TMI Blog2010 (11) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... ertain conditions, the conditions have to be complied with. The mandatory requirements of those conditions must be obeyed or fulfilled exactly, though at times, some latitude can be shown, if there is a failure to comply with some requirements which are directory in nature, the non-compliance of which would not affect the essence or substance of the notification granting exemption. DOCTRINE OF SUBSTANTIAL COMPLIANCE AND 'INTENDED USE' - The test for determining the applicability of the substantial compliance doctrine has been the subject of a myriad of cases and quite often, the critical question to be examined is whether the requirements relate to the "substance" or "essence" of the statute, if so, strict adherence to those requirements is a precondition to give effect to that doctrine. On the other hand, if the requirements are procedural or directory in that they are not of the "essence" of the thing to be done but are given with a view to the orderly conduct of business, they may be fulfilled by substantial, if not strict compliance. In other words, a mere attempted compliance may not be sufficient, but actual compliance of those factors which are considered as essential. Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intended use and the principle of substantial compliance . The matter came up before the three Judge Bench of this Court which doubted the correctness and the applicability of the above mentioned judgments and took the view that the exemption notification called for strict interpretation so far as the eligibility is concerned especially when an assessee seeks exemption of duty under a notification issued by the Central Government in exercise of the powers conferred by Sub-section (1) of Section 5A of the Central Excise and Salt Act 1944, read with Sub-section(3) of Section 3 of the Additional Duties of Excise (Goods of Specified Importance) Act 1957, which called for compliance of the procedure set out in Chapter X of the Central Excise Rules 1944. Further, it was also observed that in Thermax Private Ltd. (supra) and J.K. Synthetics (supra), this Court was dealt with a situation where goods were imported, from outside the country, unlike the present case where specified intermediate goods were locally manufactured, in some other units of the respondents. The Court ordered that the matter required reconsideration and referred the matter to a Larger Bench. The order of refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and removed the same from their factories clandestinely without payment of central excise duty in contravention of the provisions of Rules 9(1), 52A, 53, 54, 173B, 173C, 173F and 226 of the Excise Rules. 5. The Central Excise Officers noticed that, during the period from 18.3.1994 to 15.4.1995, M/s Gopal Zarda Udyog had manufactured and removed from their factory a total quantity of 1,52,226.150 Kgs. of preparation containing Kimam, collectively valued at ₹ 15,27,90,675.00 and the amount of duty involved was fixed at ₹ 6,14,17,770.00. 6. M/s Gopal Industries, during the period from 16.6.1995 to 26.9.1996, had manufactured and removed from their factory a total quantity of 2,66,648.800 kgs. of preparation containing Kimam collectively valued at ₹ 16,26,68,569.00 and the amount of duty involved was fixed at ₹ 8,13,34,285.00. 7. M/s Hari Chand Shri Gopal also, during the period from 14.6.1995 to 24.9.1996 had manufactured and removed from their factory a total quantity of 1,51,054.900 kgs. of preparation containing Kimam collectively valued at ₹ 15,86,77,319.00 and the amount of duty involved was fixed at ₹ 7,93,38.660.00. 8. Consequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods to their final manufacturing units though transferring challans and the receipts were recorded in Form-IV Register/Stock Register and the utilization of the goods was recorded in RG-12 Register. Further, it was also stated that the final products manufactured by the respondents could be ascertained from RG-1 Register maintained at the recipient end and those records would be sufficient to establish use of the goods and establish the plea of substantial compliance of the procedure set out in Chapter X for duty exemption. 11. The Commissioner rejected all the contentions vide his order dated 16.07.2002 and held that the benefit of the exemption notification would be available only if the procedures laid down in Chapter X were complied with and that the records produced by the respondents would not substantiate a plea of substantial compliance of the procedure laid down in the above mentioned Chapter. The imposition of the duty liability, interest and penalty was therefore confirmed. 12. The respondents, carried the matter in appeal before the Tribunal. The Tribunal, we have already indicated, placed reliance on the judgments of this Court in Thermax Private Ltd. (supra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hai M. Chemicals v. Commissioner of Central Excise, Vadodara (2005) 2 SCC 168, State of Jharkhand and Others v. Tata Cummins Ltd. and Another (2006) 4 SCC 57, A.P. Steel Re-Rolling Mill Ltd. etc. v. State of Kerala Ors. (2007) 2 SCC 725, State of Orissa and others v. Tata Sponge Iron Ltd. (2007) 8 SCC 189, Commissioner of Central Excise, Jaipur v. Mewar Bartan Nirmal Udyog 2008 (231) ELT 27 (Supreme Court), State of Haryana v. Samtel India Ltd. 2008 (15) VST 176 (SC) and G.P. Ceramics Pvt. Ltd. v. Commissioner, Trade Tax, Uttar Pradesh (2009) 2 SCC 90. 14. Shri Harish Salve, learned senior counsel appearing for the assessee-respondents, on the other hand, contended that the assessee had produced documentary evidence to prove that the entire quantity of kimam were transferred from their one unit to another and was utilized in the manufacture of branded chewing tobacco and cleared on payment of duty. Further, it was also stated that the assessee had produced the transfer challans under which the Kimam was transferred to the other unit. Learned senior counsel also made reference to Form IV Register/Stock Register regarding receipt of the Kim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground of intended use and substantial compliance of the procedure set out in Chapter X of the Excise Rules. 17. Notification no. 121/94-CE dated 11.8.1994 was issued by the Central Government in exercise of its powers conferred by sub- section (1) of Section 5A of the Central Excises and Salt Act, 1944 (1 of 1994) read with sub-section (3) of Section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957) in the public interest for exempting certain specified intermediate goods if those goods were captively consumed in the manufacture of specified final products, falling under heading numbers or sub-heading numbers of the Schedule to the Tariff Act. Notification also stipulated that where such use of inputs was in a factory of a manufacturer, different from his factory where the goods had been produced, the exemption contained in this notification would be allowable subject to the observance of the procedure set out in Chapter X of the Excise Rules. The table, with which we are concerned, is given below: S.No. Description of final products Heading No. or sub-heading No.of final produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion from remission of duty. For the said purpose, R-2 Certificate is required to be issued specifying that the registration certificate is meant for obtaining the excisable goods under Rule 192. On the basis of R-2 Certificate, the manufacturer become eligible for getting the excisable goods for which the remission of duty has been sought. Further, the applicant is also required to execute a bond with security in Form B-8, as required under Rule 192 and the Collector can put further conditions for filing the B-16 Bond or B-17 Bond during the permission granted for remission of duty. On such request and after complying with all the statutory formalities, the jurisdictional officer is required to issue C-2 Certificate and, on the strength of that certificate, the applicant can obtain duty free goods. The jurisdictional officer has also to certify that the said manufacturer is registered in their Range under Rule 192 and is authorized for obtaining excisable goods at NIL/concessional rate of duty for use in special industrial purpose for the manufacture of specified excisable goods at their factory. Further, on the strength of C-2 Certificate, the excisable goods can be removed from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal information viz. description of goods to be obtained for industrial purpose, estimate quantity in the year, details of the supplier of the goods etc. Further, it is on the basis of R-2 Certificate, the jurisdictional Range Officer issues a CT-2 certificate (Certificate for Transfer of Goods) under the cover of which the remitted goods have to move from the supplier unit to the recipient unit. CT-2 certificate is required to be shown to the supplier unit who shall mention the CT-2 number on the Gate Pass before delivering the goods without payment of duty on the strength of CT-2 certificate. Compliance of the above mentioned requirements, stipulated in Chapter X, is a pre-requisite for getting exemption from the remission of excise duty on the specified goods. Exemption Clause - Strict Construction 22. The law is well settled that a person who claims exemption or concession has to establish that he is entitled to that exemption or concession. A provision providing for an exemption, concession or exception, as the case may be, has to be construed strictly with certain exceptions depending upon the settings on which the provision has been placed in the Statute and the obj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a judicial invention, equitable in nature, designed to avoid hardship in cases where a party does all that can reasonably expected of it, but failed or faulted in some minor or inconsequent aspects which cannot be described as the essence or the substance of the requirements. Like the concept of reasonableness , the acceptance or otherwise of a plea of substantial compliance depends upon the facts and circumstances of each case and the purpose and object to be achieved and the context of the prerequisites which are essential to achieve the object and purpose of the rule or the regulation. Such a defence cannot be pleaded if a clear statutory prerequisite which effectuates the object and the purpose of the statute has not been met. Certainly, it means that the Court should determine whether the statute has been followed sufficiently so as to carry out the intent for which the statute was enacted and not a mirror image type of strict compliance. Substantial compliance means actual compliance in respect to the substance essential to every reasonable objective of the statute and the court should determine whether the statute has been followed sufficiently so as to carry out th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if CT-2 Certificate is obtained, the excisable goods could be removed. Form RG16 Register and the details to be furnished in Form RT11 are also statutory in nature, which relate to the substance and essence of the requirements under Chapter X. Indisputedly, those requirements had not been complied with. 26. The respondents have laid great emphasis on maintenance of some statutory registers and filing of periodical returns at the recipient unit, so as to take the shelter under the doctrine of substantial compliance for remission of duty. Respondents pointed out that they had identical columns in the registers kept at the recipient end, hence, the requirement of maintaining separate register at the supplier end and the requirements of Chapter X was substantially complied with. It may be noted that RG-16 Register prescribed was specific to Chapter X with the sole intention of maintaining separate accounts for receipt, issue and usage of duty free remitted inputs received from the supplier unit. Similarity of columns and the details furnished therein cannot be considered as substitute for not maintaining of RG-16 Register or other registers for remission of duty under Chapter X ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Both the suppliers of specified intermediate goods as well as manufactures of specified final products are situated in India and are obliged to follow various statutory provisions, not only for the manufacture of excisable goods, but also for claiming exemption under the notification dated 11.8.1994. Consequently, the plea of intended use of the materials cannot be applied to the facts of the present case. 29. In J. K. Synthetics (supra), the assessee was the manufacturer of polyster chips, staple fibre and tow from Mono- Ethylene Glycol (MEG). On importing those goods, they claimed exemption from payment of additional duty of customs thereon because MEG was exempted from the payment of excise duty by virtue of notification dated 4.5.1987 issued under Section 8 of the Tariff Act. In that case, the contention was raised by the Revenue that the assessee had not followed the conditions laid down in Chapter X of the Excise Rules. But the Tribunal, on facts, found that there had been substantial compliance of the procedure by the assessee, which was approved by this Court without laying down any principle as such which cannot be applied to the facts of the present case. 30. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. On the basis of that search, the Commission took the view that the assessee had contravened the procedure of the exemption notification and removed the excisable goods clandestinely. A notice was issued to show cause why the central excise duty and the penalty therein be not imposed on the assessee. The Commissioner, Central Excise, Ahmedabad vide order dated 31.5.2007 demanded central excise duty of ₹ 15,14,966/- from M/s Neatwell Castings under proviso to Section 11-A of the Central Excise Act, 1944 by invoking extended period of five years along with the penalty thereon. In appeal filed by the assessee before the Commissioner (Appeals), it was held that the benefit of the notification could not be denied only on the ground that the procedure laid down in Chapter X had not been followed. The decision of the Commissioner (Appeals) was upheld by the Tribunal in appeal. 34. We find it difficult to sustain the reasoning of the Tribunal that the procedure laid down in Chapter X, is meant only to establish the receipt of goods by the recipient unit and their utilization. The Tribunal completely overlooked the object and purpose of the procedure laid down in Chapter X. The g ..... X X X X Extracts X X X X X X X X Extracts X X X X
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