Holding

Inputs used outside the factory premises, such as explosives employed in mining the raw material, qualify as ‘inputs’ under Rule 57‑A read with Rule 57‑J and therefore the manufacturer is entitled to claim credit for the excise duty paid on them.

Summary

Jaypee Rewa Cement, a cement manufacturer, used explosives to mine limestone, an essential raw material. The explosives attracted excise duty, and the company claimed credit for this duty under Rule 57‑A of the Central Excise Rules, arguing that the explosives were inputs used in relation to the manufacture of the final product. The Excise Tribunal rejected the claim, holding that Rule 57‑F required inputs to be brought into the factory premises. The Supreme Court examined Rule 57‑A, its explanation, and Rule 57‑J, which allows credit for inputs used in the manufacture of intermediate products, and held that the language of the rules does not restrict inputs to the factory premises. Consequently, explosives used for mining limestone, an intermediate product, qualify as inputs, and the company is entitled to credit for the duty paid. The Court set aside the Tribunal’s decision and allowed the appeals.

Issues considered

Whether explosives used outside the cement factory premises can be treated as ‘inputs’ for the purpose of Rule 57‑A of the Central Excise Rules
Whether Rule 57‑F limits the claim of credit to inputs brought into the factory
Whether Rule 57‑J permits credit for duty paid on inputs used in the manufacture of an intermediate product
Whether the requirement of utilisation within the factory premises is a condition for claiming credit under Rule 57‑A

Legislation cited

Subjects

Central ExciseModvatRule 57‑ARule 57‑JInput creditExplosivesCement manufacturingExcise dutyIntermediate productCredit of duty

Judgment

JA YPEE REWA CEMENT A
v.
COMMISSIONER OF CENTRAL EXCISE, M.P.

AUGUST 22, 2001

[B.N. KIRPAL, SHIVARAJ V. PATIL AND B
P. VENKATARAMA REDD!, JJ.]

Excise Law:

Central Excise r!w 57-J Rules: c
Rule 57-A rlw 57~j-Scope and applicability of-Final product-Use of
inputs for manufacture of-Excise duty on-Credit for duty paid on inputs-
Entitlemenf to--Held: Inputs used in relation to manufacture offinal product
whether directly or indirectly are inputs for the purpose of R.57-A-Such D
inputs need not be utilised within the factory premises nor be brought there
at any point of time-Hence, manufacturer entitled to claim credit for duty
paid on such inputs.

Words and Phrases :
E
"fnput"-Meaning of-Jn the context of Explanation to Rule 57-A of the
Central Excise Rules.

The appellant manufactured cement in its factory for which limestone
was an essential raw material. But in order to extract limestone explosives
were used for mining the same. F
The appellant contended before the Customs, Excise and Gold (Control)
Appellate Tribunal that the explosives used in the mining operation must be
regarded as inputs and claimed credit in respect of the excise duty on cement
_... under Rule 57-A of the Central Excise Rules to the extent of excise duty paid G
on explosives.

The Tribunal came to the conclusion that Rule 57-F was applicable in
this case as explosives had not been brought into the factory and they had
been used at a place away from the cement facto~y. It was of the opinion that

39 H
40 SUPREME COURT REPORTS [2001] SUPP. 2 S.C.R.

A by virtue of the said provision, Rule, 57-A cannot be extended to take in within
its ambit any goods used outside the factory for production of the final
product. Hence this appeal.

The following questions arose before the Court:-

B Whether in accordance with Rule 57-A read with Rule 57-J Modvat
Credit could be claimed by the appellant in respect of explosives used outside
the factory premises in connection with manufacture of cement '! Is it
necessary for the expiosives to be used within the factory premises where the
manufacture of cement takes place ?

c Allowing the appeal, the Court

HELD : 1. Rule 57-A of the Central Excise Rules shows that the
notification is to specify the goods used in or in relation to the manufacture
of the final product whether directly or indirectly. In the present case, inputs,
D which are used in relation to foe manufacture even indirectly, would be
regarded as an input for the purpose of Rule 57-A. Rule---57-A(I) docs not,
in any way, specify that the inputs have to be utilised within the factory
premises. The explanation contained in Rule 57-A is merely meant to enlarge
the meaning or the word "input" and does not in anyway restrict the use of
the inpnt within the factory premises nor does the said Rule 57-A require the
E inputs to be brought into the factory premises at any point of time. [46-B-q

2. The reading of Rule 57-J leaves no manner of doubt that even in
respect of inputs used in the manufacture of an intermediate product which
product is tllen used for the manufacture of a final product, the manufacturer
F would be allowed credit on the duty paid in respect of the input. On the
explosives a duty had been paid and the appellant would be entitled to claim
credit because the explosives were used for the manufacture of the
intermediate product, namely, limestone which, in turn, was used for ihe
manufacture of cement. 147-G-H; 48-AI

G CIVIL APPELLATE JURISDICTION Civil Appeal Nos. 5340-
534 I of 2000.

From the Judgment and Order dated 7.6.2000 of the Customs Excise
and Gold (Control) Appellate Tribunal, New Delhi in F.O. Nos. A/466-467/
H 2000-NB(DB) in A. Nos. E/436-37 of I 998-NB(DB).
JAYPEE REWA CEMENTv. C.C.E. [KIRPAL, J.) 41
WITH A
C.A. Nos. 6133-35, 6293, 6932, 6900-6905, 7337-40, 7131-32, 7195-
7200/2000, 279-282, 1628, 1629-30, 2368, 2301, 2577, 2515, 1792, 3965-
3968, 4383, 3994-3995, 4263, 4784, 3992/2001, W.P. (C) Nos. 676/2000,
29,30 31 and 32/2001 and C.A. No. 6064/2001.
B
Kailash Vasdev, V. Lakshmikumaran, M.P. Devanath, Alok Yadav,
V.Balachandran, Jaideep Gupta, Ms. Gauri Rasgotra, Suman J. Khaitan,
Praveen Kumar, U.A. Rana, Ms. Shalini Mittal, Mainal Bharti, Sanjay Grover,
Rajesh Kumar, M. Gauri Shankar Murthy, Dileep Tandon, Pritesh Kapoor,
B.K. Prasad, V. Sridharan and A.R. Madhav Rao for the appearing parties. C

The Judgment of the Court was delivered by

KIRPAL, J. CA Nos. 5340-5341/2000

The appellants M/s. Jaypee Rewa Cement are manufacturers of cement D
in their factory at Raipur. Lime Stone is an essential raw material for the said
manufacture, but in order to extract lime stone explosives are used for mining
the same.

It is not in dispute that the explosives which are used are items falling
under Chapter 36 of the Excise Tariff. On the said explosives, excise duty E
had been paid, but the lime stone which was extracted, though an excisable
item, was exempt from payment of excise duty by reason of an exemption
notification. In the manufacture of cement, the appellants claimed modvat
credit in view of the provisions of Rule 57 A of the Central Excise Rules.

The case of the appellants was that the explosives used in the mining F
operation must be regarded as inputs and in respect of which notification had
been issued by the Central Government in the Official Gazette and credit
should be allowed in terms of the said Rule. The excise authorities as well
as the CEGA T did not accept the contention of the appellants. The Tribunal
came to the conclusion that Rule 57F was applicable in this case as explosives G
had not been brought into the factory and they had been used at a place away
from the cement factory. It was of the opinion that by virtue of the said
provision, Rule 57 A cannot be extended to take in within its ambit any goods
used outside the factory for production of the final product.

Rule 57 A with which we are concerned in this case reads as follows:- H
42 SUPREME COURT, REPORTS [2001 J SUPP. 2 S.C.R.

A "RULE 57 A. Applicability---{ I) The provisions of this section
shall apply to such finished excisable goods (hereinafter referred 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),
B as may be specified in the said notification (hereinafter referred to as
the "specified duty") 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 utilising the credit so allowed towards
c payment of duty of excise leviable on the 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 restnctions that may be specified in the notification:

Provided that the Central Government may specify the goods or classes
D of goods in respect of which the credit of specified duty may be restricted.

Explanation:- For the purposes of this rule, "inputs" includes-

(a) inputs which are manufactured and used within the factory of
production, in or in relation to, the manufacture of final products,
E
(b) paints and packaging materials.

(c) inputs used as fuel,

(d) inputs used for generation of electricity, used within the factory
of production for manufacture of final products or for any other
F purpose, and

(e) accessories of the final product cleared alongwith such final
product, the value of which is included in the assessable value of the
final product, but does not include--

G (i) machines, machinery, plant, equipment, apparatus, tools or
appliances used for producing or processing of any goods or for
bringing about any change in any substance in or in relation to the
manufacturer of the final products;

(ii) packaging materials in respect of which any exemption to the
H extent of the duty of excise payable on the value of the packaging
JAYPEE REWA CEMENT v. C.C.E. [KIRPAL, J.] 43
materials is being availed of for packaging any final products; A
(iii) packaging materials or containers, the cost of which is not
included in the assessable value of the final products under Section
4 of the Act; and

(iv) crates and glass bottles used for aerated waters." B

The other Rules which are relevant are Rule 57C which provides that
credit for duty is not to be allowed if final products are exempt and Rule 570
provides for credit of duty not being denied or varied in certain circumstances.
Rule 57F, on which reliance is placed by the Tribunal and also by Mr. C
Kailash Vasudev, learned senior counsel appearing for Revenue, reads as
follows:-

"RULE 57F-Manner of utilisation of the inputs and the credit
allowed in respect of duty paid thereon-( I) The inputs in respect of
which a credit of duty has been allowed under rule 57 A- D

(i) may be used in, or in relation to, the manufacture of final products
for which such inputs have been brought into the factory; or

(ii) shall be removed, after intimating the Assistant Commissioner of
Central Excise having jurisdiction over factory and obtaining a dated E
acknowledgement of the same, from the factory for home consumption
or for export under bond

Provided that where the inputs are removed from the factory for
home consumption on payment of duty of excise, such duty of excise, F
shall be the amount of credit that has been availed in respect of such
inputs under rule 57 A.

(3) Notwithstanding anything contained in sub-rule (!), a
manufacturer may after intimating the Assistant Commissioner of
-. Central Excise having jurisdiction : over the factory and obtaining G
dated acknowledgment of the same, remove the inputs as such, or
after the inputs have been partially processed during the course of
manufacture of final products, to a place outside the factory,-

(a) for the purposes oftest, repairs, refining, re-conditioning or carrying
out any other operation necessary for the manufacture of the final H
44 SUPREME COURT REPORTS (2001] SUPP. 2 S.C.R.

A products and return the same to his factory, for-

(i) further use in the manufacture of the final product; or

(ii) removing the same without payment of duty under bond for export;
or
B (iii) removing the same after payment of duty for home consumption:

Provided that the waste, if any, arising in the course of such operation
is also returned to the said factory;

(b) for the purposes of manufacture of intermediate products necessary
c for the mahufacture of the final products and return the said
intermediate products to his factory, for,-

(i) further use in the manufacture of the final product; or

(ii) removing the same without payment of duty under bond for export;
D or

(iii) removing the same after payment of duty for home consumption:

Provided that the waste, if any, arising in the course of such operation
is also returned to the said factory.
E
Provided further that the said waste need not be returned to the said
factory after the appropriate duty of excise leviable thereon has been
paid."

The other Rule which is relevant is Rule 57 J which reads as follows:-
F
"RULE 571 Credit of duty in respect of inputs used in an
intermediate product-Notwithstanding anything contained in these
rules, the Central Government may, by notification in the Official
Gazette, specify the inputs used in the manufacture of intermediate
products received by a manufacturer for use in or in relation to the
G manufacture of final products, in respect of which the specified duty
paid on the said inputs shall subject to the conditions and restrictions
that may be specified in the notification, be allowed as credit under
rule 57A."

As has already been observed, notification under Rule 57A was issued
H by the Central Government on I st March, 1994 specifying the final product
JAYPEE REWA CEMENTv. C.C.E. [KIRPAL, J.] 45
described in the table annexed thereto in respect of which duty paid on inputs A
was to be allowed as credit. The said table is as follows:

S. No. Description of inputs Description of final products

(!) (2) (3)
B
1. All goods falling within the All goods falling within the
Schedule to the Central Excise Schedule to the Central Excise
Tariff Act, 1985 (5 of 1986), Tariff Act, 1985 (5 of 1986),
other than the following other than the following
namely:- namely:-
c
(i) goods classifiable under any (i) goods classifiable under any
heading of Chapter 24 of the heading of Chapter 24 of the
Schedule to the said Act; Schedule to the said Act;

(ii) goods classifiable under heading (ii) goods classifiable under
Nos. 36.05 or 37.06 of the heading Nos. 36.05 or 37.06 of
D
Schedule to the said Act; the Schedule to the said Act;

(iii) goods classifiable under sub- (iii) woven fabrics classifiable
heading Nos. 2710.11, under Chapter 52 or Chapter 54
2710.12, 2710.13 or 2710.19 or Chapter 55 of the Schedule E
(except Natural gasoline liquid) to the said Act.
of the Schedule to the said Act;

(iv) high speed diesel oil
classifiable under heading No.
27.10 of the Schedule to the said F
Act.

It is not in dispute that explosives fall under Chapter 36. The particular
items used by the appellants come under heading Nos. 36.0 I, 36.02 and
36.03. Therefore, the said inputs, namely, the explosives would fall under G
column No. 2 of the aforesaid table while cement comes under Chapter 25
and would be a final product falling under column 3 of the aforesaid table.
Therefore, both explosives as well as the cement fall under column 2 and 3
respectively of the aforesaid table.

The question which, however, arises for consideration is whether it is H
46 SUPREME COURT REPORTS [2001) SUPP. 2 S.C.R.

A necessary for the explosives to be used within the factory premises where the
manufacture of cement takes places.

Reading of Rule 57 A clearly shows that the notification is to specify
the goods used in or in relation to the manufacture of the final product
whether directly or indirectly. In the present case, inputs which are used in
B relation to the manufacture even indirectly would be regarded as an input for
the purpose of Rule 57A. Sub-rule (I) of Rule 57A does not, in any way,
specify that the inputs have to be utilised within the factory premises. The
explanation contained in Rule 57A is merely meant to enlarge the meaning
of the word "input" and does not in any way restrict the use of the input
C within the factory premises nor does the said rule 57 A require the inputs to
be brought into the factory premises at any point of time.

The appellants could not have claimed for modvat credit in respect of
lime stone because of the provisions of Rule 57C, inasmuch as there was an
exemption from levy of excise duty in respect thereof. There was an exemption
D for a certain period and for the rest of the period the tariff itself provided that
there will be nil rate of duty on the lime stone which is extracted.

As we have already noticed, the Tribunal has relied upon Rule 57F in
coming to the conclusion that the inputs in respect of which a credit of duty
is claimed must be those which are used in or brought into the factory
E premises. The Tribunal, however, has not referred to the provisions of Rule
571, the opening portion of which makes it clear that the said Rule will be
applicable notwithstanding anything contained in the other Rules. According
to Rule 57J, when the Central Government by notification specified the inputs
used in the manufacture of intermediate products received by the manufacturer
F for use in or in relation to the manufacture of final product, then on all such
products on which duty has been paid credit will be allowed. Pursuant to this
Rule 57 J, notification was issued on 20th June, 1986 which was amended
from time to time. Tlie relevant part of the notification is as follows:

S.No. Description of Description of Description of
G Inputs Intermediate products final products

(I) (2) (3) (4)
I. All goods falling I. All the goods falling All goods falling
within the Schedule to within the Schedule to within the Schedule to
the Central Excise the Central Excise Tariff the Central Excise
H Tariff Act, 1985 (5 of Act, 1985 (5 of 1986, Tariff Act, 1985 (5 of
JA YPEE REWA CEMENT v. C.C.E. (KIRPAL, J.] 47
1986), other than 1986), other than 1986), other than A
following namely:- following namely:- following namely:-

(i) goods classifiable (i) goods classifiable (i) goods classifiable
under any heading of under any heading of under any heading of
Chapter 24 of the Chapter 24 of the Chapter 24 of the
Schedule to the said Schedule to the said Schedule to the said B
Act; Act; Act;

(ii) goods classifiable (ii) goods classifiable (ii) goods classifiable
under heading Nos. under heading Nos. under heading Nos.
36.05 or 37.06 of the 36.05 or 37.06 of the 36.05 or 37.06 of the
Schedule to the said Schedule to the said Schedule to the said c
Act; Act; Act;

(iii) goods classifiable (iii) goods classifiable (iii) woven fabrics
under sub-heading under sub-heading classifiable Chapter
Nos. 2710.11, Nos. 2710.11, 52 or Chapter 54 or
D
2710.12, 2710.13 or 2710.12, 2710.13 or Chapter 5 5 of the
2710.19 (except 2710.19 (except Schedule to the said
natural gasoline natural gasoline Act.
liquid) of the liquid) of the Schedule
Schedule to the said to the said Act;
Act; E
(iv) high speed disesel (iv) high speed disesel oil
oil classifiable under classifiable under
heading No. 27. I 0 of heading No. 27.10 of
the Schedule to the the Schedule to the
said Act. said Act. F

Explosives would fall under column (2) being a tariff item in Chapter
36; the intermediate product, namely, lime stone would fall under column 3
being covered by Chapter 25; and the final product, namely, cement would
also fall under Chapter 25 and would fall under column 4. The reading of G
Rule 57 J alongwith the aforesaid notification can leave no manner of doubt
that even in respect of inputs used in the manufacture of intermediate product
which product is then used for the manufacture of a final product, the
manufacturer would be allowed credit on the duty paid in respect of the
input. On the explosives a duty had been paid and the appellants would be H
48 SUPREME COURT REPORTS (2001] SUPP. 2 S.C.R.

A entitled to claim credit because the explosives were used for the manufacture
of the intermediate product, namely, lime stone which, in turn, was used for
the manufacture of cement.

We are, therefore, in agreement with the learned counsel for the
appellants that the wide language used in Rule 57 A entitles the appellants to
B claim the benefit when the said Rule is read alongwith Rule 57 J.

For the aforesaid reasons, these appeals are allowed and the judgment
of the Tribunal is set aside.

CA Nos. 6932/2000, 6900-690512000, 7131-7132/2000, 733 7-7340/
c 2000, 7195-7200/2000,2301/2001, 2515/2001, 3992/2001, 3994-3995/2001,
4383/2001, 4784/2001, 4784/2001 and 2577/2001.

The principle involved in these cases is similar to that in the case of
M/s Jaypee Rewa Cement. For the reasons stated therein these appeals are
also allowed.
D
C.A. No .... 6064 .... /2001 @ SLP (C) No. 20785/2000

Leave granted.

For the reasons stated in the case of Mis Jaypee Rewa Cement the
E appeal is allowed. Reference is now answered in favour of the assessee and
the decision of the Tribunal is upheld.

CA Nos. 3965-3968/2001

The challenge in these appeals relates to the validity of the show cause
F notice whereby modvat was proposed to be disallowed on the use of high
speed diesel and explosives and grinding media for the manufacture of cement.

Learned counsel for the appellant states that the Tribunal has given the
benefit of allowance of modvat regarding grinding media. With regard to the
other two items, namely, explosives and high speed diesel, the appellant does
G not contest the decision of the Tribunal insofar as high speed diesel is
concerned. He, however, restricts his appeal to the validity of the decision of
the Tribunal in disallowing the modvat qua the use of the explosives as an
input in the manufacture of same. In view of the decision of this Court in CA
Nos. 5340-5341/2000, these appeals are allowed insofar as the input of
H explosives in the manufacture of cement, is concerned.
JAYPEE REWA CEMENTv. C.C.E. (KIRPAL, J.] 49
CA Nos. 6133-35 and 6293/2000 A
The appeals are allowed in view of the decision in CA Nos. 3965-68/
2001.

WP (C) Nos. 676/2000, 29/2001, 30/2001, 31/2001 and 32/2001.
B
The writ petitions are dismissed as withdrawn.

C.A. No. 4263/2001

We have gone through the decision of the Tribunal. In view of the
provisions of Rule 57Q, the appellant is not entitled to any relief. The appeal C

-
is dismissed.

CA Nos. 279-282/2001, 2368/2001, 1628/2001, 1629-1630/2001 and
1792/2001.

The appeals are dismissed as not pressed. D
V.S.S.
Appeals allowed/dismissed
and Petitions dismissed.