Chapter X inputs and Section 11A: duty demand was held unsustainable where the notice invoked the wrong recovery provision.

Inputs received under Chapter X of the Central Excise Rules, 1944 were examined after cancellation of an export order, where the alleged duty liability related to surplus inputs used in manufacture of dutiable finished goods. The legal point was whether Section 11A of the Central Excise Act, 1944 could be invoked for recovery in such circumstances, or whether Rule 196 governed goods obtained under Rule 192 that were not duly accounted for. Applying the Supreme Court ratio, the Tribunal noted that Section 11A covers duty not levied, not paid, short paid, or erroneously refunded, and held that a notice issued under Section 11A for this claim was not sustainable.

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Issues: Whether duty could be demanded under Section 11A of the Central Excise Act, 1944 in respect of inputs received under Chapter X procedure without payment of duty, when the export order was cancelled and the inputs were used in manufacture of dutiable finished goods.

Analysis: The inputs were received under Chapter X of the Central Excise Rules, 1944 read with Rules 192, 196 and 196A, and the show cause notice proceeded under Section 11A of the Central Excise Act, 1944. The demand rested on non-payment of duty on surplus inputs after cancellation of the export order. The Tribunal applied the ratio of the Supreme Court decision holding that Rule 196 governs the situation where goods obtained under Rule 192 are not duly accounted for, while Section 11A applies to recovery of duties not levied, not paid, short paid, or erroneously refunded. Since the notice invoked Section 11A for the alleged duty liability on such inputs, the demand was held to be unsustainable.

Conclusion: The demand under Section 11A could not be sustained and the show cause notice was void ab initio; the appeal succeeded.

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