Excise concession misapplied: recovery under Rule 196 failed where the clearance itself was granted on an unauthorised basis.

A concessional excise clearance under Notification No. 35/73-C.E. was available only for specified motor spirit intended as a solvent, diluent or thinner for manufacture of paints and allied materials, and use outside the factory required Chapter X compliance. Because the application and licence showed a request for material to manufacture thinners rather than direct use in paint manufacture, the concession had been granted on an incorrect basis. However, recovery under Rule 196 of the Central Excise Rules, 1944 was not available, because that rule applies to goods duly obtained under the prescribed application and use conditions, not to clearances wrongly allowed under the notification itself. The demand was therefore not recoverable on that basis.

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Issues: Whether the duty demand could be sustained under Rule 196 of the Central Excise Rules, 1944 when the goods were cleared under a mistaken grant of concession under Notification No. 35/73-C.E. and the intended use did not match the notification.

Analysis: The concessional notification permitted clearance of the specified motor spirit only when it was intended to be used as a solvent, diluent or thinner for the manufacture of paints and allied materials, and where use was outside the factory of production the Chapter X procedure had to be followed. The application and licence showed that the appellant sought the material for manufacture of thinners, not for direct use in paint manufacture, so the concession had been allowed on an incorrect basis. Even so, the demand framed under Rule 196 was unsustainable because that rule applies where goods obtained under Rule 192 are not duly accounted for as used in the purpose and manner stated in the application; here the clearances had not truly been made under the notification, and the mistake lay in the grant of concession itself.

Conclusion: The demand could not be recovered under Rule 196 of the Central Excise Rules, 1944 and the order confirming the demand was wrong.

Final Conclusion: The appeal succeeded and the impugned order was set aside, with the duty demand left unrecovered on the basis adopted by the department.

Ratio Decidendi: Where excisable goods are mistakenly cleared at a concessional rate under an exemption notification on a basis not authorised by that notification, the revenue cannot invoke the recovery machinery meant for failure to account for goods duly obtained under the prescribed application and use conditions.

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