IMPORTANT POINT
Compliance of provisions of Chapter X is a pre-condition for claiming exemption from payment of excise duty on goods, which otherwise attracted duty.

JUDGMENT

K. S. Panicker Radhakrishnan, J.

1. The question that falls for consideration in these appeals is whether a manufacturer of a specified final product falling under the schedule of the Central Excise Tariff Act, 1985 (in short “the Tariff Act”) is eligible to get the benefit of exemption from remission of excise duty on specified intermediate goods as per Notification no. 121/94-CE dated 11.8.1994, if captively consumed for the manufacture of final products on the ground that the records kept by it at the recipient end would indicate its “intended use” and “substantial compliance” of the procedure set out in Chapter X of the Central Excise Rules, 1944 (in short ‘the Excise Rules”).

2. The above question was decided by the Customs, Excise and Service Tax Appellate Tribunal (in short ‘the Tribunal”) in favour of the respondents-assessees, relying upon the judgments of this Court in Thermax Private Ltd. v. Collector of Customs (Bombay) New Custom House,1 (1992) 4 SCC 440 and Collector of Central Excise, Jaipur v. J.K. Synthetics,2 (2000) 10 SCC 393 on the ground of “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 reference is reported in The Commissioner of Central Excise, New Delhi v. Hari Chand Shri Gopal etc.3 (2005) 8 SCC 164.

3. We may first refer to the facts in Civil Appeal Nos. 1878-1880 of 2004, which is taken as the leading case.

FACTS:

4. The respondents herein M/s Gopal Industries, M/s Hari Chand Shri Gopal and M/s Gopal Zarda Udyog were engaged in the manufacture of excisable goods viz. preparation containing chewing tobacco falling under Chapter Heading no. 2404.40 of the Tariff Act, then chargeable to nil rate of duty, which was made leviable to central excise duty with effect from 1.3.1994. The Intelligence Wing of the Department came to know that the respondents had been manufacturing the said goods without applying/obtaining the certificate of registration as required under Rule 174 of the Excise Rules and had been removing the same clandestinely from their factories without payment of central excise duty leviable thereon and without following any of the prescribed procedures. It was noticed that a major portion of the above goods manufactured was consigned to M/s Gopal Zarda Udyog (Meerut), M/s Hari Chand Shri Gopal, Baddi District, Solan (H.P.) and M/s Gopal Industries, Baddi (H.P.) under the cover of ‘transfer challans’ describing therein the said goods as “ADDICTIVE MIXTURES” or “KIMAM/K”. On 28.9.1996, the factories of the respondents at Delhi were inspected by the Central Excise (Preventive) Officer of MOD IV, Delhi and took the samples of the finished products and detailed statements were also recorded from the partners of the firms. The Central Excise Officers also visited the various factories of the respondents at Solan and Baddi on 3.10.1996 and it was noticed that the add