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Judgment
The petitioner has been carrying on business in the name and style of Messrs Raja Radio Company. The business is the manufacture, as the name of the establishment itself shows, of radios in which tape deck mechanisms are used. The petitioner is challenging by this petition under Article 226 of the Constitution of India a notice dated 25th of March, 1982 issued by the Assistant Collector of Central Excise, Bombay demanding from the petitioner a sum of Rs. 76,684.84P. This amount represents the amount for which the petitioner took credit, according to the Assistant Collector of Central Excise, illegally during the months of May, 1981. The notice purports to be under the proviso to sub-rule (2A) of Rule 56A of the Central Excise Rules, 1944.
The petitioner''s contention is that this notice of demand and the consequent detention of goods effected by the Assistant Collector of Central Excise, hereinafter referred to as "the respondent" he being the 2nd respondent in this petition, are without the authority of law, inasmuch as a notice of the type issued by him could have been issued only within six months after the date on which credit was taken by the petitioner. The petition involves interpretation of Rule 56A and in particular sub-rule (2) and sub-rule (2A) of the said rule.
Facts must now be necessarily stated in order to understand the basis of the challenge made by the petitioner to the impugned notice. In January, 1981, the petitioner imported tape deck mechanism and for the said purpose, he had filed an advance bill of entry on or about 31 of January 1981. Admittedly, the said goods, namely tape deck mechanisms, are classified under Tariff Item No. 68. The goods arrived some time in April 1981 and the petitioner paid a sum of Rs. 76.684.84P as countervailing duty which was leviable on goods under Tariff Item No. 68. The duty was accordingly paid to the Customs. Thereafter, on 2nd of May, 1981, the petitioner wrote to the 2nd respondent, requesting the latter to allow the petitioner to take credit of the countervailing duty paid on the tape deck mechanisms imported by him, which were to be used by him in the manufacture of stereo cassette recorders. The stereo cassette recorders themselves, if they are imported, would be covered by Tariff Item No. 37AA.
On the same day, namely, the 2nd of May, 1981, the petitioner filed a declaration stating that he had received tape deck mechanisms under the bill of entry, dated 31st of January 1981. The bill of entry was verified by the 3rd respondent, namely, the Superintendent of Central Excise, Range VIII, Bombay, who allowed the entry of the same in the petitioner''s factory. This was done on 4th of May, 1981. The petitioner thereafter, namely, on 14th of May, 1981, filed a classification list bearing No. 4/81 with the 2nd respondent claiming the benefit of the procedure under Rule 56A. Between 15th May, 1981 and 23rd of May 1981, the petitioner cleared the final goods and took proforma credit from the basis excise duty. In other words, he took advantage of the procedure prescribed under Rule 56A(2) and did not pay excise duty on the value of tape deck mechanisms which were utilised in the manufacture of stereo cassette recorders.
Thereafter, the petitioner fulfilled other formalities which are required by the manufacture of goods assessable to excise duties. He, for example, filed Form R.T. 12, which is a monthly return of excisable goods manufactured. This also mentioned that the petitioner had taken proforma credit for the goods, namely, tape deck mechanisms utilised in the manufacture of stereo cassette recorders. On 20th of October, 1981 in Form R.T. 12 (Part VIII) the superintendent of Central Excise made the assessment which, according to the petitioner, is equivalent to the final approval of the forms submitted by the petitioner and also of the fact of utilisation of proforma credit under Rule 56A(2). It has also been mentioned that on 10th of November, 1981, the petitioner''s classification was approved. Some time in March, 1982, Form R.G. 23 Part I was checked. In this Form, particulars of the bills of entry under which the petitioner had imported the tape deck mechanisms were mentioned. It is the petitioner''s contention that this is the approval of the utilisation of the proforma credit available under sub-rule (2) of rule 56A.
The 2nd respondent, namely, the Assistant Collector of Central Excise issued the impugned notice which is dated 25th of March, 1982. In this notice, as already mentioned earlier in the judgment, the 2nd respondent informed the petitioner that the petitioner had already taken credit of Rs. 76.684.84P. in the month of May, 1981 and the credit taken by him was illegal, since the permission was not granted, presumably under sub-rule (2) of rule 56A. The 2nd respondent pointed out to the petitioner that his case was covered by the provisions contained in sub-rule (2A) of rule 56A. Since the permission had not been granted, it was necessary that the amount for which credit was taken by the petitioner under sub-rule (2) of rule 56A ought to be paid to the department. Hence the following notice to the petitioner :-
"In view of above, you are not eligible for 56A credit in the instant case. Therefore, the amount in question utilised by you should be paid within two days, otherwise action under rule 230 will be taken."
On 27th of March, 1982, the petitioner replied to the said notice and had taken up contentions, which have been the contentions in this petition and to which reference will naturally be made later in this judgment. Subsequently, by another notice dated 29th of March 1982, the petitioner was informed that if the dues were not paid within 15 days of the service of the said notice, steps would be taken to sell by auction or otherwise detain goods.
I have found it necessary to narrate the facts in detail, which have been mentioned in the petition and about which practically there is no dispute. The contest is mostly about the interpretation of rule 56A and in particular sub-rule (2) and sub-rule (2A) of the said rule.
Mrs. Mody, the learned advocate appearing in support of the petition, has after narrating the facts above, contended that the petitioner has at all times kept the respondents informed that he was taking proforma credit which is available to a manufacture under sub-rule (2) of rule 56A and the respondents, and in particular the 2nd respondent, have permitted the petitioner to take such proforma credit. It may be that the 2nd respondent gave the permission erroneously. In fact, Mrs. Mody proceeded on the basis that the permission was given erroneously because the second proviso to sub-rule (2) of rule 56A says that no credit of countervailing duty shall be allowed in respect of any material or component parts used in the manufacture of finished excisable goods, if countervailing duty has been paid in respect of such material or component parts, as fall under Item No. 68 of the First Schedule to the Central Excises and Salt Act, 1944. Admittedly, and as I have already mentioned in the opening part of this judgment, tape deck mechanisms are covered by Tariff Item No. 68 of the First Schedule and, therefore, no proforma credit could have been taken. Proceedings on the basis that credit was allowed to be taken erroneously under rule 56A(2). Mrs. Mody contended that a notice for the recovery of an amount equivalent to the credit taken in a case where such credit has been allowed to be taken erroneously, could be given only within six months after the date of such credit. It is so provided in sub-rule (5) of rule 56A, which is as follows :-
"When credit has been allowed under sub-rule (2) on account of an error, omission or misconstruction on the part of an officer, the proper officer may, within six months from the date of such credit, serve notice on the manufacturer or the assessee to whom such credit has been allowed, requiring him to show cause why he should not be disallowed to utilise such credit, or why the amount equivalent to such credit should not be recovered from him, if the credit has already been utilised."
The period of limitation of six months is extended to five years of credit has been allowed under sub-rule (2) on account of willful mis-statement, collusion or suppression of facts on the part of the manufacturer. It is nobody''s case, says Mrs. Mody, and here he is demonstrably on sound ground, that there has been wilful mis-statement, collusion or suppression of facts on the part of the manufacturer. In all the documents to which I have already made reference, the petitioner has mentioned that the tape deck mechanisms which have been ultimately utilised in the manufacture of stereo cassette recorders were imported and the countervailing duty had been paid under Tariff Item No. 68 of the First Schedule to the Central Excise and Salt Act. About this there is no dispute. Therefore, says Mrs. Mody that the notice, which has been given and which, according to her, is under sub-rule (5) of rule 56A, on 25th of March, 1982, is clearly beyond the period of limitation mentioned in sub-rule (5), and, therefore, is illegal.
The respondent, however, insisted that the notice is not under sub-rule (5) of rule 56A, but is a demand on the petitioner under the proviso to sub-rule (2A) of rule 56A. The respondents contended that in the instant case, permission had not been given to the petitioner under sub-rule (2) of rule 56A. If this is so, the provisions of sub-rule (2A) of Rule 56A would come into operation and the provisions of this latter rule specifically provide that if credit has been taken, it should be deemed to be provisional credit subject to any final order that may be passed and action under the proviso to sub-rule (2A) is permissible and the action accordingly has been taken by the respondents.
I am proceedings on the basis, which is clearly established, that the petitioner at all material times and in all the relevant documents which he filed with the relevant authorities disclosed at every step that the tape deck mechanisms which he imported were liable to countervailing duty under Tariff Item No. 68. Obviously, the proforma credit could not have been taken legally by him under rule 56A(2). However, he proceeded to make an application, may be under a mistaken understanding of the Rule or in ignorance of the second proviso to sub-rule (2) of rule 56A, but it could not be suggested, and it has not been suggested even in the affidavit-in-reply filed on behalf of the respondents, that the petitioner has suppressed any material or there has been any collusion between him and the Excise Authorities. One must, therefore, proceed on the basis that he utilised the proforma credit by disclosing all the facts. One must also, on the facts of this case, proceed on the basis that the proforma utilisation of credit under sub-rule (2) was not in accordance with law.
The next question is whether permission has been given or must be deemed to have been given under sub-rule (2) of rule 56A as is contended by Mrs. Mody. She has invited my attention to the contents of several document to which I have already made a reference. In my opinion, her contention that permission must be deemed to have been given would be probably sustainable in the absence of the provisions contained in sub-rule (2A) of rule 56A. It is true, as has been mentioned on behalf of the petitioner, that the authorities accepted the various documents which are required to be submitted and which are submitted on behalf of the manufacture before clearing the goods. It is also true that no provisional assessment was made under rule 9B. From this Mrs. Mody wants me to infer that the authorities necessarily must be deemed to have granted the permission contemplated under rule 56A(2).
Mr. Bhatia, the learned Advocate appearing for the respondents, has pointed out the provisions contained in sub-rule (2A) and has canvassed the view that unless permission is specifically granted under sub-rule (2), it must be deemed to mean that the grant of permission is still pending. If the grant of permission is still pending, naturally the provisions under sub-rule (2A) will come into operation. If that is so, then the action taken by the respondents under the proviso to sub-rule (2A) is permissible.
I am inclined to accept the contention of Mr. Bhatia in this regard. If permission is granted under sub-rule (2) of rule 56A, naturally the provisions under sub-rule (2A) will not come into operation. The question is whether, in the instant case, permission has been granted under sub-rule (2) or is deemed to have been granted under the said provisions. Mrs. Mody says that the answer to this question is in the affirmative because, from time to time, in all the documents which have been submitted by the petitioner, disclosure of all the relevant facts has been made and after examining every document, the respondents have allowed the clearance of goods. According to her, when classification list is approved by the Excise Authorities and excise duty is allowed to be paid as per the said classification list, it must necessarily mean that the petitioner was allowed to avail of the facility of proforma credit under sub-rule (2), especially when the petitioner has, right from the beginning, informed the respondents that he was availing of the facility of the proforma credit so available. This argument was sought to be forfeited by reference to Rule 9B which provides for provisional assessment to duty. Mrs. Mody suggests that since the authorities did not resort to rule 9B and since they did not otherwise make the clearance of the goods subject to the permission or the refusal of the permission to be granted under rule 56A, it must necessarily mean that the permission was granted.
Returning to sub-rule (2) of rule 56A, one will notice the Collector is empowered to permit a manufactured of any excisable goods specified under sub-rule (1) to receive material or component parts of finished products, on which the duty of excise or the countervailing duty has been paid in his factory for the manufacture of these goods. The Collector, after showing such goods to enter the factory is also empowered to allow a credit of the duty already paid on such materials or component parts or finished products as the case may be. Naturally, thereof, one must find out whether, in the instant case, permission has been granted. Mrs. Mody says that it is given, inasmuch as the goods were allowed to be cleared on the payment of excise duty calculated on the basis that the proforma credit as contemplated under rule 56A(2) was taken. In my opinion, in a provisions relating to the levy of excise duty, it is not possible to infer from facts or actions taken that permission to avail of an exemption has been granted. When sub-rule (2) says that the Collector may allow a credit of the duty already paid, it must necessarily be by an order passed because this permission of allowing a manufacturer to take credit of the duty already paid is to be given on an application made in this behalf by the manufacturer concerned. In the instant case, the petitioner was fully aware that an application has to be made and he did in fact make such an application on 2nd of May, 1981. He did not receive any intimation from the Collector that the permission for which he had applied has been given or the Collector has allowed him credit of the duty already paid on the tape deck mechanisms imported by him and utilised by him or to be utilised by him in the final product manufactured by him. He proceeded as if the Collector would allow him the credit of the duty paid by him. One may, at best, proceed on the basis that the Collector permitted him to receive the component parts in his factory because a document annexed to this petitions shows that such permission was granted. But at no point of time, either by an order passed or by any communication addressed to the petitioner, the Collector had allowed him to take credit of the duty already paid on the components.
When an application for permission to take proforma credit under sub-rule (2) has been made and when such permission has not been given, the provisions contained in sub-rule (2A) must necessarily come into operation. Sub-rule (2A) of rule 56A provides that pending the grant of permission by the Collector on an application made under sub-rule (2), a manufacturer may, subject to this rule and the conditions that may imposed by the Collector, receive material of component parts in his factory and may provisionally take credit in respect of the duty paid on such material or component parts and may also provisionally utilise such credit for the purpose for which it would have been permissible to utilise the said credit as if the permission to avail of the procedure under this rule had been already granted on the date of utilising such credit. In other words, when a manufacturer makes an application for permission under sub-rule (2), before the disposal of that application he is allowed to proceed as if that permission has been granted. In other words, he may receive the component parts in his factory and he may also take credit in respect of the duty paid and he may also utilise such credit for the purpose for which it would have been permissible to utilise the said credit on the fiction that the permission contemplated under sub-rule (2A) has been given. This, however, is subject to one important condition and that condition has been incorporated in the provision to sub-rule (2A), which is as follows :-
"Provided that if the permission to avail of the procedure under this rule is eventually refused, duty due on the goods cleared on the strength of the provisional credit referred to above, shall be paid forthwith and without any demand being made by the proper officer in this behalf by adjustment in the account-current maintained by the manufacturer in terms of rule 9 or rule 173G, as the case may be, or in cash."
This clearly shows that whatever action has been taken by the manufacturer on the supposition that his application for permission under sub-rule (2) of Rule 56A will be granted will be subject to any action that may be taken by the authorities under the proviso to sub-rule (2A). One cannot proceed on the basis that permission will necessarily be granted, but one is entitled to proceed under sub-rule (2A) on the basis that the permission may be granted and plan one''s programmes accordingly. But if the permission is not granted, then the manufacturer will necessarily be liable under the proviso to sub-rule (2A) for the payment of the duty due on the goods cleared. In the instant case, since I have held that it cannot be said that the permission can be inferred from the clearance of the goods by the petitioner or from the physical acceptance of various forms submitted by the petitioner, the consequences contemplated under the proviso to sub-rule (2A) must necessarily follow.
This position is not affected by the argument made by Mrs. Mody based upon the provisions contained in Rule 9B. Mrs. Mody says that if the clearance of the goods was provisional subject to the petitioner undertaking to pay any additional excise duty that would become payable, the authorities would have resorted to the procedure prescribed under Rule 9B. Rule 9B provides for provisional assessment to duty. If the authorities, in the instant case, thought that the permission has not been granted, then they would not have cleared the goods absolutely without resorting to the procedure prescribed under Rule 9B. They would have insisted that the petitioner should comply with the procedure prescribed under Rule 9B if, according to them, the petitioner was allowed to take only provisional proforma credit under sub-rule (2) read with sub-rule (2A) of rule 56A.
In my opinion, the above argument is not well-founded. In the first place, it must be noted that Rule 9B provides for provisional assessment to duty where the proper officer is satisfied that an assessee is unable to produce any document or furnish any information necessary for the assessment of duty on any excisable goods, or where the proper officer deems it necessary to subject the excisable goods to any chemical or any other test for the purpose of assessment of duty thereon. Neither of these conditions is admittedly applicable to the fact of the present case. Mrs. Mody, however, suggest that the procedure prescribed under Rule 9B could also be resorted to where an assessee has produced all necessary documents and furnish full information for the assessment of duty, but the proper officer deems it necessary to make further inquiries for assessing the duty. That is so provided in clause (c) of sub-rule (1) of Rule 9B. In the instant case, it is suggested by Mrs. Mody that if the proper officer thought that permission to avail of the proforma credit under sub-rule (2) of Rule 56A has not been granted, he would have insisted on making further inquiries for assessing the duty and in that case he would have resorted to the procedure provided under Rule 9B.
This submission would have been acceptable in the absence of sub-rule (2A) of rule 56A. When action is permissible for recovering excise duty in a case covered by Rule 56A, the question of resorting to Rule 9B does not arise because the action contemplated under sub-rule (2A) of Rule 56A is separate from and independent of any action that is permissible under Rule 9B so despite the fact that the opening words of Rule 9B are Notwithstanding anything contained in these rules". The opening words themselves, in my opinion, suggest that irrespective of any action that may be taken under any other rule, the action under Rule 9B can be taken independently of the action that may be taken under any other rule. This must necessarily mean that the procedure prescribed under Rule 9B is independent of and separate from any action that is contemplated to be taken under the proviso to sub-rule (2A) of Rule 56A.
Reliance has been placed by Mrs. Mody on what she regards as a particle admission on the part of the respondents that they did in fact permit the petitioner to avail of the credit under Rule 56A(2). She has pointed out that in the affidavit-in-reply filed by one S. D. Patil, Assistant Collector of Central Excise, Bombay I, to the petition, he has in paragraph 1 of the affidavit stated as follows :-
"I say that since the said facility was granted to the Petitioner erroneously, show cause notices were rightly issued by the department."
From this Mrs. Mody wants me to infer that the permission itself was granted to the petitioner under sub-rule (2) of Rule 56A. It is not possible for me to spell out any such admission from the above statement. Obviously, the officer is referring to the facility of allowing the petitioner to take the component parts of his factory, and allowing him to remove the same from the factory after fulfilling the formalities in that regard. On the other hand, one cannot ignore the fact that the said officer has in unequivocal terms mentioned that no requisite permission was granted to the petitioner under Rule 56A. It has also been rightly pointed out on behalf of the respondents in this affidavit-in-reply that the petitioner had with a remarkable amount of alacrity cleared the goods within a short time after the application for permission was granted. At no point of time has been mentioned by the petitioner to the respondents that he was clearing the goods by availing of the proforma credit pursuant to the permission granted by the authorities under Rule 56A(2). I am, therefore, of the opinion that the contention raised on behalf of the petitioner that the permission has been given or must be deemed to have been given under Rule 56A(2) is unsustainable. The consequent argument that the notice is not authorised by the provisions of sub-rule (5) of Rule 56A must also necessarily fail.
Finally, it was argued that there was no refusal of permission asked for and hence action under the proviso to sub-rule (2A) could not be taken. The argument is unacceptable because the impugned notice itself is the intimation of the refusal of permission and of the proposed action.
In the result, the petition fails. Rule is discharged with no order as to costs. Interim orders passed in this petition shall continue to be in force for one month from today.