2002 (4) TMI 98 - HC - Central Excise

Modvat, HSD oil, denial of credit on, validation of - Interpretation of statutes, Validation Acts, scope of

Issues Involved:
1. Availability of Modvat credit on H.S.D. oil under Rule 57B of the Central Excise Rules, 1944.
2. Constitutional validity of Section 112 of the Finance Act, 2000.
3. Interpretation of relevant rules and notifications under the Central Excise Rules, 1944.
4. Retrospective application of the Validation Act.
5. Alleged discrimination in denying Modvat credit on H.S.D. oil.

Detailed Analysis:

1. Availability of Modvat credit on H.S.D. oil under Rule 57B of the Central Excise Rules, 1944:
The petitioner-company, engaged in manufacturing and selling Portland cement, sought Modvat credit on HSD oil used in Diesel Generating Sets for electricity generation. The company declared the use of HSD oil under Rule 57G read with Rule 57B. However, the Assistant Commissioner of Central Excise denied the credit, stating that Modvat credit was not available on HSD oil post-1-3-1997. This decision was based on Notification No. 5/94, which excluded HSD oil from eligible inputs. The petitioner challenged this denial, arguing that Rule 57B, which starts with a non-obstante clause, should allow credit for inputs used for electricity generation.

2. Constitutional validity of Section 112 of the Finance Act, 2000:
Section 112 of the Finance Act, 2000, was introduced to validate the denial of Modvat credit on HSD oil retrospectively from 16-3-1995. The petitioner argued that this provision was unconstitutional, as it retrospectively nullified judicial decisions and interfered with vested rights. The court, however, upheld the validity of Section 112, stating that the legislature has the power to enact retrospective legislation to cure defects pointed out by judicial decisions, provided it falls within its legislative competence and does not violate constitutional provisions.

3. Interpretation of relevant rules and notifications under the Central Excise Rules, 1944:
The court examined various decisions of the CEGAT and interpreted the relevant rules and notifications. Rule 57A empowers the Central Government to specify final products for Modvat credit, and Notification No. 5/94 excluded HSD oil from eligible inputs. Rule 57B, introduced on 1-3-1997, allowed credit for inputs used in electricity generation but was later clarified by Notification No. 5/98, which stipulated that 'inputs' in Rule 57B refer only to those specified under Rule 57A. The court held that the explanation added to Rule 57B by Notification No. 5/98 was clarificatory and retrospective, thus excluding HSD oil from Modvat credit eligibility.

4. Retrospective application of the Validation Act:
The court discussed the principles of retrospective legislation and validation acts, citing various Supreme Court judgments. It concluded that the Validation Act, by specifying the period from 16-3-1995 to 12-5-2000, effectively cured the defect identified by the CEGAT and was not an encroachment on judicial power. The court emphasized that the legislature can enact retrospective laws to remove the basis of judicial decisions, provided it does so within its legislative competence and without violating constitutional rights.

5. Alleged discrimination in denying Modvat credit on H.S.D. oil:
The petitioner argued that denying Modvat credit on HSD oil, while allowing it on other petroleum products like lubricating oil and fuel oil, was discriminatory. The court rejected this argument, stating that HSD oil and other petroleum products serve different purposes and uses. HSD oil is primarily used for power generation, whereas other products are used for smooth functioning of machinery. The court found no irrational basis for the exclusion of HSD oil from Modvat credit eligibility.

Conclusion:
The court dismissed the writ petitions, upholding the constitutional validity of Section 112 of the Finance Act, 2000, and confirming that Modvat credit was not available on HSD oil used for electricity generation. The court found no merit in the arguments of discrimination or unreasonableness and held that the legislative amendments and clarifications were within the competence of the legislature and did not violate constitutional provisions.

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