TMI Blog2004 (9) TMI 118X X X X Extracts X X X X X X X X Extracts X X X X ..... ufacturers. It is required to clear the goods on payment of excise duty. In the instant case, it has availed a Modvat credit on sale of safety glass to the motor vehicle manufacturers like Maruti Udyog Ltd. 3.For the purpose of manufacture of toughened or laminated or tempered safety glass (hereinafter referred to as 'the safety glass') the raw material required is known as float glass. It is averred by the petitioner that in relation to additional duty of customs paid on the imported float glass and the excise duty paid on the locally procured float glass, the petitioner took Modvat credit of the duty so paid. During the course of manufacture of safety glass inspection is required for a quality check or to detect a defect in the raw material i.e. float glass. It is the case of the petitioner that defective float glass is scrapped and appropriate excise duty is paid on the clearance of such scrapped glass. In respect of the defective float glass the petitioner used to raise quality claims with the float glass manufacturer and such claim would hardly be about 8-9% of the total purchases made. The petitioner has pointed out that the float glass is received in wooden boxes. Glass s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spots, paper marks etc. are detected. The glass containing any of these defects are segregated. Only glasses which do not contain such defects are passed on to the next stage viz. tempering or lamination, as the case may be. It may be noted that the glass sheets being the input material, have been cut to size and shape and edges beveled. The glass containing defects are destroyed by throwing them into the cullet tank, since the defective glass cannot be marked even as sub-standard. Seconds glass keeping in mind the end application in motor vehicles. That is why there is no point of subjecting such glass to further processes of tempering/lamination. The defects if any, in the float glass which would affect their suitability for use in motor vehicles can only be detected after the float glass undergoes the mandatory processes of cutting, marking, breaking off, grinding and washing which form an integral part of the manufacturing processes undertaken by the petitioner in the factory." 4.According to the petitioner the process indicated herein above being manufacturing process must be followed to obtain the safety glass. These processes form manufacturing process of the final produc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t must be considered for benefit irrespective of fact that entire sheet or all the pieces turned into a final product or not. It is a different matter that for such rejected glass also claim is made on the supplier. The department is aware of this procedure since 1987. 5.In laminated glass, there is combination of two glasses which are laminated together. The first process carried out is bending of two glasses, one inner and another outer according to the fixture required. After bending, the glass is inspected for curvature and cross curvature. Next, a PVB film is put between the two glasses and de-airing is done by which air is taken out. Thereafter the glass is sent to an oven for heating up to 100 degree Celsius. Finally, the glass is subjected to a process known as auto-calving at a temperature of 135 degrees Celsius and at a pressure of 13 Kg/centimetre square which results in finished laminated glass. 6.Show cause notices were issued, inter alia, denying Modvat credit on the defective safety glass [which were cleared as scrap (cullet) on payment of duty later on] Show cause notice has denied Modvat credit taken by the petitioner during the period from August, 1995 to Dece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of this Act, pass such order as it thinks fit on the matters covered by the application and any other matter relating to the case not covered by the application, but referred to in the report of the Commissioner of Central Excise and Commissioner (Investigation) under sub-section (1) or sub-section (6)." 8.Learned Counsel, therefore, submitted that the Settlement Commission is entitled to make an order in accordance with the provisions of the Act, and not beyond that. According to the learned counsel, it is not open for the Settlement Commission to pass an order de hors the provisions of law. 9.Learned Counsel drew our attention to Rules 57A and 57D of the Central Excise Rules, 1944 (hereinafter referred to as the Rules) which are reproduced hereunder :- "Rule 57A. Applicability. — The provisions of this section shall apply to such finished excisable goods (hereinafter, in this section, referred to as the final products) as the Central Government may, by notification in the Official Gazette specify in this behalf for the purpose of allowing credit of any duty of excise or the additional duty under Section 3 of the Customs Tariff Act, 1975 (51 of 1975), as may be spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1944) shall be deemed to have been paid at such rate or equivalent to such amount as may be specified in the said notification, and allow the credit of such duty in respect of the said inputs at such rate or such amount and subject to such conditions as may be specified in the said notification: Provided that the manufacturer shall take all reasonable steps to ensure that the inputs acquired by him are goods on which the appropriate duty of excise, as indicated in the documents accompanying the goods, has been paid under Section 3A of the Central Excise Act, 1944 (1 of 1944). 57D. Credit of duty not to be denied or varied in certain circumstances.— (1) Credit of specified duty shall not be denied or varied on the ground that part of the inputs is contained in any waste, refuse, or by-product arising during the manufacture of the final product, or that the inputs have become waste during the course of manufacture of the final product, whether or not such waste or refuse or by-product is exempt from the whole of the duty of excise leviable thereon or chargeable to nil rate of duty or is not specified as a final product under Rule 57A." 10.Learned Counsel drew our attention to R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the same. If duty is not paid on the goods used as input, one is not entitled to claim Modvat. However, if the duty is paid and the glass is used in the manufacturing process, then one would be entitled. It is clear that no Modvat could be claimed on the float glass, if the same is rejected after opening the wooden box as sheet is found broken or defective and therefore, could not be used as input for obtaining final product. Irrespective of obtaining a final product if the input is used in the manufacturing process one is entitled merely because credit is taken on defective glass used as input is no ground to reject the claim. 13.On behalf of the respondent, it was submitted that Section 32 is a complete code. Section 31 which falls in Chapter V of the Act pertains to Settlement Commission. Learned Counsel for the respondent submitted that the order once made by the Settlement Commission would be one under Section 32M. It cannot be reopened. Section 32M reads as under :- Order of Settlement to be conclusive."32M" — Every order of settlement passed under sub-section (7) of Section 32F shall be conclusive as to the matters stated therein and no matter covered by such order sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrectness of the amount of duty accepted by the applicant in their applications. The accepted amount of duty is confined to breakages of float glass (input) noticed when the wooden boxes containing it are opened in the factory of the applicant. The Commission further observed in para 12 as under : The claim of the applicant is centered on the contention"12. that the suitability for use of the float glass in the motor vehicles can only be detected after it has undergone the mandatory processes of cutting, marking, break off, grinding and washing, that the manufacturing process for manufacture of toughened and laminated glass starts as soon as the float glass is out on the float table and subjected to the aforesaid processes and that these processes are mandatory and integral to the process of manufacture of their final products. Revenue have disputed this claim of the applicant. The applicant rely on the Production Manual of Ashai Glass Limited, Japan in support of their contention that world-over the process of manufacture adopted by their parent company is identical." 16.In para 13, the Commission considered the expression "used in the manufacture of final products" and "inp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total non-application of mind. End-product is obtained. May be that out of six pieces cut initially all may not have been used for final product on account of defect noticed. It cannot be said that the float glass was not used as input. As supplier agreed to reimburse is no ground to say that it was defective material and could not have been used as input. 18.The Commission in para 14 observed that the defective float glass does not get rejected on account of defects developed during any of the processes to which it is subjected to in the factory of the applicant and accordingly the judgment in the case of Greaves Ltd. v. CCE, Allahabad, 1999 (113) E.L.T. 270 does not help the applicant. 19.The Commission further observed that the basic question to be asked in the facts of the present case is whether the float glass with built-in defects is at all useful in the manufacturing of the finished products. While giving answer in negative Rule 57D(4) was referred. 20.According to the Commission, as the defective input float glass in the case of the applicant is neither waste or refuse arising during the manufacture of their final product nor it has become wastage in or in relation t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly when the suppliers of such defective input have reimbursed the applicant for the defective supply. We are also of the view that if such a credit is allowed it would create a situation where those who subject the input to quality testing immediately after receipt of the input in their factory would be denied the benefit of the credit whereas those who do so after carrying out some processes would stand to gain even though the inputs were ab initio defective and could not have been used in the manufacture of the final product. This, in our view, cannot be the intention of the legislation." 22.The Commission also observed (in para 21) that "we are of the view that they made the disclosure under a genuine belief of the interpretation adopted by them and there was no ground to suppress any information from the Commission." 23.It appears that the Commission has misdirected itself in examining Rules 57A(4) and 57D. When the impugned order made by the Commission is vitiated by more than one misdirection in law then it is always open for this Court to exercise the jurisdiction over the orders made by the Commission. When the Court finds that the Commission's order is "contrary to any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods intended for use in the process or activity as specified in Rule 13 will qualify for special treatment." 25.Even with regard to drawing and photographic materials which may not be used as a raw material, in the view of the High Court, designing is a process distinct from the process of manufacture, i.e., of making or fabricating raw materials by hand, art or machinery, and work into forms convenient for use. The Apex Court pointed out that without a design of the goods sought to be manufactured in a factory which is geared to production of goods of uniform pattern, it would be impossible to attempt manufacture of goods on a commercial scale. The production itself has to be of a set pattern, and deviation from the design prepared would be impermissible. That without the use of drawing and photographic materials, designing of patterns, would, if not impossible, be very difficult, is conceded. The Court pointed out that a bare survey of the diverse uses to which the goods may be intended to be put in the manufacture or processing of goods, clearly shows that the restricted interpretation placed by the High Court is not warranted. 26.The Apex Court in the Collector of Central E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the further operations for the end-result would also be a process in or in relation to manufacture to attract the relevant clause in the exemption notification. In our view, the word "process" in the context in which it appears in the aforesaid notification includes an operation or activity in relation to manufacture." .. 27.In Standard Fireworks Industries v. Collector [1987 (28) E.L.T. 56 (S.C.)], it was held that manufacture of fireworks requires cutting of steel wires and the treatment of papers and, therefore, it is a process for manufacture of goods in question. Thus, the expression, "in the manufacture of goods" takes within its compass all the stages. 28.Keeping the interpretation of Rules 57D and 57A(4), if we once again turn to the finding of the Commission, it is clear that the Commission has misdirected itself. The Commission observed in para 2 that the investigation carried out reveal that the applicant was filing claims with the suppliers of float glass in respect of supply of defective/sub-standard float glass which had some inbuilt defects such as bubbles, stones, scratches, white spots, paper marks, etc. that the claims were filed on the basis of pre-process a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emoved by hand or machine. Thereafter edges of glass pieces are grinded. It is thereafter scientifically at certain temperature glass piece is washed, mechanically scrubbed, soaked by sponge rollers, passed through furnace for temperature process, dried through drying blowers with heaters installed inside the dryers. Thus input has undergone certain process of manufacture. 30.If a sheet is rejected or a piece of sheet is rejected, it does not mean that the sheet was not used in the manufacture of safety glass. It is at this juncture again we emphasise that sub-rule (4) of Rule 57A points out that credit is to be allowed on inputs used in the final product and all inputs used in or in relation to the manufacture of the final products, whether directly or indirectly and whether contained in the final product or not the department cannot deny credit of specified duty or even can vary on the ground that part of the inputs contained in any waste, refuse or by-product arising during the manufacture of final product or when the inputs have become waste during the course of manufacture of the final product whether or not such waste or refuse or by-product is exempt from the whole of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be permitted to accept what is favourable to him and reject what is not. It was also argued before the Apex Court that the Commission is not even required or obliged to pass a reasoned order. The provisions contained in the Income-tax Act in so far as Settlement Commission is concerned, are pari materia to the provisions contained in the Central Excise Act. 34.The Apex Court pointed out that in this context it is relevant to note that the principle of natural justice (audi alteram partem) has been incorporated in Section 245D itself. The sole overall limitation upon the Commission thus appears to be that it should act in accordance with the provisions of the Act. The scope of enquiry, whether by the High Court under Article 226 or by the Apex Court under Article 136 is also the same-whether the order of the Commission is contrary to any of the provisions of the Act and if so, apart from ground of bias, fraud and malice which, of course, constitute a separate and independent category, has it prejudiced the petitioner/appellant. The Court pointed out that for all the above reasons it was also of the opinion that the only ground upon which the Court can interfere is that the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X
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