1997 (10) TMI 136 - HC - Central Excise

Issues Involved:
1. Validity and vires of Section 3A of the Central Excise Act, 1944.
2. Validity of Notifications Nos. 24/97, 30 to 34/97, 57/97, and 58/97.
3. Withdrawal of Modvat credit and its retrospective effect.
4. Discrimination and arbitrariness of the notifications.
5. Interim relief for petitioners.

Issue-wise Detailed Analysis:

1. Validity and vires of Section 3A of the Central Excise Act, 1944:
The petitioners challenged the constitutionality of Section 3A, arguing it was ultra vires the Constitution of India. The court noted that Entry No. 84 in the Seventh Schedule of the Constitution refers to duties on goods that are "manufactured and produced" and does not include "to be manufactured or to be produced." This interpretation suggests that Section 3A, which allows for excise duty based on the capacity of production rather than actual production, might be inconsistent with the Constitution. The court found that the petitioners had a prima facie case challenging the validity of Section 3A.

2. Validity of Notifications Nos. 24/97, 30 to 34/97, 57/97, and 58/97:
The petitioners argued that the notifications were arbitrary, discriminatory, and violated Article 14 of the Constitution. Specific grievances included the differential treatment of products produced by induction furnaces versus arc furnaces and the arbitrary criteria for duty calculation based on previous year's production or installed capacity. The court found these arguments substantial enough to warrant a stay on the operation of these notifications until the final hearing.

3. Withdrawal of Modvat credit and its retrospective effect:
The petitioners contended that the amended rule under Rule 57F(4A), which caused the lapse of Modvat credit, was retrospective and confiscatory. They argued that the credit already earned was a vested right and its retrospective withdrawal was beyond the government's rule-making powers under the Central Excise Act. The court noted that the credit earned under the Modvat scheme was intended to be always available for the payment of excise duty on final products, and its retrospective withdrawal was prima facie confiscatory and beyond the government's powers.

4. Discrimination and arbitrariness of the notifications:
The petitioners argued that the notifications were discriminatory and whimsical, as they applied to specific commodities and classes of goods without a rational basis. The court agreed that the notifications appeared arbitrary and irrational, especially in their differential treatment of products from induction and arc furnaces and the criteria for duty relief based on continuous shutdown periods. This prima facie arbitrariness warranted a stay on the notifications.

5. Interim relief for petitioners:
Given the prima facie case presented by the petitioners, the court granted interim relief by staying the operation of the rules relating to the lapsing of Modvat credit and the impugned notifications. The petitioners were allowed to utilize the Modvat credit already earned, subject to filing an undertaking to repay the excise duty with interest if the final judgment was against them. The court emphasized that this interim order was not a final opinion on the issues but was solely for granting interim relief.

Conclusion:
The court found that the petitioners had a strong prima facie case on multiple grounds, including the validity of Section 3A, the arbitrariness and discrimination of the notifications, and the retrospective withdrawal of Modvat credit. Consequently, it granted interim relief by staying the operation of the impugned rules and notifications and expedited the hearing for a final decision.

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