Circular No. 667/58/2002-CX, Dt. 26/09/2002

Subject: Exemption from Central Excise Duty on Goods Manufactured from Duty Paid Goods - Regarding

The undersigned is directed to refer to Board’s Circular No. 125/36/95-CX, dated 15th May, 1995, issued from F.No. 341/26/95-TRU, on the above subject.

2. It was clarified therein that in the context of notifications which exempt specified goods provided such goods have been made from other goods on which appropriate duty of excise has already been paid, the benefit would be available even if the inputs are exempted from excise duty. This was based on the opinion of the Ministry of Law that the expression “appropriate duty of excise” would include “nil” duty also, having regard to the judicial pronouncements prevailing then.

3. The interpretation of the expression “appropriate duty of excise has already been paid” was considered by a Constitution Bench of the Hon’ble Supreme Court in the case of CCE, Vadodra vs. Dhiren Chemical Industries [2002(139)ELT 3 (S.C.) = 2001(47) RLT 881(SC)]. The Hon’ble Supreme Court have held that the word “appropriate” in the context of such exemption notifications means the correct or specified rate of excise duty, and that where an exemption is extended subject to the condition that the “appropriate duty has been paid” on the raw material, then such exemption shall not be available when the raw material is not liable to excise duty or such duty is nil. In the light of the above, the clarification given by the Board that nil duty paid goods or fully exempted goods should be deemed to be goods on which appropriate duty of excise has been paid no longer holds good.

4. Board’s Circular No. 125/36/95-CX dated 15th May, 1995 stands accordingly modified in view of the law now laid down by the Constitution Bench of the Hon’ble Supreme Court. Consequently, whenever an exemption is subject to the condition that appropriate duty of excise has been paid on the inputs, the exemption will not be available if the inputs are exempted from excise duty or are subject to nil rate of excise duty. The same considerations will apply to additional duty of customs also.

5. Commissioners are requested to bring to the notice of the Board instances where the application of the principle laid down by the Hon’ble S.C. has led to denial of an exemption notification.

6. Field formations and trade may be suitably informed.

7. Receipt of this letter may please be acknowledged.

(Gautam Ray )
Joint Secretary to the Government of India

F.No. 6/5/2002-CX. I

(please refer Circular No. 680/71/2002-CX. Dt. 10/12/2002 for Excise duty on woven textile fabrics manufactured by a composite mill or a manufacturer engaged in processing of fabrics along with weaving of fabrics in the same factory- Clarification- regarding.)

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