2008 (9) TMI 860 - HC - Central Excise

Deemed Credit earned by the respondent in terms of Notification No. 6/02-C.E. (N.T.), dated 1-3-2002 - whether had not lapsed despite the said notification having been withdrawn vide Notification No. 8/03-C.E. (N.T.) dated 1-3-2003 as decided by Tribunal? Held that - Even with regard to the proviso to Rule 3 support can be derived from the observations made by the Hon ble Supreme Court in the case of Eicher Motors Ltd. v. Union of India 1999 (1) TMI 34 - SUPREME COURT OF INDIA 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 applied under which the assessees had availed of the credit facility for payment of taxes. Any manner or mode of application of the said rule would result in affecting the rights of the assessees. The Hon ble Supreme Court further observed that Section 37 of the Act does not enable the authorities concerned to make a rule which cannot be said to be applied to the goods manufactured prior to 16-3-1995 on which duty had been paid and credit facility thereto has been availed of for the purpose of manufacture of further goods. The Court further observed that when on the strength of the rules available certain acts have been done by the parties concerned, incidents following thereto must take place in accordance with the scheme under which the duty had been paid on the manufacture products and if such a situation is sought to be altered, necessarily it follows that right, which had accrued to a party such as availability of a scheme, is affected and, in particular it loses sight of the fact that the provision for facility of credit is as good as tax paid till tax is adjusted on future goods on the basis of the several commitments which would have been made by the assessees concerned. No substantial question of law arises out of the order of the Tribunal. Both these appeals are accordingly dismissed.

Summary

Issues:
1. Interpretation of Notification No. 6/02-C.E. (N.T.) and its withdrawal in Notification No. 8/03-C.E. (N.T.)
2. Validity of utilizing Deemed Credit against Cenvat credit under Rule 3 of Cenvat Credit Rules, 2002
3. Determination of lapsing of unutilized deemed credit earned before withdrawal of the scheme
4. Applicability of legal principles regarding lapsing of credit and utilization post-withdrawal
5. Challenge to Tribunal's decision on the utilization of Cenvat credit and deemed credit

Analysis:
1. The case revolved around the withdrawal of the Deemed Credit Scheme under Notification No. 6/02-C.E. (N.T.) and its subsequent replacement by the Cenvat credit facility under Rule 3 of the Cenvat Credit Rules, 2002 for textile industries. The dispute arose when the respondent continued to avail the Deemed Credit despite the withdrawal, leading to a show cause notice and subsequent penalties for wrongful utilization.

2. The Commissioner (Appeals) deliberated on whether the unutilized deemed credit earned before the withdrawal on 1-4-2003 lapsed or not. Citing legal precedents like the TATA Engineering case and decisions of the Supreme Court and High Courts, it was concluded that the unutilized deemed credit could still be utilized for duty payment until 1-4-2003.

3. The Tribunal, in a similar case, had ruled that once Cenvat credit is legally earned, it does not lapse, even after the withdrawal of deemed credit. The Department challenged this decision, arguing that the utilization of deemed credit post-withdrawal was improper and against the law.

4. The High Court, after considering the arguments and legal principles, found that the issue was already settled by previous judgments. Referring to the Dipak Vegetable Oil case and observations from the Supreme Court, it was established that rights acquired under a statutory provision cannot be taken away retrospectively unless explicitly provided. The Court emphasized that altering the scheme post-facto would impact the rights of the assessees.

5. Ultimately, the High Court dismissed the appeals, stating that the assessee's case aligned with the legal precedents, and no substantial question of law arose from the Tribunal's decision. The Court upheld the principle that once credit is legally earned, it cannot be arbitrarily lapsed, even after the withdrawal of a specific credit scheme.