Commissioner Of Central Excise vs M/S Grand Card Industries & Ors
2013 Latest Caselaw 5839 Del

*IN THE HIGH COURT OF DELHI AT NEW DELHI

%             Judgment reserved on :           28 th October, 2013
                                               th
              Judgment pronounced on:        18 December, 2013

+                  CEAR 7/2000

COMMISSIONER OF CE NT RAL EX CIS E.                 ....... Petitioner

                         Through     Mr. Rahul Kaushik with
                                     Mrs. Bhuvneshwari Pathak,
                                     Advocates.

                         Versus

M/S GRAND CARD INDUST RIE S & ORS. ..... Respondent
                 Through

      CORAM:
      HON'BLE MR. JUSTICE SANJIV KHANNA
      HON'BLE MR. JUSTICE SANJEEV SACHDEVA


SANJEEV SACHDEVA, J.

1. Reference under section 35 - G(1) of the Central

Excise Act, 1944 has been received from the Custom,

Excise & Gold (Control) Appellate Tribunal on the

following question of law:

"Whether the option is available to the Assessee either to avail the exemption or to pay duty on the

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final product by taking modvat credit on inputs in terms of Rule 57A of the Central Excise Rules, 1944.

2. The Respondent A ssessees were small scale

industrial units (hereinafter called the SSI Units) and at

the relevant point of time eligible for benefit of the

exemption on clearances upto aggregate value of Rs.

30 Lakhs in terms of Notification No.1/93 dated

28.02.1993.

3. The Respondent Assessees instead of claiming

benefit under the exemption notification sought to take

benefit of the Modvat Credit under section 57A of the

Central Excise Rules, 1944 (hereinafter referred to as

the Rules) and paid full duty on the inputs used in the

manufacture of final products to avail Modvat Credit.

The credit was sought to be utilized for payment of

duty on the final product.

4. The Department denied the said benefit on the

premise that since the Respondent Assessees were

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eligible for exemption on clearances upto 30 lakhs

under the notification and no duty was payable on the

final products, they could not claim benefit of the

Modvat credit in view of Rule 57C of the Rules.

5. The Commissioner of Central Excise (Appeals) vide

his order dated 15.09.1995 denied Modvat credit to

the tune of Rs. 3,16,095/- in the case of Grand Cord

Industries and Rs. 9,01,754/- in the case of M/s

Jhunsons Chemicals. The authorities held that an

Assessee being covered under the said exemption

notification had no option and the Modvat credit was

not admissible under Rule 57C.

6. The Assessee/Respondents filed appeal s before the

Customs E xcise and Gold (Control) Appellate Tribunal.

The Tribunal vide order dated 03.03.1998 following

their earlier decision s in the case of Everest

Convertors Vs Collector 1995 (80) ELT 91 and other

earlier decisions allowed the appeals and held that the

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Assessee cannot be denied the benefit of Modvat

credit of duty paid on inputs used in the manufacture

of final products on which duty was paid, though the

final product would be exempt from duty under an

exemption notification issued under section 5A(1) ,

since it was for the Assessee to claim the concession.

It was further held that if the Assessee does not claim

the benefit of the notification i ts benefit will not

automatically extend to him. Nor can the benefit be

forced on him. Where the Assessee had chosen not to

avail of the concession available under Notification No.

1/93-CE, there could be no legal bar to his availing

the benefit of the Mod vat Scheme.

7. Aggrieved by the decision of the Tribunal the Revenue

filed the reference petitions and accordingly vide order

dated 16.02.2000 the matter has been referred to the

High Court on the question of law referred to above.

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8. For the purposes of clarity and to understand the real

controversy it would be appro priate to examine the

scope and ambit of the relevant Rule and the

notification.

9. The relevant Rule 57 of the Central Excise Rules 1944

lays down as under:

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

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'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 .........

******

Rule 57C. Credit of duty not to be allowed if final products are exempt - No credit of the specified duty paid on the inputs used [in the manufacture of a final product (other than those cleared either to a unit in a Free Trade Zone or to a hundred per cent Export- Oriented Unit)] shall be allowed if the final product is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty.

10. Rules 57A of the Rules allows for credit of any duty of

excise paid on the goods used in or in relation to the

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manufacture of a final products and for utilising the

credit so allowed towards payment of duty of excise

leviable on the final products subject to certain

conditions.

11. Rule 57C of the rules however stipulates that no credit

of the specified duty paid on the inputs used in the

manufacture of a final product shall be allowed if the

final product was exempt from the whole of the duty of

excise leviable thereon or was chargeable to nil rate of

duty.

12. The Supreme Court of India in ICHA LKARAN JI M ACHINE

C ENTRE (P) L TD . V. CCE, (2005) 1 SCC 465, A T PAGE

468 has laid down as under:

"9. MODVAT is basically a duty-collecting procedure, which aims at allowing relief to a manufacturer on the duty element borne by him in respect of the inputs used by him. It was introduced w.e.f. 1-3-1986. The said Scheme was regulated under Rules 57-A to 57-J of the Central Excise Rules, 1944. Rule 57-A entitled a

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manufacturer to take instant credit of the Central excise duty paid on the inputs used by him in the manufacture of the finished product, provided that the input and the finished product were excisable commodities and fell under any of the specified chapters in the Tariff Schedule. Under Rule 57-G, every manufacturer was required to file a declaration before the jurisdictional Assistant Collector, declaring his intention to take MODVAT credit after paying duty on the inputs. The object behind Rule 57-A read with Rule 57-G and Rule 57-I was utilisation of credit allowed towards payment of duty on any of the final products in relation to manufacture of which such inputs were intended to be used in accordance with the declaration under Rule 57-G. Rule 57-I referred to consequences of taking credit wrongly.

10. The object of the MODVAT Scheme was to reduce cost of final product by taking credit for the duty paid on the inputs."

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13. The Supreme Court has held that th e Modvat scheme

is a duty-collecting procedure, which aims at allowing

relief to a manufacturer on the duty element borne by

him in respect of the inputs used by him. The said

Scheme entitles a manufacturer to take instant credit

of the Central excise duty paid on the inputs used by

him in the manufacture of the finished product,

provided that the input and the finished product were

excisable commodities and fell under any of the

specified chapters in the Tariff Schedule. The object of

the MODV AT Scheme is to reduce the cost of the final

product by taking credit for the duty paid on the inputs.

14. The Government in exercise of powers under section

5A of the Act has issued the Notification: 1/93 -CE

dated 28- Feb- 1993. The relevant portion of the

Notification is as under:

1.3 (a) - Exemption to first clearances of specified goods upto the value of Rs. 30 lakhs and concessional duty thereafter in case of SSI units

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having clearances not exceeding Rs. Two crores in preceding year.

In e xer cise of the powers conferre d by s ub-se ction (1) of Se ction 5 A of the Centr al Excises and Salt Act, 194 4 ( 1 of 19 44) (hereinaf ter r eferre d to as the s aid Act), the Centr al Gover nme nt being s atisfied that it is ne cess ary in the public inter est s o to do her e by exe mpts the e xcis able goods of the des cription spe cif ie d in the Anne xure below and f alling under the Schedule to the Ce ntr al Excise Tar iff Act, 1 98 5 (5 of 19 86), ( here inaf ter re ferre d to as the "specifie d goods"), and cle are d f or home cons umption on or af ter the 1st day of April in any financial ye ar, by a manuf actur er fr om, -

( 1) a f actory which is an under tak ing r egistere d with the Director of I ndus tries in any s tate or the Dev elopme nt Com missioner (s mall s cale I ndustr ies) as a s mall s cale industr y under the provisions of the Industr ies ( Developme nt and Regulation) Act, 1 95 1 (65 of 19 51),-

(a) in the case of firs t cle ar ances of the s pe cif ie d goods up to an aggr egate v alue not e xcee ding rupees thirty lak hs -

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(i) in a case where a manuf acturer av ails of the cre dit of the duty paid on the inputs use d in the manuf acture of the s pe cifie d goods cle are d f or home cons umption under r ule 57 A of the Ce ntr al Excise Rules, 1 99 4 (here inafter referr e d to as the s aid Rules), from s o much of the duty of e xcise leviable there on which is specifie d in the s aid Sche dule (re ad with any rele v ant notification issue d under s ub-r ule (1) of Rule 8 of the said Rules of s ub-se ction (1) of Se ction 5 A of the s aid Act, and in f or ce f or the time being] as is e quiv alent to an amount calculate d at the r ate of 1 0 per ce nt ad v alore m

(ii) in any other case fr om the whole of the duty of excis e leviable there on.

15. The Notification has been issued for the benefit of the

registered SSI Units enabling them to clear goods upto

a certain value without payment of excise duty. The

notification granting limited exemption is available to

SSI Units. The rationale behind the notification is

apparently to promote Small Scale Industries and

encourage and make the products manufactured

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attractive, competitive and eventually saleable due to

price advantage. It is in nature of beneficial and

benevolent provision.

16. Exemption notifications have to be strictly and liberally

construed. Liberal and strict construction of an exemption

provision is to be invoked at different stages of

interpreting it. When the question is whether a subject falls

in the notification or in the exemption clause then it being

in the nature of exception is to be construed strictly and

against the subject but once ambiguity or doubt about

applicability is lifted and the subject falls in the notification

then full play should be given to it and it calls for a wider

and liberal construction, while keeping the object and

purpose as the guiding factor.

17. The Supreme Court referring to various judgments has

laid down in the case of CCE V . FAV OURITE INDUS TR IES ,

(2012) 7 SCC 153 as under:

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21. Furthermore, this Court in Associated Cement Companies Ltd. v. State of Bihar {2004 (7) SCC 642}, while explaining the nature of the exemption notification and also the manner in which it should be interpreted has held: (SCC p. 648, para 12)

"12. Literally 'exemption' is freedom from liability, tax or duty. Fiscally it may assume varying shapes, specially, in a growing economy. In fact, an exemption provision is like an exception and on normal principle of construction or interpretation of statutes it is construed strictly either because of legislative intention or on economic justification of inequitable burden of progressive approach of fiscal provisions intended to augment State revenue. But once exception or exemption becomes applicable no rule or principle requires it to be construed strictly. Truly speaking, liberal and strict construction of an exemption provision is to be invoked at

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different stages of interpreting it. When the question is whether a subject falls in the notification or in the exemption clause then it being in the nature of exception is to be construed strictly and against the subject but once ambiguity or doubt about applicability is lifted and the subject falls in the notification then full play should be given to it and it calls for a wider and liberal construction. (See Union of India v. Wood Papers Ltd. {1990 (4) SCC 256} and Mangalore Chemicals and Fertilisers Ltd. v. CCT {1992 Supp (1) 21} to which reference has been made earlier.)"

22. In G.P. Ceramics (P) Ltd. v. CTT {2009 2 SCC 90}, this Court has held: (SCC pp. 101-02, para

29)

"29. It is now a well-established principle of law that whereas eligibility criteria laid down in an exemption notification are required to be construed strictly, once it is found that the applicant satisfies the

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same, the exemption notification should be construed liberally. [See CTT v. DSM Group of Industries {2005 (1) SCC 657} (SCC para 26); TISCO Ltd. v. State of Jharkhand {2005 (4) SCC 272} (SCC paras 42-45); State Level Committee v.

Morgardshammar India Ltd. {1996 (1) SCC 108}; Novopan India Ltd. v. CCE & Customs{1994 Supp (3) SCC 606}; A.P.

Steel Re-Rolling Mill Ltd. v. State of Kerala {2007 (2) SCC 725} and Reiz Electrocontrols (P) Ltd. v. CCE. {2006 (6) SCC 213}]"

18. The stand of the Revenue that since the respondent

was a SSI Unit and covered under the Notification

No.1/93 and clearance of goods upto a value of Rs.30

lakhs was exempted from payment of duty, the benefit

of MODVAT scheme could not be availed in terms of

Rule 57C is counter-productive and not beneficial for

the respondent Assessee. It works against them and

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makes them in-competitive and places them at a

disadvantage.

19. Thus, the stand of the Revenue is not sustainable. The

object of the MODVAT S cheme is to reduce cost of

final product by taking credit for the duty paid on the

inputs {ICHA LKARAN JI M ACHINE C ENTRE (P) L TD .

(S UPRA )}. The object of the Exemption notification is to

grant benefit to the SSI Units for clearing goods

without payment of duty upto a particular limit.

20. Both the MODV AT scheme and the exemption

notifications are beneficial legislation. The beneficial

notification have to be strictly initially but liberally

interpreted.

21. If the interpretation of the Revenue is to be accepted

that there was no choice to SSI Units to either avail

the MODVAT Scheme o r the benefit of the exemption

notification, then the SSI units are prejudiced and may

even become unviable.. The purpose of the MODV AT

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Scheme is to prevent and neutralise cascading effect

of the duty paid on inputs. If the interpretation of the

revenue is accepted then a manufacturer not

registered as a SSI unit would be entitled to benefit of

the MO DVAT scheme for unlimited value and pass on

benefit to the purchaser. But an SSI unit covered by

the exemption notification would not be entitled to the

benefit of the MODV AT scheme but would be entitled

to clear goods at nil duty or lesser duty only upto a

limit. Because he cannot pass on the MODVAT credit,

to the purchaser, he is denied a level playing field and

suffers disadvantage. This clearly is not the purpose

behind the MODVAT scheme and the exemption

notification.

22. A manufacturer cannot simultaneously avail of double

benefits one of the MODVAT Scheme and the other of

the exemption notification unless expressly permitted

to do so. In case a manufacturer is covered both under

the MODVAT scheme and an exemption notification,

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then the manufacturer should have the right to choose

to avail the benefit of either of the two whichever is

more attractive and beneficial. The choice once

exercised is binding and final and interchange may not

be permissible, unless allowed but this is different to

arguing that choice is not available. The two provisions

are in alternative but the right of choice is not curtailed.

23. The Supreme Court of India in the case of C O LLEC TOR

OF C ENTRA L E XCISE VS IND IAN P ETRO C HEMICA LS 1997

(11) SCC 318 upheld the decision of the tribunal

wherein it was held that where two exemption

notifications were applicable, the Assessee had to

take/avail of benefits of that notification which was

more beneficial to it.

24. In the present case the manufacturers are admittedly

covered both under the MODVAT Scheme and the

exemption notification, if the right to chose is not

granted then it would be disadvantageous for a

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manufacturer to get itself registered as a S SI unit. This

would thus be to the detriment of the manufacturer to

register as a SSI unit. This consequ ence is clearly not

intended by the legislature /Rule.

25. The Respondents admittedly have not claimed or

availed of any benefit under the exemption notification

but have sought to claim benefit of only the MODV AT

Scheme as was available to other manufacturers .

26. The Respondents have only sought to forego the

benefits of the exemption notification available to SSI

units.

27. The Assessee in our view would have the option either

to avail the exemption under the exemption notification

or to pay duty on the final produ ct by taking MODV AT

credit on inputs in terms of Rule 57A of the Rules.

28. The reference is thus answered in favour of the

Assessee and against the revenue.

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29. There shall be no orders as to costs.

SANJEEV SACHDEVA, J.

DECEMBER 18, 2013                           SANJIV KHANNA, J.
st

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