Supreme Court: ‘Suppression of Facts’ is a Deliberate Act of Non-Disclosure Aimed at Evading Duty & Not Mere Act of Omission

Supreme Court: ‘Suppression of Facts’ is a Deliberate Act of Non-Disclosure Aimed at Evading Duty & Not Mere Act of Omission

The Supreme Court has ruled in favor of M/s Reliance Industries Ltd. (respondent-assessee), and dismissed the appeals filed by the Revenue, on the ground that the demands were time barred.

The coram comprising of Justices Krishna Murari and Bela M. Trivedi upheld the decision of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) that during the disputed period, the respondent-assessee genuinely believed that it was correctly fulfilling its duty liability. The Court emphasized that even though this belief was ultimately found to be wrong by the judgment of this Court, it did not amount to a malicious intent on the part of the respondent-assessee.

The Court clarified that the term ‘suppression of facts’ should not be interpreted as a mere act of omission. Instead, it should be understood as involving deliberate non-disclosure with the intention of evading duty.

In the present appeal, the impugned order challenged pertained to a case where the Commissioner of Central Excise, Rajkot, confirmed a demand for differential duty against the respondent-assessee. The demand was raised on the grounds that the respondent-assessee had incorrectly determined the assessable value of its finished goods by not including the monetary value of duty benefits obtained from its customers through the transfer of advance licenses. The demand was made beyond the normal limitation period, and the show cause notice alleged deliberate suppression of facts and willful misstatements by the respondent-assessee.

The Commissioner’s order, rejecting the respondent-assessee’s defense on merits and limitation, was appealed before the CESTAT.

The CESTAT, by a majority of 2:1, allowed the appeal, by accepting the respondent-assessee’s contention that the dispute had no revenue implications since the customers were eligible to avail CENVAT credit for duties paid or any differential duty payable on the cleared goods.

The respondent-assessee argued that during the relevant period, they followed a valuation practice that was in line with the ruling given in the case of IFGL Refractories Ltd vs. Commissioner of C. Ex (2000). They contended that, until 9 August, 2005, when the Supreme Court reversed the decision in Commnr. Of Central Excise, Bhubneshwar vs. M/s. IFGL Refractories Ltd (2005), CESTAT's view on the matter prevailed, which provided a legal basis for the assessee to believe that their method of determining the assessable value was lawful. Furthermore, no separate declaration requirement was mandated in the return for reporting sales involving transfer of advance licenses.

The Court examined the provisions of Section 11A of the Central Excise Act, which deals with limitation for issuing show cause notices for recovery of duties.

The bench noted that the extended period of limitation could be invoked if there was fraud, collusion, willful misstatement, suppression of facts, or contravention of the Act’s provisions with intent to evade payment of duty.

However, the Court held that the assessee’s bonafide belief, based on a plausible view taken by the Tribunal in a previous case, precluded the invocation of the extended period of limitation.

The Court rejected the revenue’s contentions that there was suppression of facts or wrongful clubbing of clearances, stating that the assessee was not required to separately disclose deemed export clearances in the returns filed.

It further observed that the revenue’s argument regarding the irrelevance of the Tribunal’s decision due to amendments to valuation provisions was inconsistent with the revenue’s own stance throughout the proceedings.

The Court emphasized that under self-assessment procedures, the responsibility to determine duty liability rests with the assessee, and the assessee had acted in a bonafide manner.

Given these circumstances, the Court determined that the phrase ‘suppression of facts’, positioned alongside terms like fraud, collusion, and misstatement, should not simply equate to an act of omission. Instead, it must be construed as an intentional act of non-disclosure of duty with the intention of duty evasion. Consequently, an element of deliberate action must be involved.

The Court was of the view that, “The extent of disclosure that an assessee makes is also linked to his belief as to the requirements of law. In the present case the assessee 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. 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.”

Therefore, the assessee’s conduct during the relevant period cannot be considered malafide, as they followed the view taken by the Tribunal, opined the bench.

Furthermore, the bench noted that the assessee had disclosed its pricing policy through separate letters to the department, and the required returns were filed. Notably, the returns did not have a separate column for disclosing details of deemed export clearances. The self-assessment procedure did not mandate the submission of all contracts, agreements, and invoices.

Hence, the Court was of the opinion that there was no basis for agreeing with the Commissioner’s findings that certain relevant documents were not filed and suppressed.

“An assessee can be accused for suppressing only such facts which it 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,” observed the Court.

In addition, the Court noted that the revenue’s arguments went beyond the written pleadings, and parties should not be permitted to argue beyond what is contained in their pleadings.

The Court dismissed the appeals and expressed no opinion on the merits of the matter beyond the issue of limitation.