http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 6  

PETITIONER: COMMISSIONER OF CENTRAL EXCISE & CUSTOMS

       Vs.

RESPONDENT: M/S VENUS CASTINGS (P) LTD.

DATE OF JUDGMENT:       05/04/2000

BENCH: S.N.Phukan, S.R.Babu

JUDGMENT:

     RAJENDRA BABU, J.  :

     These  appeals are filed under Section 35-L(b) of  the Central  Excise  Act, 1944 (hereinafter referred to as  ‘the Act’].   The  background facts leading to these appeals  are that  the  manufacturer, who is a respondent herein,  having availed  of the procedure for payment of duty under the  Act in  terms of Rule 96ZO(3) of the Central Excise Rules cannot claim  the  benefit  of Section 3A(4) for  determination  of actual  production  and re- determination of amount of  duty payable  by  him with reference to the actual production  at the  rates  as  specified in the said Section.   Earlier  on several  occasions when the matter reached the Tribunal  the view taken is that the Collector (Appeals) had to follow the orders  made  by  the  Tribunal and the order  made  by  the Collector  is not in accordance with law inasmuch as no duty is  payable  by  the manufacturer otherwise than  on  actual production and clearance and no demand of duty could be made or  recovered  on  the basis of  production  capacity  alone without  verification.  In case of M/s Minakshi Castings (P) Ltd.,  one of the respondents before us, it is held that the right  vested in the assessee under Section 3A(4) cannot  be denied  on the ground that he had opted for payment of  duty under  Rule  96ZO(3).   The  matter   is  remanded  to   the Commissioner  for determination of the actual production and re-determination of duty liable to be paid with reference to the  actual production in accordance with the provisions  of Section 3A(4).  Hence these appeals.

     In  another batch of matters writ petitions have  been filed before the High Court of Delhi and certain orders have been obtained thereto at the interim stage which are subject matter   of   another  appeal  before   us  and   in   those circumstances the Delhi High Court had ordered that "it will be  open to the manufacturers to submit applications on  the basis  of actual production and, if any such application  is submitted,  the  same  shall  be   duly  considered  by  the competent  authority  in accordance with the Rules." Now  we are  informed at the bar that the very questions arising  in the  cases before us stand referred to a Larger Bench by the Tribunal  for  deciding  (i) whether there is  any  conflict between  the provisions of sub-section (4) of Section 3A  of the Act and sub- rule (3) of Rule 96ZO of the Central Excise Rules  ?, and (ii) whether a manufacturer who has  exercised

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 6  

the  option to make payment of amount based on total furnace capacity installed in his factory under sub-rule (3) of Rule 96ZO  and not on the basis of annual capacity of  production can   make  an  application   for  determining  the   actual production  during  the  period his aforesaid option  is  in operation ?

     An objection has been raised that these appeals do not involve  determination of any question having a relation  to the  rate of duty of excise or to the value of the goods for purpose  of  assessment  and,  therefore,  even  if  at  all aggrieved  by  the  order  of the  Tribunal  ought  to  have followed  the  procedure in Section 35- L(a) of obtaining  a reference  to the High Court and on its decision to approach this  Court under certificate.  The learned Attorney General without  entering  into  the controversy as  to  whether  an appeal  in  this case is maintainable or not made  it  clear that  he  would  seek  conversion   of  these  appeals  into petitions  for  grant of special leave under Article 136  of the Constitution of India.  Appropriate applications in this regard have also been made.

     When  the  wind  out  the same sails  set  in  by  the respondents  has  been taken off by the astute stand of  the learned  Attorney  General,  the  learned  counsel  for  the respondents addressed arguments that these are not fit cases where  this  Court  should  exercise  its  discretion  under Article 136 to grant leave and entertain these appeals.

     It  is  no  doubt  true that a  Larger  Bench  of  the Tribunal itself is now seized of the very question raised in these  appeals.   However,  the   learned  Attorney  General pointed  out  that there are at least two decisions  of  the Andhra  Pradesh High Court and Allahabad High Court on  this issue.   In  Sathavahana  Steels  &  Alloys  (P)  Ltd.   vs. Government of India, 1999n (114) ELT 787, the Andhra Pradesh High  Court  has  taken the view that Rule  96ZO(3)  of  the Excise  Rules has been framed for the facility of  assessees and  being  at  the volition and option of the  assessee  to avail  of the said procedure instead of the procedure  under sub-  rules  (1)  and (2) thereof and once  such  option  is availed  of he takes advantages and disadvantages associated with  it.   An  assessee  who comes  under  the  purview  of sub-rule  (3)  of the scheme cannot obviously avail  of  the reliefs  provided to the assessee who preferred to pay  duty in  accordance  with sub-rule (1) thereof.  The  High  Court further  stated  that it is not probable that  the  assessee will  not  be  aware  of the adverse  factors  which  affect production.  He cannot, therefore, claim that provisions for abatement  of  duty and re-determination of the capacity  as contained  in  the proviso to sub- sections (3) and  (4)  of Section  3A  should be imported to Rule 96ZO(3).  When  once the  assessee opts for lumpsum payment under Rule 96ZO(3) he forgoes  the  benefit under the proviso to sub-sections  (3) and  (4)  of  Section  3A  as   laid  down  in  express  and categorical terms by sub-rule (3) of Rule 96ZO of the Excise Rules.   The  Allahabad High Court in Pravesh  Castings  (P) Ltd.,  Kanpur  Nagar  vs.  Commissioner of  Central  Excise, Allahabad   &  Anr.,  2000  (36)   RLT  239,  directed   the Commissioner to re- determine the production capacity afresh and  to  follow  the orders of the Tribunal.   There  is  no discussion  as  to  the scope of the relevant rules  or  the provisions  of  the enactment.  Again another Bench  of  the Allahabad  High  Court  considered this  question  in  Civil Miscellaneous  Writ  Petition  No.  1127 of 1999  M/s  Jalan

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 6  

Castings  (P)  Ltd.  vs.  Commissioner of Central  Excise  & Ors..   wherein  the view taken is that when a  manufacturer has  asked  for a lumpsum method of assessment  as  provided under  Rule  96ZO(3) of the Excise Rules,  the  manufacturer cannot  back out and claim that he should be assessed in the normal mode under Section 3A(4) of the Act and such a course is  not  available  to him.  In  these  circumstances,  when different  Benches  of  the  same   High  Court  have  taken different  views  and  another High Court has taken  a  view contrary  to  what has been stated by the Tribunal and  when there is uncertainty as to the state of law, it is eminently proper  for  this Court to grant leave in such a matter  and settle the legal position.  We thought over the matter as to whether  we  should ourselves consider the questions  raised before  us  or  set aside the order impugned before  us  and remand the matter to the Tribunal for a fresh consideration. We  are of the view that when there is uncertainty in law so far  as  the  High Courts are concerned, it is  not  at  all proper  to allow the Tribunal to re- examine the matters  as it  would  not be in the interest of either the assessee  or the Department.  In this special background, we do not think we  can  accede  to the objection raised on  behalf  of  the respondents  that we should not entertain the special  leave petitions  and reject these matters.  On the other hand,  we would grant leave and proceed to deal with these appeals.

     In these proceedings the validity of the provisions of the  Rules is not in challenge but only their interpretation and application have to be examined.

     Section  3A of the Act enables the Central  Government to charge excise duty on the basis of capacity of production in  respect  of  notified  goods.  This clause  came  to  be inserted in the Act by the Finance Act, 1997.  The intention to  introduce  this provision appears to be that in  certain sectors,  like  induction furnaces, steel  re-rolled  mills, etc.  evasion of excise duty on goods is substantial and the production  is  not disclosed accurately and  collection  of excise  duty  on the basis of their production  capacity  is thought of as appropriate.  Under the scheme evolved in this provision  the  annual  production  capacity  of  mills  and furnaces is determined by the Commissioner of Central Excise in  terms  of the Rules to be framed under Section 3A(2)  of the Act by the Central Government.  Thereafter, the assessee would be liable to pay duty based on such determination.  If the   annual   production  capacity    determined   by   the Commissioner  is disputed by the assessee, the  Commissioner is  required to re-determine the same as provided in Section 3A(4).

     Rules  96ZO  and  96ZP  provide for  procedure  to  be followed  by the manufacturer of ingots and billets and  hot re-rolled products respectively.  The scheme envisaged under these  provisions  is identical.  These two Rules come  into play after the Commissioner of Central Excise determines the annual capacity of the factory or mills manufacturing ingots or  billets  and hot re-rolled steel products under  Section 3-A  of  the  Act  read with the  relevant  annual  capacity determination  rules.   Rules 96ZO and 96ZP proceed  to  lay down  the  manner  of payment of duty, claim  for  abatement non-payment,  payment  of  interest/penalty and  such  other incidental  matters.  Rule 96ZO classifies the manufacturers into  two classes, those whose furnace capacity is 3  tonnes and other manufacturers with high capacity of furnaces.  The rate  of  duty payable, except for period from  1.1.1997  to

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 6  

31.3.1998  which was the transitional period, is Rs.   750/- per  tonne, at the time of clearance.  Total amount of  duty should be paid by the 31st March of relevant financial year, otherwise  interest at the rate of 18 per cent per annum  is payable  and  if  the duty has not been paid  by  this  date penalty  is also payable which is equal to outstanding  duty or  Rs.   Five thousand whichever is greater.  Sub-rule  (2) thereof  provides that if no ingots and billets are produced for  a continuous period of seven days, the manufacturer may claim   abatement   by   following  appropriate   procedure. Sub-Rule 3 thereof envisages a composition method of payment of  duty.  Manufacturers of ingots and billets with  furnace capacity  of  3 tonnes have an option of paying duty of  Rs. Five  lakhs per month in two equal instalments prior to 15th of  a month and by last date of that month.  Such payment is treated to be in full discharge of duty liability.  The Rule specifically  excludes  application of Section  3A(4).   But manufacturers  opting for this composite scheme cannot claim abatement.   If  the furnace capacity is less than  or  more than  3  tonnes  payment of Rs.  5 lakhs can  be  varied  on pro-rata  basis.  The manufacturer opting for this composite scheme  has  to  give a declaration  to  the  Jurisdictional Assistant  Commissioner as provided under the Rules.   There are   similar  provisions  in   relation  to  hot  re-rolled products.   By  reason of the assessee having exercised  his desire  of  paying duty based on total furnace capacity  the determination  of  annual  capacity  of  production  is  not determined  by the Revenue as the procedure adopted obviates determination   of   production.    In    the   absence   of determination   of   production   the    question   of   its determination  on the basis of actual production as detailed in Section 3A(4) of the Act does not arise.

     The  schemes contained in Section 3A(4) of the Act and Rule  96ZO(3)  or Rule 96ZP(3) of the Excise Rules  are  two alternative  procedures  to be adopted at the option of  the assessee.   Thus  the two procedures do not clash with  each other.   If  the  assessee  opts for  procedure  under  Rule 96ZO(1)  he may opt out of the procedure under Rule  96ZO(3) for a subsequent period and seek the determination of annual capacity  of  production.  An assessee cannot have a  hybrid procedure  of combining the procedure under Rule 96ZO(1)  to which  Section 3A(4) of the Act is attracted.  The claim  by the respondents is a hybrid procedure of taking advantage of the  payment  of  lumpsum  on the  basis  of  total  furnace capacity  and  not  on  the  basis  of  actual  capacity  of production.   Such a procedure cannot be adopted at all, for the  two  procedures are alternative schemes of  payment  of tax.

     The  learned counsel for the respondent contended that the  Rule  96ZO(3) is contrary to Section 3A(4) of  the  Act and, therefore, should be held to be ultra vires or read the relevant  rules  in such a manner as to allow the  procedure prescribed  under  the  provisions of Section  3A(4)  to  be followed.   Section  3A  of the Act provides  for  levy  and collection  of the tax arising under the Act in such  manner and at such rate as may be prescribed by the Rules.  Section 3A provides special procedure in respect of the power of the Central  Government  to charge excise duty on the  basis  of capacity  of  production in respect of notified  goods.   If such  interpretation is not accepted, it is contended,  that the levy of tax is in the nature of a license fee and not on production  of  goods  at all.  Schemes of  composition  are

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 6  

available  in  several other enactments including the  Sales Tax Act and the Entertainment Tax [ See :  State of Kerala & Anr.   vs.   Builders Association of India & Ors., 1997  (2) SCC  183].   In  this context, the learned counsel  for  the respondents  referred to several decisions.  However, in our opinion, all these decisions either arising under the Income Tax  Act in relation to special mode of collection of tax or excise  duty  on timber dealers or other enactments have  no relevance.   What  can be seen is that the charge under  the Section  is  clearly  on  production of the  goods  but  the measure  of tax is dependent on either actual production  of goods  or  on  some other basis.  The incidence of  tax  is, therefore,  on  the production of goods.  It cannot be  said that  collection of tax based on the annual furnace capacity is  not  relatable to the production of goods and  does  not carry the purpose of the Act.  In holding whether a relevant rule  to  be ultra vires it becomes necessary to  take  into consideration  the  purpose  of the enactment  as  a  whole, starting  from  the preamble to the last provision  thereto. If  the  entire enactment is read as a whole  indicates  the purpose  and  that purpose is carried out by the rules,  the same cannot be stated to be ultra vires of the provisions of the  enactment.   Therefore,  it  is  made  clear  that  the manufacturers,  if they have availed of the procedure  under Rule  96ZO(3)  at their option, cannot claim the benefit  of determination  of production capacity under Section 3A(4) of the  Act  which is specifically excluded.  We find that  the view  taken by the Andhra Pradesh High Court in  Sathavahana Steels  & Alloys (P) Ltd.  vs.  Government of India  (supra) and  the similar view expressed by the Division Bench of the Allahabad  High  Court in Civil Miscellaneous Writ  Petition No.   1127  of  1999  M/s   Jalan  Castings  (P)  Ltd.   vs. Commissioner  of  Central  Excise  & Ors.   disposed  of  on February  28,  2000 is reasonable and correct.  We  overrule the  view  taken  by  the Allahabad High  Court  in  Pravesh Castings (P) Ltd., Kanpur Nagar vs.  Commissioner of Central Excise, Allahabad & Anr.  (supra).

     On  the  reasoning adopted by us and bearing  in  mind that  in  taxation  measures  composition  schemes  are  not unknown  and when such scheme is availed of by the  assessee it  is not at all permissible for him to turn around and ask for  regular assessment, we think, there is no substance  in the contention urged on behalf of the respondents.

     There  are a few peripheral submissions made on behalf of  the respondents that in several cases the  Commissioners have  wrongly fixed the furnace capacity and that aspect has to  be  examined  by the Tribunal in such cases.   In  these cases,  therefore,  we  set  aside the orders  made  by  the Tribunal  and  direct  the Tribunal to bring the  orders  in conformity   with  the  view  expressed   by  us  and   pass appropriate orders.

     We  allow these appeals accordingly.  However, in  the circumstances  of  the case there shall be no orders  as  to costs.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 6