2017 (3) TMI 1357 - SC - Central Excise

Interpretation of statute - Evasion of duty - Determination of annual capacity - Held that - Section 3A(2) only embodies a rule of evide The presumption created under Rule 5 is similar to the one contained in illustration (d) (Illustration (d) That a thing or state of things which has been shown to be in existence within a period shorter than that within which such things or state of things usually cease to exist is still in existence) to Section 114 of the Evidence Act. nce which command the department to presume certain facts. Such presumptions are not unknown to law - Whereas presumptions are rules of evidence for determining the existence or otherwise of certain facts in issue in a litigation. Whether an assessee who chooses once to pay duty in terms of Rule 96ZP(3) can be compelled to pay duty calculated in accordance with the said rule for all times to come without any regard to the actual production? - Held that - The only similarity between Rules 96ZO(3) and 96ZP(3) is that both the Rules seek to eliminate the benefit of the procedure under Section 3A(4) of THE ACT in cases of those assessees who choose to opt for levy and collection of excise duty in accordance with the sub-rules (3) which are exceptions to the general Rules of levy and collection of duties provided under Rules 96ZO and 96ZP. Appeal allowed - decided in favor of petitioner.

Issues Involved:
1. Whether Rule 5 of the Hot Re-Rolling Steel Mills Annual Capacity Determination Rules, 1997 is ultra vires Section 3A of the Central Excise & Salt Act, 1944.
2. Whether Rule 5 violates Article 14 of the Constitution of India by creating two irrational classes of manufacturers.
3. The implications of Rule 96ZP(3) of the Central Excise Rules, 1944 on the right to rebut the presumption regarding annual production under Section 3A(4).

Issue-wise Detailed Analysis:

1. Ultra Vires Argument:
The appellants contended that Rule 5, which deems the annual capacity of production (ACP) to be equal to the actual production of the mill during the financial year 1996-97 if the ACP determined by the formula is less, is ultra vires Section 3A of the Central Excise & Salt Act, 1944. They argued that Section 3A(2) itself creates a fiction for determining ACP, and thus, the subordinate legislation (Rule 5) cannot create another fiction. The appellants relied on the case of Agricultural Market Committee v. Shalimar Chemical Works Ltd., which held that a legal fiction could only be created by the legislature, not by a delegate.

2. Article 14 Violation:
The appellants argued that Rule 5 violates Article 14 of the Constitution by creating two irrational classes of manufacturers: those whose ACP is more than their actual production in the financial year 1996-97 and those whose ACP is less. They claimed that this imposes an irrational tax burden on the latter class, making the rule arbitrary and discriminatory.

3. Rule 96ZP(3) and Section 3A(4):
The court examined whether Rule 96ZP(3) of the Central Excise Rules, 1944, which allows manufacturers to pay duty in 12 equal monthly installments at a concessional rate, restricts the right under Section 3A(4) to rebut the presumption regarding annual production. The court noted that Rule 96ZP(3) denies the benefit of Section 3A(4) to those who opt for the concessional rate, which could lead to unconstitutional tax collection if the actual production is less than the ACP.

Court’s Analysis and Conclusion:

1. Ultra Vires Argument:
The court held that Rule 5 does not create a legal fiction but rather embodies a rule of evidence. It noted that Section 3A(2) and Rule 5 use the term "deemed" to establish a presumption rather than a fiction. The court distinguished between legal fictions and presumptions, concluding that Section 3A(2) and Rule 5 embody presumptions (rules of evidence) that can be rebutted, rather than creating irrebuttable legal fictions. Therefore, Rule 5 is intra vires Section 3A of the Act.

2. Article 14 Violation:
The court did not find Rule 5 to be violative of Article 14. It reasoned that the rule is a measure to prevent tax evasion by ensuring that the ACP reflects actual production capabilities, thus safeguarding revenue interests. The classification was deemed reasonable and not arbitrary.

3. Rule 96ZP(3) and Section 3A(4):
The court acknowledged that Rule 96ZP(3) creates a sub-class of manufacturers who are denied the right to rebut the presumption of ACP under Section 3A(4) if they opt for the concessional rate. The court found this to be problematic, as it could lead to the collection of taxes without a taxable event if the actual production is significantly lower than the ACP. The court emphasized that manufacturers should have the option to switch back to paying duty based on actual production if their production falls below the ACP.

Referral to Larger Bench:
Given the complexities and the potential conflict with previous judgments (Venus Castings and Supreme Steels), the court referred the matter to a larger bench for a definitive resolution on the issues, particularly the vires of Rule 96ZP(3) and its implications on the right to rebut under Section 3A(4).

Conclusion:
The court concluded that Rule 5 is intra vires Section 3A and does not violate Article 14. However, it raised concerns about Rule 96ZP(3) and its impact on the right to rebut the presumption of ACP, referring the matter to a larger bench for further examination.

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