2000 (12) TMI 115 - HC - Central Excise

Issues Involved:
1. Validity of Rule 7A of the Central Excise Rules, 1944.
2. Whether Rule 7A is ultra vires Section 3(1) of the Central Excise Act, 1944.
3. Applicability of exemption notification for small-scale industrial units.

Detailed Analysis:

1. Validity of Rule 7A of the Central Excise Rules, 1944:

The appellants challenged the validity of Rule 7A, which provides for the recovery of excise duty on molasses produced by khandsari sugar factories from the procurers of such molasses. The contention was that this rule imposed a tax on purchasers rather than on manufacturers, which they argued was not contemplated by Entry 84 List I of the Seventh Schedule to the Constitution of India. The learned Single Judge dismissed this contention, holding that the excise duty collected under Rule 7A was indeed a duty on the manufacture of molasses, not a tax on purchases, and its collection from purchasers did not change its character as an excise duty.

2. Whether Rule 7A is ultra vires Section 3(1) of the Central Excise Act, 1944:

The appellants argued that Rule 7A was ultra vires Section 3(1) of the Act, asserting that excise duty, being a duty on production and manufacture, should only be levied on manufacturers or those directly connected with the manufacturing process. They contended that the rule effectively imposed a purchase tax, which was beyond the scope of the Central Government's powers under the Act. The court, however, found that Section 3(1) allows for the levy and collection of excise duties "in such manner as may be prescribed," and that the Central Government has the authority to frame rules for the collection of such duties. The court noted that excise duty can be collected from persons other than the manufacturer if it is administratively convenient and does not change the essential nature of the duty. The court cited several precedents, including decisions of the Privy Council and the Supreme Court, to support the view that the method of collection is a matter of administrative convenience and does not affect the essence of the duty.

3. Applicability of exemption notification for small-scale industrial units:

The appellants also sought to challenge the levy of excise duty on the grounds that they were entitled to exemption under a notification issued by the Central Government for small-scale industrial units. The learned Single Judge did not address this contention, suggesting it should be considered by the respondents at the appropriate stage. The appellants acknowledged that statutory appeals claiming similar relief were pending and opted not to pursue this issue in the present appeals. They reserved the right to challenge any adverse decisions in those appeals through appropriate proceedings.

Conclusion:

The court dismissed the appeals, upholding the validity of Rule 7A and finding it consistent with Section 3(1) of the Central Excise Act. The court affirmed that the Central Government's action in prescribing the method of collection of excise duty from procurers of molasses was within its powers and did not alter the nature of the duty. The court also noted that the appellants could pursue their claims for exemption through the pending statutory appeals. The Letters Patent Appeals were dismissed with no order as to costs.

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