Sukumar Mukhopadhyay: Full exemption not same as non-excisable

EXPERT EYE

A recent judgment of the Supreme Court has again kindled the once-settled controversy about the true nature of a full exemption.

In the Commissioner of Central Excise vs ACER India Ltd case, 2004 (172) ELT 289 (SC), the apex court said: "Goods that is not excisable if transplanted into goods which is excisable would not together make the same excisable goods so as to make the assessee pay the excise duty on the combined value of both."

Again in the later part of the judgment, the court said in connection with transaction value as in Section 4 of the Excise Act that it "refers to such goods which is excisable to excise duty and not the one which is not so excisable".

The court was talking about software, which was classifiable under 85.24, but the duty was nil. It was exempted. The apex court here took full exemption, that is, nil rate of duty as non-excisable.

It is quite unfortunate, since the correct legal position is that full exemption is not the same as non-excisable.This had been settled by many judgments of the apex court. For a better understanding, a bit of the history of the controversy will be relevant.

It started with a MP High Court judgment in the late Seventies in the Kirloskar's case. The court said goods manufactured at a time when the goods were fully exempted, they would not have to pay duty when cleared at a later date when exemption had been withdrawn.

This was on the basis of the understanding of the MP High Court that full exemption was synonymous with non-excisable.

The order created an impasse in the revenue department because there were other judgments by the Bombay, Gujarat, Karnataka and Madras High Courts saying exactly the opposite. Also it had been agreed to by the Supreme Court in the Wallace Flour Mills case, 1989 (44) 598 SC.

This judgment held that for excise duty, the taxable event was manufacture and even if the goods were manufactured at the time when they were exempted, they would have to pay duty when they were cleared if there was a positive rate of duty at that time.

"Excisable goods do not become non-excisable merely by the reason of the exemption given under a notification," the court said. This view was elaborated in the Commissioner of Central Excise vs Vazir Sultan, 1996 (83) ELT 3 SC, where the Supreme Court said the nil duty was also duty.

So when nil duty is the rate, that is, when there is full exemption, the goods are dutiable or excisable.

The apex court subsequently reiterated the view in the Commissioner of Central Excise vs Prakash Pipes case, 1997 (94) ELT 18 SC, saying goods exempted by notification are still excisable. It was reiterated in the Sree Shankar Industries vs Collector case, 1997 (95) ELT A 233.

In a subsequent case, Sree Mahabir Metal Works vs Union of India, 1998 (98) ELT 580 (SC), the Supreme Court again held that excisable goods did not become non-excisable merely by reason of an exemption for payment of excise duty.

After so many judgments, the latest one in the ACER India case is likely to create misunderstanding. A latest case can always be quoted by any litigant for seeking favour.

The idea of writing this treatise is to put the whole issue in the proper perspective in the interest of clear thinking.

smukher2000@yahoo.com