CHAPTER - IX
Demands Not Raised or Delayed

Short payment or non-payment of duty on any excisable goods is to be recovered by issuing a show cause notice under section 11A to be followed up with its adjudication and recovery proceedings. The period of limitation for issue of show cause notice is one year (six months upto 11 May 2000) in normal cases of non-levy/short levy of duty. In case of short levy/non-levy due to fraud, collusion etc. the limitation period stands extended to five years. Some illustrative cases of demands raised with delay or not raised are given in the following paragraphs: -

9.1 Non raising of demand

The Supreme Court in the case of Union of India and others Vs. Madhumilan Syntex Private Limited {1988 (35) ELT 349 (SC)} held that unless a show cause notice was issued under section 11A of the Central Excise Act, 1944, the Department was not entitled to recover any dues.

9.1.1 Test check of records of M/s Jaiswal Neco Limited, in Raipur Commissionerate of Central Excise, engaged in manufacture of pig iron (chapter 72), revealed that they had been procuring iron ore (heading 26.01) from M/s Tisco Limited on payment of duty though the same was chargeable to nil rate of duty and had been availing Modvat/Cenvat credit of duty paid on inputs. Availing of such credit was not correct as duty paid on such inputs was not duty but deposit for which credit was not admissible as clarified by the Board on 4 January 1991. Internal audit in January 2002 had also pointed out incorrect availing of Rs.3.06 crore for the period April 2000 to December 2001. Inspite of this, the Department did not take action to protect revenue by issue of timely show cause notices. Demands for Rs.83.71 lakh for the period from February 2002 to May 2002 were issued only in March 2003. The demands hit by time bar resulted in loss of revenue of Rs.4.39 crore for the period April 1997 to January 2002 and revenue of Rs.2.05 crore for the period from June 2002 to May 2003 remained un-protected due to non-issue of show cause notice.

On this being pointed out in June 2003; the Ministry of Finance (the Ministry) admitted the objection (November 2003).

9.1.2 M/s. Modern Petrofils, in Vadodara II Commissionerate of Central Excise, manufacturing ‘partially oriented yarn’ cleared goods worth Rs.4.32 crore against AR 3As (bearing numbers 132 to 305) between 1 June and 8 June 2000. The range officer issued in September 2000 a simple letter to the assessee demanding duty of Rs.69.11 lakh for non-submission of re-warehousing certificates for AR3As bearing numbers 257 to 305 within 90 days. The range officer also issued another simple letter in December 2000 demanding duty of Rs.85.15 lakh for AR3As bearing numbers 132 to 256 having been found fake and fabricated. Against these, the assessee appealed to the High Court. Assessee’s appeal against the September 2000 demand was pending decision. However, the High Court set aside (June 2001) the demand of December 2000 directing the Department to give sufficient opportunity to the assessee by issue of show cause notice as required under the law which had still not been done. Thus, due to non-initiation of proper action, government dues of Rs.154.26 lakh (Rs.69.11 lakh for non receipt of re-warehousing certificates and Rs.85.15 lakh on account of fake and fabricated AR 3A) remained unprotected.

On this being pointed out (August 2002), the Ministry admitted the objection (December 2003).

9.1.3 Section 11D of the Central Excise Act, 1944, prescribes that every person who is liable to pay duty under this Act and has collected any amount in excess of the duty paid on any excisable goods, shall pay the amount so collected, to the credit of central government. Where the amount has not been so paid, the central excise officer may serve show cause notices on the person liable to pay such amount.

Four units of M/s. Indian Oil Corporation Limited and M/s. Bharat Petroleum Corporation Limited, in Bolpur and Shillong Commissionerates of Central Excise, received motor spirit, high speed diesel and kerosene on payment of duty at the appropriate rate prevalent at that point of time. The materials were stored in separate duty paid tanks from where the same were sold and central excise duty was collected at the higher rate applicable at the time of sale. The extra duty of Rs.1.11 crore so collected between March 2001 and July 2002 was not remitted to the government exchequer by the assessee. The Department also did not take any action to realise it from the assessees by issuing demand notices.

On this being pointed out (between June and October 2002), the Ministry admitted the objection in two cases and intimated (August 2003) recovery of Rs.16.62 lakh and issue of show cause notices for Rs.11.62 lakh in February 2003. In the remaining two cases the Ministry stated (October 2003) that the assessees purchased duty paid goods and sold them at a profit like any other wholesaler and therefore, there was no obligation to pay the difference.

Reply of the Ministry is not tenable as the assessees had collected more duty than actually paid and hence it was recoverable under section 11D of the Act.

9.2 Short raising of demand

Test check of records of M/s. Tamil Nadu Petroproducts Limited, Manali, in Chennai I Commissionerate of Central Excise, revealed that in September 2002, the Department had issued a show cause notice to the assessee demanding differential duty of Rs.37.37 lakh for epichlorohydrin supplied to M/s. Petro Araldite Private Limited during September 2001 to February 2002 by treating M/s. Petro Araldite Private Limited as a related person and by reworking the value adopted by the assessee at 115 per cent of cost of production. However, the demand was raised on the profit margin element (Rs.23,632 per tonne) alone omitting the raw material cost and overheads (Rs.1,12,100 per tonne). So, the demand was raised short by Rs.1.40 crore.

On this being pointed out (November 2002 and January 2003), the Ministry admitted the objection (October 2003).

9.3 Delay in raising demand

M/s. Ind Swift Limited, Parwanoo, in Chandigarh I Commissionerate of Central Excise, manufactured ‘chloroquin phosphate tablets’ (sub-heading 3003.20) by using inputs which were common for dutiable and exempted category of final products. The assessee cleared chloroquin phosphate tablets after availing exemption but without payment of Rs.56.62 lakh being 8 per cent of the price of exempted final goods leviable under rule 57CC during January 1998 to February 2000. The internal audit had also pointed out the non-levy in August 1998. However, no demand was raised till date of audit (November 1999).

On this being pointed out (November 1999), the Ministry stated (November 2003) that show cause notice for Rs.56.62 lakh for the period June 1997 to December 1997 had been issued in July 2002. Details of the show cause notice issued for the period from January 1998 to February 2000 had not been intimated.

9.4 Non realisation of confirmed demand

Section 11 of the Central Excise Act, 1944, provides that if any duty and any other sum of any kind is payable to government under the provisions of Act or rules made thereunder, the officer empowered to levy such duty or require the payment of such sums may deduct the amount so payable from any amount payable or due to the assessee, and if the amount payable is not so recovered, he may prepare a certificate signed by him specifying the amount due from the person liable to pay the same and send it to the Collector of the district in which such person resides or conducts his business and the said Collector, on receipt of such certificate, shall proceed to recover from the said person the amount specified therein as if it were an arrear of land revenue. Further, rule 230 of the Central Excise Rules, 1944, also provides for the recovery of dues. For late payment of revenue, interest is also leviable under the Act/Rules.

Test check of records of PBC Range, Mukerian in Jalandhar Commissionerate of Central Excise, revealed that a demand of Rs.28.83 lakh was confirmed by the Commissioner vide his orders dated 23 September 1988 and a personal penalty of Rs.25,000 was also imposed in the case of M/s. Northern India Rubber Limited, Dina Nagar, but the same had not yet been realised despite a lapse of 14 years. Besides, interest of Rs.86.43 lakh (notional Rs.38.92 lakh from 23 September 1988 to 25 May 1995 and thereafter actual Rs.47.51 lakh till June 2003) was also leviable for delayed payment.

On this being pointed out (April 2002 and March 2003), the Department stated (July 2003) that the party had obtained (September 1988) stay of recovery from Tribunal until the case was finally decided. The case was decided in November 1999 in favour of revenue but during the interim period the factory had been closed and property with plant and machinery disposed of.

Inaction on the part of the Department to attach the properties pending decision of Tribunal or to obtain a stay on the disposal of properties enabled the assessee to dispose of the properties. The Department’s lapse in protecting government revenue led to it becoming irrecoverable.

The Ministry admitted the facts of the audit objection (November 2003).

9.5 Other cases