TaxTMI 
TaxTMI 
2002 (4) TMI 98
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct, 2000 and denial of credit of duty paid on H.S.D. oil used in Diesel Generating Set for generation of electricity for captive consumption i.e. manufacture of final product of cement. 2.For the convenience, we shall refer the facts of one of the petitions being D.B. Civil Writ Petition No. 3635/97 filed by M/s. Shree Cement Limited. The petitioner-company is engaged in the business of manufacturing and selling Portland cement and has installed a Diesel Generating Set for generation of electricity for captive consumption in its factory premises. It is averred that the petitioner-company purchases HSD Oil for generation of electricity from Indian Oil Corporation Ltd./Hindustan Petroleum Corporation Ltd. through their sales Office/Depots in Rajasthan, cleared in sub-heading 2710.90 on payment of Central Excise Duty and the same is used as inputs/goods in the said Diesel Generating Set for generation of electricity which is used in the manufacture of final product cement or for other purposes in the petitioner's factory of production. 3.The petitioner-company submitted a declaration in respect of the diesel as well as oil and lubricants under Rule 57G read with Rule 57B of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he credit is available in respect of central excise duty, special excise duty and countervailing duty paid on inputs used in production of final product mentioned in the appropriate notification issued under the Central Excise and Tariff Act. Rule 57A provides for availment of Modvat credit in respect of inputs used in the manufacture of the finished product. The rule empowers the Central Government to specify the final product by issuing notification under the Official Gazette for the purpose of allowing Modvat credit of any duty of excise paid on the goods i.e. inputs used in the manufacture of the said final products. The relevant sub-rules (1) and (4) of Rule 57A read as under: "57A. Applicability. - (1) The provisions of this Section shall apply to such finished excisable goods (hereinafter, in this section, referred to as the final products) as the Central Govt. may by notification in the Official Gazette specify in this behalf for the purpose of allowing credit of any duty of excise or the additional duty under Section 3 of the Customs Tariff Act, 1975 (51 of 1975), as may be specified in the said notification (hereinafter referred to as the specified duty) paid on the go....
X X X X Extracts X X X X
X X X X Extracts X X X X
....said Rules. TABLE S. No. Description of inputs Description of final products (1) (2) (3) 1 All goods falling within the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) other than the following, namely : - All goods falling within the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), other than the follow­ing namely: - (i) goods classifiable under any heading of Chapter 24 of the Schedule of the said Act; (i) goods classifiable under any heading of Chapter 24 of the Schedule to the said Act; (ii) goods classifiable under Heading Nos. 36.05 or 37.06 of the Schedule to the said Act; (ii) goods classifiable under Heading No. 36.05 or 37.06 of the Schedule to the said Act; (iii) goods classifiable under sub-heading Nos. 2710.11, 2710.12, 2710.13 or 2710.19 (except Natural gasoline liquid) of the Schedule to the said Act; (iii) fabrics of cotton or man-made fibres falling within Chapter 52, Chapter 54 or Chapter 55 of the Schedule to the said Act; (iv) high speed diesel oil classifiable under heading No.27.10 of the Schedule to the said Act. (iv) fabrics of cotton or m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ithin the factory of production; (v) packing material and materials from which such packing materials are made provided the cost of such packing material is included in the value of the final product; (vi) accessories of the final product cleared along with such final product, the value of which is included in the assessable value of the final product." 6.Now, we shall refer to some of the decisions of the CEGAT wherein the question regarding the admissibility of the Modvat credit in the context of Rule 57B and/or Rule 57B read with Rule 57A of the Rules of 1944, has been considered. 7.In India Cements Ltd. v. CC & CE, Hyderabad reported in 1997 (95) E.L.T. p. 520, the credit was denied on the ground that as HSD Oil classifiable under heading 27.10. was excluded from the coverage of goods eligible to the benefits of credit at item No. (iv) of the Table annexed to Notification No. 8/95. The Tribunal found contradiction between the two Notifications i.e. No. 8/95 and No. 11/95. While Notification No. 3/95 denied Modvat credit benefit to HSD oil, without referring to purpose for which it was used....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ement Limited's case (supra). 11.In B.P.L. Display Devices Limited v. C.C.E., Meerut reported in 1999 (34) RLT p.546, the department relied upon the Notifications No. 5/98, dt. 2-3-98, whereby an explanation was added to Rule 57B(1) clarifying that the term 'inputs' in Rule 57B refers only to such inputs which may be specified in a notification issued under Rule 57A. For ready reference, explanation under sub-rule (1) of Rule 57B added by Notification No. 5/98, dt. 2-3-98 is extracted as follows: "Explanation.- For the purpose of this sub-rule, it is hereby clarified that the term 'inputs' refers only to such inputs as may be specified in a notification issued under Rule 57A." The Tribunal without examining that the defect pointed in India Cements case (supra) was cured by Notification No. 6/97, dated 1-3-1997, deleting second proviso to Rule 57D and introduced Rule 57B and further by Notification No. 5/98, dated 2-3-1998, clarification was made by adding explanation that the term "input" in Rule 57B refers only to such inputs which may be notified under Rule 57, followed the decision in India Cements case against the department. The Tribunal has also referred to decision ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....by a Division Bench. 15.It is, thus, evident that there is no decision of the CEGAT on the question whether the assessee will be entitled to Modvat credit on HSD Oil used captively for generation of electricity, in turn used for production of final product, after the explanation was added to Rule 57B, which has equated the term 'inputs' used in Rule 57B with the meaning given to the said term in Rule 57A. No judgment of the CEGAT or any High Court or the Apex Court has been placed before us wherein the view taken by the CEGAT in India Cements Ltd.'s case (supra) has been approved or disapproved or the effect of the Notification No. 5/98, dt. 2-3-98 has been examined. 16.The Central Government considering that there was some confusion with respect to availability of the Modvat credit on HSD Oil used for generation of electricity within the factory premises for the production of final product as cement, inspite of the clarification made from time to time by way of amendments and further the fact that there was reservation about the correctness of the judgment of the CEGAT in India Cements Ltd.'s case (supra) and Jindal Polymer's case (supra), a Finance Bill was introduced to va....
X X X X Extracts X X X X
X X X X Extracts X X X X
....his period, in addition to the amount of credit of such duty recoverable, interest at the rate of twenty-four per cent per annum shall be payable, from the date immediately after the expiry of the said period of thirty days till the date of payment. Explanation.- For the removal of doubts, it is hereby declared that no act or omission on the part of any person shall be punishable as an offence which would not have been so punishable if this section had not come into force." 17.It is contended by Mr. S. Ganesh, Senior Advocate appearing for the petitioner that the petitioner is entitled to Modvat credit under Rule 57B as HSD Oil for generation of the electricity as fuel in D.G. Set, which is used for manufacture of the final product of cement within the factory being covered by sub-clauses (iii) and (iv) of sub-rule (1). It is further submitted that anything contained in Rule 57A would not apply to the provisions of Rule 57B as both the provisions are mutually exclusive as Rule 57B starts with non-obstante clause. We are unable to accede to the submission made by the learned counsel. Rules 57A and 57B have been extracted by us in the preceding paras. Rule 57A empowers the Cent....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as proviso to the main section. It is also well established that an explanation normally should be read as to harmonize and clear up any ambiguity in the main provision and should not be construed to widen the ambit of the provision. We are fortified in our view by a decision of the Apex Court in M/s. Oblum Electrical Industries Pvt. Ltd. v. Collector of Customs reported in 1997 (94) E.L.T. 449 (S.C.) = AIR 1997 SC 3467. It is also held therein that if on true reading, an explanation widens the scope of the main provision, effect must be given to it. The reference may be made to Hiralal Ratanlal v. Sales Tax Officer, reported in AIR 1973 SC 1034 and Aphali Pharma v. State of Maharashtra reported in 1989 (44) E.L.T. 613 (S.C.) = AIR 1989 SC 2227. The Apex Court in Sulochana Amma v. Narain Nair reported in 1995 (77) E.L.T. 785 (S.C.) = AIR 1994 SC 152 construed the explanation (viii) of Section 11 of the CPC by the amendment in the year 1976 to promote the object for which it was inserted viz. that an issue once decided by the competent court, should not be litigated over again, though the court deciding it was a court of limited jurisdiction not competent to decide the subsequent su....
X X X X Extracts X X X X
X X X X Extracts X X X X
....redit of duty paid on eligible inputs. Thus, while credit admissible to eligible inputs used in or in relation to the manufacture of eligible final product is subject to the provisions of subsequent Rules 57B to 57J, none of the subsequent rules in the said Section AA of the Central Excise Rules, 1944 makes or can make ineligible input or final product as eligible. With utmost respect, it appears that the learned Members of the CEGAT while deciding the case of India Cement Ltd., lost sight of this basic feature of the Modvat credit scheme. Rule 57D is workable with the ineligible inputs under the Notification No. 5/94. There are eligible inputs i.e. furnace oil, which is used for generation of the electricity. Suffice it to say that the purpose of the proviso under Rule 57D is not to make an ineligible input as an eligible one. 19.It is next argued that while Modvat credit benefit has been made available on the petroleum products like lubricating oil, grease, cutting oil and coolants, it has been denied on HSD Oil, which is also a petroleum product. It is further submitted that the fuel oil is a substitute of HSD Oil, which is also a petroleum product. The Modvat credit has been....
X X X X Extracts X X X X
X X X X Extracts X X X X
....linder under compression. A good diesel fuel starts to burn at several locations within the cylinder after the fuel is injected whereas fuel oil consists largely of residues from crude oil refining. These are blended with other suitable gas oil fractions in order to achieve the viscosity required for convenient handling. As a residue product, fuel oil is the only refined product of significant quantity that commands a market price lower than the cost of crude oil. With the advent of more stringent exhaust emission controls, however diesel fuel qualities have come under the increased scrutiny. The limitation of aromatic compounds requires a much more demanding scheme of processing individual gas oil components that was necessary, for earlier highway diesel fuels. Thus, the contention raised is rejected. 20.Challenging the constitutional validity of the impugned Validating Act (Section 112 of the Finance Act, 2000), it is strenuously argued by Mr. S. Ganesh, Senior Advocate, appearing for the petitioner that it is not open for the legislature to undo the effect of the rules and the judgment interpreting such rules, that too retrospectively. It is submitted that the validating prov....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t of the CEGAT interpreting the relevant rules holding that the Modvat credit or duty paid on HSD is admissible. It will be useful to read the explanatory note to the impugned legislative changes, which reads as under: "Clause 108 of the Bill seeks to validate the action taken to deny credit of any duty paid on high speed diesel oil (HSD) from the 16th March, 1995 as it was never the intention of the Government to allow such credit. It also empowers the Government to recover the credit, if any, taken on HSD, on account of any judgment or order in any Court, Tribunal, etc. These provisions come into force on the enactment of the Finance Bill and the credit becomes recoverable within a period of 30 days from the date of enactment, failing which interest at @24% p.a. will also be payable." The crucial question, therefore, is whether the impugned Validating Act can be supported on any constitutional principle of law. It is well settled that a Validating Act may make judgments and orders of the competent court ineffective by providing retrospective legislation removing the cause of invalidity or the basis, which has led to those judgments. 22.In a leading judgment Shri Prithvi ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a reported in (1996) 7 SCC 637, considering a large number of authorities, held that when the legislature enacting the Act has competence over the subject-matter and when the said encroachment is consistent, with the provisions of Chapter III of the Constitution and the defects pointed out by the court have been removed by the legislature then the encroachment is valid piece of legislation and cannot be struck down by the courts on the ground that it encroaches upon the judicial sphere. The Apex Court from the resume of the various decisions culled out the principles as extracted from para 56 as follows : "(1) The adjudication of the rights of the parties is the essential judicial function. Legislature has to lay down the norms of conduct or rules which will govern the parties and the transactions and require the court to give effect to them. (2) The Constitution delineated delicate balance in the exercise of the sovereign power by the legislature, executive and judiciary. (3) In a democracy governed by rule of law, the legislature exercises the power under Articles 245 and 246 and other companion articles read with the entries in the respective lists in the Seventh ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....very from the subject or render the recovery from the State ineffectual. It is competent for the legislature to enact the law with retrospective effect and authorise its agencies to levy and collect the tax on that basis, notwithstanding the declaration by the court or the direction given for recovery thereof. (9) The consistent thread that runs through all the decisions of this Court is that the legislature cannot directly overrule the decision or make a direction as not binding on it but has power to make the decision ineffective by removing the base on which the decision was rendered, consistent with the law of the Constitution and the legislature must have competence to do the same."24.The ratio laid down in the aforesaid decisions has been followed in AIR 1985 SC 1683, 1997 (2) SCC 453, 1997 (1) SCC 326, 2001 (5) SCC 212 and 2001 (7) SCC 358. All the cases prior to 1997 have been dealt with in great detail in the leading case viz. S.S. Bola v. B.D. Sardana reported in (1997) 8 SCC 522. It is not necessary to traverse the law nor to go into the facts of all the cases. Suffice it to say that all relate to fiscal encroachment. 25.Now, we may advert to some of the decisions ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Act with a non-obstante clause contained in Sections 4 to 7 took away the effect of any judgment, decree or order or direction of any other court in the matter of extension of the limits of Kota Municipality to include Raipura and Ummedganj so that they could be deemed always, to have been continued to exist within the limits of Kota Municipality. The Apex Court held that the defect pointed out by the court was not validly removed by the Validating Act, which is an essential requirement of the Validation Act. 28. In B. Krishna Bhat v. State of Karnataka reported in (2001) 4 SCC 227, the collection of service tax by Bangalore Development Authority was quashed. The High Court gave : specific finding that in lieu of fees collected, no service has been rendered. A Validation Act as Bangalore Development Authority (Amendment) Act, 1993, whereby Secs. 28A, 28B and 28C were incorporated, was challenged. On challenge of the Validation Act, the Apex Court observed that when a legislature sets out to validate a tax declared by a court to be illegally collected it is not sufficient for the legislature to merely declare that the decision of the court shall not be binding because that would....
X X X X Extracts X X X X
X X X X Extracts X X X X
....5 to 12-5-2000 has been given, it has been made retrospective. As regards the third test, particularly on the question of unreasonableness and arbitrariness, we have already discussed this aspect in detail in preceding paras. Infact, in our view, the impugned Validation Act is mere clarificatory in nature. The Apex Court in M/s. Hiralal Ratanlal's case (supra), while observing that there is a distinction between the encroachment of the judicial power and the nullification of the effect of judicial decision by changing the law retrospectively reading the statement of objects and reasons, approved the amending Act being clarificatory in nature. 31.Lastly, it is contended by the learned Counsel that the petitioner has availed the Modvat credit in terms of the rules and in the light of the judgment of the CEGAT, which have attained the finality. On availing such credit, the petitioner has priced its finished goods after taking into account such credit and, therefore, did not pass on the burden i.e. duty on the HSD Oil to its consumer. Thus, if the validity of the amendment imposing the levy on HSD Oil is upheld, it will result in harshness to the petitioner-company. It is urged that....