1. Both these appeals involving common question of law and facts are being disposed off through this common order.
2. The issue that falls for determination is whether an assessee has an option not to avail exemption under Notification No. 1/93, dated 28-2-1993 and instead opt for Modvat scheme. Collector of Central Excise has held that an assessee has no such option. In Appeal No.E/1814/95-NB in case of M/s. S.S. Tins Pvt. Ltd., Collector placed strong reliance on the judgment of Andhra Pradesh High Court in case of Ganesh Metal Processing Industry and two others v. Union of India - 1996 (81) E.L.T. 11 (A.P.) = 1995 (57) ECR 252 (A.P.). The Hon'ble High Court held that the assumption that there is an option left to the assessee either to avail of the credit on inputs under Modvat scheme or to avail the exemption from duty under Notification 202 of 1988 is not correct. This option theory according to Hon'ble High Court has no legal basis.
3. We have heard both sides. Notification No. 1/93, dated 28-2-1993 exempts specified excisable goods cleared for home consumption by a manufacturer in case of first clearances of specified goods up to a value not exceeding Rs. 30,00,000 from whole of duty and allows partial exemption at 10% in case manufacturer avails credit of duty on inputs used in the manufacture of specified goods. This Notification under Clause (2), however, grants exemption up to Rs. 30,00,000 from whole of the excise duty leviable, in case of such a factory which is a factory not registered with the Directorate of Industries or which is registered with Director General of Technical Development, up to first clearance of Rs. 30,00,000. It has been held by the authorities below that since goods were exempted up to first clearances of Rs. 30,00,000, no credit could be availed of in terms of Rule 57C which categorically states that no credit shall be admissible in case goods are exempted from duty.
4. We note that Tribunal in a number of decisions has held that assessee has an option either to avail exemption or to opt for Modvat scheme. In case of Everest Converters v. Collector of Central Excise, Calcutta - 1995 (80) E.L.T. 91, Tribunal held that it is the option of the assessee to claim or not to claim benefit of exemption notification issued under Section 5A(i) of Central Excises and Salt Act. Again Tribunal in case of CCE, Madras v. Sharna Industries - 1998 (103) E.L.T. 115 (T) = 1997 (71) ECR 122 held that the question whether the assessee could enjoy benefit as small scale industry or enjoy benefit of Modvat scheme is purely a matter for assessee to decide. The Tribunal relied upon decision of Hon'ble Calcutta High Court in case of Bengal Carbon & Printers Pvt. Ltd. v. Asstt. Collector - 1992 (62) E.L.T. 684 (Cal.).
5. In neither of these orders was benefit of Andhra Pradesh High Court judgment in case of Ganesh Rolling Mills available to the Bench.
Collector, Central Excise, has relied upon this judgment and extracted the following paras :- "19. While on this aspect I would like to steer clear of a misconception implicit in the arguments on both sides. The assumption that there is an option left to the assessee either to avail of the credit on inputs under Modvat scheme or to avail of the exemption from duty under Notification No. 202 of 1988 and the petitioners have, therefore, exercised the former option is, in my considered view, not correct. This option theory has no legal basis.
I am driven to come to this conclusion by reason of Rule 57C of the Central Excise Rules. Rule 57C categorically lays down that "no credit of the specified duty paid on the inputs used in the manufacture of a final product shall be allowed if the final product is exempt from the whole of duty of excise thereon or is chargeable to nil rate of duty". The only exception is in the case of the goods cleared to a Unit in a free trade zone or to a 100% export oriented Unit. Here, we are not concerned with this exception. Rule 57C clearly and advisedly enacts an embargo against the credit of duty paid on the inputs being allowed if the resultant final product is exempt from the whole of the duty of excise leviable thereon. The raison d'etre of this Rule is not difficult to seek. Credit is available under Chapter AA (which is the newly introduced Chapter to give effect to Modvat scheme) only towards the payment of duty leviable on the final products. If the final products themselves are exempt from the duty or chargeable to nil rate, the question of payment of duty and the allowance of credit in this behalf does not arise. The opening Rule 57A emphasises this concept in unmistakable terms by employing the words "for using the credit so allowed towards payment of duty of excise leviable on the final products", Thus, the scheme embodied in Chapter AA of the Rules is not to allow Modvat credit, if final product is exempt. The operation of this rule does not depend upon the volition of assessee.
19(a). Rule 57C itself cannot be so construed as to provide for an option, by necessary implication or otherwise, to claim exemption or to avail of the Modvat credit. In construing Rule 57C, the only question to be asked and answered is whether the final product is exempt from the whole of the duty of excise or it is chargeable to NIL rate of duty. Whether or not the final product is wholly exempt or chargeable to NIL rate of duty depends upon the terms of the statutory notification or any other provision made under the Central Excise Act and the Rules. When once such a notification or provision is found, there is no scope to take credit of the duty paid on the inputs under Rule 57A and other allied provisions. The embargo laid down by Rule 57C is absolute and categorical. In the face of this clear-cut embargo, it is futile to contend that the assessees have still an option to utilise the credit on the inputs under Rule 57A read with Rule 57C. No statutory order or Notification has been placed before me which, despite the prohibition contained in Rule 57C, enables the assessee to seek shelter under Modvat scheme. Thus, I am of the view that the Modvat credit was erroneously allowed to the petitioners even after the Notification 202/88 granting exemption from the whole excise duty payable was issued by the Central Government. Obviously, this was done under a mutual mistake and the course of action adopted by the petitioners and assented to by the Department has no sanction of law." 6. It was pleaded before us that even though the earlier orders of Tribunal did not look into Hon'ble Andhra Pradesh High Court judgment in case of Ganesh Rolling Mills, the recent order of Tribunal (Single Member Judgment) A/31/97-NB, dated 18-2-1997 in case of Mechiev Engineers v. CCE, New Delhi, examined the issue in the light of Andhra Pradesh High Court judgment in Ganesh Rolling Mills case also and held that the facts in that case were entirely different from the facts in the present case inasmuch as Hon'ble High Court was called upon to examine provisions of Notification 202/88 vis-a-vis Rule 57C.7. On going through the Notification 202/88, however, we are of the view that so far as the basic issue of law is concerned, the mere fact that the High Court was dealing with notification 202/88 does not alter the position. This Notification exempted goods if these are made from specified inputs on which duty has already been paid. This was, therefore, a conditional notification.
8. In case of Notification 1/93, Clause 2 of Para 1 of Notification gives a straight exemption to clearances up to Rs. 30,00,000 in case of factories which are not registered as small-scale industries or are registered with Directorate of Technical Development. The observations of Hon'ble Andhra Pradesh High Court, therefore, would apply with greater force in relation to embargo placed by Rule 57C since goods hereunder Clause 2 are unconditionally exempted, in case of factories not registered with Small Scale Industries Directorate. It was also pleaded that option to avail Modvat credit was in-built in small-scale exemption under Notification 1/93 since option to pay duty at reduced rate was available in case manufacturers operate for Modvat. This position, however, is applicable only in case of Clause 1 of Para 1 of Notification and not in regard to Clause 2 of Para 1 of Notification which grants straight exemption. In fact, the fact that Notification was subsequently amended to provide for option would only support the view that before its amendment no such option was available.
9. The question therefore is if a manufacturer fulfils condition of exemption, does he even then have the option not to avail exemption but to opt for Modvat scheme. High Court of Andhra Pradesh categorically held that : "Rule 57C itself cannot be so construed as to provide option, by necessary implication or otherwise to claim exemption or to claim Modvat credit. In construing Rule 57C, the final question to be asked and to be answered is whether the final product is exempted from whole of duty of excise or it is chargeable to nil rate of duty. Whether or not the final product is wholly exempted or chargeable to nil rate of duty depends upon the terms of the statutory notification or any other provision made under Central Excise Rules. Whenever any such Rule or provision is found there is no scope to take credit of duty paid on the inputs under Rule 57A and other allied provisions. The embargo laid down under Rule 57C is absolute and categorical..........." 10. In view of the conflicting views in the matter, we are of the view that matter has to be placed before Larger Bench for resolution of the conflict. We, therefore, direct registry to place this matter before Hon'ble President for reference to the Larger Bench.
11. [Contra per : Jyoti Balasundaram, Member (J)]. - I have gone through the order proposed by the learned Member (Technical) and regret that I am unable to persuade myself to agree with the same for the reason that I have already noted and distinguished the decision of the Hon'ble Andhra Pradesh High Court in the case of Ganesh Metal Processing Industry and Ors. v. Union of India reported in 1996 (81) E.L.T. 11 (A.P.) = 1995 (57) ECR 252 AP, in the case of C.K. Metal Works v. Collector of Central Excise, New Delhi - Final Order No.A/457/97-NB, dated 2-7-1997. In that case I have noted that the earlier decision of the Tribunal in the case of Everest Converters reported in 1995 (80) E.L.T. 91 has been followed by the Tribunal in the case of Mechiev Engineers v. Collector of Central Excise reported in 1997 (20) RLT 200 in which the Tribunal has noted the Hon'ble AP High Court judgment in the Ganesh Metal Industries case and has held that the facts in the case before the High Court were factually different from those in the case before the Tribunal. The relevant extracts from M/s.
C.K. Metal Works order is reproduced below : "In the case of Everest Converters v. CCE reported in 1995 (80) E.L.T. 91 the Tribunal has held that the assessee has the option to claim or not to claim the benefit of exemption Notification issued under Section 5(a) of the Central Excise Act, 1944 and has held that Rule 57C of the Central Excise Rules is not applicable in a case where credit has been taken of duty paid on inputs used in the manufacture of final product, even though the final product is exempt from duty.
The Tribunal held that the appellants were entitled to credit even though they could otherwise avail the benefit of Notification 1/93.
This decision has been followed in the case of Mechiev Engineers v. CCF [1997 (20) RLT 200]. In this case, the Tribunal has noted the judgment of the Hon'ble High Court in the case of Ganesh Metal reported in 19% (81) E.L.T. 11 (AP) and has held that the facts in the case before the High Court were factually different from the facts in the case before the Tribunal inasmuch as the Hon'ble High Court was called upon to examine the provisions of Notification 202/88 vis-avis Rule 57C. At this stage, the learned DR draws my attention to the judgment of the Hon'ble Supreme Court in the case of CCE v. Park Exports reported in 1988 (38) E.L.T. 741 (SC) and in particular to paras 11 and 12 wherein it has been held that when a Notification is issued under Rule 8 of the Central Excise Rules, it is in accordance with the power conferred by the Statute and has statutory force and authority and, therefore, the exemption under Notification is as if contained in the Act itself. He submits that with the issue of the Notification, the rate prescribed under the Central Excise Tariff gets completely wiped out and it cannot be said that the assessee has the option to avail credit and to choose not to avail of the exemption conferred under the Notification. He also refers to the judgment of the Apex Court in the case of Orient Weaving P. Ltd. reported in 1978 (2) E.L.T. J 311 and in particular to para 7 wherein it has been held that Rules have been incorporated into the Central Excise Act itself and they became part of the Taxing Statute. He submits that the assessee has to necessarily avail of the benefit of Notification which forms part of the Central Excise Act itself and is applicable irrespective of whether the Notification is an unconditional one or conditional one and in the case of conditional Notification, it is only that all the conditions are required to be fulfilled. In other words, he submits that if the conditions in the Notification are fulfilled, then the assessee has to follow that Notification and abide by that Notification. He also refers to the judgment of the Hon'bie Andhra Pradesh High Court in the case of Ganesh Metal Industries and to para 20 particular which has interpreted Rule 57C vis-a-vis Notification No. 202/88.
I am afraid, I am not persuaded by the argument of the learned DR because, as rightly noted by the Tribunal in the case of Mechiev Engineers the High Court of Andhra Pradesh dealt with a case the facts of which are entirely different from the present one - the High Court was called upon to examine the provisions of Notification 202/88 vis-a-vis Rule 57C and the question was as to whether, for the purpose of computing the aggregate value of clearances under the Notification, the clearances of final products in respect of which credit was taken under Modvat scheme was to be excluded or not to be excluded. The judgments of the Hon'bie Supreme Court which was cited by the learned DR are also not applicable to the present case because we are not dealing with interpretation of Notification but with the issue as to whether a choice is available to an assessee as to avail of the exemption under the Notification or instead to avail of credit of duty already paid on the inputs.
For the above reasons, I hold that the appellants are not required to reverse the Modvat credit of the amount in question because Modvat credit has been rightly availed by them, set aside the impugned order and allow the appeal." 12. Since the High Court judgment has been discussed and distinguished as set out above, I see no necessity for the matter to be placed before the Larger Bench for resolving the conflict and I propose setting aside of the impugned orders and allowing of the appeals of the assessees.
13. The following difference of opinion is placed before the Hon'ble-President for reference to a third Member : "Whether the matter requires to be placed before a Larger Bench for resolution of the conflict as to whether an assessee has an option not to avail exemption under Notification 1/93, dated 28-2-1993 and instead opt for Modvat scheme, as proposed by Member (Technical).
the impugned orders are required to be set aside and the assessees' appeals allowed, as proposed by Member (Judicial)." Sd/- Sd/- (Shiben K. Dhar) (Jyoti Balasundaram) Member (T) Member (J) Dated : 4-12-1997 Dated :4-12-1997 14. I have gone through the Orders proposed by my ld. brother Shri S.K.Dhar, Member (Technical) and by my ld. sister, Smt. Jyoti Balasundaram, Member (Judicial). Whereas, ld. Member (Technical), relying upon the judgment of Andhra Pradesh High Court in the case of Ganesh Metal Processing Industry and Ors. v. Union of India reported in [1996 (81) E.L.T. 11 (A.P.) = 1995 (57) ECR 252 (AP)] and by taking note of the various judgments of the Tribunal has held that in view of the conflicting views in the matter, the issue should be placed before the Larger Bench for resolution of the conflict, ld. Member (Judicial) has allowed the appeal by observing that the issue involved before the Hon'ble High Court was different and as such, facts being distinguishable, the ratio laid down by the High Court would not be applicable.
15. I have heard Shri M.P. Devnath, ld. Advocate and Shri Lachman Dev, ld. Consultant on behalf of the appellants and Shri A.M. Tilak, ld. JDR for the Revenue. As the facts and the legal issue involved have already been stated in the respective orders proposed by the original Bench, I am not repeating the same to avoid redundancy.
16. In support of their case, the appellants have placed on record a list of Tribunal's decision to the effect that in case of an unregistered small scale unit, the assessee is at liberty to either avail of the benefit of exemption notification No. 1/93-CE or to pay duty on their final product after availing the benefit of Modvat credit of duty paid on the inputs. The case law relied upon by the appellants are as under :-Gothi Plastic Industries v. CCELaxmi Enterprises and Ors. v. CCEProminent Plastic Industries v. CCEPascal Paramount Pvt. Ltd. v. CCE (j) Order No. A. 457/97-NB, dated 2-7-1997 - C.K Metal Works v. CCE, New Delhi.
I find that the precedent case on the said legal issue was that of the East Regional Bench of the Tribunal in the case of Everest Converters v. Collr. of Central Excise, Calcutta-II reported in 1995 (80) E.L.T.91 (T). In the rest of the decisions, relied upon by the appellants, the ratio laid down in Everest Converters was followed. Examining the nature of exemption notification issued under Section 5A(1) of the Central Excises and Salt Act, 1944 or under the erstwhile Rule 8(1) of the Central Excise Rules, 1944, it was observed by the Bench that an exemption notification is a beneficiary piece of legislation which gives rebate or lowers down the rate of duty prescribed under the Tariff. Sometimes such reduction in rate of duty is available to the assessee only on fulfilment of certain conditions. If the assessee does not fulfil those conditions, the reduced rate of duty is not available.
In some of the notifications, there is reduction in rate of duty simpliciter/ without fulfilment of any conditions attached to it. Now the question which arises is whether such type of notification can be made applicable to all those which are covered by its terms, can they be compelled to avail this benefit of the notification. As rightly observed, in my views, by the East Regional Bench in the case of Everest Converters, if the notification issued under Section 5A(1) is to be forced upon the appellants, the same would lose its character of being an exemption notification and would become power to simply fix the rates of duty which the assessee would be bound to follow. It is definitely a beneficial piece of legislation and it is up to the assessee to claim the benefit of such offer made by the Government or not. The assessee opting to avail such benefit has to lodge its claim to the benefit of the exemption notification as observed by the Hon'ble Supreme Court in the case of Mysore Metal Industries v. CCE, 1988 (36) E.L.T. 369 (S.C.) and by Calcutta High Court in the case of ITC v.Union of India reported in 1988 (34) E.L.T. 473.
17. On his lodging the claim to the notification only the department extends the benefit of the notification. If no such claim is made by the assessee, he cannot be compelled by the department to state his claim to the exemption notification and to compulsorily avail the benefit.
18. On the other hand his right to avail the benefit of Modvat credit of duty flows from the provisions of Rule 57A read with other rules of Chapter (V) of Section AA of the Central Excise Rules. If the assessee satisfies all the conditions and observes all the requisite formalities of the Modvat rules, he is certainly entitled to the benefit of Modvat credit of duty paid on the inputs. There is nothing in the said Modvat rules which says that if an exemption is available to the manufacturer by way of an exemption notification, then he is ousted from the purview of Modvat scheme. (I will examine Rule 57C in succeeding paragraph). In the absence of any such blanket exclusion clause making the applicability of Modvat rules only in those cases where no exemption notification exists, it can be safely concluded that an exemption notification and Modvat rules stands on the same platform. Both are for the benefit of the assessee and both are statutory in nature. As such both the benefits being equally available to the manufacturer under the law, it is his choice which one he wants to pick up. Certainly, the department cannot press upon him to choose the option and ignore the second one.
19. Coming to the provisions of Rule 57C, the relevant portion of the same reproduced below for the sake of ready reference : "57C. No credit of the specified duty paid on the inputs used in the manufacture of a final product........................shall be allowed if the final product is exempt from whole of duty of excise leviable thereon." Now, the question arises whether the wordings ''if the final product is exempt from whole of duty" are referring to mere existence of an exemption notification which is sufficient to oust the assessee from Modvat scheme or whether referring to the clearance of final product without payment of duty in terms of the exemption. Where there is an exemption notification, but still the final product, for whatever reason, are being cleared on payment of duty, can it be said that provisions of Rule 57C will have it play. Further, no difference is made between the conditional and un-conditional exemption notification in Rule 57C. A conditional exemption notification also exempts the goods from whole of duty of excise leviable thereon subject to the fulfilment of the conditions enumerate therein. It may so happen that condition to avail the exemption is a simple one let us presume, giving an undertaking to the department to any effect or to enter into a simple bond etc. Can the department, in such circumstances compel the manufacturer to enter into the bond or to give the undertaking and avail the exemption. Further, can the department argue that since the final product is exempt from payment of duty, may be subject to giving of undertaking or execution of bond, which are procedural conditions, the bar placed in Rule 57C has to be interpreted in such a way so as to conclude that the final product is cleared without payment of duty as a matter of fact. This is to avoid double benefits to the assessee. The Modvat credit availed by a manufacturer is to be utilised by him towards payment of duty on the final product and where such utilisation is not possible on account of the final goods being cleared without payment of duty, no such credit can be allowed to be accumulated for utilization either towards any future clearances or towards clearances of any other dutiable products manufactured by the appellants. The legislative intent to avoid the double benefit i.e. of exemption as also Modvat credit is quite clear and Rule 57C will have its application only in those cases where the final product has actually been cleared without payment of duty.
20. Surprisingly, in the instant appeals, though the final product has been cleared on payment of duty, by making debits in the accumulated credits, the department is asking back for credit so availed by the appellants and there is not a whisper of the refund of the duty paid by the appellants on their final product. From the impugned order, I find that demands of duty equivalent to the credit utilized by the appellants have been confirmed against them on the ground that Modvat credit has been wrongly utilized by them. Now, that is the effect of this wrong utilization that the appellants were not entitled to make debit entries in their RG-23A Part (II). Presuming the department's stand to be correct, the effect would be that the debit entries made would be reversed in the RG-23A Part (II). This would not effect the final clearances, as they were, undisputedly, entitled to be cleared on payment of duty. Instead, the department has ordered for confirmation of demand of duty against the appellants equivalent to the credit utilised and retaining the duty paid on the final products. It may so happen that the final product has further gone into the manufacture of other item as an input and credit of duty paid on the same has been availed by the second manufacturer as Modvat credit. As such, reversal of debit entries made originally would lead to complications and need to be avoided. I also note that the appellants had availed credit and utilized the same for payment of duty on their final product. If they would not have adopted this course of action, they would have cleared their final product without payment of duty. So where is the loss of revenue in this transaction.
21. Now coming to the Andhra Pradesh High Court's judgment in the case of Ganesh Metal Processing Industries, I note that it is not for the first time that this judgment has been taken note of by the Bench. This has been placed earlier also by the departmental representative by strongly relying upon them. The said judgment has been considered by the Tribunal in the cases of M/s. Mechiev Engineers, M/s. Laxmi Enterprises, M/s. Pascal Paramount Pvt. Ltd., M/s. Jain Datu Udyog and M/s. C.K. Metal Works referred supra. In all these cases, it has been observed by the Tribunal that the facts before the High Courts and in the appeals under consideration were different. Whereas the High Court was deciding the issue as to whether the goods cleared on payment of duty after availing the benefit of Modvat credit in terms of Notification No. 202/88-C.E. have to be treated at par with the goods which have been cleared without payment of duty in terms of the said notification and whether their value has to be excluded from computing the total value of clearances in terms of Explanation II of Notification No. 1/93. I find that distinction between Ganesh Metal case has been rightly drawn by the earlier Benches of the Tribunal in the various decisions and the ratio laid down therein has been rightly held to be inapplicable to the issue in the present appeals. Para 8 of Laxmi Enterprises is reproduced below :- "8. We find the issue before the Hon'ble High Court was the Notfn.
No. 202/88 vis-a-vis Rule 57C. We note that the Notfn. No. 202/88 granted exemption to certain goods. This notification inter alia provided for the exemption of specified goods described in the table annexed with the notification from the whole of duty of excise leviable thereon. In the instant case, the exemption is to the unit and not to the goods because the same goods manufactured by another unit which was not a SSI unit. An unregistered unit falling under different clauses of Notfn. No. 1/93 was not eligible for the exemption. Thus the goods themselves were not exempted. Whereas in the case before the Hon'ble High Court, the goods themselves were exempted and, therefore, the fact in the two cases are distinguishable and, therefore the judgment of the Andhra Pradesh High Court does not help the department." As such I do not consider that the matter is required to be placed before the Larger Bench inasmuch as different members in the cases referred supra have already taken a view, which view, though not technically speaking, represents the majority view of the members of the Tribunal.
22. In view of my above discussions I hold that the appellants were having an option to avail the exemption notification or the benefit of Modvat scheme. The view expressed by ld. Member (Judicial) is concurred with. The papers are placed before the original Bench to pass the appropriate orders as per the majority view.
In the light of the majority view, the impugned orders are set aside and the appeals are allowed.
(V.K. Agrawal) (Jyoti Balasundaram) Member (Technical) Member (Judicial)