1986 (5) TMI 254 - SC - VAT and Sales Tax

Whether the demand notices issued to under rule 10-A were illegal and unsustainable? Held that - Appeal dismissed. As the time- limit of three months specified in rule 10 has no applicability at all in the present case since there has been no assessment of duty before the goods were removed and it is not a case of short levy occasioned by any of the reasons specified in the said rule. The case is, therefore, covered by the provisions of rule 10-A, which is a residuary provision authorising the demand and collection of any deficiency in duty or of any other sum of any kind payable to the Central Government under the Act or the Rules without any limit of time. Hence the High Court was clearly right in rejecting the contention of the appellant that the demand notices issued to it under rule 10-A were illegal and unsustainable.

Summary

Issues:
1. Liability of excise duty on M.S. rounds manufactured through re-rolling.
2. Applicability of exemption notification on excise duty.
3. Time-limit for the demand of excise duty under Central Excise Rules.

Analysis:
1. The appellant, a firm engaged in re-rolling business, converted untested rails into M.S. rounds as per a contract. The Central Excise Inspector issued demand notices for excise duty on the rounds, which the appellant contested, claiming exemption. The High Court dismissed the appellant's writ petition challenging the demand. The Supreme Court held that the M.S. rounds fell under the scope of excise duty as per item No. 26-AA(i) of the First Schedule to the Central Excises and Salt Act, 1944, as they were manufactured through re-rolling, constituting a clear liability for excise duty.

2. The appellant argued that an exemption notification (No. 89/62) applied to the M.S. rounds. The notification exempted duty on steel products made from items under item No. 26-AA if duty was already paid on the raw material. However, since no excise duty was paid on the untested rails used for re-rolling, the exemption did not apply. The Supreme Court upheld the High Court's decision, stating that the benefit of the notification could not be claimed by the appellant.

3. The appellant contended that the demand for excise duty was time-barred under rule 10 of the Central Excise Rules, which specifies a three-month time limit for demands. The Supreme Court clarified that rule 10 applies to cases of short levy where an assessment is reopened. Since no assessment was made before the goods were removed, the case fell under rule 10-A, allowing demands without a time limit. The Court upheld the High Court's decision, ruling that the demand notices issued under rule 10-A were legal and sustainable.

In conclusion, the Supreme Court dismissed the appeal, affirming the liability of excise duty on the M.S. rounds manufactured through re-rolling, rejecting the applicability of the exemption notification, and upholding the legality of the demand notices issued under rule 10-A for excise duty.