Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 15
CASE NO.:
Appeal (civil) 1878-1880 of 2004
PETITIONER:
The Commissioner of Central Excise,New Delhi
RESPONDENT:
M/s Hari Chand Shri Gopal etc.
DATE OF JUDGMENT: 03/10/2005
BENCH:
S.N. VARIAVA,Dr. AR. LAKSHMANAN & S.H. KAPADIA
JUDGMENT:
J U D G M E N T
KAPADIA, J.
The short question of law involved in this matter is \026
whether irrespective of the assessees having not followed or
substantially followed Chapter X procedure under the Central
Excise Rules, 1944, they would still be entitled to the benefit of
notification no.121/94-CE dated 11.8.1994 as held in the case
of Thermax Private Ltd. v. Collector of Customs reported in
1992 (61) ELT 352, which is to the effect that, the benefit of
concession should be given when intended use of material can
be established by other evidence.
This case is a sequel to the case of the assessees in civil
appeal nos.5747-5749 of 2000 decided by this court on
30.9.2005 and, therefore, we are not required to restate the
facts. Suffice it to state that the assessee-firms were
manufacturer of branded chewing tobacco (final product) from
"additive mixture" (kimam). The said "kimam" was
manufactured by the units of the assessees in Delhi and the said
kimam was stock transferred to the assessees’ units in UP and
HP. We have held in our judgment in civil appeal nos.5747-
5749 of 2000 that this kimam was excisable and classifiable
under sub-heading 2404.49/2404.40 of Central Excise Tariff
Act, 1985. Admittedly, the existence of assessees’ units in
Delhi, where kimam was manufactured, was not disclosed to
the department, these units were not registered and they were
unlicensed units. The three assessees however urged that there
was no intention to evade duty as the said kimam was captively
consumed in the manufacture of branded chewing tobacco and
they were entitled to input relief under notification no.121/94-
CE dated 11.8.1994. In this connection, the assessees
contended before the tribunal in the present case that they had
maintained stock register, transfer challans and form-IV register
in their units in UP and HP, where the final product was
manufactured and which registers indicated receipt and
utilization of kimam in the manufacture of branded chewing
tobacco and consequently, there was substantial compliance of
exemption notification no.121/94-CE. This contention of the
assessees has been accepted by the tribunal placing reliance on
the judgments of this court in the case of Thermax Private Ltd.
(supra) and Collector of Central Excise, Jaipur v. J.K.
Synthetics reported in 2000 (120) ELT 54. Being aggrieved by
the decision of the tribunal, the department has come to this
court by way of these civil appeals.
We quote hereinbelow the exemption notification
no.121/94-CE, which deals with input relief in respect of goods
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 15
used for special industrial purposes subject to the assessee
complying with chapter X procedure.
INPUT RELIEF
Exemption to specified intermediate goods if captively
consumed or used in the manufacture of specified final
products consequent to extension of Modvat Scheme to
goods earlier covered under Proforma Credit Procedure: In
exercise of the powers conferred by sub-section (1) of section
5A of the Central Excises and Salt Act, 1944 (1 of 1944), read
with sub-section (3) of section 3 of the Additional Duties of
Excise (Goods of Special Importance) Act, 1957 (58 of 1957)
(hereinafter referred to as the said Special Importance Act), the
Central Government, being satisfied that it is necessary in the
public interest so to do, hereby exempts goods falling under
heading numbers or sub-heading numbers of the Schedule to
the Central Excise Tariff Act, 1985 (5 of 1986) (hereinafter
referred to as the said Tariff Act), specified in column (4) of the
Table hereto annexed (hereinafter referred to as "inputs")
manufactured in a factory and used within the factory of
production in or in relation to the manufacture of corresponding
final products of the description specified in column (2) of the
said Table and falling under heading numbers or sub-heading
numbers of the Schedule to the said Tariff Act, specified in the
corresponding entry in column (3) of the said Table, from the
whole of the duty of excise and additional duty of excise
leviable thereon, which is specified in the respective Schedules
to the said Tariff Act and the said Special Importance Act:
Provided that nothing contained in this notification shall
apply to inputs used in or in relation to the manufacture of final
products (other than those cleared either to a unit in a Free
Trade Zone or to a 100% Export-Oriented Unit or to a unit in
Electronic Hardware Technology Park or Software Technology
Parks), which are exempt from the whole of the duty of excise
leviable thereon or are chargeable to ’Nil’ rate of duty:
Provided further that where such use of inputs is in a
factory of a manufacturer, different from his factory where the
goods have been produced, the exemption contained in this
notification shall be allowable subject to the observance of the
procedure set out in Chapter X of the Central Excise Rules,
1944.
THE TABLE
S.
No.
Description of final products
Chapter or
Heading
number or
sub-heading
number of
final products
Chapter or
Heading
number or
sub-heading
number of
inputs
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 15
(1)
(2)
(3)
(4)
1.
(a) Cigarettes
(b) Snuff
(c) Preparation, containing snuff of
tobacco in any proportion.
2403.11
2404.50
2404.60
2404.13
2404.50
2404.50
2.
Chewing tobacco including
preparations commonly known as
"Khara Masala", "Kimam",
"Dokta", "Zarda", "Sukha" and
"Surti".
2404.41
2404.49
3.
Fabrics of cotton, whether
processed or not.
52
52
4.
Fabrics of man-made fibres and
filament yarn, whether processed or
not.
54, 55
54, 55
We also quote hereinbelow rules 173B, 173G, 174, 192
and 196 of 1944 Rules:
"Rule 173B. Assessee to file declaration of goods
produced or manufactured in the factory.\027 (1)
Every assessee, shall file with the Superintendent of
Central Excise, having jurisdiction over the factory,
a declaration (in quadruplicate) showing, -
(a) the full description of \026
(i) all excisable goods produced or
manufactured by him,
(ii) all other goods produced or
manufactured by him and intended to
be removed from his factory, and
(iii) all the excisable goods already
deposited or likely to be deposited
from time to time without payment of
duty in his warehouse;
(b) the Chapter, heading No. and sub-heading
No., if any, of the Schedule to the Central
Excise Tariff Act, 1985 (5 of 1986) under
which each goods fall;
(c) the rate of duty leviable on each such goods;
(d) the exemption notification availed or
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 15
proposed to be availed, if any; and
(e) such other particulars as the Commissioner
may direct,
and obtain a dated acknowledgement of the said
declaration :
Provided that such declaration shall be filed
on or before the 15th May, 1995 or such extended
period as the Assistant Commissioner of Central
Excise may permit.
Provided further that an assessee producing
or manufacturing excisable goods for the first time
shall be required to submit the said declaration
within thirty days of commencing the production of
such excisable goods.
(2) If in the declaration so filed under sub-
rule (1), any alteration becomes necessary in
respect of any goods because of -
(a) the assessee commencing production,
manufacture or warehousing of goods
not mentioned in that declaration, or
(b) the assessee intending to remove from
his factory any non-excisable goods
not mentioned in that declaration, or
(c) a change in the rate of rates of duty in
respect of the goods mentioned in that
declaration or, by reason of any
amendment to the Schedule to the
Central Excise Tariff Act, 1985 (5 of
1986), a change in the Chapter,
heading No. or sub-heading No.,
the assessee shall likewise file a fresh declaration or
an amendment of the declaration already filed
within thirty days of any alteration mentioned
above, in the same manner as is provided in sub-
rule (1).
(3) The proper officer, duly empowered
by the Central Government under section 14 of the
Act, may, where he considers it necessary during
the course of any enquiry in connection with the
declaration filed under sub-rule (1) by an assessee, -
(a) require any person to produce or
deliver any document or thing relevant
to the enquiry; and
(b) examine any person acquainted with
the facts and circumstances of the
particulars given in the declaration or
other records, in the manner provided
in section 14 of the Act.
(4) The proper officer may after such
further enquiry as he may consider necessary,
reassess the correct amount of duty payable
following the provisions of section 11A of the Act
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 15
and the assessee shall pay the deficiency, if any.
Rule 173G. Procedure to be followed by the
assessee.\027 (1) Every assessee shall keep an
account-current with the Commissioner separately
for each excisable goods falling under different
Chapters of the Schedule to the Central Excise
Tariff Act, 1985 (5 of 1986), in such form and
manner as the Commissioner may require, of the
duties payable on the excisable goods and in
particular such account (and also the account in
Form R. G. 23, if the assessee is availing of the
procedure prescribed in rule 173K) shall be
maintained in triplicate by using indelible pencil
and double-sided carbon, and the assessee shall
periodically make credit in such account-current, by
cash payment into the treasury [so as to keep the
balance, in such account-current], sufficient to
cover the duty due on the goods intended to be
removed at any time; and every such assessee shall
pay the duty determined by him for each
consignment by debit to such account-current
before removal of the goods:
Provided that\027
(i) the duty due on the goods consumed
within the factory in a continuous
process may be so paid at the end of
the factory day, except that in the case
of cellulosic spun yarn and cotton yarn
in respect of which duty is payable in
accordance with the provisions of sub-
rule (1) of rule 49A, the duty due may
be paid by the manufacturer in
accordance with the provisions of the
said rule;
(ii) an assessee who has removed more
than 3000 consignments in the
previous year may, after intimating the
proper officer, make a consolidated
debit in the account current at the end
of the day towards payment of the
duty;
(iia) the proper officer may allow an
assessee who manufactures one or
more of the declared excisable goods,
irrespective of the number of
consignments removed by him in the
previous calendar year, to make
consolidated debit in the account-
current at the end of the day towards
payment of duty;
(iii) in respect of clearances of any
excisable goods as samples in such
small quantities as the Commissioner
may approve in respect of any
commodity and clearly marked as such
on the invoice, the assessee may pay
the duty on all such samples cleared
during a month by a single debit to his
account-current on the last working
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 15
day of the month;
(iv) the Commissioner may, in
circumstances of an exceptional
nature, by an order in writing, require
an assessee or class of assessees
manufacturing or warehousing goods
to which provisions of Chapter VII-A
have been made applicable, to
determine the duty and debit the
account-current in such manner as may
be specified by him in such order;
Provided further that where any assessee
manufactures or warehouses excisable goods falling
under two or more Chapters of the Schedule to the
Central Excise Tariff Act, 1985 (5 of 1986), he may
opt to maintain a single Account current for
payment of duty due on all such goods after
intimating the proper officer.
Provided also that where an assessee
maintains separately accounts-current for each
excisable goods he may, in the event of an
insufficient balance in any of the accounts-current,
transfer, subject to such conditions as the
Commissioner may specify in this behalf, an
amount to such account-current from another
account-current which has enough balance on date
of such transfer.
(1A) Where an assessee keeping an account-
current under sub-rule (1) makes an application to
the Commissioner for withdrawing an amount from
such account-current, the Commissioner may, for
reasons to be recorded in writing, permit such
assessee to withdraw the amount in accordance
with such procedure as the Commissioner may
specify in this behalf.
(2) Notwithstanding the provisions of sub-
rule (1) of rule 224 but subject to the other
provisions of that rule and the provisions of rule
173FF, every assessee shall except as otherwise
expressly provided in these rules, forthwith remove
the goods on which duty has been determined and
paid; every such removal shall take place under an
invoice or invoices in accordance with the
provisions of rule 52A but without the proper
officer’s countersignature, and such invoice or
invoices shall also show the rate and the amount of
duty paid on such goods and the time of actual
removal of the goods from the factory :
Provided that -
(i) a single invoice may be issued at the
end of the factory day to cover
removal of goods consumed within the
factory in a continuous process;
(ii) the Commissioner may, having regard
to the nature of the goods
manufactured or frequency of
removals permit an assessee or a class
of assessees not to enter the rate and/or
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 15
the amount of duty on the invoices
under which such goods are removed
from the factory;
(iii) \005\005 Omitted.
(iv) in respect of removal of any goods
after 6 O’clock in the afternoon on the
day preceding the date appointed for
the presentation of the annual or any
Supplementary Budget of the Central
Government to Parliament or for the
introduction in the House of the People
of any Finance Bill or any Bill for the
imposition or increase of any duty, the
provisions of sub-rule (1) of rule 224,
shall apply.
(v) \005. Omitted.
(vi) where any correction, other than one
relating to the date or the time of
removal of the goods or to the
description of the goods (including the
variety of goods, the number and
description of packages and the
identification marks thereon), becomes
necessary in any invoice before
removal of the goods, such correction
may be made by the assessee provided
this is done neatly and over his dated
signature in all copies of the invoice;
and
(vii) where the assessee, after he has
debited the duty due on the goods in
the account-current referred to in sub-
rule (1), finds it necessary to cancel
any invoice, he shall send an
intimation thereof in writing to the
proper officer not later than the
working day next following the day on
which such invoice is cancelled, and
may thereupon take credit of the duty
in that account;
(2A) Every assessee shall file with the
proper officer the triplicate copies of the invoices or
like documents issued,
(a) during first ten days of a month, on or
before the twelfth day of the same
month;
(b) during the next ten days of the month,
on or before the twenty-second day of
the same month; and
(c) during the remaining days of that
month, on or before the fifth day of the
following month,
along with a covering list showing the serial
number of such invoices as well as opening
balance, credit, debit and closing balance in his
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 15
account-current and in his account maintained in
Form R.G. 23A, Part II and Form R.G. 23C Part II.
Provided that an assessee availing of the
exemption under a notification based on the value
or quantity of clearances in a financial year, shall
file with the proper officer the triplicate copies of
the invoices or like documents issued during a
quarter, on or before the fifth day of the following
quarter along with a covering list showing the said
number of such invoices as well as opening
balance, credit, debit and closing balance in his
account current and in his account maintained in
Form RG 23A, Part II and Form RG 23C Part II.
(3) Within five days after the close of each
month every assessee shall, in lieu of the returns
prescribed under rule 54, file with the proper officer
in quintuplicate a monthly return in the proper form
showing the quantity of excisable goods
manufactured or received under bond during the
month, the quantity (if any) used within the factory
for the manufacture of another commodity, the
quantity removed on payment of duty from the
place or premises specified under rule 9 or from the
store-room or other place of storage approved by
the Commissioner under rule 47, duty paid on such
quantity, particulars of invoices or like documents
under which such quantity was removed; the
quantity removed without payment of duty for
export or otherwise and such other particulars as
may be elsewhere prescribed or as the
Commissioner may, by general or special order,
require, and where so required by the
Commissioner, by written notice, shall submit a
similar return in the proper form showing all the
other products manufactured in and issued from the
factory during the same month. Every such return
in respect of excisable goods shall be accompanied
by\027
(a) \005.. Omitted.
(b) receipted treasury challans on which
deposits in the account-current were
made by payment into the Government
treasury; and
(c) original and duplicate copies of the
account-current and also of the account
in Form RG 23 and RG 23C, as the
case may be, maintained by the
assessee during the period covered by
the return;
(d) any other document or documents as
the Commissioner may require,
and if there was no stock, production and removal
of excisable goods during the said period, the
assessee shall file with the proper officer a nil
return, unless otherwise directed by the
Commissioner:
Provided that the Commissioner may, having
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 15
regard to the nature, variety and extent of
production or manufacture or frequency of
removals\027
(i) fix in relation to any assessee or class
of assessees a period shorter than one
month for filing the aforesaid return;
(ii) permit that the aforesaid return may be
filed by the assessee within a period
not exceeding 21 days after the close
of each month.
(4) (a) Every assessee shall maintain
such accounts, as the Commissioner may from time
to time require or permit, subject to such conditions
as may be specified by him of the production,
manufacture, storage, delivery or disposal of the
goods, including the materials received for or
consumed in the manufacture of excisable goods or
other goods, the goods and materials in stock with
him and duty determined and paid by him.
(b) Unless specially exempted by the
Commissioner by order in writing, all books of
accounts maintained under clause (a) shall be sent
by him, before these are brought into use, for
authentication by the proper officer in such manner
and at such time as the Commissioner may direct,
(c) In respect of any assessee, or class of
assessees, the Commissioner may direct that all
books of accounts maintained under clause (a),
subject to what has been stated in clause (b), shall
be deemed to be the proper form for the respective
purpose.
(5) Every assessee shall furnish to the
proper officer a list in duplicate of all accounts
maintained and returns prepared by him (whether
the same are maintained or prepared in pursuance
of these rules or not) in regard to the production,
manufacture, storage, delivery or disposal of the
goods, including the raw materials.
(6) Every assessee shall, on demand,
produce to the Central Excise Officers, or the audit
parties deputed by the Commissioner or the
Comptroller and Auditor General of India:-
(i) the accounts and returns (whether the
same are maintained or prepared in
pursuance of these rules or not); and
(ii) the cost audit reports, if any, under
section 233B of the Companies Act,
1956 (1 of 1956),
for the scrutiny of the officers or audit parties, as
the case may be.
(7) Notwithstanding the provisions of sub-
rules (1) and (3), an assessee manufacturing
excisable goods specified in this behalf by the
Central Government by notification in the Official
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 15
Gazette, whose duty liability in the preceding
financial year did not exceed five hundred rupees or
who being a new assessee does not expect to be
liable to pay more than five hundred rupees as duty
in the relevant financial year, may, after informing
the proper officer in writing, pay duty in respect of
each separate consignment at the time of removal
instead of keeping an account-current with the
Commissioner, and may also file the return
prescribed in sub-rule (3) for a quarter within seven
days after the close of every quarter instead of
filing the monthly return.
(8) In respect of a manufacturer availing
of the exemption under a notification based on the
value or quantity of clearances in a financial year,
the provisions of this rule shall have effect in that
financial year as if for the word "month", wherever
it occurs, the word "quarter", and for the word
"monthly", wherever it occurs, the word
"quarterly" were substituted.
(9) Every assessee shall preserve the book
of accounts, documents and floppies where any
document is generated on computer, for such
periods and in such manner as may be specified by
the Commissioner.
Rule 174. Registration of certain persons.\027
(1) Every person, who cures, produces,
manufactures, carries on trade, deals as a broker or
commission agent, holds private store-room or
warehouse or otherwise uses excisable goods or a
person who issues invoice or invoices under rule
57G or, as the case may be, Rule 57T shall get
registered and shall not engage in the curing,
production, manufacture, trade, dealing as broker or
commission agent, storing in private store-room or
warehouse or use excisable goods without having
applied for such registration to the jurisdictional
range officer or such officer in such forms as may
be specified by the Board.
(2) The Central Board of Excise and
Customs, may, by notification in the Official
Gazette, and subject to such conditions or
limitations as may be specified in such notification,
specify person or class of persons from amongst the
persons specified in sub-rule (1) who need not
obtain such registration.
(3) If there are more than one premises
requiring registration he shall obtain separate
registration certificate for each of the premises.
(4) Every registration certificate granted
shall be in the specified form and shall be valid
only for the premises specified in such certificate.
(5) Where a registered person transfers his
business to another person the transferee shall
obtain a fresh certificate.
(6) Where a registered person is a firm or
a company or association of persons, any change in
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 15
the constitution of such a firm, company or
association of persons, shall be intimated to the
Central Excise Officer within thirty days of such a
change for incorporation in the certificate.
(7) In case a registered person desires to
manufacture a new product, he shall get the product
endorsed on his registration certificate.
(8) Every registered person, who ceases to
carry out the operation or operations he is registered
for, shall surrender his registration certificate
immediately.
(9) The proper officer shall proceed to
grant a Registration Certificate under this rule
within thirty days of the receipt of an application.
If registration certificate is not granted within the
said period, the registration applied for shall be
deemed to have been granted.
(10) Every registered person shall exhibit
his registration certificate (or a certified copy
thereof) in a conspicuous part of the registered
premises.
(11) Any registration certificate granted
under this rule may be revoked or suspended by the
proper officer, if the holder or any person his
employ, is found to have committed a breach of any
conditions of the Act or these rules or has been
convicted of an offence under section 161, read
with section 109 or with section 116 of the Indian
Penal Code (45 of 1860).
Rule 192. Application for concession.\027 Where
the Central Government has, by notification under
rule 8 or section 5A of the Act, as the case may be,
sanctioned the remission of duly 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
Commissioner 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 Commissioner 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 Commissioner may consider
necessary for supervising operation in his premises
for the purposes of this Chapter, the Commissioner
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 Commissioner
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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 15
and shall then be granted a registration certificate in
the proper Form. The concession shall, unless
renewed by the Commissioner, 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
Commissioner may, in his discretion, demand a
fresh bond; and may, if the security furnished for a
bond is not adequate demand additional security."
Rule 196. Duty leviable on excisable goods not
duly accounted for.\027 (1) If any excisable
goods obtained under rule 192 are not duly account
for as having been used for the purpose and in the
manner stated in the application or are not shown to
the satisfaction of the proper officer to have been
lost or destroyed by natural causes or by
unavoidable accident during transport from the
place of procurement to the applicant’s premises or
during handling or storage in the premises approved
under rule 192, the applicant shall, on demand by
the proper officer, immediately pay the duty
leviable on such goods. The concession may at any
time be withdrawn by the Commissioner if a breach
of these rules is committed by the applicant, his
agent or any person employed by him. In the event
of such a breach, the Commissioner may also order
the forfeiture of the security deposited under rule
192 and may also confiscate the excisable goods,
and all goods manufactured from such goods, in
store at the factory.
(2) Where the duty becomes chargeable in
terms of sub-rule (1) on any excisable goods, the
rate of duty and the tariff valuation, if any,
applicable to such goods shall be the rate and
valuation in force\027
(i) in the case of actual removal of goods
from the premises, on the date of such
removal;
(ii) in the case of loss of goods in transit
during transport from the place of
procurement to the applicant’s
premises, on the date on which the
goods are received in the applicant’s
premises;
(iii) in the case of loss of goods while in
storage or during handling in the
premises approved under rule 192, on
the date on which such loss is
discovered by the proper officer or
made known to him;
(iv) in all other cases, on the date on which
the notice for demand of duty is issued
or on the date on which duty is paid,
whichever is earlier."
In our view, the law laid down by this Court in the
aforestated two decisions in the case of Thermax Private Ltd.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 13 of 15
(supra) and J.K. Synthetics (supra) needs reconsideration for
the following reasons. Firstly, we may point out that
conceptually there is a difference between "short-payment" that
arises from non-levy or any mistake connected with the levy on
one hand and the "short-payment" arising from the failure of
the buyer/user of the goods to account for them. It is equally
well settled that exemption notifications have to be read strictly
so far as the eligibility is concerned; that conditions mentioned
therein ought not to be ignored and that the notification has to
be read on its own terms [See: Commissioner of Central
Excise, Allahabad v. Ginni Filaments Ltd. reported in 2005
(181) ELT 145]. Under rule 192, the responsibility for the
payment of duty on the goods cleared under concession or
exemption was transferred from the manufacturing unit to the
buying/receiving unit. The person wishing to obtain the
remission of duty was required to apply through the proper
officer in the form AL-6 and the proper officer had to grant
licence to such persons in the form L-6. Under rule 196, if any
excisable goods obtained under rule 192 are not duly accounted
for, then the duty had to be paid by the applicant i.e. by the
person who applies for an AL-6 licence. Therefore, in case of
default or misuse, the liability was on the user. Therefore, as
stated above, whenever there is failure on the part of the
buyer/user to account for the goods received resulting in short-
payment, the liability is foisted on the buyers/users. It is this
type of situation which stood covered by rule 192 and rule 196.
In cases of contravention of rule 192, the tribunal took the view
from 1989 onwards that rule 192 was not mandatory and that
sufficient compliance by the recipient/user was good defence in
penal action. The question before us is \026 whether an assessee
was entitled to benefit of input relief under exemption
notifications in which compliance of rule 192 was incorporated
as a condition for obtaining exemption. As indicated above,
non accounting of goods received/used in the factory is distinct
from short-payment arising from non-levy. However, when
chapter X procedure is incorporated in the exemption
notification as condition then short-payment on account of non-
levy and short-payment on account of the failure of the
buyer/user to account gets inter-connected. This aspect has not
been considered by this Court in the case of Thermax Private
Ltd. (supra) and J.K. Synthetics (supra). The result is
divergence of views in the judgments of the tribunal. In the
case of National Aluminium Co. Ltd. v. Commissioner of
Central Excise, Bhubaneswar reported in 2000 (125) ELT 519
(T), it has been held, following the judgment of this court in
Thermax Private Ltd. (supra), that, even if chapter X
procedure is not followed, calcined alumina manufactured in
assessees’ unit and transferred to another unit for manufacture
of aluminium was entitled to exemption under notification
no.217/86-CE as the assessee had established intended use of
material by other evidence. A diametrically opposite view has
been taken in the case of Kirloskar Brothers Ltd. v. Collector
of Central Excise, Pune reported in 1997 (94) ELT 176 (T), in
which it has been held that the procedure required under chapter
X was required to be strictly followed in cases of conditional
exemptions as the procedural requirements were essential pre-
requisite and no exemption can be sanctioned in the absence of
the required compliance of the exemption notification.
Consequently, under rule 173B, an assessee was required to file
declaration of goods (kimam) produced or manufactured in the
factory. Under rule 173G, every assessee was required to keep
a current account with the commissioner for each category of
excisable goods. Under rule 174, every person manufacturing
or using excisable goods was required to obtain registration and
he was prohibited from producing, manufacturing, storing or
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 14 of 15
using such goods, without obtaining registration from the
jurisdictional competent officer. Accordingly, under rule 192
of chapter X, the applicant seeking remission/concession was
required to obtain ’L-6’ licence as also registration certificate in
the prescribed form. This has not been noticed by this court in
the case of Thermax Private Ltd. (supra). The point which
needs to be emphasized is that when an assessee seeks
exemption under a notification, which prescribes compliance of
chapter X, there is a linkage between levy of duty on one hand
and the accountability of the goods received/used in the factory
where final product is manufactured. Therefore, one cannot
ignore strict compliance of the aforestated rules while claiming
exemption under such notification. This is particularly relevant
in cases where input relief is claimed on the basis of the captive
consumption. Lastly, Thermax Private Ltd. (supra) and J.K.
Synthetics (supra) were cases of the supplier being an importer
and that the aforestated two decisions did not deal with cases of
the present nature in which the supplier is the manufacturer.
Before concluding, we may refer to the judgment of this
court in the case of Eagle Flask Industries Limited v.
Commissioner of Central Excise, Pune reported in 2004 (171)
ELT 296, in which one of the contentions raised on behalf of
the assessee was that when the items were exempt from duty,
there was consequential exemption from licensing control. It
was argued on behalf of the assessee that mere lapse of non-
submission of a declaration in terms of exemption notification
did not disentitle the assessee from benefits otherwise available
under the notification. These arguments advanced on behalf of
the assessee were rejected by this court in the following terms:
"6. We find that Notification 11/88 deals with
exemption from operation of Rule 174 to exempted
goods. The Notification has been issued in exercise
of powers conferred by Rule 174A of the Rules.
Inter alia it is stated therein that, where the goods
are chargeable to nil rate of duty or exempted from
the whole of duty of excise leviable thereon, the
goods are exempted from the operation of Rule 174
of the Rules. The goods are specified in the
Schedule to the Central Excise Tariff Act, 1985 (in
short ’the Tariff Act’). The proviso makes it clear
that where goods are chargeable to nil rate of duty
or where the exemption from the whole of the duty
of excise leviable is granted on any of the six
categories enumerated, the manufacturer is required
to make a declaration and give an undertaking, as
specified in the Form annexed while claiming
exemption for the first time under this Notification
and thereafter before the 15th day of April of each
financial year. As found by the forums below,
including CEGAT, factually, the declaration and
the undertaking were not submitted by the
appellants. This is not an empty formality. It is the
foundation for availing the benefits under the
Notification. It cannot be said that they are mere
procedural requirements, with no consequences
attached for non-observance. The consequences are
denial of benefits under the Notification. For
availing benefits under an exemption Notification,
the conditions have to be strictly complied with.
Therefore, CEGAT endorsed the view that the
exemption from operation of Rule 174, was not
available to the appellants. On the facts found, the
view is on terra firma. We find no merit in this
appeal, which is, accordingly, dismissed."
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 15 of 15
For the aforestated reasons, we are of the view that the
matter requires consideration by a larger bench. The papers
may be placed before the Hon’ble Chief Justice of India for
further directions.