Customs, Excise and Gold Tribunal - Delhi
Kamani Foods vs Collector Of Central Excise on 19 January, 1994
Equivalent citations: 1995(75)ELT202(TRI-DEL)
ORDER K.S. Venkataramani, Member (T)
1. The matter considered here has come up on a reference to Larger Bench relating to simultaneous availing of Modvat Credit for certain specified goods and of complete exemption from duty on other specified goods in terms of notification giving exemption to small scale industrial units as contained in Notification 175/86 dated 1-3-1986. Paras 3, 4 & 5 of the referring order dated 4-3-1993 of the East Regional Bench are reproduced below :
"We have considered the submissions. The learned Counsel for the appellants has referred to two decisions by the South Regional Bench and one by the Special Bench which had followed the Regional Bench decisions in favour of allowing simultaneous availment of Modvat Credit for certain specified goods and of complete exemption from duty for other specified goods. We find in this connection that there is a decision by the Special Bench in Kharia Cement Works v. Collector of C. Ex. reported in 1989 (42) E.L.T. 696 (Tri.). That was case where the manufacturer had two factories, where different products were manufactured by them. For the goods manufactured and cleared from their Kanpur factory they availed Modvat benefit. They were, on that score, held to be ineligible for full exemption for their goods cleared from the Kharia factory. The relevant paragraphs of this order are extracted below :
" 9. Shri Bhandare, learned Counsel for the Appellants, drew our attention to sub-clauses (i) and (ii) of clause (a) of para 1 of Notification No. 175/86 reading as follows :
"(a) in the case of the first clearances of the specified goods up to an aggregate value not exceeding rupees seven and a half lakhs -
(i) in a case where a manufacturer avails of the credit of duty paid on inputs used in the manufacture of the specified goods under Rule 57A of the said Rules, from so much of the duty of excise leviable thereon which is specified in the said Schedule [read with any relevant notification issued under Sub-rule (1) of the Rule 8 of the said Rules and in force for the time being] as is equivalent to an amount calculated at the rate of 75% of such duty, or an amount calculated at the rate of 10% ad valorem, whichever is higher;
(ii) in any other case from the whole of the duty of excise leviable thereon."
He submitted that the clear implication was that where the manufacturer availed himself of the facility of utilisation of input duty credit in terms of Central Excise Rule 57A, the extent of duty exemption was 75% of the effective amount of duty, or an amount calculated at the rate of 10% ad valorem whichever was higher. In any other case, that is, in the case of manufacturer who did not avail himself of the said facility, the extent of exemption was the whole of the duty. There could be a third type of case, as in the present instance, of a manufacturer availing himself of the MODVAT credit facility in one of his factories and not doing so in the other. The benefit of the duty concession was meant to accrue to the manufacturer and so, a beneficial construction should be adopted. The fact that the Kanpur factory had utilised MODVAT credit would not mean that the Kharia factory had also utilised MODVAT credit. And since the latter factory did not utilise MODVAT credit, it would not attract the mischief of para 1 (a)(i) and could not be denied the benefit of full duty exemption in terms of para 1(a)(ii). The counsel also submitted that para 1(b) of the notification reading as follows :
"(b) in the case of clearance (being clearances of the specified goods of an aggregate value not exceeding rupees seven and a half lakh) immediately following the said clearances of the value specified in clause (a), from so much of the duty of excise leviable thereon which is specified in the said Schedule (read with any relevant notification issued under Sub-rule (1) of Rule 8 of the said Rules and in force for the time being) as is equivalent to the amount calculated at the rate of 75% of such duty or an amount calculated at the rate of 10% ad valorem, whichever is higher."
was not relevant for the interpretation of clause (a). He referred to para 120 of the Finance Minister's Budget Speech of 1986 to the effect that the scheme which he proposed to introduce would considerably enhance the scope of concessions available to the small scale sector. Therefore, submitted the learned counsel, the intention could not have been to deny even the exemptions available prior to the budget.
10. In reply, Shri Sunder Rajan, learned DR, submitted that the exemption notification should be construed strictly. The notification in question made a clear distinction between manufacturers and factories. The supposed intentions would not be relevant in construing the terms of the notification. He, further submitted that clauses (a)(i) and (a)(ii) of para 1 of the notification were not mutually exclusive. The option was in respect of the manufacturer and not in respect of the goods. Replying on the reasoning adopted by the Collector, Shri Sunder Rajan prayed that the appeal should be dismissed.
11. We have carefully considered the submissions of both sides and perused the record.
12. The relevant portions of the notification in question have been already set out. Clause (a) (i) sets out the extent of exemption in the case of a manufacturer who avails himself of the facility of utilisation of input duty credit under Central Excise Rule 57A. Sub-Clause (ii) provides that in any other case (which would necessarily mean in the case of manufacturer who does not avail himself of the said input duty credit availment facility), the extent of exemption shall be the whole of the duty of excise leviable on the first clearances of the specified goods upto an aggregate value not exceeding Rs. 7.5 lakh. Now a manufacturer may have one factory or may have more than one factory. He may avail of the credit facility in respect of one factory or in respect of all factories. The notification does not make any distinction between such different likely situations. It is quite clear when it states that the extent of exemption shall be 75% of the effective amount of duty, or any amount calculated at the rate of 10% ad valorem, whichever is higher, in the case of a manufacturer who avails himself of the said aggregate facility. This provision, that is, clause (a)(i) of para 1 of the notification does not, in our opinion, lend itself to the interpretation, as contended by the counsel for the appellants, that it applies only to that factory of the manufacturer in which such credit availment takes place and not in the case of another factory of the same manufacturer where such credit availment does not take place. Sub-clause (ii) of the same provision, as noted earlier, refers to cases of manufacturers who do not avail of the said facility. This is clear enough and, in our opinion, it cannot be read in such a way that its scope and effect are construed to apply to factories of manufacturers where such availment does not take place though such availment does take place in respect of other factories belonging to the same manufacturer. The notification is to be read as a whole. Para 3 of the notification clearly sets out that nothing contained in the notification shall apply if the aggregate value clearances of all excisable goods for home consumption :-
(a) by a manufacturer, from one or more factories, or
(b) from any factory, by one or more manufacturers, had exceeded Rs. 150 lakh in the preceding financial year. It is obvious that there is a clear distinction in the notification between a manufacturer and a factory and wherever such a clear distinction is sought to be applied the words "manufacturer" and "factory" have been employed. As we have seen in the provision which we are called upon to construe here, the word used is, "manufacturer" and not "factory". We are, therefore, of the opinion that the construction sought to be put on the provision by the learned counsel for the appellants is not tenable."
We are in respectful agreement with this view. In the present case, the dispute relates to a manufacturer clearing different goods from the same factory. This decision was apparently not brought to the notice of the South Regional Bench when they decided the two cases cited by the learned counsel, Shri Choudhury. The Special Bench order in Faridabad Tools Pvt. Ltd. followed these decisions, their observation therein being that the matters are apparently covered by the two judgments cited by the ld. Counsel. In view of the divergent decisions on the questions involved, we feel that this should be referred to the Hon'ble President of the Tribunal for constituting a larger Bench for resolving the difference."
2. Arguing for the appellants, Sh. K.P. Choudhury, the ld. Counsel, submitted that two decisions of Swaraj Paint Industries v. Collector of Central Excise - 1991 (52) E.L.T. 594 and Abhilash Rubber Products v. Collector of Central Excise - 1991 (56) E.L.T. 168 rendered by the South Regional Bench of the Tribunal, which had been subsequently followed by the Special Bench 'Bl' in the case of Faridabad Tools Pvt. Ltd. v. Collector of Central Excise -1993 (63) E.L.T. 759 (Tribunal), are all in favour of the proposition that in terms of sub-clauses (i) & (ii) of Clause (a) of Para 1 of Notification 175/86 a manufacturer availing of modvat in respect of certain specified goods, cannot be denied full exemption under sub-clause (ii) for specified goods for which he is not availing of Modvat, and in this view of the matter, the view taken by the South Regional Bench and followed by the Special Bench should prevail. On the other hand, Sh. K.N. Gupta, ld. S.D.R. relied upon the decision of the Special Bench in the case of Kharia Cement Works v. Collector of Central Excise to urge that such an interpretation cannot be put on the above sub-clauses of the Notification 175/86 and contended that where a manufacturer avails of Modvat Credit under Rule 57A sub-clause (i) of Notification 175/86 would come into operation and the exemption would be governed by the terms of that sub-clause.
3. The submissions made by both the sides have been carefully considered. The reasoning of the South Regional Bench decision, as contained in para 4 thereof is as follows :
"In our view, taking into consideration the provision of the Modvat Scheme Notification 175/86, there is no doubt that the concessions envisaged under these are in respect of finished goods cleared from a factory and which are chargeable to duty and the purpose of both these is to reduce the total impact of duty in respect of finished goods. Under the MODVAT Scheme in case a finished goods paid duty the duty to the extent paid on inputs and used for those finished goods is given as credit for being utilised for payment of duty. Under Notification 175/86 the benefit is available to individual specified goods as set out in the Notification and what is envisaged in sub-clause (a)(i) is that the benefit available under this Notification is sought to be restricted to the lesser level where a manufacturer avails of MODVAT Scheme, for the reason that he is already benefitting by way of the credit he has taken on the inputs which have been utilised in the specified goods. He, however, cannot be placed at a disadvantage in respect of those goods where the inputs relief by way of MODVAT Credit is not taken and it would in fact be placing an invidious burden on a manufacturer in case he takes the benefit of MODVAT Credit under Rule 57A for one item and he is called upon to pay the price for that by way of payment of higher rate of duty in terms of Notification 175/86 on goods in respect of which he is not claiming any MODVAT Credit, Sub-Clause (a)(i), therefore, has to be read only in the context of the gods for which MODVAT Credit is availed of and not for other goods."
4. 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 assessees "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, CBES, as contained in Board's F. No. 216/5/86 CX. 6, dated 1-7-1986; F. No. 22/46/186-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 Collectorates T.N. No. 62/86 at 1986 (26) E.L.T. (T 21). The clarifications are to the effect 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 duty 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.