Rule 57F(4A) of the Central Excise Rules, 1944, was not applicable to goods manufactured prior to 16th March, 1995, on which duty had been paid and credit facility had been availed for the purpose of manufacture of further goods.

Headnote:
CENTRAL EXCISE ACT, 1944 - SECTION 37 - RULE 57F(4A) - Validity of Rule 57F(4A) of the Central Excise Rules, 1944 - Lapsing of unutilised credit lying with manufacturers on 16th March, 1995 - Challenge to the validity of the rule on various grounds.
Fact of the Case:

The petitioners, manufacturers of tractors and motor vehicles, challenged the validity of Rule 57F(4A) of the Central Excise Rules, 1944, which lapsed the unutilised credit lying with them on 16th March, 1995. They contended that the rule was arbitrary, unreasonable, and ultra vires the rule-making power under Section 37 of the Central Excise Act, 1944.
Finding of the Court:

The court held that Rule 57F(4A) was not applicable to goods manufactured prior to 16th March, 1995, on which duty had been paid and credit facility had been availed for the purpose of manufacture of further goods. The court found that the rule affected the rights of the assessees and that Section 37 of the Act did not enable the authorities to make such a rule.
Issues: 1. Whether Rule 57F(4A) of the Central Excise Rules, 1944, was valid and applicable to goods manufactured prior to 16th March, 1995? 2. Whether the rule was arbitrary, unreasonable, and ultra vires the rule-making power under Section 37 of the Central Excise Act, 1944?
Ratio Decidendi: The court held that the scheme sought to be introduced by Rule 57F(4A) could not be applied to goods which had already come into existence and in respect of which the earlier scheme was applied. The court found that the rule affected the rights of the assessees and that Section 37 of the Act did not enable the authorities to make such a rule.
Final Decision: The court allowed the petitions filed by the assessees and declared that Rule 57F(4A) could not be applied except in the manner indicated by the court.

Judgement

RAJENDRA BABU, J. :- In these petitions validity and application of the Scheme, as modified by introduction to Rule 57F (read as 57F(4-A) of the Central Excise Rules, 1944 under which credit which was lying unutilised on 16th March, 1995 with the manufacturers, stood lapsed in the manner set out therein is questioned.

The relevant rule reads as follows: 893

"(4A) Notwithstanding anything contained in Sub-rule (4) or sub-rule (1) of Rule 57A and the notification issued thereunder any credit of specified duty lying unutilised on the 16th day of March, 1995 with a manufacturer of tractors, falling under heading No. 87.01 or motor vehicles falling under heading No. 87.02 and 87.04 or chassis of such tractors or such motor vehicles under heading No. 87.06 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) shall lapse and shall not be allowed to be utilised for payment of duty on any excisable goods, whether cleared for home consumption or for export:

Provided that nothing contained in this sub-rule shall apply to credit of duty, if any, in respect of inputs lying in stock or contained in finished products lying in stock on the 16th day of March, 1995."

2. There are three assessees before us seeking for quashing of the said rule. The grounds in support of the challenge to the validity of the said rule are as follows:

1. MODVAT credit lying in balance with the assessee as on 16-3-1995 represents a vested right accrued or acquired by the assessee under the existing law and such right is sought to be taken away by impugned Rule 57F(4A) and the Central Government has no powers under Section 37 of the Central Excise Act, 1944 (hereinafter referred to as the Act) or any other provision thereof to frame such a rule.

2. The impugned rule is arbitrary and unreasonable as the same has been framed without due application of mind to the relevant facts and it has been exercised on the basis of non-existent facts or which are patently erroneous.

3. Section 37 of the Act does not enable the Central Government to frame a rule enabling the lapsing of the balance in MODVAT account and is therefore ultra vires the rule making power.

4. The rule is vitiated on the grounds of promissory estoppel and/or the doctrine of legitimate expectation.

3. On behalf of the respondents it is submitted that impugned Rule 57F(4A) is only a part of a scheme providing for giving concessions under the taxation enactment. The scheme need not be continued for all time to come and could be put to an end at any time and thus all that has happened is that the scheme which was available earlier is no longer available and, therefore, it is not open to contend that the scheme affects any vested right; and, that under the scheme it is only a mode of adjustment of taxes which were provided and there is no vested right accrued to the assessee. Thus a rule which merely lapsed does not give rise to the contention advanced on behalf of the petitioners and the withdrawal of concessions at any rate is not retrospective in effect to apply either the principle of promissory estoppel and/or the doctrine of legitimate expectation or even the rule that a vested right cannot be taken away. It is further made clear that a credit facility which is made available could not be allowed to perpetuate and the entire rule is in the form of a package and it makes it clear that there shall be no credit by rationalising the duty structure making it clear that addition of any input can be utilised upto a particular point of time. Certain anomalies were noticed in the implementation of the scheme inasmuch as, if the benefit of concession had been extended, though on the original item manufactured, a duty was liable to be paid and the ultimate product remains a duty free product and thus led to a situation where on the item originally manufactured which was used as an input was paid only in order to avoid payment of duty on the ultimate goods manufactured by them. In the original scheme in

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