SWADESHI POLYTEX LTD. versus COLLECTOR OF CENTRAL EXCISE

Citation: [1989] SUPP. 2 S.C.R. 262 · Decided: 23-11-1989 · Supreme Court of India · Bench: SABYASACHI MUKHERJI · Disposal: Appeal(s) allowed

Judgment (excerpt)

A 
B 
c 
D 
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SWADESHI POLYTEX LTD. 
v. 
COLLECTOR OF CENTRAL EXCISE 
NOVEMBER 23, 1989 
[SABYASACHI MUKHARJI AND B.C. RAY, JJ.] 
Central Excises and Salt Act. 1944: Sections 4 and 35L-Asses-
see-Manufacturing polyester fibre-inputs ethylenl!l glycol and 
dimethye tetraphthalaie--Whether entitled to claim set off of duty on 
ethylene glycol. 
The appellant was engaged in the manufacture of polyester fibre 
(man-made) falling under tariff item 18 of the erstwhile Central Excise 
Tariff. In its manufacture, the appellant was using, among other . 
things, ethylene glycol and DMT (Dimethyle Tetraphthalate}--duty paid 
ethylene glycol falling under tariff item N_o. 68._D_uring the course of 
manufacture of polyester fibre, two basic raw materials DMT and 
Glycol interact and thereby certain waste comes into existence. This 
interaction alSo gave rise to methanol, a by-product. 
Notification No. 201/79 dated 4.6.1979 exempted all excisable 
goods on which duty of excise was leviable and in the manufacture of 
which any goods falling under tariff item 68 had been used, from so 
much of the duty of excise as was equivalent to the duty of excise paid on 
the imputs. 
Exemption notification No. 201/79 was amended by notification 
No. 102/81 with effect from 11th April, 1981. By this amended notifica-
F 
tion, a second proviso was added which provided that the credit of the 
duty allowed in respect of Inputs could not be denied or varied on the 
,ground that part of the inputs was contained in any waste, refuse or 
by-product arising during the manufacture, irrespective of the fact that 
such waste, refuse or by-product was exempt from the whole of duty of 
excise leviable thereon or was chargeable to nil rate of duty. 
G 
Earlier, -in the case of proforma credit procedure under rule 56-A of 
the Central Excise Rules, clarification had been issued by the Collector 
of Central Excise, under trade notice dated 19.7.1980 to the effec.t that 
proforma credit was permissible even where at an intermediate state of 
manufacture, a rfual product which was fully exempt from duty came 
H into being, provided that the fully e.xempted product was consumed in 
262 
SWADESHJ POL YTEX v. C.C.E 
263 
the production or manufacture of the finished product. This trade 
notice categorically stated that the clarification would also be applicable 
to exemption notification No. 201/7?· 
The appellant claimed set off of duty paid on ethylene glycol used 
in the manufacture of polyester fibre under notification No. 201/79. The 
Assistant Collector of Central Excise held on 6.8.1980 that no proforma 
credit was allowable in respect of ethylene glycol used/consumed in the 
methanol, the ethylene glycol residual waste and polyester fibre waste. 
The Collector of Central Excise (Appeals); however, allowed the 
appeals filed by the appellant and set aside the Assistant Collector's 
order and the .demands. The Collector observed that the procedure 
under notification No. 201/79 was materially the same as the procedure 
under rule 56A of the Central Excise Rule. 
The revenue went up in appeal before the Customs, Excise & Gold 
(Control) Appellate Tribunal. Before the Tribunal, it was contended on 
behalf of the revenue that prior to 11th April, 1981 there was no provi-
sion in notification No. 201/79 entitling the manufacturer to obtain 
credit of the duty of excise already paid on the inputs resulting in waste. 
or by-products or refuse which arose in the manufacture of excisable 
products which used the inputs; that the trade notice issued pertained to 
rule 56-A and not to the notification; that the rule and notifications 
were different enactments and tl)e provisions of one could not be read 
into another even after 11th April, 1981; that the exemption was only in 
respect of duty on inputs in the ·manufacture of excisable goods and 
their waste, by-product or refuse; and that since methanol was not 
excisable, it was not eligible for set off of duty on the glycol content in its 
manufactnre. 
On behalf of the appellant, however, it was contended that glycol 
was used totally in the production of polyester fibre;. that methanol 
resulted out of the reaction of DMT and glycol; and that the Govern-
ment always maintained parity between rule 56-A and notification No. 
201/79. 
The Tribunal was of the opinion that the Collector's observation 
that the procedure under notification No. 201/79 was materially the 
same as the procedure under rule 56-A and conseq

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