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Commnr Of Central Excise Bhavnagar Vs M s Saurashtra Chemicals Ltd On May 9, 2007

CASE NO.:
Appeal (civil) 2428 of 2007

PETITIONER:
Commnr. Of Central Excise, Bhavnagar

RESPONDENT:
M/s. Saurashtra Chemicals Ltd

DATE OF JUDGMENT: 09/05/2007

BENCH:
S.B. Sinha & Markandey Katju

JUDGMENT:
J U D G M E N T

CIVIL APPEAL NO. 2428 OF 2007
[Arising out of SLP (Civil) No. 15783 of 2006]

S.B. SINHA, J :

1. Leave granted.

2. Interpretation of Rule 57AC of the Central Excise Rules, 1944
(for short "the Rules") is in question in this appeal which arises out of the
judgment and order dated 12.01.2006 passed by the High Court of Gujarat at
Ahmedabad in Tax Appeal No. 862 of 2005.

3. Respondent is engaged in manufacture of excisable goods, viz.,
Soda Ash, Sodium Bicarbonate and Caustic Soda. It is registered under the
Central Excise Tariff Act, 1985. Its products are governed by the provisions
of the Chapter VIIA of the Rules. It has been availing the benefit of credit
of duty paid on inputs as well as capital goods under the provisions of the
Rules.

4. On or about 24.09.1996, the respondent imported two generator
sets. We are herein concerned with the second one. Although it was
received by the respondent on 24.10.1998, the same admittedly was not
installed prior to 1.04.2000. In the relevant financial year, the rule which
was in operation was Rule 57Q(3) of the Rules was as under:

"57Q(3). Notwithstanding anything contained in
sub-rule (1), the manufacturer of the final products
shall be allowed credit of additional duty leviable
under section 3 of the Customs Tariff Act, 1975
(51 of 1975) on goods falling under Chapter
Heading No. 98.01 of the first schedule to the
Customs Tariff Act, to the extent of 75% of the
said additional duty paid on such goods."

Indisputably, the said Rule was replaced by Rule 57AC of the Rules,
which came into force with effect from 1.04.2000. It reads as under:

"57AC. Conditions for allowing CENVAT credit.-
(1) The CENVAT credit in respect of inputs may
be taken immediately on receipt of the inputs in
the factory of the manufacture.
(2) (a) The CENVAT credit in respect of capital
goods received in a factory at any point of time in
a given financial year shall be taken only for an
amount not exceeding fifty per cent of the duty
paid on such capital goods in the same financial
year.
(b) The balance of CENVAT credit may be taken
in any financial year subsequent to the financial
year in which the capital goods were received in
the factory of the manufacturer, provided that the
capital goods (other than components, spares and
accessories, refractories and refractory materials
and goods falling under heading No. 68.02 and
sub- heading 6801.10 of the First Schedule to the
Central Excise Tariff Act) are still in the
possession and use of the manufacturer of final
products in such subsequent years.
(c) CENVAT credit may also be taken in respect
of such capital goods as have been received in the
factory, but have not been installed, before the Ist
day of April, 2000 subject to the condition that
during the financial year 2000-2001, the credit
shall be taken for an amount not exceeding fifty
per cent of the duty paid on such capital goods.
Illustration.- A manufacturer received machinery
on April 16, 2000 in his factory. CENVAT of two
lakh rupees is paid on this machinery. The
manufacturer can take credit up to a maximum of
one lakh rupees in the financial year 2000-2001,
and the balance in subsequent years.
(3) The CENVAT credit in respect of duty paid on
the capital goods shall be allowed to a
manufacturer even if the capital goods are acquired
by the manufacturer on lease, hire purchase or loan
agreement, from a financing company.
(4) The CENVAT credit in respect of capital goods
shall not be allowed in respect of that part of the
value of capital goods which represents the amount
of duty on such capital goods, which the
manufacturer claims as depreciation under Section
32 of the Income-tax Act, 1961 (43 of 1961).
(5)(a) The CENVAT credit shall be allowed even
if any inputs or capital goods as such or after being
partially processed are sent to a job worker for
further processing, testing, repair, re-conditioning
or any other purpose, and it is established from the
records, challans or memos or any other document
produced by the assessee availing the CENVAT
credit that the goods are received back in the
factory within 180 days of their being sent to a job
worker. If the inputs or the capital goods are not
received back within 180 days, the manufacturer
shall pay an amount equivalent to the CENVAT
credit attributable to the inputs or capital goods by
debiting the CENVAT credit or otherwise.
However, the manufacturer can take the CENVAT
credit again when the inputs or capital goods are
received back in his factory.
(b) CENVAT credit shall also be allowed in
respect of jigs, fixtures, moulds and dies sent by a
manufacturer of final products to a job worker for
the production of goods on his behalf and
according to his specifications.
(6) The Commissioner of Central Excise having
jurisdiction over the factory of the manufacturer of
the final products who has sent the inputs or
partially processed inputs outside his factory to a
job worker may, by an order which shall be valid
for a financial year in respect of removal of such
inputs or partially processed inputs, and subject to
such conditions as he may impose in the interest of
revenue including the manner in which duty, if
leviable, is to be paid, allow finished goods to be
cleared from the premises of the job worker.
(7) Where any inputs are used in the final products
which are cleared for export under bond or used in
the intermediate products cleared for export, the
CENVAT credit in respect of the inputs so used
shall be allowed to be utilized by the manufacturer
towards payment of duty of excise on any final
products cleared for home consumption or for
export on payment of duty and where for any
reason such adjustment is not possible, the
manufacturer shall be allowed refund of such
amount subject to such safeguards, conditions and
limitations as may be specified by the Central
Government by notification in the Official Gazette.
No refund of credit shall, however, be allowed if
the manufacturer avails of drawback allowed under
the customs and Central Excise Duties Drawback
Rules, 1995, or claims a rebate of duty under Rule
12, in respect of such duty."

5. For the purpose of grant of MODVAT credit, the law which
was operating in the field at the relevant point of time was a decision of the
Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai in
Grasim Industries Ltd. v. Commissioner of Central Excise, Trichy [2004
(176) ELT 265 (Tri-Chennai)] in terms whereof the quantum of credit
permissible was held to be 75% when the goods were received in the
factory. It was held that only with effect from 1.03.2000, 100% credit was
to be given and the said Rule was not retrospective. A Civil Appeal
preferred thereagainst by Grasim Industries Ltd. before this Court being
Civil Appeal No. 3477 of 2004 was dismissed by an order dated 19.07.2004
stating:

"We see no reason to interfere.
The Civil Appeal is dismissed.
There shall be no order as to costs."

Interpretation of Rule 57AC of the Rules, as inserted on 3.05.2000 is,
in question before us.

Before embarking on the said question, we may notice that a show
cause notice was issued to the respondent on or about 5.05.2001 by the
Superintendent Central Excise, AR-II, Porbander directing it to show cause
as to why:

"(i) The amount of credit amounting to Rs.
8,51,490/- (656481/- plus 195009/-) should not be
recovered from them under 57AH of the rules read
with Section 11 of the Act;
(ii) interest @ 24% should not be levied upon them
as per the provisions of Section 11AB of the Act.
(iii) Penalty should not be imposed upon the
Noticee under rule 173Q(1) of the Rules;"

Cause was shown. The matter was determined by the Assistant
Commissioner of Central Excise, Junagadh in terms of an order dated
13.09.2001 holding that the respondent was entitled to CENVAT credit only
to the extent of 50%. An appeal preferred thereagainst by the respondent
aggrieved by and dissatisfied therewith before the Commissioner (Appeals),
Customs and Central Excise, Rajkot was allowed by an order dated
31.12.2001. An appeal preferred by the Revenue thereagainst was dismissed
by the Tribunal. An appeal by the Revenue under Section 35-G of the
Central Excise Act, 1944 has been dismissed by the High Court by reason of
the impugned judgment dated 12.01.2006.

6. The High Court in its judgment opined that as the previous
notification did not contain any restrictive clause in regard to the availability
of 50% of entitlement, the Commissioner as also the Tribunal did not
commit any error in applying the notification effective as on 1.03.2000. The
Revenue is, thus, before us.

7. Sub-rule (1) of Rule 57AC of the Rules refers to ‘inputs’. It is
not relevant for our purpose. Clauses (a) and (b) of Sub-Rule (2) of Rule
57AC of the Rules governs the receipt of the capital goods in a factory. It
does not restrict grant of credit in a given financial year. Whereas 50% of
the credit can be taken in one financial year, the balance may be availed in
the subsequent years, subject to the condition that the capital goods are still
in possession and use of manufacturer of the final products in subsequent
years. Clauses (a) and (b) of Sub-Rule (2) of Rule 57AC of the Rules,
therefore, provide for a composite scheme. We are not concerned even
therewith in this appeal.

Clause (c) of Sub-Rule (2) of Rule 57AC of the Rules is relevant for
our purpose inasmuch as in this case, we have noticed hereinbefore, that the
second generator set was received on 24.10.1998, but was not installed prior
to 1.04.2000.

Applicability of Grasim Industries Ltd (supra) vis-`-vis Rule 57Q(3)
of the Rules has now become irrelevant. Clause (c) of Sub-Rule (2) of Rule
57AC of the Rules deals with a situation with which we are concerned. By
reason of the said provision, the credit sought to be given by reason of Rule
57Q(3) has not been taken away in its entirety, but merely postulates that if
the credit had not already been availed, the same merely be obtained but
limited only to the extent of 50% thereof.

8. A beneficient statute may have to be considered liberally but
where a statute does not admit of more than one interpretation, literal
interpretation must be resorted to. The provision allows taking of credit but
the same is circumscribed by the condition as is apparent from the use of the
words "subject to" which is limited to an amount not exceeding 50% of the
duty paid on such capital goods. The term "subject to" in the context
assumes some importance.

In Ashok Leyland Ltd. v. State of Tamil Nadu & Anr. [(2004) 3 SCC
1] this Court held:

""Subject to" is an expression whereby limitation
is expressed. The order is conclusive for all
purposes."

This Court further noticed the dictionary meaning of "subject to"
stating:

"Furthermore, the expression ‘subject to’ must be
given effect to.

In Black’s Law Dictionary, Fifth Edition at
page 1278 the expression "Subject to" has been
defined as under :

"Liable, subordinate, subservient, inferior,
obedient to; governed or affected by;
provided that; provided, answerable for.
Homan v. Employers Reinsurance Corp,.,
345 Mo. 650, 136 S.W. 2d 289, 302"

[See also S.N. Chandrashekar and another v. State of Karnataka and
Others, (2006) 3 SCC 208]

9. Illustration appended to Sub-rule (2) of Rule 57AC of the Rules
on its plain reading governs Sub-rules 2(a) and 2(b) of Rule 57AC and not
Sub-rule 2(c) thereof as it refers to a situation where ‘the machinery’ has
been received on April 16, 2000 and not prior thereto. Capital goods
received after 1.04.2000 are governed by Clauses (a) and (b) of Sub-rule (2)
of Rule 57AC whereas if received prior thereto, the same would be governed
by Clause (c) thereof.

10. We, therefore, are of the opinion that the High Court was not
correct in opining that CENVAT credit to the extent of 100% could be
allowed in terms of Rule 57AC of the Rules.

11. Mr. Ramesh Singh, learned counsel appearing on behalf of the
respondent, however, submitted that credit had been given only to 50% of
the total amount of duty paid, as would appear from the order of the
Commissioner dated 31.12.2001 which is in the following terms:

"On going through the sub rule 2(c) of Rule 57AC
it is very much patent that the items of capital
goods which have not been installed (emphasis
supplied) before 1st day of April, 2000 would be
entitled to the credit for an amount not exceeding
fifty per cent of the duty paid on such capital
goods. I find that in the instant case also, it is
uncontrovertible fact that the said Generator was
not installed in the appellants factory prior to
01.04.2000, and therefore, they rightly availed of
the credit of Rs. 7,80,036/- (50% of Rs.
15,60,072.28)"

But, what was done was that while granting relief to the extent of 50%
in the relevant year, it purports to hold that the credit of balance 50% can be
availed in subsequent years. The Commissioner in arriving at the said
finding did not notice the distinction between Clauses (a) and (b) of Sub-rule
(2) of Rule 57AC, on the one hand, and Clause (c) thereof, on the other. It
also failed to notice that the illustration will have no application in the
instant case. It is furthermore now a well-settled principle of law that an
illustration cannot control the main provision.

12. For the reasons aforementioned, the impugned judgment cannot
be sustained which is set aside accordingly. The appeal is allowed.
However, in the facts and circumstances of the case, there shall be no order
as to costs.

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