1987 (5) TMI 137 - AT - Central Excise

Issues Involved:
1. Determination of base period and base clearances under Notification No. 198/76.
2. Method of computing excess clearances eligible for duty concession.
3. Validity of show cause notices in terms of limitation under Rule 10(1).
4. Interpretation of Notification No. 198/76 in light of the Delhi High Court judgment in Modi Rubber Ltd. case.

Issue-wise Detailed Analysis:

1. Determination of Base Period and Base Clearances:
The respondents are engaged in manufacturing coated abrasives and grinding wheels, falling under item No. 51(1) and 51(2) of the First Schedule to the Central Excises and Salt Act, 1944. Notification No. 198/76 provided partial exemption from Central Excise duty for clearances exceeding the base clearances. The base period for grinding wheels was fixed as 1975-76 with base clearances at Rs. 24,67,662.24, and for coated abrasives, it was 1974-75 with base clearances at Rs. 1,12,47,737.07. The respondents availed themselves of the duty exemption based on these base periods and clearances.

2. Method of Computing Excess Clearances:
The respondents computed the value of excess clearances based on the prevailing value during the incentive periods, which was higher due to price escalation. The department contended this method violated the notification provisions, resulting in excess duty exemption. The notification specified that the value of clearances during the base period should be determined under section 4 of the Act, adjusted with the average index number of wholesale prices in India. The Tribunal concluded that the value of base clearances should be determined not on the adjusted value but on the values determined under Section 4 of the Act. For computing excess clearances in the incentive year, the value should be based on the value, or average value, of similar goods that prevailed in the base period.

3. Validity of Show Cause Notices in Terms of Limitation:
The Assistant Collector's orders demanding duty and imposing penalties were set aside by the Appellate Collector, who held that the show cause notices were barred by limitation under Rule 10(1). The Central Government proposed to review this order, arguing that the respondents' failure to furnish requested information constituted wilful suppression of facts, making the short levy recoverable within five years under Rule 10(1). The Tribunal noted that the respondents had filed supplementary classification lists approved by the department, and the department did not insist on further details at that time. Hence, the Tribunal upheld the Appellate Collector's finding that the show cause notices were issued beyond the normal limitation period.

4. Interpretation of Notification No. 198/76 in Light of the Delhi High Court Judgment:
The respondents cited the Delhi High Court judgment in Modi Rubber Ltd., which supported their method of computing excess clearances. The High Court held that the base period and base clearances should be determined using adjusted values. However, the Tribunal decided not to follow this interpretation, noting that the learned counsel for the respondents conceded that the method of calculation adopted by the department was correct. The Tribunal emphasized that the value of base clearances should be based on Section 4 values, not adjusted values, to ensure comparability between the base period and the incentive year.

Conclusion:
The Tribunal held that the orders of the Assistant Collector were correct on the merits but upheld the Appellate Collector's decision that the show cause notices were barred by limitation. Consequently, the appeal was dismissed, and the notice dated 8-6-1981 was discharged.

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