2017 (12) TMI 225 - HC - Central Excise

Valuation - Compounded Levy Scheme - section 3A of the Central Excise Act - annual production capacity - case of Revenue is that the petitioners had initially applied for being covered by annual production capacity regime and had availed all the notifications issued under the said scheme - Held that - Section 3A of the Central Excise Act introduced with effect from 16.12.1998 pertained to the power of Central Government to charge excise duty on the basis of capacity of production in respect of notified goods. Under subsection( 1) of section 3A, notwithstanding anything contained in section 3, the Central Government would have the power to notify certain goods to safeguard the interest of revenue on which duty would be leviable in accordance with the provisions of the said section - when the petitioners applied to the Commissioner on 24.4.1999 to enable them to pay the duty on actual production and not on ACP, prospectively, the Commissioner had to decide such applications and ordinarily, we see no reason why such applications had to be rejected. The Commissioner erred in not deciding such applications as well as in concluding that the petitioners and other manufactures did not have any such option. Order of the Commissioner therefore, must be set aside. The proceedings remanded to the Commissioner for considering such applications of the petitioners and thereafter, passing consequential orders - appeal allowed by way of remand.

Summary

Issues involved:
Petition challenging excise duty liabilities under compounded levy scheme. Commissioner confirming duty demand but dropping interest and penalty. Dispute over duty payment basis - annual production capacity vs. actual production. Petitioners' application for actual production duty not decided by Commissioner. Interpretation of section 3A of the Central Excise Act. Commissioner's error in confirming duty demand without deciding on actual production application.

Detailed Analysis:

1. The petitions involve a challenge to an order by the Commissioner of Central Excise confirming excise duty liabilities of a private company and its directors for various periods under a compounded levy scheme. The Commissioner's order dropped the proposal for interest and penalty on the duty amount.

2. The petitioners were engaged in manufacturing manmade fabrics and initially opted to pay duty based on annual production capacity under section 3A of the Central Excise Act. However, they later challenged the vires of section 3A and sought permission to pay duty on actual production basis. Despite applying for this change, the Commissioner did not decide on their application.

3. The crux of the issue lies in the interpretation of section 3A of the Central Excise Act, which allows manufacturers to apply for duty payment based on actual production instead of annual capacity. The petitioners argued that they should have been allowed to exercise this option, as confirmed by a Supreme Court decision in a similar case.

4. The Commissioner, however, maintained that the petitioners could not change their duty payment option midway, as they had initially applied for the annual production capacity regime and availed notifications under that scheme.

5. The Court analyzed section 3A, emphasizing the provision in subsection(4) allowing manufacturers to request duty payment based on actual production. The Court referred to a Supreme Court decision highlighting that the determination of annual capacity production is a one-time affair and manufacturers should have the option to pay duty based on actual production.

6. Ultimately, the Court found that the Commissioner erred in not deciding on the petitioners' application for actual production duty payment and in concluding that they did not have that option. The Court quashed the Commissioner's order, considering the significant time elapsed since the duty was paid based on actual production and the impracticality of revisiting the issue after more than 15 years.

7. The Court decided to set aside the impugned orders, noting the impossibility of reverting to the past duty payment basis and the absence of any indication that the duty was not paid at the relevant time. The Court disposed of the petitions and civil application accordingly.