Retrospective withdrawal of excise exemption is impermissible where delegated power extends only to prospective exemption notifications.

Rule 8 of the Central Excise Rules empowered the Central Government to grant exemption, but not to issue notifications with retrospective effect. A later notification could not retrospectively withdraw an exemption already operating under an earlier notification, and duty could not be imposed on cotton fabrics manufactured during the interregnum when the relevant yarn remained wholly exempt. The resulting show cause-cum-demand notices were therefore unsustainable as an impermissible retrospective levy, and the petition succeeded with the impugned notices quashed and excess duty made refundable.

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Issues: Whether the Central Government could, by subsequent excise notifications under rule 8, withdraw or neutralise an earlier exemption so as to impose excise liability retrospectively on cotton fabrics manufactured in composite mills during the interregnum period, and whether the impugned demand notices founded on such retrospective operation were sustainable.

Analysis: The Court held that the power under rule 8 of the Central Excise Rules is confined to granting exemption from duty and does not authorise the making of notifications with retrospective effect. A later notification cannot take away, retrospectively, an exemption already operating under an earlier notification. The Court relied on the binding Supreme Court position that the rule-making authority had no power to make rules with retrospective effect and found the Gujarat High Court's reasoning on the same notifications to be correct. On that basis, the attempt to collect duty on goods produced during the period when yarn used in the fabrics was wholly exempt was treated as an impermissible retrospective levy in the guise of fabric duty.

Conclusion: The retrospective operation of the later notifications was invalid, and the show cause-cum-demand notices founded on that basis could not stand.

Final Conclusion: The petition succeeded, the impugned notices were quashed, and excise duty was confined to the rate applicable to cotton fabrics under the operative notification for the relevant period, with refund of any excess amount paid.

Ratio Decidendi: A delegated authority empowered to issue exemption notifications under a taxing statute cannot, in the absence of express legislative authority, give those notifications retrospective effect or withdraw an existing exemption retrospectively.

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