# COMMISSIONER OF CENTRAL EXCISE, NEW DELHI v. MIS HARi CHAND SHRI GOPAL & OTHER

- **Citation:** [2010] 13 S.C.R. 820
- **Court:** Supreme Court of India
- **Decided:** 2010-11-18
- **Case number:** Civil Appeal Nos. 1878-1880 of 2004
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-central-excise-new-delhi-v-mis-hari-chand-shri-gopal-other-26408
- **Pages:** 31

## Headnote

(201 OJ 13 (ADDL.) S.C.R. 820
A
COMMISSIONER OF CENTRAL EXCISE, NEW DELHI
B
c
V.
MIS HARi CHAND SHRI GOPAL & OTHER
(Civil Appeal Nos. 1878-1880 of 2004)
NOVEMBER 18, 2010
[S.H. KAPADIA, C.J.I., 8. SUDERSHAN REDDY, K.S.
PANICKER
RADHAKRISHNAN, SURINDER SINGH
NIJJAR AND SWATANTER KUMAR, JJ.]
Central Excise Rules, 1944:
Chapter X -
rr. 192, 174 -
Assessee captively
consuming specified intermediate goods (Kimam) for
manufacture of final products (chewing tobacco) - Exemption
D from remission of excise duty on specified intermediate
goods (Kimam) as per Notification No. 121194-CE dated
11.8.1994 - Claimed on the ground of 'intended use' and
'substantial compliance' of the procedure set out in Chapter
X on basis of the records at the recipient end - Held: At the
E supplier end, no registration ulr. 17 4 obtained nor records were
kept - Failure on the part of applicants, at the recipient end,
to give various declarations in the statutory forms so as to
claim exemption -
Non-compliance of conditions
enumerated under various rules in Chapter X and nonfumishing of various statutory forms prescribed under Chapter
F X - Thus, plea of 'intended use' and 'substantial compliance'
not established - Order passed by the tribunal set aside -
Central Excise Tariff Act, 1985 - Notification No. 121194-CE
dated 11. 8.1994 - Doctrine of 'substantial compliance' and
'intended use'.
G
Chapter X - Manufacture and clandestine removal of
pump parts and gun metal casting - Exemption from payment
of excise duty and penalty as per Notification No. 312001-CE
and 612001-CE - Grant of, by tribunal even though procedure
H
820
COMMNR. OF CENTRAL EXCISE v. HARi CHAND
821
SHRI GOPAL
set out in Chapter X not followed, holding that procedure laid
A
down in Chapter X is meant to be followed only to establish
the receipt of goods by recipient unit and their utilization -
Sustainability of -
Held: Not sustainable -
Tribunal
completely overlooked the object and purpose of the
procedure laid down in Chapter X - Goods manufactured at
B
the supplier's end were excisable goods and if a party wanted
remission of duty, he was to follow certain pre-requisites -
Object was to see that the goods should not be diverted or
utilized for some other purpose, in the guise of the exemption
Notification -
Thus, plea of "substantial compliance" and c
"intended use" is rejected - Order passed by the tribunal set
aside - Notification No. 312001-CE and 612001-CE - Doctrine
of 'substantial compliance' and 'intended use'. .
Chapter X - Assessee manufacturing and clearing
Printed Circuit Board - Exemption from payment of excise
D
duty as per Notification No. 48194-CE dated 1. 3. 1994 - Claim
of - Held: Not permissible - Assessee did not follow the
procedure set out in Chapter X -
It failed to fulfill the
mandatory requirements for claiming exemption from duty -
Thus, order passed by the tribunal upheld - Central Excise
E
Tariff Act, 1985 - Notification No. 48194-CE dated 1.3.1994.
Interpretation of statutes -
Exemption clause -
Construction of - Explained.
Doctrines/Principles -
Doctrine of 'substantial
compliance' and 'intended use' - Explained.
F
The assessees - respondents, in Civil Appeal Nos.
1878-1880, were engaged in the manufacture of excisable
goods viz.- preparation containing chewing tobacco
G
falling under the Schedule to the Central Excise Tariff Act,
1985. The Excise Officers inspected the factories of the
respondents and found that the addictive mixture
(Kimam) manufactured at the factories at Delhi was
H
822 SUPREME COURT REPORTS [2010] 13 (ADDL.) S.C.R.
A clandestinely removed for the manufacturing of chewing
tobacco without applying/obtaining the certificate of
registration as required under r. 174 of the Central Excise
Rules, 1944 and without payment of excise duty. The
respondents were issued notices imposing excise duty
B and penalty. The respondents claimed exemption under
Notification No. 121/94-CE dated 11.08.1994 and raised a
plea of substantial compliance of the proced

## Text

_Characters 0–39,981 of 61,505. This is a partial read: ask again with offset=39981 for what follows._

(201 OJ 13 (ADDL.) S.C.R. 820
A
COMMISSIONER OF CENTRAL EXCISE, NEW DELHI
B
c
V.
MIS HARi CHAND SHRI GOPAL & OTHER
(Civil Appeal Nos. 1878-1880 of 2004)
NOVEMBER 18, 2010
[S.H. KAPADIA, C.J.I., 8. SUDERSHAN REDDY, K.S.
PANICKER
RADHAKRISHNAN, SURINDER SINGH
NIJJAR AND SWATANTER KUMAR, JJ.]
Central Excise Rules, 1944:
Chapter X -
rr. 192, 174 -
Assessee captively
consuming specified intermediate goods (Kimam) for
manufacture of final products (chewing tobacco) - Exemption
D from remission of excise duty on specified intermediate
goods (Kimam) as per Notification No. 121194-CE dated
11.8.1994 - Claimed on the ground of 'intended use' and
'substantial compliance' of the procedure set out in Chapter
X on basis of the records at the recipient end - Held: At the
E supplier end, no registration ulr. 17 4 obtained nor records were
kept - Failure on the part of applicants, at the recipient end,
to give various declarations in the statutory forms so as to
claim exemption -
Non-compliance of conditions
enumerated under various rules in Chapter X and nonfumishing of various statutory forms prescribed under Chapter
F X - Thus, plea of 'intended use' and 'substantial compliance'
not established - Order passed by the tribunal set aside -
Central Excise Tariff Act, 1985 - Notification No. 121194-CE
dated 11. 8.1994 - Doctrine of 'substantial compliance' and
'intended use'.
G
Chapter X - Manufacture and clandestine removal of
pump parts and gun metal casting - Exemption from payment
of excise duty and penalty as per Notification No. 312001-CE
and 612001-CE - Grant of, by tribunal even though procedure
H
820
COMMNR. OF CENTRAL EXCISE v. HARi CHAND
821
SHRI GOPAL
set out in Chapter X not followed, holding that procedure laid
A
down in Chapter X is meant to be followed only to establish
the receipt of goods by recipient unit and their utilization -
Sustainability of -
Held: Not sustainable -
Tribunal
completely overlooked the object and purpose of the
procedure laid down in Chapter X - Goods manufactured at
B
the supplier's end were excisable goods and if a party wanted
remission of duty, he was to follow certain pre-requisites -
Object was to see that the goods should not be diverted or
utilized for some other purpose, in the guise of the exemption
Notification -
Thus, plea of "substantial compliance" and c
"intended use" is rejected - Order passed by the tribunal set
aside - Notification No. 312001-CE and 612001-CE - Doctrine
of 'substantial compliance' and 'intended use'. .
Chapter X - Assessee manufacturing and clearing
Printed Circuit Board - Exemption from payment of excise
D
duty as per Notification No. 48194-CE dated 1. 3. 1994 - Claim
of - Held: Not permissible - Assessee did not follow the
procedure set out in Chapter X -
It failed to fulfill the
mandatory requirements for claiming exemption from duty -
Thus, order passed by the tribunal upheld - Central Excise
E
Tariff Act, 1985 - Notification No. 48194-CE dated 1.3.1994.
Interpretation of statutes -
Exemption clause -
Construction of - Explained.
Doctrines/Principles -
Doctrine of 'substantial
compliance' and 'intended use' - Explained.
F
The assessees - respondents, in Civil Appeal Nos.
1878-1880, were engaged in the manufacture of excisable
goods viz.- preparation containing chewing tobacco
G
falling under the Schedule to the Central Excise Tariff Act,
1985. The Excise Officers inspected the factories of the
respondents and found that the addictive mixture
(Kimam) manufactured at the factories at Delhi was
H
822 SUPREME COURT REPORTS [2010] 13 (ADDL.) S.C.R.
A clandestinely removed for the manufacturing of chewing
tobacco without applying/obtaining the certificate of
registration as required under r. 174 of the Central Excise
Rules, 1944 and without payment of excise duty. The
respondents were issued notices imposing excise duty
B and penalty. The respondents claimed exemption under
Notification No. 121/94-CE dated 11.08.1994 and raised a
plea of substantial compliance of the procedure in
Chapter X of the Rules. The Adjudicating Authority held
that the benefit of the exemption Notification would be
c available only when the procedure laid down in Chapter
X were complied with; and that the records produced did
not ·substantiate a plea of substantial compliance of the
procedure. The Authority upheld the imposition of the
duty liability, interest and penalty. Aggrieved, the
0
respondents filed appeals. The tribunal allowed the
appeals holding that the benefit of the exemption
notification should not be denied if intended use of the
goods was established, though there was noncompliance of the procedural conditions of Chapter X of
the Rules.
E
The assessees - respondents, in Civil Appeal Nos.
568-569 of 2009, were engaged in the manufacture of
pump parts and gun metal casting falling under the
Schedule to the Central Excise Tariff Act, 1985. The
F Excise Officers carried out a search at the factory
premises of the assessee and found that the assessee
had contravened the procedure of the exemption
Notification no. 3/2001-CE and 6/2001-CE and
clandestinely removed the excisable goods. A notice was
G issued. The Adjudicating Authority demanded excise
duty along with the penalty. The Commissioner (Appeals)
allowed the appeal filed by the assessee. The tribunal
held that the benefit of the notification could not be
denied only on the ground that the procedure laid down
H
COMMNR. OF CENTRAL EXCISE v. HARi CHAND 823
SHRI GOPAL
in Chapter X had not been followed; and that the
A
procedure laid down in Chapter X is meant to be followed
only to establish the receipt of goods by the recipient unit
and their utilization.
The assessee - appellant, in Civil Appeal No. 1631 of
B
2001, was engaged in the manufacturing of the populated
Printed Circuit Board (PCB). They cleared PCB from their
unit to the central store at place 'O'. In appeal, the tribunal
held that the assessee was not eligible for the benefit of
the Notification No. 48/94-CE dated 1.3.1994 since the c
assessee had not followed the procedure set out in
Chapter X of the Rules.
The question which arose for consideration in these
appeals was whether a manufacturer of a specified final
product falling under the Schedule of the Central Excise
D
Tariff Act, 1985 is eligible to get the benefit of exemption
from remission of excise duty on specified intermediate
goods as per the Notifications, if captively consumed for
the manufacture of final products on the ground that the
records kept by it at the recipient end would indicate its
E
'intended use' and 'substantial compliance' of the
procedure set out in Chapter X of the Central Excise
Rules, 1944.
Allowing Civil Appeal Nos. 1878-1880 and Civil
Appeal Nos. 568-569 of 2009 and dismissing Civil Appeal
No. 1631 of 2001, the Court
F
HELD: 1.1 A person who claims exemption or
concession has to establish that he is entitled to that
exemption or concession. A provision providing for an
G
exemption, concession or exception, as the case may be,
has to be construed strictly with certain exceptions .
depending upon the settings on which the provision has
been placed in the Statute and the object and purpose
H
824
SUPREME COURT REPORTS [2010] 13 (ADDL.) S.C.R.
A to be achieved. If exemption is available on complying
with certain conditions, the conditions have to be
complied with. The mandatory requirements of those
conditions must be obeyed or fulfilled exactly, though at
times, some latitude can be shown, if there is a failure to
B comply with some requirements which are directory in
nature, the non-compliance of which would not affect the
essence or substance of the notification granting
exemption. [Para 22] [843-D-H; 844-A]
C
Novopan Indian Ltd., Hyderabad v. Collector of central
Excise and Customs, Hyderabad (1994) Supp. 3 SCC 606;
Hansraj Gordhandas v. H.H. Dave (1996) 2 SCR 253 -
referred to.
1.2 Some of the provisions of an exemption
D notification may be directory in nature and some
mandatory. A distinction between provisions of statute
which are of substantive character and were bui!t in with
certain specific objectives of policy, on the one hand, and
those which are merely procedural and technical in their
E nature, on the other, must be kept clearly distinguished.
F
Therefore, an eligibility criteria deserves a strict
construction, although construction of a condition
thereof may be given a liberal meaning if the same is
directory in nature. [Para 23] [844-C-E]
Tata Iron and Steel Co. Ltd. v. State of Jharkhand and
Ors. (2005) 4 SCC 272 - referred to.
1.3 The doctrine of substantial compliance is
equitable in nature, designed to avoid hardship in cases
G where a party does all that can be reasonably expected
of it, but failed or faulted in some minor or inconsequent
aspects which cannot be described as the 'essence' or
the 'substance' of the requirements. Like the concept of
'reasonableness', the acceptance or otherwise of a plea
H of "substantial compliance" depends upon the facts and
COMMNR. OF CENTRAL EXCISE v. HARi CHAND
825
SHRI GOPAL
circumstances of each case and the purpose and object
A
to be achieved and the context of the pre-requisites
which are essential to achieve the object and purpose of
the rule or the regulation. Such a defence cannot be
pleaded if a clear statutory pre-requisite which effectuates
the object and the purpose of the statute has not been
B
met. It means that the court should determine whether the
statute has been followed ·sufficiently so as to carry out
the intent for which the statute was enacted and not a
mirror image type of strict compliance. Substantial
compliance means "actual compliance in respect to the c
substance essential to every reasonable objective of the
statute" and the court should determine whether the
statute has been followed sufficiently so as to carry out
the intent of the statute and accomplish the reasonable
objectives for which it was passed. Fiscal statute
0
generally seeks to preserve the need to comply strictly
with regulatory requirements that are important,
especially when a party seeks the benefits of an
exemption clause. [Para 24] [844-F-G; 845-A-D]
1.4 The substance of substantial compliance of an
E
enactment is insisted, where mandatory and directory
requirements are lumped together, for in such a case, if
mandatory requirements are complieci with, it would be
proper to say that the enactment has been substantially
complied with notwithstanding the non-compliance of
F
directory requirements. In cases where substantial
compliance has been found, there has been actual
compliance with the statute, albeit procedurally faulty.
[Para 24] [845-D-F]
1.5 The doctrine of substantial compliance seeks to
preserve the need to comply strictly with the conditions
or requirements that are important to invoke a tax or duty
exemption and to forgive non-compliance for either
unimportant and tangential requirements or requirements
G
H
826 SUPREME COURT REPORTS [2010] 13 (AOOL.) S.C.R.
A that are so confusingly or incorrectly written that an
earnest effort at compliance should be accepted. The test
for determining the applicability of the substantial
compliance doctrine has been the subject of a myriad of
cases and quite often, the critical question to be
B examined is whether the requirements relate to the
"substance" or "essence" of the statute, if so, strict
adherence to those requirements is a pre-condition to
give effect to that doctrine. On the other hand, if the
requirements are procedural or directory in that they are
c not of the "essence" of the thing to be done but are given
with a view to the orderly conduct of business, they may
be fulfilled by substantial, if not strict compliance. A mere
attempted compliance may not be sufficient, but actual
compliance of those factors which are considered as
0 essential. [Para 24] [845-E-H; 846-A-B]
2.1 The compliance of the provisions of Chapter X of
the Central Excise Rules is a pre-condition for claiming
exemption from payment of excise duty on the specified
goods, which otherwise attracted duty. Show cause
E notices were issued to the respondents-assessees in
Civil Appeal Nos. 1878-1880, since they had
manufactured the excisable goods (at the supplier end)
without obtaining registration under Section 6 read with
Rule 174 and by contravening the provisions of Rules
F 9(1), 52A, 53, 54, 1738, 173C, 173F and 226 of the Rules
for which duty liability, interest thereon and penalty were
imposed. Even assuming that the respondents were
eligible for exemption from duty, the respondents could
not be absolved from the legal obligation to comply with
G the statutory requirements for the manufacture of
excisable goods at the supplier end. [Para 18] [840-D-F]
H
2.2 The purpose and object of the Notification No.
121 /94-CE dated 11.8.1994 was to exempt those specified ·
COMMNR. OF CENTRAL EXCISE v. HARi CHAND
827
SHRI GOPAL
intermediate goods, which were otherwise excisable to
A
duty, and not to exempt or absolve the respondents from
following the statutory requirements for the manufacture
of intermediate excisable goods. The Notification under
Chapter X was designed in such a manner to ensure an
insep.arable link between the supplier and recipient of
B
excisable goods for the manufacture of specified final
products. Rule 192 of Chapter X states that a
manufacturer intending to receive duty free goods under
remission is required to make an application in Form R1 for obtaining excisable goods to be used for special c
industrial purpose giving details of the estimated quantity
of each class or variety of goods and the value of such
goods likely to be used during the year, commodities to
be manufactured and estimated output and clearance of
each commodity during the year, manner of manufacture,
0
purpose for which manufactured product is supplied and
the source from which excisable goods will be obtained.
[Para 19] [841-G-H; 842-A-C]
2.3 The details to be furnished in Form No. 1 as per
Rule 192 and the declaration to be made, relate to the
E
"substance" and "essence" of Chapter X. R-2
Registration Certificate is also pre-requisite to obtain CT2
Certificate. The execution of bonds as provided in that
Chapter is also not an empty formality for obtaining the
duty free excisable goods. Bonds also insist for a
F
declaration. CT-2 Certificate would be issued only if a
party gets registered under Form R-2 from the
Registering Authority. Only if CT-2 Certificate. is obtained,
the excisable goods could be removed. Form RG16
Register and the details to be furnished in Form RT11 are
G
also statutory in nature, which relate to the "substance"
and "essence" of the requirements under Chapter X.
Those requirements had not been complied with. [Para
25] [846-B-D]
H
828
SUPREME COURT REPORTS [2010] 13 (ADDL.) S.C.R.
A
2.4 The plea of the respondents that they had
identical columns in the registers kept at the recipient
end and, therefore, the requirement of maintaining
separate register at the supplier end and the
requirements of Chapter X was substantially complied
B with for remission, is of no avail. RG-16 Register
prescribed was specific to Chapter X with the sole
intention of maintaining separate accounts for receipt,
issue and usage of duty free remitted inputs received from
the supplier unit. Similarity of columns and the details
c furnished therein cannot be considered as substitute for
not maintaining of RG-16 Register or other registers for
remission of duty under Chapter X. [Para 26) [846-E-G]
2.5 At the supplier end, no registration under Rule
174 was obtained and no records were kept. The
D applicants, at the recipient end, were also legally obliged
to give various declarations in the statutory forms so as
to claim exemption and such declarations admittedly
were not made. Non-compliance of those conditions
enumerated under various rules in Chapter X of the
E Excise Rules and non-furnishing of various statutory
forms prescribed under Chapter X, are fatal to a plea of
substantial compliance and intended use. Therefore, the
respondents on the facts of the case, have not
succeeded in establishing the plea of 'intended use' or
F 'the substantial compliance' of the procedure set out in
Chapter X so as to claim the benefit of the exemption
Notification dated 11.8.1994. [Para 27) [846-H; 847-A-C]
Thermax Private Ltd. v. Collector of Customs (Bombay)
G New Custom House (1992) 4 SCC 440; Collector of Central
Excise, Jaipur v. J. K. Synthetics (2000) 10 SCC 393 -
distinguished.
3. As regards Civil Appeal Nos. 568-569 of 2009, it is
difficult to sustain the reasoning of the Tribunal that the
H procedure laid down in Chapter X, is meant only to
COMMNR. OF CENTRAL EXCISE v. HARi CHAND
829
SHRI GOPAL
establish the receipt of goods by the recipient unit and
A
their utilization. The tribunal completely overlooked the
object and purpose of the procedure laid down in Chapter
X. The goods manufactured at the supplier's end were
excisable goods and if a party wanted remission of duty;
he was to follow certain pre-requisites, the object of B
which is to see that the goods be not diverted or utilized
for some other purpose, on the guise of the exemption
notification. Detailed procedures have been laid down in
Chapter X so as to curb the diversion and misutilization
of goods which are otherwise excisable. The plea of c
"substantial compliance" and "intended use" is,
therefore, rejected. (Para 34) (850-C-E]
4. So far as Civil Appeal No. 1631 of 2001 is
concerned, the Tribunal found that the assessee was not
eligible for the benefit of Notification No. 48194-CE dated
D
1.3.1994 since the assessee had not followed the
procedure set out in Chapter X of the Excise Rules by
clearing PCB from their unit to the central store at place
•6• The tribunal held that under Chapter X, the assessee
who wanted to avail of the benefit of exemption
E
Notification had to file application in Form AL-6 to the
jurisdictional Central Excise authorities and had to obtain
L-6 licence and had to follow the other procedures laid
down in that chapter which are mandatory requirements
for claiming the exemption from duty. On facts as well as
F
on law, the view taken by the tribunal is upheld. (Para 31]
[848-G-H; 849-A-C]
The Commissioner of Central Excise, New Delhi v. Hari
Chand Shri Gopal etc. (2005) 8 SCC 164; Novopan India
G
Ltd., Hyderabad v. Collector of Central Excise and Customs,
Hyderabad (1994) Supp. 3 SCC 606; Rajasthan Spinning
and Weaving Mills Limited, Bhilwara, Rajasthan v. Collector
of Central Excise, Jaipur, Rajasthan (1995) 4 SCC 473;
Commissioner of Central Excise v. M.P. V. and Engineering
H
830 SUPREME COURT REPORTS [2010] 13 (ADDL.) S.C.R.
A Industries (2003) 5 SCC 333; Commissioner of Central
Excise, Trichy v. Rukmani Pakkwell Traders (2004) 11 SCC
801; Commissioner of Central Excise, Chandigarh-I v.
Mahaan Dairies (2004) 11 SCC 798; Commissioner of
Central Excise, Allahabad v. Ginni Filaments Ltd. (2005) 3
B SCC 378; Commissioner of Customs (Imports), Mumbai v.
Tullow India Operations Ltd. (2005) 13 SCC 789; Tata Iron &
Steel Co. Ltd. v. State of Jharkhand and Ors. (2005) 4 SCC
272; Sarabhai M. Chemicals v. Commissioner of Central
Excise, Vadodara (2005) 2 SCC 168; State of Jharkhand and
c Others v. Tata Cummins Ltd. and Anr. (2006) 4 SCC 57; A.P.
Steel Re-Rolling Mill Ltd. etc. v. State of Kera/a and Ors.
(2007) 2 SCC 725; State of Orissa and Ors. v. Tata Sponge
Iron Ltd. (2007) 8 SCC 189; Commissioner of Central Excise,
Jaipur v. Mewar Bartan Nirmal Udyog 2008 (231) ELT 27
0
(SC); State of Haryana v. Samtel India Ltd. 2008 (15) VST
176 (SC); G.P.Ceramics Pvt. Ltd. v. Commissioner, Trade
Tax, Uttar Pradesh (2009) 2 SCC 90; Gopa/ Zarda Udyog v.
Commissioner of Central Excise (2005) 8 SCC 157 -
referred to.
E
Case Law Reference:
(2005) 8 sec 164
Referred to
Para 13
(1994) Supp. 3 sec 606
Referred to
Para 13
F
(1995) 4 sec 473
Referred to
Para 13
(2003) 5 sec 333
Referred to
Para 13
(2004) 11 sec 801
Referred to
Para 13
(2004) 11 sec 798
Referred to
Para 13
G
(2005) 3 sec 378
Referred to
Para 13
(2005) 13 sec 789
Referred to
Para 13
(2005) 4 sec 212
Referred to
Para 13
H
COMMNR. OF CENTRAL EXCISE v. HARi CHAND
831
SHRI GOPAL
(2005) 2 sec 168
Referred to
Para 13
A
(2006) 4 sec 57
Referred to
Para 13
(2001) 2 sec 725
Referred to
Para 13
(2001) 8 sec 189
Referred to
Para 13
B
2008 (231) ELT 27 (SC)
Referred to
Para 13
2008 (15) VST 176 (SC)
Referred to
Para 13
(2009) 2 sec 90
Referred to
Para 13
c
(2005) 8 sec 157
Referred to
Para 15
(1992) 4 sec 440
Distinguished
Para 30
c2000) 10 sec 393
Distinguished
Para 30
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
D
1878-1880 of 2004 ..
From the Judgment & Order dated 07.07.2003 of the
Customs, Excise and Service Tax Appellate Tribunal, New Delhi
in Appeal Nos. E-2595/02-D,E/2596/02-D and E/2597/02-D.
E
WITH
C.A. Nos. 1631 of 2001 & 568-569 of 2009.
Vivek Tankha, ASG, Harish N. Salve, Ranjit Kumar, K.
F
Swami, Rahul Kaushik, Pratul Shandilya, Rishabh Sancheti,
Sumeer Sodhi, Vaibhav Srivastava, D. Kumanan, B.K. Prasad,
Shreekant N. Terdal, Alok Yadav, V. Balachandran, M.P.
Devanath, Vivek Kohli, Ashwani Sharma, Sidharth Tandon,
Manoj Gupta, Gayatri Goswami, Rahul Chugh, Ashish Garg,
G
Subramonium Prasad, S. Gurukrishakumar, Srikala
Gurukrishna Kumar, S.R. Setia for the appearing parties.
The Judgment of the Court was delivered by
K. s. PANICKER RADHAKRISHNAN, J. 1. The question
H
832
SUPREME COURT REPORTS [2010] 13 (ADDL.) S.C.R.
A that falls for consideration in these appeals is whether a
manufacturer of a specified final product falling under the
schedule of the Central Excise Tariff Act, 1985 (in short "the
Tariff Act") is eligible to get the benefit of exemption from
remission of excise duty on specified intermediate goods as
B per Notification no. 121/94-CE dated 11.8.1994, if captively
consumed for the manufacture of final products on the ground
that the records kept by it at the recipient end would indicate
its "intended use" and "substantial compliance" of the procedure
set out in Chapter X of the Central Excise Rules, 1944 (in short
c 'the Excise Rules").
2. The above question was decided by the Customs,
Excise and Service Tax Appellate Tribunal (in short 'the
Tribunal") in favour of the respondents-assessees, relying upon
the judgments of this Court in Thermax Private Ltd. v. Collector
D of Customs (Bombay) New Custom House (1992) 4 SCC 440
and Collector of Central Excise, Jaipur v. J.K. Synthetics,
(2000) 1 O sec 393 on· the ground of "intended use" and the
principle of "substantial compliance". The matter came up
before the three Judge Bench of this Court which doubted the
E correctness and the applicability of the above mentioned
judgments and took the view that the exemption notification
called for strict interpretation so far as the eligibility is
concerned especially when an assessee seeks exemption of
duty under a notification issued by the Central Government in
F exercise of the powers conferred by Sub-section ( 1) of Section
5A of the Central Excise and Salt Act 1944, read with Subsection(3) of Section 3 of the Additional Duties of Excise
(Goods of Specified Importance) Act 1957, which called for
compliance of the procedure set out in Chapter X of the Central
G Excise Rules 1944. Further, it was also observed that in
Thermax Private Ltd. (supra) and J.K. Synthetics (supra), this
Court was dealt with a situation where goods were imported,
from outside the country, unlike the present case where
specified intermediate goods were locally manufactured, in
H some other units of the respondents. The Court ordered that
COMMNR. OF CENTRAL EXCISE v. HARi CHAND
833
SHRI GOPAL [K.S. PANICKER RADHAKRISHNAN, J.]
the matter required reconsideration and referred the matter to
A
a Larger Bench. The order of reference is reported in The
Commissioner of Central Excise, New Delhi v. Hari Chand
Shri Gopal etc. (2005) 8 SCC 164.
3. We may first refer to the facts in Civil Appeal Nos. 18788
1880 of 2004, which is taken as the leading case.
FACTS:
4. The respondents herein Mis Gopal Industries, M/s Hari
Chand Shri Gopal and M/s Gopal Zarda Udyog were engaged
C
in the manufacture of excisable goods viz. preparation
containing chewing tobacco falling under Chapter Heading no.
2404.40 of the Tariff Act, then chargeable to nil rate of duty,
which was made leviable to central excise duty with effect from
1.3.1994. The Intelligence Wing of the Department came to
D
know that the respondents had been manufacturing the said
goods without applying/obtaining the certificate of registration
as required under Rule 17 4 of the Excise Rules and had been
removing the same clandestinely from their factories without
payment of central excise duty leviable thereon and without
E
following any of the prescribed procedures. It was noticed that
a major portion of the above goods manufactured was
consigned to M/s Gopal Zarda Udyog (Meerut), M/s Hari Chand
Shri Gopal, Baddi District, Solan (H.P.) and M/s Gopal
Industries, Baddi (H.P.) under the cover of 'transfer chatlans'
describing therein the said goods as "ADDICTIVE MIXTURES"
or "KIMAM/K". On 28.9.1996, the factories of the respondents
F
at Delhi were inspected by the Central Excise (Preventive)
Officer of MOD IV, Delhi and took the samples of the finished
products and detailed statements were also recorded from the
partners of the firms. The Central Excise Officers also visited
G
the various factories of the respondents at Solan and Baddi on
3.10.1996 and it was noticed that the addictive Mixture (Kimam)
manufactured at the factories at Delhi was being clandestinely
removed for the manufacturing of chewing tobacco. The
Officers noticed that the respondents were manufacturing the
H
834 SUPREME COL)RT REPORTS (201 OJ 13 (ADDL.) S.C.R.
A excisable goods Kimam falling under the Tariff Act under
Chapter Sub-heading no. 2404.49 (up to 22.7.1996) and, with
effect from 23.7.1996, covered under Chapter Sub-heading no.
2404.40, packed the same in the containers of different
capacities as per the requirement of buyer/consumer without
B obtaining Central Excise Registration Certificate in
contravention of the provisions of Section 8 of the Tariff Act read
with Rule 174 of the Excise Rules up till 14.10.1996 and
removed the same from their factories clandestinely without
payment of central excise duty in contravention of the provisions
c of Rules 9(1 ), 52A, 53, 54, 1738, 173C, 173F and 226 of the
Excise Rules.
5. The Central Excise Officers noticed that, during the
period from 18.3.1994 to 15.4.1995, M/s Gopal Zarda Udyog
had manufactured and removed from their factory a total quantity
D of 1,52,226.150 Kgs. of preparation containing Kimam,
collectively valued at Rs.15,27,90,675.00 and the amount of
duty involved was fixed at Rs.6,14,17,770.00.
6. Mis Gopal Industries, during the period from 16.6.1995
E to 26.9.1996, had manufactured and removed from their factory
a total quantity of 2,66,648.800 kgs. of preparation containing
Kimam collectively valued at Rs.16,26,68,569.00 and the
amount of duty involved was fixed at Rs.8, 13,34,285.00.
F
7. M/s Hari Chand Shri Gopal also, during the period from
14.6.1995 to 24.9.1996 had manufactured and removed from
their factory a total quantity of 1,51.054.900 kgs. of preparation
containing Kimam collectively valued at Rs.15,86,77,319.00
and the amount of duty involved was fixed at
Rs. 7,93,38.660.00.
G
8. Consequently, on 25.3.1997, notices were issued to the
respondents and their partners to show cause why the amounts
of duty involved should not be demanded from them jointly and
severally under Rule 9(2) of the Excise Rules read with the
H proviso to Section 11A(1) of the Tariff Act and interest thereon
COMMNR. OF CENTRAL EXCISE v. HARi CHANU
835
SHRI GOPAL [K.S. PANICKER RADHAKRISHNAN, J.]
under Section 11AB of the Tariff Act, be not demanded from
A
them. Penalty under Rule 173Q of the Excise Rules read with
Section 11 AC of the Tariff Act and Rule 209A of the Excise
Rules was also demanded. In addition to above, the
respondents were also asked to show cause why the land,
building, plant and machinery used in their respective factories
B
for the manufacture of Kimam should not be confiscated under
Rule 1730(2) of the Excise Rules.
9. The respondents filed detailed objections to the show
cause notices and disputed their liability and also claimed
C
exemption under the Notification no. 121/94-CE. The
Commissioner (Excise) by his order dated 20.5.1998 rejected
the objections filed by the respondents against the show cause
notices and determined that M/s Gopal Zarda Udyog, M/s
Gopal Industries and M/s Hari Chand Shri Gopal were liable
to pay central excise duty of Rs.6,14,17,770/-, Rs.8,13,34,285/
D
- and Rs.7,93,38,660/- respectively and also imposed the
penalty of Rs.16,00,000/-, Rs.18,00,000/- and Rs.17 ,00,000/-
on them under Rule 173Q of the Excise Rules and ordered
confiscation of the goods seized from the premises of M/s
Gopal Industries and M/s Hari Chand Shri Gopal respectively,
E
with permission to redeem the confiscated goods on
redemption of fines of Rs. 5,00,000/- and Rs.3,20,000/-
respectively.
10. Aggrieved by the above mentioned orders, appeals
were preferred before the Tribunal and the Tribunal vide order
dated 01~10.1999 concurred with the findings of the
Adjudicating Commissioner on duty liability on the goods in
question and also on the issue of limitation as well as the claim
F
for proforma credit/modvat credit, but ordered re-examination
G
of the limited question of the applicability of Notification 121/
94-CE dated 11.8.1994 since the respondents had raised the
contention that they had substantially complied with the
procedures laid down in Chapter X. The matter was then
reconsidered by the Commissioner as directed by the Tribunal.
H
836
SUPREME COURT REPORTS (2010] 13 (ADDL.) S.C.R.
A The respondents contended before the Commissioner that they
had despatched the goods to their final manufacturing units
though transferring challans and the receipts were recorded in
Form-IV Register/Stock Register and the utilization of the
goods was recorded in RG-12 Register. Further, it was also
B stated that the final products manufactured by the respondents
could be ascertained from RG-1 Register maintained at the
recipient end and those records would be sufficient to establish
use of the goods and establish the plea of substantial
compliance of the procedure set out in Chapter X for duty
c exemption.
11. The Commissioner rejected all the contentions vide his
order dated 16.07.2002 and held that the benefit of the
exemption notification would be available only if the procedures
laid down in Chapter X were complied with and that the records
D produced by the respondents would not substantiate a plea of
substantial compliance of the procedure laid down in the above
mentioned Chapter. The imposition of the duty liability, interest , ..
and penalty was therefore confirmed.
E
12. The respondents, carried the matter in appeal before
the Tribunal. The Tribunal, we have already indicated, placed
reliance on the judgments of this Court in Thermax Private Ltd.
(supra) and J.K. Synthetics (supra) and took the view that the
benefit of the exemption notification should not be denied if
F "intended use" of the goods was established, though there was
non-compliance of the procedural conditions of Chapter X.
Appeals were accordingly allowed and the order of the
Commissioner was set aside. Aggrieved by the said order of
the Tribunal, these appeals have beeri preferred by the
G Commissioner of Central Excise, New Delhi.
13. Mr. Vivek Tankha, learned Additional Solicitor General
of India appearing for the Revenue, submitted that the benefit
of the Notification no. 121/94-CE dated 11.8.94 would be
available to the respondents only if the procedures prescribed
H under Chapter X are strictly complied with. Learned ASG
COMMNR. OF CENTRAL EXCISE v. HARi CHAND
837
SHRI GOPAL [K.S. PANICKER RADHAKRISHNAN, JJ
submitted that the duty liability was confirmed by the Tribunal
A
which would indicate that the respondents at the suppliers' end
did contravene the provisions of Rules 9(1), 52A, 53, 54, 1738,
173C, 173F and 226 of the Excise Rules and it is, due to that
reason, that show cause notices dated 25.03.1997 were
served on the respondents. Learned ASG submitted that the
B
mere fact that the respondents had maintained some records
at the recipient end would not be sufficient to satisfy the
"intended use" or the plea of "substantial compliance" of the
procedure laid down in Chapter X of the Excise Rules. Learned
counsel submitted that an exemption notification must be strictly c
complied with and the assessee should bring himself within the
ambit of the notification. Reference was made to the decisions
of this Court reported in Novopan India Ltd., Hyderabad v.
Collector of Central Excise & Customs, Hyderabad (1994)
Supp. 3 SCC 606, Rajasthan Spinning and Weaving Mills
D
Limited, Bhilwara, Rajasthan v. Collector of Central Excise,
Jaipur, Rajasthan (1995) 4 SCC 473, Commissioner of
Central Excise v. MP. V. & Engineering Industries (2003) 5
SCC 333, Commissioner of Central Excise, Trichy v. Rukmani
Pakkwell Traders (2004) 11 SCC 801, Commissioner of
Central Excise, Chandigarh-I v. Mahaan Dairies (2004) 11
E
SCC 798, Commissioner of Central Excise, Allahabad v.
Ginni Filaments Ltd. (2005) 3 SCC 378, Commissioner of
Customs (Imports), Mumbai v. Tullow India Operations Ltd.
(2005) 13 SCC 789, Tata Iron & Steel Co. Ltd. v. State of
Jharkhand and Ors. (2005) 4 SCC 272, Sarabhai M.
F
Chemicals v. Commissioner of Central Excise, Vadodara
(2005) 2 SCC 168, State of Jharkhand and Others v. Tata
Cummins Ltd. and Another (2006) 4 SCC 57, A.P. Steel ReRolling Mill Ltd. etc. v. State of Kera/a & Ors. (2007) 2 SCC
725, State of Orissa and others v. Tata Sponge Iron Ltd. (2007)
G
8 SCC 189, Commissioner of Central Excise, Jaipur v. Mewar
Bartan Nirmal Udyog 2008 (231) ELT 27 (SC), State of
Haryana v. Samte/ India Ltd. 2008 (15) VST 176 (SC) and
G.P. Ceramics Pvt. Ltd. v. Commissioner, Trade Tax, Uttar
Pradesh (2009) 2 SCC 90.
H
838 SUPREME COURT REPORTS (2010] 13 (ADDL.) S.C.R.
A
14. Shri Harish Salve, learned senior counsel appearing
for the assessee-respondents, on the other hand, contended
that the assessee had produced documentary evidence to
prove that the entire quantity of kimam were transferred from
their one unit to another and was utilized in the manufacture of
8 branded chewing tobacco and cleared on payment of duty.
Further, it was also stated that the assessee had produced the
transfer challans under which the Kimam was transferred to the
other unit. Learned senior counsel also made reference to
Form IV Register/Stock Register regarding receipt of the
C Kimam and also to Form RG-12, kept for the manufacture of
excisable tobacco products. Reference was made to RG-1
Register, maintained under Rules 47, 53 and 173G. Learned
senior counsel contended that the details furnished in those
records would be sufficient to establisflthe intended use (the
actual use) of Kimam for the man)Jfacture of final products.
D Learned senior counsel submitted that, as per the decisions
of Thermax Private Ltd. (supra) and J. K. Synthetics (supra),
the benefit of exemption notification cannot be denied if there
has been a substantial compliance of the procedure laid down
in Chapter X and intended use of the goods for the
E manufacture of final product has been established. Learned
senior counsel submitted that the conditions stipulated in
Chapter X are only procedural in nature and hence directory,
warranting liberal construction, and if so construed, the benefit
of the exemption notification cannot be denied. Learned senior
F counsel submitted that the Tribunals and some of the High
Courts are following the above principle, uniformly applying the
principles laid down in Thermax Private Ltd. (supra) and J.K.
Synthetics Ltd. (supra)
G
15. We may, before examining various contentions raised
by the respective parties, point out that the Respondents had
earlier approached this Court by filing C.A. Nos. 5747-5749 of
2000, challenging the order of the Tribunal stating that Kimam
was excisable and that the department was right in invoking the
H extended period of limitation under the proviso to Section
COMMNR. OF CENTRAL EXCISE v. HARi CHAND
839
SHRI GOPAL [K.S. PANICKER RADHAKRISHNAN, J.]
11 (A)(1) of the Excise Act. This Court partly allowed the
A
appeals holding that the department was not entitled to invoke
the extended period of limitation under the proviso to Section
11 (A)(1) of the Excise Act, but held that the addictive mixture
Kimam was excisable and classifiable under Sub-heading
2404.49/2404.40. This Court also recorded a finding that
B
although there was contravention of the provisions of Section
6 read with Rule 174 and that they had not observed regulations
in the units at Delhi for the manufacture of excisable goods,
there was no intend to evade payment of duty. The judgment
is reported in Gopal Zarda Udyog v. Commissioner of Central c
Excise (2005) 8 SCC 157.
16. In this case, we are only concerned with the question
whether the respondents are entitled to get the benefit of the
exemption notification dated 11.8.1994 on the ground of
"intended use" and "substantial compliance" of the procedure
D
set out in Chapter X of the Excise Rules.
17. Notification no. 121/94-CE dated 11.8.1994 was
issued by the Central Government in exercise of its powers
conferred by sub-section (1) of Section 5A of the Central
E
Excises and Salt Act, 1944 (1 of 1994) read with sub-section
(3) of Section 3 of the Additional Duties of Excise (Goods of
Special Importance) Act, 1957 (58 of 1957) in the public
interest for exempting certain specified intermediate goods if
those goods were captively consumed in the manufacture of
F
specified final products, falling under heading numbers or subheading numbers of the Schedule to the Tariff Act. Notification
also stipulated that where such use of inputs was in a factory
of a manufacturer, different from his factory where the goods
had been produced, the exemption contained in this notification
G
would be allowable subject to the observance of the procedure
set out in Chapter X of the Excise Rules. The table, with which
we are concerned, is given below:
H
A
B
c
D
840
SUPREME COURT REPORTS (2010] 13 (ADDL.) S.C.R.
S.
Description of final
Heading
Heading
No
products
number or
number or
sub-heading sub-heading
number of
number of
final products inputs
(1)
(2)
(3)
(4)
1.
)()()()()()()()()(
)()()()()()()()()(
)()()()()()(
2.
Chewing tobacco
2401.41
2404.49
including preparations
commonly known as
"Khara Masala", "Kimam",
"Dokta", "Zarda", "Sukha"
and "Surti"
xxx
)()()()()()()()()(
)()()()()()()()()(
)()()()()()(
18. The compliance of the provisions of Chapter X is a
pre-condition for claiming exemption from payment of excise
duty on goods, which otherwise attracted duty. Show cause
notices were issued to the respondents since they had
E manufactured'the excisable goods (at the supplier end) without
obtaining registration under Section 6 read with Rule 17 4 by
contravening the provisions of Rules 9(1), 52A, 53, 54, 1738,
173C, 173F and 226 of the Rules for which duty liability, interest
thereon and penalty were imposed. Even assuming that the
respondents were eligible for exemption from duty, the
F respondents could not be absolved from the legal obligation to
comply with the statutory requirements for the manufacture of
excisable goods at the supplier end.
19. The purpose and object of the notification dated
G 11.8.1994 was to exempt those specified intermediate goods,
which were otherwise excisable to duty, and not to exempt or
absolve the respondents from following the statutory
requirements for the manufacture of intermediate excisable
goods. The notification under Chapter X was designea in such
H a manner to ensure an inseparable link between the supplier
COMMNR.