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Supreme Court of India : Union of India & Ors. Vs M/s. Ind-Swift Laboratories Ltd. : CIVIL APPEAL NO. 1976 OF 2011 : 21st February, 2011

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REPORTABLE

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 1976 OF 2011
[Arising out of SLP(c) No. 5169 of 2010]

lUnion of India & Ors.
Appellants

Versus

M/s. Ind-Swift Laboratories Ltd.
Respondent

JUDGMENT

Dr. MUKUNDAKAM SHARMA, J.

1. Leave granted.

 2 The present appeal is directed against the judgment and order dated  03.07.2009 in Civil Writ Petition No. 13860 of 2007 passed  by the Punjab & Haryana High Court, whereby the High  Court while interfering with the order of the Settlement  Commission regarding payment of interest on the CENVAT  credit, has held that the appellants herein have wrongly  claimed interest on the CENVAT credit, from the date when  such credit was wrongly availed instead of the date when  such credit was actually utilized. The High Court has further  held that the appellants are not entitled to claim interest on  the amount of Rs. 50 lacs up to 31.01.2007 as the said  amount already stood deposited on 08.03.2006. 

3 The respondent herein, viz., M/s. Ind-Swift Laboratories Ltd., is a  manufacturer of bulk drugs, falling under Chapter 30 of the  First Schedule to the Central Excise Tariff Act, 1985. The  company received inputs and capital goods from various  manufacturers / dealers and availed CENVAT credit on the  duty paid on such materials. On the basis of intelligence  report, the factory premises of the respondent as also its  group companies at different places were searched on  08.03.2006. Searches were also conducted at the offices of  large number of firms in Ghaziabad and Noida which had  allegedly issued invoices without any accompanying goods to  the respondent and its group companies. At the same time  the residential premises of Mr. R.P. Jain and Mr. J.P. Singh,  the Brokers, were also searched and particularly during the  course of search of the residence of Mr. R.P. Jain kachha  ledgers / notebooks / files and cheques issued by the Swift  group to the parties from whom invoices without material  were being received, were recovered. It also appears that the  appellant conducted investigations which indicated that the  respondent had taken CENVAT credit on fake invoices.  Consequently, a show cause notice dated 08.12.2006 was  issued to the respondent, to which a reply was also  submitted by the respondent. The respondent company also  filed applications for settlement of the proceedings and  consequently the entire matter was placed before the  Settlement Commission.

4 Before the Settlement Commission, it was an admitted position  that the case pertained to the period from 27.10.2001 to  31.03.2006. The respondent company also admitted all the  allegations and duty liability as per the show cause notice dated  08.12.2006. The respondent also deposited the entire duty of Rs.  5,71,47,148/-. Since conditions/parameters for the admission of  a case prescribed under Section 32E(1) of the Central Excise Act,  1944 [for short "the Act"] were fulfilled and complied with, the  application of the respondent for settlement was entertained and  the same was proceeded with in terms of Section 32F(1) of the  Act. After considering the records and hearing the parties the  Commission came to the findings that while the wrongful CENVAT  credit was taken from the year 2001 to 31.03.2006, the payments  refunds have been made on 22.02.2006 and on five different  dates in March, 2006 and on 20.11.2006 and, therefore, the  respondent had the benefit of availing the large amount of  CENVAT credit to which they were not entitled. Considering the  said fact, the Commission felt and was of the view that the  appropriate interest liability has to be borne by the respondent on  such wrongful availment of CENVAT credit. Accordingly, the  applications of the respondent were settled under Section 32F(7)  of the Act subject to the following terms and conditions: - 

"(a) The amount of duty relating to wrongful availment  of CENVAT credit is settled at Rs. 5,71,47,148/-. As  the entire amount has already been paid by the  applicant, no further duty remains payable. The Bench  directs that the said amount of deposit by the  applicant shall be appropriated against the amount of  duty settled in this Order. Besides the above, the  inadmissible CENVAT credit of Rs. 78,97,255/-, as  mentioned in para 23(a)(ii) of the show cause notice is  disallowed.

(b) Immunity from interest in excess of 10% simple  interest per annum is granted. Accordingly, the  applicant shall pay simple interest @ 10 % per annum  on CENVAT credit wrongly availed (i.e., Rs.  5,71,47,148/-) from the dates the duty became  payable as per Section 11AB of the Act, till the dates  of payment. Revenue is directed to calculate the  amount of interest as per this order and intimate the  same to the applicant within 15 days of the receipt of  this order. Thereafter, the applicant shall pay the  amount of interest within 15 days of the receipt of the  said intimation and report compliance both to the  Bench and to Revenue."

5 The said order also specifically recorded that full immunity  be granted to the respondent from penalty and prosecution.  Subsequent to the passing of the said order, the respondent  herein filed a miscellaneous application seeking for  clarification contending inter alia that the respondent had  deposited whole amount of duty during investigation without  protest and that, following the final order, the Revenue has  calculated interest liability of the respondent at Rs.  1,47,90,065/- and that the Revenue has calculated the said  interest up to the date of the appropriation of the deposited  amount and not up to the date of payment. It was further  contended that the interest has to be calculated from the date  of actual utilization and not from the date of availment.  Consequently, it was prayed in the said application that the  Settlement Commission may clarify the actual amount of  interest liability of the respondent and extend the period of  payment of interest in the interest of justice and equity. 

6 The said application was taken up for consideration and  after hearing the parties the application was dismissed.  While rejecting the said application the Bench noted that the  final order sets out in very clear terms that the respondent  shall pay simple interest @ 10 per cent per annum on  CENVAT credit wrongfully availed from the date the duty  became payable as per Section 11AB of the Act, till the date  of payment and that the application is misconceived and that  no case of any clarification is made out because interest has  to be calculated till the date of the payment of the duty. It  was also held that the interest is also payable with reference  to the date of availment of CENVAT credit and not from the  date of utilization of a part of the balance of such credit. The  Commission held that such an issue was never raised before  the Settlement Commission at any earlier stage. The  Commission while rejecting the application held as follows: -  "The said show cause notice vide Para 23 thereof  proposes to demand the CENVAT credit availed  fraudulently by the applicant and not the amount of  CENVAT utilized by the applicant. As such, it naturally  follows that the interest is also payable with reference  to the date of availment of CENVAT credit and not  from the date of utilization of a part of balance of such  credit. In any case, this issue was not raised in the  application of settlement or at the time of settlement. In  a query from the Bench, Id. Advocate also not raising  this issue during settlement proceedings. As such, the  Bench finds no justification to go into the practice  adopted by the Revenue in this regard. In any case, it  is a new point that did not arise for decision in the  Final Order and on which the applicant is not seeking  a decision in the garb of seeking a clarification. The  Commission has already decided the issues which  were brought before it through the Settlement  Application. Section 32M of the Central Excise Act,  1944 bars the Commission from re-opening its final  order. Hence, the final order already passed in the  matter was conclusive as to the matters stated therein  and the same cannot be re-opened for the purpose of  deciding the said point raised subsequently."

7. The respondent, however, did not pay the entire amount  in terms of the liability fixed. Consequently, a letter was  issued on 16.08.2007 from the office of the appellant  directing the appellant to pay the balance amount in terms  of the order dated 19.01.2007.

8. The records disclose that immediately on receipt of the  aforesaid letter the respondent filed a Writ Petition in the  High Court of Punjab & Haryana which was registered as  Civil Writ Petition No. 13860 of 2007, praying for quashing  the order dated 31.05.2007 which was passed by the  Settlement Commission on the applications seeking  clarifications and the letter dated 16.08.2007 by which the  office of the appellant requested the respondent to deposit  the balance amount in terms of the order dated 19.01.2007. 

9. The High Court issued notice and heard the parties on  the said Writ Petition. By its judgment and order dated  03.07.2009 the said Writ Petition was allowed by the High  Court holding that Rule 14 of the CENVAT Credit Rules,  2004 [for short "Credit Rules"] has to be read down to  mean that where CENVAT credit has been taken and/or  utilized wrongly, interest should be payable on the  CENVAT credit from the date the said credit had been  utilized wrongly and that interest cannot be claimed simply  for the reason that the CENVAT credit has been wrongly  taken, as such availment by itself does not create any  liability of payment of excise duty. The High Court further  held that on a conjoint reading of Section 11AB of the  Tariff Act and that of Rules 3 & 4 of the Credit Rules,  interest cannot be claimed from the date of wrong  availment of CENVAT credit and that the interest would be  payable from the date CENVAT credit was wrongfully  utilized.

10.Being aggrieved by the aforesaid judgment and order  passed by the High Court the present appeal was filed by  the appellant, which was entertained and notice was  issued to the respondent, on receipt of which, they have  entered appearance. Counsel appearing for the parties  were heard at length when the matter was listed for final  arguments. By the present judgment and order we now  proceed to dispose the said appeal by recording our  reasons. 

11. The facts delineated hereinabove make it crystal  clear that the respondent accepted all the allegations  raised in the show cause notice and also the duty  liability under the said show cause notice dated  08.12.2006. They also deposited the entire duty of Rs.  5,71,47,148/- prior to the issuance of the show cause  notice and, therefore, they requested for settlement of  the proceedings in terms of Section 32E read with  Section 32F of the Act. The said settlement proceedings  were conducted in accordance with law and was  finalized by the order dated 19.01.2007 on the terms  and conditions which have already been extracted  hereinbefore.

12. A bare perusal of the said order would indicate that  the Settlement commission has imposed the liability of  payment of simple interest only @ 10 per cent per  annum on CENVAT credit wrongly availed, that is, Rs.  5,71,47,148/- from the date the duty became payable.  Incidentally, imposition of such simple interest at 10  per cent per annum was the minimum, whereas levy of  interest at 36 per cent per annum was the highest in  terms of the Section11 AB of the Act. Besides, the  allegations made in the show cause notice were  admitted by the respondent which, therefore,  establishes that the respondent had taken wrongful  CENVAT credit from the year 2001 to 31.03.2006 and  the payment has been made only on 22.02.2006 and  on five different dates in March, 2006 and on  20.11.2006, which indicates that the respondent had  the benefit of availing the large amount of CENVAT  credit to which they were otherwise not entitled to.

13.The order of the Settlement Commission also  indicates that full immunities were granted to the  respondent from penalty and prosecution. The  aforesaid order was not challenged by the respondent  in any forum and, therefore, it became final and  conclusive in terms of Section 32M of the Act, which  states that every order of settlement passed under sub-  Section 7 of Section 32F would be conclusive as to the  matters stated therein subject to the condition that  when a settlement order is obtained by fraud or  misrepresentation of fact, such an order would be void.  According to the said provisions, no matter covered by  such order could be reopened in any proceeding under  the Central Excise Act or under any other law for the  time being in force.

14.Although, subsequently, an application by way of  clarification was filed by the respondent, the said  application was, however, not entertained. It was held  that the said application is misconceived, particularly,  in view of the fact that no such issue was raised before  the Commission. Since, however, a Writ Petition was  filed by the respondent challenging only the second  order of the Settlement Commission and the  subsequent letter issued from the office of the  appellant, on the basis of which, High Court even  proceeded to interfere with the first order passed by the  Settlement Commission, we heard the counsel  appearing for the parties on the issue decided by the  High Court also.

15. In order to appreciate the findings recorded by the  High Court by way of reading down the provision of Rule  14, we deem it appropriate to extract the said Rule at this  stage which is as follows:

"Rule 14. Recovery of CENVAT credit wrongly taken or  erroneously refunded: - Where the CENVAT credit has  been taken or utilized wrongly or has been erroneously  refunded, the same along with interest shall be recovered  from the manufacturer or the provider of the output  service and the provisions of Sections 11A and 11AB of  the Excise Act or Sections 73 and 75 of the Finance Act,  shall apply mutatis mutandis for effecting such  recoveries."

16. A bare reading of the said Rule would indicate that  the manufacturer or the provider of the output service  becomes liable to pay interest along with the duty  where CENVAT credit has been taken or utilized  wrongly or has been erroneously refunded and that in  the case of the aforesaid nature the provision of Section  11AB would apply for effecting such recovery.

17. We have very carefully read the impugned judgment  and order of the High Court. The High Court proceeded  by reading it down to mean that where CENVAT credit  has been taken and utilized wrongly, interest should be  payable from the date the CENVAT credit has been  utilized wrongly for according to the High Court interest  cannot be claimed simply for the reason that the  CENVAT credit has been wrongly taken as such  availment by itself does not create any liability of  payment of excise duty. Therefore, High Court on a  conjoint reading of Section 11AB of the Act and Rules 3  & 4 of the Credit Rules proceeded to hold that interest  cannot be claimed from the date of wrong availment of  CENVAT credit and that the interest would be payable  from the date CENVAT credit is wrongly utilized. In our  considered opinion, the High Court misread and  misinterpreted the aforesaid Rule 14 and wrongly read it  down without properly appreciating the scope and  limitation thereof. A statutory provision is generally read  down in order to save the said provision from being  declared unconstitutional or illegal. Rule 14 specifically  provides that where CENVAT credit has been taken or  utilized wrongly or has been erroneously refunded, the  same along with interest would be recovered from the  manufacturer or the provider of the output service. The  issue is as to whether the aforesaid word "OR" appearing  in Rule 14, twice, could be read as "AND" by way of  reading it down as has been done by the High Court. If  the aforesaid provision is read as a whole we find no  reason to read the word "OR" in between the expressions  `taken' or `utilized wrongly' or `has been erroneously  refunded' as the word "AND". On the happening of any  of the three aforesaid circumstances such credit  becomes recoverable along with interest.

18. We do not feel that any other harmonious construction  is required to be given to the aforesaid  expression/provision which is clear and unambiguous as it  exists all by itself. So far as Section 11AB is concerned, the  same becomes relevant and applicable for the purpose of  making recovery of the amount due and payable.  Therefore, the High Court erroneously held that interest  cannot be claimed from the date of wrong availment of  CENVAT credit and that it should only be payable from the  date when CENVAT credit is wrongly utilized. Besides, the  rule of reading down is in itself a rule of harmonious  construction in a different name. It is generally utilized to  straighten the crudities or ironing out the creases to make  a statute workable. This Court has repeatedly laid down  that in the garb of reading down a provision it is not open  to read words and expressions not found in the  provision/statute and thus venture into a kind of judicial  legislation. It is also held by this Court that the Rule of  reading down is to be used for the limited purpose of  making a particular provision workable and to bring it in  harmony with other provisions of the statute. In this  connection we may appropriately refer to the decision of  this Court in Calcutta Gujarati Education Society and  Another v. Calcutta Municipal Corporation and Others  reported in (2003) 10 SCC 533 in which reference was  made at Para 35 to the following observations of this Court  in the case of B.R. Enterprises v. State of U.P. and  Others reported in (1999) 9 SCC 700: -

"81. .............. It is also well settled that first attempt  should be made by the courts to uphold the charged  provision and not to invalidate it merely because one of  the possible interpretations leads to such a result,  howsoever attractive it may be. Thus, where there are  two possible interpretations, one invalidating the law  and the other upholding, the latter should be adopted.  For this, the courts have been endeavouring,  sometimes to give restrictive or expansive meaning  keeping in view the nature of legislation, maybe  beneficial, penal or fiscal etc. Cumulatively it is to  subserve the object of the legislation. Old golden rule is  of respecting the wisdom of legislature that they are  aware of the law and would never have intended for  an invalid legislation. This also keeps courts within  their track and checks individual zeal of going  wayward. Yet in spite of this, if the impugned  legislation cannot be saved the courts shall not  hesitate to strike it down. Similarly, for upholding any  provision, if it could be saved by reading it down, it  should be done, unless plain words are so clear to be  in defiance of the Constitution. These interpretations  spring out because of concern of the courts to salvage  a legislation to achieve its objective and not to let it fall  merely because of a possible ingenious interpretation.  The words are not static but dynamic. This infuses  fertility in the field of interpretation. This equally helps  to save an Act but also the cause of attack on the Act.  Here the courts have to play a cautious role of weeding  out the wild from the crop, of course, without infringing  the Constitution. For doing this, the courts have taken  help from the preamble, Objects, the scheme of the Act,  its historical background, the purpose for enacting  such a provision, the mischief, if any which existed,  which is sought to be  eliminated.......................................... 
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This principle of  reading down, however, will not be available where  the plain and literal meaning from a bare reading of  any impugned provisions clearly shows that it confers  arbitrary, uncanalised or unbridled power." (emphasis  supplied)"

19. A taxing statute must be interpreted in the light of what  is clearly expressed. It is not permissible to import  provisions in a taxing statute so as to supply any assumed  deficiency. In support of the same we may refer to the  decision of this Court in Commissioner of Sales Tax, U.P.  v. Modi Sugar Mills Ltd. reported in (1961) 2 SCR 189  wherein this Court at Para 10 has observed as follows: -

"10......... In interpreting a taxing statute, equitable  considerations are entirely out of place. Nor can taxing  statutes be interpreted on any presumptions or  assumptions. The court must look squarely at the words  of the statute and interpret them. It must interpret a  taxing statute in the light of what is clearly expressed: it  cannot imply anything which is not expressed; it cannot  import provisions in the statutes so as to supply any  assumed deficiency."

20. Therefore, the attempt of the High Court to read  down the provision by way of substituting the word "OR"  by an "AND" so as to give relief to the assessee is found  to be erroneous. In that regard the submission of the  counsel for the appellant is well-founded that once the  said credit is taken the beneficiary is at liberty to utilize  the same, immediately thereafter, subject to the Credit  rules.

21. An order passed by the Settlement Commission could  be interfered with only if the said order is found to be  contrary to any provisions of the Act. So far findings of  the fact recorded by Commission or question of facts are  concerned, the same is not open for examination either  by the High Court or by the Supreme Court. In the  present case the order of the Settlement Commission  clearly indicates that the said order, particularly, with  regard to the imposition of simple interest @ 10 per cent  per annum was passed in accordance with the provisions  of Rule 14 but the High Court wrongly interpreted the  said Rule and thereby arrived at an erroneous finding.

22. So far as the second issue with respect to interest on  Rs. 50 lacs is concerned, the same being a factual issue  should not have been gone into by the High Court  exercising the writ jurisdiction and the High Court  should not have substituted its own opinion against the  opinion of the Settlement Commission when the same  was not challenged on merits.

23. In that view of the matter, we set aside the order  passed by the Punjab & Haryana High Court by the  impugned judgment and order and restore the order of the  Settlement Commission leaving the parties to bear their  own costs.


.................................................J
[Dr. Mukundakam Sharma]


.............................................J
[ Anil R. Dave ]


New Delhi,
February 21, 2011.

Additional Info

  • Date Range (yyyy-mm-dd): Monday, 21 February 2011
  • Court/Authority: Supreme Court
  • Tax Type: Central Excise
  • Subject: Supreme Court of India : Union of India & Ors. Vs M/s. Ind-Swift Laboratories Ltd. : CIVIL APPEAL NO. 1976 OF 2011
  • Petitioner/Appellant: Union of India & Ors. Vs M/s. Ind-Swift Laboratories Ltd.
  • Respondent: Union of India & Ors. Vs M/s. Ind-Swift Laboratories Ltd.
  • Appl no. or Appl year: CIVIL APPEAL NO. 1976 OF 2011
  • Supreme Court Location: Delhi
  • AAR Location: Delhi
  • Authority: Supreme Court
  • AAR GST State Location: Kerala
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