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TMI Blog2016 (7) TMI 1074X X X X Extracts X X X X X X X X Extracts X X X X ..... policy in aid of which Rule 57F(4A) was made, is irrational or unreasonable. - Decided against the assessee. - W.P.(C) 4754/1995, W.P.(C) 1824/2000, & W.P.(C) 1826/2000 - - - Dated:- 22-7-2016 - S. MURALIDHAR VIBHU BAKHRU JJ. Petitioners Through: Mr L. Badri Narayanan, Mr Aditya Bhattacharya Mr Yogendra Aldak, Advocates. Respondents Through: Ms Meera Bhatia, Senior Standing counsel, Mr Bhagvan Swarup Shukla, CGSC and Mr Rachit Goel, Advocate for UOI. Mr Satish Kumar, Senior Standing Counsel for Central Excise. JUDGMENT VIBHU BAKHRU, J Introduction 1. The Petitioners in WP(C) Nos.1824/2000 and 1826/2000 have filed the said petitions under Article 226 of the Constitution of India, inter alia, impugning Sections 131 (b), 132(1)(a), and 132 (2) of the Finance Act, 1999 as being ultra vires the Constitution of India. 2. By virtue of Section 131 (b) of the Finance Act, 1999, clause (xxviii) was introduced in Sub-section 2 of Section 37 of the Central Excise Act, 1944 (hereinafter referred as the Act), to specifically empower the Central Government to make rules to provide for the lapsing of credit of duty lying unutilised with the manufactur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assert that the said inverted duty structure - where the rate of duty payable on inputs was greater than the duty payable on finished goods - was only in respect of tractors and LCV manufacturing Industry. The said Industry comprises of only nine manufacturers including the Petitioners and only these manufacturers are adversely affected by the said Rule 57F(4A) of the Rules. 7. The denial of credit for the duties paid by Petitioners is at the core of the disputes involved in these petitions. It is claimed that SML Isuzu Limited and VE Commercial Vehicles Limited were denied the benefit of accumulated credit of ₹ 4.88 Crores and ₹ 8.21 Crores respectively; they, accordingly, claim refund of the said amounts. Submissions 8. Mr. L. Badri Narayanan, learned counsel for the Petitioners, submitted that the effect of the impugned provisions of the Finance Act, 1999 is that the Petitioners are deprived of their vested rights and in the given circumstances, the impugned provisions are unreasonable and arbitrary and ultra-vires the Constitution of India. He further contended that validating Rule 57F(4A) with retrospective effect was unreasonable and violative of the P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under Chapter X procedure or otherwise exempt under any notification). Moreover, there is no 'one to one co-relation of inputs and final product under the MODVAT scheme for utilisation of credit. It has therefore been decided by the Board that the excess credit accumulated if any, can be utilised towards payment of duty on the same final products even if manufactured out of non duty paid inputs. 12. The departmental clarification as published in the booklet Guide to MODVAT‟ also reiterated the above clarification. The clarifications published in the said guide are in the question-answer form. Question No. 20 and its answer is relevant and is reproduced below:- Question 20: When can the credit of duty paid on the inputs be used for paying duty on the final product? Is there any one to one corelation between the inputs used and the final product manufactured? Answer: The MODVAT scheme provides for instant credit. The credit of the duty paid on the inputs can be taken as soon as the inputs are received and the evidence of payment of duty is in hand and the same may be utilised immediately for payment of duty on the final products for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for payment of duties in respect of products manufactured by using such inputs. This was intended to provide the manufactures with flexibility to use the credit available on account of duties paid for discharge of duties payable on other finished goods as well. At the same time, the excise duty structure was rationalised and Government of India also decided to lapse the un-utilised MODVAT credit other than the credit in respect of duties on inputs which were physically lying in the factory premises either as raw material or as incorporated in the finished products. 15. Accordingly by a notification No.11/95 CE(NT) dated 16.03.1995, sub Rule 4A was introduced in Rule 57F of the Rules which reads as under:- 57-F. (4-A) Notwithstanding anything contained in subrule (4), or sub-rule (1) of Rule 57-A and the notifications issued thereunder, any credit of specified duty lying unutilised on the 16th day of March, 1995 with a manufacturer of tractors, falling under Handing No. 87.01 or motor vehicles falling under Heading No. 87.02 and 87.04 [or chassis of such tractors or such motor vehicles under Heading No. 87.06] of the Schedule to the Central Excise Tariff Act, 1985 (5 of 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d inputs had been utilised in manufacturing finished products which had been cleared thereafter. The Court observed that under the MODVAT scheme, the Assessees became entitled to credit of the input instantaneously on the input being received in the factory. In this view, the Supreme Court held as under:- The basic postulate, that the scheme is merely being altered and, therefore, does not have any retrospective or retro-active effect, submitted on behalf of the State, does not appeal to us. As pointed out by us that when on the strength of the rules available certain acts have been done by the parties concerned, incidents following thereto must take place in accordance with the scheme under which the duty had been paid on the manufactured products and if such a situation is sought to be altered, necessarily it follows that right, which had accrued to a party such as availability of a scheme, is affected and, in particular, it loses sight of the fact that provision for facility of credit is as good as tax paid till taxis adjusted on future goods on the basis of the several commitments which would have been made by the assessees concerned. Therefore, the scheme sought to be int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21. By virtue of clause (a) of sub Section 1 of Section 132 of the Finance Act, 1999, Sub-rule 4A of Rule 57F of the Rules was validated and it was expressly enacted that said Sub-rule shall be deemed to have and to have always had effect from 16th March, 1995. Sub-section 2 of Section 132 was enacted to validate all actions taken pursuant to introduction of Sub-rule 4A in Rule 57F of the Rules. The said provisions impugned in these petitions and are set out below:- 132. Validation of certain rules. - (1) In the Central Excise Rules, 1944, made by the Central Government in exercise of the powers conferred under section 37 of the Central Excise Act, in rule 57F, - (a) sub-rule (4A), as inserted by the Central Excise (Fourth Amendment) Rules, 1995, shall be deemed to have and to have always had effect from the 16th day of March, 1995; xxxx xxxx xxxx xxxx xxxx (2) Any action taken or anything done or purported to have been taken or done at any time during the period commencing from the 16th day of March, 1995 and ending with the day the Finance Act, 1999 receives the assent of the President (hereinafter referred to as the said peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce. Reasoning and Conclusion 22. As is apparent from the above, the Parliament enacted Rule 57F(4A) to be in effect from 16th March, 1995. Sub-section (2) of Section 132 contain express provisions for sustaining any action in relation to lapsing of credit of duty lying unutilised with the manufacturer, which was done or purported to have been done during the period commencing 16th March, 1995. Sub-clause (a) of sub section 2 reaffirmed that lapsing of accumulated credit would be deemed to have always been validly lapsed. Sub clause (c) of Sub-section 2 enacted express provisions for recovery of the credit duty which may have been utilised for payment of excise duty. The said sub clause also provides for charging interest at the rate of 36% per annum for a period commencing after expiry of 30 days from the enactment till the date of payment. 23. There are two aspects to the challenge laid by the Petitioners to the impugned provisions of the Finance Act, 1999. The first aspect relates to the validity of retrospectively affirming Rule 57F(4A) of the Rules which had been held to be beyond the scope of Section 37 of the Act by the Supreme Court in Eicher Motors (supra). T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Passengers and Goods (Carried by Public Service Motor Vehicles) Act, 1961. In the context of the challenge to the retrospective operation of the law, the Court observed as under:- The other point on which there is no dispute before us is that the legislative power conferred on the appropriate legislatures to enact law in respect of topics covered by the several entries in the three Lists can be exercised both prospectively and retrospectively. Where the legislature can make a valid law, it may provide not only for the prospective operation of the material provisions of the said law, but it can also provide for the retrospective operation of the said provisions. Similarly, there is no doubt that the legislative power in question includes the subsidiary or the auxiliary power to validate laws which have been found to be invalid. If a law passed by a legislature is struck down by the Courts as being invalid for one infirmity or another, it would be competent to the appropriate legislature to cure the said infirmity and pass a validating law so as to make the provisions of the said earlier law effective from the date when it was passed. This position is treated as firmly esta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial provisions of the impugned statute is such that the court would feel justified in taking the view that, in substance, the taxing statute is a cloak adopted by the legislature for achieving its confiscatory purposes . ( Rai Ramkrishna v. State of Bihar: [1963] 50 ITR 171 (SC) 29. In the case of Lohia Machines Ltd. (supra), Sen J delivering the dissenting opinion observed as under: The power and competence of the Parliament to amend any statutory provision with retrospective effect cannot be doubted. Any retrospective amendment to be valid must however be reasonable and not arbitrary and must not be violative of any of the fundamental rights guaranteed under the Constitution. The mere fact that any statutory provision has been amended with retrospective effect does not by itself make the amendment unreasonable. Unreasonableness or arbitrariness of any such amendment with retrospective effect has necessarily to be judged on the merits of the amendment in the light of the facts and circumstances under which such amendment is made. In considering the question as to whether the legislative power to amend a provision with retrospective operation has been reasonably exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power to impose the tax, for, if it does not, the action must ever remain ineffective and illegal. Granted legislative competence, it is not sufficient to declare merely that the decision of the Court shall not bind for that is tantamount to reversing the decision in exercise of judicial power which the legislature does not possess or exercise. A court's decision must always bind unless the conditions on which it is based are so fundamentally altered that the decision could not have been given in the altered circumstances. Ordinarily, a court holds a tax to be invalidly imposed because the power to tax is wanting or the statute or the rules or both are invalid or do not sufficiently create the jurisdiction. Validation of a tax so declared illegal may be done only if the grounds of illegality or invalidity are capable of being removed and are in fact removed and the tax thus made legal. Sometimes this is done by providing for jurisdiction where jurisdiction had not been properly invested before. Sometimes this is done by re-enacting retrospectively a valid and legal taxing provision and then by fiction making the tax already collected to stand under the re-enacted law. Sometimes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be deemed to be always so authorised. The legislature by this enactment retrospectively imposed the tax on lands and buildings based on their capital value and as the tax was already imposed, levied and collected on that basis, made the imposition, levy collection and recovery of the tax valid, notwithstanding the declaration by the Court that as 'rate', the levy was incompetent. The legislature not only equated the tax collected to a tax on lands and buildings, which it had the power to levy, but also to a rate giving a new meaning to the expression 'rate', and while doing so it put out of action the effect of the decisions of the courts to the contrary. The exercise of power by the legislature was valid because the legislature does possess the power to levy a tax on lands and buildings based on capital value thereof and in validating the levy on that basis, the implication of the use of the word 'rate could be effectively removed and the tax on lands and buildings imposed instead. The tax, therefore, can no longer be questioned on the ground that Section 73 spoke of a rate and the imposition was not a rate as properly understood but a tax on capital value. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect renders the same unconstitutional. 33. It is now well established that tax legislations - like any other legislation are not immune from being assailed on the ground of being unreasonable and offending Article 14, 19(1)(f) and 19(1)(g) of the Constitution. The Supreme Court in the case of Tata Motors Ltd. v. State of Maharashtra: AIR 2004 SC 3618 had observed as under:- It is no doubt true that the State has enormous powers in the matter of legislation and in enacting fiscal laws. Great leverage is allowed in the matter of taxation laws because several fiscal adjustments have to be made by the Government depending upon the needs of the Revenue and the economic circumstances prevailing in the State. Even so an action taken by the State cannot be so irrational and arbitrary so as to introduce one set of rules for one period and another set of rules for another period by amending the laws in such a manner as to withdraw the benefit that had been given earlier resulting in higher burdens so far as the assessee is concerned without any reason. Retrospective withdrawal of the benefit of set-off only for a particular period should be justified on some tangible and rational gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wever, the withdrawal or modification with retrospective effect of the relief properly granted by the statute to an assessee which the assessee has lawfully enjoyed or is entitled to enjoy as his vested statutory right, depriving the assessee of the vested statutory right has the effect of imposing a levy with retrospective effect for the years for which there was no such levy and cannot, unless there be strong and exceptional circumstances justifying such withdrawal or modification, be held to be reasonable or in public interest. 36. Retrospective statutory amendments made to cure certain defects and to validate a law held to be invalid or retrospective amendments which are clarificatory in nature, stand on a completely different footing. They are materially different in their nature from legislative amendments which introduce substantive changes with retrospective effect and thereby introduce a levy for the first time from an anterior date and the legislations which have the effect of withdrawing benefits granted and availed of in the past. Such legislations would have to be justified on rational basis and in absence of good reasons, would be liable to be declared as fallin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed product was 10 to 15%. The aforesaid duty structure coupled with the fact that manufacturing of the LCVs did not result in sufficient value addition to absorb the duties payable on the inputs, had resulted in accumulation of MODVAT Credit. Conceptually, the MODVAT scheme was introduced to prevent the cascading effect of tax. In other words, the object was that the finished product bears the duties as determined. This was sought to be implemented by providing credit for the duties paid on raw material/inputs used in manufacture of the finished product. This would ensure a certain and a determinative duty structure qua the final product. The duties paid on inputs were not available for discharge of Excise Duties on any other product other than the finished goods manufactured by use of the inputs in question. Although, it is not necessary that the duty paid on inputs in respect of which credit was claimed had to be used for discharging the duty on the very same finished product in respect of which the input was actually used; nonetheless, credit for discharge of the liability in respect of the finished goods was available only in respect of such goods that were manufactured using s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. It is apparent that the Central Government did not want the accumulated credit to further reduce the collection of revenues. 42. It appears that in their wisdom, the Central Government sought to balance the rationalisation of duty structure and provide flexibility in the use of credit by lapsing the accumulated credit which was admittedly a product of the earlier duty structure. 43. Viewed from the aforesaid perspective, we are unable to hold that the making of Rule 57F(4A) was so irrational or unreasonable as to fall foul of the Constitution of India. As to how, a fiscal legislation is to be framed is not an area where any interference under Article 226 is warranted. Scope of judicial review in respect of fiscal legislation is limited to the extent of determining whether it is outside the legislative competence of the legislature to enact such legislation and/or whether such enactment is so unreasonable and irrational so as to violate the rights guaranteed under the Constitution. 44. In the present case, we are unable to accept that the legislative policy in aid of which Rule 57F(4A) was made, is irrational or unreasonable. The fact that the Petitioners would have to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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