Case Law Details

Case Name : Nicholas Piramel (I) Ltd. Vs Commissioner of Central Excise (CESTAT Mumbai)
Appeal Number : Final Order No. A/823/2008-WZB/(LB)
Date of Judgement/Order : 23/10/2008
Related Assessment Year :
Courts : All CESTAT (606) CESTAT Mumbai (125)

 The provisions of Rules 6(3)(b) of the Cenvat Credit Rules, 2002 are not applicable when the amount equivalent of the Cenvat Credit attributable to the common inputs used in, or in relation to, the manufacture of exempted final products has been paid prior to the removal of exempted final products from the factory.

IN THE CESTAT, WEST ZONAL BENCH, MUMBAI

[LARGER BENCH]

NICHOLAS PIRAMEL (I) LTD.

Versus

COMMISSIONER OF CENTRAL EXCISE, THANE-I

Final Order No. A/823/2008-WZB/(LB), dated 12-8-2008 in Appeal No. E/1405/2005

O   R   D   E   R

M.V. Ravindran, Member (J) (For the Bench)]. –

This matter is referred to the Larger Bench for resolving the following issue reproduced:

“Whether the provisions of Rule 6(3)(b) of the Cenvat Credit Rules, 2002 are applicable or not, when the amount equivalent to the Cenvat credit attributable to the inputs used in, or in relation to, the manufacture of the exempted final products has been paid prior to the removal of the exempted final product from the factory?”

 2. Heard both sides and perused the records.

3. Shri V. Sriddharan ld. Advocate appearing with Shri Gajendra Jain, Advocate and Shri S.S. Gupta C.A. for the appellant submit that the question which is referred in this case is whether the provisions of Rule 6(3)(b) of the Cenvat Credit Rules, 2002 will come into force, despite the fact that assessee has reversed the Cenvat credit attributable on the inputs used in the manufacture of exempted final products. It is the submission that the question involved in this case is regarding the Cenvat credit availed by the assessee on the common inputs which are used for dutiable and exempted products. The Id. Counsel draws our attention to the provisions of Rule 6 of the Cenvat Credit Rules, 2002. It is his submission that Rule 6(1) disentitles the assessee to take credit on the inputs used for exempted products except in the circumstances mentioned in sub-rule (2). It is his submission that construction of this Rule is to be read in a broader prospective, so as to deny the Cenvat credit on the inputs, which are used in the manufacture of exempted products. It is his submission that provisions of Rule 6(2) mandate that the assessee/manufacturer shall maintain separate accounts of receipt, consumption and inventory of inputs meant for use in the manufacture of exempted goods and take Cenvat credit only on that quantity of inputs which is intended for use ·in the manufacture of dutiable goods. It is his submission, that exception is carved to Rule 3(2) by the Government under Rule 6(3). It is his submission that Rule 6(3)(b) would not be violated if the credit taken on the common inputs used in the manufacture of exempted product, is reversed by the manufacturer. It is his submission that Rule 6 of the Cenvat Credit Rules, 2002 is a procedural law as it provides for estimation of reversal of credit and to achieve broader goal of Rule 6(1). It is his submission that the 1996 circular of the Central Board of Excise & Customs accepted the said principle and hence the law as has been settled by the Supreme Court in the case of Chandrapur Magnet Wires v. CCE [1996 (81) KLT. 3 (S.C.)] will squarely cover the issue. It is his submission that Cenvat Credit Rules, 2002 is not a charging section, but a benevolent legislation, which should not be curtailed, if otherwise broader goal is achieved. It is his submission that Rule 6(3)(a) and (b) are the methods to achieve the goal i.e. the credit of the duty paid on inputs used in exempted final products is not availed by the manufacturer. For this proposition, he relies upon the judgment of the Hon’ble Supreme Court in the case of Ashok Leyland Ltd. v. State of Tamil Nadu And Another as reported at [2004 (3) 1 SCC]. It is his further submission that apportionment is an accepted principle in taxation, i.e. that once the credit of the common inputs which have gone into the manufacture of the exempted goods is reversed, it is an apportionment and it should be considered as non-availment of credit. For this proposition he relies upon the decision of the Supreme Court in the case of Union of India And Another, etc. v. Sanyasi Rao & Ors. etc [1996 (132) CTR S.C. 81]. He draws our attention to the decision of the Tribunal in the case of Pepsico India Holdings v. CCE [2008 (230) E.L.T. 126 (Tribunal) = 2008 TIOL-59CESTAT-MAD] after the recall of earlier order. He also takes us through the judgment of the Hon’ble Supreme Court in the case of Chandrapur Magnet Wires Pvt. Ltd. (supra), and submits that the Hon’ble Supreme Court in that case was considering more stringent provisions of exemption notification and still came to the conclusion, that reversal of the credit availed on inputs which are consumed for the manufacture of exempted goods is good enough to hold that credit is not availed on inputs so as to satisfy conditions of notifications. It is his submission that the law as settled by the Hon’ble Supreme Court in the case of Chandrapur Magnet Wires Pvt. Ltd., has been followed by a series of judgments of the Tribunal in identical situations. It is the submission that contrary judgment of the Tribunal in the case of Commissioner of C.Ex. Jaipur-II v. Maa Kamakhya Marbles (P) Ltd. [2004 (170) E.L.T. 580 (Tri.-Del.)] and National Information Technologies Ltd. v. CCE., Bhopal [2005 (179) E.L.T. 404 (Tri.-Del.)] were delivered in the absence of reference to the decision in the case of Chandrapur Magnet Wires Pvt. Ltd., as it was not produced before the Bench. It is his submission that Division Bench of the Tribunal in the case of CCE, Mumbai-IV v. Philips India Ltd. [2006 (200) E.L.T. 106 (Tri.-Mumbai) clearly noting the fact that the judgment of Maa Kamakhya Marbles (P) Ltd. (Supra) was passed without considering the law as has been settled by the Hon’ble Supreme Court, held that the order of Maa Kamakhya Marbles (p) Ltd., is incorrect.

4. Ld. Jt. CDR on the other hand would submit that prior to the decision of the Hon’ble Supreme Court in the case of Chandrapur Magnet Wires Pvt. Ltd. provisions of Rule 57CC did not exist in the statute. It is his submission that the provisions of Rule 57CC came into statute after the decision of the Hon’ble Supreme Court in the case of Chandrapur Magnet Wires Pvt. Ltd. He submits that the decision of the Hon’ble Supreme Court is only on the facts of that case and the Court was not considering the provisions of law, obviously, since relevant provisions were not there, as they are in Rule 6 of the Cenvat Credit Rules, 2002 today. It is his submission that there is no option available to an assessee who avails the credit of the duty paid on the common inputs, which are used for dutiable as well as exempted products, but to follow provisions of Rule 6(3)(b). It is his submission that the strict interpretation of the rules is required, lest, it would give rise to undue benefit to an assessee. He draws our attention to the decision of the Hon’ble Bombay High Court in the case of Mohandas Issardas v. A.N. Sattanathan, Collector of Customs [2000 (125) E.L.T. 206]. It is his further submission that Hon’ble Supreme Court in the case of Chandrapur Magnet Wires Pvt. Ltd., was deciding the issue of an exemption notification and not interpreting the provisions of Rule 57CC of Central Excise Rules, 1944 or Rule 6 of Cenvat Credit Rules, 2002. For this proposition he relies upon the decision of the Hon’ble Supreme Court in the case of Commissioner of Income Tax, Kerala v. Tara Agencies [2007 (214) E.L.T. 491 (S.C.)]. He draws our attention to the decision of the Hon’ble Supreme Court in the case of Gujarat Travancore Agency v. Commissioner of Income Tax [1989 (42) E.L.T. 350 (S.C.)] and Commissioner of Wealth- Tax v. Hashmatunissa Begum [1989 (40) E.L.T. 239 (S.C.)]. It is his submission that whether it is a substantial law or a procedural law, once an assessee opts to avail the Cenvat credit of the duty paid on common inputs, which are used for dutiable and exempted goods, he does not have an option to reverse the credit availed on the quantity of common inputs used in the manufacture of exempted goods and is perforce required to reverse 8% or 10% of the value of the exempted goods cleared, subject to the deductions allowed. It is his submission that benevolent legislation should be construed in a strict manner. It is his further submission that interpretation of a statute that will make other part of the law otiose, should be avoided. It is his submission that if Rule 6(3)(a) has been carved out by the legislature for specific entries, and mandate that plain reversal of credit in those exceptions are enough, that would indicate that there was an exception. If the assessee does not fall within the exception carved out in Rule 6(3)(a), he cannot be allowed to reverse the credit availed on the common inputs, which are used in exempted products but has to perforce abide by the provisions of Rule 6(3)(b) of the Cenvat Credit Rules. For this proposition, he relies upon Apex Court’s decision in the case of Hind Plastics v. Collector of Customs, Bombay [1994 (71) E.L.T. 325 (S.C.)], Commissioner of Income Tax, Jalpaiguri v. Om Prakash Mittal [2005 (184) E.L.T. 3 (S.C.)] and Singh Enterprises v. Commissioner of Central Exicse, Jamshedpur [2008 (221) E.L.T. 163 (S.C.)]. It is his submission that any benefit to the assessee, should be allowed only in terms of provisions as enacted and can be claimed only in the manner prescribed under the statute. He submits that provisions of Rule 6(3)(a) and (b) are substantive law and are the conditions to be followed. It is his submission that hardship is no ground for the wrong interpretation of the statute.

5. Learned Counsel in rejoinder, submits that the reversal of the credit on the common inputs used for the exempted goods is an accepted proposition of law by amendment to the statute by the Budget of 2008. He submits that new provisions have been inserted to reverse the credit on the common inputs used in the manufacture of exempted goods by way of formula as provided in the Rule itself. It is his submission that, this itself is an indicator that reversal of the credit of the duty on the common inputs used in exempted final products is accepted by the Government. He draws our attention to the fact, that in the case before us, credit availed on inputs was reversed even before the utilization of the same. He submits that this law has been squarely settled by the Hon’ble Supreme Court in the case of Commissioner of Central Excise v. Bombay Dyeing & Manufacturing as reported at [2007 (215) E.L.T. 3 (S.C.)]. It is his submission that once the credit availed on inputs that are used for the exempted products has been reversed, there is no violation of the Rule 6(1) of the Cenvat Credit Rules, 2002, as reversal of credit is nothing but non-availment of credit. It is his submission that Rule 6 is not a charging section and hence the provisions of Section 37 of the Central Excise Act, 1944 which empowers the Central Government to make rules, does not cover Rule 6. It is his submission that reversal of 8% or 10%, of the value of the exempted goods is one of the methods of achieving the goal of disentitlement of Cenvat credit on the inputs which are used for exempted products but is not the only method. It is his submission that the notes explaining important changes made in Excise during the Budget 1996-97, more specifically at paragraph 73.4, state that provisions of Rule 57CC are incorporated as the calculation of the duty of the credit taken on common inputs used in the exempted product is cumbersome and takes time, and in the absence of any input or output co-relation, it is difficult to determine whether the reversal of credit has been correct or not. It is his submission that if the calculation which is available is correct and can be relied upon, provisions of Rule 6(3)(b) need not be pressed into service. It is his submission that the language of the provisions of Rule 6(3)(b) is plain but the effect of the same is disproportionate, that is to say for availing credit of Rs. 100- on the common input, if an assessee is required to reverse 8% or 10% of the value of the exempted goods which would, hypothetical be Rs. 1,000/-, it would defeat the entire purpose. It is his submission that the provisions of Rule 6(1) do not militate against Rule 6(2) or Rule 6(3). He submits that the decision of the Hon’ble Supreme Court in the case of Chandrapur Magnet Wires Pvt. Ltd. was delivered in a more difficult situation, wherein exemption notification very specifically included bar of non-availment of credit on the inputs, but despite that, Hon’ble Supreme Court held that plain reversal is enough. It is his submission that identical view has been expressed by the Hon’ble Supreme Court in the case of Bombay Dyeing & Manufacturing. It is his submission that the position of the law got further affirmed in the case of Life Long Appliances Ltd. v. Commissioner of Central Excise, Delhi-III [2000 (123) E.L.T. 1110 (Tribunal)] wherein the Tribunal took the same view relying upon the judgment of the Hon’ble Supreme Court in the case of Chandrapur Magnet Wires Pvt. Ltd. He submits that the Revenue being aggrieved by the said judgment moved the Hon’ble Supreme Court in Civil Appeal and said Civil Appeal was dismissed by the Hon’ble Supreme Court as reported at [2006 (196) E.L.T. A144 (S.C.)]. It is his submission that the decision of the Tribunal in the case of Life Long Appliances Ltd. is squarely in respect of the provisions of Rule 57CC.

6. In rejoinder to the rejoinder, the ld. Jt. CDR, would submit that reference to Larger Bench is not in an individual case. It is the submission that there is no question of absurdity or of inequity in the provisions of Rule 6(3), as it is known to the assessee at the first instance, as to what he has to do. It is his submission that the decision of the Supreme Court in the case of Chandrapur Magnet Wires Pvt. Ltd. will apply only in a case where conditions of notification are so, and will not apply in a case related to Rule 6 of Cenvat Credit Rules, 2002.

7. We have considered the submissions made by both sides and perused the records. In order to appreciate the issue, it is necessary to reproduce Rule 6 of Cenvat Credit Rules, 2002 in its entirety which is as under ;-

“Obligation of manufacturer of dutiable and exempted goods. – (1) The CENV AT credit shall not be allowed on such quantity of inputs which is used in the manufacture of exempted goods, except in the circumstances mentioned in sub-rule (2).

(2) Where a manufacturer avails of CENVAT credit in respect of any inputs, except inputs intended to be used as fuel, and manufactures such final products which are chargeable to duty as well as exempted goods, then, the manufacturer shall maintain separate accounts for receipt, consumption and inventory of inputs meant for use in the manufacture of dutiable final products and the quantity of inputs meant for use in the manufacture of exempted goods and take CENVAT credit only on that quantity of inputs which is intended for use in the manufacture of dutiable goods.

(3) The manufacturer, opting not to maintain separate accounts shall follow either of the following conditions, as applicable to him, namely ;-

(a)        If the exempted goods are

(i)         goods falling within heading No. 22.04 of the First Schedule to the Tariff Act;

(ii)        Low Sulphur Heavy Stock (LSHS) falling within Chapter 27 of the said First Schedule used in the generation of electricity;

(iii)       Naphtha (RN) falling within Chapter 27 of the said First Schedule used in the manufacture of fertilizer;

(iv)       Tyres of a kind used on animal drawn vehicles or handcarts and their tubes, falling within Chapter 40 of the said First Schedule;

(v)        Newsprint, in rolls or sheets, falling within heading No. 48.01 of the said First Schedule;

(vi)       Final products falling within Chapters 50 to 63 of the said First Schedule,

the manufacturer shall pay an amount equivalent to the CENVAT credit attributable to inputs used in, or in relation to, the manufacture of such final products at the time of their clearance from the factory; or

(b)        if the exempted goods are other than those described in condition (a), the manufacturer shall pay an amount equal to eight per cent of the total price, excluding sales tax and other taxes, if any, paid on such goods, of the exempted final product charged by the manufacturer for the sales of such goods at the time of their clearance from the factory.

Explanation I. The amount mentioned in condition (a) and (b) shall be paid by the manufacturer by debiting the CENVAT credit or otherwise.

Explanation II. – If the manufacturer fails to pay the said amount, it shall be recovered along with interest in the same manner, as provided in rule 12, for recovery of CENVAT credit wrongly taken.

(4) No CENVAT credit shall be allowed on capital goods which are used exclusively in the manufacture of exempted goods, other than the final products which are exempt from the whole of the duty of excise leviable thereon under any notification where exemption is granted based upon the value or quantity of clearances made in a financial year.

(5) The provisions of sub-rule (1), sub-rule (2), sub-rule (3) and sub-rule (4) shall not be applicable in case the exempted goods are either-

(i)         cleared to a unit in a free trade zone; or

(ii)        cleared to a unit in a special economic zone; or

(iii)       cleared to a hundred per cent. export-oriented undertaking; or

(iv)       cleared to a unit in an Electronic Hardware Technology Park or Software Technology Park; or

(v)        supplied to the United Nations or an international organization for their official use or supplied to projects funded by them, on which exemption of duty is available under notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 108/95-Central Excise, dated the 28th August, 1995, number GSR 602(E), dated the 28th August, 1995; or

(vi)       cleared for export under bond in terms of the provisions of the Central Excise Rules, 2002″.

A plain reading of the above said Rule clearly obligates manufacturer of dutiable and exempted goods to follow the procedure while availing Cenvat credit on the inputs. The provisions of Rule 6(1), are, as correctly pointed out by the ld. Counsel, for non-availment of the credit of the duty on the inputs which are used in the manufacture of exempted goods. The provisions of Rule 6(2) would indicate that, the manufacturer who avails Cenvat credit in respect of common inputs, then he is required to maintain separate accounts. The provisions of rule 6(3)(a) and (b) further indicate how the manufacturer has to follow the procedure if he is not maintaining separate accounts. We are more concerned with the provisions of Rule 6(3)(b). On plain reading it would indicate that manufacturer who has availed Cenvat credit on common inputs does not have any other option but to pay 8L;0 or 10% of the total price of exempted final products, subject to exclusions as envisaged. We find that these provisions are pari materia to the provisions of Rule 57CC of the Central Excise Rules, 1944 which reads as under:

RULE 57CC. Adjustment of credit on inputs used in exempted final products or maintenance of separate inventory and accounts of inputs by the manufacturer. -(1) Where a manufacturer is engaged in the manufacture of any final product which is chargeable to duty as well as in any other final product which is exempt from the whole of the duty of excise leviable therein or is chargeable to nil rate of duty and the manufacturer takes credit of the specified duty on any inputs (other than inputs used as fuel) which is used or ordinarily used in or in relation to the manufacture of both the aforesaid categories of final products, whether directly or indirectly and whether contained in the said final products or not, the manufacturer shall, unless the provisions of sub-rule (9) are complied with, pay an amount equal to eight per cent of the price (excluding sales tax and other taxes, if any, payable on such goods) of the second category of final products charged by the manufacturer for the sale of such goods at the time of their clearance from the factory.

(2) The amount mentioned in sub-rule (1) shall be paid by the manufacturer by adjustment in the credit account maintained under sub-rule (7) of Rule 57G or in the accounts maintained under rule 9 or sub-rule (1) of Rule 173G and if such adjustment is not possible for any reason, the amount shall be paid in cash by the manufacturer availing of credit under rule 57 A.

(3) The provisions of sub-rule (1) shall also not apply to-

(a)        articles of plastic falling within Chapter 39;

(b)        tyres of a kind used on animal drawn vehicles or handcarts and their tubes, falling within Chapter 40;

(c)        Black and White television sets, falling within Chapter 85; and

(d)        Newsprint, in rolls or sheets, falling within Chapter heading No. 48.01;

Which are exempt from the whole of the duty of excise leviable thereon or chargeable to nil rate of duty.

(5) In the case of final products referred to in sub-rule (3) or sub-rule (4) and excluded from the provisions of sub-rule (1), the manufacturer shall pay an amount equivalent to the credit of duty attributable to inputs contained in such final products at the time of their clearance from the factory.

(6) The provisions of sub-rule (1) shall also not apply to final products which are exported under bond in terms of the provisions of rule 13.

(7) The provisions of sub-rule (1) shall apply even if the inputs on which credit has been taken are not actually used or contained in any particular clearance of final products.

(8) If any goods are not sold by the manufacturer at the factory gate but are sold from a depot or from the premises of a consignment agent or from any other premises, the price (excluding sales tax and other taxes, if any, payable) at which such goods are ordinarily sold by the manufacturer from such depot or from the premises of a consignment agent or from any other premises shall be deemed to be the price for the purpose of sub-rule (1).

(9) In respect of inputs (other than inputs used as fuel), which are used in or in relation to the manufacture of any goods, which are exempt from the whole of the duty of excise leviable thereon or chargeable to nil rate of duty, the manufacturer shall maintain separate inventory and accounts of the receipt and use of inputs for the aforesaid purpose and shall not take credit of the specified duty paid on such inputs”.

It can be noticed from the above reproduced Rule 57CC of the Central Excise Rules, 1944, and more specifically sub-rule (1), that the obligation cast upon the manufacturer in the current Rule 6(3)(b) is pari materia unless the provisions of sub-rule (9) are complied with. Combined reading of Rule 57CC(1) and 57CC(9) would indicate, that Rule 6(3)(b) has been carved out of a combination of the said sub-rule of Rule 57CC of Central Excise Rules, 1944. We find that the provisions of Rule 57CC as regards the reversal of the credit on the inputs were considered by the Tribunal in the case of Life Long Appliances Ltd. (supra). The Tribunal came to the following conclusion at paragraph 4.

“The present appellant’s case is identical. They were also producing exempted and dutiable goods from the same inputs which were procured and stored together. The exemption which they claimed was also subject to the same condition that Modvat Credit should not have been taken on the inputs used in the manufacture of the exempted goods. In order to satisfy these requirements they paid Central Excise Duty of 8% as fixed for such cases under Rule 57CC relates to “adjustment of credit on inputs used in exempted final products or maintenance of separate inventory and accounts of inputs by the manufacturer”. This rule is specific to cases where adjustment of credit is required to be made as the inputs have gone into the production of exempted final products. Sub-rule (1) of this rule specifically provides that payment of duty at 8% may be done, if the manufacturer is not able to meet the requirement under sub-rule (9) of maintaining separate inventory and accounts of the receipt and use of inputs for the manufacture of goods on which exemption is claimed. Such payment of duty at 8% brings about the adjust (sic) of excess credit taken. In other words, It is equivalent to reversal of credit on inputs. Therefore, the appellant had satisfied the requirement of not taking Modvat Credit on the inputs used in the manufacture of exempted goods. Their case is specifically covered by Rule 57CC as well as the decision of Supreme Court with regard to not availing of Modvat Credit on inputs in the Chandrapur Magnet Wires (P) Ltd. case. The impugned order is, therefore, clearly erroneous. The same is accordingly, set aside and the appeal is allowed”.

We also notice that the Civil Appeal filed by the Revenue against the said order of the Tribunal was dismissed by the Apex Court by observing as under ;-

“Heard the learned Senior Counsel for the appellant and the learned Counsel for the respondent. We have perused the order impugned in this appeal. The Tribunal as a matter of fact held that the appellant has satisfied the requirement of not taking Modvat credit on the inputs used in the manufacture of exempted goods and therefore their case is specifically covered by Rule 57CC as well as the decision in Chandrapur Magnet Wires (P) Ltd. v. Collector of C. Ex., Nagpur reported in 1996 (81) E.L.T. 3 (S.C.) with regard to not availing Modvat credit on inputs. The impugned order, therefore, is not liable to be interfered with at the instance of the Revenue. The appeal fails and stands dismissed. No costs”.

(Emphasis supplied)

Further, we notice that the Hon’ble Supreme Court in the case of Chandrapur Magnet Wires Pvt. Ltd. was considering the provisions of exemption Notification No. 106/88 dt. 1-3-88 wherein the final products were exempted from payment of the whole of the duty subject to the condition that final products were manufactured from copper wire bars and also subject to the stipulation that “(b) No credit of the duty paid on goods (a)(ii) above, used in their manufacture, has been taken under Rule 57 A of the said Rules”. Hon’ble Supreme Court clearly noted that there is no dispute that the inputs which were utilized in the manufacture of copper wires were duty paid and the appellants therein had availed the credit in the ledger maintained under the Excise Rules. It is also noted by the Apex court that assessee had not maintained separate accounts or segregated the inputs utilized for manufacturing of dutiable and duty free goods’ as should have been done. Despite this, the Hon’ble Supreme Court came to the conclusion that the appellant having reversed the amount of the duty before the removal of the exempted final goods, would amount to non-availment of the credit on the inputs. We may reproduce the ratio:

“In view of the aforesaid clarification by the Department, we see no reason why the assessee cannot make a 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 on the 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 57 A. In other words, the claim for exemption of duty on the disputed goods cannot be denied on the plea that the assessee has taken credit of the duty paid on the inputs used in manufacture of these goods”.

Further we notice that the Hon’ble Supreme Court in the case of Bombay Dyeing and Manufacturing (supra) was considering an identical issue as was in the case of Chandrapur Magnet Wires Pvt. Ltd. The Apex Court in the case of Bombay Dyeing Manufacturing, following the decision of the Chandrapur Magnet Wires Pvt. Ltd.

case and held as under :

“There is no merit in this civil appeal. Under the notification, mode of payment has not been prescribed. Further, exemption is given to the final products, namely, grey fabric under the Central Excise Act, 1944, levy is on manufacture but payment is at the time of clearance. Under the Act, payment of duty on yam had to be at the spindle stage. However, when we come to the Exemption Notification No.14/2002-C.E., the requirement was that exemption on grey fabrics was admissible subject to the assessee paying duty on yam before claiming exemption and subject to the assessee not claiming CENVAT credit before claiming exemption. The question of exemption from payment of duty on grey fabrics on which exemption was claimed. Therefore, payment was made before the stage of exemption. Similarly, on payment of duty on the input (Yarn) the assessee got the credit which was never utilized. That before utilization, the entry has been reversed which amounts to not taking credit. Hence, in this case, both the conditions are satisfied. Hence item No.1 of the table to Notification No. 14/2002-CE would apply and accordingly the grey fabrics would attract nil rate of duty”.

It is to be noticed that in the case of Bombay Dyeing & Manufacturing, the Revenue was in appeal against the decision of the Tribunal in holding that the reversal of input used in the exempted products would amount to non-availment of the Credit.

8. We find that the provisions of Rule 57 AD of Central Excise Rules, 1944, are pari materia with erstwhile Rule 57CC of Central Excise Rules, 1944 and are also pari materia with Rule 6 of Cenvat Credit Rules, 2002. The said rule is reproduced verbatim.

“57 AD. Obligation of manufacturer of dutiable and exempted goods. (1) CENV AT credit shall not be allowed on such quantity of inputs which is used in the manufacture of exempted goods, except in the circumstances mentioned in sub-rule (2).

(2) Where a manufacturer avails of CENVAT credit in respect of any inputs, except inputs intended to be used as fuel, and manufactures such final products which are chargeable to duty as well as exempted goods, then, the manufacturer shall maintain separate accounts for receipt, consumption and inventory of inputs meant for use in the manufacture of dutiable final products and the quantity of inputs meant for use in the manufacturer of exempted goods and take CENVAT credit only on that quantity of inputs which is intended for use in the manufacture of dutiable goods. The manufacturer, opting not to maintain separate accounts shall follow either of the following conditions, as applicable to him, namely :-

(a)        if the exempted goods are, –

(i)         final products falling under Chapters 50 to 63 of the Schedule to the Central Excise Tariff Act, 1985;

(ii)        tyres of a kind used on animal drawn vehicles or handcarts and their tubes, falling within Chapter 40;

(iii)       black and white television sets, falling within Chapter 85;

(iv)       newsprint, in rolls or sheets, falling within Chapter heading No. 48.01, the manufacturer shall pay an amount equivalent to the CENVAT credit attributable to inputs used in or in relation to the manufacture of such final products at the time of their clearance from the factory, or

(b)        if the exempted goods are other than those described in clause (a) above, the manufacturer shall pay an amount equal to eight per cent. of the total price, excluding sales tax and other taxes, if any, paid on such goods, of the exempted final product charged by the manufacturer for the sale of such goods at the time of their clearance from the factory.

Explanation. – The amount mentioned in (a) and (b) above shall be paid by the manufacturer by debiting the CENVAT credit or otherwise.

(3) No credit of the specified duty shall be allowed on capital goods which are used exclusively in the manufacture of exempted goods (other than final products which are exempt from the whole of the duty of excise leviable thereon under any notification where exemption is granted based upon the value or quantity of clearances made in a financial year).

(4) The provisions of sub-rule (1), sub-rule (2) and sub-rule (3) shall not be applicable in case the exempted goods are either, –

(i)         cleared to a unit in a free trade zone; or

(ii)        cleared to a hundred per cent. Export-oriented undertaking; or

(iii)       cleared to a unit in an Electronic Hardware Technology Park or Software Technology Parks; or

(iv)       supplied to the United Nations or an international organization for their official use or supplied to projects funded by them, on which exemption of duty is available under notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 108/95-Central Excises, dated 28th August, 1995; or

(v)        cleared for export under bond in terms of the provisions of rule 13″.

In the case of Concept Pharmaceuticals Ltd. v. CCE, Aurangabad [2006 (76) RLT 304 (CESTAT-Mum.)], Tribunal held as under:-

“The Learned Advocate Shri Thawani for the appellant pleaded that the Central Board of Excise and Customs have issued a Circular No.232/66/96/EX. Dated 25-7-1996 [reported in 1996 (15) RLT M159] wherein the Board had clarified that credit of the duty paid on the common input is admissible when used in the manufacture of the final product once the said credit on duty paid inputs going into the exempted category of the final product is debited in the RG 23A Part-II account before the removal of the exempted final product on actual or pro rata basis. Reliance was also placed on the CESTAT decision in the case of Rochees Watches Ltd., [2003 (54) RLT 761 (CEGAT-Del.)] 2003 (152) ELT 420 wherein it was held that once the credit taken by the appellant on the inputs used in the manufacture of the exempted wrist watches reversed by them before clearances Demand in terms of Rule 57 AD (2)(b) of erstwhile Central Excise Rules, 1944 was not justified.

We have heard the submission. We find that the appellant’s case is fully covered by the Board’s Circular referred to above and the CEGAT decision in the case of Rochees Watches Ltd., cited supra”.

Revenue was aggrieved by the said decision and took up the matter in appeal before the Hon’ble High Court of Judicature at Bombay. Their Lordships while dismissing the appeal held as under [2008 (225) E.L.T. 181 (Bom.)] : –

“So far as factual aspects are concerned, there is no dispute that although initially, the assessee-company availed Modvat credit on the common inputs used, both in the manufacture of dutiable as well as exempted products, however, before issuance of the inputs for the use in the manufacture of exempted product, they had reversed the credit. In fact, even the Assessing Officer has observed in his order as follows:

“When inputs are required for manufacture of exempted product, the assessee is issuing self invoice clearing the inputs to self by reversing the credit availed under Rule 57F(3) of Central Excise Rules, 1944, [now new Rule 3(4) of Cenvat Credit Rules, 2001]. Thereafter, assessee is reducing the stock of such inputs from stock ledger and same were entered in the Bin card/stock card batch-wise.”

Thus, it is evident that the assessee-company was reversing the credits upon which Modvat credit was claimed before the inputs were put into process for production of exempted goods. May be in the form of Bin cards, these inputs were being separately entered and were being deleted from the common stock register. In view of these factual details, learned Members of Cenvat felt that the case of the assessee was squarely covered by circular issued by the Central Board of Excise and Customs No. 231 /66/96/ES dated 25-7-1996 wherein the Board had clarified that the credit of the duty paid on the common input is admissible when used in the manufacture of the final product once the said credit on duty paid inputs going into the exempted category of the final product is debited in the RG 23A Part II account before removal of the exempted final product on actual or pro rata basis. From the narration of facts in the order of the Assessing Officer, it is evident that the credit was reversed and the input was deducted from RG 23A Part II at the stage where inputs were put in the process for production of exempted products and much before the clearance of exempted products. The Cestat was, therefore, justified in observing that the appellant’s case is fully covered by the Board’s circular referred above. In fact a copy of the circular is made available by Advocate Shri S.P. Deshmukh for our ready reference and para 3 of it reads thus:

“Keeping in view of the decision of the Hon’ble Supreme Court in the case of M/s. Chandrapur Magnet Wires Pvt. Ltd. v. C.C.E., Nagpur (Civil Appeal No. 7275 of 1995, dated 12-12-1995), it has been decided by the Board that credit of the duty paid on common inputs is admissible when used in the manufacture of the final product (exempted and dutiable) provided the said credit of duty paid on inputs going into the exempted category of the final product is debited in the RG 23A -Part II account before the removal of exempted final product on actual or pro rata (estimated) basis.”

We are unable to find any fault with the observations of learned Members of CEST AT for which they were inclined to allow the appeal of the assessee.

No substantial question of law arises now for our consideration. The appeal of the department is therefore, summarily dismissed”.

9. It can be noticed from the above reproduced judgments of the Hon’ble Supreme Court and the Hon’ble High Court that it is the settled law that reversal of the credit taken on the inputs is as good as non-availment of the credit on the inputs.

10. To our mind, the decisions of the Hon’ble Supreme Court in the case of Life Long Appliances (supra), following the decision of Chandrapur Magnet Wires Ltd. (supra) and the judgment of Hon’ble Apex Court in the case of Bombay Dyeing Manufacturing, (supra) and the judgment of the Hon’ble High Court of Bombay in the case of Concept Pharmaceuticals Ltd. (supra) squarely cover the issue in favour of the assessee.

11. We find that the contrary decision in the case of Maa Kamakhya Marbles (P) Ltd. and National Information Technologies Ltd. taking the view that reversal of input credit is not enough but 8% or 10% of the value of the exempted goods needs to be paid by the assessee, were delivered without noticing the decision of the Hon’ble Apex Court in the case of Chandrapur Magnet Wires Pvt. Ltd. (supra), We find that other submissions made and case laws referred by both the sides need not be gone into, as the issue before us, is squarely settled by ratio of the decisions of Apex Court and Hon’ble High Court of Bombay.

12. In view of the above reasoning we answer reference as under:

“The provisions of Rule 6(3)(b) of the Cenvat Credit Rules, 2002 are not applicable when the amount equivalent to the Cenvat Credit attributable to the common inputs used in, or in relation to, the manufacture of exempted final products has been paid prior to the removal of exempted final products from the factory”.

(Pronounced in court on………………………)

Sd/-                                                                                                     Sd/

M.V. Ravindran Member (J)                                                      Jyoti Balasundaram

dated 19-9-2008                                                                      Vice-President

dated 19-9-08

13. [Per: A.K. Srivastava, Member (T)]. – With due respects, I am not persuaded to agree with the findings of the majority order dated 19-9-08 passed by the Hon’ble Member (Judicial) and the Hon’ble Vice-President for the following reasons.

14. After reproducing Rule 6 of the Cenvat Credit Rules, 2002 in para 7 of the majority order, it has been acknowledged by the Hon’ble Member (Judicial) and Hon’ble Vice-President that on plain reading of Rule 6(3)(b) ibid, it would indicate that manufacturer, who has availed Cenvat Credit on common inputs does not have any other option but to pay 8% or 10% of the total price of the exempted products, subject to exclusion as envisaged. Having categorically so observed, it would have automatically flowed that the provisions of Rule 6(3)(b) ibid are applicable when the amount equivalent to the Cenvat Credit attributable to the common inputs used in, or in relation to, the manufacture of exempted final products has been paid prior to the removal of exempted final products from the factory. The Hon’ble Supreme Court in the case of Commissioner of Central Excise, Chandigarh-II v. Bhalla Enterprises reported in 2004 (173) E.L.T. 225 (S.C.) has held that the principle of strict/liberal interpretation applies only in case of ambiguity, otherwise plain words of the statute must be given effect. The Hon’ble Supreme Court in the case of Commissioner of Wealth Tax v. Hashmatunissa Begum reported in 1989 (40) E.L.T. 239 (S.C.) has held that the statute is not to be read in another way where the words are readable only in a particular way. It has been further held therein that one of the pillars of statutory interpretation viz.. the literal rule, demands that if the meaning of the statutory interpretation is plain and the courts must apply regardless of the result. The Hon’ble Supreme Court in the case of Hind Plastics v. Collector of Customs, Bombay reported in 1994 (71) E.L.T. 325 (S.C.) has held that the principle is unexceptionable that where it is statute, statutory instrument or an ordinary instrument, the interpretation placed has to accord with intention of maker as evidenced by words/language used.

15. It is seen that Rule 6(1) specifically prohibits CENVAT credit being allowed on such quantity of inputs as used in the manufacture of exempted goods. Therefore, there is no authority in law for availing CENVAT Credit on the quantity of inputs intended or used for the manufacture of exempted goods except in terms of Rule 6(2), which allows the manufacturer to avail the CENVAT credit only in respect of that particular quantity of inputs, which is intended to be used in the manufacture of dutiable goods subject to their maintaining separate accounts for receipt, consumption and inventory of inputs meant for use in the manufacture of final products. But if separate accounts are not maintained, though Cenvat credit is availed, then sub-rule (3) of Rule 6 provides for payment of amount equal to CENVAT credit on dutiable inputs for cases covered under sub-rule (3)(a) and in respect of all other inputs, sub-rule (3)(b) of Rule 6 provides for payment of an amount of 8% or 10% of total price (excluding sales tax and other taxes, if any, paid on such goods), of the exempted final products charged by the manufacturer for the sale of such goods at the time of their clearances from the factory. Thus reversal of the credit taken or availed under Rule 6 is not contemplated by the Cenvat Credit Rules, 2002. The contention that it is open to the assessee to reverse the credit of duty availed in respect of the inputs instead of paying an amount of 8% or 10% of sale price in terms of the principle laid down by the Supreme Court in Chandrapur Magnet case reported in 1996 (81) E.L.T. 3 (S.C.) does not appear to be correct since the judgment of the Supreme Court in the case of Chandrapur Magnet was delivered in the context of Rule 57C of the Central Excise Rules, 1944, when the provisions of Rule 57CC, 57AD of the Central Excise Rules, 1944 and Rule 6 of the Cenvat Credit Rules, 2001/2002 were not in the statute book. Hence, the Supreme Court did not have the occasion to consider these provisions. The true ratio of the Supreme Court judgment in Chandrapur Magnet case is to the effect that if it is permissible to reverse the Modvat credit taken, then on reversal of the credit taken, the benefit of the exemption Notification is to be allowed. However, we find that the reversal of credit is not allowed by Rule 6 of the Cenvat Credit Rules, 2002, which only provides for payment of amount under sub-rule (3)(a) or (3)(b) of Rule 6 ibid, as the case may be. If the final exempted product manufactured is not covered by sub-rule (3)(a) of Rule 6 ibid, it will be covered by sub-rule (3)(b) of Rule 6 ibid and the manufacturer is required to pay 8% or 10% of the sale price of the final exempted product. The facility of reversing the credit taken is neither explicitly given nor necessarily implied in the Cenvat Credit Rules, 2002. The Central Board of Excise and Customs, the Apex body of the Government, which administers the Customs and Central Excise Laws, in its Circular No. 739/55/2003-CX dated 28-8-2003, has observed that “as per Rule 6(1), CENVAT credit shall not be allowed on inputs used in the manufacture of exempted goods and it does not pertain to reversal of input credit. If the conditions of sub-rule (2) of Rule 6 are not followed, then the question of taking CENVAT credit and subsequently reversing it does not arise at all.” The provisions of Rule 6 are unambiguous and clear. The Central Board of Excise and Customs, in its Circular No. 654/45 /2002-CX dated 19-8-2002, has clarified that “In terms of Rule 6, the assessee, who has not maintained separate inventory and has taken credit on common inputs used in the manufacture of dutiable and exempted products (except in the cases mentioned in the provisions contained in sub-rule (3)(a)] has no option but to reverse 8% of the price of the exempted goods as per provisions of sub-rule (3)(b) of the said rule.” If the assessee has consciously choosen to disregard the clear and unambiguous provisions of Rule 6, which are not capable of two interpretation, he has done so at his own peril and he cannot plead clemency and mercy later on in the name of equity and pray for relieving him of the liability to pay 8% or 10% of the price of the exempted goods. There is no reason why the rigours of law should not be given effect to.

16. If the interpretation put by the majority order is held to be correct, it will render the provisions of Rule 6(3)(b) ibid providing for payment of an amount equal to 8% or 10% rather otiose. This militates against an interpretation, which renders it superfluous and of no significance. It cannot be presumed that the Central Government introduced the said rule without any meaning, significance or purpose. The Hon’ble Supreme Court in the case of Commissioner of Income Tax, Jalpaiguri v. Om Prakash Mittal reported in 2005 (184) E.L.T. 3 (S.C.) has held that the order in conflict with the mandatory provisions of statute cannot be passed and the amount statutorily payable cannot be reduced.

17. The majority Order has relied upon the decision of the Tribunal in the case of Life Long Appliances v. CCE reported in 2002 (123) E.L.T. 1110 (T), which has been upheld by the Supreme Court as reported in 2006 (196) E.L.T. A144 (S.C.). This decision of the Tribunal upheld by the Supreme Court, in fact, supports the case of the Revenue. Since the assessee in this case was not maintaining separate account of the common inputs being used for the manufacture of the dutiable and exempted goods, he was paying 8% of the amount on the price of the exempted goods as laid down under Rule 57CC of the Central Excise Rules, 1944. 8% amount was being paid in consideration of taking of Modvat credit on the entire quantity of common inputs procured. It was held that the payment of amount @8% under Rule 57CC is equivalent to the reversal of credit on inputs. Therefore, it was held that the assessee had satisfied the requirement of not taking the Modvat credit on the inputs used in the manufacture of exempted goods.

18. As most of the Courts/Tribunals have applied the ratio of the decision of the Hon’ble Supreme Court in the case of Chandrapur Magnet, it will be worthwhile to ascertain the true ratio of that decision, as what is ‘law in precedent’ is its ruling or ratio decidendi, which concerns future litigants as well as those involved in the instant dispute. Knowing the law in this context means knowing how to extract the rationes decidendi from cases. Statements not part of the ration decidendi are distinguished as obiter dicta and are not authoritative. Three shades of meaning can be attached to the expression ‘ratio decidendi’. The first, which is translation of it. is ‘the reason for (or of) deciding.’ Even a finding of fact may in this sense be the ratio decidendi. Thus, a judge may state a rule and then decide that the facts do not fall within it. Secondly, it may mean ‘the rule of law proffered by the judge as basis of his decision’ or, thirdly, it may mean ‘the rule of law which others regard as being of binding authority.’

On the issue of Ratio Decidendi, Vaughan CJ in his statement in the case of Bole v. Horton (1673) Vaugh 360 at 382: had clarified” An opinion given in court, if not necessary to the judgment given of record, but that it might have been as well given if no such, or a contrary, opinion had been broached, is no judicial opinion, nor more than a gratis dictum.”

The requirement of an authoritative pronouncement of the Court on certain issues and the same being considered as the ratio of that case so as to forma binding precedent for future cases has been addressed by the House of Lords in the case of Penn-Texas Corporation v. Murat Anstalt (No.2) [1964] 2 QB 647. In that case, an application was made under the Foreign Tribunals Evidence Act, 1856 (UK) that an English company, by its proper officer, should attend to give evidence on oath and produce documents for use in proceedings in New York. The Court of Appeal decided [Penn-Texas Corporation v. Murat Anstalt (No.1) (1964) 1 QB 40] that whilst under the statute there was no power to order a company to give evidence, there was power to order it to produce documents, but only if they were specifically identified. The court held, however, that no order should be made because the documents sought to be produced had not been sufficiently identified. The American company then made a further application for specifically identified documents. An order was made for their production and an appeal was taken to the Court of Appeal [Penn-Texas (No.2)]. Before that court the English company again sought to raise the question whether there was power to order the company to produce documents, notwithstanding that this issue had been decided against it in the earlier decision. The Court of Appeal held what had been decided in Penn-Texas (No. 1) was not part of the ratio of the case, because the ruling was not necessary for the decision. The result of the case would have been the same if the ruling had gone the other way.

The House of Lords, thus, did not consider the observation of the Court regarding order for production of specifically identified documents.

In re Norway’s Application (No.2) [1990] 1 AC 723 raised almost a similar issue. A Norwegian court issued a letter of request to the High Court for the examination of two witnesses in England. The Court of Appeal held that there was power to make the order sought under s. 1 of Evidence (Proceedings in Other Jurisdictions) Act 1975 (UK), but that no such order should be made, because the request was “fishing” (In re State of Norway’s Application (No. I) [1987] QB 433. A second letter of request was issued setting out the specific questions that the witnesses were to be asked if an order for their examination was made. The orders sought were made. On appeal, the witnesses sought to argue that on the proper construction of s. 1 there was no jurisdiction to make the order contrary to the ruling in In re : Norway’s Application (No. 1). The Court of Appeal held that this ruling was not part of the ratio of the case (In re : Norway’s Application (No.2).

The reason given was that statements of the Court of Appeal in the earlier case were not necessary for the decision of the Court. That is, the result of the ease would have been the same had the issue of jurisdiction been decided the other way: see at 738 per May LJ, at 750 per Balcombe LJ and at 770 per Woolf L.J.

Hon’ble Supreme Court in the case of CC v. Toyota Kirloskar reported in 2007 (213) E.L.T. 4 (S.C.) had an occasion to examine the scope of ratio decidendi. It observed in Para 30

“30. The observations made by this Court Essar Gujarat Limited (supra) in Paragraph 18 must be understood in the factual matrix involved therein. The ratio of a decision, as is well-known, must be culled out from the facts involved in a given case. A decision, as is well-known, is an authority for what it decides and not what can logically be deduced therefrom. Even in Essar Gujarat Limited (supra), a clear distinction has been made between the charges required to be made for pre-importation and post-importation. All charges levied before the capital goods were imported were held to be considered for the purpose of computation of transaction value and not the post-importation one. The said decision, therefore, in our opinion, is not an authority for the proposition that irrespective of nature of the contract, licence fee and charges paid for technical know-how, although the same would have nothing to do with the charges at the pre-importation stage, would have to be taken into consideration towards computation of transaction value in terms of Rule 9(1)(c) of the Rules.”

The Hon’ble Cujarat High Court in the case of Dhrangdhara Municipality v. DCW reported in 1988 (35) E.L.T. 88 (Guj.) observed in para 27-

“27. Reliance is placed by the learned Advocate for the plaintiff on the decision of the Supreme Court in the case of Sales Tax Officer v. Ivmhaiya Lal, A.I.R. 1959 S.C. 135 and on the decision of the Supreme Court in the case of D. Cawasji and Company v. State of Mysore and Another, 1979 (2) E.L.T. (J 154) = A.I.R. 1975 S.C. 813. Before discussing the aforesaid two decisions of the Supreme Court, it would be proper to have a look at the judgment of the Supreme Court in the case of Dalbir Singh and Others v. State of Punjab, A.I.R. 1979 S.C. 1384, wherein guidelines are provided as to how the judgment of the Supreme Court be read, understand and applied. In this decision. Sen, J. has observed as follows :-

“According to the well settled theory of precedents every decision contains three basic ingredients:

(i)         finding of material facts, direct and inferential. An inferential finding of a facts in the inference which the Judge draws from the direct or perceptible fads;

(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 (i) and (ii) above.

For the purpose of the parties themselves and their privies, ingredient No. (iii) is the material element in the decision for it determines finally their rights and liabilities in relation to the subject matter of the action. It is the judgment that estops the parties from reopening the dispute. However, for the purposes of the doctrine of precedents ingredient No. (ii) is the vital element in the decision. This indeed is the ratio decidendi. It is not every thing said by a Judge when giving judgment that constitutes a precedent. The only thing in a Judge’s 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.”

The aforesaid observations have been accepted by a full bench of this court in the case of Ahmedahad Mfg. and Calico Printing Company Ltd. v. Union of India and Others – 1982 (10) E.L.T. 821 (Guj.) = XXIV(1) G.L.R. 1. After referring to the aforesaid decision of the Supreme Court and other two decisions of the Supreme Court, in the case of Madhav Rao Scindia v. Union of India, AI.R. 1971 S.C 539 and in the case of A.D.B. Jabalpur v. S. Shukla, AI.R. 1976 S.C. 1287, the full bench has observed that the court must be necessity examine the precise question or the precise issue which arose before the court and identify the principle of law, applied by the court in resolving the issue and make further effort to find out what is the proposition of law which emerges from the decision of the court. Recently, in the case of Ambica Quam) Works v. State of Gujarat, AI.R. 1987 S.C. 1073, the Supreme Court has observed as under ;-

“The ratio of any decision must be understood in the background of the facts of that case. It has been said long time Was that a case is only an authority for what it actually decides, and not what logically follows from it. (See Lord Halsbury in Quinn v. Leathes, 1981 AC 495)”.

Hon’ble Patna High Court had also an occasion to address this issue in the ease of TISCO v. UOI reported in 1988 (33) E.L.T. 297 (Pat.).

13. Learned counsel for the petitioner submitted that overhead crane cannot operate, but on gantry. A crane is not a crane until it is affixed to a gantry, as it cannot function till then. I regret, I have some difficulty in accepting this submission. A crane is a distinct identifiable object in the commercial world. It is true that it works on a gantry but it is well known that gantry is no part of a crane. A “crane” is a machine for raising, lowering and moving heavy weights. A “gantry” is a frame or platform for carrying a crane or similar structure (See Shorter Oxford English Dictionary). It is thus obvious that a “gantry” is only the track on which a crane operates. Nevertheless, a crane is an object distinct from a gantry. A train moves on rails and yet a train is a distinct item even if they are not put on rails. Rails are no part of train. It must he accepted that the cranes before being supplied to the main unit had a “trial run” at the Machine Shop at Adityapur. One does not know whether there was gantry or not. For aught one knows the cranes may have been tried and tested on gantries set up in the Machine Shop itself. It is, therefore, not possible to accept the contention advanced on behalf of the petitioner that no crane was assembled at the Adityapur Unit of the petitioner. After they had been assembled at Adityapur unit, they were removed to the petitioner’s site. That could have been done only in knocked down condition.

14. Learned counsel for the petitioner placed reliance on a decision of the Supreme Court in Ram Singh and Sons EngiYicering Works v. Commissioner of Sales Tax. U.P. [1973] 43 STC 195 to establish that the erection of a crane is not complete until it is affixed to a gantry. Special reliance was placed upon the observations at page 202 where it was stated as Follows:

“The 3-motion electrical overhead travelling crane comes into existence as a unit only when the component parts are fixed in position and erected at the side, but at that stage it becomes the property of the customer because it is permanently embedded in the land belonging to the customer. The result is that as soon as 3-motion electrical overhead travelling crane comes into being, it is the property of the customer and there is, therefore, no transfer of property in it by the manufacturer to the customer as a chattel. It is essentially a transaction for fabricating component parts and putting them together and erecting them at the site so as to constitute a 3-motion electrical overhead travelling crane. The transaction is no different than one for fabrication and erection of an open god own or shed with asbestos or tin sheets fixed on columns. There can, therefore, be no doubt that the contract in the present case was a contract for work and labour and not a contract for sale.”

I regret, the reliance placed upon the dedsion of the Supreme Court is misplaced. What binds is the ratio of a decision and not the logical extensions therefrom. The point falling for consideration in that decision was clearly different from the controversy before us. The question which fell for consideration in that case was whether fabrication and erection of an electrical overhead travelling crane was a contract for work and labour or a contract for sale. It may be recalled that the Supreme Court held in the case of The State of Madras v. M/s. Gannon Dunkerley & Co. (Madras) Ltd., AIR 1958 S.C 560 that where a contract of work involves labour as well as supply of materials, the supply aspect cannot be separated from the work and, therefore, the supply of material was not exigible to sales tax. Again in Sentinel Rolling Shutters & Engineering Co. (P) Ltd. v. Commissioner of Sales Tax [1978] 42 STC 409 the same matter came up for consideration. Before the Supreme Court, in the case of Ram Singh and Sons (supra), the assessee was a firm carrying on business of manufacturing and erection, of cranes. The question arose whether the assessment to sales tax of Rs. 1,34,500 received by the assessee under contract with M/s. Kamlapat Moti Lal Sugar Mills and of Rs. 2,38,000 received under contract with Mis. Upper Doab Sugar Mills Ltd. formed part of the turnover of the assessee liable to sales tax. The answer to the question depended upon whether the contracts were contracts for sale or contracts for work and labour. The observations of the Supreme Court must be understood in the light of this background. Their Lordships in order to resolve that question held that erection of overhead travelling crane was a fundamental and integral part of the contract because without it the 3-motion electrical overhead travelling crane cannot operate. Mark the observations of their Lordships at page 202, quoted above, that the transaction is no different than one for fabrication and erection of an open godown or shed with asbestos or tin sheets fixed on columns. Their Lordships laid down that there could be no doubt that the contract was a contract for work and labour and not a contract for sale. That was the ratio of that case. Their Lordships were not deciding what is crane and what is not so. Their Lordships were not deciding whether a crane is a crane or not until it is put on a gantry. A decision is only an authority for what it actually decides and not the logical extensions therefrom. In the Regional Manager and Another v. Pmoan Kumar Dubey, AIR 1976 S.C. 1766 it was laid down that ratio decidendi is the rule deducible from the application of law to the facts and circumstances of a case and not some conclusion based upon facts which may appear to be similar. So also in C.I.T. Bihar, Patna v. Shea Kumari Devi, 1986 BLJR 825. It is not necessary to multiply decisions on this aspect of the matter. I am clearly of the view that the case of Ram Singh and Sons (supra) does not lay down that a crane is not a crane until it is affixed to a gantry. Reliance placed by Mr. Chatterji for the petitioner is clearly misplaced and must be rejected.”

19. A reading of all the decisions on this issue leaves no doubt in my mind that-

(i)         An opinion of the Court on any issue, not necessary for deciding the dispute, cannot he considered as ratio of that case.

(ii)        The ratio of a decision, as is well-known, must he culled out from the facts involved in a given case. A decision is an authority for what it decides and not what can logically be deduced therefrom.

(iii)       The only thing in a Judge’s 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.

(iv)       The ratio of any decision must be understood in the background of the facts of that case. A case is only an authority for what it actually decides and not what logically follows from it.

(v)        Ratio decidendi is the rule deducible from the application of law to the facts and circumstances of a case and not some conclusion based upon facts which may appear to be similar.

20. The aforesaid analysis clearly brings out the scope of ‘Ratio Decidendi’. Considering the same, I will examine the scope of the decision of the Hon’ble Supreme Court in the case of Chandrapur Magnet – 1996 (81) E.L.T. 3 (S.C.). Relevant portions of the judgment of the Hon’ble Supreme Court arc reproduced below.

“4. The problem in this case arose because, some of the goods manufachued by the appellants were exempted from duty by Notification No. 69/86-C.E., dated 10th February, 1986. This notification was amended by a further notification No. 106/88, dated 1st March, 1988 by which copper winding wires were exempted from payment of the whole of the duty subject to the condition that the final products were manufactured from copper wire bars of over 6 mm and also subject to the stipulation that

“(b) No credit of the duty paid on goods (a)(ii) above, used in their manufacture, has been taken under Rule 57 A of the said Rules.”

There is no dispute that the inputs which were utilised 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 which has to be maintained under the Excise Rules. The credit amount can be utilised by the manufacturer towards payment of duty of excise leviable on the final products. Since the copper wires manufactured by the appellants had become duty free, there was no question of any adjustment of the credit amount against the duty payable on these copper wires. Moreover, Rule 57C specifically provides that credit of duty cannot be allowed if final products were exempt from payment of excise duty. Faced with this situation, the appellants reversed the credit entries of duty paid on inputs which were utilised for manufacture of the duty free copper wires.

5. The case of the Excise Department is that the reversal of credit entries are not permitted by the rules. The assessee is not entitled to remove the copper wires without payment of duty since credit of the duty paid on the inputs used in the manufacture of copper wire had already been taken in accordance with Rule 57 A. Once appropriate entries have been made in the register, there is no rule under which the process could be reversed. Since the credit has been taken for the duty paid on the inputs in the ledger maintained by the assessees, the assessee cannot be heard to say that no credit of the duty has been taken by it under Rule 57 A.

6. It is true that the assessee has not maintained separate accounts or segregated the inputs utilised for manufacture of dutiable goods and duty free goods, as should have been done. The contention of the Department that in this situation, the assessee is not entitled to reverse the entries and get the benefit of the tax exemption is a question which merits serious consideration There is no doubt that the assessee should have maintained separate accounts for duty free goods is and the goods on which duty had to be paid. But our attention was drawn to a departmental circular letter on this problem in which it has been clarified by the Ministry of Finance as under :-

“3. The credit account under MODVAT rules may be maintained chapterwise, MODVAT credit is not available if the final products are exempt or are chargeable to nil rate of duty. However, where a manufacturer produces along with dutiable final products, final products which would be exempt from duty by a notification (e.g. an end-use notification) and in respect of which it is not reasonably possible to segregate the inputs, the manufacturer may be allowed to take credit of duty paid on all inputs used in the manufacture of the final products, provided that credit of duty paid on the inputs used in such exempted products is debited in the credit account before the removal of such exempted final products.”

This circular deals with a case where the manufacturer produces dutiable final products and also final products which are exempt from duty and it is not reasonably possible to segregate inputs utilised in manufacture of the dutiable final products from the final products which are exempt from duty. In such a case, the manufacturer may take credit of duty paid on all the inputs used in the manufacture of final products on which duty will have to be paid. This can be done only if the credit of duty paid on the inputs used in the exempted products is debited in the credit account before the removal of the exempted final products.

7. In view of the aforesaid clarification by the Department, we see no reason why the assessee cannot make a 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 on the inputs utilised in manufacture of the final exempted product will stand deleted in the accounts of (he assessee. In such a situation, it cannot be said that the assessee has taken credit for duty paid on the inputs utilised in the manufacture of the final exempted product under Rule 57 A. In other words, the claim for exemption of duly on the disputed goods cannot be denied on the plea that the assessee has taken credit of the duty paid on the inputs used in manufacture of these goods.”

21. The relevant facts are that –

(i) The issue before the Apex Court was availability of benefit of exemption Notification 69/86-C.E., dated 10-2-1986 as amended wherein one of the conditions was that no credit of duty paid on inputs was taken under Rule 57 A of the erstwhile Tariff.

(ii) The assessee had not maintained separate account for inputs utilized in dutiable and exempted goods.

(iii) There was a circular of the Department clarifying that if it was not possible to segregate the inputs for manufacture of dutiable and exempted goods (under a Notification), then the manufacturer may be allowed to take the credit on the inputs but he should reverse the credit before the removal of the exempted product.

The decision of the Apex Court in Para 7 of the Order is very clear. The Hon’ble Court takes into consideration the said circular and then accepts the contention of the assessee for grant of the exemption. Then in no uncertain terms the Court observes ‘In such a situation, it cannot be said …………….’. The Hon’ble Court has decided the issue considering the Circular of the Department and can be considered as ratio in the aforesaid facts only. The ratio of this case cannot be applied, where the facts are different. Even if the circular was withdrawn or there was a change in law, the ratio of this decision will not apply.

Even the decision of the Hon’ble High Court of Bombay in the case of CCE, Aurangabad v. Concept Pharmaceuticals reported in 2008 (225) E.L.T. 181 (Bom.) had considered the fact that the Modvat credit was reversed before the inputs were put in process for production of exempted goods. Further, the Hon’ble High Court had also considered the CBEC Circular 232/66/96/Ex dated 25-7-1996.

None of the aforesaid decisions can be considered as a ratio for the proposition that the proportional reversal of Cenvat credit taken on inputs used in manufacture of exempted goods will ipso facto satisfy the requirements of Rule 6(3)(b) of the CENV AT Credit Rules, 2002.

22. It will be pertinent to note that consequent upon the change of law, the Central Board of Excise and Customs, vide its Circular No. 654/45/2002-Cx, dated 19-8-2002 has, in categorical terms, clarified as under;

“In terms of Rule 6, the assessee who has not maintained separate inventory and has taken credit on common inputs to manufacture dutiable and exempted products [except in the cases mentioned in the provisions contained in sub-rule (3)(a)] has no option but to reverse 8% of the price of the exempted goods as per provisions of sub-rule (3)(b) of the said rule.” Even the Hon’ble Court in Chandrapur Magnet (supra) in para 6 of the Order has observed that “the contention of the Department that in this situation (i.e. non-maintenance of separate accounts), the assessee is not entitled to reverse the entries and get benefit of tax exemption is a question which merits serious consideration,”

23. It is pertinent to note that the Government has amended Rule 6 of the CENVAT Credit Rules, 2004 with effect from April, 2008. Now a manufacturer, using common inputs or input services for manufacturer of dutiable as well as exempted goods and opting not to maintain separate accounts has the following options:

(i) reverse the credit attributable (to be worked out in a manner prescribed in the rule) to the inputs and input services used in the manufacture of exempted goods; or

(ii) pay 10% amount of the value (to be determined in accordance with the provisions of Section 4/4A of the Central Excise Act, 1944) of the exempted goods.

There is no provision for giving retrospective effect to this amendment. It cannot be given, as the amount of reversal of credit has to be worked out in a manner prescribed in the Rules. There was no such prescription prior to the amendment. The decision of the majority in this case will make the amendment superfluous. Such interpretation has to be avoided.

24. As regards the reliance placed in the majority order on the judgment of the Hon’ble Supreme Court in the case of Commissioner of Central Excise, Mumbai-I v. Bombay Dyeing and Mfg Co. Ltd. reported in 2007 (215) E.L.T. 3 (S.C) is concerned, it is to be noted that the Hon’ble Supreme Court in that case was dealing with the issue of the admissibility of exemption under Notification No. 14/2002-CE. dated 1-3-2002 to the grey fabrics. It was held therein that the exemption under Notification No. 14/2002-CE. dated 1-3-2002 is subject to the condition of non-taking of the Cenvat credit. It was held in that context that the credit taken but before utilization reversed, it will amount to not taking the credit and the benefit of exemption cannot be denied The Hon’ble Supreme Court in this case was not dealing with the issue of use of the common inputs in the manufacture of the dutiable and exempted goods vis-a-vis the applicability of the provisions of Rule 57CC of the Central Excise Rules, 1944 or Rule 57AD of the Central Excise Rules, 1944 or Rule 6 of the Cenvat Credit Rules, 2002. Further, it is to be noted that Notification 14/2002-CE. dated 1-3-2002 deals with the textile articles falling under Chapter 50 to 63 of the Central Excise Tariff and goods falling under Chapters 50 to 63 of the Tariff are covered under Rule 6(3)(a) of the Cenvat Credit Rules, 2002, which stipulates that if the Cenvat credit is taken on inputs used in the manufacture of exempted goods falling under these chapters, then the manufacturer shall pay an amount equivalent to the Cenvat credit attributable to inputs used in, or in relation to, the manufacture of such final products at the time of their clearance from the factory. Therefore, in my view, the reliance placed on this judgment of the Supreme Court by the majority order is misplaced and out of context.

25. It will not be out of place to mention here that the Hon’ble Supreme Court in the case of Commissioner of Central Excise, Nagpur v. Ballarpur Industries Ltd. reported in 2007 (215) E.L.T. 489 (S.C) has noted that Rule 57CC of the Central Excise Rules, 1944 is a provision which seeks to recover presumptive amount @8% of price of exempted final goods at the time of removal for sale. In fact, the judgment went a step further and held that this Rule is applicable to stock transfers also and hence, the words “price charge at the time of sale” must be read as “eight per cent of the value of the exempted goods” Rule 57CC was placed on the statute book by Notification No. 14/96-CE., dated 23-7-1996. It was issued under Section 37 of the Central Excise Act, 1944. Paras 13 and 14 of Hon’ble Supreme Court judgment are extracted below:

“13. The object of the Rule 57CC(1) was to recover a presumptive sum upon removal of exempted goods from a manufacturer who also manufactured dutiable goods, but using common input for both dutiable as well as duty exempted goods and who took Modvat credit on such common inputs. Rule 57CC sought, therefore, to recover a presumptive sum equal to eight per cent of the price of exempted goods at the time of their removal where the manufacturer did not undertake maintenance of inventory / accounts of the clearance of exempted final products. Even sub-rule (7) of Rule 57CC was based on “deemed price” if read with Rule 57CC(1). Subrule (7) read with sub-rule (1) prevented an assessee from contending that he was not liable to pay the presumptive sum of eight per cent of the price of exempted goods on the ground that the said exempted goods were wholly manufactured out of inputs on which no credit of duty had been taken under Rule 57 A. The amount required to be paid at the time of removal of exempted goods under Rule 57CC(1) had to be done in the same manner as was the case with any other excisable goods as the rate of duty stood determined at the rate of eight per cent in the rule itself. The said presumptive amount was required to be paid by debiting in PLA register or by payment in cash. As stated above, there was an alternative provided under sub-rule (9) which relieved the manufacturer of the liability to pay eight per cent of the price of exempted goods at the time of removal of such goods. Under sub-rule (9), the assessee was required to maintain a separate account and an inventory and that he was not entitled to take credit on the inputs meant for use in exempted final product. If such accounts and inventory were maintained, there was no need to pay a presumptive amount equal to eight per cent of the price of exempted goods at the time of their removal.

14. In our view, Rule 57CC, therefore, required payment of a presumptive amount of eight per cent of the price of the exempted goods, net of sales tax and other taxes. This rule was self contained provision indicating the basis on which price had to be determined. The rule, however, has not called the said amount of eight per cent as duty of excise. As indicated in the above circular, quoted above, the manufacturer who did not maintain account or inventory was required to debit the amount equal to 8 per cent of the value of exempted goods at the time of removal of goods from the factory. In our view, the said amount of 8 per cent of the value of the goods at the time of clearance is the measure and it brings in also the applicability of Section 4 of the 1944 Act and the Valuation Rules, 1975 framed thereunder.”

Since Rule 57CC of the Central Excise Rules, 1944 is pari materia with Rule 57 AD of the Central Excise Rules, 1944 and also pari materia with Rule 6 of the Cenvat Credit Rules, 2002, the above observations of the Hon’ble Supreme Court given in relation to Rule 57CC of the Central Excise Rules, 1944 will be equally applicable in relation to Rule 57 AD of the Central Excise Rules, 1944 and Rule 6 of the Cenvat Credit Rules, 2002.

26. In the light of the aforesaid elaborate discussions, I answer the reference as under:

“The provisions of Rule 6(3)(b) of the Cenvat Credit Rules, 2002 are applicable when the amount equivalent to the Cenvat Credit attributable to the common inputs used in, or in relation to, the manufacture of exempted final products has been paid prior to the removal of exempted final products from the factory.”

Sd/-

A.K. Srivastava

Member (T)

MAJORITY ORDER

In view of the majority Order, of the reference is answered in favour of the assessee which is as under:-

“The provisions of Rules 6(3)(b) of the Cenvat Credit Rules, 2002 are not applicable when the amount equivalent of the Cenvat Credit attributable to the common inputs used in, or in relation to, the manufacture of exmpted final products has been paid prior to the removal of exempted final products from the factory”.

(Pronounced in court on 23-10-2008)

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