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2001 DIGILAW 1661 (MAD)

Beauty Dyers v. Union Of India

2001-12-20

K.GOVINDARAJAN

body2001
Judgment :- The Order of the Court is as follows :- In all these writ petitions, the petitioners challenge certain clauses of notifications issued exercising powers conferred by sub-section (3) of Section 3 of the Central Excise Act, 1944 with reference to determination of independent textile processing annual capacity and the rate of excise duty on processed textile fabrics and amendments regarding the same. 2.Section 3 of the Act is a charging Section under which there shall be levied and collected the excise duty in such manner as may be prescribed at the rate specified in the Schedules to the Central Excise Tariff Act, 1985. Sub-section (2) to Section 3 of the Act gives power to the Central Government to issue notification to fix the tariff values of any articles for the purpose of levying excise duties. The Parliament enacted and introduced new provision. Section 3A of the Act under which the Central Government was empowered to charge with excise duty on the basis of capacity of production in respect of notified goods. Under the said provision, 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 Section 3A of the Act. From the above said provision, it is clear that with respect to the notified goods, the Central Government can levy and collect excise duty on the basis of capacity of production. 3.Under Section 3A(2) of the Act, the Central Government is empowered to frame rules by issuing notification providing the manner for determination of the annual capacity of production of the factory and such annual capacity shall be deemed to be the annual production of such goods by such factory. The Central Government also is empowered to specify the relevant factor to the production of such goods and the quantity that is deemed to be produced by use of a unit of such factor. The Central Government also is empowered to specify the relevant factor to the production of such goods and the quantity that is deemed to be produced by use of a unit of such factor. The Central Government is further empowered to fix the rate of excise duty and the unit production or as the case may be, on such factor relevant to the production. Under sub-section (4) to Section 3A of the Act, where an assessee claims that production of notified goods is lower than the production determined under sub-section (2), the Central Excise Officer shall, after giving an opportunity to the assessee to produce evidence in support of his claim, determine the actual production; on determination of the amount payable by the assessee with reference to such actual production with respect to the rate as specified in sub-section (3) of the Act. Sub-section (5) of Section 3A of the Act gives power to adjust the amount already paid against the duty so redetermined and if the duty already paid falls short of, or as in excess of the duty so redetermined, the assessee shall pay the deficiency or be entitled to refund, as the case may be. 4.So, insofar as the levy on the basis of capacity of production is concerned, Section 3A of the Act and the notification issued thereunder are themselves a separate code for the purpose for which they are enacted. Now, in these writ petitions certain rules framed under Notification Nos. 42/98 and 36/98, dated 10-12-98, 14/2000 and 19/2000, dated 1-3-2000 and 2/99, dated 13-1-99 have been challenged on the ground that they areultra viresSections 3A, 11AB and 37 of the Act. 5.Under Notification No. 42/98, the rules called Hot Air Stenter Independent Textile Processors Annual Capacity Determination Rules, 1998 were framed. The rules for the present purposes are as follows :- "3. The annual capacity of production referred to in Rule 2 shall be determined in the following manner, namely :- (1) an independent processor shall declare - (i)the number of hot-air stenters installed in his factory; (ii)the name of the manufacturer of each of the hot-air stenter, its identification no. The rules for the present purposes are as follows :- "3. The annual capacity of production referred to in Rule 2 shall be determined in the following manner, namely :- (1) an independent processor shall declare - (i)the number of hot-air stenters installed in his factory; (ii)the name of the manufacturer of each of the hot-air stenter, its identification no. and the date of its purchase; (iii)the number and size (both the length and width in centimetres) of chambers in each of the hot-air stenters; (iv)the total value of processed fabrics referred to in Rule 2, produced or manufactured in the preceding financial year; and (v)the total quantity of processed fabrics referred to in Rule 2, produced or manufactured in the preceding financial year; to the Commissioner of Central Excise (hereinafter referred to as the Commissioner), with a copy to the Assistant Commissioner of Central Excise. (2) . (3) the annual capacity of production of processed textile fabrics specified in Rule 2 in respect of a factory of an independent processor shall be determined keeping in view the following factors, namely :- (i)the number of chambers (of a hot-air stenter), each of which having a rail length of up to 3.05 metre on each side, installed in such factory shall be constructed as one chamber and any fraction exceeding such rail length of any such chamber shall be computed on apro ratabasis; (ii) (iii)for the textile fabrics produced by the new units or the closed units of such factory for which it is not possible to calculate average value under sub-clause (ii), the average value of such fabrics shall be as declared by the independent processor at the time of making the declaration, provided that the amount of duty payable on such fabrics shall be reworked out at the end of a financial year on the basis of actual average value of the textile fabrics produced in the financial year in such factory; (iv)the average value of production per chamber per month as :- (a)in the case of fabrics of average value of up to and including Rs. 30 per square metre, Rs. 11.72 lakhs, and (b)in the case of fabrics of average value of exceeding Rs. 30 per square metre, Rs. 30 per square metre, Rs. 11.72 lakhs, and (b)in the case of fabrics of average value of exceeding Rs. 30 per square metre, Rs. 15.63 lakhs ; (c)the Commissioner of Central Excise shall, as soon as may be, after determining the annual capacity of production on the basis of the average value of processed textile fabrics and the number of chambers (of a hot-air stenter) of the factory of the independent processor, by an order, intimate the same as also the rate of duty applicable to the independent processor; (4) (5) Explanation 1: For the purpose of this notification a float drying machine or any other equipment of a length 3.05 metres installed in or attached to a stenter for aiding the process of heat setting or drying of the fabrics shall be deemed to be one chamber of a stenter and any fraction of such length shall be computed on apro ratabasis". 5.Under the Notification No. 36/1998, the Central Government specified the rate of excise duty on the processed textile fabrics manufactured or produced by an independent processor with the aid of a hot-air stenter, which are as follows :- "(i) in the case of a processing factory whose average value of processed fabric is up to and including Rs. 30 per Sq.M. 12.6 per cent of the capacity of production in value terms per chamber per month equivalent to Rs. 1.5 per chamber per month, and (ii) in the case of a processing factory whose average value of processed fabric is exceeding Rs. 30 per Sq.M. 12.8 per cent of the capacity of production in value terms per chamber per month equivalent to Rs. 2 lacs per chamber per month." 6.Learned Senior Counsel appearing for petitioners submitted that under the Act, for the purpose of levying the excise duty, the Central Government must provide the rule for determination of annual capacity of the factory which shall be deemed to be the annual production of such goods by such factory. But, by framing the rules under Notification No. 42/98, no such method has been provided and the procedure contemplated therein is only to arrive at the annual value of production, which is contrary to the intention of Section 3A(1) of the Act and so it isultra viresthe said provision and also Articles 14, 19(1)(g) and 265 of the Constitution of India. According to him, the annual capacity of production of processed textile fabrics is sought to be determined on the basis of number of chambers fixed and the average value of production per chamber per month, without determining the capacity of production of factory, which cannot be sustained. He relied on number of decisions in support of his submission. 7.The learned Additional Solicitor General while defending the validity of the said rules has submitted that the method contemplated under the rules had been followed uniformly and so the petitioners cannot have any grievance. According to him, the annual capacity of production was taken into consideration not only on the basis of number of chambers, but also the average value of production. He has also submitted that in the matter relating to economic measures, the Court adjudged the constitutionality of the legislation by its own equalities or only by possibilities of abuse of any of its provision. According to the learned Addl. Solicitor General, the petitioner cannot rely on the other rules with respect to the other commodities framed under Section 3A of the Act to say that the rules in question are bad in law. It is his further submission that by the impugned rules, the authorities are able to arrive at the annual capacity of production of the various factories and so the question of challenging the same may not arise. 8.I have appreciated the respective arguments of learned Senior Counsel appearing on behalf of the petitioners and the learned Addl. Solicitor General on behalf of respondents. Though learned Senior Counsel for petitioners relied on the number of Rules framed under Section 3A of the Act with respect to other commodities. I am not dealing with the same, as he had relied on the same only for the purpose of laying down that those rules have been framed so as to enable the concerned authorities to arrive at the annual capacity of production of those goods. In the present case, it is not in dispute that the authorities are empowered to arrive at the annual capacity of production on the basis of the number of chambers of a hot-air stenter of such chamber having a rail length of 3.05 metre on each sides and it shall be construed as one chamber and any fraction exceeding one rail length of any such chamber can be computed onpro ratabasis. The annual value of production per chamber per month has to be calculated as mentioned under Rule 3(3)(iv) of the rules notified under Notification No. 42/98. In the case of fabrics of average value of up to and including Rs. 30/- per sq.m., the average value of production per chamber per month is Rs. 11.72 lakhs; if the average value of the fabric exceeding Rs. 30/- per sq.m., the annual value of production per chamber per month would be Rs. 15.63 lakhs. This, according to the petitioners, is not the method to arrive at the annual capacity of production as contemplated under Section 3A of the Act, and is beyond the scope of the said provision, and consequently it has to be struck down, as it isultra viresthe said provision. Under Section 3A of the Act, the levy can be done only after determining the annual capacity of production of the factory. As rightly submitted by learned Senior Counsel, there is no material before this Court as to how the average value or production per chamber per month was fixed at Rs. 11.72 lakhs in the case of fabrics of average value of up to and include Rs. 30/- per sq.m., and Rs. 15.63 lakhs in the case of fabrics of average value of exceeding Rs. 30/- per sq.m. without any basis the Central Government have fixed the said amount. At the same time, while contemplating the rate of excise duty under Notification No. 36/98 it is fixed as 1.5 lakhs per chamber per month in the case of a processing factory whose average value of fabrics is up to and including Rs. 30/- per sq.m. and Rs. 2 lakhs in the case of processing factory whose average value of fabrics is exceeding Rs. 30 per sq.m. 10.From the above, it is clear that the Central Government have not framed a workable formula to fix the annual capacity of production of the processed textile fabrics and they have fixed the amount, which also has not been explained before this Court as to how the said amount had been arrived at towards the average value of production per chamber per month. The production capacity cannot be on the basis of number of chambers alone or on the basis of the rail length alone. As rightly submitted by learned Senior Counsel, it depends upon various factors. The production capacity cannot be on the basis of number of chambers alone or on the basis of the rail length alone. As rightly submitted by learned Senior Counsel, it depends upon various factors. According to the Act, the annual capacity of production of the processed textile fabrics has to be arrived at on the basis of the formula framed by the Central Government. But, under the present rules, no such fomula under which the annual capacity of production can be arrived at on the basis of the relevant factors has not been contemplated. The Central Government have fixedsuo motuthe average value of production per chamber per month. On that basis they have sought for levying the duty of excise, which is not the intention of the legislature as contemplated under Section 3A of the Act. 10.While construing the power of the State Legislature to levy tax on land and buildings, the Apex Court in the decision inState of Keralav.Haji K. Kutty, the Apex Court has held that no tax be levied or collected except by authority of law and the law must not only be within the legislative competence of the State, but it must also not be inconsistent with any provision of the Constitution. The Apex Court has also held is follows :- "But in enacting the Kerala Buildings Tax Act no attempt at any rational classification is made by the Legislature. As already observed, the Legislature has not taken into consideration in imposing tax the class to which a building belongs, the nature of construction the purpose for which it is used, its situation, its capacity for profitable user and other relevant circumstances which have a bearing on matters of taxation. They have adopted merely the floor area of the building as the basis of tax irrespective of all other considerations. Where objects, persons or transactions essentially dissimilar are treated by the imposition of a uniform tax, discrimination may result, for, in our view, refusal to make a rational classification may itself in some cases operate as denial of equality. This Court in a recent judgment has decided that the levy of tax in exercise of the power under Entry 49, List II of the Seventh Schedule in respect of factory buildings in a municipal are based on floor area was illegal.New Manek Chowk Spinning & Weaving Mills Co. Ltd.v.Municipal Corporation of City of Ahmedabad. This Court in a recent judgment has decided that the levy of tax in exercise of the power under Entry 49, List II of the Seventh Schedule in respect of factory buildings in a municipal are based on floor area was illegal.New Manek Chowk Spinning & Weaving Mills Co. Ltd.v.Municipal Corporation of City of Ahmedabad. The Court held in that case that the method of adopting a flat rate for a floor area for determining the annual value adopted by the Corporation of Ahmedabad in exercise of the powers conferred upon it by the Bombay Provincial Municipal Corporation Act, 49, of 1949 was against the provisions of the Act and the rules made thereunder as well as all recognized principles of valuation for the purpose of taxation. If levy of tax in a municipal district based on floor area in respect of a factory building violates Article 14 of the Constitution when the tax is sought to be levied by the Municipal Corporation, we see no reasons to uphold the tax imposed under the impugned Act when the State in exercise of legislative authority conferred by Entry 49, List II Sch. : VII, imposes liability to the buildings solely on floor area. The vice of the Act in the present case is more pronounced than it was inNew Manek Chowk Spinning and Weaving Millscase, in that case the Rules under which the tax was sought to be levied on the basis of floor area were restricted in their operation to factory buildings within the Corporation limits of Ahmedabad, whereas Act 19 of 1961 which is challenged in the present case applies to the whole State of Kerala in respect of buildings completed on or after March 2, 1961, whatever may be the nature or class of materials used in its construction and the extent of profitable user to which the building may be put, its cost and its economic rental. It is unnecessary in the circumstances to consider whether imposition of a tax only on buildings constructed after March 2, 1961 and exempting buildings completed before that date may not violate Article 14 of the Constitution." 11.Similarly, in the decision inN.M.C. & W. Millsv.Ahmedabad Municipal, while dealing with the property tax on textile mills, factories, etc., the Apex Court has held that levy of flat rate method according to floor area adopted for determining rent for fixing rateable value is against law and violative of Art. 14 of the Constitution. The Apex Court has also held as follows :- "(12) The above comment is sufficient to show that this method can only be applied where the majority of properties are so nearly alike in character as to be regarded identical for rating purposes. There is no such statement in the affidavit. (13) We are, therefore, not satisfied that conditions prerequisite for determination of annual value of textile factories in Ahmedabad on the basis of rental value per foot super of floor area existed at the relevant time nor has it been shown to us that the so called contractor's basis was adopted by the municipal authorities of Ahmedabad. The method is not also one which is generally recognised by authorities on rating, applied indiscriminately as it appears to have been done in this case - it is sure to give rise to inequalities, as there has been no classification of the factories, on any rational basis. Further, there does not seem to be any basis for dividing the factories and the buildings thereof under two general clauses as buildings used for processing and buildings for non-processing purposes. What was said by this Court inLokmanya Mills' case applies with equal force to what has been done here and we must hold that the municipality did not observe the law and failed in its duty to determine the rateable value of each building and land comprised in each of the textile factories in terms of Rule 9(b) of the rules under the Bombay Provincial Municipal Corporations Act, 1949 so far as the assessment book for the year 1966-67 is concerned". 12.On the basis of the above-mentioned decisions, if we considered the scope of arguments of learned Senior Counsel with reference to the impugned notifications, the case of the petitioners has to be accepted under the impugned notifications, the Government have not tried to fix the formula to determine the production capacity on the basis of the quantity of production, but on the basis of the value fixed by the Central Government by themselves irrespective of the capacity of the factories concerned. Such a flat rate fixed by the Central Government cannot be sustained in view of the above-mentioned decisions of the Apex Court. Further, from a reading of Notification Nos. 36/1998 and 42/1998. I am not able to see any link between such notification though one is for fixing determination of production capacity and another is giving the rate of duty of excise which has to be levied and collected on the basis of the said determination of the production capacity following the rules framed under Notification No. 42/1998. Any rules, should be only in accordance with the main provisions and to achieve the object of the said provisions. So, the capacity of production cannot be arrived at on the basis of deemed value as it has been given by the Central Government that too without any basis. 13.As rightly submitted by learned Counsel all chambers irrespective of the nature, age and their capacity cannot be treated equally for the purpose of fixing the annual capacity of production, as the same has been done under Notification No. 42/1998. The rules framed under Notification No. 42/1998 is not having acceptable method to arrive at the capacity of production, which is absolutely necessary to levy and collect duty of excise under Section 3A of the Act. So, the said rules cannot be adopted for determination of excise duty as they cannot level the correct capacity of production of the factory for the purpose of levying excise duty. So, the Rule 3 of the rules issued in the Notification No. 42/1998 cannot be sustained as they areultra viresSection 3A of the Act. 14.The Order rules issued under other Notifications which are impugned in the other writ petitions are only based on the rules issued in Notification No. 42/1998 and so the reasoning given above will apply to these rules also. So they also cannot be sustained consequently, they are set aside. 14.The Order rules issued under other Notifications which are impugned in the other writ petitions are only based on the rules issued in Notification No. 42/1998 and so the reasoning given above will apply to these rules also. So they also cannot be sustained consequently, they are set aside. But the petitioners are liable to pay duty of excise under Section 3 of the Act or under any other provisions contemplated for the same. 15.For all the foregoing reasons, these writ petitions are allowed accordingly. No costs. Connected W.M.Ps. are closed.