Case: C.C.E.,VADODARA Vs. GUJARAT NARMADA VALLEY FER. CO. LTD

a reflection of this larger principle which is contained in Rule 6. When Rule 6(1) says that the CENVAT Credit shall not be allowed on such quantity of inputs which is used in the manufacture of exempted goods, it relies upon the definition of ?inputs? contained in these Rules which certainly include LSHS and steam and electricity that are produced in the manufacturing process utilizing LSHS. The exception that is contained in sub-rule (2) refers to all inputs except inputs intended to be used as fuel which then results in the manufacture of final products which are both chargeable to duty as well as exempted goods. What is clear is that the exception to sub-rule (1) which is contained in sub-rule (2) itself contains an exception, namely, inputs intended to be used as fuel. This being the case, the moment it is found that inputs are intended to be used as fuel, such inputs go outside the ken of sub-rule (2) of Rule 6. When this happens, the exception contained in sub-rule (2) does not come into effect at all as a result of which sub-rule (1) must be applied on its own terms. 10. We have now to see the judgment of this Court in Commissioner of Central Excise, Vadodara vs. Gujarat State Fertilizers and Chemicals Ltd., (2008) 15 SCC 46. This judgment has only upheld two Tribunal judgments, one contained in Ballarpur Industries Ltd. (supra) and the other contained in Raymond Ltd. (supra). 11. When we come to the judgment in Ballarpur Industries Ltd. (supra), the Tribunal was concerned with the interpretation of Rule 57A-D of the Central Excise Rules as they stood prior to 16.03.1995. The bone of contention in this case was that electricity not being excisable goods at all cannot be considered to be an intermediate product for the purpose of exempting from duty final products in which electricity is an intermediate product. The Tribunal held that fuel oils for generation of electricity which is used for manufacture of final products by the assessee is eligible to MODVAT credit in terms of Rule 57A. It can thus be seen that the issue in Ballarpur Industries Ltd. (supra) was different from the issue in the present case, as was Rule 57A-D of the MODVAT Rules being different from Rule 6 of the CENVAT Credit Rules. Equally, the judgment in Raymond Ltd. (supra) concerned itself with Rule 57A, C and D in which it construed the meaning of the expression ?for any other purpose? contained in Rule 57A in para 12. The ratio of this judgment is also therefore far removed from the facts of the present case as the present case does not deal with the expression ?for any other purpose?. 12. We now come to the judgment of this Court in Vikram Cement vs. Commissioner of Central Excise, Indore, (2006) 2 SCC 351 , which was strongly relied upon by Mr. Dushyant Dave, learned Senior Advocate, in particular, para 24 of the judgment which reads as follows: ?24. The schemes of MODVAT and CENVAT credit are not therefore different and we are unable to agree with the conclusion of the Court in J.K. Udaipur Udyog, (2004) 7 SCC 344.? Considering that the CENVAT Credit Rules are the successor rules to the MODVAT Rules, as a general statement, the scheme contained in both the MODVAT as well as the CENVAT scheme may well be similar. However, that does not answer the precise question before us. 13. Mr. Dave relied upon Solaris Chemtech Ltd., (supra) in which Rule 57A of the MODVAT Rules came up for construction. This judgment again went into what was the correct interpretation of the expression ?in or in relation to the manufacturer of final products? and the definition of ?inputs? for the purpose of Rule 57A. Having gone into these two aspects of Rule 57A, para 15 then lays down the law as follows:- ?15. In the present case, LSHS is used to generate electricity which is captively consumed. Without continuous supply of such electricity generated in the plant it is not possible to manufacture cement, caustic soda, etc. Without such supply the process of electrolysis was not possible. Therefore, keeping in mind the expression ? used in relation to the manufacture? in Rule 57-A we are of the view that the assessees were entitled to MODVAT credit on LSHS. In our opinion, the present case falls in Clause (c), therefore, the assessees were entitled to MODVAT credit under Explanation clause (c) even before 16-3-1995. Inputs used for generation of electricity will qualify for MODVAT credit only if they are used in or in relation to the manufacture of the final product, such as cement, caustic soda, etc. Therefore, it is not correct to state that inputs used as fuel for generation of electricity captively consumed will not be covered as inputs under Rule 57-A.? 14. This judgment again does not take the respondent?s case any further. As we have seen, the issue in this case was entirely different, electricity not being an excisable item which is captively consumed and used to manufacture cement/caustic soda was held nonetheless to be used in relation to the ?manufacturer? of the final product. The issue in the present case is whether, given the scheme of Rule 6 of the CENVAT Credit Rules, fuel used as inputs which are covered by Rule 6(1) can at all be said to be within the exception contained in Rule 6(2). 15. This being the case, we are of the view that there is no conflict between the earlier judgment of Commissioner of Central Excise, Vadodara vs. Gujarat State Fertilizers and Chemicals Ltd., (2008) 15 SCC 46 and (2009) 9 SCC 101 [CCE vs. Gujarat Narmada Fertilizers Co. Ltd., (supra). Also, we are of the view that even after independently applying our minds to Rule 6 as it stood, the interpretation of this Court contained in (2009) 9 SCC 101 [CCE v. Gujarat Narmada Fertilizers Co. Ltd., (supra) is correct.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]9. Thus, the finding of this Court restates an important principle under the CENVAT Credit Rules, and which is inbuilt in the structure of the CENVAT Credit scheme, which is that Cenvat credit for duty paid on inputs used in the manufacture of exempted final products cannot be allowed. It is only a reflection of this larger principle which is contained in Rule 6. When Rule 6(1) says that the CENVAT Credit shall not be allowed on such quantity of inputs which is used in the manufacture of exempted goods, it relies upon the definition of ?inputs? contained in these Rules which certainly include LSHS and steam and electricity that are produced in the manufacturing process utilizing LSHS. The exception that is contained in sub-rule (2) refers to all inputs except inputs intended to be used as fuel which then results in the manufacture of final products which are both chargeable to duty as well as exempted goods. What is clear is that the exception to sub-rule (1) which is contained in sub-rule (2) itself contains an exception, namely, inputs intended to be used as fuel. This being the case, the moment it is found that inputs are intended to be used as fuel, such inputs go outside the ken of sub-rule (2) of Rule 6. When this happens, the exception contained in sub-rule (2) does not come into effect at all as a result of which sub-rule (1) must be applied on its own terms.When we come to the judgment in Ballarpur Industries Ltd. (supra), the Tribunal was concerned with the interpretation of Rule 57A-D of the Central Excise Rules as they stood prior to 16.03.1995. The bone of contention in this case was that electricity not being excisable goods at all cannot be considered to be an intermediate product for the purpose of exempting from duty final products in which electricity is an intermediate product. The Tribunal held that fuel oils for generation of electricity which is used for manufacture of final products by the assessee is eligible to MODVAT credit in terms of Rule 57A. It can thus be seen that the issue in Ballarpur Industries Ltd. (supra) was different from the issue in the present case, as was Rule 57A-D of the MODVAT Rules being different from Rule 6 of the CENVAT Credit Rules. Equally, the judgment in Raymond Ltd. (supra) concerned itself with Rule 57A, C and D in which it construed the meaning of the expression ?for any other purpose? contained in Rule 57A in para 12. The ratio of this judgment is also therefore far removed from the facts of the present case as the present case does not deal with the expression ?for any other purpose?.We now come to the judgment of this Court in Vikram Cement vs. Commissioner of Central Excise, Indore, (2006) 2 SCC 351 , which was strongly relied upon by Mr. Dushyant Dave, learned Senior Advocate, in particular, para 24 of the judgment which reads asThe schemes of MODVAT and CENVAT credit are not therefore different and we are unable to agree with the conclusion of the Court in J.K. Udaipur Udyog, (2004) 7 SCCthat the CENVAT Credit Rules are the successor rules to the MODVAT Rules, as a general statement, the scheme contained in both the MODVAT as well as the CENVAT scheme may well be similar. However, that does not answer the precise question before us.Mr. Dave relied upon Solaris Chemtech Ltd., (supra) in which Rule 57A of the MODVAT Rules came up for construction. This judgment again went into what was the correct interpretation of the expression?in or in relation to the manufacturer of final products?and the definition of ?inputs? for the purpose of Rule 57A.This judgment again does not take the respondent?s case any further. As we have seen, the issue in this case was entirely different, electricity not being an excisable item which is captively consumed and used to manufacture cement/caustic soda was held nonetheless to be used in relation to the ?manufacturer? of the final product. The issue in the present case is whether, given the scheme of Rule 6 of the CENVAT Credit Rules, fuel used as inputs which are covered by Rule 6(1) can at all be said to be within the exception contained in Rule 6(2).This being the case, we are of the view that there is no conflict between the earlier judgment of Commissioner of Central Excise, Vadodara vs. Gujarat State Fertilizers and Chemicals Ltd., (2008) 15 SCC 46  and (2009) 9 SCC 101 [CCE vs. Gujarat Narmada Fertilizers Co. Ltd., (supra). Also, we are of the view that even after independently applying our minds to Rule 6 as it stood, the interpretation of this Court contained in (2009) 9 SCC 101 [CCE v. Gujarat Narmada Fertilizers Co. Ltd., (supra) is correct.