Holding

Notification 123/81‑CE grants exemption only if the goods removed under a CT‑3 certificate are actually used or participate in the manufacture of the export product; mere removal "in connection with the manufacture" is insufficient.

Summary

The Commissioner of Central Excise appealed against the exemption claimed by M/s Ginni Filaments Ltd., a 100% Export Oriented Unit manufacturing filament yarn, for items such as air‑conditioner sheets, tables and chairs. The assessee had obtained a CT‑3 certificate under Notification No. 123/81‑CE allowing removal of those goods from a 100% EOU and argued that the phrase "in connection with the manufacture" in the notification’s preamble was sufficient for exemption. The Tribunal gave a wide interpretation and allowed the exemption, but the Revenue challenged this. The Supreme Court held that the notification imposes two conditions: (i) removal of the goods under CT‑3 and (ii) the goods must be actually used or participate in the manufacture of the export product, as required by the condition "used in the manufacture". The assessee failed to prove such participation, so the exemption was not available. The Court set aside the Tribunal’s order and allowed the appeal.

Issues considered

Whether goods such as AC sheets, tables and chairs qualify for exemption under Notification 123/81‑CE when they are not directly used in the manufacture of filament/cotton yarn.
Whether the expression "in connection with the manufacture" in the preamble suffices to satisfy the condition "used in the manufacture" in the notification.
Whether the assessee must prove actual participation of the removed goods in the manufacturing process to claim exemption.
How Notification 123/81‑CE should be interpreted in light of its object to increase State revenue.

Legislation cited

Additional Duties of Excise (Goods of Special Importance) Act, 1957s. 3
Central Excise Act, 1944s. 35L(b)
Customs Act, 1962s. 58

Subjects

Excise dutyExemption100% Export Oriented UnitNotification 123/81‑CECT‑3 certificateCapital goodsUse in manufactureCentral Excise Act

Judgment

COMMISSIONER OF CENTRAL EXCISE, ALLAHABAD A
v.
MIS GINNI FILAMENTS LTD.

;FEBRUARY 17, 2005

[S.N. VARIAVA, DR. AR. LAKSHMANAN AND S.H. KAPADIA, JJ.) B

Excise Duty :

Exemption to goods for I 00% Export Oriented Undertakings (EOUs)-
Eligibility to benefit ofexemption under notification no. 123181-CE dated 2n~ C
June, 1981; as aJnended-Test (j)fparticipation-Held: Assessee, a 100% EOV
manufacturing filament yarn J1~ime4 exemption in respect of table, chairs,
ACs etc. which cannot be said to b~ :"goods" used in manufacture of cotton
or filament yarn-It failed to prove by evidence the participation of AC sheets
in manufacture offilament/cotton yarn-Requirement of use or participation D
of the "goods" in manufacture of products to be exported out of India, was
-I not satisfied-Tribunal erred in admitting the claim ofassessee for exemption.

Respondent-assessee is a 100% Export Oriented Unit manufacturing
filament yarn. It applied under Notification No.123/8l·CE dated 2nd June,
1981, as amended, to the Competent Authority for removal of certain E
goods, under form C1-3, from 100% Export Oriented Unit to its factory,
namely, A.C. Sheets, Air-Conditioners, flush doors, typewriters, storewells,
tables, chairs, which was granted.

The department issued show·cause notice calling upon the assessee
as to why duty should not be recovered from it for not using the goods, F
cleared under form CT-3 in the manufacture of cotton/filament yarn in
their undertaking. The assessee submitted that since the competent
authority had allowed the above goods to be brought into their
Undertaking from 100% export oriented unit under form CT-3 and since
the said goods were brought into their undertaking in connection with the 0
manufacture of combed cotton yarn, the requisite conditions mentioned
in the notification no. 123/81 stood satisfied and the department was not
entitled to demand duty. The assessee further submitted that direct
utilization of the said goods in the manufacture of combed cotton yarn
(which was an export product) was not necessary in view of the words
137 H.
138 SUPREME COURT REPORTS [2005] 2 S.C.R.

A "in connection with the manufacture" in the said notification.
The Adjudicating Authority confirmed the show-cause notice holding
--
that the assessee had failed to prove that the said goods were used in the
manufacture of combed cotton yarn. Assessee appealed before CEGAT
which held that notification no. 123/81 should be given widest possible
B interpretation and admitted the claim of assessee for exemption. Hence
the present appeal by the Revenue.
;

Allowing the appeal, the Court

HELD : 1. Notification no. 123/81-CE dated 2nd June, 1981, as
C amended, gave exemption to goods for "use" in 100% export oriented unit.
It gave exemption to capital goods, raw materials, components,
consumables etc. compendiously known as "goods" when brought into the
undertaking of a licenst!d holder from the 100% expo.rt .oriented unit
approved by the Board under a certificate in form CT-3 "in connection
D with the manufacture or' products to be exported out of India. The said
notification exempted the above goods from payment of basic excise duty ·
and additional excise duty subject to conditions which fu.rther stipulated
that exemption shall be granted only if the "goods" released from 100%
export oriented unit.were brought directly in.to the factory of the licensee
and were "used in the manufacture or' the products" to be exported.
E Therefore, in the preamble, which deals with remova~ of goods from 100°.(o
export ori(!nted unit under CT-3 form, there .is use of the words "in
connection with the manufacture or' which words are wider when
compared to the words in the conditions for exemption, namely, "used in
the manufacture or•. Reading the notification in entirety, therefore, two
F stipulations have to be fulfilled, namely, removal of the ".goods" from
100% export oriented unit to the factory of the licensee under form CT-
3 and use or participation of the said "goods" in the manufacture of
products meant for export. (149-F-H; 150-A-B)

1.2. In the present case, the Tribunal !las emphasized the words "in
G connection with the manufacture" in the preamble while failing to notice
the words "used in the manufacture or. in the conditions which indicate
use or participation of the said "goods" in the manufacture of products to
be exported Clot of India. This test of participation has to be applied to the
facts of each case. It is on fulfillment of both the above conditions, that, the
assessee becomes entitled to the benefit of the above notification. (lSO·C)
H
C.C.E. v. GINNI FILAMENTS LTD. 139

2. Each notification has to be read on its own terms and merely A
because. the object of a notification is to increase resources of the State,
conditions stipulated therein cannot be ignored. Further, the word "capital
asset" is very wide. It includes all types of properties including
consumables, raw material, components etc. However, capital assets
become capital goods when used in the manufacture of products. Every
capital asset is not capital goods. Hence, one has to read the words "capital B
goods" in the context of the above notification. For example, a telephone
instrument may constitute "capital goods" where the assessee is in the
business of telecommunication. However, if the assessee is in the business
of manufacture of hydrogen peroxide, the same instrument cannot be
construed as "capital goods" for the purposes of the above notification. C
. Hence, the peculiarities of the business or the undertaking is also required
to be kept in mind while interpreting the said notification. 1150-D-F)

3.1. The assessee claimed exemption in respect of table, chairs, air-
conditioners etc. which cannot be said to be "goods" used in the
manufacture of cotton or filament yarn. The contention of the assessee ri
that the words "in connection with the manufacture" are wide enough to
cover every item which is allowed to be removed under CT-3 certificate,
was accepted by the tribunal erroneously as it failed to look at the words
used in the conditions enumerated in the notification. (150-G-H)

3.2. The notification has to be read in its entirety. Further, the E
exemption notification has to be read strictly so far as the eligibility is
concerned. It was for the assessee to prove by evidence, and not by
submitting a chart, the nexus between AC Sheets and the manufacture of
filament/cotton yarn. It was for the assessee to prove by evidence the
participation of AC Sheets in the manufacture of filament/cotton yarn, F
which has not been done and, therefore, the tribunal had erred in
admitting the claim of the assessee for exemption without analyzing the
notification no. 123/81 dated 2.6.1981 (as amended). (151-A-BI

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5830 of 1999.
G
From the Judgment and Order dated 4.2.99 of the Central Excise,
Customs and Gold (Control) Appellate Tribunal, New Delhi in A. No. E/
A2120/94-D in F.O. No. 185 of 1999-D.

R. Venkataramani, A. Subba Rao, Ms. V. Vijaylakshmi, Ashok
Panigrahi, P. Parmeswaran and B. Krishna Prasad for the Appellant. H:
-
140 SUPREME COURT R8PORTS. [2005] 2 S.C.R.

A Ms. Madhurima Tatia, V. Lakshmikumaran, Rajendra Singhvi and Ashok
K. Singh for the Respondent.

The Judgment of the Court was delivered by

KAPADIA, J. The issue in this civil appeal filed by the department
B under section 35L(b) of the Central Excise Act, 1944 relates to the eligibility
to the benefit of exemption under Notification No.123/81-CE dated 2nd June, ~
1981, as amended. /

M/s Ginni Filaments Ltd. (hereinafter referred to for the sake of brevity
as "the assessee") is 100% Export Oriented Unit manufacturing filament
c yam. The assessee was licensed under section 58 of the Customs Act, 1962
bearing Licence No. 1-Customs/90 dated 13.3.1990. The assessee was also
granted L-4 licence for the manufacture of cotton yarn falling under Chapter
53.

The assessee made an application under notification no. 123/81 to the
D Competent Authority for removal. of certain goods, under form CT-3, from
100% Export Oriented Unit to its factory, namely, A.C. Sheets, air-
Conditioners, flush doors, typewriters, storewells, tables, chairs, which was
granted.

On 2.1.1991, the department issued a show-cause notice calling upon
E
the assessee as to why duty of Rs.4,55,872.72 should not be recovered from
the assessee for not using the goods, 9teared under form CT-3 in the
manufacture of cotton/filament yam ir their Undertaking.

By reply dated 3 l. l .1991, the assessee submitted that since the competent
F authority had allowed the above goods to be brought into their Undertaking
from 100% export oriented unit under form CT-3 and since the said goods
were brought into their undertaking in connection with the manufacture of
combed cotton yarn, the requisite conditions mentioned in the notification
no. 123/81 stood satisfied and the department was not entitled to demand
duty from the assessee. The assessee further submitted that direct utilization
G of the said goods in the manufacture of combed cotton yam (which was an
export product) was not necessary in view of the words "in connection with
the manufacture'' in the said notification. -
The Adjudicating Authority confirmed the show-cause notice holding
that the assessee had failed to prove that the said goods were used in the
H
C.C.E. v. GINNI FILAMENTS LTD.[KAPADIA, J.) 141

manufacture of combed cotton yarn. Being aggrieved, the assessee herein A
went in appeal to the Customs, ~xcise & Gold (Control) Appellate Tribunal
(hereinafter referred to for the sake of brevity as "the tribunal") which
following its earlier judgments held that notification no. 123/81 should be
given widest possible interpretation as its object was to increase the revenue
and balance of payment position. In this connection, the Tribunal also placed B
reliance on the words "in connection with the manufacture" in the recital to
the said notification.

In this appeal, we are required to decide the scope, ambit and effect of
notification no. 123/81, as amended.

To decide the abov.e question, we quote herein below notification no.
c
123/81-CE dated 2.6.1981, as amended;-

"EXEMPTION TO GOODS FOR HUNDRED PER CENT
EXPORT ORIENTED UNDERTAKINGS

The Central Government, being satisfied that it is necessary in public D
interest so to do, hereby exempts excisable capital goods, components and
raw materials, consumables, spares and packaging materials (hereinafter

-- referred to as the goods) when brought in connection with the manufacture
and packaging of articles into an undertaking approved by the Board of
Approval for hundred per cent Export Oriented Undertakings appointed by E
the notification of Government of India in the former Ministry of Industry
and Civil Supplies (Department of Industrial Development) No. S.O. 163fE)/
RLIU/10(2)/76 dated the 3rd March, 1976 from the whole of-

(i) the duty of excise leviable thereon under section 3 of the Central
Excises and Salt Act, 1944 (I of 1944); and F
(ii) the additional duty of excise leviable thereon under sub-section
(I) of section 3 of the Additional Duties of Excise (Goods of
Special Importance) Act, 1957 (58 of 1957), subject to the
following conditions namely :-

(a) the hundred per cent export-oriented undertaking is approved G,
by the said Board;

(b) the goods required by such undertaking/or manufacture and
packaging of articles are brought directly to the factory of
manufacture and are used in the manufacture and packaging H
I

142 SUPREME COURT REPORTS [2005] 2 S.C.R.

A of such articles meant solely for export or for supply to a
unit situated in another Free Trade Zone, Export Processing
Zone or hundred per cent export oriented undertaking for
the manufacture of goods solely meant for export;

(c) such undertaking exports out of India hundred per cent or
B such other percentage as may be fixed by the said Board of
articles manufactured wholly or partly from the goods for
the period stipulated by the said Board or such extended
period as may be specified by the said Board;

(d) on clearances up to twenty-five per cent, of articles so
c produced or manufactured and allow~d to be sold in India,
such undertaking shall pay duty of excise levi.able on such
articles under section 3 of the said ·Central Excises and Salt
Act; •

(dd)on clearances of five per cent of articles so produced or
D manufactured or such other percentage, as may be fixed by
the said Board and allowed to be sold in India, such
undertaking shall pay duty of excise leviable .under section
3 of the said Central Excises and Salt Act, provided such
articles are in the nature of rejects;
E (e) the p~ocedure set out in Appendix to this notification is
follow~d by such undertaking;

(t) on the expiry of the period referred to in condition (c), such
undertaking shall pay excise duty on the goods unused and
the articles manufactured from the goods without
F depreciation and at the rates in force at the time of clearance.

2. Notwithstanding anything contained in the conditions.in the preceding
paragraph, samples of articles manufactured from the goods for·the purpose
of display and canvassing may be cleared in such quantities and subject to
G such limitations as may be specified by the said Board if the duty of excise
at the appropriate rate has been paid on the goods contained in·such samples.

3. Notwithstanding anything contained in the.conditions (b) and (c) of
the first paragraph, clearances of the articles manufactured wholly or partly
from t,he goods brought into a hundred per <;ent export oriented undertaking
H for supply to the Oil and Natural Gas Commission or the Oil India Limited
C.C.E. v. GINNI FILAMENTS LTD.[KAPADIA, J.) 143
or as the case may be the Gas Authority of India Ltd. for their project in India A
against global tender shall be exempt from the so much of the duty of excise
leviable thereon under section 3 of the Central Excises and Salt Act, 1944 ( l
of 1944) as is in excess of the amount calculated at the rate of 15% ad
valorem and from the whole of the additional duty of excise leviable thereon
under sub-section (I) of Section 3 of the Additional Duties of Excise (Goods S
of Special Importance) Act, 1957 (58 of 1957), subject to the following
further conditions, namely :-

(i) the said undertaking produces a certificate to the Assistant
CoJiector of Central Excise, prior to the clearance of such articles
C
- from the General Manager or the Project Manager of the Oil and
Natural Gas Commission or the Oil India Limited or as the case
may be the Gas Authority of India Limited to the effect that such
articles are required to be supplied against global tender to the
Oil and Natural Gas Commission or the Oil India Limited or as
the case may be the Gas Authority of India Limited for their
project in India specified in the Certificate; and D·
(ii) the said undertaking produces to the Assistant Collector of Central
Excise within three months from the date of the said clearance
of such articles or such extended period as may be allowed by
the Assistant Collector of Central Excise, a certificate from the
General Manager or the Project Manager of the Oil and Natural E
Gas Commission or the Oil India Limited or as the case may be
the Gas Authority of India Ltd., to the effect that such articles
have actually been received by the Oil and Natural Gas
Commission or the Oil India Limited or as the case may be the
Gas Authority of India Ltd., at the specified project and are F
intended for use in the specified project.

APPENDIX

Procedure to regulate the movement of the goods for Manufacture
and packaging of articles for export.
0
(a) Application for obtaining the goods free of duty.-Any person
intending to obtain the goods free of duty for use by him in his I 00
per cent export oriented undertaking shall make an application in
writing to the Assistant Collector of Central Excise in proper form to
be prescribed by the Assistant Collector of Central Excise stating
H
144 SUPRE.ME COURT REPORTS [2005] 2 S.C.R.

A therein the annual quantity of the goods required <::id the purpose for
and the manner in which such goods are intended to be used and
declaring that the goods shall be used for such· purpose and in such
manner only. The Assistant Collector may grant the application after
causing such enquiries to be made as he may deem fit and the applicant
shall then enter into a bond in the form given at Annexure A below
B with such surety or sufficient security, in such amount and under
such conditions as the Assistant Collector of Central Excise approves.
The Assistant Collector of Central Excise may, however, allow the
annual quantity of the goods to be brought as furnished by the

-
manufacturer to be extended when a request to that effect is made.
c The concession shall expire on the 31st December every year, but
may be renewed if the Assistant ·collector of Central excise sees no
reason to the contrary :

Provided that, in the event of death, insolvency or insufficiency of the
surety, or where the amount of the bond is inadequate, the Assistant Collector
D cf Central Excise, in his discretion, demand a fresh bond, and may, if the
security furnished for a bond is not adequate, demand additional security.

After the grant of the application and execution of bond by the applicant,
the Central Excise officer-in-charge of the 100 per cent Export oriented
undertaking shall issue a certificate, in the form given in Annexure B'below
E certifying that

(i) the said undertaking has executed a bond in the form given in
Annexure A below with the Assistant Co!lector of Central Excise
showing the number and particulars of the bond; and

F (ii) the specimen signature of the agent of the said undertaking
furnished on the body of the certificate is genuine and he would
attest it. The certificate shall be sent by the said officer-in-charge
under registered post (acknowledgement due) to the factory from
which the goods are to be obtained. A copy of the certificate
shall also be sent by the said undertaking to the Superintendent
G in-charge of the range of the factory from where the goods are
to be received.

(b) Removal of goods to 100% Export oriented undertaking.-On
receipt of the aforesaid certificate the factory (consignor) from where
the goods have to be removed shall prepa~e an application in the
H
C.C.E. v. GINNI FILAMENTS LTD.[KAPADIA . .I.] 145

form given in Annexure C below in quadruplicate for removal of A
non-duty paid goods from one warehouse to another mentioning clearly
the number and date of the bond in Annexure A below as per the
certificate issued by the Central Excise officer-in-charge of the I 00
per cent Export Oriented Undertaking. Removal application in
Annexure C below must be serially numbered. The serial No. should B
be according to the financial year. The serial r:o. ,nust be noted on
all the copies. Whenever any removal application has to be cited in
the course of correspondence; the name of the factory, the Serial No.
and date of Annexure C below should always be quoted as reference.
The consignor shall however, intimate to the Central Excise officer-
in-charge of the l 00 per cent Export oriented undertaking about the C
removal of goods at least 12 hours before such removal is expected
to take place.

(c) Marking of the packages.-Packages to be marked and address to
be noted in the application :
D
The factory of removal (consignors) must -

(i) ensure that packages bear proper marking and number;

(ii) ensure that all copies of Annexure 'C' below are
prominently marked "Intended for use in the undertaking
approved for manufacturing I00 per cent Export oriented E
goods";

(iii) give the full address of the factory of removal as well
as of the Superintendent-in-charge of the range under
which the factory falls and the Collectorate to which it
is attached. F
Whenever any of these addresses is used for dispatching purposes,
care must be taken by the dispatching factory to see that the full
address of the Superintendent in-charge of the range including the
names of the district is properly reproduced.
G
(d) Preparation of Gate Pass.-T~e consignor shall also prepare a
gate pass in Form G.P.2 in Appendix I (Central Excise Series No. 65
A) to the Central Excise Rules, 1944, in respect of the goods proposed
to be removed from his factory and will thereafter clear the goods on
his own without any verification by any Central Excise Officer.
H
146 SUPREME COURT REPORTS [2005) 2 S.C.R.

A (e) Disposal of documents in Annexure C and Gate Pass.-The
Consignor shall send the original and triplicate copy of the Annexure
C below and original copy of the gate pass along with the consignment
to the consignee. The duplicate copy of Annexure C below will be
sent by the consignor to the Assistant Collector of Central Excise in-
charge of the I 00 per cent Export oriented undertaking. The duplicate
B copy of the gate pass will be sent by the consignor to the officer~in
charge of his factory within 24 hours of the removal of the consignment
in question. The said officer-in-charge shall maintain an account of
all such removals in Annexure D below.

(f) Action at destination.-On receipt of the duplicate copy by the
c Assistant Collector of Central Excise, it must immediately be entered
in the 'Record of Receipts in bond" given in Annexure E below and
forwarded the same day to the Central Excise officer-in-charge of the
100 per cent Export oriented undertaking. The entries in this record
should be verified against relative entries of the Record of Raw
D Materials prescribed by the Collector.

(g) Responsibility for further accounting.-After delivery of the goods
from a manufacturer, proper accounting of these goods shall be the
responsibility of the Central Excise officer-in-charge of the 100 per
cent ·Export oriented undertaking.
E
(h) Examination of the consignment on receipt.-(1) The consignee
must give intimation of the arrival of the consignment at his premi5es
to the Central Excise officer-in-charge of the I 09 per cent Export
oriented undertaking without any delay and should store the same
separately and intact, pending examination and check· by the said
F officer and the said officer, after taking account of the goods, will
identify them with the marks and numbers, and weigh the consignment
in full. Thereafter, he shall complete the re-warehousing certificate
on the duplicate copy received from the CentralExcise Superintendent-
in-charge of the factory at destination and original and triplicate copy
of the applications presented by the consignee; return duplicate to the
G Central Excise officer-in-charge of the factory ofremoval direct and
triplicate to the consignee for dispatch to the consigner after noting
thereon the deficiency or excess, if any.

(2) Duty on shortages or losses in transit.-Since the bond in
Annexure A below would have been executed by the consignee, duty
H
C.C.E. v. GINNI FILAMENTS L TD.[KAPADIA . .I.] 147

on shortages will be demanded from him after condoning the A
permissible losses in transit. For such commodity a separate schedule
of losses will be formulated and issued by the Collector of Central
Excise.

(i) Re-entry.-If the duplicate application is received by the Central
Excise Officer-in-charge of the 100 per c'!nt Export oriented B
undertaking, before. arrival of the goods is repo1ted to him by the
consignee, he must keep it pending, securely and systematically filed
in a file marked "pending duplicate in Annexure B application" and
record the particulars of the consignment in his "record of receipts in

- bond" prescribed as in Annexure E below and no sooner the
consignment is received, he will follow the procedure prescribed in
paragraph (h) above.
C

G) Duty leviable on excisable goods not duly accounted for as having
been utilized in the manufacture of goods for export, etc.-If any
excisable goods obtained under this procedure are not duly accounted D
for as having been utilized in connection with the manufacture and
packaging ofarticles for export or clearances up to twenty five percent
of the articles produced or manufactured and allowed to be sold in
India on payment of duty of excise Jeviable under section 3 of the
Central Excises and Salt Act, 1944 (1 of 1944) or for clearances for
supply to the Oil and Natural Gas commission for their projects in E
India against global tender or are not shown to the satisfaction of the
Central Excise officer-in-charge of 100 per cent Export oriented
undertaking to have been lost or destroyed by natural causes or by
unavoidable accidents during storage or handling in the approved
premises, or, have been permitted to be disposed of as refuse or waste F
within the permissible limits prescribed by the Collector of Central
Excise, the applicant shall, on demand by the said Central Excise
officer, immediately pay the duty leviable on such goods. The
concession may at any time be withdrawn by the Collector of Central
Excise if a breach of the procedure is committed by the applicant, his
agent or any person employed by him. In the event of such a breach, Q
the Collector of Central Excise may also order the forfeiture of the
security deposited under paragraph (a) above and may also confiscate
the goods and all articles manufactured from such goods in store in
the premises of the 100 per cent Export oriented undertaking.
148 SUPREME COURT REPORTS f2005] 2 S.C.R.

A (k) Despatch of duplicates by registered post acknowledgement due.-
Despatch of duplicate application in Annexure B referred to in
paragraph (a) above must always be made by registered post
acknowledgement due, and the postal receipt acknowledgement must
be systematically filed by the consignor and presented for inspection
to the Central Excise officer-in-charge of the factory whenever
B required.

(I) Demand of duty on goods not reaching destination.-Under sub-
rule (1) of rule 1568 of the Central Excise Rules, 1944, if the certificate
of receipt of a consignment of the goods dispatched to the consignee
[as per paragraph (1)] is not received back by the consignor within
c 90 days of the removal of the goods or within such extended period
as may be allowed by the Collector of Central Excise, it is the
responsibility of the consignor to himself pay the duty leviable on the
consignment by a debit entry in his account current. However, a
provision has been made that in such cases where the consignor
D produces proofre-warehousing to the satisfaction of the Central Excise
Officer-in-charge of the factory after payment of duty in the manner
indicated above, he will be eligible for grant of refund on the duty so
paid by making an application.

The Central Excise officer-in-charge of the factory may also
E demand duty on a consignment the certificate in respect of which has
not been received within the stipulated period. In such cases, if the
consignor has already paid the duty leviable on the consignment by
a debit entry in his account current, he may intimate the officer-in-
charge of the 100 per cent Export oriented undertaking about the
particulars of such deposit in reply to this notice of demand.
F
(m) Action by the officer-in-charge of the factory of removal in case
of non-receipt of the warehousing cert!ficates.-lf the duplicate copy
of Annexure B below is not returned to the officer-in-charge of the
factory of removal within a month .of the removal of consignment
reminders must be issued regularly at fortnightly intervals to the
G Central Excise officer-in-charge of the I 00 per cent Export oriented
undertaking. If, despite such reminders, the duplicate application is
not received within two months of the date of removal of the
consignment, the matter should be reported to the Assistant Collector
of Central Excise in whose charge the consignor operates, who will
H either secure a satisfactory proof of the consignment having been
C.C.E. v. GINNI FILAMENTS LTD.[KAPADIA, .I.} 149

duly received by the consignee or ensure that the duty properly due A
on the goods not so received at destination is recovered as per
paragraph (I) above.

(n) Verification of the use of non-duty paid goods_.-On receipt by the
consignee, the goods shall be utilized in the manufacture and
packaging of articles intended (solely) for export of clearances up to B
twenty-five percent of the articles produced or manufactured and
allowed to be sold in India on payment of duty of excise leviable
under section 3 of the Central Excises and Salt Act, 1944 (1 of 1944)
or for clearances for supply to the Oil and Natural Gas Commission
for their projects in India against global tender. It shall be the
responsibility of the Central excise officer-in-charge of the, 100 per
cent Export oriented undertaking to ensure that all the goods have
been fully utilized for manufacture and packaging of articles intended
for export or for clearances up to twenty five per cent of the articles
produced or manufactured and allowed to be sold in India on payment
of duty of excise leviable under section 3 of the Central Excises and D
Salt Act, !944 (I of 1944) or for clearances for supply to the Oil and
Natural Gas Commission for their projects in India against global
tender or are otherwise accounted for to the satisfaction of the Assistant
Collector, Central Excise in-charge of the 100 per cent Export oriented
undertaking.
E
[Emphasis supplied]"

The above notification gave exemption to goods for "use" in I 00%
export oriented unit. As can be seen from the preamble, the notification gave
exemption to capital goods, raw materials, components, consumables etc.
compendiously known as "goods" when brought into the undertaking of a F
licensed holder from the 100% export oriented unit approved by the Board
under a certificate in form CT-3 "in connection with the manufacture of'
products to be exported out of India. The said notification exempted the
above goods from payment of basic excise duty and additional excise duty
subject to conditions which further stipulated that exemption shall be granted G
only if the "goods" released from 100% export oriented unit were brought

-- directly into the factory of the licensee and were "used in the manufacture of
the products" to be exported. [See: Conditions l{b)(c)(t), 2, 3 as well as the
various Clauses in the Appendix to the notification, relevant portions of
which ~ave been underlined in bold print]. Therefore, in the preamble, which
deals with removal of goods from 100% export oriented unit under CT-3 H
150 SUPREME COURT REPORTS (2005] .2 S.C.R.

A form, we find use of the words "in connection with the manufacture of'
which words are wider when compared to the words in the conditions for
exemption, namely, "used in the manufacture of'. Reading the notification in
entirety, therefore, two stipulations have to be fulfilled, namely, removal of
the "goods" from 100% export oriented unit to the factory of the licensee
B under form CT-3 and use or participation of the said "goods" in the
manufacture of products meant for export.

In the present case, the tribunal following its judgments in earlier cases
has emphasized the words "in connection with the manufacture" in the
preamble while failing to notice the words "used in the manufacture of' in
C the conditions which indicate use or participation of the said "goods" in the
manufacture of products to be exported out of India. This test of participation
has to be applied to the facts of each case. It is on fulfillment of both the
above conditions, that, the assessee becomes entitled to the benefit of the
above notification. In number of cases, the tribunal has wrongly drawn an
analogy from notification no. 272179 which has no application to the present
D case. Each notification has to be read on its own terms and merely because
the object of a notification is to increase resources of the State, conditions
stipulated therein cannot be ignored. Further, it may be noted, that the word
"capital asset" is very wide. It includes all types of properties including
consumables, raw material, components etc. However, capital assets become
E capital goods when used in the manufacture of products. Every capital asset
is not capital goods. Hence, one has to read the words "capital goods" in the
context of the above notification. For example, a telephone instrument may
constitute "capital goods" where the assessee is in the business of
telecommunication. However, ifthe assessee is in the business of manufacture
of hydrogen peroxide, the same instrument cannot be construed as "capital
F goods" for the purposes of the above notification. Hence, the peculiarities of
the business or the undertaking is also required to be kept in mind while
interpreting the said notification.

Applying the above tests to the facts of the case in hand, we find that
the assessee has claimed exemption in respect of table, chairs, air-conditioners
.G etc. which cannot be said to be "good~" used in the manufacture of cotton
or filament yarn. It is the case of the assessee that the words "in connection
with the manufacture" are wide enough to cover every item which is allowed
to be removed under CT-3 certificate. This contention of the assessee is
accepted by the tribunal erroneously as it has failed to look at the words used
H in the conditions enumerated in the notification. As stated above, we have to
C.C.E. v. GINNI FILAMENTS LTD.[KAPADIA. J.] 151

read the notification in its entirety. Further, we are dealing with exemption A
notification which has to be read strictly so far as the eligibility is concerned.
It was for the assessee to prove by evidence, and not by submitting a chart,
the nexus between AC Sheets and the manufacture of filament/cotton yarn.
It was for the assessee to prove by evidence the participation of AC Sheets
in the manufacture of filament/cotton yarn, which has not been done and,
therefore, the tribunal had erred in admitting the claim of the assessee for B
exemption without analyzing the notification no. 123/81 dated 2.6.1981 (as
amended).

For the reasons given hereinabove, this civil appeal filed by the
department succeeds; the impugned judgment and order of the tribunal dated C
4.2.1999 passed in Appeal No. E/A 2120/94-D is set aside; and accordingly
the civil appeal stands allowed, with no order as to costs.

RB.B. Appeal allowed.