1998 (3) TMI 145 - HC - Central Excise

Summary

Issues:
Challenge to Circular No. F-296/46/97/CX-9 issued by Central Board of Excise and Customs and consequential orders restricting Modvat scheme.

Analysis:
The petitioner, an association of industries, filed a petition seeking the quashing of Circular No. F-296/46/97/CX-9 issued by the Central Board of Excise and Customs and setting aside consequential orders issued by subordinate officers. The circular ordered checks on Modvat scheme due to misuse, directing recovery of misused amounts, referral to Cost Accountants for audits, and suspension of duty payment from Modvat credits until audit completion. The petitioner argued that the circular led to indiscriminate actions, suspending the Modvat scheme without jurisdiction.

The Court noted that the Modvat scheme allows manufacturers to credit excise duty paid on inputs towards final product duty payment. The scheme's rules provide for credit utilization and penalties for misuse. The circular's impact resulted in wholesale notices, suspending the statutory Modvat scheme through executive action. The Court directed a notice to show cause, leading to clarifications by the respondents that the circular was advisory and not intended to restrict lawful Modvat use.

The Court highlighted Section 14AA of the Central Excise Act, providing safeguards against misuse of cost audits, ensuring initiation by high-ranking officials based on specific reasons. The Court emphasized that if unjustified audits occur, relief can be sought individually. The circular's last paragraph, suspending duty payments from Modvat credits, was deemed ultra vires and struck down for overstepping CBEC's jurisdiction.

Modvat, a concession benefiting manufacturers, simplifies duty payment on excisable goods. The scheme fosters trust between authorities and assesses, with the legislature expecting candid behavior. Previous court decisions underscored the sanctity of Modvat provisions and the inability to nullify the scheme through clarifications. Consequently, the Court held the circular's disputed portion illegal and ultra vires, quashing it partially while allowing the petition. No costs were awarded in the judgment.