ORDER
K. Sankararaman, Member (T)
1. M/s. Anglo Dutch Paints, Colour & Varnish Works Pvt. Ltd. have filed this appeal against the order-in-appeal No. 1003-CE/DLH/90, dated 9-11-1990 passed by Collector of Central Excise (Appeals), New Delhi rejecting their appeal before him filed against order in original No. 34/89-90, dated 17-5-1989 passed by Assistant Collector of Central Excise, MOD III, New Delhi whereby he had, inter alia ordered that any Modvat credit taken by them from 1-4-1986 be paid back. The Collector (Appeals) had, while rejecting their appeal and confirming the Assistant Collector’s order, held that though their plea, that no notice was issued was factually sustainable, it did not have much force in the particular facts and circumstances of the case. He observed that when they had got a favourable order in respect of the issue involved in the show cause notice it was neither fair not proper on their part to go back on their promise and object to the order of the Assistant Collector asking them to pay back the credit wrongly taken from 1-4-1986 which was already promised by them on their own. Holding that the appeal in view of the above, lacked merit, he rejected their appeal. Hence the present appeal.
2. Shri Naveen Mullick, learned advocate appeared for the appellants. He submitted that no show cause notice was issued regarding the paying back of the Modvat credit taken by them. The show cause notice which was adjudicated by the Assistant Collector was issued on 26-2-1988 nearly two years after the credit was taken by them . It was clearly time barred. Moreover it did not relate to the question of recovery of credit. Their admission to pay back the credit will not act as an estoppel against them. The learned counsel submitted that the Collector (Appeals) erred in rejecting their appeal even though he had accepted their contention that no show cause notice had been issued and pleaded that the appeal be allowed.
3. The arguments were opposed by Shri V.C. Bhartiya, learned Departmental Representative. He justified the impugned order and pointed out that the appellants who had initially applied for Modvat benefit had changed their mind and applied for full exemption from duty for their final product under Notification 175/86, Though initially the department wanted to deny them such a benefit as it was felt that it was not open to them to opt out of Modvat during the commencing of the financial year when they had availed such credit, the Assistant Collector had, vide his adjudication order, granted them the benefit sought by them. As such full exemption from duty is admissible only when Modvat credit is not availed of. The Assistant Collector had rightly held that the credit taken by them from 1-4-1986 be paid back. In support of his submission Shri Bhartiya referred to the decision of the West Regional Bench in Superflex Engg. & Polymers Pvt. Ltd. v. Assistant Collector of Central Excise -1988 (38) E.L.T. 219. He pointed that as the appellants had themselves offered to pay the amount the question of issue of show cause notice did not arise.
4. We have considered the submissions made. We have persued the record. In the appeal it has been explained that the question of opting out of Modvat scheme in the same financial year was not very clear at the material time and it was under such circumstances that they had submitted they would pay back the credit taken for the period from 1-4-1986 to 7-4-1986 which had been taken by the department as a promise given by them. Legally, they were under no obligation to pay back the amount in question. The issue of a notice is a must before confirming a demand. It has been contended that in this case no such notice had been issued. As it was not the case of the department that they had suppressed any fact, the demand is not recoverable as it is hit by time bar of six months. It has then been urged that the submission given by them to deposit such amount clearly goes against the vires of Section 11A.
5. The legal position in respect of full exemption sought by them and which had been approved by the Assistant Collector vide his order in question is regulated under Notification 175/86, dated 1-3-1986. Such full exemption is admissible where no Modvat credit is availed of. As the appellants have sought the benefit of full exemption, the condition of the said notification applicable to them was that they did not avail of Modvat Credit. Their initially having applied for credit and apparently taken such credit had been resiled by them and they had agreed to refund such credit. Such a stand was in accordance with the relevant condition of the Notification. When they had themselves agreed for such a course which was also as per the requirement of the Notification, the direction of the Assistant Collector, as upheld by the Collector (Appeals) calling upon them to pay back the credit taken by them, cannot be faulted. When they availed full exemption from duty, there was no provision for taking Modvat credit either under the Notification itself or under Rule 57C. There was no purpose also to be served by their taking such credit as the same, if taken, was only to be used for paying duty on their final product. If such final product did not discharge duty there was no purpose served by taking the credit in question. The reliance placed by the appellant on the applicability of Section 11A is not justified as it is not a case of short levy or non levy or erroneous refund. Where credit is taken but not utilised, it is not a case of assessment resulting in short levy or non levy and Section 11A does not come into play. Rule 57-1 as it stood at the material time did not provide for the issue of notice but laid down that the credit taken may be disallowed and the credit so disallowed shall be adjusted in the credit account or if it is not possible, by cash recovery. In their case, disallowing the credit or directing them to pay back the amount of credit taken did not take on the colour of any short -levy or non-levy in the absence of the utilisation of credit for any payment of duty. As long as the amount of credit retained its identity as such credit and had not been utilised for payment of duty, the disallowance of such credit could be ordered strictly within the terms of Rule 57-1 itself without involving Section 11A of the Central Excises and Salt Act. At the material time when they took the credit and at the time the cause for its reversal arose consequent to their opting for a more substantial benefit of complete exemption from duty, Rule 57-1 did not provide for any notice to be issued before disallowing credit wrongly taken. The Madhya Pradesh High Court in the case of Steel Ingot (P) Ltd. v. Union of India 1988 (36) E.L.T. 529 was concerned with a case where the Superintendent had disallowed under Rule 57-1 the credit of duty taken by them. It was held that the actions taken under Rule 57-1 would adversely affect their interests. It was observed by the High Court that no cogent reason for making a departure from the fundamental rule of natural justice was there. Applying the ratio of the above judgment to the present case, we find that the appellants had initially applied for Modvat Credit and taken the credit. Their application was returned to them with certain remarks and they never re-submitted the same since they applied for complete exemption from duty under Notification 175/86, dated 1-3-1986. The exemption claimed by them was admissible only in case they did not avail Modvat Credit. Hence non-avialment of such credit was a precondition for availing complete exemption. It was required of them to forgo the credit if taken or availed already by them, before availing full exemption. They had rightly consented to pay back the credit taken. In these circumstances, their present plea that their consent to pay back the credit cannot override the provisions of Section 11A is totally untenable. Even going by the ratio of the Madhya Pradesh High Court judgment in the case cited above when the period involved was prior to the amendment of Rule 57-1 when the issue of notice was not specifically provided for, the present case stands on a different footing. The interest of the appellants was not adversely affected as they had agreed to pay back that credit taken by them so that they may derive a greater advantage of complete exemption from duty. Such consent by them to fulfil a precondition for availing the said benefit Constituted cogent reason for making a departure from the fundamental rule of natural justice. It could also be said that their consent to pay back the credit which was not under any pressure or coercion but given by them to qualify for an alternative and more beneficial arrangement of full exemption constituted a waiver of a notice. The reversal of paying back of the credit taken by them was not a unilateral step taken by the department against their claim to the contrary but was only to give effect to their own request for availing full exemption the condition for which, as per the relevant Exemption Notification, was non-availment of credit. Having got the said benefit it is not open to them to go back on their offer to pay back the credit taken and raise the question of show cause notice as they had done. Their plea has been rightly rejected by the Collector (Appeals). We entirely agree with his decision. The appeal is dismissed.