ORDER
G. Sankaran Sr. Vice-President
1. This appeal is directed against Order-in-Appeal No. 98-CE/MTR/88 dated 20.5.88, passed by the Collector of Central Excise (Appeals), New Delhi.
2. The facts of the case, briefly stated, are that M/s. Vam Organic Chemicals Ltd. (hereinafter referred to as the appellants) are manufacturers of Organic Chemicals falling under heading No. 29.12 and 29.15 of the Central Excise Tariff Schedule, 1985. Duty paid molasses is used in the course of manufacture of the final products (Acetaldehyde, Acetic Acid, Acetic Anhydride, and Vinyl Acetate Monomer) as one of the raw materials. Ethyl alcohol emerges as an intermediate product in the course of such manufacture. Ethyl alcohol is not a substance on which Central Excise duty is leviable, it being out of the purview of the Central Excise duties. The scheme of credit of duty paid on inputs towards payment of the duty leviable on final products, as notified by the Government of India in Central Excise Notification No. 176/86 dated 1.3.1986 provides for availment of credit of excise duty paid on specified inputs used in the manufacture of specified final products. The lower authorities have held that since the intermediate product, ethyl alcohol, was not leviable with Central Excise duty at all, the benefit of the notification was not admissible to the appellants. Hence this appeal.
3. We have heard Shri Dushyant Dave, Counsel, for the appellants and Shri A.S. Sunder Rajan, DR, for the respondent Collector.
4. There is no dispute that the molasses in question was duty paid or that it was used captively in the manufacture of the final products. The only question falling for determination is whether in view of the fact that the intermediate product, ethyl alcohol, is not leviable at all with Central Excise duty, the appellants are debarred from availing themselves of the credit of the Central Excise duty paid on the input, namely, molasses, used in the manufacture of the final products. There is no dispute that the input and the final products are specified in the above-referred-to scheme.
5. Rule 57D(2) which is relevant for the present purpose reads as follows :
“Credit of specified duty allowed in respect of any inputs shall not be denied or varied on the ground that any intermediate products have come into existence during the course of manufacture of the final product and that such intermediate products are for the time being exempt from the whole of the duty of excise leviable thereon or chargeable to nil rate of duty.
Provided that such intermediate products are used within the factory of production in the manufacture of final product on which the duty of excise is leviable whether in whole or in part.”
6. While Shri Dave’s contention is that credit of input duty cannot be denied on the ground that the intermediate product, ethyl alcohol, is not leviable at all with Central Excise duty, Shri Sunder Rajan’s contention is that ethyl alcohol, not being leviable with Central Excise duty at all, cannot be said to be an intermediate product which “for the time being is exempt from the whole of the duty of excse leviable thereon or chargeable to nil rate of duty”.
7. The object of the scheme in Notification No. 176/86-CE dated 1.3.1986 is manifestly to provide for mitigation of the cascading effect of Central Excise duty leviable on inputs. Prior to this scheme, Rule 56A provided and it continues to provide a similar scheme though its scope is somewhat limited. However, the object was the same. The duty already paid on the inputs is allowed to be taken as a credit Under Rule 57A and, in terms of Rule 57F(3), allowed to be utilised towards payment of Central Excise duty on any of the final products in, or in relation to the manufacture of, which such inputs are used when such final products are cleared for home consumption. In terms of Rule 57D(2), as already noted, the credit of the input duty shall not be denied or varied on the ground that any intermediate products have come into existence during the course of manufacture of the final products and such intermediate products are exempt from the whole of the Central Excise duty leviable thereon or are chargeable to nil rate of duty. Evidently, the intermediate product under consideration, namely, ethyl alcohol, not being leviable at all with Central Excise duty cannot, as rightly argued by Shri Sunder Rajan and as correctly held by the lower authorities, be described as an intermediate product which “for the time being is exempt from the whole of the duty of excise leviable thereon or chargeable to nil rate of duty”. This is because “duty” as defined in Central Excise Rule 2(v) means the duty payable Under Section 3 of the Central Excises and Salt Act and can therefore be referable only to duty of Central Excise. But that, however, does not dispose of the dispute before us. The question still remains whether, even though ethyt alcohol, the intermediate product, is not leviable with duty of Central Excise, the appellants am entitled to, or debarred from, availing themselves of the credit of duty already paid on the input molasses. In our view, having regard to the object of the scheme, the rule should be construed in such a manner as to further that object and not hamper it. Viewed from this angle, Sub-rule (2) of Rule 57D should be read to mean not only that credit of input duty shall not be denied or varied in cases where excisable intermediate products emerge but are for the time being exempt from duty or are chargeable to nil rate of duty but also that if a non-excisable intermediate product emerges in the course of manufacture of a specified final product (as in this case) from a specified input (as in this case), the credit of the input duty is not impermissible. Rule 57C provides that no credit of duty paid on the inputs used in the manufacture of a final product shall be allowed if the final product is exempt from the whole of the duty of excise or is chargeable to nil rate of duty. In the present case, the final products are chargeable to Central Excise duty. There is no prohibition, in terms, in the rules which has the effect of debarring availment of credit of input duty if a non-excisable intermediate product emerges in the course of manufacture of specified final products from specified inputs. “Inputs” has been defined inter alia as including inputs which are manufactured and used within the factory of production, in or in relation to, the manufacture of final products. There are some exclusions like machines, certain packing materials and cylinders for packing gases. The present input does not fall in any of the exclusions. The inclusive part of the definition does not expressly exclude inputs which are manufactured and used within the factory of production, in or in relation to the manufacture of final products via the route of non-excisable intermediate products.
8. In this connection, it is relevant to note that by Notification No. 25/87-CE dated 1.3.87 inserting Rule 57K in the Central Excise Rules read with Notification No. 231/87-CE dated 1.10.87, ethyl alcohol came to be specified as an input for the manufacture of specified final products, in the context of price notified for ethyl alcohol under the order of the Government of India in the Ministry of Industry (Department of Chemicals and Petrochemicals) No. 15021/6/87-Ch. II Desk dated the 29th September, 1987 and the price paid for molasses as notified under the order of the Government of India in the Ministry of Industry (Department of Chemicals and Petro-Chemicals) No. 15021/29/87-Ch. II Desk dated the 25th September, 1987. Notification No. 231/87 sets out the rate of Rs. 258 per kilolitre of ethyl alcohol as the rate at which credit of “money” is to be given for the use of the such alcohol utilised in the manufacture of specified final products. The notification covers not only ethyl alcohol purchased by the manufacturer but also ethyl alcohol produced from molasses inside the factory where the final products are manufactured. These notifications no doubt came into force only from the date of their issue but they show that ethyl alcohol, though not an excisable intermediate product, has not come in the way of the input duty relief scheme. In the present case, during the period prior to these notifications, the credit of input duty will naturally be governed by the duty already paid on the input, namely, molasses.
9. As already stated, the intention behind the notification is obviously to give input duty relief where the final products are liable to excise duty. In this connection, it is relevant to note the Supreme Court’s observations in the case of Girdhari Lal and Sons – AIR 1986 SC 1499 :
“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 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.”
Viewed in the above light, it would be anomalous to hold that input duty relief would be available only in cases where the intermediate products are leviable with Central Excise duty even though, in reality, they may be exempt from such duty by means of a Rule 8(1) notification or may, in terms of the tariff schedule, be liable to “nil” rate of duty and not in cases where the intermediate products are not at all leviable with Central Excise duty and their consumption in the factory of production for the manufacture of specified final products which are liable to pay excise duty is not in dispute. The absurdity of the position taken by the Department will become all the more apparent when we see that the Central Government, in terms, thought it necessary to provide for credit of a certain fixed amount of money per kilolitre of ethyl alcohol when the prices of molasses and ethyl alcohol apparently came to be notified under the relevant law by the Ministry of Industry. This would not have been so had the Department’s stand that the emergence of ethyl alcohol as an intermediate product altogether disentitled the manufacturer from a vailment of the import duty relief scheme was correct.
10. In the above view of the matter, we are of the opinion that the appellants are eligible for credit of the duty already paid on the input (molasses) used in the manufacture of the specified final products, notwithstanding the fact that the intermediate product (ethyl alcohol) was not leviable with Central Excise duty. In the result, the impugned order is set aside and the appeal allowed with consequential relief to the appellants.
