TATA ENGINEERING AND LOCOMOTIVE Vs. UNION OF INDIA

JUDGEMENT

(1.) Whether Rule 57F -(1)(ii) of the Central Excise Rules, as it was before its amendment made in 1995 in so far as it provides for payment of excise duty on the duty paid inputs brought into factory under MODVAT Credit Scheme, but removed there from for sale in market or for export on the basis "as if such inputs have been manufactured in the said factory", is ultra vires the Rules making power of the Central Government, is the question, which is involved in this writ petition.

(2.) The petitioner No. 1 (hereinafter referred to as the petitioner) manufactures commercial motor vehicles excavatore and cranes in its factory at Jamshedpur. The petitioner No. 2 is its partner. The petitioner in order to take advantage of the MODVAT Credit Scheme brought duty paid inputs in its factory for using them in or in relation to the manufacture of its final products. However, all the inputs brought in the factory under the said Scheme were not used by the petitioner in the remanufacture of its final products and unused inputs were sold in the open market. The Excise Department issued three notices dated 22.6.1988, 23.6.1988 and 7.9.1988 asking the petitioner to show cause as to why penalty be not imposed upon it for contravention of the Rules and why the excise duty on the unused inputs sold in the open market be not realised in accordance with Rule 57F(1)(ii) of the Central Excise Rules, 1944 (hereinafter referred to as the Rules). The petitioner submitted its reply. Thereafter, the department issued orders dated 30.11.1989/1.12.1989 and 12.12.1989 holding that the excise duty on the unused duty paid inputs sold in the open market is to be levied on the basis of the price at which they were sold by the petitioner in accordance with Rule 57F(1)(ii). Being aggrieved by the said notices and the orders the petitioner has filed this writ petition. It has also challenged the trade notice dated 7.2.1989 alongwith the Board's Circular dated 22.12.1989, which has been referred to in the impugned orders.

(3.) In exercise of Rule making power conferred on it Section 37 of the Central Excise Act (hereinafter referred to as the Act) the Central Government has formulated a scheme, known as MODVAT Credit Scheme (hereinafter referred to as the Scheme) for the purpose of allowing credit of excise duty paid on the goods used in or in relation to manufacture of final excisable goods/product. The Scheme for inputs is contained in Rules 57A to 57J. Rule 57A allows the credit of excise duty paid on the excisable goods used as inputs in or in relation to the manufacture of the final products and permits the utilisation of the credit so allowed towards payment of the duty on the final products. As the controversy in the present case relates to the period prior to the year 1994 -95 the MODVAT RULES (57A to 57J) as they were before the amendment in 1995 are relevant. Therefore, the unamended Rules will be cited and referred to in this judgment hereinafter.