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TMI Blog2005 (12) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... export, except to the extent of the credit of duty, if any, in respect of inputs lying in stock or contained in finished products lying in stock on the 1st day of October, 1997. FACTS 2. Facts giving rise to the present petition are that, the petitioners are a Company duly incorporated under the Companies Act, 1956, registered as Small Scale Industry, engaged in the manufacture of Tooth Paste, being a product re served for Small Scale Industrial Units. 3. The petitioners for the purpose of manufacture of the toothpaste bring into their factory various inputs, which are utilised in the manufacture of the said toothpaste. The petitioners have been availing of Modvat Credit on the said inputs and utiuising the same inter alia for payment of duty on their final product under Modvat Credit Scheme since the date the said scheme came into effect. 4. Section AA of Chapter-V of the Central Excise Rules, 1944 contains a scheme for availing Modvat Credit of the duty paid on the inputs used in or in relation to the manufacture of final products and, inter alia, permitting utilisation of such credit towards payment of excise duty on the final products. This scheme is known as 'Modvat Credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e allowed for the utilisation for payment of duty of any excisable goods cleared for home consumption or export. According to the petitioners, as on 1-10-1997 the Modvat Credit lying unutilised in their account amounted to Rs. 98,19,113/-. By virtue of the said amendment to the said Rule, the said credit amount was deemed to have lapsed. 10. The petitioners being aggrieved by the aforesaid amendment, challenged the constitutional validity of Rule 57F(17)(e) of the said Rules by Writ Petition No. 2018 of 1998 filed in this Court. By an order dated 22nd June, 1998 operation of Notification 57/97-CE, (N.T.) was stayed till disposal of the said writ petition and the petitioners were permitted to utilise the credit lying in their account subject to furnishing a bank guarantee each time for a sum equivalent to the utiisation of Modvat Credit. The Supreme Court during pendency of the afore said petition by its judgment dated 28th January, 1999 in the case of Eicher Motors Limited - 1999 (106) E.L.T. 3 (S.C.) struck down sub-Rule (4A) of Rule 57F, which was inserted into the Rules pursuant to the budget for the year 1995-96 and provided for lapsing of credit lying unutilised on 16th March ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not allowing such credit to be utilised for payment of any kind of duty on any excisable goods on and from such date. 132. Validation of certain rules. - (1) In the Central Excise Rules,1944, made by the Central Government in exercise of the powers conferred under section 37 of the Central Excise Act, in Rule 57F - (a) sub-rule (4A), as inserted by the Central Excise (Fourth Amendment) Rules, 1995, shall be deemed to have and to have always had effect from the 16th day of March, 1995; (b) sub-rule (17), as inserted by the Central Excise (Amendment) Rules, 1997, shall be deemed to have and to have always had effect from the 1st day of March, 1997; (c) clauses (c) and (d) of sub-rule (17) as inserted by the Central Excise (Seventh Amendment) Rules, 1997, shall be deemed to have and to have always had effect from the 1st day of August, 1997; (d) clause (e) of sub-rule (17), as inserted by the Central Excise (Eleventh Amendment) Rules,1997, shall be deemed to have and to have always had effect from the 1st day of October, 1997. (2) Any action taken or anything done or purported to have been taken or done at anytime during the period commencing from the 16th day ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of any person shall be punishable as an offence which would not have been so punishable if this section had not come into force." The aforesaid provisions of the Finance Act, 1999 are the subject matter of challenge in this petition on the grounds set out in the petition and canvassed before us as mentioned in the paras appearing hereinafter. SUBMISSIONS 13. Mr. Atul Setalwad, learned Senior Counsel appearing for the petitioners proceeds on the basis that there is no dispute that the legislature has power to render ineffective an earlier decision of the Supreme Court by removing or altering or neutralising the legal basis in the unamended law on which such decision was founded, even retrospectively. However, in his submission, in the case at hand, the Finance Act, 1999 does not remove, alter or neutralise the legal basis of the unamended law or the law laid down by the Supreme Court in Eicher Motors (supra). He submits that the defects in the legislation pointed by the Supreme Court in Eicher Motors (supra) have not been eliminated by the aforesaid amendments. 14. Mr. Setalwad submits that Rule 57A confers right in a manufacturer to take credit of duty-paid on inputs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght to refund of duty got vested when the goods were exported. 17. Mr. Setalwad, turning to the facts of the present case, submits that the right accrued and was vested when duty was paid on the inputs, and the inputs were received. In his submission, Sections 131 and 132 of the Finance Act, 1999, do not, at all, vary the basis of the judgment of the Supreme Court in Eicher Motors (Supra), but merely purport to retrospectively validate sub-Rule 17 of Rule 57F. He submits that seeking to retrospectively validate the Rule by which the vested right was taken away, is an interference with the law laid down by the Supreme Court under Article 141 of the Constitution of India inasmuch as the provisions of the Finance Act, 1999 are an attempt to get around the decision of the Supreme court in the case of Eicher Motors (supra), the same is thus contrary to law and unconstitutional. He submits that the legislative encroachment upon judicial power, which is not permissible, and, consequently, the provisions are ultra virus and void, and should be struck down. He relied upon the judgment of the Supreme Court in the case of State of Haryana v. Karnal Cooperative Farmer's Society Ltd. - AIR 199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioners. He submits that Sections 131 and 132 of the Finance Act, 1999 are only making small repairs and that is a permissible mode of legislation. In his submission, Sections 131 and 132 of the Finance Act, 1999 do not act harshly nor there is any scope for arbitrariness or discrimination so as to violate Articles 14 and 19(1) (g) of the Constitution of India. 22. In the submission of Mr. Jetly, Sections 131 and 132 of the Finance Act, 1999 have removed voidness, disability or other defects which were existing in the legislation. A retrospective effect un disputably can be given in case of curative and validating statute. In fact curative statutes by their very nature are intended to operate upon and affect past transactions having regard to the fact that they operate on conditions already existing. 23. Mr. Jetly submits that Rule 57A of the erstwhile Central Excise Rules, 1944 (for short "said Rules") under which Modvat credit could be taken applied to such finished excisable goods as the Central Government may, by Notification in the official Gazette specify for the purpose of allowing credit of any duty paid on the inputs used in or in relation to the manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 32 of the Finance Act, 1999 giving retrospective effect by inserting clause (xxviii) in Section 37(2) of the said Act and validating clause (e) of sub-Rule (17) of Rule 57-F of the said Rules were passed to effectuate intention of the Government. It is, thus, reiterated that Parliament is competent to make retrospective law taking away the basis of the Supreme Court judgment and validating earlier actions. That is how Mr. Jetly appearing for the respondents - Revenue tried to justify the validity of the impugned Finance Act, 1999. STATUTORY PROVISIONS 27. Before proceeding to consider the rival submissions, it is necessary to turn to the relevant statutory provisions which are the subject matter of challenge in this petition. The same are reproduced as under: "Section 37: Power of Central Government to make rules. - (1) The Central Government may make rules to carry into effect the purposes of this Act. (2) In particular, and without prejudice to the generality of the foregoing power, such rules may :- (i). provide for determining under section 4 the nearest ascertainable equivalent of the normal price; [(ia) having regard to the normal practice of the wholesale trade, define ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 1955 S.C. 661, Heydon's case, (1954) 3 CO Rep 7a (V) was cited with approval; wherein it was said: "………for the sure and true interpretation of all Statutes in general (be they penal or beneficial, restrictive or enlarging of the common law) four things are to be discerned and considered: 1st. What was the common law before the making of the Act. 2nd. What was the mischief and defect for which the common law did not provide, 3rd. What remedy Parliament hath (sic) resolved and appointed to cure the disease of the Commonwealth, and 4th. The true reason of the remedy; and then the office of all the judges is always to make such construction as shall suppress the mischief, and advance the remedy, and to suppress subtle inventions and evasions for continuance of the mischief, and pro privato commodo', and to add force and life to the cure and remedy, according to the true intent of the makers of the Act,'pro bono publico'." CONSIDERATION 30. Before we proceed to consider the contentions raised on behalf of the petitioner, it would be useful to reiterate the circumstances leading to the enactment of the impugned validating legislation. The Apex Court, in the case of Eicher Motors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r restraining and it takes effect prospectively, unless it has retrospective effect by express terms or necessary intendment, [ see AIR 1960 S.C.12 (Para 29) - The Central Bank of India and others v. Their Workman and also AIR 1973 S.C. 1227 - The Workmen of M/s. Firestone Tyre and Rubber Co. of India Pvt. Ltd. v. The Management and others.] Sometimes it becomes necessary to examine whether the enactment has a prospective or retrospective effect so as to affect the existing or vested right which has accrued to the subject prior to the enactment. Examined from this angle, it is clear from the text of Sections 131 and 132 of the Finance Act, 1999 that it has been specifically given a retrospective effect w.e.f.1-10-1997 so as to effect existing or vested right which had accrued to the petitioner prior to the said enactment. The defect in the legislation, which was noticed by the Apex Court, stood removed by virtue of the said amendment. 34. In Allied Motors (P) Ltd. v. CIT., (1997) 3 S.C.C. 472, certain unintended consequences flowed from a provision enacted by Parliament. There was an obvious omission. In order to cure the defect, a proviso was sought to be introduced through ..... X X X X Extracts X X X X X X X X Extracts X X X X
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