Full Judgment Text
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CASE NO.:
Appeal (civil) 1197 of 2005
PETITIONER:
M/s Vikram Cement
RESPONDENT:
Commissioner of Central Excise,Indore
DATE OF JUDGMENT: 24/08/2005
BENCH:
B.P. SINGH & S.H. KAPADIA
JUDGMENT:
JUDGMENT
O R D E R
WITH
SLP (C) No.23205 of 2003, C.A. Nos.3422, 4120-
4122, 4149 to 4153, 7175-7189 of 2004, AND C.A.
Nos. 1815, 1613, 2318-2320 of 2005.
In this group of civil appeals/special leave petition,
question of admissibility of credit of the duty paid on "inputs"
namely, explosives, lubricating oils and welding electrodes as
also the question of admissibility of credit on "capital goods"
namely, limestone crusher, mining equipment etc. under Cenvat
Credit Rules, 2000, 2001 & 2002 arise for determination.
Since common questions of law and fact arise for
determination, the above civil appeals are clubbed together.
For the sake of convenience, the facts in Civil Appeal No.1197
of 2005 are mentioned herein below.
Three show-cause notices dated 26.8.2000, 10.2.2003
and 29.1.2003 were issued by the department to the assessee
proposing to disallow the credit on aforestated items on the
ground that they were used for extraction of limestone in the
mines and not within the factory in which cement (final
product) was manufactured by the assessee. The assessee
replied to each of the above three show-cause notices by which
it submitted that the substantive definition of "input" as per
clause (d) of rule 57AA of Central Excise Rules, 1944; rule
2(f) of the Cenvat Credit Rules, 2001 and rule 2(g) of Cenvat
Credit Rules, 2002 was in pari-materia and was not different
from the definition of "input" under erstwhile rules 57A and
57B of Central Excise Rules, 1944. According to the assessee,
there was no difference between the Modvat scheme and the
Cenvat scheme as far as the substantive definition of "input"
was concerned. According to the assessee, the Cenvat scheme
was more broad-based as compared to the earlier Modvat
scheme.
The assessees are engaged in the manufacture of cement
and clinker falling under chapter 25 of Central Excise Tariff
Act, 1985. They use explosives, welding electrodes, lubricating
oil and crusher for extraction of limestone and crushing in the
mines adjacent to the cement factory of the assessees. Being
aggrieved by the order dated October 30, 2003 confirming the
demand, the assessees preferred appeals to the Commissioner
(Appeals).
By order dated 27.2.2004, the Commissioner (Appeals)
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took the view that the Cenvat credit was admissible only when
the inputs or the capital goods were used by the manufacturer
within the factory premises and since the above goods were
used in the mines adjacent to the factory premises, the assessees
were not entitled to the credit on the aforestated goods.
Aggrieved by the said order of the commissioner dated
27.2.2004, the assessees filed appeals before the Customs,
Excise & Service Tax Appellate Tribunal, New Delhi.
Following the judgment of the Division Bench of this Court in
the case of Commissioner of Central Excise, Jaipur v. J.K.
Udaipur Udyog Ltd. reported in 2004 (171) ELT 289, the
tribunal held that input credit was not available for the reason
that the above goods namely explosives, lubricating oil,
welding electrodes & crusher were not used within the factory;
that the same were used in the mines located outside the
factory; and consequently, the appeals preferred by the assessee
stood dismissed. Hence, these civil appeals.
In the civil appeals preferred by the assessees, a specific
ground has been taken to the effect that the judgment of the
Division Bench of this Court in J.K. Udaipur Udyog Ltd.
(supra) was in conflict with a three-Judge bench decision of
this Court in Jaypee Rewa Cement v. Commissioner of Central
Excise, M.P. reported in 2001 (133) ELT 3. In the judgment of
the Division Bench of this Court in J.K.. Udaipur Udyog Ltd.
(supra), this Court took the view inter alia that the Modvat
scheme was different and distinct from the Cenvat scheme
whereas according to the assessees, there was no such
difference except that Cenvat scheme covered inputs, capital
goods and services and, therefore, the said Cenvat scheme was
more broad-based. In this connection, it has been urged that
even under rule 57J of the Modvat scheme, limestone
(intermediate product) sent directly to a job worker attracted
credit, which was continued under rule 57AB(1) of the Cenvat
scheme.
The basic issue which arises for determination in these
civil appeals is the correctness of the observation made vide
para 9 of the Division Bench decision in J.K. Udaipur Udyog
Ltd.(supra) which reads as under:-
"The schemes 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."
In this case, we are concerned with the period September,
2001 to October, 2002.
The Cenvat scheme which was in operation from
1.3.2002 was governed by Cenvat Credit Rules, 2002 inserted
by notification no.5/2002-CE (N.T.), dated 1.3.2002. These
rules replaced Cenvat Credit Rules, 2001 which held the field
from 1.7.2001 to 28.2.2002. Prior to 1.7.2001, the Cenvat
scheme was in vogue from 1.4.2000 to 30.6.2001 and the
Modvat scheme was in force from 1.3.1986 to 31.3.2000.
The relevant provisions of the Modvat scheme during the
period 1.3.1986 to 31.3.2000 were as follows:
"AA. CREDIT OF DUTY PAID ON EXCISABLE
GOODS USED AS INPUTS:
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RULE 57A : Applicability.\026 (1) The provisions of this section
shall apply to such finished excisable goods (hereafter, in this
section, referred to as the final products) as the Central
Government may, by notification in the Official Gazette,
specify in this behalf for the purpose of allowing credit of any
duty of excise or the additional duty under section 3 of the
Customs Tariff Act, 1975 (51 of 1975), as may be specified in
the said notification (hereafter, in this section, referred to as the
specified duty) paid on the goods used in the manufacture of the
said final products (hereafter, in this section, referred to as the
inputs).
(2) The credit of specified duty allowed under sub-rule
(1) shall be utilized towards payment of duty of excise leviable
on the final products, whether under the Act or under any other
Act, as may be specified in the notification issued under sub-
rule (1) and subject to the provisions of this section and the
conditions and restrictions, if any, specified in the said
notification.
(3) The Central Government may also specify in the
said notification the goods or classes of goods in respect of
which the credit of specified duty may be restricted.
(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.
(5) Notwithstanding anything contained in sub-rule
(1), the Central Government may, by notification in the Official
Gazette declare the inputs on which declared duties of excise or
additional duty (hereinafter referred to as declared duty) paid
shall be deemed to have been paid at such rate or equivalent to
such amount as may be specified in the said notification and
allow the credit of such declared duty deemed to have been paid
in such manner and subject to such conditions as may be
specified in the said notification even if the declared inputs are
not used directly by the manufacturer of final products declared
in the said notification, but are contained in the said final
products.
Explanation.\027 For the purposes of the sub-rule, it is
clarified that even if the declared inputs are used directly by a
manufacturer of final products, the credit of the declared duty
shall, notwithstanding the actual amount of duty paid on such
declared inputs, be deemed to be equivalent to the amount
specified in the said notification and the credit of the declared
duty shall be allowed to such manufacturer.
(6) Notwithstanding anything contained in sub-rule
(1), the Central Government may, by notification in the Official
Gazette, declare the inputs on which the duty of excise paid
under section 3A of the Central Excise Act, 1944 (1 of 1944),
shall be deemed to have been paid at such rate or equivalent to
such amount as may be specified in the said notification, and
allow the credit of such duty in respect of the said inputs at such
rate or such amount and subject to such conditions as may be
specified in the said notification :
Provided that the manufacturer shall take all reasonable
steps to ensure that the inputs acquired by him are goods on
which the appropriate duty of excise as indicated in the
documents accompanying the goods, has been paid under
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section 3A of the Central Excise Act, 1944 (1 of 1944).
RULE 57B : Eligibility of credit of duty on certain inputs.\026
(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.\027For the purpose of this sub-rule, it
is hereby clarified that the term ’inputs’ refers only to
such inputs as may be specified in a notification issued
under rule 57A.
(2) The manufacturer of the final products shall not be
allowed to take credit of the duty paid on the following goods,
namely:-
(i) machines, machinery, equipment, apparatus, tools,
appliances or capital goods as defined in rule 57Q
(other than those used as component parts in the
manufacture of final products), used for any
purpose in the factory;
(ii) packing materials in respect of which any
exemption to the extent of the duty of excise
payable on the cost of the packing materials is
being availed of for packing any final products;
(iii) packing materials or containers, the cost of which
is not included in the value of the final products
under section 4 of the Act; and
(iv) crates and glass bottles used for aerated water.
RULE 57J. Credit of duty in respect of inputs used in an
intermediate product.\027 (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
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entry in column (4) of the said Table:
TABLE
S.
No.
Description of inputs
Description of
intermediate products
Description of final
products
(1)
(2)
(3)
(4)
1.
All goods falling within
the Schedule to the
Central Excise Tariff Act,
1985 (5 of 1986), other
than the following,
namely:-
(i) goods classifiable
under any heading of
Chapter 24 of the
Schedule to the said Act;
(ii) goods classifiable
under heading Nos.36.05
or 37.06 of the Schedule
to the said Act;
(iii) goods classifiable
under sub-heading
Nos.2710.11, 2710.12,
2710.13 or 2710.19
(except Natural gasoline
liquid) of the Schedule to
the said Act;
(iv) high speed diesel oil
classifiable under heading
No.27.10 of the Schedule
to the said Act.
All goods falling within
the Schedule to the
Central Excise Tariff
Act, 1985 (5 of 1986),
other than the following,
namely:-
(i) goods classifiable
under any heading of
Chapter 24 of the
Schedule to the said Act;
(ii) goods classifiable
under heading Nos.
36.05 or 37.06 of the
Schedule to the said Act;
(iii) goods classifiable
under sub-heading Nos.
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2710.11, 2710.12,
2710.13 or 2710.19
(except Natural gasoline
liquid) of the Schedule
to the said Act;
(iv) high speed diesel
oil classifiable under
heading No.27.10 of the
Schedule to the said Act.
All goods falling within the
Schedule to the Central
Excise Tariff Act, 1985 (5
of 1986), other than the
following, namely:-
(i) goods classifiable under
any heading of Chapter 24
of the Schedule to the said
Act;
(ii) goods classifiable under
heading Nos.36.05 or 37.06
of the Schedule to the said
Act;
(iii) fabrics of cotton or
man-made fibres falling
within Chapter 52, Chapter
54 or Chapter 55 of the
Schedule to the Act;
(iv) fabrics of cotton or
man-made fibres falling
within heading Nos.58.01,
58.02, 58.06 (other than
goods falling within sub-
heading No.5806.20) 60.01
or 60.02 (other than goods
falling within sub-heading
No.6002.10) of the
Schedule to the Act.
(2) The manufacturer of the 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) The credit under sub-rule (1) shall 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 57G evidencing the payment of duty on
such inputs.
AAAA. CREDIT OF DUTY PAID ON CAPITAL
GOODS USED BY THE
MANUFACTURER OF SPECIFIED
GOODS:
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RULE 57Q: Applicability.\026 (1) The provisions of this section
shall apply to goods (hereafter in this section, referred to as the
"final products") described in column (3) of the Table given
below and to the goods (hereafter, in this section, referred to as
"capital goods"), described in the corresponding entry in
column (2) of the said Table, used in the factory of the
manufacturer of final products.
TABLE
S.
No.
Description of capital goods
falling within the Schedule to the
Central Excise Tariff Act, 1985 (5
of 1986) and used in the factory of
the manufacturer.
Description of final products
(1)
(2)
(3)
1.
2.
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3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
All goods falling under heading
Nos.82.02 to 82.11.
All goods falling under chapter 84
(other than internal combustion
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engines falling under heading
No.84.07 or 84.08 and of a kind
used in motor vehicles, compressors
falling under heading No.84.14 and
of a kind used in refrigerating and
airconditioning appliances and
machinery, heading or sub-heading
Nos.84.15, 85.18, 8422.10, 8424.10,
fire extinguishers falling under sub-
heading No.8424.80, 8424.91,
8424.99, 84.29 to 84.37, 84.40,
84.50, 84.52, 84.69 to 84.73, 84.76,
84.78, expansion valves and
solenoid valves falling under sub-
heading Nos.8481.10 of a kind used
for refrigerating and airconditioning
appliances and machinery.
All goods falling under chapter 85
(other than those falling under
heading Nos.85.09 to 85.13, 85.16
to 85.31, 85.39 and 85.40);
All goods falling under heading
Nos.90.11 to 90.13, 90.16, 90.17,
90.22 (other than for medical use),
90.24 to 90.31 and 90.32 (other than
of a kind used for refrigeration and
airconditioning appliances and
machinery);
Components, spares and accessories
of the goods specified against S.
Nos.1 to 4 above;
Moulds and dies;
Refractories and refractory
materials;
Tubes and pipes and fittings thereof,
used in the factory;
Pollution control equipment;
Grinding wheels and the like goods
falling under sub-heading
No.6801.10;
Goods falling under heading
No.68.02; and
Lubricating oils, greases, cutting
oils and coolants.
All goods specified in the Schedule to
the Central Excise Tariff Act, 1985 (5 of
1986), other than the following,
namely:-
(i) all goods falling under Chapter 24;
and
(ii) all goods falling under heading
Nos.36.05 or 37.06.
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(iii) ingots and billets of non-alloy steel
falling under sub-heading Nos.7206.90
and 7207.90, manufactured in an
induction furnace unit, whether or not
any other goods are produced in such
induction furnace, and hot re-rolled
products of non-alloy steel falling under
sub-heading Nos.7211.11, 7211.19,
7211.30, 7211.52, 7211.59, 7211.60,
7211.92, 7211.99, 7213.90, 7214.90,
7215.90, 7216.10 and 7216.90 on which
duty is paid under section 3A of the
Central Excise Act, 1944 (1 of 1944).
(2)(i) The manufacturer of the final products shall be
allowed credit of the duty of excise or the additional duty
leviable under section 3 of the Customs Tariff Act, 1975 (51 of
1975) (hereinafter referred to as "specified duty") paid on the
capital goods.
(ii) The manufacturer availing of the credit may utilize
the same for payment of duty of excise payable on the final
products manufactured in his factory.
(3) Notwithstanding anything contained in sub-rule
(1), the manufacturer of the final products shall be allowed
credit of additional duty leviable under section 3 of the
Customs Tariff Act, 1975 (51 of 1975) on goods falling under
Chapter heading No.98.01 of the first schedule to the said
Customs Tariff Act, to the extent of 75% of the said additional
duty paid on such goods.
(4) A manufacturer of the final products purchasing
capital goods from a unit situated in a Free Trade Zone or from
a hundred per cent export-oriented undertaking or from a unit in
an Electronic Hardware Technology Park or Software
Technology Parks and using them in manufacture of final
products, shall be allowed to take the credit of the specified
duty paid on such capital goods only to the extent of duty which
is equal to the additional duty leviable on like goods under
section 3 of the Customs Tariff Act, 1975 (51 of 1975),
equivalent to the duty of excise paid on such capital goods.
(5) The credit of the specified duty on capital goods
(other than those capital goods in respect of which credit of
duty was allowable under any other rule or notification prior to
the Ist day of March, 1977 shall not be allowed if such capital
goods were received in the factory before the Ist day of March,
1997.
(6) A manufacturer shall be allowed credit of specified
duty paid on capital goods manufactured by him for the
manufacture of final products in his factory.
(7) The credit of the specified duty on capital goods
(other than those capital goods covered under S. Nos.5, 7, 10,
11 and 12 of column (2) of the Table below sub-rule (1) and
received in the factory on or after the Ist day of January, 1996,
shall not be taken on a date prior to the date on which such
capital goods are installed or, as the case may be, used for
manufacture of excisable goods, in the factory of the
manufacture as certified by such manufacturer or a person
designated by him for this purpose.
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(8) Notwithstanding anything contained in sub-rule
(7), a manufacturer intending to remove the capital goods from
his factory for home consumption or for export, prior to their
being installed or used, as the case may be, shall be allowed to
take credit on the date on which such capital goods are so
removed by him from his factory on payment of the appropriate
duty of excise leviable thereon as provided in rule 57S.
RULE 57R. Credit of duty not to be allowed or denied or
varied in certain circumstances and adjustment in duty
credit.\026 (1) No credit of the specified duty shall be allowed on
capital goods which are used exclusively in the manufacture of
final products other than final products which are exempt from
the whole of the duty of excise leviable thereon under any
notification where exemption is granted based upon the value
or quantity of clearances made in a financial year which are
exempt from the whole of the duty of excise leviable thereon or
are chargeable to nil rate of duty except when the final product
is either.
(i) cleared to a unit in a Free Trade Zone; or
(ii) cleared to a hundred per cent export-oriented
undertaking; or
(iii) cleared to a unit in an Electronic Hardware
Technology Park or Software Technology Parks;
(2) Credit of the specified duty allowed in respect of
any capital goods shall not be denied or varied on the ground
that any intermediate products have come into existence during
the course of manufacture of the final product and that such
intermediate products are, for the time being, exempt from the
whole of the duty of excise leviable thereon or chargeable to nil
rate of duty:
Provided that such intermediate products are specified as
final products in column (3) of the Table below sub-rule (1) of
rule 57Q.
(3) The credit of the specified duty paid on the capital
goods shall be allowed to a manufacturer if the capital goods
are acquired by the manufacturer on lease, hire-purchase or loan
agreement, from a financing company subject to the following
procedure, namely:-
(i) The manufacturer shall file a declaration before the
Assistant Commissioner of Central Excise as
required under rule 57T;
(ii) The manufacturer availing credit of the specified
duty paid on capital goods, who has entered into a
financial arrangement, -
(a) for financing the cost of such capital goods
excluding the specified duty, shall produce a
copy of the invoice referred to in rule 57T,
evidencing payment of specified duty along
with a copy of the agreement entered into by
him with the said financing company; or
(b) for financing the cost of such capital goods
including the specified duty, shall produce a
certificate from the financing company to
the effect that the duty specified on such
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capital goods has been paid by the said
manufacturer to such financing company,
prior to payment of first lease rental
instalment or first hire-purchase instalment
or first instalment of re-payment of loan, as
the case may be, along with a copy of the
agreement entered into with the said
financing company.
(iii) The manufacturer and the financing company shall
not claim depreciation under the Income-tax laws
on that part of the value of capital goods which
represents the amount of specified duty paid on
such capital goods.
(iv) The relevant documents required for the purpose
of availing credit of the specified duty paid on
such capital goods under rule 57T shall bear the
name of the manufacturer along with that of the
financing company.
(4) If a manufacturer of final products has taken credit
on any capital goods and subsequently it so happens that any
refund of the duty paid by the manufacturer of capital goods or
importer of capital goods, as the case may be, is allowed to him
for any reason, then the user manufacturer shall accordingly
adjust the amount of credit in his credit account and if such
adjustment is not possible for any reason, the user manufacturer
shall pay the amount in cash equal to the amount of refund
allowed to the manufacturer or, as the case may be, to importer
of capital goods.
(5) If a user manufacturer has taken credit on any
capital goods and subsequently it so happens that any additional
amount of duty is recovered from the manufacturer of such
capital goods or importer of such capital goods, as the case may
be, then the user manufacturer shall be allowed an additional
credit equal to the amount of such additional amount recovered.
(6) The provisions of sub-rule (5) shall not apply in
cases where the duty on capital goods has been short levied or
short paid or has been erroneously refunded by reason of fraud,
collusion or any wilful mis-statement or suppression of facts or
contravention of any provisions of the Act or the rules made
thereunder with the intent to evade payment of duty.
(7)(i) The additional credit as per sub-rule (5) shall be
allowed by the proper officer on the basis of a certificate issued
by the Superintendent of Central Excise having jurisdiction
over the factory, or as the case may be, by the proper officer in
the customs area, from where such capital goods were
originally cleared.
(ii) The said certificate shall indicate full description
of the capital goods, original duty paid and particulars of the
documents under which the capital goods were cleared from the
factory or, as the case may be, from the customs area and also
the differential duty recovered from the manufacturer or the
importer.
(8) No credit of the specified duty paid on the capital
goods shall be allowed, if the manufacturer, claims depreciation
under section 32 of the Income-tax Act, 1961 (43 of 1961), or
as revenue expenditure under any other provisions of the said
Income-tax Act, in respect of that part of the value of capital
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goods which represents the amount of specified duty on such
capital goods."
As stated above, the Cenvat scheme was introduced from
1.4.2000 and has remained in force till date under Cenvat
Credit Rules, 2001 followed by Cenvat Credit Rules, 2002,
which reads as follows:-
"AA. CREDIT OF DUTY PAID ON EXCISABLE
GOODS USED AS INPUTS OR
CAPITAL GOODS:
RULE 57AA. Definitions.\026 For the purpose of this section, -
(a) "capital goods" means \026
(i) all goods falling under Chapter 82, Chapter 84,
Chapter 85, Chapter 90, heading No.68.02 and
sub-heading No.6801.10 of the First Schedule to
the Central Excise Tariff Act, 1985;
(ii) components, spares and accessories of the goods
specified at (i) above;
(iii) moulds and dies;
(iv) refractories and refractory materials;
(v) tubes and pipes and fittings thereof, used in the
factory; and
(vi) pollution control equipment,
used in the factory of the manufacturer of the final
products.
Explanation.- For removal of doubts, it is hereby
clarified that "capital goods" do not include any
equipment or appliances used in an office.
(b) "exempted goods" means goods which are exempt from
the whole of the duty of excise leviable thereon, and
includes goods which are chargeable to "Nil" rate of
duty;
(c) "final products" means excisable goods manufactured or
produced from inputs, except matches;
(d) "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 product, goods used
as paint, or as packing material, or as fuel, or for
generation of electricity or steam 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.
Explanation.- The high speed diesel oil or motor spirit,
commonly known as petrol, shall not be treated as an
input for any purpose whatsoever.
RULE 57AB. CENVAT credit.\026 (1) A manufacturer or
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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 (5 of 1986)
(hereinafter referred to as the said First Schedule),
leviable under the Act;
(ii) the duty of excise specified in the Second Schedule
to the Central Excise Tariff Act, 1985, leviable
under the Central Excise Act, 1944 in relation to
the goods falling under sub-heading Nos.2401.90,
2404.40, 2404.50, 2404.99, 5402.20, 5402.32,
5402.42, 5402.43, 5402.52, 5402.62, 5703.90,
8415.00, 8702.10, 8703.90, 8706.21, 8706.39 and
8711.20 of the said First Schedule;
(iii) the additional duty of excise leviable under section
3 of the Additional Duties of Excise (Textiles and
Textile Articles) Act, 1978 (40 of 1978);
(iv) the additional duty of excise leviable under section
3 of the Additional Duties of Excise (Goods of
Special Importance) Act, 1957 (58 of 1957); and
(v) the additional duty leviable under section 3 of the
Customs Tariff Act, 1975, equivalent to the duty of
excise specified under clauses (i), (ii), (iii) and (iv)
above,
paid on any inputs or capital goods received in the factory on or
after the first day of April, 2000, 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 contained 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, vide
GSR No.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 April, 2000.
Explanation.-For removal of doubts it is clarified that the
manufacturer of the final products shall be allowed CENVAT
credit of additional duty leviable under section 3 of the
Customs Tariff Act, 1975 (51 of 1975) on goods falling under
Chapter heading No.98.01 of the First Schedule to the said
Customs Tariff Act.
(b) The CENVAT credit may be utilized for payment
of any duty of excise on any final products manufactured by the
manufacturer or for payment of duty on inputs or capital goods
themselves if such inputs are removed as such or after being
partially processed, or such capital goods are removed as such.
Provided that while paying duty in the manner specified
under sub-rule (1) of rule 49 or sub-rule (1) of rule 173G, as the
case may be, the CENVAT credit shall be utilized only to the
extent such credit is available on the fifteenth day of a month
for payment of duty relating to the first fortnight of the month,
and the last day of a month for payment of duty relating to the
second fortnight of the month or in case of a manufacturer
availing exemption by notification based on value of clearances
in a financial year, for payment of duty relating to the entire
month.
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Explanation.-When inputs or capital goods are removed
from the factory, the manufacturer of the final products shall
pay the appropriate duty of excise leviable thereon as if such
inputs or capital goods have been manufactured in the said
factory, and such removal shall be made under the cover of an
invoice prescribed under rule 52A.
(2) Notwithstanding anything contained in sub-rule
(1)-
(a) credit of duty in respect of inputs or capital goods
produced or manufactured-
(i) in a free trade zone and used in the
manufacture of the final products in any
other place in India; or
(ii) by a hundred per cent export-oriented
undertaking or by a unit in an Electronic
Hardware Technology Park or Software
Technology Parks and used in the
manufacture of the final products in any
place in India,
shall be restricted to the extent which is equal to the
additional duty leviable on like goods under section 3 of
the Customs Tariff Act, 1975 paid on such inputs;
(b) credit in respect of-
(i) the additional duty of excise under section 3
of the Additional Duties of Excise (Textiles
and Textile Articles) Act, 1978 (40 of 1978);
(ii) the additional duty of excise under section 3
of the Additional Duties of Excise (Goods of
Special Importance) Act, 1957 (58 of 1957);
and
(iii) the additional duty under section 3 of the
Customs Tariff Act, 1975, equivalent to the
duty of excise specified under clauses (i)
and (ii) above
shall be utilized only towards payment of duty of excise
leviable under the said Additional Duties of Excise
(Textiles and Textile Articles) Act, or under the said
Additional Duties of excise (Goods of Special
Importance) Act, on any final products manufactured by
the manufacturer or for payment of such duty on inputs
themselves if such inputs are removed as such or after
being partially processed.
(c) CENVAT credit of the duty paid on the inputs
shall not be allowed in respect of texturised yarn
(including draw-twisted or draw-wound yarn) or
polyesters falling under heading No.54.02 of the said
First Schedule, manufactured by an independent
texturiser, that is to say, a manufacturer engaged in the
manufacture of texturised yarn (including draw-twisted
or draw-wound yarn) of polyesters falling under heading
No.54.02, who does not have the facility in his factory
(including plant and machinery) for manufacture of
partially oriented yarn of polyesters falling under sub-
heading No.5402.42 of the said First Schedule.
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(d) credit, in respect of additional duty leviable under
section 3 of the Customs Tariff Act, 1975 (51 of 1975),
paid on marble slabs or tiles falling under sub-heading
No.2504.21 or 2504.31 respectively of the First Schedule
to the Central Excise Tariff Act, 1985 (5 of 1986) shall
be allowed to the extent of thirty rupees per square metre.
Explanation.-Where the provisions of any other
rule or notification provides for grant of partial or full
exemption on condition of non-availability of credit of
duty paid on any input or capital goods, the provisions of
such other rule or notification shall prevail over the
provisions of the rules made under this section.
RULE 57AC. Conditions for allowing CENVAT credit.\026 (1)
The CENVAT credit in respect of inputs may be taken
immediately on receipt of the inputs in the factory of the
manufacture.
(2) (a) The CENVAT credit in respect of capital goods
received in a factory at any point of time in a given financial
year shall be taken only for an amount not exceeding fifty per
cent of the duty paid on such capital goods in the same financial
year.
(b) The balance of CENVAT credit may be taken in
any financial year subsequently to the financial year in which
the capital goods were received in the factory of the
manufacture, provided that the capital goods (other than
components, spares and accessories, refractories and refractory
materials and goods falling under heading No.68.02 and sub-
heading 6801.10 of the First Schedule to the Central Excise
Tariff Act) are still in the possession and use of the
manufacturer of final products in such subsequent years.
(c) CENVAT credit may also be taken in respect of
such capital goods as have been received in the factory, but
have not been installed, before the Ist day of April, 2000 subject
to the condition that during the financial year 2000-2001, the
credit shall be taken for an amount not exceeding fifty per cent
of the duty paid on such capital goods.
Illustration.- A manufacturer received machinery on
April 16, 2000 in his factory. CENVAT of two lakh rupees is
paid on this machinery. The manufacturer can take credit up to
a maximum of one lakh rupees in the financial year 2000-2001,
and the balance in subsequent years.
(3) The CENVAT credit in respect of duty paid on the
capital goods shall be allowed to a manufacturer even if the
capital goods are acquired by the manufacturer on lease, hire
purchase or loan agreement, from a financing company.
(4) The CENVAT credit in respect of capital goods
shall not be allowed in respect of that part of the value of
capital goods which represents the amount of duty on such
capital goods, which the manufacturer claims as depreciation
under section 32 of the Income-tax Act, 1961 (43 of 1961).
(5)(a) The CENVAT credit shall be allowed even if any
inputs or capital goods as such or after being partially processed
are sent to a job worker for further processing, testing, repair,
re-conditioning or any other purpose, and it is established from
the records, challans or memos or any other document produced
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by the assessee availing the CENVAT credit that the goods are
received back in the factory within 180 days of their being sent
to a job worker. If the inputs or the capital goods are not
received back within 180 days, the manufacturer shall pay an
amount equivalent to the CENVAT credit attributable to the
inputs or capital goods by debiting the CENVAT credit or
otherwise. However, the manufacturer can take the CENVAT
credit again when the inputs or capital goods are received back
in his factory.
(b) CENVAT credit shall also be allowed in respect of
moulds and dies sent by a manufacturer of final products to a
job worker for the production of goods on his behalf and
according to his specifications.
(6) The Commissioner of Central Excise having
jurisdiction over the factory of the manufacturer of the final
products who has sent the inputs or partially processed inputs
outside his factory to a job worker may, by an order in each
removal of such inputs or partially processed inputs, and
subject to such conditions as he may impose in the interest of
revenue including the manner in which duty, if leviable, is to be
paid, allow finished goods to be cleared from the premises of
the job worker.
(7) Where any inputs are used in the final products
which are cleared for export under bond or used in the
intermediate products cleared for export, the CENVAT credit in
respect of the inputs so used shall be allowed to be utilized by
the manufacturer towards payment of duty of excise on any
final products cleared for home consumption or for export on
payment of duty and where for any reason such adjustment is
not possible, the manufacturer shall be allowed refund of such
amount subject to such safeguards, conditions and limitations as
may be specified by the Central Government by notification in
the Official Gazette. No refund of credit shall, however, be
allowed if the manufacturer avails of drawback allowed under
the customs and Central Excise Duties Drawback Rules, 1995,
or claims a rebate of duty under rule 12, in respect of such
duty."
From the above quoted rules, we find that the definitions
of the words "input" under the erstwhile Modvat scheme stood
scattered under rules 57A & 57B whereas under the Cenvat
scheme, the definition of the words "input" and "capital goods"
have been consolidated.
The relevant provisions of Cenvat Credit Rules, 2001 are
as follows:
"Rule 2. Definitions.\027In these rules, unless the context
otherwise requires, -
(b) "capital goods" means,-
(i) all goods falling under Chapter 82, Chapter
84, Chapter 85, Chapter 90, heading
No.68.02 and sub-heading No.6801.10 of
the First Schedule to the Tariff Act;
(ii) components, spares and accessories of the
goods specified at (i) above;
(iii) moulds and dies;
(iv) refractories and refractory materials;
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(v) tubes and pipes and fittings thereof;
(vi) pollution control equipment; and
(vii) storage tank,
used in the factory of the manufacturer of the final
products, but does not include any equipment or
appliance used in an office,
(d) "final products" means excisable goods
manufactured or produced from inputs, except matches;
(f) "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 lubricating oils,
greases, cutting oils, coolants, accessories of the final
products cleared along with the final product, goods used
as paint, or as packing material, or as fuel, or for
generation of electricity or steam used for manufacture of
final products or for any other purpose, within the factory
of production.
Explanation 1. \026 The high speed diesel oil or
motor spirit, commonly known as petrol, shall not be
treated as an input for any purpose whatsoever.
Explanation 2. \026 Inputs include goods used in the
manufacture of capital goods which are further used in
the factory of the manufacturer;
(g) "manufacture" or "producer" in respect of goods
falling under Chapter 62 of the said First Schedule shall
include a person who is liable to pay the duty of excise
leviable on such goods under sub-rule (3) of rule 4 of the
Central Excise (No.2) Rules, 2001.
To the same effect are the Cenvat Credit Rules, 2002:
"Rule 2. Definitions.\027In these rules, unless the context
otherwise requires, -
(b) "capital goods" means,-
(i) all goods falling under Chapter 82, Chapter
84, Chapter 85, Chapter 90, heading
No.68.02 and sub-heading No.6801.10 of
the First Schedule to the Tariff Act;
(ii) pollution control equipment;
(iii) components, spares and accessories of the
goods specified at (i) and (ii) above;
(iv) moulds and dies;
(v) refractories and refractory materials;
(vi) tubes and pipes and fittings thereof; and
(vii) storage tank,
used in the factory of the manufacturer of the final
products, but does not include any equipment or
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appliance used in an office,
(e) "final products" means excisable goods
manufactured or produced from inputs, except matches;
(g) "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 lubricating oils,
greases, cutting oils, coolants, accessories of the final
products cleared along with the final product, goods used
as paint, or as packing material, or as fuel, or for
generation of electricity or steam used for manufacture of
final products or for any other purpose, within the factory
of production.
Explanation 1. \026 The high speed diesel oil or
motor spirit, commonly known as petrol, shall not be
treated as an input for any purpose whatsoever.
Explanation 2. \026 Inputs include goods used in the
manufacture of capital goods which are further used in
the factory of the manufacturer;
(h) "manufacture" or "producer" in respect of goods
falling under Chapter 61 or 62 of the First Schedule to
the Tariff Act shall include a person who is liable to pay
the duty of excise leviable on such goods under sub-rule
(3) of rule 4 of the Central Excise Rules, 2002."
Mr. Lakshmikumaran, learned counsel for the assessee
submits that explosives, lubricating oils, welding electrodes and
crushers are used by the assessee in the manufacture of an
intermediate product (limestone) which in turn is used in the
manufacture of the final product (cement) and, therefore, the
said items were eligible for credit in terms of rule 57A and rule
57B of the Modvat scheme as laid down by a three-Judge bench
decision in the case of Jaypee Rewa Cement (supra). He
submits that the explosives, lubricating oil and welding
electrodes constituted "inputs" in terms of rule 57B(1)(i) of the
Modvat scheme; that, under rule 57A(4), modvat credit was
admissible 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 product, whether directly or indirectly and whether
contained in the final product or not; that the explanation
contained in rule 57A was meant to enlarge the meaning of the
word "input" and it did not in any way restrict the use of the
input within the factory premises nor did it require the inputs to
be brought into the factory premises at any point of time. In
this connection, reliance was placed on the three-Judge bench
decision in the case of Jaypee Rewa Cement (supra). Learned
counsel further submits that the definition of the word "input"
under clause (d) of rule 57AA of the Cenvat Scheme, 2000
was in pari-materia to the definition of "input" under the
erstwhile rule 57A and rule 57B of the Modvat Scheme and,
therefore, the decision of the three-Judge bench of this Court in
the case of Jaypee Rewa Cement (supra) on the point of
admissibility of credit in respect of explosives used for mining
of limestone (intermediate product) outside the cement factory
of the assessee was applicable with equal force to the instant
case involving the question of admissibility of Cenvat credit in
respect of the same goods used for the same purpose. In this
connection, it was further submitted that the essential condition
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to be satisfied for the purposes of taking credit under both the
Schemes was that the input should have been used in or in
relation to the manufacture of final product. Learned counsel
submits that the said condition finds place in rule 57B of the
Modvat scheme as well as in clause (d) of rule 57AA of the
Cenvat scheme followed by rule 2(f) of the Cenvat Credit Rules
of 2001 followed by rule 2(g) of the Cenvat Credit Rules of
2002 and, therefore, it was submitted that the Cenvat scheme
was in pari-materia to the Modvat scheme and to that extent, the
decision of the Division Bench in the case of J.K. Udaipur
Udyog Ltd. (supra) needed reconsideration. Learned counsel
submits that the goods mentioned in clauses (i) to (vi) of rule
57B(1) as it then stood, also had to satisfy the test embodied in
the substantive part of the definition in rule 57(B)(1), namely,
of it being used in or in relation to the manufacture of final
product. According to the learned counsel, explosives,
lubricating oil and welding electrodes fell in the substantive
part of the definition of rule 57B(1) and even if they are to be
treated as falling part within the inclusive part in clauses (i) to
(vi) of rule 57B(1), still they have to comply with the basic test
of being used in or in relation to the manufacture of final
product.
Learned counsel next submits that rule 57J of the Modvat
scheme has been incorporated in rule 57AB of the Cenvat
scheme under which a manufacturer of an intermediate product
like limestone can be equated to a job worker. In this
connection, reliance was placed on the Circular of CBEC dated
29.8.2000 to show that Cenvat is really in substance an
extension of the Modvat scheme.
Learned counsel further urged that applying the test of
functional integrality, the assessee was entitled to credit in
respect of "inputs" as the mining area and the cement factory
were totally inter-dependent on each other. It was urged that a
captive mine always supports the manufacturing of cement and,
therefore, the mining operations formed part of the
manufacturing activity. In this connection, learned counsel
submits that the condition of "use" within the factory of
production in section 2(g) is applicable only in respect of
goods, like furnace oil, used for generation of electricity, which
in turn is required to be used for producing the final products or
for any other purposes within the factory of production.
Learned counsel submits that production of captive input like
electricity under rule 2(g) has to be used in the manufacture of
final product or for any other purposes within the factory of
production. Learned counsel submits that the electricity
produced captively has got to be used in the manufacture of
final product and only to that extent, credit would be admissible
on the input (furnace oil). However, the words "any other
purpose" have been introduced in rule 2(g) so that the generated
electricity could also be used for lighting godown, storerooms
etc. which may not strictly come within the ambit of the word
"factory". Learned counsel submits that if the last five words of
section 2(g), "within the factory of production", are left out then
the result would be that the assessee would generate higher
amount of electricity than that required for production and sell
the same in the market. Therefore, the words "within the
factory of production" must be read with the words preceding
thereto, namely, "generation of electricity to be used for
manufacture of final product or for any other purpose".
On the question of "capital goods", we find that rule 2(b)
of Cenvat Credit Rules gives a specific definition of the term
"capital goods". It is not an inclusive definition with the result
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that any exercise to treat an item as "capital goods" by adopting
any interpretative process will be futile. An item can be treated
as "capital goods" under Cenvat Credit Rules only if it satisfies
that the goods fell under one of the specified chapters or
headings of the Tariff or it is a spare part, component or
accessory or that it falls under one of the specified items.
Further, the said goods must be used in the factory of the
manufacturer of the final product. The new rule 2(b) of the
Cenvat Credit Rules is preceded rule 57AA (a) read with the
explanation which in turn was preceded by rule 57Q(1).
Learned counsel submits that rule 57Q of the earlier Modvat
scheme came up for consideration in the case of Jaypee Rewa
Cement (supra) which has not taken into consideration the
concept of captive production of an intermediate product like
limestone used in the manufacture of cement which concept is
now recognized under rule 2(b) of the Cenvat Credit Rules.
Per contra, learned counsel appearing on behalf of the
department submits that in order to apply Cenvat credit on
inputs under rule 57AA, the inputs should have been used in the
factory of production of the final product (cement) and as
explosives, lubricating oil and welding electrodes were used at
off-factory premises, credit was not available to the assessee.
Learned counsel for the department invited our attention to the
definition of the word "input" in clause (d) of rule 57AA and
submitted that the definition of the word "input" in the Cenvat
scheme warranted user of the input in the factory of the
production of the final product, namely, cement. It was
submitted that the decision of three-Judge bench in Jaypee
Rewa Cement (supra) was good in respect of admissibility of
modvat credit on explosives, lubricating oil and welding
electrodes as "inputs" under rule 57A and 57B of the Modvat
scheme but it was not applicable on the said goods under rule
57AA(d), and that similarly the assessee was not entitled to
credit on capital goods like crushers under rule 57AA(a) equal
to rule 2(b) of the Cenvat scheme. Learned counsel further
submits that explosives were used in mining operations; that,
mines were licensed under Mining Act whereas the factory of
the assessee was licensed under the Factories Act and,
therefore, it cannot be said that the mines and factory were
inter-dependent. Learned counsel urges that there was no
functional integrality between the mines and the factory and,
therefore, the assessee was not entitled to claim Cenvat credit
on explosives under rule 57AA(d) or under rule 2(f) of Cenvat
Credit Rules, 2001 or under rule 2(g) of Cenvat Credit Rules,
2002.
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 v. J.K. Udaipur Udyog Ltd. reported in
2004 (171) ELT 289 needs reconsideration. We are, therefore,
of the view that this case requires consideration by a larger
bench. The papers may be placed before the Hon’ble Chief
Justice of India for further directions.