Custom, Excise & Service Tax Tribunal
M/S Ranbaxy Laboratories Limited vs Cce, Chandigarh on 2 February, 2010
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL, West Block No.2, R. K. Puram, New Delhi. Date of hearing: 02 & 03.02.2010 Date of decision:______2010 For approval and signature: Honble Shri Justice R.M.S. Khandeparkar, President Honble Shri Rakesh Kumar, Member (Technical) 1. Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982. Yes 2 Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? Yes 3 Whether Their Lordships wish to see the fair copy of the Order? Seen 4 Whether Order is to be circulated to the Departmental authorities? Yes Excise Appeal No. 282 of 2007 [Arising out of Order-in-Original No. 43/CE/CHD/2006 dated 17.11.2006 passed by the Commissioner of Central Excise, Chandigarh]. M/s Ranbaxy Laboratories Limited Appellants Vs. CCE, Chandigarh Respondent
Appearance: Shri B.L. Narsimhan with Sh. Ravi Raghavan, Advocates for the appellants.
Rep. by Sh. Sunil Kumar, DR for the respondent.
Coram: Honble Sh. Justice R.M.S. Khandeparkar, President Honble Sh. Rakesh Kumar, Member (Technical) Oral order No._____ Per: Shri Justice R.M.S. Khandeparkar:
The appellants are engaged in manufacture of medicament classifiable under Chapter 29 and 30 of the First Schedule of the Central Excise Tariff Act, 1985, having their unit located in the state of Himachal Pradesh. The appellants undertook expansion programme at their factory in order to avail benefit of the exemption of duty liability on the finished goods under Notification No. 50/2003-CE dated 10.06.2003 and, therefore, filed their declaration in that regard on 10.01.2005, and on that day the appellants had with them some of the inputs in stock, which were procured prior to that day, and they were either lying in the store or contained in the goods in the manufacturing process or contained in the finished goods in stock.
2. It is the case of the appellants that in March 2005, they had already reversed, under protest, the credit of Rs. 3 crore which was earned prior to 10.01.2005 and which was not utilized prior to 1.01.2005, and as regards the inputs in the stock, on that day, the credit taken in respect of duty paid thereon, the same was already utilized prior to 10.01.2005, and therefore the same could not be denied to them, nor can be ordered to be reversed.
3. It is the case of the department that as per the Cenvat Credit Rules, the credit in respect of the duty paid on the inputs is admissible provided it is availed and utilized in or in relation to the manufacture of final goods which are not exempt from payment of duty. Therefore, a show cause notice dated 21.11.2005 came to be issued to the appellants in relation to such stock of inputs available with them on which cenvat credit of Rs. 7,69,52,504/- was sought to be wrongly availed.
4. The Commissioner at Chandigarh by his order dated 17.11.2006 confirmed the demand of Rs. 7,69,52,504/- alongwith interest thereon and inposed the penalty of Rs. 50 lakhs, while ordering adjustment of Rs. 3 crores already debited by the appellants.
5. The impugned order is primarily sought to be challenged on the ground that prior to 10.01.2005, the appellants were entitled to claim cenvat credit of the duty paid on the inputs and utilize the same for discharging the excise duty payable on the finished goods and, the credit so earned was accordingly availed and utilized towards the payment of duty on the final goods prior to 10.01.2005. Even as regards the inputs lying in the stock on 10.01.2005 which were procured prior to the said date, the appellants were entitled to avail and utilize the cenvat credit on the duty paid on those inputs. Learned Advocate for the appellants placing reliance in the judgement of the Apex Court in CCE, Pune vs. Dai Ichi Karkaria Limited reported in 1999 (112) ELT 353 submitted that at the time of procurement of inputs, the credit was validly taken and duly utilized by the appellants, the question of denial of credit does not arise merely because subsequently the finished goods manufactured by the appellants had been fully exempted from the payment of duty, and that the credit can be disallowed only if it is proved that the same was not validly taken initially and not otherwise. Further, that the issue in this regard is no more res integra and is well settled by the decisions of the Larger Bench of the Tribunal in CCE, Rajkot vs. Ashok Iron & Steel Fabricators reported in 2002 (140) ELT 277 and approved by the Supreme Court in 2003 (156) ELT 212, and in HMT Limited vs. CCE, Panchkula reported in 2008 (232) ELT 217. Learned Advocate for the appellants submitted that the Larger Bench relying upon the decision in Dai Ichi case has declared the legal proposition that in a case where an assessee has taken credit on inputs and where the finished product later on becomes exempt, the credit of duty paid on inputs lying in stock on the day of availing exemption is not required to be reversed. The said law laid down by the Larger Bench in Ashok Iron is followed in number of cases. It is also submitted that statutory provision existing at the time of receipts of the inputs or capital goods determine the eligibility of such inputs and capital goods for availment of cenvat credit and sought to rely upon the decisions in the matter of HMM Ltd., vs. CCE reported in 1996 (87) ELT 593 (SC), Sourashtra Chemicals reported in 2007 (212) ELT 7 (SC) clarified in 2008 (221) ELT 118 (SC), Hindustan Zinc Ltd., vs. CCE reported in 2008 (223) ELT 145 (Raj.), CCE vs. Saboo Alloys Pvt. Ltd., reported in 2010 (249) ELT 519 (HP) TAFE Limited (Tractor Division) vs. CCE, Bangalore reported in 2007 (210) ELT 571, CCE vs. CNC Commercial Ltd., reported in 2008 (224) ELT 239 (P&H), CCE vs. United Vanaspati Ltd., reported in 2009 TIOL 723 (HP) unreported decision in the matter of CCE, Chandigarh vs. Purval and Associates Limited dated 5.05.2009 and in CCE, Chandigarh vs. M/s P.A. Precision Components Limited dated 15.05.2009. It is further contended on behalf of the appellants that even though the decision in Ashok Iron case was rendered in the context of the provisions of Central Excise Rules, 1944 as amended in April 2000, the ratio is squarely applicable to the cases under Cenvat Credit Rules since the provisions of law on the subject which were in force and applicable prior to April 2000 were in pari materia with the provisions of Cenvat Credit Rules 2002. While referring to Rule 57C and 57CC of the Central Excise Rules 1944 and Rule 6 of the Cenvat Credit Rules 2002, it is sought to be contended that the comparison of those provisions and the application of law laid down in HMTs case would show that if a manufacturer is able to prove that the availment and utilization of credit was valid at the time it was availed and utilized, then the same cannot be disallowed on account of subsequent exemption of the finished goods. Referring to Rule 9(2) of the Cenvat Credit Rules, it was submitted that the same clearly shows that the legislature consciously and deliberately did not enact any provision to the effect that in respect of inputs lying in stock on the date of option for exemption relating to the final product, other than the exemption based on value or quantity of the clearance, the credit earned on such inputs would be reversible. Reliance is sought to be placed in the decision in Eicher Tractors Ltd., vs. Union of India reported in 1999 (106) ELT 3 (SC).
6. It was then sought to be contended that the Notification No. 50/03 granting exemption to the final product manufactured by the appellants did not contain a condition that the cenvat credit on inputs would not be available and in that regard, reliance is placed in the decision in the matter of Andhra Pradesh Paper Mills Limited vs. CCE, Visakhapatnam reported in 2005 (185) ELT 371.
7. It is then sought to be argued, in alternative, that the finished goods being cleared for export under bond, the same cannot be considered as the exempted goods. Therefore, it is submitted on behalf of the appellants that out of total credit available on inputs lying in stock on 10.01.2005, the credit to the extent of Rs. 4,68,12,729/- pertain to the inputs those were used in the manufacture of export goods. Out of the total credit earned on the inputs lying in stock, those were contained in finished goods on 10.01.2005, the credit of Rs. 80,84,575/- pertained to the inputs used in the manufacture of the finished goods those were cleared for export or meant to be exported. In this regard attention is drawn to Rule 6(6) of Cenvat Credit Rules, 2004. In any case, it is submitted that the appellants are entitled for rebate under Rule 18 of the Central Excise Rule 2002 in respect of duty paid on inputs which are used in manufacture of export goods by a unit availing area based exemption under Notification No. 50/2003-CE. Under Rule 18, the Central Government has issued notification No. 21/2004-CE (N.T.) dated 6th December 2004 in which the procedure for rebate of excise duty paid on inputs used in the manufacture of export goods has been prescribed. Further Para 1.2 of Part V of Chapter 8 of the CBEC Manual of Supplementary Instructions clarifies that for grant of rebate of excise duty paid on inputs used in the manufacture of export goods, such export goods include dutiable or exempted as well as non excisable goods. Hence, the appellants are also entitled for such rebate.
8. Lastly, it is the contention on behalf of the appellants that the quantum of duty confirmed under the impugned order is incorrect. It has been held that the credit deniable on the raw materials was Rs. 5,17,06,612/-, on packing materials was Rs. 1,35,25,716.00 paise, on goods in process was Rs. 41,45,602.15 paise and on finished goods was Rs.80,84,574.85 paise, totaling to Rs. 7,74,62,505.10 paise. The appellants did not avail the credit of Rs. 1,72,62,167.92 paise for the inputs during the period from 1st January to 10th January of 2005. Therefore, net credit on inputs lying in stock was Rs.6,02,00,337.18 paise. Out of the total credit lying in stock on 10.01.2005, credit of Rs. 5,10,000/- was reversed by the appellants and hence duty that could have been confirmed could not exceed Rs.5,96,90,337.18 paise.
9. On the other hand, the learned DR submitted that merely because the credit is sought to be availed in respect of duty paid on inputs, there is no presumption that it is invariably irreversable inspite of the fact that the such credit is not lawfully utilized. The credit sought to be availed has to be utilized lawfully and that is possible only upon utilization of the credit as well as the inputs, on which the credit is earned, are used in or in relation to manufacture of the final dutiable products and till then it cannot be said that the credit is lawfully utilized. According to learned DR, though there may not be one to one relationship between the final product wherein the input on which credit earned is used and the final product for which the credit earned on such input is used for payment of duty, and that the credit can be utilized for payment of duty on a final product other then the one in which the input has been actually utilized, yet such final product has necessarily to be dutiable product and not exempted one and till the such utilization of such input, it cannot be said that the credit is lawfully utilized. Reliance is sought to be placed in the decision in the matter of Super Cassettes India Limited vs. Union of India reported in 1997 (94) ELT 302 (All.) Maruti Suzuki vs. CCE, Delhi-III reported in 2009 (240) ELT 641, CCE vs. Gujarat Narmada Fertilizers Co. Ltd., reported in 2009 (240) ELT 661, Albert David Limited vs. CCE Meerut, reported in 2003 (151) ELT 443, and the one in Raghuvar (India) Limited vs. CCE, Delhi reported in 2002 (140) ELT 280. He further submitted that the decision in Dai Ichi Karkaria case has no application to the matter in issue as the said decision was on the point of valuation of the goods. Besides, proper reading of para 17 of the said decision, on which heavy reliance is placed in all those decisions, clearly speaks of requirement of use of inputs in excisable and dutiable product and it is evident from the observation therein we are here really concerned with credit that has been validly taken, and its benefit is available to the manufacture without any limitation in time or otherwise unless the manufacturer itself chooses not to use the raw material in its excisable product.
10. It is further submitted by the learned DR that the fact that the issue is no more res integra cannot be disputed but the same is not on account of Larger Bench decision in Ashok Iron case or HMT case but on account of the decisions by the Supreme Court in Maruti Suzuki read with the decision in Gujarat Narmada Fertilizers Co. Ltd., and Ichalkaranji Machine Centre Private Ltd. vs. CCE, Pune reported in 2004 (174) ELT 417 case as well as of the Allahabad High Court decision in Super Cassettes case.
11. While disputing the contention regarding absence of machinery provision, it is submitted by the learned DR that the demand has been raised and confirmed under Rule 14 of the Cenvat Credit Rules and Section 11A /11AB of the Central Excise Act. The provisions of law comprised under Section 5B of the said Act though were added to the statute later on, the same are to be read in proper perspective. The same relate to the issue of non reversal of the credit. It is further contention on behalf of the respondent that the appellants are not entitled for benefit of Rules 6(6)(v) of the Cenvat Credit Rules since they have not cleared the goods for export under bond. Besides once the finished goods are exempt from payment of duty, the legal consequences which are required to flow therefrom do flow. The credit of duty, if on the day the assessee opts for the benefit under an exemption notification, the credit of duty earned on the inputs those (i) are lying in stock, or (ii) contained in manufacturing process, or (iii) contained in finished products in stock, is found, then the same cannot be utilised in view of the provisions of law comprised under Rule 6(1) of the said Rules. If on the date on which the finished goods stand exempted from payment of duty, the goods cleared for export under the bond obviously could not be covered under any of those categories mentioned above. The impugned order clearly states that the duty has been demanded only in respect of these three categories and not on the goods those have been cleared for export under bond. Further, the appellants have neither asserted that they had cleared the goods for export under bond nor have they submitted any documentary proof in that regard.
12. The learned Commissioner in the impugned order while referring to the scheme of Cenvat Credit and rejecting the contention that when the credit was taken, the final product was not exempted from duty and it was only subsequently that they avail exemption and that, therefore, rule 6 of the said rule would not be attracted, has held that the whole scheme is in respect of excisable goods and, therefore, once the exemption is availed, cenvat credit taken in respect of inputs which are in stock has to be reversed. Even in respect of the inputs used in manufacture of the final product cleared without payment of duty, the cenvat credit becomes inadmissible and will have to be reversed. The cenvat credit scheme is intended to reduce the burden of excise levy on the final consumer and any interpretation which gives a manufacturer/ assessee the benefit of credit of duty on inputs whether on the final product, for manufacture of which the credit has initially be taken, exemption is availed, it would result in an unjust enrichment to the assessee at the cost of the consumer/state. The scheme and the provision of law under provisions of rule (6) are aimed to ensure compliance of the fundamental principle of the excise duty that the excisable goods should not escape duty and at the same time by providing credit facility, the cascading effect of excise duty on the goods is limited.
13. Upon hearing at length the learned Advocates and the representatives for the parties and on perusal of the records placed before us, the following points arise for our consideration:-
(i) Whether the cenvat credit availed on the inputs being in stock on the day the assessee opts for exemption from payment of duty under Notification No. 50/03 dated 10.06.2003 is required to be reversed?
(ii) Whether the above issue already stands answered and concluded by the decisions of the Larger Bench in Ashok Iron and HMT cases?
(iii) Whether an exemption notification should specifically provide for non availability of cenvat credit facility in relation to the duty paid on inputs which are to be utilized in the goods availing the exemption benefit under such notification?
(iv) Whether the goods cleared for export under bond cannot be considered as the exempted goods, and that therefore, the manufacturer thereof are entitled to avail the cenvat credit in respect of duty paid on the inputs utilized in manufacture of such final goods, and that whether the appellants are entitled for the rebate as sought to be contended?
(v) Whether in the facts and circumstances of the case, the quantification of duty has been correctly done or not?
14. In case the issue, which is sought to be raised in the matter, had been subject matter of deliberation and decision by any Larger Bench, certainly it would be binding upon us. It is therefore necessary to ascertain whether the issue sought to be raised in the matter already stands answered and concluded by the decisions of the Larger Bench in Ashok Iron case and in HMT case.
15. In Ashok Iron case as is evident from para 3 of the order therein, the issue which was considered was whether the credit availed and utilized under the modvat scheme during the period when the final products were dutiable was required to be reversed when subsequently the final product was exempted from duty liability. At the outset, it is to be noted that this is not the issue which arises for consideration in the matter in hand. In the case in hand, the issue relates to the credit remaining in stock on the day the assessee opts for manufacture of exempted final products on account of non-utilization of the inputs on which such credit was earned by the assessee and not relating to a matter where the credit so earned has already been utilized while the final products were dutiable and not exempted.
16. It is pertinent to note that the Larger Bench after taking note of the decision of the Apex Court in Dai Ichi Karkaria case held that the Apex Court therein did not find favour with the submission that the credit so earned is a contingent credit, that it could be disallowed under certain circumstances, that the manufacturer does not have indefeasible right or title to it, that the credit of excise duty on raw materials in the register maintained for modvat purposes is only a book entry and the same can be utilized later on for payment of excise duty on excisable product and that it gets matured when the excisable product is removed from the factory and the stage for payment of excise duty thereon is reached. Having observed so, it was recorded by Larger Bench that the nature of the credit for excise duty paid on raw material was explained by the Apex Court in Dai Ichi Karkaria case in para 17 of its decision. Further, the Larger Bench while observing that the decisions in the matter of CCE, Meerut vs. Modi Rubber reported in 2001 (133) ELT 515, CCE, Jaipur vs. Raghuvar (India) Ltd., reported in 2000 (118) ELT 311, Chandrapur Magnet Wires (P) Ltd., (supra), CCE, Vadodara vs. Dhiren Chemicals reported in 2002 (139) ELT 3 which were relied upon by the learned DR did not relate to the issue which was referred for the decision, held thus:-
We find that none of these decisions relates to the issue with which we are concerned. We are not informed that a later decision of the Supreme Court has taken a different view from Dai Ichi Karkaria Limited case. In view of the above, we are bound by the dictum laid down by the Supreme Court in Dai Ichi Karkaria Limited. Since the issue is now covered directly by the by a decision of the Apex Court, we found it not necessary to place the matter before a Bench of 7 Members even though a Bench in 5 Members has taken a contra view in Khanbhai Esoofbhai.
In other words, the Larger Bench in Ashok Iron did not decide any point of law, except holding that the issue referred for its decision has been already decided by the dictum laid down by the Apex Court in Dai Ichi Karkaria case.
17. On account of difference in opinion in two Co-ordinate Benches of the CESTAT, the issue which came to be referred to the Larger Bench in HMT case (supra) was whether the input credit taken when the final product was dutiable, and lying in stock or in process or contained in the final product on the day the final product become exempted product needs to be reversed and or is recoverable. The Tribunal taking note of para 17 of the decision of the Apex Court in Dai Ichi case and referring to the decision of the Larger Bench in Ashok Iron (supra) and the decision of the Tribunal in Albert Dabid Limited vs. CCE, Meerut reported in 2003 (161) ELT 443 (Tri.-Del.), Tractors and Farm Equipment Limited vs. CCE, Mumbai 2007 (212) ELT 223 and TAFE Limited (Tractor Division) vs. CCE, Bangalore reported in 2007 (210) ELT 571 (Tri. Bang.) observed that We find that limited issue is before us to decide as to whether there was any provision in the rules for reversal of the input credit taken and legally utilized, when the final product was dutiable, subsequently becoming exempt. It was then held that :-
In the present case, there is no objection of Revenue whatsoever credit taken by the Appellants and its utilization at the clearance of the dutiable final products. So the taking of credit and its utilization were correct. The Honble Supreme Court in the case of Dai Ichi Karkaria Ltd. (supra) decided that when the credit was legally taken and utilized, cannot be demanded unless there is specific provision. It is settled that there is no one to one correlation of utilization of credit and use of inputs in the Modvat/Cenvat Scheme. So, it cannot be said that the appellant utilized the credit wrongly with the provisions of Rule 12 of Rule 2002 equivalent to Rule 57I, Rule 57AH of Rule 1944 would not apply.
18. Further, in para 20 of the decision, it was held by the Larger Bench that:-
On perusal of the rules 6 of Rule 2002 and the corresponding rules, as mentioned above, we are of the view that the appellants had correctly taken the credit and utilization, when the final product was dutiable and there is no requirement to reverse the credit on the final product becoming exempt and such credit cannot be recovered under rule 12 of Rules 2002 comprising of Rule 57I and 57AH of the Rules 1944.
Having held so, the decision of the Tribunal in Commissioner vs. CNC Commercial Limited reported in 2006 (206) ELT 874, upheld by the Punjab and Haryana High Court in CCE, Chandigarh vs. CNC Commercial Limited reported in 2008 (224) ELT 239 Commissioner of C.Ex. Chandigarh vs. Saboo Alloys Private Limited reported in 2008 (228) ELT 422 (Tri. Del.), Swastik Textile Engineers Private Limited vs. CCE, Ahmedabad-I reported in 2007 (214) ELT 198, PSL Limited vs. CCE, Visakhapatnam-I reported in 2007 (214) ELT 238 were agreed with and it was held in para 22 of the order that:-
when the input credit legally taken and utilized on the dutiable final products, the same need not be reversed on the final product becoming exempt subsequently, w.e.f. 9.7.2004.
Evidently, the proposition which has been laid down by the Larger Bench is to the effect that the credit once availed and utilized lawfully, while the final product was dutiable, then there is no need to reverse such credit on the final product becoming exempted after such lawful utilization of credit. It is also to be noted that Larger Bench did not consider the effect of sub-rule 3 of Rule 11 of Rules 2004 introduced under the Notification No. 10/2007-CE dated 01.03.2007. Perusal of Larger Bench decision therefore, with utmost respect, discloses that though a point of law which was referred for the decision was similar to the one arising for consideration in the matter in hand, what was decided by the Larger Bench was not on the same point. In fact, the Bench proceeded to decide on the facts of the case by merely referring to certain earlier decisions, including para 17 of the judgement of the Supreme Court in Dai Ichi Karkaria case. Apparently, it was so because the credit was found to have been lawfully utilized when the final goods were dutiable and not exempted. This is apparent from the contents of para 20 of the order which reads that . as mentioned above, we are of the view that the appellants had correctly taken the credit and utilized, when the final product was dutiable.
19. Perusal of the decisions in Ashok Iron and HMT would, therefore, apparently disclose that the same did not decide the point which arise for the consideration in the matter in hand. Besides, the decisions therein where arrived at while holding that the point referred for decision stood answered by the decision of the Apex Court in Dai Ichi Karkaria case. Being so, it would be appropriate to scan through the decision of the Apex Court in Dai Ichi Karkaria case in order to ascertain the ratio thereof, the subject matter of the dispute and the issues dealt with, the proposition of law laid down therein and whether the same answers the issue in the matter in hand.
20. In Dai Ichi Karkaria case the point for determination was whether the excise duty paid on the raw materials should form part of the cost of the excisable product, for the purposes of Section 4(1)(b) of the Central Excise Act, 1944 read with Rule 6 of the Valuation Rules. The Apex Court has recorded the question for consideration therein in para 2 of the decision in following words: is part of the cost of the raw material the price paid by the manufacturer to its seller, as contended by the Revenue, or is it the price of the raw material less the excise duty thereon, which has been paid by the seller and for which the manufacturer is entitled to credit, under the modvat scheme, to be utilized against the payment of excise duty or products manufactured by him, including the intermediate product, as contended by the manufacturer. Before answering the said point, the Apex Court took note of two decisions, one by the Tribunal and another by the Allahabad High Court, those were relied upon by the Revenue.
21. One of the said two decisions was in the matter of Collector, C. Ex. vs. INCAB Industries reported in 1990 (45) ELT 342 (Tribunal). Therein, the Tribunal had held that under the modvat scheme, a manufacturer was allowed to utilize the duty paid on the inputs by deducting the same from the duty payable on the final product, subject to following the procedure prescribed under the Rules and that the same results in reduction in the cost of final product to the extent of the credit but does not automatically reduce the assessable value which is to be determined in accordance with the provisions of Section 4 of the said Act.
22. The second decision was in the matter of Super Cassettes Industries Limited vs. Union of India reported in 1997 (94) ELT 302 (All.). Therein, the Allahabad High Court had held that there was no warrant for the view that the modvat credit once availed by making the necessary entries was irrevocable. It was further held that there could not be final credit until the inputs were used and excise duty on the final product was paid or the inputs were otherwise disposed of.
23. After taking note of the above referred two decisions, and without expressing any dissent from the said two decisions, and after summerising the submissions by the learned Advocate General, the Apex Court in Dai Ichi Karkaria case observed that There is no doubt that, were it not for the Modvat Scheme and the credit available on the excise duty paid on the raw materials thereunder, the excise duty paid on the raw material would be a factor in determining the cost of the excisable product. The question is: does the Modvat scheme make a difference?.
24. Further, after taking into consideration the Rules 57A, 67C, 57D, 57E, 57F, 57G and 57I of the Central Excise Rules, it was observed thus:-
17. It is clear from these Rules, as we read them, that a manufacturer obtains credit for the excise duty paid on raw material to?be used by him in the production of an excisable product immediately it makes the requisite declaration and obtains an acknowledgement thereof. It is entitled to use the credit at any time thereafter when making payment of excise duty on the excisable product. There is no provision in the Rules which provides for a reversal of the credit by the excise authorities except where it has been illegally or irregularly taken, in which event it stands cancelled or, if utilised, has to be paid for. We are here really concerned with credit that has been validly taken, and its benefit is available to the manufacturer without any limitation in time or otherwise unless the manufacturer itself chooses not to use the raw material in its excisable product. The credit is, therefore, indefeasible. It should also be noted that there is no co-relation of the raw material and the final product; that is to say, it is not as if credit can be taken only on a final product that is manufactured out of the particular raw material to which the credit is related. The credit may be taken against the excise duty on a final product manufactured on the very day that it becomes available.
25. Immediately thereafter in para 18 & 19 of the judgement, the Apex Court held thus:-
18. It is , therefore,?that in the case of Eicher Motors Ltd. v. Union of India [1999 (106) E.L.T. 3] this Court said that a credit under the Modvat scheme was as good as tax paid.
19. With this in mind, we must now determine whether the excise duty paid on the raw ?material should form part of the cost of the excisable product for the purposes of Section 4(1)(b) of the Act read with Rule 6 of the Valuation Rules?
26. Complete reading of the entire judgement and in particular para Nos. 15 to 19 of the decision in Dai Ichi Karkaria case, the same discloses that the Honble Supreme Court having noted that but for the modvat scheme and availability of credit in relation to the excise duty paid on raw materials, such excise duty on the raw materials would not have been a factor in determining the cost of the excisable product and proceeded to ascertain the effect of the modvat scheme on the process of determination of assessable value. Evidently, the observations in para 17 of the said judgement were for the purpose of understanding the effect of the credit to be availed and utilized under the modvat scheme on the process of valuation. It was in that regard it was held that there was no correlation between the credit availed on a particular input and the utilization thereof for the duty payable on manufacture and clearance of the final product. The credit earned on a particular input can be utilized for payment of duty in respect of any final product even though for its manufacture, the input on which the credit has been taken, is not used. There is no one to one relationship between the input in respect of which the credit is availed and final product in respect of which the duty liability is discharged by utilizing the credit so availed on the input. All those observations were essentially to find out whether the duty paid on inputs which gives rise to credit for utilization thereof for payment of duty on the final product would form part of the cost of the excisable product for the purpose of Section 4(1)(b) of the said Act read with Rule 6 of the Valuation Rules and not for any other purpose. Observations in para 17 are found to have been made in that limited context and not for any other purpose. This is most relevant factor which does not appear to have been noticed and/or considered in any of the decisions brought to our notice.
27. No decision can be read ignoring the facts of that case and the points which arise for determination in that case. All the observations made in a judgement are to be understood with reference to the context in which they are made. The essence of a decision is to be carved out from the conjoint reading of the facts, the points for consideration and the decision arrived thereon. The observations in a judgement de hors the facts and the points for determination can not be read as it could lead to misreading and misunderstanding of the proposition of law laid down in such decision.
28. The concept of a ratio decidendi has been elaborately explained by the Apex Court in the matter of Union of India and Others vs. Dhanwanti Devi and Others reported in (1996) 6 SCC 44. Therein it was ruled thus:-
It is not everything said by a Judge while giving judgment that constitutes a precedent. The only thing in a Judges decision binding a party is the principle upon which the case is decided and for this reason it is important to analyse a decision and isolate from it the ratio decidendi. According to the well-settled theory of precedents, every decision contains three basic postulates (i) findings of material facts, direct and inferential. An inferential finding of facts is the inference which the Judge draws from the direct, or perceptible facts; (ii) statements of the principles of law applicable to the legal problems disclosed by the facts; and (iii) judgment based on the combined effect of the above. A decision is only an authority for what it actually decides. What is of the essence in a decision is its ratio and not every observation found therein nor what logically follows from the various observations made in the judgment. Every judgment must be read as applicable to the particular facts proved, or assumed to be proved, since the generality of the expressions which may be found there is not intended to be exposition of the whole law, but governed and qualified by the particular facts of the case in which such expressions are to be found. It would, therefore, be not profitable to extract a sentence here and there from the judgement and to build upon it because the essence of the decision is its ratio and not every observation found therein. The enunciation of the reason or principle on which a question before a court has been decided is alone binding as a precedent. The concrete decision alone is binding between the parties to it, but it is the abstract ratio decidendi, ascertained on a consideration of the judgement in relation to the subject-matter of the decision, which alone has the force of law and which, when it is clear what it was, is binding. It is only the principle laid down in the judgment that is binding law under Article 141 of the Constitution. A deliberate judicial decision arrived at after hearing an argument on a question which arises in the case or is put in issue may constitute a precedent, no matter for what reason, and the precedent by long recognition may mature into rule of stare decisis. It is the rule deductible from the application of law to the facts and circumstances of the case which constitutes its ratio decidendi.
Therefore, in order to understand and appreciate the binding force of a decision it is always necessary to see what were the facts in the case in which the decision was given and what was the point which had to be decided. No judgement can be read as if it is a statute. A word or a clause or a sentence in the judgment cannot be regarded as a full exposition of law. Law cannot afford to be static and therefore, Judges are to employ an intelligent technique in the use of precedents.
29. In Commissioner of Central Excise, Delhi vs. Allied Air Conditioning Corp. (Regd.) reported in 2006 (202) ELT 209 (SC), the Apex Court ruled that:-
A judgement should be understood in the light of facts of the case and no more should be read into it then what it actually says. It is neither desirable nor permissible to pick out a word or a sentence from the judgement divorced from the context of the question under consideration and treat it to be complete law decided by this Court. The judgement must be read as a whole and the observations from the judgement have to be considered in the light of the questions which were before this Court. [See Mehboob Dewood Shaik vs. State of Mahatrashtra, 2004 (2) SCC 362].
30. As regards the law of precedent is concerned, Article 141 of the Constitution clearly provides that the law laid down by the Apex Court is binding on all Courts in India. Any decision contrary to the law laid down by the Apex Court cannot have binding force.
31. Considering the law relating to precedent and ratio decidendi as has been explained by the Apex Court in Dhanwanti Devi and Allied Air Conditioning Corp. cases and applying the same to the decision in Dai Ichi Karkaria case, it would at once be clear that the said decision is not on the point in issue in the case in hand. The decision was essentially in relation to the aspect of valuation and while arriving at the finding in relation to the issue which arose for consideration in the said matter, the Apex Court had taken note of various provisions of law including the provisions relating to the modvat credit scheme and the effect thereof on the aspect of valuation. The decision does not deal with the issue as to whether the credit availed on the inputs used in manufacture of the final product for which the assessee opts for exemption under exemption Notification needs to be reversed or not. No decision can be understood by picking up few sentences or even paras from here and there in the decision. Every word and sentence in a decision has to be read in the context in which it is used. The law in this regard is well settled.
32. It is settled law that one cannot pick and choose one or two sentences from a judgement and label them as the ratio of the decision, ignoring the context in which they are used, nor such sentences can be taken as a pronouncement of law on a point which was neither for consideration before the Court nor factually arose for consideration with reference to the issue that is determined under the judgement. The ratio has to be carved out from the facts of the case, the points which arise for determination and the decision thereon. The observations made in the process of consideration of the issue for determination have to be read in the context of the issue and the facts of that case. De hors the facts and the issue arising for consideration, the decision cannot be held to be laying down the law on unrelated points. The decision of the Apex Court in Dai Ichi Karkaria case cannot be held to lay down a law on the point in issue in the matter in hand. It was a decision in relation to the valuation of the product wherein the dispute was whether the excise duty on raw material if modified could it be included in the cost of the final excisable product. Observations therein cannot be read and understood de hors the said issue.
33. It is to be noted that the observations in para 17 of the decision of the Apex Court in Dai Ichi case is neither on the issue relating to the credit in stock on the day the final product becomes exempted nor the said observations were made are in any way related to the said issue, nor it can be said to be the law laid down on the point in issue. In Mohandas Issardas vs. A.N. Sattanathan, Collector of Customs reported in 2000 (125) ELT 206, the Bombay High Court while dealing exhaustively the point relating to the concept of obiter dictum, quoted, with approval, the following extract from Law of Halsburys Law Vol. 19 at page 251, wherein it was stated thus:-
It may be laid down as a general rule that that part alone of a decision of a court of law is binding upon courts of the co-ordinate jurisdiction and inferior courts which consists of the enunciation of the reason or principle upon which the question before the court has really been determined. This underlying principle which forms the only authoritative element of a precedent is often termed the ratio decidandi. Statements which are not necessary to the decision, which go beyond the occasion and lay down a rule that is unnecessary for the purpose in hand (usually termed dicta) have no binding authority on another court, though they may have some merely persuasive efficacy.
34. The point which arose before the Apex Court in Dai Ichis case while dealing with the main issue of valuation was pertaining to the effect of modvat scheme on the process of valuation. Certainly while dealing with any such issue, the observation in para 17 would be binding. But, the same cannot be held to lay down the law relating to a point totally unconnected with the issue and the point dealt with by the Apex Court in the said decision.
35. There cannot be any dispute that there is no one to one relationship between the input on which credit is earned and the final product for which credit so earned is utilized for payment of duty; however, at the same time it cannot be forgotten that the credit can be lawfully earned only on those inputs which are to be used in dutiable and non-exempted final product. This is abundantly clear from Rule 6(1) of the Cenvat Credit Rules 2004. In fact, the very fact of absence of co-relation between the inputs on which the credit is earned and the final product in respect of which, while paying duty, such credit can be utilized, establishes that till and until the input on which credit is earned is used in or in relation to manufacture of the final dutiable product and the credit earned thereon is utilized for payment of duty in relation to the duty payable on the final dutiable product, the process of utilization of credit is not complete. The scheme of Modvat or Cenvat, which provides for the facility of availing credit in respect of the duty incurred on raw materials to be utilized in the manufacture of the dutiable final product, clearly requires proper utilization of such credit in accordance with the provisions of law, otherwise availment of such credit would be rendered unlawful. To avail the credit lawfully, the raw material, on which the same is sought to be availed, must be utilized in the manufacture of final dutiable product and the credit earned thereon should also be utilized for payment of duty on the final product. Till and until both the credit earned and the product on which the credit is earned are lawfully utilized, it cannot be said that the credit has been lawfully and completely utilized. Of course, the utilization of credit and utilization of input may not necessarily be in relation to one and the same final product. It can be in relation to two different dutiable final products. However, till and until there is such complete utilization of the input and the credit, there can be no lawful availment and utilization of the credit.
36. The view that we are taking in the matter clearly stands approved by the decision of the Allahabad High Court in Super Cassettes Industries (supra) and not dissented from by the Apex Court in Dai Ichi case In fact, the Allahabad High Court while disapproving the decision of the Tribunal to the effect that the credit once taken in accordance with the Rules 57A to 57G of the said Rules was final and Rule 57G did not make any provision for reversing the credit, held that the credit in respect of the inputs either in stock or that have been used in the manufacture of final product, which have become exempt from duty liability needs to be reversed. It was also held that the procedure for payment of excise duty is inter alia provided under rule 173G of the Central Excise Rules, 1944 which proves for the maintenance of an account-current popularly known as personal ledger account. This account is to be opened and maintained by cash payment into the Treasury so as to keep the balance, in such account-current, sufficient to cover the duty on the goods intended to be removed at any time, and every assessee has to make the actual payment of duty by debiting the said account-current before removal of the goods. Under Rule 9 of the said rules, no excisable goods could be removed from any place where they are produced, cured or manufactured or any premises appurtenant thereto until the excise duty leviable thereon is paid.
37. Referring to the entire modvat scheme as such, the Allahabad High Court in Super Cassettes case held that in the manufacture of?goods several inputs have to be used which have suffered the burden of excise duty. The final product being also subjected to excise duty, the excise burden on the final product becomes heavy and in order to give relief, the provisions have been made for adjustment of the excise duty paid on certain inputs from the excise duty payable on the final product. When a manufacturer purchases such inputs on which excise duty has been paid, he can avail the credit according to rules, of the amount of excise duty paid on those inputs and when he removes the manufactured goods, the excise duty payable has to be debited in the said account. The net result would, therefore, be that infact the manufacturer pays the excise duty on the final product as reduced by the excise duty paid on the inputs. The detailed procedure in that regard is comprised under Rules 57A to 57G of the said rules.
38. In terms of Rule 57A, the Government could specify by notification the finished excisable goods for the purpose of allowing credit of any duty of excise or additional duty under Section 3 of the Customs Tariff Act paid on the goods used in or in relation to the manufacture of such final products and for utilizing the credit so allowed towards the payment of duty of excise leviable on the final products subject to condition and restriction as may be specified.
39. Further, in para 7 of the decisions in Super Cassettes, it was held that Rule 57C provides that no credit of the specified duty paid on the inputs used in the manufacture of final product shall be allowed if the final product is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty. Rule 57D provides that credit of specified duty allowed in respect of any inputs shall not be denied or varied on the ground that part of the inputs is contained in any waste, refuse, or by-product or on the ground that any intermediate products have come into existence during the course of manufacture of the final product and that such intermediate products are for the time being exempt. Rule 57E provides for adjustment in duty credit. It says that if the duty paid on any inputs in respect of which credit has been allowed under Rule 57A is varied subsequently due to any reason resulting in payment of refund to, or recovery of more duty from, the manufacturer or importer, as the case may be, of such inputs, the credit allowed shall be varied accordingly by adjustment in the credit account maintained under sub-rule (3) of Rule 57G. Rule 57F deals with the manner of utilisation of the inputs and the credit allowed in respect of duty paid thereon. It requires inter alia that the inputs may be used in the manufacture of final products for which such inputs have been brought into the factory or shall be removed, after intimating the Assistant Collector of Central Excise having jurisdiction for home consumption or for export under bond, as if such inputs have been manufactured in such factory. Rule 57G lays down the procedure to be followed by the manufacturer intending to take credit of the duty paid on inputs under Rule 57A. Sub-rule (1) of Rule 57G provides that a manufacturer intending to avail Modvat credit shall file a declaration with the Assistant Collector of Central Excise and after obtaining the acknowledgement thereof take credit of the duty paid on the inputs received by him. The rule obliges the manufacturer to maintain necessary accounts and the manufacturer has to furnish before the superintendent of Central Excise within five days after the close of each month documents evidencing the payment of duty along with extracts of Parts I and II of form RG 23A. Rule 57-I provides for recovery of credit wrongly availed of where credit of duty on inputs has been taken on account of an error, omission or mis-construction, on the part of an officer or a manufacturer.
40. The Allahabad High Court in Super Cassettes case further disapproving the approach of the Tribunal as well as the argument of the Counsel for the assessee that credit once taken in accordance with the aforesaid Rules was final and since rule 57G does not make any provision for reversing the credit, the debit entry would be wrong, held that such a view does not get any support from the said Rules. It was further held that as is evident,?entries in PLA account and other documents are at times provisional in nature and become final after certain events take place. For example, a personal ledger account is commenced with a credit entry represented by a cash deposit in the treasury, as required under Rule 9. When the first deposit is made in the treasury, there is no payment of any excise duty. The deposit and the corresponding credit in the PLA account is only a provision for making payments of excise duty on the goods those are manufactured and are to be removed. Therefore, when a person makes the cash deposit in the treasury he does not actually pay excise duty, he only makes a provision for the payment thereof and the actual excise duty stands paid only when it becomes payable in accordance with the Act and the Rules. Rule 57A clearly shows that Modvat credit is available for utilising the credit so allowed towards payment of excise duty leviable on the final products. It was specifically held that, therefore, there can be no finalised credit unless the inputs are used in accordance with Rules 57A and 57F and either excise duty on the final product is paid or the inputs are otherwise disposed of for home consumption or export etc. Till such events occur the Modvat credit is only provisional and cannot be said to be final and irrevocable.
It is only for certain accounting purpose that the amount is credited to the PLA account and can be used as a credit balance for actual payment of duty on manufactured goods at the time of their removal. The final settlement would, however, happens only when such inputs have actually been used for the purposes of specified and/or excise duty has been paid on the final product. It was specifically ruled that it is true that Rule 57G does not specifically contemplate a reversal of the credit but this is implied from purpose of the Scheme and the nature of the Rules.
41. The Allahabad High Court also observed that Rule 57C clearly states that no credit of duty paid on inputs shall be allowed if the final product is exempt from whole of the duty of excise leviable thereon or is chargeable to nil rate of duty. There is at another provision in Rule 57-I where the officer can demand the reversal of the credit which has been taken, on account of error, omission or mis-construction. While rejecting the contention that when the credit was taken, the final product was not exempt from the excise duty and it is only subsequently that the final product became exempt from the excise duty and that therefore, Rule 57C would not be attracted, it was held in Super Cassettees case that:-
The whole scheme is in respect of excisable goods, and, therefore, if the product is exempted from excise duty from a particular day the modvat credit taken in respect of inputs which are in stock has to be reversed. Even the inputs that have been used in the manufacture of final product which has become exempt from the excise duty, modvat credit in respect of such inputs also becomes inadmissible and will have to be reversed. In my view, there is no warrant for the view that modvat credit once availed by making necessary entries is irrevocable. This would amount to unjust enrichment and cannot be conceived of in the light of the rules on the subject. I am, therefore, of the view that the debit entries made by the petitioners for reversing the modvat credit availed by it were in compliance of its legal obligation and it cannot be said that by making such entries the petitioner has made any illegal payment to the Union of India. On the other hand, the net result is that the Union of India has received only what it was justly entitled to receive i.e. the duty on the inputs. What was exempt from the excise duty was only the final product and not the inputs.
42. It is pertinent to note that the decision of the Allahabad High Court in Super Cassettes Industries was cited before the Apex Court and in fact, the Apex Court had taken note thereof in Dai Ichi Karkaria case which is apparent from para 13 of the judgment thereof, but nowhere in the said decision the Apex Court has expressed dissent from the said ruling in Super Cassettes Industries case and that too after recording that the ruling of Allahabad High Court was to the effect that there could be no final credit until the inputs were used and excise duty on the final product was paid or the inputs were otherwise disposed of .
43. The deliberation on the issue in question would be incomplete without reference to the decisions of the Apex Court in the matter of Maruti Suzuki (supra), Gujarat Narmada Fertilizers (supra), Amrit Papers vs. CCE, Ludhiana reported in 2006 (200) ELT 365, Ichalkaranji Machine Centre (supra) and Chandrapur Magnet Wires (P) Limited vs. CCE, Nagpur reported in 1986 (81) ELT 3, which have been relied upon by the learned DR.
44. In Maruti Suzuki case, the assessee was engaged in the business of manufacturing motor vehicles classifiable under Chapter 87 of the Central Excise Tariff Act, 1985. The vehicles were cleared on payment of duty. The assessee claimed cenvat credit on inputs in accordance with CENVAT Credit Rules, 2002. The assessee had installed three gas turbines in the factory for generation of electricity. Till June 2002, the assessee was using natural gas for running the gas turbines. No excise duty was leviable on natural gas and hence, there was no question of availing Cenvat credit on natural gas. During July 2002 to December 2002, the assessee used diesel as fuel to run those turbines. The diesel was subject to duty payment. The assessee, however, did not avail any cenvat credit till December 2002. From January 2003 the assessee started using naphtha as fuel to run the gas turbines and started availing credit on such naphtha. The assessee also used diesel generating set for generation of electricity, but did not avail credit on the diesel used for such DG sets. The assessee had a common distribution point for electricity generated in turbines as well as DG set. During the disputed period from January 2003 to March 2004, the assessee cleared a part of electricity to its joint ventures, vendors etc. also for manufacture of final products. In addition, the assessee met its electricity requirements by electricity captively generated by the assessee in their turbines.
45. In Maruti Suzukis case (supra) the Apex Court while dealing with the issue as to whether the Department was right in reversing proportionate cenvat credit to the extent of power wheeled out by the assessee to its sister unit, vendors, joint ventures, and while ascertaining the eligibility of an input for availing the credit in terms of provisions of law, analised the scope of the term input under the CENVAT Credit Rules 2002, held that the term input can be divided into three parts namely (i) specific part (ii) inclusive part (iii) place of use.
46. It was further held by the Apex Court that as regards the specific part, the word input is defined to mean all goods, except, light diesel oil, high speed diesel oil, and petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not. The crucial requirement of this part is held to be the element of manufacture of the final product wherein or in relation to which the input is used. As regards the inclusive part, it is the functional utility of such input which was held to construe the relevant consideration. The inputs must have nexus with the manufacture of the final product. In each case it has to be established that the inputs mentioned in inclusive part are used in or in relation to the manufacture of final product. It was further held that unless and until the said input is used in or in relation to the manufacture of the final product within the factory of product, the said item would not become an eligible input. The expression used in or in relation to the manufacture have many shades and would cover various situations based on the purpose for which the input is used. However, specified inputs would become eligible for credit only when used in or in relation to the manufacture of the final product. None of the categories, any inclusive part of the definition would constitute relevant consideration per se. They would become relevant only when the crucial requirement of being used in or in relation to the manufacture stands complied with. In no uncertain terms, it has been ruled by the Apex Court that all these parts of definition are required to be satisfied before input becomes an eligible input and that the goods which do not satisfy all these three parts would not be eligible to avail cenvat credit.
47. Considering the law in relation to the cenvat credit as explained above, and applying it to the facts of the case in Maruti Suzuki, the Apex Court held that the definition of input brings within its fold, inputs which are used for generation of electricity or steam, provided such electricity or steam is used within the factory of production for manufacture of final products or for any other purpose. Therefore, the assessee was entitled to credit on eligible input utilized for generation of electricity to the extent to which they were using thy electricity within the factory for captive consumption and not in relation to the excess electricity cleared and / or sold at contractual rates in favour of joint ventures, vendors etc.
48. Consequently, mere availability of credit is not an end in itself for claiming benefit under the said rule. The benefit thereunder could be enjoyed provided the credit is not only available but also utilized lawfully in accordance with the provisions of law and as clarified by the Apex Court. This is further clear from the decision of the Honble Supreme Court in Gujarat Narmada Fertilizer case (supra).
49. In Gujarat Narmada Fertilizer case, the issue which arose for consideration was that whether the assessee was required to reverse the cenvat credit in terms of Rule 6(1) of the Cenvat Credit Rules, 2002 on the quantity of LSHS which was used as fuel for producing steam and electricity, which in turn was used in or in relation to the manufacture of exempted goods, namely fertilizers during the period from March 2003 to March 2004. The Commissioner had disallowed the credit claim of the assessee, however, in appeal the matter being referred to Larger Bench, the same was allowed by this Tribunal by its order dated 27.12.2006. The Tribunal followed the judgement of Gujarat High Court in the matter of Commissioner vs. Gujarat Narmada Fertilizers Co. Ltd., reported in 2006 (193) ELT 136 (Guj.) wherein it was held that in sub-rule (2) of Rule 6 of 2002 rules, an exception is made in case of ingots intended to be used as fuel and in such case, the necessity of maintenance of a separate account cannot be insisted upon.
50. In Gujarat Narmada Fertilizer (supra) case, the Apex Court has specifically held that sub rule (1) of Rule 6 is plenary in nature. It restates a principle that cenvat credit for duty paid on inputs used in manufacture of exempted final product is not available and this principle is inbuilt in the very structure of the cenvat scheme. Sub-rule (1) coveres all inputs, including fuel, whereas sub-rule (2) refers to non fuel inputs. It has been further clarified that it cannot be said that because sub rule (2) is inapplicable to a given situation, cenvat credit would be automatically available to such inputs even if they are used in the manufacture of the exempted goods. It was clearly ruled that As stated above, sub-rule (1) is plenary, hence, it cannot be said that because sub-rule (2) is inapplicable to fuel input(s), CENVAT credit is automatically available to such inputs even if they are used in the manufacture of exempted goods. The cumulative reading of sub rules (1) and (2) makes it abundantly clear that the circumstances specified in sub-rule (2), which inter alia requires separate accounting of inputs, are not applicable to the fuel inputs. However, the said sub-rule (2) nowhere says that the legal effect of sub-rule (1) will stand terminated in respect of fuel-inputs which do not fall in sub-rule (2). In other words, the legal effect of sub-rule (1) has to be applied to all inputs including fuel-inputs, only exception being non- fuel inputs, for which one has to maintain separate accounts or in its absence pay 8% or 10% of the total price of the exempted final products. It was also specifically clarified that on the question of reversal of cenvat credit to the extent of electricity wheeled out or cleared to the grid and to the township, the judgement in Maruti Suzuki would apply. In other words, in case of utilization of inputs on which cenvat credit is sought to be availed in the manufacture of final goods when they are not subject to duty would justify an order of the reversal of credit and/or payment of 8% or 10% of the price of the final product, as the case may be.
51. It is also to be noted that it is not a mere utilization of inputs that satisfies the requirement to enable to claim the benefit of Cenvat Credit scheme. But such utilization of input has necessarily to be in dutiable final product. The law is well settled in that regard. The Apex Court in Amrit Paper (supra) while holding that a notification cannot be given primacy over the statutory provision and taking into consideration the scope of Rule 57C of the Central Excise Rules, 1944 held that it provides in mandatory and categorical terms that no credit of the specified duty asked on the inputs used in the manufacture of a final product of the (enumerated categories) shall be allowed if the final product is exempt from the whole of the duty of excise leviable thereon or is chargeable to Nil rate of duty. It was held that the decision in Orissa Extrusion Vs. CCE, Bhubaneswar reported in 2000 (115) ELT 30 (SC) did not lay down the correct position of law and the correct proposition of law was laid down by three Judges Bench of the Apex Court in Ichalkaranji Machine Centre case (supra).
52. In Ichalkaranji Machine Centre case it was held by the Apex Court that modvat was basically a duty collecting procedure, which aimed at allowing relief to a manufacturer on the duty element born by him. It was introduced w.e.f. 01.03.1986. The said scheme was regulated under Rules 57A to Rule 57J of the Central Excise Rules, 1944. Rule 57A entitled a manufacturer to take instant credit of the Central Excise duty paid on the inputs used by him in the manufacture of the final product, provided that the input and the finished product were excisable commodities and fell under any of the specified chapters in the tariff schedule. Under Rule 57G every manufacturer was required to file a declaration before the jurisdictional Assistant Collector, declaring his intention to take modvat credit after paying duty on the inputs. The object behind Rule 57A read with Rule 57G and Rule 57I was utilisaztion of credit allow towards payment of duty on any of the finished product in relation to manufacture of which such inputs were intended to be used in accordance with the declaration under Rule 57G. Rule 57I referred to consequences of taking credit wrongfully.
53. In Chandrapur Magnet Wires case (supra), the assessee was the manufacturer of enameled copper winding wire and had cleared final products utilizing paid inputs while being entitled to benefit of modvat scheme and to get credit of the duty paid on the inputs which were utilized for manufacture of the final products. The credit amounts were adjusted against the duty leviable on the final product as soon as the inputs were purchased, the duty paid on inputs was entered in the register which had to be maintained as per statutory provisions regarding the amount of credit allowable to the manufacturer. The problem arose because of some of the goods manufactured were exempted from duty under a Notification No. 69/86-CE dated 10.02.86 which was further amended by Notification No. 106/88 dated 01.03.1988 by which copper winding wires were exempted from payment of whole of the duty subject to the condition that the final products were manufactured from copper wire bars of over 6mm and also subject to that no credit of the duty paid on goods used in their manufacture had been taken under Rule 57A of the said rules. There was no dispute that the inputs which were utilized in the manufacture of the copper wires were duty paid and that the amount of duty paid on the inputs had been entered by the appellants to their credit in the ledger books which had to be maintained under the excise rules. The credit amount could be utilized by the manufacturer towards payment of duty of excise leviable on the final products. Since the copper wire manufactured by the manufacturer had become duty free, there was no question of any utilization of the credit amount against any duty on the copper wire. Moreover, Rule 57C specifically provided that the credit of duty could not be allowed if final products were exempt from payment of excise duty. Faced with that situation, the manufacturer reversed the credit entries of duty paid on inputs which were utilized for manufacture of the duty free copper wires. The Department objected to the reversal of the entries, contending that the assessee was not entitled to remove the copper wires without payment of duty since the credit of duty paid on inputs which were used in manufacture of copper wire had already been taken in accordance with Rule 57A. The contention was that once appropriate entries have been made in the register, there was no rule under which the process could be reversed and since the credit had been taken for the duty paid inputs in the ledger maintained by the assessee, he cannot be heard to say that no credit of duty had been taken. Rejecting the contention of the Department while referring to a departmental circular pursuant to the clarification by the Ministry of Finance it was held that the said circular dealt with a case where manufacturer produce dutiable final products and also final products which were exempt from duty and it was not reasonably possible to segregate inputs utilized in manufacture of the dutiable final products from the final products which were exempt from duty and in those cases manufacturers could take credit of duty paid on all the inputs used in the manufacture of final product on which duty would have to be paid and that could be done only if the credit of duty paid on the inputs used in the exempted products was debited in the credit account before the removal of the exempted final products. It was specifically ruled that We see no reason why the assessee cannot make debit entry in the credit account before removal of the exempted final product. If this debit entry is permissible to be made credit entry for the duties paid inputs utilized in manufacture of the final exempted product will stand deleted in the accounts of the assessee. In such a situation, it cannot be said that the assessee has taken credit for the duty paid on the inputs utilized in the manufacture of the final exempted product under Rule 57A. In other words, the claim for exempted of duty on the disputed goods cannot be denied on the plea that assessee has taken credit of the duty paid on the inputs used in manufacture of these goods.
Obviously, therefore, merely because credit was sought to be availed, in the books of account and statutory records, it cannot be said that the same is non reversible pursuant to final product being declared as exempted from the payment of duty.
54. The decision in Albert David Limited (supra) also needs to be taken note of. The Tribunal therein was dealing with the issue as to whether the cenvat credit had to be reversed if subsequent to the availment of credit, the finished product becomes exempted fully from the payment of duty and held that the cenvat credit scheme is a scheme to remove the cascading effect of the central excise duty as the same is levied at each stage of manufacture. The credit is available only if the final product suffers the excise duty. If no excise duty is payable in respect of any final product, the question of availing the cenvat credit does not arise as there is no duty of excise at more than one level. The harmonious reading of rules dealing with cenvat scheme and particularly Rule 57AC and Rule 57AD of the Central Excise Rules 1944 makes it very clear that the cenvat credit shall not be allowed on such quantity of inputs which is used in the manufacture of exempted goods. It was further held that Rule 57AH contains the provision for the recovery of cenvat credit utilized wrongly as the inputs has been utilised in the manufacture of wholly exempted goods credit taken in respect of such inputs is recoverable. It is pertinent to note that the said decision was subjected to appeal being Civil Appeal No. 1852/2003 which came to be dismissed by the Apex Court on 13.03.2003 (vide: Albert David Limited vs. Commissioner - 2003 (157) ELT 81) and even the review against the said order was dismissed by the Apex Court by order dated 09.09.2003 after condoning the delay while ruling that we have gone through the review petition and connected records. We do not find any merits therein. The review petition is, therefore, dismissed. (vide: Albert David Limited vs. Commissioner reported in 2003 (158) ELT 273).
55. The decision in Albert David was followed in Tractor and Farm Equipment Limited vs. Commissioner of C. Ex. Madurai reported in 2007 (212) ELT 223. Therein the product was dutiable till 9.7.2004. The manufacturer was availing modvat /cenvat credit on inputs used in manufacture of the said product till 9.7.2004, the day on which the said product was exempted from duty under Notification No. 6/2002-CE as amended by Notification No. 23/2004-CE dated 9.7.2004. There were stocks of inputs as such and of final product in the factory of the manufacturer and cenvat credit of duty paid on inputs present in stock and on the inputs contained in the final product in stock had already been taken of and the same amounted to Rs. 2,39,29,898/- and Rs. 2,02,72,473/- respectively. The department sought to recover the same. The Tribunal held thus:-
7.?It was from the above paragraph of the Apex Courts judgment that the Tribunals Larger Bench, in the case of Ashok Iron & Steel Fabricators (supra), took the view that, if credit was taken at the time when the final product was not exempted from duty and it was utilized, subsequent exemption of the final product would not be a reason for reversal of the credit. The S.L.P filed by the department against the decision in Ashok Iron & Steel Fabricators (supra) was dismissed by the Apex Court. On the other hand, the contra view taken by a Two-Member Bench of the Tribunal in the case of Albert David Ltd. (supra) after distinguishing the case of Ashok Iron & Steel Fabricators (supra) stood affirmed by the Apex Court when the civil appeal filed against it by the party was dismissed by the court. The review petition filed by the party was also dismissed by the court in an order reading as follows:
Delay condoned.
We have gone through the review petition and the connected records. We do not find any merit therein. The review petition is, therefore, dismissed. Applying the doctrine of merger, we find that the view taken in Albert David case having the stamp of approval of the Apex Court, has binding effect. In Albert David case, Cenvat credit had been taken by the party when their final products (I.V. fluids) were chargeable to duty. Subsequently, the I.V. fluids were exempted from duty. On the date on which this exemption came into force, there was a stock of inputs in their factory, on which Cenvat credit had been taken. The Tribunal referred to Rule 57AD and held that the credit taken on inputs lying in stock on the date from which the final products were exempt from duty was recoverable from the assessee. It was this view which was upheld by the Supreme Court. The Tribunal, in the case of Albert David (supra), noticed that there was a provision (Rule 57AH) for such recovery. There is no finding of sweeping character in the Apex Courts judgment in Dai Ichi Karkaria (supra) that, at the material time, there was no provision for reversal of Modvat credit. On the other hand, their lordships held thus there is no provision in the Rules which provides for a reversal of the credit by the excise authorities except where it has been illegally or irregularly taken, in which event it stands cancelled or, if utilized, has to be paid for. Thus the Honble Supreme Courts judgment provides room for reversal of credit illegally or irregularly taken as also for recovery of credit if already utilized. In the appellants own case, the Bangalore Bench of the Tribunal held, on a similar set of facts, that the decision in Albert David was per incuriam. With great respect, we are unable to agree with such an observation. We are of the considered view that the Tribunals decision in Albert David case, affirmed by the Apex Court, requires to be followed in the present case and, accordingly, we hold that the credit taken by the appellants on the inputs lying in stock as on 9-7-2004 is liable to be reversed if unutilized and to be recovered if utilized.
8.?The same logic is applicable to inputs contained in the final products lying in stock as on 9-7-2004 also as held by the Tribunal in the cases of Explicit Trading & Marketing (supra), Sunsui India (supra) and Ives Drugs (supra). Accordingly, it is held that the credit taken on the input contained in the final product lying in stock as on 9-7-2004 is also liable to be reversed if unutilized and to be recovered if utilized.
56. Likewise in CCE, Ghaziabad vs. Explicit Trading & Marketing (P) Limited reported in 2004 (169) ELT 205 the Tribunal held that the cenvat credit scheme is a scheme to remove cascading effect of the central excise duty as the same is levied at each stage of manufacture. The cenvat credit is available only if the final product suffer the excise duty. If no excise duty is payable in respect of final product the question of availing the cenvat credit does not arise as there is no duty at more than one level, and therefore, modvat credit on the inputs either in the stock or contained in the finished goods lying in stock on the day when the final product was declared as exempted from payment of duty was not available to the manufacturers.
57. Following the decision of the Allahabad High Court in Super Cassettes case, the Larger Bench of the Tribunal in Khanbhai Esoofbhai vs. Collector of C. Ex., Calcutta reported in 1999 (107) ELT 557 had observed thus:-
10. We are of the view that the above extracts of the Allahabad High Court/ judgment, fully covers the issue raised before us. Respectfully following the ratio we hold that Modvat credit taken in respect of inputs which are in stock as well in respect of inputs used in the manufacture of final products which have become exempt, would be inadmissible and will have to be reversed.
11. It is settled law, that in the absence of any decision of a High Court holding a contrary view, the decision given by a High Court is binding on the Tribunal vide:
-CIT v. Godavaridevi Saraf [1978 (2) ELT (J.624) (Bombay)];
-Amritlal Lalubhai v. Collector [1985 (21) ELT 908 (Tribunal];
-Associated Cement Co. Ltd. v. Collector [1987 (27) ELT 746 [Tribunal];
-Collector v. Mansingker Bros. [1988 (38) ELT 105 (Tribunal)];
-Collector v. United Glass [1987 (31) ELT 786 (Tribunal)]; and
-Collector v. Stallion Shox Ltd. [1996 (85) ELT 139 (Tribunal)] It is common ground between the parties that the only High Court decision directly on the issue raised in these Reference applications is the Allahabad High Court judgement, referred to above. Respectfully following the above judgement of the Allahabad High Court, we hold as under:-
-Credit taken/utilized in respect of inputs:-
(a) used in the manufacture of exempted final products lying in stock or in the process of being used in manufacturing such final products, and
(b) lying in stock in the factory, has to be reversed or recovered, as the case may be.
12. We do not accept the contention of the Ld. Counsel for the assessees that the Allahabad High Court judgement in Super Cassettes Industries Limited, supra, could be considered a judgement in curiam for not having taken note of the Apex Court decision in H.M.M. case, supra.
13. We observe that the facts on controversy in H.M.M. case (supra) are different from the facts and the controversy raised before us in these cases.
That case dealt with the controversy whether there was exact correlation between inputs on which credit was taken and the final products manufactured out of such inputs for the purpose of utilizing the credit towards the duty payable on final products. This controversy is best illustrated in the words of the Apex Court in an example given in the said report :
The manufacturer (Respondent) purchases 100 tons of barley malt on which, the respondent manufacturers one thousand tons of Horlicks. Out of this one thousand tons, if clears 250 tons of Horlicks from the Rajahmundry factory on paying duty. The remaining 750 tons is sent to the factory situated at Bangalore without paying duty under a bond. The 750 tons is put in unit containers and packages at the Bangalore factory and cleared from there on payment of excise duty. According to the appellant, he is entitled to take credit for the entire duty of Rs.10,000/- (paid on 100 tons of barley malt) from out of the duty payable on 250 tons of Horlicks cleared from Rajamundry factory , whereas according to the Revenue since the quantity cleared at Rajamundry on payment of duty is only 1/4th of the total quantity manufactured using 100 tons of barley malt, the appellant is entitled to take credit of only Rs.2500/- against the duty payable at Rajamundry. Revenue also says that the respondent is not entitled to take credit of balance of Rs.7,500/- (duty paid on 75 tons of barely malt) from out of the duty paid on 750 tons at Bangalore. The question is who is right? We may respectfully point out that the word respondent in the above quotation is not correct; It should be appellant because the manufacturer H.M.M. is an appellant and not respondent]. Further, vital difference in facts is that Horlicks, the final product was not exempt in H.M.M.s case, unlike the final products in these cases. Therefore, the learned Advocates reliance on H.M.M. urging that Honble Allahabad High Courts judgment in Super Cassette Industries is per incurian H.M.M. is not at all tenable. He would have been correct, had the controversy been that after Horlicks had become exempt from duty, whether the credit of duty taken on barley malt (i) lying in stock, (ii) in Horlicks in stock and (iii) in process of manufacture of Horlicks, is liable to be reversed or recovered as the case may be.
58. Perusal of the decision in Raghuvar (India) Limited case (supra), it is apparent that in that case a show cause notice dated 25.8.1999 came to be issued to the assessee alleging that consequent upon the withdrawal of duty on vegetable products, the assessee ought to have reversed the modvat credit taken on the inputs which were still to be converted into finished products and that by not doing so, it had taken the modvat credit with intent to evade duty. After taking note of the decision of earlier Larger Bench in Ashok Iron and observing that in the said decision in Ashok Iron referring to para 17 of the decision of Apex Court in Dai Ichi case, it had taken a view that if credit was taken at a time when the final product was not exempted from duty and it was utilized, a subsequent exemption of the final product would not be a reason for reversal of credit by the Excise authority. Having so observed it was held that:-
in the present case it is admitted that the final products manufactured by utilizing part of the duty paid inputs and the receiving portion of the duty paid inputs are not yet cleared. Since the final product is now exempt from duty, the modvat credit taken can be reversed.
The decision clearly supports the contention on behalf of the Department.
59. The Tribunal in TAFE Limited (Tractor Division) vs. CCE, Bangalore reported in 2007 (210) ELT 571, proceeded on the assumption that Apex Court in Dai Ichi Karkaria case had disagreed with the decision of the Allahabad High Court in Super Cassettes case, when in fact, the Apex Court had not dissented nor had occasion to express so in Dai Ichi Karkaria case. As already observed above, the point for consideration was not relating to the credit in stock on the day the final product becomes exempted from the duty liability. The decision in M/s Albert David vs. CCE Meerut (supra) was sought to be held to be contrary to the decision in Dai Ichi Karkaria case when, in fact, the two decisions were on two different points.
60. The Kerala High Court in CCE & Customs, Cochin vs. Premier Tyres reported in 2001 (130) ELT 417 (Ker.) merely reproducing the para 17 of the decision in Dai Ichi Karkaria case held that it is not necessary to reverse the entry of credit immediately, if the credit was availed during the time the final product was not exempted one. It was also held that utilization of credit comes subsequent to its availment. However, the effect of subsequent utilization, after the product becoming exempt, has not been dealt with in the said decision.
61. The Commissioner of Central Excise, Chandigarh vs. CNC Commercial Ltd. reported in 2008 (224) ELT 239, the issue for consideration was whether the duty, in the absence of availability of sufficient balance to reverse cenvat credit earned on the inputs lying in stock, the inputs in process of manufacture of the final product and the inputs contained in the finished goods at the time of opting out of cenvat credit scheme, is required to be paid through cash payment/PPLA or not and the same was answered that the credit of duty paid on inputs cannot be confined to a particular raw material to which the credit is related to and out of which the final product is manufactured and, therefore, the assessee is not required to reverse the credit while holding that in such situation the decision of the Apex Court in Dai Ichi Karkaria case be correctly applied. With utmost respect, as seen above, the decision in Dai Ichi Karkaria case was in a totally different set of facts and circumstances and did not deal with the issue which was before the Punjab & Haryana High Court in the said decision.
62. In HMM Limited vs. Collector of Central Excise, New Delhi reported in 1996 (87) ELT 593, the matter related to the interpretation of Notification No. 210 of 1979-CE dated 4.6.1979 issued under Rule 8 of the Central Excise Rule, particularly with reference to point of correlation between inputs and the final products. There was specific finding therein that the rule in force at the relevant time did not disclose need for actual utilization of the inputs in the manufacture of the final product in order to claim the credit of the duty paid on such inputs. It was specifically observed in the said judgement that the exact co-relation of inputs with the manufacture of goods was not contemplated by the rule in force and it was permissible to take credit for duty paid on the inputs and make adjustment thereof against the duty payable on the goods manufactured and cleared by a manufacturer when actually utilizing the inputs.
63. The Rajasthan High Court in Hindustan Zinc Limited vs. Union of India reported in 2008 (223) ELT 149 has held that in this background of the modvat credit scheme in respect of duty paid on inputs at the time of receipt thereof by the manufacturer of final product on receipt of the dated of acknowledgement of fees declaration, the reasonable inference is that whether the end product in or in relation to which inputs are used is exempted from the whole of the duty or is liable to NIL rate of duty, is to be considered in the light of prevailing provisions on the date of receipt of the inputs in the factory and not with reference to any other date and has further ruled that a manufacturer obtains credit of the excise duty paid on inputs to be used by him in production of excisable product on receipt of such inputs by him and once had become entitled to avail the modvat credit, and avails, it cannot be defeated unless otherwise provided by law. In other words the ruling is to the effect that the credit once earned is indefeasible, unless otherwise provided by law. Firstly, the ruling was with reference to the scope and ambit of Rule 57CC of the Central Excise Rules, 1944 as were introduced in 1996 under notification dated 23.07.1996, however, in view of the decisions of the Apex Court referred to above including those in Maruti Suzuki Limited and Gujarat Narmada cases, with utmost respect, it cannot be said to be a good law particularly to understand the scope and ambit of Rule 6(1) of the said rules.
64. The Himachal High Court in CCE, Chandigarh vs. M/s United Vanaspati Limited reported in 2009-T 102-723 HP-CX and in CCE, Chandigarh vs. Saboo Alloys Private Limited reported in 2010 (249) ELT 519 merely followed the decision of the Rajasthan High Court in Hindustan Zinc Limited. In Purval and Associates, (supra) the Tribunal merely followed the decision of Hindustan Zinc Limited and in P.A. Precision Components, the decision in Purval and Associates was followed without considering all the points which are considered herein.
65. In Commissioner of Central Excise, Indore vs. Ivis Drugs India Pvt. Limited reported in 2005 (199) ELT 639 the Tribunal while dealing with the question as to whether the credit on inputs used in the manufacture of the final products in process was admissible or not, once such final product is declared as exempt from payment of duty, held that the respondent were not entitled to cenvat credit on the inputs in process in manufacture of the final product as well as utilized completely in the production of the final product which stood exempt from the payment of duty w.e.f. the day on which the exemption notification came into force.
66. The contention that in absence of specific provision for lapsing of credit in relation to the inputs lying in the stock on the date of option for exemption relating to the final product would not entitled the department to seek reversal of credit is devoid of substance. Rule 6(1) of the Cenvat Credit Rules clearly specifies circumstances under which the cenvat credit can be availed and utilized. It rules out any occasion for availment and utilization of such credit in any other circumstance and obviously, therefore, if the assessee seeks to avail the credit in contravention of provisions of law, it would be unlawful availment of credit which would be necessarily required to be reversed, otherwise it can result in unjust enrichment to the assessee and fraud on the public exchequer. Unless the inputs are used in or in relation to manufacture, the utilization of credit availed on such input would not be complete and till then it cannot be said that there is compliance of Rule 6 read with Rule 3 of the Cenvat Credit Rules. The reliance in the decision of the Apex Court in the matter of Eicher Motors case (supra) in this regard is thoroughly misplaced. Besides, it has been already clarified by the Bombay High Court in Coral Cosmetics Ltd., vs. Union of India reported in 2008 (225) ELT 412 (Bom.) that Section 131 and 132 of the Finance Act, 1999 have removed the illegality pointed out by the Supreme Court in case of Eicher Motors Ltd., (supra) wherein the proposition on which the decision was based, has been fundamentally altered by the said provision. The Parliament inter alia, validated clause (e) of sub-section (17) of Rule 57 of the said rules with retrospective effect. Besides it is settled law that no party can avail of a benefit which was available subject to its performing conditions prescribed for the same, without performing such conditions and if the condition fails, the party cannot retain the benefit. (vide: Rai Agro Industries Ltd., vs. Director General of Foreign Trade reported in 2006 (206) ELT 723 (Del.).
67. Merely because Rule 9(2) of the Cenvat Credit Rules 2004 speaks of two situations for lapsing of credit, there is no scope to draw an inference that the legislature deliberately wanted to restrict such lapsing of cenvat credit on inputs lying in stock on the day of opting for exemption to only two situations and to exclude all other situations. Any such inference would be purely fenciful imagination. It should always be remembered that any machinery provision, if something found missing in it for the purpose of being effective for enforcement of charging provision, certainly Courts and Tribunals have to read down such provision to make them more effective and enforceable. In this regard one of the important rule of statutory construction stated in Craies on Statute Law, 7Ed. At page 111 is as under:-
If a statute is passed for the purpose of enabling something to be done, but omits to mention in terms some details which is of great importance (if not actually essential) to proper and effectual performance of the work which the statute has in contemplation, the Courts are at liberty to infer that the statute by implementation empower that detail be carried out.
While approving the above quoted rule of statutory construction, the Apex Court in Asst. Collector of Central Excise Calcutta Vs. National Tobacco Co. of India Ltd., reported in AIR 1972 SC 2563 held that:-
It is a well established rule of construction that a power to do something essential for the purpose and effectual performance of the work which the statute has in contemplation may be implied.
68. In Eicher Motors case, it was a totally different issue and has no application to the matter in hand. Therein by an application of Rule 57F (4A), the credit attributable to the inputs already used in the manufacture of the final products and final products which have already been cleared from the factory was sought to be lapsed, i.e. the amount which was sought to be lapsed related to the inputs already used in the manufacture of the final products. The Apex Court held that the said lapsing was not permissible as the right to the credit has become absolute at any rate when the input is used in the manufacture of the final product and since the scheme being altered, it was not to be in force retrospectively. It was further ruled that the right accrued in respect of credit availed would continue until the facility available thereto gets worked out or until those goods existed. In other words, the decision in Eicher Motors case was in the facts of that case wherein the credit was already lawfully utilized and exhausted pursuant to the clearance of the final goods while the right to utilize the credit was still in existence and had not lapsed. That is totally different situation with which we are not concerned in the case in hand.
69. It is also to be born in mind that the Apex Court in Sahkari Khand Udyog Limited vs. CCE & Customs reported in 2005 (181) ELT 328 had clearly ruled that irrespective of applicability of Section 11B of the Act, the doctrine can be invoked to deny the benefit to which a person is not otherwise entitled. Section 11B of the Act or similar provision merely gives legislation reintroduction to this doctrine that, however, it is not mean that in the absence of statutory provision, a person can claim or retaining undue benefit. Obviously, therefore, the Apex Court in no uncertain terms had ruled that under no circumstances the principle of unjust enrichment can be ignored and no citizen can claim to get enriched at the cost of public exchequer.
70. As already observed above, the cenvat credit scheme is a scheme to remove the cascading effect of the central excise duty as the same is levied at each stage of manufacture. The credit is available only if the final product suffers the excise duty. The scheme is, therefore, evolved to avoid multiplication or duplication of duty element upon the ultimate cost of the product when it reaches to the hands of the consumer. In other words, it is a procedure to avoid cascading effect of duty on manufactured products. As it forms part of procedure, the question therefore arises is whether the procedure to be followed to avail the benefit of such credit can be said to create a substantive or vested right? Or will it be merely an existing right, subject to fulfillment of the conditions attached to it, prescribed under the statutory provisions?
71. It is well settled that a substantive right is one that can be protected or enforced by law. It is a right of substance, rather than the form, i.e. procedure. A procedural right is one that derives from legal or administrative procedure, a right that is in aid to protection or enforcement of a substantive right. A vested right is one that is so complete and definite and belongs to a person, that it cannot be impaired or deterred away without his or her consent. On the other hand, right which depends upon happening of certain event or on fulfillment of certain condition is nothing but a conditional right, and is always subject to fulfillment of those conditions.
72. The provision in relation to the method of payment of tax and to avoid the cascading effect of the duties payable under taxing statutes do not create any vested right. The provisions of law incorporated in taxing statute or the subordinate legislation in that regard do not give rise to a vested right in favour of assessee. They can only be termed as the existing rights, and such right can be withdrawn at any time, albeit, in accordance with the procedure known to law. It being a scheme evolved to introduce a procedure in relation to the payment of duties for avoiding cascading effect in respect thereof and thereby to have effective reduction in the cost of final product, it does not create any vested right and the Government is not forbidden from bringing about changes in such scheme.
73. The established rule is that the party has no vested right in procedure and therefore the procedure which is applicable at the relevant time will apply, unless the application of the previous procedure is expressly saved.
74. The above discussion leads to unequivocal conclusion that though the cenvat credit earned from the payment of duty on the inputs procured for the use thereof in the manufacture of dutiable and non exempted final products, mere use of such credit towards the payment of duty on such final products does not amount to complete utilization of such credit till and until the goods on which such credit was earned are also used in the manufacture of the dutiable and non exempted final products. It is only upon the completion of both the activities, namely, use of such credit for payment of duty on final product and use of goods on which credit is availed are used in the manufacture of dutiable final product, that the utilization of the credit gets completed and not otherwise. Till both the activities are completed the credit so availed cannot be said to have been completely utilized. The concept of utilization of credit encompasses both the aspects use of credit and use of goods on which the credit is earned. The availment of credit is first step towards the utilization of such credit. The stage of utilization is accomplished after its availment and on use of the inputs in the manufacture of the final product. In fact, this stage has two parts, one relating to the use of such credit and other pertains to use of the goods on which credit is earned. Both the parts need to be completed for complete utilization of credit within the meaning of the said expression under Cenvat Credit Rules. This is irrespective of the fact that there is no co-relation between the goods on which the credit is earned and the final product in respect of which such credit is used for payment of duty thereon.
75. The argument about absence of condition in the exemption notification about non-availability of cenvat credit to the beneficiary of such notification needs to be recorded only for the purpose of rejection thereof. It is really surprising that the arguments were advanced on the basis of the ruling which has been specifically overruled by the Supreme Court. The decision in Andhra Pradesh Paper Mills Limited (supra) in which reliance is placed by the appellant, was based on the decision of the Apex court in Orissa Extrusions case (supra). The Apex Court in Amrit Papers case (supra) has specifically declared that the decision in Orissa Extrusion case does not lay down a correct proposition of law. Being so, it needs no further discussion on this point for rejection thereof. Even otherwise to be noted that availability of cenvat credit depends upon the provisions of law comprised under the Cenvat Credit Rules and they do not stand modified by any exemption notification.
76. The next point relates to the clearances of goods for export under bond. The contention raised by the learned DR that there was absolutely no foundation laid down to raise this point is not correct. In reply to the show cause notice, it was specifically pleaded by the applicant that duty of the total quantity of input which was lying in stock on 10.01.2005, substantial quantity was used for manufacture of export goods and said claim was sought to be made good by referring to certificate issued by Chartered Accountant on 16.02.2006 alongwith copies of invoices and other documents.
77. However, as regards the point regarding clearance of goods for export under the Bond, the learned Commissioner in the impugned order has observed that the exemption from payment of duty under the exemption notification is an area based exemption. Whosoever, avails the exemption as per the condition of the notification, is not required to pay any duty, be it for home consumption or export. The exemption in this notification is not dependent on value of clearances. Commissioner thereupon has reproduced the opening para of the notification in question and it has been observed that once location of the unit falls in area specified in the notification item is not in the negative list and the manufacturer files a declaration as prescribed in the notification, the exemption become absolute. When the exemption under a notification is absolute, the manufacturer is barred from paying any duty, be it for home consumption or export. Sub-section (1A) of Section 5A of the Act inserted w.e.f. 13.05.05 by Section 75 of the Finance Act, 2005 (18 of 2005) clinches the issue. It has been further observed by the Commissioner as even sub-section (1A) of Section 5A was brought on the statute book w.e.f. 13.05.2005, the law has remained the same. The exemption notification does not grant exemption to the excisable goods cleared for home consumption so as to contend that the manufacturer would pay duty on the export when the export is not effected under bond. It grants exemption to a unit. Since unit of the noticee is wholly exempt, the cenvat credit on inputs going in the manufacture of export goods is not admissible. There is hardly any scope to make grievance about the finding of the Commissioner in this regard.
78. There is no doubt that Rule 6(6) of the Cenvat Credit Rules 2004 excludes the goods cleared for export under bond from the applicability of the provisions of law comprised under Rule 6(1) of the said Rules. At the same time, Rule 3 of the Cenvat Credit Rules 2004 relates to the entitlement of credit in relation to the duty paid on the inputs. Learned Commissioner does not seem to have taken into consideration the effect of these provisions of law while rejecting the claim based on the contention of the appellants about clearance of goods for export under bond. Certainly the adjudication authority will have to consider this point with reference to those inputs which are stated to have been used in or in relation to the manufacture of the final goods which were cleared for export under the bond. Needless to say that the appellants will have to establish actual export of such final goods.
79. It is also sought to be canvassed that the appellants are entitled for rebate under Rule 18 of the Central Excise Rules, 2002 in respect of duty paid on the inputs going into the manufacture of goods for export purposes by unit availing area based exemption under the Notification No. 50/2003-CE. Undoubtedly, as rightly submitted, the Rule 18 of the Central Excise Rule 2002 provides that where the goods are exported, the Central Government may by notification grant rebate of duty paid on such excisable goods or duty paid on the materials used in the manufacture or processing of such goods and the rebate shall subject to such condition or limitation if any and fulfillment of such procedure as has been specified in the notification. The Rule 18, as observed by the Commissioner, the Central Government had issued Notifications like 19/2004-CE (N.T.) dated 6.9.2004 as amended, 20/2004-CE (N.T.) dated 6.9.2004 as amended and 21/2004-CE (N.T.) dated 6.9.2004 as amended lay down procedure for claiming rebate on duty paid on the raw materials used in the manufacture of the goods exported to various countries. It is for the assessee, as rightly observed by the Commissioner to have claimed rebate of duty by following proper procedure in that regard if they so as desired. That can not be a justification to insist for availment of cenvat credit contrary to the provisions of law comprised under the Rules applicable to the matter.
80. That bring us to the last leg of arguments which relates to the quantum of duty confirmed under the impugned order. However, in this regard apart from making mere submissions, no documentary proof has been placed before us, nor even reference is made to any such evidence, if any, on record in the course of the arguments. Whether the appellants had availed credit during the period from 1st January to 10.01.2005 or not has to be ascertained by verifying the records. In any case, if there is mere wrong calculation of duty, certainly nothing would forbid the appellants to raise that point before the adjudicating authority itself, even now by placing proper material for the correction, if any, required in the quantum of the duty to be paid by the appellants. We have no doubt that if any such material is placed before the authority, the same would be entertained and appropriate order will be passed by the adjudicating authority bearing in mind the decision herein and the provisions of law applicable to the matter. This aspect can very well be dealt with alongwith the claim of the appellants regarding the entitlement of benefit under Rule 6(6)(v) of the Cenvat Credit Rules, 2004 which relates to the subject of export of goods under bond.
81. The fallout of above discussion is that the first point for determination framed above is to be answered in affirmative the second and third points are to be answered in negative; as regards the fourth and fifth points are concerned, the same will have to be considered primarily by the adjudicating authority bearing in mind the observations herein above.
82. The appeal accordingly partly succeeds on the limited grounds mentioned above and while setting aside the findings relating to the issue pertaining to the claim of applicability of Rule 6(6)(v) of the Cenvat Credit Rules, 2004 and regarding the quantum of duty, the matter is remanded to the adjudicating authority to decide the said two points bearing in mind the observations herein above and in accordance with the provisions of law. No further interference is called for in the impugned order. On the said two points, therefore, the matter is remanded with direction to dispose of the same within four months from the receipt of the order of this Tribunal by the adjudicating authority.
83. The appeal is accordingly disposed of in the above terms.
[Justice R.M.S. Khandeparkar] President [Rakesh Kumar] Member [Technical] /Pant/ ??
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