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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

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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

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(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

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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

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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

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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

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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

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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

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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

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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

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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

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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.

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(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

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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."

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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.