S.H Kapadia, J.— In this civil appeal filed by the Department the short question which arises for determination is whether the assessee was entitled to avail modvat credit on differential duty paid during the period 21-4-1986 to 2-4-1987 in respect of inputs received in his factory during the year 1986-87 which inputs were utilised between the period 16-8-1987 and 30-12-1987. According to the Department, Rule 57-E of the Central Excise Rules, 1944 underwent an amendment with effect from 15-4-1987 which according to the Department operated prospectively and consequently the claimant was not entitled to avail modvat credit of differential duty paid during the period 21-4-1986 to 2-4-1987.
2. The respondent assessee is a manufacturer of motor vehicles. The assessee had received inputs under the cover of specified documents between the period 21-4-1986 to 2-4-1987. After receipt of those inputs the price of those inputs stood revised by the supplier-cum-manufacturer of the inputs and consequently additional duty became payable on the enhanced price which the assessee paid during the period 19-12-1986 and 28-10-1987. The credit, however, for the aforestated amount so paid was taken between the period 16-8-1987 and 30-12-1987. The differential duty in respect of which credit was so taken was in the sum of Rs 6,43,994.47. At this stage it may be noted that the Modified Value Added Tax Scheme (modvat Scheme) was introduced from 1-3-1986. That scheme is known as modvat Scheme. Prior to modvat Scheme there existed Proforma Credit Scheme under which there was proviso 3 to Explanation 2 to Rule 56-A(2) in which it was provided that if the duty paid on the material or on the components for which credit has been allowed, stood varied subsequently due to any reason resulting in refund or recovery from the manufacturer/importer, as the case may be, then the credit shall be accordingly varied by adjustment in the credit account maintained under sub-rule (3) or in the current account under Rule 9(3) or under Rule 173-G(1). If such an adjustment was not possible for any reason then that adjustment had to be satisfied by payment in cash. Unfortunately, the corresponding provision came to be omitted or failed to be incorporated under Rule 57-A of the modvat Scheme. At this stage it may be noted that Rule 57-A deals with applicability of the modvat Scheme and which Rule is part of the Rules set out in Chapter V-AA of the Central Excise Rules titled “Credit of Duty Paid on Excisable Goods used as Inputs”. Rule 57-E as it stood when modvat was first introduced on 1-3-1986 provided for adjustment in duty credit. It originally provided that if the duty paid on any inputs in respect of which credit has been allowed under Rule 57-A, is varied subsequently due to any reason resulting in refund, the credit alone shall be varied accordingly by adjustment in the credit account maintained under Rule 57-G(3) (with which we are concerned). Rule 57-E underwent a change on 1-3-1987 under which it was stipulated that if duty is paid on any inputs in respect of which credit has been allowed under Rule 57-A and if such duty is varied subsequently due to any reason resulting in refund or if the duty is varied due to the change in classification resulting in recovery then the credit allowed shall also be varied accordingly by adjudgment in the credit account maintained under Rule 57-G(3). Rule 57-E underwent a further change on 15-4-1987. This change operated till 15-4-2000. This case, therefore, falls within the above period i.e 15-4-1987 to 15-4-2000. Under this amended Rule 57-E the right of the manufacturer to obtain additional modvat credit in respect of inputs on which further duty had been paid for any reason subsequent to the date of the receipt of inputs by the manufacturer is recognised. However, such right accrues to the manufacturer subject to his complying with the procedure of adjustment contemplated in Rule 57-E, as amended.
3. The above discussion indicates that the right to claim modvat credit existed only in Rule 57-A. Even Rule 57-E says so. There can be no doubt that right from its inception the right to claim modvat credit is under Rule 57-A. Rule 57-A recognises the right of the manufacturer to claim credit. Rule 57-E recognises not only the right of the manufacturer to claim credit but also the extent to which credit could be claimed for the duty paid on inputs. Therefore, Rule 57-A is a substantive provision. However, the procedure of adjustment finds place in Rule 57-E. Rule 57-E is procedural provision. It deals with adjustments in duty credit. The object behind enacting Rules 57-A, 57-E and 57-G is to avoid duty on duty whereby the price of the final product is loaded. Therefore, Rule 57-A recognises the right of the manufacturer to take credit for the specified duty paid on the inputs, whereas Rule 57-E deals with adjustment in the duty credit, such adjustment means on account of reduction on the credit allowed. It could also be in the event of refund. Suffice it to state that Rule 57-E deals only with adjustment in the duty credit. Rule 57-G states that credit shall not be taken unless the manufacturer of the final product maintains his records regarding receipt of the inputs in his factory like having again bill of entry, certain types of registers (RR-1) or any other document prescribed by the Central Board of Excise and Customs.
4. In our view, therefore, the courts below were right in holding that Rule 57-E was procedural, clarificatory and therefore would not affect the substantive rights of the manufacturer of the specified final product to claim modvat credit for the duty paid on the inputs subsequent to the date of the receipt of those inputs. Consequently, the respondent manufacturer in the present case was entitled to take credit between the period 16-8-1987 to 30-12-1987 in the sum of Rs 6,43,994.57.
5. Accordingly, the appeal stands dismissed with no order as to costs.