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TMI Blog2019 (12) TMI 430X X X X Extracts X X X X X X X X Extracts X X X X ..... ndered in Gujarat Narmada has been rendered in the context of the CENVAT Credit Rules, 2002 and is, therefore, more apposite. However, since GSFCL does lay down a general principle of law, we have no option but to refer the issue to a larger Bench to resolve the conflict between GSFCL and Gujarat Narmada. The conflict to be resolved is whether under the CENVAT Credit Rules, 2002 an assessee is entitled to claim CENVAT credit on duty-paid LSHS utilized as an input in the manufacture of fertilizer exempt from duty." 2) The facts that are necessary in order to appreciate the reference so made are set out in the reference order itself as follows:- "1. The assessee utilizes CENVAT duty-paid Low Sulphur Heavy Stock (for short "LSHS") as fuel input for generating steam. The steam so generated is utilized to generate electricity for the manufacture of fertilizer which is exempt from excise duty. According to the assessee, it is entitled to claim CENVAT credit on the input, that is, LSHS even though fertilizer is exempt from excise duty. The correctness of this view was disputed by the Revenue. 2. Consequently, the Commissioner, Central Excise & Customs, Vadodara-II (hereinafter ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t High Court is CCE and Customs v. Gujarat Narmada Fertilizers Co. Ltd., (2006) 193 ELT 136 (Guj). 6. The Tribunal was, therefore, of the opinion that the issue was no longer res integra and the decision earlier rendered by the Tribunal was binding upon the parties. The reference made to the larger Bench was then answered in the following terms: "The reference is thus answered by holding that the assessees are eligible to CENVAT credit of duty paid on that quantity of LSHS which was used for producing steam and electricity used in turn in relation to manufacture of exempted goods, namely fertilizers." 7. Pursuant to the decision of the larger Bench, the substantive appeals were placed before a Division Bench of the Tribunal. By an order dated 10-4-2008 (Gujarat Narmada Valley Fertilizers Co. Ltd. v. CCE, Appeals Nos. E/2517 of 2004 & 3672 of 2004, order dated 10-4-2008 (Tri) (impugned before us) the Division Bench of the Tribunal allowed the assessee's appeals relying on the decision of the larger Bench." 3) The impugned order in the present case, which is dated 10.04.2008 only refers to and follows the larger Bench of the Customs, Excise & Service Tax Appellate Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Gujarat Narmada Fertilizers Co. Ltd., (supra). 5) Mr. Dushyant Dave, learned Senior Advocate appearing on behalf of the respondent has, however, placed a judgment of this Court in which it was stated that the MODVAT scheme and the CENVAT Credit Rules and the successor CENVAT Credit Rules were not different, as a general rule, and, therefore, differences should not be found between the earlier scheme and the scheme of Rule 6(1) & (2) when, in fact, there is none. He relied on this Court's judgment in Collector of Central Excise and Others vs. Solaris Chemtech Ltd. and Others (2007) 7 SCC 347 and also argued that quite apart from the reference made, the judgment of this Court in (2009) 9 SCC 101 [CCE vs. Gujarat Narmada Fertilizers Co. Ltd., (supra) was incorrect in that it failed to notice the last part of Rule 6(1) which stated that the rule will not apply in cases covered by sub-rule (2) of Rule 6 of the CENVAT Credit Rules. He also argued that the exception so far as the input was fuel that is contained in Rule 6(2) was so inserted to make it clear that the moment an input is used as fuel, only the procedure of sub-rule (2) would not apply; and, in point of fact, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ground that the said inputs are used in the manufacture of goods cleared without payment of duty under the provisions of that Rule. 2. Where a manufacturer avails of CENVAT credit in respect of any inputs, except inputs intended to be used as fuel, and manufactures such final products which are chargeable to duty as well as exempted goods, then, the manufacturer shall maintain separate accounts for receipt, consumption and inventory of inputs meant for use in the manufacture of dutiable final products and the quantity of inputs meant for use in the manufacture of exempted goods and take CENVAT credit only on that quantity of inputs which is intended for use in the manufacture of dutiable goods." 8) This Court in (2009) 9 SCC 101 [CCE vs. Gujarat Narmada Fertilizers Co. Ltd., (supra), after setting out the Central Excise MODVAT Rules as they stood in 2000, together with the CENVAT Credit Rules, then went on to hold: "15. As can be seen from the submissions, the contention of the assessee is that exclusion of fuel inputs from the purview of sub-rule (2) of Rule 6 would mean that such inputs are also automatically excluded from sub-rule (1) whereas according to the Departme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court restates an important principle under the CENVAT Credit Rules, and which is inbuilt in the structure of the CENVAT Credit scheme, which is that Cenvat credit for duty paid on inputs used in the manufacture of exempted final products cannot be allowed. It is only a reflection of this larger principle which is contained in Rule 6. When Rule 6(1) says that the CENVAT Credit shall not be allowed on such quantity of inputs which is used in the manufacture of exempted goods, it relies upon the definition of "inputs" contained in these Rules which certainly include LSHS and steam and electricity that are produced in the manufacturing process utilizing LSHS. The exception that is contained in sub-rule (2) refers to all inputs except inputs intended to be used as fuel which then results in the manufacture of final products which are both chargeable to duty as well as exempted goods. What is clear is that the exception to sub-rule (1) which is contained in sub-rule (2) itself contains an exception, namely, inputs intended to be used as fuel. This being the case, the moment it is found that inputs are intended to be used as fuel, such inputs go outside the ken of sub-rule (2) of Rule 6. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Dave relied upon Solaris Chemtech Ltd., (supra) in which Rule 57A of the MODVAT Rules came up for construction. This judgment again went into what was the correct interpretation of the expression "in or in relation to the manufacturer of final products" and the definition of "inputs" for the purpose of Rule 57A. Having gone into these two aspects of Rule 57A, para 15 then lays down the law as follows:- "15. In the present case, LSHS is used to generate electricity which is captively consumed. Without continuous supply of such electricity generated in the plant it is not possible to manufacture cement, caustic soda, etc. Without such supply the process of electrolysis was not possible. Therefore, keeping in mind the expression "used in relation to the manufacture" in Rule 57-A we are of the view that the assessees were entitled to MODVAT credit on LSHS. In our opinion, the present case falls in Clause (c), therefore, the assessees were entitled to MODVAT credit under Explanation clause (c) even before 16-3-1995. Inputs used for generation of electricity will qualify for MODVAT credit only if they are used in or in relation to the manufacture of the final product, such as cem ..... X X X X Extracts X X X X X X X X Extracts X X X X
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