1976 (11) TMI 68 - HC - Central Excise

Issues Involved:
1. Recovery of proforma credit under Rule 56-A(2).
2. Limitation of penalty proceedings under Section 40(2) of the Act.
3. Mandatory or directory nature of sub-rule (3)(i)(b) of Rule 56-A.
4. Reasonableness of penalty imposition.

Issue-wise Detailed Analysis:

1. Recovery of Proforma Credit under Rule 56-A(2):
The first issue revolved around whether the Collector was authorized to recover the proforma credit of Rs. 1,24,144.52 taken by the petitioner under Rule 56-A(2). The court held that the second proviso to sub-rule (2) of Rule 56-A applies only when the duty paid by the primary manufacturer is subsequently varied, leading to a refund or additional recovery. In this case, the duty paid by Hindustan Aluminium Company Ltd. on the ingots was not varied. Therefore, the second proviso to sub-rule (2) did not authorize the Collector to recover the amount. The court concluded that the Collector's order was in excess of jurisdiction and plainly conceded that the order was unauthorized.

2. Limitation of Penalty Proceedings under Section 40(2) of the Act:
The petitioner contended that the penalty proceedings were barred by limitation under Section 40(2) of the Act. However, this point was covered against the petitioner by a prior decision in Universal Cables Ltd. v. Union of India and 6 others, 1977 E.L.T. (J 92), where it was held that Section 40(2) has no application to penalty proceedings.

3. Mandatory or Directory Nature of Sub-rule (3)(i)(b) of Rule 56-A:
The petitioner argued that the provisions of sub-rule (3)(i)(b) were not mandatory but only directory, allowing for other documents or evidence to be admitted as proof of payment of duty. The court did not find it necessary to decide whether the provisions were mandatory or directory. Instead, it focused on the fact that the proper officer had accepted other documents as proof of duty payment and allowed the proforma credit without objection. The court noted that had any objection been raised at that stage, the petitioner could have produced the necessary certificates. The impugned notices were issued after a lapse of four years, and there was no fraud, collusion, or evasion of duty involved.

4. Reasonableness of Penalty Imposition:
The court agreed with the petitioner that the Collector acted unreasonably in imposing the penalty. Referring to the principles laid down by the Supreme Court in Hindustan Steel Ltd. v. State of Orissa, 1978 E.L.T. (J 159), the court emphasized that penalty should not be imposed unless there is deliberate defiance of law, contumacious or dishonest conduct, or conscious disregard of obligation. The court found that the petitioner's omission was bona fide and there was no loss of revenue to the Government. The Collector's action was deemed a misuse of power, digging out a stale and innocuous default to penalize the petitioner.

Conclusion:
The petition was allowed, and all impugned notices and orders were quashed. The petitioner was awarded costs, and the security deposit was ordered to be refunded.

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