Uttarakhand High Court
Commissioner Of Central Excise And ... vs Ms Tirupati Lpg Industries Ltd on 5 April, 2017
Author: Alok Singh
Bench: K.M. Joseph, Alok Singh
1
Reserved Judgment
IN THE HIGH COURT OF UTTARAKHAND AT NAINITAL
Central Excise Appeal No. 10 of 2015
Commissioner of Central Excise
& Service Tax. ............ Appellant
Versus
M/s Tirupati LPG Industries Ltd. ............. Respondent
Central Excise Appeal No. 11 of 2015
Commissioner of Central Excise
& Service Tax. ............ Appellant
Versus
M/s Tirupati LPG Industries Ltd. ............. Respondent
Central Excise Appeal No. 25 of 2015
Commissioner of Central Excise
& Service Tax. ............ Appellant
Versus
Gyan Chand Goyal. ............. Respondent
Central Excise Appeal No. 21 of 2015
Commissioner of Central Excise
& Service Tax. ............ Appellant
Versus
Gyan Chand Goyal. ............. Respondent
Central Excise Appeal No. 22 of 2015
Commissioner of Central Excise
& Service Tax. ............ Appellant
Versus
Gyan Chand Goyal. ............. Respondent
2
Central Excise Appeal No. 27 of 2015
Commissioner of Central Excise
& Service Tax. ............ Appellant
Versus
Ankit Garg. ............. Respondent
Central Excise Appeal No. 29 of 2015
Commissioner of Central Excise
& Service Tax. ............ Appellant
Versus
Arun Goyal. ............. Respondent
Central Excise Appeal No. 16 of 2015
Commissioner of Central Excise
& Service Tax. ............ Appellant
Versus
Arun Goyal. ............. Respondent
Central Excise Appeal No. 14 of 2015
Commissioner of Central Excise
& Service Tax. ............ Appellant
Versus
M/s Tirupati LPG Industries Ltd. ............. Respondent
Central Excise Appeal No. 12 of 2015
Commissioner of Central Excise
& Service Tax. ............ Appellant
Versus
M/s Tirupati LPG Industries Ltd. ............. Respondent
3
Central Excise Appeal No. 15 of 2015
Commissioner of Central Excise
& Service Tax. ............ Appellant
Versus
Arun Goyal. ............. Respondent
Central Excise Appeal No. 20 of 2015
Commissioner of Central Excise
& Service Tax. ............ Appellant
Versus
Ankit Garg. ............. Respondent
Central Excise Appeal No. 17 of 2015
Commissioner of Central Excise
& Service Tax. ............ Appellant
Versus
M/s Tirupati LPG Industries Ltd. ............. Respondent
Central Excise Appeal No. 13 of 2015
Commissioner of Central Excise
& Service Tax. ............ Appellant
Versus
Arun Goyal. ............. Respondent
Central Excise Appeal No. 18 of 2015
Commissioner of Central Excise
& Service Tax. ............ Appellant
Versus
Ankit Garg. ............. Respondent
4
Central Excise Appeal No. 19 of 2015
Commissioner of Central Excise
& Service Tax. ............ Appellant
Versus
Gyan Chand Goyal. ............. Respondent
Central Excise Appeal No. 28 of 2015
Commissioner of Central Excise
& Service Tax. ............ Appellant
Versus
Arun Goyal. ............. Respondent
Central Excise Appeal No. 24 of 2015
Commissioner of Central Excise
& Service Tax. ............ Appellant
Versus
Ankit Garg. ............. Respondent
Central Excise Appeal No. 26 of 2015
Commissioner of Central Excise
& Service Tax. ............ Appellant
Versus
Ankit Garg. ............. Respondent
Central Excise Appeal No. 23 of 2015
Commissioner of Central Excise
& Service Tax. ............ Appellant
Versus
Gyan Chand Goyal. ............. Respondent
5
Mr. Hari Mohan Bhatia, Advocate for the appellants.
Mr. V. Lakshmi Kumaran, with Mr. P.R. Mullick, Advocates for the respondents.
JUDGMENT
Coram: Hon'ble K.M. Joseph, C.J.
Hon'ble Alok Singh, J.
Dated: 5th April, 2017 K.M. JOSEPH, C.J.
These appeals arise from a common order passed by the Customs, Excise & Service Tax Appellate Tribunal, Principal Bench, New Delhi (hereinafter referred to as the "Tribunal"). The substantial questions of law raised are, essentially, the same. We would advert to the following substantial questions of law, which were admitted by the Court and on which notices were issued, as raised in CEXA No. 11 of 2015, which we would treat as the leading case:
"1. Whether by virtue of seeking addition of new items viz.
ACSR Conductors and Steel Tubular Poles in the original Central Excise Registration Certificate of the existing unit of M/s Tirupati LPG Cylinders, engaged in the manufacture of LPG Cylinders, with the Conductor Division and Cylinder Division units being part of the same factory (as evident from the party's action in not seeking a separate registration for the Conductor division), was it not necessary for the party to increase the capacity of the entire factory (comprising of Conductor & Cylinder Division) by 25% to qualify being benefited as per the stipulations of Notification No. 50/2003-CE dated 10.06.200 as the word 'unit' or 'industrial unit' in common parlance is understood as the factory premises as it was in this context of synonymy that the appellant had on 30.11.2002 sought the addition in their existing certificate of registration?
2. Whether the fact that the Conductor Division of the factory commenced the commercial production before 07.01.2003, does not make the party / respondent not eligible for availing the benefits of Notification No. 50/2003-CE dated 10.06.2003, as it has failed to adhere to its stipulations in having failed to commence commercial production on or after 07.01.2003?"6
2. M/s Tirupati LPG Industries Ltd. (hereinafter referred to as the "Company") was registered with the Central Excise Department and was engaged in the manufacture of LPG Cylinders. The factory is located in the industrial area Selakui, Dehradun. The Company addressed letter dated 30.11.2002 indicating that it wished to start manufacturing of ACSR Conductor and Steel Tubular Poles. A request was made that these products be endorsed in the existing central excise registration certificate. The Company addressed letter dated 11.07.2003. Therein, they indicated that they have started manufacturing of ACSR Conductors w.e.f. 01.04.2003. It was pointed out that they would be availing excise exemption benefits under Notification No. 50/2003-CE dated 10.06.2003 as a new industrial unit. The SSI Registration showing the product ACSR Conductor being endorsed w.e.f. 01.04.2003 was made available (photocopy). The Company addressed another letter dated 27.11.2003 giving description of the goods and giving the date on which the option under Notification No. 76/2003 dated 05.11.2003 was exercised, which was 20.07.2003. It was stated that the unit was a new one. A clarification was sought by the Superintendent of Central Excise vide letter dated 06.08.2004 in regard to the discrepancy noted in letters dated 11.07.2003 and 27.11.2003, as, while on the one hand, in letter dated 11.07.2003, 01.04.2003 was intimated as the date of production of the Conductors, on the other hand, in letter dated 27.11.2003, 20.07.2003 was shown as the date on which the option under the Notification was exercised. Response from the Company came in the form of communication dated 17.08.2004, wherein it inter alia stated that the Company had commissioned the plant and machinery for the manufacture of ACSR Conductors in the month of April, 2003 and also commenced production of the same; and that there was an expansion programme pertaining to cylinders in process and they filed a composite declaration on 06.01.2004, wherein grounds of exemption for both the products were mentioned. The Department took the stand, apparently, that the Company had evaded central excise duty on the clearances of Aluminium Wire with Steel 7 Core (WEASEL) & Aluminium Wire with Steel Core (DOG), inasmuch as, (i) there was discrepancy in the dates, and (ii) the case of the Company of a new unit (Conductor Division) was not correct, as the Khasra Nos. 238/1, 238/2, 235 & 237, at which the Conductor Division was situated, were the same as the one in which the Cylinder Division was situated and it could not be a new unit. The department's case, further, was that the Company had started commercial production of the Conductors well before 07.01.2003 and, hence, the contention that the Conductor Division is a new unit was questioned. The Company also claimed the benefit of the Notification in Clause 2(b) on the score that it had undertaken an expansion of its capacity by more than 25 per cent. The stand of the department, apparently, was that condition in Clause 2(b) of the Notification dated 10.06.2003 was not satisfied insofar as the documentary evidence produced by the Company in the form of Engineer's Certificate did not mention about the enhancement of the installed capacity in regard to the Conductor Division. In other words, the stand of the Department was that there were two types of manufacturing divisions, namely, the Cylinder Division and the Conductor Division. Therefore, the installed capacity must be of both the Divisions together. The enhancement of installed capacity only relating to the Cylinder Division would not suffice to claim benefit under Clause 2(b). Show-cause notices were issued proposing to levy duty, besides interest and penalty. After giving an opportunity to the Company, the Commissioner proceeded to take the view that the Company had not correctly availed exemption in the clearances of the excisable goods. It is, inter alia, found with reference to the CBEC's Excise Manual of Supplementary Instructions that, in respect of provisions for registration under Rule 9 of the Central Excise Rules, 2002, separate registration is required in respect of separate premises, only except in cases where two or more premises are actually part of the same factory (where process are interlinked) but are segregated by a public road, canal, railway line, etc. It was found that, if the intention of the Company was to create a new unit in separate premises, they would 8 have applied for separate registration. It was found that there was no new unit. In the balance-sheet for the years 2002-2003 and 2003- 2004, both the units were shown simultaneously, wherein, apart from mentioning their depreciation on investment, they are shown together. The balance-sheet is referred to in order to find that they do not show separate units, but a common balance-sheet. It is, further, found that the Conductor unit is not separate from the Cylinder unit in legal terms. The following finding may be seen:
"22.3 The noticee in his defence put forth a plea that no commercial production of ACSR conductor was commenced before 01.04.2003 and officers of DIC, Dehradun after visiting their unit in March, 2003, added ACSR conductor in their certificate having started commercial production w.e.f. 01.04.2003. On perusal of the certificate, it came to notice that apart from entry for LPG cylinder, there is another entry for AACR/ACSR conductor as additional product (01.04.2003). In this regard, it is observed that the date 01.04.2003 written alongside the words "Additional Product: AACR conductors / ACSR" only signifies that the said endorsement was made on 01.04.2003 and that the production of the said commodity was commenced on 01.04.2003. In this regard, attention may be drawn to date of issue of the initial certificate by DIC, in respect of cylinders which is 30.06.2001 but the date of production is mentioned as 30.01.2001. This proves that the date of production can be earlier to the date of issue of the certificate. As already pointed out above, all main machines were available with the noticee before 04.01.2003 and new Die continues wire drawing machine was purchased only on 05.04.2003. On the basis of machines purchased during October - December, 2002, DIC has endorsed the registration. Therefore, it may be said that the ACSR conductor division was existing before 07.01.2003 and thus it is not a new unit in terms of notification no. 50/2003-CE dated 10.06.2003."
The Notifications:
3. It is necessary to have a look at the Notifications. On 10.06.2003, Notification No. 50/2003-CE came to be issued. It reads as follows:
"In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944) read 9 with sub-section (3) of Section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957) and sub-section (3) of section 3 of the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 (40 of 1978), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the goods specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), other than the goods specified in Annexure-I appended hereto, and cleared from a unit located in the Industrial Growth Centre or Industrial Infrastructure Development Centre or Export Promotion Industrial Park or Industrial Estate or Industrial Area or Commercial Estate or Scheme Area, as the case may be, specified in Annexure-II appended hereto, from the whole of the duty of excise or additional duty of excise, as the case may be, leviable thereon under any of the said Acts.
Provided that the exemption contained in this notification shall apply subject to the following conditions, namely:-
(i) The manufacturer who intends to avail of the exemption under this notification shall exercise his option in writing before effecting the first clearance and such option shall be effective from the date of exercise of the option and shall not be withdrawn during the remaining part of the financial year;
(ii) The manufacturer shall, while exercising the option under condition (i), inform in writing to the jurisdictional Deputy Commissioner of Central Excise or Assistant Commissioner of Central Excise, as the case may be, with a copy to the Superintendent of Central Excise giving the following particulars, namely:-
(a) name and address of the manufacturer;
(b) location / locations of factory / factories;
(c) description of inputs used in manufacture of specified goods;
(d) description of the specified goods produced;
(e) date on which option under this notification has been exercised;
(iii) The manufacturer may, for the current financial year, submit his option in writing on or before the 30th day of November, 2003.
2. The exemption contained in this notification shall apply only to the following kinds of units, namely:-
(a) new industrial units which have commenced their commercial production on or after the 7th day of January, 2003;
(b) industrial units existing before the 7th day of January, 2003, but which have undertaken substantial expansion by way of increase in 10 installed capacity by not less than twenty five per cent, on or after the 7th day of January, 2003.
3. The exemption contained in this notification shall apply to any of the said units for a period not exceeding ten years from the date of publication of this notification in the Official Gazette or from the date of commencement of commercial production, whichever is later."
4. Actually, in Notification No. 50/2003-CE dated 10.06.2003, the proviso was not there. The proviso was inserted by Notification No. 76/2003-CE dated 05.11.2003.
5. In Annexure-II relating to the State of Uttaranchal, under district Dehradun, at Serial No. 11, is mentioned "Selakui Industrial Region" in Column 2 under the heading "Name of the Industrial Estate / Area / Region". In the third column, under the heading "Name of Villages coming in Industrial Estate / Areas", village "Selakui" is mentioned. Under the heading "Khasra Nos.", there is reference expressly to Khasra Nos. 235 to 259 and 260. The Tehsil, which is the last column, is indicated as Vikasnagar.
6. Still later, by Notification No. 27/2004-CE dated 09.07.2004, clause (2) was substituted.
7. There is a further amendment vide Notification No. 27/2005- CE dated 19.05.2005. By the said amendment, a new paragraph 2 was substituted. It reads as follows:
"2. The exemption contained in this notification shall apply only to the following kinds of units, namely:-
(a) new industrial units set up in areas mentioned in Annexure-II and Annexure-III, which have commenced commercial production on or after the 7th day of January, 2003, but not later than the 31st day of March, 2007;
(b) industrial units existing before the 7th day of January, 2003 in areas mentioned in Annexure-II, but which have undertaken substantial expansion by way of increase in installed capacity by not less than twenty-five per cent, on or after the 7th day of 11 January, 2003, but have commenced commercial production from such expanded capacity, not later than the 31st day of March, 2007."
8. Likewise, by the same amendment, in Annexure-II under the sub-heading "district Dehradun", as against Serial No. 11 in Column 3, it was substituted as follows:
"in column (3), for the existing entry, the entry "Village Selakui, Central Hope Town and Camp Road"
9. Lastly, by Notification issued in the year 2006, the words "not later than the 31st day of March, 2007", occurring in both clauses
(a) & (b) of paragraph 2, stand substituted by the words "not later than the 31st day of March, 2010".
10. It is on the said basis that the duty was found to be recoverable along with interest and imposition of penalty on the Company including upon the Directors. This led to appeals being filed before the Tribunal. The Tribunal, by its order, has allowed the appeals. The following is the finding recorded by the Tribunal:
"7.1 We do not agree with the contention of the Department. The notification NO.50/03-CE dated 10.06.03 exempts from duty the goods other than those mentioned in Annexure I of the notification which has been cleared from a unit located in the Industrial Growth Centres or Industrial Infrastructure Development Centres or Export Promotion Industrial Park, or Industrial Estates or Industrial areas or Commercial Estates or Scheme Areas as the case may be specified in Annexure II and Annexure III appended thereto. The Industrial areas, Industrial estates etc. are specified in Annexure II and Annexure III. In the table appended to the notification in Annexure II and III, while the 2nd column mention the name of the Industrial area, Industrial estate etc. the 3rd and 5th columns mention the village and the Tehsil under which the Industrial area/ Industrial estate etc. falls. Column 4 mentions the khasra number of the plots of land of which the Industrial area/ Industrial estate comprises. In this case the appellant s factory is located at khasra No. 235,237,238/1 and 238/2 of Selakui Industrial Region located in Tehsil Vikas Nagar, District Dehradun. Even during period prior to 19/05/05, in Annexure II under the list of 12 "Existing Industrial Estates /Region of District Dehradun"
Selakui Industrial region" of tehsil vikasnagar is mentioned against S.No. 11 and against "Selakui Industrial Region"
among the khasra numbers, the khasraNos 235 to 257 are mentioned. Therefore the factory of the appellant unit has to be treated as located in the notified Industrial area and therefore eligible for exemption even during the period prior to 19/5/05. By notification No. 27/05-CE dated 19.5.05, against S.No 11 of the list of existing Industrial areas of District Dehradun given in Annexure II, only the name of the village mentioned in 3rd column against "Selakui Industrial Region" was changed from "Selakui" to "Village Selakui", Central Hope Town and Camp Road The amendment by notification No. 27.05-CE dated 19.5.05, by which the name of the village in which the Industrial Area "Selakui Industrial Region" falls was changed, is in our view, only a clarificatory amendment. Though, by the amending notification dated 19.5.05, some minor changes were made, the Khasra No. 235 to 243 still remain covered under this Industrial Area. For the purpose of this exemption notification, what is relevant is as to whether the manufacturing unit is located in the Industrial area/ estate mentioned in Annexure II and III and the khasra no. of the plot of land on which the unit is located is mentioned against that Industrial area. Just because the village in which the Industrial area falls was wrongly mentioned and the village name is corrected by amending notification, it does not mean that before the amendment, the unit was not located in the notified Industrial area and was not eligible for exemption."
11. In regard to the question relating to the conductor unit being eligible for exemption, the Tribunal held that the conductor unit was set up during October, 2002 to December, 2002 period. It is, further, held that there is no dispute that, during this period, a total of 3000 meters had been manufactured and only 300 meters were cleared on payment of duty. The production increased during January, 2003 to March, 2003 to 46137 meters. During April, 2003 to June, 2003, the production increased to 442100 meters. Adverting to the word "new", it was held as follows:
"8.3 The word "new", as per Chambers' 21sth Century Dictionary means - "recently made, brought, built, ---- ,etc. recently discovered, never having existed, before, just invented,
- recently arrived, installed" and as per Little Oxford Dictionary, 7th Edition, the word "new" means - "of recent origin or arrival; made, discovered or acquired or experienced 13 for the first time, unfamiliar -" In our view, in the context of this notification, the work 'new' must be construed as not existing earlier.
8.4 Now, the new industrial unit cannot be the one commencing commercial production on or before after 10/6/03, the date of issue of exemption notification - as, if this meaning is adopted, the condition of commencing commercial production on or after 7/1/03 would become redundant. Therefore, the word "new" has to be construed with regard to the reference date "7/1/03". Since a new industrial unit which has commenced production on 7/1/03, has to be set up i.e. erected and installed before 7/1/03, this notification would also cover these unit, which had been set up before 7/1/03, but commenced commercial production on or after 7/1/03. Therefore, "new industrial unit" would include not only those units set up on or after 7/1/03, but would also include those industrial units which have been set before 7/1/03. But the new industrial unit set up either on or after 7/1/03 or set up prior to 7/1/03, must, for being eligible for the exemption satisfy the condition of having commenced their commercial production on or after 7/1/03. This condition becomes important for the units set up before 7/1/03, as the units set up on or after7/1/03 would naturally have commenced their commercial production on or after 7/1/03 and thereby would satisfy this condition. If an Industrial unit installed prior to 7/1/03 had commenced its commercial production prior to 7/1/03, it would be out of the purview of the notification. For this purpose, distinction has to be made between "Commercial Production" and "Trial Production". Though the term "commercial production" is not defined in this notification, it should be construed in contradistinction with the term "Trial Production" Trial Production is followed by commercial production. Trial Production is the production during the process of commissioning of a plant. The process of commissioning of a manufacturing plant starts after completion of erection installation. During commissioning, various machinery is run on trial/test basis and if the production is not of the desired quantity and if the desired quality, the necessary adjustments are made. The running of a plant during its commissioning is only a trial run meant to make the necessary adjustments in the machinery and calibrate them to optimise their productivity. Commercial Production starts only when the commissioning i.e. trial run is complete. Though during trial run, there may be some production and the manufacturer may have sold the same, the plant cannot be said to have commenced commercial production during that phase. The plant can be treated as having commenced commercial production only after completion of trial run i.e. commissioning."14
12. It was found that production during the period prior to April, 2003 was only trial production. Merit was found in the contention of the Company that commercial production started in April, 2003 and, therefore, it became eligible for exemption from July, 2003 when the necessary declaration was filed. Thereafter, the Tribunal proceeded to deal with the cylinder unit and found merit in the contention that capacity expansion need not be achieved in each section or part of the factory. A factory manufacturing more commodities in different sections has to be treated as consisting of more than one manufacturing unit. The capacity expansion of the entire factory is not required.
13. Before us, we heard Mr. H.M. Bhatia, learned counsel appearing on behalf of the appellant and Mr. V. Lakshmi Kumaran, learned counsel on behalf of the respondents.
14. Arguments were addressed on the merit of the matter by the learned counsel for both the sides. However, Mr. V. Lakshmi Kumaran, learned counsel for the respondents also raised objections regarding the maintainability of the appeals under Section 35G of the Central Excise Act, 1944 (hereinafter referred to as the "Excise Act").
Whether these appeals lie under Section 35G of the Excise Act:
15. Section 35G of the Excise Act providing for an appeal to the High Court against an order of the Tribunal came into being on the basis of Act No. 32 of 2003 w.e.f. 14.05.2003. The same reads as follows:
"35G. Appeal to High Court. - (1) An appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal on or after the 1st day of July, 2003 (not being an order relating, among other things, to the determination of any question having a relation to the rate of duty of excise or to the value of goods for purposes of 15 assessment), if the High Court is satisfied that the case involves a substantial question of law.
(2) The Commissioner of Central Excise or the other party aggrieved by any order passed by the Appellate Tribunal may file an appeal to the High Court and such appeal under this sub-section shall be -
(a) filed within one hundred and eighty days from the date on which the order appealed against is received by the Commissioner of Central Excise or the other party;
(b) accompanied by a fee of two hundred rupees where such appeal is filed by the other party;
(c) in the form of a memorandum of appeal precisely stating therein the substantial question of law involved.
(2A) The High Court may admit an appeal after the expiry of the period of one hundred and eighty days referred to in clause (a) of sub-section (2), if it is satisfied that there was sufficient cause for not filing the same within that period.
(3) Where the High Court is satisfied that a substantial question of law is involved in any case, it shall formulate that question.
(4) The appeal shall be heard only on the question so formulated, and the respondents shall, at the hearing of the appeal, be allowed to argue that the case does not involve such question:
Provided that nothing in this sub-section shall be deemed to take away or abridge the power of the Court to hear, for reasons to be recorded, the appeal on any other substantial question of law not formulated by it, if it is satisfied that the case involves such question.
(5) The High Court shall decide the question of law so formulated and deliver such judgment thereon containing the grounds on which such decision is founded and may award such cost as it deems fit.
(6) The High Court may determine any issue which -
(a) has not been determined by the Appellate Tribunal; or
(b) has been wrongly determined by the Appellate Tribunal, by reason of a decision on such question of law as is referred to in sub-section (1). (7) When an appeal has been filed before the High Court, it shall be heard by a bench of not less than two Judges of the High Court, and shall be decided in accordance with the opinion of such Judges or of the majority, if any, of such Judges.
(8) Where there is no such majority, the Judges shall state the point of law upon which they differ and the case shall, then, be heard upon that point only by one or more of the other Judges of the High Court and such point shall be decided 16 according to the opinion of the majority of the Judges who have heard the case including those who first heard it.
(9) Save as otherwise provided in this Act, the provisions of the Code of Civil Procedure, 1908 (5 of 1908), relating to appeals to the High Court shall, as far as may be, apply in the case of appeals under this section."
16. We may also notice Section 35L of the Excise Act as it stood prior to the amendment effected by Act No. 25 of 2014 inserting sub- section (2) w.e.f. 06.08.2014. It reads as follows:
"35L. Appeal to the Supreme Court -- An appeal shall lie to the Supreme Court from --
(a) any judgment of the High Court delivered -
(i) in an appeal made under section 35G; or
(ii) on a reference made under section 35G by the
Appellate Tribunal before the 1st day of July,
2003;
(iii) on a reference made under section 35H,
in any case which, on its own motion or on an oral application made by or on behalf of the party aggrieved, immediately after passing of the judgment, the High Court certifies to be a fit one for appeal to the Supreme Court; or
(b) any order passed [before the establishment of the National Tax Tribunal by the Appellate Tribunal relating, among other things, to the determination of any question having a relation to the rate of duty of excise or to the value of goods for purposes of assessment."
17. Even though the said provisions stood repealed by the National Tax Tribunal Act, 2005 w.e.f. 28.12.2005, the repealing Act, in turn, came to be challenged before the Apex Court and by the decision rendered in Madras Bar Association vs. Union of India & another, reported in (2014) 10 SCC 1, the repealing Act itself came to be struck down as being unconstitutional.
18. Learned counsel for the respondents would point out that the appeals would lie only under Section 35L before the Apex Court. He, originally, relied on the decision of the Apex Court in the cases of Navin Chemicals Mfg. & Trading Co. Ltd. vs. Collector of 17 Customs, reported in 1993 (68) ELT 3 (SC); CCE, Mangalore vs. Mangalore Refineries & Petrochemicals Ltd., reported in 2011 (270) ELT 49 (Kar); Commissioner of Customs & C. Ex. Vs. Eco Products (I) P. Ltd., reported in 2015 (315) ELT 561 (All.); and Commissioner of Central Excise, Panchkula vs. Special Machine, reported in 2009 (242) ELT 330 (P&H). The argument is that the question decided by the Tribunal in this case is directly related to the rate of duty. A question having a relation with rate of duty is the exclusive preserve of the Apex Court on a conjoint reading of Sections 35G and 35L. If an exemption is available, the rate of duty will become zero or nil when there is a complete exemption. If there is only a partial exemption, the rate of duty will be reduced from the normal rate in accord with the terms of the exemption notification. When the Tribunal decides that the goods are exempted under the notification, it would have a direct impact on the rate of duty. Therefore, the appeal would lie before the Apex Court.
19. The decision of the Apex Court in Navin Chemical's case (supra) has been the starting point of a line of decisions, which have dealt with the meaning of the words "any question having a relation with rate of duty". The matter arose under the Customs Act, wherein the words "determination of any question having a relation to the rate of duty for the purpose of assessment" are common to the provisions contained under Sections 35G and 35L. The court held as follows:
"7. The controversy, therefore, relates to the meaning to be given to the expression 'determination of any question having a relation to the rate of duty of customs or to the value of goods for purposes of assessment'. It seems to us that the key lies in the words 'for purposes of assessment' therein. Where the appeal involves the determination of any question that has a relation to the rate of customs duty for the purposes of assessment that appeal mast be heard by a Special Bench. Similarly, where the appeal involves the determination of any question that has a relation to the value of goods for the purposes of assessment, that appeal must be heard by a Special Bench. Cases that relate to the rate of customs duty for the purposes of assessment and which relate to the value of goods for the 18 purposes of assessment are advised treated separately and placed before Special Benches for decision because they, more often than not, are of importance not only to the importers who are parties thereto but also to many other importers who import or propose to import the same or similar goods. Since the decisions of CEGAT in such matters would have wide application they are, by the terms of the statute, to be rendered by Special Benches. The phrase 'relation to" is, ordinarily, of wide import but, in the context of its use in the said expression in Section 129-C, it must be read as meaning a direct and proximate relationship to the rate of duty and to the value of goods for the purposes of assessment.
20. More importantly, the court adverted to Section 129D of the Customs Act. The said section actually dealt with the powers of the Board and the Collector of Customs to revise proceedings of the subordinate authorities. The crucial provision was, however, sub- section (5). The same was introduced by the amendment in 1988. The same reads as follows:
"(5) The provisions of this section shall not apply to any decision or order in which the determination of any question having a relation to the rate of duty or to the value of goods for the purposes of assessment of any duty is in issue or is one of the points in issue.
Explanation - For the purposes of this sub-section, the determination of a rate of duty in relation to any goods or valuation of any goods or valuation of any goods for the purposes of assessment of duty includes the determination of a question.-
(a) relating to the rate of duty for the time being in force, whether under the Customs Tariff Act, 1975 (51 of 1975), or under any other Central Act providing for the levy and collection of any duty of customs, in relation to any goods on or after the 28th day of February, 1986; or
(b) relating to the value of goods for the purposes of assessment of any duty in cases where the assessment is made on or after the 28th day of February, 1986; or
(c) whether any goods fall under a particular heading or sub-heading of the First Schedule or the Second Schedule to the Customs Tariff Act, 1975 (51 of 1975), or that any goods are or not covered by a particular notification or order issued by 19 the Central Government granting total or partial exemption from duty; or
(d) whether the value of any goods for the purposes of assessment of duty shall be enhanced or reduced by the addition or reduction of the amounts in respect of such matters as are specifically provided in this Act."
21. Thereafter, the court held as follows:
"11. It will be seen that Sub-section 5 uses the said expression 'determination of any question having a relation to the rate of duty or to the value of goods for the purposes of assessment' and the Explanation thereto provides a definition of it 'for the purposes of this sub-section'. The Explanation says that the expression includes the determination of a question relating to the rate of duty; to the valuation of goods for purposes of assessment; to the classification of goods under the Tariff and whether or not they are covered by an exemption notification; and whether the value of goods for purposes/of assessment should be enhanced or reduced having regard to certain matters that the said Act provides for. Although this Explanation expressly confines the definition of the said expression to Sub- section 5 of Section 129-D, it is proper that the said expression used in the other parts of the said Act should be interpreted similarly. The statutory definition accords with the meaning we have, given to the said expression above. Questions relating to the rate of duty and to the value of goods for purposes of assessment are questions that squarely fall within the meaning of the said expression. A dispute as to the classification of goods and as to whether or not they are covered by an exemption notification relates directly and proximately to the rate of duty applicable thereto for purposes of assessment. Whether the value of goods for purposes of assessment is required to be increased or decreased is a question that relates directly and proximately to the value of goods for purposes of assessment. The statutory definition of the said expression indicates that it has to be read to limit its application to cases where, for the purposes of assessment, questions arise directly and proximately as to the rate of duty or the value of the goods.
12. This, then, is the test for the purposes of determining whether or not an appeal should be heard by a Special Bench of CEGAT, whether or not a reference by CEGAT lies to the High Court and whether or not an appeal lies directly to the Supreme Court from a decision of CEGAT : does the question that requires determination have a direct and proximate relation, for the purposes of assessment, to the rate of duty applicable to the goods or to the value of the goods."20
22. Following the said judgment, in a case decided on 01.09.2010, a Bench of the Karnataka High Court in CCE, Mangalore vs. Mangalore Refineries & Petrochemicals Ltd., reported in 2011 (270) ELT 49 (Kar.), took the view that an order of the appellate Tribunal deciding the issue whether the goods are entitled to exemption relates to the rate of duty and the appeal before the High Court was not maintainable. We may, incidentally, notice from para 7 of the said judgment that, actually, the order of the Tribunal was that the product in question was not marketable and it is not exigible; but the assessee questioned the maintainability of the appeal also on the ground that, even if the goods were exigible, the further question would arise as to whether the duty payable was completely exempted by way of a notification. The learned Judges proceeded to deal with, inter alia, the meaning of the words "rate of duty" and noted, to begin with, the explanation to Section 35E, which was identical to explanation added under the Customs Act, which was considered in Navin Chemical's case (supra). The learned Judges also referred to a judgment of the Apex Court in paragraph 27, which reads as follows:
"27. The Supreme Court had an occasion to consider the meaning of the word "rate" in Sundaram and Company (Private) Limited v. Commissioner of Income Tax, Madras [1967 Vol. 66 ITR 604] where it was held as under:-
"The assumption that the expression "rate" has been used in Section 34(1) as meaning a fraction of total income is, in our judgment, not warranted. By the use of the expression "rate" in the context in which it occurs, undoubtedly a relation between the taxable income and the tax charged is intended, but the relation need not be of the nature of proportion of fraction. The expression "rate"
is often used in the sense of a standard or measure.
Provided the tax is computable by the application of a prescribed standard or measure, though not directly related to taxable income, it may be called tax computed at a certain rate. We agree with the High Court that the rebate of tax and the reduction of such rebate are essentially matters of measure or standard of rate.""
23. The court noted that the explanation was, actually, not brought 21 into force. It purported to refer to the judgment of the Bombay High Court in Commissioner of Central Excise, Nagpur vs. Universal Ferro and Allied Chemicals Ltd., reported in 2009 (234) ELT 220 (Bom.). In paragraph 41 of the judgment, the learned Judges proceeded to take the view that the argument that the rate of tax means only the rate at which the tax is payable or a fraction is unsustainable. We may refer to paragraphs 41 and 42 of the judgment, which read as follows:
"41. Therefore, the expression 'rate' is often used in the sense of standard or measure. 'Rate' generally is an impost, usually for current or recurrent expenditure spread over a district or other local area and is distinct from an amount payable for work done upon or in respect of particular premises. 'Rate' is defined by Webster to be the price or amount stated or fixed for anything. The word 'rate' includes any toll, due, rent, rate of charge. It means the scale of amount of any other charges. The word 'rate' is used with reference both to a percentage or proportion of taxes, and to a valuation of property. 'Rate' is used in an Act declaring that the Legislative Assembly shall provide by law for a uniform and equal rate of taxation and assessment, applies to the percentage of fixation, as used in connection with 'taxation' and to the valuation of the property, as used in connection with 'assessment'. It is a valuation of every man's estate or setting down how every one shall pay, or be charge with, to any tax. By the use of the expression 'rate' a relation between the taxable income and the tax charge is intended, but the relation need not be of the nature of proportion of fraction. The Explanation to sub-section (5) of Section 35E of the Central Excise Act, the expression includes the determination of a question relating to the rate of duty, to the value of goods for the purposes of assessment; to the classification of goods under the Tariff and whether or not they are covered by an exemption notification; and whether the value of goods for the purposes of assessment should be enhanced or reduced having regard to certain matters that the said Act provides for. Questions relating to the rate of duty an to the value of goods for purposes of assessment are questions that squarely fall within the meaning of the said expression. A dispute as to the classification of goods and as to whether or not they are covered by an exemption notification relates directly and proximately to the rate of duty applicable thereto for purposes of assessment. Whether the value of goods for purposes of assessment is required to be increased or decreased is a question that relates directly an proximately to the value of goods for purposes of assessment. Determination of rate of duty 22 in relation to any goods include determination of a question whether any goods or not, whether the process if any undertaken in the service centre amounts to manufacture or not, and if the goods produced during that process are excisable goods or not would fall within the meaning of the expression 'determination of the rate of duty of excise or the value of the goods for the purposes of assessment of duty' used in Section 35G(1) and Section 35L(b) of the Act. Therefore, the phrase 'rate of tax' does not mean fraction of tax payable because what is the tax payable i.e. fraction payable is decided by the legislature. Once that is prescribed by the legislature in the Act, the Court cannot sit in judgment and alter or modify the said rate of tax. The Court has no jurisdiction to go into the correctness or otherwise of the rate of tax payable in the sense the rate prescribed by the legislature. Therefore, the argument that the rate of tax means only the rate at which tax is payable or a fraction is unsustainable.
42. Broadly the following disputes do not fall within the jurisdiction of High Court under Section 35(g) of the Act :-
(a) Dispute relating to the duty of excise payable on any goods.
(b) The value of the goods for the purposes of assessment.
(c) A dispute as to the classification of foods.
(d) Whether those goods are covered by an exemption notification or not.
(e) Whether the value of goods for the purposes of assessment is required to be increased or decreased.
(f) The question of whether any goods are excisable goods or not.
(g) Whether a process is a manufacturing process or not, so as to attract levy of excise duty.
(h) Whether a particular goods fall within which heading, sub-heading or tariff item or the description of goods as mentioned in column No. 3 of the Central Excise Tariff Act, 1985."
24. It is equally apposite to note the rationale projected in paragraph 44 of the said judgment, which reads as follows:
"44. The intention behind this bifurcation of jurisdiction between the Apex Court and the High Court seems to be that more often than not, any decision on these aforesaid aspects not only affects the interest of the manufacturers who are parties thereto, but also to the manufacturers of those products throughout the country. In a country governed by Parliamentary legislation because of the territorial bifurcation in forming states and because of the divergent opinion which is possible, the excise duty payable would vary from place to place. In 23 order to, bring uniformity in the levy of excise duty throughout the country and consequently to see that the country's finance is not affected, the Parliament has vested the jurisdiction to decide the disputes with the Apex Court. Therefore, we see a duty policy underlining this bifurcation of the jurisdiction between the Apex Court and the High Courts. All other matters other than what is set out above, which relates to the individual manufacturers and all disputes based on assessment orders which have attained finality, such as the benefits to which they are entitled to, refunds, duty drawbacks, rebates, etc., which relate to a particular manufacturer falls within the jurisdiction of the High Courts."
25. The said reasoning has been followed by the Allahabad High Court in Commissioner of Customs and Central Excise vs. Eco Products (I) P. Ltd., reported in 2015 (315) ELT 561 (All.). We may also notice that the judgment of the Punjab & Haryana High Court in Commissioner of Central Excise, Panchkula vs. Special Machine, reported in 2009 (242) ELT 330 (P&H), which was also relied upon by the Allahabad High Court, has taken a similar view. In fact, in the decision of the Punjab & Haryana High Court, the appeal was filed under Section 35G before the High Court. The question of law related to the availability of the exemption notification in a case, where it was the department's case that there was a clubbing of clearances by various units and in the facts otherwise arising. The Division Bench proceeded to refer to the judgment of the very same court. Besides, it drew support from the judgment of the Apex Court in Navin Chemical's case (supra) and held that a dispute as to whether or not the assessee is covered by an exemption notification relates directly and proximately to the rate of duty applicable thereto for the purpose of assessment.
26. In the decision of the Bombay High Court in Union of India vs. Auto Ignation Ltd., reported in 2002 (142) ELT 292 (Bom.), the question was as to whether the writ petition filed by the Government of India challenging the order of the Tribunal could be maintained having regard to the availability of an alternate remedy under Section 35L. Various authorities on the question relating to existence of alternate 24 remedy barring the jurisdiction under Article 226 were referred and, on the point, which is relevant to us, the court took the following view:
"23. Having heard the parties at length, it is not possible to accept the contention raised by the learned Counsel for the Revenue. In the light of the findings recorded in the case of Navin Chemicals Mfg. and Trading Co. (supra) and looking to the text of Section 35L of the Act, it is not possible for us to accept the contention of the Revenue that the question of rate of duty is not an issue involved in the present case. The Supreme Court clearly laid down that the dispute as to the classification of goods and as to whether or not they are covered by the exemption notification relates directly and proximately to the rate of duty applicable thereto for purposes of assessment. Applying the said dicta, the question whether or not the respondent-assessee is well within exemption notification is a question directly involved in this dispute relates directly and proximately to the rate of duty of excise for the purposes of assessment. In other words, the issue raised in these petitions directly relates to dispute whether or not they are covered by the exemption notification, which can conveniently be gone into in an appeal filed under Section 35Lof the Act."
27. When this matter was being heard, this Court pointed out to the learned counsel for the respondents that the sheet anchor of all these authorities would appear to be the explanation to sub-section (5) of Section 129D of the Customs Act and the explanation to Section 35E of the Central Excise Act, which was inserted by the amendment in the year 1988. But Section 35E has undergone drastic changes. The Court pointed out to the learned counsel that sub-section (5) of Section 35E has been repealed by Act 25 of 2004 and the omission became effective w.e.f. 21.12.2004. Section 35E, itself, has undergone other changes with which we are not concerned. It was brought to the notice of the learned counsel for the respondents that Section 35L, itself, has undergone another amendment, which was inserted by Act 25 of 2014, with the inclusion of the following sub-section (2):
"(2) For the purposes of this Chapter, the determination of any question having a relation to the rate of duty shall include the determination of taxability or excisability of goods for the purpose of assessment."25
28. We pointed it out to the learned counsel that the line of decisions of the High Courts, which have purported to follow the decision in Navin Chemical's case (supra) and taken the view that the question whether the assessee is entitled to exemption notification, if it is decided by the Tribunal, it will bar the jurisdiction of the High Court as an appeal would be maintainable before the Supreme Court, have proceeded on the basis of the explanation which was inserted under Section 35E of the Excise Act corresponding to identical explanation in the Customs Act and the actual terms of the explanation, namely, clause (c) thereof may not bear out this interpretation insofar as what the legislature has provided by clause (c) was a question whether the goods are or are not covered by an exemption notification or order providing for exemption partially or absolutely. It is not intended to cover the question whether the assessee is actually entitled to the benefit of the notification in a case where there is no dispute about the goods being covered.
29. Thereupon, the learned counsel for the respondents would contend that the excise duty is levied on the taxable event taking place, namely, the manufacture of goods. It is qua goods that exemption is granted. Therefore, the mere fact of vagueness in the use of expression in this regard in the judgments may not matter. He would also submit that, even under the explanation as it stood, the decisions of the High Courts, which are canvassed before us, would support him in contending that, besides the question relating to whether the goods in a particular case are covered by the notification or not, the further question as to whether the assessee is entitled to the terms of the exemption notification by virtue of complying with the various conditions in a particular notification would also be a matter which is covered by clause (c) of explanation to Section 35E as it stood. He frankly admitted that the explanation to Section 35E stood omitted w.e.f. 2004. We may, at once, observe, therefore, that the Karnataka High Court, and as also the various other High Courts, have purported 26 to follow the decision in Navin Chemical's case (supra), despite the following:
(i) The explanation, though inserted in Section 35E, was never brought into force.
(ii) The explanation, itself, stands obliterated by the amendment carried out as early as in December, 2004.
(iii) The foundation for the judgments provided by the statutory provision stood removed. Apparently, this aspect was not brought to the notice of the courts.
30. On being confronted with this situation and also the insertion of sub-section (2) in Section 35L, the following arguments were addressed before us:
Learned counsel would submit that even without the aid of the explanation, when the Tribunal decides that a person is not entitled to or is entitled to the benefit of an exemption notification, a decision is necessarily rendered, which has a relation with the rate of duty. He reminds the Court that, what the statute requires to oust the jurisdiction of the High Court, is a decision not on the rate of duty, but a decision which has a relation with the rate of duty, no doubt, arising out of assessment proceedings. He would submit that the said test would be satisfied in every case, where an exemption notification is put in issue and a decision is rendered by the Tribunal either way as it would impact the rate of duty. In other words, denial of exemption means the rate of duty, in the case of an outright exemption, becomes what is provided in law. Depending on the terms of the partial exemption, the rate of duty would stand adjudicated upon. Therefore, he would submit that, even without the aid of the explanation, the principle decided by the High Courts is correct.
31. Turning to sub-section (2) of Section 35L, we may notice that these appeals have been filed after the amendment in Section 35L.
27This is inserted w.e.f. 06.08.2014. It purports to lay down that, for the purpose of deciding the expression, the question "having a relation with the rate of duty" would include the question relating to "taxability" and "excisability" of the goods. In this regard, he would submit that, as far as the excisability of the goods is concerned, that would go to question relating to whether there were excisable goods as understood under the Act; whereas, the expression taxability would relate to and comprehend the issues arising out of an exemption notification. Thus, even if it is found that the goods are excisable, since the expression "taxability" is also employed, it would mean that, by virtue of the exemption granted under an exemption notification, it may become non-taxable by virtue of a partial or absolute exemption in accordance with the terms thereof.
32. Per contra, Mr. H.M. Bhatia, learned counsel for the Revenue, would submit that exemption notification is to be interpreted and its scope determined on the basis of the words employed in the notification. It has nothing to do with the rate of duty. The rate of duty is fixed. The Tribunal, as in this case, has only decided the question as to whether the respondent Company has made out a case for exemption.
33. He would further contend that a contrary view has been taken by the Bench of the Jammu and Kashmir High Court in the case of Commissioner of Customs & Excise, J&K Jammu vs. Alu Bond Enterprises J&K, reported in 2008 (2) JKJ 499. The substantial question of law, which was raised in the appeal under Section 35G, was whether, in the absence of a specific mention in the notification, the Tribunal was correct in granting retrospective effect to the said notification. The Division Bench referred to Navin Chemical's case (supra) and Union of India vs. Auto Ignition Ltd., 2002 (142) ELT 292 (Bom.), which we have already referred to, and proceeded to hold as follows:
28"10. The question involved in the case on hand is whether the Unit has satisfied the locational eligibility, which in our view has no relation with the rate of duty or value of goods for the purposes of assessment. That being the factual and legal position, we hold that the appeal filed by the Union of India is maintainable in this Court under section 35G of the Act."
34. In regard to the state of case-law relating to Section 35L after insertion of sub-section (2) by the Finance Act 2 of 2014, learned counsel relied on the judgment of the Delhi High Court in Commissioner of Central Excise, Delhi-II vs. Pawan Kumar Bansal, reported in 2015 (315) ELT 529. There, the question of law was as to whether the activity involved amounted to manufacture under Section 2(f). The court took the view that, having regard to sub-section (2) of Section 35L, the question having relation to rate of duty includes determination of taxability or excisability and the appeals were filed after the said provision was inserted and the appeals were found to be not maintainable.
35. He further drew our attention to a judgment of the Apex Court in Commissioner of Central Excise, Jaipur vs. M/s Mewar Bartan Nirmal Udyog, reported in 2010 (13) SCC 753, for the proposition that the notification providing for exemption must be construed as it is and it does not involve any question relating to rate of duty. In the said case, the question arose as to whether the assessee was entitled to the benefit of exemption notification 3/2001-CE. The assessee claimed benefit under Serial No. 200 of the said notification, as it was found that the trimmed or untrimmed circles of brass would fall under Serial No. 201, where the rate of duty was Rs. 3500/-. If the product in question fell under Serial No. 200, then the notification provided that the rate of duty is nil. After adverting to the exemption notification, the court held, inter alia, as follows:
"In this case, we are concerned with interpretation of Entries in the Notification. The exemption Notification covers goods which squarely fall under Chapter Heading 74.09. In fact, both S. No. 200 and S. No. 201 of the Notification deal with 29 Chapter Heading 74.09. A dichotomy was noticed in the Notification and it was found that the circles manufactured by the assessee were made from brass; whereas the exemption notification provided for nil rate of duty for all goods other than trimmed/untrimmed circles of copper intended for use in the manufacture of utensils."
36. Thereafter, the court proceeded to hold as follows:
"5. We may also point out at this stage that it is well settled position in law that exemption Notification has to be read strictly. A notification of exemption has to be interpreted in terms of its language. Where the language is plain and clear, effect must be given to it. While interpreting the exemption notification, one cannot go by rules of interpretation applicable to cases of classification under the Tariff. Tariff items in certain cases are required to be interpreted in cases of classification disputes in terms of HSN, which is the basis of the Tariff. In this case, we are not concerned with interpretation of Tariff. In fact, as stated above, the product in question falls under Chapter Heading 74.09. It is the dichotomy which is introduced by the exemption Notification which needs to be interpreted. Items made from copper attract duty at the rate of Rs.3500 PMT whereas circles made from brass attract nil rate of duty. As stated above, in this case, the Department has not disputed the fact that the circles were manufactured by the assessee from brass. This is expressly recorded in the findings given by the Tribunal."
37. Learned counsel for the Revenue also brought to our notice a decision in Collector of Central Excise, Patna vs. Usha Martin Industries, reported in (1997) 7 SCC 47. Therein, the question involved was whether the benefit of exemption granted under certain notifications could be claimed in respect of commodities made out of raw materials on which no excise duty was payable. The notifications provided for final product exemption being exempted if they were produced from material 'on which appropriate amount of duty had already been paid'. In the notification, it was inter alia provided that iron and steel products were exempted, if they were made from certain materials or a combination thereof on which appropriate duty of excise had already been paid. We may notice paragraph 6 of the said judgment, which reads as follows:
30"6. There is no doubt that as per the above notification if any amount of duty has been paid on the raw material, the output product would escape from excise duty. The doubt arose was regarding the expression in the notification i.e. "on which the appropriate amount of duty of excise has already been paid"
as to whether it is capable of two interpretations, one as claimed by the assessee and the other as putforth by the revenue"."
38. It is further relevant to notice paragraphs 9 and 17 of the said judgment, which read as follows:
"9. Even a glance through the said notification would show that the exemption envisaged therein was not total but only partial. What it clearly meant was deduction on duty from the amount of duty already paid and, therefore, that notification is different in content as well as intent and the ratio therein cannot be taken as sufficient to fit in with the notification involved in the present appeals.
17. How the Revenue has understood the notification or made others to understand this position can be seen from the instructions or circulars issued by the Central Board of Excise and Customs (for short "the Board") from time to time. One such circular is dated 15.5.1995 no. 125/36/95-CX. The material portion thereof are extracted below:
"There are a number of notifications which exempt specified goods provided such goods have been made from other goods on which the appropriate duty of excise has already been paid board has issued instructions from time to time that in such cases, even if the issued instructions from time to time that in such cases, even if the inputs are exempted from excise duty, the exemption on the finished goods cannot be denied on that ground. Still, cases have been brought to notice where exemption is being denied on the ground that the inputs did not bear any excise duty..... It was clarified by the Board that in the case of S.O. dyes made from exempted dyes, the exemption cannot be denied on the ground that the inputs were exempted from the whole of the duty of excise. This logic would apply to other similar cases also where exemption has been given on the consideration that the finished products have been made from inputs on which appropriate duty of excise has already been paid.""
39. Finally, the court took the following view:
31"23. Thus, looking from different angles we are inclined to take the view that benefit of exemption from duty can legitimately be claimed by the respondents in respect of those goods referred to in the notifications under consideration the raw materials of which were not exigible to any excise duty at all. In the result, we dismiss all these appeals."
40. He pointed out that the said judgment has been overruled by a larger Bench in Collector of Central Excise, Vadodra vs. Dhiren Chemical Industries, reported in (2002) 2 SCC 127, wherein the Bench inter alia noticed the judgment in the case of Motiram Tolaram vs. Union of India, reported in (1999) 6 SCC 375, and held as follows:
"7. In our view, the correct interpretation of the said phrase has not been placed in the judgment in the case of Usha Martin. The stress on the word "appropriate" has been mislaid. All that the word "appropriate" in the context means is the correct or the specified rate of excise duty.
8. An exemption notification that uses the said phrase applies to goods which have been made from duty paid material. In the said phrase, due emphasis must be given to the words "has already been paid". For the purposes of getting the benefit of the exemption under the notification, the goods must be made from raw material on which excise duty has, as a matter of fact, been paid, and has been paid at the "appropriate" or correct rate. Unless the manufacturer has paid, the correct amount of excise duty, he is not entitled to the benefit of the exemption notification.
9. Where the raw material is not liable to excise duty or such duty is nil, no excise duty is, as a matter of fact, paid upon it. To goods made out of such material the notification will not apply."
41. We may address one argument raised on behalf of the Revenue that these appeals have been admitted and, therefore, the court may decide. May be, the argument is being raised at this stage by the Company. The appeals were filed in the year 2015 and they were admitted on substantial questions of law Nos. 1 & 2. We would think that a question relating to the jurisdiction of the court cannot be brushed aside on the ground that it is being raised late. This is not a question of territorial jurisdiction. This is also not a question relating to pecuniary jurisdiction. This is a question, which goes to the very 32 root of the matter, namely, it goes to the inherent jurisdiction of the court. If the appeal is one, where the impugned order of the Tribunal has decided a question having a relation with the rate of duty, clearly the appeal would not lie before the High Court and it would be maintainable only before the Supreme Court under Section 35L. Therefore, we cannot but decide this issue.
42. In Navin Chemical's case (supra), the Apex Court has enunciated the principle after interpreting the words "question having a relation with the rate of duty" and held that, while the words "having relation with" are capable of wide import, it must be read as meaning a direct and proximate relationship with the rate of duty and to the value of goods for the purpose of assessment. In paragraph 12 of the said judgment, the court has also articulated its opinion and held "does the question that requires determination have a direct and proximate relation, for the purpose of assessment, to the rate of duty applicable to the goods or to the value of goods". This we can and should accept as the principle laid down by the Apex court. This principle, in our view, would also hold good despite the fact that the Apex Court drew considerable support from the explanation to Section 129D of the Customs Act, which, as we have already noticed, is identical to Section 35E of the Excise Act. It would appear that, just as explanation to Section 35E was never enforced, the explanation to Section 129D of the Customs Act was also not enforced. But, we are confronted with the further development, which is that, in December 2004, Parliament has omitted both the explanations, i.e. explanation to Section 129D of the Customs Act and also the explanation to Section 35E of the Excise Act.
43. We need not, therefore, be detained any longer by the case-law based on the explanation in deciding the appeals before us. But, we would, out of deference to the arguments of the learned counsel for the respondents that, going by clause (c) in the explanation, the issue 33 relating to availability of benefit of exemption notification would also be a question having a relation to the rate of duty, deal with the same. Clause (c) reads as follows:
"(c) whether any goods fall under a particular heading or sub-heading of the First Schedule or the Second Schedule to the Customs Tariff Act, 1975 (51 of 1975), or that any goods are or not covered by a particular notification or order issued by the Central Government granting total or partial exemption from duty."
44. There are two parts to it. The first limb dealt with a situation, where a question is determined whether any goods fall under a particular heading or sub-heading of the First Schedule or the Second Schedule to the Customs Tariff Act. The second limb of clause (c) dealt with the determination of a question that any goods are or are not covered by a particular notification or order issued by the Central Government granting total or partial exemption from duty. The first limb of clause (c) is not attracted; but, we would think that, since it provided company to the second limb of clause (c), it may detain us for a moment. A question whether the goods fall under a particular heading or a sub-heading of the First or Second Schedule to the Act, undoubtedly, often provides a vexed issue for determination. Depending on the particular heading or sub-heading on which the goods fall, the same would axiomatically lead the court to the rate of duty. We must also bear in mind the rationale for bringing a decision on the said issue before the Apex Court. The issue as to whether the goods fall under a particular heading or sub-heading would have ramifications beyond the parties to the particular dispute. Similar goods may be manufactured by several others. It is, apparently, therefore, that it was felt that such questions must be decided by the Apex Court. The effect of deciding that the goods fall under a particular heading or sub-heading, as already noted, would have a direct and proximate relation to the rate of duty. It is in this context that we must examine the words "any goods are or not covered by a 34 particular notification or order providing for partial or absolute exemption". Just as in the first limb, where the question relates to whether the goods come under a particular heading or sub-heading, in our humble view, the intention was that a question as to whether the goods, which are subject matter of the litigation, are or are not covered by a particular notification granting absolute or partial exemption alone is within the extended meaning ascribed to the words "determination of question having relation to the rate of duty". Exemption notification may provide for a list of goods, which are the subject matter of the notification or order. It may also provide for what is called a negative list, namely, goods, which are excluded from the purview of the exemption notification. It may also provide for different kinds of goods in the notification, some of which are completely exempt and some where there is a lesser amount provided. If we may illustrate with the facts of this case, the exemption notification provides for complete exemption in respect of goods, which are mentioned in the First Schedule to the Customs Tariff Act excluding those goods which are provided in the negative list. This is a case, where there is no dispute that the goods are covered by the exemption notification, in the sense that the goods, which are manufactured by the respondent company, namely, cylinders and conductors, are covered by the notification being goods mentioned in Schedule I to the Act. They are also not goods figuring in the negative list. Therefore, no decision is involved in regard to whether the goods are or are not covered by the particular notification.
45. Learned counsel for the respondents would submit that such disputes are indeed covered by clause (c). According to him, clause (c) must be interpreted as embracing within its scope all questions arising out of the notification and it is not limited to the question whether the goods are or are not covered by the notification or order providing for exemption.
3546. In our view, the provision, itself, being in the form of an explanation, we would be straining the words and giving it a meaning, which is not warranted having regard to the scope, which we have also culled out from the words used in its close neighbourhood, namely, the first limb of clause (c). In this context, we have already noticed the substantial questions of law, which have been raised on which notice had been issued.
47. We notice that no substantial question of law is raised as to whether the goods in question are or are not covered by the terms of the notification. The specific question of law, which is raised, goes to the availability of the notification having regard to the fact that the respondent Company has not complied with the terms of the notification. In our humble view, the decisions of the High Courts, which have purported to follow Navin Chemical's case, have proceeded to overlook the actual words used in the explanation and virtually substituted the words "goods" with "assessee". In other words, instead of confining the latter limb of clause (c) to a situation where a dispute arise as to whether the goods are or are not covered by the notification, it has been extended to situations where the question arose as to whether the assessee fulfilled the conditions of the exemption notification, which we would think was not warranted by the provisions in clause (c).
48. We have to pass on to the next development presented in the matter, namely, the omission of the explanation itself by Parliament in the year 2004. That is to say, the legislative basis partially for rendering the judgment in Navin Chemical's case and for the High Courts relying on the explanation was, itself, taken away in the year 2004, as the explanation stood omitted in December, 2004. Therefore, we must also simultaneously notice the inclusion of sub-section (2) in Section 35L. We have to decide on the basis of the provision in Section 35G read with Section 35L, as it stands insofar as the appeals have been filed after the amendment in sub-section (2) of Section 35L 36 also. Section 35G provides for an appeal against the order of the Tribunal to the High Court. The appeal lies except when a question has been decided by the Tribunal having a relation with the rate of duty or the value of goods. In case, the decision relates to a question, which has a relation with the rate of duty or valuation, appeal is provided directly to the Supreme Court under Section 35L. The further statutory provision, we must bear in mind, is only the provision of sub-section (2) of Section 35L, which provides that, for the purpose of this chapter, the determination of any question having a relation to the rate of duty shall include the determination of taxability or excisability of goods for the purpose of assessment. If an appeal is maintainable before the Supreme Court, quite obviously, an appeal would not be maintainable before the High Court.
The effect of sub-section (2) of Section 35L of the Act:
49. The Legislature must be treated as being aware of the judgment rendered by the Apex Court in Navin Chemical's case (supra) interpreting explanation to Section 129D of the Customs Act, as also the interpretation placed by various High Courts in decisions in question, which arose under the Central Excise Act. We must also be conscious of the fact that it had omitted the explanation in the year 2004. What then is the purport and object of including sub-section (2) to Section 35L? By virtue of sub-section (2), the Legislature has declared that the question relating to taxability or excisability shall be included within the meaning of the expression "question in relation to rate of duty". In regard to a clause in a section, which uses the word "include", it is intended to give an extended meaning to the main provision, which the definition clause intends to define. We cannot possibly proceed on the basis that, after the inclusion of sub-section (2), whatever else may be included within the expression "decision in relation to rate of duty" would not be embraced within its scope.
3750. Coming to the expressions "taxability" or "excisability", there are two ways of looking at it. Since two expressions are used, they bear two different meanings. Ordinarily, the courts would not attribute to the legislature an intention to waste words in a statute. An interpretation would be placed, which would avoid superfluity or deprive the word of all meaning. Words in a statute cannot be afflicted with the vice of surplusage. Or, is it such a case?
Excisability, what it comprehends:
51. Is it sufficient that the goods are excisable goods? What if a person is sought to be visited with excise duty if he contends that they are not goods because nothing new is produced? What is allegedly produced is not capable of being marketed. They are not usable. Can he still be visited with a levy of excise duty? The answers to these questions have been succinctly provided in the judgment of the Apex Court in Moti Laminates Pvt. Ltd. & others vs. Collector of Central Excise, Ahmedabad, reported in (1995) 3 SCC 23. There, the court also was dealing with a case, where the goods were captively consumed. The court held as follows:
"8. The duty of excise is leviable under Entry 84 of List I of the VIIth Schedule on goods manufactured or produced. That is why the charge under Section 3 of the Act is on all, 'excisable goods', 'produced or manufactured'. The expression 'excisable goods' has pl64 been defined by clause (d) of Section 2 to mean, 'goods' specified in the Schedule. The scheme in the Schedule is to divide the goods in two broad categories - one, for which rates are mentioned under different entry and other the residuary. By this method all goods are excisable either under the specific or the residuary entry. The word 'goods' has not been defined in the Act. But it has to be understood in the sense it has been used in Entry 84 of the Schedule. That is why Section 3 levies duty on all excisable goods mentioned in the Schedule provided they are produced and manufactured. Therefore, where the goods are specified in the Schedule they are excisable goods but whether such goods can be subjected to duty would depend on whether they were produced or manufactured by the person on whom duty is proposed to be levied. The expression 'produced or manufactured' has further been explained by this 38 Court to mean that the goods so produced must satisfy the test of marketability. Consequently it is always open to an assessee to prove that even though the goods in which he was carrying on business were excisable goods being mentioned in the Schedule but they could not be subjected to duty as they were not goods either because they were not produced or manufactured by it or if they had been produced or manufactured they were not marketed or capable of being marketed.
9. The duty of excise being on production and manufacture which means bringing out a new commodity, it is implicit that such goods must be usable, moveable, saleable and marketable. The duty is on manufacture or production but the production or manufacture is carried on for taking such goods to the market for sale. The obvious rationale for levying excise duty linking it with production or manufacture is that the goods so produced must be a distinct commodity known as such in common parlance or to the commercial community for purposes of buying and selling. Since the solution that was produced could not be used as such without any further processing or application of heat or pressure, it could not be considered as goods on which any excise duty could be levied.
11. Although the duty of excise is on manufacture or production of the goods, but the entire concept of bringing out new commodity etc. is linked with marketability. An article does not become goods in the common parlance unless by production or manufacture something new and different is brought out which can be bought and sold. In Union of India & Anr. vs. Delhi Cloth & General Mill Co. Ltd., AIR 1963 SC 791, a Constitution Bench of this Court while construing the word 'goods' held as under:-
"These definitions make it clear that to become "goods" an article must be something which can ordinarliy come to the market to be bought and sold".
Therefore, any good to attract excise duty must satisfy the test of marketability. The tariff schedule by placing the goods in specific and general category does not alter the basic character of leviability. The duty is attracted not because an article is covered in any of the items or it falls in residuary category but it must further have been produced or manufactured and it is capable of being bought and sold.In South Bihar Sugar Mills Ltd. & Anr. etc. v. Union of India & Anr. etc., AIR 1968 SC 922 it was held by this Court:
"The Act charges duty on manufacture of goods. The word 'manufacture' implies a change but every change in the raw material is not manufacture. There must be such a transformation that a new and different article must emerge having a distinctive name, character or use. The duty is levied on goods. As the Act does not define 39 goods, the legislature must be taken to have used that word in its ordinary, dictionary meaning. The dictionary meaning is that to become goods it must be something which can ordinarily come to the market to be bought and sold and Is known to the market. That it would be such an article which would attract the Act was brought out in Union of India vs. Delhi Cloth and General Mills Ltd., 1963 Supp. (1) SCR 586 = AIR 1963 SC....."
13. Having traced the development of law that any goods produced or manufactured ipso facto do not attract duty unless they are marketable or capable of being marketed, we may now examine the dutiability of goods captively consumed. Prior to 1979 no duty was levied on such goods. But, as stated earlier, after amendment of rules 9 and 49 captively consumed goods become exigible to duty. The rationale for not treating such goods as excisable was same that since such goods were not brought to the market for buying and selling they could not be subjected to duty. But when the Rules were amended a fiction was created that any article produced or manufactured if captively consumed was statutorily presumed to satisfy the test of marketability. But this presumption can be rebutted if it is established that the article produced and captively consumed was neither goods nor marketable nor capable of being marketed. The duty is attracted not by captive consumption of any article but it must be a good within the meaning of the Act which apart from having a distinctive name and known as such must be marketable or capable of being marketed..."
52. It is also necessary that before the goods are visited with a levy, there is a manufacture of goods. See Union of India vs. Ahmedabad Electricity Co. Ltd. & others, reported in (2003) 11 SCC 129, wherein also the court reiterated that the goods must be manufactured or produced and it is not sufficient that the goods are excisable goods and, in that, the goods figure in the Schedule.
53. The other aspect immediately flowing from this dimension is that disputes may arise as to the exact entry of the Tariff Act in which particular goods fall. Both the issues have a direct connection with the rate of duty. This is one interpretation of the word "excisability". The other way to look at the word "excisability" is the inquiry as to whether the goods are excisable goods, meaning thereby, they fall in the Tariff Act and, further, even finding out the exact entry in which the goods 40 fall, and the same would only be one of the questions to be answered before the levy actually can be successfully imposed and collected. It is settled law that the mere mention of the goods in one of the entries would not render the goods exigible to excise duty. There is a whole gamut of issues, which must be posed and considered before that stage is reached. To begin with, excise duty is traceable to Entry 84 of List I of the Seventh Schedule to the Constitution. The same reads as follows:
"84. Duties of excise on tobacco and other goods manufactured or produced in India except -
(a) alcoholic liquors for human consumption.
(b) opium, Indian hemp and other narcotic drugs and narcotics, but including medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph
(b) of this entry."
54. The Constitution vide the said entry enables levy of excise duty on goods, which are produced or manufactured in India. The courts have consistently taken the view that, in order that the goods are exigible to excise duty, they must possess the attribute of being movable (excise duty cannot be imposed on immovable property). Further, they must possess the quality of being bought and sold. They must have an identity as a distinct product. They must be capable of being bought and sold. It is not necessary that there should be large number of purchasers or any number of purchases; even a single purchaser would suffice. It also does not matter that, in a particular case, the goods are actually not sold, as what is necessary is the quality that the goods can be bought and sold. The goods must be usable and have a separate identity. All this would not bring the inquiry to an end. The further question, which must be answered in a case, where it is raised, is whether the goods in question are brought into being by manufacture as is defined in the Act. See in this regard, Union of India vs. Ahmedabad Electricity Co. Ltd. & others, reported in (2003) 11 SCC 129.
4155. The decision in Moti Laminates Pvt. Ltd. & others vs. Collector of Central Excise, Ahmedabad, reported in (1995) 3 SCC 23 has been followed in Commissioner of Central Excise-I, New Delhi vs. S.R. Tissues (P) Ltd. & another, reported in (2005) 6 SCC 310 and Escorts Limited vs. Commissioner of Central Excise, Faridabad, reported in (2015) 9 SCC 109. In Escorts Limited (supra), the Apex Court has inter alia held as follows:
"For excise duty to be chargeable under the constitutional entry read with Section 3 of the Central Excise and Salt Act, two pre-requisites are necessary. First, there must be "manufacture"
which is understood to mean the bringing into existence of a new substance. And secondly, the word "goods" necessarily means that such manufacture must bring into existence a new substance known to the market as such which brings in the concept of marketability in addition to manufacture. Marketability is thus essentially a question of fact to be decided in the facts of each case. There can be no generalization. The fact that the goods are not, in fact, marketed is of no relevance. So long the goods arc marketable, they are goods for the purpose of Section 3 of the Central Excise Act. It is not necessary that the goods should be generally available in the market. Even if the goods are available from only one source or from a specified market, it makes no difference so long as they are available for purchasers. The marketability of articles does not depend upon the number of purchasers nor is the market confined to the territorial limits of this country.
To become 'goods' an article must be something which can ordinarily come to the market to be bought and sold. 'Marketability' is a decisive test for dutiability. It only means 'saleable', or "suitable for sale". It need not be in fact 'marketed'. The article should be capable of being sold or being sold, to consumers in the market, as it is -- without anything more.
An article does not become goods in common parlance unless by production or manufacture something new and different is brought out which can be bought and sold. to become 'goods' an article must be something which can ordinarily come to the market to be bought and sold. Therefore, any goods to attract excise duty must satisfy the test of marketability. The Tariff Schedule by placing the goods in specific and general category does not alter the basic character of leviability. The duty is attracted not because an article is covered in any of the items or it falls in residuary category but it must further have been produced or manufactured and it is capable of being bought and sold.
42It is difficult to lay down a precise test to determine marketability of articles. Marketability of goods has certain attributes. The essence of marketability is neither in the form nor in the shape or condition in which the manufactured articles are to be found, it is the commercial identity of the articles known to the market for being bought and sold. The fact that the product in question is generally not being bought and sold or has no demand in the market would be irrelevant.
The product should not be known in the market with any commercial name. The moment a product is commercially known in the sense of fulfilling the practical test of being known to persons in the market who buy and sell, the test is satisfied. The fact that the product is generally not bought or sold or has no demand in the market is irrelevant."
56. Lastly, the goods must be produced or manufactured in India. It is only if all these conditions are satisfied that the levy of excise duty, meaning thereby the imposition of excise duty under the Act, becomes available against the manufacturer or producer of the goods. If the word "excisability" is understood in this sense, then, virtually, excisability would be a question, which would be far more comprehensive. If all these questions are answered against the assessee in a given case or, in other words, if the goods are found to be excisable goods, the exact entry under the Tariff Act is located, if the goods are also found to be movable, marketable, manufactured or produced in India; then, on the event of manufacture, excise duty, which is a tax on the manufacture or production of goods, becomes payable. If this is the sense in which the word "excisability" is used, a question may arise what was the need to also use the word "taxability". Is it a case of mere surplusage? Ordinarily, the Legislature is not presumed to waste words. One thing is certain that the Legislature has, in one sense, widened the scope of the expression "question having a relation with the rate of duty". Therefore, now the Apex Court is, after the amendment, the exclusive appellate forum created against the order passed by the Tribunal to deal with all these issues when they are raised and decided by the Tribunal. As far as exempted goods are concerned, we must notice that exempted goods do not become non- excisable by issuance of a notification or order under Section 5A of the Central Excise Act. The goods would remain excisable. See in this 43 regard, the judgment of the Apex Court in Wallace Flour Mills Co. Ltd. vs. Collector of Central Excise, Bombay, reported in (1989) 4 SCC 592. Paragraph 2 of the said judgment reads as follows:
"2. The appellant is a manufacturer of various types of food products known as Sapaghetti, Macaroni, Vermicelli, etc., falling under Heading No. 1902.10 of the Central Excise Tariff Act. The appellant filed classification list effective from 1st March, 1987 claiming that their pre-budget stocks of non- excisable goods, namely, various types of food products declared in the classification list as aforesaid were entitled to duty free clearance being pre-budget stocks. The Assistant Collector of Central Excise, however, held that the question of clearing pre-budget stocks duty free did not arise because the products in question were excisable though exempted from the duty. There was an appeal from the said order of the Assistant Collector before the Collector of Central Excise (Appeals), Bombay. He dismissed the appeal. The appellant went up in appeal before the Tribunal. It was contended before the Tribunal on behalf of the appellant that the goods in question were not leviable to duty under the aforesaid head until 28th February, 1987 and the said goods had been made dutiable only by the Finance Bill, 1987-88 with effect from 1st March, 1987. It was submitted further that on 27th February, 1987, the appellant had in their factory a stock of the said product which were fully manufactured, packed and ready for sale and the inventory of the said stock was prepared by the Supdt. of Central Excise on 1st March, 1987. Reliance was placed on several decisions of the different High Courts, namely, decision of the Madhya Pradesh High Court in Kirloskar Brothers Ltd. v. Union of India, [1978] ELT 33; Union of India v. Kirloskar Brothers Ltd., [1978] ELT 690, decision of the Bombay High Court in Synthetic Chemicals Pvt. Ltd. v.S.C. Coutinho, [1981] ELT 414, decision of the Bombay High Court in New Chemicals Ltd. v. Union of India, [1981] ELT 920 decision of the Madras High Court in Sundaram Textiles Ltd. v. Asstt. Collector of Central Excise, [1983] ELT 909, decision of the Allahabad High Court in Union of India v. Delhi Cloth & General Mills, [1973] ELT 177. On the other hand, the revenue contended that the goods forming the prebudget stocks were very much excisable goods and that for the purpose of collecting duty, date of manufacture was not material under the scheme of the Act even though the taxable event is the manufacture. It was, therefore, contended that at the time of manufacture of the goods in question, the goods were excisable goods and in view of rule 9A of the Central Excise Rules, 1944, though the taxable event is the manufacture and production, the payment of duty is related to and postponed to the date of removal of articles from the manufactury. The Tribunal accepted the said contention."44
57. It is in the said context that the court held as follows:
"Excise is a duty on manufacture or production. But the realisation of the duty may be postponed for administrative convenience to the date of removal of goods from the factory. Rule 9A of the said rules merely does that. That is the scheme of the Act. It does not, in our opinion, make removal be the taxable event. The taxable event is the manufacture. But the liability to pay the duty is postponed till the time of removal under rule 9A of the said Rules. In this connection, reference may be made to the decision of the Karnataka High Court in Karnataka Cement Pipe Factory v. Supdt. of Central Excise, [1986] 23 ELT 3 13, where it was decided that the words 'as being subject to a duty of excise' appearing in s. 2(d) of the Act are only descriptive of the goods and not to the actual levy. 'Excisable goods", it was held, do not become non-excisable goods merely by the reason of the exemption given under a notification....
.....We are of the opinion that even though the taxable event is the manufacture or the production of an excisable article, the duty can be levied and collected at a later date for administrative convenience."
58. We may notice in fact that in Collector of Central Excise, Hyderabad & others vs. Vazir Sultan Tobacco Company Limited & others, reported in (1996) 3 SCC 434, a three-Judge Bench, no doubt, distinguished the judgment in Wallace Flour Mills Co. Ltd. (supra). In this case, undoubtedly, the facts were that by Section 37 of the Finance Act of 1978, a special duty of excise was levied from 01.03.1978, which was to remain in force till 31.03.1979. The goods were manufactured prior to 01.03.1978; but they were removed after 01.03.1978. Therein, the court distinguished the decision in Wallace Flour Mills Co. Ltd. (supra) and proceeded to take the following view:
"12. We are of the opinion that Section 3 cannot be read as shifting the levy from the stage of manufacture or production of goods to the stage of removal. The levy is and remains upon the manufacture or production alone. Only the collection part of it is shifted to the stage of removal. Once this is so, the fact that the provisions of the Central Excise Act are applied in the matter of levy and collection of special excise duty cannot and does not mean that wherever the Central Excise duty is payable, the special excise duty is also payable automatically. That is so as an 45 ordinary rule. But insofar as the goods manufactured or produced prior to March 1, 1978 are concerned, the said rule cannot apply for the reason that there was no levy of special excise duty on such goods at the stage and at the time of their manufacture/production. The removal of goods is not the taxable event. Taxable event is the manufacture or production of goods."
59. Referring to the judgment in Wallace Flour Mills Co. Ltd. (supra), the court also inter alia held as follows:
"13. In our opinion, the decision in Wallace Flour Mills does not lay down a contrary proposition - neither does it support the contention of Shri Vellapally. That was a case where the goods were excisable goods prior to 1.3.1987, though by virtue of an exemption notification, the rate of duty was nil. This does not mean that they were not excisable goods. They were excisable goods. Nil rate of duty is also a rate of duty. With effect from 1.3.1987, the said goods became excisable to duty at the rate of fifteen per cent and valorem. It is in the above circumstances that the Court held, on the basis of Section 3 and Rule 9-A, that though the goods were produced or manufactured prior to 1.3.1987, still they attracted duty at the rate prevailing on the date of their removal, i.e. fifteen per cent. Para 4 clearly brings out the ratio of the said decision."
60. Section 5A is the provision under which exemption is granted. It may be granted by a notification or it may be granted by an order passed by the Central Government. It may provide for absolute exemption or the exemption may be partial. An exemption may be an absolute exemption, as the exemption notification in this case, insofar as the notification provides for complete exemption in respect of the duty payable under Section 3. It is also a case, where complete exemption is provided from payment of the additional duty under the two Acts mentioned in the notification, the details of which we are not to be detained with under the facts of this case. There are exemption notifications, which, instead of providing a complete exemption, use the word "nil rate of duty". In regard to an exemption notification, the first question would be whether the goods, which are produced by an assessee, are covered by the list of exempted goods mentioned in the notification or the order. We may usefully remind ourselves of clause 46
(c) of the explanation to erstwhile Section 35E of the Central Excise Act, which reads as follows:
"(c) whether any goods fall under a particular heading or sub-heading of the First Schedule or the Second Schedule to the Customs Tariff Act, 1975 (51 of 1975), or that any goods are or not covered by a particular notification or order issued by the Central Government granting total or partial exemption from duty."
61. If the word "excisability" is intended to convey a meaning, is it intended to indicate that the court may find that the goods are covered by the Schedule or not? Is it intended to address the issue as to in which specific entry the goods fall or, failing which, it falls in the residuary list? In other words, is the employment of the word "excisability" only intended to deal with the question whether the goods figure in the list? Is the word "excisability" intended to comprehend the question whether the goods in question are both excisable as defined and also intended to address the aspect whether the goods can be visited with excise duty, meaning thereby, that all the questions, which must be answered against the assessee before he can be visited with the excise duty, which is a tax on manufacture of excisable goods? If that is the interpretation to be placed on "excisability", then what was the need to also use the word "taxability"?
62. A decision on excisability or a decision on taxability by the Tribunal after the amendment in 2014 would confer exclusive jurisdiction on the Supreme Court. First, let us see what is the meaning to be attributed to the word "excisability". One way of looking at the word "excisability" is whether the goods in question are excisable goods. The starting point of an inquiry as to whether excise duty is payable is whether the goods are excisable goods, as the charge of excise duty under Section 3 is on excisable goods. "Excisable goods"
are clearly defined in Section 2(d) of the Central Excise Act, which reads as follows:47
"2(d) "excisable goods" means goods specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as being subject to a duty of excise and includes salt;
Explanation. - For the purposes of this clause, "goods"
includes any article, material or substance which is capable of being bought and sold for a consideration and such goods shall be deemed to be marketable."
63. Therefore, we would have to necessarily go to the Central Excise Tariff Act, 1985 (hereinafter referred to as the "Tariff Act").
64. Clauses (a) & (b) of Section 3(1) of the Excise Act read as follows:
"3. Duties specified in the Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 to be levied.
- (1) There shall be levied and collected in such manner as may be prescribed, -
(a) a duty of excise to be called the Central Value Added Tax (CENVAT) on all excisable goods excluding goods produced or manufactured in special economic zones which are produced or manufactured in India as, and at the rates, set forth in the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986);
(b) a special duty of excise, in addition to the duty to excise specified in clause (a) above, on excisable goods (excluding goods produced or manufactured in special economic zones) specified in the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) which are produced or manufactured in India, as, and at the rates, set forth in the said Second Schedule."
65. We are not concerned with the other provisions of Section 3. Section 3 clearly is the charging provision. It purports to levy excise duty and also special excise duty at the rates as set forth in the First Schedule and, insofar as it relates to the basic excise duty and special excise duty, at the rates as are mentioned in the Second Schedule to the Tariff Act. The Tariff Act came to be amended w.e.f. 28.02.2005. Section 3 of the Tariff Act reads as follows:
48"3. Emergency power of the Central Government to increase duty of excise. - (1) Where, in respect of any goods, the Central Government is satisfied that the duty leviable thereon under Section 3 of the Central Excise Act, 1944 (1 of 1944) should be increased and that circumstances exist which render it necessary to take immediate action, the Central Government may, by notification in the Official Gazette, direct an amendment of the First Schedule and the Second Schedule to be made so as to substitute for the rate of duty specified in the First Schedule and the Second Schedule in respect of such goods, -
(a) in a case where the rate of duty as specified in the First Schedule and the Second Schedule as in force immediately before the issue of such notification is nil, a rate of duty not exceeding fifty per cent ad valorem expressed in any form or method;
(b) in any other case, a rate of duty which shall not be more than twice the rate of duty specified in respect of such goods in the First Schedule and the Second Schedule as in force immediately before the issue of the said notification:
Provided that the Central Government shall not issue any notification under this sub-section for substituting the rate of duty in respect of any goods as specified by an earlier notification issued under this sub-section by that Government before such earlier notification has been approved with or without modifications under sub-section (2).
Explanation:- "Form or method", in relation to a rate of duty of excise means the basis, namely, valuation, weight, number, length, area, volume or other measure with reference to which the duty may be levied.
(2) Every notification under sub-section (1) shall be laid before each House of Parliament, if it is sitting, as soon as may be after the issue of the notification, and if it is not sitting, within seven days of its re-assembly, and the Central Government shall seek the approval of Parliament to the notification by a resolution moved within a period of fifteen days beginning with the day on which the notification is so laid before the House of the People and if Parliament makes any modification in the notification or directs that the notification should cease to have effect, the notification shall thereafter have effect only in such modified form or be of no effect, as the case may be, but without prejudice to the validity of anything previously done thereunder.
(3) For the removal of doubts, it is hereby declared that any notification issued under subsection (1), including any such notification approved or modified under sub-section (2), may be rescinded by the Central Government at any time by notification in the Official Gazette."49
66. Thus, the Tariff Act contemplates nil rate of duty as the rate of duty. The rate fixed can be increased in an emergency by the Central Government by notifying the same; but subject to the limitations as provided therein. Section 5 of the Tariff Act reads as follows:
"5. Power of Central Government to amend First and Second Schedules. - (1) Where the Central Government is satisfied that it is necessary so to do in the public interest, it may, by notification in the Official Gazette, amend the First Schedule and the Second Schedule:
Provided that such amendment shall not alter or affect in any manner the rates specified in the First Schedule and the Second Schedule in respect of goods at which duties of excise shall be leviable on the goods under the Central Excise Act, 1944."
67. Thus, while thereunder there is power to amend the Schedule, there is no authority to alter or affect the rates. Under the scheme of the Tariff Act, the goods are brought under Section (i) to (xx). Each section has one or more chapters. There are a total of 96 chapters. Section (I), for instance, deals with live animals / animal products. The tariff is to be discerned primarily from the headings. No doubt, one has to bear in mind also the section notes, chapter notes, besides the rules of interpretation. A perusal of section (i) Chapter 1, which deals with live animals / animal products, would show that, under the column 'rate of duty', it is left blank. Passing on to Chapter 2 of section (i), which deals with meat and edible meat offal, the rate of duty is shown as nil. The same is the position with respect to chapters 3 and 4 of section (i). Thus, for the products in Chapters 2 to 4 of section (i), the rate of duty is nil. But, nonetheless, it is quite clear that it is the rate of duty and capable of being increased vide exercise of powers under Section 3 of the Tariff Act. That nil rate is also a rate of duty is also referred to by the decisions of the Apex Court. Nil rate of duty is also provided for in the exemption notification. Apparently, the exemption notification, which was the subject matter of the decision of the Apex Court in Wallace Flour Mills Co. Ltd. vs. Collector of 50 Central Excise, Bombay (supra), was one such notification. This is clear from a reference to the decision of the Apex Court in Collector of Central Excise, Hyderabad & others vs. Vazir Sultan Tobacco Company Limited & others, reported in 1996 (3) SCC 434, wherein express reference was made to the notification being as such. Thus, there are goods in the Tariff Act, which are visited with nil rate of duty. An exemption notification can also provide for a nil rate of duty. On the other hand, an exemption notification can provide for an absolute exemption. General exemptions are of many types. Notification No. 8/03 dated 01.03.2003 was essentially issued for small scale units and it was limited in point of the quantum of clearance. The Annexure containing the list of exempted goods, we may notice, includes all goods falling under Chapters 2, 3 & 4 of Section (i), inter alia, even though the rate of duty of excise therein is shown as nil. No doubt, the notification gives an option to the manufacturer not to avail the exemption, in which case, he is obliged to exercise the option before effecting the first clearance. Another condition mentioned in the said exemption notification is that the manufacturer could not avail CENVAT credit on inputs, subject no doubt to the proviso in the said clause. It may also be noticed that sub-section (1A) has been inserted in Section 5A of the Excise Act, which deals with the power of exemption. Section 5A reads as follows:
"Section 5A. Power to grant exemption from duty of excise. -
(1) If the Central Government is satisfied that it is necessary in the public interest so to do, it may, by notification in the Official Gazette exempt generally either absolutely or subject to such conditions (to be fulfilled before or after removal) as may be specified in the notification, excisable goods of any specified description from the whole or any part of the duty of excise leviable thereon:
Provided that, unless specifically provided in such notification, no exemption therein shall apply to excisable goods which are produced or manufactured -
(i) in a free trade zone or a special economic zone and brought to any other place in India; or
(ii) by a hundred per cent export-oriented undertaking and brought to any place in India.51
Explanation. - In this proviso, "free trade zone", "special economic zone" and "hundred per cent export-oriented undertaking" shall have the same meanings as in Explanation 2 to sub-section (1) of section 3.
(1A) For the removal of doubts, it is hereby declared that where an exemption under sub-section (1) in respect of any excisable goods from the whole of the duty of excise leviable thereon has been granted absolutely, the manufacturer of such excisable goods shall not pay the duty of excise on such goods.
(2) If the Central Government is satisfied that it is necessary in the public interest so to do, it may, by special order in each case, exempt from payment of duty of excise, under circumstances of an exceptional nature to be stated in such order, any excisable goods on which duty of excise is leviable.
(2A) The Central Government may, if it considers it necessary or expedient so to do for the purpose of clarifying the scope or applicability of any notification issued under sub- section (1) or order issued under sub-section (2), insert an explanation in such notification or order, as the case may be, by notification in the Official Gazette at any time within one year of issue of the notification under sub-section (1) or order under sub-section (2), and every such explanation shall have effect as if it had always been the part of the first such notification or order, as the case may be.
(3) An exemption under sub-section (1) or sub-section (2) in respect of any excisable goods from any part of the duty of excise leviable thereon (the duty of excise leviable thereon being hereinafter referred to as the statutory duty) may be granted by providing for the levy of a duty on such goods at a rate expressed in a form or method different from the form or method in which the statutory duty is leviable and any exemption granted in relation to any excisable goods in the manner provided in this sub-section shall have effect subject to the condition that the duty of excise chargeable on such goods shall in no case exceed the statutory duty.
Explanation. - "Form or method", in relation to a rate of duty of excise means the basis, namely, valuation, weight, number, length, area, volume or other measure with reference to which the duty is leviable.
(4) Every notification issued under sub-rule (1), and every order made under sub-rule (2) of rule 8 of the Central Excise Rules, 1944, and in force immediately before the commencement of the Customs and Central Excises Laws (Amendment) Act, 1987 shall be deemed to have been issued or made under the provisions of this section and shall continue to have the same force and effect after such commencement until it is amended, varied, rescinded or superseded under the provisions of this section.
(5) Every notification issued under sub-section (1) or sub-section 2(A) shall, unless otherwise provided, come into 52 force on the date of its issue by the Central Government for publication in the Official Gazette."
68. Sub-section (1A) came into force w.e.f. 13.05.2005. We may notice that, in fact, there are, as already noticed, different types of exemption notifications. General exemptions are granted in exercise of the power under Section 5A. The notification with which we are concerned is general exemption No. 42 brought out by Notification No. 50/2003 dated 10.06.2003. There are exemption notifications made available for carrying out manufacture through job workers. There are exemption notifications issued, which fixed effective rate of duty. For goods of various chapters, notifications have been issued, namely, Notification No. 1 dated 01.03.2011, where the effective rate of duty has been fixed at 2 per cent. Notification No. 2 provides for effective rate of duty at 6 per cent for specified goods. A general exemption No. 50 has brought out effective rates of duty for goods specified in Chapters 1 to 98 by Notification 12/2012 dated 17.03.2012.
69. We may advert to the CENVAT Credit Rules, 2004. The purport of these Rules is to provide for credit on duty paid on inputs and capital goods as provided therein in the payment of final excise duty and other levies. We notice that "exempted goods" has been defined in Rule 2(d), which reads as follows:
"(d) "exempted goods" means excisable goods which are exempt from the whole of the duty of excise leviable thereon, and includes goods which are chargeable to "Nil" rate of duty and goods in respect of which the benefit of an exemption under Notification No. 1 / 2011-CE, dated the 1st March, 2011 or under entries at serial numbers 67 and 128 of Notification No. 12/2012-CE, dated the 17th March, 2012 is availed."
70. Thus, it tends to indicate that a distinction may exist between a case, where there is a complete exemption from the whole of the duty and a case, where the goods are chargeable to nil rate of duty. An 53 instance of its application can be found with reference to Rule 6(2), which provides for circumstances in which a manufacturer could take benefit of CENVAT credit and the word "exempted goods" figures which would obviously take-in, in view of the definition, cases of complete exemption and cases where the goods are chargeable at nil rate. But we need not explore this aspect in view of our finding on the scope of the word "taxability".
71. Parliament has chosen to use the words "taxability" and "excisability". We hold that the word "excisability" is better understood in the context as meaning not only a situation, where the goods in question are excisable goods as defined in Section 2(d) of the Excise Act, but also they answer the description of the goods as understood in law and a long line of decisions. This means that the products in question must be goods as understood in law being movable and marketable. It must have an identity in the market as a distinct new product. It must possess the attribute of marketability, which means it is capable of being bought and sold. This is besides also fulfilling the requirement that the goods must be manufactured or produced and, further, that the manufacture or production of the goods must be in India. It is when all these questions are answered in a case, where they are raised, that even if the goods are excisable goods, they become excisable.
72. It is a principle of interpretation that when the words have acquired a legal meaning or, rather, they have been interpreted by courts and they are used by the Legislature, it must be taken that the words are meant to be understood in the legal sense. In our search for authority as to whether courts have employed the word "excisability", we found the decision in the case of Hindustan Zinc Ltd. vs. Commissioner of Central Excise, Jaipur, reported in (2005) 2 SCC
662. In the said case, the question which arose was that whether silver chloride, which arose as an intermediate product in the course of manufacture of zinc, would satisfy the legal requirement that duty can 54 be levied only on goods. The contention taken was that silver chloride was a residue of treatment whereby sulphates of other materials are filtered out and that it was not marketable as there was no company to buy the product and that the purity level of silver chloride sold in the market was different from silver chloride produced in the factory of the assessee, which had silver content of only 50 to 53 per cent. The court noted that marketability is essentially a question of fact. The court further relied on Cadila Laboratories (P) Ltd. vs. CCE, reported in (2003) 4 SCC 12, wherein the court held that the burden would be on the department to show that what was available in the market is the same as the goods manufactured. The court took the view that the department had made no efforts to ascertain whether silver chloride having 50 per cent to 53 per cent silver content had a market. It was found that the department had failed to prove the test of marketability and, thereafter, the court proceeded to hold as follows:
"11. Before concluding, we may point out that since 1990, when the case of Hindustan Zinc Ltd. came to be decided, the question of excisability of silver chloride has been cropping up and yet till this day no steps have been taken by the Department to go to the market and collect proper evidence of marketability. In most of the matters, we find lethargy and reluctance on the part of the Department to collect evidence on marketability and even in cases where market enquiry is made, it is made in a perfunctory manner. Consequently, despite the Department having a good case on classification, we are constrained to allow the appeal of the assessee on marketability for want of evidence."
73. Thus, in this judgment, the court has used the word "excisability" and this tends to show that it was used in the sense that the question was not whether it figured in the excise tariff alone or in which entry it fell, but it went beyond the same and it essentially went to the issue of leviability and dutiability.
74. Therefore, we would proceed on the basis that when the Tribunal answers a question relating to excisability, it is equivalent to saying 55 that it finds that the goods are dutiable and can be visited with the levy of excise duty.
75. What then are we to make out of the employment of the word "taxability" separated by the word "or"? Was it intended to convey that taxability is something different from excisability? Is it capable of bearing the meaning that the Legislature intended that when, after it is found to be excisable in a situation where the assessee presses an exemption notification or order before the authority, it could be said that because there is an absolute exemption for instance he is shielded from the levy of excise duty and, therefore, in such a situation, it could be said that relates to taxability. Or, would it not be more appropriate in the context to find that there is no difference between "excisability" and "taxability" as both excisability and taxability refers to the situation, where the conditions are fulfilled for visiting the assessee with the levy. Exemption is granted only of goods, which are excisable. In fact, we have noticed the judgments, which indicate that exempted goods do not cease to be excisable. They do not become non-excisable because of the exemption. The moment the exemption is withdrawn, they not only become excisable, but the actual levy can be pressed against them.
76. This leads us to enquire as to what is the principle to be employed when two words are used. We may profitably refer to Principles of Statutory Interpretation by Justice G.P. Singh, Eighth Edition, under the heading 'use of different words' as under:
"When in relation to the same subject-matter, different words are used in the same statute, there is a presumption that they are not used in the same sense.
But much weight to the presumption arising out of use of different words in different parts of a statute cannot be given when dealing with a long complicated statute, for instance, a consolidating Act containing in-congruous provisions lumped together. Even otherwise, the rule is subordinate to context as a less careful draftsman may use different words to convey the 56 same meaning. A construction deriving support from differing phraseology in different sections of a statute may be negatived on considerations that it will lead to unreasonable or irrational results."
77. We may, in fact, refer to the judgment of the Apex Court in Kanhaiyalal Vishindas Gidwani vs. Arun Dattatraya Mehta and others, reported in AIR 2000 SC 3681. There, the court was dealing with Section 33 of the Representation of People Act, 1951. The court was dealing with Section 33 and the first proviso thereto. The contention taken by the appellant was that a different meaning is to be attributed to the word 'subscribe' and mere signature is not sufficient. The court held as follows:
"18. The above observations of this Court cannot be accepted as a ratio laid down. In our opinion, it is only an observation without laying down the principle which the petitioner is trying to deduce in his arguments. This view of ours is clear from the following further discussion of this Court in the said case:
"Now if "subscribe" can mean both signing, properly so called, and the placing of a mark (and it is clear that the word can be used in both senses), then we feel that we must give effect to the general policy of the Act by drawing the same distinction between signing and the making of a mark as the Act itself does in the definition of "sign". It is true the word "subscribe" is not defined but it is equally clear, when the Act is read as a whole along with the form in the second schedule, that "subscribe" can only be used in the sense of making a signature and as the Act tells us quite clearly how the different types of "signature" are to be made, we are bound to give effect to it. Xxx (Emphasis supplied).
19. For this reason also we agree with the finding of the High Court that the expression "subscribe" in the proviso cannot be read differently from the expression 'sign' used in S.33. Therefore, this contention of the petitioner is also rejected. For the reasons stated above, the appeal is dismissed with costs."
78. After answering the issue against the assessee, necessarily, various questions would arise in regard to whether the assessee fulfills the conditions mentioned in the notification to claim benefit of exemption. An exemption notification is to be construed strictly.
57Undoubtedly, when it is an implementing notification, the court will treat it as an exception to the general rule of strict interpretation to be accorded to an exemption notification and a beneficial construction would undoubtedly be employed; but there can be no violence to the language used in the notification.
79. As we have noticed, ordinarily, when different words are used in the same Section, there is a presumption that they are not used in the same sense. Here, we are concerned with the employment of the words "taxability" and "excisability". We have found that the word "excisability" is intended to cover all issues, namely, whether the goods are excisable and, where a question is raised, whether they are goods being movable, marketable and further, if there is a dispute, relating to whether it is manufactured or produced in India, the same must also be considered and answered. When all these questions are answered, we have also found that the goods are liable to be visited with duty. Legislature has, however, chosen to use the word "taxability". Here, we must pose the following questions, which are, in our view, enough to unravel the intention of Parliament. In a case, where the goods are found to be excisable as in the sense we have understood, there may be an exemption notification, which is in force. No doubt, it could be argued that, if the word "excisability" is understood in the same sense as "taxability", the question relating to the availability of the exemption notification is outside the scope of both "excisability" and "taxability"; in that, it could be said that it only means that the goods, which are excisable or taxable, are outside the net of taxation by virtue of the exemption notification. But, we would think that the better view and the right view could be that, in a case, where the goods are found excisable, Parliament intended in a case, where the Assessing Officer presses for payment, the assessee responds by pointing out that, though the goods are excisable, there is an exemption notification available, which protects him from actual taxation. If we understand the expression "taxability" in the said context, we would be acting in terms of the normal presumption, which 58 is available when two different words are employed in the same statute and we would give life to both the words. Thus, the word "taxability" would cover a situation, where, though the goods are found dutiable otherwise, they are found to be non-taxable by virtue of the availability of an exemption notification. If a question arises as to the availability of the notification, then it goes to taxability.
80. In this context, we may notice one argument of Mr. H.M. Bhatia. His contention is that there is no dispute that there is an exemption notification regarding the rate of tax. If the exemption is not available, the full rate of tax will become applicable. Therefore, it is a question, which has no relationship with the rate of duty.
81. We may point out that if this argument is accepted, even under the head "excisability", if for instance assessee contends that there is no manufacture or that the goods are not marketable and the question is answered against the assessee finding that there is indeed manufacture or the goods are marketable, as the case may be, all that remains in such a case also is to apply the full rate of duty. Therefore, this cannot be a test to decide the question at hand. We must also bear in mind that by virtue of sub-section (2) to Section 35L, the courts are obliged to proceed on the basis that a decision relating to "taxability" or "excisability" is to be treated as a question which has a relation with the rate of duty. This is virtually a deeming provision and, therefore, we need not actually explore the question even as to whether it really has a relation with the rate of duty.
82. In such circumstances, we are of the view that the appeals are not maintainable for the reason that the appeals are maintainable only before the Supreme Court under Section 35L of the Excise Act in the context of the interpretation we have placed on the words "taxability" and "excisability". We need not, therefore, further explore the question whether de hors sub-section (2), the case would fall under sub-section (1) of Section 35G or Section 35L, as the case may be.
5983. Accordingly, the appeals will stand dismissed as not maintainable. Needless to say, the appellants will be at liberty to pursue the matter before the competent forum, if advised. There will be no order as to costs.
(Alok Singh, J.) (K.M. Joseph, C. J.)
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