Jindal Polymers v. Commissioner Of C. Ex., Indore

[Order]. - These two applications arise out of the same order. During the hearing of these two stay applications, it appeared that the main appeals themselves could be disposed of at this stage. Both sides agreeing, this was done, after granting unconditional stay and waiver of the duty confirmed and the penalty imposed.

2. The appellants in this case were utilising High Speed Diesel oil (HSD) and claiming Modvat credit. Rule 57A of the Central Excise Rules, 1944, provided for credit to be availed on inputs specified in the notification issued under the powers of that rule. Notification No. 5/94, dated 1-3-1994, as amended, specifically exempted HSD oil from the list of eligible goods. On 16-3-1995, vide Notification No. 11/95-C.E. (N.T.), Rule 57D was amended enabling credit to be taken for inputs used for captive generation of electricity. This provision was deleted on 1-3-1997 on which date Rule 57B was introduced vide Notification No. 6/97-C.E. (N.T.), dated 1-3-1997. This rule declared certain goods (later termed as “inputs” vide corrigendum dated 10-3-1997) as inputs eligible for Modvat credit “notwithstanding anything contained in Rule 57A” (emphasis supplied).

3. Subsequent to the introduction of Rule 57B i.e. during the period from March, 1997 to January, 1998, the present appellants took credit on HSD oil used for generation of electricity in their plant which electricity was used for manufacture of their final products.

4. Subsequently, vide show cause notices dated 3-10-1997 and 26-2-1998, the credit so taken was sought to be reversed citing the provisions of Notification No. 5/94-C.E. (N.T.) as amended. Allegations as to penalty were also made. Before the Commissioner, the assessees pleaded that the credit taken by them was in terms of Rule 57B and that the prohibition imposed under notification issued under Rule 57A would not come in their way of taking Modvat credit. The Commissioner in his order termed this logic as deliberate mis-interpretation of the relevant rules in order to solve their own purpose. He observed that Rule 57A and the notification issued thereunder read together disapproved the merit of the HSD oil as “an input”. He, further, observed that Rule 57B, after its amendment on 10-3-1997, spoke of “inputs” and not of “goods”. It was his conclusion, therefore, that since the title “inputs” was not conferred upon HSD oil under Rule 57A, such oil could not be called as ‘inputs’ under Rule 57B also. At this stage, he took cognizance of the submission that Rule 57B started with a non-obstante clause. He, however, held that the coverage of the term “input” would continue to be as stipulated under Rule 57A and that it would not be over-ridden by the term “input” under Rule 57B. On this logic, he decided that the credit was wrongly taken. He reversed the credit taken, directed recovery thereof and also imposed a penalty equivalent to the Modvat credit wrongly taken.

5. Shri M.P. Devnath, ld. Advocate argued for the appellants and Shri Y.R. Kilania, ld. DR supported the Commissioner’s findings.

6. During the contested period, Rule 57B was on the statute book. This rule was meant to extend the Modvat credit facility to those inputs which obviously did not fit in the scheme prescribed under Rule 57A and the notifications issued thereunder; but on which it was thought expedient for Modvat credit to be extended. In order to enable such credit to be taken, the non-obstante clause was incorporated in the said rule. The Tribunal in their judgment in the case of Ballarpur Industries Ltd. reported in held that such a clause would make the provisions of the same rule are to prevail over the earlier rule. The relevant paragraphs of the judgment read as under :

5.  Considering the submissions made, the short issue for determination is whether the provisions of Rule 57B of the Central Excise Rules, would have an overriding effect on the notification issued under Rule 57A of the Rules.

6.  Both the rules fall within the family of Modvat Scheme. While agreeing with the submission of the ld. SDR that Rule 57A is the main provision from which the entire Modvat scheme, and credit benefit thereunder, flows, the said Rule covers several distinct features. Firstly it provides for indentifying the final product and the input in relation to which MODVAT credit could be availed of and also circumscribes the periphery of the word “input”, secondly it provides for availment of credit for the duty or additional duty as specified under the Tariff Act, and thirdly it authorises the government to restrict the availment of duty to an extent of some specified amount.

7. A plain reading of Rule 57B, clearly indicates that there does exist non-obstante clause, which has to be read as intended to give overriding effect to some provisions of Rule 57A. Because Rule 57B is also a part of MODVAT Scheme, and is governed by the basic structure of the scheme, the non-obstante clause cannot be read as covering all the provisions of Rule 57A. A careful reading of Rule 57B, however, makes it clear that the same is intended to give an overriding effect on credit of duty amount and as per the law of interpretation, the provisions with non-obstante clause will prevail over the provisions of the clause sought to be excluded. The decision of Andhra Pradesh High Court in Parasuramaiah v. Laxmanna – AIR 1965 AP 220, referred to be the ld. Sr.Advocate for the appellants, also holds accordingly. The decision of the same High Court in Gowramma v. Yella Reddy – AIR 1985 AP 226, referred to by ld. SDR, however, is in relation to interpretation of a document and is not the one of interpreting two clauses of Statutory Rules, with one of them having non-obstante clause.

7. In view of these findings, it is to be held that where there was a specific mention of a particular input in Rule 57B, credit of duty paid thereon could be availed of even where the inputs specifically stood excluded from the coverage of Rule 57A.

8. A similar conclusion was drawn by ld. Single Member of the Tribunal in his Final Order No. A-813/98-NB, dated 15-7-1998 wherein he had followed the ratio of the India Cements Ltd. judgment of the Tribunal reported in .

9. On the basis of the interpretation of Rule 57B, I hold that Modvat credit was rightly taken by the assessees. I, therefore, set aside the impugned order and allow the appeals with consequential relief.