Customs, Excise and Gold Tribunal - Delhi
Dai Ichi Karkaria Ltd. vs Collector Of Central Excise on 11 January, 1996
Equivalent citations: 1996(81)ELT676(TRI-DEL)
ORDER
U.L. Bhat, J. (President)
1. The appellant who manufacture surface active agents and emulsifiers from purchased raw materials, the surface active agents being used in the manufacture of final products such as emulsifiers, wetting out agents, softners etc., filed pricelists in Part VI(b) for the period 1982-83 to 1988-89 in respect of surface active agents used in the plant without including the element of excise duty/CVD paid on the raw materials in the cost of production declared for captive consumption in the manufacture of finished products removed on payment of duty. Assistant Collector issued notice to the appellant to show cause why excise duty paid on the input raw materials and in regard to which Modvat credit was availed should not be included while arriving at the cost of intermediate product used for captive consumption under Section 4(l)(b) of Central Excises & Salt Act, 1944 (for short, the Act). The appellant took the stand that since the duty paid on raw materials was "set off", it was not liable to be included in the cost of raw materials for the purpose of valuing the captively consumed product for the purpose of excise duty. In other words, the Assistant Collector took the stand that while valuing the captively consumed product on the basis of cost of raw material plus manufacturing expenses and profits the cost of raw materials must include the excise duty paid thereon, while the appellant took the stand that cost of raw materials should not include the excise duty element since that was "set off under the Modvat credit scheme. Assistant Collector over-ruled the contention of the appellant and this was confirmed by the Collector (Appeals). It was in these circumstances that the present appeal was filed.
2. The Division Bench which heard the appeal was of the opinion that the decision in Atic Industries Ltd. case, 1992 (62) E.L.T. 321 (T) is in conflict with the earlier decision in Incab Industries case, 1990 (45) E.L.T. 342 (T) and therefore referred the following questions for consideration by a larger Bench :-
"(i) In the facts and circumstances whether Modvat credit availed of by the appellants is includible in the assessable value of the final product.
(ii) Whether decision rendered by the Tribunal in the case of Collector of Central Excise v. Atic Industries Ltd. [1992 (62) E.L.T. 321] is in confir-mity with the observations in the case of Incab Industries [1990 (45) E.L.T. 342] and,
(iii) Other points which are incidental to the issue No. 1." Accordingly this larger Bench has been constituted.
3. We have heard Shri L.B. Attar, Counsel for the appellant, Shri A.K. Singhal, JDR for the Revenue as also Shri A.N. Haksar and Shri V. Sridharan, Advocates who were allowed to intervene and make submissions in view of the importance of the questions involved.
4. It would be advantageous to commence the discussion by noticing the following observations of the Supreme Court in Bombay Tyre International case, 1983 (14) E.L.T. 1896 at para 49.
"It is apparent that for purposes of determining the 'value', broadly speaking both the old Section 4(a) and the new Section 4(l)(a) speak of the price for sale in the course of wholesale trade of an article for delivery at the time and place of removal, namely, the factory gate. Where the price contemplated under the old Section 4(a) or under the new Section 4(l)(a) is not ascertainable, the price is determined under the old Section 4(b) or the new Section 4(l)(b). Now, the price of an article is related to its value (using this term in a general sense), and into that value how poured several components, including those which have enriched its value and given to the article its marketability in the trade. Therefore, the expenses incurred on account of the several factors which have contributed to its value upto the date of sale, which apparently would be the date of delivery, are liable to be included".
5. In Sree Srinivasan Foundry and Ors. v. Collector of Central Excise -1987 (29) E.L.T. 644 (T), appellant who manufactured and cleared mono-block pump-sets was alleged to have realised central excise duty on the electric motor component of the pump-set from the customers through a separate entry in the sale invoice for the pump-set. The question was whether the Central Excise duty paid on the electric motor part should be added to the assessable value of pump-set for the purposes of Central Excise duty. A two-Member Bench of the Tribunal held that taxes paid on raw materials and components were part of the cost of the raw materials which in turn was part of the full intrinsic value of the manufactured product. It was urged that during the material period Notification No. 84/72-C.E. provided for "set off" being given for duty paid on electric motors or stators or rotors. The Tribunal held that the "set off" provision exempted motor part of the duty and hence the excise authority was not justified in including such duty in the assessable value of the pump. The cases were remanded to verify the correctness of the assertion of the manufacturer that no duty had been collected on motor/rotor and retained. It was held that if no duty had been collected and retained the demand should be withdrawn. This was a case of valuation under Section 4(l)(a) and not under Section 4(l)(b) of the Act. We may also notice that use of the expression "set off in this decision was inaccurate. It was really a case of exemption and not set off.
6. In Castrol Ltd. v. Collector of Central Excise -1987 (29) E.L.T. 585 (T) the assessee carried on the business of processing and manufacture of blended and compounded lubricating oils and other finished goods in Calcutta, the goods were chargeable to ad valorem duty and for such manufacture assessee received raw materials from outside Calcutta which on entry into Calcutta were liable to entry tax or octroi, the collection of which was postponed and made at the time of exist of finished goods from the factory for consumption within Calcutta area. The excise authority held that octroi though collected later was part of price of raw material and therefore form part of the assessable value of finished goods. According to the assessee, octroi duty was shown separately in the invoice for finished goods and as per the contract buyer had to bear the duty and therefore the duty had nothing to do with the sale price of the finished. A three-Member Bench of the Tribunal upheld the decision of the excise authority for the reason that the price of finished goods has to include the full cost of raw materials inclusive of tax payable on raw materials and under Section 4(4)(d)(ii) of the Act assessee is entitled to ask for exclusion only of tax paid on finished goods but not tax paid on the raw material. This was a case under Section 4(l)(a) and not Section 4(1 )(b) of the Act.
7. In Incab Industries case, 1990 (45) E.L.T. 342 (T), a three-Member Bench of the Tribunal dealt with the case of Modvat credit in a situation arising under Section 4(l)(a) of the Act but not Section 4(l)(b) of the Act. In view of the facility of Modvat credit, assessee reduced the price proportionately and submitted revised pricelist under Rule 73C of the Central Excise Rules. Assessee was supplying goods on contract basis to various buyers including Indian Railways. Assistant Collector disapproved the reduced price and approved the pricelist after disallowing the claim for reduction of the assessable value by 8%. The Collector (Appeals) set aside the order and the Department approached the Tribunal. The Tribunal held that in view of Section 4(l)(a) of the Act which was applicable to the facts of the case, the assessable value would be the value at which the goods are sold in the wholesale trade and in the facts of the case, would be the price at which assessee agreed to sell the goods to various buyers under contract. That was because the goods were sold at contract price and if the terms and conditions were fair and reasonable and arrived on purely commercial basis, the price charged would be the assessable value as long as the contract is in force. Dealing with Rule 57A of the Central Excise Rules the Tribunal indicated that the Modvat scheme allowed instant and complete reimbursement of the excise duty paid on the components and raw materials on following the procedure prescribed under Rule 57G and the scheme allows manufacturer to utilise the duty paid on inputs by deducting the same from the duty payable on the final product subject to the Rules and it was only a benefit available to the manufacturer to utilise such duty paid on inputs for the specific purpose of payment of duty on final product. The Tribunal further observed -
"It does not directly affect or reduce the assessable value automatically. It is no doubt true that it will result in reduction in the cost of final product to the extent of the credit, but it does not automatically reduce the assessable value which is to be determined in accordance with Section 4. The assessable value has to be determined in accordance with Section 4 of the Act and Section 4 only and Modvat credit has no direct impact on the assessable value".
(Emphasis supplied) The Tribunal also pointed out Rules relating to Modvat credit cannot over-ride the provisions of the Act. The Tribunal contemplated a situation where the manufacturers may revise the prices as a result of reduction in the cost of final product on account of Modvat credit, by following the procedure prescribed in the Rules. It was observed as follows :-
"Therefore, the manufacturer cannot automatically ask for reduction in the assessable value of the product as a result of obtaining Modvat credit, as under the rules, the benefit under Modvat is available only to deduct the duty paid on the inputs while paying duty on the final product, by following the procedure prescribed under the rules".
(Emphasis supplied) The case was remanded to examine the original contracts entered into between the assessee and the customers and to see whether the original contract had been altered, and if so, whether it was done in a lawful manner and to determine the value afresh. After remand adjudication order was passed, the correctness of which was again challenged before the Collector initially and before the Tribunal finally and appeal to the Tribunal was decided in Incab Industries case, 1995 (75) E.L.T. 131 (T). A two-Member Bench held that Modvat credit reduction given to the purchaser has to be deducted from the price and once again remanded the case to the Assistant Collector to calculate the excise duty in the light of decision in ITC Ltd case, 1994 (72) E.L.T. 315. The reference to ITC Ltd. case appears to be erroneous.
8. Atic Industries Ltd. case 1992 (62) E.L.T. 321 (T) was decided by a three-Member Bench. This was also a case attracting Section 4(l)(a) of the Act and not Section 4(l)(b) of the Act. The pricelist or modification of the price was duly approved. The assessee was served show cause notice on the ground that there was failure to pay proper Central Excise duty on final product by not including the Modvat credit availed on the inputs and the demand was subsequently confirmed by the Assistant Collector. This order was set aside by the Collector (Appeals). Hence the Revenue filed appeal before the Tribunal. The Tribunal referred to the decision in Incab Industries, 1990 (45) E.L.T. 342 and held as follows :-
"In the respondents case the wholesale price as declared was ascertainable and it was also approved by the Department. Further there was no allegation that the appellants and their customer were related persons. Under these circumstances we are inclined to agree with the Collector (Appeals) that there was no justification whatsoever to include the Modvat credit availed by the respondents in the assessable value of the final product".
(Emphasis supplied)
9. The second question referred is whether the decision in Atic Industries case is in conformity with the observations in Incab Industries case. We do not find any divergence between the two decisions bearing in mind that both dealt with cases under Section 4(l)(a) of the Act where the wholesale price was ascertainable and the manufactured goods were cleared for delivery on sale. Neither case involved captive consumption of the manufactured products. In both decisions it has been held that availing of Modvat credit does not directly affect and does not automatically reduce the assessable value. In both cases valuation would be based on the deemed value under Section 4(l)(a) which is the normal price at which the goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal, where the buyer is not a related person and the price is the sole consideration for sale. The fact that Modvat credit is availed cannot directly and automatically affect the assessable value because assessable value is based on the normal price in the wholesale trade. A manufacturer who avails Modvat credit may pass it on to customers and for that purpose reduce the price following the procedure prescribed in Rule 173C of the Central Excise Rules. If the reduced price is approved, that will be the basis for determining the assessable value. In such an event Modvat credit has an indirect but not direct effect on the assessable value. This is the ratio of both the decisions. In Incab Industries case remand was made so that the "normal price" can be determined after examining the contracts and the modifications, if any, of the contracts. In Atic Industries case obviously the manufacturer reduced the prices following the procedure prescribed under Rule 173C and that had been approved and show cause notice was issued not on the basis that the declared price was not the normal price in the wholesale trade but alleging merely that to the extent of Modvat credit availed price has to be loaded. This certainly was erroneous so far as cases governed by Section 4(l)(a) of the Act are concerned. It was in these circumstances that Atic Industries case held that there was no justification to include in the assessable value of the final product the Modvat credit availed by the assessee. The decision in the Atic Industries case is in conformity with the decision in Incab Industries case.
10. We now turn to the main dispute in the appeal, Assessee manufactures surface active agents (referred to as intermediates) from purchased raw materials and surface active agents are used in the manufacture of final products such as emulsifiers, wetting out agents, softeners etc. The Assistant Collector issued show cause notice dated 22-8-1991 to the assessee to show cause why the value of excise duty set off/CVD paid on the input raw materials should not be included while ascertaining the cost of raw materials declared in the final pricelist and why differential duty should not be recovered on such excise duty/CVD set off element for past several years. Assessee took the stand that excise duty is not payable on excise duty, that the intermediate product is required to be valued under Section 4(l)(b) of the Act and Rule 6(b)(ii) of Central Excise Valuation Rules and that excise duty paid on raw materials in respect of which Modvat credit was availed cannot be added to the cost of raw materials to determine the assessable value of the intermediate product as such a course would be contrary to the purposes of Modvat scheme. The Assistant Collector and Collector (Appeals) over-ruled the contention of the appellant. This has given rise to question number one referred. We have already indicated that Incab Industries, 1990 (45) 342 (T) and Atic Industries, 1992 (62) E.L.T. 321 (T) deal with a situation covered by Section 4(l)(a) of the Act. We are here concerned with captive consumption governed by Section 4(1 )(b) of the Act and Rule 6(b) (2) of the Central Excise Valuation Rules. Section 4(l)(b) applies to cases where normal price of goods is not ascertainable for the reason that such goods are not sold or for any other reason. The value shall be deemed to be the nearest ascertainable equivalent of normal price determined in such manner as may be prescribed. The prescription is contained in Rule 6(b)(ii) of the Central Excise Valuation Rules. According to 6(b)(i) the assessable value is based on the value of comparable goods produced or manufactured by the assessee or by any other assessee. Both sides accept that this provision is inapplicable to this case. According to Rule 6(b)(ii) the value is based on the cost of production or manufacture including profits, if any, which the assessee would have normally earned on the sale of such goods. Cost of production must necessarily include the cost of raw materials and all taxes and duties paid in regard to raw materials or inputs. If excise duty has really been paid on the input, there can no doubt be that it will form part of cost of inputs for the purpose of Rule 6(b)(ii).
11. It is the contention of the appellant that since with reference to excise duty paid on the inputs Modvat credit has been availed of, it is as if the inputs did not suffer any excise duty and therefore the cost of inputs for the purpose of Rule 6(b)(ii) would be exclusive of the excise duty which would in law be payable thereon. The answer of the Department is that Modvat credit scheme does not have the real effect of exempting the inputs from liability for excise duty, that inputs in law and in effect suffer excise duty and according to the scheme only the amount equal to excise duty paid can be credited in the relevant register for adjustment against excise duty payable on the finished product and therefore the credit has relation to the duty payable on the finished product and not to the duty paid on the inputs. There is no direct decision of Supreme Court or of any High Court or of the Tribunal on this question arising under Section 4(l)(b) of the Act or Rule 6(b)(ii) of the Valuation Rules. The decisions referred to are in relation to valuation under Section 4(l)(a) of the Act. Learned Counsel for the appellant has placed reliance on the language of the Rule 57A, the speech of the Finance Minister in the Parliament in support of the Modvat scheme, certain materials published by the Central Board or Excise and Customs and the Central Government in regard to Modvat scheme, Government Circular and decision in relation to the former Rule 56A of the Central Excise Rules (which uses the same language in the present Rule 57A) in support of the contention that a liberal understanding of the law is necessary. The Departmental Representative contends that the Minister's speech and the material published by the Board and the Government are not admissible, and the Circular and decisions of the Government under old Rule 56A are not binding on the Tribunal though the Circular may be binding on the Revenue.
12. Rule 57A and the connected Rules occur under heading "Credit of duty paid on excisable goods used as inputs". The Rule applies to finished excisable goods. The Rule allows credit of any duty of excise or additional duty as may be specified and paid an the inputs for utilising the credit so allowed towards payment of duty of excise leviable on the final products. This facility is subject to the provisions of the Rule and conditions and restrictions as may be notified. According to Rule 57C no credit of duty on inputs used in the manufacture of final products, subject to certain exceptions, shall be allowed if the final product is exempt from the whole of the excise duty leviable thereon or is chargeable to nil rate of duty. Credit of duty taken in regard to inputs contained in a waste, refuse or by-product arising during manufacture shall not be denied. Rule 57G prescribes the procedure to be observed by the manufacturer. A declaration has to be filed with the Assistant Collector giving the particulars contemplated in the Rule and on filing the declaration, the assessee may take credit of the duty paid subject to the condition that inputs are received in the factory as specified in the proviso to Rule 57G(2). The assessee is also required to maintain an account in form RG- 23A and a Current account with adequate balance to cover excise duty payable on the final product cleared at any time. The documentary evidence in support of payment of duty along with extracts of RG-23A should be submitted to the Superintendent of Central Excise every month. Rule 57-I deal with recovery of credit wrongly availed of or utilised in an irregular manner.
13. The then Union Finance Minister in the Budget speech delivered on 28-2-1986 explained the formulation of Long Term Fiscal Policy and Modified Value Added Tax (Modvat) Scheme. In paragraph 113 the Minister stated that the vaxatious problem of taxation of inputs and cascading effect of such taxation on the value of the final product could be solved by extending the present system of proforma credit to all excisable commodities with certain exceptions. The Minister further stated that the scheme -
"allows the manufacturer to obtain instant and complete reimbursement of the excise duty paid on the components and raw materials"
(Emphasis supplied) In paragraph 114 the Minister stressed that the scheme is an important measure of cost reduction through the availability of instant credit of the duties paid on the inputs and consequential reduction of interest costs. In paragraph 115 the Minister indicated as follows :-
"It would be noticed that the Modvat scheme avoids the payment of duties on earlier duties paid. The payment of duty drawback will be swifter as the element of excise duty will be transparent. It will, therefore, benefit both the onsumers and exporters".
(Emphasis supplied) According to the Departmental Representative, such speeches have no place in the construction of the provisions of a statutory rule. That of course was the view taken both by the House of Lords and the Supreme Court earlier. See, Assam Railway and Trading Company v. IRC -1934 All England Report REF 446 HL at page 665 and A.K. Gopalan v. State of Madras - AIR 1950 SC 27 at page 73, and State of West Bengal v. Union of India - AIR 1963 SC 1243 at page 1247. But the later decisions of the Supreme Court indicate a departure from the rigour of the earlier rule. In Loka Shikshana Trust v. CIT - AIR 1976 SC 348 and Additional CIT v. Surat Art Silk Cloth Manufacturers Association - AIR 1980 SC 387, the Supreme Court relied on speeches made by the Finance Minister introducing statutory provisions for the purpose of ascertaining what was the reason for introducing the clause. After referring to these decisions, Supreme Court observed in K.P. Verghese v. ITO and Anr. - AIR 1981 SC 1922 as follows : -
"Now it is true that the speeches made by the Members of the Legislature on the floor of the House when a Bill for enacting a statutory provision is being debated are inadmissible for the purpose of interpreting the statutory provision but for speach made by the Mover of the Bill explaining the reason for the introduction of the Bill can certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the legislation and the object and purpose for which the legislation is enacted. This is in accord with the recent trend in juristic thought not only in Western countries but also in India that interpretation of a statute being an exercise in the ascertainment of meaning, everything which is logically relevant should be admissible".
(Emphasis supplied) It is therefore clear that the points in the Finance Minister's speech referred to earlier can be looked into for ascertaining the mischief sought to be remedied and object or purpose for which Modvat scheme was introduced.
14. Our attention is invited to "A Complete Guide to Law and Procedure of Modvat" compiled by Robin Banerjee and published by Kamal Law House, explaining the provisions of Modvat scheme. In paragraph 2 it is stated as follows: -
"The scheme is, therefore, having the effect of neutralising or limiting the cascading effect of taxation on a large number of excisable products, that are used in the manufacture of some other excisable products".
In page 44, para 2.2, Central Board of Excise and Customs was quoted as follows :-
"As already indicated, the scheme will help avoid repeated payment of duty on some articles and to that extent will reduce the total burden of duty on the final product, also the cost of that product by reducing the financing cost to the extent of low outlay of capital on inventory, consequent to relief in input duty".
The matter was explained by the Board in a tabular form indicating the position before Modvat and position after Modvat. In column showing position after Modvat it was stated that the assessable value would be arrived after deducting the input duty credit from the cost. The tabular statement, after such deduction, shows that the cost after Modvat was less than cost before Modvat. The same view of the Board was also published at pages 18 to 39 of Taxmann on Modvat 1989-90. The Board also brought out a booklet in the form of questions and answers as "Guide to Modvat" which is published in 1986 (24) E.L.T. Trade Notices 61. There again Board has used expressions "credit" and "reimbursement" and stated that the scheme envisages avoidance of payment of duty on earlier duty paid.
15. According to Departmental Representative, the clarifications above noted are not admissible. In the case of K.P. Varghese v. ITO and Anr. - AIR 1981 SC 1922 the Supreme Court considered the effect and value of circular issued by the Central Board of Direct Taxes in regard to a provision newly introduced in the Income-Tax Act. The circular in turn referred to the assurance given by the Finance Minister in his speech and the failure of the Income-Tax officers to implement the assurance. The court held that the circulars are binding on the department and apart from their binding character, they are clearly in the nature of contemporanea expositio furnishing legitimate aid in the construction of the new provision. The court observed :-
"The rule of construction by reference to contemporanea expositio is a well established rule for interpreting a statute by the reference to the exposition it has received from contemporary authority, though it must give way where the language of the statute is plain and unambiguous".
The court quoted the following passage from Crawford on Statutory Construction (para 219) on -
"administrative construction (i.e. contemporaneous construction placed by administrative or executive officers charged with executing a statute) generally should be clearly wrong before it is overturned; such a construction commonly referred to as practical construction, although non-controlling, is nevertheless entitled to considerable weight; it is highly persuasive".
The court further indicated that -
"It is a well-settled principle of interpretation that courts in construing a statute will give much weight to the interpretation put upon it, at the time of its enactment and since, by whose duty it has been to construe, execute and supply it".
It is therefore clear that the view expressed by the Central Board of Excise and Customs even assuming is not binding on the department, will carry much weight in the understanding of the meaning, content and effect of the Rules relating to Modvat scheme.
16. We may also refer to the opinion of the Government of India on the effect of the old Rule 56A which incorporated a truncated and limited Modvat principle. We refer to the publication by name "Valuation and Pricelist under Central Excise" by R.K. Jain published by Central Law Office, New Delhi. Paragraph 9 quotes letter dated 25-9-1976 of the Department of Revenue and Banking (Revenue Wing) of Ministry of Finance. The letter refers to the objection taken by the Controller and Auditor General of India and opinion given by the Ministry of Law, Justice and Company Affairs which was accepted by the Department. The letter ends by stating as follows :-
"It will be observed from the enclosed note that while arriving the cost of assessable value of a finished product, credit in respect of duty-paid material /components availing the facility provided under Rule 56A, will have to be deducted".
A similar dispute under the old Rule 56A came up before the Government of India as Revisional authority in the case of Union Carbide Ltd., New Delhi. The decision of the Government is reported in 1982 E.L.T. 653 (GOI). The assessee in that case utilised aluminium slugs to manufacture extruded shapes and sections, i.e. torch bodies and captively consumed them in the manufacture of torches. The assessee contended that the excise duty element on the slugs for the proforma credit which was available should not have formed part of the price of slug for the purpose of computation of the cost of intermediate product for the purpose of assessment to Central Excise duty. The Government observed as follows :-
"...while arriving at the assessable value of the finished product, credit in respect of duty paid material/components availing the facility provided under Rule 56A will have to be deducted".
17. The legal consequence of Rule 57A, according to appellant, is that though duty is paid at one stage on input it is credited to the assessee though only for the specific purpose of meeting the demand for excise duty on the finished product and therefore in substance it is as if no duty is paid on the input. That being so, it is said the duty element of the input cannot be added to the cost of input. The Revenue rebutts this contention and contends that Modvat scheme starts operating when duty on finished product is payable and has no relevance to the assessment of value of the product which is to be determined before payment of excise duty and Modvat credit has nothing to do with the cost of raw materials. It is also contended that Modvat credit facility does not amount to "exemption" or "set off", the input cannot be regarded as duty free.
18. Rule 57A of the Central Excise Rules enables "allowing credit" of any specified duty of excise or additional duty paid on the goods used in or in relation to the manufacture of specified final product and utilisation of the credit towards payment of duty leviable on the final product. This is basically similar to the scheme in old Rule 56A. A manufacturer who purchases raw materials paying excise duty directly or indirectly is allowed credit of such duty. It is credited in the credit account in form under RG-23A. Credit can be taken on filing declaration under Rule 57G(1). Such credit shall be utilised towards payment of duty on the final products. That should also be entered in the form RG-23A account. Manufacturer has to maintain an account-current with adequate balance to cover the duty payable on the final products cleared at any time. Thus what follows from the Modvat scheme is that amount of duty on input credited is utilised for payment of duty on final product. Duty on final product is payable by the manufacturer to the Government. Duty liability can be discharged only by payment by the manufacturer of money not belonging to the Government. Money belonging to the Government cannot be paid in discharge of duty liability. Therefore, the amount credited on account of duty paid on input cannot be regarded as money belonging to the Government. It can only be regarded as money belonging to the manufacturer who paid the duty on the input. But then the manufacturer has already paid excise duty on the input. If the duty amount is still to be regarded as money belonging to the manufacturer, it must mean that the duty on input paid by him to the Government is, by operation of the Rule, deemed to be returned to him. In effect and substance, this would mean that the input did not carry the burden of excise duty and the cost of the input cannot, therefore, include the excise duty on the input in cases where Rule 57A is attracted. We are aware that there are certain limitations imposed by Rule 57A. The amount credited cannot be used by the manufacturer for any purpose of his choice and can be utilised only for one purpose, namely, payment of excise duty on the final product. There are, of course, other limitations such as the benefit will not be available if the final product is duty free, etc. Such conditions need not detain us, since if no final product is manufactured or if final product is duty free, the credit loses significance and there is no question of paying duty on the final product. It is logical to hold that the Modvat scheme involves reimbursement of the duty paid on the input, though it can be utilised only for a specific purpose subject to the conditions imposed by the statutory rules.
19. It was on this logic that the old Rule 56A was interpreted by the Ministry of Finance by letter dated 25-9-1976 and by the Government in Union Carbide Ltd. case, 1982 E.L.T. 683. It is this logic which is the basis of the explanation offered by the Board in the guides referred to earlier. The speech of the Finance Minister and the other materials referred to earlier clearly indicate the mischief that was sought to be overcome and the object and purpose sought to be achieved by the scheme. The Mischief sought to be remedied is, the cascading effect on taxation, the burden of duty on the final product and the cost of the final product and duty on duty; the object sought to be achieved is limiting the cascading effect on taxation, reduction in the total burden of duty on the final product and the cost of the product, and avoidance of duty on duty by complete reimbursement or credit of the excise duty paid on the inputs. This understanding of the mischief sought to be avoided and purpose sought to be achieved supports the view that the excise duty on input reimbursed or credited should not form part of the cost of inputs for the purpose of valuing the product in so far as valuation under Section 4(l)(b) of the Act and Rule 6(b)(ii) of the Rules is concerned. We have already indicated and it bears repetition, that Modvat credit does not directly affect or reduce the assessable value automatically in the context of Section 4(l)(a) of the Act for valuation thereunder is relatable to the normal price.
20. The view we have taken is in accord with the meaning which can be ascribed to the expression "credit". The following meanings, inter alia, are given in Longman Dictionary of the English Language :-
"Credit -1 (a) the balance in a person's favour in a bank account (b) an amount or sum placed at a person's disposal by a bank and use to be repaid with interest d(l) an entry on the right-hand side of an account constituting an addition to a revenue, net worth, or liability account d(2) a deduction from an expense or asset account or from an account or from an amount otherwise due".
We therefore hold that duty paid on input in regard to which Modvat credit was availed of by a manufacturer is not includible in the assessable value of the final product under Section 4(l)(b) of the Act and Rule 6(b)(ii) of the Rules. However, in every case of captive consumption it has to be verified whether the cost of input declared includes the excise duty paid on inputs or not. If the declared cost does not include the duty paid on input, the same cannot be deducted again. Question number one answered accordingly.
21. Question number 3 does not arise for consideration since no submissions have been made in this regard.
22. The impugned orders are set aside. The jurisdictional Assistant Collector will pass fresh order in accordance with law and principles of law laid down in this order. Appeal is allowed as indicated above.