1. The Revision Application filed before the Government of India against the Order-in-Appeal bearing No.896/78 dt. 21.8.78 passed by the Appellate Collector of Central Excise & Customs, Bombay, statutorily stood transferred to the Tribunal for being heard as an appeal.
The appellants are manufacturers of PVC Flexible Films and Sheetings falling under Central Excise Tariff Item No. 15-A (2) and also of PVC Leather Cloth with Cotton back and PVC Leather Cloth with Rayon back falling under Central Excise Tariff Item No.19-III and 22(3) respectively. The Assistant Collector by his order dt. 24.2.72 as well as by his order dt. 2.5.75 granted permission to the appellants to avail of proforma credit in respect of Central Excise duty paid on PVC Films and Sheets used in the manufacture of PVC Leather Cloth with Rayon back in terms of rule 56-A of the Central Excise Rules, 1944, read with notification No.75/71 dated 29.5.71. On 22.3.77 the appellants were directed by the jurisdictional Supdt. to stop availing of the proforma credit forthwith. The appellants approached the Assistant Collector against the direction of the Supdt.... The Assistant Collector by his order dt. 19.4.77 upheld the direction issued by the Supdt. by holding that the order giving permission to avail of the proforma credit was invalid because Rule 56-A was applicable only when the duty has been paid for component parts or raw materials under the same item as the finished excisable goods, but the proforma credit taken by the appellants are in respect of the goods falling under 15A whereas the finished products are falling under tariff item No.19(iii).
3. Being aggrieved by the order of the Assistant Collector the appellants herein preferred an appeal before the Appellate Collector.
The Appellate Collector upheld the order of the Assistant Collector by observing 'the Assistant Collector has clearly drawn the attention to the provision of rule 56A(2) (u)(a) of the first proviso to Sub-rule (2) of Rule 56A mentioned above. This clearly shows that the proforma credit could be available only in the case duty paid for such material or component parts under the same Tariff Item as the finished excisable goods. The mention of the notification by the appellants is not relevant to this issue and does not override the conditions laid down in the above rule'.
4. Shri Bole appearing for the appellants contended that the authorities below have not properly construed the provisions of Rule 56-A. He urged that under Notification No.75/71 dt.29.5.71, PVS Sheets and Films are exempt from Central Excise Duty when used in the manufacture of Textile Fabrics falling under Central Excise Tariff Items 19, 22, and 22-B. When such sheets and films are used elsewhere than in the factory of production proforma credit in respect of duty paid on such sheets and films is admissible as per proviso to notification No.75/71 dt.29.5.71. The premises where PVC Films and sheets are manufactured are distinct and separate from the premises where the Textile Fabrics falling under Tariff. Items 19 and 22 are manufactured. The premises are separately declared to Central Excise Dept. and separately licensed. Therefore, the appellants are entitled to proforma credit in respect of duty paid on PVC sheets and films manufactured in one premises and used in the manufacture of textile fabrics in another premises. He, there-lot e, prayed that the order of the authorities below may be set aside.
5. Shri N.K. Pattekar, departmental representative supported the orders passed by the authorities below for the reasons stated in the orders.
He however, admitted that Notification No.75/71 did grant remission of duty on PVC films and sheets. He also admitted that the said notification permitted availing of proforma credit when such sheets and films are used elsewhere than in the factory of production of the said sheets and films. He did not dispute the appellants statements that PVC sheets and films are used in the manufacture of textile fabrics in a premises other than the premises in which sheets and films are manufactured.
6. The short question for consideration is whether the authorities below were justified in holding that the permission originally granted was not valid by reason of the provisions of Rule 156-A(2)(ii).
7. There was no dispute that it was on the application made by the appellants that permission to avail of proforma credit was granted.
Granting of permission confers certain rights on the appellants. The right so conferred cannot be taken away without giving an opportunity to the appellants. The direction issued by the Supdt. and upheld by the Assistant Collector was prima facie bad because no showcause notice was issued to the appellants before withdrawing the permission granted.
Sub-rule (4) of Rule 56-A empowers the Collector to withdraw the permission granted under Sub-rule (2) if there is a breach of Rule 56-A by the manufacturer. Even though Sub-rule (4) does not provide for giving an opportunity or for hearing the manufacturer, rules of natural justice require giving of an opportunity before the permission is withdrawn. When that was so the withdrawal on the ground that the permission granted was not in accordance with law should have been preceded by a show cause notice, but then no such show cause notice was issued, no opportunity was granted to the appellants and they were not also heard in the matter. On this ground alone the orders passed by the authorities below are liable to be set aside.
8. There is considerable force in the contention of Shri Bole that the authorities below have not properly construed the provisions governing the appellants' case. In order to appreciate the above contention it is not only desirable but necessary to set out that part of the provisions of Rule 56-A which disentitles a manufacturer from availing of proforma credit.
9. Rule 56-A(2) empowers the Collector to permit a manufacturer of any excisable goods specified under Sub-rule (1) to avail credit of the duty paid on the inputs. The proviso to this Sub-rule (2) which is relevant for our purpose reads: Provided that no credit of duty shall be allowed in respect of any material or component parts used in the manufacture of finished excisable goods - (i) if such finished excisable goods produced by the manufacturer are exempted from the whole of the duty of excise leviable thereon or are chargeable to nil rate of duty, and (a) duty has been paid for such material or component parts under the same item as the finished excisable goods, or (b) remisssion or adjustment of duty paid for such material or component parts has been specifically sanctioned by the Central Government.
10. The only ground on which the appellants were asked not to avail of proforma credit was that the inputs used in the manufacture of excisable goods and finished goods fell under different items of Central Excise Tariff, and therefore, clause (a) to Sub-rule (2)(ii) of Rule 56-A comes in the way. The Assistant Collector as well as the Appellate Collector apparently lost sight of clause (b) of Sub-rule (2)(ii) of Rule 56-A. The effect of proviso to Sub-rule (2) of Rule 56-A would be (1) proforma credit cannot be allowed if the excisable goods produced by the manufacturer are exempted from whole of the duty of excise leviable thereon or are chargeable to nil rate of duty and (2) If the inputs and the finished excisable goods do not fall under the same tariff item. But then having regard to Sub-clause (b) of clause (2)(ii) of the proviso to Rule 56-A (2) credit cannot be denied even if the inputs and the finished excisable goods fall under different Tariff items, if the Central Government has specifically sanctioned remission or adjustment of duty paid for the inputs. The authorities below have totally ignored this provision of the rules. By Notification No.75/71 duty has been remitted on the inputs that the appellants used in the manufacture of excisable goods.
11. In the circumstances stated above the authorities below in our opinion had committed an error in holding that proforma credit cannot be allowed to the appellants because inputs and the finished excisable goods fall under different Tariff items. We, therefore, set aside the orders passed by the authorities below.
12. In the result this appeal is allowed and the orders passed by the authorities below are set aside.