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CASE NO.:

Appeal (civil) 7937 of 1995

PETITIONER:

COLLECTOR OF CENTRAL EXCISE, VADODRA

Vs.

RESPONDENT:

M/S. DHIREN CHEMICAL INDUSTRIES

DATE OF JUDGMENT: 12/12/2001

BENCH:

CJI, Syed Shah Mohammed Quadri, U.C. Banerjee, S.N. Variava & Shivaraj V. Patil.

JUDGMENT:

WITH

CIVIL APPEAL NOS. 2496-2497 OF 1992

J U D G M E N T

Bharucha, C.J.I.:

The case of Dhiren Chemical Industries (Civil Appeal No. 7937 of 1995) has been refe

rred by a Bench of three learned Judges to the Constitution Bench because it appeared to the

Bench that there was a conflict between the view taken in Collector of Central Excise, Patn

a vs. Usha Martin Industries [1997 (7) S.C.C. 47] and the view taken in Motiram Tolaram & An

r. Vs. Union of India & Anr. [1999 (6) S.C.C. 375], both being judgments of Benches of three

learned Judges. Because of that reference, the other cases (Civil Appeal Nos. 2496-97) we

re also so referred.

The only question that we are concerned with relates to the correct interpretation t

o be placed upon the phrase "on which the appropriate amount of duty of excise has already b

een paid".

In the case of Usha Martin, the relevant Exemption Notification read, so far as is r

elevant, thus:

"Exemption in goods falling under Item 26-AA(i-a) made from duty-paid material:

In exercise of the powers conferred by sub-rule (1) of Rule 8 of the Central Excise Rules, 1

944 and in supersession of the notification of the Government of India in the M.F. (D.R.) No

. 131/62-CE, dated 13-6-1962, the Central Government hereby exempts iron or steel products f

alling under sub-item (i-a) of Item No. 26-AA made from any of the following materials or a

combination thereof namely:

(i) fresh unused re-rollable scrap 'on which the appropriate amount of duty of excise has al

ready been paid'...".

(Emphasis supplied)

The other clauses used the same phrase.

The Court said that there was "no doubt that as per the above notification if any am

ount of duty has been paid on the raw material, the output product would escape from excise

duty. The doubt which arose was regarding the expression in the notification i.e., 'on whic

h the appropriate amount of duty of excise has already been paid' as to whether it is capabl

e of two interpretations, one as claimed by the assessee and the other as put forth by the R

evenue." The Court then said:

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"If we take the words 'already paid' in the notification delinked from other words employed

therein, they would, perhaps, lend support to the contention of the Revenue as the said comb

ination relates to an antecedent act of payment. But the word 'already' is not the decisive

term in the context because the preceding word 'appropriate', cannot be sidelined to piffle

. The word 'appropriate' is defined in Websters' New Dictionary and Thesaurus (Concise Edn.

) as 'applicable, apposite, appurtenant, apropos, apt...'. In the World Book Dictionary

it is defined as 'right for the occasion, suitable, proper, fitting...'.

What is the idea behind granting exemption to the commodities indicated in the notification?

One reason is that the Central Government wanted to save certain raw materials and the end

products made with them from double duty. Another idea, as could be discerned from it, is

that the reason which prompted the Central Government to absolve one commodity from duty mus

t as well be applicable to the other commodity which is made out of the former. Therefore,

we are not disposed to afford a narrow interpretation to the expression (i.e. on which the a

ppropriate amount of duty of excise has already been paid) as excluding all cases where nil

duty was paid for the input materials."

The Court, thus, upheld the contention on behalf of the assessee.

In the case of Motiram Tolaram, reliance was placed upon the case of Usha Martin to

contend that the appropriate duty being nil, because the raw material was not manufactured i

n India, it must be taken that appropriate duty had been paid and the appellants would be en

titled to the benefit of the Exemption Notification in question, which used the said phrase.

The Court was unable to agree. It said that the raw material being an item which was manu

factured in India, a rate of excise duty was leviable thereon. On the raw material which ha

d been imported, the appropriate amount of duty had not been paid. It was only if this paym

ent had been made that the exemption notification would be applicable.

In our view, the correct interpretation of the said phrase has not been placed in th

e judgment in the case of Usha Martin. The stress on the word "appropriate" has been mislai

d. All that the word "appropriate" in the context means is the correct or the specified rat

e of excise duty.

An exemption notification that uses the said phrase applies to goods which have been made fr

om duty paid material. In the said phrase, due emphasis must be given to the words "has alr

eady been paid". For the purposes of getting the benefit of the exemption under the notific

ation, the goods must be made from raw material on which excise duty has, as a matter of fac

t, been paid, and has been paid at the "appropriate" or correct rate. Unless the manufactur

er has paid, the correct amount of excise duty, he is not entitled to the benefit of the ex

emption notification.

Where the raw material is not liable to excise duty or such duty is nil, no excise d

uty is, as a matter of fact, paid upon it. To goods made out of such material the notif

ication will not apply.

The notification is intended to give relief against the cascading of excise duty - o

n the raw material and again on the goods made therefrom. There is no cascading effect when

no excise duty is payable upon the raw material and the hardship that the notification seek

s to alleviate does not arise.

We need to make it clear that, regardless of the interpretation that we have placed

on the said phrase, if there are circulars which have been issued by the Central Board of Ex

cise and Customs which place a different interpretation upon the said phrase, that interpret

ation will be binding upon the Revenue.

These appeals shall now be placed before a Bench of two learned Judges, who will dec

ide the same on their merits. This is done having regard to the fact that other issues may

be involved.

.......................................CJI.

..........................................J.

(Syed Shah Mohammed Quadri)

..........................................J.

(U.C. Banerjee)

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..........................................J.

(S.N. Variava)

..........................................J.

(Shivaraj V. Patil)

December 12, 2001.

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