H. M. M. LTD. vs Collector Of Central Excise, New Delhi

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

1996 Supreme(SC) 1690

1997(5) Supreme 451
SUPREME COURT OF INDIA
B.P. Jeevan Reddy and S.C. Sen, JJ.
H.M.M. Limited -Appellant
versus
Collector of Central Excise, New Delhi -Respondent
Civil Appeal No. 4081 of 1986
Decided on 11-10-1996
Counsel for the Parties :
For the Appellant : V. Lakshmi Kumaran, B.B. Sawhney, Mrs. Indra Sawhney, Deepak Dewan, Advocates for M/s. Sawhney & Sawhney Co. Advocates.
For the Respondent : N.K. Bajpai, and Mrs. Sushma Suri, Advocates.

Headnote:(i) Excise Tariff-Central Excise Rules-Rule 8-Notification No. 210 of 1979-CE dated 4.6.1979, issued by Central Government under -Interpretation of-Assessee engaged in manufacture of Horlicks in a factory at Rajahmundry-Entire stock of Horlicks manufactured not cleared/ removed after paying duty at Rajahmundry-Only a portion of production is put in unit containers/ packages and cleared at Rajahmundry after paying duty-Bulk of production sent to appellant s factories situated at different places in India -For manufacturing Horlicks, appellant purchases barley malt, dutiable under Tariff Items 68-Application of exemption notification - Appellant s claim that it is entitled to take credit of entire duty paid on barley malt against duty payable on Horlicks cleared at Rajahmundry-Revenue s case that appellant is entitled to take credit at Rajahmundry only of that portion of duty paid on barley malt as is proportionate to Horlicks cleared on paying duty vis-a-vis total quantity manufactured out of that barley malt-Whether appellant is entitled to succeed ?-(Yes).
       Held; if one reads only the first para of the notification, one may possibly agree with the Revenue but if one reads the entire notification including Rules 9 and 10 of the Appendix, the contention of the appellant commends itself as the only correct understanding. Not only Rule 9, even Rule 10 indicates, as pointed out above, the absence of a correlation between the inputs and the finished goods. The instructions of the Board do explain the background to Notification 201. The change in the language and content of clause (vi) of sub-rule (3) of Rule 56-A in 1973 is equally relevant in this behalf. It explains why the concept of correlation - or the rule of set-off, as it is referred to in the Press-note - was given up and a different method adopted. Clause (9) of appendix to Notification 201, it is significant to note, is in pari materia with clause (vi) of Rule 56-A(3) (as substituted in 1973). The practical difficulties in implementing the method in force prior to the issuance of Notification 201 and the object underlying the said notification (as also the amendment of clause (vi) of Rule 56-A(3) in 1973) also induce us to accept the appellant s contention in preference to the Revenue s contention. (Para 12)
       Further held : By accepting the appellant s contention, the object underlying the enactment is in no way defeated nor is the objective underlying the notification No. 201 of 1979 defeated. The object underlying the notification is to prevent the cascading effect of duties if levied both on inputs and the finish goods. With a view to make the goods available at comparatively reasonable prices to the consumer, the duty paid on the inputs is deducted out of the duty payable on the finished goods. Acceptance of the appellant s contention effectuates the said object whereas acceptance of the Revenue s contention would tend to defeat the aforesaid objective in a case like the present one. It is true that the notification provides for an exemption and has to be strictly construed but it is equally well-settled that the exemption notifications, like any other statutory provision, has to be construed reasonably having due regard to the language employed. It may also be noticed that both Rule 56-A and notification No. 201 of 1979 are actuated with similar considerations and provide for broadly similar concessions. Indeed, that is how the Board has understood these two provisions. (Para 13)
       (ii) Statute Interpretation -Excise Tariff-Exemption notifications-To be strictly construed-However, exemption notifications, like any other statutory provision, has to be construed reasonably having due regard to language employed. (Para 13)

JUDGMENT

B.P. Jeevan Reddy, J.-This appeal preferred against the judgment of the Cegat involves the interpretation of Notification No. 210 of 1979-CE dated 4.6.1979, issued by the Central Government under Rule 8 of the Central Excise Rules.

2. The appellant-assessee is engaged in the manufacture, inter alia, of "Horlicks" falling under Tariff Item 1-B of the Schedule to the Central Excises and Salt Act. It has a factory at Rajahmundry (Bommur) for manufacturing "Horlicks". The entire stock of Horlicks manufactured at Rajahmundry is, however, not cleared/removed after paying the duty at Rajahmundry, Only a portion of the production is put in unit containers/packages and cleared at Rajahmundry after paying the duty while the bulk of the production is sent to the appellant s factories situated at different places in India in bulk containers. There, the Horlicks is put in unit containers/packages and cleared after paying the duty.

3. For the purpose of manufacturing Horlicks, the appellant purchases barley malt which was dutiable under Tariff Items 68.

4. On June 4, 1979, the Central Government issued the aforesaid notification (No. 201 of 1979) exempting "all excisable goods ...... on which the duty of excise is leviable and in the manufacture of which any goods falling under Item No. 68 of the First Schedule to the Central Excises and Salt Act, 1944 have been used, as raw materials or component parts (hereinafter referred as "the inputs") from so much of the duty of excise leviable thereon as is equivalent to the duty of excise already paid on the inputs." Controversy has arisen with respect to the application of the said notification and it is this : the appellant says that it is entitled to take credit of the entire duty paid on barley malt against the duty payable on the Horlicks cleared at Rajahmundry, notwithstanding the fact that the entire quantity of Horlicks manufactured out of the said barley malt is not cleared/removed at Rajahmundry by paying the duty. On the other hand, the Revenue says that the appellant is entitled to take credit at Rajahmundry only of that portion of duty paid on inputs (barley malt) as is proportionate to the Horlicks cleared on paying the duty vis-a-vis the total quantity of Horlicks manufactured out of the said barley malt. The Revenue further says that there is no provision and the appellant is not entitled to transfer the credit to its other factories from where the goods are cleared on payment of duty. The controversy between the parties can be best understood by taking an illustration (unrelated to the actual facts of the case) : the manufacturer respondent) purchases 100 tons of barley malt on which the duty paid is Rs. 10,000/-. By using the said 100 tons of barley malt, the respondent manufactures one thousand tons of Horlicks. Out of this one thousand tons, it clears 250 tons of Horlicks from the Rajahmundry factory on paying duty. The remaining 750 tons is sent to the factory situated at Bangalore without paying duty under a bond. The 750 tons is put in unit containers and packages at the Bangalore factory and cleared from there on payment of excise duty. According to the appellant, he is entitled to take credit for the entire duty of Rs. 10,000/- (paid on 100 tons of barley malt) from out of the duty payable on 250 tons of Horlicks cleared from Rajahmundry factory, whereas according to the Revenue, since the quantity cleared at Rajahmundry on payment of duty is only 1/4th of the total quantity manufactured using 100 tons of barley malt, the appellant is entitled to take credit of only Rs. 2,500/- against the duty payable at Rajahmundry. Revenue also says that the respondent is not entitled to take credit of balance of Rs. 7,500/- (duty paid on 75 tons of barley malt) from out of the duty paid on 750 tons at Bangalore. The question is who is right?

5. Notification No. 201 of 1979, insofar as it is relevant, reads :

"In exercise of the powers conferred by sub-rule (1) of rule 8 of the Centra

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