4 f HIGH COURT OF DELHI ^ WHCl No. 6692 of 2002 Dateofdecision: September/', 2004 M/S Asahi India Safety Glass Limited Petitioner. through: Mr.V. Lakshmikumaran with MrAvtar Singh Advocates. -VERSUS - _Union of India and others Respondent through: Mr. Gaurav Duggal Advocate Coram :- ' THE HON'BLE MR JUSTICE B.C.PATEL, C. J. THE HON'BLE MR JUSTICE BADAR DURREZ AHMED. i) Whether Reporters of local papers may be allowed to see the judgment. ii) To be referred to the reporter or not ? iii) Whether the judgment should be reported in the Digest ? B.C.PATEL, C.J 1. The petitioner, engaged as a manufacturer of toughened (tempered) and laminated safety glass, has filed this petition against the order dated 16.9.2002 made by the Customs and Central Excise Settlement Commission, New Delhi ( hereinafter referred to as 'the Commission' ) directing the petitioner to pay duty amount of Rs. 3,47,38,325/- towards settlement of the show cause notices dated 1.9.2000, 14.12.2000 and 20.6.2001 and has prayed to quash and set aside the operation of the impugned order No. F/63/2002-SC(PB) dated 21.8.2002 made by the Commission confirming the duly as aforesaid Digitally Signed By:AMULYA Certify that the digital file and physical file have been compared and the digital data is as per the physical file and no page is missing. Signature Not Verified Safety glass- Excise duty I WPfCJ6692/2002 and has also prayed for issuance of a writ or order entitling the petitioner to take Modvat credit to the tune of Rs. 3,47,38,325/- in relation to three show cause notices. 2. The petitioner sells the manufactured items to the motor vehicle manufacturers. It is required to clear the goods on payment of excise duty. In the instant case, it has availed a Modvat credit on sale of safety V glass to the motorvehicle manufacturerslike Maruti Udyog Ltd. 3. For the purpose of manufacture of toughened or laminated or tempered safety glass ( hereinafter referred to as 'the safety glass' ) the raw material required is known as float glass. It is averred by the petitioner that in relation to additional duty of customs paid on the imported float glass and the excise duty paid on the locally procured float glass, ^ the petitionertook Modvatcreditof the duty so paid. During the course of manufacture of safety glass inspection is required for a quality check or to detect a defect in the raw material i.e. float glass. It is the case of the petitioner that defective float glass is scrapped and appropriate excise duty is paid on the clearance of such scrapped glass. In respect of the defective float glass the petitioner used to raise quality claims with the float glass manufacturer and i \ V o I Safety glass- Excise duty I\ WP(C)6692/2002 such claim would hardly be about 8-9% of the total purchases made. The petitioner has pointed out that the float glass is received in wooden boxes. Glass sheets are removed from the wooden boxes and put on floating table. If the float glass is found broken or defective, on opening, the same is scrapped and for the said glass duty is already paid and as such defective or broken glass cannot be used in the manufacturing process. The same is not a subject matter of any benefit. However, the float glass which is not defective per se has to be placed on the floating table. Out of each sheet of float glass, there may be one to eight pieces of the final product. The procedure prescribed by the petitioner is as under;- "a) Cutting b) Marking c) Breaking off d) Grinding e) Washing with de-mineralised water f) Inspection. (a) Cutting: The glass is cut to size according to template provided. The glass is cut according to pre-determined size, shape i.e. specifications given by the customer. (b) Marking : This is done on the glass on one side. This contains the customer's name and logo along with other particulars such as customer's name, etc. (c) Breaking off: The extra /unwanted portion of the glass, as scored by the cutting machine is separated manually and thrown into the cuUet tank. (d) Grinding : The edges of the glass which has been cut are beveled with the grinding machine. The grinding machine is equipped with a diamond wheel, which grinds the edges. (e) Washing the glass: The glass is firstly washed with hot de-mineralised water. The temperature of the water remains 4 4 Safetyglass-Exciseduty WP(C) 6692/2002 •1^ is used. between 40-60° C. No chemical is used. Thereafter, the glass is scrubbed by using high density brush rollers running at a speed of 1800 rpm. The water on the glass is then soaked up from the surface by sponge rollers. In case the sponge rollers are not used, water mark/stains will remain on the glass and such stain would become permanent when the glass is taken to furnace for tempering process. Inspection of the glass is not possible unless the water mark/ stains are completely removed from the surface of the glass. Thereafter, the wet glass is dried by blowing hot air at 40-60° C. For the purpose of drying, blowers with heaters are installed inside the dryers. (f) Inspection: The glass having been cut, beveled and washed are inspected by the trained employees of petitioner with naked eyes against a light source. If the glass contains defects such as bubbles, stones, scratches, white spots, paper marks etc are detected. The glass containing any of these defects are segregated. Only glasses which do not contain such defects are passed on to the next stage viz. y tempering or lamination, as the case may be. It may be noted that the glass sheets being the input material, have been cut to size and shape and edges beveled. The glass containing defects are destroyed by throwing them into the cullet tank, since the defective glass cannot be marked even as sub-standard/. Seconds glass, keeping in mind the end application in motor vehicles. That is why there is no point of subjecting such glass to further processes of tempering/lamination. The defects if any, in the float glass which would ^fect their suitability for use in motor vehicles can only be detected after the float glass undergoes the mandatory processes of cutting, marking, breaking off, grinding and washing which form an integral part of the manufacturing processes undertaken by the petitioner in the factory." 4. According to the petitioner the process indicated herein above being manufacturing process must be followed to obtain the safety glass. These processes form manufacturing process of the final product namely safety glass. Since the cut to size pieces of glass from sheets form one of the stages of manufacture, according to the petitioner, the manufacturing process commences the moment the process of cutting starts and it is only during further process, the defects are detected after washing, 5 Safetyglass-Exciseduty '~^ WP(C)6692/2002 drying and on inspection of the glass. Even if the defects such as scratches and bubbles are found existing then such pieces are not accepted and as such are thrown in a cullet tank and only accepted pieces are forwarded for such process for making the tempered glass and laminated glass. For the reason that the defects such as scratches, bubble, etc. may occur on the float glass supplied, which may not form part of the final cut piece. It is reiterated by the petitioner that it is only after putting the float glass sheets into the process of manufacture that inspection is carried out after completion of certain stages. The cut pieces are to be inspected only after thorough washing and drying for the reasons that if the glass is dirty, having paper marking, etc. certain defects will not be noticed at the stage when it is placed on a floating table and is cut to pieces of required size though the float glass itself had defects of white spot, cullet, stone, etc. Hence inspection is carried out on the cut to size pieces only after washing and drying. The further process thereafter is carried out to get the tempered glass and laminated glass. After picking up the glass from the stock cart manually, it is placed on a glass hanging supporter. This glass is automatically carried into the furnace, which has electric heaters i A b Safetyglass-Exciseduty I^ WP(C)669212002 inside. There are four chambers in the furnace and glass is moved from lower temperature chamber to higher one. There the glass piece is pressed by a press machine at a very high temperature. The glass is then cooled and quenched uniformly by a blast of air. The glass is then unloaded and is transferred to an inspection line. Thereafter the glass is examined again. If any defect like white spot, cullet, stains etc are detected, due to the defect originating at the suppliers end, but not detected visually, and found after inspection, after following the procedure described above, the glass is rejected. Out of a sheet of float glass, ultimately one to eight pieces may be ultimately turned into a final product. The facts that a sheet of glass used as an input must be considered for benefit irrespective of fact that entire sheet or all the pieces turned into a final product or not. It is a different matter that for such rejected glass also claim is made on the supplier. The department is aware of this procedure since 1987. 5. In laminated glass, there is combination of two glasses which are laminated together. The first process carried out is bending of two glasses, one inner and another outer according to the fixture required. After bending, the glass is inspected for 7 /Safetyglass-Exciseduty WP^q 6692/2002 curvature and cross curvature. Next, a PVB film is put between the two glasses and de-airing is done by which air is taken out. Thereafter the glass is sent to an oven for heating upto 100 degree Celsius. Finally, the glass is subjected to a process known as auto-calving at a temperature of 135 degrees Celsius and at a pressure of 13 Kg/centimeter square which results in finished laminated glass. I 6. Show cause notices were issued, inter alia, denying Modvat credit on the defective safety glass ( which were cleared as scrap (cullet) on payment of duty later on) Show cause notice has denied Modvat credit taken by the petitioner during the period from August, 1995 to December, 2000. Show cause notice was issued for invoking penal provisions under Section llAB and 11AC of the Central Excise Act, 1944. Ultimately, the petitioner approached the Settlement Commission and the application was ' admitted on or about 12.12.2001 and after hearing, the order was made on 21.8.2002 under Section 32F(7) of the Central Excise Act, 1944. The Commission made an order as under:- "(i) The correct duty liability of the applicant is Rs. 3,55,37,917/- Rs. 21,48,876/-, Rs. 26,90,902/- respectively in the 3 show cause notices in question, totaling to an amount of Rs. 4,03,77,695/-. The applicant had accepted liability of Rs. 56,39,370/- where amount has been paid. The balance amount of Rs. 3,47,38,325/- shall be 8 Safetyglass-Exciseduty WP(C)6692/2002 paid by the applicant within 30 days of the receipt of this order. (ii) The applicant is allowed immunity from prosecution for offences under the Act in respect of the case covered by the applications and the SCNs in question. (iii) The applicant is allowed immunity from payment of penalty leviable under the Act and the Rules made thereunder in respect of the case covered by the applications and SCNs in question. (iv) The applicant is allowed partial immunity from levy of interest. The applicant shall pay interest @10% per annum on the duty amount of Rs. 56,39,370/- from the date the credit was availed till the date of payment of this duty. The interest, liability shall be effective from the date the provisions of Section llAB came into effect under S the Act. The applicant shall work out the interest liability accordingly, have it certified by the Jurisdictional Commissioner of Central Excise and shall make the payment thereof within 30 days of the receipt of this order." 7. Sub-section (7) of Section 32F of the Central Excise Act, 1944 being relevant, is reproduced hereunder "(7) After examination of the records and the report of the Commissioner of Central Excise received under sub-section (1), and the report, if any, of the Commissioner ( Investigation) of the Settlement Commission under sub-section (6), and after giving an opportunity to the applicant and to the Commissioner of Central Excise having jurisdiction to be heard, either in person or through a representative duly authorized in this behalf, and after examining such further evidence as may be placed before it or obtained by it, the Settlement Commission mav. in accordance with the provisions of this Act, pass such order as it thinks fit on the matters covered bv the application and any other matter relating to the case not covered by the application, but referred to in the report of the Commissioner of Central Excise and Commissioner ( Investigation) under sub-section (1) or sub-section (6)." 8. Learned counsel, therefore, submitted that the Settlement Commission is entitled to make an order in accordance with the provisions of the Act, and not n Safety glass- Excise duty WP(C)6692/2002 beyond that. According to the leaned counsel, it is not open for the Settlement Commission to pass an order de hors the provisions of law. 9. Learned counsel drew our attention to Rule 57A and 57D of the Central Excise Rules 1944 ( hereinafter referred to as the Rules) which are reproduced hereunder:- Rule 57A. Applicability. 1. The provisions of this section shall apply to such finished excisable goods ( hereinafter, in this section, referred to as the final products) as the Central Government may, by notification in the Official Gazette specify in this behalf for the purpose of allowing credit of any duty of excise or the additional duty under Section 3 of the Customs Tariff Act, 1975 ( 51 of 1975), as may be specified in the said notification ( hereinafter, in this Section, referred to as the specified duty) paid on the goods used in the manufacture of the said final products ( hereafter, in this section, referred to as the inputs). (2) The credit of specified duty allowed under sub- rule (1) shall be utilized towards pajrment of duty of excise leviable on the final products, whether under the Act or under any other Act, as may be specified in the notification issued under sub-rule (1) and subject to the provisions of this Section and the conditions and restrictions, if any, specified in the ^ said notification. (3) The Central Government may also specify in the said notification the goods or classes of goods in respect of which the credit of specified duty may ^ be restricted. (4) The credit of specified duty under this Section shall be allowed on inputs used in the manufacture of final products as well as on the inputs used in or in relation to the manufacture of the final products whether directly or indirectly and whether contained in the final product or not. (5) Notwithstanding anything contained in sub-rule (1), the Central Government may, by notification in the Official Gazette declare the inputs on which declared duties of excise or additional duty (hereinafter referred to as declared duty) paid shall l5e deemed to have been paid at sx^h rate or 10 y Safetyglass-Exciseduty y WP^g6692/2002 equivalent to such amount as may be specified in the said notification and allow the credit of such declared duty deemed to have been paid in such manner and subject to such conditions as may be specified in the said notification even if the declared inputs are not used directly by the manufacturer of final products declared in the said notification, but are contained in the said final products. Explanation—for the purposes of the sub rule it is clarified that even if the declared inputs are used directly by a manufacturer of final products, the credit of the declared duty shall, notwithstanding the actual amount of duty paid on such declared inputs, be deemed to be equivalent to the amount specified in the said notification and the credit of the declared duty shall be allowed to such manufacturer. 6. Notwithstanding anjrthing contained in sub-rule (1), the Central Government may, by notification in the Official Gazette, declare the inputs on which the duty of excise paid under Section 3A of the Central Excise Act, 1944 (1 of 1944) shall be deemed to have been paid at such rate or equivalent to such amount as may be specified in the said notification, and allow the credit of such duty in respect of the said inputs at such rate or such amount and subject to such conditions as may be specified in the said notification: Provided that the manufacturer shall take all reasonable steps to ensure that the inputs acquired by him are goods on which the appropriate duty of excise, as indicated in the documents accompanying the goods, has been paid under Section 3A of the Central Excise Act, 1944 ( 1 of 1944)." ^ 57D. Credit of duty not to be denied or varied in certain circumstances.—(1) Credit of specified duty shall not be denied or varied on the ground that ^ part ofthe inputsis containedin anywaste,refuse, or by-product arising during the manufacture of the final product, or that the inputs have become waste during the course of manufacture of the final produce, whether or not such waste or refuse or by-product is exempt from the whole of the duty of excise leviable thereon or chargeable to nil rate of duty or is not specified as a final product under rule 57A." 10. Learned counsel drew our attention to Rule 57D of the Rules to point out that credit of duty is not to be denied or varied in certain circumstances. It is 11 ^ Safetyglass-Exciseduty y WP(C)6692/2002 in view of the combined reading of Rule 57A(4) and Rule. 57D(1), the learned counsel submitted that once the float glass is under process for final output, irrespective of manufacturing product, good or bad or rejected being useless or destroyed during the manufacturing process etc the benefit of Rule 57A cannot be denied. 11. To understand the question, an illustration can be given of corn thrown in a hot oven for the purpose of obtaining popcorn. Before using the corn, if it is found unfit and rejected and if the duty is to be paid, one has to pay the duty even on such rejected and unfit corn. However, when the remaining corn, other than rejected are thrown in hot oven for getting popcorn the entire quantity may not be popped. Some popcorn may be of better quality- one may call it export quality, some may be of poor quality and some corn because of hardness may not have popped at all, but for making popcorn the quantity used after acceptance ( except being rejected as unfit) the entire quantity is used for preparing popcorn and it cannot be said that corn which is not popped up were not used for making the popcorn. Whatever quantity after preliminary inspection is used for " \ 12 Safetyglass-Exciseduty (y WP^g6692/2002 making popcorn, one will be entitled to get the benefit of the entire quantity irrespective of the results i.e. either popped fully partially or not popped up at all. 12. It is clear that float glass is eligible input. It was subject to process of manufacturing. After float glass has undergone the process of manufacturing if defects are noted then it is not used for final product, namely, lamination or toughening. As this defect is brought out only during the process on which duty is paid, it is required to be considered. In the instant case, at the initial stage the defect is noted in the float glass and therefore no question of Modvat could arise. Only the float glass which has undergone the process of manufacturing has to be considered for Modavt irrespective of the claim lodged with the supplier. The manufacturer has claimed Modavt because he has paid duty on the float glass and has used the same for the manufacturing process, though for one or the other reason, sheet of float glass or part of the sheet could not be used for the final product, is no ground for rejecting the same. If duty is not paid on the goods used as input, one is not entitled to claim Modvat. However, if the duty \ 13 \Safetyglass-Exciseduty [ V WP^g6692/2002 is paid and the glass is used in the manufacturing process, then one would be entitled. It is clear that no Modvat could be claimed on the float glass, if the same is rejected after opening the wooden box as sheet is found broken or defective and therefore, could not be used as input for obtaining final product. Irrespective of obtaining a final product if the input is used in the manufacturing process one is entitled merely because credit is taken on defective glass used as input is no ground to reject the claim. 13. On behalf of the respondent, it was submitted that Section 32 is a complete code. Section 31 which falls in Chapter V of the Act pertains to Settlement Commission. Learned counsel for the respondent submitted that the order once made by the Settlement Commission would be one under Section 32M. It cannot be reopened. Section 32M reads as under "32M"Order of Settlement to be conclusive.— Every order of settlement passed under sub-section (7) of Section 32F shall be conclusive as to the matters stated therein and no matter covered by such order shall, save as otherwise provided in this Chapter, be reopened in any proceeding under this Act or under any other law for the time being in force." 14. According to the learned counsel, once an order is made, it is not subject to review. According to the 14 ^ Safetyglass-Exciseduty WP(C)6692/2002 learned counsel for the respondent, the order made under sub-Section (7) of Section 32F may provide the terms or the manner in which the amount shall be paid and the Settlement shall be void if it is subsequently found by the Commission that the same has been obtained by fraud or misrepresentation of facts. It was submitted by the counsel for the respondent that for bringing an end to the matter, the stage of assessment, appeal or appeal before Tribunal are bypassed in view of the special provision. Once the Settlement Commission makes an order that being final, it cannot be interfered even under Article 226 of the Constitution of India. On merits, learned counsel for the respondent submitted that the Commission has committed no error in arriving at a conclusion and, therefore, the Court should not interfere in the matter. 15. Undisputed facts, according to the Commission in paras 11 and 12 are as under:- (i) The main raw material for the manufacture of the tempered and laminated glass in the applicant's factory is float glass which is an eligible input under Rule 57A of the Rules in this case. (ii) The defects noticed in the float glass ( input) at the stage of inspection thereof after subjecting it to the process of cutting. marking, breaking off, grinding and washing are defects arising at the end of the suppliers of the said float glass and such defects have not been brought about during any of the 15 •n glass-Exciseduty \ WP(C) 6692/2002 processes to which the float glass is subjected to in the applicant's factory. (ill) The applicant filed a claim for such defective glass on the respective suppliers and the suppliers reimbursed the applicant for the cost of such defective glass. The cost reimbursed does not include the element of dutv suffered on such float glass. (iv) The demand of dutv made bv Revenue is confined to the credit taken on defective float glass for which