Cc
(Preventive) Amritsar Vs. M/S.Malwa Industries Ltd. [2009] INSC 287 (12
February 2009)
Judgment
IN THE
SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NOS. 7076-7080
of 2008 CC (Preventive) Amritsar ...Appellant Versus M/s. Malwa Industries Ltd.
...Respondent
S.B.
SINHA, J :
1.
Interpretation of an exemption notification bearing No. 4/2006-CE
dated 1.03.2006 is in question in these appeals which arise out of a judgment
and order dated 30.04.2008 passed by the Customs, Excise and Service Tax
Appellate Tribunal (for short "the Tribunal"), Principal Bench, New
Delhi in Custom Appeal Nos. 43-47 of 2008.
2.
Respondent is engaged in the business of textile and manufacturing
of textile goods, viz., Dystar Indigo VAT 40 per cent SOL/Indigo Powder 90 2
per cent Wettable. The said imported goods fell under Tariff Heading 32041559.
Additional Duty (CVD) was charged on the assessable value of the goods
purported to be in terms of Section 3 of the Customs Tariff Act, 1975 (for
short "the Act").
Urging
that no excise duty was payable on the said goods in view of the notification
dated 1.03.2006, the respondent preferred appeals aggrieved thereby. The said
contention was upheld. Appellant approached the Tribunal thereagainst. The said
appeal, by reason of the impugned judgment, has been dismissed.
3.
Mr. Harish Chandra, learned senior counsel appearing on behalf of
the appellant, submitted that :-
(i) The
appellate authority as also the Tribunal committed a serious error in passing
the impugned judgment insofar as they failed to take into consideration that an
exemption notification should be construed strictly (ii) An assessee would be
entitled to the benefit of an exemption notification only in the event the
conditions precedent therefor are satisfied.
(iii) As
the raw material was required to be a product of the same factory, the impugned
notification, the learned counsel argued, was not attracted.
(iv) In
any event, the Tribunal having based its decision on a judgment of a
Three-Judge Bench of this Court in Thermax Private Ltd. v. Collector of Customs
[1992 (61) E.L.T. 352 (SC) : (1992) 4 SCC 440], the correctness whereof having
been doubted and referred to the Constitution Bench in Hyderabad Industries
Ltd. v. Union of India [1999 (108) ELT 321 (SC) : (1999) 5 SCC 15], the
impugned judgment is wholly unsustainable.
4.
The learned counsel appearing for the respondent, however,
supported the impugned judgment.
5.
We may, however, notice that part of the judgment in Thermax
Private Ltd. (supra), in terms whereof the manner in which Chapter X of the Act
is to be applied has merely been referred to the Constitution Bench and not the
question which is involved herein.
6.
Parliament enacted the Act; Section 3(1) whereof provides for levy
of additional duty equal to excise duty.
7.
Indisputably, if it is found that the notification dated 1.03.2006
is applicable in relation to the import of the goods in question by the
respondent herein, the excise duty thereon being `nil', no additional duty
would be payable. The said provision reads, thus:
"3.
Levy of additional duty equal to excise duty.- (1) Any article which is
imported in India shall, in addition, be liable to a duty (hereinafter in this
section referred to as the additional duty) equal to the excise duty for the
time being leviable on a like article if produced or manufactured in India and
if such excise duty on a like article is leviable at any percentage of its
value, the additional duty to which the imported article shall be so liable
shall be calculated at that percentage of the value of the imported article.
.... ....
Explanation
- In this section, the expression 'the excise duty for the time being leviable
on a like article if produced or manufactured in India' means the excise duty
for the time being in force which would be leviable on a like article if
produced or manufactured in India, or, if a like article is not so produced or
manufactured, which would be leviable on the class or description of articles
to which the imported article belongs, and 5 where such duty is leviable at
different rates, the highest duty."
8.
The notification dated 1.03.2006, interpretation whereof falls for
our decision, reads, thus:
"In
exercise of the powers conferred by Sub- section (1) of Section 5A of the
Central Excise Act, 1944 (1 of 1944), the Central Government, on being
satisfied that it is necessary in the public interest so to do, hereby exempts
excisable goods of the description specified in column (3) of the Table
below......... as are given in the corresponding entry in column (2) of the
said Table, from so much of the duty of excise specified thereon under the
First Schedule to the Central Excise Tariff Act, as is in excess of the amount
calculated at the rate specified in the corresponding entry in column (4) of
the said Table and subject to the relevant conditions specified in the Annexure
to this notification, and the Condition number of which is referred to in the
corresponding entry in column (5) of the Table aforesaid.
.....
Table 6
S. No. Chapter or Description of excisable Rate Condition No. heading or goods
sub-heading or tariff item of the first schedule (1) (2) (3) (4) (5) ... ...
... ... ...
67. 3204
or 3809 Finishing agents, dye Nil - carriers to accelerate the dyeing or fixing
of dye- stuffs, printing paste, and other products and preparations of any kind
used in the same factory for the manufacture of textiles and textile articles
... ... ... ... ...
"
9.
The short question which arises for consideration is: Does the
`nil' rate of duty, as provided for in the said notification dated 1.03.2006,
subject to the condition that the same are used in the same factory would mean
that the goods which were to be used must be manufactured in the same factory?
10.
An exemption notification should be read literally. A person
claiming benefit of an exemption notification must show that he satisfies the
eligibility criteria. Once, however, it is found that the exemption 7
notification is applicable to the case of the assessee, the same should be
construed liberally.
11.
Section 3 of the Act, on its plain reading, provides that the
goods imported into India would be liable to additional duty. The object of
levy of the said duty is that an importer should not be placed at some more
advantageous position vis-`-vis the purchasers/ manufacturers of similar goods
in India.
12.
A notification like any other provision of a statute must be
construed having regard to the purpose and object it seeks to achieve. For the
aforementioned purpose, the statutory scheme in terms whereof such a
notification has been issued should also be taken into consideration.
13.
It is a well-settled principle of law that where literal meaning
leads to an anomaly and absurdity, it should be avoided. When the goods are
imported evidently, the same would not be manufactured in the same factory. It
would, therefore, be impossible to apply the provisions of Section 3(1) of the
Act vis-`-vis the notification issued in the case of imported goods.
14.
The expression "same factory", therefore, in our
opinion, would mean the factory where the goods are actually manufactured. It
only means that the imported goods are required to be used in the factory
belonging to the importer where the manufacturing activity takes place. There
is nothing in Section 3 of the Act and in particular the explanation appended
to Sub- section (1) thereof mandating actual production or manufacture in the
said factory itself. There cannot be any doubt whatsoever that if excise duty
is not leviable on manufacture of goods, the question of the importer paying
any additional duty for import of like goods would not arise.
That is
principally the question which fell for determination in Thermax Private Ltd.
(supra) and answered in the following terms:
"6.
It is common ground that customs duty is payable and has been paid on the
imported goods under customs tariff Item No. 84.17(1) at 40 per cent of the
value of the imported goods plus a surcharge of 25 per cent thereon. The rate
of CVD, however has to be determined on the basis of Item No. 29-A of the
central excise tariff. It is common ground that "chillers" fall under
sub-item (3) of Item No. 29-A and that the basic excise duty payable thereon
was at 80 per cent of the value of the goods under the above item read with
Notification No. 42 of 1984/C.E. dated March 1, 1984.
*** ***
*** 9
9. The
assessee's claim for concession has, however, been rejected not on the ground
that the second of the above conditions has not been fulfilled but on the
broader ground that the procedure of Chapter X is designed to facilitate
clearances only for the purposes of central excise and that the said procedure
cannot be fulfilled at all in the case of an importer. In other words, the view
was that the second condition was such that it was attracted only for purposes
of central excise and could not at all be invoked to claim a concession in CVD.
It is the correctness or otherwise of this conclusion that has to be determined
in these appeals."
15.
The aforementioned dicta was noticed and approved by the
Constitution Bench of this Court in Hyderabad Industries Ltd. (supra) wherein
this Court noticed the following contention:
"6.
An argument had been raised on behalf of the Union of India to the effect that
the asbestos fibre imported by the appellant was exigible to additional duty
regardless of the fact that it was not produced as a result of manufacture and,
therefore, not exigible to excise duty. In support of this contention reliance
was placed on this Court's judgment in Khandelwal Metal & Engineering Works
v. Union of India. After discussing the said judgment the Bench was of the view
that the decision in the case of Khandelwal Metal & Engineering Works
required consideration by a larger Bench. It is pursuant to this direction that
this Bench has been constituted."
10
Answering the said contention, the Constitution Bench expressly overruled the
decision of this Court in Khandelwal Metal & Engineering Works v. Union of
India [1985 (20) ELT 222] wherein it had been observed:
"The
levy specified in Section 3(1) of the Tariff Act is a supplementary levy, in
enhancement of the levy charged by Section 12 of the Customs Act and with a
different base constituting the measure of the impost. In other words, the
scheme embodied in Section 12 is amplified by what is provided in Section 3(1).
The customs duty charged under Section 12 is extended by an additional duty
confined to imported articles in the measure set forth in Section 3(1). Thus,
the additional duty which is mentioned in Section 3(1) of the Tariff Act is not
in the nature of countervailing duty."
It was
furthermore held:
"We
are unable to accept the argument of the appellants that Section 3(1) of the
Tariff Act is an independent, charging section or that, the `additional duty'
which it speaks of is not a duty of customs but is a countervailing duty."
16.
A Bench of the Delhi High Court in Plastic Processors v. Union of
India [2002 (143) ELT 521] opined :- "8. As observed in the aforesaid
quoted portions by the Apex Court, for the purpose of attracting additional
duty under Section 3 of the Tariff Act, on the import of a manufactured or
produced article, the actual manufacture or production of a like article in
India is not necessary. Said provision specifically mandates that CVD will be
equal to the excise duty for the time being livable on a like article if
produced or manufactured in India. This position was also elaborated in Thermax
Private Limited case (supra)."
The
special leave petition there against was dismissed by this Court stating:
"These
Appeals can be disposed of by this common order.
Civil
Appeal Nos.2578-2583 of 2001 are against the order passed by the High Court of
Delhi dated 12th September, 2000 whereas Civil Appeal No.91 of 2002 is against
the order dated 12th June, 2001 passed by the Customs, Excise & Gold
(Control) Appellate Tribunal, (in short "CEGAT") New Delhi.
The short
question involved in these Appeals is regarding the validity of Circular
No.38/2000-Cus dated 10th May, 2000. By the two impugned orders the circulars
have been quashed. We are informed that apart from these two matters the
circular had also been challenged in the Gujarat High Court. The High Court of
Gujarat by its 12 decision in the case of Lucky Star International v.
Union of
India reported in 2001 (134) E.L.T. 26 (Guj.) had also quashed the circulars.
Against that decision Special Leave Petitions Nos........... CC Nos.3434-3456
of 2001 had been filed. That Special Leave Petitions got dismissed on 30th
July, 2001.
The
circular had also been challenged in the Calcutta High Court. The Calcutta High
Court by its Judgment dated 16th October, 2001 had also quashed the circular.
Against the decision of the Calcutta High Court Special Leave Petition
Nos............ CC Nos. 9727-9731 of 2003 had been filed. Those Special Leave
Petitions were withdrawn by learned Attorney General on 19th January, 2004.
In view
of the fact that one Special Leave Petition has been dismissed and another has
been withdrawn, we see no reason to interfere.
The Civil
Appeals stand dismissed. There will be no order as to costs."
17.
Yet again in Lohia Sheet Products v. Commr. Of Customs, New Delhi
[2008 (224) ELT 349 (SC)], this Court categorically held:
"16.
This Court in the case of Thermax Pvt. Ltd. v. Commissioner of Customs has held
that since the concession under Rule 192 turns only on the nature and use to
which the goods are put by the user or purchaser thereof and whether he has
gone through the procedure outlined in Chapter X, it would not be correct to
deny it to a supplier of such goods on the ground that he was an importer and
not a manufacturer. In other words, this Court stated in specific terms that
one has to forget that the goods are imported, imagine that the importer 13 had
manufactured the goods in India, determine the amount of excise duty that he
would have been called upon to pay in that event. The decision of the Tribunal
that the assessee could not get a refund because the procedure of Chapter X of
the Rules is inapplicable to importers as such was held to be wrong. It was
further held that the benefit of the exemption or concession should be granted
wherever Page 1127 the intended use of the material can be established by the
importer or by other evidence. In the present case, it is a matter of fact that
duty was paid by the appellant at the time of import of waste or scrap. Mere
fact that the goods were imported would not make any difference. The intention
behind the grant of exemption under the notification was to prevent the duty
being paid at two stages."
We may
notice the relevant extract of the notification dated 23.07.1996 in Lohia Sheet
Products (supra), which reads as under:
Rate
"Referenc Chapter Description of goods e No. Headin g No. or Sub- heading
No. (1) (2) (3) (4) 14 74.04 Nil"
Copper
waste and scrap used within the factory of production for the manufacture of
unrefined or unwrought copper, copper sheets or circles and handicrafts.
18.
A large number of decisions have been cited by Mr. Harish Chandra
to show that the exemption notification must be strictly construed. We may,
however, notice only a few of them.
19.
In Commissioner of Central Excise, Trichy v. Rukmani Pakkwell
Traders [2004 (165) ELT 481 : (2004) 11 SCC 801], it was held:
"6.
The Tribunal had also held that under the notification the use must be of
"such brand name". The Tribunal has held that the words "such
brand name" show that the very same brand name or trade name must be used.
The Tribunal has held that if there are any differences then the exemption
would not be lost. We are afraid that in coming to this conclusion the Tribunal
has ignored Explanation IX. Explanation IX makes it clear that the brand name
or trade name shall mean a brand name or trade name (whether registered or not),
that is to say, a name or a mark, code number, design number, drawing number,
symbol, monogram, label, signature or invented word or 15 writing. This makes
it very clear that even a use of part of a brand name or trade name, so long as
it indicates a connection in the course of trade would be sufficient to
disentitle the person from getting exemption under the notification."
However,
we may notice that this Court in Sarabhai M. Chemicals v. Commissioner of
Central Excise, Vadodara [(2005) 2 SCC 168 : (2005) 179 ELT 3], this Court held
:
"22.
Our interpretation is supported by the language of the notification. Under the
proviso read with the Explanation to the said notification, there were three
conditions required to be satisfied by way of certification by the Drugs
Controller.
Firstly,
that the bulk drugs should have the same meaning as mentioned in the
Explanation to the notification. Secondly, that such bulk drugs should be
normally used for the specified purposes; and, thirdly, that the "bulk
drugs" are used as such or as an ingredient in any formulation. Plainly
read, the third condition has to mean that the goods, for which exemption was
sought, were actually used as such or as an ingredient in any formulation. If
the arguments advanced on behalf of the appellant are accepted then the second
and third conditions would have the same meaning and there would be no point in
specifying them as separate conditions.
In the
Explanation to the notification, we have two expressions, namely,
"normally used" and "used as such". We have to read both
these expressions in juxtaposition. If so read, it becomes clear that the
expression "used as such" in the proviso qualifies the actual use and
not the capability of use. These words are by way of emphasis. They 16 are a
condition to be actually satisfied before the exemption can be availed and
granted.
Consequently,
every manufacturer of a bulk drug cannot seek the benefit of exemption under
the said notification merely by reason of "normal use" of the drug.
The words "normal use" indicate the possible use whereas the
expression "used as such" indicates the actual use."
(Emphasis
added) Thus, these decisions militate against the submission that the goods
must be manufactured in the factory.
20.
We, as noticed hereinbefore, have no quarrel with the proposition
that exemption notification should be construed strictly which means that
benefit thereof should not be granted to one, who is not entitled therefor. But
it is also true that those who are entitled to the benefit cannot be deprived
therefrom by taking recourse to the doctrine of narrow interpretation
simplicitor, although the purpose and object thereof would be defeated thereby.
In Kartar
Rolling Mills v. Commissioner of Central Excise, New Delhi [(2006) 4 SCC 772 :
2006 (197) ELT 151], this Court held:
17
"...It is trite to say that exemption notification has to be construed
strictly. Since the notification came into effect from 11-4-1994, the benefit
of the notification cannot be extended to the appellants retrospectively w.e.f.
1-3-1994."
In Eagle
Flask Industries Ltd. v. Commissioner of Central Excise, Pune [(2004) 7 SCC
377: 2004 (171) ELT 296], this Court held:
"6.
We find that Notification No. 11/88 deals with exemption from operation of Rule
174 to exempted goods. The notification has been issued in exercise of powers
conferred by Rule 174-A of the Rules. Inter alia, it is stated therein that,
where the goods are chargeable to nil rate of duty or exempted from the whole
of duty of excise leviable thereon, the goods are exempted from the operation
of Rule 174 of the Rules. The goods are specified in the Schedule to the
Central Excise Tariff Act, 1985 (in short "the Tariff Act"). The
proviso makes it clear that where goods are chargeable to nil rate of duty or
where the exemption from the whole of the duty of excise leviable is granted on
any of the six categories enumerated, the manufacturer is required to make a
declaration and give an undertaking, as specified in the form annexed while
claiming exemption for the first time under this notification and thereafter
before the 15th day of April of each financial year.
As found
by the forums below, including CEGAT, factually, the declaration and the
undertaking were not submitted by the appellants. This is not an empty
formality. It is the foundation for availing the benefits under the
notification. It cannot be said that they are mere procedural requirements,
with no consequences attached for non- 18 observance. The consequences are
denial of benefits under the notification. For availing benefits under an
exemption notification, the conditions have to be strictly complied with. Therefore,
CEGAT endorsed the view that the exemption from operation of Rule 174, was not
available to the appellants. On the facts found, the view is on terra
firma..."
In Tata
Oil Mills Co. Ltd. v. Collector of Central Excise [(1989) 4 SCC 541], Ranganathan,
J., despite accepting the proposition that the exemption notification should be
construed strictly, opined:
"These
words may be construed literally but should be given their fullest amplitude
and interpreted in the context of the process of soap manufacture. There are no
words in the notification to restrict it only to cases where rice bran oil is
directly used in the factory claiming exemption and to exclude cases where soap
is made by using rice bran fatty acid derived from rice bran oil. The whole
purpose and object of the notification is to encourage the utilisation of rice
bran oil in the process of manufacture of soap in preference to various other
kinds of oil (mainly edible oils) used in such manufacture and this should not
be defeated by an unduly narrow interpretation of the language of the
notification even when it is clear that rice bran oil can be used for
manufacture of soap only after its conversion into fatty acid or hydrogenated
oil."
21.
Contention of Mr. Harish Chandra that the decision of Thermax
Private Ltd. (supra) on the point urged before us has been doubted is not
correct. In Commissioner of Central Excise, New Delhi v. Hari Chand Shri Gopal
[2005 (188) ELT 353], upon taking into consideration various rules and in
particular Rule 192 of the Central Excise Rules, 1944, this Court pointed out
that conceptually there is a difference between short payment that arises from
non-levy or any mistake on the levy, on the one hand, and the short payment
arising out of the failure of the buyer/ user of the goods to account for them,
on the other. The court opined that the responsibility for the payment of duty
on the goods cleared under concession/ exemption having been transferred, it
was obligatory on the person wishing to obtain the remission of duty to apply
through the proper officer in the form prescribed therein. The court noticed
that there is a divergence of view in regard to the mode and manner of filing
such an application. It was noticed that Chapter X of the Act incorporates the
procedure required to be followed for the said purpose. It was opined that that
aspect of the matter had not been considered in Thermax Private Ltd. (supra) or
Collector of Central Excise, Jaipur v. J.K. Synthetics [2000 (120) ELT 54].
This Court noticed that there was a divergence of view in the judgments of the
Tribunal 20 in that behalf also, as for example, in National Aluminium Co. Ltd.
v. Commissioner of Central Excise, Bhubaneswar [2000 (125) ELT 519 (Tribunal)],
it was held that "even if Chapter X procedure is not followed, calcined
alumina manufactured in assesses' unit and transferred to another unit for
manufacture of aluminium was entitled to exemption under Notification No.
217/86-C.E. as the assessee had established intended use of material by other
evidence".
It was
pointed out that a diametrically opposite view has been taken in Kirloskar
Brothers Ltd. v. Collector of Central Excise, Pune [1997 (94) ELT 176
(Tribunal)] wherein it was held that the procedure required under Chapter X of
the Act was required to be strictly followed in cases of additional exemption
as the procedural requirements were essentially pre- requisite and no exemption
can be sanctioned in absence of the required compliance of the exemption
notification.
It was
furthermore noticed that the input relief was claimed in that case on the basis
of the captive consumption whereas Thermax Private Ltd. (supra) and J.K.
Synthetics (supra) were cases of the supplier being an importer and, thus, this
Court therein had no occasion to deal with cases of the nature involved
therein.
22.
We, therefore, are satisfied that this case is covered by Thermax
Private Ltd. (supra) and the point on which the matter has been referred to a
larger Bench does not arise for consideration herein.
23.
For the reasons aforementioned, there is no merit in these appeals
which are dismissed accordingly with costs. Counsel's fee assessed at Rs. 50,000/-
...............................J. [S.B. Sinha]
................................J. [Dr. Mukundakam Sharma]
New Delhi;
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