Holding

Proforma credit under Rule 56A is unavailable unless the inputs are taxed under the same tariff item as the finished goods or a specific remission/adjustment sanction is granted by the Central Government.

Summary

Hyderabad Asbestos Cement Products and another manufactured asbestos cement items using cement and asbestos fibre, each excisable under different tariff items. The company sought credit for excise duty paid on the raw materials against duty on the finished products under Rule 56A of the Central Excise Rules, 1944. The authorities rejected the claim, holding that credit is permissible only when inputs and finished goods fall under the same tariff item or when the Central Government specifically sanctions remission or adjustment for inputs taxed under different items. The appellants argued that the notification of finished goods alone should suffice for credit, but the Court rejected this interpretation, emphasizing the plain language of the rule and the conjoint requirement of its provisos. Consequently, the Court dismissed the appeal, confirming the denial of proforma credit.

Issues considered

Whether the benefit of proforma credit under Rule 56A is available when the raw materials used are excisable under tariff items different from that of the finished product without a specific government sanction.

Legislation cited

Central Excise and Salt Act, 1944
Central Excise Rules, 1944s. Rule 56A

Subjects

proforma creditcentral excisetariff itemsexcise dutyRule 56Aremissionadjustment of dutyraw material

Judgment

HYDERABAD ASBESTOS CEMENT PRODUCTS AND ANR. A
v.
UNION OF INDIA AND ORS.

DECEMBER 7, 1999

[S.P. BHARUCHA, R.C. LAHOTI AND N. SANTOSH HEGDE, JJ.] B

Central Excises and Salt Act, 1944-Central Excise Rules, 1944-Rule
56A Proviso (i) and (ii)-Tariff items 22, 23A, 23C-Asbestos cement
products-Benefit of proforma credit procedure-Raw materials and final
products excisable under different tariff items-No notification or sanctioned C
remission or adjustment of duty on finished goods-Held, assessee not entitled
to benefit of proforma credit procedure.

Appellan~ manufacture and sell asbestos cement products using cement
and asbestos fibre as raw materials. The raw materials as well as the finished
goods were excisable under different Tariff items of22F, 23 and 23C. The D
finished products were not exempt from payment of excise duty nor were they
chargeable with nil rate of duty. There was no notification by Central
Government in the Gazette or sanction for remission or adjustment of duty
paid for the finished goods. The Appellants claimed the benefit of proforma
credit procedure under Rule 56A of Central Excise Rules 1944, by seeking E
credit for the payment of duty paid on the raw materials as against the duty
payable on the finished products. The claim was rejected by the Assistant
Collector as well as Collector of Central Excise. The Writ Petitions filed by
t~e Appellants before the High Court were dismissed.

On appeal before this Court the Appellants contended that once the F
Central Government has notified the excisable goods under sub-rule (1) the
benefit of proforma credit shall be available to the Appellants without regard
to the fact whether or not the raw material or the component parts are excisable
under the same item or sub-item of Tariff* and that the effect of benefit
extended by the main part of the Rule cannot be nullified or taken away by a G
proviso to Rule.

Dismissing the appeals, the Court

HELD : 1. There is no doubt that to avail the benefit of proforma credit

* 1986 (25) ELT 879. H
155
156 SUPREME COURT REPORTS [1999] SUPP. 5 S.C.R.

A under Rule 56A the inputs which go to manufacture the specified finished
excisable goods must be exigible to payment of duty under the same tariff
item or sub item; or else, if such inputs are exigible to tax under different
tariff items or su~items then they must be covered by the specifie sanction
of the Central Government granting remission or adjustment of duty on those
B inputs as provided by proviso to (ii) (b). Admittedly there is no such specific
sanction. The raw materials consumed being excisable under Ta ..iff items
differ;ent from the one under which the finished products are excisable the
Appellants have been rightly denied benefit of proforma credit [160-C-D]

2. The language of the Rule is plain and simple. It does not admit of any
C doubt in interpretation. Proviso (i) and (ii) are separated by the use of
conjunction 'and'. They have to be read conjointly. The requirement of both
the provisos has to be satisfied to avail the benefit Clauses(a) and (b) of proviso
(ii) are separated by the use of an 'or' and there the availability of one of the
J.
two alternatives would suffice. Inasmuch as cement and asbestos fibre used
by the Appellants in the manufacture of their finished excisable goods are
D liable to duty under different tariff items, the benefit of proforma credit
extended by Rule 56A cannot be availed of by the Appellants and has been
rightly denied by the authorities of the Department. [160-A-B-C)

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 6990 of 1999
E Etc.
From the Judgment and Order dated 8.4.87 of the Andhra Pradesh High
Court in W.P. No. 13361 of 1983.

Harish N. Salve, Solicitor General, (Dushyant Dave, Ms. Gauri Rasgotra,
F Ms. Pumia Singh, Suman J. Khaitan, Haris Beeran, Siddhartha Dave), for Ml
s. Khaitan & Co., Kailash Vasdev, Hemant Sharma and P. Parmeswaran for the
appearing parties.

The Judgment of the Court was delivered by
G R.C. LAHOTI, J. Leave granted.

The appellants manufacture and sell asbestos cement products such as
sheets (corrugated or plain), pressure pipes, couplings etc. These products
require cement and asbestos fibre as raw materials. Both the items consumed
H as raw materials as also the finished products manufactured by the appellants
HYDERABAD ASBESTOS CEMENT PRODUCTS v. U.O.I. [R.C. LAHOTI, J.] 157
are all excisable commodities under different tariff items. Asbestos fibre is A
covered by Tariff item 22-F. Cement is covered py Tariff item 23. The finished
products manufactured by the appellants are excisable under Tariff item 23-
C. In respect of cement and asbestos fibre obtained from outside excise duties
were duly paid under the relevant tariff items 23 and 22F. In respect of
imported asbestos additional duty, i.e., countervailing duty equivalent to B
excise duty was paid. The finished products of the appellants were not exempt
from payment of excise duty leviable thereon nor .were they chargeable to nil
rate of duty. The appellants claimed the benefit of proforma credit procedure
by seeking credit for the payment of duty paid on the inpµts as against the
duty payable on the finished products and sought for permission of the
Assistant Collector of Central Excise, Hyderabad under Rule 56A of the C
Central Excise Rules, 1944 (hereinafter referred to as 'the Rules') framed under
the provisions of the Central Excise and Salt Act, 1944. The Assistant Collector
refused to grant such permission. An appeal preferred before the Collector of
......
Central Excise, Hyderabad failed. The appellants challenged both. the orders
before the High Court of Andhra Pradesh by filing writ petition under Article
226 of the Constitution which also has been dismissed. The decision of the D
High Court has for itself analysed and examined the provisions of Rule 56A.
The High Court under appeal is reported as 1987 (32) ELT 28 A.P. The High
Court has also cited in its support a division bench decision of the High Court
of Gujarat in Digvijay Cement Company Limitedv. Union of India, (1986) 25
E.L.T. 879. The aggrieved appellants have filed this special leave petition. E
The sole question arising for decision is whether the benefit of proforma
credit procedure specified in Rule 56A ( 1) is available to the appeUants
though the raw materials consumed by the appellants in their manufacture of
the final products are excisable under tariff items different from the one under
which their final products are excisable. F
Rule 56A was introduced on 8.12.1962. It has undergone several changes
from time to time which have been extensively noticed by the High Court of
Gujarat in the case of Digvijay Cement Company Ltd. (supra). The rule as it
stood at the relevant time reads as under :-
G
"56.A. Special procedure for moment of duty-paid materials or
component parts for use in the manufacture of finished excisable
goods-

( l) Notwithstanding anything contained in these rules the Central
Government may, by notification in the Official Gazettee, specify the H
158 SUPREME COURT REPORTS [1999] SUPP. 5 S.C.R.

A excisable goods in respect of which the procedure laid down in sub-
rule (2) shall apply.

(2) Thp Collector may, on application made in this behalf and subject
to the conditions mentioned in sub-rule (3) and such other conditions
as may from time to time be prescribed by the Central Government,
B permit a manufacturer of any excisable goods specified under sub-rule
(1) to receive, material or component parts or finished product (like
asbestos cement), on which the duty of excise or the additional duty
under Section 2A of the Indian Tariff Act, 1934 (32 of 1934), (hereinafter
referred t6 as the countervailing duty), has been paid, in his factory
c for the manufacture of these goods or for the more convenient
distribution of finished product and allow a credit of the duty already
paid on such material or component parts or finished product, as the
case may be;

Provided that no credit of duty shall be allowed in respect of any
D material or ~omponent parts used in the manufacture of finished
excisable goods-

(i) if such finished excisable goods produced by the manufacturer are
exempted from the whole of the duty of excise leviable thereon or are
chargeable to nil rate of duty, and
E
(ii) unless---

(a) duty has been paid for such material or component parts under the
same item or sub-item as the finished excisable goods; or

(b) remission or adjustment of duty paid for such material or component
F parts has been specifically sanctioned by the Central Government;

Provided further that if the duty paid on such material or component
parts (of which credit has been allowed under this sub-rule) be varied
subsequently due to any reason, resulting in payment of refund to,
or recovery of more duty from, the manufacturer or importer, as the
G
case may be, of such material or component parts, the credit allowed
shall be varied accordingly by adjustment in the credit account
maintained under sub-rule (3) or in the account-current maintained
under sub rule (3) or Rule 9 or Rule 178(1) or, if such adjustment be
not possible for any reason, by cash recovery from or, as the case may
H be, refund to the manufacturer availing of the procedure contained in
HYDERABAD ASBESTOS CEMENT PRODUCTS. v. U.0.1. [R.C. LAHOOTI, J.J 159
this rule." A
Subsequently with effect from 1.8.1983 the rule has undergone further
changes which are not relevant for our purpose.

A bare reading of the rule shows that the Central Government has been
empowered by sub-rule (1) to specify by notification in the official gazette B
such excisable goods in respect of which the benefit of proforma credit as
provided by sub-rule (2) cab be taken. The excisable goods referred to in sub-
rule (1) are finished products. In order to claim the benefit of the rule the
conditions to be satisfied are (i) the finished product should be specified by
the Central Government by notification in the official gazette as the excisable
goods in respect of which the procedure laid down in sub-rule (2) shall apply; C
(ii) an application must be made by the assessee to the collector in this behalf;
(iii) the material, component parts or finished products, the duty or additional
duty paid whereon may be availed for the purpose of taking proforma credit,
must not be used in the manufacture of such finished excisable goods as are
exempt from the whole of the duty of excise leviable thereon or are chargeable D
to nil rate of duty; and (iv) (a) the duty as has been paid for such material
or component parts must have been so paid under the same item or sub item
as the finished excisable goods, or (b) ifthe raw material or component parts
are not excisable under the same item or sub-item as the finished excisable
goods, or in other words if such material or component parts are excisable
under an item or sub-item other than the one under which the finished goods E
are excisable then the Central Government should have specifically sanctioned
remission or adjustment of duty paid for such material or component parts.

The Controversy centres around the interpretation and scope of proviso
(ii) (b) of Rule 56A. The appellants' plea is that once the Central Government
has notified the excisable goods under sub-rule (1) the benefit of proforma F
credit shall be available to the appellants without regard to the fact whether
or not the raw material or the component parts are excisable under the same
item or sub-item of Tariff. The effect of benefit extended by the main part of
the Rule cannot be nullified or taken away by a proviso, submitted the learned
counsel for the appellants. The plea so raised has not appealed to the High G
Court. We also find no merit in the plea though it has been forcefully reiterated
before us.

The language of the rule is plain and simple. It does not admit of any
doubt in interpretation. Proviso (i) and (ii) are separated by the use of
conjunction 'and'. They have to be read conjointly. The requirement of both H
160 SUPREME COURT REPORTS [1999] SUPP. 5 S.C.R.

A the provisos has to be satisfied to avail the benefit Clauses (a)and (b) of
proviso (ii) are separated by the use of an 'or' and there the availability of
one of the two aflematives would suffice. Inasmuch as cement and asbestos
fibre used by the appellants in the manufacture of their finished excisable
goods are liable to duty under different tariff items, the benefit of proforma
B credit extended by Rule 56A cannot be availed of by the appellants and has
been rightly denied by the authorities of the Department.

We are in no doubt that to avail the benefit of profonna credit under
Rule 56A the inputs which go to manufacture the specified finished excisable
goods must be exigible to payment of duty under the same tariff item or sub
C item; or else, if such inputs are exigible to tax under different tariff items or
sub-items then they must be covered by the specific sanction of foe Central
Government granting remission or adjustment of duty on those inputs as
provided by proviso (ii) (b ). Admittedly there is no such specific sanction.
The raw materials consumed being excisable under Tariff items different from
the one under which the finished products are excisable the appellants have
D been rightly denied benefit of profonna credit.

We find ourselves in agreement with the view taken by the High Court.
The appeal is devoid of any merit. It is dismissed though without any order
as to the costs.

E C.A. No. 9159/96, C.A. Nos. 2779 - 80/97 and SLP(C) No. 13520/87.

For the same reasons these appeals and special leave petition are also
dismissed though without any order as to the costs.

V.M. Appeals and Petition dismissed.