Isabella Mariam

The High Court of Judicature at Allahabad Division Bench of Justice Saumitra Dayal Singh and Justice Indrajeet Shukla held that once proceedings under the MODVAT (Modified Value Added Tax) Scheme had concluded before the advent of the CENVAT (Central Value Added Tax) Rules, the revenue authorities could not reopen the matter by issuing fresh notices under the new regime. The Court quashed the subsequent show cause notice issued to a tyre manufacturer regarding the alleged misuse of Additional Excise Duty credit, observing that the issue had already been finally settled in the assessee’s favour under the earlier scheme. It further found the later proceedings to be beyond reasonable time and lacking jurisdiction, rendering them unsustainable in law.

The matter arises from a writ petition filed against two show-cause notices dated 10.09.2021 and 23.09.2021 issued by the Commissioner, Central Excise and Customs, Meerut-I. The petitioner, a manufacturer of tyres, tubes, and flaps, had availed and utilized Additional Excise Duty (AED) credit on Tyre Cord Fabric purchased between 13.10.1993 and 19.01.1998. AED was levied under the Additional Duties of Excise (Goods of Special Importance) Act, 1957.

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An amendment to the MODVAT Rules inserted a proviso to Rule 57F(1) with effect from 01.03.1997, allowing utilization of credit of specified duty towards payment of duty of excise on any final product. Following this, the department issued a show-cause notice on 02.04.1998 proposing to disallow AED utilization, demand duty in cash, impose penalties, and confiscate the petitioner’s assets. That notice culminated in an order dated 30.07.1998 raising demands and penalties.

The petitioner appealed to the Tribunal, which allowed the appeal on 30.03.2000. The Tribunal held that the petitioner satisfied all requirements of Rule 57F(12). The revenue sought a reference before the High Court, which was answered against the revenue on 19.12.2016, without further challenge.

During this period, MODVAT was replaced by the CENVAT regime, with new rules introduced in 2001, 2002, and 2004. Invoking CENVAT Credit Rules, 2004, the department issued a second show-cause notice dated 15.09.2005 alleging fresh liability on the same AED utilization.

The petitioner argued that the issue had already been adjudicated and attained finality, and that the second notice was barred by limitation under Section 11A(11)(a) of the Central Excise Act, 1944 due to the department’s failure to act within six months. The revenue contended that the new rules gave rise to fresh jurisdiction and that proceedings were delayed due to pendency of the reference.

The Court recorded that “the real issue between the parties is eligibility of AED to MODVAT” and that the dispute period was “13.10.1991 to 19.1.1998.” It observed that the CENVAT scheme came into existence only on 01.07.2001 and noted that “in absence of any express provision making any part of the CENVAT scheme directly applicable to transactions performed prior to 01.7.2001, it is difficult to entertain a possibility that the provisions of the CENVAT scheme would govern the issue at hand.”

The Court stated that the issue had already arisen under the MODVAT scheme and had resulted in a show-cause notice dated 02.04.1998, which culminated in an order that was set aside by the Tribunal. It recorded that the Tribunal’s order had attained finality. The Court observed that even assuming CENVAT rules were relevant, “it was for the revenue to have raised that issue in continuation of the proceedings evidenced by the issuance of the Show Cause Notice dated 02.04.1998.”

It further noted that “it would be inconsistent to the basic tenets of law… to allow the revenue more than one opportunity and therefore, to pursue plural proceedings, with respect to one infringement of the law.” The Court stated “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.”

On limitation, the Court noted that Section 11A(11)(a) “introduces concept of reasonable time to conclude a proceeding.” Applying this, it recorded that the further notice issued in 2021 pursuant to the 2005 notice was “wholly belated being almost after five years from the rejection of the Reference Application.”

It stated that “absolutely, no explanation has been brought forth… to establish any disability or legal impediment… to continue and conclude the proceedings… within reasonable time.”

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The Court held: “In view of the above, writ petition succeeds and is allowed. Second Show Cause Notice 15.09.2025 is found to be lacking both in jurisdiction as on the ground of limitation. It is accordingly quashed. No order as to costs.”

Advocates Representing the Parties

For the Petitioners: Sri Nikhil Agrawal, Learned Counsel for the Petitioner
For the Respondents: Sri Parv Agarwal, Learned Counsel for the Revenue; A.S.G.I.; Amit Mahajan; C.S.C.; Ramesh Chandra Shukla

Case Title: Modi Rubber Limited v. Union of India & Others
Neutral Citation: 2025: AHC:188956-DB
Case Number: Writ Tax No. 872 of 2021
Bench: Justice Saumitra Dayal Singh and Justice Indrajeet Shukla