2001 JTR(SC) 1669
2002 AIR(SC) 453 ; 2001 AIR(SCW) 5073 ; 2002 172 CTR 670 ; 2002 139 ELT 3 ; 2002 1 GLH 548 ; 2002 2 GLR 1354 ; 2002 254 ITR 554 ; 2002 1 JCR(SC) 403 ; 2001 10 JT 456 ; 2002 1 KLT(SN) 34 ; 2001 8 Scale 479 ; 2002 2 SCC 127 ; 2001 Supp5 SCR 607 ; 2002 126 STC 122 ; 2002 KHC 237 ; 2001 8 Supreme 624
2001(8) Supreme 624
SUPREME COURT OF INDIA
(From Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi)
S.P. Bharucha, CJI., Syed Shah Mohammed Quadri, Umesh C. Banerjee, S.N. Variava and Shivaraj, V. Patil, JJ.
Collector of Central Excise, Vadodra -Appellant
versus
M/s. Dhiren Chemical Industries -Respondent
Civil Appeal No. 7937 of 1995
With
Civil Appeal Nos. 2496-2497 of 1992
Decided on 12-12-2001
Counsel for the Parties :
For the Appellant : Soli J. Sorabjee, Attorney General, Dhruv Mehta and B. Krishna Prasad, Advocates.
For the Respondent in C.A.No. 7937/95 : Ramesh Singh, Ms. Bina Gupta, Ms. Vanita Bhargava and Ms. Rakhi Ray, Advocates.
For the Respondent in C.A.No. 2496-97/92 : Joseph Vellapally, Sr. Advocate, Ms. Meenakshi Arora and Ms. Sujeeta Srivastava, Advocates.
IMPORTANT POINT
For correct interpretation to be placed upon the phrase "on which the appropriate amount of duty of excise has already been paid" due emphasis must be given to the words "has already been paid". Unless the manufacturer has paid the correct amount of excise duty, he is not entitled to the benefit of the exemption notification.
Act
Referred
:CENTRAL EXCISE ACT : S.37(b), S.5(a)
CENTRAL EXCISE RULES : R.8(1)
(A) The Central Excise Act, sections 37(b) and 5(a), read with Central Excise Rules, rule 8(1), govern the levy and exemption of excise duty on goods. The notification relied upon provides for exemption where iron or steel products within specified items are made from duty-paid raw material, requiring that excise duty has already been paid on the input at the appropriate rate. This case examines the interplay between those statutory provisions and the notification clause mandating payment of excise on the raw material as a precondition for exemption.
(B) Key principles include that the phrase "on which the appropriate amount of duty of excise has already been paid" requires actual payment of the correct or specified rate of excise duty on the raw material; mere importation or nil liability does not satisfy the condition; the exemption is intended to prevent cascading of duty; and the emphasis on "has already been paid" and "appropriate" limits the scope to goods made from duty-paid inputs. The Board also clarified that subsequent circular interpretations by the Central Board are binding on revenue.
Facts of the case:
The dispute involves iron or steel products claimed to be manufactured from raw material, where the excise duty on the raw material was either not paid or nil. The central issue was whether such goods qualified for exemption under the notification that exempts goods made from duty-paid material.
Findings of Court:
The Court held that the notification applies only where excise duty has actually been paid on the raw material at the correct or specified rate. It emphasized that the word "appropriate" means the correct rate of duty, and where no duty is payable or nil duty applies, the notification does not extend relief. The Court also clarified the purpose of the notification is to avoid cascading of excise duty.
Issues:
Whether the phrase "on which the appropriate amount of duty of excise has already been paid" requires actual payment of duty at the correct rate, and whether goods made from raw material on which no duty was paid can claim exemption.
Ratio Decidendi:
Exemption under the notification is available only when excise duty has been paid on the raw material at the appropriate or correct rate; absence of liability or nil duty on the raw material means the goods do not qualify for exemption.
Result:
The appeals are remitted to a Bench of two learned Judges for determination on merits, having regard to the clarified interpretation of the exemption notification.
(A) The Central Excise Act, sections 37(b) and 5(a), read with Central Excise Rules, rule 8(1), govern the levy and exemption of excise duty on goods. The notification relied upon provides for exemption where iron or steel products within specified items are made from duty-paid raw material, requiring that excise duty has already been paid on the input at the appropriate rate. This case examines the interplay between those statutory provisions and the notification clause mandating payment of excise on the raw material as a precondition for exemption.
(B) Key principles include that the phrase "on which the appropriate amount of duty of excise has already been paid" requires actual payment of the correct or specified rate of excise duty on the raw material; mere importation or nil liability does not satisfy the condition; the exemption is intended to prevent cascading of duty; and the emphasis on "has already been paid" and "appropriate" limits the scope to goods made from duty-paid inputs. The Board also clarified that subsequent circular interpretations by the Central Board are binding on revenue.
Facts of the case:
The dispute involves iron or steel products claimed to be manufactured from raw material, where the excise duty on the raw material was either not paid or nil. The central issue was whether such goods qualified for exemption under the notification that exempts goods made from duty-paid material.
Findings of Court:
The Court held that the notification applies only where excise duty has actually been paid on the raw material at the correct or specified rate. It emphasized that the word "appropriate" means the correct rate of duty, and where no duty is payable or nil duty applies, the notification does not extend relief. The Court also clarified the purpose of the notification is to avoid cascading of excise duty.
Issues:
Whether the phrase "on which the appropriate amount of duty of excise has already been paid" requires actual payment of duty at the correct rate, and whether goods made from raw material on which no duty was paid can claim exemption.
Ratio Decidendi:
Exemption under the notification is available only when excise duty has been paid on the raw material at the appropriate or correct rate; absence of liability or nil duty on the raw material means the goods do not qualify for exemption.
Result:
The appeals are remitted to a Bench of two learned Judges for determination on merits, having regard to the clarified interpretation of the exemption notification.
JUDGMENT
Bharucha, CJI.-The case of Dhiren Chemical Industries (Civil Appeal No. 7937 of 1995) has been referred by a Bench of three learned Judges to the Constitution Bench because it appeared to the Bench that there was a conflict between the view taken in Collector of Central Excise, Patna v. Usha Martin Industries (1997(7) SCC 47) and the view taken in Motiram Tolaram & Anr. v. Union of India & Anr. (1999(6) SCC 375), both being judgments of Benches of three learned Judges. Because of that reference, the other cases (Civil Appeal Nos. 2496-97) were also so referred.
2. The only question that we are concerned with relates to the correct interpretation to be placed upon the phrase "on which the appropriate amount of duty of excise has already been paid".
3. In the case of Usha Martin, the relevant Exemption Notification read, so far as is relevant, thus :
"Exemption in goods falling under Item 26-AA(i-a) made from duty-paid material :
In exercise of the powers conferred by sub-rule (1) of Rule 8 of the Central Excise Rules, 1944 and in supersession of the notification of the Government of India in the M.F. (D.R.) No. 131/62-CE, dated 13.6.1962, the Central Government hereby exempts iron or steel products falling under sub-item (i-a) of Item No. 26-AA made from any of the following materials or a combination thereof namely :
(i) fresh unused re-rollable scrap on which the appropriate amount of duty of excise has already been paid ...".
(Emphasis supplied)
The other clauses used the same phrase.
4. The Court said that there was "no doubt that as per the above notification if any amount of duty has been paid on the raw material, the output product would escape from excise duty. The doubt which arose was regarding the expression in the notification i.e., `on which the appropriate amount of duty of excise has already been paid as to whether it is capable of two interpretations, one as claimed by the assessee and the other as put forth by the Revenue." The Court then said :
"If we take the words `already paid in the notification delinked from other words employed therein, they would, perhaps, lend support to the contention of the Revenue as the said combination relates to an antecedent act of payment. But the word `already is not the decisive term in the context because the preceding word `appropriate , cannot be sidelined to piffle. The word `appropriate is defined in Websters New Dictionary and Thesaurus (Concise Edn.) as `applicable, apposite, appurtenant, apropos, apt... . In the World Book Dictionary it is defined as `right for the occasion, suitable, proper, fitting... .
What is the idea behind granting exemption to the commodities indicated in the notification? One reason is that the Central Government wanted to save certain raw materials and the end products made with them from double duty. Another idea, as could be discerned from it, is that the reason which prompted the Central Government to absolve one commodity from duty must as well be applicable to the other commodity which is made out of the former. Therefore, we are not disposed to afford a narrow interpretation to the expression (i.e. on which the appropriate amount of duty of excise has already been paid) as excluding all cases where nil duty was paid for the input materials."
5. The Court, thus, upheld the contention on behalf of the assessee.
6. In the case of Motiram Tolaram, reliance was placed upon the case of Usha Martin to contend that the appropriate duty being nil, because the raw material was not manufactured in India, it must be taken that appropriate duty had been paid and the appellants would be entitled to the benefit of the Exemption Notification in question, which used the said phrase. The Court was unable to agree. It said that the raw material being an item which was manufactured in India, a rate of excise duty was leviable thereon. On the raw material which had been imported, the appropriate amount of duty had not been paid. It was only if this payment had been made that the exemption notification would be applicable.
7. In our view, the correct interpretation of the said phrase has not been placed in the judgment in the case of Usha Martin. The stress on the word "appropriate" has been mislaid. All that the word "appropriate" in the context means is the correct or the specified rate of excise duty.
8. An exemption notification that uses the said phrase applies to goods which have been made from duty paid material. In the said phrase, due emphasis must be given to the words "has already been paid". For the purposes of getting the benefit of the exemption under the notification, the goods must be made from raw material on which excise duty has, as a matter of fact, been paid, and has been paid at the "appropriate" or correct rate. Unless the manufacturer has paid, the correct amount of excise duty, he is not entitled to the benefit of the exemption notification.
9. Where the raw material is not liable to excise duty or such duty is nil, no excise duty is, as a matterof fact, paid upon it. To goods made out of such material the notification will not apply.
10. The notification is intended to give relief against the cascading of excise duty on the raw material and again on the goods made therefrom. There is no cascading effect when no excise duty is payable upon the raw material and the hardship that the notification seeks to alleviate does not arise.
11. We need to make it clear that, regardless of the interpretation that we have placed on the said phrase, if there are circulars which have been issued by the Central Board of Excise and Customs which place a different interpretation upon the said phrase, that interpretation will be binding upon the Revenue.
12. These appeals shall now be placed before a Bench of two learned Judges, who will decide the same on their merits. This is done having regard to the fact that other issues may be involved.
(N.K.R.) Order accordingly.
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Parallel Citations of other Journals :
Collector of Central Excise v. Dhiren Chemical Industries, 2001(8) Supreme 624
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