Holding

Rule 57E is a procedural, clarificatory provision and does not affect the substantive right under Rule 57A to claim MODVAT credit; therefore the assessee was entitled to the credit.

Summary

The appellant, Commissioner of Central Excise, challenged Home Ashok Leyland Ltd's claim of MODVAT credit for differential duty paid on inputs received in 1986‑87 and utilized in August‑December 1987. The revenue department argued that an amendment to Rule 57E, effective 15‑April‑1987, operated prospectively and thus barred the credit. The Supreme Court examined whether Rule 57E is substantive or merely procedural and whether its amendment could curtail the manufacturer's substantive right under Rule 57A to claim credit. The Court held that Rule 57E is a procedural, clarificatory rule dealing only with the adjustment mechanism and does not affect the substantive right to credit conferred by Rule 57A. Consequently, the manufacturer was entitled to claim MODVAT credit of Rs 6,43,994.57 for the period 16‑Aug‑1987 to 30‑Dec‑1987. The appeal was dismissed.

Issues considered

Whether the amendment to Rule 57E of the Central Excise Rules, 1944, operates prospectively to bar the claim of MODVAT credit for differential duty paid.
Whether Rule 57E is a substantive provision affecting the right to claim credit, or a procedural rule that merely governs adjustment.

Legislation cited

Central Excise Rules, 1944s. Rule 57A, s. Rule 57E, s. Rule 57G

Subjects

MODVATInput tax creditCentral ExciseRule 57EProcedural vs substantiveDifferential dutyManufacturer

Judgment

A COMMISSIONER OF CENTRAL EXCISE, MADRAS.
v.
MIS. HOME ASH OK LEYLAND LTD.

MARCH 19, 2007

B [S.H. KAPADIA AND B. SUDERSHAN REDDY, JJ.]

Central Excise Rules, 1944; rr. 57A, E & G with amendments made
thereunder:

c MOD VAT credit-Availing of credit on differential amount of duty paid
during certain period-Applicability of amended Rule 57E--Held: Under the
provision of amended Rule 57E, right of manufacturer to obtain credit in
respect of inputs on which further duty had been paid is recognized-Subject
to complying with the adjustment procedure as contemplated in Rule 57E as
D amended-Right to claim MODVAT credit provided unde.r Rule 57A-Rule
57E not only recognizes the right to claim credit but also the extent to which
cr~dit could be claimed for duty paid on inputs-Since R 5 7E is procedural
and clarificatory as such it would not affect the substantive rights of the
manufacturer to claim ]\,fODVAT credit for duty paid on inputs subsequent to
the date of its receipt-Hence, assessee entitled to avail the credit for the
E specified period

The question which arose for determination in this appeal is as to
whether the assessee, a manufacturer of motor vehicles, was entitled to avail
MODVAT credit on differential amount of duty paid. during the period
F 21.4.1986 to 2.4.1987 in respect of inputs received in hi> factory during the
year 1986-87 but were utilized between the period 16.8.1.987 and 30.12.1987.

Revenue contended that Rule 57E of Central Excise Rules, 1944
underwent an amendment with effect from 15.4.1987 which according to the
department operated prospectively and consequently the claimant was not
G entitled to avail MODVAT credit on differential amount 9f/duty paid during
the specified period.

Dismissing the appeal, the Court

HELD: 1.1. Uoder the amended Rule 57E of the Central Excise Rules,
H 90
COMMNR. OF CENTRAL EXCISE, MADRAS. 1·. HOME AS HOK LEYLAND LTD. 9J

the right of the manufacturer to obtain additional MODY AT credit in respect A
of inputs on which further duty had been paid for any reason subsequent to
the date of the receipt of inputs by the manufacturer is recognized. However,
such right accrues to the manufacturer subject to his complying with the
procedure of adjustment contemplated in Rule 57E of the Rules, as amended.
[Para 2) [93-DI B
1.2. There can be no doubt that right from its inception the right to
claim MODY AT credit is under Rule 57 A of the Rules. Rule 57A recognizes
the right of the manufacturer to claim credit. Rule 57E recognizes not only
the right of the manufacturer to claim credit but also the extent to which
credit could be claimed for the duty paid on inputs. Therefore, Rule 57A is a C
substantive provision. However, the procedure of adjustment finds place in Rule
57E of the Rules. (Para 3) [93-E]

1.3. The object behind enacting Rules 57A, 57E and 57G of the Rules
is to avoid duty on duty whereby the price of the final product is loaded.
(Para 31 (93-Fl D
1.4. Rule 57E deals only with adjustment in the duty credit. Rule 57G
states that credit shall not be taken unless the manufacturer of the final
product maintains his records regarding receipt of the inputs in its factory.
(Para 3) (93-G)
E
2. The Courts below were right in holding that Rule 57E of the Rules
is procedural, clarificatory and therefore would not affect the substantive
rights of the manufacture of the specified final product to claim MODYAT
credit for the duty paid on the inputs subsequent to the date of the receipt of
those inputs. Consequently, the respondent-manufacturer in the present case
was entitled to take credit for the period between 16.8.1987 to 30.12.1987 in F
the sum ofRs.6,43,994.57. [Para 4) (94-A-B)

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 8607 of2001.

From the Final Judgment and Order dated 16.10.2000 of the High' Court
of Judicature at Madras in Ref. Case No. 8 of 1997. G
V. Shekhar, Ajay Sharma, Pradeep K. Dubey, Sudhir Kr. Sajwan and B.
-i Krishna Prasad for the Appellant.

Amit Kumar Sharma, Gaurav Goel, Mashesh Agrawal, E.C. Agrawala
H
92 SUPREME COURT REPORTS P007] 4 S.C.R.

A and Rishi Agrawala for the Respondent.
The Judgment of the Court was delivered by

·KAPADIA, J. I. In this civil appeal filed by the department the short
question which arises for determination is whether _the assessce was entitled
B to avail MODYAT credit on differential duty paid during the pe:riod 21.4.1986
to 2.4.1987 in respect of inputs received in his factory during the year 1986-
87 which inputs were utilized between the period 16.8.1987. and 30.12.1987.
According to the Department, Rule 57E of Central Excise Rules, 1944 underwent
an amendment with effect from l 5.4.1987 which according to the department
operated prospectively and consequently the claimant was not entitled to
C avail MODY AT credit of differential duty paid during the period 21.4.1986 to
2.4.1987..

2. The respondent-assessee is a manufacturer of motor vehicles.
Assessee had received inputs under the cover of specified documents between
D the period 21.4.1986 to 2.4.1987. After receipt of those inputs the price of
those inputs stood revised by the supplier cum manufacturer of the inputs
and consequently additional duty became payable on tl:.e enhanced price
which the assessee paid during the period 19.12.1986 and 28.10.1987. The
credit, however, for the aforestated amount so paid was taken between the
period 16.8.1987 and 30.12.1987. The d.ifferential duty in respect of which
E credit was so taken was in the sum ofRs.6,43,994.47. At this stage it may be
noted that the Modified Value Added Tax Scheme (MODY AT Scheme) was
introduced from 1.3.1986. That scheme is known as MODVAT Scheme. Prior
to MODY AT Scheme there existed Proforma Credit Scheme under which there
\'(as proviso three to Explanation 2 to Rule 56A(2) in which it was provided
F that if the duty paid on the material or on the components for which credit
has been allowed, stood varied subsequently due to any reascn resulting in
refund or recovery from the manufacturer/importer, as fhe case may be, then
the credit shall be accordingly varied by adjustment in the credit account
maintained under sub-rule (3) or in the current account under the Rule 9(3)
or under Rule l 73G( 1). If such an adjustment was not possible for any reason
G then that adjustment had to be satisfied by payment in cash. Unfortunately,
the corresponding provision came to be omitted or falled to be incorporated
under Rule 57A of the MODY AT Scheme. At this stage it may be noted that
Rules 57 A deals with applicability of the MODY AT Scheme and which rule
is part of the Rules set out in Chapter AA of_ Central Excise Rules titled
H "Credit of Duty Paid on Excisable Goods used as inputs" Rule 57E as it stood
COMMNR. OF CENTRAL EXCISE, MADRAS."· HOME ASHOK LEYLAND LTD. [KAPADIA. J.] 93
)
when MODV AT was first introduced on 1.3.1986 provided for adjustment in A
duty credit. It originally provided that if the duty paid on any inputs in
respect of which credit has been allowed under Rule 5 7 A, is varied
subsequently due to any reason resulting in refund, the credit alone shall be
varied accordingly by adjustment in the credit account maintained under Rule
57G(3) (with which we are concerned). Rule 57E underwent a change on
1.3.1987 under which it was stipulated that if duty paid on any inputs in B
respect of which credit has been allowed under Rule 57A and if such duty
is varied subsequently due to any reason resulting in refund or if the duty
is varied due to change in classification resulting in recovery then the credit
allowed shall also be varied accordingly by adjudgment in the credit account
maintained under Rule 57-G(3). Rule 57-E underwent a further change on C
11.5.1987. This change operated till 15.4.2000. This case, therefore falls within
the above period i.e. 11.5.87 to 15.4.2000. Under this amended Rule 57E the
right of the manufacturer to obtain additional MODV AT credit in respect of
inputs on which further duty had been paid for any reason subsequent to the
date of the receipt of inputs by the manufacturer is recognized. However, such
right accrues to the manufacturer subject to his complying with the procedure D
of adjustment contemplated in Rule 57E, as amended.

3. The above discussion indicates that the right to claim MODV AT
credit existed only in Rule 57A. Even Rule 57E says so. There can be no doubt
that right from its inception the right to claim MODV AT credit is under Rule E
57A. Rule 57 A recognizes the right of the manufacturer to claim credit. Rule
57E recognizes not only the right of the manufacturer to claim credit but also
the extent to which credit could be claimed for the duty paid on inputs.
Therefore, Rule 57 A is a substantive provision. However, the procedure of
adjustment finds place in Rule 57E. Rule 57E is procedural provision. It deals
with adjustments in duty credit. The object behind enacting Rules 57A, 57E F
and 57G is to avoid duty on duty whereby the price of the final product is
loaded. Therefore, Rule 57A recognizes the right of the manufacturer to take
credit for the specified duty paid on the inputs, whereas Rule 57E deals with
adjustment in the duty credit, such adjustment mean on account of reduction
on the credit allowed. It could also be in the event of refund. Suffice it to state G
that Rule 57E deals only with adjustment in the duty credit. Rule 57G states
that credit shall not be taken unless the manufacturer of the final product
maintains his records regarding receipt of the inputs in his factory like having
again bill of entry certain types of registers (RR- I) or any other document
prescribed by Central Board of, Excise and Customs.
H
94 SUPREME COURT REPORTS (2007) 4 S.C.R.

A 4. In our view, therefore, the courts below were right in holding that
Rule 57E was procedural, clarificatory and therefore would not affect the
substantive rights of the manufacture of the specified final product to claim
MODY AT credit for the duty paid on the inputs subsequent to the date of
the receipt of those inputs. Consequently, the respondent-manufacturer in the
B present case was entitled to take credit between the period 16.8.1987 to
30. 12.1987 in the sum of Rs.6,43,994.57.

5. Accordingly, the appeal stands dismissed with no ordf:r as to costs.

S.K.S. Appeal dismissed.