NON-REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.  6058 OF 2011  (Arising out of S.L.P.(C) No.13594 of 2009)

C.C.E., Mangalore .....Appellant.

        Versus

M/s. Pals Microsystems Ltd., Mangalore     …..Respondents

J U D G M E N T   

ANIL R. DAVE, J.

1. Delay condoned.

2. Leave granted.

3.      Being aggrieved by the judgement and order dated 1st July,  

2008 delivered in the CEA No. 59/2007 by the High Court of Karnataka  

at Bangalore, this appeal has been filed by the Revenue.  

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4.      The respondent, a limited company, is a holder of Central  

Excise Registration and is a manufacturer of data processing machines  

and  is  also  availing  benefits  under  Modvat  Scheme.  On  25.10.1996,  

Superintendent  of  Central  Excise  visited  the  factory  premises  of  the  

respondent-assessee  for  verification  of  the  stock  of  inputs  on  which  

Modvat credit was availed. It was noticed that there was a vast difference  

between  physical  stocks  available  and  that  shown  in  RG23A  Part  1  

Register.  The  Managing  Director  of  the  respondent-assessee,   in  his  

statement dated 25.10.1996 given before the Superintendent of Central  

Excise, West Range, Mangalore, admitted that the actual physical stock  

of inputs and entries in the RG23A Part 1 Register did not tally because  

the respondent-assessee had removed the Modvatable inputs for sales and  

warranty  replacements.    The  Managing  Director  of  the  respondent-

assessee also admitted the discrepancy i.e. shortage in the stock of inputs  

and stated that their office assistant, who was maintaining their books of  

accounts,  was  only  a  matriculate  and  being  a  non  technical  person,  

committed mistakes. He again stated that the mistake was also due to the  

clubbing of different Modvat inputs coming under the same heading. The  

correct figure was shown in his letter dated 21.1.1997 with all the details,  

admitting   liability  of  Rs.51,  111/-   due  to  the  said  lapses.   He also  

conceded that, due to the aforestated mistakes, the figure of RG23A Part  

I  did  not  reflect  the  actual  quantity  in  stocks  and enclosed a  detailed  

worksheet showing monthly figures of opening balance, receipts, issues  

and closing balance for the past years.  

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5.       On  26.06.2000,  a  show  cause  notice  was  issued  to  the  

respondent-assessee  calling  upon  it  to  show cause  as  to  why  Central  

Excise Duty of Rs. 1,91,537, equivalent to the Modvat credit availed on  

the  shortage  of  physical  stock  of  Modvatable  inputs  should  not  be  

recovered from it and penalty under Section 11AC of the Central Excise  

Act, 1944 (hereinafter referred to as ‘the Act’)  read with Rule 173Q and  

Rule 210 of the Central Excise Rules, 1944 be not imposed and interest  

thereon should not be recovered from it under Section 11AB of the Act.

6.      After  considering  the  reply  and  upon  hearing  a  

representative  of  the  respondent-assessee,  the  Joint  Commissioner  of  

Central  Excise  vide  his  order  in  original  Sl.  No.  14/2000  dated  

09.08.2000,  dropped  further  proceedings  in  the  matter  after  giving  a  

warning to the respondent-assessee.

7.       Aggrieved by the order of the Joint Commissioner of Central  

Excise,  the  Department  filed  an  appeal  before  the  Commissioner  

(Appeals), Bangalore. The Commissioner (Appeals), by the virtue of the  

order in appeal No. 591/2002 dated 04.10.2002, allowed the appeal.  

8.     Being  aggrieved  by  the  order  of  Commissioner(Appeals),  the  

respondent-assessee  filed  an  appeal  before  CESTAT,  Bangalore.  The  

CESTAT, Bangalore, by the order No. 1017/2005 dated 28.6.2005, held  

that  the  second statement  of  the  Managing Director  which was given  

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before issuance of Show Cause Notice, accepting the discrepancies and  

admitting the liability to an extent  of Rs.  51,111/-  was not taken into  

consideration  by  the  Joint  Commissioner  and  the  

Commissioner(Appeals).  They had proceeded only on the basis  of the  

first statement recorded.  The CESTAT did not agree with the reasons  

assigned  by  the  Commissioner(Appeals)  for  allowing  the  appeal  and  

remanded  the  matter  to  the  original  authority,  for  verification  of  the  

assessee’s contention and for passing a detailed, considered order after  

taking into consideration the entire evidence on record.  

9.         In  pursuance  of  the  aforestated  order,  after  hearing  the  

parties,   the  Joint  Commissioner  vide  his  order  dated  25.10.2005  

confirmed  the  duty  demand  of  Rs.1,91,537/-  under  Rule  57  I  of  the  

Central Excise Rules, 1944, read with proviso to Section 11A(1) of the  

Act.  Out of the said amount,  Rs.76,111/- already paid by the assessee  

had been appropriated. Further, a penalty of Rs.1,91,537/- was imposed  

u/s 11AC of the Act  and interest u/s 11AB of the Act was made payable  

by the respondent-assessee.

10.        Aggrieved by the said order dated 25.10.2005, the respondent-  

assessee  filed  an  appeal  before  the  Commissioner(Appeals)  but  the  

Commissioner(Appeals)  dismissed  the  appeal,  vide  order  dated  

23.1.2006.

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11. On  appeal  to  the  CESTAT,  the  Tribunal,  relying  on  the  

judgement of this Hon’ble Court in Nizam Sugar Factory v. CCE, A.P.  

2006 (11) SCC 573 allowed the appeal, vide its order dated 20.12.2006,  

holding  that  the  show cause  notice  was  issued  belatedly  and that  too  

without prior permission of the Commissioner as per the provisions of  

Section 11A of the Act.  

12. On appeal  before  the  High Court  of  Karnataka,  the  High  

Court dismissed the appeal of the Revenue by holding that the Tribunal  

had rightly recorded a finding of fact stating that initiation of proceedings  

against the respondent-assessee was barred by limitation.  

13. Aggrieved by the aforesaid judgment of the High Court, the  

Appellant-Revenue has filed this appeal before this Court.  

14. The Learned Counsel for the Appellant-Revenue submitted that the  

decision of this Court in Nizam Sugars  (supra),  has no application to  

the facts and circumstances of the instant case. Moreover, he contended  

that  the  permission  of  Commissioner  for  invoking  the  provisions  of  

Section 11A of the Act, by the Joint Commissioner was not necessary.  

Thus  he  submitted  that  the  judgment  delivered  by  the  High  Court  

deserves to be quashed.

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15. Upon hearing the  counsel  appearing for  the  appellant  and upon  

perusal of the judgment of the High Court and other orders passed by the  

authorities, we are of the view that the impugned judgment does not need  

any interference.   

16. We have carefully gone through the facts as ascertained by  

the  Tribunal.   Upon  perusal  of  the  order  of  the  tribunal  as  well  the  

judgment delivered by the High Court, it is not in dispute that alleged  

suppression of payment of duty by the respondent-company was brought  

to  the  notice  of  the  authority  on  25th October,  1996,  when  the  

Superintendent  of  Central  Excise  had  inspected  the  premises  of  the  

respondent-assessee,  whereas the show cause notice was issued on 26th  

June,  2000.   The  department  could  not  establish  that  there  was  any  

suppression of facts or a fraud on the part  of the respondent-assessee.  

We  find  that  the  honest  mistake  committed  in  maintenance  of  stock  

register  etc.  was  frankly  admitted  by  the  Managing  Director  of  the  

respondent-assessee.  There is no finding to the effect that there was a  

fraud or willful mis-statement or suppression of facts.  Thus, it is very  

clear that the notice was issued after expiry of the period of limitation.  

In the set of facts, the judgment delivered in the case of  Nizam sugar  

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(supra) would squarely be applicable.  In view of the aforestated facts,  

we are of the view that the judgment delivered by the High Court cannot  

be interfered.

17. In our opinion, the appellant has failed to make out a case  

that proviso  to Section 11A of the Act was applicable.  In view of the  

fact that no case was made out for invoking proviso under Section 11A of  

the Act,  in our opinion,  the judgment delivered by the High Court is just  

and proper and it deserves to be affirmed.

18. For the aforestated reasons, we do not see any substance in  

this appeal and, therefore, the appeal is dismissed with no order as to  

costs.  

………………................................J.                                                                 (Dr. MUKUNDAKAM SHARMA)

                          ……...........................................J.                                                                        (ANIL R. DAVE)

New Delhi July  29,  2011.  

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