2001 (8) TMI 139 - HC - Customs

Summary

Issues:
Challenge to the validity and application of a modified scheme denying MODVAT credit to independent processors of processed textile fabrics.

Analysis:
The judgment revolves around the challenge to the validity and application of a modified scheme introduced by the Central Government through a notification dated 10-12-1998. The scheme introduced Clause 5, which denied the benefit of utilizing MODVAT credit to independent processors of processed textile fabrics. The petitioners, who are manufacturers and processors of textile fabrics falling under specific headings, argued that they should be allowed to utilize the MODVAT credit lying unutilized before the introduction of the impugned rule. They contended that the MODVAT credit should not lapse due to the new notification.

On the other hand, the Revenue argued that the credit in balance as of 15-12-1998 could only be utilized by paying duty as specified in Section 3A of the Act. They claimed that the credit lying unutilized as of 16-12-1998 lapsed due to Clause 5 of Notification No. 36/98-C.E. The Revenue further explained the provisions of the impugned notification, emphasizing the rates of excise duty based on the value of fabric processed by independent processors using a hot-air stenter.

During the proceedings, changes occurred in the law with the withdrawal of Section 3A of the Central Excise Act, 1944, and consequently, the relevant notification became non-existent. The petitioners argued that Clause 5 of the impugned notification had become redundant in the changed circumstances, and they should now be entitled to avail the MODVAT credit earned by them before 16-12-1998.

The court analyzed the contentions of both parties and referred to the MODVAT scheme, emphasizing that the right to credit becomes absolute when inputs are used in manufacturing the final product. Citing legal precedent, the court reiterated that a credit under the MODVAT scheme was equivalent to tax paid. The court concluded that Clause 5 could not be given retrospective effect to nullify the MODVAT credit already earned by the petitioners. Additionally, the court highlighted the non obstante clause in the impugned notification, which exempted goods manufactured before 16-12-1998 and cleared thereafter.

In the final judgment, the court allowed the group of Writ Petitions, directing the respondents to permit the petitioners to avail the MODVAT credit earned by them before 16-12-1998, without imposing any costs.