1. This is an appeal filed by the Assistant Collector of Central Excise, Patiala under direction issued in terms of Section 35B(2) of the Central Excises and Salt Act by the Collector of Central Excise, Chandigarh. It is directed against the order in appeal passed on 15 12 1983 by the Collector (Appeals), New Delhi allowing the appeal filed by M/s. Hindustan Wire Products (P) Ltd., against the order dated 20 4 1981 passed by the Assistant Collector of Central Excise, Patiala.
2. The facts of the case, in brief, are that M/s. Hindustan Wire Products (the respondents) are licensed for the manufacture of insulating varnish falling under Item 14 of the Central Excise Tariff which is used captively by them in the same factory for the manufacture of insulated electric wires. Notification No. 217/79 C.E., dated 30 6 1979 exempts varnishes falling under Item 14 II(i) Central Excise Tariff, manufactured from ingredients on which the appropriate duty of excise, or the additional duty of customs, as the case may be, has already been paid and used for insulating electric wires and cables, from excise duty in excess of 10% ad valorem. The benefit of the notification was claimed by the respondent in classification list No.36/79 effective from 30 6 1979. The claim was allowed by the Central Excise. On 24 12 1980, the respondent by a letter requested for grant of setoff of excise duty paid on the inputs such as phenol, cresol, etc. falling under Item 68 CET which they use in the manufacture of insulating varnish. This claim was in terms of Notification No. 201/79 dated 4 6 1979. The contention was that the respondent had fulfilled the conditions laid down in both the notifications which were independent of each other and that the respondent was entitled to avail themselves of the benefit of both. The Assistant Collector after holding adjudication proceedings held that once the setoff ot the duty paid on the Item 68 inputs is availed of under Notification No. 201/79, the inputs cease to be duty paid. The insulating varnish manufactured out of such inputs cannot be said to have been manufactured out of duty paid material and so as the benefit of notification 217/79 would not be available. Consequently, duty on the varnish would have to be paid at the tariff rate of 15% and not the reduced ratei of 10% ad valorem He, however, permitted the respondent the option of paying duty on insulating varnish at 10% ad valorem, but without the benefit of the setoff. He held that the benefit of both the notifications would not be simultaneously available. Aggrieved with this order, Hindustan Wire Products pursued the matter in appeal. The Collector (Appeals) held that Hindustan Wire Products was entitled to the benefit of both the notifications. He held that Notification 201/79 was an exemption notification and that merely because a procedure was prescribed for its availment by way of proforma credit, the duty paid inputs would not become nonduty paid. In this view, he set aside the Assistant Collector's order. It is against this decision that the Collector of Central Excise, Chandigarh has come up in appeal before us.
(a) The procedure set out in Notification 201/79 is on the lines of the Rule 56A procedure for proforma credit and not a setoff procedure as stated by the Collector (Appeals). The assessee had brought in duty paid inputs under Item 68 C.E.T. and had taken proforma credit of the duty. The duty paid character of the inputs was thus lost and the inputs became non duty paid. This view is supported by para 6 of the procedure set out in the appendix to the notification which provides that any inputs in respect of which credit has been taken may be removed on payment of duty for home consumption or for repairs. If the inputs continue to be duty paid even after the credit of the inputs duty was taken, there was no need for this provision.
(b) Since the inputs became non duty paid as explained above they could not be deemed to be ingredients on which the appropriate duty had already been paid for the purpose of Notification 217/79. The benefit of the said notification was not admissible.
It is prayed that the order in appeal may be quashed and the order in original restored and the respondent be ordered to debit the amount of the setoff which they have started availing under Notification 201/79 consequent on the Collector (Appeal)'s order.
4. The submissions of Shri Khanna, J.D.R. were essentially a reiteration of the grounds urged in the appeal memorandum. He submitted that though Notification 217/79 did not, unlike many other notifications, prohibit she avaiiment of the duty relief to manufacturers, who followed the Rule 56A. procedure, the position would be that once the credit of duty paid on the inputs was taken, they would cease to be duty paid inputs and Notification 217/79 would not apply.
5. Opposing the appeal, Shri A.K.S. Bedi, Counsel for the respondent, vehemently submitted that the duty paid inputs would continue to retain their duty paid character even after credit of the inputs duty was taken. Notification 201/79 exempted all excisable goods in the manufacture of which duty paid inputs were used, the extent of the exemption being the duty paid on the inputs. When the inputs left the factory of their manufacture, they were duty paid. The duty paid character survived. Notification 217/79 was independent of Notification 201/79 and contained no clause debarring its benefit to assessees who avail themselves of the procedure set out in Notification 201/79. The conditions in both notifications were fulfilled by the respondent and they were eligible for the benefit of both. The provision in para 6 of the procedure in Notification 201/79 was only because the duty paid on the inputs was availed of as credit and the provision had the effect of wiping of ths credit. The credit was available only if manufacture of other excisable goods took place. II" the inputs were cleared as such, the credit had to be paid back.
6. In response to a query from the bench, both sides stated that they were not aware of any judicial pronouncement or decision of the Tribunal on the issues involved in the present matter.
7. We have carefully considered the submissions before us. At the outset, we may say that though the Assistant Collector has spoken of 'set off of the duty paid on inputs the Collector (Appeals) has spoken of the 'Proforma Credit Procedure'. The point taken up by the Appellant in this behalf is without substance. Notification 201/79 is one under Central Excise Rule 8(1). It exempts all excisable goods on Which duty of excise is leviable and in the manufacture of which inputs falling under Item 68 C.E.T. have been used. The extent of exemption is equivalent to the excise duty already paid on the inputs. It is apparent, therefore, that this is not the same thing as the scheme for duty relief under Central Excise Rule 56A which is popularly known as the proforma credit procedure. The latter is not an exemption scheme socalled and known. It envisages payment of duty at the full effective rate of duty applicable to the goods in question and permits availment of duty paid on the inputs towards discharging this duty liability. The procedure is somewhat on the lines of a ledger with credit entries for the inputs duty paid and debit entries for the duty payable on the finished product. Though the procedure in the appendix to Notification 201/79 is, in substance, the same as the Rule 56A procedure, the notification itself is truly and properly an exemption notification. We are inclined to agree with the counsel for the respondent that the duty paid character of the inputs is not lost once the credit of the duty paid thereon is taken. The provision in para 6 of the appendix is evidently because when the inputs (in respect of which credit has been taken) are sought to be removed for home consumption or for repairs or for export not under bond, it cannot be said they are being used in the manufacture of finished excisable goods. The exemption in Notification 201/79 does not come into play in such cases. Hence the requirement of payment of duty on the inputs sought to be so removed. In this view of the matter, varnish manufactured by the respondents in which Item 68 duty paid inputs have been used are exempt from the excise duty leviable thereon, the extent of exemption being equivalent to the amount of the inputs duty. Now turning to notification No. 217/79, it exempts varnish manufactured from duty paid ingredients and used for insulating electric wires and cables from excise duty in excess of 10% ad valorem. In the view we have taken, the ingredients continue to be duty paid. There is no dispute that the varnish has not been put to the stipulated use. There is no reason why the benefit of the notification should not be admissible to the respondent. In this context, we have to note that there are instances where exemption notifications debar manufacturers from their benefit if they avail themselves of the Rule 56A procedure. An example is Notification 184/76 dated 27 5 1976 which contains an express provision that the benefit of duty exemption on bitumenised water proof paper contained therein shall not apply to a manufacturer who avails of the Rule 56A procedure in respect of the duty paid on the base paper or paper board. Another example is Notification 71/77 dated 28 4 1977. Yet another example is Notification No. 76/72 dated 17 3 1972. In the absence of a similar debarring provision to the effect that the benefit of Notification 217/79 shall not be available to a manufacturer availing himself of the inputs duty relief provided in Notification No. 201/79. We do not see how the benefit of this notification. can be denied in the present case.
9. The department says that the raw material inputs like phenol, cresol, diacetone, butyl titanate etc. become non duty paid because credit of the duty paid on them is taken by the factory. This overlooks the provisions of Notification No. 201/79 C.E.10. This notification exempts the finished (said) goods "from so much of the duty of excise leviable thereon as is equivalent to the duty of excise already paid on the inputs". If the inputs become non duty paid as soon as credit of their duty is taken, the finished (said) goods cannot be given the exemption under Notification No. 201/79 C.E. It must be noted that Notification No.201/79 C.E. also requires the raw materials to be products on which duty is . paid. If this character of being duty paid is obliterated when credit is taken,the concessional, clearance under the very same Notification No. 201/79 C.E.becomes impermissible because the raw materials were no longer duty paid.
11. The language in Notification 201/79 C.E. and in Notification 217/79 C.E. are different. The first exempts only what is in excess of the duty already paid on the inputs. This envisages a state where the input retains its duty paid status when the finished (said) goods are cleared. The level or amount of duty paid on the input is the cutoff line beyond which the said goods is charged. But if there is no cutoff line because the input had lost its duty paid status, full duty has to be charged on the finished (said) goods. It may look like a paradox, but that is where the department's reasoning takes us.
12. Paragraph 6 of Notification 201/79 C.E. is meant to take care only of clearances outside the factory of the input which is not used in manufacture of said goods. But, in my opinion, this paragraph is necessary, because in case of clearance of input, the said goods will lose that cutoff line which could have been provided by that input.
13. Notification 201/79 C.E., unlike Rule 56A proforma credit procedure, requires an inputtofinished product correspondence as the language (of Notification 201/79 C.E.) explicitly stipulates. Only what is equivalent to the duty of excise already paid on the inputs is exempted. This assumes that the (input) duty is available and known for the calculation. When that duty is not available (as when credit has been taken), the exemption cannot be founded on the input duty. In short, there must first be an input duty seen to be levied and available for computation of what is to be exempted. Therefore, if there is no input duty, there can be no exemption under Notification 201/79 C.E. This is the natural product of the department's logic. This demonstrates that the department's reasoning is not correct. (The department has no objection to the concession under Notification 201/79 C.E., in spite of its claim that the input becomes nonduty paid). That being the case, it is not correct to say that the concession under Notification 217/79 G.E. is not available. I, therefore, agree with and endorse learned brother Sankaran's Judgment.