Arun Kumar vs. Rakesh Asthana

Held

The Court held that the duty liability under the CTUT Rules 2010 is to be calculated based on the maximum number of packing machines operated during any day of a particular month, as stipulated by Rule 8. The Court found that the Second Proviso to Section 3A(2)(b) of the Central Excise Act, 1944, which mandates proportionate redetermination of annual production, applies only when the 'factor relevant' to production (i.e., the number of packing machines as per Rule 4) is altered or modified during the year. It does not apply to a situation where additional machines are installed and operated for a part of the month, as Rule 8's deeming fiction prevails. The Court distinguished the present case from the CESTAT's decision in Shree Shyam Pan Products Pvt. Ltd. v. Delhi-I, stating that the Tribunal in that case failed to advert to the deeming fiction introduced by Rule 8. Consequently, Rule 8 was not found to be ultra vires Section 3A of the Act or violative of Article 14. The appeal and writ petition were dismissed.

Facts

The appellant/petitioner, Gopal Corporates LLP, manufactures Flavoured Chewing Tobacco, chargeable to Central Excise Duty. The dispute concerns duty liability for June 2012, July 2012, and February 2013, when new packing machines were added and operated for a few days. The appellant contended that duty should be levied proportionately to the days the new machines were operational. The respondents asserted that duty liability is calculated based on the maximum number of packing machines operated during any day of a month, as per the Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010 (CTUT Rules 2010). The appeal challenges an order of the Central Excise and Service Tax Appellate Tribunal (CESTAT) affirming the Order in Original, while the writ petition seeks to declare Rule 8 of the CTUT Rules 2010 ultra vires Section 3A of the Central Excise Act, 1944, and violative of Article 14 of the Constitution.

Key Issues

1. Whether the duty liability under the CTUT Rules 2010 for the period when new packing machines were added and operated for only a few days in a month should be calculated on a proportionate basis, or based on the maximum number of machines operated during any day of that month, as per Section 3A(2)(b) and Rule 8 of the CTUT Rules 2010? Petitioner/Appellant's contention: The duty should be levied proportionately to the days the additional packing machines were actually operated, relying on the Second Proviso to Section 3A(2)(b) of the Central Excise Act, 1944, and the CESTAT's decision in Shree Shyam Pan Products Pvt. Ltd. v. Delhi-I. Respondent's contention: Duty liability is to be ascertained based on the maximum number of packing machines that may have operated during any day of a particular month, as per Rule 8 of the CTUT Rules 2010, and the Second Proviso to Section 3A(2)(b) applies only when the 'factor relevant' itself is altered or modified, not when machines are added for a partial period. 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?