M/s Indian Oil
Corporation Ltd. Vs. Commissioner of Central Excise, Vadodara
[Civil Appeal No.
4530-4532 of 2005]
M/S Indian Oil Corporation
Ltd. Vs. Commissioner of Central Excise, Lucknow
[With Civil Appeal
No. 8048 of 2004]
J U D G M E N T
A. K. PATNAIK, J.
CIVIL APPEAL NOs.
4530-4532 OF 2005:
1.
These
are appeals under Section 35L (b) of the Central Excise Act, 1944 against the
order dated 15.03.2005 of the Customs, Excise and Service Tax Appellate Tribunal,
West Zonal Bench, Mumbai, (for short "the Tribunal").
2.
The
facts very briefly are that the appellant produces inter alia Reduced Crude Oil
(for short "RCO"). By Notification No. 75/84-CE dated 01.03.1984, the
Central government in exercise of its powers under Sub-Rule 1 of Rule 8 of the Central
Excise Rules, 1944 (for short "the Rules") exempted goods described
in Column 3 of the table annexed to the notification from so much of the duty of
excise as is specified in the notification subject to the intended use, or the
conditions, if any, laid down in Column 5 of the table annexed to the notification.
One of the goods exempted
from excise duty by the notification was RCO, if produced only from indigenous
crude oil subject to intended use as fuel for generation of electrical energy by
electricity undertakings owned or controlled by the Central Government or any State
Government or any State Electricity Board or any local authority or any licensee
under Part-II of the Indian Electricity Act, 1910 except those who produce
electrical energy not for sale but for their own consumption or for supply to
their own undertakings.
The proviso in the notification
stated two conditions subject to which the exemption was granted and one of the
conditions 3was that where the intended use is elsewhere than in the factory of
production, the procedure set out in Chapter X of the Rules is followed. Rule 192
in Chapter X of the Rules provided inter alia that where the Central Government
has by notification under Rule 8 sanctioned the remission of duty on excisable
goods other than salt used in a specified industrial process and it is necessary
for this purpose to obtain an excise registration certificate, he should submit
the requisite application along with the proof of payment of the registration
fee and shall then be granted a registration certificate in the proper form.
Rule 192 further provided that the concession shall, unless renewed by the
Collector, cease on the expiry of the registration certificate.
3.
The
Ahmedabad Electricity Company Ltd. had obtained a registration certificate in
Form CT-2 under Rule 192 of Chapter X of the Rules and on the strength of such registration
certificate, purchased RCO from the appellant availing the exemption from excise
duty under Notification No. 75/84 dated 01.03.1984 (for short `the exemption notification').
The registration certificate obtained by the 4Ahmedabad Electricity Company
Ltd. expired on 31.12.1995 and a fresh registration was granted in its favour on
26.06.1996.
After issuing two show-cause
notices, the Assistant Commissioner of Central Excise passed two orders demanding
excise duty of Rs. 32,35,485/- from the appellant for RCO supplied to the Ahmedabad
Electricity Company Ltd. during the period 01.01.1996 to 25.06.1996 on the ground
that the said company did not have a registration certificate in Form CT-2 under
Rule 192 of Chapter X of the Rules during this period and, therefore, the RCO
supplied by the appellant to the Ahmedabad Electricity Company Ltd. during this
period was not exempt from excise duty.
The appellant paid the
excise duty and subsequently applied for refund contending that the registration
certificate in Form CT-2 had been obtained by the Ahmedabad Electricity Company
Ltd. on 26.06.1996. The refund claims were rejected by the Assistant Commissioner.
Thereafter, the appellant
filed appeals before the Commissioner of Central Excise (Appeals) who confirmed
the demands of excise duty for the period from 01.01.1996 to 25.06.1996. The appellant
then filed three 5appeals before the Tribunal against the orders of Commissioner
of Central Excise (Appeals) confirming demand and the order rejecting the refund
claim. By the impugned order, the Tribunal dismissed the appeals saying that as
the statutory requirement of conditional exemption notification had not been
complied with by the appellant it was not entitled to the exemption benefit.
4.
Mr.
Alok Yadav, learned counsel for the appellant, submitted that the Tribunal failed
to appreciate that the RCO supplied by the appellant to Ahmedabad Electricity Company
Ltd. was in fact used as fuel for generation of electrical energy and therefore
the appellant was entitled to the benefit of the exemption of excise duty under
the exemption notification. He cited the decision of this Court in M/s Chunni Lal
Parshadi Lal v. Commissioner of Sales Tax, U.P., Lucknow [(1986) 2 SCC 501]
wherein it was held that a dealer can prove by any way other than the way contemplated
by Rule 12A of the U.P. Sales Tax Rules, 1948 that the goods purchased from him
were for resale.
According to Mr.
Yadav, the registration certificate in Form 6CT-2 is not the only way to prove
that the goods sold by the appellant to the Ahmedabad Electricity Company Ltd.
were used as fuel for generation of electricity. He also relied on Commissioner
of Customs (Imports), Mumbai v. Tullow India Operations Ltd. [(2005) (189) ELT 401
(SC)[ wherein this Court held that ONGC being a government company would get the
requisite exemption, subject, of course, to its fulfilling the condition of obtaining
the essentiality certificate. He argued that the appellant being a government company
should not be denied the exemption on a technical ground that there was no registration
certificate during the period 01.01.1996 to 25.06.1996.
5.
Mr.
Anup Chaudhary, learned senior counsel appearing for the respondent, on the
other hand, submitted that the exemption notification stipulated in the proviso
the conditions under which the exemption from excise duty would be available and
if the conditions were not fulfilled, the exemption would not be available to the
manufacturer. He submitted that one of the conditions was that where the goods
were to be used in a place other than in the factory of 7production, the procedure
set out in Chapter X of the Rules is to be followed.
He submitted that the
procedure laid down in Rules 192 to 196 BB in Chapter X of the Rules, therefore,
have to be followed, and if the procedure is not followed in any case, the exemption
cannot be granted under the exemption notification. He submitted that since under
Rule 192, the Ahmedabad Electricity Company Ltd. was required to obtain a
registration certificate in Form CT-2 and the said company did not obtain a
certificate for the period 01.01.1996 to 25.06.1996, RCO supplied by the appellant
to the Ahmedabad Electricity Company Ltd. during this period was exigible to
excise duty.
He cited the judgement
of the Constitution Bench of this court in Commissioner of Central Excise, New
Delhi v. Harichand Shri Gopal [2010 (260) ELT 3 (SC)] in which it has been held
that if a party wants remission of duty, he has to follow certain prerequisites,
the object of which is to see that the goods are not diverted or utilised for some
other purpose under the guise of the exemption notification and, therefore, a
plea that the goods were meant for intended use specified in the exemption
notification has to be rejected.
6.
The
question whether it was enough to prove to the satisfaction of the Central
Excise Officer that the goods are for the intended use specified in the notification
of exemption or whether in addition the procedure laid down in Rule 192 of Chapter
X of the Rules was also to be complied with for availing concession under the exemption
notification was raised before this Court in Thermax Private Limited v. The
Collector of Customs (Bombay), New Customs House [1992 (61) ELT 352 (SC)] =
[(1990) 4 SCC 440] and a two-Judge Bench of this Court held that the possession
of a license or production of a C-2 certificate as provided in Rule 192 of Chapter
X of the Rules enables the applicant to secure the necessary concession and
that the entitlement to the concession will depend on whether the purchaser is
the holder of a L-6 license (or C-2 certificate) or not.
These observations made
in Thermax Private Limited v. The Collector of Customs (Bombay), New Customs House
(supra) were held by a two-Judge Bench of this Court in Collector of Customs, Bombay
v. J.K. Synthetics Limited [1996 (87) ELT 582 (SC)] = [(1997) 10 SCC 224] as not
laying down principle and held to be limited to eligibility for concession 9under
Rule 192 of the Rules.
In the aforesaid decision
in the case of Collector of Customs, Bombay v. J.K. Synthetic Limited (supra) this
Court took the view that where there was evidence on record that show the intended
use of the material, the benefit of exemption could be granted. In a subsequent
decision in the case of Collector of Central Excise, Jaipur v. J.K. Synthetics [2000
(120) ELT 54 (SC)] = [(2000) 10 SCC 393] a three-Judge Bench of this Court took
the view that if there was substantial compliance of the procedure laid down in
Chapter X of the Rules, exemption could be granted.
In the case of Commissioner
of Central Excise, New Delhi v. Hari Chand Shri Gopal [2010 (260) ELT 3 (SC)] =
[(2011) 1 SCC 236] a Constitution Bench of this Court considered the decisions of
this Court in Thermax Private Limited v. The Collector of Customs (Bombay), New
Customs House (supra) and Collector of Central Excise, Jaipur v. J.K. Synthetics
(supra) and held that a provision for exemption, concession or exception, as
the case may be, has to be construed strictly and if the exemption is available
only on complying certain conditions, the conditions have to be complied with. In
the aforesaid decision, the Constitution Bench further held that detailed procedures
have been laid down in Chapter X of the Rules so as to curb the diversion and utilization
of goods which are otherwise excisable and the plea of substantial compliance
or intended use therefore has to be rejected.
7.
When
we strictly construe the exemption notification in this case, we find that the proviso
in the exemption notification reads as under: Provided that where any such exemption
is subject to the intended use, the exemption in such case shall be subject to the
following conditions namely:-
(i) That it is proved
to the satisfaction of an officer not below the rank of the Assistant Collector
of Central Excise that such goods are used for the intended use specified in Column
(5) of the said Table: and
(ii) Where such use is
elsewhere than in the factory of production, the procedure set out in Chapter X
of the Central Excise Rules, 1944, is followed. Thus, the proviso makes it clear
that for availing the exemption two conditions must be satisfied: First, that
it is proved to the satisfaction of the excise officer that the goods are used for
intended use specified in Column (5) of the Table annexed to the exemption notification
and second, where such use is elsewhere than in the factory of production, the
procedure set out in Chapter X of the Rules is followed.
We cannot, therefore,
accept the contention of the learned counsel of the appellant that if the first
condition is satisfied, i.e. it is proved to the satisfaction of the Central Excise
officer that the goods are used for the intended use, the exemption has to be granted.
In our considered opinion, unless the second condition is also satisfied, i.e.
the procedure set out in Chapter X of the Rules is followed where the use of
the goods is elsewhere than in the factory of production, the exemption cannot
be granted under the exemption notification.
8.
In
the facts of the present case, the RCO was not to be used in the factory of the
appellant but at the place of generation of electricity by the Ahmedabad Electricity
Company Ltd. Hence, the second condition laid down in the proviso was also to
be complied with. Rule 192 of Chapter X of the Rules is quoted hereinbelow: "RULE
192. Application for concession.—
Where the Central
Government has, by notification under rule 8, or section 5A of the Act, as the
case may be, sanctioned the remission of duty on excisable goods other than
salt, used in a specified industrial process, any person wishing to obtain remission
of duty on such goods, shall make application to the Collector in the proper Form
stating the estimated annual quantity of the excisable goods required and the purpose
for and the manner in which it is intended to use them and declaring that the
goods will be used for such purpose and in such manner.
If the Collector is satisfied
that the applicant is a person to whom the concession can be granted without danger
to the revenue, and if he is satisfied, either by personal inspection or by that
of an officer subordinate to him that the premises are suitable and contain a secure
store-room suitable for the storage of the goods, and if the applicant agrees
to bear the cost of such establishment as the Collector may consider necessary for
supervising operation in his premises for the purposes of this Chapter, the Collector
may grant the application, and the applicant shall then enter into a bond in the
proper Form with such surety or sufficient security, in such amount and under such
conditions as the Collector approves.
Where, for this purpose,
it is necessary for the applicant to obtain an Excise registration certificate,
he shall submit the requisite application along with the proof for payment of
registration fee and shall then be granted a registration certificate in the proper
Form.
The concession shall,
unless renewed by the Collector, cease on the expiry of the registration certificate:
Provided that, in the event of death, insolvency or insufficiency of the
surety, or where the amount of the bond is inadequate, the Collector may, in his
discretion, demand a fresh bond; and may, if the 13 security furnished for a bond
is not adequate, demand additional security.
"The language of
Rule 192 of Chapter X of the Rules is clear that for availing concession from excise
duty on excisable goods used in a specified industrial process, a person must obtain
a registration certificate from the Collector and that "the concession shall,
unless renewed by the Collector, cease on the expiry of the registration certificate".
Admittedly, the registration
certificate of the appellant expired on 31.12.1995. Hence, the exemption granted
under the notification ceased on 31.12.1995. The fresh registration certificate
in favour of the Ahmedabad Electricity Company Ltd. was issued on 26.06.1996
and we find on a reading of the copy of the CT-2 certificate annexed as
Annexure P5 that the registration certificate was not for any period prior to
26.06.1996. As the procedure laid down in Rule 192 of Chapter X of the Rules
has not been complied with, the appellant is not entitled to avail the
exemption of excise duty under the exemption notification during the period
from 01.01.1996 to 25.06.1996.
9.
The
appeals are, therefore, dismissed but there shall be no order as to costs. CIVIL
APPEAL NO.8048 OF 2004: This is an appeal under Section 35L (b) of the Central Excise
Act, 1944 against the order dated 02.07.2004 of the Customs, Excise and Service
Tax Appellate Tribunal, New Delhi, (for short "the Tribunal").2. The facts
very briefly are that the appellant produces inter alia Naphtha.
By Notification no. 3/2001-CE
dated 01.03.2001 (for short "the exemption notification") issued under
Section 5A of the Central Excise Act, 1944 (for short "the Act") the Central
Government exempted inter alia Naphtha cleared for the intended use in the
manufacture of fertilizers from excise duty subject to relevant conditions specified
in the annexure to the notification.
In the annexure to the
exemption notification, one of the conditions specified was that where such use
is elsewhere than in the factory of production, the exemption shall be allowed if
the procedure set out in the Central Excise (Removal of Goods at Concessional Rate
of Duty for Manufacture of Excisable Goods) Rules, 2001 (for short "the 2001
Rules") is followed. Rule 3(1) of the 2001 Rules provided that a
manufacturer who intends to receive subject goods for specified use at concessional
rate of duty, shall make an application in quadruplicate in the Form at Annexure-1
to the jurisdictional Assistant Commissioner or Deputy Commissioner of Central Excise,
as the case may be.
Indo Gulf Corporation
Limited placed an order on 16.07.2001 on the appellant for supply of Naphtha for
the purpose of manufacture of fertilizers and furnished a letter to the appellant
saying it has made an application to the Commissioner of Excise for authorization
for dispatch of one rake of Naphtha.
The appellant supplied
2241.908 MT of Naphtha to Indo Gulf Corporation Limited and while clearing the
aforesaid Naphtha from its factory did not make any payment of Central Excise
duty. The Commissioner of Central Excise issued show cause notice dated 13.06.2002
to the appellant and after considering the reply of the appellant passed the
order dated 30.09.2002 confirming the demand of duty amounting to Rs. 44,71,902/-
on the Naphtha cleared on 16.07.2001 and also imposed a penalty 16equivalent to
the duty amount. The appellant filed an appeal against the order of the Commissioner
before the Tribunal and the Tribunal held in the impugned order that under the exemption
notification, the appellant could be exempted from duty on Naphtha supplied to the
manufacturer of fertilizer only if the conditions specified in the exemption
notification are fulfilled.
The Tribunal further held
that one of the conditions specified in the exemption notification was that where
the goods were to be used elsewhere than in the factory of production, the exemption
would be allowed if the procedure set out in the 2001 Rules was followed and in
this case Rule 3(1) of 2001 Rules has not been followed, inasmuch as, the
manufacturer, namely, Indo Gulf Corporation Limited had not submitted application
in the form at Annexure-1 for obtaining Naphtha without payment of duty and had
only cleared the Naphtha without payment of duty on the basis of a letter dated
16.07.2001 wherein it was mentioned that it has submitted its application to the
Commissioner for issuance of authorization for dispatching one rake of Naphtha.
The Tribunal held that
as the condition of the exemption notification has not been complied with, the appellant
was not entitled to clear naphtha without payment of excise duty and
accordingly sustained the demand of excise duty. The Tribunal also held that as
the appellant had cleared Naphtha without payment of duty and without getting the
requisite Annexure-1 from its customer, penalty was also imposable on the appellant,
but on the facts and circumstances of the case the penalty was excessive. The Tribunal
accordingly reduced the penalty to Rs.1,00,000/- only.
3. Mr. Alok Yadav, learned
counsel for the appellant, submitted that as the Naphtha supplied to Indo Gulf Corporation
Limited was in fact used for manufacture of fertilizer, the appellant was entitled
to the benefit of exemption notification. He further submitted that as the appellant
was a government company, he should not be denied the exemption on a technical ground
that the application at Annexure-1 was not submitted to the authorities by the manufacturer
of fertilizer as provided in Rule 3(1) of the 2001 Rules.
4. Mr. Anup Chaudhary,
learned senior counsel appearing for the respondent, on the other hand,
submitted that one of the conditions specified in the exemption notification
was that where the goods were to be used in the place other than in the factory
of production, the procedure set out in the 2001 Rules has to be followed and
in this case the procedure set out in Rule 3(1) of the 2001 Rules has not been
followed.
5. We have considered
the submissions of the learned counsel for the parties and we find that by the exemption
notification the Central Government exempted the excisable goods from duty
"subject to the relevant conditions specified in the Annexure" to the
exemption notification. Paras 3 and 4 in the Annexure to the exemption notification
read as follows: "3. The exemption shall be allowed if it has been proved to
the satisfaction of an officer not below the rank of the Deputy Commissioner of
Central Excise or the Assistant Commissioner of Central Excise, as the case may
be, having jurisdiction that such goods are cleared for the intended use specified
in column 3 of the table.
4. Where such use is
elsewhere than in the factory of production, the exemption shall be allowed if
the procedure set out in the Central Excise (Removal of Goods at Concessional
Rate of Duty for manufacture of Excisable Goods) Rules, 2001 is followed.
"It will be
clear from Para 3 of the Annexure to the exemption notification that the exemption
shall be allowed if it has been proved to the Central Excise Officer having
jurisdiction that the goods are cleared for the intended use specified in column
3 of the table. In addition to this condition, there is a further condition in Para
4 of the Annexure to the exemption notification that where the intended use is elsewhere
than the factory of production, the exemption shall be allowed if the procedure
set out in the 2001 Rules is followed.
We, therefore, do not
accept the submission of Mr. Yadav that as the Naphtha cleared from the factory
of the appellant has been used for manufacture of fertilizer, the appellant would
be entitled to exemption even if the condition specified in Para 4 of the Annexure
to the exemption notification is not followed. 206. The condition specified in Para
4 in the Annexure to the exemption notification states that where the intend
use is elsewhere than in the factory of production, the exemption shall be allowed
if the procedure set out in the 2001 Rules is followed. In the facts of this case,
the Naphtha produced by the appellant in its factory was to be used for the manufacture
of fertilizer elsewhere than in its own factory, i.e. in the factory of Indo Gulf
Corporation Limited. Hence, the exemption could be allowed only if the procedure
set out in the 2001 Rules was followed.
7. Rule 3(1) of the
2001 Rules is extracted here inbelow: "Rule 3. Application by the manufacturer
to obtain the benefit. - (1) A manufacturer who intends to receive subject goods
for specified use at concessional rate of duty, shall make an application in
quadruplicate in the Form at Annexure-1 to the jurisdictional Assistant Commissioner
or Deputy Commissioner of Central Excise, as the case may be (hereinafter referred
to as the said Assistant Commissioner or Deputy Commissioner).
"Rule 3(1) makes
it amply clear that the manufacturer, who intends to use subject goods for specified
use at concessional rate of duty, shall make an application in quadruplicate in
the Form at Annexure-1 to the jurisdictional Assistant Commissioner or Deputy Commissioner
of Central Excise, as the case may be. Admittedly, no such application was made
by Indo Gulf Corporation Limited in the form at Annexure-1 to the jurisdictional
Assistant Commissioner or Deputy Commissioner of Central Excise.
As the procedure set out
in the 2001 Rules has not been followed, the appellant was not entitled to exemption
on the Naphtha cleared from its factory for supply to Indo Gulf Corporation Limited
for manufacture of fertilizer.
8. We, therefore, do
not find any merit in the appeal and we accordingly dismiss the same. There shall
be no order as to costs.
.............................J.
(A. K. Patnaik)
.............................J.
(Anil R. Dave)
New
Delhi,
January
13, 2012.
Back