IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR J U D G M E N T CENTR.EXCISE APPEAL No. 2 of 2007 M/S SHANKESHWAR FABRICS (P) LTD. V/S UNION OF INDIA & ORS. Date of Judgment : 25.11.2008 HON'BLE SHRI N P GUPTA,J. HON'BLE SHRI KISHAN SWAROOP CHAUDHARI,J. Mr. MANOJ BHANDARI, for the appellant / petitioner Mr. VK MATHUR & Mr. RISHABH SANCHETI, for the respondent REPORTABLE BY THE COURT : (PER HON'BLE GUPTA,J) This appeal is by the assessee against the order of the Tribunal dt. 29.8.2006. The appeal was admitted on 19.1.2007, by framing the following substantial question of law:- “Whether opting of the appellant under the Optional Compound Levy Scheme introduced under the Notification of 1st July, 2001 has got any relevance with regard to the accrued modvat credit on the goods manufactured prior to 10.12.1998 under Notification No. 36/1998?” The controversy arises in the manner, that on 16.12.1998 a notification was issued in the exercise of powers under Section 3A of the Central Excise Act, the copy whereof is produced as Schedule-A, and according to that the compound levy of duty was prescribed. However, it was stipulated that nothing contained in that notification shall apply to the goods manufactured or produced prior to 16.12.1998, and cleared on or after that date. It appears that in respect of the goods manufactured prior to 16.12.1998 the petitioner was not allowed to avail Modvat credit. Thereafter writ petition was filed before this Court, which came to be allowed vide judgment dt. 22.8.2001, copy whereof has been produced as Annexure-A. A perusal of that judgment shows, that thereby four writ petitions were decided, including that of the petitioner, wherein relying upon the judgment of the Hon'ble Supreme Court in Eicher Motors Ltd. Vs. Union of India reported in (1999) 2 SCC-361, it was found, that once the capital goods which have already been utilised, and the credit has been received against their utilisation, then Clause 5 cannot be given retrospective effect, so as to nullify the Modvat credit, which has already been earned by the individual writ petitioner, and that, even Clause 6 of the notification clearly provides a nonobstante clause to the effect, that nothing contained in the notification shall apply to any goods manufactured or produced prior to 16.12.1998, and cleared on or after that date. Consequently, the writ petition was allowed, and the respondents were directed to allow the petitioners to avail the Modvat credit earned by them as on 16.12.1998. What happened is that during pendency of this writ petition, another notification came to be issued, in exercise of the powers under Rule 15 of the Central Excise Rules, and this time it gave an option to opt for provisions of that notification, at the pain of rendering 2 him ineligible to avail of any credit of duty paid on inputs or capital goods under the CENVAT Credit Rules, 2001. Of course, this notification provides, that provisions of this notification shall apply to such goods which are manufactured or produced on or after 1.5.2001, and nothing in this notification shall apply to the goods which are manufactured or produced prior to 1.5.2001, and cleared on or after that date. It appears that this notification was not brought to the notice of the Court, while rendering the judgment dt. 22.8.2001. However, on the strength of the said judgment, the petitioner availed the credit to which he was entitled on the goods manufactured upto 16.12.1998, but thereupon the present proceedings were initiated. It was held by the Joint Commissioner, that the High Court never said that the said credit may be utilised for payment of Central Excise duty under compounded levy scheme, and that, under the Notification dt. 28.6.2001, it was specifically prescribed, that an independent textile processor shall pay the excise duty by debiting in the account current and, therefore, it was wrong on the part of the assessee to discharge the compound duty by way of debiting duty in Cenvat Credit account, and accordingly the demand was confirmed, and other consequences were invoked. This order was challenged before the Commissioner, who vide order dt. 16.7.2004 affirmed the said order. It was found, that the scheme of compounded levy, under which the assessee had opted to work, was an 3 optional one, and having once opted for it, it was not open for him to utilize the Modvat credit available with them, for payment of duty, as it would tantamount to simultaneously enjoying the benefits of both the schemes, (i.e. Compound levy and advalorem scheme) which is not permissible as per law. It was also held, that the High Court had only allowed the appellants to “avail” of the credit, and not “utilize” the same, as correctly pointed out by the adjudicating authority, and that, the High Court had given the judgment under the impression, that the appellants were in a position to utilize the credit, since the scheme of compound levy had been withdrawn w.e.f. 1.3.2001. The fact that another optional scheme of compound levy was in place, with effect from 28.6.2001, and the appellants would be utilizing the credit under the new scheme, was neither placed before the Court, nor seems to be the intention behind the said judgment, and thus, the appeal was dismissed. Then, the matter was carried further in appeal before the Tribunal, and the Tribunal by the impugned order has again dismissed the appeal. The Tribunal has quoted the portion of the scheme, so also portion of the order of the Commissioner, and then proceeded to refer to judgment of the Hon'ble Supreme Court, in CCE Vs. Venus Castings (P) Ltd. reported in 2000 (117) ELT-273, which held, that an assessee cannot have a hybrid procedure, of combining the procedure under Rule 96ZO(1) and Rule 96ZO (3). Then, the Tribunal also referred to another judgment of the Tribunal, in Mohinder Steels Ltd. Vs. CCE Chandigarh, reported in 2002(145) ELT-290, wherein the 4 Tribunal held, that for those working under the compound levy scheme, the general provisions of Central Excise law are not applicable. Then, it proceeded to endorse the view taken by the authorities below, and dismissed the appeal. Assailing the impugned judgment, and substantiating the question as framed, it was submitted by the learned counsel for the appellant, that apart from the fact, that in Eicher Motor's case the Hon'ble Supreme Court had recognised, that once the capital goods which have already been utilised, and credit has been received against their utilisation, then by retrospective effect the Modvat credit cannot be nullified, which has already been earned by the individual assessee. In the case of the assessee, inter-parties, this Court vide judgment dt. 22.8.2001 has recognised the right of the appellant to have the credit of Modvat, on the goods manufactured upto 16.12.1998, and directed the respondents to allow the petitioners to avail the Modvat credit, earned by them as on 16.12.1998. In such circumstances, simply because the notification no. 32 of 2001 has come to be issued, whereunder the assessee had opted for the provisions of the said notification, that cannot have the effect of disentitling the assessee of the claim of Modvat credit, already accrued to him. In other words, the appellant cannot be denuded of the rights acquired by him, which had already been recognized by this Court, vide judgment dt. 22.8.2001. On the other hand, learned counsel for the Revenue submits, that para 8.5 clearly stipulates, that 5 the independent textile processor opting for the provisions of this notification, shall not be eligible to avail of any credit of duty paid on inputs, or capital goods, under the CENVAT Credit Rules, 2001, and it is on the face of this, that the assessee had opted for the provisions of this notification. Exercise of this option was a conscious decision of the assessee, after taking into account all commercial exigencies, and plus minus aspects, and with eyes open, and therefore, once the option was exercised, the assessee cannot fall back upon the judgment of the Court dt. 22.8.2001, and thereby bring about a hybrid system, of entitlement to pay excise duty on the basis of the notification, and at the same time to claim Modvat credit, in the garb of the order dt. 22.8.2001. It is submitted, that once the appellant had exercised option, he could not avail the Modvat credit, and since he had still availed it, and therefore, action taken has rightly been taken against him, and has rightly upheld by the CESTAT. We have considered the submissions. Before proceeding further, we may gainfully quote sub-paras 5, 6 and 7 of Para-8 of the notification no. 32/2001, the most relevant provisions for the present purpose. They read as under:- “(5) The independent textile processor opting for the provisions of this notification shall not be eligible to avail of any credit of duty paid on inputs or capital goods under the CENVAT Credit Rules, 2001. (6) The provisions of this notification shall apply to the said goods which are manufactured or produced on or after the 1st day of May, 2001. 6 (7) Nothing contained in this notification shall apply to:- (a) the said goods which are manufactured or produced prior to the 1st day of May, 2001 and cleared on or after that date; (b) a composite mill, that is, a manufacturer or processor, who is engaged in the processing of fabrics with the aid of power along with the spinning of yarn from fibres and weaving or knitting or crocheting of fabrics within the factory and includes a multilocational composite mill, that is, a public limited company which is engaged in the processing of fabrics with the aid of power along with the spinning of yarn from fibres and weaving or knitting or crocheting of fabrics in one or more factories owned by the same public limited company; or (c) fabrics other than the said goods produced or manufactured by the independent textile processor.” It is not in dispute, that the claim of Modvat credit, which is, and which has been availed by the appellant, relates to the goods manufactured as on 16.12.1998 only. In other words there is no dispute about any Modvat credit being claimed on any of the goods manufactured after 16.12.1998. It is also not in dispute, that by the judgment of this Court dt. 22.8.2001, the appellant's right to avail Modvat credit on the said goods, manufactured as on 16.12.1998, had been recognised, and the respondents were directed to allow the petitioners to avail the Modvat credit, earned by them as on 16.12.1998. In the above background, a look at the impugned order shows, that much has been said on the basis, that by the time the order dt. 22.8.2001 was passed, the factum of issuance of notification no. 32/2001, and the petitioner's 7 having exercised option, was not brought to the notice of the Court, whereunder he was not entitled to avail the credit. Of course, it does appear, that it was not so brought to the notice of the Court, but then, thereby the petitioner alone is not required to be blamed, it was equally the responsibility of both the parties, to bring to the notice of the Court the factum of issuance of notification, and the exercise of option. Ought we know, that if the fact situation would have been brought to the notice of the Court, this Court, while passing the order dt. 22.8.2001, would have settled the equities in an appropriate manner. Thus by not bringing to the notice of the court the above factual situation, neither the petitioner can be made to loose anything, nor the Department can be allowed to gain out of it. This is one aspect of the matter. The other aspect of the matter is, that a proper reading of the above sub-paras (5), (6) and (7) does show, that even after exercising the option, the consequence is, that the assessee, exercising option, is not eligible to avail of any credit of duty paid on inputs or capital goods under the CENVAT Credit Rules, 2001. This language is wide of course, and is attempted to be interpreted by the learned counsel for the Revenue, that the use of word “any credit of duty paid or inputs of capital goods” includes the credit already earned by the assessee, and he cannot be said to be eligible to avail the same. Then, a reading of sub-paras (6) & (7) makes the thing further clear, inasmuch as by sub-para (6) it is provided, that the provisions of this notification shall apply to the 8 said goods which are manufactured or produced on or after the 1st day of May, 2001. While sub-para(7) further clarifies, that nothing contained in this notification shall apply to the said goods which are manufactured or produced prior to the 1st day of May, 2001, and cleared on or after that date. It is required to be comprehended, that in a given situation, where the assessee has acquired the right to get Modvat/Cenvat, on the goods manufactured prior to 1.5.2001, even per force this notification no. 32/2001, the assessee would be entitled to claim that on or after said date. But then the notification does not contemplate the forfeiture of the right of the assessee to claim Modvat credit on the said goods, which had been manufactured prior to 1.5.2001. In other words, obviously, on the goods produced prior to 1.5.2001, and which are cleared on or after said date, nothing contained in the notification is to apply, which obviously includes even the constraints of sub-para (5) & (6), and the assessee would be entitled to avail Modvat credit on the goods, so manufactured prior to 1.5.2001. If the controversy involved in the present case is logically considered, on this imminently likely to arise situation, the petitioner did become entitled to avail the credit on the goods manufactured prior to 16.12.1998, apart from the fact, that that date does very much fall prior to 1.5.2001, and the petitioner's right to avail the Modvat credit on the said goods, did stand recognised by this Court vide judgment dt. 22.8.2001. 9 In that view of the matter, such right acquired by the petitioner/appellant cannot be put at a lower pedestal, than the right flowing to the assessee, who had manufactured goods prior to 1.5.2001, and is entitled to benefit, by virtue of sub-para (7)(a) of the notification no. 32/2001. The view taken by the authorities below, thus, is clearly not sustainable, and is required to be reversed. Accordingly, the question as framed is answered against the Revenue, and in favour of the assessee, in the manner, that it is held, that even after opting under the Optional Compound Levy Scheme, introduced vide notification dt. 1.7.2001, the petitioner is entitled to avail/utilise the Modvat credit, on the goods, manufactured prior to 10.12.1998, under the notification no. 36/1998, which right was recognised by this Court vide judgment dt. 22.8.2001, on the analogy flowing from sub- para (7)(a) of notification no. 32/2001. Accordingly, the appeal is allowed. The impugned orders are set aside, and the action taken against the appellant is quashed. ( KISHAN SWAROOP CHAUDHARI ),J. ( N P GUPTA ),J. /Sushil/ 10