Challenge to Rule 8 must fail when tested on anvil of Second Proviso to Sec 3A(2)(b)Central Excise Tariff Act

Finding no reason to hold Rule 8 as being ultra vires Section 3A nor finding any error in the view as expressed by the Tribunal while passing the order impugned, the Delhi High Court dismissed the appeal as well as the writ petition filed by an appellant. 

A Division Judge Bench of Justice Yashwant Varma and Justice Dharmesh Sharma observed that “The Third Proviso deals with a situation where the number of operating packing machines stand increased during a month. It is in that context that it stipulates that the additional duty which may thus become payable would have to be deposited by the fifth day of the following month. This would clearly appeal to reason since the principal part of Rule 9 requires that the monthly duty be deposited by the fifth day of the same month.”

“If the Rule were to stop at this point, there would clearly be a vacuum in case an additional packing machine was to be added to the production line after the fifth day of the said month. The Third Proviso to Rule 9 consequently cannot possibly be read as diluted the deeming fiction which stands embodied in Rule 8”, added the Bench. 

Advocate Vivek Kohli appeared for the Petitioner whereas Advocate Ajit Kalia appeared for the Respondent. 

The brief facts of the case were that the appellant/petitioner is a manufacturer of Flavored Chewing Tobacco sold in packets/pouches. The retail pouches manufactured by it are chargeable to Central Excise Duty. The dispute in the present matters pertains to the months of June 2012, July 2012 as well and February 2013. The appellant/petitioner was discharging its duty liability on chewing tobacco pouches carrying different Retail Sale Prices in accordance with the provisions of the CTUT Rules 2010.

After considering the submission, the Bench noted that the outset that the challenge to Rule 8 of the CTUT Rules 2010 was founded solely upon the Second Proviso to Section 3A(2)(b).

The Bench stated that the appellant/petitioner does not question the authority of the Union Government to either prescribe the manner in which the annual capacity of production may be determined nor does it question its right to formulate a factor relevant for the purposes of estimating production in a factory.

The Bench highlighted the power of government to frame rules by the plain reading of Section 3A(2)(a) which enables the Union Government to frame rules providing for the manner for determination of the annual capacity of production of a factory in which notified goods are produced and further postulates that the capacity as determined in accordance with those rules shall be deemed to be the annual production of goods by such a factory.

“Section 3A(2)(b)(ii) further enables the Union Government to prescribe a factor on the basis of which the production capacity of a factory may be determined”, added the Bench. 

Referring to Rule 8, the Bench stated that “it is manifest that in case a machine is added to the production capabilities existing in a factory, the number of operating packing machines of the month shall be deemed to be the maximum number of packing machines installed and existing on any day during that month”.

The Bench also mentioned that the Second Proviso deals with a contingency where the “factor relevant” is altered or modified at any time during the year. It is in such a situation alone that the annual production is liable to be re-determined on a proportionate basis.

Referring to the case Shree Shyam Pan Products Pvt. Ltd. v. Delhi-I, the Bench reiterated that “from the plain reading of above said proviso, it transpires that the demand of the duty on the products “Pan Masala” can be done so only from the date of production only, if any new machinery installation is done.”

Hence, finding no reason to hold Rule 8 as being ultra vires Section 3A, the Delhi High Court dismissed the appeal as well as the Writ Petition. 

Cause Title: Gopal Corporates LLP Vs. Commissioner, GST-Central Tax and Ors. [CEAC 5/2019 / 2023-Enterslice-22-HC-Del-GST]

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