M/S SHREE BHAGWATI STEEL ROLLING MILLS Vs. COMMNR. OF CENTRAL EXCISE & ANR.
Supreme Court of India (Division Bench (DB)- Two Judge)
Appeal (Civil), 4280 of 2007, Judgment Date: Nov 24, 2015
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.4280 OF 2007
M/S. SHREE BHAGWATI STEEL
ROLLING MILLS …APPELLANT
VERSUS
COMMISSIONER OF CENTRAL EXCISE
& ANR. …RESPONDENTS
WITH
CIVIL APPEAL NO.4281 OF 2007
CIVIL APPEAL NO.4282 OF 2007
CIVIL APPEAL NO.3031 OF 2008
CIVIL APPEAL NO.13601 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.22134 OF 2008)
CIVIL APPEAL NO.4379 OF 2010
CIVIL APPEAL NO.13602 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.11030 OF 2010)
CIVIL APPEAL NO.908 OF 2011
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CIVIL APPEAL NO.13603 OF 2015
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CIVIL APPEAL NOS.8685-8686 OF 2011
CIVIL APPEAL NO.13605 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.19964 OF 2011)
CIVIL APPEAL NO.13606 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.19966 OF 2011)
CIVIL APPEAL NO.13607 OF 2015
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CIVIL APPEAL NOS.13626-13627 OF 2015
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CIVIL APPEAL NO.13628 OF 2015
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CIVIL APPEAL NO.13640 OF 2015
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CIVIL APPEAL NO.13643 OF 2015
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CIVIL APPEAL NO.13674 OF 2015
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J U D G M E N T
R.F. Nariman, J.
1. Leave granted.
2. This batch of appeals raises questions relating to the demand for
interest and penalty under Rules 96ZO, 96 ZP and 96 ZQ of the Central
Excise Rules, 1994, which were framed in order to effectuate the provisions
contained in Section 3A of the Central Excise Act, 1994. Several High
Courts have struck down the said Rules relating to penalty as being ultra
vires the parent provision and violative of Articles 14 and 19(1)(g) of the
Constitution. Most of the appeals in this batch are, therefore, by the
Union of India. However, before dealing with the said appeals, it is
necessary to first segregate Civil Appeal No.4280 of 2007 which raises a
slightly different question from the questions raised in the other appeals
and decide it first.
3. The question which arises for decision in the said appeal is the
demand, by means of a letter dated 19.8.2005, for payment of interest for
delayed payment of central excise duty under Section 3A of the Central
Excise Act, 1944.
4. The case of the appellant is that it took a rolling mill on lease for
the period from 1997 to 2000 and manufactured rerolled non-alloyed steel
products. On 1.9.1997 the compounded levy scheme was introduced by way of
insertion of Section 3A of the Central Excise Act. The appellant opted for
the aforesaid scheme under Rule 96ZP of the Central Excise Rules. When the
lease expired, the appellant surrendered its registration certificate on
1.6.2000. As stated hereinabove, on 19.8.2005 the impugned notice was
issued to the appellant demanding interest for delayed payment of duty for
the period 1997 to 2000.
5. The High Court framed two questions which arose for its
consideration: (1) whether “omission” of the compounded levy scheme in 2001
wipes out the liability of the assessee for the period during which the
scheme was in operation, and (2) whether the letter of demand of interest
for delayed payment was liable to be set aside on the ground of delay.
6. The High Court found, after distinguishing some of the judgments of
this Court, and after relying upon Section 38A of the Central Excise Act,
which was added vide Section 131 of the Finance Act, 2001, that on omission
of Section 3A, the liability of the assessee was not wiped out.
7. Shri Ajay Aggarwal, learned counsel who appeared on behalf of the
appellant fairly submitted that a recent judgment delivered by this Bench,
namely, M/s Fibre Boards (P) Ltd., Bangalore v. Commissioner of Income Tax,
Bangalore, [2015] 376 ITR 596 (SC), would cover the matter before us being
directly against the appellant’s case. However, he submitted that for
various reasons this judgment requires a relook and ought to be referred to
a larger Bench of three Judges. Shri Aggarwal argued the matter with great
ability and we listened to him with considerable interest.
8. First, it may be stated that the judgment of this Court in the Fibre
Board’s case has taken the view that an “omission” would amount to a
“repeal”, after referring to several authorities of this Court, G.P.
Singh’s Principles of Statutory Interpretation, Section 6A of the General
Clauses Act, 1897, and a passage in Halsbury’s Laws of England.
Ultimately, this Court arrived at the conclusion that an “omission” would
amount to a “repeal” for the purpose of Section 24 of the General Clauses
Act. Since the same expression, namely, “repeal” is used both in Section 6
and Section 24 of the General Clauses Act, the construction of the said
expression in both sections would, therefore, include within it “omissions”
made by the legislature.
9. Shri Aggarwal, however, argued that there is a fundamental
distinction between a “repeal” and an “omission” in that in the case of a
“repeal” the statute is obliterated from the very beginning whereas in the
case of an “omission” what gets omitted is only from the date of “omission”
and not before. This being the case, it is clear that things already done
in the case of an “omission” would be saved. However, a “repeal” without a
savings clause like Section 6 of the General Clauses Act would not so save
things already done under the repealed statute. He further argued that
Section 6A which was relied upon by the Bench in the Fibre Board’s case did
not state that an “omission” would be included within the expression
“repeal”, but that if Section 6A were carefully read, an “omission” would
only be included in an “amendment” which, under the Section, can be by way
of omission, insertion or substitution. Therefore, it is fallacious to
state that Section 6A would lead to the conclusion that “omissions” are
included in “repeals”. He further argued that in any event, the true ratio
decidendi of the Constitution Bench decision in Rayala Corporation (P) Ltd.
& Ors. v. Director of Enforcement, New Delhi, 1969 (2) SCC 412, is that an
“omission” cannot amount to a “repeal” inasmuch as the first reason given
for distinguishing the Madhya Pradesh High Court’s judgment in that case
was that Section 6 cannot apply to the omission of a rule because an
“omission” is not a “repeal”. He further argued that as the Madhya Pradesh
High Court’s decision was put forward by the respondent in that case in
support of their argument, the Constitution Bench’s dealing with the said
decision in order to overcome it would necessarily be the ratio decidendi
of the said decision, and being a Constitution Bench decision, would be
binding upon this Bench. He further referred to Section 31 of the
Prevention of Corruption Act, 1988, which, in his opinion, makes it clear
that Parliament itself has understood that a repeal under Section 6 of the
General Clauses Act would not apply to omissions. He has further argued
that it may be true that the expression “repeal” is normally used when an
entire statute is done away with, as opposed to an “omission” which is
applied only when part of the statute is deleted, but said that this is not
invariably the case, and referred to Section 1 of the Indian Contract Act
in which enactments mentioned in the schedule are repealed not in their
entirety but only to the extent provided and, therefore, argued that the
expression “repeals” will apply also to a part of an enactment as opposed
to the enactment as a whole.
10. Shri Radhakrishnan, learned senior counsel appearing on behalf of the
revenue supported the judgment of this Court in the Fibre Board’s case and
said that recent judgments delivered which have clarified the law ought not
to be disturbed in the larger public interest.
11. Since Shri Aggarwal has made detailed submissions on why according to
him the judgment in the Fibre Board’s case is not correctly decided, we
propose to deal with each of those submissions in some detail.
12. First and foremost, it is important to refer to the definition of
“enactment” contained in Section 3(19) of the General Clauses Act. The
said definition clause states that “enactment” shall mean the following:-
“enactment" shall include a Regulation (as hereinafter defined) and any
Regulation of the Bengal, Madras or Bombay Code, and shall also include any
provision contained in any Act or in any such Regulation as aforesaid.”
13. From this it is clear that when Section 6 speaks of the repeal of any
enactment, it refers not merely to the enactment as a whole but also to any
provision contained in any Act. Thus, it is clear that if a part of a
statute is deleted, Section 6 would nonetheless apply. Secondly, it is
clear, as has been stated by referring to a passage in Halsbury’s Laws of
England in the Fibre Board’s judgment, that the expression “omission” is
nothing but a particular form of words evincing an intention to abrogate an
enactment or portion thereof. This is made further clear by the Legal
Thesaurus (Deluxe Edition) by William C Burton, 1979 Edition. The
expression “delete” is defined by the Thesaurus as follows:
“Delete: - Blot out, cancel, censor, cross off, cross out, cut, cut out,
dele, discard, do away with, drop, edit out, efface, elide, eliminate,
eradicate, erase, excise, expel, expunge, extirpate, get rid of, leave out,
modify by excisions, obliterate, omit, remove, rub out, rule out, scratch
out, strike off, take out, weed wipe out.”
Likewise the expression “omit” is also defined by this Thesaurus as
follows:-
“Omit:- Abstain from inserting, bypass, cast aside, count out, cut out,
delete, discard, dodge, drop exclude, exclude, fail to do, fail to include,
fail to insert, fail to mention, leave out, leave undone, let go, let pass,
let slip, miss, neglect, omittere, pass over, praetermittere, skip, slight,
transire.”
And the expression “repeal” is defined as follows:-
“Repeal:- Abolish, abrogare, abrogate, annul, avoid, cancel, countermand,
declare null and void, delete, eliminate, formally withdraw, invalidate,
make void, negate, nullify, obliterate, officially withdraw, override,
overrule, quash, recall, render invalid, rescind, rescindere, retract,
reverse, revoke, set aside, vacate, void, withdraw.”
14. On a conjoint reading of the three expressions “delete”, “omit”, and
“repeal”, it becomes clear that “delete” and “omit” are used
interchangeably, so that when the expression “repeal” refers to “delete” it
would necessarily take within its ken an omission as well. This being the
case, we do not find any substance in the argument that a “repeal” amounts
to an obliteration from the very beginning, whereas an “omission” is only
in futuro. If the expression “delete” would amount to a “repeal”, which the
appellant’s counsel does not deny, it is clear that a conjoint reading of
Halsbury’s Laws of England and the Legal Thesaurus cited hereinabove both
lead to the same result, namely that an “omission” being tantamount to a
“deletion” is a form of repeal.
15. Learned counsel’s second argument that Section 6A when it speaks of
an “omission” only speaks of an “amendment” which omits and, therefore does
not refer to a repeal is equally fallacious. In Bhagat Ram Sharma v. Union
of India, 1988 Supp SCC 30, this Court held that there is no real
distinction between a repeal and an amendment and that “amendment” is in
fact a wider term which includes deletion of a provision in an existing
statute. In the said judgment, this Court held:-
“17. It is a matter of legislative practice to provide while enacting an
amending law, that an existing provision shall be deleted and a new
provision substituted. Such deletion has the effect of repeal of the
existing provision. Such a law may also provide for the introduction of a
new provision. There is no real distinction between 'repeal' and an
'amendment'. In Sutherland's Statutory Construction, 3rd Edn., Vol. 1 at p.
477, the learned author makes the following statement of law:
The distinction between repeal and amendment as these terms are used by the
Courts is arbitrary. Naturally the use of these terms by the Court is based
largely on how the Legislature have developed and applied these terms in
labelling their enactments. When a section is being added to an Act or a
provision added to a section, the Legislatures commonly entitled the Act as
an amendment.... When a provision is withdrawn from a section, the
Legislatures call the Act an amendment particularly when a provision is
added to replace the one withdrawn. However, when an entire Act or section
is abrogated and no new section is added to replace it, Legislatures label
the Act accomplishing this result a repeal. Thus as used by the
Legislatures, amendment and repeal may differ in kind - addition as opposed
to withdrawal or only in degree -abrogation of part of a section as opposed
to abrogation of a whole section or Act; or more commonly, in both kind and
degree - addition of a provision to a section to replace a provision being
abrogated as opposed by abrogation of a whole section of an Act. This
arbitrary distinction has been followed by the Courts, and they have
developed separate rules of construction for each. However, they have
recognised that frequently an Act purporting to be an amendment has the
same qualitative effect as a repeal - the abrogation of an existing
statutory provision -and have therefore applied the term "implied repeal'
and the rules of construction applicable to repeals to such amendments.
18. Amendment is in fact, a wider term and it includes abrogation or
deletion of a provision in an existing statute. If the amendment of an
existing law is small, the Act professes to amend; if it is extensive, it
repeals a law and re-enacts it. An amendment of substantive law is not
retrospective unless expressly laid down or by necessary' implication
inferred.” (at para 17 & 18)
16. It is clear, therefore, that when this Court referred to Section 6A
in Fibre Board’s case and held that Section 6A shows that a repeal can be
by way of an express omission, obviously what was meant was that an
amendment which repealed a provision could do so by way of an express
omission. This being the case, it is clear that Section 6A undisputedly
leads to the conclusion that a repeal would include a repeal by way of an
express omission.
17. Learned counsel then argued that while distinguishing the Madhya
Pradesh High Court’s judgment in Rayala Corporation, a Constitution Bench
of this Court expressly held as the first reason that Section 6 applies
only to repeals and not to omissions. The Fibre Board’s judgment has
clearly held as follows:
“First and foremost, it will be noticed that two reasons were given in
Rayala Corporation (P) Ltd. for distinguishing the Madhya Pradesh High
Court judgment. Ordinarily, both reasons would form the ratio decidendi
for the said decision and both reasons would be binding upon us. But we
find that once it is held that Section 6 of the General Clauses Act would
itself not apply to a rule which is subordinate legislation as it applies
only to a Central Act or Regulation, it would be wholly unnecessary to
state that on a construction of the word “repeal” in Section 6 of the
General Clauses Act, “omissions” made by the legislature would not be
included. Assume, on the other hand, that the Constitution Bench had given
two reasons for the non-applicability of Section 6 of the General Clauses
Act. In such a situation, obviously both reasons would be ratio decidendi
and would be binding upon a subsequent bench. However, once it is found
that Section 6 itself would not apply, it would be wholly superfluous to
further state that on an interpretation of the word “repeal”, an “omission”
would not be included. We are, therefore, of the view that the second so-
called ratio of the Constitution Bench in Rayala Corporation (P) Ltd.
cannot be said to be a ratio decidendi at all and is really in the nature
of obiter dicta.” (at para 27)
18. Merely because the Constitution Bench referred to a repeal not
amounting to an omission as the first reason given for distinguishing the
Madhya Pradesh High Court’s judgment would not undo the effect of paragraph
27 of Fibre Board’s case which, as has already been stated, clearly makes
the distinction between Section 6 not applying at all and Section 6 being
construed in a particular manner. Obviously, if the Section were not to
apply at all, any construction of the Section would necessarily be in the
nature of obiter dicta.
19. We also find that Section 6 could not possibly apply to the facts in
Rayala Corporation’s case for yet another reason. Clause 2 of the amendment
rules which was referred to in paragraph 14 of the judgment in Rayala
Corporation reads as follows:-
“In the Defence of India Rules, 1962, rule 132A (relating to prohibition of
dealings in foreign exchange) shall be omitted except as respects things
done or omitted to be done under that rule.”
20. A cursory reading of clause 2 shows that after omitting Rule 132A of
the Defence of India Rules, 1962, the provision contains its own saving
clause. This being the case, Section 6 can in any case have no application
as Section 6 only applies to a Central Act or regulation “unless a
different intention appears”. A different intention clearly appears on a
reading of clause 2 as only a very limited savings clause is incorporated
therein. In fact, this aspect is noticed by the Constitution Bench in
paragraph 18 of its judgment, in which the Constitution Bench states:-
“As we have indicated earlier, the notification of the Ministry of Home
Affairs omitting Rule 132-A of the D.I.Rs. did not make any such provision
similar to that contained in Section 6 of the General Clauses Act.”
21. It was then urged before us that Section 31 of the Prevention of
Corruption Act, 1988 would also lead to the conclusion that Parliament
itself is cognizant of the fact that an omission cannot amount to a repeal.
Section 31 of the Prevention of Corruption Act, 1988, states as follows:-
“Section 31 - Omission of certain sections of Act 45 of 1860
Sections 161 to 165A (both inclusive) of the Indian Penal Code, 1860 (45 of
1860) shall be omitted, and section 6 of the General Clauses Act, 1897 (10
of 1897), shall apply to such omission as if the said sections had been
repealed by a Central Act.”
22. It is settled law that Parliament is presumed to know the law when it
enacts a particular piece of legislation. The Prevention of Corruption Act
was passed in the year 1988, that is long after 1969 when the Constitution
Bench decision in Rayala Corporation had been delivered. It is, therefore,
presumed that Parliament enacted Section 31 knowing that the decision in
Rayala Corporation had stated that an omission would not amount to a repeal
and it is for this reason that Section 31 was enacted. This again does not
take us further as this statement of the law in Rayala Corporation is no
longer the law declared by the Supreme Court after the decision in the
Fibre Board’s case. This reason therefore again cannot avail the
appellant.
23. The reference to the savings provision in Section 1 of the Indian
Contract Act again does not take us very much further as the expression
“repeal” as has been pointed out above can be of part of an enactment also.
This being the case, when the legislature uses the word “omit” it usually
does so when it wishes to delete a particular section as opposed to
deleting an entire Act. As has been noticed both in Fibre Board’s case and
hereinabove, these are all expressions which only go to form and not to
substance. Even assuming for the sake of argument that we were inclined to
agree with Shri Aggarwal, given the force of his inexorable logic, this
Court has laid down the parameters of when it would be expedient to have a
relook at a particular decision in the case of Keshav Mills Co. Ltd. v.
CIT, Bombay North, 1965 (2) SCR 908, as follows.-
“In dealing with the question as to whether the earlier decisions of this
Court in the New Jehangir Mills [1959]37ITR11(SC) case and the Petlad Co.
Ltd. [1963] S.C.R. 871 case should be reconsidered and revised by us, we
ought to be clear as to the approach which should be adopted in such cases.
Mr. Palkhivala has not disputed the fact that, in proper case, this Court
has inherent jurisdiction to reconsider and revise its earlier decisions,
and so, the abstract question as to whether such a power vests in this
Court or not need not detain us. In exercising this inherent power,
however, this would naturally like to impose certain reasonable limitations
and would be reluctant to entertain pleas for the reconsideration and
revision of its earlier decisions, unless it is satisfied that there are
compelling and substantial reasons to do so. It general judicial experience
that in matters of law involving question of constructing statutory or
constitutional provisions, two views are often reasonably possible and when
judicial approach has to make a choice between the two reasonably possible
views, the process of decision-making is often very difficult and delicate.
When this Court hears appeals against decisions of the High Courts and is
required to consider the propriety or correctness of the view taken by the
High Courts on any point of law, it would be open to this Court to hold
that though the view taken by the High Court is reasonably possible, the
alternative view which is also reasonably possible is better and should be
preferred. In such a case, the choice is between the view taken by the High
Court whose judgment is under appeal, and the alternative view which
appears to this Court to be more reasonable; and in accepting it own view
in preference to that of the High Court, this Court would be discharging
its duty as Court of Appeal. But different considerations must inevitably
arise where a previous decision of this Court has taken a particular view
as to the construction of a statutory provision as, for instance,
section 66(4) of the Act. When it is urged that the view already taken by
this Court should be reviewed and revised, it may not necessarily be an
adequate reason for such review and revision to hold that though the
earlier view is a reasonably possible view, the alternative view which is
pressed on the subsequent occasion is more reasonable. In reviewing and
revising its earlier decision, this Court should ask itself whether in
interests of the public good or for any other valid and compulsive reasons,
it is necessary that the earlier decision should be revised. When this
Court decides questions of law, its decisions are, under Article 141,
binding on all courts within the territory of India, and so, it must be the
constant endeavour and concern of this Court to introduce and maintain an
element of certainty and continuity in the interpretation of law in the
country. Frequent exercise by this Court of its power to review its earlier
decisions on the ground that the view pressed before it later appears to
the Court to be more reasonable, may incidentally tend to make law
uncertain and introduce confusion which must be consistently avoided. That
is not to say that if on a subsequent occasion, the Court is satisfied that
its earlier decision was clearly erroneous, it should hesitate to correct
the error; but before a previous decision is pronounced to be plainly
erroneous, the Court must satisfied with a fair amount of unanimity amongst
its members that a revision of the said view is fully justified. It is not
possible or desirable, and in any case it would be inexpedient to lay down
any principles which should govern the approach of the Court in dealing
with the question of reviewing and revising its earlier decisions. It would
always depend upon several relevant considerations:- What is the nature of
the infirmity or error on which a plea for review and revision of the
earlier view is based? On the earlier occasion, did some patent aspects of
the question remain unnoticed, or was the attention of the Court not drawn
to any relevant and material statutory provision, or was any previous
decision of this Court bearing on the point not noticed? Is the Court
hearing such plea fairly unanimous that there is such an error in the
earlier view? What would be the impact of the error on the general
administration of law or on public good ? Has the earlier decision been
followed on subsequent occasions either by this Court or by the High Courts
? And, would the reversal of the earlier decision lead to public
inconvenience, hardship or mischief ? These and other relevant
considerations must be carefully borne in mind whenever this Court is
called upon to exercise its jurisdiction to review and review and revise
its earlier decisions.” (at page 921-922)
24. Fibre Board’s case is a recent judgment which, as has correctly been
argued by Shri Radhakrishnan, learned senior counsel on behalf of the
revenue, clarifies the law in holding that an omission would amount to a
repeal. The converse view of the law has led to an omitted provision being
treated as if it never existed, as Section 6 of the General Clauses Act
would not then apply to allow the previous operation of the provision so
omitted or anything duly done or suffered thereunder. Nor may a legal
proceeding in respect of any right or liability be instituted, continued or
enforced in respect of rights and liabilities acquired or incurred under
the enactment so omitted. In the vast majority of cases, this would cause
great public mischief, and the decision of Fibre Board’s case is therefore
clearly delivered by this Court for the public good, being, at the very
least a reasonably possible view. Also, no aspect of the question at hand
has remained unnoticed. For this reason also we decline to accept Shri
Aggarwal’s persuasive plea to reconsider the judgment in Fibre Board’s
case. This being the case, it is clear that on point one the present
appeal would have to be dismissed as being concluded by the decision in the
Fibre Board’s case.
25. Even on the point of limitation, we find that the High Court noticed
that the assessee undertook to pay the amount with interest upto 31.3.2003,
on which date a last part payment was made. As the demand was raised by the
Department on 19.8.2005 i.e. within a period of three years from 31.3.2003,
it is clear that the said recovery notice would not be beyond the time
limit.
26. However, Shri Aggarwal has also argued that in this appeal as well as
in Civil Appeal No.4281 and 4282 of 2007, the Rule providing for payment of
interest would itself be ultra vires inasmuch as Section 3A of the Act does
not itself provide for the payment of interest. He argued that despite the
fact that this point was not raised before any of the authorities below he
ought to be allowed to raise it for the first time in this Court not only
as it is a pure question of law but also because, according to him, this
Court has held that rules which are ultra vires ought to be ignored by the
courts even if there is no substantive challenge to them.
27. Shri Radhakrishnan, learned senior advocate appearing for the
revenue, strongly contradicts this position and has vehemently argued that
since this issue was never raised before the authorities below, this Court
should not allow the appellant to raise it at this belated stage. He
further submitted that in any case it would not be necessary for the
statute to provide for interest and it is good enough that subordinate
legislation in the nature of a rule could do so. Inasmuch as these cases
relate to interest and penalty leviable under certain provisions of the
Central Excise Rules, it may be necessary to set out the said provisions.
They read as follows:
“RULE 96ZO. Procedure to be followed by the manufacturer of ingots and
billets.
(3)……..
Provided also that where a manufacturer fails to pay the whole of the
amount payable for any month by the 15th day or the last day of such month,
as the case may be, he shall be liable to,-
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
A penalty equal to such outstanding amount of duty or five thousand rupees,
whichever is greater.”
RULE 96ZP. Procedure to be followed by the manufacturer of hot rolled
products.
(3)…….
Provided also that where a manufacturer fails to pay the whole of amount of
duty payable for any month by the 10th day of such month, he shall be
liable to 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 11th day of
such month till the date of actual payment of the outstanding amount; and
A penalty equal to the amount of duty outstanding from him at the end of
such month or five thousand rupees, whichever is greater.
Rule 96ZQ Procedure to be followed by the independent processor of textile
fabrics.
(5) If an independent processor fails to pay the amount of duty or any
part thereof by the date specified in sub-rule (3), he shall be liable to,-
Pay the outstanding amount of duty along with interest at the rate of
thirty-six per cent per annum calculated for the outstanding period on the
outstanding amount; and
A penalty equal to an amount of duty outstanding from him or rupees five
thousand, whichever is greater.”
28. Shri Aggarwal in order to buttress his submission that he ought to be
allowed to raise a pure question of law going to the very jurisdiction to
levy interest cited before us the judgment in Bhartidasan University and
Another v. All-India Council for Technical Education, 2001 (8) SCC 676,
and in particular paragraph 14 thereof which reads as follow:-
“The fact that the Regulations may have the force of law or when made have
to be laid down before the legislature concerned do not confer any more
sanctity or immunity as though they are statutory provisions themselves.
Consequently, when the power to make Regulations are confined to certain
limits and made to flow in a well defined canal within stipulated banks,
those actually made or shown and found to be not made within its confines
but outside them, the Courts are bound to ignore them when the question of
their enforcement arise and the mere fact that there was no specific relief
sought for to strike down or declare them ultra vires, particularly when
the party in sufferance is a Respondent to the lis or proceedings cannot
confer any further sanctity or authority and validity which it is shown and
found to obviously and patently lack. It would, therefore, be a myth to
state that Regulations made under Section 23 of the Act have
"Constitutional" and legal status, even unmindful of the fact that anyone
or more of them are found to be not consistent with specific provisions of
the Act itself. Thus, the Regulations in question, which the AICTE could
not have made so as to bind universities/UGC within the confines of the
powers conferred upon it, cannot be enforced against or bind an University
in the matter of any necessity to seek prior approval to commence a new
department or course and programme in technical education in any university
or any of its departments and constituent institutions.”
29. It would be seen that Shri Aggarwal is on firm ground because this
Court has specifically stated that rules or regulations which are in the
nature of subordinate legislation which are ultra vires are bound to be
ignored by the courts when the question of their enforcement arises and the
mere fact that there is no specific relief sought for to strike down or
declare them ultra vires would not stand in the court’s way of not
enforcing them. We also feel that since this is a question of the very
jurisdiction to levy interest and is otherwise covered by a Constitution
Bench decision of this Court, it would be a travesty of justice if we would
not to allow Shri Aggarwal to make this submission.
30. On merits, the matter is no longer res integra. A Constitution Bench
decision of this Court in VVS Sugars v. Government of A.P., 1999 (4) SCC
192, has held, following two earlier judgments of this Court, as follows:-
“This Court in India Carbon Ltd. v. State of Assam [(1997) 6 SCC 479] has
held, after analysing the Constitution Bench judgment in J.K. Synthetics
Ltd. v. CTO [(1994) 4 SCC 276] that interest can be levied and charged on
delayed payment of tax only if the statute that levies and charges the tax
makes a substantive provision in this behalf. There being no substantive
provision in the Act for the levy of interest on arrears of tax that
applied to purchases of sugarcane made subsequent to the date of
commencement of the amending Act, no interest thereon could be so levied,
based on the application of the said Rule 45 or otherwise.”
31. Applying the Constitution Bench decision stated above, it will have
to be declared that since Section 3A which provides for a separate scheme
for availing facilities under a compound levy scheme does not itself
provide for the levying of interest, Rules 96 ZO, 96 ZP and 96 ZQ cannot do
so and therefore on this ground the appellant in Shree Bhagwati Steel
Rolling Mills has to succeed. On this ground alone therefore the impugned
judgment is set aside. That none of the other provisions of the Central
Excise Act can come to the aid of the Revenue in cases like these has been
laid down by this Court in Hans Steel Rolling Mill v. CCE, (2011) 3 SCC 748
as follows:
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.4280 OF 2007
M/S. SHREE BHAGWATI STEEL
ROLLING MILLS …APPELLANT
VERSUS
COMMISSIONER OF CENTRAL EXCISE
& ANR. …RESPONDENTS
WITH
CIVIL APPEAL NO.4281 OF 2007
CIVIL APPEAL NO.4282 OF 2007
CIVIL APPEAL NO.3031 OF 2008
CIVIL APPEAL NO.13601 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.22134 OF 2008)
CIVIL APPEAL NO.4379 OF 2010
CIVIL APPEAL NO.13602 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.11030 OF 2010)
CIVIL APPEAL NO.908 OF 2011
CIVIL APPEAL NO.5448 OF 2011
CIVIL APPEAL NO.5449 OF 2011
CIVIL APPEAL NO.5452 OF 2011
CIVIL APPEAL NO.5453 OF 2011
CIVIL APPEAL NO.13603 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.5532 OF 2011)
CIVIL APPEAL NOS.8685-8686 OF 2011
CIVIL APPEAL NO.13605 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.19964 OF 2011)
CIVIL APPEAL NO.13606 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.19966 OF 2011)
CIVIL APPEAL NO.13607 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.19968 OF 2011)
CIVIL APPEAL NO.13608 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.19969 OF 2011)
CIVIL APPEAL NO.13609 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.19972 OF 2011)
CIVIL APPEAL NO.13610 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.19975 OF 2011)
CIVIL APPEAL NO.13611 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.19979 OF 2011)
CIVIL APPEAL NO.13612 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.19983 OF 2011)
CIVIL APPEAL NO.13614 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.20667 OF 2011)
CIVIL APPEAL NO.13615 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.21584 OF 2011)
CIVIL APPEAL NO.13616 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.25881 OF 2011)
CIVIL APPEAL NO.13617 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.1796 OF 2012)
CIVIL APPEAL NO.13618 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.16249 OF 2012)
CIVIL APPEAL NO.13619 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.21273 OF 2012)
CIVIL APPEAL NO.13620 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.21402 OF 2012)
CIVIL APPEAL NO.13621 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.24139 OF 2012)
CIVIL APPEAL NO.13622 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.27752 OF 2012)
CIVIL APPEAL NO.13623 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.37566 OF 2012)
CIVIL APPEAL NO.13624 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.38588 OF 2012)
CIVIL APPEAL NO.13625 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.39972 OF 2012)
CIVIL APPEAL NOS.13626-13627 OF 2015
(ARISING OUT OF SLP (CIVIL) NOS.1103-1104 OF 2013)
CIVIL APPEAL NO.13628 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.4224 OF 2013)
CIVIL APPEAL NO.13629 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.5877 OF 2013)
CIVIL APPEAL NO.13630 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.7852 OF 2013)
CIVIL APPEAL NO.13631 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.9796 OF 2013)
CIVIL APPEAL NO.13632 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.11709 OF 2013)
CIVIL APPEAL NO.13633 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.14097 OF 2013)
CIVIL APPEAL NO.13634 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.17534 OF 2013)
CIVIL APPEAL NO.13635 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.18902 OF 2013)
CIVIL APPEAL NO.13636 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.21590 OF 2013)
CIVIL APPEAL NOS.13637-13638 OF 2015
(ARISING OUT OF SLP (CIVIL) NOS.27235-27236 OF 2013)
CIVIL APPEAL NO.13639 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.29566 OF 2013)
CIVIL APPEAL NO.13640 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.1269 OF 2014)
CIVIL APPEAL NO. 1979 OF 2014
CIVIL APPEAL NOS.13641-13642 OF 2015
(ARISING OUT OF SLP (CIVIL) NOS.4511-4512 OF 2014)
CIVIL APPEAL NO.13643 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.20044 OF 2014)
CIVIL APPEAL NO.13644 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.23009 OF 2014)
CIVIL APPEAL NO.13645 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.26042 OF 2014)
CIVIL APPEAL NO.13646 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.26036 OF 2014)
CIVIL APPEAL NO.13647 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.30377 OF 2014)
CIVIL APPEAL NO.13648 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.30378 OF 2014)
CIVIL APPEAL NO.13649 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.30376 OF 2014)
CIVIL APPEAL NO.13650 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.31332 OF 2014)
CIVIL APPEAL NO.13651 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.36410 OF 2014)
CIVIL APPEAL NO.13652 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.36196 OF 2014)
CIVIL APPEAL NO.13653 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.36658 OF 2014)
CIVIL APPEAL NO.13654 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.36408 OF 2014)
CIVIL APPEAL NO.13655 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.36413 OF 2014)
CIVIL APPEAL NO.13656 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.3486 OF 2015)
CIVIL APPEAL NO.13657 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.6147 OF 2015)
CIVIL APPEAL NO.13658 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.7820 OF 2015)
CIVIL APPEAL NO.13659 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.33041 OF 2013)
CIVIL APPEAL NO.13660 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.8746 OF 2015)
CIVIL APPEAL NO.13661 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.10577 OF 2015)
CIVIL APPEAL NO.13662 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.12574 OF 2015)
CIVIL APPEAL NO.13663 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.21407 OF 2015)
CIVIL APPEAL NO.13664 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.22354 OF 2015)
CIVIL APPEAL NO.13665 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.27474 OF 2015)
CIVIL APPEAL NO.13666 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.26580 OF 2015)
CIVIL APPEAL NO.13667 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.27998 OF 2015)
CIVIL APPEAL NO.13668 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.28262 OF 2015)
CIVIL APPEAL NO.13669 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.27471 OF 2015)
CIVIL APPEAL NO.13670 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.27997 OF 2015)
CIVIL APPEAL NO.13671 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.28264 OF 2015)
CIVIL APPEAL NO.13672 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.28935 OF 2015)
CIVIL APPEAL NO.13673 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.29004 OF 2015)
CIVIL APPEAL NO.13674 OF 2015
(ARISING OUT OF SLP (CIVIL) NO.19948 OF 2015)
J U D G M E N T
R.F. Nariman, J.
1. Leave granted.
2. This batch of appeals raises questions relating to the demand for
interest and penalty under Rules 96ZO, 96 ZP and 96 ZQ of the Central
Excise Rules, 1994, which were framed in order to effectuate the provisions
contained in Section 3A of the Central Excise Act, 1994. Several High
Courts have struck down the said Rules relating to penalty as being ultra
vires the parent provision and violative of Articles 14 and 19(1)(g) of the
Constitution. Most of the appeals in this batch are, therefore, by the
Union of India. However, before dealing with the said appeals, it is
necessary to first segregate Civil Appeal No.4280 of 2007 which raises a
slightly different question from the questions raised in the other appeals
and decide it first.
3. The question which arises for decision in the said appeal is the
demand, by means of a letter dated 19.8.2005, for payment of interest for
delayed payment of central excise duty under Section 3A of the Central
Excise Act, 1944.
4. The case of the appellant is that it took a rolling mill on lease for
the period from 1997 to 2000 and manufactured rerolled non-alloyed steel
products. On 1.9.1997 the compounded levy scheme was introduced by way of
insertion of Section 3A of the Central Excise Act. The appellant opted for
the aforesaid scheme under Rule 96ZP of the Central Excise Rules. When the
lease expired, the appellant surrendered its registration certificate on
1.6.2000. As stated hereinabove, on 19.8.2005 the impugned notice was
issued to the appellant demanding interest for delayed payment of duty for
the period 1997 to 2000.
5. The High Court framed two questions which arose for its
consideration: (1) whether “omission” of the compounded levy scheme in 2001
wipes out the liability of the assessee for the period during which the
scheme was in operation, and (2) whether the letter of demand of interest
for delayed payment was liable to be set aside on the ground of delay.
6. The High Court found, after distinguishing some of the judgments of
this Court, and after relying upon Section 38A of the Central Excise Act,
which was added vide Section 131 of the Finance Act, 2001, that on omission
of Section 3A, the liability of the assessee was not wiped out.
7. Shri Ajay Aggarwal, learned counsel who appeared on behalf of the
appellant fairly submitted that a recent judgment delivered by this Bench,
namely, M/s Fibre Boards (P) Ltd., Bangalore v. Commissioner of Income Tax,
Bangalore, [2015] 376 ITR 596 (SC), would cover the matter before us being
directly against the appellant’s case. However, he submitted that for
various reasons this judgment requires a relook and ought to be referred to
a larger Bench of three Judges. Shri Aggarwal argued the matter with great
ability and we listened to him with considerable interest.
8. First, it may be stated that the judgment of this Court in the Fibre
Board’s case has taken the view that an “omission” would amount to a
“repeal”, after referring to several authorities of this Court, G.P.
Singh’s Principles of Statutory Interpretation, Section 6A of the General
Clauses Act, 1897, and a passage in Halsbury’s Laws of England.
Ultimately, this Court arrived at the conclusion that an “omission” would
amount to a “repeal” for the purpose of Section 24 of the General Clauses
Act. Since the same expression, namely, “repeal” is used both in Section 6
and Section 24 of the General Clauses Act, the construction of the said
expression in both sections would, therefore, include within it “omissions”
made by the legislature.
9. Shri Aggarwal, however, argued that there is a fundamental
distinction between a “repeal” and an “omission” in that in the case of a
“repeal” the statute is obliterated from the very beginning whereas in the
case of an “omission” what gets omitted is only from the date of “omission”
and not before. This being the case, it is clear that things already done
in the case of an “omission” would be saved. However, a “repeal” without a
savings clause like Section 6 of the General Clauses Act would not so save
things already done under the repealed statute. He further argued that
Section 6A which was relied upon by the Bench in the Fibre Board’s case did
not state that an “omission” would be included within the expression
“repeal”, but that if Section 6A were carefully read, an “omission” would
only be included in an “amendment” which, under the Section, can be by way
of omission, insertion or substitution. Therefore, it is fallacious to
state that Section 6A would lead to the conclusion that “omissions” are
included in “repeals”. He further argued that in any event, the true ratio
decidendi of the Constitution Bench decision in Rayala Corporation (P) Ltd.
& Ors. v. Director of Enforcement, New Delhi, 1969 (2) SCC 412, is that an
“omission” cannot amount to a “repeal” inasmuch as the first reason given
for distinguishing the Madhya Pradesh High Court’s judgment in that case
was that Section 6 cannot apply to the omission of a rule because an
“omission” is not a “repeal”. He further argued that as the Madhya Pradesh
High Court’s decision was put forward by the respondent in that case in
support of their argument, the Constitution Bench’s dealing with the said
decision in order to overcome it would necessarily be the ratio decidendi
of the said decision, and being a Constitution Bench decision, would be
binding upon this Bench. He further referred to Section 31 of the
Prevention of Corruption Act, 1988, which, in his opinion, makes it clear
that Parliament itself has understood that a repeal under Section 6 of the
General Clauses Act would not apply to omissions. He has further argued
that it may be true that the expression “repeal” is normally used when an
entire statute is done away with, as opposed to an “omission” which is
applied only when part of the statute is deleted, but said that this is not
invariably the case, and referred to Section 1 of the Indian Contract Act
in which enactments mentioned in the schedule are repealed not in their
entirety but only to the extent provided and, therefore, argued that the
expression “repeals” will apply also to a part of an enactment as opposed
to the enactment as a whole.
10. Shri Radhakrishnan, learned senior counsel appearing on behalf of the
revenue supported the judgment of this Court in the Fibre Board’s case and
said that recent judgments delivered which have clarified the law ought not
to be disturbed in the larger public interest.
11. Since Shri Aggarwal has made detailed submissions on why according to
him the judgment in the Fibre Board’s case is not correctly decided, we
propose to deal with each of those submissions in some detail.
12. First and foremost, it is important to refer to the definition of
“enactment” contained in Section 3(19) of the General Clauses Act. The
said definition clause states that “enactment” shall mean the following:-
“enactment" shall include a Regulation (as hereinafter defined) and any
Regulation of the Bengal, Madras or Bombay Code, and shall also include any
provision contained in any Act or in any such Regulation as aforesaid.”
13. From this it is clear that when Section 6 speaks of the repeal of any
enactment, it refers not merely to the enactment as a whole but also to any
provision contained in any Act. Thus, it is clear that if a part of a
statute is deleted, Section 6 would nonetheless apply. Secondly, it is
clear, as has been stated by referring to a passage in Halsbury’s Laws of
England in the Fibre Board’s judgment, that the expression “omission” is
nothing but a particular form of words evincing an intention to abrogate an
enactment or portion thereof. This is made further clear by the Legal
Thesaurus (Deluxe Edition) by William C Burton, 1979 Edition. The
expression “delete” is defined by the Thesaurus as follows:
“Delete: - Blot out, cancel, censor, cross off, cross out, cut, cut out,
dele, discard, do away with, drop, edit out, efface, elide, eliminate,
eradicate, erase, excise, expel, expunge, extirpate, get rid of, leave out,
modify by excisions, obliterate, omit, remove, rub out, rule out, scratch
out, strike off, take out, weed wipe out.”
Likewise the expression “omit” is also defined by this Thesaurus as
follows:-
“Omit:- Abstain from inserting, bypass, cast aside, count out, cut out,
delete, discard, dodge, drop exclude, exclude, fail to do, fail to include,
fail to insert, fail to mention, leave out, leave undone, let go, let pass,
let slip, miss, neglect, omittere, pass over, praetermittere, skip, slight,
transire.”
And the expression “repeal” is defined as follows:-
“Repeal:- Abolish, abrogare, abrogate, annul, avoid, cancel, countermand,
declare null and void, delete, eliminate, formally withdraw, invalidate,
make void, negate, nullify, obliterate, officially withdraw, override,
overrule, quash, recall, render invalid, rescind, rescindere, retract,
reverse, revoke, set aside, vacate, void, withdraw.”
14. On a conjoint reading of the three expressions “delete”, “omit”, and
“repeal”, it becomes clear that “delete” and “omit” are used
interchangeably, so that when the expression “repeal” refers to “delete” it
would necessarily take within its ken an omission as well. This being the
case, we do not find any substance in the argument that a “repeal” amounts
to an obliteration from the very beginning, whereas an “omission” is only
in futuro. If the expression “delete” would amount to a “repeal”, which the
appellant’s counsel does not deny, it is clear that a conjoint reading of
Halsbury’s Laws of England and the Legal Thesaurus cited hereinabove both
lead to the same result, namely that an “omission” being tantamount to a
“deletion” is a form of repeal.
15. Learned counsel’s second argument that Section 6A when it speaks of
an “omission” only speaks of an “amendment” which omits and, therefore does
not refer to a repeal is equally fallacious. In Bhagat Ram Sharma v. Union
of India, 1988 Supp SCC 30, this Court held that there is no real
distinction between a repeal and an amendment and that “amendment” is in
fact a wider term which includes deletion of a provision in an existing
statute. In the said judgment, this Court held:-
“17. It is a matter of legislative practice to provide while enacting an
amending law, that an existing provision shall be deleted and a new
provision substituted. Such deletion has the effect of repeal of the
existing provision. Such a law may also provide for the introduction of a
new provision. There is no real distinction between 'repeal' and an
'amendment'. In Sutherland's Statutory Construction, 3rd Edn., Vol. 1 at p.
477, the learned author makes the following statement of law:
The distinction between repeal and amendment as these terms are used by the
Courts is arbitrary. Naturally the use of these terms by the Court is based
largely on how the Legislature have developed and applied these terms in
labelling their enactments. When a section is being added to an Act or a
provision added to a section, the Legislatures commonly entitled the Act as
an amendment.... When a provision is withdrawn from a section, the
Legislatures call the Act an amendment particularly when a provision is
added to replace the one withdrawn. However, when an entire Act or section
is abrogated and no new section is added to replace it, Legislatures label
the Act accomplishing this result a repeal. Thus as used by the
Legislatures, amendment and repeal may differ in kind - addition as opposed
to withdrawal or only in degree -abrogation of part of a section as opposed
to abrogation of a whole section or Act; or more commonly, in both kind and
degree - addition of a provision to a section to replace a provision being
abrogated as opposed by abrogation of a whole section of an Act. This
arbitrary distinction has been followed by the Courts, and they have
developed separate rules of construction for each. However, they have
recognised that frequently an Act purporting to be an amendment has the
same qualitative effect as a repeal - the abrogation of an existing
statutory provision -and have therefore applied the term "implied repeal'
and the rules of construction applicable to repeals to such amendments.
18. Amendment is in fact, a wider term and it includes abrogation or
deletion of a provision in an existing statute. If the amendment of an
existing law is small, the Act professes to amend; if it is extensive, it
repeals a law and re-enacts it. An amendment of substantive law is not
retrospective unless expressly laid down or by necessary' implication
inferred.” (at para 17 & 18)
16. It is clear, therefore, that when this Court referred to Section 6A
in Fibre Board’s case and held that Section 6A shows that a repeal can be
by way of an express omission, obviously what was meant was that an
amendment which repealed a provision could do so by way of an express
omission. This being the case, it is clear that Section 6A undisputedly
leads to the conclusion that a repeal would include a repeal by way of an
express omission.
17. Learned counsel then argued that while distinguishing the Madhya
Pradesh High Court’s judgment in Rayala Corporation, a Constitution Bench
of this Court expressly held as the first reason that Section 6 applies
only to repeals and not to omissions. The Fibre Board’s judgment has
clearly held as follows:
“First and foremost, it will be noticed that two reasons were given in
Rayala Corporation (P) Ltd. for distinguishing the Madhya Pradesh High
Court judgment. Ordinarily, both reasons would form the ratio decidendi
for the said decision and both reasons would be binding upon us. But we
find that once it is held that Section 6 of the General Clauses Act would
itself not apply to a rule which is subordinate legislation as it applies
only to a Central Act or Regulation, it would be wholly unnecessary to
state that on a construction of the word “repeal” in Section 6 of the
General Clauses Act, “omissions” made by the legislature would not be
included. Assume, on the other hand, that the Constitution Bench had given
two reasons for the non-applicability of Section 6 of the General Clauses
Act. In such a situation, obviously both reasons would be ratio decidendi
and would be binding upon a subsequent bench. However, once it is found
that Section 6 itself would not apply, it would be wholly superfluous to
further state that on an interpretation of the word “repeal”, an “omission”
would not be included. We are, therefore, of the view that the second so-
called ratio of the Constitution Bench in Rayala Corporation (P) Ltd.
cannot be said to be a ratio decidendi at all and is really in the nature
of obiter dicta.” (at para 27)
18. Merely because the Constitution Bench referred to a repeal not
amounting to an omission as the first reason given for distinguishing the
Madhya Pradesh High Court’s judgment would not undo the effect of paragraph
27 of Fibre Board’s case which, as has already been stated, clearly makes
the distinction between Section 6 not applying at all and Section 6 being
construed in a particular manner. Obviously, if the Section were not to
apply at all, any construction of the Section would necessarily be in the
nature of obiter dicta.
19. We also find that Section 6 could not possibly apply to the facts in
Rayala Corporation’s case for yet another reason. Clause 2 of the amendment
rules which was referred to in paragraph 14 of the judgment in Rayala
Corporation reads as follows:-
“In the Defence of India Rules, 1962, rule 132A (relating to prohibition of
dealings in foreign exchange) shall be omitted except as respects things
done or omitted to be done under that rule.”
20. A cursory reading of clause 2 shows that after omitting Rule 132A of
the Defence of India Rules, 1962, the provision contains its own saving
clause. This being the case, Section 6 can in any case have no application
as Section 6 only applies to a Central Act or regulation “unless a
different intention appears”. A different intention clearly appears on a
reading of clause 2 as only a very limited savings clause is incorporated
therein. In fact, this aspect is noticed by the Constitution Bench in
paragraph 18 of its judgment, in which the Constitution Bench states:-
“As we have indicated earlier, the notification of the Ministry of Home
Affairs omitting Rule 132-A of the D.I.Rs. did not make any such provision
similar to that contained in Section 6 of the General Clauses Act.”
21. It was then urged before us that Section 31 of the Prevention of
Corruption Act, 1988 would also lead to the conclusion that Parliament
itself is cognizant of the fact that an omission cannot amount to a repeal.
Section 31 of the Prevention of Corruption Act, 1988, states as follows:-
“Section 31 - Omission of certain sections of Act 45 of 1860
Sections 161 to 165A (both inclusive) of the Indian Penal Code, 1860 (45 of
1860) shall be omitted, and section 6 of the General Clauses Act, 1897 (10
of 1897), shall apply to such omission as if the said sections had been
repealed by a Central Act.”
22. It is settled law that Parliament is presumed to know the law when it
enacts a particular piece of legislation. The Prevention of Corruption Act
was passed in the year 1988, that is long after 1969 when the Constitution
Bench decision in Rayala Corporation had been delivered. It is, therefore,
presumed that Parliament enacted Section 31 knowing that the decision in
Rayala Corporation had stated that an omission would not amount to a repeal
and it is for this reason that Section 31 was enacted. This again does not
take us further as this statement of the law in Rayala Corporation is no
longer the law declared by the Supreme Court after the decision in the
Fibre Board’s case. This reason therefore again cannot avail the
appellant.
23. The reference to the savings provision in Section 1 of the Indian
Contract Act again does not take us very much further as the expression
“repeal” as has been pointed out above can be of part of an enactment also.
This being the case, when the legislature uses the word “omit” it usually
does so when it wishes to delete a particular section as opposed to
deleting an entire Act. As has been noticed both in Fibre Board’s case and
hereinabove, these are all expressions which only go to form and not to
substance. Even assuming for the sake of argument that we were inclined to
agree with Shri Aggarwal, given the force of his inexorable logic, this
Court has laid down the parameters of when it would be expedient to have a
relook at a particular decision in the case of Keshav Mills Co. Ltd. v.
CIT, Bombay North, 1965 (2) SCR 908, as follows.-
“In dealing with the question as to whether the earlier decisions of this
Court in the New Jehangir Mills [1959]37ITR11(SC) case and the Petlad Co.
Ltd. [1963] S.C.R. 871 case should be reconsidered and revised by us, we
ought to be clear as to the approach which should be adopted in such cases.
Mr. Palkhivala has not disputed the fact that, in proper case, this Court
has inherent jurisdiction to reconsider and revise its earlier decisions,
and so, the abstract question as to whether such a power vests in this
Court or not need not detain us. In exercising this inherent power,
however, this would naturally like to impose certain reasonable limitations
and would be reluctant to entertain pleas for the reconsideration and
revision of its earlier decisions, unless it is satisfied that there are
compelling and substantial reasons to do so. It general judicial experience
that in matters of law involving question of constructing statutory or
constitutional provisions, two views are often reasonably possible and when
judicial approach has to make a choice between the two reasonably possible
views, the process of decision-making is often very difficult and delicate.
When this Court hears appeals against decisions of the High Courts and is
required to consider the propriety or correctness of the view taken by the
High Courts on any point of law, it would be open to this Court to hold
that though the view taken by the High Court is reasonably possible, the
alternative view which is also reasonably possible is better and should be
preferred. In such a case, the choice is between the view taken by the High
Court whose judgment is under appeal, and the alternative view which
appears to this Court to be more reasonable; and in accepting it own view
in preference to that of the High Court, this Court would be discharging
its duty as Court of Appeal. But different considerations must inevitably
arise where a previous decision of this Court has taken a particular view
as to the construction of a statutory provision as, for instance,
section 66(4) of the Act. When it is urged that the view already taken by
this Court should be reviewed and revised, it may not necessarily be an
adequate reason for such review and revision to hold that though the
earlier view is a reasonably possible view, the alternative view which is
pressed on the subsequent occasion is more reasonable. In reviewing and
revising its earlier decision, this Court should ask itself whether in
interests of the public good or for any other valid and compulsive reasons,
it is necessary that the earlier decision should be revised. When this
Court decides questions of law, its decisions are, under Article 141,
binding on all courts within the territory of India, and so, it must be the
constant endeavour and concern of this Court to introduce and maintain an
element of certainty and continuity in the interpretation of law in the
country. Frequent exercise by this Court of its power to review its earlier
decisions on the ground that the view pressed before it later appears to
the Court to be more reasonable, may incidentally tend to make law
uncertain and introduce confusion which must be consistently avoided. That
is not to say that if on a subsequent occasion, the Court is satisfied that
its earlier decision was clearly erroneous, it should hesitate to correct
the error; but before a previous decision is pronounced to be plainly
erroneous, the Court must satisfied with a fair amount of unanimity amongst
its members that a revision of the said view is fully justified. It is not
possible or desirable, and in any case it would be inexpedient to lay down
any principles which should govern the approach of the Court in dealing
with the question of reviewing and revising its earlier decisions. It would
always depend upon several relevant considerations:- What is the nature of
the infirmity or error on which a plea for review and revision of the
earlier view is based? On the earlier occasion, did some patent aspects of
the question remain unnoticed, or was the attention of the Court not drawn
to any relevant and material statutory provision, or was any previous
decision of this Court bearing on the point not noticed? Is the Court
hearing such plea fairly unanimous that there is such an error in the
earlier view? What would be the impact of the error on the general
administration of law or on public good ? Has the earlier decision been
followed on subsequent occasions either by this Court or by the High Courts
? And, would the reversal of the earlier decision lead to public
inconvenience, hardship or mischief ? These and other relevant
considerations must be carefully borne in mind whenever this Court is
called upon to exercise its jurisdiction to review and review and revise
its earlier decisions.” (at page 921-922)
24. Fibre Board’s case is a recent judgment which, as has correctly been
argued by Shri Radhakrishnan, learned senior counsel on behalf of the
revenue, clarifies the law in holding that an omission would amount to a
repeal. The converse view of the law has led to an omitted provision being
treated as if it never existed, as Section 6 of the General Clauses Act
would not then apply to allow the previous operation of the provision so
omitted or anything duly done or suffered thereunder. Nor may a legal
proceeding in respect of any right or liability be instituted, continued or
enforced in respect of rights and liabilities acquired or incurred under
the enactment so omitted. In the vast majority of cases, this would cause
great public mischief, and the decision of Fibre Board’s case is therefore
clearly delivered by this Court for the public good, being, at the very
least a reasonably possible view. Also, no aspect of the question at hand
has remained unnoticed. For this reason also we decline to accept Shri
Aggarwal’s persuasive plea to reconsider the judgment in Fibre Board’s
case. This being the case, it is clear that on point one the present
appeal would have to be dismissed as being concluded by the decision in the
Fibre Board’s case.
25. Even on the point of limitation, we find that the High Court noticed
that the assessee undertook to pay the amount with interest upto 31.3.2003,
on which date a last part payment was made. As the demand was raised by the
Department on 19.8.2005 i.e. within a period of three years from 31.3.2003,
it is clear that the said recovery notice would not be beyond the time
limit.
26. However, Shri Aggarwal has also argued that in this appeal as well as
in Civil Appeal No.4281 and 4282 of 2007, the Rule providing for payment of
interest would itself be ultra vires inasmuch as Section 3A of the Act does
not itself provide for the payment of interest. He argued that despite the
fact that this point was not raised before any of the authorities below he
ought to be allowed to raise it for the first time in this Court not only
as it is a pure question of law but also because, according to him, this
Court has held that rules which are ultra vires ought to be ignored by the
courts even if there is no substantive challenge to them.
27. Shri Radhakrishnan, learned senior advocate appearing for the
revenue, strongly contradicts this position and has vehemently argued that
since this issue was never raised before the authorities below, this Court
should not allow the appellant to raise it at this belated stage. He
further submitted that in any case it would not be necessary for the
statute to provide for interest and it is good enough that subordinate
legislation in the nature of a rule could do so. Inasmuch as these cases
relate to interest and penalty leviable under certain provisions of the
Central Excise Rules, it may be necessary to set out the said provisions.
They read as follows:
“RULE 96ZO. Procedure to be followed by the manufacturer of ingots and
billets.
(3)……..
Provided also that where a manufacturer fails to pay the whole of the
amount payable for any month by the 15th day or the last day of such month,
as the case may be, he shall be liable to,-
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
A penalty equal to such outstanding amount of duty or five thousand rupees,
whichever is greater.”
RULE 96ZP. Procedure to be followed by the manufacturer of hot rolled
products.
(3)…….
Provided also that where a manufacturer fails to pay the whole of amount of
duty payable for any month by the 10th day of such month, he shall be
liable to 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 11th day of
such month till the date of actual payment of the outstanding amount; and
A penalty equal to the amount of duty outstanding from him at the end of
such month or five thousand rupees, whichever is greater.
Rule 96ZQ Procedure to be followed by the independent processor of textile
fabrics.
(5) If an independent processor fails to pay the amount of duty or any
part thereof by the date specified in sub-rule (3), he shall be liable to,-
Pay the outstanding amount of duty along with interest at the rate of
thirty-six per cent per annum calculated for the outstanding period on the
outstanding amount; and
A penalty equal to an amount of duty outstanding from him or rupees five
thousand, whichever is greater.”
28. Shri Aggarwal in order to buttress his submission that he ought to be
allowed to raise a pure question of law going to the very jurisdiction to
levy interest cited before us the judgment in Bhartidasan University and
Another v. All-India Council for Technical Education, 2001 (8) SCC 676,
and in particular paragraph 14 thereof which reads as follow:-
“The fact that the Regulations may have the force of law or when made have
to be laid down before the legislature concerned do not confer any more
sanctity or immunity as though they are statutory provisions themselves.
Consequently, when the power to make Regulations are confined to certain
limits and made to flow in a well defined canal within stipulated banks,
those actually made or shown and found to be not made within its confines
but outside them, the Courts are bound to ignore them when the question of
their enforcement arise and the mere fact that there was no specific relief
sought for to strike down or declare them ultra vires, particularly when
the party in sufferance is a Respondent to the lis or proceedings cannot
confer any further sanctity or authority and validity which it is shown and
found to obviously and patently lack. It would, therefore, be a myth to
state that Regulations made under Section 23 of the Act have
"Constitutional" and legal status, even unmindful of the fact that anyone
or more of them are found to be not consistent with specific provisions of
the Act itself. Thus, the Regulations in question, which the AICTE could
not have made so as to bind universities/UGC within the confines of the
powers conferred upon it, cannot be enforced against or bind an University
in the matter of any necessity to seek prior approval to commence a new
department or course and programme in technical education in any university
or any of its departments and constituent institutions.”
29. It would be seen that Shri Aggarwal is on firm ground because this
Court has specifically stated that rules or regulations which are in the
nature of subordinate legislation which are ultra vires are bound to be
ignored by the courts when the question of their enforcement arises and the
mere fact that there is no specific relief sought for to strike down or
declare them ultra vires would not stand in the court’s way of not
enforcing them. We also feel that since this is a question of the very
jurisdiction to levy interest and is otherwise covered by a Constitution
Bench decision of this Court, it would be a travesty of justice if we would
not to allow Shri Aggarwal to make this submission.
30. On merits, the matter is no longer res integra. A Constitution Bench
decision of this Court in VVS Sugars v. Government of A.P., 1999 (4) SCC
192, has held, following two earlier judgments of this Court, as follows:-
“This Court in India Carbon Ltd. v. State of Assam [(1997) 6 SCC 479] has
held, after analysing the Constitution Bench judgment in J.K. Synthetics
Ltd. v. CTO [(1994) 4 SCC 276] that interest can be levied and charged on
delayed payment of tax only if the statute that levies and charges the tax
makes a substantive provision in this behalf. There being no substantive
provision in the Act for the levy of interest on arrears of tax that
applied to purchases of sugarcane made subsequent to the date of
commencement of the amending Act, no interest thereon could be so levied,
based on the application of the said Rule 45 or otherwise.”
31. Applying the Constitution Bench decision stated above, it will have
to be declared that since Section 3A which provides for a separate scheme
for availing facilities under a compound levy scheme does not itself
provide for the levying of interest, Rules 96 ZO, 96 ZP and 96 ZQ cannot do
so and therefore on this ground the appellant in Shree Bhagwati Steel
Rolling Mills has to succeed. On this ground alone therefore the impugned
judgment is set aside. That none of the other provisions of the Central
Excise Act can come to the aid of the Revenue in cases like these has been
laid down by this Court in Hans Steel Rolling Mill v. CCE, (2011) 3 SCC 748
as follows:
“13. On going through the records it is clearly established that the
appellants are availing the facilities under the compound levy scheme,
which they themselves opted for and filed declarations furnishing details
about the annual capacity of production and duty payable on such capacity
of production. It has to be taken into consideration that the compounded
levy scheme for collection of duty based on annual capacity of production
under Section 3 of the Act and the 1997 Rules is a separate scheme from the
normal scheme for collection of Central excise duty on goods manufactured
in the country. Under the same, Rule 96-ZP of the Central Excise Rules
stipulate the method of payment and Rule 96-ZP contains detailed provision
regarding time and manner of payment and it also contains provisions
relating to payment of interest and penalty in event of delay in payment or
non-payment of dues. Thus, this is a comprehensive scheme in itself and
general provisions in the Act and the Rules are excluded.” (at page 751)
32. We now come to the other appeals which concern themselves with
penalties that are leviable under Rules 96 ZO, 96 ZP and 96 ZQ. Since the
lead judgment is a detailed judgment by a Division Bench of the Gujarat
High Court reported in Krishna Processors v. Union of India, 2012 (280) ELT
186 (Guj.) and followed by other High Courts, we will refer only to this
decision.
33. On the facts before the Gujarat High Court, there were three civil
applications each of which challenged the constitutional validity of the
aforesaid rules insofar as they prescribed the imposition of a penalty
equal to the amount of duty outstanding without any discretion to reduce
the same depending upon the time taken to deposit the duty. The Gujarat
High Court struck down the aforesaid Rules on the basis that not only were
they ultra vires the Act but they were arbitrary and unreasonable and
therefore violative of Articles 14 and 19(1)(g) of the Constitution.
34. Shri Radhakrishnan, learned senior advocate appearing on behalf of
the revenue found it extremely difficult to argue that the aforesaid
judgment was wrong. He therefore asked us to limit the effect of the
judgment when it further held that after omission of the aforesaid Rules
with effect from 1.3.2001 no proceedings could have been initiated
thereunder. In this submission he is correct for the simple reason that
the Gujarat High Court followed Rayala Corporation in holding that
“omissions” would not amount to “repeals”, which this Court has now
clarified is not the correct legal position.
35. However, insofar the reasoning of the High Court is concerned on the
aspects stated hereinabove, we find that on all three counts it is
unexceptionable. First and foremost, a delay of even one day would
straightaway, without more, attract a penalty of an equivalent amount of
duty, which may be in crores of rupees. It is clear that as has been held
by this Court, penalty imposable under the aforesaid three Rules is
inflexible and mandatory in nature. The High Court is, therefore, correct
in saying that an assessee who pays the delayed amount of duty after 100
days is to be on the same footing as an assessee who pays the duty only
after one day’s delay and that therefore such rule treats unequals as
equals and would, therefore, violate Article 14 of the Constitution of
India. It is also correct in saying that there may be circumstances of
force majeure which may prevent a bonafide assessee from paying the duty in
time, and on certain given factual circumstances, despite there being no
fault on the part of the assessee in making the deposit of duty in time, a
mandatory penalty of an equivalent amount of duty would be compulsorily
leviable and recoverable from such assessee. This would be extremely
arbitrary and violative of Article 14 for this reason as well. Further, we
agree with the High Court in stating that this would also be violative of
the appellant’s fundamental rights under Article 19(1)(g) and would not be
saved by Article 19(6), being an unreasonable restriction on the right to
carry on trade or business. Clearly the levy of penalty in these cases of
a mandatory nature for even one day’s delay, which may be beyond the
control of the assessee, would be arbitrary and excessive. In such
circumstances, this Court has held in Md. Faruk v. State of M.P., 1970(1)
SCR 156:
“The Court must in considering the validity of the impugned law imposing a
prohibition on the carrying on of a business or profession, attempt an
evaluation of its direct and immediate impact upon the fundamental rights
of the citizens affected thereby and the larger public interest sought to
be ensured in the light of the object sought to be achieved, the necessity
to restrict the citizen's freedom, the inherent pernicious nature of the
act prohibited or its capacity or tendency to be harmful to the general
public, the possibility of achieving the object by imposing a less drastic
restraint, and in the absence of exceptional situations such as the
prevalence of a state of emergency-national or local-or the necessity to
maintain essential supplies, or the necessity to stop activities inherently
dangerous, the existence of a machinery to satisfy the administrative
authority that no case for imposing the restriction is made out or that a
less drastic restriction may ensure the object intended to be achieved.”
(at page 161)
36. The direct and immediate impact upon the fundamental right of the
citizen is that he is exposed to a huge liability by way of penalty for
reasons which may in given circumstances be beyond his control and/or for
delay which may be minimal. The possibility of achieving the object of
deterrence in such cases can be achieved by imposing a less drastic
restraint. In point of fact when we contrast these provisions with Section
37 of the Act, it becomes clear how arbitrary and excessive they are.
37. Section 37(3) and 37(4) of the Central Excise Act reads as follows:-
“Section 37. Power of Central Government to make rules. —
(3) In making rules under this section, the Central Government may provide
that any person committing a breach of any rule shall, where no other
penalty is provided by this Act, be liable to a penalty not exceeding five
thousand rupees.
(4) Notwithstanding anything contained in sub-section (3), and without
prejudice to the provisions of section 9, in making rules under this
section, the Central Government may provide that if any anufacturer,
producer or licensee of a warehouse —
(a) removes any excisable goods in contravention of the provisions of any
such rule, or
(b) does not account for all such goods manufactured, produced or stored by
him, or
(c) engages in the manufacture, production or storage of such goods without
having applied for the registration required under section 6, or
(d) contravenes the provisions of any such rule with intent to evade
payment of duty,
then, all such goods shall be liable to confiscation and the manufacturer,
producer or licensee shall be liable to a penalty not exceeding the duty
leviable on such goods or ten thousand rupees, whichever is greater;”
38. Under Section 37(3), the statute itself provides in all cases where
no other penalty is provided by the Act that a penalty not exceeding
Rs.5,000/- alone can be levied. Sub-Section(4) is even more telling. Even
in cases where there is a clandestine removal of excisable goods, and cases
where the assessee intends to evade payment of duty, the assessee is liable
to a penalty not exceeding the duty leviable on such goods or Rs.10,000/-
whichever is greater. It will be noticed that the Act is very circumspect
in laying down penalty provisions. Penalties in given circumstances extend
only to Rs.5,000/- and Rs.10,000/- which are small amounts. Further, even
where clandestine removal and intent to evade duty are present, yet the
authorities are given a discretion to levy a penalty higher than Rs.10,000/-
but not exceeding the duty leviable. In a given case, therefore, even
where there is willful intent to evade duty and the duty amount comes to
say a crore of rupees, the authorities can in the facts and circumstances
of a given case, levy a penalty of say Rs.25,00,000/- or Rs.50,00,000/-.
This being the position, it is clear that when contrasted with the
provisions of the Central Excise Act itself, the penalty provisions
contained in Rules 96ZO, 96 ZP and 96 ZQ are both arbitrary and excessive.
39. A penalty can only be levied by authority of statutory law, and
Section 37 of the Act, as has been extracted above does not expressly
authorize the Government to levy penalty higher than Rs.5,000/-. This
further shows that imposition of a mandatory penalty equal to the amount of
duty not being by statute would itself make rules 96ZO, 96 ZP and 96 ZQ
without authority of law. We, therefore, uphold the contention of the
assessees in all these cases and strike down rules 96ZO, 96 ZP and 96 ZQ
insofar as they impose a mandatory penalty equivalent to the amount of duty
on the ground that these provisions are violative of Article 14, 19(1)(g)
and are ultra vires the Central Excise Act.
40. It now remains to deal with SLP(civil) No.22134 of 2000, (APS
Associates v. Commissioner of Central Excise). In this SLP, the Punjab and
Haryana High Court has passed a judgment on 20.5.2008 in which it construed
Rule 3(2) of the Induction Furnace Annual Capacity Determination Rules,
1997. The said Rule is set out hereinbelow:-
“3. The annual capacity of production referred to in Rule 2 shall be
determined in the following manner, namely :-
The Commissioner of Central Excise (hereinafter referred to as the
Commissioner) shall call for an authenticated copy of the manufacturer’s
invoice or trader’s invoice, who have supplied or 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;
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 manufacturer’s 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;”
41. On the facts in this case, the assessee made a declaration dated
9.9.1997 that they will pay lump sum duty on the basis that their induction
furnace has a capacity of only 3.2 metric tons. As they were unable to
trace out the original bill, they worked out their capacity on the basis of
a Chartered Engineer’s Certificate dated 7.9.1997 which stated as follows:-
“REF. : Js CE/97 DATED 07.09.97
197
TO WHOM IT MAY CONCERN
On the request of M/s. A.P.S. ASSOCIATES PVT LIMITED, I visited their works
at D-133, Phase V. Focal Point. Ludhiana for inspection of the INDUCTION
FURNACE and assessing the capacity thereof.
The party has ONE FURNACE of following specifications:-
MAKE GEC CAPACITY 3200 KG/1600 KW/1200 V.
While assessing the capacity of a FURNACE for a particular heat. It may
please be noted that besides crucible size, other factors affecting the
capacity are as follows:
Incoming Power to the crucible from the Power Pack System of the FURNACE
and its quality.
Power fed to the crucible from the Power Pack System of the FURNACE and its
quality.
Quality/Mix of Scrap.
Lining quality and its thickness.
The heatwise capacity may vary for a crucible out over a given period of
time, the average output/Capacity shall remain almost same.
However, in this case, it may please be noted that at present, this unit
has a sanctioned load of 1680 KVA (Photocopy enclosed) resulting in a load
of 1428 KW, that can be utilized by the unit. After allowing for an Aux.
load of approximately 125 KW, the load available for melting shall be
approximately 1300 KW. As such, the unit shall not be able to utilize the
full capacity of the furnace i.e. 1600 KW.”
42. The said declaration and Chartered Engineer Certificate have not been
accepted by the authorities below, and the High Court rejected it on the
footing that Rule 3(2) of the aforesaid Rules did not, in terms, refer to
the sanctioned load of electrical units, and therefore this could not be
taken into account for the purpose of ascertaining the capacity of the
furnaces installed in the induction furnace unit. We find that the
Karnataka High Court Bhuwalka Steel Industries Ltd. v. Union Of India
2003(159) ELT 147 (Kar.), after quoting the aforesaid Rule, held as
follows:-
“11. Section 3-A 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-section (2) of
Section 3-A 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 Section 3-A 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 × 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 rata basis in terms of Rule 96-
ZO(3) 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 as the power
factor is not said to be irrelevant factor, that factor has to go into the
process of determination in terms of Section 3-A read with the Rules.”
43. We are in broad agreement with the Karnataka High Court view as it is
clear that the load capacity of an induction furnace unit is certainly
relevant material referred to in Rule 3(2) to determine the capacity of the
furnace installed. It is obvious that it is not necessary to state such
load capacity in terms for it to be included in Rule 3(2). Agreeing
therefore with the Karnataka High Court’s view we set aside the judgment of
the Punjab and Haryana High Court and declare that a Chartered Engineer
Certificate dealing with the sanctioned electrical load for a furnace is a
relevant consideration which can be looked at in the absence of other
factors mentioned in Rule 3. This appeal is disposed of accordingly.
44. Conclusion
We have declared in this judgment that the interest and penalty provisions
under the Rules 96ZO, ZP, and ZQ of the Central Excise Rules, 1994 are
invalid for the reasons assigned in the judgment. Accordingly, the appeals
filed by the Revenue are dismissed and the appeals filed by the assessees
are allowed to the extent indicated above. It may be noted that in an
appeal from a judgment of the Allahabad High Court dated 8.11.2012 in SLP
(C) No. 9796/2012, it has been held that the levy of penalty under the
aforesaid provisions is mandatory in character. In view of what has been
held by us today, this appeal will also have to be allowed in the same
terms as the other assessees’ appeals which have been allowed. All the
aforesaid appeals are disposed of accordingly.
……………………J.
(A.K. Sikri)
……………………J.
New Delhi; (R.F. Nariman)
November 24, 2015.