"1\nREPORTABLE\nIN THE SUPREME COURT OF INDIA\nCIVIL APPELLATE JURISDICTION\nCIVIL APPEAL NO. 1288 OF 2005\nM/S. SPORTS & LEISURE APPAREL LTD.\n.....APPELLANT(S)\nVERSUS\nCOMMISSIONER OF CENTRAL EXCISE,\nNOIDA\n.....RESPONDENT(S)\nW I T H\nCIVIL APPEAL NO. 1752 OF 2006\nCIVIL APPEAL NO. 1753 OF 2006\nCIVIL APPEAL NO. 1856 OF 2006\nCIVIL APPEAL NO. 2267 OF 2006\nCIVIL APPEAL NO. 2856 OF 2006\nCIVIL APPEAL NOS. 6036-6038 OF 2008\nCIVIL APPEAL NO. 4612 OF 2010\nCIVIL APPEAL NO. 4886 OF 2010\nCIVIL APPEAL NOS. 6749-6769 OF 2010\nCIVIL APPEAL NOS. 7247-7281 OF 2010\nCIVIL APPEAL NO. 8186 OF 2010\nCIVIL APPEAL NOS. 8187-8189 OF 2010\nCIVIL APPEAL NOS. 9145-9164 OF 2010\nCIVIL APPEAL NO. 2260 OF 2011\nCIVIL APPEAL NO. 5473 OF 2013\nDigitally signed by\nASHWANI KUMAR\nDate: 2016.08.11\n17:22:39 IST\nReason:\nSignature Not Verified\n\n2\nCIVIL APPEAL NO. 5474 OF 2013\nJ U D G M E N T\nA.K. SIKRI, J.\nAll these appeals are taken up together for hearing as the issue\ninvolved in these appeals is identical, though divergent view is taken by\nthe different Benches of the Tribunal. Issue pertains to grant of benefit\nof exemption under Notification No. 14/02-CE and 15/02-CE both dated\n01.03.2002. These notifications give the benefit of concessional rate or\nnil rate of duty to the knitted garment manufacturers on certain\nconditions. One of the conditions is for full exemption is that knitted\ngarments are exempt if manufactured out of knitted fabrics on which\nappropriate duty of excise has been paid and no cenvat credit of duty\npaid on inputs or capital goods has been taken. If Cenvat credit is\ntaken, the duty is at concessional rate. \n2.\nThe Revenue has taken the position that the benefit of these\nnotifications is available only when the garments have been\nmanufactured from the duty paid fabrics and in those cases where the\nfabrics has not suffered excise duty, it cannot be said that the\nappropriate duty of excise has been paid thereon and consequently the\nbenefit of notifications would not be available. The stand taken by the\nassessees, on the other hand, is that Explanation II to the exemption\n\n3\nnotifications creates a legal fiction, specifying that for the purpose of\nconditions of this notification, textile yarn or fabrics shall be deemed to\nhave been duty paid even in the absence of production of documents\nevidencing payment of duty. They also relied upon condition No. 3 of\nthis notification. Many Benches of the Custom Excise and Service Tax\nAppellate Tribunal (for short 'CESTAT') has accepted the plea of the\nassessees holding that benefit of exemption notification would be\nadmissible. Many other Benches of the Tribunal have taken a contrary\nview, thereby accepting the plea of the Revenue and holding that\nCondition No. 4 is not satisfied. That is the precise reason for filing two\nsets of appeals, preferred both by the Revenue as well as those\nassessees.\n3.\nIn order to state the precise question of law that falls for consideration\nand the backdrop in which it arises for discussion, we would take note of\nthe facts appearing in Civil Appeal No. 1288 of 2005 which is preferred\nby an assessee. \n4.\nAssessee is an integrated textile apparel manufacturer. Assessee\npurchases excise duty paid yarn from the market on payment of excise\nduty. Assessee does not take any MODVAT credit of the duty paid on\nthe yarn. Assessee manufactures the knitted fabrics in its factory out of\nthe duty paid yarn. The knitted fabric is entirely captively consumed in\nthe manufacture of knitted apparels. The apparels are thereafter\ncleared outside the factory.\n\n4\n5.\nVide Union Budget 2002, a new excise duty scheme for textile sectors\nwas introduced. Under this scheme, vide Notification Nos. 14/2002-CE\nand 15/2002-CE dated 01.03.2002, fabric manufacturers and garment\nmanufacturers were given an option to operate under two different\nschemes. Under one scheme, where the manufacturers of the fabric or\ngarment wants to avail the MODVAT credit of the duty paid on the inputs\nor the capital goods, excise duty @ 75% of the normal rate of duty of\n12% was levied. Under another scheme, where the manufacturers do\nnot want to avail of the MODVAT facility, complete exemption from\nexcise duty to the fabrics and garments was granted. The various Sl.\nNos. of Notification Nos. 14/2002-CE and 15/2002-CE prescribed these\ntwo alternative schemes. \n6.\nNotification No. 15/2002-CE vide Sl. No. 14 prescribed Nil rate of excise\nduty for “Articles of apparel, knitted or crocheted” falling under Heading\n61.01, subject to the following condition:\n“If made from knitted or crocheted textile fabrics,\nwhether or not processed on which appropriate duty of\nexcise leviable under the First Schedule to the said\nCentral Excise Tariff Act, and the Additional Duties of\nExcise (Goods of Special Importance) Act read with any\nnotification for the time being in force or the Additional\nduty of Customs leviable under Section 3 of the\nCustoms Tariff Act, 1975, as the case may be, has been\npaid and no credit of the duty paid on inputs or capital\ngoods has been taken under Rule 3 or Rule 11 of the\nCENVAT Credit Rules, 2002.”\nExplanation to Notification No. 15/2002-CE provided as under:\n“For the purposes of conditions specified below, textile\nyarns or fabrics shall be deemed to have been duty paid\n\n5\neven without production of documents evidencing\npayment of duty thereon”\n7.\nNotification No. 15/2002-CE, as is evident from the preamble thereto,\ngrants exemption from whole of duty of excise leviable on knitted\ngarments falling under heading 61.01 subject to the satisfaction of\nCondition No. 4 of this notification. As per Condition No. 4 of the\nnotification, knitted garments are exempt provided these garments are\nmanufactured out of knitted fabrics on which appropriate excise duty has\nbeen paid and no cenvat credit of duty paid on the inputs or capital\ngoods has been taken.\n8.\nShow cause notice dated 27.03.2003 was issued by the Commissioner\nof Central Excise, proposing to deny the benefit of Notification\nNo.15/2002-CE to the apparels and demanding excise duty in respect of\nthe clearances made between 01.03.2002 to November, 2002. The\nassessee submitted its reply. After considering the reply filed by the\nassessee, Commissioner of Central Excise, Noida passed\norder-in-original dated 31.07.2003 confirming the duty demand imposing\nequivalent amount of penalty. On 20.01.2004, assessee filed appeal\nNo. E/251/03-A before the Tribunal against the above order of the\nCommissioner. In that appeal, the Tribunal passed the impugned final\nOrder Nos. 1239-1240/04-NB(A) upholding the order of the\nCommissioner on the aspect of denial of Notification No. 15/2002-CE to\nthe apparels. However, the Tribunal has set aside the penalty imposed\n\n6\non the assessee. \n9.\nA perusal of the order of the Tribunal would reveal that for coming to this\nconclusion, the Tribunal has referred to and relied upon the judgment of\nthis Court in CCE, Vadodara v. Dhiren Chemical Industries1. In that\ncase, exemption notification came up for consideration and interpreting\nthe phrase “on which the appropriate amount of duty of excise has\nalready been paid”, the Court held that in order to avail the benefit of the\nnotification, it was incumbent upon the manufacturer to actually pay the\nduty, in the following words:\n“An exemption notification that uses the said phrase\napplies to goods which have been made from duty paid\nmaterial. In the same phrase, due emphasis must be\ngiven to the words “has already been paid”. For the\npurposes of getting the benefit of the exemption under\nthe notification, the goods must be made from raw\nmaterial on which excise duty has, as a matter of fact,\nbeen paid, and has been paid at the “appropriate” or\ncorrect rate. Unless the manufacturer has paid, the\ncorrect amount of excise duty he is not entitled to the\nbenefit of the exemption notification.”\n10.\nThe Tribunal has also rejected the contention of the assessee\npredicated on Explanation II to the notification by observing that the said\nexplanation only dispenses production of documents evidencing\npayment of duty and does not waive the condition of payment thereof.\n11.\nChallenging the aforesaid rationale adopted by the Tribunal in arriving at\nthe impugned decision, the learned counsel for the Revenue made his\nsubmission on two fronts. In the first instance, it was argued that the\n1\n(2002) 2 SCC 127\n\n7\nTribunal erred in relying upon the judgment of this Court in Dhiren\nChemical Industries case, which is a judgment of December, 2001\nwherein earlier notification was interpreted by the Court. He submitted\nthat the position changed dramatically thereafter inasmuch as in order to\novercome the condition of actual excise duty, Explanation II was\nspecifically inserted in Notification No. 15/02 thereby creating a fiction of\ndeemed duty paid insofar as manufacturers of knitted textile are\nconcerned. For this purpose, he has taken us through the Budget\nSpeech/Explanatory Notes concerning the Notification Nos. 14 and\n15/2002. He, thus, argued that judgment in Dhiren Chemical\nIndustries case was not applicable having regard to the aforesaid\nprovision specifically incorporated in the new notifications. In this very\nhue, his second attempt was to argue that Explanation II of the\nnotification was not correctly interpreted by the Tribunal, thereby\ndefeating the very purpose for which this notification was issued. \n12.\nLearned counsel for the assessees, on the other hand, argued on the\nsame lines on which the Tribunal has rested its decision. \n13.\nWe have considered the respective submissions and are of the view that\nthe stand taken by the assessees warrants to succeed. \n14.\nWe have already reproduced the relevant portion of Notification No.\n15/2002, in particular Condition No. 4 contained therein as well as\nExplanation II thereof. As pointed out above, in the Union Budget 2002,\n\n8\na new excise duty scheme for textile sector was introduced, as per\nwhich manufacturers of the fabric or garments were given choice to opt\nunder one of two schemes. Normal rate of duty is 12%. The two\nnotifications provided exemption and concessional rates respectively.\nThose who wanted to avail the MODVAT credit of the duty paid on the\ninputs or the capital goods, were supposed to pay excise duty at\nconcessional rate i.e. 75% of the normal rate of duty. Under the other\nscheme, full exemption from payment of duty was granted to those who\ndid not wish to avail the MODVAT credit facility. These two schemes\nwere explained in the Budget Explanatory Notes issued by the Central\nGovernment, relevant portion whereof is extracted below:\n“In the case of processed knitted fabrics of cotton, which\nwere hitherto exempt from duty, an optional levy of 12%\n[8% Cenvat + 4% AED(ST)] has been prescribed. That\nis, if the manufacturer wants to avail cenvat credit of the\nduty paid on inputs (either on deemed basis or actual\nbasis) and capital goods (on actual basis), he will be\nrequired to pay duty at 12% adv. [8% cenvat + 4%\nAED(ST)]. If he does not want to avail any credit on\ninputs and capital goods, he is not required to pay any\nduty. The rates of deemed credit for processed knitted\nfabrics of cotton are the same as applicable to woven\nfabrics. \nNotification Nos. 14/2002-CE and 15/2002-CE, both\ndated 01.03.2002 prescribes effective rates of duty of\n'nil' or 12% adv. in the case of textile fabrics subject to\nthe condition that the goods should have been made\nfrom textile yarns or fabrics on which the appropriate\nexcise duty or CVD has been paid. It may, however, be\nnoted that Explanation II to the notification makes it\nabundantly clear that all fibres and yarns are deemed to\nhave been duty paid even without production of\ndocuments evidencing payment of duty. Therefore, the\nmanufacturer is eligible for the rates prescribed in the\nnotification. The only condition that has to be satisfied is\nwith regard to availment or non-availment of cenvat\ncredit, as the case may be. \n\n9\nIt is thus made clear that the benefit of the rate of duty\nshould be allowed without insisting upon any\ndocumentary proof for payment of duty. However, if the\nmanufacturer wants to avail cenvat credit of duty paid on\ninputs or capital goods on actual basis, he will be\nrequired to produce duty paying documents as\nprescribed under the Cenvat credit rules.”\n15.\nA reading of the aforesaid Explanatory Note makes it clear that those\nwho did not want to avail MODVAT facility were allowed to clear the\ngoods without payment of any excise duty. It is in this context that the\nauthorities were asked not to insist upon any documentary proof for\npayment of duty and this was transported into the notification, in the\nform of Explanation II. It, therefore, becomes clear that when\nExplanation II states that the duty shall be deemed to have been paid\neven without production of documents evidencing payment of duty\nthereon, it was clearly meant that no duty was required to be paid by the\nmanufacturers of knitted garments. Such an intention is clearly reflected\nin the Government's own Budgetary Notes extracted above. We, thus,\nhold that Explanation II to the said exemption Notification Nos. 14/2002\nand 15/2002 create legal fiction and that was the precise purpose for\nwhich this explanation was added. It is trite law that a fiction created by\na provision of law is to be given its due play and it must be taken to its\nlogical conclusion (Union of India v. Jalyan Udyog2). \n16.\nIt would be pertinent to mention here that Condition No. 3 which uses\nthe words “read with any notification for the time being in force” was put\n2\n(1994) 1 SCC 318\n\n10\nin place to overcome the interpretation that was given by this Court in\nDhiren Chemical Industries case.\n17.\nLearned counsel for the assessees has brought to our notice another\npertinent development. He submitted that because of conflicting views\nof the Tribunal, the matter was referred to a larger Bench of the Tribunal\nwhich has answered the reference by detailed judgment rendered on\n29.10.2014, accepting the plea of the assessees and rejecting the stand\nof the Revenue. In any case, we have independently examined the\nissue and for the reasons stated above, we are of the opinion that\nbenefit of exemption notification would be available to all these\nassessees. \n18.\nAs a result, appeals filed by the assessees are allowed and those\nappeals preferred by the Revenue are dismissed. There shall be no\norder as to costs. \n.............................................J.\n(A.K. SIKRI)\n.............................................J.\n(ROHINTON FALI NARIMAN)\nNEW DELHI;\nMARCH 04, 2016.\n \n\n11\nREVISED\nITEM NO.302 COURT NO.12 SECTION III\n S U P R E M E C O U R T O F I N D I A\n RECORD OF PROCEEDINGS\nCivil Appeal No(s). 1288/2005\nM/S. SPORTS & LIESURE APPAREL LTD. Appellant(s)\n VERSUS\nCOMMNR. OF CENTRAL EXCISE, NOIDA Respondent(s)\n(With Appln. for permission to file additional documents)\nWITH\nC.A. No. 1752/2006\n(With C.A. No. 1753/2006\n(With Office Report for direction)\n C.A. No. 1856/2006\n(With Office Report for direction)\n C.A. No. 2267/2006\n(With Office Report for direction)\n C.A. No. 2856/2006\n(With Office Report for direction)\n C.A. No. 4479/2006\n(With Office Report for direction)\n C.A. No. 6036-6038/2008\n(With Office Report for direction)\n C.A. No. 4612/2010\n C.A. No. 4886/2010\n C.A. No. 6749-6769/2010\n(With Office Report)\n C.A. No. 7247-7281/2010\n(With Office Report)\n C.A. No. 8186/2010\n(With Office Report for direction)\n C.A. No. 8187-8189/2010\n(With Office Report for direction)\n C.A. No. 9145-9164/2010\n(With Office Report)\n\n12\n C.A. No. 2260/2011\n(With Office Report)\n C.A. No. 5473/2013\n(With Office Report)\n C.A. No. 5474/2013\n(With Office Report)\n \nDate : 04/03/2016 These appeals were called on for hearing today.\nCORAM : HON'BLE MR. JUSTICE A.K. SIKRI\n HON'BLE MR. JUSTICE ROHINTON FALI NARIMAN\nFor Appellant(s)\nMr. K. Radhakrishna, Sr. Adv. \nMr. Rupesh Kumar, Adv. \nMs. Nisha Bagchi, Adv. \nMr. Ritin Rai, Adv. \nMr. Jitin Singhal, Adv. \nMr. Pratik Raoka, Adv. \nMs. Rukhmini Bobde, Adv. \nMs. Pooja Sharma, Adv. \nMr. Ritin Rai, Adv. \n Mr. B. Krishna Prasad,Adv.\n \nMr. Balbir Singh, Sr. Adv. \nMr. Rupender Singh Mar, Adv. \n Mr. Rajesh Kumar,Adv.\n \nMr. V. Sridharan, Sr. Adv. \nMs. L. Charnya, Adv. \nMr. Hemant Bajaj, Adv. \nMr. Aditya Bhattacharya, Adv. \nMr. Anandh. K., Adv. \nMr. M. P. Devanath,Adv.\nMr. Rajesh Kumar, Adv. \nMr. Ajay Aggarwal, Adv. \nMr. Rajan Narain,Adv.\nMr. Gautam Chugh, Adv. \nFor Respondent(s) Mrs. Anil Katiyar,Adv.\n \n \nMr. M.H. Patil Adv. \nMr. Sandeep Narain, Adv. \nMr. T. Chandran Nair, Adv. \nMr. P.K. Shetty, Adv. \nFor M/s. S. Narain & Co.\n Mr. Jay Savla,Adv.\nMs. Renuka Sahu, Adv. \nMr. Prabhati K.C., Adv. \n\n13\nMr. Abinav Sharma, Adv. \n UPON hearing the counsel the Court made the following\n O R D E R\nC.A No.1288/2005,\nC.A. No. 4612/2010, C.A. No. 4886/2010,\nC.A. No. 6749-6769/2010, \nC.A. No. 7247-7281/2010, \nC.A. No.\n8186/2010, C.A. No. 8187-8189/2010, C.A. No. 9145-9164/2010 & C.A.\nNo. 2260/2011 are allowed and C.A. No. 1752/2006, C.A. No.\n1753/2006, C.A. No. 1856/2006, C.A. No. 2267/2006, C.A. No.\n2856/2006, C.A. No. 6036-6038/2008, C.A. No. 5473/2013 & C.A. No.\n5474/2013 are dismissed in terms of the signed judgment. \n \nApplication(s) pending, if any, shall stand disposed of\naccordingly. \nC.A. No. 4479 of 2006 is de-tagged. \n \n(Ashwani Thakur)\n (Tapan Kr. Chakraborty)\n COURT MASTER\n \n COURT MASTER\n(Signed reportable judgment is placed on the file) \n\n14\nITEM NO.302 COURT NO.12 SECTION III\n S U P R E M E C O U R T O F I N D I A\n RECORD OF PROCEEDINGS\nCivil Appeal No(s). 1288/2005\nM/S. SPORTS & LIESURE APPAREL LTD. Appellant(s)\n VERSUS\nCOMMNR. OF CENTRAL EXCISE, NOIDA Respondent(s)\n(With Appln. for permission to file additional documents)\nWITH\nC.A. No. 1752/2006\n(With C.A. No. 1753/2006\n(With Office Report for direction)\n C.A. No. 1856/2006\n(With Office Report for direction)\n C.A. No. 2267/2006\n(With Office Report for direction)\n C.A. No. 2856/2006\n(With Office Report for direction)\n C.A. No. 4479/2006\n(With Office Report for direction)\n C.A. No. 6036-6038/2008\n(With Office Report for direction)\n C.A. No. 4612/2010\n C.A. No. 4886/2010\n C.A. No. 6749-6769/2010\n(With Office Report)\n C.A. No. 7247-7281/2010\n(With Office Report)\n C.A. No. 8186/2010\n(With Office Report for direction)\n C.A. No. 8187-8189/2010\n(With Office Report for direction)\n C.A. No. 9145-9164/2010\n(With Office Report)\n\n15\n C.A. No. 2260/2011\n(With Office Report)\n C.A. No. 5473/2013\n(With Office Report)\n C.A. No. 5474/2013\n(With Office Report)\n \nDate : 04/03/2016 These appeals were called on for hearing today.\nCORAM : HON'BLE MR. JUSTICE A.K. SIKRI\n HON'BLE MR. JUSTICE ROHINTON FALI NARIMAN\nFor Appellant(s)\nMr. K. Radhakrishna, Sr. Adv. \nMr. Rupesh Kumar, Adv. \nMs. Nisha Bagchi, Adv. \nMr. Ritin Rai, Adv. \nMr. Jitin Singhal, Adv. \nMr. Pratik Raoka, Adv. \nMs. Rukhmini Bobde, Adv. \nMs. Pooja Sharma, Adv. \nMr. Ritin Rai, Adv. \n Mr. B. Krishna Prasad,Adv.\n \nMr. Balbir Singh, Sr. Adv. \nMr. Rupender Singh Mar, Adv. \n Mr. Rajesh Kumar,Adv.\n \nMr. V. Sridharan, Sr. Adv. \nMs. L. Charnya, Adv. \nMr. Hemant Bajaj, Adv. \nMr. Aditya Bhattacharya, Adv. \nMr. Anandh. K., Adv. \nMr. M. P. Devanath,Adv.\nMr. Rajesh Kumar, Adv. \nMr. Ajay Aggarwal, Adv. \nMr. Rajan Narain,Adv.\nMr. Gautam Chugh, Adv. \nFor Respondent(s) Mrs. Anil Katiyar,Adv.\n \n \nMr. M.H. Patil Adv. \nMr. Sandeep Narain, Adv. \nMr. T. Chandran Nair, Adv. \nMr. P.K. Shetty, Adv. \nFor M/s. S. Narain & Co.\n Mr. Jay Savla,Adv.\nMs. Renuka Sahu, Adv. \nMr. Prabhati K.C., Adv. \n\n16\nMr. Abinav Sharma, Adv. \n UPON hearing the counsel the Court made the following\n O R D E R\nC.A No.1288/2005,\nC.A. No. 1752/2006, C.A. No. 1753/2006,\nC.A. No. 1856/2006, C.A. No. 2267/2006, C.A. No. 2856/2006, C.A.\nNo. 6036-6038/2008, C.A. No. 5473/2013 & C.A. No. 5474/2013 are\nallowed and C.A. No. 4612/2010, C.A. No. 4886/2010, C.A. No.\n6749-6769/2010, C.A. No. 7247-7281/2010, C.A. No. 8186/2010, C.A.\nNo. 8187-8189/2010, C.A. No. 9145-9164/2010 & C.A. No. 2260/2011\nare dismissed in terms of the signed judgment. \n \nApplication(s) pending, if any, shall stand disposed of\naccordingly. \nC.A. No. 4479 of 2006 is de-tagged. \n \n(Ashwani Thakur)\n (Tapan Kr. Chakraborty)\n COURT MASTER\n \n COURT MASTER\n(Signed reportable judgment is placed on the file)\n"