Base-fabric excise duty cannot be recovered before embroidery or export under bond when the notification is silent on timing.

Rule 96DD and Rule 96ZI, read with Notification No. 211/82-C.E., permit cotton fabrics to be removed for embroidery without prior payment of base-fabric excise duty, and they do not require such duty to be paid merely because the fabrics enter the embroidery process. The notification's proviso makes embroidery duty additional to the duty otherwise leviable on base fabrics, but it does not fix the time of payment or displace export under bond. Rebate under the export scheme does not justify recovery of base-fabric duty. The demand notices and recovery orders for duty on embroidered cotton fabrics exported under bond are therefore stated to be unsustainable.

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Issues: (i) Whether, under Rule 96DD, Rule 96ZI and Notification No. 211/82-C.E. dated 31.08.1982, excise duty on cotton base fabrics had to be paid before the fabrics were taken for embroidery or at the time of export under bond; (ii) whether the proviso to Notification No. 211/82-C.E. required simultaneous payment of duty on base fabrics in addition to compounded duty on embroidery; (iii) whether the alleged higher rebate on exported embroidered goods could justify recovery of duty on base fabrics.

Issue (i): Whether, under Rule 96DD, Rule 96ZI and Notification No. 211/82-C.E. dated 31.08.1982, excise duty on cotton base fabrics had to be paid before the fabrics were taken for embroidery or at the time of export under bond.

Analysis: Rule 96DD permitted removal of cotton fabrics without payment of duty for embroidery, subject to the prescribed procedure. Rule 96ZI authorised fixation of a compounded levy for embroidery, and the notification fixed the rate for embroidered fabrics. Neither the rule nor the notification stated that duty on base fabrics had to be paid before embroidery or that such duty became payable merely because the fabrics were moved for embroidery. Where the embroidered fabrics were exported under bond in accordance with Rule 13, the exemption from duty for export remained available and was not displaced by Rule 96DD or Rule 96ZI.

Conclusion: The demand to pay excise duty on base fabrics before embroidery or on export under bond was not sustainable and was against the statutory scheme.

Issue (ii): Whether the proviso to Notification No. 211/82-C.E. required simultaneous payment of duty on base fabrics in addition to compounded duty on embroidery.

Analysis: The proviso stated only that the duty on embroidery would be in addition to the duty leviable under Chapters 50, 51, 52, 54 and 55 of the Central Excise Tariff Act, 1985 on the base fabrics. It did not prescribe the time of payment, did not require payment before the fabrics entered the embroidery process, and did not exclude the operation of the export-under-bond procedure. The departmental view treating the proviso as an immediate levy on base fabrics was therefore inconsistent with the notification.

Conclusion: The proviso did not authorise prior or simultaneous recovery of duty on base fabrics.

Issue (iii): Whether the alleged higher rebate on exported embroidered goods could justify recovery of duty on base fabrics.

Analysis: Rebate under Rule 12 and Rule 96ZK(2) operated on the basis of the notified rebate structure and was not linked to the exact amount of duty paid on embroidered goods. The fact that the rebate might exceed the duty paid was irrelevant to the question whether base-fabric duty was recoverable before export. The trade notices issued later also clarified that no base-fabric duty was payable before the shift and that no such duty was payable on export under bond if the prescribed procedure was followed.

Conclusion: The rebate position did not support the departmental demand for duty on base fabrics.

Final Conclusion: The impugned demand orders and show-cause notices were unsustainable, and the petitioners were entitled to relief against recovery of duty on base fabrics in respect of embroidered cotton fabrics exported under bond.

Ratio Decidendi: Where a compounded levy notification for embroidery does not expressly require prior payment of duty on base fabrics, and the goods are removed and exported under the statutory export-under-bond procedure, duty on the base fabrics cannot be demanded merely on the ground that embroidery duty is separately payable in addition to the duty otherwise leviable on the fabrics.

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