1988 (3) TMI 64 - HC - Central Excise

Summary

Issues Involved:
1. Power of the Central Government under Rule 8(1) to enhance duty.
2. Applicability of Section 3 of the Tariff Act for increasing duty.
3. Change in the mode or basis of exemption.
4. Taxable event for excise duty: date of manufacture vs. date of removal.

Issue-Wise Detailed Analysis:

1. Power of the Central Government under Rule 8(1) to Enhance Duty:
The petitioners argued that under Rule 8(1) of the Central Excise Rules, the Central Government has the power to grant exemptions but not to enhance the duty, as purportedly done by Notification No. 254/87. The court observed that Rule 8(1) allows the Central Government to exempt excisable goods from the whole or any part of the duty. The impugned notification did not enhance the basic duty but altered the basis of exemption, which is permissible under Rule 8(1). The court concluded that the impugned notification is intra vires Rule 8(1) since it does not exceed the basic duty prescribed under Section 3(1) of the 1957 Act.

2. Applicability of Section 3 of the Tariff Act for Increasing Duty:
The petitioners contended that Section 3 of the Tariff Act confers emergency powers on the Central Government to increase the duty of excise, but the impugned notification was not issued under this provision. The court clarified that the impugned notification was issued under Rule 8(1) of the Rules, which allows the Central Government to grant exemptions and alter the basis of exemption. The court found no merit in the contention that the Central Government was not empowered to issue the impugned notification under Rule 8(1).

3. Change in the Mode or Basis of Exemption:
The petitioners argued that changing the mode or basis of exemption, which has the effect of increasing the duty, is not permissible under clause (xvii) of Section 37(2) of the 1944 Act and Rule 8(1). The court noted that Rule 8(3) allows the Central Government to change the basis of exemption, provided the duty does not exceed the basic duty. The impugned notification changed the basis of exemption from the price of the goods to the width and weight of the fabric, which is permissible under Rule 8(3). The court held that the change in the basis of exemption by the impugned notification is valid.

4. Taxable Event for Excise Duty: Date of Manufacture vs. Date of Removal:
The petitioners contended that the taxable event for excise duty is the date of manufacture and not the date of removal from the factory. They argued that goods manufactured before 25th November 1987 should be governed by the earlier Notification No. 60/87. The court referred to Rule 9A, which states that the rate of duty and tariff valuation applicable to any excisable goods shall be the rate and valuation in force on the date of actual removal of such goods from the factory or warehouse. The court held that the rate of duty is determined by the date of removal, not the date of manufacture. The court cited the case of Alembic Chemical Works v. Union of India, which held that the critical time for assessing duty is the date of actual removal of goods from the factory or warehouse. The court concluded that the goods in question are liable to duty under the impugned Notification No. 254/87.

Conclusion:
The court dismissed the petitions, holding that the impugned notification is valid and intra vires Rule 8(1) of the Rules. The court found no merit in the petitioners' contentions and upheld the revenue's demand for additional duty based on the impugned notification. The court vacated the interim order and granted the petitioners eight weeks to arrange for the payment of the difference in duty, failing which the revenue could recover the duty by enforcing the bank guarantees.