2006 (5) TMI 95 - HC - Central Excise

Summary

Issues Involved:
1. Constitutionality of Section 3A of the Central Excise Act, 1944.
2. Validity of Rules and Notifications issued under Section 3A.
3. Legality of the order dated 6-5-2005 passed by the Commissioner, Central Excise.
4. Entitlement to pay excise duty based on actual production versus capacity-based levy.
5. Discrimination and denial of Modvat credit.
6. Abatement claims for periods of closure.

Issue-wise Detailed Analysis:

1. Constitutionality of Section 3A of the Central Excise Act, 1944:
The petitioner challenged the constitutionality of Section 3A on the grounds that it imposed a direct tax and was discriminatory. The court referred to precedents, particularly the case of Venus Castings (P) Ltd., where it was held that the duty under Section 3A was on the production of goods and that the measure of tax could be based on actual production or another basis. The court concluded that the collection of tax based on annual furnace capacity was related to the production of goods and upheld the constitutionality of Section 3A.

2. Validity of Rules and Notifications issued under Section 3A:
The petitioner argued that the rules and notifications issued under Section 3A were ultra vires the Constitution. The court cited the case of Sathavahana Steels & Alloys (P) Ltd., which upheld the validity of Rule 96ZO(3), stating that it was framed for the facility of the assessees and was optional. The court also referenced Union of India v. Supreme Steels and General Mills, which reinforced that the procedures under Rule 96ZO(3) and Section 3A(4) were alternative options, and an assessee opting for one could not claim the benefits of the other. The court upheld the validity of the rules and notifications under Section 3A.

3. Legality of the order dated 6-5-2005 passed by the Commissioner, Central Excise:
The petitioner sought to quash the order dated 6-5-2005. However, the court noted that the issue was pending before the Tribunal and refrained from addressing the legality of the order.

4. Entitlement to pay excise duty based on actual production versus capacity-based levy:
The petitioner contended that they were denied the opportunity to pay duty based on actual production. The court referred to the decision in Venus Castings (P) Ltd., which stated that manufacturers who opted for the procedure under Rule 96ZO(3) could not claim the benefit of actual production determination under Section 3A(4). The court held that the petitioner, having opted for the lump-sum payment scheme, could not later seek determination based on actual production.

5. Discrimination and denial of Modvat credit:
The petitioner argued that the levy was discriminatory as it denied Modvat credit and distinguished between factories with single and multiple furnaces. The court found no merit in this argument, citing Venus Castings (P) Ltd., which held that the optional nature of Rule 96ZO(3) meant that assessees could not claim benefits selectively. The court ruled that there was no arbitrariness or discrimination in the levy.

6. Abatement claims for periods of closure:
The petitioner pointed out that abatement claims were denied for periods when one furnace remained closed. The court, referencing Sathavahana Steels & Alloys (P) Ltd., held that once an assessee opted for the lump-sum payment under Rule 96ZO(3), they forfeited the right to claim abatement or redetermination of capacity. The court upheld the validity of this provision, stating that the petitioner could not selectively avail benefits.

Conclusion:
The court upheld the constitutionality of Section 3A of the Central Excise Act, 1944, and the validity of the rules and notifications issued thereunder. It ruled that the petitioner, having opted for the lump-sum payment scheme under Rule 96ZO(3), could not later seek determination based on actual production or claim abatement for periods of closure. The writ petition was disposed of accordingly, with the court not opining on other claims pending before the Tribunal.