• PAGE ONE
• INDEX
• HOME

Revenue wins excise case in apex court

R.N. Sahai

The provision of Section 11A of the Central Excises and Salt Act, 1944 (`the Act'), laying down six month limitation for serving notice to recover short levy of duty, would have no application to any action taken under Rule 57-1 of the Central Excises an d Salt Rules, 1944 (`the Rules'), prior to its amendment on October 6, 1988, and Rule 57-I of the Rules is not in any manner subject to Section 11A of the Act.

Hence, the view taken by the Gujarat High Court in Torrent Laboratories Pvt Ltd vs. Union of India 1991 (55) ELT 25 is approved, and it is further held that the contra view expressed by the Madras, Karnataka, Bombay and Patna High Courts does not lay dow n the correct position of law.

That was the judgment of the Supreme Court in Collector of Central Excise, Jaipur vs. Raghuvar (India) Ltd (Excise Reference case (c) No. 3 of 1995 decided on May 11, 2000).

The judgment favouring the revenue was decided by a three judge-Bench comprising Mr. Justice G.B. Pattanaik, Mr. justice Doraiswamy Raju and Mr. justice S.N. Variava. It rejected the case of the respondent that because of six-month limitation for serving notice for recovery of duties not levied/short levied etc., as laid down in Section 11A of the Act, respondent could not be served with a show-cause notice, after six months of taking Modvat credit, as to why the sum of wrong Modvat credit taken by it s hould not be recovered.

In this case, the respondent-company is a holder of licence in form L-4 and a manufacturer of vegetable products. It filed a declaration under Rule 57G of the Central Excises Rules, 1944, (`the Rules') on March 10, 1987 for adoption of Modvat credit in r espect of certain inputs used by it in the manufacture of vegetable products, and consequently, became entitled to avail of the duty credit only on and after that date.

But it availed of the credit facilities in question even from March 1, 1987 and, therefore, the authorities were of the view that wrong credit had been availed of to the tune of Rs. 62,710.61 on the inputs received, and utilised from March 1, 1987 to Mar ch 10, 1987.

On being pointed out, the respondent-company merely debited a credit of Rs. 20,828.93 relating to furnace oil and filter cloth, as not covered under the Modvat Scheme, but it did not debit the balance of Rs. 41,872.68, in respect of other outputs in spit e of the communication dated March 10, 1987 and reminders for the reversal of the credit issued by the Range Officer.

As against the reminder dated February 1, 1988, it filed an appeal before the Collector (Appeals), who set aside the same, and remitted the matter to the Assistant Collector for the purposes of Rule 57G. In the meantime, the Assistant Collector, Central Excise, Jaipur, issued a show-cause notice as to why the sum of Rs. 41,872.68 should not be recovered from it under Section 11A of the Act read with Rule 57-I of the Rules.

After considering its submissions, the Assistant Collector directed the reversal of the credit wrongly taken, and also held that filing of a declaration being a statutory necessity and condition precedent to avail of credit under the scheme it was not el igible to take credit for the period prior to the filing of the declaration.

The respondent-company did not contest the case on merit but only raised a plea of limitation that notice has not been issued within a period of six months as envisaged under Section 11A. The plea came to be rejected on the ground that the Range Officer had issued a letter dated August 10, 1987 calling upon it to debit the credit wrongly taken and this was well within the six-months period.

This was challenged by the respondent on appeal, and the Collector (Appeals) rejected the appeal repelling the plea of limitation. The respondent further pursued the matter before the Tribunal by way of an appeal, when it was held that the show-cause not ice issued by the Assistant Collector on August 5, 1988 was beyond a period of six months, and that even for demanding reversal of credit already taken, in exercise of Rule 57-I, the provisions of Section 11A would get attracted necessitating the raising of the demand with six months.

Thereupon, the Revenue moved the application for reference, and the reference came to be made to the Supreme Court.

The reference to the Supreme Court was on account of conflict of views between the Gujarat High Court in Torrent Laboratories Pvt Ltd vs. Union of India 1991 (55) ELT 25, and the Karnataka High Court in Thungabhadra Steel Products Ltd vs. Supdt. of Centr al Excise 1991 (56) ELT 340. The Karnataka view was also shared by some other High Courts. But the apex court decided the controversy approving the judgment of the Gujarat High Court.

The Supreme Court after going through the decisions of the Gujarat High Court and other High Courts concluded that the Gujarat view was more reasonable and accorded with the aim and object of successful implementation of the Modvat scheme.

It also noted that there was fallacy in the line of reasoning adopted by the other decisions in their assumption that the period of limitation prescribed in Section 11A of the Act has universal application to govern every act or course of action envisage d under the Act and the Rules, wherever there is no limitation stipulated to the contra.

The judges pointed out that 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.

They further remarked that the fact that even when an amendment was made on October 6, 1988, it was prospective in nature and the amendment was not given any retrospective effect which indicates the intention unmistakably that the subsequent amendment sh ould have no impact on the construction to be placed on the provisions as it existed before such amendment.

While concluding, the judges also observed that by adopting a defiant attitude in the matter, the manufacturer cannot take advantage of his misdeed to gain an advantage by contending that the action to be taken involves only a recovery of duty and, there fore, should be within the period of limitation provided under Section 11A of the Act.

Even when the recovery is ordered, as a last resort as envisaged under Rule 57-I, it is only recovery of the money value equivalent to the unlawful credit availed of and adjusted under the scheme and not the demand or recovery of any duty as such.

By arrangement with Corporate Law Adviser, New Delhi.)