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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 4189-4196 OF 2010

Commissioner of Central Excise, Vadodara   …..Appellant

         Versus

Gujarat Narmada Valley Fertilizers  Company Ltd.   …..Respondent

J U D G M E N T  

Madan B. Lokur, J.

1. The assessee utilizes cenvat duty paid Low Sulphur Heavy  

Stock (for  short  LSHS) as fuel  input for  generating steam. The  

steam  so  generated  is  utilized  to  generate  electricity  for  the  

manufacture  of  fertilizer  which  is  exempt  from  excise  duty.  

According to the assessee, it is entitled to claim cenvat credit on  

the  input,  that  is,  LSHS  even  though  fertilizer  is  exempt  from  

excise duty.  The correctness  of  this  view was disputed by the  

Revenue.

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2. Consequently, the Commissioner, Central Excise & Customs,  

Vadodara-II (hereinafter referred to as ‘the Commissioner’) issued  

two  notices  to  the  assessee  to  show cause why  cenvat  credit  

wrongly availed by it should not be recovered under Rule 12 of  

the Cenvat Credit Rules, 2002 (hereinafter referred to as Rules)  

read  with  Section  11A  of  the  Central  Excise  Act,  1944.   The  

assessee was also required to show cause why interest be not  

recovered on the wrongly availed cenvat credit and why penalty  

be not imposed on it.

3. The first show cause notice issued to the assessee was dated  

8th March 2004 and pertained to the period 31st March 2003 to  

September 2003 while the second show cause notice was dated  

28th July  2004  and  was  for  the  period  October  2003  to  March  

2004.  

4. The assessee replied to both the show cause notices  and  

after  giving  the  assessee  an  opportunity  of  hearing,  the  

Commissioner adjudicated the first show cause notice by passing  

an order adverse to the assessee on 24th June 2004.  The second  C.A.Nos.4189-4196/2010          Page 2 of 11

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show cause notice was similarly adjudicated and an adverse order  

passed on 30th August 2004. By these orders, the Commissioner  

confirmed the demand of cenvat credit wrongly claimed by the  

assessee.  The Commissioner also directed the assessee to pay  

interest  on  the  demanded  amount  and  also  imposed  personal  

penalty under Rule 13 of the Rules.

Proceedings before the Tribunal:

5. Feeling  aggrieved,  the  assessee  preferred  two  appeals  

before the Customs, Excise & Service Tax Appellate Tribunal at  

Mumbai  (hereinafter  referred  to  as  the  Tribunal).  The  appeals  

were numbered as Appeal Nos.E/2517/2004 and E/3672/2004.

6. For  reasons  that  are  not  apparent  from the  record,  both  

appeals were referred to a larger Bench and heard by the Vice-

President and two members of the Tribunal (hereinafter referred  

to for convenience as the larger Bench).  By an order dated 27th  

December 2006/4th January 2007, the larger Bench held that the  

assessee was entitled to claim cenvat credit on the LSHS used as  

input for producing steam and electricity for the manufacture of  

fertilizer. According to the larger Bench, the issue raised by the  

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assessee  was  fully  covered  in  its  favour  by  a  decision  of  the  

Tribunal  in  Gujarat   Narmada   Fertilizers   Co.  Ltd.  v.   

Commissioner of Central Excise, Vadodara, 2004 (176) ELT  

200 (Tri. – Mumbai) against which the Revenue’s appeal before  

the  Gujarat  High  Court  was  dismissed  since  no  substantial  

question of law arose.  The decision of the Gujarat High Court is  

Commissioner  of  Central  Excise and Customs v.  Gujarat   

Narmada Fertilizers Co. Ltd., 2006 (193) ELT 136 (Gujarat).  

7. The Tribunal  was,  therefore,  of  the opinion that  the issue  

was no longer res integra and the decision earlier rendered by the  

Tribunal was binding upon the parties. The reference made to the  

larger Bench was then answered in the following terms:-

“The reference is thus answered by holding  that  the  assessees  are  eligible  to  cenvat  credit of duty paid on that quantity of LSHS  which  was  used  for  producing  steam  and  electricity  used  in  turn  in  relation  to  manufacture  of  exempted  goods,  namely  fertilizers.”

8. Pursuant to the decision of the larger Bench, the substantive  

appeals were placed before a Division Bench of the Tribunal.  By  

an order dated 10th April 2008 (impugned before us) the Division  

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Bench of the Tribunal allowed the assessee’s appeals relying on  

the decision of the larger Bench.

Earlier proceedings in this Court:

9. In the meanwhile, the Revenue preferred an appeal to this  

Court against the decision of the larger Bench of the Tribunal. By  

a judgment and order dated 17th August 2009 (rendered after the  

impugned  order  passed  by  the  Tribunal),  this  Court  in  

Commissioner  of  Central  Excise v. Gujarat  Narmada  

Fertilizers Company Limited, (2009) 9 SCC 101 set aside the  

order of the larger Bench and decided the issue raised in favour of  

the Revenue.

10. This Court held that the Tribunal (and later the Gujarat High  

Court) did not correctly appreciate the legal position in  Gujarat  

Narmada.   In coming to this conclusion, this Court referred to  

Rule 6 of the Rules.  For convenience, Rule 6(1) and 6(2) of the  

Rules are reproduced and they read as follows:-

“6.  Obligation  of  manufacturer  of  dutiable and excisable goods-  

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(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).   Provided xxx xxx xxx

(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.”

11. This  Court  was of  the view that  Rule 6(1)  of  the Rules  is  

plenary and that cenvat credit for duty paid inputs used in the  

manufacture of exempted final products is not allowable.  Rule  

6(1) of the Rules covers all  inputs, including fuel.  On the other  

hand, Rule 6(2) of the Rules refers to other inputs (other than  

fuel) used in or in relation to the manufacture of the final product  

(dutiable and exempted).

12. This Court further held that on a cumulative reading of Rule  

6(1) and Rule 6(2) of the Rules it is clear that the legal effect of  

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Rule 6(1) of the Rules is applicable to all inputs, including fuel.  

Therefore, cenvat credit will not be permissible on the quantity of  

fuel used in the manufacture of exempted goods.  As regards non-

fuel  inputs,  an  assessee  would  have  to  maintain  separate  

accounts or be governed by Rule 6(3) of the Rules.

13. As  mentioned  above,  when  the  substantive  appeals  were  

taken up for consideration by the Division Bench of the Tribunal,  

the decision of this Court in Gujarat Narmada was not available.  

Accordingly,  by the impugned order,  the Division Bench of  the  

Tribunal allowed the appeals filed by the assessee relying on the  

decision  of  the  larger  Bench of  the  Tribunal.  It  is  under  these  

circumstances that the Revenue is before us.

Submissions:

14. The  first  and  in  fact  the  only  contention  of  the  learned  

Additional Solicitor General appearing for the Revenue was that  

these  appeals  deserve  to  be  allowed  in  view  of  the  decision  

rendered by this Court in  Gujarat Narmada. It  was submitted  

that the orders impugned in these appeals were dependent upon  

the  order  passed  by  the  larger  Bench  of  the  Tribunal  on  27th  

December  2006/4th January  2007.  The  decision  of  the  larger  C.A.Nos.4189-4196/2010          Page 7 of 11

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Bench having been set aside by this Court in Gujarat Narmada  

the substratum of the case of the assessee is wiped out.

15. On the other hand, the submission of learned counsel for the  

assessee  was  that  the  issue  whether  LSHS  is  an  “input”  as  

defined in Rule 2(g) of the Rules is debatable. According to the  

assessee,  it  should  be  given  a  wide  meaning,  but  in  Maruti  

Suzuki  Ltd.  v.  Commissioner  of  Central  Excise,  Delhi-III   

(2009) 9 SCC 193 this Court gave “input” a restrictive meaning.  

The correctness of  this view was doubted in  Ramala Sahkari  

Chini  Mills  Limited,  Uttar  Pradesh  v.  Commissioner,   

Central Excise, Meerut-I, (2010) 14 SCC 744  and the issue  

has been referred to a larger Bench of this Court. It was submitted  

that if it is held in these appeals that LSHS is not an input, then  

the  assessee  would  be  adversely  affected.  It  was,  therefore,  

submitted that these appeals  may also be referred to a larger  

Bench or we may await the decision of the larger Bench of this  

Court.

16. On  merits,  it  was  submitted  that  while  deciding  Gujarat  

Narmada  this  Court  did  not  notice  its  earlier  decision  in  

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Commissioner of Central Excise Vadodara v. Gujarat State  

Fertilizers & Chemicals Ltd., (2008) 15 SCC 46. In GSFCL it  

was clearly held in favour of the assessee that a claim of modvat  

credit  on  LSHS  is  justified  if  it  is  used  in  the  manufacture  of  

steam, which in turn is used in the generation of electricity for the  

manufacture of fertilizer exempt from duty. Since that decision  

was overlooked, this Court fell into error while deciding Gujarat  

Narmada against the assessee.  

17. Assuming “input” is not given a restrictive meaning, then in  

view of GSFCL the issue whether the assessee is entitled to claim  

cenvat credit on duty paid LSHS is no longer open to discussion  

and the appeals must be dismissed on that basis alone.

18. In  response,  the  learned  Additional  Solicitor  General  

submitted  that  the  interpretation  of  “input”  does  not  arise  in  

these appeals and we may proceed on the basis that “input” as  

defined  in  Rule  2(g)  of  the  Rules  may  be  given  a  broad  

interpretation and that LSHS utilized by the assessee is an input  

for the manufacture of fertilizer exempted from duty. The second  

step, namely, entitlement to cenvat credit does not necessarily  

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follow even if the first step is decided in favour of the assessee.  

There was, therefore, no necessity of referring these appeals to a  

larger  Bench  of  this  Court  and  the  case  was  fully  covered  in  

favour of the Revenue in view of Gujarat Narmada.

Our view:

19. There is an apparent conflict between GSFCL and Gujarat  

Narmada.  

20. In GSFCL a view has been taken that modvat credit can be  

taken on LSHS used in the manufacture of fertilizer exempt from  

duty.  Although  this  decision  was  rendered  in  the  context  of  

availing modvat credit under the Central Excise Rules, 1944 as  

they existed prior to the promulgation of the Cenvat Credit Rules,  

2002 the principle of law laid down is general and not specific to  

the Central Excise Rules, 1944. The decision rendered in Gujarat  

Narmada has been rendered in the context of the Cenvat Credit  

Rules,  2002  and  is,  therefore,  more  apposite.  However,  since  

GSFCL  does lay  down a general  principle  of  law,  we have no  

option  but  to  refer  the issue to  a  larger  Bench to  resolve the  

conflict between  GSFCL  and  Gujarat Narmada. The conflict to  

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be resolved is whether under the Cenvat Credit Rules, 2002 an  

assessee  is  entitled  to  claim cenvat  credit  on  duty  paid  LSHS  

utilized as an input in the manufacture of fertilizer exempt from  

duty.  

21. The Registry may place the case papers before Hon’ble the  

Chief  Justice  for  constituting  a  larger  Bench  to  decide  the  

aforesaid conflict of views.  

….…….……………………..J.   (Swatanter Kumar)

                                            ….…….……………………..J.   (Madan B. Lokur)

New Delhi; December 11, 2012

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