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CASE NO.: Appeal (civil)  8607 of 2001

PETITIONER: Commissioner of Central Excise, Madras

RESPONDENT: M/s Home Ashok Leyland Ltd

DATE OF JUDGMENT: 19/03/2007

BENCH: S.H. KAPADIA & B. SUDERSHAN REDDY

JUDGMENT: J U D G M E N T

KAPADIA, J.

       In this civil appeal filed by the department the short  question which arises for determination is whether the  assessee was entitled to avail MODVAT credit on  differential duty paid during the period 21.4.1986 to  2.4.1987 in respect of inputs received in his factory during  the year 1986-87 which inputs were utilized between the  period 16.8.1987 and 30.12.1987.  According to the  Department, Rule 57E of Central Excise Rules, 1944  underwent an amendment with effect from 15.4.1987  which according to the department operated prospectively  and consequently the claimant was not entitled to avail  MODVAT credit of differential duty paid during the period  21.4.1986 to 2.4.1987.   

The respondent-assessee is a manufacturer of motor  vehicles. Assessee had received inputs under the cover of  specified documents between the period 21.4.1986 to  2.4.1987.  After receipt  of  those inputs  the price of those  inputs stood revised by the supplier cum manufacturer of  the inputs and consequently additional duty became  payable on the enhanced price which the assessee paid  during the period 19.12.1986 and 28.10.1987.  The credit,  however, for the aforestated amount so paid was taken  between the period 16.8.1987 and 30.12.1987.  The  differential duty in respect of which credit was so taken  was in the sum of Rs.6,43,994.47. At this stage it may be  noted that the Modified Value Added Tax Scheme  (MODVAT Scheme) was introduced from 1.3.1986.  That  scheme is known as MODVAT Scheme. Prior to MODVAT  Scheme there existed Proforma Credit Scheme under  which there was proviso three to Explanation 2 to Rule  56A(2) in which it was provided that if the duty paid on  the material or on the components for which credit has  been allowed, stood varied subsequently due to any  reason resulting in refund or recovery from the  manufacturer/importer, as the case may be, then the  credit shall be accordingly varied  by adjustment in the  credit account maintained under sub-rule (3) or in the  current account under the Rule 9(3) or under Rule  173G(1). If such an adjustment was not possible for any  reason then that adjustment had to be satisfied by  payment in cash.  Unfortunately, the corresponding  provision came to be omitted or failed to be incorporated  under Rule 57A of the MODVAT Scheme.  At this stage it

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may be noted that Rules 57A deals with applicability of  the MODVAT Scheme and which rule is part of the Rules  set out in Chapter AA of Central Excise Rules titled "Credit  of Duty Paid on Excisable Goods used as inputs" Rule 57E  as it stood when MODVAT was first introduced on  1.3.1986 provided for adjustment in duty credit.  It  originally provided that if the duty paid on any inputs in  respect of which credit has been allowed  under Rule 57A,  is varied subsequently due to any reason resulting in  refund, the credit alone shall be varied accordingly by  adjustment in the credit account maintained under Rule  57G(3) (with which we are concerned).  Rule 57E  underwent a change on 1.3.1987 under which it was  stipulated that if duty paid on any inputs in respect of  which credit has been allowed under Rule 57A and if such  duty is varied subsequently due to any reason resulting in  refund or if the duty is varied due to change in  classification resulting in recovery  then the credit allowed  shall also be varied accordingly by adjudgment in the  credit account maintained under Rule 57-G(3).  Rule 57-E  underwent a further change on 11.5.1987.  This change  operated till 15.4.2000.  This case, therefore falls within  the above period i.e. 11.5.87 to 15.4.2000.  Under this  amended Rule 57E the right of the manufacturer to obtain  additional MODVAT credit in respect of inputs on which  further duty had been paid for any reason subsequent to  the date of the receipt of inputs by the manufacturer is  recognized.  However, such right accrues to the  manufacturer subject to his complying with the procedure  of adjustment contemplated in Rule 57E, as amended.

The above discussion indicates that the right to claim  MODVAT credit existed only in Rule 57A.  Even Rule 57E   says so. There can be no doubt that right from its  inception the right to claim MODVAT credit is under Rule  57A.  Rule 57A recognizes the right of the manufacturer to  claim credit.   Rule 57E recognizes not only the right of the  manufacturer to claim credit but also the extent to which  credit could be claimed for the duty paid on inputs.  Therefore, Rule 57A is a substantive provision. However,  the procedure of adjustment finds place in Rule 57E.  Rule  57E is procedural provision. It deals with adjustments in  duty credit.  The object behind enacting Rules 57A, 57E  and 57G  is to avoid duty on duty whereby the price of the  final product is loaded.  Therefore, Rule 57A recognizes  the right of the manufacturer to take credit for the  specified duty paid on the inputs, whereas Rule 57E deals  with adjustment in the duty credit, such adjustment mean  on account of reduction on the credit allowed.  It could  also be in the event of refund.  Suffice it to state that Rule  57E deals only with adjustment in the duty credit. Rule  57G states that credit shall not be taken unless the  manufacturer of the final product maintains his records  regarding receipt of the inputs in his factory like having  again  bill of entry certain types of registers (RR-1) or any  other document prescribed by Central Board of Excise and  Customs. In our view, therefore, the courts below were right in  holding that Rule 57E  was procedural, clarificatory and  therefore would not affect the substantive rights of the  manufacture of the specified final  product to claim  MODVAT credit for the duty paid on the inputs  subsequent to the date of the receipt of those inputs.   Consequently, the respondent-manufacturer in the  present case was entitled to take credit between the period

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16.8.1987  to 30.12.1987 in the sum of Rs.6,43,994.57.

Accordingly, the appeal stands dismissed with no  order as to costs.