2017 (4) TMI 332 - HC - Central Excise

Court upholds Chewing Tobacco Rules, dismissing writ petition. Excise duty based on manufacturing capacity valid.

Prabhat Zarda Factory India Pvt. Ltd. Versus Union of India

Prabhat Zarda Factory India Pvt. Ltd. Versus Union of India - 2017 (347) E.L.T. 208 (Pat.) Issues Involved:1. Quashing of the Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010.2. Amendment in the said Rules via Notification dated 1st March, 2015.3. Violation of fundamental rights under Article 19(1)(g) of the Constitution of India.Issue-wise Detailed Analysis:1. Quashing of the Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010:The petitioner challenged the Rules notified on 27th February 2010, arguing that they were violative of its fundamental rights under Article 19(1)(g) of the Constitution of India. The Rules mandated that excise duty be levied based on the total manufacturing capacity of the unit, determined by the number of packing machines installed, rather than actual production. The petitioner contended that this method was arbitrary and unreasonable.2. Amendment in the said Rules via Notification dated 1st March, 2015:The Rules were amended on 1st March 2015, redefining the factors relevant to production to include not only the number of packing machines but also the maximum packing speed at which these machines could operate. The petitioner argued that this amendment created uncertainty in the trade and significantly increased the excise duty, making it unsustainable for manufacturers.3. Violation of fundamental rights under Article 19(1)(g) of the Constitution of India:The petitioner claimed that the increased excise duty and the method of its calculation were violative of their right to practice any profession, or to carry on any occupation, trade, or business, as guaranteed under Article 19(1)(g). They argued that the frequent changes in the parameters for levy and collection of excise duty brought uncertainty and could potentially put them out of business.Court's Analysis and Judgment:Regarding the Rules and their Amendment:The court observed that Section 3A of the Central Excise Act, 1944 empowers the Central Government to charge excise duty based on the capacity of production for notified goods. The rationale for this method is to prevent evasion of duty, which is prevalent in the Pan Masala and Gutka industry. The court noted that the scheme provides safeguards, such as abatement of duty if production is suspended for more than 15 days.On the Reasonableness and Arbitrariness of the Rules:The court referred to the judgment in Indian Express Newspapers v. Union of India, which states that subordinate legislation can be questioned if it is manifestly arbitrary. However, the court found that the factors for determining the levy, such as the number of packing machines and their maximum speed, were not unreasonable or arbitrary. These factors were relevant for determining the production capacity and preventing duty evasion.On the Violation of Article 19(1)(g):The court held that the levy of excise duty based on the manufacturing capacity, including the speed of packing machines, did not violate the fundamental rights under Article 19(1)(g). The legislative intent was to discourage the consumption of tobacco due to its hazardous impact on health. The court found that the method of levy was a reasonable restriction in the interest of public health.Conclusion:The court dismissed the writ petition, upholding the validity of the Rules and their amendment. It found no merit in the arguments that the Rules were arbitrary or violative of the petitioner's fundamental rights.Separate Judgment:The judgment was concurred by another judge, who agreed with the analysis and conclusion.