1992 (9) TMI 90 - HC - Central Excise

Court grants exemption for synthetic rubber in tire manufacturing but denies proforma credit under Rule 56A.

The court held that the petitioners were entitled to claim the benefit of the exemption Notification, Exh. 'F', regarding excise duty exemption for ... Writ Jurisdiction - Refund - Bar of unjust enrichment Issues Involved:1. Legality and validity of the communication dated 23rd August 1982.2. Entitlement to exemption from excise duty under the Notification dated February 28, 1982.3. Entitlement to 'proforma credit' under Rule 56A of the Central Excise Rules, 1944.4. Availability of alternate remedy and jurisdiction of the High Court under Article 226 of the Constitution.5. Interpretation of the term 'used in the manufacture of' in the context of excise duty exemption.Detailed Analysis:1. Legality and Validity of the Communication Dated 23rd August 1982:The petitioners challenged the communication dated 23rd August 1982, which deferred their claim for exemption from excise duty under the Notification dated February 28, 1982. The communication indicated that the petitioners had filed a Writ Petition in the Delhi High Court regarding the classification of processed Tyre Cord Fabrics under Tariff Item 19 or 22 of the Central Excise Tariff. The authorities decided that the exemption could not be considered until the Delhi High Court decided the case.2. Entitlement to Exemption from Excise Duty under the Notification Dated February 28, 1982:The Notification dated February 28, 1982, exempted excisable goods (tyres, tubes, and flaps) from duty equivalent to the duty paid on synthetic rubber used in their manufacture. The petitioners claimed exemption under this Notification, arguing that synthetic rubber used in the dip solution for processing TCWS (Tyre Cord Warp Sheet) should qualify for exemption since the processed TCWS was used in manufacturing tyres. The court found that the petitioners were entitled to claim the benefit of the exemption Notification, Exh. 'F', relying on the Supreme Court decisions that interpreted 'used in the manufacture of' broadly to include processes integrally connected with the ultimate production of goods.3. Entitlement to 'Proforma Credit' under Rule 56A of the Central Excise Rules, 1944:The petitioners claimed 'proforma credit' for the duty paid on synthetic rubber used in manufacturing tyres. However, the court held that the petitioners did not satisfy the conditions of Rule 56A. Specifically, neither the finished excisable goods (tyres, tubes, and flaps) nor the component part (synthetic rubber) appeared in the list of goods notified under sub-rule (1) of Rule 56A. Additionally, the component part and the finished excisable goods did not fall under the same Tariff Item, as required by sub-clause (a) of clause (ii) of sub-rule (2) of Rule 56A. Therefore, the petitioners were not entitled to claim 'proforma credit.'4. Availability of Alternate Remedy and Jurisdiction of the High Court under Article 226 of the Constitution:The respondents argued that the petitioners had an alternate remedy by way of an appeal under Sections 35 and 35B of the Central Excises and Salt Act, 1944, and that the High Court should not entertain the Writ Petition under Article 226. The court acknowledged the pendency of the Writ Petition for nearly ten years and the substantial benefits availed by the petitioners under interim orders. Given the lack of disputed facts and the agreement that the Delhi High Court's decision would not affect the present case, the court decided to address the legal questions raised rather than directing the petitioners to pursue the alternate remedy.5. Interpretation of the Term 'Used in the Manufacture of' in the Context of Excise Duty Exemption:The court relied on several Supreme Court decisions to interpret the term 'used in the manufacture of' broadly. The decisions emphasized that processes integrally connected with the ultimate production of goods should be included within the expression. The court concluded that synthetic rubber used in processing TCWS, which was then used to manufacture tyres, qualified for exemption under the Notification, Exh. 'F'. The court held that the intermediate product (processed TCWS) did not preclude the exemption since synthetic rubber was essential for the manufacturing process.Conclusion:The court held that the petitioners were not entitled to 'proforma credit' under Rule 56A but were entitled to claim the benefit of the exemption Notification, Exh. 'F'. The petitioners were directed to approach the concerned authorities to claim the exemption in accordance with the amended law. The respondents were entitled to recover the proforma credit availed by the petitioners under the interim order, with interest at 12% per annum. The court granted an eight-week stay on the order's operation.