IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 6433 OF 2003

M/S. BONANZO ENGINEERING & CHEMICAL PRIVATE  LIMITED           .... APPELLANT

  VERSUS

COMMISSIONER OF CENTRAL EXCISE            ... RESPONDENT

         O R D E R

1. This appeal is directed against the judgment and order passed by  

the Customs, Excise and Gold (Control) Appellate Tribunal, New  

Delhi (for short 'the Tribunal') in Appeal No.E/1352/2002-B dated  

25.10.2002. By the impugned judgment and order, the Tribunal has  

sustained the original order passed by the Adjudicating Authority.

2. The undisputed facts are: the appellant is a manufacturer of goods  

falling under Chapter Headings 32 and 84 of the first schedule to  

the  Central  Excise  Tariff  Act,  1985  ('the  Act'  for  short).   The  

description of  the goods under those chapters for the purpose of  

disposal of this appeal may not be necessary, since we are called  

upon in this appeal to give a purposive construction to the language  

employed  in  the  Notification  No.175/86-CE  dated  1.3.1986  and  

Notification No.111/88-CE dated 1.3.1988.

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3. The  Notification  No.175/86-CE  dated  1.3.1986  exempts  the  

excisable  goods  of  the  description  specified  in  the  annexure  

appended to the Notification as enumerated under various Chapters  

of the Schedule to the Act. The assessee availing the benefit of the  

exemption  notification  has  to  satisfy  two  specific  conditions  for  

claiming exemption from payment of duty under the Act. We need  

to notice Sub-clauses (a), (a)(ii) and proviso to Clause 1, and the  

Explanation II to the Notification.  They read as under:

“(a) in  the  case  of  the  first  clearance  of  the  specified  goods upto an aggregate value not exceeding rupees thirty  lakhs,-

               xxx xxx xxx

(ii) in any other case from the whole of the duty of excise   leviable thereon:

Provided  that  the  aggregate  value  of  clearances  of  the  specified  goods  under  Sub-clause  (ii)  of  this  clause  in  respect of any one Chapter of the said Schedule, shall not   exceed rupees twenty lakhs [w.e.f. 1.4.1990]....”

“Explanation  II  For  the  purposes  of  Computing  the   aggregate value of clearances under this Notification, the   clearances of any excisable goods, which are chargeable to   nil rate of duty or which are exempted from the whole of   the duty of excise leviable thereon by any other Notification  [not being a notification where exemption from the whole   of the duty of excise leviable thereon is granted based upon  the  value  or  quantity  of  clearances  made in  a  financial   year] issued under Sub-rule[1] of Rule 8 of the said rules,   or  under  Sub-section  [1]  of  Section  5A  of  the  Central   Excises and Salt Act, 1944 [1 of 1944], shall not be taken   into account.”  

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4. A  bare  perusal  of  Sub-clause  (a)  of  Clause  1  of  the  said  

Notification  demonstrates  that  the  goods  enumerated  in  the  

Schedule  to  the  Notification  are  exempted from payment  of  the  

central excise duty for the first clearances of the specified goods  

upto the aggregate value not exceeding rupees thirty lacs. Clause  

(a)(ii)  provides  that  such  clearances  should  not  exceed  rupees  

twenty lacs in any one of the chapter. The Notification also say that  

for the purpose of computing the aggregate value of the clearances  

under the said Notification, the value of clearances of any excisable  

goods which are exempted from the whole of duty by any other  

Notification shall not be taken into account.

5. Having seen the first Notification, namely, the Notification dated  

1.3.1986, let us also refer to the Notification No.111/88-CE dated  

1.3.1988.  This Notification is issued by the Central Government in  

exercise of its powers under sub-rule (1) of Rule 8 of the Central  

Excise  Rules,  1944.  By  the  said  Notification,  the  Central  

Government  exempts  the  goods  of  the  description  specified  in  

column 3 of the table appended to the Notification, from the whole  

of the excise duty leviable on the said goods. It is an admitted fact  

that the assessee is the manufacturer of specific goods falling under  

Serial No. 12 of the table appended to the Notification.

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6. We once again make it clear that the assessee in the instant case is a  

manufacturer of goods falling under both chapters 32 and 84 of the  

Act.

7. The  assessee  has  filed  its  declaration  before  the  adjudicating  

authority,  inter  alia,  informing  him  that  the  assessee  would  be  

claiming  exemption  from payment  of  excise  duty  for  a  sum of  

Rs.20 lacs under Chapter heading 32 of the Act and upto Rs.10 lacs  

under Chapter heading 84 of the Act.

8. The adjudicating authority has issued two show cause notices dated  

26.11.1992  and  20.01.1993,  respectively.  The  first  show  cause  

notice is for the period 20.08.1992 to 31.10.1992 and the second  

show cause pertains to the period 01.11.1992 to 31.12.1992. The  

duty effect of both the notifications does not exceed beyond Rs.2.3  

lacs.

9.  In the aforesaid show cause notices, the assessing authority had  

stated that the assessee has exceeded the aggregate value of Rs.30  

lacs as specified in the Notification dated 1.3.1986 and, therefore,  

other clearances made by him would attract the levy of duty.  It was  

also mentioned in the notice that since the assessee had paid the  

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duty on the excess clearances of more than the value of Rs.30 lacs,  

the assessee is liable to pay duty with penalty.   

10. In reply to the said show cause notice, the assessee had brought to  

the notice of the adjudicating authority that it is a manufacturer of  

items which would fall under chapter heading 84 of the Act and,  

therefore, the Notification dated 1.3.1988 requires to be applied and  

if it is applied the goods enumerated in the table appended to the  

Notification are exempted from the levy of duty and, therefore, the  

excise  duty  paid  by  the  assessee  under  the  aforesaid  notification  

cannot be added for the purpose of computing the aggregate value,  

while  granting  benefit  of  the  Notification  No.175/86-CE  dated  

1.3.1986.

11. The stand of the assessee was, initially, accepted by the adjudicating  

authority (Assistant Commissioner) vide his Order dated 12.3.1993.  

However, the Collector of Central Excise (Judicial) in his Review  

Order  dated  17.2.1994  found  that  the  Order-in-Original  dated  

12.3.1993 is legally incorrect and is passed by the authority which is  

incompetent on account of monetary limits. He further directed the  

Assistant Collector to file an appeal before the Collector, Central  

Excise (Appeals) for appropriate remedy. On Review Appeal, the  

Collector,  Central  Excise (Appeals)  vide its  order dated 2.6.1994  

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had set aside the Order-in-Original and remanded the matter to the  

Competent  adjudicating  authority  (Deputy  Commissioner)  for  de  

novo proceedings. Thereafter, the adjudicating authority vide Order  

dated 7.1.2000 while rejecting the assessee’s claim had confirmed  

the duty demanded and also imposed the penalty.  

12. Aggrieved by the said order, the assessee had carried the matter in  

appeal before the Tribunal. The Tribunal rejects the claim only on  

the ground that the assessee has not claimed the refund of the duty  

paid for the clearances of the goods falling under Chapter heading  

84 of the Tariff Act, and therefore, the assessee is not entitled to  

avail the benefit of the exemption Notification dated 1.3.1986. In  

the words of the Tribunal:

“It is admitted fact that the Appellants have not availed of   the exemption provided under Notification No.111/88 while  clearing the goods classifiable under Heading 84.37. It has  not been brought on record that the Appellants have claimed  any  refund  of  the  said  duty.   Accordingly,  it  cannot  be   claimed by them that the goods were exempted from payment   of duty.  The value of the clearance of goods falling under  Heading 84.37 being cleared on payment of duty has to be   taken into account by computing the value of clearances for   the purpose of Notification No.175/86.”

13. The sum and substance of the reasoning of the Tribunal appears to  

be that  merely  because the assessee  has paid the excess  duty on  

those  items  which  he  was  not  supposed  to  pay  in  view  of  the  

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exemption  notification  dated  1.3.1988  and  merely  because  the  

assessee has not claimed the refund of the excess duty paid, that  

amount paid by him under the Notification dated 1.3.1988 requires  

to be taken for the purpose of computing the aggregate value of the  

clearances  under  the  notification  No.175/86-CE.  In  our  view,  

merely because the assessee, maybe, by mistake pays duty on the  

goods which are exempted from such payment, does not mean that  

the  goods  would  become  goods  liable  for  duty  under  the  Act.  

Secondly, merely because the assessee has not claimed any refund  

on the duty paid by him would not come in the way of claiming  

benefit of the Notification No.175/86-CE dated 1.3.86.  

14. In Union of India v.  Wood Papers  Ltd.,  (1990) 4 SCC 256, this  

Court has observed:  

4. Literally exemption is freedom from liability, tax or duty.   Fiscally it may assume varying shapes, specially, in a growing  economy. For instance tax holiday to new units, concessional   rate of tax to goods or persons for limited period or with the   specific  objective  etc.  That  is  why  its  construction,  unlike   charging provision, has to be tested on different touchstone. In   fact an exemption provision is like an exception and on normal  principle  of  construction  or  interpretation  of  statutes  it  is   construed strictly either because of legislative intention or on   economic  justification  of  inequitable  burden  or  progressive   approach  of  fiscal  provisions  intended  to  augment  State   revenue. But once exception or exemption becomes applicable   no rule or principle requires it to be construed strictly. Truly   speaking  liberal  and  strict  construction  of  an  exemption  provision are to be invoked at different stages of interpreting  it.  When  the  question  is  whether  a  subject  falls  in  the   

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notification or in the exemption clause then it being in nature   of exception is to be construed strictly and against the subject   but once ambiguity or doubt about applicability is lifted and   the subject  falls  in  the  notification then full  play should be   given to it and it calls for a wider and liberal construction.

5. … A construction which results in inequitable results and is   incongruous, has to be avoided.

15. In Associated Cement Companies Ltd. v. State of Bihar, (2004) 7  

SCC 642, this Court while explaining the nature of the exemption  

notification and also the manner in which it should be interpreted  

has held:  

“12. Literally “exemption” is freedom from liability, tax or  duty. Fiscally it may assume varying shapes, specially, in a  growing economy. In fact, an exemption provision is like an  exception  and  on  normal  principle  of  construction  or   interpretation  of  statutes  it  is  construed  strictly  either  because of legislative intention or on economic justification  of  inequitable  burden  of  progressive  approach  of  fiscal   provisions  intended  to  augment  State  revenue.  But  once   exception  or  exemption  becomes  applicable  no  rule  or  principle requires it to be construed strictly. Truly speaking,   liberal and strict construction of an exemption provision is to  be  invoked at  different  stages  of  interpreting  it.  When  the   question is whether a subject falls in the notification or in the   exemption clause then it being in the nature of exception is to   be  construed  strictly  and  against  the  subject  but  once   ambiguity  or  doubt  about  applicability  is  lifted  and  the  subject falls in the notification then full play should be given   to it and it calls for a wider and liberal construction. (See   Union  of  India v.  Wood  Papers  Ltd.1 and  Mangalore  Chemicals and Fertilisers Ltd. v. Dy. Commr. of Commercial   Taxes2 to which reference has been made earlier.)”

16.  In view of the above, we cannot sustain the judgment and order  

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passed  by  the  Tribunal  in  Appeal  No.E/1352/2002-B,  dated  

25.10.2002.

17. Accordingly,  we  allow  this  appeal,  set  aside  the  judgments  and  

orders passed by the Tribunal and the adjudicating authority. We  

direct  the  adjudicating  authority  to  apply  the  Notification  dated  

1.3.86 in the assessee's case without taking into consideration the  

excess  duty  paid  by  the  assessee  under  the  Notification  dated  

1.3.1988. No costs.

Ordered accordingly.

.....................................J. (H.L. DATTU)

.....................................J. (ANIL R. DAVE)

NEW DELHI, FEBRUARY 14, 2012.  

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