1. This Writ Petition coming on for hearing on this day upon perusing the petition and the affidavit filed in support thereof the order of the High Court, dated 10.11.1976 and made herein and the counter affidavit filed herein and the records relating to the Order in C. No. VI/Y/15/19/63-E.C. and Order No. 766 of 1975 dated 12.4.71 and 12.11.75 on the file of respondent comprised in the return of Respondents to the writ made by the High Court, and upon hearing the arguments of Mr. S.V. Subramaniam of M/s Subbaraya Iyer Padmanabhan and Ramamani and S.V. Subramaniam, Advocates for the petitioner, and of Mr. T. Chengalvarayan, Central Government Senior Standing Counsel on behalf of the respondents the Court made the following order:
The petitioner has invoked the jurisdiction of this Court under Article 226 of the Constitution for obtaining a writ of certiorarified mandamus for quashing an order passed by the Collector of Central Excise as ultimately confirmed by the Joint Secretary of the Government of India and for directing a refund of a sum of Rs. 1,31,240.77 due to it by way of refund.
2. The petitioner was engaged in manufacturing V.N.E. oil for home consumption as well as for export. During the months of March, April and May 1963, the petitioner exported out of India a certain quantity of processed V.N.E. oil and claimed the ad hoc rebate of duty under Notification No, 197/62 dated 17.11.1962, besides the full amount of duty paid on the processed V.N.E. oil ex-ported. The claim for rebate was granted and a sum of Rs. 1,59,683.77 was refunded to the petitioner by means of two cheques dated 20.4.63 and 19.7.63. On account of subsequent investigation and verification, the Central Excise authprities found that the petitioner had manufactured processed oil out of unprocessed oil produced in the same factory and a quantity of 1,212.050 M.T. out of the exported quantity of 1474.730 M.T. of processed oil did not suffer duty at the unprocessed stage. The authorities therefore demanded repayment of a sum of Rs. 1,03,505.50 & a further sum of Rs. 27,735.27 on the ground that the ad hoc rebate on processed oil can be claimed only if the oil had suffered duty at the unprocessed stage. As the demands were not honoured, the department sought to withhold refund of amounts payable for the future period to the petitioner so as to adjust the amount towards the demands raised earlier. This adjustment was objected to by the petitioner and the objection was considered by the Maritime Collector of Central Excise. Madras, who is the first respondent herein. The first respondent overruled the objections and the petitioner therepon preferred an appeal to the Appellate Collector of Central Excise. When the appeal failed, there was a revision to the Second respondent, but that also ended in failure. It is thereafter that the petitioner has moved this court under Article 226 of the Constitution.
3. When the petition was taken up for hearing, Mr. S.V. Subramaniam, the learned Counsel for the petitioner raised the contention that the demand made on the petitioner by the first respondent in exercise of his power under Rule 10A of the Central Excise Rules is not a legally sustainable one, because Rule 10A is itself ultra vires the Act. He therefore contended that if the very rule on the basis of which the demand had been raised is not sustainable, then the demand and the proposed adjustment of future refund towards the demand will also have to fall down. He therefore pleads that it is not necessary to go into the question whether the petitioner is not entitled to claim ad hoc rebate on processed oil. In support of his contention, the learned Counsel places reliance on the decision in W.P. Nos. 265 and 266 of 1967 rendered by a division Bench of this Court (Murugen and Company v. The Deputy Collector of Central Excise, 6, Royal Road, Tiruchirappalli and Ors.). The learned Judges who decided that case have applied the ratio laid down in Citadel Fine Pharmaceuticals Pvt. Ltd. v. The District Revenue Officer : (1973)1MLJ99 and held that the Rule 10A of the Central Excise Rules is ultra vires the Act. Yet another decision where the same ratio has been laid down is in Parker and Co. Madras v. Union of India and Ors. W.P. Nos. 1492 and 4198 of 1970.
4. Having regard to the decisions cited by the petitioner's counsel, what I have now to see is whether the demand made on the petitioner has been made on the basis of Rule 10A of the Central Excise Rules or with reference to some other provisions of the rules. Before the first respondent, the petitioner raised the contention that the demand can only be under Rule 10 and in such a case the demand will be out of time. The first respondent while repelling the contention of the petitioner that the demand should have been made under Rule 10, has taken the defiaite stand that the demand has been raised on the basis of Rule 10A and, therefore, no question of limitation will arise. The appellate Collector of Central Excise has con firmed the view of the first respondent and held that the demand had been validly raised under Rule 10A of the Central Excise Rules, 1944. This view has been shared in full measure by the second respondent also when the matter was taken in revision. It is there-fore clear that all the authorities have proceeded on the categorical assumption that the rebate alleged to have been wrongly given to the petitioner is to be collected by exercising the powers of the authorities under Rule 10A. If that be the case, it necessarily follows that the demand cannot be sustained, because as has been held by this court in the cases referred to earlier, the rule itself isultra vires of the Act.
When the rule fails, the demand made on the basis of the rule has also to fail.
5. Mr. T. Chengalvaroyan, the learned senior standing counsel for the Central Government, however, contends that it is not a case of a demand made under Rule 10A, but it is a demand made on the basis of Section 11 of the Act. In support of his contention, he points out that in the first notice of demand, there is no reference made to Rule 10A. His further argument is that the terms of Section 11 of the Central Excises and Salt Act are wide and comprehensive enough as to include within its ambit the demand impugned by the petitioner land therefore, without reference to the powers conferred under Rule 10A, the first respondent is entitled to seek refund of the amount and in the absence of repayment, to seek adjustment of the amount from out of the future refunds payable to the petitioner. I find it difficult to accept this contention of Mr. T. Chengalvaroyan because the first respondent as well as the Appellate Collector of Central Excise and the second respondent have uniformly proceeded on the basis that the demand had been made in exercise of the powers conferred on the authorities by Rule 10A. They had perforce to take such a stand in order to reject the contention of the petitioner that if at all the demand can be made against them, it can be made only under Rule 10 and in such an event, the demand will be hit by the rule of limitation contained in the rule itself. Curiously none of the authorities has linked the demand with the powers conferred under Section 11 of the Act. It is therefore too late in the day for the respondents to contend that under Rule 10A they are entitled to substantiate the validity of the demand on the strength of Section 11 of the Act.
6. Mr. T. Chengalvaroyan invites my attention to the decision reported in Assistant Collector, C.E.N.T. Co. of IndiaLtd. : 1978(2)ELT416(SC) to argue that the demand made on the petitioner is in the nature of an assessment and therefore the application of Rule 10A will not be attracted to the facts of the case. But as I have al-ready stated earlier, the respondents have too deeply committed themselves to linking the demand with their powers under Rule 10A and as such they cannot now be permitted to spring a surprise on the petitioner by saying that the demand is only in the nature of an assessment and not a demand made in exercise of the residuary powers granted under Rule 10A. Moreover, the question of vires of Rule 10A has not been canvassed before the Supreme Court and therefore, the decision cannot advance the case of the respondent in any manner.
7. As already stated, following the rulings of the Division bench of this Court, I have to hold that the Rule 10A of the Central Excise Rules is ultra vires the Act and consequently the demand made on the strength of the rule cannot also be validly sustained. On that short ground, the petition has to be allowed and is accordingly allowed and the rule nisi is made absolute, with costs to the petitioner. Counsel's fee Rs. 150/-.