By TIOL News Service

NEW DELHI, OCT 12, 2015: IN these appeals, before the Supreme Court, 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?

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.

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. 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.

Scheme of the Rules : Rules 18 and 19 of the Rules, 2002 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 this scheme is kept in mind, 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, 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.

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.

Interpretation of word 'OR' occurring in Rule 18: The only inevitable consequence is this : the word 'OR' occurring in Rule 18 cannot be given literal interpretation as that leads to various disastrous results 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.

The word 'or' is normally disjunctive and 'and' is normally conjunctive . 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.

The inevitable conclusion is 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.

(See 2015-TIOL-239-SC-CX)