High Court of Bombay Adjudicates Writ Petition Challenging Constitutional Validity of Section 88 of Finance Act, 2004. Petitioner, a tyre manufacturer, contended that the cut-off date of 1 April 2000 for utilization of Additional Excise Duty credit is arbitrary and violates Article 14.

Writ Petition under Article 226 of the Constitution of India challenging the constitutional validity of Section 88 of the Finance (No.2) Act, 2004, specifically the classification that disallows utilization of credit of Additional Excise Duty (GSI) paid between 1 April 1996 and 31 March 2000 for payment of duty, while allowing such utilization for duty paid on or after 1 April 2000.

Declaration that the classification made by Section 88 of the Finance (No.2) Act, 2004 is violative of Article 14 of the Constitution; declaration that the cut-off date of 1 April 2000 in the Second Schedule of the Finance Act read with Section 88(1) is violative of Article 14; and that credit of Additional Excise Duty of Rs.9,64,98,626 is available on tyre cord fabrics for the period 1 April 1996 to 31 March 2000.

The Central Excise Authorities denied utilization of credit of Additional Excise Duty (GSI) paid on inputs (tyre cord fabrics) prior to 1 April 2000, relying on Section 88 of the Finance (No.2) Act, 2004 which provided that only credit relatable to duty paid on or after 1 April 2000 is available for utilization. The petitioners had utilized such credit during March to May 2003 for payment of Basic Excise Duty and Special Excise Duty on their final product (tyres). The stand of the Department that credit for the pre-1 April 2000 period could not be granted led to recovery proceedings and ultimately the petitioners filed the writ petition challenging the constitutional validity of the cut-off date.

The Commissioner of Central Excise passed an order on 1 November 2013 upholding recovery of credit; the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) passed an order on 12 June 2014 upholding the recovery. An appeal (Appeal No.261 of 2014) against the CESTAT order was filed in the High Court and was pending, but the hearing of that appeal was adjourned as it raised additional points. The writ petition was separately taken up.

Whether Section 88 of the Finance (No.2) Act, 2004, which allows utilization of credit of Additional Excise Duty (GSI) only if the duty is paid on or after 1 April 2000, and disallows utilization if paid prior to that date, is arbitrary and violative of Article 14 of the Constitution. Whether the cut-off date of 1 April 2000 is irrational and unconstitutional.

Petitioners: The cut-off date of 1 April 2000 is arbitrary and violates Article 14; the AED(GSI) collected by the Centre is entirely distributable to States as per constitutional scheme and Finance Commission recommendations; there is no rational basis to differentiate between duty paid before and after 1 April 2000; the classification created by Section 88 is discriminatory and hit by Article 14. Respondents (Revenue): Only credit of AED(GSI) paid on or after 1 April 2000 is allowable; the provision was made to restrict credit and the date was chosen deliberately; the petitioners' utilization of credit for pre-2000 duty was not permissible.

classification made by section 88 of the Finance (No.2) Act, 2004 disallowing utilization of the credit of Additional Excise Duty (GSI) on goods of special importance paid after 1 April 1996, but prior to 1 April 2000 for payment of duty for First and Second Schedule to Central Excise Tariff Act, 1985, but at the same time allowing utilization of credit of Additional Excise Duty on the same goods paid on or after 1 April 2000 is violative of Article 14 of the Constitution of India and hence invalid. The date chosen namely 1 April 2000 in section 88 of the Finance Act (No.2) of 2004 is arbitrary and violative of the mandate of Article 14 of the Constitution of India.

The petitioners, CEAT Limited, are engaged in the manufacture of tyres using nylon tyre cord fabric as an input, which suffered Additional Excise Duty (GSI) under the Additional Duties of Excise (Goods of Special Importance) Act, 1957. They took Cenvat credit of such AED paid on inputs under Rule 57A of the Central Excise Rules. After the Explanation to Rule 3(6)(b) of the Cenvat Credit Rules, 2002 was introduced on 1 March 2003, they utilized accumulated credit of AED (GSI) for payment of Basic Excise Duty and Special Excise Duty on tyres cleared during March to May 2003. Conflicting circulars were issued by the Central Board of Excise and Customs regarding the scope of the explanation. Section 88 of the Finance (No.2) Act, 2004 was enacted to amend the explanation retrospectively, restricting utilization of credit to AED (GSI) paid on or after 1 April 2000. Consequently, the revenue authorities took the view that credit relatable to duty paid prior to 1 April 2000 could not be utilized. The Finance Act, 2005 provided for recovery of such excess credit, and the petitioners paid approximately Rs.20.50 crores in 36 monthly installments. The petitioners restored the credit in their books and utilized it again. On 28 February 2006, the Commissioner adjudged a liability of approximately Rs.6.60 crores as AED (GSI) on dipped nylon fabrics for the period 16 March 1995 to 1 June 1998. Using the restored credit, the petitioners paid this amount on 5 June 2006. The petitioners then claimed credit of this AED (GSI) paid on or before 1 April 2000 for payment of Basic Excise Duty on tyres cleared in April 2007. The department considered this utilization incorrect. The Commissioner upheld the recovery on 1 November 2013, and the CESTAT confirmed it on 12 June 2014. The petitioners filed Appeal No.261 of 2014 against the CESTAT order and a separate Writ Petition No. 9996 of 2014. The High Court issued rule, made it returnable forthwith, and heard arguments. The final order in the writ petition is not included in the provided text.

• Finance (No.2) Act, 2004: Section 88
• Finance Act, 2005: Section 88(5)
• Central Excise Act, 1944: Section 3
• Central Excise Tariff Act, 1985: First Schedule, Second Schedule
• Additional Duties of Excise (Goods of Special Importance) Act, 1957: Second Schedule
• Union Duties of Excise Distribution Act, 1979: Section 2
• Constitution of India: Articles 14, 226, 270, 272, 280
• Cenvat Credit Rules, 2002: Rule 3(6)(b), Rule 6(3)(b)
• Central Excise Rules, 1944: Rule 57A