ORDER
G. Sankaran, President
1. This appeal is against the Order-in-Appeal No. M-1107/BD-732/85 dated 24-7-1986 passed by the Collector of Central Excise (Appeals), Bombay.
2. M/s. Navin Fluorine Industries (the appellants herein) were engaged during the material time, that is, 1-1-1981 to 28-2-1982, in the manufacture of Refrigerant Gases falling under Item No. 14H of the erstwhile Central Excise Tariff Schedule (CET, for short) of 1944. For this purpose they used to bring into their factory from outside certain chemical inputs like carbon tetrachlorides and chloroform on which the appropriate amount of Central Excise duty under Item No. 68 had already been paid. Central Excise Notification No. 201/79 dated 4-6-1979 exempted finished goods from payment of the excise duty leviable thereon to the extent of the duty suffered under Item No. 68 CET by the inputs used in their manufacture. The exemption was subject to the procedure set out in the Appendix to the notification. Paragraph 5 of the Appendix provided that the manufacturer shall inform the proper officer in writing in the proper form regarding receipt of each consignment of excise duty paid inputs within 24 hours of its receipt in order to enable the proper officer, if he deemed it necessary, to identify the inputs and verify the actual quantity thereof within 48 hours of receipt of the information. It appears that in view of the continuous nature of the process of manufacture there were practical difficulties in the matter of complying with this requirements. On this procedural lapse being pointed out by the audit, the Superintendent of Central Excise issued a notice to the appellants on 14-6-1982 asking them to show cause why the proforma credit availed of by the appellants to the extent of Rs. 1,63,715.93 during the period from 1-1-1981 to 28-2-1982 being the duty paid on the inputs which were taken into consumption within 48 hours of the receipt without waiting for the proper officer to identify the inputs, should not be recovered from them in terms of Section 11A(1) of the Central Excises and Salt Act, 1944. The appellants in their reply to the show cause notice explained that in view of the peculiar nature of their industry the Collector of Central Excise had exempted them from the aforesaid requirement. In view of this, the Assistant Collector of Central Excise, by his order dated 19-11-1982 dropped the proceedings against the appellants. The Collector of Central Excise, Baroda, directed the Assistant Collector to file an application under Section 35E(4) of the Central Excises and Salt Act before the Collector (Appeals) contending that the Assistant Collector’s order was erroneous and should be set aside. The Collector (Appeals), by his order dated 24-7-1986, allowed the application filed by the Assistant Collector, however, restricting the demand to that ,for the period of six months preceding the show cause notice. He noted in his order that during the material period the jurisdictional Collector of Central Excise had relaxed the requirement of identification etc. laid down in the Appendix to notification No. 201/79 but held that the Collector had no power to relax the said condition. However, there was no suppression of any material facts on the part of the appellants. It is this order which is now challenged in the present appeal.
3. We have heard Shri Gopal Prasad, Consultant, for the appellants and Shri M. Jayaraman, DR, for the respondent-Collector.
4. From the submissions before us and from the record it is seen that, on a representation by the appellants with reference to Notification No. 178/77, the Collector of Central Excise, by his letter dated 17-10-1978, had, as a special case, dispensed with the physical verification of the chemical inputs falling under Item No. 68 received in bulk and stored in tanks for the purpose of availment of exemption under the said notification subject to the condition that the quantity mentioned in the D3 declaration (required to be sent to the proper officer) was verifiable from documents/records maintained by the appellants, to the satisfaction of the proper officer. Again, on another representation by the appellants with reference to Notification No. 201/79 the Collector had, by his letter dated 25-8-1982, permitted relaxation of the said condition subject to the fulfilment of the requirements laid down by him in his earlier letter. It is in view of these directions of the Collector that the Assistant Collector had dropped the proceedings initiated against the appellants. There is no dispute that the conditions laid down by the Collector in his two letters were being complied with. There is also no dispute that the chemical inputs were used in the manufacture of the finished goods, namely, Refrigerant Gases.
5. Notification 201/79 was amended by Notification 13/85 dated 1-2-1985. By this amendment, a proviso was added to paragraph 5 of the 1979 notification empowering the Collector, for reasons to be recorded in writing, to relax the provisions inter alia of clause C of paragraph 5 in the case of any manufacturer or a class of manufacturers. Shri Gopal Prasad submits that since this amendment is of a procedural nature and during the material time the appellants had the requisite permission from the Collector, there was no case for demanding duty from the appellants on the ground that they did not wait for 48 hours before taking the duty paid inputs into consumption.
6. Shri M. Jayaraman, DR, however, submits that the Collector had, during the material time, no power to relax the conditions laid down in the notification. The relaxation granted with reference to Notification No. 178/77 ceased to have effect with the rescinding of that notification. The appellants should have sought a fresh relaxation with reference to Notification No. 201/79 and the Collector’s order of relaxation dated 25-8-1982 was given after the period for which the demand had been made. He also submits that this is not a matter of mere procedure. A condition precedent to the exemption has not been complied with and as such the case for the Revenue is strong.
7. Having considered the submissions of both sides and perused the record, we are of the opinion that the appellants have a good case. It is no doubt true that the Collector had granted relaxation of the procedural requirements in Notification 178/77 and that notification itself was rescinded on the issue of Notification 201/79. It is also true that the relaxation given on 25-8-1982 came after the show cause notice was issued. However, what is central to the relaxation is the representation made by the appellants that looking to the nature of the inputs, their hazardous nature and the continuous process of manufacture, it was not practical to comply with the requirement of paragraph 5C of Notification 201/79. It is in appreciation of these difficulties that the Collector had granted the relaxation. The fact that the relaxation came after the issue of the show cause notice is, in our opinion, not a sufficient ground to slap a demand for recall of the proforma credit since, as noted earlier, there is no dispute that the duty paid inputs were received, intimations in form D3 were submitted to the proper officer and the inputs were used in the manufacture of finished excisable goods. The very fact that the Government thought it fit, though in 1985, to empower the Collector to relax the requirements inter aila of paragraph 5C of the notification only goes to show that the Government also was convinced of the practical difficulties in complying with the letter of the procedure. It is a well settled proposition, and requires no citation, that lapses of procedure should not be allowed to defeat the ends of substantive justice. In this view of the matter, we are of the opinion that the Assistant Collector was right in dropping the proceedings against the appellants and the Collector (Appeals) was in error in reviving the demand though only for a period of six months. As such, we set aside the impugned order with consequential relief to the appellants.