2010 (3) TMI 60 - HC - Central Excise

Court upholds assessee's right to Cenvat credit under Rule 9A(3)

The High Court held that the assessee correctly availed Cenvat credit under Rule 9A(3) of the Cenvat Credit Rules, 2002, as per Notification No.35/2003-CE ... Cenvat Credit – Amendment in rule 9A - Transitional provisions for Textile and Textile Articles. – demand on the basis of amended provision much after the date of availing cenvat credit – held that - The argument of learned counsel for the revenue that since the amount of cenvat credit is required to be calculated as per the amended provisions of Notification No.47/2003-CE dated 17.5.2003, so the assessee availed the same in excess, is not only devoid of merit but misplaced as well, because entry at Serial No.2 of the Table was only substituted on 17.5.2003, much after the availing of the cenvat credit by the assessee on inputs lying in stock as on 31.3.2003. - It is now well settled proposition of law that such benefit already granted to the assessee cannot possibly be withdrawn by applying the subsequent amendment retrospectively. If the intention of the authority was to apply the subsequent amendment retrospectively, then it ought to have been specifically mentioned that it will operate retrospectively. In the absence of the same, such amendment would operate prospectively. Moreover, the benefit already granted to the assessee under the statutory Rule 9A(3) cannot be taken away by issuance of notification by the subordinate legislation, because the subordinate legislation has neither any power nor jurisdiction to issue such notification with retrospective effect withdrawing the benefit already accrued and availed by it (assessee). ISSUES PRESENTED AND CONSIDERED 1. Whether the assessee was entitled to avail Cenvat credit under Rule 9A(3) of the Cenvat Credit Rules, 2002 read with Notification No.35/2003-CE dated 10.4.2003 for goods lying in stock as on 31.3.2003. 2. Whether the subsequent Notification No.47/2003-CE dated 17.5.2003 (substituting Serial No.2 of the Table in Notification No.35/2003-CE) operates retrospectively to re-calculate and reduce Cenvat credit already availed on 20.4.2004 for stock as on 31.3.2003. 3. Whether a subordinate notification (amendment) can withdraw a benefit already accrued and availed by an assessee without explicit retrospective intention, and whether such withdrawal can be effected by retrospective application of the amendment. 4. Whether the demand of duty, interest and imposition of penalty based on recalculation under the subsequent notification was legally sustainable. ISSUE-WISE DETAILED ANALYSIS Issue 1: Entitlement to Cenvat credit under Rule 9A(3) and Notification No.35/2003-CE Legal framework: Rule 9A of the Cenvat Credit Rules, 2002 provides transitional provisions for textile and textile articles, entitling manufacturers to avail credit on inputs lying in stock or in process as on 31.3.2003. Sub-rule (3) empowers the Central Government to notify rates or manner of calculation for such credit. Notification No.35/2003-CE dated 10.4.2003 specified amounts/percentages for calculating credit (Table entries including Serial No.1(c) and Serial No.2). Precedent Treatment: The Court applied the statutory text of Rule 9A(3) and the notification issued thereunder; no contrary judicial precedent was cited in the judgment. Interpretation and reasoning: The Court read Rule 9A(3) and Notification No.35/2003-CE conjunctively to hold that the assessee was entitled to calculate and avail Cenvat credit for inputs/fabrics lying in stock as on 31.3.2003 in the manner prescribed by Notification No.35/2003-CE. The assessee had made written declaration and availed credit accordingly. Ratio vs. Obiter: Ratio - entitlement under Rule 9A(3) to avail credit as calculated under Notification No.35/2003-CE where declarations and requisite documents exist. Conclusions: The Court concluded that the assessee validly availed Cenvat credit under Rule 9A(3) read with Notification No.35/2003-CE for stock as on 31.3.2003. Issue 2: Retrospective operation of Notification No.47/2003-CE (substitution of Serial No.2) Legal framework: Sub-rule (3) of Rule 9A empowers specification by notification. Questions of temporal operation of subordinate legislation and retrospective effect are governed by principles of construction: retrospective effect is not to be given unless clearly intended or necessary, and vested rights generally protected from retrospective withdrawal. Precedent Treatment: The Court relied on the well-settled principle that benefits already granted and availed cannot be withdrawn retrospectively by subordinate legislation unless retrospective effect is expressly provided. No specific case law was cited, but the judgment follows established statutory construction principles. Interpretation and reasoning: The Court observed that the amendment substituting Serial No.2 of the Table by Notification No.47/2003-CE dated 17.5.2003 occurred after the date for which stock was fixed (31.3.2003) and after the assessee had availed credit. The Court reasoned that a subsequent notification cannot be applied retrospectively to diminish a benefit already accrued and availed, absent a clear expression of retrospective intent in the amendment. The Court further held that subordinate legislation lacks power to withdraw an already availed statutory benefit retrospectively by implication. Ratio vs. Obiter: Ratio - a subsequent subordinate notification which amends calculation rates cannot be given retrospective effect to withdraw credit already accrued and availed unless retrospective operation is expressly indicated; such retrospective withdrawal by subordinate legislation is impermissible. Conclusions: The Court concluded that Notification No.47/2003-CE could not be applied retrospectively to re-calculate and reduce the Cenvat credit already availed by the assessee; the assessee's claim under Notification No.35/2003-CE stood valid. Issue 3: Power of subordinate legislation to withdraw accrued benefits and requirement of express retrospective intent Legal framework: Principles of administrative and statutory construction restrict retrospective application of subordinate instruments where rights have vested; retrospective withdrawal requires express language or unmistakable intent. Subordinate legislation cannot usurp or negate vested statutory rights by implied retrospective effect. Precedent Treatment: The Court affirmed the settled proposition that benefit once granted and availed cannot be withdrawn by the subordinate legislation by retrospective operation unless such retrospective effect is specifically provided. Interpretation and reasoning: Applying these principles to the facts, the Court found that the assessee's credit was a valuable right already accrued and availed; the later-issued notification did not expressly state retrospective operation; accordingly, it could not be used to deprive the assessee of the benefit already taken. Ratio vs. Obiter: Ratio - confirmation that subordinate notifications cannot retrospectively withdraw accrued benefits absent explicit retrospective language; obiter - general observations on legislative competence to withdraw vested benefits (contextual but consistent with the ratio). Conclusions: The Court held that the amendment could not lawfully withdraw the assessee's accrued Cenvat credit; the subordinate notification lacked power to retrospectively deprive the assessee of the benefit. Issue 4: Validity of demand of duty, interest and penalty based on recalculation under the subsequent notification Legal framework: Recovery of excess Cenvat credit, interest under Rule 12 read with section 11A of the Central Excise Act, and penalty under Rule 13 arise if credit was wrongly availed. However, liability depends on legal correctness of the original availment and on whether a subsequent amendment can alter that position. Precedent Treatment: The Tribunal had upheld demand to the extent recalculations under Notification No.47/2003-CE would produce an excess, but had set aside penalty. The High Court reviewed the legal basis for recalculation and retrospective application. Interpretation and reasoning: Because the Court concluded that the subsequent notification could not be applied retrospectively to reduce credit already availed, the foundational basis for demands premised on that retrospective recalculation fell away. Consequently, demands of duty and interest calculated on that improper basis could not be sustained. The Court did not disturb Tribunal's view on penalty in detail but found overall orders unsustainable. Ratio vs. Obiter: Ratio - where retrospective recalculation is impermissible, consequential demands of duty and interest based on such recalculation are unsustainable; penalty imposition was addressed by lower forum and set aside by Tribunal, and the Court accepted the appeals overturning impugned orders. Conclusions: The Court allowed the appeals, held that demands raised by applying Notification No.47/2003-CE retrospectively were legally erroneous, and set aside the impugned orders which had disallowed Cenvat credit and ordered recovery with interest (and associated directions arising from that recalculation). Cross-reference Issues 2 and 3 are interrelated: the conclusion on retrospective operation (Issue 2) is founded on the general principle set out in Issue 3 that subordinate legislation cannot withdraw accrued benefits without explicit retrospective effect; Issue 4 flows directly from the determinations in Issues 1-3.