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Jayaswal Neco Industries Ltd. v. Commissioner of C. Ex. & S.T., Raipur
Structured Summary of the Opinion (Order per: Rakesh Kumar, Member (T))
Factual and Procedural Background
M/s. Jayaswal Neco Industries Ltd., Siltara, Distt. Raipur (the appellant) manufactures sponge iron, M.S. billets and similar goods chargeable to Central Excise. During a Central Excise audit of records for 2006-07 it was found that the appellant had availed a VAT exemption under Circular No. 13/FA/(5)/98/584 dated 28-9-99 issued by the Directorate of Industries, Madhya Pradesh. Under that scheme the appellant was exempt from paying VAT to the Government of Chhattisgarh but was permitted to collect VAT from buyers and retain it.
The audit discovered that the appellant had collected and retained Rs. 2,43,96,177/- as VAT in 2006-07 but had not included that amount in the assessable value for central excise purposes. The department issued a show cause notice dated 28-4-2011 invoking the extended period under the proviso to Section 11A(1) of the Central Excise Act, 1944 for recovery of alleged short-paid central excise duty of Rs. 39,03,387/- plus Education Cess of Rs. 78,067/-, interest under Section 11AB and proposed imposition of penalty.
The Addl. Commissioner adjudicated the show cause notice by order-in-original dated 19-6-2012 confirming the duty and cess along with interest and imposing penalty equal to the duty (Rs. 39,81,044/-) under Section 11AC. On appeal, the Commissioner (Appeals) by order dated 4-6-2013 upheld the duty, cess and interest but set aside the penalty under Section 11AC, observing the issue involved interpretation. The appellant filed an appeal against the upheld duty and the Revenue appealed the setting aside of penalty. The appellant also filed a stay application; the matter was finally heard on consent for final disposal.
Legal Issues Presented
- Whether the VAT amount collected by the appellant and retained under a State Government scheme is includible in the assessable value for the purpose of Central Excise duty.
- Whether the department was entitled to invoke the extended limitation period under the proviso to Section 11A(1) of the Central Excise Act, 1944 for issuing the show cause notice dated 28-4-2011 for the 2006-07 period.
- Whether penalty under Section 11AC is payable where the assessee acted under a bona fide belief based on conflicting authority (Tribunal judgments and Board circulars), i.e., whether there was fraud, wilful misstatement or suppression of facts to attract penalty.
Arguments of the Parties
Appellant's Arguments (as presented by Shri Krishna Mohan Menon, Advocate)
- On the substantive question of inclusion of VAT in assessable value, the appellant acknowledged that the Apex Court decided the issue against the appellant in CCE, Jaipur v. Super Synotex (India) Ltd. (S.C.), but contended there is a separate limitation defence.
- The appellant argued that during 2006-07 there existed a series of Tribunal judgments and Board circulars which supported the view that VAT/sales tax collected by an assessee under a special State scheme and retained by the assessee was not to be included in assessable value, creating a reasonable doubt.
- Reliance was placed on the Apex Court decision in Continental Foundation Joint Venture (reported in the text) that where conflicting judgments and circulars create doubt, an assessee acted under bona fide belief and the extended five-year limitation period under the proviso to Section 11A(1) would not apply.
- The appellant therefore pleaded that the show cause notice dated 28-4-2011 for the 2006-07 period was time-barred.
- Regarding penalty, the appellant argued that having acted under bona fide belief and without fraud, wilful misstatement, suppression or deliberate evasion, penalty under Section 11AC was not attracted.
Revenue's Arguments (as presented by Shri Govind Dixit, Departmental Representative)
- The Revenue defended the duty demand and contended the appellant had suppressed relevant facts from the department, thereby justifying invocation of the extended limitation period.
- The Revenue maintained that because full facts (specifically non-inclusion of retained VAT in assessable value) were not disclosed in ER-I Returns or by direct communication, the appellant is guilty of wilful suppression and the penalty imposed by the original adjudicating authority should have been maintained by the Commissioner (Appeals).
Appellant's Rejoinder
- The appellant replied that where VAT was collected from customers, invoices indicated that the amount was collected and exempt; sample invoices were placed on record to show disclosure and to negate any suppression.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| CCE, Jaipur v. Super Synotex (India) Ltd. (Apex Court) | Establishes that VAT retained by the assessee under a State scheme is to be included in the assessable value for Central Excise purposes (issue decided against the appellant). | The court held that on merits the question of inclusion of VAT in assessable value stands decided against the appellant by this Apex Court judgment; accordingly the appellant was liable to pay duty on assessable value including the VAT retained by them, and omission to include it resulted in short payment of duty. |
| CCE v. Continental Foundation Joint Venture (Apex Court) | Where conflicting Tribunal judgments or Board circulars create reasonable doubt about the correct view, an assessee acting on that doubt is regarded as having acted bona fide and the extended limitation period under the proviso to Section 11A(1) will not be applicable. | The court applied this principle to conclude that because Board circulars and several Tribunal judgments supported the appellant's position during the relevant period, the appellant acted under bona fide belief; therefore the department could not invoke the extended five-year limitation period and the demand issued on 28-4-2011 for 2006-07 was held time-barred. |
Court's Reasoning and Analysis
The court proceeded in two analytical steps:
- Merits on inclusion of VAT in assessable value:
The court accepted that the Apex Court in CCE, Jaipur v. Super Synotex (India) Ltd. had decided the substantive question against the appellant. Therefore, on the merits the appellant were liable to pay excise duty on the assessable value including the VAT amount that they had collected and retained; omission to include that amount constituted short payment of duty.
- Applicability of extended limitation period and penalty:
The court observed that the extended period under the proviso to Section 11A(1) could only be invoked if it is proved that the assessee had not acted under bona fide belief or had committed fraud, wilful misstatement or suppression with intent to evade duty. The court then examined the contemporaneous legal landscape during 2006-07 and found that Board’s Circular No. 378/11/98-CX dated 12-3-98 and No. 671/62/2002-CX dated 9-10-2002, together with several Tribunal judgments, supported the view that VAT retained but not paid to the Government was not includible in assessable value. In light of those circulars and Tribunal decisions creating a legitimate doubt, the court applied the principle from CCE v. Continental Foundation Joint Venture that an assessee in such circumstances acted under bona fide belief, precluding application of the extended five-year limitation period.
Because the longer limitation period could not be invoked, the show cause notice dated 28-4-2011 for the 2006-07 period was held to be time-barred. Since the extended period could not be relied upon, and because the court found that the appellant had acted under bona fide belief (i.e., there was no proven fraud, wilful misstatement or suppression with intent to evade duty), there was no basis to sustain penalty under Section 11AC.
Holding and Implications
Final Disposition: The appellant's appeal is allowed; the Revenue's appeal is dismissed; the stay application is disposed of.
Direct consequences for the parties:
- The court recognized that on substantive law the VAT retained should have been included in assessable value (as per the Apex Court's Super Synotex decision), and that omission constituted short payment of duty. However, because the show cause notice was issued after invoking the extended five-year limitation period, the matter survived only if the extended period properly applied.
- Relying on contemporaneous Board circulars and favorable Tribunal decisions that created a bona fide belief, and on the Apex Court principle in Continental Foundation Joint Venture, the court held that the extended limitation period could not be invoked; accordingly the duty demand issued on 28-4-2011 for the 2006-07 period was held time-barred.
- Because the extended period could not be invoked and the court concluded the appellant acted under bona fide belief (no proven fraud, wilful misstatement or suppression with intent to evade duty), penalty under Section 11AC could not be sustained and therefore the Revenue's appeal against the setting aside of penalty failed.
Broader implications: The opinion relies on earlier Apex Court authority and Board circulars to resolve a limitation and penalty issue; the decision's effect is limited to the parties and the facts before the court. The opinion does not announce a new legal principle beyond application of existing precedents.
[Order per : Rakesh Kumar, Member (T)]. - The facts leading to filing of these two appeals and stay applications are, in brief, as under :-
1.1 M/s. Jayaswal Neco Industries Ltd., Siltara, Distt. Raipur (hereinafter referred to as the ‘appellant’) are engaged in the manufacture of Sponge Iron, M.S. Billets, etc., chargeable to Central Excise duty. In course of audit of their Central Excise records for the year 2006-2007, it was found that during this period, they had availed VAT exemption vide Circular No. 13/FA/(5)/98/584, dated 28-9-99 issued by the Directorate of Industries, Madhya Pradesh and accordingly, while they were exempt from the VAT and were not required to pay the same to the Government of Chhattisgarh, they could collect the same from the buyers and retain the same. The Central Excise Audit Officers found that though during 2006-2007, the appellant company had collected an amount of Rs. 2,43,96,177/- as VAT from the customers and had retained the same with them and had not paid to the Government of Chhattisgarh still they had not included this amount in the assessable value of the goods, for the purpose of payment of Central Excise duty, while in terms of the provisions of Section 4(3)(d) of the Central Excise Act, 1944, transaction value excludes only the excise duty, sales tax, and other tax, if any, actually paid or actually payable on the goods. Accordingly, a show cause notice dated 28-4-2011 was issued to the appellant company for recovery of allegedly short paid Central Excise duty amounting to Rs. 39,03,387/- plus Education Cess of Rs. 78,067/- along with interest thereon under Section 11AB and also for imposition of penalty. This show cause notice was issued by invoking extended period under the provision to Section 11A(1) of the Central Excise Act, 1944.
1.2 The above show cause notice was adjudicated by the Addl. Commissioner vide order-in-original dated 19-6-2012 by which the above-mentioned duty demand plus education cess was confirmed by the Addl. Commissioner along with interest and penalty of equal amount, i.e., Rs. 39,81,044/- was imposed on the appellant under Section 11AC. On appeal being filed to the Commissioner (Appeals) against the order of the Addl. Commissioner, the Commissioner (Appeals) vide order-in-appeal dated 4-6-2013 upheld the duty demand plus education cess along with interest but set aside the penalty under Section 11AC observing that the issue being of interpretation does not attract penal provisions of Section 11AC.
1.3 Against the above order of the Commissioner (Appeals), while the appellant company has filed the appeal against the portion of the order upholding the duty and education cess demand along with interest, the Revenue has appeal against the portion of the order setting aside the penalty under Section 11AC. The appellant along with the appeal, have also filed a stay application.
2. Heard both the sides. Though the matter was listed for hearing of the stay application, after hearing the matter for sometime, the Bench was of the view that this matter can be taken up for final disposal. Accordingly, with the consent of both the sides, this matter was heard for final disposal.
3. Shri Krishna Mohan Menon, Advocate, ld. counsel for the appellant, pleaded that so far as the question of excluding from the assessable value, the VAT collected by the appellant and retained by them, is concerned, this issue stands decided by the Apex Court against the appellant in its judgment in the case of CCE, Jaipur v. Super Synotex (India) Ltd. reported in (S.C.). He, however, pleaded that though the issue on merits stands decided against the appellant, the appellant have a case on limitation, as during the period of dispute, i.e., period 2006-07, there were a series of the judgments of the Tribunal and the Board’s Circulars according to which in such cases, where the VAT/Sales Tax is exempt but under special scheme of the State Governments, the assessee is allowed to collect the same from the customers and retain the same, the same it is not to be included in the assessable value. He, therefore, pleaded that the appellant company had acted under bona fide belief that this VAT retained by them is not to be included in the assessable value and hence, longer limitation period of 5 years under proviso to Section 11A(1) of the Central Excise Act, 1944 would not be applicable and in this regard, he placed reliance upon the Apex Court judgment in the case of Continental Foundation Joint Venture reported in , wherein it was held that when on account of conflicting judgments of the Tribunal or Courts or the Board’s Circular there was scope for entertaining doubt about the view to be taken, the assessee would have to be treated as having acted under bona fide belief and extended limitation period under proviso to Section 11A(1) would not be applicable. He, therefore, pleaded that since in this case, the show cause notice for demand of short paid duty during 2006-07 had been issued on 28-4-2011, the same is time-barred. With regard to the Revenue’s appeal, he pleaded that when the appellant company had acted in bona fide belief and there cannot be any element of fraud, wilful misstatement, suppression of facts, or deliberate contravention of the provisions of Central Excise Act, 1944 or of the Rules made thereunder with intent to evade payment of duty, there is no question of imposition of penalty under Section 11AC and as such, there is no merit in the Revenue’s appeal praying for imposition of penalty on the appellant under Section 11AC.
4. Shri Govind Dixit, ld. Departmental Representative, vehemently defended the portion of the impugned order upholding the duty demand along with interest and pleaded that the appellant company is guilty of suppressing the relevant facts from the department and hence, extended period has been correctly invoked. He pleaded that since the appellant company had suppressed relevant facts from the department, the penalty imposed by the original adjudicating authority on the appellant company under Section 11AC should have been maintained by the first appellate authority and the same has been wrongly set aside. Shri Dixit emphasized that the fact of non-inclusion of the VAT amount retained by them in the Assessable Value of the goods was not disclosed by them to the department either in the ER-I Returns or by direct communication and when full facts were not disclosed by the appellant company, they have to be held guilty of wilful suppression of the relevant facts.
5. Shri Menon in rejoinder pleaded that wherever the VAT amount was collected from the customers, the fact that it has been collected from the customers and it is exempt, is mentioned in the invoices and in this regard, he drew attention to some of such sample invoices placed on record. He accordingly, emphasized that there was no suppression of facts on the part of the appellant.
6. We have considered the submissions from both the sides and perused the records. On merits, the question as to whether the VAT which was exempt and which the appellant have collected from the customers and retained in terms of a Scheme of the State Government, is to be included in the assessable value or not, stands decided against the appellant by the Apex Court’s judgment in the case of Super Synotex (India) Ltd. (supra). Therefore, we hold that the appellant during the period of dispute were liable to pay duty on the assessable value including amount of VAT collected by them from their customers and retained by them and since the VAT amount was not included in the assessable value, there has been short payment of duty. However, the duty demand for the 2006-07 period has been issued only on 28-4-2011 by invoking extended period of five years under proviso to Section 11A(1) and this demand would survive only if it can be proved that the appellant had not acted under bona fide belief or that they had committed fraud or wilful misstatement or suppression of facts with intent to evade payment of duty. However, we find that during the period of dispute, the Board’s Circular No. 378/11/98-CX, dated 12-3-98 and No. 671/62/2002-CX, dated 9-10-2002 were in favour of the appellant, as these circulars clarified that sales tax/VAT collected by an assessee but retained and not paid to the Government is not includible in the assessable value. Not only this, there were several judgments of the Tribunal on this issue which were in favour of the appellant company, the last other judgment being in the case of Super Synotex (India) Ltd. (supra), which was subsequently reversed by the Apex Court vide judgment reported in (S.C.). In view of the Board’s Circular and the judgments of the Tribunal, which were in favour of the appellant, it can be said that the appellant had acted under bona fide belief that VAT amount collected by them from the customers and retained was not includible in the assessable value and hence, in these circumstances, in view of the Apex Court judgment in the case of CCE v. Continental Foundation Joint Venture (supra), the longer limitation period would not be available and as such, the duty demand would have to be held as time barred.
7. When as discussed above, the appellant have been held to be acted under bona fide belief and for this reason, the longer limitation period under proviso to Section 11A(1) has been held to be not available to the department, there would be no question of imposition of penalty on the appellant under Section 11AC.
8. In view of the above discussion, the appeal filed by appellant is allowed and the appeal filed by the Revenue is dismissed. The stay application also stands disposed of.
(Operative part already pronounced)
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