Exemption option withdrawal does not create retrospective tariff-rate excise liability for the earlier exempt period.

A manufacturer that exercised the option under Notification No. 9/2000-C.E. and later withdrew it during the financial year was not retrospectively liable to pay central excise duty at the tariff rate for the earlier exempt period. The notification required the option to be exercised in writing before the first clearances and barred withdrawal for the rest of the financial year, but it did not expressly impose tariff-rate liability for past clearances if the option was withdrawn later. The demand for duty at the tariff rate for the period before withdrawal was therefore unsustainable, and the penalty also could not survive.

---

---

Issues: Whether a manufacturer who exercised the option under Notification No. 9/2000-C.E. and later withdrew it during the financial year became liable to pay central excise duty at the tariff rate for the earlier period when the exemption was being availed.

Analysis: The condition in para 2(i) of the notification required the option to be exercised in writing before the first clearances and prohibited withdrawal during the remaining part of the financial year. The notification did not state that if the option was later withdrawn, the manufacturer must retrospectively discharge duty at the tariff rate for the period during which the exemption had operated. The prohibition attached to withdrawal of the option, not to retrospective reclassification of past clearances.

Conclusion: The demand of duty at the tariff rate for the period prior to withdrawal of the option was unsustainable and the penalty also could not survive.

Ratio Decidendi: Where an exemption notification prohibits withdrawal of an exercised option during the financial year but does not expressly provide for retrospective tariff-rate liability, withdrawal of the option does not create liability to pay duty at the tariff rate for the earlier exempt period.

---