Supreme Court of India

COLLECTOR OF CENTRAL EXCISE, JAIPURversusM/S. RAGHUVAR (INDIA) LTD.

Citation: 2000 INSC 315
Decided: 11 May 2000
Bench: G B PATTANAIK

Holding

Section 11A of the Central Excises and Salt Act, 1944 does not apply to actions under Rule 57‑1 of the Central Excise Rules, 1944 as it stood before 6 Oct 1988, and therefore the limitation period in Section 11A is inapplicable to the recovery of wrongly availed MODVAT credit.

Summary

The respondent, a manufacturer of vegetable products, filed a MODVAT declaration on 10‑Mar‑1987 but had wrongly availed credit from 1‑Mar‑1987. The Excise authorities issued a show‑cause notice under Section 11A of the Central Excises and Salt Act, 1944, invoking the six‑month limitation period to recover the wrongly taken credit, which the respondent contested as time‑barred. The matter reached the Supreme Court on a reference under Section 35H, raising the question whether Section 11A applies to actions under Rule 57‑1 of the Central Excise Rules as they stood before the 6‑Oct‑1988 amendment. The Court held that Section 11A is a general provision dealing with recovery of unlevied or short‑paid duty and does not govern the special MODVAT scheme governed by Rule 57‑1; consequently, the limitation period in Section 11A is inapplicable. The Court further ruled that courts cannot import a limitation period by implication where none is prescribed. The reference was answered in favour of the Revenue, upholding the show‑cause notice and the recovery of the wrongly availed credit.

Issues considered

Whether Section 11A of the Central Excises and Salt Act, 1944 applies to actions taken under Rule 57‑1 of the Central Excise Rules, 1944 as it existed prior to the 6 Oct 1988 amendment.
Whether the six‑month limitation period prescribed in Section 11A is applicable to the recovery of MODVAT credit wrongly availed under the pre‑amendment Rule 57‑1.
Whether a court may import a limitation period by implication when the statute or rule is silent on the matter.
Whether the special MODVAT scheme (Rule 57‑1) is governed exclusively by its own provisions and not by the general provision of Section 11A.
Whether the 1988 amendment to Rule 57‑1 affects the interpretation of the rule for actions taken before its commencement.

Legislation cited

Central Excise Rules, 1944s. Rule 57-1, s. Rule 57G
Central Excises and Salt Act, 1944s. 11A, s. 35H, s. 37

Subjects

MODVATSection 11Alimitation periodCentral ExciseRule 57-1tax recoveryspecial scheme vs general provisionreference under Section 35Hexcise dutycredit reversal

Judgment

A COLLECTOR OF CENTRAL EXCISE, JAIPUR
v.
Mis. RAGHUV AR (INDIA) LTD.

MAY 11, 2000

B
[G.B. PATTANAIK, DORAISWAMY RAJU
AND S.N. VARIAVA, JJ.]

Central Excises and Salt Act, 1944-Section I I A-Central Excise
C Rules, 1944-Rule 57, I as it existed on 6.10.88-Recovery of MODVAT
availed wrongly-Whether, S. l IA applicable for MOD VAT recovery prior to
6.10.88-Held, No.

Practice and Procedu;-e-Recovery of wrongly availed MODVAT-No.
Period of limitation prescribed for-Held, Courts cannot import any period
D of /imitation by implication-Provision being destructive of rights, must be
specifically enacted-Central Excises Salt Act, 1944.

The Respondent Assesee who was holding a license for manufacture of
the vegetable products, filed a declaration under Rule 57 G of the Central
Excise Rules, 1944 on 10.3.1987 for adoption ofMODVAT Credit in respect
E of certain inputs used by it in the manufacture of vegetable products. The
assessee became entitled to avail the credit only on and after 10.3.1987. But
the assessee wrongly availed the credit facilities even from 1.3.1987. The
Appellants sent a Show Caust~ Notice for recovering the sum wrongly availed
by the assessee under S.11 A of the Central Excises and Salt Act, 1944 read
F with Rule 57 I of the Central Excise and Salt Rules, 1944. The Assistant
Collector directed the reversal of the credit wrongly taken by the assessee.
The Assistant Collector held that filing of a declaration being a statutory
necessity and a condition precedent to avail of credit the assessee was not
eligible to take the same for a period prior to the declaration. The assessee
raised a plea of limitation that notice has not been issued within a period of 6
G months as provided under S.llA of the Act of 1944. The plea of limitation
was rejected on the ground that a letter dated 10.8.1987 had been issued by
the department to the assessE>e to debit the credit wrongly taken and this was
well within the 6 months period. The appeal filed by the assessee before the
Collector (Appeals) was rejected. The asessee filed an appeal before the
Tribunal wherein it was held that the show cause notice was beyond a period
H 236
C.C.E. v. RAGHUVAR (INDIA) LTD. 237
of 6 months and that even for demanding reversal of credit already taken, in A
exercise of Rule 57.1, the provisions ofS.llA would get attracted necessitating
the raising of the demand within 6 months.

On a reference before this Court, the Revenue relying upon the decision
of the Gujarat High Court in Torrent Laboratories Case, contended that the
provisions ofS.llA of the Act had no application wha.tsoever to the case and B
that being a special provision with self contained machinery to enforce them,
a general provision like S.llA is unwarranted. The Respondent assessee,
relying upon Judgements rendered by various High Courts contended that
the impugned proceedings involved recovery and consequently a demand of
an amount not paid, S.1 lA of the Act would necessarily get attracted and, C
therefore, the view taken by the other High Courts different from the one
taken by the Gujarat High Court, would more accord with law, that once the
credit taken has also been utilised by adjustment against payment of excise
duty on articles manufactured, the question would always be one of recovery
of duty or a demand for payment and that whatever may be right or otherwise
of the proper office to order for reversal of the credit earned before it was D
actually utilised or adjusted, on and after actual utilisation by adjustment, at
any rate no question of the reversal of the credit would arise.

Answering the Reference in favour of the Revenue, the Court

HELD : 1. The provisions of Section 11 A of the Central Excises and E
Salt Act, 1944 would have no application to any action taken under Rule 57
I of the Central Excise and Salt Rules, 1944, prior to its amendment on
6.10.88, and Rule 57 I of the Rules are not in any manner subject to Section
llA of the Act. Any law or stipulation prescribing a period of limitation to do
or not to do a thing after the expiry of period so stipulated has the consequence F
of creation and destruction of rights and, therefore, must be specifically
enacted and prescribed.

It is not for the Courts to import any specific period of limitation by
implication, where there is really none, though Courts may always hold when
any such exercise of power had the effect of disturbing rights of a citizen G
that it should be exercised within a reasonable period. 1250-H; 247-F-G)

Govt. of India v. Citadel Fine Pharmaceuticals Madras and Ors. etc.
etc., 11989) 3 SCR 465, referred to.

2. Section 1 IA is not an omnibus provision which provides any period H
238 SUPREME COURT REPORTS [2000] SUPP. I S.C.R.

A of limitation for all or any and every kind of action to be taken under the Act
or the Rules but will be attracted only to cases where any duty of excise has
not been levied or paid or has been short-levied or short-paid or erronepusly
refunded. The section also provides for an extended period on certain
contingencies and situations. The situation on hand and the one which has to
B be dealt with under Rule 57 I, as it stood unamended, does not fall under any
one of those contingencies provided for in Section 1lA of the Act.
(247-H; 248-A-B)

3. The recovery of credit availed of and utilised in utter breach of the
faith and mutual trust and confidence which is the raison d'etre.for the proper
C and successful working of the MODVAT scheme and that too in gross
violation of the mandatory requirements necessarily to be fulfilled before ever
claiming or availing of such benefits cannot be said to be the same as the
demand for payment to be made under Section llA of the Act ofany excise
duty not levied or paid or has been short-levied or short-paid. They fall into
two distinct and different categories altogether with basic as well as
D substantial differences to distinguish them from each oth~r. As a matter of
fact, Rule 57 I envisages disallowance Of the credit and consequential
adjustment in the credit ac1munt or the amount-current maintained by the
manufacturer and if only any such adjustments are not possible proceed to
recover the amount equivalent to the credit illegally availed of. Con$equently,
E the situation postulated to be dealt with under Rule 57 I cannot be said to
involve a case of manufacture and removal of excisable goods without
subjecting such goods to levy of payment of the various nature and category
enumerated in Section 1lA. Hence, Section 1lA of the Act on its own terms
will have no application or operation to cases covered under Rule 57 I of the
Rules. (248-E-H)
F
4. The provisions contained in Section 1lA are general in nature and
application and the MODVATscheme being a specific and special, beneficial
scheme, with self-contained procedure, manner and method of its
implementation, providing for its own remedies to undo any mischief
committed by the manufacturer in abuse thereof, the provisions of the said
G special scheme alone will govern such a situation and there is no scope for
reading the stipulations contained in a general provision like Seiction 1lA
into the provision of the rules in question which alone will govern in its
entirety the enforcement of the MODVAT scheme. The question as to the
relative nature of the provisions general or special has to be determined, as
H observed earlier, with reference to the area and extent of their application
C.C.E. v. RAGHUVAR (INDIA) LTD. 239
J either, generally in all circumstances or specially in particular situations A
and not on the ground that one is a mere provision in the Act and the other is
a provision in the Rule. [249-B-El

5. The Gujarat view (Torrent laboratories case) is more reasonable and
quite in accord with the purpose, object, aim and successful implementation
or the MODVAT scheme and the fallacy in the line of reasoning adopted by B
the other decisions lie in their assumption that the period of limitation
prescribed in Section llA orthe Act has universal application to govern every
act or course of action envisaged under the Act and the Rules, wherever there
is no limitation stipulated to the contra. The restricted operation of the
provisions contained in Section llA is found inherently in-built due to the C
specification of the various categories of cases enumerated in the provision
itself to be dealt with. The Scheme of MODVAT, introduced for the first time
in 1986, did not consider it necessary either to have its own period of limitation
in built in the Rules nor has the enforcement of the scheme been made subject
to Section 1lA of the Act. The fact that even when an amendment was made
on 6.10.88, it was prospective in nature and the amendment was not given any D
retrospective effect indicates the intention unmistakably that the subsequent
amendment should have no impact on the construction to be placed on the
provisilins as it existed before such amendment. The further fact that the
amendments to Rule S7 I had its own pattern of limitation and method of
computation of such limitation also would militate against the manner of E
construction adopted by the decision of the High Courts other than that of the
Gujarat High Court. [249-H; 250-A)

To"ent Laboratories Pvt. Ltd v. U.0.1., (1991) SS ELT 2S, approved.

Thungabhadra Steel Products Ltd. v. Supdt. of Central Excise, (1991)
S6 ELT 340; Advani Oerlikon Ltd v. Asstt. Collector ofCentral Excise; (1993) F
63 ELT 427; Fabri/Gasosav. U.0.1., (1997)96 ELT 241; CCE; Patnav. TELCO,
(1999) Ill ELT 9 and J.K Spinning & Weaving Mills Ltd. and Anr., v. U.0.1.
and Ors., (1987) 32 ELT 234 SC, disapproved.

6. The contention of the Assessee proceeds upon a misconception of the G
fundamentals underlying the working of the MODVAT Scheme and the powers
of the Proper Officer to set right irregularities, if any, committed by the
Manufacturer in availing of the same. The utilisation and adjustment depends
upon proper and valid earning of the credit strictly in accordance with the
terms and conditions of the Scheme and while making unilateral credit in
the course of maintenance of the accounts in the prescribed form and manner, H
240 SUPREME COURT REPORTS [2000] SUPP. I '8.C.R.

A a gross illegality has been committed in crediting-something to which a
[
· manufacturer was not legitimately entitled to, not only the Proper Officer
has the right, power and authority to direct reversal of credit but on such
direction, the extent and quantum of credit and consequent adjustment also
would get necessarily and automatically readjusted making it obligatory under
the Scheme for the manufacturer, as long as the credit account or the amount-
B current is maintained by the manufacturer under the Scheme, to reverse the
credit and set right the accounts. Lawful earning of a credit is a sine qua
non for proper and valid utilisation of the same and once the credit side gets
diminished the very basis of adjustment disappears ipso facto. By adopting a
defiant attitude in the matter, the manufacturer cannot take advantage of his
C misdeed to gain an advantage by contending that the action to he taken involve
only a recovery of duty and, therefore, should he within the period of limitation
provided under Section 1lA of the Act. Even when the recovery is ordered, as
a last resort, as envisaged under Rule 57 I, as observed earlier, it is only
recovery of the money value equivalent to the unlawful credit availed of and
adjusted under the Scheme and not the demand or recovery of any duty as
D such. (250-B-G)
ORIGINAL JURISDICTION : Excise Reference Case (C) No. 3 of
1995.

From the Judgment and Order dated 4.8.95 of the Central Excise, Gold
E and Control Appellate Tribunal, New Delhi in R.E.F./56/94/N.R.B. in E/460/90-
N.R.B. in E/2091/92-N.R.B. R.O. No. R/34/95.

T.L. V. Iyer, Dhruv Mehta, Ms. Nisha Bagchi and P. Parmeswaran for the
Appellant.
F
C. Harishankar, Rupesh Kumar, Ms. Neelam Sharma and Tara Chandra
Sharma for the Respondent.

The Judgment of the Court was delivered by

G RAJU, J. This Reference under Section 35H of the Central Excises and
Salt Act 1944, (hereinafter referred to as 'the Act') came to be directly made
at the instance of the Revenue to this Court by the Customs, Excise and Gold
(Control) Appellate Tribunal, North Regional Bench, on account of conflict
of views expressed in the decisions of the High Court of Gujarat reported in
Torrent Laboratories Pvt. Ltd. v. Union of India, (1991) 55 ELT 25, and that
H of the. Kamataka High Court reported in Thungabhadra Steel Products Ltd.
-C.C.E. v. RAGHUVAR (INDIA) LTD. (RAJU, J.] 241

v. Supdt. o/Central Excise, (1991) 56 ELT 340. A
The factual details necessary to understand and appreciate the disputes
between parties may be noticed, before adverting to the area and nature of
dispute. The respondent is a holder of licence in Form L-4 and a manufacturer
of vegetable products falling under Chapter 15-04 of the Central Excise Tariff,
at the relevant point of time. The respondent, admittedly, filed a declaration B
under Rule 57G of the Central Excises Rules, 1944, (hereinafter referred to as
"the Rules"), on 10.3.1987 for adoption of MODVAT Credit in respect of
certain inputs used by them in the manufacture of vegetable products and
consequently became entitled to avail of the duty credit only on and after
10.3.87. But the fact is that the respondent availed of the credit facilities in C
question even from 1.3 .87 and, therefore, the authorities were of the view that
wrong credit had been availed of to the tune of Rs. 62,710.61 on the inputs
received and utilised from 1.3.87 to 10.3.87. On being pointed out though they
·debited a credit of Rs. 20,828.93 relating to furnace oil and filter cloth, not
covered under the MODVAT Scheme, the balance of Rs. 41,872.68, in respect
of other outputs was not debited, in spite of the communication dated I 0.8.87 D
and reminders dated 29.12.87 and 1.2.88 for the reversal of the credit, issued
by the Range Officer.

As against the communication dated 1.2.88, the respondent filed an
appeal before the Collector (appeals) who by his order dated 21.12.89 set E
aside the same and remitted the matter to the Assistant Collector, the competent
Authority, for the purposes of Rule 57G. In the meantime, the Assistant
Collector, Central Excise, Jaipur, issued a show cause notice as to why the
sum of Rs. 41,872.68 should not be recovered from the respondent under
Section I IA of the Act read with Rule 57-1 of the Rules. After considering
the submissions of the respondent, the Assistant Collector by his order dated F
3.8.90 directed the reversal of the credit of Rs. 41,872.68 wrongly taken, in their
RG-23A. The said Authority held that filing of a declaration being a statutory
necessity and condition precedent to avail of credit under the scheme, the
respondent was not eligible to take credit for the period prior to the filing of
the declaration. As a matter of fact, the respondent did not appear to have G
contested the case on merit but only raised a plea of limitation that notice has
not been issued within a period of six months, as envisaged under Section
11 A. The plea based on limitation came to be also rejected on the ground that
the Range Officer issued a letter dated 10.8.87 calling upon the respondent
to debit the credit wrongly taken and this was well within the six months
period. This was challenged on appeal and the Collector (appeals) by his H
242 SUPREME COURT REPORTS (2000] SUPP. I S.C.R.

A order dated 12.12.91 rejected the appeal repelling the plea of limitation. The
matter was further pursued before the Tribunal by way of an appeal, and by
an order dated 3.2.94, it was held that the show cause notice issued by the
Assistant Collector on 5.8.88 was beyond a period of six months and that
even for demanding reversal of credit already taken, in exercise of Rule 57-
B I, the provisions of Section 11 A would get attracted necessitating the raising
of the demand within six months. Thereupon, the Revenue moved the
application for Reference and that is how the reference came to be made to
this Court.

Mr. T.L.V. Iyer, learned senior counsel for the Revenue, while placing
C strong reliance upon the decision reported in 1991 (55) ELT 25 (supra) and
the relevant provisions of the MODVAT Scheme, contended that the provisions
of Section I IA of the Act had no application whatsoever to the case on hand
and that being a special provision with self contained machinery to einforce
them, reference to a general provision like Section 11 A of the Act is
unwarranted and consequently, the orders of the Assistant Collector and the
D Collector (appeals) are quite in accordance with law and did not call for any
interference in the hands of the Tribunal.

Per contra, Mr. C. Harishankar, learned counsel for the respondent,
placed reliance upon a catena of decisions reported in 1991 {56) ELT 340
E (supra); Advani Oer/ikon Ltd. v. Assistant Collector of Central Excise, (1993)
63 ELT 427 (Mad. High Court); Fabri/ Gasosa v. Union of India, (1997) 96
ELT 241 (Born. High Court); Co/Ir. ofC. Ex., Patn.a v. Tata Engineering &
Locomotive Co. ltd., (1999) 111 ELT 9 (Pat. High Court); J.K. Spinning &
Weaving Mills ltd & Another v. Union ofIndia & Others, ( 1987) 32 ELT 234
SC and Govt. ofIndia v. Citadel Fine Pharmaceuticals Madras & Others Etc.
F Etc., (1989] 3 SCR 465; and vehemently contended that the impugned
proceedings involve recovery and consequently a demand of an amount .not
paid, Section I IA of the Act would necessarily get attracted and, therefore,
the view taken by the other High Courts, different from the one taken by the
Gujarat High Court, would more accord with law and, therefore, the Reference
G may be answered against the Revenue. It was also submitted, once the credit
taken has also been utilised by adjustment against payment of excise duty
on articles manufactured, the question would always be one of recovery of
duty or a demand for payment. In substance the plea of the learned counsel
is that the stage for reversal of the credit was over with actual adjustment of
the credit taken.
H
C.C.E. v. RAGHUVAR (INDIA) LTD. [RAJU, J.] 243
In the decision reported in Torrent Laboratories Pvt. Ltd case (supra), A
a Division Bench of the Gujarat High Court while repelling a plea that Rule
57·1 as it stood prior to amendment should be read in conjunction with
Section l lA of the Act by reading the period of limitation in Section I IA into
Rule 57-1 by necessary implication, observed as that the provisions of the
above Rule has to be in conformity with the provisions of Section 3 7 and not
Section I IA since Section l lA was already in existence from 17.11.80 and B
Rule 57-1 brought into force on l.3.86 had its own special scheme and purpose
underlying the same (b) it would be over simplification to say that Rule 57-
1, as it stood prior to amendment is nothing but a provision with regard to
recovery of duty as it is in the case of short payment, short levy of duty or
under assessment, (c) that the Modvat. Scheme has its own special and C
distinguishing features and Rule 57- I which is part of such special scheme
stands on its own unlike even provisions of proforma credit contained in Rule
56A and ( d) whenever a general provision is operation and knowing well its
existence, a special provision is made, it has to be presumed that the law
makers did not intend the general provision to apply to the special cases
culled out D
In Thungabhadra Steel Products Ltd. case (supra), a learned Single
Judge of the Kamataka High Court opined that the restriction of time limit for
exercise of powers under Section 11 A should govern the cases envisaged
under Rule 57-1-and, therefore, Rule 57-1, as it stood prior to its amendment, E
should receive the same interpretation as it should receive after its amendment
with effect from 6.10.88, by assuming that the amendment introduced to the
Rule indicated the intention of the legislature to amend the Rule to bring it
in conformity with the spirit and scope of Section 11 A. There is no rhyme or
reasonable basis for such an assumption. The Division Bench of the Madras
High Court, which decided the case in Advani Oer/ikon Ltd (supra), expressed F
.the view that not withstanding the omission in Rule 57-1 prior to its amendment,
to provide for the issue of a notice, the obligation to issue such notice
followed from the principles of natural justice as well as Section 11A of the
Act and, therefore, the period of limitation in Section 11 A will be attracted to
exercise the power of demand for reversing the credit wrongly availed of or G
utilised under Modvat Scheme. There is no justification in law to equate the
notice expected to be issued to satisfy the principles of natural justice with
the one ordained by the statutory provision to be issued within a stipulated
time for one or the other of the purposes specified in such a provision, and
that in order to suffer a limitation on the very exercise of the power. A
Division Bench of the Bombay High Court also held in the decision reported H
]
244 SUPREME COURT REPORTS [2000] SUPP. I S.C.R.

A in Fabril Gasosa 's case (supra) that the power to frame rules since was
derived from the Act itself and the rules owe their existence to the Act, as
long as there is any provision in the Act, even if the rules are silent on that
aspect of the matter, it will have to be presumed that the provisions in the
Act will govern the interpretation of the rules and, therefore, the limitation in
the Act will apply to cases of demand/recovery under Rule 57-J, as it stood
B prior to amendment, particularly when there is nothing in Section 11 A which
renders it inapplicable to cases provided under the Modvat Scheme. ·'This
reasoning overlooks the position that the rule in question was not enacted
either under Section I IA or to carry out the purposes of Section 11 A but
actually in exercise of the rule-making power under Section 37, particularly
C sub-section (2) (xvia). A Division Bench of the Patna High Court, in the
decision reported in 1999 (111) ELT 9 (supra), while following the view expressed
by the Madras, Karnataka and Bombay High Courts disagreed with the yiew
of the Gujarat High Court and hdd that when the limitation is provided for
in the parent Act, it need not be provided for in the subordinate legislation,
viz., the rules, and therefore the limitation prescribed in Section I IA has to
D be read into Rule 57-1, unamended also. It was also observed therein that the
maxim 'Genera/ia specialibus non derogant' applies only to same legislative
instruments and not when one instrument is an Act of Parliament and the
other Rule framed by the Central Government. This differentiation has no
relevance for the application of the maxim noticed above and what is relevant
E would be the scope, extent and area of the operation of the relevant provisions,
only.

The decision of this Court in J.K. Spinning & Weaving.Mi/ls Ltd case ,
. (supra) is not directly on point to the issue raised before us though may
provide a clue to resolve the issue. That was a case wherein this Court was
F concerned with the question as to whether in case of a retrospective amendment
creating liability to duty, the levy and collection could be made d~hors the
period of limitation stipulated in Section 11 A, particularly in the absence of
any non obstante clause to override Section I IA of the Act. This case really
dealt with the question of limitation relating to the levy, demand and recovery
G of duty in respect of deemed removal of certain goods the moment they come
into existence on production/manufacture introduced with retrospective effect
and, therefore, really and in substance concerned the imposition and payment
of excise duty. Since the Rules considered in that was only made by virtue
of the rule-making power on 20.2.82 and the same was also, by a statutory
provision brought into force with retrospective effect from 28.2.1944, the ·
H demand and recovery for the retrospective period would actually partake the
C.C.E. v. RAGHUVAR (INDIA) LTD. [RAJU, J.) 245

-- character of an exercise for collecting duty not levied or not paid envisaged
under Section I IA of the Act. The decision in (1989] 3 SCR 465 (supra) dealt
with a question as to whether the mere absence of any period of limitation
A

enables the authority concerned to exercise its powers at any point/length of
time without any time limit whatsoever and it was held that even in the
absence of any specific period of limitation, powers conferred have to be
exercised and action thereof taken within a reasonable period. This decision
B
cannot be of any help to the respondent in this case be~ause, neither is there
any challenge to Rule 57-1 on such ground of absence of limitation nor the
period involved could be held to be so unreasonable on the facts and
circumstances of the case where factually an earlier notice has been issued
·-,.
within even by that time by the Department though not by the proper officer c
and this only necessitated a fresh action, the validity of which is sought to
be challenged and despite all these, no unreasonable delay could at all be said
to have resulted.

Section 11 A (I) of the Act reads as follows:
D
"Section I IA. Recovery of duties not levied or not paid or short-
levied or short-paid or erroneously refunded. - (I) When any duty of
excise has not been levied or paid or has been short-levied or short-
paid or erroneously refunded, a Central Excise Officer may, within six
months from the relevant dat!!, serve notice on the person chargeable E
with the duty which has not been levied or paid or which has been
short-levied or short-paid or to whom the refund has erroneously
been made, requiring him to show cause why he should not pay the
amount specified in the notice:

Provided that where any duty of excise has not been levied or F
paid or has been short-levied or short paid or erroneously refunded
by reason of fraud, collusion or any wilful mis-statement or
suppression of facts, or contravention of any of the provisions of this
Act or of the rules made thereunder with intent to evade payment of
duty, by such person or his agent, the provisions of this sub-section
G
shall have effect, as if, for the words "six months", the words "five
years" were substituted.
--
Explanation.-Where the service of the notice is stayed by an
order of a court, the period of such stay shall be excluded in computing
the aforesaid period of six months or five years, as the case may be." H
246 SUPREME COURT REPORTS [2000] SUPP. I S.C.R.

A Rule 57-1, as it stood prior to amendment on 6. 10.88, is as follows:

"Rule 57-1 - Recovery of credit wrongly availed of or utilised in an
irregular manner.

(I) If the credit of duty paid on inputs has been taken wrongly,
B the credit so taken may be disallowed by the proper officer and
the amount so disallowed shall be adjusted in the credit account
or the amount-current maintained by the manufacturer or if such
adjustments are not possible for any reason, by cash recovery
from the manufacturer of the said goods:

c Provided that such manufacturer may make such adjustments on
his own in the credit account or the amount-current maintained
by him under intimation to the proper officer.

(2) If any inputs in respect of which credit has been taken are
not fully accounted for as having been disposed of in the
D manner specified in this section the manufacturer shall upon a
written demand being made by the Assistant Collector of Central
excise pay the duty leviable on such inputs within I 0 days of
the notice of demand."

After amendments effected on 6.10.88, the relevant portion of the Rule
E
stands as follows:

"Rule 57-1 - Recovery of credit wrongly availed of or utilised in an
irregular manner:

(I) (i) Where credit of duty paid on inputs has been take11 on
F
account of an error, omission or misconstruction, on the part of
an officer or a manufacturer, or an assessee, the proper officer
may, within six months from the date of such credit, serve notice
on the manufacturer or the assessee who has taken such credit
requiring him to show cause why he should not be disallowed
G to such credit and where the credit has already been utilised,
why the amount equivalent to such credit should not be
recovered from him.
Provided that where such credit has been taken on account of
wilful mis-statement, collusion or suppression of facts on the
H part of a manufacturer or an asse5see, the provisions of this
C.C.E. v. RAGHUVAR (INDIA) LTD. [RAJU, J.) 247
clause shall have effect as if for the words "six months", the A
words "five years" were substituted.

(ii) The proper officer, after considering the representation, if
any, made by the manufacturer or the assessee on whom notice
is served under clause (I), shall determine the amount of such
credit to be disallowed (not being in excess of the amount B
specified in the show cause notice) and thereupon such
manufacturer or assessee shall pay the amount equivalent to the
credit disallowed, if the credit has been utilised, or shall not
utilise the credit thus disallowed.

(2) If any inputs in respect of which credit has been taken are C
not fully accounted for as having been disposed of in the
manner specified in this section the manufacturer shall upon a
written demand being made by the Assistant Collector of Central
Excise pay the duty leviable on such inputs within I 0 days of
the notice of demand." D
The fact that the respondent-manufacturer did file the mandatorily
required declaration under Rule 57G of the Rules only on 10.3.87 and not
before and that, therefore, the respondent was not entitled to avail of the
benefits under Modvat Scheme for the period between 1.3.87 and 10.3.87 is
not at all in dispute before us. The only question is as to how to set right E
the wrong availment of duty made by the respondent and whether prior to
6.10.88 as Rule 57-1 existed then, it has to be set right only by having recourse
to Section I IA and by issue of any notice within a period of six months as
envisaged under Section I IA of the Act. Similarly, there is no challenge
before us that in the absence of any specific period of limitation provided for
in Rule 57-1, the Rule is arbitrary or unconstitutional, on that account. F
Any law or stipulation prescribing a period of limitation to do or not to
do a thing after the expiry of period so stipulated has the consequence of
creation and destruction of rights and, therefore, must be specifically enacted
and prescribed therefor. It is not for the Courts to import any specific period G
of limitation by implication, where there is really none, though Courts may
always hold when any such exercise of power had the effect of disturbing
rights of a citizen that it should be exercised within a reasonable period.
Section 11 A is not an omnibus provision which provides any period of
limitation for all or any and every kind of action to be taken under the Act
or the Rules but will be attracted only to cases where any duty of excise has H
248 SUPREME COURT REPORTS (2000] SUPP. I S.C.R.

A not been levied or paid or has been short-levied or short-paid or erroneously
refunded. The section also provides for an extended period on certain
contingencies and situations. TI1e situation on hand and the one which has
to be dealt with under Rule 57-J, as it stood unamended, does not fall under
any one of those contingencies provided for in Section 11 A of the Act. Part
B AA of the Rules in which Rule 57-J is found included provides a special
scheme for earning credit and adjustment of duty paid on excisable goods
used as inputs in the manufacture of what is referred to as 'final product',
and thereby enable the manufacturer to utilise the credit so allowed towards
payment of duty of excise leviable on the final products, in the manner arid
subject to the tenns and conditions stipulated therein. The manufacturer, in
C this case while removing the final product manufactured has adjusted against
payment of excise duty on such final product a part or portion of the credit
earned by him under the special scheme and what is sought to be really and
in substance done is to infonn the manufacturer that the adjustment he
purported to have made was with an amount not legitimately or factually
earned by or due to him. For this purpose, the irregularity and impropriety
D committed by the manufacturer in maintaining the accounts and the error in
the calculation of the credit said to have been earned by him is pointed out,
and the manufacturer is only directed to reverse the credit so wrongly and
undeservedly made by readjustment and if need be, to recover the amount
equivalent to such credit wrongly availed of and disallowed by the proper
E officer. The recovery of credit availed of and utilised in utter breach of the
faith and mutual trust and confidence which is the raison d'etre for the proper
and successful working of the Modvat scheme and that too in gross violation
of the mandatory requirements necessarily to be fulfilled before ever claiming
or availing of such benefits cannot be said to be the same as the demllfld for
payment to be made under Section I IA of the Act of any excise duty not
F levied or paid or has been short-levied or short-paid. They fall into two
distinct and different categories altogether with basic as well as substantial
differences to distinguish them from each other. As a matter of fact, Rule 57-
1 envisages disallowance of the credit and consequential adjustment in the
credit account or the amount-current maintained by the manufacturer and if
G only any such adjustments are not possible proceed to recover the amount
equivalent to the credit illegally availed of. Consequently, the situation
postulated to be dealt with under Rule 57-1 cannot be said to involve a case
of manufacture and removal of excisable goods without subjecting such
goods to levy or payment of the various nature and category enumerated in
Section 11 A. Hence, Section 11 A of the Act on its own tenns will have no
H application or operation to cases covered under Rule 57-1 of the Rules.
C.C.E. v. RAGHUVAR (INDIA) LTD. [RAJU, J.] 249
The above conclusion of ours is itself sufficient to answer the question A
in favour of the Revenue and against the manufacturer, even dehors the
applicability or otherwise of the principle of construction - Generalia
specialibus non derogant, since they do not operate on the same field or
cover the same area, to be reconciled in order to avert any clash or
inconsistency. That apart, even if it is to be assumed that they relate to one B
and the same nature of demand from the manufacturer of any amount due
from him to the State, the provisions contained in Section 11 A are general in
nature and application and the Modvat scheme being a specific and special
beneficial scheme, with self-contained procedure, manner and method for its
implementation, providing for its own remedies to undo any mischief committed
by the manufacturer in abuse thereof, the provisions of the said special C
scheme alone will govern such a situation and there is no scope for reading
the stipulations contained in a general provision like Section I IA into the
provision of the rulJ:s in question which alone will govern in its entirety the
enforcement of the Modvat Scheme. The question as to the relative nature
of the provisions general or special has to be determined, as observed earlier,
with reference to the area and extent of their application either generally .in D
all circumstances or specially in particular situations and not on the ground
that one is a mere provision in the Act and the other is a provision in the
Rule. We are not also concerned in this case with any challenge to the
inconsistency of a rule with any statutory provision in the Act.
E
On going through very carefully the decisions of the Gujarat High Court
on the one hand and those of the other High Courts noticed above, we are
of the view that the Gujarat view is more reasonable and quite accord with
the purpose, object, aim and successful implementation of the Modvat Scheme
and the fallacy in the line of reasoning adopted by the other decisions lie in
their assumption that the period of limitation prescribed in Section I IA of the F
Act has universal application to govern every act or course of action envisaged
under the Act and the Rules, wherever there is no limitation stipulated to the
contra. The restricted operation of the provisions contained in Section I IA
is found inherently in-built due to the specification of the various categories
of cases enumerated in the provision itself to be dealt with. The Scheme of G
Modvat, introduced for the first time in 1986, did not consider it necessary
either to have its own period of limitation in-built in th~ Rules nor has the
enforcement of the scheme been made subject to Section I IA of the Act. The
fact that even when an amendment was made on 6.10.88, it was prospective
in nature and the amendment was not given any retrospective effect indicates
the intention unmistakably that the subsequent amendment should '1ave no H
250 SUPREME COURT REPORTS [2000] SUPP. I S.C.R.

A impact on the construction to be placed on the provisions as it existed before
such amendment. The further fact that the amendments to Rule 57-1 had its
own pattern of limitation and method of computation of such limitation also
would militate against the manner of construction adopted by the decisions
of the High Courts other than that of the Gujarat High Court.

B The further submission of the learned counsel for the respondent that
whatever may be right or otherwise of the proper officer to order for reversal
of the credit earned before it was actually utilised or adjusted, on and after
actual utilisation by adjustment, at any rate no question of the reversal of the
credit would arise, proceeds upon a misconception of the fundamentals
C underlying the working of the Modvat Scheme and the powers of the Proper
Officer to set right irregularities, if any, committed by the Manufacturer in
availing of the same. The utilisation and adjustment depends upon proper and
valid earning of the credit strictly in accordance with the terms and conditions
of the Scheme and while making unilateral credit in the course of maintenance
of the accounts in the prescribed form and manner, a gross illegality has been
D committed in crediting something to which a manufacturer was not legitimately
entitled to, not only the Proper Officer has the right, power and authority to
direct reversal of credit but on such direction, the extent and quantum of
credit and consequent adjustment also would get necessarily and automatically
readjusted making it obligatory under the Scheme for the manufacturer, as
E long as the credit account or the amount-current is maintained by the
manufacturer under the Scheme, to reverse the credit and set right the accounts.
Lawful earning of a credit is a sine qua non for proper and valid utilisation
of the same and once the credit side gets diminished the very basis of
adjustment disappears ipso facto. By adopting a defiant attitude in the matter,
the manufacturer cannot take advantage of his misdeed to gain an advantage
F by contending that the action to be taken involve only a recovery of duty
and, therefore, should be within the period of limitation provided under
Section 11 A of the Act. Even when the recovery is ordered, as a last resort,
as envisaged under Rule 57-1, as observed earlier, it is only recovery of the
money value equivalent to the unlawful credit availed of and adjusted under
G the Scheme and not the demand or recovery of any duty as such.
For all the reasons stated above, we are of the view that the provisions.
of Section I IA of the Central Excises and Salt Act, 1944, would have no
application to any action taken under Rule 57-1 of the Central Excises and Salt
Rules, 1944, prior to its amendment on 6.10.88, and Rule 57-1 of the Rules are
H not in any manner subject to Section I IA of the Act. Hence, we approve of
C.C.E. v. RAGHUVAR(INDIA) LTD. [RAJU, J.] 251

the view taken by the Gujarat High Court in the decision reported in 1991 (55) A
EL T 25 (supra) and further hold that the contra view expressed by the Madras,
Kamataka, Bombay and Patna High Courts in the decisions noticed supra,
does not lay down the correct position of law. The Reference is answered
accordingly. No costs.

VM. Answering the Reference in favour of the Revenue. B

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