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CASE NO.: Appeal (civil)  1197 of 2005

PETITIONER: M/s Vikram Cement                        

RESPONDENT: Commissioner of Central Excise,Indore                                    

DATE OF JUDGMENT: 24/08/2005

BENCH: B.P. SINGH & S.H. KAPADIA  

JUDGMENT: JUDGMENT O R D E R WITH

SLP (C) No.23205 of 2003, C.A. Nos.3422, 4120- 4122, 4149 to 4153, 7175-7189 of 2004, AND C.A.  Nos. 1815, 1613, 2318-2320 of 2005.  

       In this group of civil appeals/special leave petition,  question of admissibility of credit of the duty paid on "inputs"  namely, explosives, lubricating oils and welding electrodes as  also the question of admissibility of credit on "capital goods"  namely, limestone crusher, mining equipment etc. under Cenvat  Credit Rules, 2000, 2001 & 2002 arise for determination.         Since common questions of law and fact arise for  determination, the above civil appeals are clubbed together.   For the sake of convenience, the facts in Civil Appeal No.1197  of 2005 are mentioned herein below.

       Three show-cause notices dated 26.8.2000, 10.2.2003  and 29.1.2003 were issued by the department to the assessee  proposing to disallow the credit on aforestated items on the  ground that they were used for extraction of limestone in the  mines and not within the factory in which cement (final  product) was manufactured by the assessee.  The assessee  replied to each of the above three show-cause notices by which  it submitted that the substantive definition of "input" as per  clause (d) of rule 57AA of Central Excise Rules, 1944;  rule  2(f) of the Cenvat Credit Rules, 2001 and rule 2(g) of Cenvat  Credit Rules, 2002 was in pari-materia and was not different  from the definition of "input" under erstwhile rules 57A and  57B of Central Excise Rules, 1944.  According to the assessee,  there was no difference between the Modvat scheme and the  Cenvat scheme as far as the substantive definition of "input"  was concerned.  According to the assessee, the Cenvat scheme  was more broad-based as compared to the earlier Modvat  scheme.    

       The assessees are engaged in the manufacture of cement  and clinker falling under chapter 25 of Central Excise Tariff  Act, 1985.  They use explosives, welding electrodes, lubricating  oil and crusher for extraction of limestone and crushing in the  mines adjacent to the cement factory of the assessees.  Being  aggrieved by the order dated October 30, 2003 confirming the  demand, the assessees preferred appeals to the Commissioner  (Appeals).  

       By order dated 27.2.2004, the Commissioner (Appeals)

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took the view that the Cenvat credit was admissible only when  the inputs or the capital goods were used by the manufacturer  within the factory premises and since the above goods were  used in the mines adjacent to the factory premises, the assessees  were not entitled to the credit on the aforestated goods.

       Aggrieved by the said order of the commissioner dated  27.2.2004,  the assessees filed appeals before the Customs,  Excise & Service Tax Appellate Tribunal, New Delhi.   Following the judgment of the Division Bench of this Court in  the case of Commissioner of Central Excise, Jaipur v. J.K.  Udaipur Udyog Ltd. reported in 2004 (171) ELT 289, the  tribunal held that input credit was not available for the reason  that the above goods namely explosives, lubricating oil,  welding electrodes & crusher were not used within the factory;  that the same were used in the mines located outside the  factory; and consequently, the appeals preferred by the assessee  stood dismissed.  Hence, these civil appeals.

       In the civil appeals preferred by the assessees, a specific  ground has been taken to the effect that the judgment of the  Division Bench of this Court in J.K. Udaipur Udyog Ltd.  (supra) was in conflict with a three-Judge bench decision of  this Court in Jaypee Rewa Cement v. Commissioner of Central  Excise, M.P. reported in 2001 (133) ELT 3.  In the judgment of  the Division Bench of this Court in J.K.. Udaipur Udyog Ltd.  (supra), this Court took the view inter alia that the Modvat  scheme was different and distinct from the Cenvat scheme  whereas according to the assessees, there was no such  difference except that Cenvat scheme covered inputs, capital  goods and services and, therefore, the said Cenvat scheme was  more broad-based.  In this connection, it has been urged that  even under rule 57J of the Modvat scheme, limestone  (intermediate product) sent directly to a job worker attracted  credit, which was continued under rule 57AB(1) of the Cenvat  scheme.   

       The basic issue which arises for determination in these  civil appeals is the correctness of the observation made vide  para 9 of the Division Bench decision in J.K. Udaipur Udyog  Ltd.(supra) which reads as under:- "The schemes for MODVAT and CENVAT  Credits being different and in view of the  definition of "input" given in sub-rule (d) of Rule  57AA of the Rules and the omission of a Rule  similar to Rule 57J, the ratio of Jaypee Rewa  Cement (supra) can have no application here."

       In this case, we are concerned with the period September,  2001 to October, 2002.   

       The Cenvat scheme which was in operation from  1.3.2002 was governed by Cenvat Credit Rules, 2002 inserted  by notification no.5/2002-CE (N.T.), dated 1.3.2002.  These  rules replaced Cenvat Credit Rules, 2001 which held the field  from 1.7.2001 to 28.2.2002.  Prior to 1.7.2001, the Cenvat  scheme was in vogue from 1.4.2000 to 30.6.2001 and the  Modvat scheme was in force from 1.3.1986 to 31.3.2000.   

       The relevant provisions of the Modvat scheme during the  period 1.3.1986 to 31.3.2000 were as follows: "AA.    CREDIT OF DUTY PAID ON EXCISABLE          GOODS USED AS INPUTS:

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RULE 57A : Applicability.\026 (1) The provisions of this section  shall apply to such finished excisable goods (hereafter, in this  section, 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), as may be specified in  the said notification (hereafter, in this section, referred to as the  specified duty) paid on the goods used in the manufacture of the  said final products (hereafter, in this section, referred to as the  inputs).

       (2)     The credit of specified duty allowed under sub-rule  (1) shall be utilized towards 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 notification issued under sub- rule (1) and subject to the provisions of this section and the  conditions and restrictions, if any, specified in the said  notification.

       (3)     The Central Government may also specify in the  said notification the goods or classes of goods in respect of  which the credit of specified duty may be restricted.

       (4)     The credit of specified duty under this section shall  be allowed on inputs used in the manufacture of final products  as well as on inputs used in or in relation to the manufacture of  the final products whether directly or indirectly and whether  contained in the final product or not.

       (5)     Notwithstanding anything contained in sub-rule  (1), the Central Government may, by notification in the Official  Gazette declare the inputs on which declared duties of excise or  additional duty (hereinafter referred to as declared duty) paid  shall be deemed to have been paid at such rate or equivalent to  such amount as may be specified in the said notification and  allow the credit of such declared duty deemed to have been paid  in such manner and subject to such conditions as may be  specified in the said notification even if the declared inputs are  not used directly by the manufacturer of final products declared  in the said notification, but are contained in the said final  products.

       Explanation.\027 For the purposes of the sub-rule, it is  clarified that even if the declared inputs are used directly by a  manufacturer of final products, the credit of the declared duty  shall, notwithstanding the actual amount of duty paid on such  declared inputs, be deemed to be equivalent to the amount  specified in the said notification and the credit of the declared  duty shall be allowed to such manufacturer.

       (6)     Notwithstanding anything contained in sub-rule  (1), the Central Government may, by notification in the Official  Gazette, declare the inputs on which the duty of excise paid  under section 3A of the Central Excise Act, 1944 (1 of 1944),  shall be deemed to have been paid at such rate or equivalent to  such amount as may be specified in the said notification, and  allow the credit of such duty in respect of the said inputs at such  rate or such amount and subject to such conditions as may be  specified in the said notification :

       Provided that the manufacturer shall take all reasonable  steps to ensure that the inputs acquired by him are goods on  which the appropriate duty of excise as indicated in the  documents accompanying the goods, has been paid under

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section 3A of the Central Excise Act, 1944 (1 of 1944).

RULE 57B : Eligibility of credit of duty on certain inputs.\026  (1) Notwithstanding anything contained in rule 57A, the  manufacturer of final products shall be allowed to take credit of  the specified duty paid on the following inputs, used in or in  relation to the manufacture of the final products, whether  directly or indirectly and whether contained in the final  products or not, namely:-

(i)     inputs which are manufactured and used within the  factory of production;  

(ii)    paints;

(iii)   inputs used as fuel;

(iv)    inputs used for generation of electricity or steam,  used for manufacture of final products or for any  other purpose, within the factory of production;

(v)     packing materials and materials from which such  packing materials are made provided the cost of  such packing materials is included in the value of  the final product;

(vi)    accessories of the final product cleared alongwith  such final product, the value of which is included  in the assessable value of the final product:

       Explanation.\027For the purpose of this sub-rule, it  is hereby clarified that the term ’inputs’ refers only to  such inputs as may be specified in a notification issued  under rule 57A.

       (2)     The manufacturer of the final products shall not be  allowed to take credit of the duty paid on the following goods,  namely:-

(i)     machines, machinery, equipment, apparatus, tools,  appliances  or capital goods as defined in rule 57Q  (other than those used as component parts in the  manufacture of final products), used for any  purpose in the factory;

(ii)    packing materials in respect of which any  exemption to the extent of the duty of excise  payable on the cost of the packing materials is  being availed of for packing any final products;

(iii)   packing materials or containers, the cost of which  is not included in the value of the final products  under section 4 of the Act; and

(iv)    crates and glass bottles used for aerated water.

RULE 57J. Credit of duty in respect of inputs used in an  intermediate product.\027 (1) Notwithstanding anything  contained in these rules, the manufacturer shall be allowed to  take credit of the specified duty paid on inputs described in  column (2) of the Table below and used in the manufacture of  intermediate products described in column (3) of the said Table  received by the said manufacturer for use in or in relation to the  manufacture of final products described in the corresponding

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entry in column (4) of the said Table:

TABLE

S.  No. Description of inputs Description of  intermediate products Description of final  products (1) (2) (3) (4) 1. All goods falling within  the Schedule to the  Central Excise Tariff Act,  1985 (5 of 1986), other  than the following,  namely:-

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

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

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

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

All goods falling within  the Schedule to the  Central Excise Tariff  Act, 1985 (5 of 1986),  other than the following,  namely:-

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

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

(iii)   goods classifiable  under sub-heading Nos.

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2710.11, 2710.12,  2710.13 or 2710.19  (except Natural gasoline  liquid) of the Schedule  to the said Act;

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

All goods falling within the  Schedule to the Central  Excise Tariff Act, 1985 (5  of 1986), other than the  following, namely:-

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

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

(iii)   fabrics of cotton or  man-made fibres falling  within Chapter 52, Chapter  54 or Chapter 55 of the  Schedule to the Act;  

(iv)  fabrics of cotton or  man-made fibres falling  within heading Nos.58.01,  58.02, 58.06 (other than  goods falling within sub- heading No.5806.20) 60.01  or 60.02 (other than goods  falling within sub-heading  No.6002.10) of the  Schedule to the Act.

       (2)     The manufacturer of the final products shall take  credit under sub-rule (1) only if the intermediate products are   manufactured in a factory as a job work in respect of which the  exemption contained in the notification of the Government of  India in the Ministry of Finance (Department of Revenue)  No.214/86-Central Excises, dated the 25th March, 1986, has  been availed of.

       (3)     The credit under sub-rule (1) shall be allowed only  if the intermediate products received by the manufacturer of the  said final products are accompanied by any of the documents as  specified under rule 57G evidencing the payment of duty on  such inputs.

AAAA.  CREDIT OF DUTY PAID ON CAPITAL      GOODS USED BY THE  MANUFACTURER OF SPECIFIED  GOODS:

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RULE 57Q: Applicability.\026 (1) The provisions of this section  shall apply to goods (hereafter in this section, referred to as the  "final products") described in column (3) of the Table given  below and to the goods (hereafter, in this section, referred to as  "capital goods"), described in the corresponding entry in  column (2) of the said Table, used in the factory of the  manufacturer of final products.

TABLE

S.  No. Description of capital goods  falling within the Schedule to the  Central Excise Tariff Act, 1985 (5  of 1986) and used in the factory of  the manufacturer. Description of final products (1) (2) (3) 1.

2.

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3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

All goods falling under heading  Nos.82.02 to 82.11.

All goods falling under chapter 84  (other than internal combustion

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engines falling under heading  No.84.07 or 84.08 and of a kind  used in motor vehicles, compressors  falling under heading No.84.14 and  of a kind used in refrigerating and  airconditioning appliances and  machinery, heading or sub-heading  Nos.84.15, 85.18, 8422.10, 8424.10,  fire extinguishers falling under sub- heading No.8424.80, 8424.91,  8424.99, 84.29 to 84.37, 84.40,  84.50, 84.52, 84.69 to 84.73, 84.76,  84.78, expansion valves and  solenoid valves falling under sub- heading Nos.8481.10 of a kind used  for refrigerating and airconditioning  appliances and machinery.

All goods falling under chapter 85  (other than those falling under  heading Nos.85.09 to 85.13, 85.16  to 85.31, 85.39 and 85.40);

All goods falling under heading  Nos.90.11 to 90.13, 90.16, 90.17,  90.22 (other than for medical use),  90.24 to 90.31 and 90.32 (other than  of a kind used for refrigeration and  airconditioning appliances and  machinery);

Components, spares and accessories  of the goods specified against S.  Nos.1 to 4 above;

Moulds and dies;

Refractories and refractory  materials;

Tubes and pipes and fittings thereof,  used in the factory;

Pollution control equipment;

Grinding wheels and the like goods  falling under sub-heading  No.6801.10;

Goods falling under heading  No.68.02; and

Lubricating oils, greases, cutting  oils and coolants. All goods specified in the Schedule to  the Central Excise Tariff Act, 1985 (5 of  1986), other than the following,  namely:-

(i)    all goods falling under Chapter 24;  and

(ii)  all goods falling under heading  Nos.36.05 or 37.06.

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(iii) ingots and billets of non-alloy steel  falling under sub-heading Nos.7206.90  and 7207.90, manufactured in an  induction furnace unit, whether or not  any other goods are produced in such  induction furnace, and hot re-rolled  products of non-alloy steel falling under  sub-heading Nos.7211.11, 7211.19,  7211.30, 7211.52, 7211.59, 7211.60,  7211.92, 7211.99, 7213.90, 7214.90,  7215.90, 7216.10 and 7216.90 on which  duty is paid under section 3A of the  Central Excise Act, 1944 (1 of 1944).

       (2)(i)  The manufacturer of the final products shall be  allowed credit of the duty of excise or the additional duty  leviable under section 3 of the Customs Tariff Act, 1975 (51 of  1975) (hereinafter referred to as "specified duty") paid on the  capital goods.

       (ii)    The manufacturer availing of the credit may utilize  the same for payment of duty of excise payable on the final  products manufactured in his factory.

       (3)     Notwithstanding anything contained in sub-rule  (1), the manufacturer of the final products shall be allowed  credit of additional duty leviable under section 3 of the  Customs Tariff Act, 1975 (51 of 1975) on goods falling under  Chapter heading No.98.01 of the first schedule to the said  Customs Tariff Act, to the extent of 75% of the said additional  duty paid on such goods.

       (4)     A manufacturer of the final products purchasing  capital goods from a unit situated in a Free Trade Zone or from  a hundred per cent export-oriented undertaking or from a unit in  an Electronic Hardware Technology Park or Software  Technology Parks and using them in manufacture of final  products, shall be allowed to take the credit of the specified  duty paid on such capital goods only to the extent of duty which  is equal to the additional duty leviable on like goods under  section 3 of the Customs Tariff Act, 1975 (51 of 1975),  equivalent to the duty of excise paid on such capital goods.

       (5)     The credit of the specified duty on capital goods  (other than those capital goods in respect of which credit of  duty was allowable under any other rule or notification prior to  the Ist day of March, 1977 shall not be allowed if such capital  goods were received in the factory before the Ist day of March,  1997.

       (6)     A manufacturer shall be allowed credit of specified  duty paid on capital goods manufactured by him for the  manufacture of final products in his factory.

       (7)     The credit of the specified duty on capital goods  (other than those capital goods covered under S. Nos.5, 7, 10,  11 and 12 of column (2) of the Table below sub-rule (1) and  received in the factory on or after the Ist day of January, 1996,  shall not be taken on a date prior to the date on which such  capital goods are installed or, as the case may be, used for  manufacture of excisable goods, in the factory of the  manufacture as certified by such manufacturer or a person  designated by him for this purpose.

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       (8)     Notwithstanding anything contained in sub-rule  (7), a manufacturer intending to remove the capital goods from  his factory for home consumption or for export, prior to their  being installed or used, as the case may be, shall be allowed to  take credit on the date on which such capital goods are so  removed by him from his factory on payment of the appropriate  duty of excise leviable thereon as provided in rule 57S.

RULE 57R.  Credit of duty not to be allowed or denied or  varied in certain circumstances and adjustment in duty  credit.\026 (1) No credit of the specified duty shall be allowed on  capital goods which are used exclusively in the manufacture of  final products other than 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 clearances made in a financial year which are  exempt from the whole of the duty of excise leviable thereon or  are chargeable to nil rate of duty except when the final product  is either.

(i)     cleared to a unit in a Free Trade Zone; or

(ii)    cleared to a hundred per cent export-oriented  undertaking; or

(iii)   cleared to a unit in an Electronic Hardware  Technology Park or Software Technology Parks;

       (2)     Credit of the specified duty allowed in respect of  any capital goods shall not be denied or varied on the ground  that any intermediate products have come into existence during  the course of manufacture of the final product and that such  intermediate products are, for the time being, exempt from the  whole of the duty of excise leviable thereon or chargeable to nil  rate of duty:

       Provided that such intermediate products are specified as  final products in column (3) of the Table below sub-rule (1) of  rule 57Q.

       (3)     The credit of the specified duty paid on the capital  goods shall be allowed to a manufacturer if the capital goods  are acquired by the manufacturer on lease, hire-purchase or loan  agreement, from a financing company subject to the following  procedure, namely:-

(i)     The manufacturer shall file a declaration before the  Assistant Commissioner of Central Excise as  required under rule 57T;

(ii)    The manufacturer availing credit of the specified  duty paid on capital goods, who has entered into a  financial arrangement, -

(a)     for financing the cost of such capital goods  excluding the specified duty, shall produce a  copy of the invoice referred to in rule 57T,  evidencing payment of specified duty along  with a copy of the agreement entered into by  him with the said financing company; or

(b)     for financing the cost of such capital goods  including the specified duty, shall produce a  certificate from the financing company to  the effect that the duty specified on such

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capital goods has been paid by the said  manufacturer to such financing company,  prior to payment of first lease rental  instalment or first hire-purchase instalment  or first instalment of re-payment of loan, as  the case may be, along with a copy of the  agreement entered into with the said  financing company.

(iii)   The manufacturer and the financing company shall  not claim depreciation under the Income-tax laws  on that part of the value of capital goods which  represents the amount of specified duty paid on  such capital goods.

(iv)    The relevant documents required for the purpose  of availing credit of the specified duty paid on  such capital goods under rule 57T shall bear the  name of the manufacturer along with that of the  financing company.

       (4)     If a manufacturer of final products has taken credit  on any capital goods and subsequently it so happens that any  refund of the duty paid by the manufacturer of capital goods or  importer of capital goods, as the case may be, is allowed to him  for any reason, then the user manufacturer shall accordingly  adjust the amount of credit in his credit account and if such  adjustment is not possible for any reason, the user manufacturer  shall pay the amount in cash equal to the amount of refund  allowed to the manufacturer or, as the case may be, to importer  of capital goods.

       (5)     If a user manufacturer has taken credit on any  capital goods and subsequently it so happens that any additional  amount of duty is recovered from the manufacturer of such  capital goods or importer of such capital goods, as the case may  be, then the user manufacturer shall be allowed an additional  credit equal to the amount of such additional amount recovered.

       (6)     The provisions of sub-rule (5) shall not apply in  cases where the duty on capital goods has been short levied or  short paid or has been erroneously refunded by reason of fraud,  collusion or any wilful mis-statement or suppression of facts or  contravention of any provisions of the Act or the rules made  thereunder with the intent to evade payment of duty.

       (7)(i)  The additional credit as per sub-rule (5) shall be  allowed by the proper officer on the basis of a certificate issued  by the Superintendent of Central Excise having jurisdiction  over the factory, or as the case may be, by the proper officer in  the customs area, from where such capital goods were  originally cleared.

       (ii)    The said certificate shall indicate full description  of the capital goods, original duty paid and particulars of the  documents under which the capital goods were cleared from the  factory or, as the case may be, from the customs area and also  the differential duty recovered from the manufacturer or the  importer.

       (8)     No credit of the specified duty paid on the capital  goods shall be allowed, if the manufacturer, claims depreciation  under section 32 of the Income-tax Act, 1961 (43 of 1961), or  as revenue expenditure under any other provisions of the said  Income-tax Act, in respect of that part of the value of capital

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goods which represents the amount of specified duty on such  capital goods."

       As stated above, the Cenvat scheme was introduced from  1.4.2000 and has remained in force till date under Cenvat  Credit Rules, 2001 followed by Cenvat Credit Rules, 2002,  which reads as follows:-

"AA.    CREDIT OF DUTY PAID ON EXCISABLE  GOODS   USED AS INPUTS OR  CAPITAL GOODS:

RULE 57AA. Definitions.\026 For the purpose of this section, -

(a)     "capital goods" means \026

(i)     all goods falling under Chapter 82, Chapter 84,  Chapter 85, Chapter 90, heading No.68.02 and  sub-heading No.6801.10 of the First Schedule to  the Central Excise Tariff Act, 1985;

(ii)    components, spares and accessories of the goods  specified at (i) above;

(iii)   moulds and dies;

(iv)    refractories and refractory materials;

(v)     tubes and pipes and fittings thereof, used in the  factory; and

(vi)    pollution control equipment,

used in the factory of the manufacturer of the final  products.

Explanation.- For removal of doubts, it is hereby  clarified that "capital goods" do not include any  equipment or appliances used in an office.

(b)     "exempted goods" means goods which are exempt from  the whole of the duty of excise leviable thereon, and  includes goods which are chargeable to "Nil" rate of  duty;

(c)     "final products" means excisable goods manufactured or  produced from inputs, except matches;

(d)     "input" means all goods, except 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 contained in the final  product or not, and includes 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 manufacture of  final products or for any other purpose, within the factory  of production, and also includes lubricating oils, greases,  cutting oils and coolants.

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

RULE 57AB. CENVAT credit.\026 (1) A manufacturer or

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producer of final products shall be allowed to take credit  (hereinafter referred to as the CENVAT credit) of, -

(i)     the duty of excise specified in the First Schedule to  the Central Excise Tariff Act, 1985 (5 of 1986)  (hereinafter referred to as the said First Schedule),  leviable under the Act;

(ii)    the duty of excise specified in the Second Schedule  to the Central Excise Tariff Act, 1985, leviable  under the Central Excise Act, 1944 in relation to  the goods falling under sub-heading Nos.2401.90,  2404.40, 2404.50, 2404.99, 5402.20, 5402.32,  5402.42, 5402.43, 5402.52, 5402.62, 5703.90,  8415.00, 8702.10, 8703.90, 8706.21, 8706.39 and  8711.20 of the said First Schedule;

(iii)   the additional duty of excise leviable under section  3 of the Additional Duties of Excise (Textiles and  Textile Articles) Act, 1978 (40 of 1978);

(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); and

(v)     the additional duty leviable under section 3 of the  Customs Tariff Act, 1975, equivalent to the duty of  excise specified under clauses (i), (ii), (iii) and (iv)  above,

paid on any inputs or capital goods received in the factory on or  after the first day of April, 2000, including, the said duties paid  on any inputs or capital goods used in the manufacture of  intermediate products, by a job-worker availing the benefit of  exemption contained in the notification of the Government of  India in the Ministry of Finance (Department of Revenue)  No.214/86-Central Excise, dated the 25th March, 1986, vide  GSR No.547(E) dated the 25th March, 1986, and received by  the manufacturer for use in or in relation to the manufacture of  final products, on or after the first day of April, 2000.

       Explanation.-For removal of doubts it is clarified that the  manufacturer of the final products shall be allowed CENVAT  credit of additional duty leviable under section 3 of the  Customs Tariff Act, 1975 (51 of 1975) on goods falling under  Chapter heading No.98.01 of the First Schedule to the said  Customs Tariff Act.

       (b)     The CENVAT credit may be utilized for payment  of any duty of excise on any final products manufactured by the  manufacturer or for payment of duty on inputs or capital goods  themselves if such inputs are removed as such or after being  partially processed, or such capital goods are removed as such.

       Provided that while paying duty in the manner specified  under sub-rule (1) of rule 49 or sub-rule (1) of rule 173G, as the  case may be, the CENVAT credit shall be utilized only to the  extent such credit is available on the fifteenth day of a month  for payment of duty relating to the first fortnight of the month,  and the last day of a month for payment of duty relating to the  second fortnight of the month or in case of a manufacturer  availing exemption by notification based on value of clearances  in a financial year, for payment of duty relating to the entire  month.

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       Explanation.-When inputs or capital goods are removed  from the factory, the manufacturer of the final products shall  pay the appropriate duty of excise leviable thereon as if such  inputs or capital goods have been manufactured in the said  factory, and such removal shall be made under the cover of an  invoice prescribed under rule 52A.

       (2)     Notwithstanding anything contained in sub-rule  (1)-

(a)     credit of duty in respect of inputs or capital goods  produced or manufactured-

(i)     in a free trade zone and used in the  manufacture of the final products in any  other place in India; or

(ii)    by a hundred per cent export-oriented  undertaking or by a unit in an Electronic  Hardware Technology Park or Software  Technology Parks and used in the  manufacture of the final products in any  place in India,

shall be restricted to the extent which is equal to the  additional duty leviable on like goods under section 3 of  the Customs Tariff Act, 1975 paid on such inputs;

(b)     credit in respect of-

(i)     the additional duty of excise under section 3  of the Additional Duties of Excise (Textiles  and Textile Articles) Act, 1978 (40 of 1978);

(ii)    the additional duty of excise under section 3  of the Additional Duties of Excise (Goods of  Special Importance) Act, 1957 (58 of 1957);  and

(iii)   the additional duty under section 3 of the  Customs Tariff Act, 1975, equivalent to the  duty of excise specified under clauses (i)  and (ii) above

shall be utilized only towards payment of duty of excise  leviable under the said Additional Duties of Excise  (Textiles and Textile Articles) Act, or under the said  Additional Duties of excise (Goods of Special  Importance) Act, 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  being partially processed.

(c)     CENVAT credit of the duty paid on the inputs  shall not be allowed in respect of texturised yarn  (including draw-twisted or draw-wound yarn) or  polyesters falling under heading No.54.02 of the said  First Schedule, manufactured by an independent  texturiser, that is to say, a manufacturer engaged in the  manufacture of texturised yarn (including draw-twisted  or draw-wound yarn) of polyesters falling under heading  No.54.02, who does not have the facility in his factory  (including plant and machinery) for manufacture of  partially oriented yarn of polyesters falling under sub- heading No.5402.42 of the said First Schedule.

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(d)     credit, in respect of additional duty leviable under  section 3 of the Customs Tariff Act, 1975 (51 of 1975),  paid on marble slabs or tiles falling under sub-heading  No.2504.21 or 2504.31 respectively of the First Schedule  to the Central Excise Tariff Act, 1985 (5 of 1986) shall  be allowed to the extent of thirty rupees per square metre.

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

RULE 57AC. Conditions for allowing CENVAT credit.\026 (1)  The CENVAT credit in respect of inputs may be taken  immediately on receipt of the inputs in the factory of the  manufacture.

       (2) (a)   The CENVAT credit in respect of capital goods  received in a factory at any point of time in a given financial  year shall be taken only for an amount not exceeding fifty per  cent of the duty paid on such capital goods in the same financial  year.

       (b)     The balance of CENVAT credit may be taken in  any financial year subsequently to the financial year in which  the capital goods were received in the factory of the  manufacture, provided that the capital goods (other than  components, spares and accessories, refractories and refractory  materials and goods falling under heading No.68.02 and sub- heading 6801.10 of the First Schedule to the Central Excise  Tariff Act) are still in the possession and use of the  manufacturer of final products in such subsequent years.

       (c)     CENVAT credit may also be taken in respect of  such capital goods as have been received in the factory, but  have not been installed, before the Ist day of April, 2000 subject  to the condition that during the financial year 2000-2001, the  credit shall be taken for an amount not exceeding fifty per cent  of the duty paid on such capital goods.

       Illustration.- A manufacturer received machinery on  April 16, 2000 in his factory.  CENVAT of two lakh rupees is  paid on this machinery.  The manufacturer can take credit up to  a maximum of one lakh rupees in the financial year 2000-2001,  and the balance in subsequent years.

       (3)     The CENVAT credit in respect of duty paid on the  capital goods shall be allowed to a manufacturer even if the  capital goods are acquired by the manufacturer on lease, hire  purchase or loan agreement, from a financing company.

       (4)     The CENVAT credit in respect of capital goods  shall not be allowed in respect of that part of the value of  capital goods which represents the amount of duty on such  capital goods, which the manufacturer claims as depreciation  under section 32 of the Income-tax Act, 1961 (43 of 1961).

       (5)(a)  The CENVAT credit shall be allowed even if any  inputs or capital goods as such or after being partially processed  are sent to a job worker for further processing, testing, repair,  re-conditioning or any other purpose, and it is established from  the records, challans or memos or any other document produced

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by the assessee availing the CENVAT credit that the goods are  received back in the factory within 180 days of their being sent  to a job worker.  If the inputs or the capital goods are not  received back within 180 days, the manufacturer shall pay an  amount equivalent to the CENVAT credit attributable to the  inputs or capital goods by debiting the CENVAT credit or  otherwise.  However, the manufacturer can take the CENVAT  credit again when the inputs or capital goods are received back  in his factory.

       (b)     CENVAT credit shall also be allowed in respect of  moulds and dies sent by a manufacturer of final products to a  job worker for the production of goods on his behalf and  according to his specifications.

       (6)     The Commissioner of Central Excise having  jurisdiction over the factory of the manufacturer of the final  products who has sent the inputs or partially processed inputs  outside his factory to a job worker may, by an order in each  removal of such inputs or partially processed inputs, and  subject to such conditions as he may impose in the interest of  revenue including the manner in which duty, if leviable, is to be  paid, allow finished goods to be cleared from the premises of  the job worker.

       (7)     Where any inputs are used in the final products  which are cleared for export under bond or used in the  intermediate products cleared for export, the CENVAT credit in  respect of the inputs so used shall be allowed to be utilized by  the manufacturer towards payment of duty of excise on any  final products cleared for home consumption or for export on  payment of duty and where for any reason such adjustment is  not possible, the manufacturer shall be allowed refund of such  amount subject to such safeguards, conditions and limitations as  may be specified by the Central Government by notification in  the Official Gazette.  No refund of credit shall, however, be  allowed if the manufacturer avails of drawback allowed under  the customs and Central Excise Duties Drawback Rules, 1995,  or claims a rebate of duty under rule 12, in respect of such  duty."

       From the above quoted rules, we find that the definitions  of the words "input" under the erstwhile Modvat scheme stood  scattered under rules 57A & 57B whereas under the Cenvat  scheme, the definition of the words "input" and "capital goods"  have been consolidated.          The relevant provisions of Cenvat Credit Rules, 2001 are  as follows: "Rule 2.  Definitions.\027In these rules, unless the context   otherwise requires, -

       (b)     "capital goods" means,-          (i)     all goods falling under Chapter 82, Chapter  84, Chapter 85, Chapter 90, heading  No.68.02 and sub-heading No.6801.10 of  the First Schedule to the Tariff Act;

(ii)    components, spares and accessories of the  goods specified at (i) above;

(iii)   moulds and dies;

(iv)    refractories and refractory materials;

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(v)     tubes and pipes and fittings thereof;

(vi)    pollution control equipment; and

(vii)   storage tank,

used in the factory of the manufacturer of the final  products, but does not include any equipment or  appliance used in an office,

(d)     "final products" means excisable goods  manufactured or produced from inputs, except matches;

(f)     "input" means all goods, except 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 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 manufacture of  final products or for any other purpose, within the factory  of production.

       Explanation 1. \026 The high speed diesel oil or  motor spirit, commonly known as petrol, shall not be  treated as an input for any purpose whatsoever.

       Explanation 2. \026 Inputs include goods used in the  manufacture of capital goods which are further used in  the factory of the manufacturer;

(g)     "manufacture"  or "producer" in respect of goods  falling under Chapter 62 of the said First Schedule shall  include a person who is liable to pay the duty of excise  leviable on such goods under sub-rule (3) of rule 4 of the  Central Excise (No.2) Rules, 2001.

       To the same effect are the Cenvat Credit Rules, 2002:  "Rule 2.  Definitions.\027In these rules, unless the context   otherwise requires, -

       (b)     "capital goods" means,-          (i)     all goods falling under Chapter 82, Chapter  84, Chapter 85, Chapter 90, heading  No.68.02 and sub-heading No.6801.10 of  the First Schedule to the Tariff Act;

(ii)    pollution control equipment;

(iii)   components, spares and accessories of the  goods specified at (i) and (ii) above;

(iv)    moulds and dies;

(v)     refractories and refractory materials;

(vi)    tubes and pipes and fittings thereof; and

(vii)   storage tank,

used in the factory of the manufacturer of the final  products, but does not include any equipment or

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appliance used in an office,

(e)     "final products" means excisable goods  manufactured or produced from inputs, except matches;

(g)     "input" means all goods, except 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 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 manufacture of  final products or for any other purpose, within the factory  of production.

       Explanation 1. \026 The high speed diesel oil or  motor spirit, commonly known as petrol, shall not be  treated as an input for any purpose whatsoever.

       Explanation 2. \026 Inputs include goods used in the  manufacture of capital goods which are further used in  the factory of the manufacturer;

(h)     "manufacture"  or "producer" in respect of goods  falling under Chapter 61 or 62 of the First Schedule to  the Tariff Act shall include a person who is liable to pay  the duty of excise leviable on such goods under sub-rule  (3) of rule 4 of the Central Excise Rules, 2002."

Mr. Lakshmikumaran, learned counsel for the assessee  submits that explosives, lubricating oils, welding electrodes and  crushers are used by the assessee in the manufacture of an  intermediate product (limestone) which in turn is used in the  manufacture of the final product (cement) and, therefore, the  said items were eligible for credit in terms of rule 57A and rule  57B of the Modvat scheme as laid down by a three-Judge bench  decision in the case of Jaypee Rewa Cement (supra).  He  submits that the explosives, lubricating oil and welding  electrodes constituted "inputs" in terms of rule 57B(1)(i) of the  Modvat scheme; that, under rule 57A(4), modvat credit was  admissible on inputs used in the manufacture of final products  as well as on inputs used in or in relation to the manufacture of  the final product, whether directly or indirectly and whether  contained in the final product or not; that the explanation  contained in rule 57A was meant to enlarge the meaning of the  word "input" and it did not in any way restrict the use of the  input within the factory premises nor did it require the inputs to  be brought into the factory premises at any point of time.  In  this connection, reliance was placed on the three-Judge bench  decision in the case of Jaypee Rewa Cement (supra).  Learned  counsel further submits that the definition of the word "input"  under clause (d) of rule 57AA of the Cenvat  Scheme, 2000   was in pari-materia to the definition of "input" under the  erstwhile rule 57A and rule 57B of the Modvat Scheme and,  therefore, the decision of the three-Judge bench of this Court in  the case of Jaypee Rewa Cement (supra) on the point of  admissibility of credit in respect of explosives used for mining  of limestone (intermediate product) outside the cement factory  of the assessee was applicable with equal force to the instant  case involving the question of admissibility of Cenvat credit in  respect of the same goods used for the same purpose.  In this  connection, it was further submitted that the essential condition

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to be satisfied for the purposes of taking credit under both the  Schemes was that the input should have been used in or in  relation to the manufacture of final product.  Learned counsel  submits that the said condition finds place in rule 57B of the  Modvat scheme as well as in clause (d) of rule 57AA of the  Cenvat scheme followed by rule 2(f) of the Cenvat Credit Rules  of 2001 followed by rule 2(g) of the Cenvat Credit Rules of  2002 and, therefore, it was submitted that the Cenvat scheme  was in pari-materia to the Modvat scheme and to that extent, the  decision of the Division Bench in the case of J.K. Udaipur  Udyog Ltd. (supra) needed reconsideration.  Learned counsel  submits that the goods mentioned in clauses (i) to (vi) of rule  57B(1) as it then stood, also had to satisfy the test embodied in  the substantive part of the definition in rule 57(B)(1), namely,  of it being used in or in relation to the manufacture of final  product.  According to the learned counsel, explosives,  lubricating oil and welding electrodes fell in the substantive  part of the definition of rule 57B(1) and even if they are to be  treated as falling part within the inclusive part in clauses (i) to  (vi) of rule 57B(1), still they have to comply with the basic test  of being used in or in relation to the manufacture of final  product.   

Learned counsel next submits that rule 57J of the Modvat  scheme has been incorporated in rule 57AB of the Cenvat  scheme under which  a manufacturer of an intermediate product  like limestone can be equated to a job worker.  In this  connection, reliance was placed on the Circular of CBEC dated  29.8.2000 to show that Cenvat is really in substance an  extension of the Modvat scheme.

Learned counsel further urged that applying the test of  functional integrality, the assessee was entitled to credit in  respect of "inputs" as the mining area and the cement factory  were totally inter-dependent on each other.  It was urged that a  captive mine always supports the manufacturing of cement and,  therefore, the mining operations formed part of the  manufacturing activity.  In this connection, learned counsel  submits that the condition of "use" within the factory of  production in section 2(g) is applicable only in respect of  goods, like furnace oil, used for generation of electricity, which  in turn is required to be used for producing the final products or  for any other purposes within the factory of production.   Learned counsel submits that production of captive input like  electricity under rule 2(g) has to be used in the manufacture of  final product or for any other purposes within the factory of  production.  Learned counsel submits that the electricity  produced captively has got to be used in the manufacture of  final product and only to that extent, credit would be admissible  on the input (furnace oil).  However, the words "any other  purpose" have been introduced in rule 2(g) so that the generated  electricity could also be used for lighting godown, storerooms  etc. which may not strictly come within the ambit of the word  "factory".  Learned counsel submits that if the last five words of  section 2(g), "within the factory of production", are left out then  the result would be that the assessee would generate higher  amount of electricity than that required for production and sell  the same in the market.  Therefore, the words "within the  factory of production" must be read with the words preceding  thereto, namely, "generation of electricity to be used for  manufacture of final product or for any other purpose".  

On the question of "capital goods", we find that rule 2(b)  of Cenvat Credit Rules gives a specific definition of the term  "capital goods".  It is not an inclusive definition with the result

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that any exercise to treat an item as "capital goods" by adopting  any interpretative process will be futile.  An item can be treated  as "capital goods" under Cenvat Credit Rules only if it satisfies  that the goods fell under one of the specified chapters or  headings of the Tariff or it is a spare part, component or  accessory or that it falls under one of the specified items.   Further, the said goods must be used in the factory of the  manufacturer of the final product.  The new rule 2(b) of the  Cenvat Credit Rules is preceded rule 57AA (a) read with the  explanation which in turn was preceded by rule 57Q(1).   Learned counsel submits that rule 57Q of the earlier Modvat  scheme came up for consideration in the case of Jaypee Rewa  Cement (supra) which has not taken into consideration the  concept of captive production of an intermediate product like  limestone used in the manufacture of cement which concept is  now recognized under rule 2(b) of the Cenvat Credit Rules.  

Per contra, learned counsel appearing on behalf of the  department submits that in order to apply Cenvat credit on  inputs under rule 57AA, the inputs should have been used in the  factory of production of the final product (cement) and as  explosives, lubricating oil and welding electrodes were used at  off-factory premises, credit was not available to the assessee.   Learned counsel for the department invited our attention to the  definition of the word "input" in clause (d) of rule 57AA and  submitted that the definition of the word "input" in the Cenvat  scheme warranted user of the input in the factory of the  production of the final product, namely, cement.  It was  submitted that the decision of three-Judge bench in Jaypee  Rewa Cement (supra) was good in respect of admissibility of  modvat credit on explosives, lubricating oil and welding  electrodes as "inputs" under rule 57A and 57B of the Modvat  scheme but it was not applicable on the said goods under rule  57AA(d), and that similarly the assessee was not entitled to  credit on capital goods like crushers under rule 57AA(a) equal  to rule 2(b) of the Cenvat scheme.  Learned counsel further  submits that explosives were used in mining operations; that,  mines were licensed under Mining Act whereas the factory of  the assessee was licensed under the Factories Act and,  therefore, it cannot be said that the mines and factory were  inter-dependent.  Learned counsel urges that there was no  functional integrality between the mines and the factory and,  therefore, the assessee was not entitled to claim Cenvat credit  on explosives under rule 57AA(d) or under rule 2(f) of Cenvat  Credit Rules, 2001 or under rule 2(g) of Cenvat Credit Rules,  2002.

In the light of the provisions of the Cenvat scheme vis-‘- vis Modvat scheme reproduced hereinabove, we are of the view  that the observations made in paragraph 9 of the decision of the  Division Bench, quoted above, in the case of Commissioner of  Central Excise, Jaipur v. J.K. Udaipur Udyog Ltd. reported in  2004 (171) ELT 289 needs reconsideration.  We are, therefore,  of the view that this case requires consideration by a larger  bench.  The papers may be placed before the Hon’ble Chief  Justice of India for further directions.