TMI Blog2014 (2) TMI 772X X X X Extracts X X X X X X X X Extracts X X X X ..... be the central value added tax - we do not find any substance in the challenge raised by the petitioner to the rule 13(2) of the CENVAT Credit Rules, 2002 and rule 15(2) of the CENVAT Credit Rules, 2004 - Decided against Applicant. - Special Civil Application No. 2678 of 2013 - - - Dated:- 6-2-2014 - Akil Kureshi And Sonia Gokani,JJ. For the Appellant : Mr. Kamal Trivedi, Sr. Adv. and Mruday Joshi For the Respondent : Mr. Gaurang H. Bhatt JUDGMENT (Per : Honourable Mr. Justice Akil Kureshi) 1.In this writ petition, the petitioners have challenged the show cause notice dated 12.8.2008 calling upon the petitioners why CENVAT credit amounting to Rs.4.82crores (rounded off) wrongly availed by them should not be recovered with interest and why penalty under rule 13 of the CENVAT Credit Rules, 2002 and under rule 25 of the Central Excise Rules, 2002 and section 11AC of the Central Excise Act, 1944 should not be imposed. The petitioners have also challenged the validity of rule 13(2) of the CENVAT Credit Rules, 2002 (here in after referred to as "Rules of 2002 ) and rule 15(2) of the CENVAT Credit Rules, 2004 (here in after referred to as "Rules of 2004 ) as ultra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1AC of the Central Excise Ac, 1944 should not be imposed upon them." 4. While the adjudication of the said show cause notice was going on, the petitioners filed the present petition and challenged the show cause notice through the route of challenging the validity of rule 13(2) of Rules of 2002 and rule 15(2) of Rules of 2004. Pending the petition, the adjudication was allowed to proceed. Final order of adjudication was passed which was challenged by way of an amendment, We are however, informed that the said order was also independently challenged before the Customs, Excise Service Tax Appellate Tribunal ("the tribunal"for short) and the tribunal by its order dated 28.11.2013 has remanded the proceedings back to the adjudicating authority. Learned counsel for the petitioners, therefore, stated that the challenge to the order in original passed by the adjudicating authority does not survive. 5. Counsel for the petitioners confined the challenge to the show cause notice only on the basis of validity of rule 13(2) of Rules of 2002 and rule 15(2) of Rules of 2004 and clarified that other aspects of the show cause notice would be raised in appropriate proceedings, if need so aris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount of income tax. This Court in Jain Brothers Ors. v. Union of India 77 I.T.R. 107 said that penalty is not a continuation of assessment proceedings and that penalty partakes of the character of additional tax." Ahmedabad Urban Development Authority v. Sharad kumar Jayanti kumar Pasawalla and others reported in (1992) 3 Supreme Court Cases 285, in which the Supreme Court held that Regulation levying development fees was ultra vires the Gujarat Town Planning and Urban Development Act. It was held that in absence of any specific provision under the Act, the delegated authority has no power to make such Regulations on the basis of any implied, incidental or ancillary authority derived from the words or otherwise'. It was emphasised that a fiscal provision of levying fees must be based on specific statutory provisions and not on any implied, incidental or ancillary authority. Collector of Central Excise, Ahmedabad v. Orient Fabrics (P) Ltd. reported in (2004) 1 Supreme Court Cases, in which the Supreme Court observed that an expropriatory legislation or a penal statute has to be strictly construed. It was further held that the authority of law to levy or collect tax has t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, the Court opined that such harsh penalty was not envisaged even in the parent Act and thus the delegated legislation travelled beyond the scope of its delegation, the rule otherwise also was unreasonable and therefore, violative of Article 14 of the Constitution. Gaffar Kassam v Commissioner of Sales Tax, Orissa, Cuttack and another reported in 1974 (33)Sales Tax Cases 98 in which the Orissa High Court observed that unless a statute expressly or by necessary implication authorises the Rules to create a penal liability, the rule making authority has no jurisdiction to create such a liability. It upheld that there was no specific provision in the Central Sales Tax Act, which authorises the making of a rule for levying of penalty for non payment of tax demand and rule 16(2) of the Central Sales Tax (Orissa) Rules,1957 was struck down. Aryan Ispat and Power Pvt. Ltd. v. Union of India reported in 2012(281) ELT 15 (Ori) , where the Division Bench of Orissa High Court struck down the validity of rule 12AA of Rules of 2004 and rule 12CC of Rules of 2002, on the ground that the Central Government had no power to make such rules. 7.On the other hand, learned counsel Shri Bhat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provides that there shall be levied and collected in such manner as may prescribe various duties specified therein. Clause(a) of sub section(1) pertained to a duty of excise. With the advent of the central value added tax regime in the year 2000, the term a duty of excise' was substituted by the expression "a duty of excise to be called Central Value Added Tax (CENVAT)"in the said clause. ++ Section 4 of the Central Excise Act, pertains to valuation of excisable goods for the purposes of charging excise duty. ++ Section 11 of the Central Excise Act, pertains to recovery of sums due to Government and provides for a machinery and the manner in which such recovery can be effected. Section 11A of the Act provides for the procedure of recovery of duties not levied or not paid or short levied or short paid or erroneously refunded. Section 11AA and 11AB pertain to interest on delayed payment of duty. Section 11AC provides for penalty for short levy or non-levy of duty in certain cases. Sub section(1) thereof provides for penalty for non levy or short levy or non payment or short payment or erroneous refund of the duty, particularly where as per clause(a) the same was by reason of fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of our inquiry, we may advert to the Rules of 2004. ++ Rule 3 thereof pertains to CENVAT credit. Sub-rule(1) provides that a manufacturer or producer of final products or a provider of output service shall be allowed to take CENVAT credit of various duties specified in clause(i) to (xi) paid on any input or capital goods or any input services received as manufacturer of final product. ++ Rule 4 of the Rules of 2004 provides for conditions for allowing CENVAT. Sub rule(1) provides that in CENVAT credit in respect of any input may be taken immediately on receipt of the inputs in the factory of the manufacturer or in the premises of the provider of output service. Sub rule(2) pertain to Cenvat credit in respect of capital goods received in a factory or in the premises of the provider of output service and broadly speaking provides for 50% of the credit to be taken in the same year. The rest being available the next year. ++ Rule 5 pertains to refund of CENVAT credit in case of a manufacturer who clears a final product or an intermediate product for export. ++ Rule 14 pertains to recovery of CENVAT wrongly taken or erroneously refunded. Rule 14 provides that where the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available also in cases of delegated legislation. (See St. Johns Teachers Training Institute v. Regional Director, National Council for Teacher Education and another reported in (2003) 3 Supreme Court Cases 321. We are conscious that a piece of delegated legislation does not enjoy the same level of immunity as the Act of State or Central legislature. However, there are well laid down parameters within which a delegated legislation can be questioned. We may in this context refer to the decision of the Supreme Court in case of Indian Express Newspapers (Bombay) Private Ltd. and others v. Union of India and others reported in (1985) 1 Supreme Court Cases 641, in which it was observed as under: "75. A piece of subordinate legislation does not carry the same degree of immunity which is enjoyed by a statute passed by a competent legislature. Subordinate legislation may be questioned on any of the grounds on which plenary legislation is questioned. In addition it may also be questioned on the ground that it does not conform to the statute under which it is made. It may further be questioned on the ground that it is contrary to some other statute. That is because subordinate legislation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strictly construed and power of imposing penalty or confiscation has to be specific, explicit and expressly provided. Collector of Central Excise, Ahmedabad v. Orient Fabrics (P) Ltd. (supra). c) While delegating essential legislative function of choosing the legislative policy, only ancillary or subordinate function may be delegated. Kunj Behari Lal Butail and others v. State of H.P. and others (supra) 14. It can be seen from the Central Excise Act and the Rules of 2002 and Rules of 2004 that till the year 2000, the central excise duty was being charged from the manufacturer as per the Central Excise Act as provided in section 3 thereof. Sometime in the year 2000, CENVAT regime was ushered in which in essence permits the manufacturer of a final product to take the credit of the CENVAT paid on the inputs and input services utilised for manufacture of such final product and being ultimately saddled only with the liability of paying CENVAT on the value addition made by him. Rules also provide for availing CENVAT credit on capital goods used in the manufacturing process. Thus in essence, central excise was replaced by the concept of CENVAT. Nevertheless, CENVAT was nothing but a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lection of CENVAT and matters connected therewith but also to provide for penalties for breach of payment of such duty. We have already discussed that CENVAT is nothing but a form of excise duty charged in terms of section 3 of the Central Excise Act, 1944. Section 37(4) of the Central Excise Act, 1944 permitted the rule making authority to provide for confiscation and penalty not exceeding the duty liability on the goods, if any manufacturer, producer or licensee of a warehouse contravenes the provisions of any such rule with intent to evade the payment of duty. This precisely was provided in sub rule(2) of rule 15 i.e. for penalty in terms of section 11AC when CENVAT credit has been taken or utilised wrongly by reason of fraud, collusion, or any wilful mis statement or suppression of facts or contravention of any of the provisions of the Excise Act or rules made therein. We may also recall that section 11AC itself provides for penalty from a person liable to pay duty if such duty has not been levied or short levied or short paid or erroneously refunded, by reason of fraud or collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Schedule were to be levied. We have quoted Sub section (1). 20. The First Schedule contained Item Nos. description of goods and rates of duty. Section 3 has subsequently been amended by the Finance Acts of 1982 and 1984, and the Central Excise Tariff Act of 1985. This section, it would be seen, expressly empowered the levy and collection of duties of excise on all excisable goods as provided in the Act including its First Schedule. It could not, therefore, be said that Rule 10 A was not covered by the above provision. 21. It is an accepted principle that delegated authority must be exercised strictly within the limits of the authority. If rule making power is conferred and the rules made are in excess of that power the rules would be void even if the Act provided that they shall have effect as though enacted in the Act as was ruled in State of Kerala v. K.M. Charia Abdullah Co., [1965] 1 SCR 601. Therein the High Court having declared rule 14 A of the Madras General Sales Tax Rules, 1939 as ultra vires, on appeal, this Court by majority held that the validity of the rule, even though it was directed to have effect as if enacted in the Act, was always open to challenge on the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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