2010 (11) TMI 13 - SC - Central Excise

Central Excise - Exemption Notifications - Remission of Duty - Conditions to be satisfied - notification no. 121/94 - goods supplied for intermediate use - chapter X procedure - Held that - The purpose and object of the notification dated 11.8.1994 was to exempt those specified intermediate goods, which were otherwise excisable to duty, and not to exempt or absolve the respondents from following the statutory requirements for the manufacture of intermediate excisable goods - . Compliance of the requirements, stipulated in Chapter X, is a pre-requisite for getting exemption from the remission of excise duty on the specified goods. Notification should be construed strictly - A provision providing for an exemption, concession or exception, as the case may be, has to be construed strictly with certain exceptions depending upon the settings on which the provision has been placed in the Statute and the object and purpose to be achieved. If exemption is available on complying with certain conditions, the conditions have to be complied with. The mandatory requirements of those conditions must be obeyed or fulfilled exactly, though at times, some latitude can be shown, if there is a failure to comply with some requirements which are directory in nature, the non-compliance of which would not affect the essence or substance of the notification granting exemption. DOCTRINE OF SUBSTANTIAL COMPLIANCE AND INTENDED USE - The test for determining the applicability of the substantial compliance doctrine has been the subject of a myriad of cases and quite often, the critical question to be examined is whether the requirements relate to the substance or essence of the statute, if so, strict adherence to those requirements is a precondition to give effect to that doctrine. On the other hand, if the requirements are procedural or directory in that they are not of the essence of the thing to be done but are given with a view to the orderly conduct of business, they may be fulfilled by substantial, if not strict compliance. In other words, a mere attempted compliance may not be sufficient, but actual compliance of those factors which are considered as essential. Remission of duty - The Tribunal completely overlooked the object and purpose of the procedure laid down in Chapter X. The goods manufactured at the supplier end were excisable goods and if a party wants remission of duty, he has to follow certain prerequisites, the object of which is to see that the goods be not diverted or utilized for some other purpose, on the guise of the exemption notification. Detailed procedures have been laid down in Chapter X so as to curb the diversion and misutilization of goods which are otherwise excisable. The plea of substantial compliance and intended use is, therefore, rejected.

Issues Involved:
1. Eligibility for exemption from remission of excise duty on specified intermediate goods.
2. Compliance with procedural requirements under Chapter X of the Central Excise Rules, 1944.
3. Doctrine of substantial compliance and "intended use".
4. Interpretation of exemption notifications.
5. Applicability of previous judgments (Thermax Private Ltd. and J.K. Synthetics) to the present case.

Issue-wise Detailed Analysis:

1. Eligibility for Exemption from Remission of Excise Duty:
The primary question was whether a manufacturer of a specified final product under the Central Excise Tariff Act, 1985, is eligible for exemption from remission of excise duty on specified intermediate goods as per Notification no. 121/94-CE dated 11.8.1994, if captively consumed for the manufacture of final products. The Tribunal had ruled in favor of the respondents-assessees, relying on the judgments in Thermax Private Ltd. and J.K. Synthetics, based on "intended use" and "substantial compliance". However, the Supreme Court highlighted that the exemption notification called for strict interpretation and compliance with the procedure set out in Chapter X of the Central Excise Rules, 1944.

2. Compliance with Procedural Requirements:
The respondents were found to have manufactured excisable goods without obtaining the necessary registration and without following prescribed procedures, including maintaining statutory records and filing required declarations. The Supreme Court emphasized that compliance with Chapter X procedures is a pre-condition for claiming exemption from excise duty. The respondents failed to comply with these mandatory requirements, which were essential to ensure an inseparable link between the supplier and recipient of excisable goods.

3. Doctrine of Substantial Compliance and "Intended Use":
The respondents argued for exemption based on substantial compliance and intended use of the goods. The Court clarified that the doctrine of substantial compliance is applicable only when minor procedural lapses do not affect the essence or substance of the requirements. In this case, the non-compliance with statutory requirements was not minor but substantive, and hence, the plea of substantial compliance and intended use was rejected.

4. Interpretation of Exemption Notifications:
The Court reiterated that exemption notifications must be strictly construed. A person claiming exemption must clearly establish eligibility and comply with all conditions. The Court referred to several precedents emphasizing strict compliance with exemption notifications and rejected the notion that maintaining some records at the recipient end could suffice for substantial compliance.

5. Applicability of Previous Judgments:
The Court examined the applicability of the judgments in Thermax Private Ltd. and J.K. Synthetics. It concluded that these cases involved imported goods and were not directly applicable to the present case, which involved locally manufactured goods. The principles laid down in those judgments were confined to their specific facts and could not be broadly applied to the current situation.

Separate Judgments:
The judgment also addressed separate appeals:
- Civil Appeal No. 1631 of 2001: The Tribunal's decision that the assessee was not eligible for exemption due to non-compliance with Chapter X procedures was upheld.
- Civil Appeal Nos. 568-569 of 2009: The Tribunal's view that Chapter X procedures were only meant to establish receipt and utilization of goods was rejected. The Supreme Court emphasized the importance of following detailed procedures to prevent diversion and misuse of excisable goods.

Conclusion:
The Supreme Court allowed the appeals by the Revenue in Civil Appeal Nos. 1878-1880 of 2004 and Civil Appeal Nos. 568-569 of 2009, and dismissed Civil Appeal No. 1631 of 2001. The Court held that strict compliance with procedural requirements under Chapter X is mandatory for claiming exemption from excise duty, and the plea of substantial compliance and intended use was not applicable in this case.

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