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TMI Blog1995 (2) TMI 225X X X X Extracts X X X X X X X X Extracts X X X X ..... tions, the petitioners have challanged the legality and validity of four Notifications (1) 254/87, dated November 25, 1987; (2) No. 262/87, dated 9th December 1987; (3) No. 4/88 and (4) No. 5/88, both dated 19th January 1988, issued in exercise of the powers conferred by sub-rule (1) of Rule 8 of the Central Excise Rules, 1944 ( 1944 Rules for short) read with sub-section (3) of Section 3 of the Additional Duty of Excise (Goods of Special Importance) Act, 1957 ( 1957-Act for short) by the Central Government in relation to the structure of the excise duty and certain exemptions for Man-made fabrics. 4. The petitioners are in the business of manufacturing various fabrics including blended Man-made fabrics classifiable under Tarrif Headings No. 54.09, 50.02, 55.08, 55.11, 55.12 and 60.01, of the Central Excise Tariff Act, 1985 ( 1985 Act for short). The processed blended Man-made fabrics have always been excisable goods under the Act as well as under the Central Excises and Salt Act, 1944 ( 1944 Act henceforth). The petitioners are holding L-4 Licence, covering their product of fabrics. 5. Prior to the enactment of the Central Excise Tariff Act, 1985, blended Man-made fabrics ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fically, denied that on account of aforesaid Notifications, the petitioners have suffered any additional burden or faced any adverse effect on the profit of the concerned manufacturers. The respondents have also pleaded that the exemption notifications in question are issued under delegated legislative powers after interaction between the Trade and the Government and also with a view to achieve the object of the Act and the Rules. According to the respondents, applicability of the revised rates to the goods manufactured earlier but removed after the issuance of the impugned Notifications could not be said to be retrospective action or application of the Notifications concerned. It is also contended that Rule 9A is quite consistent with and is in consonance with the provisions of 1944-Rules and is legal and valid. 10. In short, the legality and validity of the aforesaid impugned Notifications and the provisions of Rule 9A of 1944 Rules is in challenge in this group of petitions mainly on the following premises; (1) That the impugned notifications are discriminatory and hostile being violative of the provisions of Article 14 of the Constitution as (a) width of the fabric i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods; Previded that, unless specifically provided in any notification issued under this sub-rule, any exemption therein shall not apply to excisable goods produced or manufactured in a free trade zone and brought to any other place in India. Provided further that unless specifically provided in any notification issued under this sub-rule, any exemption therein shall not apply to excisable goods produced or manufactured in a hundred per cent export oriented undertaking and allowed to be sold in India. (2) The Central Board of Excise and Customs may, by special order in each case, exempt from the payment of duty under circumstances of an exceptional nature, any excisable goods. (3) An exemption under sub-rule (1) or sub-rule (2) in respect of an excisable goods from any part of the duty of excise leviable thereon (the duty of excise leviable thereon being hereinafter referred to as the statutory duty) may be granted by providing for the levy of a duty on such goods at a rate expressed in a form or method different from the form or method in which the statutory duty is leviable and any exemption granted in relation to any excisable goods in the manner provided in this sub-ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons are, admittedly, issued by the Central Government in the exercise of the powers conferred by sub-rule (1) of rule 8 of the 1944-Rules , read with Section 3(3) of 1957-Act , in supersession or in partial modification of the earlier notifications in relation to the Man-made fabrics. The effect of the impugned notifications is to prescribe rates of additional excise duties compared to the Tariff rate which was 20 per cent, ad valorem. 18. It has been contended on behalf of the petitioners that on the grounds stated earlier, the impugned Notifications are arbitrary, unreasonable and affecting freedom of trade and, therefore, they are violative of the provisions of Article 14 and 19 (1)(g) of the Constitution. It is the case of the petitioners that the width of the fabric is not proper and rational criteria and the provisions made in the impugned notifications are not based on capacity to pay of the consumers. It is also contended that the flat rates irrespective of the quality, treat unequals with equals. 19. As against this, the revenue has pleaded that the effect of the exemption notification is to prescribe reduced rates of additional duty compared to the duty which is 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is well recognised that the State enjoys the widest latitude where measures of economic regulations are concerned. These measures for fiscal and economic regulation involve an evaluation of diverse and quite often conflicting economic criteria and adjustment and balancing of values and interests. It is for the State to decide what economic and social policy it should pursue and what discriminations advance those social and economic policy. 20. It is, amply, clear from the above decsion that in the matter of policy of the State, the State, thus, enjoys latitude where the measures of economic regulation are cncerned. In order to invalidate the impugned notifications, the criteria of the width of the fabrics cannot be said to be improper or irrational criteria. It is also not, successfully, shown that the criteria of capacity to pay of the consumer should always be the basis for the exercise of statutory powers for granting exemptions. Nothing has been shown as to how the revenue has exercised statutory powers, unreasonably, and arbitrarily. Assuming that the criteria of capacity fo pay of the consumer and the flat rates irrespective of quality is adopted for granting certain exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll settled that in order to pass the test, following two conditions ought to be established : (i) that the classification must be based on intelligble differentia which distinguishes those that [are] grouped together from the others; and (ii) that the differentia must have a rational relation to the objects sought to be achieved by the Act, while the classification may be founded on different basis or criteria. What is required and significant, is that there must be a nexus between the basis of classification and the objects of the impugned provisions under consideration. 23. In the light of the factual scenario drawn hereinbefore, the impugned notifications and the provisions of Rule 9A, clearly, satisfy the aforesaid conditions. The revenue has considered various representations and after meaningful dialogue with the representatives of the trade and the views of the various authorities incharge of the executive, criterias are followed and accepted in the impugned notifications which have direct and material bearing with the object of the provisions of relevant provisions of the excise law. The differentia and criteria which is the basis of classification and the object of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t there is a rational basis, logical approach and reasonable, classification having nexus with the object of the provisions of the 1944-Act and 1957-Act . Therefore could not in respect of the impugned provisions is a [futile] attempt. and therefore it must end in smoke. The exerclse of discretion under the statutory provisions while fixing criteria and the basis for levy of duty and also for the purpose of exemption are not at all violative of the provisions of Article 14 and, therefore, contention that the impugned provisions are violative of Article 14, must fail and accordingly it is rejected. 23. Likewise, the contention that the impugned notifications and the provisions of Rule 9A are also contrary to the provisions of the Constitution and hit by Art. 19 (1)(g) of the Constitution is also found without any merit in light of the facts and circumstances narrated hereinbefore. Art. 19, prescribes provisions giving protection of certain freedom. It is true, under Art. 19 (1)(g), there is a freedom to practise in profession or to carry on occupation or business. However, such freedom is subject to reasonable restrictions as provided under Art. 19(5) (6). It cannot be said e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidered before the issuance of the impugned Notifications. Effective duty structure in the field which was existing in the field of additional duty in lieu of sales tax on Man-made fabrics, was based on the value of fabrics. Notification No. 79/82 and 60/87 were based on the value of fabrics. However, it was noticed by the Central Government upon the receipt of many complaints and representations in connection with the basis of valuation of Man-made fabrics. The question whether the duty payable should be computed on the basis of job charge only or should be based on entire process of fabrics is for the revenue to consider while forming a policy and in exercise of statutory powers. It was also, inter alia, contended by the revenue that it was noticed that the correct value of the fabrics with a view to indulge in tax evasion, assessee had been indulging in several unhealthy modus operandies. The Central Government had also found that there was a substantial decrease in the revenue realised from the Man-made fabrics compared to the budgetory estimates. In order to overcome the loopholes and pitfalls in valuation of the fabrics which were noticed for the evasion, the Central Govern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch Unit, Room No. 146G, Department of Revenue, Ministry of Finance, North Block, New Delhi 110 001 so as to reach latest by 31st December, 1987. The Collectors should also bring out clearly in their report the various difficulties that are faced on account of introduction of the new duty structure and also report specific cases where the duty incidence has gone up very high. The Collectors may also make suggestions in any of the specifications regarding width and weight have to be changed so as to cover the fabric under a particular category. The revenue implications on account of the changes now brought about should also be clearly reported so that the continuation or otherwise of the above duty structure could be examined in proper perspective. If any change in the pattern of clearance is noticed by manipulation to the notice of the Board immediately. If the above scheme is found to be successful, it is proposed to introduce a similar scheme in respect of cotton fabrics falling under Chapter 52. For this purpose, information as per Annexure I and II should be furnished in respect of cotton fabrics also. The Collectors may also offer their suggestion in this regard." After c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f value of the concerned fabrics. Likewise, some more categories are also created which are not specified in any other category on the basis of the value of the fabrics. 27. It transpires from the facts emerging from the record that changes broadly are made in the subsequent Notification Nos. 4/88 and 5/88, in which certain categories, rates of duty have been brought down in respect of fabrics of value not exceeding Rs. 40/- and the rate of duty is increased in respect of the fabrics exceeding Rs. 100/- per square meter compared to the provisions made in the previous notification. The contentions raised in the affidavit-in-reply have remained uncontroverted. In view of the uncontroverted specific averments made in the counter by the respondent authorities, the factual premises on which the impugned notifications are questioned and upon correct assessment thereof, such a challenge is, undoubtedly, found incorrect and unsustainable. 28. There is nothing on record to, even remotely, indicate that the overall effect of the impugned notifications is to give better reliefs to cater to the needs of the people in the higher income group as alleged. It is also not acceptable that the ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditional duty of excise is levied under Section 3(1) of the 1957-Act . Under Rule 8(1), partial exemption came to be granted in respect of certain man-made fabrics by Notification No. 60/87, dated 1st March, 1987. This was changed by the impugned notifications. Alterations may have resulted in slight increase in duty in certain cases but admittedly same does not exceed the basic duty prescribed. It is not the case of the petitioners that the duty payable under the impugned notification is more than prescribed under Section 3(1) of the 1957 - Act . So long as, the duty payable under the impugned notification is concerned, same is less than the basic duty and there is still some exemption and hence such notifications could validly be issued under Rule 8(1). The Central Government is empowered to vary the exemptions so long as the duty falls short as the basic duty. Therefore, the challenge against the impugned notifications adopting different criterias while exercising powers under Rule 8(1) cannot be accepted. The Central Government is empowered to grant exemption from the duty of excise. It cannot, therefore, be contended that it has no power to enhance the duty within the statut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of notification from the chargeability of duty. Therefore, according to the petitioners, the action of the revenue in levying and charging the duty even on the goods manufactured prior to the date of the respective notifications impugned in these petitions is illegal and invalid. The remarks and the submissions of such a nature (as aforesaid) obviously could herald the erosion of the rule and plain language employed in the original statutory provisions. In this regard, the petitioners have also challenged that the revenue is not empowered to issue the notifications having retrospective effect. It is, also, pleaded that the provisions of the charging Section 3 of the 1944 Act prescribe that the duty shall be levied and collected on all goods manufactured and produced in India. Therefore, it is submitted that the revenue is not entitled to charge or impose the duty on the goods manufactured prior to the issuance of the impugned notifications, as otherwise, it will have a retrospective effect which is illegal and not permissible. Thus, the main thrust of the argument is that Rule 9A travels beyond the scope of Section 3 of the 1957 Act and Section 37(2)(xvii) of the 1944 Act . Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection which determines taxable event and it clearly prescribes that the duty shall be levied and collected in such a manner as may be prescribed . Rule 9A of the 1944 Rules operates in supplementary manner to Section 3 of the 1944 Act . When it says that in the case of goods removed from the factory or warehouse, as the case may be, the date for consideration and determination of the duty and valuation shall be the duty of actual removal. The main object of the charging Section 3, is to make clear that the taxable event occurs on the production or manufacture of the goods in India. The other matters are left to be prescribed in such a manner, as may be provided under the provisions of the Act. The taxable event in this regard unless otherwise provided or indicated statutorily cannot by itself be deemed to be the date for determination of the duty. The provisions made under Rule 9A are made under the statutory authority. The date of rate of duty and tariff evaluation being the removal of the goods as prescribed in Rule 9A cannot be said to be inconsistent with the provisions of Section 3(1) of the 1944 Act or Section 3(1) of the 1957 Act" or the 1844 Rules". It is quite, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under that provision. Rule 9A was as such superseded later on. However, the similar provision was inserted on 27th January 1945 as per F.D. (C.R.) Notification No. 2 Camp. The nature of excise duty has been considered by the Supreme Court in several cases. In case of R.C. Jal v. Union of India, 1962, S.C. 1281, the Supreme Court after referring to several earlier decisions has observed that the excise duty is primarily a duty on the production or manufacturing of the goods or the goods produced or manufactured within the territory of India. It is an indirect duty which the manufacturer or producer will pass on [to] the ultimate consumer that is its ultimate incidents which will always be on the consumer. Therefore, subject always to the legislative competence of the taxing authority, said tax can be levied at a convenient stage so long as the character of duty imposed that is its duty on the manufacturer or producer is not changed. Although there is nothing to prevent the Central Government from imposing duty of excise on a commodity as soon as it comes into existence, but the taxing authority will not, ordinarily, impose such duty because it is much more convenient from the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the goods from the factory or the warehouse and it is valued under Section 37 as it carries out the purpose of the Act by prescribing the manner of levy of duty. 35. In Orient Paper Mill Ltd. v. Union of India , 1978 (2) E.L.T. (J 328) (SC) = AIR 1967 S.C. 1564, the Supreme Court has clearly held that the rate to be applied is the rate in force, on the date of removal, under Rule 9A after observing that the removal is the relevant event for collection of duty. It is also observed in the said judgment by the Supreme Court that if the payment is made before removal and the duty is enhanced at the time of removal, the assessee will be liable for the enhanced duty in view of the provisions of Rule 9A of the 1944 Rules . The Object and the Scope of Rule 9A is to determine the date for imposition of duty and tariff valuation. Under Rule 9A, it is stated that in the case of the goods removed from the factory or warehouse subject to such special Rules (2), (3) and (3A), such date shall be the date of actual removal of the goods from such factory or warehouse. 36. The additional duty of excise is levied and collected under Section 3(1) of the 1957-Act on specified goods including Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant and not the date of manufacturing. This Court has, categorically, observed that the Man-made fabrics manufactured prior to coming into force of the said Notification but removed later on is not governed by the earlier exemption Notification but by the Notification governing on the date of removal as such. In Maheshwari Mills case (Supra), this Court while dismissing the challenge against the Notification No. 254/87, has made, after considering the various decisions, the following observations, which are quite pertinent. In view of the above discussion, we find no merit in the principal contention. The rate of duty is fixed in the First Schedule to the 1944 Act. It prescribes the outer limit of the maxima. Under Rule 8, the Government is empowered to exempt any goods from the whole or any part of the duty imposed by the 1944 Act on man-made fabrics only additional duty of excise is levied under Section 3(1) of the 1957 Act. Under Rule 8(1) partial exemption was granted in respect of certain man-made fabrics by Notification No. 80/87. This was altered by the impugned notification dated 1st March 1987. This alteration may have resulted in a slight increase in duty in ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the challenged Notifications is less than the basic duty, the Government is competent to revise and review duty or for that purpose exemptions under Rule 8(1). Such Notifications, therefore, are legal and valid. It is an admitted factual position that there is no rise or increase in the basic additional duty leviable under Section 3(1) of 1957-Act by the impugned Notifications. We have, therefore no hesitation in holding that entire batch of petitions is meritless. In our opinion, therefore, the challenge against the impugned Notification No. 254 of 1987, dated November 25, 1987; No. 262/87, dated 9th December, 1987; No. 4/88 and 5/88, both dated 19th January, 1988 and also against the provisions of Rule 9A of 1944-Rules is devoid of any force of law and therefore must fail. The Rule 9A is legal and valid and intra vires the Constitution. The respondent-Revenue Authorities are entitled to levy duty at the rate of duty prevalent on the date of removal of goods. The Scheme of 1944-Act and Rules framed, thereunder particularly, Rule 9A, it becomes explicit that while the taxable event is the fact of manufacturing or production of an excisable goods, the payment of duty is rela ..... X X X X Extracts X X X X X X X X Extracts X X X X
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