Jeevan Reddy, J.
1. This writ appeal is preferred against the judgment of Gangadhara Rao, J., dismissing the Writ Petition.
2. The petitioner-appellant manufactures, inter alia, electric fans. Two of the components, namely, stators and rotors, are not manufactured by the appellant but are purchased from others who manufacture them. The electric fans are subject to the levy of Central Excise duty, having been mentioned in Entry 33 of Schedule I to the Central Excises and Salt Act, 1944 (hereinafter referred to as 'the Act'). Stators and rotors also were mentioned under the same Entry 33 until 1-3-1969. The Finance Act, 1969, however took them out of Entry 33 and placed them under Entry 30. It may be noticed that in November, 1971, the position was restored and the stators and rotors again came to be mentioned under Entry 33. The present dispute has arisen because of the said change in law.
3. The Rules framed under Section 37 of the Act provide for, inter alia, levy, refund and exemption from excise duty. We will first refer to Rule 56A in this behalf. The said Rule provides for a special procedure for movement of duty-paid materials or component parts for use in the manufacture of finished excisable goods. Sub-rule (1) says that, notwithstanding anything contained in these Rules, the Central Government may, by notification in the Official Gazette, specify the excisable goods in respect of which the procedure laid down in Sub-rule (2) shall apply. It is necessary to set out Sub-rule (2) in full:
'(2) The Collector may, on application made in this behalf and subject to the conditions mentioned in Sub-rule (3) and such other conditions as may from time to time be prescribed by the Central Government, permit a manufacturer of any excisable goods specified under Sub-rule (1) to receive material or component parts or finished product (like asbestos Cement), on which the duty of excise or the additional duty under Section 2A of the Indian Tariff Act, 1934 (32 of 1934) (hereinafter referred to as 'the countervailing duty') has been paid, in his factory for the manufacture of these goods or for the more convenient distribution of finished product and allow a credit of the duty already paid on such material or component parts or finished product, as the case may be :.
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
(ii) unless --
(a) duty has been paid for such material or component parts under the same item or sub-item as the finished excisable goods, or
(b) remission or adjustment of duty paid for such material or component parts has been specifically sanctioned by the Central Government:
Provided further that if the duty paid on such material or component parts (of which credit has been allowed under this sub-rule) be varied subsequently due to any reason, resulting in payment of refund to, or recovery of more duty from the manufacturer or importer, as the case may be, of such material or component parts, the credit allowed shall be varied accordingly by adjustment in the credit account maintained under Sub-rule (3) or in the account-current maintained under Sub-rule (3) of Rule 9 or Rule 173G(1) or, if such adjustment be not possible for any reason, by cash recovery from or, as the case may be, refund to the manufacturer availing of the procedure contained in this rule....'
Sub-rule (3) provides the procedure to be followed for availing of the facility provided in Sub-rule (2), one of which is to maintain an account in Form R.G. 23, Parts I and II. Clause (v) of Sub-rule (3) provides : 'if any material or component parts, in respect of which credit has been allowed under Sub-rule (2), are not duly accounted for as having been disposed of in the manner authorised in this rule, the manufacturer shall, upon a written demand being made by the proper officer, pay the duty leviable on such goods within ten days of the notice of demand.'
4. Rules 10 and 10A are also relevant and may be set out as they stood at the relevant time : --
'10. When duties or charges have been short-levied through inadvertence, error, collusion or misconstruction on the part of an officer, or through misstatement as to the quantity, description or value of such goods on the part of the owner, or when any such duty or charge, after having been levied, has been owing to any such cause, erroneously refunded, the person chargeable with the duty or charge, so short-levied, or to whom such refund has been erroneously made, shall pay the deficiency or pay the amount paid to him in excess, as the case may be, on written demand by the proper officer being made within three months from the date on which the duty or charge was paid or adjusted in the owner's account-current, if any, or from the date of making the refund.'
'10A. Where these Rules do not make any specific provision' for the collection of any duty, or of any deficiency in duty if the duty has for any reason been short-levied, or of any other sum of any kind payable to he Central Government under the Act or these Rules, such duty, deficiency in duty or sum shall, on a written demand made by the proper officer, be paid to such person and at such time and place, as the proper officer may specify.'
5. Until 1-3-1969 the petitioner-appellant was availing of the facility mentioned in Rule 56A. The duty paid by him on the purchase of stators and rotors was being deducted from out of the duty payable on the electric fans manufactured by it. Because of the Finance Act, 1969 placing the stators and rotors under Entry 30, the petitioner became ineligible for the said facility under Rule 56A (and the said deduction) because of sub-clause (a) in Clause (ii), in Sub-rule (2) thereof. But, it appears that the appellant continued to avail of the said facility and the deductions even after 1-3-1969 and until June 1970 when the said error was discovered and, thereafter, the said facility was discontinued. The Assistant Collector of Central Excise then issued a notice dated 26-10-1971, calling upon the petitioner to show cause as to why the total duty amounting to Rs. 42,345.06 Ps. should not be demanded from it, and also why it should not be made liable for penalty in that behalf.
6. In the light of the contentions raised on behalf of the appellant, it is necessary to notice the basis of the said show cause notice. The said notice first refers to the facility under Rule 56A being availed of by the petitioner-appellant, to the change in law with effect from 1-3-1969 resulting in disentitling it from availing of the said facility under Rule 56A(2)(ii)(a), and then says that according to Sub-rule (3)(v) of Rule 56A, 'if any material or component parts in respect of which credit has been allowed under Sub-rule (2) are not duly accounted for as having been disposed of in the manner authorised in Rule 56A of the Central Excise Rules, 1944, the manufacturer shall, upon a written, demand being made by the proper officer, pay the duty leviable on such goods within ten days of the notice of demand...'. The notice finally states that, from the facts stated therein it is clear that the petitioner has disposed of the stators and rotors in respect of which credit has been allowed, in a manner not authorised by Rule 56A, during the period 1-3-1969 to June 1970. On the above facts, the total duty as well as penalty was sought to be levied under Rule 56A.
7. After receiving the said show cause notice, the petitioner-appellant submitted its explanation, which was rejected and the petitioner was directed to pay excise duty in a sum of Rs. 42,345.06 Ps. No penalty was, however, levied. As against the said order, the petitioner-appellant filed an appeal and thereafter a revision to the Central Government, but with no success. It then approached this Court by way of a writ petition, again in vain.
8. The main contention raised by Mr. K. Srinivas Murthy, the learned Counsel for the appellant in this Writ Appeal, is one of limitation. The said plea has been consistently raised by the appellant before all the authorities under the Act, as well as before the learned single Judge, and all of them have negatived it. The contention runs as follows: Clause (v) of Sub-rule (3) of Rule 56A has no application to the facts of the case and is, therefore, out of picture. On the facts and circumstances alleged in the show cause notice and found in the order of the Assistant Collector of Central Excise, it is Rule 10 which is attracted. But any action under Rule 10 has to be taken within the period prescribed therein and, admittedly, the present proceedings were initiated beyond the period prescribed under Rule 10. Rule 10A is not applicable, inasmuch as it being a residuary provision, applies only if Rule 10 is not applicable.
9. It may be noticed that the learned single Judge has agreed with the petitioner-appellant that Rule 56A(3)(v) is not applicable. The learned Judge has however held that inasmuch as there was no assessment in this case, it is Rule 10A which is applicable, and since no period of limitation is prescribed in Rule 10A, the plea of limitation cannot be entertained. This reasoning of the learned single judge is challenged herein. Before we proceed further, it is necessary to record that the learned Standing Counsel for the Central Government has clearly stated before us that there have been final assessments in this case in respect of the period in question. Learned Counsel for the appellant has also placed before us the assessment orders, which clearly disclose that final assessments were made in accordance with the procedure applicable in that behalf. For this reason, the main basis of the judgment of the learned single Judge disappears. Mr. K. Subrahmanya Reddy, the learned Standing Counsel for the Central Government, however, sought to sustain the impugned demand with reference to and on the basis of the second proviso to Sub-rule (2) of Rule 56A and, alternately, under Rule 10A. A faint attempt was also made to sustain the same with reference to Clause (v) in Sub-rule (3) of Rule 56A. We shall dispose of the last aspect first.
10. A reading of Clause (v) of Rule 56A(3), which has been set out in full hereinbefore, would clearly disclose that the said clause is wholly irrelevant and inapplicable on the basis of the allegations contained in the show cause notice itself. Clause (v) provides for collection of duty in cases where the material or component parts in respect of which credit has been allowed under Sub-rule (2), are not duly accounted for as having been disposed of in the manner authorised by the said Rule. In other words, if the material or component parts are not used for the specified purpose but are diverted for some other purpose, or disposed of otherwise, the authorities are entitled to collect the duty in that behalf. We are, therefore, of the opinion that the said clause is wholly inapplicable to the facts and circumstances of this case, and the learned single judge was right in holding so.
11. We shall now consider whether the second proviso to Sub-rule (2) of Rule 56 A comes to the rescue of the department. According to the said proviso, 'if the duty paid on such material or component parts (of which credit has been allowed under this sub-rule) be varied subsequently due to any reason, resulting in payment of refund to, or recovery of more duty from the manufacturer or importer, as the case may be, of such material or component parts, the credit allowed shall be varied accordingly...'. Such variation can be effected either by adjustment in the credit account maintained under Sub-rule (3), or in the current account maintained under Rule 9(3) or Rule 173G(1), or if such adjustment, is not possible, by cash recovery or refund. The proviso thus contemplates a subsequent variation in the duty paid on the component parts (or material, as the case may be) used in the manufacture of an excisable article by a manufacturer. It is thus evident that the said proviso is equally inapplicable here, because this is not a case where the duty on stators and rotors -- the relevant components herein -- has been varied subsequently. Therefore, there is no question of any adjustment or refund on that account. In our opinion, therefore, the said proviso is of no relevance or application.
12. We shall now deal with the question whether it is Rule 10 which is applicable, or Rule 10A. It is admitted that if Rule 10 applies, the impugned levy is bad, being barred by limitation prescribed therein. The whole attempt of Mr. K. Subrahmanya Reddy, therefore, has been to satisfy us that it is Rule 10A which is properly applicable, and not Rule 10. Both the parties agree that if Rule 10 applies, Rule 10A is excluded, and that is the view of the Supreme Court too.
13. Rule 10 provides for, inter alia, collection of excise duty short-levied through inadvertence, error or misconstruction on the part of an officer. Now, the allowing of credit to the appellant in this case, from 1-3-1969 to June, 1970, can be attributed to inadvertence, viz., the failure to advert to the change in law. It can also be called an error of law. It can perhaps we need not express any opinion on this point -- be treated as a misconstruction of law also on the part of the officer. In either event Rule 10 is clearly applicable. We cannot agree with the learned Standing Counsel for the Central Government that the error referred to in Rule 10, does not include an error of law. There are no reasons to construe the words 'inadvertence' or 'error' as not including errors of law. No reasons have been brought to our notice for placing such a narrow construction, and not to adopt the plain and ordinary meaning of the said expressions. Mr. K. Subrahmanya Reddy, further contended that Rule 10A was conccived and enacted expressly for the purpose of providing for errors of law resulting in short-levy of excise duty, and if so, it is that provision alone which applies in cases of short-levy on account of an error of law. He sought to rely upon the context and circumstances in which Rule 10A was introduced. This aspect needs to be dealt with in a little detail.
14. Rule 10A was introduced as a result of the decision of the Nagpur High Court reported in Chhotabhai Jethabhai Paid and Company v. Union of India, AIR 1952, Nagpur, 139. It is necessary to notice to the facts of that case. The petitioner therein was a manufacturer of Beedis. It had a private warehouse licensed under Rule 140 of the Central Excise Rules, wherein was stored a large quantity of tobacco on which excise duty had not been paid. Bill No. 13 of 1951 was introduced in Parliament on 28-2-1951. The petitioner cleared the tobacco from the warehouse between 1-3-1951 and 28-4-1951 on paying the duty in accordance with the Rates mentioned in Bill No. 13 of 1951. The Bill was incorporated into the Finance Act of 1951 being Act, 23 of 1951, which became a law on 28-4-1951. By this Act, the duty on tobacco was raised from 8 annas to 14 annas per lb. Though the Finance Act, 1951 became law on 28-4-1951, yet by virtue of Section 6(2) the rates introduced by the Act were deemed to have come into effect on and from 1-3-1951. Section 7(2) further provided for refund of any duty collected in excess, or for recovery of any short collection arising on account of such a situation. As stated above, the petitioner in that case had cleared the tobacco from the warehouse between 1-3-1951 and 28-4-1951 by paying the duty in accordance with the rate prescribed in Bill No. 13 of 1951 i.e. at the rate of 8 annas. But, because of the Finance Act which had retrospective effect from 1-3-51, the rate payable by the petitioner therein was 14 annas per lb. In those circumstances, the Central Excise authorities made a demand upon the petitioner for the said difference of duty, which demand was questioned by way of a writ petition in the High Court, which was upheld. The High Court held that the short levy was not on account of any inadvertence or error contemplated by Rule 10 and that, there being no other provision for collection of short levy in such cases, the demand was unsustainable in law. It was then that the Government came forward and introduced Rule 10A in the Rules. But, in our opinion, the present case bears no analogy to the facts in Chhotabhai Jethabhai Paid and Company vs. Union of India, AIR 1952, Nagpur, 139, That, was a case where the duty was retrospectively enhanced and the said enhanced duty was demanded for the period covered by the retrospectively. On the date the duty was actually paid, the Act was not in operation and, therefore, there was no inadvertence or error in levy or collection of duty. The short-levy arose exclusively on account of the retrospective operation being given to the subsequent enactment. But, that is not the case here. This is a case where a provision of law in force was ignored, or not properly understood, as the case may be, and a facility and deduction allowed to the petitioner which was not allowable according to law. Such a case, in our opinion, clearly falls within 'inadvertence' or 'error' referred to in Rule 10.
15. Reference was then made to the decision of the Supreme Court in N.B. Sanjana v. E.S. and W. Milk, AIR 1971 Supreme Court, 2039. But, we are unable to see as to how the principle of the said decision or any of the observations contained therein, help the respondents. It is, no doubt, true that merely because a show cause notice refers to Rule 56A(3)(v), the respondents are not precluded from sustaining the said notice with reference to any other provision of law. We are not precluding the respondents from seeking to sustain their action with reference to Rules or provisions other than those mentioned in the show cause notice. Again, this is not a case of a 'nil' assessment, nor it is a case where there has been a provisional assessment. In our opinion, therefore, the said decision of the Supreme Court in no way helps the respondents. Nor does the decision in Assistant Collector, Central Excise v. N.T. Company of India Ltd., AIR 1972, Supreme Court, 2563 is of any help to the respondents. In that case, it was found on facts that there was no assessment, though there was a mechanical adjustment and ostensible settlement of accounts by making debit entries. It was held that there was no assessment as it is understood in law and, for that reason, it was held that Rule 10 was not applicable and that, it was Rule 10A which can be properly applied. In the case before us, since it is categorically asserted by the appellant and admitted by the respondents that there were final assessments in respect of the period in question, there is no ground for excluding Rule 10.
16. For the above reasons, it must be held that the proposed show-cause notice, as well as the levy of excise duty short-levied, was issued and made beyond the period of limitation prescribed by Rule 10 and is, therefore, bad. In our opinion, neither Rule 10A, nor the second proviso to Rule 56A(2), nor clause (v) of Rule 56A(3) are attracted in this case.
17. For the above reasons, the Writ Appeal has to be allowed. Accordingly, the Writ Appeal as well as the Writ Petitions are allowed. In the circumstances of the case, however, there shall be no order as to costs.