Gopal Corporates LLP Vs Commissioner Delhii-East (Delhi High Court)
Delhi High Court held that Rule 8 of the Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules 2010 is not ultra vires to Section 3A of the Central Excise Act.
Facts- The appeal is preferred under Section 35G of the Central Excise Act, 1944 challenging an order dated 02 November 2017 passed by the and which has in essence affirmed the Order in Original as well as the view as taken by the appellate authority. The issue arises out of the quantum of duty which the appellant / petitioner was liable to pay in terms of the provisions contained in the Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules 2010.
The writ petition in addition seeks a declaration to the effect that Rule 8 of the CTUT Rules 2010 be declared ultra vires to Section 3A of the Act and additionally being violative of Article 14 of the Constitution.
Conclusion- Held that having conferred our thoughtful consideration on the grounds on which Rule 8 is essentially challenged, we find ourselves unable to accede to the submissions as addressed by and on behalf of the appellant / petitioner for the following reasons. As is manifest from a reading of Section 3A(2)(a), the Union Government is empowered not only to prescribe the manner for determination of annual capacity of production of a factory, the said provision by way of a legal fiction stipulates that the capacity of production as determined in accordance with the Rules shall be “deemed” to be the annual production of goods in that factory. The computation of annual production and the same being computed by virtue of a statutory deemed fiction does not owe its genesis to Rule 8. The said legal fiction stands incorporated in Section 3A(2)(a) itself.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. Since the appeal and the writ petition emanate out of common proceedings drawn by the respondents against the appellant / petitioner, they were with the consent of parties heard together and are proposed to be disposed of by this common judgment. The appeal is preferred under Section 35G of the Central Excise Act, 19441 challenging an order dated 02 November 2017 passed by the and which has in essence affirmed the Order in Original as well as the view as taken by the appellate authority. The issue arises out of the quantum of duty which the appellant / petitioner was liable to pay in terms of the provisions contained in the Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules 20103.
2. The writ petition in addition seeks a declaration to the effect that Rule 8 of the CTUT Rules 2010 be declared ultra vires to Section 3A of the Act and additionally being violative of Article 14 of the Constitution. Mr. Kohli, learned senior counsel appearing for the appellant / petitioner fairly submitted that the challenge to Rule 8 would assume significance only if the Court were to not accede to the interpretation which is advocated for consideration and acceptance by the appellant / petitioner insofar as the provisions of the CTUT Rules 2010 are concerned. The principal question which arises is the duty liability to be borne by the appellant / petitioner for the months of June 2012, July 2012 and February 2013 when certain new packing machines were added to the production line and were worked for a couple of days during the entire month.
3. The appellant / petitioner contends that additional duty is liable to be levied on a proportionate basis and in conjunction with the days when the additional packing machines had actually been operated. They assail the stand of the respondents that in terms of the CTUT Rules 2010, duty liability is to be ascertained and calculated based on the maximum numbers of packing machines that may have operated during any day of a particular month. For the purposes of examining the challenge which stands raised, we deem it apposite to notice the following essential facts.
4. The appellant / petitioner is a manufacturer of Flavoured Chewing Tobacco sold in packets / pouches. The retail pouches manufactured by it are chargeable to Central Excise Duty under Sub Heading 2403 99 10. The dispute in the present matters pertains to the months of June 2012, July 2012 as well as February 2013. The appellant / petitioner was discharging its duty liability on chewing tobacco pouches carrying different Retail Sale Prices in accordance with the provisions of the CTUT Rules 2010. In order to appreciate the issue which arises, it would be apposite to firstly notice the provisions of Section 3A of the Act and to which the CTUT Rules 2010 owe their existence. Section 3A of the Act reads as follows: –
“Section 3A of Central Excise Act, 1944–
“Notwithstanding anything contained in Section 3, where the Central Government, having regard to the nature of the process of manufacture or production of excisable goods of any specified description, the extent of evasion of duty in regard to such goods or such other factors as may be relevant, is of the opinion that it is necessary to safeguard the interest of revenue, specify, by notification in the Official Gazette, such goods as notified goods and there shall be levied and collected duty of excise on such goods in accordance with the provisions of this section.”
(2) Where a notification is issued under sub-section (1), the Central Government may, by rules,
(a) provide the manner for determination of the annual capacity of production of the factory, in which such goods are produced, by an officer not below the rank of Assistant Commissioner of Central Excise and such annual capacity shall be deemed to be the annual production of such goods by such factory; or
(b) (i) specify the factor relevant to the production of such goods and the quantity that is deemed to be produced by use of a unit of such factor; and
(ii) provide for the determination of the annual capacity of production of the factory in which such goods are produced on the basis of such factor by an officer not below the rank of Assistant Commissioner of Central Excise and such annual capacity of production shall be deemed to be the annual production of such goods by such factory:
Provided that where a factory producing notified goods is in operation during a part of the year only, the annual production thereof shall be calculated on proportionate basis of the annual capacity of production:
Provided further that in a case where the factor relevant to the production is altered or modified at any time during the year, the annual production shall be re-determined on a proportionate basis having regard to such alteration or modification.”
5. Undisputedly, chewing tobacco falling under tariff item 2403 99 10 of the Central Excise Tariff Act, 1985 is notified as one of the goods in respect of which the Union Government had formed the requisite opinion that a duty of excise would be levied and collected in accordance with the provisions made in Section 3A of the Act. Section 3A(2)(a) enables the Union Government to frame rules providing for the manner for determination of the annual capacity of production of a factory in which notified goods are produced and further postulates that the capacity as determined in accordance with those rules shall be deemed to be the annual production of goods by such a factory. In addition to the above, the rules that may be framed by the Union Government are also envisaged to provide for the factor on the basis of which annual capacity of production would be determined. The Second Proviso to Section 3A(2)(b) further stipulates that where the factor relevant to assessing production is altered or modified at any time during the year, the annual production shall be re-determined on a proportionate basis having regard to such alteration or modification.
6. Insofar as the CTUT Rules 2010 are concerned, the factor relevant for assessing production has been defined in terms of Rule 4, which reads as follows:-
“4. Factor relevant to production. – The factor relevant to the production of notified goods shall be the number of packing machines in the factory of the manufacturer.”
7. Rule 5 then makes provisions to estimate the quantity which will be deemed to have been produced in a factory. The said Rule is framed in the following terms:-
“5. Quantity deemed to be produced. – The quantity of notified goods, having retail sale price as specified in column (2) of the Table below, deemed to be produced by use of one operating packing machine per month, shall be as is equal to the corresponding entry specified in column(3) and column (4) of the said Table, as the case may be:-
Table
