"http://JUDIS.NIC.IN \nSUPREME COURT OF INDIA\nPage 1 of 7 \nCASE NO.:\nAppeal (civil) 5747-5749 of 2000\nPETITIONER:\nM/s Gopal Zarda Udyog etc. \nRESPONDENT:\nThe Commissioner of Central Excise,New Delhi. \nDATE OF JUDGMENT: 30/09/2005\nBENCH:\nS.N. VARIAVA,Dr. AR. LAKSHMANAN & S.H. KAPADIA\nJUDGMENT:\nJ U D G M E N T\nKAPADIA, J.\n Whether, in the facts and circumstances of the case, the \ntribunal was justified in holding that the ’additive mixture’ \nprocessed by the three appellants herein was excisable and \nclassifiable under chapter sub-heading 2404.49 of Central \nExcise Tariff Act, 1985 and that the department was right in \ninvoking the extended period of limitation under the proviso to \nsection 11A(1) of Central Excise Act, 1944 (hereinafter referred \nto as \"the Act\"). \n Briefly, the facts of the case are that M/s Hari Chand Shri \nGopal, M/s Gopal Industries and M/s Gopal Zarda Udyog were \nthe three assessees engaged in the manufacture of Chewing \nTobacco (Final Product) falling under sub-heading 2404.40 of \nTariff Act, 1985. In the manufacture of the final product, they \nwere using an inter-mediate product known as \"additive \nmixture\". An intelligence was collected by the officers of the \npreventive wing of the Commissionerate to the effect that the \nappellants were manufacturing the said \"additive mixture\" \nwithout obtaining registration certificate under section 6 of the \n1944 Act read with rule 174 of the Central Excise Rules, 1944; \nthat they have been removing the said goods clandestinely from \ntheir factories situated in Delhi; that they were unauthorisedly \nclearing the said goods under transfer challans to their factories \nin UP and HP (where the final product was manufactured). On \nthe basis of the aforestated intelligence, various premises \nbelonging to the three appellants were searched. Enquiries \nwere also made from traders dealing in the kimams as well as \nfrom the manufacturers and the suppliers of the raw material. \nThe partners of the three appellant firms were also examined. \nThe department was informed that the said \"additive mixture\" \nconsisted of various ingredients like raw-kimam, menthol, \naromatic chemicals, spices, gulab jal, attar and perfumes etc. \nThe process of preparing additive mixture was explained in \ndetail by the partners. On the aforestated investigations, three \nseparate show-cause notices were issued, all dated 25.3.1997. \nIn the said show-cause notices, it was alleged that the appellants \nwere clandestinely manufacturing and clearing additive mixture \nfalling under sub-heading 2404.49 (up to 22.7.1996) and falling \nunder sub-heading 2404.40 on and after 22.7.1996, in \ncontravention of the provisions of the said 1944 Act and the \nRules with intention to evade duty/assessment. The show-cause \nnotices further record that on 15.10.1996 M/s Gopal Industries \nand M/s Hari Chand Shri Gopal voluntarily obtained \nregistration certificates for the manufacture of the said mixture \nunder rule 174. The three show-cause notices were in respect \nof the period 18.3.1994 to 26.9.1996 under the proviso to \n\nhttp://JUDIS.NIC.IN \nSUPREME COURT OF INDIA\nPage 2 of 7 \nsection 11A(1) of the 1944 Act. In the case of M/s Gopal Zarda \nUdyog, the department demanded duty for the period 18.3.1994 \nto 15.4.1995; in the case of Hari Chand Shri Gopal, the demand \nwas for the period 14.6.1995 to 24.9.1996; but in the case of \nM/s Gopal Industries, the department demanded duty for the \nperiod 16.6.1995 to 26.9.1996.\n On dated 21.11.1997, replies were given to the three \nshow-cause notices. The appellants submitted that they were \nengaged in the activity of manufacturing chewing tobacco, \nwhich was an excisable product on which they have been \npaying duty. In the reply, the appellants explained at length \nthe process by which the additive mixture came to be produced \nin the three factories in Delhi. According to the appellants, the \nadditive mixture was not a final product; that it was a transient \nproduct; it was not noticeable to the naked eye and that it was \nunsaleable and useless for any other purpose. According to the \nappellants, the composition of additive mixture was known only \nto the blender. According to the appellants, the entire process \nwas shrouded in secrecy and was known only to the blender. \nIn the said reply, the appellants alleged that the details of the \nprocess of manufacturing the final product as well as the \nformulation of the additive mixture at the intermediate stage \nwas known to the department since 1992-93; that their records \nand registers stood verified by the department since 1992-93; \nthat the said records indicated the receipt and utilization of the \nadditive mixture in the manufacture of the branded chewing \ntobacco (final product) and that the said records were duly \nchecked by the department from time to time. That, the \npartners of the appellants were also examined in 1992 by \nSuperintendent of Central Excise, New Delhi, when the entire \nprocess of mixing and blending of the raw-material and the \nstatus of transfer of the additive mixture from their units in New \nDelhi to their factories in UP and HP was explained. In support \nof what is stated above, the appellants placed reliance on the \npanchnama dated 20.10.1992, under which their units were \nsearched by the department and which indicated the stock \nposition of the raw-material, additive mixture and the branded \nchewing tobacco. According to the department, in 1993, the \nSuperintendent of Central Excise had personally visited their \nfactories and had also studied in detail the process of \nmanufacturing the branded chewing tobacco. The appellants \nfurther contended that there was no intent to evade as the said \nmixture was non-dutiable. In this connection, they relied on the \nnotification no.121/94-CE dated 11.8.1994 under which \nadditive mixture (input) falling under chapter sub-heading \n2404.49 captively consumed in the manufacture of chewing \ntobacco (final product) stood exempted from payment of duty. \nThat, the department had not denied their entitlement to \nexemption under the said notification in the show-cause notices. \nThat, in fact, after seizure the said mixture was released/cleared \nunder the above notification without levy of duty and, therefore, \nthe department was not entitled to invoke the extended period \nof limitation.\n By order dated 20.5.1998, the commissioner confirmed \nthe demand. On the question of excisability, the commissioner \nfound that the additive mixture was a kimam, which was \nmanufactured by mixing sada kimam with spices, menthol, \naromatic chemical and perfumes etc. Further, the commissioner \nfound that the said kimam was marketable as a distinct \nidentifiable product. In this connection, he relied upon the \nstatements recorded under section 14 of M/s Globe Traders, \nM/s Laxmi Fragrances (P) Ltd., M/s Gulab Gandhi Tobacco \nCo. etc. That, after 1994, the said mixture (kimam) became \n\nhttp://JUDIS.NIC.IN \nSUPREME COURT OF INDIA\nPage 3 of 7 \nclassifiable under chapter sub-heading 2404.49/2404.40 and \nthat despite the said changes, the appellants failed to get their \nunits registered with the department. That, the evidence \nbrought forth by the appellants regarding inspection of their \nfactories pertained to the years 1992 and 1993, during which \nperiod the said mixture was not chargeable to duty. That, the \nappellants were in the business of manufacturing and marketing \nof chewing tobacco and, therefore, the fact that kimam was \nchargeable to duty must have been in their knowledge and that \nby bringing the above facts on record, the department had \ndischarged its initial burden of proving the conditions \nmentioned in the proviso to section 11A(1) of the Act.\n Aggrieved by the decision of the commissioner dated \n20.5.1998, the matter was carried in appeal by the assessees to \nthe Customs, Excise and Gold (Control) Appellate Tribunal, \nNew Delhi (hereinafter referred to as \"the tribunal\"). The \nappeals filed by the appellants herein were heard along with the \nappeals filed by M/s Dharampal Satyapal. \n By judgment dated 1.10.1999, the tribunal held that the \nsaid additive mixture was a kimam; that it was excisable under \nchapter sub-heading 2404.49/2404.40 of 1985 Tariff Act and \nthat the appellants had failed to disclose their activities in their \nDelhi Units. In this connection, the tribunal expressly relied \nupon the statement of Shailender Kumar Aggarwal, partner of \nM/s Gopal Industries dated 28.9.1996 recorded under section \n14 of the Act in which he has stated that M/s Gopal Industries \ndid not obtain registration certificates under a mistaken belief \nthat the activity of mixing/blending did not constitute \n\"manufacture\". The tribunal further found that the \nmanufacturing activities in Delhi units were suppressed from \nthe department; that the appellants had failed to obtain excise \nregistration; and that the appellants had not fully complied with \nthe procedure of chapter X of 1944 rules subject to which the \nbenefit of exemption under notification no.121/94-CE was \navailable. The tribunal thereafter took note of the various \ndecisions of the tribunal which has taken the view that even \nsubstantial compliance of the chapter X procedure was \nsufficient for exemption and accordingly, the tribunal remitted \nthe matter to the commissioner to ascertain the question of \nsubstantial compliance.\n On remand, the commissioner came to the conclusion \nvide his order dated 16.7.2002 that there was no substantial \ncompliance of the procedure under chapter X of 1944 rules.\n Aggrieved by the said decision dated 16.7.2002, the \nappellants herein preferred appeals to the tribunal. By \njudgment and order dated 7.7.2003, the tribunal held that there \nwas substantial compliance of chapter X as there was evidence \non record indicating receipt and utilization of additive mixture \n(input) in the manufacture of branded chewing tobacco (final \nproduct) and following the judgment of this court in the case of \nThermax Private Ltd. v. Collector of Customs reported in 1992 \n(61) ELT 352, the tribunal held that the said additive mixture \nwas entitled to exemption under notification no.121/94-CE. \n Against the said decision of the tribunal dated 7.7.2003, \nthe department has come to this Court by way of Civil Appeals \nNo.1878-1880 of 2004, which is a matter of separate judgment. \nTherefore, the present civil appeals are filed by the assessees on \nthe question of excisability and limitation whereas the Civil \nAppeals No.1878-1880 of 2004 are filed by the department on \nthe question of compliance of exemption notification \n\nhttp://JUDIS.NIC.IN \nSUPREME COURT OF INDIA\nPage 4 of 7 \nno.121/94-CE.\n At the outset, we may point out that in the case of \nDharampal Satyapal v. Commissioner of Central Excise, New \nDelhi reported in 2005 (183) ELT 241, this Court held that the \ncompound manufactured by M/s Dharampal Satyapal was a \nkimam which was moved in balties on stock transfer basis to \ntheir branded chewing tobacco factories located in UP and HP \nconstituted independent, distinct and identifiable product \nknown to the market as such and, therefore, the said kimam was \nexcisable and classifiable under sub-heading 2404.49/2404.40. \nOn the question of limitation, this Court on examination of facts \nfound that M/s Dharampal Satyapal used to buy from the \nmarket a compound, similar to the compound which it used to \nmanufacture in its own units, and such similar compound was \nused in the manufacture of Tulsi Zafrani Zarda (final product). \nThis court further found that M/s Dharampal Satyapal had \nfailed to disclose the existence of their units, they did not \nmaintain any records under the excise law, they clandestinely \nmanufactured their compound without informing the \ndepartment, and in the circumstances, the department was right \nin invoking the extended period of limitation. It was argued on \nbehalf of the assessee in that case that there was no intent to \nevade duty as the entire quantity of kimam was captively \nconsumed; that the assessee was entitled to modvat credit equal \nto the demand and, therefore, the department was not entitled to \ninvoke the extended period. This argument was rejected by this \nCourt on the ground that no explanation was given by the \nassessee for not disclosing the affairs of the units in which \nkimam was manufactured; no explanation was given for not \ngetting the units registered or licensed; and no explanation was \ngiven for failure to maintain the records under the 1944 Act. In \nthe circumstances, this Court found in the case of M/s \nDharampal Satyapal total non-compliance of the 1944 rules. \nThis Court observed that it was for M/s Dharampal Satyapal to \nexplain the basis of its alleged bona fide impression. It was \nfurther found in that case that there was no evidence of receipt \nand utilization of the kimam in the manufacture of Tulsi Zafrani \nZarda. In the circumstances, this Court dismissed the civil \nappeals filed by M/s Dharampal Satyapal. This court held that \nthe burden to prove the defence of bona fides was on the \nassessee and that the assessee in that case, M/s Dharampal \nSatyapal, had failed to prove its bona fides. However, on the \nquestion of applicability of notification no.121/94-CE dated \n11.8.1994, this Court upheld the directions of the tribunal \nremanding the case back to the commissioner for re-\nexamination. This remand was made by the tribunal because it \nwas argued on behalf of M/s Dharampal Satyapal, as by the \nappellants herein, that there was no revenue implication as the \nassessee was entitled to the benefit of the exemption under the \nnotification no.121/94. \n The main point which arises for determination in these \ncivil appeals is whether the department was right in the facts \nand circumstances of this case in invoking the extended period \nof limitation. \n In the case of Padmini Products v. Collector of \nCentral Excise reported in 1989 (43) ELT 195, this Court held \nthat in a given case where there is a scope for believing that the \ngoods were not excisable and consequently no license was \nrequired to be taken then the extended period of limitation was \ninapplicable. Mere failure or negligence on the part of the \n\nhttp://JUDIS.NIC.IN \nSUPREME COURT OF INDIA\nPage 5 of 7 \nmanufacturer either not to take out the licence or not to pay \nduty in cases where there is a scope for doubt, does not attract \nthe extended period of limitation. Unless there is evidence that \nthe manufacturer knew that the goods were liable to duty or he \nwas required to take out a licence, there is no scope to invoke \nthe proviso to section 11A(1). For invoking the extended \nperiod of limitation, duty should not have been paid or short-\nlevied or short-paid or erroneously refunded on account of \nfraud, collusion or wilful suppression or mis-statement of facts \nor wilful contravention of the Act or the Rules with the \nintention to evade payment of duty. These ingredients postulate \na positive act, therefore, failure to pay duty or to take out a \nlicence is not necessary due to fraud, collusion etc. Likewise, \nsuppression of facts is not a failure to disclose the legal \nconsequences of a certain provision.\n In case of M/s Dharampal Satyapal (supra), the assessee \nused to buy Lucknowi Kimam from the market from time to \ntime and used the same in the manufacture of branded chewing \ntobacco (final product). In the case of M/s Dharampal \nSatyapal, apart from compound prepared in its unit, it used to \nbuy Lucknowi Kimam from the market which was similar to \nthe compound produced by the assessee and the same was \ncleared to the licensed factories in UP and HP, where it was \ndiluted and used in the manufacture of Tulsi Zafrani Zarda. In \nthat matter, the commissioner had recorded a categorical \nfinding that the assessee M/s Dharampal Satyapal knew that \nkimam was liable to duty and that it was required to obtain ’L-\n6’ licence because M/s Dharampal Satyapal used to buy \nLucknowi Kimam from the other manufacturers, who used to \nmanufacture Lucknowi Kimam after obtaining registration and \nthe requisite licence. There is no such finding by the \ncommissioner in the present case. In the circumstances, on the \nquestion of invocation of extended period of limitation, the \njudgment of this Court in the case of M/s Dharampal Satyapal \n(supra) will not apply.\n In the case of Cosmic Dye Chemical v. Collector of \nCentral Excise, Bombay reported in [1995 (75) ELT 721], this \nCourt held that so far as fraud and collusion are concerned, \nintent to evade duty is built into these words. However, so far \nas \"mis-statement\" or \"suppression of facts\" are concerned, \nthey are clearly qualified by the word \"wilful\" preceding the \nwords \"mis-statement or suppression of facts\", which means \n\"with the intent to evade duty\". It was further observed that \nthe next set of words in the proviso to section 11A(1) which \nrefers to contravention of the provisions of the Act or the Rules \nare qualified by the words \"with intent to evade payment of \nduty\". Therefore, this Court has held that there cannot be a \nsuppression or mis-statement of fact which is not wilful. Mis-\nstatement or suppression of facts must be wilful. In that case, \non facts, this court found that the assessee was under a bona \nfide impression that the value of its product was not includible \nin its declaration for the reason that the said product was \nexempt from duty under the notification dated 23.11.1961, \nbecause two High Courts have taken the view that the product \nwas exempt from duty whereas two other High Courts had \ntaken contra-view. In the aforestated circumstances, this court \nheld that the mis-statement in the declaration filed by the \nassessee or the suppression of facts therein was not wilful.\n Applying the above test to the facts of the present case, \nwe find that the substance of the show-cause notices issued in \nthe present case was based on clandestine removal of the \nkimam from the units in Delhi with an intention to evade \npayment of excise duty or assessment. The show-cause notices \n\nhttp://JUDIS.NIC.IN \nSUPREME COURT OF INDIA\nPage 6 of 7 \nalso alleged contravention of the provisions of the Act and the \nRules on the part of the appellants in failing to get their units \nregistered under section 6 read with rule 174 of the 1944 Rules. \nHowever, we find from the facts that on 14.7.1992, stock \nverification was carried out by the department inside the \npremises of the appellants by anti-evasion department as also \nby the jurisdictional central excise officer. On 20.10.1992, the \npartner of the appellant was required to remain present before \nthe Superintendent, Central Excise, New Delhi. His statement \nwas recorded under section 14. In that statement, he has stated \nthat in their units in New Delhi, there were three rooms in \nwhich raw-material was stored. In the said statement, he has \nfurther stated that the appellants were blending and mixing the \nadditive mixture which was then transferred to their factories at \nUP and HP for manufacture of branded chewing tobacco. In the \npanchnama dated 20.10.1992, under which the premises of the \nappellants in Delhi were searched, the manufacturing process of \nadditive mixture was specifically indicated. Even at that time, \nthere was stock verification of the various raw-materials used in \nthe manufacture of chewing tobacco. Under item 59 of that \npanchnama, the stock of additive mixture has been specifically \nindicated. Further, on 30.4.1993, the Superintendent of Central \nExcise had also visited the factory of the appellants and had \nactually studied the process of manufacture in Delhi. On \n3.5.1993, a letter was addressed to the appellants in which the \nappellants were called upon to supply all information regarding \nthe process of obtaining additive mixture which was used in the \nmanufacture of chewing tobacco. On receipt of the said letter, \nthe appellants clearly indicated the ingredients used by them in \nthe manufacture of additive mixture. On 20.9.1993, the officers \nof the department again visited the various premises of the \nappellants. They conducted physical stock checking. They saw \nregisters maintained by the appellant in respect of different \ntypes of additive mixtures. All the registers were checked and \nverified on that day. There is no finding in the present case that \nthe appellants did not answer the queries made by the \ndepartment. Moreover, the tribunal in the connected appeal has \nrecorded a finding that the appellants were maintaining transfer \nchallans under which the said kimam was transferred to other \nunits. The tribunal has further recorded a finding in the \nconnected civil appeals no.1878-1880 of 2004 that the \nappellants were maintaining form-IV register as well stock \nregister regarding receipt of kimam in their factories in UP and \nHP from their factories in Delhi. That, after the change in the \nentries in 1994, no show-cause notice was ever issued. In the \ncircumstances, although there was contravention of the \nprovisions of section 6 read with rule 174 and although there \nwas contravention in not obtaining registration of the units in \nDelhi, we are of the view that there was no intent to evade \npayment of duty.\n \n For the aforestated reasons, we hold that \"additive \nmixture\" (kimam) was excisable and classifiable under chapter \nsub-heading 2404.49/2404.40 of 1985 Tariff Act, as held in the \ncase of Dharampal Satyapal (supra), however, on the facts \nand circumstances of this case, the department was not entitled \nto invoke the extended period of limitation under the proviso to \nsection 11A(1) of the said Act. Accordingly, these civil appeals \nare partly allowed, with no order as to costs.\n \n\nhttp://JUDIS.NIC.IN \nSUPREME COURT OF INDIA\nPage 7 of 7 \n"