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CASE NO.: Appeal (civil)  1878-1880 of 2004

PETITIONER: The Commissioner of Central Excise,New Delhi

RESPONDENT: M/s Hari Chand Shri Gopal etc.                   

DATE OF JUDGMENT: 03/10/2005

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

JUDGMENT: J U D G M E N T

KAPADIA, J.         The short question of law involved in this matter is \026  whether irrespective of the assessees having not followed or  substantially followed Chapter X procedure under the Central  Excise Rules, 1944, they would still be entitled to the benefit of  notification no.121/94-CE dated 11.8.1994 as held in the case  of Thermax Private Ltd. v. Collector of Customs reported in  1992 (61) ELT 352, which is to the effect that, the benefit of  concession should be given when intended use of material can  be established by other evidence.  

       This case is a sequel to the case of the assessees in civil  appeal nos.5747-5749 of 2000 decided by this court on  30.9.2005 and, therefore, we are not required to restate the  facts.  Suffice it to state that the assessee-firms were  manufacturer of branded chewing tobacco (final product) from  "additive mixture" (kimam).  The said "kimam" was  manufactured by the units of the assessees in Delhi and the said  kimam was stock transferred to the assessees’ units in UP and  HP.  We have held in our judgment in civil appeal nos.5747- 5749 of 2000 that this kimam was excisable and classifiable  under sub-heading 2404.49/2404.40 of Central Excise Tariff  Act, 1985.  Admittedly, the existence of assessees’ units in  Delhi, where kimam was manufactured, was not disclosed to  the department,  these units were not registered and they were  unlicensed units.  The three assessees however urged that there  was no intention to evade duty as the said kimam was captively  consumed in the manufacture of branded chewing tobacco and  they were entitled to input relief under notification no.121/94- CE dated 11.8.1994.  In this connection, the assessees  contended before the tribunal in the present case that they had  maintained stock register, transfer challans and form-IV register  in their units in UP and HP, where the final product was  manufactured and which registers indicated receipt and  utilization of kimam in the manufacture of branded chewing  tobacco and consequently, there was substantial compliance of  exemption notification no.121/94-CE.  This contention of the  assessees has been accepted by the tribunal placing reliance on  the judgments of this court in the case of Thermax Private Ltd.  (supra) and Collector of Central Excise, Jaipur v. J.K.  Synthetics reported in 2000 (120) ELT 54.  Being aggrieved by  the decision of the tribunal, the department has come to this  court by way of these civil appeals.

       We quote hereinbelow the exemption notification  no.121/94-CE, which deals with input relief in respect of goods

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used for special industrial purposes subject to the assessee  complying with chapter X procedure.

INPUT RELIEF   Exemption to specified intermediate goods if captively  consumed or used in the manufacture of specified final  products consequent to extension of Modvat Scheme to  goods earlier covered under Proforma Credit Procedure: In  exercise of the powers conferred by sub-section (1) of section  5A of the Central Excises and Salt Act, 1944 (1 of 1944), read  with sub-section (3) of section 3 of the Additional Duties of  Excise (Goods of Special Importance) Act, 1957 (58 of 1957)  (hereinafter referred to as the said Special Importance Act), the  Central Government, being satisfied that it is necessary in the  public interest so to do, hereby exempts goods falling under  heading numbers or sub-heading numbers of the Schedule to  the Central Excise Tariff Act, 1985 (5 of 1986) (hereinafter  referred to as the said Tariff Act), specified in column (4) of the  Table hereto annexed (hereinafter referred to as "inputs")  manufactured in a factory and used within the factory of  production in or in relation to the manufacture of corresponding  final products of the description specified in column (2) of the  said Table and falling under heading numbers or sub-heading  numbers of the Schedule to the said Tariff Act, specified in the  corresponding entry in column (3) of the said Table, from the  whole of the duty of excise and additional duty of excise  leviable thereon, which is specified in the respective Schedules  to the said Tariff Act and the said Special Importance Act:

       Provided that nothing contained in this notification shall  apply to inputs used in or in relation to the manufacture of final  products (other than those cleared either to a unit in a Free  Trade Zone or to a 100% Export-Oriented Unit or to a unit in  Electronic Hardware Technology Park or Software Technology  Parks), which are exempt from the whole of the duty of excise  leviable thereon or are chargeable to ’Nil’ rate of duty:

       Provided further that where such use of inputs is in a  factory of a manufacturer, different from his factory where the  goods have been produced, the exemption contained in this  notification shall be allowable subject to the observance of the  procedure set out in Chapter X of the Central Excise Rules,  1944.

THE TABLE

S.  No. Description of final products Chapter or  Heading  number or  sub-heading  number of  final products Chapter or  Heading  number or  sub-heading  number of  inputs

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(1) (2) (3) (4) 1. (a)  Cigarettes (b)  Snuff (c)  Preparation, containing snuff of  tobacco in any proportion. 2403.11 2404.50 2404.60 2404.13 2404.50 2404.50 2. Chewing tobacco including  preparations commonly known as  "Khara Masala", "Kimam",  "Dokta", "Zarda", "Sukha" and  "Surti". 2404.41 2404.49 3. Fabrics of cotton, whether  processed or not. 52 52 4. Fabrics of man-made fibres and  filament yarn, whether processed or  not. 54, 55 54, 55                  We also quote hereinbelow rules 173B, 173G, 174, 192  and 196 of 1944 Rules: "Rule 173B.       Assessee to file declaration of goods  produced or manufactured in the factory.\027 (1)  Every assessee, shall file with the Superintendent of  Central Excise, having jurisdiction over the factory,  a declaration (in quadruplicate) showing, -

(a)     the full description of \026

(i)     all excisable goods produced or  manufactured by him,

(ii)    all other goods produced or  manufactured by him and intended to  be removed from his factory, and

(iii)   all the excisable goods already  deposited or likely to be deposited  from time to time without payment of  duty in his warehouse;

(b)     the Chapter, heading No. and sub-heading  No., if any, of the Schedule to the Central  Excise Tariff Act, 1985 (5 of 1986) under  which each goods fall;

(c)     the rate of duty leviable on each such goods;

(d)     the exemption notification availed or

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proposed to be availed, if any; and

(e)     such other particulars as the Commissioner  may direct,

and obtain a dated acknowledgement of the said  declaration :

       Provided that such declaration shall be filed  on or before the 15th May, 1995 or such extended  period as the Assistant Commissioner of Central  Excise may permit.

       Provided further that an assessee producing  or manufacturing excisable goods for the first time  shall be required to submit the said declaration  within thirty days of commencing the production of  such excisable goods.

       (2)     If in the declaration so filed under sub- rule (1), any alteration becomes necessary in  respect of any goods because of -

(a)     the assessee commencing production,  manufacture or warehousing of goods  not mentioned in that declaration, or

(b)     the assessee intending to remove from  his factory any non-excisable goods  not mentioned in that declaration, or

(c)     a change in the rate of rates of duty in  respect of the goods mentioned in that  declaration or, by reason of any  amendment to the Schedule to the  Central Excise Tariff Act, 1985 (5 of  1986), a change in the Chapter,  heading No. or sub-heading No.,

the assessee shall likewise file a fresh declaration or  an amendment of the declaration already filed  within thirty days of any alteration mentioned  above, in the same manner as is provided in sub- rule (1).

       (3)     The proper officer, duly empowered  by the Central Government under section 14 of the  Act, may, where he considers it necessary during  the course of any enquiry in connection with the  declaration filed under sub-rule (1) by an assessee, -

(a)     require any person to produce or  deliver any document or thing relevant  to the enquiry; and

(b)     examine any person acquainted with  the facts and circumstances of the  particulars given in the declaration or  other records, in the manner provided  in section 14 of the Act.

       (4)     The proper officer may after such  further enquiry as he may consider necessary,  reassess the correct amount of duty payable  following the provisions of section 11A of the Act

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and the assessee shall pay the deficiency, if any.

Rule 173G.       Procedure to be followed by the  assessee.\027 (1)       Every assessee shall keep an  account-current with the Commissioner separately  for each excisable goods falling under different  Chapters of the Schedule to the Central Excise  Tariff Act, 1985 (5 of 1986), in such form and  manner as the Commissioner may require, of the  duties payable on the excisable goods and in  particular such account (and also the account in  Form R. G. 23, if the assessee is availing of the  procedure prescribed in rule 173K) shall be  maintained in triplicate by using indelible pencil  and double-sided carbon, and the assessee shall  periodically make credit in such account-current, by  cash payment into the treasury [so as to keep the  balance, in such account-current], sufficient to  cover the duty due on the goods intended to be  removed at any time; and every such assessee shall  pay the duty determined by him for each  consignment by debit to such account-current  before removal of the goods:

       Provided that\027

(i)     the duty due on the goods consumed  within the factory in a continuous  process may be so paid at the end of  the factory day, except that in the case  of cellulosic spun yarn and cotton yarn  in respect of which duty is payable in  accordance with the provisions of sub- rule (1) of rule 49A, the duty due may  be paid by the manufacturer in  accordance with the provisions of the  said rule;

(ii)    an assessee who has removed more  than 3000 consignments in the  previous year may, after intimating the  proper officer,  make a consolidated  debit in the account current at the end  of the day towards payment of the  duty;

(iia)   the proper officer may allow an  assessee who manufactures one or  more of the declared excisable goods,  irrespective of the number of  consignments removed by him in the  previous calendar year, to make  consolidated debit in the account- current at the end of the day towards  payment of duty;

(iii)   in respect of clearances of any  excisable goods as samples in such  small quantities as the Commissioner  may approve in respect of any  commodity and clearly marked as such  on the invoice, the assessee may pay  the duty on all such samples cleared  during a month by a single debit to his  account-current on the last working

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day of the month;

(iv)    the Commissioner may, in  circumstances of an exceptional  nature, by an order in writing, require  an assessee or class of assessees  manufacturing or warehousing goods  to which provisions of Chapter VII-A  have been made applicable, to  determine the duty and debit the  account-current in such manner as may  be specified by him in such order;

       Provided further that where any assessee  manufactures or warehouses excisable goods falling  under two or more Chapters of the Schedule to the  Central Excise Tariff Act, 1985 (5 of 1986), he may  opt to maintain a single Account current for  payment of duty due on all such goods after  intimating the proper officer.

       Provided also that where an assessee  maintains separately accounts-current for each  excisable goods he may, in the event of an  insufficient balance in any of the accounts-current,  transfer, subject to such conditions as the  Commissioner may specify in this behalf, an  amount to such account-current from another  account-current which has enough balance on date  of such transfer.

       (1A)    Where an assessee keeping an account- current under sub-rule (1) makes an application to  the Commissioner for withdrawing an amount from  such account-current, the Commissioner may, for  reasons to be recorded in writing, permit such  assessee to withdraw the amount in accordance  with such procedure as the Commissioner may  specify in this behalf.

       (2)     Notwithstanding the provisions of sub- rule (1) of rule 224 but subject to the other  provisions of that rule and the provisions of rule  173FF, every assessee shall except as otherwise  expressly provided in these rules, forthwith remove  the goods on which duty has been determined and  paid; every such removal shall take place under an  invoice or invoices in accordance with the  provisions of rule 52A but without the proper  officer’s countersignature, and such invoice or  invoices shall also show the rate and the amount of  duty paid on such goods and the time of actual  removal of the goods from the factory :         Provided that -

(i)     a single invoice may be issued at the  end of the factory day to cover  removal of goods consumed within the  factory in a continuous process;

(ii)    the Commissioner may, having regard  to the nature of the goods  manufactured or frequency of  removals permit an assessee or a class  of assessees not to enter the rate and/or

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the amount of duty on the invoices  under which such goods are removed  from the factory;

(iii)   \005\005 Omitted.

(iv)    in respect of removal of any goods  after 6 O’clock in the afternoon on the  day preceding the date appointed for  the presentation of the annual or any  Supplementary Budget of the Central  Government to Parliament or for the  introduction in the House of the People  of any Finance Bill or any Bill for the  imposition or increase of any duty, the  provisions of sub-rule (1) of rule 224,  shall apply.

(v)     \005. Omitted.

(vi)    where any correction, other than one  relating to the date or the time of  removal of the goods or to the  description of the goods (including the  variety of goods, the number and  description of packages and the  identification marks thereon), becomes  necessary in any invoice before  removal of the goods, such correction  may be made by the assessee provided  this is done neatly and over his dated  signature in all copies of the invoice;  and

(vii)   where the assessee, after he has  debited the duty due on the goods in  the account-current referred to in sub- rule (1), finds it necessary to cancel  any invoice, he shall send an  intimation thereof in writing to the  proper officer not later than the  working day next following the day on  which such invoice is cancelled, and  may thereupon take credit of the duty  in that account;

       (2A)    Every assessee shall file with the  proper officer the triplicate copies of the invoices or  like documents issued,

(a)     during first ten days of a month, on or  before the twelfth day of the same  month;

(b)     during the next ten days of the month,  on or before the twenty-second day of  the same month; and

(c)     during the remaining days of that  month, on or before the fifth day of the  following month,

along with a covering list showing the serial  number of such invoices as well as opening  balance, credit, debit and closing balance in his

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account-current and in his account maintained in  Form R.G. 23A, Part II and Form R.G. 23C Part II.

       Provided that an assessee availing of the  exemption under a notification based on the value  or quantity of clearances in a financial year, shall  file with the proper officer the triplicate copies of  the invoices or like documents issued during a  quarter, on or before the fifth day of the following  quarter along with a covering list showing the said  number of such invoices as well as opening  balance, credit, debit and closing balance in his  account current and in his account maintained in  Form RG 23A, Part II and Form RG 23C Part II.

       (3)     Within five days after the close of each  month every assessee shall, in lieu of the returns  prescribed under rule 54, file with the proper officer  in quintuplicate a monthly return in the proper form  showing the quantity of excisable goods  manufactured or received under bond during the  month, the quantity (if any) used within the factory  for the manufacture of another commodity, the  quantity removed on payment of duty from the  place or premises specified under rule 9 or from the  store-room or other place of storage approved by  the Commissioner under rule 47, duty paid on such  quantity, particulars of invoices or like documents  under which such quantity was removed; the  quantity removed without payment of duty for  export or otherwise and such other particulars as  may be elsewhere prescribed or as the  Commissioner may, by general or special order,  require, and where so required by the  Commissioner, by written notice, shall submit a  similar return in the proper form showing all the  other products manufactured in and issued from the  factory during the same month.  Every such return  in respect of excisable goods shall be accompanied  by\027

        (a)    \005.. Omitted.

(b)     receipted treasury challans on which  deposits in the account-current were  made by payment into the Government  treasury; and

(c)     original and duplicate copies of the  account-current and also of the account  in Form RG 23 and RG 23C, as the  case may be, maintained by the  assessee during the period covered by  the return;

(d)     any other document or documents as  the Commissioner may require,

and if there was no stock, production and removal  of excisable goods during the said period, the  assessee shall file with the proper officer a nil  return, unless otherwise directed by the  Commissioner:

       Provided that the Commissioner may, having

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regard to the nature, variety and extent of  production or manufacture or frequency of  removals\027

(i)     fix in relation to any assessee or class  of assessees a period shorter than one  month for filing the aforesaid return;

(ii)    permit that the aforesaid return may be  filed by the assessee within a period  not exceeding 21 days after the close  of each month.

       (4)     (a)     Every assessee shall maintain  such accounts, as the Commissioner may from time  to time require or permit, subject to such conditions  as may be specified by him of the production,  manufacture, storage, delivery or disposal of the  goods, including the materials received for or  consumed in the manufacture of excisable goods or  other goods, the goods and materials in stock with  him and duty determined and paid by him.

       (b)     Unless specially exempted by the  Commissioner by order in writing, all books of  accounts maintained under clause (a) shall be sent  by him, before these are brought into use, for  authentication by the proper officer in such manner  and at such time as the Commissioner may direct,

       (c)     In respect of any assessee, or class of  assessees, the Commissioner may direct that all  books of accounts maintained under clause (a),  subject to what has been stated in clause (b), shall  be deemed to be the proper form for the respective  purpose.

       (5)     Every assessee shall furnish to the  proper officer a list in duplicate of all accounts  maintained and returns prepared by him (whether  the same are maintained or prepared in pursuance  of these rules or not) in regard to the production,  manufacture, storage, delivery or disposal of the  goods, including the raw materials.

       (6)     Every assessee shall, on demand,  produce to the Central Excise Officers, or the audit  parties deputed by the Commissioner or the  Comptroller and Auditor General of India:-

(i)     the accounts and returns (whether the  same are maintained or prepared in  pursuance of these rules or not); and

(ii)    the cost audit reports, if any, under  section 233B of the Companies Act,  1956 (1 of 1956),

for the scrutiny of the officers or audit parties, as  the case may be.

       (7)     Notwithstanding the provisions of sub- rules (1) and (3), an assessee manufacturing  excisable goods specified in this behalf by the  Central Government by notification in the Official

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Gazette, whose duty liability in the preceding  financial year did not exceed five hundred rupees or  who being a new assessee does not expect to be  liable to pay more than five hundred rupees as duty  in the relevant financial year, may, after informing  the proper officer in writing, pay duty in respect of  each separate consignment at the time of removal  instead of keeping an account-current with the  Commissioner, and may also file the return  prescribed in sub-rule (3) for a quarter within seven  days after the close of every quarter instead of  filing the monthly return.

       (8)     In respect of a manufacturer availing  of the exemption under a notification based on the  value or quantity of clearances in a financial year,  the provisions of this rule shall have effect in that  financial year as if for the word "month", wherever  it occurs, the word "quarter", and for the word  "monthly",  wherever it occurs, the word  "quarterly" were substituted.

       (9)     Every assessee shall preserve the book  of accounts, documents and floppies where any  document is generated on computer, for such  periods and in such manner as may be specified by  the Commissioner.

Rule 174.       Registration of certain persons.\027  (1) Every person, who cures, produces,  manufactures, carries on trade, deals as a broker or  commission agent, holds private store-room or  warehouse or otherwise uses excisable goods or a  person who issues invoice or invoices under rule  57G or, as the case may be, Rule 57T shall get  registered and shall not engage in the curing,  production, manufacture, trade, dealing as broker or  commission agent, storing in private store-room or  warehouse or use excisable goods without having  applied for such registration to the jurisdictional  range officer or such officer in such forms as may  be specified by the Board.

       (2)      The Central Board of Excise and  Customs, may, by notification in the Official  Gazette, and subject to such conditions or  limitations as may be specified in such notification,  specify person or class of persons from amongst the  persons specified in sub-rule (1) who need not  obtain such registration.

       (3)     If there are more than one premises  requiring registration he shall obtain separate  registration certificate for each of the premises.

       (4)     Every registration certificate granted  shall be in the specified form and shall be valid  only for the premises specified in such certificate.

       (5)     Where a registered person transfers his  business to another person the transferee shall  obtain a fresh certificate.

       (6)     Where a registered person is a firm or  a company or association of persons, any change in

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the constitution of such a firm, company or  association of persons, shall be intimated to the  Central Excise Officer within thirty days of such a  change for incorporation in the certificate.

       (7)     In case a registered person desires to  manufacture a new product, he shall get the product  endorsed on his registration certificate.         (8)     Every registered person, who ceases to  carry out the operation or operations he is registered  for, shall surrender his registration certificate  immediately.  

       (9)     The proper officer shall proceed to  grant a Registration Certificate under this rule  within thirty days of the receipt of an application.   If registration certificate is not granted within the  said period, the registration applied for shall be  deemed to have been granted.

       (10)    Every registered person shall exhibit  his registration certificate (or a certified copy  thereof) in a conspicuous part of the registered  premises.

       (11)    Any registration certificate granted  under this rule may be revoked or suspended by the  proper officer, if the holder or any person his  employ, is found to have committed a breach of any  conditions of the Act or these rules or has been  convicted of an offence under section 161, read  with section 109 or with section 116 of the Indian  Penal Code (45 of 1860).

Rule 192. Application for concession.\027 Where  the Central Government has, by notification under  rule 8 or section 5A of the Act, as the case may be,  sanctioned the remission of duly 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  Commissioner 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 Commissioner 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 Commissioner may consider  necessary for supervising operation in his premises  for the purposes of this Chapter, the Commissioner  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 Commissioner  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

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and shall then be granted a registration certificate in  the proper Form. The concession shall, unless  renewed by the Commissioner, 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  Commissioner may, in his discretion, demand a  fresh bond; and may, if the security furnished for a  bond is not adequate demand additional security."

Rule 196.       Duty leviable on excisable goods not  duly accounted for.\027 (1)     If any excisable  goods obtained under rule 192 are not duly account  for as having been used for the purpose and in the  manner stated in the application or are not shown to  the satisfaction of the proper officer to have been  lost or destroyed by natural causes or by  unavoidable accident during transport from the  place of procurement to the applicant’s premises or  during handling or storage in the premises approved  under rule 192, the applicant shall, on demand by  the proper officer, immediately pay the duty  leviable on such goods.  The concession may at any  time be withdrawn by the Commissioner if a breach  of these rules is committed by the applicant, his  agent or any person employed by him.  In the event  of such a breach, the Commissioner may also order  the forfeiture of the security deposited under rule  192 and may also confiscate the excisable goods,  and all goods manufactured from such goods, in  store at the factory.  

       (2)     Where the duty becomes chargeable in  terms of sub-rule (1) on any excisable goods, the  rate of duty and the tariff valuation, if any,  applicable to such goods shall be the rate and  valuation in force\027

(i)     in the case of actual removal of goods  from the premises, on the date of such  removal;

(ii)    in the case of loss of goods in transit  during transport from the place of  procurement to the applicant’s  premises, on the date on which the  goods are received in the applicant’s  premises;

(iii)   in the case of loss of goods while in  storage or during handling in the  premises approved under rule 192, on  the date on which such loss is  discovered by the proper officer or  made known to him;

(iv)    in all other cases, on the date on which  the notice for demand of duty is issued  or on the date on which duty is paid,  whichever is earlier."

       In our view, the law laid down by this Court in the  aforestated two decisions in the case of Thermax Private Ltd.

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(supra) and J.K. Synthetics (supra) needs reconsideration for  the following reasons.  Firstly, we may point out that  conceptually there is a difference between "short-payment" that  arises from non-levy or any mistake connected with the levy on  one hand  and the "short-payment" arising from the failure of  the buyer/user of the goods to account for them.  It is equally  well settled that exemption notifications have to be read strictly  so far as the eligibility is concerned; that conditions mentioned  therein ought not to be ignored and that the notification has to  be read on its own terms  [See: Commissioner of Central  Excise, Allahabad v. Ginni Filaments Ltd. reported in 2005  (181) ELT 145].  Under rule 192, the responsibility for the  payment of duty on the goods cleared under concession or  exemption was transferred from the manufacturing unit to the  buying/receiving unit.  The person wishing to obtain the  remission of duty was required to apply through the proper  officer in the form AL-6 and the proper officer had to grant  licence to such persons in the form L-6.  Under rule 196, if any  excisable goods obtained under rule 192 are not duly accounted  for, then the duty had to be paid by the applicant i.e. by the  person who applies for an AL-6 licence.  Therefore, in case of  default or misuse, the liability was on the user.  Therefore, as  stated above, whenever there is failure on the part of the  buyer/user to account for the goods received resulting in short- payment, the liability is foisted on the buyers/users.  It is this  type of situation which stood covered by rule 192 and rule 196.   In cases of contravention of rule 192, the tribunal took the view  from 1989 onwards that rule 192 was not mandatory and that  sufficient compliance by the recipient/user was good defence in  penal action.  The question before us is \026 whether an assessee  was entitled to benefit of input relief under exemption  notifications in which compliance of rule 192 was incorporated  as a condition for obtaining exemption.  As indicated above,  non accounting of goods received/used in the factory is distinct  from short-payment arising from non-levy.  However, when  chapter X procedure is incorporated in the exemption  notification as condition then short-payment on account of non- levy and short-payment on account of the failure of the  buyer/user to account gets inter-connected.   This aspect has not  been considered by this Court in the case of Thermax Private  Ltd. (supra) and J.K. Synthetics (supra).  The result is  divergence of views in the judgments of the tribunal.  In the  case of National Aluminium Co. Ltd. v. Commissioner of  Central Excise, Bhubaneswar reported in 2000 (125) ELT 519  (T), it has been held, following the judgment of this court in  Thermax Private Ltd. (supra), that, even if chapter X  procedure is not followed, calcined alumina manufactured in  assessees’ unit and transferred to another unit for manufacture  of aluminium was entitled to exemption under notification  no.217/86-CE as the assessee had established intended use of  material by other evidence.  A diametrically opposite view has  been taken in the case of Kirloskar Brothers Ltd. v. Collector  of Central Excise, Pune reported in 1997 (94) ELT 176 (T), in  which it has been held that the procedure required under chapter  X was required to be strictly followed in cases of conditional  exemptions as the procedural requirements were essential pre- requisite and no exemption can be sanctioned in the absence of  the required compliance of the exemption notification.   Consequently, under rule 173B, an assessee was required to file  declaration of goods (kimam) produced or manufactured in the  factory.  Under rule 173G, every assessee was required to keep  a current account with the commissioner for each category of  excisable goods.  Under rule 174, every person manufacturing  or using excisable goods was required to obtain registration and  he was prohibited from producing, manufacturing, storing or

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using such goods, without obtaining registration from the  jurisdictional competent officer.  Accordingly, under rule 192  of chapter X, the applicant seeking remission/concession was  required to obtain ’L-6’ licence as also registration certificate in  the prescribed form.  This has not been noticed by this court in  the case of Thermax Private Ltd. (supra).  The point which  needs to be emphasized is that when an assessee seeks  exemption under a notification, which prescribes compliance of  chapter X, there is a linkage between levy of duty on one hand  and the accountability of the goods received/used in the factory  where final product is manufactured.  Therefore, one cannot  ignore strict compliance of the aforestated rules while claiming  exemption under such notification.  This is particularly relevant  in cases where input relief is claimed on the basis of the captive  consumption.  Lastly, Thermax Private Ltd. (supra) and J.K.  Synthetics (supra) were cases of the supplier being an importer  and that the aforestated two decisions did not deal with cases of  the present nature in which the supplier is the manufacturer.  

       Before concluding, we may refer to the judgment of this  court in the case of Eagle Flask Industries Limited v.  Commissioner of Central Excise, Pune reported in 2004 (171)  ELT 296, in which one of the contentions raised on behalf of  the assessee was that when the items were exempt from duty,  there was consequential exemption from licensing control.  It  was argued on behalf of the assessee that mere lapse of non- submission of a declaration in terms of exemption notification  did not disentitle the assessee from benefits otherwise available  under the notification.  These arguments advanced on behalf of  the assessee were rejected by this court in the following terms: "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 174A 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."

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       For the aforestated reasons, we are of the view that the  matter requires consideration by a larger bench.  The papers  may be placed before the Hon’ble Chief Justice of India for  further directions.