COLLECTOR OF CENTRAL EXCISE ETC. ETC. versus M/S. SOLARIS CHEMTECH LIMITED & ORS.

Citation: [2007] 8 S.C.R. 501 · Decided: 24-07-2007 · Supreme Court of India · Bench: S.H. KAPADIA · Disposal: Dismissed

Judgment (excerpt)

1 , 
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COLLECTOR OF CENTRAL EXCISE ETC. ETC. 
v. 
MIS. SOLARIS CHEMTECH LIMITED & ORS. 
JULY 24, 2007 
[S.H. KAPADIA AND B. SUDERSHAN REDDY, JJ.] 
MOD VAT Rules-Rule 57 A-MOD VAT credit-Entitlement to-On Low 
Sulphur Heavy Stock (LSHS)-Used for generating electricity, captively used 
A 
for manufacture of the final product-Held: Assessees were entitled to C 
MODVAT credit on LSHS-Jt is an 'input' falling under clause (c) of 
Explanation to the Rule, as it is used in relation to the manufacture of the 
final product-However, if the electricity generated is used for the purpose 
other than manufacture of final product, to that extent MODVAT credit will 
not be admissible-Notification No. 4194. 
The question for consideration in the present appeals was whether the 
assessee was entitled to MODY AT credit under Rule 57 A on Low Sulphur 
Heavy Stock (LSHS) and furnace oil used for generating electricity captively 
consumed for the manufacture of the final products such as caustic soda, 
cement etc. 
Dismissing the appeals of the Revenue, the Court 
D 
E 
HELD: I. In the present case, the LSHS is used to generate electricity 
which is captively consumed. Without continuous supply of such electricity 
generated in the plant it is not possible to manufacture cement, caustic soda 
etc. Without such supply the. process of electrolysis was not possible. F 
Therefore, keeping in mind the expression "used in relation to the 
manufacture" in Rule 57 A of MODY AT Rules, the assessees were entitled to 
MODY AT credit on LSHS. The present case falls in clause (c), therefore, 
the assessees were entitled to MODY AT credit under Explanatory clause (c) 
even before 16.3.95. Inputs used for generation of electricity will qualify for O 
MODY AT credit only if they are used in or in relation to the manufacture of 
the final product, such as cement, caustic soda etc. (Para 8) (507-F, G) 
2. Rule 57 A, has an Explanation clause which stated as to what inputs 
are included in MODY AT credit. Explanation clause (c) refers to "input used 
501 
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502 
SUPREME COURT REPORTS 
[2007) 8 S.C.R. 
A as fuel". This clause was introduced by Notification No.4/94. At that time 
the Government made it .clear that inputs used as fuel were entitled to 
MODV AT credit That fuel either utilized directly or for generating electricity, 
as an intermediary product, is integrally connected with several operations 
which results in the emergence of the final product, namely, cement/caustic 
B soda. Without utilization of LSHS, it is not possible to manufacture cement/ 
caustic soda. The electrolysis process is dependent on continuous flow of 
electricity. If there is disruption in the supply of electricity from the 
Electricity Board then the entire plant of the assessees would fail and the 
manufacture of cement/caustic soda would not take place. Therefore, LSHS 
would come within the ambit of the expression "used in or in relation to the 
C manufacture of the final product". (Para 8) (506-A, B, CJ 
Collector of Central Excise v. Rajasthan State Chemical Works, (1991) 
55 EL T 444 SC, relied on. 
3. The expression "in the manufacture of goods" indicates the use of 
D the input in the manufacture of the final product. The said expression 
normally covers the entire process of converting raw-materials into finished 
", 
goods such as caustic soda, cement etc. However, the matter does not end 
with the said expression. The expression also covers inputs "used in relation 
to the manufacture of final products". The said expression, namely, "in 
relation to" also finds place in the extended definition of the word 
E "manufacture" in Section 2(t) of the Central Excises and Salt Act, 1944. It 
is for this reason that this Court has repeatedly held that the expression "in 
relation to" must be given a wide connotation. The Explanation to Rule 57 A 
shows an inclusive definition of the word "inputs". Therefore, that is a 
dichotomy between inputs used in the manufacture of the final product and 
F inputs used in relation to the manufacture of final products. (Para 8) 
4. If manufacture of final product cannot take place without the process 
in question then that process is an integral part of the activity of manufacture 
of the fi!!al product. Therefore, the words "in relation to the manufacture" 
have been used to widen and expand the scope, meaning and content of the 
G expression "inputs" so as to attract goods which do not enter into finished 
goods. (Para 8 I (507-C) 

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