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TMI Blog2016 (5) TMI 1106X X X X Extracts X X X X X X X X Extracts X X X X ..... k, silk yarn, silk fabrics etc. They are importing silk yarn and silk fabrics from China. "silk" itself is included in Chapter 50. While "silk worm cocoons" are included under Tariff Item 5001 00 00 in Chapter 50, raw silk including Mulberry raw silk, Mulberry dupion silk and non-Mulberry silk are included in Tariff Item Nos. 5002 00, 5002 00 10, 5002 00 20 and 5002 00 30. Similarly silk waste and the other varieties of silk waste are included in Tariff Item 5003 00, 5003 00 10, 5003 00 20, 5003 00 30, 5003 00 40 and 5003 00 90. 4. The Tariff Items 5001, 5002 and 5003, including sub headings thereunder, do not bear any duty of excise. However, silk yarn (other than yarn spun from silk waste not put up for retail sale), is included in Tariff Item 5004 and it is exigible to duty at 8%. Similarly, woven fabrics of silk or silk waste is included in Tariff Item 5007 and it is also exigible to duty at 8%. But by a Notification bearing No.30/04-CE dated 9.7.2004, issued in excise of the powers conferred by Section 5 A (1) of the Central Excise Act, 1944 read with Section 3(3) of the Additional Duties of Excise (Goods of Special Importance) Act, 1957, the Central Government exempted all g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... General, a domestic manufacturer of the goods specified in the table under the exemption notification dated 9.7.2004 will be eligible to claim exemption only if the goods that are used as inputs in the product manufactured by him had already suffered duty of Excise and yet he had not claimed credit of such duty on those inputs under the provisions of CENVAT Credit Rules 2002. Such a condition imposed upon the domestic manufacturer, to be eligible for the benefit of the exemption notification, can never be satisfied by an importer. This is due to the fact that the imported goods cannot contain inputs on which a duty of Excise could have already been paid in India. Therefore, the learned Additional Solicitor General contended that an importer who is incapable of satisfying the conditions stipulated in the exemption notification, cannot seek the benefit of the exemption notification. 11. However, it is contended by Mr.Joseph Prabakar, learned counsel for the first respondent that the goods imported by the first respondent are silk fabrics, which are manufactured from out of raw silk or silk waste. On these raw materials, the local manufacturers do not suffer any duty of Excise, as se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich we have extracted in paragraph 9 above, was amended. After the said amendment, the proviso to the notification reads as follows: "Provided that the said excisable goods are manufactured from inputs, on which, appropriate duty of excise leviable under the First Schedule to the Central Excise Tariff Act or additional duty of customs under Section 3 of the Customs Tariff Act, 1975 (51 of 1975) has been paid and no credit of such excise duty or additional duty of customs on inputs has been taken by the manufacturer of such goods (and not the buyer of such goods), under the provisions of CENVAT Credit Rules, 2004." By the second amendment, under Notification No.37/2015, dated 21.7.2015 an Explanation was inserted under the above proviso. This Explanation reads as follows : "Explanation:- For the purposes of this Notification, appropriate duty or appropriate additional duty includes nil duty or concessional duty, whether or not read with any relevant exemption Notification for the time being in force." 15. Contending that the amendment to the Notification is unconstitutional, inasmuch as it seeks to annul the effect of the decision of the Supreme Court in SRF Limited, a batch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section as they apply in relation to the Duties leviable under that Act. Sub-section (1), the Explanation thereto and Sub-Section (8) of Section 3 of the Customs Tariff Act, 1975 read as follows:- "3(1) Any article which is imported into India shall, in addition, be liable to a duty (hereafter in this section referred to as the additional duty) equal to the excise duty for the time being leviable on a like article if produced or manufactured in India and if such excise duty on a like article is leviable at any percentage of its value, the additional duty to which the imported article shall be so liable shall be calculated at that percentage of the value of the imported article; Provided that in case of any alcoholic liquor for human consumption imported into India, the Central Government may, by notification in the Official Gazette, specify the rate of additional duty having regard to the excise duty for the time being leviable on a like alcoholic liquor produced or manufactured in different States or, if a like alcoholic liquor is not produced or manufactured in any State, then, having regard to the excise duty which would be leviable for the time being in different States on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the same description would not also suffer countervailing duty. 21. Therefore, when the Central Government issued a Notification bearing No.030/2004 dated 9.7.2004, in exercise of the powers conferred by Section 5A of the Central Excise Act, 1944, exempting goods falling under Chapter Heading 5007, from payment of duty of excise, the first respondent thought that they would be entitled to the same benefit, since the eligibility to the benefit is decided in terms of the expression 'the excise duty for the time being leviable on a like article, if produced or manufactured in India' expounded in the Explanation to Section 3(1) of the Customs Tariff Act, 1975. But, the Department has taken a stand that Section 5A(1) of the Central Excise Act, 1944 contemplates different types of exemptions. The exemption could be conditional or absolute. It could be partial or whole. According to the Department, if the exemption is absolute and total, an importer may be entitled to the benefit thereon. But, if it is conditional even in respect of a domestic manufacturer, an importer cannot juxtapose himself in the position of a domestic manufacturer and claim the benefit. 22. It appears t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter used the parts indicated in the Notification for setting up refrigeration or air conditioning appliances or machinery in one of the places set out in the Notification itself. But, the assessee obviously could not specify the second of the conditions, as the same was attracted only when the Central Excise Rules are applied. Therefore, the assessee paid the CVD and then made a claim for refund. But, the claim was rejected. 25. Their appeals against two orders of rejection, suffered different consequences at the hands of the First Appellate Authority. Therefore, both the assessee as well as the Department filed appeals. The Tribunal allowed the Department's appeal and dismissed the assessee's appeal. When the matter landed up in the Supreme Court, the Supreme Court pointed out that for deciding the question of eligibility, one must forget the fact that the goods are imported, but imagine that the importer had manufactured the goods in India and then determine the amount of excise duty that they would have been called upon to pay in that event. If so done hypothetically, if such a person had been entitled to the exemption or remission, then the importer will be automatical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orrect. 29. In Motiram Tolaram Vs. The Union of India [1999 (6) SCC 375], the Supreme Court was concerned with an exemption Notification No. 185/83, which reduced the rate of duty on polyvinyl alcohol manufactured from duty paid vinyl acetate monomer to 10% ad valorem. The Department refused the benefit of the Notification to the importer on the ground that the exemption Notification was conditional in nature and that the condition could not have been fulfilled by the importer. The assessees contended that they had imported the exempted goods, which were also manufactured only with the same raw material by the foreign manufacturer, but since no duty was payable under the Indian Law on the raw material, as it was manufactured by a foreign manufacturer, the condition stipulated in the Notification was impossible of being complied with by an importer. While rejecting the said contention, the Supreme Court held as follows : "Vinyl acetate monomer is an item which is manufactured in India and a rate of excise duty is leviable thereon. On the polyvinyl alcohol which has been imported, vinyl acetate monomer has not been subjected to the appropriate amount of duty payable under the Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opriate' or correct rate. Unless the manufacturer has paid the correct amount of excise duty, he is not entitled to the benefit of the exemption notification. Where the raw material is not liable to excise duty or such duty is nil, no excise duty is, as a matter of fact, paid upon it. To goods made out of such material, the notification will not apply." 32. In Commissioner of Customs, Amritsar Vs. Malwa Industries Limited [2009 (235) ELT 214 SC], the Supreme Court was concerned with a Notification dated 1.3.2006. As per the said Notification issued in exercise of the powers conferred by Section 5A(1) of the Central Excise Act, 1944, an exemption was granted subject to the condition that the product is used in the same factory. The question that arose for consideration was as to whether the goods that were used must also be manufactured in the same factory or not. While answering the question in favour of the assessee, the Supreme Court held that an exemption Notification should be read literally and that a person claiming the benefit of an exemption Notification, must show that he satisfied the eligibility criteria. But, once it is found that the exemption Notification is ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Notification. The High Court, in an appeal filed by the assessee, answered the question in favour of the assessee forcing the Revenue to take up the matter to the Supreme Court. 36. After noting the conflict between Usha Martin Industries and Motiram Tolaram that was resolved by a decision of the Constitution Bench in Dhiren Chemical Industries, the Supreme Court held that the Constitution Bench was concerned in Dhiren Chemical Industries, with a Notification for exemption. But, in Kay Kay Industries, the Supreme Court was concerned with a Notification issued under Sub-Rule (6) of Rule 57A of the Rules, dealing with the availing of MODVAT credit. Therefore, the Court held that the decision of the Constitution Bench in Dhiren Chemical Industries would have no application to cases of that nature. 37. In Aidek Tourism Services Pvt. Ltd. Vs. Commissioner of Customs [2015 (7) SCC 429], the assessee, which had imported Honda Accord cars and filed a claim for refund on the ground that in terms of the Notification No.64/93, they were entitled to concessional rate of CVD. The assessee's claim for refund at Mumbai was allowed, but their claim for refund at New Delhi was dismisse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1975) has been paid and no credit of such excise duty or additional duty of customs on inputs has been taken by the manufacturer of such goods (and not the buyer of such goods), under the provisions of CENVAT Credit Rules, 2004." By the second amendment, under Notification No.37/2015, an Explanation was inserted under the above proviso. This Explanation reads as follows : "Explanation:- For the purposes of this Notification, appropriate duty or appropriate additional duty includes nil duty or concessional duty, whether or not read with any relevant exemption Notification for the time being in force." 41. The Central Government also filed a petition for review. On 9.9.2015, the Supreme Court condoned the delay and ordered notice in the review. Therefore, it is clear that the law has travelled in a zig zag fashion from one extreme to the other. This is at least apparently so. 42. But, a careful look at the various types of Notifications issued by the Central Government from time to time in exercise of the powers conferred by Section 5A(1) of the Central Excise Act, 1944 and the manner in which the Supreme Court interpreted the Notifications, would make clear one important fact. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Department relied upon Khandelwal. But, the correctness of the decision was doubted in this case, in the sense that Section 3(1) of the Customs Tariff Act was held to be a charging section independent of Section 12 of the Customs Act. Motiram Tolaram Dealt with an exemption Notification No.185/83, which imposed a condition that the input used for the manufacture of the product should have suffered an appropriate amount of duty under the Indian Law. Usha Martin Industries Exemption Notification dated 30.11.1963 as amended upto 7.4.1981, which imposed a condition that the exempted product should contain a raw material, on which, appropriate amount of duty of excise had already been paid. Dhiren Chemical Industries It arose out of a reference on the ground that there was a conflict between the decision in Usha Martin Industries (which dealt with a Notification that stipulated a condition that an appropriate amount of duty should have been paid on the input) and Motiram Tolaram, in which, the Court held that if the product was not manufactured in India, it must be taken that appropriate duty had been paid. The conflict between the two was resolved by the Constitution Bench in D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interpreted the Notifications in favour of the assessee, in view of the fact that an importer could not comply with those procedural formalities. But, wherever the Notifications imposed either (i) a condition that the input used for the manufacture of the exempted goods, should have suffered a duty or (ii) a condition that duty ought to have been paid and CENVAT credit not claimed, the Court interpreted such Notifications in favour of the Revenue (except perhaps in the case of AIDEK and SRF). 46. It must be pointed out at this stage that one cannot make a distinction between (i) a Notification, which merely stipulates a condition that the manufacturer ought not to have claimed CENVAT credit in respect of the duties paid on the inputs and (ii) a Notification that imposes a condition that a duty of excise should have been paid on the inputs and no CENVAT credit should have been claimed in relation to the same. This is for the reason that the very entitlement to claim CENVAT credit would arise only in cases where a duty of excise had been paid on the inputs. For a person, who never paid a duty of excise, on the inputs used for the manufacture of exempted goods, the question of claimi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been taken Even in this type of Notification, there is only one possible scenario Consequently, a person will be entitled to the benefit of the exemption Notification only if both conditions are satisfied. 49. Therefore, the interpretation to be given to a Notification stipulating a pre-condition that the inputs should have suffered a duty and no CENVAT credit should have been claimed, should be the same as the interpretation to be given to a Notification, which imposes a pre-condition that no CENVAT credit should have been claimed in relation to the duties leviable on the inputs. Once this is very clear, the juggernaut that the assessees sought to create legally, could be easily untied. The object behind the two types of Notifications, one stipulating the sufferance of duty on the inputs and another merely stipulating that no CENVAT credit should have been claimed, is to ensure that though the goods by themselves are exempt, some element of duty has been paid on the inputs that were used in their manufacture. 50. Keeping the above legal principles in mind, if we come back to the case on hand, it will be seen that the arguments of Mr.Joseph Prabhakar, learned counsel for the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nufacture of an exempted goods, attract nil rate of duty under the relevant Chapter Headings, then even the domestic manufacturer of such exempted goods would not be able to satisfy either the condition that the inputs had suffered duty or the condition that he did not avail CENVAT credit. Therefore, what happens to such cases becomes a moot question. 54. If the fundamental premise on which additional duty is imposed under Section 3(1) of the Customs Tariff Act, 1975, is to ensure that the importer pays the same duty on his goods as the domestic manufacturer pays, then it goes without saying that the importer cannot be asked to pay something when the domestic manufacturer is not liable to pay any duty at all, in view of the inputs falling under Tariff Items that attract nil rate of duty. Therefore, to some extent, the first contention of the learned counsel for the first respondent is correct. In other words, if the domestic manufacturer of woven silk fabrics falling under Tariff Item No.5007, would not have suffered any duty on the inputs used in the manufacture of woven silk fabrics, then the first respondent cannot be placed in a disadvantageous position, by asking the first re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rocess indicated in paragraph 33 of the counter affidavit filed by the first respondent, Mr.Joseph Prabhakar, learned counsel for the first respondent contended that the process of production of silk fabrics comprises of four stages namely (i) hatching of eggs (ii) silk production by worm (iii) transition of the worm and (iv) brushing the cocoons and obtaining silk from the undamaged cocoons and winding the silk filaments in a reel. 58. But unfortunately, what is stated in paragraph 33 of the counter affidavit appears to be the process of creation of raw silk. The manufacture of woven silk fabrics covered by Tariff Item No.5007, in respect of which, the first respondent claimed the benefit of exemption, is different from what is narrated by the first respondent in paragraph 33. From the literature available on the manufacture of silk fabrics, it is seen that there are several stages involved in the process. The process of manufacture of silk fabric, as seen from the literature available on the subject, is as follows : "Silk Fabric Manufacturing Process - Sorting and softening the cocoons : The filature is the factory in which the cocoons are processed into silk thread. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d up as follows : (i) In cases where the exemption Notifications are absolute and they do not make the benefit available only upon the fulfillment of any condition, even the importer would be entitled to the benefit of exemption. (ii) In cases where the Notifications for exemption stipulate only one condition namely that the inputs used in the manufacture of the exempted goods should have suffered a duty, then the benefit of the Notification will not be available to any of the importers, since he could have never paid any duty of excise on the inputs used in their manufacture by the foreign manufacturer. This proposition is based upon the premise that the object of such Notifications is only to grant exemption to those final products, on which, some duty has been paid (in India) at the stage of inputs. In other words, Notifications of this nature, are not merely conditional, but also restrictive in nature, as they confer benefit not upon all manufacturers of exempted goods, even if they are domestic manufacturers, but only upon those, who use inputs that had suffered duty. (iii) In cases where the exemption Notification stipulates only one condition namely that no CENVAT credit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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