2009 (6) TMI 361 - AT - Central Excise

Entitlement to utilize lapsed credit after withdrawal of Compounded Levy Scheme - According to Appellants they are entitled to this credit after the Compounded Levy Scheme effective from 1-8-1997 was abolished subsequently. They also challenges the penalty amounting to Rs. 9.00 lakhs imposed on them - we find that in view of the retrospective amendment made to the Central Excise Act, 1944 by the Finance Act, 1999, the Central Government now has power to make rules for lapsing of the credit. Since such retrospective amendment has also been validated, the impugned Rule 57F(17)(c) allowing for lapsing of the credit cannot be said to have been made without authority - since the basis of the earlier decisions of the Hon ble Supreme Court cited by the Appellants has been fundamentally altered by the subsequent retrospective amendment of the law, the Appellants cannot be given benefit of those decisions in the present case. Impugned credit payable by appellant However, we waive the penalty imposed on them. - Except for setting aside the penalty, the Appeal is otherwise dismissed

Summary

Issues: Modvat credit disallowance, Penalty imposition, Retrospective amendment validity.

Modvat Credit Disallowance: The Appellants argued that the Modvat Credit of Rs. 9,032,791.00 should not have been disallowed as they were entitled to it post the abolition of the Compounded Levy Scheme. They claimed that the credit had accrued before the scheme was introduced and lapsed as per Rule 57F(17)(c) of the Central Excise Rules, 1944. They relied on various case laws to support their claim, emphasizing that accrued credit should be available for utilization. However, the Department contended that the Finance Act, 1999 amended Section 37(2) of the Central Excise Act, 1944 retrospectively, empowering the lapsing of credit. They cited decisions validating this amendment and argued that the Appellants could not benefit from earlier judgments due to the retrospective amendment. The Tribunal, after considering the retrospective amendment and supporting decisions, held that the Appellants were liable to pay the entire disallowed credit amount, minus the pre-deposited sum, as the law now allowed for lapsing of credit.

Penalty Imposition: The Appellants were also penalized for utilizing impermissible credit that had lapsed earlier. However, the Tribunal waived the penalty considering that the liability was determined based on the retrospectively amended law, which now allowed for lapsing of credit. The Tribunal's decision to waive the penalty was influenced by the altered legal landscape due to the retrospective amendment, which fundamentally changed the basis of earlier judgments cited by the Appellants.

Retrospective Amendment Validity: The Tribunal analyzed the retrospective amendment made to the Central Excise Act, 1944 by the Finance Act, 1999. It noted that the amendment empowered the Central Government to make rules for lapsing of credit and validated the retrospective nature of the amendment. Relying on decisions from the Hon'ble Bombay High Court and the Larger Bench of CESTAT, the Tribunal concluded that the impugned rule allowing for lapsing of credit was valid and made with proper authority. The Tribunal emphasized that the Appellants could not benefit from earlier decisions of the Hon'ble Supreme Court due to the altered legal framework post the retrospective amendment. Consequently, the Tribunal upheld the disallowance of the credit amount but waived the penalty imposed on the Appellants.