l^ .J0 T ;Tt^..°^ ijf^j^^^ ^^^^^. IN THE HIGH COURT OF CHHATTISGARH AT BILASPUR WRIT PETITION ( C) N0.M% OF 2010 \.t PETITIONER ^' •i-' ^: RESPONDENTS :- 1. .^ ./y ^ ^w ^^ rf^?' .-"^'y y M/s.Rajat Ispat Private Limited, A Company registered under Companies Act, 1956 having it's place of business at Plot N0.175-H, O.P.Jindal Park, PO:Punjipatra P.S:Punj!patra, Chhatishgarh - 496 001 represented through it's Director Shri Subhash Agrawai, S/o Sn Gulab Chand Agrawal, aged about 40 Years who is a citizen of India. VERSUS Union of India, Secretary, Through the Ministry of Flnance Department of Revenue North Block, New Delhi - 110 001 ^ The Chief Commissioner, 2- Customs & Central Excise(Bhopal Zone), 48, Administrative Area, Arera Hills, Hoshangabad Road, Bhopal - 462 011, Madhya Pradesh. ^ 3- The Commissioner, Central Excise & Customs, Centra! Excise Building, Dhamtari Road, Tikrapara, Raipur, Chhattisgarh. The Assistant Commissioner, O/o Chief Commissioner, Customs & Centrai Exdse (Madhya Pradesh & Chhattisgarh Si:ate),48, Administrative Area, Arera Hills, Hoshangabad Poad. Bhopai462 011 a— -7- tl WRIT PETITION UNDER ARTICLE 226 OF THE CONSTITUTION OF INDIA FOR ISSUANCE QF WRITfS^ ORDER fS) AND DIRECTIONfS^ ETC ^1'.- ^^ HIGH COURT OF CHHATTISGARH AT BILASPUR PETITIONER WRIT PETITIONcNo. 2696/2010 M/s Rajat Ispat Pvt. Ltd. Versus RESPONDENTS Union oflndia and others \^ For consideration HON»BLESHRI I.M. QUDDUSI, J Sd/- Judge 9: -9-2010 Sd/- LM. Quddusi Judge Postfor: °) -9-2010 Sd/- N.K. Agarwal Judge ^.^ i ;.-.^' "v~^^^w^ ^ ^- HIGH COURT OF CHHATTISGARH AT BILASPUR WRIT PETITIONC.No. 2696/2010 PETITIONER RESPONDENTS M/s Rajat Ispat Pvt. Ltd. Versus Union of India and others ^ DB:- HON»BLESHRI I.M. QUDDUSI & HON'BLB SHRI N.K. AGARWAL, JJ PRESENT:- Shri Kartik K. Kurmi with Shri Dharmesh Shrivastava, Advocates for the petitioners. Shri Bhisma Kingar, Advocate for the respondents. ORDER ( 9 -9-2010) Per N.K. Agarwal, J 1. This writ petition has been preferred by the pefitioner claiming following reliefs:- i. Writ of declaration and/or any other appropriate writ/writs/ order/orders, direction/directions declaring Notification No. 32/2006-C.E.(N.T.) dated 30-12-2006 issued by the Central Government which is at Annexure P/1 to this petition as illegal and struck down the same being without authority of law. ii. Writ of declaration or any other appropriate writ/order or direction declaring that the provisions ofrule 12CC ofthe Central Excise Rules, 2002 as well as Rule 12AA of the Cenvat Credit Rules, 2004 which are at Annexure P-2 are ultra vires ofthe Central Excise Act, 1944. iii. Writ of declaration or any other writ/writs declaring Sec. 37 of the Act, 1944 which is at Annexure P-2 as unconstitutional as it suffers from the vice of excessive delegation. iv. Appropriate writ/writs order or direction to quash and set aside Notice dated 22-2-2010 which is at Annexure P-3 issued by the respondent No. 4 and declare the same as void and in operative. k- ^ •^^^^,_ .^ ' ^ ""'.^, m "^ , -~ > "^ ^ v. Appropriate writs/order(s), directions(s) calling for entire records leading to passing of impugned order for perusal ofthis Court. \<3'^T vi. Appropriate writ/writs, order or direction restraining the respondents from taking any action pursuant to impugned notice dated 22-2-2010 which is at Annexure P-3. vii. Pass any order(s), direction(s), writ(s) or any other relief or relief(s) this Court deems fit and proper in the facts and circumstances of the case and in the interest of justice. viii. Allow the writ with cost. The petitioner is a company registered under the Companies Act, 1956 and is engaged in the manufacture and sales of Mild Steel Ingots (M.S. Ingots) at its factory located at Plot No. 175-H, O.P. Jindal Industrial Park, P.S. Punjipatra, P.S. Punjipatra, District Raigarh. The petitioner is registered as a manufacturer of M.S. Ingot under Central Excise Act, 1944 bearing registration No. AACCR9829FXM001. The Central Government in exercise of powers conferred on it by Section 37 of the Central Excise Act, 1944 (1 of 1944) (in short hereinafter referred to as ' the Act?) and in supersession of the Central Excise (No. 2) Rules, 2001, except as respects things done or omitted to be done before such supersession, framed rules namely the Central Excise Rules, 2002 (in short, 'the Rules, 2002). Rule 8(1) of it permits the petitioner to enjoy facility of making monthly payment of excise duty. Rule 8(1) reads as under:- "Rule 8. Manner of payment.- (1) The duty on the goods removed from the factory or the warehouse during a month shall be paid by the 5th day of the following month: ^ 'r^ V} ^ :-t Provided that in case of goods removed during the month of March, the duty shall be paid by the 31st day of March: Provided further that where an assessee is availing of the exemption under a notification based on the value of clearances in a financial year, the duty on goods cleared during a calendar month shall be paid by the 15th day of the following month except in case of goods removed during the month of March for which the duty shall be paid by the 31st of March. Explanation.- For the purposes ofthis rule,- (a) the duty liability shall be deemed to have been discharged only if the amount payable is credited to the account of the Central Government by the specified date; (b) if the assessee deposits the duty by cheque, the date of presentation of the cheque in the bank designated by the Central Board of Excise and Customs for this purpose shall be deemed to be the date on which the duty has been paid subject to realization ofthat cheque." ^ 4. The Central Government further in exercise of powers conferred on it by Section 37 of the Central Excise Act, 1944 (1 of 1944) and Section 94 of the Finance Act, 1994 (32 of 1994) and in supersession of the CENVAT Credit Rules, 2002 and the Service Tax Credit Rules, 2002, except as respects things done or omitted to be done before such supersession, framed the Cenvat Credit Rules, 2004 (in short, "the Rules, 2004). Sub-rule 4 of Rule 3 of the Cenvat Credit Rules, 2004 permits the petitioner availing Cenvat Credit accumulations. Sub-rule 4 of Rule 3 of Rules, 2004 reads as under:- "3(4) The CENVAT credit may be utilized for payment of- (a) any duty of excise on any final product; or •t > ; / ,7 (b) an amount equal to CENVAT credit taken ori inputs if such inputs are removed as such or after being partially processed; or (c) an amount equal to the CENVAT credit taken on capital goods if such capital goods are removed as such; or (d) an amount under sub rule (2) of rule 16 of Central Excise Rules, 2002; or (e) service tax on any output service: Provided that while paying duty of excise or service tax, as the case may be, the CENVAT credit shall be utilized only to the extent such credit is available on the last day of the month or quarter, as the case may be, for payment of duty or tax relating to that month or the quarter, as the case may be: Provided further that the CENVAT credit of the duty, or service tax, paid on the inputs, or input services, used in the manufacture of final products cleared after availing of the exemption under the following notifications of Government of India in the Ministry of Finance (Department ofRevenue),- (i) No. 32/99-Central Excise, dated the 8th July, 1999 [G.S.R. 508(E), dated 8th July, 1999]; (ii) No. 33/99-Central Excise, dated the 8th July, 1999 [G.S.R. 509(E), dated 8^ July, 1999]; (iii) No. 39/2001-Central Excise, dated the 31st July, 2001 [G.S.R. 565 (E), dated the 31st July, 2001]; (iv) No. 56/2002-Central Excise, dated the 14* November, 2002 [G.S.R. 764(E), dated the 14th November,2002]; (v) No. 57/2002-Central Excise, dated 14th November, 2002 [G.S.R. 765(E), dated the 14th November, 2002]; (vi) No. 56/2003-Central Excise, dated the 25th June, 2003 [G.S.R. 513 (E), dated the 25th June, 2003]; and (vii) No. 71/2003-Central Excise, dated the 9th September, 2003 [G.S.R. 717 (E), dated the 9th September, 2003], shall, respectively, be utilized only for payment of duty on final products, in respect of which exemption under the said respective notifications is availed of. \^ w^ '•1; 'y'l v^ } ,7 Provided also that no credit of the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act, as amended by Section 85 of Finance Act, 2005 (18 of 2005) shall be utilised for payment of service tax on any output service. Provided also that the CENVAT credit of any duty mentioned in sub-rule (1), other than credit of additional duty of excise leviable under section 85 of Finance Act, 2005 (18 of 2005) , shall not be utilised for payment of said additional duty of excise on final products:99 Vide notification No. 30 /2006 - CE(NT) dated 30-12- 2006, the Central Government amended Central Excise Rules, 2002 and inserted in it Rule 12CC, which reads as under:- "RULE 12CC. Power to impose restrictions in certain types of cases.- Notwithstanding anything contained in these rules, where the Central Government, having regard to the extent of evasion of duty, nature and fype of offences or such other factors as may be relevant, is of the opinion that in order to prevent evasion of, and default in payment of excise duty, it is necessary in the public interest to provide for certain ineasures including restrictions on a manufacturer, first stage and second stage dealer or an exporter, may by a notification in the Official Gazette, specify nature of restrictions including suspension of registration in case of a dealer types of facilities to be withdrawn and procedure for issue of such order by an officer authorized by the Board." In the same manner, vide notification No. 31/2006- CE(NT) dated 30-12-2006, the Central Government vide amendment in the Rules, 2004 inserted Rule 12AA which reads as under:- "Rule 12AA. Power to impose restrictions in certain types of cases.- Notwithstanding anything contained in \^^ \\\\ 8. these rules, where the Central Government, having regard to the extent of misuse of CENVAT credit, nature and type of such misuse and such other factors as may be relevant, is of the opinion that in order to prevent the misuse of the provisions of CENVAT credit is specified in these rules, it is necessary in the public interest to provide for certain measures including restrictions on a manufacturer, first stage and second stage dealer or an exporter, may by a notification in the official Gazette, specify nature of restrictions including restrictions on utilization of CENVAT credit and suspension of registration in case of a dealer and type of facilities to be withdrawn and procedure for issue of such order by an officer authorized by the Board.?? Rule 12CC of the Rules, 2002 grants power to the Central Government to issue a notification whereunder specific restrictions may be placed on the specified category of persons having regard to the extent of evasion of duty, nature and type of offence or such other factors as may be relevant in order to prevent such evasion, default in payment of excise duty etc. Rule 12 AA of the Rules, 2004 grants power to the Central Government to issue a notification whereunder specific restrictions may be placed on the specified category of persons having regard to the extent of misuse of CENVAT credit, nature of such misuse and such other factors as may be relevant in order to prevent the misuse of the provisions of CENVAT credit including restrictions on utilization of CENVAT credit and suspension of registration in case of a dealer and type of facilities to be withdrawn and procedure for issue of such order by an officer authorized by the Board. The Central Government in exercise of powers conferred on it vide Rule 12 AA of the Rules, 20.04 and Rule 12CC of the Rules, 2002 issued a notification providing for a ;^^—-^, -' ^P^h m: '^' 7\\^ ^A,. ^ .J "^^y_^/ '—.wat^.i / summary scheme which is to act as a deterrent against the tax evaders by withdrawal of facilities from such persons . 10. Vide Section 68 ofthe Finance Act, 2010, Section 37(2) of the Central Excise Act, 1944 was amended and Clause (xiiia) was added which reads thus:- "(xiiia) provide for withdrawal of facilities or imposition of restrictions (including restrictions on utilization of CENVAT credit) on manufacturer or exporter or suspension of registration of dealer, for dealing with evasion of duty or misuse of CENVAT credit.?? 11. The Commissioner, Central Excise, Raipur / respondent No 3 issued show cause notice dated 29-1-2010 bearing No. C.No.IV(6)INV/CA-12/2007/p/614 UNDER Section 11A of the Central Excise Act, 1944 demanding excise duty of Rs. 6,88,53,024/- (including education cess of Rs. 13,42,108/- and Secondary and Higher Education Cess of Rs. 4,05,492/-) having found the petitioner to have indulged in clandestine manufacture and removal of 23,659.000 MT of M.S. Ingots of the value of Rs. 46,72,21,041/- during the period 2005-06 to 2009-10 (upto Sept. 2009)( Annexure P-4). The petitioner had already filed its reply and the matter is pending adjudication before the respondent No.3 and the same is not subject matter of challenge in the instant petition. 12. On 22-2-2010, the office of Chief Commissioner, Customs and Central Excise, Bhopal issued a show cause notice to the petitioner in terms of Para 4 of Notification No. 32/2006 CE(NT) dated 30-12-2006 read with Rule 12CC of the Central Excise Rules, 2002 which reads as under:- "Please refer to the Show Cause Notice F.No. IV(6)Inv/12/CA/2007/P/614-21 dated 29-1-2010 issued by the Commissioner, Customs and Central Excise, Raipur alleging suppression of pr- "^x •fc^.. '""^. €'rll 'i;l -/ 8 production of MS Ingots and clandestine removal thereof. 2. A proposal has been received from the Commissioner, Central Excise, Raipur for initiating deterrent action against you in terms of Notification No. 32/2006-CE(NT) dated 30-12- 2006 issued under Rule 12CC of the Central Excise Rules, 2002. 3. Therefore, as provided in para 4(2) of Notification No. 32/2006-CE(NT) dated 30-12-2006 issued under Rule 12 CC of the Central Excise Rules, 2002 you are hereby afforded an opportunity to represent against the proposed action in person or through authorized representative before the Chief Commissioner, Customs and Central Excise, Bhopal on 05-03-2010 at 11.00 hrs. at the office of the Chief Commissioner of Central Excise and Customs, 48, Administrative Area, Arera Hills, Hoshangabad Road, Bhopal; 462 011 (MP). 4. If no representation / submission is made by you or you do not appear before the Chief Commissioner on the stipulated date and time, the issue will be decided on the basis of evidences available on records without affording any further opportunity.?? 13. The petitioner has assailed the issuance of show cause notice (Annexure P-3) inter alia on following grounds:- i. The Central Government under Section 37 of the Act never had power to make rules like Rule 12CC of Rules, 2002 and Rule 12 AA of the Rules, 2004 on 30-12-2006. The above power was only vested with the Central Government vide Section 68 of the Finance Act, 2010 when Section 37(2) of the Act was amended and Clause (xiiia) was inserted. \^ "^. \ .../ Therefore, on the day of framing of Rule 12CC of the Rules, 2002 and Rule 12AA of Rules, 2004 and issuing Notification under Section 37 bearing no. 32/2006-CE(NT) dated 30-12-2006, the Central Government was not vested with the power by the Legislature to frame such rules and issue the impugned Notification. Hence the same was without authority of law, illegal, ultra virus and liable to be struck down. ii. Under Section 37(1), Central Government can frame rules to carry into effect the purposes of the Act and make certain rules specified under clauses of sub-section (2) of Section 37. Under sub-section (2), the Central Government is not empowered to make rules like Rule 12CC/Rule 12AA. In exercise of power under Section 37(1), Central Government can not frame rules infringing rights of the assessee enjoyed by them under Rule 8(1) of the Rules, 2002 and under Rule 3(4) of the Rules, 2004 which are in the nature of penalty and punishment and which has impact of permanent nature making the entire operations of the assessee unviable on account of shortfall in working capital due to forfeiture of the facility of Cenvat Credit for specified period and thereby casting burden of increased interest on additional working capital required to meet the shortfall. If the assessee does not succeed in arranging additional working capital, his entire operations would halt for the specified period effecting livelihood of hundred of workers and also adversely effecting the exchequer and stake holder. The Cenvat Credit earned by the assessee is nothing but cash and therefore, working capital of the firm the utilization of which is sought to be restricted by the impugned notification making the \^ 10 entire operation unviable and infringing rights of the petitioner. iii. The delegation of power under Section (1) of Section 37 of the Act is general delegation without any guidelines. By virtue of such general delegation, rule making power cannot be exercised to affect the vested/substantive/accrued rights create disabilities, create disqualifications, create obligations, levy penalties and inflict punishments. iv. Even if for the sake of arguments it is accepted without prejudice to contentions taken above that the said rule 12CC of the Rules, 2004 and Rule 12AA of the Rules, 2002 and the impugned Notification No. 32/2006-CE(NT) are framed/ issued validly in exercise of powers conferred under Section 37(1) which provides general power for carrying into effect the purpose of the Act, even then the said provisions is liable to be struck down and declared to be ultra vires inasmuch as it is contrary to the legislative policy and scheme of the Act. Further, wide, vague and unbridled delegation under Section 37(1) is unconstitutional inasmuch as it suffers from vice of excessive delegation of legislative powers inasmuch as the legislature has surrendered and abdicated its essential functions in favour of the Central Government for the said rules/ notifications provides for inflicting punishment and penalty upon the assessee which constitutes essential functions of the legislature and cannot be delegated to the Central Government. v. The impugned notice dated 22-2-2010 (Annexure P-3) is not at all a notice contemplated under paragraph 4(2) of the Notification No. 32/2006- A^ 11•\^ CE(NT) inasmuch as it does not disclose the grounds proposed to be taken under the above notification and hence contrary to the prescribed procedure and is against the principle of natural justice and is liable to be quashed. 14. On the other hand, learned counsel appearing for the Revenue would contend that the petitioner was found to have indulged in clandestine manufacture and removal of huge quantity of M.S. ingots. Show cause notice dated 29-1-2010 was issued to the petitioner under Section 11- A of the Act demanding excise duty of Rs. 6,88,53,024/- (Annexure P-4). The Commissioner, Central Excise, Raipur was not satisfied with the reply of the petitioner hence he forwarded a proposal to the petitioner invoking Notification No. 32/2006-CE(NT) dated 30-12-2006 (Annexure P-1). Consequently, a notice dated 22-2-2010 (Annexure P-3) was issued from the office of the Chief Commissioner to show cause. The representation by the petitioner is still awaited. The petition is premature and is preferred before any restriction order is passed by the Board under clause 4(3) of the Notification No. 32/2006- CE(NT) dated 30-12-2006 read with Clause (2) of the Notification No. 1/2007-CE(NT) dated 19-1-2007. The petitioner is strenuously evading purging themselves of the charge of tax evader. The notification Annexure P-1 is meant and used only against tax evaders. The power under sub-section (2) of Section 37 of the Act is illustrative and not exhaustive and is without prejudice to generality of power conferred in the Central Government under sub-section(l) of Section 37 of the Act which are for carrying out the purposes of the Act and the impugned Rules / Notification were framed in exercise of general power under Sub-section (1) of Section 37 are perfectly valid. 15. We have heard learned counsel for the parties 9.! length. &;'? 1 .%" 1 ^' ^'^ ^ ^&J./ "<a^^^ 12 16. Section 37(1) of the Act gives wide powers to the Central Government to make rules to carry into effect the purposes of the Act. Facility/right of making monthly payment of excise duty and availing Cenvat credit accumulations is itself given under the rules framed in exercise of powers conferred under Section 37 of the Act. In order to avoid misuse of above facility, Rulel2 CC/ 12 AA and impugned Notification Annexure P-1 was issued which cannot be said to be ultra vires of the Act. 17. While Section 37(1) confers general power on the Central Government to make rules to carry out the purposes of the Act, sub-section 2 specifies particular matters in respect ofwhich rules may be made. The power conferred under sub-section (2) is not exhaustive instead it is illustrative and it does not restrict or affect the general power ofthe Central Government under sub-section (1) to make rules for carrying out the purposes of the Act. Various provisions of the Act and the Rules made thereunder were essentially connected with the levying and collection of excise duty. Financial hardship is not a valid defence against a tax imposed by the Legislature in exercise of its legislative power. The Supreme Court in the case of Federation ofHotel & Restaurant Association oflndia^ etc. -v- Union oflndia and others reported in (1989) 3 SCC 634 in pa.ro. 37 has held that "It is trite that the true nature and character of the legislation must be determined with reference to a question of the power of the legislature. The consequences and effects of the legislation are nof the same thing as the legislative subject matter. It is the true nature and character of the legislation and not its ultimate economic results that matters.?? 18. Under Section 37(1) of the Act, the Legislature has conferred wide powers on the Central Government to make rules embracing all the legitimate activities connected with the levying and collection of excise duty. \\^ ,,,^^ ^s^,, •y^.t •^ 13 't^ ,^'y ^^ ^^^^•v-' ^s The real source of power is the general provision; enumerated specific heads are only illustrative and do not confer any additional power. If a rule is justified under the general rule making power then it is valid even ifit does not fall within a specified head. 19. The Supreme Court in the case of Minerua Talkies, Bangalore v. State of Karnataka, reported in 1988 Supp SCC 176 and in case of K. Ramanathan v. State of Tamilnadu and another reported in (1985) 2 SCC 116 has, in substance, held that in case rule making powers conferred on the Government by the Legislature for carrying out the purposes of the Act under Sub- section (1) of the provision then sub-section (2) which specifies particular matters in respect of which the rules may be made is not exhaustive instead it is illustrative and it does not restrict or affect the general power of the Government conferred on it under sub-section (1) to make rules for carrying out the purposes of the Act. 20. The Supreme Court in the case of Minerva Talkies, Bangalore v. State of Karnataka,(suprsi) has held as under:- 7. Section 19 of the Act confers power on the State Government to frame rules for carrying out the purposes of the Act. Sub-section (2) of Section 19 requires the State Government to frame rules in resp6ct of the matters specified in clauses (a) to (h). While Section 19(1) confers general power on the State Government to make rules to carry out the purposes of the Act, sub-section (2) specifies particular matters in respect of which rules may be made. The power conferred under sub-section (2) is not exhaustive instead it is illustrative and it does not restrict or affect the general power of the State Government under sub-section (1)