BHARAT METAL BOX CO Vs. CEGAT MADRAS

JUDGEMENT

(1.) In this petition under Article 226 of the Constitution of India, the petitioner questions the decision of the respondent-CEGAT allowing the appeal of the Revenue and reversing the decision of the Collector of Central Excise dropping the demands raised against the petitioner but levying the penalty as well as duty for having wrongly availed Modvat credit in respect of certain inputs brought in its Bollaram Unit.

(2.) Brief narration of the facts are that the petitioner has two Units, one of Chaknavadi and the other of Bollaram respectively referred to as Units 1 and 2. The petitioner addressed a letter to the Collector, Central Excise on 18/11/1996, informing him the different types of raw materials (inputs) that are used in or in relation to the manufacture of their final products and that all these raw materials are received and taken into account in Unit 2. All the requirements of raw materials at Unit 1 is met by Unit 2. Prior to 1-3-1986, no account in Form IV except an account for their own use was maintained by them in respect of the raw materials. The inputs were being transferred from Unit 2 to Unit 1 under the cover of internal gate passes of the petitioner. After 1-3-1986 they have opted for Modvat scheme and were taking credit of the duty paid on the inputs received at Unit 2 and utilising the same towards payment of duty after making entries in RG 23A, Part I and Part II registers. It was clearly stated in the letter that they had been receiving inputs only at Unit 2 and availing Modvat facility but were transferring the required raw materials to Unit 1 from the stocks of Unit 2. Informing such facts, the petitioner requested that since the movement of raw materials from Unit 2 to Unit 1 involves inputs on which credit of duty is taken, they should be granted permission to transfer inputs from Unit 2 to Unit 1 under cover of their transfer challans for use only in the manufacture of the final products as per the requirements of Unit 1. A reply was sent by the Collector on 26/11/1996 stating that as the requirement of inputs of Unit 1 was being met from the material available at Unit 2 and since they have opted for Modvat facility, the inputs cannot be sent out from Unit 2 to Unit 1 under a challan. A provision is provided for under Rule 57F(i) for caring the inputs received under Modvat and the same has to be followed for availing proper credit. They were advised accordingly.

(3.) Subsequently, a show cause notice was issued on 7-3-1990 seeking to levy the penalty and duty on the inputs transferred to Unit 1 for two periods (a) from 1-12-1988 to 16-8-1989 and (b) 3-3-1986 to 14-5-1986 and from 15/05/1986 to 17/11/1986. A reply having been filed and the matter having been already brought to the notice of the authorities, the explanation was not accepted and the penalty and duty were levied. In appeal, the Collector upheld that the demands raised for the first period 1-12-1988 to 16-8-1989 but for the period 3/03/1986 to 14/05/1986, they were barred by limitation. So far as the second period is concerned, the Collector held that the provision of Section 11A of the Central Excise Act could not be put to use as there was no suppression of the fact practised by the petitioner, it having already brought to the notice of the respondents the fact of the removal of inputs from Unit 2 to Unit 1. The Collector held that since the authorities were put on notice on 18-11-1986 of the practice that was being followed by the petitioner and the Department had replied on 27-11-1986, there was not suppression on the part of the petitioner. If suppression was not there, the period does not stand extended to enable the authorities to proceed for evasion of duty under Section 11A of the Act and that the limitation expired on the expiry of six months from 18-11-1986. The petitioner accepted the demand for the first period but the Department carried an appeal in respect of the second period. The Tribunal held that there was suppression on the part of the petitioner for which the extended period of limitation applied under Section 11A of the Act for which the demand for the second period was not barred by limitation. The Tribunal also rejected an application for rectification.