1991 (6) TMI 83 - HC - Central Excise

Summary

Issues Involved:
1. Whether an exemption notification under Rule 8 of the Central Excise Rules, 1944, for synthetic organic dyes is nullified by Rule 56A.
2. Interpretation of the proviso to the exemption notification in relation to Rule 56A.
3. Entitlement to set-off of countervailing duty under the exemption notification.
4. Validity of departmental communications denying set-off benefits.
5. Eligibility for refund of excise duty paid during the disputed period.

Detailed Analysis:

1. Whether an exemption notification under Rule 8 of the Central Excise Rules, 1944, for synthetic organic dyes is nullified by Rule 56A:
The court examined whether the exemption notification issued under Rule 8(1) of the Central Excise Rules, 1944, for synthetic organic dyes (S.O. dyes) manufactured by the petitioner is stultified by the provisions of Rule 56A. The petitioner argued that the benefit of the exemption notification is not lost even if the materials used fall under T.I. 68 of the First Schedule. The court noted that the exemption notification was amended to include a proviso requiring the procedure set out in Rule 56A to be followed. However, the court concluded that the proviso only imports procedural provisions of Rule 56A and does not attract substantive provisions related to the no-credit rule.

2. Interpretation of the proviso to the exemption notification in relation to Rule 56A:
The proviso to the exemption notification stated: "Provided that in relation to the exemption under this notification, the procedure set out in rule 56A of the aforesaid rules is followed." The court observed that the term "procedure set out in Rule 56A" refers only to the procedural aspects and not the substantive provisions. The court emphasized that the entire scheme of Rule 56A was not made applicable as a condition for the exemption notification. The court held that the substantive no-credit rule of Rule 56A(2) does not apply to the exemption notification.

3. Entitlement to set-off of countervailing duty under the exemption notification:
The petitioner contended that the benefit of the exemption notification should be available for S.O. dyestuffs manufactured using imported intermediates. The court agreed, stating that the exemption notification exempted S.O. dyestuffs from excise duty equivalent to the countervailing customs duty paid on imported intermediates. The court clarified that the procedural requirement of Rule 56A does not affect the substantive exemption provided under Rule 8(1).

4. Validity of departmental communications denying set-off benefits:
The respondents argued that the insertion of the proviso to the exemption notification meant that the entire scheme of Rule 56A, including the no-credit rule, applied. The court disagreed, stating that the communications at annexures B and C, which denied the set-off benefits, were based on a misconception of the exemption notification's scope. The court quashed these communications, stating they were misplaced and contrary to the exemption notification's intent.

5. Eligibility for refund of excise duty paid during the disputed period:
The petitioner sought a refund of excise duty paid from 1-1-1980 to 30-6-1981, representing countervailing duty. The court ruled that the petitioner is entitled to the benefit of set-off of countervailing duty during the currency of the exemption notification, subject to compliance with the procedural provisions of Rule 56A. The court allowed the petitioner to apply for a refund, which must be decided by the concerned authority in accordance with the law.

Conclusion:
The court concluded that the exemption notification under Rule 8(1) is not nullified by Rule 56A. The proviso to the exemption notification imports only procedural provisions of Rule 56A, not substantive no-credit rules. The petitioner is entitled to the set-off of countervailing duty and may apply for a refund of excise duty paid during the relevant period. The departmental communications denying set-off benefits were quashed.