Andhra HC (Pre-Telangana)
Ganesh Metal Processing Industries vs Union Of India on 8 September, 1994
Equivalent citations: 1995ECR252(AP), 1996(81)ELT11(AP)
Author: P. Venkatarama Reddi
Bench: P. Venkatarama Reddi
JUDGMENT K.M. Agarwal, J.
1. The Petitioners in all these petitions under Article 226 of the Constitution are making a common prayer for directing the respondents to give them the benefit of exemption in respect of their re-rolled products falling under Chapter 72 of the Schedule to the Central Excise Tariff Act, 1985, under Notification No. 1/93-C.E., dated 28.9.1993, and/or for quashing the impugned Order No. TS/36/94-TRU, dated 1.3.1994 of the 1st respondent, or in the alternative, for quashing the Notification No. 1/93 itself on the ground of infringement of Article 14 of the Constitution. In W.P. No. 13614/94, a further prayer for quashing the adjudication Order No. 35/94 (C. No. V/72/3/54/94 VAL), dated 15.7.1994 made by the 3rd respondent has been made; whereas in W.P. No. 9663/94, an application (W.P. M.P. No. 15660/94) has been filed on 10.7.1994 with a prayer for permission to amend the prayer clause of the main petition on the basis of subsequent events, so as to include an additional prayer for quashing the adjudication order No. 30/94, passed on 30.5.1994 by the 3rd respondent during the pendency of the petition.
2. Facts are not very much in dispute. The petitioners in all the petitions are small scale units, engaged in the business of manufacturing re-rolled products falling under Chapter 72 of the Schedule to the Central Excise Tariff Act, 1985. These products were exempt from duty by virtue of SSI exemption Notification No. 202/88, dated 20.5.1988, provided no credit of the duty paid on the inputs was taken under Rule 56A or Rule 57A of the Central Excise Rules, 1944, (in short, the "Rules"). This Notification No. 202/88 was issued under Rule 8(1) of the Rules. The petitioners used to take credits under the Modvat Scheme (under Rule 56A or Rule 57A) for the duty paid on their inputs and to debit the same for payment of duty on their final products. This is how they were not getting or claiming exemption from payment of duty on their inputs under the Notification No. 202/88, which was superseded by subsequent SSI exemption Notification No. 1/93, dated 28.2.1993. It was provided in paragraph 3 of the later notification that :
"3. Nothing contained in this notification shall apply, -
(a) if the aggregate value of clearances of all excisable goods for home consumption, -
(i) by a manufacturer, from one or more factories, or
(ii) from any factory, by one or more manufacturers, had exceeded rupees two hundred lakhs in the preceding financial year, and
(b) to a factory registered with Directorate General of Technical Development under the provisions of the Industries (Development and Regulation) Act, 1951 (65 of 1951)."
Explanation II added to the said notification is also relevant. In runs as follows :
"Explanation-II.-For the purpose of computing the aggregate value of clearances under this notification, the clearances of any excisable goods, which are chargeable to nil rate of duty or, which are exempted from the whole of duty of excise leviable thereon by any other notification (not being a notification where exemption from the whole of duty of excise leviable thereon is granted based upon the value or quantity of clearances made in a financial year) issued under sub-rule (1) of Rule 8 of the said Rules or sub-section (1) of Section 5A of the said Act, shall not be taken into account."
To sum up, the exemption under the subsequent Notification No. 1/93 is not available to a manufacturer whose aggregate value of clearances of all excisable goods for home consumption exceeded rupees two hundred lakhs in the preceding financial year. And for the purpose of computing the aggregate value of clearances under the notification, it is provided that "the clearances of any excisable goods, which are chargeable to nil rate of duty or, which are exempted from the whole of duty of excise leviable thereon by any other notification....issued under sub-rule (1) of Rule 8 of the said Rules or sub-section (1) of Section 5A of the said Act, shall not be taken into account." Now, therefore, the dispute is about the manner of computing the aggregate value of clearances under the Notification No. 1/1993. It is not in dispute that the earlier Notification No. 202/88-CE. was issued under Rule 8(1) of the said Rules and that it gave total exemption from payment of duty on final products falling within Chapter 72 of the Schedule to the Central Excise Tariff Act. It is also not in dispute that the final products of the petitioners fell within Chapter 72 of the Schedule to the Act and that but for their opting for modvat scheme, they would have been entitled to claim exemption under the Notification No. 202/88 in respect of their final products, falling under Chapter 72 of the Schedule to the Act. According to the Department, as the petitioners has availed of the modvat scheme and given up their claim for exemption under the earlier Notification No. 202/88, they cannot be allowed exemption under the Notification No. 1/93 by computing the aggregate value after excluding from consideration their clearances of such final products in respect of which credits were taken under the modvat scheme. On the contrary, according to the petitioners, they were entitled to deduct the value of clearances in respect of which credits of the duty paid on the inputs were taken under Rule 56A or 57A. In the alternative, their case was that the Notification No. 1/93 itself was liable to be quashed, as it made unreasonable classification of manufacturers; one of those who availed of the benefit of exemption and second of those who availed of the modvat scheme under the earlier Notification No. 202/88.
3. Before we proceed to consider the case on merits, we propose to dispose of the objection about maintainability of the petition on the ground of availability of an alternative remedy of appeal, raised on behalf of the respondents.
4. It is true that an alternative remedy of appeal is provided under Section 35 and a further appeal under Section 35B of the Central Excises and Salt Act, 1944, against any order passed by a Central Excise Officer, lower in rank than a Collector of Central Excise, but we are of the view that existence of such an alternative remedy is not an absolute bar to exercise of our powers under Article 226 of the Constitution. In the present cases, what we find is that the first two cases i.e. W.P. Nos. 9663/94 and 10358/94 were filed even before the date of passing of any order by the 3rd respondent and the apprehension of the petitioners that the 3rd respondent was likely to pass an adverse order against them on the face of the impugned Order No. TS/36/94-TRU, dated 1.3.1994 of the Central Government and the autogram sent by one Sri R. K. Chakrabarti, CENEXCISE, Hyderabad to one Sri T. R. Rustagi, Commissioner (TRU), CEBEXCUS, New Delhi, has come true. Moreover, an alternative prayer for quashing the Notfn. No. 1/93 on the ground of violation of Article 14 of the Constitution was also made, which question was beyond the competence of the appellate authorities under the Act. Further after giving notices before admission, the petitions were heard at length. The petitioners were also granted interim reliefs. The petitions did not involve determination of any disputed questions of fact. The decision of all these petitions rests on interpretation of the language employed in the notification and the method of computing the aggregate value of clearances and/or on determination of the question of discrimination raised on behalf of the petitioners. For all these reasons, we are not inclined to dismiss these petitions on the ground of existence of alternative remedy of appeal. The decision of the Supreme Court in Asst. Collector, C.E., Chandan Nagar v. Dunlop India Ltd. , relied on by the learned Standing Counsel for the Central Government, also does not deter us from reaching to such a conclusion. We, therefore, overrule the objection and proceed to decide the case on merits.
5. The exemption Notfn. No. 202/88, dated 20.5.1988 was worded as follows :
"In exercise of the powers conferred by sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, and in supersession of the notification of the Government of India in Ministry of Finance (Department of Revenue) No. 90/88-Central Excises, dated the 1st March, 1988, the Central Government hereby exempts goods of description specified in column (3) of the Table hereto annexed (such goods being hereinafter referred to as products) and falling within Chapter 72, Chapter 73 or Heading No. 84.54 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) from the whole of the duty of excise leviable thereon which is specified in the said Schedule :
Provided that such final products are made from any goods of the description specified in the corresponding entry in column (2) of the said Table (such goods being hereinafter referred to as "inputs") and falling within the Chapter 72 or Chapter 73 of the said Schedule on which the duty of excise leviable under the said Schedule or the additional duty leviable under the Customs Tariff Act, 1975 (51 of 1975), as the case may be, has already been paid :
Provided further that no credit of the duty paid on the inputs has been taken under Rule 56A or 57A of the said rules.
Explanation.-For the purposes of this notification, all stocks or inputs in the country, except such stocks as are clearly recognisable as being non-duty paid, shall be deemed to be the inputs on which duty has already been paid."
THE TABLE S. No. Description of inputs Description of final products 1 2 3
01. 02 02A.
Ingots, bars, rods and other rollable or re-rollable material, of iron and steel other than stainless steel.
Bars and rods of iron and steel other than stainless steel, not further worked than hot rolled, hot drawn or hot extruded by including those twisted after rolling or cold rolled or cold form/cold finished (excluding bars and rods plated or coated with zinc or other base metals); angles, shapes and sections or iron or non-alloy steel (other than slotted angles and slotted channels); wire of steel other than stainless steel (excluding electric resistance wire and electric resistance heating wire)."
Now an analysis of this notification would show that for claiming an exemption under it, two conditions were required to be satisfied :
(1) Such final products for exemption were made from inputs or any goods of the nature specified in the corresponding entry in column (2) of the Table and falling within Chapter 72, which had already suffered duty, (first proviso); and (2) No credit of the duty paid on the inputs had been taken under Rule 56A or Rule 57A, (second proviso).
Then the Explanation inserted in the notification provided that "For the purposes of this notification, all stocks of inputs in the country....shall be deemed to be the inputs on which duty has already been paid" except such stocks as were clearly recognisable as being non-duty paid.
6. It is the case of the petitioners and not disputed by the Department that the inputs used by the petitioners in the past and at present are of the description specified in column (2) and the final products thereof were and are of the description specified in the corresponding entry in column (3) at S. No. 2A of the said Table, both falling within Chapter 72 of the Schedule to the Tariff Act and that as provided in the Explanation, all such inputs used by them were deemed to be the inputs on which duty had already been paid. According to the learned counsel for the petitioners, in view of the deeming provision made in the Explanation given in the Notfn. No. 202/88, all their inputs used in the manufacture of their final products were deemed to have already suffered the duty and accordingly they were entitled to claim total exemption of duty under the Notfn. No. 202/88, if they had not opted for the Modvat Scheme and thereby had not become ineligible to claim the exemption by virtue of second proviso to the said notification. But it was argued, for obtaining the benefit of Modvat Scheme as well, it was necessary for the inputs to have suffered the requisite duty and by virtue of similar deeming provision made in the direction issued by the Central Government under the second proviso to Rule 57G(2) of the said Rules, ingots and re-rollable materials of iron or steel purchased from outside and lying in stock on or after the 7th day of July, 1992 with the re-rollers were directed to be deemed to have paid duty at the rate of Rs. 920/- per tonne, and the credit of duty under Rule 57A of the said Rules in respect of such ingots and re-rollable materials used, without undergoing the process of melting, in the manufacture of goods falling under Chapter 72 or 73 of the Schedule to the Central Excise Tariff Act, 1985 were also directed to be allowed at the rate of Rs. 920/- per tonne, without production of documents evidencing the payment of duty, if any. In support of the contention, Allahabad Collectorate Trade Notice No. 32/92, dated 13.7.1992 was produced. In the light of this deeming provision in respect of inputs for obtaining benefit under the Modvat Scheme, it was further argued that the Notification No. 202/88 in effect gave an option to the manufacturers either to opt for total exemption, or for benefit under the Modvat Scheme. The petitioners opted for the Modvat Scheme and, therefore, for this reason, they could not be differently treated from those who opted for total exemption and benefit denied the exemption under the Notfn. No. 1/93 by not excluding the value of the clearances of goods, which were exempted from duty, but in respect of which benefit under the Modvat Scheme was taken, while computing the aggregate value of clearances under the Notification No. 1/93.
7. Now coming to the Notification No. 1/93, which is under consideration, exemption is admissible only when the aggregate value of clearances of all excisable goods for home consumption did not exceed rupees two hundred lakhs in the preceding financial year. Explanation-II provides the method of computing the aggregate value of clearances under the notification and says, "the clearances of any excisable goods...which are exempted from the whole of duty of excise leviable thereon....shall not be taken into account." So what is to be noted here is that the notification contemplated exclusion of goods which were exempted from the whole of duty of excise leviable thereon while computing the aggregate value of clearances, whereas the earlier Notfn. No. 202/88 granted total exemption from payment of duty on specified goods subject to two conditions; that the inputs had suffered duty and that no credit of the duty paid on the inputs had been taken. It was, therefore, argued on behalf of the petitioners on the one hand that subsequent notification only speaks of goods which were exempted from the whole of duty and does not refer to any person who could not avail of the benefit for non-fulfilment of one or the other of the conditions imposed by the earlier notification. It was further argued that if there was doubt as to the true import and meaning of the words employed in the subsequent notification and if they were capable of two interpretations, there is a catena of authorities to say that in such a situation, the interpretation that favours the tax-payer has to be preferred. On the other hand, the learned Standing Counsel for the Department also cited several authorities to say that when the meaning of any statutory provision or notification is plain and simple, effect must be given to it irrespective of its consequences. According to him, the earlier notification of 1988 did not give any option; either to take the benefit of exemption under the notification, or of the benefit of Modvat Scheme under Rule 56A or 57A. The exemption under the notification was subject to conditions and if they were not fulfilled, the exemption could not be claimed. Accordingly it was further urged that the subsequent Notfn. No. 1/93 contemplated exclusion of only such goods which were unconditionally exempted from the whole of duty of excise, or of goods which were exempted from duty subject to certain conditions, such conditions having been fulfilled by the person claiming the benefit under the notification. This was the plain and simple meaning conveyed by the subsequent notification, which required to be given effect to in the present case.
8. It is pertinent to note that no such plea was raised by the petitioners before the 3rd respondent, as is now being raised before us. Accordingly without considering the question now raised, the 3rd respondent denied the benefit of exemption to the petitioners under the said Notfn. No. 1/93 on the ground that during the preceding year, they had cleared goods of the value of more than Rs. 200 lakhs. The impugned order No. TS/36/94-TRU, dated 1.3.1994 of the 1st respondent restricts the benefit of the order to the re-rollers "availing of the exemption under Notification No. 1/93 Central Excises" and, therefore, it appears that this order has also been challenged.
9. After giving due consideration to the rival contentions, we find it difficult to justify the denial of benefit under the Notfn. No. 1/93 to the petitioners. Although two conditions were required to be fulfilled for availing of the benefit under the Notfn. No. 202/88, the first condition about payment of duty on the inputs was rendered ineffective and meaningless in the light of the deeming provision about payment of duty made in the explanation given in the notification. The explanation did not exclude operation of the deeming provisions in respect of inputs referred to in the second proviso to the said notification. Further, there was yet another deeming provision made in the direction issued by the Central Government under the second proviso to Rule 57G(2) of the Rules, referred to in paragraph 6 hereinbefore as Allahabad Collectorate Trade Notice No. 32/92, dated 13.7.1992, directing ingots and re-rollable materials of iron and steel to be deemed to have paid duty at the rate of Rs. 920/ per tonne with a further direction to allow credit under the Modvat Scheme at the said rate. This Trade Notice No. 32/92 reads as follows :
"Ingots and re-rollable materials of iron or steel purchased from outside and lying in stock on or after the 7th day of July, 1992 with the re-rollers may be deemed to have paid duty at the rate of Rs. 920 per tonne, and the credit of duty under Rule 57A of the said Rules in respect of such ingots and re-rollable materials used, without undergoing the process of melting, in the manufacture of goods falling under Chapter 72 or 73 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), may be allowed at the rate of Rs. 920 per tonne, without production of documents evidencing the payment of duty if any. These orders shall be valid till further amendment."
The second condition about no claim of credit under the Modvat Scheme, therefore, appears to be more or less a provision to deter a person from taking double benefit in respect of one and the same commodity; say for instance, one under the notification and the other under the Modvat Scheme. We are of the view that the sole purpose of granting exemption from payment of duty or benefit of Modvat Scheme is to give incentive and some financial help to the small scale industries and this very purpose will be frustrated if persons opting for the exemption and those opting for the Modvat Scheme are differently treated even though the resultant benefit under the two schemes of exemption and Modvat credit is one and the same. Accordingly, unless and until it could be shown that those deriving benefit under the Modvat Scheme enjoyed more advantageous position than those getting total exemption from duty under the notification, the benefit arising out of the subsequent Notification No. 1/93 could not be denied to persons, who had opted for or taking benefit of Modvat Scheme floated under Rule 56A or 57A of the said Rules by the Government. Under the circumstances we are of the view that the respondents deserve to be commanded to give the benefit of Notfn. No 1/93 to the petitioners and others like them taking benefit of Modvat Scheme instead of total exemption from duty under the Notfn. No. 202/88, by excluding clearances of their excisable goods, which were exempted from the whole of duty of excise leviable thereon, but in respect of which, instead of exemption, credits under the Modvat Scheme were taken, while computing the aggregate value of clearances under the Notfn. No. 1/93.
10. For the reasons aforesaid, we do not read anything in the Notification No. 1/93 to warrant a conclusion that two different standards for the purpose of computing the aggregate value of clearances under the notification have been fixed. It was because of the wrong interpretation of the language employed in the notification that the method of computing the aggregate value of clearances contemplated under the notification was not applied in the cases of persons enjoying the benefit of Modvat Scheme, and not that of total exemption, that a situation of differential treatment arose. We, therefore, see no reason to quash the Notfn. No. 1/93 on the ground of violation of Article 14 of the Constitution. For similar reasons the Order No. TS/36/94-TRU, dated 1.3.1994 of the 1st respondent also cannot be said to be bad, particularly when it says "the ingots and re-rollable materials of iron or steel purchased from outside and lying in stock on or after the 1st day of April, 1994 with the re-rollers, availing of the exemption under Notification No. 1/93-C.E., dated the 28th February, 1993 will be deemed to have paid duty" without referring to any exemption under the earlier Notification No. 202/88, or the benefit under the Modvat Scheme. However, the orders passed by the 3rd respondent in case Nos. 35/94 and 30/94 deserve to be quashed.
11. In the result, these petitions succeed and they are hereby allowed by directing the respondents to give the benefit of Notfn. No. 1/93 to the petitioners and others like them, who took benefit of Modvat Scheme instead of total exemption from duty under the Notfn. No. 202/88, by excluding clearances of their excisable goods, which were exempted from the whole of duty of excise leviable thereon, but in respect of which, instead of exemption, credits under the Modvat Scheme were taken, while computing the aggregate value of clearances under the notification No. 1/93. As a necessary consequence, adjudication Order No. 35/94, dated 15.7.1994 impugned in W.P. No. 13614/94 and similar Order No. 30/94, dated 30.5.1994 of the 3rd respondent sought to be impugned in W.P. No. 9663/94 by filing W.P. M.P. No. 15660/94 are quashed. Now the 3rd respondent shall re-compute the aggregate value of clearances made by the petitioners in these petitions in the light of this order and then decide if they are or are not entitled to the benefit of Notfn. No. 1/93. No order as to costs.
P. Venkatarama Reddy, J.
12. Though I agree with the conclusion and the operative part of the judgment of my learned brother, K. M. Agarwal, J., I am taking a different route to reach the same conclusion. The complexity of the case is also such that the problem can be approached from more than one angle. That is why this separate judgment.
13. At the outset, I would like to say that I am not inclined to reject the writ petitions in limine on the ground of existence of alternative remedy. As my learned brother considered it to be a fit case to give a decision on merits, I would prefer to consider the case on merits.
14. The core question is whether the exemption Notfn. No. 1/93-C.E., dated 28.3.1993 effective from 1.4.1994 is applicable to the petitioner industries. If it applies, the Central Government's Order No. TS/36/94-TRU, dated 1.3.1994 issued under the second proviso to Rule 57G(2) will also be applicable in which case the petitioners will be enabled to claim the credit of duty on inputs under Rule 57A at the rate of Rs. 920/- per tonne without production of documents evidencing payment.
15. Both the Notification No. 1/93 and the Central Government's Order dated 1.3.1994 came into force from 1.4.1994. Notfn. No. 1 of 1993 is in continuation of a similar Notification issued on 1.3.1986 which was effective upto 31.3.1993 (vide Notfn. No. 175/86-C.E. as amended). Notfn. No. 1 of 1993 issued under sub-section (1) of Section 5A of the Central Excise Act (hereinafter referred to as 'the Act') grants benefit of exemption or concessional duty in regard to the clearances of the specified goods upto an aggregate value of Rs. 75 lakhs. However, Paragraph 3 of the Notfn. enjoins in positive terms that the Notfn. shall not apply if the aggregate value of clearances of all excisable goods for home consumption had exceeded Rs. 200 lakhs in the preceding financial year. Thus, obviously, the Notification is meant to benefit Small Scale Industries doing moderate business. That is why the limit of Rs. 200 lakhs has been fixed. Now, the Central Excise Department takes the stand that the aggregate value of clearances during the preceding financial year had exceeded Rs. 200 lakhs and, therefore, the petitioners cannot seek to derive the benefit under the aforesaid 'S.I. Notification'. On the other hand, the petitioners rely upon Explanation II to the Notification and contend that in terms of the said Explanation, the aggregate value of clearances shall not be treated as having exceeded the limit of Rs. 200 lakhs. Explanation II lays down as to how the aggregate value has to be computed for the purpose of this Notification. Leaving out the unnecessary portions, the Explanation says that the clearances of any excisable goods which are exempted from the whole of duty of excise leviable thereon by virtue of the Notification issued under Rule 8(1) or Section 5A(1) shall not be taken into account.
Thus, the value of exempted goods will stand excluded while computing the aggregate value of clearances under the Notification (1 of 1993).
16. This takes us to the question whether any part of the excisable goods cleared by the petitioners are exempt from the whole of duty of excise leviable thereon under a Notification providing for such exemption. It is in this context that a reference to Notfn. No. 202 of 1988 issued under the then existing Rule 8(1) becomes relevant. That notification, which has been extracted in the order of my learned brother, exempted certain final products "from the whole of the duty of the excise leviable thereon", provided that (1) such final products are made from the specified inputs on which the duty of excise leviable or the additional duty leviable has already been paid and (2) no credit of duty paid on the inputs has been taken under Rule 56A or 57A. These two conditions are attached to the operation of exemption envisaged therein. The first condition, as pointed out by Agarwal, J., is rendered virtually otiose by reason of the Explanation appended to the same Notfn. No. 202 of 1988 which, at the cost of repetition, I extract hereunder :
"Explanation.-For the purpose of this Notification, all stocks of inputs in the country, except such stocks as are clearly recognisable as being non-duty paid, shall be deemed to be the inputs on which duty has already been paid."
Thus, the duty must be deemed to have been paid on the inputs unless it is proved that the stocks are clearly non-duty paid goods. If the first proviso stands alone, there would have been no difficulty in treating the finished products cleared during the relevant year as wholly exempted goods and on that footing, extending the benefit of Explanation II to Notification No. 1 of 1993. But the difficulty arises by reason of the second proviso which says :
"Provided further that no credit of the duty paid on the inputs has been taken under Rule 56A or 57A".
17. The only impediment in regarding the final products cleared by the petitioners as wholly exempted goods within the meaning of Explanation II according to Revenue, is the 2nd proviso to Notfn. No. 202 of 1988. The Central Excise Authorities contend that the exemption under Notfn. No. 202/88 being conditional upon non-availment of the duty credit under Rule 57A and the petitioners having chosen to avail of credit of duty on inputs under Rule 57A, the relevant final product cleared by them during the preceding year cannot be said to have been exempted from the whole of excise duty leviable. It is, therefore, contended by the Department that Explanation II appended to Notfn. No. 1 of 1993 is not attracted. On the other hand, it is the case of the petitioners that the goods (final products) are such that in reality and in substance, are exempt from the whole of duty of excise under Notfn. No. 202 of 1988 and the mere availment of credit on duty paid inputs under Rule 57 by the petitioners will not make them nonetheless exempted goods. It is pointed out that the petitioners had an option either to claim the exemption under Notfn No. 202 of 1988 or to avail of the MODVAT credit under Rule 57A and pay the differential duty on the finished products. To fortify their argument, it is submitted by the learned Counsel for the petitioners that the manufacturers who had exercised the option to avail of the credit and paid the differential duty on the finished products should not be subjected to any disadvantage in comparison with the manufacturer who claimed total exemption from duty on the finished products by choosing to opt out of MODVAT scheme. There is no reasonable basis for such treatment, it is pointed out.
18. Thus the true scope and effect of the second proviso to Notification No. 202 of 1988 looms large in these writ petitions. The crux of the issue centres round the second proviso and the effect of the alleged option exercised by the petitioners.
19. While on this aspect I would like to steer clear of a misconception implicit in the arguments on both sides. The assumption that there is an option left to the assessee either to avail of the credit on inputs under MODVAT scheme or to avail of the exemption from duty under Notfn. No. 202 of 1988 and the petitioners have, therefore, exercised the former option is, in my considered view, not correct. This option theory has no legal basis. I am driven to come to this conclusion by reason of Rule 57C of the Central Excise Rules. Rule 57C categorically lays down that "no credit of the specified duty paid on the inputs used in the manufacture of a final product 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". The only exception is in the case of the goods cleared to a Unit in a free trade zone or to a 100% Export Oriented Unit. Here, we are not concerned with this exception. Rule 57C clearly and advisedly enacts an embargo against the credit of duty paid on the inputs being allowed if the resultant final product is exempt from the whole of the duty of excise leviable thereon. The raison d'etre of this Rule is not difficult to seek. Credit is available under Chapter AA (which is the newly introduced Chapter to give effect to MODVAT scheme) only towards the payment of duty leviable on the final products. If the final products themselves are exempt from the duty or chargeable to nil rate, the question of payment of duty and the allowance of credit in this behalf does not arise. The opening Rule 57A emphasises this concept in unmistakable terms by employing the words "for using the credit so allowed towards payment of duty of excise leviable on the final products." Thus, the scheme embodied in Chapter AA of the Rules is not to allow MODVAT credit, if final product is exempt. The operation of this rule does not depend upon the volition of the assessee.
20. Rule 57C itself cannot be so construed as to provide for an option, by necessary implication or otherwise, to claim exemption or to avail of the MODVAT credit. In construing Rule 57C, the only question to be asked and answered is whether the final product is exempt from the whole of the duty of excise or it is chargeable to NIL rate of duty. Whether or not the final product is wholly exempt or chargeable to NIL rate of duty depends upon the terms of the statutory notification or any other provision made under the Central Excise Act and the Rules. When once such a notification or provision is found, there is no scope to take credit of the duty paid on the inputs under Rule 57A and other allied provisions. The embargo laid down by Rule 57C is absolute and categorical. In the face of this clear-cut embargo, it is futile to contend that the assessees have still an option to utilise the credit on the inputs under Rule 57A read with Rue 57G. No statutory order or Notification has been placed before me which, despite the prohibition contained in Rule 57C, enables the assessee to seek shelter under MODVAT scheme. Thus, I am of the view that the MODVAT credit was erroneously allowed to the petitioners even after the Notification 202/88 granting exemption from the whole of excise duty payable was an issued by the Central Government. Obviously, this was done under a mutual mistake and the course of action adopted by the petitioners and assented to by the Department has no sanction of law.
21. Viewed in this light, what is the interpretation to be placed on the 2nd proviso to Notfn. No. 202/88 and what effect it has on the present cases, is the next question that falls for consideration. It appears to me that in the face of the prohibition contained in Rule 57C, the 2nd proviso has practically no part to play vis-a-vis the clearance effected long after the notification. The purpose of introducing the 2nd proviso in the Exemption Notfn. No. 202/88 seems to be to take care of the transitional problems that might arise at the commencement of the Notification and perhaps continue for some time during the financial year 1988-89. If the duty credit had already been taken on the inputs by way of adjustment and the finished products in stock are to be cleared on the basis of such credit, the exemption is not available under Notfn. No. 202/88. It is only for this limited purpose, I feel, that the 2nd proviso was introduced by way of abundant caution. Otherwise, there is no meaning in introducing the 2nd proviso in the teeth of Rule 57C. When the said proviso refers to taking credit of duty on the inputs under Rule 56A or 57A, it obviously refers to the credit lawfully taken in accordance with the relevant provisions relating to MODVAT scheme. As it is not legally possible to take credit on the inputs when the finished product is wholly exempt from duty (vide Rule 57C), the necessary postulate for the operation of the 2nd proviso will be missing. Therefore, the 2nd proviso should only be confined to such of those cases where the duty credit on inputs could have been taken without contravening the mandatory provision in Rule 57C. That proviso should be made applicable only in limited situations arising at initial stages as pointed out supra. If it is not possible to do so, the 2nd proviso is liable to be ignored in so far as it goes contrary to Rule 57C and the scheme of Section AA. So understood, the plea of non-compliance of the 2nd proviso to Notfn. No. 202/88 cannot be put forward against the petitioners. They may have wrongly availed of the duty credit under Rule 57A during the preceding financial year. But that is not a ground to say that one of the conditions attached to the Notification viz., the 2nd proviso, has not been complied with because that proviso can have no application in law to the petitioners' clearances during the preceding financial year. If so, there is no impediment in applying Explanation II to Notfn. 1 of 1993 to the cases of the petitioners. The final products mentioned in Notfn. No. 202/88 must be treated to have been exempted from whole of excise duty and the value of such clearances ought to be excluded while computing the aggregate value under Notfn. 1 of 1993. Once it is held that the petitioners are entitled to avail of the exemption under Notfn. 1 of 1993, there will be no difficulty in holding that the petitioners are entitled to take advantage of the Central Government's order in TS/36/94-TRU, dated 1.3.1994.
22. I shall now proceed to consider the problem in a different perspective. I will assume for the time being that the 2nd proviso applies and non-compliance thereof takes the goods out of the category of exempted goods under Explanation-II. In this context, I will further assume that a manufacturer can legally choose one of the two methods i.e., either to claim exemption of the whole of the duty under Notfn. No. 202/88 or to forego the exemption and avail of the credit of duty paid on inputs. In the latter case, the differential duty (representing the difference between the duty on inputs and the duty on final product) is paid or deemed to have been paid on the finished product. Why should such a manufacturer suffer a disadvantage unless he has enjoyed an obvious benefit which could not have been there if exemption had been claimed. This is in fact the line of thinking of Agarwal, J., and I respectfully agree with him. Nothing has been stated in the counter-affidavit or in the course of argument as to the rationale behind the denial of benefit to those who availed of MODVAT credit pursuant to the 'option' given to them. The learned Central Government Standing Counsel could only say that it is a matter of fiscal policy which is beyond the scrutiny by the Courts. I find myself unable to accede to this extreme argument. No doubt, wide latitude is conceded to the Legislature or the Executive in the matter of classification in a taxation statute but the Court cannot put its seal of approval to the statutory of executive order on the basis of some undisclosed or non-apparent reasons. In such a situation, it is just and proper to direct, with a view to remove discrimination, that Explanation-II to exemption Notfn. 1 of 1993 and the Central Government's Order in TA/36/94-TRU, dated 1.3.1994 should be extended to the petitioners though they had availed of the MODVAT credit. Instances where directions were issued by Courts to extend the benefit of a provision of law or an executive order to similarly situation persons without striking down anything in the impugned provision are not unknown to the constitutional jurisdiction of the High Courts and the Supreme Court. In this context, I would like to refer to a Division Bench judgment of this Court in W.P. No. 7675/83, dated 10.11.1987 where the benefit of a notification issued under the Central Excise Act was directed to be extended to a particular class of manufacturers not covered by that Notification and also the judgments of the Supreme Court in Purshottam Lal v. Union of India AIR 1973 SC 1085 and D. S. Nakara v. Union of India . Thus, either way, the petitioners are entitled to claim the benefit of Explanation-II to Notfn. No. 1 of 1993 and consequentially the orders issued in TS/36/94-TRU, dated 1.3.1994. Accordingly, the adjudication orders of the Assistant Collector are liable to be quashed as proposed by my learned brother K. M. Agarwal, J. and there shall be recomputation of the aggregate value of clearances in terms of Explanation-II to Notification 1 of 1993. Accordingly, I agree with my learned brother that the writ petitions are to be allowed in terms set out at paragraph 11 of his order.
ORDER OF THE COURT
23. Reasons apart, we have come to a common conclusion that all these petitions must succeed. Accordingly we hereby allow all these petitions and direct the respondents to give the benefit of Notification No. 1/93 to the petitioners and others like them, who took benefit of Modvat Scheme instead of total exemption from duty under the Notfn. No. 202/88, by excluding clearances of their excisable goods, which were exempted from the whole of duty of excise leviable thereon, but in respect of which, instead of exemption, credits under the Modvat Scheme were taken, while computing the aggregate value of clearances under the Notification No. 1/93. As a necessary consequence, adjudication order No. 35/94, dated 15.7.1994 impugned in W.P. No. 13614/94 and similar order No. 30/94, dated 30.5.1994 of the 3rd respondent sought to be impugned in W.P. 9663/1994 by filing W.P. M.P. No. 15660/94 are quashed. Now the 3rd respondent shall re-compute the aggregate value of clearances made by the petitioners in these petitions in the light of this order and then decide if they are or are not entitled to the benefit of Notfn. No. 1/93. No order as to costs.