1989 (4) TMI 79 - SC - Central Excise

Whether Rule 10A of the Rules, as it stood at the relevant time, was valid or not? Held that - The validity of the delegated legislation is generally a question of vires, that is, whether or not the enabling power has been exceeded or otherwise wrongfully exercised. Scrutinising the provisions of Rule 10A in the light of the above principles and pronouncements of this Court, we have no doubt that Rule 10A of the Rules, as it existed at the relevant time, was valid and not ultra vires the rule making power. Demand notices lawfully issued under the rule by the competent authority could not, therefore, be challenged on the ground of the Rule 10A itself being ultra vires. Whether those could be challenged on any other ground must necessarily depend on the facts and circumstances of the case. The High Court having proceeded on the basis that Rule 10A was not available to support the demand notice, we set aside the impugned order of the High Court, allow the appeal, and remand the case to the High Court for disposal in accordance with law.

Issues Involved:
1. Validity of Rule 10A of the Central Excise Rules.
2. Applicability of Rule 10A for the recovery of excise duty.
3. Whether the demand for payment of duty was time-barred.
4. Whether the Rules 10 and 10A were ultra vires the Act.

Issue-wise Detailed Analysis:

1. Validity of Rule 10A of the Central Excise Rules:
The appellant argued that Rule 10A of the Central Excise Rules, 1944, was valid and necessary for the collection of short-levied or escaped excise duties. The respondent contended that Rule 10A was ultra vires the Act and not covered by the rule-making powers of the Central Government. The Supreme Court examined the validity of Rule 10A, noting that it was a residuary provision meant to cover cases where no specific provision for the collection of duty existed. The Court referred to various precedents, including decisions from the Kerala High Court and Nagpur High Court, which upheld the validity of Rule 10A. The Supreme Court concluded that Rule 10A was within the rule-making power conferred by Section 37 of the Act and thus, valid.

2. Applicability of Rule 10A for the Recovery of Excise Duty:
The respondent firm had resumed manufacturing steel after a lease period and was subsequently demanded to pay excise duty under Rule 10A. The High Court had previously quashed this demand, holding that Rule 10A did not apply where there had been no prior levy of excise duty. The Supreme Court clarified that Rule 10A applied to cases where there was no specific provision for the collection of duty or deficiency in duty, making it a residuary rule. The Court emphasized that Rule 10A could be invoked when there was no other specific provision in the Rules for the collection of the duty in question.

3. Whether the Demand for Payment of Duty was Time-Barred:
The respondent firm argued that the demand for payment of duty was time-barred. The Supreme Court did not delve deeply into this issue in the judgment, focusing instead on the validity and applicability of Rule 10A. The Court remanded the case to the High Court for disposal in accordance with the law, leaving this question open for further examination based on the specific facts and circumstances of the case.

4. Whether the Rules 10 and 10A were Ultra Vires the Act:
The respondent firm contended that Rules 10 and 10A were ultra vires the Act as there was no provision in the Act enabling the Government to frame rules for the recovery of duty short-levied. The Supreme Court analyzed the rule-making power under Section 37 of the Act, which allowed the Central Government to make rules to carry into effect the purposes of the Act. The Court noted that Section 3 of the Act provided for the levy and collection of duties of excise and that Rule 10A was designed to cover cases not specifically provided for in the Rules. The Court concluded that Rule 10A was not ultra vires the Act and was validly enacted within the scope of the rule-making power.

Conclusion:
The Supreme Court set aside the impugned order of the High Court, which had held that Rule 10A was not available to support the demand notice. The Court allowed the appeal and remanded the case to the High Court for disposal in accordance with the law, leaving other questions open. The parties were directed to bear their own costs.

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