Holding

The exemption under Notification 180/61 is available only if the input dyes were liable to excise duty at the time of their manufacture and duty had been paid; voluntary payment on non‑liable dyes does not confer exemption, and the demand is properly made under Rule 10‑A, not Rule 10.

Summary

Atul Products Ltd manufactured synthetic organic dyes (cibagenes and cibanogenes) and relied on Notification No. 180/61 dated 23 November 1961, which exempted dyes from excise duty if they were produced from other dyes on which duty had already been paid. The basic dyes used were manufactured before Item 14D of the Central Excise and Salt Act came into force, when no duty was payable on them, and Atul voluntarily paid duty later to claim exemption for the final products. The Central Excise Department later issued demand notices under Rule 10‑A alleging a short levy. The Gujarat High Court held that Atul was entitled to the exemption and quashed the notices. The Supreme Court reversed, holding that the exemption applies only when the input dyes were liable to duty at the time of their manufacture and that voluntary payment on non‑liable dyes does not confer exemption. The Court also clarified that the demand falls under the residuary Rule 10‑A, not Rule 10, and that the limitation period under Rule 10 does not apply. Consequently, the High Court judgment was set aside and the demand upheld.

Issues considered

Whether the exemption under Notification No. 180/61 is available when the input dyes were manufactured before the introduction of Item 14D and were not liable to excise duty at that time.
Whether the demand for deficit duty can be made under Rule 10 or Rule 10‑A of the Central Excise Rules, 1944.
Whether the doctrine of promissory estoppel can be invoked by the assessee.
Whether the limitation period prescribed in Rule 10 applies to the present demand.

Legislation cited

Central Excise and Salt Act, 1944s. Section 3, s. Section 4
Central Excise Rules, 1944s. Rule 10, s. Rule 10‑A, s. Rule 52, s. Rule 52‑A, s. Rule 8(1)
Finance Act, 1961s. Item 14D of the First Schedule
Indian Evidence Act, 1872

Subjects

Excise dutyExemption notificationSynthetic organic dyesCentral Excise RulesRule 10Rule 10‑APromissory estoppelLimitation periodVoluntary payment

Judgment

S-32

A
D.R. KOHL.I AND ORS.

v.

ATUL PROl)UCTS LTD.
B
February 1!1, 1985

(0. CHINNAPPA REDDY, E.S. VENKATARAMIAH AND SABYASACHI
Mn:HARJ\, JJ.]

c Ctntral Ex1lse and Salt Act 19U, First Schtdul• lttm 84D and Jllnlstry
of1'1nance Notification No. 180/61 dated Nov•mb•r 23, 1961.

S1nthtti< or1anl1 d1estuffs and s1mbttlc or1anl1 derivati,.• ••dln d1tlng
proct1s-Extmption of dyes from •xclst duty if and t>1t/1 if suci d1es had b..n
manufactured from other dyes on which excise duty had b..n patd-Ben•fit of
D exemption whether can bt cla/,,,ed If the d1es wlren ••lilfactured wtr• not
//obit for excise d•t1.

Ctntra/ Excise Rules 19U, Rul• 10 and JOA; Rule 52 and 52A-Scope
of and difference bttw..n-Calculatlon of period of limitation for recovery of
E deficit dut:y-Slartlng polnt-Wh•n arises.

Indian E•idtnce Act :

Promissory Estoppel-Doctrine of-Notification regarding exemption
from paym,nt of excise duty in regard to dycstujfs-Manuf•cturer not lfavln,
F done an)•thing prtjudici•l t• his Interest relying upon rtJJrtsentation of dtp.,t-
ment-Voluntary payment •I excise duty-Plea of 11ro111issory estoppel- ~J
Wlretlfer permissible.

Words O#d nrasts :

''ald'-M••nlng •f-C1ntral Excise Rules 19U, llul• JO. ,
G Tbe respondent was tb1 owner of a factory carryin1 on the bu1ineu
of manufacturina dy11, 1lt1•ieals aRd pharaaceuticals fro• a n1;1mb1r of
years.

By the Finance Act of 1961 'synthetic or1anic dyostoll'1 (including
ti pi,mont d7esto11'1) and •rntqetic orsaniq derivatin• Ulld in •111 d7oina pro-
D.R. KOHLI v. ATllL PRODUCTS 833

, 0111• wero added as Item 140 in tbo First il1h1d11le to tbo Coatral llil•ioo
and Salt Act, i 944 with effect from Marob !, 1961, and 1on11~•1ntly tile
respondent becam1 liable to pay excise duty impose~ by the Act .on two of
its pro"ucts known as cibagenas and •ibano1~•s which ••r• b~I~J man•·
A

facturod.

On NOl'cmber 23, 1961, the Central Government i11ued a notification B
under Rule 8(!) of the Central Excise Rules, 1944 exempting the dyeo spec!·
fied in the Sched11le annexed thereto from the whole or the olicise duty
loviable thereon If and only if such dyes had boon manufactared from any
other dye on which e1cise duty or countervailing customs duty bad already
been paid.

Cib~&0pe1 and cibano,senos which were bejns m~nufRcl,l!I"•~. ,biJ'
.l\>o c
~1111Poq4~nt belon~d to the class of dyes refo~red. to in t~,e S<;hcl\11le. ~
t,o the said notification.

In pui-suance to the correspondence e•changed between the respon·
dent and the Superintendent of Central E1ci1e, tho Deputy Saperiatondont
was instructed to receive duty on such fast colour bases which went into the D
production of ciba1anes or cibanoaeno• (processed dyes) by the re11pondont,
and tho respondent accordingly paid tho duty and was ..empted from pay·
ment of duty on cibanQgeocs manufactured by it.

The departmental audit party, later on noticed that the conce11ion
shown to the respondent was not in order, since it was onl1 when duty had
been paid on the basic dyes at the time of th~ir manufacture wh~n they were
chargeable to duty and they had been purchased by the re~on<!Jlllt !bore·
after, the respondent would get exemption from the duty payable of. the
products manufactured by it by employing such basic dyes. It Was furlher
of the view that there was short levy of excise dutY on account of the above
mistake since the respondent had paid e:acise duty on the basic dfes at 30 %
ad valortm whereas it was liable to pay duty at 30% ad valorem on the
products manufactured by it which were costlier than the basic dyes.

In pursuance to the aforesaid objection, the Assistant Collector issued
five notices under Rule 10-A of the Central Excise Rules to the respondent
calling upon it to show cause as to why the deficit amount of eaciso duty
should not be recovered.
G

The respondent, denied its liabiJity and contended that it ha• cleared
the products manufactured by it in accordance with the Rules and pleaded
that there was no justification to conclude that it was required to pay ea.cisc
duty on the fast colour bases used by it in manufacturing the said goods
voluntarily and that Rule lO·A of tho Rules was not applicable to the case
~pd no demang cogld be rnage. The Assistant Collector overrq led the
ff
•
834 SUPREME COU I! T REPORTS (1985] 2 S.C.R,

A objections or the respondt.nt and directe<I it to pay the amounts which had
been demanded in the notices by issuing appropriate notices of demand.

Aggrieved by the demand notices, the respondent filed a writ petition
questioning their correctness, and for an order directing the excise autho·
rities not io recover the amounts. The High Court, allowed the writ petition
and held that the respondent was entitled to ibe benefit of the exemption
B
under the notification in respect of tho goods manufactured by it, as excise
duty had been paid on the dyes used in the manufacture of the said goods,
and directed the excise authorities not to ·recover the sums mentioned in the
demand notices.

In the appeals to this Court, on the questions (i) Whether the respon-
C dent was entitled to the benefit of the exemption notification dated November
23, 1961 when the dyes said to have been u·sed by the respondent in the
manufacture of other dyes were not liable for payment of excise duty whoo
they wore manufactured and (ii) Whether the demands fell within tho ocope
of Role 10-A or uader Rulo 10 of the Central Excise Rules 1944.

Allowin1 the Appeal,
D
HELD : 1. (i) The exemption notification dated November 23, 1961
·specifically states that if and only if tho dyes are manufactured from any
other dye on which excise duty or countervailing customs duty has already
been paid, the eaemptioo can be availed of by the manufacturer of such
dyes. [843B; E)

E (ii) Payment of excise duty on dyes was possible only if they bad been
manufactured after the introduction of Item 14D into the First Schedule to
the Act. [843F]

In the instant case, the dyes which were used by the respondent bad
been manufactured prior to that date. !843F]
F
lnnamurl Gopalan & Ors. v. State of Andhra Pradesh, (1964] 2 S.C.R.
888, distinguished.

Hansraj GordhandaJ v. H. H. Dav~, Assistant Collector of Central Excise
& CuHoms, Surat & two Ors., [1969] 2 S.C.R. 253, inapplicable.

G
(iii) A voluntary payment of excise duty on dyes which were not liable ' f
for such payment would not tarn any exemption under the notification.
(84SF]
-~'
··~'
In the instant case, the principle of promissory estoppcl cannot be
pleaded. The respondent bad not done anything preJlldicial to its interest
relying upon any r:presontation made on behalf of the department. It is
·-"""·
D.R. KOHLI V. ATUL PRODUCTS 835

not the case of the respondent, that it would not have manuractured the A
dyes but for the.advice given by the Department. The respondent, had
·. before it the exemption notification which alone could be the basis for its
( actions. The Oe-partmcnt was not expected to tender legal advice to the
respondent on a matter of this nature. {845C·D)

2. (a) The points of difference between Rule 10 aad JO-A of the B
Rules are that : (i) Rule 1O applies to cases of short levy through inadver-
tence, error, collusion or mis·construction oa the part of an officer, or
through mis-statement as to the quantity, description or value of the excis·
able goods on the part or the owner. Rule 10-A a residuary clause applies
to those cases not covered by Rule 10, and (ii) Under Rule JO, the deficit
amount could not be collected after the cxpiry of three months from the
date on •.vhich the duty or charge wus paid or adjusted in the owners account C
current or from the date of making the refund, Rule 10-A does not contain
aoy such period of limitation. [846F-H)

(b) In calculating the period or limitation, the expression 'paid' in
Rule l 0 should not be Jit era11y construed as 'actually paid' but as 'ought to
have been paid' in order to prevent a person who had not paid any excise
duty at all which he should have paid from escaping, from the act of Rule D
10 of the Rules. [84 7B.c]

N.B. Sanjana, Assistant Collector of Central Excise; Btnnbay & Ori. v.
Elphinstone Spinning & Weaving Miils Co. Ltd., [1971) 3 S.C.R. 506, Assis-
tant Collector of Central Excise, Calcutt Dlvis/011 v. National Tobacco Co. of
India Ltd., (1973) 1 S.C.R. 812 and Gu••ahal Salgal v. Commissioner of
Income tax, Punjab, [1963) 3 S.C.R. 893 referred to.
R

In the instant case, there has been no assessment of the manufactured
goods at all as contemplated by Rule j2 of the Rules and the delivery of
the goods bas taken place contrary to Rule 52 A of the Rules. The Depart-
ment was virtually inveigled into a trap by the respondent suggesting that
it was too eager to pay excise duty on certain goods which to the knowledge F
of the respondent were hot liable for ex.ise duty with the object of getting
the benefit or the right to clear its products which were Hable for higher
excise duty because of their increased value without paying any duty at all.
Rule 10 of the Rules deals with four kinds or mistakes on the part of an
officer which bring a case within its sweep. Of them 'inadvertence', 'error'
and •mis-construction' are mistakes which can be committed unilaterally by
the officer himself. 'Collusion' involves pact between two or more persons
G
to defraud the Government. This case does not involve any unilateral
mistake on the part or an officer or collusion nor where throuah mis-state.
ment as to quantity, description or value or goods on the part of the owner
short levy has occasioned. Further, the error in this case has not taken
place at the time of the assessment or at the time when assessment ought
lo ~ave been made uoder R11le 52. [848H; 849F-H]
u
836 s•PllBl4B C01'RT RQPORTS [1985) 2 s.c.R.

A Jn the instant case, the discussion and correspondence between the
aasessee and tho officers bad taken .place on December 20, 1961, D.ecember
22, 1961 and January 4/6, 1962 without reference to the actual goods.
The goods were actually manufactured and cleared afterwards. The reply
of the Superintendent of Central Excise dated January 4/6, 1962 was in
the nature of advice and not an assessment as contemplated under Role 52.
B This case is not therefore covered by Rule 10 at all. Rule IO·A which is 8
residuary provision is, therefore, necessarily attracted. The pica of limita-
tion raised on the basis of Rule 10 of the Rules does not therefore
survive. [BSOA·B]

CivIL APPELLATE JuR1so1cnoN: Civi!Appeal No. 2377 of 1970.
c
On appeal by certificate from the Judgment and Order dated
9/10.7.69 of the Gujarat High Court in Special Civil Application No.
624of1964.

D D.K. S~n, V.C. Mahajan and R.N. Poddar for the appellants.

K.K. Venugopal, D.N. Misra, TM Ansari and P.K. Rana for
the respondent.

E The Judgment of the Court was delivered by

VllNKATARAMIAH, J. This appeal by certificate under Article
133(1) (al of the Constitution is filed against the judgment and order
dated July 9/10,1969 in Special Civil Application No. 624 of 1964
on the file of the High Court of Gujarat filed under Article 226 of
F the Constitution by M/s. The Atul Products Ltd., the respondent in
this appeal.

The respondent is the owner of a factory at Atul in the State of
Gujarat jn which it has been carrying on the business of manufac·
turing dyes, chemicals and pharmaceuticals frClm a numb er of years.
G By the Finance Act of l 961 'synthetic organic dyestuffs <including
pigment dyestuffs) and synthetic organic derivatives used in any
dyeing process' were added as Item 14D in the First Schedule to the
Central Excise and Salt Act, 1944 (hereinafter referred to as 'the
Act' with effect from March 1, 1961 and consequently the respondent
became liable to pay excise duty imposed by the Act on two of its
H products known as cibagenes and cibanogenes which were being
D.R. KOHLI v. ATUL PRODUCTS (Venkataramlah, J.) 837

manufactured by it by virtue of section 3 of the Act which provided A
+ that excise duty prescribed by the Act was leviable on all excisable
goods specified in the First Schedule to the Act. Item 14D in the
First Schedule during the relevant period read thus :

"14D, Synthetic organic dyestuffs B
(including pigment dyestuffs) and synthetic
organic derivatives used in any dyeing Thirty per cent
process. ad valorem.

But on November 23, 1961, the Central Government issued a
notification under Rule 8(1) of the Central Excise Rules, 1944 c
(hereinafter referred to as 'the Rules') exempting the dyes specified
i11 the Schedule annexed thereto from the whole of the excise duty
..,. Ieviable thereon if and only If such dyes had been manufactured from
any other dye on which excise duty or countervailing customs duty
had lllready been paid. The notification read thus :
0

"Government of India

Ministry of Finance (Department of Revenue)

New Delhi, dated the 23rd November E
1961 the 2nd Agrahayana, 1813 S.E.

NOTIFICATION
F
Central Excise

GSR. In exercise of the powers conferred by sub-rule
(I) of Rule 8 of the Central Excise Rules, 1944, as in force
in India, and as applied to the State of Pondicherry, the
Central Government hereby exempts the dyes specified in G
the schedule annexed hereto, falling under Item No. 14D of
the First Schedule to the Central Excises and Salt Act, 1644
(I of 1944> from the whole of the excise duty leviable
thereon if and only if, such dyes are manufactured from any
other dye on which excise duty or countervailing customs
duty has. already been paid.
ff
838 SUPllmlll COtlaT REPORTS [1985) 2 s.c.a.

A Schsdale -+

I. Solubilised Vats,

2. Rapid fast colours,
B 3. Rapidogenes, ¥'

4. Fast Colour Salts. -.
(180(61)
sd/- (B.N. Banerj)"
c
It may be stated here that eibagencs and cibanogeaes which
were being manufactured by tho respondent belon1 to the class Of ...
dyes referred to in the Schedule annned to the above said notifica·
ti on. After the above notification was issued, the respondent wrote
a letter dated December 22, 1961 to the Superintendent of Excise,
D Bu!sar Division, Bulsar which read as folloWI :

~•near Sir,

~
You are aware that under the Notification No. 180/61
of the 23rd November, 1961 issued by the Government of
E India, Min. of Finance <Dept. of Revenue), Rapidogenes/
Rapid fasts and fast colour bases are exempted from the
excise duty provided such dyes are manufactured from other
dyes on which excise duty or countervailing customs duty
has already been paid.

'
F
During the course of discussions we had on the 20th ._.!
December, 1961 with the Collector of Central Excise and
yourself, we pointed that we purchase Fast Colour Bases,
required in the prodution of Rapidogenes/Rapidfastseither
from the manufacturer in Bombay or from the open market.
G The material which the local manufacturer has offered us
was produced before, the imposition of excise duty on
dyes. He is, therefore, willing to sell us the material without
,(
the recovery of excise duty. We now propose to pay the
excise duty on the fast colour bases which we will purchase
from the local manufacturer so that we do not have to pay
II
D.R. KOHLI v. ATUL PRODUCTS (Venkataramiah, J.) 839

excise duty on the final products produced viz. Rapidogenes/ A
Rapid fasts.
Similarly we propose to purchase some quantity of
imported fast colour bases from the open market. We
will present the materials thus purchased to you for the
recovery of excise duty@l53. B
We have now to request you to advise your Inspector
at ATUL to accept the excise duty on the fast colour Bases,
which we will purchase either from the local manufacturer
or from the open market.
Thanking you in meanwhile, we remain. c·
Yours faithfully,
for the ATUL PRODUCTS LTD.
(S. K Soman)"

The Superintendent of Central Excise, Bulsar Division, D
Bulsar sent a reply dated January 4/6, 1962 to the above letter
stating that there was no objection to the payment of excise duty
on fast colour bases purchased by the respondent and that if
evidence of payment of excise duty on fast colour bases was
produced the dyes manufactured by using those fast colour bases
would not be liable to duty under the notification referred to E
above. He also instructed the Deputy Superintendent of Central
Excise to receive duty on snch fast colour bases which went into
the production of cibagenes or ciban()genes (processed dyes) by the
respondent. The respondent accordingly paid the dnty and was
exempted from payment of dnty on cibagenes and cibanogenes
l manufactured by it. The departmental audit party later F
j on noticed that the concession shown to the respondent was
not in order since it was only when duty had been paid on the
basic dyes at the time of their manufacture when they were char-
geable to duty and they had been purchased by the respondent
would get exemption from the duty payable on the products manu-
factured by it by employing such basic dyes. The audit party was of
G
the view that the respondent wich had purchased the basic dyes
at the time when duty was leviable on them could not claim exemp-
tion from payment of excise duty on the final products manu-
factured by it by using such basic dyes, by voluntarily paying duty
on the basic dyes after March I, 1961 in accordance with law in
force then. The audit party was further of the view that there was
short levy of excise duty on account of the above mistake since H
840 SUPIUlMI! couat Rlll'ORts {198SJ 2 s.c.a.

A the respondent had paid excise dnty on the basic dyes at 30% ad
valorem whereas it was liable to pay duty at 30 % ad valorem on the
products manufactured by it which were costlier than the basic
dyes. The Assistant Collector of Central Excise at Surat there-
fore issued five notices under Rule 10-A of the Rules to the
respondent all on May 20, 1964 calling upon it to show cause
B
as to way the deficit amount of excise duty should not be recovered
in respect of the excisable goods manufactured by it at different
periods before that date. We reproduce below one of such notices,
the contents of which were more or less tho same except with
regard to the amount claimed and the number of the relevant
c demand notice :

"INTEGRATED DIVISIONAL OFFICE:
CUSTOMS & CENTRAL EXCISE, SURAT
No. VI (RR) 21-13/62/II/(iv) Snrat, the 20th May 1964

NOTICE
D
Whereas it has been reported that M/s Atul Products
Limited, Atul have manufactured Synthetic Organic Dyes
namely Cibagenes and Cibanogenes from basic dyes
lying in stock as on 28·2-61 I 1-3-61 with them/
purchased from the market and having voluntarily paid
duty on all such basic dyes in stock/purchased from the
E market as referred to above manufactured and cleared
from 23-ll-61 onwards the processed dyes (fidal product)
without payment of duty ·at the time of clearance from
their factory, l
2. The Deputy Superintendent, Central Excise, Atul l
F has raised demand No. 10175 dated 6-1-64 for the amount
of Rs. 2,930,22 for the recovery of duty as a result of the
assessment of the final processed dyes; beause the processed
dyes were not eligible for exemption from duty only on
the ground that the duty was voluntarily paid on the basic {
dyes which were in stock/purchased from the market as
G on 28-2-61 when such payment of duty on . the stock
of basic dyes as on 28-2-61 was not warranted.
3, M/s. Atul Products Ltd. Atul have represented
this dispute vide their letter No. SL/437/9581 dated
25-3-64 against Demand No. 10175 dated 6-1-64.
B
D.R. KOHLI v. ATUL PRODUCTS (Venkataramiah, J.) 841

j 4. M/s. Atul Products Ltd. Atul should show cause A
to the undersigned as to way the demand referred to above
\ issued by the Deputy Superintendent, Central Excise, Atul
should not be confirmed.

5. Atul Products Ltd. Atul are further directed to
produce at the time of showing cause all the evidence upon B
which they intend to rely in support of their defence.

6. M/s. Atul Products Ltd. Atul should also indicate
in the written explanation whether they wish to be heard·
in person before the assessment dispute is finalised.
c
7. If no cause is shown against the action proposed
to be taken within ten days of the receipt of this notice
or they do not appear before the undersigned when the
case is posted for hearing the case will be decided ex-
parte.
D
sd/-
H. H. Dave
20-5-64
Assistant Collector."
E
The particulars of the demand notices and the amounts claimed
in the said five notices were as follows :

Demand Notice No. Date Amount Period of
Rs. clearance
I. 10163 24.10.63 18,349,21 1.1.62 to 31-5-63 F

2. 10166 l!.11.63 8,142,06 3.8.63 to 13.11.63
3. 10174 6.1.64 1,80,593.47 30-12-61 to 30-5-62
4. 10175 6.1.64 2,930.22
I
' Supplementary to
10163 and 10166
G

5. 10179 25.2.64 8,349.00 24.12.64
_,
-------
2, 18, 363. 96

The respondent sent a common reply to the above notices on
June 19, 1964. The respondent contended that it had. cleared the H

I
842 SUPRllMll COURT REPORTS [19851 2 s.c.R

A products manufactured by it namely cibagenes and cibanogenes in
accordance with the Rules. It pleaded that there was no justification
to conclude that it had paid excise duty on fast colour base; used
by it in manufacturing the said goods voluntarily as the Superinten-
dent, Central Excise, Bulsar had confirmed that according to Govern-
B
ment of India's notification dated November 23, 196! it was
required to pay excise duty on tho fast colour bases before they were
used in the production of the said .processed dyes and also had
written that the Dy. Superintendent of Central Excise, Atul was
being instructed to recover duty on the said fast colour bases. The
c respondent also pleaded that Rule 10-A of the Rules was not appli-
cable to the case and hence no demand could be made. After consi-
dering the representations made by the respondent to the above
notices, the Assistant Collector overruled the objections of the
respondent by his orders dated July 20,1964 and directed it to pay
the amounts which had been demanded in the notices by issuing
D appropriate notices of demand. Aggrieved by the said orders passed
by the Assistant Collector of Central Excise and the notices of
·demand the respondent filed a writ petition under Article 226 of the
Constitution before the High Court of Gujarat questioning their
correctness and praying for an order directing the excise authorities
not to recover the amounts claimed in the notices from the respon-
E dent. The High Court held that the respondent was entitled to the
exemption under the notification in respect of the goods manufactu-
red by it as excise duty had been paid on the dyes used in the manu-
facture of the said goods. The High Court, therefore, allowed the
writ petition quashing the orders of the Assistant Collector and the
notices of demand impugned in the writ petition and directing the
F excise authorities not to recover the sums mentioned therein by its
judgment dated July 9/10, 1969. This appeal is filed by the Union
of India against the Judgment of the High Court.

The two principal questions which arise for consideration
before us in this appeal are: (i) whether the respondent was entitled
G to the benefit of the exemption notification dated November 23, 1961
when the dyes said to have been used by the respondent in the i
manufacture of other dyes were not liable for payment of excise duty
when they were manufactured, that is, before the introduction of
Item 14D into the First Schedule to the Act even though duty may
have been paid on them after the introduction of Item 14D and (ii)
whether the demands made in this case fall within the scope of Rule
)0-A of the Rules or under Rule 10 thereof.
l1
D.R. KOHLI v. ATUL PRODUCTS (VenkataraifCiah, J.) 843

) It is not disputed that the dyes in respect of which duty had A
been paid in this case had been manufactured at a time when no duty
was leviable on them. This case actually began witll. the letter
\
written by the respondent on December 22, 1961 \l'.ithin one month
after the exemption notification dated November 23, 1961 was issued.
In the said letter the respondent no doubt stated 'the material which
the local manufacturer has offered us was produced before the B
imposition of excise duty on dyes'. But it was followed by the
sentence 'We now propose to pay the excise duty on the Fast Colour
bases .................. .'. In that letter there was a request made to
the Superintendent of Central Excise to accept excise duty on the
fast colour bases which the responnent would purchase either from
the local manufacturer or from the open market. The letter did
c
not contain any particulars about the quantity of such dyes which the
re~pondent wished to purchase or its value. The Superintendent of
)
Central Excise in his reply .stated that there was no objection to the
to the payment of excise duty on fast colcur bases purcha~ed by the
respondent and that if evidence of payment of exercise duty on fast .
colour bases was produced, the dyes manufactured by using those D
fast colour bases would not be liable to duty under notification. The
above reply was intended to convey in effect what the notification
stated. It was perhaps assumed that payment of excise duty would
arise only when it was payable under law. The language of the
notification left no room for doubt at all. It stated that if and only
if such dyes were manufactured from any other dye on which excise E
duty or countervailing customs duty had already been paid, they
would be exempted from duty. Payment of excise duty on dyes
was possible only if they had been manufactured after the introduc-
tion of Item 14D into the First Schedule to the Act. Admittedly ~n
this case the dyes which were used by the respondent had been
manufactured prior to that date. F

In reaching its decision the High Court, however, relied on
the decision of this Court in Innamuri Gopalan & Ors. v. State of
Andhra Pradesh & Anr.(1) In that case the Court had to construe a
notification issued by the Government of Andhra Pradesh granting
exemption to ·textile goods from the levy of sales tax under the G
Andhra Pradesh General Sales Tax Act, 1957 (A. P. 6 of 1957J.
I But it, however, contained a proviso that in the case of any cfass .
of such goods in respect of which additional duties are leviable by
the Central Government under clause 3 of the Additional Duties

H
(1) [1964] 2 S.C.R. 888.
844 SUPRBMB COURT IU!ORTS (1985] 2 S.C.R •
A of Excise (Levy and Distribution) Bill, 1957 read with section 4 of
the Provisional Collection of Taxes Act, 1931 (Central Act XVI·
of 1931) the exemption would be subject to the dealer proving
to tbe satisfaction of the assessing authority that additional duties
of excise had been so. levied and collected on such goods
by the Central Government. In the above said case certain
B
dealers who had sold textile goods which were not subject to
additional duties of excise claimed that they were entitled to the
exemption even though they had not paid such additional excise
duty. The State Government pleaded that the dealers would be
entitled to claim exemption if and only if such additional excise
c duty had been levied and collected and since the goods in question
were not liable to such additional excise duty, they were not entitled
to claim the exemption. This Court rejected the contention of the
State Government and held that on a plain reading of the no ti·
fication relied on in that case all varieties of textile goods had been
generally exempted from payment of sales tax but where any ·
D additional excise duty had been levied in respect of any kind of
textile goods then the dealer had to show proof of levy and pay-
ment of such duty. Accordingly the case of the dealers was upheld.
In the case before us, the notification relied on by the respondent
is couched in a different langu~ge. It specifically states that if and
E only if the dyes are manufactured from any other on which
excise duty or countervailing customs duty has already been paid,
the exemption can be availed of by the manufacturer of such
dyes. The above decision of this Court is, therefore, clearly distin-
guishable from the presnt case. With great respect to the High
Court it should be stated that the distinction pointed out above
was not noticed by it.
F
The decision in Hansraj Gordhandas v. H. H. Dave, Assistant
Collector of Central Excise & Customs, Surat & two Ors.(1) does not
also have any bearing on this case. There the Court was concerned
with the meaning of the notification in question which had granted
exemption f1om payment of excise duty on cotton fabrics manu·
G factured on powerlooms owned by cooperative societies registered
prior to March 31, 1961. The appellant had produced with his own
hired labour cotton fabrics on the powerlooms owned by a
cooperative society under a contract. Still the Court found that
the appellant was entitled to the benefit of exemption since he had
manufactured the goods on the powerlooUIS owned by a cooperative
H (!) [1969) 2 S.C.R. 253.
b.a. i:oHLt v. ATUt PRODUCTS (Venkataramiah, J.) 845

society as per the notification. The crucial question in all such A
cases is whether the case falls within the scope ofthe law granting
exemption or not and there can be no dispute about that principle.
The difficulty arises only when the said principle is to be applied
to the facts of a given case. As mentioned earlier, in this case of
-.. __ ., the respondent did not fall under the notification granting exem·
ption since the basic dyes used by it in producing other processed B
dyes were not subject to levy of excise duty when they were
manufactured and cleared.

We do not agree that in this case the principle of promissory
estoppel can be pleaded as a bar against the contention of the
Department. The respondent had not done anything prejudicial to c
its intcirest relying upon any representation made on behalf of the
Department. It is not the case of the respondent that it would not
have manufactured the dyes but for the advice given by the Depart-
ment. On the other hand it is obvious that the respondent had be-
fore it the exemption notification which alone could be the basis
for its actions. The Department was not also expected to tender D
legal advice to the respondent on a matter of this nature.

After giving our earnest consideration to the case before us
we are of the view that under the notification exemption could be
claimed only where the dyes used in the manufacture of
other dyes were liable to payment of excise duty when they were E
manufactured and such duty had been paid. A voluntary payment
of excise duty on dyes which were not liable for such payment
would not earn any exemption under the notification. The finding
recorded by the High Court on the above question is, therefore,
liable to be set aside.

.The next question relates to the appropriate prov1smn of law F
under which action could have been taken in this case by the
Central Excise anthorities. This question was not decided by the
High Court in view of its finding on the liability of the respondent
to pay excise duty on the products manufactured by it. Since we
have not agreed with the decision of the High Court on this point,
it ~s become necessary for us to decide this question in this appeal. G
Whlie the Department asserts that it was open to it to proceed
under Rule 10-A of the Rules, lhe respondent contends that
even if there was any short levy, the proper Rule applicable to its
case was Rule 10 and not Rule 10-A. Rule 10 and Rule JO-A of
the Rules during the relevant period ran all follows:-
H
846 SUPRBMB COURT RBPORTS (1985] 2 s.c.R.

A "IO Recovery of duties or charges short-levied, or
erroneously refunded-

When duties or charges have been short-levied through
inadvertence, error, collusion or misconstruction on the
part of an officer, or through mis-statement as to the
B quantity, description or value of such goods on the part
of the owner, or when any such duty or charge, after having
been levied, has been owing to any such cause, erroneously
refunded, the person chargeable with the duty or charge,
so short-levied, or to whom such refund has been
erroneously made, shall pay the deficiency or pay the
c amount paid to him in excess, as the case may be, on
written demand by the proper officer, being made within
three months from the date on which the duty or charge
was paid or adjusted in the owners account-current, if any
or from the date of making the refund.
D
10-A. Residuary powers for recovery of sums due
to Government-

Where these Rules do not make any specific provision
for the collection of any duty, or of any deficiency in
duty if the duty has for any reason been short-levied, or of
E
any other sum of any kind payable to the Central Govern-
ment under the Act or these Rules, such duty, deficiency
in duty 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."
F
The points of difference between . the above two Rules were
that (i) whereas Rule 10 applied to cases of 'hort levy through ~·l
inadvertence, error, collusion or mis-construction on the part of 1
an officer, or through mis-statement as to the quantity, description
or value of the excisable goods on the part of the owner, Rule 10-A
which was a residu,1ry clause applied to those cases which were
G not covered by Rule 10 and that {ii) whereas under Rule 10, the . ''
deficit amount could not be coliected after the expiry of three
months from the date on which the duty or charge was paid or
adjusted in the owMrs account-current or from the date of making
the refund, Rule 10-.A did not contain any such penod of
.limitation. The scope of these two Rules has been considered by
this Court in two decisions i.e. N. B. Sanjana, Assistant Collector
a
D.R.. KOHLI v. ATUL PR.ODUCTS (Venkataramiah, J.) 847

of Central Excise, Bombay <t Ors. v. Elphtnstone Spinnln1 &: Weavin8 A
Mills Co. Ltd.(1) and Assistant Collector of Central Excise, Clacutta
Division v. Natfonol Tobacco Co. of India Ltd.(') In addition to the
. above two points of distinction between Rule IO and 10-A of the
Rules, this Court further held in Sanjana's case (supra) following
the decision in Gursahal Saigal v. Commissioner of Inoome·tax,
B
Punjab(') that in calculating the period of limitation, the expression
'paid' in Rule I 0 should not be literally construed a1 'actually paid'
but as 'ought to have been paid' in ordeP to prevent a person,
who had not paid any excise duty at all which he should have paid
from escaping, from the net of Rule 10 of the Rules. In National
Tobacco Co'. s. case (supra) this Court observed at pages 836-837 c
thus:

' "Rules 10 and lOA, placed side by aide, do raise
difficulties of interpretation. Rule· IO seems to be widely
worded as to cover any" inadvertence, error, collusion
or mis-construction on the part of an Officer", as well D
as any" mis-statement as to the quantity, description or
value of such goods on the part of the owner" as causes
of short levy. Rule IO-A would appear to cover any
"deficiency in duty if the d•ty has for any reason been
short-levied" except that it would be outside the purview
of Rule 10-A if its collection is expressly provided for E
by any Rule. Both the rules, as they stood at the relevant
time dealt with collection and not with assessment. They
have to be harmonised. In N. B. Sanjana's case (supra)
this Court harmonised them by indicating that Rule 10-A
which was residuary in characrer, would be . inapplicable
F
if a case fell within a specified category of case mentioned
in Rule IO.
\ It was pointed out in Sanjana't case (supra) that the
reason for the addition of the new Rule 10-A was a
decision ofthe Nagpur High Court in Chhotabhai Jethabhai
Patel v. Union of India <A. I. R. 1952 Nag. 139) so that G
a fresh demand may be made on a basis altered by law. The
Excise authorities had then made a fresh demand, under

(I) [19'1] 3 S.C.R. 506.
(2) [1973] 1 S.C.R. 822.
(3) [1963] 3 S.C.R. 893, ff
848 SUPRBMll COURT REPORTS [1985] 2 s.c.a.
A the provisions of Rule 10-A, after the addition of that
Rule, the validity of 'l"1bich challenged but upheld by a
Full Bench of the High Court of Nagpur. This Court in
Chhotabhai Jethabhai Patel & Co. v. Union of India [1962]
Supp. 2 S. C. R. I. also rejected the assessee's claim that
Rule 10-A was inapplicable after pointing out that the
'
B new rule bad been specifically designed "for the enforce-
ment of the demand like the one arising in the circum-
stances of the case."

We think that Rule 10 should be confined to cases
where the demand is being made for a short levy caused
c wholly by one of the 1easons given in that Rule so that
an assessment has to be reopened."

This Court further observed at page 840:

D "Although Rule 52 makes an assessment obligatory
before goods are removed by a manufacturer, yet, neither
that rule nor any other rule, as already indicated above,
bas specified the detailed procedure for an assessment.
There is no express prohibition anywhere against an
assessment at any other time in the circumstances of a
E case like the one before us where no "assessment." as it is
understood in law; took place at all. On the other hand,
Rule JOA indicates that there are residuary powers of
making a demand .in special circumstances not foreseen by
the framers of the Act or the rules. If the assessee disputes
the correctness of the demand an ass.essment becomes
F necessary to protect the interests of the assessee. A case
like the one before us falls more properly within the
residuary class of unforeseen cases. We think that, from
the provisions of section 4 of the Act read with Rule lOA,
an implied power to carry out or complete an assessment,
not specifically provided for by the rules, can be inferred."

G
Jn the instant case there has been no asse~sment of the
manufactured goods at all as contemplated by Rule 52 of the Rules
and the delivery of the goods has taken place contrary to Rule 52-A
of the Rules. Rule 52 and Rule 52-A as they stood at the relevant
period are set out below:-

l:l "52. Clearance on payment duty-

--,
D.R. KOHLI v. ATUL PRODUCTS (Venkataramiah, J.) 849

When the manufacturer desires to remove goods on A
,.'. payment of duty, either from the place or a premises
specified under rule 9 or from a store-room or other place
of storage approved by the Colleetor under rule 47, he
shall make application in triplicate unless otherwise by rule
or order required to the proper officer in the proper form
and shall deliver it to the officer at last twelve hours or B
such other period as may be elsewhere prescribed or as
the Collector may in any particular case require or allow
before it is intended to remove the goods.

The officer; shall, thereupon, assess the amount of c
duty due on the goods and on production of evidence that
this sum has been paid into the Treasury or paid in the
account of the Collector in the Reserve Bank of India or
the State Bank of India, or has been despatched to the
Treasury by money-order shall allow the goods to be cleared.
D
52-A (I) Goods to be delivered on a Gate pass-

No excisable goods shall be delivered from a factory
except under a gatepass in the proper form or in such other
form as the Collector may in any particular case or class
of cases prescribe signed by the owner of the factory and E
countersigned by the proper officer .................. "

The facts of this case indicate that the Department was
virtually inveigled into a trap by the respondent suggesting that it
was too eager to pay excise duty on certain goods which to the
knowlege of the respondent were not liable for excise duty with the F
object of getting the benefit of the right to clear its products whfch
were liable for higher excise duty because of their increased value
without paying any duty at all. Rule 10 of the Rules deals with
four kinds of mistakes on the part of an officer which bring a case
within its sweep. Of them 'inadvertence' 'error' and' mis-cons-
truction' are mistakes which can be committed unilaterally by the G
officer himself. 'Collusion' involves a pact between two or more
persons to defraud the Government. This case does not involve
any such unilateral mistake on the part of an officer or collusion
as explained above. Nor is this a case where through mis-statement
as to the quantity, description or value of such goods on the part
of the owner short levy has occasioned. Further the error in this
case bas not taken place at the time of the assessment or at the time H .···
!~
850 SPRllMI! COURT REPORTS (1985] 2 s.c.R.
A when a<sessment ought to have been made under Rule 52. The
discussion and c1rrespondence between the assessee and the officers
concerned had taken place on December 20, 1961 and January 4/6,
1962 was in the nature of an advice and not an assessment as
contemplated under Rule 52. Hence this case is not covered by
Rule 10 of the Rules at all. Rule 10-A of the Rules which is a
B
residuary provision is, therefore, necessarily attracted. Hence the
plea of limitation raised on the basis of Rule 10 of the Rules does
not survive. ...
.

In the result we set aside the judgment of the High Cmirt and \
c dismiss the writ petition filed by the respondent. The Department
may now proceed to recover the sums demanded under the impugned
notices issued to the respondent.

For the foregoing reasons, the appeal is accordingly allowed
with costs.
D

N. V.K. Appeal allowed.