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1994 Supreme(AP) 407
Andhra Pradesh High Court
Judges : K.M.AGARWAL, P.VENKATRAMA REDDY
Ganesh Metal Processing Industries - Appellant
Versus
Union of India - Respondent
Decided On : 09-08-94
The petitioners were entitled to avail of the exemption under Notification No.1 of 1993 and the Central Government's order in TS/36/94-TRU, dated 1.3.1994, as the second proviso to Notification No.202/88-CE, which provided that no credit of the duty paid on the inputs shall be taken under Rule 56a or 57a, could not be applied to the petitioners' clearances during the preceding financial year, as Rule 57c of the Central Excise Rules, 1944, categorically prohibited the credit of duty paid on the inputs if the final product was exempt from the whole of the duty of excise leviable thereon.
Headnote:
CENTRAL EXCISE - EXEMPTION - NOTIFICATION NO.1/93-C.E. - MODVAT SCHEME - RULE 57C - OPTION TO CLAIM EXEMPTION OR MODVAT CREDIT - INTERPRETATION - HELD, THE PETITIONERS ARE ENTITLED TO AVAIL OF THE EXEMPTION UNDER NOTIFICATION NO.1 OF 1993 AND THE CENTRAL GOVERNMENT'S ORDER IN TS/36/94-TRU, DATED 1.3.1994.
Fact of the Case:
The petitioners, small scale units engaged in the business of manufacturing re-rolled products falling under Chapter 72 of the Schedule to the Central Excise Tariff Act, 1985, were availing of the benefit of exemption from duty under Notification No.202/88-CE. However, they subsequently opted for the Modvat Scheme under Rule 56a or Rule 57a of the Central Excise Rules, 1944, and started taking credits for the duty paid on their inputs. The Department denied them the benefit of exemption under Notification No.1/93-C.E., issued in supersession of Notification No.202/88-CE, on the ground that they had exceeded the aggregate value of clearances of all excisable goods for home consumption of Rs.200 lakhs in the preceding financial year. The petitioners challenged the denial of exemption, contending that they were entitled to deduct the value of clearances in respect of which credits of the duty paid on the inputs were taken under Rule 56a or 57a.
Finding of the Court:
The Court held that the petitioners were entitled to avail of the exemption under Notification No.1 of 1993 and the Central Government's order in TS/36/94-TRU, dated 1.3.1994. The Court observed that the second proviso to Notification No.202/88-CE, which provided that no credit of the duty paid on the inputs shall be taken under Rule 56a or 57a, could not be applied to the petitioners' clearances during the preceding financial year, as Rule 57c of the Central Excise Rules, 1944, categorically prohibited the credit of duty paid on the inputs if the final product was exempt from the whole of the duty of excise leviable thereon. The Court further held that the petitioners could not be denied the benefit of exemption under Notification No.1 of 1993 merely because they had availed of the Modvat Scheme, as there was no legal basis for the assumption that they had an option to either claim exemption or avail of the Modvat credit.
Issues: 1. Whether the petitioners were entitled to avail of the exemption under Notification No.1 of 1993 and the Central Government's order in TS/36/94-TRU, dated 1.3.1994? 2. Whether the second proviso to Notification No.202/88-CE, which provided that no credit of the duty paid on the inputs shall be taken under Rule 56a or 57a, could be applied to the petitioners' clearances during the preceding financial year?
Ratio Decidendi: 1. The Court held that the petitioners were entitled to avail of the exemption under Notification No.1 of 1993 and the Central Government's order in TS/36/94-TRU, dated 1.3.1994, as the second proviso to Notification No.202/88-CE, which provided that no credit of the duty paid on the inputs shall be taken under Rule 56a or 57a, could not be applied to the petitioners' clearances during the preceding financial year, as Rule 57c of the Central Excise Rules, 1944, categorically prohibited the credit of duty paid on the inputs if the final product was exempt from the whole of the duty of excise leviable thereon. 2. The Court further held that the petitioners could not be denied the benefit of exemption under Notification No.1 of 1993 merely because they had availed of the Modvat Scheme, as there was no legal basis for the assumption that they had an option to either claim exemption or avail of the Modvat credit.
Final Decision: The Court allowed the petitions and directed the respondents to give the benefit of Notification No.1/93 to the petitioners and others like them, who took benefit of Modvat Scheme instead of total exemption from duty under the Notfn. No. 202/88, by excluding clearances of their excisable goods, which were exempted from the whole of duty of excise leviable thereon, but in respect of which, instead of exemption, credits under the Modvat Scheme were taken, while computing the aggregate value of clearances under the Notification No. 1/93. The Court also quashed the adjudication orders passed by the Assistant Collector.
( 1 ) THE Petitioners in all these petitions under Article 226 of the Constitution are making a common prayer for directing the respondents to give them the benefit of exemption in respect of their re-rolled products falling under Chapter 72 of the Schedule to the Central Excise Tariff Act, 1985, under Notification No. 1/93-C. E. , dated 28. 9. 1993, and/or for quashing the impugned Order No. TS/36/94-TRU, dated 1. 3. 1994 of the 1st respondent, or in the alternative, for quashing the Notification No. 1/93 itself on the ground of infringement of Article 14 of the Constitution. In W. P. No. 13614/94, a further prayer for quashing the adjudication Order No. 35/94 (C. No. V/72/3/54/94 VAL), dated 15. 7. 1994 made by the 3rd respondent has been made; whereas in W. P. No. 9663/94, an application (W. P. M. P. No. 15660/94) has been filed on 10. 7. 1994 with a prayer for permission to amend the prayer clause of the main petition on the basis of subsequent events, so as to include an additional prayer for quashing the adjudication order No. 30/94, passed on 30. 5. 1994 by the 3rd respondent during the pendency of the petition.
( 2 ) FACTS are not very much in dispute. The petitioners in all the petitions are small scale units, engaged in the business of manufacturing re-rolled products falling under Chapter 72 of the Schedule to the Central Excise Tariff Act, 1985. These products were exempt from duty by virtue of SSI exemption Notification No. 202/88, dated 20. 5. 1988, provided no credit of the duty paid on the inputs was taken under Rule 56a or Rule 57a of the Central Excise Rules, 1944, (in short, the "rules" ). This Notification No. 202/88 was issued under Rule 8 (1) of the Rules. The petitioners used to take credits under the Modvat Scheme (under Rule 56a or Rule 57a) for the duty paid on their inputs and to debit the same for payment of duty on their final products. This is how they were not getting or claiming exemption from payment of duty on their inputs under the Notification No. 202/88, which was superseded by subsequent SSI exemption Notification No. 1/93, dated 28. 2. 1993. It was provided in paragraph 3 of the later notification that : "3. Nothing contained in this notification shall apply, - (a) if the aggregate value of clearances of all excisable goods for home consumption, - (i) by a manufacturer, from one or more factories, or (ii) from any factory, by one or more manufacturers, had exceeded rupees two hundred lakhs in the preceding financial year, and (b) to a factory registered with Directorate General of Technical Development under the provisions of the Industries (Development and Regulation) Act, 1951 (65 of 1951 ). " Explanation II added to the said notification is also relevant. In runs as follows : "explanation-II.-For the purpose of computing the aggregate value of clearances under this notification, the clearances of any excisable goods, which are chargeable to nil rate of duty or, which are exempted from the whole of duty of excise leviable thereon by any other notification (not being a notification where exemption from the whole of duty of excise leviable thereon is granted based upon the value or quantity of clearances made in a financial year) issued under sub-rule (1) of Rule 8 of the said Rules or sub-section (1) of Section 5a of the said Act, shall not be taken into account. " To sum up, the exemption under the subsequent Notification No. 1/93 is not available to a manufacturer whose aggregate value of clearances of all excisable goods for home consumption exceeded rupees two hundred lakhs in the preceding financial year. And for the purpose of computing the aggregate value of clearances under the notification, it is provided that "the clearances of any excisable goods, which are chargeable to nil rate of duty or, which are exempted from the whole of duty of excise leviable thereon by any other notification. . . . issued under sub-rule (1) of Rule 8 of the said Rules or sub-section
