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Issues: (i) whether the demand for the period from 1-4-1998 to October, 1999 under Section 3A of the Central Excise Act, 1944 could be sustained when the assessee had been permitted to work under Section 3 and had already discharged duty accordingly; (ii) whether duty was payable under Rule 96ZO(3) of the Central Excise Rules, 1944 for the period ending 31-3-1998 and how the duty already paid under Section 3 was to be treated.
Issue (i): Whether the demand for the period from 1-4-1998 to October, 1999 under Section 3A of the Central Excise Act, 1944 could be sustained when the assessee had been permitted to work under Section 3 and had already discharged duty accordingly.
Analysis: The assessee had been permitted by the Commissioner, by order dated 25-3-1999, to clear goods on ad valorem basis under Section 3 of the Central Excise Act, 1944 from February, 1998. That order was not challenged by the Revenue and had attained finality. The assessee acted under that permission and paid duty accordingly, with Modvat credit. The manufacturing pattern also showed only a small percentage of non-alloy steel ingots, which was treated as incidental production on the reasoning adopted in earlier Tribunal decisions. In these circumstances, the proceedings could not be reopened to demand duty afresh under Section 3A for the later period, and the extended period was also not available.
Conclusion: The demand under Section 3A for 1-4-1998 to October, 1999 was not sustainable and was set aside in favour of the assessee.
Issue (ii): Whether duty was payable under Rule 96ZO(3) of the Central Excise Rules, 1944 for the period ending 31-3-1998 and how the duty already paid under Section 3 was to be treated.
Analysis: For the financial year ending 31-3-1998, the assessee was already operating under Rule 96ZO(3), and having once opted for that scheme, it could not opt out during the same financial year. Duty liability for that period therefore continued till 31-3-1998 on the basis of the annual capacity fixed under the rule. However, the duty already paid under Section 3 on ad valorem basis had to be accounted for while determining the liability for that period, so that no double recovery resulted.
Conclusion: Duty was payable under Rule 96ZO(3) up to 31-3-1998, subject to adjustment of duty already paid under Section 3, in favour of the Revenue for that limited period.
Final Conclusion: The demand for the later period and the penalty were set aside, while the liability for the earlier financial year survived only to the extent consistent with Rule 96ZO(3) after due adjustment of duty already paid.
Ratio Decidendi: An unchallenged permission to work under Section 3 cannot be disregarded to fasten a fresh demand under Section 3A for the same period, and a unit that has opted for Rule 96ZO(3) cannot withdraw from that scheme during the same financial year.
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