REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 3400 OF 2003
COMMISSIONER OF CENTRAL -- APPELLANT
EXCISE, CHANDIGARH
VERSUS
M/S DOABA STEEL ROLLING MILLS -- RESPONDENT
WITH
CIVIL APPEAL NOS.8342-8344 OF 2004,
CIVIL APPEAL NO.8345 OF 2004 &
CIVIL APPEAL NOS.4992-4993 OF 2011
(ARISING OUT OF S.L.P. (C) NOS.35323-35324 OF 2010)
J U D G M E N T
D.K. JAIN, J.:
1. Leave granted in SLP (C) Nos. 35323-35324 of 2010.
1
2. This 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.
3. Since 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 :
4. Section 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
3
(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.
………………………………………………………………….”
5. It 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.
6. In 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
5
parameters 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
6
w =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, –
…………………………………………………………………………
…………………………………………………………………………
4. 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 3.
(2) 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.”
7
7. However, 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 :
“5. 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.”
8. The 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.
8
9. Vide 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.
10. Aggrieved 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.
11. Dissatisfied 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
1
parameters now worked out at 7328.435 MT i.e. a difference approx. 300 MT
only.
12.Hence, the Commissioner has preferred the present appeals against the
orders of the High Courts, noted in para 2 (supra).
13. Mr. 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
1
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.
14. Per 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 382
2 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.
15. In 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.
16.Thus, 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?
17. Before 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.
4 (2008) 8 SCC 739
1
18. As 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
1
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 of duty. 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.
19.The 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
1
assessee falls within the letter of the law, he must be taxed however great the
hardship may appear to the judicial mind to be.
20. On 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.”
21. In 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.”
5 1921 (1) KB 64, 71
6 (1961) 2 SCR 189
1
22. In 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.”
23. We 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.
24.As 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
1
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 officers concerned.
25. For 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.)
NEW DELHI;
JULY 6, 2011.
ARS
1