Mere non-payment of duties is NOT collusion or wilful misstatement or suppression of facts - SC
“WHEN can the extended period of five years be invoked in a Show Cause Notice for demand of duty?”, a Commissioner asked his officers in a meeting. “When the normal period of one year has expired”, was the unanimous reply. Normally the Show Cause Notices in Customs, Excise and Service Tax are issued to demand a duty for a period of five years routinely invoking the extended period for collusion, wilful misstatement or suppression of facts, with intent to evade payment of duty thrown in. I have seen Show Cause Notices alleging intention to evade duty of a few thousands by assessees paying crores of rupees as duty.
Though the Supreme Court had in a large number of cases held that mere failure to supply information or failure to pay duty would not amount to suppression, the Department and Tribunal often take the view that if duty was not paid, suppression can be invoked and limitation can be extended to five years.
In the case of Cosmic Dye Chemical v. Collector of Central Excise, Bombay - , Supreme Court held that intention to evade duty must be proved for invoking the proviso to section 11A (1) for extended period of limitation. It has been further held that intent to evade duty is built into the expression "fraud and collusion" but mis -statement and suppression is qualified by the preceding word " wilful ". Therefore, it is not correct to say that there can be suppression or misstatement of fact, which is not wilful and yet constitutes a permissible ground for invoking the proviso to section 11A .
In case of Pushpam Pharmaceuticals Company v. C.C.E , the Supreme Court has held that the extended period of five years under the proviso to section 11A (1) is not applicable just for any omission on the part of the assessee , unless it is a deliberate attempt to escape from payment of duty. Where facts are known to both the parties, the omission by one to do what he might have done and not that he must have done does not constitute suppression of fact.
In Anand Nishikawa Co. Ltd. Vs. Commissioner of Central Excise, Meerut - , the Supreme Court held, ‘In taxation, it ("suppression of facts") can have only one meaning that the correct information was not disclosed deliberately to escape payment of duty.'
In Collector of Central Excise Vs. H.M.M. Ltd. - , the Supreme Court held that mere non-disclosure of certain items assessable to duty does not tantamount to the mala fides elucidated in the proviso to Section 11A (1) of the Central Excise Act, 1944.
In Easland Combines, Coimbatore Vs. The Collector of Central Excise, Coimbatore - the Supreme Court held: “It is settled law that for invoking the extended period of limitation duty should not have been paid, short levied or short paid or erroneously refunded because of either fraud, collusion, wilful misstatement, suppression of facts or contravention of any provision or rules. This Court has held that these ingredients postulate a positive act and, therefore, mere failure to pay duty and/or take out a licence which is not due to any fraud, collusion or wilful misstatement or suppression of fact or contravention of any provision is not sufficient to attract the extended period of limitation.”
In spite all these emphatic decisions, extended period of limitation is routinely confirmed.
The Supreme Court had an occasion to consider this issue again recently.
If every demand is for suppression and collusion, what is ordinary demand? Wondered the Supreme Court - There is no ordinary demand Sir!. The Supreme Court observed, “The conclusion that mere non-payment of duties is equivalent to collusion or willful misstatement or suppression of facts is, in our opinion, untenable. If that were to be true, we fail to understand which form of non-payment would amount to ordinary default.”
The Supreme Court also observed, It is a cardinal postulate of law that the burden of proving any form of mala fide lies on the shoulders of the one alleging it. It cannot be overlooked that burden of establishing mala fides is very heavy on the person who alleges it. The allegations of mala fides are often more easily made than proved, and the very seriousness of such allegations demand proof of a high order of credibility.
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