Rexin Sea (India) vs Union of India (UOI)

S.J. Mukhopadhaya, J.—As both the appeals have been preferred by common petitioner against common respondents, they were heard

together and disposed of by this common judgment.

The appellant applied to the Assistant Commissioner of Central Excise, Virudhunagar, seeking permission to utilise the excess credit available in

the statutory RG 23-A account and the Central Excise Act, 1954. Having not permitted, while it challenged the rejection order dated 12th March,

1998, also challenged the validity of Clause (3) of 2nd Proviso to Notification No. 5/94 C.E. (NT) dated 1st March, 1994, issued in exercise of

powers conferred by Rule 57-A of the Central Excise Rules. Having not granted substantive relief by learned single Judge, the present two appeals

have been preferred.

As the case could be disposed of on a short point, it is not necessary to discuss all the facts, except the relevant ones, as discussed hereunder:

The appellant is engaged in the manufacture of coated fabrics falling under heading 59.03 of the Central Excise Tariff Act, 1985. The essential raw

material for making coated fabric is Poly Vinyl Chloride, which is an excisable article under heading 39.04 of the schedule appended to the Central

Excise Tariff Act.

The Government of India, since 1st March, 1986, introduced schemes vide Chapter V AA for the utilisation of the credit paid in respect of inputs

and utilised in or in relation to the manufacture of the final product. The scheme was so made to ensure that the duty paid on raw materials is set off

or utilised to reduce the duty payable on the manufactured product so that the manufactured produce, even while suffering full excise duty, may not

be needlessly prejudiced by the escalation, consequent to the duty paid on the raw materials.

Since 1st March, 1989, the textile fabrics were brought within the Modvat Scheme by Notification No. 10/89 CE (NT) dated 1st March, 1989

with the result that the duty paid on Poly Vinyl Chloride was also made available to discharge the duty payable on the textile fabrics, including

coated fabrics. The said notification was issued under Rule 57-A of the Central Excise Rules, 1944. It provides that the credit utilised for payment

of duty on the final product for the inputs falling under heading 39.04 shall not exceed Rs. 3.50 per sq.mt., and the excess credit available under

RG 23-A account shall not be refunded or adjusted or utilised for payment of duty under any excisable goods. The RG 23-A is an account

prescribed by Rule 57-G for maintaining a record of duty paid on inputs with a record of credit utilised for payment of duty utilised on the product.

Subsequently, notification No. 18/90 CE (NT) dated 16th May, 1990 was issued substituting Rs. 5.25 sq.mt., in place of Rs. 3.50 per sq.mt. By

another notification No. 39/91 CE (NT) dated 16th Dec., 1991, Rs. 5.25 was substituted by Rs. 5.50 per sq.mt. It followed by notification No.

5/94 CE (NT) dated 1st March, 1994, which by Clause (3) of 2nd proviso, made the following stipulation:

* * * * * * * *

(3) the excess credit, if any, available in the separate RG 23A account maintained in terms of the fourth proviso to erstwhile notification No.

177/86 - Central Excises, dated the 1st March, 1986 in respect of the specified duties paid on the goods falling under heading No. 39.04 of the

said Schedule shall not be allowed to be utilised for payment of duty on any excisable goods or refunded to the manufacturer:

Provided that nothing contained in the above proviso will apply in respect of specified duty paid on goods falling under heading 39.04 which, -

(a) are lying in stock on the 1st day of March, 1994, or

(b) are used in the manufacture of final produces which are cleared from the factory on or after the 1st day of March, 1994.

The appellant was taking credit on inputs of Poly Vinyl Chloride by maintaining a separate RG 23-A account up to 28th Feb., 1998 and was

utilising the credit for payment of duty on final products as per conditions and restrictions imposed vide earlier notification No. 177/86 CE (NT)

dated 1st March, 1986 as amended from time to time. After taking such credit, the appellant had excess modvat credit of Rs. 29,72,893.50 as on

1st March, 1994. The appellant asked for refund of the unutilised amount lying in its account by sending a letter to the Assistant Commissioner of

Central Excise, Virudhunagar-2 and the Commissioner of Central Excise, Madurai. The representation having been rejected vide letter C.

No.IV/16/225/97-T.3 dated 12th March, 1998, the writ petitions were preferred challenging the order of rejection and Notification No. 5/94 CE

(NT) dated 1st March, 1994.

According to the counsel for the appellant the restriction on receipt of the duty paid on Poly Vinyl Chloride under heading 39.04 and utilisation

of the duty credit in the manufacture of coated fabrics under heading 59.03 were removed, the proviso has been applied prospectively only in

respect of Poly Vinly Chloride for which credit had been taken prior to 1st March, 1994 and lying as excess credit as on the same date. It was

submitted that the rejection of such utilisation even after 1st March, 1994, is bad for the following grounds:

a) The appellant had the assurance of the scheme, organised the affairs and were having legitimate expectation that the credit will be available at a

future date and, accordingly, priced and sold the goods ; and

b) Te authorities had no jurisdiction to deny the credit and should have allowed the benefit.

According to the counsel for the appellant, Rule 57-A empowers the Central Government to specify the goods or class of goods in respect of

which ""credit of specified duty may be restricted"". There is no authority under Rule 57-A or any other rule, which empowers the Government to

notify even when such credit has already been granted; the utilisation of the credit may either be restricted or denied. In other words, under Rule

57-A, Government may intake the inputs and the final products for the purpose of the scheme with an added power to restrict duty credit available

on the receipt of the inputs and nothing more. It was submitted that the notification under challenge is violative of Article 19(1)(g) of the

Constitution of India.

On the other hand, according to the counsel for the respondent, Notification No. 177/86 CE (NT) dated 1st March, 1986 was issued under Rule

57A, which was superseded by subsequent notifications, including Notification No. 5/94 CE (NT) dated 1st March, 1994.

We have noticed the rival contentions made by the parties as also the relevant facts, rules and the orders passed in the writ petitions as were

preferred by the petitioner from time to time.

Rule 57-A deals with credit of duty paid on excisable goods as inputs, particularly its applicability. The provisions of the said section applies to

such finished excisable goods (final products) as the Central Government, by notification in the official gazette, specify in this behalf. Thus, it will be

evident that the manufacturers have no right to get the benefit till notifications are issued by the Central Government providing the benefit of credit

of duty paid on excisable goods used as inputs for finished products.

The only question that arise for consideration in these appeals is whether such benefit was available to the appellant earlier and had suddenly

been taken out affecting the legitimate expectation of the appellant.

From Notification No. 10/89 CE (NT) dated 1st March, 1989, it will be evident that the Central Government, in exercise of powers conferred

by Rule 57A made amendments to its earlier notification No. 177/86 CE (NT) dated 1st March, 1986. In the said notification, by Clause (d) after

3rd proviso, the following proviso was inserted:

(d) * * * * * * * *

Provided also that the credit of the specified duties paid on the goods falling under heading No. 39.04 of the Schedule to the Central Excise Tariff

Act, 1985 (5 of 1986), when used in the manufacture of goods falling under heading No. 59.03 of the said Schedule (hereinafter referred to as

final product"") shall be allowed subject to the following conditions, namely:

(i) a separate RG-23A account under Rule 57-G of the said rules hall be maintained in respect of goods falling under heading No. 39.04 so used;

and

(ii) the amount of the said credit utilised for payment of duty on clearances of the final product shall not exceed the amount calculated at the rate of

Rs. 3.50 per square metre of final product cleared and the excess credit if any available in the said RG-23A account shall not be refunded to the

manufacturer or adjusted against or utilised for payment of duty on any other excisable goods under any circumstances whatsoever.

It is a different matter that the rate of Rs. 3.50 per sq.mt., was subsequently amended as Rs. 5.25 and then Rs. 5.50 per sq.mt., but so far as the

excess credit is there, since amendment made on 1st March, 1989, it was made clear that the excess credit, if any, available under RG 23-A

account shall not be refunded to the manufacturer or adjusted against or utilised for payment of duty on any other excisable goods under any

circumstance whatsoever.

Thus, it will be evident that it is not for the first time such provision was made vide Clause (3) of 2nd proviso to Notification No. 5/94 CE (NT)

dated 1st March, 1994, but since 1989 the appellant was not entitled for refund as claimed by it.

In the circumstances, as the appellant is not entitled for refund of the excess credit, no interference is called for with Clause (3) of 2nd proviso to

Notification No. 5/94 C.E. (NT) dated 1st March, 1994.

There being no merit, both the writ appeals are dismissed. But there shall be no order as to costs.