TMI Blog2012 (12) TMI 1117X X X X Extracts X X X X X X X X Extracts X X X X ..... a) of the Central Excise Act, 1944. The petitioners have prayed for a consequential relief directing the respondents to permit the petitioners to avail of and utilise the accrued Modvat credit to the extent of excise duty paid on the inputs used namely, specified petroleum products during the period between 23-7-1996 to 28-2-1999. 3. Such challenge arises in the following factual background : 3.1 The Petitioner No. 1 is a company registered under the Companies Act. The Petitioner No. 2 is its office bearer. Petitioner No. 1 company is engaged in manufacture of fertilizers and chemicals falling under Chapters 27, 28, 29 and 31 of the Schedule to the Central Excise Tariff Act. The petitioner company uses excisable goods including Low Sulphur Heavy Stock ( LSHS for short) and also furnace oil for manufacture of fertilizers and other products. Such purchases were being made by the petitioners from M/s. Indian Oil Corporation without payment of duty under notifications prevalent at the relevant time. 3.2 Case of the petitioners further is and with and which there is no serious dispute raised by the Department that in order to have the maximum output from the integrated facil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ANP and CAN. However, the Weak Nitric Acid is also used to manufacture concentrated nitric acid, a chemical. The Weak Nitric Acid itself is also being sold as a chemical. The entire manufacturing facility is so integrated an inter connected that it is not possible to procure and use separate quantities of LSHS/FO for manufacture of fertilizers and chemicals respectively. Thus, it is only at the end of the aforesaid process that the exact quantum of the input viz LSHS/FO is ascertained by the petitioner company and which cristalizes the liabilities of the petitioner company for the payment of the excise duty in respect of the LSHS used for the manufacture of chemicals. Since the said LSHS is used for manufacture of chemicals is not exempt from payment of Central Excise Duty. 3.4 In the budget of 1996, excise duty on certain petroleum products was raised from 10% to 15%. As the price of these products were administered, increase in duty was not passed on to the consumers but was absorbed by the public sector refineries from Oil Pool Account. In the process, the buyers of these products availed credit of Modvat at the rate of 15% though they had actually borne the duty inci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -5-1997 was given retrospective effect from 23-7-1996. 3.8 Though the notification itself does not give the indication why such Modvat credit availment was restricted to 10% from the trade notice issued by the department clarifying the position in this regard, it clearly emerges that to avoid unintentional excess benefit availed by several manufactures in the manner noted above, such amending notification was issued. We may reproduce trade notice dated 21-5-1997 : In the budget 1996 excise duty on certain petroleum products was raised from 10 to 15%. As the prices of these goods were administered prices, the increase in duty could not be passed on the consumers and had to be absorbed by the public sector refineries from the oil pool account. The buyers of these goods took credit of the duty paid under the modvat scheme at the rate of the 15% though they had borne duty incidence of only 10% which resulted in undue benefit. Credit taken in excess in terms of the above provision shall be paid by the manufacturers within a period of 90 days, failing which interest shall also be payable at the rate of eighteen percent per annum. Accordingly, all such assessees who have availed cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of excise was 15%. 5% of the duty was absorbed through the Oil Pool Account. Despite such excise duty incidence of only 10% having been borne by the manufacturers, ultimately, they availed of Modvat credit on the entire 15% of the duty. It was realized that this resulted into wholly unintentional and excess benefit to the manufacturers. To rectify this, amendment was made in the notification dated 1-3-1994 by the said notification dated 3-5-1997. Such amending notification was also given retrospective effect by Section 87 of the Finance Act, 1997. 3.10 Case of the petitioner however, is that the petitioner all throughout during the period in question had paid full duty of excise at the rate of 15% on its final products other than fertilizers and was therefore, entitled to availment of Modvat credit on such basis. It is in this background that the petitioners have challenged the said notification dated 3-5-1997. 4. Learned counsel Shri Kunal Nanavaty appearing for the petitioners submitted that the notification dated 3-5-1997 is arbitrary and discriminatory and therefore, violative of Article 14 of the Constitution of India. He submitted that by virtue of provisions made in su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undo the damage that had been on account of buyers taking modvat credit at the rate of 15% though the duty incidence borne by them was only to the extent of 10% ad valorem. However, since the petitioner company had paid excise duty to the extent of 15% ad valorem they are rightly entitled at the rate of 15% ad valorem. 7. This was in contrast to the number of other manufactures who had purchased such similar products but borne only a part of the excise duty incidence at the rate of 10% as against the full rate of duty of 15% prescribed under the law. The rest 5% was absorbed through the Oil Pool Account. We had therefore, during our previous hearing wondered why in contrast to other manufacturers of various other products but using the same inputs, the petitioners had paid full excise duty. 8. Learned Counsel for the petitioners therefore, filed additional affidavit dated 11-12-2012. In said affidavit, it was explained as under : 3. I state that the company was directly paying to the Excise Department, therefore the petitioner company was bound to pay @ tariff rate, i.e. 15% during that period. As far as others were concerned, they were paying to Oil Companies @ 10%. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. The question is can such a notification be also implemented against the petitioners who had not taken any such unintended benefit of Modvat credit at the rate higher than the actual payment of excise duty? In this context, we may refer to the decision of Division Bench in case of Gujarat Paraffins Pvt. Ltd. (supra). It was a case wherein portion of the said notification dated 3-5-1997 came to be challenged by which even when inputs were imported into India, Modvat credit thereon was restricted to 10%. Division Bench noted that importers had paid additional duty of customs equal to excise duty at the rate of 15% ad valorem. In that background, the said portion of the notification dated 3-5-1997 came to be declared illegal and violative of Article 14 of the Constitution of India. The Bench made following observations : 34. In the present case, we have no hesitation in holding that unequals are treated equally because persons like the petitioners who imported petroleum products as inputs on payment of duty at the full rate of 15% are treated at par with the persons purchasing the petroleum products as inputs from the public sector refineries in India on payment of actual exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would operate only for a limited period of about 16 months i.e. from July 3, 1996 to November 27, 1997. 38 .. The only objective sought to be achieved by restricting Modvat credit to the extent of 10% for inputs in the nature of petroleum products was to allow manufacturers purchasing such petroleum products from public sector refineries the credit of that amount which was actually paid by them as excise duty. Since duty only to the extent of 10% was recovered from such manufacturers by refineries whereas 5% was paid to the refineries from Oil Pool Account fright from July 23, 1996, the restriction under the Notification No. 14/1997 was made for allowing Modvat credit to the extent of only 10% and this Notification issued on May 3, 1997 was given retrospective effect from July 23, 1996 onwards. By virtue of the clarifications made vide various Trade Notices, the objective of restricting Modvat credit to only 10% right from July 23, 1996 in case of APM products i.e. petroleum products purchased from public sector refineries was clarified by the Government itself. The objective of the amendments so made vide Notification No. 14/1997 and Section 87 of the Finance Act, 1997 was to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... according to objects or occupations or the like. What is necessary is that there must be a nexus between the basis of classification and the object of the Act under consideration. It is also well established by the decisions of this Court that Article 14 condemns discrimination not only by a substantive law but also by a law of procedure. 14. In the present case, if we examine the facts more closely it would become clear that the impugned notification does not satisfy above twin conditions. The petitioner as noted had paid full excise duty on its purchase of inputs such as LSHS and furnace oil. Since the petitioner was directly paying such duty to the Government, it was not covered under the regime where the manufacturers who paid the excise duty to the refineries and in whose cases 5% increase in the excise duty was absorbed from the Oil Pool Account. In such cases, understandably the Government of India formed an opinion that such manufacturers cannot be allowed to avail Modvat at the full rate of 15% of excise duty when the duty borne by such manufacturers on such inputs was at the rate of 10%. It would give unintended benefit. In case of the petitioner who all along paid t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstitutionality attaching to all enactments is founded on the recognition by the the Court of the fact that the legislature correctly appreciates the needs of its own people. We are not oblivious to the fact that this decision was overruled in the case of State of Gujarat v. Mirzapur Moti Kureshi Kasab Jamat and others reported in AIR 2006 Supreme Court 212 but on another issue. In case of the State of Jammu Kashmir v. Triloki Nath Khosa and others reported in AIR 1974 Supreme Court 1, yet another Constitution Bench of the Supreme Court referring to and relying on the decision in case of Mohd. Hanif Quareshi and others (supra), reiterated this principle. In para. 24 of the judgement, it was observed that there is always a presumption in favour of the constitutionality of an enactment and the burden is upon him who attacks it to show that there has been a clear transgression of the constitutional principle. In a recent decision in case of State of Madhya Pradesh v. Rakesh Kohli and another reported in (2012) 6 Supreme Court Cases 312, this well settled principle of presumption of constitutionality of statutory provision enacted by State or Central Legislature was reiterated. 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Equally if such statutory provision is opposed to any of the fundamental rights contained in Part III of the Constitution or is in conflict with other provisions contained in the Constitution, it would be impermissible to the parliament or to the State to enact such a provision and could thus also be stated to be without legislative competence. Besides these categories sometimes, the statutory provision being irrational, arbitrary, come up for discussion. However, such ground also has to be examined within above two parameters. The Apex Court in case of State of A.P. and others v. Mc. Dowell Co. and others reported in (1996) 3 Supreme Court Cases 709, observed that : In India, the position is similar to the United States of America. The power of the Parliament or for that matter, the State Legislatures is restricted in two ways. A law made by the Parliament or the Legislature can be struck down by courts on two grounds and two grounds alone, viz., (1) lack of legislative competence and (2) violation of any of the fundamental rights guaranteed in Part-III of the Constitution or of any other constitutional provision. There is no third ground. The Apex Court thereafter ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ended authority to make such rules. They are unreasonable and ultra vires . The present position of law bearing on the above point is stated by Diplock. L.J. In Mixnam s Properties Ltd. v. Chertsey Urban District Council thus : The various special grounds on which subordinate legislation has sometimes been said to be void...can, I think, today be properly regarded as being particular applications of the general rule that subordinate legislation, to be valid, must be shown to be within the powers conferred by the statute. Thus, the kind of unreasonableness which invalidates a bye-law is not the antonym of unreasonableness in the sense in which that expression is used in the common law, but such manifest arbitrariness, injustice or partiality that a court would say: Parliament never intended to give authority to make such rules; they are unreasonable and ultra vires , ... if the courts can declare subordinate legislation to be invalid for uncertainty as distinct from unenforceable ... this must be because Parliament is to be presumed not to have intended to authorise the subordinate legislative authority to make changes in the existing law which are uncertain. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id to be in conformity with the statute. It can also be challenged on the ground that it violates Article 14 of the Constitution. 15. Reverting back to the case on hand, we are clearly of the opinion that the impugned notification is violative of Article 14 of the Constitution of India. We are conscious that in taxing matters, the Government has wide latitude. We are also conscious that under Rule 57A of the Modvat Rules, there is no direct correlation between the excise on duty paid on inputs and availability of Modvat credit on such inputs and it is open for the Government to provide the terms on which such Modvat can be availed by issuing notification on that behalf. Had therefore, the notification been issued limiting the availment of Modvat credit only to a portion of the duty paid in all cases, perhaps the respondents could have convinced us not to interfere. In the present case however, the reason for issuance of such notification is manifest from the trade notice issued by the Government of India, shortly after issuance of the notification as also from the affidavits filed before us. The sole reason therefore, was to withdraw the unintended benefits claimed by the manu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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