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Samtel India Ltd. v. Commissioner Of Central Excise, Jaipur .
Factual and Procedural Background
The appellants manufacture black-and-white picture tubes and export them under bond. They used inputs on which excise duty had been paid and, under the then-existing MODVAT scheme, were entitled to take credit of that duty or seek a refund when no set-off against home-consumption duty was possible.
Exports were effected:
- Civil Appeal No. 6493 of 2000: January–February 1997
- Civil Appeal No. 8692 of 2001: October–December 1996
Rule 57-F(17) of the Central Excise Rules, 1944 was introduced with effect from 1 March 1997, declaring that any unutilised credit with manufacturers of black-and-white picture tubes “shall lapse.” The appellants filed refund claims on 7 April 1997 and 11 July 1997. The Department rejected the claims, and the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT) upheld that rejection. The present appeals challenge CEGAT’s decisions dated 9 August 2000 and 3 August 2001.
Legal Issues Presented
- Whether amended Rule 57-F(17)(b) could retrospectively extinguish MODVAT credit that had accrued before 1 March 1997 to manufacturers who had already exported their final products under bond.
- Whether the Supreme Court’s earlier decision in Eicher Motors Ltd. v. Union of India (1999) 2 SCC 361, which protected vested MODVAT credit rights from being taken away by a similar rule, governs the present controversy.
Arguments of the Parties
Appellants' Arguments
- Relied on the three-Judge Bench ruling in Eicher Motors, where a substantively identical rule (then numbered 57-F(4-A)) was read down to protect accrued credit.
- Contended that credit became a vested right once inputs were received and used under the earlier scheme; the amended rule therefore cannot operate on pre-existing exports.
Revenue's Arguments
- Maintained that there was no formal challenge to the validity of Rule 57-F(17); therefore the court must give full literal effect to its language mandating lapse of credit.
- Submitted that the rule merely imposes a limitation period, invoking Osram Surya (P) Ltd. v. CCE (2002) 9 SCC 20 to argue that no vested right is affected.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Eicher Motors Ltd. v. Union of India (1999) 2 SCC 361 | Accrued MODVAT credit constitutes a vested right that cannot be retrospectively extinguished; offending rule must be read down. | Held fully applicable; court read down Rule 57-F(17) in the same manner, protecting credit relating to exports effected before 1 March 1997. |
| Osram Surya (P) Ltd. v. CCE (2002) 9 SCC 20 | A proviso fixing a six-month period for taking credit is a limitation provision, not a deprivation of vested rights. | Distinguished; court found that Rule 57-F(17) extinguishes vested rights, unlike the limitation in Osram Surya. |
Court's Reasoning and Analysis
The Supreme Court noted that Rule 57-F(17)(b) is textually identical to the earlier Rule 57-F(4-A) considered in Eicher Motors. In that decision, the Court had upheld the provision’s validity only by reading it down so that it did not apply to credit that had already accrued before the rule’s commencement.
Applying the same rationale, the Court held:
- The appellants’ right to MODVAT credit crystallised when inputs were received and utilised under the pre-existing scheme.
- Such a vested right cannot be taken away by subsequent subordinate legislation unless the legislature clearly provides for retrospective confiscation, which was not the case.
- The Revenue’s contention that the rule merely sets a limitation period was rejected because Rule 57-F(17) expressly states that credit “shall lapse,” directly extinguishing the right.
- A fresh constitutional challenge to the rule was unnecessary; once a provision has been read down in a prior binding judgment, that interpretation automatically governs subsequent cases.
Consequently, the Court concluded that Rule 57-F(17) could not operate to deny refunds in respect of exports completed before 1 March 1997.
Holding and Implications
HELD: The impugned CEGAT judgments are set aside. The appellants’ refund claims shall be processed in accordance with law within three months.
Implications: The decision reaffirms that accrued MODVAT credit enjoys constitutional protection as property and cannot be retrospectively forfeited by subordinate legislation. While no new legal test is fashioned, the judgment fortifies the precedential force of Eicher Motors and limits the Revenue’s reliance on Rule 57-F(17) to cases where credit had not vested before 1 March 1997.
Order
1. These appeals are against the judgments of the Customs, Excise and Gold (Control) Appellate Tribunal (for short “CEGAT”) dated 9-8-2000 and 3-8-2001. The question involved is with regard to interpretation of Rule 57-F(17) of the Central Excise Rules, 1944 (for short “the Rules”) which was introduced by an amendment, with effect from 1-3-1997.
2. Briefly stated the facts are as follows:
The appellants are manufacturers of black-and-white picture tubes which they export under a bond. For the manufacturing of black-and-white picture tubes, they use inputs on which duty is paid by them. Under the MODVAT Scheme, which was then in existence, they were entitled to credit for the duty paid against duty payable on the final product which is used for home consumption or on final product which is exported after payment of duty or where such adjustment is not possible to a refund of the duty.
3. It is an admitted position that the appellants had paid duty on the imports. It is admitted that the appellants had credit available to them. In Civil Appeal No. 6493 of 2000, they exported under bond in January and February 1997. In Civil Appeal No. 8692 of 2001 they exported under bond between October to December 1996. As the export was under a bond, under the Rules prevailing up to February 1997, the appellants would have been entitled to a refund of duty because no adjustment was possible. However, as stated above, with effect from 1-3-1997, the Rule was amended.
4. The amended Rule 57-F(17) reads as follows:
“57-F. (17) Notwithstanding anything contained in sub-rule (12) or Rule 57-A, any credit of specified duty lying unutilised,—
(a) on the sixteenth day of March, 1995, with the manufacturer of tractors falling under Heading 87.01 or motor vehicles falling under Headings 87.02 and 87.04 or chassis of such tractors or such motor vehicles falling under Heading 87.06 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) shall lapse and shall not be allowed to be utilised for payment of duty on any excisable goods, whether cleared for home consumption or for export:
Provided that nothing contained in this clause shall apply to credit of duty, if any, in respect of inputs lying in stock or contained in finished products lying in stock on the sixteenth day of March, 1995;
(b) on the first day of March, 1997, with the manufacturer of bulk drugs falling under Chapter 28 or 29 and with the manufacturers of black-and-white picture tubes falling under Sub-Heading 8540.12 shall lapse and shall not be allowed to be utilised for payment of duty on any excisable goods, whether cleared for home consumption or for export:
Provided that nothing contained in this clause shall apply to credit of duty, if any, in respect of inputs lying in stock or contained in finished products lying in stock on the first day of March, 1997.”
5. The appellants filed claims for refund on 7-4-1997 and 11-7-1997. Those claims for refund were rejected on the ground that under the amended sub-rule (17) credit had lapsed and that the same could not be allowed. This view prevailed with CEGAT which has, by the impugned orders, dismissed their appeals.
6. Before us, reliance is placed upon a three-Judge Bench decision of this Court in the case of Eicher Motors Ltd. v. Union of India (1999) 2 SCC 361, (1999) 106 ELT 3. In that case the validity of sub-rule (4-A) was challenged. Sub-rule (4-A) read as follows:
“57-F. (4-A) Notwithstanding anything contained in sub-rule (4), or sub-rule (1) of Rule 57-A and the notifications issued thereunder, any credit of specified duty lying unutilised on the 16th day of March, 1995, with a manufacturer of tractors, falling under Heading 87.01 or motor vehicles falling under Headings 87.02 and 87.04 or chassis of such tractors or such motor vehicles under Heading 87.06 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) shall lapse and shall not be allowed to be utilised for payment of duty on any excisable goods, whether cleared for home consumption or for export:
Provided that nothing contained in this sub-rule shall apply to credit of duty, if any, in respect of inputs lying in stock or contained in finished products lying in stock on the 16th day of March, 1995.”
7. Thus, the then sub-rule (4-A) is identical to sub-rule (17) which is under consideration. In Eicher Motors case (1999) 2 SCC 361, (1999) 106 ELT 3, it has been held that the assessee became entitled to take the credit on the input having been received in the factory on the basis of the existing Scheme. It is held that the right to credit became absolute when the input was used in the manufacture of the final product. It is held that the incident following thereto must take place in accordance with the Scheme under which the duty had been paid on the manufactured product. It is held that if such a situation is sought to be altered necessarily it follows that right which accrued to a party gets affected. It is held that the Scheme sought to be introduced cannot be made applicable to the goods which had already come into existence in respect of which the earlier Scheme was applicable and under which the assessee had availed of the credit facility for payment of taxes. It is held that the right which accrued to the assessee on the date when they paid the taxes would continue until the facility available thereto gets worked out or until those goods existed. It is held that the amended sub-rule could not be applied to the goods manufactured prior to 16-3-1995 [date on which sub-rule (4-A) came into existence].
8. The principles laid down in Eicher Motors case (1999) 2 SCC 361, (1999) 106 ELT 3 are fully applicable here. It is, however, submitted that there is no challenge to the validity of sub-rule (17). It is submitted that this Court cannot, therefore, strike down nor read down sub-rule (17). It is submitted that in the absence of such a challenge full effect has to be given to the wording of sub-rule (17). It is submitted that sub-rule (17) specifically provides that the credit would lapse and that credit shall not be allowed. We are unable to accept this submission. What was then sub-rule (4-A) is now sub-rule (17)(a). Sub-rule (17)(b) is identical to sub-rule (17)(a) except that it is in respect of a different final product. Once the validity of a provision is challenged and the validity is upheld by reading down that provision, then it is not necessary that in all subsequent proceedings the validity must again be challenged. It is sufficient if a party claims that the provision has to be read in the manner laid down by a judgment of this Court. In the light of the judgment of this Court in Eicher Motors case (1999) 2 SCC 361, (1999) 106 ELT 3 sub-rule (17) cannot apply to vested rights. Therefore to the extent that the goods have already been exported, prior to March 1997, the assessee would be entitled to a refund.
9. Reliance was placed on the case of Osram Surya (P) Ltd. v. CCE (2002) 9 SCC 20. In this case the Court considered the effect of proviso to Rule 57-G of the Central Excise Rules, 1944. The proviso read as follows:
“Provided further that the manufacturer shall not take credit after six months of the date of issue of any of the documents specified in first proviso to this sub-rule.”
10. This Court held that this proviso did not take away vested right and merely laid down a period of limitation. This Court upheld the contention of the Revenue that after the period of six months, credit could not be claimed. It was submitted that sub-rule (17) is merely laying down a period of limitation. It is submitted that no vested right is taken away. We are unable to accept this submission. It must be noted that in Osram Surya case (2002) 9 SCC 20 reliance had been placed upon the judgment in Eicher Motors case (1999) 2 SCC 361, (1999) 106 ELT 3. The Court distinguished the judgment in Eicher Motors case (1999) 2 SCC 361, (1999) 106 ELT 3 on the basis that under sub-rule (4-A) vested rights were taken away whereas under the proviso to Rule 57-G no vested right was being taken away.
11. For all the above reasons, we are unable to uphold the impugned judgments. The same are accordingly set aside. It is directed that the appellants' case for refund shall be processed in accordance with law and within a period of three months.
12. The appeals stand disposed of accordingly. There shall be no order as to costs.
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