CENVAT Rules, 2000-Central Excise Rules, 1944-Rules 57AA, 57AB and 57AC and erstwhile Rules 57A to 57J-CENVAT credit-On input used outside factory-Explosives (input) used in quarrying limestone which in turn used for manufacturing cement (final product) in factory situated at some distance away from the limestone mines-Held: Qualifies for CENVAT credit-Earlier decision in Jaypee Rewa Cement, that MODVAT was allowable on use of explosives in manufacture of cement irrespective of the fact that explosives were used directly in limestone mines and never entered factory of manufacturer of cement, equally applies to CENVAT Rules which replaced the MODVAT Rules-Scheme of CENVAT credit no different in substance from MODVAT Rules. Modified Value Added Tax Scheme (MODVAT) was introduced in 1986 granting credit of excise duty on inputs used in or in relation to the manufacture of final products. The scheme was contained in Rules 57A to 57J of the CentralExcise Rules, 1944. In *Jaypee Rewa Cement where the input in question was explosives used in quarrying limestone which in turn were used in manufacture of cement, a three Judges Bench of this Court had held that MODVAT was allowable on the use of explosives in manufacture of cement irrespective of the fact that explosives were used directly in limestone mines and never entered factory of the manufacturer of cement. The MODVAT Rules were subsequently replaced by the CENVAT Rules. A Division Bench of this Court in **J.K. Udaipur Udyog held that the decision in Jaypee Rewa Cement did not apply to the CENVAT Rules. That view was doubted by a Co-ordinate Bench of this Court whereupon a reference was made to the present three Judges Bench for deciding the question whether the decision in Jaypee Rewa Cement would continue to apply to the CENVAT Rules, 2000. | |
| Citation: | 2006(1 )SCR465 ,2006(2 )SCC351 ,2006(1 )SCALE327 ,2006(1 )JT385 |
Answering the reference, the Court HELD: 1.1. The schemes of MODVAT and CENVAT Credit are not different. [475-C] 1.2. Basically there was a re-arrangement of the earlier rules which in substance remained the same. [473-A-B] **Commissioner of Central Excise, Jaipur v. J.K. Udaipur Udyog Ltd., (2004) 171 ELT 289 SC, overruled. *Jaypee Rewa Cement v. CCE, (2001) (133) ELT 3 SC, referred to. 2.1. In J.K. Udaipur Udyog the Court answered the question, whether the explosives used for blasting purposes in the mines and which had not been used in the factory premises for production or in relation to the manufacture ofcement could qualify for CENVAT credit, in the negative. Three reasons were given by the Court for holding that credit could be taken only on inputs received in the factory of the manufacturer of the final product. [475-B; D-E] 2.2. First, the Court held that the definition of input given in sub-rule(d) of Rule 57AA was "entirely different from the manner in which the said word had been expounded in the explanation to Rule 57A of the MODVAT Rules". This reading of the provision is not acceptable. There was only a re-arrangement of the several provisions of Rule 57B in Rule 57AA. Rule 57AA is in fact more broad based than Rule 57B. Analyzed, it is clear that sub-rule (d) of Rule 57AA has merely reframed Rule 57B to include all the ingredients of inputs while at the same time broadening the base not only by referring to "all goods" but also by using the word "includes". [475-D-E; 473-D] 2.2. Second, the Court proceeded on the basis that under the CENVAT scheme there was no provision similar to Rule 57J. But in fact, Rule 57J was replaced in substance by Rule 57AB, which provision was overlooked. Deletion of Rule 57J of the MODVAT Rules had led to controversy and on 29th of August, 2000, a clarification was issued by the Central Board ofExcise and Customs (CBEC). Consequently, with the intention of re-introducing the benefit granted earlier under Rule 57J, Rule 57AB was introduced under the heading "CENVAT credit". Rule 57AB effectively duplicates the substance of Rule 57J(1) and (2) and deals with a situation where inputs are received by a job worker for production of intermediate goods which are used in the manufacture of a final product. [475-F; 473-F-G; 474-C, H; 475-A] 2.3. The third reason given by the Court in J.K. Udaipur Udyog for holding that the CENVAT Scheme was different from the MODVAT Scheme was Rule 57AC(1). However, that Rule is limited to inputs received in the factory of the manufacturer and does not impinge on Rule 57AB at all. [475-F-G] 3. Thus, the doubt expressed by the referring Bench about the correctness of the decision in J.K. Udaipur Udyog was well founded. Having regard to the fact that the CENVAT Rules in effect substitute the MODVAT Rules, the decision in Jaypee Rewa Cement would continue to apply. The decision in J.K. Udaipur Udyog holding to the contrary is not good law. [476-A-B] Joseph Vellapally, V. Lakshmikumaran, Alok Yadav, Rajesh Kumar, Sanjay Grover, Ms. Prabha Swami, Sudhir Gupta, S.S. Hussain Rizvi, M.P. Vinodh and R. Parthasarthy for the Appellants. Rajiv Dutta, T.A. Khan, Ms. Indu Sharma, Raghu Nath Kapur, Ms. Varuna Bhandari Gugnani, A.T. Rao, V.K. Verma and P. Parmeswaran for the Respondents.
2006 (Jan.Part ) judis.nic.in/supremecourt/filename=27426
RUMA PAL, B.N. SRIKRISHNA, DALVEER BHANDARI
CASE NO.:
Appeal (civil) 1197 of 2005
PETITIONER:
M/s Vikram Cement
RESPONDENT:
Commnr. Of Central Excise, Indore
DATE OF JUDGMENT: 18/01/2006
BENCH:
Ruma Pal, B.N. Srikrishna & Dalveer Bhandari
JUDGMENT:
J U D G M E N T
With
C.A.Nos.3422/2004 and 4149-4153/2004, 4120-4122/2004,
C.A Nos. 7175-7189/2004, C.A Nos. 2318-2320/2005, CA
Nos. 1815, 6514, 1613, 6169-71, 6698 of 2005 and
SLP (C)No.23205/2003 & SLP (C) No.19603/2005)
RUMA PAL, J.
The question whether the decision in Jaypee Rewa
Cement Vs. CCE 2001 (133) ELT 3 SC would apply to the
CENVAT Rules 2000 framed under the Central Excise Tariff
Act 1985 (referred to as the 'Act') is to be decided on a
reference made in this case. A Bench of two judges of this
Court in Commissioner of Central Excise, Jaipur Vs. J.K.
Udaipur Udyog Ltd 2004 (171) ELT 289 SC held that Jaypee
Rewa Cement did not apply to the CENVAT Rules. The view
was doubted in this case by a Bench of coordinate strength
which referred the following question to us:-
"In the light of the provisions of the
Cenvat scheme vis-`-vis Modvat scheme
reproduced hereinabove, we are of the
view that the observations made in
paragraph 9 of the decision of the
Division Bench, quoted above, in the case
of Commissioner of Central Excise,
Jaipur vs. J.K. Udaipur Udyog Ltd.
reported in 2004 (171) ELT 289 needs
reconsideration".
The reference was made in the factual context of the
appellants availing of CENVAT credit on explosives and other
inputs used in quarrying limestone, which was in turn used
for the manufacture of cement and clinkers, which are
classifiable under Chapter 25. The limestone mines of the
appellants are situated at some distance away from the factory
premises of the appellants. The Adjudicating Authority held
that the appellants were not entitled to the credit availed of by
the appellants and raised a demand for excise duty only on the
explosives. The narrower question raised in this appeal
therefore is whether the adjudicating authority was correct in
denying the appellants the CENVAT credit on the inputs.
On the broader question, namely, whether there is a
difference in substance between the MODVAT and the
CENVAT schemes, Modified Value Added Tax Scheme
(MODVAT) was introduced in 1986 granting credit of excise
duties used in or in relation to the manufacture of final
products. The scheme was contained in Rules 57A to 57J of
the Central Excise Rules, 1944 (referred to as the 'Rules'). We
set out below the relevant extracts of these Rules:-
"Rule 57A - Applicability.
(1) xxxx xxxx xxxx
(2) xxxx xxxx xxxx
(3) xxxx xxxx xxxx
(4) The credit of specified duty under this
section shall be allowed on inputs used in
the manufacture of final products as well
as on inputs used in or in relation to the
manufacture of the final products
whether directly or indirectly and
whether contained in the final product or
not.
Rule 57B. Eligibility of credit of duty
on certain inputs (1) Notwithstanding
anything contained in Rule 57A, the
manufacturer of final products shall be
allowed to take credit of the specified
duty paid on the following (inputs), used
in or in relation to the manufacture of the
final products, whether directly or
indirectly and whether contained in the
final products or not, namely:-
(i) inputs which are manufactured and
used within the factory of
production;
(ii) paints;
(iii) inputs used as fuel;
(iv) inputs used for generation of
electricity or steam, used for
manufacture of final products or for
any other purpose, within the
factory of production;
(v) packing materials and materials
from which such packing materials
are made provided the cost of such
packing materials is included in the
value of the final product;
(vi) accessories of the final product
cleared alongwith such final
product, the value of which is
included in the assessable value of
the final product.
Explanation.- For the purposes of this
sub-rule, it is hereby clarified that the
term 'inputs' refers only to such inputs as
may be specified in a notification used
under Rule 57A". {Emphasis supplied}
We observe that Rule 57B commences with a non
obstante clause. It allows credit to be taken by a
manufacturer on inputs used in or in relation to the
manufacture of the final products whether directly or
indirectly and whether contained in the final products or not.
There is no qualification as to where the inputs must be used
in the main body of sub-rule (1). Qualifications have been
introduced to the extent stated in Clauses (i) to (vi) read with
the Explanation. Thus clause (i) provides for inputs which are
manufactured and used within the factory of production.
Paints, fuel, packing materials and accessories are also treated
as inputs under clauses (ii), (iii), (v) and (iv) without any
requirement for user within the factory. Clause (iv) provides
for credit on inputs used for generation of electricity or steam
used for manufacture of the final products or for any other
purposes "within the factory of production". It appears to us
on a plain reading of the clause that the phrase "within the
factory of production" means only such generation of
electricity or steam which is used within the factory would
qualify as an intermediate product. The utilization of inputs
in the generation of steam or electricity not being qualified by
the phrase "within the factory of production" could be outside
the factory. Therefore, whatever goes into generation of
electricity or steam which is used within the factory would be
an input for the purposes of obtaining credit on the duty
payable thereon. As far as the Explanation is concerned, the
inputs are restricted to inputs notified under Rule 57A. There
is no dispute that both explosives and limestone are notified
under Section 57A for manufacture of the final product viz.
cement.
The next relevant rule is Rule 57F. What we are
concerned with is sub-rule (4) of Rule 57F. This provides:
"(4) The inputs can also be removed as
such or after they have been partially
processed by the manufacturer of the
final products to a place outside his
factory under the cover of a challan
specified in this behalf by the Central
Board of Excise and Customs, for the
purposes of test, repair, refining, re-
conditioning or carrying out any other
operation necessary for the manufacture
of the final products or for manufacture
of intermediate products necessary for
the manufacture of final products and
return the same to his factory".
Therefore credit on inputs sent by a manufacturer from
the factory to a job worker for test, repair etc. but ultimately
utilized in the final product, is allowable.
Then comes Rule 57J which, in so far as it is material,
reads:-
Rule 57J. Credit of duty in respect of
inputs used in an intermediate
product. (1) Notwithstanding anything
contained in these rules, the
manufacturer shall be allowed to take
credit of the specified duty paid on inputs
described in column (2) of the Table
below and used in the manufacture of
intermediate products described in
column (3) of the said Table received by
the said manufacturer for use in or in
relation to the manufacture of final
products described in the corresponding
entry in column (4) of the said Table."
"(2) The manufacturer of final products
shall take credit under sub-rule (1) only if
the intermediate products are
manufactured in a factory as a job work
in respect of which the exemption
contained in the notification of the
Government of India in the Ministry of
Finance (Department of Revenue)
No.214/86-Central Excises, dated the
25th March, 1986 has been availed of".
(3) xxx xxx xxx xxx
{Emphasis supplied}
This Rule allows credit on inputs used in manufacture
of intermediate products described in column 3 of the Table
provided the intermediate products are received by the
manufacturer for use in or in relation to the manufacture of
final products described in the corresponding entry in column
4 of the Table. Explosives, limestone and cement are
admittedly covered by columns 1,2 and 3 respectively of the
Table.
It may be noted at this stage that Rule 57J(2) was
explained by a Trade Notice No.38/1999 dated 2nd April, 1991
issued by the Bombay Collectorate. It was said :-
"the basic aim of the MODVAT Scheme is
to avoid the cascading effect of duties on
a product. Therefore, the scheme permits
MODVAT credit on all goods forming a
part of the final product, though the final
product may be manufactured in several
stages, provided duty is paid at each
stage of the manufacturing chain.
However, to ensure an unbroken chain of
MODVAT, rule 57J has been incorporated
under the MODVAT Scheme so as to
extend credit of duty on certain inputs,
even in respect of exempted intermediate
products (notified under Notification
No.351/86. C.E., dated 20.6.1986) which
are brought from outside. However, one
of the provisions of this notification
requires that the intermediate products
should be manufactured in a factory as a
job work and exemption contained in
Notification No.214/86-C.E. dated
25.3.1986 should have been availed in
respect of them. Thus, it may be
observed that rule 57J grants limited
flexibility of job work. The rule merely
requires that the unit availing this facility
should be a job worker in terms of
Notification No.214/86-C.E. A
manufacturing unit of the same
manufacturer can also be a job worker.
Therefore, so far as the aforesaid
manufacturing unit is job worker, it
would also be eligible for credit under
rule 57J".
We do not, for the purpose of this reference, discuss Rule
57Q which deals with credit on capital goods used as inputs.
The question whether it was necessary for inputs to be
used within the factory premises where the manufacture as
defined in Rule 57AB of final products takes place for the
purposes of availing of credit, came up before a Bench of three
Judges in the case of Jaypee Rewa Cement Vs. CCE (supra).
As in this case, in that case the input in question was
explosives which were used in quarrying limestone used in the
manufacture of cement. The Court came to the conclusion on
a consideration of the Rules which we have already quoted,
that sub-rule (1) of Rule 57A did not in any way specify that
the inputs have to be utilized within the factory premises.
The Tribunal had relied upon Rule 57F in coming to the
conclusion that the inputs in respect of which credit of duty
was claimed must be those which were used in or brought in
to the factory premises. In reversing the decision of the
Tribunal this Court observed that:-
"The Tribunal, however, has not referred
to the provisions of Rule 57J, the opening
portion of which makes it clear that the
said Rule will be applicable
notwithstanding anything contained in
the other Rules. According to Rule 57J,
when the Central Government by
notification specified the inputs used in
the manufacture of intermediate products
received by the manufacturer for use in
or in relation to the manufacture of final
product, then all such products on which
duty has been paid credit will be
allowed .
Explosives would fall under column (2)
being a tariff item in Chapter 36; the
intermediate product, namely, lime stone
would fall under column 3 being covered
by Chapter 25; and the final product,
namely, cement would also fall under
Chapter 25 and would fall under column
4. The reading of Rule 57J along with the
aforesaid notification can leave no
manner of doubt that even in respect of
inputs used in the manufacture of
intermediate product which product is
then used for the manufacture of a final
product. The manufacturer would be
allowed credit on the duty paid in respect
of the input. On the explosives a duty
had been paid and the appellants would
be entitled to claim credit because the
explosives were used for the manufacture
of the intermediate product, namely, lime
stone which, in turn, was used for the
manufacture of cement".
The appeal of the manufacturer was accordingly allowed
and it was held that the MODVAT was allowable on the use of
the explosives in the manufacture of cement irrespective of the
fact that the explosives were used directly in the mines and
never entered the factory of the manufacturer of cement.
In 2000 the MODVAT Rules were replaced by the
CENVAT Rules by the Central Excise (2nd Amendment) Rules
2000. Basically there was a re-arrangement of the earlier rules
which in substance remained the same. Thus Rule 57AA
defined inputs as :-
"input" means all goods, except high
speed diesel oil and motor spirit,
commonly known as petrol, used in or in
relation to the manufacture of final
products whether directly or indirectly
and whether contained in the final
product or not and includes accessories
of the final products cleared along with
the final products, goods used as paint,
or as packing material, or as fuel, or for
generation of electricity or stem used for
manufacture of final products or for any
other purpose within the factory of
production and also includes lubricating
oils, greases, cutting oils and coolants.
{Emphasis supplied}
Analyzed, it is clear that sub-rule (d) of Rule 57AA has
merely reframed Rule 57B to include all the ingredients of
inputs while at the same time broadening the base not only by
referring to "all goods" but also by using the word "includes".
Rule 57AC provides for the conditions for allowing
CENVAT credit in respect of inputs received in the factory of
the manufacturer. Sub-rule (1) of Rule 57AC which was relied
on in J.K. Udaipur Udyog to differ from the conclusion in
Jaypee Rewa Cement reads:-
"Rule 57AC. Conditions for allowing
CENVAT credit.- (1) The CENVAT credit
in respect of inputs may be taken
immediately on receipt of the inputs in
the factory of the manufacturer".
Rule 57 J of the MODVAT Rules was deleted. This led to
controversy and on 29th of August, 2000, a clarification was
issued by the Central Board of Excise and Customs (CBEC)
inter alia to the effect that:-
"It has been represented that when the
inputs are sent directly to a job worker,
the erstwhile MODVAT credit scheme
permitted availment of MODVAT credit
under Rule 57J read with the Notification
No.214/86-C.E. as amended. Several
associations have requested that similar
provision may be made in the CENVAT
scheme. This request has been acceded
to and Rule 57AB(1) has been amended
suitably for this purpose. The amended
provisions of Rule 57AB (1) apply to
goods received in the factory on or after
1st April, 2000. Credit is therefore
permissible in respect of intermediate
goods received from a job worker on or
after 1.4.2000. Credit shall, of course, be
allowed only if the intermediate products
received by the manufacturer of the said
final products are accompanied by any of
the documents as specified under rule
57AE(1) evidencing the payment of duty
on such inputs of capital goods".
{Emphasis supplied}
Consequently, with the intention of re-introducing the
benefit granted earlier under Rule 57J, Rule 57AB was
introduced under the heading "CENVAT credit". The material
extracts of Rule 57AB reads as follows:-
57AB(1) A manufacturer or producer of
final products shall be allowed to take
credit (hereinafter referred to as the
CENVAT credit) of.
(i) the duty of excise specified in the
First Schedule to the Central Excise
Tariff Act, 1985 (hereinafter referred
to as the said First Schedule) ,
leviable under the Act;
(ii) xxx xxx xxx xxx
(iii) Xxx xxx xxx xxx
(iv) Xxx xxx xxx xxx
(v) Xxx xxx xxx xxx
paid on any inputs or capital goods
received in the factory on or after the first
day of March, 2001, including, the said
duties paid on any inputs or capital
goods used in the manufacture of
intermediate products, by a job worker
availing the benefit of exemption specified
in the notification of the Government of
India in the Ministry of
Finance(Department of Revenue)
No.214/86. Central Excise, dated the
25th March, 1986, published in the
Gazette of India vide number GSR 547(E),
dated the 25th March, 1986, and received
by the manufacturer for use in or in
relation to the manufacture of final
products, on or after the first day of
March, 2001." {Emphasis supplied}
Rule 57AB effectively duplicates the substance of Rule
57J (1) and (2) and deals with a situation where inputs are
received by a job worker for production of intermediate goods
which are used in the manufacture of a final product.
In this background, the question arose in the case of
Commissioner of Central Excise, Jaipur Vs. J.K. Udaipur
Udyog Limited (supra) whether the explosives used for
blasting purposes in the mines and which had not been used
in the factory premises for production or in relation to the
manufacture of cement could qualify for CENVAT credit.
The Court answered the question in the negative and in
paragraph 9 of the judgment as reported said:-
"The scheme for MODVAT and CENVAT
Credits being different and in view of the
definition of "input" given in sub-rule (d)
of Rule 57AA of the Rules and the
omission of a Rule similar to Rule 57J,
the ratio of Jaypee Rewa Cement (supra)
can have no application here".
Three reasons were given by the Court for holding that
credit could be taken only on inputs received in the factory of
the manufacturer of the final product. First, the Court held
that the definition of input given in sub-rule (d) of Rule 57AA
was "entirely different from the manner in which the said word
had been expounded in the explanation to Rule 57A of the
MODVAT Rules". We cannot agree with this reading of the
Section. As we have said there was only a re-arrangement of
the several provisions of Rule 57B in Rule 57AA. Rule 57AA is
in fact more broadbased than Rule 57B.
Second, the Court proceeded on the basis that under the
CENVAT scheme there was no provision similar to Rule 57J of
the MODVAT scheme. As we have seen, Rule 57J was
replaced in substance by Rule 57AB. This provision was
overlooked.
The third reason given by the Court in J.K. Udaipur
Udyog for holding that the CENVAT Scheme was different
from the MODVAT Scheme was Rule 57AC(1). However, that
Rule is limited to inputs received in the factory of the
manufacturer and does not impinge on Rule 57AB at all.
The schemes of MODVAT and CENVAT Credit are not
therefore different and we are unable to agree with the
conclusion of the Court in J.K. Udaipur Udyog that the
decision in Jaypee Rewa Cement (supra) would have no
application to CENVAT Rules.
In our opinion the doubt expressed by the referring
Bench about the correctness of the decision in CCE Vs. J.K.
Udaipur Udyog Limited (supra) was well founded. Having
regard to the fact that the CENVAT Rules in effect substitute
the MODVAT Rules, the decision in Jaypee Rewa Cement
would continue to apply. The decision in Commissioner of
Central Excise, Jaipur Vs. J.K. Udaipur Udyog Limited
(supra) holding to the contrary is, in our opinion, not good
law. The reference is answered accordingly. All the appeals
and special leave petitions will now be listed for being disposed
of in the light of this judgment.
