1. This appeal arises out of and is directed against the order-in-Appeal bearing No. B-324/PN-44/83 dated 25.2.1983 passed by the Collector of Central Excise (Appeals) Bombay.
2. The brief facts that are necessary for the disposal of this appeal may be stated as under:
M/s. Hindustan Lever Ltd., Bombay, manufactures soaps under the brand name ‘Sunlight’ which is classified under TI 15 of the First Schedule to the Central Excises and Salt Act, 1944 (to be hereinafter referred to as ‘the Act’). It appears that in deference to the wishes of the Government of India in the year 1972, M/s. Hindustan Lever Ltd. (to be hereinafter referred to as ‘the HLL’) accepted a complementary role of cooperation between large and small scale industries, and in furtherance of this objective it entered into a contract with the appellants whereunder M/s. HLL manufactured and cleared soaps in the form of noodles from its factory at Bombay and transferred these noodles to the factory of the appellants at Aurangabad for conversion into soap tablets. The noodles so received by the appellants were plodded, stamped and wrapped by the appellants as per HLL’s specification and the soap tablets were delivered back to HLL for sale by it to its wholesale dealers.
3. It appears that the appellants were receiving the soap noodles under Rule 56A procedure and they were taking proforma credit of excise duty shown on the gate passes accompanying noodles. After the noodles are converted into soap tablets, the soap tablets are cleared from the factory of the appellants on payment of full duty in accordance with the prices declared by M/s. HLL without availing any exemption. It appears that M/s. HLL has been using certain quantities of RBC (rice bran oil) and MO (minor oils) in the manufacture of soaps sunlight noodles despatched to the appellants arid in view of such usage, HLL became entitled to rebate of excise duty in terms of Notification No. 45/72 dated 17.3.1972 as amended by Notification No. 153/73 dated 24.7.1973 and Notification Nos. 24 and 25 of 1975. It appears that M/s. HLL were granted rebate of Rs. 13,67,574.14 for the period from July, 1972 to December, 1978. It appears that the appellants were taking proforma credit of the duty paid by M/s. HLL on soap noodles as shown on the gate passes but the rebate which M/s. HLL had been availing were not reflected in the gate passes.
4. The Superintendent of Central Excise and Customs, Aurangabad, on 31.8.1979 issued a notice to the appellants alleging that they had taken proforma credit of Rs. 20,65,902.30 for the duty paid on soap noodles despatched by M/s. HLL, Bombay, to the appellants during the period from July, 1972 to the end of December, 1978. It was further alleged that M/s. HLL, Bombay, have received a rebate of Rs. 13,67,574.72 on account of the use of MO and RBO in the manufacture of noodles as per Notification Nos. 24 and 25 of 1975. It was further alleged that since the proforma credit taken by the appellants shall have to be adjusted, the amount of Rs. 13,67,574.14 will have to be deducted from the amount of proforma credit. The appellants were called upon to show cause as to why the amount of Rs. 13,67,574.14 which represented the rebate amount should not be recovered from them under Rule 10 of the Rules. A schedule giving the details of the amount of rebate availed of by M/s. HLL during the year, 1972 to 1978 was also attached to the show cause notice. In their reply dated 31.10.1979 the appellants herein among other things contended that the amount sought to be recovered is barred by the period of limitation prescribed under Rule 10. Without prejudice to the above contention the appellants contended that the view taken by the Superintendent is incorrect and unreasonable. In that connection they referred to the presentation made by M/s. HLL to the Central Board of Excise and Customs on 17.9.1979. They urged that the demand had the effect of nullifying the rebate granted by the Government under Notification Nos. 24 and 25 of 1975. They further referred to their letter dated 25.7.1977. In that letter dated 25.7.1977 among other things the appellants stated that M/s. HLL have directed them to file a rebate claim for usage of MO/RBO in the manufacture of soap noodles converted into Sun-light soaps by them. They sought the approval for claiming MO/RBO rebate on their clearance of Sunlight tablets.
5. The Assistant Collector of Customs, Aurangabad, held an enquiry. After consideration of the appellants’ reply and the submissions made during the personal hearing the Assistant Collector observed’ the Soap Noodles received by the party from M/s. HLL, Bombay, are covered by the gate passes evidencing the payment of duty on provisional basis as the quantum of rebate on account of the use of RB oil/Minor oil is not ascertainable at the time of clearance of noodles. Thus the proforma credit availed of by the party is provisional and in terms of provisions of Rule 56A(2), if any amount of duty is varied subsequently due to any reason resulting in payment of refund of the credit allowed shall be varied accordingly by adjustment in the credit account maintained under Sub-Rule (3) or in the Account Current maintained under Rule 9 or Rule 173G(1) ibid. In the instant case M/s. HLL, Bombay, despatched Soap Noodles on payment of appropriate rate of duty for which the proforma credit was availed of by M/s. Arvind Detergents Aurangabad. Subsequently, the parent manufacturer viz. M/s. HLL received a rebate of duty on account of use of R.B. Oil/Minor oil and is required to be adjusted as per the provisions stated above.’ The Assistant Collector rejected the appellants’ contention that demand was barred under Rule 10 of the Rules by holding that it was evident from the records that M/s. HLL did receive the rebate amount subsequent to the clearance of the goods from their factory and this fact of receipt of rebate amount was never intimated to the proper officer and this amounts to suppression of facts, and therefore, issue of show cause notice for a period of more than 6 months was justified and legally correct. Having regard to his above finding the Assistant Collector ordered that the amount of rebate of Rs. 13,67,574.72 shall be recovered by adjustment from the credit available with the appellants or by cash. He also ordered that his order should hold good for the subsequent period i.e. from 1.1.1979 onwards also.
6. Being aggrieved by the order of the Assistant Collector the appellants preferred an appeal before the Collector of Central Excise (Appeals) Bombay. The Appellate Collector observed ‘that during the notice period M/s. HLL, Bombay had received an amount of Rs. 13,67,574.14 by way of rebate under Notification Nos. 24 and 25 of 1975. Thus, the net duty paid by M/s. HLL on soap noodles during the relevant period was the gross duty minus the amount of rebate. Therefore, the appellants are entitled to proforma credit equivalent to the net duty paid by M/s. HLL. He further held that since the rebate claims have been sanctioned subsequent to the proforma credit taken by the appellants, necessary variations has to be made in their proforma accounts in terms of Rule 56A(2). There is no time limit prescribed under Rule 56A(2) for carrying out such variations in the proforma account. Therefore the plea of the appellants that the demand is time barred is not acceptable under Rule 10. Relying on certain decisions of the Supreme Court, he rejected the appellants contention that the department cannot resort to Rule 56A(2) when the notice was issued under Rule 10A. He also upheld the Assistant Collector’s order regarding its applicability for the period from 1.1.1979 onwards also.
7. As stated earlier, feeling aggrieved by the above order of the Appellate Collector the appellants have preferred this appeal.
8. During the hearing of this appeal, the appellant’s learned Counsel, Shri Lodha had urged the following grounds:
The entire claim is barred by limitation. The show cause notice was issued on 31.8.1979.
It was issued under Rule 10 of the Rules.
The demand therein related to the period from July, 1972 to the end of December, 1978.
In the whole of the show cause notice there was no allegation of wilful mis-statement or suppression of facts on the part of the appellants.
In the absence of such an allegation the demand could be made for a period of 6 months preceding the date of show cause notice.
The demand now made is for a period of 7 years.
The proviso to Rule 56A(2) relied on by the department has no application to the facts of the case.
The Appellate Collector has wrongly held that that proviso was applicable and that there is no period of limitation for adjustment or recovery of credit availed of so utilised. The appropriate provisions that applies to the facts of the case is Rule 56A(5).
The proviso to Rule 56A(2) would apply only when there is variation in the rate of duty after the credit is availed of either because of change in the rate of duty or classification.
The authorities below committed a grave error in directing that the order passed by the Assistant Collector should have effect even for the period subsequent to the date of show cause notice. That part of their order is wholly illegal.
No loss of revenue had occurred to the Government. Under the notification, which allowed rebate, M/s. HLL were entitled to claim rebate on the soaps manufactured by them. The appellants did not claim any rebate on the sunlight tablets manufactured by them. The appellants paid full duty on the sunlight tablets cleared from their factory.
9. In support of his contention that in the absence of allegation of wilful statement and suppression of facts in the show cause notice, the extended period namely, 5 years cannot be availed of by the departments. Shri Lodha plead reliance on the following decisions of the CEGAT.
(1) S.P. Kumaria & Sons Lucknow v. CCE Allahabad 1984 ECR page 1310, (2) Ravindra Steel Ltd. Nagpur v. CCE Nagpur 1983 ECR 294D Cegat 1983 ELT page 413 (3) C.D. Industrial Engineers Faridabad v. CC and CE Chandigarh 1983 ELT page 1994.
10. Shri Pattekar for the respondent Collector submitted that proforma credit that could be availed of by the appellants is the amount of duty paid on the raw material or components, parts or finished products which were utilised in the manufacture of excisable goods in their factory. Since M/s. HLL had availed of rebate of duty, credit could be taken only on the net duty paid by M/s. HLL and not the gross duty as had been done by the appellants. Shri Pattekar further contended that as there had been a variation in the amount of duty paid on the noodles received by the appellants, the Appellate Collector was justified in relying on the proviso to Sub-rule (2) of Rule 56A. There is no period of limitation prescribed for effecting adjustment or recovery and that Sub-rule (5) of Rule 56A has no application.
11. Finally Shri Pattekar submitted that the orders of the authorities re supportable for the reasons set out therein, and he therefore, prayed that the appeal may be rejected.
12. We have carefully considered the submissions made on both sides and also perused the records of the case. The two questions that appropriately arise in this appeal are (1) whether the demand made in the show cause notice dated 31.8.1979 is barred by time and (2) whether the two authorities below were not justified in directing the recovery of the proforma credit vailed of upto 31.12.1978 and to be availed of from 1.1.1979 onwards.
13. Before we proceed to answer the questions set out above, it is necessary to set out a few facts which are either admitted or over which there is no controversy. M/s. HLL are the manufacturers of Sunlight Noodles, 5% of the noodles are consumed in the factory of M/s. HLL for the manufacture of Sunlight tablets. The remaining 5% of the noodles are received in the appellants at their factory at Aurangabad. They manufacture Sun-light tablets from the said noodles and the tablets so manufactured are again (sic) to M/s. HLL. The appellants were permitted by the Collector to receive the noodles which are duty paid in their factory for the manufacture f Sunlight soap tablets. The Collector had also allowed them to take credit if the duty already paid on the noodles by the manufacturer of the noodles, he Sunlight soap tablets manufactured by the appellants are removed from their factory on payment of full duty. The appellants do not claim any rebate in the manufactured product. M/s. HLL are also not availing of the rebate in respect of Sunlight soap tablets manufactured by the appellants. They however, claim rebate on the entire quantity of the soap manufactured by (sic) which include the noodles supplied to the appellants. The noodles are received by the appellants under gate passes. The amount of duty paid in respect of the noodles received are indicated in the gate passes. The appoints have been availing the facility of proforma credit ever since the year 1972. The appellants work under S.R.P. They are governed by Chapter IIA.
14. The demand relates to the period commencing from July, 1972 to i.e. end of December, 1978. The show cause notice was dated 31.8.1979. 1 the show cause notice there is no allegation of wilful mis-statement or suppression of facts. The show cause notice was issued under Rule 10 of e Rules. The split up of the rebate availed of by M/s. HLL during the (sic) years are set out in the schedule to the show cause notice. There is precise evidence as to the date or the month or the year in which M/s. LL availed of the rebate.
15. Now coming to the 1st of the questions, it is the contention of the apartment that the excess credit availed of can be recovered either by reacting adjustment or by cash, and that there is no period of limits pressed for the recovery. The appellants, however, would contend that in the absence of allegation as to wilful mis-statement or suppression of facts, the excess credit even availed of cannot be recovered for a period beyond 6 on this preceding the date of show cause notice. The appellants contended at the provisions of Sub-rule (5) applies to the demand made by the department and since the demand being for the period from 1st July, 1978 to 31st December, 1978 and since the show cause notice was dated 31.8.1979, the (sic) of the demand is barred under Sub-rule (5) of Rule 56A.
16. Now in his order the Assistant Collector had held that extended period of limitation is attracted to the facts of the case, because M/s. HLL and received rebate amount subsequent to the clearance of the goods from their factory and this fact of receipt, of rebate amount was never intimated to the proper Officer and that amounts to suppression of facts, and therefore, the issue of show cause notice for a period of more than 6 months was Justified and legally correct. This finding of the Assistant Collector in our opinion in wholly erroneous. There was neither allegation nor proof that the appellants made wilful mis-statement or suppression of availing of rebate by M/s. HLL. It was not even alleged that the appellants were aware of M/s. HL availing rebate at the time they availed of the proforma credit. As a matter of fact the Assistant Collector has held that M/s. HLL did not intimate the proper Officer about the availing of rebate. The suppression if any, would have been on the part of M/s. HLL and not on the part of the appellant Therefore, the finding of the Assistant Collector that extended period limitation would apply on the facts established is unsustainable.
17. The Collector (Appeals) however, had held that the recovery was in pursuance of the provisions of Rule 56A(2) and that that does not prescribe any period of limitation for adjustment or recovery. In short he did not hold that the appellants were guilty of wilful mis-statement or suppression facts.
18. Let us now proceed to consider whether any period of limitation is prescribed for making adjustment or recovery in cash of the excess (sic) availed of.
19. As has been pointed out earlier the Collector had permitted the appellants to receive Sunlight Noodles which appears to be one of the specified excisable goods in the notification issued by the Central Government The Collector has further allowed the appellants to take credit of the dui already paid on the Sunlight Noodles received by them. The Sunlight Noodles are received under different gate passes (G.P. 1). The gate pass would indicate the duty suffered by the goods. There is no complaint against the appellant that they had availed credit in excess of the duty suffered by the matter, received by them in the factory. The plea of the department has been the subsequent to the receipt of the duty paid material by the appellants, M/s HLL availed of rebate under Notification Nos. 23 and 24 of 1975, and a such, the duty originally paid on the noodles got varied. According to the department because of the subsequent variation the appellants could (sic) Credit of the net duty paid on the materials supplied to them by M/s. HLL but they had taken credit of the gross duty paid. Therefore, the department under law would be entitled to direct the appellants to make adjustment in the credit account maintained under Sub-rule (3) or in the account current maintained under Sub-rule (3) or Rule 9 or Rule 173G1 or if such adjustment be not possible for any reason the department is entitled to recover the excess duty by cash. The relevant proviso relied upon by the department reads as under:
provided that if the duty paid on such material or component part (of which credit has been allowed under this sub-rule) be varied subsequently due to any reason resulting in payment of refund to, or recovery of more duty from the manufacturers, or importer, as the case may be, of such material or component parts, the credit allowed she be varied accordingly, by adjustment in the credit account maintained under Sub-rule (3) or in the account-current maintained under Sub-rule (3) or Rule 9 or Rule 173G(1) or, if such adjustment be not possible for any reason, by cash recovery from or, as the case may be, refund to the manufacturer availing of the procedure contained in this rule.
The explanation to this sub-rule is not necessary for our purpose.
20. In order to attract the above provisions it would be necessary for the department to establish that the duty originally paid on the materials received by the appellants got varied subsequently, and secondly, as a result of variation the department became entitled to recover more duty from the appellants. Excepting stating that M/s. HLL obtained rebate of Rs. 13,67,574.72 no evidence is forthcoming as to the date or the month or the year in which M/s. HLL availed of the rebate. It is seen that two remedies are provided in this proviso for recovery of more duty availed of by a manufacturer, one is adjustment in the credit account or current account and another is cash recovery. The proviso no doubt does not state when this adjustment should be done or within what time the cash recovery should be effected. The proviso makes it clear that if the duty originally paid gets varied subsequently due to any reason, it should reflect in the credit allowed. In other words the credit allowed should also be varied. What is to be varied is the credit allowed. The credit is allowed under Sub-rule (2) of Rule 56A.
21. Rule 56A(5) reads:
(i) 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 utilize such credit, or why the amount equivalent to such credit should not be recovered from him, if the credit has already been utilised: Provided that where a credit has been allowed under Sub-rule (2) on account of wilful mis-statement, collusion or suppression of facts on the part of the manufacturer or the assessee, the provisions of Clause (i) shall have affect as if for the words ‘six months the words ‘five years’ were substituted.
(ii) The Assistant Collector after considering the representation if any, made by the manufacturer or the assessee on whom notice is served under Clause (i), shall determine the amount of such credit to be disallowed (not being in excess of the amount specified in the show cause notice) and thereon such manufacturer or assessee shall pay the amount equivalent to the credit disallowed, if the credit has been utilised, or shall, not utilize the credit thus disallowed.
In this Sub-rule (two) periods are prescribed to disallow the utilisation of credit of to recover from the manufacturer if the credit has already been utilised. The first is 6 months and this period is to apply if the credit had been allowed on account of an error, omission or misconstruction on the part of the Officer. The 2nd period viz. the period of 5 years is prescribed if the credit has been allowed on account of wilful mis-statement, collusion or suppression of facts on the part of the manufacturer or the assessee. If this sub-rule is applicable then the disallowance of the utilisation of credit or recovery should be done within 6 months from the date of such credit and not within 5 years, because in the show cause notice issued to the appellants there was no allegation of wilful mis-statement, collusion or suppression of facts on their part.
22. The question for our consideration is whether the provisions of Sub-rule 5 applies to the recovery contemplated in the proviso to Sub-rule (2) set out by us in an earlier paragraph.
23. The said proviso to Sub-rule (2) contemplates two eventualities. They are : (1) if the duty originally paid gets varied subsequently it might result in payment of refund to the manufacturer or importer, and (2) it might also result in recovery of more duty from the manufacturer or importer. During the relevant period and subsequently also the Central Excise Rules and the Act provided a period of 6 months for claiming refund of duty from the date of cause of action for the refund arose. As a general provision has been made in the Rules and the Act, for clerious referred of duty the Rule Making Authority wisely thought it unnecessary to incorporate any period of limitation in so far as refund is concerned. The other Rules or the provisions in the Act would not strictly apply to the recovery contemplated in the proviso to Sub-rule (2) of Rule 56A. Therefore, a separate provision was made in the Rule itself i.e. Sub-rule (5). As has been pointed out earlier, it provided for two periods of limitation, 6 months from the date of credit if the credit had been allowed on account of an error, omission or misconstruction on the part of the Officer, and 5 years where a credit has been allowed on account of wilful mis-statement, collusion or suppression of facts on the part of the manufacturer or the assessee. It is difficult to accept the contention of the department that recovery could be made at any time. This contention runs counter to the scheme of the Central Excise Act and Rules. In the case of a manufacturer or an assessee who indulges in fraud, wilful mis-statement, collusion or suppression of facts, the recovery shall have to be made within a period of 5 years. If that be the intention then it does stand to reason or logic that recovery contemplated in the proviso to Sub-rule (2) could be effected at any time even after a lapse of several years. It is significant to note that one of the modes of recovery is by adjustment in the credit account maintained under Sub-rule (3) or in the account current maintained in the Sub-rule (3) or Rule 9 or Rule 173G(1). If we turn to Rule 9, we find that a current account to be maintained shall have to be settled at intervals not exceeding one month. Similarly, Rule 173G contemplates submission of monthly returns within 7 days after the close of each month by a manufacturer. Rule 173-I requires the proper Officer to complete the assessment on the return. It further requires him to send as a copy of the return so completed to the assessee. Rule 54 of the Rules requires every manufacturer to submit a monthly return to the proper Officer within 7 days after the close of each month. Sub-Rule (3) of Rule 56A requires the manufacturer to maintain an account in Form R.G. 23 Parts I and II. The accounts so maintained are inspected and initialled by the Central Excise Officers. From the scheme of Rule 56A it would be clear that if the duty originally paid subsequently gets varied resulting in payment of refund to, or recovery of more duty from the manufacturer, the credit allowed should get varied and there should be an immediate adjustment in the account maintained by the manufacturer. Since the manufacturer is required to submit monthly returns, these variations should find place in the accounts maintained. As all assessments have to be finalised and recovery if any, have to be effected within the period prescribed under the Act, there is no scope to contend that recovery of more duty contemplated in the proviso to Sub-rule (2) of Rule 56A can be made at any time and that there is no period of limitation for such recovery.
24. It is significant to note that under Sub-rule (5) the recovery contemplated is of the credit that had been allowed under Sub-rule (2). The credit that could be allowed under Sub-rule (2) is only the duty suffered by the raw material or component or finished product. The duty paid on the raw material or component or finished product could take within its ambit the varied duty contemplated by the proviso to Sub-rule (2). Thus, we are of the considered view that the recovery contemplated by the proviso to Sub-rule (2) shall have to be made within the period of limitation prescribed under Sub-rule (5) of Rule 56A.
25. In the above view of the matter we consider that the order passed by the Assistant Collector and confirmed by the Collector (Appeals) deserves to be set aside.
26. Now coming to the second question on the facts established in this case the department was unable to convince us that any loss was caused to the Government, It is not the case of the department that M/s. HLL are not entitled to claim rebate in respect of Sunlight Noodles supplied to the appellants. It is also not the case of the department that the appellants as well as M/s. HLL have availed of rebate contemplated by the two notifications of the year 1975. It is also not the case of the department that in respect of the finished Sunlight soaps full duty is not paid by the appellants. It is also not the case of the department that in respect of Sunlight soaps produced by the appellants M/s. HLL claimed rebate of duty based on Notification Nos. 24 and 25 of 1975 after they received the goods from the appellants. In the circumstances the recovery directed appears unjustified.
27. In the result and for the reasons stated we allow this appeal and set aside the orders passed by the authorities below and direct that the appellants be granted consequential relief.