TMI Blog2010 (2) TMI 601X X X X Extracts X X X X X X X X Extracts X X X X ..... which read asunder: (i) Whether in the facts and circumstances of this case, inputs used in in-house laboratory testing and which in the course of such testing get scrapped, are used in or in relation to the final product manufactured by the applicants for the purposes of credit under Rule 57A of the Central Excise Act, 1944? (ii) Whether the amendment to Rule 57-O by Notification No. 8/93 dated 2-11-1993 is classificatory in nature and should be given retrospective effect from 1-3-1986? Background-Context: 2. The reference was made in the background context of the Revenue attempting to deny and recover the modvat credit availed by the applicant on inputs that have been subjected to testing in the applicant s laboratory located within the factory premises to determine its tensile strength and other qualities on the ground that inputs were not used in manufacture of the final products as after testing, some parts that get broken are removed on payment of duty as scrap Factual Context: 3. The applicant is engaged in the manufacture of motor vehicles (final product) It has its factory at Pune (Pimpri Chinchwad) in the State of Maharashtra and at different places in di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is taken and before sending the raw material to the assembly line, a sample of that particular batch of raw materials is subjected to testing in their laboratory situated within the factory premises to determine its tensile strength and other qualities In the process of testing some of the parts break or get distorted. Admittedly, appropriate duty is paid on the scrap as per Rule 57F(4) of the Rules which provides that any waste arising from the processing of inputs in respect of which credit has been taken may be removed on payment of duty as if such waste is manufactured in the factory. 10. Mr. Shroff relying upon Rule 57A of the Rules submits that modvat credit is available for all inputs used in or in relation to the manufacture of final product According to turn, it is settled law that such, credit is admissible whether or not such inputs are physically present in the finished goods so long as the inputs are used in or in relation to the manufacture of finished excisable goods. 11 In the submission of Mr Shroff the expression used in or in relation to in Rule 57A of the Rules is very wide and broad expression and has been used to widen and expand the scope meaning and cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to re cover the duty of Central Excise can only be invoked in case of clandestine re moval; where goods have been removed clandestinely and without any permission, without following any classification and/or without payment of duty. In the case in hand according to him, Assistant Commissioner has accepted that there is no evidence to show that Rule 9(1) was invoked. As a sequator, in his submission Rule 9(2) cannot apply. He thus submits that despite the legal position being clear, Assistant Commissioner erroneously confirmed the demand without specifying any provision under which the demand was sought to be confirmed. He thus submits that the question of law referred to this Court needs to be answered in favour of the applicant and against the Revenue. Per Contra: 15. Learned Counsel appearing for the respondent submits that the only question referred to by the Tribunal is : whether the applicant is entitled for modvat credit on the waste arising in the course of destructive testing of inputs which get destroyed before manufacture of final product. He submits that as per Rule 57A of the Rules, the modvat is eligible on the inputs which are actually used in the manufacture of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act or under any other Act, as may be specified in the said notification, subject to the provisions of this section and the conditions and restrictions that may be specified in the notification: Provided that the Central Government may specify the goods or classes of goods in respect of which the credit of specified duty may be restricted. Explanation: (for the purposes of this rule, inputs includes - (a) inputs which are manufactured and used within the factory of production in or in relation to, the manufacture of final products and (b) paints and packaging materials, k but does not include: (i) machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of the final products; (ii) packaging materials in respect of which any exemption to the extent of the duty of excise payable on the value of the packaging materials is being availed of for packaging any final products; (iii) packaging materials the cost of which is not included or had not been included during the preceding financial year in the assessable value of the fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... twithstanding anything contained in clause (ii) of sub-rule (1) the inputs in respect of which a credit of duty has been restricted in terms of proviso to Rule 57A, may be removed subject to prior permission of Collector of Central Excise from the factory for home consumption on payment of duty of excise equivalent to the credit availed on such inputs. (2) Notwithstanding anything contained in sub-rule (1), a manufacturer may, with the permission of the Collector of Central Excise and subject to such terms and conditions and limitation as he may impose, remove the in puts as such, or after the inputs have been partially processed during the course of manufacture of final products, to a place outside (the factory, - (a) for the purposes of test, repairs, refining, reconditioning or carrying out any other operation necessary for the manufacture of the final products and return the same to his factory for further use in the manufacture of the final product or remove the same without payment of duty under bond for export, provided that the waste, if any, arising in the course of such operation is also returned to the said factory. (b) for the purpose of manufacture of intermediat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) be removed without payment of duty where it belongs to such class or category of waste as the Central Government may from time to time by order specify for the purpose for being used in the manufacture of the class or categories of goods as may be specified in the said order, subject to the procedure under Chapter X being followed; or (c) be destroyed in the presence of proper officer on the application by the manufacturer, and if found unfit for further use or not worth the duty payable thereon, the duty payable thereon being remitted: Provided that such waste may be destroyed by the manufacturer governed by Chapter VIIA after informing the proper officer in writing regarding the quantity of such waste and the date on which he proposes to destroy, at least seven days in advance and after observing all such conditions as may be prescribed by the Collector of Central Excise by a general or special order with regard to the manner of disposal of such waste, (5) No part of the credit of duty allowed shall be utilized save as provided in sub-rule (3). (6) On an application made by a manufacturer, the Collector may, subject to such conditions and limitations as he may impose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating to Modvat credit, held that the erection of a plant by assembling certain items at site could constitute manufacture under excise law if bought out items were dutiable assessee was entitled to benefit of modvat credit In the case of Collector of Central Excise v. Solaris Chemtech Limited reported in 2007 (214) E.L.T. 481 (S.C.), the Apex Court ruled that the expression in the manufacturing of goods indicates the use of the input in the manufacture of the final product. The said expression normally covers the entire process of converting raw materials into finished goods. The Apex Court went a step ahead and remarked that the said expression also covered inputs used in relation to the manufacture of final products and observed that the said expression, namely; in relation to also finds place in the extended definition of the word manufacture and observed that the expression in relation to must be given a wide connotation. In the case of M/s. J.K. Cotton Spinning and Weaving Mills Co. Ltd. v. The Sales Tax Officer, Kanpur and Another reported in 1997 (91) E.L.T. 34 (S.C.) = A.I.R. 1965 S.C.1310, the Apex Court held that Rule 57A referred to inputs which are not only goods used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases quantity check is undertaken at both stages i.e. before and after manufacture of finished product such as pharmaceutical products wherein input undergoes quality test before it is used in manufacture of final product and thereafter again after final product is tested vis-a-vis its quality and potency. 27. In the present case, the raw material used for testing in a laboratory located within the factory premises much before actual manufacture of final products needs to be considered, keeping in mind, the expression the goods used in or in relation to the manufacture of such final product and inputs which are manufactured and used within the factory of production, in or in relation to the manufacture of final product appearing in Rule 57A of the Rules and explanation thereof. Consideration: 28. Having heard rival views; the expression in relation to was the subject matter of judicial consideration in the case of Doypack Systems Pvt. Ltd. v. Un ion of India reported in 1988 (36) E.L.T. 201 (S.C.) wherein the Apex Court ob sewed as under: ....The expressions pertaining to, in relation to and arising out of, used in the deeming provision are used in the expansive sense... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed as under: ...in the case of Collector of Central Excise v. Rajasthan State Chemical Works, 1991 (55) E.L.T. 444 (S.C.) it has been held that any operation in the course of manufacture, if integrally connected with the operation which resuits in the emergence of manufactured goods, would come within the term manufacture. This is because of the words used/in Rule 57A, namely, goods used in or in relation to the manufacture of final products ... Lastly, we may point out that in order to appreciate the arguments advanced on behalf of the Department one needs to interpret the expression in or in relation to the manufacture of final products. The expression in the manufacture of goods indicates the use of the input in the manufacture of the final product. The said expression normally covers the entire process of converting raw materials into finished goods such as caustic soda, cement etc. However, the matter does not end with the said expression. The expression also covers inputs used in relation to the manufacture of final products. It is interesting to note that the said expression, namely, in relation to also finds place in the extended definition of the word manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the following instructions are issued in supersession of all the instructions issued on or before 31st December, 1993, in re to Modvat - (I) Modvat credit is available for all excisable goods used as inputs in or in relation to the manufacture of finished goods. It is, therefore, clarified that the input credit is admissible whether such input is physically present in the finished excisable goods or not so long such inputs are used in or in relation to the manufacture of finished excisable goods. In this connection definition of the term manufacture as propounded by the Supreme Court in the Empire Industry case - 1985 (20) E.L.T. 179 and C.C.E. V. Rajasthan State Chemical case - 1991 (55) E.L.T. 444, 448 (S.C.) are quite relevant. (Emphasis supplied) 32. Reading of the above part of the circular unequivocally goes to show that whether input is physically present in the finished excisable goods or not so long as such inputs are used in or in relation to the manufacture of finished goods modvat credit is available. 33 Having seen the judicial pronouncements expanding the scope of Rule 57A and accepted by the Board vide its Circular dated 4th May, 1994 re ferred to hereinabov ..... X X X X Extracts X X X X X X X X Extracts X X X X
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