Paragraph numbers below are the court’s original numbering, recovered from the source text.
37. Section 3A of THE ACT authorises the Government to make rules for determining the ACP of the manufacturers. It further declares c (2017] 2 S.C.R. that theACP so deiermined "shall be deemed to be the annnal production of such goods by such factory". In other words, sub-section (2) commands that a factory whose ACP is determined in accordanct> with the rules made thereunder must be believed to produce the same quantum of goods equal to the ACP for every succeeding year. The question is – whether such a declaration creates a legal fiction or only a presumption (rule of evidence)?
38. We have already noticed that by definition a "fiction always conflicts with the reality whereas presumption may be proved to be true''. It therefore follows that there is no possibility of a fiction being rebutted by evidence. The belief flowing from Section 3A(2) regarding the annual production ofa manufacturer could be rebutted by adducing evidence. Section 3 A( 4) provides for such rebuttal. Therefore, in our opinion, Section 3A(2) embodies only a rule of evidence (presumption) but does not create a legal fiction. The language employed by the draftsman is likely to mislead to a conclusion that a fiction is created. But on a true and proper construction of the entire Section 3A the only possible conclusion is that Section 3A(2) embodies only a presumption (rule of evidence).
39. Under the Scheme of the RULES OF 1997, the first four rules stipulated the procedure for determining the ACP of the manufacturers of the class to which the appellants belong, by adcpting the third of the abovementioned three procedures (mentioned in para 36 supra). The lawmaker was conscious of the fact that the actual quantum of goods that can be manufactured in a factory does not solely depend on the ACP of the factory. It depends upon a number of other variable factors too. For example, though the machinery employed by a manufacturer has the technical capacity to produce a certain quantum (maximum production) of goods, in a given interval of tim~. the manufacturer may not always achieve the maximum production because of the non-availability ofeithertlte requisite energy to operate the factory or finance or raw-material etc. The first four rules of the RULE OF 1997 create a scheme of evidence by which a presumption (based on the technical specification of the manufacturers' machinery) of the possibility of a certain quantum of production is to be made. However, the lawmaker visualized that in certain cases such a process may lead to a conclusion that the ACP of a manufacturer is less than the actual prod~ction that was achieved by employing the same machinery at an MIS. BHUWALKA STEEL INDUSTRIES LTD. v. UNION OF INDIA [CHELAMESWAR, J.] earlier point of time- a conclusion inconsistent with the established factual data. Therefore, it is stipulated under Rule 5 that in such circumstances the ACP of the factory must be "deemed to be" equivalent to the actual production achieved in the financial year prior to the coming into force the RULES OF 1997. Rule 5 recognises the possibility of an error in arriving at the ACP by applying the formula contained in Rule 3. Because the formula itself is based on ce1tain assumptions. Therefore, Rule 5 provides that the determination of the ACP made in accordance vvith the procedµre contained in Rule 3 is liable for correction in some cases, in the circumstances indicated therein.
40. But the benefit of Section 3A(4) i.e. the right to rebut the presumption regarding the annual production is denied to a sub-class of manufacturers falling under Rule 96ZP(3)) who are also a part ofa larger class falling under the Scheme of Rule 96ZP of the Central Excise Rules, 1944.
41. But forthe declaration of sub-rule (3) of Rule 96ZP, an assessee whose ACP is determined in accordance with the Rule 3 of the RULES of 1997 would be entitled under sub-section (4) of Section 3A of THE ACT, to seek the determination of his actual production an<! the tax liability thereon.
42. The determination of the ACP is a one time affair. It appears from the factors indicated in the Rule 3 that the ACP would remain unaltered so long as there is no change in the machinery employed and the 'number ofutilized hours" of the machinery remains constant. But the "number of utilized hours" could vary from time to time depending upon various factors, such as, the availability of electric powec, capital or labour etc. Such variations could result in a situation that the actual production of the factory for any given interval of time is less than the ACP. Therefore, it is declared under Section 3A(4) that an assessee is entitled to seek determination of the actual production of his facto1y if it is less than the ACP. c
43. Jn our opinion, such an opportunity provided under Section 3A(4) is a recurring opportunity available to the assessee from time to time. We reach this conclusion in view of the language of sub-section (4) more particularly "the Commissioner of Central Excise shall … determine the amount of duty payable by the assessee with reference to such actual production at the rate specified under Section 3". c (2017] 2 S.C.R. Obviously, the detennination ofamount of duty payable by the assessee is not a one time affair. Such a determination is to be made periodically. Therefore, the opportunity of placing evidence for the establishment of actual production for a period relevant for the assessment must be available to the assessee from time to time.
44. Whether such a statutory right is in any way curtailed by Rule 96ZP{3) of the Rules of 1944 is required to be examined. Rule 96ZP{3) is relevant in the context of the assessment of duty for those assessees who choose to opt for the payment of the excise duty on a monthly basis. The duty payable by such assessees would be Rs.300 x ACP in metric tonnes. Rule 96ZP(3) stipulates that an assessee seeking to avail the scheme (concessional rate of duty) under Rule 96ZP(3) is required to make application in the prescribed format. The Rule is silent about the point of time at which such an application is required to be made. But sub-rule (3) stipulates the time within which the duty is required to be paid, i.e., in the "beginning of each month" and "latest by the tenth of each month".
45. Whether an assessee who chooses once to pay duty in terms of Rule 96ZP(3) can be compelled to pay duty calculated in accordance with the said rule for all times to come without any regard to the actual production? is a question which requires examination.
46. It is possible that in a given case an assessee choosing at a given point of time to make payment of duty on monthly basis calculated in terms of sub-rule (3) but a few months later (for that matter even a month later), for various legitimate reasons, production may fall considerably below the ACP (of the assessees factory). lt is possible, in some cases there can be total cessation of the manufacturing activity for reasons beyond the control of the assessee. lfthe option exercised by an assessee under Rule 96ZP(3) is held to be good for eterriity it would not only lead to illogical consequences but also to an unconstitutional collection of taxes without there being a taxable event. We do not see anything in Rule which prevents the assessee from opting out of the Scheme of Rule 96ZP(3).
47. After availing the scheme for a month by paying the duty in advance, if the assessee ends up in a situation ofnot being able to produce the quantum of goods equivalent to 1/12 of his ACP, we see no reason which compels the assessee to continue the availment of concessional rate of duty (for the next month) on a quantum of production which he is MIS. BHUWALKA STEEL INDUSTRIES LTD. v. UNION OF INDIA [CHELAMESWAR, J.] unable to achieve. In our opinion the assessee must have an option to make the payment of duty in accordance with Rule 96ZP( 1) at a higher rate but on the actual productiou. For those assessees who chose to pay the duty at higher rate in accordance with sub-rule ( 1) the benefit of section 3A(4) is available. The rule does not bar it. However the question remains how frequently the assessee is entitled to exercise such an option; whether it is. annual or monthly is a matter which requires a further examination.
48. It is argued by the learned counsel for the respondent in view of the two judgments of this Court reported in Commissioner of Central Excise & Customs v. Venus Castings (P) Ltd., (2000) 4 SCC 206, Union of Jmlia & Others v. Supreme Steels mid General Mills & Other~; (2001) 9 SCC 645, the question regarding the vires of sub-rule (3) of R,l11e 96ZP of the Central Excise Rule~. 1944 is no more res- integra. It is also submitted by the respondent that this Court has already declared that the assessee who makes a choice once to avail the scheme under sub-rule (3) cannot go back on his choice".
49. In both the abovementioned cases, this Court wa~ dealing with Rule 96Z0(3) of the Central Excise Rules, 1944. Neither the vires of Rule 96ZP(3) nor its interpretation actually fell for consideration of this Court in either of the abovementioned cases. However, in Venus Castings, at para 9, a reference was made to Rule 96ZP and this Court observed that "Rules 96ZO and 96ZP provide for procedure to be followed by the manufacturer of ingots and billets and hot re-rolled products respectively. The scheme envisaged under t_hese provisions is identical".
50. With utmost respect to the learned Judges, we find it difficult to accept the finding that the scheme of both the Rules is identical. There are broad similarities between the Rules but they are not identical and we shall point out and deal with the difference later. " Union of India & Others v. Supreme Steels and General Mills & Others. (200 l) 9 SCC645, "Para 3 … The manufacturer cannot opt twice during one fin·ancial year first choosing to pay in accordance \\'ith sub-rule 3 of Rule 96ZO and thereafter to switch over to actual production basis under Section 3A(4) of the Act, in case it is less than the duty payable under sub-rule 3 of Rule 96ZO. The said sub rule is quite clear that the option under it is available subject to the condition that once having opted for it, benefit if any under .sub-s. (4) of Section 3A of the Central Excise Ac~ l 944 shall not be available …. " '–1-· -===– c c
51. In Venus Castings, this Court held that both the abovementioned Rules contain scheme of"two alternative procedures to be adopted at the option of the assessee" and concluded that "the manufacturers, if they have availed the procedure under Rule 96ZO(J) at their option, cannot claim the benefit of determination of prod uctioo capacity under Section JA(4) of the Act which is specifically excluded". "11 …. What can be seen is that the charge under the Section is clearly on production of the goods but the measure of tax is dependent on either actual production of goods or on some other basis. The incidence of tax is, therefore, on the production of goods. It cannot be said that collection of tax based on the annual furnace capacity is not relatable to the production of goods and does not carry the purpose of the Act. In holding whether a relevant rule to be ultra vires it becomes necessary to take into consideration the purpose of the enactment as a whole, starting from the preamble to the last provision thereto. If the entire enactment is read as a whole indicates the purpose and that purpose is carried out by the rules, the same cannot be stated to be ultra vires of the provisions of the enactment. Therefore, it is made clear that the manufacturers, if they have availed of the procedure under Rule 96Z0(3) at their OJ>tion, cannot claim the benefit of determination of Jlroduction caJlacity under Section 3A(4) of the Act which is SJ>ecifically excluded." Two things are required to be noticed from the above. This Court made references to Rule 96ZP in the earlier paragraphs of the judgment but when it came to the conclusion, it only dealt with Rule 96ZO(J) but not Rule 96ZP(J). Secondly, Section JA(4) of THE ACT does not deal. with the determination of the production capacity of the factory. It only deals with the right of the assessee to establish that notwithstanding the determination of the ACP, the actual Jlroduction achieved is less than theACP determined. The Court concluded "that ifthe entire enactment is read as a whole indicates the purpose and that purpose is carried out by the Rules, the same cannot be stated to be ultra vi res of the provisions of the enactment."
52. With respect, we are of the opinion that such a statem,,nt of law has no basis either in precedent or on any settled principles of interpretation of statutes. On the other hand, it is in conflict with r. long MIS. BHUWALKA STEEL INDUSTRIES LTD. v. UNION OF INDIA [CHELAMESWAR, J.] settled line of authorities that subordinate legislation which is in conflict with the parent enactment is unsustainable 16•
53. The decisiOn in Supreme Steels was rendered by a Bench of three learned Judges. The vires of Rule 96ZO was directly in issue in Supreme Steels". This Court in Venus Cllstings noted18 that "in these proceedings the validity of the provisions of the Rule~ is not in challenge but only their interpretation and application have to be examined". However, the learned Judges in Supreme Siee/s opined that the controversy was finally settled by thejudginent of this Court in Vi!nus Cllstings.
54. Apart from the various problems noticed by us i~ the c abovementioned two judgments, there are marked differences in the language employed under Rule 96ZP(3) and the scheme appears to be different from the one adopted under the scheme of Rule 96Z0(3). ·
55. Rule 96ZO deals with levy, assessment and collection of excise duty on the manufacture of non-alloy steel ingots and billets. Duty on such goods is payable atthe rate ofRs.750/- per metric tonne. Sub-rule (3) prescribes levy and collection ofa lump sum ofRs.5 lakhs per month in cases of those manufacturers who have a total furnace capacity of three metric tonnes installed in their factories. However, such a scheme is available at the option of the assessee. In other words, a manufacturer has a choice to make a lump sum payment ofRs.5 lakhs, irrespective of his actual production for that month, in two instalments instead of paying· the duty at the rate ofRs.750/- per metric tonne of the actual production " Hukam Chand Etc. v. Union of India&. Others. AIR 1972 SC 2427 : ( 1972) 2 SCC 601, Para 8 … …. The underlying principle is that Unlik~ Sovereign Legislature which has power to enact laws with retrospective operation, authority vested with the _, power of making subordinate legislation has to act within the limits of its power and cannot transgress the same. The initial difference bet\\·een subordinate legislation and the statute laws ties in the fact that a subordinate law making body is bound by the terms of its delegated or derived authority and that court of law, as a general rule, "'·ill not give effect to the rule~ thus made. unless satisfied that all the conditions precedent to the validity of the rules have been fulfilled (see Craies on Statute Law, p. 297, Sixth Edition). · Also See: Godde Venkateswara Rao Y. Go,·emment of Andhra Pradesh & Others. AIR 1966 s~ 828, para 1 o 17 Vires of Rule 96ZO of the Central Excise Rules has also been challenged on the ground that it is inconsistent \vith the provisions of the Act. – Para I 11 In para 7 -;-<- of the manufacturer. Whether the capacity of three metric tonnes in the· said sub-rule is the capacity of the factory per day or per month or per annum is not very clear from the language of the Rule. The expression does not appear to be defined under the Rules. c
56. Coming tocRule 96ZP(3), it also provides an option to the assessee falling under the Rule to pay the duty at the concessional rate ofRs.300 per metric tonne contrary to the liability of the assessees who do not opt to' avail the procedure under sub-rule (3) to pay Rs.400 per metric tonne. But both the classes of assessees ar~ required to pay the total duty calculated on the ACP of the factory. While those who choose to pay the lower rate of tax under sub-rule (3) pay the tax every month and those who do not opt to avail the scheme under sub-rule (3) are required to pay tax long after duty actually falls due as indicated under sub-rule (l) and (2).
57. The only similarity between Rules 96Z0(3) and 96ZP(3) is that both the Rules seek to eliminate the benefit of the procedure under Section 3A(4) of THE ACT in cases of those assessees who choose to opt for levy and collection of excise duty in accordance with the sub- rules (3) which are exceptions to the general Rules oflevy and collection of duties provided under Rules 96ZO and 96ZP.
58. Therefore, we find it difficult to accept the submission of the respondent that the issue is covered by the judgments of this Court in Venus Castings and Supreme Steels. In our opinion, for the reasons mentioned above, these two judgments require a further examination. Apart from that, these judgments did not deal with vires of Rule 96ZP(3 ). However, in view of the fact that Supreme Steels is a decision rendered by a Bench of three learned Judges, we deem it appropriate that the question of law be settled by a Bench of an appropriate strength. We, therefore, direct the Registry to place the matter before Hon'ble the Chief Justice of India for further orders. Devika Gujral Matter referred to larger bench.