CENVAT Rules Cannot Apply Retrospectively To Concluded MODVAT Proceedings: Allahabad High Court

The MODVAT scheme, allowing manufacturers a tax credit on input duties, was replaced on 01.07.2001 by the CENVAT scheme. This was later codified as the CENVAT Credit Rules (effective 01.03.2003).

The bench of Justice Saumitra Dayal Singh and Justice Indrajeet Shukla held that, "The changed law did not make any specific provision to enable the revenue authorities to initiate a fresh proceedings, where earlier proceedings had already been initiated and concluded under the MODVAT scheme. Therefore, the revenue authority did not acquire the jurisdiction to issue the second Show Cause Notice dated 02.04.1998, on the issue that stood concluded by earlier order of the Tribunal dated 30.03.2000.”

Proceedings had been initiated against the petitioner under the MODVAT Rules by way of a notice dated 02.04.1998. In furtherance of the same, a demand order was passed on 30.07.1998. Aggrieved, the petitioner preferred an appeal, which was allowed by order dated 30.03.2000. However, the authorities issued a second Show Cause Notice on 15.09.2005, under the CENVAT Rules. This show-cause notice was challenged before the High Court.

The Court held that, without explicit provisions to that effect, retrospective application of the CENVAT rules to transactions prior to 01.07.2001, would be impermissible. It held that even if the CENVAT rules were relevant to the issue at hand, it was the revenue's obligation to have raised such an issue during the continued proceedings.

While the Court conceded that res judicata was not applicable in matters of tax, allowing plural proceedings against an assessee for the same alleged offence would be contrary to basic tenets of the law.

Accordingly, the second Show Cause Notice was quashed, and the writ petition was allowed.

Case Title: Modi Rubber Limited v. Union Of India And 2 Others [WRIT TAX No. - 872 of 2021]

Counsel for Petitioner: Nikhil Agrawal