TMI Blog2012 (11) TMI 864X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules only changed procedure, providing supplementary invoice instead of certificate of Superintendent - Department objection based on procedural change could not succeed as substantive right cannot be defeated on strict construction of procedural provisions. Effect of substitution of Modvat Rules - Validation provisiosn of section 38A - held that:- The dispute regarding Rule 57E certificates originated with the Superintendent’s letter dated 14-1-2000 and the same has remained alive since then. This very dispute is awaiting our decision. Therefore there is no substance in the submission made by the learned JCDR that there was no dispute with reference to Rule 57E when Rules 57A to 57U (including Rule 57E) were replaced by rules 57AA to Rules 57AK with effect from 1-4-2000 under Notification No. 11/2000-C.E. (N.T.), dated 1-3-2000 as modified by Notification No. 27/2000-C.E. (N.T.), dated 31-3-2000. The question whether IPCL was entitled to use the certificates for taking MODVAT credit of the differential duty paid by ONGC, apparently, originated in January 2000 and the same has ever remained alive till date. But this aspect is not significant insofar as clause (c) of Section 38A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he parties - Revenue’s appeal dismissed - E/3286/2005 and E/2070/2006 - A/38-39/2012-WZB/C-II(EB) - Dated:- 1-2-2012 - S/Shri P.G. Chacko, P.R. Chandrasekharan, JJ. REPRESENTED BY : Shri P.K. Agrawal, JCDR, for the Appellant. S/Shri Manoj Sanklecha and J.C. Patel, Advocates, for the Respondent. [Order per : P.G. Chacko, Member (J)]. One of the appeals was filed by Indian Petrochemicals Corporation Limited (IPCL), manufacturers of petroleum products of Chapter 27, organic chemicals of Chapter 29 and polymers of Chapter 39 of the Central Excise Tariff. Reliance Industries Limited (RIL) was substituted for the appellant s name as per order dated 13-1-2009 in Misc. Application No. 2423/2008 on the basis of Hon ble Bombay High Court s order dated 12-6-2007 in Company Petition No. 345 of 2007. 2. M/s. Oil and Natural Gas Corporation Limited (ONGC) had sold and cleared to IPCL certain quantity of Ethane-Propane from April 1996 to January 2000 on payment of Central Excise duty, MODVAT credit whereof was duly availed by IPCL. The department issued five show-cause/demand notices to ONGC alleging short-payment of duty on the said goods and demanding total differential ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant did not press before the Tribunal their challenge to the demand of duty. The Tribunal directed that interest on duty be computed under Section 11AB keeping in view that this provision did not have retrospective effect. On the facts of the case, both the penalties were set aside vide Order No. A/336/WZB/2004-CII, dated 28-5-2004 reported in 2004 (174) E.L.T. 132 (Tri.-Mumbai). ONGC accepted this order and paid Rs. 17,98,318/- towards interest on duty and requested for reissue of certificates under the erstwhile Rule 57E in view of the Tribunal s order. The Tribunal s order was accepted by the department also. 8. On the request of ONGC, the Assistant Commissioner (Panvel Division), by Order-in-Original No. 109 dated 13-9-2004, ordered revalidation of both the certificates under the erstwhile Rule 57E. Accordingly the certificates were revalidated by the Superintendent of Central Excise on 16-9-2004. 9. Order-in-Original No. 109 dated 13-9-2004 was reviewed in the department and an appeal preferred to the Commissioner (Appeals) on the ground that, in view of the Tribunal s Order (No. A/336/WZB/2004, dated 28-5-2004) holding ONGC liable to pay interest under Section 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... now, RIL). 11. Heard both sides in each appeal. Synopses of arguments were filed by the advocates and the JCDR. Copies of judgments were also furnished in support of arguments. 12. Arguments, by and large, centred around the erstwhile Rule 57E and the Tribunal s order No. A/336/2004 dated 28-5-2004 [2004 (174) E.L.T. 132]. 13. Rule 57E of the Central Excise Rules, 1944. Rule 57E. Adjustment in duty credit. - (1) If a manufacturer of final products has taken credit on any inputs and subsequently it so happens that any refund of the duty paid by the manufacturer of inputs or importer of inputs, as the case may be, is allowed to him for any reason, then the manufacturer of the final products shall accordingly adjust the amount of credit in his credit account and if such adjustment is not possible for any reason, the manufacturer of the final products shall pay the amount in cash equal to the amount of refund allowed to the manufacturer of inputs or importer of inputs. (2) If a manufacturer of the final products has not taken any credit or has taken credit on any inputs and subsequently it so happens that any additional amount of duty is recovered by the manufacturer of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... buyers. The delay, if any, in discharge of the duty at prices fixed by the Ministry of Petroleum is due to late receipt of the re-fixation decision. After receipt of the decision no delay on part of ONGC, his clients in discharging the liabilities of duty at higher levels of assessable value is found. The ld. Senior Advocate submits that there was no mala fides and/or intention to evade or short pay the liability of duty by the Public Sector organization stressed the mandatory penalty on this case under Section 11AC is not called for Nor is the interest liability required to be worked out imposed under Section 11AB. 2. The ld. DR relies on para 37 of the order-in-original to support the levy of penalty interest duty in the facts of this case. The para reads as under : The assessee never disclosed their endeavour to get the price revised to the department. Therefore the assessee was liable to pay differential duty under the provisions of Rule 9(2) of Central Excise Rules, 1944 read with sub-section 1 of Section 11A of the Central Excise Act, 1944, including proviso thereto. Assessee have neither discharged duty correctly nor resorted to provisional assessment as required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sorted to provisional assessment and therefore liable for provision of Section 11AC. The assessee, from the admitted facts on both sides, paid duties as per the prices fixed by Ministry of Petroleum Government of India also took up the matter with the said Ministry to enhance the prices so fixed documents to that effect are relied by Revenue. Therefore, they discharged duties on whatever prices the Ministry of Petroleum fixed, even have the conduct to have paid the differential duty without any demur on receipt of higher price fixation/intimations/approval of Ministry of Petroleum would surely be a conduct by this Public Sector Commission following the Ministry of Petroleum price fixations which cannot be considered to be a deliberate attempt to short pay duty to call for a visit of the onerous penalty under Section 11AC. Their attempts to get the prices raised then pay duty demands at such higher prices is to be looked at attempts to free commercial realities. Their inability and for non-disclosure of attempt to get prices re-fixed from the controlling Ministry, as arrived by Commissioner cannot be a cause for penalty. There was no requirement of disclosure or an effort t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said Rule and the Superintendent of Central Excise having jurisdiction over their factory should not have issued/revalidated the certificates. This contention is based on the premise that the short-levy of duty was on account of suppression of facts by ONGC and that the Tribunal s order established this fact. In this connection, the department has relied on the Tribunal s decision in Commissioner v. TELCO Ltd. [2003 (158) E.L.T. 111 (Tri.-Kol.)]. 16. The learned JCDR sought to elaborate the Revenue s points and also filed a synopsis of his arguments, which reads as follows : 1. At the outset, the grounds of appeal mentioned in the department s appeal paperbook (Pg. No. 8-13) are reiterated. 2. There was no legal provision under Central Excise Act and the Rules made thereunder which provide for revalidating the cancelled certificates issued under erstwhile Rule 57E of the Central Excise Rules, 1944. 3. After cancellation of the initially issued certificates, M/s. IPCL (now Reliance ) has reversed the credit so availed being inadmissible. (On 31-1-2000 and 3-2-2000). Thus, at the material time there was no pending issue pertaining to application of provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orce. With the rescission of Rule 57E leaving no saving clause, ONGC ceased to have the right to claim revalidation of the certificates. Section 38A of the Central Excise Act did not protect any such right for ONGC as there was no pending issue between them and the department (as on the date of rescission of Rule 57E) as to the cancellation of the certificates. In this context, the learned JCDR claimed support from the Tribunal s Larger Bench decision in Commissioner v. Chennai Petroleum Corporation Ltd. [2008 (228) E.L.T. 533 (Tri.-LB)]. He pointed out that the Commissioner s order for recovery of the differential amount of duty from ONGC by invoking the extended period of limitation on the ground of suppression of facts by them was upheld by the Tribunal in Order No. A/336/2004, dated 28-5-2004, that the Commissioner s order for levy of interest on duty under Section 11AB of the Central Excise Act was also upheld by the Tribunal on the same ground and that the assessee accepted the Tribunal s verdict by voluntarily paying interest under Section 11AB ibid. On these facts, according to the learned JCDR, the assessee s claim for certificates under Rule 57E was barred by sub-rule (3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner v. Woodcraft Products Ltd. - 2002 (143) E.L.T. 247 (S.C.) (ii) Sahakari Khand Udyog Mandal Ltd. v. Commissioner - 2005 (181) E.L.T. 328 (S.C.). (iii) Commissioner v. Vikas Testing Development Lab - 2009 (238) E.L.T. 790 (T) = 2010 (20) S.T.R. 538 (T) affirmed by the Bombay High Court by order dated 13-1-2010 in C.E.A. No. 142/2009 vide 2010 (257) E.L.T. A17. (e) The rules for issuance of certificates, taking of MODVAT credit etc. were procedural provisions which were not to be strictly construed as argued by the learned JCDR. Case Law cited : ITC Ltd v. Commissioner - (2004) 7 SCC 591 = 2004 (171) E.L.T. 433. 18. In his rejoinder, the learned JCDR contested the advocate s claim that the interest on duty was calculated and paid under Section 11AA of the Central Excise Act. He submitted that the interest was paid in terms of Section 11AB only. In this connection, the JCDR filed copies of (i) TR-6 challan No. 3/2004-05 dated 30-6-2004 covering payment of interest of Rs. 17,98,318/- by ONGC, (ii) ONGC s letter dated 27-7-2004 to the Central Excise Range Superintendent showing that the payment was made as per CESTAT s Order No. A/336/2004 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 38A of the Central Excise Act protected the right. Case Law cited : (i) Commissioner of Income Tax v. Shah Sadiq Sons - AIR 1987 SC 1217 (ii) Plewa v. Chief Adjudication Officer - [1994] 3 All England Law Reports 323. (c) The principles of equity were applied by the Supreme Court in the customs case of Priyanka Overseas Pvt. Ltd. v. Union of India [1991 (51) E.L.T. 185 (S.C.)] and in the excise case of Kuil Fireworks Industries v. Collector - 1997 (95) E.L.T. 3 (S.C.). On a similar principle viz. restitution, IPCL (RIL) should be allowed to retain the credit in question. Case Law cited : (i) Guj-Chem Distilleries India Ltd. v. State of Gujarat Others - [1995] 96 STC 37 (Guj.). (ii) Woodcraft Products (supra) (d) Where no reason was found by this Tribunal to invoke Section 11AC of the Central Excise Act against ONGC vide Order No. A/336/2004, Rule 57E(3) was not to be pressed into service for denying MODVAT credit to IPCL. Case law cited : Century Rayon v. Commissioner - 2005 (191) E.L.T. 216 (Tri.-Mum) 20. Learned JCDR representing the respondent in RIL s case argued as follows :- (a) Rules 57A to 57E constituted an integrat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld not have taken re-credit of the duty on the basis of the said certificates. The rules framed under the taxing statute required to be strictly construed and complied with :- Case law cited : (i) Commissioner v. Doaba Steel Rolling Mills - 2011 (269) E.L.T. 298 (S.C.) (ii) Commissioner v. Hari Chand Shri Gopal - 2010 (260) E.L.T. 3 (S.C.) 21. In his rejoinder, the learned Counsel for RIL made the following submissions :- (a) The right to take credit accrued to IPCL when ONGC paid differential duty on the inputs supplied to them. As the proceedings against ONGC continued even after the change of law (supersession of the MODVAT provisions of the Central Excise Rules, 1944), IPCL s right to MODVAT credit stood protected by Section 38A(e) of the Central Excise Act. (b) Rule 57E was procedural in so far as the manufacturer of final product (IPCL in this case) was concerned. Both ONGC and IPCL made earnest efforts to comply with the provisions at every stage. (c) In the case of Home Ashok Leyland Ltd., the High Court and the Supreme Court considered the provisions to be procedural upto 15-4-2000. (d) Cancellation of the Rule 57E certificates was not quasi-judic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ively referred to the Tribunal s Order No. A/336/2004, dated 28-5-2004 in support of their respective viewpoints on the question whether the said order could be so construed as to rule out the applicability of sub-rule (3) of Rule 57E. Therefore, a closer look at the Tribunal s order has become necessary in this case. 25. From para (4) of the Tribunal s order (which reads: Since the issue of liability of duty on merits was not pressed, no findings are arrived as regards the liability to pay the duty ), it appears that the question whether the assessee (ONGC) was liable to pay the differential amount of duty, whether or not on account of any short-levy or non-levy by reason of fraud, collusion or any willful misstatement or suppression of facts or contravention of any provision of law, was not addressed at all. Therefore it will not be correct to say that the Tribunal s order settled the said issue in favour of the Revenue. Moreover, in para (5) thereof, the Tribunal s order clearly held that there was no element of fraud, collusion or any willful misstatement or suppression of fact on the part of the assessee and hence the penalty under Section 11AC of the Central Excise Act cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them from contending that sub-rule (3) of Rule 57E is not applicable. We note that, without adverting to the facts of the case or attempting examination of the question whether any of the ingredients of Section 11AB was present in the case, the order just required the amount of interest to be computed as per laws . Even if it be presumed that the Tribunal s order required the assessee to calculate and pay the amount of interest on the differential duty in terms of Section 11AB, in our view, it will not per se entitle the Revenue to take the stand that the Tribunal s order was a pronouncement on the said question, nor can it be said that the assessee, by calculating interest in terms of Section 11AB and paying it, admitted short-levy or non-levy of differential duty by reason of fraud, collusion or wilful misstatement or suppression of facts or contravention of any provision of law with intent to evade payment of duty . It is pertinent to note that it was after holding (in the context of dealing with Section 11AC penalty) that there was no element of fraud, collusion or any willful misstatement or suppression of facts on the part of ONGC that this Tribunal in its Order dated 28-5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid certificates issued by the Superintendent survived the repeal of Rule 57E to be used by IPCL (RIL) for availment of MODVAT credit of the differential duty paid by ONGC. The learned counsel for ONGC and RIL have argued to the effect that the certificates issued under Rule 57E were saved by Section 38A of the Central Excise Act and hence could be used by RIL for availment of the said credit. The counsel for ONGC in this context has relied on the Tribunal s order in Bell Ceramics case and Shriram Foundry case. According to the learned JCDR, Rule 57E was repealed without any saving clause and therefore the certificates issued thereunder did not survive the repeal of the Rule. This argument is based on the premise that there was no dispute between the department and ONGC with regard to Rule 57E certificates at the time of repeal of this Rule. In this connection, the learned JCDR has claimed support from the Tribunal s decision in Chennai Petroleum Corporation case (supra). 31. The old MODVAT provisions (Rules 57A to 57U) were replaced by new provisions (Rules 57AA to 57AK) through amendment of the Central Excise Rules, 1944 w.e.f. 1-4-2000. The Central Excise Rules, 1944 we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or (d) . (e) affect any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture or punishment as aforesaid, and any such investigation, legal proceeding or remedy may be instituted, continued or enforced and any such penalty, forfeiture or punishment may be imposed as if the rule, notification or order, as the case may be, had not been amended, repealed, superseded or rescinded. The case of ONGC and RIL is apparently covered by clause (c) of Section 38A which provides that, where any rule issued under the Central Excise Act is repealed, superseded or rescinded, then, unless a different intention appears, such repeal/supersession/rescission shall not affect any right which accrued under the rule so repealed/superseded/rescinded. We find that, when the Superintendent of Central Excise issued the certificates to ONGC under Rule 57E after the latter paid the differential duty on the goods already cleared to IPCL, a right accrued to the buyer of the goods viz. IPCL (RIL) for taking MODVAT credit of such duty under Rule 57A on the strength of such certificates which were documents prescribed unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be settled against the input-manufacturer who, thereupon, paid the duty sometime in 1996 and requested for a certificate from the Superintendent under Rule 57E. There was considerable delay in the issuance of this certificate, which was issued in the year 2000, by which time Rule 57E had disappeared as a result of amendment of the MODVAT Rules. The new rules did not prescribe the certificate as a document on the basis of which MODVAT credit could be taken. The question considered by this Tribunal was whether the party could take MODVAT credit on the inputs on the basis of Rule 57E certificate which was issued to the input-manufacturer after the rule was repealed. The Tribunal held that Section 38A of the Central Excise Act protected the action taken under the erstwhile rule and therefore the certificate issued to the input manufacturer under Rule 57E would be a valid document for the manufacturer of final product to take MODVAT credit even after the change of law. 33. Before 1-4-2000, a certificate issued under Rule 57E by the Superintendent of Central Excise having jurisdiction over the manufacturer of inputs/capital goods, was one of the documents prescribed under Rule 57G(3) f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he object of the MODVAT scheme and that the right of a manufacturer to take credit of the duty paid on his inputs could not be cut down by reason of procedure. By holding Rule 57E to be procedural and clarificatory, the Hon ble High Court upheld the Tribunal s view on the point and allowed MODVAT credit to the assessee. The High Court s decision was upheld by the Hon ble Supreme Court after holding that Rule 57E was procedural and clarificatory and therefore would not affect the substantive right of the manufacturer of final product to claim MODVAT credit of the additional amount of duty paid on his inputs subsequent to the date of receipt of such inputs. This ruling was applied by this Tribunal in the case of EBG India Pvt. Ltd. (supra) for a period subsequent to the repeal of Rule 57E. Nobody has claimed before us that the Tribunal s decision in the said case was not accepted by the department. It is equally noteworthy that the Tribunal s decision in the case of Bell Ceramics case was not challenged by the department. In the result, we hold that RIL is entitled to MODVAT/CENVAT credit of the differential duty paid by ONGC. 35. We have also noted that principles of equity were a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit of the differential duty paid on the inputs stood satisfied. When the Superintendent issued the certificates evidencing payment of differential duty by ONGC, these documents were valid under Rule 57G(3) for taking MODVAT credit of the duty. It is not in dispute that IPCL took the credit in their MODVAT account when these rules were very much in force. When these rules were replaced by a new set of rules (57AA to 57AK), the substantive provision for MODVAT/CENVAT credit did not change and only the procedural provisions came to be amended with the result that a supplementary invoice issued by the manufacturer of input/capital goods was substituted for a certificate of the Superintendent. The limited case of the department for denying MODVAT credit to IPCL (RIL) is based on this procedural change. Such a case cannot succeed in view of judicial pronouncements to the effect that a substantive right cannot be defeated on the plank of strict construction of procedural provisions. We are of the view that the case law cited by the learned JCDR on mandatory nature of certain rules and on application of principles of equity is not applicable to the above matrix of facts. The revalidati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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