The main legal point established in the judgment is that the respondents were obliged to issue notice calling upon the petitioners to show cause before issuing a written demand, and the power to issue notifications for granting credit on inputs was specifically recognized in the Rules.

MISHRA, J.

The petitioners herein, who have been previously benefited by what is called MODVAT credit are aggrieved by the demands of excise duty, which, according to them, have been made -

(1) in violation of the Notification No. 208/83 dated 1-8-1983;

(2) without complying with the requirements of rules of natural justice; and

(3) in violation of Section 11 A of the Central Excises and Salt Act, 1 of 1944.

Petitioner, Rockweld Electrodes India Ltd., hereinafter called 'Rockweld', manufactures electrodes of various qualities and sizes which are made out of steel wire rods. According to the petitioner, the input steel wire rods are normally purchased from public sector undertakings like Steel Authority of India or units like TISCO. These rods are classified under Heading 72.09 of the Central Excise Tariff Act and are charged to duty at the rate of Rs. 365 per M.T. Rods themselves are obtained from rolling of billets. Billets are charged to duty at the rate of Rs. 365 per M.T. under Heading 72.07 of the Tariff. Although they have named from whom rods are ordinarily procured they have said :

"The petitioner purchases the wire rods from the market and produces electrodes from them. These electrodes are subject to excise duty under Section 3 of the Act read with the Tariff and they are classified under Heading 83.10 of the Tariff."

Petitioner, Advani Oerlikon Ltd., hereinafter called 'Advani' also manufactures electrodes using steel wire rods as raw materials. In their petition, however, they have said :

"The raw materials for manufacture of welding electrodes is steel billets which are rerolled into steel wire rods. M/s. Tata Iron and Steel Company, (hereinafter referred to as"

TISCO') are one of the suppliers of the said raw materials to the petitioner. The petitioner places its orders for the billets rerolled into steel wire rods on TISCO. TISCO arranges with the Indian Steel Rolling Mills Nagapattinam (hereinafter referred to as "ISRM") to have the billets rerolled into rods and under the instructions of TISCO the rods are delivered to the petitioner. On the basic raw material, namely the steel billets TISCO pays an excise duty of Rs. 365 per M.T. under the Central Excise Tariff Act, 1985. No duty is paid on the steel wire rods at the time of their conversion from billets. It is submitted that the process of rerolling rods into billets does not amount to a manufacture of goods under the Central Excises and Salt Act, 1944 (hereinafter referred to as "the said Act") since the rerolling process consists essentially of only reducing the diameter of the billets. In any event as per Notification 208 of 83 dated 1-8-1983 the rods drawn out of billets are exempt from duty.'

2.Exercising its rule making power under Section 37 of the Act, Central Government has framed Rules for 'Credit of duty paid on excisable goods used as inputs'. Such Rules are found under the Division 'AA' of Chapter V of the Central Excise Rules, hereinafter called 'Rules', consisting of a set of Rules from 57A to 57J. Rule 57A says that the provisions of Division 'AA' of the Rules shall apply to such finished excisable goods (hereinafter referred to as the "final products"), as the Central Government may, by notification in the Official Gazette, specify in this behalf, for the purpose of allowing credit of any duty of excise or the additional duty under Sec. 3 of the Customs Tariff Act, 1975 (51 of 1975), as may be specified in the said notification (hereinafter referred to as the "specified duty") paid on the goods used in or in relation to the manufacture of the said final products (hereinafter referred to as the "inputs") and for utilising the credit so allowed towards payment of duty of excise leviable on the final products, whether under the Act or under any other Act, as may be specified in the said notification, subject to the provisions of this section and the conditions and restrictions that may be specified in the notification : provided that the