2009 (2) TMI 475 - HC - Central Excise

Cenvat / Modvat Credit - on the input use in the manufacture of the embroidery - Modvat Credit taken prior to the amendment to rule 96 ZI but utilized at a later date - operating under the compounded levy scheme as provided under Rule 96 ZH of the Central Excise Rules, 1944 - prohibition which has been incorporated in the rule w.e.f. 2-6-1998 from availing the Modvat Credit on the input use in the manufacture of the embroidery and capital goods came into existence on 2-6-1998 Held that - assessee had already paid the taxes on the basis that when the goods are utilized in the manufacture of further products as inputs thereto then the tax on these goods gets adjusted which are finished subsequently - right accrued to the assessee on the date when they paid the tax on the raw materials or the inputs and that right would continue until the facility available thereto gets worked out or until those goods existed - retrospective application of the amended scheme cannot defeat the accrued rights to avail Modvat Credit - accordingly decided in favour of the appellant.

Summary

Issues Involved:
1. Recovery of Modvat Credit taken prior to amendment but utilized later.
2. Retrospective effect of amendment to substantive provision.
3. Justification of penalty imposition.

Issue-wise Detailed Analysis:

1. Recovery of Modvat Credit Taken Prior to Amendment but Utilized Later:
The dealer-appellant challenged the order of the Tribunal which ordered the recovery of Modvat Credit taken before the amendment to Rule 96 ZI but utilized afterward. The Tribunal applied the amended Rule 96 ZH, effective from 2-6-1998, which precluded the appellant from availing the benefit of Modvat under Rules 57A and 57Q. The Tribunal noted that the appellant was discharging duty liability on embroidered products under Rule 96 ZH and availed Modvat Credit on capital goods under Rule 57Q. The Tribunal concluded that the proviso clearly precluded the appellant from availing Modvat Credit, and the appellant's contention that they should not be denied beneficial legislation was dismissed.

2. Retrospective Effect of Amendment to Substantive Provision:
The appellant argued that the amendment to Rule 96 ZH(I) should operate prospectively and not affect the utilization of credit taken before the amendment. The Tribunal's decision was based on the amended rule, which came into effect on 2-6-1998, prohibiting availing Modvat Credit on inputs and capital goods used in embroidery manufacture. The appellant relied on the Supreme Court's judgment in Eicher Motors Ltd., which held that the right to claim Modvat Credit accrues when the tax on raw material or inputs is paid and continues until the facility is utilized. The court found that the amendment did not expressly provide for retrospective application, and thus, it could not apply to credit availed before the amendment date.

3. Justification of Penalty Imposition:
The Adjudicating Authority had confirmed the demand and imposed a penalty of Rs.30,000 under Rules 209 and 96 ZL, which was later reduced to Rs.2000 by the Commissioner (Appeals). The Tribunal upheld the penalty, stating that the appellant had contravened the rules by utilizing Modvat Credit unlawfully. The appellant argued that the imposition of duty on the capacity of production was ultra vires, but the Tribunal invoked the principle of estoppel, stating that the appellant opted for the compounded levy scheme with full knowledge and could not now claim it was ultra vires. The court found that the procedural requirements under Rule 96 ZH(I & 3) were not mandatory once there was substantial compliance with other requirements, and thus, the penalty imposition was not justified.

Conclusion:
The appeal was decided in favor of the appellant. The court held that the retrospective application of the amended scheme could not defeat the accrued rights to avail Modvat Credit, which had accrued to the dealer-appellant before the amendment date. The Tribunal's reliance on the amended rule for denying Modvat Credit was incorrect, and the penalty imposed was not justified under the circumstances.