Commissioner of Central Excise, New Delhi v M/s Hari  Chand Shri Gopal & Ors

The question for consideration was whether a manufacturer of a specified final product falling under the schedule of the Central Excise Tariff Act, 1985 (“the Tariff Act”) can be eligible to get the benefit of exemption from remission of excise duty on specified intermediate goods as per Notification no. 121/94-CE dated 11.8.1994, if captively consumed for the manufacture of final products, 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 (“the Excise Rules”).

Notification no. 121/94-CE dated 11.8.1994 was issued by the Central Government in exercise of its powers conferred by subsection (1) of Section 5A of the Central Excises and Salt Act, 1944 read with sub-section (3) of Section 3 of the Additional  Duties of Excise (Goods of Special Importance) Act, 1957 in the public interest for exempting certain specified intermediate goods if those goods were captively consumed in the manufacture of 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 the factory where the goods had been produced, the exemption contained in the notification would be allowable subject to the observance of the procedure set out in Chapter X of the Excise Rules. Question to be decided in the case was whether the respondents were 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 set out in Chapter X of the Excise Rules.

The Court reasoned that the purpose and object of the notification dated 11.8.1994 was only 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 designed in such a manner to ensure an inseparable link between the supplier and recipient of excisable goods for the manufacture of specified final products. Compliance of the requirements, stipulated in Chapter X, was held to be  pre-requisite for getting exemption from the remission of excise duty on the specified goods. The Court observed that the law is well settled that a person who claims exemption or concession has to establish that he is entitled to that exemption or concession. If exemption is available on complying with certain conditions, the conditions have to be complied with.

After discussing the facts of the case, it came to the conclusion that at the supplier end, no registration under Rule 174 was obtained and no records were kept. The 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 Excise Rules and non-furnishing of various statutory forms prescribed under Chapter X, were held fatal to a plea of substantial compliance and intended use. The respondents did not succeed in establishing the plea of “intended use” or “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.