The facts of the matter are that appellants are manufacturers of cotton textile fabrics and made ups. They were clearing some of the final products on payment of duty as per Notification No.29/2004-CE and claimed exemption under notification No.30/2004-CE on other products. With effect from 11.05.2008, they opted to clear all the goods claiming exemption under notification No.30/2004-CE– At the time of exemption, appellants had reversed cenvat credit of Rs.1 ,88,337/- on inputs held in stock as on 11.05.2008. After reversal of such credit, appellants still had a balance credit of Rs.2,82,375/- in the cenvat credit account. Department took the view that even this cenvat credit balance amount should lapse in view of the provisions of Rule 11 (3) (ii) of Cenvat Credit Rules, 2004 (CCR). Accordingly, a show cause notice dt. 15.05.2009 was issued to the appellants proposing that the said balance credit should be treated as lapsed and also proposing imposition of penalty under Rule 15 (2) of CCR. In adjudication, the original authority vide an order dt. 29.10.2009 confirmed the said proposals and also imposed equal penalty under rule 15 (2) of CCR. In appeal, the Commissioner (Appeals) vide impugned order dt. 19.07.2010 set aside the imposition of penalty, however upheld the remaining part of the order of original authority. Hence the appellants are before this forum.
2. Today when the matter came up for hearing, on behalf of the appellant, Ld. Consultant Shri M. Saravanan made oral and written submissions which can be broadly summarized as under :
i. Rule 11 (3) (ii) of CCR will not apply in this case as only in case of final product when exempted absolutely under Section 5A of the Act, the credit would
ii. In this case, notification No.30/2004-CE opted for by the appellants w.e.f. 05.2008 is a conditional notification and hence not an absolute exemption notification.
iii. Hence only the provisions of Rule 11 (3) (i) of CCR would apply to appellants, which does not mandate any such lapsing of balance credit in cenvat credit account.
iv. Only where the nature of type of notification availed would fall within the scope of Rule 11 (3), would the balance cenvat credit also require to be lapsed.
3. On the other hand, Ld. A.R Shri S. Govindarajan supports the impugned He takes us to para-9 of the impugned order to point out that lower appellate authority has analyzed the impact and effect of the word ‚or‛ appearing in between clause (i) and clause (ii) of sub-rule (3) of Rule 11 of CCR and has come to a clear finding that in all the situations surplus credit available with the assessee will be required to be lapsed.
4. Heard both sides and have gone through the facts.
5.1 The core issue that comes up for decision is whether the transitional provisions contained in sub-rule (3) of Rule 11 will be applicable to both sub-rules 3 (i) and 3 (ii). For better understanding, the relevant provisions relating to manufacturers are reproduced as under :
“RULE 11. Transitional provision.
(3) A manufacturer or producer of a final product shall be required to pay an amount equivalent to the CENVAT credit, if any, taken by him in respect of inputs received for use in the manufacture of the said final product and is lying in stock or in process or is contained in the final product lying in stock, if, –
(i) he opts for exemption from whole of the duty of excise leviable on the said final product manufactured or produced by him under a notification issued under section 5A of the Act; or
(ii) the said final product has been exempted absolutely under section 5A of the Act, and after deducting the said amount from the balance of CENVAT credit, if any, lying in his credit, the balance, if any, still remaining shall lapse and shall not be allowed to be utilized for payment of duty on any other final product whether cleared for home consumption or for export, or for payment of service tax on any output service, whether provided in India or exported.”
5.2 It is pertinent to note that the sub-rule 3 (i) and sub-rule 3 (ii) are separated by a semicolon ( ; ) followed by the disjunctive ‚or‛. The use of semicolon ( ; ), the punctuation mark is to separate two closely related independent clauses. ‚Or‛ is a ‘particle’ used to connect words, phrases or classes representing alternatives [ J. Jayalalitha Vs UOI – (1999) 5 SCC 138 ]. Only if the phrasing of the legal provision is such that in actuality ‚and‛ is intended, should it be examined whether the alternatives separated by ‚or‛ are not mutually exclusive. The Courts may construe ‚or‛ as ‚and‛, only if they find from the context that the wrong word must have been used. [Ranchhoddas Atmaram v. UOI, AIR 1961 SC 935; Firoj Farukee v. State of West Bengal, AIR 1972 SC 2141] . However, in respect of the sub-rule 3 (i) and sub-rule 3 (ii) ibid, there should not be any such confusion or doubt, since those two sub-rules are separated not by just a particle ‚or‛ but also by a semicolon (;), thus creating an additional wall for conveying mutual exclusivity between the two sub rules. There is also no basis for suggesting that the use of ‚or‛ between these sub-rules conveys the meaning ‚or both‛. For example, to be able to impose both a fine and a penalty, one would need to add ‚or both‛ to the end of the phrase. That surely is not the case here.
5.3 Viewed in this context, it is but obvious that the legislature intended the said sub rules 3 (i) and 3 (ii) to be two distinct and separate alternatives, with distinctively different qualifying factors and conditionalities.
5.4 In sub rule 3 (i), the assessee has an option to avail of a particular notification or otherwise; when such assessee takes such option, he will be required to pay an amount equivalent to cenvat credit, if any,
There is no other requirement that the assessee falling within the scope of sub-rule 3 (i) will be required further to do. On the other hand, sub-rule (3) (ii) ibid will cover the situation where the said final product has been exempted ‚absolutely‛ under Section 5A ibid.
5.5 Sub-rule (3) (i) ibid will apply when the assessee opts for an exemption from the whole of duty of excise leviable under a notification issued under Section 5A of the Central Excise Act, 1944. Sub-rule (3) (ii) ibid will be attracted only to those assessees who are confronted with absolute exemption in respect of final product/s manufactured by them, in which case the entire balance of cenvat credit lying in his account shall lapse and the same shall not be allowed to be utilized for payment of duty for home consumption or for export.
5.6 Hence, in sub rule 3 (i) ibid, the assessee has to ‚opt‛ for the exemption whereas in sub-rule 3 (ii) ibid, there is no such option available to the assessee and the absolute exemption that may have been brought forth under Section 5A ibid would apply unilaterally to the related final product manufactured by the assessee.
5.7 It is important to note that the law makers have not incorporated the requirement of payment of cenvat credit equivalent to credit taken by the assessee in respect of inputs lying in stock or in process in sub rule 3 (ii) ibid. In our view, this is because once the entire cenvat credit account is reduced to naught, there will be no cenvat credit that will be available whatsoever, under sub-rule 3 (ii) ibid, for the assessee to avail.
6. In the event, the findings and decision of the lower appellate authority to the contrary in the impugned order is not on sound legal footing. The impugned order then cannot sustain and will require to be set aside, which we hereby do. Appeal is allowed with consequential benefits, if any, as per law.
(dictated and pronounced in court)