Gowri Shankar, Member (T)

1. The appellant has two factories, one at Ankleshwar and other at Nandesari. It manufactures in the factory at Ankleshwar acetic acid out of ethyl alcohol. It clears part of the acetic acid on payment of duty and sends the rest of the factory at Nandesari. There it converts the acetic acid to acetic anhydride. Rule 57K to 57P of the Central Excise Rules deal with the provisions relating to credit of money. Briefly, these rules empower the central government to specify the finished goods (final product) and raw material used in the manufacture of such goods (inputs) to which the scheme will apply. The scheme provides that credit of money is to be given to a manufacturer for use of inputs in the manufacture of final product. The rate at which credit is to be taken are to be specified in the notification. Notification 231/87 specified ethyl alcohol to be input in the manufacture interalia of acetic acid and acetic anhydride. Credit of money was available in such manufacture at the rate of Rs. 6.50 per kilolitre of alcohol. Rule 57L provides "No credit of money on the inputs used in the manufacture of final products shall be allowed if the final products are exempted from the whole of the duty of excise leviable thereon or is chargeable to nil rate."

2. Notification 217/86 which was in force at the relevant time exempted from payment of duty goods specified in column 2 of the table (which it refers to as inputs) "manufacture in a factory and used within the factory of production or in any other factory of the same manufacturer, in the manufacture of the final products specified in column 3." The second proviso of this notification requires that where the manufacturer used inputs in a factory other than the factory where they have been produced, the procedure set out in chapter X of the Central Excise Rules has to be followed. We are not concerned with the other remaining part of this notification.

3. The appellant had made use of the exemption contained in this notification 217/86 with regard to that part of the acetic acid which it removed from its Ankleshwar factory to the Nandesari factory. It followed the Chapter X procedure and did not pay duty on the acetic acid. The department therefore was of the view that the provisions of Rule 57L would operate. For that part of the ethyl alcohol which the appellant used at Ankleshwar to make acetic acid and cleared to Nandesari factory, money credit would therefore not be available. Adjudication on the notice issued to the appellant proposing to recover the money credit the Asst. Collector, whose order has been confirmed by the Commissioner (Appeals) confirmed the proposal for duty. Hence this appeal.

4. The counsel for the appellant raised an argument which runs as follows. Notification 217/86 is different from other notification issued under Rule 8. Its purpose is not merely to exempt goods from duty. Its object is to avoid the unnecessary work that the manufacturer might otherwise have to face by way of paying duty on goods that he manufactures, taking the modvat credit on such goods used as inputs in the manufacture of other goods in his factory or factories. This, he says, is the ratio of the Tribunals decision in Bajaj Tempo Ltd. v. CCE 1994 (69) ELT 194. The same principles must apply to the facts before us.

5. In Bajaj Tempo Ltd. the Tribunal was concerned with the issue identical to the issue before us but concerned with modvat credit. Bajaj Tempo made out of duty paid inputs motor vehicles parts in one factory. It took credit of the duty paid on these inputs and applied it towards payment of duty on that portion of the motor vehicle parts which it cleared on payment of duty. It cleared the remaining portion of the parts without payment of duty under Notification 217/86 to another factory by following Chapter X procedures where it used the same in the manufacture of motor vehicles. The department invoked Rule 57C to deny credit on that part of the inputs out of which the motor vehicle parts were manufactured, which were sent to the other factory without payment of duty. It said that since the finished goods (motor vehicle parts) were exempted from duty, the rule prohibited taking credit of duty on inputs used in their manufacture.

6. The Tribunal did not agree. It found that Notification 217/86 was somewhat different from other notifications which granted exemption from duty. It came to the conclusion that but for 217/86 the same result as had taken place would exist, but the manufacturer and the department would have to do considerably more work. The manufacturer would have, if he did not avail of 217/86, to pay duty and clear the inputs to its second factory; there it would have to take credit and use that credit in the payment of duty on finished goods.

7. The Commissioner (Appeals) has declined to consider the applicability of the ratio of Bajaj Tempo Ltd. on the ground that Rule 57F(3)(b) permits inputs on which credit is taken, to be taken out of the factory for manufacture of intermediate product. Rules of money credit do not certain similar provision. Therefore she declined to follow the ratio of Bajaji Tempo Ltd. The departmental representative amplifies and explained this reasoning. He says the objects of the modvat scheme is to prevent what is described as "cascading effect" of duties on various stages of manufacture. Various goods may be involved in process of manufacture on each stage successively changing their identity. This may often take several stages. The object of the scheme is to prevent the successive stages of duty to be again taxed. That is not the consideration, he says, in the money credit scheme. The Tribunals decision in Bajaj Tempo should not be applied.

8. We appreciate the reasoning in this argument. However, it is not possible for us to agree that the reasoning in Bajaj Tempo is to be strictly limited to modvat credit alone. We do not in essence find any great difference in the procedures to be adopted for the money credit scheme and the modvat credit. Rule 57C and 57L are identically worded except for the one difference required by the tax that Rule 57C refers to "credit of duty" Rule 57L refers to "credit of money". We agree that the concept of intermediate product does not exist in money credit scheme. However, no part of the order in Bajaj Tempo was influenced by the provisions contained in the modvat rules relating to movement of intermediate goods without payment of duty. There is not a single reference in the decision of these provisions. The Tribunal came to its conclusion for two reasons--it noted the object of the modvat scheme, found that Notification 217/86 was issued in order to meet a particular contingency. It was no doubt, able to find a marriage between these two concepts. Nevertheless, the Tribunals conclusion about the intention behind 217/86 will stand independently of the modvat scheme. Its conclusion that its object is to avoid unnecessary work in the case of goods captively consumed would still hold true. In the case before us, the manufacturer would have to pay duty on acetic acid at Ankleshwar, and take the duty as modvat credit at Nandesari.

9. The object of the money credit scheme evidently is to provide an incentive to utilise certain goods in the manufacture of some commodities. If we substitute, in place of modvat scheme the money credit scheme, the consideration that influenced the bench that considered Bajaj Tempo to come to its conclusion would still influence us. The net effect therefore would be the same and the object of the notification would be satisfied. The Supreme Court has applied these same principles to set off under 201/79 to a situation of transfer of goods, removal of finished goods transferred by a manufacturer from one factory to another without payment of duty. In HMM Ltd. v. CCE , the Court permitted the manufacturer to take set off under the notification on the entire quantity of raw material used by it to manufacture Horlicks much of which it transferred to another factory for repacking without payment of duty. It said, "By accepting the appellants contention, the object underlying the enactment is in no way defeated nor is the objective underlying the Notification No. 201 of 1979 defeated. The object underlying the notification is; to prevent the cascading effect of duties if levied both on inputs and the finished goods. With a view to make the goods available at comparatively reasonable prices to the consumer, the duty paid on the inputs is deducted out of the duty payable on the finished goods. Acceptance of the appellants contention effectuates the said object whereas acceptance of the Revenues contention would tend to defeat the aforesaid objective in a case like the present one. It is true that the notification provides for an exemption and has to be strictly construed but it is equally well-settled that the exemption notifications, like any other statutory provision, has to be construed reasonably having due regard to the language employed. It may also be noticed that both Rule 56A and Notification No. 201 of 1979 are actuated with similar considerations and provide for broadly similar concessions. Indeed, that is how the Board has understood these two provisions."

10. The Commissioner (Appeals) order therefore cannot; be upheld. Appeal allowed. Impugned order set aside.