Hindustan Eever Ltd. v. Collector of Central Excise in 1994 (70) E.L.T. 88, the West Regional Bench of the Tribunal referred Appeals No. E/261/89, and 47/89 to a larger Bench.
Consequently, the other appeals wherein similar questions arise for consideration have also been referred to larger Bench. Accordingly, this larger Bench, having been constituted, heard the appeals together.
Appellant in E/47/89 has placed written submissions before us. We have heard Shriyuts C.S. Lodha, A.R. Madhav and Rajesh Chander Kumar for the various appellants and Shri M. Haji Mohideen, JDR, for the Excise Department.
2. The common appellant in Appeal Nos. E/129/87, E/11/94, E/12/94 and E/13/94 manufactures motor vehicles and allied goods falling under Chapters 84 and 87 of the Schedule to the Central Excise Tariff Act, 1985 (for short, the Act), using requisite parts received from the market. Since 1979, parts of motor vehicles, when intended for use in the manufacturing of excisable goods as original equipment, were wholly exempt from payment of duty (Notification No. 167/79). Where use was outside the factory manufacturing the parts, exemption was subject to following the procedure under Chapter X of Central Excise Rules, 1994 (for short, the Rules). The Act which came into force on 1-3-1986 introduced new tariff Schedule. Notification No. 167/79 was withdrawn with effect from 1-3-1986. The input-manufacturers, not being aware of the withdrawal of the exemption, continued to clear those goods at Nil rate of duty under Chapter X procedure for some period. Appellant's suppliers also did so. But subsequently, the duty payable was paid and certificates obtained from the Range Superintendent and based on such certificates, the appellant availed Modvat credit under Rule 57A of the Rules. This was disallowed by the lower authorities. Appellant is aggrieved by such orders.
The appellant in Appeal No. E/2601/94, also a manufacturer of motor vehicles received duty paid inputs and availed Modvat credit.
Subsequently, due to price increase allowed to the suppliers for supplies already made, the suppliers paid duty on the differential price. This is borne out by the certificates issued by the Superintendent of Excise. The appellant availed Modvat credit of the differential duty on inputs and the same has been disallowed by the lower authorities.
Appellant in Appeal No. E/47/89 is also aggrieved by disallowance of Modvat credit availed by the appellant of duty paid subsequently on inputs which had earlier been cleared by the input-manufacturer in ignorance of the withdrawal of Notification No. 167/79.
The appellant in. Appeal No. E/261/89 manufactures Detergents (Organic Surface Active Agent OSAA) falling under Chapter 34.02 using Linear Alkyl Benzene (LAB) as one of the inputs. Indigenous LAB was available from IPCL. IPCL filed classification list under T.I. 2710.39 and was provisionaly clearing LAB on that basis. The classification list was finalised on 19-5-1986 under T.I. 3801.90 warranting higher rate of duty. Credit of duty paid on LAB initially had not been taken earlier since goods under T.I. 2710.39 were not inputs specified for purpose of Rule 57A of the Rules. Since goods under T.I. 3801.90 were inputs specified for purpose of the Rule, on differential duty paid subsequently as seen from certificates of proper officers appellant applied for permission to avail Modvat credit and the same was rejected by the lower authorities.
The respondent Appeal No. E/607/89 who also claimed right to Modvat credit for differential duty paid on inputs, steel sheets and other goods on account of price revision, succeeded in appeal before the Collector (Appeals). The Department, being aggrieved, has filed the appeal.
3. Learned Counsel for appellants have placed before us all the decisions of the Tribunal on the aspects arising for consideration in the present appeals. In the earliest decision Indo National Ltd. v.Collector of Central Excise -1989 (41) E.L.T. 422 (SRB) duty on input was under-paid on account of mistake and the differential duty was paid on demand made by the department. It was held Rule 57E of the Rules as it originally stood dealt with variation of rate of duty and not duty paid and the Rule was not attracted, but the Manufacturer would be entitled to Modvat credit on differential duty under Rule 57A itself.
In Guest Keen Williams Ltd. v. Collector of Central Excise - 1990 (47) E.L.T. 141 (SRB) also a similar view was taken. In Collector of Central Excise v. SAIL -1990 (47) E.L.T. 389 (ERB) price of inputs increased on account of operation of escalation clause in Contract and the final picture of the price emerged only at the time of finalisation of assessment. The Bench took note of the two amendments to Rule 57E and held that on a harmonious construction of Rules 57A and 57E of the Rules, as long as subsequent payment of duty is correctly authenticated, assessee would be eligible for Modvat credit for subsequently paid duty by virtue of Rule 57E. In Collector of Central Excise v. SAIL, Rourkela Steel Plant - 1990 (47) E.L.T. 394 (ERB), it was held that Rule 57A applies not only to the duty paid at the time of clearance of the inputs by the manufacturer of the inputs, but also to duty subsequently paid. Rule 57E as amended is not contrary to and does not expand the scope of Rule 57A and is only clarificatory and Modvat benefit would be available from 1-3-1986 when the scheme was introduced. The West Regional Bench in Mahindra and Mahindra Ltd. v.Collector of Central Excise - 1990 (50) E.L.T. 55 declined to follow Indo National Ltd. v. Collector of Central Excise -1989 (41) E.L.T. 422 on the ground that the case was decided on a concession of the departmental representative regarding the benefit being available in terms of Rule 57A. The Bench could not notice the later descisions which had not been reported by then. The decision in Larsen and Toubro Ltd. v. Collector of Central Excise -1990 (50) E.L.T. 312 (SRB) followed the decision in Collector of Central Excise v. SAIL, Rourkela Steel PlantIn Collector of Central Excise v.Union Carbide India Ltd. - 1991 (54) E.L.T. 342 (ERB) Modvat benefit was granted to the assessee, taking the view that Rule 57E even as it originally stood was attracted. But the West Regional Bench continued to stick to its view as seen from the decision in Apar Ltd. v.Collector of Central Excise and Customs - 1992 (61),E.L.T. 742, though relief was granted on the ground that the application for permission to avail Modvat benefit was filed after the second amendment to Rule 57E.The North Regional Bench followed the view of Eastern and Southern Regional Benches, see Rajas-than Explosives & Chemicals Ltd. v Collector of Central Excise, Jaipur - 1994 (71) E.L.T. 522 (NRB).
4. It is contended for the Manufacturers of final products or assessees that Rule 57A of the Rules entitles them to avail credit of specified duty paid on specified inputs and the entitlement cannot be regarded as cut down by Rule 57E, that Rule 57A does not require the duty on specified inputs should have been paid on one occasion only or that credit should be availed immediately on receipt of goods, or on one occasion only, that Rule 57E has been incorporated only by way of abundant caution and is really unnecessary, that Rule 57E being only procedural, amendments incorporated therein are retrospective, that Rule 57E as amended with effect from 15-4-1987 allows availing of credit of more duty paid on inputs on variation of duty and that even in the absence of Rule 57E credit availed can be adjusted or reversed and credit can be taken of the more duty paid subsequent to receipt of inputs. It is further contended that Rule 57G is also only procedural and cannot govern the substantive rights of the Manufacturers, that payment of duty or more duty after the receipt of the inputs can be allowed to be proved by the certificates issued by the Superintendents of Central Excise and Rule 57E in its various forms always reflected what is inherent in Rule 57A. Decisions of the Supreme Court are relied on to contend that procedural amendments are retrospective in the absence of clear contrary intention being shown, where there is a right, it is stated, remedy may be implied and if the plain and literal interpretation of any provision leads to manifest injustice, authorities must adopt the intepretation which promotes justice.
Reference is also made to Sections 11A, 11B and 28 of the Act and-Rules 9B and 173-1 of the Rules. On behalf of the Revenue, the above contentions are rebutted and it is contended that Rule 57A does not confer any right on the Manufacturer, that Rule 57A does not contemplate variation of duty and the consequences thereof and provision in that regard is contained only in Rule 57E, that these parties are not entitled to any relief under Rule 57E as it stood at the relevant time, that Rule 57E is substantive and not procedural and the amendments thereto which are not expressly made retrospective have no retrospective effect.
"The provisions of this Section shall apply, to such finished excisable goods (hereinafter referred to as the "final products", as the Central Government may, by notification in the Official Gazette, specify in this behalf, for the purpose of allowing credit of any duty of excise or the additional duty under Section 3 of the Customs Tariff Act, 1975 (51 of 1975), as may be specified in the said notification (hereinafter referred to as the "specified duty") paid on the goods used in or in relation to the manufacture of the said final products for utilising the credit so allowed towards payment of duty of excise leviable on the final products, whether under the Act or under any other Act, as may be specified in the said notification, subject to the provisions of this Section and the conditions and restrictions that may be specified in the notification." The Rule also contains an inclusive and exclusive definition of "input". Rule 57C deals with taking credit. Rule 57D deals with circumstances in which credit of duty is not to be denied or varied.
Rule 57E relates to adjustment in duty credit. Rule 57F deals with manner of utilisation of the inputs and the credit allowed in respect of duty paid thereon. Rule 57G prescribes the procedure to be observed by the Manufacturer. Rule 57-1 deals with recovery of credit wrongly availed of or utilised in an irregular manner. Rule 57 deals with credit of duty in respect of inputs used in an intermediate product.
6. Section AA of Chapter 5 of the Rule contains Rule 57A to Rule 57J.Rule 57A is under the heading "Applicability of provisions of the Section". The Rule states that the provisions of Section AA apply to final products to be specified for the purpose o/allowing credit of specified duty and additional duty paid on inputs to be specified and for the purpose of utilising the credit towards payment of duty leviable on final products as may be specified, subject to the provisions of the Section and subject to notified conditions and restrictions. The Rule deals with applicability of the provisions of Sections AA and lays down the broad scope and contours of the Modvat scheme, besides an inclusive and exclusive definition of "input". The contours of the scheme are defined and delineated in the remaining Rules in the Section The meaning and content of the scheme have to be gathered from a harmonious reading of all the relevant Rules in the Section Each of the succeeding Rules deals with a specific aspect or ingredient of the scheme. To find out any particular facet or aspect of the scheme, other than the definition of "input", the provisions of the appropriate succeeding Rule have to be looked into, though the relevant Rule has to be understood in harmony with the contours of the scheme and the other provisions of the scheme. It is clear that 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. The Rules relevant in this behalf are stated to be Rules 57G, 57E and 57-1.
7. Rule 57G deals with procedure to be observed by the Manufacturer of finished goods. He has to file a declaration with the jurisdictional officer containing relevant information and obtain a dated acknowledgement of the declaration. Sub-rule (2) with the first proviso as originally notified read as follows: "A manufacturer who has filed a declaration under Sub-rule (1) may, after obtaining the acknowledgement aforesaid, take credit of the duty paid on the inputs received by him : Provided that no credit shall be taken unless the inputs at the time of their receipt in the factory are accompanied by a Gate Pass, an AR 1, a Bill of Entry or any other document as may be prescribed by the Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963 (54 of 1963) in this behalf evidencing payment of duty on such inputs." A declaration has to be filed and acknowledgement obtained. Thereupon, credit can be taken if the inputs had been received accompanied by any documents referred to in the first proviso. Sub-rule (3) requires him to maintain RG 23A account in parts I and II, a current account with adequate balance. He shall also submit monthly return to the Superintendent of Central Excise along with the extracts of Parts I and II of RG 23A account. These were the only requirements of Rule 57G as it existed at the time relevant in these cases. By subsequent amendment, the words "accompanied" have been replaced by the words "under cover of". In 1995 the Rule underwent some changes. The words "Gate Pass" and "Bill of Entry" have been replaced by the words "Invoice" ana "triplicate copy of Bill of Entry" respectively.
"Certificate issued by an appraiser of customs posted at Foreign Post Office" has been included as a recognised document. The authority to prescribe any document has been taken away from the Board and vested in the Central Government. The following new proviso has been incorporated as second proviso : Provided further that the manufacturer shall not take credit after six months of the date of issue of any of the documents specified in the first proviso to this Sub-rule." An amendment of 1994 enables credit to be taken on the basis of the original invoice if the duplicate copy of the invoice has been lost in transit, subject to the satisfaction of the Assistant Commissioner.
There is an amendment of 1993 incorporating Sub-rule (5) enabling the appropriate officer to condone the delay in filing declaration and to allow the manufacturer to take credit even though the procedural requirements laid down under the Rule have not been complied with. This provision clearly shows that procedural requirements are not entirely rigid and a degree of flexibility has been introduced considering the difficulties of Industry and in interests of justice.
8. Rule 57E deals with adjustment in duty credit. The Rule as originally framed with effect from 1-3-1986 reads thus :- "If 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 payment of refund to the manufacturer or the importer of the inputs, the credit allowed shall be varied accordingly by adjustment in the credit account maintained under Sub-rule (3) of Rule 57G or in the accounts maintained under Rule 9 or subrule (1) of Rule 173G or, if such adjustment is not possible for any reason, by cash recovery from the manufacturer availing of credit under Rule 57A." "If duty paid on any inputs in respect of which credit has been allowed under Rule 57 A is varied subsequently : (i) due to any reason resulting in payment of refund to the manufacturer or the importer of the inputs; or (ii) due to change in the classification of the inputs on the basis of instructions issued by the Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963 (54 of 1963) resulting in the recovery of more duty from the manufacturer or the importer of the inputs.
The credit allowed shall be varied accordingly by adjustment in the credit account maintained under Sub-clause (3) of Rule 57A or in the accounts maintained under Rule 9 or Sub-rule (1) of Rule 1.73G and if such adjustment is not possible for any reason, by cash recovery from or, as the case may be, refund to the manufacturer availing of the credit under Rule 57A." "If 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 payment of refund to or recovery of more duty from the manufacturer or importer, as the case may be, of such inputs, the credit allowed shall be varied accordingly by adjustment in the credit account maintained under Sub-rule (3) of Rule 57G or in the accounts maintained under Rule 9 or Sub-rule (1) of Rule 173G; Or if such adjustment is not possible for any reason, by cash recovery from or, as the case may be, refund to the manufacturer availing of the credit under Rule 57A." The Rule as originally framed providing for variation of credit contemplated the contingency of variation of duty paid on inputs resulting in refund to the manufacturer or importer of inputs. The amendment of 1-3-1987 incorporated the contigency of change in classification based on instructions of the Board resulting in recovery of such duty from the manufacturer or importer of inputs. The amendment of 15-4-1987 recast the entire Rule to provide for variation of credit due to variation of duty resulting in refund to or recovery of more duty from the Manufacturer or importer of inputs. The retrospectivity of this amendment is in dispute.
9. Rule 57-1 deal with recovery of credit wrongly availed of or wrongly utilised in an irregular manner. The Rule as it originally stood read as follows : (1) If the credit of duty paid on inputs has been taken wrongly, the credit so taken nay be disallowed by the proper officer and the amount so disallowed shall be adjusted in the credit account or the current-account maintained by the Manufacturer or if such adjustments are not possible for any reason, by cash recovery from the manufacturer of the said goods : Provided that such manufacturer may make such adjustments on his own in the credit account or the current-account maintained by him under intimation to the proper officer.
(2) If any inputs in respect of which credit has been taken are not fully accounted for as having been disposed of in the manner specified in this Section, the Manufacturer shall upon a written demand being made by the Assistant Collector of Central Excise pay the duty leviable on such inputs within 10 days the notice of demand." The Rule dealt entirely with wrongful credit taken. The remedy was disallowance followed by adjustment or cash recovery. The Rule had nothing to do with variation of duty paid on inputs which is dealt with in Rule 57E. The manufacturer himself, if in the case of wrongful credit, may carry out the correction, if he does not, the proper officer can ensure that it is corrected.
10. Rule 57-1 was completely recast on 6-10-1988 on the lines of Section 11A of the Act. The amended Rule reads as follows :- "(1) (i) Where credit of duty paid on inputs has been taken on account of an error, or omission or misconstruction, on the part of an officer or a manufacturer, or an assessee, the proper officer may, within six months from the date of such credit, serve notice on the manufacturer or the assessee who has taken such credit, requiring him to show cause why he should not be disallowed such credit and where such credit has already been utilised, why the amount equivalent to such credit should not be recovered from him : Provided that where such credit has been taken on account of wilful misstatement, collusion or suppression of facts on the part of a manufacturer or an assessee, the provision of this clause shall have effect as if for the words "six months"" the word "fiveyears" were substituted.
(ii) The proper officer, after considering the representation, if any, made by the manufacturer or the assessee on whom notice is served under clause (i), shall determine the amount of such credit to be disallowed (not being in excess of the amount specified in the show cause notice) and thereupon such manufacturer or assessee shall pay the amount equivalent to the credit disallowed, if the credit has been utilised, or shall not utilise the credit thus disallowed.
(2) If any inputs in respect of which credit has been taken are not fully accounted for as having been disposed of in the manner specified in this Section the manufacturer shall upon a written demand being made by the Asstt. Collector of Central Excise, pay the duty leviable on such inputs within 10 days of the notice of demand." (c) The modality has been clarified by indicating that the question of recovery arises only on utilisation of the credit.
(e) The proviso to Sub-rule (1) specifically enabling the manufacturer to make adjustments on his own under intimation to the proper officer has been deleted.
By the amendment of 16-3-1995 the starting point of limitation has been changed to the date of filing the return under Rule 57G(4) and in cases where no return is filed to the last date on which such return is required to be filed. The period of 10 days in Sub-rule (2) has been enlarged to three months. Sub-rule (3) has been incorporated to provide for requirement of payment of interest if the amount is not paid within the statutory period.
11. The words "credit taken on account of an error or omission or misconstruction on the part of an officer or a manufacturer or an assessee" clarify and to some extent widen the concept underlying the words, "wrongly taken". Rule 57-1, as it originally stood and in its amended for deals only with credit not really due or entitled to but taken knowingly or unknowingly. Where the manufacturer takes less credit than what he is entitled to, it is not taking wrongful credit or credit taken on account of any error, omission or misconstruction. Such a mistake committed by the manufacturer is not within the ambit of Rule 57-1 and cannot be corrected thereunder; that is because, it can be corrected by the manufacturer on realising his mistake by making further entries in the accounts under intimation to the proper officer.
He has the right to take correct credit and duty to make necessary correct entries. A manufacturer does not require prior sanction or permission of any officer to take credit. Therefore, if originally he did not take credit or took credit of lesser amount than what he was entitled to on account of a mistake, he could take credit of the correct amount or the correct balance amount also without previous sanction or permission of any officer. We are, in these appeals, not directly concerned with credit dealt with under Rule 57-1.
12. In all the cases before us, inputs had been received by the manufacturer of final products in 1986 and early 1987 well before 15-4-1987. In Appeal No. E/607/89 differential duty was paid during the period from March, 1986 to 2-4-1987 and credit was taken during the period from August, 1987 to December, 1987. In the other appeals, duty or differential duty was paid in 1986 and credit taken in 1986 and early 1987 prior 15-4-1987. In Appeal E/2601/94, the Assistant Collector allowed the credit by order dated [23-6-1987], but the Collector (Appeals) held that Rule 57E did not apply to the case and directed the Assistant Collector to examine if credit was allowable under Rule 57A, independent of Rule 57E. The Assistant Collector held that credit was not allowable under Rule 57A, but the Collector (Appeals) set aside the order and allowed the credit. Thus, the finding of inapplicability of Rule 57E in Appeal E/2601/94 has become final since the assessee did not challenge the earlier order of Collector (Appeals) before the Tribunal. In the other appeals, all contentions are open and the question of taking credit or allowing credit or disallowing credit has not become final.
13. The second proviso to Rule 57G(2) barring taking of credit after six months of the date of issue of any of the documents specified in the proviso was incorporated with effect from 29-6-1995. The amendment has no retrospective effect and cannot apply to situations which crystallised before 29-6-1995. Hence, the bar under the second proviso is not applicable to the present appeals. Rule 57-1 is also inapplicable since these appeals do not arise out of wrongful taking of credit. The present cases relate to variation due to various reasons, of duty paid on inputs for no fault of the manufacturers of final products. The controversy in these appeals has to be decided on the basis of harmonious understanding of Rules 57G and 57E, in the background of Rule 57A. We have already indicated that Rule 57A deals besides the definition of "input" with applicability of the provisions of the Section indicating the broad contours of the scheme and rights and obligations have to be founded on' the succeeding Rules.
14. There is no dispute that the requirements of Rule 57G, namely, declaration, inputs being accompanied by one Or the other of the prescribed documents and the like have been followed by the manufacturers of final products in these cases. The second proviso to Rule 57G barring taking of credit after six months of the date of issue of any of the documents specified in the first proviso did not exist at the relevant time and is, therefore, inapplicable in these cases. Rule 57G(2) entitles a manufacturer who has filed a declaration under Sub-rule (1) to take credit of the duty paid on the inputs, after obtaining dated acknowledgement of the declaration. Thus, going by Rule 57G, the manufacturers of final products in these cases, who otherwise attract the relevant scheme and have satisfied the requirements of Rule 57G would be entitled to take credit for the duty or differential duty paid by the manufacturers of inputs subsequent to the clearance of the inputs. During the period relevant in these cases, Rule 57E contained only a provision relating to variation of credit consequent on variation of duty resulting in payment of refund to the manufacturer of inputs and did not contain a provision for variation of credit consequent on variation of duty resulting in payment of more duty by the manufacturer of inputs. For the first time, variation of credit consequent on variation of duty and resulting in recovery of more duty from the manufacturer of inputs was incorporated with effect from 1-3-1987; but this was applicable only if the variation of duty was due to a change in classification of inputs on the basis of instructions issued by the Board. The amendment which took effect on 15-4-1987 covered all cases of variation of duty resulting in payment of refund to or recovery of more duty from the manufacturer of inputs. What is the effect of Rule 57E on the right of manufacturer vested under Rule 57G(2) 15. The right of the manufacturer of final products to take credit of the duty paid on specified inputs after obtaining dated acknowledgement is absolute and without any conditions other than those in Rule 57G.The first proviso to Rule 57G(2) introduced in 1995 imposes a time limit on the exercise of the right, namely, limit of six months from the date of issue of any of the documents specified in the first proviso, namely Gate Pass (or later, invoice), AR 1, Bill of Entry. In the very nature of things, this limitation can relate only to taking credit of the duty showed in the document referred to in the first proviso, as paid and cannot relate to duty not shown in the said document as paid. Where entire duty or part of the duty was paid not at the stage of clearance of inputs but much later (as in the present cases, clearance of inputs without payment of duty on the strength of a withdrawn exemption notification in ignorance of the withdrawal, or on payment of duty on pre-revision prices or on payment of duty before finalisation of price list which led to payment of differential duty subsequently), payment would not be reflected in the documents referred to in the first proviso to Rule 57G(2) and payment might not take place before the expiry of six months from the date of such documents.
Therefore, the provision for time limit can apply only to cases of payment of duty as evidenced by such documents and cannot apply to cases under consideration where duty or differential duty has been paid subsequently. The Rule-making authority evidently thought it desirable that the act of taking credit of duty paid as evidenced by such documents should not be prolonged unduly and the manufacturer must act within a reasonable period. But bar of limitation, as far as assessee is concerned, cannot be imported by analogy and cannot apply to the instance under consideration in these appeals. Thus, on a careful consideration, Rule 57G itself enables the manufacturers of final products to take credit of duty paid by manufacturers of inputs subsequent to clearance of inputs. The same must necessarily be the position when on account of variation of duty refund is made to the manufacturer of inputs. Such variation amounts to correction of entry relating to quantum of duty in the documents referred to in the first proviso to Rule 57G(2). Since the right of the manufacturer of final products is to take credit of the actual and correct amount of duty, where he has taken excess credit on the basis of the documents aforesaid, he has an inherent obligation to reverse the excess credit or pay the excess amount; that being so, in the event of his failure to do so, the department has right to direct him to do the right thing, namely, to reverse the excess credit or pay the excess amount. There is no difficulty in doing this, if the assessment on monthly RT 12 return has not been completed. Even if such assessment is completed, the department can have recourse to general provisions of Section 11A of the Act.
16. On such an understanding of Rule 57G, it is manifest that the intention underlying Rule 57E is to state expressly what is clearly implicit in Rule 57G. Rule 57E is merely clarificatory in its ambit, incoporated by way of abundant caution and to set at rest any doubts in the matter. A doubt may have arisen as to whether in the absence of a specific provision enabling the department to adjust or claim recovery of credit taken on variation of duty paid resulting in refund to the manufacturer of inputs; such a doubt was intended to be set at rest by providing for Rule 57E in its original form. Same is the position regarding the amendment introduced with effect from 1-3-1987 specifically providing for variation of duty paid due to change in classification of the inputs on the basis of instructions issued by the Board resulting in the recovery of more duty from the manufacturer of inputs. This contingency is also necessarily implicit in the provision in Rule 57G(2) enabling credit to be taken of duty paid, which creates, in the case of a manufacturer entitled to take credit and opting to take credit, an obligation to take credit of the correct and actual amount of duty paid. Rule 57E which provided for two limited contigen-cies would naturally cause a doubt as to whether credit taken cannot be varied in other cases of variation of duty leading to recovery of more duty from the manufacturer of inputs. The Rule-making authority manifestly did not have the intention of denying variation of credit in such a contingency and accordingly further amended the Rule with effect from 15-4-1987, clarifying the position without any ambiguity. A harmonious reading of Rules 57G and 57E in the light of the broad contours of the scheme contained in Rule 57A makes it manifestly clear that Rule 57F is clarificatory in content and procedural in nature, indicating the procedure to be adopted in such case. The amendments introduced to Rule 57E are intended to further clarify the position and to indicate the procedure to be followed in the contingencies contemplated therein. Being essentially clarificatory and procedural, the amended provision will apply to all situations of adjustment, recovery or refund which had not become concluded before 15-4-1987. The amendment is retrospective in this sense. Any other view would result in manifest injustice to the manufacture of final products, there is nothing in the scheme or the provisions to contra-indicate the view that the amendment to Rule 57E is intended to have retrospective effect. There would be a large number of instances where the classification list or price list of the manufacturer of inputs had been provisionally approved and finalisation was made subsequent to the clearance of inputs or even subsequent to the documents referred to in the first proviso to Rule 57G(Z). The provision of taking credit in Sub-rule (2) of Rule 57G must necessarily be of the duty as finally and not merely of duty provisionally determined on the inputs. This aspect also supports our view that adjustment, refund or recovery of credit on variation of duty paid is implicit in Rule 57G and the provision in Rule 57E and the amendments made thereto are clarificatory and procedural and the amendment has retrospective effect. Of course, such adjustment, refund or recovery can be made only on satisfaction regarding the variation of duty on inputs.In M/s. Arvind Detergents Ltd. v. Collector of Central Excise, Bombay - 1987 (10) ECR 44, the Tribunal held that recovery under Rule 56A(2) of the Rules of the amount of proforma credit taken is subject to the provision of limitation contained in Rule 56A(5) of the Rules. In Bharat Bijlee Ltd. v. Collector of Central Excise, Bombay - 1996 (83) E.L.T. 496 (Bombay), input payment of duty on the basis of classification suggested by the department and the manufacturer of the finished goods took proforma credit of the amount of such credit.
Subsequently, the High Court held that the input fell under a different tariff entry and was exempt from payment of duty, as a result of which the duty paid on the input was refunded. The department issued show cause notice for payment of the amount of duty taken credit of. The High Court held that the error or misconstruction of the department in classifying the input led to payment of duty on the input and further led to the department to grant credit under Rule 56A(2), that the correction of the error led to refund, that hence the claim of the department regarding credit amount was governed by Rule 56A(5) of the Rules and the starting point of limitation was the date of credit as provided thereunder and not the date of refund. Bakeman's Home Products Pvt. Ltd. v. Collector of Central Excise -1990 (48) E.L.T. 518 (Tribunal) dealt with a case of credit taken by a biscuit manufacturer under Notification No. 201/79 of duty paid on the input "Malt Extract".
A subsequent decision of the High Court of Delhi had the effect of treating the input as completely exempt from payment of duty as a result of which the duty amount was refunded. The department claimed payment of the amount of duty taken credit of. Paragraph 3 of the Notification contained a provision similar to Rule 57E of the Rules.
The Tribunal held Paragraph 3 of the Notification did not apply and the show cause notice would be subject to Section 11A of the Act. The above decisions may not have relevance in considering present cases under Modvat credit scheme.
18. The decision of the Tribunal in Indo National Ltd. v. Collctor of Central Excise - 1989 (41) E.L.T. 422 and Guest Keen Williams Ltd. v.Collector of Central Exicse - 1990 (47) E.L.T. 141 dealt with cases of Modvat credit under Section AA of Chapter 5 of the Rules. In the first of these cases, the manufacturer of input paid duty at a lesser rate but subsequently paid the differential duty. The manufacturer of finished goods initially took credit of the duty originally paid and subsequently took credit of the amount of differential duty. The department issued notice objecting to the credit taken of the amount of differential duty. The Tribunal held that the variation of rate of duty was necessary to attract Rule 57E and it was not a case of variation of rate of duty but a case of a mistake committed by the manufacturer of the input and hence Rule 57E did not apply. The case was remanded for consideraticn of the matter under Rule 57A. In the second case, a single Member of the Tribunal held that where differential duty was collected after duty on input was paid at a wrong rate, it would not be a case of variation of rate of duty contemplated by Rule 57E and credit can be taken of the amount of differential duty under Rule 57A. These two decisions were clearly in error in proceeding on the basis that Rule 57E deals with variation of "rate of duty". Rule 57E deals with "variation of duty" and not "variation of rate of duty". We have already indicated that Rule 57A, besides defining "input", indicates the contours of the Modvat scheme and specific rights and obligations of parties have to be decided on the basis of specific provisions applicable in a given situation. These two decisions are not in accordance with the view we have taken herein and cannot be regarded as laying down correct law.
19. The manufacturers of final products in these appeals are entitled to the relief claimed by them. The contrary view taken in some of the earlier decisions is not correct.
20. Appeal No. E/607/89 is dismissed. The orders impugned in the other appeals are set aside and these appeals are allowed.