TaxTMI 
TaxTMI 
2026 (7) TMI 1340
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.... are engaged in the business of producing and supplying pan masala (not containing tobacco), which is classified under Tariff Item No.21069020. These goods attract the levy of cess under the Cess Act as well as Goods and Services Tax (for short, 'the GST Act') under the Central Goods and Services Tax Act, 2017 (for short, 'the CGST Act'). Pan masala is a product sold and supplied in pouch packing, and such pouches are produced on packing machines like Form Fill and Seal (for short, 'the FFS') machines, i.e. Form, Fill and Seal machines, and Profile Pouch Making Machines. 2.1 In the month of March 2026, the petitioners proposed to install 02 more machines, and therefore an intimation was submitted by the petitioners on 12.03.2026 requesting approval of the declaration and permission for the installation of 02 new machines in the factory premises. 2.2 One more machine was also proposed to be installed by the petitioners, and therefore an intimation regarding such machine was also furnished by the petitioners. 2.3 The jurisdictional Assistant Commissioner informed the petitioners by letter dated 17.03.2026 that the verification report of the Quality Council of India had been ....
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....from 20.03.2026, and hence the amount of cess for these machines for the first 19 days of March 2026 was required to be abated under the scheme of Section 4 read with Section 5(7) of the Cess Act. 2.9 The Assistant Commissioner passed an adjudication order on 22.04.2026 and rejected the petitioners' abatement application by holding that abatement was permissible under Rule 15 of the Rules only when the packing machines were installed and subsequently sealed and rendered non-operational, but the petitioners' case related to the installation of new machines during the month, and not to the temporary non-operation of already installed machines. The Assistant Commissioner referred to sub-rule (4) of Rule 12 of the Rules and held that the provision provides for taking the maximum number of machines installed on any day during the month for the purpose of calculating cess in case of the addition, installation, removal, or uninstallation of a machine in the factory during the month, and accordingly the 03 machines in question installed in the factory on 20.03.2026 were also to be taken into consideration for computing and collecting cess for all the machines installed and operated duri....
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....tra vires the machinery provision of Section 5 of the Cess Act. 3.2 It is submitted that sub-section (2) of Section 5 of the Cess Act refers to a situation where specified goods were manufactured wholly or partly with the aid of a machine, and this provision lays down the method of computing cess in such a situation. This part of the machinery provision shows that the levy was on specified goods "manufactured or produced" with the aid of the machine, and accordingly the existence of an operational machine in the factory of the taxable person is a pre-condition for computing cess under the Cess Act. 3.3 It is submitted that sub-section (3) of Section 5 of the Cess Act provides for collecting cess as the aggregate of the amount calculated "for each of the machines installed in a factory of the taxable person", and thus this part of the machinery section also shows that cess is computed for machines installed in a factory, and not for non-existent machines which are not installed in the factory. But Rule 12(4) of the Rules results in a situation where cess is levied and collected on machines which were not installed in the factory, and therefore this Rule is ultra vires the mach....
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.... is framed by the Executive in exercise of powers meant for delegated legislation. Any tax can be levied and imposed only by an Act of Parliament or the State Assembly, whereas only the procedure for collection and recovery of a tax validly imposed by Parliament or the State Assembly, as the case may be, could be provided under Rules framed by the Government. But in the present case, the levy of cess is created by virtue of Rule 12(4) of the Rules even for machines which were not installed in the factory of a taxable person. Sub-rule (4) of Rule 12 is ultra vires Article 14 of the Constitution of India, because this provision has no nexus with the objective sought to be achieved by the charging and machinery provisions of the Cess Act. 3.7 It is submitted that a newly registered person, that is, a manufacturer installing new machines and commencing the manufacture of specified goods on such machines for the first time, is required to pay cess on the machines from the commencement of installation, and not for the prior period. If the petitioners had been newly registered persons, then the petitioners would not have been required to pay cess on the three machines in question till ....
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....ALF OF THE RESPONDENTS : 4. Opposing the present petition, learned Senior Standing Counsel Ms. Nidhi Vyas, appearing for the respondent authorities, has submitted that the petitioners are misreading the scheme of the Act as well as the Rules. She has submitted that Rule 12(4) of the Rules, which the petitioners are seeking to have declared as ultra vires, has been framed keeping in mind the intention of the Act to levy the cess on the production of the goods as per the capacity of the machines and not as per the number of machines installed by the tax-payer/producer of the goods. 4.1 It is submitted that the petitioners filed an application for grant of abatement under Rule 15 of the Rules in terms of Section 5(7) of the Cess Act, which has been rejected by the competent authority. She has submitted that the Explanation to Rule 15 of the Rules refers to the installed machines, which are operational machines that have, in turn, become non-operative during the period of abatement. It is submitted that, in the instant case, none of the machines of the petitioners has become non-operative. It is submitted that the provisions of Rule 15 of the Rules have to be read in conjunction ....
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....o in section 4 shall be computed in accordance with the provisions of this section based on the relevant process, speed of the machine or capacity of other processes and the weight of the specified goods packed in pouch, tin or other container, as the case may be, as declared by the taxable person and, where applicable, as verified or calibrated by the proper officer under section 9, and on the amount specified in Schedule II for such combination of process, speed or capacity and weight. (2) Where the specified goods are manufactured or produced wholly or partly with the aid of a machine, the cess shall be levied and collected from the taxable person - (a) with reference to the maximum rated speed of the machine measured in number of pouches, tins or containers per minute; (b) for the corresponding weight of the specified goods packed in a pouch, tin or container; (c) at the monthly amount of cess specified in column (4) in Table 1 of Schedule II against such rated speed and weight provided therein. (3) The cess payable under section 4 shall be the aggregate of cess calculated under sub-section (2) for each of the machines installed in a....
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....ess, speed or capacity and weight. Thus, the manner of computation of cess is premised on three parameters i.e. "1) combination of process, 2) speed or capacity and 3) weight of the specified goods which are processed and produced in the machines which are installed by the taxable payer." 9. The three clauses under sub-section (2) of Section 5 of the Cess Act provides for levy of cess to be collected from the taxable person on specified goods manufactured with reference to (a) the "maximum rated speed of the machine measured in the number of pouches, tins or containers per minute clause, (b) the corresponding weight of the specified goods packed in a pouch tin or container, and (c) the monthly amount of cess specified in Column-4 of Table-1 of Schedule-II of the Cess Act against such rated speed and weight provided therein. 10. Sub-section (3) of Section 5 of the Cess Act stipulates that the cess payable under Section 4 of the Cess Act shall be the aggregate of the cess calculated under sub-section (2) of Section 5 of the Cess Act for each of the machines installed in a factory of the taxable person. Sub-section (6) of the Cess Act provides that the....
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.... installation or uninstallation of machine" in the factory during the month for the calculation of cess under sub-rule (1) of Rule 12 of the Rules, the number of machines installed for the month is required to be taken as the maximum number of machines installed on any day during the month. Thus, sub-rule (4) of Rule 12 of the Rules has to be read in conjunction with the provisions of sub-rule (1) to Rule 12 of the Rules, and cannot be read independently. Rule 12 (1) of the Rules refers to the cess payable for a particular month which shall be calculated as per the amount of Cess per machine or manual process unit specified in Schedule-II of the Act. The proviso to sub-rule (1) to Rule 12 of the Rules refers to the cases of a newly registered persons, and the cess payable for the first month by such persons is to be calculated on a pro-rata basis having regard to the total number of days in that month and the number of days commencing from the date of installation of the machine. Thus, the quintessential feature of Rule 12 of the Rules is the calculation of the Cess for a particular month as per the amount of cess per machine or manual process unit specified in Schedule-II of the C....
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....r the production of goods. Schedule-II, which is the connecting link between the provisions of Section 5 of the Cess Act and Rule 12 of the Rules, mentions the amount of cess to be computed on the basis of the production in terms of the number of pouches, tins or containers at the maximum rated speed of the machines along with the weight of the specified goods per pouch, tin or container. Such calculation of the amount of Cess is not exclusively premised on the number of machines as canvassed by the petitioners, but on the production of actual goods in pouches, containers or tins through operational machines. 14. A holistic reading of Section 5 of the Cess Act, paired with Rule 12 of the Rules and Schedule-II of the Cess Act, confirms that the computation of cess is not based on the specific date or time of machine installation. Instead, it is computed on the total production capacity of all machines installed during a month that are capable of producing goods in pouches, containers, or tins at their maximum rated speed. Consequently, Rule 12(4) of the Rules cannot be read in isolation or restricted solely to the act of installation of machines, as the petitioners suggests. The ....
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....thing which the legislature has not intended. There is a clear demarcation in the Rules regarding the calculation of cess from the goods produced by installed operational machines and those which remain inoperative after installation. 15. In the decision in the case of State of Tamil Nadu and Anr. vs. P. Krishnamurthy and Ors. (2006) 4 S.C.C. 517, the Supreme Court has enunciated the following principles while adjudging the validity of subordinate legislation, including regulations. The same read as under: "15. There is a presumption in favour of constitutionality or validity of a subordinate legislation and the burden is upon him who attacks it to show that it is invalid. It is also well recognized that a subordinate legislation can be challenged under any of the following grounds: (a) Lack of legislative competence to make the subordinate legislation. (b) Violation of fundamental rights guaranteed under the Constitution of India. (c) Violation of any provision of the Constitution of India. (d) Failure to conform to the statute under which it is made or exceeding the limits of authority conferred by the enabling Act. (e) Rep....