COMMISSIONER OF CENTRAL EXCISE, VADODARAversusGUJARAT NARMADA VALLEY FERTILIZERS COMPANY

                       (2012] 9 S.C.R. 1100


A    COMMISSIONER OF CENTRAL EXCISE, VADODARA
                                  v.
    GUJARAT NARMADA VALLEY FERTILIZERS COMPANY
                           LTD.
          (Civil Appeal Nos. 4189-4196 of 2010)
B                      DECEMBER 11, 2012

     [SWATANTER KUMAR AND MADAN B. LOKUR, JJ.]

        Cenvat Credit Rules, 2002 - r. 12 - Cenvat credit for duty
C paid inputs used in manufacture of exempted final products
  - Claim for - Whether under the Cenvat Credit Rules, 2002
  an assessee is entitled to claim cenvat credit on duty paid
  Low Sulphur Heavy Stock (LSHS) utilized as an input in the
  manufacture of fertilizer exempt from duty - Question referred
o to larger Bench - Central Excise Act, 1944 -s. 11 A - Reference
  to larger Bench.

      The assessee had been utilizing cenvat duty paid
  Low Sulphur Heavy Stock (LSHS) as fuel input for
  generating steam. The steam so generated was utilized
E to generate electricity for the manufacture of fertilizer
  which is exempt from excise duty. According to the
  assessee, it was entitled to claim cenvat credit on the
  input, that is, LSHS even though the end-product fertilizer
  is exempt from excise duty. The Commissioner, Central
F Excise & Customs, disagreed and issued notices to the
  assessee to show cause why cenvat credit wrongly
  availed by it should not be recovered under Rule 12 of
  the Cenvat Credit Rules, 2002 read with Section 11A of
  the Central Excise Act, 1944. After giving the assessee an
G opportunity of hearing, the Commissioner confirmed the
  demand of cenvat credit wrongly claimed by the
  assessee. Aggrieved, the assessee preferred appeals
  which were referred to a larger Bench of the Customs,

H                               1100
 COMMNR. OF CENTRAL EXCISE, VADODARA v. GUJARAT 1101
          NARMADA VALLEY FER. CO. LTD.

Excise & Service Tax Appellate Tribunal. The larger            A
Bench held that the issue was no longer res integra and
was fully covered in favour of the assessee by a decision
of the Tribunal in Gujarat Narmada Fertilizers Co. Ltd. v.
Commissioner of Central Excise, Vadodara, 2004 (176)
ELT 200 (Tri. - Mumbai) against which the Revenue's            B
appeal before the Gujarat High Court was dismissed. The
reference made to the larger Bench was then answered
by holding that the assessee was eligible to cenvat credit
of duty paid on that quantity of LSHS which was used
for producing steam and electricity used in turn in relation   c
to manufacture of exempted goods, namely fertilizers.

     Pursuant to the decision of the larger Bench, the
substantive appeals were placed before a Division Bench
of the Tribunal. The Division Bench of the Tribunal
allowed the assessee's appeals relying on the decision D
of the larger Bench of the tribunal. In the meanwhile, the
Revenue preferred an appeal to this Court against the
decision of the larger Bench of the Tribunal. By a
judgment rendered after the impugned order passed by
the Tribunal, this Court in Commissioner of Central Excise E
v. Gujarat Narmada Fertilizers Company Limited, (2009) 9
sec 101 set aside the order of the larger Bench and
decided the issue in favour of the Revenue holding that
cenvat credit for duty paid inputs used in the
manufacture of exempted final products is not allowable. F
Thus, when the substantive appeals were taken up for
consideration by the Division Bench of the Tribunal, the
decision of this Court in Commissioner of Central Excise
v. Gujarat Narmada Fertilizers Company Limited, (2009) 9
sec 101 was not available. It is under these G
circumstances that the Revenue filed the instant appeals.

    Referring the matter to larger Bench, the Court

     HELD: There is an apparent conflict between an
earlier decision of this Court in Commissioner of Central      H
    1102   SUPREME COURT REPORTS             [2012] 9 S.C.R.

A Excise Vadodara v. Gujarat State Fertilizers & Chemicals
  Ltd., [GSFCL] (2008) 15 SCC 46 and the decision in
  Commissioner of Central Excise v. Gujarat Narmada
  Fertilizers Company Limited, (2009) 9 SCC 101. In GSFCL
  a view has been taken that modvat credit can be taken
B on LSHS used in the manufacture of fertilizer exempt
  from duty. Although this decision was rendered in the
  context of availing modvat credit under the Central Excise
  Rules, 1944 as they existed prior to the promulgation of
  the Cenvat Credit Rules, 2002 the principle of law laid
c down is general and not specific to the Central Excise
  Rules, 1944. The decision rendered in Gujarat Narmada
  has been rendered in the context of the Cenvat Credit
  Rules, 2002 and is, therefore, more apposite. However,
  since GSFCL does lay down a general principle of law,
  this Court is referring the issue to a larger Bench to
0
   resolve the conflict between GSFCL and Gujarat
   Narmada. The conflict to be resolved is whether under
   the Cenvat Credit Rules, 2002 an assessee is entitled to
   claim cenvat credit on duty paid LSHS utilized as an
E input in the manufacture of fertilizer exempt from duty.
   The Registry may place the case papers before Hon'ble
   the Chief Justice for constituting a larger Bench to decide
   the aforesaid conflict of views. (Paras 9, 16, 19, 20, 21]
   (1106-B; 1108-D; 1109-C-G]

F     Gujarat Narmada Fertilizers Co. Ltd. v. Commissioner of
  Central Excise, Vadodara 2004 (176) ELT 200 (Tri. -
  Mumbai); Commissioner of Centra/Excise and Customs v.
  Gujarat Narmada Fertilizers Co. Ltd. 2006 (193) ELT 136
  (Gujarat); Commissioner of Central Excise v. Gujarat
G NarmadaFertilizers Company Limited (2009) 9 SCC 101:
  2009 (13) SCR 286; MarutiSuzuki Ltd. v. Commissioner of
  Central Excise, Delhi-Ill (2009) 9 SCC 193:2009 (13) SCR
  301; Rama/a Sahkari Chini Mills Limited, Uttar Pradesh v.
  Commissioner, Central Excise, Meerut-1(2010)14 SCC 744:
H 2010 (13)SCR 1152 and Commissioner of Central Excise
 COMMNR. OF CENTRAL EXCISE, VADODARA v. GUJARAT 1103
          NARMADA VALLEY FER. CO. LTD.

Vadodara v. Gujarat State Fertilizers & Chemicals Ltd. (2008)        A
15 sec 46 - referred to.

                       Case Law Reference:

  2004 (176) ELT 200                 referred to        Para 6
 (Tri. - Mumbai)                                                     B

  2006 (193) ELT 136 (Gujarat) referred to              Para 6

  2009 (13) SCR'286                  referred to        Para 9

  2009 (13) SCR 301                  referred to        Para 15
                                                                     c
  2010 (13) SCR 1152                 referred to        Para 15

  (2008) 15 sec 46                   referred to        Para 16

    CIVIL APPELLATE JURISDICTION : Civil Appeal Nos.
4189-4196 of 2010.                                                   D

     From the Judgment & Order dated 10.04.2008 of the
Custom, Excise & Service Tax Appellate Tribunal, West Zonal
Bench, Ahmadabad in Appeal No. E-2517, 3672 of 2004 and
E-87-88 of 2005, Order dated 21.07.2008 in Misc. Application         E
No. in Appeal No. E-2517 and 3672 of 2004 and Order dated
03.11.2008 in Misc. Application No. in Appeal No. E-2517 and
3672 of 2004.

    Paras Kuhad, ASG, Vivek Nayaran Sharma, Ritu
                                                                     F
Bhardwaj, Jitin Chaturvedi, B.K. Prasad (for Anil Katiyar) for the
Appellant.

     Soli J. Sorabjee, Meenakshi Arora for the Respondent.

     The Judgment of the Court was delivered by                      G
     MADAN 8. LOKUR, J. 1. The assessee utilizes cenvat
duty paid Low Sulphur Heavy Stock (for short LSHS) as fuel
input for generating steam. The steam so generated is utilized
to generate electricity for the manufacture of fertilizer which is
                                                                     H
    1104    SUPREME COURT REPORTS                 [2012] 9 S.C.R.


A   exempt from excise duty. According to the assessee, it is
    entitled to claim cenvat credit on the input, that is, LSHS even
    though fertilizer is exempt from excise duty. The correctness of
    this view was disputed by the Revenue.

       2. Consequently, the Commissioner, Central Excise &
8
  Customs, Vadodara-11 (hereinafter referred to as 'the
  Commissioner') issued two notices to the assessee to show
  cause why cenvat credit wrongly availed by it should not be
  recovered under Rule 12 of the Cenvat Credit Rules, 2002
  (hereinafter referred to as Rules) read with Section 11A of the
C Central Excise Act, 1944. The assessee was also required to
  show cause why interest be not recovered on the wrongly
  availed cenvat credit and why penalty be not imposed on it.

      3. The first show cause notice issued to the assessee was
D dated 8th March 2004 and pertained to the period 31st March
  2003 to September 2003 while the second show cause notice
  was dated 28th July 2004 and was for the period October 2003
  to March 2004.

E       4. The assessee replied to both the show cause notices
    and after giving the assessee an opportunity of hearing, the
    Commissioner adjudicated the first show cause notice by
    passing an order adverse to the assessee on 24th June 2004.
    The second show cause notice was similarly adjudicated and
    an adverse order passed on 30th August 2004. By these
F   orders, the Commissioner confirmed the demand of cenvat
    credit wrongly claimed by the assessee. The Commissioner
    also directed the assessee to pay interest on the demanded
    amount and also imposed personal penalty under Rule 13 of
    the Rules.
G
    Proceedings before the Tribunal:

      5. Feeling aggrieved, the assessee preferred two appeals
  before the Customs, Excise & Service Tax Appellate Tribunal
H at Mumbai (hereinafter referred to as the Tribunal). The
 COMMNR. OF CENTRAL EXCISE, VADODARA v. GUJARAT 1105
 NARMADA VALLEY FER. CO. LTD. [MADAN B. LOKUR, J.]

appeals were numbered as Appeal Nos.E/2517/2004 and E/               A
3672/2004.

      6. For reasons that are not apparent from the record, both
appeals were referred to a larger Bench and heard by the Vice-
President and two members of the Tribunal (hereinafter referred      B
to for convenience as the larger Bench). By an order dated 27th
December 2006/4th January 2007, the larger Bench held that
the assessee was entitled to claim cenvat credit on the LSHS
used as input for producing steam and electricity for the
manufacture of fertilizer. According to the larger Bench, the        C
issue raised by the assessee was fully covered in its favour by
a decision of the Tribunal in Gujarat Narmada Fertilizers Co.
Ltd. v. Commissioner of Central Excise, Vadodara, 2004
(176) ELT 200 (Tri. - Mumbai) against which thE~ Revenue's
appeal before the Gujarat High Court was dismissed since no
substantial question of law arose. The decision o"f the Gujarat      D
High Court is Commissioner of Central Excise and Customs
v. Gujarat Narmada Fertilizers Co. Ltd., 2006 (1Sl3) ELT 136
(Gujarat).

     7. The Tribunal was, therefore, of the opinion that the issue   E
was no longer res integra and the decision earlier rendered by
the Tribunal was binding upon the parties. The reference made
to the larger Bench was then answered in the following terms:-

    "The reference is thus answered by holding that the
                                                                     F
    assessees are eligible to cenvat credit of duty paid on lhat
    quantity of LSHS which was used for producing steam and
    electricity used in turn in relation to manufacture of
    exempted goods, namely fertilizers."

    8. Pursuant to the decision of the larger Bench, the             G
substantive appeals were placed before a Division Bench of
the Tribunal. By an order dated 10th April 2008 (impugned
before us) the Division Bench of the Tribunal allowed the
assessee's appeals relying on the decision of the larger Bench.
                                                                     H
    1106     SUPREME COURT REPORTS                 [2012] 9 S.C.R.


A   Earlier proceedings in this Court:

         9. In the meanwhile, the Revenue preferred an appeal to
    this Court against the decision of the larger Bench of the
    Tribunal. By a judgment and order dated 17th August 2009
    (rendered after the impugned order passed by the Tribunal), this
8
    Court in Commissioner of Central Excise v. Gujarat Narmada
    Fertilizers Company Limited, (2009) 9 SCC 101 set aside the
    order of the larger Bench and decided the issue raised in
    favour of the Revenue.

C        10. This Court held that the Tribunal (and later the Gujarat
    High Court) did not correctly appreciate the legal position in
    Gujarat Narmada. In coming to this conclusion, this Court
    referred to Rule 6 of the Rules. For convenience, Rule C(1) and
    6(2) of the Rules are reproduced and they read as follows:-
D
         "6. Obligation of manufacturer of dutiable and
         excisable goods-

         (1) The CENVAT credit shall not be allowed on such
         quantity of inputs which is used in the manufacture of
E        exempted goods, except in the circumstances mentioned
         in sub-rule (2).

         Provided xxx xxx xxx

         (2) Where a manufacturer avails of CENVAT credit in
F
         respect of any inputs, except inputs intended to be used
         as fuel, and manufactures such final products which are
         chargeable to duty as well as exempted goods, then, the
         manufacturer shall maintain separate accounts for receipt,
         consumption and inventory of inputs meant for use in the
G        manufacture of dutiable final products and the quantity of
         inputs meant for use in the manufacture of exempted
         goods and take CENVAT credit only on that quantity of
         inputs which is intended for use in the manufacture of
         dutiable goods."
H
 COMMNR. OF CENTRAL EXCISE, VADODARA v. GUJARAT 1107
 NARMADA VALLEY FER. CO. LTD. [MADAN B. LOKUR, J.]

     11. This Court was of the view that Rule 6(1) of the Rules      A
is plenary and that cenvat credit for duty paid inputs used in
the manufacture of exempted final products is not allowable.
Rule 6(1) of the Rules covers all inputs, including fuel. On the
other hand, Rule 6(2) of the Rules refers to other inputs (other
than fuel) used in or in relation to the manufacture of the final    B
product (dutiable and exempted).

     12. This Court further held that on a cumulative reading of
Rule 6(1) and Rule 6(2) of the Rules it is clear that the legal
effect of Rule 6(1) of the Rules is applicable to all inputs,
including fuel. Therefore, cenvat credit will not be permissible     C
on the quantity of fuel used in the manufacture of exempted
goods. As regards non-fuel inputs, an assessee would have to
maintain separate accounts or be governed by Rule 6(3) of the
Rules.
                                                                     D
      13. As mentioned above, when the substantive appeals
were taken up for consideration by the Division Bench of the
Tribunal, the decision of this Court in Gujarat Narmada was not
available. Accordingly, by the impugned order, the Division
Bench of the Tribunal allowed the appeals filed by the assessee      E
relying on the decision of the larger Bench of the Tribunal. It is
under these circumstances that the Revenue is before us.

Submissions:

     14. The first and in fact the only contention of the learned    F
Additional Solicitor General appearing for the Revenue was that
these appeals deserve to be allowed in view of the decision
rendered by this Court in Gujarat Narmada. It was submitted
that the orders impugned in these appeals were dependent
upon the order passed by the larger Bench of the Tribunal on         G
27th December 2006/4th January 2007. The decision of the
larger Bench having been set aside by this Court in Gujarat
Narmada the substratum of the case of the assessee is wiped
out.
                                                                     H
    1108    SUPREME COURT REPORTS                 [2012] 9 S.C.R.


A       15. On the other hand, the submission of learned counsel
  for the assessee was that the issue whether LSHS is an "input"
  as defined in Rule 2(g) of the Rules is debatable. According
  to the assessee, it should be given a wide meaning, but in
  Maruti Suzuki Ltd. v. Commissioner of Central Excise, Delhi-
B Ill (2009) 9 SCC 193 this Court gave "input" a restrictive
  meaning. The correctness of this view was doubted in Rama/a
    Sahkari Chini Mills Limited, Uttar Pradesh v. Commissioner,
    Central Excise, Meerut-1, (2010) 14 SCC 744 and the issue
  has been referred to a larger Bench of this Court. It was
C submitted that if it is held in these appeals that LSHS is not an
  input, then the assessee would be adversely affected. It was,
  therefore, submitted that these appeals may also be referred
  to a larger Bench or we may await the decision of the larger
  Bench of this Court.

D      16. On merits, it was submitted that while deciding Gujarat
    Narmada this Court did not notice its earlier decision in
    Commissioner of Central Excise Vadodara v. Gujarat State
    Fertilizers & Chemicals Ltd., (2008) 15 SCC 46. In GSFCL it
  was clearly held in favour of the assessee that a claim of modvat
E credit on LSHS is justified if it is used in the manufacture of
  steam, which in turn is used in the generation of electricity for
  the manufacture of fertilizer exempt from duty. Since that
  decision was overlooked, this Court fell into error while deciding
  Gujarat Narmada against the assessee.
F
        17. Assuming "input" is not given a restrictive meaning,
  then in view of GSFCL the issue whether the assessee is
  entitled to claim cenvat credit on duty paid LSHS is no longer
  open to discussion and the appeals must be dismissed on that
G basis alone.

       18. In response, the learned Additional Solicitor General
  submitted that the interpretation of "input" does not arise in
  these appeals and we may proceed on the basis that "input"
  as defined in Rule 2(g) of the Rules may be given a broad
H interpretation and that LSHS utilized by the assessee is an input
 COMMNR. OF CENTRAL EXCISE, VADODARA v. GUJARAT 1109
  NARMADA VALLEY FER. CO. LTD. [MADAN B. LOKUR, J.]

for the manufacture of fertilizer exempted from duty. The second      A
step, namely, entitlement to cenvat credit does not necessarily
follow even if the first step is decided in favour of the assessee.
There was, therefore, no necessity of referring these appeals
to a larger Bench of this Court and the case was fully covered
in favour of the Revenue in view of Gujarat Narmada.                  B

Our view:

    19. There is an apparent conflict between GSFCL and
Gujarat Narmada.
                                                                      c
     20. In GSFCL a view has been taken that modvat credit
can be taken on LSHS used in the manufacture of fertilizer
exempt from duty. Although this decision was rendered in the
context of availing modvat credit under the Central Excise Rules,
1944 as they existed prior to the promulgation of the Cenvat          D
Credit Rules, 2002 the principle of law laid down is general and
not specific to the Central Excise Rules, 1944. The decision
rendered in Gujarat Narmada has been rendered in the context
of the Cenvat Credit Rules, 2002 and is, therefore, more
apposite. However, since GSFCL does lay down a general                E
principle of law, we have no option but to refer the issue to a
larger Bench to resolve the conflict between GSFCL and
Gujarat Narmada. The conflict to be resolved is whether under
the Cenvat Credit Rules, 2002 an assessee is entitled to claim
cenvat credit on duty paid LSHS utilized as an input in the
                                                                      F
manufacture of fertilizer exempt from duty.

    21. The Registry may place the case papers before
Hon'ble the Chief Justice for constituting a larger Bench to
decide the aforesaid conflict of views.
                                                                      G
B.B.B.                         Matter referred to Larger Bench.