TMI Blog2002 (4) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... inance Act, 2000 and denial of credit of duty paid on H.S.D. oil used in Diesel Generating Set for generation of electricity for captive consumption i.e. manufacture of final product of cement. 2.For the convenience, we shall refer the facts of one of the petitions being D.B. Civil Writ Petition No. 3635/97 filed by M/s. Shree Cement Limited. The petitioner-company is engaged in the business of manufacturing and selling Portland cement and has installed a Diesel Generating Set for generation of electricity for captive consumption in its factory premises. It is averred that the petitioner-company purchases HSD Oil for generation of electricity from Indian Oil Corporation Ltd./Hindustan Petroleum Corporation Ltd. through their sales Office/Depots in Rajasthan, cleared in sub-heading 2710.90 on payment of Central Excise Duty and the same is used as inputs/goods in the said Diesel Generating Set for generation of electricity which is used in the manufacture of final product cement or for other purposes in the petitioner's factory of production. 3.The petitioner-company submitted a declaration in respect of the diesel as well as oil and lubricants under Rule 57G read with Rule 57B o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, the credit is available in respect of central excise duty, special excise duty and countervailing duty paid on inputs used in production of final product mentioned in the appropriate notification issued under the Central Excise and Tariff Act. Rule 57A provides for availment of Modvat credit in respect of inputs used in the manufacture of the finished product. The rule empowers the Central Government to specify the final product by issuing notification under the Official Gazette for the purpose of allowing Modvat credit of any duty of excise paid on the goods i.e. inputs used in the manufacture of the said final products. The relevant sub-rules (1) and (4) of Rule 57A read as under: "57A. Applicability. - (1) The provisions of this Section shall apply to such finished excisable goods (hereinafter, in this section, referred to as the final products) as the Central Govt. may by notification in the Official Gazette specify in this behalf for the purpose of allowing credit of any duty of excise or the additional duty under Section 3 of the Customs Tariff Act, 1975 (51 of 1975), as may be specified in the said notification (hereinafter referred to as the specified duty) paid on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following, namely : - All goods falling within the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), other than the follow ing namely: - (i) goods classifiable under any heading of Chapter 24 of the Schedule of the said Act; (i) goods classifiable under any heading of Chapter 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; (ii) goods classifiable under Heading No. 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; (iii) fabrics of cotton or man-made fibres falling within Chapter 52, Chapter 54 or Chapter 55 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. (iv) fabrics of cotton or man-made fibres falling within heading No. 58.01, 58.02, 58.06 (other than goods falling within sub-heading No. 5806.20) 60.01 or 60.02 (other than goods falling sub-heading No. 6002.10) of the Schedule to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of the final product." 6.Now, we shall refer to some of the decisions of the CEGAT wherein the question regarding the admissibility of the Modvat credit in the context of Rule 57B and/or Rule 57B read with Rule 57A of the Rules of 1944, has been considered. 7.In India Cements Ltd. v. CC CE, Hyderabad reported in 1997 (95) E.L.T. p. 520, the credit was denied on the ground that as HSD Oil classifiable under heading 27.10. was excluded from the coverage of goods eligible to the benefits of credit at item No. (iv) of the Table annexed to Notification No. 8/95. The Tribunal found contradiction between the two Notifications i.e. No. 8/95 and No. 11/95. While Notification No. 3/95 denied Modvat credit benefit to HSD oil, without referring to purpose for which it was used, whereas by Notification No. 11/95, a second proviso was added to Rule 57D allowing credit to specified duty in respect of inputs used for generation of electricity, used within the factory of production for manufacture of final products or for any other purposes. In the opinion of the Tribunal, second proviso to Rule 57D has been incorporated with specific object of incorporating inputs for generating electr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule (1) of Rule 57B added by Notification No. 5/98, dt. 2-3-98 is extracted as follows: "Explanation.- For the purpose of this sub-rule, it is hereby clarified that the term 'inputs' refers only to such inputs as may be specified in a notification issued under Rule 57A." The Tribunal without examining that the defect pointed in India Cements case (supra) was cured by Notification No. 6/97, dated 1-3-1997, deleting second proviso to Rule 57D and introduced Rule 57B and further by Notification No. 5/98, dated 2-3-1998, clarification was made by adding explanation that the term "input" in Rule 57B refers only to such inputs which may be notified under Rule 57, followed the decision in India Cements case against the department. The Tribunal has also referred to decision in Jindal Polymer's case (supra). We have perused the judgment of the Tribunal in Jindal Polymer's case (supra). We find that the Tribunal has simply referred to its earlier decisions in Ballarpur Industries Ltd. v. CCE, 1994 (70) E.L.T. 413 and in India Cements Limited's case (supra). There is no detailed discussion with respect to the effect of amendment dated 1-3-1997. 12.In Sivakaami Mills Ltd. v. Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the CEGAT or any High Court or the Apex Court has been placed before us wherein the view taken by the CEGAT in India Cements Ltd.'s case (supra) has been approved or disapproved or the effect of the Notification No. 5/98, dt. 2-3-98 has been examined. 16.The Central Government considering that there was some confusion with respect to availability of the Modvat credit on HSD Oil used for generation of electricity within the factory premises for the production of final product as cement, inspite of the clarification made from time to time by way of amendments and further the fact that there was reservation about the correctness of the judgment of the CEGAT in India Cements Ltd.'s case (supra) and Jindal Polymer's case (supra), a Finance Bill was introduced to validate the action taken to deny the credit of any duty paid on the HSD Oil from 16-3-1995. It appears from the explanatory notes to legislative changes that the Government never intended to allow such credit. Thus, both the Houses of Parliament passed a Validating Act by Finance Bill, 2000 and thereafter the Finance Act, 2000, which received the assent of the President of India on 12-5-2000. The Section 112 of the Financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded by Mr. S. Ganesh, Senior Advocate appearing for the petitioner that the petitioner is entitled to Modvat credit under Rule 57B as HSD Oil for generation of the electricity as fuel in D.G. Set, which is used for manufacture of the final product of cement within the factory being covered by sub-clauses (iii) and (iv) of sub-rule (1). It is further submitted that anything contained in Rule 57A would not apply to the provisions of Rule 57B as both the provisions are mutually exclusive as Rule 57B starts with non-obstante clause. We are unable to accede to the submission made by the learned counsel. Rules 57A and 57B have been extracted by us in the preceding paras. Rule 57A empowers the Central Government to specify final product by issuing the notification for the purpose of allowing the Modvat credit of any duty of the excise paid on the goods i.e. the inputs used in the manufacture of the said final product. Under the Notification No. 5/94, goods for the purpose of Modvat credit have been notified. Column No. (2) of the Table appended to the notification describes inputs. Column No. (3) specifies final product. Thus, the said notification excludes HSD Oil classifiable under Head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scope of the main provision, effect must be given to it. The reference may be made to Hiralal Ratanlal v. Sales Tax Officer, reported in AIR 1973 SC 1034 and Aphali Pharma v. State of Maharashtra reported in 1989 (44) E.L.T. 613 (S.C.) = AIR 1989 SC 2227. The Apex Court in Sulochana Amma v. Narain Nair reported in 1995 (77) E.L.T. 785 (S.C.) = AIR 1994 SC 152 construed the explanation (viii) of Section 11 of the CPC by the amendment in the year 1976 to promote the object for which it was inserted viz. that an issue once decided by the competent court, should not be litigated over again, though the court deciding it was a court of limited jurisdiction not competent to decide the subsequent suit. In para 7 of the judgment, the Apex Court noticed the settled position of law with respect to explanation as follows : "It is settled law that explanation to a section is not a substantive provision by itself. It is entitled to explain the meaning of the words contained in the section or clarify certain ambiguities or clear them up. It becomes a part and parcel of the enactment. Its meaning must depend upon its terms. Sometime, it would be added to include something within it or to exclude ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... feature of the Modvat credit scheme. Rule 57D is workable with the ineligible inputs under the Notification No. 5/94. There are eligible inputs i.e. furnace oil, which is used for generation of the electricity. Suffice it to say that the purpose of the proviso under Rule 57D is not to make an ineligible input as an eligible one. 19.It is next argued that while Modvat credit benefit has been made available on the petroleum products like lubricating oil, grease, cutting oil and coolants, it has been denied on HSD Oil, which is also a petroleum product. It is further submitted that the fuel oil is a substitute of HSD Oil, which is also a petroleum product. The Modvat credit has been made available on the fuel oil. There is no justification for discriminating to single out HSD Oil from the list of input. Thus, according to the learned Counsel, it is clearly a case of discrimination. Learned Counsel has heavily placed reliance on a decision of the Apex Court in Ayurveda Pharmacy v. State of Tamil Nadu reported in 1989 (40) E.L.T. 273 (S.C.) = AIR 1989 SC 1230 for the proposition that while it is open to the legislature or the State to select different rates of tax for different commo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emission controls, however diesel fuel qualities have come under the increased scrutiny. The limitation of aromatic compounds requires a much more demanding scheme of processing individual gas oil components that was necessary, for earlier highway diesel fuels. Thus, the contention raised is rejected. 20.Challenging the constitutional validity of the impugned Validating Act (Section 112 of the Finance Act, 2000), it is strenuously argued by Mr. S. Ganesh, Senior Advocate, appearing for the petitioner that it is not open for the legislature to undo the effect of the rules and the judgment interpreting such rules, that too retrospectively. It is submitted that the validating provisions tend to interfere with the vested right and reopen concluded transactions in wholly arbitrary and unreasonable manner. It is further submitted that the respondent department has accepted the legal position with respect to availability of Modvat on HSD Oil used in D.G. Set for generation of the electricity as laid down in various decisions of the CEGAT. The department has not challenged any of the judgments of the CEGAT either before jurisdictional High Court or the Apex Court and, as such, all those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SD, on account of any judgment or order in any Court, Tribunal, etc. These provisions come into force on the enactment of the Finance Bill and the credit becomes recoverable within a period of 30 days from the date of enactment, failing which interest at @24% p.a. will also be payable." The crucial question, therefore, is whether the impugned Validating Act can be supported on any constitutional principle of law. It is well settled that a Validating Act may make judgments and orders of the competent court ineffective by providing retrospective legislation removing the cause of invalidity or the basis, which has led to those judgments. 22.In a leading judgment Shri Prithvi Cotton Mills v. Brouch Municipality reported in 2000 (123) E.L.T. (S.C.) = 1969 (2) SCC 283, the Constitution Bench of the Five Judges unanimously upheld the power of legislature to validate the acts done in a particular provision, particularly of fiscal matters. The Apex Court held that legislature can exercise its undoubted powers of re-defining the 'rate' so as to equate it to a 'tax' on capital value and convert the tax purported to be collected as a "rate" into a 'tax' on land and building. The ratio in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resume of the various decisions culled out the principles as extracted from para 56 as follows : "(1) The adjudication of the rights of the parties is the essential judicial function. Legislature has to lay down the norms of conduct or rules which will govern the parties and the transactions and require the court to give effect to them. (2) The Constitution delineated delicate balance in the exercise of the sovereign power by the legislature, executive and judiciary. (3) In a democracy governed by rule of law, the legislature exercises the power under Articles 245 and 246 and other companion articles read with the entries in the respective lists in the Seventh Schedule to make the law which includes power to amend the law. (4) Courts in their concern and endeavour to preserve judicial power equally must be guarded to maintain the delicate balance devised by the Constitution between the three sovereign functionaries. In order that rule of law permeates to fulfil constitutional objectives of establishing an egalitarian social order, the respective sovereign functionaries need free play in their joints so that the march of social progress and order remains unimpeded. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion ineffective by removing the base on which the decision was rendered, consistent with the law of the Constitution and the legislature must have competence to do the same."24.The ratio laid down in the aforesaid decisions has been followed in AIR 1985 SC 1683, 1997 (2) SCC 453, 1997 (1) SCC 326, 2001 (5) SCC 212 and 2001 (7) SCC 358. All the cases prior to 1997 have been dealt with in great detail in the leading case viz. S.S. Bola v. B.D. Sardana reported in (1997) 8 SCC 522. It is not necessary to traverse the law nor to go into the facts of all the cases. Suffice it to say that all relate to fiscal encroachment. 25.Now, we may advert to some of the decisions referred by the learned Counsel for the petitioner. In D. Cawasji and Co., Mysore v. State of Mysore reported in 1985 (19) E.L.T. 5 (S.C.) = 1984 (Supp) SCC 490, the High Court held that the State Government exceeded the power under Sec. 19 of the Sales Tax Act to collect the sales tax and excise duty, which is not a part of the selling :price. A mandamus was issued for the refund of the amount collected. The State brought an amendment in the Sales Tax Act thereby not only validating the levy of the sales tax but also en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... na Bhat v. State of Karnataka reported in (2001) 4 SCC 227, the collection of service tax by Bangalore Development Authority was quashed. The High Court gave : specific finding that in lieu of fees collected, no service has been rendered. A Validation Act as Bangalore Development Authority (Amendment) Act, 1993, whereby Secs. 28A, 28B and 28C were incorporated, was challenged. On challenge of the Validation Act, the Apex Court observed that when a legislature sets out to validate a tax declared by a court to be illegally collected it is not sufficient for the legislature to merely declare that the decision of the court shall not be binding because that would amount to reversing the decision rendered by a court in exercise of judicial power which authority the legislature does not possess. The Court also observed that when invalidity of collection of levy is pointed out by the court based on non-existence of certain necessary facts, it is not open to the legislature to merely controvert that finding of the court and validate such collection by proceeding on the basis that such finding of the court was incorrect. Thus, in the opinion of the Apex Court, the collection made prior to co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature. 31.Lastly, it is contended by the learned Counsel that the petitioner has availed the Modvat credit in terms of the rules and in the light of the judgment of the CEGAT, which have attained the finality. On availing such credit, the petitioner has priced its finished goods after taking into account such credit and, therefore, did not pass on the burden i.e. duty on the HSD Oil to its consumer. Thus, if the validity of the amendment imposing the levy on HSD Oil is upheld, it will result in harshness to the petitioner-company. It is urged that on the said ground alone, the impugned Validation Act deserves to be declared unreasonable and arbitrary and struck down. Reliance is placed on a S.B. judgment of the Calcutta High Court in Sheo Bhagwan Goenka v. C.T.O. reported in 32 S.T.C. p. 363 and another D.B. decision of the same court in Bengal Paper Mills v. C.T.O. reported in 38 S.T.C. p. 163. We have gone through both the judgments. Both the cases have no application to the facts of the case. In the subsequent D.B. judgment, it is held that a distinction ought to be made between a Validating Act, where acts in respect of which the legislature is competent to legislate or valid ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
