Full Judgment
2. Shri Gopal Prasad, learned Counsel for the appellants made a twofold plea in the appellants' defence, on merits and on the point of limitation. On merits he submitted that the deemed credit order dated 12-7-1990 which came into effect on 16-7-1990 granted credit of Rs. 2100/- per M. Tonne for the inputs purchased from outside and lying in stock on or after 16-7-1990 and this will not be allowable only where the credit had already been availed of under any Rule or notification granting such credit. The Department has wrongly applied this test, he contended as they had taken credit at the lower rate of Rs. 950/- per M. Tonne not on the basis of any Rule or Notification but under the deemed credit order. As there was no misstatement or suppression in their availment of the credit in question, the longer period of limitation was not available to the Additional Collector to raise the demand. The learned Counsel pleaded that the order be set aside and the appeal allowed.
3. The arguments were countered by Shri Mewa Singh, the learned Senior Departmental Representative. He contended that the appellants were not entitled to take the differential credit on the inputs as they had already taken credit at the rate of Rs. 975/- per M. Tonne. He pleaded that the appeal be dismissed.
4. We have considered the submission and perused the record. We shall first take up for consideration the submissions on merits. The contention of the appellants in this regard is that they had taken the additional deemed credit representing the difference between the enhanced rate of Rs. 2100/- per M. Tonne provided under the Ministry's order dated [12-7-1990] and the earlier rate of Rs. 975/- per M. Tonne which they had taken originally at the time of receipt of the inputs in question was proper and in order and that their taking the benefit of the 12-7-1990 order was not barred by the provision therein laying down that no credit shall be allowed if the credit of specified duty paid thereon had already been availed under any rule or notification granting such credit. It has been pleaded that what they had taken was the deemed credit and not the credit of specified duty paid on the inputs and hence the bar under the Ministry's order for availment of the credit of Rs. 2100/- as provided thereunder was not applicable. We do not agree. The deemed credit order is issued under the second proviso to Rule 57G(2) of the Central Excise Rules, relieving the manufacturers of the need to produce the "duty paying documents." What is permitted under Rule 57A of the Central Excise Rules as credit is the specified duty which covers Excise duty, Special Excise duty and the additional duty of Customs. What is permissible to be taken as Modvat credit is the specified duty and deemed credit which is availed as Modvat credit is not outside the scope of the entry specified duty for the purpose of the restriction provided under the subject order of the Ministry. Again, the Ministry's subject order lays down that the inputs mentioned in the Table annexed thereto purchased from outside and lying in stock on or after 16-7-1990 with the manufacturers manufacturing the final products may be deemed to have paid the specified duty at the rate specified in the Table. Credit of such specified duty is to be allowed at such specified rates without the production of documents evidencing payment of duty. It is also seen that the term "specified duty" occurring in the restrictive or prohibitive provision in the order was [what] was also used in the earlier order of the Ministry dated 1-6-1989 under which they had taken credit originally at the rate of Rs. 975/- per M. Tonne which was the rate provided thereunder. The expression "specified duty" has been used in the same manner in both the orders. The appellant's plea is that what they had taken earlier was deemed credit and not credit of specified duty paid on the inputs and hence the same did not attract the prohibition applicable to specified duty provided for in the second deemed credit order. If this plea had been taken to its logical conclusion, the appellants could as well have taken the full quantum of credit of Rs. 2100/- per M. Tonne in their disputed second helping.
They had taken only the differential amount (Rs. 2100 - Rs. 975) apparently mindful of the fact that they had already taken credit of Rs. 975/- per Tonne earlier that amount of credit was undoubtedly of specified duty only as what is admissible as Modvat credit was only specified duty by way of basic excise duty, special excise duty and additional duty of Customs. What was deemed under both the orders was the payment of duty on the inputs and what was so deemed to be paid was only the specified duty. It is only the specified duty which they took originally as also at the second stage. There is no merit in their plea that they took deemed credit earlier which being different from specified duty, there was no bar to their taking the second helping of deemed credit under the later order. The plea has to be rejected outright.
5. The appellants have taken differential credit amount on the ground that certain quantity admittedly received by them earlier when the lower rate of Rs. 975/- per M. Tonne was in force which they had taken was unutilised and remained in stock on 16-7-1990. The higher rate of credit had been provided for in respect of inputs purchased from outside and lying in stock on or after 16-7-1990. Rule 57G(2) lays down that a manufacturer who has filed a declaration may, after obtaining the acknowledgement of the declaration by the Assistant Collector, [take] credit of the duty paid on the inputs received by him. The taking of the credit is thus linked with the receipt of the inputs. The receipt of a particular lot of inputs is a definite one-time transaction and the credit of duty taken is not to be affected by subsequent events like change of the rate of credit admissible. Thus, for argument's sake, if the rate of credit of duty had been reduced under such orders issued under the proviso to Rule 57G(2), the credit earned already on the inputs received prior to such reduction could not be correspondingly reduced in respect of the unutilised inputs lying in stock. A somewhat similar situation came up before the Gujarat High Court in Dipak Vegetable Industries Ltd. v. Union of India - 1991 (52) E.L.T. 222. Money credit taken on the inputs and remaining in stock when the Notification under which such credit was taken was rescinded was held to be not reversible, the right to credit having got crystallised in terms of money. On a similar consideration, the credit taken originally at the rate applicable at the time when the inputs were received could not have been increased by applying a rate which came into force later on. In that view of the matter, the quantity of such inputs, received earlier and on which credit had already been taken remaining in stock on the date when the new rate of credit had come into force is of no import. The new rate was applicable only for the inputs received on or after the date of the order prescribing revised rates. The appellants' plea on merits accordingly fails.
6. We now turn to the defence taken by the appellants on the ground of limitation. We find that the appellants had taken the disputed additional or differential credit at the rate of Rs. 1125 viz. Rs. 2100 - Rs. 975/- vide entry dated 11-11-1990 in their RG 23A account. Under Rule 57-1 as it stood at the material time a notice for disallowance of credit taken on account of an error, omission or misconstruction or for recovery of an amount equal to the credit if it had already been utilised had to be issued within a period of six months from the date of such credit. On that basis it has been contended that the notice was beyond six months. On behalf of the department it was contended that the fact of the appellants taking the disputed credit was brought to the department's notice only in the R.T. 12 return for the month of November 1990 which was filed in December 1990 and hence the notice dated 31-5-1991 was within the time limit. The date of filing of the monthly return as the starting point for limitation came to be provided for in Rule 57-1 only from 16-3-1995. Prior to such amendment, the law as in force at the relevant time has to prevail and that would mean that the notice was issued beyond six months from the date of the credit. But that is not decisive of the matter as we shall presently see.
7. The show cause notice in Paragraph 2(iii) refers to the disallowance of Modvat credit amounting to Rs. 2,17,324.71 by the Superintendent of Central Excise, Sikanderabad vide his letter dated 13-11-1990 by which they were requested to reverse the said inadmissible credit as the deemed credit at the enhanced rate was admissible only on such quantity of lead purchased from outside and lying in stock on 16th July, 1990 or thereafter and on which no deemed credit of specified duty paid thereon had already been availed under any rule or Notification granting such credit. A case of disallowance of Modvat credit and the consequential direction to debit such sum had come up for decision before the High Court of Allahabad in Indian Oxygen Ltd. v. Superintendent of Central Excise reported in 1991 (52) E.L.T. 359. The assessment memorandum on the R.T. 12 return made by the Superintendent in that case was as follows :- "The assesses had paid the duty on the above goods correctly except that the credit taken of Liquid Oxygen is disallowed as it was not declared as input. The Factory is directed to debit Rs. 13213.20 from RG. 23 or from PLA within 10 days of the receipt of RT. 12 under Rule 57-1 of C.E. Rules, 1944." "A reading of the impugned endorsement shows that it has been made under Rule 57-1 of Central Excise Rules. Sub-rule (1) of Rule 57-1 specifically provides that before disallowing any credit of duty paid and an input taken by a manufacturer, the proper officer shall give a show cause notice. It does not appear in this case that any such show cause notice was given before disallowing the said credit taken by the manufacturer petitioner. A specific assertion has been made in the writ petition that no show cause notice was given by the Superintendent before making the impugned endorsement (See Paras 9 and 11 of the writ petition). In the absence of the counter affidavit, we accept the said statement. On that basis we direct that the impugned endorsement dated 27-8-1987 shall be treated as a show cause notice within the meaning of Sub-rule (1) of Rule 57-1 of the said Act. The petitioner shall furnish the explanation within one month from today. A certified copy of this order shall be filed along with explanation/objection to be filed by the petitioner before the proper officer. The proper officer shall thereupon consider the said objection/explanation and pass appropriate orders in accordance with the law." In the present case the appellants had replied to the Superintendent's letter and raised their defence plea. It can be said that they treated the said letter as a notice and the same was considered by the adjudicating authority before deciding the matter.In Devidayal Rolling and Refineries Pvt. Ltd. v. A. V. Borkar, Superintendent Central Excise & Customs reported in 1983 (12) E.L.T.338, the plea that no show cause notice was issued was rejected by the Court. The relevant paragraph from the said judgment is extracted below :- "Mr. Bhandare contended, however, that there was no show cause notice issued to the petitioners and a demand was straightaway made.
Even this contention, I am afraid, must fail. As long back as on March 7, 1972 the Superintendent of Central Excise did issue a notice to the petitioners informing the petitioners that copper and copper alloy flat products over 0.16 mm and up to and including 10 mm thickness of any width and generally not cut to length supplied in coils and also flat or folded are strips and dutiable under Central Excise Tariff Item No. 26 A, sub-item (2). The said notice further goes on to state that all the clearances of the above description in copper and copper alloys should be made by the petitioners on payment of proper duties of excise, basic and regulatory and under G.P. as prescribed under Rule 173G of the Central Excise Rules, 1944. The said notice further goes on to state that the particulars of clearances from 1st April, 1965 to date should be supplied immediately. Though the notice does not in so many terms describe it as a show cause notice, contents of the said notice is eloquent enough to indicate nothing but that. Simple and plain reading thereof should make a recipient such as the petitioners herein, a private limited company, aware and conscious of the aforesaid position. In the circumstances, to permit such a technical argument in a writ petition under Article 226 of the Constitution would be permitting an otherwise just demand to be defeated on a technicality." The principles laid down by the High Courts in these two judgments will equally apply in the present case. In the present case the disputed credit was taken by the appellants on 11-11-1990 and the Superintendent issued the letter to them on 13-11-1990 disallowing Modvat credit. This letter though not issued as a show cause notice is construable as such, following the view taken by the Allahabad and Bombay High Courts in the two decisions considered by us above. Accordingly, the plea of limitation raised by the appellants fails.
9. The question of penalty imposed on the appellants is now to be considered. The appellants had taken inadimissible Modvat credit and when this was objected to, they took an invalid and unacceptable defence plea besides the technical objection of the notice being time barred. They had not maintained their RG 23A Part II account properly as stated in Paragraph 3 of the show cause notice. The inputs on which the disputed differential credit had been taken are stated to have been in balance on 16-7-1990. The said disputed credit was taken by them only on 11-11-1990 making it impossible for the department to verify whether the inputs were in stock on 16-7-1990 or the same had already been used before that day. Their conduct is clearly blameworthy. The show cause notice properly brings out the wrong availment of Modvat credit. Penalty has been imposed under Rule 173Q. The irregularity clearly falls within the ambit of Rule 173Q(1)(bb) which, inter alia, provides that if any person takes credit of duty in respect of inputs wrongly he will be liable to penalty. In this connection, it will be useful to refer to the observations of the Supreme Court in Gujarat Travancore Agency v. Commissioner of Income Tax -1989 (42) E.L.T. 350 S.C. It was held by the Supreme [Court] in that case that unless there is something in the language of the statute indicating the need to establish the element of mens rea it is generally sufficient to prove that a default in complying with the statute had occurred. It was noted that there was nothing in Section 271(1)(a) of the Income Tax Act, 1961 that required that mens rea must be proved before penalty can be levied under that provision. The statement in Corpus Juris Setundum, Volume 85, Page 580, Paragraph 1023 was extracted as follows :- "A penalty imposed for a tax delinquency is a civil obligation, remedial and coercive in its nature and is far different from the penalty for a crime or a fine or a forfeiture provided as punishment for the violation of Criminal or penal laws." 10. It was, therefore, held that the element of mens rea was not required to be proved by the Income Tax Officer under Section 271(1)(a) of the Income Tax Act against the assessee.
11. These principles will equally apply in the present case. The relevant provision viz. 173Q(1) (bb) inter alia provides for the imposition of penalty on a manufacturer who takes credit of duty in respect of inputs, wrongly. The requirement of taking reasonable steps to ensure that appropriate duty on the inputs has been paid or the taking of credit of duty which he knows or has reason to believe is not permissible under the rules are among other circumstances warranting imposition of penalty but the taking of credit of duty in respect of inputs, wrongly simpliciter also attracts penalty. The appellants had taken inadmissible Modvat credit in violation of the condition in the relevant order of the Ministry which clearly laid down that no credit shall be allowed if in respect of the inputs, credit of specified duty paid thereon had already been availed under any rule or notification, trotting out contrived distinction between credit of specified duty and deemed credit . They had also not maintained the RG 23A Part II account as required and took the disputed differential credit amount after a time lag of nearly four months in November 1990 for inputs claimed to be in stock after 16th July, 1990. The imposition of penalty by the adjudicating authority is justified. We see no reason to interfere and dismiss the appeal.