Natural justice and deemed MODVAT credit: writ relief was available, and the later modification operated prospectively only.
Writ jurisdiction was held maintainable where assessment orders were passed without prior notice and the petitioners were not shown to have received the show cause notice, so the alternative remedy objection failed on natural justice grounds. The order dated 29 August 1986 modifying the MODVAT instructions was treated as prospective because it did not express retrospective operation and could not take away benefits already available under the earlier position. The second proviso to Rule 57G(2) was construed strictly as a limited exception to the general requirement of duty-paying documents, and a manufacturer claiming deemed credit had to first show that the inputs were not covered by the notified exclusions before the department could contest the claim.
Issues: (i) Whether the writ petitions were barred by the existence of an alternative statutory remedy and the later issue of a show cause notice; (ii) whether the order dated 29 August 1986 modifying the MODVAT instructions operated retrospectively; (iii) the scope of the second proviso to Rule 57G(2) of the Central Excise Rules, 1944 and the burden of showing that the inputs fell within the notified exceptions.
Issue (i): Whether the writ petitions were barred by the existence of an alternative statutory remedy and the later issue of a show cause notice.
Analysis: The assessment orders had been passed without prior notice and the petitioners were not shown to have been served with the show cause notice before approaching the Court. In such circumstances, the existence of an appellate remedy did not justify refusal of writ jurisdiction, particularly where the impugned action was contrary to the requirements of natural justice.
Conclusion: The objection based on alternative remedy was rejected, and the writ petitions were maintainable.
Issue (ii): Whether the order dated 29 August 1986 modifying the MODVAT instructions operated retrospectively.
Analysis: The modifying order did not state that it was retrospective. It was intended to clarify and alter the earlier position prospectively by deleting reference to waste and scrap of iron and steel, and therefore it could not deprive the petitioners of the benefit available under the earlier notification for the period prior to its issuance.
Conclusion: The order dated 29 August 1986 was held to be prospective, not retrospective.
Issue (iii): The scope of the second proviso to Rule 57G(2) of the Central Excise Rules, 1944 and the burden of showing that the inputs fell within the notified exceptions.
Analysis: The general rule under Rule 57G required duty-paying documents, while the second proviso created a limited legal fiction allowing deemed duty-paid status for notified stocks. That fiction had to be confined to the words of the notification. The notification was framed as an exception to the ordinary rule that no credit is available where no duty is paid. Accordingly, a manufacturer claiming deemed credit had to take a definite stand and establish that the inputs were not covered by the exceptions of non-duty paid or nil-rate goods, after which the department could accept or contest the claim on the facts of the case.
Conclusion: The Court held that the burden was initially on the manufacturer claiming deemed credit, and the notification could not be read as universally granting credit to all scrap.
Final Conclusion: The impugned assessment orders were set aside and the matters were sent back for fresh assessment after considering the reply to the show cause notice and applying the legal observations in the judgment. The petitions were disposed of with no order as to costs.
Ratio Decidendi: A notification granting deemed credit under a fiscal rule creates only a limited exception to the general rule, and its scope must be determined strictly from its own language; where an assessment is made without notice, writ relief is not barred by alternative remedy.
TaxTMI 
AI Drafter ✕
TaxTMI 
