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Judgment
Akil Kureshi, J.—The petitioner has challenged an order dated 21-2-2002 passed by the adjudicating authority as confirmed by the appellate order dated 7-3-2003 and revisional order dated 29-12-2003. The petition arises in following factual background. The petitioner is a partnership firm and is engaged in the business of manufacturing woolen felt which is excisable product. In addition to clearing such final product for home consumption, the petitioner also exports such goods. The Government of India had issued a Notification No. 8/2001 dated 1-3-2001 and granted exemption to Small Scale Industrial Units from payment of excise duty and additional duty on clearances for home consumption upto a limit of value of Rs. 100 lakhs, subject to certain conditions provided therein.
1.1 The petitioner for the clearances of its final product for home consumption, availed of duty exemption benefit flowing from such Notification No. 8/2001.
1.2 The petitioner exported the said goods on or around 14-9-2001 valued at Rs. 15,27,800/-. At the time of clearance of the goods, the petitioner paid excise duty of Rs. 2,44,447/- by availing cenvat credit on capital goods used for manufacturing such product.
1.3 On 20-9-2001, the petitioner filed a rebate claim with the Department seeking rebate of the duty of Rs. 2,44,447/-. Along with such rebate claim, the petitioner produced necessary declarations and documents as per the rules.
1.4 The adjudicating authority, however, issued a show cause notice dated 9-1-2002 and called upon the petitioner why such rebate claim should not be rejected. In the show cause notice, he stated that the petitioner was clearing the goods for domestic as well as for export purpose. The petitioner was availing the benefit of Notification No. 8/2001 by virtue of which, no duty was required to be paid upto clearance of Rs. 1 crore on domestic as well as export clearances. Since the petitioner had not exceeded limit of Rs. 1 crore during the year under consideration, it was not required to pay any duty on the clearances made for export as well. It was further pointed out that the petitioner had paid duty by adjusting cenvat credit on capital goods. The Notification No. 8/2001 did not permit such mode. It was, therefore, conveyed that the petitioner was not entitled to any rebate.
12.4 In response to the show cause notice, the petitioner filed a detailed reply and opposed the proposal for rejecting of the rebate claim. The adjudicating authority, however, passed the impugned order dated 21-2-2002. In such order, he held that clause (iv) of para 2 of the Notification No. 8/2001 restricts utilization of credit of duty on capital goods till first aggregate value of clearances which do not exceed Rs. 100 lakhs in the manner specified in the table provided in the notification. He, therefore, concluded that, "Thus, I observe that restriction of cenvat utilization from capital goods is applicable for aggregate first clearance value less than Rs. 100 lakhs irrespective of mode of consumption i.e. home consumption or export."
1.5 On such basis, the rebate claim of the petitioner was disallowed. The petitioner preferred appeal against such order before the appellate authority. Before the appellate authority, the petitioner contended that Notification No. 8/2001 did not apply to exports made and did not prohibit utilizing cenvat credit on capital goods for payment of duty of export products. In his order dated 7-3-2003, the appellate authority in fact accepted the petitioner''s interpretation of Notification No. 8/2001 making following observations:
On plain reading of Notification No. 8/2001, dated 1-3-2001, it is observed that said Notification allows exemption on specified goods cleared for home consumption only. The goods cleared for export either under bond or on payment of duty are not covered under the said Notification. Obviously, the condition specified in the said notification are also applicable to the clearances for home consumption only. To that extent, I agree with the appellant''s contention.......
1.6 However, he referred to Rule 5 of the Cenvat Credit Rules, 2001 which pertained to refund of cenvat credit where any inputs are used in the final product. On the basis of the provisions contained in the said rule, he rejected the appeal with following observations:
Rule 5 provides refund of CENVAT credit of duty paid on inputs used in the final product cleared for export and not cenvat credit availed on capital goods. In the premises, the appellant is not entitled for refund of cenvat credit availed on capital goods.
1.7 Against the order of the appellate authority, the petitioner preferred revision before the Government. The Government rejected the revision petition by an order dated 29-12-2003. The revisional authority substantially approved the interpretation adopted by the adjudicating officer, particularly of clause (iv) of para 2 of the Notification No. 8/2001. The petitioner''s interpretation was rejected. Following observations were made:
The appellants submit that, this condition w.r.t. Clearance for home consumption not for export. Govt. observes that, in other words as per this interpretation, this condition says that duty should not be paid by way of utilization of capital goods credit on clearances for home consumption upto Rs. 100 lakhs. But, the Small Scale Exemption notification, to avail the benefit of which, the above is one condition, exempts clearances for home consumption upto Rs. 100 lakhs from payment of duty. Then, can the benefit allowed under the notification be also interpreted as a condition for availing the benefit? This interpretation makes the condition meaningless and unnecessary. Hence, Govt. is not inclined to accept this proposition.
1.8 In the ultimate result, the revision was dismissed on the following ground:
Govt. is of the opinion that, it is logical to infer that, the SSI exemption notification puts restriction on utilization of capital goods credit for all clearances, till the specific limit is reached. Hence Govt. holds that utilization of capital goods credit for payment of duty on goods cleared for export and claiming it as rebate is not proper.
1.9 Against such order, the present petition has been preferred.
Counsel for the petitioner submitted that the authorities gravely erred in interpretation of the exemption Notification No. 8/2001. The petitioner had filed a rebate claim on the basis of the export made on which excise duty was paid. Exemption Notification No. 8/2001 would not debar any such rebate claim. Clause (iv) of para 2 was misinterpreted by the authorities and would have no application to the clearances for export. He submitted that the entire approach was erroneous. Rebate claim should have been allowed.
On the other hand, Mr. Varun Patel, learned counsel for the Department opposed the petition. He placed reliance on the impugned orders and in particular, the decision of the revisional authority. He submitted that clause (iv) of para 2 of Notification No. 8/2001 was correctly interpreted.
From the above, it can be seen that the central question to be decided in the present proceedings is the true interpretation of Notification No. 8/2001 and in particular, clause (iv) of para 2 thereof. Before trying to interpret such provision, we may reiterate the admitted facts. The petitioner is manufacturer clearing final product for home consumption as well as export. During the year under consideration, the petitioner''s clearances did not exceed Rs. 100 lakhs. Part of the clearances were made for export. On such export, the petitioner claimed rebate of excise duly paid. Such excise duty was paid by adjustment of cenvat credit on capital goods.
Notification No. 8/2001, as noted, grants exemption to a small scale unit from payment of duty and additional duty on clearances made for home consumption of the goods of specified description. In the first paragraph itself, the reference to exemption is to clearances for home consumption. Such exemption, therefore, clearly apply to goods for home consumption and not for export.
5.1 Such exemption was subject to various conditions provided in the notification itself, particularly in para 2 thereof. Relevant conditions read as under:
The exemption contained in this notification shall apply subject to the following conditions, namely:-
(iii) The manufacturer shall not avail the credit of duty on inputs under rule 57AB or rule 57AK of the Central Excise Rules, 1944, paid on inputs used in the manufacture of the specified goods cleared for home consumption, the aggregate value of first clearances of which, as calculated in the manner specified in the said Table, does not exceed rupees one hundred lakhs.
(iv) The manufacturer also does not utilize the credit of duty on capital goods under rule 57AB or rule 57AK of the said rules, paid on capital goods, for payment of duty, if any, on the aforesaid clearances, the aggregate value of first clearances of which does not exceed rupees one hundred lakhs, as calculated in the manner specified in the said Table.
5.2 From the above portion of the notification, it can be seen that as per condition (iii) of para 2 thereof, the manufacturer seeking such an exemption could not avail the credit of duty on inputs used in manufacture of specified goods cleared for home consumption upto the maximum limit of Rs. 100 lakhs. In simple terms, therefore, a manufacturer seeking benefit of such exemption notification was not entitled to avail credit of duty on inputs used in the manufacture of goods of which such exemption was being availed and cleared for home consumption and of which the exemption was availed.
5.3 Clause (iv) of para 2 thereof which is crucial for our purpose, further provides that the manufacturer also would not be entitled to utilize the credit of duty on capital goods, paid on such goods for payment of duty on the aforesaid clearances upto an aggregate of Rs. 100 lakhs. Here the words "on the aforesaid clearances" are crucial. The limitation on utilization of the cenvat credit on capital goods for payment of duty is "on the aforesaid clearances". The reference to "on the aforesaid clearances" must be seen as a reference to the goods cleared for home consumption referred to in clause (iii), just preceding clause (iv) of which the limitation of non-utilization of cenvat credit on inputs used in manufacture of such specified goods is imposed. To put it differently, clause (iv) of para 2 thereof puts a restriction on the manufacturer utilizing credit of duty paid on capital goods on the clearances made for home consumption and not for the exports. The adjudicating authority as well as the Government, in our opinion, committed an error in interpreting such provision. The Government, in particular, put much stress on the words "if any" to interpret this paragraph and thereby, did not give any weightage to the important words "on the aforesaid clearances" which appear in the same paragraph. It is true that the words "if any" do throw some confusion and ambiguity. We have also debated such issues with the counsel appearing for the parties. As pointed out to us, we notice that the exemption Notification No. 8/2001 is a successor notification to series of previous exemption notifications issued by the Government of India from time to time. In the present notification, exemption is granted to the first clearances upto Rs. 100 lakhs and such exemption is complete without any segregation. In the earlier notifications, however, there were different slabs, for example, in the Notification No. 8/2000 dated 1-3-2000, such exemption was granted fully on first clearances upto an aggregate not exceeding value of Rs. 50 lakhs. Thereafter, a partial exemption was granted for clearances not exceeding Rs. 50 lakhs over and above such initial clearances in which case, the rate of duty payable was 5%. In such notification, condition No. (iv) in para 2 read as under:-
2(iv) The manufacturer also does not utilize the credit of duty under rule 57Q of the said rules, paid on capital goods, for payment of duty, if any, on the aforesaid clearances, the aggregate value of first clearances of which does not exceed rupees one hundred lakhs, as calculated in the manner specified in the said Table.
5.4 It, thus, becomes clear that such condition (iv) in para 2 was necessary when the exemption was granted slab-wise. The term "if any" would, therefore, cover both cases, namely, where the manufacturer enjoys total exemption, his clearances being within the limit of Rs. 50 lakhs or where he enjoys partial exemption, his clearances exceeds Rs. 50 lakhs, but is still below an aggregate of Rs. 1 crore. It was in this background that the Government of India had used the terms "if any" while providing for restriction on utilization of cenvat credit on capital goods for payment of duty on clearances being made either under total or partial exemption.
Under the circumstances, we accept the interpretation of the petitioner that exemption Notification No. 8/2001 did not apply to the clearances made for exports. The adjudicating authority, therefore, erred in holding that the petitioner erroneously paid duty on clearances for export which duty was otherwise exempt under the notification. In fact, the notification itself is clear in this respect and grants exemption from payment of clearances made for home consumption. The Government of India further erred in interpreting that clause (iv) contained in para 2 thereof prevented the petitioner from payment of duty on export clearances by availing cenvat credit on capital goods. Such condition applied only for availing the exemption on clearances for home consumption.
Since neither in the show cause notice, nor in any of the orders, any other objection is raised to the petitioner''s claim for rebate, we proceed on the basis that these were the only grounds on which such rebate claim was to be and was actually rejected. Under the circumstances, all impugned orders are quashed. The respondents are directed to grant rebate to the petitioner of a sum of Rs. 2,44,447/-with statutory interest. This shall be done within a period of three months from the date of receipt of copy of this judgment. The petition stands disposed of accordingly. There shall be no order as to costs.
_____________________ 1. Paragraph number as per certified copy.