Judgment:
Deepak Gupta, J.
1. A short but interesting question of law arises for decision in this appeal. The point which arises for consideration is whether High Speed Diesel (HSD) utilized by the Petitioners Company as a fuel for generating electricity to run their factory which is engaged in the manufacture of yarn is an 'input' within the meaning of Rule 57A and 57B of the Central Excise Rules and the petitioners are entitled to claim MODVAT on the same.
2. Briefly stated the facts of the case are that the petitioner Company is a Company incorporated under the Indian Companies Act, 1956. It has set up a Unit in the Industrial area of Baddi for manufacture of yarn made out of cotton, acrylic, viscose, polyester etc. According to the petitioner since there is an acute shortage of electricity it is using HSD oil for generating the electricity for captive use in its plant. The petitioner Company sources the HSD oil from various Oil Companies and excise is paid on this HSD oil. The petitioner Company claimed that this is an input and therefore it is entitled to claim credit of the excise paid on HSD and to set it off against the excise payable on its final product. According to the petitioner Rule 57A of the Excise Rules only empowers the Central Government to specify the final products for the purpose of allowing MODVAT credit. The specific stand of the petitioner is that the Central Government in the impugned notification No. 5 of 94 has not only specified the final products but has also mentioned inputs which have been excluded. The petitioner submits that this could not be done.
3. In para 9 of the petition the petitioner has taken the following plea:
9.That the aforesaid Notification No. 5/94 specifically excludes High Speed Diesel Oil classifiable under Heading No. 27.10 from the list of eligible inputs under item (iv) of column 2 of the Table appended to the Notification.
4. The petitioner has also alleged that Rule 57B of the Rules which was brought into the statute book in the year 1997 widens the scope of the word inputs and inputs used as fuel are eligible for MODVAT credit. According to the petitioner the notification issued under Rule 57A excluding HSD is of no consequence since Rule 57B starts with a non-obstante clause and specifically includes fuels in the category of inputs and in any event such a notification cannot override the provisions of Rule 57B.
5. On the other hand the stand of the Respondents is that Rule 57B specifically provides that MODVAT credit can be taken only in respect of those inputs which have been specifically notified under Rule 57A and since HSD has been excluded there is no merit in the case of the petitioner and the same should be dismissed.
6. To appreciate the rival contentions of the parties it would be pertinent to refer to Rule 57A sub Clauses (1) to (5) and Rule 57B(1) which read as follows:
Rule 57A. Applicability. - (1) The provisions of this section shall apply to such finished excisable goods (hereinafter, in this section, 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 (hereafter, in this section, referred to as the specified duty) paid in the goods used in the manufacture of the said final products (hereinafter, in this section, referred to as the 'inputs').
(2)The credit of specified duty allowed under Sub-rule (1) shall be utilized 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 notification issued under Sub-rule (1) and subject to the provisions of this section and the conditions and restrictions, if any, specified in the said notification.
(3)The Central Government may also specify in the said notification the goods or classes of goods in respect of which the credit of specified duty may be restricted.
(4)The credit of specified duty under this section shall be allowed on inputs used in the manufacture of final products as well as on inputs used in or in relation to the manufacture of the final products whether directly or indirectly and whether contained in the final product or not.
(5)Notwithstanding anything contained in Sub-rule (1), the Central Government may, by notification in the official Gazette declare the inputs on which declared duties of excise or additional duty (hereinafter referred to as declared duty) paid shall be deemed to have been paid at such rate or equivalent to such amount as may be specified in the said notification and allow the credit of such declared duty deemed to have been paid in such manner and subject to such conditions as may be specified in the said notification even if the declared inputs are not used directly by the manufacturer of final products declared in the said notification, but are contained in the said final products.
Explanation.- For the purposes of the sub-rule, it is clarified that even if the declared inputs are used directly by a manufacturer of final products, the credit of the declared duty shall, notwithstanding the actual amount of duty paid on such declared inputs, be deemed to be equivalent to the amount specified in the said notification and the credit of the declared duty shall be allowed to such manufacturer.
Rule 57B. Eligibility of credit of duty on certain inputs:
(1)Notwithstanding anything contained in Rule 57A, the manufacturer of final products shall be allowed to take credit of the specified duty paid on the following inputs used in or in relation to the manufacture of the final products, whether directly or indirectly and whether contained in the final products or not, namely:
(i) Inputs which are manufactured and used within the factory of production;
(ii) Paints;
(iii) Inputs used as fuel.
(iv) inputs used for the generation of electricity or steam, used for manufacture of final products or for any other purpose, within the factory of production;
(v) packing materials from which such packing materials are made provided the cost of such packing materials is included in the value of the final product;
(vi) accessories for the final product cleared along with such final product, the value of which is included in the assessable value of the final product.
Explanation.- For the purposes of this sub-rule, it is hereby clarified that the term 'inputs' refers only to such inputs as may be specified in a notification issued under Rule 57A.
7. A bare reading of Rule 57A (1) clearly shows that the provisions of the section apply in respect of finished excisable goods as the Central Government may specify by notification. The notification deals not only with the final products but also with the inputs. Clause (5) of the aforesaid Rule clearly provides that the Central Government may by notification in the gazette declare the inputs on which MODVAT credit for the excise paid can be taken at the specified rates. Therefore, there is no merit in the contention of the petitioner that the government had no jurisdiction to notify the inputs for which MODVAT credit could be taken in its notification.
8. We now come to the contention of the petitioner that since Rule 57B starts with a non-obstante clause this would override all the provisions of Rule 57A. Rule 57B no doubt starts with a non-obstante clause and under sub clause(iv) of Clause (1) inputs used for generation of electricity are deemed to be included in the definition of inputs but the explanation to Clause (1) clearly lays down that for the purpose of this sub rule the term inputs refers only to such inputs as may be specified in a notification issued under Rule 57A.
9. Therefore, it is obvious that before claiming the MODVAT credit the assessee must show that the MODVAT credit relates to an input notified under Rule 57A. The case of the petitioner itself is that HSD was specifically excluded from the inputs on which credit could be claimed. Therefore, there is obviously no merit in the case of the petitioner.
10. Sh. R.L. Sood, learned senior counsel for the petitioner has placed reliance on the judgment of the Apex Court in Collector of Central Excise and Ors. v. Solaris Chemtech Ltd. and Ors. (2007) 7 SCC 347. In that case the only question which was decided was that the Low Sulphur Heavy Stock used by the assessee for fuel generating electricity is an input within the meaning of Rule 57A. No question was raised before the Apex Court as to what is the effect of a notification issued under Rule 57A whereby some inputs have been specifically excluded like in the present case. We may also point out that the Apex court was considering Rule 57A as it stood prior to its amendment on 1st March, 1997. The language of Rules 57A and 57B which are under consideration in the present case is totally different from the language of Rule 57A as it stood before its amendment.
11. In any event here we are only considering the question as to what is the effect of notification specifically excluding HSD from the category of inputs. HSD may be an input but once the Government in its wisdom exercises its powers under Rule 57A and specifically excludes HSD oil from the category of inputs on which the benefit of excise paid can be taken, the petitioner was not entitled to claim MODVAT credit on this item.
12. As discussed by us above, Clause (5) of Rule 57A specifically empowered the Government to issue a notification specifying the inputs on which MODVAT credit could be taken. HSD oil was specifically excluded. Explanation to Rule 57B clarifies that the MODVAT credit can only be taken in respect of those inputs specified in notification issued under Rule 57A. Hence, the petitioner was not entitled to claim credit of the excise paid on HSD oil which had been specifically excluded.
13. We therefore find no merit in the petition which is dismissed with costs assessed at Rs. 10,000/-.