Delhi High Court
Commissioner Of Central Excise vs Dalmia Magnesite Corporation on 15 July, 2010
Author: A.K.Sikri
* IN THE HIGH COURT OF DELHI AT NEW DELHI
CUSAA No.12 of 2009 & CM No.17786 of 2009
% Date of Decision: 15th July, 2010.
COMMISSIONER OF CENTRAL EXCISE . . . Appellant
through : Mr. Mukesh Anand, Advocate
VERSUS
DALMIA MAGNESITE CORPORATION . . .Respondent
through: Mr. M.P. Devnath, Advocate
CORAM :-
HON'BLE MR. JUSTICE A.K. SIKRI
HON'BLE MR. JUSTICE REVA KHETRAPAL
1. Whether Reporters of Local newspapers may be allowed
to see the Judgment?
2. To be referred to the Reporter or not?
3. Whether the Judgment should be reported in the Digest?
A.K. SIKRI, J. (Oral)
1. M/s Dalmia Magnesite Corporation (hereinafter referred to as "the
Company") is engaged in business of manufacturing of Dead
Burnt Magnesite and Ramming Mass/Mixes. Dead Burn Magnesite
is exempt from payment of duty whereas Ramming Mass/Mixes
attracts Excise Duty @ 18%. The company availed credit on input
used as Fuel viz., Furnace Oil in terms of Rule 57B of the Central
Excise Rules, 1944 which was being used to make dutiable as well
as exempt goods. The company was availing credit on the whole
of furnace oil irrespective of whether it was used in manufacture
of dutiable goods or exempt goods. Show cause notice dated
11.03.1997 was issued to the company asking them as to why the
credit of Rs.10,92,831/- for the period of May 1997 to September
1997 should not be denied to them because they were availing
credit of the full amount irrespective of the fact whether they
were manufacturing exempted goods or dutiable goods as
prescribed under Rule 57 I of the Central Excise Rules, 1944.
Another show cause notice dated 11.03.1998 was issued to the
company asking them as to why the credit of Rs.10,89,337/- for
the period of October 1997 to February 1998 should not be denied
to them because they were availing credit of the full amount
irrespective of the fact whether they were manufacturing
exempted goods or dutiable goods as prescribed under Rule 57 I
of the Central Excise Rules, 1944. The Assistant Commissioner,
Salem Division vide Order-in-Original No.10/99 disallowed the
credit. The company preferred an Appeal before the
Commissioner (Appeals) Trichy which was allowed vide Order
No.12/2003 dated 28.01.2003.
2. In his orders dated 28.01.2003, the Commissioner (Appeals)
formulated the issue as to whether the respondent herein was
required to reverse the modvat credit/pay duty proportionate to
the furnace oil used in the manufacture the wire rods cleared
without payment of duty. This issue was decided in favour of the
respondent following the Tribunal‟s judgment in the case of M/s.
Indore Steel & Iron Mills Ltd. decided on 04.02.2002. Appeal
preferred by the Department against the said order has been
dismissed by the Customs, Excise and Service Tax Appellant
Tribunal (hereinafter referred to as „the Tribunal‟) vide impugned
orders dated 02.07.2009.
3. The aforesaid issue has now been finally adjudicated and
determined by the Supreme Court in the case of Commissioner
of Central Excise Vs. Gujarat Narmada Fertilizers Co. Ltd.
[2009 (240) E.L.T. 661 (S.C.)]. After taking into consideration the
relevant Rules including Rule 57AD of the Central Excise Rules,
1944 on the basis of which the Tribunal has also passed the order,
the Supreme Court has held that the assessee would not be
entitled to any benefit under the aforesaid provision. Relevant
discussion in this behalf contained in the Para 10 of the judgment
reads as under:
"10. In our view, Sub-rule (1) is plenary. It restates a principle,
namely, that CENVAT credit for duty paid on inputs used in the
manufacture of exempted final products is not allowable. This
principle is in-built in the very structure of the CENVAT scheme.
Sub-rule (1), therefore, merely highlights that principle. Sub-rule
(1) covers all inputs, including fuel, whereas Sub-rule (2) refers to
non-fuel-inputs. Sub-rule (2) covers a situation where common
cenvatted inputs are used in or in relation to manufacture of
dutiable final product and exempted final product but the fuel-
input is excluded from that sub-rule. However, exclusion of fuel-
input vis-à-vis non-fuel-input would still fall in Sub-rule (1). As
stated above, Sub-rule (1) is plenary, hence, it cannot be said
that because Sub-rule (2) is inapplicable to fuel-input(s), CENVAT
credit is automatically available to such inputs even if they are
used in the manufacture of exempted goods. The cumulative
reading of sub-rules (1) and (2) makes it abundantly clear that
the circumstances specified in Sub-rule (2), which inter alia
requires separate accounting of inputs, are not applicable to the
fuel- input(s). However, the said Sub-rule (2) nowhere says that
the legal effect of Sub-rule (1) will stand terminated in respect of
fuel-inputs which do not fall in Sub-rule (2). In other words, the
legal effect of Sub-rule (1) has to be applied to all inputs
including fuel-inputs, only exception being non-fuel-inputs, for
which one has to maintain separate accounts or in its absence
pay 8% /10% of the total price of the exempted final products.
Therefore, Sub-rule (1) shall apply in respect of goods used as
"fuel" and on such application, the credit will not be permissible
on such quantity of fuel which is used in the manufacture of
exempted goods. In our view, the above aspect has not been
properly appreciated by the Gujarat High Court in the above case
of Gujarat Narmada Valley reported in (2006) 193 ELT 136
(supra)."
4. Learned counsel for the respondent could not dispute the
aforesaid position in law. Accordingly, this Appeal succeeds and
orders of the Tribunal as well as Commissioner (Appeals) are
hereby set aside and the orders of the Assistant Commissioner,
Salem Division is restored.
5. We may, however, clarify that the respondent shall not be liable to
pay any penalty or interest inasmuch as in the show cause notice
dated 11.03.1998, levy of penalty or interest was not even
proposed. Moreover, the order dated 18.03.1999 also does not
cover this aspect. The aforesaid directions are in conformity with
the judgment of the Supreme Court in Gujarat Narmada
Fertilizers Co. Ltd. (supra) wherein after taking note of
conflicting decisions given by various Benches of the CESTAT, the
Apex Court had observed that in such a circumstance, the penalty
and interest would not be paid by the concerned assessee.
(A.K. SIKRI)
JUDGE
(REVA KHETRAPAL)
JUDGE
JULY 15, 2010.
pmc
