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Union Of India And Others v. Ganesh Metal Processors Industries .

Supreme Court Of India

Nov 13, 2002

Judgment

Subsequent
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Factual and Procedural Background

The appeals challenge the order dated 8-9-1994 of the High Court of Andhra Pradesh. The central dispute concerns whether the respondents can claim the small-scale exemption under Central Excise Notification No. 1/1993 dated 28-2-1993, which allows duty-free clearance up to a specified limit provided the previous year’s clearances did not exceed Rs 200 lakhs (with certain exclusions).

Key admitted facts are:

The goods manufactured by the respondents fall under Serial No. 2-A of the table appended to Notification No. 202/1988.
The respondents availed MODVAT credit under Rule 57-A and consequently did not pay duty on the inputs.
The Department treated the respondents’ clearances of the previous year—which exceeded Rs 200 lakhs—as dutiable and, therefore, denied them the benefit of Notification No. 1/1993.
The respondents filed writ petitions before the High Court, questioning both the departmental denial and the constitutional validity (vires) of the second proviso to Notification No. 202/1988. The High Court allowed their petitions, prompting the present appeals.

Legal Issues Presented

Whether the respondents’ products can be regarded as “exempted goods” under Notification No. 202/1988 when they have taken MODVAT credit, thereby qualifying for exclusion in computing the Rs 200 lakhs limit under Notification No. 1/1993.
Whether mere inclusion of goods in the table to Notification No. 202/1988, without satisfying all its conditions, automatically confers exemption for purposes of Notification No. 1/1993.
Whether the vires of the second proviso to Notification No. 202/1988 is sustainable (this issue was left open for the High Court on remand).

Arguments of the Parties

Appellants’ Arguments (Revenue)

Because the respondents availed MODVAT credit under Rule 57-A and did not actually pay duty on the inputs, they failed to meet an express condition of Notification No. 202/1988; consequently, their goods are not “exempted.”
Thus, the respondents’ clearances in the previous financial year exceeded Rs 200 lakhs and must be counted for purposes of Notification No. 1/1993, rendering them ineligible for that small-scale exemption.

Respondents’ Arguments

The respondents attacked the validity of the proviso in Notification No. 202/1988 that withholds exemption when MODVAT credit is taken, contending it is unconstitutional.
They contended that goods listed in the table to Notification No. 202/1988 should be deemed exempt regardless of whether all conditions are fulfilled; therefore, the value of such goods should be excluded when calculating the Rs 200 lakhs limit under Notification No. 1/1993.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The Court focused on the language of Notification No. 1/1993, which excludes from the Rs 200 lakhs computation only two categories of clearances: (a) goods chargeable to a nil rate of duty and (b) goods wholly exempt under another notification. It then examined Notification No. 202/1988 and held:

Notification No. 202/1988 grants complete exemption only if all its conditions—including the requirement that no MODVAT credit be taken—are satisfied.
The respondents admittedly took credit under Rule 57-A; therefore, they failed to satisfy an essential condition and could not claim the exemption under Notification No. 202/1988.
Consequently, their products could not be treated as “exempted goods” for purposes of Notification No. 1/1993, and their prior-year clearances exceeding Rs 200 lakhs must be counted.
The High Court’s contrary approach—treating mere inclusion in the table as sufficient—was characterised as “confused” and legally unsustainable.

On the separate constitutional challenge, the Court observed that the High Court had not decided the vires of the proviso to Notification No. 202/1988 and therefore remitted that limited question for fresh determination.

Holding and Implications

The Supreme Court set aside the High Court’s judgment and restored the writ petitions to the High Court to decide the limited question of the vires of the proviso to Notification No. 202/1988.

Implications:

The respondents cannot, at this stage, rely on Notification No. 202/1988 to exclude their past clearances for purposes of Notification No. 1/1993 because they took MODVAT credit.
The broader constitutional validity of the proviso to Notification No. 202/1988 remains open and will now be decided by the High Court; no new binding precedent on that point has yet been set.
No order as to costs was made.

Show all summary ...

Order

1. These appeals are against the order dated 8-9-1994 passed by the High Court of Andhra Pradesh at Hyderabad. The question involved in these appeals is whether the respondents were entitled to the benefit of Notification No. 1 of 1993 dated 28-2-1993. By the said notification, exemption is granted to first clearance of specified goods up to a particular value, provided in the previous year, there has been no clearance of goods beyond the aggregate value of Rs 200 lakhs. Further qualification which is relevant for our purpose, reads as follows:

“For the purposes of computing the aggregate value of clearances under this notification, the clearances of any excisable goods, which are chargeable to nil rate of duty or, which are exempted from the whole of duty of excise leviable thereon by any other notification (not being a notification where exemption from the whole of duty of excise leviable thereon is granted based upon the value or quantity of clearances made in a financial year) issued under sub-rule (1) of Rule 8 of the said Rules or sub-section (1) of Section 5-A of the said Act, shall not be taken into account.”

2. Thus, for the purpose of computing the aggregate value of clearances, the only goods which are not to be taken into account are those (a) which are chargeable to nil rate of duty, and (b) which are exempted from whole of the duty of excise leviable under any other notification. Admittedly, the goods are not those which were chargeable to nil rate of duty. The question before this Court is whether the goods of the respondents are exempted from whole of the excise duty by virtue of Notification No. 202 of 1988.

3. The relevant portion of Notification No. 202 of 1988 reads as follows:

“Exemption to certain final products of iron and steel made from specified input materials and falling under Chapter 72 or 73 or Heading 84.54 In exercise of the powers conferred by sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 90/88-Central Excises dated 1-3-1988, the Central Government hereby exempts goods of the description specified in column (3) of the Table hereto annexed (such goods being hereinafter referred to as ‘final products’) and falling within Chapter 72, Chapter 73 or Heading 84.54 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), from the whole of the duty of excise leviable thereon which is specified in the said Schedule:

Provided that such final products are made from any goods of the description specified in the corresponding entry in column (2) of the said Table (such goods being hereinafter referred to as ‘inputs’) and falling within Chapter 72 or Chapter 73 of the said Schedule on which the duty of excise leviable under the said Schedule or the additional duty leviable under the Customs Tariff Act, 1975 (51 of 1975), as the case may be, has already been paid:

Provided further that no credit of the duty paid on the inputs has been taken under Rule 56-A or Rule 57-A of the said Rules.

Explanation.—For the purposes of this notification, all stocks of inputs in the country, except such stocks as are clearly recognisable as being non-duty-paid, shall be deemed to be the inputs on which duty has already been paid.”

At this stage, two admitted facts need to be set out viz. (a) the goods fall under Serial No. 2-A of the Table to Notification No. 202, and (b) the respondents had taken credit under Rule 57-A and had not paid duty on those goods.

4. As the respondents had taken credit and not paid duty, the Department held that the respondents were not entitled to exemption of Notification No. 202 of 1988. It was held that their clearances were over Rs 200 lakhs in the preceding year and thus the respondents were not entitled to the benefit of Notification No. 1 of 1993.

5. All the respondents filed writ petitions which have been disposed of by the common impugned order. In the writ petitions, the respondents challenged the vires of the proviso in Notification No. 202. They also claimed that they were entitled to the benefit of Notification No. 1 of 1993, as goods included in the Table of Notification No. 202 must be deemed to be exempted goods irrespective of whether or not a party was entitled to avail of exemption of Notification No. 202. It was claimed that value of goods specified in the Table could not be counted for the purposes of counting the assessable value under Notification No. 1 of 1993. This contention appears to have found favour with the High Court. The further reasoning of the High Court appears to be confused and we have not been able to clearly understand the further reasoning of the High Court. Once it is admitted that credit has been taken, it is not for the High Court to decide whether credit could have been taken or not. The notification has to be read as a whole. If any of the conditions laid down in the notification is not fulfilled, the party is not entitled to the benefit of that notification. In this case, admittedly, credit had been taken. The respondent was thus clearly not entitled to the benefit of Notification No. 202 of 1988. We see no justification in the argument that merely because goods were included in the Table, they became exempted goods. The goods became exempted goods only provided all conditions of the notification are fulfilled. If any condition of the notification is not fulfilled, goods are not exempted goods.

6. We are, therefore, unable to uphold the impugned judgment and set aside the same.

7. Parties fairly agree that the High Court has not decided the question of vires of the proviso to Notification No. 202 of 1988. We, therefore, restore the writ petition to the file of the High Court. The High Court to decide the limited question of vires of the proviso to Notification No. 202 of 1988 on the grounds urged in the petition.

8. The appeals are disposed of accordingly. There shall be no order as to costs.