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1994 Supreme(Mad) 123
High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE KANAKARAJ
Medopharma - Appellant
Versus
Supdt. of Central Excise, Madras - Respondents
W.P. No. 5036 of 1988
Decided On : 27 January 1994
The requirement of producing gate passes or other specified documents as proof of payment of excise duty on inputs purchased in the open market in order to claim Modvat credit is not unconstitutional or unreasonable, and it does not discriminate against small manufacturers.
Headnote:
CENTRAL EXCISE - MODVAT SCHEME - RULE 57G - PROVISO - VALIDITY - INTERPRETATION - LIMITATION - SECTION 11A OF THE CENTRAL EXCISES AND SALT ACT, 1944 - RULE 57-I OF THE CENTRAL EXCISE RULES, 1944.
Fact of the Case:
The petitioners, manufacturers of patent or proprietary medicines, challenged the validity of the first proviso to Rule 57G(2) of the Central Excise Rules, 1944, which required them to produce gate passes or other specified documents as proof of payment of excise duty on inputs purchased in the open market in order to claim Modvat credit. They argued that the proviso was unconstitutional and unreasonable, and that it discriminated against small manufacturers who could not purchase inputs directly from factories. The petitioners also contended that the demand for recovery of the Modvat credit was barred by limitation under Section 11A of the Central Excises and Salt Act, 1944, and Rule 57-I of the Central Excise Rules, 1944.
Finding of the Court:
The court held that the first proviso to Rule 57G(2) of the Central Excise Rules, 1944, was not unconstitutional or unreasonable. The court found that the requirement of producing gate passes or other specified documents was a reasonable way to ensure that Modvat credit was only claimed for inputs on which excise duty had actually been paid. The court also rejected the petitioners' argument that the proviso discriminated against small manufacturers, noting that it was open to them to make representations to the government and seek an exemption if they were so entitled. The court further held that the demand for recovery of the Modvat credit was not barred by limitation, as the petitioners had availed of the credit without any permission from the authorities and therefore, the question of limitation either under Section 11A of the Act or under Rule 57-I of the Rules will not at all arise.
Issues: 1. Whether the first proviso to Rule 57G(2) of the Central Excise Rules, 1944, is unconstitutional or unreasonable? 2. Whether the requirement of producing gate passes or other specified documents as proof of payment of excise duty on inputs purchased in the open market discriminates against small manufacturers? 3. Whether the demand for recovery of the Modvat credit is barred by limitation under Section 11A of the Central Excises and Salt Act, 1944, and Rule 57-I of the Central Excise Rules, 1944?
Ratio Decidendi: 1. The first proviso to Rule 57G(2) of the Central Excise Rules, 1944, is not unconstitutional or unreasonable. The requirement of producing gate passes or other specified documents is a reasonable way to ensure that Modvat credit is only claimed for inputs on which excise duty has actually been paid. 2. The requirement of producing gate passes or other specified documents as proof of payment of excise duty on inputs purchased in the open market does not discriminate against small manufacturers. It is open to them to make representations to the government and seek an exemption if they are so entitled. 3. The demand for recovery of the Modvat credit is not barred by limitation, as the petitioners had availed of the credit without any permission from the authorities and therefore, the question of limitation either under Section 11A of the Act or under Rule 57-I of the Rules will not at all arise.
Final Decision: All the writ petitions were dismissed.
All these writ petitions relate to the propriety of claiming Modvat Credit on the inputs purchased by the petitioners from the open market without properly complying with Rule 57-G of the Central Excise Rules. The writ petition have been filed at various stages of the proceedings initiated by the respondents. W.P. No. 5036 of 1988 has been filed by Medopharm, a partnership firm, challenging the order dated 7-3-1988, which is only a show cause notice seeking to recover the amount of Modvat Credit wrongly availed of, and proposing to impose penalty for the violation of the Rules.
2.W.P. No. 9006 of 1988 has been filed by the said Medopharm represented by its Managing Partner questioning the order of the first respondent dated 8-2-1988 made on an appeal, confirming the demand for the amount of Modvat Credit wrongly availed of by the petitioner and imposing a penalty for the violation of the Rules. W.P. No. 9007 of 1988 has been filed by Medopharm Pharmaceuticals by its Proprietrix against a similar order dated 8-2-1988 made by the Collector of Central Excise (Appeals). W.P. No. 9008 of 1988 has been filed by the said Medopharm represented by its partner against the order 8-2-1988 made by the Collector of Central Excise (Appeals). W.P. No. 9009 of 1988 has been filed by Managing Partner of Medopharm, against the order dated 8-2-1988 made by the Collector of Central Excise (Appeals). W.P. No. 9010 of 1988 has been filed by Medopharm Laboratories represented by its Proprietrix against the order dated 8-2-1988 made by Collector of Central Excise (Appeals). W.P. No. 10430 of 1988 has been filed by Medopharm Laboratories represented by its Proprietrix against the order dated 30-3-1988 made by the Collector of Central Excise. W.P. No. 10431 of 1988 has been filed by Medopharm Pharmaceuticals represented by its Proprietrix against the order dated 30-3-1988 made by the Collector of Central Excise (Appeals). W.P. No. 10432 of 1988 has been filed by Medopharm, a partnership firm, against the order of the Collector of Central Excise (Appeals) dated 17-5-1988. W.P. No. 10511 of 1988 has been filed by Alfred Berg & Co. (I) Private Limited, represented by its Director, for a Declaration to declare first proviso to Rule 57G(2) of Central Excise Rules, 1944, as unconstitutional. W.P. No. 9674 of 1989 has been filed by Medopharm, a partnership firm, for a mandamus to forbear the respondents from disallowing Modvat credits in respect of inputs purchased in the open market.
3.All the writ petitions can be disposed of if we decide the issue raised in W.P. No. 10511 of 1988 seeking to declare the first proviso to Rule 57G(2) of the Central Excise Rules, 1944 as unconstitutional. This is because if this Rule is strictly enforced the impugned show cause notice and other impugned orders are unimpeachable. Learned Senior Counsel Mr. R. Krishnamoorthy, appearing for the petitioners, has argued alternatively that even if the first proviso to Rule 57G(2) of me Central Excise Rules is not invalidated, the said first proviso must be read down to give a meaning in favour of the petitioners and upholding their right to avail of Modvat credit notwithstanding the failure to file the documents required under the said Rule.
4.The case of the petitioners as set out in W.P. No. 5036 of 1988 may be noticed to understand the scope of the proceedings. The petitioners are said to be a manufacturer of patent or proprietary medicines classified under Chapter 30 of the Central Excise Tariff; In the year 1986, the Central Government introduced a scheme known as Modvat, under which a manufacturer is allowed to take credit for the Excise-duty paid on the inputs and deduct the same from the excise duty payable on the final products. Rules 57A to 57P of the Central Excise Rules (hereinafter called "the Rules") deal with the procedure for availing the credit. Rule 57G enjoins upon the petitioner to send a declaration to the Assistant Collector of Central Excise indicating
