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TMI Blog2008 (8) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... le or not, when the amount equivalent to the Cenvat credit attributable to the inputs used in, or in relation to, the manufacture of the exempted final products has been paid prior to the removal of the exempted final product from the factory?" 2. Heard both sides and perused the records. 3. Shri V. Sriddharan ld. Advocate appearing with Shri Gajendra Jain, Advocate and Shri S.S. Gupta C.A. for the appellant submit that the question which is referred in this case is whether the provisions of Rule 6(3)(b) of the Cenvat Credit Rules, 2002 will come into force, despite the fact that assessee has reversed the Cenvat credit attributable on the inputs used in the manufacture of exempted final products. It is the submission that the question involved in this case is regarding the Cenvat credit availed by the assessee on the common inputs which are used for dutiable and exempted products. The ld. Counsel draws our attention to the provisions of Rule 6 of the Cenvat Credit Rules, 2002. It is his submission that Rule 6(1) disentitles the assessee to take credit on the inputs used for exempted products except in the circumstances mentioned in sub-rule (2). It is his submission that co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 008 TIOL-59-CESTAT-MAD] after the recall of earlier order. He also takes us through the judgment of the Hon'ble Supreme Court in the case of Chandrapur Magnet Wires Pvt. Ltd. (supra), and submits that the Hon'ble Supreme Court in that case was considering more stringent provisions of exemption notification and still came to the conclusion, that reversal of the credit availed on inputs which are consumed for the manufacture of exempted goods is good enough to hold that credit is not availed on inputs so as to satisfy conditions of notifications. It is his submission that the law as settled by the Hon'ble Supreme Court in the case of Chandrapur Magnet Wires Pvt. Ltd . has been followed by a series of judgments of the Tribunal in identical situations. It is the submission that contrary judgment of the Tribunal in the case of Commissioner of C.Ex. Jaipur-II v. Maa Kamakhya Marbles (P) Ltd . [2004 (170) E.L.T. 580 (Tri.-Del.)] and National Information Technologies Ltd. v. C.C.E., Bhopal [2005 (179) E.L.T. 404 (Tri.-Del.) were delivered in the absence of reference to the decision in the case of Chandrapur Magnet Wires Pvt. Ltd, as it was not produced before the Bench. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cenvat credit of the duty paid on common inputs, which are used for dutiable and exempted goods, he does not have an option to reverse the credit availed on the quantity of common inputs used in the manufacture of exempted goods and is perforce required to reverse 8% or 10% of the value of the exempted goods and is cleared, subject to the deductions allowed. It is his submission that benevolent legislation should be construed in a strict manner. It is his further submission at interpretation of a statute that will make other part of the law otiose, should avoided. It is his submission that if Rule 6(3)(a) has been carved out by the legislature for specific entries, and mandate that plain reversal of credit in those exceptions are enough, that would indicate that there was an exception. If the assessee does not fall within the exception carved out in Rule 6(3)(a), he cannot allowed to reverse the credit availed on the common inputs, which are used in exempted products but has to perforce abide by the provisions of Rule 6(3)(b) are Cenvat Credit Rules. For this proposition, he relies upon Apex Court's decision in the case of Hind Plastics v. Collector of Customs, Bombay [1994 (7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of Rule 57CC are incorporated as the calculation of the duty of the credit taken on common inputs used in the exempted product is cumber some and takes time, and in the absence of any input or output co-relation, it is difficult to determine whether the reversal of credit has been correct or not. It is his submission that if the calculation which is available is correct and can be re lied upon, provisions of Rule 6(3)(b) need not be pressed into service. It is his submission that the language of the provisions of Rule 6(3)(b) is plain but the effect of the same is disproportionate, that is to say for availing credit of Rs. 100/- on the common input, if an assessee is required to reverse 8% or 10% of the value of the exempted goods which would, hypothetical be Rs. 1,000/-, it would defeat the entire purpose. It is his submission that the provisions of Rule 6(1) do not militate against Rule 6(2) or Rule 6(3). He submits that the decision of the Hon'ble Supreme Court in the case of Chandrapur Magnet Wires Pvt. Ltd. was delivered in a more difficult situation, wherein exemption notification very specifically included bar of non- availment of credit on the inputs, but despite that, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods and take CENVAT credit only on that quantity of inputs which is intended for use in the manufacture of dutiable goods. (3) The manufacturer, opting not to maintain separate accounts shall follow either of the following conditions, as applicable to him, namely:- (a) If the exempted goods are- (i) goods falling within heading No. 22.04 of the First Schedule to the Tariff Act; (ii) Low Sulphur Heavy Stock (LSHS) falling within Chapter 27 of the said First Schedule used in the generation of electricity; (iii) Naphtha (RN) falling within Chapter 27 of the said First Schedule used in the manufacture of fertilizer; (iv) Tyres of a kind used on animal drawn vehicles or handcarts and their tubes, falling within Chapter 40 of the said First Schedule; (v) Newsprint, in rolls or sheets, falling within heading No. 48.01 of the said First Schedule; (vi) Final products falling within Chapters 50 to 63 of the said First Schedule, the manufacturer shall pay an amount equivalent to the CENVAT credit attributable to inputs used in, or in relation to, the manufacture of such final products at the time of their clearance from the factory; or (b) if the exempted goods are othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Cenvat credit in respect of common inputs, then he is required to maintain separate accounts. The provisions of rule 6(3)(a) and (b) further indicate how the manufacturer has to follow the procedure if he is not maintaining separate accounts. We are more concerned with the provisions of Rule 6(3)(b). On plain reading it would indicate that manufacturer who has availed Cenvat credit on common inputs does not have any other option but to pay 8% or 10% of the total price of exempted final products, subject to exclusions as envisaged. We find that these provisions are pari materia to the provisions of Rule 57CC of the Central Excise Rules, 1944 which reads as under: "RULE 57CC. Adjustment of credit on inputs used in exempted final products or maintenance of separate inventory and accounts of inputs by the manufacturer. - (1) Where a manufacturer is engaged in the manufacture of any final product which is chargeable to duty as well as in any other final product which is exempt from the whole of the duty of excise leviable therein 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom any other premises shall be deemed to be the price for the purpose of sub-rule (1). (9) In respect of inputs (other than inputs used as fuel), which are used in or in relation to the manufacture of any goods, which are exempt from the whole of the duty of excise leviable thereon or chargeable to nil rate of duty, the manufacturer shall maintain separate inventory and accounts of the receipt and use of inputs for the aforesaid purpose and shall not take credit of the specified duty paid on such inputs". It can be noticed from the above reproduced Rule 57CC of the Central Excise Rules, 1944, and more specifically sub-rule (1), that the obligation cast upon the manufacturer in the current Rule 6(3)(b) is pari materia unless the provisions of sub-rule (9) are complied with. Combined reading of Rule 57CC(1) and 57CC(9) would indicate, that Rule 6(3)(b) has been carved out of a combination of the said sub-rule of Rule 57CC of Central Excise Rules, 1944. We find that the provisions of Rule 57CC as regards the reversal of the credit on the inputs were considered by the Tribunal in the case of Life Long Appliances Ltd. (supra). The Tribunal came to the following conclusion at paragr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned order, therefore, is not liable to be interfered with at the instance of the Revenue. The appeal fails and stands dismissed. No costs". (Emphasis supplied) Further, we notice that the Hon'ble Supreme Court in the case of Chandrapur Magnet Wires Pvt. Ltd. was considering the provisions of exemption Notification No. 106/88 dt. 1-3-88 wherein the final products were exempted from payment of the whole of the duty subject to the condition that final products were manufactured from copper wire bars and also subject to the stipulation that "(b) No credit of the duty paid on goods (a)(ii) above, used in their manufacture, has been taken under Rule 57A of the said Rules". Hon'ble Supreme Court clearly noted that there is no dispute that the inputs which were utilized in the manufacture of copper wires were duty paid and the appellants therein had availed the credit in the ledger maintained under the Excise Rules. It is also noted by the Apex court that assessee had not maintained separate accounts or segregated the inputs utilized for manufacturing of dutiable and duty free goods as should have been done. Despite this, the Hon'ble Supreme Court came to the conclusion that the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld apply and accordingly the grey fabrics would attract nil rate of duty". It is to be noticed that in the case of Bombay Dyeing Manufacturing, the Revenue was in appeal against the decision of the Tribunal in holding that the reversal of input used in the exempted products would amount to non-availment of the Credit. 8. We find that the provisions of Rule 57AD of Central Excise Rules,1944, are pari materia with erstwhile Rule 57CC of Central Excise Rules, 1944 and are also pari materia with Rule 6 of Cenvat Credit Rules, 2002. The said rule is reproduced verbatim. "57AD. Obligation of manufacturer of dutiable and exempted goods. -(1) CENVAT credit shall not be allowed on such quantity of inputs which is used in the manufacture of exempted goods, except in the circumstances mentioned in sub-rule (2). (2) Where a manufacturer avails of CENVAT credit in respect of any inputs, except inputs intended to be used as fuel, and manufactures such final products which are chargeable to duty as well as exempted goods, then, the manufacturer shall maintain separate accounts for receipt, consumption and inventory of inputs meant for use in the manufacture of dutiable final products ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Finance (Department of Revenue) No. 108/95-Central Excises, dated 28th August, 1995; or (v) cleared for export under bond in terms of the provisions of rule 13". In the case of Concept Pharmaceuticals Ltd. v. CCE, Aurangabad [2006 (76) RLT 304 (CESTAT-Mum.)], Tribunal held as under:- "The Learned Advocate Shri Thawani for the appellant pleaded that the Central Board of Excise and Customs have issued a Circular No.232/66/96/EX. Dated 25-7-1996 [ reported in 1996 (15) RLT M159] wherein the Board had clarified that credit of the duty paid on the common input is admissible when used in the manufacture of the final product once the said credit on duty paid inputs going into the exempted category of the final product is debited in the RG 23A Part-II account before the removal of the exempted final product on actual or pro rata basis. Reliance was also placed on the CESTAT decision in the case of Rochees Watches Ltd ., [2003 (54) RLT 761 (CEGAT-Del.)] 2003 (152) ELT 420 wherein it was held that once the credit taken by the appellant on the inputs used in the manufacture of the exempted wrist watches reversed by them before clearances-Demand in terms of Rule 57AD(2)(b) of ers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Cestat was, therefore, justified in observing that the appellant's case is fully covered by the Board's circular referred above. In fact, a copy of the circular is made available by Advocate Shri S.P. Deshmukh for our ready reference and para 3 of it reads thus: "Keeping in view of the decision of the Hon'ble Supreme Court in the case of M/s. Chandrapur Magnet Wires Pvt. Ltd. v. C.C.E., Nagpur (Civil Appeal No. 7275 of 1995, dated 12-12-1995), it has been decided by the Board that credit of the duty paid on common inputs is admissible when used in the manufacture of the final product (exempted and dutiable) provided the said credit of duty paid on inputs going into the exempted category of the final product is debited in the RG 23A -Part II account before the removal of exempted final product on actual orpro rata (estimated) basis. " We are unable to find any fault with the observations of learned Members of CESTAT for which they were inclined to allow the appeal of the assessee. No substantial question of law arises now for our consideration. The appeal of the department is therefore, summarily dismissed". 9. It can be noticed from the above reproduced judgments of the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the total price of the exempted products, subject to exclusion as envisaged. Having categorically so observed, it would have automatically flowed that the provisions of Rule 6(3)(b) ibid are applicable when the amount equivalent to the Cenvat Credit attributable to the common inputs used in, or in relation to, the manufacture of exempted final products has been paid prior to the removal of exempted final products from the factory. The Hon'ble Supreme Court in the case of Commissioner of Central Excise, Chandigarh-II v. Bhalla Enterprises reported in 2004 (173) E.L.T. 225 (S.C.) has held that the principle of strict/liberal interpretation applies only in case of ambiguity, otherwise plain words of the statute must be given effect. The Hon'ble Supreme Court in the case of Commissioner of Wealth Tax v. Hashmatunissa Begum reported in 1989 (40) E.L.T. 239 (S.C.) has held that the stat ute is not to be read in another way where the words are readable only in a particular way. It has been further held therein that one of the pillars of statutory interpretation viz., the literal rule, demands that if the meaning of the statutory interpretation is plain and the courts must apply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ratio of the Supreme Court judgment in Chandrapur Magnet case is to the effect that if it is permissible to reverse the Modvat credit taken, then on reversal of the credit taken, the benefit of the exemption Notification is to be allowed. However, we find that the reversal of credit is not allowed by Rule 6 of the Cenvat Credit Rules, 2002, which only provides for payment of amount under sub-rule (3)(a) or (3)(b) of Rule 6 ibid, as the case may be. If the final exempted product manufactured is not covered by sub-rule (3)(a) of Rule 6 ibid, it will be covered by sub-rule (3)(b) of Rule 6 ibid and the manufacturer is required to pay 8% or 10% of the sale price of the final exempted product. The facility of reversing the credit taken is neither explicitly given nor necessarily implied in the Cenvat Credit Rules, 2002. The Central Board of Excise and Customs, the Apex body of the Government, which administers the Customs and Central Excise Laws, in its Circular No. 739/55/2003-CX dated 28-8-2003, has observed that "as per Rule 6(1), CENVAT credit shall not be allowed on inputs used in the manufacture of exempted goods and it does not pertain to reversal of input credit. If the conditio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rule 57CC of the Central Excise Rules, 1944. 8% amount was being paid in consideration of taking of Modvat credit on the entire quantity of common inputs procured. It was held that the payment of amount @8% under Rule 57CC is equivalent to the reversal of credit on inputs. Therefore, it was held that the assessee had satisfied the requirement of not taking the Modvat credit on the inputs used in the manufacture of exempted goods. 18. As most of the Courts/Tribunals have applied the ratio of the decision of the Hon'ble Supreme Court in the case of Chandrapur Magnet, it will be worthwhile to ascertain the true ratio of that decision, as what is 'law in precedent' is its ruling or ratio decidendi, which concerns future litigants as well as those involved in the instant dispute. Knowing the law in this context means knowing how to extract the ration decidendifrom cases. Statements not part of the ration decidendi are distinguished as obiter dicta and are not authoritative. Three shades of meaning can be attached to the expression 'ratio decidendi, The first, which is translation of it. is 'the reason for (or of) deciding.' Even a finding of fact may in this sense be the ratio deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally identified documents. In re Norway's Application (No. 2) [1990] 1 AC 723 raised almost a similar issue. A Norwegian court issued a letter of request to the High Court for the examination of two witnesses in England. The Court of Appeal held that there was 'power to make the order sought under s. 1 of Evidence (Proceedings in Other jurisdictions Act 1975 (UK), but that no such order should be made, because the request was "fishing" (In re State of Norway's Application (No. 1) [1987] QB 433. A second letter of request was issued setting out the specific questions that the witnesses were to be asked if an order for their examination was made. The orders sought were made. On appeal the witnesses sought to argue that on the proper construction of s. 1 there was no jurisdiction to make the order contrary to the ruling in In re Norway's Application (No. 1). The Court of Appeal held that this g was not part of the ratio of the case (ruling in In re: Norway's Application (No. 2). reason given was that statements of the Court of Appeal in the earlier case were not necessary for the decision of the Court. That is, the result of the ease would have been the same had the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, direct and inferential. An inferential finding of a facts in the inference which the Judge draws from the direct or perceptible fads; (ii) Statements of the principles of law applicable to the legal problems disclosed by the facts; and (iii) judgment based on the combined effect of (i) and (ii) above. For the purpose of the parties themselves and their privies, ingredient No. (iii) is the material element in the decision for it determines finally their rights and liabilities in relation to the subject matter of the action. It is the judgment that estops the parties from reopening the dispute. However, for the purposes of the doctrine of precedents ingredient No. (ii) is the vital element in the decision. This indeed is the ratio decidendi. It is not every thing said by a Judge when giving judgment that constitutes a precedent. The only thing in a Judge's decision binding a party is the principle upon which the case is decided and for this reason it is important to analyse a decision and isolate from it the ratio decidendi." The aforesaid observations have been accepted by a full bench of this court in the case of Ahmedabad Mfg. and Calico Printing Company Ltd. v. Union ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to accept the contention advance on behalf of the petitioner that no crane was assembled at the Adityapur Unit of the petitioner. After they had been assembled at Adityapur unit, they were removed to the petitioner's site. That could have been done only in knocked down condition. 14. Learned counsel for the petitioner placed reliance on a decision of the Supreme Court in Ram Singh and Sons Engineering Works v. Commissioner of Sales Tax. U.P. [1973] 43 STC 195 to establish that the erection of a crane is not complete until it is affixed to a gantry. Special reliance was placed upon the observations at page 202 where it was stated as Follows: "The 3-motion electrical overhead travelling crane comes into existence as a unit only when the component parts are fixed in position and erected at the side, but at that stage it becomes the property of the customer because it is permanently embedded in the land belonging to the customer. The result is that as soon as 3-motion electrical overhead travelling crane comes into being, it is the property of the customer and there is, therefore, no transfer of property in it by the manufacturer to the customer as a chattel. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the transaction is no different than one for fabrication and erection of an open godown or shed with asbestos or tin sheets fixed on columns. Their Lordships laid down that there could be no doubt that the contract was a contract for work and labour and not a contract for sale. That was the ratio of that case. Their Lordships were not deciding what is crane and what is not so. Their Lordships were not deciding whether a crane is a crane or not until it is put on a gantry. A decision is only an authority for what it actually decides and not the logical extensions therefrom. In the Regional Manager and Another v. Pawan Kumar Dubey , AIR 1976 S.C. 1766 it was laid down that ratio decidendi is the rule deducible from the application of law to the facts and circumstances of a case and not some conclusion based upon facts which may appear to be similar. So also in C.I.T. Bihar, Patna v. Sheo Kumari Devi, 1986 BLJR 825. It is not necessary to multiply decisions on this aspect of the matter. I am clearly of the view that the case of Ram Sing and Sons (supra) does not lay down that a crane is not a crane until it is affixed to a gantry. Reliance placed by Mr. Chatterji for the peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roducts. Since the copper wires manufactured by the appellants had become duty free, there was no question of any adjustment of the credit amount against the duty payable on these copper wires. Moreover, Rule 57C specifically provides that credit of duty cannot be allowed if final products were exempt from payment of excise duty. Faced with this situation, the appellants reversed the credit entries of duty paid on inputs which were utilised for manufacture of the duty free copper wires. 5. The case of the Excise Department is that the reversal of credit entries are not permitted by the rules. The assessee is not entitled to remove the copper wires without payment of duty since credit of the duty paid on the inputs used in the manufacture of copper wire had already been taken in accordance with Rule 57A. Once appropriate entries have been made in the register, there is no rule under which the process could be reversed. Since the credit has been taken for the duty paid on the inputs in the ledger maintained by the assessees, the assessee cannot be heard to say that no credit of the duty has been taken by it under Rule 57A. 6. It is true that the assessee has not maintained separa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee has taken credit for duty paid on the inputs utilised in the manufacture of the final exempted product under Rule 57A. In other words, the claim for exemption of duly on the disputed goods cannot be denied on the plea that the assessee has taken credit of the duty paid on the inputs used in manufacture of these goods." 21. The relevant facts are that - (i) The issue before the Apex Court was availability of benefit of exemption Notification 69/86-C.E., dated 10-2-1986 as amended wherein one of the conditions was that no credit of duty paid on inputs was taken under Rule 57A of the erstwhile Tariff. (ii) The assessee had not maintained separate account for inputs utilized in dutiable and exempted goods. (iii) There was a circular of the Department clarifying that if it was not possible to segregate the inputs for manufacture of dutiable and exempted goods (under a Notification), then the manufacturer may be allowed to take the credit on the inputs but he should reverse the credit before the removal of the exempted product. The decision of the Apex Court in Para 7 of the Order is very clear. The Hon'ble Court takes into consideration the said circular an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) reverse the credit attributable (to be worked out in a manner prescribed in the rule) to the inputs and input services used in the manufacture of exempted goods; or (ii) pay 10% amount of the value (to be determined in accordance with the provisions of Section 4/4A of the Central Excise Act, 1944) of the exempted goods. There is no provision for giving retrospective effect to this amendment. It cannot be given, as the amount of reversal of credit has to be worked out in a manner prescribed in the Rules. There was no such prescription prior to the amendment. The decision of the majority in this case will make the amendment superfluous. Such interpretation has to be avoided. 24. As regards the reliance placed in the majority order on the judgment of the Hon'ble Supreme Court in the case of Commissioner of Central Excise, Mumbai-I v. Bombay Dyeing and Mfg Co. Ltd. reported in 2007 (215) E.L.T. 3 (S.C.) is concerned, it is to be noted that the Hon'ble Supreme Court in that case was dealing with the issue of the admissibility of exemption under Notification No. 14/2002-C.E. dated 1-3-2002 to the grey fabrics. It was held therein that the exemption under Notification No. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for both dutiable as well as duty exempted goods and who took Modvat credit on such common inputs. Rule 57CC sought, therefore, to recover a presumptive sum equal to eight per cent of the price of exempted goods at the time of their removal where the manufacturer did not undertake maintenance of inventory/accounts of the clearance of exempted final products. Even sub-rule (7) of Rule 57CC was based on "deemed price" if read with Rule 57CC (i). Sub-rule (7) read with sub-rule (1) prevented an assessee from contending that he was not liable to pay the presumptive sum of eight per cent of the price of exempted goods on the ground that the said exempted goods were wholly manufactured out of inputs on which no credit of duty had been taken under Rule 57A. The amount required to be paid at the time of removal of exempted goods under Rule 57CC(1) had to be done in the same manner as was the case with any other excisable goods as the rate of duty stood determined at the rate of eight per cent in the rule itself. The said presumptive amount was required to be paid by debiting in PLA register or by payment in cash. As stated above, there was an alternative provided under sub-rule (9) which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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