2004 (9) TMI 101 - SC - Central Excise

Whether explosives used in the mines for blasting purpose can be held to be inputs so as to qualify for taking CENVAT Credit under Rule 57AB? Held that - A manufacturer or producer shall be allowed to take CENVAT credit paid on any inputs used in the manufacture of intermediate products by a job-worker availing the benefit of exemption contained in the notification No. 214/86, dated 25th March, 1986 and received by the manufacturer for use in or in relation to the manufacture of final products. A manufacturer or producer himself cannot be a job worker. Here the mines are operated by the assessee itself. Therefore, in terms of the amended Rule 57AB also, the assessee cannot take CENVAT Credit for the explosives used for the blasting purposes in the mining area.

Issues Involved:
1. Whether explosives used in mines for blasting purposes qualify as "inputs" for CENVAT Credit under Rule 57AB of the Central Excise Rules.
2. Interpretation of the term "input" under Rule 57AA and its applicability in the context of CENVAT Credit.
3. Comparison between MODVAT and CENVAT schemes and their respective provisions.
4. Whether the mining area can be considered an extension of the factory premises for the purpose of availing CENVAT Credit.
5. The applicability of amended Rule 57AB and its retrospective effect.

Issue-wise Detailed Analysis:

1. Whether explosives used in mines for blasting purposes qualify as "inputs" for CENVAT Credit under Rule 57AB of the Central Excise Rules:
The main question to be considered is whether explosives used in the mines for blasting purposes can be held to be "inputs" so as to qualify for taking CENVAT Credit under Rule 57AB. The relevant part of Rule 57AB states that CENVAT Credit can be taken for inputs received in the factory. The court held that since the explosives were used in the mines and not within the factory premises, they do not qualify as "inputs" under Rule 57AB.

2. Interpretation of the term "input" under Rule 57AA and its applicability in the context of CENVAT Credit:
Rule 57AA defines "input" as all goods used in or in relation to the manufacture of final products within the factory of production. The court emphasized the importance of the phrase "within the factory of production," concluding that since the explosives were used outside the factory, they do not meet the definition of "input" under Rule 57AA, and thus, CENVAT Credit is not admissible.

3. Comparison between MODVAT and CENVAT schemes and their respective provisions:
The court noted that the definition of "input" under Rule 57AA of the CENVAT scheme is different from the definition under Rule 57A of the MODVAT scheme. Under MODVAT, there was no requirement for inputs to be used within the factory premises, as highlighted in the Jaypee Rewa Cement case. However, the CENVAT scheme explicitly requires inputs to be used within the factory, making the Jaypee Rewa Cement case inapplicable to the present case.

4. Whether the mining area can be considered an extension of the factory premises for the purpose of availing CENVAT Credit:
The court rejected the argument that the mining area could be considered an extension of the factory premises because it is connected by a ropeway. The definition of "factory" under Section 2(e) of the Central Excise Act, 1944, does not support this interpretation. The court held that the mine, being a separate entity where no manufacturing process is carried on, cannot be considered part of the factory.

5. The applicability of amended Rule 57AB and its retrospective effect:
The court addressed the submission that the amended Rule 57AB, which was given retrospective effect from 1-4-2000, should govern the situation. The amended Rule allows CENVAT Credit for inputs used in the manufacture of intermediate products by a job-worker. However, since the mines are operated by the assessee itself and not by a job-worker, the amended Rule does not benefit the assessee. Therefore, the assessee cannot take CENVAT Credit for the explosives used in the mining area.

Conclusion:
The appeals were allowed with costs, and the orders passed by the CEGAT and the Commissioner (Appeals) were set aside. The court concluded that the explosives used in the mines do not qualify as "inputs" under Rule 57AB and thus, CENVAT Credit is not admissible. The interpretation of "input" under Rule 57AA and the distinction between MODVAT and CENVAT schemes were key factors in the judgment.

← Previous Next →