M.Y. Eqbal, J.
1. The instant writ petitions being W.P. (T) No. 5528 of 2003 has been filed by the assessee and the Tax Cases being Tax Case Nos. 07 of 2003 and Tax Case No. 08 of 2003 have been filed by the Union of India and in all these three cases, the impugned orders have been challenged. Since common questions of law and facts are involved in these cases, they have been heard together and are disposed of by this order.
2. In W.P. (T) No. 5528 of 2003, the petitioner-assessee have prayed for the following reliefs:
(a) That this writ petition, under Article 226 of the Constitution of India, is directed against order No. A-1181-1182/Kol/2002 dated 28.10.2002 (Annexure-10) passed by CEGAT, Kolkata, upholding the demand of duty against the petitioners as confirmed by order-in-original No. 93-96/Commr/2000 dated 23.11.2000 (Annexure-8) passed by Commissioner of Central Excise, Jamshedpur but reducing the penalty to Rs. 40,00,000/-.
(b) This petition is also against the order No. M-445/KOL/2003 dated 9.7.2003 (Annexure-11) passed by the CEGAT, Kolkata dismissing the application for Rectification of Mistake filed by the petitioners against the aforesaid CEGAT order.
(c) This petition also challenges order dated 23.3.98 (Annexure-4) order dated 5.8.999 (Annexure-7) passed by Respondent No. 3 fixing the annual capacity of petitioners first and second furnace respectively as 3 MT.
(d) This petition also challenges the validity of provision relating to levy of interest and penalty contained in Rule 96ZO(3) of Central Excise Rules, 1944.
3. In Tax Case No. 05 of 2003, the Revenue-Union of India has challenged that part of the same order dated 28.10.2002 passed by Customs, Excise and Service Tax Appellate Tribunal (in short 'CEGAT') whereby penalty imposed by the Commissioner of Central Excise has been reduced, whereas Tax Case No. 07 of 2003 has been filed under Section 354 of the Central Excise Act seeking reference of the matter to this Court and also for setting aside the order dated 28.10.2002 passed by the CEGAT reducing the amount of penalty imposed by the Commissioner of Central Excise.
4. The facts of the case lie in a narrow compass:
The petitioner M/s. Union Enterprises, Adityapur, Jamshedpur (hereinafter referred to as 'the assessee') are engaged in the manufacture of Ingots and Billets of non-alloy steel falling under leading 7206.90 and 7207.90 of the schedule of Central Excise Tariff Act, 1985. The said goods manufactured by the said assessee have been specified by Notification No. 30/97-CE dated 30.8.97 as notified goods on which duty shall be levied in accordance with the provisions of Section 3A of the Central Excise Act, 1944 (in short 'C.E. Act'). The assessee installed two ingots furnaces, one after another, for the purpose of manufacture of Ingots and Billets and non-alloy steel (in short 'the said goods'). The assessee firstly submitted declaration in respect of Annual Capacity of production of furnace. On the basis of said declaration, the Commissioner of Central Excise, Jamshedpur vide his order dated 7.10.1997 and 23.3.1998 provisionally and finally fixed the Annual Capacity of production (in short 'ACP') of the one furnace of the assessee as 9600 MT. Since the assessee vide letter dated 11.9.1997 opted for payment of duty on the said goods under the provisions of Sub-rule (3) of Rule 96ZO of the Central Excise Rules, the assessee was required to pay Rs. 5 lacs as duty every month. In March, 1999, the assessee installed another furnace and the Commissioner of Central Excise again vide order dated 5.8.1999 determined the ACP in respect of the said furnace at 9600 MT. Since the assessee had opted for discharging duty liability under the provisions of Rule 96ZO, the assessee was required to pay Rs. 10 lacs from March, 1999 in respect of these two furnaces.
5. When the assessee did not discharge their liability of payment of duty on the said goods on the basis of ACP fixed by the Commissioner, the Commissioner of Central Excise, Jamshedpur issued show cause notices for the recovery of the amount of duty due and payable by the assessee. In response to the show cause notices and in recovery proceedings, the stand taken by the assessee was that due to general economic recession in trade and industry all over the country, there had been a drastic cut in the demand of their products which resulted in heavy downfall in demand of their products in the market. Since there had been shortfall in the sale of the goods, the assessee failed to pay the required amount of Central Excise duty. It was stated by the assessee in the said recovery proceedings that they will pay the outstanding dues as soon ns they get the fund.
6. The Commissioner of Central Excise, Jamshedpur took notice of the fact that the assessee had opted to discharge duty liability on the said goods under provision of Rule 96ZO(3) of the Central Excise Rules, so they were required to pay Rs. 5 lacs per month in two instalments in pursuance of the order dated 23.8.1998. The Commissioner further noticed that during the period of June, 1998 to October, 1998, the assessee have not discharged their duty liability based on the ACP and as such, notices were validly issued. The Commissioner of Central Excise finally came to the conclusion and held that the assessee is liable to pay Rs. 83,87,097-00 as duty for the period in question. Taking notice of the proviso of Rule 96ZO of the Rules, the Commissioner further held that since the assessee failed to pay the whole amount of duty payable by 15th day of such month, they shall be liable to pay interest on the arrears of duty @ 18% per annum. On the question of penalty, the Commissioner of Central Excise held that in accordance with aforesaid Rule, the assessee is liable to pay the prescribed penalty equal to such outstanding amount of duty. Accordingly, the Commissioner by the impugned order dated 23.11.2000 directed recovery of amount of Rs. 83,87,097=00 as duty short paid by the assessee during the period of June, 1998 to September, 1998 and March, 1999 to March, 2000 and also equal penalty of Rs. 83,87,097=00 as prescribed in Rule 96ZO(3) of the Central Excise Rules.
7. Aggrieved by the said order passed by the Commissioner of Central Excise, the assessee preferred appeal before the Customs, Excise & Service Tax Appellate Tribunal, Kolkata (CEGAT). The appellate Tribunal disposed of the appeal in terms of the order dated 28.10.2002. The CEGAT confirmed the order dated 23.11.2000 passed by the Commissioner of Central Excise so far amount of duty payable by the assessee is concerned. However, the CEGAT reduced the amount of penalty from Rs. 83.87 lacs to Rs. 40 lacs. The assessee has challenged the said order dated 28.10.2002 passed by the CEGAT in the instant writ petition, whereas the Revenue has also challenged that part of the impugned order whereby amount of penalty has been reduced from RS. 83.87 lacs to Rs. 40 lacs by filing Tax Case No. 05 of 2003. For better appreciation, the order dated 28.10.2002 passed by the CEGAT is reproduced herein below:
Both the appeals are being disposed of by a common order as the issue involved is identical.
2. Vide the Impugned orders the Commissioner of Central Excise has confirmed demand of duty of Rs. 83,87,097/-(rupees eighty three lacs eighty seven thousand and ninety seven) and Rs. 8,94,750/- (rupees eight lakh ninety four thousand seven hundred and fifty) under the provisions of Rule 96ZO(3) for the period June 1998 to September 1998 and March 1999 to March 2000 with imposition of personal penalty of identical amount under the said provisions.
3. Shri B.N. Chattopadhyay, ld. Consultant appearing for the appellate fairly admits that as per the Supreme Court's order in the case of M/s. Venus Castings, the appellant who has opted for payment of duty under the provisions of Rule 96ZO(3) was required to pay the duty in terms of the said provision during the period in question and could not have opted out of the same during a particular financial year. As such he admits his duty liability but submits that they could not pay the duty during the relevant period in terms of the said rule inasmuch as they were undergoing financial hardship. He further submits that they have till date deposited an amount of around Rs. 50,00,000/- (rupees fifty lakh) out of total duly in question and intend to deposit the balance amount along with interest. He submits that in these circumstances as there was no mala fide intention on the part of the appellant, the penalty be reduced.
4. Shri A.K. Mondal, ld. JDR appearing for the Revenue submits that in terms of the said rule the assessee is required to deposit the duty by 15th of the next month and the assessee's failure to do so invites penalty to the extent of 100% in terms of Rule 96ZO(3). As such he supports the order of the Commissioner.
5. After hearing both the sides, we find that it is now well settled that the mandatory penalty to the extent of 100% under a particular provision is the maximum penalty provided under the law for which adequate reasons should be given by the authorities. In the instant case we take notice of the appellants' plea that the duty was not being deposited by them on account of financial difficulties. They have also deposited a substantial amount in question and are ready to deposit the balance with interest. Taking all these circumstances into consideration we reduce the penalty amount from Rs. 83,87 lacs to Rs. 40,00,000/-(rupees forty lakh), But for the above modification in the quantum of penalty, the appeal is otherwise rejected.
8. Mr. V. Shridharan, learned Counsel appearing for the assessee, assailed the impugned orders passed by the Commissioner of Central Excise and CEGAT as being illegal and wholly without jurisdiction. Learned Counsel submitted that the Revenue has completely misunderstood the legal position and proceeded on the assumption that once Rule 96ZO(3) is opted for, provisions of Section 3A(4) are not applicable. Learned Counsel further submitted that the Revenue has not realized the position that provision of Rule 96ZO(3) is applicable subject to fulfillment of condition that benefit of Section 3A(4) is not availed of. Learned Counsel tried to distinguish the ratio decided by the Supreme Court in the case of 'C.C.E. v. Venus Castings Pvt. Ltd. : 2000ECR9(SC) ' and submitted that the decision is not against the assessee. Assailing the impugned orders dated 23.11.2000 and 28.10.2002, learned Counsel submitted that the said orders are perverse in law inasmuch as it is not based on true facts. Learned Counsel further submitted that the assessee opted for Rule 96ZO(3) on the footing that the capacity indicated by the assessee was acceptable to the respondents- Revenue. If the respondents wanted to change that capacity and fasten a higher liability by redetermining the capacity, then the assessee has full right to claim assessment in terms of Section 3A(4) of the Act. On the question of determination of ACP by order dated 23.3.1998, learned Counsel submitted that the same is based on certificate of manufacturer which is contrary to Rule 3(a) and 3(s) of the Capacity Rules and therefore, cannot be sustained in law. According to the learned Counsel, unless the capacity is redetermined, the provisions of imposition of interest and penalty as contained in Rule 96ZO(3) are not applicable. On the question of imposition of interest and penalty, learned Counsel submitted that interest and penalty cannot be imposed only on the basis of plenary legislation. Learned Counsel submitted that the provisions of Rule 96ZO(3) providing for interest on delayed payment of duty is beyond the rule making power of the Central Government and the same is therefore, ultra vires.
9. Dr. J.P. Gupta and Mr. M.A. Khan, learned Counsels appearing for the Revenue, on the other hand, submitted that admittedly the assessee failed to pay duty and consequent thereupon, four show cause notices were issued and the Commissioner of Central Excise, after hearing the assessee, decided the matter and confirmed that an amount of Rs. 83,87,097=00 as duty short paid by the assessee during the period of June, 1998 to September, 1998 and March, 1999 to March, 2000 under the provisions of Rule 96ZO(3) of the Act. As the duty was not paid by the assessee during the period in question, the Commissioner imposed penalty of an identical ,amount and interest as contemplated under the said Rules. Learned Counsel submitted that in an appeal filed by the assessee, the appellate authority namely, CEGAT, erroneously and without any basis reduced the penalty amount on wrong assumption that mandatory penalty to the extent of 100 per cent under a particular provision is the maximum penalty provided under the law. Learned Counsel submitted that in view of undisputed fact that assessee had admitted the liability although opting for payment of duty under the provisions of Rule 96ZO(3), but because of financial crisis the amount of duty could not be paid during the relevant period in terms of the said Rule, CEGAT had no jurisdiction to reduce the penalty which was imposed in accordance with the mandatory provisions of rules referred to herein above.
10. Before appreciating the rival submissions made by the learned Counsels, I would first like to refer some of the relevant provisions of the Act and the Rules applicable in the instant case.
11. By virtue of Finance Act, 1997, Section 3A was inserted in Central Excise Act, 1944 for the purpose of determination of Excise Duty payable on the basis of capacity of production in respect of notified goods. Section 3A as inserted reads as under:
Section 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 duly 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, provide for determination of the annual capacity of production or such factor or factors relevant to the annual capacity of production of the factory in which such goods are produced, by the 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 only during a part of the year, the production thereof shall be calculated 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 redetermined and if the duty already paid falls short of, or is in excess of, the duty so redetermined, 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 per cent export-oriented undertaking and allowed to be sold in India.
Explanation I. - For the removal of doubts, it is hereby clarified that for the purposes 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 [the First Schedule and the Second Schedule] to the Central Excise Tariff Act, 1985 (5 of 1986), read with any notification for the time being in force.
Explanation 2. - For the purposes of this section the expressions 'free trade zone' and 'hundred per cent export-oriented undertaking' shall have the meanings of assigned to them in Section 3.
12. In 1997 itself, a Rule was framed called Induction Furnace Annual Capacity Determination Rules, 1997 laying down the procedure for manufacture of Ingots and Billets and also determination of annual capacity of production of the induction furnace. For better appreciation, Rule 96ZO which is relevant for the instant case particular Rule 96ZO(3) are reproduced herein below:
RULE 96ZO. Procedure to be followed by the manufacturer of Ingots and billets, - (1) A manufacturer of non-alloy steel ingots and billets falling under subheading Nos. 7206.90 and 7207.90 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), shall debit an amount calculated at the rate of Rs. 750 per metric tonne at the time of clearance of ingots and billets of non-alloy steel from his factory in the account-current maintained by him under Sub-rule (1) of Rule 173G of the Central Excise Rules 1944, subject to the condition that the total amount of duty liability shall be calculated and paid in the following manner.
I. Total amount of duty liability for the period from the 1st day of August, 1997 to the 31st day of March, 1998.
(a) a manufacturer shall pay a total amount calculated at the rate of Rs. 750 per metric tonne on capacity of production of his factory for the period from 1st day of September, 1997 to the 31st day of March, 1998, as determined under the Induction Furnace Annual Capacity Determination Rules, 1997. This amount shall be paid by 31st day of March, 1998;
(b) the amount of duty already paid, together with on-account amount paid by the manufacturer, if any during the period from 1st day of September, 1997 to the 31s' day of March, 1998, shall be adjusted towards the total amount of duty liability payable under Clause (a);
(c) if a manufacturer fails to pay the total amount of duly payable under Clause (a) by the 31st day of March, 1998, he shall be liable to pay the outstanding amount (that is the amount of duly which has not been paid by the 31st day of March, 1998) along with interest at the rate of eighteen per cent. per annum on such outstanding amount calculated for the period from the 1st day of April, 1998 till the date of actual payment of the outstanding amount.
Provided that if the manufacturer fails to pay the total amount of duty payable under Clause (a) by the 30th day of April, 1998, he shall also be liable to pay a penalty equal to the outstanding amount of duty as on 30th day of April, 1998 or five thousand rupees, whichever is grater.
II. Total amount of duty liability for a financial year subsequent to 1997-98
a) a manufacturer shall pay a total amount calculated at the rate of Rs. 750/- per metric tonne on the annual capacity of production of his factory as determined under the Induction Furnace Annual Capacity Determination Rules, 1991, This amount shall be paid by the 31st day of March of the financial year;
b) the amount of duty already paid, together with on-account amount paid by the manufacturer, if any during the financial year shall be adjusted towards the total amount of duty liability;
c) if a manufacturer fails to pay the total amount of duty payable under Clause (a) by the 31st day of march, of the relevant financial year, he shall be liable to, -
(a) pay the outstanding amount of duty (that is the amount of duty which has not been paid by the 31st day of march of the relevant financial year) along with interest at the rate of eighteen percent. Per annum on such outstanding amount, calculated for the period from the 1st day of April of the immediately succeeding financial year till the date of actual payment of the whole of outstanding amount: and
(b) a penalty equal to such outstanding amount of duty or five thousand rupees, whichever is grater.
[(1A) If any manufacturer removes any of the non-alloy steel ingots and billets specified in Sub-rule (a) without complying with the requirements of the provisions of that sub-rule, then all such goods shall be liable to confiscation and the manufacturer shall be liable to a penalty not exceeding three times the value of such goods, or five thousand rupees, whichever is greater.]
(2) where a manufacturer does not produce the ingots and billets of non-alloy steel during any continuous period of not less than seven days and wishes to claim abatement under Sub-section (3) of Section 3A of the Central Excise Act, 1944, the abatement will be allowed by an order passed by the Commissioner of Central Excise of such amount as may be specified in such order, subject to fulfillment of the following conditions, namely:
(a) the manufacturer shall inform in writing about the closure to the Assistant Commissioner of Central Excise, with a copy to the Superintendent of Central Excise, either prior to the date of closure or on the date of closure;
(b) the manufacturer shall intimate the reading of the electricity meter to the Assistant Commissioner of Central Excise, with a copy to the Superintendent of Central Excise, immediately after the production in his factory is stopped along with the closing balance of stock of the ingots and billets of non-alloy steel;
(c) the manufacturer, when he starts production again, shall inform in writing about the starting of production to the Assistant Commissioner of C.E., with a copy to the Superintendent of Central Excise, either prior to the date of starting production or on the date of starting production;
(d) the manufacturer shall on start of production again along with the closing balance of stock an restarting the factory, intimate the reading of the electricity meter to the Assistant Commissioner of Central Excise, with a copy to the Superintendent of Central Excise.
(e) the manufacturer shall while sending intimation under Clause (c), declare that his factory remained closed for a continuous period starting from__________ hours on _______ (date) to ________ hours on __________ (date).
(3) Notwithstanding anything contained elsewhere in these rules, if a manufacturer having a total furnace capacity of 3 metric tones installed in his factory so desires, he may, from the first day of September, 1997 to the 31st day of March, 1998 or any other financial year, as the case may be, pay a sum of rupees five lakhs per month in two equal instalments, the first instalment latest by the 15th day of each month, and the second instalment latest by the last day of each month, and the amounts so paid shall be deemed to be full and final discharge of his duty liability for the period from the 1st day of September, 1997 to the 31st day of March, 1998, or any other financial year, as the case may be, subject to the condition that the manufacturer shall not avail of the benefit, if any, under Sub-section (4) of the Section 3A of the Central Excise Act, 1944 (1 of 1944):
Provided that for the month of September, 1997 the Commissioner may allow a manufacturer to pay the sum of rupees five lakhs by the 30th day of September, 1997:
Provided further that if the capacity of the furnaces installed in a factory is more than or less than 3 metric tones, or there is any change in the total capacity, the manufacturer shall pay the amount, calculated pro rate:
Provided also that where a manufacturer fails to pay the whole of the amount payable for any month by the 15th day of last day of such month, as the case may be, he shall be liable to, -
(i) pay the outstanding amount of duty along with interest thereon at the rate of eighteen per cent. Per annum, calculated for the period from the 16th day of such month or the 1st day of next month, as the case may be, till the date of actual payment of the outstanding amount; and
(ii) a penalty equal to such outstanding amount of duty or five thousand rupees, whichever is greater.
Provided that if the manufacturer fails to pay the total amount of the duty payable for each of the months from September, 1997 to March, 1998 by the 30th day of April, 1998, he shall also be liable to pay a penalty equal to the outstanding amount of duty as on 30th day of April, 1998 or five thousand rupees, whichever is grater.
Explanation:- For removal of doubts it is hereby clarified that Sub-rule (3) does not apply to an induction furnace unit which ordinarily produces castings or stainless steel products but may also incidentally produce non-alloy steel ingots and billets.
(4) In case a manufacturer wishes to avail of discharging his duty liability in terms of Sub-rule (3), he shall inform the Commissioner of Central Excise, with a copy to the Assistant Commissioner of Central Excise, in the following proforma:
We ___________(name of the factory), located at____________ (address) hereby wish to avail of the scheme described in Sub-rule (3) Rule 96ZO, for full and final discharge of out duty liability for the manufacturer of ingots and billets of non-alloy steel under Section 3A of the Central Excise Act, 1944 (1 of 1944).Dated ________ Sd ____________Name and Designation(With Stamp)
13. From bare reading of Section 3A of the Act together with Rules made thereunder, quoted herein before, it is manifestly clear that two alternative procedures have been provided and the Revenue shall adopt one of the procedures at the option of the assessee. If the assessee opts for procedure provided under Rule 96ZO(1), he may opt out of the procedure under Rule 96ZO(3) for subsequent period and seek annual determination of production.
14. In the case of 'C.C.E. v. Venus Castings Pvt. Ltd. : 2000ECR9(SC) ', the Supreme Court has discussed the Act and the rules in detail. Their Lordships discussed the provision in paragraphs 8, 9 and 10 which are quoted herein below:
8. Section 3-A 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 (sic reason) 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 3-A(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 redetermine the same as provided in Section 3-A(4).
9. Rules 96-ZO and 96-ZP provide for the 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 96-ZO and 96-ZP 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. 96-ZO classifies the manufacturers into two classes, those whose furnace capacity is 3 tons and other manufacturers with a high capacity of furnaces. The rate of duty payable, except for the period from 1-1-1997 to 31-3-1998 which was the transitional period, is Rs. 750 per ton, at the time of clearance. Total amount of duty should be paid by 31st March of the 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 the appropriate procedure. Sub-rule (3) thereof envisages a composition method of payment of duty. Manufacturers of ingots and billets with a furnace capacity of 3 tons have an option of paying duty of Rs. five lakhs per month in two equal instalments prior to the 15th of a month and by the last date of that month. Such payment is treated to be in full discharge of the duty liability. The Rule specifically excludes application of Section 3-A(4). But manufacturers opting for this composite scheme cannot claim abatement. If the furnace capacity is less than or more than 3 tons, the 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 the 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 3-A(4) of the Act does not arise.
10. The schemes contained in Section 3-A (4) of the Act and Rule 96-ZO(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 the procedure under Rule 96-ZO(1) he may opt put of the procedure under Rule 96-ZO(3) for a subsequent period and seek the determination of the annual capacity of production. An assessee cannot have a hybrid procedure of combining (sic) the procedure under Rule 96-ZO(1) to which Section 3-A(4) of the Aft is attracted. The claim by the respondents is a hybrid procedure of taking advantage of the payment of lump sum on the basis of the total furnace capacity and not on the basis of the actual capacity of production. Such a procedure cannot be adopted at all, for the two procedures are alternative schemes of payment of tax.
15. Rejecting the contention of the assessee that Rule 96ZO(3) is contrary to Section 3A(4) of the Act and the same is ultra vires, Their Lordships observed:
11. The learned Counsel far the respondent contended that Rule 96-ZO(3) is contrary to Section 3-A(4) of the Act and, therefore, should be held to be ultra vires or the relevant rules should be read in such a manner so as to allow the procedure prescribed under the provisions of Section 3-A(4) to be followed Section 3-A 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 3-A provides a 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 licence fee and not on the production of goods at all. Schemes of composition are available in several other enactments including the Sales Tax Act and the Entertainment Tax. (See State of Kerala v. Builders Assn. of India.) 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 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 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 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 96-ZO(3) at their option, cannot claim the benefit of determination of production capacity under Section 3-A (4) of the Act which is specifically excluded. We find that the view taken by the Andhra Pradesh High Court in Sathavahana Steels and Alloys (P) Ltd. v. Govt. of India 1 and a similar view expressed by the Division Bench of the Allahabad High Court in Civil Miscellaneous Writ Petition No. 1127 of 1999 Jalan Castings (P) Ltd. v. CCE 3 disposed of on 28-2-2000 is reasonable and correct. We overrule the view taken by the Allahabad High Court in Pravesh Castings (P) Ltd. v. CCE (supra).
16. Coming back to the instant case, admittedly the assessee vide letter dated 11.9.1997 opted for payment of duty on the said goods under the provisions of Sub-rule (3) of Rule 96ZO and as such, the assessee was required to pay Rs. 5 lacs as duty every month so far the first furnace installed by the assessee is concerned. In March, 1999, the assessee installed another furnace and the Commissioner of Central Excise again vide order dated 5.8.1999 determined the ACP in respect of the said furnace as 9600 MT. Since the assessee opted for discharging the liability of payment of duty under the provisions of Rule 96ZO, they were required to pay Rs. 10 lacs from March, 1999 in respect of these two furnaces. It is also not in dispute that the assessee failed to pay the duty which resulted in issuance of show cause notices. In response to the show cause notices, the assessee fairly conceded that they could not pay the duty during the relevant period in terms of the said Rule as because they were undergoing financial hardships. The assessee further submitted before the Commissioner that they have till date deposited a sum of Rs. 50 lacs out of total duty in question and intend to deposit the balance amount along with interest. In view of these facts, in our considered opinion, the Commissioner has not committed any error of law in directing the assessee for payment of total excise duty dues amounting to Rs. 83.87 lacs together with interest in accordance with the provisions as contained in the Act and the Rules made thereunder.
17. So far order of penalty is concerned, the Commissioner of Central Excise while passing the impugned orders, took notice of the reasons assigned by the assessee for not depositing the duty within time. The assessee categorically stated before the Commissioner that due to general economic recession in trade and industry all over the country, there had been a drastic cut in the demand of their products which resulted in heavy downfall in demand of their products in market, as a result of which, there had been a shortfall in their sale. Therefore, they failed to pay the required amount of Central Excise duty. It was further stated by the assessee before the Commissioner that they will leave no stone unturned to fulfill the requirement of law and they will pay the outstanding dues as soon as they get the fund. The Commissioner of Central Excise, without accepting or rejecting the reasons assigned by the assessee for non-payment of duty within time, has imposed penalty of Rs. 83,87,097/ - applying the provisions of Rule 96ZO(3) of the Rules. However, in appeal filed by the assessee, the CEGAT in his order quoted herein above, has taken into consideration the bona fide of the assessee in depositing Rs. 50 lacs out of total duty and intended to deposits the balance amount along with interest. The CEGAT after accepting the plea taken by the assessee that the duty was not being deposited by them on account of financial difficulties and also taking into consideration the substantial amount in question have already been deposited by the assessee, the penalty imposed by the Commissioner of Central Excise has been reduced from Rs. 83.87 lacs to Rs. 40 lacs.
18. As stated above, the Commissioner of Central Excise while imposing penalty, has not assigned any valid and adequate reasons, nor the Commissioner has taken into consideration that there should be adequate justification for imposition of such heavy penalty. However, the CEGAT in appeal filed by the assessee, after assigning reasons discussed herein above, reduced the penalty from Rs. 83.87 lacs to Rs. 40 lacs. The impugned order passed by the CEGAT reducing the penalty does not warrant any interference by this Court.
19. In the result, we do not find any merit in the writ petition being W.P. (T) No. 5528 of 2003 and also Tax Case No. 05 of 2003, which are, accordingly, dismissed. Consequently, we do not find any reason to answer the question raised in Tax Case No. 07 of 2003 which has been sufficiently answered herein above. Hence Tax Case No. 07 of 2003 stands disposed of.
D.G.R. Patnaik, J.
20. I agree.