IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL     APPEAL     NO.949     OF     2004   

COMMISSIONER OF CENTRAL EXCISE, SURAT-I  APPELLANT

VERSUS

M/S.FAVOURITE INDUSTRIES             RESPONDENT

W     I     T     H   

C.A.NO.3588     OF     2005   C.A.NO.3638     OF     2006   C.A.NO.1388     OF     2008   

O     R     D     E     R   

For the sake of convenience, we take the facts  

in C.A.NO.949/2004, for disposal of these  

appeals.

1. This appeal is directed against the judgment  

and order passed by the Customs, Excise and  

Service Tax Appellate Tribunal (for short  

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'the Tribunal'), Mumbai in Appeal  

No.E/158/03-Mum. dated 25.07.2003. By the  

impugned judgment and order, the Tribunal has  

partly allowed the appeal filed by the  

respondent-assessee, inter alia, stating that  

the assessee is entitled to avail the benefit  

of the Notification No.8/97-CE, dated  

1.3.1997. It is the correctness or otherwise  

of the said finding and conclusion reached by  

the Tribunal, is the subject matter of this  

appeal.

2.The core issue that falls for our  

consideration and decision is: whether the  

finished goods manufactured by the 100%  

Export Oriented Unit ('the EOU' for short)  

out of the raw material supplied by another  

100% EOU, and subsequently, cleared in the  

Domestic Tariff Area (for short “the DTA”) in  

accordance with the EXIM Policy 1997-2002 are  

entitled to the benefit of the exemption  

provided under the Notification No.8/97-CE,  

dated 1.3.1997.  In the alternative, whether  

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the adjudicating authority is justified in  

holding that the assessee cannot take the  

benefit of the Notification No.8/97-CE, dated  

1.3.1997 and the assessee, at the most, can  

take benefit of the Notification No.2/95-CE,  

dated 4.1.1995.

3.Brief facts, as noticed by the adjudicating  

authority may be stated: M/s. Favourite  

Industries, respondent herein, is engaged in  

the manufacture of processed Polyester Grey  

Man Made fabric, falling under chapter sub-

heading 5407.51 of the Customs Tariff Act,  

1975 and chapter sub-heading 5406.10 of the  

Central Excise Tariff Act, 1985 (for short  

“the Tariff Act”), out of raw materials  

obtained indigenously and/or imported free of  

Central Excise/Customs duties, as the case  

may be, under the obligation of export of the  

final product as well as clearance of final  

product in the DTA on payment of appropriate  

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duty as applicable from time to time as  

provided under the EXIM Policy for the period  

commencing from 1997 to 2002.

4.The respondent-industrial unit of the  

assessee has been granted licence on  

27.6.2000 for Private Bonded Warehouse under  

100% Export Oriented Scheme under Section 58  

of the Customs Act, 1962.

5. The respondent-industrial unit has also  

obtained permission for advance DTA sale,  

vide letter No. KFTWZ/100% EOU/II/765/2000-

01/3381 dated 27.7.2000 which will be valid  

for a period of three months counted from the  

date of issuance of permission, that is, upto  

26th October, 2000 only.

6.In the Show Cause Notice, it was stated that  

the respondent-industrial unit had filed the  

RT-13 returns for the months of August, 2000  

to December, 2000. On going through the  

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invoices, in respect of clearance made in the  

DTA, filed by the respondent-industrial unit  

along with RT 13 returns for the month of  

June to October, 2000, it was noticed that  

the unit had cleared 17,52,421/- Liter Meters  

Of pro M.M. Fabrics viz. finished  goods,  

rejected and waste worth Rs.1,41,43,082/-  

during the period commencing from 1.8.2000 to  

15.10.2000 in DTA on payment of 8% basic  

excise duty amounting to Rs.13,53,695/-  

which, according to the adjudicating  

authority, is a short payment of duty  

amounting to Rs.2,19,70,733/-.  It is further  

alleged in the show cause notice that the  

unit has also cleared 12,78,814 L.Mtrs. of  

finished goods, rejects and waste worth  

Rs.1,30,98,643/- during the period starting  

from 16.10.2000 to 31.12.2000 in DTA on  

payment of 8% basic excise duty amounting to  

Rs.13,52,262/-, which, according to the  

adjudicating authority, is a short payment of  

duty amounting to Rs. 2,13,30,228/-.  

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According to the adjudicating authority, the  

respondent has contravened the provisions of  

EXIM Policy and Rules 100 D and 100 E of the  

Central Excise Rules, 1944 (for short “the  

Rules”) and also the conditions prescribed  

under 100% EOU scheme. Further, according to  

the adjudicating authority, the respondent-

industrial unit has contravened the  

provisions of the Notification No.2/95-CE,  

dated 4.1.1995 and, thereby, the duty  

amounting to Rs.4,33,00,961/- has been short  

paid and the same requires to be recovered by  

invoking the provisions of Section 11A (1)  

read with Section 11A (2) of the Central  

Excise Act, 1944 (for short “the Act”) and  

also for penal action under Rule 173Q (1) of  

the Rules.   

7. In view of the aforesaid material/charges the  

adjudicating authority had issued the Show  

Cause Notices to the assessee, inter alia,  

directing the assessee to show cause as to  

why the duty of excise amounting to  

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Rs.4,33,00,961/- should not be demanded and  

recovered under Section 11A(1) read with  

Section 11A (2) of the Act. Alternatively, to  

recover interest on the short duty payment by  

invoking the provisions under Section 11AB of  

the Central Excise Act and to take  

appropriate penal action as provided under  

Rule 173 Q (1) of the Rules, read with  

Section 11AC of the Act. Along with the  

notice, the adjudicating authority had  

enclosed Annexures A, B and C working out the  

details of the short payment of duty during  

the period in question.

8.After receipt of the show cause notices, the  

assessee had filed its reply dated 18.6.2002.  

The assessee had contended that the goods are  

manufactured from the raw material  

produced/manufactured in India and,  

therefore, they are entitled for the benefit  

of the exemption from payment of certain  

amount of duty as provided in the  

Notification No.8/97-CE, dated 1.3.1997 on  

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payment of the appropriate duty and,  

therefore, it cannot be said that they had  

cleared the manufactured goods as provided in  

the Notification No.2/95-CE dated 4.1.1995.  

To make things clear, they had also said that  

they had purchased raw material from 100% EOU  

who had manufactured/produced goods in its  

industrial unit and the said goods cannot be  

considered as imported raw material and,  

therefore, the adjudicating authority is not  

justified in issuing the show cause notices.

9. After receipt of the reply so filed, the  

adjudicating authority, after affording an  

opportunity of hearing to the assessee, had  

proceeded to hold that the respondent-

industrial unit could not have taken the  

benefit of the exemption notification  

No.8/97-CE, dated 1.3.1997 and, if at all,  

they are entitled to take benefit of the  

Notification No.2/95-CE, dated 4.1.1995.  

Accordingly, had confirmed the demands made  

in the show cause notices.

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10. The assessee, being aggrieved by the order  

in original passed by the adjudicating  

authority, had preferred an appeal before the  

Tribunal.  The Tribunal, after considering  

the conditions enumerated under both the  

notifications, namely, Notification No.2/95-

CE, dated 4.1.1995 and Notification No.8/97-

CE, dated 1.3.1997, has come to the  

conclusion that the adjudicating authority is  

not justified in pinning down the assessee to  

take the benefit only under the Notification  

No.2/95-CE but not under the Notification  

No.8/97-CE.  Accordingly, has given relief to  

the assessee by setting aside the order in  

original passed by the adjudicating  

authority. The Revenue, being aggrieved by  

the order so passed by the Tribunal, is  

before us in this appeal.

11. Shri. K. Swami, learned counsel appearing  

for the Revenue, has taken all the pains to  

take us through the Notifications, which are  

the subject matter of this appeal, the  

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reasoning of the adjudicating authority, and  

the so called fallacy in the reasoning, and  

the conclusion reached by the Tribunal.  

Learned counsel also refers to the EXIM  

Policy 1997-2002. Learned counsel would  

submit that in order to take the benefit of  

the Notification No.8/97-CE, the assessee  

must purchase the raw material manufactured  

in an industrial unit in a domestic area and  

if such raw material is used for production  

or manufacture of goods and sold in the  

domestic area as provided in the EXIM Policy,  

then only, it could take the benefit of the  

Notification No.8/97-CE. In the alternative,  

the learned counsel would submit that the  

assessee in the present case has purchased  

the raw material/finished products from a  

100% EOU for its manufacturing activity for  

the manufacture of a finished product and in  

the hands of the purchaser industrial unit,  

the transaction would be a deemed import and  

the finished goods in question would be made  

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out of imported raw material/finished product  

and, therefore, the assessee cannot take the  

benefit of the Notification no.8/97-CE.  

Learned counsel would further submit that, if  

for any reason, the notification is made  

applicable to the respondent-industrial unit,  

the said unit would receive total or undue  

advantage in payment of the concessional rate  

of duty on the finished goods, which are even  

made out of imported raw materials/goods. The  

learned counsel fairly submits that there are  

no decisions on the issue in vogue but he  

would contend nearer to the point, by relying  

on the two decisions of this Court reported  

in Hindustan Granites v. Union of India, 2007  

(211) ELT 3 (SC) and Virlon Textile Mills  

Ltd. v. Commissioner of Central Excise,  

Mumbai, 2007 (211) ELT 353 (SC).

12. The learned counsel also submits that the  

adjudicating authority, keeping in view the  

transaction of the assessee in buying the raw  

material/finished products from 100% EOU for  

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its manufacturing activity to manufacture  

finished products, has rightly applied the  

Notification No.2/95-CE and, therefore, the  

Tribunal ought not to have interfered with  

the well considered and reasoned order of the  

adjudicating authority.

13. Shri Tarun Gulati, learned counsel  

appearing for the assessee, ably justifies  

the judgment and order passed by the  

Tribunal. The learned counsel has also  

brought to our notice the clear distinction  

between the Notification No.2/95-CE and the  

Notification No.8/97-CE.  He has also  

endeavoured to take us through the relevant  

clauses in the EXIM Policy 1997-2002.

14. Before we deal with the contentions  canvassed by the learned counsel for the  parties to the lis, we deem it appropriate to  notice the observations made by the  Constitution Bench of this Court in the case  of Commissioner of Central Excise, New Delhi  

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v. Hari Chand Shri Gopal & Ors., (2011) 1 SCC  236, insofar as the mechanism and  interpretation of an exemption notification  issued under a fiscal enactment. This Court  has observed in the said decision:

“A provision especially a fiscal statute  providing for an exemption, concession or  exception has to be construed strictly.  An exemption notification has to be  interpreted in the light of the words  employed by it and not on any other  basis.  A person who claims exemption or  concession must establish clearly that he  is covered by the provision(s) concerned  and, in case of doubt or ambiguity, the  benefit of it must go to the State.”

15. The observations made by the Constitution  Bench of this Court are binding on us.

16. Furthermore, this Court in Associated Cement  Companies Ltd. v. State of Bihar & Ors., (2004) 7  SCC 642, 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  

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provision is like an exception and on nor- mal principle of construction or inter- pretation of statutes it is construed  strictly either because of legislative in- tention or on economic justification of  inequitable burden of progressive approach  of fiscal provisions intended to augment  State revenue. But once exception or ex- emption becomes applicable no rule or  principle requires it to be construed  strictly. Truly speaking, liberal and  strict construction of an exemption provi- sion is to be invoked at different stages  of interpreting it. When the question is  whether a subject falls in the notifica- tion 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 applic- ability 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. and Mangalore Chemic- als and Fertilisers Ltd. v. Dy. Commr. of  Commercial Taxes to which reference has  been made earlier.)”

17. In G.P. Ceramics Private Limited v.  Commissioner, Trade Tax, Uttar Pradesh,  (2009) 2 SCC 90, this Court has held:

“29. It is now a well-established prin- ciple of law that whereas eligibility cri- teria laid down in an exemption notifica- tion are required to be construed  strictly, once it is found that the ap- plicant satisfies the same, the exemption  notification should be construed liber-

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ally. [See CTT v. DSM Group of Industries  (SCC para 26); TISCO v. State of  Jharkhand (SCC paras 42 to 45); State  Level Committee v. Morgardshammar India  Ltd.; Novopan India Ltd. v. CCE & Customs;  A.P. Steel Re-Rolling Mill Ltd. v. State  of Kerala and Reiz Electrocontrols (P)  Ltd. v. CCE.]”

18. In order to resolve the controversy posed  in this appeal, we have to notice the two  Notifications, namely, Notification No.2/95- CE, dated 4.1.1995 and Notification No.8/97- CE, dated 1.3.1997 and also the EXIM Policy  1997-2002.  The Notification in juxtaposition  reads as under:

Notification     No.2/95-CE,    dated     4.1.1995   

Notification  No.8/97-CE,     dated    1.3.1997

Exemption to all  excisable goods produced  in 100% EOU, FTZ, EHTP or  STP Units when sold in  India

In exercise of the powers  conferred by sub-section  (1) of section 5A of the  

Exemption to finished  products, rejects and  waste or scrap produced  in a 100% EOU or FTZ

  In exercise of the  powers conferred by  sub-section (1) of  

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Central Excises and Salt  Act, 1944 (1 of 1944),  the Central Government,  being satisfied that it  is necessary in the  public interest so to do,  hereby exempts all  excisable goods  (hereinafter referred to  as the said goods)  specified in the Schedule  to the Central Excise  Tariff Act, 1985 (5 of  1986) and produced or  manufactured in a hundred  per cent export oriented  undertaking or a free  trade zone or an  Electronic Hardware  Technology Park (EHTP)  unit or a Software  Technology Parks (STP)  unit and allowed to be  sold in India under and  in accordance with the  provisions of ,- (i)paragraphs 102 and 114  of the Export and Import  Policy, 1 April, 1992 –  31 March 1997, in the  case of hundred percent  export oriented  undertaking or a free  trade zone; or (ii)notification of the  Government of India in  the Ministry of Commerce  No.42(N-8)/92-97, dated  the 14th September, 1992  upto a value not  exceeding forty percent  of the value of  

section 5A of the  Central Excise Act,  1944 (1 of 1944), the  Central Government,  being satisfied that it  is necessary in the  public interest so to  do, hereby exempts the  finished products,  rejects and waste or  scrap specified in the  Schedule to the Central  Excise Tariff Act, 1985  (5 of 1986) and  produced or  manufactured, in a  hundred per cent  export-oriented  undertaking or a free  trade zone wholly from  the raw materials  produced or  manufactured in India,  and allowed to be sold  in India under and in  accordance with the  provisions of sub- paragraphs (a), (b),  (d) and (h) of  paragraph 6.8 or of  paragraph 6.20 of the  Export and Import  Policy, 1st April, 2002  –  31st March, 2007,  from so much of the  duty of excise leviable  thereon under section 3  of the Central Excise  Act, 1944 (1 of 1944),  as is in excess of an  amount  equal to the  aggregate of the duties  of excise leviable  

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production of components  and finished goods  manufactured, in the case  of a Electronic Hardware  Technology Park (EHTP)  unit; (iii) notification of the  Government of India in  the Ministry of Commerce  No. 33/(RE)92-97, dated  the 22nd March, 1994, upto  a value of production of  software manufactured in  the case of a Software  Technology Parks (STP)  unit, from so much of the duty  of excise leviable  thereon under Section 3  of said Central Excise  and Salt Act as in excess  of the amount calculated  at the rate of fifty  percent of each of the  duties of customs, which  would be leviable under  Section 12 of the Customs  Act, 1962 (52 of 1962)  read with any other  notification for the time  being in force issued  under sub-section (1) of  Section 25 of the said  Customs Acton the like  goods produced or  manufactured outside  India if imported into  India; Provided that the amount  of duty payable in  accordance with this  

under the said section  3 of the Central Excise  Act or under any other  law for the time being  in force on like goods,  produced or  manufactured in India  other than in a hundred  per cent export- oriented undertaking or  a free trade zone, if  sold in India. Provided that nothing  contained in this  notification shall  apply where such  finished products, if  manufactured and  cleared by a unit other  than a hundred per cent  export-oriented  undertaking or a unit  in a free trade zone,  are wholly exempt from  the duties of excise or  are chargeable to Nil  rate of duty.

[Notification No.8/97- CE, dated 1-3-1997 as  amended by Notification  No.21/97-CE, dated  11.4.1997; No.7/98-CE,  dated 2.6.1998 and  No.11/2000-CE, dated  1.3.2000)

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notification in respect  of the said goods shall  not be less than the duty  of excise leviable on the  like goods produced or  manufactured outside the  hundred per cent export- oriented undertaking or  free trade zone or  Electronic Hardware  Technology Park (EHTP)  unit or Software  Technology Parks (STP)  unit which is specified  in the said Schedule,  read with any other  relevant notification  issued under sub-rule (1)  of rule 8 of the Central  Excise Rules, 1944, or  sub-section (1) of  section 5A of the said  Central Excise Act: Provided further that  nothing contained in the  above proviso shall apply  to the goods which are  chargeable to nil rate of  duty leviable under  section 12 of the Customs  Act read with any other  notification for the time  being in force issued  under sub-section (1) of  section 25 of the said  Customs Act: Explanation. - For the  purpose of this  notification, the  expression, - (1)"Export and Import  

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Policy" means the Export  and Import Policy, 1st  April, 1992 - 31st March,  1997”  means the Export  and Import Policy, 1,  April, 1992-31 March,  1997 published vide  Public Notice of the  Government of India in  the Ministry of Commerce  No.1- published by the  Government of India in  the Ministry of Commerce  No.1-ITC (PN)/92-97,  dated the 31st March, 1992  as amended from time to  time.

(2)"Electronic Hardware  Technology Park (EHTP)  unit" means a unit  established under and in  accordance with  Electronic Hardware  Technology Park (EHTP)  Scheme notified by the  notification of the  Government of India in  the Ministry of Commerce  No. 5 (RE-95) 92-97,  dated 30th April, 1995  and approved by an inter- Ministerial Standing  Committee appointed by  the notification of the  Government of India in  the Ministry of Industry  {Department of Industrial  Development) No. S.O.  117(E), dated the 22nd  

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February, 1993; (3) "Software Technology  Parks (STP) unit" means a  unit established under  and in accordance with  Software Technology Parks  (STP) Scheme notified by  the notification of the  Government of India in  the Ministry of Commerce  No.4/(RE-95)/92-95, dated  30th April, 1995 and  approved by an inter- Ministerial Standing  Committee appointed by  the notification of the  Government of India in  the Ministry of Industry  (Department of Industrial  Development) No. S.O.  117(E), dated the 22nd  February, 1993. [Notification No.2/95-CE,  dated 4.1.1995]

19. The relevant clauses for our purpose in  

the EXIM Policy 1997-2002 are 9.9, 9.10,  

9.13(a), 9.16 (c) and 9.20.  They read as  

under:

“DTA Sales

9.9

The entire production of EOU/EPZ/EHTP/STP  units shall be exported subject to the  

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following:  

a. Unless specifically prohibited in the  LOP/LOI, rejects may be sold in the  domestic tariff area (DTA), on prior  intimation to the customs authority.  Such sales shall be counted against DTA  sale entitlement under para 9.9(b) of  the Policy. Sale of rejects shall be  subject to payment of duties as  applicable to sale under para 9.9.  

b. DTA sale up to 50% of the FOB value of  exports may be made subject to payment  of applicable duties and fulfillment of  minimum NFEP prescribed in Appendix 1 of  the Policy. No DTA sale shall be  permissible in respect of motor cars,  alcoholic liquors and such other items  as may be stipulated by Director General  of Foreign Trade by a Public Notice  issued in this behalf.

e. EOU/EPZ/EHTP/STP units may be permitted  to sell finished products which are  either freely importable under the  Policy, or against other import  licenses, in the DTA, over and above  the levels permissible under sub  paragraph (b) above, against payment of  full duties, on annual basis, provided  they have achieved the stipula ted NFEP  and export performance.

g. For services, including software units,  sale in the DTA in any mode, including  on-line data communication, shall be  permissible up to 50% of FOB value of  exports and/or 50% of foreign exchange  earned, where payment for such services  is received in free foreign exchange.

h. Items included as by-products in the  

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LOP/LOI may be sold in the DTA on  payment of applicable duty.

Note:-

In the case of units manufacturing  electronics hardware and software, the  NFEP and DTA sale entitlement shall be  reckoned separately for hardware and  software.

Other Supplies In DTA

9.10

The following supplies in DTA shall be  counted towards fulfillment of export  performance and NFEP:

a. Supplies effected in DTA in terms of  paragraph 10.2 of the Policy.  

b. Supplies effected in DTA against  payment in foreign exchange.  

c. Supplies to other  EOU/EPZ/SEZ/EHTP/STP units provided that  such goods are permissible for  procurement in terms of paragraph 9.2 of  the Policy.

d. Supplies made to bonded warehouses  set up under paragraph 11.14 of the  Policy and/or under section 65 of the  Customs Act.

e. Supply of goods against special  entitlement of duty free import of  goods.  

f. Supply of goods to defence and  

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internal security forces, foreign  missions/diplomats provided they are  entitled for duty free imports of such  items in terms of general exemption  notification issued by Ministry of  Finance.

Entitlement For Supplies From The DTA

9.13

a. Supplies from the DTA to  EOU/EPZ/EHTP/ STP units will be regarded  as "deemed exports" and, besides being  eligible for the relevant entitlements  under paragraph 10.3 of this Policy,  will be eligible for the following:

i. Reimbursement of Central Sales  Tax;

ii. Exemption from payment of Central  Excise Duty on capital goods,  components and raw materials; and

iii.Discharge of EP, if any, on the  supplier.

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Inter Unit Transfer

9.16

a) Transfer of manufactured goods from one  EOU/EPZ/ EHTP/STP unit to another  EOU/EPZ/EHTP/STP unit will be allowed.

b) Goods imported/procured by an EOU/EPZ/  EHTP/STP unit may be transferred or  given on loan to another  EOU/EPZ/EHTP/STP unit which shall be  duly accounted for, but not counted  towards discharge of export  performance.

Disposal Of Scrap/ Waste/ Remnants

9.20

Scrap/waste/remnants arising out of  production process or in connection  therewith may be sold or disposed of in  the DTA on payment of applicable duties or  exported. However, there shall be no  duties/taxes on such scrap/waste/ remnants  in case the same are destroyed with the  permission of Customs authority.”

20. Having noticed two Notifications and the  policy, let us analyze first, the Notification  No.2/95-CE. The Central Government, in  exercise of its powers under Section 5A(1) of  the Act, has issued the Notification in public  interest. The Notification exempts all  

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excisable goods mentioned in the Schedule to  the Tariff Act, from payment of duty leviable  under Section 3 of the Act. The Notification  provides the measure/cap of exemption from  payment of excise duty by an  assessee/industrial unit.  It says the  exemption is from the excise duty which is in  

excess of the amount calculated at 50% of each  

of the duties of customs leviable under  

Section 12 of the Customs Act, 1962 read with  

any Notification issued under Section 25 of  

the Customs Act.  The Notification also makes  

it clear with regard to the nature or type of  

goods that the 100% EOU should be  

manufacturing in its industrial unit.  It says  

that the exempted goods should be in a nature  

or type of goods which are, normally,  

produced/manufactured outside India and, but  

for any reason, they are imported to India.  

That only means, there must be a similarity  

between the goods manufactured by a 100% EOU  

with that of the goods produced or  

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manufactured outside the country but if it is  

imported into this country. The Notification  

provides two conditions in order to avail the  

benefit provided under the Notification. They  

are conjoint and not disjoint. Firstly, the  

exemption is available only, if the goods are  

produced or manufactured in a 100% EOU or FTA  

or EHTP unit or STP unit and, secondly, they  

must be allowed to be sold as per EXIM Policy  

1997-2002. Proviso is appended to the  

Notification. A reference to the same may not  

be necessary for the purpose of the disposal  

of this appeal.

21. Then we come to the Notification No.8/97-CE.  

The said Notification is again issued by the  

Central Government in public interest in  

exercise of its powers under Section 5A(1) of  

the Act. It exempts finished goods, rejects  

and waste or scrap enumerated in the Schedule  

to the Tariff Act, from payment of excise duty  

under Section 3 of the Act. Yet again, the  

Notification provides the entitlement or cap  

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up to which the assessee can avail benefit  

under the Notification insofar as the payment  

of excise duty.  The Notification also speaks  

of compliance of two conditions by an  

industrial unit for taking benefits/advantage  

of the Notification.  Firstly, the finished  

goods must be produced or manufactured in a  

100% EOU or FTA from     the     raw     material     produced    

or     manufactured     in     India   (emphasis supplied).  

The second condition is that the goods must  

have been allowed to be sold in India as per  

sub paras (a), (b), (c ), (d) and (f) of para  

9.9 or para 9.20 of the EXIM Policy 1997-2002.

22. Clause 9 of the EXIM Policy 1997-2002 speaks  

of DTA sales. Clauses (a), (b), (c), (d) and  

(f) put certain conditions to be complied with  

by a 100% EOU/FTA etc. for effecting its sales  

in DTA area. Clause 9.3 provides for benefits  

for supplies made from the DTA Area. Clause  

9.16(c) in particular provides for inter unit  

transfers.  Clause 9.20 provides for disposal  

of the scrap in the DTA area by a 100% EOU.

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23. After having the bird's eye view of the two  

Notifications, namely, Notification No.2/95-

CE, dated 4.1.1995 and Notification No.8/97-

CE, dated 1.3.1997 and the EXIM Policy 1997-

2002, let us consider the issues canvassed by  

the learned counsel appearing for the parties.

24. Shri. K. Swami, learned counsel for the  

revenue strenuously contends that the assessee  

has purchased raw material/finished goods, for  

its manufacturing activity to produce or  

manufacture the finished products, from a 100%  

EOU which had imported the raw material which  

are exempted from the payment of duty and when  

it affects the sale of such raw  

material/finished goods manufactured in its  

industry to another 100% EOU, then, in the  

hands of the said EOU, it becomes an imported  

raw material/finished goods. In this regard,  

he submits that since the language employed in  

the Notification no.8/97-CE, dated 1.3.1997 is  

“raw material produced or manufactured in  

India”, only such raw material, when used for  

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the production or manufacturing of the  

finished goods which are, ultimately, sold in  

the DTA, are eligible for exemption and,  

therefore, the assessee cannot take the  

benefit of the Notification no.8/97-CE. We are  

afraid that we can accept the argument  

canvassed by Shri. Swami, in the light of the  

unambiguous language employed in the  

Notification no.8/97-CE. There is no  

ambiguity, whatsoever, in the Notification  

issued by the Central Government.  The  

Notification speaks of finished goods produced  

or manufactured by a 100% EOU and if it is  

sold in a DTA, the said EOU can take the  

benefit of the Notification no.8/97-CE.  If  

for any reason, we accept the submission of  

Shri K.Swami, learned counsel for the Revenue,  

then we will be adding something into the  notification and, in our opinion, the same is  impermissible.

25. The notification requires to be interpreted in  the light of the words employed by it and not  

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on any other basis.  There cannot be any  addition or subtraction from the notification  for the reason the exemption notification  requires to be strictly construed by the  Courts. The wordings of the exemption  notification have to be given its natural  meaning, when the wordings are simple, clear  and unambiguous. In Commissioner of Customs,  Kolkata v. Rupa & Co. Ltd., (2004) 6 SCC 408,  this Court has observed that the exemption  notification has to be given strict  interpretation by giving effect to the clear  and unambiguous wordings used in the  notification. This Court has held thus:

“7. However, if the interpretation given  by the Board and the Ministry is clearly  erroneous then this Court cannot endorse  that view. An exemption notification has  to be construed strictly but that does not  mean that the object and purpose of the  notification is to be lost sight of and  the wording used therein ignored. Where  the     wording     of     the     notification     is     clear    and     unambiguous,     it     has     to     be     given     effect    to.     Exemption     cannot     be     denied     by     giving     a    construction     not     justified     by     the     wording    of     the     notification  .”  

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26. In Commissioner of Central Excise, Trichy  v. Rukmani Pakkwell Traders, (2004) 11 SCC  801, this Court has also held:

“5. ... It is settled law that exemption  notifications have to be strictly  construed. They     must     be     interpreted     on    their     own     wording.     Wordings     of     some     other    notification     are     of     no     benefit     in    construing     a     particular     notification  .”

27. In Kohinoor Elastics (P) Ltd. v.  Commissioner of Central Excise, Indore,  (2005) 7 SCC 528, this Court has held:  

“7. When     the     wordings     of     the     notifications    are     clear     and     unambiguous     they     must     be    given     effect     to  . By a strained reasoning  benefit cannot be given when it is clearly  not available.”

28. In Compack (P) Ltd. v. Commissioner of  Central Excise, Vadodara, (2005) 8 SCC 300,  this Court has observed thus:

“20. Bhalla Enterprises laid down a pro- position that notification has to be con- strued on the basis of the language used.  Rukmani Pakkwell Traders is an authority  for the same proposition as also that the  wordings     of     some     other     notification     are     of    no     benefit     in     construing     a     particular     no  -   

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tification. The notification does not  state that exemption cannot be granted in  a case where all the inputs for manufac- ture of containers would be base paper or  paperboard. In manufacture of the contain- ers some other inputs are likely to be  used for which MODVAT credit facility has  been availed of. Such     a     construction,     as    has     been     suggested     by     the     learned     counsel    for     the     respondents,     would     amount     to     addi  -   tion     of     the     words   “  only     out     of  ”   or   “  purely    out     of  ”   the     base     paper     and     cannot     be     coun  -   tenanced.     The     notification     has     to     be     con  -   strued     in     terms     of     the     language     used    therein.     It     is     well     settled     that     unless    literal     meaning     given     to     a     document     leads    to     anomaly     or     absurdity,     the     golden     rule    of     literal     interpretation     shall     be     adhered    to.”

29. In Commissioner of Central Excise,  Chandigarh-I v. Mahaan Dairies, (2004) 11 SCC  798, this Court has held:

“8. It is settled law that in order to  claim benefit of a notification, a party  must strictly comply with the terms of the  notification. If     on     wording     of     the    notification     the     benefit     is     not     available    then     by     stretching     the     words     of     the    notification     or     by     adding     words     to     the    notification     benefit     cannot     be     conferred.    The Tribunal has based its decision on a  decision delivered by it in Rukmani  Pakkwell Traders v. CCE. We have already  overruled the decision in that case. In  this case also we hold that the decision  of the Tribunal is unsustainable. It is  accordingly set aside.”

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30.  In Commissioner of Customs (Preventive),  Gujarat v. Reliance Petroleum Limited, (2008)  7 SCC 220, this Court has held:  

“30. We are not oblivious of the proposi- tion of law that an exemption notification  should be construed directly but it is  also well settled that interpretation of  an exemption notification would depend  upon the nature and extent thereof. The  terminologies used in the notification  would have an important role to play.  Where     the     exemption     notification     ex     facie    applies,     there     is     no     reason     as     to     why     the    purport     thereof     would     be     limited     by     giving    a     strict     construction     thereto  . 31. The comparison made by the learned So- licitor General that mobility of a person  would depend upon his personal fitness and  not when he is placed on a wheelchair, in  our opinion, is not apposite. The purpose  of grant of exemption is different. The  object     for     grant     of     notification     shall     be    considered     in     a     broad     based     manner.     The    wordings     used     therein     have     to     be     given    their     natural     meaning.     The     purpose     must     be    allowed     to     be     achieved.     The     words   “  all    types     of     materials  ”    should     be     construed    widely.”

31. Moreover, a liberal construction requires  to be given to a beneficial notification.  This Court in Commissioner of Customs  (Preventive), Mumbai v. M. Ambalal and  

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Company, (2011) 2 SCC 74, (in which one of us  was the party) has observed that the  beneficial notification providing the levy of  duty at a concessional rate should be given a  liberal interpretation:  

“16. It is settled law that the notifica- tion has to be read as a whole. If any of  the conditions laid down in the notifica- tion is not fulfilled, the party is not  entitled to the benefit of that notifica- tion. The rule regarding exemptions is  that exemptions should generally be  strictly interpreted but beneficial ex- emptions having their purpose as encour- agement or promotion of certain activit- ies should be liberally interpreted. This  composite rule is not stated in any par- ticular judgment in so many words. In  fact, majority of judgments emphasise  that exemptions are to be strictly inter- preted while some of them insist that ex- emptions in fiscal statutes are to be  liberally interpreted giving an apparent  impression that they are contradictory to  each other. But this is only apparent. A  close scrutiny will reveal that there is  no real contradiction amongst the judg- ments at all. The synthesis of the views  is quite clearly that the general rule is  strict interpretation while special rule  in the case of beneficial and promotional  exemption is liberal interpretation. The  two go very well with each other because  they relate to two different sets of cir- cumstances.”

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32. In Commissioner of Sales Tax v. Industrial  Coal Enterprises, (1999) 2 SCC 607, this  Court has observed thus:  

“11. In CIT v. Straw Board Mfg. Co. Ltd.  this Court held that in taxing statutes,  provision for concessional rate of tax  should be liberally construed. So also in  Bajaj Tempo Ltd. v. CIT it was held that  provision granting incentive for promot- ing economic growth and development in  taxing statutes should be liberally con- strued and restriction placed on it by  way of exception should be construed in a  reasonable and purposive manner so as to  advance the objective of the provision.”

33. In Commissioner of Central Excise,  Shillong v. North-Eastern Tobacco Co. Ltd.,  (2003) 1 SCC 161, this Court has observed  thus:  

“10. The other important principle of in- terpreting an exemption notification is  that as far as possible liberal inter- pretation should be imparted to the lan- guage thereof, provided no violence is  done to the language employed. See State  Level Committee v. Morgardshammar India  Ltd.”

34. In our view, the Tribunal has rightly  understood the purpose and the language  

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employed in Notification no.8/97-CE and the  EXIM Policy 1997-2002.  Therefore, we do not  see any legal infirmity in the judgment and  order so passed by the Tribunal.

35. Accordingly, while rejecting the appeal filed  by the revenue, we confirm the findings and  conclusions reached by the Tribunal. In the  facts and circumstances of the case, the  parties are directed to bear their own costs.  

 C.A.No.3588/2005,     C.A.No.3638/2006     &     C.A.No.1388/2008   

The Tribunal, while allowing the  

assessee's appeals has followed the judgment  

and order rendered in the case of M/s.  

Favourite Industries Vs. CCE, Surat-I. Since  

we have confirmed the reasoning and the  

conclusions reached by the Tribunal in the  

aforesaid decision, the appeals filed by the  

revenue against the impugned judgments and  

orders requires to be rejected and  

accordingly, they are rejected.

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Ordered accordingly.  

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

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

 NEW DELHI, FEBRUARY 29, 2012.  

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