2005 Supreme(SC) 1281

2006(1) Supreme 332
SUPREME COURT OF INDIA
(From Customs, Excise and Service Tax Appellate Tribunal, New Delhi)
S.N. Variava, Dr. AR. Lakshmanan and S.H. Kapadia, JJ.
Commissioner of Central Excise, New Delhi —Appellant
versus
M/s. Hari Chand Shri Gopal etc. —Respondent
Civil Appeal Nos. 1878-1880 of 2004
Decided on 3-10-2005
Counsel for the Parties :
For the Appellant : A. Subba Rao, Rupesh Kumar and P. Parmeswaran, Advocates.
For the Respondent : Joseph Vallapally, Senior Advocate, Vivek Kohli, Subramonium Prasad and Manoj Gupta, Advocates.

Headnote:Central Excise & Salt Act, 1944—Central Excise Rules, 1944—Chapter X—Central Excise Tariff Act, 1985—Sub-heading 2404.49/2404.40—Exemption Notification No. 121/94-CE—Input relief in respect of goods used for special industrial purposes—Claim of benefit—Assessee-firms were manufacturer of branded chewing tobacco (final product) from ‘additive mixture’ (kimam)—‘Kimam’ was manufactured by units of assessees in Delhi and was stock transferred to assessees’ units in UP and HP—Existence of assessees’ units in Delhi, where kimam was manufactured, was not disclosed to the department—These units were not registered and they were unlicensed units—Assessees claim that there was no intention to evade duty as the said kimam was captively consumed in the manufacture of branded chewing tobacco—Assessees claiming entitlement to input relief under notification No. 121/94-CE dated 11-8-1994—Divergence of views in judgments of the tribunal—Two decisions in the case of Thermax Private Ltd., 1992 (61) ELT 352 and J.K. Synthetics, 2000 (120) ELT 54 needs reconsideration—Matter requires consideration by a larger bench.

       Held : In our view, the law laid down by this court in the aforestated two decisions in the case of Thermax Private Ltd. (supra) and J.K. Synthetics (supra) needs reconsideration for the following reasons. Firstly, we may point out that conceptually there is a difference between “short-payment” that arises from non-levy or any mistake connected with the levy on one hand and the “short-payment” arising from the failure of the buyer/user of the goods to account for them. It is equally well settled that exemption notifications have to be read strictly so far as the eligibility is concerned; that conditions mentioned therein ought not to be ignored and that the notification has to be read on its own terms. (Para 4)

       Under rule 192, the responsibility for the payment of duty on the goods cleared under concession or exemption was transferred from the manufacturing unit to the buying/receiving unit. The person wishing to obtain the remission of duty was required to apply through the proper officer in the form AL-6 and the proper officer had to grant licence to such persons in the form L-6. Under rule 196, if any excisable goods obtained under rule 192 are not duly accounted for, then the duty had to be paid by the applicant i.e. by the person who applies for an AL-6 licence. Therefore, in case of default or misuse, the liability was on the user. Therefore, as stated above, whenever there is failure on the part of the buyer/user to account for the goods received resulting in shot-payment, the liability is foisted on the buyers/users. It is this type of situation which stood covered by rule 192 and rule 196. In cases of contravention of rule 192, the tribunal took the view from 1989 onwards that rule 192 was not mandatory and that sufficient compliance by the recipient/user was good defence in penal action. The question before us is—whether an assessee was entitled to benefit of input relief under exemption notifications in which compliance of rule 192 was incorporated as a condition for obtaining exemption. As indicated above, non accounting of goods received/used in the factory is distinct from short-payment arising from non-levy. However, when chapter X procedure is incorporated in the exemption notification as condition then short-payment on account of non-levy and short-payment on account of the failure of the buyer/user to account gets inter-connected. This aspect has not been considered by this Court in the case of Thermax Private Ltd. (supra) and J.K. Synthetics (supra). The result is divergence of views in the judgments of the tribunal. In the case of National Aluminium Co. Ltd. v. Commissioner of Central Excise, Bhubaneswar reported in 2000 (125) ELT 519 (T), it has been held, following the judgment of this court in Thermax Private Ltd. (supra), that, even if chapter X procedure is not followed, calcined alumina manufactured in assessees’ unit and transferred to another unit for manufacture of aluminium was entitled to exemption under notification No.217/86-CE as the assessee had established intended use of material by other evidence. A diametrically opposite view has been taken in the case of Kirloskar Brothers Ltd. v. Collector of Central Excise, Pune reported in 1997 (94) ELT 176 (T), in which it has been held that the procedure required under chapter X was required to be strictly followed in cases of conditional exemptions as the procedural requirements were essential pre-requisite and no exemption can be sanctioned in the absence of the required compliance of the exemption notification. Consequently, under rule 173B, an assessee was required to file declaration of goods (kimam) produced or manufactured in the factory. Under rule 173G, every assessee was required to keep a current account with the commissioner for each category of excisable goods. Under rule 174, every person manufacturing or using excisable goods was required to obtain registration and he was prohibited from producing, manufacturing, storing or using such goods, without obtaining registration from the jurisdictional competent officer. Accordingly, under rule 192 of chapter X, the applicant seeking remission/concession was required to obtain ‘L-6’ licence as also registration certificate in the prescribed form. This has not been noticed by this court in the case of Thermax Private Ltd. (supra). The point which needs to be emphasized is that when an assessee seeks exemption under a notification, which prescribes compliance of chapter X, there is a linkage between levy of duty on one hand and the accountability of the goods received/used in the factory where final product is manufactured. Therefore, one cannot ignore strict compliance of the aforestated rules while claiming exemption under such notification. This is particularly relevant in cases where input relief is claimed on the basis of the captive consumption. Lastly, Thermax Private Ltd. (supra) and J.K. Synthetics (supra) were cases of the supplier being an importer and that the aforestated two decisions did not deal with cases of the present nature in which the supplier is the manufacturer. (Para 4)