Proforma credit refund under excise rules must not be denied where set-off is impossible and only net cash surplus is barred.

Rule 56-A(3)(vi) of the Central Excise Rules, 1944 was construed to bar only a net cash surplus beyond the duty chargeable on finished goods, not repayment of duty-related amounts standing to the credit of a proforma account where adjustment by set-off had become impossible. The Court preferred the interpretation that preserved constitutional validity and avoided an inequitable result, rejecting challenges under Articles 14, 19 and 31. On that construction, the refund claim was maintainable, the departmental order was quashed, and consequential interest was directed if payment was delayed.

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Issues: Whether Rule 56-A(3)(vi) of the Central Excise Rules, 1944 barred the assessee's claim for refund of amounts standing to the credit of its proforma account after the duty liability on the finished goods had ceased, and whether the provision, if so construed, was constitutionally valid.

Analysis: The credit scheme under Rule 56-A was intended to permit adjustment of duty already paid on raw materials against duty payable on finished excisable goods. The Court held that the assessee's claim was not one for a cash surplus unrelated to duty, but for return of money necessarily deposited in its personal ledger account because timely adjustment of proforma credit had not been given. A broad reading of clause (vi) to prohibit any cash payment would produce an inequitable and potentially unconstitutional result. The Court therefore read the clause down and held that it only barred payment of a net cash surplus beyond the duty chargeable on the finished goods, not repayment of amounts representing duty adjustment where the benefit could not be worked out by mere set-off. On that construction, the constitutional objections under Articles 14, 19 and 31 were rejected.

Conclusion: Rule 56-A(3)(vi) did not bar the assessee's refund claim on the facts, and the impugned order was erroneous.

Final Conclusion: The refund claim was held maintainable, the departmental order was quashed, and the assessee was granted mandamus with consequential interest from the stipulated future date if payment was delayed.

Ratio Decidendi: A provision governing proforma credit should be construed to prevent only a net cash surplus and not to defeat repayment of duty-related amounts merely because set-off became impossible; where more than one interpretation is possible, the one preserving validity and advancing the exemption or relief must be preferred.

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