TMI Blog2005 (12) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (1) of Section 3A of the Act and separate procedure was ushered in for the determination of the duty liability of persons who are manufacturing the notified goods in respect of goods produced by the factory covered under the notification issued by the Central Government. 2.The methodology for the determination of duty was provided in sub-section (2) of Section 3A of the Act, which again was relegated to be in terms of Rules framed for such purposes. One major distinction in respect of duty liability as under Section 3 of the Act, which is applicable to ail other goods and such of the goods notified under sub-section (1) of Section 3A of the Act is that while all other goods were subjected to duty under Section 3 on the actual production and clearance at the factory gate, either unit-wise or ad valorem, in so far as the duty liability under Section 3A of the Act is concerned, it was sought to be fixed even in advance in terms of sub-section (2) of Section 3A of the Act and such fixation was known as the annual production capacity of the particular factory. The rate of duty in respect of such notified goods was provided for in terms of sub-section (3) or (4) of Section 3A of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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). 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 against the duty so determined and if the duty already paid falls short of, or is in excess of, the duty so determined, the assessee shall pay the deficiency or be entitled to a refund, as the case may be. The provisions of this section shall not apply to goods produced or manufactured, - (i) in a free trade zone and brought to any other place in India; or (ii) by a hundred percent export oriented undertaking and allowed to be sold in India. Explanation I :- For the removal of doubts, it is hereby clarified that for the purpose of section 3 of the Customs Tariff Act, 1975 (51 of 1975), the duty of excise leviable on the notified goods shall be deemed to be the duty of excise leviable on such goods under the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill shall declare the values of 'd', 'n', 'i' and 'speed of rolling' the parameters referred to in sub-rule (3) to the Commissioner of Central Excise (hereinafter referred to as the Commissioner) with a copy to the Assistant Commissioner of Central Excise; (2) on receipt of the formation referred to in sub-rule (1), the Commissioner shall take necessary action to verify their correctness and ascertain the correct value of each of the parameters. The Commissioner may, if he so desires, consult any technical authority for this purpose; (3) the annual capacity of production of hot re-rolled products of non-alloy steel in respect of such factory shall be deemed to be as determined by applying the following formula : Annual Capacity - 1.885x10-4 x d x n x I x e x w x number of utilized hours (in metric tonnes) Where, d = Nominal diameter of the finishing mill in millimetres n = Nominal revolutions per minute (RPM) of the drive I = Reduction ratio of the gear box w = Weight in kilogramme per metre of the re-rolled production. The value of 'e' in the formula shall be deemed to be 0. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lling' relating to in sub-rule (3) of rule 3, such manufacturer shall intimate about the proposed change to the Commissioner of Central Excise in writing with a copy to the Assistant Commissioner of Central Excise, at least one month in advance of such proposed change and to obtain the written approval of the Commissioner before making such change. Thereafter, the Commissioner of Central Excise shall determine the date from which the change on the installed capacity shall be deemed to be effective. Newly added Rule 5 5. In case, the annual capacity determined by the formula in sub-section (3) of section 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 actual production of the mill during the financial year 1996-97. It is this part of the Rule 5 with which the petitioners are really aggrieved, particularly as this Rule fixes the production capacity at the actual production that they had produced during the year 1996-97 wherever it was found such production was higher than the production capacity as otherwise determined by applying or in terms of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as also in seeking for adjudication of the validity of Rule 5 of the Determination Rules; it is sought to be contended on behalf of the respondents that the petitions are not tenable, as the outcome of the earlier round of litigation was expressly made subject to the result of the decision of the Supreme Court in the pending civil appeals and the Supreme Court in terms of its judgment dated 15-10-2001 rendered in those appeals, having rejected the challenge to the rule which was under challenge therein, the present writ petitions are to be necessarily dismissed as being covered by the said decision and that the principles of constructive res judicata is to be applied and the writ petitions be dismissed without examining any contentions urged on behalf of the petitioners. 7.With such background and history arises the question as to whether these petitions are required to be considered on their merit or to be dismissed in limine on the premise that the judgment of the Supreme Court in Union of India v. Supreme Steels General Mills [Civil Appeal Nos. 52-54 of 1998 Connected cases, decided on 15-10-2001 - 2001 (133) E.L.T. 513 (S.C.)] govern the present petitions also. 8.The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s valid is concluded against the petitioners, so also the validity of the provisions of Rule 96ZP of the Rules. However, what is urged by Sri Naganand, learned Senior Counsel appearing for the petitioners is that the petitioners are mainly aggrieved by the introduction of Rule 5 in the Determination Rules, which was though an issue before this court was not an issue before the Supreme Court, but this court having not examined the question regarding the validity of Rule 5 of the Determination Rules, that question having not been covered or concluded by this court or the Supreme Court, it is still open to the petitioners to question the legality of this particular provision i.e. Rule 5 of the Determination Rules. 14.On the proper application of the principles governing the doctrine of res judicata, I am of the view that in so far as the validity of Rule 5 of the Determination Rules is concerned, that has not been examined and it is not as though the very petitioners who had challenged the provision, but had submitted that the decision in their earlier writ petitions may await the decision of the Supreme Court in the pending matter before that court had by such submission conceded a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rule is ultra vires the Section 3A of the Act, but also on the ground that it is violative of Article 14 of the Constitution, being discriminatory in nature, as between persons like the petitioners, who are covered under Rule 5 of the Determination Rules and for other duty payers not covered under this Rule, the defence in the nature of a plea of estoppel to prevent the challenge as violative of Article 14 cannot be accepted. 18.In effect and substance, what is urged is that the petitioners should not be permitted to question the legality of Rule 5 of the Determination Rules, in view of not only having opted for the option of concessional rate of duties available under Rule 96ZP(3) of the Rules. 19.An argument of this nature cannot be accepted for the simple reason that no estoppel can be pleaded against a statute in the larger sense, but more precisely, there is no waiver of fundamental right by any person, even assuming that the person has waived it. It is not open to the State to plead such waiver when the validity of a provision is called in question on the ground that the provision is violative of any of the constitutional requirements or falls short of the constitution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act, there was no need for bringing about, the provisions like Rule 5 of the Determination Rules, which is a rule which has affected the persons like the petitioner and under which the production capacity for the purpose of sub-section (2) of Section 3A of the Act is again sought to be delinked from the annual production of the year 1996-97 and the deemed production as is required to be determined under sub-section (2) of Section 3A of the Act is taken to be the actual production of the assessee for the year in question if it was found that such actual production of the year was higher than the determination as otherwise arrived at by the normal working of the provisions of sub-section (2) of Section 3A of the Act and Rule 3 of the Determination Rules. Submission is that Rule 5 creates a further fiction for the purposes of sub-section (2) of Section 3A of the Act and creation of further fiction while is not permitted by the delegated authority, it also goes beyond the very purpose and object with which Section 3A is introduced, in the sense the object of Section 3A if for creating a duty liability by the methodology of such determination and on a notional basis, which is in fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the legislature introduced Section 3A and to that extent the object is fully achieved in terms of the determination by applying the formula under Rule 3, only in the case of persons like the petitioners, there is a departure that the determination under Rule 3 is given a go-by and the petitioners are asked to pay duty at a higher amount or a greater duty liability is fastened and not linked to the production of the year 1996-97. Submission is that the discrimination aspect looms large because persons like the petitioners are asked to pay a higher duty than what duty is payable in terms of Rule 3, whereas all others are permitted to pay the duty at the level as determined by the working of Rule 3. One another contention in this regard is that the Rule which is an introduction by way of an after thought, in fact works at cross-purposes and virtually amounts to penalizing honest tax payers like the petitioners, whereas other persons against whom the provisions were aimed at, are virtually rewarded, in the sense their liability even as determined under Rule 3 of the Determination Rules, never crosses the notional production capacity. Submission of the learned counsel for the petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rson. 27.In support of the submission of the argument that the provision of Rule 5 of the Determination Rules is not only irrational but is unjust and brings about discrimination, Sri Naganand, learned senior counsel for the petitioners has placed considerable reliance on the report of the Department Related Parliamentary Standing Committee on Industry, which by its 30th report on demand for grants (1999-2000) of Department of Steel, presented to the Rajya Sabha on 23rd April, 1999 had this to say on this aspect of the matter : 8.3:5 Re-rollers : (a) The Committee was informed that the sub-rule (5) of Central Excise Notification No. 45/97, dated 30-8-97 under RA (Compound Levy Scheme) of Central Excise Act, 1944, issued by the Department of Revenue, Ministry of Finance, is unconstitutional and creates disparity among the members of re-rollers because the said rule defeats the very purpose of Compounded Levy Scheme as two rolling mills of the same annual capacity based upon the formula prescribed by the Department will be paying two different amount of duty based upon the production of 1996-97. The sub-rule (5) of the Notification No. 45/ 97, dated 30-8-9 7 reads as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he light of such recommendation, in fact, the very provisions of Section 3A came to be withdrawn in terms of repealing Notification dated 11-5-2001, but what is more important is even before this, by issue of an earlier notification that was on 31-3-2000, the notification that had been issued under sub-section (1) of Section 3A of the Act notifying certain products for levy of duty under Section 3A itself was withdrawn and the effect of which was that even in respect of such products including steel and steel products, with which the petitioners are concerned, were reverted to levy or duty under Section 3 of the Act. Learned Senior Counsel points out that the levy of duty in so far as the petitioners are concerned under the provisions of Section 3A, particularly by applying Rule 5, was in vogue only during the period between 1-9-1997 up to 31-3-2000; that the legislature itself having noticed the obnoxious nature of such statutory provision and having done away with such law, no further proof of the nature of law is required and therefore this court should take cue from this development and even otherwise as the provision, according to the learned counsel for the petitioners, is vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act in general; that in respect of such manufacturers whose duty liability has been determined on notional basis in terms of sub-section (2) of Section 3A of the Act including the persons like the petitioners, whose duty liability is determined by applying Rule 5, an option is given under the provisions of sub-section (4) of Section 3A of the Act that in any case production is found to be far below the notional determination, it was open to the particular assessee to seek for re-determination of the production capacity by making an application to the Commissioner in this regard sub-section (4) of Section 3A of the Act and when such option is available to persons like petitioners also, it cannot be said that determination under Rule 5 by itself works out in a discriminatory manner as against the petitioners. 32.Elaborating the submission, learned Assistant Solicitor General submits that in matters of taxation, the State enjoys a very wide discretion and scope; that it is left to the volition of the State to classify persons, citizens, groups or even taxing event, it is also open to the State to choose the measure of levy; that if the tax or duty is levied according to one's c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is not in dispute that it is supplementing to the main charging Section 3 and to cover certain industries and products, which are notified for such special treatment. As noticed in the beginning, the normal procedure of levy duty on the manufacturer of items at the factory gate and on the actual production basis, has been deviated under Section 3A by the methodology of determination of the production capacity at the beginning and realization of the duty in respect of that annual capacity determination on such basis either in instalment or in one lumpsum depending upon the mode of recovery i.e., legislature has by this provision aims to avoid a constant scrutiny into the activity of production by manufacturers in the notified goods and also seeks to provide a fixed measure for the determination of the liability in the sense that when once the annual production capacity is determined under sub-section (2) of Section 3A of the Act, then the duty liability also gets determined the varying factor being only the particular item and rate of duty applicable on that item. Of course, in the mode of realization under Rule 96ZP certain leeway had been given to the tax payers an incentive of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e intended to check the malice of rampant evasion prevalent in certain industries. If the section is to ensure such persons who had indulged in evasion were suitably dealt with to prevent revenue leakage, the main object is not to deal with non-evaders but is only to deal with or fill up the gap i.e. leakage of revenue due to the activities of evaders. If such is the situation, Section 3A really did not rope in persons like the petitioners who if at all claim to be efficient and honest tax payers. If under Rule 5 the artificial determination that is sought to be arrived at under sub-section (2) of Section 3A of the Act in respect of such evaders is fixed notionally and if that was not the intention in respect of other tax payers, honest and efficient, and therefore there was no need to bring them under sub-section (2) of Section 3A of the Act and if Rule 5 has only achieved this object of taking them out from the operation of sub-section (2) of Section 3A of the Act and place them back to reality, it can never be said that Rule 5 is ultra vires provisions of Section 3A of the Act. If in the first instance persons like the petitioners were not the persons who were intended for cover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e test of Article 14. 41.In so far as the version that there is a classification, there is no dispute. In tact the petitioners even by their own pleadings and contentions would themselves demonstrate that they stand as a class apart from other tax payers covered under the provisions of a Section 3A of the Act. Obviously, there is a classification in the sense while the petitioners claim that they are all persons who could be identified as efficient and honest tax payers, in fact all persons under Rule 5 can claim so, those who do not figure or not covered under Rule 5 or those come within the scope of Rule 3 as it is, and against whom provisions of Section 3A is intended, can be taken to be another class in the sense that two groups which are covered under Section 3A can be on a rough or broad classification identified as persons like the petitioners who claim to be efficient and honest tax payers and others. 42.The complaint is that persons like the petitioners as a group is treated to differential treatment or a hostile treatment. This is so complained because while the persons in the other group who were covered only by Rule 3 in the matter of their duty liability, are requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on their actual and proven production capacity. A provision like this can never be said to be as an irrelevant or arbitrary nor one which has no nexus to the object of the legislation. In fact if the Rule 5 achieves the object of not determining the duty liability in respect of persons like petitioners with reference to notional basis but retains them on reality basis, it can be said that the object of roping in evaders for the purpose of Section 3A is also strictly achieved under Rule 5. 44.The complaint against Rule 5 by the petitioner is only because there is a possibility that even in the case of evaders if they had actually produced more in the base year and suppressed that, whereas their duty liability is to be artificially pegged down to the level as determined in terms of sub-section (2) of Section 3A of the Act, in so far as the petitioners are concerned, just because they had disclosed their actual production that takes up their liability for the subsequent years with reference to such actual production and disclosed production. This may be an obnoxious and unwelcome effect on the petitioners, but as has been settled in matters of taxation, while the test is from the an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Rule 5 of the Determination Rules and are crying foul against this levy is not because the rule is per se bad by itself and really discriminatory as alleged by the petitioners, but because of the impact of necessary trend in the steel industry during the period under consideration i.e. after 1-4-1997 onwards; that because the petitioners were not able to maintain their production levels as either at the level they had achieved during the year 1996-97 or were unable to even improve upon such production during the relevant period. The real adverse impact on the petitioners is not by the Rule itself but because of such other reasons as the slump in the steel market, the fall in demand for steel and steel products in the market and the overall production levels coming down drastically for want of demand in the market. Even here, while the provision if sub-section (4) of Section 3A of the Act had provided a way out to such persons whose production levels had come down substantially, where persons liable for payment of duty in terms of the determination by applying only Rule 3 or even in the case of persons like the petitioners to whom Rule 5 applies, and could have by seeking for a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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