Sangam Spinners Ltd. Vs
Union of India & Ors.
JUDGMENT
Dr. MUKUNDAKAM
SHARMA, J.
1.
The
issue that falls for consideration in these appeals is whether the appellants are
entitled to credit of duty paid on High Speed Diesel oil at any time during the
period commencing on and from 16th March, 1995 and ending with the day of Finance
Act, 2000 which received assent of the President on 1st April, 2000.In Civil
Appeal No. 476 of 2003: The appellants are engaged in the business of manufacturing
and selling Man Made PV Blended Yarn and have installed a diesel generating set
for generation of electricity for captive consumption in their factory premises.
It is the case of the appellants that they purchased High Speed Diesel oil for generation
of electricity from Indian Oil Corporation Ltd. / Hindustan Petroleum Corporation
Ltd. through their sales office/depots in Rajasthan, which was cleared under heading
27.10 (sub heading 2710.90) on payment of central excise duty.
In Civil Appeal No.
477-478 of 2003: The appellants are engaged in the business of manufacturing and
selling Portland cement and have installed a diesel generating set for generation
of electricity for captive consumption in their factory premises. It is the case
of the appellants that they purchased High Speed Diesel oil for generation of electricity
from Indian Oil Corporation Ltd. / Hindustan Petroleum Corporation Ltd. through
their sales office/depots in Rajasthan, which was cleared under heading 27.10 (sub
heading 2710.90) on payment of central excise duty. In Civil Appeal No. 479 of
2003 :
The appellants are engaged
in the business of manufacturing and selling Cotton Yarn and Yarn of Synthetic/Artificial
Staple Fiber and have installed a diesel generating set for generation of electricity
for captive consumption in their factory premises. It is the case of the appellants
that they purchased High Speed Diesel oil for generation of electricity from Indian
Oil Corporation Ltd. / Hindustan Petroleum Corporation Ltd. through their sales
office/depots in Rajasthan, which was cleared under heading 27.10 (sub heading
2710.90) on payment of central excise duty.
2.
In
all these Appeals, identical issues are involved and therefore, we propose to dispose
of all these appeals by this common judgment and order.
3.
The
case of the appellants is that the said diesel oil is used as input/goods in the
said diesel generation set for generation of electricity which is used in the manufacture
of final goods or for other purposes in the factory of the appellants. They submitted
a declaration in respect of the diesel as well as oil and lubricants as
required under Rule 57G read with Rule 57B of the Central Excise Rules 1944, [for
short "the Rules"] intending to avail the credit of duty on the said goods/inputs
on 17/18.3.1997 with the Assistant Commissioner, Central Excise, Ajmer. But the
Assistant Commissioner informed the appellants that after 1.3.1997, MODVAT
credit was not available on high speed diesel oil and therefore no action could
be taken on the declaration submitted by the company. The appellant company
submitted declaration under Rule 57(H) of the Rules declaring the stock
position of HSD oil as on 17.3.1997. They also prayed for condonation of delay in
submitting the declaration. The Superintendent, Central Excise Range Beawar
vide letter dated 25.6.1997 informed the appellant company that the MODVAT
credit was not admissible on high speed diesel oil under Rule 57(A) of the
Rules.
4.
After
denial of MODVAT credit, the appellant company was given a show cause notice by
Superintendent Central Excise Range, Beawar to project as to why the credit given
should not be disallowed to the appellant.
5.
The
appellant filed a writ petition in the year 1997 seeking direction to quash the
Trade Notice No. 26/27, the entry regarding the explanation of the HSD Oil in
the Notification No. 5/94 and also the order dated 2.9.1997.
6.
The
said writ petition came up for consideration before the Rajasthan High Court and
by the impugned judgment and order dated 3.4.2002, the writ petition was dismissed.
7.
Aggrieved
by the aforesaid judgment and order, the present appeals were filed on which we
heard the learned counsel appearing for the parties.
8.
Counsel
appearing for the parties drew our attention to Chapter V of the Rules which deals
with levy of excise duty on manufactured goods other than salt. Rule 43 to Rule
57 under Section A of Chapter V provides the general provisions. Rule 57 speaks
of finances and penalties. Rule 57A provides for availment of MODVAT credit in respect
of inputs used in manufacture of the finished product. The rule empowers the Central
Government to specify the final product by issuing notifications in 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.
9.
Learned
counsel appearing for the parties also drew our attention to various notifications
issued by the Government of India which are relevant for the purpose of
deciding the present case and also to various decisions to which reference
shall be made during the course of our discussion.
10.
Learned
counsel appearing for the appellants submitted that the High Court in the impugned
judgment failed to draw a distinction between an accrued and vested right because
of the operation of the Rules and the power to tax which in certain circumstances
could be used retrospectively by issuing a validating Act to cure the defect in
the statute. It was also contended that MODVAT credit is an accrued and vested right
and therefore it would be governed by the Rules prevailing on that date and
such vested and accrued right cannot be taken away by an Act of Parliament
giving retrospective effect. It was also contended that the explanation added to
Rule 57B with notification dated 2.3.1998 was retrospective in nature and the explanation
can only clarify a legal 7 position already existing but it cannot restrict or
enlarge the scope of the substantive provisions of law so as to nullify the substantive
provisions itself. Another submission of the counsel appearing for the appellants
was that the Finance Act of 2000 intends to take away the rights accrued retrospectively
which is burdensome and oppressive as the appellants were unable to pass on the
burden on the customer and that in view of the law enacted, the appellants would
have to bear the entire burden and that too retrospectively and therefore such provision
is in violation of Article 14 of the Constitution of India.
11.
Counsel
appearing for the respondent, however, refuted all the aforesaid allegations and
submitted that the Act sought to be named as a validating Act by the appellant is
not a validating Act, but in fact explanatory in nature in order to clarify and
put in proper perspective the legal position as existing on the issue. It was
also submitted that the courts have held that the power of the legislature to validate
the acts done in respect of a particular 8 provision is permissible particularly
in respect of fiscal matter. Reference was also made to the decision of this Court
in Central Excise, Meerut Vs. Rama Vision Ltd. reported in 2005 (181) ELT 201 (SC),
wherein it was held by this Court that no such MODVAT credit is available on the
duty paid on HSD Oil as fuel in the generation of electricity for the period 16.3.1995
to 1.4.2000.
12.
Reference
was also made to the decision of this Court in M/s. Gujarat Ambuja Cement Vs.
UOI reported in 2005 (182) ELT 33 (SC), wherein this Court held that because of
the inherent complexity of fiscal adjustments of diverse elements in the field of
tax, the legislature has large discretion in classifying as to what should be taxed
in which manner. It was also the submission of the learned counsel appearing for
the respondents that the respondents never intended to allow any such credit which
is being claimed by the appellants and a Finance Bill was introduced justifying
the action taken to deny 9 the credit of any duty paid on the HSD oil from 16.3.1995.
In fact the explanatory note is not issued to signify any legislative change
but the same was issued in order to explain the real position as existing by issuing
an Act by way of Finance Bill 2000 and thereafter the Finance Act, 2000 which was
passed by the Parliament and received the assent of the Parliament on
12.5.2000.
13.
In
the context of the aforesaid submissions of the counsel appearing for the parties,
we proceed to deal with the issues raised before us more elaborately. However, in
order to effectively deal with and understand the implications and ambit of the
issues raised it may be necessary to set out the various relevant provisions of
the Central Excise Act, 1944 [for short "the Act"], and the Rules framed
thereunder and also the various notifications issued which are relevant for the
purpose of deciding the present issues.
14.
In
order to appreciate the contentions raised and also to answer the issue that
falls for our consideration it would 10 be necessary to extract herein relevant
part of the notifications in question as also relevant part of Section 112 of the
Finance Act, 2000 and such other related provisions.
15.
The
Finance Act, 2000 received the assent of the President on 1st April, 2000 and
the said Act was enacted for validation of the denial of duty paid on High Speed
Diesel oil. Sub-section (1) of Section 112 of the Finance Act, 2000, which is
material, reads as follows: "112(1) Notwithstanding anything contained in
any rule of the Central Excise Rules, 1944, no credit of any duty paid on high speed
diesel oil at any time during the period commencing on and from the 16th March,
1995 and ending with the day, the Finance Act, 2000 received the assent of the
President shall be deemed to be admissible."
16.
In
order to understand and appreciate the true import of the aforesaid provision
it is also necessary to read clause 108 of the Finance Act, 2000, the same
reads as follows: "Clause 108 - seeks to deny credit of the duty paid on high
speed diesel oil when used in the manufacture of excisable goods with retrospective
effect from the 16th day of March, 1995. It was never the legislative intention
to 11 permit credit of duty paid on high speed diesel oil. The clause also
seeks to validate the action taken in the past on this basis. This amendment
has become necessary to overcome certain judicial pronouncements."In this
connection, memorandum to legislative changes, which is a part of the document
is also required to be noted, which reads as under: "Modvat Credit on high
speed diesel oil was not intended to be allowed at any stage. Suitable retrospective
provision made to give effect to confirm this."
17.
We
are also concerned for the purpose of deciding the issues with the contents and
scope of with Notification No. 5/94-CE(NT) dated 01.03.1994, Notification No. 8/95-CE(NT)
dated 16.03.1995 and Notification No. 11/95-CE(NT) dated 16.03.1995.
18.
Notification
No. 5/94-CE(NT) dated 01.03.1994 was issued by the Central Government
specifying therein the final products described in column (3) of the Table in respect
of which credit of duty under MODVAT was made available. However, in the said table
it was provided that high speed diesel oil which fell under tariff entry 2710.31
of the Central Excise Tariff Act, 1985, would not be considered as eligible
input and it was specifically excluded from the list of eligible inputs. In the
same notification, it was mentioned that the final product, Man Made PV Blended
Yarn falling under Chapter 55 of the Central Excise Tariff Act, 1985 was also
specifically excluded.
19.
The
aforesaid notification was issued in exercise of the powers conferred by Rule 57A
of the Central Excise Rules, 1944. By issuing the said notification the Central
Government identified the inputs in respect of which duty paid was allowed as credit
if they were used in relation to the manufacture of the final products which
were also specified in the notification as indicated hereinbefore. The high speed
diesel oil and the final product of the Man Made PV Blended Yarn falling under
Chapter 55 of the Central Excise Tariff Act, 1985 were specifically excluded
from the list of eligible inputs.
20.
The
aforesaid notification came to be amended specifically by issuing Notification No.
8/95-CE(NT) dated 16.03.1995, where also high speed diesel oil classifiable
under 13heading 27.10 was specifically excluded from the list of eligible
inputs. Woven fabrics classifiable under Chapter 52 or Chapter 54 or Chapter 55
were also specifically excluded from the list of final products. Thus, the input
and the final product of the appellants were specifically excluded in the
Notification No. 8/95-CE(NT) dated 16.03.1995.
21.
Reliance
was also placed on the 2nd proviso in Rule 57D by Notification No. 11/95-CE (NT)
dated 16th March, 1995. The aforesaid amendment was to the following effect: "4.
In the said Rules, in Rule 57D, for the proviso, the following provisos shall
be substituted, namely:- Provided that such intermediate products are - (a)
................................... (b) Specified as inputs or as final products
under a notification issued under rule 57A: Provided that the credit of specified
duty shall be allowed in respect of inputs which are used for generation of electricity,
used within the factory of production for manufacture of final products or for
any other purpose."
22.
It
is to be remembered at this stage that although the aforesaid 2nd proviso in
Rule 57D was brought in, but inputs like high speed diesel oil used for the
purpose of generation of 14electricity was specifically excluded by another Notification
issued on the same date i.e. on 16.03.1995 to which we have already made a
reference.
23.
The
contention of the appellants in this regard was that by the insertion of the
2nd proviso in Rule 57D by Notification No. 11/95-CE (NT) dated 16th March, 1995
they became entitled for the credit of duty paid on high speed diesel oil which
was used for generation of electricity.
24.
But
in our observation, high speed diesel oil for the purpose of generation of electricity
was specifically excluded from the list of eligible inputs in the Notification No.
5/94-CE(NT) dated 1st March, 1994 issued under Rule 57A also under Notification
No. 8/95-CE(NT) dated 16.3.1995 from the list of eligible inputs. Therefore on a
conjoint reading of the aforesaid Notifications dated 1st March, 1994 and
16.3.1995 as also the amendment to Rule 57D, it is sufficiently indicated that the
appellants are not entitled to credit of duty paid in 15respect of high speed
diesel oil which was used for the purpose of generation of electricity.
25.
Our
attention was also drawn to the Notification dated 1.3.1997 whereby the Central
Government amended Central Excise Rules and the provisos of Rule 57D were deleted,
but the appellants, however, claim that they became entitled to such benefit as
per Rule 57B. Relevant part of which reads as follows: "57B. Eligibility
of credit of duty on certain goods:- (1) Notwithstanding anything contained in Rule
57A, the manufacturer of final products shall be allowed to take credit of the specified
duty paid on the following goods, used in or in relation to the manufacture of the
final products, whether directly or indirectly and whether contained in the
final products or not, namely,:-
i.
goods
which are manufactured and used within the factory of production;
ii.
paints;
iii.
goods
used as fuel;
iv.
goods
used for generation of electricity or steam, used for manufacture of final products
or for any other purpose, within the factory of production. xxxxxxxxxxxxxxxxxxxxxxxxxx"
26.
On
10.03.1997, a Notification No. B42/1/97 was issued in the nature of corrigendum
whereby in Rule 57B in sub-rule (1) for "goods" wherever it occurs it
was provided that it should be read as "Inputs". The relevant part of
the same read as under: "Explanation: For the purposes 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."
27.
We
may also refer to another Notification No. 5/98-CE(NT) dated 2.3.1998 wherein an
explanation was added in Rule 57B in sub-rule (1), which reads as follows: "(I)
in rule 57B, in sub-rule (1), for "goods" wherever it occurs read
"inputs"."
28.
A
careful reading of the above said provision would make it explicitly clear that
by adding the aforesaid explanation by Notification No. 5/98-CE(NT) dated 2.3.1998
the inputs mentioned in Rule 57B refers only to such inputs as specified in the
notification issued under Rule 57A. Accordingly, the appellants are not
entitled to get the benefit of, credit of duty paid on High Speed Diesel oil as
high speed diesel oil is 17excluded from the list of eligible inputs as per notification
issued under Rule 57A of the Central Excise Rules, 1944.
29.
It
is the contention of the respondents that despite the aforesaid clear position the
Central Excise Gold (Control) Appellate Tribunal (in short "the Tribunal")
delivered three judgments, namely, (a) India Cements Ltd. vs. Commissioner of Customs
& C.Ex., Hyderabad reported in 1997 (95) .E.L.T. 520. (b) Jindal Polymers vs.
Commissioner of C. Ex., Indore reported in 1999 (114) E.L.T. 322; and (c) Commissioner
of Central Excise, Shillong vs. Vinay Cement Ltd. reported in 1999 (114) E.L.T.
753.wherein it was held that high speed diesel oil would be considered as
eligible input to get the benefit.
30.
The
intention regarding availment of the credit under MODVAT would be guided and governed
by the aforesaid notifications which specifically excluded the benefit of availment
of such credit as high speed diesel oil is specifically excluded from the list of
eligible inputs as per notification 18under Rule 57A of the Central Excise Rules,
1944. Since it was specifically excluded from the list of eligible inputs such
credit though may otherwise be available would not have credited a vested
right.
31.
In
the light of the aforesaid factual as also legal position, this Court in the case
of Commissioner of Central Excise, Hyderabad Vs. Associated Cement Companies
Ltd. reported in 2005 180 ELT 3 (S.C.) and Commissioner of Central Excise,
Meerut Vs. Rama Vision reported in 2005 181 ELT 201 clearly laid down the proposition
that no credit is admissible on any duty paid on high speed diesel oil for the
period commencing from 16.3.1995 and ending with the day of Finance Act, 2000 which
received the assent of the President on 1st April, 2000.
32.
Despite
the aforesaid factual position, since the Tribunal held otherwise, therefore, there
was a necessity for the Finance Act to be brought in whereby a clarificatory
explanation to the legal position was laid down.
33.
Despite
the aforesaid two decisions of this court laying down the proposition, it must be
clarified that in those decisions validity of Section 112 of the Finance Act was
not challenged and therefore this Court did not have the opportunity to examine
all the aspects of Section 112.
34.
In
the case of Tata Motors Ltd. Vs. State of Maharashtra reported in (2004) 5 SCC 783,
this Court observed that retrospective withdrawal of the benefit of set-off
only for a particular period should be justified on some tangible and rational ground
when challenged on the ground of unconstitutionality. However, in the present
case the ratio of the Tata Motors case [supra] would not be applicable as the
appellants in this case never had a right with regard to availment of MODVAT credit.
Hence, the contentions of the appellants that their vested and accrued right
cannot be taken away with retrospective effect cannot be held as just and
proper.
35.
We
have already discussed the applicability of the provisions of the Central Excise
Act and the Rules made 20there under, which are also read in context of the various
notifications issued by the Government of India. When read collectively in the aforesaid
context the only conclusion that can be drawn is that the appellants are not
entitled to the credit of duty as high speed diesel oil is specifically excluded
from the list of eligible inputs as per the notification issued under Rule 57A of
the Central Excise Rules 1944. Therefore, the contention of the counsel appearing
for the appellants that explanation to Section 57-B not being clarificatory, and
to whittle down the width of non-obstante clause of Section 57-B, cannot be
accepted. The contention that the provisions of Rule 57B prevails over Rule 57A
and consequently the inputs enumerated under Rule 57B would be inputs for the
availment of MODVAT credit in spite of any provision to the contrary which may be
contained in Rule 57A, is misreading of the provisions, for in our considered
opinion, the aforesaid explanation added to the Notification No. 5/98 dated 2.3.1998,
clearly intends that the inputs mentioned in Rule 57B refers only to such inputs
as 21 specified in a notification issued under Rule 57A.
36.
So
far the contention with regard to concept of MODVAT is concerned, the intention
regarding availment of the credit under MODVAT would be guided and governed by the
aforesaid notifications which specifically excluded the benefit of availment of
such credit, as high speed diesel is specifically excluded from the list of eligible
inputs as per the notification under Section 57A of the Central Excise Rules. Since,
it was specifically excluded, such credit though may be otherwise available,
could not have created any vested right. In our considered opinion the
intention of the legislature is clear from the beginning to exclude the benefit
of such credit by excluding high speed diesel oil from the list of eligible inputs
by making substantial exclusion thereof in the notifications referred to hereinbefore.
The aforesaid position is also verified by the decision of this Court in the case
of Commissioner of Central Excise, Hyderabad Vs. Associated Cement Companies Ltd.
reported in 2005 180 ELT 3 (S.C.) and 22 Commissioner of Central Excise, Meerut
Vs. Rama Vision reported in 2005 181 ELT 201 (supra).
37.
The
aforesaid decisions of this Court have clearly laid down the proposition that no
credit is admissible on any duty paid on high speed diesel oil for the period commencing
from 16.3.1995 and ending with the day of Finance Act, 2000 which received the assent
of the President on 1st April, 2000.
38.
Despite
the aforesaid fact, since the Tribunal held otherwise, therefore, there was a
necessity for the Finance Act to be brought in giving a clarificatory
explanation to the legal position which is being prevailing all alone and established
by the long list of the notifications which were issued from time to time and
referred to hereinbefore.
39.
We
may also appropriately refer to at this stage to the decision of this Court in Shri
Prithvi Cotton Mills Ltd. and Another Vs. Broach Borough Municipality and Ors. reported
in (1969) 2 SCC 283 wherein the Supreme Court in paragraph 4 has stated thus:- "4.
Before we examine Section 3 to find out whether it is effective in its purpose or
not we may say a few words about validating statutes in general. When a
Legislature sets out to validate a tax declared by a court to be illegally
collected under an ineffective or an invalid law, the cause for ineffectiveness
or invalidity must be removed before validation can be said to take place effectively.
The most important condition,
of course, is that the Legislature must possess the power to impose the tax, for,
if it does not, the action must ever remain ineffective and illegal. Granted legislative
competence, it is not sufficient to declare merely that the decision of the Court
shall not bind for that is tantamount to reversing the decision in exercise of judicial
power which the Legislature does not possess or exercise. A court's decision must
always bind unless the conditions on which it is based are so fundamentally
altered that the decision could not have been given in the altered circumstances.
Ordinarily, a court holds a tax to be invalidly imposed because the power to
tax is wanting or the statute or the rules or both are invalid or do not sufficiently
create the jurisdiction. Validation of a tax so declared illegal may be done
only if the grounds of illegality or invalidity are capable of being removed and
are in fact removed and the tax thus made legal. Sometimes this is done by providing
for jurisdiction where jurisdiction had not been properly invested before. Sometimes
this is done by re-enacting retrospectively a valid and legal taxing provision
and then by fiction making the tax already collected to stand under the re-enacted
law.
Sometimes the Legislature
gives its own meaning and interpretation of the law under which tax was collected
and by legislative fiat makes the new meaning binding upon courts. The Legislature
may follow any one method or all of them and while it does so it may neutralise
the effect of the earlier decision of the court which becomes ineffective after
the change of the law. Whichever method is adopted it must be within the competence
of the legislature and legal and adequate to attain the object of validation. If
the Legislature has the power over the subject-matter and competence to make a valid
law, it can at any time make such a valid law and make it retrospectively so as
to bind even past transactions. The validity of a Validating Law, therefore,
depends upon whether the 24 Legislature possesses the competence which it claims
over the subject-matter and whether in making the validation it removes the
defect which the courts had found in the existing law and makes adequate
provisions in the Validating Law for a valid imposition of the tax."
40.
There
are similar decisions to that effect of this Court in D.G. Gose & Co.
(Agents) Pvt. Ltd. Vs. State of Kerala & Anr. reported in (1980) 2 SCC 410.
In paragraph 14 of the said judgment, this Court stated thus:- "14. Craies
on Statute Law, seventh Edn., has stated the meaning of "retrospective"
at p. 367 as follows: "A statute is to be deemed to be retrospective, which
takes away or impairs any vested right acquired under existing laws, or creates
a new obligation, or imposes a new duty, or attaches a new disability in respect
of transactions or considerations already past. But a statute `is not properly called
a retrospective statute because a part of the requisites for its action is drawn
from a time antecedent to its passing'." It has however, not been shown
how it could be said that the Act has taken away or impaired any vested right of
the assessees before us which they had acquired under any existing law, or what
that vested right was. It may be that there was no liability to building tax until
the promulgation of the Act (earlier the Ordinances) but mere absence of an earlier
taxing statute cannot be said to create a "vested right", under any existing
law, that it shall not be levied in future with effect from a date anterior to
the passing of the Act. Nor can it be said that by imposing the building tax
from an earlier date any new obligation or disability has been attached in respect
of any earlier transaction or consideration. The Act is not therefore retrospective
in the strictly technical sense."
41.
In
the light of the aforesaid decisions and legal position which emanates from reading
of the provisions of the Act and the Rules framed there under and notifications
which are issued from time to time, the contentions of the counsel appearing for
the appellants are found to be without any merit. Since the product High Speed Diesel
oil was excluded specifically from the list of eligible inputs in the notifications,
there was no question of creation of any right in favour of the appellant to
avail such benefit. Therefore, contention that a vested or accrued right is sought
to be taken away by giving retrospective effect is without any merit. Consequently,
in the facts of this case we are not required to answer whether a vested or
accrued right could be taken away with retrospective effect. Further on a conjoint
reading of all the notifications it is clearly established that the intention of
the Government all along was to exclude the appellants from getting the benefit
of the 26 MODVAT credit, therefore, the contentions that the Finance Act violates
the vested right is without any basis. The various decisions referred to and relied
upon by the counsel appearing for the appellants in support of his contention that
the vested right created in their favour could not have been divested by the respondent
retrospectively is found to be based on misreading of the language of the aforesaid
notifications which do not support, but in fact destroy the very basis of the
case of the appellants.
42.
In
that view of the matter, we find no merit in these appeals which are dismissed but
leaving the parties to bear their own costs.
............................................J
[Dr. Mukundakam Sharma ]
............................................J
[ Anil R. Dave ]
New
Delhi,
March
18, 2011.
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