1995 (2) TMI 225 - HC - Central Excise

Court upholds legality of impugned notifications & Rule 9A, dismissing petitions. Criteria rational, not violative of Constitution.

The court dismissed the petitions, upholding the legality and validity of the impugned notifications and Rule 9A. It held that they were not violative of ... Article 14 - classification and intelligible differentia - Article 19(1)(g) - freedom of trade subject to reasonable restrictions - Power to exempt under Rule 8 of the Central Excise Rules, 1944 - Rule 9A - date for determination of duty and tariff valuation (date of removal) - Charging section principle - taxable event of manufacture with levy and collection as prescribed - Retrospective effect and applicability of exemption notifications to goods manufactured earlier but removed laterArticle 14 - classification and intelligible differentia - Power to exempt under Rule 8 of the Central Excise Rules, 1944 - Validity of the impugned exemption Notifications (No. 254/87, No. 262/87, No. 4/88 and No. 5/88) under Article 14 - HELD THAT: - The Court held that classification based on width, area or weight and the altered duty-structure adopted by the Notifications satisfy the twin tests of Article 14: there exists an intelligible differentia and a rational nexus between the classification and the object of the excise scheme. The State enjoys a wide latitude in economic and fiscal regulation; the Notifications resulted from consideration of representations, data and revenue policy and did not amount to arbitrary or hostile discrimination. Since the altered exemptions did not increase the basic statutory duty beyond the ceiling fixed in the First Schedule, the Government was within its Rulemaking and exemption powers under Rule 8 and Section 37. The petitioners failed to demonstrate that equals were treated unequally or that the classification lacked reasonable connection with the purpose of the statutes, and therefore the challenge under Article 14 was rejected. [Paras 20, 21, 23, 29]The impugned Notifications are not violative of Article 14 and are valid.Article 19(1)(g) - freedom of trade subject to reasonable restrictions - Power to exempt under Rule 8 of the Central Excise Rules, 1944 - Whether the impugned Notifications impose unreasonable restrictions on freedom of trade under Article 19(1)(g) - HELD THAT: - The Court found no material to show that the Notifications unreasonably curtailed the petitioners' freedom to carry on trade or business. Economic regulation that incidentally affects business does not ipso facto infringe Article 19(1)(g); restrictions must be shown to be unreasonable in the constitutional sense. Here the Notifications emerged from policy choices, consultations and factual data, and any adverse impact on particular manufacturers was incidental. The petitioners did not discharge the burden of proving that the measures amounted to unconstitutional restriction on trade. [Paras 23, 24, 28, 29]The impugned Notifications do not contravene Article 19(1)(g) and are sustainable.Rule 9A - date for determination of duty and tariff valuation (date of removal) - Charging section principle - taxable event of manufacture with levy and collection as prescribed - Validity of Rule 9A of the Central Excise Rules, 1944 and whether duty is to be determined by date of removal (thus applying notifications in force on removal) rather than date of manufacture - HELD THAT: - The Court held Rule 9A intra vires the charging and rulemaking provisions. While the taxable event is manufacture, Section 3 permits levy and collection in a manner prescribed; Rule 9A legitimately fixes the date for determination of rate and valuation as the date of actual removal (subject to subrules). Reliance on precedent established that payment may be deferred to removal for administrative convenience and that rates in force on removal govern liability. Consequently, goods manufactured before an exemption notification but removed after its issuance are governed by the notification applicable on the date of removal. Rule 9A does not alter the character of excise as duty on manufacture nor exceed delegated powers. [Paras 16, 31, 33, 34, 36]Rule 9A is valid and the revenue may apply the rate in force on the date of removal; notifications operative on removal govern liability.Retrospective effect and applicability of exemption notifications to goods manufactured earlier but removed later - Rule 9A - date for determination of duty and tariff valuation (date of removal) - Whether the impugned exemption Notifications improperly operate retrospectively to charge duty on goods manufactured before their issue - HELD THAT: - The Court rejected the contention that application of notifications as on date of removal constitutes impermissible retrospectivity. Given the statutory scheme - manufacture as taxable event and ruleprescribed manner for levy - application of rates prevailing on removal is consistent with the Acts and longstanding practice. Since the Notifications did not increase the basic statutory duty beyond the prescribed ceiling, varying the basis of exemption and applying the notification effective on removal does not amount to unlawful retrospective legislation or exceed rulemaking power. [Paras 30, 31, 34, 36]Notifications applied on the date of removal are lawful; they do not operate impermissibly retrospectively in respect of goods manufactured earlier.Final Conclusion: All 13 petitions challenging Notifications No. 254/87, No. 262/87, No. 4/88 and No. 5/88 and Rule 9A of the Central Excise Rules, 1944 are dismissed. The impugned Notifications and Rule 9A are held valid; revenue may levy duty at rates prevailing on the date of removal. Rule discharged and petitions rejected with no order as to costs; interim reliefs vacated. Issues Involved:1. Whether the classification of goods and the structure of excise duty imposed by the taxing statutes are illegal and unconstitutional, being violative of Articles 14 and 19(1)(g) of the Constitution of India.2. Whether the impugned notifications can apply to goods manufactured prior to their issuance.3. The constitutionality and legality of Rule 9A of the Central Excise Rules, 1944.Issue-wise Detailed Analysis:1. Classification of Goods and Structure of Excise Duty:The petitioners challenged the legality and validity of four notifications, contending they were discriminatory and violated Articles 14 and 19(1)(g) of the Constitution. They argued that the width of the fabric was not a rational criterion, the notifications did not consider the capacity to pay of the consumer, and flat rates treated unequals as equals. The court held that the impugned notifications were issued under statutory powers and that the criteria of fabric width and flat rates were rational and proper. The court emphasized that the State enjoys wide latitude in economic regulations and that the measures taken were within the statutory boundaries. The court found no evidence of arbitrariness or irrationality in the notifications, and thus they were not violative of Articles 14 and 19(1)(g).2. Application of Notifications to Goods Manufactured Prior to Issuance:The petitioners contended that the impugned notifications could not apply to goods manufactured before their issuance, arguing that Rule 9A was ultra vires and illegal. The court noted that the taxable event is the manufacture of goods, but the duty can be levied and collected at the time of removal from the factory or warehouse. The court referred to the Supreme Court's decision in Wallace Flour Mills Co. Ltd. v. Collector of Central Excise, which held that the duty is applicable at the rate prevailing on the date of removal. The court found Rule 9A to be consistent with the provisions of the Central Excise Act and the Additional Duty of Excise Act, and thus, the notifications could apply to goods manufactured before their issuance but removed afterward.3. Constitutionality of Rule 9A:The petitioners argued that Rule 9A was unconstitutional and beyond the scope of Section 3 of the Central Excise Act and Section 37(2)(xvii). The court held that Rule 9A, which determines the date of removal as the basis for the duty rate, is consistent with the charging provisions of the Central Excise Act and the Additional Duty of Excise Act. The court emphasized that the rule operates in a supplementary manner to Section 3 and is not inconsistent with the statutory provisions. The court also noted that the rule has been in practice since 1945 and has not been amended by Parliament, indicating its compatibility with legislative intent.Conclusion:The court dismissed the petitions, holding that the impugned notifications and Rule 9A were legal, valid, and not violative of Articles 14 and 19(1)(g) of the Constitution. The court found that the notifications were issued under proper statutory authority and that the criteria used were rational and within the State's discretion in economic regulation. The challenge to the application of the notifications to goods manufactured prior to their issuance was also rejected, as the duty is applicable at the rate prevailing on the date of removal. The constitutionality of Rule 9A was upheld, and the court found it consistent with the statutory provisions and legislative intent.