M/S. Bonanzo Engg. &Chemical Pvt. Ltd vs Commnr. Of Central Excise

PRIVATE LIMITED .... APPELLANT

VERSUS

COMMISSIONER OF CENTRAL EXCISE ... RESPONDENT

O R D E R

1. This appeal is directed against the judgment and order passed by

the Customs, Excise and Gold (Control) Appellate Tribunal, New

Delhi (for short 'the Tribunal') in Appeal No.E/1352/2002-B dated

25.10.2002. By the impugned judgment and order, the Tribunal has

sustained the original order passed by the Adjudicating Authority.

2. The undisputed facts are: the appellant is a manufacturer of goods

falling under Chapter Headings 32 and 84 of the first schedule to

the Central Excise Tariff Act, 1985 ('the Act' for short). The

description of the goods under those chapters for the purpose of

disposal of this appeal may not be necessary, since we are called

upon in this appeal to give a purposive construction to the language

employed in the Notification No.175/86-CE dated 1.3.1986 and

Notification No.111/88-CE dated 1.3.1988.

1 3. The Notification No.175/86-CE dated 1.3.1986 exempts the

excisable goods of the description specified in the annexure

appended to the Notification as enumerated under various Chapters

of the Schedule to the Act. The assessee availing the benefit of the

exemption notification has to satisfy two specific conditions for

claiming exemption from payment of duty under the Act. We need

to notice Sub-clauses (a), (a)(ii) and proviso to Clause 1, and the

Explanation II to the Notification. They read as under:

"(a) in the case of the first clearance of the specified

goods upto an aggregate value not exceeding rupees thirty

lakhs,-

xxx xxx xxx

(ii) in any other case from the whole of the duty of excise

leviable thereon:

Provided that the aggregate value of clearances of the

specified goods under Sub-clause (ii) of this clause in

respect of any one Chapter of the said Schedule, shall not

exceed rupees twenty lakhs [w.e.f. 1.4.1990]...."

"Explanation II For the purposes of Computing the

aggregate value of clearances under this Notification, the

clearances of any excisable goods, which are chargeable to

nil rate of duty or which are exempted from the whole of

the duty of excise leviable thereon by any other Notification

[not being a notification where exemption from the whole

of the duty of excise leviable thereon is granted based upon

the value or quantity of clearances made in a financial

year] issued under Sub-rule[1] of Rule 8 of the said rules,

or under Sub-section [1] of Section 5A of the Central

Excises and Salt Act, 1944 [1 of 1944], shall not be taken

into account."

2

4. A bare perusal of Sub-clause (a) of Clause 1 of the said

Notification demonstrates that the goods enumerated in the

Schedule to the Notification are exempted from payment of the

central excise duty for the first clearances of the specified goods

upto the aggregate value not exceeding rupees thirty lacs. Clause

(a)(ii) provides that such clearances should not exceed rupees

twenty lacs in any one of the chapter. The Notification also say that

for the purpose of computing the aggregate value of the clearances

under the said Notification, the value of clearances of any excisable

goods which are exempted from the whole of duty by any other

Notification shall not be taken into account.

5. Having seen the first Notification, namely, the Notification dated

1.3.1986, let us also refer to the Notification No.111/88-CE dated

1.3.1988. This Notification is issued by the Central Government in

exercise of its powers under sub-rule (1) of Rule 8 of the Central

Excise Rules, 1944. By the said Notification, the Central

Government exempts the goods of the description specified in

column 3 of the table appended to the Notification, from the whole

of the excise duty leviable on the said goods. It is an admitted fact

that the assessee is the manufacturer of specific goods falling under

Serial No. 12 of the table appended to the Notification.

3 6. We once again make it clear that the assessee in the instant case is a

manufacturer of goods falling under both chapters 32 and 84 of the

Act.

7. The assessee has filed its declaration before the adjudicating

authority, inter alia, informing him that the assessee would be

claiming exemption from payment of excise duty for a sum of

Rs.20 lacs under Chapter heading 32 of the Act and upto Rs.10 lacs

under Chapter heading 84 of the Act.

8. The adjudicating authority has issued two show cause notices dated

26.11.1992 and 20.01.1993, respectively. The first show cause

notice is for the period 20.08.1992 to 31.10.1992 and the second

show cause pertains to the period 01.11.1992 to 31.12.1992. The

duty effect of both the notifications does not exceed beyond Rs.2.3

lacs.

9. In the aforesaid show cause notices, the assessing authority had

stated that the assessee has exceeded the aggregate value of Rs.30

lacs as specified in the Notification dated 1.3.1986 and, therefore,

other clearances made by him would attract the levy of duty. It was

also mentioned in the notice that since the assessee had paid the

4

duty on the excess clearances of more than the value of Rs.30 lacs,

the assessee is liable to pay duty with penalty.

10. In reply to the said show cause notice, the assessee had brought to

the notice of the adjudicating authority that it is a manufacturer of

items which would fall under chapter heading 84 of the Act and,

therefore, the Notification dated 1.3.1988 requires to be applied and

if it is applied the goods enumerated in the table appended to the

Notification are exempted from the levy of duty and, therefore, the

excise duty paid by the assessee under the aforesaid notification

cannot be added for the purpose of computing the aggregate value,

while granting benefit of the Notification No.175/86-CE dated

1.3.1986.

11. The stand of the assessee was, initially, accepted by the adjudicating

authority (Assistant Commissioner) vide his Order dated 12.3.1993.

However, the Collector of Central Excise (Judicial) in his Review

Order dated 17.2.1994 found that the Order-in-Original dated

12.3.1993 is legally incorrect and is passed by the authority which is

incompetent on account of monetary limits. He further directed the

Assistant Collector to file an appeal before the Collector, Central

Excise (Appeals) for appropriate remedy. On Review Appeal, the

Collector, Central Excise (Appeals) vide its order dated 2.6.1994

5

had set aside the Order-in-Original and remanded the matter to the

Competent adjudicating authority (Deputy Commissioner) for de

novo proceedings. Thereafter, the adjudicating authority vide Order

dated 7.1.2000 while rejecting the assessee's claim had confirmed

the duty demanded and also imposed the penalty.

12. Aggrieved by the said order, the assessee had carried the matter in

appeal before the Tribunal. The Tribunal rejects the claim only on

the ground that the assessee has not claimed the refund of the duty

paid for the clearances of the goods falling under Chapter heading

84 of the Tariff Act, and therefore, the assessee is not entitled to

avail the benefit of the exemption Notification dated 1.3.1986. In

the words of the Tribunal:

"It is admitted fact that the Appellants have not availed of

the exemption provided under Notification No.111/88 while

clearing the goods classifiable under Heading 84.37. It has

not been brought on record that the Appellants have claimed

any refund of the said duty. Accordingly, it cannot be

claimed by them that the goods were exempted from payment

of duty. The value of the clearance of goods falling under

Heading 84.37 being cleared on payment of duty has to be

taken into account by computing the value of clearances for

the purpose of Notification No.175/86."

13. The sum and substance of the reasoning of the Tribunal appears to

be that merely because the assessee has paid the excess duty on

those items which he was not supposed to pay in view of the

6

exemption notification dated 1.3.1988 and merely because the

assessee has not claimed the refund of the excess duty paid, that

amount paid by him under the Notification dated 1.3.1988 requires

to be taken for the purpose of computing the aggregate value of the

clearances under the notification No.175/86-CE. In our view,

merely because the assessee, maybe, by mistake pays duty on the

goods which are exempted from such payment, does not mean that

the goods would become goods liable for duty under the Act.

Secondly, merely because the assessee has not claimed any refund

on the duty paid by him would not come in the way of claiming

benefit of the Notification No.175/86-CE dated 1.3.86.

14. In Union of India v. Wood Papers Ltd., (1990) 4 SCC 256, this

Court has observed:

4. Literally exemption is freedom from liability, tax or duty.

Fiscally it may assume varying shapes, specially, in a growing

economy. For instance tax holiday to new units, concessional

rate of tax to goods or persons for limited period or with the

specific objective etc. That is why its construction, unlike

charging provision, has to be tested on different touchstone. In

fact an exemption 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 or 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 are to be invoked at different stages of interpreting

it. When the question is whether a subject falls in the

7

notification or in the exemption clause then it being in 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.

5. ... A construction which results in inequitable results and is

incongruous, has to be avoided.

15. In Associated Cement Companies Ltd. v. State of Bihar, (2004) 7

SCC 642, this Court 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 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.1 and Mangalore

Chemicals and Fertilisers Ltd. v. Dy. Commr. of Commercial

Taxes2 to which reference has been made earlier.)"

16. In view of the above, we cannot sustain the judgment and order

8

passed by the Tribunal in Appeal No.E/1352/2002-B, dated

25.10.2002.

17. Accordingly, we allow this appeal, set aside the judgments and

orders passed by the Tribunal and the adjudicating authority. We

direct the adjudicating authority to apply the Notification dated

1.3.86 in the assessee's case without taking into consideration the

excess duty paid by the assessee under the Notification dated

1.3.1988. No costs.

Ordered accordingly.

.....................................J.

(H.L. DATTU)

.....................................J.

(ANIL R. DAVE)

NEW DELHI,

FEBRUARY 14, 2012.

9