ORDER
Shiben K. Dhar, Member (T)
1. Appellants are engaged in the manufacture of Steam Boilers which were classified under Tariff Item 68 upto 1-3-1986 and thereafter under chapter heading 84 of the new Tariff. Consequent on investigation carried out by the Central Excise Officers it was held; that the appellants have evaded duty to the extent of Rs. 12,90,145.59 on the ground that M/s. Boiler Tech Engg. and M/s. Engineering Associates were two dummy units of the Appellants. These units did not have their independent manufacturing premises and had not in fact manufactured any boilers. The boilers sold in the name of the units were in fact manufactured by Walia Engg. Pvt. Ltd. Collector of Central Excise adjudicating the case came to the conclusion that clearance value of M/s. Engineering Associates had to be added to the clearance value of M/s. Walia Engineering Associates. In regard to the Boiler Tech. Engineers, however, he held that they had correctly enjoyed the exemption under Notification 46/81 and 77/83. The Collector therefore confirmed the duty demand only to the extent of Rs. 1,95,673.93. He also imposed penalty of Rs. 10,000/- on the appellants.
2. Arguing on behalf of the Appellants the ld. Counsel submits that he does not wish to go into the merits of the case as such but would confine his arguments only to the question of limitation and imposition of penalty. He drew attention to the Para 3 of the Collector’s order at internal page 18 of the order according to which Collector himself held that appellants had no intention to evade duty and it was their understanding that by arrangements made by them separate exemption can be availed. In these circumstances he submits that proviso to Section 11-A cannot be invoked for extended period in issuing the show cause notice for the duty demand relates to period 1984-85 to September, 1985 in the financial year 1985-86. Show cause notice dated 2-8-1987 however was issued only on 31-8-1987 as would be clear from the endorsement made in show cause notice. In these circumstances the demand is time barred and since there was no intention to evade duty, penalty is also not sustainable.
3. Ld. DR reiterates the departmental arguments and submits that the appellants should have made complete disclosure of the arrangements made by them to enable the department to arrive at a correct determination in time.
4. We have heard both sides. We are extracting below paragraph 3 of the observation at internal page 18 of the Collector’s order.
“From discussion and evidence on record no intention of evasion of duty is proved. It is their understanding that by arrangements made by them separate exemption can be availed. I, therefore, taken a lenient view in imposing penalty.”
Ld. Collector himself has held that no intention of evasion of duty is proved and that it was only understanding of the appellants arrangements made by them that separate exemption can be availed. He has further recorded that he has taken a lenient view in imposing penalty. In this connection ld. Counsel had placed reliance on the judgment of the Hon’ble Apex Court in the matter of Tamil Nadu Housing Board v. CCE., Madras reported in 1994 (74) E.L.T. 9 (S.C.). The Apex Court held that:
“The proviso is in the nature of an exception to the principal clause. Therefore, its exercise is hedged on one hand with existence of such situations as have been visualised by the proviso by using such strong expression as [fraud], collusion etc. and on the other hand it should have been with intention to evade payment of duty. Both must concur to enable the Excise Officer to proceed under his proviso and invoke the exceptional power. Since the proviso extends; the period of limitation from six months to five years it has to be construed strictly. The initial burden is on the Department to prove that the situation visualised by the proviso existed. But once the Department is able to bring on record material to show that the appellant was guilty of any of those situation which are visualised by the Section, the burden shifts and then applicability of the proviso has to be construed liberally.
When the law requires an intention to evade payment of duty. It must be something more. That is, the assessee must be aware that the duty was leviable and it must deliberately avoid paying it. The word ‘evade’ in the context means defeating the provision of law of paying duty. It is made more stringent by use of the word “intent”. In other words, the assessee must deliberately avoid payment of duty which is payable in accordance with law.”
5. Since Collector himself has recorded that there was no intention to evade duty none of the ingredients required for invoking extended period under proviso to Section 11-A are attracted. In view of this we hold that the demand issued on 2-8-1987 for the period 1984-85 and 1985-86 upto September, 1985 is clearly time barred. Since the extended period is not sustainable for demand penalty is also not sustainable [See Apex Court judgment in case of CCE., v. H.M.M. Ltd. -1995 (76) E.L.T. 497 (S.C.)]. In the result, without going into the merits of the case, we allow the appeal on limitation and set aside the impugned order.