C.E.S.R.No.16/2001 25.4.2013 Shri Anoop Nair, counsel for appellant.
Shri Aditya Adhikari, counsel for respondent.
This reference has been made by the Customs Excise & Gold (Control) Appellate Tribunal, Northern Division Bench for the opinion of this Court on the following question of law :- “Whether the Explosives used in mines for blasting lime stone can be considered as inputs eligible for MODVAT in terms of Rule 57A of Central Excise Rules, 1944 ?.”.
This reference was made on 2.6.2000 before coming into force of National Tax Tribunal Act, 2005 under section 35H of the Central Excise Act, 1944.
The facts of the case are that the respondent was engaged in the manufacturing of cement and was extracting limestones from the mines and for that purpose it was using explosives.
The respondent had claimed MODVAT under Rule 57A of the Central Excise Rules, 1944 (hereinafter referred to as 'Rules' for short) on the explosives used by the respondent in mines.
The aforesaid contention of the respondent was accepted by the Tribunal and it was held that the explosives used in the mines for blasting limestones was eligible for MODVAT under Rule 57A of the Rules.
Thereafter the Revenue had moved an application before the Tribunal for referring the matter for the opinion of this Court on the aforesaid question of law.
Learned counsel for appellant submitted that the explosives used in the mines are not covered under Rule 57A of the Rules and were not eligible for MODVAT.
Shri Aditya Adhikari, learned counsel appearing on behalf C.E.S.R.No.16/2001 of respondent supported the order passed by the Tribunal and submitted that even if the explosive was used outside the factory premises for blasting lime stone it was considered as inputs eligible for MODVAT.
He has placed reliance to two judgments of the Apex Court in support of his contention in the case of Jaypee Rewa Cement versus Commissioner of Central Excise, M.P.[(2001) 8 SCC 586].and Vikram Cement versus Commissioner of Central Excise, Indore [2006 (194) E.L.T.3 (S.C.)].and submitted that the aforesaid question deserves to be answered in favour of respondent.
To appreciate rival contention of the parties, it would be appropriate if Rule 57-A of the Rules, is referred, which reads thus :- “Rule 57A.
Applicability - (1) The provisions of this section shall apply to such finished excisable goods (hereinafter referred to as the 'final products').as the Central Government may, by notification in the Official Gazette, specify in this behalf for the purpose of allowing credit of any duty of excise or the additional duty under section 3 of the Customs Tariff Act, 1975 (51 of 1975).as may be specified in the said notification (hereinafter referred to as the “specified duty”.) paid on the goods used in or in relation to the manufacture of the said final products (hereinafter referred to as the “inputs”.) and for utilising the credit so allowed towards payment of duty of excise leviable on the final products, whether under the Act or under any other Act, as may be specified in the said notification, subject to the provisions of this section and the conditions and restrictions that may be specified in the notification : Provided that the Central Government may specify the goods or classes of goods in respect of which the credit of specified duty may be restricted.
[Explanation - For the purposes of this rule, “inputs”.
includes - (a) inputs which are manufactured and used within the factory of production in or, in relation to the manufacture of final products, and (b) paints and packaging materials, but does not include - C.E.S.R.No.16/2001 (i) machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of the final products ; (ii) packaging materials in respect of which any exemption to the extent of the duty of excise payable on the value of the packaging materials is being availed of for packaging any final products; (iii) packaging materials the cost of which is not included or had not been included during the preceding financial year in the assessable value of the final products under section 4 of the Act; (iv) cylinders for packing gases; (v) plywood for Tea, [chests; or].(vi) bags or sacks made out of fabric (whether or not coated, covered or laminated with any other material) woven from strips or tapes of plastics.”
The question whether the explosives used within the factory premises was eligible for MODVAT or the explosives used in the mines was eligible for MODVAT credit has been considered by the Apex Court in Jaypee Rewa Cement (supra).The Apex Court considering the question held thus :- “10.
Reading of Rule 57A clearly shows that the notification is to specify the goods used in or in relation to the manufacture of the final product, whether directly or indirectly.
In the present case, inputs which are used in relation to the manufacture even directly (sic) would be regarded as an input for the purpose of Rule 57A.
Sub-rule (1) of Rule 57A does not, in any way, specify that the inputs have to be utilised within the factory premises.
The explanation contained in Rule 57A is merely meant to enlarge the meaning of the word "input" and does not in any way restrict the use of the input within the factory premises not does the said Rule 57A require the inputs to be brought into the factory premises at any point of time.”
11. The appellants could not have claimed for MODVAT credit in respect of lime stone because of the provisions of Rule 57C, inasmuch as there was an exemption from levy of excise duty in respect thereof.
There was an exemption for a certain period and for the rest of the period the tariff itself provided that there will be nil rate of duty on the lime stone which is extracted.”
12. As we have already noticed, the Tribunal has relied upon Rule 57F in coming to the conclusion that the inputs in respect of which a credit of duty is claimed must be those which are used in C.E.S.R.No.16/2001 or brought into the factory premises.
The Tribunal, however, has not referred to the provisions of Rule 57J.the opening portion of which makes it clear that the said Rule will be applicable notwithstanding anything contained in the other Rules.
According to Rule 57J.when the Central Government by notification specified the inputs used in the manufacture of intermediate products received by the manufacturer for use in or in relation to the manufacture of final product, then all such products on which duty has been paid credit will be allowed.
Pursuant to this Rule 57J.notification was issued on 20th June, 1986 which was amended from time to time.
The relevant part of the notification is as follows: S.
Description of inputs Description of Description of final not intermediate products products (1) (2) (3) (4) 1.
All goods falling within All goods falling All goods falling the Schedule to the within the Schedule within the Schedule Central Excise Tariff Act to the Central Excise to the Central Excise 1985 (5 of 1986).other Tariff Act, 1985 (5 Tariff Act 1985 (5 of than the following, of 1986).other than 1986).other than namely - the following, the following, namely namely - - (i) goods classifiable (i) goods classifiable (i) goods classifiable under any heading of under any heading under any heading of Chapter 24 of the of Chapter 24 of the Chapter 24 of the Schedule to the said Schedule to the said Schedule to the said Act; Act; Act; (ii) goods classifiable (ii) goods classifiable (ii) goods classifiable under Heading 36.05 or under Heading under Heading 36.05 37.06 of the Schedule 36.05 or 37.06 of or 37.06 of the to the said Act; the Schedule to the Schedule to the said said Act; Act; (iii) goods classifiable (iii) goods (iii) woven fabrics under Sub-Heading classifiable under classifiable under 2710.11, 2710.12, Sub-Heading Chapter 52 or 2710.13 or 2710.19 2710.11, 2710.12, Chapter 54 or (except natural gasoline 2710.13 or 2710.19 Chapter 55 of the liquid) of the Schedule (except natural schedule to the said to the said Act; gasoline liquid) of Act.
the Schedule to the said Act; (iv) high-speed diesel oil (iv) high-speed classifiable under diesel oil classifiable Heading 27.10 of the under Heading Schedule to the said 27.10 of the Act.
Schedule to the said Act.”
13. Explosives would fall under column (2) being a tariff item in Chapter 36; the intermediate product, namely, limestone would C.E.S.R.No.16/2001 fall under column 3 being covered by Chapter 25; and the final product, namely, cement would also fall under Chapter 25 and would fall under column 4.
The reading of Rule 57-J alongwith the aforesaid notification can leave no manner of doubt that even in respect of inputs used in the manufacture of intermediate product which product is then used for the manufacture of a final product, the manufacturer would be allowed credit on the duty paid in respect of the input.
On the explosives a duty had been paid and the appellants would be entitled to claim credit because the explosives were used for the manufacture of the intermediate product, namely, lime stone which, in turn, was used for the manufacture of cement.”
The Apex Court has considered the question extensively and has held that if the manufacturer of cement was using duty paid explosives for mining limestone and using such limestone to manufacture cement, though the explosives were not brought within the factory, the manufacturer by virtue of rule 57-A read with Rule 57-J was entitled to MODVAT credit in respect of duty paid on the input.
The same law has been reiterated by the Apex Court in Vikram Cement (supra) wherein the Apex Court considering the similar set of facts held that the explosives for blasting mines to produce limestone for use in manufacture of cement/clinkers in factory situated at some distance away from mines, MODVAT cannot be denied on the ground that they were not used as inputs within factory.
As the question has already been considered and decided by the Apex Court, in the aforesaid circumstances it is held that the explosives used in mining by blasting limestone can be considered as input eligible for MODVAT credit in terms of Rule 57-A of the Rules.
Accordingly, the reference is answered in favour of respondent and against the appellant herein.
A copy of the answer be transmitted to the Customs Excise & Gold (Control) Appellate Tribunal, New Delhi, in C.E.S.R.No.16/2001 reference to the statement of the case made by the Tribunal on 15.2.2000, in the matter of appellant.
(Krishn Kumar Lahoti) (M.A.Siddiqui) Acting Chief Justice Judge M.