1971 (8) TMI 96 - HC - Central Excise

Excisable goods become non-excisable after exemption. - Taxable event for payment of excise duty - Scope of. - Penalty and confiscation

Summary

Issues Involved:
1. Whether the bars and rods manufactured by the petitioner were exempted from payment of Excise Duty under Item No. 26AA (a) of the First Schedule in view of Notification No. 206/63, dated 30-11-1963.
2. If not, whether the respondents are entitled to recover the said Excise Duty from the petitioner, and under what law.

Issue-Wise Detailed Analysis:

1. Exemption from Payment of Excise Duty:
The primary question was whether the bars and rods manufactured by the petitioner were exempted from payment of Excise Duty under Item No. 26AA (a) of the First Schedule, based on Notification No. 206/63, dated 30-11-1963. The notification exempted iron and steel products made from "re-rollable scrap" on which the appropriate amount of Excise Duty had already been paid. The court noted that the goods in question were manufactured from re-rollable scrap. However, the Excise Duty on this scrap had not been paid by Hindustan Steel Limited. The respondents argued that the exemption was conditional upon the actual payment of Excise Duty on the re-rollable scrap.

The court discussed the interpretation of the phrase "has already been paid," considering it could mean "ought to have been paid." The court reasoned that the Excise Duty is levied on goods produced or manufactured and must be paid before the goods are removed from the manufacturer's premises. The system ensures that the duty is recovered from the manufacturer, and purchasers rely on this system. Therefore, the court concluded that the words "already paid" should be understood as indicating that the duty must have been payable at a prior stage, not necessarily actually paid. Hence, the exemption was available to the petitioner even if the duty on re-rollable scrap had not been paid by Hindustan Steel Limited.

2. Recovery of Excise Duty:
Assuming the exemption was not available to the petitioner, the court examined whether the respondents could recover the Excise Duty from the petitioner. The court noted that if the duty was payable on the re-rollable scrap, it should have been recovered from Hindustan Steel Limited. The respondents did not provide an explanation for not recovering the duty from Hindustan Steel Limited. The court inferred that the duty was not recovered due to some error or mis-statement.

The court discussed the applicability of Rule 9(2) and Rule 10. Rule 9(2) applies to clandestine removal of goods without the knowledge and consent of the Excise Authorities. In this case, the goods were removed with the knowledge and consent of the authorities, so Rule 9(2) did not apply. Rule 10, which prescribes a limitation period of three months for recovery of duty, was applicable. Since the demand was not made within this period, it was not tenable under Rule 10. Rule 10A, being a residuary rule, could not apply when Rule 10 was applicable.

The court also noted that the goods manufactured by the petitioner were not "excisable goods" after being exempted from duty, as the exemption notification was considered part of the Act. Therefore, Rule 9 could not apply to them.

Conclusion:
The court allowed the writ petition, quashed the demand notices and orders issued against the petitioner, and concluded that the petitioner was entitled to the exemption from payment of Excise Duty. The respondents could not recover the duty under the applicable rules, and the demand was not made within the prescribed limitation period. No order as to costs was made.