24 July 2015

Limitation for demand for breach of exemption notification

The Bombay High Court has held that demand beyond 5 years cannot be confirmed by invoking bond in case of EOUs. It was observed that even if fraud is of great magnitude and there is admission of involvement, it does not mean that recovery of duty, because of such fraud, can be made at any time under Section 11A of the Central Excise Act, 1944. The High Court by judgment dated 10-7-2015 set aside the order passed by CESTAT, wherein the demand was confirmed for period even beyond extended period of limitation.
The High Court held that if there is a power to recover and within a specific period, then, the exercise of that power is contemplated within the said period, else there is a restriction to recover the duty. In this regard, the Court observed that terms and conditions of the exemption notification or of the bond cannot be of any assistance to dilute the mandate of Section 11A.
Relying on Explanation 1 to Section 11A(2B), the department was of the view that in the case of exemption notification, the relevant date would have to be computed consistent with the terms and conditions of the notification. It was argued that if such conditions are breached or violated and such breach or violation is discovered or came to the knowledge of the Department then, the computation will have to be done accordingly.
The High Court however held that once it is possible to scrutinise and verify the compliance of the terms and conditions on which the exemption has been provided then, it will not be possible to hold that a separate period is prescribed for recovery of duty in case of this nature.
Tribunal’s order was held as exfacie erroneous and unsustainable in law by the High Court. It said that it was not possible to hold that the period of five years prescribed has to be computed only when the breach or violation of the exemption notification has come to the knowledge of the Department subsequently.
The case involved alleged clandestine removal of inputs procured duty free by the EOU, leading to violation of terms and conditions of Notification No. 1/95-C.E.

Please click here to read the judgement.


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