Holding

Exemption under the notification cannot be granted in the absence of proof of actual end‑use; the Assistant Collector must be satisfied that the goods are used for the intended purpose.

Summary

The Collector of Central Excise appealed against the judgment of the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT) which had allowed Mis. Shalimar Chemical Industries to claim exemption from excise duty on benzene, toluene and xylene under the notification dated 1 March 1984. The exemption was conditioned on the goods being used as solvent, diluent or thinner in the manufacture of paints, varnishes, lacquers and allied materials, and required proof of such intended use. Shalimar failed to produce an end‑user certificate or any other evidence showing actual use of the chemicals for the specified purpose. The Supreme Court held that a bare reading of the notification obliges the Assistant Collector of Central Excise to be satisfied, on proof adduced, that the goods are indeed used for the intended purpose, and that the end‑user certificate is a permissible mode of satisfying this requirement. In the absence of any such proof, the exemption could not be granted. Consequently, the Court set aside the CEGAT judgment and allowed the appeal.

Issues considered

Whether the exemption under the 1 March 1984 notification can be claimed without producing an end‑user certificate evidencing the actual intended use of benzene, toluene and xylene.
Whether the Assistant Collector of Central Excise must be satisfied by proof of actual use before granting exemption.

Legislation cited

Central Excise Rules, 1944s. Chapter X

Subjects

central exciseexemption notificationbenzenetoluenexyleneend‑use certificateintended useChapter Xtax exemption

Judgment

COLLECTOR OF CENTRAL EXCISE, BOMBAY A
v.
MIS. SHALIMAR CHEMICAL INDUSTRIES PVT. LTD.

.) .(...
JANUARY 11, 2001

[B.N. KIRPAL, RUMA PAL AND BRIJESH KUMAR, JJ.) B
z--
Central Excise:

Central Exe ise Rules, 1944-Chapter X-Exemption notification ta
Benzene, Toluene and Xylene for specified intended use-Evidence of end- c
..- use-Necessity of-Held, exemption cannot be granted in absence of proof

'" of end-use.

Notification dated 1st March, 1984 was issued under ChapterX of the
Central Excise Rules, I 944 granting exemption from excise duty to Benzene,
Toluene and Xylene for specified intended use as solvent or diluent or D
thinner for manufacture of paints, varnishes, lacquers and allied materials.

.... Respondent-company failed to produce end-user certificate or any other
evidence, as required, to the Central Excise authorities while claiming the
benefit under the notification. The claim was rejected by the authorities and
the Collector dismissed the appeal of the respondent. CEGA T allowed the
E
appeal of the respondent holding that the end use certificate is not required
to be produced for claiming the benefit of the notification. Hence the appeal
by the authorities.

Allowing the appeal, the Court
F
HELD: A bare reading of the notification dated 1st March, 1984 states
that the Assistan~ Collector of Central Excise has to be satisfied, on proof
being adduced, that the goods mentioned in the said notification were such
goods that are used for the intended use specified in the notification. The
intended use of Benzene, Toluene and Xylene was, inter alia, for use as
~ solvent or diluent or thinner for the manufacture of paints, varnishes, lacquer.: G
and allied materials. It was incumbent upon the respondent to satisfy the
officer that there had been actual use of Benzene, etc., in the manufacture
of paint, varnish, etc. One mode of satisfying the officer was to produce the
end user certificate which was not done. No other evidence was also led to
show that the conditions laid down by the said notification of lst March, 1984
H
333
334 SUPREME COURT REPORTS [200 I) I S.C.R.

A had been satisfied. In the absence of any proof with regard to the actual user
of Benzene, etc., in the manufacture of paint, varnish, lacquer, etc., no relief
could have been granted to the respondent under the exemption notification. ·-'
(335-H; 336-A-B-C)

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2159 of ~
B 1991.
From the Judgment and Order No. 1123/90-C dated 24.10.1990 passed by
the Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi in
Appeal No. El Appeal No. 2063/90-C.

C Mukul Rohtagi, Ms. Nisha Bagchi, Ms. Rekha Pandey and P.
Parmeswaran for the Appellants.

Pramod B. Agarwala and Ms. Shelly Kumar for Gagrat & Co., (NP) for
the Respondents.

D The Judgment of the Court was delivered by

KIRP AL, J. The challenge in this appeal is to the judgment of the
Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT) which had ~
come to the conclusion that the respondent was entitled to the benefit of an
exemption notification dated I st March, 1984 insofar as it related to
E manufacture of the goods described therein.
It is not in dispute that the respondent does not itself manufacture
Benzene, Toluene and Xylene but is products the same in accordance with
the procedure set forth in Chapter X of the Central Excise Rules, 1944 which
allows the removal of the goods without payment of excise duty by the
F applicant on the applicant satisfying the conditions which would entitle it to
the exemption.

By the notification of 1st March, 1984, the effective rate of duty on
various items mentioned in the said notifications was reduced. The notification
provides that such reduction of the rate of duty would be subject to the
G specified intended use or the conditions laid down in the corresponding entry
in column (5) of the notification. The proviso to this notification with which
we are concerned in this case reads as follows:

"Provided that where any such exemption is subject to the intended
use, the exemption in such case shall be subject to the following
H conditions, namely:-
C.C.E. v. SHALIMAR CHEMICAL INDUSTRIES [KIRPAL, J.) 335
(i) that it is proved to the satisfaction of an Officer not below the A
'"" rank of the Assistant Collector of Central Excise that such goods
are used for the intended use specified in column (5) of the said
\I
Table; and

"_;_ (ii) where such use is elsewhere than in the factory of production,
the procedure set out in Chapter X of the Central Excise Rules, B
¥ 1944, is followed."

Item No. 6.10 makes reference to Benzene, Toluene and Xylene alongwith
- other items with which we are not concerned and in column (5) against the
said items it is provided that these goods should be intended for use "as
solvent or diluent or thinner for the manufacture of paints, varnishes, lacquers C
.... and allied materials ....... "

In the instant case, the respondent did not produce the User Certificate
showing the manufacture of paints, varnishes, lacquers etc., from the Benzene
which was obtained by it and as such its claim for the benefit of this
notification dated 1st March, 1984 was not accepted. The appeal to the D
Collector having failed, the respondent filed a Second Appeal before CEGAT
and the Tribunal came to the conclusion that the notification of I st March,
I 984 was similar to the earlier notification of exemption of I 973 relevant
portion of which was as under:-

"an officer not below the rank of Assistant Collector of Central E
Excise is satisfied that the Motor Spirit is intended for use as solvent
or diluent or thinner for the manufacture of paints, varnishes, lacquers
and allied materials or for use in painting; for the manufacture of
adhesives, rubber solution, water proofing compositions and similar
products, in the production of plastics; for decreasing or cleaning." F
The Tribunal then proceeded to hold that the respondent had obtained
L-6 licence for manufacturing solvent based on Benzene and Toluene and aU
types of thinners and there was no justification to insist on the end use
certificate in terms of the notification of I 984. It was held that what was
important was that Benzene, Toluene, etc., should be intended for use in.the G
manufacture of paints, varnishes, etc., and the respondent was entitled to the
benefit thereof.

We are unable to agree with the aforesaid conclusion of the Tribunal.
A bare reading of the notification dated 1st March, 1984 leaves no manner
of doubt that the Assistant Collector of Central Excise had to be satisfied, on H
336 SUPREME COURT REPORTS [200 I] I S.C.R.

A proof being adduced, that the goods mentioned in 'the said notification were
such goods that are used for the intended use specified in column (5). The
intended use specified in column (5) of Benzene, Toluene and Xylene was . .'
inter alia for use as solvent or diluent or thinner for the manufacture of
paints, varnishes, lacquers and allied materials. It was incumbent upon the
respondent to satisfy the officer that there had been actual use of Benzene,
B etc., in the manufacture of paint, varnish, etc. One mode of satisfying the
officer was to produce the end user certificate which was not done. No other
evidence was also led to show that the conditions laid down by the said
notification of 1st March, 1984 had been satisfied. In the absence of any proof
with regard to the actual user of Benzene, etc., in the manufacture of paint,
•
C varnish, lacquer, etc., no relief could have been granted to the respondent
under this notification.

For the aforesaid reason, this appeal is allowed and the judgment dated
24th October, 1990 of CEGAT is set aside.

D There will be no order as to costs.

B.S. Appeal allowed.

·-