Holding

The clarificatory Notification No.95/94 is retrospective and confirms that parts of power driven pumps used in manufacture were exempt from excise duty from 1 March 1994, rendering the demand for duty unlawful.

Summary

Mis. W.P.1.L. Ltd., a manufacturer of power driven pumps, challenged demand notices for excise duty on parts of pumps used in its own factory between 1 March and 21 April 1994. The appellant argued that such parts had been exempt from duty since 1978 and that the omission of this exemption in the consolidated Notification No.46/94 (1 March 1994) was corrected by a later clarificatory Notification No.95/94 (25 April 1994). The Court held that the clarificatory notification was retrospective, merely making explicit an implicit exemption that had always existed, and therefore the parts were exempt for the entire period. Consequently, the demand for excise duty was held unlawful. The Court allowed the appeals and ordered refund of any deposit made by the appellant.

Issues considered

Whether parts of power driven pumps used in manufacture within the factory were exempt from excise duty under the 1978 and subsequent notifications.
Whether the clarificatory Notification No.95/94 dated 25 April 1994 is retrospective and confers exemption for the period between 1 March and 25 April 1994.
Whether the demand notices issued for the said period are legally valid.
Interpretation of clarificatory notifications under the Central Excise Act and Rules.

Legislation cited

Subjects

excise dutyexemptionclarificatory notificationretrospective effectpower driven pumpstax lawstatutory interpretation

Judgment

A MIS. W.P.1.L. LTD .• GHAZIABAD
r.
COMMISSIONER OF CENTRAL EXCISE, MEERUT, U.P.

FEBRUARY 22, 2005

B [RUMA PAL, ARIJIT PASA YAT AND C.K. THAKKER, JJ.]
-
Central Excise Rules, 1944-Rule 8 :

Parts of power driven pumps used for manufacturing pumps within the
C factory-Eligibility to benefit ofexemptionji-0111 payment ofduty-Notification
No.46194, dated March 1, 1994, a composite notification incorporating earlier
exemption notifications, did not show the said item to be exempted, though it
had all along been exempted since 1978 in view of consistent Govt. policy-
Notification No.95194 issued subsequently, however, clarified that the said
D item was also exempted-Held, the subsequent notification was merely
clarificat01y and made explicit what was implicit-Hence, exemption from
payment of duty is available for the intervening period between issuance of
Notification Nos. 46194 and 95194 i.e. between March 1, 1994 and April 25,
1994-Central Excise Tari.ff Act, 1985-Tarijf Heading No. 84.13-Centra/
. Excise and Salt Act, 1944-First Schedule. Item No. JOA.
E
Exemption from duty-ClarificatOJy notification-Being clarificatory in
nature, it would take effect retrospectively.

Appellant is a manufacturer of power driven pumps and parts
thereof, designed for handling water. According to it, with a view to
F reducing special exemption notifications and consolidating various
exemption notifications, in 1994, the Government rescinded 389
notifications with effect from March I, 1994 and re-issued a consolidated
notification incorporating earlier notifications vide Notification No.46/94
dated March 1, 1994. In the said notification, power driven pumps were
G shown as an exempted item. However, parts of power driven pumps used
in manufacture of pumps within the factory which were all along exempted
from 1978 were omitted. But there was no change in the Government
-
policy in 1994 which was in vogue since 1978. The omission was, therefore, 'I.r
brought to the notice of the Government by the industries. The
Government was satisfied and amended notification. No.46/94 dated March
H 246
W.P.l.L. LTD. v. C.C.E. 247
1, 1994 by issuing another notification No.95/94 on April 25, 1994 A
correcting the mistake and clarifying the position that parts of power
driven pumps which were used in manufacture of power driven pumps
would also be exempted.

Show cause notices were, however, issued by the Assistant Collector,
Central Excise, alleging that the appellant had cleared the parts of power B
driven pumps for use within the factory for the manufacture of
submersible power driven pumps during the period between 1st March,
1994 and 21st April, 1994 without payment of duty which was subjected
to central excise duty; that the said item was exempted with effect from
April 25, 1994 and the appellant was, therefore, liable to pay excise duty C
for the intervening period, i.e. 1st March, 1994 and 21st April, 1994.

Appellant submitted reply denying its liability to pay excise duty,
but the Assistant Commissioner, Central Excise confirmed the demand.
That order was confirmed by the Commissioner (Appeals) and also by the
Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi D
(CEGAT). Hence the present appeals.

Allowing the appeals, the Court

HELD : 1.1. Both power driven pumps as well as parts of power
driven pumps used for manufacture of pumps within the factory were E
exempted from payment of excise duty. Notifications were rescinded and
consolidated notification was issued on March 1, 1994 with a view to
reduce the number of notifications. No demand hence could have been
made against the appellant in respect of parts of power driven pumps by
issuing show cause notices. [252-H; 253-A]
F
1.2. The Government was satisfied about the policy which was in
vogue not to impose excise duty on parts of power driven pumps used in
the factory premises for manufacture of power driven pumps and to clarify
the position, the subsequent notification dated April 25, 1994 was issued.
This is· also clear if one reads at both the notifications Nos. 46/94 dated G
March 1, 1994 and 56/94 dated April 25, 1994. Therefore the authorities
were in error in upholding the demand and in directing the appellant to
pay excise duty. [253-B; 254-A)

2.1. A clarificatory notification would take effect retrospectively.
Such a notification merely clarifies the position and makes explicit what H
248 SUPREME COURT REPORTS (2005) 2 S.C.R.

A was implicit. Clarificatory notifications have been issued to end the dispute
between the parties. [254-B)

Collector of Central Excise, Shillong v. Wood Craft Products Ltd, [1995)
3 sec 454, relied on.

B 2.2. In view of the consistent policy of the Government of exempting
parts of power driven pumps utilized by the factory within the factory
premises, it could not be said that while issuing notification No.46/94 of
March 1, 1994, the exemption in respect of the said item which was
operative was either withdrawn or revoked. The action was taken only
C with a view to rescinding several notifications and by issuing a composite
notification. The policy reinained as it was and in view of demand being
made by the Department, a representation was made by the industries and
on being satisfied, the Central Government issued a clarificatory
notification No.95/94 on April 25, 1994. It was not a new notification
granting exemption for the first time in respect of parts of power driven
D pumps to be used in the factory for manufacture of pumps but clarified
the position and made the position explicit which was implicit. (254-C-E)

3. Deposit, if any, made by the appellant in pursuance of the order
passed by the authorities below will be refunded to it. (254-F)

E CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 4228-4229
of 1999.

From the Judgment and Order dated 23:11.98 of the Central Exeise,
Customs and Gold (Control) Appellate Tribunal, New Delhi in F.O. Nos. Al
1051-1052/98-NB(DM) in E/A. Nos. 1034-1035 of 1997.
F
A.K. Ganguli, Ms. Bamali Basak and Ms. ,Suruchii Aggarwal Appellant.

K.P. Pathak, Additional Solicitor General, Ms. Binu Tamta and B.
Krishna Prasad for the Respondent.

G The Judgment of the Court wad delivered by
'
THAKKER, J. These appeals have been filed by the appellant against r-
an Order in Original Nos. 123-29 of 1996 passed by the Assistant \
Commissioner, Central Excise, Division I, Ghaziabad, confirmed by the
Commissioner (Appeals), Customs & Central Excise, Ghaziabad and also
H confirmed by the Customs, Excise and Gold (Control) Appellate Tribunal,
W.P.1.L. LTD. v. C.C.E. [THAKKER . .I.] 249

New Delhi ('CEGA T' for short). A
The case of the appellant is that it is the manufacturer of power driven
pumps and parts thereof designed for handling water. The power driven
pumps as well as parts thereof which are used for manufacture of pumps
have been exempted from levy of excise duty since 1978. Various notifications
had been issued from time to time granting exemption to both, i.e. power B
driven pumps and also parts of power driven pumps which were used in the
manufacture of the power driven pumps. Parts of power driven pumps which
were not utilized for manufacture of power driven pumps within the factory
were, however, outside the purview of exemption and they were subjected to
levy of excise duty.
c
According to the appellant, with a view to reducing special exemption
notifications and consolidating various exe~ption notifications, in 1994, the
Government rescinded 38<;' notifications with effect from March 1, 1994 and
re-issued a consolidated notification incorporating earlier notifications vide
Notification No.46/94 dated March 1, 1994. In the said notification, power D
driven pumps were shown as an exempted item. Due to inadvertence, however,
parts of power driven pumps used in manufacture of pumps within the factory
which were all along exempted from 1978 were omitted. But there was no
change in the Government policy in 1994 which was in vogue since 1978.
The omission was, therefore, brought to the notice of the Government by the
industries. The Government was also satisfied and amended the notification E
No.46/94 dated March 1, 1994 by issuing another notification No.95/94 on
April 25, 1994 correcting the mistake and clarifying the position that parts of
power driven pumps which were used in manufacture of power driven pumps
would also be exempted. According to the appellant, the notification No.95/
94 dated April 25, 1994 was thus merely clarificatory in nature and an obvious
error or omission which remained while issuing notification No.46/94 on
F
March 1, 1994 was rectified by the subsequent notification No.95/94 on
April 25, 1994 and hence it was retrospective in operation. The resultant
effect, according to the appellant, was that parts· of power driven pumps
which were to be utilized for manufacturing power driven pumps within the
factory would continue to be exempted from payment of excise duty. G
Unfortunately, however, show cause notices were issued by the Assistant
Collector, Central Excise, Division I, Ghaziabad on October 3, 1994 and
October 24, 1994 alleging therein that the appellant had cleared the parts of
power driven pumps for use within the factory for the manufacture of
submersible power driven pumps during the period between l st March, 1994 H
250 SUPREME COURT REPORTS [2005) 2 S.C.R.

A and 21st April, 1994 without payment of duty which was subjected to central
excise duty. The said item was exempted with effect from April 25, 1994 and
the appellant was, therefore, liable to pay excise duty for the intervening
period, i.e. lst March, 1994 and 21st April, 1994.

The appellant submitted a reply on October 31, 1994 inter alia
B contending that it was not liable to pay excise duty. No suppression of facts
or mis-declaration was. alleged against the appellant and the demand was
barred by limitation. It was also stated that notification No.95/94 dated April
25, 1994 was retrospective in nature and exemption ought to be considered
and granted from March 1, 1994. There was, therefore, no liability on the
C part of the appellant to pay any amount.

The Assistant Commissioner, Central Excise, Division I, Ghaziabad, by
an order dated March 31, 1996 confirmed the demand against the appellant
and directed it to pay the amount mentioned in the said order.

D Being aggrieved by that order, the appellant preferred appeals, but the
Appellate Authority also confirmed the order passed by the Assistant
Commissioner and dismissed the appeals. The appellant preferred appeal
before the CEGA T which was also dismissed confirming the orders passed
by the authorities below.

E We have heard the learned counsel for the parties.

Mr. A.K. Ganguli, learned senior advocate for the appellant submitted
that power driven pumps as well as parts thereof had been exempted from
payment of excise duty since 1978. It was the consistent practice of the
Department and the policy had never been changed. It was also submitted
F that there was no change of policy even in 1994. What was done by the
Government was to reduce the number of special exemption notifications.
About 400 such notifications were rescinded with effect from March l, 1994
and a consolidated notification was issued incorporating earlier notifications
by notification No.46/94 on March I, 1994. In view of the policy since 1978,
G which was nut changed, in 1994, by rescinding s.everal notifications and
issuing a consolidated notification exempted items were not made subject
matter of payment of excise duty and no demand could be made from the
appellant. The Central Government was satisfied about the legitimate grievance
voiced by the industries and, accordingly, a notification was issued on April
25, 1994. The subsequent notification was, therefore, merely clarificatory in
H nature and has to be given retrospective effect. No demand could be made
W.P.l.L. LTD. v. C.C.E. [TllAKKER . .l.J 251
for payment of excise duty for the period between March I, 1994 and April A
21125, 1994.

Mr. Pathak, learned Additional Solicitor General appearing for the
respondent, on the other hand, submitted that the authorities below were right
in holding that by notification dated March I, 1994, pai1s of power driven

... pumps were not exempted and the exemption was granted by notification
dated April 25, 1994 and hence demand for payment of excise duty for the
period between issuance of two notifications was legal, valid and well-founded.
B

It was also argued that the subsequent notification granted benefit in respect
of parts of power driven pumps and was not clarificatory in nature. The
benefit of the said notification, therefore, could be claimed by the industries C
only from the date of issuance of notification and not for any period prior to
that date. He, therefore, prayed for dismissal of the appeals.

Having heard the learned counsel for the parties, in our opinion; the
submission made on behalf of the appellant is well-founded and must be
accepted. In this connection, our attention was invited by the learned counsel D
for the appellant to various notifications issued by the Central Government
from time to time. One such notification was No.57178 issued on March I,
1978. It reads as under -

"Power Driven Pumps

In exercise of the powers conferred by sub-rule ( 1) of Rule 8 of E
the Central Excise Rules, 1944, the Central Government hereby
exempts power driven pumps falling under Item No.30A of the First
Schedule to the Central Excises and Salt Act, 1944 (I of 1944), and
specified in the Table annexed hereto from the whole of the duty of
excise leviable thereon. F
TABLE

Power driven pumps primarily designed for handling water, namely :-

(i) Centrifugal pumps (horizontal or vertical pumps);
G
(ii) Deep tube-well turbine pumps ;
(iii) Submersible pumps; and
(iv) Asial flow and mixed flow vertical pumps.

[vide M.F.(D.R.) Notification No.57/78-C.E., dated 1-3-1978]" H
252 SUPREME COURT REPORTS [2005] 2 S.C.R.

A Similar notification was issued on February 10, 1986· being Excise
Notification N0.79/1986 as several other notifications. By Excise Notification
No.155/86 dated March I, 1986 relating to specified goods under Chapter 84,
it was stated;

"SPECIFIED GOODS fCHAPTER 841
B
In exercise of the powers conferred by sub-rule (I) of rule 8 of
the Central Excise Rules, 1944, the Central Government hereby
exempts the goods specified in column (3) ofthe Table hereto annexed
and falling under the Heading No. or sub-heading No. of the Schedule
to the Central Excise Tariff Act, t 985 .(5 of t 986) specified in the
c corresponding entry in column (2) of the table, from so much of the
duty of excise leviable thereon which is specified in the said Schedule
as in the excess of the amount calculated at the rate specified in the
corresponding entry in column (4) of the said Table ..

THE TABLE
D
S.No .. Heading No. Description of goods Rate
or sub-heading
No,. of the
Schedule to· the
Central Excise
Tariff Act, 1985
(1) (2) (3) (4)

1. 84.13 (i) Power driven pumps primarily Nil
. --<
designed for handling water, namely :-
F (a) Centrifugal pumps (horizontal
or vertical pumps);
(b) Deep tube-well turbine pumps;
(c) Submersible pumps;
(d) Axial flow and mixed flow
vertical pumps.
G (ii) Other power driven pumps Ten per cent
advalorem"
The contention of the appellant, in our opinion, therefore, is well-founded
---
that both power driven pumps as well as parts of power driven pumps used
for manufacturing of pumps within the factory were exempted from payment
H of excise duty. We are also satisfied that notifications were rescinded and
W.P.1.L. LTD. v. C.C.E. [THAKKER . .I. I 253
consolidated notification was issued on March I, 1994 with a view to reduce A
number of notifications. No demand hence could have been made against the
appellant in respect of parts of power driven pumps by issuing show cause
notices. The submission of the appe'llant is well-founded that the Government
was satisfied about the policy which was in vogue not to impose excise duty
on parts of power driven pumps used in the factory premises for manufacture B
of power driven pumps and to clarify the position, the subsequent notification
dated April 25, 1994 was issued. This is also clear if one reads at both the
notifications Nos. 46/94 dated March 1, 1994 and 56/94 dated April 25,
1994. They read thus : -

"TABLE c
s. Chapter Description of goods Rate Conditions
No. heading No.
or sub-heading
No.
(I) (2) (3) (4) (5) D
I. 84.13 Power driven pumps primarily Nil
designed for handling water,
namely:-
(a) Centrifugal pumps (horizontal
or vertical pumps);
E
(b) Deep tube-well turbine pumps;
(c) · Submersible pumps;
(d) Axial flow and mixed flow
vertical pumps.
(Notification No. 46/94 dated 1.3.94)"
F
(l) (2) (3) (4) (5)
"4a. 72,73 Goods other than namely :- Nil If the said goods
82,83, (a) Electrical stampings are used within the
84 or and laminations factory of product-
85 (b) Bearings ion in the manu- G
(c) Winding Wires facture of goods
specified in S. No.
4 above."
(Notification No.95/94-CE, dated 25.4.1994)
H
254 SUPREME COURT REPORTS [2005] 2 S.C.R.

A In our opinion, therefore, the authorities were in error in upholding. the
demand and in directing the appellant to pay excise di.tty.

The learned counsel for the appellant is also right in relying upon a
decision of this Court in Collector of Central Excise, Shillong v. Wood Craft
Products ltd., [1995] 3 SCC 454. In that case, this Court held that a
B clarificatory notification would take effect retrospectively. Such a notification
merely clarifies the position and makes explicit what was implicit. Clarificatory
notifications have been issued to end the dispute between the parties.

In view of the consistent policy of the Government of exempting parts
C of power driven pumps utilized by the factory within the factory premises,
it could not be said that while issuing notification No.46/94 of March I,
1994, the exemption in respect of said item which was operative was either
withdrawn or revoked. The action was taken only with a view to rescinding
several notifications and by issuing a composite notification. The policy
remained as it was and in view of demand being made by the Department,
D a representation was made by the industries and on being satisfied, the Central
Government issued a clarificatory notification No.95/94 on April 25, 1994.
It was not a new notification granting exemption for the first time in respect
of parts of power driven pumps to be used in the factory for manufacture of
pumps but clarified the position and made the position explicit which was
E implicit.

For the foregoing reasons, in our opinion, the appeals deserve to be
allowed and are allowed accordingly. Deposit, if any, made by the appellant
in pursuance of the order passed by the authorities below will be refunded to
it. In the facts and circumstances of the case, however, there shall be no order
F as to costs.

B.B.B. Appeals allowed.