http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 5  

CASE NO.: Appeal (civil)  2428 of 2007

PETITIONER: Commnr. Of Central Excise, Bhavnagar

RESPONDENT: M/s. Saurashtra Chemicals Ltd

DATE OF JUDGMENT: 09/05/2007

BENCH: S.B. Sinha & Markandey Katju

JUDGMENT: J U D G M E N T  

CIVIL APPEAL NO.     2428             OF 2007 [Arising out of  SLP (Civil) No. 15783 of 2006]

S.B. SINHA, J :                  1.      Leave granted.

       2.      Interpretation of Rule 57AC of the Central Excise Rules, 1944  (for short "the Rules") is in question in this appeal which arises out of the  judgment and order dated 12.01.2006 passed by the High Court of Gujarat at  Ahmedabad in Tax Appeal No. 862 of 2005.

       3.      Respondent is engaged in manufacture of excisable goods, viz.,  Soda Ash, Sodium Bicarbonate and Caustic Soda.  It is registered under the  Central Excise Tariff Act, 1985.  Its products are governed by the provisions  of the Chapter VIIA of the Rules.  It has been availing the benefit of credit  of duty paid on inputs as well as capital goods under the provisions of the  Rules.   

       4.      On or about 24.09.1996, the respondent imported two generator  sets.  We are herein concerned with the second one.  Although it was  received by the respondent on 24.10.1998, the same admittedly was not  installed prior to 1.04.2000.  In the relevant financial year, the rule which  was in operation was Rule 57Q(3) of the Rules was as under:

"57Q(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  Customs Tariff Act, to the extent of 75% of the  said additional duty paid on such goods."

       Indisputably, the said Rule was replaced by Rule 57AC of the Rules,  which came into force  with effect from 1.04.2000.  It reads as under:

"57AC. Conditions for allowing CENVAT credit.-  (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.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 5  

(b) The balance of CENVAT credit may be taken  in any financial year subsequent to the financial  year in which the capital goods were received in  the factory of the manufacturer, 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 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 jigs, fixtures, 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 which shall be valid  for a financial year in respect of removal of such  inputs or partially processed inputs, and subject to  such conditions as he may impose in the interest of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 5  

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."

       5.      For the purpose of grant of MODVAT credit, the law which  was operating in the field at the relevant point of time was a decision of the  Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai in  Grasim Industries Ltd. v. Commissioner of Central Excise, Trichy [2004  (176) ELT 265 (Tri-Chennai)] in terms whereof the quantum of credit  permissible was held to be 75% when the goods were received in the  factory.  It was held that only with effect from 1.03.2000, 100% credit was  to be given and the said Rule was not retrospective.  A Civil Appeal  preferred thereagainst by Grasim Industries Ltd. before this Court being  Civil Appeal No. 3477 of 2004 was dismissed by an order dated 19.07.2004  stating:

"We see no reason to interfere. The Civil Appeal is dismissed. There shall be no order as to costs."

       Interpretation of Rule 57AC of the Rules, as inserted on 3.05.2000 is,  in question before us.

       Before embarking on the said question, we may notice that a show  cause notice was issued to the respondent on or about 5.05.2001 by the  Superintendent Central Excise, AR-II, Porbander directing it to show cause  as to why:

"(i) The amount of credit amounting to Rs.  8,51,490/- (656481/- plus 195009/-) should not be  recovered from them under 57AH of the rules read  with Section 11 of the Act; (ii) interest @ 24% should not be levied upon them  as per the provisions of Section 11AB of the Act. (iii) Penalty should not be imposed upon the  Noticee under rule 173Q(1) of the Rules;"

       Cause was shown.  The matter was determined by the Assistant  Commissioner of Central Excise, Junagadh in terms of an order dated  13.09.2001 holding that the respondent was entitled to CENVAT credit only  to the extent of 50%.  An appeal preferred thereagainst by the respondent  aggrieved by and dissatisfied therewith before the Commissioner (Appeals),  Customs and Central Excise, Rajkot was allowed by an order dated

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 5  

31.12.2001.  An appeal preferred by the Revenue thereagainst was dismissed  by the Tribunal.  An appeal by the Revenue under Section 35-G of the  Central Excise Act, 1944 has been dismissed by the High Court by reason of  the impugned judgment dated 12.01.2006.

       6.      The High Court in its judgment opined that as the previous  notification did not contain any restrictive clause in regard to the availability  of 50% of entitlement, the Commissioner as also the Tribunal did not  commit any error in applying the notification effective as on 1.03.2000.  The  Revenue is, thus, before us.

       7.      Sub-rule (1) of Rule 57AC of the Rules refers to ’inputs’.  It is  not relevant for our purpose.  Clauses (a) and (b) of Sub-Rule (2) of Rule  57AC of the Rules governs the receipt of the capital goods in a factory.  It  does not restrict grant of credit in a given financial year.  Whereas 50% of  the credit can be taken in one financial year, the balance may be availed in  the subsequent years, subject to the condition that the capital goods are still  in possession and use of manufacturer of the final products in subsequent  years.  Clauses (a) and (b) of Sub-Rule (2) of Rule 57AC of the Rules,  therefore, provide for a composite scheme.  We are not concerned even  therewith in this appeal.

       Clause (c) of Sub-Rule (2) of Rule 57AC of the Rules is relevant for  our purpose inasmuch as in this case, we have noticed hereinbefore, that the  second generator set was received on 24.10.1998, but was not installed prior  to 1.04.2000.           Applicability of Grasim Industries Ltd (supra) vis-‘-vis Rule 57Q(3)  of the Rules has now become irrelevant.  Clause (c) of Sub-Rule (2) of Rule  57AC of the Rules deals with a situation with which we are concerned.  By  reason of the said provision, the credit sought to be given by reason of Rule  57Q(3) has not been taken away in its entirety, but merely postulates that if  the credit had not already been availed, the same merely be obtained but  limited only to the extent of 50% thereof.   

       8.      A beneficient statute may have to be considered liberally but  where a statute does not admit of more than one interpretation, literal  interpretation must be resorted to.  The provision allows taking of credit but  the same is circumscribed by the condition as is apparent from the use of the  words "subject to" which is limited to an amount not exceeding 50% of the  duty paid on such capital goods.  The term "subject to" in the context  assumes some importance.   

In Ashok Leyland Ltd. v. State of Tamil Nadu & Anr. [(2004) 3 SCC  1] this Court held:

""Subject to" is an expression whereby limitation  is expressed.  The order is conclusive for all  purposes."

This Court further noticed the dictionary meaning of "subject to"  stating:

"Furthermore, the expression ’subject to’ must be  given effect to.  

       In Black’s Law Dictionary, Fifth Edition at  page  1278 the expression "Subject to"  has  been  defined as under :

"Liable, subordinate, subservient, inferior,         obedient to; governed or affected by;  provided that; provided, answerable for.  Homan v. Employers Reinsurance Corp,.,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 5  

345 Mo. 650, 136 S.W. 2d 289, 302"       

       [See also S.N. Chandrashekar and another v. State of Karnataka and  Others, (2006) 3 SCC 208]

       9.      Illustration appended to Sub-rule (2) of Rule 57AC of the Rules  on its plain reading governs Sub-rules 2(a) and 2(b) of Rule 57AC and not  Sub-rule 2(c) thereof as it refers to a situation where ’the machinery’ has  been received on April 16, 2000 and not prior thereto.  Capital goods  received after 1.04.2000 are governed by Clauses (a) and (b) of Sub-rule (2)  of Rule 57AC whereas if received prior thereto, the same would be governed  by Clause (c) thereof.

       10.     We, therefore, are of the opinion that the High Court was not  correct in opining that CENVAT credit to the extent of 100% could be  allowed in terms of Rule 57AC of the Rules.

       11.     Mr. Ramesh Singh, learned counsel appearing on behalf of the  respondent, however, submitted that credit had been given only to 50% of  the total amount of duty paid, as would appear from the order of the  Commissioner dated 31.12.2001 which is in the following terms:

"On going through the sub rule 2(c) of Rule 57AC  it is very much patent that the items of capital  goods which have not been installed (emphasis  supplied) before 1st day of April, 2000 would be  entitled to the credit for an amount not exceeding  fifty per cent of the duty paid on such capital  goods.  I find that in the instant case also, it is  uncontrovertible fact that the said Generator was  not installed in the appellants factory prior to  01.04.2000, and therefore, they rightly availed of  the credit of Rs. 7,80,036/- (50% of Rs.  15,60,072.28)"

       But, what was done was that while granting relief to the extent of 50%  in the relevant year, it purports to hold that the credit of balance 50% can be  availed in subsequent years.  The Commissioner in arriving at the said  finding did not notice the distinction between Clauses (a) and (b) of Sub-rule  (2) of Rule 57AC, on the one hand, and Clause (c) thereof, on the other.  It  also failed to notice that the illustration will have no application in the  instant case.  It is furthermore now a well-settled principle of law that an  illustration cannot control the main provision.

       12.     For the reasons aforementioned, the impugned judgment cannot  be sustained which is set aside accordingly.  The appeal is allowed.   However, in the facts and circumstances of the case, there shall be no order  as to costs.