2014 (5) TMI 680 - HC - Central Excise

Validity of Section 3 and 3A - Challenge to vires of Rule 9 of the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 - Held that - Section 3 and Section 3A are placed in Chapter III dealing with levy and collection of duty. Section 3 is about duties specified in the First & Second Schedule to the Central Excise Tariff Act, 1985 to be levied. Proviso to its sub-section 1 and its sub-section (1A) specifies that a duty of excise would be levied on all excisable goods which are produced or manufactured in India Section 3(1) itself permits mode & manner of levy as also collection to be decided by or through subordinate legislation when it states that There shall be levied & collected in such manner as may be prescribed . This Section 3A therefore severs the so called nexus of levy, which is essential according to petitioner, with quantity actually produced and subjects deemed annual production to levy. Even Rule 5 of 2008 Rules is about the quantity deemed to be produced. Recovery of duty in advance in this situation on deemed production in systematic manner does not offend & has no connection with Section 3. Legislature found it in public interest to subject notified goods to a different treatment & there is no challenge to this treatment or classification in S. 3-A. If any challenge to the legislative wisdom is possible & open, it is also not an issue presented before us. We are not called upon to consider validity of 2008 Rules in the light of S. 3A or then validity of S. 3A in any way, in above perspective under Central Excise Act, 1944. - Decided against assessee.

Summary

Issues: Challenge to vires of Rule 9 of the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 under Section 3 of the Central Excise Act, 1944.

In this judgment, the challenge is to the vires of Rule 9 of the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008, framed under Section 3A of the Central Excise Act, 1944. The petitioner argues that Rule 9, which prescribes the manner of payment of duty and interest, requires payment in advance even before goods are produced, contradicting the provisions of Section 3 which permits levy of excise only on goods actually manufactured or produced. The petitioner also challenges the consequential provision made by substituting the 7th proviso to Rule 9. On the other hand, the respondent argues that the 2008 Rules are in accordance with Section 3A, which permits charging excise duty based on the capacity of production of notified goods. The respondent contends that the rules are valid and not questioned under Section 3A.

The court examines Section 3 and Section 3A of the Central Excise Act, 1944. Section 3 deals with the levy and collection of duty on excisable goods produced or manufactured in India. The court notes that the impugned Rules are framed under Section 3A, added by an amending Act in 2008, which allows the Central Government to charge excise duty based on the capacity of production of notified goods. Section 3A overrides Section 3 and provides for the annual capacity of production to be deemed as the annual production of such goods by the factory, allowing the collection of duty as prescribed by the Rules. The court highlights the provisions for calculation of annual capacity on a proportionate basis and re-determination in case of alterations or modifications in production factors.

The court refers to a Supreme Court judgment which explains the purpose of Section 3A as safeguarding revenue interests in sectors prone to duty evasion. The court emphasizes that Section 3A aims to maintain a link between the levy and actual production or manufacture by deeming annual production for the purpose of levy. The court finds that the legislative intent behind Section 3A is to balance the need to determine annual capacity in advance while linking it to actual production. The court concludes that the 2008 Rules are framed to advance the object of Section 3A and are not inconsistent with it, dismissing the challenge to the substitution of the seventh proviso to Rule 9 in 2010.

In conclusion, the court finds no grounds for interference in the present case and dismisses the petition, ruling that the challenge to the vires of Rule 9 and the substitution of the seventh proviso to Rule 9 are unfounded. The court upholds the validity of the 2008 Rules framed under Section 3A of the Central Excise Act, 1944, and rules in favor of the respondent.