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CASE NO.: Appeal (civil)  5830 of 1999

PETITIONER: Comm.of Central Excise, Allahabad                                        

RESPONDENT: M/s Ginni Filaments Ltd.                         

DATE OF JUDGMENT: 17/02/2005

BENCH: S.N. VARIAVA,Dr. AR. LAKSHMANAN & S.H. KAPADIA

JUDGMENT: J U D G M E N T

KAPADIA, J.

       The issue in this civil appeal filed by the department  under section 35L(b) of the Central Excise Act, 1944 relates to  the eligibility to the benefit of exemption under Notification  No.123/81-CE dated 2nd June, 1981, as amended.  

       M/s Ginni Filaments Ltd. (hereinafter referred to for the  sake of brevity as "the assessee") is 100% Export Oriented Unit  manufacturing filament yarn.  The assessee was licensed under  section 58 of the Customs Act, 1962 bearing Licence No.          1-Customs/90 dated 13.3.1990.  The assessee was also granted  L-4 licence for the manufacture of cotton yarn falling under  Chapter 53.   

       The assessee made an application under notification  no.123/81 to the Competent Authority for removal of certain  goods, under form CT-3, from 100% Export Oriented Unit to  its factory, namely, A.C. Sheets, air-Conditioners, flush doors,  typewriters, storewells, tables, chairs, which was granted.

       On 2.1.1991, the department issued a show-cause notice  calling upon the assessee as to why duty of Rs.4,55,872.72  should not be recovered from the assessee for not using the  goods, cleared under form CT-3 in the manufacture of  cotton/filament yarn in their Undertaking.

       By reply dated 31.1.1991, the assessee submitted that  since the competent authority had allowed the above goods to  be brought into their Undertaking from 100% export oriented  unit under form CT-3 and since the said goods were brought  into their undertaking in connection with the manufacture of  combed cotton yarn, the requisite conditions mentioned in the  notification no.123/81 stood satisfied and the department was  not entitled to demand duty from the assessee.  The assessee  further submitted that direct utilization of the said goods in the  manufacture of combed cotton yarn (which was an export  product) was not necessary in view of the words "in connection  with the manufacture" in the said notification.

       The Adjudicating Authority confirmed the show- cause notice holding that the assessee had failed to prove  that the said goods were used in the manufacture of combed  cotton yarn.  Being aggrieved, the assessee herein went in  appeal to the Customs, Excise & Gold (Control) Appellate  Tribunal (hereinafter referred to for the sake of brevity as

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"the tribunal") which following its earlier judgments held  that notification no.123/81 should be given widest possible  interpretation as its object was to increase the revenue and  balance of payment position.  In this connection, the  Tribunal also placed reliance on the words "in connection  with the manufacture" in the recital to the said notification.

       In this appeal, we are required to decide the scope, ambit  and effect of notification no.123/81, as amended.

       To decide the above question, we quote herein below  notification no.123/81-CE dated 2.6.1981, as amended:- "EXEMPTION TO GOODS FOR HUNDRED PER  CENT EXPORT ORIENTED UNDERTAKINGS

       The Central Government, being satisfied that it is  necessary in public interest so to do, hereby exempts excisable  capital goods, components and raw materials, consumables,  spares and packaging materials (hereinafter referred to as the  goods) when brought in connection with the manufacture and  packaging of articles into an undertaking approved by the  Board of Approval for hundred per cent Export Oriented  Undertakings appointed by the notification of Government of  India in the former Ministry of Industry and Civil Supplies  (Department of Industrial Development) No. S.O.  163(E)/RLIU/10(2)/76 dated the 3rd March, 1976 from the  whole of\027

(i)     the duty of excise leviable thereon under section 3  of the Central Excises and Salt Act, 1944 (1 of  1944); and

(ii)    the additional duty of excise leviable thereon under  sub-section (1) of section 3 of the Additional  Duties of Excise (Goods of Special Importance)  Act, 1957 (58 of 1957), subject to the following  conditions namely:-

(a)     the hundred per cent export-oriented  undertaking is approved by the said Board;

(b)     the goods required by such undertaking for  manufacture and packaging of articles are  brought directly to the factory of  manufacture and are used in the  manufacture and packaging of such  articles meant solely for export or for supply  to a unit situated in another Free Trade  Zone, Export Processing Zone or hundred  per cent export oriented undertaking for the  manufacture of goods solely meant for  export;

(c)     such undertaking exports out of India  hundred per cent or such other percentage as  may be fixed by the said Board of articles  manufactured wholly or partly from the  goods for the period stipulated by the said  Board or such extended period as may be  specified by the said Board;

(d)     on clearances up to twenty-five per cent, of  articles so produced or manufactured and  allowed to be sold in India, such undertaking  shall pay duty of excise leviable on such

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articles under section 3 of the said Central  Excises and Salt Act;

(dd)    on clearances of five per cent of articles so  produced or manufactured or such other  percentage, as may be fixed by the said  Board and allowed to be sold in India, such  undertaking shall pay duty of excise leviable  under section 3 of the said Central Excises  and Salt Act, provided such articles are in  the nature of rejects;  

(e)     the procedure set out in Appendix to this  notification is followed by such undertaking;

(f)     on the expiry of the period referred to in  condition (c), such undertaking shall pay  excise duty on the goods unused and the  articles manufactured from the goods  without depreciation and at the rates in  force at the time of clearance.

       2.      Notwithstanding anything contained in the  conditions in the preceding paragraph, samples of articles  manufactured from the goods for the purpose of display and  canvassing may be cleared in such quantities and subject to  such limitations as may be specified by the said Board if the  duty of excise at the appropriate rate has been paid on the goods  contained in such samples.

       3.      Notwithstanding anything contained in the  conditions (b) and (c) of the first paragraph, clearances of the  articles manufactured wholly or partly from the goods brought  into a hundred per cent export oriented undertaking for supply  to the Oil and Natural Gas Commission or the Oil India Limited  or as the case may be the Gas Authority of India Ltd. for their  project in India against global tender shall be exempt from the  so much of the duty of excise leviable thereon under section 3  of the Central Excises and Salt Act, 1944 (1 of 1944) as is in  excess of the amount calculated at the rate of 15% ad valorem  and from the whole of the additional duty of excise leviable  thereon under sub-section (1) of Section 3 of the   Additional Duties of Excise (Goods of Special Importance) Act,  1957 (58 of 1957), subject to the following further conditions,  namely:-

(i)     the said undertaking produces a certificate to the  Assistant Collector of Central Excise, prior to the  clearance of such articles from the General  Manager or the Project Manager of the Oil and  Natural Gas Commission or the Oil India Limited  or as the case may be the Gas Authority of India  Limited to the effect that such articles are required  to be supplied against global tender to the Oil and  Natural Gas Commission or the Oil India Limited  or as the case may be the Gas Authority of India  Limited for their project in India specified in the  Certificate; and

(ii)    the said undertaking produces to the Assistant  Collector of Central Excise within three months  from the date of the said clearance of such articles  or such extended period as may be allowed by the  Assistant Collector of Central Excise, a certificate  from the General Manager or the Project Manager

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of the Oil and Natural Gas Commission or the Oil  India Limited or as the case may be the Gas  Authority of India Ltd., to the effect that such  articles have actually been received by the Oil and  Natural Gas Commission or the Oil India Limited  or as the case may be the Gas Authority of India  Ltd., at the specified project and are intended for  use in the specified project.

APPENDIX

Procedure to regulate the movement of the goods for  Manufacture and packaging of articles for export.

(a)     Application for obtaining the goods free of duty.\027  Any person intending to obtain the goods free of duty for use  by him in his 100 per cent export oriented undertaking shall  make an application in writing to the Assistant Collector of  Central Excise in proper form to be prescribed by the Assistant  Collector of Central Excise stating therein the annual quantity  of the goods required and the purpose for and the manner in  which such goods are intended to be used and declaring that the  goods shall be used for such purpose and in such manner only.   The Assistant Collector may grant the application after causing  such enquiries to be made as he may deem fit and the applicant  shall then enter into a bond in the form given at Annexure A  below with such surety or sufficient security, in such amount  and under such conditions as the Assistant Collector of Central  Excise approves.  The Assistant Collector of Central Excise  may, however, allow the annual quantity of the goods to be  brought as furnished by the manufacturer to be extended when a  request to that effect is made.  The concession shall expire on  the 31st December every year, but may be renewed if the  Assistant Collector of Central excise sees no reason to the  contrary:

       Provided that, in the event of death, insolvency or  insufficiency of the surety, or where the amount of the bond is  inadequate, the Assistant Collector of Central Excise, in his  discretion, demand a fresh bond, and may, if the security  furnished for a bond is not adequate, demand additional  security.

       After the grant of the application and execution of bond  by the applicant, the Central Excise officer-in-charge of the 100  per cent Export oriented undertaking shall issue a certificate, in  the form given in Annexure B below certifying that\027

(i)     the said undertaking has executed a bond in the  form given in Annexure A below with the  Assistant Collector of Central Excise showing the  number and particulars of the bond; and

(ii)    the specimen signature of the agent of the said  undertaking furnished on the body of the  certificate is genuine and he would attest it.  The  certificate shall be sent by the said officer-in- charge under registered post (acknowledgement  due) to the factory from which the goods are to be  obtained.  A copy of the certificate shall also be  sent by the said undertaking to the Superintendent  in-charge of the range of the factory from where  the goods are to be received.

(b)     Removal of goods to 100% Export oriented

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undertaking.\027On receipt of the aforesaid certificate the  factory (consignor) from where the goods have to be removed  shall prepare an application in the form given in Annexure C  below in quadruplicate for removal of non-duty paid goods  from one warehouse to another mentioning clearly the number  and date of the bond in Annexure A below as per the certificate  issued by the Central Excise officer-in-charge of the 100 per  cent Export Oriented Undertaking.  Removal application in  Annexure C below must be serially numbered.  The serial No.  should be according to the financial year.  The serial No. must  be noted on all the copies.  Whenever any removal application  has to be cited in the course of correspondence; the name of the  factory, the Serial No. and date of Annexure C below should  always be quoted as reference.  The consignor shall however,  intimate to the Central Excise officer-in-charge of the 100 per  cent Export oriented undertaking about the removal of goods at  least 12 hours before such removal is expected to take place.

(c)     Marking of the packages.\027Packages to be marked and  address to be noted in the application:

       The factory of removal (consignors) must\027

(i)     ensure that packages bear proper marking  and number;

(ii)    ensure that all copies of Annexure ’C’ below  are prominently marked "Intended for use in  the undertaking approved for manufacturing  100 per cent Export oriented goods";

(iii)   give the full address of the factory of  removal as well as of the Superintendent-in- charge of the range under which the factory  falls and the Collectorate to which it is  attached.  

       Whenever any of these addresses is used for dispatching  purposes, care must be taken by the dispatching factory to see  that the full address of the Superintendent in-charge of the  range including the names of the district is properly reproduced.

(d)     Preparation of Gate Pass.\027The consignor shall also  prepare a gate pass in Form G.P.2 in Appendix I (Central  Excise Series No.65AA) to the Central Excise Rules, 1944, in  respect of the goods proposed to be removed from his factory  and will thereafter clear the goods on his own without any  verification by any Central Excise Officer.

(e)     Disposal of documents in Annexure C and Gate  Pass.\027The Consignor shall send the original and triplicate  copy of the Annexure C below and original copy of the gate  pass along with the consignment to the consignee.  The  duplicate copy of Annexure C below will be sent by the  consignor to the Assistant Collector of Central Excise in-charge  of the 100 per cent Export oriented undertaking.  The duplicate  copy of the gate pass will be sent by the consignor to the  officer-in-charge of his factory within 24 hours of the removal  of the consignment in question.  The said officer-in-charge shall  maintain an account of all such removals in Annexure D below.

(f)     Action at destination.\027On receipt of the duplicate copy  by the Assistant Collector of Central Excise, it must  immediately be entered in the ’Record of Receipts in bond"  given in Annexure E below and forwarded the same day to the

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Central Excise officer-in-charge of the 100 per cent Export  oriented undertaking.  The entries in this record should be  verified against relative entries of the Record of Raw Materials  prescribed by the Collector.

(g)     Responsibility for further accounting.\027After delivery  of the goods from a manufacturer, proper accounting of these  goods shall be the responsibility of the Central Excise officer- in-charge of the 100 per cent Export oriented undertaking.

(h)     Examination of the consignment on receipt.\027(1)  The  consignee must give intimation of the arrival of the  consignment at his premises to the Central Excise officer-in- charge of the 100 per cent Export oriented undertaking without  any delay and should store the same separately and intact,  pending examination and check by the said officer and the said  officer, after taking account of the goods, will identify them  with the marks and numbers, and weigh the consignment in  full.  Thereafter, he shall complete the re-warehousing  certificate on the duplicate copy received from the Central  Excise Superintendent-in-charge of the factory at destination  and original and triplicate copy of the applications presented by  the consignee, return duplicate to the Central Excise officer-in- charge of the factory of removal direct and triplicate to the  consignee for dispatch to the consigner after noting thereon the  deficiency or excess, if any.

       (2)     Duty on shortages or losses in transit.\027Since  the bond in Annexure A below would have been executed by  the consignee, duty on shortages will be demanded from him  after condoning the permissible losses in transit.  For such  commodity a separate schedule of losses will be formulated and  issued by the Collector of Central Excise.

(i)     Re-entry.\027If the duplicate application is received by the  Central Excise Officer-in-charge of the 100 per cent Export  oriented undertaking, before arrival of the goods is reported to  him by the consignee, he must keep it pending, securely and  systematically filed in a file marked "pending duplicate in  Annexure B application" and record the particulars of the  consignment in his "record of receipts in bond" prescribed as in  Annexure E below and no sooner the consignment is received,  he will follow the procedure prescribed in paragraph (h) above.

(j)     Duty leviable on excisable goods not duly accounted  for as having been utilized in the manufacture of goods for  export, etc.\027If any excisable goods obtained under this  procedure are not duly accounted for as having been utilized in  connection with the manufacture and packaging of articles  for export or clearances up to twenty five percent of the articles  produced or manufactured and allowed to be sold in India on  payment of duty of excise leviable under section 3 of the  Central Excises and Salt Act, 1944 (1 of 1944) or for clearances  for supply to the Oil and Natural Gas commission for their  projects in India against global tender or are not shown to the  satisfaction of the Central Excise officer-in-charge of 100 per  cent Export oriented undertaking to have been lost or destroyed  by natural causes or by unavoidable accidents during storage or  handling in the approved premises, or, have been permitted to  be disposed of as refuse or waste within the permissible limits  prescribed by the Collector of Central Excise, the applicant  shall, on demand by the said Central Excise officer,  immediately pay the duty leviable on such goods.  The  concession may at any time be withdrawn by the Collector of  Central Excise if a breach of the procedure is committed by the

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applicant, his agent or any person employed by him.  In the  event of such a breach, the Collector of Central Excise may also  order the forfeiture of the security deposited under paragraph  (a) above and may also confiscate the goods and all articles  manufactured from such goods in store in the premises of the  100 per cent Export oriented undertaking.

(k)     Despatch of duplicates by registered post  acknowledgement due.\027Despatch of duplicate application in  Annexure B referred to in paragraph (a) above must always be  made by registered post acknowledgement due, and the postal  receipt acknowledgement must be systematically filed by the  consignor and presented for inspection to the Central Excise  officer-in-charge of the factory whenever required.

(l)     Demand of duty on goods not reaching destination.\027  Under sub-rule (1) of rule 156B of the Central Excise Rules,  1944, if the certificate of receipt of a consignment of the goods  dispatched to the consignee [as per paragraph (1)] is not  received back by the consignor within 90 days of the removal  of the goods or within such extended period as may be allowed  by the Collector of Central Excise, it is the responsibility of the  consignor to himself pay the duty leviable on the consignment  by a debit entry in his account current.  However, a provision  has been made that in such cases where the consignor produces  proof re-warehousing to the satisfaction of the Central Excise  Officer-in-charge of the factory after payment of duty in the  manner indicated above, he will be eligible for grant of refund  on the duty so paid by making an application.

       The Central Excise officer-in-charge of the factory may  also demand duty on a consignment the certificate in respect of  which has not been received within the stipulated period.  In  such cases, if the consignor has already paid the duty leviable  on the consignment by a debit entry in his account current, he  may intimate the officer-in-charge of the 100 per cent Export  oriented undertaking about the particulars of such deposit in  reply to this notice of demand.

(m)     Action by the officer-in-charge of the factory of  removal in case of non-receipt of the warehousing  certificates.\027If the duplicate copy of Annexure B below is not  returned to the officer-in-charge of the factory of removal  within a month of the removal of consignment reminders must  be issued regularly at fortnightly intervals to the Central Excise  officer-in-charge of the 100 per cent Export oriented  undertaking.  If, despite such reminders, the duplicate  application is not received within two months of the date of  removal of the consignment, the matter should be reported to  the Assistant Collector of Central Excise in whose charge the  consignor operates, who will either secure a satisfactory proof  of the consignment having been duly received by the consignee  or ensure that the duty properly due on the goods not so  received at destination is recovered as per paragraph (1) above.

(n)     Verification of the use of non-duty paid goods.\027On  receipt by the consignee, the goods shall be utilized in the  manufacture and packaging of articles intended (solely) for  export of clearances up to twenty-five percent of the articles  produced or manufactured and allowed to be sold in India on  payment of duty of excise leviable under section 3 of the  Central Excises and Salt Act, 1944 (1 of 1944) or for clearances  for supply to the Oil and Natural Gas Commission for their  projects in India against global tender.  It shall be the

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responsibility of the Central excise officer-in-charge of the 100  per cent Export oriented undertaking to ensure that all the  goods have been fully utilized for manufacture and packaging  of articles intended for export or for clearances up to twenty  five per cent of the articles produced or manufactured and  allowed to be sold in India on payment of duty of excise  leviable under section 3 of the Central Excises and Salt Act,  1944 (1 of 1944) or for clearances for supply to the Oil and  Natural Gas Commission for their projects in India against  global tender or are otherwise accounted for to the satisfaction  of the Assistant Collector, Central Excise in-charge of the 100  per cent Export oriented undertaking. [Emphasis supplied]"

       The above notification gave exemption to goods for  "use" in 100% export oriented unit.  As can be seen from the  preamble, the notification gave exemption to capital goods, raw  materials, components, consumables etc. compendiously known  as "goods" when brought into the undertaking of a licensed  holder from the 100% export oriented unit approved by the  Board under a certificate in form CT-3 "in connection with the  manufacture of" products to be exported out of India.  The said  notification exempted the above goods from payment of basic  excise duty and additional excise duty subject to conditions  which further stipulated that exemption shall be granted only if  the "goods" released from 100% export oriented unit were  brought directly into the factory of the licensee and were "used  in the manufacture of the products" to be exported. [See:  Conditions 1(b)(c)(f), 2, 3 as well as the various Clauses in the  Appendix to the notification, relevant portions of which have  been underlined in bold print].  Therefore, in the preamble,  which deals with removal of goods from 100% export oriented  unit under CT-3 form, we find use of the words "in connection  with the manufacture of" which words are wider when  compared to the words in the conditions for exemption, namely,  "used in the manufacture of".  Reading the notification in  entirety, therefore, two stipulations have to be fulfilled, namely,  removal of the "goods" from 100% export oriented unit to the  factory of the licensee under form CT-3 and use or participation  of the said "goods" in the manufacture of products meant for  export.

       In the present case, the tribunal following its judgments  in earlier cases has emphasized the words "in connection with  the manufacture" in the preamble while failing to notice the  words "used in the manufacture of" in the conditions which  indicate use or participation of the said "goods" in the  manufacture of products to be exported out of India.  This test  of participation has to be applied to the facts of each case.  It is  on fulfillment of both the above conditions, that, the assessee  becomes entitled to the benefit of the above notification.  In  number of cases, the tribunal has wrongly drawn an analogy  from notification no.272/79 which has no application to the  present case.  Each notification has to be read on its own terms  and merely because the object of a notification is to increase  resources of the State, conditions stipulated therein cannot be  ignored.  Further, it may be noted, that the word "capital asset"  is very wide.  It includes all types of properties including  consumables, raw material, components etc.  However, capital  assets become capital goods when used in the manufacture of  products.  Every capital asset is not capital goods.  Hence, one  has to read the words "capital goods" in the context of the  above notification.  For example, a telephone instrument may  constitute "capital goods" where the assessee is in the business

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of telecommunication.  However, if the assessee is in the  business of manufacture of hydrogen peroxide, the same  instrument cannot be construed as "capital goods" for the  purposes of the above notification.  Hence, the peculiarities of  the business or the undertaking is also required to be kept in  mind while interpreting the said notification.

       Applying the above tests to the facts of the case in hand,  we find that the assessee has claimed exemption in respect of  table, chairs, air-conditioners etc. which cannot be said to be  "goods" used in the manufacture of cotton or filament yarn.  It  is the case of the assessee that the words "in connection with  the manufacture" are wide enough to cover every item which is  allowed to be removed under CT-3 certificate.  This contention  of the assessee is accepted by the tribunal erroneously as it has  failed to look at the words used in the conditions enumerated in  the notification.  As stated above, we have to read the  notification in its entirety.  Further, we are dealing with  exemption notification which has to be read strictly so far as the  eligibility is concerned.  It was for the assessee to prove by  evidence, and not by submitting a chart, the nexus between AC  Sheets and the manufacture of filament/cotton yarn.  It was for  the assessee to prove by evidence the participation of AC  Sheets in the manufacture of filament/cotton yarn, which has  not been done and, therefore, the tribunal had erred in admitting  the claim of the assessee for exemption without analyzing the  notification no.123/81 dated 2.6.1981 (as amended).         For the reasons given hereinabove, this civil appeal filed  by the department succeeds; the impugned judgment and order  of the tribunal dated 4.2.1999 passed in Appeal No. E/A  2120/94-D is set aside; and accordingly the civil appeal stands  allowed, with no order as to costs.