2003 (3) TMI 129 - HC - Central Excise

Summary

Issues Involved:
1. Constitutionality of Rule 5 of the Hot Re-rolling Steel Mills Annual Capacity Determination (Amendment) Rules, 1997.
2. Violation of Article 14 of the Constitution.
3. Consistency with Section 3A of the Central Excise Act, 1944.

Issue-wise Detailed Analysis:

1. Constitutionality of Rule 5 of the Hot Re-rolling Steel Mills Annual Capacity Determination (Amendment) Rules, 1997:

The petitioners challenged Rule 5 as ultra vires, unconstitutional, and contrary to Section 3A of the Central Excise Act. They argued that Rule 5 deviates from the mandatory formula prescribed in Rule 3 for determining the annual production capacity and introduces a deeming provision based on the financial year 1996-97, which is irrelevant and alters the basic concept of the Act. The respondents contended that Rule 5 is valid, within the statutory provisions, and not ultra vires. The court, referencing the Supreme Court's decision in Commissioner of Central Excise and Customs v. Venus Castings (P) Ltd., held that Rule 5 is constitutionally valid and does not run counter to Section 3A. The court emphasized that Section 3A allows the Central Government to charge excise duty based on production capacity, and Rule 5 is a statutory fiction within the Parliament's competence.

2. Violation of Article 14 of the Constitution:

The petitioners argued that Rule 5 creates discrimination among similarly placed steel mills, violating Article 14 by introducing unreasonable classification. The respondents countered that fiscal legislation allows for classification, and courts typically do not interfere if the classification is justified. The court cited the Supreme Court's decision in State of Maharashtra v. Madhukar Balkrishna Badia, which allows for wide discretion in classification for taxation purposes. The court found that Rule 5 does not violate Article 14, as it provides a specific rule for a particular industry and does not introduce discriminatory treatment.

3. Consistency with Section 3A of the Central Excise Act, 1944:

The petitioners contended that Rule 5 contradicts Section 3A, which prescribes excise duty based on annual production capacity, whereas Rule 5 bases it on the actual production during 1996-97. The court, referencing Supreme Court decisions, held that Section 3A enables excise duty based on production capacity, and Rule 5 aligns with this by addressing large-scale evasion in the steel re-rolling industry. The court concluded that Rule 5 does not run counter to Section 3A or any other provisions of the Act.

Conclusion:

The court dismissed all writ petitions, holding that Rule 5 is constitutionally valid, does not violate Article 14, and is consistent with Section 3A of the Central Excise Act. The court emphasized the legislative competence in enacting such rules and the necessity of addressing tax evasion in specific industries.