COMMISSIONER OF CENTRAL EXCISE, NEW DELHIversusM/S HARI CHAND SHRI GOPAL & OTHER

                  (201 OJ 13 (ADDL.) S.C.R. 820


A     COMMISSIONER OF CENTRAL EXCISE, NEW DELHI
                                 V.
            MIS HARi CHAND SHRI GOPAL & OTHER
              (Civil Appeal Nos. 1878-1880 of 2004)
                       NOVEMBER 18, 2010
B
     [S.H. KAPADIA, C.J.I., 8. SUDERSHAN REDDY, K.S.
    PANICKER RADHAKRISHNAN, SURINDER SINGH
           NIJJAR AND SWATANTER KUMAR, JJ.]

c       Central Excise Rules, 1944:

        Chapter X - rr. 192, 174 - Assessee captively
  consuming specified intermediate goods (Kimam) for
  manufacture of final products (chewing tobacco) - Exemption
D from remission of excise duty on specified intermediate
  goods (Kimam) as per Notification No. 121194-CE dated
  11.8.1994 - Claimed on the ground of 'intended use' and
  'substantial compliance' of the procedure set out in Chapter
  X on basis of the records at the recipient end - Held: At the
E supplier end, no registration ulr. 174 obtained nor records were
  kept - Failure on the part of applicants, at the recipient end,
  to give various declarations in the statutory forms so as to
  claim exemption - Non-compliance of conditions
  enumerated under various rules in Chapter X and non-
  fumishing of various statutory forms prescribed under Chapter
F X - Thus, plea of 'intended use' and 'substantial compliance'
  not established - Order passed by the tribunal set aside -
  Central Excise Tariff Act, 1985 - Notification No. 121194-CE
  dated 11. 8.1994 - Doctrine of 'substantial compliance' and
  'intended use'.
G
       Chapter X - Manufacture and clandestine removal of
  pump parts and gun metal casting - Exemption from payment
  of excise duty and penalty as per Notification No. 312001-CE
  and 612001-CE - Grant of, by tribunal even though procedure
H                                820
 COMMNR. OF CENTRAL EXCISE v. HARi CHAND                  821
              SHRI GOPAL
set out in Chapter X not followed, holding that procedure laid   A
down in Chapter X is meant to be followed only to establish
the receipt of goods by recipient unit and their utilization -
Sustainability of - Held: Not sustainable - Tribunal
completely overlooked the object and purpose of the
procedure laid down in Chapter X - Goods manufactured at         B
the supplier's end were excisable goods and if a party wanted
remission of duty, he was to follow certain pre-requisites -
Object was to see that the goods should not be diverted or
utilized for some other purpose, in the guise of the exemption
Notification - Thus, plea of "substantial compliance" and        c
"intended use" is rejected - Order passed by the tribunal set
aside - Notification No. 312001-CE and 612001-CE - Doctrine
of 'substantial compliance' and 'intended use'. .

     Chapter X - Assessee manufacturing and clearing
Printed Circuit Board - Exemption from payment of excise         D
duty as per Notification No. 48194-CE dated 1. 3. 1994 - Claim
of - Held: Not permissible - Assessee did not follow the
procedure set out in Chapter X - It failed to fulfill the
mandatory requirements for claiming exemption from duty -
Thus, order passed by the tribunal upheld - Central Excise       E
Tariff Act, 1985 - Notification No. 48194-CE dated 1.3.1994.

   Interpretation of statutes - Exemption clause -
Construction of - Explained.

   Doctrines/Principles - Doctrine of 'substantial               F
compliance' and 'intended use' - Explained.

      The assessees - respondents, in Civil Appeal Nos.
1878-1880, were engaged in the manufacture of excisable
goods viz.- preparation containing chewing tobacco               G
falling under the Schedule to the Central Excise Tariff Act,
1985. The Excise Officers inspected the factories of the
respondents and found that the addictive mixture
(Kimam) manufactured at the factories at Delhi was
                                                                 H
    822   SUPREME COURT REPORTS [2010] 13 (ADDL.) S.C.R.


A clandestinely removed for the manufacturing of chewing
  tobacco without applying/obtaining the certificate of
  registration as required under r. 174 of the Central Excise
  Rules, 1944 and without payment of excise duty. The
  respondents were issued notices imposing excise duty
B and penalty. The respondents claimed exemption under
  Notification No. 121/94-CE dated 11.08.1994 and raised a
  plea of substantial compliance of the procedure in
  Chapter X of the Rules. The Adjudicating Authority held
  that the benefit of the exemption Notification would be
c available only when the procedure laid down in Chapter
  X were complied with; and that the records produced did
  not ·substantiate a plea of substantial compliance of the
  procedure. The Authority upheld the imposition of the
  duty liability, interest and penalty. Aggrieved, the
0 respondents filed appeals. The tribunal allowed the
  appeals holding that the benefit of the exemption
  notification should not be denied if intended use of the
  goods was established, though there was non-
  compliance of the procedural conditions of Chapter X of
  the Rules.
E
       The assessees - respondents, in Civil Appeal Nos.
  568-569 of 2009, were engaged in the manufacture of
  pump parts and gun metal casting falling under the
  Schedule to the Central Excise Tariff Act, 1985. The
F Excise Officers carried out a search at the factory
  premises of the assessee and found that the assessee
  had contravened the procedure of the exemption
  Notification no. 3/2001-CE and 6/2001-CE and
  clandestinely removed the excisable goods. A notice was
G issued. The Adjudicating Authority demanded excise
  duty along with the penalty. The Commissioner (Appeals)
  allowed the appeal filed by the assessee. The tribunal
  held that the benefit of the notification could not be
  denied only on the ground that the procedure laid down
H
  COMMNR. OF CENTRAL EXCISE v. HARi CHAND                  823
               SHRI GOPAL
in Chapter X had not been followed; and that the                  A
procedure laid down in Chapter X is meant to be followed
only to establish the receipt of goods by the recipient unit
and their utilization.

     The assessee - appellant, in Civil Appeal No. 1631 of        B
2001, was engaged in the manufacturing of the populated
Printed Circuit Board (PCB). They cleared PCB from their
unit to the central store at place 'O'. In appeal, the tribunal
held that the assessee was not eligible for the benefit of
the Notification No. 48/94-CE dated 1.3.1994 since the
assessee had not followed the procedure set out in                c
Chapter X of the Rules.

     The question which arose for consideration in these
appeals was whether a manufacturer of a specified final
product falling under the Schedule of the Central Excise          D
Tariff Act, 1985 is eligible to get the benefit of exemption
from remission of excise duty on specified intermediate
goods as per the Notifications, if captively consumed for
the manufacture of final products on the ground that the
records kept by it at the recipient end would indicate its        E
'intended use' and 'substantial compliance' of the
procedure set out in Chapter X of the Central Excise
Rules, 1944.

    Allowing Civil Appeal Nos. 1878-1880 and Civil
Appeal Nos. 568-569 of 2009 and dismissing Civil Appeal           F
No. 1631 of 2001, the Court

    HELD: 1.1 A person who claims exemption or
concession has to establish that he is entitled to that
exemption or concession. A provision providing for an G
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
                                                                  H
    824   SUPREME COURT REPORTS [2010] 13 (ADDL.) S.C.R.


A 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
B 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. [Para 22] [843-D-H; 844-A]

C        Novopan Indian Ltd., Hyderabad v. Collector of central
    Excise and Customs, Hyderabad (1994) Supp. 3 SCC 606;
    Hansraj Gordhandas v. H.H. Dave (1996) 2 SCR 253 -
    referred to.

      1.2 Some of the provisions of an exemption
D notification may be directory in nature and some
  mandatory. A distinction between provisions of statute
  which are of substantive character and were bui!t in with
  certain specific objectives of policy, on the one hand, and
  those which are merely procedural and technical in their
E nature, on the other, must be kept clearly distinguished.
  Therefore, an eligibility criteria deserves a strict
  construction, although construction of a condition
  thereof may be given a liberal meaning if the same is
  directory in nature. [Para 23] [844-C-E]
F        Tata Iron and Steel Co. Ltd. v. State of Jharkhand and
    Ors. (2005) 4 SCC 272 - referred to.

        1.3 The doctrine of substantial compliance is
  equitable in nature, designed to avoid hardship in cases
G where a party does all that can be reasonably expected
  of it, but failed or faulted in some minor or inconsequent
  aspects which cannot be described as the 'essence' or
  the 'substance' of the requirements. Like the concept of
  'reasonableness', the acceptance or otherwise of a plea
H of "substantial compliance" depends upon the facts and
 COMMNR. OF CENTRAL EXCISE v. HARi CHAND                825
              SHRI GOPAL
circumstances of each case and the purpose and object          A
to be achieved and the context of the pre-requisites
which are essential to achieve the object and purpose of
the rule or the regulation. Such a defence cannot be
pleaded if a clear statutory pre-requisite which effectuates
the object and the purpose of the statute has not been         B
met. It means that the court should determine whether the
statute has been followed ·sufficiently so as to carry out
the intent for which the statute was enacted and not a
mirror image type of strict compliance. Substantial
compliance means "actual compliance in respect to the          c
substance essential to every reasonable objective of the
statute" and the court should determine whether the
statute has been followed sufficiently so as to carry out
the intent of the statute and accomplish the reasonable
objectives for which it was passed. Fiscal statute
                                                               0
generally seeks to preserve the need to comply strictly
with regulatory requirements that are important,
especially when a party seeks the benefits of an
exemption clause. [Para 24] [844-F-G; 845-A-D]

    1.4 The substance of substantial compliance of an          E
enactment is insisted, where mandatory and directory
requirements are lumped together, for in such a case, if
mandatory requirements are complieci with, it would be
proper to say that the enactment has been substantially
complied with notwithstanding the non-compliance of            F
directory requirements. In cases where substantial
compliance has been found, there has been actual
compliance with the statute, albeit procedurally faulty.
[Para 24] [845-D-F]
                                                               G
     1.5 The doctrine of substantial compliance seeks to
preserve the need to comply strictly with the conditions
or requirements that are important to invoke a tax or duty
exemption and to forgive non-compliance for either
unimportant and tangential requirements or requirements
                                                               H
    826   SUPREME COURT REPORTS [2010] 13 (AOOL.) S.C.R.


A that are so confusingly or incorrectly written that an
  earnest effort at compliance should be accepted. 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
B examined is whether the requirements relate to the
  "substance" or "essence" of the statute, if so, strict
  adherence to those requirements is a pre-condition to
  give effect to that doctrine. On the other hand, if the
  requirements are procedural or directory in that they are
c 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. A mere
  attempted compliance may not be sufficient, but actual
  compliance of those factors which are considered as
  essential. [Para 24] [845-E-H; 846-A-B]
0
       2.1 The compliance of the provisions of Chapter X of
  the Central Excise Rules is a pre-condition for claiming
  exemption from payment of excise duty on the specified
  goods, which otherwise attracted duty. Show cause
E notices were issued to the respondents-assessees in
  Civil Appeal Nos. 1878-1880, since they had
  manufactured the excisable goods (at the supplier end)
  without obtaining registration under Section 6 read with
  Rule 174 and by contravening the provisions of Rules
F 9(1), 52A, 53, 54, 1738, 173C, 173F and 226 of the Rules
  for which duty liability, interest thereon and penalty were
  imposed. Even assuming that the respondents were
  eligible for exemption from duty, the respondents could
  not be absolved from the legal obligation to comply with
G the statutory requirements for the manufacture of
  excisable goods at the supplier end. [Para 18] [840-D-F]

         2.2 The purpose and object of the Notification No.
    121 /94-CE dated 11.8.1994 was to exempt those specified ·

H
 COMMNR. OF CENTRAL EXCISE v. HARi CHAND                 827
              SHRI GOPAL
intermediate goods, which were otherwise excisable to           A
duty, and not to exempt or absolve the respondents from
following the statutory requirements for the manufacture
of intermediate excisable goods. The Notification under
Chapter X was designed in such a manner to ensure an
insep.arable link between the supplier and recipient of         B
excisable goods for the manufacture of specified final
products. Rule 192 of Chapter X states that a
manufacturer intending to receive duty free goods under
remission is required to make an application in Form R-
1 for obtaining excisable goods to be used for special          c
industrial purpose giving details of the estimated quantity
of each class or variety of goods and the value of such
 goods likely to be used during the year, commodities to
be manufactured and estimated output and clearance of
each commodity during the year, manner of manufacture,
                                                                0
 purpose for which manufactured product is supplied and
the source from which excisable goods will be obtained.
 [Para 19] [841-G-H; 842-A-C]

    2.3 The details to be furnished in Form No. 1 as per
Rule 192 and the declaration to be made, relate to the          E
"substance" and "essence" of Chapter X. R-2
Registration Certificate is also pre-requisite to obtain CT2
Certificate. The execution of bonds as provided in that
Chapter is also not an empty formality for obtaining the
duty free excisable goods. Bonds also insist for a              F
declaration. CT-2 Certificate would be issued only if a
party gets registered under Form R-2 from the
Registering Authority. Only if CT-2 Certificate. is obtained,
the excisable goods could be removed. Form RG16
Register and the details to be furnished in Form RT11 are       G
also statutory in nature, which relate to the "substance"
and "essence" of the requirements under Chapter X.
Those requirements had not been complied with. [Para
25] [846-B-D]
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    828   SUPREME COURT REPORTS [2010] 13 (ADDL.) S.C.R.


A      2.4 The plea of the respondents that they had
  identical columns in the registers kept at the recipient
  end and, therefore, the requirement of maintaining
  separate register at the supplier end and the
  requirements of Chapter X was substantially complied
B with for remission, is of no avail. RG-16 Register
  prescribed was specific to Chapter X with the sole
  intention of maintaining separate accounts for receipt,
  issue and usage of duty free remitted inputs received from
  the supplier unit. Similarity of columns and the details
c furnished therein cannot be considered as substitute for
  not maintaining of RG-16 Register or other registers for
  remission of duty under Chapter X. [Para 26) [846-E-G]

        2.5 At the supplier end, no registration under Rule
  174 was obtained and no records were kept. The
D applicants, at the recipient end, were also legally obliged
  to give various declarations in the statutory forms so as
  to claim exemption and such declarations admittedly
  were not made. Non-compliance of those conditions
  enumerated under various rules in Chapter X of the
E Excise Rules and non-furnishing of various statutory
  forms prescribed under Chapter X, are fatal to a plea of
  substantial compliance and intended use. Therefore, the
  respondents on the facts of the case, have not
  succeeded in establishing the plea of 'intended use' or
F 'the substantial compliance' of the procedure set out in
  Chapter X so as to claim the benefit of the exemption
  Notification dated 11.8.1994. [Para 27) [846-H; 847-A-C]

       Thermax Private Ltd. v. Collector of Customs (Bombay)
G New Custom House (1992) 4 SCC 440; Collector of Central
  Excise, Jaipur v. J. K. Synthetics (2000) 10 SCC 393 -
  distinguished.

       3. As regards Civil Appeal Nos. 568-569 of 2009, it is
  difficult to sustain the reasoning of the Tribunal that the
H procedure laid down in Chapter X, is meant only to
 COMMNR. OF CENTRAL EXCISE v. HARi CHAND               829
              SHRI GOPAL
establish the receipt of goods by the recipient unit and      A
their utilization. The tribunal completely overlooked the
object and purpose of the procedure laid down in Chapter
X. The goods manufactured at the supplier's end were
excisable goods and if a party wanted remission of duty;
he was to follow certain pre-requisites, the object of        B
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           c
"substantial compliance" and "intended use" is,
therefore, rejected. (Para 34) (850-C-E]

     4. So far as Civil Appeal No. 1631 of 2001 is
concerned, the Tribunal found that the assessee was not
eligible for the benefit of Notification No. 48194-CE dated   D
1.3.1994 since the assessee had not followed the
procedure set out in Chapter X of the Excise Rules by
clearing PCB from their unit to the central store at place
•6• The tribunal held that under Chapter X, the assessee
who wanted to avail of the benefit of exemption               E
Notification had to file application in Form AL-6 to the
jurisdictional Central Excise authorities and had to obtain
L-6 licence and had to follow the other procedures laid
down in that chapter which are mandatory requirements
for claiming the exemption from duty. On facts as well as     F
on law, the view taken by the tribunal is upheld. (Para 31]
[848-G-H; 849-A-C]

      The Commissioner of Central Excise, New Delhi v. Hari
Chand Shri Gopal etc. (2005) 8 SCC 164; Novopan India G
Ltd., Hyderabad v. Collector of Central Excise and Customs,
Hyderabad (1994) Supp. 3 SCC 606; Rajasthan Spinning
and Weaving Mills Limited, Bhilwara, Rajasthan v. Collector
of Central Excise, Jaipur, Rajasthan (1995) 4 SCC 473;
Commissioner of Central Excise v. M.P. V. and Engineering H
    830   SUPREME COURT REPORTS [2010] 13 (ADDL.) S.C.R.


A Industries (2003) 5 SCC 333; Commissioner of Central
  Excise, Trichy v. Rukmani Pakkwell Traders (2004) 11 SCC
  801; Commissioner of Central Excise, Chandigarh-I v.
  Mahaan Dairies (2004) 11 SCC 798; Commissioner of
  Central Excise, Allahabad v. Ginni Filaments Ltd. (2005) 3
B SCC 378; Commissioner of Customs (Imports), Mumbai v.
  Tullow India Operations Ltd. (2005) 13 SCC 789; Tata Iron &
  Steel Co. Ltd. v. State of Jharkhand and Ors. (2005) 4 SCC
  272; Sarabhai M. Chemicals v. Commissioner of Central
  Excise, Vadodara (2005) 2 SCC 168; State of Jharkhand and
c Others v. Tata Cummins Ltd. and Anr. (2006) 4 SCC 57; A.P.
  Steel Re-Rolling Mill Ltd. etc. v. State of Kera/a and Ors.
  (2007) 2 SCC 725; State of Orissa and Ors. v. Tata Sponge
  Iron Ltd. (2007) 8 SCC 189; Commissioner of Central Excise,
  Jaipur v. Mewar Bartan Nirmal Udyog 2008 (231) ELT 27
  (SC); State of Haryana v. Samtel India Ltd. 2008 (15) VST
0
  176 (SC); G.P.Ceramics Pvt. Ltd. v. Commissioner, Trade
  Tax, Uttar Pradesh (2009) 2 SCC 90; Gopa/ Zarda Udyog v.
  Commissioner of Central Excise (2005) 8 SCC 157 -
  referred to.
E                      Case Law Reference:
      (2005) 8 sec 164          Referred to        Para 13
      (1994) Supp. 3 sec 606    Referred to        Para 13

F     (1995) 4 sec 473          Referred to        Para 13
      (2003) 5 sec 333          Referred to        Para 13
      (2004) 11 sec 801         Referred to        Para 13
      (2004) 11 sec 798         Referred to        Para 13
G
      (2005) 3 sec 378          Referred to        Para 13
      (2005) 13 sec 789         Referred to        Para 13
      (2005) 4 sec 212           Referred to       Para 13
H
 COMMNR. OF CENTRAL EXCISE v. HARi CHAND                 831
               SHRI GOPAL
  (2005) 2 sec 168             Referred to         Para 13      A
  (2006) 4 sec 57              Referred to         Para 13
  (2001) 2 sec 725             Referred to         Para 13
  (2001) 8 sec 189             Referred to         Para 13
                                                                B
  2008 (231) ELT 27 (SC)       Referred to         Para 13
  2008 (15) VST 176 (SC)       Referred to         Para 13
  (2009) 2 sec 90              Referred to         Para 13
                                                                c
  (2005) 8 sec 157             Referred to         Para 15
  (1992) 4 sec 440             Distinguished       Para 30
  c2000) 10 sec 393            Distinguished       Para 30
    CIVIL APPELLATE JURISDICTION : Civil Appeal No.             D
1878-1880 of 2004 ..

    From the Judgment & Order dated 07.07.2003 of the
Customs, Excise and Service Tax Appellate Tribunal, New Delhi
in Appeal Nos. E-2595/02-D,E/2596/02-D and E/2597/02-D.         E

                           WITH

C.A. Nos. 1631 of 2001 & 568-569 of 2009.

    Vivek Tankha, ASG, Harish N. Salve, Ranjit Kumar, K.        F
Swami, Rahul Kaushik, Pratul Shandilya, Rishabh Sancheti,
Sumeer Sodhi, Vaibhav Srivastava, D. Kumanan, B.K. Prasad,
Shreekant N. Terdal, Alok Yadav, V. Balachandran, M.P.
Devanath, Vivek Kohli, Ashwani Sharma, Sidharth Tandon,
Manoj Gupta, Gayatri Goswami, Rahul Chugh, Ashish Garg,         G
Subramonium Prasad, S. Gurukrishakumar, Srikala
Gurukrishna Kumar, S.R. Setia for the appearing parties.

    The Judgment of the Court was delivered by

    K. s. PANICKER RADHAKRISHNAN, J. 1. The question            H
    832    SUPREME COURT REPORTS [2010] 13 (ADDL.) S.C.R.


A that falls for consideration in these appeals is whether a
  manufacturer of a specified final product falling under the
  schedule of the Central Excise Tariff Act, 1985 (in short "the
  Tariff Act") is eligible to get the benefit of exemption from
  remission of excise duty on specified intermediate goods as
B per Notification no. 121/94-CE dated 11.8.1994, if captively
  consumed for the manufacture of final products on the ground
  that the records kept by it at the recipient end would indicate
  its "intended use" and "substantial compliance" of the procedure
  set out in Chapter X of the Central Excise Rules, 1944 (in short
c 'the Excise Rules").
         2. The above question was decided by the Customs,
    Excise and Service Tax Appellate Tribunal (in short 'the
    Tribunal") in favour of the respondents-assessees, relying upon
    the judgments of this Court in Thermax Private Ltd. v. Collector
D   of Customs (Bombay) New Custom House (1992) 4 SCC 440
    and Collector of Central Excise, Jaipur v. J.K. Synthetics,
    (2000) 1O sec 393 on· the ground of "intended use" and the
    principle of "substantial compliance". The matter came up
    before the three Judge Bench of this Court which doubted the
E   correctness and the applicability of the above mentioned
    judgments and took the view that the exemption notification
    called for strict interpretation so far as the eligibility is
    concerned especially when an assessee seeks exemption of
    duty under a notification issued by the Central Government in
F   exercise of the powers conferred by Sub-section (1) of Section
    5A of the Central Excise and Salt Act 1944, read with Sub-
    section(3) of Section 3 of the Additional Duties of Excise
    (Goods of Specified Importance) Act 1957, which called for
    compliance of the procedure set out in Chapter X of the Central
G   Excise Rules 1944. Further, it was also observed that in
    Thermax Private Ltd. (supra) and J.K. Synthetics (supra), this
    Court was dealt with a situation where goods were imported,
    from outside the country, unlike the present case where
    specified intermediate goods were locally manufactured, in
H   some other units of the respondents. The Court ordered that
 COMMNR. OF CENTRAL EXCISE v. HARi CHAND 833
SHRI GOPAL [K.S. PANICKER RADHAKRISHNAN, J.]
the matter required reconsideration and referred the matter to      A
a Larger Bench. The order of reference is reported in The
Commissioner of Central Excise, New Delhi v. Hari Chand
Shri Gopal etc. (2005) 8 SCC 164.

    3. We may first refer to the facts in Civil Appeal Nos. 1878-   8
1880 of 2004, which is taken as the leading case.

FACTS:

     4. The respondents herein Mis Gopal Industries, M/s Hari
Chand Shri Gopal and M/s Gopal Zarda Udyog were engaged             C
in the manufacture of excisable goods viz. preparation
containing chewing tobacco falling under Chapter Heading no.
2404.40 of the Tariff Act, then chargeable to nil rate of duty,
which was made leviable to central excise duty with effect from
1.3.1994. The Intelligence Wing of the Department came to           D
know that the respondents had been manufacturing the said
goods without applying/obtaining the certificate of registration
as required under Rule 174 of the Excise Rules and had been
removing the same clandestinely from their factories without
payment of central excise duty leviable thereon and without         E
following any of the prescribed procedures. It was noticed that
a major portion of the above goods manufactured was
consigned to M/s Gopal Zarda Udyog (Meerut), M/s Hari Chand
Shri Gopal, Baddi District, Solan (H.P.) and M/s Gopal
Industries, Baddi (H.P.) under the cover of 'transfer chatlans'
                                                                    F
describing therein the said goods as "ADDICTIVE MIXTURES"
or "KIMAM/K". On 28.9.1996, the factories of the respondents
at Delhi were inspected by the Central Excise (Preventive)
Officer of MOD IV, Delhi and took the samples of the finished
products and detailed statements were also recorded from the
partners of the firms. The Central Excise Officers also visited     G
the various factories of the respondents at Solan and Baddi on
3.10.1996 and it was noticed that the addictive Mixture (Kimam)
manufactured at the factories at Delhi was being clandestinely
removed for the manufacturing of chewing tobacco. The
Officers noticed that the respondents were manufacturing the        H
    834   SUPREME COL)RT REPORTS (201 OJ 13 (ADDL.) S.C.R.


A excisable goods Kimam falling under the Tariff Act under
  Chapter Sub-heading no. 2404.49 (up to 22.7.1996) and, with
  effect from 23.7.1996, covered under Chapter Sub-heading no.
  2404.40, packed the same in the containers of different
  capacities as per the requirement of buyer/consumer without
B obtaining Central Excise Registration Certificate in
  contravention of the provisions of Section 8 of the Tariff Act read
  with Rule 174 of the Excise Rules up till 14.10.1996 and
  removed the same from their factories clandestinely without
  payment of central excise duty in contravention of the provisions
c of Rules 9(1 ), 52A, 53, 54, 1738, 173C, 173F and 226 of the
  Excise Rules.

       5. The Central Excise Officers noticed that, during the
  period from 18.3.1994 to 15.4.1995, M/s Gopal Zarda Udyog
  had manufactured and removed from their factory a total quantity
D of 1,52,226.150 Kgs. of preparation containing Kimam,
  collectively valued at Rs.15,27,90,675.00 and the amount of
  duty involved was fixed at Rs.6,14,17,770.00.

       6. Mis Gopal Industries, during the period from 16.6.1995
E to 26.9.1996, had manufactured and removed from their factory
  a total quantity of 2,66,648.800 kgs. of preparation containing
  Kimam collectively valued at Rs.16,26,68,569.00 and the
  amount of duty involved was fixed at Rs.8, 13,34,285.00.

F         7. M/s Hari Chand Shri Gopal also, during the period from
    14.6.1995 to 24.9.1996 had manufactured and removed from
    their factory a total quantity of 1,51.054.900 kgs. of preparation
    containing Kimam collectively valued at Rs.15,86,77,319.00
    and the amount of duty involved was fixed at
    Rs. 7,93,38.660.00.
G
       8. Consequently, on 25.3.1997, notices were issued to the
  respondents and their partners to show cause why the amounts
  of duty involved should not be demanded from them jointly and
  severally under Rule 9(2) of the Excise Rules read with the
H proviso to Section 11A(1) of the Tariff Act and interest thereon
 COMMNR. OF CENTRAL EXCISE v. HARi CHANU 835
SHRI GOPAL [K.S. PANICKER RADHAKRISHNAN, J.]
under Section 11AB of the Tariff Act, be not demanded from          A
them. Penalty under Rule 173Q of the Excise Rules read with
Section 11 AC of the Tariff Act and Rule 209A of the Excise
Rules was also demanded. In addition to above, the
respondents were also asked to show cause why the land,
building, plant and machinery used in their respective factories    B
for the manufacture of Kimam should not be confiscated under
 Rule 1730(2) of the Excise Rules.

     9. The respondents filed detailed objections to the show
cause notices and disputed their liability and also claimed         C
exemption under the Notification no. 121/94-CE. The
Commissioner (Excise) by his order dated 20.5.1998 rejected
the objections filed by the respondents against the show cause
notices and determined that M/s Gopal Zarda Udyog, M/s
Gopal Industries and M/s Hari Chand Shri Gopal were liable
to pay central excise duty of Rs.6,14,17,770/-, Rs.8,13,34,285/     D
- and Rs.7,93,38,660/- respectively and also imposed the
penalty of Rs.16,00,000/-, Rs.18,00,000/- and Rs.17 ,00,000/-
on them under Rule 173Q of the Excise Rules and ordered
confiscation of the goods seized from the premises of M/s
Gopal Industries and M/s Hari Chand Shri Gopal respectively,        E
with permission to redeem the confiscated goods on
redemption of fines of Rs. 5,00,000/- and Rs.3,20,000/-
respectively.

     10. Aggrieved by the above mentioned orders, appeals           F
were preferred before the Tribunal and the Tribunal vide order
dated 01~10.1999 concurred with the findings of the
Adjudicating Commissioner on duty liability on the goods in
question and also on the issue of limitation as well as the claim
for proforma credit/modvat credit, but ordered re-examination       G
of the limited question of the applicability of Notification 121/
94-CE dated 11.8.1994 since the respondents had raised the
contention that they had substantially complied with the
procedures laid down in Chapter X. The matter was then
reconsidered by the Commissioner as directed by the Tribunal.
                                                                    H
    836   SUPREME COURT REPORTS (2010] 13 (ADDL.) S.C.R.


A The respondents contended before the Commissioner that they
  had despatched the goods to their final manufacturing units
  though transferring challans and the receipts were recorded in
  Form-IV Register/Stock Register and the utilization of the
  goods was recorded in RG-12 Register. Further, it was also
B stated that the final products manufactured by the respondents
  could be ascertained from RG-1 Register maintained at the
  recipient end and those records would be sufficient to establish
  use of the goods and establish the plea of substantial
  compliance of the procedure set out in Chapter X for duty
c exemption.

        11. The Commissioner rejected all the contentions vide his
  order dated 16.07.2002 and held that the benefit of the
  exemption notification would be available only if the procedures
  laid down in Chapter X were complied with and that the records
D produced by the respondents would not substantiate a plea of
  substantial compliance of the procedure laid down in the above
  mentioned Chapter. The imposition of the duty liability, interest ,
  and penalty was therefore confirmed.
                                                                     ..
E      12. The respondents, carried the matter in appeal before
  the Tribunal. The Tribunal, we have already indicated, placed
  reliance on the judgments of this Court in Thermax Private Ltd.
  (supra) and J.K. Synthetics (supra) and took the view that the
  benefit of the exemption notification should not be denied if
F "intended use" of the goods was established, though there was
  non-compliance of the procedural conditions of Chapter X.
  Appeals were accordingly allowed and the order of the
  Commissioner was set aside. Aggrieved by the said order of
  the Tribunal, these appeals have beeri preferred by the
G Commissioner of Central Excise, New Delhi.

       13. Mr. Vivek Tankha, learned Additional Solicitor General
  of India appearing for the Revenue, submitted that the benefit
  of the Notification no. 121/94-CE dated 11.8.94 would be
  available to the respondents only if the procedures prescribed
H under Chapter X are strictly complied with. Learned ASG
 COMMNR. OF CENTRAL EXCISE v. HARi CHAND                    837
SHRI GOPAL [K.S. PANICKER RADHAKRISHNAN,               JJ
submitted that the duty liability was confirmed by the Tribunal A
which would indicate that the respondents at the suppliers' end
did contravene the provisions of Rules 9(1), 52A, 53, 54, 1738,
173C, 173F and 226 of the Excise Rules and it is, due to that
reason, that show cause notices dated 25.03.1997 were
served on the respondents. Learned ASG submitted that the B
mere fact that the respondents had maintained some records
at the recipient end would not be sufficient to satisfy the
"intended use" or the plea of "substantial compliance" of the
procedure laid down in Chapter X of the Excise Rules. Learned
counsel submitted that an exemption notification must be strictly c
complied with and the assessee should bring himself within the
ambit of the notification. Reference was made to the decisions
of this Court reported in Novopan India Ltd., Hyderabad v.
Collector of Central Excise & Customs, Hyderabad (1994)
Supp. 3 SCC 606, Rajasthan Spinning and Weaving Mills D
Limited, Bhilwara, Rajasthan v. Collector of Central Excise,
Jaipur, Rajasthan (1995) 4 SCC 473, Commissioner of
Central Excise v. MP. V. & Engineering Industries (2003) 5
SCC 333, Commissioner of Central Excise, Trichy v. Rukmani
Pakkwell Traders (2004) 11 SCC 801, Commissioner of
Central Excise, Chandigarh-I v. Mahaan Dairies (2004) 11 E
SCC 798, Commissioner of Central Excise, Allahabad v.
Ginni Filaments Ltd. (2005) 3 SCC 378, Commissioner of
Customs (Imports), Mumbai v. Tullow India Operations Ltd.
(2005) 13 SCC 789, Tata Iron & Steel Co. Ltd. v. State of
Jharkhand and Ors. (2005) 4 SCC 272, Sarabhai M. F
Chemicals v. Commissioner of Central Excise, Vadodara
(2005) 2 SCC 168, State of Jharkhand and Others v. Tata
Cummins Ltd. and Another (2006) 4 SCC 57, A.P. Steel Re-
Rolling Mill Ltd. etc. v. State of Kera/a & Ors. (2007) 2 SCC
725, State of Orissa and others v. Tata Sponge Iron Ltd. (2007) G
8 SCC 189, Commissioner of Central Excise, Jaipur v. Mewar
Bartan Nirmal Udyog 2008 (231) ELT 27 (SC), State of
Haryana v. Samte/ India Ltd. 2008 (15) VST 176 (SC) and
G.P. Ceramics Pvt. Ltd. v. Commissioner, Trade Tax, Uttar
Pradesh (2009) 2 SCC 90.                                          H
    838   SUPREME COURT REPORTS (2010] 13 (ADDL.) S.C.R.

A         14. Shri Harish Salve, learned senior counsel appearing
    for the assessee-respondents, on the other hand, contended
    that the assessee had produced documentary evidence to
    prove that the entire quantity of kimam were transferred from
    their one unit to another and was utilized in the manufacture of
8   branded chewing tobacco and cleared on payment of duty.
    Further, it was also stated that the assessee had produced the
    transfer challans under which the Kimam was transferred to the
    other unit. Learned senior counsel also made reference to
    Form IV Register/Stock Register regarding receipt of the
C   Kimam and also to Form RG-12, kept for the manufacture of
    excisable tobacco products. Reference was made to RG-1
    Register, maintained under Rules 47, 53 and 173G. Learned
    senior counsel contended that the details furnished in those
    records would be sufficient to establisflthe intended use (the
    actual use) of Kimam for the man)Jfacture of final products.
D   Learned senior counsel submitted that, as per the decisions
    of Thermax Private Ltd. (supra) and J. K. Synthetics (supra),
    the benefit of exemption notification cannot be denied if there
    has been a substantial compliance of the procedure laid down
    in Chapter X and intended use of the goods for the
E   manufacture of final product has been established. Learned
    senior counsel submitted that the conditions stipulated in
    Chapter X are only procedural in nature and hence directory,
    warranting liberal construction, and if so construed, the benefit
    of the exemption notification cannot be denied. Learned senior
F   counsel submitted that the Tribunals and some of the High
    Courts are following the above principle, uniformly applying the
    principles laid down in Thermax Private Ltd. (supra) and J.K.
     Synthetics Ltd. (supra)

G      15. We may, before examining various contentions raised
  by the respective parties, point out that the Respondents had
  earlier approached this Court by filing C.A. Nos. 5747-5749 of
  2000, challenging the order of the Tribunal stating that Kimam
  was excisable and that the department was right in invoking the
H extended period of limitation under the proviso to Section
 COMMNR. OF CENTRAL EXCISE v. HARi CHAND 839
SHRI GOPAL [K.S. PANICKER RADHAKRISHNAN, J.]
11 (A)(1) of the Excise Act. This Court partly allowed the         A
appeals holding that the department was not entitled to invoke
the extended period of limitation under the proviso to Section
11 (A)(1) of the Excise Act, but held that the addictive mixture
Kimam was excisable and classifiable under Sub-heading
2404.49/2404.40. This Court also recorded a finding that           B
although there was contravention of the provisions of Section
6 read with Rule 174 and that they had not observed regulations
in the units at Delhi for the manufacture of excisable goods,
there was no intend to evade payment of duty. The judgment
is reported in Gopal Zarda Udyog v. Commissioner of Central        c
Excise (2005) 8 SCC 157.

     16. In this case, we are only concerned with the question
whether the respondents are entitled to get the benefit of the
exemption notification dated 11.8.1994 on the ground of
"intended use" and "substantial compliance" of the procedure       D
set out in Chapter X of the Excise Rules.

     17. Notification no. 121/94-CE dated 11.8.1994 was
issued by the Central Government in exercise of its powers
conferred by sub-section (1) of Section 5A of the Central          E
Excises and Salt Act, 1944 (1 of 1994) read with sub-section
(3) of Section 3 of the Additional Duties of Excise (Goods of
Special Importance) Act, 1957 (58 of 1957) in the public
interest for exempting certain specified intermediate goods if
those goods were captively consumed in the manufacture of          F
specified final products, falling under heading numbers or sub-
heading numbers of the Schedule to the Tariff Act. Notification
also stipulated that where such use of inputs was in a factory
of a manufacturer, different from his factory where the goods
had been produced, the exemption contained in this notification    G
would be allowable subject to the observance of the procedure
set out in Chapter X of the Excise Rules. The table, with which
we are concerned, is given below:


                                                                   H
    840   SUPREME COURT REPORTS (2010] 13 (ADDL.) S.C.R.


A   S.    Description of final         Heading        Heading
    No    products                     number or      number or
                                       sub-heading sub-heading
                                       number of      number of
                                       final products inputs
B   (1)   (2)                          (3)            (4)
    1.    )()()()()()()()()(           )()()()()()()()()(   )()()()()()(

    2.    Chewing tobacco           2401.41                 2404.49
          including preparations
          commonly known as
c         "Khara Masala", "Kimam",
          "Dokta", "Zarda", "Sukha"
          and "Surti"
    xxx   )()()()()()()()()(           )()()()()()()()()(   )()()()()()(


D
       18. The compliance of the provisions of Chapter X is a
  pre-condition for claiming exemption from payment of excise
  duty on goods, which otherwise attracted duty. Show cause
  notices were issued to the respondents since they had
E manufactured'the excisable goods (at the supplier end) without
  obtaining registration under Section 6 read with Rule 174 by
  contravening the provisions of Rules 9(1), 52A, 53, 54, 1738,
  173C, 173F and 226 of the Rules for which duty liability, interest
  thereon and penalty were imposed. Even assuming that the
  respondents were eligible for exemption from duty, the
F respondents could not be absolved from the legal obligation to
  comply with the statutory requirements for the manufacture of
  excisable goods at the supplier end.

       19. The purpose and object of the notification dated
G 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. The notification under Chapter X was designea in such
H a manner to ensure an inseparable link between the supplier
 COMMNR. OF CENTRAL EXCISE v. HARi CHAND 841
SHRI GOPAL [K.S. PANICKER RADHAKRISHNAN, J.]

and recipient of excisable goods for the manufacture of                A
specified final products. Rule 192 of Chapter X states that a
manufacturer intending to receive duty free goods under
remission is required to make an application in Form R-1 for
obtaining excisable goods to be used for special industrial
purpose giving details of the estimated quantity of each class         B
or variety of goods and the value of such goods likely to be
used during the year, commodities to be manufactured and
estimated output and clearance of each commodity during the
year, manner of manufacture, purpose for which manufactured
product is supplied and the source from which excisable goods          c
will be obtained.

      20. Based on the details furnished in Form R-1, the
 Registering Authority has to consider granting permission from
 remission of duty. For the said purpose, R-2 Certificate is
 required to be issued specifying that the registration certificate    D
 is meant for obtaining the excisable goods under Rule 192. On
the basis of R-2 Certificate, the manufacturer become eligible
for getting the excisable goods for which the remission of duty
 has been sought. Further, the applicant is also required to
execute a bond with security in Form B-8, as required under            E
Rule 192 and the Collector can put further conditions for filing
the B-16 Bond or B-17 Bond during the permission granted for
 remission of duty. On such request and after complying with all
the statutory formalities, the jurisdictional officer is required to
 issue C-2 Certificate and, on the strength of that certificate, the   F
applicant can obtain duty free goods. The jurisdictional officer
has also to certify that the said manufacturer is registered in
their Range under Rule 192 and is authorized for obtaining
excisable goods at NIL/concessional rate of duty for use in
special industrial purpose for the manufacture of specified            G
excisable goods at their factory. Further, on the strength of C-
2 Certificate, the excisable goods can be removed from the
factory of source manufacturer without payment of duty or
concessional rate of duty, as the case may be. Further, as per
sub-rule (1) of Rule 194, the applicant is required to maintain        H
    842    SUPREME COURT REPORTS [2010] 13 (ADDL.) S.C.R.


A proper records of such goods indicating quantity, value, rate
  and amount of duty, marks and number/wastage etc. in Form
  R.G.16 register. Further, the applicant is also required to file
  quarterly return in the form of R.T.11 and in that return, the
  registered person had to make entries regarding details of
B receipt of goods, quantities issued for manufacturing, wastage
  or other losses, description of process in which excisable goods
  to be used etc. The supplier of goods is required to be
  registered with Central Excise under Rule 174 and is also
  required to mention in Column 1O(i) or 1O(ii) of RT-12 returns
c the details of goods despatched to the assessee availing facility
  under Chapter X. The supplier of goods can remove the goods
  only under proper gate pass GP-1 and is required to mention
  the details of CT-2 on the gate pass.

          21. Rule 196 provides for payment of duty by the recipient
D   if the goods obtained under Rule 192 are not accounted for or
    used in the manner prescribed under these rules. Similarly, Rule
    196A stipulates that surplus goods so received under Rule 192
    can be cleared on payment of duty. Rule 196AA provides for
    transfer of such goods received under Rule 192 to another
E   manufacturer who has been granted registration under Rule
    192 with the prior approval of the proper officer. Rule 1968
    provides for the manner in which goods received under Rule
    192 may be disposed of if found defective or damaged, they
    can be returned to the original manufacturer and such returned
F   goods shall be added to the original manufacturer and such
    returned goods shall be added to the non-duty paid stock of
    the original manufacturer. Finally, Rule 196BB provides for
    movement of goods received under Rule 192 as such, or after
    partial processing outside the factory for repair and return. The
G   applicant, though registered under Rule 174, can receive the
    remitted goods for use in special industrial purpose only if it
    gets an endorsement to that effect on the Registration
    Certificate, so given in Form R-2, in advance which in this case
    was obtained only on 22.10.1996, after the event. Further,
H   Column 5 of Schedule of R-1 certificate clearly enjoins upon
 COMMNR. OF CENTRAL EXCISE v. HARi CHAND 843
SHRI GOPAL [K.S. PANICKER RADHAKRISHNAN, J.]
the recipient unit to furnish additional information viz. description   A
of goods to be obtained for industrial purpose, estimate quantity
in the year, details of the supplier of the goods etc. Further, it
is on the basis of R-2 Certificate, the jurisdictional Range
Officer issues a CT-2 certificate (Certificate for Transfer of
Goods) under the cover of which the remitted goods have to              B
move from the supplier unit to the recipient unit. CT-2 certificate
is required to be shown to the supplier unit who shall mention
the CT-2 number on the Gate Pass before delivering the goods
without payment of duty on the strength of CT-2 certificate.
Compliance of the above mentioned requirements, stipulated              c
in Chapter X, is a pre-requisite for getting exemption from the
remission of excise duty on the specified goods.

Exemption Clause - Strict Construction

      22. The law is well settled that a person who claims              D
exemption or concession has to establish that he is entitled to
that exemption or concession. 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              E
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          F
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.
In Novopan Indian Ltd. (supra), this Court held that a person,
invoking an exception or exemption provisions, to relieve him           G
of tax liability must establish clearly that he is covered by the
said provisions and, in case of doubt or ambiguity, the benefit
of it must go to the State. A Constitution Bench of this Court in
Hansraj Gordhandas v. H.H. Dave (1996) 2 SCR 253, held
that such a notification has to be interpreted in the light of the
                                                                        H
    844    SUPREME COURT REPORTS [2010] 13 (ADDL.) S.C.R.


A words employed by it and not on any other basis. This was so
  held in the context of the principle that in a taxing statute, there
  is no room for any intendment, that regard must be had to the
  clear meaning of the words and that the matter should be
  governed wholly by the language of the notification, i.e .. by the
B plain terms of the exemption.

        23. Of course, some of the provisions of an exemption
  notification may be directory in nature and some are of
  mandatory in nature. A distinction oetween provisions of statute
  which are of substantive character and were built in with certain
C specific objectives of policy, on the one hand, and those which
  are merely procedural and technical in their nature, on the other,
  must be kept clearly distinguished. In Tata Iron and Steel Co.
  Ltd. (supra), this Court held that the principles as regard
  construction of an exemption notification are no longer res
D integra; whereas the eligibility clause in relation to an exemption
  notification is given strict meaning wherefor the notification has
  to be interpreted in terms of its language, once an assessee
  satisfies the eligibility clause, the exemption clause therein may
  be construed literally. An eligibility criteria, therefore, deserves
E a strict construction, although construction of a condition thereof
  may be given a liberal meaning if the same is directory in
  nature.

  DOCTRINE OF SUBSTANTIAL COMPLIANCE AND
F 'INTENDED USE':
        24. The doctrine of substantial compliance is a judicial
  invention, equitable in nature, designed to avoid hardship in
  cases where a party does all that can reasonably expected of
  it, but failed or faulted in some minor or inconsequent aspects
G which cannot be described as the "essence" or the "substance"
  of the requirements. Like the concept of "reasonableness", the
  acceptance or otherwise of a plea of "substantial compliance"
  depends upon the facts and circumstances of each case and
  the purpose and object to be achieved and the context of the
H
 COMMNR. OF CENTRAL EXCISE v. HARi CHAND 845
SHRI GOPAL [K.S. PANICKER RADHAKRISHNAN, J.]

prerequisites which are essential to achieve the object and            A
purpose of the rule or the regulation. Such a defence cannot
be pleaded if a clear statutory prerequisite which effectuates
the object and the purpose of the statute has not been met.
Certainly, it means that the Court should determine whether the
statute has been followed sufficiently so as to carry out the intent   B
for which the statute was enacted and not a mirror image type
of strict compliance. Substantial compliance means "actual
compliance in respect to the substance essential to every
reasonable objective of the statute" and the court should
determine whether the statute has been followed sufficiently so        c
as to carry out the intent of the statute and accomplish the
reasonable objectives for which it was passed. Fiscal statute
generally seeks to preserve the need to comply strictly with
regulatory requirements that are important, especially when a
party seeks the benefits of an exemption clause that are
                                                                       D
important. Substantial compliance of an enactment is insisted,
where mandatory and directory requirements are lumped
together, for in such a case, if mandatory requirements are
complied with, it will be proper to say that the enactment has
been substantially complied with notwithstanding the non-
 compliance of directory requirements. In cases where                  E
 substantial compliance has been found, there has been actual
 compliance with the statute, albeit procedurally faulty. The
 doctrine of substantial compliance seeks to preserve the need
 to comply strictly with the conditions or requirements that are
 important to invoke a tax or duty exemption and to forgive non-       F
 compliance for either unimportant and tangential requirements
 or requirements that are so confusingly or incorrectly written
 that an earnest effort at compliance should be accepted. The
 test for determining the applicability of the substantial
 compliance doctrine has been the subject of a myriad of cases         G
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       H
                                             ~-   .
    846     SUPREME COURT REPORTS [2010] 13 (ADDL.) S.C.R.


A 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.
B
        25. The details to be furnished in Form No. 1 as per Rule
  192 and the declaration to be made, relate to the "substance"
  and "essence" of Chapter X. R-2 Registration Certificate is also
  pre-requisite to obtain CT2 Certificate. Further, the execution
  of bonds as provided in that chapter is also not an empty
C formality for obtaining the duty free excisable goods. Bonds
  also insist for a declaration. CT-2 Certificate will be issued only
  if a party gets registered under Form R-2 from the Registering
  Authority. Only if CT-2 Certificate is obtained, the excisable
  goods could be removed. Form RG16 Register and the details
D to be furnished in Form RT11 are also statutory in nature, which
  relate to the "substance" and "essence" of the requirements
  under Chapter X. lndisputedly, those requirements had not been
  complied with.

E      26. The respondents have laid great emphasis on
  maintenance of some statutory registers and filing of periodical
  returns at the recipient unit, so as to take the shelter under the
  doctrine of substantial compliance for remission of duty.
  Respondents pointed out that they had identical columns in the
F registers kept at the recipient end, hence, the requirement of
  maintaining separate register at the supplier end and the
  requirements of Chapter X was substantially complied with. It
  may be noted that RG-16 Register prescribed was specific to
  Chapter X with the sole intention of maintaining separate
G accounts for receipt, issue and usage of duty free remitted
  inputs received from the supplier unit. Similarity of columns and
  the details furnished therein cannot be considered as substitute
  for not maintaining of RG-16 Register or other registers for
  remission of duty under Chapter X.

H         27. We have already indicated that, at the supplier end,
 COMMNR. OF CENTRAL EXCISE v. HARi CHAND 847
SHRI GOPAL [K.S. PANICKER RADHAKRISHNAN, J.]
no registration under Rule 174 was obtained and no records           A
were kept. The applicants, at the recipient end, were also legally
obliged to give various declarations in the statutory fOfms so
as to claim exemption and such declarations admittedly were
not made. Non-compliance of those conditions enumerated
under various rules in Chapter X of the Excise Rules and non-        8
furnishing of various statutory forms prescribed under Chapter
X, in our view, are fatal to a plea of substantial compliance and
intended use. The respondents, therefore, on the facts of this
case, have not succeeded in establishing the plea of "intended
use" or "the substantial compliance" of the procedure set out        C
in Chapter X so as to claim the benefit of the exemption
notification dated 11.8.1994.

     28. We will now examine whether the judgments in
Thermax Private Ltd. (supra) and J.K. Synthetics (supra)
require re-consideration. In Thermax Private Ltd. (supra), the       D
assessee had cleared imported goods after paying the custom
duty as well as the additional duty (CVD). Later, it was felt that
it should have claimed the concession in respect of CVD on
the strength of Notification nos. 63/85 and 93/76 issued under
Section 8 of the Tariff Act. Therefore, an application for refund    E
of CVD was submitted which was rejected by the Assistant
Collector, but was allowed by the Collector in appeal. On
appeal, the Tribunal took the view that the assessee had failed
to satisfy the conditions laid down in Chapter X. On appeal by
the assessee, this Court took the view that the Tribunal was in      F
error in holding that the assessee could not get refund because
the procedure of Chapter X of the Excise Rules was not
complied with. This Court mainly relied on the letter of the Board
dated 27.7.1987 wherein it was stated that whenever intended
use of material could be established by the importer, the benefit    G
of exemption notification should not be denied on the imported
goods only because the procedural condition falling under
Chapter X was not complied with. It is under such
circumstances that this Court allowed the claim of the assessee
and ordered refund. Reasoning of this Court in Thermax
                                                                     H
    848    SUPREME COURT REPORTS [2010] 13 (ADDL.) S.C.R.


A Private Ltd. (supra) is inapplicable to the facts of the present
  case. In the instant, case, we are not concerned with the goods
  imported from outside the country. Both the suppliers of
  specified intermediate goods as well as manufactures of
  specified final products are situated in India and are obliged
B to follow various statutory provisions, not only for the
  manufacture of excisable goods, but also for claiming
  exemption under the notification dated 11.8.1994.
  Consequently, the plea of intended use of the materials cannot
  be applied to the facts of the present case.

C      29. In J. K. Synthetics (supra), the assessee was the
  manufacturer of polyster chips, staple fibre and tow from Mono-
  Ethylene Glycol (MEG). On importing those goods, they claimed
  exemption from payment of additional duty of customs thereon
  because MEG was exempted from the payment of excise duty
D by virtue of notification dated 4.5.1987 issued under Section 8
  of the Tariff Act. In that case, the contention was raised by the
  Revenue that the assessee had not followed the conditions laid
  down in Chapter X of the Excise Rules. But the Tribunal, on
  facts, found that there had been substantial compliance of the
E procedure by the assessee, which was approved by this Court
  without laying down any principle as such which cannot be
  applied to the facts of the present case.

       30. Consequently, the decisions of this Court in Thermax
  Private Ltd. (supra) and J. K. Synthetics (supra) cannot be
F applied in all facts situation and it is declared that the findings
  recorded in those decisions would be confined to the facts of
  those cases.

    CIVIL APPEAL NO. 1631 OF 2001
G
       31. Civil Appeal No. 1631 of 2001 arises out of the Order
  dated 1.12.2000 passed by the Tribunal at New Delhi. The
  issue involved in that case is whether the exemption from the
  payment of central excise duty was available to the populated
H Printed Circuit Board (PCB), manufactured and cleared by the
 COMMNR. OF CENTRAL EXCISE v. HARi CHAND 849
SHRI GOPAL [K.S. PANICKER RADHAKRISHNAN, J.]
assessee under Notification no. 48/94-CE dated 1.3.1994. The         A
Tribunal found that the assessee was not eligible for the benefit
of the notification since the assessee had not followed the
procedure set out in Chapter X of the Excise Rules by clearing
PCB from their unit to the central store at A-11, Okhla Industrial
Area, Phase 1. New Delhi. The Tribunal held that, under Chapter      B
X, the assessee who wanted to avail of the benefit of exemption
notification had to file application in Form AL-6 to the
jurisdictional Central Excise authorities and had to obtain L-6
licence and had to follow the other procedures laid down in that
chapter which, in our view, are mandatory requirements for           c
claiming the exemption from duty in the light of the principles
discussed by us in the other appeals. On facts as well as on
law, we fully endorse the view taken by the Tribunal and the
appeal would stand dismissed.

CIVIL APPEAL NOS. 568-569 OF 2009                                    D

      32. These appeals have been preferred by the Revenue
against the order dated 6.5.2008 passed by Tribunal at New
Delhi, holding that the assesses are entitled to the benefit of
Notification no. 3/2001-CE and 6/2001-CE, irrespective of the        E
fact that the procedures under Chapter X were followed or not.
The Tribunal expressed the view that the procedure laid down
in Chapter X is meant to be followed only to establish the
receipt of goods by the recipient unit and their utilization.
                                                                     F
      33. The assessee in these appeals were engaged in the
manufacture of pump parts and gun metal casting falling under
Chapter 84 and Chapter 73 respectively of the First Schedule
of the Tariff Act and claimed the benefit of above mentioned
notifications. The Officers of the Central Excise Department
carried out a search at the factory premises of the assessee         G
on 25.8.2004. On the basis of that search, the Commission
took the view that the assessee had contravened the procedure
of the exemption notification and removed the excisable goods
clandestinely. A notice was issued to show cause why the
central excise duty and the penalty therein be not imposed on        H
    850    SUPREME COURT REPORTS [2010] 13 (AODL.) S.C.R.

A the assessee. The Commissioner, Central Excise, Ahmedabad
  vide order dated 31.5.2007 demanded central excise duty of
  Rs.15, 14,966/- from Mis Neatwell Castings under proviso to
  Section 11-A of the Central Excise Act, 1944 by invoking
  extended period of five years along with the penalty thereon. In
B appeal filed by the assessee before the Commissioner
  (Appeals), it was held that the benefit of the notification could
  not be denied only on the ground that the procedure laid down
  in Chapter X had not been followed. The decision of the
  Commissioner (Appeals) was upheld by the Tribunal in appeal.
c      34. We find it difficult to sustain the reasoning of the
  Tribunal that the procedure laid down in Chapter X, is meant
  only to establish the receipt of goods by the recipient unit and
  their utilization. The Tribunal completely overlooked the object
  and purpose of the procedure laid down in Chapter X. The
D goods manufactured at the supplier end were excisable goods
  and if a party wants remission of duty, he has to follow certain
  pre-requisities, 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
E 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, th.erefore, rejected for the
  reasons already stated.

F       35. Consequently, Civil Appeal Nos. 1878-1880 of 2004
    and Civil Appeal Nos. 568-569 of 2009 preferred by the
    Revenue would stand allowed and Civil Appeal No. 1631 of
    2001 shall stand dismissed. There will be no order as to costs.

    N.J.                                    Appeals disposed of.