Page 1 REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.4280 OF 2007

M/S. SHREE BHAGWATI STEEL

ROLLING MILLS …APPELLANT

VERSUS

COMMISSIONER OF CENTRAL EXCISE

& ANR. …RESPONDENTS

WITH

CIVIL APPEAL NO.4281 OF 2007

CIVIL APPEAL NO.4282 OF 2007

CIVIL APPEAL NO.3031 OF 2008

CIVIL APPEAL NO.13601 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.22134 OF 2008)

CIVIL APPEAL NO.4379 OF 2010

CIVIL APPEAL NO.13602 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.11030 OF 2010)

CIVIL APPEAL NO.908 OF 2011

CIVIL APPEAL NO.5448 OF 2011

CIVIL APPEAL NO.5449 OF 2011

CIVIL APPEAL NO.5452 OF 2011

CIVIL APPEAL NO.5453 OF 2011

CIVIL APPEAL NO.13603 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.5532 OF 2011)

CIVIL APPEAL NOS.8685-8686 OF 2011

CIVIL APPEAL NO.13605 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.19964 OF 2011)

CIVIL APPEAL NO.13606 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.19966 OF 2011)

CIVIL APPEAL NO.13607 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.19968 OF 2011)

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Page 2 CIVIL APPEAL NO.13608 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.19969 OF 2011)

CIVIL APPEAL NO.13609 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.19972 OF 2011)

CIVIL APPEAL NO.13610 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.19975 OF 2011)

CIVIL APPEAL NO.13611 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.19979 OF 2011)

CIVIL APPEAL NO.13612 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.19983 OF 2011)

CIVIL APPEAL NO.13614 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.20667 OF 2011)

CIVIL APPEAL NO.13615 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.21584 OF 2011)

CIVIL APPEAL NO.13616 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.25881 OF 2011)

CIVIL APPEAL NO.13617 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.1796 OF 2012)

CIVIL APPEAL NO.13618 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.16249 OF 2012)

CIVIL APPEAL NO.13619 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.21273 OF 2012)

CIVIL APPEAL NO.13620 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.21402 OF 2012)

CIVIL APPEAL NO.13621 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.24139 OF 2012)

CIVIL APPEAL NO.13622 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.27752 OF 2012)

CIVIL APPEAL NO.13623 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.37566 OF 2012)

CIVIL APPEAL NO.13624 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.38588 OF 2012)

CIVIL APPEAL NO.13625 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.39972 OF 2012)

CIVIL APPEAL NOS.13626-13627 OF 2015

(ARISING OUT OF SLP (CIVIL) NOS.1103-1104 OF 2013)

CIVIL APPEAL NO.13628 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.4224 OF 2013)

CIVIL APPEAL NO.13629 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.5877 OF 2013)

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Page 3 CIVIL APPEAL NO.13630 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.7852 OF 2013)

CIVIL APPEAL NO.13631 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.9796 OF 2013)

CIVIL APPEAL NO.13632 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.11709 OF 2013)

CIVIL APPEAL NO.13633 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.14097 OF 2013)

CIVIL APPEAL NO.13634 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.17534 OF 2013)

CIVIL APPEAL NO.13635 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.18902 OF 2013)

CIVIL APPEAL NO.13636 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.21590 OF 2013)

CIVIL APPEAL NOS.13637-13638 OF 2015

(ARISING OUT OF SLP (CIVIL) NOS.27235-27236 OF 2013)

CIVIL APPEAL NO.13639 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.29566 OF 2013)

CIVIL APPEAL NO.13640 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.1269 OF 2014)

CIVIL APPEAL NO. 1979 OF 2014

CIVIL APPEAL NOS.13641-13642 OF 2015

(ARISING OUT OF SLP (CIVIL) NOS.4511-4512 OF 2014)

CIVIL APPEAL NO.13643 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.20044 OF 2014)

CIVIL APPEAL NO.13644 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.23009 OF 2014)

CIVIL APPEAL NO.13645 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.26042 OF 2014)

CIVIL APPEAL NO.13646 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.26036 OF 2014)

CIVIL APPEAL NO.13647 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.30377 OF 2014)

CIVIL APPEAL NO.13648 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.30378 OF 2014)

CIVIL APPEAL NO.13649 OF 2015

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CIVIL APPEAL NO.13650 OF 2015

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Page 4 CIVIL APPEAL NO.13651 OF 2015

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CIVIL APPEAL NO.13653 OF 2015

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CIVIL APPEAL NO.13654 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.36408 OF 2014)

CIVIL APPEAL NO.13655 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.36413 OF 2014)

CIVIL APPEAL NO.13656 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.3486 OF 2015)

CIVIL APPEAL NO.13657 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.6147 OF 2015)

CIVIL APPEAL NO.13658 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.7820 OF 2015)

CIVIL APPEAL NO.13659 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.33041 OF 2013)

CIVIL APPEAL NO.13660 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.8746 OF 2015)

CIVIL APPEAL NO.13661 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.10577 OF 2015)

CIVIL APPEAL NO.13662 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.12574 OF 2015)

CIVIL APPEAL NO.13663 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.21407 OF 2015)

CIVIL APPEAL NO.13664 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.22354 OF 2015)

CIVIL APPEAL NO.13665 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.27474 OF 2015)

CIVIL APPEAL NO.13666 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.26580 OF 2015)

CIVIL APPEAL NO.13667 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.27998 OF 2015)

CIVIL APPEAL NO.13668 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.28262 OF 2015)

CIVIL APPEAL NO.13669 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.27471 OF 2015)

CIVIL APPEAL NO.13670 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.27997 OF 2015)

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Page 5 CIVIL APPEAL NO.13671 OF 2015

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CIVIL APPEAL NO.13672 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.28935 OF 2015)

CIVIL APPEAL NO.13673 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.29004 OF 2015)

CIVIL APPEAL NO.13674 OF 2015

(ARISING OUT OF SLP (CIVIL) NO.19948 OF 2011)

J U D G M E N T

R.F. Nariman, J.

1.Leave granted.

2.This batch of appeals raises questions relating to the

demand for interest and penalty under Rules 96ZO, 96 ZP and

96 ZQ of the Central Excise Rules, 1994, which were framed in

order to effectuate the provisions contained in Section 3A of the

Central Excise Act, 1994. Several High Courts have struck

down the said Rules relating to penalty as being ultra vires the

parent provision and violative of Articles 14 and 19(1)(g) of the

Constitution. Most of the appeals in this batch are, therefore,

by the Union of India. However, before dealing with the said

appeals, it is necessary to first segregate Civil Appeal No.4280

of 2007 which raises a slightly different question from the

questions raised in the other appeals and decide it first.

5

Page 6 3. The question which arises for decision in the said appeal

is the demand, by means of a letter dated 19.8.2005, for

payment of interest for delayed payment of central excise duty

under Section 3A of the Central Excise Act, 1944.

4.The case of the appellant is that it took a rolling mill on

lease for the period from 1997 to 2000 and manufactured

rerolled non-alloyed steel products. On 1.9.1997 the

compounded levy scheme was introduced by way of insertion

of Section 3A of the Central Excise Act. The appellant opted

for the aforesaid scheme under Rule 96ZP of the Central

Excise Rules. When the lease expired, the appellant

surrendered its registration certificate on 1.6.2000. As stated

hereinabove, on 19.8.2005 the impugned notice was issued to

the appellant demanding interest for delayed payment of duty

for the period 1997 to 2000.

5.The High Court framed two questions which arose for its

consideration: (1) whether “omission” of the compounded levy

scheme in 2001 wipes out the liability of the assessee for the

period during which the scheme was in operation, and (2)

6

Page 7 whether the letter of demand of interest for delayed payment

was liable to be set aside on the ground of delay.

6.The High Court found, after distinguishing some of the

judgments of this Court, and after relying upon Section 38A of

the Central Excise Act, which was added vide Section 131 of

the Finance Act, 2001, that on omission of Section 3A, the

liability of the assessee was not wiped out.

7.Shri Ajay Aggarwal, learned counsel who appeared on

behalf of the appellant fairly submitted that a recent judgment

delivered by this Bench, namely, M/s Fibre Boards (P) Ltd.,

Bangalore v. Commissioner of Income Tax, Bangalore,

[2015] 376 ITR 596 (SC), would cover the matter before us

being directly against the appellant’s case. However, he

submitted that for various reasons this judgment requires a

relook and ought to be referred to a larger Bench of three

Judges. Shri Aggarwal argued the matter with great ability and

we listened to him with considerable interest.

8.First, it may be stated that the judgment of this Court in

the Fibre Board’s case has taken the view that an “omission”

7

Page 8 would amount to a “repeal”, after referring to several authorities

of this Court, G.P. Singh’s Principles of Statutory Interpretation,

Section 6A of the General Clauses Act, 1897, and a passage in

Halsbury’s Laws of England. Ultimately, this Court arrived at

the conclusion that an “omission” would amount to a “repeal” for

the purpose of Section 24 of the General Clauses Act. Since

the same expression, namely, “repeal” is used both in Section 6

and Section 24 of the General Clauses Act, the construction of

the said expression in both sections would, therefore, include

within it “omissions” made by the legislature.

9.Shri Aggarwal, however, argued that there is a

fundamental distinction between a “repeal” and an “omission” in

that in the case of a “repeal” the statute is obliterated from the

very beginning whereas in the case of an “omission” what gets

omitted is only from the date of “omission” and not before. This

being the case, it is clear that things already done in the case of

an “omission” would be saved. However, a “repeal” without a

savings clause like Section 6 of the General Clauses Act would

not so save things already done under the repealed statute. He

further argued that Section 6A which was relied upon by the

8

Page 9 Bench in the Fibre Board’s case did not state that an “omission”

would be included within the expression “repeal”, but that if

Section 6A were carefully read, an “omission” would only be

included in an “amendment” which, under the Section, can be

by way of omission, insertion or substitution. Therefore, it is

fallacious to state that Section 6A would lead to the conclusion

that “omissions” are included in “repeals”. He further argued

that in any event, the true ratio decidendi of the Constitution

Bench decision in Rayala Corporation (P) Ltd. & Ors. v.

Director of Enforcement, New Delhi, 1969 (2) SCC 412, is

that an “omission” cannot amount to a “repeal” inasmuch as the

first reason given for distinguishing the Madhya Pradesh High

Court’s judgment in that case was that Section 6 cannot apply

to the omission of a rule because an “omission” is not a

“repeal”. He further argued that as the Madhya Pradesh High

Court’s decision was put forward by the respondent in that case

in support of their argument, the Constitution Bench’s dealing

with the said decision in order to overcome it would necessarily

be the ratio decidendi of the said decision, and being a

Constitution Bench decision, would be binding upon this Bench.

9

Page 10 He further referred to Section 31 of the Prevention of Corruption

Act, 1988, which, in his opinion, makes it clear that Parliament

itself has understood that a repeal under Section 6 of the

General Clauses Act would not apply to omissions. He has

further argued that it may be true that the expression “repeal” is

normally used when an entire statute is done away with, as

opposed to an “omission” which is applied only when part of the

statute is deleted, but said that this is not invariably the case,

and referred to Section 1 of the Indian Contract Act in which

enactments mentioned in the schedule are repealed not in their

entirety but only to the extent provided and, therefore, argued

that the expression “repeals” will apply also to a part of an

enactment as opposed to the enactment as a whole.

10.Shri Radhakrishnan, learned senior counsel appearing on

behalf of the revenue supported the judgment of this Court in

the Fibre Board’s case and said that recent judgments

delivered which have clarified the law ought not to be disturbed

in the larger public interest.

11.Since Shri Aggarwal has made detailed submissions on

why according to him the judgment in the Fibre Board’s case is

10

Page 11 not correctly decided, we propose to deal with each of those

submissions in some detail.

12.First and foremost, it is important to refer to the definition

of “enactment” contained in Section 3(19) of the General

Clauses Act. The said definition clause states that “enactment”

shall mean the following:-

“enactment" shall include a Regulation (as

hereinafter defined) and any Regulation of the

Bengal, Madras or Bombay Code, and shall also

include any provision contained in any Act or in any

such Regulation as aforesaid.”

13.From this it is clear that when Section 6 speaks of the

repeal of any enactment, it refers not merely to the enactment

as a whole but also to any provision contained in any Act.

Thus, it is clear that if a part of a statute is deleted, Section 6

would nonetheless apply. Secondly, it is clear, as has been

stated by referring to a passage in Halsbury’s Laws of England

in the Fibre Board’s judgment, that the expression “omission” is

nothing but a particular form of words evincing an intention to

abrogate an enactment or portion thereof. This is made further

clear by the Legal Thesaurus (Deluxe Edition) by William C

11

Page 12 Burton, 1979 Edition. The expression “delete” is defined by the

Thesaurus as follows:

“Delete: - Blot out, cancel, censor, cross off, cross

out, cut, cut out, dele, discard, do away with, drop,

edit out, efface, elide, eliminate, eradicate, erase,

excise, expel, expunge, extirpate, get rid of, leave

out, modify by excisions, obliterate, omit, remove,

rub out, rule out, scratch out, strike off, take out,

weed wipe out.”

Likewise the expression “omit” is also defined by this Thesaurus

as follows:-

“Omit:- Abstain from inserting, bypass, cast aside,

count out, cut out, delete, discard, dodge, drop

exclude, exclude, fail to do, fail to include, fail to

insert, fail to mention, leave out, leave undone, let

go, let pass, let slip, miss, neglect, omittere, pass

over, praetermittere, skip, slight, transire.”

And the expression “repeal” is defined as follows:-

“Repeal:- Abolish, abrogare, abrogate, annul, avoid,

cancel, countermand, declare null and void, delete,

eliminate, formally withdraw, invalidate, make void,

negate, nullify, obliterate, officially withdraw,

override, overrule, quash, recall, render invalid,

rescind, rescindere, retract, reverse, revoke, set

aside, vacate, void, withdraw.”

12

Page 13 14.On a conjoint reading of the three expressions “delete”,

“omit”, and “repeal”, it becomes clear that “delete” and “omit”

are used interchangeably, so that when the expression “repeal”

refers to “delete” it would necessarily take within its ken an

omission as well. This being the case, we do not find any

substance in the argument that a “repeal” amounts to an

obliteration from the very beginning, whereas an “omission” is

only in futuro. If the expression “delete” would amount to a

“repeal”, which the appellant’s counsel does not deny, it is clear

that a conjoint reading of Halsbury’s Laws of England and the

Legal Thesaurus cited hereinabove both lead to the same

result, namely that an “omission” being tantamount to a

“deletion” is a form of repeal.

15.Learned counsel’s second argument that Section 6A

when it speaks of an “omission” only speaks of an

“amendment” which omits and, therefore does not refer to a

repeal is equally fallacious. In Bhagat Ram Sharma v. Union

of India, 1988 Supp SCC 30, this Court held that there is no

real distinction between a repeal and an amendment and that

“amendment” is in fact a wider term which includes deletion of

13

Page 14 a provision in an existing statute. In the said judgment, this

Court held:-

“17. It is a matter of legislative practice to provide

while enacting an amending law, that an existing

provision shall be deleted and a new provision

substituted. Such deletion has the effect of repeal of

the existing provision. Such a law may also provide

for the introduction of a new provision. There is no

real distinction between 'repeal' and an

'amendment'. In Sutherland's Statutory

Construction, 3rd Edn., Vol. 1 at p. 477, the learned

author makes the following statement of law:

The distinction between repeal and amendment as

these terms are used by the Courts is arbitrary.

Naturally the use of these terms by the Court is

based largely on how the Legislature have

developed and applied these terms in labelling their

enactments. When a section is being added to an

Act or a provision added to a section, the

Legislatures commonly entitled the Act as an

amendment.... When a provision is withdrawn from

a section, the Legislatures call the Act an

amendment particularly when a provision is added

to replace the one withdrawn. However, when an

entire Act or section is abrogated and no new

section is added to replace it, Legislatures label the

Act accomplishing this result a repeal. Thus as used

by the Legislatures, amendment and repeal may

differ in kind - addition as opposed to withdrawal or

only in degree -abrogation of part of a section as

opposed to abrogation of a whole section or Act; or

more commonly, in both kind and degree - addition

of a provision to a section to replace a provision

being abrogated as opposed by abrogation of a

whole section of an Act. This arbitrary distinction

has been followed by the Courts, and they have

developed separate rules of construction for each.

14

Page 15 However, they have recognised that frequently an

Act purporting to be an amendment has the same

qualitative effect as a repeal - the abrogation of an

existing statutory provision -and have therefore

applied the term "implied repeal' and the rules of

construction applicable to repeals to such

amendments.

18. Amendment is in fact, a wider term and it

includes abrogation or deletion of a provision in an

existing statute. If the amendment of an existing law

is small, the Act professes to amend; if it is

extensive, it repeals a law and re-enacts it. An

amendment of substantive law is not retrospective

unless expressly laid down or by necessary'

implication inferred.” (at para 17 & 18)

16.It is clear, therefore, that when this Court referred to

Section 6A in Fibre Board’s case and held that Section 6A

shows that a repeal can be by way of an express omission,

obviously what was meant was that an amendment which

repealed a provision could do so by way of an express

omission. This being the case, it is clear that Section 6A

undisputedly leads to the conclusion that a repeal would include

a repeal by way of an express omission.

17.Learned counsel then argued that while distinguishing the

Madhya Pradesh High Court’s judgment in Rayala Corporation,

a Constitution Bench of this Court expressly held as the first

15

Page 16 reason that Section 6 applies only to repeals and not to

omissions. The Fibre Board’s judgment has clearly held as

follows:

“First and foremost, it will be noticed that two

reasons were given in Rayala Corporation (P) Ltd.

for distinguishing the Madhya Pradesh High Court

judgment. Ordinarily, both reasons would form the

ratio decidendi for the said decision and both

reasons would be binding upon us. But we find that

once it is held that Section 6 of the General Clauses

Act would itself not apply to a rule which is

subordinate legislation as it applies only to a Central

Act or Regulation, it would be wholly unnecessary to

state that on a construction of the word “repeal” in

Section 6 of the General Clauses Act, “omissions”

made by the legislature would not be included.

Assume, on the other hand, that the Constitution

Bench had given two reasons for the non-

applicability of Section 6 of the General Clauses

Act. In such a situation, obviously both reasons

would be ratio decidendi and would be binding upon

a subsequent bench. However, once it is found that

Section 6 itself would not apply, it would be wholly

superfluous to further state that on an interpretation

of the word “repeal”, an “omission” would not be

included. We are, therefore, of the view that the

second so-called ratio of the Constitution Bench in

Rayala Corporation (P) Ltd. cannot be said to be a

ratio decidendi at all and is really in the nature of

obiter dicta.” (at para 27)

18.Merely because the Constitution Bench referred to a

repeal not amounting to an omission as the first reason given

16

Page 17 for distinguishing the Madhya Pradesh High Court’s judgment

would not undo the effect of paragraph 27 of Fibre Board’s

case which, as has already been stated, clearly makes the

distinction between Section 6 not applying at all and Section 6

being construed in a particular manner. Obviously, if the

Section were not to apply at all, any construction of the Section

would necessarily be in the nature of obiter dicta.

19.We also find that Section 6 could not possibly apply to the

facts in Rayala Corporation’s case for yet another reason.

Clause 2 of the amendment rules which was referred to in

paragraph 14 of the judgment in Rayala Corporation reads as

follows:-

“In the Defence of India Rules, 1962, rule 132A

(relating to prohibition of dealings in foreign

exchange) shall be omitted except as respects

things done or omitted to be done under that rule.”

20.A cursory reading of clause 2 shows that after omitting

Rule 132A of the Defence of India Rules, 1962, the provision

contains its own saving clause. This being the case, Section 6

can in any case have no application as Section 6 only applies

17

Page 18 to a Central Act or regulation “unless a different intention

appears”. A different intention clearly appears on a reading of

clause 2 as only a very limited savings clause is incorporated

therein. In fact, this aspect is noticed by the Constitution Bench

in paragraph 18 of its judgment, in which the Constitution

Bench states:-

“As we have indicated earlier, the notification of the

Ministry of Home Affairs omitting Rule 132-A of the

D.I.Rs. did not make any such provision similar to

that contained in Section 6 of the General Clauses

Act.”

21.It was then urged before us that Section 31 of the

Prevention of Corruption Act, 1988 would also lead to the

conclusion that Parliament itself is cognizant of the fact that an

omission cannot amount to a repeal. Section 31 of the

Prevention of Corruption Act, 1988, states as follows:-

“Section 31 - Omission of certain sections of Act 45

of 1860

Sections 161 to 165A (both inclusive) of the Indian

Penal Code, 1860 (45 of 1860) shall be omitted,

and section 6 of the General Clauses Act, 1897 (10

of 1897), shall apply to such omission as if the said

sections had been repealed by a Central Act.”

18

Page 19 22.It is settled law that Parliament is presumed to know the

law when it enacts a particular piece of legislation. The

Prevention of Corruption Act was passed in the year 1988, that

is long after 1969 when the Constitution Bench decision in

Rayala Corporation had been delivered. It is, therefore,

presumed that Parliament enacted Section 31 knowing that the

decision in Rayala Corporation had stated that an omission

would not amount to a repeal and it is for this reason that

Section 31 was enacted. This again does not take us further as

this statement of the law in Rayala Corporation is no longer the

law declared by the Supreme Court after the decision in the

Fibre Board’s case. This reason therefore again cannot avail

the appellant.

23.The reference to the savings provision in Section 1 of the

Indian Contract Act again does not take us very much further as

the expression “repeal” as has been pointed out above can be

of part of an enactment also. This being the case, when the

legislature uses the word “omit” it usually does so when it

wishes to delete a particular section as opposed to deleting an

entire Act. As has been noticed both in Fibre Board’s case and

19

Page 20 hereinabove, these are all expressions which only go to form

and not to substance. Even assuming for the sake of argument

that we were inclined to agree with Shri Aggarwal, given the

force of his inexorable logic, this Court has laid down the

parameters of when it would be expedient to have a relook at a

particular decision in the case of Keshav Mills Co. Ltd. v. CIT,

Bombay North, 1965 (2) SCR 908, as follows.-

“In dealing with the question as to whether the

earlier decisions of this Court in the New Jehangir

Mills [1959]37ITR11(SC) case and the Petlad Co.

Ltd. [1963] S.C.R. 871 case should be

reconsidered and revised by us, we ought to be

clear as to the approach which should be adopted in

such cases. Mr. Palkhivala has not disputed the fact

that, in proper case, this Court has inherent

jurisdiction to reconsider and revise its earlier

decisions, and so, the abstract question as to

whether such a power vests in this Court or not

need not detain us. In exercising this inherent

power, however, this would naturally like to impose

certain reasonable limitations and would be

reluctant to entertain pleas for the reconsideration

and revision of its earlier decisions, unless it is

satisfied that there are compelling and substantial

reasons to do so. It general judicial experience that

in matters of law involving question of constructing

statutory or constitutional provisions, two views are

often reasonably possible and when judicial

approach has to make a choice between the two

reasonably possible views, the process of decision-

making is often very difficult and delicate. When this

Court hears appeals against decisions of the High

20

Page 21 Courts and is required to consider the propriety or

correctness of the view taken by the High Courts on

any point of law, it would be open to this Court to

hold that though the view taken by the High Court is

reasonably possible, the alternative view which is

also reasonably possible is better and should be

preferred. In such a case, the choice is between the

view taken by the High Court whose judgment is

under appeal, and the alternative view which

appears to this Court to be more reasonable; and in

accepting it own view in preference to that of the

High Court, this Court would be discharging its duty

as Court of Appeal. But different considerations

must inevitably arise where a previous decision of

this Court has taken a particular view as to the

construction of a statutory provision as, for instance,

section 66(4) of the Act. When it is urged that the

view already taken by this Court should be reviewed

and revised, it may not necessarily be an adequate

reason for such review and revision to hold that

though the earlier view is a reasonably possible

view, the alternative view which is pressed on the

subsequent occasion is more reasonable. In

reviewing and revising its earlier decision, this Court

should ask itself whether in interests of the public

good or for any other valid and compulsive reasons,

it is necessary that the earlier decision should be

revised. When this Court decides questions of law,

its decisions are, under Article 141, binding on all

courts within the territory of India, and so, it must be

the constant endeavour and concern of this Court to

introduce and maintain an element of certainty and

continuity in the interpretation of law in the country.

Frequent exercise by this Court of its power to

review its earlier decisions on the ground that the

view pressed before it later appears to the Court to

be more reasonable, may incidentally tend to make

law uncertain and introduce confusion which must

be consistently avoided. That is not to say that if on

a subsequent occasion, the Court is satisfied that its

21

Page 22 earlier decision was clearly erroneous, it should

hesitate to correct the error; but before a previous

decision is pronounced to be plainly erroneous, the

Court must satisfied with a fair amount of unanimity

amongst its members that a revision of the said

view is fully justified. It is not possible or desirable,

and in any case it would be inexpedient to lay down

any principles which should govern the approach of

the Court in dealing with the question of reviewing

and revising its earlier decisions. It would always

depend upon several relevant considerations:- What

is the nature of the infirmity or error on which a plea

for review and revision of the earlier view is based?

On the earlier occasion, did some patent aspects of

the question remain unnoticed, or was the attention

of the Court not drawn to any relevant and material

statutory provision, or was any previous decision of

this Court bearing on the point not noticed? Is the

Court hearing such plea fairly unanimous that there

is such an error in the earlier view? What would be

the impact of the error on the general administration

of law or on public good ? Has the earlier decision

been followed on subsequent occasions either by

this Court or by the High Courts ? And, would the

reversal of the earlier decision lead to public

inconvenience, hardship or mischief ? These and

other relevant considerations must be carefully

borne in mind whenever this Court is called upon to

exercise its jurisdiction to review and review and

revise its earlier decisions.” (at page 921-922)

24.Fibre Board’s case is a recent judgment which, as has

correctly been argued by Shri Radhakrishnan, learned senior

counsel on behalf of the revenue, clarifies the law in holding

that an omission would amount to a repeal. The converse view

22

Page 23 of the law has led to an omitted provision being treated as if it

never existed, as Section 6 of the General Clauses Act would

not then apply to allow the previous operation of the provision

so omitted or anything duly done or suffered thereunder. Nor

may a legal proceeding in respect of any right or liability be

instituted, continued or enforced in respect of rights and

liabilities acquired or incurred under the enactment so omitted.

In the vast majority of cases, this would cause great public

mischief, and the decision of Fibre Board’s case is therefore

clearly delivered by this Court for the public good, being, at the

very least a reasonably possible view. Also, no aspect of the

question at hand has remained unnoticed. For this reason also

we decline to accept Shri Aggarwal’s persuasive plea to

reconsider the judgment in Fibre Board’s case. This being

the case, it is clear that on point one the present appeal would

have to be dismissed as being concluded by the decision in the

Fibre Board’s case.

25.Even on the point of limitation, we find that the High Court

noticed that the assessee undertook to pay the amount with

interest upto 31.3.2003, on which date a last part payment was

23

Page 24 made. As the demand was raised by the Department on

19.8.2005 i.e. within a period of three years from 31.3.2003, it is

clear that the said recovery notice would not be beyond the

time limit.

26.However, Shri Aggarwal has also argued that in this

appeal as well as in Civil Appeal No.4281 and 4282 of 2007,

the Rule providing for payment of interest would itself be ultra

vires inasmuch as Section 3A of the Act does not itself provide

for the payment of interest. He argued that despite the fact that

this point was not raised before any of the authorities below he

ought to be allowed to raise it for the first time in this Court not

only as it is a pure question of law but also because, according

to him, this Court has held that rules which are ultra vires ought

to be ignored by the courts even if there is no substantive

challenge to them.

27.Shri Radhakrishnan, learned senior advocate appearing

for the revenue, strongly contradicts this position and has

vehemently argued that since this issue was never raised

before the authorities below, this Court should not allow the

appellant to raise it at this belated stage. He further submitted

24

Page 25 that in any case it would not be necessary for the statute to

provide for interest and it is good enough that subordinate

legislation in the nature of a rule could do so. Inasmuch as

these cases relate to interest and penalty leviable under certain

provisions of the Central Excise Rules, it may be necessary to

set out the said provisions. They read as follows:

“RULE 96ZO. Procedure to be followed by the

manufacturer of ingots and billets.

(3)……..

Provided also that where a manufacturer fails to pay

the whole of the amount payable for any month by

the 15

th

day or the last day of such month, as the

case may be, he shall be liable to,-

(i)Pay the outstanding amount of duty along with

interest thereon at the rate of eighteen per cent. per

annum, calculated for the period from the 16

th

day of

such month or the 1

st

day of next month, as the

case may be, till the date of actual payment of the

outstanding amount; and

(ii)A penalty equal to such outstanding amount of

duty or five thousand rupees, whichever is greater.”

RULE 96ZP. Procedure to be followed by the

manufacturer of hot rolled products.

(3)…….

Provided also that where a manufacturer fails to pay

the whole of amount of duty payable for any month

25

Page 26 by the 10

th

day of such month, he shall be liable to

pay, -

(i)The outstanding amount of duty along with

interest thereon at the rate of eighteen per cent. per

annum calculated for the period from the 11

th

day of

such month till the date of actual payment of the

outstanding amount; and

(ii)A penalty equal to the amount of duty

outstanding from him at the end of such month or

five thousand rupees, whichever is greater.

Rule 96ZQ Procedure to be followed by the

independent processor of textile fabrics.

(5) If an independent processor fails to pay the

amount of duty or any part thereof by the date

specified in sub-rule (3), he shall be liable to,-

(i)Pay the outstanding amount of duty along with

interest at the rate of thirty-six per cent per annum

calculated for the outstanding period on the

outstanding amount; and

(ii)A penalty equal to an amount of duty

outstanding from him or rupees five thousand,

whichever is greater.”

28.Shri Aggarwal in order to buttress his submission that he

ought to be allowed to raise a pure question of law going to the

very jurisdiction to levy interest cited before us the judgment in

Bhartidasan University and Another v. All-India Council for

Technical Education, 2001 (8) SCC 676, and in particular

paragraph 14 thereof which reads as follow:-

26

Page 27 “The fact that the Regulations may have the force of

law or when made have to be laid down before the

legislature concerned do not confer any more

sanctity or immunity as though they are statutory

provisions themselves. Consequently, when the

power to make Regulations are confined to certain

limits and made to flow in a well defined canal within

stipulated banks, those actually made or shown and

found to be not made within its confines but outside

them, the Courts are bound to ignore them when

the question of their enforcement arise and the

mere fact that there was no specific relief sought for

to strike down or declare them ultra vires,

particularly when the party in sufferance is a

Respondent to the lis or proceedings cannot confer

any further sanctity or authority and validity which it

is shown and found to obviously and patently lack. It

would, therefore, be a myth to state that

Regulations made under Section 23 of the Act have

"Constitutional" and legal status, even unmindful of

the fact that anyone or more of them are found to be

not consistent with specific provisions of the Act

itself. Thus, the Regulations in question, which the

AICTE could not have made so as to bind

universities/UGC within the confines of the powers

conferred upon it, cannot be enforced against or

bind an University in the matter of any necessity to

seek prior approval to commence a new department

or course and programme in technical education in

any university or any of its departments and

constituent institutions.”

29. It would be seen that Shri Aggarwal is on firm ground

because this Court has specifically stated that rules or

regulations which are in the nature of subordinate legislation

which are ultra vires are bound to be ignored by the courts

27

Page 28 when the question of their enforcement arises and the mere

fact that there is no specific relief sought for to strike down or

declare them ultra vires would not stand in the court’s way of

not enforcing them. We also feel that since this is a question of

the very jurisdiction to levy interest and is otherwise covered by

a Constitution Bench decision of this Court, it would be a

travesty of justice if we would not to allow Shri Aggarwal to

make this submission.

30.On merits, the matter is no longer res integra. A

Constitution Bench decision of this Court in VVS Sugars v.

Government of A.P., 1999 (4) SCC 192, has held, following

two earlier judgments of this Court, as follows:-

“This Court in India Carbon Ltd. v. State of

Assam [(1997) 6 SCC 479] has held, after analysing

the Constitution Bench judgment in J.K. Synthetics

Ltd. v. CTO [(1994) 4 SCC 276] that interest can be

levied and charged on delayed payment of tax only

if the statute that levies and charges the tax makes

a substantive provision in this behalf. There being

no substantive provision in the Act for the levy of

interest on arrears of tax that applied to purchases

of sugarcane made subsequent to the date of

commencement of the amending Act, no interest

thereon could be so levied, based on the application

of the said Rule 45 or otherwise.”

28

Page 29 31.Applying the Constitution Bench decision stated above, it

will have to be declared that since Section 3A which provides

for a separate scheme for availing facilities under a compound

levy scheme does not itself provide for the levying of interest,

Rules 96 ZO, 96 ZP and 96 ZQ cannot do so and therefore on

this ground the appellant in Shree Bhagwati Steel Rolling Mills

has to succeed. On this ground alone therefore the impugned

judgment is set aside. That none of the other provisions of the

Central Excise Act can come to the aid of the Revenue in cases

like these has been laid down by this Court in Hans Steel

Rolling Mill v. CCE, (2011) 3 SCC 748 as follows:

“13. On going through the records it is clearly

established that the appellants are availing the

facilities under the compound levy scheme, which

they themselves opted for and filed declarations

furnishing details about the annual capacity of

production and duty payable on such capacity of

production. It has to be taken into consideration that

the compounded levy scheme for collection of duty

based on annual capacity of production under

Section 3 of the Act and the 1997 Rules is a

separate scheme from the normal scheme for

collection of Central excise duty on goods

manufactured in the country. Under the same, Rule

96-ZP of the Central Excise Rules stipulate the

method of payment and Rule 96-ZP contains

detailed provision regarding time and manner of

payment and it also contains provisions relating to

29

Page 30 payment of interest and penalty in event of delay in

payment or non-payment of dues. Thus, this is a

comprehensive scheme in itself and general

provisions in the Act and the Rules are excluded.”

(at page 751)

32.We now come to the other appeals which concern

themselves with penalties that are leviable under Rules 96 ZO,

96 ZP and 96 ZQ. Since the lead judgment is a detailed

judgment by a Division Bench of the Gujarat High Court

reported in Krishna Processors v. Union of India, 2012 (280)

ELT 186 (Guj.) and followed by other High Courts, we will refer

only to this decision.

33.On the facts before the Gujarat High Court, there were

three civil applications each of which challenged the

constitutional validity of the aforesaid rules insofar as they

prescribed the imposition of a penalty equal to the amount of

duty outstanding without any discretion to reduce the same

depending upon the time taken to deposit the duty. The

Gujarat High Court struck down the aforesaid Rules on the

basis that not only were they ultra vires the Act but they were

arbitrary and unreasonable and therefore violative of Articles 14

and 19(1)(g) of the Constitution.

30

Page 31 34.Shri Radhakrishnan, learned senior advocate appearing

on behalf of the revenue found it extremely difficult to argue that

the aforesaid judgment was wrong. He therefore asked us to

limit the effect of the judgment when it further held that after

omission of the aforesaid Rules with effect from 1.3.2001 no

proceedings could have been initiated thereunder. In this

submission he is correct for the simple reason that the Gujarat

High Court followed Rayala Corporation in holding that

“omissions” would not amount to “repeals”, which this Court

has now clarified is not the correct legal position.

35.However, insofar the reasoning of the High Court is

concerned on the aspects stated hereinabove, we find that on

all three counts it is unexceptionable. First and foremost, a

delay of even one day would straightaway, without more, attract

a penalty of an equivalent amount of duty, which may be in

crores of rupees. It is clear that as has been held by this Court,

penalty imposable under the aforesaid three Rules is inflexible

and mandatory in nature. The High Court is, therefore, correct

in saying that an assessee who pays the delayed amount of

duty after 100 days is to be on the same footing as an

31

Page 32 assessee who pays the duty only after one day’s delay and that

therefore such rule treats unequals as equals and would,

therefore, violate Article 14 of the Constitution of India. It is also

correct in saying that there may be circumstances of force

majeure which may prevent a bonafide assessee from paying

the duty in time, and on certain given factual circumstances,

despite there being no fault on the part of the assessee in

making the deposit of duty in time, a mandatory penalty of an

equivalent amount of duty would be compulsorily leviable and

recoverable from such assessee. This would be extremely

arbitrary and violative of Article 14 for this reason as well.

Further, we agree with the High Court in stating that this would

also be violative of the appellant’s fundamental rights under

Article 19(1)(g) and would not be saved by Article 19(6), being

an unreasonable restriction on the right to carry on trade or

business. Clearly the levy of penalty in these cases of a

mandatory nature for even one day’s delay, which may be

beyond the control of the assessee, would be arbitrary and

excessive. In such circumstances, this Court has held in Md.

Faruk v. State of M.P., 1970(1) SCR 156:

32

Page 33 “The Court must in considering the validity of the

impugned law imposing a prohibition on the carrying

on of a business or profession, attempt an

evaluation of its direct and immediate impact upon

the fundamental rights of the citizens affected

thereby and the larger public interest sought to be

ensured in the light of the object sought to be

achieved, the necessity to restrict the citizen's

freedom, the inherent pernicious nature of the act

prohibited or its capacity or tendency to be harmful

to the general public, the possibility of achieving the

object by imposing a less drastic restraint, and in

the absence of exceptional situations such as the

prevalence of a state of emergency-national or

local-or the necessity to maintain essential supplies,

or the necessity to stop activities inherently

dangerous, the existence of a machinery to satisfy

the administrative authority that no case for

imposing the restriction is made out or that a less

drastic restriction may ensure the object intended to

be achieved.” (at page 161)

36.The direct and immediate impact upon the fundamental

right of the citizen is that he is exposed to a huge liability by

way of penalty for reasons which may in given circumstances

be beyond his control and/or for delay which may be minimal.

The possibility of achieving the object of deterrence in such

cases can be achieved by imposing a less drastic restraint. In

point of fact when we contrast these provisions with Section 37

of the Act, it becomes clear how arbitrary and excessive they

are.

33

Page 34 37.Section 37(3) and 37(4) of the Central Excise Act reads

as follows:-

“Section 37. Power of Central Government to make

rules. —

(3) In making rules under this section, the Central

Government may provide that any person

committing a breach of any rule shall, where no

other penalty is provided by this Act, be liable to a

penalty not exceeding five thousand rupees.

(4) Notwithstanding anything contained in sub-

section (3), and without prejudice to the provisions

of section 9, in making rules under this section, the

Central Government may provide that if any

anufacturer, producer or licensee of a warehouse

—

(a) removes any excisable goods in contravention of

the provisions of any such rule, or

(b) does not account for all such goods

manufactured, produced or stored by him, or

(c) engages in the manufacture, production or

storage of such goods without having applied for the

registration required under section 6, or

(d) contravenes the provisions of any such rule with

intent to evade payment of duty,

then, all such goods shall be liable to confiscation

and the manufacturer, producer or licensee shall be

liable to a penalty not exceeding the duty leviable

on such goods or ten thousand rupees, whichever is

greater;”

38.Under Section 37(3), the statute itself provides in all

cases where no other penalty is provided by the Act that a

34

Page 35 penalty not exceeding Rs.5,000/- alone can be levied. Sub-

Section(4) is even more telling. Even in cases where there is a

clandestine removal of excisable goods, and cases where the

assessee intends to evade payment of duty, the assessee is

liable to a penalty not exceeding the duty leviable on such

goods or Rs.10,000/- whichever is greater. It will be noticed

that the Act is very circumspect in laying down penalty

provisions. Penalties in given circumstances extend only to

Rs.5,000/- and Rs.10,000/- which are small amounts. Further,

even where clandestine removal and intent to evade duty are

present, yet the authorities are given a discretion to levy a

penalty higher than Rs.10,000/- but not exceeding the duty

leviable. In a given case, therefore, even where there is willful

intent to evade duty and the duty amount comes to say a crore

of rupees, the authorities can in the facts and circumstances of

a given case, levy a penalty of say Rs.25,00,000/- or

Rs.50,00,000/-. This being the position, it is clear that when

contrasted with the provisions of the Central Excise Act itself,

the penalty provisions contained in Rules 96ZO, 96 ZP and 96

ZQ are both arbitrary and excessive.

35

Page 36 39.A penalty can only be levied by authority of statutory law,

and Section 37 of the Act, as has been extracted above does

not expressly authorize the Government to levy penalty higher

than Rs.5,000/-. This further shows that imposition of a

mandatory penalty equal to the amount of duty not being by

statute would itself make rules 96ZO, 96 ZP and 96 ZQ without

authority of law. We, therefore, uphold the contention of the

assessees in all these cases and strike down rules 96ZO, 96

ZP and 96 ZQ insofar as they impose a mandatory penalty

equivalent to the amount of duty on the ground that these

provisions are violative of Article 14, 19(1)(g) and are ultra vires

the Central Excise Act.

40.It now remains to deal with SLP(civil) No.22134 of 2000,

(APS Associates v. Commissioner of Central Excise). In this

SLP, the Punjab and Haryana High Court has passed a

judgment on 20.5.2008 in which it construed Rule 3(2) of the

Induction Furnace Annual Capacity Determination Rules, 1997.

The said Rule is set out hereinbelow:-

“3.The annual capacity of production referred

to in Rule 2 shall be determined in the following

manner, namely :-

36

Page 37 The Commissioner of Central Excise (hereinafter

referred to as the Commissioner) shall call for an

authenticated copy of the manufacturer’s invoice or

trader’s invoice, who have supplied or installed the

furnace or crucible to the induction furnace unit, and

ascertain the total capacity of the furnaces

installed in the factory on the basis of such invoice

or document;

(1)If the invoice or document referred to in

sub rule (1) is not available for any reason with

the manufacturer then the Commissioner shall

ascertain the capacity of the furnaces installed in

the induction furnace unit on the basis of the

capacity of comparable furnaces installed in any

other factory in respect of which the

manufacturer’s invoice or other document indicating

the capacity of the furnace is available or, if not so

possible, on the basis of any other material as

may be relevant for this purpose. The

Commissioner may, if he so desires, consult

any technical authority for this purpose;”

41.On the facts in this case, the assessee made a

declaration dated 9.9.1997 that they will pay lump sum duty on

the basis that their induction furnace has a capacity of only 3.2

metric tons. As they were unable to trace out the original bill,

they worked out their capacity on the basis of a Chartered

Engineer’s Certificate dated 7.9.1997 which stated as follows:-

“REF. : JsCE/97 DATED 07.09.97

197

37

Page 38 TO WHOM IT MAY CONCERN

On the request of M/s. A.P.S. ASSOCIATES PVT

LIMITED, I visited their works at D-133, Phase V. Focal

Point. Ludhiana for inspection of the INDUCTION

FURNACE and assessing the capacity thereof.

The party has ONE FURNACE of following

specifications:-

MAKE GEC CAPACITY 3200

KG/1600 KW/1200 V.

While assessing the capacity of a FURNACE for a

particular heat. It may please be noted that besides

crucible size, other factors affecting the capacity are as

follows:

Incoming Power to the crucible from the Power Pack

System of the FURNACE and its quality.

Power fed to the crucible from the Power Pack System of

the FURNACE and its quality.

Quality/Mix of Scrap.

Lining quality and its thickness.

The heatwise capacity may vary for a crucible out over a

given period of time, the average output/Capacity shall

remain almost same.

However, in this case, it may please be noted that at

present, this unit has a sanctioned load of 1680 KVA

(Photocopy enclosed) resulting in a load of 1428 KW, that

can be utilized by the unit. After allowing for an Aux. load

of approximately 125 KW, the load available for melting

shall be approximately 1300 KW. As such, the unit shall

not be able to utilize the full capacity of the furnace i.e.

1600 KW.”

38

Page 39 42. The said declaration and Chartered Engineer Certificate

have not been accepted by the authorities below, and the High

Court rejected it on the footing that Rule 3(2) of the aforesaid

Rules did not, in terms, refer to the sanctioned load of electrical

units, and therefore this could not be taken into account for the

purpose of ascertaining the capacity of the furnaces installed in

the induction furnace unit. We find that the Karnataka High

Court Bhuwalka Steel Industries Ltd. v. Union Of India

2003(159) ELT 147 (Kar.), after quoting the aforesaid Rule,

held as follows:-

“11. Section 3-A of the Central Excise Act provides

for a power to change the excise duty on the basis

of capacity of production in respect of the notified

goods. This has been introduced with a view to

safeguard the interest of Revenue and to arrest

evasion of duty. Sub-section (2) of Section 3-A

provides for framing of Rules in the matter of

determination of the annual capacity. It specifically

provides for taking into consideration such factor or

factors relevant for annual capacity of production of

the factory in which goods are produced. Therefore,

relevant factor like power factor is not alien for

determination of annual production capacity in

terms of Section 3-A of the Act. At this stage it is to

be noticed that the formula provided in Rule 3 of the

Induction Furnace Annual Capacity Determination

Rules provides for three contingencies. The first

contingency is the determination on the basis of

authenticated copy of the manufacturers invoice or

39

Page 40 traders invoice who have supplied or installed the

furnace. The second contingency is that in the

absence of the invoice document being available for

any reason with the manufacturer that the

Commissioner is to ascertain the capacity on the

basis of the capacity of the comparable furnaces

available in similar industry. The third contingency is

determination of the annual capacity of production

of ingots by formula. The formula is ACP = TCF ×

3200. ACP is nothing but the annual capacity of

production of the factory. TCF is also again referred

to the total capacity. Therefore, capacity plays a

vital role in terms of levy of excess duty.

12. In the case on hand, the petitioner has sought

for an option that the annual capacity is to be

determined on pro rata basis in terms of Rule 96-

ZO(3) of the Rules. Petitioner has produced

sufficient material with regard to power factor being

a relevant one. As I mentioned earlier, it is not the

case of the respondents that power factor is not a

relevant factor in terms of the endorsement.

Helplessness is the answer given in the

endorsement. There is no prohibition under the

rules for taking into consideration the power factor

for determination of the annual capacity. So long as

the power factor is not said to be irrelevant factor,

that factor has to go into the process of

determination in terms of Section 3-A read with the

Rules.”

43.We are in broad agreement with the Karnataka High

Court view as it is clear that the load capacity of an induction

furnace unit is certainly relevant material referred to in Rule 3(2)

40

Page 41 to determine the capacity of the furnace installed. It is obvious

that it is not necessary to state such load capacity in terms for it

to be included in Rule 3(2). Agreeing therefore with the

Karnataka High Court’s view we set aside the judgment of the

Punjab and Haryana High Court and declare that a Chartered

Engineer Certificate dealing with the sanctioned electrical load

for a furnace is a relevant consideration which can be looked at

in the absence of other factors mentioned in Rule 3. This

appeal is disposed of accordingly.

44.Conclusion

We have declared in this judgment that the interest and

penalty provisions under the Rules 96ZO, ZP, and ZQ of the

Central Excise Rules, 1994 are invalid for the reasons assigned

in the judgment. Accordingly, the appeals filed by the Revenue

are dismissed and the appeals filed by the assessees are

allowed to the extent indicated above. It may be noted that in

an appeal from a judgment of the Allahabad High Court dated

8.11.2012 in SLP (C) No. 9796/2013, it has been held that the

41

Page 42 levy of penalty under the aforesaid provisions is mandatory in

character. In view of what has been held by us today, this

appeal will also have to be allowed in the same terms as the

other assessees’ appeals which have been allowed. All the

aforesaid appeals are disposed of accordingly.

……………………J.

(A.K. Sikri)

……………………J.

New Delhi; (R.F. Nariman)

November 24, 2015.

42