Ultra vires capacity-determination rules could not support the excise demand, so the matter was sent back for fresh adjudication.

A demand under the Hot Air Independent Textile Processors Annual Capacity Determination Rules, 1998 could not be sustained because Rule 3 had already been held ultra vires Section 3A of the Central Excise Act, 1944 by the Madras High Court in Beauty Dyers. The impugned order was therefore set aside, and the matter was remanded to the adjudicating authority for fresh consideration in accordance with the High Court ruling, after granting a personal hearing.

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Issues: (i) whether the demand raised under the Hot Air Independent Textile Processors Annual Capacity Determination Rules, 1998 was sustainable in view of the challenge to Rule 3 of those Rules; (ii) whether the matter was liable to be remanded for fresh adjudication.

Issue (i): Whether the demand raised under the Hot Air Independent Textile Processors Annual Capacity Determination Rules, 1998 was sustainable in view of the challenge to Rule 3 of those Rules.

Analysis: The demand was founded on the said Rules. The binding Madras High Court decision in Beauty Dyers had held Rule 3 of those Rules to be ultra vires Section 3A of the Central Excise Act, 1944. In that view, the demand based on those Rules could not be sustained as framed, while the liability position was to be examined in the manner indicated by the High Court.

Conclusion: The demand was held not sustainable in its present form.

Issue (ii): Whether the matter was liable to be remanded for fresh adjudication.

Analysis: Since the impugned order proceeded on a legal basis found unsustainable, the order was set aside and the adjudicating authority was required to reconsider the case afresh in accordance with the High Court ruling after granting personal hearing.

Conclusion: The matter was remanded to the adjudicating authority for fresh decision.

Final Conclusion: The appeal succeeded to the extent that the impugned order was set aside and the dispute was sent back for de novo consideration in the light of the controlling High Court decision.

Ratio Decidendi: A demand founded on a rule held ultra vires the parent statute cannot be sustained, and the matter must be reconsidered in accordance with the governing law.

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