2015 (11) TMI 1413 - SC - Central Excise

Manufacture - dutiability of the intermediary product Clinker - captive consumption - whether the product Clinker is covered by the Exemption Notification No. 67/1995 - Held that - Clinker is used as input for production of Cement and Cement is exempted from the excise duty. Therefore by virtue of this proviso insofar as Clinker is concerned Exemption Notification would not apply. However the matter does not end here inasmuch as the proviso itself is not applicable under certain circumstances as mentioned therein viz. in respect of those goods which are cleared under six circumstances. We are concerned here with clause (vi) which states that if goods are cleared by a manufacturer of dutiable and exempted final products after discharging the obligation prescribed in Rule 6 of the CENVAT Credit Rules 2001 then proviso would not apply. The case set up by the appellant therefore was that since the exempted goods ( Cement ) is cleared by the appellant who is a manufacturer of (a) dutiable final products ( Clinker ) and (b) exempted final products ( Cement ) after discharging the obligation prescribed in Rule 6 of the CENVAT Credit Rules 2001 clause (vi) of the notification applies. Applicability of Rule 6 of Cenvat Credit Rules - Held that - As per the CESTAT Rule 6 applies only if some final product is partly exempt and partly dutiable. However we do not find any such restriction in Rule 6 which contemplates the situation where a manufacturer produces (a) final products which are chargeable to duty as well as (b) exempted goods. The Rule does not provide that the same final product should be partly dutiable and partly exempted. On the contrary this Rule relates to taking of CENVAT Credit in respect of inputs . Reversal of Cenvat Credit - Rule 6 is not applicable as such in its totality since taking of CENVAT credit is not in issue in these cases. On the other hand relevance of this Rule is only to the extent of obligation contained in the said Rule which is to be discharged. A plain reading of clause (vi) of the notification would show that it only contemplates a situation where a manufacturer manufactures both dutiable as well as exempt final products . There may be different final products manufactured by the same manufacturer. The final products may be made out of the same product or out of different products. Clause (vi) does not contemplate that the manufacturer should manufacture only one final product or that if he manufactures only one product that product itself should be both dutiable and exempted. The basis adopted by the CESTAT that the same final product should be partly dutiable and partly exempt is neither a requirement of clause (vi) nor a requirement of Rule 6. - Impugned order is set aside - Decided in favour of assessee.

Summary

Issues:
Interpretation of Exemption Notification No. 67/95 regarding dutiability of intermediary product 'Clinker' used in the production of 'Cement'.

Analysis:
The case involves the interpretation of Exemption Notification No. 67/95 in relation to the dutiability of the intermediary product 'Clinker' utilized in the production of 'Cement'. The appellant argues that 'Clinker' is not dutiable as per Rule 4 and 8 of the Central Excise Rules when used within the factory for manufacturing 'Cement'. Alternatively, they claim that even if 'Clinker' is considered dutiable, it is exempted under the said Exemption Notification. The appellant, a cement manufacturer, produces both 'Clinker' and 'Cement', which are dutiable products under Chapter 25 of the Central Excise Tariff Act, 1985. 'Cement' is exempt from duty under a specific Exemption Notification, while 'Clinker' is cleared from the factory as a final product and is dutiable.

The Exemption Notification No. 67/95 exempts capital goods and inputs used within the factory of production, subject to certain conditions. The notification excludes inputs used in the manufacture of exempted final products, unless cleared under specific circumstances. The crux of the issue lies in whether the appellant, as a manufacturer of both dutiable ('Clinker') and exempted ('Cement') final products, has fulfilled the obligations under Rule 6 of the CENVAT Credit Rules, 2001. The appellant contends that since they have discharged the obligations under Rule 6, the exemption under clause (vi) of the notification should apply to 'Clinker' used in the manufacture of 'Cement'.

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) disallowed the exemption claimed by the appellant, citing that Rule 6 applies only if a final product is partly exempt and partly dutiable. However, the Supreme Court found no such restriction in Rule 6, emphasizing that the rule pertains to the taking of CENVAT Credit for inputs. The Court clarified that the obligation under Rule 6 should be fulfilled, and clause (vi) of the notification applies when a manufacturer produces both dutiable and exempt final products, irrespective of whether they are the same final product or different products.

In conclusion, the Supreme Court held that the decision of the CESTAT was erroneous and set it aside, allowing the appeals and quashing the CESTAT's order. The Court found that the appellant had fulfilled the obligations under Rule 6, making them eligible for the exemption under clause (vi) of the Exemption Notification No. 67/95 for the intermediary product 'Clinker' used in the production of 'Cement'.