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TMI Blog2014 (12) TMI 585X X X X Extracts X X X X X X X X Extracts X X X X ..... castings. As per rule 8(3) of the Central Central Excise Rules 2002, the petitioner was required to pay excise duty on clearance of the goods on monthly basis. For the months of August 2007 to November 2007, the petitioner did not pay such duty by the last date permitted under the said rule. Under such circumstances, by virtue of rule 8(3A) of the Central Excise Rules, 2002, the petitioner was required to clear the future consignments upon actual payment of duty without utilizing cenvat credit till the outstanding duty with interest was fully cleared. We are informed that this inability of the petitioner to pay full duty by the due date continued for some time thereafter also, however, the unpaid duty was only part of the total duty liability of the petitioner for the period under consideration on each occasion. We are further informed that the petitioner cleared all its due with interest by December 2008. It was, however, clarified that during this period, the petitioner did utilize the cenvat credit for payment of excise duty. 3. For the defaults in the payment of duty by the due date and utilization of cenvat credit for payment of duty thereafter, though prohibited under rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8(3A) of the Central Excise Rules 2002. Thereupon, this petition came to be filed. 7. We would advert to relevant statutory provisions a little later. Briefly at this stage, we may note that rule 8 of the Central Excise Rules, 2002 pertains to the manner of payment of duty. Sub-rule (1) thereof permits the assessee to pay the total duty for the entire month on a specified date of the following month referred to as due date. Sub-rule (3) of rule 8 provides that when an assessee fails to pay the duty by the due date, he shall be liable to pay interest thereon. Sub rule (3A) which is at the center of controversy in essence requires an assessee who fails to pay the duty by the due date and further defaults in clearing the duty and whose defaults continues for a further period of 30 days thereafter, to make clearance only on payment of excise duty and that too without availing cenvat credit. It is this rule which the petitioner challenges on various grounds. 8. Learned counsel Shri Devan Parikh for the petitioner raised following contentious in support of the challenge. (1) The rule making authority did n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Constitution but also would seriously hamper the petitioner's right to carry on trade or business under Article 19(1)(g) of the Constitution. 9. In support of the contentions raised, the counsel relied on the following decisions: (1) In the case of Kerala Samsthana Chethu Thozhilali Union v. State of Kerala, (2006) 4 SCC 327, wherein in the background of the State of Kerala having banned the sale of arrack framed Kerala Abkari Shops Disposal Rules requiring one arrack worker each to be employed in all toddy shops, the Supreme Court held that the rule was beyond the power of the subordinate legislation. It was observed as under: "37. Furthermore, the terms and conditions which can be imposed by the State for the purpose of parting with its right of exclusive privilege more or less has been exhaustively dealt with in the illustrations in sub-section (2) of Section 29 of the Act. There cannot be any doubt whatsoever that the general power to make rules is contained in sub-section (1) of Section 29. The provisions contained in sub-section (2) are illustrative in nature. But, the factors enumerated in sub-section (2) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 89, in which the Supreme Court held that the provision of Rajashtan Higher Judicial Service Rules which required that the candidates for direct recruitment must be advocates who had practiced in Rajasthan High Court or sub-ordinate courts was ultra vires Articles 14 and 16 of the Constitution. Such classification was arbitrary and discriminatory. (7) In the case of Eicher Motors Ltd v. Union of India, 1999 (106) ELT 3 (SC), in which it was observed that Modvat credit is in the nature of a facility of credit which is as good as tax paid till tax is adjusted on future goods. It was further observed that the right to the credit has become absolute at any rate when the input is used in the manufacture of final product. (7a) In the case of Collector of Central Excise, Punme v. Dai Ichi Karkaria Ltd., 1999 (112) ELT 353 (S.C.), where following the decision in the case of Eicher Motors Ltd. (supra), it was observed as under: "17. It is clear from these Rules, as we read them, that a manufacturer obtains credit for the excise duty paid on raw material to be used by him in the production of an excisable pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce was available, penalty under rule 25 of the Central Excise Rules could not be imposed. (11) The decision in the case of Commissioner of Central Excise vs. Harish Silk Industries, 2013 (288) ELT 74 (Guj.) was brought to our notice to point out that though this Court discussed the applicability of rule 8(3A) of the Central Excise Rules, 2002, in the said judgment, the question of its constitutional validity was not at issue. 10. On the other hand, learned Senior Counsel Shri RJ Oza for the department opposed the petition contending that section 37(1) of the Central Excise Act, 1944 gives sufficiently wide powers to the rule making authority. Sub-section (2) of section 37 specified various purposes for which such powers can be exercised. He drew our attention to clause (ib) and clause (ibb) of sub-section (2) of section 37 to contend that the delegated legislature had ample power to frame rule 8(3A) of the Central Excise Rules, 2002. He pointed out that clause (xiiia) of section 37(2) was introduced with effect from 8.5.2010 whereas rule 8(3A) as applicable in the present case was introduced by the notification dated 1.6.2006. While interpreting the legislativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p; (3) In the case of M/s. Bhikusa v. Sangamner A.T.B.K. Union, AIR 1960 Bombay 299, in which it was observed that when a legislative enactment is challenged as being discriminatory, the challenger must prove that the enactment is not based on any classification at all or that it is based on a classification which is not founded upon any intelligible differentia having a rational relation to the object sought to be attained by the enactment. (4) In the case of Unirols Airtex v. Assistant Commr. Of C.Ex. Comibatore, 2013 (296) ELT 449 (Mad.), in which the Madras High Court held that in view of rule 8(3A) in case of any defaulter, duty must be paid without availing cenvat credit. In this decision, however, rule 8(3A) was not under challenge. (5) In the case of Vidushi Wires Pvt. Ltd. v. Union of India, 2003 (156) ELT 168 (Bom.), in the context of rule 8(1) prevailing at the relevant time providing facility of paying duty in installments, it was held that such provision was mandatory and non-compliance thereof would result into penal consequences. (6) In the case of Elson Packaging Industries Pvt. Ltd. v. Commr. O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an be conceived existing at the time of legislation. 8. Another rule of equal impotence is that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc." (3) In the case of Bhavesh D. Parish v. Union of India, (2000) 5 SCC 471, the Supreme Court observed that the Court must always remember that the legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex. Every legislation particularly in economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method and therefore it cannot provide for all possible situations or anticipate all possible abuses. 16. The learned Assistant Solicitor General Shri Vyas also opposed the petition. Supporting the arguments of the other counsel for the respondents and relying on the decision of the Supreme Court in the case of State of Madhya Pradesh v. Rakesh Kohli, (2012) 6 SCC 312 he emphasized that while dealing with the constitutional validity of a taxing statute, question of hardship is irrelev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valuation. Sub-rule (1) thereof provides the rate of duty or tariff value applicable to any excisable goods other than khandsari molasses shall be the rate or value in force on the date when such goods are removed from a factory or a warehouse, as the case may be. As per rule 6, an assessee has to himself assess the duty payable on any excisable goods. As per rule 7, if an assessee is unable to determine the value of excisable goods or determine the rate of duty applicable, he may request the Assistant Commissioner of Central Excise or the Deputy Commissioner in writing giving reasons for payment of duty on provisional basis upon which such authority would make an order allowing payment on provisional basis at such rate or on such value as may be specified. 19. Rule 8 of the Central Excise Rules pertains to the manner of payment. Sub-rule (1) of rule 8 requires that the duty of the goods removed from the factory or the warehouse during a month shall be paid by the 6th day of the following month, if the duty is paid electronically through internet banking and by the 5th day of the following month, in any other case. First proviso to sub-rule (1) provides that in case of goods remov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding amount including interest. In the event of failure, it would be deemed that such goods have been cleared without payment of duty and the consequences and penalties as provided in the rules would follow. 20. We may record that sub-rule (3A) which was introduced with effect from 1.6.2006 has since been substituted by notification dated 11th July 2014 and the current applicable sub-rule (3A) reads as under: "(3A) If the assessee fails to pay the duty declared as payable by him in the return within a period of one month fro the due date, then the assessee is liable to pay the penalty at the rate of one per cent, on such amount of the duty not paid, for each month or part thereof calculated from the due date, for the period during which such failure continues." It can thus be seen that with the substitution of sub-rule (3A) of rule 8, the requirement of the defaulter to clear the goods on payment without availing cenvat credit has been done away with. Instead, such an assessee would invite penalty at the rate of one per cent for each month or part thereof calculated from the due date. 21. From the statutory provisions, it can be seen that ordinarily as per ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould no longer enjoy the facility of payment of excise duty on monthly basis and he would have to clear each consignment on actual payment of duty and secondly that he would not be entitled to avail of cenvat credit for such purpose. 27.11.2014 24. We may recall that the petitioner has challenged only that portion of sub-rule (3A) of rule 8 which requires a defaulter to clear the finished product on payment of excise duty without availing the cenvat credit. We may consider the petitioner's challenge to the vires of such rule in the background of the statutory scheme. Before doing so, however, we may examine the parameters on which a delegated legislation can be called in question. It is by now well settled that a legislation enacted by the Union or the State Legislature enjoys a presumption of constitutionality. Heavy burden is one who questions its constitutionality to establish the same through cogent materials. A reference in this respect can be made to a Constitution Bench decision of the Supreme Court in the case of State of Jammu & Kashmir v. Triloki Nath Khosa, AIR 1974 SC 1. It is also well settled that the principle of presumption of constitutionality also applies to a d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Diplock L. J. in Mixnam. Properties Ltd. v. Chertsey U. D. C., (1964) 1 QB 214 thus:- "The various grounds upon which subordinate legislation has sometimes been said to be void ..............can, I think, today be properly regarded as being particular applications of the general rule that subordinate legislation, to be valid, must be shown to be within the powers conferred by the statute. Thus the kind of unreasonableness which invalidates a bye-law is not the antonym of "reasonableness" in the sense of which that expression is used in the common law, but such manifest arbitrariness, injustice or partiality that a court would say : 'Parliament never intended to give authority to make such rules; they are unreasonable and ultra vires ......' If the courts can declare subordinate legislation to be invalid for 'uncertainty,' as distinct from unenforceable ............this must be because Parliament is to be presumed not to have intended to authorise the subordinate legislative authority to make changes in the existing law which are uncertain .........." xxxx "77. In India arbitrarin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation taken away. This contention, however, for various reasons cannot be accepted. Firstly clause (xiiia) was introduced in the statute with effect from 8.5.2010. Sub-rule (3A) of rule 8 was introduced in the year 2006. No guidance, therefore, can be had from clause (xiiia) in the context of discretion of the power of the rule making authority under the delegated legislation. Further, quite apart from sub-section (1) of section 37 itself giving sufficiently wide powers to the Central Government to frame rules to carry into effect the purposes of the Act, sub-section (2) of section 37 further clarifies that the purposes enumerated in various clauses under the said sub-section are without prejudice to the generality of the powers flowing from sub-section (1). If, therefore, any rule is framed which would be otherwise within the legislative competence in view of the authority given to the Government under sub-section (1) to carry into effect the purposes of the Act, such rule cannot be targeted as being outside of a particular clause contained in sub-section (2) of section 37. We must notice that rule 8 and subrule (3A) thereof is not a charging provision. It is a mechanism for coll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of those assessees who missed the due date by at least 30 days. If the Legislature, therefore, treats these two distinct classes differently, this would certainly not a case of hostile discrimination. An assessee who for whatever reasons is unable to pay the duty within the time prescribed by the statute cannot complain of being differently treated from those who fulfill the statutory requirements. The provisions contained in sub-rule (3A) have a purpose to achieve relatable to the class of assessees who failed to pay the duty in time is also equally clear. It is only when the condition of payment of duty by the 5th or the 6th day of month following the previous month of clearance is not fulfilled by an assessee that the stringent requirement of collection of duty on each consignment and withdrawal of the facility of cenvat credit follows. These are undoubtedly stringent provisions provided to deal with the class of assessees who are unable to pay the duty in time. 29. This brings us to the last limb of the petitioner's contention, namely, that the condition attached by sub-rule (3A) of rule 8 is unreasonable and therefore violative of Article 14 of the Constitution and amounts t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p; (c) taking of CENVAT credit without the receipt of goods specified in the document based on which the said credit has been taken; (d) taking of CENVAT credit on invoices or other documents which a person has reasons to believe as not genuine; (e) issue of excise duty invoice without delivery of goods specified in the said invoice; (f) claiming of refund or rebate based on the excise duty paid invoice or other documents which a person has reason to believe as not genuine." This rule 12CC as well as the notification issued by the Government would apply to special class of assessees who through their conscious act tried to evade duty. 30. It can be seen that the reasons for non-payment of excise duty can be manifold and not necessarily in all cases have to be willful default by an assessee despite availability of funds. Excise duty may remain unpaid due to economic reasons, due to slowness in the business or due to financial crunch temporarily felt by the manufacturer who though might have cleared the finished goods and also sold the goods in the market may not have received the payment as promised. All such cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich credit lying unutilized in the Modvat credit account of an assessee on 16th March 1995 would lapse. Such provision was questioned. The Supreme Court held that since excess credit could not have been utilized for payment of the excise duty on any other product, the unutilised credit was getting accumulated. For the utilization of the credit, all vestitive facts or necessary incidents thereto had taken place prior to 16.3.1995. Thus the assessees became entitled to take the credit of the input instantaneously once the input is received in the factory of the manufacturer of the final product and the final product which had been cleared from the factory was sought to be lapsed. The Supreme Court struck down the rule further observing that if on the inputs the assessee had already paid the taxes on the basis that when the goods are utilized in the manufacture of further products as inputs thereto then the tax on those goods gets adjusted which are finished subsequently. Thus a right had accrued to the assessee on the date when they paid the tax on the raw materials or the inputs and that right would continue until the facility available thereto gets worked out or until those goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he excise duty without availing cenvat credit to his account can be stated to be a reasonable restriction. It leads to a situation so harsh and a position so unenviable that it would be virtually impossible for an assessee who is trapped in the whirlpool to get out of his financial difficulties. This is quite apart from being wholly reasonable, being irrational and arbitrary and therefore, violative of Article 14 of the Constitution. It prevents him from availing credit of duty already paid by him. It also is a serious affront to his right to carry on his trade or business guaranteed under Article 19(1)(g) of the Constitution. On both the counts, therefore, that portion of sub-rule (3A) of rule must fail. 35. The situation can be looked at slightly different angle. With or without the provisions of sub-rule (3A), liability to pay interest for the default period as per sub-rule (3) of rule 8 continues. Sub-rule (3A) is basically a mechanism for stringent recovery and does not create a new liability unless this mechanism itself is breached. In such a mechanism to provide for withdrawal of CENVAT credit facility for paying the duty borders to creating a penalty. Insisting on an asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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