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TMI Blog2009 (8) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... uch as fertilizers, methanol, formic acid, nitric acid, aceptic acid, etc. out of which fertilizers were exempt from central excise duty under Notification No.6/2000-CE, dated 1.3.2002. The respondent functioned under CENVAT Credit Rules, 2002 ("2002 Rules", for short) during the relevant period. There is no dispute that the entire quantity of Low Sulphur Heavy Stock (LSHS) was used as "fuel" within the respondent's factory for burning in the boiler plant for producing steam. There is no dispute that the entire steam was used within the factory directly in or in relation to manufacture of final products or for production of electricity which was captively used in the manufacture of final products. The credit, however, was disallowed due to interpretation of Rule 6 of the 2002 Rules by the Commissioner who took the view that since fertilizers were exempted goods, credit on LSHS, even though used as "fuel" within the factory, was not allowable. Accordingly, one show cause notice was issued on 8.3.04 seeking to disallow CENVAT credit of Rs.2,17,61,795/- for the period March 2003 to September 2003. Vide Order dated 13.7.04, the said show cause notice stood confirmed by the Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kind used on animal drawn vehicles or handcarts and their tubes, falling within Chapter 40; (iii) black and white television sets, falling within Chapter 85; (iv) newsprint, in rolls or sheets, falling within Chapter heading No.48.01, the manufacturer shall pay an amount equivalent to the CENVAT credit attributable to inputs used in or in relation to the manufacture of such final products at the time of their clearance from the factory, or (b) if the exempted goods are other than those described in clause (a) above, the manufacturer shall pay an amount equal to eight per cent. of the total price, excluding sales tax and other taxes, if any, paid on such goods, of the exempted final product charged by the manufacturer for the sale of such goods at the time of their clearance from the factory. Explanation.- The amount mentioned in (a) and (b) above shall be paid by the manufacturer by debiting the CENVAT credit or otherwise. (3) No credit of the specified duty shall be allowed on capital goods which are used exclusively in the manufacture of exempted goods (other than final products which are exempt from the whole of the duty of excise leviable thereon under any notif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing within Chapter 27 of the said First Schedule used in the manufacture of fertilizer; iv. Omitted. v. newsprint, in rolls or sheets, falling within heading No.48.01 of the said First Schedule; vi. final products falling within Chapters 50 to 63 of the said First Schedule, vii. Naptha (RN) and furnace oil falling within Chapter 27 of the said First Schedule used for generation of electricity; viii. Goods supplied to defence personnel or for defence projects or to the Ministry of Defence for official purposes, under any of the following notifications of the Government of India in the erstwhile Ministry of Finance (Department of Revenue), namely:- (1) No.70/92-Central Excise, dated the 17th June, 1992, G.S.R.595 (E), dated the 17th June, 1992; (2) No.62/95-Central Excise, dated the 16th March, 1995, G.S.R.254 (E), dated the 16th March, 1995; (3) No.63/95-Central Excise, dated the 16th March, 1995, G.S.R.255 (E), dated the 16th March, 1995; (4) No.64/95-Central Excise, dated the 16th March, 1995, G.S.R.256(E), dated the 16th March, 1995; the manufacturer shall pay an amount equivalent to the CENVAT credit attributable to inputs used in, or in relation to, the manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uirement of sub-rule (2) by using the expression "except inputs intended to be used as fuel" and consequently the obligation of maintaining separate accounts and taking credit only on inputs intended for use in the manufacture of dutiable goods is not applicable in respect of inputs "intended to be used as fuel". According to learned counsel, under sub-rule (3) of Rule 6, a manufacturer opting not to maintain separate accounts has to follow either of the two conditions mentioned in clauses (a) and (b) of sub-rule (3) of Rule 6. Clause (a) applies to specified exempted goods whereas clause (b) applies to exempted goods other than those mentioned in clause (a). In respect of exempted goods covered by clause (b), the manufacturer shall pay an amount equal to 8%/10%, as the case may be, of the total price, excluding taxes, if any, charged by the manufacturer for sale of such goods. Therefore, according to learned counsel, sub-rule (3) makes it clear that it applies only to cases where a manufacturer is required to maintain separate accounts under sub-rule (2) but opted not to do so and since in the present case LSHS is used as "fuel", sub-rule (2), which carves out an exception to good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owhere says that the legal effect of sub-rule (1) will stand terminated in respect of fuel-inputs which do not fall in sub-rule (2). In other words, the legal effect of sub-rule (1) has to be applied to all inputs including fuel-inputs, only exception being non-fuel-inputs, for which one has to maintain separate accounts or in its absence pay 8% /10% of the total price of the exempted final products. Therefore, sub-rule (1) shall apply in respect of goods used as "fuel" and on such application, the credit will not be permissible on such quantity of fuel which is used in the manufacture of exempted goods. In our view, the above aspect has not been properly appreciated by the Gujarat High Court in the above case of M/s. Gujarat Narmada Valley reported in (2006) 193 ELT 136 (supra). 11. For the above reasons, we find merit in the Department's civil appeals. 12. Before concluding, one point needs to be noted. In this batch of cases there is a civil appeal bearing Civil Appeal No.1862 of 2006 - CCEC, Vadodara v. M/s. GujaratNarmadaValley which concerns the period November 2000 to February 2001. In that matter, apart from interpretation of Rule 6(1) and Rule 6(2), the question which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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