M/S
Maruti Suzuki Ltd. Vs. Commr. of Central Excise-III, Delhi [2009] INSC 1448 (17
August 2009)
Judgment
IN THE
SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION Civil Appeal No. 5554 of
2009 (Arising out of S.L.P. (C) No.3826 of 2009) M/s. Maruti Suzuki Ltd. ...
Appellant (s) Versus Commissioner of Central Excise, Delhi-III ...
Respondent(s) WITH Civil Appeal No. 5555 of 2009 - (Arising out of S.L.P. (C)
No.5362 of 2009)
S. H.
KAPADIA, J.
1.
Leave granted.
FACTS IN
THE LEAD MATTER
2.
The issue in the present civil appeal is : whether the Department
is right in reversing proportionate CENVAT credit to the extent of power
wheeled out by the appellant to its sister units, vendors, joint ventures.
Basically, in both the civil appeals we are 2 required to construe the word
"input" as defined in Rule 2(g) of CENVAT Credit Rules, 2002.
3.
M/s. Maruti Suzuki Ltd. (appellant) is engaged in the business of
manufacturing motor vehicles falling under Chapter 87 of Central Excise Tariff
Act, 1985. These motor vehicles are cleared on
payment of duty. Assessee claimed CENVAT credit on "input" in
accordance with CENVAT Credit Rules, 2002 (for short, "2002 Rules").
Assessee has installed three gas turbines in their factory for generation of
electricity. All the three turbines have capacity to generate electricity of 20
MW each. Till June 2002, assessee was using natural gas as fuel for running the
three gas turbines. No excise duty was leviable on natural gas and, therefore,
there was no question of availing CENVAT credit on natural gas. During July 2002
to December 2002, assessee started using diesel as fuel to run the three
turbines. In view of the said Rules barring availment of credit on diesel, the
assessee did not avail any CENVAT Credit on diesel procured by them. From
January 2003 onwards, assessee are using naphtha as fuel to run the gas
turbines and they are availing CENVAT Credit on naphtha used for generation of
electricity in gas turbines. Assessee also uses diesel generating set 3 (DG
set) for generation of electricity with the use of diesel for which they had
not availed any credit. In their factory, assessee has a common distribution
point for electricity generated in turbines as well as DG set and the entire
electricity which is generated in the turbines and DG set(s), placed in the
factory, is distributed through common distribution point.
4.
During the disputed period assessee cleared a part of electricity
generated in the factory to its joint ventures, vendors etc.
In
addition, assessee met its electricity requirements by electricity captively
generated by the assessee in their turbines. During the said period, assessee
generated 1,44,469.80 KWH of electricity out of which 18,838.49 KWH of
electricity stood wheeled out (approximately 13% of total net power
generation). This electricity stood cleared at the different rates for the
entire period varying from Rs.4.65/KWH to Rs.9.72/KWH. It may be noted that
even the joint ventures, vendors etc. to whom excess electricity is wheeled out
in turn manufacture final products.
ARGUMENTS
4
5.
At the outset it may be noted that the civil appeals in question
concern the period January 2003 to October 2003 and November 2003 to March 2004
during which period CENVAT Credit Rules, 2002 was amended by Notification
No.13/2003-CE(NT) dated 1.3.2003. Accordingly we are confining the arguments
advanced by learned counsel on both sides to the said Rules.
6.
Mr. V. Lakshmi Kumaran, learned counsel appearing on behalf of the
appellant, submitted as follows. So long as naphtha is used as fuel for
generation of electricity, appellant is entitled to take credit of duty paid on
it and there is no need to reverse proportionate credit to the extent of power
wheeled out to joint ventures, vendors etc. According to learned counsel, Rule
2(g) of the said 2002 Rules which defined "input", was in two parts.
The first part was the specific part which was followed by the inclusive part.
In the inclusive part several items stood included such as lubricating oils,
greases, cutting oils, coolants, accessories, goods used as paint, or as
packing material, or as fuel, or for generation of electricity or steam used
for manufacture of final products or for any other purpose, within the factory
of production. There is no dispute that the appellant had used naphtha as fuel
for generation of electricity, hence, the said item fell within the inclusive
part of the definition. According to learned counsel, there was a condition in
the specific part of the said Rule, namely, "that the goods must be used
in or in relation to the manufacture of final product", however, that
condition did not apply to goods falling under the inclusive part of the
definition of "input". Therefore, 5 once the fuel stood admittedly
used in the factory for generation of electricity, it came within the
definition of the word "input". Learned counsel next urged that the
expression "within the factory of production" did not qualify goods
used as fuel. In this connection, it is urged, that, naphtha used as fuel for
generation of electricity came under two alternative provisions, namely,
"input used as fuel" or "input used for generation of
electricity" and, therefore, it was open to the appellant to contend that
naphtha used as fuel for generation of electricity stood covered within the
expression "goods used as fuel". According to learned counsel, when
the case of the appellant stood covered by two alternative provisions it is
open to the appellant to contend that he is covered by one of them. It was
urged that the expression "within the factory of production" stands
attached only to one category of goods in the inclusive part of the definition,
namely, "goods used for generation of electricity or steam" and that
the said expression "within the factory of production" was not
attached to any previous items, mentioned in the inclusive part of the
definition and, therefore, the said expression "within the factory of
production" was not applicable to input "naphtha" used as fuel.
Consequently, according to learned counsel, so long as naphtha received in the
appellant's factory was used as fuel, the same stood covered by the definition
of "input" irrespective of the fact that some portion of electricity
generated by use of naphtha stood cleared outside. In the alternative, it was
urged, that, even assuming for the sake of argument that the expression
"within the factory of production" stood attached 6 to the expression
"goods used for generation of electricity" it would only mean that
goods used for generation of electricity should be used within the factory of
production of final product(s). In other words, according to learned counsel,
the said expression "within the factory of production" would apply to
items used for generation of electricity and not to electricity as such and
since in the present case naphtha stood used within the factory of production
of the final product, it fell within the definition of "input".
Consequently, the appellant was entitled to the credit of duty paid on the
entire quantity of naphtha used as fuel. It was next urged on behalf of the appellant
that once naphtha came to be used in generation of electricity which was partly
used for captive consumption and partly in other units of the appellant it was
not open to the Department to deny credit on the ground that part of the
electricity was cleared outside the factory to the joint ventures, vendors etc.
In this connection, it was submitted that under the said Rules, a manufacturer
of final product was allowed to take credit of specified duty paid on any input
received in the factory after 1.4.2002. There was no condition attached to it.
Hence, it was not open to the Department to deny credit on the ground that part
of the electricity stood cleared outside the factory to its joint ventures,
vendors etc. According to learned counsel, Rule 3(1) of the said 2002 Rules
permitted credit to be taken on inputs received in the factory whereas Rule
3(4) required credit to be surrendered on removal of input as such, therefore,
when the goods received in the factory were used as fuel and the said goods
were not 7 removed from the factory, credit of duty paid on fuel became
undeniable. Learned counsel next contended that under Rule 6(1) when input was
used in the manufacture of exempted goods, credit was not admissible. However,
Rule 6(1) was not attracted to the facts of the present cases as naphtha was
"used as fuel" in generation of electricity which is not an excisable
item. According to learned counsel, since electricity was neither exempted nor
chargeable to `nil' rate of duty, Rule 6(1) was not applicable in the case of
naphtha used in the generation of electricity or steam and, therefore, the
appellant was entitled to avail full credit on naphtha as the restriction under
Rule 6(1) was not applicable. Therefore, wheeling out a part of electricity
generated in the factory of the appellant to its joint ventures or vendors
could not have deprived the appellant of the credit of duty paid on naphtha
used as fuel in their factory.
7.
Mr. Gourab Banerji, learned Addl. Solicitor General, appearing for
the Department submitted that the basic idea of CENVAT credit is that it is
admissible so long as the inputs are used in or in relation to the manufacture
of final products, whether directly or indirectly and, therefore, the CENVAT
scheme was not designed to grant windfall benefits by way of credit to inputs
not used ultimately in or in relation to manufacture of the final products but
are used in or in relation to the production of electricity which is not even
excisable. According to learned counsel, the definition of the word
"input" in Rule 2(g) of the CENVAT Credit Rules, 2002 was required to
be read as a whole and not in a disjunctive manner as 8 suggested on behalf of
the appellant. According to learned counsel, the specific part of Rule 2(g)
covered all inputs as long as they were used in or in relation to the
manufacture of final product(s), directly or indirectly. In this connection,
learned counsel submitted that the scope of the inclusive part was merely to
illustrate certain inputs in respect of which a possible doubt existed as to
whether or not they stood used in or in relation to the manufacture of final
product(s) and further the inclusive part stood qualified by the fact that all
the items mentioned therein had to be used within the factory of production.
Therefore, according to learned counsel, the inclusive part of the definition
restricted the benefit to specified items which were required to be used within
the factory of production.
In this
connection, learned counsel gave examples of specific items, mentioned in Rule
2(g) of the 2002 Rules, like lubricating oils, greases, cutting oils and
coolants which also fell within the definition "if used within the factory
of production". In fact, according to learned counsel, the said items
stood specifically included to clarify doubt as to whether the said items could
be used within the factory of production. In the alternative, it was submitted
that the appellant has used naphtha in the generation of electricity, part of
which has been consumed outside the factory or production; that the said input
has not been used as fuel per se but it has been used for the specific purpose
of generation of electricity consumed outside the factory of production and
consequently the said naphtha would not fall within the definition under Rule
2(g). Coming to the interpretation of Rule 6 of 9 the 2002 Rules, learned
counsel submitted, that where electricity stood generated but sold outside the
factory to third party, the said rule was not applicable.
According
to learned counsel, electricity generated as a final product was neither
exempted nor chargeable to `nil' rate of duty hence in such cases Rules 6 was
not applicable. According to learned counsel, Rule 6 was applicable to cases
where the final product was either exempted or charged to `nil' rate of duty
and since electricity was not excisable commodity the said rule was not
applicable. Learned counsel also emphasized on Rule 6(1) in support of his
contention that CENVAT credit was not admissible on such quantity of inputs
which were used in the manufacture of exempted goods. The said bar, according
to learned counsel, was consistent with the basic idea of CENVAT scheme. On
interpretation of Rule 6(2) it was urged that on proper analysis of the said
sub-rule it is clear that the said sub- rule had imposed an obligation on the
manufacturer when he manufactured both dutiable and exempted goods and in
discharge of that obligation he had an option either to maintain separate
accounts on inputs used in the manufacture of dutiable and exempted goods or he
had to pay specified percentage of the price of the exempted goods. According
to learned counsel, in respect of "goods used as fuel", it was
physically impossible to maintain separate account(s) of fuel used in the
manufacture of dutiable and exempted goods and, therefore, the Legislature
thought it fit not to give the said option of maintaining separate accounts of
goods used as fuel and in such cases the only option available was to pay a
specified 1 0 amount. In any event, according to learned counsel, on facts
since naphtha was used as fuel in the generation of electricity/steam, Rule
6(2) became applicable.
ANALYSIS
OF THE RULES
8.
We here in below reproduce relevant rules of the CENVAT Credit
Rules 2002 and CENVAT Credit Rules 2004 which read as follow :
"The
CENVAT Credit Rules, 2002 Rule 2. Definitions.- In these rules, unless the
context otherwise requires,- (d) "exempted goods" means goods which
are exempt from the whole of the duty of excise leviable thereon, and includes
goods which are chargeable to "Nil" rate of duty;
(g)
"input" means all goods, except light diesel oil, high speed diesel
oil and motor spirit, commonly known as petrol, used in or in relation to the
manufacture of final products whether directly or indirectly and whether
contained in the final product or not, and includes lubricating oils, greases,
cutting oils, coolants, accessories of the final products cleared along with
the final product, goods used as paint, or as packing material, or as fuel, or
for generation of electricity or steam used for manufacture of final products
or for any other purpose, within the factory of production.
Explanation
1.- The light diesel oil, high speed diesel oil or motor spirit, commonly known
as petrol, shall not be treated as an input for any purpose whatsoever.
Explanation
2.- Inputs include goods used in the manufacture of capital goods which are
further used in the factory of the manufacturer;
RULE 3.
CENVAT credit.-
1. A
manufacturer or producer of final products shall be allowed to take credit
(hereinafter referred to as the CENVAT credit) of - i. the duty of excise
specified in the First Schedule to the Tariff Act, leviable under the Act;
1 1 ii.
the duty of excise specified in the Second Schedule to the Tariff Act, leviable
under the Act;
iii. the
additional duty of excise leviable under section 3 of the Additional Duties of
Excise (Textile and Textile Articles) Act,1978 ( 40 of 1978);
iv. the
additional duty of excise leviable under section 3 of the Additional Duties of
Excise (Goods of Special Importance) Act, 1957 ( 58 of 1957);
v. the
National Calamity Contingent duty leviable under section 136 of the Finance
Act, 2001 (14 of 2001), as amended by clause 161 of the Finance Bill, 2003,
which clause has, by virtue of the declaration made in the said Finance Bill
Under the Provisional Collection of Taxes Act, 1931 (16 of 1931), the force of
law;
vi. the
additional duty leviable under Section 3 of the Customs Tariff Act, equivalent
to the excise specified under clauses (i), (ii), (iii), (iv) and (v) above; and
vii. the additional duty of excise leviable under section 157 of the Finance
Act, 2003 (32 of 2003), paid on any inputs or capital goods received in the
factory on or after the first day of March, 2002, including the said duties
paid on any inputs used in the manufacture of intermediate products, by a
job-worker availing the benefit of exemption specified in the notification of
the Government of India in the Ministry of Finance (Department of Revenue), No.
214/86- Central Excise, dated the 25th March, 1986, published vide number
G.S.R. 547 (E), dated the 25th March, 1986, and received by the manufacturer
for use in, or in relation to, the manufacture of final products, on or after
the first day of March, 2002.
Explanation.-
For the removal of doubts it is clarified that the manufacturer of the final
products shall be allowed CENVAT credit of additional duty leviable under
section 3 of the Customs Tariff Act on goods falling under heading 98.01 of the
First Schedule to the Customs Tariff Act.
2.
Notwithstanding anything contained in sub-rule (1), the manufacturer or
producer of final products shall be allowed to take CENVAT credit of the duty
paid on inputs lying in stock or in process or inputs contained in the final
products lying in stock on the date on which any goods cease to be exempted
goods or any goods become excisable.
3. The
CENVAT credit may be utilized for payment of - (a) any duty of excise on any
final products; or 1 2 (b) an amount equal to CENVAT credit taken on inputs if
such inputs are removed as such of after being partially processed; of (c) an
amount equal to the CENVAT credit taken on capital goods if such capital goods
are removed as such; or (d) an amount under sub-rule (2) of Rule 16 of Central
Excise Rules, 2000.
Provided
that while paying duty, the CENVAT credit shall be utilized only to the extent
such credit is available on the last day of the month for payment of duty
relating to the month.
Provided
further that the CENVAT credit of the duty paid on the inputs used in the
manufacture of final products cleared after availing of the exemption under the
notification numbers 32/99-Central Excise, dated the 8th July, 1999
[G.S.R.508(E) dated the 8th July, 1999] and 33/99-Central Excise dated the 8th
July, 1999 [G.S.R.509 (E) dated 8th July, 1999], shall be utilized only for
payment of duty on final products cleared after availing of the exemption under
the said notification numbers 32/99-Central Excise, dated 8th July, 1999 and
33/99-Central Excise, dated the 8th July, 1999.] Provided also that the CEENVAT
credit of the duty paid on the inputs used in the manufacture of final products
cleared after availing of the exemption under the notifications
No.39/2001-Central Excise, dated the 31st July, 2001 [G.S.R.565(E), dated the
31st July, 2001], No.56/2002-Central Excise, dated the 14th November, 2002
[G.S.R. 764(E), dated the 14th November, 2002], No.57/2002-Central Excise,
dated 14th November, 2002 [G.S.R.765(E), dated the 14th November, 2002] and
No.56/2003-Central Excise, dated the 25 th June, 2003 [G.S.R.513 (E), dated the
25th June, 2003] shall respectively be utilized only for payment of duty on
final products, in respect of which exemption under the said notifications
No.39/2001-Central Excise, dated the 31st July, 2001, No.56/2002-Central
Excise, dated the 14th November, 2002, No.57/2002- Central Excise, dated 14th
November, 2002 and No.56/2003-Central Excise, dated the 25th June, 2003, is
availed.
4. When
inputs or capital goods, on which CENVAT credit has been taken, are removed as
such from the factory, the manufacturer of the final products shall pay an
amount equal to the credit availed in respect of such inputs or capital goods
and such removal shall be made under the cover of an invoice referred to in
rule 7.
4A.
Notwithstanding anything contained in these rules,- 1 3 (a) a first or second
stage dealer, dealing exclusively in goods falling under Chapter 50, 51, 52,
53, 54, 55, 56, 57, 58, 59, 60, 61, 62 or 63 of the First Schedule to the
Tariff Act, may, at his option, remove such goods, whether or not after
undertaking activities such as packing, repacking, on payment of an amount
equal to the duty of excise, which is leviable on such goods at the rate
applicable on the date of removal and on the value determined for such goods
under sub-section (2) of Section 3 or Section 4 of the Act, as the case may be.
The provisions of the Central Excise Rules, 2002, in so far they relate to
removal of goods on invoice, maintenance of accounts, filing of return, manner
of payment or failure to pay such amount shall apply, as if such amount is a
duty of excise liable to be paid by an assessee:
Provided
that such option once exercised by the said dealer, shall not be withdrawn
during the remaining part of the financial year;
(b) the
first or second stage dealer of goods referred to in clause (a), who avails of
the option referred to in said clause, may take credit of duties referred to in
sub-rule (1) of Rule 3, paid on such goods for utilizing the same for payment
of such amount, as referred to in clause (a);
(c) the
amount paid under clause (a) shall be eligible as CENVAT credit as if it were a
duty paid by a person who removes such goods under sub- rule(4A).
5. The
amount paid under sub-rule (4) shall be eligible as CENVAT credit as if it was
a duty paid by the person who removed such goods under sub-rule (4).
6.
Notwithstanding anything contained in sub-rule (1),- i. CENVAT credit in
respect of inputs or capital goods produced or manufactured,- i. in a free
trade zone or by a hundred per cent. export- oriented undertaking or by a unit
in an Electronic Hardware Technology Park or Software Technology Park (other than
a unit which pays excise duty under section 3 of the Act read with notification
No. 8/97- Central Excise, dated the 1st March, 1997, number G.S.R 114 (E),
dated the 1st March, 1997 or No. 20/2002-Central Excise, dated the 1st March,
2002) and used in the manufacture of the final products in any other place in
India, in case the unit pays excise duty under section 3 of the Act read with
notification No. 2/95- Central Excise, dated the 4th January, 1995, number
G.S.R.
189 (E),
dated the 4th January, 1995, shall be admissible equivalent to the amount
calculated in the following manner, namely:- Fifty per cent. of [ X multiplied
by{( 1+ BCD/100) multiplied by ( CVD/100)}], where BCD and CVD denote ad
valorem 1 4 rates, in per cent., of basic customs duty and additional duty of
customs leviable on the inputs or the capital goods respectively and X denotes
the assessable value.
ii. in a
Special Economic Zone, and used in the manufacture of the final products in any
other place in India, shall be admissible equivalent to the amount calculated
in the following manner, namely:- X multiplied by {( 1+ BCD/100) multiplied by
( CVD/100)}, where BCD and CVD denote ad valorem rates, in per cent., of basic
customs duty and additional duty of customs leviable on the inputs or the
capital goods respectively and X denotes the assessable value.
ii.
CENVAT credit in respect of i. the additional duty of excise leviable under
section 3 of the Additional Duties of Excise (Textiles and Textile Articles)
Act, 1978 (40 of 1978);
ii. the
National Calamity Contingent duty leviable under section 136 of the Finance
Act, 2001 (14 of 2001), as amended by clause 161 of the Finance Bill, 2003,
which clause has, by virtue of the declaration made in the said Finance Bill
Under the Provisional Collection of Taxes Act, 1931 (16 of 1931), the force of
law; and iii. the additional duty leviable under section 3 of the Customs
Tariff Act, equivalent to the duty of excise specified under clauses (i) and
(ii) above, shall be utilised only towards payment of duty of excise leviable
under the said Additional Duties of Excise (Textiles and Textile Articles) Act,
or the National Calamity Contingent duty leviable under Section 136 of the
Finance Act, 2001 as amended by clause 161 of the Finance Bill, 2003, which
clause has, by virtue of the declaration made in the said Finance Bill Under
the Provisional Collection of Taxes Act, 1931 (16 of 1931), the force of law;
respectively, on any final products manufactured by the manufacturer or for
payment of such duty on inputs themselves if such inputs are removed as such or
after being partially processed.
Explanation.-
For removal of doubts, it is clarified that the credit of the additional duty
of excise leviable under section 3 of the Additional Duties of Excise (Goods of
Special Importance) Act, 1957 (58 of 1957), may be utilized towards payment of
duty of excise leviable under the First Schedule or the Second Schedule of the
Central Excise Tariff Act, 1985 (5 of 1986).
iii. the
CENVAT credit, in respect of additional duty leviable under section 3 of the
Customs Tariff Act, paid on marble slabs or tiles 1 5 falling under sub-heading
No. 2504.21 or 2504.31 respectively of the First Schedule to the Tariff Act
shall be allowed to the extent of thirty rupees per square metre;
iv. ***.
Explanation.-
Where the provisions of any other rule or notification provide for grant of
partial or full exemption on condition of non- availability of credit of duty
paid on any input or capital goods, the provisions of such other rule or
notification shall prevail over the provisions of these rules.
Rule 6.
Obligation of manufacturer of dutiable and exempted goods.- 1The 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
the CENVAT credit on inputs shall not be denied to job worker referred to in
rule 12B of the Central Excise Rules, 2002 on the ground that the said inputs
are used in the manufacture of goods cleared without payment of duty under the
provisions of that rule.
2Where 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.
3The
manufacturer, opting not to maintain separate accounts shall follow either of
the following conditions, as applicable to him, namely:- a. if the exempted
goods are- i. goods falling within heading No. 22.04 of the First Schedule to
the Tariff Act;
ii. Low
Sulphur Heavy Stock (LSHS) falling within Chapter 27 of the said First Schedule
used in the generation of electricity;
iii.
Naphtha (RN) falling within Chapter 27 of the said First Schedule used in the
manufacture of fertilizer;
iv.
Omitted.
v.
newsprint, in rolls or sheets, falling within heading No.48.01 of the said
First Schedule;
vi. final
products falling within Chapters 50 to 63 of the said First Schedule, vii.
Naptha (RN) and furnace oil falling within Chapter 27 of the said First
Schedule used for generation of electricity;
viii.
Goods supplied to defence personnel or for defence projects or to the Ministry of
Defence for official purposes, under any of the following notifications of the
Government of India in the erstwhile Ministry of Finance (Department of
Revenue), namely:- (1) No.70/92-Central Excise, dated the 17th June, 1992,
G.S.R.595 (E), dated the 17th June, 1992;
(2)
No.62/95-Central Excise, dated the 16th March, 1995, G.S.R.254 (E), dated the
16th March, 1995;
(3)
No.63/95-Central Excise, dated the 16th March, 1995, G.S.R.255 (E), dated the
16th March, 1995;
(4)
No.64/95-Central Excise, dated the 16th March, 1995, G.S.R.256(E), dated the
16th March, 1995;
the
manufacturer shall pay an amount equivalent to the CENVAT credit attributable
to inputs used in, or in relation to, the manufacture of such final products at
the time of their clearance from the factory; or b. if the exempted goods are
other than those described in condition (a), the manufacturer shall pay an
amount equal to eight per cent.
of the
total price, excluding sales tax and other taxes, if any, paid on such goods,
of the exempted final product charged by the manufacturer for the sale of such
goods at the time of their clearance from the factory.
Explanation
I.- The amount mentioned in conditions (a) and (b) shall be paid by the
manufacturer by debiting the CENVAT credit or otherwise.
Explanation
II.- If the manufacturer fails to pay the said amount, it shall be recovered
along with interest in the same manner, as provided in rule 12, for recovery of
CENVAT credit wrongly taken.
4No
CENVAT credit shall be allowed on capital goods which are used exclusively in
the manufacture of exempted goods, other than the final products which are
exempt from the whole of the duty of excise leviable thereon under any 1 7
notification where exemption is granted based upon the value or quantity of clearances
made in a financial year.
5The
provisions of sub- rule (1), sub-rule (2), sub-rule (3) and sub-rule (4) shall
not be applicable in case the exempted goods are either- a. cleared to a unit
in a free trade zone; or b. cleared to a unit in a special economic zone; or c.
cleared to a hundred per cent. export-oriented undertaking; or d. cleared to a
unit in an Electronic Hardware Technology Park or Software Technology Park; or
e. supplied to the United Nations or an international organization for their
official use or supplied to projects funded by them, on which exemption of duty
is available under notification of the Government of India in the Ministry of
Finance (Department of Revenue) No.108/95-Central Excise, dated the 28th
August, 1995, number G. S R. 602 (E), dated the 28th August, 1995; or f.
cleared for export under bond in terms of the provisions of the Central Excise
Rules, 2002.
g. Gold
or silver falling within Chapter 71 of the said First Schedule, arising in the
course of manufacture of copper or zinc by smelting."
(emphasis
supplied by us) "CENVAT Credit Rules, 2004 RULE 2. Definitions.- In these
rules, unless the context otherwise requires,- (k) "input" means- (i)
all goods, except light diesel oil, high speed diesel oil and motor spirit,
commonly known as petrol, used in or in relation to the manufacture of final
products whether directly or indirectly and whether contained in the final
product or not and includes lubricating oils, greases, cutting oils, coolants,
accessories of the final products cleared along with the final product, goods
used as paint, or as packing material, or as fuel, or for generation of
electricity or steam used in or in relation to manufacture of final products or
for any other purpose, within the factory of production;
(ii) all
goods, except light diesel oil, high speed diesel oil, motor spirit, commonly
known as petrol and motor vehicles, used for providing any output service;
Explanation
1.- The light diesel oil, high speed diesel oil or motor spirit, commonly known
as petrol, shall not be treated as an input for any purpose whatsoever.
1 8
Explanation 2.- Input include goods used in the manufacture of capital goods
which are further used in the factory of the manufacturer;
RULE 3.
CENVAT credit.- (1) A manufacturer or producer of final products or a provider
of taxable service shall be allowed to take credit (hereinafter referred to as
the CENVAT credit) of - (i) the duty of excise specified in the First Schedule
to the Excise Tariff Act, leviable under the Excise Act;
(ii) the
duty of excise specified in the Second Schedule to the Excise Tariff Act,
leviable under the Excise Act;
(iii) the
additional duty of excise leviable under section 3 of the Additional Duties of
Excise (Textile and Textile Articles) Act,1978 ( 40 of 1978);
(iv) the
additional duty of excise leviable under section 3 of the Additional Duties of
Excise (Goods of Special Importance) Act, 1957 ( 58 of 1957);
(v) the
National Calamity Contingent duty leviable under section 136 of the Finance
Act, 2001 (14 of 2001);
(vi) the
Education Cess on excisable goods leviable under section 91 read with section
93 of the Finance (No.2) Act, 2004 (23 of 2004);
(vii) the
additional duty leviable under section 3 of the Customs Tariff Act, equivalent
to the duty of excise specified under clauses (i), (ii), (iii), (iv), (v) and
(vi);
(viii)
the additional duty of excise leviable under section 157 of the Finance Act,
2003 (32 of 2003);
(ix) the
service tax leviable under section 66 of the Finance Act;
and (x)
the Education Cess on taxable services leviable under section 91 read with
section 95 of the Finance (No.2) Act, 2004 (23 of 2004), paid on- (i) any input
or capital goods received in the factory of manufacture of final product or
premises of the provider of output service on or after the 10th day of
September, 2004;
and (ii)
any input service received by the manufacturer of final product or by the
provider of output services on or after the 10th day of September, 2004,
including the said duties, or tax, or cess paid on any input or input service,
as the case may be, used in the manufacture of intermediate products, by a
job-worker availing the benefit of exemption specified in the notification of
the Government of India in the Ministry of Finance (Department of Revenue), No.
214/86- 1 9 Central Excise, dated the 25th March, 1986, published in the
Gazette of India vide number G.S.R. 547 (E), dated the 25th March, 1986, and
received by the manufacturer for use in, or in relation to, the manufacture of
final product, on or after the 10th day of September, 2004.
Explanation.-
For the removal of doubts it is clarified that the manufacturer of the final
products and the provider of output service shall be allowed CENVAT credit of
additional duty leviable under section 3 of the Customs Tariff Act on goods
falling under heading 9801 of the First Schedule to the Customs Tariff Act.
(2)
Notwithstanding anything contained in sub-rule (1), the manufacturer or
producer of final products shall be allowed to take CENVAT credit of the duty
paid on inputs lying in stock or in process or inputs contained in the final
products lying in stock on the date on which any goods manufactured by the said
manufacturer or producer cease to be exempted goods or any goods become excisable.
(3)
Notwithstanding anything contained in sub-rule (1), in relation to a service
which ceases to be an exempted service, the provider of the output service
shall be allowed to take CENVAT credit of the duty paid on the inputs received
on and after the 10th day of September, 2004 and lying in stock on the date on
which any service ceases to be an exempted service and used for providing such
service.
(4) The
CENVAT credit may be utilized for payment of - (a) any duty of excise on any
final product; or (b) an amount equal to CENVAT credit taken on inputs if such
inputs are removed as such or after being partially processed; or (c) an amount
equal to the CENVAT credit taken on capital goods if such capital goods are
removed as such; or (d) an amount under sub rule (2) of rule 16 of Central
Excise Rules, 2002; or (e) service tax on any output service:
Provided
that while paying duty of excise or service tax, as the case may be, the CENVAT
credit shall be utilized only to the extent such credit is available on the
last day of the month or quarter, as the case may be, for payment of duty or
tax relating to that month or the quarter, as the case may be:
Provided
further that the CENVAT credit of the duty, or service tax, paid on the inputs,
or input services, used in the manufacture of final products cleared after
availing of the exemption under the 2 0 following notifications of Government
of India in the Ministry of Finance (Department of Revenue),- (i) No.
32/99-Central Excise, dated the 8th July, 1999 [G.S.R. 508(E), dated 8th July,
1999];
(ii) No.
33/99-Central Excise, dated the 8th July, 1999 [G.S.R. 509(E), dated 8th July,
1999];
(iii) No.
39/2001-Central Excise, dated the 31st July, 2001 [G.S.R. 565 (E), dated the
31st July, 2001];
(iv) No.
56/2002-Central Excise, dated the 14th November, 2002 [G.S.R. 764(E), dated the
14th November, 2002];
(v) No.
57/2002-Central Excise, dated 14th November, 2002 [G.S.R.. 765(E), dated the
14th November, 2002];
(vi) No.
56/2003-Central Excise, dated the 25th June, 2003 [G.S.R. 513 (E), dated the
25th June, 2003]; and (vii) No. 71/2003-Central Excise, dated the 9th
September, 2003 [G.S.R. 717 (E), dated the 9th September, 2003], shall,
respectively, be utilized only for payment of duty on final products, in respect
of which exemption under the said respective notifications is availed of:
(5) When
inputs or capital goods, on which CENVAT credit has been taken, are removed as
such from the factory, or premises of the provider of output service, the
manufacturer of the final products or provider of output service, as the case
may be, shall pay an amount equal to the credit availed in respect of such
inputs or capital goods and such removal shall be made under the cover of an
invoice referred to in rule 9:
Provided that
such payment shall not be required to be made where any inputs are removed
outside the premises of the provider of output service for providing the output
service:
Provided
further that such payment shall not be required to be made when any capital goods
are removed outside the premises of the provider of output service for
providing the output service and the capital goods are brought back to the
premises within 180 days, or such extended period not exceeding 180 days as may
be permitted by the jurisdictional Deputy Commissioner of Central Excise, or
Assistant Commissioner of Central Excise, as the case may be, of their removal.
(6) The
amount paid under sub-rule (5) shall be eligible as CENVAT credit as if it was
a duty paid by the person who removed such goods under sub-rule (5).
(7)
Notwithstanding anything contained in sub-rule (1) and sub-rule (4), - 2 1 (a)
CENVAT credit in respect of inputs or capital goods produced or manufactured,
by a hundred per cent. export-oriented undertaking or by a unit in an
Electronic Hardware Technology Park or in a Software Technology Park other than
a unit which pays excise duty levied under section 3 of the Excise Act read
with serial numbers 3,5, 6 and 7 of notification No. 23/2003-Central Excise,
dated the 31st March, 2003, [G.S.R. 266(E), dated the 31st March, 2003] and
used in the manufacture of the final products or in providing an output
service, in any other place in India, in case the unit pays excise duty under
section 3 of the Excise Act read with serial number 2 of the notification No.
23/2003-Central Excise, dated the 31st March, 2003, [G.S.R. 266(E), dated the
31st March, 2003], shall be admissible equivalent to the amount calculated in
the following manner, namely:- Fifty per cent. of [X multiplied by {(1+BCD/100)
multiplied by (CVD/100)}], where BCD and CVD denote ad valorem rates, in per
cent., of basic customs duty and additional duty of customs leviable on the
inputs or the capital goods respectively and X denotes the assessable value.
(b)
CENVAT credit in respect of - (i) the additional duty of excise leviable under
section 3 of the Additional Duties of Excise (Textiles and Textile Articles)
Act, 1978 (40 of 1978);
(ii) the
National Calamity Contingent duty leviable under section 136 of the Finance
Act, 2001 (14 of 2001);
(iii) the
education cess on excisable goods leviable under section 91 read with section
93 of the Finance (No.2) Act, 2004 (23 of 2004);
(iv) the
additional duty leviable under section 3 of the Customs Tariff Act, equivalent
to the duty of excise specified under items (i), (ii) and (iii) above;
(v) the
additional duty of excise leviable under section 157 of the Finance Act, 2003
(32 of 2003);
(vi) the
education cess on taxable services leviable under section 91 read with section
95 of the Finance (No.2) Act, 2004 (23 of 2004);
shall be
utilized only towards payment of duty of excise or as the case may be, of
service tax leviable under the said Additional Duties of Excise (Textiles and
Textile Articles) Act, 1978 or the National Calamity Contingent duty leviable
under section 136 of the Finance Act, 2001 (14 of 2001), or the education cess
on 2 2 excisable goods leviable under section 91 read with section 93 of the
Finance (No.2) Act, 2004, respectively, on any final products manufactured by
the manufacturer or for payment of such duty on inputs themselves if such
inputs are removed as such or after being partially processed or on any output
service.
Provided
that the credit of the education cess on excisable goods and education cess on
taxable services can be utilised, either for payment of the education cess on
excisable goods or for the payment of the education cess on taxable services.
Explanation.-For
the removal of doubts, it is hereby declared that the credit of the additional
duty of excise leviable under section 3 of the Additional Duties of Excise
(Goods of Special Importance) Act, 1957 (58 of 1957) paid on or after the 1st
day of April, 2000, may be utilized towards payment of duty of excise leviable
under the First Schedule or the Second Schedule to the Excise Tariff Act.
(c) the
CENVAT credit, in respect of additional duty leviable under section 3 of the
Customs Tariff Act, paid on marble slabs or tiles falling under sub-heading No.
2504.21 or 2504.31 respectively of the First Schedule to the Excise Tariff Act
shall be allowed to the extent of thirty rupees per square meter;
Explanation.-
Where the provisions of any other rule or notification provide for grant of
whole or part exemption on condition of non-availability of credit of duty paid
on any input or capital goods, or of service tax paid on input service, the
provisions of such other rule or notification shall prevail over the provisions
of these rules.
RULE 6.
Obligation of manufacturer of dutiable and exempted goods and provider of
taxable and exempted services.- (1) The CENVAT credit shall not be allowed on
such quantity of input or input service which is used in the manufacture of
exempted goods or exempted services, except in the circumstances mentioned in
sub-rule (2).
(2) Where
a manufacturer or provider of output service avails of CENVAT credit in respect
of any inputs or input services, except inputs intended to be used as fuel, and
manufactures such final products or provides such output service which are
chargeable to duty or tax as well as exempted goods or services, then, the
manufacturer or provider of output service shall maintain separate accounts for
receipt, consumption and inventory of input and input service meant for use in
the manufacture of dutiable final products or in providing output service and
the quantity of input meant for use in the manufacture of exempted goods or
services and take CENVAT credit only on that quantity of input or input service
which 2 3 is intended for use in the manufacture of dutiable goods or in
providing output service on which service tax is payable.
(3)
Notwithstanding anything contained in sub-rules (1) and (2), the manufacturer
or the provider of output service, opting not to maintain separate accounts,
shall follow either of the following conditions, as applicable to him, namely:-
(a) if the exempted goods are- (i) goods falling within heading No. 22.04 of
the First Schedule to the Excise Tariff Act (hereinafter in this rule referred
to as the said First Schedule);
(ii) Low
Sulphur Heavy Stock (LSHS) falling within Chapter 27 of the said First Schedule
used in the generation of electricity;
(iii)
Naphtha (RN) falling within Chapter 27 of the said First Schedule used in the
manufacture of fertilizer;
(iv)
Naptha (RN) and furnace oil falling within Chapter 27 of the said First
Schedule used for generation of electricity;
(v)
newsprint, in rolls or sheets, falling within heading No.48.01 of the said
First Schedule;
(vi)
final products falling within Chapters 50 to 63 of the said First Schedule,
(vii) goods supplied to defence personnel or for defence projects or to the
Ministry of Defence for official purposes, under any of the following
notifications of the Government of India in the Ministry of Finance (Department
of Revenue), namely:- (1) No. 70/92-Central Excise, dated the 17th June, 1992,
G.S.R. 595 (E), dated the 17th June, 1992;
(2) No.
62/95-Central Excise, dated the 16th March, 1995, G.S.R. 254 (E), dated the
16th March, 1995;
(3) No.
63/95-Central Excise, dated the 16th March, 1995, G.S.R. 255 (E), dated the
16th March, 1995;
(4) No.
64/95-Central Excise, dated the 16th March, 1995, G.S.R. 256 (E), dated the
16th March, 1995, the manufacturer shall pay an amount equivalent to the CENVAT
credit attributable to inputs and input services used in, or in relation to,
the manufacture of such final products at the time of their clearance from the
factory; or (b) if the exempted goods are other than those described in
condition (a), the manufacturer shall pay an amount equal to ten per cent. of
the total price, excluding sales tax and other taxes, if any, paid on such
goods, of the exempted final product charged by the manufacturer for the sale
of such goods at the time of their clearance from the factory;
2 4 (c)
the provider of output service shall utilize credit only to extent of an amount
not exceeding twenty per cent. of the amount of service tax payable on taxable
output service.
Explanation
I.- The amount mentioned in conditions (a) and (b) shall be paid by the
manufacturer or provider of output service by debiting the CENVAT credit or
otherwise.
Explanation
II.- If the manufacturer or provider of output service fails to pay the said
amount, it shall be recovered along with interest in the same manner, as
provided in rule 14, for recovery of CENVAT credit wrongly taken.
(4) No
CENVAT credit shall be allowed on capital goods which are used exclusively in
the manufacture of exempted goods or in providing exempted services, other than
the final products which are exempt from the whole of the duty of excise leviable
thereon under any notification where exemption is granted based upon the value
or quantity of clearances made in a financial year.
(5)
Notwithstanding anything contained in sub-rules (1), (2) and (3), credit of the
whole of service tax paid on taxable service as specified in sub- clause (g),
(p), (q), (r), (v), (w), (za), (zm), (zp), (zy), (zzd), (zzg), (zzh), (zzi),
(zzk), (zzq) and (zzr) of clause (105) of section 65 of the Finance Act shall
be allowed unless such service is used exclusively in or in relation to the
manufacture of exempted goods or providing exempted services.
(6) The
provisions of sub-rules (1), (2), (3) and (4) shall not be applicable in case
the excisable goods removed without payment of duty are either- (i) cleared to
a unit in a special economic zone; or (ii) cleared to a hundred per cent.
export-oriented undertaking; or (iii)cleared to a unit in an Electronic
Hardware Technology Park or Software Technology Park; or (iv) supplied to the
United Nations or an international organization for their official use or
supplied to projects funded by them, on which exemption of duty is available
under notification of the Government of India in the Ministry of Finance
(Department of Revenue) No.108/95-Central Excise, dated the 28th August, 1995,
number G. S R. 602 (E), dated the 28th August, 1995; or (v) cleared for export
under bond in terms of the provisions of the Central Excise Rules, 2002; or
(vi) gold or silver falling within Chapter 71 of the said First Schedule,
arising in the course of manufacture of copper or zinc by smelting.".
(emphasis
supplied by us) 2 5 Finding:
9.
Coming to the statutory definition of the word "input"
in Rule 2(g) in the CENVAT Credit Rules, 2002, it may be noted that the said
definition of the word "input" can be divided into three parts,
namely:
(i)
specific part (ii) inclusive part (iii) place of use
10.
Coming to the specific part, one finds that the word
"input" is defined to mean all goods, except light diesel oil, high
speed diesel oil and petrol, used in or in relation to the manufacture of final
products whether directly or indirectly and whether contained in the final
product or not. The crucial requirement, therefore, is that all goods
"used in or in relation to the manufacture" of final products qualify
as "input". This presupposes that the element of
"manufacture" must be present.
11.
In the case of J.K. Cotton Spinning and Weaving Mills Co. Ltd. v.
S.T.O. reported in 1965 (16) STC 563 this Court held that the expression
"in the manufacture of goods" should normally encompass the entire
process carried on by the dealer of converting 2 6 raw material into finished
goods. It was further held that where any particular process (generation of
electricity) is so integrally connected with the ultimate production of goods,
that, but for such process, manufacture of goods would be inexpedient, then
goods required in such process would fall within the expression "in the
manufacture of goods".
12.
In the case of Union Carbide India Ltd. v. Collector of Central
Excise, Calcutta-I reported in 1996 (86) ELT 613 (Tri) a larger Bench of CEGAT
observed that a wide impact of the expression "used in relation to
manufacture" must be allowed its natural play. Inputs (raw materials) used
in the entire process of conversion into finished products or any other process
(like electricity generation) which is integrally connected with the ultimate
production of final product has to fall within the above expression. It was
observed that the purpose was to widen the scope, ambit and content of
"inputs". According to the Special Bench of CEGAT, the purpose behind
the above expression is to widen the ambit of the definition so as to attract
all goods, which do not enter directly or indirectly into the finished product,
but are 2 7 used in any activity concerned with or pertaining to the
manufacture of the finished product.
13.
Electricity generation is a separate and distinct activity. It is
an independent activity. It has its own economics. It does not form part of the
process in which "inputs" are transformed into separate identifiable
commodity, though it may stand connected to such processes. It may not have any
concern with the manufacture of the finished product. However, it is an
ancillary activity. It is an activity which is anterior to the process of
manufacture of the final product. It is on account of the use of the above
expression "used in relation to manufacture" that such an activity of
electricity generation comes within the ambit of the definition because it is integrally
connected with the manufacture of the final product.
14.
In the case of Collector of Central Excise, New Delhi v. M/s.
Ballarpur Industries Ltd. reported in (1989) 4 SCC 566 the difference between
the expression "used in the manufacture" and "used as input (raw
material)" was highlighted. In that judgment, it was held that undoubtedly
the said two expressions are distinct and separate, but, when an ancillary
process (like electricity generation) aids the making of an end product, then,
the ancillary 2 8 process gets integrally connected to the end product. In the
said judgment, this Court applied what is called as "the dependence
test". It may, however, be noted that in the definition of
"input" the expression "used in or in relation to the
manufacture of final product" is not a standalone item. It has to be read
in entirety and when so read it reads as "used in or in relation to the
manufacture of final product whether directly or indirectly and whether
contained in the final product or not". These words "whether directly
or indirectly" and "whether contained in the final product or
not" indicates the intention of the legislature. What the legislature
intends to say is that even if the use of input (like electricity) in the
manufacturing process is not direct but indirect still such an item would stand
covered by the definition of "input".
In the
past, there was a controversy as to what is the meaning of the word
"input", conceptually. It was argued by the Department in a number of
cases that if the identity of the input is not contained in the final product
then such an item would not qualify as input.
In order
to get over this controversy in the above definition of "input", the
Legislature has clarified that even if an item is not contained in the final
product still it would be classifiable as an "input" under the above
definition. In other words, it has been 2 9 clarified by the definition of
"input" that the following considerations will not be relevant:
(a) use
of input in the manufacturing process be it direct or indirect;
(b) even
if the input is not contained in the final product, it would still be covered
by the definition.
These
considerations have been made irrelevant by the use of the expression
"goods used in or in relation to the manufacture of final product"
which, as stated above, is the crucial requirement of the definition of
"input". Moreover, the said expression, viz, "used in or in
relation to the manufacture of the final product" in the
specific/substantive part of the definition is so wide that it would cover
innumerable items as "input" and to avoid such contingency the Legislature
has incorporated the inclusive part after the substantive part qualified by the
place of use. For example, one of the categories mentioned in the inclusive
part is "used as packing material". Packing material by itself would
not suffice till it is proved that the item is used in the course of
manufacture of final product. Mere fact that the item is a packing material
whose value is included in the assessable value of final product will not
entitle the manufacturer to take credit. Oils and lubricants mentioned in 3 0
the definition are required for smooth running of machines, hence they are
included as they are used in relation to manufacture of the final product. The
intention of the Legislature is that inputs falling in the inclusive part must
have nexus with the manufacture of the final product.
15.
Coming to the analysis of the inclusive part of the definition one
finds that it covers:
(a)
Lubricating oils, greases, cutting oils and coolants;
(b)
Accessories;
(c)
Paints;
(d)
Packing materials;
(e) Input
used as fuel;
(f) Input
used for generation of steam or electricity.
16.
In our earlier discussion, we have referred to two considerations
as irrelevant, namely, use of input in the manufacturing process, be it direct
or indirect as also absence of the input in the final product on account of the
use of the expression "used in or in relation to the manufacture of final
product". Similarly, we are of the view that consideration such as input
being used as packing material, input used as fuel, input 3 1 used for generation
of electricity or steam, input used as an accessory and input used as paint are
per se also not relevant. All these considerations become relevant only when
they are read with the expression "used in or in relation to the
manufacture of final product" in the substantive/specific part of the
definition. In each case it has to be established that inputs mentioned in the
inclusive part is "used in or in relation to the manufacture of final
product".
It is the
functional utility of the said item which would constitute the relevant
consideration. Unless and until the said input is used in or in relation to the
manufacture of final product within the factory of production, the said item
would not become an eligible input. The said expression "used in or in
relation to the manufacture" have many shades and would cover various
situations based on the purpose for which the input is used.
However,
the specified input would become eligible for credit only when used in or in
relation to the manufacture of final product.
Hydrogen
gas used in the manufacture of sodium cyanide is an eligible input, since it
has a significant role to play in the manufacturing process and since the final
product cannot emerge without the use of gas. Similarly, Heat Transfer Oil used
as a heating medium in the manufacture of LAB is an eligible input 3 2 since it
has a persuasive role in the manufacturing process and without its use it is
impossible to manufacture the final product.
Therefore,
none of the categories in the inclusive part of the definition would constitute
relevant consideration per se. They become relevant only when the above crucial
requirement of being "used in or in relation to the manufacture"
stands complied with. In our view, one has to therefore read the definition in
its entirety.
17.
As stated, the definition is in three parts, namely, specific
part, inclusive part and place of use. All the three parts are required to be
satisfied before an input becomes an eligible input.
18.
It may be noted from the CENVAT Credit Rules of 2004 vis-`- vis
CENVAT Credit Rules of 2002 that the word "for" in the inclusive part
after the words "steam used" is substituted by the words "used
in or in relation to the manufacture of final products".
In other
words, the crucial requirement of the definition clause is restated by the
Legislature. We may note that the CENVAT Credit Rules of 2004 came in force in
September, 2004. In some of the cases in batch before us the show cause notice
goes right up to January 2005, hence, CENVAT Credit Rules, 2004 also apply to
those cases. In short, an item would fall within the category of 3 3
"inputs" as defined only on compliance with all the three parts of
the definition clause.
19.
The question which still remains to be answered is: whether an
assessee would be entitled to claim CENVAT credit in cases where it sells
electricity outside the factory to the joint ventures, vendors or gives it to
the grid for distribution? In the case of Collector of Central Excise v.
Rajasthan State Chemical Works reported in 1991 (55) ELT 444 (SC) the test laid
down by this Court is whether the process and the use are integrally connected.
As stated above, electricity generation is more of a process having its own
economics. Applying the said test, we hold that when the electricity generation
is a captive arrangement and the requirement is for carrying out the
manufacturing activity, the electricity generation also forms part of the
manufacturing activity and the "input" used in that electricity
generation is an "input used in the manufacture" of final product.
However, to the extent the excess electricity is cleared to the grid for
distribution or to the joint ventures, vendors, and that too for a price (sale)
the "process and the use test" fails. In such a case, the nexus
between the process and the use gets disconnected. In such a case, it cannot be
said 3 4 that electricity generated is "used in or in relation to the
manufacture of final product, within the factory". Therefore, to the
extent of the clearance of excess electricity outside the factory to the joint
ventures, vendors, grid etc. would not be admissible for CENVAT credit as such
wheeled out electricity, cleared for a price, would not fall within the
definition of "input" in Rule 2(g) of the CENVAT Credit Rules, 2002.
This view is also expressed in para 9 of the judgment of this Court in the case
of Collector of Central Excise v. Solaris Chemtech Limited - (2007) 214 ELT 481
(SC).
Further,
our view is supported by the observations of this Court in the case of Vikram
Cement v. Commnr. Of Central Excise, Indore - 2006 (194) ELT 3 (SC) which is
quoted below:- "It appears to us on a plain reading of the clause that the
phrase "within the factory of production" means only such generation
of electricity or steam which is used within the factory would qualify as an
immediate product. The utilization of inputs in the generation of steam or
electricity not being qualified by the phrase "within the factory of
production" could be outside the factory. Therefore, whatever goes into
generation of electricity or steam which is used within the factory would be an
input for the purposes of obtaining credit on the duty payable thereon."
20.
To sum up, we hold that the definition of "input" brings
within its fold, inputs used for generation of electricity or steam, provided
such electricity or steam is used within the factory of 3 5 production for
manufacture of final products or for any other purpose. The important point to
be noted is that, in the present case, excess electricity has been cleared by
the assessee at the agreed rate from time to time in favour of its joint
ventures, vendors etc. for a price and has also cleared such electricity in
favour of the grid for distribution. To that extent, in our view, assessee was not
entitled to CENVAT credit. In short, assessee is entitled to credit on the
eligible inputs utilized in the generation of electricity to the extent to
which they are using the produced electricity within their factory (for captive
consumption). They are not entitled to CENVAT credit to the extent of the
excess electricity cleared at the contractual rates in favour of joint
ventures, vendors etc., which is sold at a price.
21.
Before concluding, it may be clarified that on account of repeated
amendments in the CENVAT Credit Rules, huge litigation in the country stands
generated. In the circumstances, we are of the view that penalty is not
leviable on appellant/assessee, particularly when in large number of other
cases, on account of conflict of views expressed by various Tribunals/High
Court, the assessees have also succeeded. Hence, although M/s. Maruti 3 6
Suzuki Ltd. (appellant) has failed in their civil appeals the Department will
not impose penalty.
22.
For the aforestated reasons, we dismiss Civil Appeal No. of 2009 -
(arising out of S.L.P. (C) No.3826 of 2009) - M/s. Maruti Suzuki Ltd. v.
Commissioner of Central Excise, Delhi-III and Civil Appeal No._ of 2009 -
(Arising out of S.L.P. (C) No.5362 of 2009) with no order as to costs.
.................................J. (S.H. KAPADIA)
................................J. (AFTAB ALAM)
New Delhi;
August 17, 2009.
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