1. M/s. Chemicals & Fibres of India Limited, a Public Limited Company, hereinafter referred to as the CAFI, filed appeal before the Tribunal under Section 35-B of the Central Excises and Salt Act, 1944 (hereinafter referred as the Act) on 7th of December, 1982 against the Order No. V-2(18)l659/82/11075 dated 5th November, 1982 passed by Collector of Central Excise (Appeals), Bombay. The related Order of the Assistant Collector of Central Excise, Bombay is of 26th May, 1982 [Order No. V(18)4-l 2/82-3093]. The Appeal is signed by the Secretary of the appellant company and, therefore, is in conformity with the rules and procedure prescribed.
2. The appellant manufactures polyester staple fibre which is sold under its brand name Terene.
3. The Superintendent, Central Excise, Bombay issued a show cause- cum-demand notice on 3rd March, 1982, a copy of which has been given to us by the appellant as Exhibit '3' at page 33. In the said communication, it was stated that the CAFI with intent to evade payment of Central Excise duty had resorted to wilful mis-statement and suppression of facts and contravened the provisions of Rule 173(B) and 173(F) of the Central Excise Rules, 1944 (hereinafter referred as the Rules) inasmuch as it had : (i) cleared 20,559.5 kgs. of polyester fibre and tops manufactured from waste, by processes involving re-cycling; (ii) with intention to evade duty wrongly claimed exemption under Notification No. 44/80, dated 24th of April, 1980 in the classification list No. 2/81, dated 14th April, 1981; and 4. It was, therefore, proposed to recover duty amounting to Rs. 9,25,177.50 in respect of the period during June 1981 to July 1981 under proviso to Section 11-A of the Act and the Rules and also to impose penalty under Rule 173(Q) of the Rules for contravention of the provisions of the Rules mentioned above.
5. The Superintendent called upon the CAFI to show cause to the Assistant Collector of Central Excise, Bombay within a period of 30 days as to why proposed action should not be taken.
6. The show cause-cum-demand notice was replied to by CAFI vide communication dated 31st March, 1982, a copy of which has been made available to us. Two specific contentions were taken : one, that the demand-cum-show cause notice dated 3rd of March, 1982 in respect of duty payable in june-July, 1981 was clearly barred by limitation as stipulated under Section 11-A of the Act and, secondly - which was independent and alternative contention, - that the process of manufacture employed for converting the waste into fibre did not involve re-cycling and such fibre manufactured was eligible for exemption from duty in terms of Notification No. 44/80 supra. The clearance of the fibre under the said Notification was, therefore, pleaded to be quite in order.
7. We propose to deal with the contention on limitation first because, if we are to agree with the appellant that it had disclosed all the particulars and the process and was not guilty of any wilful mis-statement or suppression of facts, then it shall not be necessary for us to go into the classification question as, in that case, the show cause-cum-demand notice dated 3rd March, 1982 for the period June-July, 1981 would be clearly hit by limitation as the normal period of six months would be said to be available to the "Revenue. On the other hand, if we are to accept the Revenue's charge that not only was there wilful endeavour to shield facts, but a clever manoeuvring was undertaken not to pay proper duty, then we shall be accepting that the extended period of limitation of five years was available and, therefore, the show cause-cum-demand notice was in order. This decision in turn would involve us and necessitate adjudication regarding the merits of the case - classification and exemption notification.
8. The limitation stipulated under Section 11-A of the Act is six months and five years depending on certain situations. The provision of Section 11-A should be brought in focus as follows :- "11 -A. Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded :- (1) When any duty of excise has not been levied or paid or has short-levied or short-paid or erroneously refunded, a Central Excise Officer, may within six months from the relevant date, serve notice on the person 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, requiring him to show cause why he should not pay the amount specified in the notice : Provided that where any duty of excise 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 "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 six months or five years, as the case may be." 9. On the question of limitation, we have only to notice sub-para (i) of para 4, and para 7 of the Assistant Collector's Order to show that on the accepted facts at best it can be said to be a case of vague grievance for the Revenue that along with disclosing all the facts as to how the goods were manufactured the appellant should not have stated that manufacture did not involve re-cycling process : "4. (i) The show cause notice has been issued under a grave misconception of facts. The Department has been informed from time to time about the processes employed by them in converting different types of wastes into fibres. At every time when the wastes were utilised for conversion into fibre a prior intimation was given to Central Excise Authorities asking them to send their representative to supervise the manufacturing process. In this respect a copy of letter dated 14.4.1981 was submitted and it was stated that this letter was addressed to the Superintendent at the time of submission of the C.L. No. 2/81, dated 14.4.1981. The copies of their letter dated 12.6.1981, 16.6.1981 and 19.6.1981 were also submitted. It has been stated that in their letter dated 14..4.1981 the process of manufacture was mentioned informing that they will be issuing Solid Extrudes/Fibreous Extrudes (ready) wastes under the Notification. In subsequent letters it was requested that the staff may be deputed for supervision if so desired. Accordingly, it was contended that allegation of mis-statement or suppression of facts made against them is wholly incorrect and the proviso under Section 11A(1) does not apply.
7. (i) Coming to the limitation, it is immaterial what they were doing in past and under what Notification. In the subject matter, they while filing their C.L. dated 14.4.1981, in the body of the C.L. has written ... "Polyester Staple Fibre manufactured exclusively out of waste falling under Item No. 18(IV) by "process not involving re-cycling". This is a positive declaration and description from their side. This positive assertion is to counteract the excessive caution as laid down in the Notification as per Clause (b) - "it should not be process of recycling". Their process was recycling and they stressed it with all force that it is not. If it is not mis-declaration, then how it can be termed. In Self Removal Procedure (S.R.P.) where 'CAFI is assessor themselves, such an organisation whose bona fides ordinarily cannot be doubted, the Assistant Collector has accepted their declaration and classification has been approved on 21.5.1981. CAFI are aware that C.L. is approved by Assistant Collector then why the letter dated 14.4.1981 was addressed to the Superintendent. Anyway in this letter no doubt is expressed as to whether the benefit of the Notification is available to them or not. They have also not described the manufacturing process in detail as they have done in their letter dated 28.12.1981. Without doing that, why they wanted that supervision should be carried by Superintendent. Since the Superintendent did not doubt their bona fides, he was swept.
(ii) They were not sure and confident and due to this reason they addressed three other letters dated 12th, 16th and 19th June, 1981, all to the Superintendent without enclosing a copy to the A.C., otherwise there was no need for supervision on the basis of "if you so desire". It appears that, for the time being, the Superintendent thought that since the A.C. has approved the Classification there was no need for supervision in the scheme of S.R.P. He did not realise that he is being taken for a ride and CAFI are addressing the letters with all design, intent and purpose, i.e., to cover the limitation for evading the duty. It appears they were quite hopeful in execution of their plan.
(iii) From above it is clear that there was positive misdeclaration and mis-leading. For a moment if it was not then at least a doubt was reigning in their mind about the applicability of the Notification. Nobody has prohibited them in taking an expressed confirmation from the Assistant Collector. The A.C. who was the proper officer should have been requested to visit the plant for observing the processes for its confirmation or otherwise. The learned Advocate was confronted with this question at the stage of personal hearing "whether CAFI have taken the confirmation about this from the Department". Instead of replying the question in 'yes' or 'no' he stated "the Deptt. has not taken any action". Why Department should take any action when a positive declaration has been made and when Department was not asked to pronounce its decision as such It is the CAFI who were availing substantial benefit and according to the law it is they who are supposed to come with open mind and is supposed to take care of all situation. Since CAFI have derived illegal benefit intentionally they have chosen to keep calculated silence.
(iv) They took 25,179 kgs. of waste and have generated 20,599 kgs.
fibre by process of recycling for losses they never accounted satisfactorily. They should have declared that recovery is this much and that much is loss. Nothing of the sort was done for the reasons they may be checked to avail the benefit.
(v) At earliest opportunity, when the Superintendent became doubtful of their case after receiving their letter dated 28.12.1981 wherein they wanted to confirm the process of manufacture, he addressed an immediate letter dated 29.12.1981 wherein he mentioned that, "you are requested to classify and get approval of the process to be resorted to before effecting any clearance". Superintendent's this direction is very clear and it was done so because at first time CAFI has come with a clear-cut stand after describing the manufacturing process in detail. If one reads their letter first dated" 14.4.1981 and the second one dated 28.12.1981 one can find the difference in the contents of both letters. Only in their letter dated 28.12.1981 they described the manufacturing process and it became clear that they want to avail the benefit of Notification No. 44/80. In their C.L. No. 2/81, dated 14.4,1981 perhaps with full thoughts they have claimed both Notifications at the same time and have got it approved, and for creating confusion and for deriving illegal benefits and for claiming benefit one for another. It is the Superintendent after addressing to CAFI vide his letter dated 29.12.1981 brought the matter to the A.C.'s notice and in turn, the AC visited the plant and the impugned show cause notice followed soon.
(vi) An assessee of M/s. CAFI stature should not have dodged tax collecting authorities. They are very well aware of technical and legal aspects of the entire matter. At least they are supposed to be. A sum of more than Rs. 9 lakhs is due to the Government for last one year from which they have derived undue benefit and financial accommodation. Instead of paying it, they have wrongly contested the issue. They should have apprised fully to the Department and should have got confirmation about their process of manufacture. The onus has not been fully and satisfactorily discharged by them." 10. Before proceeding further, we like to reproduce relevant extracts from para 6 of the order of the Collector of Central Excise (Appeals) Bombay :- "As regards the time limit, I hold that longer period of 5 years stipulated in proviso to Section 11A(1) of the Central Excises and Salt Act, 1944, would be attracted. No doubt, the appellants did mention in the covering letter to the classification list that they intend to undertake the process of crushing and melt spinning as they were doing in the past, but in the classification list they had made a very categorical statement that the process did not involve re-cycling process. To this extent the statement made by them is a mis-statement and thereby they have not paid the duty due to the Government." 11. It would have been a different matter if the allegation was that the process was not spelt out or given. On the other hand, the Collector in terms states that though the appellant did mention in the covering letter to the classification list that they intended to undertake the process of crushing and melt spinning but in the classification list it was stated that the process did not involve re-cycling.
12. Apparently, there has been some confusion with Revenue that the covering letter and the Classification List could be read separately.
According to us, when details were mentioned in the covering letter, these were to be read as part of the classification list and if that is kept in focus the appellant must be said to have disclosed all the facts relating to the process, of the product. The word 'recycling' not having been defined either in the Act or the Rules, on disclosed facts if the appellant stated that the process was not that of recycling but according to the Revenue it was of recycling such two different inferences certainly could not give rise to a situation having the effect of lifting the normal period of limitation of six months as stipulated under Section 11-A of the Act and extending the period to that of five years contemplated under the proviso to Section 11-A.13. We have refrained from commenting on sentences and words of para 7 of the Assistant Collector's Order which is the basis of the Order appealed against because the same are not considered necessary.
However, what surprises us is that according to the Revenue the repeated letters dated 12, 16 and 19th June, 1981, as mentioned in sub-para (ii) of para 7,. addressed to the Superintendent without enclosing a copy to the Assistant Collector made any difference, when, according to the proforma of the classification list itself, the contents of the classification list had to be verified by the Central Excise Officer in charge of the Appellant's factory and then approved by the Superintendent/Assistant Collector of Central Excise. In other words, when the classification list was to be routed through the Superintendent of Central Excise, the action of writing letters to the Superintendent was only the correct procedure, and such action of the appellant supports the assertion that whatever was possible was being done by it and if the Revenue in its wisdom failed to draw proper inferences or drew wrong inferences, the result could not be said to be wilful mis-statement or suppression of facts by CAFI.14. We accordingly hold that there being no contumacious conduct which could be attributed to the appellant, within the purview of the proviso to Section 11-A of the Act, only the normal period of six months for the issue of show cause notice was available for purpose of examining the question of excisability of the goods or re-examining the question regarding the exemption claimed and granted under Notification No.44/80 supra. The facts already having been disclosed to the Revenue, the show cause-cum-demand notice dated 3rd of March, 1982 suffered from incurable infirmity and must be struck down as bad in law. We accordingly do so. Result would be that excise duty demand of Rs. 9,25,177.50 and penalty of Rs. 5000/- imposed on CAFI, and confirmed in Appeal by the Collector of Central Excise (Appeals), Bombay, shall stand cancelled.
15. On the view we are taking in the matter, it is not necessary for us to go into the merits of classification.