Holding

Reversal of MODVAT credit, even if effected before the Amnesty Scheme, is treated the same as post‑Scheme reversals, but interest must be paid by the prescribed date; non‑payment justifies the imposition of customs duty, and a new plea of impossibility of segregation cannot be entertained.

Summary

Bharti Telecom Ltd imported polypropylene under the Value Based Advance Licensing Scheme (VBALS) and claimed duty‑free clearance under Notification No. 203/92. The Customs Department issued a show‑cause notice alleging that Bharti had availed MODVAT credit on inputs used for export, thereby violating the exemption conditions. An Amnesty Scheme dated 10 January 1997 allowed exporters who reversed MODVAT credit to avoid duty provided they paid interest by 31 January 1997. Bharti had reversed the credit in 1994 but paid the interest only on 7 February 1997, missing the deadline. The Customs Tribunal set aside the penalty and interest but upheld the duty liability; Bharti appealed to the Supreme Court. The Court held that reversal of MODVAT credit, even if done before the Amnesty Scheme, is treated the same as post‑scheme reversals, but the interest must be paid by the stipulated date; failure to do so justifies imposing duty. The Court also rejected Bharti’s belated plea that segregation of inputs was impossible and dismissed the appeal with costs.

Issues considered

Whether a reversal of MODVAT credit made before the introduction of the Amnesty Scheme is to be treated on par with reversals made after the Scheme for the purpose of obtaining duty‑free benefit.
Whether the interest prescribed under the Amnesty Scheme must be deposited by the specified deadline and whether any relaxation is permissible.
Whether the appellant can raise a new defence that it was not reasonably possible to segregate inputs used for dutiable and exempted final products.

Legislation cited

Central Excise Rules, 1944s. 56A, s. 57A

Subjects

duty free importVBALSMODVAT creditAmnesty Schemeinterest liabilitystrict constructioncustoms duty exemptionsegregation of inputs

Judgment

BHARTI TELECOM LTD. A
v.
COMMISSIONER OF CUSTOMS

NOVEMBER 7, 2001

[R.P. SETHI AND Y.K. SABHARWAL, JJ.] B

Customs Law :

Duty free goods-Import of-Value Based Advance Licensing Scheme
(VBALS)-Notification No. 203192 dated 19-5-1992-Exporter imported duty
free goods under VBALS and claimed exemption under the Notification-Show
c
cause notice issued alleging that exporter suppressed fact ofavailing ofMODVAT
credit on imports used in manufacture of exported goods for wrongly availing
duty free benefit against VEALS-Subsequently, Amnesty Scheme introduced
providing.for amnesty on reversal of MOD VAT credit and payment of interest
by a certain specified date-Exporter reveresed MOD VAT credit much before D
introduction of Amnesty Scheme but did not deposit interest by the specified
date-There.fore, Customs duty was imposed on the exporter-Correctness o.f-
Held: The reversal of MOD VAT credit made by the exporter has to be treated
at par with the reversal of MODVAT credit after introduction of Amnesty
Scheme-However, interest .for the period between date of export and reversal E
ofMODVATcredit has to be deposited by the specified date-Since this was not
done Customs duty rightly imposed-Central Excise Rules, 1944, Rr. 56-A and
57-A.

Interpretation qf Statutes :
F
Rule of Construction-Taxing Statute-Held : Provisions of a taxing
statute are to be interpreted strictly-The language of the statute should govern
the matter i.e. by the plain terms of the exemption.

The appellant imported Polypropylene under the Value Based Ad- G
vance Licensing Scheme (VBALS) and availed of dnty free clearance of the
goods claiming exemption under Notification No. 203/92 dated 19-5-1992.
The Customs Department by a show cause notice alleged that the appel-
lant had suppressed the fact that it had availed of MODVAT credit on the
inputs used in the manufacture of the exported goods for wrongly availing H
205
206 SUPREME COURT REPORTS [2001] SUPP. 5 S.C.R.
A duty free benefit against the licence. The Central Board of Excise and
Customs introducted an Amnesty Scheme providing amnesty on reversal
of MODVAT credit and payment of interest where exports were effected
under the VBALS before a certain specified date. Th.e appellant had
reveresed the MODVA T credit much before the introduction of the Am·
B nesty Scheme but deposited the interest only after the specified date. The
respondent found that the apellant did not fulfil the conditions of the
Amnesty Scheme. The show cause notice was, therefore, confirmed impos-
ing customs duty and also the interest and penalty.

The appeal filed by the appellant before the Customs, Excise & Gold
c (Control) Appellate Tribunal partially succeeded inasmuch as order of the
respondent imposing penalty and demanding interest was set aside, but it
was confirmed in respect of demand of duty liability. Hence this appeal.

On behalf of the appellant it was contended that the respondent was
D not justified in denying the benefit of the Amnesty Scheme to the appellant
on the ground that it had reversed the MODVAT credit earlier than the
enforcement of tt.e Scheme; and that it was not reasonably possible for the
appellant to segregate imports utilised in the manufacture of the dutiable
final product.
E
Dismissing the appeal, the Court

HELD : 1. The Amnesty Scheme recognises the already reversed
MODVAT credits. The reversal of credit made by the appellant much
before the introduction of the Amnesty Scheme has to be treated at par
F with the reversal of credits made by exporters after coming into force of
the Amnesty Scheme. [209-C]

2. According to the Amnesty Scheme, the interest for the period
between the date of export, and the date of reversal of MODVAT credit
G has to be deposited by a certain specified date. It was not deposited by the
said date. There is no provision for relaxation or extension of time to
deposit the amount of interest. Such schemes or exemption notifications
have to be strictly construed. The provision in the notification for deposit
of interest by a specified date has to be interpreted strictly in the manner
H stated in the notification and on no other basis. It is well settled that in a
BHARTI TELECOM LTD. v. COMMR. OF CUSTOMS [SABHARWAL, J.] 207
taxing statute, there is no room for any intendment and regard must be A
had to the clear meaning of the words and that the matter should be
governed only by the language of the notification, i.e. by the plain terms of
the exemption. (209-D-E)

Mis. Raj Exports v. National Aluminium Co., (SLP (C) No. 8755/1986)
B
decided by Supreme Court on 21-1·1997 and 22.1.1997 and Raj Exports v.
National Aluminium Co. Ltd., (1996) 87 ELT 349 (Ori.), held inapplicable.

3. The appellant had at no stage took the plea that it was not reason-
ably possible for it to segregate inputs utilized in the manufacture of the
dutiable final products from the finlll products, which are exempted from C
duty. Now, the appellant cannot be permitted to raise such a new plea.
[211-B]

Chandrapur Magnet Wires (P) Ltd. v. CCE, [1996) 2 SCC 59, held
inapplicable. D
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 7432 of2000.

From the Judgment and Order dated 16.8.2000 of the Customs Excise
and Gold (Control) Appellate Tribunal, New Delhi in A. No. C/331/99-B in
F.O. No. 1256 of 2000-B. E

V. Lakshmi Kumaran, M.P. Devnath, Ms. Bina Gupta, Vanita Bhargava
and Divya Roy for the Appellant.

Soli J. Sorabjee, Attorney General, K. Swami and B.K. Prasad for the F
Respondent.

The Judgment of the Court was delivered by

Y.K. SABHARWAL, J. The appellant imported Polypropylene under
the Value Based Advance Licensing Scheme and availed of duty free clearance G
of the goods claiming exemption under Notification No. 203/92 dated 19th
May, 1992. According to the department, the appellant was not entitled to the
benefit of duty free import as it had violated condition no. (V) (a) of the said
notification. That condition was that the export obligation should have been
discharged by exporting goods manufactured in India in respect of which no H

..•
208 SUPREME COURT REPORTS (2001] SUPP. 5 S.C.R.
• A input stage credit is obtained under Rule 56A or 57 A of the Central Excise
Rules, 1944.

The department by show cause notice dated 3rd September, 1997 alleged
that the appellant had suppressed the fact that it had availed of modvat credit
on the inputs used in the manufacture of the exported goods for wrongly
B
availing duty free benefit against the licence.

The appellant in response to the show cause notice stated that the
advance licence was obtained by it on !st June, 1993 and it had completed the
export obligations by July, 1993. The appellant claimed that it had reversed the
C modvat credit and rectified.the error in their records as far back as in January-
February 1994. It was further claimed that the circular dated 3rd January, 1997
issued by the Central Board of Excise and Customs had relaxed the conditions
of Notification No.203/92 in cases where the exporter reverses the modvat
credit incorrectly availed of by him with payment of interest at the rate of 20%
D of the amount of the modvat credit. In this view, the appellant sought cancel·
lation of the show cause notice and dropping the charges made against it in the
said notice.

The circular dated 3rd January, 1997 was followed by Amnesty Scheme
dated 10th January, 1997 providing amnesty on reversal of modvat credit and
E
payment of interest where exports were effected under the Value Based Ad-
vance Licence before 31st January, 1997. The scheme dated 10th January,
1997 provided the formula for the quantification of the modvat credit required
to be reversed to avail the benefit of the scheme. It further provides that in
addition to reversal, an interest at the rate of 20% on the amount of modvat
F credit retained by such exporters for the period between the date of exports and
the date of reversal has to be calculated and deposited by the exporters before
31st January, 1997. It further provides that where credit has already been
reversed, the exporters shall deposit the interest amount calculated in the
manner prescribed before 31st January, 1997.
G
The Commissioner found that the appellant did not fulfil the conditions
of the Amnesty Scheme. The requirement of the scheme not having
been fulfilled and the appellant had violated the terms of the exemption
Notification No.203/92 by availing modvat credit contrary thereto, the show
H . cause notice was confirmed imposing custom duty and also the interest and the
BHARTITELECOM LTD. v. COMMR. OF CUSTOMS [SABHARWAL, J.] 209
penalty. A

The appeal filed by the appellant before the Customs, Excise & Gold
(Control) Appellate Tribunal partially succeeded inasmuch as order of the
Commissioner imposing penalty and demanding interest was set aside but it
was confirmed in respect of demand of duty liability to the tune ofRs.52,41,600.
B
Challenging the order of the Tribunal, learned counsel for the appellant
contends that the respondent was not justified in denying the benefit of the
Amnesty Scheme to its client on the ground that it had reversed the modvat
credit earlier to the enforcement of the scheme. There is considerable force in
the contention. The Amnesty Scheme recognises the already reversed modvat c
credits. The reversal of credit made by the appellant in 1994 has to be treated
at par with the reversal of credits made ·by exporters after coming into force
of the Amnesty Scheme.

According to the Amnesty Scheme, the interest for the period between
the date of export, and the date ofreversal has to be deposited by 31st January, D
1997. It was not deposited by the said date. It was deposited only on 7th
February, 1997. There is no provision for relaxation or extension of time to
deposit the amount of interest. Such schemes or exemption notifications have
to be strictly construed. The provision in the notification dated 10th January,
1997 for deposit of interest by a specified date has to be interpreted strictly in E
. the manner stated in the notification and on no other basis. It is well settled that
in a taxing statute, there is no room for any intendment and regard must be had
to the clear meaning of the words and that the matter should be governed only
by the language of the notification, i.e. by the plain terms of the exemption.
Learned counsel for the appellant, however, relied upon order dated 21st F
January, 1997 and 22nd January, 1997 passed by this Court in Mis. Raj Exports
v. National Aluminium Co. & Ors., (SLP (C) No.8755/1986) wherein while
disposing of the special leave petitions and connected petitions, it was directed
that the petitioners in those cases shall be entitled to release of the goods
imported without payment of the customs duty. Counsel contends that the said
.G
order had reversed the decision of the High Court of Orissa in Raj Exports v.
National Aluminium Co. Ltd., (1996) 87 ELT 349 (Ori.) whereby the High
Court had declined to grant relief to the exporter on account of breach of the
conditions of the same exemption notification. The orders dated 21st and 22nd
January, 1997.relied upon by the learned counsel were passed on the facts of
H
210 SUPREME COURT REPORTS [2001] SUPP. 5 S.C.R.
A the said case without settling any principle and without reversing principles laid
down by the Orissa High Court. It has not been held by this Court that even ·
in case of non-compliapce of the conditions of exemption, the exporter shall
be allowed to take benefit of the exemption. Further it may be noticed that in
case of Raj Exports, interest had been deposited on 18th January, 1997, i.e.,
B before the time prescribed in the Amnesty Scheme.

Learned counsel for the appellant lastly contends that the appellant had
not violated Notification No.203/92. The submission is that the appellant was
manufacturing goods both for home consumption and also for export and it was
not possible to segregate input utilized in the manufacture of the final product
C which was exported, therefore, it was permissible for the appellant to first avail
the modvat credit and then to reverse it after export. In support, reliance is
placed upon a decision of this Court in Chandrapur Magnet Wires (P) Ltd.,
Nagpur v. Collector of Central Excise, Central Excise Collectorate, Nagpur,
(1996] 2 sec 159 and a departmental circular taken note of in that decision.
D That circular reads as under :

"3.The credit account under MODVAT rules may be maintained
chapterwise.

MODVAT credit is not available if the final products are exempt
E or chargeable to nil rate of duty. However, where a manufacturer
produces along with dutiable final products, final products which
would be exempt from duty by a notification (e.g. an end use notifi-
cation) and in respect of which it is not reasonably possible to segre-
gate the inputs, the manufacturer may be allowed to take credit of duty
F paid on all inputs used in the manufacturer of the final products,
provided that credit of duty paid on the inputs in such exempted· final
products."

Para 8 of the judgment relied upon by the learned counsel reads thus :

G "8. This circular deals with a case where the manufacturer produces
dutiable final products and also final products which are exempt from
duty and it is not reasonably possible to segregate inputs utilized in
manufacture of the dutiable final products from the final products
which are exempt from duty. In such a case, the manufacturer may take
H credit of duty paid on all the inputs used in the manufacture of final
BHARTI TELECOM LTD. v. COMMR. OF CUSTOMS [SABHARWAL, J.] 211
products on which duty will have to be paid. This can be done only A
if the credit of duty paid on the inputs used in the exempted products
is debited in the credit account before the removal of the exempted
final products."

The appellant had at no stage took the plea that it was not reasonably
possible for it to segregate inputs utilized in the manufacture of the dutiable B
final products from the final products which·are exempted from duty. Now, the
appellant cannot be permitted to raise such a new plea.

For the aforesaid reasons, the appeal is dismissed with costs.

v.s.s. Appeal dismissed.