Holding

The exemption applies only to goods made from raw material on which excise duty has actually been paid at the correct (appropriate) rate; where duty is nil or not payable, the exemption does not apply.

Summary

The Supreme Court examined the phrase "on which the appropriate amount of duty of excise has already been paid" in an exemption notification that relieves goods made from duty‑paid material from further excise duty. The Court held that for the exemption to apply, the raw material must have actually had excise duty paid at the correct (appropriate) rate; if the material is exempt from duty or the duty is nil, no exemption is available. The Court emphasized that the word "appropriate" means the specified rate of duty, and that the phrase "already been paid" requires a factual payment of duty. It overruled the earlier decision in Collector of Central Excise, Patna v. Usha Martin Industries and affirmed Motiram Tolaram v. Union of India, thereby siding with the revenue. The Court also noted that any contrary interpretation issued by the Central Board of Excise and Customs through circulars would be binding on the revenue. The appeals were remanded to a two‑judge bench for further consideration, with the Collector’s position upheld.

Issues considered

How should the phrase "on which the appropriate amount of duty of excise has already been paid" be interpreted in the exemption notification?
Does the exemption apply when the raw material is not liable to excise duty or the duty payable is nil?
Is the rate of duty required to be the correct/speciﬁed (appropriate) rate for the exemption to be available?
Do circulars issued by the Central Board of Excise and Customs that give a different interpretation bind the revenue?

Legislation cited

Central Excise Rules, 1944s. Rule 8(1)

Subjects

excise dutyexemption notificationappropriate amountinterpretationcascading dutyCentral Excise RulesRule 8nil dutycircularsSupreme Court

Judgment

-,

COLLECTOR OF CENTRAL EXCISE VADODRA A
v.
MIS. DHIREN CHEMICAL INDUSTRIES

DECEMBER 12, 2001

[S.P. BHARUCHA, CJ., SYED SHAH MOHAMMED QUADRI, B
UMESH C. BANERJEE, S.N. VARIAVA AND
SHIVARAJ V. PATIL, JJ.]

Central Excise Rules, 1944 : Rule 8(1 ).

Excise duty-Exemption Notification-Phrase "on which the appropri- c
ate amount of duty of excise had already been paid"-Interpretation of-Held,
for getting exemption goods must be made.from raw materials on which excise
duty has been paid at "Appropriate" rate-"Appropriate" means correct or
specified rate of excise duty-Where raw material is not liable to duty or such
duty is nil no excise duty is paid upon it-Notification is not applicable to goods D
made out o.f such ffzaterial.

A Notification issued by Government of India granted exemption
from excise duty to commodities produced from materials on which the
appropriate amount of duty of excise had already been paid. The question
iu this appeal relates to the correct interpretation to be placed upon the E
phrase "on which the appropriate amount of duty of excise has already
been paid".

Answering the question, the Court

HELD 1. An exemption Notification that llSes the phrase "on which F
the appropriate amount of duty of excise has already been paid" 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
G

correct rate. All that the word "appropriate" in the context means is the
correct or the specified rate of excise duty. [610-G-H; 611-AJ

2. Unless the manufacturer has paid the correct amount of excise
duty, he is not entitled to the benefit of the exemption Notification. Where H
607
608 SUPREME COURT REPORTS (2001] SUPP. 5 S.C.R.
A 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. The Notification is intended to
give relief against the cascading of excise duty - on 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
B
Notification seeks to alleviate does not arise. (611-A-C]

3. Regardless of the interpretation that the Court has 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
C the said phrase, that interpretation will be binding upon the revenue.
(611-D]

Collector of Central Excise. Patna v. Usha Martin Industries, (1997] 7
sec 47, overruled.
D Motiram Tolaram and Anr. v. Union of India and Anr.. (1999] 6 SCC
375, affirmed.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 7937 of 1995.

E From the Judgment and Order dated 10.4.91 of the Customs, Excise and
Gold (Control) Appellate Tribunal, New Delhi in E/A. No. 1859/87-C in F.O.
No. 332 of 1991-C.

WITH

F C.A. Nos. 2496-2497 of 1992.

Soli J. Sorabjee, Attorney General, Dhruv Mehta and B. Krishna Prasad
for the Appellant.

Ramesh Singh, Ms. Bina Gupta, Ms. Vanita Bhargava and Ms. Rakhi
G Ray for the Respondent in C.A. No. 7937/95. i '

Joseph Vellapally, Ms. Meenakshi Arora and Ms. Sujeeta Srivastava for
the Respondent in C.A. No. 2496-97 /92.

H The Judgment of the Court was delivered by
C.C.E. v. DHIREN CHEMICAL INDUSTRIES [BHARUCHA, CJ.] 609
BHARUCHA, CJ. The case ofDhiren Chemical Industries (Civil Appeal A
No. 7937 of 1995) has been referred 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, Patna v. Usha Martin
Industries, [1997) 7 S.C.C. 47 and the view taken in Motiram Tolaram and Anr.
v. Union of India and Anr., [1999) 6 S.C.C. 375, both being judgments of
B
Benches of three learned Judges. Because of that reference, the other cases
(Civil Appeal Nos. 2496-97) were also so referred.

The only question that we are concerned with relates to the correct
interpretation to be placed upon the phrase "on which the appropriate amount
of duty of excise has already been paid". c
In the case of Usha Martin, the relevant Exemption Notification read, so
far as is relevant, thus: ·

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

In exercise of the powers conferred by sub-rule (I) of Rule 8 of the
Central Excise Rules, 1944 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 E
falling 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 already been paid'... ". F
(Emphasis supplied)

The other clauses used the same phrase.

The Court said that.there was "no doubt that as per the above notification
G
if any amount of duty bas 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.<o., 'on which the appropriate amount of duty of
excise has already been paid' as to whether it is capable of two interpretations,
one as claimed by the assessee and the other as put forth by the Revenue." The
Court then said: H
610 SUPREME COURT REPORTS [2001] SUPP. 5 S.C.R.
A "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 combination relates to an ante-
cedent 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
B
Dictionary and Thesaurus (Concise Ecln.) as 'applicable, apposite,
appurtenant, apropos, apt...'. In the World Book Dictionary it is de-
fined as 'right for the occasion, suitable, proper, fitting .. .'.

What is the idea behind granting exemption to the commodities indi-
c cated 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 must as well be applicable to the other
commodity which is made out of the former. Therefore, we are not
D disposed to afford a narrow interpretation to the expression (i.e. on
which the appropriate 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.

E 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 in India, it must be taken that appropriate duty
had been paid and the appellants would be entilled to the benefit of the
Exemption Notification in question, which used the said phrase. The Court was
F unable to agree. It said !hat !he raw material being an item which was manu-
factured in India, a rate of excise duty was leviable thereon. On the raw material
which had been imported, the appropriate amount of duty had not been paid.
It was only if this payment had been made that the exemption notification
would be applicable.

G In our view, the correct interpretation of the said phrase has not been
placed in the judgment: in the case of Usha Martin. The stress on the word
"appropriate" has been mislaid. All that the word "appropriate" in the context
means is the correct or the specified rate of excise duty.

An exemption notification that uses the said phrase applies to goods
H which have been made from duty paid material. In the said phrase, due em-
C.C.E. v. DHIREN CHEMICAL INDUSTRIES [BHARUCHA, CJ.] 611

phasis must be given to the words "has already been paid". For the purposes A
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 manu-
facturer has paid, the correct amount of excise duty, he is not entitled to the
benefit of the exemption notification.
B
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.

The notification is intended to give relief against the cascading of excise
duty - on the raw material and again on the goods made therefrom. There is
c
no cascading effect when no excise duty is payable upon the raw material and
the hardshi~ that the notification seeks 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 D
by the Central Board of Excise and Customs which place a different interpre-
tation upon the said phrase, that interpretation will be binding upon the Rev-
enue.

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 E
that other issues may be involved.

T.N.A. Matter is still pending.