1985 (2) TMI 251 - SC - Central Excise

Whether the respondent was entitled to the benefit of the exemption notification dated November 23, 1961 when the dyes said to have been used by the respondent in the manufacture of other dyes were not liable for payment of excise duty when they were manufactured, that is, before the introduction of Item 14D into the First Schedule to the Act even though duty may have been paid on them after the introduction of item 14D? Whether the demands made in this case fall within the scope of Rule 10-A of the Rules or under Rule 10 thereof? Held that - Under the notification exemption could be claimed only where the dyes used in the manufacture of other dyes were liable to, payment of excise duty when they were manufactured and such duty had been paid. A voluntary payment of excise duty on dyes which were not liable for such payment would not earn any exemption under the notification. The finding re p73 corded by the High Court on the above question is, therefore, liable to be set aside In the instant case there has been no assessment of the manufactured goods at all as contemplated by Rule 52 of the Rules and the delivery of the goods has taken place contrary to Rule 52-A of the Rules. The discussion and correspondence between the assessee and the officers concerned had taken place on December 20, 1961 and January 416, 1962 was in the nature of an advice and not an assessment as contemplated under Rule 52. Hence this case is not covered by Rule 10 of the Rules at all. Rule 10-A of the Rules which is a residuary provision is, therefore, necessarily attracted. Hence the plea of limitation raised on the basis of Rule 10 of the Rules does not survive. In the result we set aside the judgment of the High Court and dismiss the writ petition filed by the respondent. Appeal allowed

Summary

Issues Involved:
1. Entitlement to exemption under the notification dated November 23, 1961.
2. Applicability of Rule 10-A or Rule 10 of the Central Excise Rules, 1944 for recovery of short-levied duty.

Issue-wise Detailed Analysis:

1. Entitlement to Exemption under the Notification Dated November 23, 1961:

The respondent, a manufacturer of dyes, claimed exemption from excise duty based on a notification issued by the Central Government on November 23, 1961. This notification exempted certain dyes from excise duty if they were manufactured from other dyes on which excise duty or countervailing customs duty had already been paid. The respondent argued that it had paid excise duty on the basic dyes used in manufacturing its final products, thereby qualifying for the exemption.

However, it was established that the basic dyes used by the respondent were manufactured before the imposition of excise duty on such dyes (i.e., before the introduction of Item 14D in the First Schedule to the Central Excise and Salt Act, 1944). The notification clearly stated that exemption could be availed only if the dyes used were subject to excise duty at the time of their manufacture. The Supreme Court emphasized that voluntary payment of excise duty on dyes that were not liable for such payment would not entitle the respondent to exemption. The Court distinguished this case from the precedent set in *Innamuri Gopalan & Ors. v. State of Andhra Pradesh & Anr.*, stating that the language of the notification in the present case was specific and unambiguous.

2. Applicability of Rule 10-A or Rule 10 of the Central Excise Rules, 1944:

The second issue was whether the demands made by the Central Excise authorities fell within the scope of Rule 10-A or Rule 10 of the Central Excise Rules, 1944. Rule 10 dealt with recovery of duties or charges short-levied due to inadvertence, error, collusion, or misstatement, with a limitation period of three months. Rule 10-A, a residuary provision, applied to cases not covered by Rule 10 and had no limitation period.

The Supreme Court analyzed the facts and determined that the case did not involve a unilateral mistake or collusion as contemplated under Rule 10. The correspondence between the respondent and the excise authorities was advisory and did not constitute an assessment under Rule 52. Since no assessment took place at the time of clearance, the case did not fall under Rule 10. Consequently, Rule 10-A was applicable, allowing the Department to recover the short-levied duty without the limitation period of three months.

Conclusion:

The Supreme Court set aside the judgment of the High Court, which had erroneously granted exemption to the respondent. The Court ruled that the respondent was not entitled to exemption under the notification dated November 23, 1961, as the basic dyes used were not subject to excise duty at the time of their manufacture. Additionally, the Court held that Rule 10-A was applicable for recovery of the short-levied duty, allowing the Department to proceed with the recovery of the sums demanded. The appeal was allowed with costs.