1987 (7) TMI 263 - AT - Central Excise

Summary

Issues:
1. Classification of Rayon Tyre Cord Fabrics under Central Excise Tariff (CET).
2. Validity of credit taken by the respondents under notification No. 201/79.
3. Applicability of Section 11A of the Central Excises and Salt Act for the demand.
4. Interpretation of paragraphs 3 and 4 of the notification's appendix.

Analysis:
1. The case revolves around the classification of Rayon Tyre Cord Fabrics under the Central Excise Tariff (CET). Initially classified under item 68 CET, the Supreme Court later reclassified it under item 22 CET, leading to a dispute regarding the duty credit taken by the respondents for the period from 19-9-1979 to 31-12-1980.

2. The respondents, manufacturers of tyres and rubber products, had obtained permission under notification No. 201/79 to take credit for duty paid on the Rayon Tyre Cord Fabrics under item 68 CET. The Department contended that since the fabric was reclassified under item 22 CET, the credit taken by the respondents was incorrect, leading to a demand for repayment of Rs. 6,30,838.05P.

3. The Department initially relied on Section 11A and Rule 10 of the Central Excise Rules for issuing the demand notice. However, a revised notice cited paragraph 4 of the notification's appendix as the basis for the claim. The respondents argued that the demand was time-barred under Section 11A and that paragraph 3, not paragraph 4, should govern the case.

4. The Tribunal analyzed paragraphs 3 and 4 of the notification's appendix to determine the appropriate provision for the demand. It concluded that paragraph 3 applied in this case as it covered situations where duty paid on inputs was varied subsequently, resulting in a refund to the manufacturer of the inputs. Since the manufacturer of the fabric had applied for a refund under item 68 CET, paragraph 3 was deemed applicable.

5. The Tribunal noted that the rejection of the refund claim by the fabric manufacturer was based on the duty already set off by the tyre manufacturers. Despite this rejection, the Department sought to recover the amount from the respondents, contradicting its own reasoning.

6. As the condition precedent for invoking paragraph 3 of the notification was not met due to the rejection of the refund claim, the Tribunal upheld the order of the Collector (Appeals) and dismissed the appeal. The judgment emphasized the correct application of the notification's provisions and the lack of basis for the demand in this case.