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CASE NO.: Appeal (civil)  8030 of 2004

PETITIONER: M/s Compack Pvt. Ltd.                                            

RESPONDENT: Commissioner of Central Excise, Vadodara                         

DATE OF JUDGMENT: 07/10/2005

BENCH: S.B. Sinha & R.V. Raveendran

JUDGMENT: J U D G M E N T

S.B. SINHA, J :

       Interpretation of an exemption notification dated 28.02.1982, as  amended by several notifications, is in question in this appeal which arises  out of a judgment and order dated 05.03.2003 passed by the Customs, Excise  and Gold (Control) Appellate Tribunal,  West Zonal Bench at Mumbai (for  short, ’the Tribunal)  in Appeal No.E/1801/02, whereby and whereunder the  appeal preferred by the Appellant herein from a judgment and order dated  01.02.2002 passed by the Commissioner of Central Excise & Customs  (Appeals) Vadodara, was dismissed.

       The Appellant,  a Company incorporated under the Companies Act,  1956, is engaged in the manufacture and production of excisable goods,  i.e.   cardboard containers.  It is a Small Scale Industry.  It opted for the benefit  contained in Section AA of Chapter V of the Central Excise Rules, 1944 so  as to avail the MODVAT credit of the specified duties on  plastic coated  paper known as ’LDPE coated paper’.  It, however, did not avail of  any  MODVAT credit in respect of  base paper or base paperboard.  According to  the Appellant, the cardboard container is manufactured out of base paper  having three layers and the outer layer consists of  LDPE coated paper which  is said to have been manufactured from the base paper apart from other  inputs.   

The Appellant filed a MODVAT Declaration on or about 2.11.1992  purported to be in terms of Rule 57-G of the Central Excise Rules, 1944  declaring LDPE Coated Paper falling under sub-heading 4811.30 of the  Schedule appended to the Tariff Act as input which was intended to be used  in or in relation to the final excisable goods, namely, Composite Paper  Containers (Containers) meriting classification under sub-heading 4819.12.   The Appellant admittedly after filing the said MODVAT Declaration availed  of the MODVAT Credit of specified duties paid on the inputs amounting to  Rs. 35,185.13.  The tariff rate for the said containers of sub-heading 4819.12  of the Schedule was stipulated at 35% ad valorem of basic excise duty and  the corresponding special excise duty was at the rate of 15% on basic excise  duty.

       It is stated that during the period November, 1992 to February, 1993  the said composite containers worth Rs. 17,00,954.00 were cleared by the  Appellant on payment of basic excise duty at a rate of 5% ad valorem,  normal rate being 15% ad valorem, in terms of the Tariff Notification dated  28.2.1982 read with the provisions of the Small Scale General Exemption  Notification as thence existed.

The Assistant Commissioner of Central Excise and Customs issued  notice dated 26.04.1993 as to why the duty amounting to Rs.3,91,228/-  should not be recovered from it, alleging that the Appellant was not eligible  for the concessional rate of duty prescribed with Notification No. 67/82 \026CE

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dated 28.2.1982 (as amended).

By an order dated 23.12.1997, it was held  that the Appellant was not  entitled to avail the concessional rate of duty and, therefore,  differential  duty, as envisaged therein was recoverable.

Aggrieved thereby, the Appellant preferred an appeal, which was  dismissed by an order dated 01.02.2002 passed by the Commissioner  (Appeals).   An appeal from the said order before the Tribunal was  dismissed by an order dated 05.03.2003.

Mr. Ramesh Singh, the learned counsel appearing on  behalf of the  Appellant, would submit that the learned Tribunal committed a manifest  error in passing the impugned judgment insofar as it failed to take into  consideration that for manufacture of cardboard containers, apart from one  layer of LDPE coated paper, three layers of base  paper are  used in respect  whereof, no MODVAT credit was taken and, thus, the Appellant was  entitled to obtain  the benefit of the exemption notification.  The  inference  of the Tribunal that the Appellant had indirectly taken the MODVAT credit,  it was submitted, is not sustainable in law.  Only because MODVAT credit  has been taken for one of the inputs, it was submitted,  cannot be held to be a  ground for depriving the Appellant from the benefit of an exemption  notification to which  it  was otherwise entitled to.

Mr. Gopal Subramanium, the learned Additional Solicitor General, on  the other hand, would submit that the plastic coated paper is different from a  base paper and on a true construction of  the notification, it would be evident  that exemption from payment of excise duty is to be granted only to those  manufacturers who used base paper only for manufacturing containers.   Exemption notification, the learned Additional Solicitor General would  contend, must be construed  strictly.      

The aforementioned notification No. 67/82CE dated 28.2.1982 (as  amended by Notification dated 28.2.1993) read thus :

"Effective rate of duty for printed cartons,  boxes,  containers and cases.  In exercise of the powers conferred  by sub-rule (1) of rule 8 of the Central Excise Rules,  1944, the Central Government hereby exempts printed  cartons, boxes, containers and cases (including flattened  or folded cartons) whether in assembled or unassembled  condition, falling within Chapter 48 of the Schedule to  the Central Excise Tariff Act, 1985 (5 of 1986), from so  much of the duty of excise leviable thereon as is in  excess of twenty percent ad valorem subject to the  condition that the appropriate duty of excise or additional  duty leviable under section 3 of the Customs Tariff Act,  1975 (51 of 1975), as the case may be, has already been  paid in respect of the base paper or base paperboard used  in their manufacture :

Provided that nothing contained in this notification shall  apply to a manufacturer who avails of the special  procedure prescribed under rule 56A or 57A of the  Central Excise Rules, 1994, in respect of the duty paid on  the base paper or base paperboard.

Explanation.-For the purpose of this notification, the base  paper or base paperboard used in the manufacture of the  said articles shall be deemed to have paid the appropriate  duty of excise or the additional duty leviable under  section 3 of the Customs Tariff Act, 1975, if it is  purchased from the market."

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It is not in dispute that the matter relating to rate of excise duty  payable on paper and paperboard is contained in Chapter 48 of the Central  Excise Rules.  Whereas Item 48.02 refers to uncoated paper, Item 48.07  refers to plastic coated paper.   

The Appellant has taken a stand before us that three layers of the  carton consist of  base paper and only one layer of carton consists of plastic  coated paper.  The principles as regard construction of an exemption   notification are no longer res integra; whereas the eligibility clause in  relation to an exemption notification is given strict meaning wherefor the  notification has to be interpreted in terms of its language, once an assessee  satisfies the eligibility clause,  the exemption clause therein may be  construed literally.  An eligibility criteria, therefore, deserves a strict  construction, although construction of a condition thereof may be given a  liberal meaning. [See Tata Iron & Steel Co. Ltd.  vs. State of Jharkhand and  Others \026 (2005 (4) SCC 272.].

In Commissioner of Central Excise, Chandigarh vs. Bhalla Enterprises  [2004 (173) ELT 225 (SC)], it was held :

"The basic rule in interpretation of any statutory  provision is that the plain words of the statute must  be given effect to\005"

In Commissioner of Central Excise, Trichy vs. Rukmani Pakkwell  Traders [(2004) 11 SCC 801], it was held :

"\005It is settled law that exemption notifications  have to be strictly construed.  They must be  interpreted on their own wording. Wordings of  some other notification are of no benefit in  construing a particular notification\005"   

The said decision was followed in  Commissioner of Central  Excise,  Chandigarh-I vs. Mahaan Dairies  (2004) 11 SCC 798].    Keeping in view the principles laid down in the aforementioned  decisions, we have to construe the exemption notification in question.  

The said notification was issued in terms of sub-rule (1) of Rule 8 of  the Central Excise Rules, 1944.  By reason thereof , printed carton, boxes,  containers and cases whether in assembled or unassembled condition falling  under Chapter 48 of the schedule appended to the Central Excise Tariff Act,  would receive the benefit of exemption subject to the condition that the  appropriate duty of excise or additional duty leviable under Section 3 of the  Customs Tariff Act has already been paid in respect of the base paper used  in their manufacturing.

Item No.48.02 refers to uncoated paper and paperboard of a  kind  mentioned therein.  Item No.4802.20 is as under :

"4802.20        -       Paper or paperboard, in the  manufacture of which,-          (a) the principal process of lifting the pulp is done  by hand; and

(b) if power driven sheet forming equipment is  used, the Cylinder Mould Vat does not exceed 40  inches."

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’Composite paper’ and paperboard (made by sticking flat layers of  paper or paper board together with an adhesive), not  surface-coated or  impregnated, whether or not internally reinforced, in rolls or sheets has been  shown in Item No.48.07.   

The proviso appended to the notification contains an exception thereto  stating that if MODVAT credit is availed of, no such exemption shall be  available to the manufacturer.  The  ’Explanation’, however, raises a legal  fiction that if a base paper or a paperboard, if purchased from the market,  would be deemed to be duty paid.  The eligibility clause contained in the  notification, thus, is confined to use of base paper or paperboard used in the  manufacture of printed cartons, boxes, containers and cases.  A container  may consist of  inputs other than base paper or paperboard.  It has not been  shown before us that to avail the exemption, the containers are required to be  manufactured ’only’ or ’purely’ from the base paper or base paperboard.     Had  the same been the intention of the legislation making authority, they  could have said so explicitly.  Once the eligibility criteria is satisfied by the  assessee,  as noticed hereinbefore, the conditions are required to be  construed liberally.  [See Commissioner of Central Excise vs. M.P.V. &  Engg. Industries  (2003) 5 SCC 333].

Bhalla Enterprises (supra) laid down a proposition that notification  has to be construed  on the basis of the language used.   Rukmani Pakkwell  Traders  (supra) is  an authority for the same proposition as also that the  wordings of some other notification are of no benefit in construing a  particular notification.   The notification does not state that exemption  cannot be granted in a case where all the inputs for manufacture of  containers would be base paper or paperboard.  In manufacture of the  containers some other inputs are likely to be used for which MODVAT  credit facility has been availed of.  Such a construction, as has been  suggested by the learned counsel for the Respondents, would amount of  addition of  the words  "only out of" or "purely out of"  the  base paper   cannot be countenanced.    The notification has to be construed in terms of  the language used therein.  It is well-settled that unless literal meaning   given to a document leads to anomaly or absurdity, the golden rule of literal  interpretation shall be adhered to.       

In Coromondal Fertilizers Ltd. vs. Collector of Customs, Madras  (1986) 3 SCC 531], the notification in question was as under :

"GSR 547 (E). \027In exercise of the powers conferred by  sub-section (1) of Section 25 of the Customs Act, 1962  (52 of 1962), the Central Government, being satisfied  that it is necessary in the public interest so to do, hereby,  exempts Ammonium Phosphate falling within Chapter 31  of the First Schedule to the Customs Tariff Act, 1975 (51  of 1975), when imported into India for use as manure,  from the whole of the duty of customs leviable thereon  which is specified in the said First Schedule : Provided that in respect of any consignment of  ammonium phosphate imported under cover of a claim  for exemption from duty in pursuance of the provisions  hereof, the importer shall execute a bond in such form as  may be prescribed by the Assistant Collector of Customs,  binding himself, in sum equal to the amount of duty  ordinarily leviable on such articles, to pay on demand the  duty leviable on such quantity thereof as is not proved to  the satisfaction of the Assistant Collector of Customs to  have been used as manure."

The issue raised was as to whether Mono-Ammonium Phosphate  which was used as manure in the manufacture of complex fertilizers was  entitled to the benefit of the said exemption notification.  A further

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contention was raised that  Mono-Ammonium Phosphate was not the only  input used  in  the manufacture of complex fertilizers and it was also not  used directly for use as manure in the manufacture of complex fertilizers.   Repelling the said contentions, it was opined :.

"We are afraid, we are not to ascertain the intention of  the Government by a comparison of the expressions used  in the two different notifications. Notification No.  178/76-Cus has been couched in clear and unambiguous  language. The question is not whether for getting the  benefit of exemption under the notification the appellant  has used it for the production of complex fertilisers or  not, but the question is whether the appellant has  imported Mono-Ammonium Phosphate for use as  manure. It is the case of the appellant that it has used the  chemical as manure, though not directly, yet along with  the mixture of Urea and muriate of Potash. It is submitted  on behalf of the appellant that the mixture, is  undoubtedly a fertiliser and Mono-Ammonium  Phosphate being one of the components of the mixture it  must be held that the same was imported into India and  also used as a manure or fertiliser. In our opinion, if  Mono-Ammonium Phosphate retains its physical and  chemical properties in the mixture, it will be difficult to  say that it was not used by the appellant as a manure  within the meaning of the Notification No. 178/76-Cus."

The only requirement for availing the benefit of the said notification  was payment of excise duty on base paper or base paperboard, wherefor also  a legal fiction has been raised in the explanation appended thereto.

The Tribunal denied the benefit of  the said notification to the  Appellant herein without considering the import thereof that it refers to the  MODVAT credit directly that too only on base paper.  Similarly, the finding  of the Tribunal that the container must be manufactured only from base  paper may render the exemption notification inapplicable in a large number  of cases.

The Appellant, however, is not correct in contending that it would be  entitled to the exemption notification in respect of the entire container. It  would be entitled to exemption only to that extent for  which excise duty has  been paid i.e. on paperboard.  As  the question as to whether three layers of  base paper have been used for manufacture of the container or not has not  been raised before any authority, the matter is remitted back to the Assistant  Commissioner, Central Excise and Customs for determination of the said  question.

The appeal is allowed to the aforementioned extent.  No costs.