Self-Assessment Of Assessee Not Rendered Malafide Merely Because It Was Based On A CETSTAT View Which Was Later Overturned : Supreme Court

The Supreme Court has upheld the decision of the Ahmedabad bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) by holding the demand for differential excise duty raised against the assessee, M/s Reliance Industries Ltd, as time barred.

The court dismissed the contention that Reliance had deliberately suppressed and withheld material information and documents from the departmental officers by not filing the same and thus, the ground for invoking the extended period of limitation available under the proviso to Section 11A (1) of the Central Excise Act, 1944 was available to the Department.

The bench of Justices Krishna Murari and Bela M. Trivedi held that during the relevant period in consideration, i.e., September 2000 to March 2004, Reliance was holding a bonafide belief that it was correctly discharging its duty liability by relying on the CESTAT’s decision dated 28.7.2000 in the case of M/s IFGL Refractories Ltd. vs Commissioner of Central Excise, [2001 (134) ELT 230].

The CESTAT in the said case had held that duty benefits received by an assessee under the duty exemption scheme announced by the Government cannot be considered as part of the consideration flowing from the buyer, either directly or indirectly.

The bench remarked that though the view taken by the CESTAT in IFGL was overturned by the Supreme Court on 9.8.2005 in the case of Commissioner of Central Excise vs M/s IFGL Refractories Limited, 2005 (69) RLT 663, the same did not render such belief of the assessee a malafide belief particularly when such a belief was emanating from the view taken by a division bench of the Tribunal.

The court thus concluded that Reliance’s conduct during the material period, of not including the monetary value of the duty benefits that it had obtained from its customers while determining the assessable value of its finished goods, could not be considered to be malafide when it merely followed the view taken by the Tribunal in IFGL's case.

A Show Cause Notice was issued in 2005 against Reliance raising a demand for differential duty of excise on the allegation that it had incorrectly determined the assessable value of its finished goods by not including the monetary value of the duty benefits that it had obtained from its customers as a result of the transfer of advance licenses.

The Revenue Department relied upon the 2005 judgment of the top court in IFGL Refractories Limited, in support of its plea that monetary value of duty benefits obtained through transfer of advance licenses held by the customers constituted additional consideration flowing to the assessee from such customers. 

Since the demand for differential duty was raised beyond the normal limitation period of one year prescribed in Section 11A (1) of the Central Excise Act, the show cause notice also alleged that the noticee, Reliance, had deliberately suppressed relevant facts and had made wilful misstatements withholding material information and documents from the departmental officers.

The demand for differential duty was confirmed against the assessee by invoking the extended period of limitation available under the proviso to Section 11A (1) of the Act. In appeal, the CESTAT by a majority order set aside the demand raised against Reliance.

In the appeal filed by the Revenue Department against the decision of the CESTAT, the Supreme Court referred to Section 11A (1) of the Central Excise Act. The said provision provides that when any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the Central Excise Officer may, within 1 year from the relevant date, serve a notice on the person chargeable with the duty.

However, the first proviso to Section 11A (1) provides an extended period of limitation of 5 years 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, wilful misstatement, suppression of facts, or contravention of the provisions of the Act or rules with the intent to evade payment of duty.

Reliance submitted before the Supreme Court that during the relevant period under consideration, i.e., September 2000 to March 2004, the practice of valuation followed by it was strictly in accordance with the view taken by the CESTAT in M/s IFGL Refractories Ltd.

Reliance argued that though the view of the Tribunal was reversed by the Supreme Court on 9.8.2005, it could not be denied that during the period from 28.7.2000 (the date when the Tribunal decided the IFGL's case) till 9.8.2005 (when the Supreme Court reversed it) the view taken by the Tribunal held the field. The same thus provided a basis for it to believe that its method and approach of determining the assessable value was in accordance with law, Reliance pleaded.

The court upheld the finding of the Tribunal that during the period in dispute, Reliance was holding a bonafide belief that it was correctly discharging its duty liability. “The mere fact that the belief was ultimately found to be wrong by the judgment of this Court does not render such belief of the assessee a malafide belief particularly when such a belief was emanating from the view taken by a division bench of Tribunal,” the court said.

It added: “We note that the issue of valuation involved in this particular matter is indeed one were two plausible views could co-exist. In such cases of cases of disputes of interpretation of legal provisions, it would be totally unjustified to invoke the extended period of limitation by considering the assessee's view to be lacking bonafides.”

The court further held that the extent of disclosure that an assessee makes is also linked to his belief as to the requirements of law. Reliance, who was required to self-assess his liability, determined the assessable value on the basis of an interpretation given by CESTAT in its order dated 28.7.2000, the court said. “It could not have foreseen that the view taken by CESTAT would be upset and overturned by the Supreme Court as it happened on 9.8.2005,” the bench added.

The bench concluded that the assessee's conduct during the material period i.e., between 2000 to 2005, cannot be considered to be malafide when it merely followed the view taken by the Tribunal in IFGL's case.

Dealing with the allegation of suppression of facts by the assessee, the court noted that in the show cause notice itself it had been accepted by the Revenue that the self-assessment procedure did not require an assessee to submit copies of all contracts, agreements, and invoices. “This being the admitted position in the notice we do not find any basis for agreeing with the findings of the Commissioner that certain relevant documents had not been filed and thereby suppressed from the scrutiny of the revenue officers,” the court said, adding that an assessee can be accused for suppressing only such facts which was otherwise required to be disclosed under the law.

“The counsel for the Revenue has, while pleading that facts was suppressed been unable to show us the provision or rule which required the assessee in this case to make additional disclosures of documents or facts. The assertion that there was suppression of facts is therefore clearly not tenable,” the court ruled.

The court thus dismissed the appeal filed by the Revenue holding that the demand raised against the assessee was time barred.

Case Title: The Commissioner, Central Excise and Customs & Anr vs M/s Reliance Industries Ltd.

Citation : 2023 LiveLaw (SC) 512

Counsel for the Appellant: Mr. Mukesh Kumar Maroria, AOR

Counsel for the Respondent: Mr. Shyam Divan, Sr. Adv. Mr. K. R. Sasiprabhu, AOR Mr. Jaydeep Patel, Adv. Mr. Vipin Jain, Adv. Ms. Shilpa Balani, Adv. Mr. Udayaditya Banerjee, Adv. Mr. Vishnu Sharma A. S., Adv. Mr. Prakhar Agarwal, Adv.

Central Excise Act, 1944: Section 11A (1)-

The Supreme Court has upheld the decision of the Ahmedabad bench of the CESTAT by holding the demand for differential excise duty raised against the assessee, M/s Reliance Industries Ltd, as time barred.

The court dismissed the contention that Reliance had deliberately suppressed and withheld material information and documents from the departmental officers by not filing the same and thus, the ground for invoking the extended period of limitation available under the proviso to Section 11A (1) of the Central Excise Act, 1944 was available to the Department.

The bench held that during the relevant period in consideration, i.e., September 2000 to March 2004, Reliance was holding a bonafide belief that it was correctly discharging its duty liability by relying on the CESTAT’s decision dated 28.7.2000 in the case of M/s IFGL Refractories Ltd, even though the same was overturned by the Supreme Court on 9.8.2005.

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