Important Point
The Tribunal has wrongly held relying on Rule 57F that the imputs in respect of which a credit of duty is claimed must be those which are used in or brought into the factory premises. It is not necessary for the explosives to be used (for the extraction of lime stone) within the factory premises where the manufacture of cement takes place in view of conjoint reading of Rule 57F with Rule 57-J of the Central Excise Rules.

Headnote:Central Excise Rules—Rules 57A, 57F and 57J—Credit of duty in respect of inputs used in the intermediate product—Appellant manufacturing cement—For which lime stone needed—Lime stone extracted by use of explosives—In the manufacture of cement, the appellants claimed modvat credit—Denied by Tribunal on the ground that Rule 57F allows credit of duty only if inputs are used in or brought into factory premises—Appeal to Supreme Court—Whether it is necessary for the explosives to be used within the factory premises where the manufacture of cement takes place? (No)—Result—Appellants are entitled to modvat credit—Appeal allowed—Other cases also decided accordingly.
       Held : As we have already noticed, the Tribunal has relied upon Rule 57F in coming to the conclusion that the inputs in respect of which a credit of duty is claimed must be those which are used in or brought into the factory premises. The Tribunal, however, has not referred to the provisions of Rule 57J, the opening portion of which makes it clear that the said Rule will be applicable notwithstanding anything contained in the other Rules. According to Rule 57J, when the Central Government by notification specified the inputs used in the manufacture of intermediate products received by the manufacturer for use in or in relation to the manufacture of final product, then all such products on which duty has been paid credit will be allowed. Pursuant to this Rule 57J, notification was issued on 20th June, 1986 which was amended from time to time. (Para 12)
       After referring to relevant part of notification held : Explosives would fall under column (2) being a tariff item in Chapter 36; the intermediate product, namely, lime stone would fall under column 3 being covered by Chapter 25; and the final product, namely, cement would also fall under Chapter 25 and would fall under column 4. The reading of Rule 57J alongwith the aforesaid notification can leave no manner of doubt that even in respect of inputs used in the manufacture of intermediate product which product is then used for the manufacture of a final product, the manufacturer would be allowed credit on the duty paid in respect of the input. On the explosives a duty had been paid and the appellants would be entitled to claim credit because the explosives were used for the manufacture of the intermediate product, namely, lime stone which, in turn, was used for the manufacture of cement. We are, therefore, in agreement with the learned counsel for the appellants that the wide language used in Rule 57A entitles the appellants to claim the benefit when the said Rule is read alongwith Rule 57J. For the aforesaid reasons, these appeals are allowed and the judgment of the Tribunal is set aside. (Paras 13, 14, 15)

Judgment

Kirpal, J.—CA Nos. 5340–5341/2000.

The appellants M/s. Jaypee Rewa Cement are manufacturers of cement in their factory at Raipur. Lime Stone is an essential raw material for the said manufacture, but in order to extract lime stone explosives are used for mining the same.

2. It is not in dispute that the explosives which are used are items falling under Chapter 36 of the Excise Tariff. On the said explosives, excise duty had been paid, but the lime stone which was extracted, though an excisable item, was exempt from payment of excise duty by reason of an exemption notification. In the manufacture of cement, the appellants claimed modvat credit in view of the provisions of Rule 57A of the Central Excise Rules.

3. The case of the appellants was that the explosives used in the mining operation must be regarded as inputs and in respect of which notification had been issued by the Central Government in the Official Gazette and credit should be allowed in terms of the said Rule. The excise authorities as well as the CEGAT did not accept the contention of the appellants. The Tribunal came to the conclusion that Rule 57F was applicable in this case as explosives had not been brought into the factory and they had been used at a place away from the cement factory. It was of the opinion that by virtue of the said provision, Rule 57A cannot be extended to take in within its ambit any goods used outside the factory for production of the final product.

4. Rule 57A with which we are concerned in this case reads as follows:-

“RULE 57A. Applicability.—(1) The provisions of this section shall apply to such finished excisable goods (hereinafter referred to as the “final products”), as the Central Government may, by notification in the Official Gazette, specify in this behalf, for the purpose of allowing credit of any duty of excise or the additional duty under Section 3 of the Customs Tariff Act, 1975 (51 of 1975), as may be specified in the said notification (hereinafter referred to as the “specified duty”) paid on the goods used in or in relation to the manufacture of the said final products [whether directly or indirectly and whether contained in the final product or not] (hereinafter referred to as the “inputs”) and for utilising the credit so allowed towards payment of duty of excise leviable on the final products, whether under the Act or under any other Act, as may be specified in the said notification, subject to the provisions of this section and the conditions and restrictions that may be specified in the notification:

Provided that the Central Government may specify the goods or classes of goods in respect of which the credit of specified duty may be restricted.

Explanation:—For the purposes of this rule, “inputs” includes–

(a) inputs which are manufactured and used within the factory of production, in or in relation to, the manufacture of final products,

(b) paints and packaging materials,

(d) inputs used for generation of electricity, used within the factory of production for manufacture of final products or for any other purpose, and

(e) accessories of the final product cleared alongwith such final product., the value of which is included in the assessable value of the final product, but does not include-

(i) machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of the final products;

(ii) packaging materials in respect of which any exemption to the extent of the duty of excise payable on the value of the packaging materials is being availed of for packaging any final products;

(iii) packaging materials or containers, the cost of which is not included in the assessable value of

Click Here to Read the rest of this document