Commissioner of Central
Excise, New Delhi Vs M/S Hari Chand Shri Gopal & Others Etc.
With CIVIL APPEAL NO.
1631 of 2001 and CIVIL APPEAL NOS.
568-569 of 2009]
JUDGMENT
K. S. Panicker
Radhakrishnan, J.
1.
The
question that falls for consideration in these appeals is whether a
manufacturer of a specified final product falling under the schedule of the
Central Excise Tariff Act, 1985 (in short "the Tariff Act") is
eligible to get the benefit of exemption from remission of excise duty on
specified intermediate goods as per Notification no. 121/94-CE dated 11.8.1994,
if captivity consumed for the manufacture of final products on the ground that
the records kept by it at the recipient end would indicate its "intended
use" and "substantial compliance" of the procedure set out in
Chapter X of the Central Excise Rules, 1944 (in short 'the Excise Rules").
2.
The
above question was decided by the Customs, Excise and Service Tax Appellate
Tribunal (in short `the Tribunal") in favour of the respondents-assessees,
relying upon the judgments of this Court in Thermax Private Ltd. v. Collector
of Customs (Bombay)New Custom House (1992) 4 SCC 440 and Collector of Central Excise,
Jaipur v. J.K. Synthetics (2000) 10 SCC 393 on the ground of "intended
use" and the principle of "substantial compliance". The matter
came up before the three Judge Bench of this Court which doubted the
correctness and the applicability of the above mentioned judgments and took the
view that the exemption notification called for strict interpretation so far as
the eligibility is concerned especially when an assessee seeks exemption of
duty under a notification issued by the Central Government in exercise of the
powers conferred by Sub-section (1) of Section 5A of the Central Excise and
Salt Act 1944, read with Sub-section(3) of Section 3 of the Additional Duties
of Excise (Goods of Specified Importance) Act 1957, which called for compliance
of the procedure set out in Chapter X of the Central Excise Rules 1944. Further,
it was also observed that in Thermax Private Ltd. (supra) and J.K. Synthetics
(supra), this Court was dealt with a situation where goods were imported, from
outside the country, unlike the present case where specified intermediate goods
were locally manufactured in some other units of the respondents. The Court
ordered that the matter required reconsideration and referred the matter to a
Larger Bench. The order of reference is reported in The Commissioner of Central
Excise, New Delhi v. Hari Chand Shri Gopal etc. (2005)8 SCC 164.
3.
We
may first refer to the facts in Civil Appeal Nos. 1878-1880of 2004, which is
taken as the leading case.
FACTS:
4.
The
respondents herein M/s Gopal Industries, M/s HariChand Shri Gopal and M/s Gopal
Zarda Udyog were engaged in the manufacture of excisable goods viz. preparation
containing chewing tobacco falling under Chapter Heading no. 2404.40 of the
Tariff Act, then chargeable to nil rate of duty, which was made leviable to
central excise duty with effect from 1.3.1994. The Intelligence Wing of the
Department came to know that the respondents had been manufacturing the said
goods without applying/obtaining the certificate of registration as required
under Rule 174 of the Excise Rules and had been removing the same clandestinely
from their factories without payment of central excise duty leviable thereon
and without following any of the prescribed procedures. It was noticed that a
major portion of the above goods manufactured was consigned to M/s Gopal Zarda
Udyog (Meerut), M/s Hari ChandShri Gopal, Baddi District, Solan (H.P.) and M/s
Gopal Industries Baddi (H.P.) under the cover of `transfer challans' describing
therein the said goods as "ADDICTIVE MIXTURES" or
"KIMAM/K". On28.9.1996, the factories of the respondents at Delhi
were inspected by the Central Excise (Preventive) Officer of MOD IV, Delhi and
took the samples of the finished products and detailed statements were also
recorded from the partners of the firms. The Central Excise Officers also
visited the various factories of the respondents at Solan and Baddi on
3.10.1996 and it was noticed that the addictive
1.
5Mixture
(Kimam) manufactured at the factories at Delhi was being clandestinely removed
for the manufacturing of chewing tobacco. The Officers noticed that the
respondents were manufacturing the excisable goods Kimam falling under the
Tariff Act under Chapter Sub-heading no. 2404.49 (up to 22.7.1996) and, with
effect from23.7.1996, covered under Chapter Sub-heading no. 2404.40,packed the
same in the containers of different capacities as per the requirement of
buyer/consumer without obtaining Central Excise Registration Certificate in
contravention of the provisions of Section8 of the Tariff Act read with Rule
174 of the Excise Rules up till14.10.1996 and removed the same from their factories
clandestinely without payment of central excise duty in contravention of the provisions
of Rules 9(1), 52A, 53, 54, 173B, 173C, 173F and 226 of the Excise Rules.
5.
The
Central Excise Officers noticed that, during the period from 18.3.1994 to
15.4.1995, M/s Gopal Zarda Udyog had manufactured and removed from their
factory a total quantity of1,52,226.150 Kgs. of preparation containing Kimam,
collectively valued at Rs.15,27,90,675.00 and the amount of duty involved was fixed
at Rs.6,14,17,770.00.
6.
M/s
Gopal Industries, during the period from 16.6.1995 to26.9.1996, had
manufactured and removed from their factory a total quantity of 2,66,648.800
kgs. of preparation containing Kimam collectively valued at Rs.16,26,68,569.00
and the amount of duty involved was fixed at Rs.8,13,34,285.00.
7.
M/s
Hari Chand Shri Gopal also, during the period from14.6.1995 to 24.9.1996 had
manufactured and removed from their factory a total quantity of 1,51,054.900
kgs. of preparation containing Kimam collectively valued at Rs.15,86,77,319.00
and the amount of duty involved was fixed at Rs.7,93,38.660.00.
8.
Consequently,
on 25.3.1997, notices were issued to the respondents and their partners to show
cause why the amounts of duty involved should not be demanded from them jointly
and severally under Rule 9(2) of the Excise Rules read with the proviso to
Section 11A(1) of the Tariff Act and interest thereon under Section 11AB of the
Tariff Act, be not demanded from them. Penalty under Rule 173Q of the Excise
Rules read with Section 11AC of the Tariff Act and Rule 209A of the Excise
Rules was also demanded. In addition to above, the respondents were also asked
to show cause why the land, building, plant and machinery used in the irrespective
factories for the manufacture of Kimam should not be confiscated under Rule
173Q(2) of the Excise Rules.
9.
The
respondents filed detailed objections to the show cause notices and disputed
their liability and also claimed exemption under the Notification no.
121/94-CE. The Commissioner (Excise)by his order dated 20.5.1998 rejected the
objections filed by the respondents against the show cause notices and
determined thatM/s Gopal Zarda Udyog, M/s Gopal Industries and M/s Hari Chand
Shri Gopal were liable to pay central excise duty ofRs.6,14,17,770/-, Rs.8,13,34,285/-
and Rs.7,93,38,660/-respectively and also imposed the penalty of
Rs.16,00,000/-,Rs.18,00,000/- and Rs.17,00,000/- on them under Rule 173Q of the
Excise Rules and ordered confiscation of the goods seized from the premises of
M/s Gopal Industries and M/s Hari Chand Shri Gopal respectively, with
permission to redeem the confiscated goods on redemption of fines of Rs.
5,00,000/- and Rs.3,20,000/-respectively.
10.
Aggrieved
by the above mentioned orders, appeals were preferred before the Tribunal and
the Tribunal vide order dated01.10.1999 concurred with the findings of the
Adjudicating Commissioner on duty liability on the goods in question and also
on the issue of limitation as well as the claim for proforma credit/modvat
credit, but ordered re-examination of the limited question of the applicability
of Notification 121/94-CE dated11.8.1994 since the respondents had raised the
contention that they had substantially complied with the procedures laid down
in Chapter X. The matter was then reconsidered by the Commissioner as directed
by the Tribunal. The respondents contended before the Commissioner that they
had despatched the goods to their final manufacturing units though transferring
challans and the receipts were recorded in Form-IV Register/Stock Register and the
utilization of the goods was recorded in RG-12 Register. Further, it was also
stated that the final products manufactured by the respondents could be
ascertained from RG-1 Register maintained at the recipient end and those records
would be sufficient to establish use of the goods and establish the plea of
substantial compliance of the procedure set out in Chapter X for duty
exemption.
11.
The
Commissioner rejected all the contentions vide his order dated 16.07.2002 and
held that the benefit of the exemption notification would be available only if
the procedures laid down in Chapter X were complied with and that the records
produced by the respondents would not substantiate a plea of substantial compliance
of the procedure laid down in the above mentioned Chapter. The imposition of
the duty liability, interest and penalty was therefore confirmed.
12.
The
respondents, carried the matter in appeal before the Tribunal. The Tribunal, we
have already indicated, placed reliance on the judgments of this Court in
Thermax Private Ltd. (supra)and J.K. Synthetics (supra) and took the view that
the benefit of the exemption notification should not be denied if
"intended use" of the goods was established, though there was
non-compliance of the procedural conditions of Chapter X. Appeals were
accordingly allowed and the order of the Commissioner was set aside Aggrieved
by the said order of the Tribunal, these appeals have been preferred by the
Commissioner of Central Excise, New Delhi.
13.
Mr.
Vivek Tankha, learned Additional Solicitor General of India appearing for the
Revenue, submitted that the benefit of the Notification no. 121/94-CE dated
11.8.94 would be available to the respondents only if the procedures prescribed
under Chapter X are strictly complied with. Learned ASG submitted that the duty
liability was confirmed by the Tribunal which would indicate that the
respondents at the suppliers' end did contravene the provisions of Rules 9(1),
52A, 53, 54, 173B, 173C, 173F and 226 of the Excise Rules and it is, due to
that reason, that show cause notices dated25.03.1997 were served on the respondents.
Learned AS submitted that the mere fact that the respondents had maintained
some records at the recipient end would not be sufficient to satisfy the "intended
use" or the plea of "substantial compliance" of the procedure
laid down in Chapter X of the Excise Rules. Learned counsel submitted that an
exemption notification must be strictly complied with and the assessee should
bring himself within the ambit of the notification. Reference was made to the
decisions of this Court reported in Novopan India Ltd., Hyderabad v. Collector
of Central Excise & Customs, Hyderabad (1994) Supp.3 SCC 606, Rajasthan
Spinning and Weaving Mills Limited, Bhilwara, Rajasthan v. Collector of Central
Excise, Jaipur, Rajasthan (1995) 4 SCC 473, Commissioner of Central Excise v. M.P.V.
& Engineering Industries (2003) 5 SCC 333,Commissioner of Central Excise,
Trichy v. Rukmani Pakkwell Traders (2004) 11 SCC 801, Commissioner of Central
Excise, Chandigarh-I v. Mahaan Dairies (2004) 11 SCC 798,Commissioner of
Central Excise, Allahabad v. Ginni Filaments Ltd. (2005) 3 SCC 378,
Commissioner of Customs (Imports),Mumbai v. Tullow India Operations Ltd. (2005)
13 SCC 789,Tata Iron & Steel Co. Ltd. v. State of Jharkhand and Ors.(2005)
4 SCC 272, Sarabhai M. Chemicals v. Commissioner of Central Excise, Vadodara (2005)
2 SCC 168, State of Jharkhand and Others v. Tata Cummins Ltd. and Another(2006)
4 SCC 57, A.P. Steel Re-Rolling Mill Ltd. etc. v. State of Kerala & Ors.
(2007) 2 SCC 725, State of Orissa and others v.Tata Sponge Iron Ltd. (2007) 8
SCC 189, Commissioner of Central Excise, Jaipur v. Mewar Bartan Nirmal Udyog
2008 (231) ELT 27 (SC), State of Haryana v. Samtel India Ltd. 2008(15) VST 176
(SC) and G.P. Ceramics Pvt. Ltd. v. Commissioner, Trade Tax, Uttar Pradesh
(2009) 2 SCC 90.
14.
Shri
Harish Salve, learned senior counsel appearing for the assessee-respondents, on
the other hand, contended that the assessee had produced documentary evidence
to prove that the entire quantity of kimam were transferred from their one unit
to another and was utilized in the manufacture of branded chewing tobacco and
cleared on payment of duty. Further, it was also stated that the assessee had
produced the transfer challans under which the Kimam was transferred to the
other unit. Learned senior counsel also made reference to Form IV
Register/Stock Register regarding receipt of the Kimam and also to Form RG-12,
kept for the manufacture of excisable tobacco products. Reference was made to
RG-1 Register, maintained under Rules 47, 53 and 173G.Learned senior counsel
contended that the details furnished in those records would be sufficient to
establish the intended use (the actual use) of Kimam for the manufacture of
final products. Learned senior counsel submitted that, as per the decisions of Thermax
Private Ltd. (supra) and J. K. Synthetics (supra), the benefit of exemption
notification cannot be denied if there has been a substantial compliance of the
procedure laid down in Chapter X and intended use of the goods for the
manufacture of final product has been established. Learned senior counsel
submitted that the conditions stipulated in Chapter X are only procedural in
nature and hence directory, warranting liberal construction, and if so construed,
the benefit of the exemption notification cannot be denied. Learned senior
counsel submitted that the Tribunals and some of the High Courts are following
the above principle, uniformly applying the principles laid down in Thermax
Private Ltd. (supra)and J.K. Synthetics Ltd. (supra)
15.
We
may, before examining various contentions raised by the respective parties,
point out that the Respondents had earlier approached this Court by filing C.A.
Nos. 5747-5749 of 2000,challenging the order of the Tribunal stating that Kimam
was excisable and that the department was right in invoking the extended period
of limitation under the proviso to Section 11(A)(1) of the Excise Act. This
Court partly allowed the appeals holding that the department was not entitled
to invoke the extended period of limitation under the proviso to Section
11(A)(1) of the Excise Act, but held that the addictive mixture Kimam was
excisable and classifiable under Sub-heading 2404.49/2404.40. This Court also recorded
a finding that although there was contravention of the provisions of Section 6
read with Rule 174 and that they had not observed regulations in the units at
Delhi for the manufacture of excisable goods, there was no intend to evade
payment of duty. The judgment is reported in Gopal Zarda Udyog v. Commissioner
of Central Excise (2005) 8 SCC 157.
16.
In
this case, we are only concerned with the question whether the respondents are
entitled to get the benefit of the exemption notification dated 11.8.1994 on
the ground of "intended use" and" substantial compliance"
of the procedure set out in Chapter X of the Excise Rules.
17.
Notification
no. 121/94-CE dated 11.8.1994 was issued by the Central Government in exercise
of its powers conferred by sub-section (1) of Section 5A of the Central Excises
and Salt Act, 1944 (1of 1994) read with sub-section (3) of Section 3 of the
Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of1957)
in the public interest for exempting certain specified intermediate goods if
those goods were captively consumed in the manufacture of specified final
products, falling under heading numbers or sub-heading numbers of the Schedule
to the Tariff Act. Notification also stipulated that where such use of inputs was
in a factory of a manufacturer, different from his factory where the goods had
been produced, the exemption contained in this notification would be allowable
subject to the observance of the procedure set out in Chapter X of the Excise
Rules. The table, with which we are concerned, is given below:
S. No
|
Description of
final products
|
Heading number or sub-heading
number of final products
|
Heading number or
sub-heading number of inputs
|
1.
|
xxx
|
xxx
|
xxx
|
2.
|
Chewing tobacco including
preparations commonly known as
"Khara
Masala",
"Kimam",
"Dokta",
"Zarda",
"Sukha" and
"Surti"
|
2401.41
|
2404.49
|
3.
|
xxx
|
xxx
|
xxx
|
18.
The
compliance of the provisions of Chapter X is a pre-condition for claiming
exemption from payment of excise duty on goods, which otherwise attracted duty.
Show cause notices we reissued to the respondents since they had manufactured the
excisable goods (at the supplier end) without obtaining registration under
Section 6 read with Rule 174 by contravening the provisions of Rules 9(1), 52A,
53, 54, 173B, 173C, 173F and 226 of the Rules for which duty liability,
interest thereon and penalty were imposed. Even assuming that the respondents
were eligible for exemption from duty, the respondents could not be absolved
from the legal obligation to comply with the statutory requirements for the
manufacture of excisable goods at the supplier end.
19.
The
purpose and object of the notification dated 11.8.1994was to exempt those
specified intermediate goods, which were otherwise excisable to duty, and not
to exempt or absolve the respondents from following the statutory requirements
for the manufacture of intermediate excisable goods. The notification under
Chapter X was designed in such a manner to ensure an inseparable link between
the supplier and recipient of excisable goods for the manufacture of specified
final products. Rule 192 of Chapter X states that a manufacturer intending to
receive duty free goods under remission is required to make an application in
FormR-1 for obtaining excisable goods to be used for special industrial purpose
giving details of the estimated quantity of each class or variety of goods and
the value of such goods likely to be used during the year, commodities to be
manufactured and estimated output and clearance of each commodity during the
year, manner of manufacture, purpose for which manufactured product is supplied
and the source from which excisable goods will be obtained.
20.
Based
on the details furnished in Form R-1, the Registering Authority has to consider
granting permission from remission of duty. For the said purpose, R-2
Certificate is required to be issued specifying that the registration
certificate is meant for obtaining the excisable goods under Rule 192. On the
basis of R-2 Certificate, the manufacturer become eligible for getting the
excisable goods for which the remission of duty has been sought. Further, the applicant
is also required to execute a bond with security in Form B-8, as required under
Rule 192 and the Collector can put further conditions for filing the B-16 Bond
or B-17 Bond during the permission granted for remission of duty. On such
request and after complying with all the statutory formalities, the
jurisdictional officer is required to issue C-2 Certificate and, on the
strength of that certificate, the applicant can obtain duty free goods. The jurisdictional
officer has also to certify that the said manufacturer is registered in their
Range under Rule 192 and is authorized for obtaining excisable goods at
NIL/concessional rate of duty for use in special industrial purpose for the
manufacture of specified excisable goods at their factory. Further, on the
strength of C-2Certificate, the excisable goods can be removed from the factory
of source manufacturer without payment of duty or concessional rate of duty, as
the case may be. Further, as per sub-rule (1) of Rule194, the applicant is
required to maintain proper records of such goods indicating quantity, value,
rate and amount of duty, marks and number/wastage etc. in Form R.G.16 register.
Further, the applicant is also required to file quarterly return in the form
ofR.T.11 and in that return, the registered person had to make entries
regarding details of receipt of goods, quantities issued for manufacturing,
wastage or other losses, description of process in which excisable goods to be
used etc. The supplier of goods is required to be registered with Central
Excise under Rule 174 and is also required to mention in Column 10(i) or 10(ii)
of RT-12 returns the details of goods despatched to the assessee availing
facility under Chapter X. The supplier of goods can remove the goods only under
proper gate pass GP-1 and is required to mention the details of CT-2 on the
gate pass.
21.
Rule
196 provides for payment of duty by the recipient if the goods obtained under
Rule 192 are not accounted for or used in the manner prescribed under these
rules. Similarly, Rule 196Astipulates that surplus goods so received under Rule
192 can be cleared on payment of duty. Rule 196AA provides for transfer of such
goods received under Rule 192 to another manufacturer who has been granted
registration under Rule 192 with the prior approval of the proper officer. Rule
196B provides for the manner in which goods received under Rule 192 may be
disposed of if found defective or damaged, they can be returned to the original
manufacturer and such returned goods shall be added to the original
manufacturer and such returned goods shall be added to the non-duty paid stock
of the original manufacturer. Finally, Rule196BB provides for movement of goods
received under Rule 192 as such, or after partial processing outside the
factory for repair and return. The applicant, though registered under Rule 174,
can receive the remitted goods for use in special industrial purpose only if it
gets an endorsement to that effect on the Registration Certificate, so given in
Form R-2, in advance which in this case was obtained only on 22.10.1996, after
the event. Further, Column 5of Schedule of R-1 certificate clearly enjoins upon
the recipient unit to furnish additional information viz. description of goods
to be obtained for industrial purpose, estimate quantity in the year, details
of the supplier of the goods etc. Further, it is on the basis ofR-2
Certificate, the jurisdictional Range Officer issues a CT-2certificate
(Certificate for Transfer of Goods) under the cover of which the remitted goods
have to move from the supplier unit to the recipient unit. CT-2 certificate is
required to be shown to the supplier unit who shall mention the CT-2 number on
the Gate Pass before delivering the goods without payment of duty on the
strength of CT-2 certificate. Compliance of the above mentioned requirements,
stipulated in Chapter X, is a pre-requisite for getting exemption from the
remission of excise duty on the specified goods. Exemption Clause - Strict
Construction
22.
The
law is well settled that a person who claims exemption or concession has to
establish that he is entitled to that exemption or concession. A provision
providing for an exemption, concession or exception, as the case may be, has to
be construed strictly with certain exceptions depending upon the settings on
which the provision has been placed in the Statute and the object and purpose
to be achieved. If exemption is available on complying with certain conditions,
the conditions have to be complied with. The mandatory requirements of those
conditions must be obeyed or fulfilled exactly, though at times, some latitude
can be shown, if there is a failure to comply with some requirements which are directory
in nature, the non-compliance of which would not affect the essence or
substance of the notification granting exemption. In Novopan Indian Ltd.
(supra), this Court held that a person invoking an exception or exemption
provisions, to relieve him of tax liability must establish clearly that he is
covered by the said provisions and, in case of doubt or ambiguity, the benefit
of it must go to the State. A Constitution Bench of this Court in Hansraj Gordhandas
v. H.H. Dave (1996) 2 SCR 253, held that such a notification has to be
interpreted in the light of the words employed by it and not on any other
basis. This was so held in the context of the principle that in a taxing
statute, there is no room for any intendment, that regard must be had to the clear
meaning of the words and that the matter should be governed wholly by the
language of the notification, i.e., by the plain terms of the exemption.
23.
Of
course, some of the provisions of an exemption notification may be directory in
nature and some are of mandatory in nature. A distinction between provisions of
statute which are of substantive character and were built in with certain
specific objectives of policy, on the one hand, and those which are merely
procedural and technical in their nature, on the other, must be kept clearly distinguished.
In Tata Iron and Steel Co. Ltd. (supra), this Court held that 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 if the same is directory in nature.
DOCTRINE OF SUBSTANTIAL
COMPLIANCE AND `INTENDED USE':
24.
The
doctrine of substantial compliance is a judicial invention, equitable in
nature, designed to avoid hardship in cases where a party does all that can
reasonably expected of it, but failed or faulted in some minor or inconsequent
aspects which cannot be described as the "essence" or the
"substance" of the requirements. Like the concept of
"reasonableness", the acceptance or otherwise of a plea of
"substantial compliance" depends upon the facts and circumstances of
each case and the purpose and object to be achieved and the context of the
prerequisites which are essential to achieve the object and purpose of the rule
or the regulation. Such a defence cannot be pleaded if a clear statutory
prerequisite which effectuates the object and the purpose of the statute has
not been met. Certainly, it means that the Court should determine whether the
statute has been followed sufficiently so as to carry out the intent for which
the statute was enacted and not a mirror imagety pe of strict compliance. Substantial
compliance means "actual compliance in respect to the substance essential to
every reasonable objective of the statute" and the court should determine whether
the statute has been followed sufficiently so as to carry out the intent of the
statute and accomplish the reasonable objectives for which it was passed.
Fiscal statute generally seeks to preserve the need to comply strictly with
regulatory requirements that are important, especially when a party seeks the
benefits of an exemption clause that are important. Substantial compliance of
an enactment is insisted, where mandatory and directory requirements are lumped
together, for in such a case, if mandatory requirements are complied with, it
will be proper to say that the enactment has-been substantially complied with notwithstanding
the non-compliance of directory requirements. In cases where substantial
compliance has been found, there has been actual compliance with the statute,
albeit procedurally faulty. The doctrine of substantial compliance seeks to
preserve the need to comply strictly with the conditions or requirements that
are important to invoke a tax or duty exemption and to forgive non-compliance for
either unimportant and tangential requirements or requirements that are so
confusingly or incorrectly written that an earnest effort at compliance should
be accepted. The test for determining the applicability of the substantial
compliance doctrine has been the subject of a myriad of cases and quite often,
the critical question to be examined is whether the requirements relate to the
"sub stance" or "essence" of the statute, if so, strict
adherence to those requirements is a precondition to give effect to that
doctrine. On the other hand, if the requirements are procedural or directory in
that they are not of the "essence" of the thing to be done but are given
with a view to the orderly conduct of business, they may be fulfilled by
substantial, if not strict compliance. In other words, a mere attempted
compliance may not be sufficient, but actual compliance of those factors which
are considered as essential.
25.
The
details to be furnished in Form No. 1 as per Rule 192 and the declaration to be
made, relate to the "substance" and "essence" of Chapter X.
R-2 Registration Certificate is also pre-requisite to obtain CT2 Certificate.
Further, the execution of bonds as provided in that chapter is also not an
empty formality for obtaining the duty-free excisable goods. Bonds also insist
for a declaration. CT-2Certificate will be issued only if a party gets
registered under FormR-2 from the Registering Authority. Only if CT-2
Certificate is obtained, the excisable goods could be removed. Form
RG16Register and the details to be furnished in Form RT11 are also statutory in
nature, which relate to the "substance" and "essence" of
the requirements under Chapter X. Indisputably, those requirements had not been
complied with.
26.
The
respondents have laid great emphasis on maintenance of some statutory registers
and filing of periodical returns at the recipient unit, so as to take the
shelter under the doctrine of substantial compliance for remission of duty. Respondents
pointed out that they had identical columns in the registers kept at the
recipient end, hence, the requirement of maintaining separate register at the
supplier end and the requirements of Chapter X was substantially complied with.
It may be noted that RG-16 Register prescribed was specific to Chapter X with
the sole intention of maintaining separate accounts for receipt, issue and
usage of duty free remitted inputs received from the supplier unit. Similarity
of columns and the details furnished therein cannot be considered as substitute
for not maintaining of RG-16 Register or other registers for remission of duty
under Chapter X.
27.
We
have already indicated that, at the supplier end, no registration under Rule
174 was obtained and no records were kept. The applicants, at the recipient
end, were also legally obliged to give various declarations in the statutory
forms so as to claim exemption and such declarations admittedly were not made. Non-compliance
of those conditions enumerated under various rules in Chapter X of the Excise
Rules and non-furnishing of various statutory forms prescribed under Chapter X,
in our view, are fatal to a plea of substantial compliance and intended use. The
respondents, therefore, on the facts of this case, have not succeeded in
establishing the plea of "intended use" or "the substantial compliance"
of the procedure set out in Chapter X so as to claim the benefit of the
exemption notification dated 11.8.1994.
28.
We
will now examine whether the judgments in Thermax Private Ltd. (supra) and J.K.
Synthetics (supra) require re-consideration. In Thermax Private Ltd. (supra),
the assessee had cleared imported goods after paying the custom duty as well as
the additional duty (CVD). Later, it was felt that it should have claimed the
concession in respect of CVD on the strength of Notification nos. 63/85 and
93/76 issued under Section 8 of the Tariff Act. Therefore, an application for
refund of CVD was submitted which was rejected by the Assistant Collector, but
was allowed by the Collector in appeal. On appeal, the Tribunal took the view
that the assessee had failed to satisfy the conditions laid down in Chapter
X.On appeal by the assessee, this Court took the view that the Tribunal was in
error in holding that the assessee could not get refund because the procedure
of Chapter X of the Excise Rules was not complied with. This Court mainly
relied on the letter of the Board dated 27.7.1987 wherein it was stated that
when ever intended use of material could be established by the importer, the benefit
of exemption notification should not be denied on the imported goods only
because the procedural condition falling under Chapter X was not complied with.
It is under such circumstances that this Court allowed the claim of the
assessee and ordered refund. Reasoning of this Court in Thermax Private Ltd.
(supra)is inapplicable to the facts of the present case. In the instant, case, we
are not concerned with the goods imported from outside the country. Both the
suppliers of specified intermediate goods as well as manufactures of specified
final products are situated in India and are obliged to follow various
statutory provisions, not only for the manufacture of excisable goods, but also
for claiming exemption under the notification dated 11.8.1994. Consequently, the
plea of intended use of the materials cannot be applied to the facts of the
present case.
29.
In
J. K. Synthetics (supra), the assessee was the manufacturer of polyester chips,
staple fibre and tow from Mono-Ethylene Glycol (MEG). On importing those goods,
they claimed exemption from payment of additional duty of customs there on because
MEG was exempted from the payment of excise duty by virtue of notification
dated 4.5.1987 issued under Section 8 of the Tariff Act. In that case, the
contention was raised by the Revenue that the assessee had not followed the
conditions laid down in Chapter X of the Excise Rules. But the Tribunal, on
facts, found that there had been substantial compliance of the procedure by the
assessee, which was approved by this Court without laying down any principle as
such which cannot be applied to the facts of the present case.
30.
Consequently,
the decisions of this Court in Thermax Private Ltd. (supra) and J. K.
Synthetics (supra) cannot be applied in all facts situation and it is declared
that the findings recorded in those decisions would be confined to the facts of
those cases. CIVIL APPEAL NO. 1631 OF 2001
31.
Civil
Appeal No. 1631 of 2001 arises out of the Order dated1.12.2000 passed by the
Tribunal at New Delhi. The issue involved in that case is whether the exemption
from the payment of central excise duty was available to the populated Printed
Circuit Board(PCB), manufactured and cleared by the assessee under Notification
no. 48/94-CE dated 1.3.1994. The Tribunal found that the assessee was not
eligible for the benefit of the notification since the assessee had not
followed the procedure set out in Chapter X of the Excise Rules by clearing PCB
from their unit to the central store atA-11, Okhla Industrial Area, Phase 1,
New Delhi. The Tribunal held that, under Chapter X, the assessee who wanted to
avail of the benefit of exemption notification had to file application in Form
AL-6 to the jurisdictional Central Excise authorities and had to obtainL-6
licence and had to follow the other procedures laid down in that chapter which,
in our view, are mandatory requirements for claiming the exemption from duty in
the light of the principles discussed by us in the other appeals. On facts as
well as on law, we fully endorse the view taken by the Tribunal and the appeal
would stand dismissed.
CIVIL APPEAL NOS.
568-569 OF 2009
32.
These
appeals have been preferred by the Revenue against the order dated 6.5.2008
passed by Tribunal at New Delhi, holding that the assesses are entitled to the
benefit of Notification no. 3/2001-CE and 6/2001-CE, irrespective of the fact
that the procedures under Chapter X were followed or not. The Tribunal
expressed the view that the procedure laid down in Chapter X is meant to be
followed only to establish the receipt of goods by the recipient unit and their
utilization.
33.
The
assessee in these appeals were engaged in the manufacture of pump parts and gun
metal casting falling under Chapter 84 and Chapter 73 respectively of the First
Schedule of the Tariff Act and claimed the benefit of above mentioned notifications.
The Officers of the Central Excise Department carried out a search at the
factory premises of the assessee on 25.8.2004. On the basis of that search, the
Commission took the view that the assessee had contravened the procedure of the
exemption notification and removed the excisable goods clandestinely. A notice
was issued to show cause why the central excise duty and the penalty therein be
not imposed on the assessee. The Commissioner, Central Excise, Ahmedabad vide
order dated 31.5.2007 demanded central excise duty of Rs.15,14,966/- from M/s
Neat well Castings under proviso to Section 11-A of the Central Excise Act,
1944 by invoking extended period of five years along with the penalty thereon. In
appeal filed by the assessee before the Commissioner (Appeals), it was held
that the benefit of the notification could not be denied only on the ground
that the procedure laid down in Chapter X had not been followed. The decision
of the Commissioner (Appeals) was upheld by the Tribunal in appeal.
34.
We
find it difficult to sustain the reasoning of the Tribunal that the procedure
laid down in Chapter X, is meant only to establish the receipt of goods by the
recipient unit and the irutilization. The Tribunal completely overlooked the
object and purpose of the procedure laid down in Chapter X. The goods manufactured
at the supplier end were excisable goods and if a party wants remission of
duty, he has to follow certain pre-requisites, the object of which is to see
that the goods be not diverted or utilized for some other purpose, on the guise
of the exemption notification. Detailed procedures have been laid down in
Chapter X so as to curb the diversion and misutilization of goods which are
otherwise excisable. The plea of "substantial compliance" and
"intended use" is, therefore, rejected for the reasons already stated.
35.
Consequently,
Civil Appeal Nos. 1878-1880 of 2004 and Civil Appeal Nos. 568-569 of 2009
preferred by the Revenue would stand allowed and Civil Appeal No. 1631 of 2001
shall stand dismissed. There will be no order as to costs.
................................................CJI
(S. H. KAPADIA)
...................................................J.(B.
SUDERSHAN REDDY)
...................................................J.(K.
S. PANICKER RADHAKRISHNAN)
..................................................J.(SURINDER
SINGH NIJJAR)
...................................................J.(SWATANTER
KUMAR)
New
Delhi;
November
18, 2010.
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