1989 (9) TMI 125 - HC - Central Excise

Court allows petitioner to opt out of MODVAT Scheme; circular set aside, excise duty notices invalidated.

The court held that the petitioner had the right to opt out of the MODVAT Scheme within the financial year. The circular and the order by the Assistant ... MODVAT scheme Issues Involved:1. Validity of Circular No. MF (DR) letter No. B 22/27/86-T H U dated 20th June, 1986.2. Petitioner's right to opt out of the MODVAT Scheme during a financial year.3. Legality of the order dated 23-11-1987 by the Assistant Collector of Central Excise.4. Validity of show cause notices dated 31st December, 1987.Issue-Wise Detailed Analysis:1. Validity of Circular No. MF (DR) letter No. B 22/27/86-T H U dated 20th June, 1986:The petitioner challenged the circular issued by the Union of India, which sought to deny manufacturers the right to opt out from the MODVAT Scheme during a financial year. The court examined whether this restriction was ultra vires the provisions of the Central Excises & Salt Act, 1944, and the Central Excise Rules, 1944, as well as the Constitution of India. The court found that the circular imposed an unreasonable restriction on the manufacturers' rights and was not supported by the statutory framework.2. Petitioner's Right to Opt Out of the MODVAT Scheme During a Financial Year:The petitioner, a manufacturer of printed cartons, opted into the MODVAT Scheme but later sought to opt out within the same financial year. The court referred to the decision of the C.E.G.A.T. South Regional Bench, Madras, in Brooks Industries v. Collector of Central Excise, which held that there was no legal provision preventing a manufacturer from opting out of the MODVAT Scheme within the same financial year. The court also noted that a subsequent clarificatory Trade Notice allowed manufacturers to opt out within the financial year, indicating that the petitioner's request was valid.3. Legality of the Order Dated 23-11-1987 by the Assistant Collector of Central Excise:The Assistant Collector of Central Excise had issued an order stating that the petitioner could not opt out of the MODVAT Scheme during the financial year. The court found this order to be inconsistent with the legal provisions and the subsequent clarificatory Trade Notice, which allowed for opting out within the financial year. The court set aside the order, deeming it invalid.4. Validity of Show Cause Notices Dated 31st December, 1987:Two show cause notices were issued to the petitioner, demanding excise duty on the grounds that the petitioner could not opt out of the MODVAT Scheme and claim a concessional rate of duty simultaneously. The court held that these notices were based on the incorrect assumption that the petitioner was not entitled to opt out of the MODVAT Scheme. Since the petitioner had the right to opt out, the show cause notices were set aside to the extent that they sought to realize duty under the MODVAT Scheme.Conclusion:The court concluded that the petitioner had the right to opt out of the MODVAT Scheme within the financial year. The circular and the order by the Assistant Collector of Central Excise, which sought to deny this right, were set aside. The show cause notices were also invalidated to the extent they were based on the incorrect premise that the petitioner could not opt out of the MODVAT Scheme. The petitioner was deemed to have opted out from the date of the request, and the liability to pay excise duty remained, except under the MODVAT Scheme. The writ petition succeeded to this extent, with no order as to costs. The operation of the order was stayed for two weeks as requested.