TaxTMI 
TaxTMI 
2017 (3) TMI 1357
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.... production activity carried on by the three industrial units of these appellants is subject to levy of excise duty under the Central Excise & Salt Act, 1944 (hereafter 'THE ACT'). Section 3 (Section 3 insofar as it is relevant for the purpose of this judgment read at the relevant point of time: "Section 3. Duties specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 to be levied.- (1) There shall be levied and collected in such manner as may be prescribed, - (a) a duty of excise on all excisable goods which are produced or manufactured in India as, and at the rates, set forth in the First Schedule to the Central Excise Tariff Act, 1985;") of THE ACT is the basic charging section. 4. However, by the Finance Act, 1997, Section 3A (Ins. By Act 18 of 2008, sec. 79 (w.e.f. 10-5-2008). Earlier section 3A was inserted by Act 81 of 1956. sec. 2 (w.e.f. 22-12-1956) and was omitted by Act 58 of 1960, sec. 2 and Sch. I (w.e.f. 26-12-1960) and was again inserted by Act 26 of 1997, sec. 81 (w.e.f. 14-5-1997) and was amended by Act 10 of 2000, sec. 93 (w.e.f. 1-4-2000) and was again omitted by Act 14 of 2001, sec. 121 (w.e.f. 11-5-2001).) came....
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....ual production under sub-section (4), the amount of duty already paid, if any, shall be adjusted against the duty so redetermined and if the duty already paid falls short of, or is in excess of, the duty so redetermined, the assessee shall pay the deficiency or be entitled to a refund, as the case may be. (6) The provisions of this section shall not apply to goods produced or manufactured,- (i) in a free-trade zone and brought to any other place in India; or (ii) by a hundred per cent export-oriented undertaking and allowed to be sold in India. Explanation 1. - For the removal of doubts, it is hereby clarified that for the purposes of Section 3 of the Customs Tariff Act, 1975 (51 of 1975), the duty of excise leviable on the notified goods shall be deemed to be the duty of excise leviable on such goods under the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), read with any notification for the time being in force. Explanation 2. - For the purposes of this section the expressions "free trade zone" and "hundred per cent export-oriented undertaking" shall have the meanings assigned to them in section 3." [emphasis supplied] Section 3A authorised the identificat....
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....ise Tariff Act as "non-alloy steel hot re-rolled products" and they were NOTIFIED GOODS at the relevant point of time. 6. In exercise of the powers conferred under Section 3A(2) of THE ACT, a set of Rules came to be framed by the Government of India w.r.t. the goods manufactured by the appellants before us known as the Hot Re-Rolling Steel Mills Annual Capacity Determination Rules, 1997 (hereafter "RULES of 1997") under a notification dated 1.8.1997. Initially, the said notification contained four Rules for "determining the annual capacity of production of a factory" with the aid of "hot-Re-Rolling Mill". 7. A month later, on 30.8.1997, Rule 5 which is the bone of contention in the present case came to be inserted in the said rules: "5. In case, the annual capacity determined by the formula in sub-rule (3) of rule 3 in respect of a mill, is less than the actual production of the mill during the financial year 1996-97, then the annual capacity so determined shall be deemed to be equal to the actual production of the mill during the financial year 1996-97." [emphasis supplied] The true meaning and purport of the rule shall be examined later. 8. It is also necessary....
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....his factory ....subject to the condition that the total amount of duty liability shall be calculated and paid in the following manner :-) , the manufacturer of the goods falling under the ambit of Rule 96ZP is required to debit an amount calculated at the rate of Rs. 400/- per metric tonne on the "non-alloy steel hot re-rolled products" at the time of the clearance of the goods from his factory. Under paragraphs I and II of Rule 96ZP(1), the manner of payment of the duty so debited is stipulated. For example, for the period commencing from 1st September, 1997 to 31st March, 1998, a manufacturer is required to pay by 31st March 1998 a total amount calculated at the rate of Rs. 400/- per metric tonne on the ACP of his factory. The full details of the other paragraphs of sub-rule (1) may not be necessary for the purpose of this judgment. 12. Under sub-Rule (3) (Rule 96ZP(3) Notwithstanding anything contained elsewhere in these rules, a manufacturer may, in the beginning of each month from 1st day of September, 1997 to the 31st day of March, 1998 or any other financial year, as the case may be, and latest by the tenth of each month, pay a sum equivalent to one-twelfth of the amo....
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....d 3. Simultaneously, they filed writ petitions challenging the validity of the abovementioned Rule 5 in the Karnataka High Court. 16. The writ petitions came to be dismissed by the judgment dated 07.12.2005 of the learned Single Judge of the Karnataka High Court. Aggrieved, the appellants herein carried the matter by way of an intra-court appeal to a Division Bench of the Karnataka High Court. By the judgment under appeal, a Division Bench of the Karnataka High Court dismissed the appeals. Hence these appeals. 17. The validity of Rule 5 of the RULES of 1997 is challenged both before the High Court and before us on two grounds: 1. That the Rule is ultra vires the authority conferred under Section 3A of THE ACT; and 2. That the Rule is violative of Article 14 of the Constitution of India. Because the Rule creates two classes of manufacturers:- (i) whose ACP is determined to be more than their actual production in the financial year 1996-97. (ii) Whose ACP is determined to be less than their actual production for the financial year 1996-97; and imposes an irrational tax burden on the 2nd of the abovementioned two classes of manufacturers falling wi....
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.... because the taxable event for levy and collection of excise duty is the manufacture or production of goods. Therefore, the need to determine the actual quantum of the goods manufactured. The Act and the Rules made thereunder prescribe different methods for the determination of the quantum of production/manufacture of excisable goods undertaken by any person (manufacturer) for the purpose of determining the tax liability of such a person. 24. Parliament from time to time took notice of the fact that some of the manufacturers/producers of excisable goods are evading duty by suppressing the information of the quantum of actual production/manufacture of goods undertaken by them. Therefore, Section 3A was introduced which authorised a different mode of levy, assessment and collection of excise duty on NOTIFIED GOODS. Under the Scheme of Section 3A, the need to constantly monitor the actual quantum of NOTIFIED GOODS produced/manufactured is obviated by declaring that the ACP of factory is deemed to be the annual production of the factory for the purpose of levy and collection of excise duty. 25. RULES of 1997 prescribed the procedure by which the ACP is to be d....
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....ent enactment (Rule 5 was challenged on the following grounds: - (Written Submissions of the appellant) A . Section 3A (2) deems the annual production capacity as the actual production and the manufacturer has to pay duty on the annual production capacity without reference to actual production. But Rule 5 introduces a further deeming that the 1996-97 production shall be deemed to be actual production if the 1996-97 production is higher than the production capacity determined as per rule 3. A subordinate legislation cannot introduce a deeming provision and that too contrary to the deeming provision in the plenary legislation. The statutory presumption under Section 3A is of a limited character and being a fiscal legislation has to be strictly construed in the sense that any factory which is not contemplated by the Act cannot be taken into consideration to raise a presumption for levy of excise duty. Being a delegated legislation the delegate which has been authorised to make subsidiary rules has to work within the scope of the Act or the policy laid thereunder. The delegate under the grab of making rules cannot legislate on the field covered by the Act and has to restrict itself ....
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.... of the RULES of 1997.) to be the ACP of that assesse. 31. The words "shall be deemed to be" occurring in both Section 3A(2) and Rule 5 appear to create a fiction. But in our opinion, on a true and proper construction (as rightly argued by the respondent) they do not create a legal fiction. In Consolidated Coffee Ltd. & Another v.Coffee Board, Bangalore, (1980) 3 SCC 358, it was held: (page 371, para 11) "... the word "deemed" is used a great deal in modern legislation in different senses and it is not that a deeming provision is every time made for the purpose of creating a fiction. A deeming provision might be made to include what is obvious or what is uncertain or to impose for the purpose of a statute an artificial construction of a word or phrase that would not otherwise prevail, but in each case it would be a question as to with what object the legislature has made such a deeming provision. In St. Aubyn v. Attorney-General, 1952 AC 15, 53 : (1951) 2 All ER 473, 498, Lord Radcliffe observed thus: "The word "deemed" is used a great deal in modern legislation. Sometimes it is used to impose for the purposes of a statute an artificial construction of ....
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.....L., Legal Fictions, Illinois Law Review (Vol. XXV No.4, December 1930) "Presumptions are closely related to legal fictions ... but they operate differently" (Del Mar, Maksymilian, Legal Fictions and Legal Change, International Journal of Law in Context (2013) "Fictions always conflict with reality, whereas presumptions may prove to be true" (Vermeer-Künzli, Annemarieke, As If: The Legal Fiction in Diplomatic Protection, European Journal of International Law (2007) Legal fictions create an artificial state of affairs by a mandate of the legislature. "... an assumption of fact deliberately, lawfully and irrebuttably made contrary to the facts proven or probable ....... with the object of bringing a particular legal rule into operation ... the assumption being permitted by law ..." They compel everybody concerned including the courts to believe the existence of an artificial state of facts contrary to the real state of facts. When a fiction is created by law, it is not open to anybody to plead or argue that the artificial state of facts created by law is not true, barring the only possible course if at all available is to question the constitutionality of the fiction. I....
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....of the accepted processes for those bodies charged with the duty of collecting evidence. Therefore, law making bodies make provisions incorporating presumptions wherever they believe it appropriate. But such practices have well recognised qualifications and limitation. Section 114 of the Evidence Act embodies some of the basic principles of the law of presumptions and the limitations thereon. Technically, the Evidence Act may or may not be applicable to every body charged with the responsibility of collecting evidence. But the principles underlying the provisions do constitute valuable guides. They are based on sound principles of jurisprudence deduced from the observation of human conduct, natural course of events and logic etc. 35. Presumptions are of two kinds, rebuttable and irrebuttable. Normally any presumption is rebuttable unless the legislature creates an irrebuttable presumption. It is a different question - whether an irrebuttable presumption could be created by a non-sovereign law-making body? That question has not been argued before us and, therefore, we do not examine that proposition. 36. Under the scheme of THE....
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....mption (rule of evidence). 39. Under the Scheme of the RULES OF 1997, the first four rules stipulated the procedure for determining the ACP of the manufacturers of the class to which the appellants belong, by adopting the third of the abovementioned three procedures (mentioned in para 36 supra). The lawmaker was conscious of the fact that the actual quantum of goods that can be manufactured in a factory does not solely depend on the ACP of the factory. It depends upon a number of other variable factors too. For example, though the machinery employed by a manufacturer has the technical capacity to produce a certain quantum (maximum production) of goods, in a given interval of time, the manufacturer may not always achieve the maximum production because of the non-availability of either the requisite energy to operate the factory or finance or raw-material etc. The first four rules of the RULE OF 1997 create a scheme of evidence by which a presumption (based on the technical specification of the manufacturers' machinery) of the possibility of a certain quantum of production is to be made. However, the lawmaker visualized that in certain cases such a proc....
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....ub-section (4) more particularly "the Commissioner of Central Excise shall ... determine the amount of duty payable by the assessee with reference to such actual production at the rate specified under Section 3". Obviously, the determination of amount of duty payable by the assessee is not a one time affair. Such a determination is to be made periodically. Therefore, the opportunity of placing evidence for the establishment of actual production for a period relevant for the assessment must be available to the assessee from time to time. 44. Whether such a statutory right is in any way curtailed by Rule 96ZP(3) of the Rules of 1944 is required to be examined. Rule 96ZP(3) is relevant in the context of the assessment of duty for those assessees who choose to opt for the payment of the excise duty on a monthly basis. The duty payable by such assessees would be Rs. 300 x ACP in metric tonnes. Rule 96ZP(3) stipulates that an assessee seeking to avail the scheme (concessional rate of duty) under Rule 96ZP(3) is required to make application in the prescribed format. The Rule is silent about the point of time at which such an application is ....
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....General Mills & Others, (2001) 9 SCC 645, the question regarding the vires of sub-rule (3) of Rule 96ZP of the Central Excise Rules, 1944 is no more res-integra. It is also submitted by the respondent that this Court has already declared that the assessee who makes a choice once to avail the scheme under sub-rule (3) cannot go back on his choice.( Union of India & Others v. Supreme Steels and General Mills & Others, (2001) 9 SCC 645, "Para 3. .. The manufacturer cannot opt twice during one financial year first choosing to pay in accordance with sub-rule 3 of Rule 96ZO and thereafter to switch over to actual production basis under Section 3A(4) of the Act, in case it is less than the duty payable under sub-rule 3 of Rule 96ZO. The said sub rule is quite clear that the option under it is available subject to the condition that once having opted for it, benefit if any under sub-s. (4) of Section 3A of the Central Excise Act, 1944 shall not be available. ...") 49. In both the abovementioned cases, this Court was dealing with Rule 96ZO(3) of the Central Excise Rules, 1944. Neither the vires of Rule 96ZP(3) nor its interpretation actually fell for consideration of this Court....
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....es not deal with the determination of the production capacity of the factory. It only deals with the right of the assessee to establish that notwithstanding the determination of the ACP, the actual production achieved is less than the ACP determined. The Court concluded "that if the entire enactment is read as a whole indicates the purpose and that purpose is carried out by the Rules, the same cannot be stated to be ultra vires of the provisions of the enactment." 52. With respect, we are of the opinion that such a statement of law has no basis either in precedent or on any settled principles of interpretation of statutes. On the other hand, it is in conflict with a long settled line of authorities that subordinate legislation which is in conflict with the parent enactment is unsustainable .( Hukam Chand Etc. v. Union of India & Others, AIR 1972 SC 2427 : (1972) 2 SCC 601, Para 8 .......The underlying principle is that unlike Sovereign Legislature which has power to enact laws with retrospective operation, authority vested with the power of making subordinate legislation has to act within the limits of its power and cannot transgress the same. The initial differe....