Holding

Both conditions for exemption under Notification No. 14/2002‑CE are satisfied; therefore grey fabrics attract a nil rate of duty.

Summary

Bombay Dyeing & Manufacturing Co. operated a composite mill where yarn was spun and grey fabrics were woven but not further processed. Under Notification No. 14/2002‑CE, such grey fabrics are exempt from excise duty (nil rate) provided (i) duty on the yarn input is paid before claiming the exemption and (ii) no CENVAT credit is taken on that duty before the exemption is claimed. The assessee could not pay duty at the spindle stage, so it paid the yarn duty on a deferred basis at the time of clearance of the grey fabric for home consumption, together with interest, and subsequently reversed the CENVAT credit before it could be utilized. The Revenue argued that the two conditions were not satisfied and demanded duty at 12%; the Commissioner (Appeals) and the Tribunal allowed the exemption relying on Trade Notice 40/96. The Supreme Court held that payment of duty on yarn before the stage of exemption (i.e., before clearance of the grey fabric) fulfills the first condition, and reversal of the CENVAT credit means the credit was not taken, satisfying the second condition. Consequently, the grey fabrics fall under item 1 of the notification and attract a nil rate of duty. The civil appeal filed by the Department was dismissed.

Issues considered

The exemption under Notification No. 14/2002‑CE is available only if duty on yarn is paid before claiming exemption and no CENVAT credit is taken on that duty; does payment of yarn duty on a deferred basis at the stage of grey‑fabric clearance satisfy the first condition?
Does reversal of CENVAT credit before its utilization satisfy the second condition for exemption?
Whether Trade Notice 40/96 and the mode of deferred payment are permissible under the 2002 Central Excise Rules.

Legislation cited

Additional Duties of Excise (Goods of Special Importance) Act, 1957
Central Excise Act, 1944s. 11AB
Central Excise Rules, 2002s. Rule 8(3)
CENVAT Credit Rules, 2002s. Rule 11, s. Rule 3

Subjects

Central ExciseExemption NotificationGrey fabricsCENVAT creditDeferred duty paymentTrade Notice 40/96Nil rate of duty

Judgment

-(
~

COMMISSIONER OF CENTRAL EXCISE, MUMBAI-I A
v.
MIS BOMBAY DYEING & MFG. CO. LTD.

AUGUST 8, 2007

[S.H. KAPADIA AND B. SUDERSHAN REDDY, JJ.J B
"
"'T' ~

Central Excise Act, 1944-Fabrics not subjected to any process-
Exempted from excise duty-By a Notification-Subject to twofold conditions-
Claim for exemption-Denied by Revenue-Claim of the assessee permitted
by the appellate authority and the Tribunal-On appeal, held: In the facts
c
of the case, the twofold conditions for the exemption has been satisfied by
the assessee-Hence, entitled for exemption-Notification No. 1412002-CE
dated March 1, 2002-CENVAT Credit Rules, 2002.

The assessee-company (respondent), in one of its Mills used to spin the D
yarn and then used to prepare grey fabrics on weaving the yarns. The woven
fabrics which were not subjected to any process used to be sold to third parties.
Entry 1 of the table of Notification No. 14/2002-CE dated March 1, 2002
granted exemption from the duty on the condition that the said fabrics were
made from the textile yarn on which appropriate duty of excise sto(ld paid and
no duty paid on inputs had been taken under CENVAT Credit Rules, 2002. E
As the assessee was not in a position to pay duty on yarn at spindle
stage, they opted to pay duty on yarn on deferred basis at the time of clearance
of grey fabric for home consumption alongwith interest at the rate prescribed
under s. llAB of Central Excise Act, 1944 r/w r. 8(3) of Central Excise Rules,
)
2002. On paymentof duty he availed CENVAT credit, which was reversed by F
the assessee before utilization of the same. Revenue-appellant demanded duty
at the rate of 12% denying exemption under the Notification for 'Nil' rate of
duty on the ground that the assessee had not complied with the two conditions
for the exemption. The demand was confirmed by Deputy Commissioner.
Commissioner (Appeals) allowed the appeal of the assessee relying on Trade G
Notice No. 40/96. The order was confirmed by the Tribunal. Hence the present
).; appeal.

Dismissing the appeal. the Court

913 H
914 SUPREME COURT REPORTS [2007) 8 S.C.R.

A HELD: Under Notification No. 14/2002-CE dated March 1, 2002, mode 'r
....
of payment has not been prescribed. Further, exemption is given to the final
product, namely, grey fabric under the Central Excise Act, 1944, levy is on
manufacture but payment is at the time of clearance. Under the Act, payment
of duty on yarn had to be at the spindle stage. Under the Exemption Notification
the requirement was that exemption on grey fabrics was admissible subject
B to the assessee paying duty on yarn before claiming exemption and subject to
the assessee not claiming CENV AT credit before claiming exemption. The

--
,)
question of exemption from payment of duty on grey fabrics arose on
satisfaction of the said two conditions. In this case, payment of duty on yarn -+
on deferred basis took place before clearance of grey fabrics on which
c exemption was claimed. Therefore, payment was made before the stage of
exemption. Similarly, on payment of duty on the input (yarn) the assessee got
the credit which was never utilized. That before utilization, the entry has been
reversed which amounts to not taking credit. Hence, in this case, both the
conditions are satisfied. Hence item no. 1 of the table to the Notification would
apply and accordingly the grey fabrics would attract nil rate of duty.
D (Para SJ (925-C, D, E, FJ

Collector of Central Excise v. Dai !chi Karkaria Lid., (1999) 112 E.L.T. ~
353, relied on.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1767 of2007.
E
From the final Order No. A/1342/WZB/06-C.II (E.B.) dated 06.07.2006 of
the Customs Excise and Service Tax Appellate Tribunal, West Zonal Bench,
Mumbai in Appeal No. E/1333 of2003 Mum.

Vikas Singh, ASG, Shweta Garg, Raguvender Rao and B.K. Prasad for
F the Appellant.
'f
Atul Setalvad, F. Karbhari, R.N. Karanjawala, Nandini Gore, D. Banerjee
and Manik Karanjawala for the Respondent.

The Judgment of the Court was delivered by
G
KAPADIA: J. I. Interpretation of Notification No. 14/2002-CE arises for
detennination in this civil appeal filed by the Department. The facts giving rise
to this civil appeal are as follows: I

2. The assessee has two textile mills in Mumbai known as the Spring
.....
H
COMMNR. OF CENTRAL EXCISE, MUMBAI-Iv. BOMBAY DYEING & MFG. CO.LTD. [KAPADIA, J.) 915

Mills and the Textile Mills. This civil appeal relates to the former. Spring Mills A
is a composite name of the mill in which there is a spinning section where
yam is spun from raw cotton, and a weaving section where grey fabrics is
woven from such yam. The grey fabrics woven in the Spring Mills are not
processed at Spring Mills. Most of the grey fabrics manufactured by the
assessee are processed by the Textile Mill though some quantity thereof is
sold to third parties. In this civil appeal, we are concerned with the period B
13.3.2002 to 15.9.2002. In this civil appeal, we are not concerned with
quantification. That question is even today pending adjudication.
+ 3. At the outset, we quote hereinbelow notification no. 14/2002-CE
granting exemption, both full and partial to a range of goods. As stated
above, in this civil appeal we are concerned with the item, namely, grey fabrics C
manufactured by the assessee. In this civil appeal, we are concerned with the
interpretation of item I and item 2 of the table to the notification.
"Notification No.14/2002-CE dated Ol-Mar-2002
Processed textile fabrics - Effective rate of duty Notification No. I I/ D
2001-C.E. superseded.
In exercise of the powers conferred by sub-section (1) of section
SA of the Central Excise Act, I 944 (I of 1944) read with sub-section
(3) of section 3 of the Additional Duties of Excise (Goods of Special
Importance) Act, 1957 (58 of 1957) and in supersession of the
notification of the Government of India in the Ministry of Finance E
(Department of Revenue), No. 11/2001-Central Excise, dated the 1st
March, 2001, published in the Gazette oflndia vide number G.S.R. 136
(E), dated the I st March, 200 I, except as respects things done or
omitted to be done before such supersession, the Central Government
). . being satisfied that it is necessary in the public interest so to do, F
hereby exempts excisable goods of the description specified in column
(3) of the Table below and falling within the Chapter, heading No. or
sub~heading No. of the First Schedule to the Central Excise Tariff Act,
I 985 (5 of I 986), specified in the corresponding entry in column (2)
of the said Table, from so much of the aggregate of, -
G
(a) •he duty of excise specified in the First Schedule to the said
Central Excise Tariff Act; and
\. (b) the duty of excise specified in the First Schedule to the said
Additional Duties of Excise (Goods of Special Importance) Act,
(hereinafter referred to as the 'aggregate duty') as is in excess of an H
916 SUPREME COURT REPORTS [2007] 8 S.C.R.

A amount calculated at the rate specified in the corresponding entry in ,....
column (4) of the said Table, subject to the relevant conditions specified
below the said Table, and referred to in the corresponding entry in
column (5) of the said Table:

Provided that the aggregate duty of sixteen per cent. ad valorem
B leviable on the excisable goods specified in S. No. 9 of the Table
below shall be apportio~ed equally between the duty leviable under
the said Central Excise Act and the said Additional Duties of Excise
(Goods of Special Importance) Act:

Provided further that- +
c (a) during the period commencing from the 1st day of March, 2002 and
ending on the 28th day of February, 2005, the aggregate duty in
respect of the goods specified against S.Nos. 2, 3, 4, 5, 6, 7, 8, I I, 13,
15 and 16, shall be further exempted in excess of three-fourths of the
rate specified in the corresponding entry in column (4) of the said
Table; and
D
(b) during the period specified in clause (a) above, the duty leviable
on the excisable goods specified therein, shall be apportioned in the
ratio 2: I between_ the duty leviable under the said Central Excise Act
and the said Additional Duties of Excise (Goods of Special Importance)
Act.
E
Explanation/.- For the purposes of this notification, the rates specified
in column (4) of the said Table are ad valorem rates, unless otherwise
specified.
Explanation II.- For the purposes of the conditions specified below,
textile yarns or fabrics shall be deemed to have been duty paid even
F
without production of documents evidencing payment of duty thereon.
Explanation 111.- For the purposes of the exemption under S.No. 5 of i
the Table,-
(i) the expression "independent processor" means a manufacturer
G who is engaged exclusively in the processing of fabrics with the
aid of power and who has no proprietary interest in any factory
engaged in the spinning of yam of cotton or weaving of cotton
fabrics; and
(ii) the value of the fabrics shall be equal to 40% of the value
detennined u~der section 4 of the Central Excise Act, 1944.
H
COMMNR. OF CENTRAL EXCISE, MUMBAI-I "· BOMBAY DYEING & MFG. CO. LTD. [KAPADIA, J.] 917

A
Table
S.No. Chapter or heading No., Description Rate of Condition
or sub-heading No. duty

(4) (5)
·- B
(I) (2) (3)

1 5110.10, 5111.10, Woven fabrics Nil 1
+ 5207.20, 520820, not subjected to
5209.10, 5406.10, any process
5407.10, 5511.10,
5512.10, 5513.10, c
5514.10, 5801.l I
or 5802.51

2 5110.10, 511 I.IO, Woven fabrics, 16% 2
5207.20, 5208.20, not subjected to
5209.10, 5406.10, any process D
5407.10, 551 l.IO,
5512.10, 5513.10,
5514.10, 5801.l I
or 5802.51
_,,., 5207.10 or Denim fabrics, 16% 2 and 5
5208.10 whether or not
processed

4 51.lO, 51.11, Woven fabrics, 16% 5
52.07, 52.08, subjected to any
52.09, 54.06, process F
54.07, 55.11,
55.12, 55.13,
55.14, 5801.12,
5801.22, 5801.32,
5802.22, 5802.32, G
5802.52

5 5~.07,52.08 or Cotton fabrics 16% -
52.09 woven on
handlooms and
processed with H
918 .SUPREME COURT REPORTS [2007] 8 S.C.R .

A aid of power or
steam by an
independent
processor
approved in this
behalf by the
B Government of
India on the
recommendation
of the
+ -
i

Development
c Commissioner
for Handlooms.

6 5801.21, 5801.31, Woven fabrics, 16% 2 and 5
5802.21 or whether or not
580231 subjected to any
D process

7 58.03 All goods 16% 2 and 5

8 5804.11 or All goods 16% 2 and 5
5804.12

E 9 59.01 All goods 16% -
10 6001.11, 6001.21, Knitted or Nil l
6001.91, 6002.42 crocheted fabrics
or6002.92 of cotton, not
subjected to any
F process

11 6001.11, 6001.21, Knitted or 16% 2
6001.91, 6002.42 crocheted fabrics
or6002.92 of cotton, not
subjected to any
G process
12 6001.11, 6001.21, Knitted or Nil 3
6001.91, 6002.42 crocheted fabrics
or 6002.92 of cotton,
subjected to any
H process
COMMNR. OF CENTRAL EXCISE, MUMBAI-I v. BOMBAY DYEING & MFG. CO. LTD. [KAPADIA, J.) 919

13 6001.11, 6001.21, Knitted or 16% 4 A
6001.91, 6002.42 crocheted fabrics
or6002.92 of cotton,
subjected to any
process
14 600l.l2, 600122, Knitted or Nil 1 B
6001.92, 6002.20, crocheted
6002.30, 6002.43 fabrics, other
+
or6002.93 than of cotton,
not subjected to
any process c
15 600 l.l 2, 600122, Knitted or 16% 2
6001.92, 6002.10, crocheted
6002.20, fabrics, other
6002.30, 6002.43 than of cotton,
or6002.93 not subjected to
D
any process
16 6001.12, 6001.22, Knitted or 16% 5
6001.92, 6002.10, crocheted
600220, fabrics, other
6002.30, 6002.43 than of cotton,
or6002.93 subjected to any
E
process

Condition Conditions
No.

(I) (2) F
l If made from textile yams on which the appropriate duty of
excise leviable under the First Schedule or the Second Schedule
to the said Central Excise Tariff Act read with any notification
for the time being in force or the additional duty of customs
leviable under section 3 of the Customs Tariff Act, 1975, as the G
case may be, has been paid and no credit of the duty paid on
inputs or capital goods has been taken under rule 3 or rule 11
\. of the CENV AT Credit Rules, 2002.

2 If made from textile yams on which the appropriate duty of
excise Ieviable under the First Schedule or the Second Schedule
H
920 SUPREME COURT REPORTS [2007) 8 S.C.R.

A to the said Central Excise Tariff Act read with any notification
for the time being in force or the additional duty of customs
leviable under section 3 of the Customs Tariff Act, 1975, as the
case may be, has been paid.

3 Jf made from knitted or crocheted textile fabrics of cotton,.
B whether or not processed, on which the appropriate duty of
excise leviable under the First Schedule to the said Central
Excise Tariff Act and the Additional Duties of Excise (Goods of
Special Importance) Act, read with any notification for the time
being in force, or the additional duty of customs leviable under
section 3 of the Customs Tariff Act, 1975, as the case may be,
c has been paid and no credit of the duty paid on inputs or
capital goods has been taken under rule 3 or rule 11 of the
CENVAT Credit Rules, 2002.

4 If made from knitted or crocheted textile fabrics of cotton,
whether or not processed, on which the appropriate duty of
excise leviable under the First Schedule to the said Central
·D Excise Tariff Act and the Additional Duties of Excise (Goods of
Special Importance) Act, read with any notification for the time
being in force , or the additional duty of customs leviable under
section 3 of the Customs Tariff Act, 1975, as the case may be,
has been paid.

E 5 If made from textile fabrics, whether or not processed, on which
the appropriate duty of excise leviable under the First Schedule
to the said Central Excise Tariff Act and the Additional Duties
of Excise (Goods of Special Importance) Act, read with any
notification for the time being in force or the additional duty of
customs leviable under section 3 of the Customs Tariff Act,
1975, as the case may be, has been paid." (emphasis
F
supplied)

4. We also quote hereinbelow Section l IAB of the Central Excise Act,
1944;
"Interest on delayed payment of duty. - (l) Where any duty of excise
has not been levied or paid or has been short-levied or short-paid or
G erroneously refunded, the person who is liable to pay the duty as
determined under sub-section (2), or has paid the duty under sub-
section (28), of section l IA, shall, in additiOn to the duty, be liable
to pay interest at such rate not below [ten per cent.] and not exceeding
thirty-six per cerit per annum, as is for the time being fixed by the
Central Government, by notification in the Official Gazette, from the
H first date of the month succeeding the month in which the duty ought
COMMNR. Of CENTRAL EXCISE, MUMBAI-Iv. BOMBAY DYEING & MFG. CO. LTD. (KAPADIA, J.) 92}

_....
to have been paid under this Act, or from the date of such erroneous A
refund, as the case may be, but for the provisions contained in sub-
section (2), or sub-section (2B), of section I IA till the date of payment
of such duty:

Provided that in such cases where the duty becomes payable
consequent to issue of an order, instruction or direction by the Board B
under section 3 7B, and such amount of duty payable is voluntarily
paid in full, without reserving any right to appeal against such payment
at any subsequent stage, within forty-five days from the date of issue
of such order, instruction or direction, as the case may be, no interest
shall be payable and in other cases the interest shall be payable
on the whole of the amount, including the amount already paid."

and, Rule 8(3) of the Central Excise Rules, 2002:

"If the assessee fails to pay the amount of duty by due date, he shall
be liable to pay the outstanding amount along with interest at the rate
specified by the Central Government vide notification under section D
I !AB of the Act on the outstanding amount, for the period starting
with the first day after due date till the date of actual payment of the
.J.
outstanding amount."

5. The assessee herein opted for exemption under notification no. 14/
2002 under which grey fabrics, not subjected to any process, were chargeable E
to nil rate of duty subject to the condition that the said fabrics were made
from textile yam on which appropriate duty of excise stood paid and no credit
for duty paid on inputs had been taken under CENV AT Credit Rules, 2002.
However, the assessee was not in a position to ascertain the variety and
quantity of yam entering into the manufacture of export production of "grey F
fabrics" and grey fabrics meant for home consumption. The assessee was not
in a position to pay duty on yam at spindle stage. Therefore, they opted to
pay duty on yam on deferred basis at the time of clearance of grey fabrics
for home consumption along with interest at the rate prescribed under Section
1 IAB of Central Excise Act, 1944 read with Rule 8(3) of Central Excise Rules,
2002. According to the Department, the assessee was liable to pay duty at G
the rate of 12% under item 2 of the table to notification no. 14/2002-CE.
According to the Department, the assessee had failed to comply with twofold
conditions mentioned in item I of the table to the said notification, namely,
payment of duty on yarn at the spindle stage and, secondly, no credit of duty
paid on inputs had been taken under CENV AT Credit Rules, 2002. In other H
922 SUPREME COURT REPORTS [2007] 8 S.C.R.

A words, according to the Department, the assessee had failed to pay duty on
yam at the spindle stage and, secondly, it had taken credit for the duty paid
on inputs under CENVAT Credit Rules, 2002, therefore, according to the
Department, the assessee was not entitled to claim nil rate of duty as, according
to the Department, the assessee had failed to comply with the aforestated
twofold conditions mentioned in item 1 of the table to the said notification.
B According to the Department, the assessee herein had specifically applied for
clarification from the Department as to whether the assessee was entitled to
claim nil rate of duty under the said Notification since it was not in a position
to ascertain the variety and quantity of yam going into the manufacture of
grey fabrics. This request for clarification was expressly turned down by the
C Department and despite refusal by the Department to the request made by the
assessee to pay duty on yam at the time of clearance of grey fabrics, the
assessee reversed the CENV AT credit, which, according to the Department,
contravened the provisions of the said notification. Accordingly, the assessee
was held liable to pay duty at the rate of 12% under item 2 of the table to
notification no. 14/2002-CE and, consequently, a demand was raised for
D differential duty for the period 13 .3 .2002 to 15. 9 .2002 on the ground that the
assessee had failed to pay the duty on the yam at the spindle stage. The
demand was confirmed by the Deputy Commissioner. However, in appeal, the
Commissioner (A) allowed the assessee the payment of duty on yam at the
time of clearance of grey fabrics instead of payment of duty on yam at the
E spindle stage. In this connection, the Commissioner (A) relied upon Trade
Notice No. 40/96. This order_of the Commissioner (A) has been confinned by
the Tribunal, hence, the Department has come to this Court by way of this
civil appeal.

6. Shri Vikas Singh, learned Additional Solicitor General, appearing on
F behalf of the Department submitted that notification no. 14/2002-CE dated ,.
1.3.2002 is an exemption notification. Learned counsel cited several authorities i
in support of his contention that the conditions mentioned in the exemption
notification should be strictly followed. Learned counsel contended that in
the table to the said notification, grey fabrics falling under Chapter Heading
5110.1 O fell under item no. 1 as also under item no. 2. However, if it fell under
G item no. 1 and ff the assessee was to fulfil the twofold conditions referred to
above then the rate of duty was nil whereas if the said item fell in item no.
2 then it would attract the rate ofduty @ 12%. Learned counsel submitted
that, in the present case, the assessee was not entitled to claim nil rate of duty
on the grey fabrics manufactured from yam as the assessee has not folfiled
H the two conditions mentioned in item no. 1. According to the learned counsel,
COMMNR. OF CENTRAL EXCISE, MUMBAI-Iv. BOMBAY DYEING& MFG. CO. LTD. [KAPADIA, I.] 923
....(

.,.l
the assessee was required to pay duty on the yam prior to its claim for A
exemption. Secondly, according to the learned counsel, the assessee was
required to show as a second condition that it had not availed of credit for
the duty paid on inputs under CENV AT Credit Rules, 2002 prior to its claim
for exemption. Since these two conditions were not fulfilled, the assessee was
not entitled to claim nil rate of duty. Learned counsel submitted that the above
two conditions were pre-conditions. They were conditions required to be B
fulfilled prior to making of the claim for exemption. Learned counsel submitted
that since notification no. 14/2002-CE was an exemption notification, it was
-t· not open to the assessee to submit that it had substantially complied with
the aforesaid two conditions. Learned counsel further submitted that, in the
present case, despite refusal by the Department, the assessee had reversed c
subsequently the CENVAT credit. In this connection, learned counsel submitted
that the assessee had requested the Department to allow the assessee to
defer payment of duty on yarn from the spindle stage to the stage of clearance
of the grey fabrics for home consumption. This was refused by the Department.
Despite refusal, the assessee proceeded to reverse subsequently the CENV AT
credit availed of by the assessee earlier and, therefore, in the present case, D
the Tribunal ought not to have allowed to the assessee the benefit of
-1 exemption. Learned counsel further submitted that, in the present case, we are
concerned with the period 13.3.2002 to 15.9.2002. During this period, according
to the learned counsel, Rule 49A was not in force. Learned counsel pointed
out that 'originally we had Central Excise Rules, 1944. These Rules were E
repealed by Central Excise Rules, 2001, which, in turn, were repealed by
Central Excise Rules, 2002. Learned counsel pointed out that since we are
concerned with the period 13.3.2002 to 15.9.2002 there was no question of
invoking Rule 49A of the earlier Rules as the earlier Rules were repealed and
substituted by Central Excise Rules, 2002. In other words, according to the
~
learned counsel, it was not open to the Appellate Authority and the Tribunal F
'r to rely upon Rule 49A of Central Excise Rules, 1944 read with Trade Notice
No. 40/96. According to the learned counsel, Trade Notice No. 40/96 was
based on Rule 49A of Central Excise Rules, 1944 under which deferment of
duty payable on yam along with interest could be postponed to the grey
fabrics stage. That, since Rule 49A was not applicable once the Central Excise·
G
Rules, 2002 came into force, it was not open to tjle Commissioner (A) as well.
as the Tribunal to place reliance on Rule 49A of the 1944 Rules read with trade
notice no. 40/96. Learned counsel further submitted that the judgment of the
Allahabad High Court in the case of Hello Minerals Water (P) Ltd. v. Union
of India, reported in (2004) (174) E.L.T. 422 was also not applicable to the facts
of the present case as the said judgment did not deal with the question of H
924 SUPREME COURT REPORTS [2007) 8 S.C.R.
)-.

A exemption. )..

7. Shri Atul Setalvad, learned senior counsel appearing on behalf of the
assessee submitted that Spring Mills is a composite mill, meaning thereby that
there is a spinning section where yam is spun from cotton and a weaving
section where grey fabrics is woven from such yam. Learned counsel submitted
B that in certain cases it become difficult for a manufacturer to know at the
spindle stage whether grey fabrics were to be exported or cleared for home
consumption. According to the learned counsel, a manufacturer could pay
duty on yarn in such cases not when the yarn stood cleared but when the +
fabric was cleared. It is under these circumstances that an option was given
over the years under trade notice no. 40196 allowing the assessee to defer
c payment of duty on yarn from spindle stage to the grey fabrics clearance
stage subject to payment of interest for such deferment. Learned counsel "
submitted that trade notice no. 40196 did not flow from Rule 49A of the 1944
Rules. The said trade notice was based on certain unforeseen difficulties in
the operations. It was issued taking into account the trade representations.
D Learned counsel submitted that till today the said trade notice has not· been
revoked. Learned counsel further submitted that there was no difference
whatsoever between item no. I and item no. 2 of the table to notification no. )'-

14/2002-CE. Both dealt with grey fabrics. However, item no. I attracted nil rate
of duty on fulfilment of twofold conditions, namely, payment of duty by the
assessee for claiming exemption and that assessee should not have taken
E credit for duty paid on inputs under CENVAT Credit Rules, 2002. Learned
counsel submitted that yarn is an input used in the manufacture of grey
fabrics. Learned counsel urged that the said notification no. 14/2002-CE was
an exemption notification. Learned counsel submitted that exemption was in
respect of grey fabrics. Learned counsel submitted that duty was payable on
F yam, however, in certain circumstances, the assessee was entitled to claim
.
deferment of duty from spindle stage to the stage of clearance of grey fabrics i
subject to payment of interest under Section 11 AB of Central Excise Act, 1944
read with Rule 8(3) of Central Excise Rules, 2002. Learned counsel submitted
that in the present case it is not in dispute that duty on yarn became payable
at the spindle stage, however, the assessee has deferred the payment to the
G stage of clearance of grey fabrics and, therefore, it cannot be said that the
assessee has not complied with the first condition of item no. i to the table
attached with the notification. Similarly, learned counsel submitted that the
assessee, in the present case, has reversed CENVAT credit and the assessee
has not taken credit on account of such reversal. Learned counsel submitted
H that whenever duty is paid on the input (yam) the assessee is entitled to
COMMNR. OF CENTRAL EXCISE, MUMBAI-I v. BOMBAY DYEING & MFG. CO. LTD. [KAPADIA, J.) 925

_..
credit under the CENVAT Credit Rules, 2002, however, availment of credit A
takes place later on when the assessee makes adjustments of duty paid on
input against duty paid on final product (grey fabrics). In the present case,
before the account could be debited and before the assessee could avail of
CENVAT credit, the assessee has reversed CENVAT credit which would amount
to the assessee not taking credit for duty paid on input (yarn). Learned
counsel submitted that the assessee was free to reverse the credit before B
utilization of such credit. In the circumstances, it was urged that both the
conditions of item no. I of the table to the notification stood fulfilled and,
therefore, the assessee was entitled to claim the benefit of exemption at nil
rate of duty in this case.

8. There is no merit in this civil appeal. Under the notification, mode of
c
payment has not been prescribed. Further, exemption is given to the final
product, namely, grey fabric under the Central Excise Act, 1944, levy is on
manufacture but payment is at the time of clearance. Under the Act, payment
of duty on yarn had to be at the spindle stage. However, when we come to
the Exemption Notification no. 14/2002-CE, the requirement was that exemption D
on grey fabrics was admis.sible subject to the assessee paying duty on yarn
before claiming exemption and subject to the assessee not claiming CENV AT
~ credit before claiming exemption. The question of exemption from payment of
duty on grey fabrics arose on satisfaction of the said two conditions. In this
case, payment of duty on yarn on deferred basis took place before clearance
of grey fabrics on which exemption was claimed. Therefore, payment was
E
made before the stage of exemption. Similarly, on payment of duty on the
input (yam) the assessee got the credit which was never utilized. That before
utilization, the entry has been reversed which amounts to not taking credit.
Hence, in this case, both the conditions are satisfied. Hence item no. l of the
table to notification no. 14/2002-CE would apply and accordingly the grey F
.J.
fabrics would attract nil rate of duty .
~
9. In conclusion on the question of reversal of credit we quote
hereinbelow the following para from the judgment of this Court in Collector
a/Central Excise v. Dai lchiKarkaria Ltd., reported in (1999) 112 E.L.T. 353.
G
"It is clear from these Rules, as we read them, that a manufacturer
obtains credit for the excise duty paid on raw material to be used by
him in the production of an excisable product immediately it makes the
requisite declaration and obtains an acknowledgement thereof. It is
entitled to use the credit at any time thereafter when making payment
H
926 SUPREME COURT REPORTS [2007) 8 S.C.R.

A of excise duty on the excisable product. There is no provision in the
Rules which provides for a reversal of the credit by the excise
authorities except where it has been illegally or irregularly taken, in
which event it stands cancelled or, if utilised, has to be paid for. We
are here really concerned with credit that has been validly taken, and
its benefit is available to the manufacturer without any limitation in
B time or otherwise unless the manufacturer itself chooses not to use
the raw material in its excisable product. The .credit is, therefore,
indefeasible. It should also be noted that there is no co-relation of the
raw material and the final product; that is to say, it is not as if credit
can be taken only on a final product that is manufactured out of the
c partiC:ular raw material to which the credit is related. The credit may
be taken against the excise duty on a final product manufactured on
the very day that it becomes available."

10. Accordingly, the civil appeal filed by the Department fails and the
same is dismissed with no order as to costs.
D
K.K.T. Appeal dismissed.

t

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