1988 (3) TMI 85 - HC - Central Excise

Summary

Issues Involved:

1. Power of the Central Government to enhance duty under Rule 8(1) of the Central Excise Rules, 1944.
2. Applicability of Section 3 of the Central Excises and Salt Act, 1944 for enhancing duty.
3. Legality of changing the mode or basis of exemption under Rule 8(1) and Section 37(2)(xvii) of the 1944 Act.
4. Determination of the taxable event for excise duty under Entry 84 of List I of the Seventh Schedule to the Constitution.

Issue-wise Detailed Analysis:

1. Power of the Central Government to Enhance Duty under Rule 8(1):

The petitioners contended that the Central Government has the power to grant exemptions from excise duty under Rule 8(1) but does not have the power to enhance the duty. The court noted that the impugned Notification No. 254/87 did not enhance the duty but altered the basis of exemption, which resulted in a slight increase in duty for certain goods. The court concluded that the Central Government, which has the power to exempt, can also vary the exemption as long as the duty does not exceed the basic duty prescribed under Section 3(1) of the 1957 Act. Therefore, the impugned notification was within the powers conferred by Rule 8(1).

2. Applicability of Section 3 of the Central Excises and Salt Act, 1944:

The petitioners argued that Section 3 of the Tariff Act confers emergency powers to increase the duty of excise, and since the impugned notification was not issued under this provision, the Central Government was not empowered to enhance the duty. The court found that the impugned notification did not enhance the basic duty but merely altered the exemption, which is permissible under Rule 8(1). The court held that the notification did not violate Section 3 of the Tariff Act.

3. Legality of Changing the Mode or Basis of Exemption:

The petitioners contended that changing the mode or basis of exemption, which has the effect of increasing the duty, is not permissible under Rule 8(1) and Section 37(2)(xvii) of the 1944 Act. The court referred to Rule 8(3), which allows the Central Government to grant exemptions by providing for the levy of duty at a rate expressed in a different form or method. The court concluded that the Central Government is entitled to change the basis of exemption as long as the duty does not exceed the basic duty. Therefore, the impugned notification was valid.

4. Determination of the Taxable Event:

The petitioners argued that the taxable event for excise duty is the date of manufacture, not the date of removal from the factory. The court analyzed the scheme of the 1944 Act and the rules, particularly Rule 9A, which provides that the rate of duty and tariff valuation applicable to 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 while the taxable event is the manufacture or production of excisable goods, the levy and collection of duty can be related to the date of removal. The court followed the precedent set in Alembic Chemical Works v. Union of India, which held that the rate of duty applicable is the one in force at the time of removal of the goods from the factory.

Conclusion:

The court dismissed the petitions, holding that the impugned notification was valid and within the powers conferred by Rule 8(1) of the Central Excise Rules, 1944. The court found no merit in the petitioners' contentions and upheld the validity of the notification, which altered the basis of exemption without exceeding the basic duty prescribed under Section 3(1) of the 1957 Act. The court vacated the interim order and granted the petitioners eight weeks to arrange for the payment of the difference in duty.