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2015 (11) TMI 95 - SUPREME COURT

2015 (11) TMI 95 - SUPREME COURT - 2015 (325) E.L.T. 431 (SC) - SSI Exemption - CENVAT credit - whether availing the benefit of MODVAT/CENVAT credit in respect of branded goods of third parties manufactured by the assessees on job work basis, disentitles them from availing the benefit of the aforesaid Notifications - Notification nos. 8/1999, 8/2000, 8/2001, 8/2002 and 8/2003 - Held that:- A holistic reading of the Notification, in the light of the other paragraphs, brings into focus the overall .....

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ically stipulated therein. The Notifications also clarify that for the purpose of these Notifications, where the goods manufactured by a manufacturer bear brand name or trade name (whether registered or not) of any manufacturer of trade, they shall not be deemed to have been manufactured by such other manufacturer or trade. Reading of the aforesaid provisions in the Notifications unambiguously points out that for the purposes of availing the benefit of Notification by an SSI Unit, the clearances .....

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paid by the manufacturer on such branded goods manufactured, the brand name whereof belongs to another person, on job work basis, the SSI Unit would be entitled to CENVAT/MODVAT credit on the inputs which were used for manufacture of such goods as on those inputs also excise duty was paid. To put it otherwise, these branded goods manufactured by the SSI Units meant for third parties are regulated by the normal provisions of excise law and will have no bearing or relevance insofar as availing the .....

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eal No. 1142 of 2009 - Dated:- 27-10-2015 - A. K. Sikri And Rohinton Fali Nariman, JJ. For the Appellant : Mr. B. Krishna Prasad, Adv For the Respondent : Mr. Nikhil Nayyar,Adv. Ms. Aparna Hirandagi, Adv. Mr. M.H. Patil, Adv. Mr. Sandeep Narain, Adv. Mr. Ashok Bannidinni, Adv. For M/s. S. Narain & Co JUDGMENT A. K. Sikri, J. Delay condoned. 2) These appeals raise an issue of eligibility of concession/exemption from excise duty that is provided under Notification nos. 8/1999, 8/2000, 8/2001, .....

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hird parties and in respect of such goods manufactured for third parties, the assessees paid the normal duty of excise but at the same time availed the benefit of MODVAT/CENVAT credit as well. Thus, to put it succinctly, the real issue is as to whether availing the benefit of MODVAT/CENVAT credit in respect of branded goods of third parties manufactured by the assessees on job work basis, disentitles them from availing the benefit of the aforesaid Notifications? 3) The assessee in Civil Appeal N .....

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assessee on its own account bear its own brand name and goods manufactured by the third parties bear the brand names belonging to those parties. During the period in question, i.e., 1999 to 2003 - 2004, the assessee had availed the benefit of SSI exemption notifications that were in force, i.e., Notification nos. 8/1999 etc., as mentioned above. Availing the benefit of these Notifications in respect of goods manufactured by the assessee on its own account, i.e., the goods bearing its own brand n .....

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s used for the manufacture of branded goods, it had lost the right to claim the benefit of SSI exemptions under the aforesaid Notifications and, thus, had claimed the exemption from payment of duties improperly. The details of these show cause notices are as under: S.No. SCN No. & Date Period Duty involved 1 1471/30.09.99 1999-2000 13,50,000/- 2 579/26.04.2001 2000-2001 13,50,000/- 3 1979/26.12.2001 2001-2002 16,00,000/- 4 588/08.04.2003 2002-2003 15,99,904/- 5 V/Ch.30/15/7/04 dated 16.03.20 .....

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this outcome, the assessee approached the Central Excise and Service Tax Appellate Tribunal (hereinafter referred to as "CESTAT") by way of another statutory appeal in which it has succeeded as the CESTAT, Chennai Bench, has allowed the appeal of the assessee. 5) The assessee in Civil Appeal No. 1142 of 2009 is engaged in the manufacture of motor vehicle rubber parts falling under Chapter Heading 8708.00 of the Act. It filed declaration with effect from May 01, 1995 claiming 15% centra .....

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d goods under Notification No. 1/93-C.E., the assessee was not entitled to the benefit of exemption notification even in respect of its own products. Order-in-Original dated July 10, 1998 was passed confirming the demand. In the appeal filed by the assessee to the Commissioner (Appeals), the assessee succeeded as the said appeal was allowed by orders dated March 25, 2003 setting aside the Order-in-Original and holding that the assessee could avail both the facilities, i.e., MODVAT credit of inpu .....

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allowing them to clear the goods either without payment of any excise duty or allowing them to clear the goods at concessional duty, depending upon the nature of product manufactured by these SSI Units. General Exemption No. 1 in this behalf was issued vide Notification No. 175/86-CE dated March 01, 1986 which has been amended from time to time. Vide these amendments, the value of the goods produced to avail the benefits has been increasing. It is not in dispute that the two assessees before us .....

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ing clearances not exceeding 3,00,00,000/- in the preceding financial year was provided. In paragraph 4 of this Notification, it was stated that the exemption contained in the said Notification would not apply to the specified goods bearing a brand name or trade name, whether registered or not, of another person. The said para 4 reads as under: "4. The exemption contained in this notification shall not apply to the specified goods, bearing a brand name or trade name (registered or not) of a .....

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he specified goods gives a declaration that the specified goods shall be used as mentioned above; (ii) in any other case, the procedure set out in Chapter X of the Said Rules is followed: Provided further that nothing contained in this paragraph shall be applicable to the specified goods bearing a brand name or trade name (registered or not) of the Khadi and Village Industries Commission or of the State Khadi and Village Industries Board, National Small Industries Corporation or the State Small .....

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nt clearances of specified goods made after availing such option, in a financial year in which such date of option falls." 8) This Notification contained as many as 11 explanations. For our purposes, Explanation Nos. III, IX and X are relevant and, therefore, we reproduce here below these explanations as well: "Explanation III. - For the purpose of computing the aggregate value of clearances under paragraph 1,2 and 3, the clearances of any specified goods, bearing a brand name or trade .....

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, or so as to indicate a connection in the course of trade between such specified goods and some person suing such name or mar with or without any indication of the identity of that person. Explanation X.- For the purpose of this notification, where the specified goods manufactured by a manufacturer, bear a brand name or trade name (registered or not) of another manufacturer or trader, such specified goods shall not, merely by reason of that fact, be deemed to have been manufactured by such othe .....

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lue not exceeding fifty lakh rupees immediately following the clearances specified against Sl. No. 1 above during the financial year Five per cent ad valorem 3. All clearances of the specified goods which are used as inputs for further manufacture of any specified goods within the factory of production of the specified goods. Nil 10) In paragraph 2 of this Notification, certain conditions were stipulated subject to fulfillment of which the benefit of exemption Notification could be made availabl .....

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on. Such option shall not be withdrawn during the remaining part of the financial year except when an option is exercised with respect to Notification No. 9/99-C.E., dated 28th February, 1999. (ii) a manufacturer also has the option not to avail the exemption contained in this notification and instead pay the normal rate of duty on the goods cleared by him. Such option shall be exercised before effecting his first clearances at the normal rate of duty. Such option shall not be withdrawn during t .....

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cified goods produced; (e) date from which option under this notification has been exercised; (f) aggregate value of clearances of specified goods (excluding the value of clearances referred to in paragraph 3 of this notification) till the date of exercising the option; (iv) the manufacturer shall not avail the credit of duty on inputs under rule 3 or rule 11 of the CENVAT Credit Rules, 2002 (herein after referred to as the said rules), paid on inputs used in the manufacture of the specified goo .....

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er specified in the said Table. 3. For the purposes of determining the aggregate value of clearances for home consumption, the following clearances shall not be taken into account, namely:- (a) clearances, which are exempt from the whole of the excise duty leviable thereon (other than an exemption based on quantity or value of clearances) under any other notification or on which no excise duty is payable for any other reason; (b) clearances bearing the brand name or trade name of another person, .....

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fied goods bearing a brand name or trade name, whether registered or not, of another person, except in the following cases:- (a) where the specified goods, being in the nature of components or parts of any machinery or equipment or appliances, are cleared for use as original equipment in the manufacture of the said machinery or equipment or appliances by following the procedure laid down in Chapter X of the Central Excise Rules, 1994. Provided that manufacturers, whose aggregate value of clearan .....

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mall Industries Corporation; or (iv) a State Small Industries Development Corporation; or (v) a State Small Industries Corporation." 11) This Notification also provided the definition of 'brand name' or 'trade name', as under: "Explanation. - For the purposes of this notification, - (A) "brand name" or "trade name" shall mean a brand name or trade name, whether registered or not, that is to say a name or a mark, such as symbol, monogram, label, signa .....

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reason of that fact, be deemed to have been manufactured by such other manufacturer or trader" 12) In other Notifications, namely, Notification Nos. 9/1999-C.E., 8/2000-C.E., 9/2000-C.E., 8/2001-C.E., 9/2001-C.E., 8/2002-C.E., 9/2002-C.E., 8/2003-C.E. and 9/2003-C.E., there is no significant amendment which has bearing on the present case as the conditions which are necessary for our purposes remained almost the same. However, it would still be apt to reproduce paras 2, 3 and 4 of Notifica .....

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le exercising the option under condition (i), the manufacturer shall inform in writing to the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise with a copy to the Superintendent of Central Excise giving the following particulars, namely:- (a) name and address of the manufacturer; (b) location/locations of factory/factories; (c) description of inputs used in manufacture of specified goods; (d) description of specified goods produced; (e) date from which option .....

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lue of first clearances of which, as calculated in the manner specified in the said Table does not exceed rupees one hundred lakhs; (iv) the manufacturer also does not utilise the credit of duty on capital goods under rule 3 or rule 11 of the said rules, paid on capital goods, for payment of duty, if any, on the aforesaid clearances, the aggregate value of first clearances of which does not exceed rupees one hundred lakhs, as calculated in the manner specified in the said Table; (v) where a manu .....

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the aggregate value of clearances of all excisable goods for home consumption by a manufacturer from one or more factories, or from a factory by one or more manufacturers, does not exceed rupees three hundred lakhs in the preceding financial year. 3. For the purposes of determining the aggregate value of clearances for home consumption, the following clearances shall not be taken into account, namely:- (a) clearances bearing the brand name or trade name of another person, which are ineligible f .....

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me or trade name, whether registered or not, of another person, except in the following cases:- (a) where the specified goods, being in the nature of components or parts of any machinery or equipment or appliances, are cleared for use as original equipment in the manufacture of the said machinery or equipment or appliances by following the procedure laid down in the Central Excise (Removal of Goods at Concessional Rate of Duty of Manufacture or Excisable Goods) Rules, 2001: Provided that manufac .....

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- (i) the Khadi and Village Industries Commission; or (ii) a State Khadi and Village Industry Board; or (iii) the National Small Industries Corporation; or (iv) a State Small Industries Development Corporation; or (v) a State Small Industries Corporation; (c) where the specified goods are manufactured in a factory located in a rural area." 13) Having taken note of the relevant provisions of the aforesaid exemption Notifications and without commenting upon the same at this juncture, we would .....

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behalf of M/s. Hindustan Coco Products, Bombay. It availed MODVAT benefit on the inputs used for manufacture of Cadbury branded biscuits. The Department issued the show cause notice taking the position that as the assessee had availed MODVAT benefit it had no right to avail the benefit of Notification No. 175/86 in respect of its own goods bearing 'Ramesh' brand either. Though, the Assistant Collector dropped the demand holding that assessee could avail both the benefits, the Collector .....

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cally overruled by a larger Bench of CEGAT in Kamani Food v. Collector of Central Excise 1995 (75) E.L.T. 202 . 14) After extensively quoting from the discussion of the Tribunal in Kamani Food case (supra), this Court observed as follows: "10. Notification 175/86 have to be read as a whole and as noted rightly, in Kharia Cement Works case (supra) Sub-clauses (i) and (ii) have to be construed harmoniously. Exemption envisaged for the specified goods accrues to them through instrumentality of .....

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ither The Modvat Scheme or Notification 175/86. Further, there is no one to one correlation between the inputs and final products under Modvat Scheme. It would therefore not possible to allow the manufacturer to simultaneously avail Modvat for some products and avail full exemption for others under small-scale exemption scheme." 15) Some of the salient features of the decision of this Court in Ramesh Food Products which need to be emphasised are the following: (a) The decision of the Tribun .....

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the demands of judicial propriety. (c) In Kamani Foods case, the larger Bench of the Tribunal had noted its earlier Special Bench ruling in the case of Kharia Cement Works v. Collector of Central Excise 1989 (42) ELT 696 (Tribunal) wherein it was held that Notification No. 175 of 1986 had to be read as a whole and sub-clauses (i) and (ii) had to be construed harmoniously. The case was, thus, confined to interplay between sub-clauses (i) and (ii) of clause (a) of para 1 of the Notification, which .....

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ed to as the "specified goods"), and cleared for home consumption on or after the 1st day of April in any financial year, by a manufacturer from one or more factories, - (a) in the case of the first clearances of the specified goods upto an aggregate value not exceeding rupees thirty lakhs, - (i) in a case where a manufacturer avails of the credit of the duty paid on inputs used in the manufacture of the specified goods cleared for home consumption under Rule 57A of the said Rules, fro .....

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of the specified goods under sub-clause (ii) of this clause in respect of any one chapter of the said Schedule, shall not exceed rupees twenty lakhs; xx xx xx" (d) Interpreting the aforesaid two sub-clauses harmoniously, this Court, while giving its imprimatur to Kamani Foods case, held that if the MODVAT credit under Rule 57A is availed by the assessee, it would not be entitled to exemption from excise duty under the said Notification. Significantly, these two sub-clauses deal with the goo .....

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(e) Distinction between the goods cleared for home consumption and those manufactured on job work basis for third parties and the fact that CENVAT credit was availed of only in respect of goods manufactured for third parties and not with respect to home brand was not brought to the notice of the Court. Other provisions of the notifications which have bearing on this issue were also not brought to the notice of the Court. In fact, as noted above, the Court was primarily influenced by the fact th .....

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ere the assessees have not claimed any CENVAT/MODVAT credit in respect of inputs used in the manufacture of their own products. This CENVAT credit is availed by them in respect of goods manufactured for third parties on job work basis for which the assessees had admittedly paid the excise duty. In such circumstances, whether such an assessee loses the benefit of exemption notification even in respect of goods for home consumption? Answer to this question is not available in sub-clauses (i) and ( .....

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cturer affixes the specified goods with a brand name or trade name (registered or not) of another person who is not eligible for the grant of exemption under this notification, shall not be taken into account; Para 3 For the purposes of determining the aggregate value of clearances for home consumption, the following clearances shall not be taken into account, namely: (a) clearances, which are exempt from the whole of the excise duty leviable thereon (other than an exemption based on quantity or .....

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ction for weaving of fabrics or for manufacture of sacks or bags made of polymers of ethylene or propylene. Para 7 The exemption contained in this notification shall not apply to the specified goods where a manufacturer affixes the specified goods with a brand name or trade name (registered or not) of another person who is not eligible for the grant of exemption under this notification. Provided that nothing containing in this notification shall be applicable to the specified goods which are com .....

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on, the State Khadi and Village Industries Board, the National Small Industries Corporation or the State Small Industries Development Corporation. Para 4 The exemption contained in this notification shall not apply to the specified goods bearing a brand name or trade name, whether registered or not, of another person, except in the following cases:- (a) where such specified goods, being in the nature of components or parts of any machinery or equipment or appliances, are cleared for use as origi .....

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id down in Chapter X of the said rules; (b) where the specified goods bear a brand name or trade name of - (i) the Khadi and Village Industries Commission; or (ii) a State Khadi and Village Industry Board; or (iii) the National Small Industries Corporation; or (iv) a State Small Industries Development Corporation; or (v) a State Small Industries Corporation. Explanation IV For the purposes of this notification, where the specified goods manufactured by a manufacturer, are affixed with a brand na .....

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have been manufactured by such other manufacturer or trader. 17) A holistic reading of the Notification, in the light of the other paragraphs, brings into focus the overall scheme. It, inter alia, provides that the clearances bearing the brand name or trade name of third parties which are ineligible for grant of this exemption, for the purposes of determining aggregate value of clearances for home consumption, are not to be included. These Notifications also make it clear that the exemption cont .....

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ading of the aforesaid provisions in the Notifications unambiguously points out that for the purposes of availing the benefit of Notification by an SSI Unit, the clearances for home consumption only are to be taken into consideration, except in those cases where it is clearly provided otherwise. For this purpose, clearances bearing the brand name or trade name of third parties are concerned, they are kept outside the scheme inasmuch as: (a) they are not to be included for the purposes of determi .....

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k basis by the SSI Unit is concerned, they are to be dealt with differently in the sense that they do not come within the ambit of exemption on which normally excise duty, as per the provisions of the Act, is payable. As a sequitur, it also follows that once excise duty is paid by the manufacturer on such branded goods manufactured, the brand name whereof belongs to another person, on job work basis, the SSI Unit would be entitled to CENVAT/MODVAT credit on the inputs which were used for manufac .....

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rrectly. Admittedly, in respect of home production, the assessee had not availed the benefit of two options simultaneously as no CENVAT credit is claimed in respect of those goods. While doing so, the Tribunal has taken note of the judgment of this Court in Ramesh Food Products case and rightly analysed the same. We reproduce following discussion in the impugned judgment dated 22.08.2006 of the Tribunal (which is the subject matter of Civil Appeal No. 2789 of 2007): "7. The provisions in th .....

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ar for exemption benefit. From these clauses contained in the relevant Notifications, it is clear that goods bearing brand name of third parties were not eligible for exemption contained in Notification No. 8/2003. Identical provision existed in Notifn No. 9/2003 where the option of availment of Modvat benefit and payment of a concessional rate of duty was prescribed. Goods bearing brand name of third parties are therefore excluded from the exemption in Notification No. 9/2003 as well. The asses .....

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at and exemption under Notfn. 175/86 to the manufacturer and the manufacturer had to decide on one option. Once an option was made, there was no liberty to the assessee to avail benefits of both the options simultaneously. Therefore an SSI unit availing full exemption as per the Notfn. No. 175/86 in respect of certain specified goods could not also avail the modvat benefit in respect of certain other specified goods. 8.1 Notfn No. 175/86 dated 01.03.1986 extended concessional rate of duty on fir .....

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at the goods bearing brand name of third parties should be excluded. The following explanations, inter-alia, governed computation of the above aggregate value for the Notfn. Explanation IV - For the purposes of this notification, where the specified goods manufactured by a manufacturer, are affixed with a brand name or trade name (registered or not) of another manufacturer or traders, such specified goods shall not, merely by reason of that fact, be deemed to have been manufactured by such other .....

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