ORDER
1. This petition has been filed with the prayer for quashing Section 3A of the Central Excise Act, 1944 (hereinafter referred to as 'the Act') and Rules and Notifications dated 1-8-1997 issued thereunder, the same being ultra vires to the Constitution and discriminatory in nature. Further prayer is for quashing order dated 6-5-2005, Annexure P. 14 passed by Commissioner, Central Excise and a direction not to levy excise duty other than on actual production and clearance of excisable goods and consequential relief of refund.
2. Case of the petitioner is that the petitioner is engaged in the business of manufacture of M.S. Ingots since 1986 and had been discharging liability to pay central excise duty as per actual production and after availing Modvat credit on inputs and capital goods.
3. Section 3A was inserted in the Act by Finance Act No. 2 with effect from 1-9-1997, which provided for levy of excise duty by determining capacity of production of notified goods. As per Notification No. 46/97, dated 1-8-1997, on non-alloy steel ingots and billets falling under sub-heading Nos. 7206.90 and 7207.90 of the Schedule to the Central Excise Tariff Act, 1985, excise duty payable is Rs. 750/- per metric tonne on the annual capacity of production determinable under the Induction Furnace Annual Capacity Determination Rules, 1997. Rule 3 of the said rules lays down the procedure for computing the capacity of production. Rule 96ZO introduced with effect from the same date by the Central Excise (Seventh Amendment) Rules, 1997 lays down procedure to be followed by manufacturer of Ingots and billets. Sub-rule (3) thereof provides for payment of lump-sum amount in full and final discharge of duty, at the option of manufacturer, subject to the condition that on giving such an option, manufacturer will not be entitled to avail of benefit under Proviso to Sub-section (3) or (4) of Section 3A of the Act.
4. The petitioner received notice dated 26-3-1998 to show cause as to why the amount of excise duty be not recovered and penal action taken for clearing goods without discharging liability under Rule 9(1) read with Rule 96ZO(3) and Section 3A of the Act. In the said show cause notice, it was also mentioned that the petitioner opted to avail the scheme described in Rule 96ZO of the Rules but did not deposit the requisite amount. Different notices were issued on the same pattern. The petitioner filed Civil Writ Petition No. 6160 of 1998 before the Delhi High Court, challenging the said provisions.
5. Reply was filed on behalf of the Revenue contesting the writ petition. Initially on 30-11-1998, interim order, Annexure 1-A was granted to the effect that the petitioners could submit application on the basis of actual production during the pendency of the petition. The said order was modified on 5-12-2000 vide, Annexure P-5 to the following effect:
We vary the interim order dated 30-11-1998 to the extent that authorities are at liberty to take action for the past period in line with the decision of Apex Court in Commissioner of Central Excise and Customs v. Venus Castings (P) Ltd. : 2000ECR9(SC) in accordance with law. (sic)
6. The matter was thereafter disposed of on 18-2-2005 vide Annexure P. 9 by the following order:
In view of the decision of the Apex Court in the case of Kusum Ingots and Alloys Ltd. v. Union of India 2004 (168) E.L.T. 3, learned Counsel for the petitioner seeks permission to withdraw these petitions with liberty to approach the appropriate court. He is also requesting the court in continue the interim protection for a reasonable period i.e. upto 31st March, 2005. The respondent having no objection we permit the counsel to withdraw the petitions with protection as prayed for Petitions stand disposed of. (sic)
7. Thereafter, the question of determination of capacity of production was considered by the Commissioner of Excise, on remand by the Tribunal. Learned Counsel for the assessee during the course of arguments stated that an appeal against the order of the Commissioner was pending before the Tribunal.
8. The contention sought to be raised in the writ petition is that Section 3A of the Act is unconstitutional on the ground that the assessee was denied opportunity to pay duty on actual production and the levy was in the nature of direct tax and also discriminatory inasmuch as benefit of Modvat credit was not allowed and distinction was made between factories having single furnace and those having more than one furnace. It is further pointed out that abatement claim in respect of period of closure was also denied, where one furnace remained closed or inoperative, while production capacity was determined furnace-wise and not factory-wise.
9. Stand taken in the reply filed before the Delhi High Court, Annexure P. 3 is that the petitioners themselves filed declaration and agreed to pay excise duty on lump-sum basis vide their letter dated 11-9-1997, Annexure R.I. The amendment was valid and was upheld by Andhra Pradesh High Court in Sarwotham Ispat Ltd. v. Government ofIndia 1999 (105) E.L.T. 550. In further reply, Annexure P. 7, it was further pointed out that in view of judgment of the Hon'ble Supreme Court in Commissioner of C. Ex. and Customs v. Venus Castings (P)Ltd. : 2000ECR9(SC) , procedure under Rule 96ZO(3) being optional and assessee having opted for the same, could not seek determination of actual production under Rule 96ZO(1) read with Section 3A(4) of the Act.
10. We having heard learned Counsel for the petitioner at length.
11. The relevant provisions of Section 3A of the Act are extracted below:
3A. Determination of annual capacity of production of the factory for levy of Excise duty. - (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 of 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, byrules-
(a) provide the manner for determination of the annual capacity of production of the factory, in which such goods are produced, by an officer not below the rank of Assistant Commissioner of Central Excise and such annual capacity shall be deemed to be the annual production of such goods by such factory; or
(b) (i) specify the factor relevant to be production of such goods and the quantity that is deemed to be produced by use of such factor; and
(ii) provide for the determination of the annual capacity of production of the factory in which such goods are produced on the basis of such factor by an officer not below the rank of Assistant 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 annual production thereof shall be calculated on proportionate basis of the annual capacity of production:
Provided further that in a case where the factor relevant to the production is altered or modified at any time during the year, the annual production shall be redetermined on a proportionate basis having regard to such alteration or modification.(3) The duty of excise on notified goods shall be levied at such rate, on the unit of production or, as the case may be, on such factor relevant to the production, 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 fifteen days or more, 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), Central Excise Officer not below the rank of Joint 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 Central Excise Officer not below the rank of Joint 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 1. - 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 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 assigned to them in Section 3.
12. As regards validity or otherwise of the impugned order, Annexure P.14, since the issue is pending consideration before the Tribunal, we refrain from going into the said question.
13. As regards the issue of validity of Section 3A of the Act and Rules and Notifications issued thereunder, we do not consider it necessary to issue notice to the respondents in view of binding judicial precedents available.
14. In Sathavahana Steels and Alloys (P) Ltd. v. Government of India 1999 (114) E.L.T. 787 it was observed:
6. We are of the view that there is no valid ground to assail the validity of Sub-rule (3) of Rule 96ZO. Sub-rule (3) has been framed for the facility of the assessees. It is left to the volition and option of the assessee to avail of the procedure under Sub-rule (3) instead of the procedure prescribed under Sub-rules (1) and (2). When once the assessee avails of the option provided by Sub-rule (3), he takes advantages and disadvantages associated with it. It is not open to the assessee to say that he would only avail of the beneficial part of the rule leaving the incidental disadvantages. An assessee who comes under the purview of Sub-rule (3) scheme, cannot obviously avail of the relief provided to the assessee who preferred to pay duty in accordance with Sub-rule (1). He is bound by the conditions prescribed by the rule and cannot carve out exceptions to suit his needs. He cannot have the best of both worlds. The petitioner opted for the scheme with eyes wide open. It is difficult to believe that he was not aware of the power cuts and other adverse factors which are not unusual. Irrespective of the fact whether the Central Government in fixing the lump-sum amount of Rs. 5 lakhs under Sub-rule (3) had taken into account the eventuality of power cuts, the petitioner who opted for the scheme under Sub-rule (3) on his own volition and choice, cannot be allowed to complain of the validity of that rule. Nor can he claim that the provisions for abatement of duty and redetermination of the capacity as contained in the proviso to Sub-section (3) and Sub-section (4) of Section 3A should be imported into Rule 96ZO(3). When once the assessee opts for lump-sum payment under Rule 96ZO(3), he forgoes the benefit under the proviso to Sub-section (3) and Sub-section (4) of Section 3A as laid down in express and categorical terms by Sub-rule (3) of Rule 96ZO. The argument advanced on behalf of the petitioners ignores the crucial point that payment of duty as per Sub-rule (3) is not compulsive, but is only optional. We, therefore, fail to see how the assessee could challenge the same, more so after he voluntarily opted for the scheme. In fact, we are inclined to think that the lump-sum duty on compounded basis would be much less than the duty payable with reference to capacity of production and that is why the petitioners opted for the same.
7. The stand taken by the Commissioner, Central Excise that there is no provision for abatement or refixation of duty in a case governed by Rule 96ZO(3) is, in our view, unassailable. The learned Counsel has relied on a recent decision of the Division Bench in Snrwotham Ispat Ltd. v. Govt. of India 1998 (6) ALT 17. That was also a case in which the assessee was governed by the scheme under 96ZO(3). The discussion proceeds on the basis that the relief can be given under Sub-sections (3) and (4) of Section 3A in case of eventualities such as power restrictions. But their Lordships have not noticed the concluding words of the Sub-rule (3) i.e. 'subject to the condition that the manufacturer shall not avail of the benefit, if any, under proviso to Sub-section (3) or under Sub-section (4) of Section 3A of the Central Excise Act, 1944 (1 of 1944).'
8. Insofar as the observations suggest that the assessee who has opted to the scheme under Sub-rule (3) can invoke the proviso to Sub-section (3) and Sub-section (4) of Section 3A, they go counter to the specific exclusionary provision in Rule 96ZO(3). Such observations must therefore be deemed to have been made per incuriam. In any case, the direction which their Lordships ultimately issued in the operation portion of the judgment necessarily implies that the relief can only be worked out within the framework of the rule. This is what is Division Bench said in the last sentence of the judgment:. This is, however, subject to the availability of the relief in terms of the rules framed under Sections 3 and 3A of the Act. We, therefore, see no merit in the writ petitions.
15. In Venus Castings (supra), it was observed:
11...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 procedure under Rule 96 ZO(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 Sathawahana Steels and Alloys (P) Ltd. v. 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 Jalan Castings (P) Ltd. v. Commissioner of Central Excise and 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 v. Commissioner of Central Excise, Allahabad and. Anr. (supra).
12. 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.
16. Thereafter, in Union of India v. Supreme Steels and General Mills : 2000ECR193(SC) , it was observed:
3....It was absolutely optional for the manufacturer to opt for payment of excise duty in accordance with Sub-rule (3) of Rule 96ZO on the basis of total furnace capacity installed as provided therein. The manufacturer cannot opt twice during one financial year first choosing to pay in accordance with Sub-rule (3) of Rule 96ZO and thereafter to switch over to actual production basis under Section 3A(4) of the Act, in case it is less than the duty payable under Sub-rule (3) of Rule 96ZO. The said sub-rule is quite clear that the option under it is available subject to the condition that once having opted for it, benefit if any under Sub-section (4) of Section 3A of the Central Excise Act, 1944 shall not be available. We find that the controversy sought to be raised stands finally settled by a decision of this Court reported in : 2000ECR9(SC) - Commissioner of Central Excise and Customs v. Venus Castings (P) Ltd. It has been clearly held that two procedures namely one as provided under Sub-section (4) of Section 3A of the Central Excise Act and the other as provided under Sub-rule (3) of Rule 96ZO of Central Excise Rules are alternative procedures and the assessee has to opt for one. Once having done so he cannot claim the benefit of the other.
4. In view of what has been indicated above in this order all the cases of the bunch stand finally disposed of accordingly. Costs easy.
17. In view of the above, since it has clearly been held in Venus Castings (supra) that duty envisaged under Section 3A was on production of goods, it could not be said that collection of tax was not relatable to production of goods when manufacturers availed of an optional procedure available under Rule 96ZO(3). This takes care of the argument of the petitioner that duty leviable under Section 3A is not on production of goods but on capacity to produce. In Supreme Steels (supra), it was held that benefit of Section 3A(4) on actual production basis could not be availed of once the assessee had opted for the procedure laid down under Sub-rule (3) of Rule 96ZO. It was observed that two alternative procedures being available and the assessee having opted for one could not claim benefit of the other. There could, thus, be no arbitrariness or discrimination. Even the submission of the learned Counsel that in Supreme Steels' case (supra), plea of challenge to the vires of Section 3A of the Act was not pressed since by that time the provision stood dropped from statute book, does not carry any weight since the arguments being raised by the petitioner to challenge the vires have been considered and rejected in Venus Castings' case (supra). In view of the said observations, it cannot be held that the validity of Section 3A of the Act is open to question. Hence, we uphold the vires thereof. However, we have not opined on any other claim of the petitioners on merits for which the appeal of the petitioner is admittedly pending.
Writ petition is disposed of in the manner indicated above.