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2. At the outset, the controversy involved may be reflected by pointing out that the questions for consideration are as to the entitlement of the Respondents/ assessees to Modvat/ Cenvat Credit for the use of inputs in the manufacture of final products which are exempt or subject to nil rate of duty and the requirement of the assessee to maintain separate accounts with respect to inputs used in dutiable goods as well as exempted goods and the liability arising on the failure of the assessee to maintain such separate accounts. In Civil Appeal Nos. 8621- 8630 of 2010, we are concerned with sulphuric acid. In Civil Appeal No. 8631 of 2010, it is caustic soda flakes and trichloro ethylene. In Civil Appeal No. 2337 of 2011, the product is again sulphuric acid and in the case of Civil Appeal No. 5322 of 2010 and the other connected matter of M/s Rallis India Ltd, it is Phosphoryl A and Phosphoryl B. The issue is as to whether the Assessees (respondents) are entitled to Modvat/ Cenvat Credit on inputs used in the manufacture of the aforementioned exempted (or subject to NIL rate of duty) final products.

8. The High Court after examining the manufacturing process as well as Rule position, came to the conclusion that prohibition against claiming Modvat Credit on exempted goods or subject to nil rate of duty applies in case where such exemption from payment of duty or nil rate of duty on end product is predictably known at the time the recipient of inputs is entitled to take credit of duties paid on such inputs. The fact that due to subsequent notification or on contingency that may arise in future, the end product is cleared without payment of duty due to exemption or nil rate of duty does not affect the availing of modvat credit on the date of entitlement. If on the date of entitlement, there is no illegality or invalidity in taking credit of such modvat/ Cenvat Credit, the right to utilize such credit against future liability towards duty become indefeasible and is not liable to be reversed in the contingency discussed above.

21. As already pointed out, argument of the learned Solicitor General was that Rule 57CC and Rule 6 of the Modvat/ CENVAT Rules respectively require the literal rule of interpretation which needs to be applied, as the language of these was unambiguous in this behalf. We may record that as per the learned Solicitor General, the provisions of Rule 57CC or Rule 6 envisage common use of inputs in two final products i.e. one dutiable and other exempted from the applicability of the same. He submitted that when two final products emerge out of use of common inputs, one excisable and the other exempt, the provisions will apply. The question of intention of the assessee to manufacture the exempted product is not relevant. It may be intended or unintended but if what results in the course of a manufacturing process is a “final product” falling within the meaning of the said provisions, the provisions will apply in full with the attendant consequences. He also argued that Rule 57D uses the words 'waste and refuse' alongwith “by-products”. The word 'by-product' will necessarily have to take its colour and meaning from the accompanying words “waste and refuse”. “By-products” cannot, in any event, mean “final products”. This Rule only means that Modvat Credit cannot be denied on the ground that in the course of manufacture, non excisable goods also arise.

22. Elaborating this contention, the learned Solicitor General submitted that the words “final products” in the context of Modvat and Cenvat Credit have to be understood giving the meaning as assigned to it in the Modvat/ Cenvat Rules. Rule 57A inter alia states that the provisions of this Section shall apply to such finalised excisable goods (referred to in that section as final products). Again, Rule 2(c) of the Cenvat Credit Rules, 2002 defines “final products” as meaning excisable goods manufactured or produced from inputs except matches. Rule 2(h) of the Cenvat Credit Rules, 2004 defines “final products” as meaning excisable goods manufactured or produced from input, or using in input service. Thus, final products referred to in the aforesaid provisions can only mean to be excisable goods produced or manufactured. In the present set of cases, sulphuric acid, caustic soda flakes, trichloro ethylene and Phosphoryl A and Phosphoryl B are excisable goods manufactured and produced in India falling under different headings of the Central Excise Tariff Act. The submission was that if these products are exempt or subject to NIL rate of duty, then the inputs on which Modvat/ Cenvat Credit are claimed used in the manufacture of the aforesaid final products will attract the rigor of Rule 57CC/ Rule 6 of the Modvat/ Cenvat Credit Rules.