Supreme Court of India
Commissioner Of C. Ex., Ahmedabad vs Ramesh Food Products on 4 November, 2004
Equivalent citations: 2005(98)ECC739, 2004(174)ELT310(SC)
Author: Arijit Pasayat
Bench: Arijit Pasayat, C.K. Thakker
ORDER Arijit Pasayat, J.
1. Heard Mr. Mohan Parasaran, learned Additional Solicitor General. There is no appearance on behalf of respondent (hereinafter referred to as the assessee).
2. Factual background in a nutshell is as follows :-
The assessee was engaged in the manufacture of biscuits under the brand name of "Ramesh" on his own account and under the brand name of "Cadbury" on job work basis on behalf of M/s. Hindustan Cocoa Products, Bombay. Own products worth approximately Rs. 6.29 lakhs was cleared. In addition, there was clearance of goods worth Rs. 1,20,937/- availing the benefit of Notification 175/86, dated 1-3-1986. Simultaneously, assessee filed an application on 17-1-1990 for availing Modvat benefit in respect of Cadbury brand biscuits manufactured by it on job work basis.
3. A show cause notice was issued by the concerned authority for recovery of duty on goods bearing "Ramesh" brand. The Assistant Collector dropped the demand holding that an assessee can avail full exemption on products falling under one heading and avail Modvat credit on full duty on goods falling under different chapter heading. Being aggrieved by such adjudication the Department filed an appeal before the Collector (Appeals) who held that it was not permissible for an assessee to simultaneously opt for goods of one heading and Modvat facility in respect of another heading.
4. Aggrieved by such order the assessee preferred an appeal before the Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi (in short the "CEGAT"). The Tribunal noted that in Faridabad Tools Pvt. Ltd. v. Collector of Central Excise, 1993 (63) E.L.T. 759 (Tribunal), such an issue was decided in favour of the assessee. Therefore the order of the Assistant Collector was restored by setting aside that order of the First Appellate Authority i.e. the Collector (Appeals).
5. Learned Additional Solicitor General submitted that the CEGAT was not justified in placing reliance on Faridabad Tools Pvt. Ltd. case (supra) as the decision in that case was specifically overruled, by a Larger Bench of CEGAT in Kamani Food v. Collector of Central Excise, 1995 (75) E.L.T. 202 (Tribunal).
6. On a reading of the judgment referred to by learned Additional Solicitor General, we find the contention to be correct. In para 2 of the judgment of the Larger Bench reference was made to Faridabad Tools case (supra). The decision in that case was at variance with another decision of a Special Bench of CEGAT in Kharia Cement, Works v. Collector of Central Excise, 1989 (42) E.L.T. 696 (Tribunal). Considering the rival submissions as to the acceptability of the decisions which were divergent in their conclusions, the Larger Bench in Kamani Foods case (supra) held that the decision in Kharia Cement Works case (supra) was not brought to the notice of the Special Bench when it decided Faridabad Tools Pvt. Ltd. (supra). It was held that the interpretation put on the notification by the CEGAT on Kharia Cement Works case (supra) was more appropriate and also in consonance and department's own understanding. It was held that in terms of Notification 175/86, exemption would not be available under the said notification to a manufacturer for certain specified goods manufactured by him, if he chooses to avail of Modvat credit for certain other specified goods.
7. Since the CEGAT did not go into the merits of the case and only observed that the assessee had asked for a decision on merits it had chosen to follow the decision in Faridabad Tools case (supra). We notice that the judgment of CEGAT is dated 4-12-1998 whereas the Larger Bench judgment in Kamani Foods' case (supra) specifically overruling the Faridabad Tools case (supra) was rendered much earlier i.e. on 19-1-1994. In a number of cases this Court has observed that judicial propriety demands that when a Larger Bench judgment holds the field, Smaller Bench of the Tribunal is bound to follow it. If it expresses any doubt about the correctness of the view expressed by the Larger Bench, it cannot per se on its own take a different view.
8. It was fairly pointed out that civil appeal filed against Faridabad Tools' case (supra) was dismissed at the preliminary hearing stage summarily. Such dismissal cannot be held to be affirmation of the view of Tribunal on the logic as applicable to dismissal of special leave petitions, being non-reasoned and non-speaking.
9. In Kamani Foods' case (supra) it was inter alia observed as follows :-
"On the other hand, the ruling given by the Special Bench in the case of Kharia Cement Works, already extracted (supra), is on the reasoning that Notification has to be read as a whole and Sub-clauses (i) & (ii) have to be construed harmoniously. The decision in the Kharia Cement Works case is a more reasonable interpretation of the Notification for the reason that the exemption in the Notification envisaged for the specified goods accrues to them through the instrumentality of the manufacturer. The Notification clearly recognised two categories of manufacturers - those who avail of Modvat credit and those who do not. The level of exemption is clearly fixed at different levels for the manufacturer who avails of Modvat credit under Rule 57A on inputs and for other manufacturers who do not opt for the Modvat Scheme. In coming to this conclusion, it may also be borne in mind that the input duty relief given in Modvat Scheme is an option given to the manufacturers who have to take a conscious decision to avail of it and to operate under that scheme by applying for it in the manner prescribed. Therefore, if the manufacturer, for his own reason, chooses to opt for Modvat only certain specified goods, he will have to avail of the exemption at the level prescribed for such manufacturers. As has been pertinently observed by the Hon'ble South Regional Bench of the Tribunal in the case of Collector of Central Excise v. Featherlite Corporation - 1991 (55) E.L.T. 409, the assessee "have been given substantive concessions both under Modvat Scheme and under Notification 175/86. The choice as to the availment of either of the two concessions has to be left to the assessee as it is open to them to opt for either of the two which is more beneficial to them." In this view of the matter, it would then be seen that it is a matter of choice of the manufacturer and having made that choice, the terms of the Notification 175/86, as applicable to manufacturers in such a situation, will only apply and hence it will not be a situation of discrimination or invidious distinction. It is also relevant in this context to note certain clarifications issued by the Notification issuing authority in the Ministry of Finance, CBBC, as contained in Board's F. No. 216/5/86-CX, dated 1-7-1986; K No. 22/46/1986-TRU, dated 8-9-1986 and Circular No. 9/93, dated 24-8-1993 in which the earlier instructions were reiterated. These instructions have been incorporated in Trade Notices issued by the various Collectorate of Central Excise, e.g. Delhi Collectorate T.N. No. 62/86 at 1986 (26) E.L.T. (T21). The clarifications are to the efct that the scheme of exemption under Notification 175/86 provides for an integrated method, of computation of value of clearance. As per the notification, if a manufacturer avails of Modvat relief in respect of specified goods covered under the Notification, then the concessional rate of normal duly less 10 per cent would apply, Keeping in view the further fact that there is no one to one correlation between the inputs and final products under Modvat Scheme it would not be possible to allow the manufacturer to simultaneously avail of Modvat for some of the products and avail of full exemption to others under the small scale exemption scheme. These clarifications have their usefulness in interpreting the notification and can be taken as contemporaneous exposition regarding the Notification by the issuing authority and, therefore, acquire relevance in the interpretation of the Notification. It is, further seen that the decision of the Tribunal in the Kharia Cement Works case has not been brought to the notice of the Special Bench when it had decided the Faridabad Tools case. In these circumstances interpretation put on the notification by the Tribunal in Kharia Cement Works case is more appropriate and being also in consonance with Department's own understanding, it is held that in terms of Notification 175/86 full exemption would not be available under Notification 175/86 to a manufacturer for certain specified goods manufactured by him, if he chooses to avail of Modvat credit for certain other specified goods."
10. Notification 175/86 have to be read as a whole and as noted rightly, in Kharia Cement Works case (supra) Sub-clauses (i) and (ii) have to be construed harmoniously. Exemption envisaged for the specified goods accrues to them through instrumentality of the manufacturer. The notification clearly demarcated the two categories of manufacturers. A clear cut distinction is explicit between a manufacturer availing Modvat credit under Rule 57A and another not opting for the Modvat Scheme. As is statutorily provided, input duty relief is given under the scheme to the manufacturers who opt to operate under the scheme by applying for it in the prescribed manner. Ultimately the manufacturers have the choice of choosing one of the two concessions, i.e. either The Modvat Scheme or Notification 175/86. Further, there is no one to one correlation between the inputs and final products under Modvat Scheme. It would therefore not possible to allow the manufacturer to simultaneously avail Modvat for some products and avail full exemption for others under small-scale exemption scheme.
11. The view expressed in Kamani Foods' case (supra) is irreversible and projects a correct analysis of the relevant aspects. We affirm the view. Contrary view taken in Faridabad Tools' case (supra) is not correct.
12. The appeal is accordingly allowed without any order as to costs.