Full Text
HIGH COURT OF DELHI
JUDGMENT
GOPAL CORPORATES LLP ..... Appellant
Through: Mr. Vivek Kohli, Sr. Adv. with Mr. Ashwani Sharma, Mr. Juvas Rawal, Ms. Bhavya Bhatia, Advs.
Through: Mr. Ajit Kalia, Sr. SC with Mr. Abhinav Kalia, Advs.
AND
GOPAL CORPORATES LLP ..... Petitioner
Through: Mr. Vivek Kohli, Sr. Adv. with Mr. Ashwani Sharma, Mr. Juvas Rawal, Ms. Bhavya Bhatia, Advs.
Through: Mr. Kirtiman Singh, CGSC with Mr. Waize Ali Noor, Ms. Shreya Mehra, Mr. Varun Rajawat, Mr. Kholi R., Advs with Ms. Archana Surve, G.P.
HON’BLE MR. JUSTICE DHARMESH SHARMA
1. Since the appeal and the writ petition emanate out of common proceedings drawn by the respondents against the appellant / petitioner, they were with the consent of parties heard together and are proposed to be disposed of by this common judgment. The appeal is preferred under Section 35G of the Central Excise Act, 1944[1] challenging an order dated 02 November 2017 passed by the Central Excise and Service Tax Appellate Tribunal[2] and which has in essence affirmed the Order in Original as well as the view as taken by the appellate authority. The issue arises out of the quantum of duty which the appellant / petitioner was liable to pay in terms of the provisions contained in the Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules 2010[3].
2. The writ petition in addition seeks a declaration to the effect that Rule 8 of the CTUT Rules 2010 be declared ultra vires to Section 3A of the Act and additionally being violative of Article 14 of the Constitution. Mr. Kohli, learned senior counsel appearing for the appellant / petitioner fairly submitted that the challenge to Rule 8 would assume significance only if the Court were to not accede to the interpretation which is advocated for consideration and acceptance by the appellant / petitioner insofar as the provisions of the CTUT Rules 1 the Act
2 Tribunal CTUT Rules 2010 2010 are concerned. The principal question which arises is the duty liability to be borne by the appellant / petitioner for the months of June 2012, July 2012 and February 2013 when certain new packing machines were added to the production line and were worked for a couple of days during the entire month.
3. The appellant / petitioner contends that additional duty is liable to be levied on a proportionate basis and in conjunction with the days when the additional packing machines had actually been operated. They assail the stand of the respondents that in terms of the CTUT Rules 2010, duty liability is to be ascertained and calculated based on the maximum numbers of packing machines that may have operated during any day of a particular month. For the purposes of examining the challenge which stands raised, we deem it apposite to notice the following essential facts.
4. The appellant / petitioner is a manufacturer of Flavoured Chewing Tobacco sold in packets / pouches. The retail pouches manufactured by it are chargeable to Central Excise Duty under Sub Heading 2403 99 10. The dispute in the present matters pertains to the months of June 2012, July 2012 as well as February 2013. The appellant / petitioner was discharging its duty liability on chewing tobacco pouches carrying different Retail Sale Prices in accordance with the provisions of the CTUT Rules 2010. In order to appreciate the issue which arises, it would be apposite to firstly notice the provisions of Section 3A of the Act and to which the CTUT Rules 2010 owe their existence. Section 3A of the Act reads as follows: - “Section 3A of Central Excise Act, 1944- “Notwithstanding anything contained in Section 3, where the Central Government, having regard to the nature of the process of manufacture or production of excisable goods of any specified description, the extent of evasion of duty in regard to such goods or such other factors as may be relevant, is of the opinion that it is necessary to safeguard the interest of revenue, specify, by notification in the Official Gazette, such goods as notified goods and there shall be levied and collected duty of excise on such goods in accordance with the provisions of this section.” (2) Where a notification is issued under sub-section (1), the Central Government may, by rules, (a) provide the manner for determination of the annual capacity of production of the factory, in which such goods are produced, by an officer not below the rank of Assistant Commissioner of Central Excise and such annual capacity shall be deemed to be the annual production of such goods by such factory; or (b) (i) specify the factor relevant to the production of such goods and the quantity that is deemed to be produced by use of a unit of such factor; and
(ii) provide for the determination of the annual capacity of production of the factory in which such goods are produced on the basis of such factor by an officer not below the rank of Assistant Commissioner of Central Excise and such annual capacity of production shall be deemed to be the annual production of such goods by such factory: Provided that where a factory producing notified goods is in operation during a part of the year only, the annual production thereof shall be calculated on proportionate basis of the annual capacity of production: Provided further that in a case where the factor relevant to the production is altered or modified at any time during the year, the annual production shall be re-determined on a proportionate basis having regard to such alteration or modification.”
5. Undisputedly, chewing tobacco falling under tariff item 2403 99 10 of the Central Excise Tariff Act, 1985 is notified as one of the goods in respect of which the Union Government had formed the requisite opinion that a duty of excise would be levied and collected in accordance with the provisions made in Section 3A of the Act. Section 3A(2)(a) enables the Union Government to frame rules providing for the manner for determination of the annual capacity of production of a factory in which notified goods are produced and further postulates that the capacity as determined in accordance with those rules shall be deemed to be the annual production of goods by such a factory. In addition to the above, the rules that may be framed by the Union Government are also envisaged to provide for the factor on the basis of which annual capacity of production would be determined. The Second Proviso to Section 3A(2)(b) further stipulates that where the factor relevant to assessing production is altered or modified at any time during the year, the annual production shall be re-determined on a proportionate basis having regard to such alteration or modification.
6. Insofar as the CTUT Rules 2010 are concerned, the factor relevant for assessing production has been defined in terms of Rule 4, which reads as follows:-
7. Rule 5 then makes provisions to estimate the quantity which will be deemed to have been produced in a factory. The said Rule is framed in the following terms:-
8. Rule 6 obliges a manufacturer of notified goods to make various declarations with respect to the number of packing machines that may be installed in a factory. The aforesaid declaration assumes significance since it correlates with Rule 5 and which lays down the principle for assessing the quantity deemed to be produced. Rule 6 reads as follows:-
9. As would be evident from Rule 6(2), upon a declaration being made by the manufacturer, the competent officer of Central Excise is to conduct an enquiry and if deemed necessary also undertake a physical verification of the factory premises. It is only when the declarations made are approved that the proper officer of Central Excise determines the annual capacity of production of a factory. Of significance are sub rules (4) and (5) of Rule 6 and which provisions have been placed in order to identify the number of operating packing machines and also lay down the procedure to be followed in case an installed machinery is not intended to be operated. The said Rule further stipulates that every addition or deduction of packing machines from the production line would oblige the manufacturer to make identical declarations and for the annual capacity of production being reassessed accordingly.
10. The duty which is liable to be paid by a manufacturer is envisaged to be levied at a rate specified in a notification to be issued by the Union Government and be leviable on the number of operating packing machines in the factory. This is evident from the provisions contained in Rule 7 which reads thus:-
11. The subject of alteration in the number of operating packing machines is dealt with in Rule 8 which is extracted hereinbelow:-
12. Rule 9 stipulates the manner of payment of duty and reads as under: -
13. Rule 10 deals with the contingency where a factory does not produce notified goods during any continuous period of 15 days or more and speaks of a proportionate abatement of duty liability. The said provision is reproduced hereinbelow: -
14. It appears from the disclosures made by the appellant / petitioner with respect to additional packing machines that these machines were received on 28 June 2012, 30 July 2012 and 26 February 2013 and sealed on the said dates. It is stated to have thereafter communicated to the respondents of the installation dates of the three machines on 26 June 2012, 27 July 2012 and 21 February
2013. The machines are stated to have been after due inspection duly approved by the respondents and thus deemed to have been added to the production line on 29 June 2012, 31 July 2012 and 27 February
2013. The additional machines are thereafter stated to have been deleted from the production line and sealed on 30 June 2012, 31 July 2012 and 28 February 2013. The case of the appellant / petitioner was that since the additional machine had been worked for only two days in June 2012, one day in July 2012, and two days in February 2013, additional duty was liable to be paid only for the days when the additional machinery was actually utilized and operated and that the addition of those machines to the production facility could not have been taken into account for the purposes of assessing its duty liability for the entire month.
15. Mr. Kohli, learned senior counsel appearing for the appellant / petitioner had contended that the Second Proviso to Section 3A(2)(b) is a clear indicator of duty being levied on a proportionate basis. It was submitted that the said Proviso is an unequivocal embodiment of the intent of the Act for duty being levied on a pro rata basis. It was his submission that if Rule 8 was to be understood in the manner as suggested by the respondents, the same would clearly be rendered ultra vires the aforesaid Proviso.
16. According to Mr. Kohli, notwithstanding Rule 8 prescribing the addition of a packing machine being taken into consideration for the purposes of ascertaining the maximum number of packing machines installed on any date during the month, the same cannot be understood as detracting from the right of the manufacturer to pay duty on a pro rata basis only. It was submitted that the proportionate levy of duty is a concept which stands duly enumerated and adopted in Rule 9 and more particularly, the Third Proviso thereto and the duty liability must consequently be ascertained and answered on a conjoint reading of Section 3A and Rules 8 and 9. According to learned senior counsel, if the machine which stood installed only for a particular number of days in a month were to be taken into consideration for adjudging the duty liability for the entire month, the same would not only be ultra vires to the Proviso to Section 3A but also clearly be arbitrary. Mr. Kohli submitted that the appellant / petitioner has assailed the validity of Rule 8 as a matter of abundant caution and solely in response to the stand as struck by the respondents in these matters.
17. Mr. Ajit Kalia, learned Standing Counsel and Mr. Abhinav Kalia, learned counsels appearing for the respondents on the other hand submitted that Rule 8 in unequivocal terms prescribes that the moment a packing machine is added to the production facility during the month, the number of operating packing machines would have to be calculated accordingly and be recognized as representing the maximum number of packing machines installed for the month. The Tribunal while upholding the view taken by the original authority as well as the appellate forum has essentially found that the challenge laid to the demand as raised by the respondents would not sustain bearing in mind the plain language of Rule 8. It has accordingly come to conclude that Rule 8 mandates that if any new machine is installed on any date during the month, it is to be considered as having operated for the entire month. It accordingly held that while the number of machines which would be deemed to have operated during the concerned months would have to be computed in accordance with the above, the appellant / petitioner would be liable to pay duty accordingly.
18. Having evaluated the rival submissions which were addressed, we deem it appropriate to note at the outset that the challenge to Rule 8 of the CTUT Rules 2010 was founded solely upon the Second Proviso to Section 3A(2)(b). The appellant / petitioner does not question the authority of the Union Government to either prescribe the manner in which the the annual capacity of production may be determined nor does it question its right to formulate a factor relevant for the purposes of estimating production in a factory.
19. As would be evident from the submission which was addressed by Mr. Kohli, the solitary ground of challenge was that if the maximum number of packing machines were to be calculated on the basis as suggested by the respondents, the same would clearly fall foul of the proportionate payment of duty principles which find resonance not just in the Proviso appended to Section 3A(2)(b) but also in light of the various provisions of the CTUT Rules 2010 which have been referred to hereinabove.
20. Having conferred our thoughtful consideration on the grounds on which Rule 8 is essentially challenged, we find ourselves unable to accede to the submissions as addressed by and on behalf of the appellant / petitioner for the following reasons. As is manifest from a reading of Section 3A(2)(a), the Union Government is empowered not only to prescribe the manner for determination of annual capacity of production of a factory, the said provision by way of a legal fiction stipulates that the capacity of production as determined in accordance with the Rules shall be “deemed” to be the annual production of goods in that factory. The computation of annual production and the same being computed by virtue of a statutory deemed fiction does not owe its genesis to Rule 8. The said legal fiction stands incorporated in Section 3A(2)(a) itself.
21. Section 3A(2)(b)(ii) further enables the Union Government to prescribe a factor on the basis of which the production capacity of a factory may be determined. It is in furtherance of the aforesaid provision that Rule 4 constructs the number of packing machines to be the “factor relevant”.
22. Rule 8 deals with a situation where a packing machine may either be added / installed or removed or uninstalled in a factory during a month. While dealing with such a contingency, however, it stipulates that the number of operating packing machines in a month shall be taken to be maximum number of packing machines which were installed on any day during the month. It becomes significant to note that Rule 8 speaks of both operating packing machines as well as packing machines installed. The said Rule too incorporates a deeming fiction as would be evident from the usage of the phrase “shall be taken as”. As we read Rule 8, it is manifest that in case a machine is added to the production capabilities existing in a factory, the number of operating packing machines of the month shall be deemed to be the maximum number of packing machines installed and existing on any day during that month. The fact that a particular packing machine is operated only for a few days during the month does not result in the duty liability being proportionately reduced or enhanced.
23. This is further evident from the Second Proviso to Rule 8 which stipulates that in case an installed packing machine falls into a state of disuse for any reason whatsoever, notwithstanding the same, it shall be deemed to be an operating packing machine for the month. We are constrained to observe that the appellant / petitioner did not even question the validity of this Proviso.
24. The challenge to Rule 8 must also fail when tested on the anvil of the Second Proviso to Section 3A(2)(b). It becomes pertinent to note that the Second Proviso deals with a contingency where the “factor relevant” is altered or modified at any time during the year. It is in such a situation alone that the annual production is liable to be redetermined on a proportionate basis. However, and as is evident from the recital of facts in the preceding parts of this decision, the “factor relevant” as prescribed by Rule 4 remained unaltered. The quantification of duty liable to be paid by a manufacturer remained constantly during the period in question hinged upon the number of packing machines in the factory of a manufacturer. The “factor relevant” as prescribed by Rule 4 remained unchanged. The Second Proviso to Section 3A(2)(b) would stand confined to a situation where a factor relevant is altered or modified during the year. The said Proviso would thus come into play only if the basis for adjudging production comes to be altered or modified and the duty liability liable to be re-determined on a proportionate basis. In fact, we are of the firm opinion that the Proviso has no inhibiting effect on the deeming fiction which stands incorporated and embodied in Rule 8.
25. We further note that Mr. Kohli had placed reliance on a decision of the Tribunal rendered in Shree Shyam Pan Products Pvt. Ltd. v. Delhi-I[4], and where the Tribunal had taken a view contrary to what has been expressed by us hereinabove. This would be evident from the following extracts of that decision: - Final Order dated 03.11.2017 passed in Appeal No. E/51144/2017-EX [SM] by CESTAT, New
26. However, and significantly, we find that the Tribunal has abjectly failed to advert to the deeming fiction which stands introduced by Rule 8. We thus find ourselves unable to approve the view as taken in Shree Shyam Pan Products.
27. The submission advanced by Mr. Kohli and resting upon Rule 9 must also face a similar fate. All that Rule 9 prescribes is the date by which differential duty may be paid by a manufacturer. The Third Proviso deals with a situation where the number of operating packing machines stand increased during a month. It is in that context that it stipulates that the additional duty which may thus become payable would have to be deposited by the fifth day of the following month. This would clearly appeal to reason since the principal part of Rule 9 requires that the monthly duty be deposited by the fifth day of the same month. If the Rule were to stop at this point, there would clearly be a vacuum in case an additional packing machine were to be added to the production line after the fifth day of the said month. The Third Proviso to Rule 9 consequently cannot possibly be read as diluted the deeming fiction which stands embodied in Rule 8.
28. Accordingly, and for all the aforesaid reasons, we find ourselves unable to hold Rule 8 as being ultra vires Section 3A nor do we find any error in the view as expressed by the Tribunal while passing the order impugned.
29. The appeal as well as the writ petition shall consequently stand dismissed.
YASHWANT VARMA, J. DHARMESH SHARMA, J. SEPTEMBER 06, 2023