1977 (1) TMI 44 - HC - Central Excise

Proforma Credit - Disallowance of Credit of duty - Applicability - Dutiability of waste or scraps - Limitation

Issues Involved:
1. Validity of the show cause notices under Rule 56-A and Rule 10-A.
2. Applicability of sub-rule (5) of Rule 56-A for disallowance of credit.
3. Legality of withdrawing credit for dross and skimmings.
4. Jurisdictional excess and interference under Article 226.

Detailed Analysis:

1. Validity of the Show Cause Notices under Rule 56-A and Rule 10-A:

The petitioner, Universal Cables Limited, received several show cause notices alleging defaults under Rule 56-A and requiring the petitioner to justify why certain credits should not be disallowed and penalties imposed. The main contention was that there was no provision in the Act or Rules at the relevant time for disallowing credit already allowed under sub-rule (2) of Rule 56-A, and Rule 10-A did not apply. The respondents conceded that Rule 10-A was inapplicable and did not rely on sub-rule (4) of Rule 56-A to support the notices. They argued that the notices could be supported under sub-rule (5) of Rule 56-A, added on 14th August 1976.

2. Applicability of Sub-rule (5) of Rule 56-A for Disallowance of Credit:

Sub-rule (5) allows the proper officer to disallow credit of duty wrongly allowed under sub-rule (2) and to recover the equivalent amount. However, action under this sub-rule requires issuing a notice within the prescribed limitation period: six months for ordinary cases and five years for cases involving wilful mis-statement, collusion, or suppression of facts. There were no allegations of wilful mis-statement or suppression of facts in the notices challenged in Misc. Petitions Nos. 1233 and 1333 of 1975. The credits were allowed beyond six months before 14th August 1976. Even in Misc. Petition No. 1402 of 1975, where such allegations existed, the credit was allowed beyond five years before the sub-rule was added. Therefore, the period of limitation had already expired, making it impossible to support the notices under sub-rule (5).

3. Legality of Withdrawing Credit for Dross and Skimmings:

The notices dated 10th October 1974 and 1st November 1974, challenged in Misc. Petition No. 1333 of 1975, alleged that the petitioner cleared dross and skimmings without paying duty, thus necessitating the withdrawal of credit. However, dross and skimmings are waste materials, not finished excisable goods, and were exempt from duty under Notification No. 46/70. Hence, clause (i) of the proviso to sub-rule (2) and clause (iv)(a) of sub-rule (3) of Rule 56-A did not apply. These provisions do not authorize the withdrawal or recovery of credit already allowed.

4. Jurisdictional Excess and Interference under Article 226:

The court noted that if a notice issued by an authority threatens to initiate prejudicial proceedings in excess of jurisdiction, it can be prohibited from proceeding under Article 226 to avoid unnecessary harassment. This principle was upheld in cases like Calcutta Discount Co. v. I.T. Officer and N.B. Sanjana v. E.S. & W. Mills. Therefore, the court found it appropriate to interfere at the notice stage.

Judgment:

- Misc. Petitions Nos. 1233 and 1333 of 1975: Allowed. The respondents were restrained from giving effect to the impugned notices and prohibited from proceeding with any inquiry under these notices. Costs were awarded to the petitioner.

- Misc. Petition No. 1402 of 1975: Partly allowed. The respondents were restrained from enforcing the notice to the extent it directed the petitioner to show cause why the inadmissible proforma credit of Rs. 69,164.40 should not be disallowed. Each party was ordered to bear its own costs.

The security amount in all cases was ordered to be refunded to the petitioner.

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