1. The appellants are aggrieved of the demand for payment of differential central excise duty amounting to Rs. 5,90,492.50. The facts of this case in brief are as follows. Prior to 16-8-78, public distribution system for sugar was in force. This system was fed by levy sugar cleared from sugar factories under the Sugar Control Order issued under the Essential Commodities Act, 1955. Exemption Notification No.317/77-C.E., dated 16-11-77 fixed concessional rate of duty for such levy sugar, "being sugar required by the Central Government to be sold under Clause (f) of Sub-section 2 of (section 3) of the Essential Commodities Act, 1955". The system briefly worked as follows.
Government of India issued release orders for a certain quantity of levy sugar to be released from each sugar factory, for being sold to the State Governments or their nominees. Thereafter, the State and the District authorities concerned issued allotments for selling the said levy quota to various allottees in the districts. One such allotment letter issued by the Director of Food and Civil Supplies, Government of Karnataka, vide No. DFS. FSU. 43/78-79, dated 25-7-1978, and placed before us by the appellants, inter alia, reads as under :- "The Government of India have allotted 1,42,377 quintals of Levy Sugar for public distribution during August, 1978. You are requested to arrange lifting of the allotted stocks from the different Sugar Factories on purely pre-payment basis.
5. The sugar factories concerned are requested to release the allotted stocks to the nominees of the Unit Officers on purely pre payment basis. The sugar factories will inform the grade and rate of sugar that will be released from their factories against this allotment to the respective Deputy Commissioners of the Districts/Joint Director of Food and Civil Supplies (Informal Rationing), Bangalore by telegram positively to reach them on or before 3-8-1978." 2. On or about 10-9-78, it became known that sugar would be de-controlled w.e.f. 16-8-78. On 14-8-78, the appellants cleared 12,607 quintals (or bags) of sugar on payment of duty at the concessional levy rate. In the gate passes covering this clearance, they indicated "Self" as the nominees for the levy sugar. This sugar was stored within their factory premises in a separate godown for which they sought the approval of the Collector to treat it as a duty paid go-down. Out of this sugar, only 100 quintals were cleared to an allottee of levy sugar prior to the de-control on 16-8-78. The remaining quantity of 12,507 quintals was later sold by them in the free sale market. The lower authorities have held that the sugar sold in the free market was not entitled to payment of duty at the concessional levy rate and hence the demand for differential duty from the appellants.
3. When the matter came up before us today, the appellants maintained that as on the date of its clearance on 14-8-78, the character of the subject sugar was that of levy sugar and that it was not their fault if, after the decontrol and abolition of the distinction between levy sugar and free sale sugar, and also because of fall in the market price, the allottees did not come forward to lift their respective quota. The Bench observed that since in this case, after payment of duty at the concessional rate on 14-8-78, the sugar remained stored within the appellants' factory premises, according to the provisions of Rule 9A (l)(ii) of the Central Excise Rules, 1944 duty would have to be re-assessed on the sugar at the rate and value in force as on the date of the actual removal of the sugar from the factory. This was brought to the appellants' notice. They stated that they accepted this legal position. They also mentioned that earlier when they had approached the Joint Secretary (Revision Applications) for stay of recovery of the demand, the said authority had asked them to deposit the amount equal to the difference between the duty already paid and the duty payable according to the provisions of Rule 9A(1) (ii). They, however, reiterated that the entire demand should be set aside as they had held the levy sugar in their duty paid godown in trust for the allottees.
4. The Department's representative stated that subject sugar cleared by the appellants on 14-8-78 could not be treated as levy sugar entitled to the concessional rate because it had not been sold to the allottees on pre-payment basis prior to its clearance, as required by the State Government's Allotment Order. He added that in this case Rule 9A(5) applied and duty was correctly payable as applicable to free market sugar on 14-8-78-being the date on which concessional duty was paid.
5. We have carefully considered the matter. The Department's representative is right in saying that the sugar cleared by the appellants on their own in anticipation of placement of orders and pre-payment by the authorised allottees could not be considered levy sugar under the Essential Commodities Act, 1955 and hence was not entitled to the concessional rate of duty. However, the fact remains that the disputed quantity of this sugar was actually removed from the appellants' factory after 16-8-78. Rule 9A (l)(ii) is specific inasmuch as it lays down that in the case of goods cleared from a factory, the rate of duty and tariff valuation, if any, shall be as on the date of the actual removal of such goods from such factory. The sugar which was stored in a duty paid godown within the factory on 14-8-78 cannot be regarded as having been actually removed from the factory on that date.
Rule 9A(5) referred to by the Department's representative is a residuary provision and when the case is covered specifically by Rule 9A (l)(ii), the residuary provision cannot apply. We, therefore, order that the demand for differential duty against the appellants should be re-assessed according to the rate of duty and valuation in force as on the date of the actual removal of the subject sugar from the appellants' factory. The appeal is disposed of accordingly.