IMPORTANT POINT
CEGAT was wrong in holding that Notification No.95/83 dt. 1.3.83 can be applied to the finished products (in this case tyres, tubes and flaps) if they are not subjected to any duty. Question of utilising the credit on inputs would arise only when duty is payable on finished products.

Headnote:(i) Central Excise Rules-Rule 56a -Notification No. 95/83 dated 1.3.1983 providing for input duty relief to specified goods e.g. Tyres, Tubes and flaps manufactured by respondent-Relief given later recovered on ground that final output was not paying any duty-Question of eligibility of this notification-Tribunal accepting respondent s contention that there is no nexus between inputs and outputs i.e. relief in duty on inputs can be given though output released at nil rate of duty-Whether correct? (No)-Appeal by revenue under Section 35L(b) of Central Excise and Salt Act allowed-Question of utilising the credit on inputs would arise only when duty is payable on finished products.
       Held : The interpretation of the Notification No. 95/83 does not present any difficulty. The Notification provides for exemption of excisable goods described in column (5) of the Table (extracted supra), referred to as final products . The extent and amplitude of exemption is set out in clear terms. The exemption is to the extent of duty of excise already paid on the goods of the description specified in column (3) of the Table, that is to say, on inputs. Proviso I in explicit terms enjoins that the inputs specified in column (3) of the Table should have been used in the manufacture of final products specified in corresponding entry in column (5). What is exempted is "so much of the duty of excise leviable thereon". The expression thereon is referable to excisable goods described in column (5) - known as final products . The extent to which it is exempted is limited to the duty of excise leviable and already paid on the goods of the description specified in column (3) - known as "inputs . In other words, the duty paid on the inputs is adjusted against the duty payable on the final products manufactured out of the said inputs and the balance only is liable to be paid on the finished products. Thus, the excise duty payable on the final products or outputs has inextricable nexus with the duty paid on inputs for which the credit of duty is allowed in accordance with the procedure laid down in Rule 56A. The exemption Notification pre-supposes that the duty is otherwise payable on the finished products specified therein. There is no question of applying this Notification to the finished products (in this case tyres, tubes and flaps) if they are not subjected to any duty. (Para 5)
       After reviewing case law
       Held : For the reasons aforesaid, we are of the view that the impugned order of the CEGAT is erroneous in law and liable to be quashed. (Para 16)
       Held finally : The appeal is allowed and the impugned order of CEGAT is set aside. Parties to bear their own costs. (Para 19)
       (ii) Central Excise & Salt Act - Section 35 L(b) - Preliminary objection that in the instant case appeal by Revenue u/s.35 L (b) to supreme court does not lie - Whether sustainable ? (No) Assuming it does not lie, the defect is aured by filing application u/A 136 of the constitution.
       Held : However, before parting with the case, it is necessary for us to advert to the preliminary objection raised on behalf of the respondent. It is contended that in the instant case the appeal under Section 35-L(b) does not lie for the reason that no question arises in the present appeal which has a relation to the rate of duty of excise or to the value of goods for purposes of assessment within the meaning of clause (b) of Section 35-L. Reference is made to the decision in Navin Chemicals Mfg. & Trading Co. Ltd. v. Collector of Customs (1993, 68 ELT 3). In that case, this Court pointed out that the question to be decided must have direct and proximate relationship to the rate of duty and to the value of goods for the purposes of assessment. The contention is that no such question is involved in the present case. However, the following observations in the same case deserve notice :
        A dispute as to the classification of goods and as to whether or not they are covered by an exemption notification relates directly and proximately to the rate of duty applicable thereto for purposes of assessment."
       Based on the above dicta, it is possible to contend, as has been contended before us, that the question as to rate of duty is involved in the present case. However, we need not express any opinion on this aspect. Notwithstanding the initial omission on the part of the appellant in invoking the jurisdiction of this Court under Article 136, at least by way of abundant caution, the learned Additional Solicitor-General appearing for Union of India did make an oral prayer to treat this appeal as one filed under Article 136 as well. A formal application in this behalf has been filed after the conclusion of the arguments in the case. The respondent has filed a reply opposing the application. We are of the view that in the interests of justice and in order to put an end to this long-standing litigation, we deem it just and proper to allow the application. It is not advisable at this stage after a lapse of six years to reject the appeal as not maintainable and relegate the appellant to the course of seeking remedy by way of reference to the High Court, assuming that the appeal under Section 35-L(b) does not lie. Incidentally, it may be pointed out that in Commissioner of Central Excise & Customs v. Venus Castings (P) Ltd. (2000 4 SCC 206), this Court did allow such application at the time of hearing of appeal. We do not think that there is anything in the decisions of this Court in Steel Authority of India Ltd. v. Collector of Central Excise [I 996 (82) ELT 172] and Ferro Alloys Ltd. Corporation v. Collector of Central Excise [1996 (82) ELT 173] which stands in the way of the application, though belated it is, being allowed. In the first case, the appeal was rejected at the admission stage on the basis of concession and the appeal in the second case was also rejected at the threshold itself. Apparently, no request was ever made to permit the appellant to invoke the jurisdiction of this Court under Article 136 of the Constitution. (Paras 17 & 18)

JUDGMENT

P. Venkatarama Reddi, J.-In this appeal filed under Section 35 L (b) of the Central excise and Salt Act by the Revenue, the order of CEGAT dated 21.2.1994 in its final order No. 73/94-C is under challenge. By that order, the Tribunal rejected the Department s appeal following inter alia its earlier order in Vikrant Tyres Ltd. v. CCE Bangalore1, the appeal against which filed by the Revenue was dismissed by us on 13.9.2001 on the ground that it became infructous in the light of subsequent event.

2. Let us now take stock of the material facts giving rise to this appeal. The respondent herein is manufacturer of tyres, tubes and flaps. The respondent was availing the proforma credit of duty on inputs viz. Synthetic rubber, carbon black and rubber processing chemicals. The proforma credit on those inputs to the tune of Rs.62,53,023/- for the period 1.3.1984 to 14.3.1986 and Rs. 5,64,236/- for the period November 1984 to February 1986 utilised in respect of tyres, tubes and flaps cleared at nil rate of duty was reversed/debited under protest, presumably at the instance of Excise Authorities. Later, the respondent claimed refund thereof. The case of the respondent was that the Notification No.95/79 (as amended from time to time) nowhere prescribed that the proforma credit of duly paid on the inputs was available only in relation to duty-paid outputs. The respondent contended that the relevant Notification did not envisage any link between inputs and outputs. By a reasoned order dated 1I.12.I989, the Assistant Collector of Central Excise, Meerut, rejected the assessee s claim for refund. He held that the assessee was not entitled to avail of the benefit of proforma credit on the inputs used in the manufacture of final products i.e. tyres, tubes and flaps which were cleared at nil rate of duty. The Assistant Collector concluded that the proforma credit was correctly debited/reversed by the assessee and, therefore, the question of refund did not arise. In this context, the following crucial finding in the order of the Assistant Collector deserves to be noted for the proper appreciation of the core issue involved:-

"In the present case, on examination of record, it is noticed that during the relevant period (for which refund has been preferred), the final product, namely, tyres, tubes and flaps were cleared by the party at nil rate of duty as the same were cleared as original equipment or ADV."

3. The appeal filed by the assessee against the said order was allowed by the Collector (Appeals) based on the Tribunal s decision in Vikrant case (supra). Aggrieved thereby, the department filed an appeal before CEGAT. The CEGAT, by the impugned order, rejected the appeal, after quoting in extenso its earlier order in Vikrant Tyres case. In that case, the Tribunal while construing the Notification No 95/79 held that the Notification did not have any condition that there should be nexus between the inputs and outputs. According to the Tribunal, "the only question that can arise while examining the question of eligibility to this Notification is whether the inputs described in column (3) have been used in the outputs described in column (5)." The Tribunal further observed: "the learned JDR s argument that goods mentioned in column (5) (final products) are only those which pay duty is not supported by the wording of the Notification. No condition regarding payment of duty is contained anywhere in the Notification" The correctness of this view taken by the CEGAT is being assailed in this appeal.

4. In order to rationalise the overall impact of the duties of excise on the cost of the final manufactured product, the Central government framed certain rules such as Rule 56A and issued certain Notifications in exercise of the powers conferred on it under sub-rule (1) of Rule 8 of the Central Excise Rules. For instance Rule 56A which is a pre-cursor to the MODVAT scheme now in vogue provided for allowance of credit of duty already paid on the mate

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2001 Supreme(SC) 1395

IMPORTANT POINTCEGAT was wrong in holding that Notification No.95/83 dt. 1.3.83 can be applied to the finished products (in this case tyres, tubes and flaps) if they are not subjected to any duty. Question of utilising the credit on inputs would arise only when duty is payable on finished products.

Cases Referred (7)