C.C.E.,VADODARA Vs GUJARAT NARMADA VALLEY FER. CO. LTD.
Bench: SWATANTER KUMAR,MADAN B. LOKUR
Case number: C.A. No.-004189-004196 / 2010
Diary number: 19006 / 2009
Advocates: B. KRISHNA PRASAD Vs
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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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