Exemption option once exercised in writing cannot be withdrawn mid-year; duty recomputation and penalty reduction followed.

A declaration filed in the statutory return format can amount to the written exercise of an exemption option where it clearly discloses reliance on a particular notification and is acted upon, and if that notification prohibits withdrawal during the financial year, the assessee cannot later switch to another exemption for the same period. The duty demand must then be recomputed by treating the sale price as cum-duty price and by verifying admissibility of Modvat credit for final quantification. Penalty under the Central Excise Rules may be reduced where the breach is established but the original penalty is considered excessive, with the minimum prescribed penalty applied.

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Issues: (i) Whether the declaration filed under Rule 173B amounted to exercise of the option in writing under Notification No. 9/99-C.E., thereby preventing withdrawal and switching over to Notification No. 8/99-C.E. during the same financial year; (ii) whether the duty demand had to be recalculated after treating the price as cum-duty price and considering admissibility of Modvat credit; (iii) whether the penalty imposed under the Central Excise Rules, 1944 required reduction.

Issue (i): Whether the declaration filed under Rule 173B amounted to exercise of the option in writing under Notification No. 9/99-C.E., thereby preventing withdrawal and switching over to Notification No. 8/99-C.E. during the same financial year.

Analysis: The declaration under Rule 173B specifically disclosed availment of the benefit of Notification No. 9/99-C.E. and was required to be considered by the proper officer. The declaration contained the particulars which also satisfied the written intimation contemplated by Notification No. 9/99-C.E. The appellant had in fact cleared goods at the concessional rate under that notification. Once the option was exercised, the notification expressly prohibited withdrawal during the remaining part of the financial year.

Conclusion: The option under Notification No. 9/99-C.E. stood validly exercised, and the assessee could not switch over to Notification No. 8/99-C.E. later in the same financial year.

Issue (ii): Whether the duty demand had to be recalculated after treating the price as cum-duty price and considering admissibility of Modvat credit.

Analysis: The case raised a question of law on whether the sale price should be treated as inclusive of duty, requiring adjustment in the assessable value in accordance with the principle applicable to cum-duty pricing. The Tribunal also noted that, while the demand under Notification No. 9/99-C.E. was sustainable, the authorities had to verify whether Modvat credit was admissible under that notification and recompute the duty accordingly.

Conclusion: The duty was required to be recalculated after giving the appropriate cum-duty adjustment, and Modvat credit admissibility was left for verification in working out the final demand.

Issue (iii): Whether the penalty imposed under the Central Excise Rules, 1944 required reduction.

Analysis: The appellant continued to avail the later notification despite a written direction not to do so, constituting breach of the applicable rules. However, the penalty imposed was considered excessive in the facts and circumstances, and the minimum penalty under the relevant rule was deemed appropriate.

Conclusion: The penalty was reduced to the minimum prescribed amount.

Final Conclusion: The duty demand was substantially sustained, but the quantum required recomputation and the penalty was materially reduced, resulting in only a partial relief to the assessee.

Ratio Decidendi: A declaration under the statutory return format can constitute the written exercise of an exemption option where it clearly communicates the chosen notification and is acted upon, and once such option is exercised under a notification that bars withdrawal during the financial year, the assessee cannot later switch to another exemption for the same period.

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