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Wpil Ltd., Ghaziabad v. Commissioner Of Central Excise, Meerut, U.P .

Supreme Court Of India
Feb 22, 2005
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Supreme Court of India – Summary of Decision

Factual and Procedural Background

The appellant manufactures power-driven pumps and their parts. Since 1978, both the pumps and those parts used within the factory for assembling complete pumps had enjoyed exemption from Central Excise duty through a series of notifications.

On 1 March 1994, in an effort to consolidate 389 earlier exemption notifications, the Central Government issued Notification 46/94. While it continued to exempt finished pumps, it inadvertently omitted the exemption for parts used captively in pump manufacture.

Between 1 March and 21 April 1994 the appellant cleared such parts without paying duty, consistent with past practice. Show-cause notices dated 3 and 24 October 1994 alleged duty evasion for that intervening period. The Assistant Commissioner confirmed the demand on 31 March 1996; the Commissioner (Appeals) and then the CEGAT both upheld that order. The present civil appeals challenge those concurrent findings.

Legal Issues Presented

  1. Whether Notification 95/94-CE dated 25 April 1994, which restored the exemption for parts of power-driven pumps used captively, is merely clarificatory and therefore retrospective.
  2. Consequently, whether any excise duty is payable on such parts cleared between 1 March and 25 April 1994.

Arguments of the Parties

Appellant's Arguments

  • Government policy since 1978 consistently exempted both pumps and their captive-use parts; Notification 46/94 did not intend to alter that policy.
  • Omission of parts from Notification 46/94 was an obvious drafting error rectified by Notification 95/94; hence the latter is clarificatory and operates retrospectively to 1 March 1994.
  • No allegation of suppression or misdeclaration was levelled; the demand is time-barred.

Respondent's Arguments

  • Until 25 April 1994 parts were not exempted; Notification 95/94 created a fresh exemption operative only prospectively.
  • The duty demand for the intervening period is therefore legal and recoverable.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
CCE v. Wood Craft Products Ltd. (1995) 3 SCC 454 A notification that is clarificatory in nature has retrospective effect because it merely makes explicit what was already implicit. The Court relied on this decision to hold that Notification 95/94 was clarificatory and therefore applicable from 1 March 1994.

Court's Reasoning and Analysis

The Court reviewed a chain of exemption notifications beginning with Notification 57/78-CE of 1 March 1978, all of which exempted both pumps and their parts used captively. Similar exemptions persisted through 1986 notifications.

It found that the 1994 consolidation aimed solely at reducing the volume of notifications; there was no contemporaneous governmental intent to withdraw the long-standing exemption for parts. The inadvertent omission in Notification 46/94 was promptly rectified by Notification 95/94 after industry representations, confirming the continuity of policy.

Applying the principle in Wood Craft Products, the Court held that Notification 95/94 is declaratory/clarificatory, not substantive; therefore it relates back to the date of the parent Notification 46/94. Consequently, the duty demand for 1 March–25 April 1994 lacked legal foundation.

The tribunals and departmental authorities erred in treating the later notification as prospective and in confirming the duty demand.

Holding and Implications

Appeals Allowed; duty demand set aside. Any deposit made by the appellant is to be refunded. The decision reaffirms that clarificatory exemption notifications operate retrospectively, providing guidance for future disputes involving consolidation of fiscal notifications.

Show all summary ...

C.K Thakker, J.— These appeals have been filed by the appellant against Orders-in-Original Nos. 123-29 of 1996 passed by the Assistant Commissioner, Central Excise, Division I, Ghaziabad, confirmed by the Commissioner (Appeals), Customs and Central Excise, Ghaziabad and also confirmed by the Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi (“CEGAT” for short).

2. 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-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 utilised 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.

3. According to the appellant, with a view to reducing special exemption notifications and consolidating various exemption notifications, in 1994, the Government rescinded 389 notifications with effect from 1-3-1994 and reissued a consolidated notification incorporating earlier notifications vide Notification No. 46/94 dated 1-3-1994. In the said notification, power-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 Notification No. 46/94 dated 1-3-1994 by issuing another Notification No. 95/94 on 25-4-1994 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, Notification No. 95/94 dated 25-4-1994 was thus merely clarificatory in nature and an obvious error or omission which remained while issuing Notification No. 46/94 on 1-3-1994 was rectified by the subsequent Notification No. 95/94 on 25-4-1994 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 utilised for manufacturing power-driven pumps within the factory would continue to be exempted from payment of excise duty.

4. Unfortunately, however, show-cause notices were issued by the Assistant Collector, Central Excise, Division I, Ghaziabad on 3-10-1994 and 24-10-1994 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 1-3-1994 and 21-4-1994 without payment of duty which was subjected to Central excise duty. The said item was exempted with effect from 25-4-1994 and the appellant was, therefore, liable to pay excise duty for the intervening period i.e 1-3-1994 and 21-4-1994.

5. The appellant submitted a reply on 31-10-1994 inter alia contending that it was not liable to pay excise duty. No suppression of facts or misdeclaration was alleged against the appellant and the demand was barred by limitation. It was also stated that Notification No. 95/94 dated 25-4-1994 was retrospective in nature and exemption ought to be considered and granted from 1-3-1994. There was, therefore, no liability on the part of the appellant to pay any amount.

6. The Assistant Commissioner, Central Excise, Division I, Ghaziabad, by an order dated 31-3-1996 confirmed the demand against the appellant and directed it to pay the amount mentioned in the said order.

7. 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 CEGAT which was also dismissed confirming the orders passed by the authorities below.

8. We have heard the learned counsel for the parties.

9. 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 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 1-3-1994 and a consolidated notification was issued incorporating earlier notifications by Notification No. 46/94 on 1-3-1994. In view of the policy since 1978, which was not changed, in 1994, by rescinding several notifications and issuing a consolidated notification exempted items were not made the 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 25-4-1994. The subsequent notification was, therefore, merely clarificatory in nature and has to be given retrospective effect. No demand could be made for payment of excise duty for the period between 1-3-1994 and 21-4-1994/25-4-1994.

10. 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 1-3-1994, parts of power-driven pumps were not exempted and the exemption was granted by notification dated 25-4-1994 and hence demand for payment of excise duty for the period between issuance of two notifications was legal, valid and well founded. 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 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.

11. 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 for the appellant to various notifications issued by the Central Government from time to time. One such notification was No. 57/78 issued on 1-3-1978. It reads as under—

“Power-driven pumps
In exercise of the powers conferred by sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts power-driven pumps falling under Item 30-A of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944), and specified in the Table annexed hereto from the whole of the duty of excise leviable thereon.
Table

Power-driven pumps primarily designed for handling water, namely— (i) Centrifugal pumps (horizontal or vertical pumps); (ii) Deep tubewell turbine pumps; (iii) Submersible pumps; and (iv) Axial-flow and mixed-flow vertical pumps. [Vide M.F (D.R) Notification No. 57/78-CE dated 1-3-1978.]”

12. Similar notification was issued on 10-2-1986 being Excise Notification No. 79/1986 and several other notifications. By Excise Notification No. 155/86 dated 1-3-1986 relating to specified goods under Chapter 84, it was stated:

“Specified Goods (Chapter 84)
In exercise of the powers conferred by sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts the goods specified in column (3) of the Table hereto annexed and falling under the Heading No. or Sub-Heading No. of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) specified in the 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 is in excess of the amount calculated at the rate specified in the corresponding entry in column (4) of the said Table.
Table
S. No. Heading No. or Sub-Heading No. of the Schedule to the Central Excise Tariff Act, 1985 Description of goods Rate (1) (2) (3) (4) 1. 84.13 (i) Power-driven pumps primarily designed for handling water, namely— Nil (a) Centrifugal pumps (horizontal or vertical pumps); (b) Deep tubewell turbine pumps; (c) Submersible pumps; (d) Axial-flow and mixed-flow vertical pumps. (ii) Other power-driven pumps Ten per cent ad valorem”

13. 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 of excise duty. We are also satisfied that notifications were rescinded and a consolidated notification was issued on 1-3-1994 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. The submission of the appellant 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 of power-driven pumps and to clarify the position, the subsequent notification dated 25-4-1994 was issued. This is also clear if one reads both Notifications Nos. 46/94 dated 1-3-1994 and 95/94 dated 25-4-1994. They read thus:

Table
S. No. Chapter/Heading No. or Sub-Heading No. Description of goods Rate Condition (1) (2) (3) (4) (5) 1. 84.13 Power-driven pumps primarily designed for handling water, namely— Nil” (a) Centrifugal pumps (horizontal or vertical pumps); (b) Deep tubewell turbine pumps; (c) Submersible pumps; (d) Axial-flow and mixed-flow vertical pumps (Notification No. 46/94 dated 1-3-1994) (1) (2) (3) (4) (5) “4a. 72, 73, 82, 83, 84 or 85 Goods other than namely: (a) Electrical stamp-ings and laminations (b) Bearings (c) Winding wires Nil If the said goods are used within the factory of production in the manufacture of goods specified in S. No. 4 above.”
(Notification No. 95/94-CE dated 25-4-1994)

14. In our opinion, therefore, the authorities were in error in upholding the demand and in directing the appellant to pay excise duty.

15. The learned counsel for the appellant is also right in relying upon a decision of this Court in CCE v. Wood Craft Products Ltd. (1995) 3 SCC 454 In that case, this Court held that a 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.

16. In view of the consistent policy of the Government of exempting parts of power-driven pumps utilised by the factory within the factory premises, it could not be said that while issuing Notification No. 46/94 of 1-3-1994, the exemption in respect of the 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, a representation was made by the industries and on being satisfied, the Central Government issued a clarificatory Notification No. 95/94 on 25-4-1994. 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 implicit.

17. 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 as to costs.