Nirlon Ltd. vs Commnr. Of Central Excise, Mumbai

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.

Signature Not Verified Digitally signed by Meenakshi Kohli Date: 2015.04.30 16:43:17 IST Reason: The appellant has been filing the price list proforma

under Section 4(1) of the Central Excise Act, 1944,

C.A. No.7642/2004 1 (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

C.A. No.7642/2004 2 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

C.A. No.7642/2004 3 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

C.A. No.7642/2004 4 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

C.A. No.7642/2004 5 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

C.A. No.7642/2004 6 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.

C.A. No.7642/2004 7

ITEM NO.102 COURT NO.12 SECTION III

S U P R E M E C O U R T O F I N D I A RECORD OF PROCEEDINGS

Civil Appeal No(s). 7642/2004

NIRLON LTD. Appellant(s)

VERSUS

COMMNR. OF CENTRAL EXCISE, MUMBAI Respondent(s)

(with appln. (s) for stay and office report)

Date : 23/04/2015 This appeal was called on for hearing today.

CORAM :

HON'BLE MR. JUSTICE A.K. SIKRI HON'BLE MR. JUSTICE ROHINTON FALI NARIMAN

For Appellant(s) Mr. S. K. Bagaria, Sr. Adv.

Mr. Alok Yadav, Adv.

Mr. Somnath Shukla, Adv.

Mr. K. Ajit Singh, Adv.

Mr. Praveen Kumar, Adv.

For Respondent(s) Mr. K. Radhakrishnan, Sr. Adv.

Mr. Tara Chandra Sharma, Adv.

Ms. Sunita Rani Singh, Adv.

Mr. B. K. Prasad, Adv.

Mrs. Anil Katiyar, Adv.

UPON hearing the counsel the Court made the following O R D E R

The appeal is allowed in part and disposed of in terms of the signed reportable judgment.

(Nidhi Ahuja) (Suman Jain) COURT MASTER COURT MASTER

[Signed reportable judgment is placed on the file.]

C.A. No.7642/2004 8