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TMI Blog2015 (7) TMI 302X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacturers had utilized cenvat credit lying with them as on 1 March 2003, for payment of cenvat credit duty payable on finished products/goods under section 3 of the 1957 Act. On realizing this, the Government amended the provision of the Cenvat Credit Rules 2000 retrospectively with section 88 of the Finance Act allowing utilization of Cenvat Credit of AED paid on or after 1 April 2000. That is how the explanation was substituted. We do not see how we can uphold the argument of the Petitioners that the restrictions placed by the Explanation should be interfered with any other stipulation as desired by them so as to make the provision operational from 1 April 1996. Manifestly arbitrary exercise of power or manifestly erroneous exercise of power is something which can be interfered with in judicial review. We do not find that any assistance can be derived from the judgment in Sitaram (1990 (3) TMI 358 - SUPREME COURT) and for the purpose of the present case. In the present case, once the co-relation could not be established, then the Petitioners derive no benefit of the Constitutional provisions and selection of the date, namely, 1st April 1996 for they being brought into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appeal, we adjourn the hearing of that Appeal by clarifying that this order shall govern only the Writ Petition. 6. The Petitioners have summarized the brief facts and leading to filing of the Writ Petition. The Petitioners have pointed out that they are, inter alia, engaged in the manufacture of tyres clear the same on payment of duties of excise leviable under the First Schedule and Second Schedule to the Central Excise Tariff Act, 1985 read with section 3 of the Central Excise Act, 1944. These duties are termed as Basic Excise Duty and Special Excise Duty. 7. The raw material namely nylon tyre cord fabric comes into manufacture of tyre. The Petitioners purchased that and subjected the same to the process of dipping in a solution to obtain dipped tyre cord fabric, which in turn is used in the manufacture of tyre. This nylon tyre cord fabric purchased by the Petitioners, inter alia, suffers Additional Excise Duty (GSI) under the Additional Duties of Excise (Goods of Special Importance) Act, 1957, that is with effect from 16 March 1995. 8. At the outset, we must set out the abbreviations and which would appear in the judgment hereafter. The Central Excise Act shall b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided for manner of recovery of amount of Cenvat Credit of the above duty, which was utilized for payment of BED and SED, which could not have been utilized in view of the amendment made by section 88 of the Finance Act, 2004. The 2005 Finance Act amendment requires the Assessee to pay back the excess amount of credit in 36 monthly installments together with interest thereon. The Petitioners claimed to have paid ₹ 20.50 crores approximately in 36 equal installments and that is how the alleged excess utilization of credit of duty of prior to 1 April 2000 along with interest is a closed matter according to them. They, therefore, proceeded to restore the credit of AED (GSI) in their books and reflected the same in their ER-1 returns filed for the months of July 2005 to June 2008. The Petitioners submit that an order adjudging liability was passed by the Commissioner on 28 February 2006. Thereunder the duty of ₹ 6.60 crores approximately was confirmed as amount of AED (GSI) on dipped nylon fabrics consumed during the period 16 March 1995 to 1 June 1998. Utilizing the restored credit of AED (GSI), the Petitioners paid ₹ 6.60 crores approximately on 5 June 2006. Since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs by an Amending Act after receipt of the report of the Finance Commission. The ratio of distribution of excise duty between Centre and States is recommended by the Finance Commission and in terms of these recommendations the amendments are carried out. The argument is that AED (GSI) collected by the Central Government should be entirely distributed to the States. The understanding between the Union and States is that the States will not levy sales tax on the sale of these commodities covered by AED (GIS) 1957 Act. The portion of AED (GSI) collected which relates to the Union Territories is of course retained by the Central Government. Then, reference is made by Mr.Sridharan to the amendment carried out to the Second Schedule to AED (GSI) Act by a amending Act and based on the report of the Finance Commission. This is also generally done every five years to indicate inter se share of the States from total AED (GSI) distributed to the States. 13. Mr.Sridharan, has then placed reliance upon Article 280 of the Constitution of India, whereunder the Finance Commission has been established, its functions and its reports. He then relies upon the Report of the 10th Finance Commission ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that accepting these recommendations of the 10th Finance Commission, the Constitution (89th Amendment) Bill, 2000 was introduced in the Parliament. Mr.Sridharan has relied upon the Statement of Objects and Reasons accompanying this Bill. He submits that the Constitution (80th Amendment) Act ,2000 was enacted by the Parliament and it is in furtherance of this Bill, the amendment was given assent by the President on 19 June 2000. Article 270 of the Constitution was substituted by section 3 of the Constitution Amendment Act, 2000 retrospectively from 1 April 1996. Mr.Sridharan, therefore, submits that alternate scheme on devolution of revenue was implemented effective from 1 April 1996. By this very amendment Act of 2000 (vide section 4(1) ), Article 271 of the Constitution of India was omitted. Sub-section (2) of section 4 of this Act mandates as if the Article 272 is omitted from 1 April 1996. The Petitioners have also relied upon additional affidavit filed on 8 December 2014 including the extracts of finance budget documents. Thus, the emphasis is placed to demonstrate as to how the Constitution (80th Amendment) Act 2004 is implemented and acted upon. 15. Further the argument ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween utilization of credit on AED(GSI) paid after 1 April 1996 but before 1 April 2000 on one hand and utilization of AED(GSI) paid on or after 1 April 2000 contained in section 88(1) is , therefore, termed as having no nexus whatsoever with the object sought to be achieved. A final attempt is made to support the argument of irrational and arbitrary classification by pointing out that all the recommendations of the 10th Finance Commission particularly to amend the Constitution and particularly Article 270 and deletion of Article 272 are effective from 1 April 1996, and therefore, there is no justification for denying benefit of utilization of credit of AED(GSI) paid on or after 1 April 1996, but before 1 April 2000. 17. We have also on file additional written submissions of the Petitioners. The two written submissions summarize the oral argument. First written submission was tendered on 15 December 2014 and the second on 20 December 2014. 18. The second additional written submission purported to deal with the argument based on the affidavit-in-reply that there is no Presidential order under Article 270 from 1 April 1996 to 31 March 2000. The Parliament has enacted 80th Consti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20. We are not concerned as much in this Writ Petition with the treatment that the Petitioners gave to the credit in their account. That is subject matter of the Appeal. However, that is relied upon only to support the aforenoted argument. 21. It is in these circumstances, that Mr.Sridharan submits that the Constitutional challenge deserves to be upheld. He has placed heavy reliance upon the judgment of the Hon ble Supreme Court rendered in the case of Shri Sitaram Sugar Company Ltd. v/s. Union of India (1990) 3 SCC 223. He also relied upon Union of India v/s. Parmeshwaran Match Works, 1978 (2) ELT J 429. Reliance is also placed on the decision in the case of Government of India v/s. Dhanalakshmi Paper Boards Mills, 1989 (39) ELT 171. Finally reliance is placed upon the judgment in the case of Kallakkurichi Taluk Retired Officials Association, Tamil Nadu and ors. v/s. State of Tamil Nadu, 2013 (2) SCC 772. The later decisions which follow Parmeshwaran (supra) are on the selection of the date or on the date chosen for bringing into effect the provisions or a Statute itself. Sitaram Sugar Company Ltd. has been relied upon to urge that the constitutional power and enabling maki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as allowed for the first time. However, in terms of Rule 3(6)(b) Cenvat Credit Rules, credit of additional duty on excise could be utilized only for the purpose of payment of additional duty of excise on such final products. Mr.Singh submits that aforesaid restrictions were prescribed because prior to 2000 the proceeds of the AED (GSI) were distributed amongst the States as per the recommendations of the Finance Commission and therefore the same required the separate accounting. There were certain cases where the inputs attracted Additional Excise Duty, but there was no Additional Excise Duty on the final product like in the present case. In these circumstances, because of the restrictions the manufacturer could not utilize the credit which resulted in accumulation thereof. In the year 2000 and subsequent to the Constitution (Distribution of Revenue) No.5 Order,2000 issued by the President of India instead of distribution of AED (GSI) amongst the States, an additional 1.5% of the total sharable taxes and duties including AED (GSI) was prescribed for such distribution. The need of separate accounting for AED (GSI) was dispensed with. Therefore, there was no justification for restric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hieved. There is no question of any arbitrary or unreasonable date being prescribed. If the underlying date is taken into account, then, the challenge has no merit. For all these reasons, it is submitted that the Writ Petition is devoid of any merit and must be dismissed. 27. Mr.Singh has taken us through further portions of the affidavit-in-reply to submit that the justification as set out in this affidavit would enable this Court to hold that this petition deserves to be dismissed. 28. With the assistance of the learned Senior Counsel appearing for both sides we have perused the Writ Petition and the annexures thereto. The Petitioners claim the relief and particularly the one referred to above, essentially on the ground that the authorities have come to the prima facie conclusion that the Petitioners have incorrectly utilized the credit of Additional Duty of Excise (paid on 5 June 2006) in terms of the order dated 28 February 2006 passed by Respondent No.3 for payment of BED on the final products cleared in 2007. The second Respondent proceeded on the basis that the credit can be availed of only when the Additional Duty of Excise is paid after 1 April 2000. In other words, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1931, the force of law, and (iii) the additional duty leviable under section 3 of the Customs Tariff Act, equivalent to the duty of excise specified under clauses (i) and (ii) above, Shall be utilized only towards payment of duty of excise leviable under the said Additional Duties of Excise (Textiles and Textile Articles) Act, or the National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001 as amended by clause 161 of the Finance Bill, 2003, which clause has, by virtue of the declaration made in the said Finance Bill under the Provisional Collection of Taxes Act, 1931, the force of law, respectively, on any final products manufactured by the manufacturer or for payment of such duty on inputs themselves if such inputs are removed as such or after being partially processed. Explanation:- For removal of doubts, it is clarified that the credit of the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957), may be utilized towards payment of duty of excise leviable under the First Schedule or the Second Schedule of the Central Excise Act, 1944 30. The position pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for payment of CENVAT duty; (iv) the Central Excise Officer shall separately determine the amount of interest on the amount of credit (hereinafter referred to as the amount of interest) utilised for paying the CENVAT duty, in accordance with the provisions of clause (v); (v) The amount of interest on amount of credit utilised for paying the CENVAT duty shall be at a rate of thirteen per cent per annum for the period beginning on and form the day when each time the amount of credit was so utilised and ending on the 10th day of September, 2004; (vi) the Central Excise Officer shall, on or before the 15th day of June, 2005, inform the assessee, in writing, the amount of credit and the amount of interest so determined under clauses (iii) and (iv); (vii) the assessee shall pay an amount equal to one-thirty sixth part of each of the amount determined under clauses (iii) and (iv) by the fifth day of every month, commending from the month, following the month of receipt of information of the amount determined by the Central Excise Officer; (viii) the assessee may make payment on his own towards the amount of credit or, as the case may be, the amount of interest, in excess of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D in lieu of Sales Tax on tobacco, sugar and cotton may be merged with the Basic Excise Duties. In addition, 3% in gross on duties excluding the above, is to be assigned to the States in lieu of their existing share in Additional Excise Duties in lieu of Sales Tax on Tobacco, Cotton and Sugar. The Commission has proposed that tobacco, cotton and sugar may continue to be exempt from Sales Tax and the Additional Excise Duties in lieu of Sales Tax on these items may be merged with the Basic Excise Duties. The Statement of Objects and Reasons further states that whether the alternative scheme would be more gainful to the Centre or to the States vis- -vis existing arrangements would entirely depend on the relative growth in the collection of various Central taxes and duties to be paid. After setting out and explaining the benefits of the scheme, the Statement of Objects and Reasons states that the above scheme is in national interest, as it helps to remove a perceived inter-tax in the tax mobilization effort of the Government of India while having sufficient flexibility for meeting Centre s exclusive needs by keeping Cesses and Surcharges outside the pooling arrangement. Further clauses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax revenues would be felt alike by the Central and the State Governments; (iv) Should the taxes mentioned in articles 268 and/or 269 from part of this arrangement, there will be greater likelihood of their being tapped; and (v) the progress of reforms will be greatly facilitated if the ambit of tax sharing arrangement is enlarged so as to give greater certainty of resource flows to, and increased flexibility in tax reform. 6. The above scheme recommended by the Commission is in national interest as it helps to remove a perceived inter-tax in the tax mobilisation effort of the Government of India while leaving sufficient flexibility for meeting Centre s exclusive needs by keeping Cesses and Surcharges outside the pooling arrangement. 7. A Discussion Paper bringing out various aspects of the scheme was laid on the table of both the Houses of Parliament on the 20th December, 1996 with a view to generate an informed debate. 8.On the basis of a consensus reached in the Third Meeting of the inter-State Council held on the 17th July, 1997, the then Government had agreed in principle to accept the scheme recommended by the Tenth Finance Commission subject to certain modific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commission and for the period of 5 years from 1995-96 and the later Commission was to submit its final Report by 30 June 2000, to cover further period with effect from 1st April 2000 that the Parliament intended to make the Constitutional Amendments effective from 1 April 1996. 34. We see much substance in the argument of the learned Addl.Solicitor General that in order to implement the decision of amending Articles 269, 270 and 272 of the Constitution of India and to bring the Central taxes and duties like Corporation tax and Customs duties at par with the personal income-tax as far as their constitutionally mandated sharing with the States is concerned, that the Parliament amended the Articles of the Constitution. By the Constitution (88th Amendment) Act 2000, the effect given to it from 1 April 1996 is to carry forward the Constitutional theme. That was and is to be found in the relevant Articles namely Article 270 onwards. Chapter II of the Constitution contains Articles on Administrative relations . It sets out the obligation of the State and the Union and control of the Union over States in certain cases in Article 256 and Article 257. Then Article 258 sets out the power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithin any Union territory by the Government of India and in other cases by the States within which such duties are respectively leviable. Clause (2) clarifies that the proceeds in any financial year of any such duty leviable within any State shall not form part of the Consolidated Fund of India, but shall be assigned to that State. Thus, the theme is that stamp duties and duties of excise on medicinal and toilet preparations which are mentioned in the Union list have to be levied by the Government of India, but they have to be collected by the States within which such duties are respectively leviable. The proceeds in any financial year of any such duty leviable within any State shall not form part of the Consolidated Fund of India, but shall be assigned to that State. Article 268A deals with Service tax levied by Union and collected and appropriated by the Union and the States. Though it has not been brought into force, what is material for our purpose is the fact that there could be and within the Constitution itself an arrangement where the taxes levied and imposed by the Union are collected within the States in which they are also leviable. Once such taxes are leviable and colle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and which shall not form part of the Consolidated Fund of India, but shall be assigned to the States within which that tax and duty is leviable in that year and distribution amongst those States in such manner and such time as may be prescribed. The term prescribed means until the Finance Commission is constituted, prescribed by the President. Thereafter, by the President upon considering the recommendations of the Finance Commission. Thus, if the Finance Commission has yet to be constituted, the matters which are prescribed by clause (2) of Article 270 have to be prescribed by the Presidential order and the position does not undergo a change, save and except the President will issue an order after considering the recommendations of the Finance Commission, that is upon its constitution in terms of the Constitutional provisions. Article 271 deals with surcharge on certain duties and taxes for purposes of the Union and that enables the Parliament to increase any duties or taxes referred to in Articles 269 and 270 by a surcharge for purposes of the Union and the whole proceeds of any such surcharge shall form part of the Consolidated Fund of India. Article 272 came to be deleted b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution (Seventy-fourth Amendment) Act, 1992 w.e.f. 1-6-1993 Parliament and the Commission s duty is to make recommendations to the President firstly with regard to distribution between the Union and the States of the net proceeds of taxes which are to be or may be divided between them under this Chapter and the allocation between the States of the respective shares of such proceeds. The principle which should govern the grant-in-aid of the revenues of the States out of the Consolidated Fund of India, the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats in the State on the basis of the recommendations made by the Finance Commission of the State, the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Municipalities and any other matter referred to the Commission by the President in the interests of sound finance. That recommendation of the Finance Commission has to be laid before each House of the Parliament is a matter dealt in Article 281. 38. We, therefore, do not see how the Constitutional Amendments and pertaining to the matters of distribution and allocation of the proceeds of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondents version is the separate accounting of AED(GSI) being dispensed with, we do not find that the said issue needs to be gone into, once the difference in the Constitutional scheme and the Act under which the duty was imposed, levied, assessed and collected, is noted. In the affidavitin- reply, it has been pointed out as to how the original Rule 3(6)(b) of the Cenvat Credit Rules read. The Petitioners have been availing of Cenvat Credit of Basic Excise Duty, namely Cenvat Duty payable under section 3 of the Act as well the AED (GSI) payable under the 1957 Act paid on their inputs received on or after 16 March 1995. Availment of and utilization of Cenvat credit as in force at the material time from 16 March 1995 to 28 February 2003 enabled the credit of AED being utilized for payment of AED on the finished goods. The said credit was not allowed to be utilized for payment of any other duties, including the Excise duty under section 3 of the Act. The Rule was amended namely Rule 3(6)(b) with effect from 1 March 2003 and thereby the utilization of AED for payment of cenvat duty on the finished goods was allowed. The amended Rule with effect from 1 March 2003 has permitted utili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were made on account of the events narrated in the Statement of Objects and Reasons to the Constitutional Amendment Bill. It was decided that the distribution and allocation of taxes for the States must meet the recommendations. Hence, the further justification that has been provided in the affidavit and particularly para 36 onwards, would justify as to why there is no substance in the challenge and based on the cut-off date. 40. We are of the opinion that this is not as much a matter of cut-off date but of the distinction noted above. Even in the matters of cut-off date the Hon ble Supreme Court has held that for any provision or any prescription to be brought into effect a date has to be chosen. The choice of a date can be termed as arbitrary, particularly because the fixation has to be by the authority or the agency which is making the rule, prescription or legal provision. It is that authority alone which is empowered to select the date. In that matter and choice thereof the argument of it being arbitrary has been noted particularly in cases where beneficial provisions like pensionary benefits etc. were admissible. There, the argument that the cases falling within and those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rouped together from others left out of the group and that the differentia must have a rational relation to the object sought to be achieved by the Statute in question (see: para 30). It is the same principle which has been relied upon by Mr.Sridharan. Therefore, in taxing provisions or in matters where a stipulation pertaining to payment or availment of credit under the Rules/ Special Legislation under taxing Statute is involved, the Court will have to find out whether there is indeed any group or class. In terms of the Constitutional provisions dealing with powers to distribute the net tax proceeds the beneficiaries cannot be equated. Taxing Statutes deal with levy and collection of Revenue. For the purposes of collecting the tax, the law must authorize imposition and levy thereof. After the imposition/levy, there is a mechanism in place for assessment and collection thereof and these provisions are termed as machinery provisions. Thus, there is a charging section, there is a machinery provision and thereafter the provisions as to how Taxes are collected and recovered. The Parliamentary stipulation and as contained in the Constitutional Amendment Act is dealing with the distribut ..... X X X X Extracts X X X X X X X X Extracts X X X X
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