2005 (12) TMI 47 - HC - Central Excise

Constitutional validity of Rule 57F(17)(e) which was amended by not. 57/97 By virtue of said amendment, unutilized credit was deemed to have lapsed decision of SC that assessee had a vested right in the credit balance came to be removed by Sec. 131 & 132 of F. Act amendment is retrospective w.e.f.1-10-1997 so as to effect existing or vested right - petitioner stands denuded of its vested right by virtue of the retrospective amendment - petition is dismissed

Summary

Issues Involved:
1. Constitutional validity of Sections 131 and 132 of the Finance Act, 1999.
2. Impact of the amendments on the vested rights of the petitioners.
3. Legislative competence to enact retrospective laws.

Detailed Analysis:

1. Constitutional Validity of Sections 131 and 132 of the Finance Act, 1999:
The petitioners challenged the constitutional validity of Sections 131 and 132 of the Finance Act, 1999, which amended Section 37 of the Central Excise Act, 1944, and validated certain rules retrospectively. The amendments aimed to lapse the Modvat credit lying unutilized as of October 1, 1997. The petitioners argued that these amendments did not remove or alter the legal basis of the Supreme Court's decision in Eicher Motors Ltd. v. Union of India, which held that the assessee had a vested right in the Modvat credit that could not be taken away.

2. Impact on Vested Rights:
The petitioners contended that Rule 57A conferred a right to take credit of duty paid on inputs, creating a vested right that could not be retrospectively nullified. They argued that the amendments did not change Rule 57A and thus did not affect the vested rights accrued under it. The petitioners relied on the Supreme Court's decision in Eicher Motors Ltd., which held that the right to Modvat credit accrued when the inputs were brought into the factory and could not be retrospectively taken away.

3. Legislative Competence to Enact Retrospective Laws:
The respondents argued that the legislature has the power to validate laws retrospectively to cure defects pointed out by judicial decisions. They contended that Sections 131 and 132 of the Finance Act, 1999, removed the defects identified by the Supreme Court in Eicher Motors Ltd. by providing legislative authority for lapsing unutilized Modvat credit. They emphasized that the amendments were within the legislative competence of Parliament and did not violate any constitutional provisions.

Consideration and Judgment:
The court held that the legislature can retrospectively cure defects noticed by judicial decisions, rendering the judgments ineffective through validating legislation. The amendments in Sections 131 and 132 of the Finance Act, 1999, were intended to address the infirmities identified by the Supreme Court in Eicher Motors Ltd. The court noted that the amendments provided legislative teeth to lapse the Modvat credit lying unutilized as of October 1, 1997, and fundamentally altered the basis of the Supreme Court's decision.

The court concluded that the petitioners' vested rights were denuded by the retrospective amendment, and the amendments were within the legislative competence of Parliament. The petition was dismissed, and the rule was discharged with no order as to costs.

Conclusion:
The court upheld the constitutional validity of Sections 131 and 132 of the Finance Act, 1999, and ruled that the retrospective amendments validly lapsed the unutilized Modvat credit, effectively addressing the defects pointed out by the Supreme Court in Eicher Motors Ltd. The judgment emphasized the legislative competence to enact retrospective laws to cure defects and validated the amendments' impact on vested rights.