Suppression Of Fact Which Isn’t Wilful Can’t Constitute Permissible Ground For Invocation Of Proviso to Section 11-A Of Central Excise Act: Supreme Court
The Supreme Court was considering a matter where the issue raised was of limitation under the proviso to Section 11A Of the Central Excise Act.
Justice J. B. Pardiwala, Justice K. Vinod Chandran, Supreme Court
While observing that the proviso to Section 11A of the Central Excise Act could not be invoked to extend the period of limitation, the Supreme Court has held that there cannot be a suppression or misstatement of fact, which is not wilful and yet constitutes a permissible ground for invocation of the proviso to Section 11-A.
The Apex Court was considering a matter where the issue raised of limitation under the proviso to Section 11A was on the ground of the assessee having not wilfully misrepresented or wilfully suppressed the valuation of the ‘body-built vehicle’, by reason of inclusion of only the cost of manufacture of chassis and not the assessable value declared by the manufacturer.
The Division Bench of Justice J. B. Pardiwala and Justice K. Vinod Chandran held, “Even ‘contravention of any of the provisions of this Act or Rules’ is also qualified by the immediately following words ‘with intent to evade payment of duty’. Therefore, there cannot be a suppression or misstatement of fact, which is not wilful and yet constitute a permissible ground for invocation of proviso to Section 11-A. Therein, on facts, it was found that there were circulars issued by the department, which were in favour of the assessee and the view expressed by the CEGAT in a case, was later held to be incorrect in a Larger Bench decision.”
Factual Background
The appellants have been engaged in body building of motor vehicles as job work. The manufacturers entrust them with the chassis on which the body is built by the appellant. At the time of clearance of the chassis for the purpose of body building, excise duty is paid by the manufacturer on the valuation of the chassis, worked out in terms of Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, which is 110 % of the cost of its manufacture. After completion of the body building, the completed motor vehicle, with the body built, is returned to the manufacturer and at the time of clearance by the job workers (appellants), excise duty is computed after availing CENVAT credit of duty paid on the chassis, on the sum total of the cost of the manufacturer, the directly received raw materials, the job work charges and the profit of the job worker.
The excise duty of the body built is worked out on the basis of the actual cost of manufacture of chassis without adding 10% additional cost, which according to the assessee represents the profit margin of the manufacturer. The issue which arose was whether 10% profit of the manufacturer, included first in terms of Rule 8 of the Valuation Rules, which is part of the value of the intermediate product, i.e. chassis, could be deducted or not.
Reasoning
Dealing with the issue with respect to the penalty that can be levied based on the extended limitation period under the proviso to Section 11A of the Act, the Bench referred to the judgment in Larsen & Toubro Ltd. v. CCE (2007) wherein it was held that extension of the period of limitation entails both civil and criminal consequences and therefore reasons thereof must be specifically stated in the SCN, in the absence of which, the Court would be entitled to raise an inference that the case was not one where the extended period of limitation could be invoked.
Reference was also made to Continental Foundation Joint Venture Holding v. CCE (2007) wherein the words employed in the proviso to Section 11-A has been explained and it has been held that as far as ‘fraud’ and ‘collusion’ are concerned, the intent to evade duty is built into these words and ‘misstatement’ or ‘suppression’ of facts are clearly qualified by the word ‘wilful’, which also means with an intent to evade duty.
Coming to the facts of the case, the Bench noted that the manufacturer cleared the chassis at 110% of its cost of manufacture, which was known to the Department.
“Hence, if 10% was not added when computing the duty at the time of clearance by the job worker, the department ought to have taken immediate action under subsection (1). The proviso cannot be invoked to extend the period of limitation”, it added.
Thus, allowing the appeals and setting aside the order of the Tribunal which affirmed the order of the original authority and the appellate authority, the Bench ordered, “We make it clear that the assessee’s liability to include the entire cost price on which excise duty is paid by the manufacturer on supply of chassis for body building, at the time of its supply of the built motor vehicle is unassailable, which for the subject year is not leviable for reason of limitation having run to the peril of the revenue. The demand raised was for the period 01.11.2004 to 31.03.2007. The SCN dated 30.04.2008 was beyond the oneyear period provided under Section 11-A (1).”
Cause Title: Audi Automobiles v. Commissioner of Central Excise and Service Tax, Indore (Neutral Citation: 2026 INSC 858)