Section 38a does not validate sec. 3a of Excise Act
The appellants are an assessee under Central Excise Act, 1944
and were liable to discharge duty under the provisions of section 3A of the Act,
based on annual capacity of the furnaces so utilised.
The provisions of determination of annual capacity are
governed by Rule 96ZO of the Central Excise rules, 1944. The annual capacity was
fixed by the proper officer which was subsequently disputed by the appellants.
The appellants in the case of Mitra Steel & Alloys Pvt Ltd. vs. Cce,
before the Hon’ble Tribunal, among other things have challenged the initiation
and continuation of proceedings under the provisions of Rule 96ZO(3) since the
section 3A & Rule 96ZO have been omitted. The provisions of section 3A were
omitted vide section 121 of the Finance Act, 2001 w.e.f. 11th May, 2001.
The Hon’ble Tribunal has held that consequent to the omission
of the aforesaid section and the Rules no demand can be upheld and no order or
show cause notice issued thereunder can be proceeded to be adjudicated.
The decision of the Hon’ble Tribunal was rendered on the
following grounds as stated hereunder –
– If any Act has expired or is repealed, it is regarded, in
absence of any provision to the contrary, as having never existed, except as
to matters and transactions past and closed. A savings clause is therefore
required to be enacted to allow the continuation of proceedings already
commenced prior to the repeal of the Act or to allow the initiation of
proceedings in respect of the acts and transactions done during the period the
Act was in force.
– Section 3A of the Central Excise Act, 1944 has been
omitted vide section 121 of the Finance Act , 2001 , w.e.f. 11th May, 2001. No
saving clause has been provided either in section 121 or in any other section
of the Finance Act, 2001.
The department argued that the proceedings can be continued
in view of the provisions of section 6 of the General Clauses Act and section
38A of the Central Excise Act.
Section 6 of the General Clauses Act reads as under –
Where any rule, notification or order made or issued under
this Act or any notification or order issued under such rule, is amended,
repeated, superseded or rescinded, then, unless a different intention appears,
such amendment, repeal, supersession or rescinding shall not –
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revive anything not in force or existing at the time at
which the amendment, repeal, supersession, or rescinding takes effect; or
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affect the previous operation of any rule, notification or
order so amended, repealed, superseded or rescinded or anything duly done or
suffered, thereunder; or
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affect any right, privilege, obligation or liability
acquired, accrued or incurred under any rule, notification or order so
amended, repealed, superseded or rescinded; or
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affect any penalty, forfeiture or punishment incurred in
respect of any offence committed under in violation of any rule, notification
or order so amended, repealed, superseded or rescinded; or
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affect any investigation, legal proceeding or remedy in
respect of any such right, privilege, obligation, liability, penalty or
forfeiture or punishment as aforesaid;
and any such investigation, legal proceeding or remedy may be
instituted, committed or enforced and any such penalty, forfeiture or punishment
may be imposed as if the rule, notification or order, as the case may be, had
not been amended, repealed, superseded or rescinded.
It was held that the provisions of section 38A of the Central
Excise Act, 1944 will also not apply to the present case since it deals only
with "rules", "notification" or "order" and it does not deal with "section".
Hence in absence of any saving clause in section 121 or any
other section of the Finance Act, 2001 or in the Central Excise Act, 1944 , the
pending proceedings cannot be continued. All show cause notice issued under
section 3A which are pending for assessment after 11-5-2001 i.e., the date of
omission could not be therefore be proceeded with much less adjudicated.
The Hon’ble Tribunal further noted that the rules to
determine the annual capacity were framed by the Central Government, in exercise
of powers conferred by section 3A(2) of the Central Excise Act, 1944, vide
Notification No. 24/97 – CE ( NT) dated
25-7-1997 titled Induction Furnace Annual Capacity Determination Rules, 1997.
The Notification No. 16/200 – CE(NT) dated
1-3-2000 rescinded Notification No. 24/97-CE(NT) dt 25-7-1997. Also vide
Notification No. 6/2001 –CE(NT) dated 1-3-2001, the Central Government made the
Central Excise (Third Amendment) Rules, 2001. Rule 7 of these Rules, inter
alia, omitted Rule 96ZO.
In other words, the rules to determine the annual capacity
and Rule 96ZO were abrogated even before section 3A was ‘omitted’.
Even though the rules were abrogated prior to the omission of
the section the same is not material to reach to a different conclusion. This is
so since continuation of the said rules would have been curtailed by the
omission of section 3A w.e.f. 11th May, 2001. The rules were formulated in
exercise of the powers conferred by the section. Thus when the section itself
has been omitted any subordinate legislation enacted pursuant to such section
will also be omitted.
The above view is fully supported by the decision of Supreme
Court in Air India vs. UOI – 1995 (4) SCC) 734, wherein the Supreme Court
held that once a parent statute is repealed, the sub-ordinate legislation no
longer survives. The Supreme Court held
that –
"if sub-ordinate legislation is to survive the repeal of its
parent statute, the repealing statute must say in so many words and by
mentioning the title of the sub-ordinate legislation".
In the present case, since the repealing Act; i.e., Finance
Act, 2001 did not contain any specific provision saving the sub-ordinate
legislation i.e., rule 96ZO which in any case was omitted with effect from
1-3-2001. The in-built saving clause, in Notification No. 6/2001 –CE(NT) dated
1-3-2001 cannot come to the rescue of the Revenue since the mother provision;
i.e., section 3A was omitted and not in force. The Supreme Court has
specifically held that the sub-ordinate legislation cannot survive beyond the
life of the mother provision. The position would be no better where the
sub-ordinate legislation is omitted prior to the mother provision with a saving
clause. Rule 96ZO therefore will not survive beyond 11-5-2001, the date of
omission by section 3A.
Hence the appeal of the assessee was allowed.
Meaning of removal of goods
The excise duty is leviable on manufacture of excisable
goods. The occasion for levy of tax is the manufacture of goods. The payment of
tax is shifted to a later date i.e., when the goods are removed from the
factory.
In the case of M/s Indorama Synthetics (I) Ltd. vs. Cce
the appellant transferred the entire factory along with the capital goods,
inputs and finished goods lying within the factory premises to another company
in a scheme of demerger approved by the High Court. The department raised the
demand due to change in ownership of the factory premises. The demand was raised
on the cenvat Ccredit in respect of capital goods and inputs lying as such and
inputs (raw materials) contained in finished products lying as such and
transferred to the demerged company.
The facts of the case are that the appellant transferred the
spurn yarn business to demerged company. The appellants transferred portion of
its spurn yarn manufacture to demerged company by segregating its factory. The
appellant erected a boundary wall in between and made separate different
gates/entrances for the two factories. The demerged company applied for separate
central excise registration and the raw materials for the spurn yarn and the
finished goods lying was also transferred but not removed.
The appellant argued that the provision of Rule 3(4) of
Cenvat Credit Rules does not apply and cited the decision of Metazeller
Automotive Profiles India (P) Ltd 2004 (167) ELT 208 in support wherein it was
held that "ownership of factory changed but capital goods and inputs not
removed from factory-Held Rules 9, 49 and explanation to Rule 57AB of erstwhile
C.EX Rules 1944 not applicable as there was no removal of goods, and no duty was
required to be paid. Disallowance of Modvat credit set aside"
The appellant further submitted that when spurn yarn
(finished goods) business was transferred by the appellants, the inputs and
capital goods on which Cenvat Credit was taken, and the finished products lying
in stock were sold to the demerged company and there was no removal of goods.
Thus the inputs and capital goods remained & were retained in the same place
where they were installed and/or stored prior to the transfer of business and
the provisions of Rule 3(4) of Cenvat Credit Rules would not apply to the
present case. The finished products lying in factory were not physically
removed; i.e., physically shifted and therefore there is no liability to pay
duty on such finished goods and inputs capital goods. The finished goods were
cleared by the demerged company by paying duty when they were physically removed
from the factory premises.
The demand of duty on the goods can be raised only at the
time of removal and not before the goods were removed from the factory as held
in the following decisions –
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BPL Electronics Ltd vs. CCE 1944 (71) ELT 801
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Jamna Auto Inds Ltd. & Anr. vs. CCE indore 2000 (41)
RLT 826
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Metzeler Automotive Profile India P Ltd. vs. CCE 2004
(167 ELT 208
Taking note of the submissions of the appellant, the Hon’ble
Tribunal observed that there was no physical shifting of capital goods, finished
products and inputs lying in the appellants factory. The facts in the present
case are similar as was in the case of Jamna Auto Industries. The provisions of
Rule 57F (2), which was under consideration in Jamna Auto’s case, is similar to
Rule 3(4) of
Cenvat Credit Rules on inputs and capital goods.
Thus the Hon’ble Tribunal held that mere change in ownership
and possession of goods cannot be construed to mean physical ‘Removal’ of goods.
Hence the demand of duty was found to be unsustainable.
