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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

TAX APPEAL No. 338 of 2009
For Approval and Signature:
HONOURABLE MR.JUSTICE D.A.MEHTA

Sd/-

HONOURABLE MS.JUSTICE H.N.DEVANI

Sd/-

=========================================================
Whether Reporters of Local Papers may be allowed
YES

1 to see the judgment ?

2 To be referred to the Reporter or not ? YES

Whether their Lordships wish to see the fair copy
NO

3 of the judgment ?

Whether this case involves a substantial question

of law as to the interpretation of the
constitution of India, 1950 or any order made
thereunder ?
NO
Whether it is to be circulated to the civil judge
NO

5?

=========================================================
COMMISSIONER OF CENTRAL EXCISE SURAT-I - Appellant(s)
Versus
NEMINATH FABRICS PVT LTD - Opponent(s)
=========================================================
Appearance :
MR RJ OZA for Appellant(s) : 1,
MR PARESH M DAVE for Opponent(s) : 1,

=========================================================
CORAM : HONOURABLE MR.JUSTICE D.A.MEHTA
and
HONOURABLE MS.JUSTICE H.N.DEVANI
Date : 22/04/2010
ORAL JUDGMENT
(Per : HONOURABLE MS.JUSTICE H.N.DEVANI)

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1.

JUDGMENT

The Appellant-Revenue has challenged order dated

26.08.2008 made by the Customs, Excise And Service

Tax Appellate Tribunal (the Tribunal), proposing the
following three questions:
(a)

Whether

in

the

facts

and

circumstances of this case, the date of

completion

of

investigation

has

any

bearing in deciding period of limitation

to issue show cause notice in case covered
by first proviso to Section 11A of the
Central Excise Act, 1944?
(b) Whether in the facts and circumstances
of this case, the Tribunal has committed
substantial error of law in holding that
show cause notice issued in the present
case is barred by limitation under Section
11A of the Central Excise Act, 1944?
(c) Whether in the facts and circumstances
of this case, the Tribunal has committed
substantial
appeal

of

error
the

consequential

of

law

respondent
relief

to

in

allowing

assessee
the

with
said

assessee?
2.

On 03.03.2010 this Court had passed an order in

the following terms:

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1.

Heard

Revenue.

learned

While

JUDGMENT

Counsel

passing

for

impugned

Appellantorder

dated

25.8.2008, Customs, Excise & Service Tax Appellate

Tribunal (the Tribunal), correct legal principles
have been enunciated as to operation of Provisions
of Section 11A (1) and the Proviso thereunder of
the Central Excise Act, 1944. However, prima facie
it appears that the Tribunal has fallen into error
in applying principles to the facts of the case.
2.

Hence, Notice for final disposal returnable

on 25.03.2010.

3.

In

response

to

the

notice

issued

by

this

Court, Mr. Paresh Dave learned advocate has put

in appearance on behalf of the respondent.

4.

5.

Heard the learned advocates.

Admit.

The following substantial question of law

arises for consideration :

Whether

the

importing

the

concept

of

Section

provisions

Tribunal

was
of
11A

justified

knowledge
of

the

in

in
the

Central

Excise Act, 1944 read with sub-section (1)

and the proviso thereto?

6.

Briefly stated the facts of the case are that

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the respondent is engaged in the manufacture of Manmade Fabrics on job work basis falling under Chapter
54 of the Central Excise Tariff Act, 1985. Officers
of the Central Excise visited the factory of the
respondent

on

21.06.2002

for

preventive

checks.

The officers took physical stock of grey fabrics,

semi-finished fabrics and finished fabrics lying in
different sections of the unit and on comparing the
same

with

the

Lot

Register

and

the

Daily

Register maintained by the unit, found that

Stock
there

was a shortage of 193717.50 L.Mtrs. of Grey fabrics.

In relation to the shortage, the statement of one
Arunkumar Trivedi, Director of the unit was recorded
who admitted the shortage and deposed that they had
illicitly cleared the Grey fabrics without issuing
central excise invoices and without payment of any
duty. Statements of the merchant manufacturers from
whom the short found Grey fabrics were received and
resultant processed fabrics cleared without cover of
Central

Excise

invoices

and

without

payment

of

Central Excise duty also came to be recorded, who

admitted that the Grey fabrics were sent for process
illicitly without payment of duty.

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7.

Subsequently

Show

JUDGMENT

Cause

Notice

dated

09.05.2009 came to be issued to the respondent unit

which came to be adjudicated vide order-in-original
dated 22.2.2006 whereby demand of central excise duty
amounting to Rs.4,01,693/- came to be confirmed with
interest under section 11AB of the Act. Penalty of
Rs.4,01,693/- was also imposed under section 11 AC of
the

Act

read

with

Rule

25

of

the

Central

Excise

Rules, 2002 (the Rules). The respondent carried the

matter in appeal before Commissioner (Appeals), who
for the reasons stated in her order dated 25.02.2008,
dismissed

the

appeal.

The

respondent

carried

the

matter in further appeal before the Tribunal, who

vide the impugned order allowed the appeal on the
ground of limitation.

8.

Assailing the impugned order of the Tribunal Mr.

R.J. Oza, learned Senior Standing Counsel for the

appellant-revenue

has

invited

attention

to

the

provisions of section 11A of the Act. It is submitted

that in view of the proviso to section 11A of the
Act, in case where any duty of excise has not been

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levied or paid or has been short levied or short paid

or erroneously refunded by reason of fraud, collusion
or any wilful mis-statement or suppression of facts,
or contravention of any of the provisions of the Act,
or of the rules made thereunder with intent to evade
payment of duty, the period of one year prescribed
for service of show cause notice under sub-section
(1)

of

section

11A

gets

extended

to

five

years.

Hence, once it is found that any excise duty has not

been paid or short levied etc, for any of the reasons
stipulated

under

the

proviso,

the

period

of

limitation for service of show cause notice would

automatically stand extended to five years. Adverting
to the facts of the present it is pointed out that
non-payment

of

central

excise

duty

by

reason

of

suppression is admitted, hence, the ingredients of

the proviso stand duly satisfied. It is submitted
that

the

Tribunal

has

imported

the

concept

of

knowledge and a limitation of six months from the

date of knowledge into section 11A of the Act to hold
that the show cause notice was barred by limitation,
which is not permissible in law. In support of his
submissions, the learned counsel has placed reliance

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upon the decision of the Apex Court in the case of

Mathania Fabrics Vs. Commissioner
Jaipur, 2008

(221)

E.L.T.481

of Central Excise,

(S.C.),

as well as the

decision of the Apex Court in the case of Union of

India

Vs.

Rajasthan

Spinning

and

Weaving

Mills,

2009

(238) E.L.T.3 (S.C.).

9.

On

the

other

hand,

Mr.

Paresh

Dave

learned

advocate for the respondent has vehemently opposed

the appeal. It is submitted that the Tribunal has
placed
Court

reliance
in

the

upon
case

the
of

decision
Nizam

of

Sugar

the

Supreme

Factory

Vs.

Collector of Central Excise, A.P., 2006(197) E.L.T.465

(S.C.), for holding that the show cause notice was barred
by limitation. Attention is invited to the decision of

the Larger Bench of the Tribunal in the case of Nizam

Sugar Factory v. Collector of Central Excise, 1999
(114)

ELT

429,

wherein

the

Tribunal

held

that

relevant date has been defined under sub-section (3)

of section 11A and that the said sub-section does not
provide that the relevant date means the date of
acquiring

the

knowledge

by

the

Department.

It

is

further held that once show cause notice was beyond

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the extended period of limitation, any reference to

date of acquiring knowledge has no relevance. It is
pointed out that the said decision of the Tribunal
was carried before the Supreme Court in the case of
Nizam

Sugar

Factory

(supra)

and

that

the

impugned

orders of the Tribunal had been set aside on the

question of limitation only. It is further submitted
that the impugned order of the Tribunal is also in
consonance with the decision of this Court in case of
Commissioner of

Central Excise And Customs Vs. Kwality

Tube

2009

Industries,

submitted

that

in

(240)

the

E.L.T.20

(Guj.).

circumstances,

the

It

is

impugned

order of the Tribunal is just, legal, proper and does

not warrant interference.

10.
so

Section 11A of the Central Excise Act, 1944 in

far

as

the

same

is

relevant

for

the

present

purpose reads thus:

11A. Recovery of duties not levied or not paid

or

short-levied

or

short-paid

or

erroneously

refunded. -(1) When any duty of excise has not

been levied or paid or has been short-levied or

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short-paid

or

erroneously

JUDGMENT

refunded,

whether

or

not such non-levy or non-payment, short-levy or

short payment or erroneous refund, as the case
may

be,

was

on

the

basis

of

any

approval,

acceptance or assessment relating to the rate of

duty on or valuation of excisable goods under any
other provisions of this Act or the rules made
thereunder, a Central Excise Officer may, within
one year from the relevant date, serve notice on
the persons chargeable with the duty which has
not

been

levied

or

paid

short-levied or short-paid

or

which

has

been

or to whom the refund

has erroneously been made, requiring him to show

cause why he should not pay the amount specified
in the notice:
Provided that

where any duty of excise has not

been levied or paid or has

been short-levied or

short-paid or erroneously refunded by reason of

fraud, collusion or any wilful mis-statement or
suppression of facts, or contravention of any of
the provisions of this Act or of the rules made
thereunder with intent to evade payment of duty,
by such person or his agent, the provisions of
this sub-section shall have effect, as if for the
words

one

year,

the

words,

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five

years

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substituted :

Explanation. - Where the service of the notice is

stayed by an order of a Court, the period of such
stay shall be excluded in computing the aforesaid
period of

[one year] or five years, as the case

may be.
(1A) xxxxxxx.

(2) xxxxxxx.
(3) For the purposes of this section (i) refund includes rebate of duty of excise
on excisable goods exported out of India
or

on

excisable

materials

used

in

the

manufacture of goods which are exported

out of India;
(ii) relevant date means,(a)

in the case of excisable goods on which

duty of excise has not been levied or paid
or has been short-levied or short-paid (A)

where under the rules made under this

Act

periodical

return,

showing

particulars of the duty paid on the

excisable
period
relates,

goods

to

removed

which
is

Page 10 of 22

to

the
be

during
said

filed

the

return
by

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manufacturer

JUDGMENT

or

producer

or

licensee of a warehouse, as the case

may be, the date on which such return
is so filed;
(B) where no periodical return as aforesaid
is filed, the last date on which

such

return is to be filed under the said

rules;
(C) in any other case, the date on which
the duty is to be paid under this Act
or the rules made thereunder;
(b)

in

case

provisionally
the

rules

adjustment

where duty

assessed

made
of

under

thereunder,
duty

of excise
this
the

after

is

Act

or

date

of

the

final

assessment thereof;
(c)

in the case of excisable goods on which

duty

of

excise

has

been

erroneously

refunded, the date of such refund.

11. A plain reading of sub-section (1) of section

11A

of

the

Act

indicates

that

the

provision

is

applicable in a case where any duty of excise has

either

not

been

levied/paid

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or

has

been

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levied/short paid, or wrongly refunded, regardless of

the fact that such non levy etc. is on the basis of
any approval, acceptance or assessment relating to
the

rate

of

provisions

duty

or

valuation

under

any

of

the

of the Act or Rules thereunder and at

that stage it would be open to the Central Excise

Officer, in exercise of his discretion to serve the
show cause notice on the person chargeable to such
duty within one year from the relevant date.

12.

The

Proviso

under

the

said

sub-section

stipulates that in case of such non levy, etc.

of

duty which is by reason of fraud, collusion, or any

mis-statement

or

suppression

of

facts,

or

contravention of any provisions of the Act or the

rules made thereunder, the provisions of sub-section
(1) of section 11A of the Act shall have effect as if
the words one year have been substituted by the
words five years.

13. The

Explanation

which

follows

stipulates

that

where service of notice has been stayed by an order

of a Court, the period of such stay shall be excluded

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from computing the aforesaid period of one year or

five years, as the case may be.

14. Thus the scheme that unfolds is that in case of

non levy where there is no fraud, collusion, etc., it
is open to the Central Excise Officer to issue a show
cause notice for recovery of duty of excise which has
not

been

levied,

etc.

The

show

cause

notice

for

recovery has to be served within one year from the

relevant date. However, where fraud, collusion, etc.,
stands established the period within which the show
cause notice has to be served stands enlarged by
substitution of the words one year by the words
five years. In other words the show cause notice
for recovery of such duty of excise not levied etc.,
can be served within five years from the relevant
date.

15. To

put

it

differently,

the

proviso

merely

provides for a situation whereunder the provisions of

sub-section (1) are recast by the legislature itself
extending

the

period

within

which

the

show

cause

notice for recovery of duty of excise not levied etc.

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gets enlarged. This position becomes clear when one

reads the Explanation in the said sub-section which
only says that the period stated as to service of
notice shall be excluded in computing the aforesaid
period of one year or five years as the case may
be.

16. The termini from which the period of one year

or five years has to be computed is the relevant
date which has been defined in sub-section (3)(ii) of
section 11A of the Act. A plain reading of the said
definition shows that the concept of knowledge by the
departmental authority is entirely absent. Hence, if
one

imports

such

concept

in

sub-section

(1)

of

section 11A of the Act or the proviso thereunder it

would tantamount to rewriting the statutory provision
and

no

canon

of

interpretation

permits

such

an

exercise by any Court. If it is not open to the

superior court to either add or substitute words in a
statute such right cannot be available to a statutory
Tribunal.

17. The proviso cannot be read to mean that because

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there

is

knowledge

established

the

disappears.

JUDGMENT

suppression
Similarly

the

which

stands

concept

of

reasonable period of limitation which is sought to be

read into the provision by some of the orders of the
Tribunal also cannot be permitted in law when the
statute itself has provided for a fixed period of
limitation. It is equally well settled that it is not
open to the Court while reading a provision to either
rewrite

the

period

of

limitation

or

curtail

the

prescribed period of limitation.

18. The

Proviso

comes

into

play

only

when

suppression etc. is established or stands admitted.

It would differ from a case where fraud, etc. are
merely

alleged

and

are

disputed

by

an

assessee.

Hence, by no stretch of imagination the concept of

knowledge can be read into the provisions
that would tantamount to

rendering

because

the defined term

relevant date nugatory and such an interpretation

is not permissible.

19. The

language

employed in

the

proviso

to

sub-

section (1) of section 11A, is clear and unambiguous

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and makes it abundantly clear that moment there is

non-levy or short levy etc. of central excise duty
with intention to evade payment of duty for any of
the reasons specified thereunder, the proviso would
come

into

operation

and

the

period

of

limitation

would stand extended from one year to five years.

This is the only requirement of the provision. Once
it is found that the ingredients of the proviso are
satisfied, all that has to be seen as to what is the
relevant date and as to whether the show cause notice
has

been

served

within

period

of

five

years

therefrom.

20. Thus, what has been prescribed under the statute

is that upon the reasons stipulated under the proviso
being satisfied, the period of limitation for service
of show cause notice under sub-section (1) of section
11A, stands extended to five years from the relevant
date. The period cannot by reason of any decision of
a Court or even by subordinate legislation be either
curtailed or enhanced. In the present case as well as
in the decisions on which reliance has been placed by
the learned advocate for the respondent, the Tribunal

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has introduced a novel concept of date of knowledge

and has imported into the proviso a new period of
limitation of six months from the date of knowledge.
The reasoning appears to be that once knowledge has
been

acquired

by

the

department

there

is

no

suppression and as such the ordinary statutory period

of

limitation

section

11A

prescribed
would

be

under

sub-section

applicable.

(1)

However,

of

such

reasoning appears to be fallacious in as much as once

the

suppression

is

admitted,

merely

because

the

department acquires knowledge of the irregularities

the suppression would not be obliterated.

21. It may be noticed that where the statute does

not prescribe a period of limitation, the Apex Court
as well as this Court have imported the concept of
reasonable

period

and

have

held

that

where

the

statute does not provide for a period of limitation,

action has to be taken within a reasonable time.
However, in a case like the present one, where the
statute itself prescribes a period of limitation the
question

of

importing

the

concept

of

reasonable

period does not arise at all as that would mean that

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the Court is substituting the period of limitation

prescribed

by

the

legislature,

which

is

not

permissible in law.

22.

The Apex Court in the case of Rajasthan Spinning

and Weaving Mills (supra) has held thus :

From sub-section 1 read with its proviso

it is clear that in case the short payment,

non payment, erroneous refund of duty is
unintended and not attributable to fraud,
collusion

or

any

wilful

mis-statement

or

suppression of facts, or contravention of

any of the provisions of the Act or of the
rules made under it with intent to evade
payment of duty then the Revenue can give
notice for recovery of the duty to the person

in

default

within

one

year

from

the

relevant date (defined in sub-section 3).

In other words, in the absence of any element of deception or malpractice the recovery of duty can only be for a period not
exceeding one year. But in case the nonpayment etc. of duty is intentional and by
adopting any means as indicated in the proviso then the period of notice and a priory
the period for which duty can be demanded
gets extended to five years.

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23.

JUDGMENT

This decision would be applicable on all fours

to the facts of the present case, viz. when non-payment etc. of duty is intentional and by adopting any
of the means indicated in the proviso, then the period of notice gets extended to five years.

24. The decision of the Apex Court in the case of

Nizam Sugar Factory (supra) on which reliance has
been

placed

upon

by

learned

advocate

for

the

respondent was rendered in totally different set of

facts wherein when the first show cause notice was
issued all the relevant facts were in the knowledge
of the authorities. The Court has held that later on,
while issuing the second and third show cause notices
the

same/similar

facts

could

not

be

taken

as

suppression of facts on the part of the assessee as

those facts were already in the knowledge of the
authorities.
that

the

Thus,

Apex

it

Court

was
had

in
held

these
that

circumstances,
there

was

no

suppression of facts on the part of the assessee and

set

aside

the

order

impugned

before

it

on

the

question of limitation only. The ratio of the said

judgment cannot be deduced to mean that concept of

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knowledge

JUDGMENT

is applicable even in a case of first show

cause notice. Thus, once the Court had come to the

conclusion that there was no suppression, it is but
natural that the proviso would not come into play and
the

ordinary

the

period

of

limitation

would

be

case

of

applicable.

25. The

decision

Commissioner

of

of

this

Central

Court
Excise

in

the

And

Customs

Vs.

Kwality Tube Industries (supra) also does not carry

the case of the respondent any further inasmuch as in
the facts of the said case the Court had interalia
found that in absence of weighment slips the alleged
shortage itself was doubtful and the finding to that
effect

arrived

unreasonable
above,

when

at

nor

by

the

Tribunal

unjustified.

fraud,

Thus,

suppression

was
as

etc.,

neither
discussed
are

not

established the matter stands on a different footing.

26. In

the

facts

of

the

present

case

the

record

indicates that the Director of the respondent has

admitted shortage of Grey fabrics as well as illicit
clearance thereof without issuance of central excise

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invoices or any other duty paying documents, without

payment of central excise duty and without entering
in the Daily Stock Account Register and Lot Register
during

the

months

May-2002

and

June

2002.

The

merchant manufacturers from whom the short found Grey

fabrics were received and resultant processed fabrics
cleared

illicitly

without

cover

of

central

excise

invoices and without payment of central excise duty

had

also

been

summoned

by

the

Central

Excise

Officers. Statements of those merchant manufacturers

who appeared indicate that they had agreed that they
had

sent

received

the

grey

the

fabrics

resultant

to

the

processed

respondent

fabrics,

and

without

cover of central excise invoices and without payment

of central excise duty leviable thereon during the
relevant period. Thus, in the facts of the present
case suppression stands admitted by the respondent
assessee and established by evidence on record and as
a natural corollary, the proviso to sub-section (1)
of

section

11A

circumstances,

the

would

stand

impugned

attracted.

order

of

the

In

the

Tribunal

whereby it has been held that the show cause notice

issued beyond the period of six months from the date

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HC-NIC

22/22

TAXAP/338/2009

of

knowledge

is

barred

by

JUDGMENT

limitation

is

clearly

contrary to the provisions of section 11A of the Act

and as such cannot be sustained.

27.

In light of the aforesaid, the questions stand

answered accordingly. The impugned order dated 26th

August, 2008 bearing No.A.1676-1677/WZB/Ahmedabad/08
made by the Tribunal in Central Excise Appeals No.569
and 570 of 2008 is hereby quashed and set aside. The
Appeal is, accordingly, allowed with no order as to
costs.
Sd/(D.A. Mehta, J.)

Sd/(H.N. Devani, J.)

M.M.BHATT

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