2023 (9) TMI 293 - HC - Central Excise

Quantum of duty which the appellant / petitioner was liable to pay in terms of the provisions contained in the Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules 2010 - Rule 8 of the CTUT Rules 2010 is ultra vires to Section 3A of CE Act or not - HELD THAT - It is deemed appropriate to note at the outset that the challenge to Rule 8 of the CTUT Rules 2010 was founded solely upon the Second Proviso to Section 3A(2)(b). The appellant / petitioner does not question the authority of the Union Government to either prescribe the manner in which the the annual capacity of production may be determined nor does it question its right to formulate a factor relevant for the purposes of estimating production in a factory. As is manifest from a reading of Section 3A(2)(a), the Union Government is empowered not only to prescribe the manner for determination of annual capacity of production of a factory, the said provision by way of a legal fiction stipulates that the capacity of production as determined in accordance with the Rules shall be deemed to be the annual production of goods in that factory. The computation of annual production and the same being computed by virtue of a statutory deemed fiction does not owe its genesis to Rule 8. The said legal fiction stands incorporated in Section 3A(2)(a) itself. The challenge to Rule 8 must also fail when tested on the anvil of the Second Proviso to Section 3A(2)(b). It becomes pertinent to note that the Second Proviso deals with a contingency where the factor relevant is altered or modified at any time during the year. It is in such a situation alone that the annual production is liable to be redetermined on a proportionate basis. However, and as is evident from the recital of facts in the preceding parts of this decision, the factor relevant as prescribed by Rule 4 remained unaltered. The quantification of duty liable to be paid by a manufacturer remained constantly during the period in question hinged upon the number of packing machines in the factory of a manufacturer - the Tribunal has abjectly failed to advert to the deeming fiction which stands introduced by Rule 8. It is unable to hold Rule 8 as being ultra vires Section 3A nor there are any error in the view as expressed by the Tribunal while passing the order impugned. Petition dismissed.

Summary

Issues Involved:

1. Quantum of duty liability under the CTUT Rules 2010.
2. Validity of Rule 8 of the CTUT Rules 2010 in light of Section 3A of the Central Excise Act, 1944 and Article 14 of the Constitution.

Summary of Judgment:

Issue 1: Quantum of Duty Liability

The appellant challenged the order of the Central Excise and Service Tax Appellate Tribunal affirming the duty liability under the CTUT Rules 2010. The appellant argued that additional duty should be levied proportionately based on the days when new packing machines were actually operated. The respondents contended that duty liability should be calculated based on the maximum number of packing machines installed on any day during the month, as per Rule 8 of the CTUT Rules 2010. The court noted that Rule 8 incorporates a deeming fiction, stating that the number of operating packing machines for the month shall be taken as the maximum number of packing machines installed on any day during the month. The court found no merit in the appellant's argument for proportionate duty based on actual days of operation, emphasizing the clear language of Rule 8.

Issue 2: Validity of Rule 8

The appellant sought a declaration that Rule 8 is ultra vires to Section 3A of the Act and violative of Article 14 of the Constitution. The appellant argued that the Second Proviso to Section 3A(2)(b) indicates a proportionate levy of duty, which Rule 8 allegedly contravenes. The court observed that Section 3A(2)(a) and (b) empower the Union Government to prescribe the manner for determining the annual capacity of production and the relevant factor for estimating production. Rule 8, which deems the maximum number of packing machines installed on any day during the month as the operating packing machines for the month, aligns with the legal fiction incorporated in Section 3A(2)(a). The court held that the Second Proviso to Section 3A(2)(b) applies only when the relevant factor is altered or modified during the year, which was not the case here. The court concluded that Rule 8 is not ultra vires Section 3A and does not violate Article 14.

Conclusion:

The court dismissed the appeal and writ petition, upholding the validity of Rule 8 of the CTUT Rules 2010 and affirming the duty liability as determined by the respondents and the Tribunal.