TMI Blog2014 (12) TMI 585X X X X Extracts X X X X X X X X Extracts X X X X ..... le 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. - Decided against the assessee. Unreasonable condition imposed under Rule 8(3A) - Held that:- It can be appreciated that where a manufacturer falls behind the payment schedule on account of financial constraints, such as, slowing down of business, competition in the market reducing the profit margins, promised payments from the purchasers not coming forth or temporary labour disputes, would find it extremely difficult thereafter to raise further funds for pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to the aim sought to be achieved, the same must be held to be wholly arbitrary and unreasonable. We may recall, the delegated legislature in its wisdom now dismantled this entire mechanism and instead has provided for penalty at the rate of 1% per month on delayed payment of duty. Condition contained in sub-rule (3A) of rule 8 for payment of duty without utilizing the cenvat credit till an assessee pays the outstanding amount including interest is declared unconstitutional. Therefore, the portion "without utilizing the cenvat credit" of sub-rule (3A) of rule 8 of the Central Excise Rules, 2002, shall be rendered invalid. However order passed by the adjudicating authority sustained on the ground that if now we grant the relief as prayed for by the petitioner, we would be rendering the entire mechanism of appeal to the Commissioner and the further appeal to the Tribunal nugatory. - Decided partly in favour of assessee. - SPECIAL CIVIL APPLICATION NO. 3344 of 2014 - - - Dated:- 27-11-2014 - MR. AKIL KURESHI AND MR. VIPUL M. PANCHOLI, JJ. FOR THE APPELLANT : MR DEVEN PARIKH, SR. ADVOCATE WITH MR HASIT DILIP DAVE MR MIHIR PATHAK, ADVOCATES FOR THE RESPONDENT : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t made the payments in the manner prescribed under rule 8(1) read with rule 8(3A) of the Central Excise Rules, 2002. He held that the duty paid by the petitioner from the cenvat credit was not in terms of rule 8(3A) of the Central Excise Rules 2002. The petitioner's defence of precarious financial condition was not accepted. It was under such circumstances that the adjudicating authority confirmed the duty demand with interest and penalty. For the remaining periods of defaults, further show cause notices were issued. Proceedings arising out of such show cause notices are pending at different stages. 4. Against such order, the petitioner preferred appeal to the Commissioner of Central Excise, who dismissed the appeal by his order dated dated 23rd November 2009 on the short ground that the appeal was filed 173 days beyond the period of limitation prescribed. As per the statute, the appellate authority had power to condone the delay upto 60 days and no more. Thus the extent of delay was beyond the Commissioner s power to condone. 5. Against such order of the Commissioner, the petitioner preferred further appeal before the Customs, Excise and Service Tax Appellate Tribunal ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 37. The counsel contended that clause (xiiia) of sub-section (2) of section 37 which pertains to the power to frame rules provide for withdrawal of facility or impose restrictions on manufacturer or exporter or suspension of registration of dealer, for dealing with evasion of duty or misuse of cenvat credit, would not enable the delegated legislation to frame rules for withdrawing facility of paying excise duty through cenvat credit. When such specific rules excludes any such power, the delegated legislation cannot rely on the general provisions contained in sub-section (1) of section 37. (2) The counsel contended that the rule is discriminatory and makes an artificial distinction amongst the class of assessees, one who is permitted to avail cenvat credit for payment of excise duty and another who is denied such facility. (3) The counsel also contended that the rule is wholly arbitrary and unreasonable. An assessee who for genuine financial constraints is unable to pay even a part of the excise duty by the due date is required to clear all future consignments not only on payment of excise duty but without availing cenvat credit. This restriction is unreasonable and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ays during Paryushan festival. It was held that the restriction was for a short period of nine days and was, therefore, reasonable. (3) Reliance was also placed on the decision of the Supreme Court in the case of Chintamanrao v. State of M.P., AIR 1951 SC 118 in which constitution Bench of the Supreme Court observed that the phrase reasonable restriction connotes that the limitation imposed on a person in enjoyment of the right should not be arbitrary or of an excessive nature, beyond what is required in the interests of the public. The word reasonable implies intelligent care and deliberation, that is a choice of a course which reason dictates. (4) In the case of The State of Madras v. V.G.Row, AIR 1952 SC 196 in which it was observed that while judging the reasonableness of the restrictions imposed, both the substantive and the procedural aspects of the impugned restrictive law should be examined from the point of view of reasonableness. (5) The decision in the case of Om Kumar v. Union of India, (2001) 2 SCC 386 was cited for the purpose of contending that while judging the validity of the rules, the principle of proportionality should be applied. In suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dit is, therefore, indefeasible. It should also be noted that there is no co-relation of the raw material and the final product; that is to say, it is not as if credit can be taken only on a final product that is manufactured out of the particular raw material to which the credit is related. The credit may be taken against the excise duty on a final product manufactured on the very day that it becomes available. 18. It is, therefore, that in the case of Eicher Motors Ltd. v. Union of India (1999) 106 ELT 3 : (1999 AIR SCW 563 : AIR 1999 SC 892) this Court said that a credit under the MODVAT scheme was as good as tax paid. (8) In the case of Samtel India Ltd. v. Commissioner of Central Excise, Jaipur, 2003 (155) ELT 14 (SC), in which the decision in the case of Eicher Motors Ltd (supra) was relied upon and applied. (9) In the case of Kunj Beharilal Butail v. State of H.P., (2000) 3 SCC 40, it was observed that: 14. We are of the opinion that a delegated power to legislate by making rules for carrying out the purposes of the Act is a general delegation without laying down any guidelines; it cannot be so exercised as to bring into existence sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king certain stringent provisions, advisability of which this Court would not go into. 12. The counsel contended that in the field of taxation, the Executive and the Legislature has wider discretion. In complex economic issues, the Court would not venture into judging the reasonableness of the legislation. 13. The counsel further submitted that those assessees who do not pay the excise duty and commit default form a different class and cannot be compared with those who fulfill the commitments and would, therefore, continue to enjoy the benefits of payment of excise duty on monthly basis. 14. In support of his contentions, counsel relied on the following decisions: (1) Reference was made to the decision of the Supreme Court in the case of Mathuram Agrawal v. State of Madhya Pradesh, AIR 2000 SC 109 to contend that in taxing statute, the Court would give effect to the plain language used. For the same purpose, reliance was also placed on the decision in the case of Baidyanath Ayurved Bhavan v. Excise Commissioner, UP, AIR 1971 SC 378. (2) In the case of India Agencies, Bangalore v. Addl. Commissioner of Commercial Taxes, AIR 2005 SC 1594, in which it was observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tification it becomes apparent that the rule and the notification have been framed for a specified class of persons having reasonable nexus with the object sought to be achieved. The notification lays down the monetary limit in which the class of cases the same shall be made applicable. (2) In the case of R. K. Garg v. Union of India, (1981) 4 SCC 675 in which it was observed as under: 7. Now while considering the constitutional validity of a statute said to be violative of Article 14, it is necessary to bear in mind certain well established principles which have been evolved by the Courts as rules of guidance in discharge of its constitutional function of judicial review. The first rule is that there is always a presumption in favour of the constitutionality of a statute and the burden is upon him who attacks it to show that there has been a clear transgression of the constitutional principles. This rule is based on the assumption, judicially recognised and accepted, that the legislature understands and correctly appreciates the needs of its own people, its laws are directed to problems made manifest by experience and its discrimination are based on adequate gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t credit in respect of capital goods and provides that in respect of capital goods received in a factory or in the premises of the provider of output service at any point of time in a given financial year shall be taken only for an amount not exceeding fifty per cent of the duty paid on such capital gods in the same financial year. There are provisos to this clause with which we are not concerned. Clause (b) of sub-rule (2) provided that balance of cenvat credit may be taken in any financial year subsequent to the financial year in which the capital goods were received in the factory of the manufacturer or in the premises of the provider of output service. 18. In exercise of powers conferred under section 37 of the Central Excise Act, 1944, the Central Government has framed the Central Excise Rules, 2002. Rule 4 of the said Rules pertains to duty payable on removal. Sub-rule (1) thereof provides that every person who produces or manufactures any excisable goods, or who stores such goods in a warehouse, shall pay the duty leviable on such goods in the manner provided in rule 8 or under any other law, and no excisable goods, on which any duty is payable, shall be removed without p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) If the assessee fails to pay the amount of duty by due date, he shall be liable to pay the outstanding amount along with interest at the rate specified by the Central Government vide notification under section 11AA of the Act on the outstanding amount, for the period starting with the first day after due date till the date of actual payment of the outstanding amount. Sub-rule (3A), a portion of which is under challenge before us, as it stood at the relevant time, reads as under: If the assessee defaults in payment of duty beyond thirty days from the due date, as prescribed in sub-rule (1), then notwithstanding anything contained in said sub-rule (1) and sub-rule (4) of rule 3 of CENVAT Credit Rules, 2004, the assessee shall, pay excise duty for each consignment at the time of removal, without utilizing the CENVAT credit till the date the assessee pays the outstanding amount including interest thereon and in the event of any failure, it shall be deemed that such goods have been cleared without payment of duty and the consequences and penalties as provided in these rules shall follow. As per this sub-rule, in case of an assessee who has defaulted in payment of du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd if duty is paid accordingly, as per sub-rule (2) of rule 8, the same would be deemed to have been paid on removal and the assessee would be entitled to credit of such duty as allowed under any rule. 22. Sub-rule (3) of rule 8 attaches a liability of paying interest on delayed payment of excise duty. Any assessee who fails to pay duty by the due date would be liable to pay outstanding amount with interest at the rate specified by the Central Government under a notification. The period of computation of interest would be the first day after the due date till date of actual payment of the outstanding amount. 23. As noted, the Cenvat Credit Rules 2004 permit an assessee liable to pay excise duty to avail cenvat credit for such purpose on various duties paid on the inputs which may either be raw material or capital goods in the manner provided in the said rules. In this context, sub-rule (3A) of rule 8 makes two fold departure in case of an assessee who has been unable to pay the duty by the due date and such default continues for a further period of 30 days from the due date. If an assessee who was required to pay the entire months of excise duty by the 5th or 6th of the follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Parliament or the State Legislature, a delegated legislation can be struck down also on other grounds such as, that it is ultra vires the parent Act, the provisions are in conflict with the parent Act or that the same is unreasonable or wholly arbitrary or irrational. In the case of Indian Express Newspapers (Bombay) Pvt. Ltd. v. Union of India, (1985) 1 SCC 641, the Supreme Court 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 must yield to plenary legislation. It may also be questioned on the ground that it is unreasonable, unreasonable not in the sense of not being reasonable, but in the sense that it is manifestly arbitrary. In England, the Judges would say Parliament never intended authority to make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clauses of sub-section (2) of section 37, for our purpose, are the following : (ib) provide for the assessment and collection of duties of excise, the authorities by whom functions under this Act are to be discharged, the issue of notices requiring payment, the manner in which the duties shall be payable, and the recovery of duty not paid (ibb) provide for charging or payment of interest in the differential amount of duty which becomes payable or refundable upon finalisation of all or any class of provisional assessments; xxxx xxxx (xiiia) provide for withdrawal of facilities or imposition of restrictions (including restrictions on utilisation of CENVAT credit) on manufacturer or exporter or suspension of registration of dealer, for dealing with evasion of duty or misuse of CENVAT credit; 27. According to Shri Parikh, when clause (xiiia) of sub-section (2) of section 37 circumscribes the rule making power in case of evasion of duty, the sub-ordinate legislation cannot fall back on the general provisions of sub-section (1) of section 37 and therefore, any power to frame sub-rule (3A) of rule 8 must be seen to have been by necessary implicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apply. It enforces the recovery to be made thereafter in a particular manner. Very clearly, the said provision is not beyond the rule making power of the sub-ordinate legislature. 28. The second contention of the petitioner that the provision creates a hostile discrimination treating equals as unequals needs to be rejected out of hand. Sub-rule (3A) of rule 8 recognizes two distinct and different classes of assessees. As long as an assessee abides by the time-frame provided in sub-rule (1) of rule 8 and pays the duty monthly on 5th or 6th day of the month for the previous month, he does not incur any further liability. It is only when he not only misses the crucial date but is unable to or chooses not to pay the duty for another 30 days that sub-rule (3A) of rule 8 would apply. In such a case, the facility of monthly payment and adjustment of cenvat credit is taken away. The fact that two sets of assessees form different and distinct class identifiable and differentiated by intelligible differentia cannot be disputed. In one class, we have those assessees who complied with the requirements of the rules and made payment of excise duty by the due date and the other class forms of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the period of limitation available to the department to institute proceedings, in such cases between such non-payment having been occasioned due to fraud, collusion, etc. in which case a longer period of limitation is available as against rest of the cases. Likewise, under rule 12CC of the Central Excise Rules as it stood at the relevant time, power was given to the Government by notification to withdraw facilities from the manufacturers, registered dealers or exporters under certain circumstances having regard to the extent of evasion of duty, nature and type of offences or such other factors as has been relevant. In exercise of such powers, notification No.17/2006 was issued providing for withdrawal of facilities and for imposition of restrictions against who are prima facie found to be knowingly involved in any of the following: (a) removal of goods without the cover of an invoice and without payment of duty; (b) removal of goods without declaring the correct value for payment of duty, where a portion of sale price, ine xcess of invoice price, is received by him or on his behalf but not accounted for in the books of account; (c) taking of CENVAT credit wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther saddled with the burden of paying such duty in cash without availing CENVAT credit. This rule thus imposes a wholly unreasonable restriction which is not commensurate with the wrong sought to be remedied. 31. This extreme hardship is not the only element of unreasonableness of this provision. It essentially prevents an assessee from availing cenvat credit of the duty already paid and thereby suspends, if not withdraws, his right to take credit of the duty already paid to the Government. It is true that such a provision is made because of peculiar circumstances the assessee lands himself in. However, when such provision makes no distinction between a willful defaulter and the rest, we must view its reasonableness in the background of an ordinary assessee who would be hit and targeted by such a provision. As held by the Supreme Court in the case of Eicher Motors Ltd (supra) an assessee would be entitled to take credit of input already used by the manufacturer in the final product. In the said case, the Supreme Court was dealing with rule 57F which was introduced in the Central Excise Rules, 1944 under which credit lying unutilized in the Modvat credit account of an assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. It was observed: 53. Now under Art. 19(2) to (6), restrictions on fundamental freedoms can be imposed only by legislation. In cases where such legislation is made and the restrictions are reasonable yet, if the concerned statute permitted the administrative authorities to exercise power or discretion while imposing restrictions in individual situations, question frequently arises whether a wrong choice is made by the Administrator for imposing restriction or whether the Administrator has not properly balanced the fundamental right and the need for the restriction or whether he has imposed the least of the restrictions or the reasonable quantum of restriction etc. In such cases, the administrative action in our country, in our view, has to be tested on the principle of 'proportionality,' just as it is done in the case of the main legislation. This, in fact, is being done by our Courts. 34. By no stretch of imagination, the restriction imposed under sub-rule (3A) of rule 8 to the extend it requires a defaulter irrespective of its extent, nature and reason for the default to pay the excise duty without availing cenvat credit to his account can be stated to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of appeal before the Commissioner in terms of section 35 of the Central Excise Act, 1944. Such appeal had to be filed within sixty days from the date of communication of the order. The Commissioner, had power on being satisfied about the sufficient cause preventing the petitioner from preferring such appeal to condone delay upto a maximum period of 30 days. Undisputedly, the appeal was preferred after 173 days on expiry of the limitation. The Commissioner, therefore, could not have and rightly did not condone the delay. Yet again, against such order of the Commissioner, the petitioner approached the Tribunal with further delay of three years. The Tribunal was not convinced about the grounds of delay and was also of the opinion that in any case, the Commissioner s order being legal, even if the delay was condoned, no relief could be granted to the petitioner. If now we grant the relief as prayed for by the petitioner, we would be rendering the entire mechanism of appeal to the Commissioner and the further appeal to the Tribunal nugatory. The first appeal before the Commissioner comes with a rigid time-frame and cannot be presented under any circumstances beyond 30 days after the p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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