1995 (6) TMI 35 - AT - Central Excise

Summary

Issues Involved:
1. Applicability of the bar of limitation for recovery of Modvat credit under Rule 57-I as it stood prior to the amendment on 6-10-1988.
2. Interpretation of Rule 57-I in conjunction with Section 11A of the Central Excises & Salt Act, 1944.
3. Reasonable period of limitation in absence of a prescribed period in the statute.

Summary:

1. Applicability of the Bar of Limitation for Recovery of Modvat Credit:
The Larger Bench was constituted to resolve the controversy regarding the applicability of the bar of limitation under Rule 57-I of the Central Excise Rules, 1944, before its amendment on 6-10-1988. The department initiated proceedings to recover Modvat credit, which was allegedly wrongfully or irregularly taken or utilized by manufacturers. The assessees contended that the department was barred by limitation as per Rule 57-I, while the department argued that no period of limitation was prescribed in Rule 57-I before the amendment, allowing them to recover the credit without any time constraint.

2. Interpretation of Rule 57-I in Conjunction with Section 11A:
The Division Bench of the Madras High Court in M/s. Advani Oerlikon Ltd. v. Assistant Collector of Central Excise held that the rule of limitation in Section 11A of the Act should be applied to cases under Rule 57-I, even if the rule did not explicitly prescribe a period of limitation. The Gujarat High Court in M/s. Torrent Laboratories Pvt. Ltd. v. U.O.I. disagreed, stating that Rule 57-I, being a specific provision for Modvat credit, should not be read in conjunction with Section 11A, a general provision for recovery of duties.

3. Reasonable Period of Limitation:
The Supreme Court in GOI v. M/s. Citadel Fine Pharmaceuticals ruled that in the absence of a prescribed period of limitation, authorities must exercise their power within a reasonable period. The Larger Bench adopted this principle, holding that for Rule 57-I, a reasonable period of limitation would be six months in normal circumstances and five years in cases involving suppression, wilful misstatement, or collusion. This interpretation aligns with the later amendment to Rule 57-I and the Modvat scheme's objectives.

The Bench concluded that the period of limitation would start from the knowledge of the department regarding the irregularity in taking or utilizing Modvat credit. The relevant date for reckoning the limitation period should commence from the date of filing the RT 12 returns or the date they should have been filed, whichever is earlier. The Bench also addressed specific contentions regarding Rule 57E, holding that a six-month period would be a reasonable limitation for taking Modvat credit under this rule as well.

Conclusion:
The judgment clarified that for Rule 57-I, a six-month or five-year limitation period applies, depending on the circumstances, and the period starts from the date of filing the RT 12 returns. The matter of eligibility for Modvat credit on inputs will be considered separately by the Regular Bench.