Sangam Spinners Ltd vs Union Of India & Ors

Sangam Spinners Ltd. .... Appellant

Versus

Union of India & Ors. .... Respondents

WITH

CIVIL APPEAL NOS. 477-478 OF 2003

WITH

CIVIL APPEAL NO. 479 OF 2003

WITH

CIVIL APPEAL NO. 1436 OF 2003

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

2

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

3

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

4

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

5

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.

6 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

12 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

13

heading 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

14

electricity 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

15

respect 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"

16 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

17

excluded 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

18

under 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.

19 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

20

there 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:-

23 "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

25

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.

27