Custom, Excise & Service Tax Tribunal
Arising Out Of The Order-In-Appeal No. ... vs Cce, Chandigarh on 14 February, 2012
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
West Block No. 2, R.K. Puram, New Delhi 110 066.
Date of Hearing : 14.2.2012
Date of Pronouncement :
For Approval & Signature:
Honble Ms. Archana Wadhwa, Member (Judicial)
Honble Shri Mathew John, Member (Technical)
1. Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? No
2. Whether it would be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? No
3. Whether their Whether their Lordships wish to see the fair copy of the order? Seen
4. Whether order is to be circulated to the Department Authorities? Yes
Excise Appeal No. 3312 of 2005
[Arising out of the Order-in-Appeal No. 353/CE/CHD/05 dated 29.9.2005 passed by the Commissioner (Appeals), Central Excise, Chandigarh]
The Associated Cement Companies Ltd. Appellants
Vs.
CCE, Chandigarh Respondent
Excise Appeal No. 3457 of 2005
(Arising out of Order-in-Appeal No. 381/CE/CHD/05 dated 26.10.2005 passed by the Commissioner (Appeals), Central Excise, Chandigarh) Gujarat Ambuja Cements Ltd. Appellants Vs. CCE, Chandigarh Respondent Appearance:
Appeared for Appellant : Shri S. Ganesh, Sr. Advocate, Ms. Alka Arren, C.A., Shri Ajai Agarwal, Adv. & Ms. Mallika, Advocate Appeared for Respondent : Shri I. Baig, Shri Sunil Kumar, Shri S.R. Meena, A.Rs.
CORAM: Honble Ms. Archana Wadhwa, Member (Judicial) Honble Shri Mathew John, Member (Technical) Order No.dated.
Per Mathew John :
In this matter the dispute is about demand of excise duty on cement clinkers produced in a factory and captively consumed in the same factory for production of cement which was exempted from duty. The demands confirmed by the Commissioners of Central Excise concerned were challenged before the Tribunal. The Tribunal held that the demands are maintainable. Against these decisions appellants have filed appeal before the Hon. Supreme Court and the appeal is pending for disposal. When the matter was taken up by the Hon. Apex Court the appellants raised a new additional legal argument that after the amendment in Rule 4 of Central Excise Rules, 2002 made vide Notification 24/2003-CE (NT) dated 25-03-2003, there is no provision in rules to consider goods used in the same factory for further manufacture to be removed from the factory. Since according to the appellants excise duty is payable on removal of goods from a factory the demands are not maintainable. Since this issue was never raised before the lower authorities, the Supreme Court vide its order dated 19-01-2011 in Civil Appeal No, 2973/2006 and 2912/2006 directed that the matter should be argued before the Tribunal and the decision of the Tribunal should be placed before the Apex Court for disposal of the appeals pending before the Apex Court. The present proceeding is for deciding this new legal issue raised.
2. We have heard both sides extensively on 14-02-12. The Revenue wanted to submit a written submission after consulting the Ministry of Finance about the position in law. Such written submissions were filed on 09-04-12 and a copy of the affidavit was given to the Counsel of the appellants. Thereafter the Counsel for the appellants filed a re-joinder on the written submissions on 20-04-12. Now the matter is being examined for a decision in the light of the oral submission, written submission filed by the Representative of Revenue and further written submissions from the appellants.
3. The decision on the issue involved in this dispute will have major consequence in the scheme of levy of excise duty. Further the issue involved has a long history and was subject matter of proceedings before the High Courts and the Apex Court in the context of Central Excise Rules, 1944 which was in force during 1980s and till 2000. By 1982 there were a few decisions of High Courts against Revenue and a few in favour of Revenue. To overcome the difficulty faced, the Legislature amended Central Excise Rules, 1944, retrospectively from 1944 onwards by Section 52 of Finance Act 1982 and the matter was at rest for over two decades. The amendments made through the retrospective amendment made by section 51 of Finance Act, 1982 were incorporated in new Central Excise Rules, 2002 also. However the amendments made by notification 24/2003-CE (NT) dated 25-03-2003 to Central Excise Rules 2002 have given rise to the present argument of the appellants. We will be examining these changes in detail.
4. Just as the history of decisions of the Courts and retrospective amendment can give an insight into the problem at hand the basic principles behind the legislation also are relevant. These principles are what is inferred from the practice of levying excise duty for decades and may not be accepted as a correct legal position while deciding the issue. Nevertheless it is relevant and is recorded as a prelude for examining the dispute.
5. Excise duty levied under the Central Excise Act, 1944 is on manufacture of goods (refer section 3 ibid). However the under the scheme for payment, the payment of duty is required to be made only at the time of removal of the goods from the factory (Rule 4 and Rule 8 of Central Excise Rules, 2002). This was the position even in Central Excise Rules, 1944 also. Of Course these Rules are only to the effect that when goods are removed from the place of manufacture, duty shall be paid and no goods shall be removed from place of manufacture without payment of duty. There is nothing explicitly stated that if goods are not removed from a factory there is no need for payment of duty.
6. There are factories which are vertically integrated to do manufacturing processes from the basic raw material as also factories which do some intermediate process only or just a process before the despatch of products suitable for consumption by ultimate consumers (i.e. other than industrial consumers). Let us illustrate this statement by taking the example of a cotton fabric to be sold to individual consumers for their use. There are factories which start from cotton fibre do processes for making yarn, weaving the yarn to make fabric, processes like printing, dyeing etc to make the fabric marketable to the individuals. Factories having facility to do such processes at more than one stage may be called composite mills. There are also factories which only make yarn, factories which get yarn and weave it to make fabric out of it and factories which do processing like dyeing, printing etc. The taxation system tries to achieve uniform tax incidence on the final product irrespective of whether the goods are processed in a composite factory or in disintegrated factories. If at all there is a policy bias it is for encouraging disintegration of manufacturing activities, as ay be seen from exemptions provided for small sale units, and not towards encouraging vertical integration. A system where composite mills have to pay duty only on fabric stage and not the duty payable at yarn stage brings discrimination against small manufacturers. While making this statement the relief granted through Cenvat Scheme available as at present is not taken into account because such benefit was not available when the dispute arose in 1980s mainly relating to composite textile mills.
7. Taxation policy in this country has evolved after 1980s and the major change has been to the introduction of Modvat Scheme which is presently known as Cenvat scheme. With this the disintegrated units get relief of duty paid by the manufacturers of raw material through Cenvat Scheme if the final product manufactured by them is dutiable. The integrated Mills get relief through notification 67/95-CE which provides exemption for all goods consumed within the factory so long as the goods are used in the manufacture of dutiable final product. But this exemption is not available if any goods manufactured are captively consumed in the manufacture of exempted goods. Thus Notification 67/95 and Cenvat Credit Rules are seen together it can be seen that the notification is for achieving parity between composite mills and disintegrated mills. Revenue has been enforcing demand of excise duty on excisable goods used in a factory for further manufacture of exempted final products. It is this practice which is under challenge in this proceeding.
8. The effect the above policy can be illustrated by taking the example of manufacture of potable alcohol from molasses. This example is something which actually happens. Molasses is dutiable. Potable alcohol is not excisable. If the appellants argument is successful a factory which manufactures molasses and potable alcohol in the same factory need not pay excise duty on molasses used within the factory for manufacture of alcohol but a distillery which gets molasses from another factory has to suffer the excise duty payable on molasses. Revenues argument is to avoid such disparity.
9. Yet another example can be in respect of exemption granted for tractors of capacity less than something specified. Then issue of duty liability on engines produced in the same factory and used in manufacture of such exempted tractors arises. If the government proposes to give exemption to such engine also then in the normal course, not only will exemption be provided for engines manufactured and used in the same factory but exemption will be provided also for engine manufactured in another factory for use in such tractors subject to verification of end use to achieve parity between the two situations. But of course the demand for exemption may not stop at the stage of engines, but exemption may be asked for spark plugs used in engines. In such situations government decides the stage backwards up to which exemptions have to be given and issues notification according to policy decision taken in the matter.
10. Let us take one more example which is imaginary. Bicycles are exempted from excise duty. But government has not extended this exemption so that the basic raw material namely steel used in manufacture of bicycles also is exempt. So a manufacturer of cycles who gets steel required from a manufacturer of steel has to pay excise duty on such steel. He cannot get Cenvat credit for such duty paid because his final product is exempted from duty. Now let us imagine a situation where SAIL starts manufacturing cycles in the factory in which they produce steel. Then if no duty is to be paid on steel consumed in the same factory for further manufacture as is being canvassed by the appellants in this case, SAILs bicycles will suffer excise duty less than the cycles manufactured by manufactures who buy steel from SAIL. It is this disparity which is being sought to be plugged by the concept that goods removed for captive consumption is also to be treated as removed from factory as canvassed by Revenue.
11. There are some apparent adverse consequences of the laws for implementing this concept. Such consequences are seen in many cases that come up based on the argument similar to the argument canvassed by Revenue in this case. Whenever a product is exempted from excise duty, Revenue comes up with the argument that any product which comes into existence in the factory of production in the course of manufacture of the exempted product but before the exempted final product is dutiable. Sometimes such argument goes to the extent of taking away, substantially or partially, the exemption that is granted. Some examples can be given. When biscuits of retail price below Rs. 100 per Kg is exempt (S. No. 18A of Notf. 3/2006-CE), Revenue argues that sugar syrup, which comes into existence before biscuit, has to pay duty. If wood pulp is exempt from excise duty, Revenue may argue that sodium salicylate which comes into existence before wood pulp is dutiable. There was a time when plastic laminated sheets were exempted from duty. Revenue made out a case that before plastic laminates, synthetic resin which was a dutiable item came into existence and the assessee had to pay duty on such synthetic resin. This case was decided by the Apex Court in the case of Moti Laminates Pvt. Ltd Vs. CCE as reported at 1995 (76) E.L.T. 241 (S.C.).. In this case, the Apex Court gave relief from duty on the argument that the synthetic resin that came into existence was not marketable. Numerous other cases of this type can be cited. In such types of demand the argument that the intermediate goods, captively consumed, do not have shelf-life or that the goods are not marketable have served as very effective defence against such demands. In the present case the dispute persists because it is very clear that the intermediate goods, namely cement clinker, has shelf life and also because of Cement clinkers are indeed cleared and marketed by many factories. So the standard defence for such situations does not come to the rescue of the appellants.
12. Now it is proper to record the legal submissions of both sides and decide on the matter in dispute.
13. The crux of the argument of the appellants is that prior to 20-02-1982, Rules 9 and 49 of Central Excise Rules,1944 dealt with the issue as to when excise duty was payable. Then it was argued by a few that the Rules did not provide that duty was payable when any excisable goods were used in the factory of manufacture for further manufacture. The Delhi High Court held in MODI CARPETS LIMITED AND ANOTHER Vs. UOI-1980 (6) E.L.T. 320 (Del.) that there was no provision for demanding duty so long as the goods are not removed outside the factory, though there were many decisions to the contrary as in the following cases:
(i) Oudh Sugar Mills Ltd. Vs. UOI-1982 (10) E.L.T. 937 (All.);
(ii) Maneklal Spinning and Manufacturing Co. Ltd Vs. UOI- 1978(2) E.L.T. (J 618) (Guj.).
14. After the decision of Delhi High Court there were a plethora of Writ Petitions filed in various High Courts by composite textile mills praying for injunction against Revenue from collecting duty in such cases.
15. In such context, Central Excise Rules, 1944 were amended first by issue of Notification 20/82-CE dated 20-02-82 and the notification was given effect to retrospectively with effect from 1944 by Finance Act, 1982. The following explanations were added in Rule 9 and 49.
16. Rule 9 before the same was amended was as follows :-
Rule 9. Time and manner of payment of duty. - (1) No excisable goods shall be removed from any place where they are produced, cured or manufactured or any premises appurtenant thereto, which may be specified by the Collector in this behalf whether for consumption, export, or manufacture of any other commodity in or outside such place, until the Excise duty leviable thereon has been paid at such place and in such manner as is prescribed in these rules or as the Collector may require, and except on presentation of an application in the proper form and on obtaining the permission of the proper officer on the firm: [The remaining provisions of Rule 9 which are not relevant for our purpose are omitted.]
17. By a Notification No. 20/82-C.E., dated 20-2-1982 of the Central Government, Rule 9 was amended by the addition of the following Explanation thereto :-
Explanation. - For the purposes of this rule excisable goods produced, cured or manufactured in any place and consumed or utilised -
(i) as such or after subjection to any process or processes; or
(ii) for the manufacture of any other commodity, whether in a continuous process or otherwise, in such place or any premises appurtenant thereto, specified by the Collector under sub-rule (1), shall be deemed to have been removed from such place or premises immediately before such consumption or utilisation.
18. Rule 49 before its amendment was as follows :-
Rule 49. Duty chargeable only on removal of goods from the factory premises or from an approved place of storage. - (1) Payment of duty shall not be required in respect of excisable goods made in a factory until they are about to be issued out of the place or premises specified under Rule 9 or are about to be removed from a store-room or other place of storage approved by the Collector under Rule 47: [The remaining provisions of Rule 49 which are not relevant for our purpose are omitted.]
19. By the said Notification, Rule 49 was amended by the addition of an Explanation thereto as follows :-
Explanation. - For the purposes of this rule, excisable goods made in a factory and consumed or utilised -
(i) as such or after subjection to any process or processes; or
(ii) for the manufacture of any other commodity, whether in a continuous process or otherwise, in such factory or place or premises specified under Rule 9 or store-room or other place of storage approved by the Collector under Rule 47, shall be deemed to have been issued out of, or removed from such factory, place, premises, store-room or other place of storage, as the case may be, immediately before such consumption or utilisation.
20. The provisions inserted by Notification 20/82-CE dated 20-02-82 were retained in Rules 4 and 5 of the Central Excise Rules 2002 which are reproduced below:
4. Duty payable on removal. - (1) Every person who produces or manufactures any excisable goods, or who stores such goods in a warehouse, shall pay the duty leviable on such goods in the manner provided in rule 8 or under any other law, and no excisable goods, on which any duty is payable, shall be removed without payment of duty from any place, where they are produced or manufactured, or from a warehouse, unless otherwise provided:
Provided that the goods falling under Chapter 61 or 62 of the First Schedule to the Tariff Act, produced or manufactured by a job worker may be removed without payment of duty leviable thereon and the duty of excise leviable on such goods shall be paid by the person referred to in sub-rule (3), as if such goods have been produced or manufactured by him, on the date of removal of such goods from his premises registered under rule 9.
Explanation. - It is hereby clarified that where such person has authorised the job worker to pay the duty leviable on such goods under sub-rule (3), such duty shall be paid by the job worker on the date of removal of such goods from his registered premises.
(2) Notwithstanding anything contained in sub-rule (1), where molasses are produced in a khandsari sugar factory, the person who procures such molasses, whether directly from such factory or otherwise, for use in the manufacture of any commodity, whether or not excisable, shall pay the duty leviable on such molasses, in the same manner as if such molasses have been produced by the procurer.
(3) Notwithstanding anything contained in sub-rule (1), every person who gets the goods, falling under Chapter 61 or 62 of the First Schedule to the Tariff Act, produced or manufactured on his account on job work, shall pay the duty leviable on such goods, at such time and in such manner as may be specified under these rules, whether the payment of such duty be secured by bond or otherwise, as if such goods have been manufactured by such person :
Provided that such person may authorise the job worker to pay the duty leviable on such goods on his behalf and the job worker so authorised undertakes to discharge all liabilities and comply with all the provisions of these rules.
Explanation I. - For the purposes of this rule, the expression job worker shall be deemed to mean the person who undertakes the process or processes that brings into existence the finished goods, complete in all respects, falling under Chapter 61 or 62 of the said First Schedule, in his factory. For the removal of doubt, it is further clarified that the job-worker may also get part of the processing required for the manufacture of the said goods done by another person but should bring back the same for the completion of the manufacturing process in his factory.
Explanation II. - For the purposes of this rule, excisable goods manufactured in a factory and utilised, as such or after subjecting to any process, for the manufacture of any other commodity, in such factory shall be deemed to have been removed from such factory immediately before such utilisation.
(4) Notwithstanding anything contained in sub-rule (1), Commissioner may, in exceptional circumstances having regard to the nature of the goods and shortage of storage space at the premises of the manufacturer where the goods are made, permit a manufacturer to store his goods in any other place outside such premises, without payment of duty subject to such conditions as he may specify.
5. Date for determination of duty and tariff valuation. - (1) The rate of duty or tariff value applicable to any excisable goods , other than khandsari molasses, shall be the rate or value in force on the date when such goods are removed from a factory or a warehouse, as the case may be.
(2) The rate of duty in the case of khandsari molasses, shall be the rate in force on the date of receipt of such molasses in the factory of the procurer of such molasses.
Explanation. - If any excisable goods are used within the factory, the date of removal of such goods shall mean the date on which the goods are issued for such use.
(3) The rate of duty in the case of goods falling under Chapter 61 or 62 of the First Schedule to the Tariff Act, produced or manufactured on job work, shall be the rate in force on the date of removal of such goods by the person referred to in sub-rule (3) of rule 4 from his premises registered under rule 9.
21. Regarding positions as stated in para 12 to para 20 there is no dispute and the dispute is about what is going to be stated hereafter.
22. On 25-02-2003 Notification 24/2003-CE (NT) was issued carrying out certain amendments in Central Excise Rules, 2002. The amendment carried out in Rule 4 is the subject matter of present dispute. This amendment in rule 4 which is directly relevant as also amendments in rules 5 and 11 which are indirectly relevant are reproduced below:
2. In the Central Excise Rules, 2002, -
(i) in rule 4, -
(a) the proviso and Explanation to sub-rule (1) shall be omitted;
(b) sub-rule (3) shall be omitted;
(ii) in rule 5, sub-rule (3) shall be omitted;
(iii) in rule 11, in sub-rule (1), the following proviso shall be inserted, namely, -
Provided that a manufacturer of yarns or fabrics falling under Chapter 50, 51, 52, 53, 54, 55, 58 or 60 or readymade garments falling under Chapter 61 or 62 of First Schedule to the Tariff Act may remove the said goods under a proforma invoice signed by him or his authorised agent. The provisions of sub-rules (2) to (5) shall apply to the proforma invoice except that the said invoice shall not contain the details of the duty payable. The manufacturer shall, within five working days from the issuance of the proforma invoice prepare the invoice in terms of this rule after making adjustments in respect of the goods rejected and returned by the buyer. The proforma invoice and the invoice issued in terms of this sub-rule shall have cross reference to each other by way of their serial numbers.;
23. The crux of the issue in this dispute is whether the said amendment has the effect of dropping Explanation-II printed under sub-rule (3) of Rule 4 re-produced in para 20 above. According to Revenue the Explanation-II has not been omitted. According to appellants Explanation-II has been omitted. If this issue is decided in favour of Revenue the entire basis of the argument of the appellants is wiped out.
24. Now we examine the arguments on either side on this crucial issue.
25. According to Revenue the Explanation-II in sub-rule (3) starts with the words For the purpose of this Rule and not with the words For the purpose of this sub-rule. That being the case dropping of sub-rule 3 cannot result in dropping of an explanation placed below sub-rule but was applicable for the entire Rule 4. Revenue also points out that where an explanation was to be omitted, the amending notification specifically stated so. Amendment made to sub-rule (1) by the same notification 24/03-CE (NT) can be seen in this regard.
25.1. According to the appellants the onus is on the Department to prove and to irrefutably show despite the authoritative publication, Explanation-II after Rule 4(3) was not deleted. The onus has not even been attempted to be discharged by the Department in this case.
25.2. The Counsel further argues that the two Explanations appear immediately after sub-rule (3) and before sub-rule (4) of Rule 4. So the Explanations are part of sub-rule (3) and not separated from it. If sub-rule (3) is omitted the explanations also get omitted.
25.3. Further the Counsel points out there were other amendments done in Rule 4 by the same Notification. That is, the proviso to sub-rule (1) of Rule 4 was omitted. After this proviso is omitted Explanation-I in sub-rule (3) had no meaning because this explanation explains the meaning of job-worker. Once the proviso to sub-rule (1) is omitted the said expression namely job-worker does not occur anywhere in the Rule. So Explanation-I had become redundant. This explanation, which became redundant, gets omitted anyway. Since there is no omission of Explanation-I that is because it was attached to sub-rule 3 which was omitted by notification No. 24/03-CE(NT). If that be the case with Explanation-I, there cannot be a different position in the case of Explanation-II.
25.4. The appellants argue that there is not a single evidence to show that the explanations have not been dropped. They further point out that when this argument was raised for the first time in the Apex Court Hon. Attorney General was present in the court and there was no argument from the Government that the explanation has not been omitted. They argue that present argument is baseless, bald, without any substance and a mere ipse dixit.
26. As can be seen from facts recorded above, the disappearance of Explanation-II positioned below sub-rule (3) of the Rule 4 is a very obvious conclusion for private publishers of the amended Rules and persons carrying out amendments on the web-site of CBEC. It is most probably a matter of surprise to the policy makers because there was no policy change announced to the effect that excise duty need not be paid for captive consumption from 25-02-2003. It can also be a source of worry to them for the future. It may be a matter of embarrassment to the person who drafted the amendment. It appears to be a matter of delight for the Counsels who argue that duty liability can no longer arise in the case of captive consumption of excisable goods. It is a matter of labour for judicial forums to decide whether the explanation has gone or not.
27. A position of law is not something to be proved by evidence. As per section 57 of the Evidence Act 1872, it is something to be judicially noticed based on gazette publications. So evidence in the form of publication of the amended Rules by any private publisher or the amended text placed on the web-site of CBEC are not relevant. The argument that the amended version as placed on the web-site of CBEC is an authoritative publication is not acceptable because such work is carried out by agency to which the maintenance of web-site is outsourced with the help of low level employees of the Government.
28. The position is to be decided by taking into account the original notification published in gazette and the amending notification published in the gazette. There is no dispute about these. The dispute is how the amendment should be incorporated in the original notification. This is not a matter to be decided on the basis of evidence to be produced either by Revenue or by the appellants. No gazette notification showing the amended version has been produced before the Tribunal. So what is to be seen is that how the amendment is to be incorporated in the original Rules.
29. We note that that sub-rule (4) of Rule 4 is non-obstante clause. It starts with the expression Notwithstanding anything contained in sub-rule (1). Explanation-I was applicable to sub-rule (1). So the fact that the explanations were placed before the non-obstante clause by itself can not mean that the explanation was appended to sub-rule (3) and not to Rule 4 as a whole, especially in view of the fact that Explanation-II started with the expression For the purpose of this rule and not For the purpose of this sub-rule. On argument that Explanation-I had become redundant and so Explanation-I should go along with Explanation-II, we notice that if Explanation-II is dropped, the explanation under Rule 5 becomes redundant according to the argument by appellant. But this explanation is not dropped by the amending notification or by the private publishers of amended rules.
30. We also note that notification 24/03-CE(NT) is issued in the context of change in taxation policy in the matter of levy of excise duty on job-workers of textile products as can be seen from the different amendments done by the notification. The appellant has not produced any evidence of any policy announcement made by government in the matter of levy of excise duty on goods captively consumed.
31. In the light of all the facts above, we are of the view that Explanation-II explicitly stated to be for the purpose of Rule 4 put placed after sub-rule (3) but before the non obstante clause 4 did not get omitted by amendments made by Notification 24/03-CE(NT). The fact that Explanation-I if retained is redundant is not a sufficient reason to conclude that both explanations were dropped.
32. Though the above finding by itself settles the issue it is necessary to record other arguments canvassed by both the sides.
33. Presuming that the Explanation-II is omitted, Counsel for appellants makes the following submissions:
33.1. He relies on the observation of the Apex Court in para 39 of the decision in the matter of J. K. Spinning and Weaving Mills Ltd. And another Vs. UOI reported at 1987 (32) ELT 234 (SC) stating as under:
39. It is well settled that a deeming provision is an admission of the non-existence of the fact deemed. Therefore, in view of the deeming provisions under Explanations to Rules 9 and 49, although the goods which are produced or manufactured at an intermediate stage and, thereafter, consumed or utilised in the integrated process for the manufacture of another commodity is not actually removed, shall be construed and regarded as removed. The Legislature is quite competent to enact a deeming provision for the purpose of assuming the existence of a fact which does not really exist. It has been already noticed that the taxing event under Section 3 of the Act is the production or manufacture of goods and not removal. The Explanations to Rules 9 and 49 contemplate the collection of duty levied on the production of a commodity at an intermediate stage of an integrated process of manufacture of another commodity by deeming such production or manufacture of the commodity at an intermediate stage to be removal from such place or premises of manufacture. The deeming provisions are quite consistent with Section 3 of the Act. As observed by the Federal Court in Megh Rajs case (supra) there is in theory nothing to prevent the central legislature from imposing a duty of excise on a commodity as soon as it comes into existence, no matter what happens to it afterwards, whether it be sold, consumed or destroyed or given away. It is for the convenience of the taxing authority that duty is collected at the time of removal of the commodity. There is, therefore, nothing unreasonable in the deeming provision and, as discussed above, it is quite in conformity with the provision of Section 3 of the Act. The contention that the amendments to Rules 9 and 49 are ultra vires Clause (b) of sub-section (4) of Section 4 of the Act, is without substance and is overruled. 33.2. So it is argued that once the deeming provision has gone nothing survives in spite of the explanation under Rule 5.
33.3. He points out that the Apex Court had doubted whether there will be duty liability on goods captively consumed in a continuous process as may be seen from para 39 in the above judgement. Further he relies on the decision in para 7 of the Rajasthan High Court in the case of Aditya Cement Vs. UOI- 2002 (141) E.L.T. 623 (Raj.) holding that the manufacturing process of cement is an integrated process.
33.4. He further argues that if the provision of section 3 of Central Excise Act was good enough to create a liability to pay duty there was no scope for the various disputes that arose prior to 1982 and there was no need for retrospective amendment to Rule 9 and 14 and also to incorporate Explanation-II in Rule 4.
33.5. It is also argued that the explanation under Rule 5 is only for determination of rate of duty and value if duty is payable. Such a provision cannot replace the deeming fiction which was there in Explanation-II placed under sub-rule (3) of Rule 4. If duty liability is not there, nothing turns out by prescribing the date on which goods are cleared.
33.6. He argues that provisions under Rule 21 or the explanation under Rule 5 or the supplementary instruction issued by CBEC which does not have the status of a subordinate legislation cannot imply the deeming provisions which was there in Explanation-II to sub-rule 4 which has been omitted as per his argument.
34. Revenue makes the following submissions:
34.1. The charging section for excise levy is section 3 of Central Excise Act. So goods are leviable once goods are manufactured. Though duty payment is postponed to the stage of removal, the liability cannot vanish if it is not removed from the factory. They point out Rule 21 of Central Excise Rules providing for remission of duty lost or destroyed due to natural causes or unavoidable accident. If the interpretation canvassed by Appellants is upheld Rule 21 becomes redundant.
34.2. They argue that Rule 4 does not talk about clearance from a factory but prescribes that no excisable goods, on which any duty is payable, shall be removed without payment of duty from any place, where they are produced or manufactured, or from a warehouse, unless otherwise provided. They argue that as far as Cement clinker and Cement are produced in different places in the factory and removal from one to another can be done only after payment of duty since there is no other exemption.
34.3. They rely on Explanation under Rule 5 reading as under:
Explanation. - If any excisable goods are used within the factory, the date of removal of such goods shall mean the date on which the goods are issued for such use.
34.4. It is argued that this explanation which is still existing in all printed versions of the amended rules clearly shows that goods used in the same factory for further manufacture is treated as removed.
34.5. They rely on the decision of the following decisions:
(i) Usha Rectfier Corporation- 2011 (263) ELT 655 (SC)
(ii) Nestle India Vs. CCE-2011 (270) ELT 675 (Tri-Del) 34.6. The Ld AR further argues that Rule 31 of the Central Excise rules, 2002 has given the power to CBEC to issue supplementary instructions. Manual is of supplementary instructions is published. Part-I Chapter 3 of this manual (para 1.5 and 2.1) deals with captive consumption and it is clearly laid down that there is duty liability on goods captively consumed unless exempted by notification issued under section 5A of Central excise Act.
34.7. There cannot be any argument that the appellants were under the bonafide impression that duty liability on goods captively consumed has been done away with by issue of Notification 24/03-CE(NT), because no such argument was taken any time in proceedings before lower authorities and was taken for the first time before the Apex Court. There was no policy change announced to that effect. The appellants cannot take note of the wrongly constructed rules after amendment as published on web-site of CBEC and at the same time ignore the supplementary instruction issued by CBEC.
35. We have considered arguments on both sides. We find that this matter has been examined at length by the Hon. Supreme Court in the case of J.K. Spinning and Weaving Mills Ltd (Supra) even for a situation where the explanation added in 1982 was not present. Paras 21, 22 and 23 are relevant. These are re-produced below:
21. So far as captive consumption is concerned, the Gujarat High Court has taken the same view as that of the Allahabad High Court in Maneklal Harilal Spinning and Manufacturing Co. Ltd. v. Union of India, 1978 E.L.T. 618 where it has been held by the Allahabad High Court that Excise duty is payable when yarn is removed from the spinning department to the weaving department for the manufacture of fabrics.
22. All the above decisions relate to Rules 9 and 49 before they were amended. Leaving aside the question of specification for the time being, Rule 9 before its amendment prohibits the removal of excisable goods whether for consumption, export or manufacture of any other commodity in or outside such place, until the Excise duty leviable thereon has been paid. It is manifestly clear from Rule 9 that it contemplates not only removal from the place where the excisable goods are produced, cured or manufactured or any premises appurtenant thereto, but also removal within such place or premises for captive consumption or home consumption, as it is called. Thus if a commodity which is manufactured in such place or premises and is used for the manufacture of another commodity, then it will be a case of removal for the purpose of payment of Excise duty. This view which we take clearly follows from the expression whether for consumption, export or manufacture of any other commodity in or outside such place. Thus consumption of excisable goods may be within such place or outside such place. The decisions which have taken the view that if a commodity manufactured within the factory in one plant is transferred to another plant for the purpose of production of another commodity will be removal for the purpose of payment of Excise duty are, in our opinion, correct. It is not easily understandable why the definition of expression factory under Section 2(e) of the Act has been taken resort to in some of the decisions for the purpose of interpretation of Rule 9. There can be no doubt that if a commodity is taken outside the factory it will be removal, but Rule 9 does not, in any manner, indicate that it is only when the goods are removed from the factory premises it will be removal and when the excisable goods manufactured within the factory is removed from one plant to another it will not be a case of removal. On the contrary, as noticed already. Rule 9 clearly embraces within it captive consumption of excisable goods, that is to say, when excisable goods manufactured in the factory are used for production of another commodity.
23. Now the question is whether Rule 9 before it was amended also envisaged a case of an intermediate product obtained in an integrated and continuous process of manufacture of another commodity, that is, the end product. It must be admitted that prima facie Rule 9 does not show that it also covers a case of integrated, continuous and uninterrupted process of manufacture producing a commodity at an intermediate stage which again is utilised in such continuous process for the manufacture of the end product. The learned Attorney General, appearing on behalf of the Union of India, submits that Rule 49 and Rule 49 also envisaged such a case of integrated process of manufacture of the end product using a product produced at an intermediate stage. In support of his contention he has placed reliance on an unreported decision of the Bombay High Court in Misc. 491 of 1964, dated April 30, 1970 (Nirlon Synthetic Fibres and Chemicals Ltd. v. Shri R.K. Audium, Assistant Collector and Others). The learned Single Judge of the Bombay High Court took the view that a continuous or integrated process of manufacture was not initially contemplated by Rule 49 or Rule 49, but after the addition of a new set of rules being Rules 173A to 173K to the Rules by the Notification dated May 11, 1968 a continuous and integrated process of manufacture came to be contemplated by the scheme of the Act and the Rules. Reliance has been placed by the learned Judge on the Explanation to Rule 173A as added by the said Notification dated May 11, 1968. The Explanation is as follows :-
Explanation. - The expression home use means the consumption of such goods within India for any purpose and includes use of such goods in the place of production or manufacture or any other place or premises (whether by continuous process or not), for manufacture of any commodity..
36. In view of the analysis of the Apex Court there was liability on goods captively consumed even without the explanations added. Apex Court wondered why the dispute arose in 1982. So the Tribunal should not be a forum to re-start such a dispute in the context of notification 24/03-CE (NT) especially when we do not find any reason to do so.
37. The Hon. Apex Court had some doubt about duty liability in the case of goods transferred from one plant to another in an integrated process in the absence of the explanation. We are of the view that the process of manufacture of Clinker and Cement is not an integrated process for the purpose of duty liability because Clinker is manufactured in batch process and Cement is manufactured out of such clinker using separate machinery after transporting it from one place to another within the factory. The observation of the Hon. Rajasthan High Court was in a different context of Modvat Credit for duty paid on explosives used in mines by a manufacturer of Cement. In that context the rule required that the input on which Cenvat Credit could be taken should have been used in or in relation to the manufacture of cement. While deciding that explosives satisfies this criterion the Court used said mining and manufacture of cement was an integrated process. The use of the word integrated in such context cannot be understood as in the same context that the Apex Court used the word in the case of J. K. Synthetics (supra).
38. Thus even in the absence of Explanation No. II in Rule 4 of Central Excise Rules duty liability will arise in this case.
39. Thus we are of the view that Explanation-II of Rule 4 has not been dropped by Notification 24/2003-CE (NT). Further even in the absence of the explanation there is a duty liability that arises when clinker is removed within the factory for manufacture of Cement.
40. At this stage we would like to add a paragraph to answer the argument of the Counsel as to what was the need to retrospectively amend the Rules by Finance Act, 1982 if the position of law was so clear. Actually this paragraph is by way of inference and should have formed part of the prelude to this order. But it can be understood better if placed now. That is the reason why it is placed at this stage. During the 1980s and earlier, one of the main sources of revenue for GOI was excise duty from textile yarns. Also, unlike now, there were many composite textile mills. The revenue loss on account of the cascading litigations by different composite mills after the decision of Delhi High Court in the case of Modi Carpets was not a situation which the GOI could have waited and watched till the Apex Court gave its judgement in J. K. Synthetics. Many mills were clearing goods against bank guarantees. The revenue loss that happened for the period 16-04-1980 (date of judgement in Modi Carpets) to 20-02-1982 (issue of Notification 20/82-CE) was substantial and the possibility of loss of further revenue was looming large. Most of the revenue lost could not be recovered due to the dispute about issue of notices for recovery of duties not paid, which issue is dealt with in the latter part of the judgement of the Apex Court in J. K. Synthetics. Further there was doubt about clearances in the case of integrated processes as expressed by the Apex Court. So retrospective amendments were made.
40. The issue directed to be decided by the Hon Supreme Court to be decided by the Tribunal is decided as per para 39 above.
(Pronounced in Court on____________) (Archana Wadhwa) Member (Judicial) (Mathew John) Member (Technical)