2009 (1) TMI 281 - HC - Central Excise

Whether the interpretation of Rule 57G adopted by the Hon ble Tribunal is proper and just? Whether the Modvat credit which is otherwise available to the applicant-appellant, can be disallowed on the ground that the same was availed at later date and after a period of six months from the date of taking original credit? and Whether the Hon ble Tribunal was justified in disallowing the Modvat credit which was undisputedly available to the appellant after a period of six months from the date of taking original credit? Held that - The interpretation of Rule 57G adopted by the Tribunal is incorrect and unjust and, therefore, the period of limitation of six months imported by the Tribunal in Rule 57G is unsustainable as the Tribunal or the Courts are not competent to import any specific period of limitation by implication. In view of answer to the first question, the question Nos. (ii) and (iii) also have to be decided against the revenue and in favour of the dealer.

Summary

Issues:
Interpretation of Rule 57G by the Tribunal
Disallowance of Modvat credit for delayed availing
Justification of disallowing Modvat credit

Interpretation of Rule 57G by the Tribunal:
The High Court considered questions of law sent by the Tribunal regarding the interpretation of Rule 57G. The Tribunal had rejected an appeal by a dealer against a duty demand confirmation and credit restriction. The dealer had initially taken Modvat credit of excise duty at a restricted rate but later realized there was no restriction for additional customs duty. The Tribunal held that the omission of "specified duty" was deliberate and allowed the dealer's claim for credit of the entire amount paid as additional duty of customs. However, the Tribunal questioned the necessity of availing differential credit after the original credit. It inferred a reasonable period of six months for availing such credit.

Disallowance of Modvat credit for delayed availing:
The dealer was served with a show cause notice for allegedly impermissible differential credit of additional customs duty due to a restriction on credit for insulated paper. The Tribunal held that the dealer failed to prove the necessity for availing differential credit after the original credit. It noted the absence of evidence justifying the delayed availing of credit and inferred a reasonable period of six months for such availing.

Justification of disallowing Modvat credit:
The High Court addressed the principle question of whether a limitation period of six months for availing Modvat credit could be introduced when no provision existed during the relevant period. It cited a Supreme Court judgment stating that courts cannot imply a period of limitation without a specific provision. A Division Bench of Allahabad High Court had similarly held that the amendment to Rule 57G with a six-month limit was prospective, not applicable to transactions before its introduction. Consequently, the High Court ruled in favor of the dealer, stating that the Tribunal's interpretation of Rule 57G was incorrect and unsustainable. It decided questions (ii) and (iii) against the revenue and in favor of the dealer, ultimately answering the reference in favor of the dealer and against the revenue.