Shree Flavour LLP vs. Commissioner Delhii-East, GST-Central Tax

Facts

The appellant/petitioner, Gopal Corporates LLP, is a manufacturer of Flavoured Chewing Tobacco. The dispute concerns the excise duty liability for June 2012, July 2012, and February 2013, under the Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules 2010 (CTUT Rules 2010). The issue arose when new packing machines were added to the production line and operated for a few days within these months. The appellant contended that duty should be levied proportionally to the days the additional machines were operated. The respondents asserted that duty liability should be calculated based on the maximum number of packing machines operated during any day of the month, as per the CTUT Rules 2010. The appellant also challenged the vires of Rule 8 of the CTUT Rules 2010. The appeal is against an order dated 02 November 2017 by the Central Excise and Service Tax Appellate Tribunal, which affirmed the Order in Original.

Held

The Court held that the duty liability is to be calculated based on the maximum number of packing machines operated during any day of the month, as stipulated by Rule 8 of the CTUT Rules 2010. The Court reasoned that the Second Proviso to Section 3A(2)(b) of the Central Excise Act, 1944, which allows for proportionate re-determination of annual production, applies only when the 'factor relevant' to production (i.e., the number of packing machines) is altered or modified during the year. In this case, the 'factor relevant' remained unchanged, and the addition of machines during a month did not trigger the proportionate calculation under the proviso. The Court found that Rule 8 incorporates a deeming fiction that is not diluted by the Third Proviso to Rule 9, which merely prescribes the payment date for differential duty. Consequently, Rule 8 was held not to be ultra vires Section 3A or violative of Article 14. The Court disagreed with the CESTAT decision in Shree Shyam Pan Products Pvt. Ltd., finding it failed to consider the deeming fiction in Rule 8. The appeal and writ petition were dismissed.

Key Issues

1. Whether the duty liability under the CTUT Rules 2010 for months where new packing machines were added and operated for a partial period should be calculated on a proportionate basis, considering only the days of operation of the additional machines (Petitioner's contention), or based on the maximum number of machines operated during any day of the month (Respondent's contention)? This issue turns on the interpretation of Section 3A(2)(b) of the Central Excise Act, 1944, and Rules 4, 5, and 8 of the CTUT Rules 2010. 2. Whether Rule 8 of the CTUT Rules 2010 is ultra vires Section 3A of the Central Excise Act, 1944, and violative of Article 14 of the Constitution (Petitioner's contention)? The Petitioner argued for proportionate duty based on actual operation days, relying on the Second Proviso to Section 3A(2)(b) and a CESTAT decision in Shree Shyam Pan Products Pvt. Ltd. The Respondent contended that Rule 8 correctly applies the deeming fiction of maximum machines operated, and the Second Proviso to Section 3A(2)(b) applies only when the 'factor relevant' itself is altered or modified.