IMPORTANT POINT
When the explosives have been used for blasting purpose in the mines and not in the factory where cement is produced, it will not qualify to be input for which CENVAT Credit may be taken under Rule 57AB of Central Excise Rules.

Headnote:Central Excise Tariff Act, 1985-Chapter 25 of the Schedule, Section 11A-Central Excise Rules-Rules 57AB, 173(Q)(1)(bb)-Input-Definition-CENVAT Credit-Explosives used in mines for blasting purpose-Whether can be held to be inputs so as to qualify for taking CENVAT Credit under Rule 57AB-Assessee carries on business of manufacturing cement-Assessee has been granted a mining lease by the State Government-Limestone excavated from mines is used for manufacture of cement-Explosives are used for blasting purpose in the mines-During the period April to August 2000, assessee took CENVAT Credit under Rule 57AB of the Rules on the explosives used in mines-Assistant Commissioner, Central Excise, issued a notice to assessee on ground that explosives used for blasting purpose in mines had not been used in factory premises for production or in relation to manufacture of final product, i.e. cement-Benefit of CENVAT Credit disallowed-Mines being operated by the assessee itself-Whether assessee can take CENVAT Credit for explosives used for blasting purposes in the mining area-(No).
       Held : The expression "used for manufacture of final products or for any other purpose, within the factory of production" in the definition of "input" is important and it clearly indicates that in order to satisfy the requirement of this sub-rule, the article or goods must be used within the factory of production. If the article is not used within the factory of production, it will not be "input" within the meaning of sub-rule (d) of Rule 57AA and CENVAT Credit will not be admissible under Rule 57AB. Rule 57AC deals with Conditions for allowing CENVAT Credit and under sub-rule (1) thereof such credit can be taken immediately on receipt of the inputs in the factory of manufacture. This provision also shows that actual receipt and use of the "input" within the factory of production is essential for availing CENVAT Credit. It is the admitted case of the assessee that the explosives have been used for blasting purpose in the mines and not in the factory where cement is produced and consequently on the plain language of sub-rule (d) of Rule 57AA and Rule 57AC it will not qualify to be "input" for which CENVAT Credit may be taken under Rule 57AB. (Para 6)
       It will be seen that the definition of "input" as given in sub-rule (d) of Rule 57AA which is material for the present case, is entirely different from the manner in which the said word has been expounded in explanation to Rule 57A reproduced above. Under sub-rule (d) of Rule 57AA only such articles or goods which are used for manufacture of final product or for any other purpose within the factory of production can qualify to be "input". However, no such restriction or condition was imposed in the main part of Rule 57A. Explanation (a) no doubt provided that for the purpose of Rule 57A, "input" would include inputs which are manufactured and used within the factory of production, or in relation to the manufacture of final products. But this explanation could not in any manner curtail or restrict the scope of the substantive provision contained in sub-rule (1). (Para 8)
       This provision shows that a manufacturer or producer shall be allowed to take CENVAT credit paid on any inputs used in the manufacture of intermediate products by a job-worker availing the benefit of exemption contained in the notification No. 214/86 dated 25th March, 1986 and received by the manufacturer for use in or in relation to the manufacture of final products. (Para 12)
       A manufacturer or producer himself cannot be a job worker. Here the mines are operated by the assessee itself. Therefore, in terms of the amended Rule 58AB also, the assessee cannot take CENVAT Credit for the explosives used for the blasting purposes in the mining area. (Para 12)

JUDGMENT

G.P. Mathur, J.-These appeals by special leave have been preferred by the Commissioner of Central Excise, Jaipur II, against the judgment and order dated 20.8.2002 of Customs, Excise & Gold (Control) Appellate Tribunal, New Delhi (for short CEGAT) by which the appeal preferred by the appellant against the order of Commissioner (Appeals) allowing CENVAT Credit to the respondent M/s. J.K. Udaipur Udyog Ltd., on explosives used in mines was dismissed.

2. The assessee carries on the business of manufacturing cement falling under Chapter 25 of the Schedule to the Central Excise Tariff Act, 1985. The assessee has been granted a mining lease by the Government of Rajasthan and the limestone excavated from the mines is used for manufacture of cement. The mining area is at a distance of few kilometers from the plant where the cement is manufactured. Explosives are used for blasting purpose in the mines. During the period April to August 2000, the assessee took CENVAT Credit under Rule 57AB of the Central Excise Rules (for short Rules ) on the explosives used in mines. The Assistant Commissioner, Central Excise, issued a notice to the assessee on 18.4.2001 on the ground, inter alia, that the explosives used for blasting purpose in the mines had not been used in the factory premises for production or in relation to the manufacture of final product i.e. cement; that as per Rule 57AB, the input must be used within the factory of production and, therefore, the explosives do not qualify to be inputs for the manufacture of excisable goods in terms of the aforesaid rule. The assessee was required to show cause why the aforesaid credit taken by him in contravention of Rule 57AB should not be disallowed and recovered from him under the provisions of Rule 57AH read with section 11A of the Central Excise Act and further, why penal action should not be taken under Rule 173(Q)(1)(bb). The assessee gave a reply to the notice on the ground, inter alia, that the mining area as well as the cement factory, are not only interdependent, but have a direct nexus with each other, that the mining activity and the manufacturing activity cannot be considered as isolated events as without mining limestone, the cement plant cannot be run and that for all practical purposes the mining area is an extension of the factory area. The Assistant Commissioner, Central Excise, by his order dated 29.8.2001 disallowed the CENVAT Credit taken by the assessee, but did not impose any penalty. The assessee preferred an appeal, which was allowed by the Commissioner (Appeals) on the finding that the explosives are inputs in terms of Rule 57AB and CENVAT Credit was allowed. Feeling aggrieved by the order of the Commissioner (Appeals), the Revenue preferred an appeal before the CEGAT, but the same was dismissed.

3. The main question to be considered is whether explosives used in the mines for blasting purpose can be held to be "inputs" so as to qualify for taking CENVAT Credit under Rule 57AB. The relevant part of Rule 57AB under which CENVAT Credit can be taken reads as under:

"57AB. CENVAT credit.-(1) A manufacturer or producer of final products shall be allowed to take credit (hereinafter referred to as the CENVAT credit) of,-

(i) the duty of excise specified in the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) (hereinafter referred to as the said First Schedule), leviable under the Act;

(ii) the duty of excise specified in the Second Schedule to the Central Excise Tariff Act, 1985, leviable under the Central Excise Act, 1944 in relation to the goods falling under sub-heading Nos. 2401.90, 2404.99, 5402.20, 5402.32, 5402.42, 5402.43, 5402.52, 5402.62, 8415.00, 8702.10, 8703.90, 8706.21 and 8706.39 of the said First Schedule;

(iii) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textile and Textile Articles) Act, 1978 (40 of 1978);

(iv) the additio

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2004 Supreme(SC) 1007

IMPORTANT POINTWhen the explosives have been used for blasting purpose in the mines and not in the factory where cement is produced, it will not qualify to be input for which CENVAT Credit may be taken under Rule 57AB of Central Excise Rules.

Cases Referred (1)

IMPORTANT POINT
When the explosives have been used for blasting purpose in the mines and not in the factory where cement is produced, it will not qualify to be input for which CENVAT Credit may be taken under Rule 57AB of Central Excise Rules.