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'REPORTABLE'

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.

The appellant has been filing the price list proforma under  Section  4(1)  of  the  Central  Excise  Act,  1944,

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(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

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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

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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

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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

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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

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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.

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