1. The captioned appeal was initially filed as a Revision Application before the Central Government which under Section 35-P of the Central Excises & Salt Act, 1944, has come as transferred proceeding to this Tribunal for disposal as if it were an appeal presented before it.
2. The appellants are engaged in manufacture of various kinds of paper, falling under Item No. 17 of the First Schedule to the Central Excises and Salt Act, 1944 (CET). They were availing themselves of the concessions contained in two Central Excise notifications-one bearing No. 128/77 dated 18-6-1977 which reduced the duty payable on paper produced by certain specified types of paper mills classified according to their installed capacity and the other bearing No. 201/79 dated 4-6 1979 which conferred a general exemption on all excisable goods in which inputs which had suffered duty under Item No. 68 C.E.T. were used to the extent of the duty borne by the inputs. In the present case, wood pulp was the 'Input'. The Supdt. of Central Excise, Roha issued a show cause-cum-demand notice dated the 27th September, 1979 for Rs. 9,484.65 to the appellants for the differential amount of duty involved on the ground that the appellants ought to have availed themselves of the proforma credit (of the input duty) first-that they ought to have debited the duty on the paper sought to be cleared at the full rate in the RG. 23 Part-II Register (and not the duty at the concessional rate under Notification No. 128/77 dated 18-6-1977)-and thereafter availed themselves of the concessional rate of duty. The Supdt. also issued another demand notice dated 31-10-1979 for Rs. 44,351.85 to the appellants on the ground that while declaring the assessable value under Section 4 of the Central Excises and Salt Act, they should have deducted from the sale price the duty actually paid i.e. the duty at the concessional rate in terms of Notification No. 128/77 and not duty calculated at the full tariff rate. The Supdt. revised the assessable value in respect of the clearances of paper during the period 1-6-1979 to 31-8-1979 and issued the aforesaid demand notice for the differential amount of duty. The Asstt. Collector, on adjudicating the first demand for Rs. 9,484.65 held that the benefit of Notification No.128/77 should be availed of only after determining the duty leviable read with Notification No. 201/79 and that any credit that might have been given by the Supdt. according to Clauses III and IV of the appendix to Notification No. 201/79 should be made good by the assessee. No orders were passed by the Asstt. Collector in respect of the second demand for Rs. 44,351.85.
3. Aggrieved with the Asstt. Collector's orders, the appellants filed before the Collector a revision application under Section 35-A of the Central Excises and Salt Act urging that the Assistant Collector's order was a non- speaking order and that the appellants were entitled to avail themselves of the facility of proforma credit under Notification No. 201/79 and also enjoy the benefit of the concessional rate of duty under Notification No. 128/77. On adjudication, the Collector of Central Excise, Bombay-II held that- (i) to calculate the concessional rate under Notification No. 128/77, one has to determine the "duty leviable"; (ii) the "duty leviable" will be the duty at the tariff rate as modified by Notification No. 201/79 which covers inter alia Item No. 17-C.E.T. (Paper); (iii) in other words, the duty leviable will be the duty on paper at the tariff rate minus duty on the inputs i.e. wood pulp which has gone into the manufacture of a given quantity of paper, sought to be cleared. He directed that the amount of the demand should be re-worked in the manner indicated in the Collector's order, if necessary, and the resultant sum recovered from the appellants under Central Excise Rule 10.
It is this order of the Collector under Section 35-A of the Act that is now under challenge before us.
4. The appeal was heard on 26-6-1984. The points put forth by Shri Kulkarni on behalf of the appellants may be summarised thus- (i) The method followed by the appellants of first determining the duty payable in terms of Notification No. 128/77, debiting it in the RG. 23 II Account was the correct method.
(ii) The method followed by the Collector in his order would defeat the purpose of the two notifications and would result not only in denial of the concession under Notification No. 128/77 but also in payment of more duty than even the amount calculated at the full tariff rate.
In the memo of revision application (the appeal before us), it has also been urged that the condition in Notification No. 178/76 which required the input duty relief to be correlated to and limited to the amount of duty paid on the exact quantum of inputs actually utilised in the manufacture of the quantity of finished goods sought to be cleared on payment of duty was no longer there. Notification No. 201/79 (under which relief in the present case was being claimed) does not require such correlation-it was almost identical with the Rule 56-A procedure.
The credits in the RG. 23 Part-11 register under this procedure can be utilised in the same manner as the credits in the Personal Ledger Account (PLA). The method permits adjustment of the amount of duty paid on the inputs towards the payment of duty on the finished goods.
5. On behalf of the respondent, the SDR supported the impugned order for the reasons stated therein.
6. We have carefully considered the submissions of both sides. For a proper appreciation of the dispute, it is necessary to set out the relevant portions of the two notifications involved.
In exercise of the powers conferred by Sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, and in supersession of the notification of the Government of India, in the Ministry of Finance (Department of Revenue and Insurance), No. 45/73-Central Excises, dated the 1st March, 1973, the Central Government hereby exempts paper other than paper boards, cigarette tissue, glassine paper, grease proof paper, coated paper (including waxed paper) and paper of a substance not exceeding 25 grammes per square metre, and containing not less than fifty per cent by weight of pulp made from bagasse, jute stalks, cereal straw or waste paper manufactured and cleared from a paper mill of the type described in the Table below, from so much of the duty of excise leviable thereon as is specified in the corresponding entry in column (3) of the said Table :S. No. Description of paper mill Extent of exemption1 2 31.
Paper mill whose annual installed capacity Seventy-five per cent in respect of all varieties of paper and of the duty leviable paper boards does not exceed 2000 tonnes.2.
Paper mill whose annual installed capacity Sixty per cent of in respect of all varieties of paper and the duty leviable paper boards exceeds 2000 tonnes but does3.
Paper mill whose annual installed capacity Fifty per cent of the in respect of all varieties of paper and duty leviable paper boards exceeds 5000 tonnes but does Provided that the paper mill (i) does not have a plant attached thereto for making bamboo or wood pulp, and (ii) manufactures paper out of pulp bought by it or made by it from any raw material other than bamboo or wood." (The proviso is not relevant here because there is no dispute about it).
In exercise of the powers conferred by Sub-rule (I) of Rule 8 of the Central Excise Rules, 1944, and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 178/77-Central Excises, dated the 18th June, 1977, the Central Government hereby exempts all excisable goods (hereinafter referred as "the said goods"), on which the duty of excise is leviable and in the manufacture of which any goods falling under Item No. 68 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944) (hereinafter referred as "the inputs") have been used, from so much of the duty of excise leviable thereon as is equivalent to the duty of excise already paid on the inputs.
Provided that the procedure set out in the Appendix to this notification is followed : ' Provided further that nothing contained in this notification shall apply to the said goods which are exempted from the whole of the duty of excise leviable thereon or are chargeable to nil rate of duty." We have not reproduced the appendix to the notification. Suffice it to say that the procedure is substantially the same as set out in Rule 56-A of the Central Excise Rules, 1944. Though the notification talks of exemption "from so much of the duty of excise leviable thereon as is equivalent to the duty of excise already paid on the inputs", it is clear from the prescribed procedure that there is no requirement of exact correlation of the inputs to the output, unlike in "set-off" notifications where such correlation is usually envisaged, The procedure permits the manufacturer to take credit of the duty that has already been suffered by the inputs and utilise such credit towards payment of duty on' any excisable goods for the manufacture of which the inputs were declared by the manufacturer to be brought into the factory.
7. Notification No. 128/77 exempts specified varieties of paper subject to certain conditions. The exemption is from so much of the excise duty leviable thereon as is specified in the relevant entry in the table appended to the notification. The extent of exemption is from 75%/60%/50% of the duty leviable, depending upon the annual installed capacity of the paper mill. In our view, this is the notification that has to be first applied in the present case. Suppose, the duty leviable on 1 MT of paper, calculated on the assessable value at the applicable rate of duty is Rs. 1,000. (The applicable rate of duty would be the rate specified in the First Schedule to the Central Excises and Salt Act read with any relevant notification issued under Rule 8(1) of the Central Excise Rules). Notification No. 128/77 has the effect of exempting the paper to the extent stated therein. Let us say the extent of exemption is 60%. The extent of exemption will be Rs. 600. The duty effectively payable will be Rs. 1,000-Rs. 600=Rs. 400. Now suppose X MT of wood pulp which has borne duty under Item 68 in a sum of Rs. 100 goes into the production of 1 MT of paper. Notification No. 201/79 permits the importer to utilise the credit of Rs. 100, the duty already paid on the input paper pulp, towards payment of duty on the paper.
That is to say, he will be entitled to pay the duty on the paper viz.
Rs. 400 by drawing upon Rs. 100 from his credit account and paying the balance Rs. 300 by debit in his personal ledger account. This is the only manner in which the procedure presented in Notification No. 201/79 can be worked out in practice and is sanctioned by the procedure which permits the utilisation of the credit towards payment of duty on the finished product. One does not have to and it is no use to look at the credit account till after the duty liability on excisable goods, one seeks to clear, is determined. Once this determination is done, the credit account can be drawn upon to the extent permissible. This is the scheme of the procedure. We have no doubt that the method adopted by the lower auhtorities is incorrect, apart from being not sanctioned by the said procedure.
8. In the result, we allow the appeal with consequential relief to the appellants which shall be granted to them by the concerned excise authorities within two months from the date of communication of this order.