TMI Blog2012 (12) TMI 463X X X X Extracts X X X X X X X X Extracts X X X X ..... bour for judicial forums to decide whether the explanation has gone or not. Explanation-II explicitly stated to be for the purpose of Rule 4 put placed after sub-rule (3) but before the non obstante clause 4 did not get omitted by amendments made by Notification No. 24/03-C.E. (N.T.). The fact that Explanation-I if retained is redundant is not a sufficient reason to conclude that both explanations were dropped. There cannot be any argument that the appellants were under the bona fide impression that duty liability on goods captively consumed has been done away with by issue of Notification No. 24/03-C.E. (N.T.), because no such argument was taken any time in proceedings before lower authorities and was taken for the first time before the Apex Court. There was no policy change announced to that effect. The appellants cannot take note of the wrongly constructed rules after amendment as published on web-site of C.B.E. & C. and at the same time ignore the supplementary instruction issued by C.B.E. & C. Even in the absence of Explanation No. II in Rule 4 of Central Excise Rules duty liability will arise in this case. Thus we are of the view that Explanation-II of Rule 4 has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examined for a decision in the light of the oral submission, written submission filed by the Representative of Revenue and further written submissions from the appellants. 3. The decision on the issue involved in this dispute will have major consequence in the scheme of levy of excise duty. Further the issue involved has a long history and was subject matter of proceedings before the High Courts and the Apex Court in the context of Central Excise Rules, 1944 which was in force during 1980s and till 2000. By 1982 there were a few decisions of High Courts against Revenue and a few in favour of Revenue. To overcome the difficulty faced, the Legislature amended Central Excise Rules, 1944, retrospectively from 1944 onwards by Section 52 of Finance Act, 1982 and the matter was at rest for over two decades. The amendments made through the retrospective amendment made by Section 51 of Finance Act, 1982 were incorporated in new Central Excise Rules, 2002 also. However the amendments made by Notification No. 24/2003-C.E. (N.T.), dated 25-3-2003 to Central Excise Rules, 2002 have given rise to the present argument of the appellants. We will be examining these changes in detail. 4. Just as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... integration. A system where composite mills have to pay duty only on fabric stage and not the duty payable at yarn stage brings discrimination against small manufacturers. While making this statement the relief granted through Cenvat Scheme available as at present is not taken into account because such benefit was not available when the dispute arose in 1980s mainly relating to composite textile mills. 7. Taxation policy in this country has evolved after 1980s and the major change has been to the introduction of Modvat Scheme which is presently known as Cenvat scheme. With this the disintegrated units get relief of duty paid by the manufacturers of raw material through Cenvat Scheme if the final product manufactured by them is dutiable. The integrated mills get relief through Notification 67/95-C.E. which provides exemption for all goods consumed within the factory so long as the goods are used in the manufacture of dutiable final product. But this exemption is not available if any goods manufactured are captively consumed in the manufacture of exempted goods. Thus Notification No. 67/95 and Cenvat Credit Rules are seen together it can be seen that the notification is for achievi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the same factory for further manufacture as is being canvassed by the appellants in this case, SAIL s bicycles will suffer excise duty less than the cycles manufactured by manufactures who buy steel from SAIL. It is this disparity which is being sought to be plugged by the concept that goods removed for captive consumption is also to be treated as removed from factory as canvassed by Revenue. 11. There are some apparent adverse consequences of the laws for implementing this concept. Such consequences are seen in many cases that come up based on the argument similar to the argument canvassed by Revenue in this case. Whenever a product is exempted from excise duty, Revenue comes up with the argument that any product which comes into existence in the factory of production in the course of manufacture of the exempted product but before the exempted final product is dutiable. Sometimes such argument goes to the extent of taking away, substantially or partially, the exemption that is granted. Some examples can be given. When biscuits of retail price below Rs. 100 per Kg is exempt (S. No. 18A of Notification No. 3/2006-C.E.), Revenue argues that sugar syrup, which comes into existe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... context, Central Excise Rules, 1944 were amended first by issue of Notification No. 20/82-C.E., dated 20-2-1982 and the notification was given effect to retrospectively with effect from 1944 by Finance Act, 1982. The following explanations were added in Rule 9 and 49. 16. Rule 9 before the same was amended was as follows :- Rule 9. Time and manner of payment of duty. - (1) No excisable goods shall be removed from any place where they are produced, cured or manufactured or any premises appurtenant thereto, which may be specified by the Collector in this behalf whether for consumption, export, or manufacture of any other commodity in or outside such place, until the Excise duty leviable thereon has been paid at such place and in such manner as is prescribed in these rules or as the Collector may require, and except on presentation of an application in the proper form and on obtaining the permission of the proper officer on the firm : [The remaining provisions of Rule 9 which are not relevant for our purpose are omitted.] 17. By a Notification No. 20/82-C.E., dated 20-2-1982 of the Central Government, Rule 9 was amended by the addition of the following Explanation thereto :- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... less otherwise provided : Provided that the goods falling under Chapter 61 or 62 of the First Schedule to the Tariff Act, produced or manufactured by a job worker may be removed without payment of duty leviable thereon and the duty of excise leviable on such goods shall be paid by the person referred to in sub-rule (3), as if such goods have been produced or manufactured by him, on the date of removal of such goods from his premises registered under Rule 9. Explanation. - It is hereby clarified that where such person has authorised the job worker to pay the duty leviable on such goods under sub-rule (3), such duty shall be paid by the job worker on the date of removal of such goods from his registered premises. (2) Notwithstanding anything contained in sub-rule (1), where molasses are produced in a khandsari sugar factory, the person who procures such molasses, whether directly from such factory or otherwise, for use in the manufacture of any commodity, whether or not excisable, shall pay the duty leviable on such molasses, in the same manner as if such molasses have been produced by the procurer. (3) Notwithstanding anything contained in sub-rule (1), every person who gets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctory the date of removal of such goods shall mean the date on which the goods are issued for such use. (3) The rate of duty in the case of goods falling under Chapters 61 or 62 of the First Schedule to the Tariff Act, produced or manufactured on job work, shall be the rate in force on the date of removal of such goods by the person referred to in sub-rule (3) of Rule 4 from his premises registered under Rule 9. 21. Regarding positions as stated in para 12 to para 20 there is no dispute and the dispute is about what is going to be stated hereafter. 22. On 25-2-2003 Notification No. 24/2003-C.E. (N.T.) was issued carrying out certain amendments in Central Excise Rules, 2002. The amendment carried out in Rule 4 is the subject matter of present dispute. This amendment in Rule 4 which is directly relevant as also amendments in Rules 5 and 11 which are indirectly relevant are reproduced below : 2. In the Central Excise Rules, 2002, - (i) in Rule 4, - (a) the proviso and Explanation to sub-rule (1) shall be omitted; (b) sub-rule (3) shall be omitted; (ii) in Rule 5, sub-rule (3) shall be omitted; (iii) in Rule 11, in sub-rule (1), the following pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also get omitted. 25.3 Further the Counsel points out there were other amendments done in Rule 4 by the same Notification. That is, the proviso to sub-rule (1) of Rule 4 was omitted. After this proviso is omitted Explanation-I in sub-rule (3) had no meaning because this explanation explains the meaning of job-worker . Once the proviso to sub-rule (1) is omitted the said expression namely job-worker does not occur anywhere in the Rule. So Explanation-I had become redundant. This explanation, which became redundant, gets omitted anyway. Since there is no omission of Explanation-I that is because it was attached to sub-rule 3 which was omitted by Notification No. 24/03-C.E. (N.T.). If that be the case with Explanation-I, there cannot be a different position in the case of Explanation-II. 25.4 The appellants argue that there is not a single evidence to show that the explanations have not been dropped. They further point out that when this argument was raised for the first time in the Hon ble Apex Court. Attorney General was present in the court and there was no argument from the Government that the explanation has not been omitted. They argue that present argument is baseless, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot mean that the explanation was appended to sub-rule (3) and not to Rule 4 as a whole, especially in view of the fact that Explanation-II started with the expression For the purpose of this rule and not For the purpose of this sub-rule . On argument that Explanation-I had become redundant and so Explanation-I should go along, with Explanation-II, we notice that if Explanation-II is dropped, the explanation under Rule 5 becomes redundant according to the argument by appellant. But this explanation is not dropped by the amending notification or by the private publishers of amended rules. 30. We also note that Notification No. 24/03-C.E. (N.T.) is issued in the context of change in taxation policy in the matter of levy of excise duty on jobworkers of textile products as can be seen from the different amendments done by the notification. The appellant has not produced any evidence of any policy announcement made by Government in the matter of levy of excise duty on goods captively consumed. 31. In the light of all the facts above, we are of the view that Explanation-II explicitly stated to be for the purpose of Rule 4 put placed after sub-rule (3) but before the non obstante cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amendments to Rules 9 and 49 are ultra vires Clause (b) of sub-section (4) of Section 4 of the Act, is without substance and is overruled. 33.2 So it is argued that once the deeming provision has gone nothing survives in spite of the explanation under Rule 5. 33.3 He points out that the Apex Court had doubted whether there will be duty liability on goods captively consumed in a continuous process as may be seen from para 39 in the above judgment. Further he relies on the decision in para 7 of the Rajasthan High Court in the case of Aditya Cement v. UOI - 2002 (141) E.L.T. 623 (Raj.) holding that the manufacturing process of cement is an integrated process. 33.4 He further argues that if the provision of Section 3 of Central Excise Act was good enough to create a liability to pay duty there was no scope for the various disputes that arose prior to 1982 and there was no need for retrospective amendment to Rules 9 and 14 and also to incorporate Explanation-II in Rule 4. 33.5 It is also argued that the explanation under Rule 5 is only for determination of rate of duty and value if duty is payable. Such a provision cannot replace the deeming fiction which was there in Explana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) deals with captive consumption and it is clearly laid down that there is duty liability on goods captively consumed unless exempted by notification issued under Section 5A of Central Excise Act. 34.7 There cannot be any argument that the appellants were under the bona fide impression that duty liability on goods captively consumed has been done away with by issue of Notification No. 24/03-C.E. (N.T.), because no such argument was taken any time in proceedings before lower authorities and was taken for the first time before the Apex Court. There was no policy change announced to that effect. The appellants cannot take note of the wrongly constructed rules after amendment as published on web-site of C.B.E. C. and at the same time ignore the supplementary instruction issued by C.B.E. C. 35. We have considered arguments on both sides. We find that this matter has been examined at length by the Hon ble. Supreme Court in the case of J.K. Spinning and Weaving Mills Ltd. (supra) even for a situation where the explanation added in 1982 was not present. Paras 21, 22 and 23 are relevant. These are reproduced below : 21. So far as captive consumption is concerned, the Gujarat High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to say, when excisable goods manufactured in the factory are used for production of another commodity. 23. Now the question is whether Rule 9 before it was amended also envisaged a case of an intermediate product obtained in an integrated and continuous process of manufacture of another commodity, that is, the end product. It must be admitted that prima facie Rule 9 does not show that it also covers a case of integrated, continuous and uninterrupted process of manufacture producing a commodity at an intermediate stage which again is utilised in such continuous process for the manufacture of the end product. The learned Attorney General, appearing on behalf of the Union of India, submits that Rule 9 and Rule 49 also envisaged such a case of integrated process of manufacture of the end product using a product produced at an intermediate stage. In support of his contention he has placed reliance on an unreported decision of the Bombay High Court in Misc. 491 of 1964, dated April 30, 1970 (Nirion Synthetic Fibres and Chemicals Ltd. v. Shri R.K. Audium, Assistant Collector and Others). The learned Single Judge of the Bombay High Court took the view that a continuous or integrated p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the view that Explanation-II of Rule 4 has not been dropped by Notification No. 24/2003-C.E. (N.T.). Further even in the absence of the explanation there is a duty liability that arises when clinker is removed within the factory for manufacture of cement. 40. At this stage we would like to add a paragraph to answer the argument of the Counsel as to what was the need to retrospectively amend the Rules by Finance Act, 1982 if the position of law was so clear. Actually this paragraph is by way of inference and should have formed part of the prelude to this order. But it can be understood better if placed now. That is the reason why it is placed at this stage. During the 1980s and earlier, one of the main sources of revenue for GOI was excise duty from textile yarns. Also, unlike now, there were many composite textile mills. The revenue loss on account of the cascading litigations by different composite mills after the decision of Delhi High Court in the case of Modi Carpets was not a situation which the GOI could have waited and watched till the Apex Court gave its judgment in J.K. Synthetics. Many mills were clearing goods against bank guarantees. The revenue loss that happened ..... X X X X Extracts X X X X X X X X Extracts X X X X
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