IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION No 10869 of 2004
For Approval and Signature:
HON'BLE MR.JUSTICE D.A.MEHTA Sd/-
and
HON'BLE MS.JUSTICE H.N.DEVANI Sd/-
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1. Whether Reporters of Local Papers may be allowed : NO
to see the judgements?
2. To be referred to the Reporter or not? : YES
3. Whether Their Lordships wish to see the fair copy : NO
of the judgement?
4. Whether this case involves a substantial question : NO
of law as to the interpretation of the Constitution
of India, 1950 of any Order made thereunder?
5. Whether it is to be circulated to the concerned : NO
Magistrate/Magistrates,Judge/Judges,Tribunal/Tribunals?
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YEAST ALCO ENZYMES LTD.
Versus
UNION OF INDIA
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Appearance:
1. Special Civil Application No. 10869 of 2004
MR BB NAIK for Petitioner No. 1
MR JITENDRA MALKAN for Respondent No. 1-3
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CORAM : HON’BLE MR.JUSTICE D.A.MEHTA
and
HON’BLE MS.JUSTICE H.N.DEVANIDate of decision: 11/03/2005
ORAL JUDGEMENT
(Per : HON’BLE MR.JUSTICE D.A.MEHTA)1This petition under Article 226 of the
Constitution of India is filed challenging order dated
26th November, 1998 passed by the Assistant Commissioner
of Central Excise, Bhavnagar – respondent No.3, order
dated 27th December, 2000 passed by the Commissioner
(Appeals) and order dated 8th January,2004 passed by the
Customs Excise and Service Tax Appellate Tribunal. The
following substantial reliefs are prayed :
“14.In the premises aforesaid, the petitioner
prays as under :
(A) Your Lordships may be pleased to admit
the present petition;
(B) Your Lordships may be pleased to issue a
writ of mandamus or a writ in the nature
of mandamus or a writ in the nature of
mandamus or any other appropriate writ,
order, direction or declaration declaring
that Rule 57G(5) of the Central Excise
Rules, 1944 are ultravires the
Constitution of India;
(C) Your Lordships may be pleased to issue a
writ of mandamus or a writ in the nature
of mandamus or any other appropriate
writ, order or direction quashing and
setting aside the order dated 26.11.1998
passed by the Assistant Commissioner of
Central Excise, Bhavnagar, respondent
No.3 (Annexure “E”), the order dated
27.12.2000 passed by the Commissioner
(Appeals) (Annexure “F”), and the order
dated 8.1.2004 passed by the Customs,
Excise & Gold (Control) Appellate
Tribunal, (Annexure “G”);
(D) Pending the hearing and final disposal of
the petition, this Honourable Court may
be pleased to stay and suspend the
operation, implementation, execution and
enforcement of the order dated 26.11.1998
passed by the Assistant Commissioner of
Central Excise, Bhavnagar, respondent
No.3 (Annexure “E”), the order dated
27.12.2000 passed by the Commissioner
(Appeals) (Annexure “F”) and the order
dated 8.1.2004 passed by the Customs,
Excise & Gold (Control) Appellate
Tribunal, (Annexure “G”)”;
2The petitioner, a limited company is engaged in
manufacturing of excisable goods falling under Chapter
Heading No.2204.00 and 3823.00 to the Schedule of the
Central Excise Tariff Act,1985. The petitioner
manufactures Ethyl Alcohol (denatured) and Ethyl Alcohol
(not-denatured), commonly known as “Rectified Spirit”.
That Ethyl Alcohol (not-denatured) is chargeable to ‘nil’
rate of excise duty while Ethyl Alcohol (denatured)
attracts duty at the prevailing tariff rates. The
petitioner exports Ethyl Alcohol (not-denatured). It is
the case of the petitioner that it is entitled to Modvat
Credit under the Central Excise Rules,1944 (the Rules).
3On 3rd February,1997 the petitioner informed the
Range Superintendent of Central Excise, Sihor , having
jurisdicition over the petitioner, that the petitioner
shall be maintaining separate account and inventory for
manufacture and sale of Ethyl Alcohol (not-denatured)
meant only for export sale and shall not avail of modvat
credit benefit on molasses, which is used as inputs in
the manufacturing process. It appears that on 31st
March,1997 3,10,498 litres of finished products meant for
export were in stock. According to the petitioner out of
the aforesaid goods it was constrained to sell 1,10,498
litres in the local market as special denatured spirit
and the petitioner paid excise duty amounting to
Rs.2,59,641/-. On 14th June,1997 the petitioner wrote to
the Range Superintendent intimating that it would like to
avail of modvat credit on 482 MTs of molasses, worked out
on pro-rata basis having been consumed in manufacture of
1,10,498 litres of Ethyl Alcohol (not-denatured) sold in
the local market. This quantity of 482 MTs of molasses
had borne duty to the extent of Rs.2,41,365/-.
Thereafter the aforesaid intimation was followed up by
letter dated 12th December,1997 and on 13th December,1997
the petitioner took modvat credit by making entry in RG23
Part-II to the extent of Rs.2,41,365/-.
4On 1st July,1998 a show cause notice came to be
issued to the petitioner to explain as to why the modvat
credit of Rs.2,41,365/- should not be disallowed as the
same was in contravention of Rule 57G and 57CC of the
Rules. Ultimately, after considering the explanation
tendered by the petitioner, on 26th November,1998
respondent No.3 passed an order-in-original after
adjudication disallowing modvat credit and also imposing
penalty of Rs.25,000/- under Rule 173Q(1) of the Rules.
The petitioner filed an appeal before the Commissioner
(Appeals) which came to be dismissed by order dated 27th
December,2000. The Second Appeal moved by the petitioner
before the Tribunal also came to be dismissed by order
dated 8th January,2004. It is in the backdrop of the
aforesaid facts that the present petition has been moved.
5Mr.B.B.Nayak, learned Advocate appearing on
behalf of the petitioner has principally challenged the
action of the respondent authorities on the ground that
sub-rule(5) of Rule 57G of the Rules is ultravires the
provision i.e. Rule 57G of the Rules (though in the
prayer it is stated to be ultravires the Constitution of
India). It was submitted by Mr.Nayak that time limit of
six months imposed by sub-rule (5) of Rule 57G of the
Rules is arbitrary and has no rational nexus with the
object sought to be achieved by Rule 57G of the Rules.
That the said sub-rule stipulates that a manufacturer is
not entitled to take credit after six months of the date
of issue of any document specified in sub-rule (3), but
according to Mr.Nayak this limitation of period of six
months cannot be applied in all cases and in all
circumstances. Elaborating on the submission he
contended that in a given case the manufacturer may be
placed in a situation whereunder due to circumstances
beyond the control of the manufacturer he cannot avail of
the credit within a period of six months . Hence, either
the said sub-rule providing for a period of six months
should be struck down or should be read down by reading
power to condone the delay as being available to the
revenue authorities.
Alternatively it was pleaded that declaration
having been filed on 14th June,1997 and the petitioner
having availed of credit on 13th December,1997 it was
required to be held that the petitioner had complied with
the statutory condition of availing of credit within a
period of six months.
He, therefore, urged that in a case like the
present one where the petitioner was forced to sell a
part of the manufactured product in the local market due
to non availability of the export market should not
result in a situation whereby the petitioner is visited
with penalty. In the circumstances, it was pleaded that
sub-rule(5) of Rule 57G of the Rules be held to be
ultravires and be declared to be so, and consequently
quash the impugned orders.
6As already noticed respondent No.3 had passed an
order-in-original on 26th November,1998; the Commissioner
(Appeals) had passed the order on 27th December,2000 and
the Tribunal passed the order on 8th January,2004. The
petition has been presented only on 27th August,2004.
Therefore, it is apparent that the petitioner had
challenged the order-in-original by exercising its right
of appeal under the statute and having failed in the
successive appeals, the challenge as to vires of the rule
has been raised. This conduct of the petitioner
indicates that the challenge is an afterthought. Be that
as it may. Having heard the learned Counsel the petition
is rejected on merits for the following reasons.
7It is an accepted position that prior to
insertion of Rule 57G, with special reference to sub-rule
(5) powers to condone delay were available with the
Assistant Commissioner by recording reasons. This very
fact would indicate that legislature has taken a
conscious decision while framing the present rule that
such power which was available with the authority shall
not now be available. In the circumstances, it is not
possible to state that sub-rule (5) which prescribes the
time limit is absolute in terms and is bad in law because
there is no power with the authority to condone any delay
in availing of the modvat credit.
8Rule 57G(1) on a plain reading indicates that in
normal circumstances a manufacturer is required to
determine prior to commencement of manufacturing process
that the inputs intended to be used in the final product
are duty paid inputs and the manufacturer intends to take
credit of such duty. Sub-rule (2) of Rule 57G of the
Rules requires a manufacturer to take credit of the duty
paid on inputs after obtaining an acknowledgment of
having filed a declaration under sub-rule (1) of such
intention. Of course under sub-rule (9) an Assistant
Commissioner is empowered to condone the delay in filing
of such declaration and allow the manufacturer to take
credit of duty already paid on the inputs, subject to the
provisions of sub-rule (10) and for the reasons to be
recorded in writing. Therefore, on a plain reading it is
apparent that the rule making authority has envisaged a
situation wherein making of declaration may be delayed
but even this power to condone delay is circumscribed by
sub-rule (10) wherein one of the conditions for exercise
of such power of condonation requires that the same has
to be exercised after ensuring that the inputs were
received in the factory within a period of six months
from the date of filing of such declaration. Thus, in
effect when sub-rules (9) and (10) are read together they
complement the scheme envisaged by sub-rule (5). Under
sub-rule (5) a manufacturer cannot avail of credit on
duty paid inputs after six months of the date of issue of
any document specified in sub-rule (3). Under sub-rule
(3) various documents under cover of which the inputs are
received in the factory are mentioned. The legislative
intent is very clear i.e. to verify that the inputs
received, which are supposed to be duty paid, are covered
by a particular document. In other words within that
period of six months the revenue authorities can
backtrack and cross check the supplier and the factum of
the input having actually borne duty.
9In the result, on an overall reading of the
scheme which is postulated by rule 57G of the Rules it is
not possible to accept the contention raised on behalf of
the petitioner. There is nothing arbitrary about the
time limit fixed by sub-rule (5) of Rule 57G of the Rules
and it is not possible to hold that the same is
ultravires the Act, or the object sought to be achieved
by the provison, or the Constitution of India.
10.In the result, the petition is rejected. Notice
discharged. There shall be no order as to costs.
(D.A.Mehta, J)
(H.N.Devani, J)
m.m.bhatt