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                                  REPORTABLE IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 6060 OF 2003

M/S. UNIWORTH TEXTILES LTD. — APPELLANT  

VERSUS

COMMISSIONER OF CENTRAL EXCISE, RAIPUR — RESPONDENT

J U D G M E N T

D.K. JAIN, J.

1. This appeal under Section 130-E of the Customs Act, 1962 (for  

short “the Act”) arises from the final Order No. 142/03-B dated  

18.02.2003,  passed  by  the  Customs,  Excise  &  Gold  (Control)  

Appellate Tribunal, New Delhi (for short “the Tribunal”). By the  

impugned order, the Tribunal has upheld the levy of customs duty  

on the import of furnace oil as also the penalty under Section  

112 of the Act, rejecting the plea of the appellant that demand  

of the duty along with the penalty was barred by limitation.   

2. The  appellant,  an  Export  Oriented  Unit  (for  short  “EOU”),  is  

engaged in the manufacture of all wool and poly-wool worsted grey  

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fabrics. It was granted the status of EOU by the Government of  

India, Ministry of Industry, Department of Industrial Development  

by way of a Letter of Permission (for short “the LOP”) dated  

31.08.1992 as amended by letter dated 4.5.1993. The appellant  

applied for a license for private bonded warehouse, which was  

granted to it under C. No. V (Ch.51)    13-01/92/100%EOU dated  

30.09.1992 by the Assistant Collector, Central Excise Division-  

Raipur for storing inputs, raw materials, etc. either imported  

duty-free  by  availing  concessions  available  for  100%  EOU  or  

procured locally without payment of duty for use in manufacture  

of all wool, poly-wool and other fabrics.   

3. For interaction with the appellant, its sister unit, Uniworth  

Ltd., another EOU, engaged in the generation of power from a  

captive power plant, obtained another LOP dated 1.11.1994. The  

said  LOP,  dated  1.11.1994,  permitted  usage  of  electricity  

generated by the captive power plant by both, Uniworth Ltd. and  

the  appellant  Uniworth  Textiles  Ltd.  The  appellant  purchased  

electricity from Uniworth Ltd. under an agreement which continued  

till 1999.  

4. Prior to January-February, 2000, the sister unit i.e. Uniworth  

Ltd. procured furnace oil required for running the captive power  

plant. This purchase of furnace oil was exempted from payment of  

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customs  duty  under  Notification  No.  53/97-Cus.,  the  relevant  

portion of which reads as follows: -

“Notification No. 53/97-Cus., dated 3-6-1997

Exemption  to  specified  goods  imported  for  production  of  goods  for  export  or  for  use  in  100%  Export-Oriented  Undertakings -- New Scheme -- Notification No. 13/81-Cus.  rescinded

In exercise of the powers conferred by sub-section (1) of  section  25  of  the  Customs  Act,  1962  (52  of  1962),  the  Central Government being satisfied that it is necessary in  the public interest so to do, hereby exempts goods specified  in the Table below (hereinafter referred to as the goods),  when imported into India, for the purpose of manufacture of  articles  for  export  out  of  India,  or  for  being  used  in  connection with the production or packaging or job work for  export of goods or services out of India by hundred per cent  Export Oriented units approved by the Board of Approvals for  hundred  per  cent  Export  Oriented  Units  appointed  by  the  notification  of  Government  of  India  in  the  Ministry  of  Industry, Department of Industrial Policy and Promotion for  this purpose, (hereinafter referred to as the said Board),  from the whole of duty of customs leviable thereon under the  First Schedule to the Customs Tariff Act, 1975 (51 of 1975)  and  the  additional  duty,  if  any,  leviable  thereon  under  section 3 of the said Customs Tariff Act...”

Entry  11 of  the said  notification at  the relevant  time read  as  

follows: -

“11. Captive power plants including captive generating sets  and their spares for such plants and sets as recommended by  the said Board of Approvals.”

5. In January-February, 2000, Uniworth Ltd. exhausted the limit of  

letter of credit opened by it for the duty-free import of furnace  

oil. It made an alternative arrangement of procuring duty free  

furnace oil under Notification No. 01/95 titled “Specified goods  

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meant for manufacture and packaging of articles in 100% EOU or  

manufacture or development of electronic hardware and software in  

EHTP or  STP” dated 04.01.1995. The said notification reads as  

follows :-

“Notification No. 1/95-Central Excise

In exercise of the powers conferred by sub-section (1) of  section 5A of the Central Excises and Salt Act/ 1944 (1 of  1944),  read  with  sub-section  (3)  of  section  3  of  the  Additional Duties of Excise (Goods of Special Importance)  Act,  1957  (58  of  1957),  the  Central  Government  being  satisfied that it is necessary in the public interest so to  do, hereby exempts excisable goods, specified in Annexure I  to this notification (hereinafter referred to as the said  goods), when brought in connection with -

(a) the manufacture and packaging of articles, or for  production or packaging or job work for export of  goods or services out of India into hundred percent  export oriented undertaking  (hereinafter referred  to as the user industry); or;

XXX    XXX XXX

from the whole of,

(i)    the  duty  of  excise leviable  thereon  under  section 3 of the  Central Excise Act, 1944 (1 of  1944), and

(ii)    the additional duty of  excise leviable  thereon under sub-section (1) of section 3 of the  Additional  Duties  of  Excise  (Goods  of  Special  Importance) Act, 1957 (58 of 1957),

                   XXX    XXX XXX

ANNEXURE I

3.    Captive  power  plants  including  captive  generating sets and transformers as recommended by  the Development Commissioner/Designated Officer.

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3B.    Spares,  fuel,  lubricants,  consumables  and  accessories  for  captive  power  plants  including  captive generating sets and spares, consumables and  accessories  for  transformers  as  approved  by  the  Assistant  Commissioner  or  Deputy  Commissioner  of  Central Excise.

3C.    Furnace  oil  required  for  the  boilers  as  approved by the Assistant Commissioner of Customs  or  Central  Excise  on  the  recommendation  of  the  Development Commissioner.”

6. Therefore,  Uniworth  Ltd.  informed  the  appellant  that  it  would  

require the arrangement for running the captive power plant for  

its own use, and hence, would be compelled to stop the supply of  

electricity  to  the  appellant.  Consequently,  as  a  temporary  

measure,  for  overcoming  this  difficulty,  the  appellant,  while  

availing the benefit of Notification   No. 53/97-Cus, procured  

furnace oil from Coastal Wartsila Petroleum Ltd., a Foreign Trade  

Zone unit. It supplied the same to Uniworth Ltd. for generation of  

electricity, which it continued to receive as before.  

7. Since the appellant was procuring furnace oil for captive power  

plant of another unit, it wrote to the Development Commissioner  

seeking clarification that whether duty on the supply and receipt  

of furnace oil and electricity respectively was required to be  

paid. The Development Commissioner, referring to a circular dated  

12.10.1999 of the Ministry of Commerce, said as follows: -

“They are procuring surplus power from their sister concern  M/s.  Uniworth  Ltd.  (Unit-  1,  LOP  dated  31.01.1989)  under  

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Permission  No.  248(93)  dated  01.11.1994  and  the  unit  transferred 2590.30 KL of furnace oil to M/s. Uniworth Ltd.  (Unit- 1) for their captive power consumption. No permission  is  required  from  this  office  for  duty  free  import/  procurement of POL products for captive power consumption.  It is further to clarify as per the Exim Policy provision,  one EOU may sell/ transfer surplus power to another EOU duty  free in terms of Ministry      of   Commerce Letter No.  1/1/98-EP dated 12.10.1999 (sic)”      

   [Emphasis supplied]

The relevant portion of the Ministry of Commerce Letter No.1/98-EP  

is extracted below:  

“2. No duty is required to paid (sic) on sale of surplus  power  from  an  EOU/EPZ  unit  to  another  EOU/EPZ  unit.  Development Commissioner of EPZ concerned would be informed  in writing for such supply and proper account of consumption  of raw material would be maintained by the supplying unit  for calculation of NFEP.”

8. Yet,  the  appellant  received  a  show  cause  notice  from  the  

Commissioner of Customs, Raipur, demanding duty for the period  

during  which  the  appellant  imported  furnace  oil  on  behalf  of  

Uniworth Ltd. It gave the following reason for the same: -

“1.1.  M/s.  Uniworth  Ltd.  (Power  Division),  Raipur,  is  engaged in the generation of power. M/s. Uniworth Textiles  Ltd.  and  M/s.  Uniworth  Ltd.  both  are  distinct  companies  having  different  LOP  Central  Excise  Registration  No.  and  different board of directors. They are different companies  as  per  Companies  Act  and  they  prepare  separate  balance  sheet…

4.2. Therefore it appears that the noticees had not received  742.5  KL  of  furnace  oil  …  from  M/s.  Coastal  Wartsila  

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Petroleum Ltd… in their factory at all as neither they had  storing facility to store the furnace oil so procured nor  they had any power plant to utilize the said furnace oil to  generate  electricity.  They  also  did  not  have  LOP  from  Government  of  India…  to  procure  and  use  furnace  oil  to  generate electricity as they did not have any power plant in  their factory… Considering the above fact it is clear that  the procurement of 742.5 KL of furnace oil under shipping  bill,  without  payment  of  customs  duty,  is  against  the  provisions  of  Customs  Act,  1962  and  rules  made  hereunder  (sic).”   

9. The show cause notice was issued on 02.08.2001, more than six  

months after the appellant had imported furnace oil on behalf of  

Uniworth Ltd. in January, 2001. This time period of more than  

six months is significant due to the proviso to Section 28 of  

the Act.  The Section, at the relevant time, read as follows: -  

“28. Notice for payment of duties, interest, etc.  

(1) When any duty has not been levied or has been short- levied or erroneously refunded, or when any interest payable  has not been paid, part paid or erroneously refunded, the  proper officer may,-

(a) in the case of any import made by any individual for his  personal  use  or  by  Government  or  by  any  educational,  research or charitable institution or hospital, within one  year;

(b) in any other case, within six months, from the relevant  date, serve notice on the person chargeable with the duty  or interest which has not been levied or charged or which  has been so short-levied or part 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 has not been levied or has been  short-levied or the interest has not been charged or has  been part paid or the duty or interest has been erroneously  refunded by reason of collusion or any wilful misstatement  or suppression of facts by the importer or the exporter or  

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the  agent  or  employee  of  the  importer  or  exporter,  the  provisions of this sub-section shall have effect as if for  the  words  “one  year”  and  “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 one year or  six months or five years, as the case may be."

      [Emphasis supplied]

10. The Section imposes a limitation period of six months within  

which the concerned authorities must commence action against an  

importer/assessee in case of duties not levied, short-levied or  

erroneously refunded. It allows the said limitation period to be  

read  as  five  years  only  in  some  specific  circumstances,  viz.  

collusion, willful misstatement or suppression of facts. Since  

the said show-cause notice was issued after the elapse of six  

months, the revenue, for its action to be legal in the eyes of  

law, can only take refuge under the proviso to the section.  

11. Both  the  appellate  authorities,  viz.  the  Commissioner  of  

Customs and Central Excise (Appeals) and the Tribunal, rejected  

the claims of the appellant and affirmed payment of duty and  

penalty.  They  reasoned  that  since  the  appellant  procured  the  

furnace oil not for its own captive power plant, but for that of  

another,  it  could  not  claim  exemption  from  payment  of  duty;  

entitlement of duty free import of fuel for its captive power  

plant lies with the owner of the captive power plant, and not the  

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consumer of electricity generated from that power plant. Little  

or no attention was paid to the issue of limitation, which in our  

opinion, is the primary question for consideration in this case.  

The   Tribunal  only  made  the  following  observations  in  this  

regard:

“2.  …  He  however,  submitted  that  the  demand  of  duty  is  barred by limitation as the show cause notice was issued on  02.08.2001  by  demanding  the  duty  for  the  period  January/February 2001; that the Department was aware that  the appellants do not have power plant and as such furnace  oil could not have been used by them captively; that this is  evident from letter dated 17.07.2001…

4…  The  appellants  have  also  not  brought  on  record  any  material in support of their contention that the Department  was  aware  of  the  fact  that  the  appellants  did  not  have  captive power plant. In view of this the demand cannot be  held to be hit by the time limit.”

Hence, the appellant is before us in this appeal.

12. We  have  heard  both  sides,  Mr.  R.P.  Bhatt,  learned  senior  

counsel,  appearing  on  behalf  of  the  appellant,  and  Mr.  Mukul  

Gupta, learned senior counsel appearing on behalf of the Revenue.  

We  are  not  convinced  by  the  reasoning  of  the  Tribunal.  The  

conclusion  that  mere  non-payment  of  duties  is  equivalent  to  

collusion or willful misstatement or suppression of facts is, in  

our  opinion,  untenable.  If  that  were  to  be  true,  we  fail  to  

understand  which  form  of  non-payment  would  amount  to  ordinary  

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Therefore, if non- disclosure of certain items assessable to duty  

does not invite the wrath of the proviso, we fail to understand how  

the non-payment of duty on disclosed items, after inquiry from the  

concerned department meets, with that fate.

17. In fact, the Act contemplates a positive action which betrays a  

negative  intention  of  willful  default.   The  same  was  held  by  

Easland Combines, Coimbatore Vs. The Collector of Central Excise,  

Coimbatore5 wherein this Court held:-

“31.It is settled law that for invoking the extended period  of limitation duty should not have been paid, short levied  or  short  paid  or  erroneously  refunded  because  of  either  fraud, collusion, wilful misstatement, suppression of facts  or contravention of any provision or rules.  This Court has  held that these ingredients postulate a positive act and,  therefore,  mere  failure  to  pay  duty  and/or  take  out  a  licence which is not due to any fraud, collusion or willful  misstatement or suppression of fact or contravention of any  provision is not sufficient to attract the extended period  of limitation.”

[Emphasis supplied]  

18. We are in complete agreement with the principle enunciated in  

the above decisions, in light of the proviso to Section 11A of the  

Central Excise Act, 1944. However, before extending it to the Act,  

we  would  like  to  point  out  the  niceties  that  separate  the  

analogous  provisions  of  the  two,  an  issue  which  received  the  

5 (2003) 3 SCC 410

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indulgence of this Court in Associated Cement Companies Ltd. Vs.  

Commissioner of Customs6 in the following words:-  

“53…Our attention was drawn to the cases of CCE v. Chemphar  Drugs  and  Liniments  (1989)  2  SCC  127,  Cosmic  Dye  Chemical v. CCE  (1995)  6  SCC  117, Padmini  Products v. CCE  (1989) 4 SCC 275, T.N. Housing Board v. CCE 1995 Supp (1)  SCC 50  and CCE v. H. M. M. Ltd. (supra). In all these cases  the  Court  was  concerned  with  the  applicability  of  the  proviso to Section 11-A of the Central Excise Act which,  like  in  the  case  of  the  Customs  Act,  contemplated  the  increase in the period of limitation for issuing a show- cause notice in the case of non-levy or short-levy to five  years from a normal period of six months...

54. While  interpreting  the  said  provision  in  each  of  the  aforesaid  cases,  it  was  observed  by  this  Court  that  for  proviso  to  Section  11-A  to  be  invoked,  the  intention  to  evade payment of duty must be shown. This has been clearly  brought out in  Cosmic Dye Chemical case where the Tribunal  had held that so far as fraud, suppression or misstatement  of  facts  was  concerned  the  question  of  intent  was  immaterial.  While  disagreeing  with  the  aforesaid  interpretation  this  Court  at  p.  119  observed  as  follows:  (SCC para 6)

‘6. Now so far as fraud and collusion are concerned,  it is evident that the requisite intent, i.e., intent  to evade duty is built into these very words. So far  as  misstatement  or  suppression  of  facts  are  concerned,  they  are  clearly  qualified  by  the  word  ‘wilful’  preceding  the  words  ‘misstatement  or  suppression  of  facts’  which  means  with  intent  to  evade duty. The next set of words ‘contravention of  any of the provisions of this Act or Rules’ are again  qualified by the immediately following words ‘with  intent to evade payment of duty’. It is, therefore,  not correct to say that there can be a suppression or  misstatement of fact, which is not wilful and yet  constitutes a permissible ground for the purpose of  the  proviso  to  Section  11-A.  Misstatement  or  suppression of fact must be wilful.’

The aforesaid observations show that the words “with intent  to evade payment of duty” were of utmost relevance while  construing the earlier expression regarding the misstatement  

6 (2001) 4 SCC 593, at page 619

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or suppression of facts contained in the proviso. Reading  the proviso as a whole the Court held that intent to evade  duty was essentially before the proviso could be invoked.

55. Though it was sought to be contended that Section 28 of  the Customs Act is in pari materia with Section 11-A of the  Excise Act, we find there is one material difference in the  language of the two provisions and that is the words “with  intent to evade payment of duty” occurring in proviso to  Section 11-A of the Excise Act which are missing in Section  28(1) of the Customs Act and the proviso in particular…

56. The proviso to Section 28 can inter alia be invoked when  any duty has not been levied or has been short-levied by  reason  of  collusion  or  any  wilful  misstatement  or  suppression of facts by the importer or the exporter, his  agent  or  employee.  Even  if  both  the  expressions  “misstatement”  and  “suppression  of  facts”  are  to  be  qualified by the word “wilful”, as was done in the Cosmic  Dye Chemical case while construing the proviso to Section  11-A,  the  making  of  such  a  wilful  misstatement  or  suppression of facts would attract the provisions of Section  28 of the Customs Act. In each of these appeals it will have  to be seen as a fact whether there has been a non-levy or  short-levy and whether that has been by reason of collusion  or any wilful misstatement or suppression of facts by the  importer or his agent or employee.”

  [Emphasis supplied]

19. Thus,  Section  28  of  the  Act  clearly  contemplates  two  

situations, viz. inadvertent non-payment and deliberate default.  

The former is canvassed in the main body of Section 28 of the Act  

and is met with a limitation period of six months, whereas the  

latter, finds abode in the proviso to the section and faces a  

limitation period of five years. For the operation of the proviso,  

the intention to deliberately default is a mandatory prerequisite.  

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Law Dictionary, Sixth Edition (pp 1599) defines “willful” in the  

following manner: -

“Willful. Proceeding from a conscious motion of the will;  voluntary; knowingly; deliberate. Intending the result which  actually comes to pass…  

An act or omission is “willfully” done, if done voluntarily  and  intentionally  and  with  the  specific  intent  to  do  something the law forbids, or with the specific intent to  fail to do something the law requires to be done…”  

23. In  the  present  case,  from  the  evidence  adduced  by  the  

appellant, one will draw an inference of  bona fide  conduct in  

favour of the appellant. The appellant laboured under the very  

doubt which forms the basis of the issue before us and hence,  

decided to address it to the concerned authority, the Development  

Commissioner,  thus,  in  a  sense  offering  its  activities  to  

assessment. The Development Commissioner answered in favour of the  

appellant and in its reply, even quoted a letter by the Ministry  

of Commerce in favour of an exemption the appellant was seeking,  

which anybody would have found satisfactory. Only on receiving  

this  satisfactory  reply  did  the  appellant  decide  to  claim  

exemption.  Even if one were to accept the argument that the  

Development  Commissioner  was  perhaps  not  the  most  suitable  

repository  of  the  answers  to  the  queries  that  the  appellant  

laboured under, it does not take away from the bona fide conduct  

of the appellant. It still reflects the fact that the appellant  

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made efforts in pursuit of adherence to the law rather than its  

breach.  

24. Further, we are not convinced with the finding of the Tribunal  

which placed the onus of providing evidence in support of  bona  

fide  conduct, by observing that “the appellants had not brought  

anything on record” to prove their claim of bona fide conduct, on  

the appellant. It is a cardinal postulate of law that the burden  

of proving any form of mala fide lies on the shoulders of the one  

alleging it. This Court observed in Union of India Vs. Ashok Kumar  

&  Ors.8 that  “it  cannot  be  overlooked  that  burden  of  

establishing mala fides is very heavy on the person who alleges  

it. The allegations of mala fides are often more easily made than  

proved, and the very seriousness of such allegations demand proof  

of a high order of credibility.”

25. Moreover, this Court, through a catena of decisions, has held  

that the proviso to Section 28 of the Act finds application only  

when specific and explicit averments challenging the fides of the  

conduct of the assessee are made in the show cause notice, a  

requirement that the show cause notice in the present case fails  

to meet. In  Aban Loyd Chiles Offshore Limited and Ors.  (supra),  

this Court made the following observations:

8 (2005) 8 SCC  760

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the assessee is put to notice, the assessee would  have  no  opportunity  to  meet  the  case  of  the  department. The defaults enumerated in the proviso to  the said sub-section are more than one and if the  Excise Department places reliance on the proviso it  must be specifically stated in the show-cause notice  which is the allegation against the assessee falling  within the four corners of the said proviso....”

          (Emphasis supplied)

26. Hence,  on account  of the  fact that  the burden  of proof  of  

proving mala fide conduct under the proviso to Section 28 of the  

Act lies with the Revenue; that in furtherance of the same, no  

specific averments find a mention in the show cause notice which  

is a mandatory requirement for commencement of action under the  

said  proviso;  and  that  nothing  on  record  displays  a  willful  

default on the part of the appellant, we hold that the extended  

period of limitation under the said provision could not be invoked  

against the appellant.

27. In view of the afore-going discussion, the appeal is allowed  

and the decisions of the authorities below are set aside, leaving  

the parties to bear their own costs.   

……..………………………………….

            (D.K. JAIN, J.)  

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……..………………………………….

         (MADAN B. LOKUR, J.)

NEW DELHI,

JANUARY 22, 2013.

RS

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