By
K. VIJAY KUAMR
MA, BL, MBA ,B.Ed.
In Central Excise, unfortunately issues never reach finality. I often read in orders that " it is now well settled law......", I wonder if there is anything even remotely like settled law in Central Excise. If at all any law is settled, we somehow manage to unsettle it and keep the dispute alive. One such dispute is the applicable rate of duty payable for clearances between the time of presentation of the Union Budget and midnight of the Budget day. As per Section 4 of the Provisional Collection of Taxes Act 1931(one of the oldest relevant Acts for Central Excise), a declared provision relating to increase or imposition of Excise duty will have immediate effect i.e. from the expiry of the day on which, the bill (budget) is introduced in Parliament. Interestingly the previous Provisional Collection of Taxes Act 1919 had a clause that any decrease will have immediate effect and increase and imposition were to be effective after the bill became Act. As per the second proviso to rule 224(2) of the CE Rules 1944, removal of goods after the time of presentation of the budget shall be only after obtaining the permission of the Central Government. As per Rule 224(2A), while applying for such permission, the registered person should undertake to pay duty at the enhanced rate , if any that may be applicable to such goods with effect from the date immediately following the date aforesaid.
These provisions though looking very simple, caused several disputes. The general understanding was that SRP is suspended from 6 p.m. on the pre- budget day and on the budget day and that for clearances on the budget day after the time for presentation of the budget, the higher rate of duty if there is an increase has to be paid, i.e. pay tomorrow's duty today. And this is what took a controversial turn. These provisions were there in the statute for too long to be of any useful dispute now. As they say it is by now well settled. But 'No'. There were three articles on this issue recently in the ELT. The distinguished consultant Mr. P. Sreedharan strongly felt that this collection of higher rate on the budget day is illegal and unconstitutional. My learned colleague, Mr. Ramana Rao felt it was just, fair and legal. In his rejoinder, Mr. Sreedharan reiterated that it was illegal and he further contradicted some of the views of the departmental officer. Now who is right? Who am I to sit in judgement? I am not, but should I say both are right, because both had strong citations in their favour, though both were citing the same judgements. If both are right, there is something wrong with the law as both were taking contradictory positions.
Before discussing the actual issue of what the applicable rate of duty is, I would like to add a little to what the two learned writers had to say about SRP on budget day and pre budget day. Mr. Rao had said that SRP is suspended from 1800 hrs on the pre budget day till the expiry of the budget day. To this Mr Sreedharan says, "This is not correct". Mr. Sreedharan says that as per rule 224(1), the restriction to remove goods after 6 p.m. is applicable only to goods covered by physical control and there is no restriction in respect of goods covered by SRP. Again who is right? I can not say "both", but that is the beauty of CE law. Both appear to be right from their respective perspectives. May I draw the attention of the reader to circular number 513/9/2000 dated 11.2.2000 issued by the Board, published in 15th March 2000 ELT page T25, in which the Board reiterated that "Assessees should be made aware of the fact that after 6 P.M. on the day preceding the Budget Day and also on the Budget Day, the Self Removal Procedure remains suspended and that they are required to discharge certain obligations and observe some of the formalities".
This is what the Board tells us with boring regularity every year and because it comes every year and has been doing so for the past any number of years one can think of, one does not read this budget circular and it is by now settled or at least accepted view that SRP is suspended from 6 p.m. on the pre budget day. But Mr Sreedharan says that Rule 224(1) imposes restriction only on goods covered under Physical control as the rule says that "Goods , other than those to which the provisions of Chapter VII-A of these rules apply, may not be delivered from a factory registered under these rules, or from a warehouse, before six o' clock in the forenoon or after six o'clock in the afternoon, nor at any hour on Sundays and public holidays except by permission of the Commissioner, and under such conditions, and on payment of such fees, as the Commissioner may by general or special order require"
Mr. Ramana Rao says "SRP is suspended from 6pm on the pre budget day." May be he (and I) derive strength from the Board circular mentioned above. But Mr. Sreedharan says, " This is not correct". And he quotes the rule to prove it. Now can the Board say SRP is suspended? Is the Board vested with the power to suspend SRP? "NO". Then what is the paradox? The answer lies in Rule173G(2) proviso(iv) which reads "(iv) in respect of removal of any goods after 6 O'clock in the afternoon on the day preceding the date appointed for the presentation of the annual or any supplementary Budget of the Central Government to Parliament or for the introduction in the House of the people of any Finance Bill or any Bill for the imposition or increase of any duty, the provisions of sub-rule (1) of rule 224 shall apply"
Board was only reiterating the provision contained in the rule in the above mentioned circular when it mentioned that SRP is suspended from 6 p.m. on the budget day. That makes my learned colleague right.
Further Mr. Sreedharan says that the restrictions (on budget day) are imposed only to prevent the assessee taking advantage of announcement in Parliament of enhanced duty, but it does not legally affect the right of a person who applied for permission the previous day without knowing as to what the enhancement in the budget would be. This is a specious argument Sir. The assessee can apply for permission to clear goods after budget presentation and still choose not to clear if there is no increase in rate of duty. We can not force him to clear the goods for which permission has been given. So if the higher rate of duty is not required to be paid, an assessee can apply for permission and wait for the budget speech. If there is an increase in duty, he can clear his goods and say he would not pay the higher rates as they are applicable from the next day! It is exactly to prevent this abuse of the system that Rule 224(2A) and the undertaking to pay higher duty was introduced into the statute. I am told, before this rule was introduced, there was wide scale misuse with even the connivance of departmental officers, in the good old days when radio was the fastest means of communication. It seems people used to listen to budget proposals over the radio and there used to be brisk activity of removal of goods after budget presentation. It is only when the Government came to know (as usual belatedly) about this, the changes were made in the rules. But again as usual, when rectificatory legislation is done in a hurry, they leave a trail behind and the new problems are often far worse than the ones sought to be solved by the statutory changes. You will realise that this is nothing new to our department. In this situation, the best thing that could have been done was to amend the Provisional Collection Of Taxes Act 1931 to the effect that increase or imposition of excise and customs duties would be effective from the time the budget is presented to Parliament. Instead of going to Parliament, the Government took the obviously easy way of using delegated legislation, that is by amending the Rule and proposed to collect duty by an undertaking. This is probably against the spirit of Article 265 of the Constitution as Mr. Sreedharan rightly points out. In the Indian Explosives case, the Hon'ble Tribunal held that the higher duty was payable only from the day after the presentation of the budget, not withstanding the undertaking under Rule 224(2A), while in Mangalam Cement Ltd, it took an exactly opposite view. That is why it appears that both Mr. Ramana Rao and Mr Sreedharan are right. Even within the department there is no uniform opinion. In some places, the higher duty is collected and in some places they are not. Even within the same commissionerate there are instances of some ranges enforcing the undertaking while others ignoring it.
What then is the position in view of the conflicting Tribunal decisions?
Article 265 of the Constitution stipulates that no tax shall be levied or collected except by authority of law. The law to collect Central Excise duty is Section 3 of the Act. As per Section 3 duty shall be collected at rates specified in the schedule to the Tariff Act. When a specified rate in the Tariff is proposed to be hiked, it is by an amendment to the Tariff Act, which requires Parliamentary approval. But Provisional Collection of Taxes Act says that such hike will be effective from the day after the budget presentation day. There is a restriction on removal on the budget day. Permission is given to clear goods on the budget day only if the assessee gives an undertaking to pay enhanced duties if any. And it is this undertaking that has become the bone of contention. Can excise duty be collected on an undertaking? Is an undertaking to pay duty which one is not required to pay, legally binding? Is it not ab initio void? In Mangalam Cement case, the Hon'ble Tribunal says, " Once a manufacturer avails of that relaxation, he can not be allowed to turn back and say that he will not abide by the undertaking given by him in view of the P.C.T.Act . the manufacturer was at liberty not to clear the goods...."
The assessee can argue that he gave the undertaking because, without the undertaking he would not have been allowed to clear the goods, but he is still not legally required to pay the higher duty as it would be effective only from the next day. Looking at this problem from another angle, if an assessee who has given an undertaking, does not pay the differential duty, how do I demand it? Under Section 11A? But this is not a duty short paid, as the higher duty had to be paid only from the next day. I have to demand basing on the undertaking. The undertaking is a contract. For allowing the assessee to clear goods on a particular day, he gives an undertaking that he would pay a duty higher than what he is otherwise required to pay. If he does not pay up, it is a breach of contract and may be a civil suit for recovery has to be filed.
My humble suggestion.
Obviously there is confusion and cry for clarity. As this year's budget is fast approaching it is humbly suggested that the Provisional Collection of Taxes Act 1931 may be suitably amended to provide for collection of increased duty from 2 p.m. on the budget. (Why 2 p.m.? Assuming the budget is presented at 2 p.m.)
EXCISE LAW TIMES – 15.01. 2001 – A 57
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