Gujarat High Court

Commissioner Of Central Excise& ... vs Supertex Industries Limited on 10 September, 2025

Author: Bhargav D. Karia

Bench: Bhargav D. Karia

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                            C/TAXAP/411/2008                                   JUDGMENT DATED: 10/09/2025

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                                     IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

                                                     R/TAX APPEAL NO. 411 of 2008


                       FOR APPROVAL AND SIGNATURE:

                       HONOURABLE MR. JUSTICE BHARGAV D. KARIA
                                               and
                       HONOURABLE MR. JUSTICE PRANAV TRIVEDI

                       ==================================================

                                      Approved for Reporting                  Yes
                                                                              No
                                                                            ✔
                       ==================================================
                               COMMISSIONER OF CENTRAL EXCISE& CUSTOMS, DAMAN
                                                       Versus
                                         SUPERTEX INDUSTRIES LIMITED
                       ==================================================
                       Appearance:
                       MR UTKARSH R SHARMA(6157) for the Appellant(s) No. 1
                       MR PRAKASH SHAH SR. ADVOCATE with MR ANAND NAINAWATI(5970) for the
                       Opponent(s) No. 1
                       MR BL NARASIMHAN(5813) for the Opponent(s) No. 1
                       ==================================================

                            CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
                                               and
                                  HONOURABLE MR. JUSTICE PRANAV TRIVEDI

                       Date : 10/09/2025

                       ORAL JUDGMENT

(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)

1. Heard learned advocate Mr. Utkarsh Sharma for the

appellant and learned Senior Advocate Mr. Prakash Shah with

learned advocate Mr. Anand Nainawati for the respondent.

2. The appellant Revenue has preferred this appeal under

Section 35G of the Central Excise Act, 1944 (for short "the Act")

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on the following substantial questions of law which were

formulated by order dated 26.03.2009 by this Court arsing from

the judgment and order dated 29.08.2007 in Appeal No. E/64,

2981 to 2984 of 2006 passed by the Customs, Excise and

Service Tax Appellate Tribunal, West Zonal Bench, Ahmedabad

(CESTAT).

"(a) Whether in the facts and circumstances of the present case, the Tribunal is justified in holding that there were no grounds for invoking extended period of limitation available under the proviso to Sub Section (1) of Section 11A of the Central Excise Act, 1944, despite suppression of material facts with intent to evade payment of duty and despite show cause notice having been issued in the year 1998, demanding duty relating to the period 04.07.1995 to 22.10.1996?

(b) Whether in the facts and circumstances of the present case, the Tribunal was justified in holding that the demand was barred by limitation, despite evasion of central excise duty amounting to Rs.11,05,67,466/ involved in clearance of 11,61,099 Kgs. of Draw Warped Polyester Yarn of the value of Rs.19,87,87,595/ manufactured and removed clandestinely by the respondent by the recourse to fraud/willful misstatement of facts/suppression of facts and in contravention of provisions of the Central Excise Act, 1944 and the Rules made thereunder, entitling the invocation of the larger period of limitation under the provisions of Subsection (1) of Section 11A of the Central Excise Act, 1944 read with Rule 9(2) of the Central Excise Rules, 1944?

(c) Whether in the facts and circumstances of the case, the Tribunal is justified and has committed a substantial error of law in holding that the demands raised beyond the normal period of limitation of six months are to be barred on the ground of the department's knowledge subsequent to the alleged suppression/ mis-declaration by the assessee?

(d) Whether in the facts and circumstances of the case, the Tribunal has committed substantial error of law in setting aside consequential order of the jurisdiction commissioner imposition of penalty on respondent of Rs.7,92,11,173/ under rule 173Q f

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the Central Excise Act, 1944 and interest at the applicable rate on delayed payment of central excise duty under Section 11AB of the Central Excise Act, 1944?"

3. The relevant facts can be summarized as under :-

3.1. The respondent Company was engaged in manufacture of

the draw warping of partially oriented polyester yarn out of

indigenously purchased partially oriented yarn of polyester

falling under Chapter 54 Heading 5402 of the Central Excise

Tariff Act, 1985. The respondent Company manufactured

11,61,099 kgs. of yarn valued at Rs. 19,87,87,595/- during the

period from 04.07.1995 to 22.10.1996.

3.2. The Jurisdictional Superintendent by letter dated

25.10.1994 informed the respondent Company that if only draw

warping process is done, no registration is required as no duty

is payable by the respondent Company. Thereafter by letter

dated 22.11.1994 issued by the Superintendent of Central

Excise, it was informed to the respondent Company that a

clarification has been received that units having draw twister,

draw winder and drawing of polyester filament yarn are

required to be registered with Central Excise Department even

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though there is no duty liability.

3.3. The respondent Company thereafter applied for

registration on 09.12.1994 and registration to manufacture

"draw warped (jumbo) beams of fully drawn polyester filament

yarn" was granted by certificate dated 14.12.1994. An

amendment dated 16.03.1995 to Note 3 to Chapter 54 of the

Central Excise Tariff Act was made by which processes like

twisting, texturing, doubling, multiple folding etc., relating to

yarn were declared to be amounting to manufacture. By

Notification No. 35/95-CE dated 16.03.1995 and Notification

No. 84/95-CE dated 18.05.1995 process of warping was

exempted.

3.4. The show cause notice dated 26.03.1998 was issued upon

the respondent assessee to show cause as to why the excise

duty at the appropriate leviable rate should not be recovered on

manufacture of draw warped yarn polyester filament yarn and

removal by the respondent assessee along with interest and

penalty by invoking the proviso to Section 11A of the Act for

extended period of limitation on the ground that the respondent

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assessee removed goods clandestinely by recourse of fraud,

willful misstatement and suppression of facts the goods liable

for to excise.

3.5. The show-cause notice dated 26.03.1998 was adjudicated

by Commissioner of Central Excise and Customs, Surat-II by

passing Order-in-Original dated 23.12.1998 wherein it was held

that draw warping undertaken by the respondent would amount

to manufacture and therefore, confirmed the demand of duty of

Rs.11,05,67,466/- along with interest and penalty.

4. Being aggrieved, the respondent Company preferred an

appeal before the CESTAT. The CESTAT by order dated

02.12.1999 remanded the matter to Commissioner for re-

adjudication. The Commissioner in the adjudication order dated

30.07.2006 held that draw warping undertaken by the

respondent Company would amount to manufacture and the

same was not held to be exempted by the aforesaid notifications

on the ground that as per both Notification No. 35/95-CE it

Notification No. 84/95-CE cover only process of warping but not

the process of draw warping and accordingly confirmed demand

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of Rs.7,92,11,173/- along with equal penalty under Rule 173Q(1)

of Central Excise Rules, 1944 read with Section 11AC of the Act.

4.1. Being aggrieved, the respondent Company preferred an

appeal before the CESTAT. The CESTAT by impugned order

dated 29.08.2007 allowed the appeal filed by the respondent

assessee and held that the Revenue could not have issued the

show cause notice by invoking extended period of limitation and

allowed the appeal by observing as under :-

"6. We have carefully considered the submissions from both sides. We find that the Department was clearly aware of the draw warping process undertaken by the appellant company and accordingly on their advice, the appellant has taken the registration in December, 1994. While it is conceded by the ld. Advocate for the appellant that they have not fulfilled the other formalities, it is noticed that the Department have not pursued or taken any action for their alleged failure to fulfill the obligations under Rule 173B, 173C, 173G etc. Further for show cause notice issued in Jan. 1995, though the same related to draw warping process undertaken by the appellant company in July-August, 1994. The reply given by them disclosed their activities of warp drawing. Further, the Commissioner in his order has held as follows :-

16. Therefore, there is no doubt that prior to 16.03.1995, when the subject goods were exempted, the department was aware of the manufacturing activity and has granted Central Excise Registration for the same."

7. Under these circumstances, it cannot be held that the appellant company has deliberately suppressed any details, information which are required to be furnished by them to the Department. If they have taken a view, that the process of draw warping will be covered by the term 'warping' in the notification No.35/95 as amended, the same cannot be treated as willful. Further, the circular of the Ministry dt. 16.03.1995 clarifies that

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all activities other than twisting and texturing are exempted. Therefore, there are no grounds for invoking the extended time limit, inasmuch as show cause notice has been issued in 1998 demanding duty relating to the period from 04.07.2995 to 27.10.1996, the same demand cannot be upheld. Since, we are allowing the appeals on the ground of limitation, we do not go into other issues."

4.2. The CESTAT quashed the notice on the ground of

limitation and did not enter into the merits of the case.

5. Learned advocate Mr. Utkarsh Sharma for the appellant

Revenue submitted that the adjudicating authority has rightly

invoked the extended period of limitation because the

respondent assessee was aware about the Notification No.

35/95-CE as well as the Notification No. 84/95-CE by which the

draw warping processing undertaken by the respondent

assessee was considered as a manufacture as per Note 3 to

Chapter 54 which has been inserted on 16.03.1995. It was

therefore submitted that there is willful suppression on the part

of the respondent assessee for not making payment of duty

though the activities carried out by it was manufacture as per

the said Notification.

5.1. It was submitted that the respondent assessee has not

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paid the excise duty inspite of having full knowledge that the

process of draw warping is manufacture and is liable to levy

excise duty. It was submitted that inspite of such Notifications

having been issued the respondent assessee remained silent

deliberately, conspicuously, suppressing the vital facts with

mala fide intention to evade the payment of central excise duty.

It was also pointed out that though the respondent had obtained

registration in the year 1994 for their product draw warp yarn

falling under Chapter 54 Heading No. 5402, the respondent

failed to maintain statutory central excise records, nor prepared

and issued central excise invoices, or filed declaration under

Rule 173B, or paid any duty.

5.2. It was therefore submitted that the adjudicating authority

has rightly come to the conclusion for levy of excise duty by

issuing the impugned show cause notice invoking the extended

period of limitation as per proviso of Section 11A of the Act. It

was, therefore, submitted that the CESTAT has instead of going

into merits of the matter has committed an error in allowing the

appeal on the ground of limitation for issuance of show cause

notice contrary to the facts and documentary evidence available

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on record to justify that there was willful suppression of facts

made by the respondent assessee.

6. On the other hand, learned Senior Advocate Mr. Prakash

Shah with learned advocate Mr. Anand Nainawati for the

respondent submitted that the CESTAT after considering the

fact that the Excise Department had already in the year 1994

issued the instructions to the respondent assessee to obtain the

registration. It was also pointed out that by letter dated

07.08.1995 in response to the show cause notice dated

13.01.1995, the respondent assessee has informed that it was

entitled to the benefit of Notification No. 84/95-CE as it includes

the warping and any other process of warping which includes

draw warping also. It was, therefore, submitted that there is no

willful suppression on the part of the respondent assessee and

the CESTAT has rightly considered this aspect and no

interference is required to be made in the findings of fact

arrived at by the Tribunal.

6.1. In support of his submissions, reliance was placed on the

decision of Hon'ble Apex Court in case of Baidyanath Ayurved

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Bhavan Ltd. v. Collector of Central Excise, Allahabad

reported in 2004 (165) ELT 494 (SC) wherein the Hon'ble

Apex Court has held that the show cause notice would be in

time only if the Revenue could invoke the extended period under

Section 11A of the Act on the ground that the assessee has been

guilty of fraud, misrepresentation or willful suppression and in

absence of any willful suppression and non-responding to the

demand of the Revenue to take out a licence and submit

accounts could not have been considered as willful suppression.

6.2. Reliance was also placed on the decision of the Hon'ble

Apex Court in case of Anand Nishikawa Co. Ltd., v.

Commissioner of Central Excise, Meerut reported in 2005

(188) ELT 149 (SC) wherein after referring to the decision of

Apex Court in case of Tata Iron and Steel Co. Ltd. v. Union

of India reported in 1989 (35) ELT 605 (SC) and the decision

in case of Pushpam Pharmaceuticals Co. v Collector of

Central Excise, Bombay reported in 1995 Suppl. (3) SCC

462 wherein the meaning of the expression "suppression of

facts" in proviso to Section 11A of the Act was considered and it

was held that the term must be construed strictly, as it does not

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mean any omission and the act must be deliberate and willful to

evade payment of duty. It was further observed that where the

facts are known to both the parties the omission by one to do

what he might have done and not that he must have done does

not render it suppression.

6.3. Learned Senior advocate Mr. Shah, therefore submitted

that in the facts of the case, when the department was aware

about the activities carried out by the respondent assessee

there cannot be any willful suppression.

6.4. Reliance was also placed on the decision of the Hon'ble

Apex Court in case of Padmini Products v. Collector of

Central Excise reported in 1989 (43) ELT 195 (SC) wherein

the Hon'ble Apex Court in paragraph 8 of the said decision has

observed that "As mentioned herein-above, mere failure or

negligence on the part of the producer or manufacturer either

not to take out a lience 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,

would not attract Section 11-A of the Act". It was therefore

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submitted that when the respondent assessee has by letter

dated 07.08.1995 in response to the show cause notice dated

13.01.1995 has already submitted before the department,

contending that the respondent assessee is entitled to the

benefit of the Notification No. 84/1995-CE as there is no

difference between draw warping and warping. It was therefore,

submitted that the extended period of limitation could not have

been invoked by the respondent.

7. Having heard the learned advocates for the respective

parties and considering the facts of the case, it appears that the

CESTAT after taking into consideration the facts on record has

rightly held that both the department and the respondent

assessee were having the knowledge of the activities carried out

of draw warping and, therefore, there is no question of any

willful suppression of facts by the respondent assessee. The

Hon'ble Apex Court in case of Baidyanath Ayurved Bhavan Ltd.

(supra) has held as under:-

" We find that there are four issues involved in these appeals but three hinge on this one question: Was the show cause notice dated 27th August, 1987 beyond time? The period in question is 28th August, 1982 to 28th February, 1986. The notice would be in time if the Revenue would invoke the extended period under Section 11A on the ground that the assessee had been guilty of

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fraud, misrepresentation or willful suppression. It is patent from the facts recorded by the Tribunal that there was no willful suppression, let alone fraud or misrepresentation. That the assessee was not responding to the Revenue's demand to take out a licence and submit accounts was clear and overt and the Revenue cold have taken action based thereon. The show cause notice, therefore, must be held to be beyond time."

8. In view of the above dictum of law only because the

respondent assessee was under impression that as per

Notification No. 84/95-CE it was not liable to pay the excise

duty, it cannot be said that there was willful suppression of

facts. The Hon'ble Apex Court in case of Anand Nishkawa

Company Ltd. (supra) has held as under :-

"25. In this view of the matter, we are unable to persuade ourselves to agree with the finding of the CEGAT as admittedly, the products of the appellant were inspected from time to time and the department was aware of the manufacturing process of the products although the appellant might not have disclosed the post forming process in detail.

26. In Tata Iron & Steel Co. Ltd. vs. Union of India & Ors [1988 (35) ELT 605 (SC)], this Court held that when the classification list continued to have been approved regularly by the department, it could not be said that the manufacturer was guilty of "suppression of facts". As noted herein earlier, we have also concluded that the classification lists supplied by the appellant were duly approved from time to time regularly by the excise authorities and only in the year 1995, the department found that there was "suppression of facts" in the matter of post forming manufacturing process of the products in question. Further more, in view of our discussion made herein earlier, that the department has had the opportunities to inspect the products of the appellant from time to time and, in fact, had inspected the products of the appellant. Classification lists supplied by the appellant were duly approved and in view of the admitted fact that the flow-chart of manufacturing process submitted to the Superintendent of Central Excise on 17.5.1990 clearly mentioned

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the fact of post-forming process on the rubber, the finding on "suppression of facts" of the CEGAT cannot be approved by us. This Court in the case of Pushpam Pharmaceutical Company vs. Collector of Central Excise, Bombay [1995 Supp (3) SCC 462], while dealing with the meaning of the expression "suppression of facts" in proviso to section 11A of the Act held that the term must be construed strictly, it does not mean any omission and the act must be deliberate and willful to evade payment of duty. The Court, further, held : -

"In taxation, it ("suppression of facts") can have only one meaning that the correct information was not disclosed deliberately to escape payment of duty. Where facts are known to both the parties the omission by one to do what he might have done and not that he must have done, does not render it suppression."

9. In view of the above decision the suppression of fact is

stated to have only one meaning that the correct information

was not disclosed deliberately to escape payment of duty. In the

facts of the present case it cannot be said that there was no

deliberate disclosure by the respondent assessee so as to escape

the payment of duty inasmuch as the respondent by letter dated

07.08.1995 has informed the department that as per

Notification no. 84/95-CE, it was not liable to pay the duty.

Moreover, the fact of activities carried out by the respondent

assessee of draw warping was known to the department and as

held by the Hon'ble Apex Court in the aforesaid decisions when

both the parties were knowing the fact, the omission by the

respondent assessee to get the registration would not amount to

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suppression.

10. The Hon'ble Apex Court in case of Padmini Products

(supra) has held in paragraph 8 as under :-

"8..... Failure to pay duty or take out a licence is not necessarily due to fraud or collusion or wilful misstatement or suppression of facts or contravention of any provision of the Act. Suppression of facts is not failure to disclose the legal consequences of a certain provision. Shri Ganguly, appearing for the revenue, contended before us that the appellants should have taken out a licence under rule 174 of the said Rules because all the goods were not handicrafts and as such were not exempted under notification No. 55/75 and therefore, the appellants were obliged to take out a licence. The failure to take out the licence and thereafter to take the goods out of the factory gate without payment of duty was itself sufficient, according to Shri Ganguly, to infer that the appellants came within the mischief of section 11-A of the Act. We are unable to accept this position canvassed on behalf of the revenue. As mentioned hereinbefore, mere failure or negli- gence on 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, would not attract section 11-A of the Act."

11. In view of the above dictum of law, we are of the opinion

that the CESTAT cannot be said to have committed any error in

holding that the appellant Revenue could not have issued the

show cause notice invoking the proviso to Section 11A of the Act

for extended period of limitation for demanding the duty by

issuing the show cause notice in 1998 demanding duty relating

period from 04.07.1995 and 22.10.1996.

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12. Therefore, in view of the foregoing reasons, the

substantial questions of law are answered in favour of the