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Judgment
Jawahar Lal Gupta, J.—The learned Single Judge disposed of 17 writ petitions by one order. 11 appeals viz. LPA Nos. 749, 940, 992 to 998,1038 of 1990 and 424 of 1991 arising out of the judgment and four writ petitions viz. C.W.P. Nos. 4874 and 5167 of 1988, 9050 and 11683 of 1990 involving identical points have come up for hearing before us. These can be disposed of by one judgment. A few facts as evident from L.P. A. No. 749 of 1990 may be briefly noticed.
The appellants as well as the petitioners are manufacturers of steel ingots, steel billets, steel bars, rounds and rods and steel flats etc. It is averred that these products are manufactured "by using raw material which is primarily waste and scrap of steel/iron." u/s 3 of the Central Excises and Salt Act, 1944 (hereinafter referred to as ''the Act'') excise duty is leviable on all excisable goods which are produced or manufactured. The rate of duty has been specified in the Schedule to the Central Excise Tariff Act, 1985 (as amended by the Finance Bill, 1986). Chapter 72 of the Schedule deals with iron and steel.
In the Finance Bill, 1986, a Scheme called ''MODVAT'' (Modified Value Added Tax) was introduced "by which duty once paid on a component or raw material could be set-off for purposes of duty on the final product." In order to effectively implement the Scheme, Rules 57A to 57J were promulgated and added to the Central Excise Rules, 1944 (hereinafter called ''the Rules''). Under Rule 57A the Central Government was empowered to notify the inputs as well as the final products which were to qualify for credit of the excise duty "paid on the goods used in or in relation to the manufacture of the said final products...". In exercise of this power, the Central Government issued a notification on March 1,1986, a copy of which has been produced as Annexure P. 6 with the writ petition. The notification inter alia specified Chapter 72 in the list of inputs as well as that of the final products which qualified for benefits under the MODVAT Scheme. Rule 57G laid down the procedure which had to be followed by the manufacturer.
In exercise of the power conferred under the proviso to Rule 57G(2) the Central Government issued an order on April 7,1986, a copy of which has been produced as Annexure P. 3. According to this notification, the inputs specified in column 2 "purchased from outside and lying in stock on or after 1-3-1986 with the manufacturer for the manufacture of final products specified in the Notification No. 177/86-C.E. dated the 1st March, 1986 may be deemed to have paid the specified duty in column 4 of the said notification..." without production of documents evidencing payment of duty subject to three conditions which had been laid down therein. It may be mentioned that in the table appended to this order, it was inter alia provided that if the manufacturer uses "Iron and articles thereof" he will be deemed to have paid duty and could claim credit @ Rs. 80.00 per tonne. In case "steel and articles thereof" were used as inputs, the rate of duty deemed to have been paid which could be allowed as credit was Rs. 365.00 per tonne. In case of "steel and articles thereof mentioned at Item No. 73.04 and 73.07 in the Schedule to the Central Excise Tariff Act, 1985, the said rate was specified as Rs. 220.00 per tonne. The appellants filed the necessary declarations. Copies of these declarations have been appended as Annexure P. 5 (A to C) in the instant appeal. It appears that the appellants in L.P.A. No. 749 of 1990 claimed credit for an amount of more than Rs. 45.00 lacs for the period from March 1,1986 to August 28,1986.
On August 29,1986, the Central Government issued an order (Annexure P. 9) observing inter alia that "it has been brought to the notice of the Government that in respect of waste and scrap of steel which are exempt from excise duty or which are charged to nil rate of duty, credit under MODVAT has been claimed by some manufacturers. No such credit shall be available in such cases." In pursuance to this order, on September 9, 1986, the Superintendent, Central Excise, Ludhaina asked the appellant to "produce original purchase bill of waste and scrap in respect of which deemed credit has been taken within 3 days for verification and finalisation of RT12 returns." It was further observed that "in the event of your failure to do so, it would be presumed that you do not wish to produce the purchase bills of waste & scrap evidencing the purchase and genuineness of deemed credit taken." After exchange of certain other communications, two assessment orders were passed on September 23,1986. Copies of these orders are on record as Annexure P. 17 and P. 18. By the order at Annexure P. 17, the appellant was directed to deposit the amount of Rs. 43,18,663.52p. by disallowing the credit claimed by it. By the order at Annexure P. 18 the authority disallowed credit for the amount of Rs. 3,45,819.25p. for the month of August, 1986 and directed that it be deposited. Aggrieved by these orders, the appellants approached this Court in the writ petition out of which the present appeal has arisen. In the petition, it was primarily contended that the action was violative of the principles of natural justice as no opportunity whatsoever had been given to the appellants.
On behalf of the respondents, it was inter alia pleaded that show cause notice dated December 5,1986 had been actually issued to the appellant. The petition was premature. It was further pointed out that the appellant had effective alternative remedy under the Act and the writ petition was not maintainable. The claim made by the appellant was controverted.
The learned Single Judge after examining the matter in detail rejected the preliminary objection raised on behalf of the respondents and held that the writ petition was not premature nor was it incompetent on the ground that there was an effective alternative remedy. On merits, the learned Judge held that the order dated August 29,1986 is not retrospective and that the benefit of the order dated April 7,1986 (Annexure P. 3) was available to the assessee from March 1,1986 to the date of the issue of the order dated August 29,1986. It was further held that the order dated April 7,1986, was subject to the three conditions specified therein and that it was in the nature of an exception to the general rule that where no duty is paid, no credit is allowed and where duty has been only paid partly, credit is allowed only to the extent it has been paid." The learned Judge also held that "there is no general rule that the burden is on the department to show that a certain input is recognisable as being non-duty paid or charged to nil rate of duty. In my view, the initial burden is on the manufacturer claiming deemed credit to take a definite stand with regard to a certain input. It is then open to the department to accept that claim or to contest the same." On these findings, the learned Single Judge disposed of the petitions and set aside the assessment orders dated September 23,1986 (Annexures P. 17 & P. 18).
Normally, one would have thought that the orders of assessment having been set aside, the appellants would pursue the matter before the authorities. However, these appeals were filed. The motion bench admitted the appeals and directed the stay of proceedings before the appropriate authorities. These have now come up for hearing before us.
Mr. G. Rama Swamy, appearing for the appellant, contended that ''a bowl of pure milk has been ruined with a drop of poison by the learned Single Judge''. He submits that the learned Single Judge has erred in holding that it is for the appellant to take a definite stand with regard to the type of input and that the department is either to accept that stand or to contest it and "depending on the facts and circumstances of each case, the same has to be decided whether that input falls in any one of the exceptions noted as (i) to (iii) above or not." He submits that the excise duty is deemed to have been paid on all goods before leaving the factory premises and once the manufacturer shows that the scrap was purchased from the market and was lying in stock during the period from March 1, 1986 to August 28,1986, he is entitled to avail of the deemed credit. He further submitted that the requirements of the main part of the order dated April 7,1986 having been satisfied, the burden would be on the department to show that the input was covered by one of the exceptions. Learned counsel also contended that the appellant was entitled to the credit for all stocks in hand on August 28, 1986 and a writ of mandamus as prayed for should have been issued. The claim made on behalf of the appellant was controverted by Mr. S.K. Pipat, learned Senior Standing Counsel for the Union of India. He contended that in view of the provisions of the Rules, credit could be claimed only after it was proved that the duty had been duly paid on the inputs. The burden of proof lay on the person, who claimed the credit.
In order to consider the respective contentions raised by the learned Counsel for the parties, it is apt to notice that the MODVAT Scheme was introduced primarily to ensure that the manufacturer or the consumer did not have to pay ''duty on duty''. It was to do away with what has been described as the ''cascade effect. "Rules 57A to 57G were enacted to regulate the implementation of the Scheme. By Rule 57A the Central Government was authorised to specify the inputs as well as the final products in respect of which the manufacturer was entitled to claim credit of the duty paid on the inputs ''towards payment of duty of excise leviable on the final products...". It was the exercise of power conferred under Rule 57A that the Central Government had issued the order dated March 1, 1986 indicating that the inputs as well as the final products specified in Chapter 72 (like Steel & Iron) of the Schedule to the Central Excise Tariff Act, 1985 shall qualify for the grant of Credit under the MODVAT Scheme. Rule 57G prescribed the procedure which had to be observed by the manufacturer. It is apt to notice this provision. It reads as under :-
* * * * * * 11. Under Clause (1) the manufacturer has to file a declaration indicating the description of the final products manufactured in his factory and the inputs intended to be used. Under Clause (2), a manufacturer is entitled to take credit "of duty paid on the inputs received by him." By virtue of the first proviso, no credit can be taken unless there was evidence of "the payment of duty on such inputs." The second proviso authorised the Central Government to direct "that with effect from a specified date, all stocks of the said inputs in the country except such stocks ... as are clearly recognisable as being non-duty paid, may be deemed to be duty paid and credit of duty in respect of the said inputs may be allowed at such rate and subject to such conditions as the Central Government may direct, without production of documents evidencing the payment of duty." The third proviso requires the manufacturer to "take all reasonable steps to ensure that the inputs acquired by him are goods on which the appropriate duty as indicated in the documents accompanying the goods, has been paid. "Under Clause (3) the manufacturer is required to maintain an account in the prescribed forms as also a Current Bank Account to cover the payment of duty of excise on the final products. The manufacturer of the final products has to submit a monthly return indicating the particulars of the inputs received and the amount of duty taken as credit. He has also to furnish the extracts of Parts I and II of Form RG 23A. It is also incumbent on the manufacturer to make available the documents evidencing the payment of duty on the inputs, if required to do so by the proper officer.
It was in exercise of the power under the second proviso to Rule 57G(2) that the Central Government had issued the order dated April 7,1986 (Annexure P. 3). This order was issued on account of the representation having been made by the industry. It was pointed out that "because of their inability to produce duty paying documents in respect of the aforesaid goods used by them as inputs, they were not able to avail of the benefit, under the rules." In this background, the Government issued the following directions :-
"...The inputs specified in column (2) of the table hereto annexed and falling under the heading Nos. of the schedule to the Central Excise Tariff Act, 1985 (5 of 1986) specified in the corresponding entry in column (3) of the said table, purchased from outside and lying in stock on or after 1-3-1986 with the manufacturer, for the manufacture of final products specified in the Notification No. 177/86-C.E., dated the 1st March, 1986 may be deemed to have paid the duty specified in column (4) of the said table and a credit of the specified duty at the rate specified in respect of such inputs used in the [manufacture] of the said final products on which the duty of excise is leviable either in whole or in part may be allowed at the rate specified in column (4) of the said table, without production of documents evidencing payment of duty. No such credit shall however, be allowed :-
(i) If in respect of any inputs the credit of specified duty paid therein has already been availed of under any rule or notification granting such credit.
(ii) If such inputs are clearly recognisable as being non-duty paid or charged to nil rate of duty: or
(iii) If in respect of any inputs where the reduction of duty as provided under the proviso to Notification No. 55/86-C.E., dated the 10th February, 1986, is claimed on the ground that the inputs have been manufactured with the aid of electric furnace and documentary evidence exists to show that the reduced duty has been paid on such inputs. In such cases actual duty paid should be allowed. In this order the expression, specified duty means the duty of excise leviable u/s 3 of the Central Excises and Salt Act, 1944 (1 of 1944) or the additional duty of customs leviable u/s 3 of the Customs Tariff Act, 1975 (51 of 1975) as the case may be.
TABLE -------------------------------------------------------------------------------- S. No. Description of Heading No. of Rate of duty deemed inputs the Schedule to to have been paid & the Central Ex- may be allowed as cise Tariff Act, credit 1985 -------------------------------------------------------------------------------- (1) (2) (3) (4) -------------------------------------------------------------------------------- 1. Iron & Articles 72.01, 72.03, Rs. 80 per tonne thereof. 72.04, 72.06, 72.07, 73.03 and 73.07 2. Steel & Articles 72.03, 72.06, Rs. 365 per tonne thereof. 72.07, 72.08, 72.09, 72.10, 72.11, 72.12, 72.13, 72.14, 72.15 and 73.01 3. Steel & Articles 72.04 and 73.07 Rs. 220 per tonne thereof. 4. Unwrought 74.01 and 74.02 Rs. 3300 per tonne copper in any form & waste & scrap of copper 5. Unwrought 76.01 and 76.02 Rs. 2300 per tonne aluminium in any form & waste & scrap of aluminium. 6. Unwrought lead 78.01 and 78.02 Rs. 930 per tonne in any form & waste & scrap of lead. 7. Unwrought zinc 79.01 and 79.02 Rs. 3600 per tonne, in any form and waste and scrap of zinc. -------------------------------------------------------------------------------- Sd/- R.K. Chandra Deputy Secretary to the Government of India."
On a perusal of the above order we are of the opinion that the industry having represented to the Government that even though a manufacturer was entitled to avail of credit of the specified duty paid on inputs, the benefit thereof was not available to the manufacturers because of their inability to produce evidence with regard to the payment of duty. In this background, the Central Government had authorised the manufacturers to claim credit at the specified rates for different kinds of inputs. This benefit was, however, available only in respect of the goods "purchased from outside and lying in stock on or after 1-3-1986 with the manufacturer for the manufacture of final products..." Different rates at which the duty was to be deemed to have been paid were specified. If the input was Iron, duty could be deemed to have been paid @ Rs. 80/- per tonne. If the input was steel and articles thereof, the specified rate was Rs. 365/- per tonne. It is for the manufacturer, who claims credit @ Rs. 365/- per tonne, to show that the input was ''steel and articles thereof. The manufacturer would do so by producing bills showing purchase of a particular input. It is in this context that the learned Single Judge has taken the view that the appellants must take a specific stand. We are of the considered opinion that the view taken by the learned Single Judge is unexceptionable.
Keeping in view the basic intention of the Government in introducing the MODVAT Scheme as also the purport of the Rules, it appears clear to us that the general rule was that no credit could be claimed by the industry with regard to the duty on the inputs unless there was evidence regarding the "payment of duty" thereon. The second proviso carved out an exception to this general rule inasmuch as it authorised the Central Government to direct with effect from a specified date that all stocks of the said inputs, except those as are clearly recognisable as being non-duty paid may be deemed to be duty paid. The rule introduced a very limited fiction. It was not intended to authorise the manufacturer to collect excise duty instead of paying it. The power to collect taxes is that of the State for it acts for the benefit of the entire country. The industry is obliged to pay the excise duty. This intention is further apparent from the third proviso which requires the manufacturer to take all reasonable steps to ensure that inputs acquired by it are such on which the appropriate duty has been paid. Similarly under Clause (4) the manufacturer is required to submit monthly return as also the evidence regarding the payment of duty on inputs. In view of the above, we find no ground to vary the view taken by the learned Single Judge.
Mr. Rama Swamy appears to be right in contending that normally it has to be presumed that duty has been paid on the goods before being taken out of the factory premises. However, that is not the end of the matter. A perusal of the table attached to the letter of April 7,1986 shows that different kinds of inputs can be used by a manufacturer for producing steel. These can be iron scrap, steel scrap or shipyard scrap. The rate at which the credit can be claimed for different kinds of inputs has been specified. If the manufacturer uses iron scrap, the credit is admissible @ Rs. 80 per tonne. In case of steel scrap, he can claim credit @ Rs. 365/- per tonne. Which scrap was used by a particular manufacturer? This can be ascertained only when the manufacturer files a definite return or reply to the show cause notice and produces the evidence in support of its claim. It is then that the competent authority shall determine as to whether or not the evidence produced by the manufacturer is sufficient to prove that the input claimed by the manufacturer was actually used or that the case falls within one of the three exceptions specified in the order. The grievance of the appellant that the learned Single Judge has placed the burden on the manufacturer is totally misconceived. According to the learned Single Judge, the manufacturer has to take a definite stand. We find that the view taken by the learned Single Judge is wholly unexceptionable.
Mr. Rama Swamy then contended that the appellants are entitled to claim credit on all stocks in hand on August 28, 1986. On a perusal of the judgment of the learned Single Judge, we find that nothing to the Contrary has been held. Consequently, nothing more need be said on this aspect of the matter.
Excise duty is levied to finance the Scheme for the development and defence of the country. MODVAT was introduced to basically regulate the procedure for collection of duty and to avoid payment of duty on duty. It appears to have been turned into a process of collection of duty by the industry. Such could not have been the intention of the Central Government. The purpose was not to unduly enrich the industry. This is what appears to have been done by the appellants/petitioners.
Accordingly, we find no merit in L.P.A. No. 749 of 1990 and the other connected cases. These are dismissed. The respondents will be entitled to their costs which are assessed at Rs. 3,000/- per case.