UNION OF INDIA Vs MAHARAJA SHREE UMAID MILLS
Bench: ANIL R. DAVE,DIPAK MISRA
Case number: C.A. No.-005634-005634 / 2008
Diary number: 21006 / 2008
Advocates: B. KRISHNA PRASAD Vs
P. V. YOGESWARAN
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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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