Super Cassettes Industries Ltd. v. Union Of India

1. By this petition under Article 226 of the Constitution of India the petitioner challenges an order dated 12th August, 1994 passed by the Collector (Appeals), Customs & Central Excise, Ghaziabad whereby he dismissed the petitioner's Appeal No. 116-C.E./MRT/94 as barred by limitation.

2. The petitioner is a manufacturer of audio cassettes which was an excisable item up to 16th May, 1990. By Notification No. 117/90, dated 16-5-1990 audio cassettes were exempted from excise duty. The petitioner was using certain excisable goods as inputs in the manufacture of the said audio cassettes and was claiming credit for the excise duty paid on those inputs under the Modvat (Modified Value Added Tax) Scheme. On 17-5-1990, the date on which the audio cassettes ceased to be an excisable item, the petitioner had certain such inputs in stock in respect of which it had claimed credit of a sum of Rs. 1,97,243.15 paise by crediting the same in the petitioner's personal ledger account (hereinafter referred to as 'the PLA') maintained under the Central Excise Rules. After the audio cassettes became exempt from excise duty it adjusted the PLA account by debiting the said sum of Rs. 1,97,243.15 paise on 28-6-1990 and 2-7-1990. It is claimed that later on the petitioner realised that there was no provision in the Central Excise Rules under which the credit of duty that was correctly taken under Rule 57G(2) and correctly utilised for the payment of duty under Rule 57F(3) could have been recovered. The petitioner, therefore, filed a refund claim for the said sum on 15-1-1991 contending that the said amount has been debited in PLA account by mistake and inasmuch as the deposit was without the authority of law. This claim was rejected by the Assistant Collector, Central Excise on the ground that the same was not maintainable on merits and was also barred by time under Section 11B. The petitioner filed an appeal to the Collector (Appeals) who dismissed the same by the impugned order dated 12-8-1994 on the ground of limitation only. It is claimed that the credit for duty paid on inputs, having been validly taken under the Modvat Scheme, the same could not be withdrawn because of the final product, namely audio cassettes being exempted from duty and that the payment of duty on the said inputs through the debit entries referred to above was unauthorised by law and amounts to an illegal recovery and, therefore, the period of limitation did not apply.

3. In the counter affidavit filed on behalf of the Union of India, it has been claimed that the impugned order is appealable to the Customs Excise & Gold (Control) Appellate Tribunal (CEGAT) and the petitioner has an alternative remedy and the writ petition is not maintainable. On merits it is claimed that the credit for duty paid on the inputs was towards payment of Central Excise duty on the final product and since no excise duty was payable on the final product no credit was available to the petitioner in respect of the goods that were in stock on the relevant date. The petitioner, therefore, had rightly debited the aforesaid amount to the PLA account. It is claimed that the refund was also barred by time.

4. I have heard Sri Rajesh Kumar, learned counsel for the petitioner and Sri Shishir Kumar, learned Standing Counsel for the respondents.

5. The procedure for payment of excise duty is inter alia provided under Rule 173G of the Central Excise Rules, 1944 which provides for the maintenance of an account-current popularly known as personal ledger account. This account has to be opened and maintained by cash payment into the Treasury so as to keep the balance, in such account-current, sufficient to cover the duty on the goods intended to be removed at any time, and every assessee makes the actual payment of the duty by debiting the said account-current before removal of the goods. Under Rule 9 no excisable goods shall be removed from any place where they are produced, cured or manufactured or any premises appurtenant thereto... until the excise duty leviable thereon has been paid.

6. In the manufacture of goods several inputs have to be used which have already suffered the burden of excise duty. The final product being also subjected to excise duty, the excise burden on the final product becomes heavy and in order to give relief, provisions have been made for adjustment of the excise duty paid on certain inputs from the excise duty paid on the final product. This is known as the Modvat Scheme (Modified Value Added Tax). In brief, it may be said that when a manufacturer purchases such inputs on which excise duty has been paid he can credit according to rules the amount of excise duty paid on those inputs and when he removes the manufactured goods the excise duty payable will be debited in the said account. The net result will, therefore, be that infact the manufacturer pays the excise duty on the final product as reduced by the excise duty paid on the inputs. The detailed procedure is provided in Rules 57A to 57G. The relevant part of Rule 57A is as below :-

"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 excise 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."

7. Rule 57C then provides that no credit of the specified duty paid on the inputs used in the manufacture of final product shall be allowed

"if the final product is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty"

. Rule 57D provides that credit of specified duty allowed in respect of any inputs shall not be denied or varied on the ground that part of the inputs is contained in any waste, refuse, or by-product...or on the ground that any intermediate products have come into existence during the course of manufacture of the final product and that such intermediate products are for the time being exempt. Rule 57E provides for adjustment in duty credit. It says that if the duty paid on any inputs in respect of which credit has been allowed under Rule 57A, is varied subsequently due to any reason resulting in payment of refund to, or recovery of more duty from, the manufacturer or importer, as the case may be, of such inputs, the credit allowed shall be varied accordingly by adjustment in the credit account maintained under sub-rule (3) of Rule 57G. Rule 57F deals with the manner of utilisation of the inputs and the credit allowed in respect of duty paid thereon. It requires inter alia that the inputs may be used in the manufacture of final products for which such inputs have been brought into the factory or shall be removed, after intimating the Assistant Collector of Central Excise having jurisdiction ... for home consumption or for export under bond, as if such inputs have been manufactured in such factory. Rule 57G lays down the procedure to be followed by the manufacturer intending to take credit of the duty paid on inputs under Rule 57A. Sub-rule (1) of Rule 57G provides that a manufacturer intending to avail Modvat credit shall file a declaration with the Assistant Collector of Central Excise and after obtaining the acknowledgement thereof take credit of the duty paid on the inputs received by him. The rule obliges the manufacturer to maintain necessary accounts and the manufacturer has to furnish before the superintendent of Central Excise within five days after the close of each month documents evidencing the payment of duty along with extracts of Parts 1 and II of form RG 23A. Rule 57-1 provides-for recovery of credit wrongly availed of where credit of duty on inputs has been taken on account of an error, omission or mis-construction, on the part of an officer or a manufacturer.

8. Section 11B of the Central Excise and Salt Act, 1944 deals with claim for refund of duty. It provides that a person claiming refund of any duty of excise may make an application for refund before the expiry of six months from the relevant date. The explanation to Section 11B defines relevant date and in the case of the present petitioner the relevant date is the date of payment of duty which admittedly, were 28-6-1990 and 2-7-1990 on which date the petitioner claims to have paid the duty in respect of the inputs by debiting the PLA account, although earlier he had taken the credit therefore. Admittedly, the claim for refund of the said amount of Rs. 1,97,243.15 paise was made on 15-1-1991 i.e. after the expiry of six months. It is for this reason that the Assistant Collector and the Collector (Appeals) held that the claim was barred by time. Learned counsel for the petitioner did not dispute that according to the provision of section 11b the claim for refund was barred by time but he contended that Section 11B was not applicable because the duty was wrongly paid by the petitioner and amounts to illegal recovery. For this proposition he placed reliance on a judgment of the Bombay High Court in BTX Chemicals Pvt. Ltd. v. Collector of Central Excise - 1989 (41) E.LT. 377 (Bom.), Tata Engineering & Locomotive v. Union of India - 1994 (54) ECR 57 (Bom.), Bengal Ruby Mica Supplies Co. v. Union of India - 1994 (54) ECR 43 (Cal.) and a judgment of this Court in Triveni Structurals Ltd. v. Collector , Central Excise - 1987 (30) E.L.T. 707 (All). In these cases a view has been taken that where a sum has been illegally realised the refund cannot be denied on the ground of limitation like the one provided in Section 11B of the Central Excise and Salt Act. A perusal of these judgments would show that this principle applies only to cases where the payment/recovery was patently mistaken and was not authorised by law. Therefore, in order to invoke this principle so as to go out of the clutches of Section 11B it has to be examined whether the debit entries made by the dealer resulting in a payment of excise duty was a mistaken debit and was against the provisions of law. Learned counsel for the petitioner contended that in several cases the Tribunal has taken the view that since in Rule 57G there is no provision for reversal of a credit once taken by a manufacturer the dealer was not legally obliged to reverse the credit already taken by it by making debit entries in the PLA account. I was informed that apart from some judgments passed by CEGAT no High Court has yet dealt with the controversy. The mere fact that the CEGAT has accepted the claim for refund in some other cases cannot be a ground for taking the view that the credit taken by the petitioner was correct and its reversal was illegal and Article 14 cannot be invoked by the petitioner for claiming equality [See Chandigarh Administration v. Jagjeet Singh J.T. 1995 (1) S.C. 445].

9. The approach of the CEGAT and the argument of the learned counsel for the petitioner was that the credit once taken in accordance with the aforesaid rules is final and since Rule 57G does not make any provision for reversing the credit the debit entry was wrong. This approach in my view is not supported by the rules as mentioned above.

10. As is evident, entries in PLA account and other documents are at times provisional in nature and become final after certain events take place. For example a personal ledger account is commenced with a credit entry represented by a cash deposit in the treasury as required under Rule 9. When the first deposit is made in the treasury there is no payment of any excise duty. The deposit and the corresponding credit in the PLA account is only a provision for making payments of excise duty oh the goods that are manufactured and are to be removed. Therefore, when a person makes the cash deposit in the treasury he does not actually pay excise duty he only makes a provision for the payment thereof and the actual excise duty stands paid only when it becomes payable in accordance with the act and the rules. rule 57a clearly shows that Modvat credit is available for utilising the credit so allowed towards payment of excise duty leviable on the final products. Therefore, there can be no finalised credit unless the inputs are used in accordance with Rules 57A and 57F and either excise duty on the final product is paid or the inputs are otherwise disposed of for home consumption or export etc. Till such events occur the Modvat credit is only provisional and cannot be said to be final and irrevocable. It is only for certain accounting purpose that the amount is credited to the PLA account and can be used as a credit balance for actual payment of duty on manufactured goods at the time of their removal. The final settlement would, however, happens only when such inputs have actually been used for the purposes of specified and/or excise duty has been paid on the final product.-It is true that Rule 57G does not specifically contemplate a reversal of the credit but this is implied from purpose of the Scheme and the nature of the Rules.

11. As already stated, Rule 57C clearly states that no credit of duty paid on inputs shall be allowed "if the final product is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty". This provision clearly contemplate a situation like the one before us. There is another provision in Rule 57-1 where the officer can demand the reversal of the credit which has been taken on account of an error, omission or mis-construction. It was contended that when the credit was taken the final product was not exempted from excise duty and it is only subsequently that the final product became exempt from excise duty and, therefore, Rule 57C was not attracted. This contention is not correct. The whole Scheme is in respect of excisable goods and, therefore, if the product is exempted from excise duty from a particular date the Modvat credit taken in respect of inputs which are in stock has to be reversed. Even the inputs that have been used in the manufacture of final products which have become exempt from excise duty, Modvat credit in respect of such inputs also becomes inadmissible and will have to be reversed. In my view there is no warrant for the view that Modvat credit once availed by making the necessary entries is irrevocable. This would amount to unjust enrichment and cannot be conceived of in the light of the rules on the subject. I am, therefore, of the view that the debit entries made by the petitioner for reversing the Modvat credit availed by it were in compliance of its legal obligation and it cannot be said that by making such entries the petitioner has made any illegal payment to the Union of India. On the other hand, the net result is that the Union of India has received only what it was justly entitled to receive i.e. the duty on the inputs. What was exempt from excise duty was only the final product and not the inputs.

12. In view of the above discussions, I find no merit in the petitioner's claim for refund and it was patently barred by time as well. It is not necessary in the circumstances of the case to deal with the plea of alternative remedy because that is not a complete bar to the jurisdiction of this Court under Article 226 of the Constitution of India. The writ petition is, accordingly, dismissed with costs.