Case Note & Summary
The dispute arose under the Central Excise Act and Rules concerning the interpretation of Notification No.201/79-CE dated 4.6.1979, which exempted excisable goods manufactured using inputs falling under Tariff Item 68 from duty equivalent to the duty already paid on those inputs. H.M.M. Limited manufactured Horlicks at its Rajahmundry factory using barley malt, which was dutiable under Tariff Item 68. Only a portion of Horlicks was cleared from Rajahmundry after payment of duty; the bulk was transferred in bulk containers to other factories, where it was packed and cleared on payment of duty. The assessee claimed credit for the entire duty paid on barley malt against the duty payable on Horlicks cleared at Rajahmundry, while the Revenue contended that credit should be proportionate to the quantity of Horlicks cleared from Rajahmundry and that no credit could be transferred to other factories. The Customs, Excise and Gold (Control) Appellate Tribunal had upheld the Revenue's view, and the assessee appealed to the Supreme Court. The legal issue was whether the notification required a correlation between inputs and finished goods cleared, and whether unutilized credit could be transferred. The Revenue argued that the phrase 'in the manufacture of which' implied such correlation, so credit should be allowed only for inputs actually used in goods cleared from the same factory. The assessee relied on the procedural rules in the Appendix to the notification, particularly clauses 2, 9 and 10, and on Central Board of Excise and Customs instructions, to argue that no exact correlation was required and that the entire credit could be availed at the factory of receipt. The Supreme Court examined the notification and the Appendix. It held that the procedural rules did not require any exact correlation between inputs and finished products for claiming credit. Rule 2 allowed a manufacturer to take credit of duty paid on inputs upon receipt and utilise such credit for payment of duty on manufactured goods without proving that the specific inputs were used in specific goods. Rule 10 further confirmed this by requiring payment of duty on unutilized inputs if the manufacturer discontinued the scheme, implying that credit could be taken even before actual utilisation. The Court thus held that the assessee was entitled to take credit of the entire duty paid on barley malt and set it off against duty payable on Horlicks cleared from Rajahmundry, irrespective of the fact that a major part of the manufactured Horlicks was transferred to other factories for clearance. It further held that there was no provision permitting transfer of the credit to other factories except under clause 11 of the Appendix, which allowed transfer only in specified circumstances with Collector's permission. The appeal was allowed, and the assessee's interpretation was upheld.
Headnote
A) Central Excise - Exemption Notification - Interpretation - Notification No.201/79-CE dated 4.6.1979 issued under Rule 8 of Central Excise Rules, 1944 - Under the notification, credit of duty paid on inputs (goods falling under Tariff Item 68) can be taken on receipt of inputs and utilised for payment of duty on any excisable goods manufactured in the same factory, without requiring exact correlation or quantitative nexus between inputs used and finished goods cleared - The words 'in the manufacture of which' do not impose a condition of showing actual utilisation of specific inputs in specific cleared goods; the procedural rules in the Appendix, particularly clauses 2, 9 and 10, indicate that credit is available irrespective of physical tracing - Assessee entitled to set off entire duty paid on barley malt against duty payable on Horlicks cleared from Rajahmundry factory even though bulk of Horlicks manufactured from same malt was transferred to other factories for clearance. B) Central Excise - Transfer of Credit to Another Factory - Clause 11 of Appendix to Notification No.201/79-CE - Unutilized credit can be transferred only with permission of Collector in specified circumstances (shifting of plant, merger of factory, transfer of business) - There is no provision permitting an assessee to transfer the credit of duty paid on inputs to another factory where finished goods are cleared; therefore, credit not availed at Rajahmundry cannot be utilised at Bangalore or other factories.
Issue of Consideration
Whether under Notification No.201/79-CE dated 4.6.1979, an assessee is entitled to take credit of the entire duty paid on inputs (barley malt) against duty payable on finished goods (Horlicks) cleared from the same factory, even if a portion of the finished goods manufactured from those inputs is transferred to other factories for clearance, and whether such credit can be transferred to other factories.
Final Decision
Appeal allowed. The Supreme Court held that under Notification No.201/79-CE, the assessee was entitled to take credit of the entire duty paid on inputs (barley malt) and utilise it against duty payable on Horlicks cleared from Rajahmundry factory, irrespective of the fact that the bulk of Horlicks manufactured from those inputs was transferred to other factories for clearance. The Court further held that there was no provision for transfer of unutilized credit to other factories except as per clause 11 of the Appendix to the notification.
Law Points
- Exemption notification does not require exact correlation between inputs and finished goods for availing credit
- credit of duty paid on inputs can be taken on receipt and utilized for payment of duty on any goods manufactured in the same factory
- no provision for transfer of unutilized credit to another factory except under clause 11
- the expression 'in the manufacture of which' read with procedural rules indicates no actual utilization tracking
- all excisable goods manufactured using Tariff Item 68 inputs are eligible for set-off of duty paid on inputs
