ORDER
V.P. Gulati, Vice-President
1. The issue in these appeals relates to benefit of Notfn. 95/79 dated 1.3.1979 and its successor Notfn. 95/83. Under the Notifications in question, benefit of credit of duty on the raw materials i.e. Synthetic Rubber (Tariff entry 16AA), Carbon Black (Tariff entry 64), Rubber processing chemicals (Tariff entry 65) is available in case the same are used in the manufacture of tyres falling under tariff heading 16. The lower authorities had denied the benefit of duty credit in terms of these Notifications for the reasons that these items in question were first received in one factory of the appellants and same had been used to produce masticated rubber which is turn was removed from the factory and brought to the appellants factory at Madras for use in the manufacture of tyres cleared under tariff heading 16. The facts leading to the demand as set out in the show cause notice issued by the order of the original authority dated 26.7.1986 are reproduced below:
M/s. MRF Ltd., Madras have been receiving into their factory a commodity called Masticated Rubber, which has been manufactured in their factory at Kottayam, for the further manufacture of Tyres. This Masticated Rubber received by M/s. MRF Ltd., Madras from M/s. MRF Ltd., Kottayam is an excisable product and has been classified as a Rubber Product falling under T.I. 16A(2). In the manufacture of Masticated Rubber at Kottayam, the three inputs synthetic rubber, carbon black and rubber processing chemicals are also used. After the extension of the benefit of Notfn. 95/79 superseded now by notification 95/83 to M/s. MRF Ltd., Madras – 19, they have also along with the transfer of Masticated Rubber from Kottayam, been availing proforma credit at Madras of the duty involved on the three inputs utilised in the Masticated Rubber received at Madras from Kottayam. This appeared to the department to be incorrect; the reasons are detailed in para (3) below. But M/s. MRF Ltd., Madras-19 claimed that a stay order obtained by them in the Delhi High Court in W.P. No. 948/82 dated 5.4.1982 would be applicable in this case and that the department was bound by it. And on this ground they have been availing proforma credit of the duty on the three inputs utilised in the manufacture of Masticated Rubber transfered to Madras provisionally pending final approval as per Rule 9B of the Central Excise Rules, 1944, and after the exemption of a B-13 bond under Rule 9B, for Rs. 60 lakhs. As it has now come to the department’s knowledge that the stay order dated 514/82 in W.P. No. 948/82 pertains only to Notfn. No. 201/79 and that it has no relevance to, no validity as regards notification No. 95/79, superseded by notification no. 95/83, it is felt that M/s. MRF Ltd., Madras. 19, are erroneously availing the benefit of Notfn. No. 95/79 superseded by Notfn. No. 95/83 on the inputs utilised in the manufacture of Masticated Rubber transferred from Kottayam. And hence this show cause notice.
Notification No. 95/79 for convenience of reference is reproduced below:
Set-off of duty on goods falling under Tariff Items IE, 11C, 16, 26A, 28A, 29A, 30, 33, 33C, 34B, 48, and 63, if produced out of specified duty paid inputs.In exercise of the powers conferred by Sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 95/79-Central Excises, dated the 1st March, 1979, the Central Government hereby exempts excisable goods of the description specified in column (5) of the Table hereto annexed (such goods being hereinafter referred to as “final products”) and falling under such Item No. of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944), as is specified in the corresponding entry in column (4) of the said Table from so much of the duty of excise leviable thereon under the said Act, as is equivalent to the duty of excise leviable under the said Act; or the additional duty leviable under the Customs Tariff Act, 1975 (51 of 1975), as the case may be, already paid on the goods of the description specified in the corresponding entry in column (3) of the said Table (such goods being hereinafter referred to as “inputs”) and falling under such item No. of the said First Schedule as is specified in the corresponding entry in column (2) of the said Table
Provided that-
(i) the inputs specified in column (3) of the said Table against a particular serial number in column (1) thereof are used in the manufacture of the final products specified in the corresponding entry in column (5) of the said Table against the said serial number;
(ii) in relation to the exemption under this notification, the procedure set out in Rule 56A of the aforesaid rules is followed.
THE TABLE
SI. No. I to 18 XXXXXXXXXXXXX
19. 16AA Synthetic rubber 16 Tyres, tubes and flaps.
20. 64 Carbon black 16 Tyres, tubes and flaps.
21. 65 Rubber processing 16 Tyres, tubes and flaps.
chemicals
The benefit of the Notification as seen from the above, is contingent upon the procedure set out under Rule 56A of the Central Excise Rules, 1944 being followed. The learned original authority while denying the benefit of the Notification has held as under:
As stated in para 3 of the show cause notice Notification No. 95/79-CE dated 1.3.1979 superseded by Notification 95/83-CE dated 1.3.1983 allows its beneficiaries to avail of proforma credit on duty paid raw materials namely, Synthetic Rubber, Carbon Black and Rubber Processing Chemicals provided they are used in the manufacture of tyres falling under T.I. 16 of the GET. As per Sub-rule (3) of Rule 56A of the Central Excise Rules, 1944, these inputs have to be received in the factory as such and should be in original packing and should be accompanied by duty paying documents. They should be produced before the proper officer for his identification.
The above cited inputs cited under Notification 95/83 are used in the preparation of masticated rubber at Kottayam and they are transferred to the factory at Madras in the form of Masticated Rubber in sheet form. The conditions of Sub-rule (3) of Rule 56A of the Central Excise Rules is defeated as the goods in this case are not received in their original packing as it cannot be identified by the proper officer. They are not brought into the factory as such. Another fact is that M/s. MRF Ltd., have wrongly linked the proceedings under Board’s Order 88-89/1981 dated 2.5.1981 which is applicable to benefits claimed under Notification 201/79-CE dated 4.6.1979 and are trying to contuse the Department that Notification 201/79 and 95/83 are one and the same. There has been wilful distortion of facts. The claims made by M/s. MRF in paras (i) to (iii) of their reply to show cause notice dated 19.8.1985 therefore does not merit consideration.
2. The learned CCE (Appeals) in the impugned order while upholding the order of the lower original authority took note of the fact that under similar circumstances of the use of inputs in the context of the claim of the benefit under proforma credit in terms of Notification No. 201/79 in respect of the three items for which the benefit was claimed benefit was allowed on appeal by the Central Board of Excise & Customs, notwithstanding the inputs having been received in one factory and the masticated rubber removed having been used in the factory at Madras and distinguished the facts of that case from the present case as under:
4. I have already stated that the provisions of this Notification are different from that of Notfn. No. 201/79 and the goods involved in 201/79-CE are also different from the one involved in this case. Therefore, I am unable to hold that the ratio of the order of Central Board of Excise and Customs will apply in the present case inasmuch as the inputs being different and the notifications being different from each other. The notification reads, “the Central Government hereby exempts excisable goods of the description specified in column (5) of the Table annexed thereto and falling under such item number of the First Schedule to Central Excises and Salt Act, 1944 as is specified in the corresponding entry in column (4) of the said Table from so much of the duty of excisable leviable thereon under the Act as is equivalent to the duty of excise leviable under the said Act, already paid on the goods of the description specified in the corresponding entry in column (3) of the said Table and falling under such item number of the said First Schedule as is specified in corresponding entry in Column (2) of the said Table provided that the inputs specified in column (3) of the said Table against a particular serial number in column (1) thereof are used in the manufacture of the final products specified in the corresponding entry in column (5) of the said Table against the said serial number”. Now the inputs under this proviso have to be used in the manufacture of final products. It will not be correct to allow inputs which are not used in the manufacture of final products but are used in the manufacture of any other product falling under any other Tariff Item of Central Excises and Salt Act. This is the crux of the matter in the present case. Inputs falling under T.I. 16AA, 64, and 65 are used in the manufacture of masticated rubber at Kottayam factory and such masticated rubber is transported to Madras factory where out of such masticated rubber, goods specified in column (5) of the notification such as tyres, tubes and flaps are manufactured. Now masticated rubber would be classifiable under T.I. 16A(2) and 68 depending on the fact that where final product is plates, sheets, strips unhardened it would be classifiable under T.I. 16A(2) and in other forms, the same would be classifiable under T.I. 68 as per Central Board of Excise and Customs Tariff Advice No. 37/78 dated 12.7.1978 reported on page 835 of Central Excise Tariff 1983-84 10th Edition by R.K. Jain. Accordingly appellants cannot manufacture masticated rubber out of synthetic rubber, carbon black and rubber processing chemicals as per Notfn. No. 95/83, though the final product is covered under 16A, as the inputs are to be used in the manufacture of final products only and masticated rubber is only an intermediary product as per the language of this notification. The Assistant Collector has therefore decided the matter correctly….
3. Shri F.S. Nariman, the learned Senior Advocate for the appellants has pleaded that the appellants have a number of units and that the appellants with a view to rationalise their manufacturing operation were carrying out certain primary processes required for the manufacture of tyres at their factory at Kottayam and the masticated rubber was manufactured there and the same was cleared from that factory to their other units including the one at Madras for ultimate use in the manufacture of tyres. He has pleaded similar issue had earlier arisen in the context of the inputs used for the manufacture of tyres falling under tariff heading 68 which were used in the manufacture of tyres when the benefit of Notfn. No. 201/79 was claimed. He has pleaded that the appellants were denied the benefit of this Notification for the same reason as in the present case i.e. the inputs were used in the manufacture of masticated rubber at their Kottayam factory and masticated rubber was exempted from payment of duty in terms of Notfn. No. 201/68. The benefit of Notfn. 201/79 was not allowed as the departmental authorities held that notwithstanding the use of the masticated rubber finally in the manufacture of tyres at their other factory since at the intermediate stage masticated rubber emerged which was exempted from payment of duty at the time of clearance of the same from Kottayam factory, in terms of Notification, 201/79, the benefit could not be allowed. He has pleaded that on appeal before the Central Board of Excise & Customs, the appellants succeeded in their appeal and the benefit of Notfn. No. 201/79 was allowed. The prescribed procedure for correlating to the inputs in question with the production of tyres at Madras factory for the purpose of availing the credit in respect of the input duty on these inputs for payment of duty on tyres cleared at Madras was followed. In this connection, he drew our attention to the order of the Central Board of Excise & Customs, dated 29.12.1980. Para 3 of the said order is reproduced below for convenience of reference:
3. The plea of the appellant that the notification No. 201/79 does not stipulate production in any one factory but provides for the benefit of partial exemption with reference to excisable goods in the manufacture of which goods falling under Item 68 have been used has considerable force. Given the oragnisation of the appellants and the pattern of manufacture adopted by them it appears unavoidable that they should spread their manufacturing processes over different factories and as the intention behind notification No. 201/79 is to allow the assessees relief in regard to duty paid on goods under Item 68 when such goods are used in the manufacture of other excisable goods there should not be any objection to accept their claim. It may be necessary for the Department to make suitable administrative arrangements for identification of the duty paid inputs with reference to the clearance of the final product manufactured by the appellants themselves. But once such identification is established the partial exemption in terms of Notfn. No. 201/79 should be admissible to the appellants. This is more in this case as the intermediate product cleared by them cannot be considered to be a marketable commodity and it cannot be said that the input of materials on which duty has been paid under Item 68 has been with the objective of making that product only. Even otherwise, when the clearance is only for further processing the question of marketability as an intermediate product should not arise.
4. The Board accordingly sets aside the orders of the Collector and directs that suitable arrangements be worked out for giving the appellants the benefit of the protbrma credit in terms of Notfn. No. 201/79.
He has pleaded that necessary arrangements in this regard was sought for by the appellants from the department and they had also drawn up a procedure in pursuance of the direction given in the Board’s letter. While approval in this regard did not come through, the appellants followed the procedure as they had placed before the Board for the purpose of correlation of the inputs used at their Kottayam factory for manufacture of masticated rubber which ultimately was used in the manufacture of tyres in their other factory. He has pleaded that this order of the Board was reviewed by the Central Government and ultimately the matter came up for consideration before the Tribunal and it came to be decided by the Tribunal by the judgement reported in 1987 (32)….The Tribunal while ruling in favour of the assessee has held as under:
7. There can be no doubt that the intention behind the issue of Notfn. No. 201/79 was to grant benefit for manufacturers who consumed, in the course of their manufacture, raw materials falling under Item 68 GET. The argument put forward in the notice issued by the Government is that the raw materials (the 3 goods mentioned earlier) were consumed in the manufacture of masticated rubber (which was free of excise duty) and it is this masticated rubber that finally went into production of the “said goods” and hence benefit under the notification was not available in respect of duty payable on the final goods. But Shri Nariman point out that even the Department had been permitting this benefit so long as the consumption of the raw materials and the production of the final product (said goods) was in the same factory i.e. at Kottayam, as is admitted in the affidavits filed. It is seen from the said affidavits that benefit under notification was in fact being granted in the manner abovesaid. Therefore, the submission that the consumption of the 3 raw materials was not directly in the manufacture of the final goods but in the manufacture of intermediate product (masticated rubber) would not appear to be a ground, even according to the Department, to deny benefit under the notification. We may note that in order No. 759/84-C, dated 15.10.1984 one of us (Shri G. Sankaran) had pointed out in his separate but concurring order that a circumstance to be taken into consideration was that the product received as input at the Madras Factory was masticated rubber falling under Item 16-A and item 68 and, for that reason, benefit of the notification would not be available with reference to the resultant product i.e. tyres. It may be noted that masticated rubber comes into existence as an intermediate product in the manufacture of tyres and there can be no dispute that the initial input (3 in number) find their way into the final resultant product (Tyres). It was evidently taking this circumstance into consideration that benefit of the notification was being allowed by the Department itself in the Kottayam factory as noted above. The question is whether the fact that it is only the intermediate product (masticated rubber) that is manufactured in the factory in which the raw materials are consumed but not the final product (which is manufactured in another factory of the same manufacturer) should deny the benefit under the notification for that reason.
8. As already stated the intention behind the notification is to grant benefit. In a recent case the Supreme Court has held (Girdhari Lal and Sons ) as follows:
So we see that the primary and foremost task of a Court in interpreting a statute is to ascertain the intention of the legislature, actual or imputed. Having ascertained the intention, the Court must then strive to so interpret the statute as to promote/advance the object and purpose of the enactment. For this purpose, where necessary the Court may even depart from the rule that plain words should be interpreted according to their plain meaning. There need be no meek and mute submission to the plainness, of the language. To avoid patent injustice, anomaly or absurdity or to avoid invalidation of a law, the Court would be well justified in departing from the so-called golden rule of construction so as to give effect to the object and purpose of the enactment by supplementing the written word if necessary.
It cannot be denied that if the notification is interpreted in the above said manner the benefit thereof would be available to M/s. Madras Rubber Factory Ltd. even when the manufacture of the final product is in a factory different from the factory in which the raw materials are consumed so long as it would be possible to establish to the satisfaction of the authorities the correlation between the quantum of raw materials consumed and the resultant final product. Shri Nariman further relies on the observations of this Tribunal in Addison & Co. Ltd. v. Collector of Central Excise where, dealing with the question of interpretation of statutes, the Tribunal observed that the words in the statute should be ordinarily understood in a manner in which they would effectuate the object of the Notification.
9. We may also refer in this connection to the decision of the Tribunal in the case of Vikrant Tyres v. CCE in which it was held (dealing with a case under Notfn. No. 201/79 itself) that even when an assessee claimed that he could not correlate the quantum of inputs that went towards the manufacture of excisable goods and free goods, the Department should make an attempt to grant relief by working out the quantum on prorata basis after calling for the necessary information.
This order of the Tribunal was taken up in appeal by the Department before the Hon’ble Supreme Court and the Hon’ble Supreme Court vide order in Civil Appeal No. 1173/90 has dismissed the appeal of the Revenue. The order of the Tribunal, therefore, in this regard became final. The learned Counsel has pleaded that the appellants were allowed the concession of set off of duty under Notfn. 201/79 in terms of the above order in respect of the three inputs which were chemicals in nature in terms of the above notification. The credit taken at their Kottayam factory in respect of these inputs which were used in the manufacture of master batches which were brought to their Madras factory ultimately for manufacture of tyre was expunged in their Kottayam factory and taken in the Madras factory for being used for payment of duty in respect of the tyres manufactured at Madras factory. He has pleaded that the benefit in respect of carbon black, synthetic rubber and rubber chemicals which fall under different headings of the tariff came to be covered by Notfn. No. 95/79 as amended for the purpose of exemption, has been denied to them by the authorities for the reason of these falling under heading different from the items of the inputs which were covered by the Tribunal’s order and it has been held that in case of Notfn. No. 95/79 the concession is contingent upon following the procedure of Rule 56A instead of the procedure as prescribed under Notfn. No. 201/79 and further that the receipt of inputs could not be verified as the exemption was claimed in the factory other than where the inputs were received since the use of the goods was in the appellant’s one factory and the concession was availed at the other factory of the appellants. The authorities below in the above background have held that they would not be entitled to the benefit of Notfn. No. 95/79. He has pleaded that as it is, there is no difference between the procedure prescribed under Notfn. No. 201/79 and 95/79 and once the principle for allowing the benefit of the concession to the extent of the duty paid on the inputs used for the manufacture of tyres was settled by the judgement of the Tribunal which was upheld by the Hon’ble Supreme Court, the same principle should therefore inform the benefit to be given in terms of Notfn. No. 95/79. He has pleaded that in the context of the Notification the principle decided was that the concession was manufacturer based and not factory based. He has pleaded that the appellants had maintained all the records to correlate the notified finished product i.e. tyre with the inputs used through the route of the intermediate product and manufactured at their Kottayam factory and correlation can be established with the help of the documentation maintained for the use of the inputs and movement of the goods from their factory at Kottayam and use of these intermediate goods at Madras factory and the duty paid on the inputs and tyres. He has pleaded that the appellants had filed such correlation in the paperbook. He has pleaded that the authorities, as it is, themselves had allowed this procedure provisionally and later on the Tribunal upheld the appellants’ eligibility to the benefit of the Notfn. No. 201/79. He has pleaded that the order of the Tribunal in the case of the appellants in the context of Notfn. No. 201/79 reported in 1988 (32) ELT 529 (sic) was followed in the subsequent order reported in 1990 (50) ELT 582. In view of the dismissal of the Departmental appeal by the Hon’ble Supreme Court clearly shows that the appellants are eligible to utilise the credit taken in respect of the inputs in one factory in the appellants’ other factory where the notified finished product was manufactured.
4. Referring to Rule 56A, he has pleaded that as it is both in the Notfn. No. 201 /79 and 95/79 the procedure prescribed is for first filing of declaration by the assessee and under Notfn. No. 201/79 the permission is to be applied for by the assessee in terms of Rule 56A. Thereafter, under both the Notifications the assessee is required to inform the authorities about the receipt of the goods which are used as inputs and thereafter the departmental officers are free to go and inspect the same for verification and correlation with the duty paying documents under which the goods had been received. He has pleaded that in terms of Rule 56A the provisions of Sub-rule (3)(i)(a), (b), (c) can be relaxed by the Collector. These provisions are reproduced below for convenience of reference:
(3)(i) A manufacturer so permitted shall
(a) give prior notice to the proper officer before the excise duty-paid or the countervailing duty-paid material or component parts or finished product are received in his factory, to enable the proper officer to be present at the time of the receipt of such material or component parts or finished product, as the case may be;
(b) bring to the factory the material or component parts or finished product in original packing under the cover of A.R.I, or such other document as may be approved by the Central Board of Excise and Customs in this behalf or Bill of Entry, evidencing the payment of excise duty or the countervailing duty:
Provided that having regard to the period that has elapsed since the duty of excise was imposed on any such material, component parts or finished product, the position of demand and supply of the said goods, in the country and any other relevant considerations, the Central Government may direct that with effect from a specified date all stocks of the said goods in the country, except such stocks lying in a factory, customs area [as defined in the Customs Act, 1962 (52 of 1962)] or warehouse as are clearly recognisable as being non-duty paid, may be deemed to be duty-paid and credit of duty in respect of the said goods may be allowed at such rate and subject to such conditions as the Central Government may direct, without production of documents evidencing the payment of duty;
(c) produce the material or component parts or finished product when brought to the factory before the proper officer to enable him to identify the material or component parts or finished product, as the case may be, and verify the actual quantity thereof;
The provision for relaxation in terms of Sub-rule (3) sub-para (viii) is reproduced below for convenience of reference:
The Collector may for reasons to be recorded in writing, relax the provisions of Sub-clauses (a), (b) and (c) of Clause (i) and Clause (ii) in the case of any manufacturer or class of manufacturers.
His plea is that since the provision for relaxation in respect of the items for receipt and examination of the inputs is there, it cannot act as a fetter in allowing the appellants the benefit of Notification if the appellants are able to establish that the duty paid on the inputs in question have been used in the manufacture of tyres. In this connection he referred to the wording of the Notfn. No. 201/79 and Notfn. No. 95/79 which was subsequently superseded by Notfn. 95/83. These notifications as applicable at different times are enclosed as Annexure to this Order.
4.1. He has raised point of estoppel as the Tribunal decision which permitted the concession through the route of intermediate product had become final by reason of dismissal of the department’s appeal. In any case he has pleaded that the decision of the co-ordinate bench is binding on the Tribunal. The two (sic) notifications 201/79, 95/79 and 95/83 being pari materia the ratio in the context of Notfn. No. 201/79 would apply to the facts in the context of Notfn. Nos. 95/79 and 95/83. In this connection he relied upon the decision of the Hon’ble Supreme Court in the case in the case of Swadeshi Polytex Ltd. v. CCE. Paras 15, 16 and 20 and [Paras 16, 17 & 21 in ECR] are reproduced below for convenience of reference.
15. The Tribunal was of the opinion that the revenue was right that Rules 56A and Notification No. 201/79 were different enactments and the amendment to one could not be read into the other. In that view of the matter, the Tribunal was of the view that the Collector’s observation that the procedure under Notification No. 201/79 was materially the same as the procedure under Rule 56A and consequently the amending notification deemed to have retrospective effect was not, in the absence of any such indication, acceptable in the premises, the Tribunal allowed the appeals and rejected the cross-objection.
16. The question involved in these appeals, is whether the Tribunal was right. On behalf of the appellants, Shri V. Lakshmikumaran contended that the Tribunal failed to appreciate that the provisions of Rule 56A and Notification No. 201/79 were pari materia. It appears to us that the provisions of Rule 56A and the notification No. 201/79 are identical. The relevant provisions of Rule 56A are as follows:
56A(1)
56A(2). The Collector may, on application made in this behalf and subject to the conditions mentioned in Sub-rule (3) and such other conditions as may, from time to time, be prescribed by the Central Government, permit a manufacturer of any excisable goods specified under Sub-rule (1) to receive material or component parts of finished product (like Asbestos Cement), on which the duty of excise or the additional duty under Section 3 of the Customs Tariff Act, 1975 (51 of 1975) (hereinafter referred to as the countervailing duty), has been paid in his factory for the manufacture of these goods or the more convenient distribution of finished product and allow a credit of the duty already paid on such material or component parts or finished product, as the case may be:
Provided that no credit of duty shall be allowed in respect of any material or component parts used in the manufacture of finished excisable goods
(i) if such finished excisable goods produced by the manufacturer are exempt from the whole of the duty of excise leviable thereon or are chargeable to ‘nil’ rate of duty, and
(ii) … … …
ExplanationCredit of the duty allowed in respect of any material or component parts shall not be denied or varied on the ground that part of such material or component parts is contained in any waste, refuse or by-product arising during the process of manufacture of the finished excisable goods irrespective of the fact that such waste, refuse or byproduct is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty or is not notified under Sub-rule (1):
Provided … … …
20. On an analysis and comparison of aforesaid, it is clear that the clarification in the form of trade notice issued by the Pune Collectorate in respect of Rule 56A was as much applicable to that rule as to Notification No. 201/79. In the premises, it is clear that the Tribunal should have held that even though a part of the ethylene glycol was contained in the byproduct methanol, yet the credit of duty could not be reduced to the extent of the ethylene glycol contained in the methanol as ineligible. It is true that when in a fiscal provision, if benefit of exemption is to be considered, this should be strictly considered. But the strictness of the construction of exemption notification does not mean that the full effect to the exemption notification should not be given by any circuitous process of interpretation. After all, exemption notifications are meant to be implemented and trade notices in these matters clarify the stand of the Government for the trade. It is clear, therefore, that the Tribunal failed to interpret the words of the exemption Notification No. 201/79 properly and fully. The said notification exempted all excisable goods on which the duty of excise was leviable and in the manufacture of which any goods falling under Tariff Item 68 (i.e. inputs) had been used from so much of the duty of excise leviable thereon as was equivalent to the duty of excise already paid on the inputs. It is clear, however, that ethylene glycol was used in the manufacture of polyester fibre. It appears that methanol arises as a part and parcel of the chemical reaction during the process of manufacture when ethylene glycol interacts with DMT to produce polyester fibre. It is not possible to use a lesser quantum of the ethylene glycol to prevent methanol from arising for producing a certain quantity of polyester fibre. Thus, the quantity of ethylene glycol required to produce a certain quantum of polyester fibre is determined by the chemical reaction. It may be mentioned herein that it is not as if the appellants have used excess ethylene glycol wantedly to produce the methanol. It is clear that the appellants are not engaged in the production of methanol but in the production of polyester fibre. That position is undisputed. Therefore, it appears that the Tribunal erred when it held that the appellants were not entitled to a part of the credit of duty since ethylene glycol when it interacts with DMT also gives rise to methanol. This construction would frustrate the object of exemption if something which evidently arises out of the interaction. Even prior to amendment to Notification No. 201/79 with effect from 11.4.1987, the only situation where the credit of the duty paid on the inputs could be denied was only where the final products were wholly exempt from the duty of excise or chargeable to nil rate of duty. In the present case, the excisable goods, namely, polyester fibre were not wholly exempt from duty nor chargeable to nil rate of duty. It cannot be read in the notification that the notification would not be available in case non-excisable goods arise during the course of manufacture. In fact, the Tribunal seems to have erred in not bearing in mind that exemption notification was pressed in service in respect of polyester fibre which is excisable goods and not in respect of methanol which arises as a by-product as a part and parcel of chemical reaction. It appears further on a comparison of the Rule 56A and the Notfn. No. 201/79 that these deal with the identical situation.
5. The learned DR for the department has pleaded that Notification No. 201/79 was issued to give relief in respect of duty paid on the goods which were assessable under tariff item 68. In the appendix to the Notification, he has pleaded, a number of relaxations were given. The relaxations as allowed would not be applicable in the context of Notification No. 95/79 as amended by Notification 58/92 and superseded by Notification 95/83. The learned DR adopted the reasoning of the learned lower authority which has been reproduced above. He has pleaded that the concession was factory based and not manufacture-wise. In this connection he cited the decision of the Tribunal in the case of Asian Paints India Ltd. v. CCE, . He has pleaded that the Modvat Credit taken could not be transferred from one factory to another. Likewise he has pleaded that the concession available is for goods which will have to be used in the same factory where the inputs are used.
6. We have considered the pleas made by both the sides. The point that falls for consideration is whether, in terms of Notification 95/79 as amended by Notification No. 58/82 and also the successor Notification 95/83, the appellants would be entitled to the benefit of Notification in respect of carbon black, synthetic rubber and rubber chemicals, i.e. the inputs used for the manufacture of tyres when the same are first used in the appellants factory at Kottayam for manufacture of masticated rubber or master batches which in turn after clearance from that factory without payment of duty to the appellants’ other factory at Madras and is utilised for manufacture of tyres i.e. the notified finished product under the Notifications in question. The objection of the Revenue is that the appellants could not have used the credit which was earned at their Kottayam factory for manufacture of masticated rubber which did not suffer any duty, for payment of duty in respect of the tyres manufactured out of that masticated rubber cleared from the Madras factory. There would have been no objection from the Revenue if the tyres had been manufactured in their Kottayam factory. It is not also the plea of the Revenue that tyres could have been manufactured without these inputs having been used first in the manufacture of masticated rubber. The use of the inputs in question for manufacture of tyres is through the medium of intermediate product i.e. masticated rubber. The question therefore, that falls for consideration is whether for the reason of the two stage operations carried out by the appellants in their two factories the appellants would become ineligible for the benefit of Notifications in question. The appellants’ claim the use of the inputs in question for the manufacture of tyres which finally suffered duty, the use of the same being through the medium of masticated rubber and that they have maintained the necessary records to establish the nexus between the duty paid inputs and the tyres manufactured by the use of the same along with other ingredients. The plea of the appellants is that under similar circumstances, in the context of Notification 201/79 the Tribunal has held that the benefit of set off of duty on the inputs is available to the appellants. In another judgement cited and which has been affirmed by the Hon’ble Supreme Court by the dismissal of the department’s appeal, it has been held that the appellants are entitled to the benefit in question even though two stage operations were being carried out by the appellants in two different factories and the Credit earned by the use of the inputs taken at one factory can be utilised for payment of duty on the notified finished product in other factory. The plea is that the procedural requirements as per Appendix to the Notification No. 201/79 are pari materia to the procedure under Rule 56A. Therefore, for that reason the ratio of the decision of the Tribunal as above would be equally applicable in the context of Notification 95/79 and 95/83. In regard to the pari materia nature of the two procedure under Notification 201/79 and Rule 56A, they have pressed into service the ratio of the judgment of the Hon’ble Supreme Court in the case of Swadeshi Polytex Ltd. v. CCE . The Hon’ble Supreme Court in the last line of para 20 [para 21 in ECR] of the judgement after taking into consideration the scope of Rule 56A and Notification 201/79 has held as under:
It appears further on a comparison of the Rule 56A and the Notification No. 201/79 that these deal with the identical situation
We observe that in the context of the examination of the issue before us in terms of Notification 201/79, the Hon’ble Supreme Court in the case of HMM v. CCE reported in 1996 (67) ECR 464 had occasion to examine the scope of Notification 201/79 where the inputs were received in one factory while the notified finished product emerged in the other factory of the same manufacturer, took note of the clarification issued by the Board and the press note issued and which are reproduced below:
Central ExciseSimplification procedure regarding Tariff Item 68 Goods used as “inputs” in the manufacture of finished excisable goods.
Attention is invited to Notification No. 201/79-CE, dated the 4th June, 1979 (page———) and a copy of the Press Note issued by the Board is appended. In the Press Note the need for simplifying the procedure of set-off granted in relation to Tariff Item 68 goods under Notification No. 178/77-CE dt. 18.6.1977 has been explained.
2. The revised procedure is based on the lines of Rule 56-A of the Central Excise Rules. 1944. Consequently instructions of the Board issued with reference to Rule 56-A will also ‘mutatis mutandis’be applicable here
Unless they are inconsistent with the provisions of Notification No. 201/79. Attention is specifically invited to the instructions contained in the Board’s letter F. No. 211/11-M/77-CX. 6 dt. 15.11.1977 (as amended) relating to issue of subsidiary gate passes.
[CBE&C(Cir. No. 22/79-CX. 6 F. No. 223/22/78-CX. 6) dt. 18.6.1979]
PRESS NOTE
When excise duty under Tariff Item 68 was increased from 2% to 5% ad valorem in the 1977 Budge, all excisable goods manufactured out of goods falling under that item were exempted from so much of the duty of excise leviable on them as was equivalent to the duty of excise already paid under it. The exemption was restricted to the duty payable on the finished goods when the duty paid on the “inputs” was more than that on the finished goods.
2. The Trade had been earlier experiencing difficulties in availing of the set-off of duty in relation to those finished excisable goods which had not been notified under Rule 56-A of the Central Excise Rules. The difficulties were aggravated where innumerable varieties of finished excisable goods were being manufactured and in the manufacture of which goods falling under Tariff Item 68 were used, not necessarily in relation to any fixed formula, but in a particular ratio that can change from time to time and from variety to variety.
Some of the industries that had expressed difficulty on this account were tyres, chemicals, electrical manufactures and grinding-wheels. On account of the innumerable end products and the varying ratios, with alternative usages, manufacturers were finding it difficult and irksome to furnish the “input” and “output” ratio that would remain constant and be acceptable to the Department.
For claiming set-off of duty paid on Tariff Item 68 furnishing on the “Input” – “Output” ratio was necessary as at the time of claiming the set-off while clearing the finished goods, the manufacturers had to satisfy the Central Excise Department about the exact amount of set-off sought to be claimed with reference to the duty-paying documents under which the “Input” had been received.
3. Government have given considerable thought to alleviating these difficulties. And, now, as a measure of facilitation the procedure for claiming this exemption has been substantially simplified. Under the revised Notification No. 201/79-CE issued on 4.6.1979. the cumbersome “set-off procedure has been given up. and a self-contained procedure for claiming the exemption has been prescribed. This procedure is basically on the lines of the Proforma Credit System prescribed under Rule 56-A of the Central Excise Rules. 1944.
(Emphasis added)
The above clearly supports the view of the appellants that the procedure to be followed under Notification 201/79 is on the liens of proforma credit system prescribed under Rule 56A of the CER 1944. A reading of the procedure under Notification 201/79 and that under Rule 56A clause by clause also goes to show that basically there is no difference between the procedure under Rule 56A and Notification 201/79. Rule 56A, as pointed out by the learned Counsel for the appellants provides for relaxations regarding examination of the inputs received and which is one of the objections which has been taken by the Revenue for allowing the benefit to the appellants of the Notification 201/79. In our view, therefore, what is applicable in the context of the ratio of the decision in the context of Notification 201/79 would equally apply to the context of Notification 95/79 and 95/83. The case law cited by the Revenue is in the context of Modvat Scheme. In that case, the scheme of Modvat was taken note of and a view was taken that a reading of Rules 56A and 57F goes to show that credit taken under the Scheme has to be utilised in the manner provided for under the said rules. In case of the Notifications in question before us, the benefit is available in case the inputs in question are used for the manufacture of the notified finished product. There is no plea from the Revenue that as it is, the inputs have not been used for the manufacture of the notified finished product and what has been stated is that the inputs have not been used in the same factory but in another factory of the appellants. We observe that when a concession has been made available in the context of the use of a particular inputs for the manufacture of the notified finished product and once the use of the same has been established and a nexus is shown to be there between the inputs and the notified finished product and the benefit cannot be denied in such circumstances. In this connection, we are supported in our view by the judgment of the Hon’ble Supreme Court in the case of Tata Oil Mills v. CCE . In that case the Hon’ble Supreme Court has held as under:
6. We are of the opinion that the view taken by the Excise Authorities as well as by the Tribunal proceeds upon too narrow an interpretation of the notification. It is true, as Mr. Ganguli contended, that an assessee claiming relief under an exemption provision in a taxing statute has to show that he comes within the language of the exemption. But, in trying to understand the language used by an exemption notification, one should keep in mind two important aspects: (a) the object and purpose of the exemption; and (b) the nature of the actual process involved in the manufacture of the commodity in relation to which exemption is granted. So far as (b) is concerned, it is common ground before us that rice bran oil as such is not directly used in the manufacture of soap. Rice bran oil contains glycerol and other impurities which have to be removed by a process of hydrolysis or hydrogenation and it is only the resultant purified rice bran oil that is actually used in the manufacture of soap. In fact, the Tribunal has given a clear finding that a pre-treatment of rice bran oil is required to be done as a matter of necessity for its use in the manufacture of soap. Thus even a factory which consumes rice bran oil in the manufacture of soap in its factory first converts the oil into hydrogenated oil or fatty acid and then manufactures soap out of the latter. So far as (a) is concerned, the object of the notificationas even the Tribunal findsis to grant a concession to a manufacturer of soap who manufactures soap from rice bran oil to a substantial extent and thus discourage the use of edible oils in the manufacture. If these two aspects are considered together, it is clear that the emphasis in the notification is not that rice bran oil should be used as raw material in the very factory which produces the soap. The requirement is that the soap manufacture should, to a prescribed extent, be from rice bran oil as contrasted with other types of oil. The contrast is not between the use of rice bran oil as opposed to rice bran fatty acid or hydrogenated rice bran oil; the contrast is between the use of rice bran oil as opposed to other oils. That is the ordinary meaning of the words used. These words may be construed literally but should be given their fullest amplitude and interpreted in the context of the process of soap manufacture. There are no words in the notification to restrict it to only to cases where rice bran oil is directly used in the factory claiming exemption and to exclude cases where soap is made by using rice bran fatty acid derived from rice bran oil. The whole purpose and object of the notification is to encourage the utilisation of rice bran oil in the process of manufacture of soap in preference to various other kinds of oil (mainly edible oils) used in such manufacture and this should not be defeated by an unduly narrow interpretation of the language of the notification even when it is clear that rice bran oil can be used for manufacture of soap only after its conversion into fatty acid or hydrogenated oil.
7. The position will perhaps become clearer if we consider a case where an assessee manufactures soap out of hydrogenated rice bran oil (which process of hydrogenation, again, is akin to the process of hydrolysis which yields rice bran fatty acid). The assessee will then be clearly entitled to the exemption under the notification inasmuch as the hydrogenated rice bran oil does not cease to be rice bran oil. [See in this connection: Tungabhadra Industries Ltd. v. CTO 1961-2 SCR 14 and Collector of Central Excise v. Jayant Oil Mills etc. [CA 729 of 1983 and 2479 of 1987, decided by this Court on 31.3.1989 : 1989 (22) ECR 161 (SC)]. The answer cannot be different, where rice bran oil is treated to yield rice bran fatty acid before soap is manufactured even if it be assumed that, unlike hydrogenated oil the fatty acid is, commercially speaking, a different commodity. We are, therefore, of opinion that, construing the notifications literally but reasonably in the light of the process of manufacture as explained by the Tribunal, the soap manufactured by the assessee is “soap made from indigenous rice bran oil” and is entitled to the exemption under the notifications to the extent permissible thereunder.
9. The Tribunal has pointed out that the notification refers to the percentage of rice bran oil consumption and that, unless such oil is directly used in the factory, it will not be possible to work back, from the weight of fatty acid used by the assessee, the weight of rice bran oil out of which such acid had been obtained. There are two answers to this objection. One is that, if what we have stated is the correct interpretation of the notification, the mere fact that there may be some difficulty in ascertaining the weight of oil, cannot be a justification to refuse to give effect to that interpretation. The second is that a practical solution to this difficulty has in fact been evolved and that, too, in the case of the same assessee.
11. We are, therefore, of the view that the terms of the notification do not have the effect of excluding cases where the manufacture of soap is done out of rice bran oil, but the entire process is not carried out by the assessee itself. The question which one has to ask is: does the assessee manufacture soap partly or wholly out of indigenous rice bran oil? and the answer, we think, can only be in the affirmative. We therefore hold that the assessee is entitled to the exemption under the notifications referred to above and that the departmental authorities and the Tribunal erred in not granting the said exemption to the assessee. The appeals are, therefore, allowed. However, in the cirumstances of the case, we make no order as to costs.
There the question was whether the concession which was available for use of the rice bran oil was factory based and in case a fraction of the rice bran, which was usable and was used in another factory of the manufacturer, that would preclude the appellants from the benefit of the Notification. The Hon’ble Supreme Court has held that so long as the use was for manufacture of the notified finished product and fractioning of the oil for extracting the usable fraction was a technical necessity, the benefit could not be denied just because the fractioning was done in one factory and the usable fraction extracted in one factory was used in the other factory. In the present case also, use of the inputs through the route of the masticated rubber is a technical necessity. Just because masticated rubber is manufactured in one factory and used in another factory of the same manufacturer, would not disentitle the appellants to the benefit of the Notification in terms of the ratio of the decision of the Tribunal affirmed by the Hon’ble Supreme Court referred to supra. As it is in the context of the benefit available under Notfn. No. 201/79, the Hon’ble Supreme Court hi case of HMM cited supra has held as under in para 13 of their judgment:
13. By accepting the appellant’s contention, the object underlying the enactment is in no way defeated nor is the objective underlying the notification No. 201 of 1979 defeated. The object underlying the notification is to prevent the cascading effect of duties if levied both on inputs and the finished goods. With a view to make the goods available at comparatively reasonable prices to the consumer, the duty paid on the inputs is deducted out of the duty payable on the finished goods. Acceptance of the appellant’s contention effectuates the said object whereas acceptance of the Revenue’s contention would tend to defeat the aforesaid objective in a case like the present one. It is true that the notification provides for an exemption and has to be strictly construed but it is equally well-settled that the exemption notifications, like any other statutory provision, has to be construed reasonably having due regard to the language employed. It may also be noticed that both Rule 56A and Notfn. No. 201 of 1979 are actuated with similar considerations and provide for broadly similar concessions. Indeed, that is how the Board has understood these two provisions.
The Hon’ble Supreme Court as seen from the above, has clearly held that the procedure under Rule 56A of the CER, 1944 and Notfn. No. 201/79 are actuated by similar consideration and provide for broadly similar concessions. In that case benefit of credit in respect of inputs was allowed to be taken and to be utilised in the factory where the inputs were received even though the finished goods manufactured were partly cleared free of duty for use in another factory as an intermediate product for use for the manufacture of goods which were cleared on payment of duty. There of course, the assessee did not seek the transfer of the credit from one factory to the other. For the purpose of giving the benefit of the concession where the use is for a particular notified input, once it is held that the benefit of the input credit was available, the utilisation of the same in a factory where the notified finished goods are manufactured has to be allowed. In the case of the appellants, the notified finished product is the tyres. In the budget speech reported in 1982 (9) ELT A-21, the learned Counsel for the appellants, pointed out, the Hon’ble Finance Minister in para 124 has stated that duty on tyre was being increased, but at the same time, credit of inputs was being given so that increase of the duty on the tyres is neutralised. Para 124 of the speech is reproduced below:
124. In recent years, the scheme of input excise duty relief has been extended to cover certain specified industrial products. I propose to further extend input duty relief in respect of synthetic rubber, carbon black and rubber processing chemicals going into the production of tyres. To make up for the revenue loss. I propose to raise the duty leviable on tyres from a total of 60.5 per cent to 66 per cent ad valorem. While tyres for tractors and scooters will also enjoy the benefits of the input duty relief, I do not propose to increase the final duty rates on them. As this is intended to be a balancing exercise, no credit for additional revenue is being taken.
7. The benefit of set off of duty has been given to ensure as seen from the above so that increase in the levy of duty on tyres was taken care of and neutralised. To effectuate the purpose of the Notification, the same has to be reasonably interpreted as held by the Hon’ble Supreme Court in para 13 in the case of HMM which is reproduced below:
By accepting the appellant’s contention, the object underlying the enactment is in no way defeated nor is the objective underlying the notification No. 201 of 1979 defeated. The object underlying the notification is to prevent the cascading effect of duties if levied both on inputs and the finished goods. With a view to make the goods available at comparatively reasonable prices to the consumer, the duty paid on the inputs is deducted out of the duty payable on the finished goods. Acceptance of the appellant’s contention effectuates the said object whereas acceptance of the Revenue’s contention would tend to defeat the aforesaid objective in a case like the present one. It is true that the notification provides for an exemption and has to be strictly construed but it is equally well-settled that the exemption notifications, like any other statutory provision, has to be construed reasonably having due regard to the language employed. It may also be noticed that both Rule 56A and Notification No. 201 of 1979 are actuated with similar considerations and provide for broadly similar concessions. Indeed, that is how the Board has understood these two provisions.
8. In view of the above, we are of the view that the appellants are entitled to the benefit as claimed so long as they are able to establish the use of the inputs in question for the purpose of the manufacture of the tyres. The appellant, it is seen from the records of the case have maintained records in this regard which they started maintaining after the decision of the Board in earlier proceedings in this regard referred to in earlier paras. In similar circumstances in the case of Tata Oil Mills reported in 1989 (24) ECR 645 (SC) : ECR C 1500 SC, the Hon’ble Supreme Court taking note of the plea of difficulties regarding correlation has held as under in para 9:
9. The Tribunal has pointed out that the notification refers to the percentage of rice bran oil consumption and that, unless such oil is directly used in the factory, it will not be possible to work back, from the weight of fatty acid used by the assessee, the weight of rice bran oil out of which such acid had been obtained. There are two answers to this objection. One is that, if what we have stated is the correct interpretation of the notification, the mere fact that there may be some difficulty in ascertaining the weight of oil, cannot be a justification to refuse to give effect to that interpretation. The second is that a practical solution to this difficulty has in fact been evolved and that, too, in the case of the same assessee. Our attention has been invite to a circular issued by the Assistant Collector, Ernakulam-II dated 23.6.1977. This circular states that the matter had been considered pursuant to an appellate order passed in one of the cases relating to the same assessee and it had been decided to fix the formula for arriving at the correlation between rice bran oil on the one hand and hydrogenated rice bran oil or rice bran fatty acid on the other as below:
(a) 100 M.T. of hydrogenated rice bran oil : 100 MT of rice bran oil
(b) 100 MT of Fatty acid : 115 MT of raw rice bran oil
The circular refers to the fact that the present assessee (in relation to its Cochin factory) had accepted the abovesaid formula and that the formula as given above was, therefore, “finally fixed in arriving at the rice bran oil contents of hydrogenated rice bran oil and of rice bran fatty acid for ascertaining the amount of exemption as per Notfn. Nos. 45 and 46 of 1972.” It is true that this is only a local instruction issued by certain assessing authorities in Cochin. It is being referred to only to show that there is no insuperable difficulty in ascertaining the weight of rice bran oil that has been converted into fatty acid and thus entered the process of manufacture in the assessee’s factory particularly in view of the fact that even the process of conversion of rice bran oil into fatty acid or hydrogenated oil is carried out in a factory subject to excise jurisdiction.
In view of the above, the authorities can take note of the records maintained by the appellants for the purpose of grant of the concession. The appeals are, therefore, allowed subject to the verification as above, with consequential relief.
