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Issues: (i) Whether Notification No. 355/86-C.E. permitted only exemption to the extent of duty already paid on cut tobacco, or whether it entitled the manufacturer to treat such duty as set-off or Modvat credit while recovering full duty from customers; (ii) whether recovery of the excess amount from customers was exigible under Section 11D and whether the demand was barred by limitation.
Issue (i): Whether Notification No. 355/86-C.E. permitted only exemption to the extent of duty already paid on cut tobacco, or whether it entitled the manufacturer to treat such duty as set-off or Modvat credit while recovering full duty from customers.
Analysis: The notification, issued under Rule 8(1) of the Central Excise Rules, 1944, was held to be plain and unambiguous. It exempted cigarettes from duty to the extent equivalent to duty already paid on cut tobacco used in manufacture. It did not create a Modvat credit scheme or a general right of set-off that would justify collection of full duty from buyers. The earlier view taken in the appellant's own case, that the notification was not one permitting credit on inputs, was also relied upon.
Conclusion: The notification did not entitle the assessee to recover more than the duty actually payable after the exemption benefit; the contention was rejected.
Issue (ii): Whether recovery of the excess amount from customers was exigible under Section 11D and whether the demand was barred by limitation.
Analysis: Once the assessee had collected from customers an amount represented as duty in excess of the duty actually paid, the excess became recoverable under Section 11D of the Central Excises and Salt Act, 1944. The attempt to retain both the exemption benefit and the full duty collected from customers was treated as impermissible double advantage. On limitation, no statutory period was prescribed for recovery under Section 11D, and action taken after earlier departmental correspondence was held to be within a reasonable period in the circumstances.
Conclusion: The demand under Section 11D was maintainable and not time-barred; this issue was decided against the assessee.
Final Conclusion: The exemption notification was confined to the duty already paid on inputs, the excess collected from buyers was recoverable under Section 11D, and the order of the Commissioner (Appeals) was sustained.
Ratio Decidendi: A clear exemption notification must be given effect according to its plain wording, and where an assessee collects from customers more than the duty actually payable after availing the exemption benefit, the excess is recoverable under Section 11D even in the absence of a prescribed limitation period, subject to action within a reasonable time.
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