Delhi High Court Upholds Validity Of Rule 8 of Chewing Tobacco And Unmanufactured Tobacco Packing Machines Rules 2010

The Delhi High Court has upheld the validity of Rule 8 of the Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules 2010 (CTUT), which deals with the alteration in the number of operating packing machines.

The bench of Justice Yashwant Varma and Justice Dharmesh Sharma has observed that Rule 8 notes that in case a machine is added to the production capabilities existing in a factory, the number of operating packing machines for the month shall be deemed to be the maximum number of packing machines installed and existing on any day during that month. The fact that a particular packing machine is operated only for a few days during the month does not result in the duty liability being proportionately reduced or enhanced.

The petitioner/assessee is a manufacturer of flavoured chewing tobacco sold in pouches. The retail pouches manufactured by it are chargeable to Central Excise Duty under Subheading 2403 99 10. The dispute in the present matter pertains to the months of June 2012, July 2012, and February 2013. The assessee was discharging its duty liability on chewing tobacco pouches carrying different retail sale prices in accordance with the provisions of the CTUT Rules 2010.

Section 3A(2)(a) enables the Union Government to frame rules providing for the manner of determination of the annual capacity of production of a factory in which notified goods are produced and further postulates that the capacity as determined in accordance with those rules shall be deemed to be the annual production of goods by such a factory. The rules that may be framed by the Union Government are also envisaged to provide for the factor on the basis of which the annual capacity of production would be determined. The Second Proviso to Section 3A(2)(b) further stipulates that where the factor relevant to assessing production is altered or modified at any time during the year, the annual production shall be re-determined on a proportionate basis having regard to such alteration or modification.

The assessee has sought a declaration to the effect that Rule 8 of the CTUT Rules 2010 be declared ultra vires to Section 3A of the Central Excise Act, 1944, and additionally violative of Article 14 of the Constitution.

The petitioner submitted that the challenge to Rule 8 would assume significance only if the Court were to not accede to the interpretation that is advocated for consideration and acceptance by the petitioner insofar as the provisions of the CTUT Rules 2010 were concerned.

The principal question raised was in respect of the duty liability to be borne by the petitioner for the months of June 2012, July 2012, and February 2013, when certain new packing machines were added to the production line and were worked for a couple of days during the entire month.

The assessee contended that additional duty is liable to be levied on a proportionate basis and in conjunction with the days when the additional packing machines have actually been operated.

The assessee assailed the stand of the respondents that, in terms of the CTUT Rules 2010, duty liability is to be ascertained and calculated based on the maximum numbers of packing machines that may have operated during any day of a particular month.

The department contended that Rule 8 in unequivocal terms prescribes that the moment a packing machine is added to the production facility during the month, The number of operating packing machines would have to be calculated accordingly and recognised as representing the maximum number of packing machines installed for the month.

The court held that the challenge to Rule 8 must also fail when tested on the anvil of the Second Proviso to Section 3A(2)(b). It becomes pertinent to note that the Second Proviso deals with a contingency where the "factor relevant" is altered or modified at any time during the year. It is in such a situation alone that the annual production is liable to be re-determined on a proportionate basis. However, and as is evident from the recital of facts in the preceding parts of this decision, the "factor relevant" as prescribed by Rule 4 remained unaltered. The quantification of duty liable to be paid by a manufacturer remained constant during the period in question and hinged upon the number of packing machines in the factory of the manufacturer.

"We find ourselves unable to hold Rule 8 as being ultra vires Section 3A," the court said.

Case Title: Gopal Corporates LLP Versus Commissioner Delhi-East

Citation: 2023 LiveLaw (Del) 807

Case No.: CEAC 5/2019

Date: 06/09/2023

Counsel For Petitioner: Vivek Kohli

Counsel For Respondent: Ajit Kalia

Click Here To Read The Order