1986 (8) TMI 61 - HC - Central Excise

Court denies proforma credit under Rule 56-A due to tariff item mismatch, stresses harmonious interpretation.

The court held that the petitioners were not entitled to proforma credit under Rule 56-A as the inputs used did not fall under the same tariff item as the ... Proforma Credit Procedure Issues Involved:1. Entitlement to proforma credit under Rule 56-A of the Central Excise Rules, 1944.2. Interpretation of Rule 56-A and its provisos.3. Compliance with interim orders and tax liability.Issue-wise Detailed Analysis:1. Entitlement to Proforma Credit Under Rule 56-A:The primary question was whether the petitioner company was entitled to proforma credit under Rule 56-A of the Central Excise Rules, 1944, for the inputs cement and asbestos raw (fibre) used in manufacturing asbestos cement products. The petitioners argued that they were entitled to this credit because the finished products were notified by the Central Government under Rule 56-A(1) and thus should benefit from the proforma credit procedure under Rule 56-A(2). The petitioners' application for this credit was rejected by the competent authority on the grounds that the inputs and outputs did not fall under the same tariff item.2. Interpretation of Rule 56-A and Its Provisos:The court examined the historical and current provisions of Rule 56-A. Initially, Rule 56-A was introduced to allow credit of duty paid on materials or component parts used in manufacturing specified excisable goods. The proviso to Rule 56-A(2) stipulated that credit would not be allowed unless the duty on the materials or component parts was paid under the same tariff item as the finished excisable goods or unless remission or adjustment of duty was specifically sanctioned by the Central Government. The court concluded that the entire scheme of Rule 56-A, including its provisos, must be read harmoniously. The proviso enacts a 'no credit rule' that applies unless the specified conditions are met, ensuring that the proforma credit procedure is not misapplied.3. Compliance with Interim Orders and Tax Liability:The petitioners initially received interim relief, restraining the respondents from refusing proforma credit, but later felt aggrieved by the respondents' non-compliance with these interim orders. The court noted that the interim relief was subject to certain conditions, including the furnishing of bank guarantees. Upon dismissal of the petitions, the court addressed the issue of accrued tax liability and the need to protect public revenue. The court extended the interim relief for six weeks, subject to additional conditions, including furnishing further bank guarantees and an undertaking to pay interest on arrears of excise duty.Conclusion:The court held that the petitioners were not entitled to proforma credit under Rule 56-A because the inputs used did not fall under the same tariff item as the finished excisable goods, and no specific sanction for remission or adjustment of duty was granted. The court emphasized the need for a harmonious interpretation of Rule 56-A and its provisos. The petitions were dismissed, and interim relief was extended for six weeks with additional conditions to protect public revenue. The court refused the petitioners' request for leave to appeal to the Supreme Court, finding no substantial question of law of general importance.