R. Jayaraman, Member (T) -
(1.) THE aforesaid Reference Applications have been brought by the Department seeking for a reference to the High Courts of Bombay and Gujarat on certain points of law arising out of this Bench's common Order No. 2310 -14/90 -WRB, dated 24 -10 -1990. In the aforesaid order, this Bench dismissed the five appeals from the Department against the orders in appeal passed by the Collector of Central Excise (Appeals). In all the said appeals from the Department, the common issue was the question of applicability of period of limitation under Section 11A of the Central Excises and Salt Act, 1944 - (hereinafter referred to as the "Central Excises Act") in respect of demands issued, for recovery of MODVAT Credits, which have been wrongly availed of, by invoking the provision of Rule 57 -I of the Central Excise Rules, 1944, as it stood prior to amendment effected on 6 -10 -1988. The appeals from the Revenue were dismissed based on the decisions given earlier on the same issue under this Bench's Order No. 1667 to 1670/90 -WRB, dated 28 -9 -1990 reported in 1990 (31) ECR 680 (CEGAT -WRB). In the said order, we have rejected various contention of the Department to the effect that during the period, when Rule 57 -I did not provide a specific time limit for demanding irregular MODVAT Credit taken, no time limit is applicable and demand under Rule 57 -I cannot be subject to the period of limitation provided under Section 11A of the Central Excises Act. We held, in the said order, that MODVAT Credit in respect of duty paid on inputs is available for payment of duty on the final products. Hence, if there is any wrong availment of MODVAT Credit and the said credit has been utilised towards payment of duty on final product, it results in short levy of duty on the final product and hence provisions of Section 11A would come into operation. We also took note of the fact that East Regional Bench of the Tribunal had also taken the same view as ours in the TELCO case reported in 1990 (47) E.L.T. 132 and moreover that Bench dismissed a Reference Application by the Revenue against the decision holding the same view as ours. We also held that Rule 57 -I is part of the Central Excise Rules and is subject to the provision of Section 11A of the Central Excise Act, when that Rule is silent about the limitation period for demand. In view of the above considerations, this Bench rejected the contention of the Revenue that MODVAT Scheme, being a special scheme, is completely independent and not complementary to Section 11A of the Central Excises Act. The present Reference Applications are from the Revenue against the aforesaid findings on point of law. The questions of law formulated are the following:
(i) Whether Rule 57 -I of the Central Excise Rules, as it stood prior to amendment, should be read in conjunction with Section 11A of the Act?
(ii) Section 11A of the Act provides for recovery of duties in certain cases, while the provisions of Rule 57 -I relating to recovery of wrongly availed MODVAT Credit (This being specific provision with regard to MODVAT Credit); Whether the cases covered under Rule 57 -I (Prior to its amendment) for recovery of wrongly availed credit are also governed by Section 11A?
(iii) Section 11A of the Act is a general provision which covers and deals with all types of short levy, short paid, not paid duties and under assessment, whereas MODVAT Scheme and the provisions contained (under Rule 57A to 57J) therein are a special provisions. The Special Scheme regarding availing of MODVAT Credit provides its own special provision with regard to the steps to be taken in the cases of wrongful availment of credit. In the situation whether general provision of Section 11A of the Act would prevail over the provision relating to specific cases covered under Rule 57 -I of the Rules?
(iv) Whether amendment vide Notification No. 28/88 (NT), dated 6 -10 -1988 to Rule 57 -I will have retrospective effect?
(2.) DURING the arguments, Shri Mondal, the Ld. SDR fairly conceded that question No (iv) formulated above does not arise out of the order passed by the Bench, since in the aforesaid order, there is no finding on the retrospective applicability of the amendment made in Rule 57 -I and hence that question cannot be said to arise out of the above order of the Bench. However, as regards the other three questions, he fairly stated that they can be combined into one question, which can be formulated thus:
"Whether, during the period prior to amendment of Rule 57 -I (i.e. prior to 6 -10 -1988) when no specific time limit was provided for recovery of MODVAT credit taken irregularly, show cause notice is required to be issued within the period of limitation as laid down under Section 11A of the Central Excises Act -
This is the only question to be referred and the other two questions formulated are in the form of arguments to find an answer to the main question. Thereupon, he dealt with the arguments supporting the application as follows: -
(i) MODVAT Scheme was a special scheme introduced in 1986 and the rules framed for the implementation of the scheme are totally independent of the provision of other provisions of the Act and other Rules. The Rules governing the MODVAT Scheme are dealt with in a separate Chapter (Chapter V -AA of the Central Excise Rules). From these provisions, it is clear that these rules being independent in their application, cannot be read in conjunction with Section 11A of the Central Excise Act.
(ii) Even the subsequent amendment carried out to Rule 57 -I providing for the period of limitation clearly indicates that the Govt. did not want to disturb the independent set up of scheme envisaged under the aforesaid Chapter. If it was otherwise, the amendment would just be in the nature of referring to the provision of Section 11A in the Rule 57 -I itself.
(iii) MODVAT Credit is taken in respect of duty paid on inputs, which is permitted to be utilised for payment of duty on final products. It cannot be equated with short levy or non -levy or erroneous refund, which are to be recovered by resort to Sec. 11A of the Central Excise Act. It is a credit given in respect of duty paid on inputs under a special MODVAT scheme envisaged in the Rules and hence Section 11A cannot be inducted into that scheme.
(iv) In the initial stages of the scheme, there are bound to be some irregularities in taking credit or allowing credit. Hence till the scheme is settled down, Rule 57 -I did not specifically provide for recovery of such MODVAT credit taken irregularly. Specific provision is made only effective from 6 -10 -1988 by amendment to Rule 57 -I and even this amendment did not link up the time limit to Section 11A and even the relevant date is different - namely the date of the credit and not the date of filing RT -12 returns as laid down in Section 11A.
(v) Referring to the decision of Gujarat High Court in the case of Torrent Laboratories (P) Ltd. v. Union of India reported in 1991 (55) E.L.T. 25 (Guj.), he invited our attention to the observations of the Hon'ble High Court on the very same issue contained in paras 11, 12 and 13 of the said judgment. According to this judgment all these points raised by him have been held in favour of the Revenue and hence in the light of the judgment, there appears to be an error in appreciation of law, by this Bench, while interpreting the provision of Rule 57 -I prior to its amendment by making it complementary to Section 11A of the Central Excises Act and importing the time limit prescribed in Section 11A in Rule 57 -I.
(vi) In any case, when there is a High Court judgment in favour of the Revenue, on the very same issue, there is a doubt on the correctness of the interpretation of law under Rule 57 -I with regard to period of limitation for demand.
On the above arguments, he pleaded that this is a fit case for reference to the respective High Courts.
(3.) SHRI A.V. Naik, the Ld. JDR, adopted the same arguments of Shri K.M. Mondal, and urged for the reference to be made.
None represented the Respondents excepting in the case of M/s. Mahindra and Mahindra for whom Mrs. Dina Wadia, the Ld. Advocate appeared and pleaded as below:
(i) It is needless to emphasise that Rules are in the nature of subordinate legislation and they are always subject to the provisions of the Act enacted by the Parliament.
(ii) Hence, if there is an omission to provide for specific time limit in the Rule 57 -I, it is always necessary to read the provisions of Section 11A into that rule, especially when the MODVAT Credit availed of also results in short levy of duty on the final product.
(iii) Karnataka High Court, in the case of Thungabadra Steel Products v. Union of India reported in 1991 (33) ECC 140 (Kar.) have upheld the view of the Tribunal on the very same issue.
(iv) The aforesaid decision of the Karnataka High Court takes into account the decision of the Supreme Court in J.K. Spg. and Wvg. Mills v. U.O.I. reported in 1987 (32) E.L.T. 234, wherein the Supreme Court held that notwithstanding the amendment of Rules 9 and 49 of the Central Excise Rules, which was given retrospective effect by Section 51 of the Finance Act, 1982, recoveries can be effected only subject to the provision of time limit under Section 11A of the Central Excises Act. The said decision of the Supreme Court was not considered by the Gujarat High Court in Torrent Laboratories' case (supra). In view of the Supreme Court decision in J.K. Spg. and Wvg. Mills case (supra) on a similar issue, there is no point of law, requiring to be settled.
(v) Reliance was also placed on the decision of the Bombay High Court - 1986 (23) E.L.T. 357 - Zenith Tin Works v. Collector of Central Excise, Bombay. In the above judgment, Bombay High Court have held that during the period when Rule 56A did not provide for specific time limit, it is subject to the time limit under the erstwhile Rule 10 of the Central Excise Rules. Rule 56A is analogous to MODVAT Scheme and is also a self contained rule by itself. Even then, the Bombay High Court have taken the aforesaid view. ;