H.N. Seth, J.
1. Petitioner M/s. L.H. Sugar Factories Ltd., is a Company registered under the Companies Act and it carries on business of manufacture and sale of sugar at Kashipur, district Nainital. The sugar manufactured by the petitioner attracts Basic and Additional Excise duty under the provisions of Central Excises and Salt Act. In due course, it manufactured and paid excise duty on the sugar manufactured by it during the period May and June, 1973 at the rates specified in the Schedule to the Central Excises and Salt Act.
2. On 28-9-1972 the Central Government in exercise of its powers under Sub-rule (1) of Rule 8 of the Central Excises and Salt Act, issued a notification granting certain exemptions in payment of Excise duty on sugar produced by Sugar Factories as incentive Excise rebate on certain conditions. Acting upon the said notification, the petitioner claimed a sum of Rs. 8,73,870/- at the rate of Rs. 30/- per quintal on the excess quantity of 29129 quintals of sugar produced by it between the period 1st of May, 1973 to 30th June, 1973. The claim made by the petitioner was scrutinised and allowed by the Asstt. Collector,-Central Excise, Kanpur, vide his order dated 31st of October, 1973 and a sum of Rs. 8,73,870/- was adjusted by crediting the Personal Ledger Account of the Factory on 6th of November, 1973. Subsequently Supdt., Customs and Central Excise, M.O.R. Haldwani, District Nainital raised a demand, vide notice dated 25-1-1978 enclosing a copy of audit objection requiring the petitioner to reduce the balance of Personal Ledger Account of the factory by Rs. 8,73,870/-. The petitioner objected to the aforesaid direction issued by the Supdt., Customs and Central Excise by filing objection dated 16/17 March, 1978. It appears that the Supdt. did not accept the objection of the petitioner and vide demand in Form DD-2, dated 1-5-1979 required the petitioner to debit a sum of Rs. 8,73,870/- in its Personal Ledger Account. Again the petitioner raised objections before the Superintendent but the Superintendent by his order dated 2-4-1981 made it clear that the petitioner had to deposit a sum of Rs. 8,73,870/-, the amount which according to him had been duly refunded, within a week. Thereafter the petitioner filed the present petition before this Court praying for quashing of the demands raised by the Excise Authorities on 25-1-1978 and 2-4-1981.
3. Learned counsel for the petitioner contended that the said demand stands vitiated for following three reasons :-
(i) The petitioner was entitled to the exemption from payment of Excise duty in view of Notification dated 28-9-1972 and as such the amount of Rs. 8,73,870/- had been refunded to it correctly. The demand raised by the Excise Department is, therefore, illegal.
(ii) The action taken by the Central Excise Authorities for recovering the refund of Rs. 8,73,870/- is also barred by limitation.
(iii) The demand raised by the Excise Authorities stands vitiated inasmuch as the same was raised without affording any opportunity to the petitioner to have his say and in contravention of the principles of natural justice. The prayer made in the petition has been contested on behalf of the respondents who contend that the petitioner was not entitled to any exemption under Notification dated 28-9-1972. The refund of Rs. 8,73,870/- was, therefore, wrongly made and the respondents can take steps to realise the same from the petitioner. The respondents also refuted the petitioner's claim that their action was barred by time or was vitiated on account of any contravention of principles of natural justice.
4. Relevant portion of the Notification dated 28-9-1972 runs thus :-
'In exercise of the powers conferred by Sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, the Central Government here by exempts sugar, described in column (2) of the Table below and falling under sub-item (1) of Item No. 1 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944) from so much of the duty of excise leviable thereon as is specified in the corresponding entry in column (3) of the said Table.
Sl. Description of sugar Duty of excise
(1) (2) (3)
1. .... ...
2. .... ...
3. Sugar produced in a factory during the Rupees thirty
period commencing from the 1st day per quintal.
of May, 1973 and ending with the 30th
day of June, 1973 which is in excess,
of the quantity of sugar produced
during the corresponding period in
4. .... ...
Provided that the exemption under
the notification shall not be admissible
to a factory:
(a) which did not work during the
base period or
(b) . . .
(c) . . .
Provided further that in computing
the production of sugar during the
periods mentioned in column (2) of the
(a) . . .
(b) . . .
(c) . . .
In this notification, the expression,
'base period' means the period
commencing from the 1st day of October,
1971 and ending with the 30th day of
Sd/- S.R. Narayanan,
Under Secretary to the Govt. of India.'
The facts regarding which there is no controversy is that the petitioner factory did produce sugar during the period 18th of October, 1971 and 30th of September, 1972 (though it did not produce any sugar during the months of May and June, 1972) falling within the base period as defined in Explanation II of the notification. The submission made on behalf of the respondents is that the petitioner is not entitled to any exemption inasmuch as it was claiming refund for sugar produced by it during the months of May and June, 1973 when admittedly it had not produced any sugar during the corresponding months of base period as defined in Explanation II of the notification. In support of this submission, the respondents rely upon the
proviso to the notification which lays down that the exemption under the notification shall not be admissible to a factory which did not work during the base period. It is significant to note that under the second proviso a factory is disentitled for claiming exemption otherwise admissible under the main clause only if it is shown that it did not produce any sugar during the base period. It does not say that exemption would be denied if no sugar was produced in the corresponding months of the base period. We are accordingly of opinion, that the submission made by the respondents on the basis of proviso to the notification is not well founded.
5. Learned counsel for the respondents then submitted that inasmuch as under main Clause 3 of the notification, the petitioner could be entitled to exemption from payment of Excise duty to the extent indicated therein in respect of sugar produced by it during the months of May and June, 1973 only if it could be shown that it had produced some sugar in excess of the quantity of sugar produced by it during the corresponding period of the year 1972. As in this case, during the months of May and June, 1972 the petitioner admittedly did not produce any sugar, no question of its production in the months of May and June, 1973 being in excess of production in the corresponding months of May and June, 1972 can possibly arise. We are unable to accept this submission. In a case like the present one where the petitioner did not produce any sugar during the months of May and June, 1972 its entire production of sugar during the months of May and June, 1973 would be in excess of the production made by it in the months of May and June, 1972 and as such the petitioner would be entitled to the exemption specified in Clause 3 of the Notification dated 28-9-1972. In this view, we are fortified by the decision of the Punjab and Haryana High Court in Letters Patent Appeal No. 835 of 1980- The Batala Cooperative Sugar Mills Limited, Batala, v. The Asstt. Collector, Central Excise Jullundar and Ors., decided on 12-2-1981-1982 E.L.T. 19 as also by a decision of the Andhra Pradesh High Court in the case of The Etikoppaka Co-operative Agricultural Society Ltd., Darlapundi v. Union of India and Anr., Writ Petition No. 3672 of 1976 and other connected writ petitions decided on 3-2-1978-1979 E.L.T. (J 533).
6. As we have found that the petitioner was entitled to the rebate claimed by it, the order of the respondents requiring the petitioner to refund the same stands vitiated and the notice of demand dated 25-1-1978 as also the orders dated 10-3-1981 and 2-4-1981 deserve to be quashed. In this view of the matter it is not necessary for us to express any opinion on the other two points raised in the writ petition.
7. Learned counsel for the respondents, however, brought to our notice a decision of the Patna High Court in Civil Writ Jurisdiction Case No. 865 of 1966 wherein while interpreting similar provision, the Patna High Court had held that in a case where there was nil production in the corresponding period, the exemption in respect of excess production would not be admissible. The decision of the Patna High Court has been noticed by the Punjab and Haryana High Court as well as by the Andhra Pradesh High Court in the decisions cited above. Both the courts have disagreed with the view of the Patna High Court. We are in respectful agreement with the view expressed by the Andhra Pradesh and Punjab and Haryana High Courts.
8. The petition, therefore, succeeds and is allowed. The demand notice dated 25-1-1978 and the orders dated 10-3-1981 and 2-4-1981 are quashed. Petitioner shall be entitled to costs in this petition.