COMMISSIONER OF CENTRAL EXCISE, JALANDHARversusM/S. KAY KAY INDUSTRIES

                    [2013) 9 S.C.R. 623


 COMMISSIONER OF CENTRAL EXCISE, JALANDHAR                         A
                               v.
                MIS. KAY KAY INDUSTRIES
              (Civil Appeal No. 7031 of 2009)
                     AUGUST 26, 2013
                                                                   B
         [ANIL R. DAVE AND DIPAK MISRA, JJ.]

    CENTRAL EXCISE RULES, 1944:

     rr. 57-A(4) and (5) read with r.57-A(6) and (1) - c
Notification No. 58197-CE(NT) dated 1.9.1997·- Deemed
MODVAT credit - Claimed by manufacturer of final product
- Adjudicating authority and appellate authority ordered
recovery of the amount on the ground that the supplier of
inputs had not discharged full duty liability - Held: In the 0
instant case,. a declaration was given by manufacturer of
inputs indicating that excise duty had been paid on the said
inputs under the Act - Further, the said inputs were directly
received from manufacturer and not purchased from the
market - When the prescribed procedure has been duly E
followed by assessee-manufacturer of final products, it cannot
be said that the assessee has not taken reasonable care as
prescribed in the notification - Orders of adjudicating authority
and appellate authority rightly quashed by Tribunal and High
Court - Notification No. 58197-CE (NT) dated 1.9.1997 - F
Clause (6) - Customs Tariff Act, 1975 - s. 3- Central Excise
Act, 1944.

     s.57-A(6), Proviso - Credit of duty of excise or additional
duty- Held: The proviso postulates and requires "reasonable
care» and not verification from the department whether the duty    G
stands paid by the manufacturer-seller.

    The respondent-company (in Civil Appeal No. 7031
of 2009) availed deemed MODVAT credit of Rs.77,546/-
                              623                                  H
   624     SUPREME COURT REPORTS              [2013] 9 S.C.R.

A during the quarter of March, 2000 on the strength of
  invoices issued by the manufacturer supplier of inputs.
  During MODVAT verification it was found that the supplier
  of inputs had not discharged full duty liability for the
  period covered by the invoices. The deemed MODVAT
B benefit availed was disallowed. Recovery of the said sum
  along with interest and a penalty of Rs.40,000/- was
  ordered. The Commissioner (Appeals), Central Excise
  concurred with the view taken by the adjudicating
  authority, but reduced the penalty from Rs.40,000/- to
c Rs.20,000/-. The Customs, Excise and Service Tax
  Appellate Tribunal held that the ct.!claration given by the
  appellant satisfied the conditions for claiming the deemed
  MODVAT credit and, accordingly, quashed the orders
  passed by the adjudicating authority and that of the
  appellate authority. The High Court dismissed the appeal
0
  of the Revenue.

         Dismissing the appeals, the Court

       HELD: 1.1. Rule 57A (1) of the Central Excise Rules,
E 1994 makes it clear that a manufacturer of final products
  can avail the credit of any duty of excise or the additional
  duty u/s. 3 of the Customs Tariff Act, 1975, as may be
  specified by the notification in the Official Gazette,
  subject to provisions of the section and the conditions
F and restrictions that may be specified in the notification.
  The proviso further stipulates that the Central
  Government may specify the goods or classes of goods
  in respect of which the credit of specified duty may be
  restricted. Thus, the conditions and restrictions have
G been left to be prescribed by way of notification in
  respect of certain classes of goods. [Para 20] [636-F-H;
  637-A]

       1.2. Sub-r. (6) of r. 57 A commences with a non-
  obstente clause and it empowers the Central Government
H to issue notification declaring. the inputs on which the
COMMISSIONER OF CENTRAL EXCISE, JALANDHAR v. 625
            KAY KAY INDUSTRIES

duty of excise paid u/~. 3A of the Act to be deemed to A
have been paid at such rate or equivalent to such
amount as may be specified in the said notification and
allow the credit of such duty in respect of the said inputs
at such rates or such amount and such conditions as
may be specified in the notification. The proviso to the B
said Rule stipulates that the manufacturer shall take all
reasonable steps to ensure that the inputs acquired by
him are goods on which the appropriate duty of excise,
as indicated in the documents accompanying the goods,
has been paid. Thus, an assessee is expected to take c
reasonable steps that appropriate duty, as indicated in
the documents, has been paid. [Para 21] [637-B-D]

     1.3. Clause (2) of the Notification No. 58/97-CE (NT)
dated 1-9-1997 issued under sub-r. (6) of r.57 A spells
about the concept of deemed payment of duty on the D
inputs and further prescribes that it shall be equivalent
to the amount calculated at the rate of twelve per cent of
the price, as declared by the manufacturer, in the invoice
accompanying the said inputs. On a plain reading of the
clauses (4) and (5) it is clear that there are two mandates E
to avail the benefit of the said notification. One part is
couched in the affirmative language and the other part is
in the negative. As per the first part it is obligatory on the
part of the assessee to produce the invoice declaring that
the. appropriate duty of excise has been paid on such F
inputs under the provision of s. 3-A of the Act. The
second command, couched in the negative, is that the
provisions of the said notification shall not apply to
inputs where the manufacturer of the said inputs has not
declared the invoice price of the said inputs correctly in G
the documents at the time of their clearance from his
factory. [Para 23] (638-E-H; 639-A]

    1.4. In the case at hand, there is no dispute that a
declaration was given by the manufacturer of the inputs
                                                            H
    626      SUPREME COURT REPORTS               [2013] 9 S.C.R.


A   indicating that the excise duty had been paid on the said
    inputs under the Act. It is also not in dispute that the said
    inputs were directly received from the manufacturer but not
    purchased from the market. The manufacturer of the inputs
    had declared the invoice price of the inputs correctly in the
B   documents. The case of Revenue is that at the time of
    MODVAT verification it was found that the supplier of the
    inputs had not discharged full duty liable for the period
    covered under the invoices. This lapse of the seller is
    different and not a condition or rather a pre-condition
c   postulated in the notification. [Para 24] [639-A-C]

          Vikas Pipes v. CCE 2003 (158) ELT 680 (P&H) - referred
    to.
       1.5. Rule 57 A (6) requires the manufacturer of final
o products to take reasonable care that the inputs acquired
  by him are goods on which the appropriate duty of excise
  as indicated in the documents accompanying the goods,
  has been paid. The notification has been issued in
  exercise of the power under the said Rule. The
E notification clearly states to which of those inputs it shall
  apply and to which of the inputs it shall not apply and
  what is the duty of the manufacturer of final inputs. Thus,
  when there is a prescribed procedure and that has been
  duly followed by the manufacturer of final products, it
F leaves no justifiable reason to hold that the assessee-
  appellant had not taken reasonable care as prescribed in
  the notification. Due care and caution was taken by the
  respondent. The proviso postulates and requires
  "reasonable care" and not verification from the
  department whether the duty stands paid by the
G manufacturer-seller. When all the conditions precedent
  have been satisfied, to require the assessee to find out
  from the departmental authorities about the payment of
  excise duty on the inputs used in the final product which
  have been made allowable by the notification would be
H travelling beyond the notification, and in a way,
COMMISSIONER OF CENTRAL EXCISE, JALANDHAR v. 627
            KAY KAY INDUSTRIES

transgressing the same. This would be practically A
impossible and would lead to transactions getting
delayed. The conclusion in the instant case is pertaining
to clauses 4 and 5 of the Notification. This Court concurs
with the view expressed by the High Court. [Para 25] [639-
D-H; 640-A-C]                                              B

   Collector of Central Excise, Vadodara v. Dhiren
                                                  =
Chemical Industries 2001 (5) Suppl. SCR 607 (2002) 2
sec 127 - distinguished.
     Collector of Central Excise, Patna v. Usha Martin C
Industries 1997(3) Suppl. SCR 601 = 1997 (7) SCC 47; and
Motiram Tolaram and another v. Union of India and another
1999 (1) Suppl. SCR 82 = 1999 (6) SCC 375 - referred to.
                     Case Law Reference:                     D
    2003 (158) ELT 680 (P&H) referred to           para 4
    2001 (5) Suppl. SCR 607 distinguished          para 7
    1997(3) Suppl. SCR 601         referred to     para 10
                                                             E
    1999 (1) Suppl. SCR 82         referred to     para 10
    CIVIL APPELLATE JURISDICTION : Civil Appeal No.
7031 of 2009.
    From the Judgment & Order dated 26.09.2006 of the High   F
Court of Punjab & Haryana at Chandigarh in Central Excise
Appeal No. 65 of 2006.
                            WITH
C.A. Nos. 7032, 7034 of 2009 & C.A. Nos. 7~92 & 7393 of G
2010, C.A. No. 7148 of 2013.
    Arijit Prasad, B. Krishna Prasad for the Appellant.

    Ajay Aggarwal, Rajan Narain for the Respondents.

    The Judgment of the Court was delivered by               H
    628     SUPREME COURT REPORTS                  [2013] 9 S.C.R.


A        DIPAK MISRA, J. 1. Leave granted in Special Leave
    Petition (C) No. 26499 of 2008.

         2. The controversy that emerges for consideration in this
    batch of appeals, being consubstantial, was heard together and
8   is disposed of by a common judgment. For the sake of
    convenience the facts from Civil Appeal No. 7031 of 2009 are
    set out herein.

        3. The respondent-company availed deemed MODVAT
  credit of Rs.77,546/- during the quarter of March, 2000 on the
C strength of invoices issued by Mis. Sawan Mal Shibhu Mal
  Steel Re-Rolling Mills, Mandi Govindgarh. During MODVAT
  verification it was found that the supplier of inputs had not
  discharged full duty liability for the period covered by the
  invoices. The Competent Authority was of the view that
D appropriate duty of excise had not been paid by the
  manufacturer of inputs under the invoices on the strength of
  which the respondent took the benefit of deemed MODVAT
  credit and it was obligatory on the part of the respondent to take
  all reasonable steps to ensure that the appropriate duty of
E excise had been paid on the inputs used in the manufacture of
  their final product as required under Rule 57A(6) of the Central
  Excise Rules, 1944 (for short "the Rules") read with notification
  No. 58/97-CE(NT) dated 30.8.1997 and the aforesaid opinion
  of the Competent Authority persuaded him to issue a show-
F cause notice on 19.1.2001 proposing recovery of deemed
  MODVAT credit of Rs.77,546/- and imposition of penalty. The
  adjudicating authority, after receipt of the reply to the show-
  cause notice, by order dated 22.3.2002, disallowed the
  deemed MODVAT benefit earlier availed and ordered for
G recovery of the said sum along with interest, and, further
  imposed penalty of Rs.40,000/-.

        4. Being aggrieved by the aforesaid order the respondent
    preferred an appeal before the Commissioner (Appeals),
    Central Excise, Jalandhar, who ruled that the credit of deemed
H   duty paid by the manufacturer under Section 3A of the Central
 COMMISSIONER OF CENTRAL EXCISE, JALANDHAR v. 629
      KAY KAY INDUSTRIES [DIPAK MISRA, J.]
Excise Act, 1944, (for brevity "the Act") was available subject     A
to the condition that the inputs were received directly from the
factory of manufacturer under cover of an invoice declaring
therein that the appropriate duty of excise had been paid on
such inputs under the provisions of the Act. The appellate
authority referred to the provisions of sub-rule (6) of Rule 57A    B
and notification No. 58/97-CE(NT) dated 1.9.1997 and opined
that the manufacturer of the inputs had not discharged the
appropriate duty liability against the goods cleared vide the
invoices and the respondent had not furnished the requisite
documentary evidence which could controvert the said                c
allegation made against the manufacturer of inputs. The
appellate authority observed that unless and until payment of
appropriate duty had been made, the assessee could not have
availed the benefit. Expressing such an opinion, it concurred
with the view taken by the adjudicating authority. However, it      0
reduced the penalty from Rs.40,000/- to Rs.20,000/-.

     5. The unsuccess in appeal compelled the respondent to
prefer Appeal No. E/1474/04-SM before the Customs, Excise
and Service Tax Appellate Tribunal (for short "the tribunal") and
the tribunal placing reliance on the decision in Vikas Pipes v.     E
CCE1 came to hold that the declaration given by the appellant
therein satisfied the conditions enumerated in the notification
for claiming the deemed MODVAT credit and, accordingly,
quashed the orders passed by the adjudicating authority and
that of the appellate authority.                                    F
    6. Questioning the justifiability of the aforesaid order,
Revenue preferred Civil Appeal No. 65 of 2006 before the High
Court. The High Court reproduced the proposed substantial
question of law which reads as follows: -
                                                                    G
      "Whether the manufacturer of final products is entitled to
      deemed credit, under Notification 58/97-CE dated 30.8.97
      when the manufacturer-supplier of inputs has not paid

1.   2003 (156) ELT 680 (P & H)                                     H
    630       SUPREME COURT REPORTS                  [2013] 9 S.C.R.


A         Central Excise Duty and given a wrong certificate on the
          body of invoices about duty dischargement under Rule
          96ZP of Central Excise Rules, 1944?"

         7. While dealing with the aforesaid substantial question of
    law, the High Court referred to its earlier decision in Vikas Pipes
8
    (supra) and distinguished the decision in Collector of Central
    Excise, Vadodara v. Dhiren Chemical lndustries 2 and
    ultimately concurring with the view expressed by the tribunal
    dismissed the appeal. Hence, the present appeal by the
    Revenue.
c
        8. Assailing the legal substantiality of the impugned
  judgment it is urged by Mr. Arjit Prasad, learned counsel for the
  appellant that the tribunal as well as the High Court has fallen
  into error in their interpretation of Rule 57A(6) of the Rules and
D the notification which imposes conditions, for as per the
  conditions enumerated in the notification it is obligatory on the
  part of the manufacturer of the final products to satisfy the
  adjudicating authority that appropriate duty of excise had been
   paid. The learned counsel would submit that the "appropriate
E duty" has been squarely dealt with by the Constitution Bench
   in the case of Dhiren Chemical Industries (supra) but the High
   Court has failed to appreciate the ratio laid down therein and
   distinguished the same in an extremely cryptic manner which
   makes the verdict sensitively susceptible.
F       9. Resisting the aforesaid submissions, Mr. Ajay Aggarwal,
  learned counsel for the respondent, has contended that the
  tribunal and the High Court have appositely relied upon the
  decision in Vikas Pipes (supra) and correctly opined that the
  respondent had satisfied the conditions enshrined in the
G notification and, therefore, there was no warrant to proceed for
  recovery of the benefit availed of by the final manufacturer. The
  learned counsel would submit that the "appropriate duty", as
  interpreted by this Court in Dhiren Chemical Industries (supra),

H 2. (2002) 2 sec 121.
 COMMISSIONER OF CENTRAL EXCISE, JALANDHAR v. 631
      KAY KAY INDUSTRIES [DIPAK MISRA, J.]

supports the case of the respondent and the conditions A
prescribed in the notification having been satisfied, the
adjudicating authority as well as the first appellate authority has
erred in holding that there was a failure on the part of the
respondent to satisfy the conditions.
                                                                    B
     10. To appreciate the rival submissions raised at the Bar
and the bold assertion by Mr. Prasad, learned counsel for the
Revenue, that it was the duty of the assessee-respondent, the
manufacturer of the final products, to see that the manufacturer
of the inputs had actually paid the appropriate duty on the inputs C
on the bedrock of law laid down by the Constitution Bench in
Dhiren Chemical Industries (supra), it is necessary to
understand how and under what circumstances the controversy
travelled to the Constitution Bench. Be it noted, the Constitution
Bench was required to resolve the conflict between the two
pronouncements, namely, Collector of Central Excise, Patna D
v. Usha Marlin lndustries3 and Motiram Tolaram and Another
v. Union of India and Another. 4
                                                         '
      11. In Usha Martin Industries (supra) the Court was
interpreting the exemption notification dated 30.11.1963 as E
amended on 7.4.1981 and the question before the three
learned Judges was whether the benefit of excise duty
exemption (granted by the Central Government as per certain
notifications) could be claimed in respect of commodities made
out of raw material on which no excise duty was payable. The F
Central Government had exempted iron or steel products falling
under a particular category made from certain materials or
combination thereof. One of them was fresh unused re-rollable
scrap on which the appropriate amount of duty of excise had
already been paid. The Bench adverted to various aspects and, G
eventually, came to hold that the duty could legitimately be
claimed by the assessee in respect of those goods referred
to in the notification under consideration the raw material of
3.   (1997) 1 sec 47.
4.   (1999) a sec 375.                                             H
    632     SUPREME COURT REPORTS                  [2013] 9 S.C.R.


A   which were not exigible to any excise duty at all.

        12. In Motiram Tolaram (supra), another three-Judge
  Bench was dealing with notification No. 185 of 1983. It was a
  notification pertaining to exemption of alcohol falling under item
B 15-A of the First Schedule to the Central Excises and Salt Act,
  1944 and manufactured from vinyl acetate monomer, from so
  much of the duty of excise leviable thereon under the said Act
  at the rate specified in the First Schedule, as in excess of the
  amount calculated at the rate of 10% ad valorem. The proviso
  to the notification stipulated that such polyvinyl alcohol was
C required to be manufactured from vinyl acetate monomer on
  which the appropriate amount of duty of excise under Section
  3 of the Central Excises and Salt Act or the additional duty
  under Section 3 of the Customs Tariff Act, 1975, as the case
  may be, had been paid. A contention was raised before the
D Court that in India there was only one manufacturer of polyvinyl
  alcohol and the commodity in question could be produced only
  from vinyl acetate monomer and the Indian manufacturer was,
  in fact, paying duty at the rate of 10% ad velorem and that was
  the only duty which could be charged from the appellants therein.
E It was urged before the Court that the appellants were
  manufacturing that item in India from vinyle acetate monomer
  on which appropriate duty of excise had been paid and,
  therefore, the concessional duty should be charged from them.
  The learned Judges referred to the language employed in the
F exemption notification and opined that onus was on the
  assessee to prove and show that the conditions, as imposed
  in the exemption notification, had been satisfied. In that context
  the Bench proceeded to state that the condition for getting the
  benefit of the lower rate of duty is that on the raw material used
G appropriate amount of duty has been paid. If perchance or for
  any reason, the manufacturer of polyvinyl alcohol in India is
  unable to prove or show that the same has been manufactured
  from vinyl acetate monomer on which appropriate amount of
  duty of excise has been paid, then the said manufacturer would
H not be entitled to get the benefit of the said notification.
 COMMISSIONER OF CENTRAL EXCISE, JALANDHAR v. 633
      KAY KAY INDUSTRIES [DIPAK MISRA, J.]
      13. Thereafter, the Court referred to Section 3 of the A
Customs Tariff Act, 1975 and observed that one has to assume
that the importer of polyvinyl alcohol had actually manufactured
the same in India. One can further assume, possibly without any
difficulty, that the said polyvinyl alcohol has been manufactured
from vinyl acetate monomer, but it is not possible to assume B
or presume or imagine that the raw material used is the one
on which appropriate amount of duty of excise has been paid
in India and hence, the condition which is contained in the said
notification has to be fulfilled in order to get the benefit of the
notification.                                                       c
      14. The Court further stressing on the purpose of the
notification expressed thus: -

    "11. It appears to us that Excise Notification No. 185 of
    1983 was deliberately worded in such a way that the D
    importer of polyvinyl alcohol, who may not be able to prove
    that on the raw material appropriate duty in India has been
    paid, will not be able to get the benefit of the concessional
    rate of duty. It has to be borne in mind that the normal duty
    which is payable on polyvinyl alcohol is 40%. That is the E
    rate of excise duty which would be payable by an Indian
    manufacturer of polyvinyl alcohol who is unable to show that
    he has complied with the condition contained in the
    proviso, namely, use in the manufacture of vinyl acetate
    monomer on which appropriate amount of duty has been F
    paid. Similarly an importer of polyvinyl alcohol would be
    required to pay under Section 3 duty at the rate of 40%
    because on the polyvinyl alcohol imported duty under
    Section 3 of the Central Excises and Salt Act or additional
    duty under Section 3 of the Customs Tariff Act has not been G
    paid on the vinyl acetate monomer used in the manufacture
    of polyvinyl alcohol. If it was possible to have shown that
    duty-paid vinyl acetate monomer had been used in the
    manufacture of imported polyvinyl alcohol, then the benefit
    of Excise Notification No. 185 of 1983 would have been
    available."                                                   H
    634       SUPREME COURT REPORTS                  [2013) 9 S.C.R.


A        15. Eventually, the Court ruled that appropriate duty means
    the duty payable under the Central Excise and Salt Act or under
    the Customs Tariff Act and the condition had not been satisfied
    in the said case.

B         16. As a conflict was perceived in the aforesaid two
    judgments, it was referred to the Constitution Bench in Dhiren
     Chemical Industries (supra). The Constitution Bench adverted
    to the law laid down in Usha Margin Industries and Motiram
     Tolaram (supra) and, eventually, opined thus: -

c         "6. In the case of Motiram Tolaram reliance was placed
          upon the case of Usha Martin to contend that the
          appropriate duty being nil, because the raw material was
          not manufactured in India, it must be taken that appropriate
          duty had been paid and the appellants would be entitled
D         to the benefit of the exemption notification in question,
          which used the said phrase. The Court was unable to
          agree. It said that the raw material being an item which
          was manufactured in India, a rate of excise duty was
          leviable thereon. On the raw material which had been
E         imported, the appropriate amount of duty had not been
          paid. It was only if this payment had been made that the
          exemption notification would be applicable.

          7. In our view, the correct interpretation of the said phrase
          has not been placed in the judgment in the case of Usha
F         Martin. The stress on the word "appropriate" has been
          mislaid. All that the word "appropriate" in the context
          means is the correct or the specified rate of excise duty.

          8. An exemption notification that uses the said phrase
G         applies to goods which have been made from duty-paid
          material. In the said phrase, due emphasis must be given
          to the words "has already been paid". For the purposes
          of getting the benefit of the exemption under the
          notification, the goods must be made from raw material
H         on which excise duty has, as a matter of fact, been paid,
COMMISSIONER OF CENTRAL EXCISE, JALANDHAR v. 635
     KAY KAY INDUSTRIES [DIPAK MISRA, J.]

     and has been paid at the "appropriate" or correct rate. A
     Unless the manufacturer has paid the correct amount of
     excise duty, he is not entitled to the benefit of the exemption
     notification."

     17. At this juncture, we are obliged to state that the factual 8
and legal matrix in the case at hand is quite different. The
decision proceeded on the language of the notifications.
Moreover, we are not dealing with a notification for exemption.
The controversy pertains to the interpretation of the notification
No. 58/97-CE dated 30.8.1997 which has been issued in
exercise of powers conferred by sub-rule (6) of Rule 57A of the C
Rules dealing with availing of MODVAT credit under certain
circumstances subject to satisfaction of certain conditions
precedent.

     18. Before we advert to the notification it is necessary to D
refer to Rule 57A(1) and (6). The relevant part of Rule 57A(1)
reads as follows: -

    "57A: Applicability. - (1) The provisions of this section shall
    apply to such finished excisable goods (hereinafter referred E
    to as the 'final products') as the Central Government may,
    by notification in the Official Gazette, specify in this behalf,
    for the purpose of allowing credit of any duty of excise or
    the additional duty under Section 3 of the Customs Tariff
    Act, 1975 (51 of 1975), as may be specified in the said
    notification (hereinafter referred to as the 'specified duty') F
    paid on the goods used in or in relation to the manufacture
    of the said final products whether directly or indirectly and
    whether contained in the final product or not (hereinafter
    referred to as the 'inputs') and for utilizing the credit so
    allowed towards payment of duty of excise leviable on the G
    final products, whether under the Act or under any other Act,
    as may be specified in the said notification, subject to the
    provisions of this section and the conditions and
    restrictions that may be specified in the notification:
                                                                   H
    636          SUPREME COURT REPORTS               [2013] 9 S.C.R.


A          (i)     Provided that the Central Government may specify
                   the goods or classes of goods in respect of which
                   the credit of specified duty may be restricted."

          19. Sub-rule (6) of Rule 57 A in exercise of which the
    notification has been issued is as follows: -
8
          "(6) Notwithstanding anything contained in sub-rule (1 ), the
          Central Government may, by notification in the Official
          Gazette, declare the inputs on which the duty of excise paid
          under section 3A of the Central Excise Act, 1944 (1 of
C         1944), shall be deemed to have been paid at such rate or
          equivalent to such amount as may be specified in the said
          notification, and allow the credit of such duty in respect of
          the said inputs at such rates or such amount and subject
          to such conditions as may be specified in the said
D         notification:

                Provided that the manufacturer shall take all
          reasonable steps to ensure that the inputs acquired by him
          are goods on which the appropriate duty of excise as
          indicated in the documents accompanying the goods, has
E         been paid under section 3A of the Central Excise Act. 1944
          (1 of1944)."

                                                 [Emphasis supplied]

F         20. On a careful reading of Rule 57 A(1 ), it is clear as
    crystal that a manufacturer of final products can avail the credit
    of any duty of excise or the additional duty under Section 3 of
    the Customs Tariff Act, 1975, as may be specified by the
    notification in the Official Gazette subject to provisions of the
G   Section and the conditions and restrictions that may be
    specified in the notification. The proviso further stipulates that
    the Central Government may specify the goods or classes of
    goods in respect of which the credit of specified duty may be
    restricted. Thus, the conditions and restrictions have been left
H   to be prescribed by way of notification in respect of certain
COMMISSIONER OF CENTRAL EXCISE, JALANDHAR v. 637
     KAY KAY INDUSTRIES [DIPAK MISRA, J.]
classes of goods.                                                         A

     21. Sub-rule (6) of Rule 57A commences with a non-
obstente clause and it empowers the Central Government to
issue notification declaring the inputs on which the duty of
excise paid under Section 3A of the Act to be deemed to have              B
been paid at such rate or equivalent to such amount as may
be specified in the said notification and allow the credit of such
duty in respect of the said inputs at such rates or such amount
and such conditions as may be specified in the notification. It
is pertinent to state here that the proviso to the said Rule              C
stipulates that the manufacturer shall take all reasonable steps
to ensure that the inputs acquired by him are goods on which
the appropriate duty of excise, as indicated in the documents
accompanying the goods, has been paid. Thus, what is
expected of an assessee is to take reasonable steps that
appropriate duty, as indicated in the documents, has been                 D
paid.

      22. At this juncture, it is relevant to refer to the notification
issued under sub-rule (6) of Rule 57A on 30.8.1997. In the said
notification iron and steel have been mentioned as goods                  E
notified for the purposes of credit of duty under MODVAT. The
relevant clauses of the notification for the present purpose are
clauses 2, 4 and 5 and, hence, they are reproduced below: -

     "2. The Central Government further declares that the duty
                                                                          F
     of excise under the Central Excise Act, 1944 (1 of 1944)
     (hereinafter referred to as said Act), shall be deemed to
     have been paid (hereinafter referred to as deemed duty),
     on the inputs declared herein and the same shall be
     equivalent to the amount calculated at the rate of twelve
     per cent of the price, as declared by the manufacturer, in           G
     the invoice accompanying the said inputs (hereinafter
     referred to as invoice price), and credit of the deemed duty
     so determined shall be allowed to the manufacturer of the
     final products.
                                                                          H
    638       SUPREME COURT REPORTS                  [2013] 9 S.C.R.


A         xxx xxx xxx xxx
         4.    The provisions of this notification shall apply to only
        ·those inputs which have been received directly by the
         manufacturer of the final products from the factory of the
         manufacturer of the said inputs under the cover of an
B
         invoice declaring that the appropriate dutv of excise has
         been paid on such inputs under the provisions of section
         3A of the said Act.

          5.    The provisions of this notification shall not apply to
c         inputs where the manufacturer of the said inputs has not
          declared the invoice price of the said inputs correctly in
          the documents issued at the time of their clearance from
          his factory."

D                                               [Emphasis supplied]

         23. We have· referred to the aforesaid notification in
    extenso as the controversy really rests on the understanding of
    the language employed in the notification. Clause (2) spells
    about the concept of deemed payment of duty on the inputs and
E   further prescribes that it shall be equivalent to the amount
    calculated at the rate of twelve per cent of the price, as declared
    by the manufacturer, in the invoice accompanying the said
    inputs. Clause (3) deals with a different fact situation and,
    hence, it need not be dwelled upon. Clauses (4) and (5) are
F   really relevant for the present purpose. On a plain reading of
    the said clauses it is clear to us that there are two mandates
    to avail the benefit of the said notification. One part is couched
    in the affirmative language and the other part is in the negative.
    As per the first part it is obligatory on the part of the assessee
G   to produce the invoice declaring that the appropriate duty of
    excise has been paid on such inputs under the provision of
    section 3-A of the Act The second command, couched in the
    negative, is that the provisions of the said notification shall not
    apply to inputs where the manufacturer of the said inputs has
H   not declared the invoice price of the said inputs correctly in the
COMMISSIONER OF CENTRAL EXCISE, JALANDHAR v. 639
     KAY KAY INDUSTRIES [DIPAK MISRA, J.]
documents at the time of their clearance from his factory.         A

      24. In the case at hand, there is no dispute that a
declaration was given by the manufacturer of the inputs
indicating that the excise duty had been paid on the said inputs
under the Act. It is also not in dispute that the said inputs were
                                                                    8
directly received from the manufacturer but not purchased from
the market. There is no cavil over the fact that the manufacturer
of the inputs had declared the invoice price of the inputs
correctly in the documents. It is perceivable from the factual
matrix that the only allegation is that at the time of MODVAT
verification it was found that the supplier of the inputs had not C
discharged full duty liable for the period covered under the
invoices. This lapse of the seller is different and not a condition
or rather a pre-condition postulated in the notification.

      25. Mr. Prasad, learned counsel for the revenue has D
vehemently urged that it was requisite and, in a way imperative,
on the part of the assessee to verify from the concerned
authority of the department whether the excise duty had actually
been paid or not. The aforesaid submission leaves us
unimpressed. As we notice Rule 57A (6) requires the E
manufacturer of final products to take reasonable care that the
inputs acquired by him are goods on which the appropriate duty
of excise as indicated in the documents accompanying the
goods, has been paid. The notification has been issued in
exercise of the power under the said Rule. The notification F
clearly states to which of those inputs it shall apply and to which
of the inputs it shall not apply and what is the duty of the
manufacturer of final inputs. Thus, when there is a prescribed
procedure and that has been duly followed by the manufacturer
of final products, we do not perceive any justifiable reason to G
hold that the assessee-appellant had not taken reasonable care
as prescribed in the notification. Due care and caution was
taken by the respondent. It is not stated what further care and
caution could have been taken. The proviso postulates and
requires "reasonable care" and not verification from the H
    640     SUPREME COURT REPORTS                  (2013] 9 S.C.R.

A   department whether the duty stands paid by the manufacturer-
    seller. When all the conditions precedent have been satisfied,
    to require the assessee to find out from the departmental
    authorities about the payment of excise duty on the inputs used
    in the final product which have been made allowable by the
B   notification would be travelling beyond the notification, and in
    a way, transgressing the same. This would be practically
    impossible and would lead to transactions getting delayed. We
    may hasten to explicate that we have expressed our opinion
    as required in the present case pertaining to clauses 4 and 5
c   of the notification.

         26. Consequently, we concur with the view expressed by
    the High Court and accordingly the appeals, being devoid of
    merit, stand dismissed without any order as to costs.

D R.P.                                        Appeals dismissed.