2006 (8) TMI 118 - HC - Central Excise

At the time when the proceedings were originally initiated, the dept. as well as the assessee both were under the impression that cutting of marble blocks into marble slabs and tiles amounted to the mfg. activity during the period in question SC declared impugned levy as ultra vires & unauthorized by law - Hence levy and collection of penalty, which is only incidental to substantive levy, cannot be sustained - amount already recovered from the assessee will be subject to refund u/s 11B

Summary

Issues:
Challenge to order levying duty on marble slabs, interpretation of manufacturing activity under Central Excise Act, applicability of Supreme Court judgment on marble blocks, refund of duty paid, preclusion from raising issue, authority of law for tax collection, maintainability of petition, unauthorized levy of duty and penalty, retrospective effect of Finance Act 2006.

Interpretation of Manufacturing Activity:
The judgment challenged the order imposing duty on marble slabs, alleging their removal without payment of excise duty. Initially, both parties believed cutting marble blocks into slabs constituted manufacturing, contesting only the penalty levy. Following the Supreme Court's ruling in another case, it was established that cutting marble blocks into slabs did not amount to manufacturing under the Central Excise Act, rendering the duty levy unauthorized and void.

Effect of Supreme Court Judgment:
The Supreme Court's decision clarified that cutting marble blocks into slabs did not constitute manufacturing for excise duty purposes. Upon discovering this mistake, the petitioner filed a writ petition challenging the duty imposition as beyond the Act's scope. The judgment emphasized that both parties were under the same mistaken belief regarding the manufacturing activity, and the law crystallized post the Supreme Court's ruling, allowing the petitioner to seek relief without delay.

Preclusion and Maintainability of Petition:
The revenue argued that the petitioner, having admitted liability during assessment, was precluded from contesting the duty levy. However, the court rejected this contention, stating there can be no estoppel against the state. The petitioner's timely approach post the Supreme Court's decision was deemed justifiable, especially since both parties were laboring under the same mistake until then.

Unauthorized Levy of Duty and Penalty:
The court held that the duty and penalty imposition on cutting marble blocks into slabs was unauthorized and void under the law. As the levy itself was ultra vires, any penalty imposed could not be sustained. The judgment emphasized that the petitioner challenged the duty and penalty orders, not merely seeking a refund based on the Supreme Court's later judgment.

Retrospective Effect of Finance Act 2006:
While the Finance Act 2006 included cutting stones into slabs in the manufacturing activity, it did not apply retrospectively to the petitioner's case. Consequently, the duty and penalty orders were quashed, and recovery of outstanding sums was restrained. Any amount already recovered was subject to refund under Section 11-B of the Act.

This detailed analysis of the judgment covers the issues involved comprehensively, highlighting the key legal interpretations and implications of the court's decision.