By TIOL News Service

CHENNAI, MAR 18, 2015 : THE respondent/assessee is engaged in repacking of goods falling under sub-heading 3819.00 and 3820.00 of the Central Excise Tariff Act, which were received from Indian Oil Corporation, which is a public sector undertaking. IOC supplied Hydraulic Brake Fluid and Servo Kool to the appellant. After repacking, the respondent/assessee is despatching the repacked goods to various depots of IOC as per instructions from IOC. Those raw materials were received in bulk under invoice issued under Rule 52A of the Central Excise Rules, 1944. Along with those raw materials, the assessee received packing materials such as plastic containers of various dimension along with printed cartons for packing those goods. Those packing materials contain logo/emblem of IOC, viz., 'SERVO'. On receipt of the bulk materials, the same is stored in their tanks and, subsequently, refilled in smaller packs as per instructions of IOC. Thereafter, as per the despatch orders issued, the respondent/assessee despatches goods packed in the containers, which are thereafter packed in cartons containing the name of IOC, viz., 'SERVO'.

As per Note 5 of the Tariff 38 inserted by Finance Act, 1997, repacking amounts to manufacture and as a result, the respondent is not eligible for SSI exemption as they are repacking products of IOC with the brand name 'SERVO' belonging to IOC.

Accordingly, the demand was confirmed under extended period with equal penalty under Section 11AC. On appeal, the Tribunal remanded the matter to consider admissibility of CENVAT credit on the raw materials. Consequently, the Adjudicating Authority allowed the CENVAT credit and confirmed the demand with equal penalty under Section 11AC. In the second round, the Tribunal held that extended period under proviso to Section 11A of the Central Excise Act, 1944 cannot be invoked and restricted the demand to normal period. Also penalty under Section 11AC was set aside. Aggrieved by the same, department is in appeal before the High Court.

The respondent did not appear for hearing and on hearing revenue, the High Court held:

In both the adjudication orders, on the first occasion and, thereafter, on remand, there is a specific finding by the Commissioner that only due to ignorance of law, the assessee has not paid the duty. It is trite law that ignorance of law cannot be a ground to avoid tax liability and to allow the appeal.

The element of mens rea is one of the components that will be relevant for the purpose of invoking proviso to Section 11A of the Central Excise Act. In the present case, merely pleading ignorance of law, the assessee cannot wriggle out of the duty liability for the larger period. The Tribunal has been kind enough to remand the matter for de novo adjudication on a claim of Modvat credit and that has been allowed. However, the fact remains that duty liability has to be worked out for the larger period if the ingredients of Section 11A has been made out.

The main ground on which the Tribunal granted the relief being ignorance of law, this Court is of the considered opinion that the said proposition is not acceptable in law. The statement recorded from the persons and the finding of the Commissioner in the earlier and later orders clearly show that it is a case where proviso to Section 11A could be invoked. Therefore, the first question of law is answered against the assessee and in favour of the Revenue.

On the question of penalty under Section 11AC also, the High Court answered the question of law in favour of the revenue by following the ratio of Supreme Court in Union of India V. Dharamendra Textile Processors - 2008-TIOL-192-SC-CX-LB.

(See 2015-TIOL-652-HC-MAD-CX )