REPORTABLE IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 3400 OF 2003

COMMISSIONER OF CENTRAL  EXCISE, CHANDIGARH

— APPELLANT

VERSUS

M/S DOABA STEEL ROLLING MILLS — RESPONDENT

WITH

CIVIL APPEAL NOS.8342-8344 OF 2004,

CIVIL APPEAL NO.8345 OF 2004 &

CIVIL APPEAL NOS.4992-4993 OF 2011 (ARISING OUT OF S.L.P. (C) NOS.35323-35324 OF 2010)

J U D G M E N T

D.K. JAIN, J.:

1. Leave granted in SLP (C) Nos. 35323-35324 of 2010.

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2. This batch of appeals, by grant of leave, arises out of judgements and orders  

dated  17th October  2001 in  C.C.E.S.No.4  of  2001,  21st October,  2003 in  

C.E.C. 11, 12, 13 of 2003 and C.E.C. No.122 of 2003 passed by the High  

Court  of  Punjab  &  Haryana;  6th November  2009  in  Review  application  

No.29356 of 2008 and 8th July 2010 in C.E. Reference application No.113 of  

2000 both  passed  by  the  High Court  of  Judicature  at  Allahabad.  By the  

impugned  judgements,  in  the  main  reference  applications,  filed  by  the  

Commissioner of Central Excise, under Section 35H of the Central Excise  

Act,  1944  (for  short  “the  Act”),  the  questions  referred  by  the  Customs,  

Excise and Gold (Control) Appellate Tribunal, as it then existed, (for short  

“the Tribunal”) have been answered in favour of the assessee and the review  

applications preferred by the Commissioner against the said judgments have  

been dismissed.

3. Since all  the appeals  involve a common question of law, these are being  

disposed  of  by  this  common  judgment.   However,  to  appreciate  the  

controversy,  the  facts  emerging  from  C.A.No.3400  of  2003  are  being  

adverted to.  These are as follows :

4. Section  3A of  the  Act,  which  has  a  chequered  history  of  insertions  and  

omissions in the Act, was inserted in the Act for the second time by Act 26  

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of  1997,  with  effect  from 14th May,  1997,  the  provision relevant  for  the  

purpose of these appeals. The Section has again been omitted by Act 14 of  

2001, with effect from 11th May, 2001.  Section 3A of the Act enables the  

Central Government to charge Excise duty on goods on the basis of annual  

capacity of production of mills etc. in respect of the notified goods.   

The relevant part of the Section reads as follows:

“3A.  Power of Central Government to charge excise duty on the  basis of capacity of production in respect of notified goods.— (1)  Notwithstanding anything contained in section 3, where the Central  Government,  having  regard  to  the  nature  of  the  process  of  manufacture  or  production  of  excisable  goods  of  any  specified  description, the extent of evasion of duty in regard to such goods or  such  other  factors  as  may  be  relevant,  is  of  the  opinion  that  it  is  necessary to safeguard the interest of revenue, specify, by notification  in the Official Gazette, such goods as notified goods and there shall be  levied and collected duty of excise on such goods in accordance with  the provisions of this section.  

(2) Where a notification is issued under sub-section (1), the Central  Government may, by rules,—

(a) provide the manner for determination of the annual capacity of  production of the factory, in which such goods are produced, by  an  officer  not  below the  rank  of  Assistant  Commissioner  of  Central Excise and such annual capacity shall be deemed to be  the annual production of such goods by such factory; or

(b) (i) specify the factor relevant to the production of such goods  and the quantity that is deemed to be produced by use of a unit  of such factor; and  

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(ii)  provide  for  the  determination  of  the  annual  capacity  of  production of the factory in which such goods are produced on  the  basis  of  such factor  by an officer  not  below the rank of  Assistant  Commissioner  of  Central  Excise  and  such  annual  capacity  of  production  shall  be  deemed  to  be  the  annual  production of such goods by such factory:

Provided that where a factory producing notified goods is  in  operation  during  a  part  of  the  year  only,  the  annual  production thereof shall be calculated on proportionate basis of  the annual capacity of production:

Provided further that in a case where the factor relevant  to the 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. ……………………………………………………….………...”

5. It is clear from a bare reading of the Section that the reason which persuaded  

the  Legislature  to  introduce  this  provision  was  attributed  to  large  scale  

evasion of payment of Excise duty by certain sectors.  Thus, the insertion of  

the Section in the Act was with a view to safeguard the interest of revenue in  

the sectors, like induction furnaces, steel re-rolling mills etc., where evasion  

of Excise duty on goods produced in such mills was rampant.  The provision  

authorises  the  Central  Government  to  notify  certain  goods,  for  levy  and  

collection of duty of Excise on such goods, in accordance with the provision  

of the said Section, having regard to the extent of evasion of duty as also  

other relevant factors.  The scheme evolved under this provision, envisages  

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the determination of annual capacity  of production of such factory by an  

officer not below the rank of Assistant Commissioner of Central Excise in  

terms of the rules to be framed by the Central Government under sub-section  

(2)  of  Section 3A of the Act.   The annual  capacity  of  production of  the  

factory is deemed to be the annual production of such goods by such factory,  

on which an assessee is liable to pay duty.  The two provisos to sub-section  

(2) of Section 3A of the Act, provide for determination/re-determination of  

annual capacity of production in the event of operation of the factory during  

a part of the year or alteration or modification in any of the factors relevant  

to the production of the factory.

6. In  exercise  of  the  powers  conferred  by  Section  3A(2)  of  the  Act,  by  

Notification  No.  23/97-CE  (NT)  dated  25th July,  1997,  the  Central  

Government framed and notified Hot Re-rolling Steel Mills Annual Capacity  

Determination Rules, 1997 (for short “the 1997 Rules”), to be effective from  

1st August,  1997, for determination of annual capacity of production of a  

factory producing  re-rolled products as contained in the said notification.  

The Rules prescribed the formulae for determination of the annual capacity  

of production of a hot re-rolling mill, on the basis of the information to be  

furnished  by  the  mill  to  the  Commissioner  of  Central  Excise;  on  the  

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parameters  referred  to  in  Rule  3(3)  of  the  1997 Rules.  The  rate  and the  

manner of payment of Excise duty under Section 3A of the Act was also  

indicated in the notification. Subsequently, another Notification No.32/97-

CE (NT) was issued on 1st August,  1997 making the said Rules effective  

from the even date. For the sake of ready reference, Rules 3 and 4, in so far  

as they are relevant for these appeals, are extracted below:

“3. The annual capacity of production referred to in rule 2 shall be  determined in the following manner, namely:-

(1) a hot re-rolling mill shall declare the values of ‘d’ ‘n’ ‘I’ and  ‘speed of rolling’, the parameters referred to in sub-rule (3), to  the Commissioner of Central Excise (hereinafter referred to as  the Commissioner) with a copy to the Assistant Commissioner  of Central Excise:

(2) on receipt  of  the  information  referred to  in  sub-rule  (1),  the  Commissioner  shall  take  necessary  action  to  verify  their  correctness  and  ascertain  the  correct  value  of  each  of  the  parameters.  The Commissioner may, if so desires, consult any  technical authority for this purpose;

(3) the annual capacity of production of hot re-rolled products of  non-alloy steel in respect of such factory shall be deemed to be  as determined by applying the following formula :-

Annual Capacity  =1.885 x 10-4 x d x n x i  x e x w x Number of  utilised hours (in metric tonnes) Where :

d   = Nominal diameter of the finishing mill in millimetres

n   = Nominal revolutions per minute (RPM) of the drive

i    = Reduction ratio of the gear box

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w =Weight in Kilogramme per metre of the re-rolled     product.  

value of ‘e’ in the formula shall be deemed to be 0.30 in case of low  speed mills,  and 0.75 in case of high speed mills  the value of ‘w’  factor in the formula for the high speed mills shall be deemed to be  0.45 and for the low speed mills shall be deemed to be as under, -

………………………………………………………………………… …………………………………………………………………………

4. the Commissioner  of  Central  Excise  shall,  as  soon as  may be,  after  determining  the  total  capacity  of  the  hot  re-rolling  mill  installed in the factory as also the annual capacity of production,  by an order, intimate to the manufacturer.

Provided that the Commissioner may determine the annual capacity of  the hot re-rolling unit on provisional basis pending verification of the  declaration  furnished by the  hot  re-rolling mills  and pass  an order  accordingly.  Thereafter, the Commissioner may determine the annual  capacity, as soon as may be, and pass an order accordingly.

4 (1)   The capacity  of production for any part  of the year,  or  any  change in the total hot re-rolling mill capacity, shall be calculated pro  rata on the basis of the annual capacity of production determined in  the above manner stated in Rule 3.

(2) In case a manufacturer proposes to make any change in installed  machinery or  any part  thereof,  which tends to change the value of  either of the parameters ‘d’ ‘n’ ‘e’ ‘I’ and ‘speed of rolling’ referred to  in sub-rule (3) of sub-rule 3, such manufacturer shall intimate about  the  proposed  change  to  the  Commissioner  of  Central  Excise  in  writing, with a copy to Assistant Commissioner of Central Excise, at  least one month in advance of such proposed change, and shall obtain  the written approval of the Commissioner before making such change.  Thereafter  the Commissioner  of Central  Excise  shall  determine the  date from which the change in the installed capacity shall be deemed  to be effective.”

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7. However, by Notification No. 45/97-CE (NT) dated 30th August, 1997, 1997  

Rules were amended with effect from 1st September, 1997.  By reason of the  

said  amendment,  apart  from substituting  a  fresh  sub-rule  (3)  of  Rule  3,  

prescribing a new formulae to determine the annual capacity of production,  

not very relevant for the purpose of the present appeals, Rule 5 was inserted  

after sub-rule (2) of Rule 4, which reads  as follows :  

“5. In case, the annual capacity determined by the formula in sub-rule  (3) of rule 3 in respect of a mill, is less than the actual production of  the mill during the financial year 1996-97, then the annual capacity so  determined shall be deemed to be equal to the actual production of the  mill during the financial year 1996-97.”

8. The respondent-assessee is engaged in the manufacture of hot re-rolled steel  

products  of  non-alloy  steel  in  a  hot  steel  rolling  mill,  classifiable  under  

Chapter 72 of the Central Excise Tariff Act, 1944, for the purpose of levy of  

Excise duty etc.  On 5th January, 1998 the Commissioner, Central Excise,  

Chandigarh determined the annual capacity of production of the respondent  

at 7683.753 MT, as per the formula laid down in sub-section (3) of Rule 3 of  

1997 Rules.   However,  keeping in view Rule 5,  the annual  capacity was  

finally fixed at 11961.135 MT on the basis of actual production of the mill  

during the financial year 1996-97.

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9. Vide  letter  dated  13th September,  1999,  the  respondent  requested  the  

Commissioner  for re-determination of annual  production capacity  of their  

unit in terms of Rule 4(2) of the 1997 Rules on the ground that they have  

changed some of the parameters of their  mill. The request was acceded to  

and vide  order  dated  27th January  2000,  the  Commissioner,  applying  the  

formula as laid down under Rule 3(3), determined the annual capacity of the  

mill at 7328.435 MT but relying on Rule 5, he again computed the annual  

capacity at 11961.135 MT, being equal to the actual production of the mill  

during the financial year 1996-97.

10. Aggrieved by the said order of the Commissioner, the respondent filed an  

appeal before the Tribunal. The Tribunal, vide order dated 6th April, 2000,  

allowed the appeal and held that  Rule 5 of the 1997 Rules cannot be applied  

in view of change in technical parameters of the rolling mill.

11. Dissatisfied with the said order, the Commissioner made an application to  

the High Court  under Section 35H of the Act,  seeking a direction to the  

Tribunal to refer the question of law, which according to him, arose from the  

order of the Tribunal. Vide order dated 17th October, 2001, the High Court  

rejected the reference petition holding that no question of law arose from the  

order of the Tribunal.  The High Court has held that the provisions of Rule 5  

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cannot be invoked in a case where the annual capacity of the mill is to be  

determined in terms of Rule 4(2) of the 1997 Rules on account of change in  

parameters, observing thus:

“It is the admitted position that the capacity for the year 1996-97 was  fixed on the basis of the parameters adopted by the respondent at the  relevant time.  Subsequently, the parameters were altered.  In view of  the change in parameters, it is admitted position that the capacity was  considerably reduced.  In fact, it has not been disputed that the annual  production had come down from 11961.135 Metric Tons to 7328.435  Metric  Tons.   This  having  happened,  the  Revenue  could  not  have  claimed excise duty for the capacity which was not in existence.  The  provisions  of  Rule  5  cannot  be  invoked  in  a  case  where  after  determination of the capacity for the year 1996-97, the Unit makes a  change in the capacity and the production actually comes down.  If  such a course were permitted, the result would be grossly unfair.”

Additionally, the High Court has also noted that a similar view had been taken  

by the Tribunal in the case of M/s Awadh Alloys (P) Ltd., since reported in  

1999  (112)  ELT 719  (Tri.),  against  the  revenue  but  despite  opportunity  no  

information was furnished whether the said decision had been challenged by the  

revenue or not.  We may however, note at this juncture itself that the finding of  

the High Court to the effect that on account of change in parameters, the annual  

production had come down from 11961.135 MT to 7328.435 MT is factually  

incorrect.  The actual annual production determined initially as per the formula  

laid down in Rule 3(3) had worked out to 7638.753 MT, which on change in  

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parameters now worked out at 7328.435 MT i.e. a difference approx. 300 MT  

only.

12.Hence,  the  Commissioner  has  preferred  the  present  appeals  against  the  

orders of the High Courts, noted in para 2 (supra).

13. Mr.  B.  Bhattacharya,  learned  Additional  Solicitor  General  of  India,  

appearing for the revenue, had strenuously urged that the view taken by the  

High Court to the effect that once the technical parameters, as stipulated in  

Rule 3(3) of the 1997 Rules, are altered in terms of Rule 4(2) of the said  

Rules, resulting in reduction in the production capacity, Rule 5 cannot be  

invoked,  is  clearly  fallacious.   According  to  the  learned counsel,  for  the  

purpose of Rule 4(2), the production capacity of the rolling mill has to be  

determined under the said Rule 3(3) as there is no other rule to take care of  

such  a  situation.   It  was  argued  that  when  the  production  capacity  of  a  

factory is to be determined under the said Rule, Rule 5 will automatically  

come  into  play.   Relying  on  the  clarification  issued  by  the  Board  vide  

Circular  dated  26th February  1998,  learned  counsel  argued  that  since  

reference to previous year’s production in Rule 5 of the 1997 Rules is to the  

actual production of the mill and does not relate to the technical parameters  

of  the  machinery,  the  actual  production  of  the  year  1996-97  would  be  

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relevant for determining the current year’s duty liability under Section 3A of  

the Act, even when parameters of the machinery are altered.  It was thus,  

asserted  that  since  re-determination of  capacity  of  production under  Rule  

4(2) has to be done by the formulae prescribed in the said Rule 3(3), the  

provisions of Rule 5 cannot be disregarded. Commending us to the decision  

of this Court in Commissioner of Customs, Bangalore Vs. ACER India (P)  

Ltd.1, learned counsel contended that the Rules relating to determination of  

capacity of production have to be strictly construed.

14. Per contra, learned counsel appearing for the respondents, led by Mr. Balbir  

Singh, submitted that when there is any change in the parameters of a rolling  

mill, which are different from the rolling mill in the financial year 1996-97,  

Rule 5 has no application.  Highlighting the fact that the decision of a Full  

Bench  of  the  Tribunal  in  Sawanmal  Shibumal  Steel  Rolling  Mills  Vs.   

C.C.E., Chandigarh-I2 as also the decision of the High Court of Karnataka  

in  Commr. of Central Excise,  Belgaum  Vs.  Bellary Steel Rolling Mills3,  

wherein it has been held that when there are alterations in the parameters,  

referred to in Rule 3(3) of the 1997 Rules, Rule 5 does not apply, learned  

1 (2008) 1 SCC 382 2 2001 (127) E.L.T. 46 (Tri.-LB) 3 2009 (245) E.L.T. 114 (Kar)

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counsel stressed that the revenue having accepted these decisions on the very  

same point, it is debarred from taking a contrary stand in these appeals.  

15. In  rejoinder,  Mr.  Bhattacharya,  cited  the  decision  of  this  Court  in  C.K.  

Gangadharan  &  Anr.  Vs. Commissioner  of  Income  Tax,  Cochin4 in  

support of his submission that the revenue is not precluded from questioning  

the  correctness  of  the  decision  of  the  authorities  below in  these  appeals  

despite the fact that orders/decision in the afore-mentioned cases have not  

been challenged.

16.Thus,  the short  question for consideration is  whether  Rule 5 of the 1997  

Rules will  apply in a case where a manufacturer  proposes to make some  

change in the installed machinery or any part thereof and seeks the approval  

of the Commissioner of Excise in terms of Rule 4(2) of the said Rules?

17. Before  addressing  the  contentions  advanced  by  learned  counsel  for  the  

parties, it is essential to note at the outset that in all these appeals, there is no  

challenge  to  the  validity  of  Rule  5  of  the  1997  Rules,  inserted  vide  

Notification dated 30th August, 1997 and, therefore, we are only required to  

interpret it and examine the width of its application.

4 (2008) 8 SCC 739

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18. As noted above, Section 3A was inserted in the Act to enable the Central  

Government to levy Excise duty on manufacture or production of certain  

notified goods on the basis of annual capacity of production to be determined  

by the Commissioner of Central Excise in terms of the Rules to be framed by  

the Central Government.  Section 3A of the Act is an exception to Section 3  

of  the Act – the charging Section and being in nature of  a  non obstante  

provision,  the  provisions  contained  in  the  said  Section  override  those  of  

Section 3 of the Act.  Rule 3 of 1997 Rules framed in terms of Section 3A(2)  

of the Act lays down the procedure for determining the annual capacity of  

production  of  the  factory.   Sub-rule  (3)  of  that  Rule  contains  a  specific  

formula  for  determination  of  annual  capacity  of  production  of  hot  rolled  

products.   This  is  the  only  formula  whereunder  the  annual  capacity  of  

production  of  the  factory,  for  the  purpose  of  charging  duty  in  terms  of  

Section 3A of the Act, is to be determined.  Second proviso to sub-section  

(2)  of  Section  3A  of  the  Act  contemplates  re-determination  of  annual  

production in a case when there is alteration or modification in any factor  

relevant to the production of the specified goods but such re-determination  

has again to be as per the formula prescribed in Rule 3(3) of the 1997 Rules.  

It is clear that sub-rule (2) of Rule 4, which, in effect, permits a manufacturer  

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to make a change in the installed machinery or part thereof which tends to  

change the value of either of the parameters, referred to in sub-rule (3) of  

Rule 3, on the basis whereof the annual capacity of production had already  

been  determined,  would  obviously  require  re-determination  of  annual  

capacity of production of the factory/mill, for the purpose of levy of duty.  It  

is plain that in the absence of any other Rule, providing for any alternative  

formula  or  mechanism  for  re-determination  of  production  capacity  of  a  

factory, on furnishing of information to the Commissioner as contemplated  

in Rule 4(2) of the 1997 Rules, such determination has to be in terms of sub-

rule (3) of Rule 3.  That being so, it must logically follow that Rule 5 cannot  

be ignored in relation to a situation arising on account of an intimation under  

Rule 4(2) of the 1997 Rules.  Moreover, the language of Rule 5 being clear  

and  unambiguous,  in  the  sense  that  in  a  case  where  annual  capacity  is  

determined/redetermined by applying the formula prescribed in sub-rule (3)  

of Rule 3, Rule 5 springs into action and has to be given full effect to.  

19.The principle that a taxing statute should be strictly construed is well settled.  

It  is  equally  trite  that  the  intention  of  the  Legislature  is  primarily  to  be  

gathered  from the  words  used  in  the  statute.   Once  it  is  shown that  an  

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assessee falls within the letter of the law, he must be taxed however great the  

hardship may appear to the judicial mind to be.

20. On the principles of interpretation of taxing statutes, the following passage  

from the opinion of Late Rowlatt, J. in Cape Brandy Syndicate Vs. Inland  

Revenue  Commissioners5 has  become  the  locus  classicus  and  has  been  

quoted with approval in a number of decisions of this Court:

“….in a taxing act,  one has to look merely  at  what is  clearly said. There is no room for any intendment. There  is no equity about a tax. There is no presumption as to a  tax. Nothing is to be read in, nothing is to be implied.  One can only look fairly at the language used.”

21. In  Commissioner of Sales Tax, Uttar Pradesh  Vs. The Modi Sugar Mills   

Ltd.6, J.C. Shah, J. observed thus:

“In interpreting a taxing statute, equitable considerations  are  entirely  out  of  place.   Nor  can  taxing  statutes  be  interpreted  on  any  presumptions  or  assumptions.   The  court must look squarely at the words of the statute and  interpret them.  It must interpret a taxing statute in the  light  of  what  is  clearly  expressed:  it  cannot  imply  anything  which  is  not  expressed;  it  cannot  import  provisions in the statutes  so as to supply any assumed  deficiency.”

5 1921 (1) KB 64, 71 6 (1961) 2 SCR 189

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22. In  Mathuram Agrawal Vs.  State of Madhya Pradesh7,  D.P. Mohapatra, J.  

speaking  for  the  Constitution  Bench,  stated  the  law  on  the  point  in  the  

following terms:

“The intention of the legislature in a taxation statute is to  be  gathered  from  the  language  of  the  provisions  particularly  where  the  language  is  plain  and  unambiguous. In a taxing Act it is not possible to assume  any intention or governing purpose of the statute more  than what is  stated in the plain language.  It  is  not  the  economic results  sought  to  be obtained by making  the  provision which is relevant in interpreting a fiscal statute.  Equally impermissible is an interpretation which does not  follow  from  the  plain,  unambiguous  language  of  the  statute. Words cannot be added to or substituted so as to  give a meaning to the statute which will serve the spirit  and intention of the legislature. The statute should clearly  and unambiguously convey the three components of the  tax law i.e. the subject of the tax, the person who is liable  to pay the tax and the rate at which the tax is to be paid.  If  there  is  any  ambiguity  regarding  any  of  these  ingredients in a taxation statute then there is no tax in  law. Then it is for the legislature to do the needful in the  matter.”

23. We do not find any reason to depart from these well settled principles to be  

applied while interpreting a fiscal statute. Therefore, bearing in mind these  

principles  and  the  intent  and  effect  of  the  statutory  provisions,  analysed  

above, the conclusion becomes inevitable that Rule 5 of the 1997 Rules will  

7 (1999) 8 SCC 667

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be attracted for determination of the annual capacity of production of the  

factory when any change in the installed machinery or any part thereof is  

intimated to the Commissioner of Central Excise in terms of Rule 4(2) of the  

said Rules.

24.As regards the argument of learned counsel for the respondents that having  

not assailed the correctness of some of the orders passed by the Tribunal and  

a decision of the High Court of Karnataka, the revenue cannot be permitted  

to adopt the policy of pick and choose and challenge the orders passed in the  

cases before us, it would suffice to observe that such a proposition cannot be  

accepted as an absolute principle of law, although we find some substance in  

the stated grievance of the assessees before us, because such situations tend  

to give rise to allegations of malafides etc.  Having said so, we are unable to  

hold  that  merely  because  in  some  cases  revenue  has  not  questioned  the  

correctness of an order on the same issue, it would operate as a bar for the  

revenue to challenge the order in another case.  There can be host of factors,  

like the amount of revenue involved, divergent views of the Tribunals/High  

Courts on the issue, public interest etc. which may be a just cause, impelling  

the revenue to prefer an appeal on the same view point of the Tribunal which  

had been accepted in the past.  We, may however, hasten to add that it is  

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high time when the Central Board of Direct and Indirect Taxes comes out  

with a uniform policy, laying down strict parameters for the guidance of the  

field staff for deciding whether or not an appeal in a particular case is to be  

filed.   We  are  constrained  to  observe  that  the  existing  guidelines  are  

followed more in breach, resulting in avoidable allegations of malafides etc.;  

on the part of the officers concerned.

25. For the foregoing reasons, the orders impugned in these appeals cannot be  

sustained.  All these orders are set aside and that of the Commissioners of  

Central Excise are restored.  The appeals are allowed accordingly with costs,  

quantified at `50,000/- in each set of appeals.  

.……………………………………                    (D.K. JAIN, J.)  

                             .…………………………………….                  (H.L. DATTU, J.)

NEW DELHI; JULY 6, 2011. ARS

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