Contractual recovery of excise duty was impermissible where the work order lacked authorisation and the levy exceeded the agreement.

A writ court may examine a deduction or recovery under Article 226 where the employer imposes conditions or recovers amounts beyond the contract, even if an arbitration clause exists. In this note, the contract permitted only a penalty for shortfall in production and did not authorise shifting excise duty to the contractor. Excise duty is payable on removal of goods, and Section 11D of the Central Excise Act, 1944 did not justify deduction from the contractor's bill. The impugned excise-duty recovery was therefore held impermissible, the deduction was set aside, and any amount already recovered was directed to be refunded with simple interest if delayed.

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Issues: (i) whether the writ petition was maintainable notwithstanding the arbitration clause in the contract when the challenge was to a condition and recovery alleged to be beyond the contract; (ii) whether the respondents could recover excise duty from the petitioner for shortfall in production in the absence of any contractual clause authorising such recovery.

Issue (i): Whether the writ petition was maintainable notwithstanding the arbitration clause in the contract when the challenge was to a condition and recovery alleged to be beyond the contract.

Analysis: Where the dispute arises purely out of the contract, the parties may be relegated to arbitration. However, where the respondents impose conditions beyond the scope of the agreement, the validity of such conditions can be examined under Article 226 of the Constitution of India. The challenge in the present matter was directed to the legality of the impugned recovery and not merely to an ordinary contractual dispute.

Conclusion: The writ petition was maintainable and was not liable to be rejected on the ground of availability of arbitration.

Issue (ii): Whether the respondents could recover excise duty from the petitioner for shortfall in production in the absence of any contractual clause authorising such recovery.

Analysis: The work order provided only for penalty for shortfall in production. It did not create any liability on the petitioner to bear excise duty. Excise duty is payable on removal of goods, as reflected in Rule 8 of the Central Excise Rules, 2002, and the respondents could not unilaterally shift an advance or speculative excise burden to the petitioner. Section 11D of the Central Excise Act, 1944, did not assist the respondents because it operates where duty is collected from a buyer and must be credited to the Government; it did not authorise the impugned deduction from the petitioner's bill. The proposed recovery was thus outside the contract and unsupported by law.

Conclusion: The recovery of excise duty from the petitioner was impermissible and the amount could not be deducted from the petitioner's bill.

Final Conclusion: The challenge succeeded, the impugned excise-duty recovery was set aside, and any amount already deducted was directed to be refunded with simple interest if delayed beyond the stipulated period.

Ratio Decidendi: A contractual employer cannot recover excise duty from a contractor unless the contract specifically authorises such recovery, and a writ court may interfere where the challenged levy or deduction is beyond the contractual terms and unsupported by the governing excise law.

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