2013 (12) TMI 878 - SC - Central Excise

Liability to pay interest u/s 112 of the Finance Act, 2000 Consequent interest under the Central Excise Rules, 1944 - Interest payable on wrongfully availed MODVAT credit Held that - Relying upon Sangam Spinners Limited v. Union of India & Ors. 2011 (3) TMI 4 - Supreme Court - Section 112 of the 2000 Act did not take away any right of any assessee with retrospective effect - the HSD oil had been specifically excluded from the list of eligible inputs with effect from 16th March, 1995 and therefore, no assessee had any vested right to avail benefit of MODVAT credit on the HSD oil used as an input Thus, if any benefit, which had been wrongly availed by any manufacturer, the benefit wrongfully availed had to be returned. Once it is certain that the MODVAT credit had been wrongly availed by the respondents, the Revenue cannot be blamed, if the amount wrongly availed by way of MODVAT credit by the respondents is recovered with interest - Revenue had given 30 days time to return the amount to the respondents who had wrongly availed MODVAT credit on the HSD oil used as an input - If anyone who had repaid the amount wrongly availed within 30 days from the date on which Section 112 of the 2000 Act got the President s assent, that assessee had not to pay any interest on the amount of duty availed by him wrongly - But those who had availed the MODVAT credit on the HSD oil used as an input and did not return the said amount even within 30 days from the date on which the President had given assent to the enactment of Section 112 of the 2000 Act, had to return the amount wrongfully retained by them with interest at the rate of 24% p.a - such a course, adopted by the Revenue for recovery of the amount which was legitimately claimed by the Revenue, cannot be said to be bad in law - the High Court committed an error by not considering the aforestated factors Order set aside and decided in favour of Appellant.

Issues Involved:
1. Liability to pay interest under Section 112 of the Finance Act, 2000.
2. Validity of MODVAT credit on High Speed Diesel Oil (HSD Oil) as an input.
3. Interpretation of Section 112 of the Finance Act, 2000 in conjunction with Rule 57 (I) of the Central Excise Rules, 1944.
4. Retrospective effect of Section 112 of the Finance Act, 2000.
5. Requirement of adjudication and issuance of show cause notice before demanding interest.

Detailed Analysis:

1. Liability to Pay Interest under Section 112 of the Finance Act, 2000:
The core issue revolves around the liability to pay interest on MODVAT credit wrongfully availed on HSD Oil under Section 112 of the Finance Act, 2000. The respondents had availed MODVAT credit on HSD Oil, which was later withdrawn by a 1995 Notification. Despite this, the respondents continued to claim the credit, leading to the issuance of show cause notices by the Revenue. Section 112 mandates repayment of wrongfully availed credit within 30 days from the date the Act received the President's assent, failing which interest at 24% p.a. becomes payable.

2. Validity of MODVAT Credit on High Speed Diesel Oil (HSD Oil) as an Input:
The respondents, including Maharaja Shree Umaid Mills, used HSD Oil as fuel in manufacturing and claimed MODVAT credit under Rules 57A and 57B of the Central Excise Rules. However, a 1995 Notification specifically withdrew this credit. Despite this withdrawal, the respondents continued to claim the credit, leading to disputes and subsequent legal proceedings.

3. Interpretation of Section 112 of the Finance Act, 2000 in Conjunction with Rule 57 (I) of the Central Excise Rules, 1944:
The respondents argued that Section 112 should be read alongside Rule 57 (I), which necessitates an adjudication process and issuance of a show cause notice before demanding interest. However, the court noted that Section 112, being a specific provision, overrides Rule 57 (I). The court emphasized that Section 112 was enacted to ensure immediate repayment of wrongfully availed credit without the need for further adjudication.

4. Retrospective Effect of Section 112 of the Finance Act, 2000:
The respondents contended that Section 112 imposed a retrospective liability by not only denying the MODVAT credit but also imposing interest on the wrongfully availed credit. The court clarified that Section 112 did not retrospectively increase liability but merely enforced the repayment of credit wrongfully availed since 1995. The court referenced the case of Sangam Spinners Limited, which upheld that Section 112 did not have a retrospective effect but was a measure to recover wrongfully availed credit.

5. Requirement of Adjudication and Issuance of Show Cause Notice Before Demanding Interest:
The respondents argued that interest could only be demanded after determining the final liability through an adjudication order or show cause notice. The court rejected this argument, stating that Section 112 explicitly mandates repayment within 30 days from the Act's assent date, and interest becomes payable without the need for further adjudication. The court emphasized that the Revenue provided a 30-day window for repayment without interest, and only if the amount was not repaid within this period, interest at 24% p.a. would be charged.

Conclusion:
The Supreme Court quashed the High Court's judgment, holding that the respondents were liable to repay the wrongfully availed MODVAT credit on HSD Oil with interest at 24% p.a. if not repaid within 30 days from the date Section 112 of the Finance Act, 2000 received the President's assent. The court emphasized that Section 112 did not retrospectively impose liability but ensured the recovery of wrongfully availed credit. The appeals were allowed, and the stay granted was vacated.

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