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                REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 5634  OF 2008

Union of India & Ors.  Appellants

Versus

Maharaja Shree Umaid Mills Respondent With

C.A. No. 5635/2008, C.A. No. 5636/2008, C.A. No. 5922/2008,  C.A. No. 6506/2008, C.A. No. 11175 OF 2013 @ SLP (C) No.  28055 /2008, C.A. No. 6886/2008,   C.A. No. 906/2009,    C.A.  No.  895/2009,  C.A.  No.  1296/2009  AND C.A.  No.  11174  OF  2013 @ SLP (C) No. 938/2010

J U D G M E N T

ANIL R. DAVE, J.

1. Leave granted in SLP (C) No 28055 of 2008 and SLP (C) No.  

938 of 2010.

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2. As a common question of law is involved in all these appeals, at  

the request of the learned counsel appearing for the parties, all  

the appeals were heard together  and they are decided by this  

common judgment.

3. The issue involved in  all  these appeals  is  with regard to  the  

liability to pay interest under the provisions of Section 112 of  

the  Finance  Act,  2000  (hereinafter  referred  to  as  ‘the  2000  

Act’), which pertains to liability of the assessee to pay interest  

under the Central Excise Rules, 1944 (hereinafter referred to as  

‘the Rules’).  The facts of Civil Appeal No.5634 of 2008 (Union  

of India and others vs. Maharaja Shree Umaid Mills) are taken  

into consideration for better understanding of the issue involved  

in all these appeals.  

4. All these appeals have been filed by the Union of India against  

the  respondents  under  the  Central  Excise  Act,  1944.   The  

respondent-assessee, Maharaja Shree Umaid Mills, whose case  

is being considered, is a manufacturer of yarn and fabrics, which  

are covered under Chapters 52, 54 & 55 of the Schedule to the  

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Central  Excise  Tariff  Act,  1985.   In  the  process  of  the  

manufacture of yarn and fabrics,  the respondent-assessee uses  

High Speed Diesel Oil (hereinafter to as the ‘HSD Oil’) as fuel  

for  generation  of  electricity  i.e.  power,  with  which  

manufacturing unit of the respondent is operated.   

5. As  the  HSD oil  is  being  used as  an  input  in  the  process  of  

generation of electricity so as to manufacture the final produce  

i.e.  yarn  and  fabrics,  the  respondent  was  claiming  the  

MODVAT credit of the duty paid on the HSD oil used as an  

input under the provisions of Rules 57A and 57B of the Rules.

6. The Central Government issued a Notification on 16th March,  

1995 whereby MODVAT credit of the duty paid on the HSD  

Oil as an input, had been withdrawn.  It is not in dispute that the  

MODVAT credit of the duty paid on the use of the HSD Oil  

was available in the past but the same had been withdrawn by  

the said Notification issued in 1995.  Subsequently, the office of  

the Commissioner of the Central Excise had also issued a Trade  

Notice on 7.4.1997 to the effect that  no MODVAT Credit in  

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respect of the duty paid on the HSD oil used as an input would  

be available under Rule 57A and 57B of the Rules.

7. What  is  relevant  here  is  that  the respondent  as well  as  other  

assessees-respondents,  whose cases are  being decided by this  

common judgment, had availed the MODVAT credit of the duty  

paid on the HSD Oil, which was used as an input even though it  

was  not  permissible  in  view  of  the  aforestated  Notification  

followed by  the  Trade  Notice.    So  it  is  not  in  dispute  that  

though MODVAT credit was not to be availed in respect of the  

duty paid on the HSD oil used as an input, all the assessees who  

are respondents, had availed the MODVAT credit.

8. In the aforestated circumstances, show cause notices had been  

issued to all the respondents calling upon them as to why the  

MODVAT credit availed by them during the period for which  

they were not entitled to such a credit, should not be withdrawn  

and why interest at the rate of 24% p.a. be not charged on the  

amount of credit already availed by them.

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9. It is pertinent to note that in the meantime Section 112 of the  

2000 Act had been enacted and by virtue of which, interest at  

the rate of  24% p.a.  had to be paid on the MODVAT credit  

wrongfully  availed  by the  respondents  in  respect  of  the  duty  

paid on the HSD Oil used as an input for a particular period.  

Similarly, Rule 57 (I) of the Rules also enables the Revenue to  

recover interest on the amount of MODVAT credit wrongfully  

availed by the assessee.

10.   The case of the Revenue is that by virtue of the provisions  

of Section 112 of  the 2000 Act, interest becomes payable on  

such wrongfully availed MODVAT credit  after 30 days from  

the  date  on  which  the  2000  Act  received  the  assent  of  the  

President.  On the other hand,  according to the respondents, the  

amount of interest becomes payable only after determination of  

the amount through an adjudication order or an order-in-original  

after issuance of a show cause notice to the concerned assessee  

and if the amount of the MODVAT credit availed is not repaid  

within 30 days from the date of the order.

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11. In  the case  of  Maharaja  Shree  Umaid Mills,  the  Assistant  

Commissioner,  Central  Excise,  Jodhpur,  vide  an  order  dated  

27.05.2002, called upon the said assessee to pay interest at the  

rate of  24% p.a.  with effect  from 30 days from the date on  

which the 2000 Act had received the assent of the President.   

12. Being  aggrieved  by  the  order  passed  by  the  Assistant  

Commissioner,  an  appeal  had  been  filed  before  the  

Commissioner  (Appeals),  Central  Excise,  Jodhpur,  which had  

been dismissed and therefore, the assessee had filed an appeal  

before the Customs, Excise & Service Tax Appellate Tribunal,  

New Delhi  (hereinafter referred to as ‘the CESTAT’).  The said  

appeal had also been dismissed by the CESTAT and therefore,  

the  assessee  was  constrained  to  approach  the  High  Court  of  

Rajasthan  by  way  of  Central  Excise  Appeal  No.  3  of  2003,  

which has been allowed by the impugned order and therefore,  

the Revenue has filed the present appeal.  

13.  Similarly,  in  all  other  cases,  the assessees  had succeeded  

before the High Court in their respective cases and therefore, the  

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Revenue has filed the present appeals before this Court.  So as  

to understand and appreciate the issue, it would be pertinent to  

look at the provisions of Section 112 of the 2000 Act and Rule  

57 (I) of the Rules, which have been reproduced hereinbelow:

“112.  Validation of the denial of credit of duty paid on  high  speed  diesel  oil. -  (1)  Notwithstanding  anything  contained in any rule of the Central Excise Rules, 1944, no  credit of any duty paid on high speed diesel oil at any time  during the period commencing on and from the 16th day of  March,  1995  and  ending  with  the  day,  the  Finance  Act,  2000 receives the assent of the President, shall be deemed to  be admissible.

(2) Any action taken or anything done or purported to have  been taken or done at any time during the said period under  the Central Excise Act or any rules made thereunder to deny  the credit of any duty in respect of high speed diesel oil, and  also to disallow such credit to be utilised for payment of any  kind of duty on any excisable goods shall be deemed to be,  and to always have been, for all  purposes, as validly and  effectively taken or done, as if the provisions of sub-section  (1) had been in force at all material times and, accordingly,  notwithstanding anything contained in any judgment, decree  or order of any court, tribunal or other authority,-

(a)  no  suit  or  other  proceedings  shall  be  maintained  or  continued  in  any  court,  tribunal  or  other  authority  for  allowing the credit of the duty paid on high speed diesel oil  and no enforcement shall be made by any court, tribunal or  other authority of any decree or order allowing such credit  

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of duty as if the provisions of sub-section (1) had been in  force at all material times;

(b) recovery shall be made of all the credit of duty, which  have been taken or utilised but which would not have been  allowed to  be taken or  utilised,  if  the  provisions  of  sub- section (1) had been in force at all material times, within a  period of thirty days from the date on which the Finance  Act,  2000 receives the assent of the President  and in the  event  of  non-payment  of  such  credit  of  duty  within  this  period,  in  addition  to  the  amount  of  credit  of  such  duty  recoverable, interest at the rate of twenty four per cent. per  annum shall be payable, from the date immediately after the  expiry  of  the  said  period  of  thirty  days  till  the  date  of  payment.

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 if this section had not come into force.”

Rule  57  (I)  Recovery  of  credit  wrongly  availed  of  or  utilised in an irregular manner,-

(1)(i) Where  credit  of  duty  paid  on  inputs  has  been  taken on account of  an error, omission or mis-construction  on the part of an officer or a manufacturer or an assessee,  the proper officer may, within six months from the date of  filing the return as required to be submitted in terms of sub- rule (8) of rule 57G, and where no such return as aforesaid  is filed, within six months from the last date on which such  return is to be filed under the said rule, serve notice on the  manufacturer  or  the  assessee  who  has  taken  such  credit  requiring  him  to  show  cause  why  he  should  not  be  

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disallowed  such  credit  and  where  the  credit  has  already  been  utilised,  why  the  amount  equivalent  to  such  credit  should not be recovered from him.   

(ii) where a manufacturer has taken the credit by reason of  fraud,  wilful  mis-statement,  collusion,  or  suppression  of  facts, or contravention of any of the provisions of the Acts  or the rules made thereunder with intent to evade payment  of duty, the provisions of clause (i) shall have effect as if for  the  words  “six  months”,  the  words  ‘five  years’  were  substituted.

(iii) the  proper  officer,  after  considering  the  representation, if any, made by the manufacturer or  the assessee on whom notice is served under clause  (i), shall determine the amount of such credit to be  disallowed  (not  being  in  excess  of  the  amount  specified in the show cause notice) and thereupon  such manufacturer or assessee shall pay the amount  equivalent to the credit disallowed, if the credit had  been utilised,  or  shall  not  utilised  the credit  thus  disallowed.

Explanation : where the service of the notice is stayed by  an order of a court of law, the period of such stay shall be  excluded  from  computing  the  aforesaid  period  of  six  months or five years, as the case may be.   

(2) If any inputs in respect of which credit has been taken  are not fully accounted for as having been disposed of  in  the  manner  specified  in  this  Section,  the  manufacturer shall upon a written demand being made  by the Assistant Commissioner of Central Excise, pay  the duty leviable on such inputs within three months  from the date of receipt of the notice of demand.

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(3) Where a manufacturer or an assessee fails to pay the  amount determined under sub rule  (1) or sub rule (2)  within  three   months  from  the  date  of  receipt  of  demand notice, he shall pay, in addition to the amount  so determined, interest at such rate, as may be fixed,  by the  Central  Board  of  Excise  and Customs under  Section 11 AA of the Act, from the date immediately  after the expiry of the said period of three months till  the date of payment.

(4) Where the credit of duty paid on inputs has been taken  wrongly  by  reason  of  fraud,  wilful  mis-statement,  collusion or suppression of facts, or contravention of  any of  the provisions  of  the  Act  or  the  rules  made  thereunder with intent to evade payment of duty, the  person who is liable to pay the amount equivalent to  the credit disallowed as determined under clause (iii)  of sub rule (1) shall  also be liable to pay a penalty  equal to the credit so disallowed.

Explanation I : where the credit disallowed is reduced by  the  Commissioner  of  Central  Excise  (Appeals),  the  Appellate Tribunal or, as the case may be, a court of law,  the  penalty  shall  be  payable  on such  reduced  amount  of  credit disallowed.

Explanation II : where the credit disallowed is increased or  further  increased  by the  Commissioner  of  Central  Excise  (Appeals), the Appellate Tribunal or, as the case may be, a  court of law, the penalty shall be payable on such increase  or further increased, amount of credit disallowed.

(5) Notwithstanding anything contained in clause (iii) of  sub rule (1) or sub rule (3), where the credit of duty  paid on inputs has been taken wrongly on account of  fraud, wilful  mis-statement,  collusion or suppression  

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of facts, or contravention of any of the provisions of  the Act  or the rules  made thereunder with intent  to  evade payment of duty, the person who is liable to pay  the  amount  equivalent  to  the  credit  disallowed  as  determined under clause (iii)  of sub rule (1) shall also  be liable to pay interest at such rates as may be fixed  by the Board under Section 11 AA of the Act from the  first day of the month succeeding the month in which  the credit was wrongly taken, till the date of payment  of such amount.

Explanation  I  :  for  the  removal  of  doubts,  it  is  hereby  declared that the provisions of this sub rule shall not applied  to cases where the credit disallowed became payable  before  the 23rd day of July, 1996.

Explanation II : where the credit disallowed is reduced by  the Commissioner of Central Excise (Appeal), the Appellate  Tribunal or, as the case may be, a court of law, the interest  shall  be  payable  on  such  reduced  amount  of  credit  disallowed.

Explanation III:  where the credit disallowed is increased by  the Commissioner of Central Excise (Appeal), the Appellate  Tribunal or, as the case may be, a court of law, the interest  shall  be  payable  on  such  increased  or  further  increased,  amount of credit disallowed.”

14. The learned counsel appearing for the revenue had submitted  

that by virtue of the provisions of Section 112 of the 2000 Act,  

one has to ignore the provisions of Rule 57 (I) of the Rules, as  

Section 112 of the 2000 Act had been enacted as a one- time  

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measure  to  see  that  all  those  who  had  wrongly  availed  the  

MODVAT credit on the duty paid on the HSD oil used as an  

input in their factories repay the amount wrongfully retained by  

them immediately.  The learned counsel had discussed various  

provisions whereby the position with regard to the admissibility  

of the MODVAT credit on duty paid on the HSD oil used as an  

input had been changed from time to time in the past till  the  

litigation which had been finally decided by this court.  As there  

is  no  dispute  with  regard  to  the  non-admissibility  of  the  

MODVAT credit on the HSD oil used as an input for the period  

commencing  from  16.03.1995  till  the  date  the  2000  Act  

received the President’s assent, we need not discuss the relevant  

rules  and notifications  in  pursuance  of  which the  MODVAT  

credit in respect of the duty paid on the HSD oil as an input was  

not admissible.

15. The  learned  counsel  had  submitted  that  the  provisions  of  

Section 112 (2)(b) of the 2000 Act  clearly enables the Revenue  

not only to recover  the entire MODVAT credit which had been  

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wrongly availed by the concerned assessees within 30 days from  

the  date  on  which  the  2000  Act  had  received  assent  of  the  

President but in the event of non-payment of the amount within  

the said period, it enables the Revenue to recover interest at the  

rate of 24% per annum from the date immediately after expiry  

of the said period of 30 days till  the date of payment of the  

amount by the concerned assessee.

16. It had been further submitted by the learned counsel for the  

Revenue that the provisions of Section 112 of the 2000 Act are  

merely declaratory in nature.  In fact MODVAT credit on the  

use of the HSD oil as an input was not permissible by virtue of  

Notifications  issued  in  1995.   In  spite  of  the  fact  that  the  

MODVAT credit  was  not  available  on  the  HSD oil,  several  

assessees were claiming credit on the HSD oil as an input and  

therefore,  by  virtue  of  Section  112  of  the  2000  Act  it  was  

declared that  no MODVAT credit  would be available  on the  

HSD oil, used as an input.  He had, therefore, submitted that in  

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fact there was no retrospective increase in the liability of the  

assessees by virtue of Section 112 of the 2000 Act.

17. According to the learned counsel, the aforestated provisions,  

in an unambiguous language, authorizes the Revenue to recover  

interest  at  the rate  of 24% p.a.  without  any reference  to  any  

show cause notice or any other condition and therefore, as per  

his  submission,  the  assessee  was  bound  to  pay  interest  as  

demanded by the Assistant  Commissioner,  Central  Excise  by  

the order dated 27.05.2002 and the High Court was in error in  

setting  aside  the  orders  whereby  the  amount  of  interest  was  

sought to be  recovered from the respondents.

18. The  learned  counsel  had  relied  upon  judgments  which  

restrained  the  manufacturers  from  claiming  the  MODVAT  

credit  on  use  of  the  HSD  Oil  as  an  input  for  the  period  

commencing  from  16.03.1995  till  the  date  the  2000  Act  

received the President’s assent.   Among other judgments, the  

learned counsel  appearing for  the Revenue had mainly  relied  

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upon the judgment delivered in the case of  Sangam Spinners   

Limited v. Union of India & Ors. [(2011) 11 SCC 408].

19. On  the  other  hand,  the  learned  counsel  appearing  for  the  

respondents had supported the reasons given by the High Court  

while  quashing  and  setting  aside  the  orders  passed  by  the  

CESTAT whereby imposition of interest at the rate of 24% p.a.  

on the amount of the MODVAT credit availed on the use of the  

HSD oil as an input, for the period referred to hereinabove, was  

upheld.

20. The learned counsel had submitted that Section 112 of the  

2000 Act cannot be read in isolation, but it must be read with  

the provisions of Rule 57 (I) of the Rules.   According to them,  

in any case, before demanding interest from any assessee, first  

of  all  the  final  liability,  i.e.  the  amount  payable  has  to  be  

ascertained and only upon ascertainment of the amount payable,  

interest can be calculated and demanded on the said amount.

21. It had also been submitted by the learned counsel appearing  

for  the  respondents  that  by  virtue  of  the  retrospective  effect,  

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liability of the respondents had been increased not only by not  

permitting to avail MODVAT credit on use of the  HSD oil as  

an  input  for  the  period  referred  to  hereinabove  but  also  by  

imposition  of  interest  @  24%  p.a.  on  the  amount  of  the  

MODVAT credit availed on the HSD oil used as an input with  

effect from 30 days from the date on which the President had  

given  assent  to  Section  112  of  the  2000  Act.   The  learned  

counsel  had  relied  upon  several  judgments  including  the  

judgments delivered in the cases of State of Rajasthan & Ors.  

v. Ghasilal     [(1965) 2 SCR 805] and Harshad Shantilal Mehta  

v.   Custodian and Ors. [(1998) 5 SCC 1] to substantiate their  

submissions  to  the  effect  that  till  the  amount  of  tax  is  

determined, no interest can be levied on the amount of tax.

22. Thus,  the learned counsel appearing for the respondents had  

prayed  that  the  appeals  should  be  dismissed  for  the  sound  

reasons recorded by the High Court in the impugned judgment.

23. Upon perusal of the impugned judgment and the judgments  

referred to by the learned counsel appearing for both sides, we  

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are  of  the  view  that  the  impugned  judgment  deserves  to  be  

quashed and set aside for the reasons recorded hereinafter.

24. Upon  perusal  of  the  impugned  judgment  as  well  as  the  

provisions of Section 112 of the 2000 Act, one might have an  

impression  that  the  Revenue  has  become  harsh  in  imposing  

interest  at  the rate  of 24% p.a.  on the amount  of  MODVAT  

credit  availed  on  the  HSD oil  used  as  an  input  without  any  

adjudication of the amount payable or without even issuance of  

a  show cause  notice.  In  fact  if  we look  at  the  provisions  of  

Section  112  of  the  2000  Act  along  with  other  notifications  

which  had  been  issued  earlier  in  1995  and  1994,  whereby  

availment of MODVAT credit on the HSD oil used as fuel in  

generation of electricity had been ordered to be discontinued,  

we would feel that the first  impression that one would gather  

upon  perusal  of  Section  112  of  the  2000  Act  would  not  be  

correct.   

25. It  is  necessary  to  look  at  the  background  and  the  

circumstances in which Section 112 of the 2000 Act had been  

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enacted.  By virtue of the Notifications issued on 01.03.1994  

and 16.03.1995 issued under Rule 57A of the Rules, the Central  

Government had specifically declared that MODVAT credit on  

the HSD oil used as an input would not be available as the said  

item had  been  specifically  excluded  from the  list  of  eligible  

exempted  inputs.   In  spite  of  the  said  fact,  several  assessees  

were claiming MODVAT credit in respect of the HSD oil used  

as an input and therefore, Section 112 of the 2000 Act had to be  

enacted.  Thus, it is clear that the said Section had been enacted  

so as to see that no one claims MODVAT credit in respect of  

the HSD Oil used as an input and those who had wrongfully  

availed MODVAT credit in respect of the HSD oil used as an  

input and those who had claimed the credit wrongfully, return  

the said amount within 30 days from the date the President gives  

assent to the 2000 Act. This clearly denotes that by virtue of the  

provisions  of  Section 112 of the 2000 Act,  MODVAT credit  

availed on the HSD oil used as an input had not been withdrawn  

for the first time but it was declared that if anybody had availed  

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MODVAT credit on the HSD oil used as an input, will have to  

return  it  within  30  days  and  in  case   the  amount  being  not  

refunded within 30 days, the amount of the MODVAT credit  

wrongfully availed by the concerned assessee had to be returned  

with interest at the rate of 24% p.a.

26. The aforestated factual aspect would clarify that Section 112  

of the 2000 Act is in fact not having any retrospective effect but  

it only enables the Government to get back the wrongly availed  

MODVAT credit on the HSD oil used as an input.

27. A somewhat similar issue had arisen before this Court in the  

case of Sangam Spinners Limited (supra) and after considering  

earlier Notifications issued by the Government, it had been held  

that Section 112 of the 2000 Act did not take away any right of  

any assessee with retrospective effect.  This court held in the  

said case that the HSD oil had been specifically excluded from  

the list of eligible inputs with effect from 16th March, 1995 and  

therefore, no assessee had any vested right to avail benefit of  

MODVAT credit on the HSD oil used as an input and therefore,  

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if  any  benefit,  which  had  been  wrongly  availed  by  any  

manufacturer, the benefit wrongfully availed had to be returned.

28. It is also pertinent to note that the validity of Section 112 of  

the 2000 Act had not been challenged in the petitions filed  by  

the respondents and therefore, we need not go into the legality  

of the said Section.

29. In the aforestated circumstances, in our opinion, there was no  

issue with regard to any adjudication because the respondents  

had availed MODVAT credit on the HSD oil used as an input  

though  it  was  not  permissible.   Once  it  is  certain  that  the  

MODVAT credit had been wrongly availed by the respondents,  

in our opinion, the Revenue cannot be blamed, if the amount  

wrongly availed by way of MODVAT credit by the respondents  

is recovered with interest thereon. It is also pertinent to note that  

the Revenue had given 30 days’ time to return the said amount  

to the respondents who had wrongly availed MODVAT credit  

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on the HSD oil used as an input.  If anyone who had repaid the  

amount wrongly availed within 30 days from the date on which  

Section  112 of  the  2000 Act  got  the  President’s  assent,  that  

assessee  had  not  to  pay  any  interest  on  the  amount  of  duty  

availed  by  him  wrongly.   But  those  who  had  availed  the  

MODVAT credit on the HSD oil used as an input and did not  

return the said amount even within 30 days from the date on  

which  the  President  had  given  assent  to  the  enactment  of  

Section  112  of  the  2000  Act,  had  to  return  the  amount  

wrongfully retained by them with interest at the rate of 24% p.a.  

In  our  opinion,  such  a  course,  adopted  by  the  Revenue  for  

recovery of the amount which was legitimately claimed by the  

Revenue, cannot be said to be bad in law.

30. In  the  circumstances  and  for  the  reasons  recorded  

hereinabove, we are of the view that the High Court committed  

an error by not considering the aforestated factors and therefore,  

we  quash  and  set  aside  the  impugned  judgment  by  allowing  

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these appeals  with no order  as to costs.   The stay granted is  

vacated.

………......................................J.                                                        (ANIL R. DAVE)

……..........................................J.   (DIPAK MISRA)

New Delhi December 17,  2013.  

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