Delhi High Court: In a case wherein an appeal was preferred under Section 35-G of the Central Excise Act, 1944 (‘Act’) challenging an order dated 02-11-2017 passed by the Central Excise and Service Tax Appellate Tribunal (‘Tribunal’) and seeks a declaration to the effect that Rule 8 of the Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010 (‘CTUT Rules’) be declared ultra vires to Section 3A of the Act and additionally being violative of Article 14 of the Constitution, the Division Bench of Yashwant Varma* and Dharmesh Sharma, JJ., noted that the Tribunal had concluded that Rule 8 mandated if any new machine was installed on any date during the month, it was to be considered as having operated for the entire month. It was accordingly held that while the number of machines which would be deemed to have operated during the months concerned would have to be computed in accordance with Rule 8, thus, the appellant would be liable to pay duty accordingly. Thus, the Court stated that it cannot hold that Rule 8 as being ultra vires Section 3A of the Act nor was there any error in the view as expressed by the Tribunal while passing the order impugned.
The appellant was a manufacturer of Flavoured Chewing Tobacco sold in packets/pouches. The retail pouches manufactured by it were chargeable to Central Excise Duty under Sub Heading 2403 99 10. The appellant was discharging its duty liability on chewing tobacco pouches carrying different Retail Sale Prices in accordance with the provisions of the CTUT Rules. In the present case, the issue which arises was the duty liability to be borne by the appellant in terms of the provisions contained in the CTUT Rules, 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. The appellant contended that additional duty was liable to be levied on a proportionate basis and in conjunction with the days when the additional packing machines had been operated. They assailed the stand of the respondents that in terms of the CTUT Rules, duty liability was to be ascertained and calculated based on the maximum numbers of packing machines that might have operated during any day of a particular month.
Analysis, Law, and Decision
The Court noted that chewing tobacco falling under tariff item 2403 99 10 of the Central Excise Tariff Act, 1985 was 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. The Court noted that Section 3A(2)(a) of the Act enabled 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 were 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. The Second Proviso to Section 3A(2)(b) of the Act further stated that where the factor relevant to assessing production was 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.
The Court noted that Rule 6 of the CTUT Rules stipulated 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. Further, Rule 7 stated that the duty which was liable to be paid by a manufacturer was 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. The subject of alteration in the number of operating packing machines was dealt with in Rule 8 and Rule 9 stipulated the manner of payment of duty.
The Court noted that the appellant’s submissions that since the additional machine had worked only for two days in June 2012, one day in July 2012, and two days in February 2013, thus, 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.
The Court opined that the challenge to Rule 8 of the CTUT Rules 2010 was founded solely upon the Second Proviso to Section 3A(2)(b) of the Act as the appellant did not question the authority of the Union Government to either prescribe the manner in which the annual capacity of production might be determined nor did it question its right to formulate a factor relevant for the purposes of estimating production in a factory. The Court further observed that the computation of annual production and the same being computed by virtue of a statutory deemed fiction did not owe its genesis to Rule 8but stood incorporated in Section 3A(2)(a) of the Act itself.
The Court opined that as per Rule 8 of the CTUT Rules, it was manifest that in case a machine was 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 was operated only for a few days during the month did not result in the duty liability being proportionately reduced or enhanced. The Court observed that it was evident from the Second Proviso to Rule 8 which stipulated that in case an installed packing machine falls into a state of disuse for any reason whatsoever, it shall be deemed to be an operating packing machine for the month.
The Court noted that the Tribunal had concluded that Rule 8 mandated that if any new machine was installed on any date during the month, it was 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 months concerned would have to be computed in accordance with the above, thus, the appellant would be liable to pay duty accordingly.
The Court opined that the challenge to Rule 8 must also fail when tested on the anvil of the Second Proviso to Section 3A(2)(b) of the Act as the Second Proviso to Section 3A(2)(b) would stand confined to a situation where a factor relevant was altered or modified during the year, but in the present case, the quantification of duty liable to be paid by a manufacturer remained constant during the period in question hinged upon the number of packing machines in the factory of a manufacturer.
The Court dismissed the appeal and stated that it cannot hold that Rule 8 as being ultra vires to Section 3A of the Act nor was there any error in the view as expressed by the Tribunal while passing the order impugned.
[Gopal Corporates LLP v. Comm. of Central GST, 2023 SCC OnLine Del 5505, decided on 06-09-2023]
*Judgment authored by: Justice Yashwant Varma
Advocates who appeared in this case :
For the Appellant: Vivek Kohli, Senior Advocate; Ashwani Sharma, Juvas Rawal, Bhavya Bhatia, Advocate
For the Respondent: Ajit Kalia, Senior SC; Abhinav Kalia, Advocate; Kirtiman Singh, CGSC; Waize Ali Noor, Shreya Mehra, Varun Rajawat, Kholi R., Advocats; Archana Surve, G.P.