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2016 (6) TMI 311 - DELHI HIGH COURT

2016 (6) TMI 311 - DELHI HIGH COURT - 2016 (338) E.L.T. 246 (Del.) - Admissibility of MODVAT credit - Excise duty paid on High Speed Diesel Oil (hereafter 'HSD') which was consumed by the Petitioner for generation of electricity used for the manufacture of excisable goods in its factory - The disputes in the present case essentially concern the MODVAT credit which was claimed and allowed to the Assessee for the period 16th March, 1995 till 1st March, 1998. - Period before the retrospective amend .....

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herefore, there was a necessity for the Finance Act to be brought in whereby a clarificatory explanation to the legal position was laid down". The Supreme Court also rejected the contention of the appellants therein that Section 112 of the Act had the effect of taking away vested rights. - Appellant is correct when he contends that the constitutional validity of Section 112 of the Act was not challenged in Sangam Spinners Limited. However, as noted above, the contention whether any vested r .....

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ection 112 of the Act are expropriatory must be rejected, as squarely covered by the decision of the Supreme Court in Sangam Spinners Limited v. Union of India and Ors. [2011 (3) TMI 4 - Supreme Court]. - The Petitionerís contention that a separate adjudication was required for raising a demand for recovery of MODVAT credit availed on HSD also cannot be accepted as the said issue was considered by the Supreme Court in Ors. v. Maharaja Shree Umaid Mills [2013 (12) TMI 878 - SUPREME COURT]. T .....

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Sinha and Mr. Bharat Agarwal. For the Respondents: Mr. Rahul Kaushik, Senior standing counsel with Mr. Anup Kr. Kesari. JUDGMENT VIBHU BAKHRU, J 1. The Petitioner has filed the present petition under Article 226 and 227 of the Constitution of India, inter alia, impugning a letter dated 13th July, 2000 issued by Superintendent of Central Excise, Khatima, calling upon the Petitioner to pay back a sum of ₹ 1,69,91,809/-, stated to have been claime .....

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imed by the Petitioner in respect of the excise duty paid on High Speed Diesel Oil (hereafter 'HSD') which was consumed by the Petitioner for generation of electricity used for the manufacture of excisable goods in its factory. 3. It is not in dispute that by virtue of Notification No. 5/98-C.E. (N.T.) dated 2nd March, 1998 issued by the Central Government, MODVAT Credit on excise duty paid on HSD was inadmissible. The disputes in the present case essentially concern the MODVA .....

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t in respect of which MODVAT credit was available in terms of Notification No. 4/94-C.E. (N.T.) dated 1st March, 1994. 4. On 16th March, 1995, another Notification No. 11/95-C.E. (N.T.) came to be issued, by virtue of which, an explanation was introduced in Rule 57A of the Rules to define the scope of 'inputs' as used in Rule 57A(1) of the Rules. The said explanation read as under:- Explanation. - For the purposes of this rule, inputs includes; (a) inputs .....

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ucing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of final products; (ii) packaging materials in respect of which any exemption to the extent of the duty of excise payable on the value of the packaging materials is being availed of for packaging any final products; (iii) packaging materials or containers, the cost of which is not included in the assessable value of the final products under section 4 of t .....

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ectronic Hardware Technology Park or to a unit in Software Technology Parks) on which the duty of excise is leviable whether in whole or in part; and (b) specified as inputs or as final products under a notification issued under rule 57 A : Provided further that the credit of specified duty shall be allowed in respect of inputs which are used for generation of electricity, used within the factory of production for manufacture of fined products or for any other purpose.

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hapter 24 of the Schedule to the said Act; (ii) goods classifiable under heading Nos. 36.05 or 37.06 of the Schedule to the said Act; (iii) goods classifiable under sub-heading Nos. 2710.11, 2710.12, 2710.13 or 2710.19 (except Natural gasoline liquid) of the Schedule to the said Act; (iv) high speed diesel oil classifiable under heading No. 27.10 of the Schedule to the said Act. 7. Although, HSD was specifically excluded from the scope of inputs by th .....

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r the Notification No. 5/94-C.E.(N.T.) dated 1st March, 1994, which expressly excluded goods falling under heading or sub-heading Nos. 2710.11, 2710.12, 2710.13, 2710.19 (except Natural gasoline liquid), 2710.31, 36.05 or 37.06 of the Schedule to the said Act. , and Notification No. 8/95-C.E. (N.T.) dated 16th March, 1995 issued thereafter, which also specifically excluded HSD classifiable under Heading No.27.10 of the Schedule to the Central Excise Tariff Act, 1985. 8. By a Notificat .....

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d in or in relation to the manufacture of the final products, whether directly or indirectly and whether contained in the final products or not, namely- (i) goods which are manufactured and used within the factory of production; (ii) paints; (iii) goods used as fuel; (iv) goods used for generation of electricity or steam, used for manufacture of final products or for any other purpose, within the factory of production; 9. By a Corrigendum d .....

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such inputs as may be specified in a notification issued under Rule 57A. 11. Although it is not disputed that HSD was specifically excluded from the scope of inputs by virtue of Notification No. 5/94-C.E. (N.T.) dated 1st March, 1994 and Notification No. 8/95-C.E. (N.T.) dated 16th March, 1995, the Petitioner, nonetheless, claims that it was entitled to MODVAT credit on inputs by virtue of Explanation to Rule 57A of the Rules read with Rule 57D and 57B of the Rules. However, it is n .....

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.) dated 16th March, 1995. 12. In view of the above, the dispute whether MODVAT credit was available on duties paid on HSD is limited to the period 1st March, 1994 to 1st March, 1998. 13. The Petitioner being aggrieved by the decisions, denying MODVAT credit on duties paid on HSD, unsuccessfully appealed before the Commissioner of Customs and Central Excise (Appeals) and, thereafter, carried the matter before the Customs, Excise and Gold (Control) Appellate Tribunal (hereaf .....

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ed orders dated 4th December, 1998 and 5th February, 1999 passed by the Tribunal, the Revenue filed applications for making a reference to the High Court. The Revenue also filed an appeal before the Supreme Court. 15. By an order dated 3rd January, 2001, the Supreme Court allowed the appeal (Civil Appeal No. 14/2001) filed by the Revenue and directed the Tribunal to refer the following two questions for consideration by the High Court:- (a) Whether HSD can be taken as input .....

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h Court. On bifurcation of the State of Uttar Pradesh, one reference was transferred to Uttarakhand High Court while the other remained with the Allahabad High Court. 16. By a judgment dated 27th October, 2015, rendered in Central Excise Reference No.8/2001, the Allahabad High Court answered the aforementioned questions in favour of the Petitioner. The Allahabad High Court held that "Explanation to Rule 57A (Clause d), clearly takes within its ambit 'inputs' used for gene .....

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le, the Parliament enacted Section 112 of the Finance Act, 2000 (hereafter 'the Act') which reads as under:- 112. Validation of the denial of credit of duty paid on high speed diesel oil.-(1) Notwithstanding anything contained in any rule of the Central Excise Rules, 1944, no credit of any duty paid on high speed diesel oil at any time during the period commencing on and from the 16th day of March, 1995 and ending with the day, the Finance Act, 2000 receives the assent of the .....

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done, as if the provisions of sub-section (1) had been in force at all material times and, accordingly, notwithstanding anything contained in any judgment, decree or order of any court, tribunal or other authority- (a) no suit or other proceedings shall be maintained or continued in any court, tribunal or other authority for allowing the credit of the duty paid on high speed diesel oil and no enforcement shall be made by any court, tribunal or other authority of any decree or order al .....

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credit of duty within this period, in addition to the amount of credit of such duty recoverable, interest at the rate of twenty-four per cent per annum shall be payable, from the date immediately after the expiry of the said period of thirty days till the date of payment. Explanation.-For the removal of doubts, it is hereby declared that no act or omission on the part of any person shall be punishable as an offence which would not have been so punishable if this section had not come i .....

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enue, has been dismissed for non-prosecution by an order dated 29th May, 2007. He contended that the issue was also concluded in favour of the assessee by the decision of the Supreme Court in CCE v. Associated Cement Companies Ltd.: 2003 (151) ELT 12 (SC). 19. Mr Santhanam further contended that unutilised MODVAT credit is a substantive right of an assessee, who has paid duty on the inputs, and the same could not be taken back by the Government. He contended that Section 112 of the Ac .....

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laimed and allowed to the Petitioner on the basis of a mere letter. A demand could be raised only pursuant to a valid order passed after issuing a show cause notice and affording the Petitioner a reasonable opportunity to be heard. He, thus, contended that the impugned letter dated 13th July, 2000 was liable to be set aside. 21. Mr Rahul Kaushik, learned senior standing counsel for the Revenue, countered the arguments advanced by Mr Santhanam, and contended that the issues raised were .....

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p> 23. In Sangam Spinners Limited (supra), the Supreme Court considered the question whether appellants therein were entitled to credit for duty paid on HSD for the period commencing from 16th March, 1995 till 12th May, 2000 (the date on which the Finance Act, 2000 received the assent of the President). 24. The Supreme Court noticed the Notification No. 5/94-C.E. (N.T.) dated 1st March, 1994 and Notification No.8/95-C.E. (N.T.) dated 16th March, 1995 issued under Rule 57A of the .....

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contention of the Appellants in this regard was that by the insertion of the 2nd proviso in Rule 57D by Notification No. 11/95-CE (NT) dated 16th March, 1995 they became entitled for the credit of duty paid on high speed diesel oil which was used for generation of electricity. But in our observation, high speed diesel oil for the purpose of generation of electricity was specifically excluded from the list of eligible inputs in Notification No. 5/94-CE(NT) dated 1st March, 1994 issued .....

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of the credit under MODVAT would be guided and governed by the aforesaid notifications which specifically excluded the benefit of availment of such credit as high speed diesel oil is specifically excluded from the list of eligible inputs as per the notification under Rule 57A of the Central Excise Rules, 1944. Since it was specifically excluded from the list of eligible inputs such credit though may otherwise be available would not have created a vested right. 25. The Supreme Court .....

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he case of Tata Motors Ltd. v. State of Maharashtra (2004) 5 SCC 783, this Court observed that retrospective withdrawal of the benefit of set-off only for a particular period should be justified on some tangible and rational ground, when challenged on the ground of unconstitutionality. However, in the present case the ratio of Tata Motors case [supra] would not be applicable as the Appellants in this case never had a right with regard to availment of MODVAT credit. Hence, the contentions of the .....

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e inputs as per the notification under Rule 57-A of the Central Excise Rules. Since it was specifically excluded, such credit though may be otherwise available, could not have created any vested right. In our considered opinion the intention of the legislature is clear from the beginning to exclude the benefit of such credit by excluding high speed diesel oil from the list of eligible inputs by making substantial exclusion thereof in the notifications referred to hereinbefore. The aforesaid posi .....

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llants was considered by the Supreme Court and the same was expressly rejected. The Supreme Court had further held that Section 112 of the Act was clarificatory and the appellants were not entitled to credit for duties paid on HSD by virtue of the express exclusion in notifications dated 1st March, 1994 and 16th March, 1995. Thus, the very basis on which the Petitioner advanced its contentions stands eroded. 27. In view of the above, the contention that the provisions of Section 112 o .....

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12th May, 2000. The assessees, on the other hand, contended that the effect of Section 112 of the Act was to increase the liability of the assessees with retrospective effect by denying them MODVAT credit on the duties paid on HSD and also an imposition of 24% interest thereon. The assessees further contended that no interest was payable till the amount payable had been ascertained and interest could only be payable from the date the said amount was demanded. In the aforesaid context, the Suprem .....

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which had been issued earlier in 1995 and 1994, whereby availment of MODVAT credit on HSD oil used as fuel in generation of electricity had been ordered to be discontinued, we would feel that the first impression that one would gather upon perusal of Section 112 of the 2000 Act would not be correct. It is necessary to look at the background and the circumstances in which Section 112 of the 2000 Act had been enacted. By virtue of the Notifications issued on 1-3-1994 and 16-3-1995 issu .....

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aims MODVAT credit in respect of HSD oil used as an input and those who had wrongfully availed MODVAT credit in respect of HSD oil used as an input and those who had claimed the credit wrongfully, return the said amount within 30 days from the date the President gives assent to the 2000 Act. This clearly denotes that by virtue of the provisions of Section 112 of the 2000 Act, MODVAT credit availed on HSD oil used as an input had not been withdrawn for the first time but it was declared that if a .....

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edit on HSD oil used as an input. A somewhat similar issue had arisen before this Court in the case of Sangam Spinners Limited (supra) and after considering earlier Notifications issued by the Government, it had been held that Section 112 of the 2000 Act did not take away any right of any Assessee with retrospective effect. This Court held in the said case that the HSD oil had been specifically excluded from the list of eligible inputs with effect from 16th March 1995, and therefore, .....

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