Judgment:
1. The Commissioner of Central Excise, Madras has filed this reference application under Section 35G(1) of Central Excises and Salt Act, 1944 (for short, the Act) seeking reference to the jurisdictional High Court of the following questions of law :- (i) In the context of Modvat credit, the procedure of taking credit as enumerated under Rule 57G follows the determination of eligibility of credit as set out under Rules 57A, 57C and 57E . As such the criterion of allowing credit (by way of adjustment) as per Rule 57E takes precedence over the process under Rule 57G. Whether in this above regard, the Honourable Tribunal was correct in law in holding that Rule 57E is merely clarificatory in nature to Rule 57G (ii) Honourable Tribunal have held that Notification No. 117/87, dated 15-4-1987 as well as other Notifications issued under Rule 57E are clarificatory in nature and hence would have retrospective effect. On the one hand, it is held that the condition of six months limit vide Notification No. 28/95, dated 29-6-1995 for taking credit did not exist at that time (1986-87) and hence the assessee may avail credit at any time; while on the other hand, it is proposed that the amendment under the Rule 57E, regarding adjustment of differential duty credit would have retrospective effect. Whether, in the above context, the order passed by the Honourable Tribunal is not contradictory and contrary to established law (iii) In the instant case, the differential duty was paid by the supplier during 3/86 to 2-4-1987 and the credit was taken by M/s.
Ashok Leyland between 8/87 to 12/87. Clearly the credits taken are time-barred in terms of CEGAT Larger Bench (Madras) decision in the case of Brakes India Ltd. and Ors. (order No. 359/95, dated 5-6-1995) and also, the amendment Notification No. 29/95-C.E. (N.T.), dated 29-6-1995 issued subsequently. It has been clearly stated that where the time-limit is not specified (particularly in respect of Rule 57E), six months is a reasonable time for taking/recovery of credit. Despite this, whether the Honourable Tribunal was correct in holding that the time limit of six months is riot applicable in these cases since the condition did not exist then (iv) Rule 57E being a substantive piece of legislation and not merely procedural, whether the Honourable Tribunal was correct in holding that all amendments to Rule 57E are only clarificatory and therefore not bringing about any real change in the substance of Rule 57E The application is opposed by the respondent-assessee.
2. The assessee, M/s. Ashok Leyland Limited, Madras, engaged in the manufacture of heavy vehicles, has been availing Modvat credit on inputs under the Rules in Section AA of Chapter 5 of the Central Excise Rules, 1944 (for short, the Rules). Respondent was entitled to do so since the input received and the final product manufactured were specified under Rule 57A of the Rules. Modvat credit had been availed of and central excise duty paid on certain specified inputs. Subsequent to the receipt of such duty paid inputs, the manufacturer of the inputs was required to pay differential duty on the inputs and the same was paid on various date during the period from 21-4-1986 to 2-4-1987.
Certificates evidencing payment of differential duty were furnished to respondent during the period from 19-12-1986 and 28-10-1987. Respondent availed credit of such differential duty amounting to Rs. 6,43,994,.47 during the period from 16-8-1987 and 30-12-1987. The Superintendent of Central Excise sent notice dated 16-3-1988 to the respondent stating that respondent was not entitled to avail credit of such differential duty paid prior to the amendment introduced to Rule 57E of the Rules with effect from 15-4-1987 and requiring the respondent to show cause to the Assistant Collector as to why such irregular Modvat credit availed should not be disallowed under Rule 57-I of the Rules. Another ground referred to in the show cause notice has no relevance in this application. Respondent resisted the notice pleading that credit was taken on the basis of the substantive provision in Rule 57A of the Rules and not under Rule 57E of the Rules. Alternatively it was contended that credit of differential duty could be validly availed after 15-4-1987 in view of the provision in Rule 57E of the Rules as amended with effect from 15-4-1987 and respondent had taken credit of the objected differential duty after 15-4-1987 and therefore it was not irregular. Assistant Collector overruled the contention and confirmed the demand. In appeal by respondent, the Collector (Appeals) upheld the contention of Respondent based on the provisions in Rule 57E of the Rules as amended with effect from 15-4-1987 and set aside the order of Assistant Collector.
3. The Collector of Central Excise, filed Appeal No. E/607/89-MAS (NB) in the Tribunal challenging the order of the Collector (Appeals). In view of conflicting views taken by different Benches of the Tribunal on the question involved, certain other appeals giving rise to the same question were referred to Larger Bench. The appeal filed by the present Respondent was also so referred. The duty constituted Larger Bench heard all the appeals and disposed of the same by the common order No.A/1479-1486/96-NB, dated 31-5-1996 reported in 1996 (15) RLT 44 (CEGAT-NB) rejecting the contentions of the Revenue and upholding the contentions of the assessees. This order has given rise to the present application.
4. Section AA of Chapter 5 of the Rules contain the scheme of Modvat credit. On consideration of the relevant provisions, the Tribunal held as follows :- (a) Rule 57A does not create or vest any right in any one. Rights, duties and liabilities have to be traced to the succeeding Rules understood in the light of Rule 57A. (b) Rules 57-I deals with wrongful taking of credit and hence is inapplicable to the present case which involves variation of quantum of duty on input for no fault of the receiver of inputs.
(c) The provision in Rule 57G(2) relates to duty as finally and not merely of duty provisionally, determined on the inputs.
(d) Rules 57G deals with procedure to be observed by the manufacturer of finished products and Rule 57E deals with adjustment of duty credit. Both rules underwent changes from time to time.
(e) The new proviso to Rule 57G incorporated with effect from 29-6-1995 introduced time limit for taking credit, namely, six months from the date of issue of documents specified in the first proviso. The proviso has no retrospective effect and cannot apply to situations which crystalised before 29-6-1995 and hence is not attracted to this case.
(f) The case has to be decided on a harmonious understanding of Rules 57G and 57E in the backdrop of Rule 57A. (g) The procedural requirement of Rule 57G (declaration, input being accompanied by prescribed documents, etc.) has been followed by Respondent . During the relevant period, Rule 57E contained only a provision relating to variation of credit consequent on variation of duty resulting in payment of refund to manufacturers of inputs and did not contain a provision for variation of credit consequent on variation of duty and resulting in recovery of more duty from manufacturers of inputs and such a provision was for the first time incorporated in Rule 57E with effect from 1-3-1987 but this provision was applicable only if the variation of duty was due to change in classification of inputs on the basis of instructions issued by the board and was not applicable to variation of duty in the present case. A provision covering the situation obtaining in the present case was incorporated only by the amendment incorporated with effect from 15-4-1987.
(h) The right of manufacturers of final products to take credit after obtaining acknowledgment is absolute and is not subject to any conditions other than those in Rule 57G. The time limit prescribed in the new proviso to Rule 57G(2) can relate only to taking credit of duty showed as paid in the document referred to the first proviso. When differential duty has been paid more than six months after the document, refer red to in the first proviso, such payment would not be reflected in the document referred to in the first proviso and the time limit cannot apply to such a case.
(i) Rule 57E states expressly what is implicit in Rule 57G. Rule 57E and the amendments thereto are merely clarificatory in content and procedural in nature. Hence the amendment to Rule 57E introduced with effect from 15-4-1987 applies to all situations of adjustment, recovery or refund which had not become concluded before 15-4-1987 and is retrospective in this sense.
(j) Credit taken by the Respondent of differential duty paid by manufacturer of inputs was proper and lawful.
5. Thus it can be seen that the order of the Tribunal rests on the conclusion that Rules 57E is clarificatory and amendments thereto including the amendment introduced with effect from 15-4-1987 is clarificatory and the amended provision applies to all situations which had not become concluded before 15-4-1987 and is retrospective in that sense. It is patent that this conclusion gives rise to a question of law which is required to be decided by the High Court. The bulk of the question (i) and (ii) project only arguments against the decision of the Tribunal. Proposed question No. (iv) is only repetition of the later part of proposed question No. (i). The bulk of proposed question No. (iii) also contains only arguments. The first part of proposed question No. (iii) is to be recast. We record the submission made by the Departmental Representative that the applicant has no contention that the new proviso to Rule 57G(2) is retrospective.
6. We are satisfied that the following questions of law arise for consideration and are required to be decided by the High Court. A statement of the case will be drawn up and reference made to the High Court.
1. Whether Rule 57E of the Rules states expressly what is implicit in Rule 57G(2) and as such is clarificatory 2. Whether the second proviso to Rule 57E of the Rules introduced with effect from 15-4-1987 is clarificatory and applies to all situations relating to adjustment, recovery and refund which had not become concluded and is retrospective in that sense? 3. Whether, in the facts and circumstances of the case, the Tribunal was in error in holding that the assessee was entitled to avail Modvat credit of differential duty paid during the period from 21-4-1986 to 2-4-1987 in respect of inputs received in the assessee's factory during 1986 and 1987 and utilised the same between 16-8-1987 and 30-12-1987 ?