1991 (1) TMI 145 - HC - Central Excise

Summary

Issues Involved:
1. Justification in law for disallowing the credit availed of and directing the petitioner to debit the same in the PLA account.
2. Whether Rule 57-I is ultra vires Section 11A of the Central Excise Act and if the action taken as per Annexures-H and H1 is in conformity with Section 11A.

Summary:

Issue 1: Justification in Law for Disallowing Credit
The petitioner, a public-sector undertaking engaged in manufacturing hydraulic gates, hoists, cranes, and pen-stock pipes, availed of the Modvat Scheme benefits introduced in 1986. The petitioner filed a classification list and maintained monthly returns and a credit account in Form No. RG 23A Part I and II. The classification list was approved by the Assistant Collector effective from 21-3-1986. However, the Superintendent of Central Excise, Hospet, issued letters on 4-5-1987 and subsequently endorsements on 8-7-1987 and 16-7-1987 (Annexures-H and H1), directing the petitioner to pay the Modvat availed on inputs by debiting the same to the PLA Account and not to avail of the Modvat credit until better particulars were furnished. The petitioner challenged these endorsements, asserting that all required particulars were furnished in the classification list and the declaration filed u/r 57G.

Issue 2: Ultra Vires of Rule 57-I to Section 11A
The petitioner argued that the recovery without issuing a show cause notice and without any limitation period is ultra vires the provisions of Section 11A and violates the procedure laid down for recovery under the Act. The Department contended that Rule 57-I and Section 11A operate in different fields, and Rule 57P allows disallowance of money credit without any bar of limitation. The Department also cited Supreme Court decisions supporting the validity of rules without limitation periods.

The Court considered the scheme of Modvat credit, which allows credit of duty paid on inputs to be adjusted towards the duty on final products. Rule 57-I provides for recovery of credit wrongly availed of or utilized in an irregular manner. The Court noted that several decisions by the CEGAT consistently held that disallowance of inadmissible credit is effectively a recovery under the Act, attracting the provisions of Section 11A. The Court also noted that the Central Government amended Rule 57-I with effect from 6-10-1988 to include a limitation period, reflecting the legislative intent to align it with Section 11A.

The Court concluded that Rule 57-I, before its amendment, should be interpreted in line with Section 11A, requiring a show cause notice and adherence to the limitation period. The Court quashed the endorsements (Annexures-H and H1) issued by the Superintendent of Central Excise, Hospet, as they were issued without following the procedure prescribed under Section 11A.

Conclusion:
The writ petition is allowed, and the endorsements dated 9-7-1987 and 16-7-1987 (Annexures-H and H1) are quashed.