TaxTMI 
TaxTMI 
TaxTMI 
2015 (7) TMI 302
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....after 1st April 2000 is violative of Article 14 of the Constitution of India and hence invalid. 3. By prayer clause (b), a declaration is sought so as to declare the cut-off date of 1 April 2000 mentioned in the Second Schedule of the said Finance Act read with section 88(1) thereof as violative of Article 14 of the Constitution of India. 4. The Credit of Additional Excise Duty of Rs. 9,64,98,626/-, according to the Petitioners, is available on tyre cord fabrics pertaining to this period namely 1 April 1996 to 31 March 2000, and declaration to that effect also be granted. 5. Though prayer clauses (d) & (e) pertain to an order passed on 12 June 2014 by the second Respondent and on 1 November 2013 by the third Respondent upholding the recovery of credit of Additional Excise Duty (GSI) paid on 5 June 2006, we are not concerned with that aspect of the matter as a substantive Appeal bearing Appeal No.261 of 2014 is instituted in this Court to challenge the order dated 12 June 2014. Though that is listed for disposal alongwith this Writ Petition, since Mr.Shridharan, learned Senior Counsel appearing for the Petitioners and the Appellants in Appeal No.261 of 2014, submits that there is....
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....2003. It is their case that they utilized this accumulated credit on AED (GSI) lying unutilized as on 28 February 2003 for payment of Basic Excise Duty (BED) and Special Excise Duty (SED) on tyre under section 3 of the Act cleared during the period from March 2003 to May 2003. Conflicting Circulars were issued by Central Board of Excise and Customs and according to the Petitioners with regard to the true scope of the explanation. One view was that benefit applied only to AED (GSI) paid after 1 March 2003 and another was that the benefit applied whenever duty was paid on inputs. The Petitioners rely upon section 88 of the Finance (No.2) Act, 2004 and by which the amendment was made to the Explanation retrospectively. They rely upon this amendment and urged that the Central Excise Authorities took the view that only credit relatable AED (GSI) paid on or after 1 April 2000 is available for utilization. Hence, the credit relatable to period prior to 1 April 2000, but utilized during March to May 2003 cannot be granted was the stand of the Department/Revenue. The matter must be read, according to the Petitioners, in the light of the amendment to section 88(5) of the Finance Act, 2005. T....
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....ected goods namely textiles, sugar and tobacco in terms of the First Schedule to the 1957 Act. This is also the duty of excise since the taxable event is manufacture. However, since this duty is over and above the duty levied under the Act, it is called Additional Duty of Excise. Inviting our attention to Articles 270 and 272 of the Constitution of India, Mr.Sridharan submits that personal income tax collected by the Centre (other than Agricultural and Corporation Tax) is to be collected by the Government of India, but is distributed between the Union and the States. The distribution is as per the order of the President of India and based on the recommendations of the Finance Commission. Similar is the stipulation on excise duty collected by the Centre. Article 272 of the Constitution of India is pressed into service and to urge that even this duty has to be distributed amongst States, but leaving out duty of excise on medicinal and toilet preparations. This distribution is to be made as per the law. Accordingly, the Union Duties of Excise Distribution Act, 1979 came to be enacted (hereinafter referred to as "the Distribution Act, 1979"). It is periodically amended every five years....
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....hen he relies upon the Act 31 of 1995 (to be found in compilation, Volume II- page 276) so as to amend section 2 of the Distribution Act, 1979. That indicates the share of States as 47.5%. The Act 32 was issued amending Second Schedule to AED (GSI) Act, 1957 indicating inter se share of States. The Constitutional Order of 1995 was issued to the effect that the share of States in the subject period of income tax is 77.5%. 14. Mr,Sridharan has heavily relied upon the Report of the 10th Finance Commission and urged that this method of devolution as recommended therein was effective from 1 April 1996. He has taken us extensively through paras of this Report and to urge that an illustration would denote us as to how the method adopted by the Finance Commission would be put in place. The Finance Commission recommended 26% of Rs. 2,100/- in terms of this illustration and which is to be found at page 8 of the written submission. The argument is that the total amount + the amount towards AED should be taken into consideration for 26% recommendation to be implemented. Similarly, 3% of this sum is to be distributed to the States as their share in AED (GSI). Mr.Sridharan has submitted that ac....
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....es. After 1 April 1996 all the Central taxes including amounts collected as Additional Duty, but save and except exclusion stipulated in the Constitutional Scheme, formed a part of the central pool. The recommendations of the Finance Commission was to share the taxes thus with the States. That is effective from 1 April 1996. Therefore, the restriction that Cenvet Credit of AED(GSI) paid on inputs can be utilized for payment of only AED(GSI) does not have any meaning or relevance after 1 April 1996. Relying upon the affidavit filed in reply to this Writ Petition, it is submitted that separate accounting of AED(GSI) dispensed with effect from 1 April 2000 cannot be a reason to choose the date on which the Amendment Act namely Finance Act No.2 of 2004 ought to be brought into effect. An accounting procedure and which is required to be followed can never govern the bringing into effect of the Amendment is thus the submission. That is elaborated by relying on the Finance Commission recommendations contained in the Report of the 10th Finance Commission dated 25 November 1994 as also tried to be supported from the Report of the 11th Finance Commission. The classification between utilizati....
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....ible. The argument is based on the settled principle that a classification must be reasonable. For it to be termed as reasonable it must be founded on intelligible differentia which distinguishes persons or things that are grouped together from others left out of the group. In addition differentia must have rational relation to the object sought to be achieved by the Statute in question. It is, therefore, submitted that the stand taken in the affidavit-in-reply is contrary to the Constitutional scheme. It is also pointed out that Rule 3(6)(b) of the Cenvat Credit Rules 2004 continues to exist even after 1 March 2003. There is Additional Duty of Excise (Textiles & Textile Articles) paid on inputs under the Additional Duty of Excise (Textiles & Textile Articles) Act, 1978. That can be utilized only for payment of AED of 1978 on final products. Hence, the justification provided in the affidavit-in-reply has been faulted by Mr.Sridharan. The Petitioners have submitted that AED is part of the sharable pool of Central taxes and with effect from 1 March 2003, Rule 3(6)(b) has also been amended. The additional duty of excise is now confined on NCCD and Education Cess. 20. We are not conce....
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....ich has been brought into effect nearly 14 years back is now put in issue. There is, thus, enormous and unexplained delay. The Petitioners were aware of the Constitutional provision, the Central Excise Act 1944 and the Tariff Act and the amendments brought to the Cenvat Credit Rules, yet they did not choose to challenge them for all these years. Hence, at the instance of such Petitioners, this Court should refrain from examining the Constitutional issue or the issue of Constitutional validity and illegality of the Finance Act No.2 of 2004. Apart therefrom, he relies upon the background in which the enactment has been made. He relies upon the facts and circumstances narrated and set out in the affidavit-in-reply. 24. Mr.Singh submits that the Finance Act (No.2) of 2004 had section 88. That was because of clause (iv) of Rule 3(1) of the Cenvat Credit Rules, 2002 to enable the manufacturer of dutiable goods to take credit of AED (GSI) Act 1957 on items like sugar, tobacco and textile products. This was allowable since 16 March 1965. That was when the credit of AED payable under the Additional Duties of Excise (Goods of Special Importance) Act, 1957 was allowed for the first ti....
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.... such circumstances, and after a period of 10 years, that the Petitioners are challenging the Constitutional validity of the provision. Therefore, it would not be proper to grant any relief on the basis of such belated challenge. 26. Further, reliance placed on the recommendations of the 10th Finance Commission is entirely misplaced. There is a basic distinction as between the collection of taxes and by the competent/appropriate authorities under the Parliamentary Statute. Thereafter the total taxes collected either on income or otherwise including Central Excise Duty have to be distributed. The distribution of the taxes already collected has no connection to the stage prior thereto namely the collection or imposition. The element of distribution comes after collection. It is in these circumstances and by relying on clauses (2) & (3) of Article 270 that the Additional Solicitor General contends that there is a definite relation to the Presidential order and the date of its issuance. There cannot be any connection or nexus established and with the date of the amendment to the Constitution. In such circumstances, there is a clear object sought to be achieved. There is no question of....
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....s and Textile Article) Act, 1978; the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 and it should be availed of with regard to above duties paid on any inputs or capital goods received in the factory on or after the first day of July 2001 including the said duties paid on any inputs used in the manufacture of intermediate products. We have also perused the relevant amendments and which have been brought on 1 March 2003. The Cenvat Credit (Second Amendment) Rules, 2003 and to the extent relevant for us reads as under:- "(d) In sub rule (6),- (A) for clause (b), the following shall be substituted, namely:- "(b) CENVAT credit in respect of- (i) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textiles and Textiles Articles) Act, 1978 (40 of 1978)' (ii) the National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001 as amended by clause 161 of the Finance Bill, 2003, which clause has, by virtue of the declaration made in the said Finance Bill under the Provisional Collection of Taxes Act, 1931, the force of law, and (iii) the ad....
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....llowed for the recovery of the CENVAT credit of additional duty leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957) which has been availed but which would not have been availed if the amendment made by sub-section (1) was in force at all material times (hereinafter referred to in this section as the amount of credit) namely:- (i) the Central Excise Officer shall, on or before the 25th day of May, 2005, serve notice on the person from whom the recovery is to be made (hereinafter referred to as the assessee), requiring the assessee to declare the amount of credit utilised by him on different dates for payment of duty of excise (hereinafter referred to as the CENVAT duty) leviable under the First Schedule or the Second Schedule to the Central Excise Tariff Act, 1985 ( 5 of 1986); (ii) the assessee shall furnish the declaration as required under clause (I) on or before the 31st day of May, 2005; (iii) the Central Excise Officer shall, after considering the declaration made by the assessee under clause (ii) determine the amount of credit utilised on different dates for payment of CENVAT duty; (iv) the Central Exc....
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....". 31. We are not concerned as much with the additional duty rates and which have been set out in the said compilation. 32. In Volume-II of the compilation, what has been relied upon is the Statement of Objects and Reasons and for the purpose of Constitution (89th Amendment) Bill, 2000. The Statement of Objects and Reasons set out that 10th Finance Commission has submitted its report on 26 November 1994 for the period of five years that from 1995-96 to 1999-2000. The said Report was tabled in the both Houses of Parliament on 14 March 1995. What is important for our purpose is that one of the recommendations of the Commission and which was under consideration of the Government is an alternative scheme of sharing of proceeds of certain Union taxes and duties between the Union and the States. The alternative scheme envisages that twenty-six percent out of the gross proceeds of Union taxes and duties, excluding stamp duty, excise duty on medicinal toilet preparations, Central Sales Tax, Consignment tax, cesses levied for specific purposes and surcharge, is to be assigned to the States in lieu of their existing share in AED in lieu of Sales Tax on tobacco, sugar and cotton may be merg....
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....e under any law made by Parliament and Surcharge) is to be assigned to the States in lieu of their existing share in Additional Excise Duties in lieu of Sales Tax on tobacco, cotton and sugar. The commission had proposed that tobacco, cotton and sugar may continue to be exempt from Sales Tax and the Additional Excise Duties in lieu of Sales Tax on these items may be merged with the Basic Excise Duties. 4. Whether the alternative scheme would be more gainful to the Centre or to the States vis-à-vis existing arrangements would entirely depend on the relative growth in the Collection of various Central taxes and duties to be pooled 5. The benefits of the scheme have been listed by the Commission in para 13.2. and 13.3 and 13.18 of their reports. These are as follows:- (i) with a given share being allotted to the States in the aggregate revenues from Central taxes, the States will be able to share the aggregate buoyancy of Central taxes; (ii) the Central Government can pursue tax reforms without the need to consider whether a tax is sharable in the states or not; (iii) the impact of fluctuations in Central tax revenues would be felt alike by the Central and the State ....
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.... 11th Finance Commission, which has been mandated to give its final report by 30th June, 2000, will cover the 5 years period w.e.f. 1st April,2000. 14. In order to implement this decision, this Bill seeks to amend article 269, 270 and 272 of the Constitution so as to bring several Central taxes and duties like Corporation tax and Customs duties at par with personal income-tax as far as their constitutionally mandated sharing with the States is concerned." 33. A bare perusal thereof would indicate as to how the Constitutional Amendments were thought of and made, that is for the purposes of suitably distributing taxes and collection of which has been made for the purpose of the Union. The scheme has been made effective from 1 April 1996. The percentage share of net proceeds during 1996-97 to 1999-2000 will be such that the States' share is 29% of the gross proceeds. The recommendations of the 11th Finance Commission, which have been amended to give its final report on 30 June 2000, will cover the 5 years period with effect from 1 April 2000. Since these are the recommendations of the 10th Finance Commission and for the period of 5 years from 1995-96 and the later Commission was to ....
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....s with the contingency fund. Distribution of revenues between the Union and the States is a matter dealt with in Article 268 and by further Articles. Article 268 reads as under:- 268. Duties levied by the Union but collected and appropriated by the States:-(1) Such stamp duties and such duties of excise on medicinal and toilet preparations as are mentioned in the Union List shall be levied by the Government of India but shall be collected- (a ) in the case where such duties are leviable within any [Union territory], by the Government of India, and (b ) in other cases, by the States within which such duties are respectively leviable. (2) The proceeds in any financial year of any such duty leviable within any State shall not form part of the Consolidated Fund of India, but shall be assigned to that State. 35. Clause (1) thereof on perusal would indicate that such stamp duties and such duties of excise on medicinal and toilet preparations as are mentioned in the Union List shall be levied by the Government of India, but shall be collected in the cases where such duties are leviable within any Union territory by the Government of India and in other cases by the States within which....
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....a Finance Commission has been constituted, prescribed by the President by order after considering the recommendations of the Finance Commission. 36. This Article deals with those taxes and duties referred to in Union List, except the duties and taxes referred to in Articles 268, 268A and 269 respectively, surcharge on taxes and duties referred to in Article 271 and any cess levied for specific purposes under any law made by the Parliament, that shall be levied and collected by the Government of India, but shall be distributed between Union and the States in the manner provided in clause(2). Clause (2) provides for a percentage of the net proceeds of any such tax or duty in any financial year shall not form part of the Consolidated Fund of India, but to be assigned to the States within which that tax and duty is leviable in that year and shall also be distributed among the States in such manner and from such time as may be prescribed in the manner provided in clause (3). Therefore, it is the percentage being prescribed of the net proceeds of the tax and duty in any financial year and which shall not form part of the Consolidated Fund of India, but shall be assigned to the States wi....
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....ement the resources of the Panchayats in the State on the basis of the recommendations made by the Finance Commission of the State;] 2[(c) the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Municipalities in the State on the basis of the recommendations made by the Finance Commission of the State;] 3[(d )] any other matter referred to the Commission by the President in the interests of sound finance. (4) The Commission shall determine their procedure and shall have such powers in the performance of their functions as Parliament may by law confer on them. 37. Perusal of Article 280 in its entirety would reveal that the Finance Commission has to be constituted. It should consist of a Chairman and four other members to be appointed by the President. Their qualifications have to be determined by law by the 1 Ins.by the Constitution (Seventy-third Amendment) Act, 1992 w.e.f.24-4-1993 2 Ins. By the Constitution (Seventy-fourth Amendment) Act, 1992 w.e.f.1-6-1993 3 Sub-clause (c) relettered as sub-clause (d) by the Constitution (Seventy-fourth Amendment) Act, 1992 w.e.f. 1-6-1993 Parliament and the Commission's duty is to make recommen....
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.... in relation to the availment of the credit of the Additional duty of Excise leviable under the 1957 Act towards payment of duty of Excise leviable under the Tariff act, 1985. Thus, the question of taking credit by the Assessee of payment of excise duty is dealt with exclusively by these Rules. The Respondents have rightly pointed out in the affidavit-in-reply that a matter of distribution of the net proceeds of the Central taxes and sharing thereof with the States could not be connected and with the Act namely the Additional Duty of Excise Act under which the excise duty is imposed, levied and collected. There is no linking of this aspect possible with the date on which a Constitutional amendment is brought into effect. For the availment of credit in terms of the Cenvat Rules, which is a distinct-entitlement , another date could be prescribed. 39. It is not as much a matter of issuance of Presidential order or the date thereof, but the underlying distinction. Though the Petitioners have in the additional affidavit pointed out that the basis and foundation of the Respondents' version is the separate accounting of AED(GSI) being dispensed with, we do not find that the said issue ne....
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....issue of Cenvat Credit has been dealt with and in terms of the law made by the Parliament and which enables the availment. We find that the explanation which is set out in the affidavit of the Respondents and from para 12 onwards justifies giving retrospective effect to the Rules from 1 April 2000. Apart therefrom, we find that the Petitioners have raised the issue of Constitutional validity only after they were served with the demand and which eventually was adjudicated, but being still under consideration in the pending Appeal. The issue of legality and validity of the demand and the order in relation thereto can be gone into in the Appeal. The contentions based on that and the merits of the said order challenged in the Appeal is not required to be gone into in this Writ Petition. The matter is still before the Tribunal and equally against the order of the Tribunal it is pending in this Court. The reliance may be placed in the affidavit-in-reply on the Presidential order, but what we find and relevant for the present purpose is that the Constitutional Amendments were made on account of the events narrated in the Statement of Objects and Reasons to the Constitutional Amendment Bil....
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..... 41. In the present case, once the co-relation could not be established, then the Petitioners derive no benefit of the Constitutional provisions and selection of the date, namely, 1st April 1996 for they being brought into effect. We have noted as to how the argument based on this is misconceived and untenable. 42. In such circumstances, we need not refer to and extensively the judgments which have been relied upon by Mr.Sridharan, learned Senior Counsel for the Petitioners. They narrate the settled principles and reiterate them. Suffice it to note that in the judgment rendered by the Hon'ble Supreme Court and relied upon by the learned Addl.Solicitor General (Union of India v/s. Nitdip Textile Processors Pvt.Ltd., 2011 (273) ElT 321), the Hon'ble Supreme Court has reiterated the principles as to how in matters of this nature and particularly taxing statutes, the tests adopted to determine whether a classification is reasonable or not are, that the classification must be founded on an intelligible differentia which distinguishes person or things that are grouped together from others left out of the group and that the differentia must have a rational relation to the object sought....