Asian Paints (India) Ltd. vs Union Of India (Uoi)
2003 Latest Caselaw 1246 Bom

JUDGMENT

R.M.S. Khandeparkar, J.

1. Heard. Perused the records. The point which arises for consideration is whether in exercise of powers under Rule 57A of the Central Excise Rules, 1944, hereinafter referred to as "the said Rules" the respondents are entitled to restrict the availability of the credit of duty paid on excisable goods used in the final product as inputs to the exclusion of some of the inputs?

2. By the present petition, the petitioners are challenging the legality and validity of the Notification No. 177/86, dated 1-3-1986, issued under Rule 57A of the said Rules as being ultra vires the Rule insofar as it seeks to restrict the benefit of the Notification to certain inputs listed in Column No. 2 of the table thereunder to the exclusion of other inputs. It is the case of the petitioners that Rule 57A empowers the Government to issue notification specifying the final products and the duty paid on the inputs used in the manufacture of final product but such power does not include the one to specify certain inputs and to exclude the other inputs. In other words, all the inputs used in or in relation to the manufacture of the final products specified under the notification are necessarily to be eligible to avail the Modvat credit in respect of the duties and therefore the impugned Notification, to the extent it restricts the benefit thereunder to certain inputs on which the Modvat credit can be availed, the same is ultra vires the said Rule.

3. The petitioners, therefore, have also challenged the show cause notice dated 2-1-1989 and consequential Order of the Collector dated 20-2-1990 under which the petitioners were directed to reverse the Modvat credit to the extent of Rs. 32,44,704.46 and further imposed penalty of Rs. 5 lakhs.

4. It is the contention of the petitioners that the penalty is without any justification as there were no mala fide imputed to the petitioners and the petitioners had filed the Modvat declaration before availing of the Modvat credit. Besides, the petitioners did not avail the Modvat credit immediately on obtaining the acknowledgement of the declaration but waited for a period of two months and it is only on account of failure of the department to reply whatsoever, that they proceeded to avail the Modvat credit and therefore, the penalty is wholly unjustified.

5. The learned Advocate appearing for the respondents, on the other hand, drawing attention to the proviso to the said Rule, has contended that the said proviso in terms disclose power to the Government to specify the inputs in relation to which the final product may be eligible to avail the credit of the specified duty and therefore no fault can be found with the impugned Notification. Since the petitioners on their own proceeded to avail the Modvat credit in spite of exclusion of the inputs from the said Notification, it was a clear case of availing credit contrary to the provisions of law and to the knowledge of the party availing the same and therefore, the authority was justified in imposing the penalty.

6. The facts relevant for the decision are not in dispute. The petitioners did file declarations under Rule 57G on 29-4-1988, and then on 17-6-1988 in respect of various inputs used in the manufacture of the final products by the petitioners and started availing the Modvat credit in respect of inputs falling under Chapter 27 from 18-6-1988. The Assistant Collector of Central Excise, by an ex parte order dated 26-9-1988 and without issuing any show cause notice, rejected the claim of the petitioners in respect of the Modvat of the inputs falling under Chapter 27 and returned both the Modvat declarations and directed the petitioners to reverse the Modvat credit. On 19-12-1988 the petitioners filed appeal against the said order. The same to be allowed by the Collector of Central Excise (Appeals) by order dated 2-7-1990 on the ground of absence of show cause notice and personal hearing. Meanwhile, on 2-1-1989, during the pendency of the said appeal, the Superintendent of Customs, issued a show cause notice to the petitioners on the ground that the petitioners had wrongly availed the Modvat credit during the period from June, 1988 to 29-9-1988 on the inputs falling under Chapter 27 and called upon the petitioners to show cause as to why the Modvat credit in the sum of Rs. 32,44,904.46 ps. should not be recovered from them under the proviso to Rule 57-I and as to why penalty should not be imposed. The petitioners filed their reply on 3-1-1989. The personal hearing was given to the petitioners on 11-12-1989. The Collector by its Order dated 20-2-1990 rejected the contention of the petitioners and confirmed the demand of Rs. 32,44,904.46 ps. Hence, the petitioners preferred the present petition. At the time of issuance of rule in this petition, it was observed that unless the impugned Notification is set aside, prima facie the petitioners were not entitled to avail the credit for the inputs falling under Chapter 27 and hence interim relief was refused. However, the reversal of the credit was made subject to the outcome of the petition and the respondents were restrained from recovering the penalty.

7. The Rule 57A of the said Rules reads thus :-

"Rule 57A. Applicability - (1) The provisions of this section shall apply to such finished excisable goods (hereinafter referred to as the "final products", as the Central Government may, by notification in the Official Gazette, specify in this behalf, for the purpose of allowing credit of any duty of exercise 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 goods used in or in relation to the manufacture of the said final products (hereinafter referred to as the "inputs") and for utilising the credit so allowed towards payment of duty of excise leviable on the final products, whether under the Act or under any other Act, as may be specified in the said notification, subject to the provisions of this section and the conditions and restrictions that may be specified in the Notification :

Provided that the Central Government may specify the goods or classes of goods in respect of which the credit of specified duty may be restricted.

Explanation. - (For the purpose of this rule, "inputs" includes -

(a)        inputs which are manufactured and used within the factory of production in or, in relation to the manufacture of final products, and
 

(b)       paints and packaging materials, but does not include-]
   

(i)      machines, machinery, plant, equipment, apparatus tools or appliances used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of the final products;
 

(ii)     packaging materials in respect of which any exemption to the
extent of the duty of excise payable on the value of the packaging materials is being availed of for packaging any final products;
 

(iii)    packaging materials the costs of which is not included or had not been included during the preceding Financial year in the assessable value of the final products under Section 4 of the Act;
 

(iv)    cylinders for packing gases, or
 

(v)     plywood for tea chests."   
 

Undoubtedly, the said Rule relates to the subject of "credit of duty paid on excisable goods used as inputs". The Rule itself defines what is specified duty and it has been clarified that the same relates to the duty paid on the goods utilised as inputs in the final products and the one which is to be specified in the notification to be issued under the said Rule. It is only in relation to such duty paid on the inputs, the manufacturer is allowed to avail credit for the same at the time of payment of duty of excise leviable on the final products. The Rule clearly empowers the Government to allow the manufacturer to avail the credit of any duty of excise or additional duty paid on inputs. At the same time it states that the availability of credit of any such duty should be one which is "as may be specified in the said Notification" and further makes it clear that the duty to be specified shall be the one "paid on the goods used in or in relation to manufacture of the said final products". In other words, the Rule clearly provides that the notification to be issued by the Government should specify the duty in respect of which credit can be availed, the goods in respect of which duty paid can be taken into consideration for the purpose of availing credit at the time of payment of duty on the final product and the final products which are entitled to avail such credit. In other words, the Rule on the face of it empowers the Government to specify not only the final products which will be entitled to avail the credit in relation to the inputs utilised for the manufacture of such final products but also the inputs which are used in the manufacture of such final products, along with the duty which can be the subject-matter of credit. The proviso to the said Rule makes it further clear that the Government, may restrict the goods or the classes of goods in respect of which the credit of specified duty may be availed.

8. On the one hand, the Rule clearly empowers the Government to restrict the availability of credit and impose conditions while availing the benefit of credit of duty paid on excisable goods used as the inputs, at the same time, the proviso clarifies that while enumerating the inputs in relation to which specified duty can be subject-matter of credit while paying the duty on the final products, the Government is empowered to restrict or to specify the goods or classes of goods i.e. the inputs or the classes of inputs in respect of which the credit of specified duty may be availed of. Being so the Notification issued by the Government specifying certain inputs, on which duty is paid and the credit of which can be availed at the time of payment of duty on final product, to the exclusion of some of the inputs, cannot be said to be ultra vires the Rule 57A of the said Rules. For the reasons stated above, the challenge to the validity and legality of the impugned Notification is devoid of substance. The impugned Notification is in consonance with the provisions of law contained in Rule 57A of the said Rules.

9. The contention of the petitioners that the power of the Government under Rule 57A is restricted to specify final products and to specify the duty payable on the inputs and it does not include the power to specify the inputs cannot be accepted as any such interpretation of the provision of law contained in Rule 57A would virtually amount to legislate upon the said Rule resulting in curtailment of the power of the Government which is otherwise assured to the Government under the said Rule. It is to be noted that it is well settled that when the provision of law is very clear, there can hardly be any scope for interpretation.

10. Undoubtedly, the impugned Notification does not include the inputs falling under Chapter 27 as being the inputs in relation to which the duty paid on such inputs would be available for the purpose of availing credit at the time of payment of the duty on the final product. This is apparent from the Notification itself and that is not in dispute. It is not the case of the petitioners that the same was not known to the petitioners. Being so, till and until the said Notification was in force, it was not permissible for the petitioners to claim Modvat credit in relation to the duty paid on the inputs falling under Chapter 27 while paying the duty on the final product of the petitioners. Apparently, the petitioners had availed the Modvat credit in respect of the inputs falling under Chapter 27, contrary to the provisions of law. Being so, no fault can be found with the impugned order passed by the Collector in relation to the direction to reverse the Modvat credit to the extent of Rs. 32,44,904.46 ps.

11. As regards the challenge to the penalty, mere absence of mala fide can be no justification to interfere in the said order. Undoubtedly, the petitioners were fully aware that the notification did not include the inputs falling under the Heading 27 and therefore no credit could have been availed in respect of the duty paid on such inputs while paying the duty on the final product. Apparently therefore, the credit was availed contrary to the provisions of law, knowing well the said provisions of law, thereby warranting' levy of the said penalty. Besides, considering the amount of credit availed of and the penalty being of less than 1/6th of the said amount, there is no justification for interference in the order of penalty.

12. In the circumstances, there is no case for interference, and hence, the petition fails and is hereby dismissed. Rule is discharged with costs.