2006 (7) TMI 3 - AT - Central Excise

Summary

Issues Involved:
1. Determination of production capacity and excise duty liability.
2. Validity of proceedings under Rule 96Z0 post-omission of Section 3A.
3. Legality of interest and penalty provisions under Rule 96Z0.

Issue-wise Detailed Analysis:

1. Determination of production capacity and excise duty liability:
The assessee, a manufacturer of M.S. Ingots, opted for payment of duty based on their annual capacity of production under Rule 96Z0 and Section 3A of the Central Excise Act, 1944, for the years 1997-98, 1998-99, and 1999-2000. The Commissioner fixed the production capacity of the induction furnace at 11,200 M.T. per annum and required the assessee to pay excise duty accordingly. However, the assessee paid only part of the duty, resulting in a short payment of Rs. 1,38,58,739/- from March 1998 to March 2000. Consequently, four show cause notices were issued to recover the short-paid duty with interest and propose penalties.

2. Validity of proceedings under Rule 96Z0 post-omission of Section 3A:
The Tribunal found merit in the appellant's argument that pending proceedings under Rule 96Z0 could not continue after the omission of Section 3A by Section 121 of the Finance Act, 2001, without a saving clause. The Tribunal referenced the common law rule that an act, once repealed or omitted, is regarded as never having existed unless explicitly saved. The Tribunal cited several Supreme Court judgments, including Rayala Corporation (P) Ltd. Vs. Director of Enforcement, Kolhapur Canesugar Works Ltd. Vs. Union of India, and General Finance Co. Ltd. Vs. Asstt. CIT, which established that Section 6 of the General Clauses Act does not apply to omissions. The Tribunal concluded that the omission of Section 3A rendered Rule 96Z0 and related proceedings invalid, as the parent provision's obliteration nullified the subordinate legislation.

3. Legality of interest and penalty provisions under Rule 96Z0:
The Tribunal examined the interest and penalty provisions under Rule 96Z0 (3) and found them ultra vires the delegated powers conferred under the Central Excise Act, 1944. The Tribunal referenced the Constitutional Bench of the Supreme Court in VVS Sugars Vs. Govt. of AP, which held that interest on delayed tax payment must be substantively provided by the statute levying the tax. The Tribunal determined that Section 37 of the Central Excise Act, 1944, did not confer the necessary authority to impose interest and penalties as per Rule 96Z0 (3). The Tribunal also cited the Orissa High Court decision in Gaffar Kasam Vs. CST, Orissa, which held that unless expressly authorized, rule-making authorities cannot create penal liabilities. Consequently, the Tribunal struck down the interest and penalty provisions of Rule 96Z0 (3) as ultra vires.

Conclusion:
The Tribunal concluded that the omission of Section 3A invalidated the subordinate legislation under Rule 96Z0, rendering the proceedings and demands under this rule unsustainable. The Tribunal set aside the impugned order and allowed the appeal, following the precedents set in Mitra Steel & Alloys Pvt. Ltd. and Kundil Alloys Pvt. Ltd.