2005 (2) TMI 116 - SC - Central Excise

Eligibility to the benefit of exemption under Notification No. 123/81-C.E., dated 2nd June, 1981, as amended? Held that - The assessee has claimed exemption in respect of table, chairs, air-conditioners etc., which cannot be said to be goods used in the manufacture of cotton or filament yarn. It is the case of the assessee that the words in connection with the manufacture are wide enough to cover every item which is allowed to be removed under CT-3 certificate. This contention of the assessee is accepted by the tribunal erroneously as it has failed to look at the words used in the conditions enumerated in the notification. As stated above, we have to read the notification in its entirety. Further, we are dealing with exemption notification which has to be read strictly so far as the eligibility is concerned. It was for the assessee to prove by evidence, and not by submitting a chart the nexus between AC Sheets and the manufacture of filament/cotton yarn. It was for the assessee to prove by evidence the participation of AC Sheets in the manufacture of filament/cotton yarn, which has not been done and, therefore, the tribunal had erred in admitting the claim of the assessee for exemption without analyzing the Notification No. 123/81 dated 2-6-1981 (as amended). Thus civil appeal filed by the department succeeds; the impugned judgment and order of the tribunal is set aside.

Summary

Issues Involved:
1. Eligibility for the benefit of exemption under Notification No. 123/81-C.E., dated 2nd June 1981, as amended.
2. Interpretation of the terms "in connection with the manufacture" and "used in the manufacture of" within the notification.
3. The requirement of evidence to prove the use of goods in the manufacturing process.

Issue-wise Detailed Analysis:

1. Eligibility for the Benefit of Exemption under Notification No. 123/81-C.E., dated 2nd June 1981, as amended:

The case revolves around the eligibility of the assessee, a 100% Export Oriented Unit, to claim an exemption under Notification No. 123/81-C.E. The assessee sought to remove certain goods like A.C. Sheets, Air-Conditioners, Flush doors, Typewriters, Storewells, Tables, and Chairs from the 100% Export Oriented Unit to its factory under form CT-3, claiming these goods were used "in connection with the manufacture" of filament yarn. The department issued a show-cause notice demanding duty for not using these goods in the manufacture of cotton/filament yarn. The Adjudicating Authority confirmed the demand, stating the assessee failed to prove the use of these goods in the manufacturing process. The Tribunal, however, interpreted the notification broadly, emphasizing the phrase "in connection with the manufacture," and allowed the exemption.

2. Interpretation of the Terms "In Connection with the Manufacture" and "Used in the Manufacture of" within the Notification:

The Supreme Court needed to determine the scope, ambit, and effect of Notification No. 123/81-C.E. The notification provided an exemption for goods brought into an undertaking from a 100% Export Oriented Unit under a certificate in form CT-3 "in connection with the manufacture of" products for export. The notification's conditions stipulated that the exemption applied only if the goods were brought directly into the factory and "used in the manufacture" of products for export. The Court highlighted the difference between the broader term "in connection with the manufacture" in the preamble and the more specific "used in the manufacture" in the conditions, emphasizing that both conditions must be fulfilled for the exemption to apply.

3. The Requirement of Evidence to Prove the Use of Goods in the Manufacturing Process:

The Court noted that the Tribunal had erred by focusing solely on the phrase "in connection with the manufacture" without considering the requirement that the goods must be "used in the manufacture" of products for export. The Court emphasized that the assessee must provide evidence to prove the participation of the goods in the manufacturing process. In this case, the assessee failed to demonstrate how items like tables, chairs, and air-conditioners were used in the manufacture of filament yarn. The Court stated that the notification must be read in its entirety and interpreted strictly regarding eligibility for exemption. The Tribunal's acceptance of the assessee's contention without proper evidence was deemed erroneous.

Conclusion:

The Supreme Court allowed the department's appeal, setting aside the Tribunal's judgment. The Court held that the assessee did not meet the conditions stipulated in Notification No. 123/81-C.E., as it failed to prove the use of the goods in the manufacturing process. The civil appeal was allowed with no order as to costs.