Customs, Excise and Gold Tribunal - Delhi
Indian Petrochemicals Ltd. vs Collector Of Central Excise on 6 January, 1992
Equivalent citations: 1992(61)ELT138(TRI-DEL)
ORDER S.L. Peeran, Member (J)
1. The appellants are aggrieved with the order-in-original No. 18/MP/91 dt. 18-3-1991 passed by the Collector of Central Excise and Customs, Vadodara confirming the demands raised in the show cause notice dt. 4-10-1990 and has demanded duty amounting to Rs. 3,02,67,299.90 (Three crores, two lakhs sixty seven thousand two hundred ninety nine and paise ninety only) Basic Excise duty Rs. 2,88,25,800.47 + Special Excise duty - Rs. 14,41,491.43) in respect of alleged illicit removal of Acrylic Fibre during the period October, 1989 to August, 1990 under the provisions of Rule 9(2) of Central Excise Rules, 1944 read with proviso to sub-section (1) of Section- 11A of Central Excises and Salt Act,1944.
(ii) imposed a penalty of Rs. 1 crore under Rule 209 of Central Excise Rules, 1944.
(iii) Ordered confiscation of land, building, plant and machinery etc. belonging to them and used in the manufacture, production, storage and removals of Acrylic Fibre under the provisions of clause (a) to sub-rule (2) of Rule 209 of Central Excise Rules, 1944. However, granted redemption of the same by imposing a fine of Rs. 1 lakh.
2. The appellants are engaged in the manufacture of "Acrylo nitrile" falling under heading/sub-heading 2926.00. They are also manufacturing "Acrylic fibre" falling under head/sub-heading 5501.30. They are consuming the "Acrylo nitrile" within the factory of production for manufacture of "Acrylic fibre" and were availing set off of duty on said "Acrylo nitrile" under Notification No. 225/86-C.E., dated 3-4-1986 at the time of clearance of "Acrylic fibre"
3. The allegations set out in the Show Cause Notice dated 4-10-1990 are that on the basis of the information received to the effect that the appellant/assessee had been debiting the entire amount of duty from RG 23A Part-II account on the clearance of "Acrylic Fibre" and that they have not been discharging their duty liability as per the ratio declared by them and approved by the proper officer of the said clearance and thereby evading huge amount of payment of proportionate duty from PLA.
4. The officers of the Department visited the factory and carried on checks and verifications on 27-9-1990. The officers have found that the assessee had been availing set off of duty in respect of "Acrylo nitrile" used in the manufacture of "Acrylic fibre" since August, 1989, as provided in the Notification No. 225/86-C.E., dated 3-4-1986 as amended. It was further observed that the assessee had filed declaration on 20-7-1989 giving ratio of input to output i.e. the quantity of input required for the manufacture unit of output (finishedproduct) and other detailed viz. quantity of input lost during the manufacture of one unit of output, and not quantity used in one unit of output. It was further observed that for the period from Oct., 1989 to Aug., 1990 the assessee had debited the entire amount of duty from RG 23A Part-II account only and not as per the ratio declared by them and approved by the proper office. The statement of Shri S.S. Bhatnagar, Deputy Manager (Excise and Customs) in the assessee company was recorded. In his statement among other things, he has stated the assessee had started availing set off of duty on "Acrylo nitrile" used in the manufacture of "Acrylic fibre" since August, 1989. He admitted not having maintained set off register but submitted that they had maintained RG-23A Part I and RG 23A Part-II account register. He has further stated that they had debited duty on the clearances of "Acrylic fibre"/"Dry skin Acrylic fibre" from RG-23A Part-II account only except additional Excise duty under Textile and Textile Articles Act. On a query from the officers to explain as to why they had not followed the approved procedure, Shri Bhatnagar had explained that a huge amounts of set off had accumulated during the period from Aug., 1989 to Oct., 1989 on account of payments through PLA and therefore the eligible amounts of set off out of available amounts of set off have been utilised subsequently. The details of input and output observed from the declaration filed on 20-7-1989 for availing set off under Notification No. 225/86-C.E., dated 3-4-1986 as amended is as follows :-
(l) A.F. Plant Input Output
903.0 Kg. of Acrylonitrile, One MT of Acrylic Fibre
(2)DSAF Plant 915.0 Kg. of Acrylonitrile One MT of Acrylic Fibre
It has been contended in the Show Cause Notice, that as per the set off of procedure laid down vide Baroda Collectorate's Trade Notice No. 126/81, dated 22-5-1981 the assessee was required to maintain Register of set off of duty and is also required to make adjustment of duty paid on inputs used in the manufacture of finished goods at the time of removal of finished goods on the basis of the above ratio. It is further alleged that on scrutiny of the records maintained by the assessee in this behalf, the officers found that the assessee had not adopted the correct set off procedures as prescribed for the set off available under Notification No. 225/86-CE, dated 3-4-1986 issued vide Rule 8(1) of Central Excise Rules, 1944 and had not paid duty as per the above ratio from RG 23A Part II account and from PLA. It has been alleged that the assessee has not followed the procedure intentionally to evade appropriate duty of excise by not debiting from PLA on the clearances of 'Acrylic Fibre'. The officers worked out the details of duty paid in RG 23A Part II account by the assessee, the set off of duty payable in RG 23A Part II account and differential duty required to be paid for the period Oct., 1989 to Aug., 1990. Accordingly, a duty demand on difference of duty amounting to Rs. 3,02,67,299.90 on the clearances of "Acrylic fibres" for the period from Oct., 1989 to Aug., 1990 has been demanded from the assessee and also have been charged for contravention of provisions of Rule 173F read with Rule 9(1) of Central Excise Rules, 1944. The assessee were asked to explain why said demanded duty should not be recovered under Rule 9(2) of Central Excise Rules, 1944 read with proviso to sub-section (1) of Section 11A of Central Excises and Salt Act, 1944. They were also asked to explain why the land, building, plant and machinery etc. belonging to them should not be confiscated in the light of the provisions of clause (a) to sub-rule (2) of Rule 209 of Central Excise Rules, 1944 and also penalty be not imposed under sub-rule (1) of Rule 209 of Central Excise Rules, 1944.
5. The assessee filed the reply on 25-10-1990 denying the allegations of evasion of payment of duty besides the allegation of clandestine removal or wilful mis-statement or suppression. It was contended inter alia that effective from 1-8-1985 vide Notification No. 169/85-C.E., dated 19-7-1985 the goods falling under TI 18 of Central Excise Tariff (under which Acrylic Fibre was formerly classified) had been put under physical control and it continued to be so even after the introduction of CETA, 1985 in terms of Entry at Item (d) of the table to Notification No. 23/86-C.E., dated 10-2-1986. It was contended that the provisions of Chapter VILA of Central Excise Rules, 1944 had not been applicable to Acrylic Fibre since 1-8-1985 and that it attracted the provisions of Chapter V of the Central Excise Rules, 1944 i.e. physical type of control.
6. It was contended that all the activities of production, storage and removals of the product Acrylic Fibre takes place under the supervision of the Central Excise officers and all the documents relating to production, storage and removals including the ones like AR Is, GPls etc. were prepared/processed under the supervision of and under the guidance of the Central Excise officers and the records bear their signatures as testimony of correctness thereof.
7. It was further stated that all the monthly reports and returns like RT3 were always submitted by them in the form and manner desired/directed by the Central Excise officers exercising physical type of control on the respective commodities.
8. They contended that they had detailed discussions with the jurisdictional Assistant Collector as well as the Superintendent of Central Excise with regard to the formalities and procedures and they applied for permission to avail set off of duties on ACN for use in the manufacture of Acrylic fibres as per their letter dated 20-7-1989. The jurisdictional Assistant Collector had permitted them to avail set off of duties by his letter dated 28-7-1989. They contended that the removal and use of ACN for Acrylic fibre is within the knowledge of the Department. It is contended that from 1-8-1989, they started removing A.C.N. to their Acrylic fibre plants on full payment of duties at the normal effective rates for captive consumption on the basis of the permission granted and an intimation to that effect was also submitted to the jurisdictional Superintendent/Assistant Collector vide their letter dated 1-8-1989. They have further stated inter alia as follows :-
(i) It was declared that they required 960 Kgs. of ACN to produce 1 MT of Acrylic fibre and not 903 Kgs. as indicated in respect of AF plant. It is stated that they require 1156 Kgs. of ACN to produce 1 MT of DSAF and not 915 kgs. as indicated in respect of DSAF plant as alleged in Show Cause Notice.
(ii) Notification No. 225/86, dated 3-4-1986 does not indicate any ratio for input and output. Its only requirement is that ACN should be used in the manufacture of Acrylic Fibre.
(iii) They contended that entire quantities of ACN removed on full payment of duty to the Acrylic Fibre plant (AF/DSAF) had been used by them in the manufacture of Acrylic Fibres and nothing else. There was no allegation that they had put to different use the quantities of ACN.
(iv) They have contended that they have finalised the procedure after discussions with Superintendent and Asstt. Collector and they had at no point of time indicated or drawn their attention to the Trade Notice No. 126/81, dated 22-5-1981 nor a copy given to them. They have further contended that the Trade Notice is dated 22-5-1981 and that till Aug., 1987 no other Trade Notice has been issued by Vadodara Collectorate for the purpose of Notification No. 225/86, dated 3-4-1986.
(v) They contended that they were asked to maintain record in Form RG 23 which bears authentication before use and at no stage they had been guided or informed of the requirements of maintenance of 'set off register.
(vi) They filed a statement showing entitlements and utilisation of the credits evidencing that there had neither been any overdrawal nor any unauthorised utilisation of the credits. Thus, on the basis of these replies, they sought for the dropping of the charges made out in the Show Cause Notice.
9. The assessee through their advocate again filed another reply dated 30-1-1991 and this reply besides the submissions stated above, they have also relied on several rulings of the Supreme Court and High Courts in support of their contentions.
10. The learned Collector after careful consideration of the submissions made by the assessee and after fully hearing them, rejected their contentions and confirmed the demands made in the Show Cause Notice and also imposed fine and penalty against them.
11. The learned Collector has held that the wording of the Notification are very clear that manufacturer is eligible to avail only that much quantum of duty as set off; what is paid on inputs and taken as credit when output manufactured is cleared. He has held that the assessee had utilised the entire balance of duty lying in RG 23 as set off and therefore, he held that the assessee has not correctly availed the set off of duty for the purpose of Notification No. 225/86. He has also held that the assessee had failed to follow correct procedure as stipulated in the Baroda Collectorate Trade Notice No. 126/81, dated 22-5-1981 for maintenance of records, submission of returns etc., in as much as the assessee were required to maintain 'set off register but they had not maintained the same and availed the set off duty at their own way which is not permissible.
12. He has negatived the assessee's contention that the Asstt. Collector had approved the procedure followed by them and has noted the Asstt. Collector's letter by which the said Asstt. Collector had granted approval, subject to the assessee fulfilling the conditions stipulated in the Notification.
13. He has further held that what the assessee has availed in the name of set off is nothing but a credit of duty and therefore, to this extent, according to learned Collector, the assessee could be said to have committed mis-statement to the Department and hence liable for penal action under Rule 209(1) of Central Excise Rules, 1944 for suppression of facts and mis-statement. He has held that violation of the provisions of-Notification is nothing but a 'fraud' and the intent is obvious to evade payment of duty. He has held that "The whole thing is undoubtedly a fraud, a calculated fraud. Such behaviour calls for stern penal action. The connivance of departmental officers is not necessary. It can even be possible that one set of officers of the Department were not even alert to see through the design of IPCh. Yet fraud is a fraud. Well, if departmental officers colluded, then collusion would have also been an allegation. That is not the case before me."
14. Therefore, the learned Collector on the basis of his findings held the charges as proved and held the assessee to have contravened the provisions of Rule 173F read with Rule 9(1) of Central Excise Rules, 1944 and committed the offence described in clause (a) and (d) of sub-rule (1) of Rule 209 of Centra! Excise Rules, 1944 and for penal action under sub-rule (1) of Rule 209 of Central Excise Rules, 1944.
15. We have heard Shri Willingdon Christian, learned advocate for the appellants and Shri L.N. Murthy, learned JDR for the Department.
16. Shri Willingdon Christian, learned advocate submitted that the appellant had been following the procedure for the last eleven years which was within the full knowledge of the Department. The said procedure had not been disapproved or challenged by the Department. He submitted that the procedure followed by them was as per the clarification given by the Board's Circular dated 1-4-1981. He contended that proper utilisation of credit had been done. He submitted that the Notification in question was pan materia with the Notification No. 201/79 and, therefore, the rulings rendered approving such procedure was fully applicable to the facts of the instant case. In this connection, he relied on the ruling rendered in the case of Good Year India Ltd. v. Union of India as reported in 1990 (28) ECC 22 Delhi. He contended that the Notification in question required to be liberally interpreted and in this connection relied on the ruling rendered by Hon'ble Supreme Court in the case of Union of India v. Wood Paper Ltd. as reported in 1990 (47) E.L.T. 500 (S.C.). On contemporaneous exposition of similar Notification, he relied on the following ratios :-
C.C.E. v. Andra Sugars Ltd. reported in 1989 (19) ECC 46 and State of Tamil Nadu v. Mahi Traders, reported in 1989 (40) E.L.T. 266 S.C. at page 270.
17. He contended that when two views were possible from reading of a Notification, then the benefit of the Notification has to go in favour of the assessee and relied on the ruling in the case of C.C.E. v. Park Exports Ltd., reported in 1989 (19) ECC 49. He further contended that if credit is available on utilisation of inputs then the benefit of set off has to be extended otherwise it would defeat the purpose of the legislation. In this regard, he relied on the ruling rendered in the case of Vatanmal v. Kailash Nath as reported in 1989 (22) ECR 488 SC. He contended that there is no financial loss to the revenue in the matter.
18. Shri W. Christian learned advocate arguing on the question of time bar, contended that at the material time, the factory of the assessee was under physical control with 8 inspectors, 4 sepoys and one Superintendent attached to the factory for inspection and excise control. He contended that the assessee had made the application for grant of permission and the same was approved by the jurisdictional Asstt. Collector. He contended that each entry in set off register had been verified and signed by the various gate passes during the material time. He further contended that the learned Collector had held the assessee had committed fraud but this allegation was not made out in the Show Cause Notice and therefore, the learned Collector had proceeded beyond the case made out by the Department. He placed for perusal a calculation sheet, by which, he argued that the details of set off could be verified and hence the assessee had not violated any provisions of law. He relied on the ruling of the Hon'ble Supreme Court as rendered in the case of Collector of Central Excise v. Chemphar Drugs and Liniments as reported in 1989 (43) E.L.T. 276 and that of Padmini Products v. Collector of Central Excise as reported in 1989 (43) E.L.T. 195 and submitted that the Department had not made out their case both on law and on time bar and hence prayed for setting aside the impugned Order of the learned Collector.
19. Shri L.N. Murthy, learned JDR replying to the arguments of the appellants contended that the impugned Order was a well reasoned one and that it did not suffer from any illegality and is sustainable. He contended that the assessee was not entitled to avail of the benefit of set off in their own name and the violation of the procedure laid down in the Notification in question and in the Trade Notice issued by Baroda Collec-torate. He sought for upholding the Order of the learned Collector.
20. We have carefully considered the submissions made by both the sides and perused the records. The question that arises for our consideration is as to (i) whether the assessee has violated the procedure as laid down in the Notification No. 225/86-C.E, dated 3-4-1986 and thereby disentitling the benefit of set off utilised by them and thereby becoming liable to pay the duty and for imposition of penalty on them as per the relevant cited rules of Central Excise Rules, 1944; and (ii) if so, is the demand confirmed is barred by time?
The relevant rules granting the manufacturer the benefit of set off is Rule 56A and also Rule 57F of Central Excise Rules, 1944. The Notification No. 225/86-C.E, dated 3-4-1986 grants the benefit of exemption to the excisable goods of description specified in column (5) of the Table thereto annexed (such goods are referred to as "Final Product") and falling under such chapter, heading number or sub-heading number of the Schedule to the Central Excise Tariff Act, 1985 as is specified in the corresponding entry in column (4) of the Table, from so much of duty of excise leviable thereon under Central Excises and Salt Act, 1944 as is equivalent to the duty of excise leviable thereon under the Central Excises and Salt Act, 1944 or the additional duty leviable under the Customs Act, 1975 as the case may be already paid on the goods of the description specified in the corresponding entry in column (3) of the said Table (such goods are referred to as 'inputs') used in or in relation to the manufacture of the final products."
21. In the instant case there is no dispute regarding the 'input' acrylonitrite (ACN) being used in the manufacture of final goods "Acrylic Fibre'. The input and final product are falling in the specified chapter, heading and sub-heading in the Notification. The only doubt the learned Collector has is in regard to the term 'as is equivalent to the duty of excise leviable thereon' as appearing in the Notification. From the reading of the Notification the learned Collector has found that the procedure adopted by the asses-see is not as what is contemplated from these wordings and the Trade Notice No. 126/81, dated 22-5-1981 issued by Baroda Collectorate. The allegation in the Show Cause Notice is that as per set off procedure laid down in the said Trade Notice the assessee is required to maintain register of set off of duty and is also required to make adjustment of duty paid on inputs issued in the manufacture of finished goods at the time of removal of finished goods on the basis of ratio given in the declaration filed by the assessee. The ratio is:-
(i)AF Plant Input Output 903.0 Kg. of ACN One MT of Acrylic Fibre
(ii) DSAF Plant 915.0 Kg. of ACN One MT of Acrylic Fibre It is alleged that on scrutiny the officers have found that the assessee has not adopted the procedure for set off available under Notification No. 225/86-C.E, dated 3-4-1986 and has not paid duty as per the above ratio from RG 23 Part-II account and from PLA.
22. The assessee has prepared the total duty paid on the input and the same is adjusted as and when the output Acrylic fibre is manufactured and removed for clearances. They have maintained all the registers and the same has been scrutinised, checked and found in order by the excise staff posted in the assessee's factory and who were exercising physical control of the clearances of the assessee's goods.
23. The simple question for determination is as to whether this procedure alleged to be required to be followed by the Department in the Show Cause Notice is mandatory and if that procedure is violated does it call for disentitlement of set off taken by the assessee? Is there any fraud, a calculated fraud in violating the procedure as held by the learned Collector to attract larger period of limitation to confirm the duty?
24. Before embarking on this aspect of the matter, it is necessary to have a look at the interpretation given by the Hon'ble Supreme Court and High Courts and the Tribunal in the citations relied by the learned advocate on this aspect of the matter.
25. We will first examine the rulings pertaining to contemporaneous exposition which the learned Counsel has relied upon. In the case of State of Tamil Nadu v. Modi Papers as reported in 1989 (40) E.L.T. 266. The Hon'ble Supreme Court has observed relying on the earlier ruling rendered in the case of Deshbandhu Gupta and Ors. v. Delhi Stock Exchange reported in 1979 (4) SCC 565 and Verghese v. I.T.O. in 1981 13 ITR 597; that contemporaneous exposition by the Administrative authorities is a very useful and relevant guide to the interpretation of the expression used in a statute.
26. Similarly, the Supreme Court in the case of C.C.E., Guntur v. Andhra Sugars Ltd. as reported in 1989 (19) ECC 46 has observed as follows :-
"...5. It appears that the same principle was reiterated in the case of Shasum Chemicals (Madras) Pvt. Ltd., 1982 (10) E.L.T. 786. It is well settled that the meaning ascribed by the authority issuing the notification, is a good guide of a contemporaneous exposition of the position of law. Reference may be made to the observations of this Court in K.P. Vqrghese v. The Income Tax Officer, Ernakulam, 1982 (1) SCR 629. It is a well settled principle of interpretation that Courts in construing a statute will give much weight to the interpretation put upon it at the time of its enactment and since, by those whose duty has been to construe, execute and apply the same enactment."
27. The Supreme Court in the case of Union of India v. Wood Papers Ltd. as reported in 1990 (47) E.L.T. 500 has laid down certain guidelines for interpretation of statute and also interpreting an exemption notification by relying on the several rulings rendered by the Supreme Court. The observations made in para 2 as follows :-
"...Entitlement of exemption depends on construction of the expression "any factory commencing production" used in the Table extracted above. Literally exemption is freedom from liability, tax or duty. Fiscally it may assume varying shapes, specially, in a growing economy. For instance tax holiday to new units, concessional rate of tax to goods or persons for limited period or with the specific objective etc. That is why its construction, unlike charging provision, has to be tested on different touchstone. In fact an exemption provision is like an exception and on normal principle of construction or interpretation of statutes it is construed strictly either because of legislative intention or on economic justification of inequitable burden or progessive approach of fiscal provisions intended to augment state revenue. But once exception or exemption becomes applicable no rule or principle requires it to be construed strictly. Truly speaking, liberal and strict construction of an exemption provision are to be invoked at different stages of interpreting. When the question is whether a subject falls in the notification or in the exemption clause then it being in nature of exception is to be construed strictly and against the subject but once ambiguity or doubt about applicability is lifted and the subject falls in the notification then full play should be given to if and it calls for a wider and liberal construction. Therefore, the first exercise that has to be undertaken is if the production of packing and wrapping material in the factory as it existed prior to 1964 is covered in the notification."
28. The Hon'ble Supreme Court again has clarified about interpreting an expression in the Schedule and in an exemption Notification in the case of Collector of Central Excise v. Parle Export (P) Ltd. as reported in (1989) 19 E.C.C. page 49 at paras 17,18,19 and 20. The said paras are reproduced herein below :-
"17. How then should the Courts proceed ? The expression in the Schedule and in the notification for exemption should be understood by the language employed therein bearing in mind the context in which the expressions occur. The words used in the provision, imposing taxes or granting exemption should be understood " in the same way in which these are understood in ordinary parlance in the area in which the law is in force or by the people who ordinarily deal with them. It is, however, necessary to bear in mind certain principles. The notification in this case was issued under Rule 8 of the Central Excise Rules and should be read along with the Act. The notification must be read as a whole in the context of the other relevant provisions. When a notification is issued in accordance with power conferred by the statute, it has statutory force and validity and, therefore, the exemption under the notification is, as if it were contained in the Act itself. See in this connection the observations of this Court in Orient Weaving Mills (P) Ltd. v. The Union of India 1962 Supp. 3 SCR 481. See also Kailash Nalh v. State of UP. AIR 1957 S.C. 790. The principle is well settled that when two views of a notification are possible, it should be construed in favour of the subject as notification is part of a fiscal enactment. But in this connection it is well to remember the observations of the Judicial Committee in Coroline M. Armytage and Ors. v. Frederick Wilkinson 1878 (3) AC 355 at 370 that it is only, however, in the event of there being a real difficulty in ascertaining the meaning of a particular enactment that the question of strictness or of liberality of construction arises. The Judicial Committee reiterated in the said decision at page 369 of the report that in a taxing Act provisions establishing an exception to the general rule of taxation arc to be construed strictly against those who invoke its benefit. While interpreting an exemption clause, liberal interpretation should be imparted to the language thereof, provided no violence is done to the language employed. It must, however, be borne in mind that absurd results of construction should be avoided.
18. In Hindustan Aluminium Coloration Ltd. v. State of Uttar Pradesh and Anr. 1982 (1) SCR 129 this Court emphasised that the notification should not only be confined to its grammatical or ordinary parlance but it should also be construed in the light of the context . This Court reiterated that the expression should be construed in a manner in which similar expressions have been employed by those who framed relevant notification. The Court emphasised the need to derive the intent from a contextual scheme. In this case, therefore, it is necessary to endeavour to find out the true intent of the expressions "food production and food preparations" having regard to the object and the purpose for which the exemption is granted bearing in mind the context and also taking note of the literal or common parlance meaning by those who deal with those goods, of course bearing in mind, that in case of doubt only it should be resolved in favour of the asses-see or the dealer avoiding, however, an absurd meaning. Bearing the aforesaid principles in mind, in our opinion, the revenue is right that the non-alcoholic beverage bases in India cannot be treated of understood as new "nutritive material absorbed or taken into the body of an organism which serves for the purpose of growth, work or repair and for the maintenance of the vital process" and an average Indian will not treat non-alcoholic beverage bases as food products or food preparations in that light.
19. We have also noted how these goods were treated by the Government as mentioned hereinbefore. There is no direct evidence as such as to how in commercial parlance unlike in ordinary parlance non-alcoholic beverage bases are treated or whether they are treated as food products or food preparations. The purpose of exemption is to encourage food production and also give boost to the production of goods in common use and need. After all the purpose of exemption is to help production of food and food preparations at cheaper price and also help production of items which are in common use and need like electric light and power.
20. The question of interpretation involves determining the meaning of a text contained in one or more documents. Judges are often criticised for being tied too closely to the statutory words and for failing to give effect to the intention of the Parliament or the law-maker. Such language, it has been said, in Cross's "Statutory Interpretation" (Second Edn.) at page 21, appears to suggest that there are two units of enquiry in statutory interpretation - the statutory text and the intention of the Parliament - and the Judge must seek to harmonise the two. This, however, is not correct. According to the tradition of our law, primacy is to be given to the text in which the intention of the law-giver has been expressed. Cross refers to Blackstone's observations that the fairest and most rational method to interpret the will of the law-maker is by exploring his intentions at the time when the law was made, by signs the most natural and probable. And these signs are either the words, the context, the subject matter, the effects and consequence, or the spirit and reason of the law. We have no doubt, in our opinion, but having regard to the language used it would not be in consonance with the spirit and the reason of law to give exemption for non-alcoholic beverage bases under the notification in question. Bearing the aforesaid purpose, in our opinion, it cannot be contended that expensive items like Gold Spot base, Limca base or Thums Up base were intended to be given exemption at the cost of public exchequer."
29. In the case of Vatan Mal v. Kailash Nath as reported in 1989 (22) ECR 488 in para 12 at page 494, it is observed as follows :-
"12. The view taken in B.P. Khemka (supra) would have relevance in this case also because though the amending Ordinance came to be promulgated on 29-9-1975, the appellant came to know of the filing of the suit only long after when notice was served on him to appear in Court on 10-2-1976. Therefore, the question of filing an application under Section 13A would arise only when the appellant came to know of the filing of the suit and its pendency. In construing the terms of Section 13A, the Court has to bear in mind the object underlying the introduction of the Section by the Legislature. It is a settled principle that the interpretation of the provisions of a statute should conform to the legislative intent as far as possible and the Courts should not take a narrow or restricted view which will defeat the purpose of the Act. So viewed the first question has to be answered in favour of the appellant."
In the case of Mangalore Chemicals & Fertilizers Ltd. v. Deputy Commissioner as reported in 1991 (55) E.L.T. 437 the Hon'ble Supreme Court again considered the question of procedural condition of a technical nature and a substantive condition and held that non-observance of the former is condonable, while that of the latter is not condonable, as observed in paras 11 and 12 which is re-produced below :-
"11. We have given our careful consideration to these submissions. We are afraid the stand of the Revenue suffers from certain basic fallacies, besides being wholly technical. In Kedarnath 's case, the question for consideration was whether the requirement of the declaration under the proviso to Section 5(2) (a) (ii) of the Bengal Finance (Sales-tax) Act, 1941, could be established by evidence aliunde. The Court said that the intention of the legislature was to grant exemption only upon the satisfaction of the substantive condition of the provision and the condition in the proviso was held to be of substance embodying considerations of policy. Shri Narasimhamurthy would say the position in the present case was no different. He says that the notification of 11th August, 1975 was statutory in character and the condition as to 'prior-permission' for adjustment stipulated therein must also be held to be statutory. Such a condition must, says Counsel, be equated with the requirement of production of the declaration form in Kedarnath's case and thus understood the same consequences should ensure for the non-compliance. Shri Narasimhamurthy says that there was no way out of this situation and no adjustment was permissible, whatever be the other remedies of the-appellant. There is a fallacy in the emphasis of this argument. The consequence which Shri Narasimhamurthy suggests should flow from the non-compliance would, indeed, be the result if the condition was a substantive one and one fundamental to the policy underlying the exemption. Its stringency and mandatory nature must be justified by the purpose intended to be served. The mere fact that it is statutory does not matter one way or the other. There are conditions and conditions. Some may be substantive, mandatory and based on considerations of policy and some others may merely belong to the area of procedure. It will be erroneous to attach equal importance to the non-observance of all conditions irrespective of the purposes they were intended to serve.
In Kedarnath's case itself this Court pointed out that the stringency of the provisions and the mandatory character imparted to them were matters of important policy. The Court observed :
"...The object to S. 5(2)(a)(ii) of the Act and the rules made thereunder is self-evident while they are obviously intended to give exemption to a dealer in respect of sales to registered dealers of specified classes of goods, it seeks also to prevent fraud and collusion in an attempt to evade tax. In the nature of things, in view of innumberable transactions that may be entered into between dealers, it will wellnigh be impossible for the taxing authorities to ascertain in each case whether a dealer has sold the specified goods to another for the purposes mentioned in the section. Therefore, presumably to achieve the two fold object, namely prevention of fraud and facilitating administrative efficiency, the exemption given is made subject to a condition that the person claiming the exemption shall furnish a declaration form in the manner prescribed under the section. The liberal construction suggested will facilitate the commission of fraud and introduce administrative inconveniences, both of which the provisions of the said clause seek to avoid."
[Emphasis Supplied] [See : (1965) 3 SCR 626 at 630] Such is not the scope or intendment of the provisions concerned here. The main exemption is Under the 1969 notification. The subsequent notification which contains condition of prior-permission clearly envisages a procedure to give effect to the exemption. A distinction between the provisions of statute which are of substantive character and were built-in with certain specific objectives of policy on the one hand and those which are merely procedural and technical in their nature on the other must be kept clearly distinguished. What we have here is a pure technicality. Clause 3 of the notification leaves no discretion to the Deputy Commissioner to refuse the permission if the conditions are satisfied. The words are that he "will grant". There is no dispute that appellant had satisfied these conditions. Yet the permission as withheld - not for any valid and substantial reason but owing to certain extraneous things concerning some interdepartmental issues. Appellant had nothing to do with those issues. Appellant is now told "we are sorry. We should have given you the permission. But now that the period is over, nothing can be done". The answer to this is in the words of Lord Denning: "Now I know that a public authority cannot be estopped from doing its public duty, but I do think it can be estopped from relying on a techincality and this is technicality." [See Wells v. Minister of Housing and Local Government: 1967 (1) WLR 1000 at 1007].
Francis Bennion in his "Statutory Interpretation", 1984 edition, says at page 683:
Unnecessary technicality : Modern Courts seek to cut down technicalities attendant upon a statutory procedure where these cannot be shown to be necessary to the fulfilment of the purposes of the legislation.
12. Shri Narasimhamurthy again relied on certain observations in Collector of Central Excise, Bombay-I and Anr. v. Parle Exports (P) Ltd. [1989 (1) SCC 345] in support of strict construction of a provision concerning exemptions. There is support of judicial opinion to the view that exemptions from taxation have a tendency to increase the burden on the other un-exempted class of tax-payers and should be construed against the subject in case of ambiguity. It is an equally well-known principle that a person who claims an exemption has to establish his case. Indeed, in the very case of M/s. Parle Exports (P) Ltd., relied upon by Sri Narasimhamurthy, it was observed :
"While interpreting an exemption clause, liberal interpretation should be imparted to the language thereof, provided no violence is done to the language employed. It must, however, be borne in mind that absurd results of construction should be avoided."
The choice between a strict and a liberal construction arises only in case of doubt in regard to the intention of the Legislature manifest on the statutory language. Indeed, the need to resort to any interpretative process arises only where the meaning is not manifest on the plain words of the statute. If the words are plain and clear and directly convey the meaning, there is no need for any interpretation. It appears to us the true rule of construction of a provision as to exemption is the one stated by this Court in Union of India and Ors. v. Wood Papers Ltd. and Ors. [1991 JT(1) 151 at 155]:
"...Truly, speaking liberal and strict construction of an exemption provision are to be invoked at different stages of interpreting it. When the question is whether a subject falls in the notification or in the exemption clause then it being in nature of exception is to be construed strictly and against the subject but once ambiguity or doubt about applicability is lifted and the subject falls in the notification then full play should be given to it and it calls for a wider and liberal construction...."
(Emphasis supplied)
30. The learned advocate has contended that the above rulings attempted to show that the analogy given in the case of interpretation of Notification No. 201/79-C.E, dated 4-6-1979 which has got similar terms as the Notification in question has to be accepted. In this connection, he has relied on the ruling of Good Year India Ltd. and Ors. v. Union of India and Ors. as reported in 1990 (28) ECC 22 rendered by Delhi High Court. The Hon'ble Delhi High Court has observed in paras 29,30,31, 32 and 34 as follows :-
"29. Under the present notification, a manufacturer is required to take proforma credit of the duty, paid on imports, as soon as, the inputs are brought into the factory. This credit is, then utilized and, the manufactured goods are cleared and is not linked to any particular item of the manufactured products. The language of the new notification does not require the inputs to be co-related with end-product. Similarly, under Rule 56A of the Rules, which is the procedure applicable to Notification No. 95/79-C.E, as amended by Notification No. 58/82-C.E, no co-relation is required between the inputs and the final product. Moreover, the Notification No. 201/79, as well as, Rule 56A of the Rules, are self-contained codes and, the manner in which exemption is to operate, is laid down in the appendix to the said notification, as well as, Rule 56A.
30. Mr. Rajinder Dutt, on the other hand, has contended that the direction given the Assistant Collector, is in accordance with law. As per the aforesaid Notification No. 201/79 and Rule 56A of the Rules nothing apply to the goods, which are exempted from the whole of the duty of excise and or/are chargeable to nil rate of duty.
31. In our view, there is a force in the contention of Mr. Ravinder Narain. It appears that the extent of credit, available in the account, maintained in RG-23 can be utilized, at the time of clearing of the product, and there is no provision in the appendix to the notification, as well as, in Rule 56A that at every stage of clearance of the end-product, utilisation of credit has to be co-related to the quantum of inputs, used in the manufacture of end-product.
32. In fact, the scheme provides that the credit can be utilized for payment of duty, against any excisable products, that are brought from the factory. No debit can be claimed after the credit has been taken on goods brought into the factory. Once, raw materials enter the factory of petitioner-company, credit is to be taken in accordance with the procedure, prescribed in the Rules without any co-relation to the end-product. The credit can be utilized by petitioner, for the payment of duty on any goods, of which credit is taken. These goods need not be exempted goods, but will be those goods, on which duty is payable under the Act.
34. In our view, in terms of the said notification there need not be any nexus between the inputs and outputs".
31. The learned advocate has drawn the analogy of Notification No. 201/79-C.E., a Notification in question that is 225/86 and with the help of the Supreme Court rulings and the Delhi High Court rulings as submitted the same should apply to the facts in question.
32. The Tribunal has also examined the question of proforma credit and as to how the credit has to be utilized on inputs while interpreting Notification No. 227/79; 95/79-C.E and 67/85-C.E, dated 17-3-1985 and in terms of Rule 56-A of Central Excise Rules as in the case of Collector of Central Excise, Bangalore v. Wipro Information Technology as reported in 1988 (33) E.L.T. 172 in paras 20 to 23 as follows :-
"It is not necessary to elaborate the point further, because it is abundantly clear, as we stated at the outset, that both at the time of taking credit and at the time of utilizing it, the respondents were doing what both they and the Department felt to be authorised under Rule 56A. The question then is whether there is anything in Rule 56A which authorised the Department to take back the duty credit on the ground that the respondents became disentitled to it because of the subsequent exemption from duty granted in respect of computers.
21. It appears to us that in such a situation, where the assessee was acting in good faith and wherewhat he did was not at the time he did it illegal or unauthorised, any action which would impose a liability on him should be something clearly authorised by law. We have, therefore, to see whether there is anything in Rule 56A which authorised the Department to demand back the duty amount in a case like this. It is abvious that, although Rule 56A covers more than seven printed pages, and includes a mass of detail, it does not specifically provide for a case of this nature.
22. Certain provisions have been relied upon by the Department. Of these, sub-rule (v), which was cited in the show-cause notice, and which refers to credit having been wrongly allowed, is obviously inapplicable, and this has been accepted by Shri Bhatia himself. He has however, relied on sub-rule (3)(v), read with sub-rule (2). Sub-rule (3)(v) is procedural, and therefore one has to go back to sub-rule (2) and the proviso thereto. That sub-rule, however, refers to credit being allowed. We find force in the submission of Shri Khunger that allowing credit and utilizing it are two different stages. Obviously, since the credit is to be allowed as soon as the inputs are brought into the factory (and there has to be a time lag before they are used in manufacture and the finished goods are cleared) the grant of credit is not to wait till the finished goods have been actually manufactured. Therefore, allowing of credit would have to be with reference to the facts as prevailing at the time the inputs are taken into the factory. If there was no error or irregularity in the allowing of credit at that point of time, it does not appear to us that the credit becomes liable to be disallowed subsequently, because the finished goods are subsequently exempted from duty. If this be the position, recourse to clauses (v) and (vi) of sub-rule (3) would not help the Revenue.
23. No other provision has been brought to our notice which would justify the taking back of the credit in a case of this nature. It is no doubt an unusual case. It may be that Government by oversight omitted to provide for cancellation or taking back of the credit in such a case. But so long as no such provision exists, and when it has not been shown or even alleged that there was any irregularity either at the time the credit was taken or at the time it was utilised, we do not think the Department has the authority to take back the credit. We think the Collector (Appeals) was right in taking the view that he did and in setting aside the Assistant Collector's order. We accordingly reject this appeal".
33. The Bench in para 7 has held in respect of Trade Notice as follows :-
"Even assuming that the trade notice, which was said to be based on instructions of the CBEC, could bear the meaning claimed by the respondents, executive instructions could not enlarge or restrict the scope of a statutory provision. Further, the Board's Clarification had reference to Notification No. 95/79, which inter alia made the procedure under Rule 56A applicable.The clarification was not with reference to Rule 56A as such."
34. The above view was reiterated in the case of Sarvottam Ispat Pvt. Ltd. v. Collector of Central Excise as reported in 1989 (41) E.L.T. 181 in para 5 as follows :-
"On a careful consideration of the submissions made by the learned Consultant and the learned SDR, we find that according to Rule 57F(3) as amended, credit of specified duty allowed in respect of any inputs may be utilized towards payment of excise duty on any of the final products in or in relation to the manufacture of which such inputs are intended to be used in accordance with the declaration filed under Rule 57G. The appellants' case is that they have in fact, utilized the credit earned by them on the input scrap only on the single final product that they manufactured viz. steel ingots and that the provisions of Rule 57F(3) as above do not bar such utilisation when admittedly there is no one-to -one co-relation between the inputs and output under the Modvat scheme. Examining this issue, it is observed that what Rule 57F(3) provides is that the credit of duty allowed in respect of any input can be utilized towards payment of duty on any of the final product in or in relation to the manufacture of which such inputs are used. A plain reading of the Rule, when considered in the background of the objective of the Modvat scheme, viz. to provide instant credit for the manufacturers and to avoid cascading effect of taxation on input in relation to the final product it will be clear that this Rule in terms will not be a bar for utilisation of amount of credit which may accumulate because of a situation where the duty on the final product is less than the duty on the inputs for payment of duty on the same final product. This conclusion is also supported by the admitted position that for the purpose of Modvat credit scheme, there is no one-to-one relationship of input and final product for the purpose of utilization of credit. Therefore, in such a view of the matter, there is a lot of force in the submission of the appellant, which is accordingly accepted and the appeal is consequently allowed."
However, the ERB in the case of East India Phannaceuticals Works Ltd. v. Collector of Central Excise as reported in 1991 (54) E.L.T. 355 departed from the view taken in Wipro's case. The observation given in para No. 8 of the Order is reproduced herein below :-
"We feel the clue to the present problem lies in Rule 57F(3) relating to the utilisation of the credit followed. This provides that credit of specified duty allowed in respect of any inputs may be utilised towards payment of duty on any of the final products in or in relation to the manufacture of which SUCH inputs are intended to be used in accordance with the declaration filed under sub-rule (1) of Rule 57G. The word - Such - used before the expression 'inuts' in Rule 57F(3) is very significant. As the utilisation of credit is for payment of duty on the final products in the manufacture of which such inputs are to be used, the scope of the expression - "such inputs" - will be traced to the inputs which have already been referred to in the said provision. The said reference is to inputs, duty paid on which, is to be utilised for payment of duty on the final products made therefrom. Thus, this points to a link between the duty paid inputs and the final products made therefrom. In other words, the credit of duty from a certain quantity or lot of inputs can be utilised only for payment of duty for the final products manufactured from that lot and not for those manufactured from different lots, say previous lots. This may appear to bring the modvat scheme on a par with the set-off procedure with its strict correlation between input and final product which had been dispensed with by executive instructions. But the executive instructions and procedural relations cannot go beyond the statutory stipulations. The latter are represented by Rules 57F(3) and 57C. There is no doubt that, going by Rule 57C, no credit of duty will be permissible if the inputs used in the manufacture of wholly exempted goods. Thus, if a manufacturer has got unutilised inputs and also unutilised credits, the latter has to be disallowed if the final products become exempt. There is no escape from that, in terms of Rule 57C. Simply because another manufacturer has, with alacrity, utilised the credit before utilising the inputs themselves he cannot be given a more favoured treatment, unless the law allows him the same. It is here that the strict construction of the relevant provisions comes into play. In view of our discussion of Rule 57F(3), we feel the strict apportionment of credit of duty paid on inputs for utilisation for payment of duty on the final product arising from them is inherent therein. The liberal treatment of allowing the credit to be not only taken immediately on receipt of the inputs, but also to be utilized without looking into whether the inputs have been taken up for manufacture and whether the final products are made from that lot of the input is an extra-legal working arrangement based on executive instructions without statutory backing. The restriction imposed by Rule 57C will become otiose if a liberal construction is given to Rule 57F(3). The latter has got to be read down in the manner indicated by us to make the functioning of Rule 57C meaningful. The allowng of credit on receipt of the inputs is in anticipation of their use in the manufacture of the dutiable final products. The latter losing their dutiable status will have its effect on the credit of duty taken and utilised already. If such credit had been taken and also utilised already, then such utilisation is irregular and has got to be recovered. It has been argued by the appellants that the taking of credit and utilisation of credit were in order as the finished products at that time were dutiable and the matter cannot be reopened and the credit disallowed on the ground that the finished products have become exempt from duty. For the reasons discussed above, we do not agree with this contention. The credit becomes in admissible in such a case, in view of the specific provision of Rule 57C. The availment of credit in anticipation of the use of the inputs in the manufacture of dutiable products becomes irregular once the finished products becomes exempt from duty and it is a case of mis-utilisation of credit which has got to be regularised by issue of demand. The liberal treatment in regard to the utilisation of credit for payment of duty on the final products without insisting on strict correlation of input and output will not offend Rule 57C as long as the final products remain dutiable but, as stated above, if they become wholly exempt it will go against the said rule if the credit is permitted to be utilised. Merely because the credit has been already utilised the operation of Rule 57C cannot be thwarted."
As could be seen the ruling rendered in East India case (supra) is in contra with the findings given in M/s. Wipro as well as the ruling of the Delhi High Court as rendered in the case of Good Year India Ltd. As the Hon'ble Delhi High Court has given the ruling earlier to the E.R.B.'s East India's case, the ratio of the ruling of M/s. Good Year's case would apply to the case in hand.
35. Now it has to be seen as to whether the finding given by the learned Collector is sustainable in the facts and circumstances of the case and in the light of the ratios of the rulings rendered above.
36 The admitted facts are that the assessee's factory is under physical control of the Department. The entire operation of the inputs and outputs have been checked and supervised. The records have been scrutinised and regular assessment of RT 3 returns has been done, RG 23A II and P.L.A. has been regularly looked into. The AR l's, GP l's have also been prepared/processed under the official supervision. It is also admitted fact that the procedure was finalised after the assessee had discussions with Superintendent and Asstt. Collector and Asstt. Collector permitted them by his letter dated 28-7-1989.
37. It is also an admitted fact that the Department had not drawn the attention of the assessee the procedure set out in Notification No. 126/81, dated 22-5-1981 and also a copy not furnished to the assessee. It is also clear that the Notification No. 225/86-C.E., dated 3-4-1986 does not stipulate maintaining set off register and the officers have also not insisted or directed them to maintain the same. The learned Collector's finding is that the Notification No. 225/86-C.E. requires the manufacture to avail of set off of duty equivalent to duty involved on input taken into use for manufacture of final product and that the assessee had misused the permission granted by the Asstt. Collector. The finding of the learned Collector is too vague and merely to say that the assessee by not maintaining set off register gets disentitled for the benefit is not sustainable. There is absolutely no dispute of the input being entitled to the benefit of Notification for the manufacture of final product. In the absence of any statutory or mandatory condition of maintaining a set off register, the Department cannot insist upon it and deny the benefit solely for that reason. The learned Collector has held that the assessee has acted in variance of the permission granted by the Assistant Collector by his letter dated 28-7-1989. The letter of Assistant Collector as incorporated in the order itself merely reads as follows :-
"In this connection, you are hereby permitted to avail set off for the input Acrylonitrile (Ch. 2926.00) for the manufacture of final product Acrylic Fibre falling under Chapter 5501.30 under Notification No. 225/86-C.E., dated 3-4-1986 subject to fulfilment of the condition prescribed therein."
There is no condition in Notification No. 225/86 for maintaining 'set off register. The learned Collector is drawing strength from the Trade Notice No. 126/81, dated 22-5-1981. Admittedly, this Trade Notice has not been brought to the notice of the assessee, further there is no trade notice issued under Notification No. 225/86. Therefore, the strict compliance of TN 126/81 cannot be insisted upon, much so when the officials themselves not having brought to the assessee's notice nor the Asstt. Collector in his letter dated 28-7-1989 informing the assessee to follow such procedure as laid down in Trade Notice No. 126/81. In the ruling Wipro Information (supra) the bench has clarified that Trade Notice No. 126/81 issued on the basis of administrative instructions has no statutory force. The Hon'ble Supreme Court ruling rendered in the case of Mangalore Chemicals and Fertilizers Ltd. v. Deputy Commissioner as reported in 1991 (55) E.L.T. 437 is applicable to the facts of this case.
38. The learned Collector has implied by his reading of the Notification that the condition for grant of benefit is that the manufacture has to avail set off of duty equivalent to duty involved on input taken into use for manufacture of final products. But the reading of the Show Cause Notice dated 4-10-1990 it is very clear that the charges have not been levelled on the basis of this understanding by the Department. Nor it was alleged that this was the understanding which both the Department and assessee had understood, while utilising the credit of the duty. Therefore, the learned Collector has travelled beyond the Show Cause Notice to give a new interpretation to the wordings of the Notification, other than what a simple reading has been given, understood and applied by the officials of the Department and the assessee. Even this understanding is erroneous. This understanding is not supported by any direct ratio of any Court ruling. In fact similar wordings are found in Notification No. 178/77-C.E, dated 18-6-1977, 179/77-C.E, dated 18-6-1977 and No. 201/79, dated 4-6-1979. The rulings rendered by Delhi High Court in the case of Good Year India Ltd. and Ors. (supra) and Wipro Information (supra) and Sarvottam Ispat (P) Ltd. (supra) are in favour of the assessee. As the Supreme Court has held in the rulings rendered to above, the contemporaneous exposition has to be applied while interpreting similar Notification. If such ratio of rulings noted above of Tribunal is applied to this case, the reasoning of the learned Collector would be clearly erroneous.
39. The further allegation is that ratio as declared has not been adopted by the assessee. The assessee has clarified this point and have asserted that there was discussions with the Departmental officials and the procedure for set off and credit was adopted thereafter. The Department accepted the position and the procedure followed and records were prepared accordingly. The ratio given is also disputed by assessee. The Department has not shown how the violation has occurred especially when no such ratio is prescribed in the Notification No. 225/86-C.E., dated 3-4-1986 itself.
40. The allegation of not adopting the correct set off available under Notification No. 225/86-C.E., dated 3-4-1986 has not been established in this case. In the face of the officials having physical control and the records being checked and scrutinised every day and in that event to hold that there is a "calculated fraud" with connivance of the officials of the Department does not behold to the status of the learned Collector. It is now well settled that the adjudicating officers or Appellate Court should use temperate language and as held in the case of Iswari Prasad Misra v. Mohammad Isa as reported in AIR 1963 S.C. 1728 and it has also been held that use of unduly strong words in expressing conclusions or adopting of intemperate or extravagant criticism against contrary view should be avoided. The charge of suppression does not stand to reason in view of physical control, supervision by officials and daily checking of records and hence the demands are also time barred. The ratio of the ruling rendered by Hon'ble Supreme Court in the case of Padmini Product and Chemphar Drugs and Liniments cited by the learned Advocate is applicable to the facts of this case.
41. In view of our findings given above, the appellants succeed and the impugned Order is set aside.