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TMI Blog1994 (9) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... a prayer for permission to amend the prayer clause of the main petition on the basis of subsequent events, so as to include an additional prayer for quashing the adjudication order No. 30/94, passed on 30-5-1994 by the 3rd respondent during the pendency of the petition. 2.Facts are not very much in dispute. The petitioners in all the petitions are small scale units, engaged in the business of manufacturing rerolled products falling under Chapter 72 of the Schedule to the Central Excise Tariff Act, 1985. These products were exempt from duty by virtue of SSI exemption Notification No. 202/88, dated 20-5-1988, provided no credit of the duty paid on the inputs was taken under Rule 56A or Rule 57A of the Central Excise Rules, 1944, (in short, the "Rules"). This Notification No. 202/88 was issued under Rule 8(1) of the Rules. The petitioners used to take credits under the Modvat Scheme (under Rule 56A or Rule 57A) for the duty paid on their inputs and to debit the same for payment of duty on their final products. This is how they were not getting or claiming exemption from payment of duty on their inputs under the Notification No. 202/88, which was superseded by subsequent SSI exemption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in dispute that the final products of the petitioners fell within Chapter 72 of the Schedule to the Act and that but for their opting for modvat scheme, they would have been entitled to claim exemption under the Notification No. 202/88 in respect of their final products falling under Chapter 72 of the Schedule to the Act. According to the Department, as the petitioners has availed of the modvat scheme and given up their claim for exemption under the earlier Notification No. 202/88, they cannot be allowed exemption under the Notification No. 1/93 by computing the aggregate value after excluding from consideration their clearances of such final products in respect of which credits were taken under the modvat scheme. On the contrary, according to the petitioners, they were entitled to deduct the value of clearances in respect of which credits of the duty paid on the inputs were taken under Rule 56A or 57A. In the alternative, their case was that the Notification No. 1/93 itself was liable to be quashed, as it made unreasonable classification of manufacturers; one of those who availed of the benefit of exemption and second of those who availed of the modvat scheme under the earlier No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 5.The exemption Notification No. 202/88, dated 20-5-1988 was worded as follows : "In exercise of the powers conferred by sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, and in supersession of the notification of the Government of India in Ministry of Finance (Department of Revenue) No. 90/88-Central Excises, dated the 1st March, 1988, the Central Government hereby exempts goods of description specified in column (3) of the Table hereto annexed (such goods being hereinafter referred to as products) and falling within Chapter 72, Chapter 73 or Heading No. 84.54 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) from the whole of the duty of excise leviable thereon which is specified in the said Schedule : Provided that such final products are made from any goods of the description specified in the corresponding entry in column (2) of the said Table (such goods being hereinafter referred to as "inputs") and falling within the Chapter 72 or Chapter 73 of the said Schedule on which the duty of excise leviable under the said Schedule or the additional duty leviable under the Customs Tariff Act, 1975 (51 of 1975) as the case may be, has already been paid : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch duty had already been paid. According to the learned counsel for the petitioners, in view of the deeming provision made in the Explanation given in the Notification No. 202/88, all their inputs used in the manufacture of their final products were deemed to have already suffered the duty and accordingly they were entitled to claim total exemption of duty under the Notification No. 202/88, if they had not opted for the Modvat Scheme and thereby had not become ineligible to claim the exemption by virtue of second proviso to the said notification. But it was argued, for obtaining the benefit of Modvat Scheme as well, it was necessary for the inputs to have suffered the requisite duty and by virtue of similar deeming provision made in the direction issued by the Central Government under the second proviso to Rule 57G(2) of the said Rules, ingots and re-rollable materials of iron or steel purchased from outside and lying in stock on or after the 7th day of July, 1992 with the re-rollers were directed to be deemed to have paid duty at the rate of Rs. 920/ per tonne, and the credit of duty under Rule 57A of the said Rules in respect of such ingots and re-rollable materials used, without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the earlier notification. It was further argued that if there was doubt as to the true import and meaning of the words employed in the subsequent notification and if they were capable of two interpretations, there is a catena of authorities to say that in such a situation, the interpretation that favours the tax-payer has to be preferred. On the other hand, the learned Standing Counsel for the Department also cited several authorities to say that when the meaning of any statutory provision or notification is plain and simple, effect must be given to it irrespective of its consequences. According to him, the earlier notification of 1988 did not give any option; either to take the benefit of exemption under the notification, or of the benefit of Modvat Scheme under Rule 56A or 57A. The exemption under the notification was subject to conditions and if they were not fulfilled, the exemption could not be claimed. Accordingly it was further urged that the subsequent Notification No. 1/93 contemplated exclusion of only such goods which were unconditionally exempted from the whole of duty of excise, or of goods which were exempted from duty subject to certain conditions, such conditions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgoing the process of melting, in the manufacture of goods falling under Chapter 72 or 73 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), may be allowed at the rate of Rs. 920 per tonne, without production of documents evidencing the payment of duty if any. These orders shall be valid till further amendment." The second condition about no claim of credit under the Modvat Scheme, therefore, appears to be more or less a provision to deter a person from taking double benefit in respect of one and the same commodity; say for instance, one under the notification and the other under the Modvat Scheme. We are of the view that the sole purpose of granting exemption from payment of duty or benefit of Modvat Scheme is to give incentive and some financial help to the small scale industries and this very purpose will be frustrated if persons opting for the exemption and those opting for the Modvat Scheme are differently treated even though the resultant benefit under the two schemes of exemption and Modvat credit is one and the same. Accordingly, unless and until it could be shown that those deriving benefit under the Modvat Scheme enjoyed more advantageous position than t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ok benefit of Modvat Scheme instead of total exemption from duty under the Notification No. 202/88, by excluding clearances of their excisable goods, which were exempted from the whole of duty of excise leviable thereon, but in respect of which, instead of exemption, credits under the Modvat Scheme were taken, while computing the aggregate value of clearances under the notification No. 1/93. As a necessary consequence, adjudication Order No. 35/94, dated 15-7-1994 impugned in W.P. No. 13614/94 and similar Order No. 30/94, dated 30-5-1994 of the 3rd respondent sought to be impugned in W.P. No. 9663/94 by filing W.P. M.P. No. 15660/94 are quashed. Now the 3rd respondent shall re-compute the aggregate value of clearances made by the petitioners in these petitions in the light of this order and then decide if they are or are not entitled to the benefit of Notification No. 1/93. No order as to costs. 12.[Oral Order per : P. Venkatarama Reddy, J.]. - Though I agree with the conclusion and the operative part of the judgment of my learned brother, K.M. Agarwal, J., I am taking a different route to reach the same conclusion. The complexity of the case is also such that the problem can be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f this Notification. Leaving out the unnecessary portions, the Explanation says that the clearances of any excisable goods which are exempted from the whole of duty of excise leviable thereon by virtue of the Notification issued under Rule 8(1) or Section 5A(1) shall not be taken into account. (emphasis supplied). Thus, the value of exempted goods will stand excluded while computing the aggregate value of clearances under the Notification (1 of 1993). 16.This takes us to the question whether any part of the excisable goods cleared by the petitioners are exempt from the whole of duty of excise leviable thereon under a Notification providing for such exemption. It is in this context that a reference to Notification No. 202 of 1988 issued under the then existing Rule 8(1) becomes relevant. That notification, which has been extracted in the order of my learned brother, exempted certain final products "from the whole of the duty of the excise leviable thereon", provided that (1) such final products are made from the specified inputs on which the duty of excise leviable or the additional duty leviable has already been paid and (2) no credit of duty paid on the inputs has been taken und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... products. To fortify their argument, it is submitted by the learned Counsel for the petitioners that the manufacturers who had exercised the option to avail of the credit and paid the differential duty on the finished products should not be subjected to any disadvantage in comparison with the manufacturer who claimed total exemption from duty on the finished products by choosing to opt out of MODVAT scheme. There is no reasonable basis for such treatment, it is pointed out. 18.Thus the true scope and effect of the second proviso to Notification No. 202 of 1988 looms large in these writ petitions. The crux of the issue centres round the second proviso and the effect of the alleged option exercised by the petitioners. 19.While on this aspect I would like to steer clear of a misconception implicit in the arguments on both sides. The assumption that there is an option left to the assessee either to avail of the credit on inputs under MODVAT scheme or to avail of the exemption from duty under Notification No. 202 of 1988 and the petitioners have, therefore, exercised the former option is, in my considered view, not correct. This option theory has no legal basis. I am driven to come to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e credit on the inputs under Rule 57A read with Rule 57G. No statutory order or Notification has been placed before me which, despite the prohibition contained in Rule 57C, enables the assessee to seek shelter under MODVAT scheme. Thus, I am of the view that the MODVAT credit was erroneously allowed to the petitioners even after the Notification 202/88 granting exemption from the whole excise duty payable was an issued by the Central Government. Obviously, this was done under a mutual mistake and the course of action adopted by the petitioners and assented to by the Department has no sanction of law. 21.Viewed in this light, what is the interpretation to be placed on the 2nd proviso to Notification No. 202/88 and what effect it has on the present cases, is the next question that falls for consideration. It appears to me that in the face of the prohibition contained in Rule 57C, the 2nd proviso has practically no part to play vis-a-vis the clearance effected long after the notification. The purpose of introducing the 2nd proviso in the Exemption Notification No. 202/88 seems to be to take care of the transitional problems that might arise at the commencement of the Notification and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Central Government's order in TS/36/94-TRU, dated 1-3-1994. 22.I shall now proceed to consider the problem in a different perspective. I will assume for the time being that the 2nd proviso applies and non-compliance thereof takes the goods out of the category of exempted goods under Explanation-II. In this context, I will further assume that a manufacturer can legally choose one of the two methods i.e., either to claim exemption of the whole of the duty under Notification No. 202/88 or to forego the exemption and avail of the credit of duty paid on inputs. In the latter case, the differential duty (representing the difference between the duty on inputs and the duty on final product) is paid or deemed to have been paid on the finished product. Why should such a manufacturer suffer a disadvantage unless he has enjoyed an obvious benefit which could not have been there if exemption had been claimed. This is in fact the line of thinking of Agarwal, J., and I respectfully agree with him. Nothing has been stated in the counter-affidavit or in the course of argument as to the rationale behind the denial of benefit to those who availed of MODVAT credit pursuant to the `option' given to th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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