Judgment:
Pendse, J.
1. The petitioners are a private limited company incorporated under the provision of the Companies Act, 1956, and inter alia, manufacture synthetic organic dyestuff. In the manufacture of the dyestuff, the petitioners are required to use intermediates as raw materials and these intermediates are liable to payment of excise duty and countervailing duty under Tariff Item No. 68 to the First Schedule to the Central Excises and Salt Act (hereinafter referred to as the 'ACT'). The manufacture of synthetic organic dyestuff is liable to payment of excise duty under Tariff Item No. 14D of the First Schedule. By Notification No. 103/61, the Central Government exempted the dyes derived from coal tar and manufactured wholly or partly out of the intermediates, falling under Item No. 14D of the First Schedule from so much of the duty of excise leviable thereon as is equivalent to the amount of the countervailing customs duty paid on such imported intermediates. The petitioners were thus entitled to avail of the exemption granted by notification dated April 20, 1961.
The Central Government in exercise of powers conferred by sub-rule (2) of Rule 8 of the Central Excise Rules, 1944 (hereinafter referred to as the 'Rules') by notification dated June 19, 1980 directed that Notification No. 103/61 shall stand amended in the manner specified in Column 3 of the Table annexed to the notification. Notification No. 103/61 was amended by insertion of the following proviso :
'Provided that in relation to the exemption under the notification, the procedure set out in Rule 56A of the aforesaid rules is followed.'
As a result of this amendment for availing of the exemption Notfn. No. 103/61, the manufacture is required to follow the procedure set out in Rule 56A of the Rules.
2. The petitioner Company sought exemption by following the procedure laid under Rule 56A for the period between March 7, 1981 and November 28, 1981 and exemption was granted by the Assistant Collector of Central Excise, Bombay though it was made clear that the exemption granted was on provisional basis. On December 7, 1981, the Assistant Collector served notice upon the Company intimating that there was no legal basis for granting permission applied seeking exemption under Rule 56A. The Assistant Collector stated that under Rule 56A, the Company is not entitled to exemption and consequently the exemption availed of stands cancelled, and the Company should pay the duty within 10 days from the service of the notice. The Company then filed reply and also written submission and thereafter, the Assistant Collector passed adjudication order on February 26, 1982 holding that the decision communicated to the Company on December 7, 1961 is correct and the Company should honour the demand made by payment of amount of Rs. 3,62,253.75. The order passed by the Assistant Collector is under challenge in this petition filed under Article 226 of the Constitution of India.
3. Shri Poddar, learned counsel appearing on behalf of the petitioners, submitted that the Assistant Collector was in error in holding that not only the procedure prescribed under Rule 56A but the substantial provisions of Rule 56A are applicable while ascertaining whether the Company is entitled to avail of the exemption granted under Notification No. 103/61 dated April 20, 1961. The Assistant Collector relied upon the amended Rule 56A which came into force on March 3, 1979 to hold that the Company is not entitled to avail of the exemption under Notification dated April 20, 1961. Shri Desai, learned counsel appearing on behalf of the Department, submitted that the Assistant Collector was justified in relying upon the amended provisions of Rule 56A and was not bound to restrict the application of Rule 56A only to the procedural aspect. In view of the rival submission, the short question which falls for determination is whether the Assistant Collector was right in extending the application of Rule 56A from procedural rules to the substantive provisions.
Rule 56A deals with special procedure for movement of duty paid materials or components parts used in the manufacture of finished excisable goods. Sub-rule (2) provides that the Collector may, on application made and subject to the conditions mentioned in sub-rule (3) and such other conditions as may from time to time be prescribed by the Central Government, permit a manufacture of any excisable goods to receive materials or components parts of finished product on which the duty of excise or the additional duty under Section 3 of the Customs Tariff Act, 1975 known as countervailing duty has been paid in his factory for the manufacture of these goods or for the more convenient distribution of finished product and allow a credit of the duty already paid on such materials or components parts or finished products. The Central Government, in exercise of powers conferred by Section 37 of the Act amended the Central Excise Rules, 1944 on March 3, 1979 and the relevant amendment to Rule 56A reads as under :
'Provided further that no credit of countervailing duty shall be allowed in respect of any material or component parts used in the manufacture of finished excisable goods, if countervailing duty has been paid in respect of such material, or components parts, as falling under Item No. 68 of the First Schedule to the Central Excises and Salt Act, 1944.'
The Assistant Collector passed the impugned order on the basis that after amendment of Rule 56A, the Company is not entitled to the advantage of exemption which was granted provisionally for the period commencing from March 7, 1989 to November 28, 1981. Shri Poddar challenges the conclusion by submitting that in exercise of powers under sub-rule (1) of Rule 8, Notification No. 103/61 was amended by providing that only procedure set out in Rule 56A shall be followed for availing of the exe7mption. The learned counsel urged that by resort to substantive provision of Rule 56A, the Assistant Collector has made the Exemption Notification No. 103/61 redundant. We find considerable merit in the submission of the learned counsel. As mentioned hereinabove, Notification No. 103/61 was amended on June 19, 1980 by providing that the procedure set out in Rule 56A shall be followed to avail the exemption. This Notification date June 19, 1980 was issued by the Central Government long after Rule 56A was amended on March 3, 1979. It is, therefore, obvious that the Central Government was extremely clear that the entire Rule 56A has no application but to avail of the exemption under Notification No. 103/61, only procedure prescribed under Rule 56A must be followed. It is, therefore, obvious that the Assistant Collector was in error in importing the substantive provisions of Rule 56A and denying the advantage of exemption under Notification No. 103/61.
4. The result of the interpretation given by the Assistant Collector by the impugned order makes Exemption Notification No. 103/61 entirely redundant. The manufacturer is entitled to exemption in respect of countervailing customs duty paid on imported intermediates when such imported intermediates are used while manufacturing the final product liable to payment of Excise under Tariff Item No. 14D of the First Schedule. The amended Rule 56A on which the Assistant Collector relied deprives the manufacturer of credit of countervailing duty when such countervailing duty falls under Item No. 68 of the First Schedule. It is not in dispute that the intermediates imported by the Company were liable to payment of duty under Tariff Item No. 68 and also countervailing duty. It is not in dispute that the intermediates imported were used as components for manufacture of dyestuff and which was liable for duty under Tariff Item No. 14D of the First Schedule. The result of importing the amended proviso to Rule 56A is to defeat exemption Notification 103/61 and that surely was never in contemplation of the Central Government. The Central Government added proviso to Exemption Notification on June 19, 1980, i.e. when Rule 56A was already amended providing for withdrawal of substantive rights. The Central Government could have never intended to wipe out the effect of Exemption Notification No. 103/61 by prescribing that only procedure prescribed under Rule 56A should be applicable while availing of the exemption. In our judgment, by no stretch of imagination, the substantive provisions of Rule 56A can be imported while examining whether Company is entitled to advantage of exemption under Notification No. 103/61. The impugned order of the Assistant Collector, therefore, cannot be sustained and is required to be set aside.
5. Accordingly, rule is made absolute and the impugned order dated February 26, 1982 passed by the Assistant Collector of Central Excise, Bombay division and the copy of which is annexed as Ex. 'K' to the petition is set aside and the demand made by the Assistant Collector in accordance with this notice stands quashed. In the circumstances of the case, there will be no order as to costs. The bonds and the Bank guarantee furnished by the petitioners to stand discharged.