Central Chandigarh Vs. M/S Doaba Steel Rolling Mills
J U D G M E N T
D.K. JAIN, J.:
granted in SLP (C) Nos. 35323-35324 of 2010.
batch of appeals, by grant of leave, arises out of judgements and orders dated 17th
October 2001 in C.C.E.S.No.4 of 2001, 21st October, 2003 in C.E.C. 11, 12, 13
of 2003 and C.E.C. No.122 of 2003 passed by the High Court of Punjab & Haryana;
6th November 2009 in Review application No.29356 of 2008 and 8th July 2010 in
C.E. Reference application No.113 of 2000 both passed by the High Court of Judicature
at Allahabad. By the impugned judgements, in the main reference applications, filed
by the Commissioner of Central Excise, under Section 35H of the Central Excise Act,
1944 (for short "the Act"), the questions referred by the Customs, Excise
and Gold (Control) Appellate Tribunal, as it then existed, (for short "the
Tribunal") have been answered in favour of the assessee and the review applications
preferred by the Commissioner against the said judgments have been dismissed.
all the appeals involve a common question of law, these are being disposed of by
this common judgment. However, to appreciate the controversy, the facts emerging
from C.A.No.3400 of 2003 are being adverted to. These are as follows :
3A of the Act, which has a chequered history of insertions and omissions in the
Act, was inserted in the Act for the second time by Act 26 2 of 1997, with effect
from 14th May, 1997, the provision relevant for the purpose of these appeals.
The Section has again been omitted by Act 14 of 2001, with effect from 11th May,
2001. Section 3A of the Act enables the Central Government to charge Excise
duty on goods on the basis of annual capacity of production of mills etc. in
respect of the notified goods.
The relevant part of
the Section reads as follows: "3A. Power of Central Government to charge
excise duty on the basis of capacity of production in respect of notified
goods.-- (1) Notwithstanding anything contained in section 3, where the Central
Government, having regard to the nature of the process of manufacture or production
of excisable goods of any specified description, the extent of evasion of duty
in regard to such goods or such other factors as may be relevant, is of the opinion
that it is necessary to safeguard the interest of revenue, specify, by
notification in the Official Gazette, such goods as notified goods and there
shall be levied and collected duty of excise on such goods in accordance with the
provisions of this section. (2)
Where a notification
is issued under sub-section (1), the Central Government may, by rules,-- (a) provide
the manner for determination of the annual capacity of production of the
factory, in which such goods are produced, by an officer not below the rank of Assistant
Commissioner of Central Excise and such annual capacity shall be deemed to be the
annual production of such goods by such factory; or (b) (i) specify the factor
relevant to the production of such goods and the quantity that is deemed to be
produced by use of a unit of such factor; and (ii) provide for the determination
of the annual capacity of production of the factory in which such goods are
produced on the basis of such factor by an officer not below the rank of Assistant
Commissioner of Central Excise and such annual capacity of production shall be deemed
to be the annual production of such goods by such factory:
Provided that where a
factory producing notified goods is in operation during a part of the year only,
the annual production thereof shall be calculated on proportionate basis of the
annual capacity of production: Provided further that in a case where the factor
relevant to the production is altered or modified at any time during the year, the
annual production shall be re-determined on a proportionate basis having regard
to such alteration or modification. ............................................................................"
is clear from a bare reading of the Section that the reason which persuaded the
Legislature to introduce this provision was attributed to large scale evasion
of payment of Excise duty by certain sectors. Thus, the insertion of the
Section in the Act was with a view to safeguard the interest of revenue in the
sectors, like induction furnaces, steel re-rolling mills etc., where evasion of
Excise duty on goods produced in such mills was rampant. The provision authorises
the Central Government to notify certain goods, for levy and collection of duty
of Excise on such goods, in accordance with the provision of the said Section, having
regard to the extent of evasion of duty as also other relevant factors.
The scheme evolved
under this provision, envisages 4 the determination of annual capacity of production
of such factory by an officer not below the rank of Assistant Commissioner of
Central Excise in terms of the rules to be framed by the Central Government
under sub-section (2) of Section 3A of the Act. The annual capacity of production
of the factory is deemed to be the annual production of such goods by such
factory, on which an assessee is liable to pay duty. The two provisos to
sub-section (2) of Section 3A of the Act, provide for
determination/re-determination of annual capacity of production in the event of
operation of the factory during a part of the year or alteration or
modification in any of the factors relevant to the production of the factory.
exercise of the powers conferred by Section 3A(2) of the Act, by Notification No.
23/97-CE (NT) dated 25th July, 1997, the Central Government framed and notified
Hot Re-rolling Steel Mills Annual Capacity Determination Rules, 1997 (for short
"the 1997 Rules"), to be effective from 1st August, 1997, for determination
of annual capacity of production of a factory producing re-rolled products as contained
in the said notification. The Rules prescribed the formulae for determination
of the annual capacity of production of a hot re-rolling mill, on the basis of
the information to be furnished by the mill to the Commissioner of Central Excise;
on the 5parameters referred to in Rule 3(3) of the 1997 Rules.
The rate and the
manner of payment of Excise duty under Section 3A of the Act was also indicated
in the notification. Subsequently, another Notification No.32/97-CE (NT) was issued
on 1st August, 1997 making the said Rules effective from the even date. For the
sake of ready reference, Rules 3 and 4, in so far as they are relevant for
these appeals, are extracted below: "3. The annual capacity of production referred
to in rule 2 shall be determined in the following manner, namely:- (1) a hot
re-rolling mill shall declare the values of `d' `n' `I' and `speed of rolling',
the parameters referred to in sub-rule (3), to the Commissioner of Central
Excise (hereinafter referred to as the Commissioner) with a copy to the
Assistant Commissioner of Central Excise: (2) on receipt of the information referred
to in sub-rule (1), the Commissioner shall take necessary action to verify their
correctness and ascertain the correct value of each of the parameters.
The Commissioner may,
if so desires, consult any technical authority for this purpose; (3) the annual
capacity of production of hot re-rolled products of non-alloy steel in respect
of such factory shall be deemed to be as determined by applying the following
formula :- Annual Capacity =1.885 x 10-4 x d x n x i x e x w x Number of utilised
hours (in metric tonnes) Where : d = Nominal diameter of the finishing mill in
millimetres n = Nominal revolutions per minute (RPM) of the drive i = Reduction
ratio of the gear box 6w =Weight in Kilogramme per metre of the re-rolled product.
value of `e' in the formula shall be deemed to be 0.30 in case of low speed mills,
and 0.75 in case of high speed mills the value of `w' factor in the formula for
the high speed mills shall be deemed to be 0.45 and for the low speed mills
shall be deemed to be as under, -.......................................................................................the
Commissioner of Central Excise shall, as soon as may be, after determining the total
capacity of the hot re-rolling mill installed in the factory as also the annual
capacity of production, by an order, intimate to the manufacturer.
Provided that the
Commissioner may determine the annual capacity of the hot re-rolling unit on
provisional basis pending verification of the declaration furnished by the hot re-rolling
mills and pass an order accordingly. Thereafter, the Commissioner may determine
the annual capacity, as soon as may be, and pass an order accordingly.4 (1) The
capacity of production for any part of the year, or any change in the total hot
re-rolling mill capacity, shall be calculated pro rata on the basis of the
annual capacity of production determined in the above manner stated in Rule
In case a
manufacturer proposes to make any change in installed machinery or any part thereof,
which tends to change the value of either of the parameters `d' `n' `e' `I' and
`speed of rolling' referred to in sub-rule (3) of sub-rule 3, such manufacturer
shall intimate about the proposed change to the Commissioner of Central Excise in
writing, with a copy to Assistant Commissioner of Central Excise, at least one
month in advance of such proposed change, and shall obtain the written approval
of the Commissioner before making such change. Thereafter the Commissioner of Central
Excise shall determine the date from which the change in the installed capacity
shall be deemed to be effective."
by Notification No. 45/97-CE (NT) dated 30th August, 1997, 1997 Rules were
amended with effect from 1st September, 1997. By reason of the said amendment, apart
from substituting a fresh sub-rule (3) of Rule 3, prescribing a new formulae to
determine the annual capacity of production, not very relevant for the purpose
of the present appeals, Rule 5 was inserted after sub-rule (2) of Rule 4, which
reads as follows : "
In case, the annual
capacity determined by the formula in sub-rule (3) of rule 3 in respect of a
mill, is less than the actual production of the mill during the financial year
1996-97, then the annual capacity so determined shall be deemed to be equal to
the actual production of the mill during the financial year 1996-97."
respondent-assessee is engaged in the manufacture of hot re-rolled steel products
of non-alloy steel in a hot steel rolling mill, classifiable under Chapter 72
of the Central Excise Tariff Act, 1944, for the purpose of levy of Excise duty etc.
On 5th January, 1998 the Commissioner, Central Excise, Chandigarh determined
the annual capacity of production of the respondent at 7683.753 MT, as per the
formula laid down in sub-section (3) of Rule 3 of 1997 Rules. However, keeping in
view Rule 5, the annual capacity was finally fixed at 11961.135 MT on the basis
of actual production of the mill during the financial year 1996-97.
letter dated 13th September, 1999, the respondent requested the Commissioner for
re-determination of annual production capacity of their unit in terms of Rule
4(2) of the 1997 Rules on the ground that they have changed some of the
parameters of their mill. The request was acceded to and vide order dated 27th January
2000, the Commissioner, applying the formula as laid down under Rule 3(3),
determined the annual capacity of the mill at 7328.435 MT but relying on Rule
5, he again computed the annual capacity at 11961.135 MT, being equal to the
actual production of the mill during the financial year 1996-97.
by the said order of the Commissioner, the respondent filed an appeal before
the Tribunal. The Tribunal, vide order dated 6th April, 2000, allowed the
appeal and held that Rule 5 of the 1997 Rules cannot be applied in view of
change in technical parameters of the rolling mill.
with the said order, the Commissioner made an application to the High Court under
Section 35H of the Act, seeking a direction to the Tribunal to refer the
question of law, which according to him, arose from the order of the Tribunal.
Vide order dated 17th October, 2001, the High Court rejected the reference
petition holding that no question of law arose from the order of the Tribunal. The
High Court has held that the provisions of Rule 5 9 cannot be invoked in a case
where the annual capacity of the mill is to be determined in terms of Rule 4(2)
of the 1997 Rules on account of change in parameters, observing thus:
"It is the
admitted position that the capacity for the year 1996-97 was fixed on the basis
of the parameters adopted by the respondent at the relevant time. Subsequently,
the parameters were altered. In view of the change in parameters, it is
admitted position that the capacity was considerably reduced. In fact, it has
not been disputed that the annual production had come down from 11961.135
Metric Tons to 7328.435 Metric Tons. This having happened, the Revenue could not
have claimed excise duty for the capacity which was not in existence. The provisions
of Rule 5 cannot be invoked in a case where after determination of the capacity
for the year 1996-97, the Unit makes a change in the capacity and the production
actually comes down.
If such a course were
permitted, the result would be grossly unfair."Additionally, the High
Court has also noted that a similar view had been taken by the Tribunal in the case
of M/s Awadh Alloys (P) Ltd., since reported in 1999 (112) ELT 719 (Tri.), against
the revenue but despite opportunity no information was furnished whether the
said decision had been challenged by the revenue or not. We may however, note
at this juncture itself that the finding of the High Court to the effect that
on account of change in parameters, the annual production had come down from
11961.135 MT to 7328.435 MT is factually incorrect. The actual annual
production determined initially as per the formula laid down in Rule 3(3) had
worked out to 7638.753 MT, which on change in parameters now worked out at
7328.435 MT i.e. a difference approx. 300 MT only.
the Commissioner has preferred the present appeals against the orders of the
High Courts, noted in para 2 (supra).
B. Bhattacharya, learned Additional Solicitor General of India, appearing for
the revenue, had strenuously urged that the view taken by the High Court to the
effect that once the technical parameters, as stipulated in Rule 3(3) of the 1997
Rules, are altered in terms of Rule 4(2) of the said Rules, resulting in reduction
in the production capacity, Rule 5 cannot be invoked, is clearly fallacious. According
to the learned counsel, for the purpose of Rule 4(2), the production capacity
of the rolling mill has to be determined under the said Rule 3(3) as there is
no other rule to take care of such a situation.
It was argued that when
the production capacity of a factory is to be determined under the said Rule, Rule
5 will automatically come into play. Relying on the clarification issued by the
Board vide Circular dated 26th February 1998, learned counsel argued that since
reference to previous year's production in Rule 5 of the 1997 Rules is to the actual
production of the mill and does not relate to the technical parameters of the machinery,
the actual production of the year 1996-97 would be relevant for determining the
current year's duty liability under Section 3A of the Act, even when parameters
of the machinery are altered.
It was thus, asserted
that since re-determination of capacity of production under Rule 4(2) has to be
done by the formulae prescribed in the said Rule 3(3), the provisions of Rule 5
cannot be disregarded. Commending us to the decision of this Court in
Commissioner of Customs, Bangalore Vs. ACER India (P) Ltd.1, learned counsel
contended that the Rules relating to determination of capacity of production
have to be strictly construed.
contra, learned counsel appearing for the respondents, led by Mr. Balbir Singh,
submitted that when there is any change in the parameters of a rolling mill,
which are different from the rolling mill in the financial year 1996-97, Rule 5
has no application. Highlighting the fact that the decision of a Full Bench of the
Tribunal in Sawanmal Shibumal Steel Rolling Mills Vs. C.C.E., Chandigarh-I2 as
also the decision of the High Court of Karnataka in Commr. of Central Excise, Belgaum
Vs. Bellary Steel Rolling Mills3, wherein it has been held that when there are
alterations in the parameters, referred to in Rule 3(3) of the 1997 Rules, Rule
5 does not apply, learned 1 (2008) 1 SCC 3822 2001 (127) E.L.T. 46 (Tri.-LB)3
2009 (245) E.L.T. 114 (Kar) 1 counsel stressed that the revenue having accepted
these decisions on the very same point, it is debarred from taking a contrary
stand in these appeals.
rejoinder, Mr. Bhattacharya, cited the decision of this Court in C.K. Gangadharan
& Anr. Vs. Commissioner of Income Tax, Cochin4 in support of his submission
that the revenue is not precluded from questioning the correctness of the decision
of the authorities below in these appeals despite the fact that orders/decision
in the afore-mentioned cases have not been challenged.
the short question for consideration is whether Rule 5 of the 1997 Rules will apply
in a case where a manufacturer proposes to make some change in the installed
machinery or any part thereof and seeks the approval of the Commissioner of
Excise in terms of Rule 4(2) of the said Rules?
addressing the contentions advanced by learned counsel for the parties, it is
essential to note at the outset that in all these appeals, there is no challenge
to the validity of Rule 5 of the 1997 Rules, inserted vide Notification dated
30th August, 1997 and, therefore, we are only required to interpret it and
examine the width of its application.
noted above, Section 3A was inserted in the Act to enable the Central Government
to levy Excise duty on manufacture or production of certain notified goods on
the basis of annual capacity of production to be determined by the Commissioner
of Central Excise in terms of the Rules to be framed by the Central Government.
Section 3A of the Act is an exception to Section 3 of the Act - the charging Section
and being in nature of a non obstante provision, the provisions contained in the
said Section override those of Section 3 of the Act. Rule 3 of 1997 Rules
framed in terms of Section 3A(2) of the Act lays down the procedure for
determining the annual capacity of production of the factory. Sub-rule (3) of that
Rule contains a specific formula for determination of annual capacity of production
of hot rolled products.
This is the only formula
whereunder the annual capacity of production of the factory, for the purpose of
charging duty in terms of Section 3A of the Act, is to be determined. Second
proviso to sub-section (2) of Section 3A of the Act contemplates re-determination
of annual production in a case when there is alteration or modification in any
factor relevant to the production of the specified goods but such
re-determination has again to be as per the formula prescribed in Rule 3(3) of
the 1997 Rules. It is clear that sub-rule (2) of Rule 4, which, in effect,
permits a manufacturer to make a change in the installed machinery or part
thereof which tends to change the value of either of the parameters, referred to
in sub-rule (3) of Rule 3, on the basis whereof the annual capacity of
production had already been determined, would obviously require re-determination
of annual capacity of production of the factory/mill, for the purpose of levy
It is plain that in
the absence of any other Rule, providing for any alternative formula or mechanism
for re-determination of production capacity of a factory, on furnishing of
information to the Commissioner as contemplated in Rule 4(2) of the 1997 Rules,
such determination has to be in terms of sub- rule (3) of Rule 3. That being
so, it must logically follow that Rule 5 cannot be ignored in relation to a
situation arising on account of an intimation under Rule 4(2) of the 1997
Rules. Moreover, the language of Rule 5 being clear and unambiguous, in the sense
that in a case where annual capacity is determined/redetermined by applying the
formula prescribed in sub-rule (3) of Rule 3, Rule 5 springs into action and
has to be given full effect to.
principle that a taxing statute should be strictly construed is well settled. It
is equally trite that the intention of the Legislature is primarily to be gathered
from the words used in the statute. Once it is shown that an assessee falls
within the letter of the law, he must be taxed however great the hardship may
appear to the judicial mind to be.
the principles of interpretation of taxing statutes, the following passage from
the opinion of Late Rowlatt, J. in Cape Brandy Syndicate Vs. Inland Revenue Commissioners5
has become the locus classicus and has been quoted with approval in a number of
decisions of this Court: "....in a taxing act, one has to look merely at what
is clearly said. There is no room for any intendment. There is no equity about
a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is
to be implied. One can only look fairly at the language used."
Commissioner of Sales Tax, Uttar Pradesh Vs. The Modi Sugar Mills Ltd.6, J.C.
Shah, J. observed thus: "In interpreting a taxing statute, equitable
considerations are entirely out of place. Nor can taxing statutes be interpreted
on any presumptions or assumptions. The court must look squarely at the words
of the statute and interpret them. It must interpret a taxing statute in the light
of what is clearly expressed: it cannot imply anything which is not expressed; it
cannot import provisions in the statutes so as to supply any assumed deficiency."
Mathuram Agrawal Vs. State of Madhya Pradesh7, D.P. Mohapatra, J. speaking for the
Constitution Bench, stated the law on the point in the following terms: "The
intention of the legislature in a taxation statute is to be gathered from the language
of the provisions particularly where the language is plain and unambiguous. In
a taxing Act it is not possible to assume any intention or governing purpose of
the statute more than what is stated in the plain language. It is not the economic
results sought to be obtained by making the provision which is relevant in
interpreting a fiscal statute. Equally impermissible is an interpretation which
does not follow from the plain, unambiguous language of the statute.
Words cannot be added
to or substituted so as to give a meaning to the statute which will serve the
spirit and intention of the legislature. The statute should clearly and
unambiguously convey the three components of the tax law i.e. the subject of
the tax, the person who is liable to pay the tax and the rate at which the tax
is to be paid. If there is any ambiguity regarding any of these ingredients in a
taxation statute then there is no tax in law. Then it is for the legislature to
do the needful in the matter."
do not find any reason to depart from these well settled principles to be applied
while interpreting a fiscal statute. Therefore, bearing in mind these principles
and the intent and effect of the statutory provisions, analysed above, the
conclusion becomes inevitable that Rule 5 of the 1997 Rules will 7 (1999) 8 SCC
667 1 be attracted for determination of the annual capacity of production of the
factory when any change in the installed machinery or any part thereof is intimated
to the Commissioner of Central Excise in terms of Rule 4(2) of the said Rules.
regards the argument of learned counsel for the respondents that having not
assailed the correctness of some of the orders passed by the Tribunal and a
decision of the High Court of Karnataka, the revenue cannot be permitted to
adopt the policy of pick and choose and challenge the orders passed in the cases
before us, it would suffice to observe that such a proposition cannot be accepted
as an absolute principle of law, although we find some substance in the stated
grievance of the assessees before us, because such situations tend to give rise
to allegations of malafides etc.
Having said so, we
are unable to hold that merely because in some cases revenue has not questioned
the correctness of an order on the same issue; it would operate as a bar for
the revenue to challenge the order in another case. There can be host of
factors, like the amount of revenue involved, divergent views of the
Tribunals/High Courts on the issue, public interest etc. which may be a just
cause, impelling the revenue to prefer an appeal on the same view point of the
Tribunal which had been accepted in the past. We, may however, hasten to add
that it is high time when the Central Board of Direct and Indirect Taxes comes
out with a uniform policy, laying down strict parameters for the guidance of
the field staff for deciding whether or not an appeal in a particular case is
to be filed. We are constrained to observe that the existing guidelines are followed
more in breach, resulting in avoidable allegations of malafides etc.; on the
part of the officer’s concerned.
the foregoing reasons, the orders impugned in these appeals cannot be sustained.
All these orders are set aside and that of the Commissioners of Central Excise
are restored. The appeals are allowed accordingly with costs, quantified at
`50,000/- in each set of appeals.
(D.K. JAIN, J.)
(H.L. DATTU, J.)