TMI Blog1995 (6) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... t through that inasmuch as Rule 57-I as it originally stood prior to amendment on 6-10-1988 had not prescribed any period of limitation, the department would be eligible and entitled in law to initiate proceedings to recover wrong or irregular taking or utilisation of credit by the assessees without being subject to any bar of limitation. It is only in this context having regard to the controversy involved in the interpretation of Rule 57-I as it stood at the relevant time without any specific period of limitation being prescribed thereunder, and also keeping in mind the conflict of views on this issue between some High Courts such as Madras and Gujarat and also keeping in mind the conflict of view between the Benches, a Larger Bench was constituted to resolve the controversy. 2. Therefore, the issue before the Bench is with reference to the applicability of the bar of limitation while interpreting Rule 57-I as it stood prior to amendment on 6-10-1988 without any specific period of limitation having been prescribed thereunder. For purposes of convenience, we are extracting Rule 57-I which is a relevant rule for consideration in the context of the case as under :- "Recovery of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll not utilise the credit thus disallowed. (2) If any inputs in respect of which credit has been taken are not fully accounted for as having been disposed of in the manner specified in this section, the manufacturer shall upon a written demand being made by the Assistant Collector of Central Excise pay the duty leviable on such inputs within 10 days of the notice of demand." 3. The Division Bench of the Madras High Court in the case of M/s. Advani Oerlikon Ltd. v. Assistant Collector of Central Excise reported in 1993 (63) E.L.T. 427 (Mad.) dealing with this issue has observed as under :- "We are thus of the opinion that notwithstanding the rule, which did not contemplate any notice or any period of limitation for the demand, the rule of limitation, as found in Section 11A of the Act, has still to be applied to the case of the petitioners. We have come to this conclusion following the rule of strict construction of a taxing statute. It is said in Maxwell on the Interpretation of Statutes - 10th Edition, Page 284, "The tendency of modern decisions, upon the whole, is to narrow down materially the difference between what is called a strict and beneficial construction." No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability of certain persons, without informing them of the grounds on which they have come to think that the person concerned had not paid the tax or had short-paid the tax or he had not been levied to tax or had been short-levied. It is only after knowing what is the representation of the person, who is chargeable to tax, in the situations as above, that they should decide to issue demand notice. Any ex parte decision without affording opportunity of being heard to a tax payer, in the situations of this kind, in our opinion, apart from what is stated in Section 11A, shall be hit by the principle of audi alteram partem, one of the three well recognised rules of the principles of natural justice." 4. In respect of an identical issue as to whether Section 11A of the Central Excises Salt Act, 1944 could be read into Rule 57-I of the Central Excise Rules, 1944, the Division Bench of the Gujarat High Court went into the issue in the case of M/s. Torrent Laboratories Pvt. Ltd. v. U.O.I. reported in 1991 (55) E.L.T. 25 (Guj.) and the Gujarat High Court after detailed consideration of the case laws relevant to the issue and also the provisions of Section 11A of the Central Excises Sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wrongful availment of Modvat credit. Rule 57-I is enacted by the legislature in exercise of powers conferred upon it under Section 37 of the Act and not under Section 11A of the Act. The provisions of Rule 57-I is to be in conformity with the provisions of Section 37 of the Act. On March 1, 1986 when Rule 57-I was enacted and brought on the statute book the legislature was aware about the provisions of Section 11A of the Act being in force. Therefore it has got to be presumed that the legislature has made the provision with a specific purpose. It is cardinal principles of interpretation of statutes that the legislature does not indulge in exercise in futility. (2) It is over-simplification to say that Rule 57-I as it stood prior to amendment is nothing but provision with regard to recovery of duty as it is in the case of short-payment of duty, short-levy of duty or under-assessment. Section 11A of the Act is a general provision which covers and deals with all types of short-levy, short-payment and under-assessment. On the other hand, the provisions with regard to the Modvat scheme (Rules 57A to 57P) have been introduced in the statute book by notification dated March 1, 1986, pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by him for the purpose of manufacture of end product. (c) Basis of Modvat - mutual trust and confidence. While enacting Modvat provision, legislature has reposed a sort of trust or confidence on the assessee. The legislature expects the same type of candid and forthright behaviour on the part of the assessee. Assessee himself is required to keep proper account of the credit availed of and utilised. In case of mistake, even assessee himself can correct the mistake under intimation to the department. (d) In cases governed by Section 11A of the Act and Rule 56A of the Rules, the assessee as well as the Department may start with suspicion. The assessee may feel that the Department is trying to exact the property of the individual citizen without authority of law and even when it is authorised by law the same is being exacted unlawfully and in unjust manner. The Department may starts with the premise that so long as the assessee can, he will never pay the legitimate excise duty payable to the State. Such suspicion cannot be the basis as far as the Modvat scheme is concerned. Modvat scheme rests on the trust and goodwill of both the sides. It is a relationship of mutual trust. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of provisions of Section 33(6) of the Bombay Sales Tax Act, 1959 [corresponding to Section 14(6) of Bombay Sales Tax Act, 1953] came up for consideration before the Supreme Court. It was contended that no time limit was provided in this specific provision, while for taking actions in other cases, Section 35 provided time limit and therefore the provisions should be held to be ultra vires. The Supreme Court applied the maxim - GENERALIA SPECIALIBUS NON DEROSANT and negatived the contention. The Supreme Court held that the provision of S. 33(6) of the Bombay Sales Tax Act, 1959 was confined to a particular class of tax evaders while Section 35 of the Bombay Sales Tax Act, 1959, was a general provision dealing with escaped assessment or under assessment. Thus whenever the legislature makes general provision and in the same sphere makes a special provision which would be applicable to specific cases, the provision relating to specific cases would be applicable to specific cases and not the provision relating to general cases. Thus in view of the first principles as regards the interpretation of statutes and in view of the aforesaid two decisions of the Supreme Court, the contentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m RG 23A, and, also make available the documents evidencing the payment of duty on the inputs taken, to the proper officer. Therefore, having regard to this scheme, any reversal of the credit availed of by the manufacturer wrongly, results in withdrawal of the allowance of the credit and the proper officer proceeds to recover the amount equivalent to the disallowance in the manner prescribed in Rule 57-I. It, therefore, stands to reason why restriction was placed by the Central Govt. on Rule 57-I, as amended with effect from 6-10-1988. This restriction is the time limit of six months for recovery of credit wrongly availed of, if it is an error on the part of the officer, and time limit of five-years is allowed if such credit has been taken on account of, wilful misstatement, collusion or suppression of facts on the part of the manufacturer or an assessee. This amendment brings about uniformity in the procedure prescribed under the Rules as are applicable to both the schemes under 56A and 57A. The substantive law prescribed in the Central Excise Act for recovery of any duty payable, short levy or erroneous refund is Section 11A of the Act which places restriction of the exercise o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion Bench of the Madras and Karnataka High Courts whereas it has been specifically considered by the Division Bench of the Gujarat High Court in the case of M/s. Torrent Laboratories Pvt. Ltd. in para 7 of the judgment. Since in our view the principles laid down in the ruling of the Supreme Court would be applicable in the context of Rule 57-I as it stood at the relevant time and would subserve the best interests of the department as well as the assessees and would be in consonance with the Modvat scheme in general and recovery of wrong or irregular credit by the department in particular, we are inclined to hold that a period of six months in normal circumstances and a period of five years wherever there is suppression, wilful misstatement or collusion etc. for availing of Modvat credit in contravention of law would be the reasonable period of limitation. This view of ours is in consonance with Modvat scheme and also the later amendment to Rule 57-I which has been extracted above. We also would like to reiterate that the Karnataka High Court also in the ruling referred to above taking note of the subsequent amendment to Rule 57-I has observed as under :- "Therefore, Rule 57-I, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is how the Supreme Court has upheld the provisions of Rule 12 of the Medicinal Toilet Preparations (Excise Duties) Rules, 1956. The same principle would be applicable to the provisions of Rule 57-l of the Rules as it stood prior to the amendment. Hence, there is no substance in the contention and the same has got to be rejected." 7. Therefore, after hearing the submissions of all the parties and on consideration of all the materials on record, we hold that in respect of Rule 57-I as it stood prior to amendment without any period of limitation having been prescribed thereunder, six months period of limitation or five years period of limitation as the case may be, would be considered a reasonable period of limitation in the light of what has been set out above. We further hold that the period of limitation will start running from the knowledge on the part of the department in regard to irregular taking and utilisation of the Modvat credit by the assessees concerned. Rule 57G(4) of the Central Excise Rules, 1944, provides as under :- "A manufacturer of the final products shall submit a monthly return to the Superintendent of Central Excise indicating the particulars of the inputs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee and also correctly utilised in respect of the end-product, yet reversal of some Modvat credit may be called for by the department on the same, on the ground that some portion of the end-product or the whole were cleared under exemption or at nil rate of duty at a later point of time utilising the duty paid inputs on which the Modvat credit had been availed of. In such a situation, we hold that the period of limitation will start running from the date of the filing of the RT 12 returns relating to the exempted goods. 8. Before parting with this case, we would like to refer to the contentions of Sh. Venkataraman, the learned Counsel, appearing for the appellant M/s. Union Carbide India Ltd. in A. No. E/174/90. The learned Counsel contended that the issue in this case is with reference to the appellant's eligibility to take enhanced credit in terms of Rule 57E read with Notification No. 257/87, dated 8-12-1987. Shri Venkataraman contended that initially in respect of the goods imported and used as an input Modvat was restricted to Rs. 800/- per MT under Notification No. 149/87, dated 20-5-1987 and subsequently, by Notification No. 257/87 cited supra the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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