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TMI Blog2007 (1) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... les and notification relevant for our purposes. So far as the sulphuric acid is concerned as an end product it is chargeable to Duty under tariff head 28. The rate of duty provided under the Tariff Act is 16% ad valorem. There is no exemption as such to the manufacture from the payment of duty on manufacture of sulphuric acid when removed. 3. Under general exemption No. 66 issued under Sub-Section (1) of Section 5A of the Central Excise Act, 1944, by the Central Government the relevant provision reads as under :- "Exemption and effective rates of basic excise duty for specified goods of Chapters 9 to 96. - In exercise of the powers conferred by sub-section (1) of Section 5A of the Central Excise Act, 1944 (1 of 1944), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts excisable goods of the description specified in column (3) of the Table below or specified in column (3) of the said Table read with the concerned List appended hereto, as the case may be, and falling within the Chapter, heading No. Or sub-heading No. of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) (hereinafter referred to as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duct which is exempt from the whole of the duty of excise leviable there on or is chargeable to nil rate of duty and the manufacturer takes credit of the specified duty on any inputs (other than inputs used as fuel) which is used or ordinarily used in or in relation to the manufacture of both the aforesaid categories of final products whether directly or indirectly and whether contained in the said final products or not, the manufacturer shall, unless the provisions of sub-rule (9) are complied with, pay an amount equal to eight per cent of the price (excluding sales tax and other taxes, if any, payable on such goods) of the second category of final products charged by the manufacturer for the sale of such goods at the time of their clearance from the factory. (2) The amount mentioned in sub-rule (1) shall be paid by the manufacturer by adjustment in the credit account maintained under sub-Rule (7) of Rule 57G or in the accounts maintained under Rule 9 or sub-Rule 173G and if such adjustment is not possible for any reason, the amount shall be paid in cash by the manufacturer availing of credit under Rule 57A. (3) The provisions of sub-rule (1) shall not apply to final products ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner was prohibited from releasing the said gas. It has, therefore, set up a sulphuric acid plant in the said smelter. In the said plant sulphuric dioxide is used for the product of sulphuric acid as an input. The sulphuric acid is manufactured in separate. 6. From the smelter where the sulphuric dioxide is produced as a bye product of the activity of the smelter plant is passed on to sulphuric acid plant and thereafter the sulphuric acid is produced by the chemical process in the acid plant. In other words, the sulphuric acid is not product of the same plant where the zinc and lead are being manufactured. 7. The question relates to availing of Modvat credit in respect of Duties paid on the inputs used in smelter. 8. So far as the product of smelter is concerned, there is no dispute that the same are chargeable to duty and inputs used therein are eligible for availing Modvat credit. 9. With reference to condition No. 5 subject to which the sulphuric acid has been subjected to nil date of duty refers to Central Excise Removal of Goods at Concessional Rate of Duty for Manufacture of Excess Goods Rules, 2001. A perusal of the Rules of 2001 clearly indicates that these e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubject goods and Y is utilising the goods manufactured by X then Y is entitled to receive goods from X on payment of duty at concessional rate with a liability to make good the concession availed by him in case he does not utilise the subject goods for the purpose of which concession is availed by him. There is no concession in envisaged for manufacturer X in respect of such goods manufactured by him. 12 . In the backdrop of aforesaid provisions the Revenue contends that to the extent sulphuric acid is ultimately cleared by the petitioner to the manufacturer of fertilizers on payment of nil duty in terms of Exemption No. 66, on receipt of application counter signed by the competent authority in terms of Rule 2001, the petitioner is engaged in manufacture of goods which are partly liable to excise duty and partly liable to nil rate of duty on removal from factory of the petitioner to the factory of fertilizers producer. Therefore, in terms of Rule 57CC Sub-Rule (9) he is required to maintain a separate account of using of inputs used in relation to manufacture of sulphuric acid cleared to fertilizers manufacturers and inputs used in other products which are chargeable to duty and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e inputs in his factory. The condition to be fulfilled for availing the Modvat credit, which governs his case, is to be on the date on which the inputs are received by the manufacturer and not at the time when the goods leaves the factory. Once on the date of receipt, if on existing material, the manufacturer is entitled to avail the same on the very same day, his right to avail Modvat credit on such date is not effected by happening of contingency in future, on which results in applicability of nil rate of Duty. Therefore, he contends that as on the date the petitioner had received inputs, he was engaged in the manufacture of zinc lead and sulphuric acid. This is without prejudice to first contention. As on the date when all the three types the goods were chargeable to duty and no exemption was available to the manufacturer as such on the commodity manufactured by him nor the duty was chargeable at that time at the nil rate. The chargeability to Duty also remain unaffected when goods are manufactured and sold or removed from factory in ordinary course. It is only in case sulphuric acid is sold to a manufacturer of fertilizer and the goods are received by such manufacturer on submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e manufacturer is en titled to avail credit of duties paid on inputs in terms of the scheme laid down in Rules that followed the Rule 57A. Rule 57B is not relevant for the present purpose. 17. Rule 57C prohibited the availing of credit of specified duty, on such quantity of inputs which are used in the manufacture of final products which are exempted from the whole of the duty of excisable or chargeable on Nil rate of duty. Sub-Rule (2) of Rule 57C inter alia provided that where a manufacturer avails the credit of specified duty on any inputs and he is engaged in manufacture of any final product which is chargeable to duty as well as in the manufacture of any other final product which is exempt from the whole of duty of the excise levied thereon or is chargeable to the nil rate of duty, in the same factory, the provisions of sub-rule (1) shall be deemed to be satisfied only when the provisions of sub-rule (1) or sub-rule (5) or sub-rule (9) of Rule 57CC are complied with, or where goods are exported under bond in terms of the provisions of Rule 13. Rule 57C does not apply to the inputs used as fuel. 18. It may be noticed that Rule 57C was applicable to end product exempte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity to duty on the final product being exempted from whole of the duty or excise leviable thereon or chargeable at the nil rate of duty have nexus with the date on which the manufacturer is entitled to avail credit of duties paid on such inputs used by him in the manufacture of his product. Such date is date of receipt of inputs in the factory. 22. Rule 57G lays down the procedure for availing the Modvat credit. It provides that a manufacturer, who intends to take credit of the duty paid on inputs under Rule 57A or 57B shall file a declaration with the Assistant Commissioner of Central Excise having jurisdiction over his factory, indicating the description of the final products manufactured in his factory and the inputs intended to be used in the said final products and such other information as the said Assistant Commissioner may require, and obtain a dated acknowledgment of the said declaration. Sub-Rule (2) of Rule 57G reads as under :- "(2) A manufacturer who has filed a declaration under sub-rule (1) may, after obtaining the acknowledgment aforesaid, take credit of the duty on the inputs received by him." 23. Sub-Rule (3) further envisages that no credit under sub-ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct on receipt of the dated of acknowledgment of his declaration, the reasonable inference is that whether the end product in or in relation to which inputs are used is exempted from the whole of the duty or is liable to Nil rate of duty, is to be considered in the light of prevailing provisions on the date of receipt of the in puts in the factory and not with reference to any other date. 27. It appears that the combined effect of Sub-Rule (9), sub-Rule (1) of Rule 57CC and the substantive scheme of availing Modvat credit in respect of inputs, the decisive date for the assessee's entitlement to Modvat credit is not postponed to the date of clearance. The operation of Rule 57CC is also to be seen as on the date the manufacturer becomes entitled to avail Modvat credit. It is with reference to said date his obligation to maintain separate inventory about the use of inputs by him can be operated so as to disentitle the manufacturer from availing Modvat credit at all in respect of final product/goods manufactured by him which is exempt from whole Duty or is chargeable to nil rate of duty or is not chargeable to duty at all. Rule 57CC does not speak of adjustment of any duty which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for. We are here really concerned with credit that has been validly taken, and its benefit is available to the manufacturer without any limitation in time or otherwise unless the manufacturer itself chooses not to use the raw material in its excisable product. The credit is, therefore, indefeasible. It should also be noted that there is no correlation of the raw material and the final product; that is to say, it is not as if credit can be taken only on a final product that is manufactured out of the particular raw material to which the credit is related. The credit may be taken against the excise duty on a final product manufactured on the very day that is becomes available." 30. The aforesaid decision fortifies us in our conclusion and makes it clear beyond doubt that a manufacturer obtains credit of the excise duty paid on inputs to be used by him in production of excisable product on receipt of such inputs by him and once it becomes entitled to avail the Modvat credit, and avails, it cannot be defeated unless otherwise provided by law. 31. As on the date the inputs in question were received by the manufacturer and is commodity in the manufacture of which he was engaged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the existence of condition of exemption of end product from duty or its liability to nil rate of duty must also exist on the date inputs be came available for availing Modvat credit. 33. It can be seen from yet another angle. In case inputs are received in factory and used in manufacture of end product. But the end product is destroyed by fire before stage of its removal from factory premise. In such circum stances, no excise duty becomes payable on end product. Yet Modvat credit availed on inputs used in destroyed goods is not to be recalled. This is also suggestive of the fact the relevant date for considering exemption from duty of the end product in or in relation to which inputs are used is the date of its receipt in factory and condition is its actual use in or in relation to manufacture of end product by the manufacturer. The chargeability to duty or non-chargeability due to exemption or notified nil rate is to be considered at the stage before goods are actually produced but on receipt of inputs intended to be used in manufacture of such goods. That being so ultimate clearance of goods at nil rate due to contingency existing at the time of removal does not affect the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the duty of excise leviable thereon or is chargeable to nil rate of duty. The respondent is making tyres and according to the Department, these are liable for excise duty. But certain types of tyres have been exempted from excise duty by a notification. But at the time when the credit was given regarding the inputs, it was not known that these products were exempted from duty. Under Rule 57C(1) of the Central Excise Rules, every manufacturer intending to take credit of the duty paid on inputs shall file a declaration with the Assistant Commissioner of Central Excise having jurisdiction over his factory, indicating the description of the final products manufactured in his factory and the inputs intended to be used in the said final product sand such other information as the said Assistant Commissioner may require, and obtain a dated acknowledgement of the said declaration. Thus, Rule 57C of the Central Excise Rules mandates that no credit of duty paid on the inputs used in the manufacture of final product shall be given if the final product is fully exempt from duty or is chargeable to nil rate of duty. Utilisation of the credit comes after allowing a credit of duty paid on the in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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