REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 3976 OF 2007
RAMALA SAHKARI CHINI -- APPELLANT
MILLS LTD., U.P.
VERSUS
COMMISSIONER CENTRAL -- RESPONDENT
EXCISE, MEERUT-I
WITH
CIVIL APPEAL NO.3747 OF 2007,
CIVIL APPEAL NO.4704 OF 2007,
CIVIL APPEAL NO.5896 OF 2008 &
CIVIL APPEAL NO.5894 OF 2008
ORDER
D.K. JAIN, J.:
1. Challenge in these civil appeals, filed under Section 35(L) of
the Central Excise Act, 1944 (for short “the Act”) is to the orders
passed by the Customs, Excise and Service Tax Appellate
Tribunal (for short “the Tribunal”), inter alia, holding that
welding electrodes used in the maintenance of machines were not
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eligible for credit as “inputs” under the CENVAT Credit Rules,
2002 (for short “the 2002 Rules”).
2. In view of the order we propose to make in all these appeals,
at this stage, we deem it unnecessary to narrate the facts in each
of the tagged appeals. However, in order to comprehend the
controversy in these appeals, a brief reference to the facts in Civil
Appeal No.3976 of 2007 would suffice:
The appellant viz. Ramala Sahkari Chini Mills, (hereinafter
referred to as “the assessee”) engaged in the manufacture of V.P.
sugar and molasses, availed of CENVAT credit on welding
electrodes, falling under sub-heading 8311.00 of the Central
Excise Tariff Act, 1985 (for short “the Tariff Act”), under Rule 2 of
the 2002 Rules. The Range Superintendent, vide his letter dated
21st November, 2002 asked the assessee to furnish details of use of
welding electrodes in their factory. The assessee replied to the
said letter on 28th November, 2002 stating that the said goods are
used in the maintenance of their plants and machinery.
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3. Thereafter, three show cause notices dated 4th October 2002,
3rd April 2003 and 7th July 2003 were issued to the assessee
for the periods February 2002, March 2002 to October 2002
and November 2002 to April 2003, respectively proposing to
recover the wrongly availed credit amount for those periods
amounting to a total of `1,33,871/- together with interest and
penalty.
4. The Assistant Commissioner, Central Excise, Meerut, vide
Order-in-Original dated 20th August 2004 confirmed the
demand of `1,33,871/-. The Assistant Commissioner also
imposed a penalty of equal amount under Rule 13 of the
2002 Rules and charged interest under Section 11AB of the
Act.
5. Being aggrieved by the said order, the assessee preferred an
appeal before the Commissioner (Appeals), Customs and
Central Excise, Meerut, who rejected the same vide his order
dated 31st March 2005.
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6. The assessee, thereafter, carried the matter in appeal before
the Tribunal. The Tribunal, vide its order dated 12th
February 2007, dismissed the appeal of the assessee, inter
alia, observing that:
“4. The adjudicating authority, on the basis of material
on record and the decision of the Tribunal in CCE,
Belgaum Vs. Panyam Cements & Mineral Inds.
2003 (54) RLT 557, has held that welding electrodes
used for maintenance of machines were not eligible
modvat credit. It was found that the welding electrodes
were used for repair and maintenance of machinery for
welding purposes. The adjudicating authority also
noted that in Kanoria Sugars & General
Manufacturing Co. Vs. CCE 1996 (16) RLT 571, the
Tribunal had held that welding electrodes used only for
the purpose of welding were not eligible for modvat
credit as also in CCE, Noida Vs. DCM Ltd., decided by
the Tribunal on 27.5.2003. Following the decision of
the Larger Bench in Jaypee Rewa case reported in
2003(57)RLT739, the adjudicating authority came to
the conclusion that welding electrodes were not eligible
inputs under Rule 2 of the Cenvat credit rules. The
Commissioner (sic) (Appeal) upheld these findings by
applying the ratio of the said decisions and held that
welding electrodes were not eligible for credit either as
input or as capital goods. This issue has been
concluded by the Larger Bench in Jaypee Rewa Plant
which has been followed in J.P. Cement Works Vs.
CCE, Jaipur decided by the Tribunal by order dated
11.12.2006 in Excise Appeal Nos. 99 and 109 of 2005-
SM Branch. The authorities below have therefore,
rightly held that welding electrodes which were used
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by the appellant were not eligible for credit either as
capital goods or as inputs.
5. As regards the issue of penalty, it was contended by
the learned counsel for the appellant that there was
conflict amongst the judicial pronouncements on the
issue and, therefore, no intention to evade duty could
be inferred. Considering the issue of penalty, the
Commissioner (Appeals) has held that the appellant
was aware that Cenvat credit on the said item was not
available and despite that they availed credit to evade
payment of duty. In fact, the appellant did not respond
to the letters of the Superintendent sent on 5.04.2002,
requiring them to reverse the credit as it was not
admissible. The appellant cannot rely upon a self-
created uncertainty when the provisions of law were
(sic) clear and by the decision of the Tribunal rendered
as far as back in 1996 in CCE, Belgaum Vs. Panyam
Cements & Mineral Inds., it was held that welding
electrodes used for maintenance of machines were (sic)
not eligible for Modvat credit. The authorities below
have made the impugned orders imposing penalty and
directing interest to be recovered for valid reasons,
warranting no interference by this Court. The appeal,
is, therefore, dismissed.”
7. Hence, the present civil appeals.
8. Mr. Prakash Kumar Singh, learned counsel appearing on
behalf of the appellants while assailing the impugned orders,
strenuously urged that in light of the decisions of this Court
in Maruti Suzuki Limited Vs. Commissioner of Central
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Excise, Delhi-III1 and Vikram Cement Vs. Commissioner of
Central Excise, Indore2, welding electrodes would come
within the ambit of “inputs” as defined in Rule 2(g) of the
2002 Rules, in as much as they are used in relation to the
manufacture of the final product.
9. Per contra, Mr. Harish Chander, learned senior counsel
appearing on behalf of the revenue urged that the impugned
orders deserve to be affirmed.
10. As aforestated “Inputs” are defined under Rule 2(g) of the
2002 Rules as follows:
“2. Definitions.- In these Rules, unless the context
otherwise requires,-………………………………………….
…………………………………………………………………..
…………………………………………………………………..
(g) `input’ means all goods, except light diesel oil, high
speed diesel oil and motor spirit, commonly known as
petrol, used in or in relation to the manufacture of final
products whether directly or indirectly and whether
contained in the final product or not, and includes
lubricating oils, greases, cutting oils, coolants,
accessories of the final products cleared along with the
final product, goods used as paint, or as packing
material, or as fuel, or for generation of electricity or
1
(2009) 9 SCC 193
2
(2006) 2 SCC 351
6
steam used for manufacture of final products or for any
other purpose, within the factory of production.
Explanation 1.- The light diesel oil, high speed
diesel oil or motor spirit, commonly known as petrol,
shall not be treated as an input for any purpose
whatsoever.
Explanation 2.- Inputs include goods used in the
manufacture of capital goods which are further used in
the factory of the manufacturer.”
11. In Maruti Suzuki Limited (supra), this Court while
examining the scope and purport of the term “input” in Rule 2(g)
of the 2002 Rules observed that the said definition had three
components viz. (i) the specific part, (ii) the inclusive part, and (iii)
place of use, and unless all the three parts were satisfied, credit
cannot be claimed on a good as an “input”. The Court held that:
“28. Coming to the statutory definition of the word
“input” in Rule 2(g) in the CENVAT Credit Rules,
2002, it may be noted that the said definition of the
word “input” can be divided into three parts, namely:
(i) specific part
(ii) inclusive part
(iii) place of use
Coming to the specific part, one finds that the word
“input” is defined to mean all goods, except light diesel
oil, high speed diesel oil and petrol, used in or in
relation to the manufacture of final products whether
directly or indirectly and whether contained in the
final product or not. The crucial requirement,
therefore, is that all goods “used in or in relation to the
manufacture” of final products qualify as “input”. This
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presupposes that the element of “manufacture” must
be present……………………………………………………
…………………………………………………………………
……..
34. In the past, there was a controversy as to what is
the meaning of the word “input”, conceptually. It was
argued by the Department in a number of cases that if
the identity of the input is not contained in the final
product then such an item would not qualify as input.
In order to get over this controversy in the above
definition of “input”, the legislature has clarified that
even if an item is not contained in the final product
still it would be classifiable as an “input” under the
above definition. In other words, it has been clarified
by the definition of “input” that the following
considerations will not be relevant:
(a) use of input in the manufacturing process be it
direct or indirect;
(b) even if the input is not contained in the final
product, it would still be covered by the definition.
These considerations have been made irrelevant by the
use of the expression “goods used in or in relation to
the manufacture of final product” which, as stated
above, is the crucial requirement of the definition of
“input.”
35. Moreover, the said expression viz. “used in or in
relation to the manufacture of the final product” in the
specific/substantive part of the definition is so wide
that it would cover innumerable items as “input” and
to avoid such contingency the legislature has
incorporated the inclusive part after the substantive
part qualified by the place of use. For example, one of
the categories mentioned in the inclusive part is “used
as packing material”. Packing material by itself would
not suffice till it is proved that the item is used in the
course of manufacture of final product. Mere fact that
the item is a packing material whose value is included
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in the assessable value of final product will not entitle
the manufacturer to take credit. Oils and lubricants
mentioned in the definition are required for smooth
running of machines, hence they are included as they
are used in relation to manufacture of the final
product. The intention of the legislature is that inputs
falling in the inclusive part must have nexus with the
manufacture of the final product.
36. Coming to the analysis of the inclusive part of the
definition one finds that it covers:
(a) lubricating oils, greases, cutting oils and coolants;
(b) accessories;
(c) paints;
(d) packing materials;
(e) input used as fuel;
(f) input used for generation of steam or electricity.
37. In our earlier discussion, we have referred to two
considerations as irrelevant, namely, use of input in
the manufacturing process, be it direct or indirect as
also absence of the input in the final product on
account of the use of the expression “used in or in
relation to the manufacture of final product”. Similarly,
we are of the view that consideration such as input
being used as packing material, input used as fuel,
input used for generation of electricity or steam, input
used as an accessory and input used as paint are per se
also not relevant. All these considerations become
relevant only when they are read with the expression
“used in or in relation to the manufacture of final
product” in the substantive/specific part of the
definition.
38. In each case it has to be established that inputs
mentioned in the inclusive part are “used in or in
relation to the manufacture of final product”. It is the
functional utility of the said item which would
9
constitute the relevant consideration. Unless and until
the said input is used in or in relation to the
manufacture of final product within the factory of
production, the said item would not become an eligible
input. The said expression “used in or in relation to the
manufacture” has many shades and would cover
various situations based on the purpose for which the
input is used. However, the specified input would
become eligible for credit only when used in or in
relation to the manufacture of final product……………
………………….. ……………………………………………
…………………………………………………………………..
……………………..
40. As stated, the definition is in three parts, namely,
specific part, inclusive part and place of use. All the
three parts are required to be satisfied before an input
becomes an eligible input.”
12. The effect of the afore-mentioned decision is that in order to
fall within the ambit of the term “inputs” within the
meaning of Rule 2(g) of the 2002 Rules, the goods must be (i)
used in or in relation to the manufacture of the final product,
whether directly and indirectly, and whether the said goods
are contained in the final product or not, (ii) covered within
the six categories of goods enumerated in Rule 2(g) and (iii)
used within the factory of production. We are constrained to
observe that while the subject goods must qualify the first
and third parts of the definition, viz. the specific part and
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location of use, as enumerated in the said judgment, but to
confine the goods only to the inclusive part of the definition
that is to the six categories of goods mentioned therein may
fall foul of the definition of the word “inputs” in Rule 2(g) of
the said Rules. Prima facie, we are of the view that the
legislature did not intend to restrict the definition of
“inputs” to only those six categories.
13. At this juncture, it would be expedient to refer to the
observations in The State of Bombay & Ors. Vs. The
Hospital Mazdoor Sabha & Ors.3, wherein a three judge
Bench of this Court has held that:
“10. There is another point which cannot be ignored.
Section 2(j) does not define “industry” in the usual
manner by prescribing what it means; the first clause
of the definition gives the statutory meaning of
“industry” and the second clause deliberately refers to
several other items of industry and brings them in the
definition in an inclusive way. It is obvious that the
words used in an inclusive definition denote extension
and cannot be treated as restricted in any sense. (Vide:
Stroud’s “Judicial Dictionary”, Vol. 2, p.1415). Where
we are dealing with an inclusive definition it would be
inappropriate to put a restrictive interpretation upon
terms of wider denotation.”
3
AIR 1960 SC 610
11
14. Similarly, in Regional Director, Employees’ State Insurance
Corporation Vs. High Land Coffee Works of P.F.X. Saldanha
and Sons & Anr.4, another three judge Bench of this Court
had observed that:
“The amendment is in the nature of expansion of the
original definition as it is clear from the use of the
words “include a factory”. The amendment does not
restrict the original definition of “seasonal factory” but
makes addition thereto by inclusion. The word
“include” in the statutory definition is generally used to
enlarge the meaning of the preceding words and it is by
way of extension, and not with restriction. The word
`include’ is very generally used in interpretation
clauses in order to enlarge the meaning of words or
phrases occurring in the body of the statute; and when
it is so used, these words or phrases must be construed
as comprehending, not only such things as they signify
according to their natural import but also those things
which the interpretation clause declares that they shall
include.”
15. Therefore, it is trite that generally the word “include” should
be given a wide interpretation as by employing the said
word, the legislature intends to bring in, by legal fiction,
something within the accepted connotation of the
substantive part.(Also see: C.I.T., Andhra Pradesh Vs. M/s.
4
(1991) 3 SCC 617
12
Taj Mahal Hotel, Secunderabad5; Indian Drugs &
Pharmaceuticals Ltd. & Ors. Vs. Employees’ State
Insurance Corporation & Ors.6; T.N. Kalyana Mandapam
Assn. Vs. Union of India & Ors.7). It is also well settled that
in order to determine whether the word “includes” has that
enlarging effect, regard must be had to the context in which
the said word appears. (See: The South Gujarat Roofing
Tiles Manufacturers Association & Anr. Vs. The State of
Gujarat & Anr.8; R. D. Goyal & Anr. Vs. Reliance Industries
Ltd.9 and Philips Medical Systems (Cleveland) Inc. Vs.
Indian MRI Diagnostic and Research Limited & Anr.10).
16. Thus, as already stated above, having regard to the language
of Rule 2(g) of the 2002 Rules, and the analysis of the
aforenoted decisions, it appears that by employing the
phrase “and includes”, legislature did not intend to impart a
restricted meaning to the definition of “inputs” and
therefore, the interpretation of the said term in Maruti
5
(1971) 3 SCC 550
6
(1997) 9 SCC 71
7
(2004) 5 SCC 632
8
(1976) 4 SCC 601
9
(2003) 1 SCC 81
10
(2008) 10 SCC 227
13
Suzuki Limited (supra), may require reconsideration by a
larger bench.
17. Accordingly, we direct that the papers of these cases be
placed before the Hon’ble Chief Justice of India for
constituting a larger bench.
…………………………………….
(D.K. JAIN, J.)
……………………………………..
(H.L. DATTU, J.)
NEW DELHI;
NOVEMBER 29, 2010
RS
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