2017 (10) TMI 701 - HC - Central Excise

Validity of Section 3A of the Central Excise and Salts Act, 1944 - valuation on the basis of Capacity production - It appears that on account of peak hours load restriction of electricity due to paucity of power supply between 4/5 p.m. to 10 p.m. for industries, there was loss of production in the appellant s industry. The appellant, therefore, wanted to pay excise duty on actual production basis - Held that - Rule 96 ZO and Rule 96 ZP of the Central Excise Rules provide the procedure to be followed by the manufacturer to pay duty. It also enumerates the manner of calculating and making payment of total amount of duty for the period from 1st day of September, 1997 to 31st day of March, 1998 and thereafter, total amount of duty liability for financial year subsequent to 1997-98. The appellant vide letter dated 10.9.1997 opted to pay excise duty under these Rules on lump sum basis. And it is not in dispute that the total amount of duty liability for the period from 1st day of September,1997 to 31st day of March, 1998 was duly paid. It is to be noted that the actual production of any period can be determined only after that period is over. This position has been admitted in the additional affidavit-in-opposition filed by the Assistant Commissioner, Central Excise Department in WP(C) No.2020/99, wherein it is clearly stated that actual production for 1998-99 i.e. any period, can only be determined after that period is over i.e. on or before 1.4.1999. The Commissioner, Central Excise has also admitted this position in his letter dated 12.4.1999. And in respect to financial year 1998-99, the appellant vide letter dated 1.10.1998 opted only once to pay excise duty on actual production. Also from 1.4.98 to 30.9.98 the appellant did not pay duty under the scheme i.e. on lump sum basis. There is nothing on record to suggest that for that year, the appellant chose to pay excise duty on lump sum basis. There is admittedly no provision which prescribes any particular time for opting out from the scheme of paying excise duty on lump sum basis and to offer for making payment on actual production. Therefore, in our considered view, the Tribunal committed an illegality in holding that option exercised by the appellant vide application dated 1.10.1998 will be available for the year 1999-2000 and not for the year 1998-99 Interest - penalty - Held that - levying of interest under Rule 96 ZO and Rule 96 ZP of the Rules is not permissible because Section 3A of the Central Excise and Salts Act, 1944, which provides for a separate scheme for availing facilities under a compound levy scheme does not itself provide for levying of interest - Rule 96 ZO and Rule 96 ZP in so far as they impose a mandatory penalty equivalent to the amount of duty on the ground that these provisions are violative of Articles 14 and 19 (1)(g) of the Constitution and are ultra vires the Central Excise Act - reliance paced in the case of Shree Bhagwati Steel Rolling Mills vs- Commissioner of Central Excise 2015 (11) TMI 1172 - SUPREME COURT - interest and penalty set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Challenge to the validity of Section 3A of the Central Excise Act, 1944.
2. Applicability of the option to pay excise duty on lump sum basis for the financial year 1998-99.
3. Legality of exercising the option to pay excise duty on actual production basis.
4. Validity of interest and penalty imposed by the authorities.

Issue 1: Challenge to the validity of Section 3A of the Central Excise Act, 1944
The appellant, a company manufacturing iron and steel products, challenged the validity of Section 3A inserted by the Finance Act, 1997, which provided for payment of excise duty on annual capacity production. The Induction Furnace Annual Capacity Determination Rules, 1997 were framed for this purpose. The appellant opted to pay excise duty on lump sum basis initially, but later sought to pay based on actual production due to production loss caused by electricity restrictions. The Supreme Court's order allowed manufacturers to apply for actual production basis payment. The Commissioner initially rejected the application, leading to legal proceedings to resolve the issue.

Issue 2: Applicability of the option to pay excise duty on lump sum basis for the financial year 1998-99
The Tribunal partially allowed the appeal, stating that the option exercised by the appellant for the financial year 1999-2000 was not applicable for 1998-99. Citing a Supreme Court decision, the Tribunal held that a manufacturer cannot opt twice in the same financial year. The appellant challenged this decision, arguing that the option to pay on lump sum basis for 1997-98 did not extend to 1998-99. The Court agreed, directing the Excise Department to calculate the excise duty for 1998-99 based on actual production and ordering the appellant to pay the determined amount.

Issue 3: Legality of exercising the option to pay excise duty on actual production basis
The Court found that the appellant opted once to pay excise duty on actual production for the financial year 1998-99, as evidenced by the application dated 1.10.1998. The Tribunal erred in holding that the option was available for 1999-2000 but not for 1998-99. There was no prescribed time limit for opting out of the lump sum basis scheme. Therefore, the Tribunal's decision was deemed illegal, and the appellant was directed to pay the calculated duty for 1998-99 without delay.

Issue 4: Validity of interest and penalty imposed by the authorities
Citing a Supreme Court judgment, the Court ruled that levying interest under the relevant rules was impermissible as Section 3A did not provide for it. Additionally, the mandatory penalty equivalent to the duty amount was deemed violative of constitutional provisions and ultra vires the Central Excise Act. Consequently, the Court set aside the interest and penalty imposed on the appellant by the authorities.

In conclusion, the High Court allowed the appeal, setting aside the Tribunal's order to the extent of the directions provided regarding the option to pay excise duty, interest, and penalty. The Court directed the Excise Department to calculate the duty for the financial year 1998-99 based on actual production and instructed the appellant to pay the determined amount promptly.