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TMI Blog2006 (1) TMI 130X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of Commissioner of Central Excise, Jaipur v. J.K. Udaipur Udyog Ltd. reported in 2004 (171) E.L.T. 289 needs reconsideration". 2.The reference was made in the factual context of the appellants availing of Cenvat credit on explosives and other inputs used in quarrying limestone, which was in turn used for the manufacture of cement and clinkers, which are classifiable under Chapter 25. The limestone mines of the appellants are situated at some distance away from the factory premises of the appellants. The Adjudicating Authority held that the appellants were not entitled to the credit availed of by the appellants and raised a demand for excise duty only on the explosives. The narrower question raised in this appeal therefore is whether the adjudicating authority was correct in denying the appellants the Cenvat credit on the inputs. 3.On the broader question, namely, whether there is a difference in substance between the Modvat and the Cenvat schemes, Modified Value Added Tax Scheme (Modvat) was introduced in 1986 granting credit of excise duties used in or in relation to the manufacture of final products. The scheme was contained in Rules 57A to 57J of the Central Excise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule (1). Qualifications have been introduced to the extent stated in Clauses (i) to (vi) read with the Explanation. Thus Clause (i) provides for inputs which are manufactured and used within the factory of production. Paints, fuel, packing materials and accessories are also treated as inputs under clauses (ii), (iii), (v) and (iv) without any requirement for user within the factory. Clause (iv) provides for credit on inputs used for generation of electricity or steam used for manufacture of the final products or for any other purposes "within the factory of production". It appears to us on a plain reading of the clause that the phrase "within the factory of production" means only such generation of electricity or steam which is used within the factory would qualify as an intermediate product. The utilization of inputs in the generation of steam or electricity not being qualified by the phrase "within the factory of production" could be outside the factory. Therefore, whatever goes into generation of electricity or steam which is used within the factory would be an input for the purposes of obtaining credit on the duty payable thereon. As far as the Explanation is concerned, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respectively of the Table. 9.It may be noted at this stage that Rule 57J(2) was explained by a Trade Notice. No. 38/1999 dated 2nd April, 1991 issued by the Bombay Collectorate. It was said :- "the basic aim of the Modvat Scheme is to avoid the cascading effect of duties on a product. Therefore, the scheme permits Modvat credit on all goods forming a part of the final product, though the final product may be manufactured in several stages, provided duty is paid at each stage of the manufacturing chain. However, to ensure an unbroken chain of Modvat, rule 57J has been incorporated under the Modvat Scheme so as to extend credit of duty on certain inputs, even in respect of exempted intermediate products (notified under Notification No. 351/86-C.E., dated 20-6-1986) which are brought from outside. However, one of the provisions of this notification requires that the intermediate products should be manufactured in a factory as a job work and exemption contained in Notification No. 214/86-C.E., dated 25-3-1986 should have been availed in respect of them. Thus, it may be observed that rule 57J grants limited flexibility of job work. The rule merely requires that the unit availing thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit on the duty paid in respect of the input. On the explosives a duty had been paid and the appellants would be entitled to claim credit because the explosives were used for the manufacture of the intermediate product, namely, lime stone which, in turn, was used for the manufacture of cement". 12.The appeal of the manufacturer was accordingly allowed and it was held that the Modvat was allowable on the use of the explosives in the manufacture of cement irrespective of the fact that the explosives were used directly in the mines and never entered the factory of the manufacturer of cement. 13.In 2000 the Modvat Rules were replaced by the Cenvat Rules by the Central Excise (2nd Amendment) Rules, 2000. Basically there was a re-arrangement of the earlier rules which in substance remained the same. Thus Rule 57AA defined inputs as :- "input" means all goods, except high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not and includes accessories of the final products cleared along with the final products, goods used as paint, or as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it (hereinafter referred to as the Cenvat credit) of. - (i) the duty of excise specified in the First Schedule to the Central Excise Tariff Act, 1985 (hereinafter referred to as the said First Schedule), leviable under the Act; (ii) xxxxxxxxx (iii) xxxxxxxxx (iv) xxxxxxxxx (v) xxxxxxxxx paid on any inputs or capital goods received in the factory on or after the first day of March, 2001, including, the said duties paid on any inputs or capital goods used in the manufacture of intermediate products, by a job worker availing the benefit of exemption specified in the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 214/86. Central Excise, dated the 25th March, 1986, published in the Gazette of India vide number GSR 547(E), dated the 25th March, 1986, and received by the manufacturer for use in or in relation to the manufacture of final products, on or after the first day of March, 2001. [Emphasis supplied] 18.Rule 57AB effectively du ..... X X X X Extracts X X X X X X X X Extracts X X X X
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