Circular No. 125/36/95-CX dated 15/5/95

Subject: Exemption from excise duty on goods manufactured from duty paid goods - regarding

I am directed to say that doubts have been raised regarding the interpretation of certain notifications under which exemption from excise duty has been given on certain goods manufactured from duty paid goods.

2. There are a number of notifications which exempt specified goods provided such goods have been made from other goods on which the appropriate duty of excise has already been paid. To illustrate. Notification No. 35/95-CE dated 16.3.1995 exempts specified yarn, if made from yarn on which appropriate excise duty has been paid. Similarly, Notification No. 28/95-CE dated 16.3.95 exempts twine, cardage, rope etc. made from duty paid yarn, monofilament yarn. The above illustrations are not exhaustive, and there are similar other notifications as well.

(Pl. refer Cir. No. 667/58/2002-CX, Dt. 26/09/2002 for words "appropriate duty of excise" )

3. Board has issued instructions from time to time that in such cases, even if the inputs are exempted from excise duty, the exemption on the finished goods cannot be denied on that ground. Still, cases have been brought to notice where exemption is being denied on the ground that the inputs did not bear any excise duty.

4. In this context, a copy of the instructions issued by the Board in F.No. 339/6/80- TRU in the context of Notification No. 180/61 dated 23.11.61 is enclosed. It was clarified by the Board that in the case of S.O dyes made from exempted dyes, the exemption cannot be denied on the ground that the inputs were exempted from the whole of the duty of excise. This logic would apply to other similar cases also where exemption has been given on the consideration that the finished products have been made from inputs on which appropriate duty of excise has already been paid.

Sd/-
(Gautam Ray)
Director (TRU)

F.No.341/26/95-TRU

F.No.339/6/80-TRU
Government of India
Ministry of Finance Department of Revenue
New Delhi, the 6th December, 1980

To

The Collector of Central Excise, (All).

Subject: Central Excise - Interpretation of Notification No. 180/61 dated 23.11.61- Clarification regarding -

I am directed to state that a doubt has been raised whether the benefit of concession of duty in respect of the four specified dyes in Notification No. 180/61 dated 23.11.61 would be available when they are made from-primary dyes which have availed full exemption of duty under the Notification 71/78 dated 1.3.78 since superseded by Notification No. 80/80 dated 19.6.80. The doubt has arisen in this case on account of the fact that while the primary dyes have availed full exemption of duty. Notification 180/61 allows the exemption to the specified secondary dyes only when the primary dyes are such ""on which excise duty or countervailing customs duty has already been paid"". The matter was referred to the Ministry of Law who have opined that the specified secondary dyes Manufactured from primary dyes in this case are entitled to exemption under Notification No. 180/61 even though the primary dyes had availed full exemption of duty under Notification No. 71/78 or 80/80. An extract of the opinion of the Ministry of Law is enclosed. The Board has accepted the opinion of the Ministry of Law.

The receipt of this letter may please be acknowledged.

Sd/-
(R.K. Chakrabarti)
Deputy Secretary to the Govt. of India

Extracts from Notes recorded by Shri P.K. Kartha Joint Secretary
and Legal Adviser, Ministry of Law

Notification No. 180/61 was issued at a time when no exemption was available to primary dyes. It appears that from 1.4.78 liberal exemption has been granted for small scale manufacturers of dyestuffs upto the first clearances of Rs. 5 lakhs in a financial year if the total clearances of dyestuffs by the manufacturers in the receding financial year were less than Rs. 15 lakhs (vide Notifications Nos. 71/78 and 80/80.)

The question for consideration is whether exemption under Notification No. 180/61 could be granted after the advent of the other two Notifications Nos. 71/78 and 80/80.

Exemption under Notification 180/61 will be available "if and only if such dyes are manufactured from any other dye on which excise duty or countervailing customs duty has already been paid". The crucial words in the exemption notification are "duty has already been paid".

The two interpretations possible are that it might mean duty which has actually been paid or which ought to have been paid.

We are dealing with a case where no duty is payable in respect of certain goods by virtue of exemption notifications. If these goods are assessed to duty, the duty payable would be nil. In this context, reference may be made to the definition of ""assessment"" in rule 2(l)(a) of the Central Excise Rules, 1944 which means assessment of duty by the proper officer and includes reassessment, provisional assessment under Rule 9B, summary assessment under Rule 37A and post-judgement assessment under Rule 173Q and any order of assessment in which the duty assessed is nil.

In N.B. Sharma vs. The Elphinstone Spinning and Weaving Mills (AIR 1971 SC 2039), the Supreme Court had also occasion to consider the meaning of the expression ""paid"" occurring in Rule 10 of the Central Excise Rules. One contention was that it means ""actually paid"". As against this, it was contended that it means ""ought to have been paid"". The Supreme Court held that the proper interpretation to be placed on the expression ""paid"" is ""ought to have been paid"". The court also referred to certain other enactments where also such an interpretation has been placed on the said expression.

In the light of the above, it would appear that the secondary dye manufacturers would be entitled to the exemption under Notification No. 180/61 even after the advent of the exemption Notifications 71/78 and 80/80.

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