1. These two appeals arise out of Order-in-Appeal No, A-2278/BI-46/82 dated 31-12-82 of the Collector of Central Excise (Appeals) Bombay, under which he held that M/s. Ajanta Chemical Industries (hereinafter referred to as 'the manufacturers') should be granted a rebate of Rs. 17,408.85. Against this order the manufacturers have appealed, on the ground that they should have been allowed a rebate of Rs. 1,45,917.00.
As against this, the Collector of Central Excise, Bombay I, has contended that the manufacturers were not entitled to any rebate at all.
2. Since both the appeals arise out of the same order, and are interrelated, they were heard together.
3. We may first take note of the basic facts. At the relevant time i.e.
in March-April, 1977, there was in force for small Central Excise assessees a scheme of compounded levy of duty referred to as 'the Simplified Procedure', Under this procedure the duty liability for each manufacturer was fixed on a monthly basis, taking into account the various relevant factors such as his past level of production ("annual value"). This monthly duty liability was to remain unchanged unless modified by the Central Excise authorities in accordance with the provisions of the Simplified Procedure. Upto 1-3-77 the manufacturers in this case were paying duty at a particular monthly rate based on the previous monthly level of production (Shri Kapil Dev could not tell us what this monthly duty liability was, or the "annual value" on which it was based). With effect from 1-3-77, the actual value was revised to Rs. 4,57,080 and the monthly duty liability to Rs. 10,284.43.
4. During the two months March and April 1977, the manufacturers cleared goods of the total value of Rs. 9,32,760. Out of these, goods valued at Rs. 1,43,230 were cleared for home consumption and goods valued at Rs. 7,89,030 were cleared for export and actually exported (there is a small discrepancy in these figures which has not been explained, but as it is not material it is being ignored). The duty paid during these two months at the prescribed monthly rate was Rs. 20,568.86. With reference to the goods exported by them, the manufacturers submitted a claim for 'rebate' of duty amounting to Rs. 1,45,917. This was on the basis of Notification No. 231/76, dated 23-8-76, the provisions of which will be discussed in detail later. The Assistant Collector who passed the Order-in-Original held that the duty payable on the goods cleared for home consumption during this period itself amounted to Rs. 25,781.40, which was in excess of the duty actually paid by the manufacturers in these two months. He, therefore, held that the duty involved on the goods exported was 'Nil' and therefore, they were not entitled to any rebate of duty.
5. On an appeal being made to the Collector (Appeals), he also took the view that the amount of rebate could in no circumstances exceed the amount of duty paid by an assessee, and therefore there could no payment of rebate, in excess the amount of duty actually paid, namely Rs. 20,568.86. The Collector (Appeals) went further and held that the aforesaid amount of duty should be apportioned pro rata between the goods exported and the goods cleared for home consumption. On this basis the amount of duty apportioned to the goods exported came to Rs. 17,408.85 and the Collector (Appeals) directed that, this amount should be paid as rebate.
6. On the two appeals being called together, we first heard Shri Kapil Dev, partner of the manufacturers. He based his case on the provisions of Notification No. 231/76-C.E. dated 23-6-76. For a proper understanding of the case we reproduce below the wording of this notification :- "In exercise of the powers conferred by Rule 12 read with Rule 173 RH, of the Central Excise Rules, 1944 (hereinafter referred to as the said rules), the Central Government hereby directs that the rebate of the excise duty paid in the manner provided for in 173 RD of the said rules on any of the excisable goods specified under Sub-rule (1) of Rule 173-RA thereof and exported out of India shall subject to the conditions specified in paragraph 2 of this notification be allowed at the rate of rupees a/b per rupees of the value of the goods so exported where- (i) 'a' stands for the amount of duty paid by the assessee in the manner provided for in Rule 173-RD of the said rules for the month in which such goods are removed from his factory for export; (ii) 'b' stands for one-twelfth of one hundred and fifty per cent of the annual value determined under Sub-rule (3) of Rule 173RA of the said rules; (iii) 'value' in relation to the goods so exported shall be the value on the date on which such goods are removed from the factory for export.
(a) The assessee shall before such goods are packed for removal from the factory for export outside India inform the Superintendent of Central Excise or such other Central Excise Officer as may be specified by such Superintendent; (b) The packing of such goods shall be supervised by such Superintendent or other officer and, after the assessee has distinctively marked each package containing such goods 'For Export' and with such other marks as such Superintendent may require, each such package shall be affixed with Central Excise seal; (c) After such goods have been so packed and sealed, the assessee shall prepare on application in Form A.R. 4 (Central Excise Series No. 60) and the Central Excise Officer shall verify the entries in that application and if he is satisfied that such entries are correct endorse the necessary certificate on all copies of that application ; (d) The assessee shall thereafter remove such goods under cover of his own gate pass/or delivery challan in the manner provided for in Sub-rules (3), (4) and (5) of Rule 173RD of the said rules ; (e) In all other respects, the assessee shall observe the procedure prescribed under Rule 12 and Chapter IX of the said rules." 7. Shri Kapil Dev's stand was that in terms of this notification on an exporter of goods cleared under the Simplified Procedure was entitled to a rebate of duty on the total quantum of the goods exported by him, at the rate calculated in terms of the notification. He did not deny that on the basis of this calculation the 'rebate, amounted to several times the quantum of duty actually paid by the manufacturers during the relevant period. He however argued that in the absence of any specific provision in the notification there was no upper limit to the amount of duty which could be claimed as rebate under its provisions. According to him, the entire scheme of the Simplified Procedurce was in the nature of an incentive scheme extended to small scale manufacturers. In consonance with this approach the Government had provided a similar incentive by allowing on an ad hoc basis rebate of duty on the exported goods. In doing so the Government had given a go by to allowing rebate of the exact amount of duty which would have been normally paid by the exported goods before being exported.
8. Shri Kapil Dev further argued that the provisions of Notification No. 231/76 were not fettered by the provisions of Rule 12 and that this notification should be interpreted by itself and the consequential benefit given to the manufacturers.
9. Shri Kapil Dev also referred to the provisions of Rule 173 RD of the Central Excise Rules (in Chapter VII-B relating to the Simplified Procedure). Sub-rule (1) of this rule provides that the payment of monthly amount of duty by an assessee as determined in accordance with the relevant provisions of the Simplified Procedure "shall be a full discharge of his liability for the duty leviable on the excisable goods manufactured by him during the month for which the amount has been paid". He argued that this was tantamount to saying that such a manufacturer should be deemed to have paid the full amount of duty normally payable on the excisable goods manufactured and cleared by him during the month. Therefore, the manufacturers in this case should be deemed to have paid the full amount of duty on the goods cleared by them during the two months in question whether for home consumption or for exports.
10. Shri Kapil Dev further argued that the apportionment made by the Collector (Appeals) of the duty paid between the goods exported and the goods cleared for home consumption was also not correct. He submitted that the Collector (Appeals) should have "gone the whole hog" and admitted the refund claim in full.
11. In the end Shri Kapil Dev prayed that his appeal for allowing the entire of the amount claimed by the manufacturers should be allowed and the appeal of the Collector should be rejected.
12. Replying on behalf of the department, Shri Pattekar also referred to the basic facts, which have already been set out earlier. He also drew our attention to various specific rules in Chapter Vll-B relating to the Simplified Procedure. In particular he referred to Rules 173-RH and 173RI. They are reproduced below :- "173RH.-Duty paid under Rule 173RD to be allowed as rebate etc.
under certain conditions. -No duty paid under Rule 173RD shall- except in accordance with such terms, conditions and limitations as the Central Board of Excise and Customs may, by notification in the Official Gazette, specify in this behalf.
During the period in respect of which the assessee is permitted to discharge his duty liability in the manner provided for in Rule 173-RD, he shall, subject to compliance with the provisions of this Chapter be exempt from the operation of the provisions of Rules 9, 47, 48, 49, 50, 51, 51A, 52, 52A, 53, 54, 55, 223, 223A, 224, 224A and 229." 13. With reference to these rules, Shri Pattekar pointed out that Rule 173RH clearly referred to a rebate being allowed, under Rule 12.
Accordingly, the rebate would have to be strictly in accordance with the provisions of Rule 12. This was further reinforced by the provisions of Rule 173RI which exempted an assessee under the Simplified Procedure from various rules, but significantly not from the provisions of Rule 12. Again, the Notification No. 231/76 dated 23-8-76, relied upon by the manufacturers very clearly showed that it was issued in exercise of the powers conferred by. Rule 12 and read with Rule 173RH. Therefore, it could not be construed or acted upon independently of those rules. Shri Pattekar drew our attention to the Ministry of Finance (Department of Revenue) Notification No. 197/62-CE dated 17-11-62 issued under Rule 12 and specifying the goods on which rebate under Rule 12 could be allowed. The third proviso to this notification requires that the amount of duty paid on the goods to be exported and the date of payment thereof, should be established from the Central Excise records, to the satisfaction of the Collector. Shri Pattekar therefore, argued that it was an integral part of the scheme for rebate of Central Excise duty on exported goods that the payment of rebate should be against the amount of duty actually paid on the exported goods. Shri Pattekar further argued that under the very concept of rebate it could only be in respect of duty which had actually been paid. In the present case, as pointed out in the Assistant Collector's Order-in-Original, the entire amount of duty paid by the manufacturers during March-April, 1977 had been allocated to the goods cleared for home consumption, and no amount of duty was therefore available for payment as rebate against the goods exported. In view of this, the Assistant Collector was right in rejecting in to the claim for rebate and the Collector (Appeals) was not justified in allowing a certain amount as rebate on the basis of pro rata apportionment of the duty paid against the goods exported and the goods cleared for home consumption. Shri Pattekar, therefore, submitted that the appeal of the manufacturers should be rejected and that the order of the Collector (Appeals) should be set aside and the order of the Assistant Collector restored.
14. We have given our careful consideration to the issue involved in this case. On the face of it, it is difficult to see how a rebate of Rs. 1.46 lakhs could be paid in respect of goods on which duty paid was about Rs. 20,000. As explained earlier, the appellants have based themselves on a literal interpretation of Notification No. 231/76, and have contended that it should be interpreted without reference to the provisions of the Central Excise Rules. According to Shri Kapil Dev the provisions of this notification were not fettered by the provisions of Rule 12. We find that this argument is not correct. The notification starts with the words "in exercise of the powers conferred by Rule 12 read with Rule 173RH". It is therefore futile to argue that this notification should be read independenlly of the provisions of Rule 12 or Rule 173RH.15. Rule 12 provides that "the Central Government may, from time to time, by notification in the Official Gazette, grant rebate of duty paid on excisable goods, if exported outside India, to such extent, and subject to such safeguards, conditions and limitations as regards the class of goods, destination, mode of transport, and other allied matters as may be specified therein : ...". It will be seen that this rule clearly provides for grant of rebate of duty paid (emphasis ours).
Again, the Government of India, Ministry of Finance, Notification No.197/62-CE, dated 17-11-62 issued in terms of the above rule, lays down various conditions and limitations subject to which the rebate may be made. Proviso (iii) lays down the condition that "the amount of duty paid on the goods to be exported, and the date of payment thereof, are established, from Central Excise records, to the satisfaction of the Collector;" It is abundantly clear both from the rule and the notification thereunder that the rebate is related to the duty paid on the goods in question. If this were not so, there would be no need for establishing the amount of duty paid on the goods to be exported.
16. Rule 173RH, which is also invoked in Notification No. 231/76 has been rsproduced in para 12 above. This notification also refers to "duty paid under Rule 173RD" (emphasis ours). Far from constituting an authority for payment of rebate, this rule provides for laying down conditions which would govern the grant of a rebate, the authority for which continues to be under Rule 12, 17. It is clear from the wording of Notification No. 231/76 as well as Rules 12 and 173RH that the basic authority for grant of the rebate is in Rule 12 which rule, as already stated, makes it clear that the rebate has to be of the duty paid.
18. Shri Kapil Dev sought to argue that the effect of Rule 173RD was that a manufacturer should be deemed to have paid the full amount of duty normally payable, and that he should therefore be entttled to a "rebate" corresponding to this deemed amount of duty. This argument is misconceived. The relevant provision, which has been referred to in para 9 above, states that the payment of the amount of duty determined "shall be a full discharge of his (the assessee's) liability for the duty leviable". This is not the same as saying that the assessee shall be deemed to have actually paid the full amount of duty. Still less, does it mean that he can claim a refund or rebate based on the full amount of duty. A simple example, which we put to Shri Kapil Dev at the hearing, would make the position clear. A person may be given a complimentary ticket, without paying for it, to attend a cinema show or some other entertainment. It may happen that the show has to be cancelled, because of a power failure or some other reasons. In such a case the management of the show may announce that a refund of the admission fee will be given against each ticket. Obviously, however, this would not entitle the holder of a complimentary ticket to obtain a "refund" of the admission fee for the class to which he has been admitted. No doubt he has discharged his liability for the admission fee by presenting his complimentary ticket, but this is not the same as having actually paid the admission fee and being entitled to a refund: So also the fact that subject to certain conditions an assessee under the Simplified Procedure is deemed to have discharged his duty liability does not mean that he has actually paid the full amount of duty or can claim a refund against such deemed payment.
19. It was pointed but to Shri Kapil Dev during the hearing that according to the normal understanding of the word, a "rebate" is a reduction or a repayment against a particular amount, and could in no case exceed that amount. Shri Kapil Dev's response was that we should give a liberal interpretation to Notification No. 231/76 and that Government had probably intended to encourage exporters of goods cleared under the Simplified Procedure by allowing them a "rebate" without any upper limit. We do not find anything in the rules relating to the Simplified Procedure to show that they contemplated any special encouragement for exports. On the contrary, Rule 173RH, which refers to exports introduces a restriction and not an additional facility. The basic objective of the Simplified Procedure is obviously to facilitate the clearance of goods by small exporters and also, within limits, to permit increased production without an increased duty payment. So far as Notification No. 231/76 is concerned, it takes into account the fact that duty under the Simplified Procedure is not related to the actual quantity of goods cleared during a particular month, but is based on the "annual value". The notification in effect assumes that the assessee may manufacture during a particular month one and half times his monthly average worked out by taking one-twelfth of the annual value. The average duty burden per unit of the goods is worked out by dividing the monthly duty liability by this quantity of one and a half times the average monthly value. Having thus arrived at the approximate "duty content" per unit of the goods, this is to be applied to the goods exported. In the normal course, the volume of production in a particular month would rarely exceed one and a half times the average monthly value. Again, particularly in the case of small manufacturers, and considering the difficulties of competing in the export market, the value of goods exported would normally not constitute a very high proportion of the goods cleared. Therefore, in the normal course the rebate amount calculated in terms of the notification in respect of goods cleared and exported during a particular month would be much less than the amount of duty paid by the assessee during the same month. The anomalous situation in the present case has arisen because (a) the value of clearances has been much higher than one-twelfth of the average monthly value; and (b) the proportion of goods exported has been much higher than what any small assessee could normally accomplish (over five-sixths of the value of clearances). The notification does not in terms provide for this particular situation, by laying down that the rebate to be granted shall not exceed the amount of duty paid. This does not however mean that such a consideration can be totally ignored, because, as we have seen, this condition is integral to Rule 12 and Rule 173RH, under which the notification has been issued.
20. With reference to our observation that a rebate cannot exceed the amount of duty paid, we have looked into both general and legal dictionaries for definitions of the term "rebate". (We had to do this as neither side placed any definitions before us, despite the pertinent observations in the order of the Collector (Appeals). The relevant definitions which we have found are reproduced below :- "Rebate. A reduction from a sum of money to be paid, a discount; also, a repayment." "Rebate. Deduction from sum to be paid, discount, drawback." Drawback. Amount of excise or import duty paid back or remitted on goods exported." "Rebate (Canada: Special War Revenue Act, R.S.C., 1927 (C. 179), Section 13(f). Rebate means a repayment [R,V. Central Manufacturers' Mutual Insurance Co. (1949) 2 D.L.R. 225]." "Rebate. Discount; a deduction from a payment in consideration of its being made before due." "Rebate is discount or deduction allowed in payment of the original dues or interest in consideration for prompt payment.
Rebate is a remission or a payment back and of the nature of a deduction from the gross amount. It is sometimes spoken of as a discount or a drawback. The dictionary meaning of the term includes a refund to the purchaser of a portion of the price paid by him..." All these authorities make it clear that a rebate invariably has reference to a basic or gross amount. In one sense a rebate is a reduction from this amount. In another sense it is a repayment against this amount. But the rebate is invariably a part of the gross amount.
In certain circumstances the part may be equal to the whole but it can never exceed the whole. Similarly, a rebate can under certain circumstances be equal to the gross amount paid or payable but can never exceed it.
21. We may observe that the Central Excises and Salt Act, 1944, is an Act to consolidate and amend the law relating to Central duties of excise. Section 37(2) (xvi) of the Act empowers Government to make rules to "provide for. the grant of a rebate of the duty paid on goods which are exported out of India". It does not appear to be within the scope of this rule to empower Government to provide for the payment of an amount which has not been paid as excise duty and would in effect be an out right subsidy on exports. An interpretation of Rule 12 (which has been issued in pursuance of the above rule-making power) or of Notification No. 231/76 (which has been issued under Rule 12), which goes contrary to the above basic position must be rejected particularly when an alternative and credible interpretation is possible.
22. Therefore, having regard to the terms of Notification No. 231/76, the relevant rules, their scope and there references to "duty paid", as well as the meaning of the term "rebate", we are of the view that the rebate of duty payable under Notification No. 231/76 cannot, notwithstanding the absence of a specific limitation in that notification, exceed the total amount of duty paid.
23. As observed earlier, the Collector (Appeals) had gone further than the above principle, and had made a pro-rata apportionment of the duty paid in the two months under consideration, as between the goods exported and the goods cleared for home consumption. One of the points made by Shri Kapil Dev was that this apportionment was not justified.
We find that there is substance in this contention. We have given at length our reasons for holding that in terms of Notification No. 231/76 the rebate payable cannot exceed the total duly paid. This arises from the inherent nature of a rebate and the terms of the notification and the relevant rules. However, these considerations would not stand in the way of an exporter being entitled to a rebate of the entire amount of the duty paid by him, if the value of his exports was sufficiently high. We do not find any justification in the notification for making an apportionment in the manner done by the Collector. We therefore hold that the Collector was wrong in making such an apportionment, and that he should have allowed the appeal before him to the extent of allowing the rebate upto the total quantum of duty paid during the two months in question.
24. In the view that we have taken the appeal of the Department fails and is hereby rejected The appeal of the manufacturers succeeds to the extent that rebate should be permitted to the extent of the duty paid by them during the two months in question, namely, Rs. 20,568.86, and is otherwise rejected.