TMI Blog2016 (5) TMI 1106X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, the first respondent cannot be taken to have fulfilled the condition stipulated in the proviso to the Notification No.030/2004 dated 9.7.2004, unless he had shown that in the entire process of manufacture of woven silk fabrics falling under Tariff Item No.5007, there are no inputs (used directly or indirectly and whether found in the final product or not), which attract any levy of duty under tariff items relevant to those inputs. In cases where the exemption Notification stipulates two conditions, namely that the inputs should have suffered duty and that no CENVAT credit should have been availed, then the benefit of the Notification will be available only if both conditions are satisfied. An importer will never be able to satisfy both these conditions and hence, he cannot claim the benefit. - Decided in favor of revenue. - Civil Miscellaneous Appeal Nos.3121 and 3122 of 2009 - - - Dated:- 28-3-2016 - V. Ramasubramanian And T. Mathivanan, JJ. For the Appellant : Mr. G. Rajagopalan, Additional Solicitor General For the Respondent : Mr. Joseph Prabakar JUDGMENT V. Ramasubramanian, J Both the appeals are filed by the Commissioner of Customs under Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tured or imported from abroad. 6. Aggrieved by the order of the adjudicating authority, the first respondent filed appeals before the Commissioner of Customs (Appeal). The Commissioner of Customs (Appeal) allowed the appeals and remanded the matter back to the original authority. 7. Thereafter, the original authority granted the benefit of the Notification to the first respondent/assessee. But the said order was reversed by the Commissioner of Customs (Appeal). The first respondent/assessee filed further appeals to the CESTAT. The CESTAT allowed the appeals by a common order dated 29.9.2008. Aggrieved by the said order, the Revenue has come up with the above appeals. 8. In the main grounds of appeal, the Revenue has raised the following substantial questions of law for the consideration of this Court: (i) Whether the imported goods are eligible for claiming benefits under the Central Excise Exemption Notification No.030/2004 dated 9.7.2004 when there was no compliance of the conditions as contemplated under the said Notification? and (ii) Whether the Central Excise General Exemption Notification No.030/2004 dated 9.7.2004 is applicable only for the indigenously manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent contended that in respect of products, whose inputs are also exempt from payment of duty of Excise, the proviso to the notification No.030/04 dated 9.7.2004 becomes meaningless. As a consequence, all the domestic manufacturers will be eligible to claim exemption without establishing the satisfactory compliance of the condition stipulated in the proviso to the exemption notification. Once this is so, an importer of the very same product cannot be denied exemption. 12. In response to the above contentions of the learned counsel for the first respondent, it is submitted by Mr.G.Rajagopalan, learned Additional Solicitor General that the expression input under the CENVAT Credit Rules, 2002 is so wide to include even the power consumed in the process of manufacturing. Therefore, he contended that unless the first respondent establishes that there was no manufacturing process involved in the production of silk fabrics or that all the inputs used in the manufacturing process did not suffer any duty of Excise, the first respondent would not be entitled to advance the above arguments. 13. We have carefully considered the rival submissions. 14. Before we proceed to deal with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16. For the purpose of easy appreciation, we shall divide our discussion into three parts, the first comprising of statutory provisions, the second comprising of the ratio of the decisions of the Supreme Court and the third comprising of an analysis of the rival contentions. STATUTORY PROVISIONS 17. It is common knowledge that the goods manufactured in India, subject to certain exceptions, are exigible to duty of Excise. The same goods when imported into India are chargeable to Customs Duty. If due to various reasons, the goods imported into India, even after suffering Customs Duty, cost lesser than those manufactured domestically, the domestic manufacturers would be at a disadvantage. Therefore, in order to provide a level playing field between domestic manufacturers and the importers, Section 3(1) of the Customs Tariff Act, 1975 stipulates that when an article is imported into India, it shall be liable to a duty (referred to as counter veiling duty) equal to the Excise Duty for the time being leviable on a like article if produced or manufactured in India. The Explanation to Section 3(1) of the Customs Tariff Act, 1975 stipulates that the expression Excise Duty for the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs, and where such duty is leviable at different rates, the highest duty. (8) The provisions of the Customs Act, 1962 and the rules and regulations made thereunder, including those relating to drawbacks, refunds and exemption from duties shall, so far as may be, apply to the duty chargeable under this section as they apply in relation to the duties leviable under that Act. 18. Since what is leviable under Section 3(1) of the Customs Tariff Act, 1975 is actually a Duty of Excise, it is imperative for us now to make a reference to Section 5 A of the Central Excise Act, 1944 and the provisions of Central Excise Tariff Act, 1985. 19. Section 5A of the Central Excise Act, 1944 empowers the Central Government to exempt, either absolutely or subject to such conditions as may be specified, excisable goods of any description from the whole or any part of the duty of excise leviable thereon. This power is expected to be exercised by the Central Government, if it is satisfied that it is necessary in the public interest to do so. The Proviso to Section 5(A)(1) makes it clear that the exemption granted by the Central Government by way of a Notification issued thereunder, will not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by an importer of High Density Polythelene Moulding Powder for exemption from payment of countervailing duty. The exemption Notification was actually a partial exemption and the Notification stipulated two conditions namely (a) that the product should have been manufactured from raw naptha or any chemical derived therefrom and (ii) that on such raw material, the appropriate amount of duty of excise should have already been paid. In other words, the benefit of exemption was available under the Notification only to a manufacturer, who used a particular raw material, on which, an appropriate amount of duty of excise had already been paid. Therefore, projecting the claim of the importer for exemption, the Division Bench of the Bombay High Court held that a tax payer, who desires to take advantage of an exemption, must bring his case within the four corners of the exemption Notification. An argument was advanced in that case that a condition, which could not be fulfilled by an importer, cannot be put against the importer and could be taken only to be directory in nature. But, the said contention was repelled by the Bombay High Court. 24. In Thermax Private Limited Vs. the Collect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terial for manufacturing some other product, was aggrieved by a demand of additional duty of customs made under Section 3(1) of the Customs Tariff Act, 1975. The Department took a stand that the process, by which, asbestos fibre was obtained, was a process of manufacture and hence, the said item fell within Tariff Item 22F of the First Schedule to the Excise Act. Reliance was placed by the Department upon the decision of the Supreme Court in Khandelwal Metal and Engineering Works Vs. Union of India [(1985) 3 SCC 620]. 27. In Khandelwal, the Court was concerned with the import of brass scrap. The brass scrap so imported consisted of damaged articles like taps and pipes not manufactured in India or elsewhere. The assessee argued that additional duty of customs under Section 3(1) could be levied only if an article, which was imported into India, could be manufactured in India or elsewhere. This argument was rejected in Khandelwal by holding that the levy stipulated in Section 3(1) is a supplementary one and that it is only an enhancement of the levy charged by Section 12 of the Customs Act. In other words, the decision in Khandelwal was to the effect that an additional duty of customs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion had imposed a condition that the exempted product should contain a raw material 'on which, the appropriate amount of duty of excise had already been paid'. The Department took a stand that in cases where the raw material had attracted -NIL- duty, the condition stipulated in the Notification cannot be fulfilled and that therefore, the benefit of the exemption Notification may not be available in respect of products, on whose inputs, no duty was paid. But, this stand of the Department was rejected by the Court in Usha Martin Industries on the ground that the expression 'appropriate' cannot be sidelined. But, in Motiram Tolaram, the Supreme Court held that unless the product in question was such that if, manufactured in India, a rate of excise duty was leviable thereon, the benefit of exemption will not be available. 31. While resolving the conflict between Usha Martin Industries and Motiram Tolaram, the Five Judges Bench of the Supreme Court held in Dhiren Chemical Industries that the conclusion reached in Usha Martin Industries was not correct. Paragraphs 7 to 9 of the opinion in Dhiren Chemical Industries are extracted as follows : In our view, the corr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exemption, concession or exception, has to be construed strictly and that an exemption Notification has to be interpreted in the light of the words employed by it and not on any other basis. The Court went on to hold that a person, who claims exemption or concession, must establish clearly that he is covered by the provision concerned and in case of doubt or ambiguity, the benefit of it must go to the State. 34. In Hari Chand Shri Gopal, an argument revolving around the doctrine of substantial compliance was raised. But, the Court pointed out that this doctrine is a judicial invention equitable in nature, designed to avoid hardship, where a party does all that can reasonable be expected of it, but failed or faulted in some minor or inconsequential aspects, which cannot be described as the essence or the substance of the requirements. In other words, if there are certain statutory requirements, the fulfillment of which would not constitute the essence or substance, then the same can be ignored based upon this doctrine. 35. The decisions in Usha Martin Industries, Motiram Tolaram and Dhiren Chemical Industries came up for consideration before a Two Member Bench of the Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Limited would be squarely applicable to the case, going by the spirit and objective behind the Notification. 38. Aidek Tourism Services Pvt. Ltd. was followed immediately by S.R.F. Limited Vs. Commissioner of Customs [2015 (318) ELT 607 (SC)]. In S.R.F. Limited, the assessee was an importer of nylon filament yarn of 210 deniers falling under Chapter LXIV. The exemption Notification No.6/2002 dated 1.3.2002 stipulated certain conditions, one of which read as follows : If no credit under Rule 3 or Rule 11 of the CENVAT Credit Rules 2002 had been taken in respect of the inputs or capital goods, used in the manufacture of these goods. 39. The contention of the Department in S.R.F. Limited was that an importer could have never satisfied the aforesaid condition, as the inputs or capital goods used in the manufacture of those imported goods would not have suffered any duty of excise, making the assessee even eligible for a CENVAT credit. But, the Supreme Court held in S.R.F. Limited that the contention of the Department was completely contrary to the judgment in Thermax Private Limited. Accordingly, the Supreme Court allowed the claim of S.R.F.Limited. 40. As we have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into the process of manufacture of the exempted goods, should have already suffered a duty of excise. (iii) Notifications, which contained a condition that the inputs used in the manufacture of the exempted goods should not only have suffered a duty of excise, but the manufacturer should not also have claimed CENVAT credit on the quantum of such duty of excise suffered on the inputs and (iv) Notifications, which contain a condition that the manufacturer should not have claimed CENVAT credit on the duty of excise leviable on the inputs. 43. That the Notifications that came up for consideration so far before the Supreme Court could be classified into the above four types, can be easily from the following table : Decision Notification No. and condition stipulated therein Ashok Traders (Bombay DB) Notification No.302/79 dated 4.12.1979. It stipulated a condition that the exempted goods should have been manufactured from a particular raw material and that on such raw material, the appropriate amount of duty of excise should have been paid Khandelwal Metal and Engineering Works ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch goods made out of such material, the Notification will not apply. Malwa Industries Limited The exemption Notification No.4/2006, which imposed a condition that the exempted goods are used in the same factory fell for consideration. The expression 'same factory' was interpreted to mean 'factory' where the goods are actually manufactured. In case of imported goods, they should be used in the factory belonging to the importer where the manufacturing activity took place. Hari Chand Sri Gopal Notification No.121/94 dated 11.8.1994, which granted the benefit of exemption on specified intermediate goods captively consumed for the manufacture of final products fell for exploration. The doctrine of substantial compliance was held to be inapplicable where the clear statutory pre-requisite is not met. Kay Kay Industries The Court was not concerned with an exemption Notification. It was concerned with Notification No. 58/97 issued in exercise of the powers conferred by Rule 57A(6). Aidek Tourism Services (P) Limited Dealt wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pted goods, the question of claiming CENVAT credit would never arise. 47. A Notification such as the one bearing No.030/2004 dated 9.7.2004, which merely stipulates a condition that no CENVAT credit ought to have been availed in respect of the duties paid on the inputs, is in no way different from a Notification, which stipulates a condition that the inputs ought to have suffered a duty and no CENVAT credit should have been claimed on the same. 48. In simple terms, we can understand the proposition by looking at the different alternative scenarios as follows : S.No. Conditions stipulated in the Notification Possible scenarios Result 1 A condition that the inputs ought to have suffered a duty, without any further rider in relation to CENVAT credit (i) In the first scenario, there may be cases where a manufacturer of exempted goods, who satisfies the condition, might have claimed CENVAT credit (ii) The same person might not have claimed CENVAT credit If the Notification stops merely by stipulating that the inputs ought to have suffered a duty and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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 first respondent are two fold. His first argument is that the raw materials, from out of which, silk fabrics are manufactured, even if they are manufactured in India, are not liable to excise duty as seen from Chapter Heading 50. Therefore, his first contention is that when the inputs are not even exigible to duty, the Proviso to the exemption Notification has no application. The second argument of the learned counsel for the first respondent is that in any case, the first respondent, being an importer, satisfies the condition stipulated in the proviso, as he has not claimed CENVAT credit (rather had no occasion to claim CENVAT credit). 51. The second argument of the learned counsel for the first respondent is liable to be rejected, in the light of what we have indicated in the table in paragraph 48. A stipulation that CENVAT credit ought not to have been claimed, has inbuilt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 respondent alone to pay additional rate of duty. In a case of such nature, the proviso to the Notification dated 9.7.2004 will have no application either in respect of a domestic manufacturer or in respect of an importer. 55. But, that is not the end of the matter. The expression 'input' is defined in Rule 2(k) of the CENVAT Credit Rules as follows : (k) input means- (i) all goods, except light diesel oil, high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not and includes lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used in o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 the filature the cocoons soaked in hot water to loosen the sericin. Only a part of the secrin is removed at this stage. Reeling the filament (creating raw silk) : Reeling may be achieved manually or automatically. The cocoons are processed through machinery to separate the threads from each other. Through this process, a single long piece of thread is created. The sericin naturally present in the cocoons contributes to the adhesion of the fibers to each other. Packaging the skeins : The end product, the raw silk filaments, is reeled into skeins. These skeins are packaged into bundles from which silk thread can be woven at manufacturing centers. Forming silk yarn : Twisting the reeled silk forms silk thread, also called yarn. First the skeins of raw silk are categorized by color, size, and quantity. Ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ought to have been availed on the inputs, the benefit of the Notification will be available only to those, who satisfy two conditions namely that the inputs used by them suffered a duty and that they did not seek CENVAT credit. Since an importer can never satisfy the first condition, the second condition becomes inapplicable to him and he cannot be heard to contend that the inapplicability of the condition by itself would make him eligible for the grant of the benefit. (iv) In cases where the exemption Notification stipulates two conditions, namely that the inputs should have suffered duty and that no CENVAT credit should have been availed, then the benefit of the Notification will be available only if both conditions are satisfied. An importer will never be able to satisfy both these con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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