- (1.) THIS judgment will dispose of 17 writ petitions Nos. 6993, 6994, 6992 of 1986, 18, 130, 131, 132, 173, 174, 272, 404, 5252, 1041, 1042, 5977 and 5493 of 1987 and 2703 of 1988. While the main question of the impugned assessments stands settled, some ancillary matters regarding interpretation of certain orders remain to be dealt with. As the material facts in all these writ petitions are substantially identical, it will suffice to refer to the facts in CWP No. 6599 of 1986 as being fairly representative of typical facts and circumstances leading to the filing of these petitions.
(2.) IN order to appreciate the questions involved, it is necessary to state the background as under :3. The petitioners in all these writ petitions are manufacturers of steel ingots, steel billets, steel bars, rounds and rods and steel flats etc. The aforesaid products are manufactured by them by primarily using waste and scrap of steel commonly known as 'bazar Scrap'. A scheme was introduced in the Finance Bill, 1986 called the MOD VAT Scheme. Under the scheme the manufacturers of excisable goods were allowed credit in the payment of excise duty etc. on the final products from out of the duty already paid on the inputs. In order to implement the scheme Rules 57a to 57j were inserted in the Central Excise Rules, 1944. Under Rule 57a, the Central Government was empowered to notify inputs as well as final products under the Schedule to the Excise Tariff Act, 1985, which were to qualify for the said deemed credit. The credit was available subject to the conditions and restrictions specified in the notification. 4. Under the above-mentioned Rule 57a, the Central Government issued Notification No. 177/86-C. E. , dated 1-3-1986 Annexure P-2. The notification, inter alia specified Chapter 72 both in the list of inputs as well as that of the final products which qualified for MOD VAT Credit Scheme. Chapter 72 of the Central Excise Tariff Act, 1985 deals with iron and steel. Heading 73. 02, in particular, deals with 'waste and scrap of iron and steel'. Sub-heading 7203. 10 deals with 'waste and scrap of iron' and the duty leviable thereon at the material time was Rs. 80/- per metric tonne. Sub-heading 7203. 20 deals with 'waste and scrap of steel' and it was liable to Central Excise duty at the rate of Rs. 365/- per metric tonne. Sub-headings 72. 06,72. 07 and 72. 09 deal with steel ingots, billets, bars and fiats. In other words, the waste and scrap of steel was covered in the list of inputs notified under the notification Annexure P-2 and the final products in the manufacture of which the petitioners are engaged was notified in the list of final products in the said notification. 5. Rule 57g laid down the procedure to be observed by the manufacturer. It was provided that the manufacturer shall file a declaration with the Assistant Collector of Central Excise, obtain a dated acknowledgement and start availing of the deemed credit. The various accounts which the petitioners were required to maintain and the returns which they were required to file under Rule 57g and other relevant rules are as under: (i) Under Rule 57-G : RG-23-A Part I and Part II. Part I related to Stock Account of inputs for use in or in relation to manufacture of final products. Part II was an Entry Book containing credit of the duty; (ii) a declaration (iii) Gate pass (iv) AR-I (v) Bill of Entry (vi) Such other documents as may be prescribed by the Central Board evidencing payment of duty. (vii) Under Rule 173-G : Chapter VII-A a monthly return in RT-12. (viii) Form-IV Register in respect of raw material on daily basis. (ix) RG-I Register regarding production. Sub-rule (2) of Rule 57g contained a second proviso empowering the Central Government to direct that all stocks of inputs in the country except those lying in a factory or customs area or a warehouse as are clearly recognisable as being non-duty paid may be deemed to be duty paid and to allow credit of duty in respect of the said inputs at such rate and subject to such conditions as may be specified in the notification without production of documents evidencing the payment of duty. In pursuance of the aforesaid power the Central Government issued an order, Annexure P-3, on April 7, 1986. It was stated that the inputs specified in column 2 of the notification purchased from outside and lying in stock on or after March 1, 1986. with the manufacturer manufacturing the final products already specified in Notification No. 177/86-C. E. , dated March 1, 1986, may be deemed to have paid the duly specified in column 4 of the said notification dated April 7, 1986 without production of documents evidencing payment of duly subject to the restrictions which were spelt out in the notification itself. In the column relating to inputs was included Heading 72. 03 relating to waste and scrap of iron and steel and the rate of duty deemed to have been paid and which could be allowed as credit was at the rate of Rs. 365/- per tonne. 6. The petitioners filed declaration with Annexures P-5a to C on March 29, 1986. A classification list Annexure P-6 was also filed. 7. On August 29, 1986, the Central Government issued order Annexure P-9 to the effect that it had been brought to the notice of the Government that in respect of waste and scrap of steel which was exempt from excise duty or which was charged to nil rate of duty credit under MODVAT had been claimed by some manufacturers though no such credit was available in such cases. It was further stated that in order to remove doubts, if any, it was proposed to modify the earlier instructions dated April 7, 1986, Annexure P-3, and it was decided to omit reference to figures 72. 03 in column No. 3 of the said notification. 8. On September 23, 1986, the Superintendent, Central Excise, conveyed to the petitioner two assessment orders, namely, Annexures P-17 and P-18. The former related to RT-12 return for the month of July 1985 and the latter related to the same return for the month of August 1986. In Annexure P-17 it was stated that the petitioner had failed to maintain the required accounts properly, had availed of credit in respect of waste and scrap of iron and steel which was exempted from Central Excise under earlier notifications and had otherwise failed to certify that the petitioner fulfilled all the conditions laid down in the order and, therefore, the entire amount of Rs. 43 lakhs and odd was disallowed and the petitioner was directed to deposit the said amount in the personal ledger account forthwith. Another order disallowing credit of Rs. 3,45,000/- and odd in respect of the RT-12 return for the month of August, 1986 was passed vide Annexure P-18. The petitioners have challenged these assessment orders. 9. On September 29, 1986, the Central Government issued a clarificatory note with regard to the implication of their earlier orders dated April 7, 1986 and August 29, 1986, and stated that no deemed credit was available in respect of inputs that were clearly recognisable as being non-duty paid or charged to nil rate of duty. The Amending Order dated August 29, 1986, it was pointed out, was issued to deal with the problem of several manufacturers claiming deemed credit even in respect of 'bazar Scrap'. According to the petitioners, this was in the nature of a direction to the Collectors to treat all 'bazar Scrap' as non-duty paid or charged to nil rate of duty and, therefore, not entitled to any deemed credit for purposes of MODVAT. The case of the petitioners is that in view of this categoric direction from the Central Government the petitioners could not hope to get any relief from the departmental authorities and they have, therefore, filed these writ petitions. 10. The petitioners seek a writ of certiorari quashing the orders calling upon the petitioners to deposit the amounts, which have been disallowed as permissible credit, including the two assessment orders. They have also sought a writ of mandamus directing the respondents to permit the petitioners to claim credit in respect of payment of excise duty on the finished goods taken out of the factory gate after August 29, 1986, which had been manufactured out of the raw material purchased by the petitioner on or before August 29, 1986. 11. Shri S. S. Dhariwal, Assistant Collector, Central Excise, filed a return. A number of preliminary objections were taken. It was stated that the petition was premature in that the same had been filed when a show cause notice was in the process of being issued to the petitioner. It was added that in accordance with the principles of natural justice a show cause notice was in fact issued on December 5, 1986. The petitioner was required to show cause to the Collector, Central Excise, who was to adjudicate the case according to law. The order passed by the Collector, it was added, was appealable to the Customs, Excise and Gold (Control) Appellate Tribunal and the petitioner had thus failed to avail the departmental remedies open to it. The main defence was that the petitioner failed to comply with the conditions in the matter of maintenance of account and submission of return and had claimed credit where it was not due. The petitioner failed to submit the requisite documents in spite of repeated requests and in any case a show cause notice had been issued and the matter was to be decided by the Collector according to law. 12. Admittedly the show cause notice referred to in the return was not served on the petitioners till the institution of the petition. The petitioners cannot be imputed knowledge that such a notice was being served on them. In fact, the petitioners stood to gain nothing by rushing to the Court if the department had already decided to serve a show cause notice on the petitioners before finalising the impugned assessments. The preliminary objection that the petition is premature is, therefore, altogether untenable and the same is rejected. 13. Learned counsel for the respondents contended that the present petitions be dismissed on the short ground that the petitioners had an alternative statutory remedy provided under Chapter VI-A of the Central Excises and Salt Act, 1944. Reliance was placed on Titaghur Paper Mills Co. Ltd. v. State of Orissa, (1983) 2 SCC 433 and Asstt. Collector of Central Excise v. Dunlop India Ltd. and Ors. , AIR 1985 SC 330. The stand of the petitioners, on the other hand, is that the impugned assessments Annexures P-17 and P-18 had been passed in total violation of the principles of natural justice or a show cause notice. The Central Government had by instructions Annexure P-19 dated September 29, 1986, intimated all the Collectors its views on points in controversy and it would have been an idle formality for the petitioners to have approached the Collector against the impugned orders. It was also urged that the writ petitions having been admitted to hearing, it must be taken that the Court did not find any force in the plea of the respondents regarding the existence of an alternative remedy. 14. The plea of alternative remedy in the facts and circumstances of the present case has lost much of its force. This is in view of the fact that the Revenue itself has since issued a show cause notice and is treating the impugned assessments still open to scrutiny and being finalised. The law with regard to alternative remedy is well settled. It is settled that existence of an alternative remedy does not bar the jurisdiction of the Court to issue a writ under Article 226. It is only a factor to be taken into consideration in exercising the discretion of the Court in granting the writ. It is further settled that where the impugned order has been passed in contravention of principles of natural justice, a writ petition is not dismissed on the threshold on the ground of the existence of an alternative remedy. In the facts of the present case, the assessment orders were passed without a show cause notice and, therefore, the existence of an alternative remedy does not justify the dismissal of the writ petitions. For the foregoing reason, I find no merit in the above objection of the respondents. 15. In the assessment orders Annexures P-17 and P-18 it was, inter alia, stated that the facility of deemed credit on the inputs was not available to the petitioner "from the very beginning" and proceeded to disallow the whole of the amount claimed by way of credit. In other words, the impression conveyed was that modification of the order Annexure P-3 dated April 7, 1986, by order Annexure P-9 dated August 29, 1986, was retrospective. The contention of the learned counsel for the petitioners is that Annexure P-9 dated August 29, 1986, is not retrospective. In other words, the benefit of Ann. P-2 and P-3 remains available to the petitioners for the period March 1, 1986 to August 29, 1986. Learned counsel for the respondents does not dispute that the latter order dated August 29, 1986, Annexure P-9, is not retrospective. A perusal of the order Annexure P-9 itself shows that it does not purport to be retrospective. The order explains that some manufacturers had attempted to avail of deemed credit where in terms of the notification Annexure P-3 it was not due in view of the various notifications exempting the inputs concerned from excise duty and additional duty of customs. In order to put the matter beyond pale of controversy for future, the earlier instructions dated April 4, 1986, issued under the second proviso to Rule 57g of the Rules were modified by omitting references to "waste and scrap of iron and steel" covered under the Heading 72. 03 of the Central Excise Tariff Act, 1985. 16. A word may be said as to the starting point and the time limit upto which the aforesaid facility by virtue of Annexure P-3 was available. It was expressly stated in the order dated April 7, 1986, Annexure P-3, that deemed credit may be availed in respect of inputs covered by the order, which inputs had been purchased "from outside and lying in stock on or after March 1, 1986" with the manufacturer manufacturing the final products. It follows that the starting point for availing of the benefit of the legal fiction created by Annexure P-3 commenced from March 1, 1986, in respect of inputs purchased from outside and lying in stock on or after March 1, 1986, with the manufacturer manufacturing the final products. 17. With regard to the other limit, the Entry in question was omitted by Order dated August 29, 1986. In the absence of any other date having been mentioned, the order must be given effect from the date it was issued i. e. August 29, 1986. In order to decide whether the petitioners are entitled to avail of the deemed credit upto the time the finished goods are taken out of the factory gate after August 29, 1986, which have been manufactured out of the raw material or inputs purchased by the petitioners on or before August 29, 1986, having regard to the words used in notification dated March 1, 1986, Annexure P-2, deemed credit under the MODVAT scheme is available only in respect of inputs used "in or in relation to the manufacture of the said final products" unless the inputs have been permitted to be cleared under Rule 57f of the Rules as stated in para 2 of the said notification dated March 1, 1986, Annexure P-2. 18. The main controversy which survives consideration is as to the scope and precise meaning of the second proviso to Rule 57g (2) of the Rules and order Annexure P-3 dated April 7, 1986, issued thereunder. Sub-rule (2), in which the second proviso occurs, reads as under: " (2) A manufacturer who has filed a declaration under Sub-rule (1) may, after obtaining the acknowledgement aforesaid, take credit of the duty paid on the inputs received by him: Provided that no credit shall be taken unless the inputs at the time of their receipt in the factory are accompanied or followed subsequently within such period as the Collector of Central Excise may specify in this behalf by a gate pass, an AR-1, a Bill of Entry or any other document as may be prescribed by the Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963 (54 of 1963) in this behalf evidencing the payment of duty on such input: Provided further that having regard to the period that has elapsed since the duty of excise was imposed on any inputs, the position of demand and, supply of the said inputs in the country and any other relevant considerations, the Central Government may direct that with effect from a specified date, all stocks of the said inputs in the country, except such stocks lying in a factory customs area as defined in the Customs Act, 1962 (52 of 1962) or a warehouse as are clearly recognisable as being non-duty paid, may be deemed to be duty paid and credit of duty in respect of the said inputs may be allowed at such rate and subject to such conditions as the Central Government may direct, without production of documents evidencing the payment of duty: Provided also that the manufacturer shall take all reasonable steps to ensure that the inputs acquired by him are goods on which the appropriate duty as indicated in the documents accompanying the goods, has been paid. " 19. The order Annexure P-3, in so far as it is relevant for the present purposes, referred to representations having been received from various manufacturers and their associations pointing out difficulty in availing of the deemed credit under the MODVAT scheme on account of their inability to produce duty paying documents in respect of the goods used by them as inputs. The notification Annexure P-3 proceeded to declare that inputs covered in the earlier notification dated March 1, 1986, shall be deemed to be duty paid without the production of documents evidencing payment of duty. This was, however, subject to the following exceptions : " (i) If in respect of any inputs the credit of specified duty paid thereon has already been availed of under any rule or notification granting such credit; (ii) if such inputs are clearly recognisable as being non-duty paid or charged to nil rate of duty; or (iii) if in respect of any inputs where the reduction of duty as provided under the proviso to Notification No. 55/86-C. E. , dated the 10th Feb. , 1986, is claimed on the ground that the inputs have been manufactured with the aid of electric furnace and documentary evidence exists to show that the reduced duty has been paid on such inputs. In such cases actual duty paid should be allowed. " 20. From what has been stated above, it will be seen that the general rule is stated in the first proviso to Sub-rule (2) of Rule 57g. It is to the effect that in order to avail of deemed credit, the inputs must, inter alia, be accompanied by documents prescribed by the Central Board of Excise and Customs evidencing payment of duty on such inputs. The second proviso contains an exception. It empowers the Central Government to notify inputs which would be deemed to be duty paid so as to obviate the necessity of documents showing payment of duty. By the above legal fiction, the Central Government could declare all stocks of inputs in the country to be duty paid for the limited purposes in question without production of duty paying documents. This was, however, subject to the exceptions noted in Rule 57g itself. The second proviso referred to above thus conferred a very wide power on the Central Government with regard to the legal fiction that duty had been paid without production of necessary documents evidencing payment of duty. This is, however, no reason to conclude that the notification issued in pursuance of the said second proviso was equally wide in its sweep. The scope of the notification issued under the second proviso to Rule 57g (2) has necessarily to be gathered from the words used therein. 21. It may be mentioned here that the petitioners placed on record Order-in-Appeal No. 141-CE/ch/88 dated April 28, 1988, passed by the Collector (Appeals) in the appeal of Messrs Atul Castings Limited, Nalagarh, District Solan (Himachal Pradesh ). In this Order reliance was placed on an earlier order passed in Departmental Appeal No. 356-362/ce/appl/chg dated September 24, 1987. The relevant portion of the observation in the earlier order was reproduced. The reasoning which commended itself to the learned Collector in the said order was that the second proviso to Rule 57g (2) was very widely worded and the notification dated April 7, 1986, having been issued under the said second proviso, it followed that all stocks of inputs lying in the country specified in the table to the said direction were deemed to have paid duty at the rate specified in column (4) of the table. The reasoning is altogether fallacious. The scope to which the legal fiction had been made applicable would depend on the words used in the notification issued under the second proviso and not on the amplitude of the enabling powers contained in the second proviso itself. 22. It will also be seen that the normal rule which appears to have been kept in view by the legislature as well as the statutory rules issued under various Rules is that where no duly is paid, no credit is allowed and where duty has been only paid partly, credit is allowed only to the extent duty has been paid. The notification Annexure P-3 dated April 7, 1986, is in the nature of an exception to the above general rule in that it allows by a deeming provision duty at the rate of Rs. 365/- per tonne in respect of inputs falling under the Heading 72. 03 i. e. waste and scrap of iron and steel. 23. The contention of the learned counsel for the petitioners is that the burden of proving that a certain input falls in any of the exceptions enumerated at (i) to (iii) above is on the department, the tenor of the notification Annexure P-3 being to cover all inputs as deemed to have paid the duty without production of documents evidencing payment of duty. It was also argued that the system in force in the country is such that without payment of requisite duty no scrap can come out of the factory gate. The scrap changes several hands before it is ultimately purchased by the manufacturer for production of the final products. In such circumstances, the purchaser was entitled to presume that necessary duty had already been paid. It was also pointed out that goods liable to Central Excise duty brought into the market without payment of the duty were liable to confiscation. The fact that waste and scrap of steel is openly sold in the market raises the presumption that necessary duty had been paid. It was also argued that the petitioners could not be required to prove a negative proposition that certain input in respect of which they were claiming deemed credit was not a non-duty paid or charged to nil rate of duty item. 24. On a careful consideration, I find myself unable to accept the above contention. It has been stated that the notification Annexure P-3 is in the nature of an exception. The normal rule of construction is that if a person wants to avail of the exception, it is for him to make out a case showing that he is covered by the exception. The issuance of the notification Annexure P-3 dated April 7, 1986, and the prescription of the three exceptions reproduced above, clearly indicates that the matter has not been left to presumptions. It is regulated by positive rules, inter alia, by notification issued under Rule 57g (2 ). The petitioner in order to avail of the deemed credit has to take a stand in the various returns which are required to be filed. It is for the department to verify the stand thus taken and either to allow or contest the same. I am of the considered view that there is no general rule that the burden is on the department to show that a certain input is recognisable as being non-duty paid or charged to nil rate of duty. In my view, the initial burden is on the manufacturer claiming deemed credit to take a definite stand with regard to a certain input. It is then open to the department to accept that claim or to contest the same. 25. In the return, in very broad terms and by way of illustration, it was stated in paragraph 23 that the petitioners had purchased scrap of steel of the following nature : (i) Scrap which is pretty old and rusty which could be considered to have been generated from articles produced long ago. The said type of scrap has therefore, not paid any duty. (ii) Scrap which is in the form of end cuttings and has arisen from goods falling under heading or sub-heading Nos. 72. 01 to 72. 13 (excluding sub-heading No. 7210. 20 and 7212. 60) No. 7301. 00, 7302. 10, 73. 03 etc. which is chargeable to nil rate of duty under Notification No. 54/86-C. E. , dated 10th February, 1986. (iii) Waste and scrap which has arisen in the Engineering Industry while manufacturing goods falling in any other heading of the Schedule to Central Excise Tariff Act, 1985. Such scrap is also chargeable to NIL rate of duty under the above notification. (iv) Other scrap which has arisen in the premises of petitioner-company while manufacturing steel ingots and is stored there for its recycling. Such scrap being classified under sub-heading 7203. 20 is also exempt under the abovesaid notification. 26. Mr. Kapil Sibal, learned counsel for the petitioners, conceded that the petitioners were not entitled to deemed credit in terms of notification Annexure P-3 in respect of Items (iii) and (iv) above. Mr. Chander Shekhran, learned counsel for the respondents, similarly conceded that old cycle rims, rusted tins, scrap resulting from hammering of various parts of Persian wheels, old motor parts and other similar junk which was used as an input quality for the raising of the legal fiction and in respect thereof the petitioners were entitled to the deemed credit. With regard to the remaining types of scrap, no rule of the thumb can be laid down. The matter has to be decided in terms of the exceptions mentioned in notification Annexure P-3. The broad approach to be adopted being that in the first instance the manufacturer has to take a stand with regard to a certain type of input. The department has to either accept that stand or to contest the same, and depending on the facts and circumstances of the each case, the same has to be decided whether that input falls in any one of the exceptions noted as (i) to (iii) above nor not. 27. Necessary clarification has already been rendered in respect of a letter Annexure P-19 dated September 29, 1986. In view of the conceded position that the petitioners have since been served with a show cause notice, assessments Annexures P-17 and P-18 both dated September 23, 1986, are set aside. After considering the reply to the show cause notice, the assessments shall be made afresh in the light of the observations made in this judgment and according to law. The petitions are disposed of in the terms indicated hereinabove. The parties shall bear their own costs.;