Tata Engineering And Locomotive ... vs Union Of India (Uoi) And Anr.
2003 Latest Caselaw 42 Bom

JUDGMENT

J.P. Devadhar, J.

1. In this petition, the petitioners have inter alia challenged the validity of provision of Rule 57H(3) of the Central Excise Rules, 1944 as well as the validity of order dated 3-10-1988 passed by the Collector of Central Excise (Appeals), Bombay, insofar as it pertains to rejecting the claim of the petitioners for transfer of the accumulated credits on inputs such as oils and coolants, after the introduction of the MODVAT scheme on 1st June, 1986,

2. The petitioners manufacture motor vehicles, machines etc. The petitioner, at the relevant time, had two factories one situated at Pimpri and another at Chinchwad.

3. Notification No. 201/79 CE dated 4th June, 1979, issued by the Central Government in exercise of powers conferred under. Sub-rule 1 of Rule 8 of Central Excise Rules, 1944 gave exemption to all excisable goods on which the inputs, components, parts, raw materials falling under the erstwhile Tariff Item 68 had been used, from so much of the duty paid on such inputs, raw materials, and/or component, parts, subject to the conditions prescribed therein. The petitioners were availing benefit of the aforesaid notification in respect of several items including "oils and coolants" falling under Tariff Item 68 of the Central Excise Tariff. As per the said notification the petitioners were required to maintain registers as more particularly set out therein and seek set off of duty payable on the final product.

4. Writ effect from 1st March 1986, the Central Government introduced MODVAT scheme. The said scheme replaced earlier method of granting set off prevalent under Notification No. 201/79. Under the MODVAT scheme the manufacturer was permitted to set off the duty paid on specified inputs when used in or in relation to manufacture of specified final products whilst paying the duty on the specified final products. Notification No. 177/86 specified the inputs and final products. Thus, on introduction of the MODVAT scheme from 1st March, 1986 the set off scheme prevalent prior thereto came to an end. On 1st March, 1986 petitioner No. 1 had accumulated unutilized credit in their RG 23 Register Part II in respect of 'oils and coolants' as under :

 Pimpri Factory ::                         Rs. 5,60,054.44

Chinchwad Factory : :                     Rs. 30,034.68 
 

5. As per the provisions of Section 57H(3) of the Central Excise Rules, the balance of credit lying in the RG 23A Part II Registers under Rule 56A and Notification No. 177 of 1976 could be transferred to the new RG 23A Part II Register opened under the MODVAT scheme, provided that the materials and component parts and finished excisable goods had been specified as inputs and final products respectively in the Notification issued under Rule 57A.

6. On 30th March, 1986 the petitioners made separate application to the Central Excise authorities in respect of the two factories, seeking permission to transfer the unutilized credit lying in their old RG 23A Part II Register to their new RG 23A Part II Register opened under the MODVAT scheme.

7. By orders dated 6th October, 1987 the Assistant Collector partly permitted to transfer unutilized credit to the extent of Rs. 65,818.40 and refused to transfer the balance unutilized credit in respect of oils and coolants to the extent of Rs. 1,94,237.04 on the ground that the same were not covered by the MODVAT scheme. The Assistant Collector held that the credit had lapsed because there is no express saving of such credit which were not expressly included in the Notification issued under Rule 57A of the Central Excise Rules.

8. Being aggrieved by the aforesaid order the assessee filed an appeal before Collector of Central Excise (Appeals) who confirmed the order of the Assistant Collector insofar as it pertains to refusing to allow transfer of the unutilized credit of duty in respect of oils and coolants. Challenging the order passed by the Collector of Central Excise (Appeals), the petitioners have filed the present petition.

9. Mr. Shroff, learned Counsel appearing on behalf of the petitioners submitted that the right on unutilized credit in respect of oils and coolants as on 1st March, 1986 was a vested right and the petitioners could not be deprived of their vested rights by refusing to allow transfer of the unutilized credit on coming into force of the MODVAT scheme. Mr. Shroff submitted that similar situation arose when the Central Government amended Rule 57F by inserting Sub-rule (4A) to Rule 57F thereby declaring that the credit lying unutilized on 10th March, 1995 by manufacturer of tractors and motor vehicles would lapse. This action of the excise authorities was challenged and the Apex Court in the case of Richer Motors v. Union of India reported in 1999(106) E.L.T. 3 held that when assessee who acts on the basis of a statutory scheme/rule and certain rights have accrued to it then such assessee cannot be deprived of accrued rights. It was further held that, under Section 37 of the Central Excise Act, 1944, there is no power with the Central Government to make rules to the effect that such accrued rights shall lapse. Mr. Shroff, submitted that in the present Rule 57H did not even provide for lapsing of the accumulated credit and hence the excise authorities were in error in holding that the said credit has lapsed. Mr. Shroff also brought to our notice that in order to overcome the aforesaid judgment of the Apex Court in the case of Eicher Motors (supra), Section 37 was amended with retrospective effect from 16th March, 1995 specifically giving power to provide for lapsing of credit. It was submitted that the case of the petitioner pertains to the period prior to 16th March, 1995. Therefore, in the absence of any power conferred under Section 37 of the Central Excise Act the transfer of accumulated credit could not be denied to the petitioners.

10. Mr. Shroff further brought to our notice that the oils and coolants falling under Chapter 27 of the Central Excise Tariff which were not included in Notification No. 177 of 1986 issued under Rule 57A of the Central Excise Rules have been now included by Notification No. 5 of 1994 dated 1-3-1994 so as to grant MODVAT credit in respect of oils and coolants after 1-3-1994. It was submitted that there is no reason as to why the accumulated credit lying to the credit of the petitioners as on 1st March, 1986 should be denied to the petitioners and on transfer of the credit, the petitioners can avail benefit of MODVAT scheme as per Notification No. 5 of 1994 thereby when the same now brought within the purview of Section 57A of the Central Excise Tariff.

11. Mr. Shah, learned counsel appearing on behalf of the respondents submitted that in view of the provision of Rule 57H(3) of the Central Excise Rules, the excise authorities were justified in rejecting the application of the petitioners for transfer of the accumulated credit from RG 23A Part II Register to newly opened RG 23A Part II Register with effect from 23rd September, 1986.

12. We have heard the Counsel on both sides and have perused the records placed before us. In the instant case, although on 1st March, 1986 inputs like oils and coolants and final products manufactured out of such inputs were not included in the Notification issued under Rule 57A of the Central Excise Rules, there was no provision to declare the unutilised credits to have lapsed. As held by the Apex Court in the case of Eicher Motors Limited (supra) there was no provision under Section 37 of the Central Excise Act, 1944 to frame rules so as to declare such unutilized credit as lapsed. Therefore, the vested rights of the petitioners in respect of unutilized credits on 'oils and coolants' as on 28th February, 1986 could not be held to have been lapsed, as there was neither specific provision to that effect nor a statutory provision under the Central Excise Act to declare such credits as lapsed. Moreover, if the Central Government wanted that the unutilized credit on 'oils and coolants' lying to the credit as on 1st March, 1986 should lapse, then they could have passed a validating act to that effect as they had done in the case of unutilized credit on 'tractors and motor vehicles'. Since the Central Government has not chosen to pass such validating act, it cannot be held that the unutilized credit on oils and coolants as on 1st March, 1986 have lapsed. Under the circumstances, we hold that the input credit lying in balance with the petitioners on 28th February, 1986 represents vested right accrued or acquired by the petitioners under the existing law and such right is not taken away either under Rule 57A or under the Notification issued thereunder and, therefore, the petitioners had a right to transfer such credit to the new RG 23A Part II Register.

13. In this view of the matter, we quash and set aside the impugned order dated 3rd October, 1988 and make the rule absolute in terms of prayer Clause (b) of the petition, with no order as to costs.

Petition stands disposed of accordingly.