M/S Compack Pvt. Ltd. Vs.
Commissioner of Central Excise, Vadodara  Insc 566 (7 October 2005)
S.B. Sinha & R.V.
Raveendran S.B. Sinha, J :
Interpretation of an exemption notification dated 28.02.1982, as amended by
several notifications, is in question in this appeal which arises out of a
judgment and order dated 05.03.2003 passed by the Customs, Excise and Gold
(Control) Appellate Tribunal, West Zonal Bench at Mumbai (for short, 'the
Tribunal) in Appeal No.E/1801/02, whereby and whereunder the appeal preferred
by the Appellant herein from a judgment and order dated 01.02.2002 passed by
the Commissioner of Central Excise & Customs (Appeals) Vadodara, was
The Appellant, a Company incorporated under the Companies Act, 1956, is
engaged in the manufacture and production of excisable goods, i.e.
cardboard containers. It is a Small Scale Industry. It opted for the benefit
contained in Section AA of Chapter V of the Central Excise Rules, 1944 so as to
avail the MODVAT credit of the specified duties on plastic coated paper known
as 'LDPE coated paper'. It, however, did not avail of any MODVAT credit in
respect of base paper or base paperboard. According to the Appellant, the
cardboard container is manufactured out of base paper having three layers and
the outer layer consists of LDPE coated paper which is said to have been
manufactured from the base paper apart from other inputs.
The Appellant filed a MODVAT Declaration on or about 2.11.1992 purported to
be in terms of Rule 57-G of the Central Excise Rules, 1944 declaring LDPE
Coated Paper falling under sub-heading 4811.30 of the Schedule appended to the
Tariff Act as input which was intended to be used in or in relation to the
final excisable goods, namely, Composite Paper Containers (Containers) meriting
classification under sub-heading 4819.12.
The Appellant admittedly after filing the said MODVAT Declaration availed of
the MODVAT Credit of specified duties paid on the inputs amounting to Rs.
35,185.13. The tariff rate for the said containers of sub-heading 4819.12 of
the Schedule was stipulated at 35% ad valorem of basic excise duty and the
corresponding special excise duty was at the rate of 15% on basic excise duty.
It is stated that during the period November, 1992 to February, 1993 the
said composite containers worth Rs. 17,00,954.00 were cleared by the Appellant
on payment of basic excise duty at a rate of 5% ad valorem, normal rate being
15% ad valorem, in terms of the Tariff Notification dated 28.2.1982 read with
the provisions of the Small Scale General Exemption Notification as thence
The Assistant Commissioner of Central Excise and Customs issued notice dated
26.04.1993 as to why the duty amounting to Rs.3,91,228/- should not be
recovered from it, alleging that the Appellant was not eligible for the
concessional rate of duty prescribed with Notification No. 67/82 CE dated
28.2.1982 (as amended).
By an order dated 23.12.1997, it was held that the Appellant was not
entitled to avail the concessional rate of duty and, therefore, differential
duty, as envisaged therein was recoverable.
Aggrieved thereby, the Appellant preferred an appeal, which was dismissed by
an order dated 01.02.2002 passed by the Commissioner (Appeals). An appeal from
the said order before the Tribunal was dismissed by an order dated 05.03.2003.
Mr. Ramesh Singh, the learned counsel appearing on behalf of the Appellant,
would submit that the learned Tribunal committed a manifest error in passing
the impugned judgment insofar as it failed to take into consideration that for
manufacture of cardboard containers, apart from one layer of LDPE coated paper,
three layers of base paper are used in respect whereof, no MODVAT credit was
taken and, thus, the Appellant was entitled to obtain the benefit of the
exemption notification. The inference of the Tribunal that the Appellant had
indirectly taken the MODVAT credit, it was submitted, is not sustainable in
law. Only because MODVAT credit has been taken for one of the inputs, it was
submitted, cannot be held to be a ground for depriving the Appellant from the
benefit of an exemption notification to which it was otherwise entitled to.
Mr. Gopal Subramanium, the learned Additional Solicitor General, on the
other hand, would submit that the plastic coated paper is different from a base
paper and on a true construction of the notification, it would be evident that
exemption from payment of excise duty is to be granted only to those
manufacturers who used base paper only for manufacturing containers.
Exemption notification, the learned Additional Solicitor General would
contend, must be construed strictly.
The aforementioned notification No. 67/82CE dated 28.2.1982 (as amended by
Notification dated 28.2.1993) read thus :
"Effective rate of duty for printed cartons, boxes, containers and
cases. In exercise of the powers conferred by sub-rule (1) of rule 8 of the
Central Excise Rules, 1944, the Central Government hereby exempts printed
cartons, boxes, containers and cases (including flattened or folded cartons)
whether in assembled or unassembled condition, falling within Chapter 48 of the
Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), from so much of
the duty of excise leviable thereon as is in excess of twenty percent ad
valorem subject to the condition that the appropriate duty of excise or
additional duty leviable under section 3 of the Customs Tariff Act, 1975 (51 of
1975), as the case may be, has already been paid in respect of the base paper
or base paperboard used in their manufacture :
Provided that nothing contained in this notification shall apply to a
manufacturer who avails of the special procedure prescribed under rule 56A or
57A of the Central Excise Rules, 1994, in respect of the duty paid on the base
paper or base paperboard.
Explanation.-For the purpose of this notification, the base paper or base
paperboard used in the manufacture of the said articles shall be deemed to have
paid the appropriate duty of excise or the additional duty leviable under
section 3 of the Customs
Tariff Act, 1975, if it is purchased from the market." It is not in
dispute that the matter relating to rate of excise duty payable on paper and
paperboard is contained in Chapter 48 of the Central Excise Rules. Whereas Item
48.02 refers to uncoated paper, Item 48.07 refers to plastic coated paper.
The Appellant has taken a stand before us that three layers of the carton
consist of base paper and only one layer of carton consists of plastic coated
paper. The principles as regard construction of an exemption notification are
no longer res integra; whereas the eligibility clause in relation to an
exemption notification is given strict meaning wherefor the notification has to
be interpreted in terms of its language, once an assessee satisfies the
eligibility clause, the exemption clause therein may be construed literally. An
eligibility criteria, therefore, deserves a strict construction, although
construction of a condition thereof may be given a liberal meaning. [See Tata
Iron & Steel Co. Ltd. vs. State of Jharkhand and Others (2005 (4) SCC
In Commissioner of Central Excise, Chandigarh vs. Bhalla Enterprises [2004
(173) ELT 225 (SC)], it was held :
"The basic rule in interpretation of any statutory provision is that
the plain words of the statute must be given effect to" In Commissioner of
Central Excise, Trichy vs. Rukmani Pakkwell Traders [(2004) 11 SCC 801], it was
"It is settled law that exemption notifications have to be strictly
construed. They must be interpreted on their own wording. Wordings of some
other notification are of no benefit in construing a particular notification"
The said decision was followed in Commissioner of Central Excise, Chandigarh-I
vs. Mahaan Dairies (2004) 11 SCC 798].
Keeping in view the principles laid down in the aforementioned decisions, we
have to construe the exemption notification in question.
The said notification was issued in terms of sub-rule (1) of Rule 8 of the
Central Excise Rules, 1944. By reason thereof , printed carton, boxes,
containers and cases whether in assembled or unassembled condition falling
under Chapter 48 of the schedule appended to the Central Excise
Tariff Act, would receive the benefit of exemption subject to the condition
that the appropriate duty of excise or additional duty leviable under Section 3
of the Customs
Tariff Act has already been paid in respect of the base paper used in their
Item No.48.02 refers to uncoated paper and paperboard of a kind mentioned
therein. Item No.4802.20 is as under :
"4802.20 - Paper or paperboard, in the manufacture of which,- (a) the
principal process of lifting the pulp is done by hand; and (b) if power driven
sheet forming equipment is used, the Cylinder Mould Vat does not exceed 40
inches." 'Composite paper' and paperboard (made by sticking flat layers of
paper or paper board together with an adhesive), not surface-coated or
impregnated, whether or not internally reinforced, in rolls or sheets has been
shown in Item No.48.07.
The proviso appended to the notification contains an exception thereto
stating that if MODVAT credit is availed of, no such exemption shall be
available to the manufacturer. The 'Explanation', however, raises a legal
fiction that if a base paper or a paperboard, if purchased from the market,
would be deemed to be duty paid. The eligibility clause contained in the
notification, thus, is confined to use of base paper or paperboard used in the
manufacture of printed cartons, boxes, containers and cases. A container may
consist of inputs other than base paper or paperboard. It has not been shown
before us that to avail the exemption, the containers are required to be
manufactured 'only' or 'purely' from the base paper or base paperboard.
Had the same been the intention of the legislation making authority, they
could have said so explicitly. Once the eligibility criteria is satisfied by
the assessee, as noticed hereinbefore, the conditions are required to be
construed liberally. [See Commissioner of Central Excise vs. M.P.V. & Engg.
Industries (2003) 5 SCC 333].
Bhalla Enterprises (supra) laid down a proposition that notification has to
be construed on the basis of the language used. Rukmani Pakkwell Traders
(supra) is an authority for the same proposition as also that the wordings of
some other notification are of no benefit in construing a particular
notification. The notification does not state that exemption cannot be granted
in a case where all the inputs for manufacture of containers would be base
paper or paperboard. In manufacture of the containers some other inputs are
likely to be used for which MODVAT credit facility has been availed of. Such a
construction, as has been suggested by the learned counsel for the Respondents,
would amount of addition of the words "only out of" or "purely
out of" the base paper cannot be countenanced. The notification has to be
construed in terms of the language used therein. It is well-settled that unless
literal meaning given to a document leads to anomaly or absurdity, the golden
rule of literal interpretation shall be adhered to.
In Coromondal Fertilizers Ltd. vs. Collector of Customs, Madras (1986) 3 SCC
531], the notification in question was as under :
"GSR 547 (E). In exercise of the powers conferred by sub-section (1) of
Section 25 of the Customs Act, 1962 (52 of 1962), the Central Government, being
satisfied that it is necessary in the public interest so to do, hereby, exempts
Ammonium Phosphate falling within Chapter 31 of the First Schedule to the
Customs Tariff Act, 1975 (51 of 1975), when imported into India for use as
manure, from the whole of the duty of customs leviable thereon which is
specified in the said First Schedule :
Provided that in respect of any consignment of ammonium phosphate imported
under cover of a claim for exemption from duty in pursuance of the provisions
hereof, the importer shall execute a bond in such form as may be prescribed by
the Assistant Collector of Customs, binding himself, in sum equal to the amount
of duty ordinarily leviable on such articles, to pay on demand the duty
leviable on such quantity thereof as is not proved to the satisfaction of the
Assistant Collector of Customs to have been used as manure." The issue
raised was as to whether Mono-Ammonium Phosphate which was used as manure in
the manufacture of complex fertilizers was entitled to the benefit of the said
exemption notification. A further contention was raised that Mono-Ammonium
Phosphate was not the only input used in the manufacture of complex fertilizers
and it was also not used directly for use as manure in the manufacture of
Repelling the said contentions, it was opined :.
"We are afraid, we are not to ascertain the intention of the Government
by a comparison of the expressions used in the two different notifications.
178/76-Cus has been couched in clear and unambiguous language. The question
is not whether for getting the benefit of exemption under the notification the
appellant has used it for the production of complex fertilisers or not, but the
question is whether the appellant has imported Mono-Ammonium Phosphate for use
as manure. It is the case of the appellant that it has used the chemical as
manure, though not directly, yet along with the mixture of Urea and muriate of
Potash. It is submitted on behalf of the appellant that the mixture, is
undoubtedly a fertiliser and Mono-Ammonium Phosphate being one of the
components of the mixture it must be held that the same was imported into India
and also used as a manure or fertiliser. In our opinion, if Mono-Ammonium
Phosphate retains its physical and chemical properties in the mixture, it will
be difficult to say that it was not used by the appellant as a manure within
the meaning of the Notification No. 178/76-Cus." The only requirement for
availing the benefit of the said notification was payment of excise duty on
base paper or base paperboard, wherefor also a legal fiction has been raised in
the explanation appended thereto.
The Tribunal denied the benefit of the said notification to the Appellant
herein without considering the import thereof that it refers to the MODVAT
credit directly that too only on base paper. Similarly, the finding of the
Tribunal that the container must be manufactured only from base paper may
render the exemption notification inapplicable in a large number of cases.
The Appellant, however, is not correct in contending that it would be
entitled to the exemption notification in respect of the entire container. It
would be entitled to exemption only to that extent for which excise duty has
been paid i.e. on paperboard. As the question as to whether three layers of
base paper have been used for manufacture of the container or not has not been
raised before any authority, the matter is remitted back to the Assistant
Commissioner, Central Excise and Customs for determination of the said
The appeal is allowed to the aforementioned extent. No costs.