2015 (4) TMI 1101 - HC - Central Excise

High Court rules in favor of assessee on MODVAT credit denial, emphasizing right to credit upon tax payment.

M/s Bharat Heavy Electricals Limited Versus CEC, Bhopal (MP)

The High Court ruled in favor of the assessee, holding that the denial of MODVAT credit by CEGAT due to an error in the entry in RG-23A Part II was ... Disallowance of MODVAT credit - Availing the facility of MODVAT credit of duty paid on inputs, in terms of the provisions of 57A of the Central Excise Rules - Assessee had taken MODVAT credit on the strength of duty paying documents which was found to have been issued more than six months prior to the date on which credit was taken. In the entries made in the documents maintained under RG-23 A - Part I & II, even though in Part I the entry is made showing date of taking availment of MODVAT credit within the stipulated period of six months, but in Part II as the date was beyond six months, Held that:- we are in full agreement with the principle laid down by the Gujarat High Court in the case of Baroda Rayon Corporation Limited Vs. Union of India [2011 (3) TMI 1551 - GUJARAT HIGH COURT] wherein also under similar circumstances, identical action has been quashed and MODVAT credit extended. We agree with the Gujarat High Court when it says that the right to avail all credit conferred under Rule 57A and Rule 57G only provides the procedure to be observed by the manufacturer. Therefore, when power is exercised under Rule 57G, the Central Government is not empowered to curtail any right conferred by the substantive provision of Rule 57A and, therefore, the Notification issued under Rule 57G prescribing the time limit for taking the credit as found by the High Court of Gujarat is found to be ultra vires, as it is beyond the power and is in conflict to the impugn provision of Rule 57A, these are based on the principle laid down by the Hon‟ble Supreme Court in the cases of Eicher Motors Limited Vs. Union of India [1999 (1) TMI 34 - SUPREME COURT OF INDIA] and Collector of Central Excise, Pune Vs. Dai Ichi Karkaria Limited [1999 (8) TMI 920 - SUPREME COURT OF INDIA]. Accordingly, the assessee was entitled to avail the MODVAT credit under Rule 57A, merely because of the time frame fixed in making the entries in Part II of RG-23A, and only because of some error in making the entry, denial of the benefit cannot be permitted. The act of the assessee in making such receipt of input in Part I of a single comprehensive RG-23 A action is evidence enough with regard to crystallization of right to MODVAT credit and merely because in second accounting entry of Part II, there is some inconsistency, the right accrued already to receive the credit cannot be taken away. Also the credit which had accrued to the assessee could not be denied in law by the CEGAT holding it to be inadmissible merely because of the error in making entry in Part II of RG-23A. - Appeal disposed of Issues Involved:1. Interpretation of MODVAT Scheme provisions regarding the accrual of credit rights to an assessee.2. Determining the significance of accounting entries in RG-23A Part I and Part II for availing MODVAT credit.3. Assessing whether the denial of MODVAT credit by CEGAT due to an error in entry is lawful.Detailed Analysis:Issue 1:The primary issue revolves around the interpretation of the MODVAT Scheme provisions concerning the accrual of credit rights to an assessee. The Tribunal rejected MODVAT credit to the assessee based on an entry in RG-23A Part II beyond six months. The High Court analyzed the Supreme Court judgments in Eicher Motors Limited and Collector of Central Excise, Pune Vs. Dai Ichi Karkaria Limited, emphasizing that the right to credit accrues to the assessee upon payment of tax on raw materials. The Court held that the right crystallizes upon input receipt, as per the existing scheme.Issue 2:Regarding accounting entries in RG-23A Part I and Part II for availing MODVAT credit, the High Court highlighted that the denial of credit was solely due to an entry in Part II beyond the stipulated six months. The Court referred to the Gujarat High Court's decision in Baroda Rayon Corporation Limited Vs. Union of India, where similar circumstances led to the quashing of denial of MODVAT credit. The Court agreed that the right to credit conferred by Rule 57A and Rule 57G should not be curtailed by procedural limitations, as established in previous judgments.Issue 3:The final issue pertains to the lawfulness of denying MODVAT credit by CEGAT based on an error in the entry in Part II of RG-23A. The High Court concluded that the credit accrued to the assessee could not be lawfully denied by CEGAT due to an entry error. The Court held that the assessee was entitled to avail of the credit, and all benefits accruing should be granted, thereby quashing the Tribunal's order.In conclusion, the High Court answered the reference by affirming the assessee's entitlement to MODVAT credit, emphasizing the importance of procedural adherence without unduly restricting the substantive rights conferred by the MODVAT Scheme.