Holding

A wrong mention of a provision does not preclude relief if the assessee is otherwise entitled, and the credit taken under Rule 57A can be returned allowing a claim under Rule 56A(8), subject to a fresh determination of entitlement.

Summary

Shree Hari Chemicals Export Ltd., a manufacturer of hydrochloric acid, claimed credit of excise duty on naphthalene under Rule 57A of the Central Excise Rules, 1944, despite a 1986 notification that excluded Chapter 27 inputs from such credit. After a show‑cause notice, the company sought to return the credit taken under Rule 57A and instead claim credit under sub‑rule (8) of Rule 56A, which allowed credit for materials that had previously enjoyed credit before the 1985 tariff changes. The Assistant Commissioner disallowed the claim, the Commissioner allowed it, the revenue appealed, and the Tribunal and High Court upheld the disallowance. The Supreme Court held that a wrong mention of a statutory provision cannot bar relief if the assessee is otherwise entitled, and that the term “taken” in sub‑rule (9) of Rule 56A refers to a final assessment, not merely an accounting entry. Consequently, the credit taken under Rule 57A could be returned and the company could seek credit under Rule 56A(8), but the question of entitlement under that rule must be decided afresh by the Assistant Commissioner. The appeal was allowed, the lower orders set aside, and the matter remitted for fresh determination.

Issues considered

Whether a wrong mention of a statutory provision (Rule 57A instead of Rule 56A) bars the assessee from obtaining relief.
Whether sub‑rule (9) of Rule 56A precludes a taxpayer who has claimed credit under Rule 57A from later claiming credit under Rule 56A(8).
Whether credit taken under Rule 57A can be returned and credit under Rule 56A(8) be claimed thereafter.
Whether the Assistant Commissioner should re‑examine the assessee's entitlement under Rule 56A(8).

Legislation cited

Central Excise Rules, 1944s. Rule 173Q, s. Rule 56A, s. Rule 57A
Central Excise Tariff Act, 1985
Customs Tariff Act, 1975s. Section 3

Subjects

Modvat creditCentral ExciseRule 56ARule 57ACredit of dutyNaphthaleneWrong provisionReliefRemand

Judgment

A MIS. SHREE HARi CHEMICALS EXPORT LTD.
v.
UNION OF INDIA AND ANR.

DECEMBER 16, 2005

B [S.B. SINHA AND P.K. BALASUBRAMANYAN, JJ.]

Central Excise Rules, 1944-Rules 56A and 57A-Modvat Credit
Scheme-Availability of credit facility-Wrong daim of credit of duty on
input of Naphthalene under Rule 57A-Subsequently claim made to return
C the credit taken and claim raised under Rule 56A'--Entitlement of claim
under Rule 56A-Held: Assessee cannot be denied relief on mentioning
wrong provision of law, if he is otherwise entitled to-Credit available under
Rule 57A having been returned, assessee can claim exemption under another
Rule-However, matter remitted back to the concerned Authority to determine
D whether assessee was ent,itled W lake credit under Rule 56A (8).
In terms of the Notification of 1962; credit facility was available under
Rule 56A of the Central Excls~ Riiles, 1944. However, by Notification of 1986
issued under Rule 57A credit facility was not available on inputs classifiable
under Chapter Heading 'Ji7 of the Centrai Excise tariff Act Appella'nt-assessee
E avai!ed the credit of duty t>ii Naphthalene falling under Chapter 27 in terms
5'
of Rule A as an input for manufacturing of hydrochloric acid. Assistant
Collector issued notice for disallowittg tlie cred!t as it was claimed wrongly.
Appellant claimed cr~cm under Rule 56A and intended to return the credit
taken under Rule 57A. Assistant Commissioner disaiiuwed the claim but the
Commissioner altowed the ciaiin. Aggrieved respondent No. 2-Revenue filed
F an appeal. Tribunal ~llowed the same. High Court upheld the order. ~en<!e
the pre~erti appMl.

Allowing the appeal and remitting the matter to the Assistant
Commissioner, the Court

G HELD: 1.1. A wrong mentioning of a Section cannot be a ground to
refuse relief to an assessee if he is otherwise entitled thereto. 1904-Fl

1.2. Sub-rule (9) of Rule 56A of the Central Excise Rules, 1944 debars
an assessee from taking benefit of one or the other sub-rules of Rules 56A
if credit of duty paid on such material, component parts or finished product
I-I 900
SHREE HARi CHEMICALS EXPORT LTD. v. U.O. I. [SINHA, J.] 901

has been taken under Rule 57 A. Thus, the said provision merely debars A
taking of credit both under Rules 56A and 57A. Appellant although had taken
credit as regard input of Naphthalene in terms of Rule 57 A, the same was
not applicable in his case, as such he had no other option but to return the
same. Therefore, the word 'taken' must be understood in its proper
perspective. A person cannot take the benefit unless final order of assessment B
is passed. Only because in his books of accounts entries are made for taking
of the credit in terms of one provision of the Rules, the same if ultimately
found to be inapplicable and return of the credit is taken effect, there cannot
be any legal bar in claiming the exemption under another Rule. However, since
it is not clear as to whether the appellant had complied with the provisions
for taking credit in terms of Sub-rule (8) of Rule 56A of the Rules or not if C
it was not otherwise entitled thereto, matter is remitted back to the Assistant
Commissioner to determine the same. [905-C-F]

Commissioner of Income-Tax, Madras v. Mahalakshmi Textile Mills Ltd 1
66 ITR 710 and Anchor Pressings (P) Ltd. v. Commissioner of Income Tax,
U.P. and Ors., (1986) 3 sec 439, referred to. D
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 7534 of2005.

From the Judgment and Order dated 14.9.2004 of the Bombay High
Court in W.P. No. 8363 of2003.

Prakash Shah, Jay Savla and Ms. Reena Bagga for the Appellant. E
K. Swami and P. Panneswaran for the Respondents.

The Judgment of the Court was delivered by

S.B. SINHA, J. Leave granted.
F
The Appellant herein inter alia is engaged in manufacture of
Hydrochloric Acid. It falls under Chapter Heading 29 of the First Sched1,1le of
the Central Excise Tariff Act, 1985. It uses Naphthalene for the m~nufacture
of Hydrochloric Acid.

Chapter AA of the Central Excise Rules, 1944 (for short "the Rules") G
provides for credit of duty paid on excisable goods used a~ inputs. (herein~fter
referred to as "the Modvat Credit Scheme"). Sub-rule (1) of Rule 57 A which
was applicable at the relevant time reads as under:

"The provisions of this section shall apply to such finished excisable
H
902 SUPREME COURT REPORTS [2005) SUPP. 5 S.C.R.
_....
A goods (hereinafter referred to as the "final· products"), as the Central -..
Government may, by a notification in the Official Gazette, specify in
this behalf, for the purpose of allowing credit of any duty of excise
or the additional duty under Section 3 of the Customs Tariff Act, 1975
(51 of 1975) as may be specified in the said notification (hereinafter
referred to as the "specified duty") paid on. the goods used in or in ·
B relation to the manufacture of the said final products. (hereinafter
referred to as the "inputs") and for utilizing the credit so allowed
towards payments of .duty of excise leviable on the final products,
whether under the Act or under any other Act, as may be specified
in the said notification, subject to the provisions of this section and
c the conditions and restrictions that may be specified in the
notification."

Rule 56A of the Rules, however, provides for the special procedure for
movement of duty paid materials or component for use in the manufacture of
finished excisable goods. (hereinafter referred to as "the Proforma Credit
D Scheme") Sub-rules (8) and (9) of Rule 56A of the Rules, which are material
for the purpose of this case, read as under:

"(8) Notwithstanding anything contained elsewhere in this rule or any
change in the nomenclature or classification of any goods consequent
to the commencement of the Central. Excise Tariff Act, 1985 (5 of 1986),
E the credit of duty paid on any material, component parts or finished
product shall be allowed if the credit of duty was allowed in respect
of such material, component parts· or finished product under this rule
immediately before the commencement of the Central Excise Tariff Act,
1985 (5 of 1986). ·

F Provided that no such credit shall apply in respect of any material,
component P.arts or finished product, if such credit was not allowable
under this rule immediately before the commencement of the Central
Excise Tariff Act, 1985 (5 of 1986).

(9) No credit of duty paid on any material, component parts or finished
G product shall be allowed under this Rule if credit of duty paid on such
material, component parts or finished product has been taken under
rule 57A." •
Credit under Rule 56A was said to be available on Naphthalene in terms
ofa notification dated 29.12.1962. However, on or about 1st March, 1986, a
H notification bearing No. 177 of 1986 was issued under Rule 57A of the Rules
SHREE HARi CHEMICALS EXPORT LTD. v. U.O. I. [SINHA. J.] 903

stating that the credit on inputs classifiable under Chapter Heading 27 of the A
Tariff Act would not be available. The Appellant herein during the period
September, 1991 to January, 1992 availed the credit of duty amounting to Rs.
2,46, I 09/- on 1,04, 119 kgs. of Naphthalene falling under Chapter 27 of the
Tariff Act in terms of Rule 57A. As the said credit facility in terms of the
Modvat Credit Scheme was not available in relation to Naphthalene as an B
input for manufacturing of Hydrochloric acid, a show-cause notice was issued
by the Assistant Collector, Central Excise in terms whereof not only the wrong
claim made on the part of the Appellant herein as regard credit of input was
pointed out, it was also proposed to disallow credit of Rs. 2,46,109/- and a
penalty under Rule 173Q of the Rules was proposed to be levied. The Appellant
herein did not deny or dispute in view of the aforementioned notification No. C
177 of 1986 that it has wrongly claimed credit in terms of Rule 57 A but
submitted that it should not be denied credit of duty on the input which was
available prior to 1.3.1986 under Rule 56A. The said contention of the Appellant
was rejected by the Additional Commissioner of Central Excise by an order
dated 12.12.1997 whereagainst an appeal was preferred before the Commissioner
of Central Excise. By an order dated 24.2.1998, the Commissioner allowed the D
appeal recording that indisputably the input was received in the factory and
was used in the manufacture of final product and although initially the
Appellant claimed credit under Rule 57A, they found the same as inconvenient
and wanted to avail credit under Rule 56A(8) of the Rules.

The Respondent No. 2 herein aggrieved by and dissatisfied therewith E
preferred an appeal before the Tribunal which having been allowed; the
Appellant herein filed a writ petition before the High Court. By reason of the
impugned judgment the same was dismissed.
..
Mr. Prakash Shah, learned counsel appearing on behalf of the Appellant
would submit that wrong mentioning of a provision of law cannot be a bar F
in claiming relief to which the Appellant was otherwise entitled to and, thus,
the Tribunal as well as the High Court committed an error in disallowing the
same.

The learned counsel appearing on behalf of the Respondent, on the G
other hand, would submit that the Appellant having claimed credit in terms
of Rule 57 A, must be held to have availed the same and in that view of the
matter, Sub-rule (9) of Rule 56A would be applicable in the instant case. It was
further submitted that the procedure for claiming relief under Rules 56A and
57 A being different, nothing has been produced before the authorities to
H
904 SUPREME COURT REPORTS [2005) SUPP. 5 S.C.R.

A show that the Appellant was otherwise entitled thereto.

Before adverting to the rival contentions raised at the Bar, we would
place on record that upon receipt of the show,cause notice, the Appellant
herein categorically made a claim before the Assistant Commissioner that it
intended to return the credit taken in terms of Rule 57A of the Rules and avail
B the benefits in terms of Sub-rule (8) of Rule 56A thereof. In its order dated
12.12.1997, the Assistant Commissioner noticed that the assessee had taken
credit wrongly and, thus, it is not eligible for credit under Rule 56A of the
Rules. The Commissioner, on the other hand, opined that the Appellant would
be so entitled. The Tribunal did not discuss the question in great details but
C considered the question from the point of view of applicability of its earlier
in CCE v. Crest Chemicals Pvt. ltd., and having found the same to be not
applicable.allowed the appeal of the Revenue. The High Court affirmed the
said order of the Tribunal stating:

"The fact of the matter is, as noticed by us above, that the petitioner
claimed modvat credit only under Rule 57A. As a matter of fact; not
D
only that no claim was made by the petitioner under Rule 56A(8) but
also there was no entries made by the petitioner in RG 23A (sic 23)
register. The petitioner claimed modvat credit under Rule 57A but
strangely the Commissioner of Appeals allowed the credit to the
petitioner under Rule 56A(8). When the petitioner had claimed benefit
E under Rule 57 A, in our considered view, the petitioner could not have \

claimed the benefit of modvat credit under Rule 56A(6) particularly
when the conditions precedent u.nder Rule 56A were also not satisfied.
The judgments relied upon by the learned counsel for the petitioner
have no application."

F It is now a well-settled principle of law that wrong mentioning of a
section would not be .a ground to refuse relief to an assessee if he is
otherwise entitled thereto.

In Commissioner of Income-Tax, Madras v. Mahalakshmi Textile Mills
Ltd., [66 lTR 710], a 3-Judge Bench of this Court opined:
G
" .. .If for reasons recorded by the departmental authorities in rejecting
a contention raised by the assessee, grant of relief to him on another
ground is justified, it would be open to the departmental authorities
and the Tribunal, and indeed they would be under a duty to grant that
relief. The right of th~ assessee to relief is not restricted to the plea
H
SHREE HARi CHEMICALS EXPORT LTD. v. U.O. l. [SINHA, J.] 905
raised by him." A
Yet again in Anchor Pressings (P) Ltd. v. Commissioner of Income Tax,
U.P. and Ors., [1986] 3 SCC 439, it was observed:

" .. .It is contended that an obligation was imposed on the Income Tax
Officer by the statute to grant such relief and it could not be refused B
merely because the appellant had omitted to claim the relief. While we
believe the appellant is right in his contention, we do not think that
the mere existence of such an obligation on the Income Tax Officer is
sufficient... .. "

Sub-rule (9) of Rule 56A of the Rules debars an assessee from taking C
benefit of one or the other sub-rules of Rule 56A if credit of duty paid on
such material, component parts or finished product has been taken under Rule
57 A. Thus, the said provision merely debars taking of credit both under Rules
56A and 57A. The Appellant herein although had taken credit as regard input
of Naphthalene in terms of Rule 57A, evidently, the same was not applicable
in his case. He had, therefore, no other option but to return the same. In that D
view of the matter, we are of the opinion, that the word 'taken' must be
understood in its proper perspective. A person cannot take the benefit unless
final order of assessment is passed. Only because in his books of accounts
entries are made for taking of the credit in terms of one provision of the Rules,
the same if ultimately found to be inapplicable and return of the credit is taken E
effect, we are of the opinion that there cannot be any legal bar in claiming
the exemption under another rule. However, we are not sure as to whether the
Appellant had complied with the provisions for taking credit in terms of Sub-
rule (8) of Rule 56A of the Rules or not if it was not otherwise entitled thereto.
For the aforementioned purpose, thus, it is necessary that the claim of the
Appellant be considered afresh by the Assistant Commissioner of Excise. F
We, therefore, while setting aside the order of all the authorities as well
as the Tribunal, remit the matter back to the Assistant Commissioner for his
detennination as to whether the Appellant herein was entitled to take the
credit in terms of Sub-Rule (8) of Rule 56A of the Rules or noi. It would be
open to the Appellant herein to show that it was so entitled. · G

The Appeal is allowed and the impugned judgments are set aside with
the aforementioned directions. However, in the facts and circumstances of
this case, there shall be no order as to costs.

N.J. Appeal allowed. H