ORDER
G. Sankaran, Vice-President
1 This is an appeal directed against order No. 196/84(G) dated 1.12.84 passed by the Collector of Central Excise (Appeals), Madras, dismissing the appeal filed by M/s. Hindustan Milk Food Manufacturers Ltd., Dowleswaram (to be referred to hereinafter as “HMM”, for brevity’s sake) against Order No. 19/84 dated 17-8-1984 passed by the Assistant Collector of Central Excise, Rajahmundry.
2. The facts of the case, briefly stated, are that HMM are engaged in the manufacture of milk foods which fall for classification as ”Prepared or Preserved Foods” under item No. 1B of the First Schedule to the Central Excises and Salt Act, 1944 (GET, for brevity’s sake). One of the principal inputs for manufacture of milk foods is barley malt falling under item No. 68 CET. HMM used to receive duty-paid barley malt and utilize the same in the manufacture of prepared or preserved foods, namely, ‘Horlicks’, ‘Happiness’ etc. HMM were availing of the facility of set off of the duty paid on barley malt towards payment of Central Excise duty on the finished goods in terms of Central Excise Notification No. 201/79 dated 4.6.79. They had filed the prescribed declaration with the Jurisdictional Superintendent for availing themselves of the procedure of set-off.
3. HMM has two factories – one at Nabha (Punjab) and the other at Rajahmundry (Andhra Pradesh) – manufacturing the aforesaid milk foods. Except for some small quantities cleared from these factories packed in unit containers, the goods are despatched to several packing stations located at different places where they are packed in unit containers and cleared. The movement of the goods from the Rajahmundry factory (with which we are concerned) to the packing stations is regulated under Central Excise Rule 56B which lays down a “special procedure for removal in bond of semi-finished goods for certain purposes”. Duty is not required to be paid on the removal of the goods in bulk to the packing stations. They are packed into unit containers at the packing stations and cleared on payment of duty under item 1B of the GET.
4. Barley malt, a commodity falling under item 68 GET, is one of the principal inputs for the manufacture of the subject milk foods. Central Excise Notification No. 201/79 exempts all excisable goods in the manufacture of which duty paid inputs falling under item 68 CET are used, to the extent of the duty already paid on such inputs. The Superintendent of Central Excise,; Rajahmundry considered that, in terms of Notification No. 201/79, HMM was entitled to avail themselves of the credit of the duty already paid on the inputs (barley malt) only to the extent of the duty paid on the quantity of barley malt used in the manufacture of the quantity of packed horlicks cleared from the Rajahmundry factory on payment of duty and not, as HMM had done, to avail of the full amount of duty paid on barley malt brought into the factory towards payment of duty on the packed horlicks cleared on payment of duty. On the basis, he issued a notice dated 14.3.84 to HMM calling upon them to show cause why the excess amount of credit of duty wrongly availed of during the period 15.9.83 to 14.3.84 amounting to Rs. 13,37,432.95 should not be disallowed, demanded and recovered from HMM in terms of para 4 of the Appendix to Notification No. 201/79 read with Section 11A of the Central Excises & Salt Act. In due course, after holding adjudication proceedings, the Assistant Collector, Rajahmundry passed an order on 17.8.84 confirming the aforesaid demand for duty. He did not accept HMM’s contention that there was no requirement of exact co-relation on the input (malt) with the output (Horlicks) and they were, therefore, entitled to utilise the full extent of credit of the input duty towards payment of the duty on packed Horlicks. The Assistant Collector held that utilisation of the credit had to be limited to the extent the input was used in the quantity of Horlicks cleared on payment of duty.
5. Aggrieved with this order, HMM filed an appeal which was disposed of by the Collector (Appeals), Madras by his order dated 1.12.84. In rejecting the appeal, the Collector held that HMM were not eligible to take credit of the duty paid on barley malt used in the manufacture of Horlicks removed without payment of duty in terms of Rule 56B to their packing stations. It is this order which is now under challenge before us.
6. We have heard Sri D.B. Engineer, Advocate, assisted by Sri M.P. Baxi and A.C. Gulati, Advocates for HMM and Smt. Dolly Saxena, SDR, for the respondent.
7. Though Sri Engineer initially addressed some arguments in support of his contention that credit of input duty earned at the Rajahmundry factory could be utilised towards payment of duty on Horlicks (removed under Rule 56B from the said factory to the packing stations located elsewhere, such removals being without payment of duty) packed at the packing stations and cleared therefrom on payment of duty, he gave up this contention and narrowed down the dispute to this : Could the entire credit of input duty be utilised towards payment of duty on Horlicks cleared on payment of duty from the Rajahmundry factory? Though, part of the input may have been used in the manufacture of Horlicks despatched in bulk to the packing stations? The contention was that it could be so utilised without any co-relation between the input used and x the output cleared. Utilisation would not be restricted to the input duty on the proportionate quantity of input used in the manufacture of Horlicks cleared on payment of duty from the Rajahmundry factory as the department has held.
8. In support of his stand that co-relation between the input and the output was unnecessary, the following decisions were cited by Sri Engineer:
(a) Tribunal's decision in Paper Products Ltd., Bombay v. CCE, Bombay 1984 (18) EX-.T. 507 (Tribunal) 1984 ECR 2080 (b) Madras High Court judgment in E.I.D. Parry (India) Ltd., Madras v. Govt. of India and Ors. 1979 Cen Cus 370 D (c) Tribunal's decision in Bajaj Tempo Ltd., Pune v. CCE, Pune 1984(16) E.L.T. 294 (Tribunal) (d) Tribunal's decision in CCE, Bhubaneswar v. Titaghur Paper Mills 1985(21) E.L.T. 901 (Tribunal) It was also urged that Notification No. 201/79 was of a very wide amplitude and, therefore, a broad and liberal construction should be placed therein. Two unreported decisions of this Tribunal which were against the appellant were also referred to. These are : (a) Order No. 759/84 C dated 15.10.84 in Appeal No. ED (SB) (T) A.No. 484/81-C - Madras Rubber Factory, Madras V. CEE, Madras. (b) Order No. 138/85 dt. 1.2.85 in Appeal No. ED(SB) (T) A.No.1143/81-C Madras Rubber Factory Ltd., Madras v. CCE, Cochin which followed Order No. 759/84 C. However, Sri Engineer submitted that the facts of these two cases were different since, unlike in the instant case, transfer of credit from one factory to another was involved in the MRF case, and hence, those decisions would have- no application. Also, the Tribunal decision in Vikrant Tyres V. CCE, Bangalore, 1985 (21) ELT 620 which was against the stand of HMM was referred to but sought to be distinguished on the basis of the facts therein. 9. Replying on behalf of the respondent, Smt. Saxena, SDR, submitted that exemption Notification 201/79 gave only a limited concession i.e., to the extent of the duty paid on the input used in the manufacture of the output. In this view, the entire credit of the input duty was not available for utilisation. She refuted Shri Engineer's contention that such utilisation was permissible under Rule 56A. Smt. Saxena placed sole reliance on Notification No. 201/79. She did not make any submissions with reference to the case law cited by Shri Engineer. 10. We have carefully considered the submissions before us. Notification No. 201/79 dated 4.6.79 reads as follows :
“In exercise of the powers conferred by Sub-rule (1) of 8 of the Central Excise Rules, 1944, and in supersession of the notification of the Government of India in the Ministry of Finance (Deptt. of Revenue) No. 178/77 Central Excises, dated the 8th June, 1977, the Central Government hereby exempts all excisable goods (hereinafter referred as “the said goods”), on which the duty of excise is leviable and in the manufacture of which any goods falling under item No. 68 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944) (hereinafter referred as “the inputs”) have been used from so much of the duty of excise leviable thereon as is equivalent to the duty of excise already paid on the inputs”.
The aforesaid exemption is subject to the observance of the procedure set out in the appendix to the notification. The portions of the appendix relevant for the present purpose are :
“Clause 2 : A manufacturer may take credit of the duty already paid on the inputs which are received by him after submitting the declaration, and utilise such credit for payment of duty of excise on the said goods”. Clause 9 : (a) The Credit of duty taken in respect of any inputs may be utilised towards payment of duty on any said goods for the manufacture of which such inputs were declared by the manufacturer to be brought into the factory, or where such inputs are cleared from the factory as such, on such inputs”.
The contention of the learned Counsel for the appellants is that a combined reading of these provisions would lead to the conclusion that the entire credit of the duty already paid on the input could be utilised towards payment of duty on the finished product without any co-relation of the input and output. In other words, the credit available for such utilisation is not limited to the duty (suffered by the quantity of the input as is used in the manufacture of the quantity of finished product under assessment and clearance. The entire credit could be utilised. The contention of the learned Senior Departmental Representative, on the other hand, is that credit of the input duty could be utilised only to the extent of the duty suffered by the quantity of the input utilised in the manufacture of the finished product under assessment and clearance.
11. A prima facie reading would appear to suggest that Sri Engineer’s contention is not correct. This is because the operative part of the notification confers exemption on the finished product from so much of the duty of excise leviable thereon as is equivalent to the duty of excise already paid on the inputs (underlining ours). The word ‘equivalent’ is not without significance. It means and implies that when a consignment of the finished product is presented for assessment (or is self-assessed), the duty normally leviable is to be reduced by an extent equal to the duty already paid on the input. There must, therefore be some co-relation, though not necessarily an exact co-relation, between the input and the out-put. The procedure laid down in the Appendix to the Notification is apparently a measure of facilitation to enable easy availment of the benefit of the exemption, but the procedure cannot, for obvious reasons, have the effect of increasing the quantum of exemption itself which would appear to be the result if Sri Engineer’s contention were to be accepted as correct.
12. We now proceed to discuss the authorities referred to by the learned Counsel for the appellants. In Bajaj Tempo Ltd., Pune v. CCE, Pune 1984 (16) ELT 294 (Tribunal). The tribunal held that if there is substantial compliance with the procedure prescribed in the Appendix to Notification No. 201/79, the appellants would not be debarred from availing themself of the proforma credit procedure even after notification No. 166/79 was rescinded on 1.8.80. The import of the decision is that technicalities cannot have the result of negating relief under the notification if there is substantial compliance with the procedure. We do not see the relevance of this decision to the facts of the present case.
13. In Collector of Central Excise, Bhuvaneshwar v. Titagarh Paper Mills – 1985 (21) ELT 901 (Tribunal), the Tribunal has held that a raw material is a material that is put into the manufacturing system to help in the formation of the finished product. There is no authority to say that an input or raw material must go directly into the finished product. As long as it is consumed and utilised in a way that results or helps in the production or manufacture of the article in which the system is engaged, it is a raw material and is an input for that finished product. Again, we do not see the relevance of this decision to the facts of the present case. It is nobody’s case before us that malted barley is not an input for the manufacture of Horlicks.
14. In Paper Products Ltd., Bombay v. CCE, Bombay, 1984 (18) ELT 507 (Tribunal), the Tribunal held that the procedure prescribed in the Appendix to Notification No. 201/79 dated 4.6.70 is substantially the same as set out in Rule 56A of the Central Excise Rules. Though the notification talks of exemption from so much of the duty of excise leviable thereon as is equivalent to the duty of excise already paid on the inputs, it is clear from the prescribed procedure that there is no requirement of exact co-relation of the inputs to the outputs, unlike set-off notifications where such co-relation is usually envisaged. The procedure permits the manufacturer to take credit of the duty that has already been suffered by the inputs and utilise such credits towards payment of duty on excisable goods for the manufacture of which the inputs were declared by the manufacturer to be brought into the factory.
What the above decision implies is that there is no strict co-relation between the input and output envisaged in notification No. 201/79 unlike set-off notifications. It would not follow from the above decision, nor is it an authority for the proposition, that the entire duty suffered by the input brought into the factory and utilised in the manufacture of the finished product is available for payment of duty on the finished product even though only a portion of the finished product is cleared on payment of duty from the factory. A strict co-relation would imply that a particular lot of input should be identified with a particular lot of output. Such co-relation is not envisaged. That is what the above decision purports to say.
15. The next decision is that of the Madras High Court in EID Parry (India) Limited, Madras v. Government of India and Ors. 1979-Cen Cus-370-D. The contention of the Revenue in that case was that there must be a co-relation between the actual quantity of the input and the ultimate product. That, according to the Department, was the real purport and intent of Rule 56A (3) (vi). The High Court took the view that there was no obligation on the part- of the manufacturer to co-relate the input rock phosphate with the ultimate finished product (Fertilizers),1, so long as there was complete utilisation. In the case before the Madras High Court, the entire output was being cleared on payment of duty. The situation which we are confronted with in the present case, namely, a part of the finished product was only being cleared on payment of duty, the remaining part being removed under Rule 56B without payment of duty from the factory to the packing stations for being packed into unit containers, was not there in the case before the High Court. Therefore, this decision against is no authority for Sri Engineer’s proposition.
16. Yet another decision is of that the Tribunal in Vikrant Tyres Ltd. v. CCE, Bangalore – 1985 (21) ELT-620. In that case, the raw materials were used for manufacturing dutiable tyres as well as exempted tyres. The appellant’s contention was that, at the time of taking the inputs into the factory and taking credit of the duty paid thereon, the appellant could not possibly say which of the raw materials would be used for manufacturing dutiable tyres and which exempted tyres. No fault could be found with the appellants for taking credit of the entire duty on the inputs. Once credit had been taken, there was no bar to its being utilised on any of the dutiable outputs which fell within the definition of “the said goods” in notification No. 201/79. The contention of the revenue, on the other hand, was that credit of duty could not be taken or utilised in respect of inputs, used in the manufacture of exempted goods. The exemption in respect of any goods was relatable to the input used in the manufacture of those very goods. The Bench considered the basic question whether proforma credit of duty on inputs used in the manufacture of goods which were exempted from duty could be utilised for payment of duty on goods which were not exempted from duty. The Bench came to the conclusion that inputs used in the manufacture of exempted goods would have to be ignored for the purpose of operating the exemption notification. In other words, the duty paid on such inputs should not be taken into account at all for the purpose of granting exemption in terms of the notification. The Bench also took the view that the procedure prescribed in the Appendix to the Notification would necessarily have to be consistent with the substantive part of the notification and could not be read in such a way as to conflict with the main part.
It is true that, in the present case, there is no question of part of the finished products, being exempted from duty, as was the case in the Vikrant Tyre case. The finished goods which were removed from the Rajahmundry factory to the packing stations without payment of duty in terms of Rule No. 56B would ultimately have suffered duty when they were cleared from the packing stations after being put into unit containers. The analogy may, therefore, not be on all fours. But the principle set out in Vikrant Tyre case would apply. The principle is that the duty suffered by the input used in the manufacture of finished products which are dutiable and cleared on payment of duty would alone be available for being utilised for payment of duty on the finished products.
17. Two other decisions were cited – Order No. 759/84-C dated 15.10.84 in Appeal No. ED (SB) (T) A.No. W/81-C. Madras Rubber Factory v. CCE, Madras and Order No. 138/85 dated 1.2.85 in Appeal No. 1143/81-C of the same appellant. In the first of the two orders (it is not necessary to discuss the second order which simply followed the first order), the question was somewhat more complicated than’ in the present case. There was a question of transfer of credit from one factory to another. More importantly, the inputs in respect of the appellants’ factory at Madras felt under Item No. 16A GET and not 68 GET. In the latter event alone, notification No. 201/79 would come into play. The facts and circumstances being different, these two decisions are of no help in resolving the dispute before us.
18. Thus, on a consideration of all the decisions placed before us and on a reading of notification No. 201/79, we are of the view that the credit of the duty suffered by the input, namely, malted barely, could be utilised by the Rajahmundry factory of the appellant .only to the extent of the duty suffered by the input used in the manufacture of the finished product cleared from the factory on payment of duty. Duty suffered by the input used in the manufacture of finished product which was moved from the Rajahmundry factory to the packing stations located elsewhere, in terms of Rule No. 56B, without payment of duty, could not be utilised towards payment of duty on the finished product cleared on payment of duty from the Rajahmundry factory.
19. As stated earlier, the Counsel for the appellants had given up the contention that credit of input duty earned at the Rajahmundry factory could be utilised towards payment of duty on Horlicks (removed under Rule 56B from the said factory to the packing station located elsewhere, such removals being without payment of duty) packed at the packing stations and cleared therefrom on payment of duty. In view of this, we are not called upon, nor do we, record any finding on this contention.
20. In the above view of the matter, the appeal fails and is rejected.