RELEVANT DATE IN CASES OF CLANDESTINE REMOVAL

 

by

 

K. VIJAY KUAMR

MA,BL,MBA,B.Ed.

Superintendent of Central Excise, Hyderabad

 

 

As is well known, in cases where duty is not paid or short paid, a notice has to be issued within one year/ five years from the relevant date. Section 11A (3) (ii) covers five situations in the relevant date.

1. Date of filing the return
   
2. If no return is filed, the last date on which such return is to be filed.
   
3. In any other case, the date on which duty is to be paid.
   
4. In case of provisional assessment, date of adjustment of duty after final assessment.
   
5. In case of erroneous refund, date of refund.
   

 

As can be seen, all the situations above visualise situations where the actual date of clearance of goods or at least the actual month is known. But there is a very important situation when the date is not known, like in the case of clandestine removal. Clandestine removal can be proved in several ways and once proved; the question is "What is the relevant Date?"

 

It is not always possible to determine the date on which goods were cleared in the case of clandestine removals. When a stock taking is conducted, there may be shortages noticed. Though shortage by itself does not mean clandestine removals, it is presumed so in most of the cases. So when shortage is noticed or clandestine removal is alleged, can the relevant date be taken as the date of detection? It is now well settled law that for the purpose of Section 11A, knowledge of the department is not relevant. The limitation starts from the relevant date and date of knowledge of the department is not a date defined as relevant date under the Act. But then when there is no relevant date specified and you do not know when the clearance took place, how and when is the demand to be issued? In case of stock taking, it can be argued that the stock was deemed to have correctly existed till the day prior to stock taking. But on the date of stock taking, as a particular quantity was missing, it would be deemed to have been cleared on that date. This seems to be a very logical way of doing things, but is not without perils. Suppose the daily production capacity of a factory is 100 units and the quantity not accounted for is 1000 units. If a demand is issued supposing that 1000 units were cleared on a particular date (the date of stock taking), benevolent higher appellate authorities are bound to buy the assessee's argument that he could not have produced, stored or cleared 1000 units on a particular day. And the whole demand would be quashed. Is there no way out?

Let us see the position before the new Central Excise (No.2) Rules 2001 came into existence.

 

Some authorities believed in taking recourse to Rule 9A of the Central Excise Rules 1944. Rule 9A actually dealt with the date for determination of rate and value. Strangely 9A being a rule brought about in 1967, when the quality of excise law writing was far better covered more situations than Section 11A. As per Rule 9A, the date for determination of rate and value repeat only for determination of rate and value, not for determining the limitation period was

1. date of actual removal ( in case of molasses, date of receipt)
   
2. date of payment of duty
   
3. date on which loss is discovered by the proper officer or made known to him
   
4. The date of notice or payment whichever is earlier.
   

 

If section 11A also had a date on which the clandestine removal was noticed by the proper officer, or brought to his notice, there would have been no problem regarding the concept of relevant date here. As that was not the case, the question arose whether the principle contained in Rule 9A could be exported to Section 11A. As it is another well-known axiom that Section prevails over the rule, here also we do not find much help. Then assuming that it could be adapted; can loss be equated with clandestine removal?

 

Another interesting rule was 223A, which provided for liability to pay the full duty with a penalty up to Rs. 2000 for deficiency noticed during a stock taking. But stock taking needed Commissioner's approval. If on a routine visit to a factory an officer found that there was shortage in stock, rule 223A was not applicable and then what was the solution?

 

Board in Circular No. 14/80-CX, dated the 24th April 1980 had clarified that:-

(Text of the circular is reproduced for better clarity)

Subject: Central Excise - Applicability of sub-rule (1) or sub-rule (5) of Rule 9A in the case of clandestine removals.

I am directed to say that the question whether in the case of clandestine removals of dutiable Excisable goods without observing Central Excise formalities demands are to be raised in terms of sub-rule 1 (ii) or sub-rule (5) of Rule 9A, where the date of clandestine removal for the factory etc. can otherwise be established, has been examined by the Board in consultation with the Ministry of Law. The said Ministry has opined that "....when the goods are clandestinely removed, it cannot be said that the goods have been cleared after the payment of duty. The expression cleared in Rule 9A has reference to clearance after payment of duty and with gate pass. That being the position, all cases of unauthorised and illegal removal of excisable goods should fall under the residuary provisions, namely Rule 9A(5) which provides that in such cases that rate of duty and tariff valuation, if any, applicable to excisable goods shall be the rate and valuation in force, on the date on which duty is paid".

It may be further clarified that the expression "cleared" used in Rule 9A (1)(ii) covers even clearances made without payment of duty under bond as the words "on payment of duty" do not occur in Rule 9A (1)(ii). In other words, where the goods have been cleared in accordance with the provisions of the rules either with or without payment of duty, Rule 9A(1)(ii) will be attracted, while in case of unauthorised, illegal and clandestine removal, duty will be payable in terms of Rule 9A (5).

Though this clarification appeared to be THE solution, it was not, as the original problem still persisted. Rule 9A was only to determine the date for rate and value and not to determine the date from which demand could be made.

It is interesting to note that Rule 223A did not specify any limitation. Did it mean that demands arising out of stock taking could be made any time at the will of the department? "No" according to Mr. SS Khosla, (JS, review as he then was) in 1991 (54) E.L.T. 316 (G.O.I.), GOVERNMENT OF INDIA (Revisionary Authority) IN RE: BHARAT LAUNDRY.

"The Central Government, drawing from this ratio of the CEGAT Judgment, hold that Rule 223A and Section 11A of the Act have to be construed accordingly. Under Section 11A 3(C), the relevant date for computing the limitation is the date on which the duty is to be paid. The duty in this case becomes payable on the date of the stock taking under Rule 223A. Therefore, the date of stock taking of goods is the relevant date for computing the time limitation under Section 11A read with Rule 223A and limit of six months shall normally apply."

So here the revision authority took the view that

1. Section 11A is applicable for demands made consequent to stock taking.
   
2. The duty ought to have been paid on the date of stock taking, and so
   
3. The relevant date is the date of stock taking.
   

The question that was still left was, "could this apply to clandestine removal, not noticed during stock taking?"

Now let us see the present – the provisions of the new rules.

There is nothing to see! The new rules are more silent than the old ones. The rate and value in case of loss of goods is a concept unknown to the new rules. And there is no provision for stock taking! What then is the position now? Have we moved from bad to worse?

To make the issue free from doubt it is humbly suggested that the law may be suitably amended to include "date of detection" as the relevant date for the purpose of demanding duty under Section 11A.

EXCISE LAW TIMES – 01.11.2001 – A200