Shree Rama Multi Tech Ltd. vs Union of India (UOI)

Harsha Devani, J.—By this petition under Article 226 of the Constitution of India, the Petitioners have prayed for the following substantive relief:

(A) YOUR LORDSHIPS may be pleased to issue a writ of Mandamus or any other writ or Direction quashing and setting aside the impugned Rule 57-CC of the Central Excise Rules, 1944, at Annexures-D and E, as ultra vires the provisions of Section 3 of the Central Excise Act, 1944 read with the Central Excise Tariff Act, 1985, and consequently ultra vires the provisions of Article 19(1)(g) of the Constitution of India;

(B) YOUR LORDSHIPS may be pleased to issue a writ of Declaration or any other writ or Direction declaring the said Rule 57CC at Annexures-D and E, as ultra vires provisions of Constitution of India;

(C) YOUR LORDSHIPS may be pleased to issue a writ of Mandamus and/or a writ in the nature of Mandamus or any other writ or Direction quashing and setting aside Order-in-Original No. 75 to 76/D/2000 dated 30-3-2000 passed by the 3rd Respondent.

The Petitioner No. 1 herein is a Company registered under the Companies Act, 1956 and is engaged in the manufacture of Plastic and Articles thereof falling under Chapter 39 and Printed Labels of paper falling under Chapter Sub-Heading 4821.00 of the Tariff Act. The goods falling under Chapter 39 are liable to duty whereas the Printed Labels carry Nil rate of duty. For the manufacture of goods falling under Chapter 39, the Petitioners have been using various plastic materials and printing inks. For the manufacture of Printed Labels, the Petitioners are using printing inks, paper and Bi-axially Oriented Poly Propylene (BOPP) as raw materials. In 1986, the Government of India introduced a scheme known as MODVAT scheme so as to reduce the cascading effect of taxation. The Scheme provided for credit of duty paid on raw materials used in or in relation to the manufacture of the final products liable to duty. However, the credit was not admissible under Rule 57C of the Central Excise Rules, 1944 (the Rules) if the final product was exempted or carried nil rate of duty. The Petitioners have been availing of the benefit of the said MODVAT credit in respect of their dutiable products falling under Chapter 39 such as Multilayer tubes, etc., but did not avail MODVAT credit in relation to the goods which carried nil rate of duty. However, printing ink was a common input used into the manufacture of dutiable goods as well as nil rated goods. When duty paid printing ink was received in the factory of the Petitioners, credit of the duty paid thereon was taken as it is not possible at that stage to know as to which colours would be required to be used in the manufacture of printed labels. The practice adopted by the Petitioners was that whenever they utilized ink for the manufacture of printed labels, they debited the proportionate amount of MODVAT credit taken thereon so as to comply with the provisions of Rule 57C of the Rules. The quantity of printing ink used in the manufacture of printed labels was very small. During the period involved in the present proceedings, the Petitioners had utilized only 65 kg of ink and the proportionate MODVAT credit, which comes to Rs. 25,442/- was reversed later on. Despite reversal of the credit taken on the common input, that is, ink, two show cause notices came to be served on the Petitioners calling upon them to show cause as to why an amount of 8% of the value of printed labels which carry nil rate of duty, should not be recovered from them under Rule 57CC(1) of the Rules. The amount sought to be recovered were quantified in the show cause notices at Rs. 2,63,566/- and Rs. 42,89,158/- respectively. The show cause notices culminated into an Order-in-Original dated 30-3-2000 whereby the demand came to be confirmed along with penalty of Rs. 2000/- and interest at 20% u/s 11AA of the Central Excise Act, 1944 (the Act). Being aggrieved, the Petitioners have filed the present petition, seeking the reliefs noted hereinabove.

At the outset, Mr. Paresh Dave, learned advocate for the Petitioners submitted that the Petitioners do not press the relief prayed for vide Paragraphs 13(A) and (B) of the petition, whereby the Petitioners have challenged the constitutional validity of Rule 57CC of the Central Excise Rules, 1944.

The learned advocate for the Petitioners invited the attention of the Court to the relevant provisions of the Rules as well as to a decision of the Apex Court in the case of Chandrapur Magnet Wires (P) Ltd., Nagpur Vs. Collector of Central Excise, Central Excise Collectorate, Nagpur, a decision of this High Court in the case of The Commissioner of Central Excise Vs. Maize Products, as well as a decision of the Allahabad High Court in Hello Minerals Water (P) Ltd. Vs. Union of India (UOI), However, for the reasons that follow, it is not necessary to refer to the other contentions as well as the above referred decisions in detail.

The learned advocate invited attention to the provisions of Section 69 of the Finance Act, 2010 to submit that from the amendment in the statutory scheme, it is apparent that the view taken by this High Court in the case of CCE, Ahmedabad-II v. Maize Products [supra] has found approval in the legislative scheme. It was further submitted that since the Petitioners have already reversed the amount of credit taken in respect of the common input used in the manufacture of exempted goods, in the light of the provisions of Section 69 of the Finance Act, 2010 read with Rule 57CCC of the Rules, the impugned order passed by the Adjudicating Authority is required to be quashed and set aside and that the matter is required to be remanded to the Adjudicating Authority to re-determine the amount payable in respect of the quantity of input used in the manufacture of the goods which carried nil rate of duty in consonance with the newly inserted Rule 57CCC of the Central Excise Rules, 1944.

Mr. R.J. Oza, learned Senior Standing Counsel appearing on behalf of the Respondents submitted that in the light of the fact that by way of the present petition, the Petitioners have mainly challenged the validity of Rule 57CC of the Central Excise Rules, 1944, (the Rules) the affidavit-in-reply filed on behalf of the Respondents does not deal with the factual position as to whether or not the Petitioners have reversed the credit as stated on behalf of the Petitioners.

Considering the view that the Court is inclined to take in the matter, the non-filing of affidavit-in-reply as regards the factual position would not act to the prejudice of the revenue.

Rule 57C of the Rules laid down that no credit of the specified duty paid on the inputs used in the manufacture of a final product shall be allowed if the final product is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty. Rule 57CC of the Rules as it stood at the relevant time made provision for "Adjustment of credit if final products are exempted." Under the said rule where a manufacturer was engaged in the manufacture of any final product which was chargeable to duty as well as any other final product which was exempt from the whole of the duty of excise leviable thereon or was chargeable to nil rate of duty and the manufacturer took credit of the specified duty on any input (other than inputs used as fuel) which was used or ordinarily used in or in relation to the manufacture of both the aforesaid categories of final products, whether directly or indirectly and whether contained in the said final products or not, the manufacturer shall, unless the provisions of Sub-rule (2) are complied with, pay an amount equal to eight per cent of the price (excluding sales tax and other taxes, if any, payable on such goods) of the second category of final products charged by the manufacturer for the sale of goods at the time of clearance from their factory by adjustment in the credit account maintained under Sub-rule (3) of Rule 57G or in the accounts maintained under Rule 9 of Sub-rule (1) of Rule 173G or if such adjustment is not possible for any reason, by cash recovery from the manufacturer availing of the credit under Rule 57A. Sub-rule (2) thereof provided that in respect of inputs (other than inputs used as fuel) which are used in or in relation to the manufacture of any goods, which are exempt from the whole of the duty of excise leviable thereon or chargeable to nil rate of duty, the manufacturer shall maintain separate inventory and accounts of the receipt and use the inputs for the aforesaid purpose and does not take credit of the specified duty on such inputs.

In the present case, since it was not possible to maintain separate accounts in respect of the common input viz., ink in terms of Sub-rule (2) of Rule 57CC the Petitioners had initially taken credit of the specified duty on such inputs. However, whenever they utilised ink in the manufacture of printed labels, they debited the proportionate amount of MODVAT credit taken thereon to comply with the provisions of Rule 57C of the Rules.

Subsequently vide Section 69 of the Finance Act the Central Excise Rules, 1944 have been amended by inserting Rule 57CCC. It may be germane to refer to the provisions of Section 69 of the Finance Act, 2010 which reads thus:

Amendment of Central Excise Rules, 1944 by insertion of new Rule 57CCC. � (1) The Central Excise Rules, 1944, made by the Central Government in exercise of the powers conferred by Section 37 of the Central Excise Act, shall stand amended and shall be deemed to have been amended retrospectively, in the manner specified in column (3) of the Fourth Schedule, on and from and up to the corresponding date specified in column (4) of that Schedule, against the rule specified in column (2) of that Schedule.

(2) Where a person opts to pay the amount in accordance with the provisions of the Central Excise Rules, 1944 as amended by Sub-section (1), he shall pay the amount along with interest specified thereunder and make an application to the Commissioner of Central Excise along with documentary evidence and a certificate from a Chartered Accountant or a Cost Accountant certifying the amount of input credit attributable to the inputs used in or in relation to the manufacture of the final products, which are exempted from the whole of the duty of excise leviable thereon or chargeable to nil rate of duty, within a period of six months from the date on which the Finance Bill, 2010 receives the assent of the President.

(3) The Commissioner of Central Excise shall, on receipt of an application under Sub-section (2), verify the correctness of the amount paid within a period of two months from the date of receipt of the application and in case the amount so paid is found to be less than the amount payable, he shall call upon the applicant to pay the differential amount along with interest, which shall be paid within a period of ten days from the date of receipt of the communication from the Commissioner in this regard.

(4) Notwithstanding anything contained in any judgment, decree or order of any court, tribunal or other authority, any action taken or anything done or purported to have been taken or done, at any time during the period commencing on and from the 1st day of September, 1996 and ending with the 31st day of March, 2000, relating to the provisions as amended by Sub-section (1), shall be deemed to be and deemed always to have been, for all purposes, as validly and effectively taken or done as if the amendment made by Sub-section (1) had been in force at all material times.

(5) Notwithstanding the supersession of the Central Excise Rules, 1944, for the purposes of Sub-section (1), the Central Government shall have and shall be deemed to have the power to make rules with retrospective effect as if the Central Government had the power to make rules u/s 37 of the Central Excise Act, retrospectively, at all material times.

Explanation.� For the removal of doubts, it is hereby declared that no act or omission on the part of any person shall be punishable as an offence which would not have been so punishable had this section not come into force.

The newly inserted Rule 57CCC of the Central Excise Rules, 1944 reads thus:

THE FOURTH SCHEDULE

[See Section 69(1)]

Sl. No. Provisions of Central Excise Rules, 1944 to be amended Amendment Period of effect of amendment

(1) (2) (3) (4)

Insertion of new rule 57CCC. In the Central Excise Rules, 1944, after rule 57CC, the following rule shall be inserted, namely: � "57CCC. Reversal of Actual Credit-Where a dispute relating to adjustment of credit on inputs used in or in relation to exempted final products relating to the period beginning on the 1st day of September, 1996 and ending with the 28th day of February, 1997 (both days inclusive) is pending on the date on which the Finance Bill, 2010 receives the assent of the President, then, notwithstanding anything contained in sub-rules (1) and (2) of rule 57C and sub-rules (1) and (2) of rule 57CC, a manufacturer availing credit of specified duty in respect of any inputs, other than inputs used as fuel, and manufacturing final products which are chargeable to duty and also other final products which are not so chargeable to duty or chargeable to nil rate of duty, shall pay an amount equivalent to such credit attributable to inputs used in, or in relation to the manufacture of, such final products which are not chargeable to duty or chargeable to nil rate of duty, before or after the clearance of such goods : Provided that the manufacturer shall pay an interest at the rate of twenty- four per cent, per annum from the date of clearance of goods till the date of payment of the said amount.". 1st day of September, 1996 to 28th day of February, 1997 (both days inclusive).

Rule 57CCC of the Central Excise Rules, 1944 as inserted by Section 69 of the Finance Act, 2010. In the Central Excise Rules, 1944, for rule 57CCC, the following rule shall be substituted, namely:� "57CCC. Reversal of Actual Credit. � Where a dispute relating to adjustment of credit on inputs used in or in relation to exempted final products relating to the period beginning on the 1st day of March, 1997 and ending with the 31st day of March, 2000 (both days inclusive) is pending on the date on which the Finance Bill, 2010 receives the assent of the President, then, notwithstanding anything contained in sub-rules (1) and (2) of rule 57C and sub-rule (1) and sub-rule (9) of rule 57CC, a manufacturer availing credit of specified duty in respect of any inputs, other than inputs used as fuel, and manufacturing final products which are chargeable to duty and also other final products which are not so chargeable to duty, shall pay an amount equivalent to such credit attributable to inputs used in, or in relation to the manufacture of, such final products which are not chargeable to duty, before or after the clearance of such goods : Provided that the manufacturer shall pay an interest at the rate of twenty-four per cent, per annum from the date of clearance of goods till the date of payment of the said amount." 1st day of March, 1997 to 31st day of March, 2000 (both days inclusive).

Thus, vide Sub-section (1) of the said section a new rule, viz., Rule 57CCC has been introduced in the Central Excise Rules, 1944 with retrospective effect and vide Sub-section (2) thereof it has been provided that where a person opts to pay the amount in accordance with the provisions of Central Excise Rules, 1944 as amended by Sub-section (1), he shall pay the amount along with interest specified thereunder and make an application to the Commissioner of Central Excise along with documentary evidence and a certificate from a Chartered Accountant or a Cost Accountant certifying the amount of input credit attributable to the inputs used in or in relation to the manufacture of final products which are exempted from the whole of the duty of excise leviable thereon or chargeable to Nil rate of duty, within a period of six months from the date on which the Finance Bill, 2010 receives the assent of the President. The Finance Bill, 2010 has received the assent of the President on May 2010.

Sub-section (4) of Section 69 of the Finance Act, 2010 provides that notwithstanding anything contained in any judgment, decree or order of any court, tribunal or other authority, any action taken or anything done or purported to have been taken or done, at any time during the period commencing on and from 1st day of September 1966 and ending with the 31st day of March 2000, relating to the provisions as amended by Sub-section (1), shall be deemed to be and deemed always to have been, for all purposes, as validly and effectively taken or done as if the amendment made by Sub-section (1) has been in force at all material times.

The dispute in the present case relates to the entitlement of the Petitioners to reverse proportionate amount of credit in respect of the final product carrying nil rate of duty. At the relevant time, in the light of the provisions of Rule 57CC of the Rules, the entitlement of the Petitioner to reverse the credit to the extent of common inputs used in the manufacture of goods which carried nil rate of duty was in doubt. However, subsequently, by the introduction of Rule 57CCC of the Central Excise Rules, the situation has been taken care of inasmuch as the said rule which has been given retrospective effect from 1996 provides for reversal of the actual credit by the manufacturer availing credit of specified duty in respect of inputs used for manufacture of final products which are chargeable to duty as also other final product which are not chargeable to duty or chargeable to Nil rate of duty, by payment of amount equivalent to the credit attributable to input used in or in relation to the manufacture of such final products which are not chargeable to duty or chargeable to nil rate of duty before or after the clearance of such goods. Sub-section (2) of Section 69 of the Finance Act, 2010 provides that where a person opts to pay the amount in accordance with the provisions of Central Excise Rules, 1944 as amended by Sub-section (1), he is required to pay the amount along with interest specified thereunder and make an application to the Commissioner of Central Excise along with documents as laid down therein within a period of six months from the date on which the Finance Bill, 2010 receives the assent of the President.

Examining the facts of the present case in the light of the newly amended statutory scheme, in the present case the Petitioners were bona fide prosecuting theremedy before this Court, hence, pending the petition they have not made any application as contemplated under Sub-section (2) of Section 69 of the said Act. It is the case of the Petitioners that they are not required to make any such application since they have already reversed the amount of credit taken in respect of the common input used in the manufacture of product carrying nil rate of duty. However, in the light of the amended provisions of the Central Excise Rules, 1944 it is not necessary to consider the rival contentions on merits since the amended provisions take care of a situation like the present one.

In view of the above discussion, keeping in view the amended provisions of the Central Excise Rules, 1944 as amended by Section 69 of the Finance Act, 2010, the petition is required to be allowed in the following terms:

(i) The impugned order dated 30th March 2000 passed by the Respondent No. 3, Assistant Commissioner, Central Excise, Ahmedabad is hereby quashed and set aside.

(ii) The matter is restored to the file of the Adjudicating Authority who, after giving due opportunity of hearing to the Petitioners, shall redetermine the credit taken on the common input, viz., ink, insofar as the same relates to the demand raised by the two show causes notices referred to in the impugned order.

(iii) The Petitioners shall produce the necessary evidence in the form of certificate from a Chartered Accountant or a Cost Accountant for the relevant period certifying the amount of input credit attributable to the inputs used in or in relation to the manufacture of final product which are exempt from the whole duty or chargeable to Nil rate of duty along with other documentary evidence for the relevant period.

(iv) If any further credit is required to be reversed, the same shall be reversed within four weeks from the date of receipt of communication from the Respondents.

Rule is made absolute to the aforesaid extent with no order as to costs.