1993 (6) TMI 176 - AT - Central Excise

Summary

Issues Involved:
1. Application for Proforma Credit
2. Procedural Delay and Communication
3. Departmental Acquiescence
4. Validity of Demand for Duty

Issue-wise Detailed Analysis:

1. Application for Proforma Credit:
The primary issue was whether the appellant company had applied for Proforma Credit under Rule 56A of the Central Excise Rules. The Assistant Collector and the Collector (Appeals) found that there was no application from the appellant company for availing Proforma Credit. However, the appellants contended that their letters dated 22-5-1978 and 4-7-1978, which informed the Assistant Collector about the change in the company's constitution and requested corrections in relevant records, should be considered as an application for Proforma Credit. The Tribunal noted that the letter dated 4-7-1978, which requested corrections in the L-4 Licence, Personal Ledger Account, and Proforma Credit Order, should have been treated as an application for Proforma Credit by the newly constituted company. The Tribunal emphasized that the appellants were not starting a new business but continuing the operations of the dissolved partnership firm, which had already been granted Proforma Credit.

2. Procedural Delay and Communication:
The appellants argued that they continued to operate the Proforma Credit Account and filed necessary returns without any objections from the authorities until 1983. They believed that the delay in correcting the records was procedural. The Tribunal found that the departmental authorities did not respond properly and allowed the matter to drift until December 1983, when they directed the appellants to make a fresh application for Proforma Credit. The Tribunal held that the authorities fell in error by not treating the appellants' letters of 22-5-1978 and 4-7-1978 as an application for Proforma Credit and by not regularizing the matter.

3. Departmental Acquiescence:
The Tribunal observed that the conduct of the department from 1978 to 1984 indicated acquiescence, as the appellants continued to avail Proforma Credit and filed returns without objections. The Tribunal referred to the Supreme Court's observations in Mangalore Chemicals and Fertilisers Ltd. v. Deputy Commissioner of Commercial Taxes, which distinguished between matters of form and substance. The Tribunal concluded that the appellants' conduct was based on their understanding that their request for Proforma Credit had been accepted, and the department's inaction amounted to acquiescence.

4. Validity of Demand for Duty:
The Assistant Collector had ordered the appellants to deposit Rs. 50,28,701.76 as duty for the period from 1-6-1984 to 30-11-1984, which was upheld by the Collector (Appeals). The Tribunal found that the demand was misplaced, as the appellants' letters of 1978 should have been treated as an application for Proforma Credit. The Tribunal noted that if the department's conclusion of irregularity was correct, the total irregularity for the entire period from 1978 would have amounted to several crores. The Tribunal concluded that the whole exercise of the department was "much ado about nothing" and set aside the impugned order.

Conclusion:
The appeal was allowed, and the impugned order was set aside. The Tribunal held that the appellants' letters of 22-5-1978 and 4-7-1978 should have been treated as an application for Proforma Credit, and the matter should have been regularized accordingly. The Tribunal emphasized the need to distinguish between procedural technicalities and substantive compliance, and found that the department's demand was unjustified.