BHUWALKA STEEL INDUSTRIES LIMITED A CO INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES Vs. UNION OF INDIA REP HEREIN BY ITS SECRETARY TO GOVT MINISTRY OF FINANCE DEPT OF REVENUE

JUDGEMENT

(1.) PETITIONERS in all these petitions, are manufacturers of steel and steel products. The produce of the petitioners were subjected to excise duty in terms of Section 3 of the Central Excise Act, 1944 (for short, the Act). The Central Government in the wake of its experience that the collection of excise duty from certain industries and sectors including a steel industry was not commensurate to the production levels in the industry, had, by way of an amendment to the Act, introduced Section 3A by virtue of Section 81 of the Finance Act, 1997 (Act 26 of 1997), which was made effective from 18-5-1997. The methodology of subjecting to duty the production in steel industry, amongst other industries, as was in vogue under Section 3 of the Act was sought to be changed by introduction of Section 3A in respect of notified goods notified in terms of sub-section (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 all 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 volorem, 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 the Act. Sub-section (4) provided for a relief or concession in favour of manufacturers whose actual production was far below the production as determined under sub-section (2) of Section 3A of the Act and therefore on the Commissioner being satisfied, the liability could be redetermined on the basis of evidence placed by the assessee, to be the duty payable with reference to such actual production at the notified rate. Section 3A reads as under: 3A. Power of Central Government to charge excise duty on the basis of capacity of production in respect of notified goods: (1) 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 any 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, provide for determination of the annual capacity of production, or such factor or factors relevant to the 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 only during a part of the year, the production thereof shall be cancelled on proportionate 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 against the duty so determined and if the duty already paid falls short of, or is in excess of, the duty so determined, the duty so determined, the assessee shall pay the deficiency or be entitled to a refund, as the case may be. (6) 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 with any notification for the time being in force. Explanation II:- For the purpose of this section the expressions ?free trade zone? and ?hundred percent export-oriented undertaking? shall have the meanings assigned to them in section 3.

(3.) 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 Rule 3 of the very Rules. 5. It is the possibility of the determination of the production capacity under Rule 5 being much higher than the determination under Rule 3 of the Determination Rules and the petitioners having been called upon to pay the duty at such higher amount as determined under Rule 5, the petitioners are all aggrieved and have therefore questioned the legality of Rule 5 of the Determination Rules mainly on two grounds. The first ground is that Rule 5 goes beyond the object and purpose of the provisions of Section 3A of the Act itself; that it is not really in consonance and within the permitted limits as provided in sub-section (2) of Section 3A of the Act and therefore Rule 5 is ultra vires. The second ground of attack is that Rule 5 has the effect of bringing about an invidious classification and the effect of discrimination against persons like the petitioners vis-?-vis persons whose duty liability can be or is being determined only by applying Rule 3 of the Determination Rules. It is on such twin grounds the petitioners have approached this court for a declaration that Rule 5 of the Determination Rules are ultra vires, unconstitutional and while the Rules are to be struck down and the petitioners be permitted to work out the relief consequential on such invalidation and for according the consequential relief to the petitioner. The consequential relief sought for is mainly for quashing the determination orders passed by the Commissioner, determining the production capacity of the petitioners in terms of sub-section (2) of Section 3A of the Act and the consequential demands based on such determination of the production capacity.