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TMI Blog2017 (3) TMI 1357X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. X X X X Extracts X X X X X X X X Extracts X X X X ..... nual capacity of production shall be deemed to be the annual production of such goods by such factory: Provided that where a factory producing notified goods is in operation only during a part of the year, the production thereof shall be calculated on proportionate basis of the annual capacity of production. (3) The duty of excise on notified goods shall be levied, at such rate as the Central Government may by notification in the Official Gazette specify, and collected in such manner as may be prescribed: Provided that, where a factory producing notified goods did not produce the notified goods during any continuous period of not less than seven days, duty calculated on a proportionate basis shall be abated in respect of such period if the manufacturer of such goods fulfils such conditions as may be prescribed. (4) Where an assessee claims that the actual production of notified goods in his factory is lower than the production determined under sub-section (2), the Commissioner of Central Excise shall, after giving an opportunity to the assessee to produce evidence in support of his claim, determine the actual production and redetermine the amount of duty payable by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnment of India is authorised under Section 3A to prescribe different rates of duty and different modes of assessment and collection of duty on the NOTIFIED GOODS. Under sub-section (2), the Government of India was authorised to make rules providing for either the determination of the "annual capacity of production" (hereafter ACP) or 'the factors relevant to the ACP' of the factory in which NOTIFIED GOODS are produced. The determination of the ACP is required to be made by the "Commissioner of Central Excise". It further declared that a factory where ACP is determined shall be presumed to annually produce the NOTIFIED GOODS equivalent in quantum to its ACP. Sub-section (4) stipulates that in a case where an assesse "claims that the actual production of his factory is lower than" the ACP, the assessee is entitled to seek the determination of the actual production of the NOTIFIED GOODS in "his factory" by adducing appropriate evidence. Upon such claim being made, the Commissioner of Central Excise is required to determine the actual production of the assessee's factory and also "redetermine the amount of duty payable by the assessee with reference to such actual production". 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding the time of the payment of duty. Rule 96ZP seeks to levy the excise duty at a concessional rate of ₹ 300/- per metric tonne. 10. Rule 96ZP prescribes a levy not on the basis of the value of the specified goods but on the quantum of production. It further authorises the levy and collection of duty at different rates depending upon the mode of payment of the duty chosen by the manufacturer. In other words, Rule 96ZP creates two classes of manufacturers of the goods falling within the sweep of the Rule, though both the classes of manufacturers produce goods of the same description. One class who choose to pay the duty on monthly basis (falling under sub-rule (3)) and the other class paying duty in a manner otherwise specified under the various other sub-rules of Rule 96ZP. 11. Undisputedly, Rule 96ZP is applicable to the products of the appellants herein. It is sufficient for our purpose to note that under Rule 96ZP(1) (Rule 96ZP(1) A manufacturer of non-alloy steel hot re-rolled products falling under sub-heading Nos. …………… of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), shall debit an amount calculated at the rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anufacturers who are willing to opt for a scheme of making the payment of tax on a monthly basis instead of postponing the payment till the end of the year as prescribed under sub-rule (1). However, sub-rule (3) also imposes a limitation on those manufacturers who opt for the benefit of a reduced rate of duty by disabling them from availing the benefit of the procedure contemplated in sub-section (4) of Section 3A of THE ACT - that is disputing the correctness of the determination of the ACP of the factory made under the RULES of 1997. 13. It is in this background of the provisions of law, these appeals are required to be decided. 14. In all these appeals, the ACP of the concerned factories was determined by different orders. Obviously the ACP so determined was less than the actual production of each one of the factories for the financial year 1996-97. Therefore, the ACP was "deemed" to be the same as the actual production for the financial year 1996-1997 in view of the mandate contained under Rule 5 of the RULES of 1997. 15. Aggrieved by the determination of the ACP each of the appellants pursued multiple legal proceedings: 1. They appealed to the CESTAT; 2. They invoked th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Section 3A of THE ACT, the relevant Rules framed thereunder and the mischief which Parliament sought to control while enacting Section 3A. In the context, we must keep in mind the general scheme of THE ACT. 22. Section 3 of THE ACT, as it existed at the relevant point of time authorised the levy and collection of a duty of excise on all excisable goods which are produced or manufactured in India. The expression "excisable goods" is defined under Section 2(d) of THE ACT. At the relevant point of time, it read as follows: "Section 2(d). "excisable goods" means goods specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as being subject to a duty of excise and includes salt;" The rates of duty for the various classes of goods are stipulated from time to time under the Central Excise Tariff Act, 1985. Section 4 of THE ACT stipulated the method and manner of determination of the value of the goods for the purpose of the determination of the duty liability of the manufacturers who manufacture or produce goods which are chargeable to duty w.r.t. their value. 23. Determination of the quantum of the goods manufactured is an essent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f "presumption" by providing further that if a notified agricultural produce is weighed, measured or counted within the notified area, it shall be deemed to have been sold or purchased in that area. The creation of legal fiction is thus beyond the legislative policy. Such legal fiction could be created only by the legislature and not by a delegate in exercise of the rule-making power. We are, therefore, in full agreement with the High Court that Rule 74(2) and Bye-law 24(5) are beyond the scope of the Act and, therefore, ultra vires. The reliance placed by the assessing authority as also by the appellate and revisional authority on these provisions was wholly misplaced and they are not justified in holding, merely on the basis of weighment of "copra" within the notified area committee that the transaction of sale took place in that market area." 28. The argument of the appellants with respect to Rule 5 appears tobe two-fold: (i) a legal fiction (deeming provision) can only be created by legislation but not by subordinate legislation; and (ii) even otherwise a fiction created by the subordinate legislation cannot be in contravention of the provisions of the parent enactment (Rule 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... violative of article 14, unconstitutional and bad in law. Reference may be made to (1997) 5 SCC 516). 29. We are in total agreement with the principle laid down by this Court in paragraph 28 of Agricultural Market Committee. 30. However, the question in this case is - whether Section 3A(2) and/or Rule 5 really create fictions. To understand the same, the context and purpose of Section 3A and Rule 5 is required to be examined. The Scheme and purpose of Section 3A is already examined at para 20. Rule 5 stipulated that if the ACP determined in accordance with the preceding four Rules is less than the actual production of a particular assessee for the financial year 1996-1997, the authority determining the ACP is required to abandon the figure of ACP arrived at by employing the procedure contained in Rules 1 to 4 and adopt the actual production achieved by the assessee for the financial year 1996-97 (The relevance of the financial year 1996-97 in the context of the RULES is that the RULES are made and brought into force with effect from the 1st of August, 1997. The financial year 1996-1997 is the financial year immediately preceding the making of the RULES of 1997.) to be the ACP o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate of things usually cease to exist, is still in existence) to Section 114 of the Evidence Act. 32. There is a clear distinction in law between a legal fiction and presumption . (Nandlal Wasudeo Badwaik v. Lata Nandlal Badwaik & Another, (2014) 2 SCC 576. "We must understand the distinction between a legal fiction and the presumption of a fact. Legal fiction assumes existence of a fact which may not really exist. However, a presumption of a fact depends on satisfaction of certain circumstances. Those circumstances logically would lead to the fact sought to be presumed. Section 112 of the Evidence Act does not create a legal fiction but provides for presumption." (Para 18) "A distinction commonly taken between the fiction and the legal presumption runs something as follows: A fiction assumes something which is known to be false; a presumption (whether conclusive or rebuttable) assumes something which may possibly be true. This distinction is regarded as being reinforced, as it were, in the case of the rebuttable presumption because such a presumption assumes a fact which probably is true." (Fullet, L.L., Legal Fictions, Illinois Law Review (Vol. XXV No.4, December 1930) "Presumpt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere inferences which the judges were directed to draw from certain states of facts in certain cases, and these presumptions were allowed a certain amount of weight in the scale of proof; such a presumption and such evidence amounted to full proof, such another to half full, and so on." (Stephen, James Fitzjames, The Indian Evidence Act With An Introduction on the Principles of Judicial Evidence, (Calcutta, Thacker, Spink & Co.) Chapter IV p. 132) Nothing is brought to our notice to say that a non-sovereign law making body can not make a rule of evidence containing a presumption. In our opinion, Agricultural Market Committee is not an authority for the proposition that a presumption cannot be created by subordinate legislation. 34. Rules of evidence are the principles of law which command the courts or other bodies whose duty is to determine the existence or otherwise of certain facts. The Anglo saxon legal system recognises that facts could be established either by direct or circumstantial evidence. Presuming certain facts, if they are so commanded by law has always been recognised by our legal system to be one of the accepted processes for those bodies charged with the duty of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in accordance with the rules made thereunder must be believed to produce the same quantum of goods equal to the ACP for every succeeding year. The question is - whether such a declaration creates a legal fiction or only a presumption (rule of evidence)? 38. We have already noticed that by definition a "fiction always conflicts with the reality whereas presumption may be proved to be true". It therefore follows that there is no possibility of a fiction being rebutted by evidence. The belief flowing from Section 3A(2) regarding the annual production of a manufacturer could be rebutted by adducing evidence. Section 3A(4) provides for such rebuttal. Therefore, in our opinion, Section 3A(2) embodies only a rule of evidence (presumption) but does not create a legal fiction. The language employed by the draftsman is likely to mislead to a conclusion that a fiction is created. But on a true and proper construction of the entire Section 3A the only possible conclusion is that Section 3A(2) embodies only a presumption (rule of evidence). 39. Under the Scheme of the RULES OF 1997, the first four rules stipulated the procedure for determining the ACP of the manufacturers of the class to whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity thereon. 42. The determination of the ACP is a one time affair. It appears from the factors indicated in the Rule 3 that the ACP would remain unaltered so long as there is no change in the machinery employed and the 'number of utilized hours" of the machinery remains constant. But the "number of utilized hours" could vary from time to time depending upon various factors, such as, the availability of electric power, capital or labour etc. Such variations could result in a situation that the actual production of the factory for any given interval of time is less than the ACP. Therefore, it is declared under Section 3A(4) that an assessee is entitled to seek determination of the actual production of his factory if it is less than the ACP. 43. In our opinion, such an opportunity provided under Section 3A(4) is a recurring opportunity available to the assessee from time to time. We reach this conclusion in view of the language of sub-section (4) more particularly "the Commissioner of Central Excise shall … determine the amount of duty payable by the assessee with reference to such actual production at the rate specified under Section 3". Obviously, the determination of amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntinue the availment of concessional rate of duty (for the next month) on a quantum of production which he is unable to achieve. In our opinion the assessee must have an option to make the payment of duty in accordance with Rule 96ZP(1) at a higher rate but on the actual production. For those assessees who chose to pay the duty at higher rate in accordance with sub-rule (1) the benefit of section 3A(4) is available. The rule does not bar it. However the question remains how frequently the assessee is entitled to exercise such an option; whether it is annual or monthly is a matter which requires a further examination. 48. It is argued by the learned counsel for the respondent in view of the two judgments of this Court reported in Commissioner of Central Excise & Customs v. Venus Castings (P) Ltd., (2000) 4 SCC 206, Union of India & Others v. Supreme Steels and General Mills & Others, (2001) 9 SCC 645, the question regarding the vires of sub-rule (3) of Rule 96ZP of the Central Excise Rules, 1944 is no more res-integra. It is also submitted by the respondent that this Court has already declared that the assessee who makes a choice once to avail the scheme under sub-rule (3) cannot g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e into consideration the purpose of the enactment as a whole, starting from the preamble to the last provision thereto. If the entire enactment is read as a whole indicates the purpose and that purpose is carried out by the rules, the same cannot be stated to be ultra vires of the provisions of the enactment. Therefore, it is made clear that the manufacturers, if they have availed of the procedure under Rule 96ZO(3) at their option, cannot claim the benefit of determination of production capacity under Section 3A(4) of the Act which is specifically excluded." Two things are required to be noticed from the above. This Court made references to Rule 96ZP in the earlier paragraphs of the judgment but when it came to the conclusion, it only dealt with Rule 96ZO(3) but not Rule 96ZP(3). Secondly, Section 3A(4) of THE ACT does not deal with the determination of the production capacity of the factory. It only deals with the right of the assessee to establish that notwithstanding the determination of the ACP, the actual production achieved is less than the ACP determined. The Court concluded "that if the entire enactment is read as a whole indicates the purpose and that purpose is carried ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the rate of ₹ 750/- per metric tonne. Sub-rule (3) prescribes levy and collection of a lump sum of ₹ 5 lakhs per month in cases of those manufacturers who have a total furnace capacity of three metric tonnes installed in their factories. However, such a scheme is available at the option of the assessee. In other words, a manufacturer has a choice to make a lump sum payment of ₹ 5 lakhs, irrespective of his actual production for that month, in two instalments instead of paying the duty at the rate of ₹ 750/- per metric tonne of the actual production of the manufacturer. Whether the capacity of three metric tonnes in the said sub-rule is the capacity of the factory per day or per month or per annum is not very clear from the language of the Rule. The expression does not appear to be defined under the Rules. 56. Coming to Rule 96ZP(3), it also provides an option to the assessee falling under the Rule to pay the duty at the concessional rate of ₹ 300 per metric tonne contrary to the liability of the assessees who do not opt to avail the procedure under sub-rule (3) to pay ₹ 400 per metric tonne. But both the classes of assessees are required to pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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