2001 (12) TMI 3 - SC - Central Excise

Exemption Notification - Interpretation of the phrase on which the appropriate amount of duty of excise has already been paid - meaning of the word appropriate - Exempted or Nil rate does not mean appropriate rate of duty. HELD THAT - An exemption notification that uses the said phrase applies to goods which have been made from duty paid material. In the said phrase due emphasis must be given to the words has already been paid . For the purposes of getting the benefit of the exemption under the notification the goods must be made from raw material on which excise duty has as a matter of fact been paid and has been paid at the appropriate or correct rate. Unless the manufacturer has paid the correct amount of excise duty he is not entitled to the benefit of the exemption notification. Where the raw material is not liable to excise duty or such duty is nil no excise duty is as a matter of fact paid upon it. To goods made out of such material the notification will not apply. We need to made 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 Excise and Customs which place a different interpretation upon the said phrase that interpretation will be binding upon the Revenue. These appeals shall now be placed before a Bench of two learned Judges who will decide the same on their merits. This is done having regard to the fact that other issues may be involved.

Summary

Issues: Interpretation of the phrase "on which the appropriate amount of duty of excise has already been paid" in relation to exemption notifications.

Analysis:
The judgment delivered by the Supreme Court involved a conflict between two previous judgments regarding the interpretation of the phrase "on which the appropriate amount of duty of excise has already been paid" in exemption notifications. The Court specifically focused on the correct understanding of this phrase in the context of excise duty liability on raw materials and the resulting goods.

In the case of Usha Martin Industries, the Court examined an exemption notification related to iron or steel products made from duty-paid material. The Court emphasized that the term "appropriate" in the phrase is crucial, indicating the correct or specified rate of excise duty. The Court rejected a narrow interpretation that would exclude cases where no duty was paid for input materials, aligning with the assessee's contention and upholding the benefit of exemption for goods made from duty-paid material.

Contrastingly, in the case of Motiram Tolaram, the Court addressed a situation where the raw material was not manufactured in India, leading to a contention that appropriate duty was nil. However, the Court clarified that the exemption notification applies only when excise duty has actually been paid on the raw material at the correct rate. If no excise duty is paid on the raw material, the notification does not apply to the resulting goods.

The Court underscored the purpose of exemption notifications to prevent the cascading effect of excise duty on both raw materials and manufactured goods. It clarified that the benefit of exemption is contingent upon the actual payment of excise duty on the raw material at the appropriate rate. Additionally, the Court highlighted the binding nature of circulars issued by the Central Board of Excise and Customs, emphasizing that such interpretations would prevail for the Revenue.

Ultimately, the Court directed the appeals to be reviewed by a Bench of two learned Judges for a comprehensive evaluation of all involved issues. This decision aimed to ensure a thorough examination of the cases beyond the interpretation of the phrase in question, considering other potential complexities that may arise during the adjudication process.