ORDER
P.G. Chacko, Member (J)
1. The appellants are engaged in the manufacture of Caustic Soda Lye (Chapter 28 of the CETA Schedule). During the period 1-11-96 to 31-12-98, certain quantities of Caustic Soda Lye which, on payment of duty, they supplied to some of their customers, were found to be in excess of the quantity ordered by the latter. These excess quantities of the goods were returned to the appellants and the same were received by them under intimation to the Department. The appellants say that these quantities of Caustic Soda Lye were removed as such, without payment of duty to various other customers. Such clearances, however, were made as integral parts of larger consignments of the goods. It is the appellants’ case that, in each such consignment, duty had been paid on differential quantity (virgin production) of the Caustic Soda Lye, but the finding of the department is that the goods returned by the customers was again subjected to a process amounting to manufacture and the resulting product was removed to third parties at lower price. According to the department, the re-processed goods should have been cleared on payment of duty and refund of the duty already paid should have been claimed under Rule 173L of the C.E. Rules, 1944. In this view of the matter, for the period 1-11-96 to 31-7-98, the lower authorities demanded duty of Rs. 36,837/- from the assessee and imposed on them equal amount of penalty. This demand is under the proviso to Section 11A(1) of the C.E. Act, 1944. For the remaining period, 1-8-98 to 31-12-98, they demanded duty of Rs. 25,215/- from the assessee under Section 11A(1) of the Act. The Orders passed by the lower appellate authority for the said periods are under challenge in Appeal Nos. E/903/2003 and E/902/2003 respectively.
2. Heard both sides. Learned Counsel for the appellants reiterates the above stand of the assessee and submits that their case was not covered by Rule 173H or L. Theirs is a case of goods returned by customers, having been cleared as such without payment of duty. Whatever duty was paid by them, in respect of the clearances made after return of the goods by the customers, was on that quantity of Caustic Soda Lye which was cleared for the first time and not on the quantity (returned by the customers) cleared for the second time. According to the learned Counsel, in such circumstances, any further demand of duty was not tenable. Learned JDR submits that there is no proof of the facts pleaded by the appellants. Had the appellants intended to clear the goods returned by the customers, as such, to third parties without payment of duty, they would not have mixed the said goods with virgin production of Caustic Soda Lye for the purpose of clearance. I have to accept this submission of the learned JDR. Contextually, it has to be mentioned that the relevant rules which could apply to the facts of this case have been brought to my notice by Shri T.S. Balasubramaniam, learned Advocate. He has pointed out that Sub-rule (4) of Rule 173H, read with Sub-rule (3) thereof, would cover the factual situation. He has also referred to Rule 51A. On a perusal of the provisions, I note that Sub-rule (1) of Rule 173H, which is pari materia with Rule 51A, prohibits return of duty-paid excisable goods into the factory “except as hereinafter provided”. Sub-rules (3) & (4) of Rule 173H read as under :
(3) Chief Commissioner may by a general or special order, and subject to such conditions and limitations as may be specified in such order, permit any other duty paid goods or parts thereof not specified in Sub-rule (2), to enter, or to be retained in, a factory or a warehouse.
(4) The goods or parts thereof retained in, or brought to into, a factory or a warehouse in accordance with the provisions of Sub-rule (2) or Sub-rule (3) may, if not subjected to any process amounting to manufacture, be removed from the factory or warehouse without payment of duty subject to such conditions as may be specified by the Commissioner or Chief Commissioner, as the case may be.
3. Sub-rule (2) of Rule 173H enumerates the circumstances in which, or the purposes for which, excisable goods already cleared on payment of duty could be returned to the factory. According to the appellants, Caustic Soda Lye was not returned by the customers for any of these purposes. It was returned as it was found to be in excess of the quantity ordered by the customers. Such goods, apparently, are covered by the expression “other duty-paid goods” figuring in Sub-rule (3) above. The goods clearly fell within the scope of Sub-rule (3) of Rule 173H and, therefore, the assessee should have applied to the Chief Commissioner for his permission for clearance of the goods without payment of duty to third parties. Apparently, such permission was not sought in this case. Sub-rule (4) enables the assessee to remove duty-paid goods (returned by customers) without payment of duty subject to such conditions as may be specified by the Chief Commissioner. As already indicated, the Chief Commissioner had no occasion to specify any condition in this case.
4. As already noted above, the goods in question returned by the customers were received in the assessee’s factory under D-3 intimation to the department. It has been submitted by the learned Counsel that these declarations given in Form D-3 were duly verified by the department also. In the circumstances, it must be possible, in this case, for the Chief Commissioner to verify the relevant facts and take a decision in terms of Sub-rules (3) and (4) of Rule 173H as these rules stood at the material time, if he is approached by the assessee. It is up to the appellants to make appropriate application to the Chief Commissioner for condonation of their procedural lapse as also for ratification of what they did, in relation to the subject goods, whereupon the Chief Commissioner shall pass appropriate orders for the ends of justice after hearing the assessee.
5. For the present, I am unable to find fault with the orders of the lower authorities for want of evidence in support of the facts pleaded by the appellants. It is however, made clear that they are at liberty to prove such facts before the Chief Commissioner.
6. The appeals are disposed of in the above terms.
(Dictated and pronounced in open Court)