Judgment:
1. The respondents herein had removed tyres and tubes for tractors without payment of duty in terms of Notification No. 161 /76, dated 21-5-1976 which grants total exemption to tyres falling under T.I. 16 of the Central Excise Tariff, subject to fulfilment of the following conditions, namely: (a) that the Collector of Central Excise is satisfied that such tyres are intended to be used as original equipment tyres by the manufacturers of agricultural tractors; (c) the procedure set out in Chapter X of the Central Excise Rules is followed in respect of such tyres.
A show cause notice dated 8th December, 1976 was issued to them proposing recovery of duty of Rs. 1,55,171.80 on the ground that the consignee M/s. Hindustan Tractors Ltd., Baroda, did not possess L-6 licence required for the removal of excisable goods without payment of duty on AR-3A in pursuance of Chapter X procedure and on the ground that the consignee had issued CT-2 forms meant for motor vehicle parts under Tariff Item 34A, and not for tyres and tubes falling under T.I.16. The duty demand was confirmed by the Assistant Collector of Central Excise, Faridabad; however the Collector (Appeals) accepted the contention of the respondents that the substantive part of the notification, above mentioned/was satisfied and, therefore, non-fulfilment of procedural requirement was not detrimental to their claim for the benefit of the notification and accordingly set aside the demand.
2. We have heard, Shri M. Jayaraman, learned JDR and Shri Amit Bansal, learned advocate for the respondents.
3. We see force in the contention of the learned DR that the benefit of Chapter X procedure can be availed of only by L-6 licence holders. In this case, the consignee viz. M/s. Hindustan Tractors Ltd. did not possess an L-6 licence for tyres and tubes during the relevant period i.e. from June, 1976 to August, 1976 and obtained the L-6 licence for these two excisable commodities only in September, 1976. Hence it cannot be said that any of the requirements of Chapter X of the Central Excise Rules had been complied with. It is not a case of non-fulfilment of procedural requirement, but a case of total non-compliance with the requirement of Chapter X. The Department had no opportunity of verifying whether the tyres and tubes were used as O.E. Tyres for agricultural tractors and whether such tyres had been marked as O.E.Tyres. Hence duty is payable by the respondents who are the consignors of the goods in question. The reliance placed by the learned counsel on the order of the Tribunal in the case of Collector of Customs, Cochin v. Coods Agro Chemicals -1996 (82) E.L.T. 608, does not advance the respondents' case - the question as to whether the possession of L-6 licence by the consignee was essential did not arise therein. Further, in the case of Termax Pvt. Ltd. v. Collector of Customs -1992 (61) E.L.T. 352 (S.C.), the Hon'ble Supreme Court has held that the benefit of Notification is available only to the holder of L-6 licence and the Supreme Court had denied the exemption to the appellants who did not possess a L-6 licence.
4. In the light of the above discussion, we hold that the respondents are not entitled to duty free clearance of tyres and tubes to M/s.
Hindustan Tractors Ltd. for the period June, 1976 to August, 1976, set aside the impugned order and allow the appeal.
5. With due respects to Hon'ble Member (Judicial), my views and orders in the matter are as follows.
6. Learned counsel stated that in this case, a demand for Rs. 1,55,171.80 was raised against the respondents on the ground that certain number of tyres and tubes were sent by them to M/s. Hindustan Tractors Limited by availing the O.E. concession under Notification No.161/76, dated 12-5-1976 even though full formalities regarding movement of goods under Chapter X had not been duly satisfied before the goods were despatched. It is not in dispute that the consignee is an original equipment manufacturer. It appears from the facts of the case that the appellants had received a CT-2 certificate duly signed by the Supdt. at the other end but it did not specifically mentioned the name of the commodity though other particulars were duly filled in. The respondents sent the tyres and tubes by availing the concession but only at a later date. It was alleged by the Department that the consignee was not having a separate L-6 licence for tyres and tubes. From copies of correspondence filed along with the appeal, it is seen that the original equipment manufactured had already taken up with the Central Excise Authorities whether it was necessary to have a separate L-6 licence and they finally took one for tyres and tubes but by then, the goods had duly moved under regular AR-3A forms and were duly verified and received as evident from the copies of AR-3As filed along with the appeal. It is also seen from the consignee's letter dated 18-11-1976 that they had executed additional bond by depositing necessary amount on 19-6-1976 itself on the understanding that a separate L-6 licence was not necessary. Even the Inspector, Central Excise had issued a revised certificate in form CT-2 with the enhanced value and copies of these were sent to the tyres, tubes and battery manufacturers and finally a separate application for L-6 licence was filed in the third week of August, 1976 and the licence was issued on 10-9-1976. For subsequent consignments, obviously, there was no dispute and it was only in respect of 8 AR-3As relating to June, July and August, the demand has been raised.
7. It is not in dispute that the conditions of the notification were satisfied as the tyres and tubes were sent to an original equipment manufacturer under a regular bond which had been duly enhanced only for this purpose and it is on record that the goods were duly received by the original equipment manufacturer and there is also no allegation that they were not put to actual use. There is absolutely no such possibility as the consignee was a government managed unit and they were regularly receiving such tyres and tubes from other manufacturers.
This had happened because of some genuine doubt on the part of the consignee but since the substantive part of the notification was satisfied, the demand of duty on a technical point was not justified.
8. Learned DR stated that it is well known that the benefit of Chapter X procedure can be availed of only by the L-6 licence holders. M/s.
Hindustan Tractors Ltd., were not in possession of the L-6 licence for tyres and tubes during the period from June, 1976 to August, 1976.
Although "they were fully conversant of the aforesaid requirement as they themselves had applied for L-6 licence to the Collector, Central Excise, Baroda on 24-7-1976 and besides also kept on issuing the CT-2 forms meant for motor vehicle parts under T.I. 34A for the tyres and tubes removed by M/s. Goodyear India Ltd., for supplies to them. Prima fade, it was a deliberate attempt of M/s. Hindustan Tractors Limited, in connivance with M/s. Goodyear India Limited, Ballabgarh camouflage with the issuance of the CT-2 forms for another commodity to be sued for tyres and tubes to avail of the benefit of the procedure of Chapter X of the Central Excise Rules, 1944 and thus M/s. Goodyear India Limited also supported them by conniving with them deliberately by removing the tyres and tubes without payment of C.E. duty due thereon.
9. Since there was no entitlement to the benefit of the procedure laid down in Chapter X of the Central Excise Rules, 1944, in the absence of a valid L-6 licence the duty is legally payable by the consignors to the extent demanded.
10. It is not clear from the order-in-appeal as to under which provision of the Law of the Central Excise, the demand for duty of Rs. 1,55,171.80 has been set aside.
11. Learned counsel drew attention to the Tribunal's orders in the cases of Collector of Customs, Cochin v. Goods Agro Chemicals reported in 1996 (82) E.L.T. 608 and Thermax Pvt. Ltd. v. Collector of Customs reported in 1992 (61) E.L.T. 352 (S.C.) in support of his contention that the benefit of a provision, if otherwise due, should not be disallowed in case procedural requirements of Chapter X were not fully complied with.
12. He also stated that in view of the correspondence exchanged with the Department regarding requirement of separate L-6 licence, the matter was one requiring regulansation, if any called for and not one or denying the benefit which was otherwise due.
13. I have considered the above submissions. While I agree with my learned Colleague that L-6 licence was necessary for availing the benefit of Chapter X procedure and it was an important requirement which cannot be lightly ignored, at the same time, in a situation like the one involved in the present case, one is required to take the totality of facts and circumstances into consideration.
14. In the present case, there is no doubt or dispute that the matter regarding the requirement of a L-6 licence in respect of tyres and tubes was under correspondence with the authorities and it was ultimately granted and all other procedural requirements had been duly complied with inasmuch as the goods had moved under the prescribed AR-3s and CT-2 intimation had been given and there is nothing to indicate that there was a deliberate intention to evade or avoid duty in collusion with M/s. Hindustan Tractors Ltd. as alleged.
Therefore, it appears to be more a case in the nature of delay in obtaining and issue of a L-6 licence rather than a case of avoiding or acting in defiance of the provisions.
15. It is also on record that CT-2 forms meant for motor vehicle parts had also been issued.
16. The CT-2 form is a prescribed certificate for removal of warehoused goods under General Bond. Therefore, if the consignee sent them the prescribed CT-2s duly signed under Rule 156 executed by the consignee and the same had been duly countersigned by the authorities of Central Excise at the consignee's end, in that case, even if these were not considered as covering, motor car tyres and tubes, it cannot be said to have been so done without the knowledge of the Central Excise authorities and in fact, in view of the counter-signature of Central Excise Officers, could only imply approval and therefore, even if technically speaking, it was not strictly in consonance with the provisions, it could only be considered as a technical lapse.
17. It also shows that learned DR's argument that the Department had no opportunity to check and verify was not correct. The main purpose of the provision for L-6 licence is that the Department then becomes aware that a person is going to avail of the procedure prescribed under Chapter X and the officers are able to check and verify as and when the CT-2 intimations are received. This substantive requirement got indirectly fulfilled in this case in view of the AR-3 applications and CT-2 certificates and therefore, if the respondents had availed of the benefit in anticipation of issue of a formal licence, it would have been more appropriate to impose a penalty rather than denying the substantive benefit which was otherwise due.
18. Furthermore, what is significant is that the present case really relates to the question of eligibility or otherwise of Notification No.161/76, dated 12-5-1976 and the Collector has come to the conclusion that all other essential conditions of this notification have been duly fulfilled inasmuch as there was no doubt or dispute that these items were supplied and received as original equipment of a type covered by the aforesaid notification and were put to the prescribed use. In these circumstances, the benefit which was otherwise due under Notification No. 161/76, dated 12-5-1976 should not have been denied and the learned counsel has rightly relied upon the Hon'ble Supreme Court's judgment in the case of Thermax Pvt. Ltd. v. Collector of Customs reported in 1992 (61) E.L.T. 352 (S.C.) although this case related to remission of additional duty in respect of imported goods. It is significant that Hon'ble Supreme Court had confirmed the Board's own view that benefit was not deniable if substantive condition of intended use as per the exemption notification was satisfied though procedural condition of Chapter X was not complied with. In the present case, there is no doubt or dispute that the goods were put to intended use.
19. In the above circumstances, I hold that the Collector was justified in passing his order. The appeal is, therefore, rejected.
20. In view of the difference of opinion between Hon'ble Member (Judicial) and the Vice President, the matter is submitted to Hon'ble President for referring the matter to a Third Member on the following point :- "Whether in the facts and circumstances of the case, there was a substantive compliance with Notification No. 161 /76, dated 12-5-1976 and there was only a technical lapse and therefore, the benefit of the notification was required to be extended or it was a case of non-compliance with substantive provisions of Chapter X and therefore, the benefit was required to be denied." Sd/- Sd/- (Jyoti Balasundaram) (S.K. Bhatnagar) Member (J) Vice President 26-5-1997 23-5-1997 21. The difference between the Members was heard by me. The points of difference are noted in page 11. The Learned Member (J), as can be seen from the order has held that the Hon'ble Svipreme Court's judgment in the case of Thermax Pvt. Ltd. v. Collector of Customs and that of Collector of Customs, Cochin v. Goods Agro Chemicals does not advance the case of the assessee. The Hon'ble Member (J) has also held that the department had no opportunity of verifying whether the tyres and tubes were used as O.E. Tyres for agricultural tractors and whether such tyres had been marked as O.E. Tyres. Hence the duty is payable by the respondents who are the consignors of the goods in question. The Hon'ble Member (J) also proceeded to hold that the benefit of Notification is available only to the holder of L-6 licence and the Supreme Court in the case of Termax Pvt. Ltd. denied to those who did not possess a L-6 licence.
22. The Hon'ble Vice President on appreciation of the facts had noted that the goods are meant for government unit and there is stifficient and corroborative evidence inasmuch as that the goods had moved under regular AR-3A forms, CT-2 initimation and that there is nothing to indicate that there was a deliberate intention to evade or avoid duty in collusion with M/s. Hindustan Tractors Limited. The Hon'ble Vice President on examination of facts held that there was sufficient compliance of procedure prescribed under Chapter X and the officers are able to check and verify as and when the CT-2 intimation were received.
This substantive requirement got indirectly fulfilled in this case in view of the AR-3 applications and CT-2 certificates and anticipation of issue of a formal licence, it would have been more appropriate to impose a penalty rather than denying the substantive benefit which was otherwise due. The Hon'ble Vice President has also held that the Hon'ble Supreme Court in the case of Thermax Pvt. Ltd. has confirmed the Board's own view that benefit was not deniable if substantive condition of intended user as per the exemption notification was satisfied though procedural condition of Chapter X was not complied with. The Hon'ble Vice President has also noted that subsequently the L-6 licence had already been issued. Therefore, in the facts of this particular case, he held that the benefit is to be extended.
23. On a careful consideration of the opinions given by the respective members, I am of the considered opinion that the opinion rendered by Hon'ble Vice President is correct in the light of the facts that the goods had moved under CT-2 certificates and under AR-3A applications. A significant point which has to be noted in this case is that there is no allegation of mis-use of goods in the manufacture of original equipment. The department has not proceeded on all these aspect of substantive compliance but merely rejected on the ground that L-6 has not been obtained. On this point, it has to be noted that subsequently L-6 has been issued in the present case. Further the fact is that the goods had moved under Chapter X which has not been denied by the Revenue. In that view of the matter, the Hon'ble Supreme Court's observation and the Board's own view cannot be lightly brushed aside i.e. there has been a substantive compliance and in such case, the benefit is required to be extended. The Learned Collector in the impugned order has also held that the Inspector of Central Excise had issued a revised certificate in form CT-2 with the enhanced value and copies of these were sent to the tyre, tube and belt manufacturers and finally a separate application for L-6 licence was filed in the third week of August, 1976 and the licence was issued on 10-9-1976. He has also held that for subsequent consignments, obviously, there was no dispute and it was only in respect of 8 AR-3 As relating to June, July and August, and the department has raised the demand. The Learned Advocate also brought to my notice the judgment rendered by the Southern Bench in the case of Hyderabad Allwyn Industries v. Collector of Central Excise, as reported in 1990 (45) E.L.T. 584, wherein it was noticed that there was no CT-2 certificate and also there was non-clearance of goods in AR-3A, despite these deficiencies the Bench of the Tribunal held that as there was sufficient compliance of the procedure prescribed under Chapter X. The benefit should be intended in the case of Steel Authority of India Ltd. v. Collector of Central Excise, as reported in 1990 (47) E.L.T. 22 a Bench of Three Member of the Tribunal held that non-endorsement in AR-3A form of actual receipt of material at the beneficiary's end when Chapter X procedure substantially complied with that by itself does not deprive the assessee from claiming the benefit of notification, inasmuch as it was found that substantive procedure under Chapter X had been complied. In the case of Collector of Customs v. J.K. Synthetics Ltd. as reported in 1996 (87) E.L.T. 582, the Hon'ble Supreme Court also held that the remission of duty on goods used for special industrial purpose under Chapter X Procedure cannot be denied, if substantive condition of intended use of the material had been established. In this regard, the Hon'ble Supreme Court relied on the earlier judgment rendered in the case of Thermax Pvt. Ltd. In that view of the matter, I am of the considered opinion that the opinion expressed by the Hon'ble Vice President is required to be accepted and I respectfully agree with the same. The papers will be placed before the original Bench for passing a final order.