2003 JTR(Kar) 272
2003 AIR(Kar)(HCR) 1270 ; 2003 159 ELT 147 ; 2003 7 KarLJ 463 ; 2003 3 KCCR(SN) 155
Karnataka High Court
Bhuwalka Steel Industries Limited - Appellant
Versus
Union of India - Respondent
Decided On : 03-18-03
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.
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.
( 1 ) THE petitioner a steel industry is seeking a writ from this Court to strike down Rule 3 of the Induction Furnace Annual Capacity Determination Rules (for short the Rules) in terms of a notification dated 25. 7. 1997 and is also seeking a writ of certiorari to quash an order dated 30. 9. 1997, Annexure H and a letter dated 11. 3. 1998. The petitioner is also seeking a direction for re-determination of the annual capacity of production by taking into consideration the power factor on the facts of this case.
( 2 ) THE petitioner a Public Limited Company is having a Unit at Kolar and is engaged in the manufacturing of M. S. Ingots of both non-alloy and alloy steel. The petitioner was assessed to Central Excise duty under Chapter 72 of the Act. Duty was paid in terms of the said Tariff Act r/w. Sec. 3 of the Central Excise Act. A new Sec. 3a empowers the Central Government to charge excise duty on the basis of the capacity of production in respect of goods that the Central Government may specify by a notification in the Official Gazette. Annexure A is the notification. In exercise of the powers conferred by Sub-Section (1) of Section 3a of the Central Excise Act, the Central Government specified by a notification dated 1. 8. 1997, the ingots and billets of non-alloy steel falling under sub-heading Nos. 7206. 90 and 7207. 90 and manufactured or produced as notified goods on which the duty is levied and collected in accordance with the provisions of the Act. Annexure B is another Notification. The Government also issued a subsequent notification dated 25. 7. 1997 in terms of Annexure C. Annexure D is a notification dated 1. 8. 1997 bringing into force the Central Excise (seventh amendment) Rules of 1997. The Central Government also issued Rules known as Central Excise Rules 1997 in terms of a notification dated 30. 8. 1997.
( 3 ) THE petitioner opted for discharge of duty liable every month on a lumpsum basis at Rs. 6 lakhs per month in terms of the Rules. According to the petitioner, the furnace capacity was 3. 6 MTs and on a pro rata basis, the duty liability worked out in the case on hand. The same was intimated to the respondent. The second respondent passed an order determining the annual capacity of production of industrial furnace installed in the petitioners factory at 16,000 MTs in terms of Sub-Sec. 2 of Sec. 3a of the Central Excise Act. He fixed the production capacity for the period from 1. 9. 1997 to 31. 3. 1998 as 9,333. 333 MTs. According to the respondent, the petitioner did not provide the authenticated copy of invoices in respect of the installed furnace or crucibles. The petitioner by a letter dated 15. 10. 1997 stated that the annual capacity at 16,000 MTs is factually correct and it should have been 11, 520 MTs. Petitioner was asked to provide the copies of the invoices. The petitioner has provided those copies in terms of Annexure K, L, M and N. The respondent thereafter by a letter dated 11. 3. 1998 stated that the claim of the petitioner with respect to the annual capacity of production based on the power back cannot be acceded for want of power in this regard. The petitioner produced certain Certificates in support of his case. According to the petitioner, the fixation of annual capacity at 16,000 MT is without any basis and contrary to the acceptable reasons. The petitioner in this case is challenging the Rule as being unreasonable and arbitrary in addition to other prayers as referred to in the prayer column of the petition.
( 4 ) RESPONDENTS have entered appearance and they have filed a detailed statement. In the statement, they refer to various clauses to contended that their stand is correct in the matter.
( 5 ) MATTER is heard for final disposal. Sri. Naganand, learned Senior Counsel invites my attention to the material facts and in particular to Sec. 3a of the Act. According to him, the scheme was newly introduced with the laudable object of helping the assesses. According to him, the capacity is to be understood in a reasonable manner so as to include the power factor in the case on hand. According to him, the Rule is in violation of Sec. 3a. He relies on certain Judgments.
( 6 ) PER contra, Sri. Dinesh Kumar, learned Senior Counsel says that the petitioner having opted for the scheme cannot be permitted to contended contra in these proceedings. He strongly relies on a Judgment of the Supreme Court reported in AIR 2000 SC 1568.
( 7 ) MATERIAL facts reveal that the petitioner is engaged in steel industry and power is an essential factor requiring consideration in the matter of determination of capacity. Certain certificates have also been filed by the petitioner in this regard. The Central Excise Act provides for levy of Central Excise on the manufactured goods. Annexure B is with regard to notified goods on which duly will be levied and collected in accordance with Sec. 3a of the Act. Rules have been framed known as Induction Furnace Annual capacity determination Rules. The said Rules have been introduced in the light of sub Section 2 of Sec. 2. Sub Section 2 of Sec. 3a provides for determination of the annual capacity of production. Rule 2 of the Rules provide for determination of the annual capacity of production of the factory if such goods are manufactured in an induction Furnace Unit. The annual capacity of production is determined in terms of Rule 3 of the Rules, Rule 3 reads as under: 3. The annual capacity of production referred to in Rule 2 shall be determined in the following manner, namely:- 1) the Commissioner of Central Excise (hereinafter referred to as the Commissioner) shall call for an authenticated copy of the manufacturers invoice of traders invoice, who have supplied of installed the furnace or crucible to the induction furnace unit, and ascertain the total capacity of the furnaces installed in the factory on the basis of such invoice or document; 2) if the invoice or document referred to in sub-rule (1) is not available for any reason with the manufacturer then the Commissioner shall ascertain the capacity of the furnaces installed in the induction furnace unit on the basis of the capacity of comparable furnaces installed in any other factory in respect of which the manufacturers invoice or other document indicating the capacity of the furnace is available or, if not so possible, on the basis of any other material as may be relevant for this purpose. The Commissioner may, if he so desires, consult any technical authority for this purpose. 3) the annual capacity of production of ingots and billets of non-alloy steel in respect of such factory shall be deemed to be as determined by applying the following formula:- acp = TCF x 3200 where acp = Annual Capacity of Production of the factory producing ingots and billets of non-alloy steel in metric tones; and tcf = Total capacity of furnaces installed in the factory producing ingots and billets of non-alloy steel in metric tonnes. 4) The commissioner of Central Excise shall, as soon as may be, after determining, the total capacity of furnaces installed in the factory as also the annual capacity of production by an order intimate to the manufacturer.
( 8 ) THERE are subsequent notifications in terms of Annexures D and E. Rule 96zo provides for a procedure to be followed by the manufacturer of ingots and billets. That Rule refers to a liability in terms of the determination under the Induction Furnace Annual Capacity Determination Rules. Sub Rule 3 of Rule 96zo provides for a sum of Rs. 5 lakhs with two provisos. The second proviso provides for a prorata calculation basis in the event of the capacity of the furnace installed in the factory is more than or less than 3 MT or that there is any change in the total capacity in the matter of payment. In the case on hand, it is seen that the petitioner did opt for discharging his duties in terms of Sub Rule 3 of rule 96zo which would mean a payment on the basis of the capacity. The above application is in Annexure F. In Annexure G petitioner has stated that Induction furnace are matched with 500 KW power of Crucible capacity. He further says that crucideble or induction Furanle is able to produce the same unless and otherwise matched with proper KW power pack. According to the petitioner, the actual capacity of crucible based on furnace power pack would be 3. 600 MT. To come to this figure power factor is taken in to consideration. The respondent however issued a determination in terms of Annexure H. On receipt of the same, the petitioner questioned the same by saying that the said determination is not based on facts. Material was sought for by the respondents. The petitioner produced authenticated copies of the invoices of the suppliers of the furnace crucibles to their induction furnace unit. The petitioner also has given detailed reasons as to how the power factor plays a vital role. After receipt of the same, the respondents have issued an endorsement and in the endorsement this is what is stated by the respondents: in this connection, it is to inform you that, the capacity of production has been fixed on the basis of available documents indicating the capacity of Furnace/crucibles as per Notification No. 24/97-CE (NT) dated 25. 7. 1997. Accordingly, the Annual Capacity of Production determined by this Office vide this office letter of even No dated 30. 8. 1997 is final and is in accordance with the Induction Furnace Annual Capacity Determination Rules, 1997. Your claim that the Annual Capacity of Production is to be determined based on the power-pack cannot be acceded to because there is no such provision. You are therefore directed to discharge the duty liability along with the arrears in accordance with the Commissioners order.
( 9 ) SUBSEQUENTLY, the petitioner has sent other materials seeking for review of the same. Ultimately, the petitioner is knocking the doors of this Court in the absence of any positive response in his favour.
( 10 ) MATERIAL available to this Court would show that the respondents are not saying that the power pack cannot be a relevant factor for the purpose of determination. They express their helplessness in the absence of any provision. Even otherwise, the material on record would show that the power factor plays a vital role in the matter of determination of annual capacity. It is fairly well settled that the steel industry does requires more power for its capacity. There is no serious dispute with regard to the same in the objection statement. In the given set of facts and circumstances, it can safely be held that power factor is a relevant factor that goes into the process of determination of annual capacity.
( 11 ) SEC. 3a of the Central Excise Act provides for a power to change the excise duty on the basis of capacity of production in respect of the notified goods. This has been introduced with a view to safeguard the interest of Revenue and to arrest evasion of duty. Sub-sec 2 of Sec. 3a provides for framing of Rules in the matter of determination of the annual capacity. It specifically provides for taking into consideration such factor or factors relevant for annual capacity of production of the factory in which goods are produced. Therefore, relevant factor like power factor is not alien for determination of annual production capacity in terms of Sec. 3a of the Act. At this stage it is to be noticed that the formula provided in Rule 3 of the Induction Furnace annual capacity determination rules provides for three contingencies. The first contingency is the determination on the basis of authenticated copy of the manufacturers invoice or traders invoice who have supplied or installed the furnace. The second contingency is that in the absence of the invoice document being available for any reason with the manufacturer that the Commissioner is to ascertain the capacity on the basis of the capacity of the comparable furnaces available in similar industry. The third contingency is determination of the annual capacity of production of ingots by formula. The formula is ACP = TCF x 3200. ACP is nothing but the annual capacity of production of the factory. TCF is also again referred to the total capacity. Therefore, capacity plays a vital role in terms of levy of excess duty.
( 12 ) IN the case on hand, the petitioner has sought for an option that the annual capacity is to be determined on pro-rate basis in terms of Rule 96zo3 of the Rules. Petitioner has produced sufficient material with regard to power factor being a relevant one. As I mentioned earlier, 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. In the case on hand, a new concept has been introduced for the purpose of better revenue and to arrest evasion of tax. The said collection of revenue has to be in accordance with Sec. 3a r/w Rules. In such circumstances, a reasonable reading of the rules has to be done to achieve the object of providing for a fair determination with relevant factors. Learned counsel wants the Rule to be struck down on the ground of violation of Sec. 3a. IN my opinion it is not necessary to strike down the Rule. Instead the Rule can be read down for the purpose of achieving the object of determination of annual capacity. It is a well settled principle of law that it is a sound rule of construction that procedural enactments should be construed liberally and in such manner as to render the enforcement of substantive rights effective (AIR 1959 Supreme Court 422 ). The Supreme Court again in 1994 Supp (2) SCC 296 has considered interpretation of statutes. In the said judgment the Supreme Court in para 10 has ruled as under; sri G. B. Pai, learned counsel for the respondent assessee, submitted that in case of taxing enactments, literary construction should be adopted and that the courts should not try to mould or twist the language of the enactment for achieving the supposed intention of Parliament. While we agree that literary construction may be the general rule in construing taxing enactments, it does not mean that it should be adopted even if it leads to a discriminatory or incongruous result. Interpretation of statues cannot be a mechanical exercise. Object of all the rules of interpretation is to give effect to the object of the enactment having regard to the language used. The Supreme Court in the said judgment has also noticed a passage from Maxwells Interpretation of Statues and it can usefully be quoted. 1. Modification of the language to meet the intention Where the language of the Statute, in its ordinary meaning and grammatical construction, leads to a manifest contradiction of the apparent purpose of the enactment, or to some inconvenience or absurdity which can hardly have been intended, a construction may be put upon it which modifies the meaning of the words and even the structure of the sentence. This may be done by departing from the rules of the grammar, by giving an unusual meaning to particular words, or by rejecting them altogether, on the ground that the legislature could not possibly have intended what its words signify, and that the modifications made are mere corrections of careless language and really give the true meaning. Where the main object and the intention of a statute are clear, it must not be reduced to a nullity by the draftmans unskilfulness or ignorance of the law, except in a case of necessity, or the absolute intrectability of the language used. Lord Reid has said that he prefers to see a mistake on the part of the draftsman in doing his revision rather than a deliberate attempt to introduce an irrational rule. The canons of construction are not so rigid as to prevent a realistic solution.
( 13 ) IN the light of this legal principle with regard to Interpretation of Statutes, I am of the view that instead of striking down the Rule it can be read a s providing for taking into consideration of power as a relevant factor so that justice is rendered to all the parties concerned. Otherwise, the very object of providing a relevant factor in terms of Sec. 3a is defeated. Therefore instead of striking down, I would rather read into the annual capacity providing for power factor for the purpose of determination of capacity.
( 14 ) I must notice a judgment of the Supreme Court cited by the other side in the case of Commissioner of Central Excise and Customs vs. M/s. Venus Castings (P) Ltd. , (AIR 2000 SC 1568) to contend that after an option a party cannot avail the benefit of assessment in normal mode u/s. 3a (4 ). From an initial reading, the said argument appears to be attractive but on deeper consideration, it shows that the said Judgment is factually not applicable to the facts of this case. In fact this Judgment helps the petitioner to a certain extent. The facts in the reported Judgment would show that the manufacturer in that case availed the procedure for payment of duty under the Act in terms of Rule 96zo3 of the Central Excise Rules. After availing, he again wanted to avail the benefit in terms of Sec. 3a (4) which provides for re-determination in the event of the actual production being less than the production determined under Sub-sec. 2. In those circumstances, the Supreme Court Ruled that after an option, no benefit can be availed in terms of Sec. 3a (4) fir a lesser amount by a dealer. The facts of this case is totally different from the said reported case. No such re-determination is sought for in terms of Sec. 3a (4) by the petitioner in the given case. In fact, in this very Judgment, the Supreme Court noticed that the assessee is liable to pay duty based on determination with reference to actual production capacity. Rule 96zo and ZP provides for procedure to be followed for manufacturing 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 u/s. 3a of the Act r/w. The Supreme Court noticed the importance of actual production of goods for the purpose of payment of duty. In these circumstances, the argument of the respondents cannot be accepted in the given set of circumstances.
( 15 ) WRIT Petition is allowed Annexure-H and Annexure-O. Be corrected as per Court order dated 16. 4. 03 are set aside. A direction is issued to the respondents to take into consideration the power factor and redetermine the actual capacity in terms of the observations made in the course of this order. Liberty is reserved to the petitioner to produce additional material within four weeks from today. Any payment made by the petitioner during the pendency of the proceedings is subject to the final determination in terms of this order. Time for compliance is eight weeks from the date of receipt of a copy of this order. No costs.
--- *** ---
.