REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 7076-7080 of 2008  

CC (Preventive) Amritsar …Appellant

Versus

M/s. Malwa Industries Ltd. …Respondent

J U D G M E N T  

S.B. SINHA, J :

1.  Interpretation  of  an exemption  notification  bearing  No.  4/2006-CE

dated  1.03.2006  is  in  question  in  these  appeals  which  arise  out  of  a

judgment and order dated 30.04.2008 passed by the Customs, Excise and

Service Tax Appellate Tribunal (for short “the Tribunal”), Principal Bench,

New Delhi in Custom Appeal Nos. 43-47 of 2008.

2. Respondent is engaged in the business of textile and manufacturing of

textile goods, viz., Dystar Indigo VAT 40 per cent SOL/Indigo Powder 90

per  cent  Wettable.   The  said  imported  goods  fell  under  Tariff  Heading

32041559.  Additional Duty (CVD) was charged on the assessable value of

the goods purported to be in terms of Section 3 of the Customs Tariff Act,

1975 (for short “the Act”).   

Urging that no excise duty was payable on the said goods in view of

the notification dated 1.03.2006, the respondent preferred appeals aggrieved

thereby.   The  said  contention  was  upheld.   Appellant  approached  the

Tribunal  thereagainst.   The  said  appeal,  by  reason  of  the  impugned

judgment, has been dismissed.

3. Mr. Harish Chandra,  learned senior counsel appearing on behalf of

the appellant, submitted that :-

(i) The  appellate  authority  as  also  the  Tribunal  committed  a

serious error in passing the impugned judgment insofar as they

failed to take into consideration that an exemption notification

should be construed strictly.   

(ii) An assessee would be entitled to the benefit of an exemption

notification only in the event the conditions precedent therefor

are satisfied.   

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(iii) As the raw material was required to be a product of the same

factory, the impugned notification, the learned counsel argued,

was not attracted.  

(iv) In  any  event,  the  Tribunal  having  based  its  decision  on  a

judgment  of  a  Three-Judge  Bench  of  this  Court  in  Thermax

Private  Ltd. v.  Collector  of  Customs [1992  (61)  E.L.T.  352

(SC) : (1992) 4 SCC 440], the correctness whereof having been

doubted and referred to the Constitution Bench in  Hyderabad

Industries Ltd. v.  Union of India [1999 (108) ELT 321 (SC) :

(1999)  5  SCC  15],  the  impugned  judgment  is  wholly

unsustainable.

4. The  learned  counsel  appearing  for  the  respondent,  however,

supported the impugned judgment.  

5. We  may,  however,  notice  that  part  of  the  judgment  in  Thermax

Private Ltd. (supra), in terms whereof the manner in which Chapter X of the

Act is to be applied has merely been referred to the Constitution Bench and

not the question which is involved herein.

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6. Parliament enacted the Act; Section 3(1) whereof provides for levy of

additional duty equal to excise duty.   

7. Indisputably,  if  it  is  found that  the notification  dated  1.03.2006  is

applicable  in  relation  to  the  import  of  the  goods  in  question  by  the

respondent herein, the excise duty thereon being ‘nil’, no additional duty

would be payable.  The said provision reads, thus:

“3.  Levy  of  additional  duty  equal  to  excise duty.- (1) Any article which is imported in India shall, in addition, be liable to a duty (hereinafter in this  section  referred  to  as  the  additional  duty) equal to the excise duty for the time being leviable on  a  like  article  if  produced  or  manufactured  in India and if  such excise duty on a like article is leviable  at  any  percentage  of  its  value,  the additional duty to which the imported article shall be so liable shall be calculated at that percentage of the value of the imported article.

…. ….

Explanation - In this  section,  the expression 'the excise duty for the time being leviable on a like article  if  produced  or  manufactured  in  India' means the excise duty for the time being in force which  would  be  leviable  on  a  like  article  if produced  or  manufactured  in  India,  or,  if  a  like article is not so produced or manufactured, which would  be leviable  on the  class  or  description  of articles to which the imported article belongs, and

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where such duty is leviable at different rates, the highest duty.”

8. The notification dated 1.03.2006, interpretation whereof falls for our

decision, reads, thus:

“In  exercise  of  the  powers  conferred  by  Sub- section  (1)  of  Section  5A of  the  Central  Excise Act, 1944 (1 of 1944), the Central Government, on being  satisfied  that  it  is  necessary  in  the  public interest so to do, hereby exempts excisable goods of the description specified in column (3) of the Table  below.........  as  are  given  in  the corresponding  entry  in  column  (2)  of  the  said Table,  from  so  much  of  the  duty  of  excise specified thereon under the First  Schedule to the Central  Excise Tariff  Act,  as  is  in  excess  of  the amount  calculated  at  the  rate  specified  in  the corresponding  entry  in  column  (4)  of  the  said Table  and  subject  to  the  relevant  conditions specified in the Annexure to this notification, and the Condition number of which is referred to in the corresponding  entry  in  column  (5)  of  the  Table aforesaid.

     …..

Table

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S. No. Chapter or heading or sub-heading or tariff item of the first schedule

Description of excisable goods

Rate Condition No.  

(1) (2) (3) (4) (5)

... ... ... ... ...

67. 3204 or 3809 Finishing agents, dye carriers to accelerate the dyeing or fixing of dye- stuffs, printing paste, and other products and preparations of any kind used in the same factory for the manufacture of textiles and textile articles

Nil -

... ... ... ... ...        “

9. The short question which arises for consideration is:  Does the ‘nil’

rate of duty, as provided for in the said notification dated 1.03.2006, subject

to the condition that the same are used in the same factory would mean that

the goods which were to be used must be manufactured in the same factory?

10. An  exemption  notification  should  be  read  literally.   A  person

claiming benefit of an exemption notification must show that he satisfies the

eligibility  criteria.   Once,  however,  it  is  found  that  the  exemption

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notification is  applicable  to the case of the assessee,  the  same should be

construed liberally.

11. Section 3 of the Act,  on its  plain  reading,  provides  that  the  goods

imported into India would be liable to additional duty.  The object of levy of

the  said  duty  is  that  an  importer  should  not  be  placed  at  some  more

advantageous  position  vis-à-vis  the  purchasers/  manufacturers  of  similar

goods in India.

12. A notification like any other provision of a statute must be construed

having  regard  to  the  purpose  and  object  it  seeks  to  achieve.   For  the

aforementioned  purpose,  the  statutory  scheme  in  terms  whereof  such  a

notification has been issued should also be taken into consideration.

13. It is a well-settled principle of law that where literal meaning leads to

an  anomaly  and  absurdity,  it  should  be  avoided.   When  the  goods  are

imported  evidently,  the  same  would  not  be  manufactured  in  the  same

factory.   It  would,  therefore,  be  impossible  to  apply  the  provisions  of

Section  3(1)  of  the  Act  vis-à-vis  the  notification  issued  in  the  case  of

imported goods.   

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14. The expression “same factory”, therefore, in our opinion, would mean

the factory where the goods are actually manufactured.  It only means that

the imported goods are required to be used in the factory belonging to the

importer where the manufacturing activity takes place.  There is nothing in

Section 3 of  the  Act and in  particular  the explanation  appended to  Sub-

section (1) thereof mandating actual production or manufacture in the said

factory itself.  There cannot be any doubt whatsoever that if excise duty is

not leviable on manufacture of goods, the question of the importer paying

any additional duty for import of like goods would not arise.   

That  is  principally  the  question  which  fell  for  determination  in

Thermax Private Ltd. (supra) and answered in the following terms:

“6. It  is  common ground that customs duty is payable and has been paid on the imported goods under customs tariff  Item No. 84.17(1) at  40 per cent  of  the  value  of  the  imported  goods  plus  a surcharge of 25 per cent thereon. The rate of CVD, however has to be determined on the basis of Item No. 29-A of the central excise tariff. It is common ground  that  “chillers”  fall  under  sub-item (3)  of Item  No.  29-A  and  that  the  basic  excise  duty payable thereon was at 80 per cent of the value of the  goods  under  the  above  item  read  with Notification No. 42 of 1984/C.E. dated March 1, 1984.

***           ***     ***

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9.  The  assessee’s  claim  for  concession  has, however, been rejected not on the ground that the second  of  the  above  conditions  has  not  been fulfilled  but  on  the  broader  ground  that  the procedure  of  Chapter  X is  designed  to  facilitate clearances only for the purposes of central excise and that the said procedure cannot be fulfilled at all in the case of an importer. In other words, the view was that the second condition was such that it was attracted only for purposes of central excise and  could  not  at  all  be  invoked  to  claim  a concession  in  CVD.  It  is  the  correctness  or otherwise  of  this  conclusion  that  has  to  be determined in these appeals.”

15. The  aforementioned  dicta  was  noticed  and  approved  by  the

Constitution  Bench  of  this  Court  in  Hyderabad  Industries  Ltd. (supra)

wherein this Court noticed the following contention:

“6. An argument had been raised on behalf of the Union of India to the effect that the asbestos fibre  imported  by  the  appellant  was  exigible  to additional  duty regardless  of  the  fact  that  it  was not  produced  as  a  result  of  manufacture  and, therefore, not exigible to excise duty. In support of this contention reliance was placed on this Court’s judgment  in  Khandelwal  Metal  &  Engineering Works v. Union of India. After discussing the said judgment  the  Bench  was  of  the  view  that  the decision  in  the  case  of  Khandelwal  Metal  & Engineering  Works  required  consideration  by  a larger Bench. It  is  pursuant  to this  direction that this Bench has been constituted.”

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Answering  the  said  contention,  the  Constitution  Bench  expressly

overruled the decision of this Court  in  Khandelwal Metal  & Engineering

Works v.  Union  of  India [1985  (20)  ELT  222]  wherein  it  had  been

observed:

“The  levy  specified  in  Section  3(1)  of  the Tariff  Act  is  a  supplementary  levy,  in enhancement of the levy charged by Section 12 of the  Customs  Act  and  with  a  different  base constituting  the  measure  of  the  impost.  In  other words,  the  scheme  embodied  in  Section  12  is amplified by what is provided in Section 3(1). The customs  duty  charged  under  Section  12  is extended  by  an  additional  duty  confined  to imported  articles  in  the  measure  set  forth  in Section  3(1).  Thus,  the  additional  duty which  is mentioned in Section 3(1) of the Tariff Act is not in the nature of countervailing duty.”

It was furthermore held:

“We are unable to accept the argument of the appellants that Section 3(1) of the Tariff Act is an independent,  charging  section  or  that,  the ‘additional duty’ which it speaks of is not a duty of customs but is a countervailing duty.”

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16. A Bench of the Delhi High Court in  Plastic Processors v.  Union of

India [2002 (143) ELT 521] opined :-

“8.  As  observed  in  the  aforesaid  quoted portions  by  the  Apex  Court,  for  the  purpose  of attracting additional  duty under Section  3 of  the Tariff  Act,  on  the  import  of  a  manufactured  or produced  article,  the  actual  manufacture  or production  of  a  like  article  in  India  is  not necessary.  Said  provision  specifically  mandates that CVD will be equal to the excise duty for the time being livable on a like article if produced or manufactured  in  India.  This  position  was  also elaborated  in  Thermax  Private  Limited  case (supra).”

The special leave petition thereagainst was dismissed by this Court

stating:

“These  Appeals  can  be  disposed  of  by  this common order.  

Civil  Appeal  Nos.2578-2583  of  2001  are against  the  order  passed  by  the  High  Court  of Delhi  dated 12th September,  2000 whereas Civil Appeal No.91 of 2002 is against the order dated 12th June, 2001 passed by the Customs, Excise & Gold  (Control)  Appellate  Tribunal,  (in  short "CEGAT") New Delhi.

The short question involved in these Appeals is regarding the validity of Circular No.38/2000-Cus dated  10th  May,  2000.   By  the  two  impugned orders  the circulars  have been quashed.   We are informed  that  apart  from  these  two  matters  the circular  had  also  been challenged  in  the  Gujarat High  Court.  The  High  Court  of  Gujarat  by  its

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decision in the case of Lucky Star International v. Union of India reported in 2001 (134) E.L.T. 26 (Guj.) had also quashed the circulars.  Against that decision  Special  Leave  Petitions  Nos...........  CC Nos.3434-3456  of  2001  had  been  filed.   That Special  Leave  Petitions  got  dismissed  on  30th July, 2001.  

The circular  had  also  been  challenged  in  the Calcutta High Court.  The Calcutta High Court by its  Judgment  dated  16th  October,  2001 had  also quashed the circular.  Against the decision of the Calcutta  High  Court  Special  Leave  Petition Nos............ CC Nos. 9727-9731 of 2003 had been filed.   Those  Special  Leave  Petitions  were withdrawn by learned  Attorney General  on  19th January, 2004.  

In  view  of  the  fact  that  one  Special  Leave Petition has been dismissed and another has been withdrawn, we see no reason to interfere.  

The Civil Appeals stand dismissed.  There will be no order as to costs.”

17. Yet again in Lohia Sheet Products v. Commr. Of Customs, New Delhi

[2008 (224) ELT 349 (SC)], this Court categorically held:

“16.  This  Court  in  the  case  of  Thermax  Pvt. Ltd.  v.  Commissioner  of  Customs  has  held  that since the concession under Rule 192 turns only on the nature and use to which the goods are put by the user or purchaser thereof and whether he has gone through the procedure outlined in Chapter X, it would not be correct to deny it to a supplier of such goods on the ground that he was an importer and not a manufacturer. In other words, this Court stated in specific terms that one has to forget that the goods are imported, imagine that the importer

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had  manufactured  the  goods  in  India,  determine the amount of excise duty that he would have been called upon to pay in that event. The decision of the  Tribunal  that  the  assessee  could  not  get  a refund because the procedure of Chapter X of the Rules is inapplicable to importers as such was held to be wrong. It was further held that the benefit of the  exemption  or  concession  should  be  granted wherever  Page  1127  the  intended  use  of  the material can be established by the importer or by other evidence. In the present case, it is a matter of fact that duty was paid by the appellant at the time of  import  of  waste  or  scrap.  Mere  fact  that  the goods  were  imported  would  not  make  any difference.  The  intention  behind  the  grant  of exemption  under  the  notification  was  to  prevent the duty being paid at two stages.”

We  may  notice  the  relevant  extract  of  the  notification  dated

23.07.1996 in Lohia Sheet Products (supra), which reads as under:

“Referenc e No.  

Chapter Headin g No.

or Sub- heading

No.  

Description of goods Rate

(1) (2) (3) (4)

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74.04 Copper waste and scrap used within the factory of production for the manufacture of unrefined or unwrought copper, copper sheets or circles and handicrafts.  

Nil”

18. A large number of decisions have been cited by Mr. Harish Chandra

to show that the exemption notification must be strictly construed.  We may,

however, notice only a few of them.  

19. In  Commissioner  of  Central  Excise,  Trichy v.  Rukmani  Pakkwell

Traders [2004 (165) ELT 481 : (2004) 11 SCC 801], it was held:

“6.  The  Tribunal  had  also  held  that  under the  notification  the  use  must  be  of  “such  brand name”. The Tribunal has held that the words “such brand name” show that the very same brand name or trade name must be used. The Tribunal has held that if there are any differences then the exemption would not be lost. We are afraid that in coming to this  conclusion  the  Tribunal  has  ignored Explanation IX. Explanation IX makes it clear that the brand name or trade name shall mean a brand name or  trade  name (whether  registered  or  not), that  is  to  say,  a  name or  a  mark,  code  number, design  number,  drawing  number,  symbol, monogram,  label,  signature  or  invented  word  or

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writing. This makes it very clear that even a use of part of a brand name or trade name, so long as it indicates a connection in the course of trade would be sufficient to disentitle the person from getting exemption under the notification.”  

 However, we may notice that this Court in Sarabhai M. Chemicals v.

Commissioner of Central Excise, Vadodara [(2005) 2 SCC 168 : (2005) 179

ELT 3], this Court held :

“22. Our  interpretation  is  supported  by  the language  of  the  notification.  Under  the  proviso read with the Explanation to the said notification, there were three conditions required to be satisfied by way of  certification  by the  Drugs  Controller. Firstly, that the bulk drugs should have the same meaning  as  mentioned  in  the  Explanation  to  the notification. Secondly, that such bulk drugs should be normally used for the specified purposes; and, thirdly, that the “bulk drugs” are used as such or as an ingredient in any formulation. Plainly read, the third  condition  has  to  mean  that  the  goods,  for which exemption was sought, were actually used as such or as an ingredient in any formulation. If the arguments advanced on behalf of the appellant are accepted then the second and third conditions would have the same meaning and there would be no point in specifying them as separate conditions. In the Explanation to the notification, we have two expressions,  namely,  “  normally  used  ”  and  “  used   as such  ”. We have to read both these expressions   in    juxtaposition  . If so read, it  becomes clear that   the  expression  “used  as  such”  in  the  proviso qualifies the actual  use and not  the capability of use. These words are by way of emphasis.  They

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are a condition to be actually satisfied before the exemption  can  be  availed  and  granted. Consequently, every manufacturer of a bulk drug cannot  seek  the  benefit  of  exemption  under  the said notification merely by reason of “normal use” of the drug. The words “normal use” indicate the possible  use  whereas  the  expression  “used  as such” indicates the actual use.”  

(Emphasis added)

Thus, these decisions militate against the submission that the goods

must be manufactured in the factory.   

20. We, as noticed hereinbefore, have no quarrel with the proposition that

exemption notification should be construed strictly which means that benefit

thereof should not be granted to one, who is not entitled therefor.  But it is

also  true  that  those  who  are  entitled  to  the  benefit  cannot  be  deprived

therefrom  by  taking  recourse  to  the  doctrine  of  narrow  interpretation

simplicitor,  although  the  purpose  and  object  thereof  would  be  defeated

thereby.  

 In  Kartar  Rolling  Mills v.  Commissioner  of  Central  Excise,  New

Delhi [(2006) 4 SCC 772 : 2006 (197) ELT 151], this Court held:

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“…It is trite to say that exemption notification has to be construed strictly. Since the notification came into effect from 11-4-1994, the benefit of the notification cannot  be extended to the appellants retrospectively w.e.f. 1-3-1994.”

In  Eagle  Flask  Industries  Ltd. v.  Commissioner  of  Central  Excise,

Pune [(2004) 7 SCC 377: 2004 (171) ELT 296], this Court held:

“6. We find that Notification No. 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-

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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…”  

In  Tata Oil Mills Co. Ltd. v.  Collector of Central Excise [(1989) 4

SCC  541],  Ranganathan,  J.,  despite  accepting  the  proposition  that  the

exemption notification should be construed strictly, opined:

“These  words  may  be  construed  literally  but should  be  given  their  fullest  amplitude  and interpreted in  the  context  of  the process  of soap manufacture.  There  are  no  words  in  the notification to restrict it  only to cases where rice bran  oil  is  directly  used  in  the  factory  claiming exemption  and  to  exclude  cases  where  soap  is made by using  rice  bran fatty acid derived from rice bran oil. The whole purpose and object of the notification is to encourage the utilisation of rice bran oil in the process of manufacture of soap in preference  to  various  other  kinds  of  oil  (mainly edible  oils)  used  in  such  manufacture  and  this should  not  be  defeated  by  an  unduly  narrow interpretation  of  the  language  of  the  notification even when it is clear that rice bran oil can be used for manufacture of soap only after its conversion into fatty acid or hydrogenated oil.”

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21. Contention  of  Mr.  Harish  Chandra  that  the  decision  of  Thermax

Private Ltd. (supra) on the point urged before us has been doubted is not

correct.  In Commissioner of Central Excise, New Delhi v. Hari Chand Shri

Gopal [2005 (188) ELT 353], upon taking into consideration various rules

and in particular  Rule 192 of the Central  Excise Rules,  1944, this Court

pointed out that conceptually there is a difference between short payment

that arises from non-levy or any mistake on the levy, on the one hand, and

the short payment arising out of the failure of the buyer/ user of the goods to

account for them, on the other.  The court opined that the responsibility for

the  payment  of  duty  on  the  goods  cleared  under  concession/  exemption

having been transferred, it was obligatory on the person wishing to obtain

the  remission  of  duty  to  apply  through  the  proper  officer  in  the  form

prescribed therein.  The court noticed that there is a divergence of view in

regard to the mode and manner of filing such an application.  It was noticed

that  Chapter  X  of  the  Act  incorporates  the  procedure  required  to  be

followed for the said purpose.  It was opined that that aspect of the matter

had not  been considered in  Thermax Private Ltd. (supra)  or  Collector  of

Central Excise, Jaipur v. J.K. Synthetics [2000 (120) ELT 54].  This Court

noticed that there was a divergence of view in the judgments of the Tribunal

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in  that  behalf  also,  as  for  example,  in  National  Aluminium Co.  Ltd. v.

Commissioner  of  Central  Excise,  Bhubaneswar [2000  (125)  ELT  519

(Tribunal)], it was held that “even if Chapter X procedure is not followed,

calcined alumina manufactured in assesses’ unit and transferred to another

unit  for  manufacture  of  aluminium  was  entitled  to  exemption  under

Notification No. 217/86-C.E. as the assessee had established intended use of

material by other evidence”.

It was pointed out that a diametrically opposite view has been taken

in  Kirloskar Brothers Ltd.  v.  Collector of Central Excise, Pune [1997 (94)

ELT 176 (Tribunal)] wherein it was held that the procedure required under

Chapter  X  of  the  Act  was  required  to  be  strictly  followed  in  cases  of

additional exemption as the procedural requirements were essentially pre-

requisite and no exemption can be sanctioned in  absence of the required

compliance of the exemption notification.   

It was furthermore noticed that the input relief was claimed in that

case on the basis of the captive consumption whereas Thermax Private Ltd.

(supra)  and  J.K.  Synthetics (supra)  were  cases  of  the  supplier  being  an

importer and, thus, this Court therein had no occasion to deal with cases of

the nature involved therein.

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21. We,  therefore,  are  satisfied  that  this  case  is  covered  by  Thermax

Private Ltd. (supra) and the point on which the matter has been referred to a

larger Bench does not arise for consideration herein.

22. For  the  reasons  aforementioned,  there  is  no merit  in  these  appeals

which are dismissed accordingly with costs.  Counsel’s fee assessed at Rs.

50,000/-

………………………….J. [S.B. Sinha]

..…………………………J.     [Dr. Mukundakam Sharma]

New Delhi; February 12, 2009

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