1. This is a revision application filed by the appellant against the order of the Appellate Collector of Customs and Central Excise, Madras, dated 8-5-1980 in C. No. V/17/17/79, transferred to the Tribunal in terms of Section 35P of the Central Excises and Salt Act, 1944, for being disposed of as an appeal. The facts of the case leading to the present appeal may briefly be summarised as below.
2. The appellant are manufacturing bituminised water-proof paper using kraft paper as raw material, and availing of the benefit of set off in terms of Rule 56A of the Central Excise Rules, 1944. Credits had been taken in respect of kraft paper received up to 1-7-76, the date when the procedure for clearance of bituminised water-proof paper was changed by the appellant from the one under Rule 56A to that under Notification No. 184/76. Duty has been paid under protest on bituminised water-proof paper at the full rate between 16-3-76 and 7-12-76 (the appellant had claimed that they were liable to pay only 25% of the normal duty in terms of Notification No. 45/73 hence the protest). Though initially the Department repelled this contention, it accepted the same as the correct position around 8-12-76. Under these circumstances, the appellants filed a claim for refund of Rs. 2,19,551.92 being the excess duty paid on bituminised water-proof paper during the period 16-3-76 to 7-12-76. The Assistant Collector of Central Excise, Madras III Division, by his order C. No. V/17/18/2/77, dated 9-12-79 allowed refund of Rs. 1,53,843.15 only, [n respect of the balance amount, he has held that as the amount was paid by means of debit entries to the RG 23 account, which represented the duty paid in the raw material, viz. kraft paper, refund in cash was not permissible.
As the RG 23 account has been closed because of the change in the manner of payment of duty by the appellants with effect from 1-7-76, in effect the claim of the appellants for the balance amount has not been allowed. When the matter was raised in appeal before the Appellate Collector, the Collector noted that there has, in fact, been an excess payment of duty on bituminised water-proof paper; but this by itself would not permit refund of that of the amount which has been paid from out of the credit in the RG 23 account in cash.
3. The representative of the appellants stresses that there is no prohibition against refund of duty paid on a finished product in cash when excess payment has been established; in this case the Department accept the fact of excess payment; what is being asked for on behalf of the appellant is not a payment from out of the credit in RG 23 account per se but a refund of the duty paid on the finished product. Hence, the appeal should be allowed.
4. On the other hand, the Senior Departmental Representative refers to the object of the concession set out in Rule 56A, viz. to reduce the cascading effect of duties on certain class of products in the manufacture of which duty paid raw materials or components or parts are used and point out that Rule 56A has been so framed that no part of the duty paid on the raw material, which would be in excess of the duty payable on the finished product, would be set off. In particular, he invited our attention to the provisions of Rule 56A(3)(via) which dealt with a special situation with the commencement of Central Excise (9th Amendment) Rules, 1973. Where certain credit was lying unutilised in RG 23 account immediately prior to the commencement of those Rules, it was specifically provided that the amount could be utilised after the commencement of those Rules, in specific situations. If one reads this sub-rule along with Rule 56A (3)(vi)(b) which provides that "no part of such credit shall be utilised save as provided in Sub-clause (a) or shall be refunded in cash or by cheque it would be clear that a credit in the RG 23 account is not capable of being paid in cash but can be utilised only for payment of duty on finished products". What is not permissible directly cannot be allowed to happen indirectly merely because excess duty has been paid on the finished products both in cash and by way of debit to the RG 23 account.
5. Both the representative of the appellants and the Senior Departmental Representative referred to the third proviso to Rule 56A(2) which provides for refund of certain sums in cash which would ordinarily have gone as credits into an RG 23 account. While the representative of the appellant argued that this Rule would indicate that payment of a credit in RG 23 account, whether the question of refund arises directly or indirectly, could be made in cash, the Senior Departmental Representative argued that this proviso to the Rule makes it amply clear that a refund cannot ordinarily be made in cash; and what has been provided in the proviso is a special and specific situation where the duty on the raw material is found to have been adjusted at a lower amount or in excess and not an adjustment of excess duty in respect of the finished product.
6. We also note the observation made by the representative of the appellants that at the time when the procedure under Rule 56A was discontinued on 30-6-76 there was a credit of little over Rs. 20,000 in RG 23 account of the appellants, which just lapsed.
7. Rule 56A(3)(vi)(b) is categorical in providing that no part of a credit in the RG 23 account shall be refunded in cash or by cheque. We accept the contention of the Senior Departmental Representative that what cannot be permitted directly cannot be allowed to happen indirectly merely because in collecting duty on the finished product (bituminised water-proof paper) a larger amount has been collected. The third proviso to Rule 56A(2) is not inconsistent with the general objective of Rule 56A. It only meets a situation where a manufacturer has to pay an additional amount of duty on a raw material because of certain subsequent developments. It provides for a corrective to that situation. It does not in any way effect the basic objective of Rule 56A that the quantum of duty paid on the raw material, contained in a unit or the finished product if it larger than quantum of duty per unit on the finished product, cannot be utilised by the manufacturer of the finished product merely because he happens to use that raw material in the production of an excisable product which carries a lower quantum of duty per unit. We also note that Rule 11, as it existed at the relevant time, provides for refund of duty paid in excess but it does not say in what manner the refund should be made-whether in cash or by cheque or by means of certain credits to accounts prescribed statutorily. The amount due should be credited to the RG 23 account, if such credit is needed for adjustment of any duties payable, the liability for which may be determined on or after 1-7-76. The appeal is dismissed in so far as it seeks to get refund of the excess payment in cash.