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2012 Supreme(Guj) 253
Hon’ble Mr. Acting Chief Justice Bhaskar Bhattacharya &
Hon’ble Mr. Justice J.B. Pardiwala
Gujarat Paraffins Pvt. Ltd. & Anr.
Versus
Union of India & Ors.
Special Civil Application No. 8935 of 1998—Decided on 30/04/2012
Appearance :
Mr. Paresh M. Dave, for the Petitioners No. 1 - 2.
Ms. Sejal K. Mandavia, for the Respondents No. 1 - 3.
Whether Central Excise Notification No. 14/97 dated. 03.05.1997 is invalid and unconstitutional.
Headnote:Head Note :
Constitution of India, 1950 — Article 226 — Central Excise Notification No. 14/97, dated 03.05.1997 — Legality and validity of — Restricting the admissibility of Modvat credit for inputs imported into India — Finding of — The object of amendments so made vide Notification No. 14/97 and Section 87 of Finance Act, 1997 was to restrict Modvat Credit to 10% for inputs produced and manufactured in India — By clubbing non-APM products i.e. inputs imported on payment of fully duty at the rate of 15% the objective was not achieved and the amendments had no rationale relation with imports of petroleum products at full rate of duty — In the circumstances Notification No. 14/97 dated 03.05.1997 is ultra vires Articles 14 and 19(1)(g) of Constitution — Notification is hereby declared violative of Article 14 and hereby quashed and set aside — The demand raised by respondents and the consequential order of penalty is also quashed and set aside.
Held :
Court is of the view that the fact that Modvat credit of full 15% is allowed for inputs imported directly by manufacturer for his own use from November 27, 1997 by making appropriate amendment under the main Notification No. 5/1994 issued under Rule 57A is suggestive of the fact that the Government took cognizance of the error of restricting Modvat credit to 10% ad valorem in cases of imported inputs. When the amendment for restricting Modvat credit was made effective retrospectively upon realizing that few manufacturers purchasing inputs in the nature of petroleum products from local refineries were taking undue advantage of 5% excess Modvat credit, then in that case, the Central Government ought to have rectified the error of restricting Modvat credit in case of imported inputs with retrospective effect. [Para 36]
The only objective sought to be achieved by restricting Modvat credit to the extent of 10% for inputs in the nature of petroleum products was to allow manufacturers purchasing such petroleum products from public sector refineries the credit of that amount which was actually paid by them as excise duty. Since duty only to the extent of 10% was recovered from such manufacturers by refineries whereas 5% was paid to the refineries from Oil Pool Account fright from July 23, 1996, the restriction under the Notification No. 14/1997 was made for allowing Modvat credit to the extent of only 10% and this Notification issued on May 3, 1997 was given retrospective effect from July 23, 1996 onwards. By virtue of the clarifications made vide various Trade Notices, the objective of restricting Modvat credit to only 10% right from July 23, 1996 in case of APM products i.e. petroleum products purchased from public sector refineries was clarified by the Government itself. The objective of the amendments so made vide Notification No. 14/1997 and Section 87 of the Finance Act, 1997 was to restrict Modvat credit to 10% for inputs produced and manufactured in India is thus an undisputable position. By clubbing non-APM products, i.e. inputs imported on payment of full duty at the rate of 15%, the objective was not achieved and the amendments had no rationale relation with imports of petroleum products at full rate of duty. [Para 38]
In the aforesaid premises of the matter, Court hold that the Notification No. 14/1997 dated May 3, 1997 is ultra vires Articles 14 and 19(1)(g) of the Constitution of India in so far as it is sought to be applied to the petitioner in respect of import of its non-APM products. [Para 39]
It is hereby declared that the Notification No. 14/1997 dated May 3, 1997 restricting admissibility of Modvat credit for all the petroleum products to the extent of 10% irrespective of the fact that whether the inputs were manufactured in India or the inputs were imported into India, being violative of Article 14 of the Constitution of India, is hereby quashed and set-aside. [Para 40]
Law Laid Down :
Legislature is competent to make laws both prospective and retrospective.
J.B. Pardiwala, J.—By way of present petition under Article 226 of the Constitution of India, the petitioner-Company engaged in the business of manufacturing of paraffin wax has prayed for the following reliefs :
“8(A) That Your Lordships may be pleased to issue a Writ of Mandamus or a Writ in the nature of Mandamus or any other appropriate writ, direction or order, holding and declaring that Section 87 of the Finance Act, 1997 is ultra-vires Articles 14, 19(1)(g) and 265 as well as Entry 84 of the Union List to the Seventh Schedule of the Constitution of India and also ultra vires Section 11a of the Central Excise Act and be further pleased to strike down Section 87 of the Finance Act, 1997 as ultra vires and Unconstitutional;
(A-I) That this Hon’ble Court may be pleased to issue an appropriate writ, direction or order under Article 226 of the Constitution of India declaring that the Notification No. 14/97 is ultra vires and unconstitutional in so far as it is sought to be applied to the 1st petitioner in respect of import of its non-APM products;
(B) That Your Lordships may be pleased to issue a Writ of Mandamus or a Writ in the nature of Mandamus or any other appropriate Writ, direction or order holding and declaring that the case of the petitioners is covered under Rule 57b of Central Excise Rules, 1944 and consequently, the provisions of Notification No. 14/97-Central Excise (NT) dated 03.05.97 and Section 87 of the Finance Act, 1997 are not applicable in the petitioners case;
(C) That Your Lordships may be pleased to issue a writ of mandamus or a writ in the nature of mandamus or any other appropriate writ, direction or order setting aside the demand raised by the respondents, their servants and agents on the ground that the petitioners were entitled to take credit of duty paid on Paraffin wax only to the extent of 10% ad valorem from 23.07.96 (Annexure- F”);
(D) That Your Lordships may be pleased to issue a Writ of Mandamus or a Writ of prohibition or any other appropriate Writ, direction or order completely and permanently prohibiting the respondents, their servants and agents from taking any action against the petitioners in pursuance of Notification No. 14/97-Central Excise (NT) dated 03.05.97 and Section 87 of the Finance Act, 1997;
(E) Pending hearing and final disposal of the present petition, Your Lordships may be pleased to restrain the respondents, their servants and agents from implementing the provisions of Notification No. 14/97-CE (NT) dated 03.05.97 and Section 87 of the Finance Act, 1997 against the petitioners;
(F) That an ex-parte ad-interim relief in terms of Paragraph 8(E) above may kindly be granted;
(G) That any other further relief that may be deemed fit in the facts and circumstances of the case may also please be granted.”
2. At the very outset, the learned Counsel Mr. P.M. Dave appearing for petitioner submitted that he is giving up the challenge so far as the constitutional validity of Section 87 of the Finance Act, 1997 is concerned. He submitted that he would like to confine his challenge only to the legality and validity of the Notification bearing No. 14/97-CE (N.T.) dated May 3, 1997 (hereinafter referred to as ‘the impugned Notification’) issued by the Central Government, insofar as it restricts the admissibility of Modvat credit for inputs imported into India.
3. The facts relevant for the purpose of deciding the present petition can be summarised as under :
3.1 The petitioner-Company is engaged in the business of manufacture of paraffin wax, which is an excisable goods under the Central Excise Act, 1944 (hereinafter referred to as ‘the Act’) and the petitioner is using paraffin wax classifiable under the heading No. 27.12 of the Customs Tariff as one of the inputs. The challenge is to the constitutional validity of Notification bearing No. 14/97-CE (N.T.) dated May 3, 1997 on the ground that it is ultra vires Articles 14, 19(1)(g) and 265 of the Constitution of India and also Rule 57(A) of
