1. In these appeal filed by M/s. Damini Printers Pvt. Ltd. and M/s. MB Dyers and Shri Mehboob Ali, the issue involved is whether the benefit of deemed credit is available to the Appellant under Notification No.6/2002 CE (NT) dated 1.3.02.
2. Shri V. R Sethi, learned Advocate, mentioned that M/s Damini Printers and M/s. MB Dyers are engaged in the processing of cotton fabrics and MM Fabrics; that both the appellants were discharging the duty after claiming benefit of deemed credit in terms of Notification No. 532001 CE(NT) dated 29.6.2001 which was superceded by Notification No. 6/2002 CE (NT); that the Department has disallowed the deemed credit under Notification No. 6/2002 on the ground that the grey fabrics which is brought by them into the factory for the purpose of processing is not specified under inputs in the table below the notification. The learned Advocate submitted that the deemed credit under MODVAT scheme was introduced on textile fabrics as part of Budget proposal presented in the Lok Sabha on 22.7.1996 that the basic excise duty on processed fabrics falling under Chapter 52, Chapter 54 and Chapter 55 of the Schedule to the Central Excise Tariff Act which prior to presentation of Budget that is 22.7.96 was chargeable only to additional excise duty in lieu of sales tax w2as imposed with a view to bring taxtile sector under MODVAT Scheme; that this is apparent from the speech delivered by the Hon'ble Finance Minister while presenting the Budget; that in Para 123 of the speech, Finance Minister proposed to integrate that tax on Textile Sector with the main stream of Central Excise duties by introducing in MODVAT principle in the sector; that in Para 124 of his Speech, he proposed basic excise duty of 5% on cotton fabrics and 10% on other fabrics while would be collected at the processed fabrics stage; that there after the Finance Minister mentioned that "The processors would be in a position to MODVAT the duty paid on yarn imputed on the basis that yarn accounts for 50% of the value of the finished fabrics. I have adopted a simple procedure of imputed value to avoid the imposition of a basic duty on grey fabrics which are manufactured by thousands of powerlooms. Such powerlooms will, therefore, continue to be outside the excise net. composite mills and textile processors will be able to avail themselves of MODVAT facilities hitherto not extended to them." 3. Learned Advocate, further, mentioned that in order to give effect to the Budget proposal, the Central Government made suitable amendment in Rule 57 A by Notification No. 14/96 CE (NT) dated 23.7.96 empowering Central Government issued Notification No. 11/96 CE dated 23.7.96 for fixing rate of deemed credit of the dues in respect of various fabrics and yarn which were deemed to have been paid even if the various fabrics and yarn and not used directly in the manufacture of processed fabrics by the processors; that this Notification was subsequently replaced by Notification No. 29/96-Central Excise (NT) dated 3.9.96 for revising the deemed credit rate; that the Central Board of Excise & Customs also issued a Circular No. 234/77/96 dated 3.9.96 for guidance and proper implementation of the Scheme of MODVAT on textile fabrics; that in Para 4.5 of the Circular it was mentioned clearly that "deemed credit is in lieu of duty paid on fibres, yarns, dyes, chemical, consumables and packaging materials." He contended that in view of such clearcut clarification issued by the Board, denial of MODVAT credit is not justified. He mentioned that the system of allowing the deemed MODVAT credit continued by Notification No. 28/2000 CE (NT) dated 31.3.2000 which was superceded by Notification No. 7/2001 that after the introduction of CENVAT Credit Rules, 2001, Notification No. 53/2001 CE (NT) dated 29.6.2001 was issued in exercise of the powers conferred by Rule 11 of the CENVAT Credit rules, 2001 and finally, this Notification was superceded by Notification No. 6/2002 CE (NT) dated 1.3.02 which has been issued in exercise of the powers conferred by Rule 11 of the Central Excise Rules, 2002. He contended that the various provisions under which all these notifications have been issued from time to time are similar which empowers the Central Government to declare some inputs on which deemed credit would be allowed at the rate prescribed even if such declared inputs are not used directly by the manufacture of the final product; that in Notification No. 6/2002 NT yarn of fibres have been specified as declared inputs for use in specific final products for the purpose of allowing deemed credit of declared duty; that though the fibres or yarn may not directly used but as these are the contained in the processed fabrics, the deemed credit is therefore, available to the processors; that as the Central Government has allowed deemed credit of duty suffered on fibres or yarn, there was no question of declaring the grey cotton fabrics or grey man-made fabrics as declared inputs He relied upon the decision in the case of Ashok Silk Mills v. CCE, Mumbai 2003 (59) RLT 702 and Mangal Textile Mills (I) Pvt. Ltd. v. CCE Ahmedabad 2003 (54) RLT 282 (CEGAT) and mentioned that in both these cases, deemed credit was held to be admissible on fabrics in respect of duty paid on yarn; that the fabrics was not specified inputs on the basis of Board Circular dated 3.9.96. Finally, he mentioned that no penalty is imposable on any of the Appellants as the issue involved in interpretation of a Notification. Reliance has been placed on the decision in the case of (CEGAT) and Jawahar Mills Industries v. CCE, 4. Countering the arguments Shri O.P. Arora, learned Senior Departmental Representative and Ms. Charul Barnwal, Learned Senior Departmental Representative, submitted that the Appellants being independent processors are covered by S. No. 2 of the Notification No.6/2002 NT that the table below the Notification specified the inputs and final products; that the Appellants are bringing cotton fabrics and manmade fabrics falling under Heading 52.07 and 55.14 of the Central Excise Tariff respectively, which are not mentioned in Column 2 of the Notification which refers to inputs; that once the fabrics brought by them in the factory are not specified as inputs in the Notification, the question of their availing the deemed credit does not arise; that it is settled law by the Supreme Court that the exemption Notification which grants benefit to an assessee has to be interpreted strictly and in case of doubt doubt benefit has to go to the State Novopon India Ltd. v. CCE 1994 73 ELT 769 (SC). Reliance has also been placed by the learned SDRs on the decision of Larger Bench of the Tribunal in the case of CCE v. Avis Electronics Pvt. Ltd. 2000 (37) RLT 501 CEGAT-LB).
Wherein the Larger Bench has held that "when a particular thing is directed to be performed in a manner prescribed by Rules, it should be performed in that manner itself and not otherwise." 5. We have considered the submissions of both the sides. Rule 11 of the CENVAT Credit rules, 2002 empowers the Central Government to declare the inputs on which the duty of excise or additional duty of Customs Shall e deemed to have been paid at such rate as may be specified in the Notification and to allow CENVAT credit of such duty deemed to have been paid even if the declared inputs are not used directly by the manufactured of final products declared in the Notification but are contained in the final products. In exercise of the powers conferred by said Rule 11, the Central Government has issued Notification No. 6/2002 (NT) specifying the inputs and final products for the purpose of allowing the deemed CENVAT credit. A manufacturer other than a composite mill is eligible to take the deemed credit in respect of specified processed fabrics. The inputs have been specified in the Notification, Tariff Heading wise an all these Headings pertain to yarn of fabres. In all the Headings mentioned in column meant for inputs refers to fibres. The contention of the Revenue is that as fabrics have not been mentioned in the column of inputs in the table below the Notification, the benefit of deemed credit will not be available to the appellants. The contention of Revenue is not correct as the Notification No. 6/2002 has been issued under Rule 11 of the CENVAT credit Rules, 2002 which clearly provides that the deemed MODVAT credit would be available even if the declared inputs are not used directly by the manufacturer of final products declared in the Notification but are contained in the said final products. It is not in dispute that the fabrics which is proposed by the appellants contain yearn which is declared as inputs in the Notification. This view also gets support from the Budget Speech of the Hon'ble Finance Minister, made at the time of presenting the Budget Speech for 1996-97 wherein it was mentioned that the processors would be in a position to modvat the duty paid on yarn imputed on the basis that yarn accounts for 50% of the value of the finished fabrics. Finance Minister had adopted a simple procedure of imputed value to avoid the imposition of basic duty on grey fabrics being manufactured by thousands of powerlooms. The Board has also clarified vide Circular No. 234/77/96-CX dated 3.9.96 that the rate of deemed credit in case of fabrics is in lieu of duty paid on inputs by the processors. para 4.5 of the Circular clearly mentioned that deemed credit i sin lieu of duty paid on fabrics, yarns, dyes, chemicals, consumables and packaging materials. By issuing Notification No. 6/2002 the Central Government has only declared the inputs and final products in respect of which the deemed credit would be available. The Notification read with Rule 11 makes it very clear that it is not necessary to declare inputs which are used directly by the manufacturer of the final products. What is required for the purpose of being eligible to get the deemed credit is that declared inputs are contained in the final products. It is not the case of the Revenue that the declared inputs i.e. yarn is not contained in the final products.
If the contention of the Revenue is accepted, manufacturer other than the composite mill will never be eligible to availed the deemed credit under Notification as they will always be bringing only the fabrics whether cotton or man-made for the purpose of processing and column No.2 of the Notification does not mentioned any Heading under which fabrics fall. Further serial No. 2 as well as Serial no. 3 of the Notification No. 6/2002 will be completely redundant as these Serial Nos. provide the facility of deemed credit to the goods manufactured by the manufacturer other than the composite mill.
6. It has been held by the Allahabad High Court in the case of Kampur Industries Gases Ltd. v. CEGAT, 2004 172 ELT 545 (All) that a construction which reduces the statute to a futility has to be avoided.
A statute or, any enacting provision therein must be so construed as to make it effective and operative on the principal expressed in the "maxin utres magic valeat quam pareat that is a liberal construction should be put upon written instruments so as to uphold them, if possible and carry into effect the intention of the parties. The High Court further held that the Courts will have to reject that construction which will deafeat that plain intention of the Legislature even though there may be some in exactitude in the language used. We also observe that this Tribunal has already extended the benefit of Notification No. 29/96 CE dated 3.9.96 in the case of Mangal Taxtile Mills India Ltd. to a manufacturer who processed the grey fabrics relying upon the Board Circular dated 3.9.96. Similarly, in the case of Ashok Silk Mills (supra), the Tribunal has extended the benefit of deemed credit to an independent processor under Notification No., 7/2001 wherein also the objections raised by the revenue was that item was not included as an inputs in the Notification Following these earlier decisions, we hold that the appellants herein are eligible for availing the deemed credit under Notification No. 6/2002. Consequently, both the impugned orders are set aside and all the three appeals are allowed.