THE UNION OF INDIA & ORS.versusM/S.ASAHI INDIASAFETYGLASS LTD.

                          [2015] 7 S.C.R. 122


A                   THE UNION OF INDIA & ORS.
                                   v.
              MIS.ASAHI INDIASAFETYGLASS LTD.
                   (Civil Appeal No. 2381 of 2005)
B
                             MAYO?, 2015
               [A. K. SIKRI AND R. F. NARIMAN, JJ.]
            Central Excise Rules, 1944 - r. 57A - Modvat credit
c    on inputs- Denial of, when defect in input-raw material found
    - Assessee, manufacturer of glass for Automobiles, used
    floating glass as raw material - Assessee availing ctaim of
    modvat credit of duty paid on raw material - Denial by
    Department since inputs inherently defective and not used
D   for manufacture of the final product - Demand of duty back
    by the Department - Settlement Commission holding that
    apart from float glasses found to be broken/defective, parts
    of the glass also found to be defective and not used for final
    production - Issuance of direction to assessee to pay back
E   the modvat credit availed to the Authorities - However, High
    Court remanded back the matter to Settlement Commission
    to consider the matter afresh - On appeal, held: High Court
    did not interfere with the factual aspects recorded by
    Settlement Commission - High Court held that the
F   Commission erred in applying wrong principle in law, by
    treating even the float glass used for manufacture, that is,
    after the manufacturing process had commenced, to be a
    wasted input and came to an erroneous conclusion that the
    modvat could not be claimed in respect of that part of a
G   particular float glass sheet - High Court stated the correct
    legal position where the Settlement Commission had gone
    wrong in law- High Court acted within its jurisdiction ulArt. 226
    of the Constitution and remanded the matter - Settlement
H   Commission to decide the application of assessee, in terms
                                  122
    THE UNION OF INDIA v. M/S. ASAHI INDIA SAFETY             123
                    GLASS LTD.

of the judgment passed by High Court.                          A

  Union of India and other vs. IND. Swift Laboratories Ltd.
  2011 (2) SCR 1087: 2011 (4) SCC 635; Collector of
  Central Excise vs. Rajasthan State Chemical Works
  1991 (55) E.L.T. 444 S.C.; J.K. Cotton Mills vs. S. T.       B
  Officer1965 (1) SCR 900; standard Fireworks Industries
  vs. Collector 1987 (28) E.L.T. 56 (S.C.);
  Jyotendrasinghji vs. S.I. Tripathi and Others (201 ITR
  611) - referred to.
                                                              c
                   Case Law Reference
2011 (2) SCR 1087          Referred to.            Para 7
1991 (55) E.L.T. 444 S.C. Referred to.             Para 10
1965 (1) SCR 900           Referred to.         .,·:Para 11   D
1987 (28) E.L. T. 56 (S.C.) Referred to.          Para 11
(201 ITR 611)              Referred to.           Para 13
     CIVIL APPELLATE JURISDICTION: Civil Appeal No.
                                                              E
2381 of 2005.                             ,,
      From the Judgment and Order dated 10.09.2004 of the
Division Bench of the High Court of Delhi, in C.W.P. No. 6692
of2002.
                                                   ' ,,
                                                              F
      YashankAdhyaru, B. Sunita Rani, Ritesh Kumar, Shweta
Garg, B. Krishna Prasad for the Appellants.       -·
     V. Lakshmi Kumaran, M.P. Devanath, Vivek Sharma, L.
Charanaya, Aditya Bhattacharya, R. Ramachandran, Kemant G
Bajaj,Anandh K. for the Respondent.

     The Judgment of the Court was delivered by
     A. K. SIKRI, J. 1. The respondent herein is engaged in
                                                              H
124       SUPREME COURT REPORTS                  [2015] 7 S.C.R.


A the manufacture of Toughened (Tempered) and Laminated
  Safety Glass for Automobiles falling under Chapter Heading
  7004.10 and 7004.20 respectively of the First Schedule to the
  Central excise TariffAct, 1985. For the manufacture of the glass
  of aforesaid nature, the respondent has been supplying float
B glass which ·is the main raw material of the respondent's
  product. On this the respondent has also been availing claim
  of modvat credit of duty paid on the aforesaid raw material,
   under Rule 57A of the Central Excise Rules, 1944 (hereinafter
   referred to as 'Rules').
c
         2. Show cause notices dated 1.9.2002, 14.12.2000 and
   29.6.2001 were issued by the Department to the respondent
   alleging therein that the respondent had availed Modvat credit
   of inputs that were inherently defective and were neither used
 D nor usable 'in or in relation to the manufacture of the final
   products'. In these show cause notices, on the aforesaid basis
   the Department demanded back the duty in a sum of
   Rs.3,63,79,483, Rs.2257353 and Rs.28,53,875/- respectively.
   The respondent gave reply to the said show cause notices.
 E
         3. At the same time the respondent also approached the
   Settlement Commission under Section 32E of the Act for
   settlement of the case in respect of the show cause notices.
   In the application for settlement filed by the respondent, the
 F respondent made an admission to the extent that it had
   received the float glass in packaged form and on the opening
   of the wooden boxes, certain float glasses were found to be
   broken and they were not used as inputs while undertaking
   the manufacturing process. On that basis it was admitted by
 G the respondent that the modvat credit availed on the aforesaid
   defective float glasses had to be reversed. Accordingly, the
   respondent agreed to pay back a sum of Rs.56,39,370/-.

        4. The Settlement Commission went into the issue. It
 H found that apart from the aforesaid glasses which were found
    THE UNION OF INDIA v. MIS.ASAHI INDIASAFETY               125
             GLASS LTD. [A. K. SIKRI, J.]

 to be broken/defective on the opening of the wooden boxes, A
 there were some other float glasses which were used in the
 manufacturing process. During that process, parts of the said
.glass were also found to be defective and not used for the
 final production. In the opinion of the Settlement Commission,
 the modvat credit availed by the respondent had to be reversed/ B
 paid back by the respondent to the authorities. In this manner,
 the Settlement Commission arrived at a figure o'f
 Rs.4,03,77,695/- and directed the respondent to pay the
 balance amount of Rs.3,47,38,325/-towards the settlement
 of the said show cause notice.                                  C

      5. It may be significant to note here that the respondent
had objected to the aforesaid approach adopted by the
Settlement Commission during the hearings before the said
Commission by pleading that once the float glass was used D
for manufacture and manufacturing process had started
thereby, thereafter, if some latent defect was found on a portion
of the long sheet of glass and the said portion thereof had to
be discarded it was not a case where the entire sheet of glass
was not used as input as remaining part of the glass was in E
fact used. This contention of the respondent, however'. was
not accepted by the Settlement Commission resulting into
passing of the orders in the manner stated above.

       6. Aggrieved by the aforesaid approach of the Settlement F
 Commission, the respondent filed WP (C)No. 669/2002 in the
 High Court of Delhi, questioning the said approach as legally
erroneous and challenging the order of the Settlement
 Commission on that ground. The High Court has accepted
the plea of the respondent hereir_i and after straightening the G
 legal position the case is remanded back to the Settlement
 Commission to consider the matter afresh in the light of the
legal principle mentioned by the High Court in the impugned
judgment.
                                                               H
126        SUPREME COURT REPORTS                    [2015] 7 S.C.R.


A          7. In the instant appeal preferred by the Department
   against the aforesaid order, the main argument of the
   Department is that once the Settlement Commission had
   passed the orders under Section 32E of the Act, the High,
   Court had no jurisdiction to tinker with the same, in exercise of
 B its extraordinary jurisdiction under Art. 226 of the Constitution.
   It is the submission of the Department, as advanced by Mr.
   YashankAdhyaru that the High Court has exceeded its limits
   of jurisdiction by examining the matter afresh as if it was sitting
   in appeal over the order of the Settlement Commission, which
 C was clearly impermissible.

         8. In support of this contention the learned counsel has
   referred the judgment of this Court in Union of India and other
   vs. IND. Swift Laboratories Ltd. 2011 (4) SCC 635 where the
 D powers of the Settlement Commission are delineated in the
   following manner:

             "An order passed by the Settlement Commission
        could be interfered with only if the said order is found to
 E      be contrary to any provisions of the Act. So far as the
        findings of fact recorded by the Commission or question
        of facts are concerned, the same is not open for
        examination either by the High Court or by the Supreme
        Court. In the present case the order of the Settlement
 F      Commission clearly indicates that the said order,
        particularly, with regard to the imposition of simple interest
        @ 10% per annum was passed in accordance with the
        provisions of Rule 14 but the High Court wrongly .
        interpreted the said Rule and thereby arrived at an
 G      erroneous finding. So far as the second issue with
        respect to interest on Rs.50 lakhs is concerned, the same
        being a factual issue should not have been gone into by
        the High Court exercising the writ jurisdiction and the High
        Court should not have substituted its own opinion against
 H
   THE UNION OF INDIA v. MIS.ASAHI INDIASAFETY                    127
            GLASS LTD. [A. K. SIKRI, J.]

  the opinion of the Settlement Commission when the same           A
  was not challenged on merits."

       9. After going through the record and perusing the order
of the High Court, we are of the opinion that the eloquent
submission of the learned senior counsel lacks substance as s
it is utterly misconceived. The High Court has not meddled
with the factual aspects which were recorded by the Settlement
Commission in its judgment. On the contrary, reading of the
impugned judgment amply demonstrates that the High Court
has taken the facts as recorded by the Settlement Commission C
itself on their face value and have not tinkered with the same.
In para 15 of the impugned judgment those undisputed facts
as mentioned by the Settlement Commission itself, are
reproduced. This para reads as under:
                                                                D
       "Undisputed facts, according to the Commission in
    paras 11 and 12 are as under:

     (i) The main raw material for the manufacture of the
          tempered and laminated glass in the applicant's          E
          factory is float glass which is an eligible input
          under Rule 57A of the Rules in this case.

     (ii) The defects noticed in the float glass (input) at the
           stage of inspection thereof after subjecting it t~
                                                                   F
           the process of cutting, marking, breaking off,
           grinding and washing are defects arising at the
           end of the suppliers of the said float glass and
           such defects have not been brought about during
           any of the processes to which the float glass is       G
           subjected to in the applicant's factory.

     (iii) The applicant filed a claim for such defective glass
            on the respective suppliers and the suppliers
            reimbursed the applicant for the cost of such
                                                                  H
128      SUPREME COURT REPORTS                       [2015] 7 S.C.R.


A             defective glass. The cost reimbursed does not
              include the element of duty suffered on such float
              glass.

         (iv) The demand of duty made by Revenue is confined
B              to the credit takj:'ln defective float glass for which
               the applicant has been reimbursed by the
               suppliers of suc.h defective glass. The demand
               of duty does not include breakages or defects
               notice during-.the process of toughening,
C              tempering on lamination .
                        .
         (v) Revenue have confirmed the correctness of the
             amount of duty accepted by the applicant in their
             applications, the accepted amount of duty is
o            confined to breakages of float glass (input)
              noticed when the wooden boxed containing it are
             opened in the factory of the applicant.

      The Commission further observed in para 12 as under:-
E     "12. The claim of the applicant is centered on the
      contention that the suitability for use of the float glass in
      the motor vehicles can only be detected after it has
      undergone the mandatory processes of cutting, marking,
      break off, grinding and washing, that the manufacturing
F
      process for manufacture of toughened and laminated
      glass starts as soon as the float glass is out on the float
      table and subjected to the aforesaid processes and that
      these processes are mandatory and integral to the
G     process of manufacture of their final products. Revenue
      have disputed this claim of the applicant. The applicant
      rely on the production~Manual of Ashai Glass Limited,
      Japan in support of their contention that world-over the
      process of manufactur~ adopted by their parent company
H     is identical."
   THE UNION OF INDIA v. MIS.ASAHI INDIASAFETY                     129
            GLASS LTD. [A. K. SIKRI, J.]

     10. On the aforesaid facts the approach of the A
Commission is commented upon in para 16 of the impugned
judgment which reads as under:

    16. In para 13, the Commission considered the
    expression "used in the manufacture of final products"          B
    and "inputs used in or in relation to the manufacture of
    the final products" that these are to be widely construed
    as held by the Apex Court. Surprisingly, the Commission
    proceeded by saying "however, the main question to be
   decided in this case is whether tl'le float glass (input) can    c
    be said to be an eligible input of the applicant when it
   was defective at the supplier's end itself and accordingly
    could not have been used in the manufacture of the
   finished goods. As observed by us earlier, it is not in
   dispute that the defects may be in the float glass at the        D
   suppliers' end and that is the reason why the suppliers
   agreed to reimburse the applicant for the value of such
   defective inputs. This being the case, in our view, the
   applicant identified such defect at the stage of inspection
   after subjecting the float glass to certain processes. Even      E
   if these pre-processes are considered an integral to
   manufacture of finished glass, the fact remains that input
   of float glass could not have been used in or in relation to
   the manufacture of the final product on account of inherent
                                                                    F
   defect in it. It is also to be noted that these defects are
   identified through a naked eye against a light source at
   the stage of the inspection and this could have been done
   even after the receipt of the goods in the factory of the
   applicant and before subjecting them to the various             G
   process of cutting, marking, breaking off, grinding etc. it
 . is also not in dispute that the input float glass does not
  get rejected on account of any defects developed during
  any of the pre-processes to which it is subjected to. In
   view of this position, the reliance placed by the applicant     H
130       SUPREME COURT REPORTS                  [2015) 7 S.C.R.


A     on the following judgments of the Tribunal does not
      appear to be relevant."

         11. On that basis the High Court has concluded that the
  Commission committed an error by applying wrong principle
B in law, by treating even the float glass used for manufacture,
  that is, after the manufacturing process tiad commenced, to
  be a wasted input and came to an erroneous conclusion that
  th~ modvat could not be claimed in respect of that part of a
  particular float glass sheet. In forming this opinion the High
C Court relied upon the judgment of this Court in the case of
  Collector of Central excise vs. Rajasthan State Chemical works
   1991 (55) E.L.T. 444 S.C. wherein this Court held as to when
  the manufacturing process starts. Final portion from the said
  judgment which is quoted by the High Court, is reproduced for
D proper understanding of the matter:

      "Manufacture thus involves series of processes. Process
      in manufacture or in relation to manufacture implies not
      only the production but the various stages through which
E     the raw material is subjected to change by different
      operations. It is the cumulative effect of the various
      processes to which the raw material is subjected to,
      manufactured product emerges. Therefore, each step
      towards such production would be a process in relation
F     to the manufacture. Where any particular process is so
      integrally connected with the ultimate production of goods
      that but for that process manufacture or processing of
      goods would be impossible or commercially inexpedient,
      that process is one in relation to the manufacture."
G
       12. The High Court has also relied upon two other
  judgments of this Court, viz., J.K. Cotton Mills vs. S.T. Officer
  [1965 (1) SCR 900) and Standard Fireworks Industries vs.
  Collector 1987 (28) E.L.T. 56 (S.C.) laying down the same
H proposition as noted in the case of Rajasthan State Chemical
    THE UNION OF INDIA v. M/S. ASAHI INDIA SAFETY                 131
             GLASS LTD. [A. K. SIKRI, J.]

Works (Supra).                                                     A

     13. In the process, the High Court has also interpreted
Rule 570 and Rule 57A (4) of the Rules. It would be pertinent
to mention here that the aforesaid legal position, as stated by
the High Court, could not be dislodged by the learned senior B
counsel for the appellant.        ·

      14. From the aforesaid it becomes clear that the High
Court has not interfered with the facts which were recorded by
the Settlement Commission. On the contrary, the facts noted c
above remained undisputed. On those facts the High Court
has simply stated the correct legal position where the
Settlement Commission had gone wrong in law. Thus, the High
Court has simply applied the correct principle of law on the
admitted facts. This, according to us, was well within the D
powers of the High Court while exercising its jurisdiction under
Art.226 of the Constitution. Such remand of the High Court
has been held permissible in Jyotendrasinghji vs. S.I. Tripathi
and Others (201 ITR 611) whLch was also concerning the
powers of the Settlement Commission, albeit under Section E
245(0)(4) of the Income Tax Act. The principle of law remains
the same and can be applied in case of orders passed by the
Settlement Commission under the Central Excise Act as well.

       15. For the reasons stated above, we are of the opinion F
that the present appeal is bereft of any merit and is accordingly
dismissed.

       16. We would now direct the Settlement Commission to
take up the application of the respondent/assessee, in terms G
of the judgment passed by the High Court and decide the same
as early as possible and preferably within six months from
today.

Nidhi Jain                                    Appeal dismissed.    H