‘Hopelessly Timebarred’: Allahabad HC Strikes Down 2021 Excise SCN for Reopening Settled MODVAT Issue Concluded 16 years ago [Read Order]

The Allahabad High Court quashed a 2021 show cause notice issued by the Central Excise authorities calling it time-barred and beyond jurisdiction, as it sought to reopen a MODVAT issue that had been conclusively settled over 16 years earlier.

The Division Bench comprising Justice Saumitra Dayal Singh and Justice Indrajeet Shukla held that the 2021 notice was both jurisdictionally defective and grossly delayed, noting that the same issue had already been adjudicated in favour of the assessee by the Customs, Excise & Gold (Control) Appellate Tribunal (CEGAT) in 2000, and affirmed by the High Court in 2016.

The issue is related to the utilisation of Additional Excise Duty (AED) credit under the MODVAT scheme for payment of Basic Excise Duty (BED) on final products by the Petitioner Modi Rubber Ltd.

The department had initially issued a show cause notice in 1998, disallowing AED credit of ₹3.06 crore utilised for paying BED on tyres, tubes, and flaps manufactured by Modi Rubber Ltd.

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The Commissioner’s order confirming the demand and penalties was later set aside by the CEGAT in March 2000, which held that under Rule 57F(12) of the Central Excise Rules, the credit of specified duty on inputs could be utilised for payment of excise duty on any other final product, provided the inputs were received and used in the factory on or after March 1, 1997.

The revenue’s reference application before the Allahabad High Court was dismissed in December 2016, affirming the assessee’s position.

Despite that finality, the Commissioner issued another show cause notice in September 2021, invoking provisions under the CENVAT Credit Rules, 2004 and Section 11Aof the Central Excise Act, attempting to re-agitate the same issue.

The petitioner argued that the department’s revival of a dispute settled under the earlier MODVAT regime was impermissible and that the proceedings were barred by limitation, as no action was taken for over 16 years.

The Court agreed, observing that the CENVAT scheme came into force only from July 1, 2001, and could not be retroactively applied to transactions between 1993 and 1998 governed by the MODVAT scheme.

The Bench stressed that once the earlier proceedings had culminated in a final order, the authorities could not pursue multiple proceedings on the same alleged infringement merely because of subsequent changes in law.

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On the question of limitation, the Court held that even if the rejection of the revenue’s reference in December 2016 were taken as the relevant date, no order or action was initiated within six months thereafter, as contemplated under Section 11A(11)(a) of the Central Excise Act.

The Court further remarked that the 2021 notice, issued after more than five years of inaction, lacked any reasonable explanation and was hopelessly delayed.

While clarifying the court’s stand, it rejected the Supreme Court’s decision in Swati Menthol and Allied Chemical Ltd. (2023) and clarified that the said case did not involve jurisdictional defects or limitation under Section 11A and was based on Article 142’s exceptional powers.

Accordingly, the Allahabad High Court quashed the 2021 show cause notice issued by the Commissioner, Central Excise and Customs, holding that it was both time-barred and without jurisdiction.

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