TMI Blog2012 (1) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... d be eligible for Modvat credit under Rule 57A of the Rules. - Decided in favor of assessee. - Civil Appeal No. 7152 of 2004 with Civil Appeal No. 429 of 2012, Civil Appeal No. 430 of 2012, and Civil Appeal No. 431 of 2012, - - - Dated:- 13-1-2012 - D.K. Jain, Asok Kumar Ganguly, JJ. JUDGMENT D.K. Jain, J Leave granted in S.L.P. (C) Nos. 875 of 2008, 10759 of 2010 and 6501 of 2011. 2. This batch of appeals, by grant of leave, arises out of judgments dated 26th August, 2002 in C.E.R. No. 11 of 2001 [2003 (161) E.L.T. 4 (All.)], 11th April, 2007 in C.E.A. No. 10 of 2004, 8th September, 2009 in C.E.A. No. 6 of 2003 and 25th October, 2010 in C.E.R. No. 51 of 2002 passed by the High Court of Judicature at Allahabad. By the impugned judgments, rendered in the reference applications filed by the assessee, under Section 35H of the Central Excise Act, 1944 (for short the Act ), the questions referred by the Customs, Excise and Gold (Control) Appellate Tribunal, as it then existed, (for short the Tribunal ) have been answered in favour of the revenue. 3. In order to comprehend the controversy at hand, a few material facts may be noticed. At the outset, it may be not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s inputs as stipulated in Rule 57A of the Central Excise Rules, 1944 (for short the Rules ). On a similar ground, a number of show cause notices were issued to the assessee covering the period from August 1992 to June 1996. The assessees reply to the show cause notices did not find favour with the adjudicating authority, who accordingly, denied the benefit of Modvat credit on the said items. Appeals preferred by the assessee before the Commissioner (Appeals) and the Tribunal were also dismissed. 5. Aggrieved thereby, the assessee filed applications seeking reference to the High Court on the questions proposed. However, having failed to persuade the Tribunal that its orders gave rise to questions of law, the assessee moved the Allahabad High Court, praying for a direction to the Tribunal for reference. 6. The High Court partly allowed the application and directed the Tribunal to draw a statement of the case and refer the following questions of law for its opinion : (Q1) Whether, in the circumstances of the present case, facts of which are not in dispute, duties paid on material, namely, plastic films/poly paper used for testing machines for forming commercial/technical opin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract, the claim for Modvat credit was admissible on flexible plastic films consumed in the testing of the F S machines. It was stressed that to avail of the Modvat credit in respect of an input, it is not necessary that such input must be physically present in the finished product. 9. In support of the proposition that the material used in testing, for the purpose of verification of certain characteristics of the final product, is an input in or in relation to the manufacture, learned counsel placed reliance on the decisions of this Court in Commissioner of Income Tax, Kerala v. Tara Agencies, (2007) 6 SCC 429 = 2009 (214) E.L.T. 491 (S.C.); Maruti Suzuki Ltd. v. Commissioner of Central Excise, Delhi-III, (2009) 9 SCC 193 = 2009 (240) E.L.T. 641 (S.C.); National Leather Cloth Manufacturing Company v. Union of India Anr., (2010) 12 SCC 218 = 2010 (256) E.L.T. 321 (S.C.) and a decision of the Bombay High Court in Tata Engineering Locomotive Co. Ltd. v. Commr. of C. Ex., Pune, 2010 (256) E.L.T. 56 (Bom.). 10. Per contra, Mr. Mukul Gupta, learned senior counsel appearing for the revenue, supporting the decision of the High Court, contended that Modvat credit is available only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion for manufacture of final products or for any other purpose, and (e) accessories of the final product cleared alongwith such final product, the value of which is included in the assessable value of the final product, but does not include (i) machines, machinery, plant, equipment, apparatus, tools, appliances or capital goods as defined in rule 57Q 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 or containers, the cost of which is not included in the assessable value of the final products under section 4 of the Act; and (iv) crates and glass bottles used for aerated waters. (2) Notwithstanding anything contained in sub-rule (1), the Central Government may, by notification in the official Gazette, declare the inputs on which declared duties of excise or additional duty (hereinafter referred to as declared duty ) paid shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble. Therefore, the short question for consideration is whether the said material on which Modavt credit is claimed by the assessee, not physically used in the manufacture of the said machine but used for testing the F S machines would be covered within the sweep of the expression in or in relation to the manufacture of the final products , as appearing in Rule 57A of the Rules. In short, the bone of contention is as to what meaning is to be assigned to the expression in relation to the manufacture of final products. 14. In our opinion, apart from the fact that the amended Rule itself contemplates that physical presence of the input, in respect of which Modvat credit is claimed, in the final product is not a pre-requisite for such a claim, even otherwise this issue is no longer res integra. In Collector of Central Excise Ors. v. Solaris Chemtech Ltd. Ors., (2007) 7 SCC 347 = 2007 (214) E.L.T. 481 (S.C.) this Court while examining the scope and purport of the expression in or in relation to the manufacture of the final products observed that these words have been used to widen and expand the scope, meaning and content of the expression inputs so as to attract goods whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) E.L.T. 34 (S.C.) this Court has held that Rule 57-A refers to inputs which are not only goods used in the manufacture of final products but also goods used in relation to the manufacture of final products. Where raw material is used in the manufacture of final product it is an input used in the manufacture of final product. However, the doubt may arise only in regard to use of some articles not in the mainstream of manufacturing process but something which is used for rendering final product marketable or something used otherwise in assisting the process of manufacture. This doubt is set at rest by use of the words used in relation to manufacture . (Emphasis supplied by us) 15. In Collector of Central Excise, Jaipur v. Rajasthan State Chemical Works, Deedwana, Rajasthan, (1991) 4 SCC 473 = 1991 (55) E.L.T. 444 (S.C.) to which a reference was made in Solaris Chemtech Limited (supra), this Court had held that any operation which results in the emergence of the manufactured goods would come within the ambit of 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. 16. At this juncture, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ketable. After considering various cases on the question of marketability of goods, Jeevan Reddy, J., speaking for the Court, summed up the position thus : (SCC p. 434, para 10) 10. It would be evident from the facts and ratio of the above decisions that the goods in each case were found to be not marketable. Whether it is refined oil (non-deodorised) concerned in Union of India v. Delhi Cloth and General Mills Co. Ltd., AIR 1963 SC 791 = 1997 (1) E.L.T. (J199) (S.C.) or kiln gas in South Bihar Sugar Mills Ltd. v. Union of India, AIR 1968 SC 922 = 1978 (2) E.L.T. (J366) (S.C.) or aluminium cans with rough uneven surface in Union Carbide India Ltd. v. Union of India, (1986) 2 SCC 547 = 1986 (24) E.L.T. 169 (S.C.) or PVC films in Bhor Industries Ltd. v. C.C.E. (1989) 1 SCC 602 = 1989 (40) E.L.T. 280 (S.C.) or hydrolysate in C.C.E. v. Ambalal Sarabhai Enterprises (P) Ltd., (1989) 4 SCC 112 = 1989 (43) E.L.T. 201 (S.C.) the finding in each case on the basis of the material before the Court was that the articles in question were not marketable and were not known to the market as such. The marketability is thus essentially a question of fact to be decided on the facts of each case. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the product and marketability are the twin aspects to decide chargeability. Dutiability of the product depends on whether the product is known to the market. The test of marketability is that the product which is made liable to duty must be marketable in the condition in which it emerges. Marketable means saleable. The test of classification is, how are the goods known in the market. These tests have been laid down by this Court in a number of judgments including Moti Laminates (P). Ltd. v. C.C.E. - (1995) 3 SCC 23 = 1995 (76) E.L.T. 241 (S.C.); Union of India v. Delhi Cloth General Mills Co. Ltd., (1997) 5 SCC 767 = 1997 (92) E.L.T. 315 (S.C.) and Cadila Laboratories (P) Ltd. v. C.C.E. - (2003) 4 SCC 12 = 2003 (152) E.L.T. 262 (S.C.). 20. Thus, if a product is not saleable, it will not be marketable and consequently the process of manufacture would not be held to be complete and duty of excise would not be leviable on it. The corollary to the above is that till the time the step of manufacture continues, all the goods used in relation to it will be considered as inputs and thus, entitled to Modvat credit under Rule 57A of the Rules. In the present case, as aforesaid, each mac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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