2011 (7) TMI 1028 - HC - Central Excise

Validity of notification by which annual capacity determination rules - Whether rules ultra vires Section 3A of the Central Excise Act - Held that - where for a period of seven days or more nothing can be produced or manufactured, then, prorate reduction would be available under Sub-section(3) of Section3A and in case, the manufacturer/producer manufactures/produces something less than the annual production capacity (as determined under Sub-section(2) of Section3A), then, he can always approach the Commissioner, convince him that his annual capacity though is much, but, he has produced some quantity less than his annual capacity and as such case, he is entitled to refund. If the section takes care of the rights of the producer/manufacturer by providing that on less production/manufacture, he would be entitled to refund and the Supreme Court says that Section3A is relatable to the production and not the capacity only, then, it would not be proper to say that Section3A is ultra vires the Constitution. We would agree with the learned Counsel that excise can be levied on the production and/or manufacture and not otherwise, but, Section3A cannot be held to be ultra vires the Constitution or the Central Excise Act itself, simply because it provides levy of excise on the annual production capacity, specially when it gives a right to the manufacturer/producer to claim refund on less production - Following decision of Messers Gopal Iron & Steel, Co. (Gujarat) Ltd. & anr. 2006 (7) TMI 644 - GUJARAT HIGH COURT - Decided in favour of Revenue.

Summary

Issues:
Challenge to tribunal's judgment on annual capacity determination rules under Central Excise Act.

Analysis:
The Revenue challenged the tribunal's judgment which allowed the appeal of the respondent assessee based on the decision of the Madras High Court regarding the annual capacity determination rules framed under the Central Excise Act. The tribunal held the notification framing the rules as ultra vires Section 3A of the Act. Consequently, the tribunal set aside the Commissioner(Appeals)'s order and remanded the proceedings for fresh orders after providing a reasonable opportunity of hearing to the appellants.

The appeal was initially dismissed by the Court, but the Revenue appealed against this dismissal. The Supreme Court later admitted the Tax Appeal, framing the question of law as to whether the rule in question was ultra vires Section 3A of the Central Excise Act. However, the Court felt that the question needed reframing to capture the full controversy, leading to a new question regarding the correctness of CEGAT's decision in light of the Madras High Court judgment.

The appellant's counsel argued that the tribunal erred in following the Madras High Court decision, which declared the rules as ultra vires, specifically Rule 3. The counsel highlighted that the rules changed the basis of valuation for central excise from clearance value to annual production capacity, leading to charges against the assessee. The counsel also referenced a Division Bench judgment upholding the validity of the rules, emphasizing the provision for refund in cases of production below the determined annual capacity.

Based on the above arguments and the Division Bench judgment, the Court concluded that the tribunal's decision could not be sustained. Therefore, the tribunal's judgment was set aside, and the orders of the adjudicating authority and appellate commissioner were restored in favor of the Revenue. The Tax Appeal was disposed of accordingly, answering the question in favor of the Revenue.