Holding

No wilful suppression was established; consequently, the extended limitation period under Section 11‑A could not be invoked and the demand was limited to the six‑month period before the show‑cause notice.

Summary

Amco Batteries Ltd., a manufacturer of lead‑acid batteries, obtained lead ingots from various sources, including job workers who reclaimed lead from waste and scrap sent by Amco. The waste and scrap were claimed to be exempt from excise duty under Notification 186/84‑CE (as amended by 246/87‑CE). The Central Excise authorities levied duty and imposed a penalty for the period March 1986 to August 1989, invoking the extended limitation period under the proviso to Section 11‑A of the Central Excise and Salt Act. Amco contended that there was no wilful suppression of facts, that it acted on a bona‑fide belief of exemption, and that it was entitled to MODVAT credit, making the levy revenue‑neutral. The Supreme Court held that no material showed fraud or intentional concealment, therefore the extended limitation provision could not be invoked; the demand must be confined to the six‑month period preceding the show‑cause notice. The appeals were partly allowed and the matter was remitted to the Adjudicating Authority to modify the demand accordingly, with no order as to costs.

Issues considered

Whether the provision of the extended period of limitation under the proviso to Section 11‑A(1) of the Central Excise and Salt Act can be invoked when the assessee has not wilfully suppressed any fact.
Whether waste and scrap of lead sent to job workers are exempt from excise duty under Notification 186/84‑CE (as amended) and thus not liable to duty or penalty.

Legislation cited

Central Excise and Salt Act, 1944s. 11-A(1) proviso, s. 3
Central Excise Rules, 1944s. 57A
Central Excise Tariff Act, 1985s. Sub‑Heading 7802.00

Subjects

excise dutyexemption notificationlead scraplead ingotsMODVATextended limitation periodwilful suppressionbattery manufacturing

Judgment

f
A MIS. AMCO BATTERIES LTD., BANGALORE --==
v.
, COLLECTOR OF CENTRAL EXCISE, BANGALORE

FEBRUARY 26, 2003

B [M.B. SHAH AND D.M. DHARMADHIKARI, JJ.]

Central Excise and Salt Act, 1944; Section 3, Proviso to sub-section (1)
of Section 11-A and Rule 57A/Central Excise Tariff Act, 1985; Sub-Heading
7802.00/Exemption Notification No. 186184-CF dated 1-8-1984 and its amended
c Notification No.246187-CE dated 20-11-1987:

Assessee mamifactures batteries from ingots-Ingots also ma;1ufactured
by job-workers from waste/scrap-Levying of excise duty invoking extended
period oflimitation-Held: since entire movement of waste/scrap to job workers
D till receipt of ingots manufactured by them is properly recorded no wilful
suppression by the assessee--Bonafide beliefthat waste/scrap re-used in making
ingots exempt from such levy--Hence provision of extended period for the
purpose of levying excise duty not attracted-Matters remitted to the
Adjudicating Authority to modify demand-Directions issued.

E Appellant-assessee had been manufacturing electric batteries from
lead ingots as main input raw material which was purchased from market
as well as getting the same manufactured from the job workers. Revenue
levied excise duty on scrap/waste so used for manufacturing of lead ingots,
though scrap was exempted under notification/amended notification.
Assessee was unsuccessful before the Tribunal. Hence the present appeal. ..,,,,,
F
It was contended for the assessee that since there was no wilful
suppression by the assessee, provision of extended period under proviso
to sub-section I of Section 11-A of the Central Excise and Salt Act for the
purpose of levying of excise duty ought not to be invoked.
G Partly allowing the appeals, the Court

HELD: 1.1. There is no material on record from which it could be
inferred or established that duty of excise was not levied or paid by reason
of any fraud, collusion or any wilful misstatement or suppression of facts
or contravention of any of the provisions of the Act or the rules made
H 342
\.. ..
AMCO BATTERIES LTD., BANGALORE v. C.C.E. [SHAH, J.] 343
thereunder with intent to evade payment of duty. The entire movement A
of waste and scrap to the job workers and receipt of ingots manufactured
by the job workers is recorded in regular books of accounts and proper
documentation is maintained in the form of delivery challan. It was a
bona fide belief on the part of the assessee that scrap and waste, which was
recovered-while manufactiiring batteries, was exempt from levy of excise
duty. Further, assessee was entitled to get benefit of MODVAT Scheme. B
- Thus there was no wilful suppression on the part of the assessee which
would empower the authorities to invoke extended period of limitation
under proviso to Section IIA(I) of the Central Excise Act.
(346-F, G; 347-A, BJ

Mis. Padmini Products v. Collector ofCentral Excise, Bangalore, [1989)
c
4 sec 275, relied on.

1.2. The matters are remitted to the Adjudicating Authority to
modify the demand by confining it to the period of six months prior to
issue of show cause notice. (348-D) D
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 5941-5942
of 1999.'

From the Judgment and Order dated 11.6.1999 of the Central Excise,
Customs and Gold (Control) Appellate Tribunal, New Delhi in A. Nos. El E
2181-2182/92-BI in F.0. Nos. 606-607 of 1999-BI.

V. Lakshmikumaran, T. Viswanathan and V. Balachandran, for the
Appellant.

Raju Ramachandran, Additional Solicitor General, N.K. Bajpai, p
Ms. Smita Inna and B.K. Prasad for the Respondent.

The Judgment of the Court was delivered by

SHAH, J. It is apparent that in taxation matters, amendments,
clarifications, exemption notifications or their withdrawal play an important G
role in increasing litigation. Repeatedly, it is stated that law and procedure
thereunder is required to be streamlined and simplified, yet clarifications,
amendments and notifications are issued creating confusion and leaving Judges
and Lawyers to search for their exact meaning. In such a state of affairs, in
some cases, it is difficult to draw inference of fraud, wilful eoncealment or
suppression of facts so as to attract penal consequences. H
344 SUPREME COURT REPORTS [2003) 2 S.C.R.

A Short facts of the case are that appellant is engaged in manufacture of
lead acid electric storage batteries and parts thereof falling under Tariff
Heading 85.07 in its two factories, one at Hebbal and other at Mysore Road
plant. L,ead in the form of ingots is the main raw material required for
manufacture of the batteries. During the course of manufacture of the parts,
B certain quantities of waste and scrap is sent to the job workers who manufacture
ingots out of that and return its ingots to the appellant who use the same in
the manufactur~ of their final products. The question is with regard to payment
of excise duty on waste and scrap sent to the job workers. After issuance of
· show cause notice and adjudicating the matter, the authority confirmed demand
of duty and imposed penalty for the period from 1st March 1986 to 13th
C August 1989. That order was challenged before the Tribunal.
Admittedly, appellant obtains lead ingots from foliowing four sources:

(I) imports by appellant on payment of additional duty of customs.

(2). Duty-paid lead ingots obtained through MMTC.
D
(3) Ingots purchased from refiners.
(4) Ingots received from job workers to whom waste & scrap of lead
was sent without payment of duty to convert them into lead
ingots.

E For the purchase of ingots from first anCI second source, there is no
dispute. With regard to the third source, namely, ingots purchased from
refineries, it is exempted under Notification 37/81-CE. The relevant part of
the said notification which is quoted by the Tribunal is as under:

"The Central Government hereby exempts lead unwrought, falling .>
F under heading No. 78.01 of the Schedule.to the Central Excise Tariff
Act, 1985 (5 of 1986), if such lead unwrought is produced out of one
or more of the following materials, from the whole of the duty of
excise leviable thereon, namely:-

(a) old scrap of lead;
G
(b) scrap obtained from lead unwrought on which appropriate amount
of duty of excise, or, as the case may be, the additional duty
leviable under section 3 of the Customs Tariff Act, 1975 (51 of
1975) has been paid;
(c) lead waste and scrap, falling under heading No. 78.02 on which.
H
AMCO BATTERIES LTD., BANGALORE. v. C.C.E. [SHAH, J.] 345

appropriate amount of duty of excise, or, as the case may be, the A
additional duty leviable under section 3 of the Customs Tariff
Act, 1975 (51 of 1975), has been paid;
·•
(d) lead ash, lead slag and lead residues."

Thereafter, scrap was exempted under notification No. 186/84-CE dated B
1.8.1984. Relevant part of the Notification is as under:

"The Central Government hereby exempts wastes and scrap of
lead, falling under sub-heading No. 7802.00 of the Schedule to the
Central Excise Tariff Act, 1985 (5 of 1986) from the whole of the
duty of excise leviable thereon upder section 3 of the Central Excise C
and Salt Act, 1944 ( 1 of 1944):

Provided that such waste and scrap

(i) are manufactured from goods, falling under the Heading Nos.
78.01 to 78.05 of the said Schedule on which the duty of excise
leviable under the said section 3 of the additional duty leviable D
under the Customs Tariff Act, 1975 (51 of 1975), as the case
may be, has already been paid, or
(ii) arise from goods, falling under any Heading or sub-heading No.
of the same Schedule other than Heading Nos. 78.01 to 78.05
thereof mai;mfactured or produced in India. E
Explanation: For the purpose of this notification all stocks of lead
and products thereof in the country, except such stocks as are clearly
· recognisable as being non"duty-paid, shall be deemed to be lead and
products thereof on which the duty has already been paid."
F
Further, by notification 246/87-CE dated 2.11.1987, 2nd proviso to
the notification 186/84-CE (as amended) was added immediately before the
existing Explanation. Said proviso is also reproduced below:

"Provided further that the exemption contained in this notification
shall apply only if:- G
No credit has been taken on the input from which such scrap has
been generated under rule 57 A of the Central Excise Rules, 1944; or

(ii) an amount equivalent to the credit taken, if any, on the input
from which such scrap has been generated, has been debited H
346 SUPREME COURT REPORTS [2003] 2 S.C.R.

A back in the RG 23A account or the current account maintained
by the assessee."

At the time of hearing of these appeals, learned counsel for the appellant
has only submitted that there wtis no wilful suppression on the part of the
appellant and hence, extended period under proviso to sub-section (I) of
B Section l lA of the Central Excise Act (hereinafter referred to as "the Act")
ought not to have been invoked.

It is admitted that during the manufacture of batteries from the ingots
received by first and second source, waste and scrap of lead emerges. Such
scrap is removed by the appellant and sent to the job workers which are small
C units engaged in recovery/reclaiming of metal from the scrap. The recovered
metal in the form of lead ingots is returned by the job workers to the appellant
and the appellant uses the same for manufacture of batteries. Admittedly,
there is no sale of scrap by the appellant to the job workers. The entire
movement of the scrap to the job workers and receipt of the ingots from the
D job workers is recorded in the regular books of accounts and proper
documentation is maintained in the form of delivery challans.

It has also been pointed out that lead ingots, scrap and batteries are all
covered by the MODV AT scheme even during the relevant period. Since the
scrap is. ultimately used in the manufacture of batteries, even if any duty is
E paid/payable on the scrap, the same is available as MODV AT credit to the
appellant. Thus the exercise of payment of excise duty was entirely revenue
neutral.

From the facts stated above, particularly the fact that entire movement
of waste and scrap to the job workers and receipt of ingots manufactured by ·
F the job workers is recorded in regular books of accounts and proper
documentation is maintained in form of delivery challan and that there was
no reason for the appellant to suppress as it was entitled to have facility of
MODV AT Scheme, it would be difficult to hold that there was any wilful
suppression on the part of the appellant which would empower the authorities
G to invoke extended period of limitation under proviso to Section l lA {I) of
the Act. This has been made clear repeatedly by this Court. In Mis Padmini
Products v. Collector of Central Excise, Bangalore, [1989] 4 SCC 275 this
Court has held that something positive other than mere inaction or failure on
the part of the manufacturer or producer of conscious or deliberate withholding
of information when the manufacturer knew otherwise, is required to be
H established before it is saddled with any liability beyond the period of six
AMCO BATTERIES LTD., BANGALORE v. C.C.E. [SHAH, J.] 347
months. The Court pertinently observed that mere failure or negligence on A
the part of the producer or manufacturer either not to take out a licence in
case where there was scope for doubt as to whether licence was required to
be taken out or where there was scope for doubt whether goods were dutiable
or not, woulrl not attract Section 11-A of the Act.

In the present case also, there is no material on record from which it B
could be inferred or established that duty of excise was not levied or paid by
reason of any fraud, collusion or any wilful misstatement or suppression of
facts, or contravention of any of the provisions of the Act or the Rules made
thereunder with intent to evade payment of duty. It was a bonafide belief on
the part of the appellant that scrap and waste, which was recovered while C
manufacturing batteries, was exempt from levy of excise duty. Further,
appellant was entitled to get benefit of MODV AT scheme, therefore, there
was no justifiable reason for the appellant to suppress any fact.

In the result, the appeals are partly allowed. The matters are remitted
to the Adjudicating Authority to modify the demand by confining it to the D
period of six mqnths prior to issue of show cause notice and pass consequential
orders.

Ordered accordingly. There shall be no order as to costs.

S.K.S. Appeals partly allowed. E