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Monday, October 19, 2015

whether or not the manufacturer/exporter is entitled to rebate of the excise duty paid both on the inputs and on the manufactured product, when excise duty is paid on a manufactured product and also on the inputs which have gone into manufacturing the product and such manufactured product is exported? = The aforesaid discussion leads us to inevitable conclusion, namely, that the exporters/appellants are entitled to both the rebates under Rule 18 and not one kind of rebate. The impugned judgments are, accordingly, set aside allowing these appeals.


                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL NO. 1978 OF 2007

|M/S. SPENTEX INDUSTRIES LTD.               |...APPELLANT                 |
|VERSUS                                     |                             |

                                   W I T H
                     CIVIL APPEAL NOS. 2025-2026 OF 2013
                        CIVIL APPEAL NO. 2027 OF 2013
                       CIVIL APPEAL NO. 10534 OF 2013

                               J U D G M E N T


            In all these appeals, the basic question  of  law  which  arises
for consideration is as to  whether  or  not  the  manufacturer/exporter  is
entitled to rebate of the excise duty paid both on the  inputs  and  on  the
manufactured product, when excise duty is paid  on  a  manufactured  product
and also on the inputs which have gone into manufacturing  the  product  and
such manufactured product is exported?

We may point out at the outset that, as  per  the  scheme  provided  by  the
relevant Rules framed  under  the  Central  Excise  Act,  1944  (hereinafter
referred to  as  the  'Act')  two  options  are  admissible  in  respect  of
exemption from excise duty which is to be given when the goods  manufactured
are meant for export and are actually exported. A manufacturer/exporter  can
either export the said goods without payment of duty by executing a bond  to
the effect that goods are meant for export and would  be  actually  exported
and also undertakes to satisfy other  stipulated  conditions,  to  earn  the
exemption from payment on excise duty.  Other option is to pay the  duty  on
intermediate products and/or final products and thereafter  claiming  rebate
from  the  Government  once  the  goods  are  actually  exported.  When  the
manufacturer/exporter exercises first option, admittedly no duty  is  to  be
paid either on intermediate products or on  final  products.   However,  the
dispute has arisen when second option is  executed.  In  such  a  case,  the
Department has taken the stand that as per the relevant  rules,  the  rebate
is admissible in respect of one duty alone, i.e., either on  the  duty  paid
excisable goods or duty  paid  on  materials  used  in  the  manufacture  or
processing of such goods but not on both the final as well  as  intermediate
products. The authorities below, as would be noticed,  in  all  these  cases
have accepted  the  version  of  the  Revenue.   Therefore,  in  these  four
appeals, assessees are the appellants.

After giving the aforesaid preliminary background thereby putting the  issue
in perspective, that has arisen for consideration we may take  note  of  the
factual background. For the purpose of convenience, it would  be  sufficient
if we traverse through the facts that emerge from Civil Appeal No.  1978  of

       The  appellant/assessee,  in  this  appeal,   is   engaged   in   the
manufacturing    of polyester cotton  blended  yarn  and  polyester  viscose
blended yarn and       both these products fall  under  Chapter  55  of  the
Schedule to the Central     Excise Tariff Act,  1985.   For  manufacture  of
the aforesaid product, the  assessee had used the raw material which was  an
intermediate product   and paid excise duty thereupon.  The  final  products
were also cleared on   payment of excise duty on  those  finished  products.
The assessee had       exported these goods on  payment  of  central  excise
duty in the CENVAT     account and, thereafter, filed as many as  forty-five
rebate claims    amounting to  ?1,46,90,995/-  (?75,42,487/-+  ?71,48,508/-)
in the months    of November and December, 2004 respectively.  These  rebate
claims      were filed under the  provisions  of  Rule  18  of  the  Central
Excise Rules,    2002 (hereinafter referred to as the 'Rules').

On receipt of the aforesaid rebate claims, the Department issued show  cause
notice dated January 11, 2005 whereby the assessee was called upon  to  show
cause as to why the rebate claimed by the assessee be  not  rejected  as  it
was contrary to the provisions of Rule 18 of the  Rules  read  with  Section
11B of the Act and the Notification issued  thereunder,  i.e.,  Notification
No. 19/2004-CE(NT) dated September 06, 2004.  After  considering  the  reply
that was given by the assessee, the Deputy Commissioner of  Central  Excise,
Division-II, Nagpur rejected the rebate of duty paid on  the  final  product
exported as well as the claim of rebate of duty  paid  on  inputs  contained
therein by passing Order-in-original dated January 28, 2005.   Aggrieved  by
this order, the  assessee  filed  the  appeal  before  the  Commissioner  of
Central Excise (Appeals), Nagpur. This appeal was decided  by  orders  dated
March 15, 2005 holding that in terms of Rule 18 of the Rules,  the  assessee
is entitled to one of the two claims for  rebate,  i.e.,  either  rebate  of
duty paid on exported goods or the duty paid on inputs used in the  exported
goods, and not on both of them. He, thus, remitted  the  case  back  to  the
Deputy Commissioner to decide the  claim  of  the  assessee  after  granting
personal hearing to the assessee and taking its option as to  which  of  the
two claims assessee wanted to prefer.

Still not satisfied with this  partial  relief  given  by  the  Commissioner
(Appeals), as the assessee wanted rebate on  both  types  of  excise  duties
paid, the assessee challenged the order of  the  Commissioner  (Appeals)  by
filing Revision Application before the Joint Secretary to the Government  of
India under Section 35EE of the  Act.   This  Revision  Application  of  the
assessee was decided in its favour as the  Joint  Secretary  held  that  the
assessee was entitled to rebate both  on  the  exported  goods  as  well  as
inputs used in the exported goods. It was now the turn of the Department  to
feel dissatisfied with the aforesaid outcome and, therefore,  it  challenged
the aforesaid revisional order by filing  the  writ  petition  in  the  High
Court of Bombay, Nagpur Bench.  This  writ  petition  has  been  decided  in
favour of the Revenue whereby the view taken by the Joint Secretary  to  the
Government of India is reversed  and  that  of   Commissioner  (Appeals)  is
upheld holding that out of the two excise  duties,  Rule  18  of  the  Rules
permits rebate only qua one of them and not on the both duties.
Special Leave Petition against this judgment of the Bombay  High  Court  was
preferred by the assessee in which leave was granted. That  is  how  present
appeal comes up for hearing to decide the question of law  that  has  arisen
for consideration.

Before embarking  on  the  case  that  is  pleaded  by  both  sides  on  the
interpretation of the relevant provisions of  the  Act  and  Rules,  and  in
particular Rule 18 of the Rules, it is  imperative  to  scan  through  those
provisions.  First of all, we take note of the relevant statutory  provision
in the Act which  is  Section  11B  thereof.   That  portion  of  this  long
provision, which is relevant for us, is extracted below:
“S. 11B.  Claim for refund of duty  and  interest,  if  any,  paid  on  such
duty.— (1) Any person claiming refund of any duty of  excise  and  interest,
if any, paid on such duty may make an application for refund  of  such  duty
and interest if any, paid on such duty  to  the  Assistant  Commissioner  of
Central Excise or Deputy Commissioner of Central Excise  before  the  expiry
of one year from the relevant date  in  such  form  and  manner  as  may  be
prescribed and the application shall be accompanied by such  documentary  or
other evidence including the documents referred to in  section  12A  as  the
applicant may furnish to establish that the amount of  duty  of  excise  and
interest, if any, paid on such duty in relation  to  which  such  refund  is
claimed was collected from or paid by him and the  incidence  of  such  duty
and interest if, any, paid on such duty had not been passed  on  by  him  to
any other person:”

Thereafter,  Central  Excise  Rules,  2002  were  framed  by   the   Central
Government in exercise of powers contained in Section  37  of  the  Act.  As
mentioned above, the scheme of the relevant Rules or the subject  matter  of
the issue at hand provides for two options  insofar  as  payment  of  excise
duty on the products meant for exports are concerned.   Under  Rule  18,  an
exporter has the option to pay the duty and then claim  rebate  thereof  and
under Rule 19, export can be made without payment of duty on execution of  a
bond.  Both these rules are given below.
“Rule 18.  Rebate of duty.—  Where  any  goods  are  exported,  the  Central
Government  may,  by  notification,  grant  rebate  of  duty  paid  on  such
excisable goods or duty  paid  on  materials  used  in  the  manufacture  or
processing of such goods and the rebate shall be subject to such  conditions
or limitations, if any,  and  fulfillment  of  such  procedure,  as  may  be
specified in the notification.

Rule 19.  Export without payment of duty.— (1)  Any excisable goods  may  be
exported without payment of duty from a  factory  of  the  producer  or  the
manufacturer or the warehouse or any other premises, as may be  approved  by
the Commissioner.

(2)  Any material may be removed without payment of duty from a  factory  of
the producer or the manufacturer or the warehouse  or  any  other  premises,
for use in the manufacture or processing of goods  which  are  exported,  as
may be approved by the Commissioner.

                              xxx   xxx   xxx”

Obviously, the controversy that arises is qua interpretation that is  to  be
accorded to Rule 18.  The Rule stipulates that the Central  Government  may,
by notification, grant rebate of duty paid on such excisable goods  OR  duty
paid on material used in the manufacturing  or  processing  of  such  goods.
The word 'OR' which is used in between the two kinds of  duties  in  respect
of which rebate can be granted is the bone of contention and  it  is  to  be
interpreted whether it postulates grant of one of the  two  duties  or  both
the duties can be claimed.  It is also to be  noted  at  this  stage  itself
that Rule 18 is only  an  enabling  provision  which  empowers  the  Central
Government  to  issue  a  notification  for  grant  of  these  rebates   and
prescribes the procedure for claiming such rebate(s).

As is clear from the bare reading of Rule 18,  the  manner  of  getting  the
rebate under the said Rule has to be  as  per  the  procedure  that  may  be
specified in the notification.

The Central Government has  issued  Notification  No.  19/2004-CE(NT)  dated
September 06, 2004 which deals with grant of rebate  of  whole  of  duty  on
excisable goods exported. The opening portion of  this  Notification,  which
needs to be taken note of, is as under:
“In exercise of the powers conferred  by  rule  18  of  the  Central  Excise
Rules, 2002 and in supersession of the Ministry of  Finance,  Department  of
Revenue, notification No. 40/2001-Central  Excise  (N.T.),  dated  the  26th
June 2001, [G.S.R. 469(E), dated the 26th June, 2001] insofar as it  relates
to export to  the  countries  other  than  Nepal  and  Bhutan,  the  Central
Government hereby directs that there shall be granted rebate  of  the  whole
of the duty paid on all excisable goods falling under the First Schedule  to
the Central Excise Tariff Act, 1985 (5 of  1986)  exported  to  any  country
other than Nepal and Bhutan, subject  to  the  conditions,  limitations  and
procedures specified hereinafter-

                              xxx   xxx   xxx”

It also lays down conditions and limitations for  claiming  such  rebate  as
well as procedure which needs to be fulfilled.  The provision,  inter  alia,
prescribes the time limit within which claim for rebate  to  Central  Excise
is to be presented.  What is relevant for the purposes of  present  case  is
the Form, as per which  application  for  removal  of  excisable  goods  for
export is to be made and the same is prescribed in Annexure 2 to the  Rules.
Column 3 thereof reads as under:
                               “xxx  xxx   xxx

3.   I/We  hereby  certify  that  the  above-mentioned   goods   have   been

(a)   availing facility/without availing facility  of  Cenvat  credit  under
Cenvat Credit Rules, 2002.

(b)   availing facility/without availing  facility  under  Notification  No.
21/2004-Central Excise (N.T.), dated the 6th September,  2004  issued  under
rule 18 of Central Excise Rules, 2002.

(c)   availing facility/without availing  facility  under  Notification  No.
43/2001-Central Excise (N.T.), dated the 26th June, 2001 issued  under  rule
19 of Central Excise (No. 2) Rules, 2001.

                              xxx   xxx   xxx”

The aforesaid Notification, as is evident from the  reading  thereof,  deals
with grant  of  rebate  of  duty  paid  on  the  finished  goods,  that  are
ultimately  exported.  There  is  yet  another  Notification  No.   21/2004-
CE(N.T.); dated September 06, 2004 issued by  the  Government  for  claiming
rebate of whole of the duty paid on excisable goods used in the  manufacture
or processing of exported goods,  as  is  clear  from  the  reading  of  the
opening para thereof:
“In exercise of the powers conferred  by  rule  18  of  the  Central  Excise
Rules, 2002 and in supersession of the Ministry of  Finance,  Department  of
Revenue, notification No. 41/2001-Central  Excise  (N.T.),  dated  the  26th
June, 2001 [G.S.R. 470(E) dated the 26th June 2001], the Central  Government
hereby, directs that rebate of whole of the duty  paid  on  excisable  goods
(hereinafter  referred  to  as  'materials')  used  in  the  manufacture  or
processing of export goods shall, on their exportation out of India, to  any
country except Nepal and Bhutan, be paid subject to the conditions  and  the
procedure specified hereinafter.”

This Notification also prescribes, inter alia, the procedure for  export  in
the specified format which is Form ARE2 appended as Annexure 2B's Rules  and
envisages filing of combined application for removal  of  goods  for  export
under the claim for rebate of duty paid on excisable material  used  in  the
manufacture and packing [i.e., intermediate product used  as  raw  material]
as well as duty paid on the final product  for  export.   This  form,  thus,
enables the manufacturer of the final product exported to  claim  rebate  of
both kinds of duties paid.  That becomes evident from the following  portion
of the said form:
“Form A.R.E. 2
Combined application for removal of goods for export under claim for  rebate
of duty paid on excisable materials used in the manufacture and  packing  of
such goods and removal of dutiable excisable goods for  export  under  claim
for rebate of finished stage Central  Excise  Duty  or  under  bond  without
payment of finished stage Central Excise Duty leviable on export goods.

The Superintendent of Central Excise,
…...............(full postal address)
1.    Particulars of the Assistant Commissioner of  Central  Excise  or  the
Deputy  Commissioner  of  Central  Excise  from   whom   rebate   shall   be
claimed/with   whom   bond   is   executed   and   his    complete    postal
2.    I/We_________of _____ propose to  export  the  under  mentioned  goods
(details of  which  are  given  in  Table  1  below)  to  ____  (country  of
destination) by air/sea/land/post parcel under  claim  for  rebate  of  duty
paid on excisable materials used in the  manufacture  and  packing  of  such

3.    *The finished goods being exported are not dutiable.
We intended to claim the rebate of Central Excise Duty  paid  on  clearances
of goods for export under notification No.  19/2004-Central  Excise  (N.T.),
dated the 6th September, 2004 issued under Rule 18 of Central Excise  Rules,

The argument of learned counsel for the appellant  is  that  it  has  always
been the policy of the Central Government to exempt the goods  from  payment
of excise duty both on the final excisable products as well as  on  material
used in the manufacturing of goods for payment of  duty  if  the  goods  are
meant for export outside India.  Moreover,  Rule  18  is  only  an  enabling
provision and in exercise of powers contained  in  this  Rule,  the  Central
Government has also issued notification for grant of rebate or duty paid  on
excisable goods as well as duty paid on material used in the manufacture  of
goods.  Even the notifications which prescribe the procedure  contemplate  a
situation where duty may have been paid not only on the excisable goods  but
on the material used in the manufacture of goods and  provide  for  claiming
the rebate in respect of duty paid on both these goods.  It was also  argued
that the order of the  Joint Secretary, Government of  India  further  shows
the mind of the Government itself,  disclosing  that  both  the  duties  are
eligible for grant of rebate.  On that basis, it is argued that Rule 18  has
to be interpreted keeping in view the overall scheme of the statute and  the
Rules and the manner in which the Government itself operated the said  Rule.
 Learned counsel for the respondent,  on  the  other  hand,  predicated  his
arguments on the plain and grammatical meaning that needs to be accorded  to
Rule 18 of the Rules by arguing that the  word  'OR'  used  therein  clearly
signifies that it is one of the two  duties  to  which  the  rebate  can  be
granted and not both.  For this purpose, reasoning given by the  High  Court
was adopted with the submission that it was  in  accord  with  the  cardinal
principle of literal interpretation and, therefore, the  view  of  the  High
Court was correct in law.

After giving due consideration to the respective submissions, in  the  light
of statutory scheme envisaged for grant of rebate in the Act and  Rules,  we
are constrained to hold that the High Court  has  not  taken  correct  view,
which we feel is a myopic view and ignores the overall scheme pertaining  to
grant of rebate in respect  of  goods  exported  out  of  India.  There  are
multiple reasons  for  arriving  at  this  conclusion  which  are  discussed

(i)   Historical perspective of the statutory scheme:  Central Excise  Rules
under the Act were first framed in the year 1944. Rule 12  thereof  provided
for rebate of duty and Rule 13 enabled exporter to export the goods  without
payment of duty.  Relevant portion of these Rules was as under:
“Rule 12.  Rebate of duty.— The Central Government may, from time  to  time,
by notification in the Official Gazette, grant rebate of -

(a)   duty paid on the excisable goods;
(b)   duty paid on materials used in  the  manufacture  of  goods;  if  such
goods are exported outside India or shipped as provision or stores  for  use
on board a ship proceeding to a foreign  port,  or  supplied  to  a  foreign
going aircraft to such extent and subject  to  such  safeguards,  conditions
and limitations as regards the class  or  description  of  goods,  class  or
description of materials used for manufacture thereof, destination, mode  of
transport and other allied matters as may be specified in the notification.
                               xxx   xxx   xxx

Rule 13.  Export in bond of goods on which duty has not been  paid.—(1)  The
Central Government may, from time to time, by notification in  the  Official
Gazette -

(a)   permit export of specified excisable goods in bond without payment  of
duty, in the like manner,  as  the  goods  regarding  which  the  rebate  is
granted under sub-rule (i) of rule 12  from  a  factory  of  manufacture  or
warehouse or any other premises as may be approved by  the  Commissioner  of
Central Excise;

(b)   specify materials, removal of which without payment of duty  from  the
place of manufacture or storage for  use  in  the  manufacture  in  bond  of
export goods may be permitted by Commissioner of  Central Excise;

(c)  Allow removal of excisable material without payment  of  duty  for  the
manufacture of export  goods,  as  may  be  specified,  to  be  exported  in
execution of one or more export orders; or for replenishment  of  duty  paid
materials used in the manufacture of such export goods already exported  for
the execution of such orders, or both;

subject to such safeguards, conditions and limitations as regards the  class
or description  of  goods,  class  or  description  of  materials  used  for
manufacture  thereof,  destination,  mode  of  transport  and  other  allied
matters  as  may  be  specified  in  the  notification  which  the  exporter
undertakes to abide by entering into a bond in the  proper  form  with  such
surety  or  sufficient  security,  and  under   such   conditions   as   the
Commissioner approves.
                              xxx   xxx   xxx ”

It is manifest from the reading of the aforesaid Rules that  from  the  very
beginning, two alternative methods were provided  enabling  an  exporter  of
goods to get rid of the burden of paying the excise duty; both on  excisable
goods as well as on  materials  used  in  the  manufacture  of  goods.   The
exporter could either claim rebate when the duty was paid.  Or else, he  was
free not to pay excise duty at all on both types of  goods  by  executing  a
bond in the prescribed form and  fulfilling  the  conditions  prescribed  in
this behalf.  The grant of rebate, in either  of  the  options,  has  always
been in respect of both kinds of excise duties, i.e. on  the  final  product
that is exported as well as on the  intermediate  product  on  which  excise
duty  is  paid/payable  and  the  same  is  used  as  raw  material  in  the
manufacture of goods.  Under  these  Rules  also,  Notification  No.  41/94-
CE(NT), dated September 12, 1994 and Notification  No.  42/94-CE(NT),  dated
September 21, 1994 were issued for grant of rebate of duty on export of  all
excisable goods,  except  minerals  oils  and  ship  stores  and  rebate  on
materials used in manufacture of goods exported out of India, respectively.

The aforesaid Rules of 1944 were replaced by  Central  Excise  Rules,  2001.
In these rules, relevant  provisions  were  Rules  18  and  19.  It  is  not
necessary to reproduce these Rules which are same as Rules 18 and 19 of  the
existing Rules.  Under these Rules also similar Notifications  were  issued,
i.e., Notification No. 40/2001-CE(NT) dated June 26, 2001  and  Notification
No. 41/2001-CE(NT) dated June 26, 2001 providing  for  rebate  of  whole  of
duty on excisable goods when exported as well as rebate of  inputs  used  in
manufacture/processing of export goods.  Likewise, Notifications 40  and  41
dated June 26, 2001 were issued under Rule 19 of these Rules.

Central Excise Rules, 2001  were  superseded  by  the  present  Rules,  viz.
Central Excise Rules, 2002 and the exact  provisions  thereof  have  already
been quoted.  The aforesaid historical narration of the relevant  provisions
from time to time depict one common theme,  namely,  to  provide  rebate  of
duty paid on the excisable goods as well as the duty paid on  material  used
in the manufacture of goods.
(ii)  Scheme of the Rules :  A cumulative reading of  the  scheme  enshrined
in Rules 18 and 19 of the Rules, 2002 has already been  pointed  out  above.
These Rules provide two alternatives to the exporter  enabling  him  to  get
the benefit of exemption  from  paying  the  excise  duty.  Under  Rule  19,
exporter is not required to pay any excise duty at  all.   At  the  time  of
removal of these goods  from  the  factory  gate  of  the  producer  or  the
manufacturer or the warehouse or any  other  premises,  he  is  supposed  to
comply with the conditions, safeguards and procedure, as may be notified  by
the Board. Such a procedure provides for execution of a  bond  which,  inter
alia, lays down the condition that the goods which are cleared are  actually
meant for export and he is  to  furnish  the  proof  that  those  goods  are
actually exported.  What is important is that when  the  exporter  opts  for
this method, with the approval of the Commissioner, he is  not  required  to
pay duty either on the final product, i.e., on excisable  goods  or  on  the
material used in the manufacture of those goods.  The intention is loud  and
clear, namely, the goods which are meant  for  exports  are  free  from  any
excise duty.  It extends not only to the  material  which  is  used  in  the
manufacture of goods but also on the goods that are produced and  ultimately
exported.  Once we keep in mind this scheme, it cannot be the  intention  of
the Legislature to provide rebate only on one  item  in  case  a  particular
exporter/manufacturer opts for other  alternative  under  Rule  18,  namely,
paying the duty in the first instance and then claiming the rebate.   Giving
such restrictive meaning to Rule 18 would not only be  anomalous  but  would
lead to absurdity as well.  In fact, it would defeat  the  very  purpose  of
grant of remission from payment of excise  duty  in  respect  of  the  goods
which  are  exported  out  of  India.    It  may  also  lead  to   invidious
discrimination and arbitrary results.

      Let us visualize another situation.  A  particular  exporter  may  opt
for scheme under Rule 18, i.e., for claim of rebate insofar as, say,  excise
duty on material used in manufacture of goods is concerned.   He  would  pay
that duty and claim rebate.  When it comes to payment of duty of  export  of
excisable goods, he exercises the option under Rule 19 and executes  a  bond
which enables him  not  to  pay  any  duty  on  excisable  goods.   In  this
scenario, the exporter will still be able to get the benefit of  not  paying
any excise duty on both final product as well as intermediate product.

(iii) Government's own perception:  As mentioned above, Rule 18 is  enabling
provision which authorises the Central Government to  issue  a  notification
for grant of these rebates. Exercising powers under this Rule,  the  Central
Government has issued necessary notifications for rebate in respect of  both
the duties, i.e., on intermediate product as well as on the  final  product.
Further, and  which  is  more  significant,  these  notifications  providing
detailed procedure for claiming such rebates contemplate a  situation  where
excise duty may have been paid both on the excisable goods and  on  material
used in the manufacture of those goods and enables  the  exporter  to  claim
rebate on both the duties.  This kind of procedure and format of  prescribed
Forms, already described above, becomes a clincher insofar as  understanding
of the Government of Rule 18 of the Rules is concerned.

It is to be borne in mind that  it  is  the  Central  Government  which  has
framed the Rules as  well  as  issued  the  notifications.  If  the  Central
Government itself is of the opinion that the rebate  is  to  be  allowed  on
both the forms of excise duties the government  is  bound  thereby  and  the
rule in-question has to interpreted in accord  with  this  understanding  of
the rule maker itself.  Law in this respect is well settled and,  therefore,
it is not  necessary  to  burden  this  judgment  by  quoting  from  various
decisions.  Our purpose would be served by referring to  one  such  decision
in the case of R & B Falcon (A) Pty Ltd. v. Commissioner  of  Income  Tax[1]
wherein interpretation given by the Central Board of Direct Taxes (CBDT)  to
a particular provision was held binding on the tax authorities.   The  Court
explained this principle in the following manner:
“33. CBDT has the requisite jurisdiction to interpret the provisions of  the
Income Tax Act. The interpretation  of  the  CBDT  being  in  the  realm  of
executive construction, should ordinarily be held to be  binding,  save  and
except where it violates any  provisions  of  law  or  is  contrary  to  any
judgment rendered by the courts.  The  reason  for  giving  effect  to  such
executive construction is not only same as contemporaneous which would  come
within the purview of the maxim temporania  caste  pesto,  even  in  certain
situation a representation made by an  authority  like  Minister  presenting
the Bill before Parliament may also be found bound thereby.

34.  Rules of executive construction in a situation of this nature may  also
be applied. Where a representation is made by the maker  of  legislation  at
the time of introduction of the Bill or construction  thereupon  is  put  by
the executive upon its coming into force, the same carries a great weight.

35.  In this regard, we may refer to the decision of the House of  Lords  in
R. (Westminster City Council) v. National Asylum Support  Service  (2002)  1
WLR 2956 : (2002) 4 All ER 654 (HL) and its interpretation of  the  decision
in Pepper v. Hart 1993 AC 593 : (1992) 3 WLR 1032 : (1993) 1 All ER 42  (HL)
on the question of “executive estoppel”. In the former decision, Lord  Steyn
stated: (WLR p. 2959, para 6)
“6. If exceptionally there  is  found  in  the  Explanatory  Notes  a  clear
assurance by the executive to Parliament about the meaning of a  clause,  or
the circumstances in which a power will or will not be used, that  assurance
may in principle be admitted against the executive in proceedings  in  which
the executive places a contrary contention before a court.”

36.  A similar interpretation was rendered by  Lord  Hope  of  Craighead  in
Wilson v. First County Trust Ltd. (No. 2) (2004) 1 AC 816  :  (2003)  3  WLR
568 : (2003) 4 All ER 97 (HL), wherein it was  stated:  (WLR  p.  600,  para
“113. ...As I understand it [Pepper v. Hart 1993 AC 593 : (1992) 3 WLR  1032
: (1993) 1 All ER 42 (HL), it recognised a limited exception to the  general
rule that resort to Hansard was inadmissible. Its purpose is to prevent  the
executive seeking to place a meaning on words used in legislation  which  is
different  from  that  which  ministers  attributed  to  those  words   when
promoting the legislation in Parliament.”

37. For a detailed  analysis  of  the  rule  of  executive  estoppel  useful
reference may be  to  the  article  authored  by  Francis  Bennion  entitled
“Executive Estoppel: Pepper v. Hart Revisited”,  published  in  Public  Law,
Spring 2007, p. 1 which throws a new light on the subject-matter.”

We are also of the opinion  that  another  principle  of  interpretation  of
statutes,  namely,  principle  of  contemporanea  expositio   also   becomes
applicable which is manifest from the act of the Government in  issuing  two
notifications giving effect to Rule 18.  This  principle  was  explained  by
the Court in Desh Bandhu Gupta and Co. and others v.  Delhi  Stock  Exchange
Association Ltd.[2] in the following manner:
“9.  It may be stated that it was not disputed  before  us  that  these  two
documents which came into existence almost simultaneously with the  issuance
of the notification could be looked at for finding out  the  true  intention
of the Government in issuing the notification in question,  particularly  in
regard to the manner in which outstanding transactions were to be closed  or
liquidated.   The  principle  of  contemporanea  expositio  (interpreting  a
statute or any  other  document  by  reference  to  the  exposition  it  has
received from contemporary authority) can be invoked though  the  same  will
not always be decisive of the question of construction.  (Maxwell 12th  Edn.
p. 268).  In Crawford on Statutory Construction (1940 Edn.) in para 219  (at
pp. 393-395) it has been stated that administrative  or  executive  officers
charged with executing a statute) generally should be clearly  wrong  before
it is overturned; such a construction  commonly  referred  to  as  practical
construction  although  not  controlling,  is   nevertheless   entitled   to
considerable weight it  is  highly  persuasive.   In  Baleshwar  Bagarti  v.
Bhagirathi Dass (1908) ILR 35  Cal  701  at  713  the  principle  which  was
reiterated in Mathura Mohan Saha v. Ram Kumar Saha, ILR 43  Cal.  790:  (AIR
1916 Cal. 136) has been stated by Mukerjea J. thus:

“It is a well-settled principle of construction that courts in construing  a
statute will give much weight to the interpretation  put  upon  it,  at  the
time of its enactment and  since,  by  those  whose  duty  it  has  been  to
construe, execute and apply it. I do not suggest  for  a  moment  that  such
interpretation has by any means a controlling effect upon the  Courts;  such
interpretation may, if occasion arises have to  be  disregarded  for  cogent
and persuasive reasons, and in a clear case of error, a Court would  without
hesitation refuse to follow such construction.”

Of course, even without the aid of  these  two  documents  which  contain  a
contemporaneous exposition of the Government's intention, we  have  come  to
the conclusion that on a plain construction of the notification the  proviso
permitted the closing out or liquidation of all outstanding transactions  by
entering into a forward contract in accordance with the rules, bye-laws  and
regulations of the respondent.”

In this hue, we  may  now  advert  to  the  reasoning  given  by  the  Joint
Secretary itself in the order passed in Revision  Petition  wherein  he  has
discussed the issue in the following perspective:

“.....Govt. notes that as a  principle  and  a  policy  measure,  Govt.  has
accepted that export of goods from India  should  be  relieved  of  domestic
levies (both customs and Central Excise)  in  order  to  promote  export  of
domestic products from India and to make then  internationally  competitive.
In order to achieve this objective,  two  schemes  operate,  namely,  export
under bond and export under payment of duty  and  both  are  comparable,  as
objectives of both the schemes are same i.e. to  neutralize  the  burden  of
internal levies on goods exported.  In case  of  former,  export  goods  are
exempted from payment of duty, subject to conditions/restrictions  etc.  and
in the case of latter export goods are cleared on payment of duty  which  is
rebated subject to production of proof of export.   For  export  under  bond
Rule 19 provides for excisable goods  to  be  exported  without  payment  of
duty, subject to conditions etc. which are detailed in Notfn. No. 42/2001  –
CE(NT) dt. 26.06.2001 and Notification No.  43/2001-CE(NT)  dtd.  26.06.2001
further relieves the burden of duty  on  inputs  used  to  manufacture  such
goods by obtaining them  duty  free  under  bond.  Thus,  export  goods  are
relieved of the burden of excise duty both  on  finally  exported  goods  as
well the inputs used vide these legislative and  machinery  provisions.   As
both schemes are comparable  as  objective  to  serve  the  common  goal  of
relieving the burden of domestic taxation, the  other  scheme  provides  for
similar dispensation in case goods are exported on payment of  duty  by  way
of rebating central excise duty suffered  on  such  export  goods.  Rule  18
provides for rebate of duty on such export goods or duty  paid  on  material
used in manufacture of such export goods. While Notification No.  40/2001  –
Central Excise (NT) dtd. 26.6.2001 as amended deals with details  provisions
for rebate on finishing goods, Notfn. No. 41/201 C.E. (NT) as amended  deals
and provides the detailed  procedural  provisions  for  input  stage  rebate
also. Similar provisions and export relief existed for export on payment  of
duty and under bond in the erstwhile  Rule  12  and  13  of  Central  Excise
Rules. The fundamental objective of existing rules and the earlier  ones  is
the same i.e. to neutralise the duty  element  on  the  goods  exported  and
hence no other interpretation denying the relief  sought  appears  possible.
Circular No. 129/40/95 dt. 29.09.95, para 1.5 of Chapter  8  of  Part  V  of
CBEC Manual further leaves no room for any other interpretation.”

(iv)  Interpretation of word 'OR'  occurring  in  Rule  18:   The  aforesaid
discussion leads us to the only inevitable consequence which is this  :  the
word 'OR' occurring in Rule 18 cannot be  given  literal  interpretation  as
that leads to various  disastrous  results  pointed  out  in  the  preceding
discussion and, therefore, this word has to be read  as  'and'  as  that  is
what was intended by the rule maker in the scheme of  things  and  to  carry
out the objectives of the Rule 18 and also to bring it at par with Rule 19.

We  are  conscious  of  the  principle  that  the  word  'or'  is   normally
disjunctive and 'and'  is  normally  conjunctive  (See  Union  of  India  v.
Kamlabhai  Harjiwandas  Parekh  and  others[3]).   However,  there  may   be
circumstances where these words are to be read as vice-versa to give  effect
to manifest intention of the Legislature as disclosed from the context.

Of course, these two words normally 'or' and 'and' are  to  be  given  their
literal meaning in unless some other part  of  same  Statute  or  the  clear
intention of it requires that to be done.  However, wherever use of  such  a
word, viz., 'and'/'or' produces unintelligible or absurd results, the  Court
has power to read the word 'or' as 'and' and vice-versa to  give  effect  to
the intention of the Legislature which is otherwise quite clear.   This  was
so done in the case of State  of  Bombay  v.  R.M.D.  Chamarbaugwala[4]  and
while doing so, the Court observed as under:
“...Considering the nature,  scope  and  effect  of  the  impugned  Act,  we
entertain no doubt whatever that the first category  of  prize  competitions
does not include any innocent prize competitions.  Such is what we  conceive
to be the clear intention of the Legislature as expressed  in  the  impugned
Act read as a whole and to give effect to this obvious intention as  we  are
bound to do, we have perforce  to  read  the  word  “or”  appearing  in  the
qualifying clause after the word “promoter” and  before  the  word  “or”  as
“and”. Well-known canons of construction of statutes permit  us  to  do  so.
(See Maxwell on the Interpretation of Statutes, 10th edition, page 238)”

In J. Jayalalitha v. Union of India[5],  provisions  of  Section  3  of  the
Prevention of Corruption Act, 1988 empowers the  Government  to  appoint  as
many special judges as may be necessary for such area or areas or  for  such
case or group of case, as may be specified in the notification.   Construing
the italicised 'or' it was held that it would mean that the  Government  has
the power to do either or both the things, i.e., the  Government  may,  even
for an area for which a special judge has been appointed, appoint a  special
judge for a case or group of cases.

Likewise, in Mazagaon Dock Ltd.  v.  The  Commissioner  of  Income  Tax  and
Excess Profits Tax[6], word  'or'  occurring  under  Section  42(2)  of  the
Income Tax Act, 1922 was construed as 'and' when the Court  found  that  the
Legislature 'could not have intended' use of the  expression  'or'  in  that
Section.  We have already explained the statutory scheme  contained  in  the
Act and Rules which express manifest  intention  of  the  Legislature  which
provide for granting of both kinds of rebates to the assessee.  In  Mazagaon
Dock Ltd. (supra), this aspect was explained in the following manner:
“10.  The word “or” in the clause  would appear to be  rather  inappropriate
as it is susceptible of the interpretation that when some profits  are  made
but they are less than the normal profits, tax could only be imposed  either
on the one or on the other,  and  that  accordingly  a  tax  on  the  actual
profits earned would bar the imposition of tax on profits which  might  have
been intended, and the word “or” would have to be read  in  the  context  as
meaning “and”. Vide Maxwell's Interpretation  of  Statutes,  Tenth  Edition,
pages 238-239.  But that, however, does  not  affect  the  present  question
which is whether the word “derived” indubitably points to  the  business  of
the non-resident as the one taxable under  S.  42(2)  and  for  the  reasons
already given the answer must be in the negative.”

The aforesaid discussion leads us to  inevitable  conclusion,  namely,  that
the exporters/appellants are entitled to both the rebates under Rule 18  and
not one kind of rebate.  The impugned judgments are, accordingly, set  aside
allowing these appeals.

                                                                (A.K. SIKRI)

                                                     (ROHINTON FALI NARIMAN)

OCTOBER 09, 2015.

      (2008) 12 SCC 466
[2]   (1979) 3 SCR 373
[3]   (1968) 1 SCR 463
[4]   (1957) 1 SCR 874
[5]   (1999) 5 SCC 138
[6]   (1959) 1 SCR 848

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