Full Judgment Text
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CASE NO.:
Appeal (civil) 6909-6912 of 2003
PETITIONER:
M/s. Escorts Ltd.
RESPONDENT:
Commissioner of Central Excise, Delhi
DATE OF JUDGMENT: 25/08/2004
BENCH:
S. N. Variava & G. P. Mathur
JUDGMENT:
J U D G M E N T
S. N. VARIAVA, J.
These Appeals are against the Judgment dated 17th March,
2003 passed by the Customs Excise and Gold (Control) Appellate
Tribunal (for short CEGAT).
Briefly stated the facts are as follows:
The Appellants are manufacturer of tractors. They MODVAT credit in
respect of duties paid on inputs used in the manufacture of parts.
Those parts were then cleared to another factory of the Appellants,
without payment of duty, by virtue of Notification No. 217/86-CE dated
2nd April, 1986. The parts were then used to manufacture tractors on
which duty was paid.
The Respondent issued a show-cause notice on the ground
that MODVAT credit was not admissible as the final goods, i.e. the
parts were cleared without payment of duty. The Appellants claimed
that the final products were not the parts but the tractors. The
Appellants claimed that duty was being paid on the tractor and,
therefore, MODVAT credit was available under Notification No. 217/86-
CE dated 2nd April, 1986.
The explanation given by the Appellants was not accepted.
The Appellants therefore filed an Appeal before CEGAT. By the
impugned Judgment, CEGAT has held that, as the parts are cleared
from the factory where they are manufactured to another factory of
the Appellants which is located in a different premises and is
separately registered under the Central Excise Law, the finished
products are the parts. CEGAT has held that as no duty was paid on
the parts MODVAT credit was not available.
At this stage, the concerned Rules of the Central Excise
Rules, 1944 and the relevant portion of Notification No. 217/86-CE
dated 2nd April, 1986 may be noticed. Rules 57A, 57C and 57D read
as follows:
"57A. Applicability.- (1) The provisions of this section
shall apply to such finished excisable goods (hereinafter
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 (hereinafter referred to as
the "special duty") paid on the goods used in or in relation
to the manufacture of the said final products (hereinafter
referred to as the "inputs") and for utilizing the credit so
allowed 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 said notification, subject to
the provisions of this section and the conditions and
restrictions that may be specified in the notification:
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Provided that the Central Government may specify
the goods or classes of goods in respect of which the credit
of specified duty may be restricted.
Explanation.- For the purposes of this rule, "inputs"
includes-
(a) inputs which are manufactured and used within
the factory of production, in or in relation to,
the manufacture of final products,
(b) paints and packaging materials, and
(c) inputs used as fuel,
but does not include \026
..........................................................................
..........................................................................
57C. Credit of duty not to be allowed if final
products are exempt. \026 No credit of the specified duty
paid on the inputs used in the manufacturer of a final
product (other than those cleared either to a unit in a Free
Trade Zone or to a hundred per cent Export-Oriented Unit)
shall be allowed if the final product is exempt from the
whole of the duty of excise leviable thereon or is
chargeable to nil rate of duty.
57D. Credit of duty not to be denied or varied in
certain circumstances. \026 (1) Credit of specified duty
allowed in respect of any inputs shall not be denied or
varied on the ground that part of the inputs is contained in
any waste, refuse, or by-product arising during the
manufacture of the final product, or that the inputs have
become waste in or in relation to the manufacture of the
final product, whether or not such waste, refuse or by-
product is exempt from the whole of the duty of excise
leviable thereon or is chargeable to nil rate of duty or is
not specified as a final product under rule 57A.
(2) Credit of specified duty allowed in respect of any
inputs 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 \026
(a) used within the factory of production in the
manufacture of a final product (other than
those cleared either to a unit in a Free Trade
Zone or to a hundred per cent Export-Oriented
Unit) on which the duty of excise is leviable
whether in whole or in part; and
(b) specified as inputs or as final product under a
notification issued under rule 57A."
The relevant portion of the Notification No. 217/86-CE dated 2nd April,
1986 reads as follows:
"Inputs: Captive consumption exempt.
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217/86-CE, dt. 2.4.1986, as amended by 12/87-
CE, dt. 23.1.1987 (w.e.f. 10.2.1987), 82/87-CE, dt.
1.3.1987, 204/87-CE, dt. 9.9.1987 (w.e.f. 1.10.1987),
97/89-CE, dt. 1.3.1989, 146/90-CE, dt. 17.9.1990, 79/91-
CE, dt. 25.7.1991, 33/92-CE, dt. 1.3.1992: In exercise of
the powers conferred by sub-rule (I) of rule 8 of the
Central Excise Rules, 1944, the Central Government
hereby exempts goods specified in column (2) of the Table
hereto annexed (hereinafter referred to as "inputs")
manufactured in a factory and used within the factory of
production or in any other factory of the same
manufacturer, in or in relation to the manufacture of final
products specified in column (3) of the said Table, from the
whole of the duty of excise leviable thereon, which is
specified in the Schedule to the Central Excise Tariff Act,
1985 (5 of 1986):
Provided that nothing contained in this notification
shall apply to inputs used in or in relation to the
manufacture of final products (other than those cleared
either to a unit in a Free Trade Zone or to a 100% Export
Oriented Unit), which are exempt from the whole of the
duty of excise leviable thereon or are chargeable to "Nil"
rate of duty:
Provided further that where such use of inputs is in a
factory of a manufacturer, different from his factory where
the goods have been produced, the exemption contained in
this notification shall be allowable subject to the
observance of the procedure set out in Chapter X of the
Central Excise Rules, 1944.
THE TABLE
S.
No.
Description of inputs
Description of final products
(1)
(2)
(3)
1.
Goods classifiable under
any headings of
chapters 2, 3, 4, 5, 7, 8,
9, 11, 13, 14, 15, 16,
17, 18, 19, 20, 21, 22,
23, 25, 26, 28, 29, 30,
31, 32, 33, 34, 35, 36,
37, 38, 39, 40, 41, 42,
43, 44, 45, 46, 47, 48,
49, 59, 64, 65, 66, 67,
68, 69, 70, 71, 72, 73,
74, 75, 76, 78, 79, 80,
81, 82, 83, 84, 85, 86,
87, 88, 89, 90, 91, 92,
93, 94, 95 or 96 [other
than those falling under
Heading Nos. 36.05 or
37.06 of the Schedule
to the Central Excise
Tariff Act, 1985 (5 of
1986)
Goods classifiable under any
headings of chapters 2, 3, 4,
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5, 7, 8, 9, 11, 13, 14, 15, 16,
17, 18, 19, 20, 21, 22, 23,
25, 26, 28, 29, 30, 31, 32,
33, 34, 35, 36, 37, 38, 39,
40, 41, 42, 43, 44, 45, 46,
47, 48, 49, 54, 55, 59, 64,
65, 66, 67, 68, 69, 70, 71,
72, 73, 74, 75, 76, 78, 79,
80, 81, 82, 83, 84, 85, 86,
87, 88, 89, 90, 91, 92, 93,
94, 95 or 96 [other than
those falling under Heading
Nos. 36.05, 37.06, 54.08,
54.09, 54.10, 54.11, 54.12,
55.04, 55.05, 55.06, 55.07,
55.08, 55.09, 55.10, 55.11
or 55.12 of the Schedule to
the Central Excise Tariff Act,
1985 (5 of 1986)
(Emphasis supplied) "
It is the contention of the Respondent, which has been
accepted by CEGAT, that Rule 57C would become applicable as the
parts are cleared from one factory to another without payment of duty.
In our view, this reasoning cannot be accepted. The underlined
portion of the Notification, set out hereinabove, shows that the inputs
may be used within the factory of production or in any other factory of
the same manufacturer. Thus merely because parts are cleared from
one factory of the Appellants to another factory does not make the
parts the final product. It is not denied that the parts, which are
manufactured from the duty paid inputs, are used in the manufacture
of tractors and that the duty is being paid on the tractors.
Mr. Lakshmikumaran very fairly conceded that in cases
where the parts are cleared for sale in the open market or in cases
where the parts are used for manufacture of small tractors, on which
no duty is paid, the Appellants do not and have not claimed any
MODVAT credit. He states and it is not denied that in respect of such
parts separate registers have been maintained.
It is to be seen that the whole purpose of the Notification
and the Rules is to streamline the process of payment of duty and to
prevent the cascading effect if duty is levied both on the inputs and
the finished goods. Rule 57D (2), which has been extracted
hereinabove, shows that in the manufacture of a final product an
intermediate product may also come into existence. Thus in cases
where intermediate product comes into existence, even though no
duty has been paid on the intermediate product as it is exempted from
whole of the duty or is chargeable to Nil rate of duty, credit would still
be allowed so long as duty is paid on the final product.
In cases of manufacturers like the Appellants the final
product is the tractor. The intermediate product would be parts which
are manufactured for being used in the tractor. In such a case the
parts would not be the final product. Thus Rule 57C would have no
application. The mere fact that the parts are cleared from one factory
of the Appellants to another factory of the Appellants would not
disentitle the Appellants from claiming benefit of Notification No.
217/86-CE dated 2nd April, 1986. As stated above, the Notification
itself clarifies that the inputs can be used within the factory of
production or in any other factory of the same manufacturer.
Mr. Lakshmikumaran relied upon the decision of this Court
in the case of Collector of Central Excise, New Delhi vs.
Hindustan Sanitaryware & Industries reported in 2002 (145)
E.L.T. 3 (S.C.), wherein, in respect of this very Notification, this Court
has held that so long as duty is paid on the final product, the mere fact
that duty was not paid on the intermediate product would not
disentitle the manufacturer from the benefit of Notification No.
217/86-CE dated 2nd April, 1986. In that case, the input was plaster
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of paris, the intermediate product was moulds made out of the plaster
of paris, the final product was sanitary ware. In our view, the facts of
that case are identical to the facts of the present case. The ratio laid
down therein fully applies to this case.
In this view of the matter, we set aside the impugned
Judgment and the Order of the Commissioner of Central Excise. It is
held that the Appellants will be entitled to MODVAT credit on duties
paid for the inputs used for manufacture of parts, so long as the parts
are used in the manufacture of tractors on which duty is paid. We
clarify that in respect of parts which are sold in the open market
and/or used for manufacture of tractors on which no duty is paid, the
benefit of the Notification No. 217/86-CE dated 2nd April, 1986 may
not be available.
The Appeals are thus allowed. There will be no order as
to costs.