TMI Blog2005 (8) TMI 659X X X X Extracts X X X X X X X X Extracts X X X X ..... placed before the Hon'ble Chief Justice of India for further directions. - C.A. 1197 OF 2005 - - - Dated:- 24-8-2005 - B.P. SINGH S.H. KAPADIA, JJ. JUDGMENT In this group of civil appeals/special leave petition, question of admissibility of credit of the duty paid on inputs namely, explosives, lubricating oils and welding electrodes as also the question of admissibility of credit on capital goods namely, limestone crusher, mining equipment etc. under Cenvat Credit Rules, 2000,2001 and 2002 arise for determination, 2. Since common questions of law and fact arise for determination, the above civil appeals are clubbed together. For the sake of convenience, the facts in Civil Appeal No. 1197 of 2005 are mentioned herein below. 3. Three show cause notices dated 26-8-2000, 10-2-2003 and 29-1-2003 were issued by the department to the assessee proposing to disallow the credit on aforestated items on the ground that they were used for extraction of limestone in the mines and not within the factory in which cement (final product) was manufactured by the assessee. The assessee replied to each of the above three show cause notices by which it submitted that the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Central Excise, M.P. reported in 2001 (133) E.L.T. 3. In the judgment of the Division Bench of this Court in J.K. Udaipur Udyog Ltd. (supra), this Court took the view inter alia that the Modvat scheme was different and distinct from the Cenvat scheme whereas according to the assessees, there was no such difference except that Cenvat scheme covered inputs, capital goods and services and, therefore, the said Cenvat scheme was more broad-based. In this connection, it has been urged that even under Rule 57J of the Modvat scheme, limestone (intermediate product) sent directly to a job worker attracted credit, which was continued under Rule 57AB(1) of the Cenvat scheme. 8. The basic issue which arises for determination in these civil appeals is the correctness of the observation made vide Para 9 of the Division Bench decision in J.K. Udaipur Udyog Ltd. (supra) which reads as under :- The schemes for MODVAT and CENVAT Credits being different and in view of the definition of input given in sub-rule (d) of Rule 57AA of the Rules and the omission of a Rule similar to Rule 57J, the ratio of ]aypee Rewa Cement (supra) can have no application here. 9. In this case, we are concerned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id at such rate or equivalent to such amount as may be specified in the said notification and allow the credit of such declared duty deemed to have been paid in such manner and subject to such conditions as may be specified in the said notification even if the declared inputs are not used directly by the manufacturer of final products declared in the said notification, but are contained in the said final products. Explanation. - For the purposes of the sub-rule, it is clarified that even if the declared inputs are used directly by a manufacturer of final products, the credit of the declared duty shall, notwithstanding the actual amount of duty paid on such declared inputs, be deemed to be equivalent to the amount specified in the said notification and the credit of the declared duty shall be allowed to such manufacturer. (6) Notwithstanding anything contained in sub-rule (1), the Central Government may, by notification in the Official Gazette, declare the inputs on which the duty of excise paid under section 3A of the Central Excise Act, 1944 {1 of 1944), shall be deemed to have been paid at such rate or equivalent to such amount as may be specified in the said notification, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aerated water. RULE 57J. Credit of duty in respect of inputs used in an intermediate product. - (1) Notwithstanding anything contained in these rules, the manufacturer shall be allowed to take credit of the specified duty paid on inputs described in column (2) of the Table below and used in the manufacture of intermediate products described in column (3) of the said Table received by the said manufacturer for use in or in relation to the manufacture of final products described in the corresponding entry in column (4) of the said Table : S. No. Description of inputs Description of intermediate products Description of final products (1) (2) (3) (4) 1. All goods falling within the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), other than the following, namely :- All goods falling within the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), other than the following, namely ;- All goods falling within the Schedule to the Central Excise Tariff Act, 1985 (5 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ED GOODS : RULE 57Q. Applicability. - (1) The provisions of this section shall apply to goods (hereafter in this section, referred to as the final products ) described in column (3) of the Table given below and to the goods (hereafter, in this section, referred to as capital goods ), described in the corresponding entry in column (2) of the said Table, used in the factory of the manufacturer of final products. TABLE s. No. Description of capital goods falling within the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) and used in the factory of the manufacturer. Description of final products (1) (2) (3) 1. All goods falling under heading Nos. 82.02 to 82.11. All goods specified in the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), other than the following, namely :- (i) all goods falling under Chapter 24; and (ii) all goods falling under heading Nos. 36.05 or 37.06. (iii) ingots and billets of non-alloy steel falling under sub-heading Nos. 7206.90 and 7207.90, manufactured in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2)(i) The manufacturer of the final products shall be allowed credit of the duty of excise or the additional duty leviable under section 3 of the Customs Tariff Act, 1975 (51 of 1975) (hereinafter referred to as specified duty ) paid on the capital goods. (ii) The manufacturer availing of the credit may utilize the same for payment of duty of excise payable on the final products manufactured in his factory. (3) Notwithstanding anything contained in sub-rule (1), the manufacturer of the final products shall be allowed credit of additional duty leviable under section 3 of the Customs Tariff Act, 1975 (51 of 1975) on goods falling under Chapter heading No. 98.01 of the first schedule to the said Customs Tariff Act, to the extent of 75% of the said additional duty paid on such goods. (4) A manufacturer of the final products purchasing capital goods from a unit situated in a Free Trade Zone or from a hundred per cent export-oriented undertaking or from a unit in an Electronic Hardware Technology Park or Software Technology Parks and using them in manufacture of final products, shall be allowed to take the credit of the specified duty paid on such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leared to a unit in an Electronic Hardware Technology Park or Software Technology Parks; (2) Credit of the specified duty allowed in respect of any capital goods shall not be denied or varied on the ground that any intermediate products have come into existence during the course of manufacture of the final product and that such intermediate products are, for the time being, exempt from the whole of the duty of excise leviable thereon or chargeable to nil rate of duty : Provided that such intermediate products are specified as final products in column (3) of the Table below sub-rule (1) of rule 57Q. (3) The credit of the specified duty paid on the capital goods shall be allowed to a manufacturer if the capital goods are acquired by the manufacturer on lease, hire-purchase or loan agreement, from a financing company subject to the following procedure, namely :- (i) The manufacturer shall file a declaration before the Assistant Commissioner of Central Excise as required under rule 57T; (ii) The manufacturer availing credit of the specified duty paid on capital goods, who has entered into a financial arrangement, - (a) for financing the cost of such capital goods excl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es made thereunder with the intent to evade payment of duty. (7)(i) The additional credit as per sub-rule (5) shall be allowed by the proper officer on the basis of a certificate issued by the Superintendent of Central Excise having jurisdiction over the factory, or as the case may be, by the proper officer in the customs area, from where such capital goods were originally cleared. (ii) The said certificate shall indicate full description of the capital goods, original duty paid and particulars of the documents under which the capital goods were cleared from the factory or, as the case may be, from the customs area and also the differential duty recovered from the manufacturer or the importer. (8) No credit of the specified duty paid on the capital goods shall be allowed, if the manufacturer, claims depreciation under section 32 of the Income-tax Act, 1961 (43 of 1961), or as revenue expenditure under any other provisions of die said Income-tax Act, in respect of that part of the value of capital goods which represents the amount of specified duty on such capital goods. 12. As stated above, the Cenvat scheme was introduced from 1-4-2000 and has remained in force till d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble under the Central Excise Act, 1944 in relation to the goods failing under sub-heading Nos. 2401.90, 2404.40, 2404.50, 2404.99, 5402.20, 5402.32, 5402.42, 5402.43, 5402.52, 5402.62, 5703.90, 8415.00, 8702.10, 8703.90, 8706.21, 8706-39 and 8711.20 of the said First Schedule; (iii) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 (40 of 1978); (iv) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957); and (v) the additional duty leviable under section 3 of the Customs Tariff Act, 1975, equivalent to the duty of excise specified under clauses (i), (ii), (iii) and (iv) above, paid on any inputs or capital goods received in the factory on or after the first day of April, 2000, including, the said duties paid on any inputs or capital goods used in the manufacture of intermediate products, by a job-worker availing the benefit of exemption contained in the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 214/86-Central Excise, dated the 25th March, 1986, vide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he additional duty of excise under section 3 of the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 (40 of 1978); (ii) the additional duty of excise under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957); and (iii) the additional duty under section 3 of the Customs Tariff Act, 1975, equivalent to the duty of excise specified under clauses (i) and (ii) above shall be utilized only towards payment of duty of excise leviable under the said Additional Duties of Excise (Textiles and Textile Articles) Act, or under the said Additional Duties of Excise (Goods of Special Importance) Act, on any final products manufactured by the manufacturer or for payment of such duty on Inputs themselves if such inputs are removed as such or after being partially processed. (c) CENVAT credit of the duty paid on the inputs shall not be allowed in respect of texturised yarn (including draw-twisted or draw-wound yarn) or polyesters falling under heading No. 54.02 of the said First Schedule, manufactured by an independent texturiser, that is to say, a manufacturer engaged in the manufacture of texturised yarn (including draw-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The manufacturer can take credit up to a maximum of one lakh rupees in the financial year 2000-2001, and the balance in subsequent years. (3) The CENVAT credit in respect of duty paid on the capital goods shall be allowed to a manufacturer even if the capital goods are acquired by the manufacturer on lease, hire purchase or loan agreement, from a financing company. (4) The CENVAT credit in respect of capital goods shall not be allowed in respect of that part of the value of capital goods which represents the amount of duty on such capital goods, which the manufacturer claims as depreciation under section 32 of the Income-tax Act, 1961 (43 of 1961). (5) (a) The CENVAT credit shall be allowed even if any inputs or capital goods as such or after being partially processed are sent to a job worker for further processing, testing, repair, re-conditioning or any other purpose, and it is established from the records, challans or memos or any other document produced by the assessee availing the CENVAT credit that the goods are received back in the factory within 180 days of their being sent to a job worker. If the inputs or the capital goods are not received back within 180 days, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 68.02 and sub-heading No. 6801.10 of the First Schedule to the Tariff Act; (ii) components, spares and accessories of the goods speci- fied at (i) above; (iii) moulds and dies; (iv) refractories and refractory materials; (v) tubes and pipes and fittings thereof; (vi) pollution control equipment; and (vii) storage tank, used in the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office, (d) final products means excisable goods manufactured or produced from inputs, except matches; (f) input means all goods, except high speed diesel oil and motor spirit, commonly known as petrol used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not, and includes lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used for manufacture of final products or for any other purpose, within the factory of production. Explanation 1. - The high speed diesel oil o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of excise leviable on such goods under sub-rule (3) of rule 4 of the Central Excise Rules, 2002. 16. Mr. Lakshmikumaran, learned Counsel for the assessee submits that explosives, lubricating oils, welding electrodes and crushers are used by the assessee in the manufacture of an intermediate product (limestone) which in turn is used in the manufacture of the final product (cement) and, therefore, the said items were eligible for credit in terms of Rule 57A and Rule 57B of the Modvat scheme as laid down by a three-Judge Bench decision in the case of Jaypee Rewa Cement (supra). He submits that the explosives, lubricating oil and welding electrodes constituted inputs in terms of Rule 57B(l)(i) of the Modvat scheme; that, under Rule 57A(4), Modvat credit was admissible on inputs used in the manufacture of final products as well as on inputs used in or in relation to the manufacture of the final product, whether directly or indirectly and whether contained in the final product or not; that the explanation contained in Rule 57A was meant to enlarge the meaning of the word input and it did not in any way restrict the use of the input within the factory premises nor did it require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a manufacturer of an intermediate product like limestone can be equated to a job worker. In this connection, reliance was placed on the Circular of CBEC dated 29-8-2000 to show that Cenvat is really in substance an extension of the Modvat scheme. 18. Learned Counsel further urged that applying the test of functional integrality, the assessee was entitled to credit in respect of inputs as the mining area and the cement factory were totally inter-dependent on each other. It was urged that a captive mine always supports the manufacturing of cement and, therefore, the mining operations formed part of the manufacturing activity. In this connection, learned Counsel submits that the condition of use within the factory of production in Section 2(g) is applicable only in respect of goods, like furnace oil, used for generation of electricity, which in turn is required to be used for producing the final products or for any other purposes within the factory of production. Learned Counsel submits that production of captive input like electricity under Rule 2(g) has to be used in the manufacture of final product or for any other purposes within the factory of production. Learned Counsel s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not available to the assessee. Learned Counsel for the department invited our attention to the definition of the word input in Clause (d) of Rule 57AA and submitted that the definition of the word input in the Cenvat scheme warranted user of the input in the factory of the production of the final product, namely, cement. It was submitted that the decision of three-Judge Bench in jaypee Rewa Cement (supra) was good in respect of admissibility of Modvat credit on explosives, lubricating oil and welding electrodes as inputs under Rule 57A and 57B of the Modvat scheme but it was not applicable on the said goods under Rule 57AA(d), and that similarly the assessee was not entitled to credit on capital goods like crushers under Rule 57AA(a) equal to Rule 2(b) of the Cenval scheme. Learned Counsel further submits that explosives were used in mining operations; that, mines were licensed under Mining Act whereas the factory of the assessee was licensed under the Factories Act and, therefore, it cannot be said that the mines and factory were inter-dependent. Learned Counsel urges that there was no functional integrality between the mines and the factory and, therefore, the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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