By TIOL News Service

NEW DELHI, JUNE 03, 2016: SECTION 112(1), (2) of the Finance Act, 2000 reads -

112. Validation of the denial of credit of duty paid on high speed diesel oil. -

(1) Notwithstanding anything contained in any rule of the Central Excise Rules, 1944, no credit of any duty paid on high speed diesel oil at any time during the period commencing on and from the 16th day of March, 1995 and ending with the day, the Finance Act, 2000 receives the assent of the President, shall be deemed to be admissible.

(2) Any action taken or anything done or purported to have been taken or done at any time during the said period under the Central Excise Act or any rules made thereunder to deny the credit of any duty in respect of high speed diesel oil, and also to disallow such credit to be utilised for payment of any kind of duty on any excisable goods shall be deemed to be, and to always have been, for all purposes, as validly and effectively taken or done, as if the provisions of sub-section (1) had been in force at all material times and, accordingly, notwithstanding anything contained in any judgment, decree or order of any court, tribunal or other authority,-

Apparently, pursuant to the above, the Supdt. CE by a letter dated 13.07.2000 called upon the petitioner to pay back a sum of Rs.1,69,91,809/- stated to have been claimed as MODVAT credit under Rule 57A of the CER, 1944 for the period 16th March, 1995 to 12th May, 2000.

The Petitioner challenged Section 112 of the Finance Act, 2000 as being ultra vires the Constitution of India.

Prior to this, the credit was denied by the lower authorities and the matter travelled from the Commissioner (A) to the Tribunal (1998); then to the High Court and Supreme Court (2001) and finally the Allahabad High Court in October 2015 held in favour of the assessee petitioner.(Note that section 112(2) took care of the same as can be seen from above.)

Be that as it may, before the High Court in the matter of the current petition, the Counsel for the Revenue, countered the arguments advanced by the petitioner and contended that the issues raised were no longer res integra in view of the decisions of the Supreme Court in Sangam Spinners Limited v. Union of India and Ors - 2011-TIOL-31-SC-CX and Union of India and Ors. v. Maharaja Shree Umaid Mills: - 2013-TIOL-66-SC-CX.

The High Court inter alia observed that in the case of Sangam Spinners Ltd. the Supreme Court noted that although the appellants were not entitled to claim MODVAT credit on the duties paid on HSD, the Tribunals had held otherwise and "therefore, there was a necessity for the Finance Act to be brought in whereby a clarificatory explanation to the legal position was laid down". Further, the Supreme Court had also rejected the contention of the appellants therein that Section 112 of the Act had the effect of taking away vested rights.

Inasmuch as although the petitioner is correct when they contend that the constitutional validity of Section 112 of the Act was not challenged in Sangam Spinners Limited, however, the contention whether any vested right was created in favour of the appellants was considered by the Supreme Court and the same was expressly rejected. Moreover, the Supreme Court had further held that Section 112 of the Act was clarificatory and the appellants were not entitled to credit for duties paid on HSD by virtue of the express exclusion in notifications dated 1st March, 1994 and 16th March, 1995.

The High Court, therefore, observed that the very basis on which the Petitioner advanced its contentions stood eroded & the contention that the provisions of Section 112 of the Act are ex propriatory were rejected.

To the Petitioner's contention that a separate adjudication was required for raising a demand for recovery of MODVAT credit availed on HSD, the High Court held that the same cannot be accepted in view of the following observations of the Supreme Court in Maharaja Shree Umaid Mills (supra):

"In the aforestated circumstances, in our opinion, there was no issue with regard to any adjudication because the Respondents had availed MODVAT credit on the HSD oil used as an input though it was not permissible. Once it is certain that the MODVAT credit had been wrongly availed by the Respondents, in our opinion, the Revenue cannot be blamed, if the amount wrongly availed by way of MODVAT credit by the respondents is recovered with interest thereon. It is also pertinent to note that the Revenue had given 30 days' time to return the said amount to the Respondents who had wrongly availed MODVAT credit on the HSD oil used as an input. If anyone who had repaid the amount wrongly availed within 30 days from the date on which Section 112 of the 2000 Act got the President's assent, that Assessee had not to pay any interest on the amount of duty availed by him wrongly. But those who had availed the MODVAT credit on the HSD oil used as an input and did not return the said amount even within 30 days from the date on which the President had given assent to the enactment of Section 112 of the 2000 Act, had to return the amount wrongfully retained by them with interest at the rate of 24% p.a. In our opinion, such a course, adopted by the Revenue for recovery of the amount which was legitimately claimed by the Revenue, cannot be said to be bad in law."

Concluding that it was clear from the cited decisions that Section 112 of the Act has been held to be clarificatory and it has been conclusively held that MODVAT credit on duties paid on HSD used as an input was not available and consequently,assessees who had claimed the same were liable to refund the credit wrongly taken, the petition was dismissed.

(See 2016-TIOL-1060-HC-DEL-CX)