Full Judgment
2. The facts of the case for disposal of the appeal can be briefly stated as below: The appellants are the manufacturers of S.O.Dyes and they have been granted permission under Rule 56A for Ortho Dyhydro Chloride for manufacture of S.O.Dyes. This permission which was granted on 25-8-1976 was being availed of since then. In the year 1981 they have imported the consignment of Dianisidine Base (Blue B Base) classified under the erstwhile T.I 14D for the purpose of countervailing duly. When they received the consignment under B/E dated 12-12-1981 they noticed that the imputs had suffered countervailing duty under C.E.T. 14D and hence they submitted D-3 application straightaway. Acting on the basis of D-3 application the consignment was also verified on the following day and credit was recorded after due verification by the officer. Only subsequently, they came to know that the requisite permission under Rule 56A (2) was not applied for and they submitted an application on 18-12-1981.
Hence, there was a delay of 6 days. They did not avail of the credit immediately but only after filing requisite application and after waiting for nearly two months they firstly utilized the inputs on 12-2-1982 and thereafter utilised the credit on 15-2-1982. They also sought for condonation of delay of 6 days by filing the application before the Collector. However, the said application was rejected.
Thereupon the appellants requested the Collector for a hearing and for an appeal able order. The Collector, in the impugned order rejected their request for condonation and also simultaneously ordered the appellants to pay forthwith the amount of Rs. 27,102.60 being the amount of proforma credit incorrectly availed of by them.
The present appeal before the Tribunal is against the aforesaid order rejecting their application for condonation of delay and also demanding the payment of the aforesaid amount. Shri Koruthu on behalf of the appellants contended that in this case the goods imported had suffered countervailing duly under T.I. 14D. This fact was known to them only on the date of receipt of the B/E. Before that they were under the impression that this item was classifiable under T.I. 68. in view of the fact the inputs earlier received by them viz. Orlho Dyhydro Chloride was classified under T.I. 68 in 1980. If they had known that the goods covered by the impugned order are classified under T.I. 14-D they would have applied for the requisite permission in advance. They also could have sent that application on the same date when they filed the D-3 application, which however, was not done due to oversight. His plea is that there was no mala fide or wilful omission; but for this all the substantive provisions envisaged under Rule 56A have been complied with. They have filed the D-3 application, they have presented the original duty payment documents, the goods had been verified, requisite records have been maintained and duly atlested by the officers, particulars of credit taken and availed of had also been given in the monthly RT-12 returns. Legally also the imputs in question are undisputedly entitled for proforma credit. Shri Koruthu, therefore, contended that all the substantive provisions of Rule 56A, which are only procedural rules, have been complied with.
The appellants should not be burdened with the duty payment merely for the sake of a highly technical objection arising out of delay of 6 days in filing the application. The Collector should have appreciated these facts and condoned the delay. Shri Koruthu, contended that instead of doing this, the Collector had also gone further to demand the credit back without issue of any notice on this ground. Admittedly even as per the order, the issue before him was only the question of condonation of delay. No notice has been given with regard to the recovery. Under the circumstances, demanding the amount is clearly in violation of the principles of natural justice and in this case, Rule 56A itself contemplates issue of notice where credit has been erroneously availed of. In the absence of any such notice the Collector's order directing the appellants for the payment of the credit wrongly availed of is not legally justifiable. Shri Korulhu pleaded that on this ground itself the order is to be quashed.
3. Shri Arya, on behalf of the department, contended that in this case, the Collector can condone the delay only under such circumstances. The circumstances are spelt out in the Rule itself and the appellants' case does not fit in the circumstances so specified. Hence, the Collector's order rejecting their request for condonation of delay is justified.
When the delay is not condoned the automatic consequence is to demand back the credit wrongly availed of. He also contended that in this case, credit has been taken without filing the application and there is no provision in the Rule to take such credit and avail of the same without filing the application. When the competent authority has not condoned the delay because it is not within the framework of the rules, the amount of wrong credit taken has to be demanded from the party and this has been done by the Collector.
4. I have heard the arguments on both the sides and also perused the available records. In this case, admittedly the substantive provisions of Rule 56A have been complied with; viz. filing the D-3 application, presenting the original duty payment documents, goods have been verified, requisite records have been maintained etc. However, the main requirement of filing the application in respect of this import has been delayed by 6 days. The delay on this aspect came up for condonation by the Collector under the provisions of Sub-rule 2B of Rule 56A. The relevant extracts of the said sub-rule are reproduced below: "Where a manufacturer was not in a position to make the application under Sub-rule (2) on the date of the notification issued under Sub-rule (1) of Rule 8 and has made such application subsequently the Collector may, for reasons to be recorded in writing, condone the delay in filing of such application and allow the manufacturer to take credit of the duty already paid on the material or component parts even though the procedural requirements laid down under this rule have not been complied with : Provided that such permission may be granted by the Collector only when he is satisfied that the - (ii) change in assessment of raw material or component parts or finished goods from a particular Item No. in the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944) to another Item No. in the said Schedule.
5. The Collector has considered the application from the appellants in accordance with the provisions of the aforesaid rule and held that in the facts and circumstances of the case, it does not come under the purview of Sub-rule 2B and accordingly rejected it. According to him, this is not a case of delay in the receipt of notification nor change in the assessment of input from one Tariff Item to another. To this extent, there can be no dispute with regard to the maintainability of his order. However this is admittedly, a wrong credit or incorrect credit. The Collector's order itself says that this is an amount of proforma credit incorrectly availed of by them. It is not the case of the department that this incorrect availment was not within the knowledge of the department, since all the correspondence including the RT-12 returns clearly indicate that the department was posted with the information from time to time on this issue. Hence, this has to be construed as a credit erroneously taken by the assessee or erroneously allowed by the department. In this view of the matter, Sub-rule 5 of Rule 56A would come into play for recovery of the incorrect credit so availed of. Under this sub-rule when any credit has been allowed on account of an error, omission or misconstruction, a notice has to be served on the assessee within six months from the date of such credit and after complying with the principles of natural justice, recovery could be ordered. This is what is contemplated in the scheme of Rule 56A itself. In the circumstances, the Collector's order demanding the amount on his own without issue of any notice as required under Sub-rule 5 of Rule 56A is bad in law and the demand made in his order is required to be set aside. The department being aware of the fact that the credit has been taken before filing the application, should have issued a notice within the period simultaneously, even when the application for condonation was under consideration before the Collr.
In any case, in the absence of any notice demanding the amount back, there is a clear violation of the procedure prescribed under Sub-rule 5 of Rule 56A. If the appellants are held for non-compliance with a procedural requirement under Sub-rule 2, the department cannot enforce recovery when they have not complied with the requirement of Sub-rule 5 of Rule 56A. I, therefore, agree with Shri Koruthu on this point and hold that the demand made in the Collr's order is not sustainable.
Accordingly, I allow this appeal on this ground.