1993 (9) TMI 127 - HC - Central Excise

Issues Involved:

1. Validity of the assessment orders dated September 23, 1986.
2. Applicability of the MODVAT Scheme and the benefit of deemed credit.
3. Burden of proof regarding the type of input used.
4. Retrospective application of the order dated August 29, 1986.
5. Prematurity and maintainability of the writ petition.

Issue-wise Detailed Analysis:

1. Validity of the assessment orders dated September 23, 1986:
The appellants challenged the assessment orders dated September 23, 1986, which disallowed the credit claimed under the MODVAT Scheme and directed the deposit of significant amounts. The learned Single Judge set aside these orders, finding that the appellants were not given an opportunity to be heard, thus violating the principles of natural justice. This decision was upheld, emphasizing that the appellants should have pursued the matter before the appropriate authorities after the assessment orders were set aside.

2. Applicability of the MODVAT Scheme and the benefit of deemed credit:
The MODVAT Scheme, introduced in the Finance Bill, 1986, allowed manufacturers to claim credit for duty paid on inputs used in the manufacture of final products. The Central Government's order dated April 7, 1986, specified that certain inputs, including iron and steel, could be deemed to have paid duty without producing documents evidencing payment. The learned Single Judge held that this benefit was available from March 1, 1986, to August 28, 1986, and that the order was subject to three specified conditions. The judgment clarified that the scheme's primary intention was to avoid the "cascade effect" of paying duty on duty.

3. Burden of proof regarding the type of input used:
The learned Single Judge ruled that the initial burden of proof lies on the manufacturer to take a definite stand regarding the type of input used. The department could then accept or contest this claim. The appellants argued that once the scrap was shown to be purchased and lying in stock, they were entitled to deemed credit, and the burden should shift to the department. However, the judgment upheld that manufacturers must provide specific evidence of the type of input to claim the appropriate credit rate, as different rates applied to different inputs (e.g., Rs. 80 per tonne for iron scrap and Rs. 365 per tonne for steel scrap).

4. Retrospective application of the order dated August 29, 1986:
The order dated August 29, 1986, stated that no credit under MODVAT would be available for waste and scrap of steel exempt from excise duty or charged at a nil rate. The learned Single Judge held that this order was not retrospective and did not affect the benefits available under the order dated April 7, 1986, for the period from March 1, 1986, to August 28, 1986. This interpretation was affirmed, ensuring that the appellants could claim deemed credit for the specified period.

5. Prematurity and maintainability of the writ petition:
The respondents argued that the writ petition was premature since a show cause notice had been issued, and the appellants had an effective alternative remedy under the Act. The learned Single Judge rejected this preliminary objection, finding that the writ petition was neither premature nor incompetent. This decision was upheld, allowing the appellants to challenge the assessment orders directly in the High Court.

Conclusion:
The appeals were dismissed, affirming the learned Single Judge's findings. The appellants were required to take a definite stand regarding the type of input used and provide evidence to support their claims for deemed credit under the MODVAT Scheme. The judgment emphasized that the scheme was intended to avoid the cascade effect of duty on duty, not to unduly enrich the industry. The respondents were entitled to costs assessed at Rs. 3,000 per case.

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