- (1.) IN this group of petitions under Article 226 of the Constitution of INdia, disposed of by this common order, question involved is whether MODVAT credit is available on H.S.D. oil in terms of Rule 57-B of the Central Excise Rules, 1994 even after clarification made by adding Explanation under Notification No.5/98 dated 2.3.1998 to the effect that "inputs" mentioned in Rule 57-B refers only to such inputs as specified in notification under Rule 57-A? Earlier and subsequent to Notification No.5/98 dated 2.3.98, the CEGAT decided the issue in favour of the assessee. Thus, Section 112 of the Finance Act, 2000 has been enacted to validate denial of credit of duty paid on H.S.D. oil. This Validation Act has been challenged by way of amendment in the writ petitions. Thus, now the main question involved is the constitutional validity of Section 112 of the Finance Act 2000 and denial of credit of duty paid on H.S.D. oil used in Diesel Generating Set for generation of electricity for captive consumption i.e. manufacture of final product of cement.
(2.) FOR the convenience, we shall refer the facts of one of the petitions being D.B. Civil Writ Petition No.3635/97 filed by M/s. Shree Cement Limited. The petitioner Company is engaged in the business of manufacturing and selling Portland cement and has installed a Diesel Generating Set for generation of electricity for captive consumption in its factory premises. It is averred that the petitioner Company purchases HSD Oil for generation of electricity from Indian Oil Corporation Ltd./Hindustan Petroleum Corporation Ltd. through their sales Office/Depots in Rajasthan, cleared in sub-heading 2710.90 on payment of Central Excise Duty and the same is used as inputs/goods in the said Diesel Generating Set for generation of electricity which is used in the manufacture of final product cement or for other purposes in the petitioner's factory of production. The petitioner Company submitted a declaration in respect of the diesel as well as oil and lubricants under Rule 57-G read with Rule 57-B of the Rules intending to avail the credit of duty on the said goods/inputs on 17/18.3.1997 with the Assistant Commissioner, Central Excise, Ajmer. The Assistant Commissioner informed the petitioner that after 1.3.1997, MODVAT credit was not available on HSD Oil and hence the declaration submitted by the Company has been filed. The Company submitted declaration under Rule 57H(1) of the Rules declaring the stock position of the HSD Oil as on 17.3.1997. The Company also prayed for condonation of delay in submitting the declaration. The Superintendent, Central Excise Range, Beawar vide letter dated 25.6.97 informed the petitioner Company that the MODVAT credit was not admissible on HSD as input under Rule 57-A of the Rules. Accordingly, the petitioner Company submitted month-wise details regarding the MODVAT credit on diesel required for generation of the electricity from time to time with the Assistant Commissioner of Central Excise, Ajmer. It is averred that the respondent No.8 viz., Hindustan Petroleum Corporation Ltd. under the pressure of the fourth, firth and sixth respondents, has refused to issue Modvatable invoices to the petitioner Company in respect of the purchases made by it after 1.3.1997. Inspite of the denial of the MODVAT credit, the petitioner company tried to avail the credit of Rs.17,04,588/-. During the month of September, 1997, petitioner Company was given a show cause notice by the Superintendent, Central Excise Range,Beawar as to why the said credit should not be disallowed to them. Thus, the petitioner filed the writ petition in the year 1997 seeking direction to quash the Trade Notice No.26/97 (Annex.4), the entry regarding the explanation of the HSD Oil in the Notification No.5/94 and also the order dated 2.9.1997 (Annex.18). Before we proceed further, it would be convenient to acquaint with the relevant part of the MODVAT Scheme under the Rules of 1994. Chapter V of the Rules deals with the levy of excise duty on manufactured goods other than salt. Rule 43 to Rule 57 under Section-A of Chapter-V provides the general provisions. Rule 57 speaks of offences and penalties. Section-AA consists of set of Rule 57-A to 57-J substituted by Notification No.6/97 dated 1.3.1997 prescribing the procedure for availing the credit of duty paid on the inputs. These rules deal with the applicability of the MODVAT scheme. According to these rules, the credit is available in respect of central excise duty, special excise duty and countervailing duty paid on inputs used in production of final product mentioned in the appropriate notification issued under the Central Excise & Tariff act. Rule 57-A provides for availment of MODVAT credit in respect of inputs used in the manufacture of the finished product. The rule empowers the Central Government to specify the final product by issuing Notification under the official gazette for the purpose of allowing MODVAT credit of any duty of excise paid on the goods i.e. inputs used in the manufacture of the said final products. The relevant sub-rules (1) and (4) of Section 57-A read as under: "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 Govt. may by notification in the official Gazette specify in this behalf for the purpose of allowing credit of any duty of excise or the additional duty under Section 3 of the Customs Tariff act, 1975 (51 of 1975), as may be specified in the said notification (hereinafter referred to as the specified duty) paid on the goods used in the manufacture of the said final products (hereinafter, in this section, referred to as the inputs). (4) The credit of specified duty under this section shall be allowed 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." The Notification No.5/94 dated 1.3.1994 was amended vide Notification No.18/1995 dated 18.5.95 and No.12/96 dated 23.7.1996. The material part of the Notification is extracted from Annex.1 as follows: "Goods notified for purposes of credit of duty under MODVAT. - In exercise of the powers conferred by Rule 57-A of the Central Excise Rules, 1944 and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue No.177/86 - Central Excise, dated the 1.03.1986, the Central Government hereby specifies the final products described in column (3) of the table hereto annexed and in respect of which - (i) the duty of excise under the (Central Excise Act, 1944 (1 of 1944); (ii) the additional duty of excise under Section 3 of the Additional Duties of Excise (Textiles and Textile Articles Act, 1978 (40 of 1978); and (iii) the additional duty of excise under Section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957); and (iv) the additional duty under Section 3 of the Customs Tariff act, 1975 (51 of 1975) equivalent to:- (a) the duty of excise specified under (i) above; (b) the duty of excise specified under (ii) above; and (c) the duty of excise specified under (iii) above; (hereinafter referred to as "Specified duty") paid on inputs, described in the corresponding entry in column (2) of the said Table, shall be allowed as credit when used in or in relation to the manufacture of the said final products and the credit of duty so allowed shall be utilised for payment of duty leviable on the said final products, or as the case may be, on such inputs, if such inputs have been permitted to be cleared under Rule 57-F of the said Rules. TABLE S. No. Description of inputs Description of final products (1) (2) (3) 1. All goods falling within the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) other than the following namely All goods falling within the Scheduled to the Central Excise Tariff Act, 1985 (5 of 1986), other than the following namely (i) goods classification under any heading of chapter 24 of the Schedule of the said Act; (i) goods classification under any heading of chapter 24 of the Schedule of the said Act; (ii) goods classification under any heading Nos.36.05 or 37.06 of the Schedule of the said Act; (ii) goods classification under any heading Nos.36.05 or 37.06 of the Schedule of the said Act; (iii) goods classification under any sub-heading Nos. 2710.11, 2710.12, 2710.13 or 2710.19 (except Natural gasoline liquid) of the Schedule of the said Act; (iii) fabrics of cotton or man made fibres falling within Chapter 52, Chapter 54 or Chapter 55 of the Schedule to the said act; (iv) high speed diesel oil classification under heading No.27.10 of the Schedule to the said Act. (iv) fabrics of cotton or man made fibres falling within heading No. 58.01, 58.02, 58.06 (other than goods falling within sub- heading No.5806.20) 60.01 or 60.02 (other than goods falling sub- heading No.6002-10) of the Schedule to the Act)." Thus, by the aforesaid Notification, HSD Oil classifiable under heading 27.10 from the list of eligible inputs under item (iv) of Column (2) of the Table has been specifically excluded. At this stage, it would be relevant to mention that on 16.3.1995 by Notification No.8/1995, the exclusion of clause (iv) in the `table' had included HSD Oil classifiable under heading No.27.10. Thus, according to the department, the HSD Oil could not be regarded as specified input eligible for MODVAt credit but the difficulty arose as on the same day i.e. 16.3.95 by another Notification No.11/95, a second proviso was added to the Rule 57A, which reads as under: "Provided further that credit of specified duty shall be allowed in respect of the inputs which are used for generation o the electricity used within the factory of production for manufacture of final product or for any other purpose." The proviso was construed as enabling credit to be taken for inputs used for captive generation of electricity. This provision was deleted on 1.3.97 and Rule 57-B was introduced vide Notification No.6/97 dated 1.3.97. This rule starts with non- obstante clause "notwithstanding anything contained in Rule 57- A" and declared certain goods, which were later on termed as inputs vide corrigendum dt.10.3.1997 eligible for MODVAt credit. The material part of Rule 57-B is extracted as follows: "57-B. Eligibility of credit of duty on certain goods: (1) Notwithstanding anything contained in Rule 57A the manufacturer of final products shall be allowed to take credit of the specific duty paid on the following goods, used in or in relation to the manufacture of final products, whether directly or indirectly and whether contained in the final products or not, namely: (i) goods which are manufactured and used within the factory of production; (ii) paints; (iii) inputs used as fuel; (iv) inputs used for generation of electricity of final product or for any other purpose, within the factory of production; (v) packing material and materials from which such packing materials are made provided the cost of such packing material is included in the value of the final product; (vi) accessories of the final product cleared alongwith such final product, the value of which is included in the assessable value of the final product." Now, we shall refer-to some of the decisions of the CEGAt wherein the question regarding the admissibility of the MODVAt credit in the context of Rule 57-B and/or Rule 57-B read with Rule 57-A of the Rules of 1944, has been considered.
(3.) IN INdia Cements Ltd. vs. CC & CE, Hyderabad (1), the credit was denied on the ground that as HSD Oil classifiable under heading 27.10 was excluded from the coverage of goods eligible to the benefits of credit at item No.(iv) of the Table annexed to Notification No.8/95. The Tribunal found contradiction between the two Notifications i.e. No.8/95 and No.11/95. While Notification No.8/95 denied MODVAT credit benefit to HSD oil, without referring to purpose for which it was used, whereas by Noti- fication No.11/95, a second proviso was added to Rule 57-D allowing credit to specified duty in respect of inputs used for generation of electricity, used within the factory of production for manufacture of final products or for any other purposes. IN the opinion of the Tribunal, second proviso to Rule 57-D has been incorporated with specific object of incorporating inputs for generating electricity within the ambit of the MODVAT Scheme, as such, it prevails over exclusion notification No.8/95. The Tribunal held that MODVAT credit benefit shall be available on HSD oil subject to the satisfaction of the conditions provided under second proviso to Rule 57D. This decision was followed by another Bench of CEGAT in U.P. State Textile Corporation vs. CCE, Meerut (2). A learned Single Member of the Tribunal in Rama Vision Limited vs. Commissioner of Central Excise, Meerut (3) expressed his disagreement with the view taken in India Cement Ltd.'s case (supra), but decided the matter in favour of the assessee and against the department falling in line with the dictate of the judicial discipline. In Jindal Polymers vs. Commissioner of C.Ex., Indore (4), the assessee pleaded that the credit taken by them was in terms of Rule 57-B which after its amend- ment on 1.3.97 speaks of `inputs' and not of `goods'. This rule was meant to extend the MODVAT credit facility to those inputs which obviously did not fit in the scheme prescribed under Rule 57-A and the notification issued thereunder but on which it was thought expedient for MODVAT credit to be extended. It was urged that in order to enable such credit to be taken, the non-obstante clause was incorporated in the said rule. The Tribunal held that where there was specific mention of a particular input in Rule 57-B, credit o duty thereon could be availed irrespective of the fact that the inputs specifically stood excluded from the coverage of Rule 57A. The Tribunal on the basis of said interpretation of Rule 57-B and following the decisions in India Cement Limited's case (supra) held that MODVAT credit was rightly taken by the assessee. ;