TaxTMI 
TaxTMI 
2005 (12) TMI 113
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....b-section (1) of Section 3A of the Act and separate procedure was ushered in for the determination of the duty liability of persons who are manufacturing the notified goods in respect of goods produced by the factory covered under the notification issued by the Central Government. 2.The methodology for the determination of duty was provided in sub-section (2) of Section 3A of the Act, which again was relegated to be in terms of Rules framed for such purposes. One major distinction in respect of duty liability as under Section 3 of the Act, which is applicable to ail other goods and such of the goods notified under sub-section (1) of Section 3A of the Act is that while all other goods were subjected to duty under Section 3 on the actual production and clearance at the factory gate, either unit-wise or ad valorem, in so far as the duty liability under Section 3A of the Act is concerned, it was sought to be fixed even in advance in terms of sub-section (2) of Section 3A of the Act and such fixation was known as the annual production capacity of the particular factory. The rate of duty in respect of such notified goods was provided for in terms of sub-section (3) or (4) of Section 3....
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....rtunity to the assessee to produce evidence in support of his claim, determine the actual production and redetermine the amount of duty payable by the assessee with reference to such actual production at the rate specified in sub-section (3). Where the Commissioner of Central Excise determines the actual production under sub-section (4), the amount of duty already paid, if any, shall be adjusted against the duty so determined and if the duty already paid falls short of, or is in excess of, the duty so determined, the assessee shall pay the deficiency or be entitled to a refund, as the case may be. 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 percent export oriented undertaking and allowed to be sold in India. Explanation I :- For the removal of doubts, it is hereby clarified that for the purpose 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 ....
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....-rolling mill. 3. The annual capacity of production referred to in Rule 2 shall be determined in the following manner, namely : (1) a hot re-rolling mill shall declare the values of 'd', 'n', 'i' and 'speed of rolling' the parameters referred to in sub-rule (3) to the Commissioner of Central Excise (hereinafter referred to as the Commissioner) with a copy to the Assistant Commissioner of Central Excise; (2) on receipt of the formation referred to in sub-rule (1), the Commissioner shall take necessary action to verify their correctness and ascertain the correct value of each of the parameters. The Commissioner may, if he so desires, consult any technical authority for this purpose; (3) the annual capacity of production of hot re-rolled products of non-alloy steel in respect of such factory shall be deemed to be as determined by applying the following formula : Annual Capacity - 1.885x10-4 x d x n x I x e x w x number of utilized hours (in metric tonnes) Where, d  ....
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.... Thereafter, the Commissioner may determine the annual capacity, as soon as may be and pass an order accordingly. The capacity of production for any part of the year or4. (1) any change in the total hot re-rolling mill capacity shall be calculated pro rata on the basis of the annual capacity of production determined in the above stated Rule 3. in case a manufacturer proposes to make any change in the4. (2) machinery or any part thereof which tends to change the value either of the parameters 'd' 'n' 'e' 'i' and 'speed of rolling' relating to in sub-rule (3) of rule 3, such manufacturer shall intimate about the proposed change to the Commissioner of Central Excise in writing with a copy to the Assistant Commissioner of Central Excise, at least one month in advance of such proposed change and to obtain the written approval of the Commissioner before making such change. Thereafter, the Commissioner of Central Excise shall determine the date from which the change on the installed capacity shall be deemed to be effective. Newly added Rule 5 5. In case, the annual capacity determined by the formula in sub-section (3) of section 3 in respect of a mill, is less than the actual ....
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.... of in terms of the order dated 11-7-1999, a copy of which is produced at Annexure-G to WP No. 6682 of 2002, on the basis of certain submissions made on behalf of the petitioners and also by taking note of the pendency of such matters before the Supreme Court in Civil Appeal Nos. 52-54 of 1998 and connected cases. The effect of this order is again a matter of controversy, as it is contended on behalf of the petitioners that this order did not and cannot make any difference to the petitioners for maintaining the present writ petitions as also in seeking for adjudication of the validity of Rule 5 of the Determination Rules; it is sought to be contended on behalf of the respondents that the petitions are not tenable, as the outcome of the earlier round of litigation was expressly made subject to the result of the decision of the Supreme Court in the pending civil appeals and the Supreme Court in terms of its judgment dated 15-10-2001 rendered in those appeals, having rejected the challenge to the rule which was under challenge therein, the present writ petitions are to be necessarily dismissed as being covered by the said decision and that the principles of constructive res judicata i....
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....a court of concurrent jurisdiction. It is no doubt true that some aspects that are sought to be raised in the present writ petitions are in common with the issues that were considered or sought for determination in the earlier writ petitions viz., the validity of Section 3A of the Act as also the validity of Rule 96ZO of the Central Excise Rules, 1944 [for short, the Rules], which is analogous to Rule 96ZP, the validity of which arises in the present context. No doubt to this extent, the very issue as to whether Section 3A of the Act is valid is concluded against the petitioners, so also the validity of the provisions of Rule 96ZP of the Rules. However, what is urged by Sri Naganand, learned Senior Counsel appearing for the petitioners is that the petitioners are mainly aggrieved by the introduction of Rule 5 in the Determination Rules, which was though an issue before this court was not an issue before the Supreme Court, but this court having not examined the question regarding the validity of Rule 5 of the Determination Rules, that question having not been covered or concluded by this court or the Supreme Court, it is still open to the petitioners to question the legality of this....
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....oners had opted for payment of duty under this provision, they are not entitled to invoke the alternative choice that was open to them under sub-section (4) of Section 3A of the Act. 17.If the submission on behalf of the respondents is properly examined, it really amounts that a plea of estoppel is sought to be raised against the petitioners from permitting or allowing them to impugn the constitutional validity of Rule 5 of the Determination Rules. As the petitioners have impugned the validity of this rule, not only on the ground that the rule is ultra vires the Section 3A of the Act, but also on the ground that it is violative of Article 14 of the Constitution, being discriminatory in nature, as between persons like the petitioners, who are covered under Rule 5 of the Determination Rules and for other duty payers not covered under this Rule, the defence in the nature of a plea of estoppel to prevent the challenge as violative of Article 14 cannot be accepted. 18.In effect and substance, what is urged is that the petitioners should not be permitted to question the legality of Rule 5 of the Determination Rules, in view of not only having opted for the option of concessional ra....
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.... that the whole object of introducing Section 3A is to determine the duty liability on a notional basis in the sense on the production capacity as determined by a formula in terms of sub-section (2) of Section 3A of the Act and not based on the actual production. Submission is that the very object is to shift the basis of the duty liability from the actual production to a notional production capacity, as determined under this provision. It is, therefore, submitted that when such purpose has been achieved by sub-section (2) of Section 3A of the Act, there was no need for bringing about, the provisions like Rule 5 of the Determination Rules, which is a rule which has affected the persons like the petitioner and under which the production capacity for the purpose of sub-section (2) of Section 3A of the Act is again sought to be delinked from the annual production of the year 1996-97 and the deemed production as is required to be determined under sub-section (2) of Section 3A of the Act is taken to be the actual production of the assessee for the year in question if it was found that such actual production of the year was higher than the determination as otherwise arrived at by the nor....
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....ined and arrived at by applying the formula provided under Rule 3 of the Determination Rules read with sub-section (2) of Section 3A of the Act, it is given a go-by whenever it is found that such production of the year under consideration is higher than such determination and in respect of such persons are asked to pay duty only on the basis of their actual production during the year. What is urged is whereas such of those persons who perhaps did not even disclose their production properly during the earlier years and for remedying which evil, the legislature introduced Section 3A and to that extent the object is fully achieved in terms of the determination by applying the formula under Rule 3, only in the case of persons like the petitioners, there is a departure that the determination under Rule 3 is given a go-by and the petitioners are asked to pay duty at a higher amount or a greater duty liability is fastened and not linked to the production of the year 1996-97. Submission is that the discrimination aspect looms large because persons like the petitioners are asked to pay a higher duty than what duty is payable in terms of Rule 3, whereas all others are permitted to pay the du....
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....p; Khoday Distilleries Ltd. v. State of Karnataka [(1996) 10 SCC 304] 26.Placing reliance on the principles evolved in these decisions, submission of Sri S S Naganand, learned Senior Counsel appearing for the petitioners is that taxation statutes are not immune from the test of Article 14 of the Constitution i.e. the state is not relieved of the obligation to treat all citizens equally and to provide equal protection, which can be to ensure an even burden also, particularly as under taxation statutes, citizens are only subjected to payment of tax which may be considered as burden, but such burden cannot be grossly uneven or irrational in the sense that it should not be an arbitrary levy irrespective of nature of the person. 27.In support of the submission of the argument that the provision of Rule 5 of the Determination Rules is not only irrational but is unjust and brings about discrimination, Sri Naganand, learned senior counsel for the petitioners has placed considerable reliance on the report of the Department Related Parliamentary Standing Committee on Industry, which by its 30th report on demand for grants (1999-2000) of Department of Steel, pres....
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.... units. The Committee feels that the deletion of sub-rule (5) will restore justice and also avoid unnecessary litigation. Henceforth the committee feels that the Department of Revenue should evolve rational criteria of capacity assessment for excise duty and should delete sub-rule (5) of Central Excise Notification No. 45/97, dated 30-8-97 under Section 3A (Compounded Levy Scheme) with retrospective effect. (b) xxx 28.Placing considerable reliance on this report, what is submitted by Sri Naganand is that the Committee itself had noticed the discriminatory nature of Rule 5; that it had worked injustice against persons who were covered by this Rule and the Committee had strongly recommended for the deletion of this rule. Learned senior counsel also points out that in the light of such recommendation, in fact, the very provisions of Section 3A came to be withdrawn in terms of repealing Notification dated 11-5-2001, but what is more important is even before this, by issue of an earlier notification that was on 31-3-2000, the notification that had been issued under sub-section (1) of Section 3A of the Act notifying certain products for lev....
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.... liability in respect of persons who had demonstrated their ability for better production and also for payment of duty and that was rectified by introduction of Rule 5 in terms of the Notification No. 45/97, dated 30-8-1997 and therefore, Rule 5 cannot be said to be ultra vires the provisions of Section 3A: that it is well within the scope of Section 3A as provided for in sub-section (2) of Section 3A of the Act and not ultra vires as contended by the learned counsel for the petitioners. 31.In so far as the argument that Rule 5 is discriminatory as against the petitioners, Sri Dehvadass submits that the provision per se does not militate against persons like the petitioners; that if at all the petitioners are being asked to pay duty on their actual production, which is otherwise also the norm under the scheme of the Act in general; that in respect of such manufacturers whose duty liability has been determined on notional basis in terms of sub-section (2) of Section 3A of the Act including the persons like the petitioners, whose duty liability is determined by applying Rule 5, an option is given under the provisions of sub-section (4) of Section 3A of the Act that in any case pro....
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....996-97; that in such an event, the determination in terms of the formula should be ignored and instead the production for the year under consideration should be adopted for the purpose of sub-section (2) of Section 3A of the Act. Submission is that the exercise is a well thought out functious act to prevent any intended revenue loss. 34.It is in the light of such rival contentions, the matter is required to be examined. 35.Let me examine first the 'ultra vires' argument i.e., Rule 5 being ultra vires provisions of Section 3A, particularly sub-section (2) of Section 3A of the Act. Ultra vires principle or theory is attracted when under the delegated legislation delegatee goes beyond what is permitted or otherwise or even while purporting to act within the authority crosses the limits that are fixed by the legislature itself i.e. the Rule going beyond the scope of the Section. In so far as the provisions of Section 3A is concerned, it is not in dispute that it is supplementing to the main charging Section 3 and to cover certain industries and products, which are notified for such special treatment. As noticed in the beginning, the normal procedure of levy duty on the manufactur....
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.... entire process of determination is left to the Central Government by framing of Rules for such purpose, there is no other provision in comparison with which and available in the Section, it can be said that the Rule is ultra vires. It is for this reason, the learned counsel for the petitioners have also pressed the argument that the object of introducing Section 3A itself is to create an artificial liability in the sense by fiction of law and if Rule 5 has the effect of determining liability on the reality basis, it is contrary to the very object of introduction of this legislative provision and therefore it can be argued that the provision is ultra vires. 36.The argument of ultra vires will be available when it can be shown that in reality a rule is either beyond the scope or works contrary to the provisions of the Section. The provisions of Section 3A if is examined in this context, it can be said that the provisions themselves were intended to check the malice of rampant evasion prevalent in certain industries. If the section is to ensure such persons who had indulged in evasion were suitably dealt with to prevent revenue leakage, the main object is not to deal with non-evad....
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.... as evolved in a series of decisions of the Supreme Court that while the State enjoys wide leeway and discretion in matters of levy of tax, nevertheless it should not result in blatant discrimination; that it should not give an impression that the State is acting in a totally arbitrary manner or that its act is a whimsical one in the sense that it is in the nature of victimizing some. 40.While Article 14 is a weapon available to all tax papers to complain against the discriminatory act of the Sate, the matter is examined by courts wearing the spectacle of judicial review it is also equally settled that the scrutiny is not as strict or as harsh as in respect of other State actions; that the scrutiny is not on an accurate or scientific basis, but as to whether the State is able to satisfy that the classification or grouping of persons for differential treatment has some basis, has some relevant purpose and if so the classification passes the test of Article 14. 41.In so far as the version that there is a classification, there is no dispute. In tact the petitioners even by their own pleadings and contentions would themselves demonstrate that they stand as a class apart from othe....
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....e nexus also to the object of Section 3A is the question. If the object of Section 3A was only and mainly intended to rope in evaders who had not paid taxes promptly and who were sought to be taxed or subjected to duty at least based on their production capacity and that was being fixed or determined in the beginning while that purpose is achieved in respect of evaders, persons like the petitioners who are really not persons against whom Section 3A was intended, if are left without such formula being made applicable to them, but, being asked to pay duly on the actual capacity, it can never be said that by providing determination capacity in so far as persons like the petitioners under Rule 5 and that to be even the notional determination for the purpose of sub-section (2) of Section 3A of the Act, the purpose of legislation is in no way defeated. In fact what Rule 5 achieved is to retain persons like the petitioners for being subjected to duty on their actual and proven production capacity. A provision like this can never be said to be as an irrelevant or arbitrary nor one which has no nexus to the object of the legislation. In fact if the Rule 5 achieves the object of not determin....
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....r on par. While it is possible for the petitioners to seek relief if in respect of the period under consideration for such concession or reliefs for which they may seek for relief before other organs of the State, a mere possibility that such relief can be granted by other organs of the State cannot be the basis or foundation for extending similar or identical relief, when the question is examined in the context of Judicial review of legislative action. If such an examination is necessary, the parameters are well laid down. Earlier principles evolved constituting a precedent, governing the scrutiny and if such tests are applied, I am afraid the challenge to the validity of Rule 5 on the touchstone of Article 14 and on the ground that it is discriminatory as between the petitioners and other duty payers under Section 3A cannot be accepted. 46.The real reason as to why the petitioners are feeling the heat and are complaining against the provisions of Rule 5 of the Determination Rules and are crying foul against this levy is not because the rule is per se bad by itself and really discriminatory as alleged by the petitioners, but because of the impact of necessary trend in the steel....