2003 Supreme(Kar) 272

Karnataka High Court
Bhuwalka Steel Industries Limited - Appellant
Versus
Union of India - Respondent
Decided On : 03-18-03

Headnote:Central Excise Act, 1944

       Hot Re-rolling Steel Mills Annual Capacity Determination Rules, 1997 -Under the rule liability is one for making annual production in the year under consideration to be taken as basis -It is more linked to reality than to any artificial method of determination -Such a rule cannot be complained of as being ultra vires of Section 3-A of the Central Excise Act Rule is not violative of Article 14. - [D. V. Shylendra Kumar, J.] - The argument of ultra vires will be available when it can be shown that in reality a rule is either beyond the scope or works contrary to the provisions of the Section. The provisions of Section 3A if is examined in this context, it can be said that the provisions themselves were 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 subsection (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 coverage under Section 3A and Rule 5 only achieves this, Rule 5 cannot be said to be ultra vires. In fact, under Rule 5, the liability is one for making the annual production of such persons in the year under consideration to be taken as the basis, it is more linked to reality than to any artificial method of determination. A provision which really is based more on reality than on an artificial basis of determination, cannot be complained of as being ultra vires provisions of Section 3A of the Act. It is for this reason, unable to accept the argument that Rule 5 of Determination Rules is ultra vires provisions of the main Section.

       Cases Referred : AIR 1952 SC 123, AIR 1958 SC 538, AIR 1965 SC 1017, AIR 1999 SC 2596, (1996) 10 SCC 304: AIR 1996 SC 9111, (2004) 6 SCC 59: AIR 2004 SC 3666, (2004) 6 SCC 689: AIR 2004 SC 3380, (2003) 5 SCC 437: AIR 2003 SC 3983.

       Annual production for levy of central excise duty.

       INDUCTION FURNACE ANNUAL CAPACITY DETERMINATION RULES

       Rule 3 -Central Excise Act, 1944, Sections 2(2), 3, 3A(2) -Ingots of non-alloy and alloy steel -excise duty on manufacture of- determination of annual capacity of production for the purpose of power -pack factor as a determinant -Department not disputing the fact - only citing the absence of a provision of law -showed helplessness to consider power pack factor -held, that factor should go into the process of determination in terms of Section 3A r/w Rules.

       [R. Gururajan, J.] - It is not the case of the respondents that power factor is not a relevant factor in terms of the endorsement. Helplessness is the answer given in the endorsement. There is no prohibition under the Rules for taking into consideration the power factor for determination of the annual capacity. So long the power factor is not said to be irrelevant factor, that factor has to go into the process of determination in terms of Sec. 3A r/w. the Rules.

       Cases Referred : AIR 1959 SC 422; 1994 Supp (2) SCC 296; AIR 2000 SC 1568.

       Constitution of India -Article 14 -Discrimination -Levy of tax -State enjoys wide leeway and discretion -Nevertheless, it should not result in blatant discrimination -Should not give an impression that State is acting in a totally arbitrary manner or that its act is whimsical one in the sense that it is in the nature of victimizing some. [D. V. Shylendra Kumar, J.] - While Article 14 is a weapon available to all tax payers to complain against the discriminatory act of the State, the matter is examined by Courts wearing the spectacle of judicial review it is also equally settled that the scrutiny is not as strict or as harsh as in respect of other State actions; that the scrutiny is not on an accurate or scientific basis, but as to whether the State is able to satisfy that the classification or grouping of persons for differential treatment has some basis, has some relevant purpose and if so the classification passes the test of Article 14.

       Cases Referred : AIR 1952 SC 123, AIR 1958 SC 538, AIR 1965 SC 1017, AIR 1999 SC 2596, (1996) 10 SCC 304: AIR 1996 SC 9111, (2004) 6 SCC 59: AIR 2004 SC 3666, (2004) 6 SCC 689: AIR 2004 SC 3380, (2003) 5 SCC 437: AIR 2003 SC 3983.

       Hot Re-rolling Steel Mills Annual Capacity Determination Rules 1997 -Rule 5 -Vires -Under the rule liability is one for making annual production in the year under consideration to be taken as basis -It is more linked to reality than to any artificial method of determination -Such a rule cannot be complained of as being ultra vires of Section 3-A of the Central Excise Act -Rule is not violative of Article 14. - [D. V. Shylendra Kumar, J.] - Ultra vires principle or theory is attracted when under the delegated legislation delegatee goes beyond what is permitted or otherwise or even while purporting to act within the authority crosses the limits that are fixed by the Legislature itself i.e. the Rule going beyond the scope of the Section. In so far as the provisions of Section 3A is concerned, it 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 installment or in one lump sum 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 lower rate of duty discharge provision in terms of sub-rule (3) of Rule 96ZP or normal rate as provided under the notification and the normal manner of duty payment in the sense though the annual capacity is determined in the beginning while payment can be made on the basis of production and clearance as and when, the balance if any that falls short to be made good at the end of the year within the prescribed period for the same in terms of sub-rule (1) of Rule 96ZP. If such is the scheme of Section 3A and the manner of determination of the actual capacity of production which is in terms of sub-section (2) of Section 3A of the Act is again totally delegated to the Central Government which for the purpose of the Act is authorized to frame the Rules, the guiding factor having taken into consideration the factors relevant on the annual capacity of the factory in which the goods are produced, what is indispensable at once is Section as such does not by itself provide the manner in which such production capacity can be determined but the entire exercise is delegated to the Central Government in terms of Rule to be framed by the Central Government. If such statutory provision is to be looked into in strict sense or in a technical sense, it will be rather difficult to accept that the doctrine of ultra vires is attracted in respect of Rule 5 vis-a-vis Sub-section (2) of Section 3A of the Act. In fact in the present situation, as the entire process of determination is left to the Central Government by framing of rules for such purpose, there is no other provision in comparison with which and available in the Section it can be said that the Rule is ultra vires. It is for this reason, the learned counsel for the petitioners have also pressed the argument that the object of introducing Section 3A itself is to create an artificial liability in the sense by fiction of law and if Rule 5 has the effect of determining liability on the reality basis, it is contrary to the very object of introduction of this legislative provision and therefore it can be argued that the provision is ultra vires.

       Cases Referred : AIR 1952 SC 123, AIR 1958 SC 538, AIR 1965 SC 1017, AIR 1999 SC 2596, (1996) 10 SCC 304: AIR 1996 SC 9111, (2004) 6 SCC 59: AIR 2004 SC 3666, (2004) 6 SCC 689: AIR 2004 SC 3380, (2003) 5 SCC 437: AIR 2003 SC 3983.