C.C.E., Mangalore Vs.
M/s. Pals Microsystems Ltd., Mangalore
J U D G M E N T
ANIL R. DAVE, J.
aggrieved by the judgement and order dated 1st July, 2008 delivered in the CEA
No. 59/2007 by the High Court of Karnataka at Bangalore; this appeal has been
filed by the Revenue.
respondent, a limited company, is a holder of Central Excise Registration and
is a manufacturer of data processing machines and is also availing benefits
under Modvat Scheme. On 25.10.1996, Superintendent of Central Excise visited
the factory premises of the respondent-assessee for verification of the stock
of inputs on which Modvat credit was availed. It was noticed that there was a
vast difference between physical stocks available and that shown in RG23A Part
1 Register. The Managing Director of the respondent-assessee, in his statement
dated 25.10.1996 given before the Superintendent of Central Excise, West Range,
Mangalore, admitted that the actual physical stock of inputs and entries in the
RG23A Part 1 Register did not tally because the respondent-assessee had removed
the Modvatable inputs for sales and warranty replacements. The Managing
Director of the respondent- assessee also admitted the discrepancy i.e.
shortage in the stock of inputs and stated that their office assistant, who was
maintaining their books of accounts, was only a matriculate and being a non
technical person, committed mistakes. He again stated that the mistake was also
due to the clubbing of different Modvat inputs coming under the same heading.
The correct figure was shown in his letter dated 21.1.1997 with all the
details, admitting liability of Rs.51, 111/- due to the said lapses. He also
conceded that, due to the aforestated mistakes, the figure of RG23A Part I did
not reflect the actual quantity in stocks and enclosed a detailed worksheet
showing monthly figures of opening balance, receipts, issues and closing
balance for the past years.
26.06.2000, a show cause notice was issued to the respondent-assessee calling
upon it to show cause as to why Central Excise Duty of Rs. 1,91,537, equivalent
to the Modvat credit availed on the shortage of physical stock of Modvatable
inputs should not be recovered from it and penalty under Section 11AC of the
Central Excise Act, 1944 (hereinafter referred to as `the Act') read with Rule
173Q and Rule 210 of the Central Excise Rules, 1944 be not imposed and interest
thereon should not be recovered from it under Section 11AB of the Act.
considering the reply and upon hearing a representative of the
respondent-assessee, the Joint Commissioner of Central Excise vide his order in
original Sl. No. 14/2000 dated 09.08.2000, dropped further proceedings in the matter
after giving a warning to the respondent-assessee.
by the order of the Joint Commissioner of Central Excise, the Department filed
an appeal before the Commissioner (Appeals), Bangalore. The Commissioner
(Appeals), by the virtue of the order in appeal No. 591/2002 dated 04.10.2002,
allowed the appeal.
aggrieved by the order of Commissioner (Appeals), the respondent-assessee filed
an appeal before CESTAT, Bangalore. The CESTAT, Bangalore, by the order No.
1017/2005 dated 28.6.2005, held that the second statement of the Managing
Director which was given before issuance of Show Cause Notice, accepting the
discrepancies and admitting the liability to an extent of Rs. 51,111/- was not
taken into consideration by the Joint Commissioner and the
Commissioner(Appeals). They had proceeded only on the basis of the first
statement recorded. The CESTAT did not agree with the reasons assigned by the
Commissioner(Appeals) for allowing the appeal and remanded the matter to the
original authority, for verification of the assessee's contention and for
passing a detailed, considered order after taking into consideration the entire
evidence on record.
pursuance of the aforestated order, after hearing the parties, the Joint
Commissioner vide his order dated 25.10.2005 confirmed the duty demand of
Rs.1,91,537/- under Rule 57 I of the Central Excise Rules, 1944, read with
proviso to Section 11A(1) of the Act. Out of the said amount, Rs.76,111/-
already paid by the assessee had been appropriated. Further, a penalty of
Rs.1,91,537/- was imposed u/s 11AC of the Act and interest u/s 11AB of the Act
was made payable by the respondent-assessee.
by the said order dated 25.10.2005, the respondent- assessee filed an appeal
before the Commissioner (Appeals) but the Commissioner (Appeals) dismissed the
appeal, vide order dated 23.1.2006.
appeal to the CESTAT, the Tribunal, relying on the judgement of this Hon'ble
Court in Nizam Sugar Factory v. CCE, A.P. 2006 (11) SCC 573 allowed the appeal,
vide its order dated 20.12.2006, holding that the show cause notice was issued
belatedly and that too without prior permission of the Commissioner as per the
provisions of Section 11A of the Act.
appeal before the High Court of Karnataka, the High Court dismissed the appeal
of the Revenue by holding that the Tribunal had rightly recorded a finding of
fact stating that initiation of proceedings against the respondent-assessee was
barred by limitation.
by the aforesaid judgment of the High Court, the Appellant-Revenue has filed
this appeal before this Court.
Learned Counsel for the Appellant-Revenue submitted that the decision of this
Court in Nizam Sugars (supra), has no application to the facts and
circumstances of the instant case. Moreover, he contended that the permission
of Commissioner for invoking the provisions of Section 11A of the Act, by the
Joint Commissioner was not necessary. Thus he submitted that the judgment delivered
by the High Court deserves to be quashed.
the other hand, the learned counsel for the respondent- assessee supported the
reasons given by the High Court. Moreover, he elucidated the application of the
judgement of this Court in Nizam Sugars (supra), by stating that the
Superintendent of Central Excise had visited the premises on 25.10.1996 and the
show cause notice was issued on 26.06.2000, which was barred by limitation as
laid down in the above mentioned case.
hearing the counsel appearing for both sides and upon perusal of the judgment
of the High Court and other orders passed by the authorities, we are of the
view that the impugned judgment does not need any interference.
have carefully gone through the facts as ascertained by the Tribunal. Upon
perusal of the order of the tribunal as well the judgment delivered by the High
Court, it is not in dispute that alleged suppression of payment of duty by the
respondent-company was brought to the notice of the authority on 25th October,
1996, when the Superintendent of Central Excise had inspected the premises of
the respondent-assessee, whereas the show cause notice was issued on 26th June,
2000. The department could not establish that there was any suppression of
facts or a fraud on the part of the respondent-assessee. We find that the
honest mistake committed in maintenance of stock register etc. was frankly
admitted by the Managing Director of the respondent-assessee. There is no
finding to the effect that there was a fraud or willful mis-statement or
suppression of facts. Thus, it is very clear that the notice was issued after
expiry of the period of limitation. In the set of facts, the judgment delivered
in the case of Nizam sugar (supra) would squarely be applicable. In view of the
aforestated facts, we are of the view that the judgment delivered by the High
Court cannot be interfered.
our opinion, the appellant has failed to make out a case that proviso to
Section 11A of the Act was applicable. In view of the fact that no case was
made out for invoking proviso under Section 11A of the Act, in our opinion, the
judgment delivered by the High Court is just and proper and it deserves to be
the aforestated reasons, we do not see any substance in this appeal and,
therefore, the appeal is dismissed with no order as to costs.
(Dr. MUKUNDAKAM SHARMA)
(ANIL R. DAVE)