2011 (3) TMI 1551 - HC - Central Excise

Court Invalidates Time-Limit for Modvat Credit: Rule 57G Prevails

BARODA RAYON CORPORATION LTD. Versus UNION OF INDIA

The court held in favor of the petitioner, ruling that the time-limit provision in Central Excise Notification No. 16/94-(N.T.), dated 30th March, 1994, ... Central Excise Notification No. 16/94-(N.T.), dated 30th March, 1994 challenged to the extent it provides that on the basis of the documents stipulated therein, credit under Rule 57G of the Central Excise Rules, 1944 (the Rules) has to be taken on or before 30th June, 1994 Held that:- The impugned notification issued in exercise of powers under Rule 57G of the Rules insofar as the same prescribes a time-limit for taking of credit, being in excess of the powers conferred under the said rule is ultra vires the same and as such cannot be sustained to that extent. Petition succeeds and is accordingly allowed. The impugned Notification No. 16/94-C.E. (N.T.), dated 30th March, 1994 to the extent it provides that the credit under Rule 57G of the Rules has to be taken on or before 30th June, 1994 being in excess of the powers conferred under Rule 57G of the Rules is hereby quashed and set aside. Consequently, the impugned order dated 23rd November, 2001 of the Tribunal dismissing the appeal preferred by the petitioner is also set aside. Consequently, the respondents are restrained from enforcing any demand pursuant to the order of CEGAT in Appeal Nos. E/1487, 1577, 1377/97-Mum., dated 23rd November, 2001. Issues Involved:1. Validity of Central Excise Notification No. 16/94-(N.T.), dated 30th March, 1994.2. Legality of the time-limit prescribed for availing Modvat credit under Rule 57G of the Central Excise Rules, 1944.3. Appropriateness of the orders passed by the Central Excise and Gold (Control) Appellate Tribunal (The Tribunal).4. Right of the petitioner to avail Modvat credit based on gate passes issued before 1st April 1994 but credited after 30th June 1994.Detailed Analysis:1. Validity of Central Excise Notification No. 16/94-(N.T.), dated 30th March, 1994:The petitioner challenged the notification to the extent it imposed a deadline of 30th June 1994 for availing Modvat credit based on gate passes issued before 1st April 1994. The Court noted that the notification was issued under Rule 57G of the Central Excise Rules, which allows the Central Government to prescribe documents evidencing payment of duty on inputs. However, the Court found that Rule 57G does not empower the Central Government to prescribe a time-limit for taking credit, thereby rendering the time-limit provision in the notification ultra vires and unsustainable.2. Legality of the time-limit prescribed for availing Modvat credit under Rule 57G of the Central Excise Rules, 1944:The Court examined Rule 57G and the powers conferred therein. It concluded that while Rule 57G allows the Central Government to prescribe documents, it does not authorize the prescription of a time-limit for availing credit. The Court emphasized that the right to avail credit is conferred under Rule 57A, and Rule 57G only prescribes the procedure. Thus, any time-limit imposed under Rule 57G exceeds the powers conferred by the Rule and is invalid.3. Appropriateness of the orders passed by the Central Excise and Gold (Control) Appellate Tribunal (The Tribunal):The Tribunal had dismissed the petitioner's appeal by relying on the decision of the Larger Bench in Montari Industries Ltd. v. Commissioner of Central Excise and Customs and the decision of the High Court in Commissioner of Central Excise, Ahmedabad v. Gujarat Medicraft Pvt. Ltd. The Court found that these decisions were not directly applicable to the facts of the petitioner's case. The Tribunal had failed to discuss the merits of the case and had inappropriately applied precedents, leading to an unjust dismissal of the appeal.4. Right of the petitioner to avail Modvat credit based on gate passes issued before 1st April 1994 but credited after 30th June 1994:The petitioner argued that once inputs are received in the factory and duty is paid, the right to avail credit becomes indefeasible. The Court agreed, citing the Supreme Court's decision in Collector of Central Excise, Pune v. Dai Ichi Karkaria Ltd., which held that credit, once validly taken, is indefeasible. The Court also referenced Eicher Motors Ltd. v. Union of India, which supported the indefeasibility of credit. The Court concluded that the petitioner's right to avail credit could not be curtailed by a time-limit imposed by the notification.Conclusion:The petition was allowed, and the impugned Notification No. 16/94-(N.T.), dated 30th March, 1994, was quashed to the extent it prescribed a time-limit for availing Modvat credit. Consequently, the Tribunal's order dated 23rd November 2001 was set aside, and the respondents were restrained from enforcing any demand based on the Tribunal's order. The Court upheld the petitioner's indefeasible right to avail Modvat credit based on gate passes issued before 1st April 1994, irrespective of the 30th June 1994 deadline.