2005 (9) TMI 80 - SC - Central Excise

Court upholds Finance Act 2003, Section 154 retrospectively excluding cigarettes from exemption

RC. TOBACCO PVT. LTD. Versus UNION OF INDIA

The Court upheld the constitutional validity of Section 154 of the Finance Act, 2003, which retrospectively excluded cigarettes from an exemption, ... Whether exemption is due to a manufacturer claiming refund under the said Notification No. 32/99-C.E., dated 8th July 1999 issued under Section 5A of the Central Excise Act, 1944 Held that:- .We are not in a position to determine the disputes raised. However we cannot lose sight of the fact that although excise duty like other indirect taxes may be passed on to the customer of the goods under the law as it now stands, it is the manufacturer of the excisable goods to whom the excise authorities will look for payment. How the manufacturer will adjust its liability with its customers does not concern the respondents nor can they be asked to recover their dues from persons who may have ultimately taken on the responsibility to pay the excise duty as a result of an agreement with the manufacturer. Furthermore having upheld the constitutional validity of Section 154 it would be a pyrrhic victory for the Union of India if they could not in fact recover the tax. It is not a case where the legislation has merely withdrawn the exemptions. The consequences of the withdrawal have been statutorily provided for including the recovery of the excise duties refunded or not paid. The effective period of such imposition is about eight months. The State has been deprived of revenue without any corresponding benefit. It may be that the retrospective operation may operate harshly in some cases, but that would not by itself invalidate the demand. Issues Involved:1. Exemption Notification No. 32/99-C.E. dated 8th July 19992. Withdrawal and Reintroduction of Exemption3. Refund of Excise Duty4. Constitutionality of Section 154 of the Finance Act, 20035. Retrospective Operation of Section 1546. Procedural Requirements under Section 11A of the Central Excise Act, 19447. Discrimination Against Cigarette ManufacturersIssue-wise Detailed Analysis:1. Exemption Notification No. 32/99-C.E. dated 8th July 1999:The dispute arises from an exemption granted by the Central Government to new industries via Notification No. 32/99-C.E., dated 8th July 1999, under Section 5A of the Central Excise Act, 1944. This notification exempted all excisable goods from duty if produced by new industrial units that commenced commercial production on or after 24th December 1997 in specified areas. The exemption was for 10 years, with manufacturers required to pay excise duty and subsequently claim a refund.2. Withdrawal and Reintroduction of Exemption:The exemption was withdrawn on 31st December 1999 by Notification No. 45 of 1999 but reintroduced on 17th January 2000 by Notification No. 1 of 2001. Petitioners set up units in specified growth centers and initially received the benefit of the notification. However, from July to October 2000, refunds were not provided, leading to writ petitions in the Gauhati High Court, which directed provisional refunds. The exemption was finally withdrawn in January 2001.3. Refund of Excise Duty:Assistant Commissioners rejected refund claims for July 2000 to January 2001 and ordered recovery of amounts already refunded from April to June 2000. They argued that units without a Permanent Registration Certificate could not legally commence production, rendering earlier refunds unjust.4. Constitutionality of Section 154 of the Finance Act, 2003:Section 154 retrospectively amended Notification No. 32/99, excluding cigarettes from the exemption from 8th July 1999. This meant previously refunded excise duties would be recoverable, and no further refunds would be made. Petitioners challenged Section 154 as unconstitutional, arguing it violated Articles 14 and 19 of the Constitution due to its retrospective nature and financial burden.5. Retrospective Operation of Section 154:The Court held that retrospective legislation must not be unduly oppressive or confiscatory. The context of Section 154 was to correct the unintended benefits granted to cigarette manufacturers, who did not contribute to the State's economic welfare as intended. The retrospective effect was less than two years, and the dispute over refunds was ongoing, making the financial burden foreseeable.6. Procedural Requirements under Section 11A of the Central Excise Act, 1944:Petitioners argued that Section 154 violated Section 11A, which requires notice for recovery of duties. The Court noted that refunds under the exemption notifications were not 'normal' refunds under the Act but special provisions. Therefore, Section 154(4) allowed recovery independently of Section 11A.7. Discrimination Against Cigarette Manufacturers:The Court rejected claims of unfair discrimination against cigarette manufacturers, noting the high revenue from excise duties on cigarettes and the legislative presumption of constitutionality. The retrospective withdrawal of exemptions was justified as it corrected the misuse of benefits by cigarette manufacturers.Conclusion:The Court upheld the constitutional validity of Section 154, dismissed the transferred writ petitions, and emphasized that the retrospective operation, though potentially harsh, was justified by the need to correct the unintended benefits and ensure the State's economic welfare.