Padma Khastgir, J. - (1.) The petitioner India Jute Company since 9th of November, 1965 carried on and still carries on business inter alia of manufacturing blended yarn containing 60% and above cotton and the balance of staple fibre of cellulosic origin of 1.5 denier and above. The petitioner's factory is situated at Serampore. The petitioner does not manufacture the staple fibre of celJulosic origin used by the petitioner in the manufacture of blended yarn and the petitioner purchases the same from the market. The staple fibre purchased by the petitioner from the market at all material times was and still are excisable under Item 14 of the first Schedule of the Central Excises and Salt Act, 1944 and at the time such articles were purchased by the petitioner they have already been charged excise duty payable under Item 18 of the First Schedule to the said Act.
(2.) The petitioner has discovered that it has been paying duty under a wrong impression and belief that blended yarn of the kind manufactured by the petitioner was subject to excise duty under Item 18A of the First Schedule to the said Act. In the year 1972 Item No. 18E has been introduced to the First Schedule of the said Act. On 19th of June, 1965 by a notification dated 19th of June, 1965 staple fibre of cellulosic origin of 1.5 denier and above falling under Item 18 was exempted from such duty of excise leviable under the said Act which was in excess of 10 paise per kilogram provided the procedure as laid down under Rule 56A of the Central Excise Rules was followed while spinning such yarn. By notification dated 10th February, 1968 the effective rate was changed from 10 paise to 50 paise per kilogram. It is only in the year 1968 by notification the goods falling under Item 18A were brought within the purview of Chapter 7A. The respondents at all material times proceeded on the basis that the blended yarn manufactured by the petitioner fell under Item 18A and were covered by the notifications dated 19th June, 1965 and 10th of February, 1968 and the petitioner also was under the same impression and belief and proceeded accordingly. Under Rule 56A as also Rule 173K. provisions have been made for giving credit to duty already paid on materials received in a factory for the purpose of manufacture of finished products. In the accounts maintained in Form R.G. 23 part I and part II the petitioner has credited from time to time amounts of excise duty already paid on staple fibre utilised by the petitioner in the manufacture of its finished products i.e. blended yarn in accordance with Rule 56A of the rules. By notification dated 29th May, 1971 the notification dated 19th of June, 1965 was rescinded. As on 29th of May, 1971 the petitioner had in stock blended yarn manufactured prior to 6th February, 1971 in respect of which there was a credit balance of 4,826.77 in the R.G. 23 accounts. It is the petitioner's case that the petitioner has a further stock of blended yarn as on 29th May, 1971 manufactured during the period of 6th February, 1971 up to 21st of May, 1971 with the duty paid staple fibre in respect of which the petitioner was entitled to a -credit of 59,221.72 in the same R.G. 23 accounts. These facts have been duly checked and confirmed by the Excise Officers supervising the petitioner's manufacture and clearances. Although under the Notification No. 115/71-C.E., dated 29th of May, 1971 all further credit was disallowed, the said notification according to the petitioner cannot in any way effect the amounts which have already been credited in the R.G. 23 accounts in respect of staple fibre which have already been utilised in the manufacture of blended yarn. According to the petitioner a sum of Rs. 64,048.49 represents the duty paid on the staple fibre used in the manufacture of blended cotton yarn prior to 29th of May, 1971. Hence the same has been utilised before the concession allowed, was withdrawn by the notification. In fact under the earlier procedure no credit could be taken until and unless the staple fibre was in fact utilised in the process of manufacture. Hence the petitioner was entitled to utilise the balance credit towards the payment of duty if any on the blended yarn manufactured prior to 29th May, 1971 and in fact between 29th to 31st May, 1971 the petitioner has adjusted the sum of Rs. 4,533.35 p. at the said R.G. 23 balance credit against duties payable by the petitioner for the clearance of 11,548.12 kilogram of blended yarn manufactured prior to 29th of May, 1971 but the Excise officer wrongfully and illegally prohibited the petitioner from utilising any further credit on account of duty paid staple fibre towards payment of duty of any further clearance of such stock manufactured before 23rd of May, 1971 and lying in the petitioner's factory on 29th of May, 1971. The petitioner objected to the said direction of the officer and submitted a statement to the excise authorities showing the rebate the petitioner was entitled to for the staple fibre consumed by the petitioner till 5 p.m. on 28th of May, 1971. By letter dated 4th of April, 1972 the Inspector, Central Excise forwarded an extract of order passed by the respondent. No. 1 Assistant Collector of Customs to the effect that the petitioner may credit relevant amount to the petitioner's R.G, 23 account in respect of the staple fibre used by the petitioner from 6th February, 1971 up to 2.1st of May, 1971 up to 700 hrs. for the manufacture of blended yarn. It was stated that the said amount would not be available to the petitioner for payment of any duty of any commodity manufactured by it. According to the petitioner no copy of the said order of the respondent No. 1 was ever served on the petitioner. The said order according to the petitioner is illegal and contrary to the provisions of the act and the rules framed thereunder. By a notice dated 27th of June, 1973 the petitioner was asked to show cause as to why penalty should not be imposed on the petitioner under Rule 173 read with Rule 9(2) by reason of the petitioner having removed the blended yarn from the petitioners factory at Serampore between 29th of May, 1971 and 31st of May, 1971 after debiting a total amount of Rs. 4,533.35 p. from the R.G. 23 accounts of the petitioner. According to the respondents the said removal was unauthorised and amounted to a contravention of the provisions contained in Rule 173G read with Rule 9(1) of the said Rules. Thereafter a personal hearing was granted to the petitioner. At the hearing on 28th of November, 1973 the respondent No. 1 held, that after 28th May, 197l the petitioner was not entitled to utilise any credit whatsoever and that utilisation of the credit to the extent of Rs. 4,533.35 was wrongful. Under those circumstances, the petitioner agreed to pay the said sum without prejudice to the petitioner's right to claim a refund of the same. On demand made on 11th March, 1974 the petitioner deposited the said sum of Rs. 4,533.35 p. at the Sub-Treasury Office, Serampore, Hooghly. The petitioner demanded the refund of the said amount from the respondent by letter dated 14th of March, l974. Thereafter the respondents refused to permit the petitioner to clear any blended yarn from the factory which was manufactured prior to 29th May, 1971 until the petitioner paid excise duty on such blended yarn without utilising any credit whatsoever.
(3.) Under those circumstances the petitioner was compelled to clear the goods on payment of duty alleged to have been payable as claimed by the respondents. Hence according to the petitioner the respondents have illegally and wrongfully recovered those excise duty in. violation of the notifications. Hence they are bound to refund the same to the petitioner. On 7th of March, 1974 the petitioner made an application for refund of the said sum of Rs. 59,515-14 which according to the petitioner, the petitioner was compelled to pay under the circumstances as indicated earlier. By an order dated 27th of May, 1974 the respondent did not consider the petitioners claim for refund of the said amount on 5th of June, 1974. The respondent No. 1 without giving an opportunity of showing cause or a personal hearing, have rejected the petitioners claim for refund of the said sum of Rs. 59,515.14 in violation of the principles of natural justice and in violation of the provisions of the rules framed under the Excise Act. Thereafter the petitioner preferred an appeal but without giving any hearing to the petitioner the respondent has disposed of the appeal on 1st of February, 1975 and rejected the petitioners claim for refund. The said appeal of course permitted the petitioner to utilise the balance proforma credit particulars of payment of duty on the finished products made in combination of staple fabric falling under the same tariff as on 29th May, 1977 but however no refund was permitted. Thereafter a revision petition was filed to the Joint Secretary Government of India by the petitioner. The said revision petition was rejected on 15th of October, 1976. The respondents Ncs. 3 & 4 i.e. Appellate Collector as also the Joint Secretary accepted the fact that the petitioner was entitled to utilise the credit in respect of the blended yarn manufactured prior to 29th May, 1971 in which duty paid staple fibre has been utilised yet wrongfully and unreasonably failed to give an order for refund of that proportion of duty which was actually paid by the petitioner. If the petitioner was given an opportunity of utilising the credit earned prior to 29th May, 1971 what prevented the authorities from granting the order for refund relying on the same principle on the same basis on which the department permitted the petitioner to utilise the credit earned. The mere fact that the goods have already been cleared by payment of duty under the circumstances as stated above would not entitle the department to retain that portion of the duty which was not payable. Hence the petitioner feels that the respondents are under an obligation to refund the same.;