V.T. Raghavachari, Member (J)

1. The appellants M/s Lal Woollen and Silk Mills (Private) Limited are engaged in dyeing of Worsted Woollen Yarn falling under Tariff Item No. 18-B, C.E.T. They have been receiving duty paid grey yarn, under permission granted under Rule 51A, and have been giving intimation in Form D 3 as and when such receipts took place. They had been paying differential duty on the dyed yarn at the time of clearance, taking set off of duty already paid on the grey yarn. They had been purporting to do so under notifications 235/76 and 236/76-Central Excise in that connection.

2. Under notice dated 24-8-1977 the appellants were informed that no such set off was admissible as the same was not provided in the notifications abovesaid. It was pointed out that woollen yarn is notified in the Schedule to Rule 56A of the Central Excise Rules for grant of proforma credit and not for set off of duty. Pointing out that no permission had been obtained from the Assistant Collector under Rule 56A, the appellants were directed to show cause why Central Excise duty of Rs.4,08,787.96 should not be recovered from them under Rule 10 of the Central Excise Rules.

3. The appellants in r