2004 JTR(SC) 160
2004 23 AIC 395 ; 2004 171 ELT 296 ; 2004 4 JLJR(SC) 100 ; 2004 7 JT 391 ; 2004 7 Scale 453 ; 2004 7 SCC 377 ; 2004 Supp4 SCR 35 ; 2004 2 WBLR 757 ; 2004 KHC 1500 ; 2004 7 Supreme 772
2004(7) Supreme 772
SUPREME COURT OF INDIA
(From Central Excise and Gold (Control) Appellate Tribunal, New Delhi)
Arijit Pasayat & P.P. Naolekar, JJ.
Eagle Flask Industies Ltd. -Appellant
versus
The Commissioner of Central Excise, Pune -Respondent
Civil Appeal No. 4647 of 1998
Decided on 2-9-2004
Counsel for the Parties :
For the Appellant : U.A. Rana, Arvind Kumar, Madhup Singhal, Sadeep Kharel, Advocates for M/s. Gagrat & Co., Advocates.
For the Respondent : Anoop Chowdhury, Sr. Advocate, Rupesh Kumar, P. Parmeshwaran, B. Krishna Prasad, Advocates.
IMPORTANT POINT
Filing of the declaration by the manufacture being the foundation for availing the benefit under the Notification issued in exercise of powers conferred by Rule 174-A of the Rules, the consequences of its non-compliance are denial of benefits under the Notification.
Act
Referred
:CENTRAL EXCISE ACT : .
CENTRAL EXCISE RULES : R.174(a)
CENTRAL EXCISE TARIFF ACT : .
(A) The Central Excise Tariff Act, read with the Central Excise Rules, governs the levy of duty and compliance procedures for excisable goods. Rule 174(a) of the Central Excise Rules operates as a procedural mandate, while Notification 11/88 (NT)-CE, issued under Rule 174-A, provides exemption from the operation of Rule 174 for specified goods that are chargeable to nil rate of duty or fully exempted, subject to strict compliance, including mandatory declaration and undertaking in the prescribed form. The Central Excise Act, 1944, and the consequent orders of the Customs, Excise & Gold (Control) Appellate Tribunal, New Delhi (CEGAT), determine the liability to duty and penalty. In this case, the applicability of the exemption hinged on whether the appellants fulfilled the procedural conditions under Notification 11/88, despite the goods being otherwise exempt or nil-rated.
(B) Key legal principles include that exemption under a notification is conditional and must be strictly complied with; non-submission of the prescribed declaration disentitles the assessee from the benefits of the notification; and the mere fact that goods are exempt or nil-rated does not automatically confer exemption from licensing and procedural requirements without adherence to the statutory conditions.
Facts of the case:
The appellants manufactured plastic articles at two factories and contended that during the relevant period the main factory produced goods fully exempt from licensing control under Notification 11/88. They were served a show-cause notice for failure to obtain an L-4 license and for non-filing of the declaration under Notification 11/88. The adjudicating authorities held that the goods were excisable, that the exemption was not available due to non-compliance with the notifications procedural requirements, and that the appellants had not fulfilled the conditions to claim exemption.
Findings of Court:
The CEGAT found that the appellants had failed to submit the declaration and undertaking mandated by Notification 11/88, and this non-compliance was not a mere procedural lapse but a condition precedent to claiming the exemption. On this factual basis, the appellate and adjudicating authorities correctly denied exemption and upheld the duty demand and penalty.
Issues:
Whether goods exempt or chargeable to nil duty are automatically exempt from licensing and procedural requirements; whether non-filing of the declaration under Notification 11/88 is a mere procedural irregularity or a fatal ground for denial of exemption; and whether the authorities correctly applied the provisions of the Central Excise Act and Rules in denying the exemption.
Ratio Decidendi:
Exemption under Notification 11/88 is conditional and available only upon strict compliance with its terms, including submission of the prescribed declaration. Non-compliance with this mandatory procedural condition defeats the claim to exemption, irrespective of the nature of the goods, and the consequent duty demand and penalty are justified.
Result:
The appeal is dismissed.
(A) The Central Excise Tariff Act, read with the Central Excise Rules, governs the levy of duty and compliance procedures for excisable goods. Rule 174(a) of the Central Excise Rules operates as a procedural mandate, while Notification 11/88 (NT)-CE, issued under Rule 174-A, provides exemption from the operation of Rule 174 for specified goods that are chargeable to nil rate of duty or fully exempted, subject to strict compliance, including mandatory declaration and undertaking in the prescribed form. The Central Excise Act, 1944, and the consequent orders of the Customs, Excise & Gold (Control) Appellate Tribunal, New Delhi (CEGAT), determine the liability to duty and penalty. In this case, the applicability of the exemption hinged on whether the appellants fulfilled the procedural conditions under Notification 11/88, despite the goods being otherwise exempt or nil-rated.
(B) Key legal principles include that exemption under a notification is conditional and must be strictly complied with; non-submission of the prescribed declaration disentitles the assessee from the benefits of the notification; and the mere fact that goods are exempt or nil-rated does not automatically confer exemption from licensing and procedural requirements without adherence to the statutory conditions.
Facts of the case:
The appellants manufactured plastic articles at two factories and contended that during the relevant period the main factory produced goods fully exempt from licensing control under Notification 11/88. They were served a show-cause notice for failure to obtain an L-4 license and for non-filing of the declaration under Notification 11/88. The adjudicating authorities held that the goods were excisable, that the exemption was not available due to non-compliance with the notifications procedural requirements, and that the appellants had not fulfilled the conditions to claim exemption.
Findings of Court:
The CEGAT found that the appellants had failed to submit the declaration and undertaking mandated by Notification 11/88, and this non-compliance was not a mere procedural lapse but a condition precedent to claiming the exemption. On this factual basis, the appellate and adjudicating authorities correctly denied exemption and upheld the duty demand and penalty.
Issues:
Whether goods exempt or chargeable to nil duty are automatically exempt from licensing and procedural requirements; whether non-filing of the declaration under Notification 11/88 is a mere procedural irregularity or a fatal ground for denial of exemption; and whether the authorities correctly applied the provisions of the Central Excise Act and Rules in denying the exemption.
Ratio Decidendi:
Exemption under Notification 11/88 is conditional and available only upon strict compliance with its terms, including submission of the prescribed declaration. Non-compliance with this mandatory procedural condition defeats the claim to exemption, irrespective of the nature of the goods, and the consequent duty demand and penalty are justified.
Result:
The appeal is dismissed.
ORDER
Arijit Pasayat, J.-The appellants assail correctness of the order passed by the Customs, Excise & Gold (Control) Appellate Tribunal, New Delhi (in short CEGAT ). In the appeal before the CEGAT, the appellants had challenged a duty demand of Rs. 14,95,893 and penalty of Rs. 5,000/-, as imposed by the Adjudicating Authority and confirmed by the Collector, Central Excise and Customs (Appeals). CEGAT dismissed the appeal.
2. Background facts are: according to the appellants, they are engaged in the manufacture of articles of plastic i.e. Plastic insulated wares and vacuum flasks. They had two factories, one at Talegaon and the other at Chinchwad. The former one was considered to be the main factory. It was claimed that during the period of dispute, i.e. from 1.3.1990 to 21.8.1990, major portion of the articles manufactured by them in terms of value were exempt from Central Excise Licensing Control under Rule 174-A of the Central Excise Rules, 1944 (in short the Rules ). Since all the goods manufactured in their main factory were fully exempt from duty during the relevant period, only a minor portion of production was carried out in the Chinchwad factory. A show cause dated 28.8.1990 was served by the Central Excise authorities requiring them to show cause as to why duty shall not be levied and penalty imposed for failure to take out L-4 licence required for the manufacture of excisable goods falling under Chapter headings No. 3924.90 (Casserole) and 3909.60 (Rigid Polyurethene Foam) falling during the relevant period and for the failure to file the list of excisable goods. It was alleged that there was failure to determine the duty liability and also that they had not maintained accounts of the excisable goods. They were called up to show cause why duty should not be demanded and penalty should not be imposed for contravention of various provisions of the Central Excise Act, 1944 (in short the Act ). The appellants took the stand that since the products manufactured were chargeable to nil rate of duty and since they were also exempted from Licensing Control under Notification 11/88 (NT)-CE dated 15.4.1988, there was no liability or requirement on their part to obtain L-4 license. It was further submitted that the Superintendent of Central Excise had been informed about the aforesaid aspects by letter dated 4.4.1990. As regards the Rigid Polyurethene Foam is concerned, the appellants claimed that the said item was non-excisable, as held in the assessee s own case for an earlier period. As regards the manufacture of goods at Chinchwad factory, the appellants took the stand that the said factory was a subsidiary unit of their main factory and all the materials required for the manufacture of goods were supplied by the main factory and the sales were also effected from the main factory. The Adjudicating Officer held that merely because exemption was granted under certain Notification, that does not make the product a non-excisable item even when the item was fully exempt. It was, therefore, obligatory on the part of the appellants to follow the requisite procedures before manufacturing goods at the Chinchwad factory. As regards the claim that the appellants were covered by notification No.11/88 (NT)-CE dated 15.04.1988, the adjudicating officer found that the appellants had not complied with the requirements, as contained in the Notification. He also found that the appellants had started the manufacturing in the premises of M/s. Top Plastics Pvt. Ltd. right from March, 1990 at Chinchwad even before the aforesaid M/s. Top Plastics Pvt. Ltd. had applied for cancellation of their licence on 21.08.1990. He also noted that the appellants had obtained the L-4 licence only on 28.03.1990. Since they have not filed the prescribed declaration under Notification No.11/88, were not exempt from the operation of Rule 174 of the Rules. It was also held that the appellants had carried out manufacturing activities without following the requisite procedures and therefore were not entitled to exemption under Notification 53/88 dated 01.03.1988. The demand of duty was confirmed and penalty was imposed. In appeal, the Collector (Appeals) confirmed the order. He found that both types of products manufactured by the appellants were excisable. Before the CEGAT, it was contended that so far as the casseroles are concerned, exemption notification 53/88 dated 01.03.1988 clearly allowed exemption of the said item. No classification/declaration by the present appellants M/s. Eagle Flask Industries was required to be filed, since the management of the Chinchwad factory where casseroles were being manufactured was under M/s. Top Plastics Pvt. Ltd. It was highlighted that though initially L-4 license was taken, cancellation was requested subsequently. It was submitted that the non-filing of declaration under Notification 11/88 was only, at the most, a procedural lapse and should not have resulted in levy of substantial tax liability.
3. The respondent before the CEGAT supported the orders of the Adjudicating Officer, as confirmed by the appellate authority. The CEGAT, on analysis of the factual position, came to a definite finding which was not disputed by the appellants that they had failed to comply with the requirement of submitting declaration under Notification 11/88. That being so, the orders passed by the departmental authorities were confirmed.
4. In support of the appeal, learned counsel for the appellant submitted that when the items were exempt from duty, there was consequential exemption from licensing control. In any event, mere lapse of non-submitting a declaration in terms of Notification 11/88 does not disentitle the assessee from the benefits otherwise available under the Notification.
5. Learned counsel for the respondent supported the judgment of the CEGAT.
6. We find that Notification 11/88 deals with exemption from operation of Rule 174 to exempted goods. The Notification has been issued in exercise of powers conferred by Rule 174-A of the Rules. Inter-alia it is stated therein that, where the goods are chargeable to nil rate of duty or exempted from the whole of duty of excise leviable thereon, the goods are exempted from the operation of Rule 174 of the Rules. The goods are specified in the Schedule to the Central Excise Tariff Act, 1985 (in short the Tariff Act ). The proviso makes it clear that where goods are chargeable to nil rate of duty or where the exemption from the whole of the duty of excise leviable is granted on any of the six categories enumerated, the manufacturer is required to make a declaration and give an undertaking, as specified in the Form annexed while claiming exemption for the first time under this Notification and thereafter before the 15th day of April of each financial year. As found by the forums below, including CEGAT, factually, the declaration and the undertaking were not submitted by the appellants. This is not an empty formality. It is the foundation for availing the benefits under the Notification. It cannot be said that they are mere procedural requirements, with no consequences attached for non-observance. The consequences are denial of benefits under the Notification. For availing benefits under an exemption Notification, the conditions have to be strictly complied with. Therefore, CEGAT endorsed the view that the exemption from operation of Rule 174, was not available to the appellants. On the facts found, the view is on terra firma. We find no merit in this appeal, which is, accordingly, dismissed.
Appeal dismissed.
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