Litigation between two Government Departments

PJ/Case Laws/2011-12/1009

Case: - ELECTRONICS CORPORATION OF INDIA LTD V/s UNION OF INDIA

Citation: - 2011-TIOL-18-SC-CX-CB

Issue:- Whether it is right for the Central Government to ask for reversal of Modvat/Cenvat credit taken by the assessee in respect of inputs whose value stood written off?

Brief Facts:- Appellant is a Central Government Public Sector Undertaking (PSU) which was registered as a Government Company under the Companies Act, 1956 & was under the control of Department of Atomic Energy, Government of India. A show cause notice was issued by the Central Government (Ministry of Finance) alleging that appellant was not entitled to avail/utilize Modvat credit in respect of inputs whose values stood written off and they were asked to reverse the credit so taken.
The case of the appellant before the Adjudicating Authority was that a financial requirement as prescribed in AS-2 according to which an inventory more than three years old had to be written off/ derated in value but such derating in value did not mean that the inputs were unfunctionable because according to them the inputs were still lying in the factory & were useful for production. Hence they were entitled to Modvat / Cenvat credit.
The Adjudicating Authority held that there was no substance in the appellant’s contention that the write off was made in terms of AS-2 and confirmed the demand.
Appellant decided to file appeal before the Tribunal and accordingly applied before the Committee on Disputes (CoD). CoD refused to grant clearance to appellant although in an identical case they had granted clearance to Bharat Heavy Electricals Ltd (BHEL).
Against this decision, appellant filed writ petition before the High Court which was dismissed. Appellant then approached the Supreme Court by way of special leave petition.
Reasoning of Judgment:- The Supreme Court referred to the conjunct matter of BHEL (Civil Appeal No. 1903 of 2008) wherein the facts where that BHEL had cleared goods for sale at the outlets owned and operated by them. And the value of the goods so cleared to such outlets was determined during Feb, 2000 to Nov, 2001 on the basis of the price at which such goods were sold from their warehouses to independent dealers, instead of determining it on the basis of normal price and normal transaction value as per Section 4 (4) (b) (iii) of Central Excise Act, 1944 read with Rule 7 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. Thus, the price adopted by the assessee-PSU in terms of Administered pricing Mechanism (APM) formulated by the Govt. was rejected. The Tribunal in the case of BHEL held that the APM adopted by the assessee was in terms of the price fixed by the Ministry of Petroleum and Natural Gas; that it was not possible to arrive at the transaction value in terms of the said section. And the Tribunal allowed the appeal of the assessee. The Departmental appeal was filed in the Supreme Court and assessee (BHEL) had filed Application (I.A. No. 4 of 2009) requesting the Supreme Court to dismiss the Civil Appeal No. 1903 of 2008 filed by the Department on the ground that CoD has declined permission to the Department to pursue the said appeal.
The above case was referred to highlight the fact that the mechanism set up by the Supreme Court in its order in (i) ONGC v/s CCE [1995 Suppl (4) SCC 541], (ii) ONGC v/s CCE [2002-TIOL-628-SC-CX] and (iii) ONGC v/s City & Industrial Development Corpn [2007-TIOL-248-SC-MISC] needed to be re-visted.
The Supreme Court found merit in the submission of Revenue that above orders have outlived their utility and required to be recalled. The reasons given for this were as under:
That by order dated 11.9.1991,reported in 1992 supp (2) SCC 432 (ONGC and Anr. v. CCE), the Supreme Court noted that “Public Sector Undertakings of Central Government and the Union of India should not fight their litigation in court”. Consequently, the Cabinet Secretary, Government of India was “called upon to handle the matter personally”.

This was followed by order dated 11.10.1991 in ONGC-II case [2002-TIOL-196-SC-CX] where this court had directed the Government of India “to setup a Committee consisting of representatives from the Ministry of Industry, Bureau of Public Enterprises and Ministry of Law, to monitor disputes between Ministry and Ministry of Government of India, Ministry and public sector undertakings of the Government of India and public sector undertakings between themselves, to ensure that no litigation comes to a court or to a Tribunal without the matter having been first examined by the Committee and its clearance for litigation.”

The Supreme Court observed that thereafter in ONGC-III ccase, this Court had directed that in the absence of clearance from the “Committee of Secretaries” (CoS), any legal proceding will not be proceeded with. Thus was subject to the rider that the appeals and petitions filed without such clearance could be filed save limitation. It was, however, directed that the needful should be done within one month from such filing, failimg which the matter wouldnot be proceeded with.

By another order dated 20.07.2007 in ONGC-IV case this Court extended the concept of dispute resolution by High powered comittee to amicably resolve the disputes involving the state govts and their intrumentalities.

The Supreme Court further held that the idea behind setting up this committee called a High Powered committee (HPC) later on called as CoS and finally termed as Committee on Disputes (CoD) was to ensure that the resources of the state are not frittered away in interse litigations between entities, which could be best resolved, by an empowered CoD. The machinery comtemplated was only to ensure that no litgation comes to court without the parties having an opportunity of conciliation before an in-house committtee.

The Supreme Court held that while the principle and the object behind the aforestated orders was unexceptional and laudatory, experience has showed that despite best efforts of CoD, the mechanism has not achieved the results for which it was constituted and has infact led to delays in litigation.

The Supreme Court held that it has been demonstrated that o the same facts in one case the clearance was given but in the other case it was denied.This resulted in a PSU in filing a SLP in the Supreme Court on the ground of discimination. There has been loss to revenue due to delay in decision of CoD. Stakes in cases of such nature are huge. One cannot possibly expect timely clearance by CoD. In such cases, grant of clearance to one and not to the other may result in generation of more and more litigation. The mechanism has outlived its utility. In such changed scenario, the Supreme Court felt the need to recall the directions of this Court in various orders reported at 1992 supp (2) SCC 432; 2002-TIOL-628-SC-CX; 2007-TIOL-248-SC-MISC. These orders are recalled.

Decision: - I. A. No. 4 filed by assessee in Civil appeal no. 1903/2008 dismissed.

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