TaxTMI 
TaxTMI 
2019 (12) TMI 230
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....Order No.A/107 to 110/2007/C.1(EB), passed in Appeal Nos.3/2183, 2184, 471, 3118/06, disposed of four appeals filed by the Assessee herein involving Cenvat credit in respect of inputs used for manufacture of exempted as well as dutiable goods without maintaining separate accounts for such use. Both the Assessee and the Revenue are in appeal before us from the common impugned order dated 16th February, 2007. 2. The Assessee's appeals (being Appeal Nos. 119, 202, 234, 145, & 120 of 2007 and 225 of 2008) were admitted on the following substantial questions of law : a) Whereas CESTAT was correct in law in holding in para 31, that though education cess levied and collected from the Appellants on tractors is a duty of excise, that tractors are exempted goods within the meaning of Rule 6(1), since tractors are wholly exempt from basic excise duty levied under Section 3(1) of Central Excise Act? b) Whether in the facts and circumstances of the case CESTAT was correct in invoking provisions of Rule 6(1) of the Cenvat Credit Rules, 2002 or Cenvat Credit Rules, 2004? c) Whether CESTAT was correct in concluding that expression 'duty of excise' appearing in Rule 2(....
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....n III to Rule 6 (3) only is not applicable to Rule 6(1) of Cenvat Credit Rules, 2004? (d) Whether the Notification No.27/2005-CE (NT) dated 16-05-2005 which clarifies the provisions of Rule 6 (3) of Cenvat Credit Rules 2004 is clarificatory in nature and therefore applicable retrospectively?" 4. At the hearing, with the assistance of the Advocates for the parties, we reformulated the substantial questions of law in the Assessee's appeal and the Revenue's appeal as under:- (A) Substantial questions of law in Assessee's Appeal:- (i) Whether on the facts and circumstances of the case and in law, was the Tribunal justified in holding that though auto cess and education cess were duties of excise, yet the goods on which they were paid, continued to be exempted goods as basic excise duty was not payable thereon? (ii) Whether on the facts and circumstances of the case and in law, was the Tribunal justified in holding that the amount of 8% (later raised to 10%) of the price of exempted goods, required to be paid under Rule 6(3)(b) of Cenvat Credit Rules, 2002 & 2004 (for not maintaining separate accounts), was a mere facilitation measure and not in th....
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.... different parts of the order, as noted above. Legal Provisions : 6. We are essentially concerned here with the interpretation of various sub-rules of Rule 6 of Cenvat Credit Rules, 2002 (applicable upto 9.9.2004) and Cenvat Credit Rules, 2004 (from 10.9.2004) in the context of "exempted goods". These two sets of Cenvat Credit Rules are made by the Central Government in exercise of powers conferred on it by Section 37 of the Central Excise Act, 1944 ("Act"). They inter alia provide for (i) eligibility for availment of Cenvat credit of various duties (which generally go by the description of duties of excise) paid on inputs by any manufacturer of final products, (ii) conditions for allowing such Cenvat credit and (iii) obligations of manufacturers of dutiable and exempted goods for availment of such Cenvat credit. Rule 6 of Cenvat Credit Rules, 2002, as was applicable at the relevant time, is quoted below. Rule 6. Obligation of manufacturer of dutiable and exempted goods.- (1) The CENVAT credit shall not be allowed on such quantity of inputs which is used in the manufacture of exempted goods, except in the circumstances mentioned in sub-rule (2). Pro....
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....56 (E), dated the 16th March, 1995, the manufacturer shall pay an amount equivalent to the CENVAT credit attributable to inputs used in, or in relation to, the manufacture of such final products at the time of their clearance from the factory; or (b) if the exempted goods are other than those described in condition (a), the manufacturer shall pay an amount equal to eight per cent. of the total price, excluding sales tax and other taxes, if any, paid on such goods, of the exempted final product charged by the manufacturer for the sale of such goods at the time of their clearance from the factory. Explanation I.- The amount mentioned in conditions (a) and (b) shall be paid by the manufacturer by debiting the CENVAT credit or otherwise. Explanation II.- If the manufacturer fails to pay the said amount, it shall be recovered along with interest in the same manner, as provided in rule 12, for recovery of CENVAT credit wrongly taken. (4) No CENVAT credit shall be allowed on capital goods which are used exclusively in the manufacture of exempted goods, other than the final products which are exempt from the whole of the duty of excise leviable thereon u....
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....(ii) Low Sulphur Heavy Stock (LSHS) falling within Chapter 27 of the said First Schedule used in the generation of electricity; (iii) Naphtha (RN) falling within Chapter 27 of the said First Schedule used in the manufacturer of fertilizer; (iv) Naphtha (RN) and furnace oil falling within Chapter 27 of the said First Schedule used for generation of electricity; (v) newsprint, in rolls or sheets, falling within headingNo.48.01 of the said First Schedule; (vi) final products falling within Chapters 50 to 63 of the said First Schedule; (vii) goods supplied to defence personnel or for defence projects or to the Ministry of Defence for official purposes, under any of the following notifications of the Government of India in the Ministry of Finance (Department of Revenue), namely:- (1) No. 70/92-Central Excise, dated the 17th June,1992, G.S.R. 595 (E), dated the 17th June, 1992; (2) No. 62/95-Central Excise, dated the 16th March,1995, G.S.R. 254 (E), dated the 16th March, 1995; (3) No. 63/95-Central Excise, dated the 16th March,1995, G.S.R. 255 (E), dated the 16th March, 1995; (4) No. 64/95-Central Excise, da....
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....'s argument, which appears to have carried before the tribunal, is that the definition of "exempted goods" in Rule 2(d) envisages exemption from the whole of "the duty of excise" leviable thereon including charge of 'nil' "rate of duty"; the expression is a singular expression referring to one duty of excise and not all duties of excise, the intention of the legislature, thus, being that the goods should be exempt from the basic duty of excise referred to in Rule 3(1)(i) and (ii) and not other duties or cesses so as to qualify as "exempted goods". If the goods are thus 'exempted goods', no Cenvat credit can be availed of, as provided in Sub-rule (1) of Rule 6, except in the circumstances mentioned in Sub-rule (2). As per Sub-rule (2), so far as common inputs, that is to say, inputs used both for dutiable and exempted goods, are concerned, Cenvat credit can be availed of only on that quantity of inputs which is intended for use in the manufacture of dutiable goods, provided separate accounts are maintained by the manufacturer for receipt, consumption and inventory of inputs meant for use in dutiable final products and those meant for use in the manufacture of exempted goods. Since t....
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.... excise duty under the Act for payment of NCCD and the cesses on the final products. But, as for utilization of such credit for payment of NCCD and other cesses on the final products which were otherwise exempted from payment of basic excise duty, the court held that it was impermissible. The court held that Rule 6 was intended to cover those cases, where the main duty, which was the basic excise duty, was exempted. It construed the expression "duty of excise" appearing in the definition of "exempted goods" (in respect of which Rule 6 applied) to be covering only the basic excise duty payable under the Act. The court held that the basic excise duty was the substantial duty, out of the aggregate levies on the final product; apparently, the intention of rule-makers was that when the final product was exempted from payment of substantial part of the aggregate levies, the assessee, who opted for the benefit of exemption from duty under Section 3 of the Act, could not, at the same time, claim further benefit by way of Cenvat credit. The court, accordingly, rejected the appellant's case that it was entitled to claim Cenvat credit of basic excise duty paid on the raw materials for payment....
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....ationale of the tribunal's decision in the present case that the expression used in the definition of "exempted goods" in Rule 2(d) being "duty of excise" and not "duties of excise", there being a distinction between them, the goods are to be treated as exempted if they are exempt from payment of basic excise duty as opposed to all excise duties, thus, holds no water. The singular use of the word "duty" cannot be considered as a decisive basis for construing the expression "exempt from the whole of duty of excise" in Rule 2(d). The only other reason cited by the tribunal for its interpretation that Rule 3 of Cenvat Credit Rules 2002/2004 allows a manufacturer credit of all duties of excise, i.e. basic duty of excise and additional duty of excise, and also of other duties and cesses such as education cess, national calamity contingent duty, etc., but "duty of excise" has been referred to Rule 3(1)(i) and 3(1)(ii) and nowhere else, whereas other cesses and duties have been separately referred to, is also neither here nor there. Once it is seen that these cesses and duties are also excise duties and on that basis are included in the Cenvat credit scheme, as indicated by Rule 3 itself,....
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....for greater completeness, the absence of such words does not necessarily lead to the inference that the expression used in the subordinate legislation was without any limitation or was of wide amplitude. The court was of the view that absence of these restrictive or limitative words did not absolve it from the obligation to interpret the expression "duty of excise" in the two notifications. Whilst construing the expression, thus, the court, in the first place, noted that the notifications were issued under Rule 8(1); if so, the expression "duty of excise" used in them ought to bear the same meaning which it had in Rule 8(1) and that meaning clearly was: excise duty payable under the Central Excises and Salt Act, 1944. Such "duty", for the purposes of the Rules, was defined in Clause (v) Rule 2 to mean "duty payable under Section 3 of the Act". It could not, in the circumstances, bear the extended meaning suggested by the assessee so as to include special excise duty or auxiliary excise duty. Moreover, the court noted that when the first notification was issued, namely, as of 1 August 1974, there was no special duty of excise leviable on the concerned goods, i.e. "tyres". It came to....
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.... provision. The provisions construed by the Supreme Court in Modi Rubber Ltd. and the rationale of the court in construing the expression "duty of excise" in that matter can, thus, have no place or relevance to the issue which we are concerned with in the present case. In the present case, the expression "duty of excise" is used in Cenvat Credit Rules, which themselves include the various duties and cesses referred to therein, including the education cess and auto cess, etc. as part of "Cenvat", which is an equivalent expression to "duty of excise" after the Act was amended by introducing Section 2A therein. The expression "duty of excise" used in Cenvat Credit Rules, thus, does not, by its own force or on its own logic, lend to a distinction between basic duty of excise under the Act and special excise duties or cesses or other duties leviable under other enactments. 7(g) We are in respectful disagreement with the judgment of Uttarakhand High Court in Hero Motorcorp Ltd., to the extent it holds that Rule 6 of Cenvat Credit Rules was intended to cover those cases, where the main duty, which is the basic excise duty, was exempted. The only reasons for this statement indicated in ....
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....ule (3) of Rule 6 is to be included in the total price of final goods exigible to duty or is it eligible for deduction as a tax from such total price. The argument of the Department, which appears to have weighed with the tribunal, is that this amount (i.e. eight or ten percent, as the case may be) is not a compulsory exaction; the goods being exempt from payment of duty, there is no requirement for payment of duty. The nature of this payment is voluntary; it is for adjustment of credit which is otherwise not admissible but allowed as a measure of facilitation. The tribunal suggests that Rule 6 was not meant to be a device for the Government to raise money; it was therefore not in the nature of tax and its deduction accordingly could not be allowed for computing the excisable price. Mr.Sridharan relies on the judgments in Commissioner of Central Excise, Meerut vs. Kisan Sahkari Chinni Mills Ltd. 2001 (132) E.L.T. 523 (S.C.), Commissioner of Central Excise, Lucknow vs. Chhata Sugar Co.Ltd. 2004 (165) E.L.T. 369 (S.C.) and Assistant Collector of Central Excise vs. Madras Rubber Factory Ltd. 1987 (27) E.L.T. (S.C.), and submits that what is to be excluded from the assessable value is ....
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.... Ghose & Co. (Agents) Pvt.Ltd. vs. State of Kerala 1980 (2) SCC 410, which had held that broad meaning had to be given to the expression "tax" used in the Act. The Court held that administrative charges leviable in the case would be covered under Section 4(4)(d)(ii) as "other taxes", because they were a compulsory exaction made under an enactment and, therefore, in the nature of a tax covered by that section. In Chhata Sugar Co.Ltd. (supra), the Supreme Court expressed its agreement with the view expressed in Kisan Sahkari Chinni Mills Ltd. In Madras Rubber Factory Ltd. (supra), the Supreme Court was considering the method of computation of assessable value in the case of a cum-duty selling price at a factory gate sale in the context of Section 4(4)(d) of the Central Excise Act. The issue was whether excise duty should be first computed or permissible deduction should first be made from the selling price for reassessment before the Assessment Collector. The Court observed that assessment of excise duty, both in relation to Section 4 and in relation to the valuation rules, was now subject to the definition contained in Section 4(4)(d) of the Act. The value, as defined thereunder, wa....
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....e. It is, on the other hand, the submission of the Department that Explanation III merely clarifies what was always the law as per Rule 6(3)(b) and accordingly, no credit could be availed of even for the anterior period. We are, thus, required to consider if Explanation III is merely clarificatory or declaratory, or does it have the effect of amending the existing law, and if so, whether it applies retrospectively. 9(b) Mr.Sridharan, learned Senior Counsel for the Assessee, relying on the judgments of Commissioner of Income Tax (Central)-I, New Delhi vs. Vatika Township Pvt.Ltd. (2015) 1 SCC 1 and Greatship (India) Ltd. vs. Commissioner of Service Tax, Mumbai-I 2015 (39) S.T.R. 754 (Bom.) submits that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. Learned Counsel submits that any legislation, which modifies accrued rights or imposes new obligations or duties or attaches new disabilities, ought to be treated as prospective, unless the legislative intent is clearly to give the enactment a retrospective effect; or unless the legislation is for the purpose of supplying an obvious omission in a former legislation o....
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....intended. The language 'shall be deemed always to have meant' is declaratory, and is in plain terms retrospective. In the absence of clear words indicating that the amending Act is declaratory, it would not be so construed when the pre-amended provision was clear and unambiguous. An amending Act may be purely clarificatory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature will have retrospective effect and, therefore, if the principal Act was existing law which the Constitution came into force, the amending Act also will be part of the existing law." Three propositions clearly emerge from the above discussion: (i) the raison dealtre of a declaratory enactment is clearing of a doubt existing as to the common law, or the meaning or effect of any statute; (ii) such enactment is usually held to be retrospective if it is "to explain" an earlier statute, since it would be without object unless construed retrospective; and (iii) whether it is so or not must be determined by having regard to the nature of the particular enactment as a matter of substance rather than form. Sometim....
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....ehradun (2005) 12 SCC 717, the question before the Supreme Court was whether the salaries payable for field breaks outside India to employees of the appellant, who was a foreign company, could be subjected to tax under Section 9(1)(ii) of the Act read with the Explanation thereto by Finance Act, 1999. The Court considered the legislative history of Section 9(1)(ii) and held that there was no ambiguity in its main provision. It included salaries in the total income of an assessee if the assessee earned it in India; the word "earned" meant income "arising or accruing" in India. By an earlier explanation, introduced in 1983, it was declared that salary paid for services rendered in India shall be regarded as income earned in India. The new Explanation provided that the rest period or leave period which was preceded or succeeded by services rendered in India, and which formed part of the contract of employment, shall be regarded as income earned in India. The Court noted that the new Explanation had expanded the existing Explanation so as to specifically provide that any salary payable for rest period or leave period which was either preceded or succeeded by service in India and which ....
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....arificatory; it starts with the words "For the removal of doubts" and the operative verb used is "clarified". The apparent purpose seems to be to clear any ambiguity in that behalf and declare that in the scheme of things under Sub-rule (3), there is no scope for availment of Cenvat credit for inputs used exclusively for the manufacture of exempted goods. The whole purpose of Sub-Rules (2) and (3) appears to be to deal with a situation where a manufacturer uses common inputs for manufacture of both dutiable goods and exempted goods, and not where he uses inputs exclusively for manufacture of exempted goods. 9(g) Mr.Sridharan, however, suggests otherwise. Learned Counsel argues that the amendment [i.e. insertion of Explanation III in Sub-rule (3)] introduces, or has the consequence of, a fiscal liability and no amendment which does that can ever be said to be declaratory and no such amendment can, thus, be applied retrospectively. Learned Counsel submits that even otherwise, Sub-rule (1) being the main clause to which Sub-rule (2) is an exception, and Sub-rule (3) being an exception both to Sub-rules (1) and (2), there is no reason why Sub-rule (3) should be said to be covering o....
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....in, say, Rule 3, that rule 3 is 'notwithstanding what is contained Rules 1 and 2'. That does not carve out cases independently of Rule 2 from Rule 1. It is very much conceivable, in such a case, that Rule 2 carves out a separate class out of what is covered by Rule 1, whilst Rule 3 carves out a separate class out of Rule 2. And that is precisely what appears to be the case here. There is nothing particular about Sub-rule (1) referring to 'exempted goods' as against Sub-rule (3) which refers to a 'manufacturer'. They both deal with the same subject, namely, "manufacture" of exempted goods and apply to one and the same entity, namely, "manufacturer" of such goods. Though Sub-rule (1) mandates against availment of Cenvat credit in respect of inputs used for manufactrue of exempted goods, what it effectively does is to provide against use by manufacturer of exempted goods of Cenvat credit in respect of inputs used for such manufacture. Sub-rule (2) culls out a subset out of this larger set of manufacturers of exempted goods, and that subset is of those manufacturers who manufacture both exempted goods and dutiable goods. Two further sub-sets are then made from out of these latter manuf....