TMI Blog1971 (7) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... d depending upon our decision as to which one of these three rules is applicable, this further point in Special Civil Application No. 585 of 1968 will have to be decided. In order to appreciate the rival contentions which have been urged in these two matters, it is necessary to set out certain facts. 3.The petitioner Company has a chemical factory at Mithapur in Jamnagar district in the state of Gujarat. The said Company manufactures various chemicals including soda ash. Soda ash is utilised as a chemical in various processes and the petitioner's factory itself also utilises soda ash. Such use is made for the following purposes :- (1) Soda ash is used for purification of brine, which is utilised for the purpose of manufacturing further soda ash. It may be mentioned that brine in this context means a solution of ordinary common salt, (sodium chloride) in water; and this solution of common salt in water is then purified by different chemicals processes and the resultant purified brine is used to manufacture other chemical products. The petitioner's(2) factory also uses soda ash for the manufacture of (i) copper oxychloride, where soda ash is used as a re-agent, (ii) fustie, (ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes of production inside the factory. Various decisions appear to have been taken at a meeting of the Secretary, Department of Revenue and the Collector of Central Excise in respect of commodities affected by the Finance Bill of 1961. Those decisions appear to have been adopted by the Board of Revenue and by a letter dated 3rd April 1961, the Board of Revenue passed on its decisions regarding exemption inter alia of soda ash from levy of excise duty insofar as small quantities of soda ash were involved. The relevant portion of the letter of the Central Board of Revenue is in these terms :- "(4) Soda-ash. Soda-ash issued in large quantities for any industrial process within the factory of production will be subjected to duty: Where however, small quantities of soda ash are used within the factory for manufacture of either excisable or non-excisable commodities no duty may be levied." The Collector of Central Excise, Baroda, issued a Trade Notice bearing No. 73 of 1961, and by this Trade Notice this decision of the Board to exempt small quantities of soda ash used within the factory for the manufacture of soda ash or any other excisable or non-excisable product from the lev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufacture of caustic soda and it has been represented that such caustic soda should not be charged to duty. After careful consideration, the Board have decided that the factories using soda and/or caustic soda for the purification of brine may be allowed to consume duty free soda ash and/or caustic soda upto a maximum limit of 3 per cent. Duty should be charged on the quantities consumed in excess of the above limits. The maximum 3 per cent exemption limit for soda ash and/or caustic soda used for the purification of brine should be calculated on the common salt (i.e. the equivalent 100 per cent common salt in the brine solution) and not on the total production of caustic soda in the factory." Thereafter no further Circulars appear to have been issued by the Board of Revenue but on a query raised by one of the excise officers as to the method of computation of 3 per cent of the soda ash as co-related to the consumption of common salt in the process as mentioned in the earlier circulars, a clarification was issued by the Board of Revenue on May 15, 1965; and thereafter that letter of clarification issued by the Board of Revenue was circulated to all concerned together with a copy o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for manufacturing either excisable commodities including soda ash or non-excisable products. Then it was contended that for manufacturing soda ash another products at the words of the petitioner, steam and power were the most essential commodities without which these products could not be manufactured. Therefore, soda ash used in water softening plant and in the demineralisation plant for purifying water to be supplied to the boiler would not attract the payment of the duty if soda ash comes within 3 per cent limit. It was pointed out that the use of soda ash or purifying water in the water softening plant and also in the demineralisation plant for steam and power required for manufacturing soda ash and other products was within the factory premises of the petitioner-company and, therefore, no duty could be levied for such use if it was within the prescribed limit of 3 per cent in accordance with the Trade Notice. In furtherance of that letter, the acting General Manager of the Company in charge of the factory at Mithapur addressed a letter, dated May 2, 1962, reiterating the stand of the Company and calling upon the Inspector to release three tons of soda ash duty-free for the wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not to present AR-1 for this, but only a requisition memo, a copy of which was already shown to Mr. Shah of your Department and the whole procedure explained to him even before commencement of July month. But this is not done. Please see that this procedure is properly followed. Your AR-1 dated 6-7-1961 for the clearance is returned for this. This requisition memo is to be got sanctioned before the clearance is effected and not on the next day as in case of duty paid goods." 8.This letter of the Inspector of Central Excise will have considerable importance when we come to consider the argument regarding the demand notice and the period of limitation; and consideration of Rules 9, 10 and 10A of the Central Excise Rules, 1944. 9.On July 3, 1963, a Demand Notice was issued by the Excise Authorities for sum of Rs. 1,71,093.10P on the footing that that was the amount of Excise Duty payable in respect of soda ash which had been cleared duty free though that much quantity of soda ash was not exempted from the payment of duty. This demand was in respect of soda ash used during the period April 24, 1961 to July 2, 1963. Against this Demand Notice, there was an appeal and representatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urification of brine, provided purification of brine is one of the necessary processes for the manufacture of a particular product, viz., soda ash which requires use of purified brine; but it is contended by the Excise Authorities that process of purification of brine is not required in the actual process of manufacture of copper oxychloride, fusite, sodium bicarbonate, sodium carbonate monohydrate and sodium bromide or in water softening and demineralisation process. The petitioner-Company on the other hand contends that the exemption has been granted by the decisions of the Central Board referred to above irrespective of the process of purification of brine in the manufacture of a particular product so long as the total quantity of soda ash does not exceed the exemption limit of 2 per cent or 3 per cent, as the case might be depending upon the period concerned so long as the soda ash is used within the factory premises for one or the other of its industrial processes for manufacturing excisable or non-excisable products. 11.So far as Special Civil Application No. 585 of 1968 is concerned, it is further the contention of the petitioner that the Demand Notice of Rs. 1,71,098.10 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st by the petitioner Company and applications for refund of these amounts of duty so paid were made from time to time. In connection with these five batches for the different periods referred to above the petitioner-Company puts forward the main contention which is set out hereinabove as the first contention when dealing with the contentions in connection with Special Civil Application No. 585 of 1968. The difference between the Department on the one hand and the petitioner-Company on the other is as to whether soda ash was used for the manufacture of chemicals or chemical products when the process of manufacture of the product in question involves purification of brine as an essential ingredient of the process or whether duty free soda ash could be used within the permissible limits irrespective of the question of purification of brine as an essential ingredient of the process being involved in the manufacture of the particular product concerned. 13.Before we come to consider the main contention and the arguments regarding the first contention in Special Civil Application No. 585 of 1968, we may point out that an attempt was made on behalf of the Excise Authorities to contend th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The power to exempt any excisable goods from the payment of duty cannot be said to be a matter of departmental instructions or supplemental instructions referred in Rule 233; and, therefore, this particular argument urged on behalf of the Excise Authorities must be rejected. 14.We may point out that the very language used in these different decisions of the Central Board indicates that the Board was utilising its power given under sub-rule (2) of Rule 8 for the purpose of exempting small quantities of soda ash used within the factory in the manufacture of soda ash itself and other excisable or non-excisable products. By the decision taken by the Central Board on April 3, 1961, it was decided that small quantities of soda ash not exceeding 3 per cent of the monthly production when used within the factory in the manufacture of soda ash or any other excisable or non-excisable products was not liable to repayment of any excise duty. By the decision of the Central Board of June 9, 1961 the earlier decision remained the same viz., small quantities of soda ash ought be issued free of duty for use within the factory for manufacture of other excisable or non-excisable commodities; but t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs claim that the common salt (impure sodium chloride) used by them is too impure and requires a larger amount of sodium carbonate (soda ash) for purification, a sample may be sent to the Chief Chemist, Central Revenues Control Laboratory, New Delhi, for test to fix up the percentage of soda ash required for purification." Even in this latter portion, the Board indicated that the limit of 2 per cent of the quantity of common salt put into the process had reference to the total quantity of common salt used by the factory in all processes irrespective of purification of brine being an essential ingredient of the process for the manufacture of a particular product. 15.The decision of the Board given on December 28, 1961, merely raised the limit of exemption from payment of duty from 2 per cent to 3 per cent; and even in this decision of December 28, 1961 the Central Board did not indicate that purification of brine was to be an essential ingredient of the process of manufacture of a particular product before computing the total quantity of soda ash to be used within the factory for manufacture of any such excisable or non-excisable goods. The decision of the Board dated February 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used in the process, the Central Board did not co-relate soda ash to common salt used in the brine, for the purification of which the necessary quantity of soda ash was to be utilised as an essential process for the manufacture of a particular product, the subsequent stand of the excise authorities is not tenable. The correspondence which we have referred to above regarding the use of soda ash for the purpose of water-softening plant of the petitioner Company at Mithapur also goes to show that the Excise Authorities themselves had interpreted the decisions of the Central Board on these lines. It seems that it was only after the decision of February 13, issued in connection with the manufacture of caustic soda that the Excise Authorities started thinking along different lines and for the first time on April 4, 1963 a letter was addressed by the Excise Authorities to the petitioner-Company saying that no duty-free soda ash clearance would be given for use in the manufacture of certain products as no common salt was used with soda ash in the manufacture of those products. So far as this main contention is concerned, the interpretation sought to be put by the Excise Authorities on thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have the effect of validating or explaining away all that had been done till that date. If the Board wanted to vary, amend or alter its earlier decisions regarding exemption it could have done so clearly in a forthright manner by issuing another Notification and it could not be done by way of explanatory letter addressed by it to one of its Excise Offices. 18.Over and above this first contention, there is an additional ground why Special Civil Application No. 585 of 1968 must be allowed. 19.Coming now to the second contention of Mr. Nanavati in connection with Special Application No. 585 of 1968, it may be mentioned that the Inspector of Central Excise himself asked the petitioner-Company not to submit AR-1 form and, therefore, a representation was made by the Excise Office concerned to the petitioner-Company not to present AR-1 form. We are emphasizing this aspect because there is a line of decisions which lay down that in order to get exemption from payment of excise duty a form called AR-1 form should have been presented and 'NIL' endorsement should have been obtained in order to secure the benefit of Rule 10 and in order to get away from Rule 9 of the Rules. In this connect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y or sum shall, on a written demand made by the proper officer, be paid to such person and at such time and place as the proper officer may specify. It is, therefore, clear that if this is not a case of evasion or of clandestine removal, the case cannot fall under Rule 9 and no demand can be made under Rule 9(2). The Supreme Court pointed out in N. B. Sanjana's case (supra), that sub-rule (2) of Rule 9 is a penal provision as shown from the fact that apart from the duty payable, the party is also made liable to a penalty and he also incurs the risk of the goods being confiscated. To attract sub-rule (2) of Rule 9, the goods should have been removed in contravention of sub-rule (1). Even if it were to be held that the goods were removed on mere requisition slips without presentation of AR-1 form, it cannot attract Rule 9 in the present case in view of the attitude taken up by the Inspector of Central Excise at Mithapur as far back as July, 1961. It must be held that the Excise Authorities themselves represented to the petitioner Company that the goods could be removed duty free on mere requisition slips and that presentation of AR-1 forms was not necessary and getting of 'NIL' endor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing that the case of the petitioner Company would fall under rule 9 simply because AR-1 form was not filled in at the time of clearing the duty free soda ash in the past. 22.It is clear in the light of the decision of the Supreme Court in N. B. Sanjana's case (supra), that the word "paid" occurring in Rule 10(1) means "ought to have been paid", and that being the case, in computing the period under Rule 10(2) we have to compute the period of three months not from the date on which the duty was short levied but from the date it ought to have been paid; and that means that all the duty free clearance of soda ash which has reference to the period prior to three months immediately preceding the demand must have been time barred and no demand in respect of such clearance can be made. It is clear taking the case of the Excise Authorities at its highest it was through misinterpretation on the part of the Excise Authorities that upto April 4, 1968 the goods were allowed to be cleared without payment of duty in that behalf. It was either through inadvertance, error or misconstruction on the part of the officer or officers concerned that soda ash was allowed to be cleared duty free for use ..... 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