DUTY PAID BY MISTAKE ON EXEMPTED GOODS DOES NOT MAKE THE GOODS LIABLE TO DUTY.

[Mr. M. GOVINDARAJAN]

                        Central Government is given power in tax laws to give exemption to assessee or group of assessee from tax either partly or wholly; temporarily or permanently; either in any part of the country or whole of the country by means of notification.  The exemption given may be revoked at any time by the Government in the interest of public.

                        The Supreme Court in ‘Union of India V.  Wood Papers Limited’ (1990) 4 SCC 256 gives the meaning for exemption.  Literally exemption is freedom from liability, tax or duty.  Fiscally it may assume varying shapes, specially, in a growing economy.  For instance tax holiday to new units, concessional rate of tax to goods or persons for limited period or with the specific objective etc.,  That is why its construction, unlike charging provision, has to be tested  on different touchstone.    In fact an exemption provision is like an exception and on normal principle of construction or interpretation of statutes it is construed strictly either because of legislative intention or on economic justification of inequitable burden of progressive approach of fiscal provisions intended to augment State revenue.  But once exception or exemption becomes applicable no rule or principle requires it to be construed strictly.  Truly specking liberal and strict construction of an exemption provision are to be invoked at different stages of interpreting it.  When the question is whether a subject falls in the notification or in the exemption clause then it being in nature of exception to be construed strictly and against the subject but once ambiguity or doubt about applicability is lifted and the subject falls in the notification then full play should be given to it and it calls for a wider and liberal construction.  A construction which results in inequitable results and is incongruous has to be avoided.

                        Once exemption is given the assessee is not liable to pay duty.  But once he pays the duty by mistake on exempted goods whether it would make the goods liable to duty.  For this question the Supreme Court gives its verdict in ‘Bonanzo Engineering & Chemical Private Limited V. Commissioner of Central Excise’ – 2012 (277) ELT 145 (SC).   In this case the appellant is a manufacturer of goods falling under Chapter Headings 32 and 84 of I Schedule to the Central Excise Tariff Act, 1985. 

                        The Notification No. 175/86-CE, dated 01.03.1986 gives exemption to the excisable goods of the description specified in the annexure appended to the Notification.  The assessee availing the benefit of exemption notification has to satisfy two specific conditions for claiming such exemption from payment of duty under the Act as detailed below:

• In the case of the first clearance of the specified goods up to an aggregate value not exceeding Rs.30 lakhs;
• In any other case from the whole of the duty of excise leviable thereon provided that the aggregate value of clearances of the specified goods shall not exceed Rs.20 lakhs.

The Notification also says that for the purpose of computing the aggregate value of any excisable goods which are exempted from the whole of duty by any other Notification shall not be taken into account.

                        Notification No. 111/88-CE, dated 1.3.1998 gives exemption to the goods of description specified in column 3 of the table appended to the Notification, from the whole of the excise duty leviable on the said goods. 

                        The appellant filed its declaration before the Adjudicating Authority informing him that the assessee would be claiming exemption from payment of excise duty for a sum of Rs.20 lakhs under Chapter heading 32 of the Act and up to Rs.10 lakhs under Chapter Heading 84 of the Act.  The Adjudicating Authority has issued 2 show cause notices.  The first show cause notice is for the period from 20.8.92 to 31.10.92 and the second show cause notice pertains to the period 1.11.92 to 31.12.92.  The duty effect of both the notification does not exceed beyond Rs.2.3 lakhs.

                        In the show cause notices it was alleged that the appellant has exceeded the aggregate value of Rs.30 lakhs as specified in the Notification dated 1.3.86 and therefore other clearances made by him would attract the levy of duty.   Since the assessee had paid the duty on the excess clearances of more than the value of Rs.30 lakhs the assessee is liable to pay duty with penalty.  The appellant replied to show cause notice.   The appellant replied that it is a manufacturer of items which would fall under Chapter heading 84 of the Act and therefore the Notification dated 1.3.88 requires to be applied and if it is applied the goods enumerated in the table appended to the Notification are exempted from the levy of duty and therefore the excise duty paid by the assessee under the aforesaid notification cannot be added for the purpose of computing the aggregate value, while granting the benefit of the Notification No. 175/86-CE, dated 1.3.86.

                        The contention of the appellant was accepted by the Adjudicating Authority but the Collector in his review order found that the order in original is legally incorrect and is passed by the authority which is incompetent on account of monetary limits.  An appeal was directed to be filed before the Collector for proper remedy.  The Collector set aside the order of the Adjudicating Authority and remanded the matter to the competent Adjudicating Authority for de novo proceedings.  The Adjudicating Authority confirmed the demand and also imposed penalty.

                        The Tribunal rejected the appeal filed by the appellant on the ground that the appellant has not claimed the refund of the duty paid for the clearances of the goods falling under Chapter Heading 84 of the Tariff Act, and therefore the appellant is not entitled to avail the benefit of exemption Notification dated 1.3.86.    

                        The Supreme Court held that the sum and substance of the reasoning of the Tribunal appears to be that merely because the assessee has paid the excess duty on those items which he was not supposed to pay in view of the exemption notification dated 1.3.88 and merely because the assessee has not claimed the refund of the excess duty paid, that amount paid by him under the Notification dated. 1.3.88 requires to be taken for the purpose of computing the aggregate value of the clearances under the Notification No. 175/86-CE.  Merely because the assessee, may be, by mistake pays duty on the goods which are exempted from such payment, does not mean that the goods would become goods liable for duty under the Act.   Further merely because the assessee has not claimed any refund on the duty paid by him would not come in the way of claiming benefit of the Notification No. 175/86-CE, dated 1.3.1986.