M/S. I.O.C.L vs Commissioner of Central Excise, Vadodara and Commissioner of Central Excise, Lucknow

M/s Indian Oil Corporation Ltd. ... Appellant

Versus

Commissioner of Central Excise, Vadodara ... Respondent

WITH

CIVIL APPEAL NO.8048 OF 2004

M/s Indian Oil Corporation Ltd. ... Appellant

Versus

Commissioner of Central Excise, Lucknow ... Respondent

J U D G M E N T

A. K. PATNAIK, J.

CIVIL APPEAL NOs. 4530-4532 OF 2005:

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 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

3

was 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

4

Ahmedabad 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

5

appeals 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

6

CT-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

7

production, 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.

8 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

9

under 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

10

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

11

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

12

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.

14 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

15

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

16

equivalent 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

17

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.

18 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.

19 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.

20 6. 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 hereinbelow:

"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

21

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.