Section 38A applicable for liabilities under 96ZO & 96ZP before omission

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CHENNAI. Deciding the contentious issue involving 39 Steel Units of South India; Justice Abhichandani President of CESTAT on behalf of Larger Bench has ruled vide ruling dated 13^th September AIT-2007-333-CESTAT-LB that the provisions of Section 38A of the Central Excise Act, 1944, inserted by Section 131 of the Finance Act, 2001, are applicable in respect of the obligations and liabilities incurred under Rules 96ZO and 96ZP before they were omitted by Rule 7 of the Central Excise (Third Amendment) Rules, 2001, notwithstanding the omission of Section 3A w.e.f. 11.5.2001 by the Finance Act, 2001 

In all the appeals, the controversy centered around the effect of the omission of Section 3A of the Central Excise Act, 1944 w.e.f. 11.5.2001 and also the omission of Rules 96ZO and 96ZP of the Central Excise Rules, 1944 w.e.f. 1.3.2001.  According to the assessees, since there was no saving clause introduced while omitting Section 3A of the Act,  the obligations and liabilities even if incurred during the currency of Rules 96ZO and 96ZP did not survive beyond 11.5.2001, being the date of the omission of Section 3A.  According to the assessees, Section 6 of the General Clauses Act, 1897 cannot be invoked in these cases because it applied to “repeal” of an enactment and not to “omission” of a provision of the Act enacted by Parliament.

The Division Bench referred the following two issues for being considered by the Larger Bench :-

“1.Whether, having accepted the position that the protection under Section 38A of the Central Excise Act is available to action taken by the department against them under Rules 96ZO and 96ZP beyond the date of omission of these rules, the assessees are entitled to contend that similar protection under Section 6 of the General Clauses Act is not available to departmental action taken under Section 3A of the Central Excise Act after the date of its omission.?

2.Whether Section 3A of the Central Excise Act, which was omitted with effect from 11.5.2001, could be considered to have been “repealed” within the meaning of this expression used under Section 6 of the General Clauses Act, 1897.?”

T H E    R U L I N G:

• Section 3A empowered the Central Government to charge Excise Duty on the basis of capacity of production in respect of notified goods. The goods were to be notified having regard to the nature of the process of manufacture or production, the extent of evasion of duty in regard to such goods and other relevant factors which led the Central Government to form an opinion that it was necessary to do so for safeguarding the interest of the Revenue. On such goods being notified, excise duty was to be levied and collected thereon in accordance with the other provisions of Section 3A. The important provision in this regard as reflected in sub-section (2) of Section 3A was that on the notification being issued under sub-section (1), the Government may, by rules, provide for determination of the annual capacity of production, or factor/s relevant to the ACP, by the Commissioner. The Annual Capacity of Production so determined was to be considered to be the annual production of such goods by such factory. Under sub-section (3) of Section 3A, the duty of excise on such notified goods was required to be levied  at the rates notified in the gazette and to be collected in the manner, as may be prescribed under the rules. The operation of Section 3A (1) was totally dependent upon the manner and method of determination of the annual production capacity and the levy and collection provisions of the rules contemplated by the other provisions of Section 3A.
• Under Rule 96ZO (1), an obligation was cast upon the manufacturer of non-alloy steel ingots and billets to debit an amount calculated  @ Rs.750/- per MT at the time of clearance of ingots and billets of non-alloy steel from the factory in the “account-current” maintained by the manufacturer under Rule 173G (1) of the Rules. The manner of calculation of total amount of duty liability was indicated therein. Under Rule 96ZO (1A), it was provided that the goods shall be liable to confiscation and penalty would be imposable on the manufacturer as indicated thereunder, if non-alloy steel ingots and billets were removed without complying with the provisions of sub-rule (1). In cases where a manufacturer was having a total furnace capacity of 3 MTs installed in his factory, he was given an option to pay Rs.5 lacs in two instalments as indicated in sub-rule (3) of Rule 96ZO.
• Provisions similar to Rule 96ZO were made in Rule 96ZP for manufacturers of non-alloy steel hot-rolled products mentioned therein.
• In short, the provisions of Rule 96ZO and 96ZP created special obligations and liabilities on the manufacturers of ingots and billets and hot re-rolled products.
• Rules 96ZO and 96ZP came to be omitted by Rule 7 of Central Excise (Third Amendment) Rules, 2001, which were notified  on 1st March 2001 by Notification No.6/2001-CE (NT) . As stated in the preamble of the notification, these rules were made under Section 37 of the Central Excise Act by the Central Government, “further to amend the Central Excise Rules, 1944, except as respects things done or omitted to be done before such amendment”. The amendment was done by way of, inter alia, omitting Rules 96ZO and 96ZP while simultaneously providing a saving clause by incorporating the expression “except as respects things done or omitted to be done before such amendment”. 
• The Finance Act, 2001 came into force on 11.5.2001 and, by Section 121 thereof, Section 3A of the Central Excise Act was omitted. By Section 131 of the Finance Act, 2001, Section 38A was added in the Central Excise Act. Section 38A dealt with the effect of amendments etc. of rules, notifications, or orders made or issued under the said Act and also of the notifications or orders issued under the rules. It was specifically provided that, where any rule under the Act  was amended, repealed, superseded or rescinded, then, unless a different intention appeared, such amendment, repeal, supersession or rescinding shall not, inter alia, affect the previous operation of such rule or affect any obligation or liability incurred under the rules so amended, repealed, superseded or rescinded.  Penalties, forfeiture or punishment incurred in respect of any offence committed under or in violation of such rule were also not affected.  It was provided that the investigation, legal proceeding or remedy in respect of such obligation, liability, penalty, forfeiture or punishment were also not affected and that such investigation, legal proceeding or remedy may be instituted, continued or enforced, and any such penalty, forfeiture, punishment may be imposed as if the rule had not been amended, repealed, superseded or rescinded.
• There cannot be a greater all pervasive saving clause than Section 38A. When, admittedly, the obligations and liabilities were incurred under rules 96ZO and 96ZP  during their currency when Section 3A was still in force, amendments by omission, repeal etc. contemplated by Section 38A did not affect such liabilities, and the investigation, legal proceeding or remedies in respect thereof were all saved. The word “amended” in Section 38A would encompass amendments by omission also. It may be recalled that the Hon’ble Supreme Court in Kesavananda Bharati Sripadagalvaru and Ors. Vs State of Kerala, AIR 1973 SC 1461, in paragraph 1899  of the judgment, observing that the Constitution does not define the word “amendment” and that the General Clauses Act also does not define it, held that Section 6A of the General Clauses Act provided that, where any Central Act repeals any enactment, by which the text of any Central Act was amended by express omission,  insertion or substitution of any matter, the repeal, unless a different intention appears, shall not affect the continuance of any such amendment made by the enactment so repealed  and in operation at the time of such repeal. It was held that : “ Section 6A shows that “amendment” includes addition, substitution and omission. (emphasis added).  Thus, omission being an amendment, Section 38A, which is a saving clause, will apply to omission of Rules 96ZO and 96ZP. Therefore, all the obligations and liabilities incurred by the appellants while  the rules were in force  are not affected by the omission of these rules and can be enforced as contemplated by Section 38A read with the machinery-provisions which continued to operate all throughout. The liabilities were admittedly incurred by the appellants under these rules while Section 3A was in force. The subsequent omission of Section 3A from 11.5.2001 did not obliterate the obligations and liabilities which had already arisen under the rules and were saved because of the saving provisions contained in Section 38A of the Act.  The obligations and liabilities had arisen under the said rules as contemplated by Section 3A when it was in force and those very obligations and liabilities subsisted by virtue of the saving provision of Section 38A which was simultaneously introduced while omitting Section 3A. The omission of Section 3A was not done with any retrospective effect and therefore liabilities that had already arisen under the said rules could be enforced by virtue of Section 38A of the Act. Therefore, there is no substance in the contention that  Section 3A was “omitted” and not “repealed” making Section 6 of the General Clause Act inapplicable, thereby abrogating the liabilities arising under the rules though protected by Section 38A. Section 38A, in our opinion, clearly governs the field and saves the obligations and liabilities that had already arisen while these rules were in operation so that they could be enforced and implemented as contemplated by Section 38A. It is therefore unnecessary to enter into the controversy  surrounding the provisions of Section 6 of the General Clauses Act as to the meaning of the word “repeal” on which diverse views have been expressed by the courts.

(Click here for full text of ruling AIT-2007-333-CESTAT-LB)