Supreme Court of IndiaH.M.M. Limited vs Collector Of Central Excise, New Delhi on 11 October, 1996Equivalent citations: AIRONLINE 1996 SC 56, 1996 (11) SCC 332, (1996) 3 SCJ 605, (1996) 87 ELT 593, (1997) 5 SUPREME 451, (1996) 9 JT 444, (1996) 9 JT 444 (SC), (2006) 1 JCR 254 (SC), (2006) 1 PAT LJR 483, (2006) 1 SCALE 122, (2006) 1 SCT 337, (2006) 1 SUPREME 91, (2006) 2 JLJR 57, 2006 (2) SCC 545, (2006) 2 SCJ 179, (2006) 5 ALL WC 4479, 2006 BLJR 1 140, MANU/SC/54/2006, AIRONLINE 1996 SC 1157Author:B.P. Jeevan ReddyBench:B.P.Jeevan Reddy,Suhas C. SenPETITIONER:
H.M.M. LIMITED

	Vs.

RESPONDENT:
COLLECTOR OF CENTRAL EXCISE, NEW DELHI

DATE OF JUDGMENT:	11/10/1996

BENCH:
B.P.JEEVAN REDDY, SUHAS C. SEN




ACT:



HEADNOTE:



JUDGMENT:J U D G M E N T
B.P. JEEVAN REDDY.J.
     This appeal preferred against the judgment of the CEGAT
involves the  interpretation of Notification No.210 of 1979-
CE dated  4.6.1979, issued  by the  Central Government under
Rule 8 of the Central Excise Rules.The appellant-assessee  is engaged	 in the manufacture,
inter alia,  of "Horlicks"  falling under Tariff item 1-B of
the Schedule  to the Central Excises and Salt Act.  It has a
factory	  at	Rajahmundry   (Bommur)	 for   manufacturing
"Horlicks".   The entire  stock of  Horlicks manufactured at
Rajahmundry is,	 however, not  cleared/removed after  paying
the duty  at Rajahmundry.   Only a portion of the production
is  put	  in  unit   containers/packages  and	cleared	  at
Rajahmundry after  paying the  duty while  the bulk  of	 the
production is  sent to the appellant's factories situated at
different places  in India  in bulk  containers.  There, the
Horlicks is  put in  unit  containers/packages	and  cleared
after paying the duty.For  the	purpose	 of   manufacturing  Horlicks,	 the
appellant purchases  barley malt  which was  dutiable  under
Tariff Items 68.On June  4, 1979,	the Central  Government	 issued	 the
aforesaid  notification	 (No.201  of  1979)  exempting	"all
excisable goods	 ........on which  the	duty  of  excise  is
leviable and  in the  manufacture of which any goods falling
underItem  No.68 of  the  First  Schedule  to	the  Central
Excises and  Salt Act, 1944have been used, as raw materials
or component  parts (hereinafter  referred as  "the inputs")
from so	 mush of  the duty  of excise leviable thereon as is
equivalent to  the  duty  of  excise  already  paid  on	 the
inputs."  Controversy	has  arisen   with  respect  to	 the
application of	the said  notification and  it is  this: the
appellant says	that it	 is entitled  to take  credit of the
entire duty  paid on barley malt against the duty payable on
the Horlicks  cleared at  Rajahmundry,	notwithstanding	 the
fact that  the entire  quantity of Horlicks manufactured out
of  the	  said	barley	 malt  is   not	 cleared/removed  at
Rajahmundry by	paying the  duty.   On the  other hand,	 the
Revenue says  that the	appellant is entitled to take credit
at Rajahmundry	only of	 the portion  of duty paid on inputs
(barley malt) as is proportionate to the Horlicks cleared on
paying the  duty vis-a-vis  the total  quantity of  Horlicks
manufactured out  of the  said barley  malt.	The  Revenue
further says that there is no provision and the appellant is
not entitled  to transfer  the credit to its other factories
from where  the goods  are cleared  on payment of duty.	 The
controversy between  the parties  can be  best understood by
taking an illustration (unrelated to the actual facts of the
case):	 the manufacture  (respondent) purchases 100 tons of
barley malt on which the duty paid is Rs.10,000/-.  By using
the  said   100	 tons	of  barley   malt,  the	  respondent
manufactures one thousand tons of Horlicks.  Out of this one
thousand tons,	it clears  250 tons  of	 Horlicks  from	 the
Rajahmundry factory  on paying duty.  The remaining 750 tons
is sent	 to the factory situated at Bangalore without paying
duty under  a bond.   The 750 tons is put in unit containers
and packages at the Bangalore factory and cleared from there
on payment  of excise  duty.  According to the appellant, he
is  entitled   to  take	  credit  for  the  entire  duty  of
Rs.10,000/- (paid  on 100  tons of  barley malt) from out of
the duty  payable on  250  tons	 of  Horlicks  cleared	from
Rajahmundry factory, whereas according to the Revenue, since
the quantity  cleared at  Rajahmundry on  payment of duty is
only 1/4th of the total quantity manufactured using 100 tons
of barley  malt, the appellant is entitled to take credit of
only Rs.2,500/-	 against the  duty payable  at	Rajahmundry.
Revenue also  says that	 the respondent	 is not	 entitled to
take credit of b balance of Rs.7,500/- (duty paid on 75 tons
of barley  malt) from  out of  the duty	 paid on 750 tons at
Bangalore.  The question is who is right?Notification No.201 of 1979, insofar as it is relevant,
reads:"In   exercise    of   the	  powers
     conferred by sub-rule (1) of rule 8
     of the  Central Excise Rules, 1944,
     and   in	 supersession	of   the
     notification of  the Government  of
     India in  the Ministry  of	 Finance
     India in  the Ministry  of	 Finance
     (Department of Revenue) No. 178/77-
     Central  Excises,	dated  the  18th
     June, 1977,  the Central Government
     hereby exempts  all excisable goods
     (hereinafter referred  as "the said
     goods"),  on   which  the	duty  of
     excise  is	  leviable  and	 in  the
     manufacture  of   which  any  goods
     falling underItem  No.68	 of  the
     First  Schedule	to  the	 Central
     Excises and  Salt Act,  1944(1  of
     1944)  have   been	 used,	 as  raw
     materials	 or    component   parts
     (hereinafter   referred   as   "the
     inputs", from  so much  of the duty
     of excise	leviable thereon  as  is
     equivalent to  the duty  of  excise
     already paid on the inputs:Provided  that  the  procedure
     set out  in the  Appendix	to  this
     notification is followed:Provided further  that nothing
     contained	in   this   notification
     shall apply to the said goods which
     are exempted  from the whole of the
     duty of  excise leviable thereon or
     are chargeable to nil rate of duty:
     ...................................
		APPENDIX1. A	manufacturer of the said
     goods shall  give a  declaration to
     the   Superintendent   of	 Central
     Excise having jurisdiction over his
     factory,	indicating    the   full
     description  of   the  said   goods
     intended to  be manufactured in his
     factory and the full description of
     the inputs	 intended to  be used in
     the manufacture of each of the said
     goods.9.(a) The credit ofduty taken
     in respect	 of any	 inputs	 may  be
     utilised towards payment of duty on
     any said  goods for the manufacture
     of which  such inputs were declared
     by the  manufacturer to  be brought
     into the  factory,	 or  where  such
     inputs are cleared from the factory
     as such, on such inputs.(b) No  part	of  such  credit
     shall be  utilised save as provided
     in clause	(a) or shall be refunded
     in cash or by cheque.10.(a)  If   the  manufacturer
     desires to	 discontinue availing of
     the  exemption  contained	in  this
     notification, he  shall give to the
     proper officer  seven days	 advance
     notice of his intention to do so.(b) The  proper officer shall,
     on	  receipt    of	  such	 notice,
     ascertain the  stock of  the inputs
     in respect of which credit has been
     taken and which-(i)	are   lying   with   the
	  manufacture,	whether	 in  the
	  store	  room	  or   in    the
	  manufacturing room, and(ii) have been utilized in the
	  manufacture of  the said goods
	  but such  goods have	not  yet
	  been removed from the factory.(c) The  total stock of inputs
     so ascertained shall be assessed to
     duty and the manufacturer shall pay
     the duty  forthwith on receipt of a
     written  demand   from  the  proper
     officer.11. On an application from the
     manufacturer of the said goods, the
     Collector	of  Central  Excise  may
     permit a  manufacturer to	transfer
     the  unutilized   credit	in   his
     account in	 Form R.B.23 in Appendix
     I to the Central Excise Rules, 1944
     or the  stock of the inputs as such
     or in process on account of -(i) shifting	of the	plant or
	  factory,  belonging	to   the
	  manufacturer to another site;(ii) merger  of  the	factory;within another factory;(iii) transfer  of business of
	  the  manufacturer  to	 another
	  manufacturer;Provided that the manufacturer
     is	 availing   of	 the   exemption
     granted under  this notification in
     respect of the factory to which the
     credit or stock is transferred."(emphasis added)
     The first	proviso to  the notification  lays down that
the procedure  set out	in the Appendix to the notification
will have  to be followed for availing of the credit for the
duty paid  on the  inputs. The	Appendix provides that +the
manufacturer  will+have	  to  give   a	declaration  to	 the
Superintendent of  Central Excise  having jurisdiction	over
his factory giving full description of the goods intended to
be manufactured	 in his	 factory as well as full description
of the inputs intended to be used in the manufacture of such
goods (Rule 1). The manufacturer may take credit ofthe duty
already paid  on the  inputs which are received by him after
submitting the	declaration  and  utilise  such	 credit	 for
payment of duty of excise on the said goods (Rule 2).These rules  do not  specifically	lay  down  that	 the
credit of  duty taken  by the  manufacturer must  be  setoff
against the  duty payable on the goods actually manufactured
utilising these inputs. The manufacturer is entitled to take
credit of  the duty already paid on the inputs as soon as he
receives the inputs and submits the necessary declaration to
the Excise  Officer. He	 is, thereafter, entitled to utilise
the credit  for payment	 o  duty  of  excise  on  the  goods
manufactured by	 him. The  rules do  not require  any  exact
correlation between the inputs and the finished products for
claiming credit for the duty paid on the inputs. It is not a
condition  precedent   for   claiming	set-off	  that	 the
manufacturer must prove that-(a) the credit was taken in respect
     of inputs; and that(b) these very inputs were utilised
     in the  manufacture of the goods on
     which duty is payable.Rule 2  merely provides  that the manufacturer may take
credit of  the duty  already paid  on the inputs and utilise
such  credit   for  payment   of  duty	 of  excise  on	 the
manufactured goods. The exact correlation of inputs with the
manufacture of the goods is not contemplated by this rule.The position  is put  beyond doubt	 by Rule  10 set out
hereinabove which provides that if the manufacturer does not
want to	 continue with	the system  of	clearance  of  goods
provided in  the notification, he will have to give a notice
to the	proper officer	to that	 effect. The  proper officer
will ascertain	that stock  of inputs  in respect  of  which
credit has  been taken	but were  lying	 unutilized  in	 the
store-room or  in the manufacturing room. The proper officer
shall also  ascertain the inputs which have been utilised in
the manufacture	 of the	 goods but  had not yet been cleared
from the  factory. The	total stock  of such goods has to be
assessed to  duty and  the manufacturer will have to pay the
duty forthwith	on receipt  of a  written  demand  from	 the
proper officer.	 This rule  became necessary  because it  is
permissible to	take credit  for duty paid on the inputs and
make adjustment	 thereof against  the duty  payable  on	 the
goods manufactured  and cleared	 by a  manufacturer  without
actually utilising the inputs. A manufacturer may have taken
and utilised  the credit  for inputs  which are lying in the
store-room. The	 manufacturer may  also	 have  utilised	 the
inputs in  manufacturing uncleared goods. In both the cases,
duty will  have to  be paid on the inputs because the credit
for the	 duty paid  on such  inputs has	 been availed  of by
setting off  such credit  against other goods cleared by the
manufacturer. All  these rules	really go to show that there
was no	requirement of	actual utilisation  of the inputs in
the manufacture	 of the	 goods for  the purpose	 of claiming
set-off of  duty paid on the inputs against the duty payable
on the goods manufactured by the manufacturer.With respect  to  the  main  controversy,	the  Revenue
emphasises the	words "all  excisable goods.....  on which a
duty of	 excise is  leviable and in the manufacture of which
any   goods   falling	under	Item   No.68.....have	been
used....from so	 much of the duty of excise leviable thereon
as is  equivalent to  the duty of excise already paid on the
inputs." It says that the aforesaid words mean and imply the
concept o  correlation. In  other words,  they say that only
the  duty   paid  on   inputs  which   have  been  used	 for
manufacturing the  goods cleared from the factory (where the
inputs were  received) can  be taken credit of, as explained
in the	illustration given  hereinabove. On  the other hand,
the learned counsel for the appellant submits that the words
in the body of the notification should be read alongwith the
procedural rules  mentioned in	the Appendix. In particular,
he relies  upon clauses	 (9) and  (10) of  the Appendix. The
learned counsel	 also relies upon the instructions issued by
the Central  Board of Excise and Customs on 18.6.1979 to the
following effect:"Central Excise - Simplification of
     procedure regarding  Tariff Item 68- Goods  used as  "inputs"	 in  the
     manufacture of  finished  excisable
     goods.Attention   is    invited   to
     Notification  No.201/79-ce,   dated
     the 4th  June, 1979 (page---) and a
     copy of  the Press	 Note issued  by
     the Board is appended. In the Press
     Note the  need for	 simplifying the
     procedure	of  set-off  granted  in
     relation to  Tariff Item  68  goods
     under  notification  No.  178/77-CE
     dated 18.6.77 has been explained.2. The  revised  procedure  is
     based on  the lines of rule 56-A of
     the  Central  Excise  Rules,  1944.
     Consequently  instructions	 of  the
     Board issued with reference to rule
     56-A will	also mutatis mutandis be
     applicable	 here  unless  they  are
     inconsistent with the provisions of
     notification  No.201/79.  Attention
     is	 specification	invited	 to  the
     instructions   contained	in   the
     Board's letter F.No.211/11-M/77-CX.
     6	dated	15.11.77,  (as	amended)
     relating  to  issue  of  subsidiary
     gate passes.[C.B.E. &	C.  F.NO.223/22/78-CX.6,
	  dated 18.6.79.]
	     [Cir.No.22/79-CX.6]
	       PRESS NOTE
	  When excise  duty under Tariff
     Item 68 was increased from 2% to 5%
     ad valorem	 in the 1977 Budget, all
     excisable goods manufactured out of
     goods falling  under that item were
     exempted from  so much  of the duty
     of excise	leviable on  them as was
     equivalent to  the duty  of  excise
     already   paid    under   it.   The
     exemption	was  restricted	 to  the
     duty payable  on the finished goods
     when the  duty paid on the "inputs"was more  than that on the finished
     goods.2. The  Trade had been earlier
     experiencing    difficulties     in
     availing of  the set-off of duty in
     relation	 to    those	finished
     excisable goods  which had not been
     notified  under   rule   56-A   the
     Central	Excise	   Rules.    The
     difficulties were	aggravated where
     innumerable varieties  of	finished
     excisable	  goods	   were	   being
     manufactured and in the manufacture
     of which goods falling under Tariff
     Item 68  were used, not necessarily
     in relation  to any  fixed formula,
     but in  a particular ratio that can
     change from  time to  time and from
     variety to variety.Some of  the	industries  that
     had expressed  difficulty	on  this
     account  were   tyres,   chemicals,
     electrical	    manufactures     and
     grinding-wheels. On  account of the
     innumerable and  products	and  the
     varying  ratios,  with  alternative
     usages, manufacturers  were furnish
     it difficult and irksome to furnish
     the "input" and "output" ratio that
     would   remain   constant	 and   e
     acceptable to the Department.For claiming	set-off of  duty
     paid on  Tariff Item  68 furnishing
     on the  ""input" -	 "output"" ratio
     was necessary  as at  the	time  of
     claiming the set-off while clearing
     the     finished	   goods     the
     manufacturers had	to  satisfy  the
     Central Excise Department about the
     exact amount  of set-off  sought to
     be claimed	 with reference	 to  the
     duty paying  documents under  which
     the "input" had been received.3.   Government   have   given
     considerable thought to alleviating
     these difficulties.  And,	now,  as
     measure   of    facilitation    the
     procedure	 for	claiming    this
     exemption	has  been  substantially
     simplified.   Under   the	 revised
     notification No.201/79-C.E.  issued
     on 4.6.1977,  the cumbersome  "set-off" procedure  has been  given up,
     and a  self contained procedure for
     claiming  the  exemption  has  been
     prescribed.   This	  procedure   is
     basically	on   the  lines	 of  the
     perform  Credit  System  prescribed
     under  rule  56-A	of  the	 Central
     Excise Rules, 1944."(emphasis added)
     With a  view to  explain the  procedure obtaining under
Rule 36-A,  the learned counsel for the appellant brought to
our notice  Clause (VI)	 of sub-rule (3) of Rule 56-A of the
Central Excise Rules, as it obtained prior to 1973 and as it
obtains now i.e., as substituted by the 1973 Amendment:Before Amendment?(vi) Except  to the extent provided
     in the  second proviso  to sub-rule
     (2), the  credit allowed in respect
     of any  material or component parts
     shall be  utilised towards	 payment
     of duty  on the  finished excisable
     goods in  the manufacture	of which
     such materials  or component  parts
     are used  or on  the  materials  or
     component parts  themselves and  no
     part  of	such  credit   shall  be
     refunded in cash or by cheque.
     After Amendment(vi) (a) The credit of duty allowed
     in	 respect   of  any  material  or
     component	parts  may  be	utilised
     towards  payment  of  duty	 on  any
     finished excisable	 goods	for  the
     manufacture of  which such material
     or component  parts were  permitted
     to	 be  brought  into  the	 factory
     under sub-rule  (2) or  where  such
     material or  components  parts  are
     cleared from  the factory	as such,
     on	 such	material  or   component
     parts.(b) No part of such credit shall be
     utilised save  as provided	 in sub-clause (a)	 or shall be refunded in
     cash or by cheque."(emphasis added)
     The portions  underlined by  us clearly bring about the
conceptual  change  brought  about  by	the  amendment.	 The
correlation provided  by the unamended clause (vi) has given
way to	a permission  to utilise the credit (of duty paid on
inputs) "towards  payment of  duty on any finished excisable
goods for  the manufacture  of which  such  material....were
permitted to be brought into the factory."It is significant to note that the language employed in
the  main  body	 of  the  notification,	 upon  which  strong
reliance  is   placed  by   the	 Revenue,  is  schematically
different from the unamended clause (vi) of Rule 56-A(3) (as
would  be  evident  from  a  reading  together	of  the	 two
provisions) whereas  the language  employed in clause (9) of
the Appendix  to the  notification is  in part material with
the amended  clause (vi).  Be that  as it  may, if one reads
only the  first para  of the  notification, one may possibly
agree  with   the  Revenue  but	 if  one  reads	 the  entire
notification including	Rules 9	 and 10 of the Appendix, the
contention of  the appellant  commends itself  as  the	only
correct understanding.	Not  only  Rule	 9,  even  Rule	 10]
indicates,  as	 pointed  out	above,	the   absence  of  a
correlation between  the inputs	 and the finished goods. The
instructions of	 the Board  do	explain	 the  background  to
Notification 201.  (We must  make it  clear that  we are not
relying upon the Board's instructions either as binding upon
the Courts  or as an aid to construction of the notification
but only  as explaining	 the background	 to the	 issuance of
Notification 201.) The change in the language and content of
clauses (vi) of sub-rule (3) of Rule 56-A in 1973 is equally
relevant in  this behalf.  It explains	why the	 concept  of
correlation -  or the  rule of set-off, as it is referred to
in the	Press-note was	given  up  and	a  different  method
adopted. Clause	 (9) of	 appendix to Notification 201, it is
significant to note, is in part material with clause (vi) of
Rule  56-A(3)	(as  substituted  in  1973).  The  practical
difficulties in	 implementing the  method in  force prior to
the issuance  of Notification  201 and the object underlying
the said  notification (as also the amendment of clause (vi)
of Rule	 56-A(3) in  1973) also	 induce	 us  to	 accept	 the
appellant's  contention	  in  preference  to  the  Revenue's
contention.By accepting  the appellant's  contention,	 the  object
underlying the	enactment is  in no  way defeated nor is the
objective  underlying	the  notification   No.201  of	1979
defeated. The  object  underlying  the	notification  is  to
prevent the  cascading effect  of duties  if levied  both on
inputs and  the finish	goods. With a view to make the goods
available  at	comparatively  reasonable   prices  to	 the
consumer, the duty paid on the inputs is deducted out of the
duty payable  on  the  finished	 goods.	 Acceptance  of	 the
appellant's contention	effectuates the	 said object whereas
acceptance of  the Revenue's contention would tend to defeat
the aforesaid  objective in  a case like the present one. It
is true	 that the notification provides for an exemption and
has to	be strictly construed but it is equally well-settled
that  the   exemption  notifications,  as  to  be  construed
reasonably having  due regard  to the  language employed. It
may also  be noticed  that both	 Rule 56-A  and notification
No.201 of 1979 are actuated which similar considerations and
provide for broadly similar concessions. Indeed, that is how
the Board has understood these two provisions.Mr.  Sridharan,  learned  counsel	for  the  appellant-
manufacturer, has made it clear that appellant is not asking
for any	 transfer of  credit to	 any other  factory  of	 the
appellant. All	that he	 wants	is  that  the  appellant  be
allowed to  take credit	 of the	 entire duty  paid on inputs
(barely malt)  received	 into  its  Rajahmundry	 factory  as
against the  duty payable on the goods (Horlicks) cleared at
Rajahmundry on payment of duty. This it is entitled to do.For the reasons given above, we are of the opinion that
the appellant  is entitled  to succeed	in this	 appeal. The
appeal is  accordingly	allowed	 in  the  above	 terms.	 The
decision of the Tribunal impugned herein is set aside. There
shall be no order as to costs.