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CASE NO.:

Appeal (civil) 11441-11442 of 1995

PETITIONER:

COLLECTOR OF CENTRAL EXCISE NEW DELHI

RESPONDENT:

UNIVERSAL ELECTRICAL INDUSTRIES AND ANR.

DATE OF JUDGMENT: 11/03/2003

BENCH:

SYED SHAH MOHAMMED QUADRI & ASHOK BHAN

JUDGMENT:

JUDGMENT

2003 (2) SCR 920

The following Order of the Court was delivered :

SYED SHAH MOHAMMED QUADRI, J. The Revenue is in appeal, against the common

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

Delhi [for short, 'the Tribunal'] in Appeal Nos. E/2114/91-B and E/3349/91-

B, filed by the assessees, dated 6th December, 1993.

For appreciating the question raised in these appeals, it will suffice to

refer to the facts in the case of M/s. Universal Electrical Industries, the

assessee. The assessee manufactures electric toasters, room heaters,

electric fans etc. It is a small scale industry claiming benefit of

Notification No. 175/ 1986-C.E. dated 1st March 1986 [for short, 'the

notification']. The assessee has been clearing the goods under the

notification, both the inputs as well as the finished goods. On August 6,

1990, a show-cause notice was issued to the assessee calling upon it to

explain as to why the benefit of the said notification should not be denied

to it. After considering the reply filed by the assessee, the

jurisdictional Collector took the view that Explanation III to the

notification would be attracted only when the inputs as well as the

finished goods are cleared under the notification and as the finished goods

were granted exemption under other notifications, he confirmed the demand

of duty of Rs. 1.88, lakhs. On appeal by the assessee, the Tribunal allowed

the appeal, by majority, by the order impugned in these appeals.

Mr. Anoop G. Chaudhary, learned senior counsel appearing for the Revenue,

vehemently contends that Explanation III can be invoked only if the

finished goods are cleared under the notification and inasmuch as the

finished goods are exempted under a different notification and would be

deemed to be cleared under that notification, the assessee cannot get the

benefit of Explanation III to the notification,

Mr. V. Lakshmikumaran, learned counsel appearing for the assessee, on the

other hand, with equal vehemence, submits that when there is a general

exemption for clearance of the finished goods, that factor cannot be taken

against the small scale industry, like the respondent; in computing the

aggregate value for availing the benefit of the notification, submits the

learned counsel. Explanation [I and Explanation III have to be read

together to ascertain the true intention. It would be clear from

Explanation II that the clearance under different notifications granting

exemption has to be excluded; so also from Explanation III, it is evident

that clearance under the notifications in regard to the inputs has also to

be excluded. To appreciate the contention of the learned counsel, it will

be apt to refer to the relevant part of Notification no. 175/1986-C.E.

dated 1st March, 1986:

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"Exemption to first clearances of specified goods upto the value of rupees

fifteen lakhs and concessional duty on subsequent clearances in the case of

manufacturer having clearances not exceeding rupees one and a half crores

in the preceding year.-In exercise of the powers conferred by sub-rule (1)

of Rule 8 of the Central Excise Rules, 1944, and in supersession of the

notification of the Government of India in the Ministry of Finance

(Department of Revenue) No. 85/85- Central Excises, dated the 17th March,

1985, the Central Government hereby exempts the excisable goods of the

description specified in the Annexure below and falling under the Schedule

to the Central Excise Tariff Act, 1985 (5 of 1986), (hereinafter referred

to as the 'specified goods, and cleared for home consumption on or after

the 1st day of April in any financial year, by a manufacturer from one or

more factories,- Explanation II. - For the purposes of computing the

aggregate value of clearances under this notification, the clearances of

any excisable goods which are chargeable to nil rate of duty or, which are

exempted from the whole of the duty of excise leviable thereon by any other

notification (not being a notification where exemption from the whole of

the duty of excise leviable thereon is granted based upon the value or

quantity of clearances made in a financial year) issued under sub-rule (1)

of Rule 8 of the said Rues, 1944, or sub-section (1) of section 5A of the

Central Excise and Salt Act, 1944 (1 of 1944) shall not be taken into

account.

Explanation III.- Where any specified goods (hereinafter referred to as

inputs) are used for further manufacture of specified goods within the

factory of production of inputs, the clearances of such inputs for such use

shall not be taken into account for the purposes of calculating the

aggregate value of clearances under this notification."

A plain reading of the notification shows that the Government of India, in

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

Central Excise Rules, 1944 (for short, 'the Rules'), has exempted excisable

goods of the description specified in the annexure thereto and falling

under the Schedule to the Central Excise Tariff Act, 1985 [hereinafter

referred to as 'the specified goods'].

It is not in dispute that the inputs as well as the finished goods

manufactured by the assessee answer the description of the 'specified

goods'. The short question that remains to be resolved is, for the purposes

of claiming exemption under the notification, how should the aggregate

value be arrived at? It is in that context that a reference to Explanation

II would be relevant. It says that for the purposes of computing the

aggregate value of clearances under the notification, the clearances of

excisable goods which are chargeable to 'nil' rate of duty or which are

exempted from the whole of duty of excise leviable thereon by any

notification issued under sub-rule (1) of Rule 8 of the Rules shall not be

taken into consideration. In this case, as the finished goods are,

admittedly, exempted under Notification Nos.155/1986, 160/1986 and

124/1988, the value of the exempted finished goods will have to be excluded

in arriving at the aggregate value for the purposes of the notification.

Now, coming to Explanation III, it provides that where inputs which are

specified goods, are used within the factory of production for further

manufacture of finished goods which are also specified goods, the clearance

of such inputs for such use shall not be taken into account for the

purposes of calculating the aggregate value of clearances under this

notification. There appears to be a rationale behind this Explanation;

firstly, when the value of the finished goods, which are exempted under

different notifications, is to be excluded, having regard to the wording of

Explanation II, on the same analogy, the value of inputs which are being

used for manufacture of finished goods are also excluded as both are

specified goods, subject, of course, to the limit of the notification.

Secondly, the notification provides relief to small scale industries; when

the inputs which enjoys the exemption under the notification have already

been dealt with, there is no reason why the value of the same inputs again

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be added for the purposes of aggregate value. It follows that the assessee

would be entitled to the benefit of Explanation III while computing the

aggregate value for the purposes of availing exemption under the

notification.

In this view of the matter, we find no illegality in the order of the

Tribunal. The appeals are, therefore, dismissed with costs.