Mahindra and Mahindra Ltd. vs Commissioner of C. Ex.

S.C. Dharmadhikari, J.

In the light of the order passed on 18th January, 2013, we admit this Central Excise Appeal as it raises the following substantial questions of law:

"(i) Whether in the facts and circumstances of the case, the Appellate Tribunal was justified in confirming a demand of Rs. 15,40,95,593 (total), being credit of duty paid on aggregates captively used in the manufacture of tractors exported under bond, on the ground that parts of tractors captively used in the manufacture of tractors are unconditionally exempt from Excise duty under Sr. No. 92 of Notification No. 6/2006-C.E. and consequently, the appellants were not required to pay duty on the aggregate parts and are therefore, not entitled to take credit of the duty so paid?

(ii) Whether in the facts and circumstances of the case, the Appellate Tribunal was justified in holding that the exemption granted from Excise duty under Sr. No. 92 of Notification No. 6/2006-C.E. to parts (falling under any Chapter of the First Schedule to the Central Excise Tariff Act, 1985) which are used within the factory of production for manufacture of tractors falling under Heading 8701, is an unconditional exemption for the purposes of Section 5A(1A) of the Central Excise Act, 1944?"

These substantial questions of law having been framed, both sides agree that in the light of the directions contained in this order and with consent of parties, we may dispose off this appeal finally.

The background facts and which can be briefly stated are that the appellants are, inter alia, engaged in the manufacture of tractors falling under Heading 8701 of the First Schedule to Central Excise Tariff Act, 1985. The appellants also manufacture aggregates of tractors such as IC Engines falling under Heading 8408, transmission assembly falling under Heading 8483 and parts of these items falling under Headings 8708, 8409 and 8483 of the First Schedule to the Central Excise Tariff Act, 1985. These parts of tractors are partly consumed within the factory and partly cleared outside the factory. With effect from 9th July, 2004, tractors falling under Heading 8701 of the First Schedule to the Central Excise Tariff Act, 1985 are fully exempt from basic Excise duty leviable thereon, in terms of SI. No. 295 of Notification No. 6/2002-C.E., dated 1st March, 2002 (as amended by Notification No. 23/2004-C.E. : , dated 9th July, 2004). This exemption from basic Excise duty to tractors falling under Heading 8701 has been continued vide Sr. No. 40 of Notification No. 6/2006-C.E., dated 1st March, 2006. Annexure-B is a copy of said Notification.

The parts of tractors are exempt vide Sr. No. 92 of Notification No. 6/2006-C.E., dated 1st March, 2006 when they are consumed within the factory of production. Thus, the tractors parts cleared outside the factory are liable to duty.

Tractors cleared for home consumption also attract industrial cess @ 1/8% ad valorem in view of Order No. S.O. 869(E), dated 12th November, 1993 issued by the Ministry of Industry (Department of Heavy Industry), Government of India under the Industries (Development & Regulation) Act, 1951 (hereinafter referred to as the "IDR Act"). Further, tractors cleared for home consumption also attract education cess @ 20% of the aggregate of all duties of Excise levied vide Section 91 read with Section 93 of the Finance Act, 2004 and Secondary and Higher Education (SHE) Cess @ 1% of the aggregate of all duties of Excise levied under Section 136 read with Section 138 of the Finance Act, 2007. Accordingly, the appellants have paid 2% SHE Cess and 1% education cess on industrial cess leviable under the IDR Act as a duty of Excise.

The inputs used in the manufacture of finished goods mentioned hereinabove are procured by the appellants on payment of duty. Around 850 to 1000 different types of inputs/components are used by the appellants for the manufacture of the finished products. Except few inputs, out of these inputs, majority of the inputs are common to both the tractors which are exempt from payment of basic Excise duty and other final products all of which are liable to duty. It is not possible for the appellants to identify the inputs at the stage of their receipts as to where they will be used/consumed. The appellants vide their letter dated 14th July, 2004 informed the Deputy Commissioner of Central Excise, Mulund Division, Mumbai-V, with a copy endorsed to the Commissioner of Central Excise Range, Mumbai-V, that they would adopt the procedure as declared in this letter in respect of the clearances of final products and inputs and capital goods, consequent to the changes made in the Budget 2004-05. Annexure-C is a copy of said letter.

In continuation of the letter dated 14th July, 2004, the appellants wrote another letter dated 21st July, 2004 to the Deputy Commissioner of Central Excise, Malad Division, Mumbai-V. In this letter the appellants informed that they were availing the Cenvat credit in respect of the inputs received in the factory and reversing an amount equal to 8% of the sale value of exempted tractors in terms of Rule 6(3)(b) of the Cenvat Credit Rules and that they would like to reverse the full credit, i.e., equivalent to the credit availed per tractor at the time of clearance. Accordingly, the appellants requested the Deputy Commissioner to allow them to clear the tractors under provisional basis, by reversing 8% of the total price excluding sales tax and other taxes, if any paid on tractors, at the time of clearances, after availing Cenvat credit on all the inputs. Annexure-D is a copy of letter dated 21st July, 2004.

The Deputy Commissioner vide letter dated 27th July, 2004 informed the appellants that they are required to follow the procedure laid down under Rule 6 of the Cenvat Credit Rules, 2002. Annexure-E is a copy of the said letter.

The appellants vide their letter dated 31st July, 2004 addressed to the Commissioner of Central Excise, Mumbai-V and copy endorsed to the Deputy Commissioner of Central Excise, Malad Division, gave a detailed note on the applicability of Rule 6(3)(b) and Rule 6(5)(vi) of the Cenvat Credit Rules in respect of the manufacture and clearance of tractors for home consumption as well as for export. Annexure-F is a copy of said letter.

Further, on 4th August, 2004, the appellants wrote a letter to the Commissioner of Central Excise, with a copy endorsed to the Deputy Commissioner of Central Excise, Malad Division, requesting the department to approve the following method proposed to be adopted by them:

"(a) The appellants would be availing the Cenvat credit on all inputs which are used in the dutiable and exempted final products. This is on the basis of the Rule 6(3)(b) of the Cenvat Credit Rules, 2002 which does not bar availment of Cenvat credit on any inputs. Rule 6(1) of Cenvat Credit Rules, 2002, which denied credit on the exempt goods is not applicable in the instant case since the appellants would be operating under the exception provided under this Rule.

(b) The appellants would be paying an amount equal to 8% in terms of Rule 6(3)(b). The appellants submit that this is in the nature of a tax and the appellants would be reversing an amount equivalent to 8% of the value of the total price, after taking deduction of sales tax and the payment of 8%.

(c) The appellants would be exporting tractors under the provisions of Rule 6(5)(vi) of the Cenvat Credit Rules, 2002."

It is in the above circumstances that the appellants urged that during the period from 9th July, 2004 onwards they were taking credit on all the inputs received in the factory and used in the manufacture of tractors as well as used in the manufacture of parts cleared outside the factory. At the time of clearance of tractors, the appellants were paying the amount equal to 10% of the sale price of tractors after claiming the abatement of the said amount from the sale price, in view of the provision of Rule 6(3) of the Cenvat Credit Rules, 2004. However, it is urged that the appellants were not required to pay the amount of 10% of the sale price of tractors exported under bond in view of the provisions of Rule 6(6)(v) of the Cenvat Credit Rules, 2004. Accordingly the appellants did not pay 10% of the sale price of tractors cleared for export under bond.

The position after amendment to Cenvat Credit Rules, 2004 with effect from 16th May, 2005 particularly to Rule 6(3)(b) of the Cenvat Credit Rules, 2004 is set out in para 14 onwards of the memo of appeal. It is submitted that the credit on inputs which are exclusively used in the manufacture of exempted goods is not available. That is how the appellants informed the Deputy Commissioner of Central Excise by their letter dated 8th July, 2005 (Annexure-H). They set out the procedure which would be adopted by them after the amendment. That procedure is set out in detail in para 15.2 of the memo of appeal.

From paragraphs 16.1 onwards, the manner of availment of credit under the Cenvat Credit Rules, 2004 with effect from 1st February, 2007 and upto 30th June, 2007 has been set out. It is submitted that with effect from 1st February, 2007 the appellants stopped paying duty on all aggregates used in the manufacture of tractors and also did not take credit on inputs which are exclusively used in the manufacture of tractors cleared for home consumption. However, on the inputs used in the manufacture of tractors cleared for export under bond or undertaking in terms of Rule 19 of the Central Excise Rules, credit was taken under the Cenvat Credit Rules, 2004. The manner of availment of such credit has been set out in para 16.3. It is, then, stated that whenever the tractors were cleared for home consumption the appellants were paying an amount equal to ten percent of the sale price of the exempted tractors cleared for home consumption in terms of Rule 6(3)(b) of the Cenvat Credit Rules, after deducting the said amount payable under Rule 6(3)(b). The appellants vide their letter dated 31st January, 2007 informed the jurisdictional Assistant Commissioner of Central Excise that with effect from 1st February, 2007 the appellants will be exporting the tractors under bond/UT-1 and avail Cenvat credit of duty paid on the inputs used in the manufacture of such tractors exported. Annexure-I is a copy of said appellant''s letter.

The appellants vide their letter dated 31st May, 2007 informed the department the list of inputs which were exclusively used in the manufacture of tractors exported under bond on which Cenvat credit was taken by them in terms of their letter dated 31st January, 2007. Annexure-J is a copy of letter dated 31st May, 2007.

The appellants vide their letter dated 18th June, 2007 informed the department that they were not availing the Cenvat credit of duty paid on the inputs which were exclusively used in the manufacture of tractors cleared for home consumption. Annexure-K is a copy of said letter.

Therefore, during the period from 1st February, 2007 onwards, the appellants took credit of duty paid on the entire quantity of inputs received and used in the manufacture of dutiable parts cleared outside and tractors which were treated by the department as exempted goods. Accordingly, whenever the tractors were cleared for home consumption, the appellants were paying an amount equal to 10% of the sale price of the tractors, in terms of Rule 6(3)(b) of the Cenvat Credit Rules, 2004. However, the appellants did not pay 10% of the sale price of tractors exported in view of Rule 6(6)(v) of the Cenvat Credit Rules, 2004. During this period, the appellants were not maintaining separate accounts of the inputs and therefore, they were paying an amount equal to 10% of the sale price of the tractors cleared for home consumption.

The Revenue initiated proceedings relating to determination of sale price under Rule 6(3)(b) of Cenvat Credit Rules for the purpose of demanding the amount @ 10% payable on the exempted tractors since the appellants have been treating the sale price as inclusive of the amount payable under Rule 6(3)(b) and arriving at the said amount payable under Rule 6(3)(b) of the Cenvat Credit Rules. This issue has already been decided against the appellants by the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) and the appeals filed by the appellants against these decisions of the CESTAT are admitted by this Court and the same are pending on date of filing of this appeal.

By the letter dated 12th June, 2007 (Annexure-M) the appellants set out the manner of availment of credit under the Cenvat Credit Rules, 2004 with effect from 1st July, 2007. The Assistant Commissioner of Central Excise by a letter dated 28th June, 2007 directed the appellants to explain the legal basis for this procedure and the explanation was given by the letter dated 2nd July, 2007. Copies of these letters are marked Annexure ''N'' and Annexure ''O'' to this memo of appeal.

The details of duty paid on the aggregates and the credit taken on the inputs used in the manufacture of tractors cleared for export has been set out in two letters, copies of which are annexed as Annexure-''P'' and ''Q''. The position after 1st July, 2007 has been set out from para 23 onwards and then there is a reference made in para 26.1 to the show cause notices, details of which are as under:

The copies of the show cause notice are at Annexure-''R'' and the replies thereto from the appellants are at Annexure-''S''. The allegations are that the tractors are exempted goods within the meaning of Rule 2(d) of Cenvat Credit Rules, 2004. The exempted goods cannot be exported under bond and the appellants, therefore, should reverse the credit of duty/tax paid on inputs/input services exclusively used in the manufacture of tractors exported under bond and also in terms of Rule 6(3)(b) of the Cenvat Credit Rules, 2004. The demand was made for credit of Service Tax paid on advertisement services used for manufacture of tractors cleared for home consumption on payment of NIL basic Excise duty.

The Commissioner of Central Excise after adjudication passed an order on 17th August, 2009 (Annexure-''T'').

The appeals were filed along with stay applications against these orders in the Central Excise and Service Tax Appellate Tribunal. We are right now not concerned with the proceedings where interim stay was sought. The appeals were heard finally and have been partially allowed. The demands as confirmed are in relation to the credit duty paid on aggregates captively used in the manufacture of tractors exported under bond together with interest and penalty. The demands in relation to credit of Service Tax paid on advertisement services and a demand of Rs. 7,12,75,282/- being the credit of duty paid on aggregates used in the manufacture of tractors exported under bond was confirmed and equally penalty of Rs. 1,00,00,000/- was imposed.

Aggrieved by such orders, this appeal has been filed. There is a connected Writ Petition. Their facts are that the petitioners are, inter alia, engaged in the manufacture of tractors which are exempt from whole of the basic Excise duty leviable thereon under Section 3 of the Central Excise Act, 1944 with effect from 9th July, 2004. However, the tractors attract cess (Tractor Cess) leviable under Industries (Development and Regulation) Act, 1957 read with Tractor Cess Rules, 1992, and Education Cess and Secondary & Higher Education (SHE) cess leviable as duties of Excise under Finance Act, 2004 and Finance Act, 2007.

The petitioners are also engaged in the manufacture of IC engines, transmission assembly and sheet metal components (these items are referred to as aggregates), which are parts of tractors. The tractor parts manufactured are also wholly exempt from payment of duty with effect from 9th July, 2004 on a condition that they are used within the factory of production for the manufacture of tractors. Therefore, parts of tractors manufactured and cleared outside the factory for home consumption are liable to Central Excise duty.

Prior to 16th May, 2005, the petitioners were taking credit on all the inputs received in the factory and used in the manufacture of tractors as well as used in the manufacture of parts cleared outside the factory. At the time of clearance of tractors, the petitioners were paying the amount equal to 10% of the sale price of tractors after claiming the abatement of the said amount from the sale price, in view of the provision of Rule 6(3)(b) of the Cenvat Credit Rules, 2004. However, it is submitted that the petitioners are not required to pay the amount of 10% of the sale price of tractors exported under bond in view of the provisions of Rule 6(6)(v) of the Cenvat Credit Rules, 2004. Accordingly, the petitioners have not paid 10% of the sale price of tractors cleared for export under bond.

With effect from 16th May, 2005, Rule 6(3)(b) of the Cenvat Credit Rules, 2004 was amended to provide that credit on inputs which are exclusively used in the manufacture of exempted goods is not available. The petitioners submit that the tractors are not exempted goods since they are liable to duties of Excise namely Education Cess and Secondary & Higher Education Cess as stated above.

Proceedings are initiated against the petitioners for the period 2005-06 and 2006-07 on the ground that during the said period, the petitioners had paid duty on IC engines, transmission assembly and sheet metal components used in the manufacture of tractors cleared for export, on the date of clearance of such tractors for export instead of paying duty on the 5th day of the month subsequent to the month in which they were captively consumed. The show cause notice dated 28th November, 2006 proposed to demand interest from the petitioners for the alleged delay in payment of duty on the captively consumed IC engines, transmission assembly and sheet metal components. Annexure-C is a copy of said show cause notice dated 28th November, 2006.

The Assistant Commissioner of Central Excise by his order dated 29th June, 2007 confirmed the demand of interest. In other words, there was no dispute about liability to pay duty on the aggregates captively consumed in the manufacture of tractors cleared for export. Annexure-D is copy of said letter.

Being aggrieved by the aforesaid order dated 29th June, 2007 passed by the Assistant Commissioner of Central Excise, the petitioners filed an appeal before the Commissioner of Central Excise (Appeals), Mumbai. The Commissioner of Central Excise (Appeals) Mumbai, by his Order-in-Appeal No. SB(43)43/MV/2009, dated 14th July, 2009, held that duty is definitely payable on the aggregates captively consumed and therefore, rejected the contention of the petitioners that the duty was payable on the aggregates at the time of export of the tractors in which they were used. Accordingly, the Commissioner of Central Excise (Appeals) confirmed the order passed by the Assistant Commissioner and held that there was delay in making the payment of duty on the aggregates captively consumed. Hence, the order of the Assistant Commissioner charging interest for the said delay in payment of duty was upheld by the Commissioner of Central Excise (Appeals). Annexure-E is a copy of the said order dated 14th July, 2009 passed by the Commissioner of Central Excise (Appeals).

The petitioners filed applications to the Commissioner of Central Excise, Mumbai-V, for fixing up of brand rate of drawback under the Customs and Central Excise Duties and Service Tax Drawback Rules, 1995, in respect of the period April, 2006 to March, 2007 during which the petitioners had exported tractors and had not taken the Cenvat credit of the duty paid on the inputs namely IC engines, transmission, sheet metal components and other inputs which were exclusively used in the manufacture of such tractors which were exported by the petitioners. The petitioners have not claimed any benefit under Rule 18 of the Central Excise Rules, 2002 in respect of duty paid on the aforesaid material used in the manufacture of tractors cleared for export during the period from April, 2006 to March, 2007. Annexure-F is an illustrative copy of one of the applications filed by the petitioners.

The Additional Commissioner of Central Excise through his 12 letters issued during the period from 13th January, 2009 to 4th June, 2009 communicated to the petitioners his decision on the fixation of brand rate in respect of tractors cleared for export during the period from April, 2006 to March, 2007. Annexure-G to R are the copies of the said letters dated 13-1-2009, 21-1-2009, 10-2-2009, 18-2-2009, 27-2-2009, 16-3-2009, 25-3-2009, 6-4-2009, 22-4-2009, 12-5-2009 and 4-6-2009 of the Additional Commissioner of Central Excise, communicating his decision on fixing the brand rate of drawback.

In the aforesaid letters, it was informed by the Additional Commissioner of Central Excise that while fixing the drawback rate, the duty paid by the petitioners on the aggregates manufactured in their factory and captively consumed was not considered since the drawback of any goods manufactured in India and exported would only mean the rebate of duty chargeable on the materials used in the manufacture of such goods. In other words, according to the Additional Commissioner, the aggregate which were manufactured and used in the manufacture of tractors cleared for export were exempt under Notification No. 6/2006, dated 1st March, 2006 during the period in question and, therefore, even if the petitioners have paid duty on such aggregate, the same would not be considered for the purpose of fixing the drawback under Customs and Central Excise Duties and Service Tax Drawback Rules, 1995.

Aggrieved by the aforesaid decisions of the Additional Commissioner of Central Excise (Technical), Mumbai-V, fixing the brand rate, the petitioners filed 12 appeals to the Commissioner of Central Excise (Appeals). Annexure-S is an illustrative copy of one of the appeals filed by the petitioners before Commissioner of Central Excise (Appeals).

The Commissioner of Central Excise (Appeals) by his common Order-in-Appeal Nos. SB (3 to 14) 3 to 14/MV/2010, dated 5th January, 2010, upheld all the 12 orders passed by the Additional Commissioner fixing the brand rate without taking into consideration, the duty paid on the aggregates captively consumed in the manufacture of tractors exported under drawback claim. Annexure-T is a copy of the said order dated 5th January, 2010.

Aggrieved by the aforesaid Order-in-Appeal dated 5th January, 2010, the petitioners filed Revision Applications before respondent No. 2. Annexure-U is a copy of the said Revision Application. The petitioners appeared on 31st May, 2011 before the respondent No. 2 and submitted a chart showing the details of duty paid through Cenvat account and the duty paid through PLA account during the relevant period along with written synopsis. The petitioners also submitted paper book containing circulars and case laws. Annexure-V is a copy of said chart submitted by the petitioners and Annexure-W is a copy of the written submission filed by the petitioners.

The Revision Applications filed by the petitioners were rejected by the respondent No. 2 by the impugned order and hence this Writ Petition.

Mr. Sridharan, learned Senior Counsel, appearing in support of these appeals submitted that in the Writ Petition, the controversy is with regard to the order in the Revision Application dated 12th July, 2011 (Annexure-A thereto). He submitted that Sr. No. 92 of Notification No. 6 of 2006 is not an absolute exemption to parts of goods of Chapter Heading 87.01. It is subject to the post removal condition, namely, being used in the factory of production. Mr. Sridharan illustrated these aspects by giving an illustration that if the consignment of Engines has been removed for manufacture of tractors but for any reason it is not so used, then, duty is required to be paid on the Engines. Such consignment of Engines not actually used after the said removal will attract duty. This would demonstrate that the exemption under Sr. No. 92 is not absolute but conditional. Mr. Sridharan relied upon the language of Section 5A(1) and submitted that the same manifests and maintains the distinction and demarcation between absolute exemption on one hand and exemption subject to conditions being fulfilled before or after removal. He submits that Section 5A(1A) consciously and advisedly confines itself to an exemption which is absolute. It does not exempt something subject to a condition being fulfilled before or after removal. Therefore, the suggestion that the conditions enumerated in the Annexure to the Notification No. 6 of 2006 are exhaustive of exemption subject to condition is incorrect. Mr. Sridharan submits that the impugned orders are ex facie erroneous and illegal. The interpretation of the words "exemption subject to condition appearing in Section 5A(1A)" cannot be influenced by the manner of placement of the condition in the Notification. Therefore, the foundation in the impugned order and for the conclusion therein itself is not well founded.

Mr. Sridharan submits that the assessee has not made any direct or indirect attempt to take any undue or additional benefit by making payment of duty and not availing the exemption. The duty is paid on the aggregates consumed within the factory only to the extent used for the exports. The duty is so paid on the aggregates partly in cash and partly by utilizing Cenvat credit of the duty paid on the inputs used in the intermediates consumed captively for manufacture of tractors for exports. Mr. Sridharan submits that ordinarily when final product is exempt from tax, no Cenvat credit of duty paid on the input is available. This is provided in Rule 6(1) of the Cenvat Credit Rules, 2004. However, Rule 6(6)(v) creates an exception for final products cleared for export under bond. He has, therefore, submitted that Rule 5 of the Cenvat Credit Rules, 2004 provides that Cenvat credit of duty paid on inputs used in tractors exported can be adjusted against any other liability of the assessee. If, adjustment is not possible, it will be refunded in cash. Hence, if parts are held to be exempted the duty paid is required to be refunded and Revenue cannot retain the same. There is no unjust enrichment since goods are exported. The alternative claim, therefore, was made before the authorities and that ought to have been granted particularly because they allowed drawback of duty paid on the inputs used in the manufacture of parts other than aggregates. In these circumstances, Mr. Sridharan submits that the impugned order deserves to be quashed and set aside.

Mr. Sridharan placed reliance upon the judgments of this Court in the case of Repro India Limited v. Union of India reported in 2009 (235) E.L.T. 614 and Union of India v. Sharp Menthol India Ltd. reported in 2011 (270) E.L.T. 212. Mr. Sridharan has also submitted that Section 5A(1A) was introduced in the Central Excise Act, 1944 so as to remove the basis in the judgment of the Hon''ble Supreme Court in the case of Commissioner of Central Excise v. Narmada Chematur Pharmaceuticals reported in 2005 (179) E.L.T. 276. Mr. Sridharan, therefore, submits that to remove certain imperfections as are illustrated in examples, that the provision is made. He submits that A is manufacturing Piston, B is manufacturing Engine and C is manufacturing Car. Piston is chargeable to duty of Rs. 100/-, Engine is chargeable to duty of Rs. 150/- and Car is chargeable to duty of Rs. 175/-. In this for example, A manufactures Piston and supplies it to B on payment of duty of Rs. 100/-. Utilizing this piston B in turn manufactures Engine and supplies to C. B avails the credit of Rs. 100/- (paid on the Piston) and pays the duty of Rs. 150/- on Engine. C manufactures the Car and clears the same to the customer on payment of duty. C avails Cenvat credit of Rs. 150/- (paid on Engine) and pays duty of Rs. 175/- on the Car. Therefore, effectively total Excise duty paid to the Government in this entire cycle is Rs. 175/-.

If there is an exemption, then, the result would be that Engine is exempt from payment of Central Excise duty and X who is the manufacturer of Engine avails the exemption provided to the Engine. In this case, X purchase Piston from A and manufactures Engine from such Piston. A has paid the duty of Rs. 100 on the Piston. However, X cannot avail the Cenvat credit of duty paid on the Piston since X has opted for exemption provided to Engine. Therefore, duty of Rs. 100/- paid on the Piston would be cost to X for the manufacture of Engine. X in turn supply Engine to C who is the manufacture of Car. C cannot avail any Cenvat credit on the Engine as the duty has not been paid on the Engine by X. However, Car is chargeable to duty of Rs. 175/-. Therefore, C will have to pay duty of Rs. 175/- on the Car in cash. In this case, the effectively total Excise duty paid on the manufacture of Car would be Rs. 275/- (Rs. 175/- paid by C + Rs. 100/- paid by A on Piston). In fact, granting exemption to Engine has the effect pushing up the amount of Excise duty is not in the interest of the consumer.

Let us take another situation in the above example where Y is the manufacturer of Engine. Engines are chargeable to nil rate of duty in terms of the Notification issued by the Central Government. In spite of the exemption provided to the Engine, Y opts not to avail exemption provided on Engine and pays duty on the Engine. Y manufactures Engines from the duty paid Piston supplied by A. The Central Excise duty paid on Piston is Rs. 100/-. Y manufactures Engine and supply the same to C. Y avails Cenvat credit of Rs. 100/- on piston and pays duty of Rs. 150/- on Engine. C manufactures Car from such Engine and pays duty of Rs. 175/- on the Car. C avails Cenvat credit of Rs. 150/- on Engine and pay duty of Rs. 175/- on Car. Hence, the total Excise duty paid on the Car would be Rs. 175/- only.

Mr. Sridharan submits that in the above illustrations an anomaly would arise if one manufacturer of Engine avails exemption and other is not availing exemption on the Engines. It is to deal with such situations that the above statutory provision has been inserted and clever paying of Excise duty on exempted goods can be avoided. The provision neutralizes advantage for some manufacturers vis-�-vis their competitors. It is in these circumstances that Mr. Sridharan would submit that there has not been any attempt of this nature made by the appellants/petitioners. It is, therefore, futile to urge that the assessee namely petitioner before this Court had any ulterior motive as is attributed to it. If there is an absolute exemption that by implication excludes conditional exemption. It is in these circumstances that he submits that the authorities completely overlooked this aspect in holding that the amount is paid as duty on goods even though the same is conditionally exempted, that is still payment of duty, and therefore, alternatively and without prejudice to the above pleas, a refund was imminently possible and that relief should have been granted.

Mr. Sridharan further submits that proceedings in the form of drawback or Cenvat credit are subsequent to the stage of payment of duty. These are in the nature of consequential proceedings. In these proceedings correctness of the duty paid cannot be questioned. Under the scheme currently in force, the assessee has to pay the duty and self-assess it. If the assessment is incorrect a notice for short payment can be issued under Section 11A. If Section 11A is not applied or invoked the self-assessment is final and the payment of duty is final. The Revenue cannot in consequential proceedings claim that either the duty is not payable or what is paid is not duty.

Mr. Sridharan submits that in the present case, one and the only ground on which the Revenue rejected the drawback is by the application of Section 5A(1A). Once that section is not applicable no other or fresh grounds can be agitated by the Revenue. The drawback claim for the period in question namely May, 2005 to March, 2007 is Rs. 38.29 crores, assuming in favour of the Revenue (without admitting), that the entire amount has been paid from Cenvat account. Even if it also assumed in favour of the Revenue that the refund should be granted by credit in Cenvat account and not in cash. However, in view of the other events, which have occurred in the present matter, such a contention cannot be raised by the Revenue. For the year 2005-06, the petitioners have paid Rs. 104 crores in Cenvat account. For the year 2006-07, the petitioners have paid Rs. 49/- crores in cash over and above Rs. 115 crores paid in Cenvat account. In view of this, even if it is held that the drawback is not available and the claim is treated as claim for refund of tax not payable, this money should be refunded in cash to the petitioners.

Mr. Sridharan further submits that period January, 2007 to March, 2008 is the subject matter of the Central Excise Appeal (Lodging) Nos. 8, 9 and 11 of 2013 against the Final Order Nos. A/394-397/12/EB/C-II of the CESTAT -2012 (286) E.L.T. 369 (T). In this period, the petitioners have paid duty of an aggregate amount and taken the Cenvat credit of the same and the same was utilized for payment of duty. The CESTAT has held that in view of Section 5A(1A) the petitioners cannot pay the duty. Therefore, it has upheld that the demand and recovery of Rs. 15 crores being duty paid on aggregates and taken as Cenvat credit. This is plainly illogical. For all these reasons, the Writ Petition be allowed.

Mr. Sridharan also placed reliance on the judgment in the case of Narayan Polyplast v. Commissioner of Central Excise, Ahmedabad reported in 2003 (153) E.L.T. 160 (Tri.-Mumbai), Commissioner of Central Excise & Customs (Appeals), Ahmedabad v. Narayan Polyplast reported in 2005 (179) E.L.T. 20 (S.C.) and Commissioner of Income Tax Vs. Mahendra Mills, .

On the other hand, Mr. Kantharia appearing on behalf of the respondents submitted that there is no substance in the Writ Petition as also the appeal. He submits that the Tribunal as also other authorities were wholly justified in holding that the Cenvat credit was wrongly availed on aggregates (IC engines, transmission assembly and sheet metal components, etc.) used captively in the manufacture of exempted tractors cleared for export. The parts of tractors are unconditionally exempted vide Sr. No. 92 of Notification No. 6/2006-C.E., dated 1st March, 2006 when captively used in the manufacture of tractors within the factory. This Notification has been issued by the Central Government in exercise of the powers conferred by Section 5A of the Central Excise Act, 1944. Relying upon this Section 5A(1A) Mr. Kantharia submits that there was no question of availing of any credit of duty paid in respect of such exempted goods. More so, when the exemption is unconditional. If parts of tractors are absolutely exempted from payment of duty of Excise, then, the assessee was not liable to pay any duty of Excise on parts of tractors used captively in the manufacture of tractors cleared for export and, then, to avail Cenvat credit of such duty. The contention of the appellant-assessee that exemption granted to parts of tractors is subject to the condition that they are captively consumed in the manufacture of tractors is misconceived and the same is liable to be rejected. Mr. Kantharia relied upon the findings of the Tribunal recorded in paras 9 to 11 in this behalf. He also submits the Chart which is tendered before this Court would reveal that the parts of tractors for home consumption are exempted from duty. Equally, parts of tractors for export have been exempted in terms of the Notification. The duty is paid though not required to be paid and the credit is utilized. Mr. Kantharia, therefore, submits that the true effect of the Notification has been considered by the Tribunal and in that regard, Mr. Kantharia relies upon para 2 of the additional affidavit in reply filed on behalf of the respondents (Affidavit of Mr. Rakesh Dahiya - Assistant Commissioner of Central Excise). He also submits that from para 3 of this affidavit, the respondents have demonstrated as to how in the case of an unconditional exemption, the assessee does not suffer any tax liability. If the legislature has decided to exempt certain goods from duty, then, such exemption is not optional. In this case, therefore, the Tribunal was in no error in dismissing the appeal. More so, when the petitioners/appellants while clearing these goods in the domestic market claim the benefit of exemption granted by the Notification and do not pay any duty either by adjusting the credit available in the Cenvat account or otherwise. While clearing the same goods for export, the petitioners paid duty at tariff rate by debiting it from Cenvat Credit Account. The petitioners/appellants have failed to sufficiently explain the reasons for paying duty on exempted goods. The contentions of the petitioners that the duty was paid to facilitate the department to verify the drawback claims is absolutely misleading. In these circumstances, there is no question of the demand being held to be illegal or unsustainable in law. The demand is fully justified and sustainable. Further, the petitioners/appellants have not claimed any refund or any Cenvat credit in respect of Excise duty paid on the inputs utilized for the manufacture of exempted parts which are thereafter utilized for manufacture of tractors cleared for home consumption. This duty amount which has been paid on the inputs utilized for the manufacture of exempted goods has remained in the Government treasury. Now the petitioners/appellants cannot claim any refund or any Cenvat credit in respect of the amount of duty paid on the inputs for manufacture of parts (referred by them as the aggregates) but applied in relation to tractors manufactured and cleared for export. If the petitioners/appellants have not sought to recover the duty amount paid on these inputs for manufacture of parts which are exempted from duty and in turn utilized for manufacture of tractors in the factory premises for home consumption, then, both amounts should be permitted to be retained in the hands of the Revenue.

The intention of the assessees appears to be to encash the entire Excise duty paid on inputs by illegally utilizing the accumulated Cenvat credit available on the duty paid inputs for payment of Excise duty on exempted goods, and thereafter claim refund of the duty by claiming drawback of duty under the garb that the goods described as aggregates are exempted from duty, alternatively they are claiming refund or reversal of duty paid. This is a departure from the normal course. Mr. Kantharia submits that in the normal course, the Cenvat credit in respect of duty paid inputs would remain unutilized/lapse in cases where such inputs are used for manufacture of final products which were exempt. The petitioners cleared final products in domestic market without payment of duty. However they devised a novel method of utilizing the accumulated Cenvat credit on exempted final products meant for export. The petitioners, therefore, sought drawback for the same which is impermissible in view of Notification read with provisions of Section 5A(1A) of the Central Excise Act, 1944.

Once the exemption under Section 5A(1A) is absolute, then, the petitioners/appellants/assessees are not entitled to any benefit. Their claims are not bona fide. Hence, the appeal as also the Writ Petitions be dismissed.

Mr. Kantharia placed reliance on the judgment in case of Collector of Central Excise v. Parle Exports (P) Ltd. reported in 1988 (38) E.L.T. 741 (S.C.).

With the assistance of the learned Counsel appearing for the parties, we have perused the paper book of both the appeals and the Writ Petition. We have also perused the statutory provisions, the relevant Notifications and the Affidavits so also the written submissions. The issue raised before us would require a brief reference being made to Section 5A of the Central Excise Act, 1944. That section reads as under:

"5A(1) If the Central Government is satisfied that it is necessary in the public interest so to do, it may, by notification in the Official Gazette, exempt generally either absolutely or subject to such conditions (to be fulfilled before or after removal) as may be specified in the notification, excisable goods of any specified description from the whole or any part of the duty of Excise leviable thereon:

Provided that, unless specifically provided in such notification, no exemption therein shall apply to excisable goods which are produced or manufactured -

(i) in a free trade zone [or a special economic zone] and brought too any other place in India; or

(ii) by a hundred percent export-oriented undertaking and [brought to any other place in India].

Explanation: In this proviso, ''free trade zone" ("special economic zone"] and "hundred percent export-oriented undertaking" shall have the same meanings as in Explanation 2 to sub-section (1) of Section 3."

(1A) For the removal of doubts, it is hereby declared that where an exemption under sub-section (1) in respect of any excisable goods from the whole of the duty of Excise leviable thereon has been granted absolutely, the manufacturer of such excisable goods shall not pay the duty of Excise on such goods.

(2) If the Central Government is satisfied that it is necessary in the public interest so to do, it may, by special order in each case, exempt from payment of duty of Excise, under circumstances of an exceptional nature to be stated in such order, any excisable goods on which duty of Excise is leviable.

(2A) The Central Government may, if it considers it necessary or expedient so to do for the purpose of clarifying the scope or applicability of any notification issued under sub-section (1) or order issued under sub-section (2), insert an explanation in such notification or order, as the case may be, by notification in the Official Gazette at any time within one year of issue of the notification under sub-section (1) or order under sub-section (2), and every such explanation shall have effect as if it had always been the part of the first such notification or order, as the case may be.

(3) An exemption under sub-section (1) or sub-section (2) in respect of any excisable goods from any part of the duty of Excise leviable thereon (the duty of Excise leviable thereon being hereinafter referred to as the statutory duty) may be granted by providing for the levy of a duty on such goods at a rate expressed in a form or method different from the form or method in which the statutory duty is leviable and any exemption granted in relation to any excisable goods in the manner provided in this sub-section shall have effect subject to the condition that the duty of Excise chargeable on such goods shall in no case exceed the statutory duty.

Explanation.--"Form or method", in relation to a rate of duty of Excise means the basis, namely, valuation, weight, number, length, area, volume or other measure with reference to which the duty is leviable:

(4) Every notification issued under sub-rule (1), and every order made under sub-rule (2), of Rule 8 of the Central Excise Rules, 1944, and in force immediately before the commencement of the Customs and Central Excises Laws (Amendment) Act, 1988 (29 of 1988) shall be deemed to have been issued or made under the provisions of this section and shall continue to have the same force and effect after such commencement until it is amended, varied, rescinded or superseded under the provisions of this section.

(5) Every notification issued under sub-section (1) or sub-section (2A) shall, -

(a) unless otherwise provided, come into force on the date of its issue by the Central Government for publication in the Official Gazette;

(b) also be published and offered for sale on the date of its issue by the Directorate of Publicity and Public Relations, Customs and Central Excise, New Delhi, under the Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963 (54 of 1963).

(6) Notwithstanding anything contained in sub-section (5), where a notification comes into force on a date later than the date of its issue, the same shall be published and offered for sale by the said Directorate of Publicity and Public Relations on a date on or before the date on which the said notification comes into force."

A bare perusal of this section would indicate that the Parliament was aware that a power to grant exemption from duty of Excise is required to be conferred and in the highest executive functionary namely, the Central Government. The presumption is that this power will be exercised bona fide and to uphold and sub-serve public interest. Therefore, a discretion is given to the Government to exempt generally either absolutely or subject to such conditions (to be fulfilled before or after removal) as may be specified in the Notification issued in that behalf. The exemption may be granted from the whole or any part of the duty of Excise leviable on the excisable goods. By sub-section (1A) it has been clarified to clear and remove all doubts that when there is an absolute exemption in terms of sub-section (1), then, manufacturer of such excisable goods shall not pay the duty of Excise on the goods which have been exempted from the whole of duty of Excise leviable thereon.

The argument before us is that the goods have not been exempted from payment of duty absolutely but conditionally. That would require reference to the relevant Notification. The copy of the Notification has been annexed by both sides and it is agreed that the Notification No. 6/2006, dated 1st March, 2006 would be the applicable Notification. The same reads as under:

"G.S.R. (E) -- In exercise of the powers conferred by sub-section (1) of Section 5A of the Central Excise Act, 1944 (1 of 1944), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the excisable goods of the description specified in Column (3) within the Chapter, Heading or sub-heading or Tariff Item of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) (hereinafter referred to as the Central Excise Tariff Act), as are given in the corresponding entry in Column (2) of the said Table, from so much of the duty of Excise specified thereon under the First Schedule to the Central Excise Act, as is in excess of the amount calculated at the rate specified in the corresponding entry in Column (4) of the said Table and subject to the relevant conditions specified in the Annexure to this notification, and condition number of which is referred to in the corresponding entry in Column (5) of the Table aforesaid:

Provided that nothing contained in this notification shall apply to goods specified against S. No. 10 of the said Table on or after the 1st day of May, 2007.

Explanation.--For the purpose of this notification, the rates specified in Column (4) of the said Table are ad valorem rates, unless otherwise specified.

Conditions:

The duty would be leviable as if the value of the spinnerettes were equal to -

(i) the cost of exchange, that is to say, the aggregate of -

(a) labour charges;

(b) price charged for that quantity of gold, platinum and rhodium, if any, which is in excess of the respective quantity of gold, platinum or rhodium contained in the worn out or damaged spinnerettes; and

(c) any other charges paid for the exchange of such spinnerettes; and

(ii) the insurance and freight charges, both ways.

The exemption shall be allowed if it has been proved to the satisfaction of an officer not below the rank of the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, having jurisdiction, that such goods are cleared for the intended use specified in Column (3) of the Table.

Where such use is elsewhere than in the factory of production, the exemption shall be allowed if the procedure laid down in the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001, is followed.

If, a certificate issued by the Collector/District Magistrate/Deputy Commissioner of the District in which the plant is located, is produced to the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, having jurisdiction, to the effect that such goods are cleared for the intended use specified in Column (3) of the Table.

If no credit of duty paid on the chassis and compressor has been taken under Rule 3 or Rule 11 of the Cenvat Credit Rules, 2002.

If,-

(i) made from unrecorded articles falling under Heading 8523; and

(ii) (a) not intended for sale; or

(b) intended for sale or supply to All India Radio or any other Department of Government of India in the Ministry of Information and Broadcasting; or

(c) intended for sale or supply, in the form of U-matic video tapes formats of width not less than 19 millimeters, to Doordarshan.

If,-

(a) intended for use by the Indian Railways or the Konkan Railway Corporation; and

(b) the ownership of the said goods vests in the Indian Railways or the Konkan Railway Corporation.

(a) The manufacturer pays duties of Excise at the rate specified under the First Schedule and the Second Schedule read with exemption contained in any notification of the Government of India in the Ministry of Finance (Department of Revenue), at the time of clearance of the vehicle;

(b) the manufacturer takes credit of the amount equal to the amount of duty paid in excess of that specified under this exemption, in the Account Current, maintained in terms of Part-V of the Excise Manual of Supplementary Instructions issued by the Central Board of Excise and Customs and thereafter files a claim for refund of the said amount of duty before the expiry of six months from the date of payment of duty on the said motor vehicle, with the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, having jurisdiction, along with the following documents, namely:--

(1) an intimation that the amount of refund of duty claimed has been credited by the manufacturer in his Account Current, also stating the amount of credit so taken;

(2) a certificate from an officer authorized by the concerned State Transport Authority, to the effect that the said motor vehicle has been registered for sole use as ambulance or taxi, as the case may be, within three months, or such extended period not exceeding a further period of three months as the said Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, may allow, from the date of clearance of the said motor vehicle from the factory of the manufacturer;

(3) a copy of the document evidencing the payment of Excise duty, as mentioned in paragraph (a) above;

(4) where the manufacturer has collected an amount, as representing the duties of Excise, in excess of the duties payable under this exemption from the buyer, an evidence to the effect that the said amount has been duly returned to the buyer; and

(5) where the manufacturer has not collected an amount, as representing the duties of Excise, in excess of the duties payable under this exemption from the buyer, a declaration by the manufacturer to that effect;

(c) Within seven days of the receipt of the said claim for refund, the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, after such verification, as may be necessary, shall determine the amount refundable to the manufacturer and shall intimate the same to the manufacturer. In case the credit taken by the manufacturer is in excess of the amount so determined, the manufacturer shall, within five days from the receipt of the said intimation, reverse the said excess credit from the said Account Current maintained by him. In case the credit availed is lesser than the amount of refund determined, the manufacturer shall be eligible to take credit of the balance amount; and

(d) The recovery of the credit availed irregularly or availed in excess of the amount of credit so determined, and not reversed by the manufacturer within the period specified under paragraph (c) above, shall be recovered as if it is a recovery of duty of Excise erroneously refunded. In case such irregular or excess credit is utilized for payment of Excise duty on clearance of excisable goods, the said goods shall be considered to have been cleared without payment of duty to the extent of utilization of such irregular or excess credit.

If manufactured out of chassis falling under Heading 8706 on which duty of Excise has been paid and no credit of duty paid on such chassis and other inputs used in the manufacture of such vehicle has been taken under Rule 3 or Rule 11 of the Cenvat Credit Rules, 2002:

Provided that this exemption is not applicable to a manufacturer of said vehicles

(a) who is manufacturing such vehicle on a chassis supplied by a chassis manufacturer, the ownership of which remains vested in the chassis manufacturer or the sale of the vehicle so manufactured is made by such chassis manufacturer on his account; and

(b) who is manufacturing chassis and using such chassis for further manufacture of such vehicle.

If no credit of duty paid on the chassis falling under Heading 8706 has been taken under Rule 3 or Rule 11 of the Cenvat Credit Rules, 2002.

If, -

(i) an officer not below the rank of the Deputy Secretary to the Government of India in the Department of Heavy Industries certifies that the said goods are capable of being used by the physically handicapped persons; and

(ii) the buyer of the car gives an affidavit that he

If manufactured out of chassis and equipment, on which the duty of Excise leviable under the First Schedule or the additional duty leviable under Section 3 of the Customs Tariff Act, 1975 (51 of 1975), as the case may be, has already been paid.

If, before the clearance of the goods, the manufacturer produces to the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, having jurisdiction over his factory-

(a) a certificate from the Protocol Division of the Ministry of External Affairs that the concerned foreign diplomatic or consular mission is entitled to exemption from Excise duty based on the principle of reciprocity; and

(b) an undertaking from the head of the concerned diplomatic mission or consulate or by an officer duly authorized by him, that -

(i) he will produce a certificate, within three months from the date of clearance of the goods or such extended period as may be permitted by the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, that the goods have been put to use, or are in the use, as the case may be, of the mission or consulate;

(ii) the goods will not be sold or otherwise disposed of before the expiry of three years from the date of clearance of the goods, and

(iii) in the event of non-compliance of sub-clause (i), the diplomatic or consular mission will pay the duty which would have been leviable at the time of clearance of goods, but for this exemption.

If, -

(a) the goods are purchased by diplomatic agents/career consular officers directly from the manufacturer;

(b) before the goods are cleared from the factory, the manufacturer produces to the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, having jurisdiction over his factory, a certificate from the Protocol Division of the Ministry of External Affairs that the concerned diplomatic agent/career consular officer is entitled to exemption from Excise duty on the principle of reciprocity; and

(c) the concerned diplomatic agent/career consular officer availing of exemption gives an undertaking to the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, having jurisdiction over his factory that the goods shall be put to his personal use.

If, -

(i) the project for the purpose of substitution of ozone depleting substances or for setting up of new projects with non-ozone depleting substances (non-ODS) technologies has been approved by the steering committee set up in the Ministry of Environment and Forests of the Government of India for the clearance of such projects;

(ii) the manufacturer furnishes, in each case, a certificate duly signed by an officer not below the rank of the Deputy Secretary to the Government of India in the Ministry of Environment and Forests to the effect that the said goods are required for the said purpose.

If, before clearance of the goods, the manufacturer produces to the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, a certificate from an officer not below the rank of a Deputy Secretary to the Government of India in the Ministry of Non-Conventional Energy Sources recommending the grant of this exemption and the said officer certifies that the goods are required for the manufacture of rotor blades for wind operated electricity generators.

If, duty of Excise on the chassis leviable under the First Schedule or special duty of Excise leviable under the Second Schedule or the additional duty leviable under Section 3 of the Customs Tariff Act, 1975 (51 of 1975), as the case may be, has been paid.

If, before the clearance of the goods, the manufacturer produces to the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, a certificate from the Chairman or the Managing Director or the Director (Rolling Stock, Electrical and Signalling) or the Director (Finance) of the Delhi Metro Rail Corporation Ltd., to the effect that -

(i) the goods are procured by or on behalf of the Delhi Metro Rail Corporation Ltd. for use in the Delhi MRTS project; and

(ii) the goods are part of the inventory maintained by the Delhi Metro Rail Corporation Ltd. and shall be finally owned by the Delhi Metro Rail Corporation Ltd.

If the goods are exempted from the duties of Customs leviable under the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and the additional duty leviable under Section 3 of the said Customs Tariff Act when imported into India.

If, before clearance of goods, the manufacturer produces a certificate from an officer, not below the rank of Director in the Marine Products Export Development Authority, in the Ministry of Commerce and Industry, Government of India, to the effect that the goods procured constitute monofilament long line system for tuna fishing and are intended to be used for tuna fishing."

The stand of the petitioners/appellants is that the final products cleared from their unit, namely, at Kandivili are tractors falling under Heading 87.01, tractor skids 87.08, IC engines 84.08, transmission assembly 84.83 and parts thereof falling under 87.08, 84.09 and 84.83. Consequent upon the Union Budget 2004-05 vide Notification No. 23/2004-C.E., dated 8th July, 2004 the tractors falling under 87.01 are exempted from payment of Excise duty and the controversy started because a show cause notice was issued and which alleged that the petitioners/appellants clear manufactured tractors, which are unconditionally exempt from payment of duty by Notification No. 6/2006-C.E., dated 1st March, 2006, either for home consumption or for export. The assessee also cleared manufactured IC engines, transmission assembly and parts of tractors for captive consumption for manufacture of tractors meant for home consumption and export. These finished excisable goods are termed by the petitioners/appellants as aggregates. These aggregates are also unconditionally exempt from payment of duty of Excise vide Sr. No. 92 of the table to the Notification No. 6/2006-C.E., dated 1st March, 2006, if they are captively used in the factory of the production for manufacture of tractors. The petitioners/assessees took the stand as noted in the order of the Commissioner (Order-in-Original) which has not been accepted by the Revenue. During the period November, 2007 to March, 2008, the allegation is that the petitioners/appellants deliberately availed wrong and inadmissible Cenvat credit of the Service Tax paid on advertisement service/input service on tractors, which are exempted from payment of duty, cleared for home consumption and for exports, in contravention of provisions of Rule 6(1) read with Explanation (iii) to Rule 6(3) of Cenvat Credit Rules, 2004.

We find that this concurrent finding is in consonance with the Notification which has been relied upon by both sides. A perusal of the Notification reveals that there is no condition attached for availing of the exemption. The exemption is unconditional. Mr. Sridharan would rely upon the table below the substantive part of the Notification. We have perused that table and we find that Column No. 5 refers to the condition which has to be satisfied and fulfilled for the purposes of availing all the benefits of the Notification, namely, exemption. Wherever, the Notification refers to a specific condition which has to be fulfilled that has been referred in Column No. 5 and with reference or serial number. In so far as the subject entry is concerned, the rate of duty is Nil. There is absolutely no condition which is required to be fulfilled for the purposes of availing of this exemption. Mr. Sridharan would rely upon the annexure and submits that Condition No. 2 can be said to be a condition for the purposes of availing of the Notification. However, we find Condition No. 2 to mean that the description of excisable goods matches with the contents of Column No. 3 of the table. In other words, the goods are cleared for the intended use specified in Column No. 3 of the table. We do not find that any such issue was raised. In fact, there is absolutely no dispute about the description of the goods and their use. The parties have fully understood the description of the goods and the use to which they are put. When the condition that is required to be satisfied is not specified in Column No. 5, then, it is not open to the petitioners/assessees to invoke some general stipulation or contents of some format and term the same as a condition which is required to be fulfilled so as to avail of the exemption. In our view, there is merit in the contention of Mr. Kantharia that the exemption was unconditional.

If the exemption was unconditional, then, the petitioners/assessees could not have insisted on payment of duty on the exempted goods and thereafter insist that credit for the same be given to them or extended to them because the goods were inputs and exigible or eligible for Cenvat credit.

The stand taken by the Revenue and as reflected in their affidavit is, thus, justified. They had filed the affidavits in the Writ Petition which would indicate that the attempt of the petitioners/assessees is to show that they have taken credit of duty paid on the inputs used in the manufacture of IC engines, transmission assembly and sheet metal components which are referred to as aggregates by the petitioners. It is clear that in so far as the aggregates used in the manufacture of tractors for home consumption the petitioners are availing of the exemption available by virtue of Notification No. 6/2002-C.E., dated 1st March, 2002 which has been amended by further Notification bearing No. 23/2004-C.E., dated 9th July, 2004 and Notification No. 6/2006-CE., dated 1st March, 2006. Though the aggregates are exempted from duty, the assessees are paying duty on the aggregates used for manufacture of tractors cleared for export. They are paying this duty and, then, claiming drawback though the duty is not chargeable at all on the aggregates.

There is substance in the contention that when the Column No. 3 describes in clear terms that all goods except road tractors for semi-trailers of engine capacity more than 1800 CC and Sr. No. 92 clarifies for parts, used within the factory of production for manufacture of goods of Heading 8701 shall carry Nil rate of duty but both Sr. Nos. 40 and 92 in the subject Notification do not refer to any condition, then, it is not possible to accept the arguments of Mr. Sridharan that the exemption is not absolute but conditional.

Section 5A confers power to grant exemption from duty of Excise. If the Central Government is satisfied that it is necessary in the public interest so to do, it may, by a Notification in the Official Gazette, exempt generally either absolutely or subject to such conditions (to be fulfilled before or after removal) as may be specified in the Notification, excisable goods of any specified description from the whole or any part of the duty of Excise leviable thereon. But at the same time, the legislature introduces and inserts sub-section (1A) in Section 5A by Act 18/2005, then, we cannot ignore that provision as is intended by the assessee. Sub-section (1A) clarifies that when goods are exempted in terms of Section 5A(1) and the exemption is from the whole of the duty of Excise leviable thereon and has been granted absolutely, then, the manufacturer of such excisable goods shall not pay the duty of Excise on such goods. There is no question of then the Revenue calling upon the assessee to pay the duty or the assessee coming forward and offering to pay it. The goods which are otherwise subjected to tax shall not suffer it in view of the exemption notification and till it is in force. The amendment cannot be brushed aside. That is to clarify the doubts and remove them. The doubts which are clarified and removed are that when there is an absolute exemption from the payment of the whole duty of Excise leviable on such exempted goods, then, should the manufacturer of such excisable goods pay or shall not pay the duty of Excise on such goods. If he cannot pay the duty, then, there is no question of seeking any rebate or refund or drawback as is now purported to be done. That would be plainly contrary to this clear legal position. Mr. Kantharia is right in urging that the legislature has not imposed any condition and hence the exemption in the case at hand is absolute. The assessees, therefore, cannot attempt to pay taxes on exempted goods and when the exemption is unconditional. If the manufacturer is not required to pay any duty on the exempted goods and in this case which are exported as also cleared in the local market, then, the assessee cannot attempt to pay the duty and seek to recover it. More so, when the assessees while clearing the excisable goods in domestic market claimed the benefit of exemption under the Notification and did not pay any duty either by adjusting the credit available in the Cenvat account or otherwise. There is no explanation forthcoming as to why while clearing the same goods for export, the petitioners/assessees pay duty at tariff rate by debiting it from Cenvat credit account. The only explanation is that duty was paid to facilitate the department to verify the drawback claims. In that case, the assessees would have paid the duty even in cases of the inputs utilized for manufacture of exempted parts and which are thereafter utilized for the manufacture of tractors cleared for home consumption. The duty paid is on the inputs which are utilized for manufacture of exempted goods. These exempted goods are themselves parts and used in the factory of production of the assessees for manufacture of tractors cleared for home consumption. In all this, the assessees do not attempt to pay duty on the parts or aggregates. However, in relation to these very goods and which are parts for manufacture of tractors cleared for export the attempt to pay duty has been made.

To examine this aspect little carefully, we have noted that certain inputs or raw materials are acquired by the assessees from the market on which they pay duty as these are excisable goods and carry Excise duty. With the aid and help of these goods, the petitioners manufacture parts or aggregates. These parts or aggregates are exempted from payment of duty as clarified above. It is these parts or inputs and with the aid and assistance of which the final product namely tractor is manufactured and which is cleared for home consumption as also export by the assessees. At no stage, the appellants/petitioners have lodged any claim for refund/rebates/drawback in case of the inputs which are used and utilized for manufacture of tractors and cleared for home consumption. There is no explanation, therefore, as to why such an attempt has been made in the case of the final product namely cleared for export.

Mr. Sridharan would submit that this was not done so to claim any undue or additional benefit. The duty is paid on the aggregates consumed within the factory only to the extent used for the export. The duty is so paid on the aggregates and partly in cash and partly by utilizing Cenvat credit of the duty paid on the inputs used in the intermediates consumed captively for manufacture of tractors for exports. The alternative claim, therefore, was made and which should have been granted according to Mr. Sridharan because there is no question of any unjust enrichment.

In that regard, what we find is that the Cenvat Credit Rules, 2004 which are relied upon, define in Rule 2(d) the term "exempted goods". They mean excisable goods which are exempted from the whole of the duty of Excise leviable thereon and include goods which are chargeable to Nil rate of duty. Similar is the definition of the term "exempted service" and appearing in Rule 2(e). Thus, goods and service which carry the levy or the tax but which are exempt from the whole of the tax or the levy as also those which are chargeable to Nil rate of duty are exempted goods and services. The Cenvat credit can be availed of in terms of Rule 3(1) in the case of a manufacturer or producer of final products or provider of taxable service and he shall be allowed to take credit on the duty of Excise specified in the First Schedule to the Excise Tariff Act, the duty of Excise specified in the Second Schedule to the Excise Tariff Act, the additional duty of Excise, the National Calamity Contingent duty leviable under Section 136 of Finance Act, the Education Cess on excisable goods leviable under Section 91 read with Section 93 of the Finance Act and the Secondary and Higher Secondary Education Cess, etc., which have been paid and the manner in which such credit can be claimed is thereafter set out. Rule 4 enlists conditions for allowing Cenvat credit. Rule 5 provides for Cenvat credit and reads as under:--

"Rule 5. Refund of Cenvat credit.--Where any input or input service is used in the final products which is cleared for export under bond or letter of undertaking, as the case may be, or used in the intermediate products cleared for export, or used in providing output service which is exported, the Cenvat credit in respect of the input or input service so used shall be allowed to be utilized by the manufacturer or provider of output service towards payment of,

(i) duty of Excise on any final product cleared for home consumption or for export on payment of duty; or

(ii) Service Tax on output service,

and where for any reason such adjustment is not possible, the manufacturer shall be allowed refund of such amount subject to such safeguards, conditions and limitations, as may be specified, by the Central Government, by notification:

Provided that no refund of credit shall be allowed if the manufacturer or provider of output service avails of drawback allowed under the Customs and Central Excise Duties Drawback Rules, 1995, or claims a rebate of duty under the Central Excise Rules, 2002, in respect of such duty.

Explanation.--For the purposes of this rule, the words ''output service which is exported'' means any output service in respect of which payment is received in India in convertible foreign exchange and the same is not repatriated from, or sent outside, India."

A bare perusal of the same indicates that where any input or input service is used in the manufacture of final product which is cleared for export under bond or letter of undertaking, as the case may be, or used in the intermediate product cleared for export or used in providing output service which is exported, then, the Cenvat credit in respect of the input or input service so used shall be allowed to be utilized by the manufacturer or provider of output service towards payment of duty of Excise on any final product cleared for home consumption or for export on payment of duty or Service Tax on output service. Rule 6 sets out the obligation of the manufacturer of dutiable and exempted goods and provider of taxable and exempted services and the same reads as under:

"6. Obligation of manufacturer of dutiable and exempted goods and provider of taxable and exempted services.--

(1) The Cenvat credit shall not be allowed on such quantity of input or input service which is used in the manufacture of exempted goods or for provision of exempted services, except in the circumstances mentioned in sub-rule (2):

Provided that the Cenvat credit on inputs shall not be denied to job worker referred to in Rule 12AA of the Central Excise Rules, 2002, on the ground that the said inputs are used in the manufacture of goods cleared without payment of duty under the provisions of that rule.

(2) Where a manufacturer or provider of output service avails of Cenvat credit in respect of any inputs or input services, and manufactures such final products or provides such output service which are chargeable to duty or tax as well as exempted goods or services, then, the manufacturer or provider of output service shall maintain separate accounts for receipt, consumption and inventory of input and input service meant for use in the manufacture of dutiable final products or in providing output service and the quantity of input meant for use in the manufacture of exempted goods or services and take Cenvat credit only on that quantity of input or input service which is intended for use in the manufacture of dutiable goods or in providing output service on which Service Tax is payable.

(3) Notwithstanding anything contained in sub-rules (1) and (2), the manufacturer or the provider of output service, opting not to maintain separate accounts, shall follow either of the following conditions, as applicable to him, namely:--

(a) if the exempted goods are -

(i) goods falling within (Heading 2207) of the First Schedule to the Excise Tariff Act (hereinafter in this rule referred to as the said First Schedule);

(ii) Low Sulphur Heavy Stock (LSHS) falling within Chapter 27 of the said First Schedule used in the generation of electricity;

(iii) Naphtha (RN) falling within Chapter 27 of the said First Schedule used in the manufacture of fertilizer;

(iv) Naphtha (RN) and furnace oil falling within Chapter 27 of the said First Schedule used for generation of electricity;

(v) (newsprint, in rolls, sheets or reels, falling within Chapter 48) of the said First Schedule;

(vi) final products falling within Chapters 50 to 63 of the said First Schedule;

(vii) goods supplied to defence personnel or for defence projects or to the Ministry of Defence for official purposes, under any of the following notifications of the Government of India in the Ministry of Finance (Department of Revenue), namely:--

(1) No. 70/92-Central Excise, dated the 17th June, 1992, G.S.R. 595(E), dated the 17th June, 1992;

(2) No. 62/95-Central Excise, dated the 16th March, 1995, G.S.R. 254(E), dated the 16th March, 1995;

(3) No. 63/95-Central Excise, dated the 16th March, 1995, G.S.R. 255(E), dated the 16th March, 1995;

(4) No. 64/95-Central Excise, dated the 16th March, 1995, G.S.R. 256(E), dated the 16th March, 1995;

(viii) Liquefied Petroleum Gases (LPG) falling under Tariff Items 2711 12 00, 2711 13 00 and 2711 19 00 of the said First Schedule;

(ix) Kerosene falling within Heading 2710 of the said First Schedule, for ultimate sale through public distribution system.

The manufacturer shall pay an amount equivalent to the Cenvat credit attributable to inputs and input services used, or in relation to, the manufacturer of such final products at the time of their clearance from the factory; or

(b) if the exempted goods are other than those described in Condition (a), the manufacturer shall pay an amount equal to ten percent of the total price, excluding sales tax and other taxes, if any, paid on such goods, of the exempted final product charged by the manufacturer for the sale of such goods at the time of their clearance from the factory;

(c) the provider of output service shall utilize credit only to extent of an amount not exceeding twenty percent of the amount of Service Tax payable on taxable output service.

Explanation I.--The amount mentioned in Conditions (a) and (b) shall be paid by the manufacturer or provider of output service by debiting the Cenvat credit or otherwise. Explanation II.--If the manufacturer or provider of output service fails to pay the said amount, it shall be recovered along with interest in the same manner, as provided in Rule 14, for recovery of Cenvat credit wrongly taken.

(d) notwithstanding anything contained in Condition (c), the provider of output service referred to in sub-clause (d) of clause (105) of Section 65 of the Finance Act has the option to utilise Cenvat credit attributable to inputs and input services used in providing taxable services subject to the following, namely:--

(i) while exercising the option under this condition, the provider of output service shall intimate his option in writing to the Superintendent of Central Excise giving the following particulars, namely:--

(a) name and address of the provider of output service;

(b) date from which the option under this clause is exercised or proposed to be exercised;

(c) description of taxable services;

(d) description of exempted services;

(e) Cenvat credit of inputs and input services lying in balance as on the date of exercising the option under this condition;

(ii) the option given under part (i) for a financial year shall not be withdrawn during the remaining part of the financial year;

(iii) the provider of output service shall, -

(a) determine, provisionally, the amount equivalent to Cenvat credit attributable to exempted services, in the following manner, namely:--

Cenvat credit attributable to exempted services (provisional) = (A/B) multiplied by C, where A denotes total value of exempted services provided during the preceding financial year, B denotes total value of taxable and exempted services provided during the preceding financial year, and C denotes total Cenvat credit of inputs and input services taken during the month;

(b) pay the amount attributable to exempted services determined as above for each month, on or before 5th day of the following month;

(c) determine the Cenvat credit attributable to exempted services for the whole financial year in the following manner, namely:--

Cenvat credit attributable to exempted services = (X/Y) multiplied by Z, where X denotes total value of exempted services provided during the financial year, Y denotes total value of taxable and exempted services provided during the financial year, and Z denotes total Cenvat credit of inputs and input services taken during the financial year;

(d) pay an amount equal to the difference between the amount determined as per item (c) and the amount determined as per item (a), on or before the 30th June of the succeeding financial year, where the amount determined as per item (c) is more than the amount paid;

(e) in addition to the amount short-paid, be liable to pay interest at the rate of twenty-four percent per annum from the due date, i.e., 30th June till the date of payment, where the amount short-paid is not paid within the said due date;

(f) where the amount determined as per item (c) is less than the amount determined and paid as per item (a), adjust the excess amount on his own, by taking credit of such amount;

(iv) the provider of output service shall intimate to the jurisdictional Superintendent of Central Excise, within a period of fifteen days from the date of such payment or adjustment, the following particulars, namely:--

(a) details of Cenvat credit attributable to exempted services, month-wise, for the whole financial year, determined provisionally as per part (iii) item (a),

(b) the amount equivalent to Cenvat credit attributable to exempted services, determined provisionally for each month and paid month-wise as per part (iii) item (b),

(c) Cenvat credit attributable to exempted services for the whole financial year as determined as per part (iii) item (c),

(d) amount short-paid determined as per part (iii) item (d), along with the date of payment of the amount short-paid,

(e) interest payable and paid, if any, on the amount short-paid, determined as per part (iii) item (e), and

(f) credit taken on account of excess payment, if any, determined as per part (iii) item (f),

(v) where the amount equivalent to Cenvat credit attributable to exempted services cannot be determined provisionally since no taxable service referred to in sub-clause (d) of clause (105) of Section 65 of the Finance Act has been provided, the provider of output service is not required to determine, provisionally, and pay Cenvat credit attributable to exempted services for each month but he shall determine the Cenvat credit attributable to exempted services for the whole year as prescribed in part (iii) item (c) and pay the amount so calculated on or before 30th June of the succeeding financial year.

(vi) where the amount determined under part (v) is not paid within the said due date, i.e., the 30th June, the provider of output service shall, in addition to the said amount, be liable to pay interest at the rate of twenty four percent per annum from the due date till the date of payment. Explanation III.--For the removal of doubts, it is hereby clarified that the credit shall not be allowed on inputs and input services used exclusively for the manufacture of exempted goods or exempted services.

(4) No Cenvat credit shall be allowed on capital goods which are used exclusively in the manufacture of exempted goods or in providing exempted services, other than the final products which are exempt from the whole of the duty of Excise leviable thereon under any notification where exemption is granted based upon the value or quantity of clearances made in a financial year.

(5) Notwithstanding anything contained in sub-rules (1), (2) and (3), credit of the whole of Service Tax paid on taxable service as specified in sub-clause (g), (p), (q), (r), (v), (w), (za), (zm), (zp), (zy), (zzd), (zzg), (zzh), (zzi), (zzk), (zzq) and (zzr) of clause (105) of Section 65 of the Finance Act shall be allowed unless such service is used exclusively in or in relation to the manufacture of exempted goods or providing exempted services.

(6) The provisions of sub-rules (1), (2), (3) and (4) shall not be applicable in case the excisable goods removed without payment of duty are either-

(i) cleared to a unit in a special economic zone; or

(ii) cleared to a hundred percent. Export-oriented undertaking; or

(iii) cleared to a unit in an Electronic Hardware Technology Park or Software Technology Park; or

(iv) supplied to the United Nations or an international organization for their official use or supplied to projects funded by them, on which exemption of duty is available under notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 108/95-Central Excise, dated the 28th August, 1995, Number G.S.R. 602(E), dated the 28th August, 1995; or

(v) cleared for export under bond in terms of the provisions of the Central Excise Rules, 2002; or

(vi) gold or silver falling within Chapter 71 of the said First Schedule, arising in the course of manufacture of copper or zinc by smelting; or

(vii) all goods which are exempt from the duties of Customs leviable under the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and the additional duty leviable under sub-section (1) of Section 3 of the said Customs Tariff Act when imported into India and supplied against International Competitive Bidding in terms of [Notification No. 6/2002-Central Excise, dated the 1st March, 2002 or Notification No. 6/2006-Central Excise, dated the 1st March, 2006, as the case may be]."

In the case at hand, the Tribunal concluded that the petitioners/assessees were not permitted to avail of such course. Even the Commissioner in the Order-in-Original has not allowed the petitioners/assessees to take assistance of the Cenvat Credit Rules, 2004. In para 26 of the Order-m-Original, the Commissioner has observed that the services are exclusively related to tractors which are exempted from payment of duty. The advertisement services are claimed to be services and which are used exclusively for manufacture of exempted goods. Secondly, the basic concept of grant of Cenvat benefit is to take care of the cascading effect of tax element contained in the expenses. However, in the case of exempted goods there would be no such cascading effect. The assessees deliberately availed a wrong and inadmissible Cenvat credit of the Service Tax paid on advertisement services/input services in contravention of the provisions of Rule 6(1) read with Explanation III to Rule 6(3) of the Cenvat Credit Rules, 2004. Rule 6(1) clearly prohibits availing of Cenvat credit on such quantity of input or input service which is used in the manufacture of exempted goods or exempted services, except in the circumstances mentioned in Rule 6(2).

Under Rule 6(2) the manufacturer or provider of output service avails of Cenvat credit in respect of any inputs or input services and manufactures such final products or provides such output service which are chargeable to duty or tax as well as exempted goods or services, then, the manufacturer or provider of output service shall maintain separate accounts for receipt, consumption and inventory of input and input service meant for use in the manufacture of dutiable final products or in providing output service and the quantity of input meant for use in the manufacture of exempted goods or service and tax Cenvat credit is admissible only on that quantity of input and input service which is intended for use in the manufacture of dutiable goods or in providing output service on which Service Tax is payable. Rule 6(3) starts with non-obstante clause and states that a manufacturer or provider of output service opting not to maintain separate accounts must follow either of the conditions as set out in the sub-rule and applicable to him and what the Explanation (iii) states is that the credit shall not be allowed on input and input service used exclusively for the manufacture of exempted goods or exempted services. Therefore, there is absolutely no justification for claiming the Cenvat credit. Mr. Kantharia is right in urging that the attempt was to now seek refund of Cenvat credit and only in relation to the duty amount paid on aggregates/parts and utilized for manufacture of tractors and cleared for exports, is to adjust the credit available in the Cenvat account. The Revenue in this case has relied upon Rule 6(6) in that behalf and we do not find the said reliance to be misplaced. Before the Tribunal, reliance was placed on these rules but in the light of the above clear provisions, the Tribunal did not permit the assessees to place reliance on the same in its entirety. Para 8 of the Tribunal''s order reads as under:--

"We find that in the case of Repro India Ltd. (supra), the Bombay High Court has held that exempted goods can be exported under Bond/UT-1 in terms of Rule 19 of the Central Excise Rules, 2002. It has also been held that in terms of Rule 6(6)(v) of the Cenvat Credit Rules, 2004, the provisions of Rule 6(1) and 6(3) are not applicable in respect of excisable goods cleared without payment of duty for export under Bond. In view of this, the orders of Commissioner confirming the duty demand of Cenvat credit except for Rs. 8,28,20,311/- in Appeal No. E/675/09-Mum and Rs. 7,12,75,282/- in Appeal No. E/1190/09-Mum and Rs. 9,36,861/- in Appeal No. E/1182/09-Mum cannot be sustained. Accordingly, we set aside the demands of duty of Rs. 4,55,99,931/-, Rs. 10,52,45,486/-, Rs. 6,63,10,952/- in Appeal No. E/675/09-Mum, Rs. 1,03,58,014/- in Appeal No. E/1060/09-Mum, Rs. 3,81,83,890/- in Appeal No. E/1190/09-Mum, and Rs. 82,34,084/- in Appeal No. E/1182/09-Mum. Consequently, we also set aside the penalty imposed equal to the amount of duty. We also set aside the order for recovery of interest on the dues."

That was because the excisable goods removed without payment of duty are cleared for export under bond in terms of Central Excise Rules, 2002.

Mr. Sridharan would, however, rely upon sub-rule 6(6) and particularly clause (5) thereof and urge that the sub-rules (1), (2), (3) and (4) shall not be applicable in case the excisable goods removed without payment of duty are, inter alia, cleared for export under bond in terms of the provisions of Central Excise Rules, 2002.

We do not find that this argument has any basis. First of all, Rule 6 sets out the obligation of manufacturer of dutiable exempted goods and provider of taxable and exempted services. The sub-rule (1) thereof mandates that Cenvat credit shall not be allowed on such quantity of input or input services which is used in the manufacture of exempted goods or exempted services except in the circumstances mentioned in sub-rule (2). Thereafter the circumstances are mentioned in sub-rule (2) and in the event of which alone the Cenvat credit can be claimed. Thus, there is a requirement of maintaining separate accounts and claim Cenvat credit. Mr. Sridharan, then, relies upon clause (b) of sub-rule (3) of Rule 6 to urge that it is open for the parties like the appellants to claim Cenvat credit provided they comply with the requirements in clause (b). He also relies upon clause (c) of the same sub-rule. However, this has to be read with the Explanation (iii) which has been inserted after the Cenvat Credit Rules, 2004 were amended. They have been notified and later on amended as is clear from the insertion of Explanation (iii). It is submitted that this explanation would not govern both sub-rule (3) clauses (a) to (d) with their sub-clauses. While it is true that Explanation (iii) clarifies that the credit shall not be allowed on inputs and input services, it is apparent that the same relates to both, the credit allowable on inputs and input services.

It is clear from a reading of para 8 of the Tribunal''s order that the Tribunal has considered the effect of the Cenvat Credit Rules, 2004 and particularly the sub-rules which we have referred above. Therefore, the demands of duty have been set aside.

Mr. Sridharan would rely upon the same reasoning of the Tribunal and to submit that even the demands which are confirmed ought to have been set aside relying on the conclusions in para 8.

However, that was an issue in relation to wrong availment of Cenvat credit on aggregates used captively in the manufacture of exempted tractors cleared for export. In relation to that the Tribunal placed reliance on the clear language of Section 5A(1A). Section 5A(1A) inserted by Act 18/2005 with effect from 13th May, 2005. Once this provision has been inserted and the exemption under sub-section (1) of Section 5A in respect of any excisable goods from the whole of the duty leviable thereon has been granted absolutely, the manufacturer shall not pay the duty of Excise on such goods. This provision has been inserted with some purpose and that is to discourage manufacturers from paying Excise duty on exempted goods. The clear effect of absolute exemption has been emphasized in this sub-section so as to discourage the practice of manufacturers paying duty on such excisable goods and which are exempted from payment of whole of Excise duty absolutely and, thereafter, claiming an adjustment or credit or refund or rebate or drawback. Therefore, the argument which appealed to the Tribunal and in relation to the demand as dealt with by it in para 8 could not be said to be applicable. Once the basic foundation was the exemption not being absolute but conditional and that being found to be baseless, the Tribunal was in no error in confirming the demand partially.

The justification given before the Tribunal and equally before us is that the assessee did not pay 10% of the sale price of the tractors exported in view of Rule 6(6)(v) of the Cenvat Credit Rules. We have already found that reliance on this sub-rule and clause (v) thereof, was entirely misplaced. Those are in relation to the excisable goods removed without payment of duty. In relation to that sub-rule (6) has clarified that, sub-rules (1), (2), (3) and (4) of Rule 6 shall not be applicable in case the excisable goods removed without payment of duty are cleared for export under the provisions of Central Excise Rules, 2002. This provision does not refer to exempted goods. Therefore, no assistance could have been derived so as to cover up the inaction or lapse, if any. Once there was no compliance with sub-rules (1), (2) and (3) with their clauses and sub-clauses, then, the Tribunal''s order confirming the demand and to the extent referred in para 9 does not require any interference. The same cannot be said to be perverse or vitiated by any error of law apparent on the face of the record. We find that the Tribunal has fairly dealt with the matter and in so far as the demand of Rs. 9,36,861/- in relation to advertisement services used in the manufacture of exempted tractors cleared within India. At the same time, the benefit of the judgment of this Court has been given with regard to the remaining duty demands (see para 8).

Now what remains for consideration are the judgments which have been relied upon by Mr. Sridharan. Heavy reliance is placed upon the judgment of this Court in the case of Repro India Limited (supra). In Repro India Limited, the issue which was raised and dealt with by this Court pertains to the Cenvat credit. There, the petitioners were engaged in the manufacture of packaged software falling under Chapter 85.23 of the First Schedule of the Central Excise Tariff Act, 1985 and liable to duty at 8% since 1st March, 2006. They were also engaged in the manufacture of stationery books such as letter pads, etc., falling under Heading 48.20 of the First Schedule to the Central Excise Tariff Act, 1985 and liable to duty at 16% and printed books and other products of Printing Industry falling under Heading 4901 of the First Schedule of Central Excise Tariff Act, 1985 which were chargeable to nil rate of duty at the relevant time. The printed books were entirely exported by the petitioners. The controversy was about the Cenvat credit taken in respect of the duty paid on the inputs used in the manufacture of these products. The said credit is utilized for payment of duty on packaged software and stationery books. The refund in cash was claimed for credit which cannot be so utilized, to the extent, it is attributable to printed books exported by it.

The Assistant Commissioner of Central Excise (Respondent No. 2 to the Petition) accepted the letter of undertaking furnished by the petitioners and allowed the petitioners to clear all the dutiable goods as also excisable goods attracting nil rate of duty. Thereafter, the Assistant Commissioner of Central Excise, Belapur-III Division, directed the petitioners that they should clear only dutiable goods such as packaged software under this bond and they cannot clear exempted goods or goods chargeable to nil rate of duty under this bond. He directed the petitioners that the non-dutiable goods cannot be cleared under letter of undertaking and by a further communication directed them to pay an amount equal to 10% of the sale price of the exempted goods, namely, printed books exported by it based on Rule 6(3)(b) of the Cenvat Credit Rules, 2004. It is these communications, letters and the directions therein which were impugned in the Writ Petition.

The findings and conclusions of this Court from paras 6 to 9 in judgment of the Repro India Ltd. would show that they are recorded for the purpose of dealing with the essential controversy and that was whether in respect of exempted goods for export and inputs in respect of which are dutiable, can they be cleared by giving bond under Rule 19 of the Cenvat Credit Rules, 2002. That they can be so cleared by giving option is the ultimate conclusion reached. We do not see how this judgment can be of any assistance to Mr. Sridharan. Then, Mr. Sridharan relied upon the judgment of the Hon''ble Supreme Court in the case of Commissioner of Central Excise and Customs (Appeals), Ahmedabad v. Narayan Poly-plast reported in 2005 (179) E.L.T. 20. There, the question involved was whether the assessee is bound to avail of exemption or can forgo the same in order to avail Modvat credit. There, the assessee relying upon a trade notice issued by the Central Excise and Customs Collector, did not avail of the exemption granted under Exemption Notification No. 53/88, dated 1st March, 1988. The trade notice clarified that it was the option of the assessee either to avail of the full exemption or to pay the duty leviable on the goods manufactured by him. If the assessee chose to pay the duty in spite of the goods being fully exempted, then, Modvat credit could not be denied on such duty paid inputs if used in the manufactured final products. The respondent-assessee accordingly, chose to pay the duty and availed of the Modvat credit. There was a subsequent Notification withdrawing the earlier trade notice and the issue was re-examined alleging that the assessee had no option but to avail of the exemption. In the case where the goods were fully exempted from payment of duty, the show cause notice was issued, demand raised and which came to be confirmed. The assessee preferred an appeal to the Tribunal and which reversed the department view holding that the assessee had the option not to avail of the exemption but to pay the duty and avail of the Modvat credit. The department went in appeal to the Hon''ble Supreme Court against the decision of the Tribunal but because the issue was technical and there was no revenue implication, the Hon''ble Supreme Court refused to interfere with the Tribunal''s view.

A similar approach was adopted in the case of Commissioner of Central Excise and Customs, Vadodara v. Narmada Chematur Pharmaceuticals Ltd. reported in 2005 (179) E.L.T. 276.

The reliance placed by Mr. Sridharan on the judgment of this Court in the case of Union of India v. Sharp Menthol India Ltd. reported in 2011 (270) E.L.T. 212, requires a detailed reference to that decision.

There, the Writ Petition was filed by Union of India to challenge the order passed by the Joint Secretary to the Government of India dated 21st January, 2011, whereunder he dismissed a stay application of the Commissioner of Central Excise. The Commissioner of Central Excise was seeking stay of the order passed by the Commissioner (Appeals) till disposal of a revision application. The stay application was rejected and apprehending that the order passed by the Commissioner (Appeals) would take effect and the respondent Sharp Menthol will claim rebate of duty paid on export of peppermint oil by debiting the credit of duty paid on inputs used in the manufacture of final products, that the Writ Petition was filed in this Court. There was another Writ Petition of the assessee seeking enforcement of the order passed in its favour and the Revenue/Commissioner''s Writ Petition was heard together with that of the assessee.

The matter was heard finally by consent and it was to be decided by this Court whether the assessee is entitled to claim rebate of duty paid on peppermint oil, by adjusting it as aforesaid.

The facts have been referred to in paras 3 to 6 of the judgment and particularly this Court noted that Menthol is a raw material used in the manufacture of menthol crystals and peppermint oil emerges as a by-product in the manufacture of menthol crystals. The assessee took credit of duty paid on menthol and utilized the said credit in paying the duty on clearance of the final products, namely, menthol crystals and peppermint oil. A notification was issued where-under Excise duty on menthol crystals was exempted. However, levy of Excise duty on peppermint oil continued. With effect from 1st March, 2008 menthol crystals could be cleared without payment of duty, whereas, peppermint oil was liable to be cleared on payment of duty. The entire quantity of menthol crystals and peppermint oil manufactured by the assessee has been exported and there was no domestic clearance. The assessee took the stand that though menthol crystals manufactured from menthol was exempt from payment of duty, the credit of duty paid on menthol (input) was not available, but, this was not the controversy in the show cause notice. The controversy was why Excise duty should not be recovered on peppermint oil exported by the assessee. The assessee replied that both final products were exported, therefore, it was entitled to utilize the input credit in paying the Excise duty on peppermint oil and claim rebate of that duty. That contention of the assessee was accepted by the Commissioner of Central Excise in the original order. However, it transpired that the rebate claims filed from time to time were considered and allowed in terms of the Order-in-Original referred to in para 10. Against these orders, the Revenue went in appeal but the appeal was dismissed. That is how the matter was carried in revision to the Central Government and in revision the stay was sought but refused.

The undisputed facts have been noted from para 19 and from para 21 a reference was made to the Cenvat Credit Rules. The observations which have been relied upon by Mr. Sridharan are to be found in paras 22 and 23. These paras are reproduced as under:

"22. It is true that under Rule 6(1) of the 2004 Rules, credit of duty paid on inputs is not allowable when the inputs are used in the manufacture of exempted final products. But Rule 6(2) of 2004 Rules provide that where the inputs are used in the manufacture of exempted as well as dutiable final products, then, credit of duty paid in inputs used in the manufacture of dutiable final products is allowable, provided separate accounts regarding the receipt, consumption and inventory of the input used in the manufacture of dutiable final product are maintained. However, Rule 6(6) of 2004 Rules provides that the provisions contained in Rules 6(1) to 6(4) of 2004 Rules shall not apply in certain specified cases, where the excisable goods are cleared without payment of duty. Clause (v) of Rule 6(6) of the 2004 Rules provides that where the exempted goods are cleared for export without payment of duty under Central Excise Rules, 2002, then, the provisions contained in Rules 6(1) to 6(4) of 2004 Rules shall not apply. Thus, Rule 6(6) of 2004 Rules carves out an exception to the applicability of the provisions contained in Rules 6(1) to 6(4) in certain specified cases.

In the present case, admittedly, the exempted menthol crystals have been cleared for exports under bond without payment of duty and, therefore, the case of the assessee would be covered under Rule 6(6)(v) of 2004 Rules and consequently Rules 6(1) to 6(4) of 2004 Rules would not be applicable to the facts of the present case. In other words, in the present case, the credit of duty paid on menthol used in the manufacture of exempted menthol crystals is allowable, because, exempted menthol crystals have been exported under bond without payment of duty."

We have already produced the Rule hereinabove and Rule 6 of the Cenvat Credit Rules, 2004 which has been relied in the judgment in Sharp Menthol (supra) is somewhat inaccurate. Its reproduction is accurate but a reference to its crucial aspect, with respect, erroneous. Rule 6(6) deals with "excisable goods".

Clause (v) thereof refers to removal of excisable goods without payment of duty but if this is a clearance for export under bond, in terms of provisions of Central Excise Rules, 2002, then, sub-rules (1) to (4) of Rule 6 of Cenvat Credit Rules, 2004 are not attracted or shall not be applicable. With greatest respect, clause (v) of Rule 6(6) cannot be read as referring to exempted goods but that refers to excisable goods removed without payment of duty and cleared for export under bond in terms of provisions of Central Excise Rules, 2002. The exemption carved out by Rule 6(6), therefore, must be seen in this light. Once, all this is noted and in proper perspective, then, it would be apparent that Mr. Sridharan''s reliance on this judgment is misplaced. There, Excise duty on peppermint oil was not exempted and the rebate claims were allowed bearing in mind the above noted factual position and with regard to which there was no dispute. However, if the attention of the Division Bench had been invited to the wordings of the sub-rules and in their proper perspective, then, the reference made by the Bench to some of the rules would have been accurate. However, we need not pursue the matter any further once it is held that the reliance on this judgment is wholly misplaced.

These all matters which arose firstly before the amendment to the Central Excise Act, 1944 by which the sub-section (1A) was inserted in Section 5A of the Act. Therefore, the question of option now does not arise. Further, in so far as the Cenvat credit and in terms of the Cenvat Credit Rules, 2004, what one finds is that the credit as is claimed and in relation to input and input service as defined in Rule 2(k)(l) is in relation to exempted goods and exempted services. In that regard, we have held that Cenvat credit cannot be availed of in case of such inputs or input services at all. Cenvat credit can be availed of provided the circumstances mentioned in Rule 6(2) are satisfied and that there is maintenance of separate accounts. The Cenvat credit can be taken only in quantity of input or input services which is intended for use in the manufacture of dutiable goods or in providing output services on which tax is payable. However, that is in relation to only the dutiable final product. Therefore, no assistance can be derived from these judgments by Mr. Sridharan. Once we have taken the above view, then, it is not necessary to refer to other judgments relied upon by Mr. Sridharan with regard to interpretation of exemption notifications. It is only when the exemption claimed is conditional or that two views are possible on a reading of the exemption notification that these judgments can have any application. These judgments also, therefore, do not assist the assessees-appellants.

In the Writ Petition No. 8772 of 2011, the same controversy is raised. That is pertaining to the drawback and the said claim was denied throughout. Once we have found that the claim was based on the same foundation or basis, as was raised in the appeal, then, for our reasons indicated hereinabove, we do not find any merit in this Writ Petition. The Writ Petition also fails. Rule discharged. No costs.

Then, there are two Petitions which have been filed by the assessees and in which as well the rebate claim has been rejected. Mr. Patil appearing for the Petitioner in the Writ Petition adopts the submission of Mr. Sridharan and the same pleas. For the reasons that we have indicated for rejecting the submissions of Mr. Sridharan, even these Writ Petitions would fail. Rule discharged. No costs.

Finally, Writ Petition No. 4590 of 2012, there, it was conceded that the claim is identical to the Central Excise Appeal Nos. 45 of 2013 and 46 of 2013. For the reasons that have been assigned by us for rejecting the appeals, even this Writ Petition fails. As a result of the above, the Rule is discharged in each of these Writ Petitions.

In relation to the other demands, the petitioners have been not permitted to rely on the Cenvat Credit Rules.

That bifurcation made by the Tribunal is in clear terms traceable to the above Rules. Hence, the Tribunal''s order confirming the demand partially does not require any interference.

The grounds which have been taken in these Writ Petitions and the Central Excise Appeals are based on the option to pay duty on the tractor parts consumed within the factory of production for manufacture of tractors exported under bond. However, that option itself is not available in view of the language of Section 5A(1A) and the Cenvat Credit Rules. In these circumstances, we do not find any fault in the orders passed by the Central Government and that of the Tribunal.

As a result of the above discussion, both the Writ Petitions and the appeals fail and are dismissed. Rule is discharged in the Writ Petitions with no orders as to costs. Equally the appeals are dismissed. No costs.