Holding

The eligibility clause of an exemption notification must be given a strict construction, but once satisfied, the exemption clause may be given a liberal meaning, allowing exemption only to the extent duty has been paid on the base paper component.

Summary

Mis. Compack Pvt. Ltd., a small‑scale manufacturer of cardboard containers, claimed exemption under Central Excise Notification No. 67/82‑CE, having paid duty on the base paper component but availing MODVAT credit on a plastic‑coated paper layer. The Revenue argued that the exemption was available only to manufacturers using exclusively base paper. The Supreme Court held that the eligibility clause of the notification must be given a strict construction – i.e., duty must be paid on the base paper – but once satisfied, the exemption clause can be interpreted liberally, allowing exemption to the extent of duty paid on the base paper only. The Court rejected the view that the entire container must be made of base paper and remitted the question of the exact composition of the containers to the Assistant Commissioner. The appeal was partly allowed, granting exemption to the extent of duty paid on paperboard.

Issues considered

The proper construction of the eligibility and exemption clauses in Central Excise Notification No. 67/82‑CE.
Whether taking MODVAT credit on inputs other than base paper defeats eligibility for the exemption.
Whether the exemption applies to the whole container or only to the portion for which duty has been paid.

Legislation cited

Central Excise Rules, 1944s. Rule 57‑G, s. Rule 8, s. Section AA (Chapter V)
Central Excise Tariff Act, 1985s. Chapter 48, s. Item 48.02, s. Item 48.07
Customs Tariff Act, 1975s. Section 3

Subjects

exemption notificationcentral exciseMODVAT creditliteral interpretationeligibility clausestrict constructionliberal constructioncomposite containersbase paperplastic coated paper

Judgment

MIS. COMPACK PVT. LTD. A
V.

COMMISSIONER OF CENTRAL EXCISE, VADODARA

OCTOBER 7, 2005

[S.B. SINHA AND R.V. RA VEENDRAN, JJ.] B

Central Excise-Exemption Notification-Rules ofInterpretation-Held,
a Notification has to be construed literally in terms of the language used
therein-An eligibility criteria has to be construed strictly-Once the eligibility
clause is satisfied, exemption clause may then be given a liberal meaning-
c
Plea taken by the Revenue that exemption could be granted only to containers
manufactured exclusively out of base paper rejected.

Central Excise-Exemption Notification No.67182-CE dt. 28.2.1982 as
amended on 28.2.1993-Central Excise Rules 1944, Rule 8, 57 G, Section AA D
of Chapter V-Custom Tari.ff Act 1975, Section 3-Central Excise Tari.ff Act
1985, Chapter 48 of the Schedule, Item No.48.02, 48.07-Appellant company
engaged in manufacture of cardboard containers out of base paper and other
inputs-Made MOD VAT declaration under Rule 57-G declaring LDPE Coated
Paper as input which was intended to be used in the manufacture ofComposite
Paper Containers-It availed the MOD VAT credit ofspecified duties on LDPE E
Coated Paper-It did not avail of any MODVAT credit in respect of base
paper-It cleared containers on payment of basic excise duty in terms of
Notification-Revenue Department issued Show Cause Notice alleging that
appellant was not entitled to concessional rate of duty-Appellant's plea that
three layers of containers consist of base paper and only one layer was plastic F
coated paper-Held, appellant was entitled to the benefit of exemption
notification to the extent of duty paid on paper board though not in respect
of the entire container-However, since the question ofcomposition ofcontainer
has not been raised by the appellant before any authority, matter remanded
to the Department on that point.
G
The appellant company, a Small Scale Industry, was engaged in
production of excisable goods i.e. cardboard containers manufactured out
of base paper having three layers and an outer layer of LOPE coated paper
which was said to have been manufactured from the base paper apart from

281 H
282 SUPREME COURT REPORTS [2005] SUPP. 4 S.C.R.

A other inputs. The Company availed of the MODV AT credit of the specified
duties on LOPE coated paper. It, however, did not avail of any MODVAT
credit in respect of base paper. During the period November 1992 to
February 1993, the appellant cleared composite containers on payment
of duty at the concessional rate in terms of notification No.67/82-CE dt.
B 28.2.1982. The Department raised a demand of differential duty holding
that the appellant was not eligible for the concessional rate of duty under
the notification. Appellant's appeal to the commissioner and then to
Tribunal was dismissed. Hence the present appeal.

The Company contended that it was entitled to claim the benefit of
C exemption notification as taking of MODV AT credit on one of the inputs
could not deprive it of the benefit of notification. It was also alleged that
apart from one layer of LOPE coated paper, three layers of base paper
was used in respect whereof no MODVAT credit was availed of'.. ,
.·.
.,
Department pleaded that exemption notification must be construed
D strictly and exemption could be granted only to those manufactureK who
used base paper only for marnufacturing containers.

Partly allowing the appeal, the Court

HELD : 1. The principles as regard construction of an exemption
E notification are no longer res integra; whereas the eligibility clause in
relation to an exemption notification is given strict meaning where for the
notification has to be interpreted in terms of its language, once an assessee
satisfies the eligibility clause, the exemption clause therein may be
construed literally. An eligibility criteria, therefore, deserves a strict
construction although construction of a condition thereof may be given a
F liberal meaning. (248-G, HJ

Tata Iron & Steel Co. Ltd v. State ofJharkhand and Ors., (200514 SCC
272; Commissioner ofCentral Excise, Chandigarh v. Bhalla Enterprises, 2004
(173) ELT 225 (SC); Commissioner of Central Excise, Trichy v. Rukmani
G Pakkwell Traders, (2004) 11 SCC 801 and Commissioners of Central E:xcise
Chandigarh-Iv. Mahaan Dairies, (2004) 11 SCC 798, referred to.

2. The eligibility clause contained in the notification is confined to
use of base paper or paperboard used in the manufacture of printed
cartons, boxes, containers and cases. A container may consist of in r«ts
H other than base paper or paperboard. It has not been shown that to avail
COMPACK PVf. LTD. v. COMM. Of CENTRAL EXCISE, VADODARA 283
;
the exemption the containers are required to be manufactured 'only' or A
' 'purely' from the base paper or base paperboard. Had the same been the
intention of the legislation making authority they could have said so
explicitly. Once the eligibility criteria is satisfied by the assessee, as noticed
hereinafter, the conditions are required to be construed liberally.
(288-C, DJ
B
Commissioner of Central Excise v. MP. V. & Engg. Industries, (2003)
5 sec 333, referred to.

3.1. Notification has to be construed on the basis of the language
used. Wordings of some other notification are of no benefit in construing
a particular notification. The notification does not state that exemption c
cannot be granted in a case where all the inputs for manufacture of
containers would not be base paper or paperboard. The notification has
to be construed in terms of the language used therein. It is well settled
that unless literal meaning given to a document leads to anomaly or
absurdity, the golden rule of literal interpretation shall be adhered to.
(288-E, F) D
Coromondal Fertilizers Ltd. v. Collector of Customs, Madras (1986) 3
sec 531; referred to.
3.2. The only requirement for availing the benefit of the said
notification was payment of excise duty on base paper or base paperboard, E
wherefor also a legal fiction has been raised in the explanation appended
thereto. The appellant, however, is not entitled to the exemption
notification in respect of the entire container. It would be entitled to
exemption only to the extent for which excise duty has been paid i.e. on
paperboard. As the ,question as to whether three layers of base paper have
been used for manufacture of the container or not has not been raised F
before any authority, the matter is remitted back to the Assistant
Commissioner, Central Excise and Customs for determination of the said
question. (289-H; 290-A-C)

... CIVIL APPELLATE JURISDICTION : Civil Appeal No. 803'0 of 2004.
G
From the Judgment and Order dated 5.3.2003 of the Customs, Excise
and Gold (Control) Appellate Tribunal, West Zonal Bench, at Mumbai in
F.O. No. C-III-381/2003 WZB in A.No. E/1801 of 2002 MUM.

Ramesh Singh, Ms. Bina Gupta, Mrs. Rakhi Ray, Ms. lnklee Barooah
and Ms. Bina Gupta for the Appellant. H
284 SUPREME COURT REPORTS (2005) SUPP. 4 S.C.R.

A Gopal Subramanium, Additional Solicitor General, Dayan Krishnan, P.
Parmeswaran and Gautam Narayan for the Respondent.

The Judgment of the Court was delivered by

S.B. SINHA, J. Interpretation of an exemption notification dated
B 28.02.1982, as amended by several notifications, is in question in this appeal
which arises out of a judgment and order dated 05.03.2003 passed by the
Customs, Excise and Gold (Control) Appellate Tribunal, West Zonal Bench
at Mumbai (for short, 'the Tribunal) in Appeal No.E/180 l /02, whereby and
whereunder the appeal preferred by the Appellant herein from a judgment
C and order dated 01.02.2002 passed by the Commissioner of Central Excise
& Customs (Appeals) Yadodara, was dismissed.

The Appellant, a Company incorporated under the Companies Act,
1956, is engaged in the manufacture and production of excisable goods, i.e.
cardboard containers. It is a Small Scale Industry. It opted for the benefit
D contained in Section AA of Chapter Y of the Central Excise Rules, 1944 so
as to avail the MODY AT credit of the specified duties on plastic coated
paper known as 'LOPE coated paper'. It, however, did not avail of any
MODY AT credit in respect of base paper or base paperboard. According to
the Appellant, the cardboard container is manufactured out of base paper
having three layers and the outer layer consists of LOPE coated paper which
E is said to have been manufactured from the base paper apart from other
inputs.

The Appellant filed a MODY AT Declaration on or about 2.11.1992
purported to be in terms of Rule 57-G of the Central Excise Rules, 1944
declaring LOPE Coated Paper· falling under sub-heading 4811.30 of the
F Schedule appended to the Tariff Act as input which was intended to be used
in or in relation to the final excisable goods, namely, Composite Paper
Containers (Containers) meriting classification under sub-heading 4819.12.
The Appellant admittedly after filing the said MODY AT Declaration availed
of the MODYAT Credit of specified duties paid on the inputs amounting to
G Rs. 35, 185.13. The tariff rate for the said containers of sub-heading 4819.12
of the Schedule was stipulated at 35% ad valorem of basic excise duty and
the corresponding special excise duty was at the rate of 15% on basic excise
duty.

It is stated that during the period November, 1992 to February, 1993
H the said composite containers worth Rs. 17,00,954.00 were cleared by the
COMPACK PVT. LTD.'" COMM. OF CENTRAL EXCISE, VADODARA [SINHA, J.] 285
Appellant on payment of basic excise duty at a rate of 5% ad valorem, A
nonnal rate being 15% ad valorem, in terms of the Tariff Notification dated
28.2.1982 read with the provisions of the Small Scale General Exemption
Notification as thence existed.

The Assistant Commissioner of Central Excise and Customs issued ·
notice dated 26.04.1993 as to why the duty amounting to Rs. 3,91,228/- B
should not be recovered from it, alleging that the Appellant was not eligible
for the concessional rate of duty prescribed with Notification No. 67 /82 -CE
dated 28.2.1982 (as amended).

By an order dated 23.12.1997, it was held that the Appellant was not
entitled to avail the concessional rate of duty and, therefore, differential duty, C
as envisaged therein was recoverable.

Aggrieved thereby, the Appellant preferred an appeal, which was
·! dismissed by an order dated 01.02.2002 passed by the Commissioner
(Appeals). An appeal from the said order before the Tribunal was dismissed D
by an order dated 05.03.2003.

Mr. Ramesh Singh, the learned counsel appearing on behalf of the
Appellant, would submit that the learned Tribunal committed a manifest
error i'n passing the impugned judgment insofar as it failed to take into
consideration that for manufacture of cardboard containers, apart from one E
layer of LOPE coated paper, three layers of base paper are used in respect
whereof, no MODY AT credit was taken and, thus, the Appellant was entitled
to obtain the benefit of the exemption notification. The inference of the
Tribunal that the Appellant had indirectly taken the MODVA T credit, it was
submitted, is not sustainable in law. Only because MODVAT credit has been
taken for one of the inputs, it was submitted, cannot be held to be a ground F
for depriving the Appellant from the benefit of an exemption notification to
which it was otherwise entitled to.

Mr. Gopal Subramanium, the learned Additional Solicitor General, on
the other hand, would submit that the plastic coated paper is different from G
a base paper and on a true construction of the notification, it would be
evident that exemption from payment of excise duty is to be granted only to
those manufacturers who used base paper only for manufacturing containers.
Exemption notification, the learned Additional Solicitor General would
contend, must be construed strictly.
H
286 SUPREME COURT REPORTS (2005] SUPP. 4 S.C.R.

A The aforementioned notification No. 67/82CE dated 28.2.1982 (as
amended by Notification dated 28.2.1993) read thus :

"Effective rate of duty for printed cartons, boxes, containers and
cases. In exercise of the powers conferred by sub-rule (I) of rule 8
of the Central Excise Rules, 1944, the Central Government hereby
B exempts printed cartons, boxes, containers and cases (including
flattened or folded cartons) whether in assembled or unassembled
condition, falling within Chapter 48 of the Schedule to the Central
Excise Tariff Act, 1985 (5 of 1986), from so much of the duty of
excise leviable thereon as is in excess of twenty percent ad valorem
subject to the condition that the appropriate duty of excise or additional
c duty leviable under section 3 of the Customs Tariff Act, 1975 (51 of
1975), as the case may be, has already been paid in respect of the
base paper or base paperboard used in their manufacture :
'
Provided that nothing contained in this notification shall apply to a
manufacturer who avails of the special procedure prescribed under
D
rule 56A or 57 A of the Central Excise Rules, 1994, in respect of the
duty paid on the base paper or base paperboard.

Expl.anation.-For the purpose of this notification, the base paper or
base paperboard used in the manufacture of the said articles shall be
deemed to have paid the appropriate duty of excise or the additional
E
duty leviable under section 3 of the Customs Tariff Act, 1975, if it
is purchased from the market."

It is not in· dispute that the matter relating to rate of excise duty payable
on paper
'
and paperboard
. is contained in Chapter 48 of the Central Excise
F Rules. Whereas Item 48.02 refers to uncoated paper, Item 48.07 refers to
plastic coated paper.

The Appellant has taken a stand before us that three layers of the carton
consist of base paper and only one layer of carton consists of plastic coated
paper. The principles· as regard construction of an exemption notification are
G no longer res integra; whereas the eligibility clause in relation to an exemption
notification is given strict meaning wherefor the notification has to be
interpreted in terms of its language, once an assessee satisfies the eligibility
clause, the exemption clause therein may be construed literally. An eligibility ,
criteria, therefore, deserves a strict construction, although construction of a
H condition thereof may be given a liberal meaning. [See Tata Iron & Steel Co.

I
COMPACK PVT.LID. v. COMM. OF CENTRAL EXCISE, VADODARA [SINHA, J.] 287
. Ltd. v. State of Jharkhand and Ors., [2005] 4 SCC 272.]. A
In Commissioner of Central Excise, Chandigarh v. Bhalla Enterprises
(2004 (173) ELT 225 (SC)], it was held:

"The basic rule in interpretation of any statutory provision is that the
plain words of the statute must be given effect to ..." B
In Commissioner ofCentral Excise, Trichy v. Rukmani Pakkwell Traders,
(2004] 11 SCC 80 I, it was held :

" .. .It is settled law that exemption notifications have to be strictly
construed. They must be interpreted on their own wording. Wordings C
of some other notification are of no benefit in construing a particular
notification ... "

The said decision was followed in Commissioner of Central Excise,
Chandigarh-Iv. Mahaan Dairies, [2004] 11 SCC 798.
•.
D
Keeping in view the principles laid down in the aforementioned
decisions, we have to construe the exemption notification in question.

The said notification was issued in terms of sub-rule (I) of Rule 8 of
the Central Excise Rules, 1944. By reason thereof, printed carton, boxes,
containers and cases whether in assembled or unassembled condition falling E
under Chapter 48 of the schedule appended to the Central Excise Tariff Act,
would receive the benefit of exemption subject to the condition that the
appropriate duty of excise or additional duty leviable under Section 3 of the
Customs Tariff Act has already been paid in respect of the base paper used
in their manufacturing.
F
Item No.48.02 refers to uncoate.d paper and paperboard of a kind
mentioned therein. Item No.4802.20 is as under :

"4802.20 - Paper or paperboard, in the manufacture of which,-

(a) the principal process of lifting the pulp is done by hand; and G
(b) if power driven sheet forming equipment is used, the Cylinder
Mould Vat does not exceed 40 inches."

'Composite paper' and paperboard (made by sticking flat layers of
paper or paper board together with an adhesive), not surface-coated or H
288 SUPREME COURT REPORTS (2005] SUPP. 4 S.C.R.

A impregnated, whether or not internally reinforced, in rolls or sheets has been
shown in Item No.48.07.

The proviso appended to the notification contains an exception thereto
stating that if MODYAT credit is availed of, no such exemption shall be
available to the manufacturer. The 'Explanation', however, raises a legal
B fiction that if a base paper or a paperboard, if purchased from the market,
would be deemed to be duty paid. The eligibility ciCJ.use contained in the
notification, thus, is confined to use of base paper or paperboard used in the
manufacture of printed cartons, boxes, containers and cases. A container may
consist of inputs other than base paper or paperboard. It has not been shown
C before us that to avail the exemption, the containers are required to be
manufactured 'only' or 'purely' from the base paper or base paperboard. Had
the same been the intention of the legislation making authority, they could
have said so explicitly. Once the eligibility criteria is satisfied by the assessee,
as noticed hereinbefore, the conditions are required to be construed liberally.
(See Commissioner of Central Excise v. MP. V. & Engg. Industries, [2003]
D 5 sec 333.

Bhalla Enterprises (supra) laid down a proposition that notification has
to be construed on the basis of the language used. Rukmani Pakkwel/ Traders
(supra) is an authority for the same proposition as also that the wordings of
some other notification are of no benefit in construing a particular notification.
E The notification does not state that exemption cannot be granted in a case
where all the inputs for manufacture of containers would be base paper or
paperboard. In manufacture of the containers some other inputs are likely to
be used for which MODY AT credit facility has been availed of. Such a
constru~tion, as has been suggested by the learned counsel for the Respond~nts,
p would amount of addition of the words "only out of' or "purely out of' the
base paper cannot be countenanced. The notification has to be construed in
terms of the language used therein. itis well-settled that unless literal meaning
given to a document leads to anomaly or absurdity, the golden rule of literal
interpretation shall be adhered .to.

G In Coromondal Fertilizers ltd. v. Collector a/Customs, Madras, [1986]
3 sec 531, the notification in question was as under :

"GSR 54 7 (E).-ln exercise of the powers conferred by sub-section
(I) of Section 25 of the Customs Act, 1962 (52of1962), the Central
Government, being satisfied that it is necessary in the public interest
H so to do, hereby, exempts Ammonium Phosphate falling within Chapter
COMPACK PVT LID. v. COMM. OF CENTRAL EXCISE, VAOODARA [SINHA, J] 289
31 of the First Schedule to the Customs Tariff Act, 1975 (51 of A
1975), when imported into India for use as manure, from the whole
of the duty of customs leviable thereon which is specified in the said
First Schedule :

Provided that in respect of any consignment of ammonium phosphate
imported under cover of a claim for exemption from duty in pursuance B
of the provisions hereof, the importer shall execute a bond in such
form as may be prescribed by the Assistant Collector of Customs,
binding himself, in sum equal to the amount of duty ordinarily leviable
on such articles, to pay on demand the duty leviable on such quantity
thereof as is not proved to the satisfaction of the Assistant Collector C
of Customs to have been used as manure."

The issue raised was as to whether Mono-Ammonium Phosphate which
was used as manure in the manufacture of complex fertilizers was entitled to
the benefit of the said exemption notification. A further contention was raised
that Mono-Ammonium Phosphate was not the only input used in the D
manufacture of complex fertilizers and it was also not used directly for use
as manure in the manufacture of complex fertilizers. Repelling the said
contentions, it was opined :.

"We are afraid, we are not to ascertain the intention of the Government .
by a comparison of the expressions used in the two different E
notifications. Notification No. 178/76-Cus has been couched in clear
and unambiguous language. The question is not whether for getting
the benefit of exemption under the notification the appellant has used
it for the production of complex fertilisers or not, but the question is
. whether the appellant has imported Mono-Ammonium Phosphate for
use as manure. It is the case of the appellant that it has used the F
chemical as manure, though not directly, yet along with the mixture
of Urea and muriate of Potash. It is submitted on behalf of the appellant
that the mixture, is undoubtedly a fertiliser and Mono-Ammonium
Phosphate being one of the components of the mixture it must be
held that the same was imported into India and also used as a manure G
or fertiliser. In our opinion, if Mono-Ammonium Phosphate retains
its physical and chemical properties in the mixture, it will be difficult
to say that it was not used by the appellant as a manure within the
meaning of the Notification No. 178176-Cus."

The only requirement for availing the benefit of the said notification H
290 SUPREME COURT REPORTS [2005) SUPP. 4 S.C.R.

A was payment of excise duty on base paper or base paperboard, wherefor also
,.'\
a legal fiction has been raised in the explanation appended thereto.

The Tribunal denied the benefit of the said notification to the Appellant
herein without considering the import thereof that it refers to the MODY AT
credit directly that too only on base paper. Similarly, the finding of the
B Tribunal that the container must be manufactured only from base paper may
render the exemption notification inapplicable in a large number of cases.

The Appellant, however, is not correct in contending that it would be
entitled to the exemption notification in respect of the entire container. It
C would be entitled to exemption only to that extent for which excise duty has
been paid i.e. on paperboard. As the question as to whether three layers of
base paper have been used for manufacture of the container or not has not
been raised before any authority, the matter is remitted back to the Assistant
Commissioner, Central Excise and Customs for determination of the said
question.
D
The appeal is allowed to the aforementioned extent. No costs.

K.G. Appeal partly allowed.