Holding

A demand for excise duty beyond six months is permissible only if fraud, collusion, wilful mis‑statement, suppression of facts or a similar contravention with intent to evade duty is established; absent such proof, the demand is limited to six months.

Summary

The respondent, ChempHar Drugs, manufactured patent and proprietary medicines and pharmacopoeia preparations and claimed exemption from excise duty under Notification 71/78, but omitted the value of goods falling under Tariff Item 68 in its declaration. The Collector issued a show‑cause notice and demanded duty for the period April‑October 1980, invoking the five‑year limitation under the proviso to s.11‑A of the Central Excise Act, 1944. The Tribunal held that the demand beyond six months was time‑barred because there was no fraud, collusion, wilful mis‑statement or suppression of facts, the omission being based on a bona‑fide interpretation of the law. The Supreme Court affirmed that a demand beyond six months can be made only if such dishonest conduct is proved, and therefore upheld the Tribunal’s limitation of the demand to six months. Consequently, the Collector’s appeal was dismissed.

Issues considered

Whether the Collector could invoke the five‑year period under the proviso to s.11‑A of the Central Excise Act to demand excise duty when the assessee omitted certain values in its exemption declaration.
Whether the omission amounted to fraud, collusion, wilful mis‑statement, suppression of facts or any contravention with intent to evade duty.

Legislation cited

Central Excise and Salt Act, 1944s. 11-A
Central Excise Rules, 1944s. Rule 10(1) proviso, s. Rule 173Q

Subjects

central exciselimitation periodfraudmis‑statementsuppression of factsexemption notificationdemand of dutytax law

Judgment

COLLECTOR OF CENTRAL EXCISE, HYDERABAD.
A
v.
CHEMPHAR DRUGS & LINIMENTS, HYDERABAD.

FEBRUARY 14, 1989

[SABYASACHI MUKHARJI ANDS. RANGANATHAN, JJ] B
.¥
Central Excise and Salt Act, 1944/Central Excise Rules, 1944:
Section llA/Rules Wand J73Q-Ma~ufacturer of patent and proprie-
tary medicines-Levy and demand of excise duty-When arises-

r
Limitation period of five years for raising demand-Condition for
w~~ c
The respondent-firm mannfactnred patent and proprietary
1 (P & P) medicines falling nnder T.I. 14E and also pharmacopoeia! ·
preparations falling under T .I. 68 of the Central Excise Tariff of an
aggregate value of Rs.20,59,338.60 and cleared the same during the
period 1.4. 79 to 31.3.80 without payment of duty, availing the benefit of D
·exemption of excise duty under Notification No. 80 of 1980. The respon-
dent also cleared, during the period from !st April, 1980 to 29th
October, 1980 (P & P) medicines falling under T.I. 14E valued at
--f Rs.4,32,050.09.

The respondent filed a declaration for exemption, under Notifica- E
tion No. 71 of 1978 dated 1.3.1978, and furnished particulars of oilly
the value of P & P medicine8 manufactured and cleared during the
preceding financial year 1979-80 and did not furnish the particulars of
the value of the goods under Tariff Item 68 during that financial year.
".The manufacturer also did not file any declaration under Notification
_,~~o. Ill of 1978 dated 9.5.1978, claiming exemption from the licensing F
lcontrol. However, on July 30, 1980 the firm filed a classification list in
·respect of P & P medicines claiming exemption under Notification No.
80/80.

The appellant issued a show cause notice to the respondent to
explain as to why excise duty in respect of patent and proprietary G
medicines manufactured and cleared by it should not be demanded
under proviso (a) to Rule 10(1) of the Central Excise Rules and why
penalty should not be imposed under Rule I 73Q of the Central Excise
Rule, 1944 for having cleared the goods without payment of duty in
contravention of Rule J73Q(a) and (d) of the Rules. On receipt of reply,
the appellant held the respondent to be ineligible for the benefit of the H
711
712 SUPREME COURT REPORTS [1989] 1 S.C.R

A
two notifications and demanded duty in respect of the goods cleared by )r
them for the period 1.4.1980 to 29.10.80. He also held that in view of
the respondent's failure to reveal correct position, the firm was liabl.e to
pay the duty, and that the time limit for the recovery of the duty under
Rule 10 (Section UA) of the Central Excise Rules would run for five
years.
B
The respondent filed an appeal before the Tribunal contending
that the demand for the period beyond six months from the receipt of
the show cause notice was time-barred inasmuch as there was no
suppression or mis-statement of facts by the appellant with a view to ,
evade payment of duty. The Revenue's plea was that there was suppres-
sion and/or misd~ 0 l~ration and/or wrong information furnished in the
c declaration itself. Hence the appeal by the Revenue.

Dismissing the appeal,

HELD: 1.1 In order to make the demand for duty sustainable
D beyond a period of six months and up to a period of 5 years, in view of
the proviso to sub-s. llA of the Act, it has to be established that th•
duty of excise had not been levied or paid or short-levied or short-paid,
or erroneously refunded by reasons of either fraud or collusion or wilful
mis-statement or suppression of facts or contravention of any provision i-
of the Act or Rules made thereunder, with intent to evade pa~·ment
E of duty. Something positive other than mere inaction or failure on the
part of the manufacturer or producer or conscious or deliberate with-
holding of information when the manufacturer knew otherwise, is
required before it is saddled with any liability, beyond the period of six
months. [717A-C]

F 1.2 Whether in a particular set of facts and circumstances theret~
was any fraud or collusion or wilful mis-statement or suppression or
contravention of any provision of any Act, is a question of fact depend-
ing upon the facts and circumstances ofa particular case. [717C-D]

In the instant case the assessee declared the goods on the basis of
G their belief of the interpretation of the provisions of the law that the
exempted goods were not required to be included and these did not -.J.
•..•""
include the value of the exempted goods which the assessee manufac- .,..,
lured at the relevant time. The Tribunal found that that the explanation
was plausible, and also noted that the Department had full knowledge
of the facts, about manufacture of all the goods manufactured by the
H respondent when the declaration was filed hy the respondent. The
COLLECTOR OF C.E. v. CHEMPHAR DRUGS [MUKHARJI, J.] 713

respondent did not include the value of the product other than those
A
falling under Tariff Item 14E manufactured hy the respoodent and
this was in the knowledge, according to the Tribunal, of the authorities.
The findings of the Tribunal have not been challenged before this
Court. [717D-F]

~. .Jr The Tribunal also found that the facts of case did not warrant any B
inference of fraud. [717D]

Having regard to these, and in view of the requirements of s. HA
__of Ifie Act, the claim had to be limited to a period of six months, prior to
the date of issue of show cause notice. The Tribunal was right in its
conclusion. [717G]
c
~ CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1632
· of 1988.

From the Order dated 8.1.1988 of the Customs Excise and Gold
(Control) Appellate Tribunal, New Delhi in Appeal No. SD SB/T D
716/81-C (Order No. 17/88-C.)

A.K. Ganguli, A. Sobba Rao and Mrs. Sushma Suri for the
. -+- Appellant.
A.N. Haksar, R. Karanjawala, Ms. M. Arora and Mrs. M. E
Karan jawala for the Respondent.

The Judgment of the Court was delivered by

) SABYASACHI MUKHARJI, J. This appeal is under section,
-....(. · ·f.J5(L)(b) of the Central Excises and Salt Act, 1944 (hereinafter called F
'the Act') against the order dated 8th January, 1988 passed by the
Customs, Excise & Gold (Control) Appellate Tribunal. The issue
involved in this appeal was whether in the facts and the circumstances
of the case, the Tribunal was legally justified in restricting the demand
of duty to six months prior to the date of issue of show-cause notice,
particularly in a case where longer period was invoked on the ground G
...._ . of suppression of information in the declaration furnished by the
· ,_,. respondent.
'•
The respondent manufactured patent and proprietary (P & P)
medicines falling under T.I. 14E and also pharmacopoeia! prepara-
tions falling under T.I. 68 of the Central Excise Tariff of an aggregate H
714 SUPREME COURT REPORTS [1989] 1 S.C.R,

value of Rs.20,59,338.60 and cleared during the period of 1.4.1979 to
'A
31.3.1980, the same without payment of duty, availing the benefit of >r.

exemption notification No. 80/80.

Under the provisions of sub-clause (ii) of clause 2 of notification
No. 80/80 dated 19th June, 1980 and sub-clause (iii) of clam;e (a) of
B notification No. 71/78 dated 1.3.1978 the manufacturer would not be
eligible for exemption under the two notifications in .respect of clear- 1\ ·
ance of patent or proprietary medicines from 1st April, 1980 since the
notification would not apply to a manufacturer who manufactures
excisable goods falling under more than one item of the. 1st Schedule of .
the Act, and the aggregate value of the clearness of all such excisable
goods by the manufacturer or on his behalf are cleared for home
'4
c consumption from one or more factories during the preceding financial
year had exceeded Rs.20 lakhs.
+
The factory had cleared during the period from 1st April, 1980 to
29th October, 1980 (P & P) medicines falling under T.I. 14E valued at
D Rs.4,32,050.09. The central excise duty payable on the goods n:moved
was Rs.55,302.01. The respondent filed a declaration for e:<emption
under notification No. 71/78 dated 1.3.1978, and furnished p.articulars
of only the value of P & P medicines manufactured and cleared by it
during the preceding financial year i.e. 1979-80, and the respondent
did not furnish the particulars of the value of the goods cleared under 1-·
E Tariff item 68 during the financial year 1979-80. It was noticed that the
manufacturer did not file any declaration under Notification No. 111/
78 dated 9.5.1978 claiming exemption from the licensing control.

However, on 30th July, 1980 the firm filed a classification list in
respect of P & P medicines claiming exemption under notification,
F No. 80/80. A show-cause notice was issued to the respondent who was;-
asked to explain as to why excise-duty in respect of Patent & Proprie- ·
tary medicines manufactured and cleared by it should not be
demanded under proviso (a) to Rule 10(1) of the Central Excise Rules
and why penalty should not be imposed on it under rule 173Q of the
Central Excise Rules, 1944 for having cleared the goods without pay-
G men! of duty in contravention of Rule 1730 (a) and (d) of the Central
Excise Rules.

After submission of the reply by the respondents, the Collector
of Central Excise held the respondents to be ineligible for the benefit
of the two notifications and therefore duty was demanded from them
H in respect of the goods cleared by them for the period 1.4.1980 to
COLLECTOR OF C.E. v. CHEMPHAR DRUGS [MUKHARJI, J.] 715

29.10.1980. The Collector was of the view that in view of the respon-
A
dents' failure to reveal the correct position, they were liable. The
Collector was of the view that the time limit under rule 10 (section
1 lA) would run for 5 years. The relevant portion of section 1lA of the
Act is as follows:

"(11-A). Recovery of duties not levied or not paid or B
short-levied or short-paid or erroneously refunded.-(1)
when any duty of excise has not been levied or paid or has
been short-levied or short-paid or erroneously refunded, a
Central Excise Officer may, within six months from the
- ·"»·\ - relevant date, serve notice on the person chargeable with
the duty which has not been levied or paid or which has
been short-levied or short-paid or to whom the refund has c
erroneously been made, requiring him to show cause why
+ he should not pay the amount specified in the notice:

Provided that where any duty of excise has not been levied
or paid or has been short-levied or short-paid or errone- D
ously refunded by reason of fraud, collusion or any wilful
misstatement or suppression of facts, or contravention of
any of the provisions of this Act or of the rules made there-
under with intent to evade payment of duty, by such person
or his agent, the provisions of this sub-section shall have
effect, (as if for the words "Central Excise Officer", the E
words "Collector of Central Excise", and) for the words
"six months", the words "five years" were substituted."

The respondent filed an appeal before the Tribunal. The
· Tribunal considered the matter and noted that the appellant's case was
__., ·· ·f·that the demand for duty for the period beyond six months was time F
barred; and the respondent's case was that the demand for the period
beyond 6 months from the receipt of show-cause notice, was time
barred inasmuch as there was no suppression or misstatement of facts
by the appellant with a view to evade payment of duty. In support of its
claim the respondent produced classification list approved by the
authorities during the period 1978-1979, and also produced extracts G
from the survey register showing that the officers had been visiting its
,.\-· factory from time to time and also taking note of the previous goods
manufactured by the respondent. The plea of the revenue was that
there was suppression and/or mis-declaration and/or wrong informa-
tion furnished in the declaration itself. The Tribunal noted the facts as
follows: H
716 SUPREME COURT REPORTS [1989) 1 S.C.R.

"We observe it is not denied by the Revenue. that the )r-<'
A
appellants had been submitting their classification lists • 1
from time to time showing the various products manufac-
tured by them including those falling under 14E and 68 also
these containing alcohol. The officer who visited the
factory as seen from the survey register at the factory also
B took note of the various products being manufactured by
the appellants. It cannot be said that the appellants had
held back any information in regard to the range and the
nature of the goods manufactured by them. The appellants
have maintained that the value of the exempted goods __ / -
under T.I. 68 and also value of medicines containing ~
alcohol, according to their interpretation, were not
c required to be included for the purpose of reckoning of the
total excisable goods cleared by them. There is nothing on
record to show that the appellants non-bonafidely held
back information about the total value of the goods cleared
by them with a view to evade payment of duty. Their expla-
D nation that it was only on the basis of their interpretation
that the value of the exempted goods were not required to
be included that they did not include the value of the
eii:empted goods which they manufactured at the relevant
time and falling under T.I. 68 is acceptable in th10 facts of
that case. The Departmental authorities wern in full
E knowledge of the facts about manufacture of all the goods
manufactured by them when the declaration was filed by
the appellants. That they did not include the value of the
product other than these falling under T.I. 14E manufac-
tured by the appellants has to be taken to be within the
knowledge of the authorities. They could have taken
F corrective action in time. We therefore find there was no +- --.,--
warrant in invoking longer time limit beyond six months
available for raising the demand. So far as the demand for
the period within six months reckoned from the date of
receipt of the show cause notice is concerned, we observe
that the appellant's case is that value of the goods under 68
G was not required to be included but the Revenue's plea is
that only value of the specified goods under notification
No. 71/78 and 80/80 was not required to be excluded."

On the aforesaid view the Tribunal came to the conclusion that
the demand raised on this for a period beyond 6 months was not
H maintainable.
COLLECTOR OF C.E. v. CHEMPHAR DRUGS [MUKHARJI, J.} 717

Aggrieved thereby, the revenue has come up· in apeal to this
A
Court. In our opinion, the order of the Tribunal must be sustained. In
order to make the demand for duty sustainable beyond a period of six
months and up to a period· of 5 years in view of the proviso to sub-
section lIA of the Act, it has to be established that the duty of excise
has not been levied or paid or short-levied or short-paid, or errone-
ously refunded by reasons of either fraud or collusion or wilful mis- B
statement or suppression of facts or contravention of any provision of
the Act or Rules made thereunder, with intent to evade payment of

- duty. Something positive other than,. mere inaction or failure on the
part of the manufacturer or producer or conscious or deliberate with-
holding of information when the manufacturer knew otherwise, is re-
quired before it is saddled with any liability, beyond the period of six
months. Whether in a particular set of facts and circumstances there c
was any fraud or collusion or wilful misstatement or suppression or
contravention of any provision of any Act, is a question of fact de-
pending upon the facts and circumstances of a particular case. The
Tribunal came to the conclusion that the facts referred to hereinbefore
do not warrant any inference of fraud. The assessee declared the goods D
on the basis of their belief of the interpretation of the provisions of the
law that the exempted goods were not required to be included and
these did not include the value of the exempted goods which they
c> .+ manufactured at the relevant time. The Tribunal found that the expla-
nation was plausible, and also noted that the Department had full
knowledge of the facts about manufacture of all the goods manu- E

.. factured by the respondent when the declaration was filed by the
respondent. The respondent did not include the value of the product
other than those falling under Tariff Item 14E manufactured by the
respondent and this was in the knowledge, according to the Tribunal,
.l of the authorities. These findings of the Tribunal have not been cha!-
~- T lenged before us or before the Tribunal itself as being based on no F
evidence.

In that view of the matter and in view of the requirements of
section lIA of the Act, the claim had to be limited to a period of six
months as the Tribunal did. We are, therefore, of the opinion that the
Tribunal was right in its conclusion. The appeal therefore fails and is G
accordingly dismissed.

In the facts and the circumstances of the case, the parties will pay
and bear their own costs.

N.P.V. Appeal dismissed. H

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