TMI Blog1996 (1) TMI 179X X X X Extracts X X X X X X X X Extracts X X X X ..... mediate product used for captive consumption under Section 4(1)(b) of Central Excises Salt Act, 1944 (for short, the Act). The appellant took the stand that since the duty paid on raw materials was set off , it was not liable to be included in the cost of raw materials for the purpose of valuing the captively consumed product for the purpose of excise duty. In other words, the Assistant Collector took the stand that while valuing the captively consumed product on the basis of cost of raw material plus manufacturing expenses and profits the cost of raw materials must include the excise duty paid thereon, while the appellant took the stand that cost of raw materials should not include the excise duty element since that was set off under the Modvat credit scheme. Assistant Collector over-ruled the contention of the appellant and this was confirmed by the Collector (Appeals). It was in these circumstances that the present appeal was filed. 2. The Division Bench which heard the appeal was of the opinion that the decision in Atic Industries Ltd. case, 1992 (62) E.L.T. 321 (T) is in conflict with the earlier decision in Incab Industries case, 1990 (45) E.L.T. 342 (T) and therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e value of pump-set for the purposes of Central Excise duty. A two-Member Bench of the Tribunal held that taxes paid on raw materials and components were part of the cost of the raw materials which in turn was part of the full intrinsic value of the manufactured product. It was urged that during the material period Notification No. 84/72-C.E. provided for set off being given for duty paid on electric motors or stators or rotors. The Tribunal held that the set off provision exempted motor part of the duty and hence the excise authority was not justified in including such duty in the assessable value of the pump. The cases were remanded to verify the correctness of the assertion of the manufacturer that no duty had been collected on motor/rotor and retained. It was held that if no duty had been collected and retained the demand should be withdrawn. This was a case of valuation under Section 4(1)(a) and not under Section 4(1)(b) of the Act. We may also notice that use of the expression set off in this decision was inaccurate. It was really a case of exemption and not set off. 6. In Castrol Ltd. v. Collector of Central Excise - 1987 (29) E.L.T. 585 (T) the assessee carried on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conditions were fair and reasonable and arrived on purely commercial basis, the price charged would be the assessable value as long as the contract is in force. Dealing with Rule 57A of the Central Excise Rules the Tribunal indicated that the Modvat scheme allowed instant and complete reimbursement of the excise duty paid on the components and raw materials on following the procedure prescribed under Rule 57G and the scheme allows manufacturer to utilise the duty paid on inputs by deducting the same from the duty payable on the final product subject to the Rules and it was only a benefit available to the manufacturer to utilise such duty paid on inputs for the specific purpose of payment of duty on final product. The Tribunal further observed - It does not directly affect or reduce the assessable value automatically. It is no doubt true that it will result in reduction in the cost of final product to the extent of the credit, but it does not automatically reduce the assessable value which is to be determined in accordance with Section 4. The assessable value has to be determined in accordance with Section 4 of the Act and Section 4 only and Modvat credit has no direct impact on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Department. Further there was no allegation that the appellants and their customer were related persons. Under these circumstances we are inclined to agree with the Collector (Appeals) that there was no justification whatsoever to include the Modvat credit availed by the respondents in the assessable value of the final product . (Emphasis supplied) 9. The second question referred is whether the decision in Atic Industries case is in conformity with the observations in Incab Industries case. We do not find any divergence between the two decisions bearing in mind that both dealt with cases under Section 4(1)(a) of the Act where the wholesale price was ascertainable and the manufactured goods were cleared for delivery on sale. Neither case involved captive consumption of the manufactured products. In both decisions it has been held that availing of Modvat credit does not directly affect and does not automatically reduce the assessable value. In both cases valuation would be based on the deemed value under Section 4(1)(a) which is the normal price at which the goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be valued under Section 4(1)(b) of the Act and Rule 6(b)(ii) of Central Excise Valuation Rules and that excise duty paid on raw materials in respect of which Modvat credit was availed cannot be added to the cost of raw materials to determine the assessable value of the intermediate product as such a course would be contrary to the purposes of Modvat scheme. The Assistant Collector and Collector (Appeals) over-ruled the contention of the appellant. This has given rise to question number one referred. We have already indicated that Incab Industries, 1990 (45) 342 (T) and Atic Industries, 1992 (62) E.L.T. 321 (T) deal with a situation covered by Section 4(1)(a) of the Act. We are here concerned with captive consumption governed by Section 4(1)(b) of the Act and Rule 6(b) (2) of the Central Excise Valuation Rules. Section 4(1)(b) applies to cases where normal price of goods is not ascertainable for the reason that such goods are not sold or for any other reason. The value shall be deemed to be the nearest ascertainable equivalent of normal price determined in such manner as may be prescribed. The prescription is contained in Rule 6(b)(ii) of the Central Excise Valuation Rules. Accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial published by the Board and the Government are not admissible, and the Circular and decisions of the Government under old Rule 56A are not binding on the Tribunal though the Circular may be binding on the Revenue. 12. Rule 57A and the connected Rules occur under heading Credit of duty paid on excisable goods used as inputs . The Rule applies to finished excisable goods. The Rule allows credit of any duty of excise or additional duty as may be specified and paid on the inputs for utilising the credit so allowed towards payment of duty of excise leviable on the final products. This facility is subject to the provisions of the Rule and conditions and restrictions as may be notified. According to Rule 57C no credit of duty on inputs used in the manufacture of final products, subject to certain exceptions, shall be allowed if the final product is exempt from the whole of the excise duty leviable thereon or is chargeable to nil rate of duty. Credit of duty taken in regard to inputs contained in a waste, refuse or by-product arising during manufacture shall not be denied. Rule 57G prescribes the procedure to be observed by the manufacturer. A declaration has to be filed with the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court indicate a departure from the rigour of the earlier rule. In Loka Shikshana Trust v. CIT - AIR 1976 SC 348 and Additional CIT v. Surat Art Silk Cloth Manufacturers Association - AIR 1980 SC 387, the Supreme Court relied on speeches made by the Finance Minister introducing statutory provisions for the purpose of ascertaining what was the reason for introducing the clause. After referring to these decisions, Supreme Court observed in K.P. Verghese v. ITO and Another - AIR 1981 SC 1922 as follows : - Now it is true that the speeches made by the Members of the Legislature on the floor of the House when a Bill for enacting a statutory provision is being debated are inadmissible for the purpose of interpreting the statutory provision but for speach made by the Mover of the Bill explaining the reason for the introduction of the Bill can certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the legislation and the object and purpose for which the legislation is enacted. This is in accord with the recent trend in juristic thought not only in Western countries but also in India that interpretation of a statute being an exercise in the asce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch and the failure of the Income-Tax officers to implement the assurance. The court held that the circulars are binding on the department and apart from their binding character, they are clearly in the nature of contemporanea expositio furnishing legitimate aid in the construction of the new provision. The court observed :- The rule of construction by reference to contemporanea expositio is a well established rule for interpreting a statute by the reference to the exposition it has received from contemporary authority, though it must give way where the language of the statute is plain and unambiguous . The court quoted the following passage from Crawford on Statutory Construction (para 219) on - administrative construction (i.e. contemporaneous construction placed by administrative or executive officers charged with executing a statute) generally should be clearly wrong before it is overturned; such a construction commonly referred to as practical construction, although non-controlling, is nevertheless entitled to considerable weight; it is highly persuasive . The court further indicated that - It is a well-settled principle of interpretation that courts in construing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the specific purpose of meeting the demand for excise duty on the finished product and therefore in substance it is as if no duty is paid on the input. That being so, it is said the duty element of the input cannot be added to the cost of input. The Revenue rebutts this contention and contends that Modvat scheme starts operating when duty on finished product is payable and has no relevance to the assessment of value of the product which is to be determined before payment of excise duty and Modvat credit has nothing to do with the cost of raw materials. It is also contended that Modvat credit facility does not amount to exemption or set off , the input cannot be regarded as duty free. 18. Rule 57A of the Central Excise Rules enables allowing credit of any specified duty of excise or additional duty paid on the goods used in or in relation to the manufacture of specified final product and utilisation of the credit towards payment of duty leviable on the final product. This is basically similar to the scheme in old Rule 56A. A manufacturer who purchases raw materials paying excise duty directly or indirectly is allowed credit of such duty. It is credited in the credit account i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de Ltd. case, 1982 E.L.T. 683. It is this logic which is the basis of the explanation offered by the Board in the guides referred to earlier. The speech of the Finance Minister and the other materials referred to earlier clearly indicate the mischief that was sought to be overcome and the object and purpose sought to be achieved by the scheme. The Mischief sought to be remedied is, the cascading effect on taxation, the burden of duty on the final product and the cost of the final product and duty on duty; the object sought to be achieved is limiting the cascading effect on taxation, reduction in the total burden of duty on the final product and the cost of the product, and avoidance of duty on duty by complete reimbursement or credit of the excise duty paid on the inputs. This understanding of the mischief sought to be avoided and purpose sought to be achieved supports the view that the excise duty on input reimbursed or credited should not form part of the cost of inputs for the purpose of valuing the product in so far as valuation under Section 4(1)(b) of the Act and Rule 6(b)(ii) of the Rules is concerned. We have already indicated and it bears repetition, that Modvat credit doe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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