TaxTMI 
TaxTMI 
2015 (11) TMI 313
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....se leviable thereon under the Central Excise Act, 1944. However, a proviso to the Notification restricted the availability of the benefit of exemption only to goods in respect of which Credit of Duty on Inputs or Capital Goods had not been taken under the provisions of the CENVAT Credit Rules, 2002. 2. In two decisions of recent origin namely Aidek Tourism Services Private Limited v. Commissioner of Customs [2015 (7) SCC 429], and S.R.F. Limited v. Commissioner of Customs [2015 (318) ELT 607 (SC), the Supreme Court held that the benefit of the said exemption Notification was available to importers of the goods described in the table under the Notification and that the proviso to the Notification may not have any application to importers, as they could not in any case, avail CENVAT credit. 3. The aforesaid decisions were rendered by the Supreme Court on 19.3.2015 and 26.3.2015 respectively. Thereafter, the Central Government issued two Notifications, one bearing No.34/2015 on 17.07.2015 and another bearing No.37/2015 dated 21.07.2015. By the first Notification dated 17.07.2015, the proviso as it existed in the Notification No.30/2004 dated 9.7.2004 was replaced by a new proviso. B....
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....15. But immediately thereafter, the Union of India came up with M.P.No.4 of 2015 for modification of the interim order passed by us on 26.8.2015. In the meantime, the petitioner in W.P.No.24507 of 2015 came up with a Contempt Petition in Contempt Petition No.2069 of 2015 alleging wilful disobedience of the interim order dated 26.8.2015. However, since the Union of India came up with a petition to modify the interim order and also since the pleadings were completed and both parties got ready for arguments in the main writ petition, the main writ petition W.P.No.24507 of 2015 itself was taken up for hearing. 7. In the meantime, another importer by name Aditya International Limited, engaged in the business of importing and trading in various textile goods including silk yarn and silk fabrics, came up with two writ petitions in W.P.Nos.26010 and 26011 of 2015. The prayer in the first writ petition is for declaration that the words "and not the buyer of such goods" incorporated in the original Notification No. 30/2004 dated 9.7.2004, through the amending Notification No.34/2015 dated 17.07.2015 is null and void in the light of Section 3(1) of the Customs Tariff Act, 1975 and Section 5A....
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.... S.R.F.Limited and hence they are contrary to law; (iii) that when for the application of Section 3 of the Customs Tariff Act, 1975, an importer should be imagined to be a domestic manufacturer, the importer should also be taken to be a person who has fulfilled all the conditions precedent that a domestic manufacturer would have complied with before the completion of the manufacturing process and hence the importer cannot be put to an disadvantageous position on the basis of a condition which is impossible of being complied with by him; and (iv) that at least in so far as the petitioners are concerned, goods that they import, if manufactured in India, would not have suffered any duty of Excise even on their inputs, as no duty is leviable on those inputs in India. 12. In response to the above contentions, it is submitted by Mr.G.Rajagopalan, learned Additional Solicitor General that if a Notification for exemption is made contingent upon the compliance with certain conditions, which an importer is not capable of complying with, such an importer may not be entitled to the benefit of the exemption Notification. It is his further contention that a Notification issued in exercise of ....
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....e been subjected to, had he manufactured the same item in India. Keeping this fundamental premise in mind, let us move on to the next portion of our discussion relating to the statutory prescription and the Notifications. STATUTORY PROVISIONS, EXEMPTION NOTIFICATION AND AMENDMENTS THERETO: 17. There are certain items, which if manufactured in India, do not even attract a duty of Excise. The Central Excise Act, 1944 defines the expression "excisable goods" under Section 2(d) to mean the goods specified in the First Schedule and Second Schedule of the Central Excise Tariff Act, 1985, as being subjected to a duty of Excise and includes salt. Section 3(1) of the Central Excise Act, 1944 stipulates that a duty of Excise shall be levied and collected on all excisable goods which are produced or manufactured in India, as and at the rates set forth in the Schedule to the Central Excise Tariff Act, 1985. Therefore, if certain goods are not included in the Schedule to the Central Excise Tariff Act, 1985 or if a nil rate of duty is stipulated in those Schedules in respect of certain goods, those goods are not excisable or excisable at nil rate of duty. 18. Though all goods manufactured or ....
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....as zero. (iii) Goods which are excisable at the rates specified in the Schedules under the Central Excise Tariff Act, 1985, but which are granted exemption, in terms of a Notification issued under Section 5A of the Central Excise Act, 1944. 20. In other words goods manufactured or produced in India may have to be classified into two broad categories, with one of those categories being divided into sub-categories and the sub-categories getting further divided. This can be easily understood by looking at the following chart:- 21. A careful look at sub-section (1) of Section 5A would show that there are different types of exemptions that could be granted by the Central Government. They are as follows: (i) absolute exemption (ii) exemption subject to fulfillment of certain conditions before removal (iii) exemption subject to fulfillment of certain conditions after removal (iv) exemption from the whole of the Duty of Excise and (v) exemption from any part of the Duty of Excise. 22. Due to the very fact that there are different types of exemptions contemplated by sub-section (1) of Section 5A, it follows as a natural corollary that the benefits of such exemption notifications wo....
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....y the next notification bearing No.10/2005 dated 01.3.2005, the Central Government amended the Table under many notifications of the years 2003 and 2004. The Table under the notification No.30/2004 dated 09.07.2004 was also partially amended. But, we are not concerned with the same. 29. By the next notification No.15/2006 dated 01.3.2006, the Table under the notification dated 09.7.2004 was again amended, substituting certain entries with new entries. To the same effect was another notification No.48/2006 dated 30.12.2006, by which several notifications of the years 1986, 1989, 1993, 1994, 1995, 1996, 2003, 2004, 2005 and 2006 were amended. These amendments also related only to the entries in the Table given under each of those notifications. 30. The next notification No.13/2007 dated 01.3.2007, the notification No.12/2009 dated 07.7.2009, the notification No.12/2011 dated 01.3.2011, the notification No.30/11 dated 24.3.2011, the notification No.11/2013 dated 01.3.2013 were also of the same type, in the sense that the entries in the Table were amended. In a few cases, all goods under certain Chapter Headings were included in column (3). In certain other amendments, the descriptio....
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.... Headings. Some notifications provided for exemptions in absolute terms without any condition. But, all notifications from 2004 did not provide for absolute exemptions. They provided for conditional exemptions, some of which were capable of being complied with and some are not. Keeping in mind the purport of the various exemption notifications, we shall now move over to the next part of our discussion, where we shall deal with judicial pronouncements. JUDICIAL PRONOUNCEMENTS 34. Interestingly, both sides rely upon the very same decisions to drive home their respective view points. Hence we shall deal with all the decisions in the chronological order. 35. In Ashok Traders Vs. Union of India [(1987) 32 ELT 262 (Bombay)], a Division Bench of the Bombay High Court was concerned with a claim made by an importer of High Density Polythelene Moulding Powder for exemption from payment of countervailing duty. The exemption Notification was actually a partial exemption and the Notification stipulated two conditions namely (a) that the product should have been manufactured from raw naptha or any chemical derived therefrom and (ii) that on such raw material, the appropriate amount of duty of....
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....t the importer had manufactured the goods in India and then determine the amount of excise duty that they would have been called upon to pay in that event. If so done hypothetically, if such a person had been entitled to the exemption or remission, then the importer will be automatically entitled to the benefit, irrespective of the non fulfillment of the second condition namely the adherence to the procedure of Chapter X of the Rules. In paragraph 11 of the report, the Supreme Court held that the Tribunal was wrong in denying the benefit to the assessee merely on the ground that the procedure stipulated in Chapter X of the Rules is inapplicable to importer as such. 38. In Hyderabad Industries Limited Vs. Union of India [1995 (5) SCC 338], an importer of asbestos fibre, that was separated from its parent rock, was aggrieved by a demand of additional duty of customs made under Section 3(1) of the Customs Tariff Act, 1975. The Department took a stand that the process, by which, asbestos fibre was obtained, was a process of manufacture and hence, the said item fell within Tariff Item 22F of the First Schedule to the Excise Act. Reliance was placed by the Department upon the decision o....
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....: "Vinyl acetate monomer is an item which is manufactured in India and a rate of excise duty is leviable thereon. On the polyvinyl alcohol which has been imported, vinyl acetate monomer has not been subjected to the appropriate amount of duty payable under the Indian law. Because this condition had not been satisfied in the present case, therefore, the appellants are unable to get the benefit of the said Notification." 42. In Collector of Central Excise Vs. Dhiren Chemical Industries [2002 (2) SCC 127], a reference was made to a Five Judges Bench on the ground that there was a conflict between the views taken in Commissioner of Central Excise Vs. Usha Martin Industries [(1997) 7 SCC 47] and Motiram Tolaram. In Usha Martin Industries, the exemption Notification had imposed a condition that the exempted product should contain a raw material 'on which, the appropriate amount of duty of excise had already been paid'. The Department took a stand that in cases where the raw material had attracted -NIL- duty, the condition stipulated in the Notification cannot be fulfilled and that therefore, the benefit of the exemption Notification may not be available in respect of products,....
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....ssee, the Supreme Court held that an exemption Notification should be read literally and that a person claiming the benefit of an exemption Notification, must show that he satisfied the eligibility criteria. But, once it is found that the exemption Notification is applicable to the case of the assessee, the same should be construed liberally. The expression 'same factory' found in the Notification was interpreted by the Supreme Court in Malwa Industries Limited, to mean factory belonging to the importer where the manufacturing activity took place. 45. In Commissioner of Central Excise Vs. Hari Chand Shri Gopal [2010 (260) E.L.T. 3 (SC)], a Five Member Bench of the Supreme Court held that a provision in a fiscal statute providing for an exemption, concession or exception, has to be construed strictly and that an exemption Notification has to be interpreted in the light of the words employed by it and not on any other basis. The Court went on to hold that "a person, who claims exemption or concession, must establish clearly that he is covered by the provision concerned and in case of doubt or ambiguity, the benefit of it must go to the State." 46. In Hari Chand Shri Gopal, ....
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....same issue, in three decisions, within a span of a few days in March 2015. On 16.3.2015, the Supreme Court rendered a decision in Ahujasons Shawl Wale (P) Ltd. v. Commissioner of Customs [2015 (319) ELT 576 (SC)]. In this case, the assessee was an importer of shawls from Nepal. They resisted the imposition of additional Customs Duty (CVD) on the ground that locally manufactured goods of similar nature are exempted, if they are unbranded. While allowing the appeal of the assessee, the Supreme Court extracted the ratio laid down in Hyderabad Industries and held that since the purpose of CVD is to protect the domestic market from unhealthy competition, no CVD can be imposed on an importer when no Excise Duty was payable by the domestic manufacturer. 50. Within three days of the decision in Ahujasons Shawl, the Supreme Court dealt with a case relating to the importer of Honda Accord Cars. In the said case decided on 19.3.2015, in Aidek Tourism Services Pvt. Ltd. Vs. Commissioner of Customs [2015 (7) SCC 429], the assessee, which had imported Honda Accord cars, filed a claim for refund on the ground that in terms of the Notification No.64/93, they were entitled to concessional rate of ....
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....xcise leviable under the First Schedule to the Central Excise Tariff Act or additional duty of customs under Section 3 of the Customs Tariff Act, 1975 (51 of 1975) has been paid and no credit of such excise duty or additional duty of customs on inputs has been taken by the manufacturer of such goods (and not the buyer of such goods), under the provisions of CENVAT Credit Rules, 2004." By the second amendment, under Notification No.37/2015, an Explanation was inserted under the above proviso. This Explanation reads as follows : "Explanation:- For the purposes of this Notification, appropriate duty or appropriate additional duty includes nil duty or concessional duty, whether or not read with any relevant exemption Notification for the time being in force." 54. The Central Government also filed a petition for review. On 9.9.2015, the Supreme Court condoned the delay and ordered notice in the review. Therefore, it is clear that the law has travelled in a zig zag fashion from one extreme to the other. This is at least apparently so. 55. But, a careful look at the various types of Notifications issued by the Central Government from time to time in exercise of the powers conferred b....
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....s fibre was brought out by a mechanical or other process, from out of raw rock and as to whether asbestos fibre is exigible to duty under Tariff Item 22F. The Department relied upon Khandelwal. But, the correctness of the decision was doubted in this case, in the sense that Section 3(1) of the Customs Tariff Act was held to be a charging section independent of Section 12 of the Customs Act. Motiram Tolaram Decision Dealt with an exemption Notification No.185/83, which imposed a condition that the input used for the manufacture of the product should have suffered an Notification No. and condition stipulated therein appropriate amount of duty under the Indian Law. Usha Martin Industries Exemption Notification dated 30.11.1963 as amended upto 7.4.1981, which imposed a condition that the exempted product should contain a raw material, on which, appropriate amount of duty of excise had already been paid. Dhiren Chemical Industries It arose out of a reference on the ground that there was a conflict between the decision in Usha Martin Industries (which dealt with a Notification that stipulated a condition that an appropriate amount of duty should have been paid on the input....
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....tation given by the Supreme Court to the Notifications that were in question, depended primarily upon two important facts namely (a) as to whether the Notification imposed a condition that the input used for the manufacture of the exempted goods had already suffered a duty of excise or not and (b) as to whether the manufacturer of the exempted goods had claimed CENVAT credit in respect of a duty paid on the inputs or not. 58. Wherever the Notifications prescribed conditions, which were merely procedural in nature, but did not involve the payment of any duty of excise on the inputs, the Court interpreted the Notifications in favour of the assessee, in view of the fact that an importer could not comply with those procedural formalities. But, wherever the Notifications imposed either (i) a condition that the input used for the manufacture of the exempted goods, should have suffered a duty or (ii) a condition that duty ought to have been paid and CENVAT credit not claimed, the Court interpreted such Notifications in favour of the Revenue (except perhaps in the case of AIDEK and SRF). 59. It must be pointed out at this stage that one cannot make a distinction between (i) a Notificatio....
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....ondition only if he has already suffered duties of excise on the inputs used in the manufacture of exempted goods. This condition has inbuilt within itself, the pre-condition that a duty of excise had been paid Therefore, a person can be taken to have satisfied this condition only (i) if he establishes that the inputs used by him had suffered duty and (ii) that he had not claimed CENVAT credit on them 3 A condition, which incorporates both (1) and (2) above. In other words, a condition that stipulates that the inputs should have suffered a duty and no CENVAT credit had been taken Even in this type of Notification, there is only one possible scenario Consequently, a person will be entitled to the benefit of the exemption Notification only if both conditions are satisfied. 62. Therefore, the interpretation to be given to (i) a Notification stipulating a pre-condition that the inputs should have suffered a duty and no CENVAT credit should have been claimed, should be the same as the interpretation to be given to a Notification, which imposes a pre-condition that no CENVAT credit should have been claimed in relation to the duties leviable on the inputs. Once this is very ....
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.... such trade agreement in order to permit the increase of such duty to the extent necessary to compensate for the elimination of the protective element of the tax. 4. The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use. The provisions of this paragraph shall not prevent the application of differential internal transportation charges which are based exclusively on the economic operation of the means of transport and not on the nationality of the product. 64. After the issue of the original text, certain Supplementary Provisions were added to GATT 1947. It was clarified by the Supplemental Provisions that any internal tax or other internal charge which applies to an imported product and to the like domestic product and is collected in the case of imported product at the time or point of importation is to be regarded as an internal tax. Therefore, the learned counsel contende....
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....we have extracted above, the only restriction imposed upon a contracting party is that they should not subject the importer to internal tax in excess of those applied to like domestic products. The principle behind Article III of GATT 1947 is what is incorporated in Section 3 of the Customs Tariff Act 1975. We have no quarrel with the proportion that an importer cannot be subjected to a tax which is in excess of those imposed upon like domestic products. But the real question is as to whether by granting the benefit of the exemption notification, we will be putting the importer to a more advantageous position than the domestic purchaser of a like product. In case we find that the denial of the benefit of the exemption notification to the importer does not put him to a disadvantageous position than the domestic manufacturer, neither Section 3 nor the provisions of GATT would stand breached. Therefore, we have no hesitation in rejecting the arguments on the basis of Article III of GATT. 69. One more contention is advanced by Mr.S.Murugappan, learned counsel for the petitioner. It appears that an association of Domestic Manufacturers known as "MAIT" gave a representation to the Centr....
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....d proviso and the Explanation. Therefore, the amendments cannot be seen in isolation. 73. Drawing our attention to the Circular dated 21.07.2015, Mr.R.Yashodh Vardhan, learned senior counsel for the petitioners contended that in so far as the domestic manufacturers are concerned, the department itself had taken a stand that they would continue to enjoy the benefit as before prior to 17.07.2015. The Circular bearing No.1005/12/2015, dated 21.07.2015 may be of relevance and hence it is extracted as follows:- "It may recalled that the Hon'ble Supreme Court, in the case of M/s. SRF Ltd., versus Commissioner of Customs, Chennai and M/s. ITC Ltd. v/s. Commissioner of Customs (I&G), New Delhi [2015 (318) E.L.T.607 (S.C.)] relating to CVD exemption, has held that the benefit of excise duty exemption [available to final products manufactured by the domestic manufacturer, subject to the condition of non-availment of CENVAT credit of duty on inputs or capital goods used by such manufacturer for manufacture of such final products] will also be available to the importers of such final products for the purpose of CVD on the ground that the importer was not availing the credit of duty on i....
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....l rate of excise duty, as the case may be, as they were prior to 17th July, 2015. 8. Trade Notice/Public Notice may be issued to the field formations and taxpayers. 9. Difficulties faced, if any, in implementation of this Circular may be brought to the notice of the Board." 74. Though para 7 of the Circular extracted above indicates that the domestic manufacturer would continue to be exempt from Excise Duty or subject to concessional rate of Duty as the case may be, as they were prior to 17.07.2015, we do not think that by a Circular, the notification issued in exercise of the statutory powers could be whittled down. Moreover, we are called upon in this case to test the vires of the notifications dated 17.07.2015 and 21.07.2015. The vires of these notifications can be tested only on the touchstone of the source of power or the Constitutional provisions or other legally accepted parameters. The validity of the notifications statutorily issued cannot be tested on the basis of a Circular issued by the department, post facto. Therefore, the above argument of the writ petitioners cannot be accepted. 75. One more contention raised by Mr.R.Yashodh Vardhan, learned senior counsel for....
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....e not confronted with a situation where some domestic manufacturers are entitled to the benefit of the exemption notification and some domestic manufacturers are not. If by virtue of the conditions imposed in the exemption notification, some domestic manufacturers will be left without the benefit of the exemption notification, then the question arises whether the importer would be placed along with those domestic manufacturers who got the benefit or whether they will be placed along with the domestic manufacturers who do not get the benefit. 80. An answer to the above question can be found out by taking a very interesting example provided by Mr.S.Murugappan, learned counsel for the petitioner in the course of his submissions. The learned counsel gave the example of a domestic manufacturer who has suffered a Duty of Excise to the extent of Rs. 100/- on the inputs, with which he manufactured another product. Assuming that the Duty of Excise leviable on the product manufactured by him is Rs. 200/- and assuming such Duty of Excise is exempt by virtue of a notification subject to the condition that the manufacturer has not taken CENVAT credit, he would have two options. The first optio....
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.... the conditions. This is why neither the source of power nor the method of exercise of such power is questioned by the writ petitioners. The impugned amendments are not in excess of the delegated power conferred under Section 5A(1). Therefore, at the outset, the amendments are not ultra vires Section 5A(1). 84. The amendments are not ultra vires Section 3 since the importers are not placed in a more disadvantageous position than that of the domestic manufacturers. By prescribing certain conditions for availing the benefit of exemption, the impugned amendments treat even the domestic manufacturers differently. Placing the importers on par with those domestic manufacturers who do not get the benefit of the exemption notification, does not strike at the root of Section 3. Therefore, the notifications do not offend Section 3. 85. The petitioners cannot even assail the impugned notifications on the strength of Article 14 of the Constitution. If the domestic manufacturers themselves are classified into two categories depending upon the nature of the conditions imposed, the classification is reasonable and it has a nexus with the object sought to be achieved by the notification. It must....
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....lation to manufacture of final products or for any other purpose, within the factory of production; (ii) all goods, except light diesel oil, high speed diesel oil, motor spirit, commonly known as petrol and motor vehicles, used for providing any output service; Explanation 1.- The light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol, shall not be treated as an input for any purpose whatsoever. Explanation 2.- Input include goods used in the manufacture of capital goods which are further used in the factory of the manufacturer; but shall not include cement, angles, channels, Centrally Twisted Deform bar (CTD) or Thermo Mechanically Treated bar (TMT) and other items used for construction of factory shed, building or laying of foundation or making of structures for support of capital goods;" It can be seen from the above definition that even those goods (i) used in relation to the manufacture of final products, (ii) used directly or indirectly, and (iii) whether contained in the final product or not, are deemed to be inputs. Even lubricating greases, cutting oils, coolants, accessories of the final products and goods used as paints or packing materi....