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TMI Blog1993 (8) TMI 189X X X X Extracts X X X X X X X X Extracts X X X X ..... parts and I.C. Engines. These motor vehicle parts and I.C. Engines are partly utilised in the further manufacture of motor vehicles in the same factory and partly sent under Chapter X Procedure for further utilisation in the manufacture of motor vehicles in another unit belonging to the appellants, in terms of exemption Notice 217/86 dated 2-4-1986 as amended by Notification 97/89 dated 1-3-1989. 2.3 The appellants M/s. Swil Ltd. are manufacturers of copper wire, copper rods, copper sheets and strips, stainless steel wire and nickel wire. They receive inputs under the Modvat scheme for the manufacture of their products. Part of these products are cleared to another factory belonging to the appellants under Chapter X procedure in terms of Notification 217/86 for further manufacture of dutiable products. 2.4 In the case of both the appellants, Department took objection that the products cleared from their factory under Chapter X procedure in terms of Notification 217/86 are exempted and hence in terms of Rule 57C of the Central Excise Rules, Modvat Credit taken in respect of duty paid on inputs utilised in the manufacture of these products cleared outside to another unit of their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of duty on the final products manufactured in their other unit. 4. In the context of the above undisputed factual position, the arguments of S/Shri C.S. Lodha and B.N. Rangwani for the appellants and Shri Ravinder Jain s reply on behalf of the Department are required to be considered. 4.1 The main thrust of the arguments of the ld. Counsel Shri C.S. Lodha is as below: (i) The terms inputs, intermediate products, final products are dependent on the level of manufacture undertaken by the manufacturer. What is input for one factory may be a final product produced in another factory. What is intermediate product in one factory may be a final product or input in another factory. There is no definition given either in Notification 217/86 or in Rule 57A as to what is an input or final product. If excisable goods are received for further manufacture of excisable goods, they are referred to as inputs and products occurring at intermediate stage in the line of manufacture are intermediate products. (ii) Rule 57C stands attracted, where final product manufactured out of Modvat inputs is exempt from the whole of duty of excise leviable thereon or is chargeable to nil rate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xemption Notification 217/85 is applicable. The exemption wholly remits the duty of I.C. Engine parts on condition that they are used either in the factory of production or elsewhere in the manufacture of diesel oil operated I.C. engines. It is not conditionally dependent on whether such I.C. engines are to be cleared on payment of duty. Hence this Bench was justified in taking the view that the I.C. Engine parts are exempted thereby attracting Rule 57C of the Central Excise Rules. In the case of Notification 217/86, it is only postponement of recovery of duty to the final stage of clearance of motor vehicles in the other factory. Hence the case is distinguishable. (iv) Even in the above case of Kirloskar Oil Engines, this Bench has taken note of the position that the other Benches of the Tribunal and Delhi High Court have taken a view that reversal of credit taken for utilisation against dutiable final products is not permissible, merely because certain final products manufactured therefrom are cleared subsequently under exemption. They have held that since there is no one to one correlation and credit has been taken and utilised only against dutiable final products, reversal is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out that Notification 217/86 refers to exemption of products (referred to in this Notification as inputs ) used in further manufacture of final products either within the same factory or in another factory of the same assessee. The inputs and final products figuring in the schedule to Notification 217/86 are the same as the ones notified under Notification issued under Rule 57A. The main condition is that these products (inputs) have to be used in the final products, which are to be cleared on payment of duty. If the final products manufactured using Modvat inputs, are exempted or cleared at Nil rate of duty, the exemption will not be available and such inputs would attract duty. Hence the question of recovery of Modvat Credit on basic inputs used in manufacture of products, which themselves are referred to as inputs in Notification 217/86 would not arise, so long as the final products manufactured out of the inputs referred to in Notification 217/86 pay duty. 4.3 He also seeks to adopt the other arguments of the ld. Counsel Shri C.S. Lodha. 5.1 Shri Ravinder Jain, in reply mainly pleads as below : (i) Notification 217/86 is undisputedly an exemption Notification. Goods manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.2 Notification No. 217/86 grants exemption to products specified as inputs in Col. 2 of the schedule to this notification used in the further manufacture of final products specified in Col. 3 thereof within the factory of production. The benefit is also available if the inputs manufactured specified in Col. 2 of the Table, are removed under Chapter X procedure to another unit of the same assessee for further manufacture of final products specified in Col. 3. The inputs specified in Col. 2 and final products specified in Col. 3 of the Table annexed to the said notification are one and the same, as specified in the notification issued under Rule 57A of the Central Excise Rules. The exclusion clause, barring certain categories of inputs such as machinery, machines, packaging materials, whose value is not included, as is found in Rule 57A, is also noticed in this notification. Hence from this notification, it appears that where inputs notified under Rule 57A are manufactured in a factory and utilised captively in the manufacture of notified final products under Rule 57A, such inputs can be cleared from the place of manufacture for further use in the manufacture of final products wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utilise the same for payment of duty on Motor vehicles or wire mesh as the case may be. No objection can be taken on this, as agreed to by the ld. JDR. Thus, by sending the same inputs under Chapter X procedure in terms of Notification 217/86 they cannot be visualised as having agreed to forego this credit on basic input materials, nor can the Notification 217/86 or Rule 57C be construed to force such a situation on them. This is evident from the scheme of Modvat and also from Notification 217/86 as discussed below. 7.2 Under the Modvat scheme, credit of duty paid on notified inputs is to be given for payment of duty on the notified final products, if such inputs are used in or in relation to the manufacture of final products and such inputs are not hit by explanation to Rule 57A. This same concept is clearly discernible in Notification 217/86. This notification is mainly intended to avert payment of duty at each intermediate stage and take credit of such duty at each subsequent stage, starting from the basic materials, turning out components and finally ending with the ultimate final product. Such a vertical integration of production line can be in one and the same factory or sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the absence of any such exception being provided in the case of Notification 217/86, such products cleared under Chapter X procedure for further manufacture of final products in terms of the above Notification 217/86, are only to be construed as goods exempted, thereby attracting Rule 57C. We have carefully considered this argument. But we find that in the case of exemption for goods removed to 100% EOU, such products are totally exempted and even the final export products turned out from these items in the 100% EOU are not to suffer any duty. Hence in that case, the Government, as a policy measure for freeing the export products from the burden of any input levy, have to specifically provide for an exception in Rule 57C. But in the case of Notification 217/86, the final products manufactured out of inputs are required to suffer duty and hence the chain of credit is extended upto the stage of final product, which is to be cleared on payment of duty. This is what emerges from a combined reading of Notification 217/86 and Rule 57C. 7.5 It is pleaded by Shri Jain, the ld. JDR that Rules are to be construed as they are worded and it is not permissible to impart objective or inten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to discrimination between vertically integrated production line and laterally disintegrated production amongst different units. 7.7 For taking the above view, we also draw support from the citations made by the ld. Advocate Shri C.S. Lodha, namely, AIR 1992 SC 1846 and AIR 1986 SC 1499. In the words of Lord Denning (relied upon by the Apex Court) - "whenever a statute comes up for consideration it must be remembered that it is not within human powers to foresee the manifold sets of facts, which may arise and even if it were, it is not possible to provide for them free from all ambiguity. A Judge cannot simply fold his hands and blame the draftsman. He must set to work on the constructive task of finding the intention of parliament and he must do this, not only from the language of the statute, but also from a construction of social conditions, which gave rise to it and of the mischief, which it was passed to remedy and then he must supplement the written word so as to give force and life to the intention of the legislature. A Judge should ask himself the question, how, if the makers of the Act had themselves come across the ruck in the context of it, they would have straightene ..... X X X X Extracts X X X X X X X X Extracts X X X X
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