TaxTMI 
TaxTMI 
2014 (2) TMI 772
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.....Brief factual background is as follows: 3. Petitioner no.1 is a partnership firm and was at the relevant time engaged in manufacturing of zinc, alloy ingots, copper wire bars, etc., In the course of its manufacturing activity, the petitioners cleared goods from time to time and also availed CENVAT credit on the inputs used in such manufacturing activity. The Excise department however, received intelligence that the petitioners were using non duty paid scrap for manufacturing the final product. In order to avail CENVAT credit, they were obtaining duty paid invoices/bills of different inputs and were thus wrongly availing CENVAT credit on the strength of such documents without actual receipt of the inputs against such documents. A search operation was carried out at the premises of the manufacturing unit. As per the department during such search, it was found that there was large scale infraction of rules and availment of CENVAT credit by creating false documents and entries. We are not concerned with the validity of such allegations. Suffice it to record, on the basis of such allegations in the impugned show cause notice, the petitioners were called upon to show cause why : "(i) ....
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....cts, we have confined our focus to the validity of rule 13(2) of Rules of 2002 and rule 15(2) of Rules of 2004. 6. Learned senior counsel Shri Kamal Trivedi for the petitioners drawing our attention to the provisions contained in the Central Excise Act, 1944 and in particular, section 37 thereof, contended that the said rules are ultra vires the parent Act. He submitted that section 37 does not authorise the delegated legislation to frame any rules for recovering penalty. In absence of specific powers for framing rules for levying penalty, the delegated legislation acceded its limits of delegation in framing such rules. Counsel would contend that the penalty is also in the nature of compulsory exaction of tax of¬course of penal nature. In view of Article 265 of the Constitution, there could be no levy of tax without the authority of law. It was contended that with introduction of CENVAT regime whenever found necessary, the legislation did make changes in section 37 itself. 6.1. In support of his contentions, counsel relied on the following decisions: M/s. Khemka & Co.(Agencies) Pvt. Ltd. v. State of Maharashtra reported in (1975) 2 Supreme Court Cases 22, in which it was hel....
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....cific and explicit and should be expressly provided. Kunj Behari Lal Butail and others v. State of H.P. and others reported in (2000) 3 Supreme Court Cases 40, in which the Apex Court observed that the delegated power to legislate by making Rules circumscribed by the statute as being "for carrying out the purposes of this Act" is a general delegation without guidelines and cannot be used to bring within its net a subject excluded by the Act itself or to bring into existence substantive rights or obligations or disabilities not contemplated by the provisions of the Act. Union of India and others v. S.Srinivasan reported in (2012) 7 Supreme Court Cases 683, in which it was held that the provisions of appellate tribunal for Foreign Exchange (Recruitment, Salary and Allowances and Other Conditions of Service of Chairperson and Members) Rules, 2000 which bring in the concept of part time member is ultra vires the Foreign Exchange Management Act, 1999, since existence of a part time member is conceptually absent under the said Act. It was held that if a rule goes beyond rule¬making power conferred by the parent statute or supplants any provision for which power is not conferred, it....
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....for the department opposed the petition and contended that the said Rules of 2002 and Rules of 2004 have been framed in exercise of power under section 37 of the Central Excise Act and is within the scheme of the Act and the rules made thereunder. He relied on the following decisions: Om Prakash and others v. Union of India reported in AIR 1971 Supreme Court 771, in which it was observed that it is a well established proposition of law that where a specific power is conferred without prejudice to the generality of the general powers already specified, the particular power is only illustrative and does not in any way restrict the general power. The Assistant Collector of Central Excise v. M/s. Ramakrishnan Kulwant Rai reported in AIR 1989 Supreme Court 1829, in which the Supreme Court reversed the decision of High Court which had declared rule 10A of the Central Excise Rules, 1944 as invalid. It was held that the said rule was not ultra vires the rule making power under section 37 of the Central Excise Act, 1944. B. Prabhakara Rao v. Desari Panakala Rao and others reported in AIR 1976 Supreme Court 1803, in which the Supreme Court held that rule 15 of the A.P. State Transport App....
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.... the same was by reason of fraud, or collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of the Act or Rules made therein with intent to evade payment of duty and provides that the person who is liable to pay duty, shall also be liable to pay a penalty equal to the duty so determined. ++ Section11B of the Central Excise Act, governs a claim for refund of duty and interest. Section 11BB pertains to interest on delayed refunds. ++ Chapter VI pertains to adjudication of confiscations and penalties. Chapter VIA of the Central Excise Act pertains to appeals and provides for a complete mechanism for filing appeals before the Appellate Commissioner, Tribunal, High Court and Supreme Court. Section 37 is contained in Chapter VII which pertains to supplemental provisions. It gives rule making power to the Central Government. Sub¬section(1) thereof provides that the Central Government may make rules to carry into effect the purposes of the Act. Sub¬section(2) provides that in particular and without prejudice to the generality of the foregoing power, such rules may provide for variety of situations enlisted in clauses(i) to (xxvii....
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....funded. Rule 14 provides that where the CENVAT credit has been taken and utilised wrongly or has been erroneously refunded, the same along with interest shall be recovered from the manufacturer or provider of the output service and the provisions of sections 11A and 11AA of the Excise Act or sections 73 and 75 of the Finance Act, shall apply mutatis mutandis for effecting such recoveries. ++ Rule 15 of the Rules of 2004 pertains to confiscation and penalty and reads as under : "15 Confiscation and penalty : 1) If any person, takes or utilises CENVAT credit in respect of input or capital goods or input services, wrongly or in contravention of any of the provisions of these rules, then, all such goods shall be liable to confiscation and such person, shall be liable to a penalty not exceeding the duty or service tax on such goods or services, as the case may be, or two thousand rupees whichever is greater. (2) In a case, where the CENVAT credit in respect of input or capital goods or input services has been taken or utilized wrongly by reason of fraud, collusion or any willful mis¬statement or suppression of facts, or contravention of any of the provisions of the Excise Act or....
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....r statute. That is because subordinate legislation must yield to plenary legislation. It may also be questioned on the ground that it is unreasonable, unreasonable not in the sense of not being reasonable, but in the sense that it is manifestly arbitrary. In England, the Judges would say "Parliament never intended authority to make such rules. They are unreasonable and ultra vires". The present position of law bearing on the above point is stated by Diplock. L.J. In Mixnam's Properties Ltd. v. Chertsey Urban District Council thus: The various special grounds on which subordinate legislation has sometimes been said to be void...can, I think, today be properly regarded as being particular applications of the general rule that subordinate legislation, to be valid, must be shown to be within the powers conferred by the statute. Thus, the kind of unreasonableness which invalidates a bye¬law is not the antonym of "unreasonableness"in the sense in which that expression is used in the common law, but such manifest arbitrariness, injustice or partiality that a court would say: "Parliament never intended to give authority to make such rules; they are unreasonable and ultra virese", ... ....
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....CENVAT. Nevertheless, CENVAT was nothing but a form of excise duty charged in terms of section 3 of the Central Excise Act, 1944. Quite obviously, because the new regime required machinery provisions for granting CENVAT credit, collection of duties and such other related issues, CENVAT credit rules were brought into existence. The initial Rules of 2002 were quickly replaced by Rules of 2004. 15. We have noticed that these rules made provisions for availment of CENVAT credit, its refund and recovery of duties not paid. In particular, rule 14 pertains to recovery of CENVAT credit wrongly taken or erroneously refunded and rule 15 provides for confiscation and penalty. Sub¬ rule(2) of Rule 15 which is under challenge, provides that in a case, where the CENVAT credit in respect of input or capital goods or input services has been taken or utilized wrongly by reason of fraud, collusion or any willful mis¬statement or suppression of facts, or contravention of any of the provisions of the Central Excise Act or the rules made thereunder, with intention to evade payment of duty, then, the manufacturer shall also be liable to pay penalty in terms of the provisions of section 11AC of ....
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....ent or suppression of facts, or contravention of any of the provisions of the Act, or of the rules made thereunder with intent to evade payment of duty. In such cases the penalty would be equal to the duty so determined. 18. Under the circumstances, we do not find that the rule making authority flows only from sub¬section(1) of section 37 and can therefore, be stated to be general in nature without clothing the rule making authority with the power to levying penalty. As noticed section 11AC provides for penalty in case of unpaid duty by reason of fraud or collusion or any wilful mis-statement, etc., Such duty in terms of CENVAT Credit Rules, 2004, would be the central value added tax. Sub¬section(1) of section 37 permits the Central Government to make rules to carry into effect the purpose of the Act which would include collection of duty and penalty when the occasion so arises. Clause(d) of sub¬ section(4) of section 37 authorises the rule making body to frame rules for confiscation and collection of penalty when it is found that any manufacturer, producer or licensee of warehouse has contravened the provisions any provisions of such rule with intent evade payment of ....