1991 (9) TMI 194 - AT - Central Excise

Tribunal: General Law Prevails over Specific Rules in Duty Short Levy Cases

COLLECTOR OF CENTRAL EXCISE Versus MARADIA STEEL (P) LTD.

The Tribunal held that Rule 57-I of the Central Excise Rules, in conjunction with Section 11A of the Central Excises and Salt Act, applies to cases of ... Reference to Supreme Court Issues Involved:1. Applicability of Rule 57-I of the Central Excise Rules, as it stood prior to amendment, in conjunction with Section 11A of the Central Excises and Salt Act, 1944.2. Whether the cases covered under Rule 57-I for recovery of wrongly availed MODVAT credit are governed by Section 11A.3. Whether the general provision of Section 11A prevails over the specific cases covered under Rule 57-I.4. Retrospective effect of the amendment to Rule 57-I.Issue-wise Detailed Analysis:1. Applicability of Rule 57-I in conjunction with Section 11A:The Tribunal examined whether Rule 57-I of the Central Excise Rules, as it stood before its amendment on 6-10-1988, should be read in conjunction with Section 11A of the Central Excises and Salt Act, 1944. The Department contended that the MODVAT Scheme, introduced in 1986, was independent and should not be read with Section 11A. However, the Tribunal held that MODVAT credit availed wrongfully, which results in short levy of duty on the final product, should invoke the provisions of Section 11A. This was based on previous decisions, including the TELCO case, where it was held that Rule 57-I is subject to the provisions of Section 11A when it is silent about the limitation period for demand.2. Governing of cases under Rule 57-I by Section 11A:The Tribunal noted that Section 11A provides for recovery of duties in cases of short levy, short paid, or non-paid duties, and under-assessment. The Department argued that MODVAT credit, being a special provision, should not be governed by Section 11A. The Tribunal, however, held that since MODVAT credit results in short levy of duty on the final product, the provisions of Section 11A would apply. This was supported by the Karnataka High Court's decision in the Thungabadra Steel Products case, which upheld the Tribunal's view on the issue.3. Prevalence of Section 11A over Rule 57-I:The Tribunal considered whether the general provision of Section 11A should prevail over the specific provisions of Rule 57-I. The Department argued that the MODVAT Scheme, being a special scheme with its own provisions, should not be subject to Section 11A. However, the Tribunal held that Rule 57-I, being part of the Central Excise Rules, is subject to the provisions of Section 11A when it is silent about the limitation period for demand. The Tribunal also noted that the Bombay High Court, in the Zenith Tin Works case, held that Rule 56A (analogous to the MODVAT Scheme) is subject to the time limit under the erstwhile Rule 10 of the Central Excise Rules.4. Retrospective effect of the amendment to Rule 57-I:The Department conceded that the question of the retrospective effect of the amendment to Rule 57-I does not arise from the Tribunal's order, as there was no finding on this issue. Therefore, this question was not considered further.Conclusion and Proposal for Reference to the Supreme Court:The Tribunal observed conflicting views from the Gujarat High Court and the Karnataka High Court on whether Rule 57-I prior to amendment is subject to Section 11A. The Gujarat High Court, in the Torrent Laboratories case, held that Rule 57-I should not be read in conjunction with Section 11A, but also recognized the need for a reasonable period for issuing show cause notices. The Karnataka High Court, however, upheld the Tribunal's view that Section 11A applies to Rule 57-I.Given these conflicting views, the Tribunal proposed to refer the following question of law to the Supreme Court for resolution:'Whether Rule 57-I of the Central Excise Rules, as it stood prior to amendment effected on 6-10-1988, is subject to the provisions of limitation prescribed under Section 11A of the Central Excises and Salt Act, 1944, or whether it is independent of Section 11A and can be invoked for recovery of MODVAT credits even covering the period beyond six months from the date of creditRs.'