Electronics Corporation of India Ltd. v. Union of India & Ors.

Electronics Corporation of India Ltd. (assessee) is a Central Government Public Sector Undertaking. A dispute had been raised by the Central Government (Ministry of Finance) by issuing show cause notices to the assessee alleging that the Corporation was not entitled to avail/utilize Modvat/Cenvat Credit in respect of inputs whose values stood written off. Accordingly it was proposed in the show cause notices that the credit taken on inputs was liable to be reversed.The issue which arose for determination in the present case was whether the Central Government was right in insisting on reversal of credit taken by the assessee on inputs whose values stood written off.

The adjudicating authority held that there was no substance in the contention of the assessee that the write off was made in terms of AS-2. The case of the assessee before the Commissioner of Central Excise (adjudicating authority) was that it was a financial requirement as prescribed in AS-2; that an inventory more than three years old had to be written off/derated in value; that such derating in value did not mean that the inputs were un functionable; that the inputs were still lying in the factory and they were useful for production and therefore they were entitled to Modvat/Cenvat credit, but the argument was rejected by the adjudicating authority and the demand against the assessee stood confirmed. Against the order of the adjudicating authority, the assessee decided to challenge the same by filing an appeal before CESTAT. Accordingly, the assessee applied before the Committee on Disputes (CoD). However, the CoD vide its decision dated 2.11.2006 refused to grant clearance though in an identical case the CoD granted clearance to Bharat Heavy Electricals Ltd. (BHEL). Accordingly, the assessee herein filed Writ Petition No. 26573 of 2008 in the Andhra Pradesh High Court. By the impugned decision, the writ petition filed by the assessee stood dismissed. Against the order of the Andhra Pradesh High Court the assessee moved the Supreme Court by way of a special leave petition.

 The Supreme Court observed that above two instances only highlight the fact that the mechanism set up by the Supreme Court in its Orders reported in (i) 1995 Suppl.(4) SCC 541 (ONGC v. CCE) dated 11.10.1991; (ii) 2004 (6) SCC 437 (ONGC v. CCE) dated 7.1.1994; and (iii) 2007 (7) SCC 39 (ONGC v. City & Industrial Development Corpn.) dated 20.7.2007 needed to be revisited. Attorney General also submitted that the above Orders had outlived their utility and in view of the changed scenario the afore stated Orders were required to be recalled.

By Order dated 11.9.1991, Supreme  Court had noted that “Public Sector Undertakings of Central Government and the Union of India should not fight their litigations in Court” and  the Cabinet Secretary, Government of India was “called upon to handle the matter personally”. This was followed by the order dated 11.10.1991 Court directed the Government of India “to set up a Committee consisting of representatives from the Ministry of Industry, Bureau of Public Enterprises and Ministry of Law, to monitor disputes between Ministry and Ministry of Government of India, Ministry and public sector undertakings of the Government of India and public sector undertakings between themselves, to ensure that no litigation comes to Court or to a Tribunal without the matter having been first examined by the Committee and its clearance for litigation”. Thereafter in ONGC-III case the Supreme  Court directed that in the absence of clearance from the “Committee of Secretaries” (CoS), any legal proceeding will not be proceeded with. This was subject to the rider that appeals and petitions filed without such clearance could be filed to save limitation. It was, however, directed that the needful should be done within one month from such filing, failing which the matter would not be proceeded with. By another order dated 20.7.2007 (ONGC-IVth case) the Court extended the concept of Dispute Resolution by High-Powered Committee to amicably resolve the disputes involving the State Governments and their Instrumentalities. The idea behind setting up of the Committee, initially, called a “High-Powered Committee” (HPC), later on called as “Committee of Secretaries” (CoS) and finally termed as “Committee on Disputes” (CoD) was to ensure that resources of the State are not frittered away in inter se litigations between entities of the State, which could be best resolved, by an empowered CoD. The machinery contemplated was only to ensure that no litigation comes to Court without the parties having had an opportunity of conciliation before an in-house committee.Whilst the principle and the object behind the aforestated Orders was unexceptionable and laudatory, experience had shown that despite best efforts of the CoD, the mechanism had not achieved the results for which it was constituted and had in fact led to delays in litigation. This had led a PSU to institute a SLP in the Court on the ground of discrimination. In such cases, the Supreme Court observed that the grant of clearance to one and not to the other might result in generation of more and more litigation. Thus  in the changed scenario, the Supreme Court recalled the following Orders reported in :

(i) 1995 Supp (4) SCC 541 dated 11.10.1991

(ii) (2004) 6 SCC 437 dated 7.1.1994

(iii) (2007) 7 SCC 39 dated 20.7.2007