2010 (4) TMI 936 - HC - Central Excise

Court upholds Finance Act's Section 112, denies Modvat credit on HSD oil, petitioner liable for interest.

The court upheld the constitutionality and retrospective application of Section 112 of the Finance Act, 2000, denying Modvat credit on HSD oil. Recovery ... Whether validity of Section 112 is liable to be rejected? Held that:- If the amount would not have been deposited within thirty days as provided under clause (b) of sub-section (2) of Section 112 the petitioner would be liable for interest. The petitioner is not able to show that the Legislature was not competent to make such amendment and such amendment violates the fundamental right of the petitioner. No foundation has been laid down in this respect in the writ petition. Therefore, the submission of the petitioner about the validity of Section 112 of the Finance Act, 2000 has no substance and is liable to be rejected. It is settled principle of law that the Legislature is competent to make the amendment with retrospective effect. The amendment with retrospective effect has been held valid and held within the ambit of the legislative power in the various cases, referred herein above. Appeal dismissed. Issues Involved:1. Constitutionality of Section 112 of the Finance Act, 2000.2. Retrospective denial of Modvat Credit on High Speed Diesel (HSD) Oil.3. Validity of recovery proceedings initiated beyond the stipulated period.4. Liability for interest on the amount of Modvat Credit.Detailed Analysis:1. Constitutionality of Section 112 of the Finance Act, 2000:The petitioner challenged the constitutionality of Section 112, arguing it was ultra vires the constitution. The court held that the petitioner failed to establish the grounds for lack of legislative competence or violation of fundamental rights. The court cited several Supreme Court decisions, emphasizing the presumption of validity of legislative provisions unless proven otherwise. The court concluded that the Legislature has the power to enact provisions with retrospective effect, and such provisions have been upheld by the apex court in various cases.2. Retrospective Denial of Modvat Credit on HSD Oil:The petitioner argued that Modvat credit on HSD oil was admissible under Rule 57B during the relevant period. However, Section 112 of the Finance Act, 2000, retrospectively denied such credit from March 16, 1995, to the date the Finance Act received presidential assent. The court noted that the Supreme Court, in a review application concerning the Associated Cement Companies Ltd. case, left the issue of Section 112's validity open. The court upheld the retrospective application of Section 112, stating that Modvat credit on HSD oil was not admissible during the disputed period.3. Validity of Recovery Proceedings Initiated Beyond the Stipulated Period:The petitioner contended that recovery proceedings initiated after thirty days from the date of the Finance Act's assent were invalid. The court clarified that the show-cause notice was issued under Section 11A, and the demand was confirmed within the limitation period. Clause (b) of sub-section (2) of Section 112 provided a thirty-day window for recovery, failing which interest would be payable. The court held that the demand was valid and within the prescribed limitation, rejecting the petitioner's plea.4. Liability for Interest on the Amount of Modvat Credit:The petitioner argued that interest should not be demanded if the Modvat credit claim was disallowed retrospectively. The court held that clause (b) of sub-section (2) of Section 112 mandated interest at 24% per annum if the amount was not deposited within thirty days from the Finance Act's assent. The court emphasized that the interest arises by operation of law and is mandatory. Therefore, the petitioner was liable for interest on the disallowed Modvat credit.Conclusion:The court dismissed the petition, upholding the constitutionality and retrospective application of Section 112 of the Finance Act, 2000. The recovery proceedings were deemed valid, and the petitioner was held liable for interest on the disallowed Modvat credit. The interim order was vacated, and no costs were awarded.