Commnr. Of Central Excise, Surat-I vs M/S. Favourite Industries

1

'the Tribunal'), Mumbai in Appeal

No.E/158/03-Mum. dated 25.07.2003. By the

impugned judgment and order, the Tribunal has

partly allowed the appeal filed by the

respondent-assessee, inter alia, stating that

the assessee is entitled to avail the benefit

of the Notification No.8/97-CE, dated

1.3.1997. It is the correctness or otherwise

of the said finding and conclusion reached by

the Tribunal, is the subject matter of this

appeal.

2.The core issue that falls for our

consideration and decision is: whether the

finished goods manufactured by the 100%

Export Oriented Unit ('the EOU' for short)

out of the raw material supplied by another

100% EOU, and subsequently, cleared in the

Domestic Tariff Area (for short "the DTA") in

accordance with the EXIM Policy 1997-2002 are

entitled to the benefit of the exemption

provided under the Notification No.8/97-CE,

dated 1.3.1997. In the alternative, whether

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the adjudicating authority is justified in

holding that the assessee cannot take the

benefit of the Notification No.8/97-CE, dated

1.3.1997 and the assessee, at the most, can

take benefit of the Notification No.2/95-CE,

dated 4.1.1995.

3.Brief facts, as noticed by the adjudicating

authority may be stated: M/s. Favourite

Industries, respondent herein, is engaged in

the manufacture of processed Polyester Grey

Man Made fabric, falling under chapter sub-

heading 5407.51 of the Customs Tariff Act,

1975 and chapter sub-heading 5406.10 of the

Central Excise Tariff Act, 1985 (for short

"the Tariff Act"), out of raw materials

obtained indigenously and/or imported free of

Central Excise/Customs duties, as the case

may be, under the obligation of export of the

final product as well as clearance of final

product in the DTA on payment of appropriate

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duty as applicable from time to time as

provided under the EXIM Policy for the period

commencing from 1997 to 2002.

4.The respondent-industrial unit of the

assessee has been granted licence on

27.6.2000 for Private Bonded Warehouse under

100% Export Oriented Scheme under Section 58

of the Customs Act, 1962.

5. The respondent-industrial unit has also

obtained permission for advance DTA sale,

vide letter No. KFTWZ/100% EOU/II/765/2000-

01/3381 dated 27.7.2000 which will be valid

for a period of three months counted from the

date of issuance of permission, that is, upto

26th October, 2000 only.

6.In the Show Cause Notice, it was stated that

the respondent-industrial unit had filed the

RT-13 returns for the months of August, 2000

to December, 2000. On going through the

invoices, in respect of clearance made in the

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DTA, filed by the respondent-industrial unit

along with RT 13 returns for the month of

June to October, 2000, it was noticed that

the unit had cleared 17,52,421/- Liter Meters

Of pro M.M. Fabrics viz. finished goods,

rejected and waste worth Rs.1,41,43,082/-

during the period commencing from 1.8.2000 to

15.10.2000 in DTA on payment of 8% basic

excise duty amounting to Rs.13,53,695/-

which, according to the adjudicating

authority, is a short payment of duty

amounting to Rs.2,19,70,733/-. It is further

alleged in the show cause notice that the

unit has also cleared 12,78,814 L.Mtrs. of

finished goods, rejects and waste worth

Rs.1,30,98,643/- during the period starting

from 16.10.2000 to 31.12.2000 in DTA on

payment of 8% basic excise duty amounting to

Rs.13,52,262/-, which, according to the

adjudicating authority, is a short payment of

duty amounting to Rs. 2,13,30,228/-.

According to the adjudicating authority, the

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respondent has contravened the provisions of

EXIM Policy and Rules 100 D and 100 E of the

Central Excise Rules, 1944 (for short "the

Rules") and also the conditions prescribed

under 100% EOU scheme. Further, according to

the adjudicating authority, the respondent-

industrial unit has contravened the

provisions of the Notification No.2/95-CE,

dated 4.1.1995 and, thereby, the duty

amounting to Rs.4,33,00,961/- has been short

paid and the same requires to be recovered by

invoking the provisions of Section 11A (1)

read with Section 11A (2) of the Central

Excise Act, 1944 (for short "the Act") and

also for penal action under Rule 173Q (1) of

the Rules.

7. In view of the aforesaid material/charges the

adjudicating authority had issued the Show

Cause Notices to the assessee, inter alia,

directing the assessee to show cause as to

why the duty of excise amounting to

Rs.4,33,00,961/- should not be demanded and

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recovered under Section 11A(1) read with

Section 11A (2) of the Act. Alternatively, to

recover interest on the short duty payment by

invoking the provisions under Section 11AB of

the Central Excise Act and to take

appropriate penal action as provided under

Rule 173 Q (1) of the Rules, read with

Section 11AC of the Act. Along with the

notice, the adjudicating authority had

enclosed Annexures A, B and C working out the

details of the short payment of duty during

the period in question.

8.After receipt of the show cause notices, the

assessee had filed its reply dated 18.6.2002.

The assessee had contended that the goods are

manufactured from the raw material

produced/manufactured in India and,

therefore, they are entitled for the benefit

of the exemption from payment of certain

amount of duty as provided in the

Notification No.8/97-CE, dated 1.3.1997 on

payment of the appropriate duty and,

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therefore, it cannot be said that they had

cleared the manufactured goods as provided in

the Notification No.2/95-CE dated 4.1.1995.

To make things clear, they had also said that

they had purchased raw material from 100% EOU

who had manufactured/produced goods in its

industrial unit and the said goods cannot be

considered as imported raw material and,

therefore, the adjudicating authority is not

justified in issuing the show cause notices.

9. After receipt of the reply so filed, the

adjudicating authority, after affording an

opportunity of hearing to the assessee, had

proceeded to hold that the respondent-

industrial unit could not have taken the

benefit of the exemption notification

No.8/97-CE, dated 1.3.1997 and, if at all,

they are entitled to take benefit of the

Notification No.2/95-CE, dated 4.1.1995.

Accordingly, had confirmed the demands made

in the show cause notices.

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10. The assessee, being aggrieved by the order

in original passed by the adjudicating

authority, had preferred an appeal before the

Tribunal. The Tribunal, after considering

the conditions enumerated under both the

notifications, namely, Notification No.2/95-

CE, dated 4.1.1995 and Notification No.8/97-

CE, dated 1.3.1997, has come to the

conclusion that the adjudicating authority is

not justified in pinning down the assessee to

take the benefit only under the Notification

No.2/95-CE but not under the Notification

No.8/97-CE. Accordingly, has given relief to

the assessee by setting aside the order in

original passed by the adjudicating

authority. The Revenue, being aggrieved by

the order so passed by the Tribunal, is

before us in this appeal.

11. Shri. K. Swami, learned counsel appearing

for the Revenue, has taken all the pains to

take us through the Notifications, which are

the subject matter of this appeal, the

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reasoning of the adjudicating authority, and

the so called fallacy in the reasoning, and

the conclusion reached by the Tribunal.

Learned counsel also refers to the EXIM

Policy 1997-2002. Learned counsel would

submit that in order to take the benefit of

the Notification No.8/97-CE, the assessee

must purchase the raw material manufactured

in an industrial unit in a domestic area and

if such raw material is used for production

or manufacture of goods and sold in the

domestic area as provided in the EXIM Policy,

then only, it could take the benefit of the

Notification No.8/97-CE. In the alternative,

the learned counsel would submit that the

assessee in the present case has purchased

the raw material/finished products from a

100% EOU for its manufacturing activity for

the manufacture of a finished product and in

the hands of the purchaser industrial unit,

the transaction would be a deemed import and

the finished goods in question would be made

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out of imported raw material/finished product

and, therefore, the assessee cannot take the

benefit of the Notification no.8/97-CE.

Learned counsel would further submit that, if

for any reason, the notification is made

applicable to the respondent-industrial unit,

the said unit would receive total or undue

advantage in payment of the concessional rate

of duty on the finished goods, which are even

made out of imported raw materials/goods. The

learned counsel fairly submits that there are

no decisions on the issue in vogue but he

would contend nearer to the point, by relying

on the two decisions of this Court reported

in Hindustan Granites v. Union of India, 2007

(211) ELT 3 (SC) and Virlon Textile Mills

Ltd. v. Commissioner of Central Excise,

Mumbai, 2007 (211) ELT 353 (SC).

12. The learned counsel also submits that the

adjudicating authority, keeping in view the

transaction of the assessee in buying the raw

material/finished products from 100% EOU for

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its manufacturing activity to manufacture

finished products, has rightly applied the

Notification No.2/95-CE and, therefore, the

Tribunal ought not to have interfered with

the well considered and reasoned order of the

adjudicating authority.

13. Shri Tarun Gulati, learned counsel

appearing for the assessee, ably justifies

the judgment and order passed by the

Tribunal. The learned counsel has also

brought to our notice the clear distinction

between the Notification No.2/95-CE and the

Notification No.8/97-CE. He has also

endeavoured to take us through the relevant

clauses in the EXIM Policy 1997-2002.

14. Before we deal with the contentions

canvassed by the learned counsel for the

parties to the lis, we deem it appropriate to

notice the observations made by the

Constitution Bench of this Court in the case

of Commissioner of Central Excise, New Delhi

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v. Hari Chand Shri Gopal & Ors., (2011) 1 SCC

236, insofar as the mechanism and

interpretation of an exemption notification

issued under a fiscal enactment. This Court

has observed in the said decision:

"A provision especially a fiscal statute

providing for an exemption, concession or

exception has to be construed strictly.

An exemption notification has to be

interpreted in the light of the words

employed by it and not on any other

basis. A person who claims exemption or

concession must establish clearly that he

is covered by the provision(s) concerned

and, in case of doubt or ambiguity, the

benefit of it must go to the State."

15. The observations made by the Constitution

Bench of this Court are binding on us.

16. Furthermore, this Court in Associated Cement

Companies Ltd. v. State of Bihar & Ors., (2004) 7

SCC 642, while explaining the nature of the

exemption notification and also the manner in

which it should be interpreted has held:

"12. Literally "exemption" is freedom from

liability, tax or duty. Fiscally it may

assume varying shapes, specially, in a

growing economy. In fact, an exemption

1

provision is like an exception and on

normal principle of construction or

interpretation of statutes it is construed

strictly either because of legislative

intention or on economic justification of

inequitable burden of progressive approach

of fiscal provisions intended to augment

State revenue. But once exception or

exemption becomes applicable no rule or

principle requires it to be construed

strictly. Truly speaking, liberal and

strict construction of an exemption

provision is to be invoked at different

stages of interpreting it. When the

question is whether a subject falls in the

notification or in the exemption clause

then it being in the nature of exception

is to be construed strictly and against

the subject but once ambiguity or doubt

about applicability is lifted and the

subject falls in the notification then

full play should be given to it and it

calls for a wider and liberal

construction. (See Union of India v. Wood

Papers Ltd. and Mangalore Chemicals and

Fertilisers Ltd. v. Dy. Commr. of

Commercial Taxes to which reference has

been made earlier.)"

17. In G.P. Ceramics Private Limited v.

Commissioner, Trade Tax, Uttar Pradesh,

(2009) 2 SCC 90, this Court has held:

"29. It is now a well-established

principle of law that whereas eligibility

criteria laid down in an exemption

notification are required to be construed

strictly, once it is found that the

applicant satisfies the same, the

1

exemption notification should be construed

liberally. [See CTT v. DSM Group of

Industries (SCC para 26); TISCO v. State

of Jharkhand (SCC paras 42 to 45); State

Level Committee v. Morgardshammar India

Ltd.; Novopan India Ltd. v. CCE & Customs;

A.P. Steel Re-Rolling Mill Ltd. v. State

of Kerala and Reiz Electrocontrols (P)

Ltd. v. CCE.]"

18. In order to resolve the controversy posed

in this appeal, we have to notice the two

Notifications, namely, Notification No.2/95-

CE, dated 4.1.1995 and Notification No.8/97-

CE, dated 1.3.1997 and also the EXIM Policy

1997-2002. The Notification in juxtaposition

reads as under:

Notification No.2/95-CE, Notification

dated 4.1.1995 No.8/97-CE, dated

1.3.1997

Exemption to all Exemption to finished

excisable goods produced products, rejects and

in 100% EOU, FTZ, EHTP or waste or scrap produced

STP Units when sold in in a 100% EOU or FTZ

India

In exercise of the powers In exercise of the

conferred by sub-section powers conferred by

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(1) of section 5A of the sub-section (1) of

Central Excises and Salt section 5A of the

Act, 1944 (1 of 1944), Central Excise Act,

the Central Government, 1944 (1 of 1944), the

being satisfied that it Central Government,

is necessary in the being satisfied that it

public interest so to do, is necessary in the

hereby exempts all public interest so to

excisable goods do, hereby exempts the

(hereinafter referred to finished products,

as the said goods) rejects and waste or

specified in the Schedule scrap specified in the

to the Central Excise Schedule to the Central

Tariff Act, 1985 (5 of Excise Tariff Act, 1985

1986) and produced or (5 of 1986) and

manufactured in a hundred produced or

per cent export oriented manufactured, in a

undertaking or a free hundred per cent

trade zone or an export-oriented

Electronic Hardware undertaking or a free

Technology Park (EHTP) trade zone wholly from

unit or a Software the raw materials

Technology Parks (STP) produced or

unit and allowed to be manufactured in India,

sold in India under and and allowed to be sold

in accordance with the in India under and in

provisions of ,- accordance with the

provisions of sub-

(i)paragraphs 102 and 114 paragraphs (a), (b),

of the Export and Import (d) and (h) of

Policy, 1 April, 1992 - paragraph 6.8 or of

31 March 1997, in the paragraph 6.20 of the

case of hundred percent Export and Import

export oriented Policy, 1st April, 2002 undertaking or a free

- 31st March, 2007, trade zone; or from so much of the

(ii)notification of the duty of excise leviable

Government of India in thereon under section 3

the Ministry of Commerce of the Central Excise

No.42(N-8)/92-97, dated Act, 1944 (1 of 1944),

the 14th September, 1992 as is in excess of an

upto a value not amount equal to the

exceeding forty percent aggregate of the duties

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of the value of of excise leviable

production of components under the said section

and finished goods 3 of the Central Excise

manufactured, in the case Act or under any other

of a Electronic Hardware law for the time being

Technology Park (EHTP) in force on like goods,

unit; produced or

manufactured in India

(iii) notification of the other than in a hundred

Government of India in per cent export-

the Ministry of Commerce oriented undertaking or

No. 33/(RE)92-97, dated a free trade zone, if

the 22nd March, 1994, upto sold in India.

a value of production of

software manufactured in Provided that nothing

the case of a Software contained in this

Technology Parks (STP) notification shall

unit, apply where such

finished products, if

from so much of the duty manufactured and

of excise leviable cleared by a unit other

thereon under Section 3 than a hundred per cent

of said Central Excise export-oriented

and Salt Act as in excess undertaking or a unit

of the amount calculated in a free trade zone,

at the rate of fifty are wholly exempt from

percent of each of the the duties of excise or

duties of customs, which are chargeable to Nil

would be leviable under rate of duty.

Section 12 of the Customs

Act, 1962 (52 of 1962)

read with any other

[Notification No.8/97- notification for the time

CE, dated 1-3-1997 as being in force issued

amended by Notification under sub-section (1) of

No.21/97-CE, dated Section 25 of the said

11.4.1997; No.7/98-CE, Customs Acton the like

dated 2.6.1998 and goods produced or

No.11/2000-CE, dated manufactured outside

1.3.2000) India if imported into

India;

Provided that the amount

of duty payable in

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accordance with this

notification in respect

of the said goods shall

not be less than the duty

of excise leviable on the

like goods produced or

manufactured outside the

hundred per cent export-

oriented undertaking or

free trade zone or

Electronic Hardware

Technology Park (EHTP)

unit or Software

Technology Parks (STP)

unit which is specified

in the said Schedule,

read with any other

relevant notification

issued under sub-rule (1)

of rule 8 of the Central

Excise Rules, 1944, or

sub-section (1) of

section 5A of the said

Central Excise Act:

Provided further that

nothing contained in the

above proviso shall apply

to the goods which are

chargeable to nil rate of

duty leviable under

section 12 of the Customs

Act read with any other

notification for the time

being in force issued

under sub-section (1) of

section 25 of the said

Customs Act:

Explanation. - For the

purpose of this

notification, the

expression, -

1

(1)"Export and Import

Policy" means the Export

and Import Policy, 1st

April, 1992 - 31st March,

1997" means the Export

and Import Policy, 1,

April, 1992-31 March,

1997 published vide

Public Notice of the

Government of India in

the Ministry of Commerce

No.1- published by the

Government of India in

the Ministry of Commerce

No.1-ITC (PN)/92-97,

dated the 31st March, 1992

as amended from time to

time.

(2)"Electronic Hardware

Technology Park (EHTP)

unit" means a unit

established under and in

accordance with

Electronic Hardware

Technology Park (EHTP)

Scheme notified by the

notification of the

Government of India in

the Ministry of Commerce

No. 5 (RE-95) 92-97,

dated 30th April, 1995

and approved by an inter-

Ministerial Standing

Committee appointed by

the notification of the

Government of India in

the Ministry of Industry

{Department of Industrial

Development) No. S.O.

117(E), dated the 22nd

1

February, 1993;

(3) "Software Technology

Parks (STP) unit" means a

unit established under

and in accordance with

Software Technology Parks

(STP) Scheme notified by

the notification of the

Government of India in

the Ministry of Commerce

No.4/(RE-95)/92-95, dated

30th April, 1995 and

approved by an inter-

Ministerial Standing

Committee appointed by

the notification of the

Government of India in

the Ministry of Industry

(Department of Industrial

Development) No. S.O.

117(E), dated the 22nd

February, 1993.

[Notification No.2/95-CE,

dated 4.1.1995]

19. The relevant clauses for our purpose in

the EXIM Policy 1997-2002 are 9.9, 9.10,

9.13(a), 9.16 (c) and 9.20. They read as

under:

"DTA Sales

9.9

The entire production of EOU/EPZ/EHTP/STP units shall be exported subject to the

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following:

a. Unless specifically prohibited in the LOP/LOI, rejects may be sold in the domestic tariff area (DTA), on prior intimation to the customs authority. Such sales shall be counted against DTA sale entitlement under para 9.9(b) of the Policy. Sale of rejects shall be subject to payment of duties as applicable to sale under para 9.9.

b. DTA sale up to 50% of the FOB value of exports may be made subject to payment of applicable duties and fulfillment of minimum NFEP prescribed in Appendix 1 of the Policy. No DTA sale shall be permissible in respect of motor cars, alcoholic liquors and such other items as may be stipulated by Director General of Foreign Trade by a Public Notice issued in this behalf.

e. EOU/EPZ/EHTP/STP units may be permitted to sell finished products which are either freely importable under the Policy, or against other import licenses, in the DTA, over and above the levels permissible under sub paragraph (b) above, against payment of full duties, on annual basis, provided they have achieved the stipula ted NFEP and export performance.

g. For services, including software units, sale in the DTA in any mode, including on-line data communication, shall be permissible up to 50% of FOB value of exports and/or 50% of foreign exchange earned, where payment for such services is received in free foreign exchange.

h. Items included as by-products in the

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LOP/LOI may be sold in the DTA on payment of applicable duty.

Note:-

In the case of units manufacturing electronics hardware and software, the NFEP and DTA sale entitlement shall be reckoned separately for hardware and software.

Other Supplies In DTA

9.10

The following supplies in DTA shall be counted towards fulfillment of export performance and NFEP:

a. Supplies effected in DTA in terms of paragraph 10.2 of the Policy.

b. Supplies effected in DTA against payment in foreign exchange.

c. Supplies to other EOU/EPZ/SEZ/EHTP/STP units provided that such goods are permissible for procurement in terms of paragraph 9.2 of the Policy.

d. Supplies made to bonded warehouses set up under paragraph 11.14 of the Policy and/or under section 65 of the Customs Act.

e. Supply of goods against special entitlement of duty free import of goods.

f. Supply of goods to defence and

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internal security forces, foreign missions/diplomats provided they are entitled for duty free imports of such items in terms of general exemption notification issued by Ministry of Finance.

Entitlement For Supplies From The DTA

9.13

a. Supplies from the DTA to EOU/EPZ/EHTP/ STP units will be regarded as "deemed exports" and, besides being eligible for the relevant entitlements under paragraph 10.3 of this Policy, will be eligible for the following:

i. Reimbursement of Central Sales Tax;

ii. Exemption from payment of Central Excise Duty on capital goods, components and raw materials; and

iii. Discharge of EP, if any, on the supplier.

2 Inter Unit Transfer

9.16

a) Transfer of manufactured goods from one EOU/EPZ/ EHTP/STP unit to another EOU/EPZ/EHTP/STP unit will be allowed.

b) Goods imported/procured by an EOU/EPZ/ EHTP/STP unit may be transferred or given on loan to another EOU/EPZ/EHTP/STP unit which shall be duly accounted for, but not counted towards discharge of export performance.

Disposal Of Scrap/ Waste/ Remnants

9.20

Scrap/waste/remnants arising out of production process or in connection therewith may be sold or disposed of in the DTA on payment of applicable duties or exported. However, there shall be no duties/taxes on such scrap/waste/ remnants in case the same are destroyed with the permission of Customs authority."

20. Having noticed two Notifications and the

policy, let us analyze first, the Notification

No.2/95-CE. The Central Government, in

exercise of its powers under Section 5A(1) of

the Act, has issued the Notification in public

interest. The Notification exempts all

2

excisable goods mentioned in the Schedule to

the Tariff Act, from payment of duty leviable

under Section 3 of the Act. The Notification

provides the measure/cap of exemption from

payment of excise duty by an

assessee/industrial unit. It says the

exemption is from the excise duty which is in

excess of the amount calculated at 50% of each

of the duties of customs leviable under

Section 12 of the Customs Act, 1962 read with

any Notification issued under Section 25 of

the Customs Act. The Notification also makes

it clear with regard to the nature or type of

goods that the 100% EOU should be

manufacturing in its industrial unit. It says

that the exempted goods should be in a nature

or type of goods which are, normally,

produced/manufactured outside India and, but

for any reason, they are imported to India.

That only means, there must be a similarity

between the goods manufactured by a 100% EOU

with that of the goods produced or

2

manufactured outside the country but if it is

imported into this country. The Notification

provides two conditions in order to avail the

benefit provided under the Notification. They

are conjoint and not disjoint. Firstly, the

exemption is available only, if the goods are

produced or manufactured in a 100% EOU or FTA

or EHTP unit or STP unit and, secondly, they

must be allowed to be sold as per EXIM Policy

1997-2002. Proviso is appended to the

Notification. A reference to the same may not

be necessary for the purpose of the disposal

of this appeal.

21. Then we come to the Notification No.8/97-CE.

The said Notification is again issued by the

Central Government in public interest in

exercise of its powers under Section 5A(1) of

the Act. It exempts finished goods, rejects

and waste or scrap enumerated in the Schedule

to the Tariff Act, from payment of excise duty

under Section 3 of the Act. Yet again, the

Notification provides the entitlement or cap

2

up to which the assessee can avail benefit

under the Notification insofar as the payment

of excise duty. The Notification also speaks

of compliance of two conditions by an

industrial unit for taking benefits/advantage

of the Notification. Firstly, the finished

goods must be produced or manufactured in a

100% EOU or FTA from the raw material produced

or manufactured in India (emphasis supplied).

The second condition is that the goods must

have been allowed to be sold in India as per

sub paras (a), (b), (c ), (d) and (f) of para

9.9 or para 9.20 of the EXIM Policy 1997-2002.

22. Clause 9 of the EXIM Policy 1997-2002 speaks

of DTA sales. Clauses (a), (b), (c), (d) and

(f) put certain conditions to be complied with

by a 100% EOU/FTA etc. for effecting its sales

in DTA area. Clause 9.3 provides for benefits

for supplies made from the DTA Area. Clause

9.16(c) in particular provides for inter unit

transfers. Clause 9.20 provides for disposal

of the scrap in the DTA area by a 100% EOU.

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23. After having the bird's eye view of the two

Notifications, namely, Notification No.2/95-

CE, dated 4.1.1995 and Notification No.8/97-

CE, dated 1.3.1997 and the EXIM Policy 1997-

2002, let us consider the issues canvassed by

the learned counsel appearing for the parties.

24. Shri. K. Swami, learned counsel for the

revenue strenuously contends that the assessee

has purchased raw material/finished goods, for

its manufacturing activity to produce or

manufacture the finished products, from a 100%

EOU which had imported the raw material which

are exempted from the payment of duty and when

it affects the sale of such raw

material/finished goods manufactured in its

industry to another 100% EOU, then, in the

hands of the said EOU, it becomes an imported

raw material/finished goods. In this regard,

he submits that since the language employed in

the Notification no.8/97-CE, dated 1.3.1997 is

"raw material produced or manufactured in

India", only such raw material, when used for

2

the production or manufacturing of the

finished goods which are, ultimately, sold in

the DTA, are eligible for exemption and,

therefore, the assessee cannot take the

benefit of the Notification no.8/97-CE. We are

afraid that we can accept the argument

canvassed by Shri. Swami, in the light of the

unambiguous language employed in the

Notification no.8/97-CE. There is no

ambiguity, whatsoever, in the Notification

issued by the Central Government. The

Notification speaks of finished goods produced

or manufactured by a 100% EOU and if it is

sold in a DTA, the said EOU can take the

benefit of the Notification no.8/97-CE. If

for any reason, we accept the submission of

Shri K.Swami, learned counsel for the Revenue,

then we will be adding something into the

notification and, in our opinion, the same is

impermissible.

25. The notification requires to be interpreted in

the light of the words employed by it and not

2

on any other basis. There cannot be any

addition or subtraction from the notification

for the reason the exemption notification

requires to be strictly construed by the

Courts. The wordings of the exemption

notification have to be given its natural

meaning, when the wordings are simple, clear

and unambiguous. In Commissioner of Customs,

Kolkata v. Rupa & Co. Ltd., (2004) 6 SCC 408,

this Court has observed that the exemption

notification has to be given strict

interpretation by giving effect to the clear

and unambiguous wordings used in the

notification. This Court has held thus:

"7. However, if the interpretation given

by the Board and the Ministry is clearly

erroneous then this Court cannot endorse

that view. An exemption notification has

to be construed strictly but that does not

mean that the object and purpose of the

notification is to be lost sight of and

the wording used therein ignored. Where

the wording of the notification is clear

and unambiguous, it has to be given effect

to. Exemption cannot be denied by giving a

construction not justified by the wording

of the notification."

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26. In Commissioner of Central Excise, Trichy

v. Rukmani Pakkwell Traders, (2004) 11 SCC

801, this Court has also held:

"5. ... 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."

27. In Kohinoor Elastics (P) Ltd. v.

Commissioner of Central Excise, Indore,

(2005) 7 SCC 528, this Court has held:

"7. When the wordings of the notifications

are clear and unambiguous they must be

given effect to. By a strained reasoning

benefit cannot be given when it is clearly

not available."

28. In Compack (P) Ltd. v. Commissioner of

Central Excise, Vadodara, (2005) 8 SCC 300,

this Court has observed thus:

"20. Bhalla Enterprises laid down a

proposition that notification has to be

construed on the basis of the language

used. Rukmani Pakkwell Traders is an

authority for the same proposition as also

that the wordings of some other

notification are of no benefit in

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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 to addition of

the words "only out of" or "purely out of"

the base paper and 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."

29. In Commissioner of Central Excise,

Chandigarh-I v. Mahaan Dairies, (2004) 11 SCC

798, this Court has held:

"8. It is settled law that in order to

claim benefit of a notification, a party

must strictly comply with the terms of the

notification. If on wording of the

notification the benefit is not available

then by stretching the words of the

notification or by adding words to the

notification benefit cannot be conferred.

The Tribunal has based its decision on a

decision delivered by it in Rukmani

Pakkwell Traders v. CCE. We have already

overruled the decision in that case. In

this case also we hold that the decision

of the Tribunal is unsustainable. It is

accordingly set aside."

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30. In Commissioner of Customs (Preventive),

Gujarat v. Reliance Petroleum Limited, (2008)

7 SCC 220, this Court has held:

"30. We are not oblivious of the

proposition of law that an exemption

notification should be construed directly

but it is also well settled that

interpretation of an exemption

notification would depend upon the nature

and extent thereof. The terminologies used

in the notification would have an

important role to play. Where the

exemption notification ex facie applies,

there is no reason as to why the purport

thereof would be limited by giving a

strict construction thereto.

31. The comparison made by the learned

Solicitor General that mobility of a

person would depend upon his personal

fitness and not when he is placed on a

wheelchair, in our opinion, is not

apposite. The purpose of grant of

exemption is different. The object for

grant of notification shall be considered

in a broad based manner. The wordings used

therein have to be given their natural

meaning. The purpose must be allowed to be

achieved. The words "all types of

materials" should be construed widely."

31. Moreover, a liberal construction requires

to be given to a beneficial notification.

This Court in Commissioner of Customs

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(Preventive), Mumbai v. M. Ambalal and

Company, (2011) 2 SCC 74, (in which one of us

was the party) has observed that the

beneficial notification providing the levy of

duty at a concessional rate should be given a

liberal interpretation:

"16. It is settled law that the

notification has to be read as a whole.

If any of the conditions laid down in the

notification is not fulfilled, the party

is not entitled to the benefit of that

notification. The rule regarding

exemptions is that exemptions should

generally be strictly interpreted but

beneficial exemptions having their

purpose as encouragement or promotion of

certain activities should be liberally

interpreted. This composite rule is not

stated in any particular judgment in so

many words. In fact, majority of

judgments emphasise that exemptions are

to be strictly interpreted while some of

them insist that exemptions in fiscal

statutes are to be liberally interpreted

giving an apparent impression that they

are contradictory to each other. But this

is only apparent. A close scrutiny will

reveal that there is no real

contradiction amongst the judgments at

all. The synthesis of the views is quite

clearly that the general rule is strict

interpretation while special rule in the

case of beneficial and promotional

exemption is liberal interpretation. The

two go very well with each other because

they relate to two different sets of

circumstances."

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32. In Commissioner of Sales Tax v. Industrial

Coal Enterprises, (1999) 2 SCC 607, this

Court has observed thus:

"11. In CIT v. Straw Board Mfg. Co. Ltd.

this Court held that in taxing statutes,

provision for concessional rate of tax

should be liberally construed. So also in

Bajaj Tempo Ltd. v. CIT it was held that

provision granting incentive for

promoting economic growth and development

in taxing statutes should be liberally

construed and restriction placed on it by

way of exception should be construed in a

reasonable and purposive manner so as to

advance the objective of the provision."

33. In Commissioner of Central Excise,

Shillong v. North-Eastern Tobacco Co. Ltd.,

(2003) 1 SCC 161, this Court has observed

thus:

"10. The other important principle of

interpreting an exemption notification is

that as far as possible liberal

interpretation should be imparted to the

language thereof, provided no violence is

done to the language employed. See State

Level Committee v. Morgardshammar India

Ltd."

34. In our view, the Tribunal has rightly

3

understood the purpose and the language

employed in Notification no.8/97-CE and the

EXIM Policy 1997-2002. Therefore, we do not

see any legal infirmity in the judgment and

order so passed by the Tribunal.

35. Accordingly, while rejecting the appeal filed

by the revenue, we confirm the findings and

conclusions reached by the Tribunal. In the

facts and circumstances of the case, the

parties are directed to bear their own costs.

C.A.No.3588/2005, C.A.No.3638/2006 & C.A.No.1388/2008

The Tribunal, while allowing the

assessee's appeals has followed the judgment

and order rendered in the case of M/s.

Favourite Industries Vs. CCE, Surat-I. Since

we have confirmed the reasoning and the

conclusions reached by the Tribunal in the

aforesaid decision, the appeals filed by the

revenue against the impugned judgments and

orders requires to be rejected and

accordingly, they are rejected.

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Ordered accordingly.

...................J. (H.L. DATTU)

...................J. (ANIL R. DAVE)

NEW DELHI, FEBRUARY 29, 2012.

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