2000 (5) TMI 40 - SC - Central Excise

Rule 57-I governs recovery of illegally availed MODVAT/duty credit; not subject to Section 11A limitation

COLLECTOR OF CENTRAL EXCISE, JAIPUR Versus RAGHUVAR (INDIA) LTD.

SC held that adjustments or reversals under Rule 57-I for illegally availed MODVAT/duty credit must be effected by the manufacturer and by the proper ... Entitlement to avail of the duty credit only on and after 10-3-1987 - Modvat credit in respect of certain inputs used by them in the manufacture of vegetable products - applicability of Section 11A - declaration under Rule 57G - conflict of views expressed in the decisions of these High Court of Gujarat reported in Torrent Laboratories Pvt. Ltd. v. Union of India [1989 (10) TMI 173 - GUJARAT HIGH COURT] - Whether prior to 6-10-1988 as Rule 57-I existed? Held that:- As a matter of fact, Rule 57-I envisages disallowance of the credit and consequential adjustment in the credit account or the amount-current maintained by the manufacturer and if only any such adjustments are not possible proceed to recover the amount equivalent to the credit illegally availed of. Consequently, the situation postulated to be dealt with under Rule 57-I cannot be said to involve a case of manufacture and removal of excisable goods without subjecting such goods to levy or payment of the various nature and category enumerated in Section 11A of the Act on its own terms will have no application or operation to cases covered under Rule 57-I of the Rules. The utilization and adjustment depends upon proper and valid earning of the credit strictly in accordance with the terms and conditions of the Scheme and while making unilateral credit in the course of maintenance of the accounts in the prescribed form and manner, a gross illegality has been committed in crediting something to which a manufacturer was not legitimately entitled to, not only the Proper Officer has the right, power and authority to direct reversal of credit but on such direction, the extent and quantum of credit and consequent adjustment also would get necessarily and automatically readjusted making it obligatory under the Scheme for the manufacturer, as long as the credit account or the amount-current is maintained by the manufacturer under the Scheme, to reverse the credit and set right the accounts. Lawful earning of a credit is a sine qua non for proper and valid utilization of the same and once the credit side gets diminished the very basis of adjustment disappears ipso fecto. By adopting a defiant attitude in the matter, the manufacturer cannot take advantage of his misdeed to gain an advantage by contending that the action to be taken involve only a recovery of duty and therefore, should be within the period of limitation provided under Section 11A of the Act. Even when the recovery is ordered, as a last resort, as envisaged under Rule 57-I, as observed earlier, it is only recovery of the money value equivalent to the unlawful credit availed of and adjusted under the Scheme and not the demand or recovery of any duty as such. The provisions of Section 11A of the Central Excises and Salt Act, 1944, would have no application to any action taken under Rule 57-I of the Central Excises and Salt Rules, 1944, prior to its amendment on 6-10-1988, and Rule 57-I of the Rules are not in any manner subject to Section 11A of the Act. Hence, we approve of the view taken by the Gujarat High Court in the decision reported in Torrent Laboratories Pvt. Ltd. v. Union of India [1989 (10) TMI 173 - GUJARAT HIGH COURT] and further hold that the contra view expressed by the Madras, Karnataka, Bombay and Patna High Courts in the various decisions does not lay down the correct position of law. Issues Involved:1. Applicability of Section 11A of the Central Excises and Salt Act, 1944 to actions taken under Rule 57-I of the Central Excises Rules, 1944.2. Validity of credit availed under Modvat Scheme prior to filing the mandatory declaration.3. Time limitation for issuing show cause notices under Rule 57-I prior to its amendment on 6-10-1988.Detailed Analysis:1. Applicability of Section 11A to Rule 57-I Actions:The core issue was whether the provisions of Section 11A, which prescribe a six-month limitation period for recovery of duties not levied or paid, short-levied, short-paid, or erroneously refunded, apply to actions taken under Rule 57-I of the Central Excises Rules, 1944. The court held that Section 11A is not an omnibus provision applicable to all actions under the Act or Rules. Section 11A is specific to recovery of excise duties, whereas Rule 57-I deals with the disallowance and recovery of credit wrongly availed under the Modvat Scheme. The court concluded that the provisions of Section 11A do not apply to actions under Rule 57-I, as they address distinct and different categories.2. Validity of Credit Availed Under Modvat Scheme:The respondent filed a declaration under Rule 57G on 10-3-1987 but availed of Modvat credit from 1-3-1987. The authorities found this to be a wrongful credit of Rs. 62,710.61, of which Rs. 41,872.68 remained undisputed. The Assistant Collector directed the reversal of this credit, which was upheld by the Collector (Appeals). The court emphasized that lawful earning of credit is a sine qua non for proper utilization under the Modvat Scheme. The credit availed without filing the mandatory declaration was not legitimate, and the proper officer had the authority to direct its reversal.3. Time Limitation for Issuing Show Cause Notices:The respondent argued that the show cause notice issued on 5-8-1988 was beyond the six-month period stipulated in Section 11A. The Tribunal had accepted this argument, but the Supreme Court disagreed. The court pointed out that Rule 57-I, as it stood before the amendment on 6-10-1988, did not specify a limitation period for disallowing credit. The court held that it is not for the courts to import a specific period of limitation by implication where none exists. The absence of a limitation period in Rule 57-I does not make it subject to Section 11A's six-month limitation.Conclusion:The Supreme Court concluded that Section 11A of the Central Excises and Salt Act, 1944, does not apply to actions taken under Rule 57-I of the Central Excises Rules, 1944, prior to its amendment on 6-10-1988. The court approved the view taken by the Gujarat High Court and rejected the contrary views of the Madras, Karnataka, Bombay, and Patna High Courts. Consequently, the reference was answered in favor of the Revenue, affirming that the proper officer's actions under Rule 57-I were not constrained by the six-month limitation period of Section 11A.