Holding

Electricity generated and sold outside the factory does not fall within the definition of "input" under Rule 2(g) of the CENVAT Credit Rules, 2002 and therefore CENVAT credit is not admissible for such excess electricity.

Summary

Mis. Maruti Suzuki Ltd., a motor‑vehicle manufacturer, generated electricity in its plant using naphtha and diesel and sold a portion of the surplus to its joint ventures, vendors and the grid for a price. The company claimed CENVAT credit on the duty paid on the fuel used for electricity generation, arguing that electricity is an "input" under Rule 2(g) of the CENVAT Credit Rules, 2002. The Revenue reversed the credit for the excess electricity. The Supreme Court examined the definition of "input" – its specific, inclusive and place‑of‑use parts – and held that electricity qualifies as an input only when used within the factory for the manufacture of the final product. Electricity wheeled out for sale does not satisfy the "used in or in relation to the manufacture" requirement and therefore cannot attract CENVAT credit. The Court dismissed the appellant’s appeals, allowed the Revenue’s appeals, remitted the matters to the Adjudicating Authority to determine any excess electricity and reverse credit accordingly, and declined to impose any penalty.

Issues considered

The proper construction of the term "input" in Rule 2(g) of the CENVAT Credit Rules, 2002.
Whether electricity generated by the assessee and sold to sister units, vendors or the grid qualifies as an "input" for CENVAT credit purposes.
Whether the reversal of proportionate CENVAT credit for the excess electricity is legally justified.
Whether the CENVAT Credit Rules, 2004, affect the interpretation of the term "input" for the period in question.
Whether a penalty can be levied on the assessee for the disputed period.

Legislation cited

Additional Duties of Excise (Goods of Special Importance) Act, 1957s. Section 3
Additional Duties of Excise (Textiles and Textile Articles) Act, 1978s. Section 3
Central Excise Rules, 2002
Central Excise Tariff Act, 1985
CENVAT Credit Rules, 2002s. Rule 2(g)
CENVAT Credit Rules, 2004
Customs Tariff Acts. Section 3
Finance Act, 2001s. Section 136
Finance Act, 2003s. Section 157
Finance (No.2) Act, 2004s. Section 91, s. Section 93, s. Section 95

Subjects

CENVAT creditdefinition of inputelectricity generationcaptive powercentral exciseRule 2(g)excess electricitytax credit reversalmanufacturing process

Judgment

[2009] 13 (ADDL.) S.C.R. 301

...;..; MIS. MAHUTI SUZUKI LTD. A
v.
COMMISSIONER OF CENTRAL EXCISE-Ill, DELHI
(Civil Appeal No. 5554 of 2009 etc.)

AUGUST 17, 2009
8
[S.H. KAPADIA AND AFTAB ALAM, JJ.]

,;;.
CENVAT Credit Rules, 2002 - r. 2(g) - 'Input' -
Connotation of - Electricity, generated by assessee-
manufacturer, wheeled out to its sister units, vendors etc. at c
a price, whether admissible for CENVA T credit - Held: All the
considerations used in inclusive part of the definition of 'input'
are not relevant per se - The inputs become relevant only
when they are used in or in relation to the manufacture of final
" product - The definition of 'input' has to be read in its entirety D
- Electricity generation is an 'input' to the extent it is used for
manufacture of final product - Electricity wheeled out to joint
units, vendors etc. for a price, cannot fall within the definition
of 'input' - Hence, would not be admissible for CENVAT
credit - CENVA T Credit f?ules, 2004. E
The issues for consi!deration in the present appeals
were the interpretation eif the word 'input' as defined in
~ Rule 2(g) of CENVAT Credit Rules, 2002; and whether the
~

Department was right in reversing proportionate CENVAT
credit to the extent of power wheeled out by the appellant- F
assessee to its sister units, vendors, joint ventures.

Dismissing the appeals of assessees and allowing
that of the Revenue, the Court
G
HELD:

..
~

Civil Am~eal Nos. 5554 and 5555 of 2009:

1.1. The two considerations namely, use of input in
301 H
302 SUPREME COURT REPORTS [2009) 13 (ADDL.) S.C.R

A the manufacturing process, be it direct or indirect as also
absence of the input in the final product on account of
the use of the expression "used in or in relation to the
manufacture of final product" are irrelevant.
Consideration such as input being used as packing
B material, input used as fuel, input used for generation of
electricity or steam, input used as an accessory and input
used as paint are per se also not relevant. All these
considerations become relevant only when they are read
with the expression "used in or in relation to the
c manufacture of final product" in the substantive/specific
part of the definition. In each case it has to be established
that inputs mentioned in the inclusive part is "used in or
in relation to the manufacture of final product". It is the
functional utility of the said item which would constitute
0 the relevant consideration. Unless and until the said input
is used in or in relation to the manufacture of final
product within the factory of production, the said item
would not become an eligible input. [Para 16) [338-0-G]

1.2. The expression "used in or in relation to the
E manufacture" have many shades and would cover
various situ'ations based on the purpose for which the
input is used. However, the specified input would become
eligible for credit only when used in or in relation to the
manufacture of final product. [Para 16) [339~H; 340-A-B]
F
1.3. One has to re~d the definition of 'input' in its
entirety. The definition is in three parts, namely, specific
part, inclusive part and place of use. All the three parts
are required to be satisfied before an input becomes an
G eligible input. [Paras 16 and 17) [339-0-E]

1.4. It may be noted from the CENVAT Credit Rules
of 2004 vis-a-vis CENVAT Credit Rules of 2002 that the
word "for" in the inclusive part after the words "steam
used" is substituted by the words "used in or in relation
H to the manufacture of final products". In other words, the
MARUTI SUZUKI LTD. v. COMMISSIONER OF 303
CENTRAL EXCISE-Ill, DELHI

crucial requirement of the definition clause is restated by A
the Legislature. An item would fall within the category of
"inputs" as defined only on compliance with all the three
parts of the definition clause. [Para 18] [339-E-G]

J.K. Cotton Spinning and Weaving Mills Co. Ltd. v.
B
S. T.O. 1965 (16) STC 563; Union Carbide India Ltd. v.
Collector of Central Excise, Calcutta-I 1996 (86) ELT 613
(Tri); Collector of Central Excise, New Delhi v. Mis. Ballarpur
Industries Ltd. (1989) 4 SCC 566, referred to.

2.1. When the electricity generation is a captive c
arrangement and the requirement is for carrying out the
manufacturing activity, the electricity generation also
forms part of the manufacturing activity and the "input"
used in that electricity generation is an "input used in the
~
manufacture" of final product. However, to the extent the D
"' excess electricity is cleared to the grid for· distribution or
to the joint ventures, vendors, and that too for a price
(sale) the "process and the use test" fails. In such a case,
the nexus between the process and the use gets
disconnected. In such a case, it cannot be said that E
electricity generated is "used in or in relation to the
manufacture of final product, within the factory".
Therefore, to the extent of the clearance of excess
~
Y. electricity outside the factory to the joint ventures,
vendors, grid etc. would not be admissible for CENVAT F
credit as such wheeled out electricity, cleared for a price,
would not fall within the definition of "input" in Rule 2(g)
of the CENVAT Credit Rules, 2002. [Para 19] [340-8-F]

2.2. In the present case, excess electricity has been
cleared by the assessee at the agreed rate from time to G
time in favour of its joint ventures, vendors etc. for a price
and has also cleared such electricity in favour of the grid
for distribution. Assessee is entitled to credit on the
eligible inputs utilized in the generation of electricity to
the extent to which they are using the produced electricity H
304 SUPREME COURT REPORTS [2009] 13 (ADDL.) S.C.R.

A within their factory (for captive consumption). They are
not entitled to CENVAT credit to the extent of the excess
electricity cleared at the contractual rates in favour of
joint ventures, vendors etc., which is sold at a price. [Para
20] [341-C-E]
B
Collector of Central Excise v. Safaris Chemtech Limited
(2007) 214 ELT 481 (SC); Vikram Cement v. Commnr. of
Central Excise, Indore - 2006 (194) ELT 3 (SC), relied on.

Collector of Central Excise v. Rajasthan State Chemical
C Works 1991 (55) ELT 444 (SC), referred to.

3. On· account of repeated amendments in the
CENVAT Credit Rules, huge litigation in the country
stands generated. In the circumstances, penalty is not
0 leviable on appellant/assessee, particularly when in large
number of.other cases, on account of conflict of views
expressed by various Tribunals/High Court, the
assessees have also succeeded. [Para 21] [341-E-F]

Civil Appeal Nos. 6410 of 2008, 5556-58 of 2009 and 5559-
E 60 of 2009:

4. The civil appeals filed by the Department are
allowed and the matters stand remitted to Adjudicating
Authority, who in each case will ascertain whether any
F excess electricity was wheeled out/cleared at a price in
favour of joint ventures vendors, sister companies etc.,
and if so, the Adjudicating Authority will calculate and
charge duty or reverse credit to that extent alone .
Department will not impose penalty for the disputed
G periods. [Para 2] [342-E-G]

Case Law Reference:
1965 (16) STC 563 Referred to. Para 11

H
MARUTI SUZUKI LTD. v. COMMISSIONER OF
CENTRAL EXCISE-Ill, DELHI
1996 (86) ELT 613 (Tri) Referred to. Para 12
305

A
-
(1989) 4 sec 566 Referred to. Para 14

1991 (55) ELT 444 (SC) Referred to. Para 19

(2007) 214 ELT 481 (SC) Referred to. Para 19
B
2006 (194) ELT 3 (SC) Relied on. Para 19

""" CIVIL APPELLATE JURISDICTION : Civil Appeal Nos.
5554 of 2009.

From the Judgment & Order dated 20.06.2008 of the c
Custom, Excise & Service Tax Appellate Tribunal, New Delhi
in Appeal No. E/917/2005.

WITH
"
,J.. C.A. No. 5555 of 2009.
D

Gourab Banerjee, ASG, S.K. Bagaria, T.V. Ratnam,
Rupesh Kumar, B. Krishna Prasad, Anil Katiyar, B.V. Balaram
Das, V. Lakshmi Kumaran, Alok Yadav, M.P. Devanath, Mcnish
Panda, Meenakshi Arora, Mohit D. Ram for the appearing E
parties.

'>,.
The Judgment of the Court was delivered by
'i

S. H. KAPADIA, J. 1. Leave granted.
F
FACTS IN THE LEAD MATTER

2. The issue in the present civil appeal is : whether the
Department is right in reversing proportionate CENVAT credit
to the extent of power wheeled out by the appellant to its sister G
units, vendors, joint ventures. Basically, in both the civil appeals
~
we are required to construe the word "input" as defined in Rule
--..· 2(g) of CENVAT Credit Rules, 2002.

3. Mis. Maruti Suzuki Ltd. (appellant) is engaged in the
H
..
306 SUPREME COURT REPORTS [2009) 13 (ADDL.) S.C.R.

' '
A business of manufacturing motor vehicles falling under Chapter ~-
87 of Central Excise Tariff Act, 1985. These motor vehicles are
cleared on payment of duty: Assessee claimed CENVAT credit
on "input" in accordance with CENVAT Credit Rules, 2002 (for
short, "2002 Rules"). Assessee has installed three gas turbines
B in their factory for generation of electricity. All the three turbines
have capacity to generate electricity of 20 MW each. Till June
2002, assessee was using natural gas as fuel for running the
three gas turbines. No excise duty was leviable on natural gas \i
and, therefore, there was no question of availing CENVAT
credit on natural gas. During July 2002 to December 2002,
c assessee started using diesel as fuel to run the three turbines.
In view of the said Rules barring availment of credit on diesel,
the assessee did not avail any CENVAT Credit on diesel
procured by them. From January 2003 onwards, assessee are
using naphtha as fuel to run the gas turbines and they are 'f
D
av~iling CENVAT Credit on naphtha used for gener~tion of .),,

electriCity in gas turbines. Assessee also uses diesel
generating set (DG set) for generation of electricity with the use
of diesel for which they had not availed any credit. In their
factory, assessee has a common distribution point for electricity
E generated in turbines. as well as DG set and the entire
electricity which is generated in the turbines and DG set(s),
placed in the factory, is distributed through common distribution
point. ~-
'.)<

F 4. During the disputed period assessee cleared a part of
electricity generated in the factory to its joint ventures, vendors
etc. In addition, assessee met its electricity requirements by
electricity captively generated by the assessee in their turbines.
During the said period, assessee generated 1,44,469.80 KWH
G of electricity out of which 18,838.49 KWH of electricity stood
wheeled out (approximately 13% of total net power generation).
-)l
This electricity stood cleared at the different rates for the entire
period varying from Rs.4.65/KWH to Rs.9.72/KWH. It may be
noted that even the joint ventures, vendors etc. to whom excess
..... .
electricity is wheeled out in turn manufacture final products. ~

H
~
MARUTI SUZUKI LTD. v. COMMISSIONER OF 307
CENTRAL EXCISE-Ill, DELHI [S.H. KAPADIA, J.]
ARGUMENTS A
...J..
5. At the outset it may be noted that the civil appeals in
,;, question concern the period January 2003 to October 2003 and
November 2003 to March 2004 during which period CENVAT
Credit Rules, 2002 was amended by Notification No.13/2003-
B
CE(NT) dated 1.3.2003. Accordingly we are confining the
arguments advanced by learned counsel on both sides to the
said Rules.
,.J
6. Mr. V. Lakshmi Kumaran, learned counsel appearing on
behalf of the appellant, submitted as follows. So long as c
naphtha is used as fuel for generation of electricity, appellant
is entitled to take credit of duty paid on it and there is no need ·
to reverse proportionate credit to the extent of power wheeled
out to joint ventures, vendors etc. According to learned counsel,
~ Rule 2(g) of the said 2002 Rules which defined "input", was in D
.l two parts. The first part was the specific part which was followed
by the inclusive part. In the inclusive part several items stood
included such as lubricating oils, greases, cutting oils, coolants,
accessories, goods used as paint, or as packing material, or
as fuel, or for generation of electricity or steam used for E
manufacture of final products or for any other purpose, within
the factory of production. There is no dispute that the appellant
had used naphtha as fuel for generation of electricity, hence,
'+ the said item fell within the inclusive part of the definition.

" According to learned counsel, there was a condition in the F
specific part of the said Rule, namely, "that the goods must be
used in or in relation to the manufacture of final product",
however, that condition did not apply to goods falling under the
inclusive part of the definition of "input". Therefore, once the fuel
stood admittedly used in the factory for generation of electricity,
G
it came within the definition of the word "input". Learned counsel
~ next urged that the expression "within the factory of production"

did not qualify goods used as fuel. In this connection, it is urged,
-:*"
that, naphtha used as fuel for gP.neration of electricity came
under two alternative provisions, namely, "input used as fuel"
H

'
308 SUPREME C<?URT REPORTS [2009] 13 (ADDL.) S.C.R.

A or "input used for generation of electricity" and, therefore, it was ..),.._

open to the appellant to contend that naphtha used as fuel for
generation of electricity stood covered within the expression
"goods used as fuel". According to learned counsel, when the
case of the appellant stood covered by two alternative
B provisions it is open to the appellant to contend that he is
covered by one of them. It was urged that the expression "within
the factory of production" stands attached only to one category
of goods in the inclusive part of the definition, namely, "goods ~
used f,or generation of electricity or steam" and that the said
expression "within the factory of production" was not attached
c
to any previous items, mentioned in the inclusive part of the
definition and, therefore, the said expression "within the factory
of production" was not applicable to input "naphtha" used as
fuel. Consequently, according to learned counsel, so long as
naphtha received in the appellant's factory was used as fuel, "f
D
the same stood covered by the definition of "input" irrespective J..
of the fact that some portion of electricity generated by use of
naphtha stood cleared outside. In the alternative, it was urged,
that, ·even _assuming for the sake of argument that the
expression "within the factory of production" stood attached to
E the expression '.'goods used for generation of electricity" it would
only mean that goods used for generation of electricity should
be used within the factory of production of final product(s). In
other words, according to learned counsel, the said expression y
:.:
"wjthin the factory of production" would apply to items used for
F generation of electricity and ~ot to electricity as such and since
in the present case naphtha stood used within the factory of
production of the final product, it fell within the definition of
"input". Consequently, the appellant was entitled to the credit
of duty paid on the entire quantity of naphtha used as fuel. It
G was next urged on behalf of the appellant that once naphtha
came to be used in generation of electricity which was partly

-
'-'-
used for captive consumption and partly in other units of the
appellant it was not open to the Department to deny credit on
the ground that part of the electricity was cleared outside the
H factory to the joint ventures, vendors etc. In this connection, it
,)
MARUTI SUZUKI LTD. v. COMMISSIONER OF 309
CENTRAL EXCISE-Ill, DELHI [S.H. KAPADIA, J.]
was submitted that under the said Rules; a manufacturer of final A
product was allowed to take credit of specified duty paid on
any input received in the factory after 1.4.2002. There was no
condition attached to it. Hence, it was not open to the
Department to deny credit on the ground that part of the
electricity stood cleared outside the factory to its joint ventures, B
vendors etc. According to learned counsel, Rule 3(1) of the
said 2002 Rules permitted credit to be taken on inputs received
J in the factory whereas Rule 3(4) required credit to be
surrendered on removal of input as such, therefore, when the
goods received in the factory were used as fuel and the said c
goods were not removed from the factory, credit of duty paid
on fuel became undeniable. Learned counsel next contended
that under Rule 6(1) when input was used in the manufacture
of exempted goods, credit was not admissible. However, Rule
:t 6(1) was not attracted to the facts of the present cases as D
naphtha was "used .as fuel" in generation of electricity which is
"" not an excisable item. According to learned counsel, since
electricity was neither exempted nor chargeable to 'nil' rate of
duty, Rule 6(1) was not applicable in the case of naphtha used
in the generation of electricity or steam and, therefore, the
E
appellant was entitled to avail full cred.it on naphtha as the
restriction under Rule 6(1) was not applicable. Therefore,
wheeling out a part of electricity generated in the factory of the
'>c appellant to its joint ventures or vendors could not have
< deprived the appellant of the credit of duty paid on naphtha
used as fuel in their factory. F

7. Mr. Gourab Banerji, learned Addi. Solicitor General,
appearing for the Department submitted that the basic idea of
CENVAT credit is that it is admissible so long as the inputs
are used in or in relation to the manufacture of final products, G
whether directly or indirectly and, therefore, the CENVAT
-':"- scheme was not designed to grant windfall benefits by way of
'1 credit to inputs not used ultimately in or in relation to
manufacture of the final products but are used in or in relation
to the production of electricity which is not even excisable. H
310 SUPREME COURT REPORTS [2009] 13 (ADDL.) S.C.R.

A According to learned counsel, the definition of the word "input" ....
in Rule 2(g) of the CENVAT Credit Rules, 2002 was required
to be read as a whole and not in a disjunctive manner as
suggested on behalf of the appellant. According to learned
counsel, the specific part of Rule 2(g) covered all inputs as long ,•
B as they were used in or in relation to the manufacture of final j

product(s), directly or indirectly. In this connection, learned
counsel submitted that the scope of the inclusive part was
merely to illustrate certain inputs in respect of which a possible ~.
doubt existed as to whether or not they stood used in or in
c relation to the manufacture of final product(s) and further the
inclusive part stood qualified by the fact that all the items
mentioned therein had to be used within the factory of
production. Therefore, according to learned counsel, the
inclusive part of the definition restricted the benefit to specified
D items which were required to be used within the factory of '.
production. In this connection, learneq counsel gave examples >
of specific items, mentioned in Rule 2(g) of the 2002 Rules, like
lubricating oils, greases, cutting oils and coolants which also
fell within the definition "if used within the factory of production".
In fact, according to learned counsel, the said items stood
E
specifJcally included to clarify doubt as to whether the ~aid
items could be used within the factory of production. In the
alternative, it was submitted that the appellant has used naphtha
~,.
in the generation of electricity, part of which has been ).
consumed outside the factory or production; that the said input
F has not been used as fuel per se but it has been used for the
specific purpose of generation of electricity consumed outside
the factory of production and consequently the said naphtha
would not fall within the defiriition under Rule 2(g). Coming to
the int~rpretation of Rule 6 of the 2002 Rules, learned counsel
G submitted, that where electricity stood generated but sold
outside the factory· to third party, the said rule was not ~·
applicable. According to learned counsel, electricity generated
as a final product was neither exempted nor chargeable to 'nil' r
rate of duty hence in such cases Rules 6 was not applicable.
H According to learned counsel, Rule 6 was applicable to cases
MARUTI SUZUKI LTD. v. COMMISSIONER OF 311
CENTRAL EXCISE-Ill, DELHI [S.H. KAPADIA, J.]

...J.,
where the final product was either exempted or charged to 'nil' A
rate of duty and since electricity was not excisable commodity
the said rule was not applicable. Learned counsel also
emphasized on Rule 6(1) in support of his contention that
CENVAT credit was not admissible on such quantity of inputs
which were used in the manufacture of exempted goods. The B
~aid bar, according to learned counsel, was consistent with the
basic idea of CENVAT scheme. On interpretation of Rule 6(2)
;.,l it was urged that on proper analysis of the said sub-rule it is
clear that the said sub-rule had imposed an obligation on the
manufacturer when he manufactured both dutiable and c
exempted goods and in discharge of that obligation he had an
option either to maintain separate accounts on inputs used in
the manufacture of dutiable and exempted goods or he had to
pay specified percentage of the price of the exempted goods.
1 According to learned counsel, in respect of "goods used as
D
J.. fuel", it was physically impossible to maintain separate.
account(s) of fuel used in the manufacture of dutiable and
exempted goods and, therefore, the Legislature thought it fit not
to give the said option of maintaining separate accounts of
goods used as fuel and in such cases the only option available
was to pay a specified amouryt. In any event, according to E
learned counsel, on facts since naphtha was used as fuel in the
generation of electricity/steam, Rule 6(2) became applicable.
"'\
ANALYSIS OF THE RULES
" F
8. We hereinbelow reproduce relevant rules of the
CENVAT Credit Rules 2002 and CENVAT Credit Rules 2004
which read as follow :

"The CENVAT Credit Rules, 2002
G
Rule 2. Definitions.- In these rules, unless the context
otherwise requires,-
"""°'
(d) "exempted goods" means goods which are exempt
from the whole of the duty of excise leviable thereon, and
H
312 SUPREME COURT REPORTS [2009] 13 (ADDL.) S.C.R.

A includes goods which are chargeable to "Nil" rate of duty; .

(g) "input" means all goods, except light diesel oil, high
speed diesel oil and motor spirit, commonly known as
petrol, used in or in relation to the manufacture of final
·•
products whether directly or indirectly and whether
B
contained in the final product or not, and includes
lubricating oils, greases, cutting oils, coolants, accessories
of the final products cleared along with the final product,
goods used as paint, or as packing material, or as fuel, ~
or for generation of electricity or steam used for
c manufacture of final products or for any other purpose,
within the factory of production.

Explanation 1.- The light diesel oil, high speed diesel oil
or motor spirit, commonly known as petrol, shall not be
D treated as an input for any purpose whatsoever. .f'.
~
Explanation 2.- Inputs include goods used in the
manufacture of capital goods which are further used in the
factory of the manufacturer;
E RULE 3. CENVAT credit.-

1. A manufacturer or producer of final products shall
be allowed to take credit (hereinafter referred to as
the CENVAT credit) of - ·V
)__

F
i. the duty of excise specified in the First
Schedule to the Tariff Act, leviable under the
Act;

ii. the duty of excise specified in the Second
G Schedule to the Tariff Act, leviable under the
Act;
~-
iii. the additional duty of excise leviable under
section 3 of the Additional Duties of Excise
(Textile and Textile Articles) Act,1978 ( 40 of
H
MARUTI SUZUKI LTD. v. COMMISSIONER OF 313
CENTRAL EXCISE-Ill, DELHI [S.H. KAPADIA, J.]
1978); A
...(

iv. the additional duty of excise leviable under
section 3 of the Additional Duties of Excise
(Goods of Special Importance) Act, 1957 (
58 of 1957);
B
v. the National Calamity Contingent duty
leviable under section 136 of the Finance
Act, 2001 (14 of 2001), as amended by
clause 161 of the Finance Bill, 2003, which
clause has, by virtue of the declaration made c
in the said Finance Bill Under the Provisional
Collection of Taxes Act, 1931 (16 of 1931),
the force of law;
,. vi. the additional duty leviable under Section 3
D
of the Customs Tariff Act, equivalent to the
4
excise specified under clauses (i), (ii), (iii),
(iv) and (v) above; and

vii. the additional duty of excise leviable under
section 157 of the Finance Act, 2003 (32 of E
2003),

paid on any inputs or capital goods received
...,,,
:t
in the factory on or after the first day of
March, 2002, including the said duties paid F
on any inputs used in the manufacture of
intermediate products, by a job-worker
availing the benefit of exemption specified in
the notification of the Government of India in
the Ministry of Finance (Department of
G
Revenue), No. 214/86- Central Excise, dated
,.._.. the 25th March, 1986, published vide number
G.S.R. 547 (E), dated the 25th March, 1986,
·-
and received by the manufacturer for use in,
or in relation to, the manufacture of final
H
\_
\

314 SUPREME COURT REPORTS [2009] 13 (ADDL.) S.C.R.

A products, on or after the first day of March,
.).-
2002.

Explanation.- For the removal of doubts it is
clarified that the manufacturer of the final
products shall be allowed CENVAT credit of
B
additional duty leviable under section 3 of the
Customs Tariff Act on goods falling under
heading 98.01 of the First Schedule to the
\J.
Customs Tariff Act.

c 2. Notwithstanding anything contained in sub-rule (1 ),
the manufacturer or producer of final products shall
be allowed to take CENVAT credit of the duty paid
on inputs lying in stock or in process or inputs
contained in the final products lying in stock on the
D date on which any goods cease to be exempted r
goods or any goods become excisable. ~.

3. The CENVAT credit may be utilized for payment of -

(a) any duty of excise on any final products; or f-
E \
(b) an amount equal to CENVAT credit taken on inputs if
such inputs are removed as such of after being partially
processed; of
~,,,·

), '
(c) an amount equal to the CENVAT credit taken on capital
F
goods if such capital goods are removed as such; or

(d) an amount under sub-rule (2) of Rule 16 of Central
l'
Excise Rules, 2000.

G Provided that while paying duty, the CENVAT credit shall
be utilized only to the extent such credit is available on the
last day of the month for payment of duty relating to the ~·
;

month. '

Provided further that the CENVAT credit of the duty paid
H
MARUTI SUZUKI LTD. v. COMMISSIONER OF 315
CENTRAL EXCISE-Ill, DELHI [S.H. KAPADIA, J.]

on the inputs used in the manufacture of final products A
cleared after availing of the exemption under the
notification numbers 32/99-Central Excise, dated the 8th
July, 1999 [G.S.R.508(E) dated the 8th July, 1999] and 33/
99-Centrat Excise dated the 8th July, 1999 [G.S.R.509 (E)
dated 8th July, 1999], shall be utilized only for payment of B
duty on final products cleared after availing of the
exemption under the said notification numbers 32/99-
Central Excise, dated 8th July, 1999 and 33/99-Central
Excise, dated the 8th July, 1999.]

Provided also that the CEENVAT credit of the duty paid
c
on the inputs used in the manufacture of final products
cleared after availing of the exemption under the
notifications No.39/2001-Central Excise, dated the 31st
July, 2001 [G.S.R.565(E), dated the 31st July, 2001],
~ D
No.56/2002-Central Excise, dated the 14th November,
.;. 2002 [G.S.R. 764(E), dated the 14th November, 2002],
No.57/2002-Central Excise, dated 14th November, 2002
[G.S.R.765(E), dated the 14th November, 2002] and
No.56/2003-Central Excise, dated the 25th June, 2003
[G.S.R.513 (E), dated the 25th June, 2003] shalt E
respectively be utilized only for payment of duty on final
products, in respect of which exemption under the said
notifications No.39/2001-Central Excise, dated the 31st
·~
.J July, 2001, No.56/2002-Central Excise, dated the 14th
November, 2002, No.57/2002-Central Excise, dated 14th F
November, 2002 and No.56/2003-Central Excise, dated
the 25th June, 2003, is availed.

4. When inputs or capital goods, on which CENVAT credit
has been taken, are removed as such from the factory, the
G
manufacturer of the final products shall pay an amount
equal to the credit availed in respect of such inputs or
capital goods and such removal shall be made under the
cover of an invoice referred to in rule 7.

4A Notwithstanding anything contained in these rules,- H
316 SUPREME COURT REPORTS [2009) 13 (ADDL.) S.C.R.

A (a) a first or second stage dealer, dealing exclusively in
goods falling under Chapter 50, 51, 52, 53, 54, 55, 56, 57, )-
58, 59, 60, 61, 62 or 63 of the First Schedule to the Tariff
Act, may, at his option, remove such goods, whether or not
after undertaking activities such as packing, repacking, on
B payment of an amount equal to the duty of excise, which
is leviable on such goods at the rate applicable on the date
of removal and on the value determined for such goods
under sub-section (2) of Section 3 or Section 4 of the Act,
~:
as the case may be. The provisions of the Central Excise
c Rules, 2002, in so far they relate to removal of goods on
invoice, maintenance of accounts, filing of return, manner
of payment or failure to pay such amount shall apply, as if
such amount is a duty of excise liable to be paid by an
assessee:
D Provided that such option once exercised by the said r
dealer, shall not be withdrawn during the remaining part A
of the financial year;

(b) the first or second stage dealer of goods referred to in
E clause (a), who avails of the option referred to in said
clause, may take credit of.duties referred to in sub-rule (1)
of Rule 3, paid on such goods for utilizing the same for
payment of such amount, as referred to in clause (a);
~·'
(c) the amount paid under clause (a) shall be eligible as .\<.
F CENVAT credit as if it were a duty paid by a person who
removes such goods under sub-rule(4A).
5. The amount paid under sub-rule (4) shall be eligible as
CENVAT credit as if it was a ,duty paid by the person who
G removed such goods under sub-rule (4).

6. Notwithstanding anything contained in sub-rule (1),- .......,J._

a. CENVAT credit in respect of inputs or capital goods
produced or manufactured,-
H
MARUTI SUZUKI LTD. v. COMMISSIONER OF 317
CENTRAL EXCISE-Ill, DELHI [S.H. KAPADIA, J.]
.{ i. in a free trade zone or by a hundred per cent. export- A
oriented undertaking or by a unit in an Electronic
Hardware Technology Park or Software Technology
Park (other than a unit which pays excise duty under
section 3 of the Act read with notification No. 8/97-
Central Excise, dated the 1st March, 1997, number B
G.S.R 114 (E), dated the 1st March, 1997 or No.
20/2002-Central Excise, dated the 1st March, 2002)
~I
and used in the manufacture of the final products in
any other place in India, in case the unit pays excise
duty under section 3 of the Act read with notification c
No. 2/95-Central Excise, dated the 4th January,
1995, number G.S.R. 189 (E), dated the 4th
January, 1995, shall be admissible equivalent to the
amount calculated in the following manner, namely:-
'
' Fifty per cent. of [ X multiplied by{( 1+ BCD/100)
multiplied by ( CVD/1 QO)}], where BCD and CVD
D
"' denote ad valorem rates, in per cent., of basic
customs duty and additional duty of customs
leviable on the inputs or the capital goods
respectively and X denotes the assessable value.
E
ii. in a Special Economic Zone, and used ·in the
manufacture of the final products in any other place
°"4
...,;.
in India, shall be admissible equivalent to the
amount calculated in the following manner, namely:-
X multiplied by {( 1+ BCD/100) multiplied by ( CVD/ F
100)}, where BCD and CVD denote ad valorem
rates, in per cent., of basic customs duty and
additional duty of customs leviable on the inputs or
the capital goods respectively and X denotes the
assessable value. G
b. CENVAT credit in respect of

i. the additional duty of excise leviable under section
3 of the Additional Duties of Excise (Textiles and
H
318 SUPREME COURT REPORTS [2009] 13 (ADDL.) S.C.R.

A Textile Articles) Act, 1978 (40 of 1978); ).

ii. the National Calamity Contingent duty leviable
under section 136 of the Finance Act, 2001 (14 of
2001), as amended by clause 161 of the Finance
Bill, 2003, which clause has, by virtue of the
B
declaration made in the said Finance Bill Under the
Provisional Collection of TaKes Act, 1931 (16 of
1931 ), the force of law; and ~

iii. the additional duty leviable under section 3 of the
c Customs Tariff Act, equivalent to the duty of excise
specified under clauses (i) and (ii) above,

shall be utilised only towards payment of duty of
excise leviable under the said Additional Duties of
Excise (Textiles and Textile Articles) Act, or the
r
D ....
National Calamity Contingent duty leviable under
Section 136 of the Finance Act, 2001 as amended
by clause 161 of the Finance Bill, 2003, which
clause has, by virtue of the declaration made in the
said Finance Bill. Under the Provisional Collection
E
of Taxes Act, 1931 (16 of 1931), the force of law;
respectively, on any final products manufactured by
the manufacturer or for payment of such duty on
~"
inputs themselves if such inputs are removed as r~
such or after being partially processed.
F
Explanation.- For removal of doubts, it is clarified
that the credit of the additional duty of excise leviable
under section 3 of the Additional Duties of Excise
(Goods of Special Importance) Act, 1957 (58 of
G 1957), may be utilized towards payment of duty of
excise leviable under the First Schedule or the -+-
Second Schedule of the Central Excise Tariff Act,
1985 (5 of 1986).

c. the CENVAT credit, in respect of additional duty
H
MARUTI SUZUKI LTD. v. COMMISSIONER OF 319
CENTRAL EXCISE-Ill, DELHI [S.H. KAPADIA, J.]
leviable under section 3 of the Customs Tariff Act, A
paid on marble slabs or tiles falling under sub-
heading No. 2504.21 or 2504.31 respectively of the
First Schedule to the Tariff Act shall be allowed to
the extent of thirty rupees per square metre;
B
d. ***

Explanation.- Where the provisions of any other rule
or notification provide for grant of partial or full
exemption on condition of non-availability of credit
of duty paid on any input or capital goods, the C
provisions of such other rule or notification shall
prevail over the provisions of these rules.

Rule 6. Obligation of manufacturer of dutiable and
'v exempted goods.- D
+-
1. The CENVAT credit shall not be allowed on such
quantity of inputs which is used in the manufacture
of exempted goods, except in the circumstances
mentioned in sub-rule (2).
E
Provided the CENVAT credit on inputs shall not be
denied to job worker referred to in rule 128 of the
..._. Central Excise Rules, 2002 on the ground that the
_, said inputs are used in the manufacture of goods
cleared without payment of duty under the F
provisions of that rule.

2. Where a manufacturer avails of CENVAT credit in
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 G
-..\:- goods, then, the manufacturer shall maintain
separate accounts for receipt, consumption and
inventory of inputs meant for use in the manufacture
of dutiable final products and the quantity of inputs
meant for use in the manufacture of exempted H
320 SUPREME COURT REPORTS (2009] 13 (ADDL.) S.C.R.

A goods and take CENVAT credit only on that )..
quantity of inputs which is intended for use in the
manufacture of dutiable goods.

3. The manufacturer, opting not to .•;.1aintain separate
accounts shall follow either of the following
B
conditions, as applicable to him, namely:-

a. if the exempted goods are-
)-t
i. goods falling within heading No. 22.04 of the
c First Schedule to the Tariff Act;

ii. Low Sulphur Heavy Stock (LSHS) falling
within Chapter 27 of the said First Schedule
used in the generation of electricity;
~f
D iii. Naphtha (RN) falling within Chapter 27 of the
.~
said First Schedule used ih the manufacture
of fertilizer;

iv. Omitted.
E
v. newsprint, in rolls or sheets, falling within
heading No.48.01 of the said First Schedule;

vi. final products falling within Chapters 50 to 63 J."
of the said First Schedule, ,\
F
vii. Naptha (RN) and furnace oil falling within
Chapter 27 of the said First Schedule used
for generation of electricity;

viii. Goods supplied to defence personnel or for
G defence projects or to the Ministry of
Defence for official purposes, under any of
the following notifications of the Government
-+
of India in the erstwhile Ministry of Finance
(Department of Revenue), namely:-
H
MARUTI SUZUKI LTD. v. COMMISSIONER OF 321
CENTRAL EXCISE-Ill, DELHI [S.H. KAPADIA, J.]
(1) No.70/92-Central Excise, dated the 17th A
"" June, 1992, G.S.R.595 (E), dated the 17th
June, 1992;
'
~

(2) No.62/95-Central Excise, dated the 16th
March, 1995, G.S.R.254 (E), dated the 16th
8
March, 1995;

(3) No.63/95-Central Excise, dated the 16th
-,I March, 1995, G.S.R.255 (E), dated the 16th
March, 1995;
c
(4) No.64/95-Central Excise, dated the 16th
March, 1995, G.S.R.256(E), dated the 16th
March, 1995;

'~ the manufacturer shall pay an amount equivalent to the
+.. · CENVAT credit attributable to inputs used in, or in relation D
to, the manufacture of such final products at the time of
their clearance from the factory; or

b. if the exempted goods are other than those
described in condition (a), the manufacturer shall E
pay an amount equal to eight per cent. of the total
price, excluding sales tax and other taxes, if any,
.. paid on such goods, of the exempted final product
--4 charged by the manufacturer for the sale of such
goods at the time of their clearance from the F
factory.

. Explanation 1.- The amount mentioned in conditions (a) and
(b) shall be paid by the manufacturer by debiting the
CENVAT credit or otherwise.
G
Explanation II.- If the manufacturer fails to pay the
-+-
-- said amount, it shall be recovered along with
interest in the same manner, as provided in rule 12,
for recovery of CENVAT credit wrongly taken.
H
...
322 SUPREME COURT REPORTS [2009] 13 (ADDL.) S.C.R.

A 4. No CENVAT credit shall be allowed on capital
goods which are used exclusively in the
manufacture of exempted goods, other than the final
prcducts which are exempt from the whole of the
duty of excise leviable thereon under any
B notification where exemption is granted based upon
the value or quantity of clearances made in a
financial year.
:-..
5. The provisions of sub- rule (1), sub-rule (2), sub-rule
(3) and sub-rule (4) shall not be applicable in case
c the exempted goods are either-

i. cleared to a unit in a free trade zone; or

ii. cleared to a unit in a special economic zone;
or r
D
~
iii. cleared to a hundred per cent. export-
oriented undertaking; or

iv. cleared to a unit in an Electronic Hardware
E Technology Park or Software Technology
Park; or

v. supplied to the United Nations or an
international organization for their official use )-
or supplied to projects funded by them, on
F
which exemption of duty is available under
notification of the Government of India in the
Ministry of Finance (Department of Revenue)
No.108/95-Central Excise, dated the 28th
August, 1995, number G. S R. 602 (E), dated
G the 28th August, 1995; or

-
--.J..
I

vi. cleared for export under bond in terms of the
provisions of the Central Excise Rules, 2002.

vii. Gold or silver falling within Chapter 71 of the
H
MARUTI SUZUKI LTD. v. COMMISSIONER OF 323
CENTRAL EXCISE-Ill, DELHI [S.H. KAPADIA, J.]
said First Schedule, arising in the course of A
manufacture of copper or zinc by smelting."

(emphasis supplied by us)

"CENVAT Credit Rules, 2004
B
RULE 2. Definitions.- In these rules, unless the context
otherwise requires,-
~
(k) "input" means-

(i) all goods, except light diesel oil, high speed diesel oil c
and motor spirit, commonly known as petrol, used in or in
relation to the manufacture of final products whether directly
or indirectly and whether contained in the final product or
~. not and includes lubricating oils, greases, cutting oils,
+. coolants, accessories of the final products cleared along D
with the final product, goods used as paint, or as packing
material, or as fuel, or for generation of electricity or steam
used in or in relation to manufacture of final products or
for any other purpose, within the factory of production;
E
(ii) all goods, except light diesel oil, high speed diesel oil,
motor spirit, commonly known as petrol and motor vehicles,
....
...j
used for providing any output service;

Explanation 1.- The light diesel oil, high speed diesel oil
, or motor spirit, commonly known as petrol, shall not be F
treated as an input for any purpose whatsoever.

Explanation 2.- Input include goods used in the
manufacture of capital goods whlt:h are further used in the
factory of the manufacturer; G
-+- RULE 3. CENVAT credit.-
.,
(1) A manufacturer or producer of final products or a
provider of taxable service shall be allowed to take credit
(hereinafter referred to as the CENVAT credit) of - H
324 SUPREME COURT REPORTS [2009] 13 (ADDL.) S.C.R.

A (i) the duty of excise specified in the First Schedule ~
to the Excise Tariff Act, leviable under the Excise
Act;

(ii) the duty of excise specified in the Second
Schedule to the Excise Tariff Act, leviable under the
B
Excise Act;

(iii) the additional duty of excise leviable under ~
section 3 of the Additional Duties of Excise (Textile
and Textile Articles) Act, 1978 ( 40 of 1978);
c
(iv) the additional duty of excise leviable under
section 3 of the Additional Duties of Excise
(Goods of Special Importance) Act, 1957 ( 58 of
1957);
j'
D (v) the Nation~! Calamity Contingent duty leviable ..+
under section 136 of the Finance Act, 2001 (14 of
2001);

(vi) the Education Gess on excisable goods leviable
E under section 91 read with section 93 of the
Finance (No.2) Act, 2004 (23 of 2004);

(vii) the additional duty leviable under section 3 of
the Customs Tariff Act, equivalent to the duty of ~ ~
excise specified under clauses (i), (ii), (iii), (iv), (v)
F
and (vi);

(viii) the additional duty of excise leviable under
section 157 of the Finance Act, 2003 (32 of 2003);
•
G (ix) the service tax leviable under section 66 of the
Finance Act; and

(x) the Education Gess on taxable services leviable
under section 91 read with section 95 of the
'Finance (No.2) Act, 2004 (23 of 2004),
-
H
MARUTI SUZUKI LTD. v. COMMISSIONER OF 325
CENTRAL EXCISE-Ill, DELHI [S.H. KAPADIA, J.]

paid on- A

(i) any input or capital goods received in the
factory of manufacture of final product or
premises of the provider of output service on
or after the 10th day of September, 2004; B
and

(ii) any input service received by the
manufacturer of final product or by the
provider of output services on or after the 10th
day of September, 2004, c
including the said duties, or tax, or cess paid on any
input or input service, as the case may be, used in
the manufacture of intermediate products, by a job-
worker availing the benefit of exemption specified
'• in the notification of the Government of India in the
D
4--
Ministry of Finance (Department of Revenue), No.
214/86- Central Excise, dated the 25th March,
1986, published in the Gazette of India vide number
G.S.R. 547 (E), dated the 25th March, 1986, and
E
received by the manufacturer for use in, or in relation
to, the manufacture of final product, on or after the
10th day of September, 2004.
"'•
-' Explanation.- ·For the removal of doubts it is
clarified that the manufacturer of the final products F
and the provider of output service shall be allowed
CENVAT credit of additional duty leviable under
section 3 of the Customs Tariff Act on goods falling
under heading 9801 of the First Schedule to the
Customs Tariff Act. G
...,_ (2) Notwithstanding anything contained in sub-rule (1), the
manufacturer or producer of final products shall be allowed
...
to take CENVAT credit of the duty paid on inputs lying in
stock or in process or inputs contained in the final products
H
326 SUPREME COURT REPORTS [2009] 13 (ADDL.) S.C.R.

A lying in stock on the date on which any goods manufactured
by the said manufacturer or producer cease to be )..

exempted goods or any goods become excisable.

(3) Notwithstanding anything contained in sub-rule (1 ), in
B relation to a service which ceases to be an exempted
service, the provider of the output service shall be allowed
to take CENVAT credit of the duty paid on the inputs
received on and after the 10th day of September, 2004 and
lying in stock on the date on which any service ceases to ~

be an ,exempted service and used for providing such
c service.

(4) The CENVAT credit may be utilized for payment of -

(a) any duty of excise on any final product; or
D
(b) an amount equal to CENVAT credit taken on inputs if
v
~
such inputs are removed as such or after being partially
processed; or

(c) an amount equal to the CENVAT credit taken on capital
E goods if such capital goods are removed as such; or

(d) an amount under sub rule (2) of rule 16 of Central Excise
Rules, 2002; or
~ ,.
. (e) service tax on any output service: . )..
F
Provided that whil~ paying duty of excise or service tax,
as the case may be, the CENVAT credit shall be utiHzed
only to the extent such credit is available on the last day of
the month or quarter, as the case may be, for payment of
G. duty or tax relating to that month or the quarter, as the case
may be:
~-
Provided further that the CENVAT credit of the duty, or
..,
service tax, paid on the inputs, or input services, used in
the manufacture of final products cleared after availing of
H
•
MARUTI SUZUKI LTD. v. COMMISSIONER OF 327
CENTRAL EXCISE,.lf1; DELHI [S.H. KAPADIA, J.]
the exemption under the following notifications of A
..t
Government of India in the Ministry of Finance (Department
of Revenue),-

(i) No. 32/99-Central Excise, dated the 8th July,
1999 [G.S.R. 508(E), dated 8th July, 1999J;
B
(ii) No. 33/99-Central Excise, dated the 8th July,
1999 [G.S.R. 509(E), dated 8th July, 1999];
~
(iii) No. 39/2001-Central Excise, dated the 31st July,
2001 [G.S.R. 565 (E), dated the 31st July, c
2001];

(iv) No. 56/2002-Central Excise, dated the 14th
November, 2002 [G.S.R. 764(E), dated the 14th
"• November, 2002]; D
.J.
(v) No. 57/2002-Central Excise, dated 14th
November, 2002 [G.S.R .. 765(E), dated the 14th
November, 2002];

_(vi) No. 56/2003-Central Excise, dated the 25th E
June, 2003 [G.S.R. 513 (E), dated the 25th June,
2003];· and

...""• (vii) No. 71/2003-Central Excise, dated the 9th
September, 2003 [G.S.R. 717 (E), dated the 9th F
September, 2003],

shall, respectively, be utilized only for payment of
duty on final products, in respect of which exemption
under the said respective notifications is availed of:
G
(5) When inputs or capital goods, on which CENVAT credit
~
has been taken, are removed as such from the factory, or
premises of the provider of output service, the manufacturer
of the final products or provider of output service, as the
case may be, shall pay an amount equal to the credit H
328 SUPREME COU'RT REPORTS [2009] 13 (ADDL.) S.C.R.

A availed in respect of such inputs or capital goods and such
removal shall be made under the cover of an invoice
referred to in rule 9:

Provided that such payment shall not be 'required to be
made where any inputs are removed outside the premises
B
of the provider of output service for providing the output
service:

Provided further that such payment shall not be required ~
to be made when any capital goods are removed outside
c the premises of the provider of output service for providing
the output service and the capital goods are brought back
to the premises within 180 days, or such extended period
not exceeding 180 days as may be permitted by the
jurisdictional Deputy Commissioner of Central Excise, or
Assistant Commissioner of Central Excise, as the case ~-
D
may be, of their removal. ~ •'
(6) The amount paid under sub-rule (5) shall be eligible
as CENVAT credit as if it was a duty paid by the person
who removed such goods under sub-rule (5).
E
(7) Notwithstanding anything contained in sub-rule (1) and
sub-rule (4), -

(a) CENVAT credit in respect of inputs or capital .>
)._
F goods produced or manufactured, by a hundred
per cent. export-oriented undertaking or by a unit
in an Electronic Hardware Technology Park or in a
Software Technology Park other than a unit which
pays excise duty levied under section 3 of the
Excise Act read with serial numbers 3,5, 6 and 7
G
of notification No. 23/2003-Central Excise, dated

,.
the 31st March, 2003, [G.S.R. 266(E), dated the ~
31st March, 2003] and used in the manufacture of
the final products or in providing an output service,
..
in any other place in India, in case the unit pays
H
MARUTI SUZUKI LTD. v. COMMISSIONER OF 329
CENTRAL EXCISE-Ill, DELHI [S.H. KAPADIA, J.]

..... excise duty under section 3 of the Excise Act read A
with serial number 2 of the notification No. 23/2003-
Central Excise, dated the 31st March, 2003,
[G.S.R. 266(E), dated the 31st March, 2003], shall
be admissible equivalent to the amount calculated
in the following manner, namely:- B

Fifty per cent. of [X multiplied by {(1 +BCD/
~ 100) multiplied by (CVD/100)}], where BCD
and CVD denote ad valorem rates, in per
cent., of basic customs duty and additional c
duty of customs leviable on the inputs or the
capital goods respectively and X denotes the
assessable value.

'• (b) CENVAT credit in respect of -
D
\ j..
(i) the additional duty of exCise leviable under section 3 of
the Additional Duties of Excise (Textiles and Textile
Articles) Act, 1978 (40 of 1978);

(ii) the National Calamity Contingent duty leviable under
E
section 136 of the Finance Act, 2001 (14 of 2001);

(iii) the education cess on excisable goods leviable under
....... section 91 read with section 93 of the Finance (No.2) Act,
... 2004 (23 of 2004);
F
(iv) the additional duty leviable under section 3 of the
Customs Tariff Act, equivalent to the duty of excise
specified under items (i), (ii) and (iii) above;

(v) the additional duty of excise leviable under section 157
of the Finance Act, 2003 (32 of 2003); G
~
(vi) the education cess on taxable services leviable under
.... section 91 read with section 95 of the Finance (No.2) Act,
2004 (23 of 2004 );
H
330 SUPREME COURT REPORTS [2009] 13 (ADDL.) S.C.R.

A shall be utilized only towards payment of duty of excise or >..
as the case may be, of service tax leviable under the said
Additional Duties of Excise (Textiles and Textile Articles)
Act, 1978 or the National Calamity Contingent duty leviable
under section 136 of the Finance Act, 2001 (14 of 2001),
B or the education cess on excisable goods leviable under
section 91 read with section 93 of the Finance (No.2) Act,
2004, respectively, on any final products manufactured by
the manufacturer or for payment of such duty on inputs ~
themselves if such inputs are removed as such or after
c being partially processed or on any output service.

Provided that the credit of the education cess on excisable
goods and education cess on taxable services can be
utilised, either for payment of the education cess on
excisable goods or for the payment of the education cess .~

D on taxable services. ~
--\ '
Explanation.-For the removal of doubts, it is hereby
declared that the credit of the additional duty of excise
leviable under section 3 of the Additional Duties of Excise
E (Goods of Special Importance) Act, 1957 (58 of 1957)
paid on or after the 1st day of April, 2000, may be utilized
towards payment of duty of excise leviable under the First
Schedule or the Second Schedule to the Excise Tariff Act. .....
)..
(c) the CENVAT credit, in respect of additional duty
F leviable under section 3 of the Customs Tariff Act, paid on
marble slabs or tiles falling under sub-heading No.
2504.21 or 2504.31 respectively of the First Schedule to
the Excise Tariff Act shall be allowed to the extent of thirty
rupees per square meter;
G
Explanation.- Where the provisions of any other rule or
notification provide for grant of whole or part exemption on
-+.
condition of no.n-availability of credit of duty paid on any .>

input or capital goods, or of service tax paid on input
H service, the provisions of such other rule or notification shall
MARUTI SUZUKI LTD. v. COMMISSIONER OF 331
CENTRAL EXCISE-Ill, DELHI [S.H. KAPADIA, J.]
prevail over the provisions of these rules. A

RULE 6. Obligation of manufacturer of dutiable and
exempted goods and provider of taxable and exempted
services.-

(1) The CENVAT credit shall not be allowed on such B
quantity of input or input service which is used in the
manufacture of exempted goods or exempted services,
~xcept in the circumstances mentioned in sub-rule (2).

(2) Where a manufacturer or provider of output service c
avails of CENVAT credit in respect of any inputs or input
services, except inputs intended to be used as fuel, and
manufactures such final products or provides such output
service which are chargeable to duty or tax as well as
exempted goods or services, then, the manufacturer or D
~ provider of output service shall maintain separate accounts
for receipt, consumption and inventory of input and input
service meant for use in the manufacture of dutiable final
products or in providing output service and the quantity of
input meant for use in the manufacture of exempted goods
E
or services and take CENYAT credit only on that quantity
of input or input service which is intended for use in the
manufacture of dutiable goods or in providing output
1',
_..(
service on which service tax is payable.

(3) Notwithstanding anything contained in sub-rules (1) and F
(2), the manufacturer or the provider of output service,
opting not to maintain separate accounts, shall follow
either of the following conditions, as applicable to him,
namely:-
G
(a) if the exempted goods are-
J..-
(i) goods falling within heading No. 22.04 of the
.....
First Schedule to the Excise Tariff Act (hereinafter
in this rule referred to as the said First Schedule);
H
332 SUPREME COURT REPORTS [2009] 13 (ADDL.) S.C.R.

A (ii) Low Sulphur Heavy Stock (LSHS) falling within
Chapter 27 of the said First Schedule used in the
generation of electricity;

(iii) Naphtha (RN) falling within Chapter 27 of the
said First Schedule used in the manufacture of
B
fertilizer;

(iv) Naptha (RN) and furnace oil falling within
Chapter 27 of the said First Schedule used for
generation of electricity;
c
(v) newsprint, in rolls or sheets, falling within
heading No.48.01 of the said First Schedule;

(vi) final products falling within .Chapters 50 to 63
of the said First Schedule, .¥
D
(vii) goods supplied to defence personnel or for --\
defence projects or to the Ministry of Defence for
official purposes, under any of the following
notifications of the Government of India in the
E Ministry of Finance (Department of Revenue),
, ,, namely:-

(1) No. 70/92-Central Excise, dated the 17th
June, 1992, G.S.R. 595 (E), dated the 17th "
' )._
June, 1992;
F
(2) No. 62/95-Central Excise, dated the 16th
March, 1995, G.S.R. 254 (E), dated the 16th
March, 1995;

G (3) No. 63/95-Central Excise, dated the 16th
March, 1995, G.S.R 255 (E), dated the 16th
..-.j,.__
March, 1995;

(4) No. 64/95-Central Excise, dated the 16th
March, 1995, G.S.R. 256 (E), dated the 16th
H
MARUTI SUZUKI LTD. v. COMMISSIONER OF 333
CENTRAL EXCISE-Ill, DELHI [S.H. KAPADIA, J.]

. ..J.,,
March, 1995, A

the manufacturer shall pay an amount equivalent to the
CENVAT credit attribUtable to inputs and input services
used in, or in relation to, the manufacture of such final
products at the time of their clearance from the factory; or
B
(b) if the exempted goods are other than those described

'., in condition (a), the manufacturer shall pay an amount
equal to ten per cent. of the total price, excluding sales tax
and other taxes, if any, paid on such goods, of the
exempted final product charged by the manufacturer for the c
sale of such goods at the time of their clearance from the
factory;

(c) the provider of output service shall utilize credit only to
..._~
extent of an amount not exceeding twenty per cent. of the D
.j.. amount of service tax payable on taxable output service .

Explanation I.- The amount mentioned in conditions (a) and
(b) shall be paid by the manufacturer or provider of output
service by debiting the CENVAT credit or otherwise.
E
Explanation II.- If the manufacturer or provider of output
service fails to pay the said amount, it shall be recovered
.. ;
along with interest in the same manner, as provided in rule
_,( 14, for recovery of CENVAT credit wrongly taken.
F
(4) No CENVAT credit shall be allowed on capital goods
which are used exclusively in the manufacture of exempted
goods or in providing exempted services, other than the
final products which are exempt from the whole of the duty
of excise leviable thereon under any notification where
exemption is granted based upon the value or quantity of G
~ clearances made in a financial year.

(5) Notwithstanding anything contained in sub-rules (1), (2)
and (3), credit of the whole of service tax paid on taxable
.
service as specified in sub-clause (g), (p), (q), (r), (v), (w), H
334 SUPREME COURT REPORTS [2009] 13 (ADDL.) S.C.R.

A (za), (zm), (zp), (zy), (zzd), (zzg), (zzh), (zzi), (zzk), (zzq) and ).,_
(zzr) of clause (105) of section 65 of the Finance Act shall
be allowed unless such service is used exclusively in or in
relation to the manufacture of exempted goods or providing
exempted services.
B
(6) The provisions of sub-rules (1), (2), (3) and (4) shall not
be applicable in case the excisable goods removed without
payment of duty are either-
~.

(i) cleared to a unit in a special economic zone; or
c
(ii) cleared to a hundred per cent. export-ori_~[lted
undertaking; or

(iii)cleared to a unit in an Electronic Hardware
) ,..
Technology Park or Software Technology Park; or
D
-\;
(iv) supplied to the United Nations or an international
organization for their official use or supplied to
projects funded by them, on which exemption of duty
is available under notification of the Government of
E India in the Ministry of Finance (Department of
Revenue) No.108/95-Central Excise, dated the 28th
August, 1995, number G. S R. 602 (E), dated the
28th August, 1995; or ·~ A

).._.
(v) cleared for export under bond in terms of the
F
provisions of the Central Excise Rules, 2002; or

(vi) gold or silver falling within Chapter 71 of the
said First Schedule, arising in the course of
manufacture of-copper or zinc by smelting.".
G
(emphasis supplied by us)

Finding:

9. Coming to the statutory definition of the word "input" in
H Rule 2(g) in the CENVAT Credit Rules, 2002, it may be noted
MARUTI SUZUKI LTD. v. COMMISSIONER OF 335
CENTRAL EXCISE-Ill, DELHI [S.H. KAPADIA, J.]
that the said definition of the word "input" can be divided into A
three parts, namely:

(i) specific part

(ii) inclusive part
. B
(iii) place of use

10. Coming to the specific part, one finds that the word
"input" is defined to mean all goods, except light diesel oil, high
speed diesel oil and petrol, used in or in relation to the C
manufacture of final products whether directly or indirectly and
whether contained in the final product or not. The crucial
requirement, therefore, is that all goods "used in or in relation
to the manufacture" of final products qualify as "input". This
presupposes that the element of "manufacture" must be present.
0
11. In the case of J.K. Cotton Spinning and Weaving Mills
Co. Ltd. v. S. T.O. reported in 1965 (16) STC 563 this Court
held that the expression "in the manufacture of goods" should
normally encompass the entire process carried on by the dealer
of converting raw material into finished goods. It was further E
held that where any particular process (generation of electricity)
is so integrally connected with the ultimate production of goods,
that, but for such process, manufacture of goods would be
inexpedient, then goods required in such process would fall
within the expression "in the manufacture of goods". F

12. In the case of Union Carbide India Ltd. v. Collector of
Central Excise, Calcutta-I reported in 1996 (86) ELT 613 (Tri)
a larger Bench of CEGAT observed that a wide impact of the
expression "used in relation to manufacture" must be allowed
its natural play. Inputs (raw materials) used in the entire process G
of conversion into finished products or any other process (like
electricity generation) which is integrally connected with the
ultimate production of final product has to fall within the above
expression. It was observed that the purpose was to widen the
scope, ambit and content of "inputs". According to the Special H
336 SUPREME COURT REPORTS [2009] 13 (ADDL.) S.C.R.

A Bench of CEGAT, the purpose behind the above expression
is to widen the ambit of the definition so as to attract all goods,
which do not enter directly or indirectly into the finished product,
but are used in any activity conc;;erned with or pertaining to the
manufacture of the finished product.
B
13. Electricity generation is a separate and distinct activity.
It is an independent activity. It has its own economics. It does
not form part of the process in which "inputs" are transformed
into separate identifiable commodity, though it may stand ~
connected to such processes. It may not have any concern with
c the manufacture of the finished product. However, it is an
ancillary activity. It is an activity which is anterior to the process
of manufacture of the final product. It is on account of the 'use
of the above expression "used in relation to manufacture" that
such an activity of electricity generation comes within the ambit
D of the definition because it is integrally connected with the
) "
manufacture of the final product. ~

14. In the case of Collector of Central Excise, New Delhi
v. Mis. Ballarpur Industries Ltd. reported in (1989) 4 SCC 566
E the difference between the expression "used in the
manufacture" and "used as input (raw material)" was
highlighted. In that judgment, it was held that undoubtedly the
said two expressions are distinct and separate, but, when an
ancillary process (like electricity generation) aids the making
of an end product, then, the ancillary process gets integrally
. '
J
F
connected to the end product. In the said judgment, this Court
applied what is called as "the dependence test". It may,
however, be noted that in the definition of "input" the expression
"used in or in relation to the manufacture of final product" is not
a standalone item. It has to be read in entirety and when so
G
read it reads as "used in or in relation to the manufacture of
final product whether directly or indirectly and whether contained
in the final product or not". These words "whether directly or
indirectly" and "whether contained in the final product or not"
indicates the intention of the legislature. What the legislature
H
MARUTI SUZUKI LTD. v. COMMISSIONER OF 337
CENTRAL EXCISE-Ill, DELHI (S.H. KAPADIA, J.]

intends to say is that even if the use of input (like electricity) in A
-t
the manufacturing process is not direct but indirect still such an
item would stand covered by the definition of "input". In the past,
there was a controversy as to what is the meaning of the word
"input", conceptually. It was argued by the Department in a
number of cases that if the identity of the input is not contained 8
in the final product then such an item would not qualify as input.
In order to get over this controversy in the above definition of
"input", the Legislature has clarified that even if an item is not
contained in the final product still it would be classifiable as an
"input" under the above definition. In other words, it has been c
clarifie9 by the definition of "input" that the following
considerations will not be relevant:

(a) use of input in the manufacturing process be it
J)
direct or indirect;
"'~ D
~ (b) even if the input is not contained in the final product,
it would still be covered by the definition.

These considerations have been made irrelevant by the use of
the expression "goods used in or in relation to the manufacture
E
of final product" which, as stated above, is the crucial
requirement of the definition of "input". Moreover, the said
expression, viz, "used in or in relation to the manufacture of the
fina.1 product" in the specific/substantive part of the definition is
"
::J..
so wide that it would cover innumera~le items as "input" and
F
to avoid st:Jch contingency the Legislature has incorporated the
inclusive part after the substantive part qualified by the place
of use. For example, one of the categories mentioned in the
inclusive part is "used as packing material". Packing material
by itself would not suffice till it is proved that the item is used in
the course of manufacture of final product. Mere fact that the G
item is a packing material whose value is included in the
+- assessable value of final product will not entitle the manufacturer
..........._
to take credit. Oils and lubricants mentioned in the definition
are required for smooth running of machines, hence they are
included as they are used in relation to manufacture of the final H.
338 SUPREME COURT REPORTS [2009] 13 (ADDL.) S.C.R.

A product. The intention of the Legislature is that inputs falling in
the inclusive part must have nexus with the manufacture of the >--
final product.

15. Coming to the analysis of the inclusive part of the
definition one finds that it covers:
B
(a) Lubricating oils, greases, cutting oils and coolants;

(b) Accessories;

(c) Paints;
c
(d) Packing materials;

(e) Input used as fuel;

(f) Input used for generat~on of steam or electricity. ~"'
D
16. In our earlier discussion, we have referred to two ~

considerations as irrelevant, namely, use of input in the
manufacturing process, be it direct or indirect as also absence
of the input in the final product on account of the use of the
E expression "used in or in relation to the manufacture of final
product". Similarly, we are of the view that consideration such
as input being used as packing material, input used as fuel,
input used for generation of electricity or steam, input used as ~

an accessory and input used as paint are per se also not •·):
F relevant. All these considerations become relevant only when
they are read with the expression "used in or in relation to the
manufacture of final product" in the substantive/specific part of
the definition. In each case it has to be established that inputs
mention~d in the inclusive part is "used in or in relation to the
G manufacture of final product". It is the functional utility of the said
item which would-Got=1stitute the relevant consideration. Unless
and until the said input is used in or in relation to the
_.
manufacture of final product within the factory of production, the >
said item would not become an eligible input. The said ~
H expression "used in or in relation to the manufacture" have
MARUTI SUZUKI LTD. v. COMMISSIONER OF 339
CENTRAL EXCISE-Ill, DELHI [S.H. KAPADIA, J.]
many shades and would cover various situations based on the A
-i
purpose for which the input is used. However, the specified
input would become eligible for credit only when used in or in
relation to the manufacture of final product. Hydrogen gas used
in the manufacture of sodium cyanide is an eligible input, since
it has a significant role to play in the manufacturing process and B
since the final product cannot emerge without the use of gas.
Similarly, Heat Transfer Oil used as a heating medium in the
~ manufacture of LAB is an eligible input since it has a persuasive
role in the manufacturing process and without its use it is
impossible to manufacture the final product. Therefore, none of c
the categories in the inclusive part of the definition would
constitute relevant consideration per se. They become relevant
only when the above crucial requirement of being "used in or
in relation to the manufacture" stands complied with. In our view,
•• • one has to therefore read the definition in its entirety .
D
. ;.
17. As stated, the definition is in three parts, namely,
specific part, inclusive part and place of use. All the three parts
are required to be satisfied before an input becomes an eligible
input.
E
18. It may be noted from the CENVAT Credit Rules of 2004
vis-a-vis CENVAT Credit Rules of 2002 that the word "for" in
the inclusive part after the words "steam used" is substituted
.... .,
J. by the words "used in or in relation to the manufacture of final
products". In other words, the crucial requirement of the F
definition clause is restated by the Legislature. We may note
that the CENVAT Credit Rules of 2004 came in force in
September, 2004. In some of the cases in batch before us the
show cause notice goes right up to January 2005, hence,
CENVAT Credit Rules, 2004 also apply to those cases. In
G
short, an item would fall within the category of "inputs" as
~ defined only on compliance with all the three parts of the
...... definition clause .

19. The question which still remains to be answered is:
whether an assessee would be entitled to claim CENVAT credit H
340 SUPREME COURT REPORTS [2009] 13 (ADDL.) S.C.R.

A in cases where it sells electricity outside the factory to the joint
)-
ventures, vendors or gives it to the grid for distribution? In the
case of Collector of Central Excise v. Rajasthan State
Chemical Works reported in 1991 (55) ELT 444 (SC) the test
laid down by this Court is whether the process and the use are
B integrally connected. As stated above, electricity generation is
more of a process having its own economics. Applying the said
test, we hold that when the electricity generation is a captive
arrangement and the requirement is for carrying out the ~
manufacturing activity, the-electricity generation also forms part
c of the manufacturing activity and the "input" used in that
electricity generation is an "input used in the manufacture" of
final product. However, to the extent the excess electricity is
cleared to the grid for distribution or to the joint ventures,
vendors, and that too for a price (sale) the-"process and the
D
use test" fails. In such a case, the nexus between the process ~ ..
and the use gets disconnected. In such a case, it cannot be ,
said that electricity generated is "used in or in relation to the
-..\
manufacture of final product, within the factory". Therefore, to
the extent of the clearance of excess electricity outside the
factory to the joint ventures, vendors, grid etc. would not be
E admissible for CENVAT credit as such wheeled out electricity,
cleared for a price, would not fall within the definition of "input"
in Rule 2(g) of the CENVAT Credit Rules, 2002. This view is
also expressed in para 9 of the judgment of this Court in the \ ~

case of Collector of Central Excise v. Solaris Chemtech )
F Limited - (2007) 214 ELT 481 (SC). Further, our view is
supported by the observations of this Court in the case of
Vikram Cement v. Commnr. Of Central Excise, Indore - 2006
(194) ELT 3 (SC) which is quoted below:-

G "It appears to us on a plain reading of the clause that the
phrase "within the factory of production" means only such
generation of electricity or steam which is used within the ~

factory would qualify as an immediate product. The
utilization of inputs in the generation of steam or electricity
not being qualified by the phrase "within the factory of
H
MARUTI SUZUKI LTD. v. COMMISSIONER OF 341
CENTRAL EXCISE-Ill, DELHI [S.H. KAPADIA, J.]
production" could be outside the factory. Therefore, A
whatever goes into generation of electricity or steam which
is used within the factory would be an input for the
purposes of obtaining credit on the duty payable thereon."

20. To sum up, we hold that the definition of "input" brings
B
within its fold, inputs used for generation of electricity or steam,
provided such electricity or steam is used within the factory of
Jif:'- production for manufacture of final products or for any other
purpose. The important point to be noted is that, in the present
case, excess electricity has been cleared by the assessee at
the agreed rate from time to time in favour of its joint ventures,
c
vendors etc. for a price and has also cleared such electridty
in favour of the grid for distribution. To that extent, in our view,
assessee was not entitled to CENVAT credit. In short, assessee
.' is entitled to credit on the eligible inputs utilized in the
... ~
generation of electricity to the extent to which they are using D
the produced electricity within their factory (for captive
consumption). They are not entitled to CENVAT credit to the
extent of the excess electricity cleared at the contractual rates
in favour of joint ventures, vendors etc., which is sold at a price.
E
21. Before concluding, it may be clarified that on account
of repeated amendments in the CENVAT Credit Rules, huge
i,
litigation in the country stands generated. In the circumstances,
J" we are of the view that penalty is not leviable on appellant/
assessee, particularly when in large number of other cases, on F
account of conflict of views expressed by various Tribunals/High
Court, the assessees have also succeeded. Hence, although
Mis. Maruti Suzuki Ltd. (appellant) has failed in their civil
appeals the Department will not impose penalty.

22. For the aforestated reasons, we dismiss Civil Appeal G
,.;.-- No. of 2009 - (arising out of S.L.P. (C) No.3826 of 2009) - Ml
,_.,
___ s. Maruti Suzuki Ltd. v. Commissioner of Central Excise,
Delhi-JJJ and Civil Appeal No. of 2009 - (Arising out of S.L.P.
(C) No.5362 of 2009) with no order as to costs.
H
342 SUPREME COURT REPORTS [2009] 13{ADDL.) S.C.R.

A CIVIL APPELLATE JURISDICTION : Civil Appeal No.
~
6410 of 2008.

From the Judgment & Order dated 21.11.2007 of the
Custom, Excise & Service Tax Appellate Tribunal West Zonal
at Ahmedabad in Appeal No. E/29/2006.
B
WITH

C.A. Nos. 5556-58 & 5559-60 of 2009. ~,._

The Judgment of the Court was delivered by
c R

S.H. KAPADIA, J. 1. Leave granted.

2. For the reason given in our judgment delivered today in
the case Mis. Maruti Suzuki Ltd. v. Commissioner of Central
Excise, Delhi-Ill Civil Appeal No. of 2009- arising out of S.L.P.
,,.
D
(C) No. 3826 of 2009), the civil appeals herein filed by the --\
Department are allowed and the matters stand remitted to the
Adjudicating Authority who will in each case ascertain whether
any excess electricity was wheeled out/cleared at a price in
favour of joint ventures, vendors, sister companies etc. and, if
E
so, the Adjudicatin.g Authority will calculate and charge duty or
reverse credit to that extent alone. However, as stated above,
the Department will not impose penalty in that regard for the
disputed period(s). •)
F 3. Subject to above, the civil appeals filed by the
Department are accordinglyallowed with no order as to costs.

K.K.T. Appeals disposed of.