2016 (4) TMI 797 - HC - Central Excise

High Court rules denial of Modvat credit on procedural grounds unjustified, emphasizes substantive rights over procedural delays.

M/s Global Sugar Ltd. Versus Commissioner of Central Excise, Kanpur

The High Court ruled in favor of the applicant in a case concerning the interpretation of Rule 57-T(3) of the Central Excise Rules 1944. The Court held ... Availment of Modvat credit - Whether the applicant had adhered to the provision of Rule 57-T of the Rules in seeking a declaration for availing Modvat credit - Held that:- it is not disputed that the goods were received in the factory premises and was consumed for the purpose of erection of shades for boiler houses, etc. It is also not disputed that the goods so received showed evidence of payment of duty on such goods. When these two conditions are existing which are the mandatory requirement, in such case, Modvat credit should be allowed and could not be denied on the ground that there was a procedural lapse in not applying for a declaration within a stipulated period. Sub-rule (3) of Rule 57-T of the Rules clearly indicates that if the declaration is not filed within the specified period, the same can be considered after the expiry of period on sufficient cause being shown. In the instant case, the applicant clearly stated that they were not aware of such procedure for claiming Modvat credit and the moment they came to know applied for Modvat credit. The fact, that the applicant applied for Modvat credit has not been disputed. Once this is not disputed, it is not open to the respondents to deny Modvat credit on the ground that permission was not granted by the competent authority. There is no evidence that the application of the applicant was rejected. So, even if there is a procedural lapse, it does not mean that Modvat credit could not be availed. By applying the decision of this court in the case of Commissioner of Central Excise, Allahabad vs. Hindalco Industries Pvt. Ltd [2012 (4) TMI 254 - ALLAHABAD HIGH COURT], Rule 57-G of the Rules is only procedural in nature. Therefore, Modvat credit cannot be denied on a technical ground that the procedure for availing Modvat credit was not followed at the material moment of time. Also the Tribunal was not justified in interpreting Rule 57-T(3) of the Rules in a technical manner holding it to be a mandatory provision. - Decided in favour of appellant Issues involved:Interpretation of Rule 57-T(3) of the Central Excise Rules 1944 and its proviso by the Tribunal.Detailed Analysis:1. Background and Facts:The case involves an excise reference made to the High Court regarding the interpretation of Rule 57-T(3) of the Central Excise Rules 1944. The applicant had taken Modvat credit on structural materials without obtaining mandatory permission as required by the rule. The Commissioner disallowed the Modvat credit, leading to an appeal and subsequent reference to the High Court.2. Provisions of Rule 57-T:Rule 57-T outlines the procedure to be observed by the manufacturer for availing Modvat credit on duty paid on capital goods. It mandates filing a declaration with the Assistant Commissioner of Central Excise before receipt of capital goods, indicating details of the goods and final products. Subsequent provisions specify conditions for availing credit and the role of the Assistant Commissioner in granting permission.3. Contentions and Disputes:The Commissioner disallowed the Modvat credit, citing the lack of permission under Rule 57-T. However, the applicant contended that they filed the necessary application under sub-rule (3) of Rule 57-T, albeit with a delay, due to lack of awareness. They argued that the substantive right of Modvat credit should not be denied due to a procedural lapse.4. Court's Analysis and Precedents:The Court analyzed the procedural requirements under Rule 57-T and compared it to similar provisions in the Rules. Referring to a previous judgment, the Court emphasized that procedural lapses should not bar the availing of Modvat credit. The primary objective of Modvat credit is to provide relief on duty paid for inputs used in manufacturing processes.5. Decision and Ruling:The Court held that Rule 57-T is procedural in nature and the denial of Modvat credit based on technical grounds is not justified. It emphasized that the substantive right to avail credit should not be hindered by procedural delays. Citing previous judgments, the Court ruled in favor of the applicant, setting aside the orders of the Tribunal and Commissioner.6. Conclusion:The High Court allowed the reference, answering the question of law in favor of the applicant. It clarified that Rule 57-T is procedural and does not warrant the denial of Modvat credit based solely on technical grounds. The judgment highlighted the importance of substantive rights in excise matters and the need to balance procedural compliance with the core objectives of duty relief mechanisms.