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Collector Of Central Excise Allahabad v. M/S Ram Sarup Electrical Ltd. - CENTRAL EXCISE REFERENCE No. 55 of 1997 [2007] RD-AH 9131 (14 May 2007)


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Court No. 2

Central Excise Reference No. 55 of 1997

Collector of Central Excise, Allahabad


M/s Ram Sarup Electricals Ltd. and another

Hon'ble R.K.Agrawal, J.

Hon'ble Bharati Sapru, J.

At the instance of the Revenue the Customs, Excise & Gold (Control) Appellate Tribunal, New Delhi has referred the following questions of law under Section 35G(1) of the Central Excise & Salt Act, 1944 (hereinafter referred to as the Act) for opinion of this Court.

"1.Whether the Tribunal was right in holding that in the absence of any provision at the material time against the availment, at the subsequent stage, of the amount of credit short availed originally at the time of receipt of the inputs, the respondents were entitled to take the differential higher notional credit under Rule 57B at a subsequent stage. In other words whether the full amount of admissible Modvat Credit has to be taken in a single transaction or it could be taken in instalments as done by the respondents in the present cases and allowed by the Tribunal?

2. Whether, even if, it is held that such subsequent taking of short availed is permissible, the Tribunal was correct in allowing such subsequent taking of credit beyond a period of six months from the date of the original taking of credit or the Tribunal should have restricted the credit so taken subsequently to the amounts relating to the immediately preceding six months period?

3. Whether subsequent taking of originally short availed Modvat Credit will constitute a refund claim and accordingly subject to the time limit restriction laid down under Section 11B of the Act?

4. Whether by filing the Gate Passes and RT-12 monthly returns the respondents can be said to have staked a claim at the original stage and hence the time limit of six months will not be applicable as held by the Tribunal?"

Briefly stated the facts giving rise of the present reference are as follows:

The respondents are manufacturers of excisable good using duty paid inputs and availing Modvat credit of such duty paid inputs. Under Rule 57A of the Central Excise Rules the manufacturers of excisable products are eligible to take credit of the specified duty paid on the inputs, which they can use for the payment of Central Excise duty on their products. However, in terms of Rule 57B ibid, where the inputs are manufactured by small scale industrial units availing of partial exemption from duty under notifications applicable to such small scale industrial units, the credit of duty available to the manufacturers using such inputs will not be limited to the partially exempted duty actually paid by the small scale manufacturer but the duty otherwise leviable on such input goods but for such small scale industry exemption. The respondents in the two cases initially took the credits only equal to the duty actually paid by the supplier-manufacturers who were small scale units and shown in the Gate Passes and not the higher amount they were actually entitled to take under Rule 57B. The respondents Ram Swarup Electricals Ltd. had received the inputs and taken credit in the months of April, 1992 and July 1992 to November, 1992. On 5th March, 1993 they took the short availed credit amount in their RG.23A Part II account. The other respondents, M/s Essel Mining Industries likewise had received their inputs and taken less credit initially while they took the short availed credit subsequently. After issue of  show cause notices, the Assistant Collectors of Central Excise, Lucknow Division and Rae Bareli Division adjudicated the two cases and confirmed the duty demands, holding such subsequent taking of the short availed credits to be irregular. These orders having been upheld by the Collector of Central Excise (Appeals), the matter was taken to the Tribunal by both the respondents herein and the Tribunal by order No. A/884/96-NB dated 18th March, 1996 in the case of Ram Sarup Electricals Ltd. and order No. A/652/96-NB dated 29th February, 1996 in the case of Essel Mining Industries allowed the appeals holding that in the absence of any specific limitation in the relevant Rules for taking of Modvat credit, the differential credit amount can be taken without limitation and even if a reasonable period of six months were to be applied, as the claim for Modvat credit had been staked by submission of relevant Gate Passes along with the monthly R.T. 12 returns, the limitation period of six months will not be applicable.

We have heard Sri K.C.Sinha, learned Assistant Solicitor General of India appearing for the Revenue and Sri Pankaj Bhatia, learned counsel appearing for the respondents.

At the outset it may be mentioned here that except the statement of case sent by the Tribunal there is no other document on record. We are proceeding to decide the present Reference on the basis of the record available before us and on the basis of the arguments advanced by the learned counsel for the parties.

Sri K.C.Sinha submitted that even though during the relevant period there was no limitation provided under Rule 57A of the Central Excise Rules the time limit provided under Section 11B of the Act would be applicable and, therefore, any amount of Modvat credit which has been availed of falls short of the actual amount which could have been availed ought to have been taken credit of within six months and not beyond it. In support of his submission he has relied upon a Division Bench of the Gujarat High Court in the case of Wipro Ltd. vs. Union of India (1992 (60) E.L.T. 370).  He submitted that as the period of six months had expired the respondents would not be entitled to avail of the difference in the amount of Modvat credit.

Sri Pankat Bhatia submitted that provisions of Section 11B of the Act is not applicable in a case of Modvat credit as the same is governed by Rules 57A to 57P of the Central Excise Rules, 1944 as held in the case of Collector of Central Excise, Jaipur vs. Raghuvar (India) Ltd. reported in (2000 (118) E.L.T. 311 (S.C.). He submitted that like provisions of Section 11A of the Act which has been held to be not applicable to the provisions of Rule 57I of the Act relating to Modvat credit, Section 11B is also not applicable. He further submitted that the Apex Court in the case of Collector of Central Excise, Pune vs. Dai Ichi Karkaria Ltd. (1999 (112) E.L.T. 353) has held that the credit under the Modvat Scheme which is available is indefeasible and it has no co-relation with the raw material and the final product it can be availed at any time. According to him as no period of limitation having been prescribed under Section 57A of the Rules, the respondents were entitled to avail the difference of Modvat credit relating to short fall at any time.

We have given our anxious consideration to the various pleas raised by the learned counsel for the parties.

It is not in dispute that the respondents have availed of the differential amount of duty paid in input as Modvat after a period of six months but on the basis of some documents which they had submitted lesser amount of Modvat credit was availed by them while taking the benefit of Rule 57A of the Central Excise Rule, 1944.

In the case of Raghuvar (India) Ltd. (supra) the Apex Court has held as follows:

"13.......It is not for the Courts to import any specific period of limitation by implication, where there is really none, though Courts may always hold when any such exercise of power had the effect of disturbing rights of a citizen that it should be exercised within a reasonable period. Section 11A is not an omnibus provision which provides any period of limitation for all or any and every kind of action to be taken under the Act or the Rules but will be attracted only to cases where any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded. The section also provides for an extended period on certain contingencies and situations. The situation on hand and the one which has to be dealt with under Rule 57-I, as it stood unamended, does not fall under any one of those contingencies provided for in Section 11A of the Act. Part AA of the Rules in which Rule 57-I is found included provides a special scheme for earning credit and adjustment of duty paid on excisable goods used in inputs in the manufacture of what is referred to as ''final product, and thereby enable the manufacturer to utilize the credit so allowed towards payment of duty of excise leviable on the final products, in the manner and subject to the terms and conditions stipulated therein. The manufacturer, in this case while removing the final product manufactured has adjusted against payment of excise duty on such final product a part or portion of the credit earned by him under the special scheme and what is sought to be really and in substance done is to inform the manufacturer that the adjustment he purported to have made was with an amount not legitimately or factually earned by or due to him. For this purpose, the irregularity and impropriety committed by the manufacturer in maintaining the accounts and the error in the calculation of the credit said to have been earned by him is pointed out and the manufacturer is only directed to reverse the credit so wrongly and undeservedly made by readjustment and if need be, to recover the amount equivalent to such credit wrongly availed of and disallowed by the proper officer. The recovery of credit availed of and utilized in utter breach of the faith and mutual trust and confidence which is the raison d'etre for the proper and successful working of the Modvat scheme and that too in gross violation of the mandatory requirements necessarily to be fulfilled before ever claiming or availing of such benefits cannot be said to be the same as the demand for payment to be made under Section 11A of the Act of any excise duty not levied or paid or has been short levied or short paid. They fall into two distinct and different categories altogether with basic as well as substantial differences to distinguish them from each other. As a matter of fact, Rule 57-I envisages disallowance of the credit and consequential adjustment in the credit account or the amount current maintained by the manufacturer and if only any such adjustment are not possible proceed to recover the amount equivalent to the credit illegally availed of. Consequently, the situation postulated to be dealt with under Rule 57-I cannot be said to involve a case of manufacture and removal of excisable goods without subjecting such goods to levy or payment of the various nature and category enumerated in Section 11A of the Act on its own terms will have no application or operation to cases covered under Rule 57-I of the Rules.

14.......The provisions contained in Section 11A are general in nature and application and the Modvat Scheme being a specific and special beneficial scheme, with self contained procedure, manner and method for its implementation, providing for its own remedies to undo any mischief committed by the manufacturer in abuses thereof, the provisions of the said special scheme alone will govern such a situation and there is no scope of reading the stipulations contained in the general provisions like Section 11A into the provisions of the rules in question which alone will govern in its entirety the enforcement of the Modvat Scheme. The question as to the relative nature of the provisions general or special has to be determined, with reference to the area and extent of their application either generally in all circumstances or specially in particular situations and not on the ground that one is a mere provision in the Act and the other is a provisions in the Rule. We are not also concerned in this case with any challenge to the inconsistency of a rule with any statutory provisions in the Act.

15.......The restricted operation of the provisions contained in Section 11A is found inherently in built due to the specification of the various categories of cases enumerated in the provision itself to be dealt with. The scheme of Modvat introduced for the first time in 1986. did not consider it necessary either to have its own period of limitation in built in the Rules nor has the enforcement of the scheme been made subject to Section 11A of the Act. The fact that even when an amendment was made on 6.10.1988, it was prospective in nature and the amendment was not given any retrospective effect indicates the intention unmistakably that the subsequent amendment should have no impart on the construction to be placed on the provisions as it existed before such amendment. The further fact that the amendments to Rule 57-I had its own pattern of limitation and method of computation of such limitation also would militate against the manner of construction adopted by the decisions of the High Courts other than that of the Gujarat High Court."

In the case of Dai Ichi Karkaria Ltd. (supra) the Apex Court has held as follows:

"17. It is clear from these Rules, as we read them, that a manufacturer obtains credit of the excise duty paid on raw material to be used by him in the production of an excisable product immediately it makes the requisite declaration and obtained an acknowledgement thereof. It is entitled to use the credit at any time thereafter when making payment of excise duty on the excisable product. There is no provision in the Rules, which provides for a reversal of the credit by the excise authorities except where it has been illegally or irregularly taken in which event it stands cancelled or, if utilized, has to be paid for. We are here really concerned with credit that has been validly taken, and its benefit is available to the manufacturer without any limitation in time or otherwise unless the manufacturer itself chooses not to use the raw material in its excisable product. The credit is, therefore indefeasible. It should also be noted that there is no correlation of the raw material and the final product; that is to say, it is not as if credit can be taken only on a final product that is manufactured out of the particular raw material to which the credit is related. The credit may be taken against the excise duty on a final product manufactured on the very day that it becomes available.

18. It is therefore, that in the case of Eicher Motors Ltd. v. Union of India (1999 (106) E.L.T. 3) this Court said that a credit under the Modvat scheme was "as good as tax paid"."

In view of the principle laid down by the Apex Court in Raghuvar (India) Ltd. (supra) provisions of Section 11A of the Act is not attracted and cannot be imparted in respect of the Rules framed for availing of the Modvat, the same principle would apply for the purpose of Section 11B of the Act also. In view of the decision of the Apex Court in Raghuvar (India) Ltd. (supra) the law laid down by the Gujarat High Court in the case of Wipro Ltd. (supra) cannot be said to be a good law any more. We are, therefore, of the considered opinion that provisions of Section 11B of the Act is not attracted in the case of Modvat which is governed by Rules 57A to 57P. Further, during the relevant period no limitation had been provided for availing of the Modvat credit and the amendment in Rule 57G prescribing the limit of six months was introduced on 29th June, 1995 which has prospective effect. Thus, the respondents were within their right to avail the short fall in the Modvat credit at any time.

In view of the foregoing discussions, we answer the questions referred to us in favour of the assessee and against the Revenue. There will be no order as to costs.




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