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Issues Involved
1. Validity of demands issued under Rule 10A of the Central Excise Rules, 1944. 2. Whether demands could be sustained under Rule 9(2) of the Central Excise Rules, 1944. 3. Applicability of Rule 9(2) in cases without clandestine removal. 4. Ultra vires nature of Rule 9(2) similar to Rule 10A. 5. Violation of Articles 14 and 19 of the Constitution by Rule 9(2). Detailed Analysis 1. Validity of Demands Issued Under Rule 10A of the Central Excise Rules, 1944 The petitioners contended that Rule 10A is ultra vires the Act as there is no specific rule-making power conferred under Section 37 of the Act for recovery of excise duty which has escaped levy at the time of clearance. They relied on the decision of the Bench in W.P. Nos. 1053 of 1968 [1973 (1) MLJ 99], which held that Rule 12 of the Medicinal and Toilet Preparations (Excise Duties) Rules, 1955, similar to Rule 10A, was invalid and without jurisdiction. The Court observed that the main enactment being silent on the question of levy of duty on escaped turnover, the Rules cannot provide for it. The learned Standing Counsel for the Central Government conceded that the ratio of that decision applies to Rule 10A, rendering the demands under Rule 10A unsustainable. 2. Whether Demands Could Be Sustained Under Rule 9(2) of the Central Excise Rules, 1944 The Central Government's counsel argued that even if the demands under Rule 10A are unsustainable, they could be sustained under Rule 9(2), which applies when goods are cleared without payment of duty. The Supreme Court in J.K. Steel Ltd. v. Union of India (AIR SC 1173) and N.B. Sanjana v. E. S. and W. Mills (AIR 1971 SC 2039) held that if the exercise of power can be traced to a legitimate source, the fact that it was purported to have been exercised under a different power does not vitiate the exercise of power. 3. Applicability of Rule 9(2) in Cases Without Clandestine Removal The petitioners' counsel contended that Rule 9(2) is a penal provision applicable only in cases of clandestine removal of goods without the knowledge of excise authorities. They cited N.B. Sanjana v. E. S. and W. Mills (AIR 1971 S.C. 2039), where the Supreme Court held that Rule 9(2) applies only when goods are removed clandestinely and without assessment. The Court agreed, noting that Rule 9(2) presupposes the existence of a specified procedure for payment of duty and clearance of goods. Since the authorities had not specified such procedures for the petitioners, Rule 9(2) could not be invoked. 4. Ultra Vires Nature of Rule 9(2) Similar to Rule 10A Given the finding that Rule 9(2) could not be invoked, the Court did not need to address the petitioners' contention that Rule 9(2) suffers from the same infirmities as Rule 10A and is therefore ultra vires. 5. Violation of Articles 14 and 19 of the Constitution by Rule 9(2) Similarly, the Court did not address the petitioners' argument that Rule 9(2) violates Articles 14 and 19 of the Constitution, as the demands were quashed on other grounds. Conclusion The Court quashed the demands in question, finding that Rule 9(2) could not be invoked in the absence of specified procedures for the payment of duty and clearance of goods. The writ petitions were allowed, and the demands were quashed without any order as to costs.
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