1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR J U D G M E N T OTHER TAX REF. CIVIL No. 4 of 2002 UNION OF INDIA Vs. M/S INDIAN RAYON & INDUSTRIES LTD Date of Judgment : 3.7.2008 PRESENT HON'BLE SHRI N P GUPTA,J. HON'BLE SHRI KISHAN SWAROOP CHAUDHARI,J. Mr.Vivek Shrimali for Mr.Ravi Bhansali, for the appellant. Mr.Ramit Mehta, for the respondent. BY THE COURT : (PER HON'BLE GUPTA,J.) This reference petition has been filed by the Revenue under Section 35H(1), against the judgment of the learned Tribunal dt. 13.6.2001, affirming the order of the Commissioner Central Excise (Appeals), Jaipur dt. 26.12.2000, whereby the order in original passed by learned Assistant Commissioner allowing Modvat credit to the assessee, and imposing the penalty of Rs. 10,000/- under Rule 173-Q(bb) for contravention of Rule 57-G(1) had been affirmed. It is contended in the application, that the substantial question of law is involved being:- “Can the Tribunal allow the modvat credit on grinding media balls of SH.6907 & 7325.20 under rule 57A during the period from 24.4.1992 to 16.6.1994. When it is excluded from Rule 57A and 2 is not an input for manufacture of final product i.e. Cement.” Show cause notice was issued to the assessee on 25.7.1994, and corrigendum was issued on 18.9.1995, for recovery of central excise to the tune of Rs. 4,04,387/- taken as modvat credit on grinding media balls of ceramic, falling under sub-heading 6907.00, and of iron and steel falling under sub-heading 7325.20, of the Schedule to the Central Excise Tariff Act. It was alleged that the assessee has taken credit of the aforesaid amount vide RG.23 Part-II, Entries No. 632 to 637, 639 and 640 all dated 16.6.1994, for inputs received by them in the factory for the period 24.9.1992 to 8.6.1993. The other ground given was, that the assessee did not file any declaration under Rule 57-G for aforesaid type of grinding media balls, before utilizing them in the factory, whereas the assessee has filed a declaration on 28.9.1992, wherein specific quality of grinding media ball of iron and steel falling under sub heading No. 7325.90, and 7326.11 were declared as inputs, and that ceramic grinding media balls were declared for the first time on 30.3.1993, at which time grinding media balls of iron and steel falling under sub heading 7325.20, were also declared. The declaration dt. 28.9.1992 was disallowed, which order had been set aside by the CEGAT vide order dt. 4.5.1994, holding that grinding media balls are eligible input, under Rule 57-A. 3 The learned Assistant Commissioner received reply to the show cause notice, having been submitted by the letter dt. 22.9.1994, pointing out that the controversy about eligibility of modvat credit on media balls has already been finally decided in the case of M/s. Associated Cement Companies Limited reported in 1990 (31) ECR-632/CEGAT/ERB. It was also submitted in the reply, that the said adjudication was further challenged, and was finally decided in favour of the assessee by order dt. 4.5.1994, holding grinding media balls eligible inputs for modvat credit. It was submitted that the intention of the Department was to disallow the Modvat credit on grinding media balls of all types falling under different sub-heading, and not on grinding media balls falling under a particular chapter/heading, and hence it was not at all necessary to file a declaration on the broad term. The assessee relied upon few judgments of the CEGAT, and contended, that the position is settled, that the grinding media balls are eligible for Modvat credit as inputs. Personal hearing was also given, and it was found, that the controversy already stands decided by the order of the CEGAT dt. 4.5.1994, holding, that the Modvat credit would be available on grinding media balls. Then, regarding the aspect of claiming Modvat credit in respect of grinding media balls of specific type for which declaration was not filed, it was contested by the assessee, that the use of all grinding media is same in the manufacturing process, 4 and nomenclature is changed due to change in the sub heading of the Finance Bills, as also the Department's stand, that grinding media balls in general is not eligible for modvat credit. Considering various decisions of the Tribunal, and Hon'ble the Supreme Court, it was found, that the Modvat credit cannot be disallowed for minor variations in the description, as also minor non-observance of technical formalities. As such the aforesaid order was passed. Then, regarding failure to declare input, it was found to be contravention of Rule 57-G(1), attracting penal consequences under Rule 173-Q(bb), but on that ground the Modvat credit was not found to be disallowable, as such the above order was passed. The Revenue filed appeal, which was dismissed by the Commissioner (Appeals), following the earlier judgment in the matter of assessee itself, in CCE Vs. Durgapur Cement Work reported in 1997(90) ELT 197, Indian Rayon & Industries Ltd. Vs. CCE, Jaipur reported in 1995(76) ELT-358, HMP Cements Vs. CCE reported in 2000(117) ELT-549, Sriram Cement Works Vs. CCE, Jaipur, Final Order No. A/805/93-NRB dated 1.10.93. The Revenue preferred further appeal before the learned Tribunal, and following the judgment in the case of assessee itself, in Indian Rayon Industries Ltd. Vs. CCE Jaipur, 1995 reported in 1995 (76) ELT-358, the order of Commissioner was found to be perfectly valid, and the appeal was dismissed. 5 A look at the memo of reference petition shows, that according to the Revenue against the earlier order passed by the Tribunal, in the case of assessee itself, special leave petition was filed before Hon'ble the Supreme Court, challenging the order of this Court dismissing the reference application, wherein Hon'ble the Supreme Court directed the Tribunal to refer the matter to the High Court (Ground No. 13 of the Reference Petition). Then, a look at the order sheet dt. 18.7.2002 shows, that this Court noticed this fact, and learned counsel for the Revenue was granted time to ascertain whether reference has been made, or not. Accordingly at the commencement of the hearing of this petition also, we again called upon the learned counsel for the Revenue to inform, as to whether any reference has been made or not, but despite the matter having been adjourned for number of days in sequence, learned counsel for either side could not point out, that any reference has been made, much less has it been decided, by taking any contrary view. In that view of the matter, since this matter is already very old, we heard both the learned counsel on merits of the controversy afresh, instead of in any manner being obsessed, or guided, by the factum of passing of earlier order by the Tribunal, reported in 1995(76) ELT-358 Assailing the impugned orders broadly two contentions have been raised; first being that the grinding media balls is a part of equipment, 6 apparatus, tools or appliances used for producing or processing of any goods, or for bringing about any change in the substance, in or in relation to the manufacture of the final product, and as such is clearly excluded from Rule 57-A, and therefore, cannot be treated to be input. It was submitted that the nature of the item in their use is more relevant than the dictionary meaning of the same, for determining whether it is component or input, and that, the balls being integral part of the machinery, they are clearly excluded from Rule 57-A, and therefore, Modvat credit was not admissible. The next submission made is, that the assessee had not filed proper declaration, as required by Rule 57-G, which cannot be regularised by imposing penalty on the assessee, rather the assessee was required to be held disentitled for Modvat credit, in absence of declaration. Learned counsel read to us the provisions of Rule 57-A to be as under:- “57A. The provisions of this section shall apply to such finished excisable goods (hereinafter referred to as the “final product”), 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 referred to as the “specified duty”) paid on the goods used in or in relation to the manufacture of the said final products (hereinafter referred to as the “inputs) and for utilising the credit so allowed towards payment of duty of excise leviable on the final products, whether under the Act or under any other Act, as may be specified in the said notification, subject to the provisions of this section and the conditions and restrictions that may be specified in the notification: Provided that the Central Government may specify the goods or classes of goods in respect of which 7 the credit of specified duty may be restricted. Explanation-For the purposes of this rule, “inputs” includes- (a) inputs which are manufactured and used within the factory of production, in or in relation to, the manufacture of final products. (b) paints and packaging materials, (c) inputs used as fuel, and (d) inputs used for generations of electricity, used within the factory of production for manufacture of final products or for any other purpose, but does not include- (i) machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of final products; (ii) packaging materials in respect of which any exemption to the extent of the duty of excise payable on the value of the packaging materials is being availed of for packaging any final products; (iii) packaging materials or containers, the cost of which is not included in the assessable value of the final products under section 4 of the Act.” And submitted, that from a look at this rule it is clear, that it defines inputs. Then, an explanation is appended, and then there are specific exclusions, and according to the learned counsel for the Revenue, the grinding media balls clearly fall within first exclusion clause. On this basis it is contended, that since this aspect has not been considered by the authorities below, rather the authorities below had proceeded merely on the basis of earlier order passed 8 in the matter of assessee, and therefore, the orders are required to be set aside. To substantiate the second contention it is contended, that under Rule 57- G the declaration was required to be filed rather proper declaration was required to be filed before receipt of the Modvat in absence whereof the assessee is rendered dis-entitled to any Modvat credit, and he cannot be allowed the Modvat credit by simply imposing a cash penalty as done by the learned Commissioner. On the other hand, learned counsel for the assessee submitted, that the grinding media balls are clearly inputs, as defined in Rule 57-A. Learned counsel submitted, that Rule 57-A as read by the learned counsel for the Revenue is a subsequent legislation, which has no application to the present controversy, and the Rule 57-A as it existed at the relevant time was read to us, to be reading as under:- “57A. Applicability-(1) The provisions of this section shall apply to such finished excisable goods (hereinafter 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 referred to as the “specified duty”) paid on the goods used in or in relation to the manufacture of the said final products whether directly or indirectly and whether contained in the final products or not (hereinafter referred to as the “inputs”) and for utilising the credit so allowed towards payment of duty of excise leviable on the final products, whether under the Act or under any other Act, as may be specified in the said notification, subject to the provisions of this section and the conditions and restrictions that may be specified in the notification: 9 Provided that the Central Government may specify the goods or classes of goods in respect of which the credit of specified duty may be restricted. Explanation-For the purposes of this Rule, “inputs” includes- (a) inputs which are manufactured and used within the factory of production, in or in relation to, the manufacture of final products, (b) paints and packaging materials, (c) inputs used as fuel, (d) inputs used for generation of electricity, used within the factory of production for manufacture of final products or for any other purposes. (e) accessories of the final product cleared along with such final product, the value of which is included in the assessqble value of the final product, but does not include- (i) machines, machinery, plant, equipment, apparatus, tools, appliances or capital goods as defined in Rule 57Q (other than those used as component parts in the manufacture of final product) used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of the final products or used for any purpose in the factory; (ii) packaging materials in respect of which any exemption to the extent of duty of excise payable on the value of the packaging materials is being availed of for packaging any final products; (iii) packaging materials or containers, the cost of which is not included in the assessable value of the final products under section 4 of the Act; and (iv) crates and glass bottles used for aerated waters. (2) 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 be deemed to have been paid at such rate or 10 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 condition as may be specified in the said notification even if the declared in puts 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 this 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.” On the basis of this provision of Rule 57-A it was contended, that of course there is exclusion clause excluding machines, machinery, plant, equipment, apparatus, tools appliances or capital goods as defined in Rule 57Q, used for producing or processing of any goods, or for bringing about any change in any substance, in or in relation to the manufacture of the final products, or used for any purpose in the factory. But then, even this exclusion clause excludes from out of these excluded items, component parts used in the manufacture of final product, inasmuch as the exclusion is of the aforesaid machines, machinery, plant, equipment, apparatus, tools appliances or capital goods as defined in Rule 57Q, other than those used as component parts in the manufacture of final product. Thus it is contended, that since even the highest case of the Revenue is, that the grinding media balls are component parts, however, by virtue of further exclusion of clause, contained in exclusion clause, the grinding media 11 balls clearly fall within the definition of input, eligible for Modvat credit. Regarding the other submission, it is contended, that the learned Assistant Commissioner has regularised the default in submitting the declaration by imposing penalty, and that part of the order had not been challenged by the Revenue before Appellate Authority, or the learned Tribunal. In that view of the matter, it would be too late in the day to allow the Revenue, now to contend, that penalty could not have been imposed, and instead Modvat credit should have been denied to the assessee, on account of non filing of the declaration, as required under Rule 57G. We have considered the submissions, and have gone through the relevant provisions, as read to us and quoted above. In our view, the submissions of the learned counsel for the assessee have force. The provisions of Rule 57-A have undergone a sea-change since 1.3.1997, and the submission made by the learned counsel for the Revenue is based on the provisions of Rule 57-A, as it stood after 1.3.1997, as against this, in the present case since the matter relates to 1992-93, the provision as it stood prior to amendment of 1997 would apply, and that provision clearly provides for allowing the credit of the excise duty paid on the goods used in, or in relation to manufacture of final product, or used for any purpose in the factory 12 whether directly or indirectly, and whether contained in the final products, or not, to be regarded as inputs. Then by virtue of provisions of the Rules, the Central Government may specify the goods or class of goods in respect of which the credit of specified duty may be restricted. It contained the exclusion clause, enlisting various items which would not be included in the category of inputs, and the very first clause thereof reads as under:- “57A. Applicability-(1) The provisions of this section shall apply to such finished excisable goods (hereinafter 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 referred to as the “specified duty”) paid on the goods used in or in relation to the manufacture of the said final products whether directly or indirectly and whether contained in the final products or not (hereinafter referred to as the “inputs”) and for utilising the credit so allowed towards payment of duty of excise leviable on the final products, whether under the Act or under any other Act, as may be specified in the said notification, subject to the provisions of this section and the conditions and restrictions that may be specified in the notification: Provided that the Central Government may specify the goods or classes of goods in respect of which the credit of specified duty may be restricted. Explanation-For the purposes of this Rule, “inputs” includes- (a) inputs which are manufactured and used within the factory of production, in or in relation to, the manufacture of final products, (b) paints and packaging materials, (c) inputs used as fuel, (d) inputs used for generation of electricity, 13 used within the factory of production for manufacture of final products or for any other purposes. (e) accessories of the final product cleared along with such final product, the value of which is included in the assessqble value of the final product, but does not include- (i) machines, machinery, plant, equipment, apparatus, tools, appliances or capital goods as defined in Rule 57Q (other than those used as component parts in the manufacture of final product) used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of the final products or used for any purpose in the factory.....” (emphasis supplied) Thus, may be that machines, machinery, plant, equipment, apparatus, tools appliances or capital goods are excluded from the definition of inputs, but then, those machines, machinery, plant, equipment, apparatus, tools appliances or capital goods used as component part in the manufacture of final product stand excluded from this exclusion clause, and thus fall within the category of input. Obviously even according to the Revenue the grinding media balls are claimed to be not eligible for Modvat credit as input, as they are the component part of the machines, machinery, plant, equipment, apparatus, tools appliances or capital goods. In that view of the matter, on the face of language of this rule, as it is shown to have existed at the relevant time in the year 1992-93, the grinding media balls do fall within the category of inputs eligible for Modvat 14 credit. Thus, the first contention raised by the Revenue is devoid of any force, and is, therefore, negatived. So far second contention is concerned, during course of hearing we directed the learned counsel for the parties to make available for our perusal copy of the memo of appeals filed by the Revenue before the learned Commissioner, and the learned Commissioner, in order to ascertain as to whether the part of the order of the learned Assistant Commissioner imposing on the assessee penalty of Rs. 10,000/- instead of holding the assessee to be disentitled to Modvat credit was challenged, or not. Learned counsel for the respondent made available for our perusal two copies of the two memo of appeals, and from perusal of the memo of appeal filed before the learned Commissioner, we find, that the last ground being ground no. (ix) was taken by the Revenue, to the effect, that the declaration in respect of “balls” was not filed, and credit availed without filing proper declaration cannot be regularised by imposing penalty on the assessee. Thus, it appears that in the appeal before the learned Commissioner ground was taken to assail this part of the order of the Assistant Commissioner, but then from a look at the order of the learned Commissioner it does not transpire that the said ground was ever pressed. Otherwise, may be that the question about admissibility of Modvat credit was covered by the 15 earlier judgment in the asssessee's case but then it might have been possible for the learned Commissioner to come to any conclusion either ways, about eligibility of Modvat credit, or otherwise, on account of non submission of declaration. Be that as it may. The fact remains that this contention has not been considered by the learned Commissioner. In this sequence a look at the memo of appeal filed before the learned Tribunal shows, that in this entire appeal there is not even a whisper on the side of the Revenue, on this aspect, either on the basis, that it could not be so regularised, or on the basis, that a contention was raised before the learned Commissioner but was not decided, or the like. With the result, that we are left to legitimately conclude, that the whole thrust of the litigation before learned Tribunal, was on the anvil of the availability of Modvat credit on grinding media balls as inputs. Thus, when this part of the order has not been challenged before the learned Tribunal, we do not stand advised to allow the Revenue to raise this contention at this belated hour, as a ground to deny the Modvat credit to the assessee, and consequently this second contention is also devoid of any substance. The net result is that since the whole edifice of reference petition is sought to rest on provisions of Rule 57-A, as are shown to have come into existence since 1.3.1997, and not on the provisions of Rule 57-A as are shown to have existed at the relevant time, and since according to the 16 provisions of Rule 57-A as they are shown to have existed at the relevant time, on the face of language thereof, since the grinding media balls are eligible for availing Modvat