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Electronics Corporation Of India Limited v. Union Of India And Others
Factual and Procedural Background
Electronics Corporation of India Ltd. (ECIL), a Central Government Public Sector Undertaking under the Department of Atomic Energy, received show-cause notices from the Ministry of Finance alleging that it had wrongly availed Modvat/Cenvat credit on inputs whose book value had been written-off. The adjudicating authority rejected ECIL’s defence (that the write-off was mandated by Accounting Standard 2 and did not affect usability of the inputs) and confirmed the demand for reversal of credit. ECIL sought to appeal before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) but was denied clearance by the Committee on Disputes (CoD). The Andhra Pradesh High Court dismissed ECIL’s writ petition challenging that refusal, leading to the present special leave petition before the Supreme Court.
In a connected matter (Civil Appeal No. 1903 of 2008), Bharat Petroleum Corporation Ltd. (BPCL) had succeeded before CESTAT on the valuation of goods sold through company-owned outlets. The Central Excise Department appealed to the Supreme Court, but BPCL filed I.A. No. 4 of 2009 seeking dismissal of that appeal because the CoD had refused the Department permission to proceed.
These two instances were placed before the Supreme Court to examine the continued efficacy of the CoD mechanism created by earlier ONGC rulings.
Legal Issues Presented
- Whether the Central Government was justified in insisting upon reversal of Modvat/Cenvat credit for inputs whose values were written-off by ECIL.
- Whether the Committee on Disputes (CoD) mechanism, established by earlier Supreme Court orders, should continue to operate or be recalled in view of changed circumstances.
- Whether BPCL’s adoption of the administered pricing mechanism satisfied the valuation requirements under Section 4 of the Central Excise Act, 1944 (issue raised in the Department’s appeal in C.A. No. 1903 of 2008).
Arguments of the Parties
Assessees (ECIL & BPCL)
- ECIL contended before the adjudicating authority that writing down inventory older than three years was a financial requirement under Accounting Standard 2; the inputs remained serviceable and therefore the company was entitled to retain Modvat/Cenvat credit.
- BPCL, before the Tribunal, maintained that it was bound by the Government’s administered pricing mechanism, making it impossible to determine transaction value under Section 4(1)(a) of the 1944 Act.
- BPCL further urged the Supreme Court to dismiss the Department’s civil appeal because the CoD had refused clearance.
Union of India / Attorney General
- The learned Attorney General submitted that the series of ONGC orders creating the CoD had outlived their utility.
- He argued that the mechanism causes delays, inconsistent outcomes (clearance granted in some identical cases but refused in others), and loss of revenue, particularly in high-stakes matters involving regulatory overlap.
- Consequently, he requested that the Court recall its previous directions mandating CoD clearance.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Oil and Natural Gas Commission v. CCE, 1992 Supp (2) SCC 432 | Observation that PSUs and the Union of India should not litigate inter se; Cabinet Secretary to handle such disputes. | Recalled as part of dismantling the CoD mechanism. |
| ONGC-II, 1995 Supp (4) SCC 541 | Directed formation of a High-Powered Committee to clear litigation between Government entities. | Expressly recalled. |
| ONGC-III, (2004) 6 SCC 437 | Required clearance from the Committee of Secretaries before legal proceedings could continue. | Expressly recalled. |
| ONGC-IV, (2007) 7 SCC 39 | Extended the clearance requirement to disputes involving State Governments and their instrumentalities. | Expressly recalled. |
Court's Reasoning and Analysis
The Court acknowledged the laudable objective behind the earlier ONGC directives—preventing wasteful litigation among Government entities and conserving State resources through in-house conciliation. Nevertheless, after nearly two decades of operation, empirical experience showed that:
- The CoD process frequently delayed the filing and prosecution of appeals, causing revenue loss and procedural uncertainty.
- Clearance decisions lacked uniformity; similar fact situations produced opposite outcomes, compelling affected PSUs to approach the courts alleging discrimination.
- The rise of complex regulatory regimes (e.g., overlapping jurisdictions of SEBI and insurance regulators) involves high-value disputes for which timely CoD clearance is impractical.
Weighing these considerations, the Court found that the CoD mechanism “has outlived its utility.” Consequently, the foundational orders requiring such clearance needed to be recalled. Having removed that procedural pre-condition, the Court had no basis to entertain BPCL’s application seeking dismissal of the Department’s appeal solely for want of CoD permission.
Holding and Implications
Holding: The Supreme Court recalled its earlier directives in ONGC-II (1995 Supp (4) SCC 541), ONGC-III ((2004) 6 SCC 437), and ONGC-IV ((2007) 7 SCC 39). Consequently, I.A. No. 4 filed by BPCL in Civil Appeal No. 1903 of 2008 was DISMISSED.
Implications: With the CoD mechanism withdrawn, Government departments, PSUs, and other State instrumentalities are no longer required to obtain inter-departmental clearance before initiating or pursuing litigation. Future disputes between such entities may proceed directly through the regular judicial hierarchy, thereby eliminating the procedural filter that had previously delayed and, in some instances, barred substantive adjudication. The decision alters administrative litigation practice but sets no new substantive legal precedent on tax or valuation issues.
S.H Kapadia, C.J— Leave granted. Electronics Corporation of India Ltd. (“the assessee”, for short) is a Central Government Public Sector Undertaking (PSU). It is registered as a government company under the Companies Act, 1956. It is under the control of Department of Atomic Energy, Government of India.
2. A dispute had been raised by the Central Government (Ministry of Finance) by issuing show-cause notices to the assessee alleging that the Corporation was not entitled to avail/utilise Modvat/Cenvat credit in respect of inputs whose values stood written-off. Accordingly, it was proposed in the show-cause notices that the credit taken on inputs was liable to be reversed.
3. Thus, the short point which arose for determination in the present case was: whether the Central Government was right in insisting on reversal of credit taken by the assessee on inputs whose values stood written-off?
4. The adjudicating authority held that there was no substance in the contention of the assessee that the write-off was made in terms of AS 2. The case of the assessee before the Commissioner of Central Excise (adjudicating authority) was that it was a financial requirement as prescribed in AS 2; that an inventory more than three years old had to be written-off/derated in value; that such derating in value did not mean that the inputs were unfunctionable; that the inputs were still lying in the factory and they were useful for production and therefore they were entitled to Modvat/Cenvat credit. As stated above, this argument was rejected by the adjudicating authority and the demand against the assessee stood confirmed.
5. Against the order of the adjudicating authority, the assessee decided to challenge the same by filing an appeal before Cestat. Accordingly, the assessee applied before the Committee on Disputes (CoD). However, the CoD vide its decision dated 2-11-2006 refused to grant clearance though in an identical case the CoD granted clearance to Bharat Heavy Electricals Ltd. (BHEL).
6. Accordingly, the assessee herein filed Writ Petition No. 26573 of 2008 in the Andhra Pradesh High Court. By the impugned decision, the writ petition filed by the assessee stood dismissed. Against the order of the Andhra Pradesh High Court the assessee has moved this Court by way of a special leave petition.
7. In a conjunct matter, Civil Appeal No. 1903 of 2008, the facts were as follows: Bharat Petroleum Corporation Ltd. (“the assessee”, for short) cleared the goods for sale at the outlets owned and operated by themselves known as “company-owned” and “company-operated” outlets. The assessee cleared the goods for sale at such outlets by determining the value of the goods cleared during the period February 2000 to November 2001 on the basis of the price at which such goods were sold from their warehouses to independent dealers, instead of determining it on the basis of the normal price and normal transaction value as per Section 4(4)(b)(iii) of the Central Excise Act, 1944 (“the 1944 Act”, for short) read with Rule 7 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.
8. In short, the price adopted by the assessee which is a PSU in terms of administered pricing mechanism (APM) formulated by Government of India stood rejected. The Tribunal came to the conclusion that the APM adopted by the assessee was in terms of the price fixed by the Ministry of Petroleum and Natural Gas; that it was not possible for the assessee to adopt the price in terms of Section 4(1)(a) of the 1944 Act; and that it was not possible to arrive at the transaction value in terms of the said section. Accordingly, the Tribunal allowed the appeal of the assessee.
9. Aggrieved by the decision of the Tribunal, CCE has come to this Court by way of Civil Appeal No. 1903 of 2008 in which the assessee has preferred IA No. 4 of 2009 requesting the Court to dismiss the above Civil Appeal No. 1903 of 2008 filed by the Department on the ground that CoD has declined permission to the Department to pursue the said appeal.
10. The above two instances are given only to highlight the fact that the mechanism set up by this Court in its orders reported in (i) Oil and Natural Gas Commission v. CCE 1995 Supp (4) SCC 541 (ONGC-II) dated 11-10-1991, (ii) Oil and Natural Gas Commission v. CCE (2004) 6 SCC 437 (ONGC-III) dated 7-1-1994, and (iii) Oil and Natural Gas Commission v. City & Industrial Development Corpn. Maharashtra Ltd. (2007) 7 SCC 39 (ONGC-IV) dated 20-7-2007 needs to be revisited.
11. The learned Attorney General has submitted that the above orders have outlived their utility and in view of the changed scenario, as indicated hereinafter, the aforestated orders are required to be recalled. We find merit in the submission made by the Attorney General of India on behalf of the Union of India for the following reasons.
12. By order dated 11-9-1991, reported in Oil and Natural Gas Commission v. CCE 1992 Supp (2) SCC 432, this Court noted that “public sector undertakings of the Central Government and the Union of India should not fight their litigations in court”. Consequently, the Cabinet Secretary, Government of India was “called upon to handle the matter personally”.
13. This was followed by the order dated 11-10-1991 in ONGC-II case 1995 Supp (4) SCC 541 where this Court directed the Government of India to
“set up a Committee consisting of representatives from the Ministry of Industry, the Bureau of Public Enterprises and the Ministry of Law, to monitor disputes between Ministry and Ministry of Government of India, Ministry and public sector undertakings of the Government of India and public sector undertakings in between themselves, to ensure that no litigation comes to court or to a tribunal without the matter having been first examined by the Committee and its clearance for litigation”.
14. Thereafter, in ONGC-III case (2004) 6 SCC 437, this Court directed that in the absence of clearance from the “Committee of Secretaries” (CoS), any legal proceeding will not be proceeded with. This was subject to the rider that appeals and petitions filed without such clearance could be filed to save limitation. It was, however, directed that the needful should be done within one month from such filing, failing which the matter would not be proceeded with.
15. By another order dated 20-7-2007 (ONGC-IV case (2007) 7 SCC 39) this Court extended the concept of dispute resolution by the High-Powered Committee to amicably resolve the disputes involving the State Governments and their instrumentalities. The idea behind the setting up of this Committee, initially, called a “High-Powered Committee” (HPC), later on called as “Committee of Secretaries” (CoS) and finally termed as “Committee on Disputes” (CoD) was to ensure that resources of the State are not frittered away in inter se litigations between entities of the State, which could be best resolved, by an empowered CoD. The machinery contemplated was only to ensure that no litigation comes to court without the parties having had an opportunity of conciliation before an in-house committee. (See SCC paras 3-4 of the order dated 7-1-1994 in ONGC-III case (2004) 6 SCC 437.)
16. Whilst the principle and the object behind the aforestated orders is unexceptionable and laudatory, experience has shown that despite best efforts of the CoD, the mechanism has not achieved the results for which it was constituted and has in fact led to delays in litigation. We have already given two examples hereinabove. They indicate that on same set of facts, clearance is given in one case and refused in the other. This has led a PSU to institute a SLP in this Court on the ground of discrimination. We need not multiply such illustrations.
17. The mechanism was set up with a laudatory object. However, the mechanism has led to delay in filing of civil appeals causing loss of revenue. For example, in many cases of exemptions, the Industry Department gives exemption, while the same is denied by the Revenue Department. Similarly, with the enactment of regulatory laws in several cases there could be overlapping of jurisdictions between, let us say, SEBI and insurance regulators. Civil appeals lie to this Court. Stakes in such cases are huge. One cannot possibly expect timely clearance by the CoD. In such cases, grant of clearance to one and not to the other may result in generation of more and more litigation. The mechanism has outlived its utility.
18. In the changed scenario indicated above, we are of the view that time has come under the above circumstances to recall the directions of this Court in its various orders reported as: (i) ONGC-II 1995 Supp (4) SCC 541 dated 11-10-1991, (ii) ONGC-III (2004) 6 SCC 437 dated 7-1-1994, and (iii) ONGC-IV (2007) 7 SCC 39 dated 20-7-2007.
19. In the circumstances, we hereby recall the following orders reported in:
(i) ONGC-II 1995 Supp (4) SCC 541 dated 11-10-1991,
(ii) ONGC-III (2004) 6 SCC 437 dated 7-1-1994, and
(iii) ONGC-IV (2007) 7 SCC 39 dated 20-7-2007.
20. For the aforestated reasons, IA No. 4 filed by the assessee in Civil Appeal No. 1903 of 2008 is dismissed.
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