Constitutional Validity of Section 112 of the Finance Act 2000

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR


(1) CENTR.EXCISE APPEAL No. 2 of 2005
SHREE RAJASTHAN TEXCHEM LTD
V/S
UNION OF INDIA & ORS


(2) CENTR.EXCISE APPEAL No. 2 of 2003
SHREE CEMENT LTD
V/S
UNION OF INDIA & ORS


(3) CENTR.EXCISE APPEAL No. 3 of 2003
M/S MAHARAJA SHREE UMAID MILLS LTD
V/S
UNION OF INDIA & ORS


(4) CENTR.EXCISE APPEAL No. 4 of 2003
M/S MAHARAJA SHREE UMAID MILLS LTD
V/S
UNION OF INDIA & ORS


(5) CENTR.EXCISE APPEAL No. 5 of 2003
M/S MAHARAJA SHREE UMAID MILLS LTD
V/S
UNION OF INDIA & ORS


(6) CENTR.EXCISE APPEAL No. 6 of 2003
M/S MAHARAJA SHREE UMAID MILLS LTD
V/S
UNION OF INDIA & ORS


(7) CENTR.EXCISE APPEAL No. 14 of 2004
SHREE SHYAM FILAMENTS
V/S
UNION OF INDIA & ORS



(8) (8)
M/S LAKSHMI CEMENTV/SUNION OF INDIA & ORS
(9) CENTR.EXCISE APPEAL No. 1 of 2005
SHREE RAJASTHAN SYNTEX LTD
V/SUNION OF INDIA & ORS
(10) CENTR.EXCISE APPEAL No. 7 of 2005
RAJASTHAN PETRO SYNTHETCS LTD
V/SUNION OF INDIA & ORS

Mr. Dinesh Mehta, Mr. Vikas Balia, Mr. Ramit Mehta &
Mr. Avinash Acharya for the appellants.


Mr. Rishabh Sancheti & Mr. V.K. Mathur, for the


respondents.


Date of Order : 26.3.2008


HON'BLE SHRI N P GUPTA,J.
HON'BLE SHRI DEO NARAYAN THANVI,J.


ORDER


(Per Hon'ble Gupta, J.)


This bunch of appeals involve common question of


law, being as under:


“Whether in the facts and circumstances of
the case, the Tribunal was right in coming to
the conclusion that under Section 112(2)(b)
of the Finance Act, 2000 interest can be
levied even without there being adjudication
of show cause notice, which are pending
decision at the time of commencement of the
aforesaid provision?”



It may just by the way be mentioned, that in four
appeals, being no.6/03, 5/03, 4/03 and 3/03 one additional
question is also involved, and framed, being as to whether
interest could be levied if at all only uptill 25.10.2000,
the date on which the cheque was presented in the Bank.


The facts in all the matters are almost common,
except the final product manufactured by the different
appellants in different appeals.


We think it appropriate to give brief resume of
the facts giving rise to the present controversy.


On different dates, notices were issued by the
competent authority, calling upon the assessees to show
cause as to why the amounts mentioned in the notice
representing Modvat credit, availed by them on HSD oil, be
not recovered, as the Modvat credit is not available to
them. It is at this stage, that various petitioners filed
writ petitions before this Court, challenging the very
jurisdiction of the authority to initiate the proceedings,
and for that purpose the assessee relied upon certain
judgments of the Tribunal, rendered in the case of India
Cements Ltd. Vs. CC & CE, Hyderabad reported in 1997(95)
ELT-520, and Jindal Polymers Vs. Commissioner of Central
Excise Indore reported in 1999(114) ELT-322, wherein the



learned Tribunal had taken the view, that the Modvat credit


is available on the HSD oil to the assessee. In those writ


petitions, notices were issued, and interim stay were


granted. The writ petitions were filed during the period


1997 to 1999. It was during pendency of these writ


petitions, that the Finance Act, 2000 came to be passed,


which received the assent of the President on 12.5.2000.


Section 112 whereof reads as under:


“112. Validation of the denial of credit of duty
paid on high speed diesel oil.-(1) Notwithstanding
anything contained in any rule of the Central
Excise Rules, 1944, no credit of any duty paid on
high speed diesel oil at any time during the
period commencing on and from the 16th day of
March, 1995 and ending with the day, the Finance
Act, 2000 receives the assent of the President,
shall be deemed to be admissible.


(2) Any action taken or anything done or purported
to have been taken or done at any time during the
said period under the Central Excise Act or any
rules made thereunder to deny the credit of any
duty in respect of high speed diesel oil, and also
to disallow such credit to be utilised for payment
of any kind of duty on any excisable goods shall
be deemed to be, and to always have been, for all
purposes, as validly and effectively taken or
done, as if the provisions of sub-section (1) had
been in force at all material times and,
accordingly, notwithstanding anything contained in
any judgment, decree or order of any court,
tribunal or other authority;
(a) no suit or other proceedings shall be
maintained or continued in any court, tribunal or
other authority for allowing the credit of the
duty paid on high speed diesel oil and no
enforcement shall be made by any court, tribunal
or other authority of any decree or order allowing
such credit of duty as if the provisions of subsection
(1) had been in force at all material
times;

(b) (b) f
duty, which have been taken or utilised but which
would not have been allowed to be taken or
utilised, if the provisions of sub-section (1) had
been in force at all material times, within a
period of thirty days from the date on which the
Finance Act, 2000 receives the assent of the
President and in the event of non-payment of such
credit of duty within this period, in addition to
the amount of credit of such duty recoverable,
interest at the rate of twenty four per cent, per
annum shall be payable, from the date immediately
after the expiry of the said period of thirty days
till the date of payment.
Explanation.-For the removal of doubts, it is
hereby declared that no act or omission on the
part of any person shall be punishable as an
offence which would not have been so punishable if
this section had not come into force.”


On passing of this Finance Bill, these writ


petitions were amended, and the provisions of the Finance


Act were challenged being ultravires to the Constitution.


Of course, those amendment applications were allowed, and


the bunch of the writ petitions was ultimately decided by


the Division Bench, vide judgment dt. 3.4.2002, holding the


validation Act to be intra-vires, and dismissing the writ


petitions, finding no merits therein.


It may also be mentioned at this stage, that one


matter, being in Commissioner of Central Excise, Hyderabad


Vs. Associated Cement Companies Ltd. Mancherial, reported


in (2003) 9 SCC-74, came to be decided by Hon’ble the


Supreme Court, and therein a view was taken, that the



Tribunal was justified in arriving at the conclusion, that
the assessee was entitled to get the benefit of
notification till Rule 57-B is amended, and the appeal was
dismissed. Then, it was held that the assessee was entitled
to Modvat credit. However, a review petition was filed,
which was allowed, vide judgment dated 8.11.2004, reported
in 2005(180) ELT-3, wherein it was found, that
inadvertently attention of the Court was not drawn to
provisions of Section 112 of Finance Act, 2000. Then, the
provisions were quoted, and it was found, that sub-section


(1) of Section 112 shows, that no credit is admissible on
any duty paid on high speed diesel oil at any time during
the period commencing on and from the 16.3.1995 and ending
with the day the Finance Act, 2000 received the assent of
the President, which was given on 1.4.2000. It was noticed,
that the period in question comes under the purview of
Section 112(1), and it was held, that since the aforesaid
provision provides that notwithstanding anything contained
in Rules, the credit is not admissible, the assessee was
not entitled to get the benefit of Rule 57B. Then in para-5
it was held, that though the assessee is not entitled to
the benefit as aforesaid, yet we cannot ignore the fact,
that the aforesaid amendment came into force on 1.4.2000,
when the order of the tribunal dated 8.9.1999, in favour of
the assessee, was holding the field, and it is being set
aside today by this order. In this view, the time to make
payment under Section 112(2)(b) has to commence only from

today. The constitutional validity of Section 112 of the
Finance Act was attempted to be raised, but was not
permitted in that appeal, and was left open.


It is in these facts, that soon after passing of
the judgment by this Court on 3.4.2002, the notices issued
and the various issues were carried to logical conclusion,
obviously in the light of the provisions of Section 112,
and it was held, that Modvat credit is not available, and
the assessee has wrongly taken the credit, of the specified
amount in each case, during the period concerned. Then, in
some cases it was found, that the assessee had already
deposited the amount, which was ordered to be appropriated
to the Government account, and imposition of penalty was
denied, while in some cases disallowing credit of the duty
in specified amount, demand of the said amount was
confirmed, and the assessee was directed to deposit the
amount in the appropriate account, as the case may be.


The fact does remain, that the notice initially
issued, obviously under Rule 57-I, were carried to logical
conclusion, after the decision was rendered by this Court
on 3.4.2002, obviously because, during the interregnum
period there were interim stay by this Court.


Then, the orders of the original authority were
challenged by the Department in appeal, and the learned



Appellate Authority allowed the appeal, and held, that the
present appellants are liable to pay interest @ 24% p.a.
from 12.6.2000 till the date of payment, in view of the
provisions of Section 112. It was also found, that the
adjudicating authority issued notice to the assessee,
incorporating the liability of interest with the demand in
the impugned notice.


Appeals against these orders were filed before
the learned Tribunal, and the appeals of one of the
assessee, being M/s. Maharaja Shree Umaid Mills Ltd.
(Appeal No. E/45-48/2003/NB/C and Appeal No.
E/263/2003/NB/C did come to be decided by the learned
Tribunal vide judgment dt. 1.10.2003, holding, that the
extent of credit that has been taken or utilised, does not
require any determination by the Central Excise Officers,
and that, in the instant case no such determination is even
envisaged, as Section 112(2)(b) is very categoric in its
terms, and it says “recovery shall be made of all the
credit which have been taken or utilised but which would
not have been allowed to be taken or utilised, if the
provisions of Sub-section (1) had been in force at all
material times”. Thus, if any credit of duty paid on HSD
had been taken, the same was liable to be recovered, and
the provision contains a clear mandate to the persons, who
have taken such credit, to make payment, as well as to the
Departmental authorities to effect recoveries, and that for



making payment also, issuance of a communication, or an
order directing the payment of the credit taken, is not a
pre-condition. This is the judgment reported in 2003 (158)
ELT-734, and is under challenge before us in Appeals Nos.
6/03, 5/03, 4/03 and 3/03. Then, the orders were passed by
the learned Tribunal, following the judgment in Maharaja
Shree Umaid Mills's case, in other matters also.


This is how challenging these orders, all these
appeals filed by the appellants are before us, and have
been admitted on the substantial questions of law as
noticed above.


Arguing the appeals it was contended, that the
interest is recoverable, or is to be recovered, in addition
to the amount of credit, on such duty, and that, the main
nonobstante clause is attached to sub-section (1) only, and
sub-section (2) is not enacted with any such nonobstante
clause. Obviously, since the recovery is to be made with
interest, till the action for recovery is taken, no
liability for interest can be levied. Then, referring to
provisions of Section 11A, and Rule 57-I, it was contended,
that before effecting any recovery, notice is required to
be served to show cause as to why such credit should not be
disallowed, and where the credit has already been utilised,
the amount to be not utilised by him, and then,
determination of amount of which credit is disallowed, is



to be made, whereupon assessee is to make payment of the
amount equivalent to the credit disallowed, and the payment
of such amount determined, is to be made within three
months from the date of demand notice, and in addition to
the amount so determined, interest, at such rate, as may be
fixed by the Central Board of Excise and Customs under
Section 11AA of the Act, from the date immediately after
the expiry of the said period of three months till the date
of payment, is also payable, and that, in all the present
cases, such notice to show cause had already been served
upon them, at a point of time when the provisions of
Section 112 were not on the Statute Book, but then, those
notices have to be carried to their logical conclusion, and
determination is to be made, demand notice is to be issued,
payment can be made within the permissible time period
thereafter, and the liability of interest arises only from
the date after expiry of such permissible period of time.


Referring to the judgment of original authority,
in Maharaja Shree Umed Mills's case, it was contended, that
in those cases amount was deposited in October, 2000, but
the amount could not be appropriated before the
adjudication, and it was by the order of the original
authority only, that amount has been ordered to be
appropriated in Government account. It is also contended,
that the Act, or the Rules, does not contain any provision
for assessee's entitlement to interest, in case, on



adjudication it is found, that any excess amount has been
paid by the assessee, obviously therefore, and as a
necessary corollary, no liability of interest could be
attracted against the assessee also, before adjudication.


Then, the next submission made was, that a bare
reading of provisions of Section 112, even as they are,
obviously because by the judgment dt. 3.4.2002 it has been
held to be intra-vires, and may be that the judgment dt.
3.4.2002 is already under appeal before Hon'ble the Supreme
Court, and therefore, taking the provisions of Section 112
on the face value, even notwithstanding the incorporation
of nonobstante clause, it does not even contemplate absence
of any adjudication, much less does it even purport, to do
away with the requirement of adjudication. Reliance in this
regard was placed on two judgments of the Tribunal, in the
cases of Poddar Pigments Ltd. Vs. Commissioner of Central
Excise, Jaipur reported in 2003(155) E.L.T. 484, and L.M.L.
Ltd. Vs. Commissioner of Central Excise reported in 2003


(162) E.L.T. -718. It was then submitted, that the
validation Act, being Section 112, covers only the
specified period, from 16.3.1995 upto the period ending
with the day the Finance Act 2000 received the assent of
the President, and the adjudication is necessary, also
because, there may be circumstances, like, the assessee may
be company which may have gone in liquidation, and assets
may have been taken over by the Official Liquidator after

the secured creditors may have realised their dues by
remaining outside the liquidation, and then the question
may arise about the priority of the charge of the
Government revenue, even qua the secured creditors,
obviously for that purpose, the determination of the
amount, and determination of the priority, has to be
considered and made, and therefore, making of
determination, according to Section 11A, or Rule 57I, is a
sine qua non. Then, by reading Section 112 again and again
it was contended, that all that is contemplated by subsection
(1) is, that notwithstanding anything contained in
any rule of the Central Excise Rules, 1944, no credit of
any duty paid on high speed diesel oil at any time during
the relevant period shall be deemed to be admissible.
According to learned counsel, this only means, that this
creates a fiction, that for the purpose of Rule 57-I, it
would mean, that the credit on duty of inputs has been
taken on account of an error, omission or misconception,
and means nothing more. Then, reading sub-section (2) it
was contended, that all that it contemplates is, that any
action taken, or anything done, or purported to have been
taken or done, at any time during the said period under the
Central Excise Act or any rules made thereunder, to deny
the credit of any duty in respect of high speed diesel oil,
and also to disallow such credit to be utilised for payment
of any kind of duty on any excisable goods shall be deemed
to be, and to always have been, for all purposes, as



validly and effectively taken or done, as if the provisions
of sub-section (1) had been in force at all material times,
and accordingly, notwithstanding anything contained in any
judgment, decree or order of any court, tribunal or other
authority, which according to the learned counsel only
means, that if any action has been taken for denying the
credit, that is validated, and if any order is passed
permitting the credit, still the credit will stand denied
obviously, therefore, action is to be taken for recovery of
the amount of credit taken, and again, obviously, by taking
appropriate proceedings, in accordance with law. Then,
submitting on clause (b), which is precise bone of
contention, of sub-section(2), it was contended, that all
that it permits is that, or provides that, recovery shall
be made of all the credit of duty, which have been taken or
utilised, but which would not have been allowed to be taken
or utilised, if the provisions of sub-section (1) had been
in force at all times, and then after putting a comma, it
is provided, that action is to be taken within 30 days from
the date on which the Finance Act receives the assent of
the President, and then it provides, that in the event of
non-payment of such credit of duty within this period, in
addition to the amount of credit of such duty recoverable,
interest at the rate of 24% per annum shall be taken.
Meaning thereby also, that recovery proceedings are to be
initiated, and at best, are to be required to be initiated
within 30 days, which may include issuance and service of



show cause notice, and determination, and in the event of
failure to pay, interest is purported to be payable by the
assessee, but this also does not have the effect of taking
away the requirement of determination. Thus, taken from any
standpoint, it was contended, that the notice of the
authorities below, levying interest, despite the amount
having been deposited, either before determination, or
within the period permitted after determination, cannot
attract the liability of interest at all, and to that
extent, the orders of learned authority below, including
the learned Tribunal, deserve to be set aside.


It was contended, that the learned Tribunal in
Maharaja Ummaid Mills' case was in error, in proceeding
with the assumption, that no determination is envisaged, or
that, the extent of credit that has been taken or utilised,
does not require any determination, and also, for making
payment also, issuance of a communication, or an order,
directing the payment of the credit taken, is not a precondition,
and since the learned authority below, and the
Tribunal, have wrongly ordered the interest to be levied,
the orders are liable to be set aside.


On the other hand, learned counsel for the Revenue
submitted, that notices have been issued, but in the garb
of pendency of the writ petition, the assessees did not
allow the authorities to proceed to make determination. In



that regard various portions of the orders of the
authorities below were read to us, to show, that the
assessees had taken the stand, that there is a stay from
this Court, and therefore, the matter could not be
proceeded with. Thus, since the Department was not allowed
to proceed, the liability of interest cannot be denied or
contested. Then, relying upon the judgment of Hon'ble the
Supreme Court, in Collector of Central Excise Vs. Raghuvar
(India) Ltd. reported in (2000) 5 SCC-299, it was
contended, that action for recovery under Section 57-I, as
it stood prior to 16.10.1988, is not subject to the
limitation period provided under Section 11-A of the
Central Excise Act, and that, even if Section 11A is taken
to be containing provisions of general nature, the
provisions of Modvat Scheme are special ones, and the
latter would therefore govern the scheme. Learned counsel
means, that in the present case, the provisions of Rule 57I,
being a special provision regarding Modvat Scheme, the
general provisions of Central Excise Act, contained in
Section 11A, need not be gone into. Then, it was contended
that from the reading of provisions of Section 112(2)(b),
and comprehending the matter under the scheme of things, it
is clear, that the contemplated adjudication has to be only
qua making arithmetical calculation, but then per force the
provisions of Section 112(2)(b), the liability of interest
would start from the beginning, i.e. on expiry of 30 days
from the date of receipt of assent of the President to the



Finance Act 2000. It was also contended, that under the
scheme of things, by virtue of Section 112, availability of
Modvat credit stood completely denied, notwithstanding any
judgment or order of any court or tribunal, or any
provision in the Rules, and where such credit has been
availed, it was directed to be recovered, and at the same
time, it is provided, that in the event of non-payment of
such credit of duty, within the said period of 30 days, in
addition to the amount of credit of such duty recoverable,
interest at the rate of 24% per annum shall be payable,
from the date immediately after the expiry of the said
period of 30 days, till the date of payment. Thus, since
the Modvat credit availed by the assessee is not in
controversy, may be that the Department was to recover, but
then, in order to avoid liability of interest, the payment
was required to be made by the assessee within a period of
30 days of the Finance Act, 2000 receiving the assent of
the President, otherwise liability of interest is
attracted, from the expiry of said 30 days.


In rejoinder, learned counsels for the petitioners
submitted, that the more important question is, as to
whether in the circumstances of the case, Section 112 at
all applies, inasmuch as the present are not the cases
where either any action has been taken to deny the credit
on any duty, nor there is any judgment or decree rendered
by any court or tribunal, denying, or permitting, such



credit, which may be required to be validated or
invalidated by Section 112, rather notices have been issued
under Rule 57-I, and until and unless determination was
made, consequent upon those notices, after hearing the
assessees, it could not be said, that any amount had
accrued, and since Section 112(2)(b) contemplates an
additional liability of interest, in addition to the amount
of credit of such duty recoverable, until and unless that
amount is determined, no liability of interest can be
attracted. Then, it was also contended that for the
present purposes, the nonobstante clause is only qua the
Rules, and since no benefit was ever drawn, or claimed to
be drawn, by the appellant assessee, and therefore, the
provisions of Section 112(2)(b) also does not apply. It was
also submitted, that during pendency of the writ petitions,
the Department never moved for vacating stay, or for
expediting hearing, and could have very well adjudicated,
consequent upon the notice. It was also contended, that
Section 112(2)(b) is not in the nature of any levy, or
impose liability, rather is in the nature of concession for
the assessee, who has been allowed or disallowed the
credit, and thus the demand of interest is bad.


Learned counsel for the appellants invited our
attention to certain provisions of Central Excise Rules,
Central Excise Act, so also other fiscal statutes, to show,
that where the liability of interest was intended to be



attracted, from any date anterior to the date of
determination of the amount, specific provision in that
regard has been made, and circumstances for attracting such
retrospective liability has been provided, while where such
retrospective liability is not contemplated, the provision
has been made for payment within the specified time of the
raising of demand, and then liability of interest is
attracted, and from this, it was contended, that even from
a collective reading of Rule 57I and Section 112(2)(b), it
is clear, that the liability of interest is not attracted
from any retrospective date. It is maintained rather
reiterated, that it is only sub-section (1) which is
couched with nonobstante clause, while sub-section (2) is
not so couched, with the result, that Rule 57-I does have
its full play.


We have considered the submissions, and have gone
through the records, and various provisions of law.


Before starting with the discussion, we may
gainfully quote the provisions of Rule 57-I, which reads as
under:


“57-I. Recovery of credit wrongly availed of or
utilised in an irregular manner;-(1)(i) Where
credit of duty paid on inputs has been taken on
account of an error, omission or mis-construction,
on the part of an officer or a manufacturer, or an
assessee, the proper officer may, within six
months from the date of filing the return as



required to be submitted in terms of sub-rule (8)
of Rule 57G, and where no such return as aforesaid
is filed, within six months from the last date on
which such return is to be filed under the said
rule, serve notice on the manufacturer or the
assessee who has taken such credit requiring him
to show cause why he should not be disallowed such
credit and where the credit has already been
utilised, why the amount equivalent to such credit
should not be recovered from him.


(ii) Where a manufacturer has taken the credit by
reason of fraud, willful mis-statement, collusion
or suppression of facts, or contravention of any
of the provisions of the Act or the rules made
thereunder with intent to evade payment of duty,
the provisions of clause (i) shall have effect as
if for the words 'six months', the words 'five
years' were substituted.
(iii) 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 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.
Explanation-Where the service of the notice is
stayed by an order of a court of law, the period
of such stay shall be excluded from computing the
aforesaid period of six months or five years, as
the case may be.


(2) If any inputs in respect of which credit has
been taken are not fully accounted for as having
been disposed off in the manner specified in this
section, the manufacturer shall, upon a written
demand being made by the [Assistant Commissioner
of Central Excise], pay the duty leviable on such
inputs within three months from the date of
receipt of the notice of demand.
(3) Where a manufacturer or an assessee fails to

pay the amount determined under sub-rule (1) or
sub-rule (2) within three months from the date of
receipt of demand notice, he shall pay, in
addition to the amount so determined, interest at
such rate, as may be fixed, by the Central Board
of Excise and Customs under Section 11AA of the
Act, from the date immediately after the expiry of
the said period of three months till the date of
payment.


(4) Where the credit of duty paid on inputs has
been taken wrongly by reason of fraud, wilful misstatement,
collusion or suppression of facts, or
contravention of any of the provisions of the Act,
or the rules made thereunder with intent to evade
payment of duty, the person who is liable to pay
the amount equivalent to the credit disallowed as
determined under clause (iii) of sub-rule (1)
shall also be liable to pay a penalty equal to the
credit so disallowed.
Explanation I-Where the credit disallowed is
reduced by the Commissioner of Central Excise
(Appeals), the Appellate Tribunal or, as the case
may be, a court of law, the penalty shall be
payable on such reduced amount of credit
disallowed.


Explanation II-Where the credit disallowed is
increased or further increased by the Commissioner
of Central Excise (Appeals), the Appellate
Tribunal or, as the case may be, a court of law,
the penalty shall be payable on such increased or
further increased amount of credit disallowed.


(5) Notwithstanding anything contained in clause
(iii) of sub-rule (1) or sub-rule (3) where the
credit of duty paid on inputs has been taken
wrongly on account of fraud, willful misstatement,
collusion, or suppression of facts, or
contravention of any of the provisions of the Act
or the rules made thereunder with intent to evade
payment of duty, the person who is liable to pay
the amount equivalent to the credit disallowed, as
determined under clause (iii) of sub-rule (1),

shall also be liable to pay interest at such rate
as may be fixed by the Board under Section 11AA of
the Act from the first day of the month succeeding
the month in which the credit was wrongly taken,
till the date of payment of such amount.


Explanation I-For the removal of doubts, it is
hereby declared that the provisions of this sub-
rule shall not apply to cases where the credit
disallowed became payable before the 23rd day of
July, 1996.


Explanation II-Where the credit disallowed is
reduced by the Commissioner of Central Excise
(Appeals), the Appellate Tribunal or, as the case
may be, a court of law, the interest shall be
payable on such reduced amount of credit
disallowed.


Explanation III-Where the credit disallowed is
increased, or further increased, by the
Commissioner of Central Excise (Appeals), the
Appellate Tribunal or, as the case may be, a court
of law, the interest shall be payable on such
increased, or further increased, amount of credit
disallowed.”


We need not go into the provisions of Section 11A,


because the scheme of Modvat is covered by the Rules


comprising of Modvat Scheme, these provisions lay down


complete mechanism and procedure, relevant for the present


purposes.


We may at this place again revert to the judgment


of Hon'ble the Supreme Court, in Associated Cement


Companies Ltd.'s case, passed on the review petition. What



we find therein is, that in the original order dt.
28.11.2002, which was passed after commencement of the
Finance Act of 2000, the Modvat credit was held to be
available, and then, when attention was invited to Section
112 of the Finance Act, it was held, that credit is not
available, and then in para-5, it has been held as under:


“5. Though the assessee is not entitled to the
benefit as aforesaid, yet we cannot ignore the
fact that the aforesaid amendment came into force
on 1st April, 2000 when the order of the tribunal
dated 8th September, 1999, in favour of the
assessee was holding the field and it is being set
aside today by this order. In this view, the time
to make payment under Section 112(2)(b) has to
commence only from today..”


We seek sufficient guidance from this judgment,
inasmuch as at least till rendering of this judgment by
this court on 3.4.2002, the present assessees/appellants
were having judgment of the Tribunal in India Cement's
case, and Jindal Polymers's case, and the judgment of the
Tribunal in Associated Cement Companies Ltd.'s case as well
in their favour, and as such the appellant can be said to
have stood well advised in challenging the contemplated
action of the Department, by filing litigations.


It always rests in the realm of uncertainty as to
whether the stand taken by the person approaching the Court
would be accepted by the court, or not, but the fact does
remain, that the above circumstances do show, that it



cannot be said, that the assessees had simply initiated
litigation before this Court to only stall the action of
the Department, rather they earnestly and bonafidely
believed, that they are entitled to avail the credit. It
appears, that finding prima facie force in the stand of the
assessee, this Court granted interim orders. It is also
significant to note, that it was during pendency of those
writ petitions, that probably in view of the judgments
rendered by the learned Tribunals in different cases, that
the Finance Act, 2000 was enacted, incorporating Section
112, to validate the denial of credit, but then, the
constitutional validity of that section was challenged
before this Court by making appropriate amendment, with
appropriate leave of the Court, and thus the matter did
remain pending before this Court, obviously therefore, till
the constitutional validity of the legislation was upheld
by this Court, no fault can be found with the assessees, in
not paying the amount of credit availed by them. May be, in
view of good sense prevailing on the authorities of the
Department, or may be rightly respecting the interim orders
of this Court passed in different writ petitions, the
authorities did not proceed with the making adjudication of
the demand, consequent upon the notice issued under Rule
57I, but then the fact does remain, that the notices were
kept alive, and it was only after the judgment was rendered
by this Court on 3.4.2002, that the proceedings were
proceeded ahead, and orders of adjudication were made.



Thus, this does show that even the respondents within
themselves were of the view, all through, that for raising
a demand under Section 257-I is a sine qua non.


We may examine the matter from other stand point
also viz. that if that were not so, and if the things were
as are sought to be contended before us, and as held by the
learned Tribunal, that the extent of credit question more
or less does not require adjudication by the central excise
officers, or that no determination is even envisaged under
Section 112(2)(b), or that for making payment, even
issuance of communication or an order directing the payment
of the credit taken is not a pre-condition, then at least
the Department would have given up the notice originally
issued under Rule 57-I, and would have straightway
addressed communication to the assessees, at least
immediately after the judgment was rendered by this Court
on 3.4.2002, calling them upon to make payment of the
credit availed, immediately, and then probably might have
laid claim for interest after the expiry of period of 30
days from the date on which the Finance Act, 2000 received
assent of the President, but as noticed above, this is not
the fact situation, and therefore, we find, that the
learned Tribunal was labouring under basic misconception
even from the standpoint, what the Department itself was
considering.



Likewise, with the enactment of Finance Act, 2000
itself, the respondents could very well have straightway
issued demand notice to the assessees, calling them upon to
make payment of the amount of credit availed by them
immediately, or even within a period of 30 days from the
date. In which event the liability of interest could have
accrued, but admittedly that has also not been done.


Then, apart from the Department's own feeling, or
contemplation, or considerations, in our view also, even a
reading of the provisions of Section 112 does show, that
according to sub-section (1), by nonobstante clause, it
only provides for disallowance of credit. Then, sub-section


(2) only validates the action taken to deny the credit, and
invalidates any action taken or order passed allowing the
credit, and then clause (b) of sub-section (2) only directs
that recovery shall be made of all the credit of duty, and
significantly, this clause, in any case, does not proceed
with any nonobstante clause like “notwithstanding anything
contained in the Central Excise Act, or the Central Excise
Rules, recovery shall be made of all the credit of duty,
which have been taken or utilised, but which would not have
been allowed to be taken or utilised, if the provisions of
sub-section (1) had been in force at all material times”.
If that were the language of clause (b), probably it could
be canvassed, that in view of the nonobstante clause even
the requirement of Rule 57-I, or for that matter even of

Section 11A are not attracted.


Then, even if the two provisions being Section 112
(2)(b) and Rule 57-I are read together, we do not find even
any conflict to be there in between the two provisions, to
accept the contention of the Revenue, that there being a
conflict, the provisions of Finance Act, being basic
statute, and provisions of Rule 57-I being of subordinate
legislation, the provisions of Section 112 would prevail.
In our view, Section 112(2)(b) only permits that recovery
shall be made. Then, it does neither lay down any mechanism
for effecting recovery, nor does it eliminate the invoking
the mechanism existing under the Rules for effecting
recovery. Obviously therefore, the two provisions have to
be read together, and to be construed harmoniously, and the
obvious result would be, that the recovery is to be
effected in accordance with the provisions of the Rules.


If the recovery is to be so made in accordance
with the Rules, being Rule 57-I, the liability of interest
starts from the expiry of specified period after the demand
notice is served. In this regard, may be, that there is
some conflict between the provisions of Section 112(2)(b)
and Rule 57-I, but then, for that purpose, we may take the
provisions of Section 112(2)(b) to provide a period of 30
days instead of 90 days, as provided in Rule 57-I, but
then, starting point of computation of interest liability,



in our view, can possibly not be from the date as held by
the learned authorities below. In that regard, we stand
sufficiently guided from the judgment of Hon'ble the
Supreme Court in Associated Cement Companies Ltd.'s case,
wherein after considering the provisions of Section 112(2)
(b), Hon'ble the Supreme Court held, that till that date
the assessee was having in his favour the order which was
holding the field, and the liability of interest is being
attracted after the order was set aside, and therefore
held, that period of 30 days time to make payment under
Section 112(2)(b) is to commence from today.


In our view, respecting the letter and spirit of
judgment of Hon'ble the Supreme Court, more so in spirit of
Article 141, the earliest point of time from which the time
for making payment under Section 112(2)(b) can be said to
commence is, only from the date the adjudication was made
by the order passed in original authority issuing notice.
And therefore, we are of the view, that if the payment is
not made within a period of 30 days from the date of the
order in original, the liability of payment of interest
under Section 112(2)(b) would arise from the date of expiry
of 30 days from the date of order in original, and
liability cannot be attracted from any anterior point of
time.


It is also significant to note, that the order of



the original authority is dated 29.4.2002, by order dt.
19.2.2003 the Commissioner had exercised his powers under
Section 35E(2), and had directed the Assistant Commissioner
to file appeals before the Commissioner for challenging the
order in original, and lay claim for interest. It is during
this interregnum period, that as noticed above, the appeal
filed by the commissioner in Associated Cement's case was
dismissed by Hon'ble the Supreme Court on 28.11.2002,
upholding entitlement to MODVAT credit, and against that
order review petition was filed in the year 2003, which was
allowed on 8.12.2004. This does indicate, that till passing
of the order dt. 28.11.2002, or in any case till passing of
the judgment by this Court dt. 3.4.2002, the Department was
also not of the view, that these consequences have to flow,
attracting leviability of interest, to commence since the
expiry of 30 days from the date of Finance Act, 2000
receiving assent of the President. It is an afterthought
stage, that on a second thought, the controversy has been
triggered off. Though this may not be a sole or even
material ground for negativing the claim of interest by the
revenue, however this is being mentioned, only as a fact
throwing some light on the fact situation.


Much was sought to be argued on the aspect of
provisions of Section 112(2)(b) being a colourable exercise
of power on the part of the Department, and having been
enacted with a view to penalise the appellants, who had



availed their fundamental right of constitutional remedies,
by approaching this Court. But then, in our view, we are
not inclined to entertain the submission at this stage,
because vide judgment dt. 3.4.2002 the enactment has been
found to be intra-vires. May be that in that judgment this
specific aspect of Section 112(2)(b) may not have been
canvassed, but then, the fact remains, that the legislation
has been found to be intra-vires, and the fact also does
remain, that the judgment dt. 3.4.2002 is already subject
matter of appeal before Hon'ble the Supreme Court.
Therefore, it is always open to the appellants to raise
these contentions before Hon'ble the Supreme Court, if they
so stand advised, and if the Hon'ble Supreme Court so
permits to the appellants.


In our view, in view of the above discussion, the
question as framed is required to be answered in the
manner, that the learned Tribunal was not right in coming
to the conclusion, that under Section 112(2)(b) of the
Finance Act, interest can be levied, even where there is no
adjudication of the show cause notices, which were pending
decision, at the time of commencement of the aforesaid
provisions, rather liability of interest can be attracted
to commence, from expiry of 30 days from the date of making
of determination.


In view of the above, the other question about the



liability of interest uptill 25.10.2000, or 28.10.2000 need
not be gone into by us.


The appeals are accordingly allowed in the manner
that no liability of interest will be attracted on the
amount of Modvat credit availed, before expiry of 30 days


from the date of determination, made by the order in
original, passed pursuant to the notice given by the
authorities concerned, under Rule 57-I.

( DEO NARAYAN THANVI ),J. ( N P GUPTA ),J.
/sushil/