Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOs. 4530-4532 OF 2005

M/s Indian Oil Corporation Ltd.                        …     Appellant

Versus

Commissioner of Central Excise, Vadodara        … Respondent

WITH

CIVIL APPEAL NO.8048 OF 2004

M/s Indian Oil Corporation Ltd.                        …     Appellant

Versus

Commissioner of Central Excise, Lucknow         … Respondent

J U D G M E N T

A. K. PATNAIK, J.

CIVIL APPEAL NOs. 4530-4532 OF 2005:

These are appeals under Section 35L (b) of the Central  

Excise Act, 1944 against the order dated 15.03.2005 of the  

Customs, Excise and Service Tax Appellate Tribunal, West  

Zonal Bench, Mumbai, (for short “the Tribunal”).

2. The facts very briefly are that the appellant produces  

inter  alia Reduced  Crude  Oil  (for  short  “RCO”).  By  

Notification  No.  75/84-CE  dated  01.03.1984,  the  Central  

government in exercise of its powers under Sub-Rule 1 of  

Rule  8  of  the  Central  Excise  Rules,  1944  (for  short  “the  

Rules”) exempted goods described in Column 3 of the table  

annexed  to  the  notification  from so much of  the  duty  of  

excise  as  is  specified  in  the  notification  subject  to  the  

intended use, or the conditions, if any, laid down in Column  

5 of the table annexed to the notification.  One of the goods  

exempted from excise duty by the notification was RCO, if  

produced only from indigenous crude oil subject to intended  

use as fuel for generation of electrical energy by electricity  

undertakings  owned  or  controlled  by  the  Central  

Government  or  any  State  Government  or  any  State  

Electricity  Board  or  any  local  authority  or  any  licensee  

under Part-II of the Indian Electricity Act, 1910 except those  

who produce electrical energy not for sale but for their own  

consumption or for supply to their own undertakings.  The  

proviso in the notification stated two conditions subject to  

which the exemption was granted and one of the conditions  

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was that where the intended use is elsewhere than in the  

factory of production, the procedure set out in Chapter X of  

the Rules is followed.  Rule 192 in Chapter X of the Rules  

provided  inter alia that where the Central Government has  

by  notification  under  Rule  8  sanctioned the  remission  of  

duty on excisable goods other than salt used in a specified  

industrial  process and it  is  necessary for  this purpose to  

obtain an excise registration certificate,  he should submit  

the requisite application along with the proof of payment of  

the registration fee and shall then be granted a registration  

certificate in the proper form. Rule 192 further provided that  

the concession shall, unless renewed by the Collector, cease  

on the expiry of the registration certificate.

3. The  Ahmedabad  Electricity  Company  Ltd.  had  

obtained a registration certificate in Form CT-2 under Rule  

192 of Chapter X of the Rules and on the strength of such  

registration certificate,  purchased RCO from the appellant  

availing the exemption from excise duty under Notification  

No.  75/84  dated  01.03.1984  (for  short  ‘the  exemption  

notification’).  The  registration  certificate  obtained  by  the  

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Ahmedabad Electricity Company Ltd. expired on 31.12.1995  

and  a  fresh  registration  was  granted  in  its  favour  on  

26.06.1996.   After  issuing  two  show-cause  notices,  the  

Assistant Commissioner of Central Excise passed two orders  

demanding  excise  duty  of  Rs.  32,35,485/-  from  the  

appellant  for  RCO supplied  to  the  Ahmedabad Electricity  

Company Ltd. during the period 01.01.1996 to 25.06.1996  

on  the  ground  that  the  said  company  did  not  have  a  

registration  certificate  in  Form  CT-2  under  Rule  192  of  

Chapter X of the Rules during this period and, therefore, the  

RCO supplied by the appellant to the Ahmedabad Electricity  

Company  Ltd.  during  this  period  was  not  exempt  from  

excise  duty.   The  appellant  paid  the  excise  duty  and  

subsequently  applied  for  refund  contending  that  the  

registration certificate in Form CT-2 had been obtained by  

the  Ahmedabad  Electricity  Company  Ltd.  on  26.06.1996.  

The  refund  claims  were  rejected  by  the  Assistant  

Commissioner.   Thereafter,  the  appellant  filed  appeals  

before  the  Commissioner  of  Central  Excise  (Appeals)  who  

confirmed the demands of excise duty for the period from  

01.01.1996 to 25.06.1996.  The appellant then filed three  

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appeals  before  the  Tribunal  against  the  orders  of  

Commissioner  of  Central  Excise  (Appeals)  confirming  

demand and the order rejecting the refund claim.  By the  

impugned order, the Tribunal dismissed the appeals saying  

that as the statutory requirement of conditional exemption  

notification had not been complied with by the appellant it  

was not entitled to the exemption benefit.

4. Mr.  Alok  Yadav,  learned  counsel  for  the  appellant,  

submitted  that  the  Tribunal  failed  to  appreciate  that  the  

RCO supplied  by  the  appellant  to  Ahmedabad  Electricity  

Company  Ltd.  was in  fact  used  as  fuel  for  generation  of  

electrical energy and therefore the appellant was entitled to  

the  benefit  of  the  exemption  of  excise  duty  under  the  

exemption notification.  He cited the decision of this Court  

in  M/s Chunni  Lal  Parshadi  Lal v. Commissioner  of  Sales  

Tax, U.P., Lucknow [(1986) 2 SCC 501] wherein it was held  

that  a  dealer  can  prove  by  any  way  other  than the  way  

contemplated by Rule 12A of the U.P. Sales Tax Rules, 1948  

that  the  goods  purchased  from  him  were  for  resale.  

According to Mr. Yadav, the registration certificate in Form  

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CT-2 is not the only way to prove that the goods sold by the  

appellant to the Ahmedabad Electricity Company Ltd. were  

used as fuel for generation of electricity.  He also relied on  

Commissioner of Customs (Imports), Mumbai v.  Tullow India  

Operations  Ltd.  [(2005)  (189)  ELT  401  (SC)[  wherein  this  

Court held that ONGC being a government company would  

get  the  requisite  exemption,  subject,  of  course,  to  its  

fulfilling  the  condition  of  obtaining  the  essentiality  

certificate.   He  argued  that  the  appellant  being  a  

government company should not be denied the exemption  

on  a  technical  ground  that  there  was  no  registration  

certificate during the period 01.01.1996 to 25.06.1996.  

5. Mr.  Anup  Chaudhary,  learned  senior  counsel  

appearing for the respondent, on the other hand, submitted  

that the exemption notification stipulated in the proviso the  

conditions  under  which  the  exemption  from  excise  duty  

would be available and if the conditions were not fulfilled,  

the exemption would not be available to the manufacturer.  

He submitted that one of the conditions was that where the  

goods were to be used in a place other than in the factory of  

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production, the procedure set out in Chapter X of the Rules  

is  to  be  followed.   He  submitted  that  the  procedure  laid  

down in Rules 192 to 196 BB in Chapter X of the Rules,  

therefore, have to be followed, and if the procedure is not  

followed  in  any  case,  the  exemption  cannot  be  granted  

under the exemption notification.  He submitted that since  

under Rule 192, the Ahmedabad Electricity Company Ltd.  

was required to obtain a registration certificate in Form CT-

2 and the said company did not obtain a certificate for the  

period  01.01.1996  to  25.06.1996,  RCO  supplied  by  the  

appellant  to  the  Ahmedabad  Electricity  Company  Ltd.  

during this period was exigible to excise duty.  He cited the  

judgement  of  the  Constitution  Bench  of  this  court  in  

Commissioner of Central Excise, New Delhi v. Harichand Shri  

Gopal  [2010 (260) ELT 3 (SC)] in which it has been held  

that if  a  party  wants  remission of  duty,  he has to follow  

certain prerequisites, the object of which is to see that the  

goods are not diverted or utilised for some other purpose  

under the guise of the exemption notification and, therefore,  

a plea that the goods were meant for intended use specified  

in the exemption notification has to be rejected.  

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6. The question whether it  was enough to prove to the  

satisfaction of the Central Excise Officer that the goods are  

for  the  intended  use  specified  in  the  notification  of  

exemption or whether in addition the procedure laid down  

in  Rule  192  of  Chapter  X  of  the  Rules  was  also  to  be  

complied with for availing concession under the exemption  

notification was raised before this Court in Thermax Private   

Limited v. The Collector of Customs (Bombay), New Customs  

House [1992 (61) ELT 352 (SC)] = [(1990) 4 SCC 440] and a  

two-Judge Bench of this Court held that the possession of a  

license or production of a C-2 certificate as provided in Rule  

192  of  Chapter  X  of  the  Rules  enables  the  applicant  to  

secure the necessary concession and that the entitlement to  

the concession will depend on whether the purchaser is the  

holder  of  a  L-6 license  (or  C-2 certificate)  or  not.   These  

observations  made  in  Thermax  Private  Limited  v.  The  

Collector of Customs (Bombay), New Customs House (supra)  

were held by a two-Judge Bench of this Court in Collector of  

Customs, Bombay v. J.K. Synthetics Limited [1996 (87) ELT  

582  (SC)]  =  [(1997)  10  SCC  224]  as  not  laying  down  

principle and held to be limited to eligibility for concession  

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under Rule 192 of the Rules.  In the aforesaid decision in  

the case of  Collector of Customs, Bombay v. J.K. Synthetic   

Limited (supra)  this Court took the view that where there  

was evidence on record that show the intended use of the  

material, the benefit of exemption could be granted.   In a  

subsequent  decision  in  the  case  of  Collector  of  Central   

Excise, Jaipur v. J.K. Synthetics [2000 (120) ELT 54 (SC)] =  

[(2000) 10 SCC 393] a three-Judge Bench of this Court took  

the  view  that  if  there  was  substantial  compliance  of  the  

procedure laid down in Chapter X of the Rules, exemption  

could be granted.  In the case of  Commissioner of Central   

Excise, New Delhi v. Hari Chand Shri Gopal [2010 (260) ELT  

3 (SC)] = [(2011) 1 SCC 236] a Constitution Bench of this  

Court  considered the  decisions  of  this  Court  in  Thermax  

Private  Limited v. The Collector  of Customs (Bombay),  New  

Customs  House (supra)  and  Collector  of  Central  Excise,  

Jaipur v. J.K. Synthetics (supra) and held that a provision  

for exemption, concession or exception, as the case may be,  

has to be construed strictly and if the exemption is available  

only on complying certain conditions, the conditions have to  

be  complied  with.   In  the  aforesaid  decision,  the  

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Constitution  Bench further  held  that  detailed  procedures  

have been laid down in Chapter X of the Rules so as to curb  

the diversion and utilization of goods which are otherwise  

excisable and the plea of substantial compliance or intended  

use therefore has to be rejected.   

7. When we strictly construe the exemption notification in  

this  case,  we  find  that  the  proviso  in  the  exemption  

notification reads as under:  

Provided  that  where  any  such  exemption  is  subject  to  the  intended  use,  the  exemption  in  such  case  shall  be  subject  to  the  following  conditions namely:-

(i) That it is proved to the satisfaction of an officer  not below the rank of the Assistant Collector of  Central Excise that such goods are used for the  intended use specified in Column (5) of the said  Table: and

(ii)  Where  such  use  is  elsewhere  than  in  the  factory  of  production,  the  procedure  set  out  in  Chapter X of the Central Excise Rules, 1944, is  followed.  

Thus,  the  proviso  makes  it  clear  that  for  availing  the  

exemption two conditions must be satisfied: First, that it is  

proved to the satisfaction of the excise officer that the goods  

are  used for  intended use  specified  in  Column (5)  of  the  

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Table  annexed  to  the  exemption  notification  and  second,  

where  such  use  is  elsewhere  than  in  the  factory  of  

production, the procedure set out in Chapter X of the Rules  

is followed.  We cannot, therefore, accept the contention of  

the  learned  counsel  of  the  appellant  that  if  the  first  

condition is satisfied, i.e. it is proved to the satisfaction of  

the Central Excise officer that the goods are used for the  

intended  use,  the  exemption  has  to  be  granted.   In  our  

considered  opinion,  unless  the  second  condition  is  also  

satisfied, i.e. the procedure set out in Chapter X of the Rules  

is followed where the use of the goods is elsewhere than in  

the factory of production, the exemption cannot be granted  

under the exemption notification.   

8. In the facts of the present case, the RCO was not to be  

used  in  the  factory  of  the  appellant  but  at  the  place  of  

generation  of  electricity  by  the  Ahmedabad  Electricity  

Company Ltd. Hence, the second condition laid down in the  

proviso was also to be complied with.  Rule 192 of Chapter  

X of the Rules is quoted hereinbelow:  

“RULE  192.  Application  for  concession.—   Where the Central Government has, by notification  

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under rule 8, or section 5A of the Act, as the case  may  be,  sanctioned  the  remission  of  duty  on  excisable goods other than salt, used in a specified  industrial  process,  any person wishing to  obtain  remission  of  duty  on  such  goods,  shall  make  application  to  the  Collector  in  the  proper  Form  stating  the  estimated  annual  quantity  of  the  excisable goods required and the purpose for and  the manner in which it  is intended to use them  and declaring that the goods will be used for such  purpose and in such manner.  If  the Collector  is  satisfied that the applicant is a person to whom  the concession can be granted without danger to  the  revenue,  and  if  he  is  satisfied,  either  by  personal  inspection  or  by  that  of  an  officer  subordinate to him that the premises are suitable  and contain a secure store-room suitable for the  storage of the goods, and if the applicant agrees to  bear  the  cost  of  such  establishment  as  the  Collector  may consider  necessary for  supervising  operation in his premises for the purposes of this  Chapter, the Collector may grant the application,  and the applicant shall then enter into a bond in  the  proper  Form  with  such  surety  or  sufficient  security,  in  such  amount  and  under  such  conditions  as  the  Collector  approves.  Where,  for  this purpose, it  is necessary for the applicant to  obtain an Excise  registration certificate,  he  shall  submit  the  requisite  application  along  with  the  proof for payment of registration fee and shall then  be granted a registration certificate in the proper  Form. The concession shall, unless renewed by the  Collector,  cease on the  expiry  of  the  registration  certificate:  

Provided that, in the event of death, insolvency or  insufficiency of the surety, or where the amount of  the bond is inadequate, the Collector may, in his  discretion, demand a fresh bond; and may, if the  

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security  furnished  for  a  bond  is  not  adequate,  demand additional security.”

The language of Rule 192 of Chapter X of the Rules is clear  

that for availing concession from excise duty on excisable  

goods used in a specified industrial process, a person must  

obtain a registration certificate from the Collector and that  

“the  concession  shall,  unless  renewed  by  the  Collector,  

cease  on  the  expiry  of  the  registration  certificate”.  

Admittedly,  the  registration  certificate  of  the  appellant  

expired  on  31.12.1995.   Hence,  the  exemption  granted  

under  the  notification  ceased  on  31.12.1995.   The  fresh  

registration  certificate  in  favour  of  the  Ahmedabad  

Electricity Company Ltd. was issued on 26.06.1996 and we  

find on a reading of the copy of the CT-2 certificate annexed  

as Annexure P5 that the registration certificate was not for  

any period prior to 26.06.1996.  As the procedure laid down  

in Rule 192 of Chapter X of the Rules has not been complied  

with, the appellant is not entitled to avail the exemption of  

excise  duty  under  the  exemption  notification  during  the  

period from 01.01.1996 to 25.06.1996.

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9. The appeals are, therefore, dismissed but there shall  

be no order as to costs.  

CIVIL APPEAL NO.8048 OF 2004:

This is an appeal under Section 35L (b) of the Central  

Excise Act, 1944 against the order dated 02.07.2004 of the  

Customs, Excise and Service Tax Appellate Tribunal,  New  

Delhi, (for short “the Tribunal”).

2. The facts very briefly are that the appellant produces  

inter  alia  Naphtha.   By Notification no.  3/2001-CE dated  

01.03.2001 (for  short  “the  exemption  notification”)  issued  

under Section 5A of the Central Excise Act, 1944 (for short  

“the  Act”)  the  Central  Government  exempted  inter  alia  

Naphtha cleared for the intended use in the manufacture of  

fertilizers  from excise  duty  subject  to  relevant  conditions  

specified  in  the  annexure  to  the  notification.   In  the  

annexure  to  the  exemption  notification,  one  of  the  

conditions specified was that where such use is elsewhere  

than in the factory of  production,  the exemption shall  be  

allowed  if  the  procedure  set  out  in  the  Central  Excise  

(Removal  of  Goods  at  Concessional  Rate  of  Duty  for  

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Manufacture of Excisable Goods) Rules, 2001 (for short “the  

2001  Rules”)  is  followed.   Rule  3(1)  of  the  2001  Rules  

provided that a manufacturer who intends to receive subject  

goods for specified use at concessional rate of duty, shall  

make  an  application  in  quadruplicate  in  the  Form  at  

Annexure-1 to the jurisdictional Assistant Commissioner or  

Deputy Commissioner of Central Excise,  as the case may  

be.   Indo  Gulf  Corporation  Limited  placed  an  order  on  

16.07.2001 on the appellant for supply of Naphtha for the  

purpose of manufacture of fertilizers and furnished a letter  

to the appellant saying it has made an application to the  

Commissioner of Excise for authorization for dispatch of one  

rake of Naphtha.  The appellant supplied 2241.908 MT of  

Naphtha  to  Indo  Gulf  Corporation  Limited  and  while  

clearing the aforesaid Naphtha from its factory did not make  

any payment of Central Excise duty.  The Commissioner of  

Central Excise issued show cause notice dated 13.06.2002  

to  the  appellant  and  after  considering  the  reply  of  the  

appellant passed the order dated 30.09.2002 confirming the  

demand  of  duty  amounting  to  Rs.  44,71,902/-  on  the  

Naphtha cleared on 16.07.2001 and also imposed a penalty  

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equivalent  to  the  duty  amount.   The  appellant  filed  an  

appeal  against  the  order  of  the  Commissioner  before  the  

Tribunal and the Tribunal held in the impugned order that  

under  the  exemption  notification,  the  appellant  could  be  

exempted  from  duty  on  Naphtha  supplied  to  the  

manufacturer of fertilizer only if the conditions specified in  

the exemption notification are fulfilled.  The Tribunal further  

held that one of the conditions specified in the exemption  

notification  was  that  where  the  goods  were  to  be  used  

elsewhere than in the factory of production, the exemption  

would be allowed if the procedure set out in the 2001 Rules  

was followed and in this case Rule 3(1) of 2001 Rules has  

not been followed, inasmuch as, the manufacturer, namely,  

Indo  Gulf  Corporation  Limited  had  not  submitted  

application in the form at Annexure-1 for obtaining Naphtha  

without payment of duty and had only cleared the Naphtha  

without  payment  of  duty  on  the  basis  of  a  letter  dated  

16.07.2001 wherein it was mentioned that it has submitted  

its  application  to  the  Commissioner  for  issuance  of  

authorization  for  dispatching  one  rake  of  Naphtha.   The  

Tribunal  held  that  as  the  condition  of  the  exemption  

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notification has not been complied with, the appellant was  

not entitled to clear naphtha without payment of excise duty  

and accordingly sustained the demand of excise duty.  The  

Tribunal  also  held  that  as  the  appellant  had  cleared  

Naphtha without payment of duty and without getting the  

requisite  Annexure-1 from its  customer,  penalty  was also  

imposable  on  the  appellant,  but  on  the  facts  and  

circumstances of the case the penalty was excessive.  The  

Tribunal accordingly reduced the penalty to Rs.1,00,000/-  

only.  

3. Mr.  Alok  Yadav,  learned  counsel  for  the  appellant,  

submitted  that  as  the  Naphtha  supplied  to  Indo  Gulf  

Corporation  Limited  was  in  fact  used  for  manufacture  of  

fertilizer,  the  appellant  was  entitled  to  the  benefit  of  

exemption notification.   He further submitted that as the  

appellant  was  a  government  company,  he  should  not  be  

denied  the  exemption  on  a  technical  ground  that  the  

application  at  Annexure-1  was  not  submitted  to  the  

authorities by the manufacturer of fertilizer as provided in  

Rule 3(1) of the 2001 Rules.   

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4. Mr.  Anup  Chaudhary,  learned  senior  counsel  

appearing for the respondent, on the other hand, submitted  

that  one  of  the  conditions  specified  in  the  exemption  

notification was that where the goods were to be used in the  

place other than in the factory of production, the procedure  

set out in the 2001 Rules has to be followed and in this case  

the procedure set out in Rule 3(1) of the 2001 Rules has not  

been followed.   

5. We  have  considered  the  submissions  of  the  learned  

counsel for the parties and we find that by the exemption  

notification the Central Government exempted the excisable  

goods from duty “subject to the relevant conditions specified  

in the Annexure” to the exemption notification.  Paras 3 and  

4  in  the  Annexure  to  the  exemption  notification  read  as  

follows:

“3. The exemption shall  be allowed if  it  has been proved to the satisfaction of an  officer  not  below the  rank of  the  Deputy  Commissioner  of  Central  Excise  or  the  Assistant Commissioner of Central Excise,  as  the  case  may  be,  having  jurisdiction  that  such  goods  are  cleared  for  the  intended use specified in column 3 of the  table.

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4. Where such use is elsewhere than in  the  factory  of  production,  the  exemption  shall be allowed if the procedure set out in  the  Central  Excise  (Removal  of  Goods  at  Concessional Rate of Duty for manufacture  of  Excisable  Goods)  Rules,  2001  is  followed.”

It will be clear from Para 3 of the Annexure to the exemption  

notification  that  the  exemption  shall  be  allowed  if  it  has  

been proved to the Central Excise Officer having jurisdiction  

that the goods are cleared for the intended use specified in  

column 3 of the table.  In addition to this condition, there is  

a  further  condition  in  Para  4  of  the  Annexure  to  the  

exemption  notification  that  where  the  intended  use  is  

elsewhere  than  the  factory  of  production,  the  exemption  

shall be allowed if the procedure set out in the 2001 Rules  

is followed.  We, therefore, do not accept the submission of  

Mr. Yadav that as the Naphtha cleared from the factory of  

the appellant has been used for manufacture of fertilizer,  

the  appellant  would  be  entitled  to  exemption  even if  the  

condition  specified  in  Para  4  of  the  Annexure  to  the  

exemption notification is not followed.   

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6. The condition specified in Para 4 in the Annexure to  

the exemption notification states that where the intend use  

is  elsewhere  than  in  the  factory  of  production,  the  

exemption shall be allowed if the procedure set out in the  

2001  Rules  is  followed.   In  the  facts  of  this  case,  the  

Naphtha produced by the appellant in its factory was to be  

used for the manufacture of fertilizer elsewhere than in its  

own  factory,  i.e.  in  the  factory  of  Indo  Gulf  Corporation  

Limited.  Hence, the exemption could be allowed only if the  

procedure set out in the 2001 Rules was followed.   

7. Rule 3(1) of the 2001 Rules is extracted hereinbelow:

“Rule  3.  Application  by  the  manufacturer to obtain the benefit.  – (1)  A  manufacturer  who  intends  to  receive  subject  goods  for  specified  use  at  concessional  rate  of  duty,  shall  make an  application in quadruplicate in the Form at  Annexure-1 to the jurisdictional Assistant  Commissioner or Deputy Commissioner of  Central  Excise,  as  the  case  may  be  (hereinafter  referred  to  as  the  said  Assistant  Commissioner  or  Deputy  Commissioner).”

Rule 3(1) makes it amply clear that the manufacturer, who  

intends  to  use  subject  goods  for  specified  use  at  

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concessional  rate  of  duty,  shall  make  an  application  in  

quadruplicate  in  the  Form  at  Annexure-1  to  the  

jurisdictional  Assistant  Commissioner  or  Deputy  

Commissioner  of  Central  Excise,  as  the  case  may  be.  

Admittedly,  no  such  application  was  made  by  Indo  Gulf  

Corporation  Limited  in  the  form  at  Annexure-1  to  the  

jurisdictional  Assistant  Commissioner  or  Deputy  

Commissioner of Central Excise.  As the procedure set out  

in the 2001 Rules has not been followed, the appellant was  

not entitled to exemption on the Naphtha cleared from its  

factory  for  supply  to  Indo  Gulf  Corporation  Limited  for  

manufacture of fertilizer.

8. We, therefore, do not find any merit in the appeal and  

we accordingly dismiss the same.  There shall be no order  

as to costs.  

.……………………….J.                                                             (A. K. Patnaik)

………………………..J.                                                             (Anil R. Dave) New Delhi, January 13, 2012.   

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