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

2. The facts that are necessary in order to appreciate the reference so made are set out in the reference order itself asThe assessee utilizes CENVAT duty-paid Low Sulphur Heavy Stock (for short ?LSHS?) as fuel input for generating steam. The steam so generated is utilized to generate electricity for the manufacture of fertilizer which is exempt from excise duty. According to the assessee, it is entitled to claim CENVAT credit on the input, that is, LSHS even though fertilizer is exempt from excise duty. The correctness of this view was disputed by the Revenue.Consequently, the Commissioner, Central Excise & Customs, Vadodara-II (hereinafter referred to as ?the Commissioner?) issued two notices to the assessee to show cause why CENVAT credit wrongly availed by it should not be recovered under Rule 12 of the CENVAT Credit Rules, 2002 (hereinafter referred to as ?the Rules?) read with Section 11-A of the Central Excise Act, 1944. The assessee was also required to show cause why interest be not recovered on the wrongly availed CENVAT credit and why penalty be not imposed on it.The first show-cause notice issued to the assessee was dated 8-3-2004 and pertained to the period 31-3-2003 to September 2003 while the second show-cause notice was dated 28-7-2004 and was for the period October 2003 to March 2004. The assessee replied to both the show-cause notices and after giving the assessee an opportunity of hearing, the Commissioner adjudicated the first show-cause notice by passing an order adverse to the assessee on 24-6-2004. The second show-cause notice was similarly adjudicated and an adverse order passed on 30-8-2004. By these orders, the Commissioner confirmed the demand of CENVAT credit wrongly claimed by the assessee. The Commissioner also directed the assessee to pay interest on the demanded amount and also imposed personal penalty under Rule 13 of the Rules. Proceedings before theFeeling aggrieved, the assessee preferred two appeals before the Customs, Excise & Service Tax Appellate Tribunal at Mumbai (hereinafter referred to as ?the Tribunal?). The appeals were numbered as Appeal Nos. E/2517 of 2004 and E/3672 of 2004.For reasons that are not apparent from the record, both appeals were referred to a larger Bench and heard by the Vice-President and two members of the Tribunal (hereinafter referred to for convenience as ?the larger Bench?). By an order dated 27-12-2006/4-1-2007 (Gujarat Narmada Valley Fertilizers Co. Ltd. v. CCE, (2007) 208 ELT 342 (Tri), the larger Bench held that the assessee was entitled to claim CENVAT credit on LSHS used as input for producing steam and electricity for the manufacture of fertilizer. According to the larger Bench, the issue raised by the assessee was fully covered in its favour by a decision of the Tribunal in Gujarat Narmada Fertilizers Co. Ltd. v. CCE, (2004) 176 ELT 200 (Tri) against which the Revenue?s appeal before the Gujarat High Court was dismissed since no substantial question of law arose. The decision of the Gujarat High Court is CCE and Customs v. Gujarat Narmada Fertilizers Co. Ltd., (2006) 193 ELT 136 (Guj) .The Tribunal was, therefore, of the opinion that the issue was no longer res integra and the decision earlier rendered by the Tribunal was binding upon the parties. The reference made to the larger Bench was then answered in the followingreference is thus answered by holding that the assessees are eligible to CENVAT credit of duty paid on that quantity of LSHS which was used for producing steam and electricity used in turn in relation to manufacture of exempted goods, namely fertilizers.Pursuant to the decision of the larger Bench, the substantive appeals were placed before a Division Bench of the Tribunal. By an order dated 10-4-2008 (Gujarat Narmada Valley Fertilizers Co. Ltd. v. CCE, Appeals Nos. E/2517 of 2004 & 3672 of 2004, order dated 10-4-2008 (Tri) (impugned before us) the Division Bench of the Tribunal allowed the assessee?s appeals relying on the decision of the larger Bench.The impugned order in the present case, which is dated 10.04.2008 only refers to and follows the larger Bench of the Customs, Excise & Service Tax Appellate Tribunal judgment dated 27.12.2006 which, in turn, followed the judgment of a single Judge of the Gujarat High Court reported as CCE and Customs vs. Gujarat Narmada Fertilizers Co. Ltd., (2006) 193 ELT 136 (Guj) . We may indicate that both the larger Bench judgment, in appeal before this Court, as well as the said Gujarat High Court, have been overruled by the judgment of this Court in Commissioner of Central Excise vs. Gujarat Narmada Fertilizers Co. Ltd., (2009) 9 SCC 101.

Court's reasoning:
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.