M/S. TAMIL NADU HOUSING BOARDversusTHE COLLECTOR OF CENTRAL EXCISE, MADRAS AND ANR.

A                  MIS. TAMIL NADU HOUSING BOARD
                                  v.
     THE COLLECTOR OF CENTRAL EXCISE, MADRAS AND ANR.

                             SEPTEMBER 28, 1994

B               [R.M. SAHA! AND N. VENKATACHALA, JJ.]

          Central Excises and Salt Act. 1944 :

          Proviso to S.JJA-,Scope of-Exception to principal clause-Existence
C of situations visualised such as fraud, collision coupled and intention to
    evade payment of duty-Both must concur with invoking the exceptional
    power under the proviso-Initial burden on the depanment-Once material is
    brought in by the Department to show assessee's guilt onus shifts on the
    assessee.

D         The appellant Board, a statutory body, obtained registration under
    the Factories Act for a c11ncrete unit and a .wood unit, both manufacturing
    rmished products. Whit~ the items manufactured in the Wood working unit
    were exclusively used in the buildings constructed by the Board, the
    finished products manufactured in the concrete unit were sold to out-
E   siders. Licence was obtained for the concrete unit and not for the Wood
    Unit, as allegedly the appellant was advised that no licence was needed for
    it.

          The officers of the Central Excise Department visited the premises
    and issued a show cause notice. In reply the appellant stated that there
F   was no suppression orfacts nor there was an intention to evade payment
    of ·duty. This was rejected. In appeal the Customs, Excise and Gold
    (Control) Appellant Tribunal held that even though the manufacture of
    wood products was for captive consumption yet the claim of the appellant



                                                                                  -
    that it was not required to take any licence, was not correct as it was
G   carrying on manufacturing activity. The plea of honest belief on the basis
    of alleged consultation with the Excise authorities was rejected. It also
    drew an inference that though the appellant was non- profit making body,
    it could not be held that it did not intend to evade payment of duty.

          Against the Tribunal's order, the Board preferred the present ap-
H peal.
                                         62
               T.N. HSG. BD. v. COLLECTOR OF CEN1RAL EXCISE                   63

          Allowing the appeal, this Court                                           A
           HELD: 1. A bare reading of the proviso to Section HA of the Central
•   Excises and Salt Act, 1944 indicates that it is in nature of an exception to
    the principal clause. Therefore, its exercise is hedged on one hand with
    existence of such situations as have been visualised by the proviso by using    B
    snch strong expression as fraud, collusion etc. and on the other hand it
    should have been with intention to evade payment of duty. Both must
    concur to enable the Excise Officer to proceed under this proviso and
    invoke the exceptional power. Since the proviso extends the period of
    limitation from six months to live years it has to be construed strictly. The
    initial burden is on the Department to prove that the situations visualised     C
    by the proviso existed. But once the Department is able to bring on record
    material to show that the appellant was guilty of any of those situations
    which are 'isualised by the Section, the burden shifts and then ap-
    plicability of the proviso has to be construed liberally. [65-F, GJ

           2. When the law requires an intention to evade payment of duty then      D
    it is not mere failure to pay duty. It must be something more. That is, the
    assessee must be aware that the duty was leviable and it must deliberately
    avoid paying it. The word 'evade' in the context means defeating the
    provision of law of paying duty. It is made more stringent by use of the
    word 'intent'. [65-H, 66AJ                                                      E

          Padmini Products v. Collector of Central Excise, (1989) 43 EL.T. 195
    relied on.

           3. In the instant case, it would have been better if the appellant
    examined the officer who was advised not to take licence. But mere non-         F
    examination of the officer could not give rise to an inference that the
    appellant was intentionally evading payment of duty. When t!te appellant
    was found not to have been making any profit and it had taken out licence
    for concrete unit then in the absence of any other material to prove any
    deliberate act of the appellant the presumption of reasonable doubt of the      G
    appellant cannot be said to have been successfully rebutted. The finding
    of the Tribunal that there was an intention on the part of the appellant to
    evade payment of duty, is not based on any material. It was an inference
    drawn for which there was no basis. [66-C, DJ

         CIVIL APPELLATE JURISDICTION                      Civil Appeal No. H
    64                    SUPREME COURT REPORTS (1994) SUPP. 4 S.C.R.

A 2081(NM) of 1986.




B
          From the Judgment and Order dated 15.1.86 of the Central Customs,
    Excise & Gold (Control) Appellate Tribunal, New Delhi in A No. ED
    (SB) A No. 2284/85-D.

         A.K. Ganguli, A Mariarputham and Ms. Aruna Mathur for the
                                                                                    -
    Appellant.

          M. Chandershekar, Additional Solicitor General, Pradeep Kumar
    Jain, V.K. Verma and P. Parmeswaran for the Respondents.
c         The following Order of the Court was delivered :

          This Appeal filed by a statutory body, registered under the Factories
    Act, raises an important question of law relating to scope of the proviso to
    Section llA of the Central Excises & Salt Act, 1944 (in brief 'the Act').
D
          The Board obtained registration nnder the Factories Act, 1948 for
    two units, one, a concrete unit and other wood unit. Both the units
    manufactured finished products. But the wood frames, shutters etc.
    manufactured in the Wood Working Unit were not sold. They were fixed
    in the buildings constructed by the Board. Licence under the Act was
E   obtained for the concrete unit as the finished products manufactured in
    this unit were sold to outsiders. But no licence was obtained for the Wood
    Unit as the appellant was advised that no licence was needed for the wood
    unit. The officers of Central Excise Department visited the premises on
    11th May, 1984. On 29th June 1984 notice to show cause under Rule 173
F   of the Central Excise Rules, 1944 was issued. In reply one of the objections,
    amongst others, raised was that there was no suppression of facts nor there
    was any intention to evade payment of duty and the notice issued was liable
    to be quashed on this ground alone. The objection was rejected. In appeal
    it was held by the Tribunal that the appellant had taken a licence for
    manufacturing concrete products, as sale of them was made even to
G   outsiders. But in respect of wood products it held that even though the
    manufacture was for captive consumption yet the claim of the appellant
    that it was not required to take any licence, was not correct as it was
    carrying on manufacturing activity. The plea of honest belief was not
    accepted as there was no proof that it acted with normal diligence. It was
H   further held that the Board failed to produce any person in-charge of
          T.N. HSG. BD. v. COLLECTOR OF CENTRAL EXCISE                 65

Wood Working Unit who consulted the Excise Authorities, as claimed by A
the appellant, and assured that the wood manufacturing unit was not
exigible to any duty. From these, an inference was drawn that even thongh
the appellant was a non-profit making body it could not be held that it did
not intend to evade payment of duty.

       Section llA of the Act empowers the Central Excise Officer to
                                                                             B
initiate proceedings where duty has not been levied or short-levied within
six months from the relevant date. But this period to commence proceed-
ings under proviso to the Section stands extended to five years " the duty
could not be levied or it was short-levied due to fraud, collusion, wilful
misstatement or suppression of facts etc. The proviso to Section llA reads   c
as under:

            "Provided that where any duty of excise has not been levied or.
        paid or has been short-levied or short-paid or erroneously
        refunded by reason of fraud, collusion or any wilful misstatement D
        or suppression of facts, or contravention of any of the provisio.ns
        of this Act or of the rules made thereunder, 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 words "Collector of Central Excise" and for the words
        "six monthsn, the words ')five years11 were substituted."            E

A bare reading of the proviso indicates that it is in nature of an excepiion
to the principal clause. Therefore, its exercise is hedged on one hand with
existence of such situations as have been visualised by the proviso by using
such strong expression as frand, collusion etc. and on the other hand it F
should have been with intention to evade payment of dnty. Both must
concur to enable the Excise Officer to proceed under this proviso and
invoke the exceptional power. Since the proviso extends the period of
limitation from six months to five years it has to be construed strictly. The
initial bnrden is on the Department to prove that the situations visualised G
by the proviso existed. But once the Department is able to bring on record
material to show that the appellant was gnilty of any of those situations
which are visualised by the Section, the burden shifts and then applicability
of the proviso has to be construed liberally. When the law requires an
intention to evade payment of duty then it is not mere failnre to pay duty.
It must be something more. That is, the assessee must be aware that the H
    66                   SUPREME COURT REPORTS [1994) SUPP. 4 S.C.R.

A duty was leviable and it must deliberately avoid paying it. The word 'evade'
    in the context means defeating the provision of law of paying duty. It is
    made more stringent by use of the word 'intent'. In other words the
    assessee must deliberately avoid payment of duty which is payable in
    accordance with law. In Padmi11i Products v. Collector of Celltral Excise,
    (1989) 43 E.L.T. 195, it was held that where there was scope for doubt
B   whethe; case for duty was made out or not the proviso to Seotion llA of
    the Act would not be attracted. The appellant is a statutory body. It had
    taken out licence for concrete as it was being sold to outsiders. No licence
    was taken out for wood products as according to it it was advised so by
    the Excise Department itself. It would have been better if the appellaot
C   would have examined the officer who was advised not to take licence. But
    mere n'ln-examination of officer could not give rise to ao inference that
    the appellaot was intentionally evading payment of duty. When the appel-
    lant was found not to have been making aoy profit and it had taken out
    licence for concrete unit then in absence of aoy other material to prove
D   any deliberate act of the appellaot the presumption of reasonable doubt of
    the appellant caonot be said to have been successfully rebutted. The finding
    of the Tribunal that there was an intention on the part of the appellaot to
    evade payment of duty, is not based on any material. It was an inference
    drawn for which there was no basis.

E          In the resul~ this appeal succeeds aod is allowed. The order passed
    by the Tribunal is set aside and the notice issued by the Department for
    levy of duty and penalty shall stand quashed. There shall be 110 order as to
    costs.

    G.N.                                                       Appeal allowed.