TaxTMI 
TaxTMI 
2008 (8) TMI 97
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....ri S.S. Gupta C.A. for the appellant submit that the question which is referred in this case is whether the provisions of Rule 6(3)(b) of the Cenvat Credit Rules, 2002 will come into force, despite the fact that assessee has reversed the Cenvat credit attributable on the inputs used in the manufacture of exempted final products. It is the submission that the question involved in this case is regarding the Cenvat credit availed by the assessee on the common inputs which are used for dutiable and exempted products. The ld. Counsel draws our attention to the provisions of Rule 6 of the Cenvat Credit Rules, 2002. It is his submission that Rule 6(1) disentitles the assessee to take credit on the inputs used for exempted products except in the circumstances mentioned in sub-rule (2). It is his submission that construction of this Rule is to be read in a broader prospective, so as to deny the Cenvat credit on the inputs, which are used in the manufacture of exempted products. It is his submission that provisions of Rule 6(2) mandate that the assessee/manufacturer shall maintain separate accounts of receipt, consumption and inventory of inputs meant for use in the manufacture of exempted g....
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....med for the manufacture of exempted goods is good enough to hold that credit is not availed on inputs so as to satisfy conditions of notifications. It is his submission that the law as settled by the Hon'ble Supreme Court in the case of Chandrapur Magnet Wires Pvt. Ltd. has been followed by a series of judgments of the Tribunal in identical situations. It is the submission that contrary judgment of the Tribunal in the case of Commissioner of C.Ex. Jaipur-II v. Maa Kamakhya Marbles (P) Ltd. [2004 (170) E.L.T. 580 (Tri.-Del.)] and National Information Technologies Ltd. v. C.C.E., Bhopal [2005 (179) E.L.T. 404 (Tri.-Del.) were delivered in the absence of reference to the decision in the case of Chandrapur Magnet Wires Pvt. Ltd, as it was not produced before the Bench. It is his submission that Division Bench of the Tribunal in the case of CCE, Mumbai-IV v. Philips India Ltd. [2006 (200) E.L.T. 106 (Tri.-Mumbai) clearly noting the fact that the judgment of Maa Kamakhya Marbles (P) Ltd. (Supra) was passed without considering the law as has been settled by the Hon'ble Supreme Court, held that the order of Maa Kamakhya Marbles (P) Ltd. incorrect. 4. Ld. Jt. CDR on the other hand would ....
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.... It is his further submission at interpretation of a statute that will make other part of the law otiose, should avoided. It is his submission that if Rule 6(3)(a) has been carved out by the legislature for specific entries, and mandate that plain reversal of credit in those exceptions are enough, that would indicate that there was an exception. If the assessee does not fall within the exception carved out in Rule 6(3)(a), he cannot allowed to reverse the credit availed on the common inputs, which are used in exempted products but has to perforce abide by the provisions of Rule 6(3)(b) are Cenvat Credit Rules. For this proposition, he relies upon Apex Court's decision in the case of Hind Plastics v. Collector of Customs, Bombay [1994 (71) E.L.T. 325 (S.C.)], Commissioner of Income Tax, Jalpaiguri v. Om Prakasli Mittal[2005 (184) E.L.T. 3 (S.C.)] and Singh Enterprises v. Commissioner of Central Exicse, Jamshedpur [2008 (221) E.L.T. 163 (S.C.)]. It is his submission that any benefit to the assessee, should be allowed only in terms of provisions as enacted and can be claimed only in the manner prescribed under the statute. He submits that provisions of Rule 6(3)(a) and (b) are substan....
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....s submission that the language of the provisions of Rule 6(3)(b) is plain but the effect of the same is disproportionate, that is to say for availing credit of Rs. 100/- on the common input, if an assessee is required to reverse 8% or 10% of the value of the exempted goods which would, hypothetical be Rs. 1,000/-, it would defeat the entire purpose. It is his submission that the provisions of Rule 6(1) do not militate against Rule 6(2) or Rule 6(3). He submits that the decision of the Hon'ble Supreme Court in the case of Chandrapur Magnet Wires Pvt. Ltd. was delivered in a more difficult situation, wherein exemption notification very specifically included bar of non- availment of credit on the inputs, but despite that, Hon'ble Supreme Court held that plain reversal is enough. It is his submission that identical view has been expressed by the Hon'ble Supreme Court in the case of Bombay Dyeing & Manufacturing. It is his submission that the position of the law got further affirmed in the case of Life Long Appliances Ltd. v. Commissioner of Central Excise, Delhi-III [2000 (123) E.L.T. 1110 (Tribunal)] wherein the Tribunal took the same view relying upon the judgment of the Hon'ble Supr....
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....used in the generation of electricity; (iii) Naphtha (RN) falling within Chapter 27 of the said First Schedule used in the manufacture of fertilizer; (iv) Tyres of a kind used on animal drawn vehicles or handcarts and their tubes, falling within Chapter 40 of the said First Schedule; (v) Newsprint, in rolls or sheets, falling within heading No. 48.01 of the said First Schedule; (vi) Final products falling within Chapters 50 to 63 of the said First Schedule, 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 sales of such goods at the time of their clearance from the factory. Explanation I. - The amount mentioned in condition (a) and (b) shall be paid by the manufacturer by debiting the CENVAT credit or otherwise. Explan....
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.... exclusions as envisaged. We find that these provisions are pari materia to the provisions of Rule 57CC of the Central Excise Rules, 1944 which reads as under: "RULE 57CC. Adjustment of credit on inputs used in exempted final products or maintenance of separate inventory and accounts of inputs by the manufacturer. - (1) Where a manufacturer is engaged in the manufacture of any final product which is chargeable to duty as well as in any other final product which is exempt from the whole of the duty of excise leviable therein or is chargeable to nil rate of duty and the manufacturer takes credit of the specified duty on any inputs (other than inputs used as fuel) which is used or ordinarily used in or in relation to the manufacture of both the aforesaid categories of final products, whether directly or indirectly and whether contained in the said final products or not, the manufacturer shall, unless the provisions of sub-rule (9) are complied with, pay an amount equal to eight per cent of the price (excluding sales tax and other taxes, if any, payable on such goods) of the second category of final products charged by the manufacturer for the sale of such goods at the time of their....
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....ke credit of the specified duty paid on such inputs". It can be noticed from the above reproduced Rule 57CC of the Central Excise Rules, 1944, and more specifically sub-rule (1), that the obligation cast upon the manufacturer in the current Rule 6(3)(b) is pari materia unless the provisions of sub-rule (9) are complied with. Combined reading of Rule 57CC(1) and 57CC(9) would indicate, that Rule 6(3)(b) has been carved out of a combination of the said sub-rule of Rule 57CC of Central Excise Rules, 1944. We find that the provisions of Rule 57CC as regards the reversal of the credit on the inputs were considered by the Tribunal in the case of Life Long Appliances Ltd. (supra). The Tribunal came to the following conclusion at paragraph 4. "The present appellant's case is identical. They were also producing exempted and dutiable goods from the same inputs which were procured and stored together. The exemption which they claimed was also subject to the same condition that Modvat Credit should not have been taken on the inputs used in the manufacture of the exempted goods. In order to satisfy these requirements they paid Central Excise Duty of 8% as fixed for such cases under Rule 5....
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....ucts were manufactured from copper wire bars and also subject to the stipulation that "(b) No credit of the duty paid on goods (a)(ii) above, used in their manufacture, has been taken under Rule 57A of the said Rules". Hon'ble Supreme Court clearly noted that there is no dispute that the inputs which were utilized in the manufacture of copper wires were duty paid and the appellants therein had availed the credit in the ledger maintained under the Excise Rules. It is also noted by the Apex court that assessee had not maintained separate accounts or segregated the inputs utilized for manufacturing of dutiable and duty free goods as should have been done. Despite this, the Hon'ble Supreme Court came to the conclusion that the appellant having reversed the amount of the duty before the removal of the exempted final goods, would amount to non-availment of the credit on the inputs. We may reproduce the ratio:- "In view of the aforesaid clarification by the Department, we see no reason why the assessee cannot make a debit entry in the credit account before removal of the exempted final product. If this debit entry is permissible to be made, credit entry for the duties paid on the input....
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....e Rules, 1944 and are also pari materia with Rule 6 of Cenvat Credit Rules, 2002. The said rule is reproduced verbatim. "57AD. Obligation of manufacturer of dutiable and exempted goods.-(1) 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). (2) Where a manufacturer avails of CENVAT credit in respect of any inputs, except inputs intended to be used as fuel, and manufactures such final products which are chargeable to duty as well as exempted goods, then, the manufacturer shall maintain separate accounts for receipt, consumption and inventory of inputs meant for use in the manufacture of dutiable final products and the quantity of inputs meant for use in the manufacturer of exempted goods and take CENVAT credit only on that quantity of inputs which is intended for use in the manufacture of dutiable goods. The manufacturer, opting not to maintain separate accounts shall follow either of the following conditions, as applicable to him, namely:- (a) if the exempted goods are, - (i) final products falling under Chapters 50 to 63 of the Schedule to the Central E....
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....7-1996 [ reported in 1996 (15) RLT M159] wherein the Board had clarified that credit of the duty paid on the common input is admissible when used in the manufacture of the final product once the said credit on duty paid inputs going into the exempted category of the final product is debited in the RG 23A Part-II account before the removal of the exempted final product on actual or pro rata basis. Reliance was also placed on the CESTAT decision in the case of Rochees Watches Ltd., [2003 (54) RLT 761 (CEGAT-Del.)] 2003 (152) ELT 420 wherein it was held that once the credit taken by the appellant on the inputs used in the manufacture of the exempted wrist watches reversed by them before clearances-Demand in terms of Rule 57AD(2)(b) of erstwhile Central Excise Rules, 1944 was not justified. We have heard the submission. We find that the appellant's case is fully covered by the Board's Circular referred to above and the CEGAT decision in the case of Rochees Watches Ltd., cited supra" Revenue was aggrieved by the said decision and took up the matter in appeal before the Hon'ble High Court of Judicature at Bombay. Their Lordships while dismissing the appeal held as under [2008 (225)....
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....), it has been decided by the Board that credit of the duty paid on common inputs is admissible when used in the manufacture of the final product (exempted and dutiable) provided the said credit of duty paid on inputs going into the exempted category of the final product is debited in the RG 23A -Part II account before the removal of exempted final product on actual orpro rata (estimated) basis. " We are unable to find any fault with the observations of learned Members of CESTAT for which they were inclined to allow the appeal of the assessee. No substantial question of law arises now for our consideration. The appeal of the department is therefore, summarily dismissed". 9. It can be noticed from the above reproduced judgments of the Hon'ble Supreme Court and the Hon'ble High Court, that it is the settled law that reversal of the credit taken on the inputs is as good as non-availment of the credit on the inputs. 10. To our mind, the decisions of the Hon'ble Supreme Court in the case of Life Long Appliances (supra), following the decision of Chandrapur Magnet Wires Ltd. (supra) and the judgment of Hon'ble Apex Court in the case of Bombay Dyeing Manufacturing, (supra) and th....
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.... Hon'ble Supreme Court in the case of Commissioner of Central Excise, Chandigarh-II v. Bhalla Enterprises reported in 2004 (173) E.L.T. 225 (S.C.) has held that the principle of strict/liberal interpretation applies only in case of ambiguity, otherwise plain words of the statute must be given effect. The Hon'ble Supreme Court in the case of Commissioner of Wealth Tax v. Hashmatunissa Begum reported in 1989 (40) E.L.T. 239 (S.C.) has held that the stat ute is not to be read in another way where the words are readable only in a particular way. It has been further held therein that one of the pillars of statutory interpretation viz., the literal rule, demands that if the meaning of the statutory interpretation is plain and the courts must apply regardless of the result. The Hon'ble Supreme Court in the case of Hind Plastics v. Collector of Customs, Bombay reported in 1994 (71) E.L.T. 325 (S.C.) has held that the principle is unexceptionable that where it is statute, statutory instrument or an ordinary instrument, the interpretation placed has to accord with intention of maker as evidenced by words/language used. 15. It is seen that Rule 6 (1) specifically prohibits CENVAT credit be....
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....f the final exempted product manufactured is not covered by sub-rule (3)(a) of Rule 6 ibid, it will be covered by sub-rule (3)(b) of Rule 6 ibid and the manufacturer is required to pay 8% or 10% of the sale price of the final exempted product. The facility of reversing the credit taken is neither explicitly given nor necessarily implied in the Cenvat Credit Rules, 2002. The Central Board of Excise and Customs, the Apex body of the Government, which administers the Customs and Central Excise Laws, in its Circular No. 739/55/2003-CX dated 28-8-2003, has observed that "as per Rule 6(1), CENVAT credit shall not be allowed on inputs used in the manufacture of exempted goods and it does not pertain to reversal of input credit. If the conditions of sub-rule (2) of Rule 6 are not followed, then the question of taking CENVAT credit and subsequently reversing it does not arise at all." The provisions of Rule 6 are unambiguous and clear. The Central Board of Excise and Customs, in its Circular No. 654/45/2002-CX dated 19-8-2002, has clarified that "In terms of Rule 6, the assessee, who has not maintained separate inventory and has taken credit on common inputs used in the manufacture of dutia....
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....Tribunals have applied the ratio of the decision of the Hon'ble Supreme Court in the case of Chandrapur Magnet, it will be worthwhile to ascertain the true ratio of that decision, as what is 'law in precedent' is its ruling or ratio decidendi, which concerns future litigants as well as those involved in the instant dispute. Knowing the law in this context means knowing how to extract the ration decidendifrom cases. Statements not part of the ration decidendi are distinguished as obiter dicta and are not authoritative. Three shades of meaning can be attached to the expression 'ratio decidendi, The first, which is translation of it. is 'the reason for (or of) deciding.' Even a finding of fact may in this sense be the ratio decidendi. Thus, a judge may state a rule and then decide that the facts do not fall within it. Secondly, it may mean 'the rule of law proffered by the judge as basis of his decision' or, thirdly, it may mean 'the rule of law which others regard as being of binding authority.' On the issue of Ratio Decidendi, Vaughan CJ in his statement in the case of Bole v. Horton (1673) Vaugh 360 at 382: had clarified "An opinion given in court, if not necessary to the judgme....
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....n (No. 1) [1987] QB 433. A second letter of request was issued setting out the specific questions that the witnesses were to be asked if an order for their examination was made. The orders sought were made. On appeal the witnesses sought to argue that on the proper construction of s. 1 there was no jurisdiction to make the order contrary to the ruling in In re Norway's Application (No. 1). The Court of Appeal held that this g was not part of the ratio of the case (ruling in In re: Norway's Application (No. 2). reason given was that statements of the Court of Appeal in the earlier case were not necessary for the decision of the Court. That is, the result of the ease would have been the same had the issue of jurisdiction been decided the other way: see at 738 per May I.J, at 750 per Balcombe U and at 770 per Woolf L.J. Hon'ble Supreme Court in the case of CC v. Toyota Kirloskar reported in 2007 (213) E.L.T. 4 (S.C.) had an occasion to examine the scope of ratio decidendi. It observed in Para 30 "30. The observations made by this Court Essar Gujarat Limited (supra) in Paragraph 18 must be understood in the factual matrix involved therein. The ratio of a decision, as is well-know....
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....n to the subject matter of the action. It is the judgment that estops the parties from reopening the dispute. However, for the purposes of the doctrine of precedents ingredient No. (ii) is the vital element in the decision. This indeed is the ratio decidendi. It is not every thing said by a Judge when giving judgment that constitutes a precedent. The only thing in a Judge's decision binding a party is the principle upon which the case is decided and for this reason it is important to analyse a decision and isolate from it the ratio decidendi." The aforesaid observations have been accepted by a full bench of this court in the case of Ahmedabad Mfg. and Calico Printing Company Ltd. v. Union of India and Others - 1982 (10) E.L.T. 821 (Guj.) = XXIV(1) G.L.R. 1. After referring to the aforesaid decision of the Supreme Court and other two decisions of the Supreme Court, in the case of Madhav Rao Scindia v. Union of India, A.I.R. 1971 S.C 539 and in the case of A.D.B. Jabalpur v. S. Shukla, A.I.R. 1976 S.C. 1287, the full bench has observed that the court must be necessity examine the precise question or the precise issue which arose before the court and identify the principle of law, ....
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....e is not complete until it is affixed to a gantry. Special reliance was placed upon the observations at page 202 where it was stated as Follows: "The 3-motion electrical overhead travelling crane comes into existence as a unit only when the component parts are fixed in position and erected at the side, but at that stage it becomes the property of the customer because it is permanently embedded in the land belonging to the customer. The result is that as soon as 3-motion electrical overhead travelling crane comes into being, it is the property of the customer and there is, therefore, no transfer of property in it by the manufacturer to the customer as a chattel. It is essentially a transaction for fabricating component parts and putting them together and erecting them at the site so as to constitute a 3-motion electrical overhead travelling crane. The transaction is no different than one for fabrication and erection of an open godown or shed with asbestos or tin sheets fixed on columns. There can, therefore, be no doubt that the contract in the present case was a contract for work and labour and not a contract for sale." I regret, the reliance placed upon the decision of the S....
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....ctually decides and not the logical extensions therefrom. In the Regional Manager and Another v. Pawan Kumar Dubey, AIR 1976 S.C. 1766 it was laid down that ratio decidendi is the rule deducible from the application of law to the facts and circumstances of a case and not some conclusion based upon facts which may appear to be similar. So also in C.I.T. Bihar, Patna v. Sheo Kumari Devi, 1986 BLJR 825. It is not necessary to multiply decisions on this aspect of the matter. I am clearly of the view that the case of Ram Sing and Sons (supra) does not lay down that a crane is not a crane until it is affixed to a gantry. Reliance placed by Mr. Chatterji for the petitioner is clearly misplaced and must be rejected." 19. A reading of all the decisions on this issue leaves no doubt in my mind that- (i) An opinion of the Court on any issue, not necessary for deciding the dispute, cannot he considered as ratio of that case. (ii) The ratio of a decision, as is well-known, must he culled out from the facts involved in a given case. A decision is an authority for what it decides and not what can logically be deduced therefrom. (iii) The only thing in a Judge's decision binding a part....
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....t is that the reversal of credit entries are not permitted by the rules. The assessee is not entitled to remove the copper wires without payment of duty since credit of the duty paid on the inputs used in the manufacture of copper wire had already been taken in accordance with Rule 57A. Once appropriate entries have been made in the register, there is no rule under which the process could be reversed. Since the credit has been taken for the duty paid on the inputs in the ledger maintained by the assessees, the assessee cannot be heard to say that no credit of the duty has been taken by it under Rule 57A. 6. It is true that the assessee has not maintained separate accounts or segregated the inputs utilised for manufacture of dutiable goods and duty free goods, as should have been done. The contention of the Department that in this situation, the assessee is not entitled to reverse the entries and get the benefit of the tax exemption is a question which merits serious consideration. There is no doubt that the assessee should have maintained separate accounts for duty free goods is and the goods on which duty had to be paid. But our attention was drawn to a departmental circular le....
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....e conditions was that no credit of duty paid on inputs was taken under Rule 57A of the erstwhile Tariff. (ii) The assessee had not maintained separate account for inputs utilized in dutiable and exempted goods. (iii) There was a circular of the Department clarifying that if it was not possible to segregate the inputs for manufacture of dutiable and exempted goods (under a Notification), then the manufacturer may be allowed to take the credit on the inputs but he should reverse the credit before the removal of the exempted product. The decision of the Apex Court in Para 7 of the Order is very clear. The Hon'ble Court takes into consideration the said circular and then accepts the contention of the assessee for grant of the exemption. Then in no uncertain terms the Court observes 'In such a situation, it cannot be said.......'. The Hon'ble Court has decided the issue considering the Circular of the Department and can be considered as ratio in the aforesaid facts only. The ratio of this case cannot be applied, where the facts are different. Even if the circular was withdrawn or there was a change in law, the ratio of this decision will not apply. Even the decision of the H....
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....no such prescription prior to the amendment. The decision of the majority in this case will make the amendment superfluous. Such interpretation has to be avoided. 24. As regards the reliance placed in the majority order on the judgment of the Hon'ble Supreme Court in the case of Commissioner of Central Excise, Mumbai-I v. Bombay Dyeing and Mfg Co. Ltd. reported in 2007 (215) E.L.T. 3 (S.C.) is concerned, it is to be noted that the Hon'ble Supreme Court in that case was dealing with the issue of the admissibility of exemption under Notification No. 14/2002-C.E. dated 1-3-2002 to the grey fabrics. It was held therein that the exemption under Notification No. 14/2002-C.E. dated 1-3-2002 is subject to the condition of non-taking of the Cenvat credit. It was held in that context that the credit taken but before utilization reversed, it will amount to not taking the credit and the benefit of exemption cannot be denied The Hon'ble Supreme Court in this case was not dealing with the issue of use of the common inputs in the manufacture of the dutiable and exempted goods vis-a-vis the applicability of the provisions of Rule 57CC of the Central Excise Rules, 1944 or Rule 57AD of the ....
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.... was not liable to pay the presumptive sum of eight per cent of the price of exempted goods on the ground that the said exempted goods were wholly manufactured out of inputs on which no credit of duty had been taken under Rule 57A. The amount required to be paid at the time of removal of exempted goods under Rule 57CC(1) had to be done in the same manner as was the case with any other excisable goods as the rate of duty stood determined at the rate of eight per cent in the rule itself. The said presumptive amount was required to be paid by debiting in PLA register or by payment in cash. As stated above, there was an alternative provided under sub-rule (9) which relieved the manufacturer of the liability to pay eight per cent of the price of exempted goods at the time of removal of such goods. Under sub-rule (9), the assessee was required to maintain a separate account and an inventory and that he was not entitled to take credit on the inputs meant for use in exempted final product. If such accounts and inventory were maintained, there was no need to pay a presumptive amount equal to eight per cent of the price of exempted goods at the time of their removal. 14. In our view, Rule....