2012 (9) TMI 108 - HC - Central Excise

Whether Rule 12CC of the C.E. Rules 2002 Rule 12AA of the C.C. Rules 2004 and Notification No. 32/2006-C.E. (N.T.) dated 30-12-2006 are ultra vires the provisions of the Central Excise Act 1944 and the Constitution of India Held that - Central Government has made the Rules 12CC of the C.E. Rules 2002 and Rule 12AA of the C.C. Rules 2004 in the year 2006 without any authority of law which power was vested in the Central Government in the year 2010 by inserting clause (xiiia) in sub-section (2) of Section 37 and therefore the two Rules are ultra vires the Central Excise Act 1944 - Consequently Notification No. 32/2006-C.E. (N.T.) dated 30-12-2006 issued in pursuance of Rule 12CC of the C.E. Rules 2002 and Rule 12AA of the C.C. Rules 2004 is not sustainable in law - writ petition is allowed

Summary

Issues Involved:
1. Whether Rule 12CC of the C.E. Rules, 2002, Rule 12AA of the C.C. Rules, 2004, and Notification No. 32/2006-C.E. (N.T.), dated 30-12-2006 are ultra vires the provisions of the Central Excise Act, 1944 and the Constitution of India?
2. Whether the impugned order No. 38/2010-M(CX)/DA dated 21-7-2010 passed pursuant to the aforesaid notification is sustainable in law?

Issue-wise Detailed Analysis:

1. Ultra Vires of Rules and Notification:
The petitioner challenged the validity of Rule 12CC of the Central Excise Rules, 2002, Rule 12AA of the Cenvat Credit Rules, 2004, and Notification No. 32/2006-C.E. (N.T.), dated 30-12-2006, arguing that these were ultra vires the Central Excise Act, 1944 and the Constitution of India. The petitioner contended that the Central Government did not have the power to introduce these rules prior to the Finance Bill, 2010, which amended Section 37 of the Central Excise Act to provide for such rule-making power. The petitioner argued that any provision made under the rules in derogation to the provisions of the Act is bound to be struck down, citing the case of Laghu Udyog Bharati v. Union of India. The respondent countered that the rules were framed under the general rule-making power of Section 37(1) of the Act and that the amendment in 2010 merely clarified this power.

The court examined Section 37 of the Central Excise Act, which authorizes the Central Government to make rules to carry into effect the purposes of the Act. It noted that sub-section (2) of Section 37 is illustrative and not restrictive. However, the court found that the insertion of clause (xiiia) in sub-section (2) of Section 37 by the Finance Bill, 2010, which specifically provided for the withdrawal of facilities or imposition of restrictions, indicated that the legislature had not previously vested such power in the Central Government under sub-section (1) of Section 37. Therefore, the court concluded that the Central Government had made the rules in 2006 without any authority of law, and the power to do so was only vested in 2010. Consequently, the court held that Rule 12CC of the C.E. Rules, 2002, Rule 12AA of the C.C. Rules, 2004, and Notification No. 32/2006-C.E. (N.T.), dated 30-12-2006, were ultra vires the Central Excise Act, 1944.

2. Sustainability of the Impugned Order:
The petitioner also challenged the impugned order No. 38/2010-M(CX)/DA dated 21-7-2010, which imposed restrictions on the petitioner under the aforementioned rules and notification. The petitioner argued that the order was not sustainable in law as it was based on rules and a notification that were ultra vires. Furthermore, the petitioner contended that the order was too harsh, excessive, and punitive, affecting the working capital and substantive rights of the petitioner.

The respondent argued that the restrictions were temporary and aimed at acting as a deterrent against tax evaders. The respondent also contended that the operational period of the restriction had already expired, and thus, the substantive statutory right of the petitioner was not permanently affected.

The court, having already determined that the rules and notification were ultra vires, concluded that the impugned order passed pursuant to these invalid rules and notification was not sustainable in law. Therefore, the court quashed the impugned order No. 38/2010-M(CX)/DA dated 21-7-2010.

Conclusion:
The court allowed the writ petition, declaring Rule 12CC of the C.E. Rules, 2002, Rule 12AA of the C.C. Rules, 2004, and Notification No. 32/2006-C.E. (N.T.), dated 30-12-2006, as ultra vires the Central Excise Act, 1944. Consequently, the impugned order No. 38/2010-M(CX)/DA dated 21-7-2010 was quashed. No order as to costs was made.