come %nto play and

the ord%nary the per%od of l%m%tat%on would be

appl%cable:

".: #he dec%s%on of th%s ourt %n the case of

Commissioner of Central Excise 'nd Customs Vs.

)*alit& +ube Industries4supra5 also does not carry

the case of the respondent any further %nasmuch as %n

the facts of the sa%d case the ourt had %nteral%a

found that %n absence of we%ghment sl%ps the alleged

shortage %tself was doubtful and the f%nd%ng to that

effect arr%)ed at by the #r%bunal was ne%ther

unreasonable nor unjust%f%ed: #hus, as d%scussed

abo)e, when fraud, suppress%on etc:, are not

establ%shed the matter stands on a d%fferent foot%ng:

";: +n the facts of the present case the record

%nd%cates that the 8%rector of the respondent has

adm%tted shortage of Crey fabr%cs as well as %ll%c%t

clearance thereof w%thout %ssuance of central e>c%se



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%n)o%ces or any other duty pay%ng documents, w%thout

payment of central e>c%se duty and w%thout enter%ng

%n the 8a%ly StocA 3ccount Reg%ster and Lot Reg%ster

dur%ng the months 0ay-"" and une "": #he

merchant manufacturers from whom the short found Crey

fabr%cs were rece%)ed and resultant processed fabr%cs

cleared %ll%c%tly w%thout co)er of central e>c%se

%n)o%ces and w%thout payment of central e>c%se duty

had also been summoned by the entral !>c%se

'ff%cers: Statements of those merchant manufacturers

who appeared %nd%cate that they had agreed that they

had sent the grey fabr%cs to the respondent and

rece%)ed the resultant processed fabr%cs, w%thout

co)er of central e>c%se %n)o%ces and w%thout payment

of central e>c%se duty le)%able thereon dur%ng the

rele)ant per%od: #hus, %n the facts of the present

case suppress%on stands adm%tted by the respondent

assessee and establ%shed by e)%dence on record and as

a natural corollary, the pro)%so to sub-sect%on 415

of sect%on 113 would stand attracted: +n the

c%rcumstances, the %mpugned order of the #r%bunal

whereby %t has been held that the show cause not%ce

%ssued beyond the per%od of s%> months from the date



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of Anowledge %s barred by l%m%tat%on %s clearly

contrary to the pro)%s%ons of sect%on 113 of the 3ct

and as such cannot be susta%ned:

"B: +n l%ght of the aforesa%d, the *uest%ons stand

answered accord%ngly: #he %mpugned order dated ";th

3ugust, "< bear%ng &o:3:1;B;-1;BB/W2/3hmedabad/c%se 3ppeals &o:.;

and .B of "< %s hereby *uashed and set as%de: #he

3ppeal %s, accord%ngly, allowed w%th no order as to

costs:

Sd/- Sd/-

48:3: 0ehta, :5 47:&: 8e)an%, :5

0:0:73##

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