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CASE NO.:

Appeal (civil) 7534 of 2005

PETITIONER:

M/s. Shree Hari Chemicals Export Ltd.

RESPONDENT:

Union of India and Anr.

DATE OF JUDGMENT: 16/12/2005

BENCH:

S.B. Sinha & P.K. Balasubramanyan

JUDGMENT:

J U D G M E N T

[Arising out of S.L.P. (Civil) No.528 of 2005]

S.B. SINHA, J :

Leave granted.

The Appellant herein inter alia is engaged in manufacture of

Hydrochloric Acid. It falls under Chapter Heading 29 of the First Schedule

of the Central Excise Tariff Act, 1985. It uses Naphthalene for the

manufacture of Hydrochloric Acid.

Chapter AA of the Central Excise Rules, 1944 (for short "the Rules")

provides for credit of duty paid on excisable goods used as inputs.

(hereinafter referred to as "the Modvat Credit Scheme"). Sub-rule (1) of

Rule 57A which was applicable at the relevant time reads as under:

"The provisions of this section shall apply to such

finished excisable goods (hereinafter referred to as the

"final products"), as the Central Government may, by a

notification in the Official Gazette, specify in this behalf,

for the purpose of allowing credit of any duty of excise

or the additional duty under Section 3 of the Customs

Tariff Act, 1975 (51 of 1975) as may be specified in the

said notification (hereinafter referred to as the "specified

duty") paid on the goods used in or in relation to the

manufacture of the said final products. (hereinafter

referred to as the "inputs") and for utilizing the credit so

allowed towards payments of duty of excise leviable on

the final products, whether under the Act or under any

other Act, as may be specified in the said notification,

subject to the provisions of this section and the

conditions and restrictions that may be specified in the

notification."

Rule 56A of the Rules, however, provides for the special procedure

for movement of duty paid materials or component for use in the

manufacture of finished excisable goods. (hereinafter referred to as "the

Proforma Credit Scheme") Sub-rules (8) and (9) of Rule 56A of the Rules,

which are material for the purpose of this case, read as under:

"(8) Notwithstanding anything contained elsewhere in

this rule or any change in the nomenclature or

classification of any goods consequent to the

commencement of the Central Excise Tariff Act, 1985 (5

of 1986), the credit of duty paid on any material,

component parts or finished product shall be allowed if

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the credit of duty was allowed in respect of such

material, component parts or finished product under this

rule immediately before the commencement of the

Central Excise Tariff Act, 1985 (5 of 1986).

Provided that no such credit shall apply in respect of any

material, component parts or finished product, if such

credit was not allowable under this rule immediately

before the commencement of the Central Excise Tariff

Act, 1985 (5 of 1986).

(9) No credit of duty paid on any material, component

parts or finished product shall be allowed under this

Rule if credit of duty paid on such material, component

parts or finished product has been taken under rule

57A."

Credit under Rule 56A was said to be available on Naphthalene in

terms of a notification dated 29.12.1962. However, on or about 1st March,

1986, a notification bearing No. 177 of 1986 was issued under Rule 57A of

the Rules stating that the credit on inputs classifiable under Chapter Heading

27 of the Tariff Act would not be available. The Appellant herein during the

period September, 1991 to January, 1992 availed the credit of duty

amounting to Rs. 2,46,109/- on 1,04,119 kgs. of Naphthalene falling under

Chapter 27 of the Tariff Act in terms of Rule 57A. As the said credit facility

in terms of the Modvat Credit Scheme was not available in relation to

Naphthalene as an input for manufacturing of Hydrochloric acid, a show-