Custom, Excise & Service Tax Tribunal
Elentec India Pvt Ltd vs Ce & Cgst Greater Noida, Gautam Buddh ... on 11 March, 2025
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
ALLAHABAD
REGIONAL BENCH - COURT NO.I
Excise Appeal No.70588 of 2018
(Arising out of Order-in-Appeal No.NOI-EXCUS-002-APP-1610-17-18 dated
11/01/2018 passed by Commissioner (Appeals) Customs & Central Tax,
Noida)
M/s Elentec India Pvt. Ltd., .....Appellant
(57/1&2, Ecotech-I Extension-I Greater Noida)
VERSUS
Commissioner of Central Excise, Noida ....Respondent
(3rd Floor, Wegmens Business Park, KP-III, Greater Noida)
APPEARANCE:
Shri Jayant Kumar, Advocate for the Appellant
Shri A.K. Choudhary, Authorised Representative for the Respondent
CORAM: HON'BLE MR. P.K. CHOUDHARY, MEMBER (JUDICIAL)
HON'BLE MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL)
FINAL ORDER NO.70122/2025
DATE OF HEARING : 13 November, 2024
DATE OF PRONOUNCEMENT : 11 March, 2025
SANJIV SRIVASTAVA:
This appeal is directed against Order-in-Appeal No.NOI-
EXCUS-002-APP-1610-17-18 dated 11/01/2018 passed by
Commissioner (Appeals) Customs & Central Tax, Noida. By the
impugned order, Commissioner (Appeals) has upheld the Order-
in-Original dated 31/03/2017 wherein following has been held:-
"ORDER
1. I confiscate the machines/goods as mentioned in para
18 and 1.11 above valued at Rs 2,99,99,153/ and Rs.
40,000/ cleared by M/s Elentec, Greater Noida without
payment of duty and without following the proper
procedure in this regard and seized from factory premises
Excise Appeal No.70588 of 2018
2
of M/s D&Y Technologies Pvt. Ltd. Plot No. 127, Udyog
Kendra, Ecotech-III, Greater Noida on 20.07.2016 and
19.12.2016 under Section 111(j) of the Customs Act, 1962
and Rule 25 (1) (a) of the Central Excise Rule, 2002
However, I give an option to the party to redeem the said
goods on aggregate payment of Redemption Fine of Rs
75,10,000/- in respect of both type of goodsre imported as
well as procured indigenously:
2. I confirm demand of Customs duty (inclusive of
Education Cess and Secondary & Higher Education Cess)
amounting to Rs. 71,89,177/- (Rupees seventy one lakh
eighty nine thousand one hundred seventy seven only)
under Section 28(4) of the Customs Act, 1962 and I
appropriate the amount Customs duty of Rs.58,76,842/-
heady deposited by the party vide TR & Challar. No 318
dated 07-16 toward the cantamed demand of Customs
duty.
3. I confirm demand of Central Excise duty amounting to
amounting to H1600/(Rupees five thousand six hundred
only), under Section 11A(4) of the Central Excise Act,
1944,
4. I charge and demand interest on the above
confirmed demand of Customs duty and Central Excise
duty from the party under Section 28AA of the Customs
Act, 1962 and Section 11AA of Central Excise Act, 1944
and appropriate the amount of interest of Rs 2,14,948/
deposited by the party vide TR-6 Challan No.3187 dated
20.07 16 towards the confirmed demand of interest,
5. I impose a penalty of Rs. 71,89,177/- on the party
under section 114A of the Customs Act, 1962 for
contravention of the provisions of Customs Act, 1962,
6. I impose a penalty of Rs. 5,600/- upon the party under
rule 25 of CER, 2002 read with Section 11AC of the CEA,
1944 for contravention of the provisions of Central Excise
Act, 1944,
Excise Appeal No.70588 of 2018
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7. I impose a penalty of Rs. 1,00,000/- on M/s D&Y
Technologies Pvt. Ltd. Plot No. 127, Udyog Kendra,
Ecotech-III, Greater Noida under section 117 of the
Customs Act, 1962 for contravention of the provisions of
Customs Act, 1962,
8. impose a penalty of Rs. 5,000/- on M/s D&Y
Technologies Pvt. Ltd Plot No 127, Udyog Kendra, Ecotech-
III, Greater Noida under rule 27 of CER, 2002 for
contravention of the provisions of Central Excise Act,
1944."
2.1 Appellants a 100% Export Oriented Unit (EOU), registered
as EHTP (Electronics Hardware Technology Park) unit vide LOP
no. PCMG/PSE/03/STPIN/3576 dated 26/06/2007 and having CE
Registration No.AADCR2107FEM005 are engaged in
manufacturing of parts of mobile phones, viz., UV coating of
battery cover/rear cover etc.
2.2 Allegedly, appellant removed certain machineries,
imported without payment of Customs duty and Excisable goods
procured without payment of Central Excise duty under 100%
EOU scheme from their premises to other GTA unit without
following any procedure and without payment of due duties.
2.3 Show cause notice dated 02.01.2017 was issued to the
appellant, asking them to show cause as to why-
"(i) the machines/goods as mentioned in para 1.8 and 1.11
above valued at Rs.2,99,99,153/- and Rs.40,000/-
involving Customs duty to the tune of Rs.71,89,177/- and
Central Excise duty to the tune of Rs 5600/- respectively,
cleared by M/s theniec, Greater Noida without payment of
duty and without following the proper procedure in this
regard and served from factory premises of M/s D&Y
Technologies Pvt. Ltd. Plot No. 127, Udyog Kendra,
Ecotech III, Greater Noida on 20.07.2016 and 19.12 2016
should not be confiscated under Section 111(j) of the
Customs Act, 1962 and Rule 25 (1) (a) of the Central
Excise Rule, 2002
Excise Appeal No.70588 of 2018
4
(ii) (a) Customs duty (inclusive of Education Cess and
Secondary & Higher Education Cess) amounting to Rs.
71,89,177/- (Rupees seventy one lakh eighty nine
thousand one hundred seventy seven only), as detailed in
Annexure A, should not be demanded and recovered from
them under Section 28(4) of the Customs Act, 1962 and
why the amount of Customs duty of Rs. 58,76,842/-
deposited by the party vide IR-6 Challan No 3187 dated
20.07.16 at the time of taking provisional release of seized
machine should not be appropriated towards the said
liability,
(ii) (b) Central Excise duty amounting to Rs 5600/ (Rupees
five thousand six hundred only). as detailed Annexure-A,
should not be demanded and recovered from them under
Section 11A(4) of the Central Excise Act, 1944,
(iii) interest at the appropriate rate payable on the said
amount of Customs duty and Central Excise duty not paid
by them, should not be demanded and recovered from
them under Section 28AA of the Customs Act, 1962 and
Section 11AA of Central Excise Act, 1944; the amount of
interest of Rs. 2,14,948/ deposited by the party vide TR-6
Challan No 3187 dated 20.07.16 at the time of taking
provisional release of seized machine may not be
appropriated against the total liability of interest calculated
under Section 28AA of the Customs Act, 1962; and
(iv) Penalty in terms of Section 112, 114A and 117 of the
Customs Act, 1962 and Section 11AC of the Central Excise
Act, 1944 read with rule 25 of the Central Excise Rules,
2002 should not be imposed on them for their acts and
omissions."
2.4 Another show cause noticed dated 02.01.2017 was issued
to M/s D&Y Technologies Pvt. Ltd., asking them to show cause as
to why penalty in terms of Section 112 and 117 of the Customs
Excise Appeal No.70588 of 2018
5
Act and Rule 27 of the Central Excise Rules, 2002 should not be
imposed on them for their acts and omissions.
2.5 These two show cause notices were adjudicated as per the
Order-in-Original referred in para 1 above.
2.6 Aggrieved appellant have filed appeal before Commissioner
(Appeals) which has been dismissed as per the impugned order.
Appeal filed by M/s D&Y Technologies Pvt. Ltd. has been allowed
vide Order-in-Appeal No.NOI-EXCUS-002-APP-1708-17-18 dated
19.02.2018.
2.7 Aggrieved appellant have filed this appeal.
3.1 We have heard Shri Jayant Kumar Advocate for the
appellant and Shri A.K. Choudhary Authorised Representative for
the revenue.
3.2 Arguing for the appellant learned Counsel submits that-
Appellant have been charged with alleged removal of the
four injection molding machines on which customs duty on
2 DTA unit at the premises of jobworker M/s D&Y
Technologies Pvt. Ltd., duty demand in respect of this is
raised to Rs.58,07,536/-. They removed other machines
also to the premises on jobworker M/s D&Y Technologies
Pvt. Ltd. on which demand of customs duty is
Rs.13,81,641/- and central excise duty of Rs.5,600/- was
imposed.
In respect of both the issues redemption fine of
Rs.75,10,000/- has been imposed and penalty under
Section 114A and Rule 25 of Central Excise Rules has been
imposed.
With regard to injection molding machines, it is a fact that
these machines were sent to job-worker on returnable
period for goods meant to be exported. These machines
were not used for manufacture of DTA goods.
Appellant do not sold these machines to the job-worker for
any consideration, title or ownership, the said machines
were always remain with them. They had obtained the job-
Excise Appeal No.70588 of 2018
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work permission vide permission letter dated 18.04.2016
and were under a bonafide belief that they could have
remove these machines also.
These machines were received back by the appellant as
per the permission granted by letter dated 24.05.2024.
The removal of these goods is only procedural in nature.
In respect of the second issue, the goods were transferred
from the appellant's EOU unit at Noida to the appellant's
EOU unit at Greater Noida under proper documentation.
However, due to paucity of space the said machines were
kept at the premises of the job worker.
As the goods were cleared on EOU unit from the
appellant's to another EOU unit, there should have been no
demand for duty.
In case duty is demandable in respect of above, the same
should be allowed only after allowing the depreciation as
provided by Notification No.53/2003.
No penalty is imposable on the appellant and no
redemption fine would be imposed as no element of fraud,
suppression of facts, willful mis-statement etc. were found.
3.3 Learned Authorized Representative reiterates the findings
recorded in the orders of the lower authorities.
4.1 We have considered the impugned orders along with the
submissions made in appeal and during the course of argument.
4.2 Impugned order records as follows:-
"I have gone through the case records including record of
PH and citations Appeal are as under-
(a) whether machines/goods imported/procured duty free
removed under job work challans by 100% EOU from
bonded premises to DTA unit without observing any
prescribed procedure and also without payment of
Customs/Central Excise duty is legal and liable for
confiscation;
Excise Appeal No.70588 of 2018
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(b) whether Customs/Central Excise duty and interest are
payable on impugned goods and whether duty, if any, is
payable on depreciated value,
(c) whether penalty is imposable under Customs/Central
Excise Acts/Rules;
4.1 The Adjudicating Authority, after detailed discussion in
his OIO has found that the impugned machines/goods
were removed by the Appellant, a 100% EOU, to other
DTA unit under disguise of job work to avail undue benefit
under Notification Nos. 52/2003-Cus and 22/2003-CE both
dated 31/03/2003 and order for confiscation under Section
111(j) of the Customs Act 1962 and Rule 25(1) of the
Central Excise Rules 2002 with an option to pay
redemption fine of Rs. 75,10,000/- in lieu of confiscation,
confirmed demand of Customs Duty of Rs. 71,89,177/-
and Central Excise Duty of Rs. 5,600/-; (C) confirmed
demand of Interest; (D) imposed penalties of Rs.
71,89,177/- and Rs. 5,600/- under the Customs Act 1962
and the Central Excise Act 1944 respectively on the
present Appellant.
4.2 I find from the case records that the following facts are
indisputable as pointed out by the Department in SCN and
also admitted by the Appellant:
(1) that the impugned machines/goods were
imported/procured duty free under 100% EOU
scheme by the Appellant;
(2) that the machines/goods were removed from the
bonded premises of the Appellant to other DTA unit.
It is also found that at the time of removal of those
impugned machines/goods, the Appellant did not obtain
any permission from the proper authority nor paid any
duty as prescribed in those notifications governing
importation/procurement of capital goods /excisable goods
without payment of duty for exclusive use in manufacture
Excise Appeal No.70588 of 2018
8
of export articles. During personal hearing, they have
accepted that injection moulding machines were cleared
against job work challans, which should not have been
done and it was happened due to ignorance. In the instant
case, the Appellant was operating under EOU Scheme
where Central Government is extending certain benefits for
promotion of exports and necessary
procedures/safeguards have been formulated/prescribed to
avert misuse of the Scheme and to prevent Revenue
leakage. Those stipulated procedures are not mere
technical formalities but are stringent and inflexible
requirements to be complied with great precision by the
manufacturer exporters working under EOU scheme
without any deviation. Otherwise, the EOU scheme will be
in a total chaos and interest of Revenue will be
jeopardized. The present act of removal of machines/goods
by the Appellant, a 100% EOU, from their bonded
premises without observing any prescribed procedure and
without obtaining permission in this regard from the proper
authority cannot be accepted as mere ignorance on part of
them but a deliberate act with malevolence motive
showing utter disregard to the basic endeavor of scheme
to enjoy the undue benefit of exemption. It is a well known
principle of law that "Ignorance of Law is no excuse". As
per Section 111(j) of the Customs Act 1962, any dutiable
or prohibited goods brought from a place outside India and
removed or attempted to be removed from a customs area
or a warehouse without the permission of the proper
officer or contrary to the terms of such permission shall be
liable to confiscation. Similarly, as per Rule 25(1) of
Central Excise Rules 2002, if any producer, manufacturer,
registered person of a warehouse or an importer or a
registered dealer removes any excisable goods in
contravention of any of the provisions of these rules or the
notifications issued under these rules or contravenes any
of the provisions of these rules or the notifications issued
Excise Appeal No.70588 of 2018
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under these rules with intent to evade payment of duty,
then, all such goods shall be liable to confiscation. On
combined reading of the restrictive part of those
notifications with above provisions of Law, it is definitely
established here that the impugned machines/goods are
liable for confiscation under relevant provisions of
Customs/Central Excise Acts & Rules.
4.3 From the case record, it is also clear that the Appellant
removed the impugned machines/goods from their bonded
premises to other DTA unit in disguise of job work under
cover of job work challans without intimating or obtaining
permission from the competent authority in this regard
and in this manner intentionally suppressed the material
fact and also willfully misstated before the Department to
avail benefit of duty free import/procurement of
machines/goods under EOU Scheme which was otherwise
not available to them and thus evaded payment of
Customs/Central Excise duty payable at the time of
import/procurement of impugned machines/goods and/or
payment of Customs/Central Excise duty payable on
removal of duty free imported/procured machines/goods
from their bonded premises to other DTA unit in gross
violation of prescribed procedures in this regard. Thus,
Customs/Central Excise duty not paid by the Appellant is
liable for recovery from them under Section 28(4) of the
Customs Act 1962 and Section 11A(4) of the Central
Excise Act 1944.
4.4 Regarding valuation of impugned machines (capital
goods) for determining Customs/Central Excise duty
payable on it on removal from bonded premises, the
Appellant has pleaded for application of depreciation as
permissible under FTP. The Hon'ble CESTAT, West Zonal
Bench, Mumbai in case of Mavi Industries Ltd. Vs. CCE,
Thane-II, reported in 2013 (289) E.L.T. 72 (Tri. Mumbai)
has categorically decided that "Export Oriented Unit
Excise Appeal No.70588 of 2018
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Depreciation to determine dutiable value Capital Goods
imported Notification No. 53/97-Cus.,
Depreciation permissible only when capital goods cleared
after Development Commissioner's approval - No such
permission obtained - Depreciation not to be allowed." I
also find that as per Notification 52/2003-Cus dated
31/03/20013 [condition no. (3)(d)(1)(i)], exemption from
payment of the duty of customs on imported capital goods
for manufacturing export articles is available, subject to
the condition that the unit executes a bond, binding
himself to pay on demand, an amount equal to duty
leviable on the goods and interest on the said duty from
the date of duty free import of the said goods till the date
of payment of such duty, if such capital goods are not
proved to the satisfaction of the proper officer to have
been installed or otherwise used within the unit. In the
instant case, the Appellant removed the capital goods
imported duty free under EOU Scheme to other DTA unit
and thus not installed/not used within the unit for
manufacturing export articles and made them liable for
payment of an amount equal to duty leviable on the goods
and interest on the said duty from the date of duty free
import of the said goods till the date of payment of such
duty. It is already found that the said Appellant removed
the impugned machines/goods in deceitful manner under
job work challans and for this reason any benefit
prescribed under relevant Act or Rules or Notifications or
under FTP is not available to them. It is well settled that,
fraud vitiates everything and disadvantages of such fraud
cannot be taken by anyone. In the instant case, the
Appellant have to suffer the consequence of their
fraudulent act and to give back the benefits availed by
them at the time of duty free import of machines on
making false or incorrect declaration towards use of those
machines exclusively for manufacture of export articles
inside their unit. It is also to be mentioned here that as per
Excise Appeal No.70588 of 2018
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declaration made in the bond executed by the Appellant
under EOU scheme, the demand of duty amount equal to
duty forgone on the duty free imported goods without
allowing benefit of depreciated value and interest on the
said duty from the date of duty free import of the said
goods till the date of payment of such duty is legal as such
capital goods have not been installed or otherwise used
within the unit for manufacture of export articles.
4.5 The Appellant also submitted that mandatory penalties
under Customs and also under Central Excise Acts are not
imposable as duty is paid with interest voluntarily before
issue of SCN. As discussed hereinbefore, it is found that
the Appellant removed the impugned machines/goods in
deceitful manner under job work challans and for this
reason any benefit prescribed under relevant Act or Rules
or Notifications or under FTP is not available to them. This
is one of the perfect situations which calls application of
provisions of Section 114A of the Customs Act 1962 and
Section 11AC(4) of the Central Excise Act 1944 read with
Rule 25 of the Central Excise Rules 2002 for imposition of
penalties on the Appellant. The Hon'ble CESTAT. West
Zonal Bench, Mumbai, in the case of Mavi Industries Ltd.
Vs. CCE, Thane-II, reported in [2010 (254) E.L.T. 331 (Tri.
-Mumbai)] has categorically opined that "Confiscation and
penalty - EOU, 100% EOU Import of capital goods Breach
of post-importation condition of Notification No. 53/97-
Cus. Impugned proceedings on ground of breach and not
that import itself in violation of any condition of
Notification ibid Capital goods prima facie liable to
confiscation under Section 111(0) of Customs Act, 1962-
Mens rea not required for Revenue in imposing penalty in
such cases Sections 111(o), 112 and 129E ibid.". Section
11AC ibid incorporates liability to pay penalty in situation
mentioned therein and once a case is covered by situation
as stated in the said Section, mere deposit of duty/interest
before issuance of SCN not necessarily negates situation
Excise Appeal No.70588 of 2018
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mentioned in the said Section. Penalty under Section 11AC
of Central Excise Act, 1944 is an exemplary punishment for
an act of intended deception by the assessee to evade
duty by adopting any of the means mentioned in the
Section 11AC. Hon'ble CESTAT, Principal Bench, New Delhi,
in a recent case of CCE, Kanpur vs. P.P. Polyplast (P) Ltd.,
reported in 2017 (346) E.L.T. 409 (Tri. Del.) categorically
decided that "Penalty Imposition -Payment of duty prior to
show cause notice Settled law that when statutory
elements for imposition of penalty are present, there is no
discretion for penalty -Payment of duty, prior to issue of
show cause notices, is no ground for not imposing penalty
- Section 11AC of Central Excise Act, 1944." The question
of whether the penalty and interest could be imposed
when the duty has been deposited before issuance of show
cause notice is already settled by the Hon'ble Supreme
Court, in the case of Union of India v. Rajasthan Spinning
& Weaving Mills [2009 (238) E.L.T. 3 (S.C.)] wherein the
Hon'ble Supreme Court has taken a view that the payment
of duty/differential duty, whether before or after the show
cause notice is issued cannot alter the liability for
payment. On application of ratio of Supreme Court's above
verdict, I also in a view that penalties under Sections 114A
of the Customs Act 1962 and Section 11AC of the Central
Excise Act 1944 read with Rule 25 of the Central Excise
Rules 2002 are legal and correctly imposed by the
Adjudicating Authority against the Appellant in the instant
case."
4.3 Undisputed fact is that the appellant had removed the
goods-capital goods received under EOU scheme without
payment of customs duty/Central Excise duty outside their
bonded premises to the premises of DTA. The said premises
where these goods were found in any way does not belong
appellant. These machines were found in the premises of M/s
D&Y Technologies Pvt. Ltd., whom appellant claim to be a job-
worker. M/s D&Y Technologies Pvt. Ltd. even if job-worker on
Excise Appeal No.70588 of 2018
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principal to principle basis and separate entity having no
relationship with the appellant the renewal of these capital goods
to their premises has been done in contravention of the
provisions of Notification No 52/2003-Cus and 22/2003-CE.
Admittedly, M/s D&Y Technologies Pvt. Ltd. is also not EOU unit
for a bonded premises removal of these goods in contravention
of the provisions of the EOU scheme and the benefit executed by
the appellant in this regard.
4.4 The submission of the appellant that they had removed the
machines (capital goods) to the premises of job worker in terms
of the permission granted for job worker goes contrary to the
permission granted and the provisions of the Notification No
52/2003-Cus itself. The said letter of permission along with the
job work challans is reproduced below:
Excise Appeal No.70588 of 2018
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Excise Appeal No.70588 of 2018
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From the perusal of the above documents it is quite evident that
the there was no permission to remove the capital goods -
machines from the premises of the EOU to any other place as
claimed by the appellant. Further even the claim made by the
appellant that they had cleared the said machines to the
premises of job worker under a bonafide interpretation of the
permission granted is also belied by the job work challans. It is
clearly mentioned on the format of challan itself that these
challans are meant only for removal of "inputs/ partially
processed inputs". The claim made by the appellant of
bonafides does not carry any weight and needs to be rejected.
4.5 Accordingly, the submission of the appellant that these
goods/machines have been received back in their premises as
per permission letter dated 24.05.2024 is also without any
merits. The said letter is for movement of the seized/ confiscated
goods under supardignama from the premises of M/s Samwon
Precision Mould Mfg Pvt. Ltd. to the premises of M/sElentec India
Pvt Ltd. The machineries seized have been confiscated by the
the impugned order in original dated 31.03.2017. The
confiscation has been upheld by the impugned order dated
11.01.2018. After confiscation the property in the confiscated
goods vests with the government. The letter dated 24.05.2024 is
reproduced bellow:-
Excise Appeal No.70588 of 2018
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4.5 In view of the above, we do not find any merits in these
submissions as the seized machines were confiscated by order
Excise Appeal No.70588 of 2018
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dated 31.03.2017 and allowed to be redeemed on payment of
redemption fine of Rs.75,10,000/-. The said order of confiscation
and redemption has been upheld by the Appellate Authority.
Both the orders were passed prior to the date of permission. At
the time of seizure or at the time of adjudication the goods were
not in premises of the appellant. Further, even as per this letter
these goods has been handed over through 'Supurdagi nama' for
supurdagi to the appellant. Thus the submissions made by the
appellant in this regard do not hold any water. From the date of
confiscation these goods are the property of Government of
India till due redemption fine is paid and in the interregnum
have been handed over to different person as evident from the
above letter for safe cusody..
4.6 As we find that undisputedly the goods has been removed
in contravention of provisions of Notification No.52/2003-Cus
and 22/2003-CE from the premises of the EOU to DTA unit of the
unconcerned party. We do not find any merits in the submissions
of the appellant. The demand for duty in respect of these goods
needs to be upheld.
4.7 It is also settled principle in law that fraud vitiates all. By
causing such removal knowingly from their premises to the DTA
unit without following any due procedure or after informing or
taking permission from the concern authorities, the appellant
cannot claim benefit of the said exemption notification. It is
settled principal in law that no one should be allowed the benefit
of his own wrongs. Once appellant has failed to follow the
procedures as prescribed and have removed these capital goods
without following the procedure laid down he cannot claim the
benefit of the said notifications it is settled principal in law that it
for the person claiming the exemption to show that he claim to
the exemption is justified as he fulfils the conditions of
exemption notification. Admittedly in the present case appellant,
in respect of these capital goods have failed to fulfill the
conditions so prescribed. Hon'ble Supreme Court has in case of
Dilip Kumar and Company [2018 (361) ELT 577 (SC)]] held as
follows:
Excise Appeal No.70588 of 2018
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"38. We will now consider another Constitution Bench
decision in Commissioner of Central Excise, New Delhi v.
Hari Chand Shri Gopal, (2011) 1 SCC 236 = 2010 (260)
E.L.T. 3 (S.C.) [hereinafter referred as „Hari Chand case‟ for
brevity]. We need not refer to the facts of the case which
gave rise to the questions for consideration before the
Constitutional Bench. K.S. Radhakrishnan, J., who wrote the
unanimous opinion for the Constitution Bench, framed the
question, viz., whether manufacturer of a specified final
product falling under Schedule to the Central Excise Tariff
Act, 1985 is eligible to get the benefit of exemption of
remission of Excise duty on specified intermediate goods as
per the Central Government Notification dated 11-8-1994, if
captively consumed for the manufacture of final product on
the ground that the records kept by it at the recipient end
would indicate its "intended use" and "substantial
compliance" with procedure set out in Chapter 10 of the
Central Excise Rules, 1944, for consideration? The
Constitution Bench answering the said question concluded
that a manufacturer qualified to seek exemption was
required to comply with the preconditions for claiming
exemption and therefore is not exempt or absolved from
following the statutory requirements as contained in the
Rules. The Constitution Bench then considered and
reiterated the settled principles qua the test of construction
of exemption clause, the mandatory requirements to be
complied with and the distinction between the eligibility
criteria with reference to the conditions which need to be
strictly complied with and the conditions which need to be
substantially complied with. The Constitution Bench followed
the ratio in Hansraj Gordhandas case (supra), to reiterate
the law on the aspect of interpretation of exemption clause
in para 29 as follows -
"The law is well-settled that a person who claims exemption
or concession has to establish that he is entitled to that
exemption or concession. A provision providing for an
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exemption, concession or exception, as the case may be,
has to be construed strictly with certain exceptions
depending upon the settings on which the provision has
been placed in the statute and the object and purpose to be
achieved. If exemption is available on complying with
certain conditions, the conditions have to be complied with.
The mandatory requirements of those conditions must be
obeyed or fulfilled exactly, thought at times, some latitude
can be shown, if there is failure to comply with some
requirements which are directory in nature, the non-
compliance of which would not affect the essence or
substance of the notification granting exemption."
39. The Constitution Bench then considered the doctrine of
substantial compliance and "intended use". The relevant
portions of the observations in paras 31 to 34 are in the
following terms -
"31. Of course, some of the provisions of an exemption
notification may be directory in nature and some are
mandatory in nature. A distinction between the provisions of
a 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
there nature, on the other, must be kept clearly
distinguished...
Doctrine of substantial compliance and "intended use"
32. The doctrine of substantial compliance is a judicial
invention, equitable in nature, designed to avoid hardship in
cases where a party does all that can reasonably be
expected of it, but failed or faulted in some minor or
inconsequent aspects which cannot be described as the
"essence" or the "substance" of the requirements. Like the
concept of "reasonableness", the acceptance or otherwise of
a plea of "substantial compliance" depends upon the facts
and circumstances of each case and the purpose and object
to be achieved and the context of the pre-requisites which
Excise Appeal No.70588 of 2018
20
are essential to achieve the object and purpose of the rule
or the regulation. Such a defence cannot be pleased if a
clear statutory pre-requisite which effectuates the object
and the purpose of the statute has not been met. Certainly,
it means that the Court should determine whether the
statute has been followed sufficiently so as to carry out the
intent for which the statute was enacted and not a mirror
image type of strict compliance. Substantial compliance
means "actual compliance in respect to the substance
essential to every reasonable objective of the statute" and
the Court should determine whether the statute has been
followed sufficiently so as to carry out the intent of the
statute and accomplish the reasonable objectives for which
it was passed.
33. A fiscal statute generally seeks to preserve the need to
comply strictly with regulatory requirements that are
important, especially when a party seeks the benefits of an
exemption clause that are important. Substantial
compliance with an enactment is insisted, where mandatory
and directory requirements are lumped together, for in such
a case, if mandatory requirements are complied with, it will
be proper to say that the enactment has been substantially
complied with notwithstanding the non-compliance of
directory requirements. In cases where substantial
compliance has been found, there has been actual
compliance with the statute, albeit procedurally faulty. The
doctrine of substantial compliance seeks to preserve the
need to comply strictly with the conditions or requirements
that are important to invoke a tax or duty exemption and to
forgive non-compliance for either unimportant and
tangential requirements or requirements that are so
confusingly or incorrectly written that an earnest effort at
compliance should be accepted.
34. The test for determining the applicability of the
substantial compliance doctrine has been the subject of a
myriad of cases and quite often, the critical question to be
Excise Appeal No.70588 of 2018
21
examined is whether the requirements relate to the
"substance" or "essence" of the statute, if so, strict
adherence to those requirements is a precondition to give
effect to that doctrine. On the other hand, if the
requirements are procedural or directory in that they are
not of the "essence" of the thing to be done but are given
with a view to the orderly conduct of business, they may be
fulfilled by substantial, if not strict compliance. In other
words, a mere attempted compliance may not be sufficient,
but actual compliance with those factors which are
considered as essential."
40. After considering the various authorities, some of
which are adverted to above, we are compelled to observe
how true it is to say that there exists unsatisfactory state of
law in relation to interpretation of exemption clauses.
Various Benches which decided the question of
interpretation of taxing statute on one hand and exemption
notification on the other, have broadly assumed (we are
justified to say this) that the position is well-settled in the
interpretation of a taxing statute : It is the law that any
ambiguity in a taxing statute should enure to the benefit of
the subject/assessee, but any ambiguity in the exemption
clause of exemption notification must be conferred in favour
of revenue - and such exemption should be allowed to be
availed only to those subjects/assesses who demonstrate
that a case for exemption squarely falls within the
parameters enumerated in the notification and that the
claimants satisfy all the conditions precedent for availing
exemption. Presumably for this reason the Bench which
decided Surendra Cotton Oil Mills case (supra) observed
that there exists unsatisfactory state of law and the Bench
which referred the matter initially, seriously doubted the
conclusion in Sun Export Case (supra) that the ambiguity in
an exemption notification should be interpreted in favour of
the assessee.
Excise Appeal No.70588 of 2018
22
41. After thoroughly examining the various precedents
some of which were cited before us and after giving our
anxious consideration, we would be more than justified to
conclude and also compelled to hold that every taxing
statute including, charging, computation and exemption
clause (at the threshold stage) should be interpreted
strictly. Further, in case of ambiguity in a charging
provisions, the benefit must necessarily go in favour of
subject/assessee, but the same is not true for an exemption
notification wherein the benefit of ambiguity must be strictly
interpreted in favour of the Revenue/State.
42. In Govind Saran Ganga Saran v. Commissioner of
Sales Tax, 1985 Supp (SCC) 205, this Court pointed out
three components of a taxing statute, namely subject of the
tax; person liable to pay tax; and the rate at which the tax
is to be levied. If there is any ambiguity in understanding
any of the components, no tax can be levied till the
ambiguity or defect is removed by the legislature [See
Mathuram Agrawal v. State of Madhya Pradesh, (1999) 8
SCC 667; Indian Banks‟ Association v. Devkala Consultancy
Service, (2004) 4 JT 587 = AIR 2004 SC 2615; and
Consumer Online Foundation v. Union of India, (2011) 5
SCC 360.].
43. There is abundant jurisprudential justification for this.
In the Governance of rule of law by a written Constitution,
there is no implied power of taxation. The tax power must
be specifically conferred and it should be strictly in
accordance with the power so endowed by the Constitution
itself. It is for this reason that the Courts insist upon strict
compliance before a State demands and extracts money
from its citizens towards various taxes. Any ambiguity in a
taxation provision, therefore, is interpreted in favour of the
subject/assessee. The statement of law that ambiguity in a
taxation statute should be interpreted strictly and in the
event of ambiguity the benefit should go to the
subject/assessee may warrant visualizing different
Excise Appeal No.70588 of 2018
23
situations. For instance, if there is ambiguity in the subject
of tax, that is to say, who are the persons or things liable to
pay tax, and whether the revenue has established
conditions before raising and justifying a demand. Similar is
the case in roping all persons within the tax net, in which
event the State is to prove the liability of the persons, as
may arise within the strict language of the law. There
cannot be any implied concept either in identifying the
subject of the tax or person liable to pay tax. That is why it
is often said that subject is not to be taxed, unless the
words of the statute unambiguously impose a tax on him,
that one has to look merely at the words clearly stated and
that there is no room for any intendment nor presumption
as to tax. It is only the letter of the law and not the spirit of
the law to guide the interpreter to decide the liability to tax
ignoring any amount of hardship and eschewing equity in
taxation. Thus, we may emphatically reiterate that if in the
event of ambiguity in a taxation liability statute, the benefit
should go to the subject/assessee. But, in a situation where
the tax exemption has to be interpreted, the benefit of
doubt should go in favour of the revenue, the aforesaid
conclusions are expounded only as a prelude to better
understand jurisprudential basis for our conclusion. We may
now consider the decisions which support our view.
44. In Hansraj Gordhandas case (supra), the Constitutional
Bench unanimously pointed out that an exemption from
taxation is to be allowed based wholly by the language of
the notification and exemption cannot be gathered by
necessary implication or by construction of words; in other
words, one has to look to the language alone and the object
and purpose for granting exemption is irrelevant and
immaterial.
45. In Parle Exports case (supra), a Bench of two-Judges
of this Court considered the question whether non-alcoholic
beverage base like Gold spot base, Limca base and Thumps
Up base, were exempted from payment of duty under the
Excise Appeal No.70588 of 2018
24
Central Government notification of March, 1975. While
considering the issue, this Court pointed out the strict
interpretation to be followed in interpretation of a
notification for exemption. These observations are made in
para 17 of the judgment, which read as follows :
"How then should the Courts proceed? The expressions 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. Union of India, 1962
Supp 3 SCR 481 = AIR 1963 SC 98. See also Kailash Nath
v. State of U.P., AIR 1957 SC 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 v. Frederick Wilkinson, (1878) 3 AC
355, 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 enacting an exception to the general rule of
Excise Appeal No.70588 of 2018
25
taxation are 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."
In the above passage, no doubt this Court observed that
"when two views of a notification are possible, it should be
construed in favour of the subject as notification is part of
fiscal document". This observation may appear to support
the view that ambiguity in a notification for exemption must
be interpreted to benefit the subject/assessee. A careful
reading of the entire para, as extracted hereinabove would,
however, suggest that an exception to the general rule of
tax has to be construed strictly against those who invoke for
their benefit. This was explained in a subsequent decision in
Wood Papers Ltd. case (supra). In para 6, it was observed
as follows :
"... In Collector of Central Excise v. Parle Exports (P) Ltd.,
(1989) 1 SCC 345, this Court while accepting that
exemption clause should be construed liberally applied
rigorous test for determining if expensive items like Gold
Spot base or Limca base of Thums Up base were covered in
the expression food products and food preparations used in
Item No. 68 of First Schedule of Central Excises and Salt Act
and held „that it should not be in consonance with spirit and
the reason of law to give exemption for non-alcoholic
beverage basis under the notification in question‟. Rationale
or ratio is same. Do not extend or widen the ambit at stage
of applicability. But once that hurdle is crossed construe it
liberally. Since the respondent did not fall in the first clause
of the notification there was no question of giving the clause
a liberal construction and hold that production of goods by
respondent mentioned in the notification were entitled to
benefit."
Excise Appeal No.70588 of 2018
26
46. The above decision, which is also a decision of two-
Judge Bench of this Court, for the first time took a view that
liberal and strict construction of exemption provisions are to
be invoked at different stages of interpreting it. The
question whether a subject falls in the notification or in the
exemption clause, has to be strictly construed. When once
the ambiguity or doubt is resolved by interpreting the
applicability of exemption clause strictly, the Court may
construe the notification by giving full play bestowing wider
and liberal construction. The ratio of Parle Exports case
(supra) deduced as follows :
"Do not extend or widen the ambit at stage of applicability.
But once that hurdle is crossed, construe it liberally".
47. We do not find any strong and compelling reasons to
differ, taking a contra view, from this. We respectfully
record our concurrence to this view which has been
subsequently, elaborated by the Constitution Bench in Hari
Chand case (supra).
48. The next authority, which needs to be referred is the
case in Mangalore Chemicals (supra). As we have already
made reference to the same earlier, repetition of the same
is not necessary. From the above decisions, the following
position of law would, therefore, clear. Exemptions from
taxation have tendency to increase the burden on the other
unexempted class of taxpayers. A person claiming
exemption, therefore, has to establish that his case squarely
falls within the exemption notification, and while doing so, a
notification should be construed against the subject in case
of ambiguity.
49. The ratio in Mangalore Chemicals case (supra) was
approved by a three-Judge Bench in Novopan India Ltd. v.
Collector of Central Excise and Customs, 1994 Supp (3) SCC
606 = 1994 (73) E.L.T. 769 (S.C.). In this case, probably
for the first time, the question was posed as to whether the
benefit of an exemption notification should go to the
Excise Appeal No.70588 of 2018
27
subject/assessee when there is ambiguity. The three-Judge
Bench, in the background of English and Indian cases, in
para 16, unanimously held as follows :
"We are, however, of the opinion that, on principle, the
decision of this Court in Mangalore Chemicals - and in Union
of India v. Wood Papers, referred to therein - represents the
correct view of law. The principle that in case of ambiguity,
a taxing statute should be construed in favour of the
assessee - assuming that the said principle is good and
sound - does not apply to the construction of an exception
or an exempting provision, they have to be construed
strictly. A person invoking an exception or an exemption
provision to relieve him of the tax liability must establish
clearly that he is covered by the said provision. In case of
doubt or ambiguity, benefit of it must go to the State...."
50. In Tata Iron & Steel Co. Ltd. v. State of Jharkhand,
(2005) 4 SCC 272, which is another two-Judge Bench
decision, this Court laid down that eligibility clause in
relation to exemption notification must be given strict
meaning and in para 44, it was further held -
"The principle that in the event a provision of fiscal statute
is obscure such construction which favours the assessee
may be adopted, would have no application to construction
of an exemption notification, as in such a case it is for the
assessee to show that he comes within the purview of
exemption (See Novopan India Ltd. v. CCE and Customs)."
51. In Hari Chand case (supra), as already discussed, the
question was whether a person claiming exemption is
required to comply with the procedure strictly to avail the
benefit. The question posed and decided was indeed
different. The said decision, which we have already
discussed supra, however, indicates that while construing
an exemption notification, the Court has to distinguish the
conditions which require strict compliance, the non-
compliance of which would render the assessee ineligible to
Excise Appeal No.70588 of 2018
28
claim exemption and those which require substantial
compliance to be entitled for exemption. We are pointing
out this aspect to dispel any doubt about the legal position
as explored in this decision. As already concluded in para 50
above, we may reiterate that we are only concerned in this
case with a situation where there is ambiguity in an
exemption notification or exemption clause, in which event
the benefit of such ambiguity cannot be extended to the
subject/assessee by applying the principle that an obscure
and/or ambiguity or doubtful fiscal statute must receive a
construction favouring the assessee. Both the situations are
different and while considering an exemption notification,
the distinction cannot be ignored."
4.8 Thus the claim to the depreciation has been rightly
rejected by the Original Authority by observing that the
depreciation could have been allowed only when the said goods
were cleared after obtaining approval from the Commissioner
and after payment of due customs duty. In absence of any such
procedure being followed, we do not find any merits in the said
claim of the appellant.
4.9 Impugned order has relied upon the decision of Mumbai
Bench in case of Mavi Industries Limited [2013 (289) ELT 72 (T-
Mum)] holding as follows:
"6.2 The next question for consideration is what should be
the value on which duty can be demanded on the capital
goods and whether the appellant would be eligible for any
depreciation or not. In the instant case, the goods are
imported under Notification No. 53/97, dated 3-6-1997.
Condition No. 5 of the said notification reads as follows :
"Where it is shown to the satisfaction of the Assistant
Commissioner of Customs that the said unit has been
allowed by the Development Commissioner or the said
Board to clear any of the said goods for being taken to any
other place in India in accordance with the Export and
Import Policy.
Excise Appeal No.70588 of 2018
29
(a) such clearance of capital goods, material handling
equipment, office equipment and captive power plants may
be allowed on payment of an amount equal to the customs
duty leviable on such goods on depreciated value thereof
and the rate in force on the date of payment of such duty;
(b) such clearance of goods (including container,
suitable for repeated use) other than those specified in
clause (a), may be allowed on payment of customs duty on
the value at the time of import and at rates in force on the
date of payment of such customs duty;
(c) such clearance of used packing materials such as
cardboard boxes, polyethylene bags of a kind unsuitable for
repeated use may be allowed without payment of any
customs duty."
6.3 A plain reading of the above condition makes it
absolutely clear that depreciation is permissible only when
the capital goods are cleared after getting approval from the
Development Commissioner for being taken to any other
place in India in accordance with the EXIM policy. In the
instant case no such permission has been obtained by the
appellant from the Development Commissioner and the
Development Commissioner has also not renewed the LOP
when it expired in September, 2001. In the absence of any
such permission, the question of allowing any depreciation
on the value of the capital goods does not arise. As regards
the duty demand on raw materials, if the raw materials are
consumed in the manufacture of goods exported, then the
demand of duty will not arise at all. Only in respect of raw
materials lying unutilized still remaining in the bonded
premises, the question of demand on duty on raw materials
would arise. In the case of raw materials the quantity and
value lying unutilized on the date of export of warehousing
period is not forthcoming from the records. If any such raw
materials were lying unutilized on the date of deemed
removal, they have to be assessed to Customs duty on the
Excise Appeal No.70588 of 2018
30
original value of the importation but at the rate prevailing
on the date of deemed removal.
This order has been set aside by the Hon'ble High Court [2013
(289) E.L.T. 15 (Bom.)] for some reason other than the denial of
depreciation, taking note of the fact that LOP has been
extended. The appeal against the order of High court has been
admitted by the Hon'ble Supreme Court as reported at [2016
(331) E.L.T. A128 (S.C.)]
4.10 In case of Champs On Web Pvt. Ltd. [2013 (290) E.L.T.
749 (Tri. - Bang.)], Bangalore bench has observed as follows:
6.After giving careful consideration to the submissions, we
are of the view that the circumstances in which the goods
were removed from the bonded premises were not properly
considered by the lower authorities. The Managing Director
of the company was suffering from cancer which is
evidenced by the available medical records. Now he is 70
years old. It is not in dispute that the warehouse licence
expired on 21-1-2004. The unit can, therefore, be deemed
to be de-bonded with effect from that date particularly, as
there was no objection from the STPI authorities. In the
circumstances, the demands of Customs and Excise duties
raised on the assessee have to be upheld. Therefore, the
assessee is liable to pay duties of Customs and Central
Excise on the imported and indigenous capital goods
respectively. However, the quanta of these dues require to
be re-worked out by the original authority after granting
depreciation of value in accordance with law. It goes without
saying that interest on Customs duty under Section 28AB of
the Customs Act and on Excise duty under Section 11AB of
the Central Excise Act has to be paid by the assessee at the
applicable rates on the correct amounts of duty.
7.Insofar as confiscation of the goods is concerned, we have
not found any reason to interfere with the impugned order.
However, in the facts and circumstances of the case, we are
inclined to reduce the quantum of fine to a reasonable
Excise Appeal No.70588 of 2018
31
extent. In our view, a fine of Rs. 50,000/- (fifty thousand)
will serve the purpose. Further, in the facts and
circumstances, we reduce the quantum of the penalty on
the assessee to Rs. 50,000/- (fifty thousand) and vacate the
penalty imposed on the Managing Director."
4.11 Reliance is placed by the appellant on the Order-in-Appeal
No.NOI-EXCUS-002-APP-1708-17-18 dated 19.02.2018 in the
case of M/s D&Y Technologies Pvt. Ltd. was not part of the
alleged contraventions made by the appellant. He has dropped
the penalties imposed. Dropping of penalties imposed on M/s
D&Y Technologies Pvt. Ltd. cannot said to be clean chit given to
the appellant in matter of clearance without following the due
procedure.
4.12 Taking note of all above, we are inclined to uphold the
order of confiscation of these machines but to reduce the
redemption fine imposed from Rs.75,10,000/- to Rs.50,00,000/-.
4.13 Penalties imposed on the appellant was alleged for the
above contraventions leading to evasion of duties needs to be
upheld in view of the Hon'ble Supreme Court decision in the case
of M/s Rajasthan Spinning & Weaving Mills Ltd. 2009 (238) ELT 3
(SC) and other decisions relied upon by the Appellate Authority.
4.14 In view of the discussions as above, impugned order is
upheld except for reduction of redemption fine to Rs.50,00,000/-
.
5.1 Appeal is partially allowed.
(Order pronounced in open court on-11 March, 2025) (P.K. CHOUDHARY) MEMBER (JUDICIAL) (SANJIV SRIVASTAVA) MEMBER (TECHNICAL) akp