1995 (2) TMI 225 - HC - Central Excise

Issues Involved:
1. Whether the classification of goods and the structure of excise duty imposed by the taxing statutes are illegal and unconstitutional, being violative of Articles 14 and 19(1)(g) of the Constitution of India.
2. Whether the impugned notifications can apply to goods manufactured prior to their issuance.
3. The constitutionality and legality of Rule 9A of the Central Excise Rules, 1944.

Issue-wise Detailed Analysis:

1. Classification of Goods and Structure of Excise Duty:
The petitioners challenged the legality and validity of four notifications, contending they were discriminatory and violated Articles 14 and 19(1)(g) of the Constitution. They argued that the width of the fabric was not a rational criterion, the notifications did not consider the capacity to pay of the consumer, and flat rates treated unequals as equals. The court held that the impugned notifications were issued under statutory powers and that the criteria of fabric width and flat rates were rational and proper. The court emphasized that the State enjoys wide latitude in economic regulations and that the measures taken were within the statutory boundaries. The court found no evidence of arbitrariness or irrationality in the notifications, and thus they were not violative of Articles 14 and 19(1)(g).

2. Application of Notifications to Goods Manufactured Prior to Issuance:
The petitioners contended that the impugned notifications could not apply to goods manufactured before their issuance, arguing that Rule 9A was ultra vires and illegal. The court noted that the taxable event is the manufacture of goods, but the duty can be levied and collected at the time of removal from the factory or warehouse. The court referred to the Supreme Court's decision in Wallace Flour Mills Co. Ltd. v. Collector of Central Excise, which held that the duty is applicable at the rate prevailing on the date of removal. The court found Rule 9A to be consistent with the provisions of the Central Excise Act and the Additional Duty of Excise Act, and thus, the notifications could apply to goods manufactured before their issuance but removed afterward.

3. Constitutionality of Rule 9A:
The petitioners argued that Rule 9A was unconstitutional and beyond the scope of Section 3 of the Central Excise Act and Section 37(2)(xvii). The court held that Rule 9A, which determines the date of removal as the basis for the duty rate, is consistent with the charging provisions of the Central Excise Act and the Additional Duty of Excise Act. The court emphasized that the rule operates in a supplementary manner to Section 3 and is not inconsistent with the statutory provisions. The court also noted that the rule has been in practice since 1945 and has not been amended by Parliament, indicating its compatibility with legislative intent.

Conclusion:
The court dismissed the petitions, holding that the impugned notifications and Rule 9A were legal, valid, and not violative of Articles 14 and 19(1)(g) of the Constitution. The court found that the notifications were issued under proper statutory authority and that the criteria used were rational and within the State's discretion in economic regulation. The challenge to the application of the notifications to goods manufactured prior to their issuance was also rejected, as the duty is applicable at the rate prevailing on the date of removal. The constitutionality of Rule 9A was upheld, and the court found it consistent with the statutory provisions and legislative intent.

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