Authority: High Court at Calcutta

Order Date: 10 September 2026

Case Overview

  • Parties: Appellant – M/s. Hindalco Industries Limited; Respondent – Commissioner of Central Excise, Kolkata‑II.
  • Statutory Provision: Appeal filed under Section 35G of the Central Excise Act, 1944 against the order dated 22 December 2010 of the Customs, Excise and Service Tax Appellate Tribunal, Kolkata.
  • Demand: Rs 6,29,920 plus interest (Section 11AB) and penalty (Section 11AC) for Financial Years 2001‑02 and 2002‑03.
  • Background:
  • Hindalco, a large‑scale aluminium manufacturer, invited the Department to its annual stock verification on 5 February 2001. Stock verifications were conducted on 10 February 2001, 9 February 2002 and 8 March 2003 in the presence of departmental officers.
  • The Cost Auditor prepared the Cost Audit Report on 26 September 2003, reflecting excesses and shortages of raw material, WIP, finished goods, scrap and wastage for 2000‑03. The excesses and shortages offset each other, resulting in no net shortage.
  • On 16 December 2004 the Department audited Hindalco’s premises, examined the Cost Audit Report and recorded a spot memo noting shortages for 2000‑03, suggesting CENVAT credit reversal.
  • No notice was issued for nearly sixteen months. Four Show‑Cause Notices were finally issued on 3 April 2006, invoking the extended limitation period under the proviso to Section 11A(1).
  • Four Orders‑in‑Original dated 29 August 2007 confirmed the demand; the Commissioner (Appeals) upheld the demand on merits but set it aside on limitation on 26 February 2010. The Tribunal reversed that decision.
  • Legal Questions:

1. Whether the extended five‑year limitation under the proviso to Section 11A(1) could be invoked when the demand is based solely on the Cost Audit Report, a statutory record already known to the Department.

2. Whether the Tribunal erred in setting aside the Appellate Authority’s order without finding that the Department lacked sufficient knowledge of the facts.

3. Whether penalty under Section 11AC is imposable when the proviso is not attracted.

  • Submissions:
  • Appellant argued that the proviso applies only where fraud, collusion, wilful mis‑statement or deliberate suppression is proved, and that the Department was aware of the shortages during the stock verifications.
  • Revenue relied on Gujarat High Court’s decision in Commissioner of C. Ex., Surat‑I v. Neminath Fabrics Pvt. Ltd. asserting that once the ingredients of the proviso are satisfied, the “relevant date” is fixed and cannot be altered by departmental knowledge.
  • Judicial Reasoning:
  • The Court affirmed that the proviso requires a positive act of suppression; mere non‑disclosure where no statutory column requires it does not constitute suppression (citing Pushpam Pharmaceuticals, Cosmic Dye Chemical, Anand Nishikawa, Continental Foundation).
  • The Cost Audit Report is a statutory record prepared under the Companies Act, 1956 and the Cost Audit (Report) Rules, 2001; the Department is empowered to call for it under Rule 22 of the Central Excise Rules, 2002. A demand based on such a document cannot be said to arise from suppression.
  • The Court rejected the Revenue’s argument that the Department’s later notice constituted a fresh limitation period; the delay of sixteen months after acquiring full knowledge was evidence of lack of intent to evade, not a basis to shorten the limitation.
  • The Show‑Cause Notices contained only a generic allegation of non‑disclosure and did not plead any specific act of suppression, violating the requirement that fraud or suppression be specifically pleaded (as per Larsen & Toubro Ltd. v. CCE).
  • Consequently, the extended five‑year period was unavailable; the ordinary one‑year limitation applied, rendering the Show‑Cause Notices dated 3 April 2006 time‑barred.
  • Since the proviso is not attracted, penalty under Section 11AC cannot be imposed.

Final Outcome

  • The appeal is allowed.
  • The order of the Tribunal dated 22 December 2010 is set aside.
  • The four Orders‑in‑Appeal dated 26 February 2010 are restored.
  • The demand of Rs 6,29,920 (including interest and penalty) confirmed by the Orders‑in‑Original dated 29 August 2007 is set aside as barred by limitation.
  • No order as to costs.

Topics: Excise Limitation, Penalty Proviso