TaxTMI 
TaxTMI 
2026 (7) TMI 324
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.... the case necessary for the disposal of this Civil Miscellaneous Appeal are as follows: 2.1. T.R.L. is an assessee under the Central Excise Act, 1944. T.R.L. in its manufacturing unit at Salem, is engaged in the manufacture of 'Dead Burnt Magnesite' ['D.B.M.' for short], a non-dutiable good [nil-rate excise duty]. D.B.M. is manufactured in Salem unit by burning raw Magnesite in kiln fuelled by furnace oil, and then the same is sent to T.R.L.'s Belpahar unit at Odisha for production of refractory mortars / ramming mass, which is in turn used to produce refractory bricks. Finally, refractory mortars / ramming mass and refractory bricks are sold to various customers as final goods. Both, refractory mortars / ramming mass and refractory bricks are excisable at the rate of 16%. 2.2. In 2001, the Central Government devised a scheme for availing credit of duties paid on various inputs used in the manufacture of excisable goods under MODVAT/CENVAT Schemes. The dispute in the matter on hand relates to CENVAT input credit availed by T.R.L. / assessee for the period between March 1, 2001 and February 28, 2002. 2.3. When T.R.L. claimed CENVAT input credit for th....
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....t is sent on stock-transfer basis to their Belpahar unit where they are captively used for manufacture of dutiable goods like refractory mortars / ramming mass and refractory bricks; this stock-transfer does not amount to sale. Further, fuel input is given an exception under Rule 57 AD (1) and (2), and therefore, there is no bar against T.R.L. from claiming CENVAT input credit on the furnace oil used for the manufacture of nil-rated D.B.M. which is stock-transferred as an intermediary product to its Belpahar unit. 2.6. In short, according to the Department, D.B.M. cleared as such from T.R.L.'s Salem unit is a final good chargeable to nil rate of excise duty and therefore, no CENVAT input credit could be claimed on the furnace oil used in the manufacture of such D.B.M. Whereas, according to T.R.L., such D.B.M. is an intermediary good which is stock-transferred to the Belpahar unit where it is used in the manufacture of final dutiable goods. The final goods thus being dutiable, CENVAT input credit can be claimed on the furnace oil used in the manufacture of such D.B.M. 2.7. Upon considering the show-cause notice and the reply, and upon conducting a personal hearing, the Ass....
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....goods, under the erstwhile Central Excise Rules, 1944 and the CENVAT Credit Rules, 2001. The Tribunal failed to appreciate the fact that the entire D.B.M. is used only to manufacture excisable final goods. 3.1. As regards maintaining separate accounts in terms of Rule 57AD (2), firstly, any input used as fuel is exempted therefrom. Secondly, the final goods being dutiable as stated above, Rule 57AD does not come into picture. There is no need whatsoever to maintain separate accounts or pay 8% of the total price of final goods and in this regard reliance was placed on Union of India -vs- Hindustan Zinc Limited, reported in (2015) 15 SCC 312. 3.2. He would further submit that the decisions of the Hon'ble Supreme Court in C.C.E. -vs- Gujarat State Fertilisers and Chemicals Limited, reported in (2008) 15 SCC 46 and in C.C.E. -vs- Gujarat Narmada Fertilizers Co. Limited, reported in [2009 (240) ELT 661 (SC)], are not applicable to the facts of the present cases, as the final good in both the said cases is an exempted good (fertiliser), whereas in the instant case, the final goods being refractory mortars and refractory bricks are dutiable in nature. A reference was made to a l....
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....T., Jaipur -vs- Shree Cement Ltd., reported in 2018 (16) G.S.T.L. 196 (Raj.); (ix) Judgment of the Bombay High Court in Rallis India Limited -vs- Union of India, reported in 2009 (233) E.L.T. 301 (Bom.); (x) Judgment of the Gujarat High Court in Commissioner of Central Excise and Customs, Vadodara - I -vs- Sterling Gelatin; reported in 2011 (270) E.L.T. 200 (Guj.); (xi) Judgment of the Bombay High Court in Oil and Natural Gas Corporation Ltd., -vs- Commissioner of Central Excise, S.T. & Customs, Raigad, reported in 2013 (32) S.T.R. 31 (Bom.); (xii) Judgment of this Court in M/s. India Cements Ltd., -vs- Commissioner of Customs, Central Excise & Service Tax, Tirunelveli, bearing neutral citation in 2024/MHC/6057; (xiii) Larger Bench judgment of the CESTAT, West Zonal Bench, Mumbai in Sterlite Industries (I) Ltd., -vs- Commissioner of Central Excise, Pune, reported in 2005 (183) E.L.T. 353 (Tri. - LB); (xiv) Judgment of the CEGAT, West Zonal Bench, Mumbai in M/s.Ballarpur Industries Ltd., -vs- Commissioner of Central Excise, Nagpur, reported in 2001 (138) E.L.T. 94 (Tri.-Mumbai); 4. Per contra, Mr.M.Santhanaraman, learned Senio....
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....uch from Salem unit to Belpahar unit, it obtains the character of a final good and Rule 57 AD is applicable. As Rule 57 AD stipulates that no CENVAT input credit shall be availed in respect of inputs utilised for production of exempted or nil-rated goods, T.R.L. is not entitled to claim CENVAT input credit in respect of the furnace oil used for production of the nil-rated D.B.M. 4.4. He would submit that C.E.S.T.A.T. rightly dismissed the appeal and directed T.R.L. to repay the ineligible input credit obtained. There is no need to interfere with the same. Accordingly, he would pray to dismiss the Civil Miscellaneous Appeal and sustain the Order of C.E.S.T.A.T. DISCUSSION 5. Heard on either side. Perused the materials available on record. 6. From the show-cause notice and the reply thereto, it can be seen that, admittedly, T.R.L. is involved in the manufacture of both excisable and exempted / nil-rated goods at their Salem unit. T.R.L. manufactures D.B.M. chargeable to nil-rate of excise duty by burning raw Magnesite in rotary kiln fuelled by furnace oil in their Salem unit, which is then utilised in two ways. First, D.B.M. is used to manufacture Monolithic (mortars) whi....
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....reunder: "Rule 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 manufacture 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 Excise Tariff Act, 1985; (ii) tyres of a kind used on animal drawn v....
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....se are captured in Paragraph Nos.2 and 3 of the Judgment passed therein, which read thus: "2. Briefly stated, the facts are as follows: The appellants are manufacturers of tractors. They claimed MODVAT credit in respect of duties paid on inputs used in the manufacture of parts. Those parts were then cleared to another factory of the appellants, without payment of duty, by virtue of Notification No. 217/86-CE dated 2-4-1986. The parts were then used to manufacture tractors on which duty was paid. 3. The respondent issued a show-cause notice on the ground that MODVAT credit was not admissible as the final goods i.e. the parts were cleared without payment of duty. The appellants claimed that the final products were not the parts but the tractors. The appellants claimed that duty was being paid on the tractor and, therefore, MODVAT credit was available under Notification No. 217/86-CE dated 2-4-1986." 11.1. In the above factual matrix, the Hon'ble Supreme Court rendered the following findings: "6. It is the contention of the respondent, which has been accepted by CEGAT, that Rule 57-C would become applicable as the parts are cleared from one f....
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.... the input was plaster of Paris, the intermediate product was moulds made out of the plaster of Paris, the final product was sanitaryware. In our view, the facts of that case are identical to the facts of the present case. The ratio laid down therein fully applies to this case." 11.2. Escorts Limited Case clarifies two important aspects with respect to the case on hand. One, merely because D.B.M. which is an intermediary product in the manufacture of certain final products, is cleared from one factory of T.R.L. to its another factory, it does not make it the final product for the purpose of availing input credit. Second, in cases where an intermediate product chargeable at nil-rate of excise duty comes into existence during the process of manufacturing, credit would still be allowed so long as duty is paid on the final product. 11.3. While it was also held in Escorts Limited Case that the mere fact that the intermediary products are cleared from one factory of the manufacturer to their another factory would not disentitle them from claiming input credit, it was held primarily on the ground that the definition of "input" in the subject notification therein covered not just tho....
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.... brought up by the Department. Hence, this Court concludes that it is merely a stock-transfer, and not sale as alleged by the Department. 13. Mr.M.Santhanaraman, learned S.S.C., would rely on the Judgment of Hon'ble Supreme Court in Ballarpur Industries Case [cited supra], to contend that Rule 57AD applies to stock-transfer as well. The facts thereof, as set out in Paragraph Nos.2 to 6 thereat, reads thus: "2. The issue which arises in this civil appeal is as to whether in the absence of any "sale", Rule 57-CC of the Central Excise Rules, 1944 would have any application or not. The contention of the assessee is that in the case of "stock transfer" there is no "sale" and, therefore, Rule 57/CC was not applicable. This contention has been accepted by the Tribunal, hence this civil appeal. 3. The assessee is engaged in manufacture of paper falling under Chapter 48 of the Central Excise Tariff Act. The assessee is availing the benefit of MODVAT Scheme under Rule 57/A of the Central Excise Rules, 1944 (for short "1944 Rules"). The assessee is also manufacturing pulp falling under Chapter 47 of the Central Excise Tariff Act, which is chargeable to nil rate of dut....
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....t credit on inputs on which credit was taken by applying Rule 6(b)(i) of the Valuation Rules, 1975. If Rule 6(b) (i) was to apply then considering the sale price of pulp cleared in other States, the duty amount payable by the assessee herein, worked out to Rs 4,57,56,812/- whereas the assessee had paid an amount of Rs 2,67,32,851/-." 13.1. In this factual matrix, the Hon'ble Supreme Court set aside the Tribunal's finding that, said Rule 57CC as it stood then was not applicable as it was a case of stock-transfer with no sale involved. The Hon'ble Supreme Court inter-alia ruled that said Rule 57CC applies to cases of stock-transfer as well. 13.2. This Court is of the view that the reliance on Ballarpur Industries Case is misplaced as it is not applicable to the facts of the present case. No doubt that Rule 57CC is comparable to Rule 57AD. However, they both deal with exempted or nil-rated final goods. From Escorts Limited Case [cited supra], it is clear that D.B.M. is only an intermediate product and the final product are those manufactured in T.R.L.'s Belpahar unit, namely refractory mortars / ramming mass and refractory bricks, which are excisable at the rate ....
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....f this case. 16. Had the final dutiable goods been manufactured at the Salem unit itself, furnace oil would have got snuggly slotted under the definition of "input" under Rule 57AA (d) of the erstwhile the Central Excise Rules, 1944 and CENVAT input credit could have been availed. But it is utilised in T.R.L.'s Belpahar unit. It is to be noted that both the units belong to the same owner and it is stated in the reply statement to the show-cause notice that even the balance sheets are one and the same; only their physical location is different. The D.B.M. was not cleared to any third parties but to another unit of the same manufacturer for the purpose of further processing to make refractory mortars / ramming mass and refractory bricks which are dutiable final goods. If the expression "within the factory of production" is interpreted strictly and narrowly to mean that every stage of manufacture must take place within the same factory premises, anomalous consequences would follow. Assuming that T.R.L. had established another unit only a few kilometres away from its Salem unit and stock-transferred the intermediary product - D.B.M. thereto for further processing and manufacturi....
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....vant extract reads thus: "8. This Court in CCE -vs- Gujarat Narmada Fertilizers Co. Ltd. (2009) 9 SCC 101, after setting out the Central Excise Modvat Rules as they stood in 2000, together with the Cenvat Credit Rules, then went on to hold : (SCC pp. 107- 08, paras 15-19) "15. As can be seen from the submissions, the contention of the assessee is that exclusion of fuel inputs from the purview of sub-rule (2) of Rule 6 would mean that such inputs are also automatically excluded from sub-rule (1) whereas according to the Department sub-rule (1) is a general rule which provides, that except for the circumstances mentioned in sub-rule (2), Cenvat credit shall not be allowed on such quantity of inputs used in the manufacture of exempted goods and even though fuel-inputs are excluded from sub-rule (2), such inputs would still fall under sub-rule (1). 16. 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.....
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....in these Rules which certainly include LSHS and steam and electricity that are produced in the manufacturing process utilising LSHS. The exception that is contained in sub-rule (2) refers to all inputs except inputs intended to be used as fuel which then results in the manufacture of final products which are both chargeable to duty as well as exempted goods. What is clear is that the exception to sub-rule (1) which is contained in sub-rule (2) itself contains an exception, namely, inputs intended to be used as fuel. This being the case, the moment it is found that inputs are intended to be used as fuel, such inputs go outside the ken of sub-rule (2) of Rule 6. When this happens, the exception contained in sub-rule (2) does not come into effect at all as a result of which sub-rule (1) must be applied on its own terms." 18. In view of the foregoing narrative, this Court holds that T.R.L. is entitled to claim CENVAT input credit in respect of the fuel - furnace oil consumed in the manufacture of D.B.M. being excisable at nil-rate, as the final product is not D.B.M. but the refractory mortars / ramming mass and the refractory bricks manufactured at Belpahar unit. The final products ....