TaxTMI 
TaxTMI 
2015 (11) TMI 313
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.... payment of the whole of the Duty of Excise 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 da....
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....2015, this Court passed an interim order on 26.8.2015. 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 Sectio....
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....decisions of the Supreme Court in Aidek Tourism Private Limited and 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....
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....o imagine the importer as a domestic manufacturer and to find out what he would have 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....
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....n view of the fact that they are included in the Schedule to the Central Excise Act, 1985, but the rate of duty is indicated in those schedules 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 d....
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....d under notification No.334/3/2004, on the very same date, namely 09.7.2004. By this corrigendum, the words "inputs or capital goods" were directed to be read as "inputs". 28. By 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....
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.... falling under certain Chapter Headings. The exemptions granted under a few notifications were not general, but specific, in relation to some of the goods (but not all goods) falling under certain Chapter 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 Notifi....
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....essee's appeal. When the matter landed up in the Supreme Court, the Supreme Court pointed out that for deciding the question of eligibility, one must forget the fact that the goods are imported, but imagine that 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 ....
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...., as it was manufactured by a foreign manufacturer, the condition stipulated in the Notification was impossible of being complied with by an importer. While rejecting the said contention, the Supreme Court held as follows : "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 tha....
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....ect to the condition that the product is used in the same factory. The question that arose for consideration was as to whether the goods that were used must also be manufactured in the same factory or not. While answering the question in favour of the assessee, 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 bas....
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....ore, the Court held that the decision of the Constitution Bench in Dhiren Chemical Industries would have no application to cases of that nature. 49. After nearly two years of the decision in Kay Kay Industries, the Supreme Court had occasion to consider the very 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.....
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....bearing No.37/2015 dated 21.7.2015. By the first amendment, the Central Government substituted a new proviso in the place of the existing one. The new proviso reads as follows : "Provided that the said excisable goods are manufactured from inputs, on which, appropriate duty of excise 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 i....
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.... the places set out in the table under the Notification and the procedure specified in Chapter X of the Central Excise Rules, 1944 should have been followed Hyderabad Industries Limited Even in this case, the Supreme Court was not concerned with any notification, but primarily concerned with a question as to whether asbestos 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, o....
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....ise duty at 40% ad valorem. S.R.F. Limited Notification No.6/2002 dated 1.3.2002, which imposed a condition that no credit under the CENVAT Credit Rules should have been taken in respect of the inputs or capital goods used in the manufacture of those goods. 57. In the light of what is reflected in the above table, it can safely be concluded that the interpretation 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 i....
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....goods with inputs, which have suffered a duty of excise 2 A Notification with the only stipulation that no CENVAT credit has been availed on the duties leviable on the inputs In this type of a case there can be only one scenario. The same is that a person should not have claimed CENVAT credit in relation to the duties of excise leviable on the inputs, to satisfy this condition. He can fulfill this condition 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 sat....
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..... With respect to any existing internal tax which is inconsistent with the provisions of paragraph 2, but which is specifically authorized under a trade agreement, in force on April 10, l947, in which the import duty on the taxed product is bound against increase, the contracting party imposing the tax shall be free to postpone the application of the provisions of paragraph 2 to such tax until such time as it can obtain release from the obligations of 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 o....
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.... pointed out that we are concerned in this case only with an interpretation to be given to an exemption notification. The exemption notification has to be read and understood in the context of the power of exemption available under the statute. Therefore, we do not think that the report of the GATT Panel can be pressed into service. 68. The provisions of GATT 1947 may not also be of any assistance to the petitioners. As could be seen from Article III of GATT which 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 ....
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....e exemption notification cannot be said to be a malafide exercise of power. As a matter of fact by the impugned amendment notifications dated 17.07.2015 and 21.07.2015, the Government had done something that may hit some of the domestic manufacturers also. A domestic manufacturer who would have otherwise been entitled to the benefit of the exemption notification dated 9.7.2004, may not any more be entitled to the benefit of the notification, unless he satisfies the newly incorporated 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 [2....
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.... dated 1.3.2011 and No.12/2012-C.E., dated 17.03.2012 so as to clarify that the appropriate duty or appropriate additional duty or appropriate service tax for the purposes of the said notifications/entries includes nil duty or tax or concessional duty or tax, whether or not read with any relevant exemption notification for the time being in force. 7. It may, therefore, be noted that the domestically manufactured goods covered under these notifications/ entries continue to be exempt from excise duty or subject to concessional 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....
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....se on which the Supreme Court decided Thermax or Hyderabad Industries. If we do so, we have to imagine the writ petitioners herein or all importers for that matter, as if they are domestic manufacturers. To this extent there is no difficulty. But after we imagine an importer to be a domestic manufacturer of a like product, the next question that we should address ourselves is as to whether he would be entitled to the benefit of the exemption notification, after or without fulfilling the conditions stipulated in the notification. 79. So far, the Courts were 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 exa....
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.... indicated earlier, a challenge to a condition prescribed in an exemption notification can be tested only on very limited parameters. None of the parameters is satisfied in this case. The exemption notifications dated 17.07.2015 and 21.07.2015 are issued in exercise of the power conferred by Section 5A. Section 5A(1) itself empowers the Central Government to grant exemption either absolutely or subject to such conditions as they may stipulate. If the Central Government has the power to grant exemption subject to certain conditions, they have the power even to modify 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 ....
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....Rule 2(k) of the CENVAT Credit Rules, 2004, is as follows: (k) "input" means- (i) all goods, except light diesel oil, high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not and includes lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used in or in relation 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 shal....