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2010 DIGILAW 520 (JK)

Jammu Casting Pvt. Ltd. v. Union Of India

2010-10-08

Sunil Hali

body2010
1. Petitioner Company is dealing with the business of manufacture of non alloy steel ingots and billets. The said goods are chargeable to duty in terms of Section 3 of the Central Excise Act, 1944 (here-in-after referred to as the Act of 1944), read with the notification dt. 1st of Aug'97, and this is done on the basis of the annual capacity of the production of the unit. In the case of the petitioner, the said annual capacity of production was determined as 9600 MT on the basis of 3MT furnace under Rule 3(4) of Induction Furnace Annual Capacity Determination Rules, 1997(here-in-after referred to as the Rules of 1997). The petitioner erected a new furnace of 4MT with verbal information to the authority concerned on 30th of June'99, and started commercial production of the goods from the said furnace also. 2. As no approval was obtained by the petitioner from the authority concerned for erection of a new furnace, as required under Rule 3(4) of the Rules of 1997, and as it was found that the petitioner Company is making the production by operating both the furnaces intermittently not provided under the relevant rules, a notice dt. 4th of Oct'01, came to be issued to the petitioner to explain as to why the annual capacity of production of the petitioner unit be not determined on the basis of two furnaces installed by it w.e.f. 1st of Oct'99. The said notice was challenged by the petitioner before the appellate authority i.e. Commissioner, Central Excise Commissionerate, Chandigarh-II, by pleading that there is no justification in determining the capacity of the factory to 7 MTs suo moto and that too with retrospective effect from 1st of Oct'99. 3. The aforementioned plea of the petitioner Company was rejected by the Commissioner and it was directed vide aforementioned order that the Annual Capacity of the unit be determined as 22,400 MT w.e.f. 1st of Oct'99. The Company was also directed to discharge duty liability for the period from 1st of Oct'99 to 31st of March'2000, in terms of Rule 96ZO(3) of the Central Excise Rules, 1944. The said order was appealed against by the petitioner before the Customs Excise & Gold (Control) Appellate Tribunal, New Delhi. The said Tribunal, vide its order dt. The Company was also directed to discharge duty liability for the period from 1st of Oct'99 to 31st of March'2000, in terms of Rule 96ZO(3) of the Central Excise Rules, 1944. The said order was appealed against by the petitioner before the Customs Excise & Gold (Control) Appellate Tribunal, New Delhi. The said Tribunal, vide its order dt. Ist of Jan'03, has dismissed the appeal of the petitioner with the following observations:- "..It is thus evident that these instructions of sealing/un-sealing of stenter is only for the purpose of abatement from duty and not for the purpose of determining the annual capacity of production We, therefore, find no reason to interfere with the order impugned. Accordingly, we reject the appeal." 4. It is how the present petition has been filed by the petitioner challenging the aforementioned orders. 5. Mr Gupta, learned Senior counsel appearing for the petitioner submitted that the MS Ingots manufactured by the Company are the goods chargeable to excise duty under Section 3 of the Central Excise Act, but the respondents without taking note of the actual production capacity of the petitioner-Company, have imposed the excise duty assuming the said capacity as 22,400, without any basis which is not in consonance with the Articles 265 and 300 A of the Constitution of India read with Entry 84 of List --I of 7th Schedule of the Constitution. It is stated that the annual production capacity of the Company was determined by the Commissioner concerned as 9600 MT per year for one furnace of 3 Tonne from Sept'97, onwards, which order has not been modified by any higher authority. 6. On facts, it is contended that the Company informed the authority concerned that it proposes to install a new furnace of 4 MT as a substitute to the earlier furnace of 3 MT capacity. The said new furnace was installed on 14th of Sept'99, regarding which a proper verification was done by the Superintendent and Inspector of Central Excise. Further information was also provided to the authority concerned that the new furnace will start commercial production w.e.f. 1st of Oct'99. The initial furnace of 3 MT was sealed by the officers concerned of the respondent department so that no production is done from the said furnace. Further information was also provided to the authority concerned that the new furnace will start commercial production w.e.f. 1st of Oct'99. The initial furnace of 3 MT was sealed by the officers concerned of the respondent department so that no production is done from the said furnace. It is stated that as there was a break-down in the transformer of the main furnace, the same was conveyed to the department and the restarting of the furnace was done on 3rd of Dec'99. It is stated that due to in-operation of 4MT furnace, a request was made to the authority concerned to allow the petitioner to restart the old furnace of 3 MT, which request was allowed. Thereafter, on proper functioning of 4MT furnace, again a request was made to the authority concerned to seal the 3MT furnace and allow commercial production through 4MT furnace. 7. By serializing the above factual events, it is sought to be projected that the two furnaces installed by the Company were not made functional simultaneously, and thus, the assessment made by the respondent authorities regarding commercial production of the Company as 22,400 MT, is uncalled for and without any basis. It is stated that for the period, either of the furnaces' remained non-functional, and there was no commercial production, the appellant cannot be saddled with the demand of excise duty. It is stated that it was for the department concerned to identify the period during which either of the furnaces' were operational and make estimate of the commercial production accordingly and not on assumption basis. It is stated that there was no lapse or mis-representation on the part of the petitioner Company as the authority concerned was being regularly informed about the functioning/non-functioning of the furnaces and it was on the basis of the information provided by the Company that the concerned officers of the respondent department had been sealing/unsealing the furnaces. 8. Respondents in their counter have stated that in terms of Section 3-A of the Central Excise Act, 1944, read with notification No. 30/97-CE(NT) dt. Ist of Aug'97, the steel ingots/billets manufactured by the Company were brought under the compound levy scheme. The petitioner opted to pay the excise duty in terms of Rule 96ZO(3) of the Central Excise Rules, 1944, in respect of its furnace of 3MT capacity, which was determined as 9600 MT, by the respondent No.3 vide its order dt. Ist of Aug'97, the steel ingots/billets manufactured by the Company were brought under the compound levy scheme. The petitioner opted to pay the excise duty in terms of Rule 96ZO(3) of the Central Excise Rules, 1944, in respect of its furnace of 3MT capacity, which was determined as 9600 MT, by the respondent No.3 vide its order dt. 11th of Nov'97, under Rule 3(4) of the Induction Furnace Annual Capacity Determination Rules, 1997. It is further contended that in terms of Section 3A of the Act of 1944, the excise duty is chargeable on the notified goods on the basis of capacity production. 9. Respondents have further stated that after the erection of a new furnace of 4 MT capacity by the petitioner Company, the production capacity was re-determined as 7 MT. It is stated that in terms of Section 3A of the Act of 1944, in case there is any change in the installation or production capacity, then, the annual capacity of the Company concerned is to be re-determined which in the present was also done as it had made change in the installation capacity. It is stated that the petitioner had been informed that the total annual production capacity would be determined on 7 MTs of the installed capacity and that the Company would be at liberty to claim abatement from the concerned authority later on for closure of one or other furnace under the rules. It is thus stated that the re-determination of the annual production capacity by the respondent No.3 of the petitioner Company as 22,400 MT has been done in accordance with the rules governing the subject. 10. I have heard learned counsel for the parties and perused the record. 11. The contentions raised by the petitioner are summarized as under:- a/ That Section 3A of the Act which empowers the Central Government and its authorities to levy central excise duty in the manner as it has been done in the case of the petitioner's-unit, is constitutional, arbitrary and ultravires of Articles 265 and 300 A of the Constitution of India read with Entry 84 of List I of 7th Schedule. In essence it is averred that the provisions of the said Section which seeks to impose excise duty on assumed production and not on actual production is ultavires of Constitution; b/ That Rule 96ZO(3) of the Rules of 1997 is also liable to be struck down being ultravires of the Constitution; c/ That the petitioner-Unit has been sanctioned the electricity connection to the extent of 2MW, and with such a power supply only one of two furnaces can be made functional and, as such, the stand of the respondents that both the furnaces were being operated upon simultaneously, is not based on facts and only a presumption has been drawn in this regard by the authorities concerned and both the furnaces of 7MTs were being operated; d/ Since both the furnaces were not being run simultaneously, as such, the duty was chargeable only on the production capacity of one furnace as and when this was run for the manufacture of goods; e/ That while invoking the provisions of Rules of 1997, the respondents over-looked the fact that there was no increase in the production capacity as it was not a case of increase of capacity from 3 MT to 4MT but only a replacement of old furnace by a new one. 12. On the other hand, as noticed above, the stand of the respondents is: a/ that the excise duty is chargeable on the steel ingots/billets manufactured by the petitioner in terms of Rule 96ZO(3) of the Rules of 1944; b/ that in terms of the provisions of Section 3 of the Act of 1944 read with notification No.30/97-CE(NT) dt. 1st of Aug'97, the items manufactured by the petitioner-unit were brought under the compound levy scheme calling the petitioner to pay duty in respect of its production capacity which was determined as 9600 MT taking into consideration the installation of furnace of 3MT capacity vide order dt. 1st of Aug'97, the items manufactured by the petitioner-unit were brought under the compound levy scheme calling the petitioner to pay duty in respect of its production capacity which was determined as 9600 MT taking into consideration the installation of furnace of 3MT capacity vide order dt. 4th of Aug'97; c/ that the annual production capacity was assessed initially as 9600 MT keeping in view the 3MT furnace installed by the petitioner Unit and this was done in terms of Rule 3(4) of the Induction Furnace Annual Capacity Determination Rules, 1997, and thus, the plea of the petitioner that the duty imposed is ultravires of the Constitution is not correct; d/ that Section 3A of the Act of 1944, empowers the authority concerned to charge excise duty on the basis of production capacity in respect of the notified goods. The petitioner having exercised its option to pay the duty in terms of Rule 96ZO(3) referred to above, cannot take a stand that the said provision is ultravires of the Constitution; e/ that later on, the petitioner having erected another furnace of 4MT capacity is liable to pay the duty on the basis of the re-determined annual production capacity of both the furnaces which has been assessed as 22,400 MT by the authority concerned; f/ that it was not a case of erecting a new furnace by dismantling the existing 3MT furnace by the petitioner but it is the admitted position that the petitioner has been using the existing 3MT furnace as a stand-by. As such, the annual production capacity has been rightly determined on the basis of 7MT furnaces. 13. Regarding the first contention raised by the petitioner that the action taken by the respondents in terms of the provisions referred to above, is ultravires of the Constitution has not been vehemently pressed into service by the learned counsel for the petitioner. The contention of the petitioner that entry 84 of List I VII Schedule relates to imposition of excise duty on goods manufactured or produced except those as mentioned in the said list which is an event of taxation in terms of Section 3 of the Act of 1944, but the same cannot be applied to the State of Jammu and Kashmir. This issue is no longer res-integra in view of the judgment passed by a Division Bench of this court reported in 1988 JKLR 985 , M/s J&K Cigarettes Co. Ltd & Anr v. Union of India and ors. What has been observed in this regard, may be noticed as under:- "For the purpose of the instant case, power to legislate on the subject under discussion vested in the Union Parliament and is contained in Entry 84 of List-I (Union List of Schedule 7 and reads: "Duties of excise on tobacco and other goods manufactured or produced in India except:- (a). (b)." This entry was applied to the State and it is by virtue of the said entry that the Union Parliament acquired the competence to legislate in respect of the matters contained therein. The 1954 Act was enacted by the Parliament, inter alia, to cover matters covered by this entry and, therefore, had the constitutional sanction. It is fallacious to contend that since Entry 84 of the Union List, was beyond the scope of Instrument of Accession, no law could be enacted by the Parliament in respect of the State of Jammu and Kashmir by virtue of that entry. The argument ignores the obvious and shuts its eyes to the provisions of Article 370 of the Constitution. It is equally misconceived to urge that since the Constituent Assembly was was admittedly in session in 1954 did not give its concurrence to the promulgation of the Taxation Laws Act of 1954, that Act had no validity. The distinction sought to be made by Mr Bhagotra on the pre and the post constitutional law to urge that since the Income-tax Act was post constitution it could not be applied but the 1944 Act being pre-constitution could not be applied is misconceived and a result of misreading of Article 395 and 372 of the Constitution of India as applicable to this State." 14. The other contention raised by the petitioner is that the annual production capacity was determined as 9600 MT for one furnace of 3MT capacity and the furnace of 4MT capacity was erected as a substitute to the earlier furnace and both the furnaces were not being run simultaneously. When 3 MT furnace was operating, 4 MT furnace was being closed and vice-versa. When 3 MT furnace was operating, 4 MT furnace was being closed and vice-versa. It is stated that when one furnace of 3MT was being run the other was being sealed and as such, the production capacity was to be assessed on the basis of one furnace only as both the furnaces were not being run simultaneously. In this regard, it has been urged that in terms of Rule 4 of Induction Furnace Annual Capacity Determination Rules, 1997, the capacity of production for any part of the year or for any change in the total furnace capacity has to be calculated on pro-rata basis of annual production capacity and the annual production cannot be determined on the basis of the furnaces since both of them were not being run simultaneously. 15. The import of the above argument raised is that since there was no enhanced capacity of the furnaces as one furnace was being sealed when other was in operation and vice-versa, the assessment made regarding capacity of production by the respondents is not correct. It be seen that as per Rule 3 of the aforementioned Rules, the Commissioner of the Central Excise is to determine the total capacity of furnaces installed in the factory as also the annual capacity of production. Since there were two furnaces installed in the petitioner's unit and it is the admitted case of the parties that earlier erected furnace of 3MT capacity was not dismantled after the erection of second furnace of 4MT, and was being used as a stand-by, the annual production capacity has been rightly determined by the authority concerned by taking into consideration the total capacity of furnaces installed in the petitioner's unit. The provisions of Rule 4 of the Rules, referred to above, cannot be applied in the present case as it applies in circumstances of change in the total furnace capacity. In the present case, there is no change in the total furnace capacity as both the furnaces erected by the petitioner were being run by it. The issue regarding sealing or unsealing of the furnaces is only for the purposes of claiming abatement from duty and not for the purposes of determining the annual capacity of production. In the present case, there is no change in the total furnace capacity as both the furnaces erected by the petitioner were being run by it. The issue regarding sealing or unsealing of the furnaces is only for the purposes of claiming abatement from duty and not for the purposes of determining the annual capacity of production. Reliance placed in this behalf on proviso to Section 3A which provides for calculation of annual production on proportionate basis is subject to fulfillment of the condition that a written approval has to be obtained from the authority concerned before making such a change, which in the present case has not been done. 16. The argument raised by the learned counsel for the petitioner that before operating one furnace, the other was being sealed would be of no use to the petitioner as it is not relevant for the purpose of determining the annual capacity of production but for the purpose of claiming abatement. This contention, as such, is also not acceptable. 17. The contention of the petitioner that provisions of Section 3A of the Act of 1997, and rule 96ZO(3) of the Rules of 1944, are ultravires of the Constitution cannot be accepted in view of the law laid down by the Apex Court in the case reported as (2000)4 SCC 206 , Commissioner of Central Excise & Customs v. Venus Castings (P) Ltd. What has been observed in this regard in paras 8 and 11 of the aforementioned judgment be noticed as under:- "8. Section 3A of the Act enables the Central Government to charge excise duty on the basis of capacity of production in respect of notified goods. This clause came to be inserted in the Act by the Finance Act, 1997. The intention (sic reason) to introduce this provision appears to be that in certain sectors, like induction furnaces, steel re-rolled mills, etc. evasion of excise duty on goods is substantial and the production is not disclosed accurately and collection of excise duty on the basis of their production capacity is thought of as appropriate. Under the scheme evolved in this provision the annual production capacity of mills and furnaces is determined by the Commissioner of Central Excise in terms of the rules to be framed under Section 3-A(2) of the Act by the Central Government. Thereafter, the assessee would be liable to pay duty based on such determination. Under the scheme evolved in this provision the annual production capacity of mills and furnaces is determined by the Commissioner of Central Excise in terms of the rules to be framed under Section 3-A(2) of the Act by the Central Government. Thereafter, the assessee would be liable to pay duty based on such determination. If the annual production capacity determined by the Commissioner is disputed by the assessee, the Commissioner is required to redetermine the same as provided in Section 3.A(4). 11. The learned counsel for the respondent contended that Rule 96-ZO(3) is contrary to Section 3A(4) of the Act and therefore, should be held to be ultra vires or the relevant rules should be read in such a manner so as to allow the procedure prescribed under the provisions of Section 3A(4) to be followed. Section 3A of the Act provides for levy and collection of the tax arising under the Act in such manner and at such rate as may be prescribed by the Rules. Section 3A provides a special procedure in respect of the power of the Central Government to charge excise duty on the basis of capacity of production in respect of notified goods. If such interpretation is not accepted, it is contended, that the levy of tax is in the nature of a licence fee and not on the production of goods at all. Schemes of composition are available in several other enactments including the Sales Tax Act and the Entertainment Tax (See State of Kerala v. Builders Assn. of India.) In this context, the learned counsel for the respondents referred to several decisions. However, in our opinion, all these decisions either arising under the Income Tax Act in relation to special mode of collection of tax or excise duty on timber dealers or other enactments have no relevance. What can be seen is that the charge under the section is clearly on production of goods but the measure of tax is dependent on either actual production of goods or on some other basis. The incidence of tax is, therefore, on the production of goods. It cannot be said that collection of tax based on annual furnace capacity is not relatable to the production of goods and does not carry the purpose of the Act. The incidence of tax is, therefore, on the production of goods. It cannot be said that collection of tax based on annual furnace capacity is not relatable to the production of goods and does not carry the purpose of the Act. In holding a relevant rule to be ultra vires, it becomes necessary to take into consideration the purpose of the enactment as a whole, starting from the preamble to the last provision thereto. If the entire enactment 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.." 18. In (2001) 9 SCC 645 , Union of India and others v. Supreme Steels and General Mills and others, taking a similar view, the Apex Court observed that the provisions of Rule 96ZO(3) are not ultra vires of the Act. 19. In view of the above legal position settled by the Apex Court, the plea of the petitioner that the provisions of Rule 96ZO(3) of the Rules of 1944 and that of Section 3(A) of the Act of 1944, are ultra vires of the Constitution, cannot be accepted. 20. For the reasons mentioned above, this petition is found to be without merit and is dismissed.