M/S. CHANDRAPUR MAGNET WIRES (P) LTD., NAGPURversusCOLLECTOR OF CENTRAL EXCISE, CENTRAL EXCISE COLLECTORATE,NAGPUR

    M/S. CHANDRAPUR MAGNET WIRES (P) LTD., NAGPUR                               A
                                     v.
     COLLECTOR OF CENTRAL EXCISE, CENTRAL EXCISE
               COLLECTORATE,NAGPUR

                          DECEMBER 12, 1995
                                                                                B
             [AM. AHMADI, 0. AND SUHAS C. SEN, J.]

      Central Excise Rules, 1944 :

        Rules 57A and 57C-Manufacturer cleari11g various fi11al products        C
utilising duty paid inputs-E11titlement to MODVAT scheme and credit for
the duty paid on the inputs utilised for ma11ufa~ture of fi11al product-Debit
and credit entries in this regard made by the assessee-Held, permissible and
assessee entitled to the benefits.

      In this appeal against the judgment of the Customs, Excise and Gold D
(Control) Appellate Tribunal, the appellants contended that if a manufac-
turer clears various final products utilising duty paid inputs, according to '
the Central Excise Rules, he was entitled to get credit for the duty of excise
paid on the inputs which were utilised for manufacture of final product.

      Actually, the credit amounts were adjusted against the duty leviable      E
on the final product. As soon as the inputs were purchased, the duty paid
on them were entered in a register which had to be maintained statutorily
recording the amount of credit allowable to the manufacturer.

       The issue in these appeals arose because some of the goods manufac-
tured by the appellants were exempted from duty by notification dated           F
10.2.1986. The notification was amended on 1.3.1988 exempting copper
winding wires from payment of the whole duty subject to the condition that
the final products were manufactured from copper pans of over 6 mm. and
that no credit of the duty paid on the goods used in their manufacture has
been taken under Role 57 of the Central Excise Rules.                           G
      Allowing the appeal, this Court

      HELD : 1. The assessee is not entitled to remove the copper wires
without payment of duty since credit of the duty paid on the inputs used
in the manufacture of copper wire had already been taken in accordance H
                                  593
    594
                     I
                     '    SUPREME COURTREPOR1S (1995] SUPP. 6 S.C.R.

A with Rule 57A of the Central Excise Roles. Once appropriate entries have
    been made in the register, there is no rule under which the process could
    be reversed. Since the credit has been taken for the duty paid on the inputs
    in the ledger maintained by the assessee, it cannot say that no credit of the
    duty has been taken by it under Rule 57A. [597-A-B]

         2. It is true that the assessee has not maintained separate account or
  segregated the inputs utilised for manufacture of dutiable goods and duty
  free goods, as should have been done. The circular by the Revenue deals
  with a case where the manufacturer produces dutiable final products an<!
  also final products which are exempt from duty and it is not reasonably
C possible to segregate inputs utilised in manufacture of the dutiable final
  products from the final products whicb are exempt from du!J. In such a
  case, the manufacturer may take credit of duty paid on all the inputs used
  in the manufacture of final products on which dnty will have to be paid.
  This can be done only if the credit of duty paid on the inputs used in the
  exempted products is debited in the credit account before the removal of
D the exempted final products. Thus, there is no reason why the assessee
  callJIOt make a debit entry in the credit account before removal of the
  exempted final producL If this debit entry is permissible to be made, credit
  entry for the duties paid on the inputs utilised in manufacture of the final
  exempted producl\'111 stand deleted in the accounts of the assessee. In such
E a situation, it cannot be said that the assessec has taken credit for the duty
  pa!d on the inputs utilised in the manufacture of the final exempted
  product under Rule 57A. Tue claim for exemption of duty on t.'ie disputed
  goods cannot be denied on the plea that the a'5essee has taken credit of the
  duty paid on the inputs used in manufacture of these goods.
                                                           [597-C, H, 598-A-C]
            CIVIL APPELLATE JURISDICTION : Civil Appeal No. 7275 of
    1995.         .· .
                                   '
         Froio the Judgment and Order   dated 17.5.95 of the Customs, Excise
    and Gold (Control) Appellate Tribunal, New Delhi in A. No. E/3167/93-BI.
G           A.N. Haksar, R. Sudhinder and Rajcsh Kumar far the Appellants.

            N.K. Bajpai, G. Prakash and V.K. Verma for the Respondents.

            The Judgment of the Court was delivered by

H           SEN. J, This is an appeal against an order passed by the .Customs
      CHAND RAP UR MAGNET WIRES (P) LTD. ,.. COLLECTOR OP CENTRAL EXCISE [SEN. J.}   595

Excise & Gold (Control) Appellat~ Tribunal. There is no dispute about A
the facts of this case, which are recorded in the order of the Tribunal.

       The appellants are engaged in the manufacture of enamelled copper
 winding wife from duty paid copper wire bars under Chapter Heading
 7403.12 of the Central Excise Tariff Act, 1985. They send the copper wire B
 bars for job work under Rule 57F(2) of the Central Excise Rules, 1944 for
 converting them into copper wires above 6 mm diameter which is class.ifi-
 able under Chapter Heading 7408.ll. The job work is done after obtaining
 due permission from the authorities for operating under Rule 57F(2) as
 well as for the benefit of Notification No. 214/86-CE. The appellants
·manufacture from the copper wires of above 6 mm various other final C
 products of copper viz. copper wires falling under Chapter Heading
 7408.11 and Chapter Heading 7408.19 and copper strips falling under
 Chapter Heading 7408.90 which are liable to Central Excise Duty. They
 also manufacture enamelled copper winding wires which fall under the
 Chapter Heading 8544.00. They avail credit of duty paid on copper wires D
 of above 6 mm received from the job workers. They either sell the same in
 the market on appropriate payment of duty or convert the copper wire of
 above 6 mm into wires of below 6 mm. They sell these on payment of
 appropriate rate of duty or captively consume them by transferring them
 to the enamelling section. The enamelled copper winding wires are either
 cleared at nil rate of duty or on payment of appropriate duty under E
 Notification No. 69/86-CE as amended .. At the stage when the copper wires
of less than 6 mm are cleared internally, the appellants reverse the MOD-
VAT credit availed by them on the copper wire above 6 mm in their RG.
 23, Part-II Register maintained for Chapter 74. After clearing the copper
wire of less then 6 mm internally for enameling, the appellants manufacture F
the enamelled copper winding wires which is either cleared at nil rate of
duty or on payment of appropriate duty. The appellants while doing so take
the MODVAT credit in their RG. 23A, Part-II Register maintained for
Chapter 84 in so far as it pertains to the goods to be cleared on appropriate
 payment of duty. They submit that they do not take the credit of duty paid G
on the copper wire bars in their RG. 23A, Part-II Register for Chapter 84
in so far as it pertains to goods to be cleared at nil rate of duty as of less
than 6 mm as they are aware of the quantity of goods to be cleared at nil
rate of duty. They submit that the enameled copper winding wires which
are to be cleared at nil rate are manufactured only on specific orders. They
state that they clear enamelled copper winding wires either on payment of H
    596                  SUPREMECOURTREPORTS [1995] SUPP. 6 S.C.R.

A appropriate duty or at nil rate of duty under Notification No. 69/86-CE
    dated 10.2.1986 which at S. No. 1 & 2 lays down the condition for clearing
    the same either on payment of appropriate rate of duty or at nil rate.

            The case of the appellants is that if a manufacturer clears various
    final products utilising duty paid inputs, according to Central Excise Rules,
B   he was entitled to the benefit of MODVAT scheme and was entitled to get
    credit for the duty of excise paid on the inputs which were utilised for
    manufacture of final product. The credit amom1ts were adjusted against
    the duty leviable on the final product. As soon as the inputs were pur-
    chased, the duty paid on the inputs were entered in a register which had
C   to be maintained statutorily recording the amount of credit allowable to
    the manufacturer.

        The problem in this case arose because, some of the goods manufac-
  tured by the appellants were exempted from duty by notification No.
D 69/86-CE dated 10th February, 1986. This notification was amended by a
  further notification No. 106/88 dated !st March, 1988 by which copper
  winding wires were exempted from payment of the whole of the duty
  subject to the condition that the final products were manufactured from
  copper wire bars of over 6 mm and also subject to the stipulation that-

E            "{b) No credit of the duty paid on goods (a) (ii) above, used in
             their manufacture, has been taken under rule 57A of the said
             Rules.11

        There is no dispute that the inputs which were utilised in the
F manufacture of the copper wire' were duty paid and that the amount of
  duty paid on the inputs had been entered by the appellants to their credit
  in the ledger which has to be maintained under the Excise Rules. The ·
  credit amount can be utilised by the manufacturer towards payment of duty
  of excise leviable on the final products. Since the copper wires 01anufac~
  lured by the appellants had become duty free, there was no question of
G any adjustment of the credit amount against the duty payable on these
  copper wires. Moreover, Rule 57C specifically provides that credit of duty
  cannot be allowed if final products were exempt from payment of excise
  duty. Faced with this situation, the appellants reversed the credit entires
  of duty paid on inputs which were utilised for manufacture of the duty free
H copper wires.
       CHANDRAPURMAGNETWIRES (P) LID. Y. COLLECTOR OF CENTRAL EXCISE !SEN, J.]   597

      The case of the Excise Department is that the reversal of credit A
entries are not permitted by the rules. The assessee is not entitled to
remove the copper wires without payment of duty since credit of the duty
paid on the inputs used in the manufacture of copper wire had already
been taken in accordance with Rule 57A. Once appropriate entires have
been made in the register, there is no rule under which the process could B
be reversed. Since the credit has been taken for the duty paid on the inputs
in the ledger maintained by the assessee, the assessee cannot be heard to
say that no credit of the duty has been taken by it under Rule 57A.

       It is true that the assessee has not maintained separate accounts or
segregated the inputs utilised for manufacture of dutiable goods and duty              C
free goods, as should have been. The contention of the Department that
in this situation, the assessee is not entitled to reverse the entries and get
the benefit of the tax exemption is a question which merits serions con-
sideration. There is no doubt that the assessee should have maintained
separate accounts for duty free goods and the goods on which duty has to
be paid. But our attention was drawn to a departmental circular letter on              D
this problem in which it has been clarified by the Ministry of Finance as
under:

         "3. The credit account nnder MODVAT rules may be maintained
         chapterwise.                                                                  E
        MODVAT credit is not available if the final products are exempt
        or are chargeable to nil rate of duty. However, where a manufac-
        turer produces along with dutiable final products, final products
        which would be exempt from duty by a notification (e.g. an end
        use notification) and in respect of which it is not reasonably                 F
        possible to segregate the inputs, the manufacturer may be allowed
        to take credit of duty paid on all inputs used in the manufacture
        of the final products, provided that credit of duty paid on the inputs
        used in such exempted products is debited in the credit account
        before the removal of such exempted final products."
                                                                                       G
      The circular deals with a case where the manufacturer produces
dutiable final products and also final products which are exempt from duty
and it is not reasonably possible to segregate inputs utilised in manufacture
of the dutiable final .products from the final product~ which are exempt
from duty. In such a case, the manufacturer may take! credit of duty paid              H
    598                  SUPREME COURT REPORTS (1995) SUPP. 6 S.C.R.

A on all the inputs used in the manufacture of final products on which duty
    will have to be paid. This can be done only if the credit of duty paid on
    the inputs used in the exempted products is debited in the credit account
    before the removal of the exempted final products.

           In view of the aforesaid clarification by the Department, we see no
B reason why the assessee cannot make a debit entry in the credit account
    before removal of the exempted final product. If this debit entry is permis-
    sible to be made, credit entry for the duties paid on the inputs utilised in
    manufacture of the final exempted prodltct will stand deleted in the ac-
    counts of the assessee. In such a situation, it cannot be said that the
C   assessee has taken credit for the duty paid on the inputs utilised in the
    manufacture of the final exempted product under Rule 5"/A. In other
    words, the claim for exemption of duty on the disputed goods cannot be
    denied on the plea that the assessee has taken credit of the duty paid on
    the inputs used in manufacture of these goods.

D        The appeal is therefore, allowed. The order of the Customs, Excise
    and Gold (Control) Appellate Tribunal dated 17th May, 1995 is set «side.
    There will be no order as to costs.

    G.N.                                                      Appeal Allowed.