# 13 (ADDL.) S.C.R. 301 .; ; MIS. MAHUTI SUZUKI LTD v. COMMISSIONER OF CENTRAL EXCISE-Ill, DELHI - **Citation:** [2009] 13 S.C.R. 301 - **Court:** Supreme Court of India - **Decided:** 2009-08-17 - **Case number:** Civil Appeal No. 5554 of 2009 - **Bench:** S.H. Kapadia, Aftab Alam - **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/13-addl-s-c-r-301-mis-mahuti-suzuki-ltd-v-commissioner-of-central-excise-ill-25166 - **Pages:** 42 ## Headnote ,;;. CENVAT Credit Rules, 2002 - r. 2(g) - 'Input' - Connotation of - Electricity, generated by assesseemanufacturer, 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 F credit to the extent of power wheeled out by the appellantassessee to its sister units, vendors, joint ventures. Dismissing the appeals of assessees and allowing that of the Revenue, the Court HELD: G ~ 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 F manufacture of final product. [Para 16) [339~H; 340-A-B] 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 ## Text _Characters 0–39,718 of 74,970. This is a partial read: ask again with offset=39718 for what follows._ [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 assesseemanufacturer, 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 F credit to the extent of power wheeled out by the appellantassessee to its sister units, vendors, joint ventures. Dismissing the appeals of assessees and allowing that of the Revenue, the Court HELD: G ~ 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 F manufacture of final product. [Para 16) [339~H; 340-A-B] 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 credit as such wheeled out electricity, cleared for a price, F 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 5559E 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 305 - CENTRAL EXCISE-Ill, DELHI - 1996 (86) ELT 613 (Tri) Referred to. Para 12 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 C.A. No. 5555 of 2009. D ,J.. 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 CENVA T 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 c credit on natural gas. During July 2002 to December 2002, 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 D using naphtha as fuel to run the gas turbines and they are 'f 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 E factory, assessee has a common distribution point for electricity 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). This electricity stood cleared at the different rates for the entire -)l 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 H electricity is wheeled out in turn manufacture final products. ~ ~ 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.13/2003B CE(NT) dated 1.3.2003. Accordingly we are confining the arguments advanced by learned counsel on both sides to the ,.J said Rules. 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 Cc 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". E In fact, according to learned counsel, the said items stood 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 G the int~rpretation of Rule 6 of the 2002 Rules, learned counsel 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 E was to pay a specified amouryt. In any event, according to 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 " 8. We hereinbelow reproduce relevant rules of the F 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 ·• B 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, c 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.- 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 H (Textile and Textile Articles) Act,1978 ( 40 of 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 4 of the Customs Tariff Act, equivalent to the 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 ... ,,, in the factory on or after the first day of :t 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 B products shall be allowed CENVAT credit of 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 fE \ (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. ; ' H Provided further that the CENVAT credit of the duty paid 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 32/99Central 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 ·~ July, 2001, No.56/2002-Central Excise, dated the 14th .J 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 H produced or manufactured,- 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. exportA 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. 8/97Central 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 B Bill, 2003, which clause has, by virtue of the 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 r D Excise (Textiles and Textile Articles) Act, or the 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 E said Finance Bill. Under the Provisional Collection 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~ F such or after being partially processed. 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). H c. the CENVAT credit, in respect of additional duty 'v +- ... _. _, -..\:- MARUTI SUZUKI LTD. v. COMMISSIONER OF 319 CENTRAL EXCISE-Ill, DELHI [S.H. KAPADIA, J.] d. leviable under section 3 of the Customs Tariff Act, A paid on marble slabs or tiles falling under subheading 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; *** 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 B 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 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 G which are chargeable to duty as well as exempted 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 H meant for use in the manufacture of exempted 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 B accounts shall follow either of the following 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; D ~f 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; -,I (3) No.63/95-Central Excise, dated the 16th 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 D +.. · CENVAT credit attributable to inputs used in, or in relation 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 c (3) and sub-rule (4) shall not be applicable in case the exempted goods are eitheri. cleared to a unit in a free trade zone; or ii. cleared to a unit in a special economic zone; D or r ~ iii. cleared to a hundred per cent. exportoriented 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 )- F or supplied to projects funded by them, on 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 G August, 1995, number G. S R. 602 (E), dated the 28th August, 1995; or --.J.. vi. cleared for export under bond in terms of the I provisions of the Central Excise Rules, 2002. - H vii. Gold or silver falling within Chapter 71 of the 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.