REPEAL OF MODVAT RULES: PREPARATION FOR RETROSPECTIVE EFFECT

REPEAL OF MODVAT RULES: PREPARATION FOR RETROSPECTIVE EFFECT

In a recent landmark judgment the Highest Court of India has held in case of Kohlapur Cansugar Works Ltd. V/s Union of India [2000 (119)ELT-257] that the proceeding pending under a Rule lapses on repeal of rule without a saving clause. Even the Clause 6 of General Clauses Act does not come to rescue as it is meant for Central Act, Enactment and Regulation and not for a Rule.

Furthermore, new CENVAT Rules have been incorporated in place of MODVAT Rules. We will also see impact of this decision on these Rules in this Article. To ponder over the subject we have to look for the definition of the Act, Regulation, Rules and Clause 6 of General Clauses Act and than visualize the aforesaid decision and evaluate its impact on omitted MODVAT Rules.

The “Central Act” has been defined in section 3(7) of General Clauses Act which means an Act of Parliament, and shall include:

a) An Act of the Dominion legislation or of the Indian legislature passed before the commencement of Constitution, and

b) An Act made before such commencement by the Governor-General-in-Council, the Governor General, acting in a legislative capacity.

The Section 3(19) of the General Clauses Act gives the Definition of “Enactment” which is enumerated below: -

“It shall include a Regulation (as hereinafter defined and any Regulation of the Bengal, Madras or Bombay code and shall also include any provision contained in any Act ir in any such Regulation as aforesaid).”

The term “Regulation” is contained in Section 3(50) which means a regulation made by the President under Article 240 of the Constitution and shall include a regulation made by the President under Article 243 thereof and a regulation made by the Central Government under the Government of India Act, 1935.

The definition of “Rule” in Section 3(51) of the Act reads as the term “Rule” shall mean a Rule made in exercise of a power conferred by an enactment and shall include a Regulation made as a Rule under any enactment.

From above, it is clear that Act, Enactment, Regulation and Rules are different. Normally, Act is passed by the Parliament and enactment is approved from President of India or Government of India. Whereas the Rules are made from the power taken from the enactment itself. This means that there is no need for the approval of Parliament or President of India.

Now, we see Clause 6 of General Clauses Act which is for effect of repeal of Rules reads as follows: -

6. Effect of Repeal: Where this Act or any (Central Act) or Regulation made after the commencement of this Act, repeals any enactment hitherto made or hereafter to be made, then, unless a different intention appears, the repeal shall not: -

(a) revive, anything not if force or existing at the time at which the repeal takes effect; or

(b) effect the previous operation of any enactment so repealed or anything duly done or suffered there under; or

(c) affect any right, privilege, obligation or liability acquired, accrued or incurred under any enactment so repealed; or

(d) affect any penalty, forfeiture or punishment incurred in respect of any offence committed against any enactment so repealed; or

(e) affect any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture or punishment as aforesaid.

And any such investigation, legal proceeding or remedy may be instituted, continued or enforced, and such penalty, forfeiture or punishment may be imposed as if the repealing Act or Regulation had not been passed.”

We look at the case before Hon’ ble Supreme Court, the Rules 10 and Rules 10A were omitted from 6-8-1977 and a new Rule 10 was substituted. But no saving Clause was incorporated in the new Rules that the proceeding under old Rules will continue in new Rule. The proceedings were pending before Excise Authorities against the assessee. The Show Cause Notice was issued before 06/08/1977. The Hon’ ble Court held that omission of Rule 10 and 10A without a saving clause will amount to lapsing of the proceedings pending under the aforesaid Rules. Furthermore, the clause 6 of General Clauses Act is not applicable because it applies only in respect of Central Act or Regulation and not on repeal of a Rule. It makes no effect even if an enactment. Order passed in proceeding thereafter will be considered as non est. So, it is ample clear from aforesaid decision, pending proceeding under the repealed Rule without a saving clause in new Rules will be lapsed and there will no effect of clause 6 of General Clauses Act as it applies only on Central Act or Regulation.

Now, we come to new CENVAT Credit Rules incorporated from April 1, 2000 in place of Modvat Rules. Earlier, the demands under erstwhile Modvat Rules were issued under Rule 57-I of Central Excise Rules. The new CENVAT incorporated new Rule 57 AH which confers power to recover wrongly availed CENVAT Credit. But this newly introduced Rule do not have any saving clause for proceeding initiated under old MODVAT Rules. This will imply that the proceedings pending with erstwhile provisions will lapse following the ratio decidendi of the Ruling of Highest Court of India.

Now, the only option remaining with the Government is to go for retrospective amendment and incorporate the saving clause in the new set of Rules. It will get the approval of the Parliament of India. There are many retrospective amendments have been made by the Central Government in last year budget also. It is separate issue whether these amendments are rights or wrong but the Government is continuing with the same.

There is no other alternative available to the Government to continue the proceeding under the repealed Rules after the clear cut finding of the Apex Court of India.

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REPEAL OF MODVAT RULES: PREPARATION FOR RETROSPECTIVE EFFECT

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