Full Judgment
2. The facts which are required to be considered for disposal of the appeal can be stated as below. The Respondents are manufacturers of transformers. One of the inputs, which they brought under Rule 56A of the Central Excise Rules, was Glass Bonded Copper Strips, which were classified under T.I. 68, in respect of which Proforma Credit is available. However, the suppliers of the inputs were paying duty under protest, because they were disputing the classification and the matter went upto the High Court. The High Court of Bombay in its judgment of October, 1981 held that the aforesaid inputs are classifiable under T.I. 26A, on account of which the supplier of inputs M/s Shakti Insulated Wires Pvt. Ltd. were granted refund of Rs. 92,45,403/-.
Hence, thereafter a Show Cause Notice has been issued by the Supdt. of Central Excise to the Respondents pointing out the aforesaid fact and seeking to recover an amount of Rs. 4,98,783.38 (Rs. 4,98,783.38) in terms of third proviso to Sub-rule (2) of Rule 56A, consequent upon the grant of refund of duty paid on the inputs, in respect of which the original credit was taken by the Respondents. The adjudication proceedings were conducted by the Asstt. Collector and the aforesaid amount was ordered to be adjusted in terms of the aforesaid Rule.
However, on appeal before the Collector (Appeals) by the Respondents the Collector (Appeals) has held that there is considerable force in the Respondents' arguments that the demand issued is time barred, as the Show Cause Notice does not allege any suppression of fact, fraud or wilful misstatement and hence the notice issued on 24-2-1983 for the period from August, 1977 to March, 1982 is beyond the period of six months, as provided under Section 11A of the Act and hence it is time barred. The inputs has been brought under D-3 intimation and the RT-12 Returns were finalised and hence the extended period is not applicable and wrong utilization of the credit was not pointed out in the RT-12 Returns. In this view, the Collector (Appeals) allowed the appeal of the Respondents. The Department have come up in appeal against the aforesaid order.
3. Shri Harnek Singh, the Ld JDR, mainly points out the allegation in the Show Cause Notice and also pleads that the Show Cause Notice seeks for adjustment of the Credit initially given, consequent upon the grant of refund of the duty paid on the inputs and this action is sought to be done in terms of proviso 3 to Sub-rule (2) of Rule 56A. He also refers to the said proviso to point out that this action is permitted under the Rule itself and this cannot be construed to be a case of short levy or non levy or erroneous refund, which could fall within the purview of Section 11 A. Hence the Collector (Appeals) has wrongly gone by the provisions of Section 11A and has held that the demand is time-barred.
4. Shri S.B. Metha, the Ld Advocate for the Respondents has referred to the Show Cause Notice dated 24-2-1983 and has pointed out that the credit is sought to be reversed for the period from August, 1977 to March, 1982, which is beyond the period of six months. Apart from that, though it is stated in the Show Cause Notice that an amount of Rs. 92,45,403/- has been granted as refund to M/s. Shakti Insulated Wires Pvt. Ltd., the date of grant of refund is not mentioned, indicating the date giving rise to the cause of action. The order of the High Court is dated October, 1981 and the Show Cause Notice has been issued only on 24-2-1983 beyond a reasonable period. He also seeks to rely on the decision of this Bench reported in 1992 (58) E.L.T. 218, in the case of Metal Toys (India) Ltd. wherein this Bench has held that in the case of Rule 57-1 of the Rules, provisions of Section 11A have to be read into and hence the demand under Rule 57-1 issued beyond the period of six months has been held to be time barred. He also points out that availment of credit would result in short levy on the final products as observed by this Tribunal and hence Section 11A is attracted in this case. The order of the Collector (Appeals) is, therefore, justified. He also submits that they have already priced the final product taking into account the proforma credit element, which they have availed of and they have no means to recover this amount from the purchasers of the transformers and they have to bear this, while the supplier of the inputs has got the benefit of refund. Hence he pleads that the law can be interpreted to provide for payment by them in such a case, when they cannot recover the duty from the customers. He also pleads that the judgment of the Bombay High Court has been challenged by the Department and is pending before the Supreme Court and in case the Supreme Court decides to reverse the order of the High Court, then again, the amount will become due to them as credit. This aspect also has to be kept in view.
5. After hearing both the sides, we find that the facts are not disputed. The main point is whether the Show Cause Notice issued would attract the provisions of Section 11A and would have to be within the period of six months. The admitted position is that the inputs, when they were received by the Respondents, were classifiable under T.I. 68, for which Proforma Credit was eligible and accordingly they have taken the proforma credit and were utilising the same. Though it was pleaded that the duty was paid under protest and hence the department could not have allowed the credit, we are not impressed with this argument mainly because of the fact that duty paying documents clearly indicate that the duty has been paid under T.I. 68 for which proforma credit is available and the authorities cannot refuse to allow credit. When the dispute about the classification of the input was decided in favour of classification under T.I. 26A by the Bombay High Court and the refund has been granted, following the direction of the Bombay High Court, the cause of action for adjustment of the initial duty credit taken can arise only thereafter as per proviso 3 to Sub-rule (2) of Rule 56A.Such a cause of action can never be contemplated to arise within a period of six months either from the date of credit or from the date of payment of duty on the final product, especially when there is a pending dispute about the classification or valuation. That is why the law under Rule 56A itself provides for the adjustment of duty credit in such cases. It is an equitable provision in the sense that even when more duty is required to be paid by the supplier of inputs on the basis of the payment of additional duty, the assessee who have received the input can take the additional credit under the aforesaid proviso. In the case of such an assessee, who seeks for taking such additional credit, time limit of six months prescribed under Section 11B cannot be applied. Hence we are of the view that proviso (3) to Sub-rule (2) of Rule 56A is a self-contained mechanism, as in the case of Rule 57E applicable to MODVAT, which can come into operation, only when there is a variation in the duty payment in respect of the inputs, for which credit was initially taken and the adjustment is called for. Hence the demand for reversal of credit or giving more credit would arise, only when the initial payment of duty was subsequently affected either by way of demand or refund. No time limit has been provided either for taking of additional credit or for recovery of credit, consequent on grant of refund. In the circumstances, when the High Court have decided the case in October, 1981 and thereafter the department have granted a refund and then made enquiries with regard to the users of the inputs, there is bound to be a time lag. Show Cause Notice has been issued within a period of about 15 months, which cannot be construed to be abnormal.
6. As regards their plea that they have no means of recovery of this amount from the consumers, we are to point out that when the supplier took the refund, they should have, in all fairness, refunded the amount to the Respondents, so as to compensate for the loss of credit on account of adjustment. Even now the course of action to approach the suppliers is open to them. In any case, when the provisions of Rule 56A are quite clear and unambiguous with regard to the need for adjustment of the original credit depending on additional payment of duty or grant of refund, they cannot be construed to be a case of erroneous short levy or non-levy or erroneous credit so as to bring such adjustment within the purview of Section 11A. In the case law referred to by the Ld Advocate we considered the situation in the context of Rule 57-I, whereas in this case, third proviso to Rule 56A(2) is analogous to Rule 57E.7. However, we take note of the factual position that the Bombay High Court's judgment is challenged before the Supreme Court and if the Supreme Court restores the classification under T.I. 68, in respect of the input in question, the department is bound to restore the credit, which is now sought to be reversed. The same proviso to Rule 56A would be available to them for seeking restoration of Credit.
8. With the above observation, we allow the appeal of the Revenue, set aside the order of the Collector (Appeals) and restore the order of the Assistant Collector.