TMI Blog2015 (9) TMI 151X X X X Extracts X X X X X X X X Extracts X X X X ..... duction determined by the formula in Sub-rule (3) of Rule 3 of the Rules, then that has to be taken as the annual capacity for the financial year 1997-98 and the subsequent years. This rule, it seems, was introduced keeping in view the fact that without there being any change in the plant and machinery, including man power, there should not be any reason why factory should have more production in 1996-97 than 1997-98. In other words, without there being any change in the plant and machinery and the other infrastructure including man power, if class 'A' manufacturer in 1996-97 could produce 150 bars/rods there was no reason for him to produce less number of bars/rods in 1997-98 unless there is a reason and the evidence in support thereof and if there is any such reason or evidence the manufacturer can take recourse to sub-section (4) of Section 3A of the Act. It was also to check mischief, if any, on the part of manufacturer to show or go for lower/less production to gain an advantage of the scheme. We find that the classification have a rational nexus with the object sought to be achieved by the law. The State, in the exercise of its governmental power, has, of necessity, to ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment years for our purpose are 1996-97 to 1999-2000. The Company was engaged in the business of manufacturing steel products including steel rolled products. 6. Annual capacity of the Company, contemplated by Section 3A of the Act, was determined by three orders dated 23.12.97, 23.12.97 and 8.3.2000. The excise authorities accordingly initiated proceedings to enforce the orders and recover differential duty from the Company for the period between 1.9.1997 and 31.3.2000. Two different orders dated 23.3.2000 and 30.11.2000 were passed demanding differential duty of ₹ 1,86,15,840/- and ₹ 28,98,779 in respect of Old Madras Road Unit of the Company. On appeal, the order dated 23.3.2000 was set- aside and the matter was remanded by the Commissioner (Appeals) (for short the Appellate Authority or AA' ). The appeals against the order dated 30.11.2000, however, remained pending. The order dated 15.1.2001 in respect of Whitefield Unit of the Company was also passed demanding a differential duty. That order was also carried in appeal and the appeal was pending when the writ petition was disposed of. In respect of Yeshwantpur Unit of the Company, three orders dated 13.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roportionate 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 assessee with reference to such actual production at the rate specified in sub-section (3). (5) Where the Commissioner of Central Excise determines the actual production under sub-section(4), the amount of duty already paid, if any, shall be adjusted ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he production determined as per the provisions contained in this Section read with the Rules. 10. It is well settled that in holding whether a relevant section/rule to be ultra vires it becomes necessary to take into consideration the purpose of enactment as a whole, starting from preamble to the last provision thereto, in the light of the object behind introducing any particular provision. If the relevant rule/provision is read as a whole, it would indicate the purpose and whether that purpose is carried out by the Rules. If the Rule is consistent with the provisions in the Act and if it is found to be introduced to achieve the object of the Act, the same cannot be stated to be ultra vires of the provisions of the enactment. We would examine the vires of Rule 5 in the light of these principles. 11. Insofar as constitutional validity of Rule 5 of the Rules is concerned, it would be necessary to keep in view that the prohibition contained in Article 14 of the Constitution is directed against the State as widely defined by Article 12, for the purpose of Part III of the Constitution, which deals with fundamental rights. In other words, the prohibition at Article 14 is addressed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 90 of the Schedule to the Central Excise Tariff Act, 1985 for determining the annual capacity of production of a factory if such goods are manufactured or produced with the aid of hot re-rolling mill. 13.3. Proviso to sub-section (2) takes care of a situation where factory producing notified goods is in operation only during a part of the year in which case, the production thereof shall be calculated on proportionate basis of the annual capacity of production. In short, if for any reason a factory is not in operation, the care has been taken to give benefit to the assessee of the period during which factory was not working. It also means that if the production of the notified goods is less in view of closure of factory during a part of the year the excise duty shall be calculated on proportionate basis which could be less than the annual capacity of production. 13.4. Sub-section (3) of Section 3A provides that the duty of excise shall be levied at such rate as the Central Government may by notification in the official gazette specify, and collect in the manner as may be prescribed provided that, where a factory producing notified goods did not produce the notified goods durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules contain hardly five rules. Rule-5, as a matter of fact, was inserted by M.F.(DR) Notification No.45/97-C.E.(NT), dated 30-8-1997, i.e. exactly after 30 days from the date on which the rules were brought into force. Rule-5, provides that in case the annual capacity determined by the formula in Sub-rule (3) of Rule-3 in respect of a mill is less than the actual production of the mill during the financial year 1996-97, then the annual capacity so determined shall be deemed to be equal to the annual production of the mill during the financial year 1996-97. 15.2. Rule-2 of the Rules provides that the rules shall apply to non-alloy steel, hot re-rolled products for determining the annual capacity of production of a factory if such goods are manufactured or produced with the aid of hot rolling mill. Rule-3 provides that the annual capacity of production referred to in Rule 2 shall be determined in the manner prescribed in sub-rules (1) to (4). Sub-rule (3) prescribes the formula for determination of the annual capacity of production of hot re-rolled products of non- alloy steel in respect of hot re-rolling mills. 15.3. Sub-Rule (4) of Rule 3 provides that the Commissioner of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 was 150, for the year 1997-98 the annual production determined as contemplated by the Rules was 120 and if the actual production in 1997-98 was 115, still, as provided for, under Rule 5 the annual capacity of A shall be taken as 150. On the other hand, if the annual production of bars/rods by Class 'B' manufacturer in 1996-97 was 110 and the annual production determined as per the formula for the year 1997-98 was 120 and the actual production in 1997-98 was 130, still the annual capacity of 'B' shall be taken as 120. Thus, though class 'A' manufacturer's production in 1997-98 was less than the production determined as per formula, he was required to pay the tax as contemplated by Rule 5 on the basis of annual production in 1996-97, i.e., 150 bars/rods. As against class 'B' manufacturer, even if their production in 1997-98 was more than the annual production determined as per formula would be liable to pay tax on the annual production as per the formula i.e. 120 and not on the actual production i.e. 130. 17.2. On the basis of this example it was submitted that class 'A' manufacturer has to pay more duty than class 'B' manufact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 3A. This Rule treat the equals as unequal. In other words, it was contended that Rule 5 is not only violative of Article 14 of the Constitution but also runs counter to Section 3A of the Act. 20. It is well settled that taxation laws are also subject to fundamental rights guaranteed under the Constitution. It is also settled that tax law cannot be challenged merely on the ground that the rate of tax is very high unless the tax is a colorable devise to confiscate the property. The principle that a tax which is discriminatory is void as violating Article 14 is also indisputable. Though the principle is not in dispute, its application is open to judicial review. 21. It is not in dispute that taxation laws must also pass the test of Article 14. But in deciding whether a taxation law is discriminatory or not, it is necessary to bear in mind that the State has a wide discretion in selecting the persons or objects it will tax and that a statute is not open to attack on the ground that it taxes some persons or objects and not others. It is only when within the range of its selection, the law operates unequally, and that cannot be justified on the basis of any valid classificatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e it has to deal with complex problems which do not admit of solution through any doctrine or straight jacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the legislature. The court should feel more inclined to give judicial deference to legislature judgment in the field of economic regulation than in other areas where fundamental human rights are involved. The Supreme Court in Federation of Hotel and Restaurant Association of India vs. Union of India and others, AIR 1990 SC 1637, while considering the challenge to the constitutional validity of Expenditure Tax Act 1983 observed it is not well settled that taxing laws are not outside Article 14, however, having regard to wide variety of diverse economic criteria that go into the formulation of fiscal policy, legislature enjoys a wide latitude in the matter of selection of persons, subject matter, events, etc. for taxation. The test of the vice of discrimination in a taxing law, are accordingly, less rigorous. In examining the allegations of a hostile, discr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without any substance. Even if it is assumed that provisions contained in Rule 5 make distinction between Class A manufacturer and Class B manufacturer, such distinction cannot be stated to be unconstitutional since we are of the firm view that it has a rational relation to the object sought to be achieved by the Act. If the scheme contained in Section 3A, as we have observed earlier, provides solution to every situation which seems odd such as the one brought to our notice on the basis of the example. Class A manufacturer irrespective of the figures of production for the year 1996-97, 1997-98 and for subsequent years can approach the Commissioner under Sub-section (4) of Section 3A and produce evidence in support of his claim in respect of the actual production if it was lower than the production determined under sub- section (2) of Section 3A. In other words, apart from the mechanism provided in the proviso to Sub-section (2) and proviso to sub-section (3) under Sub-section (4), the assessee who claims that the actual production of his notified goods was lower than the production determined in Sub-section (2), the Commissioner is empowered to determine the actual production, aft ..... X X X X Extracts X X X X X X X X Extracts X X X X
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