MSP Steel and Power Ltd. vs Union of India

The main question involved in these writ petitions relates to legality of sub-rule (2) of Rule 3 [Rule 3(2)] of the Central Excise Rules, 2002 (the 2002 Rules) and validity of the notices dated 1-11-2011 and 7-8-2012 (the Notices) issued to M/s. MSP Steel & Power Limited (the Petitioner) by Shri Pramod Kumar and Shri Pradeep Kumar (the Officers) under Rule 14 of the Cenvat Credit Rules, 2004 (the 2004 Rules).

THE FACTS

The Petitioner manufactures MS Billet. In manufacturing the same, it uses Sponge Iron, Pig Iron, MS Scrap, CI Scraps, Carbon Petroleum Coke etc. as inputs and has been availing Cenvat credit for the same.

At the relevant time, the Officers were posted as the Commissioner Central Excise and Custom, Raipur (the Commissioner, Raipur). They issued the Notices under Rule 14 of the 2004 Rules to show cause why action be not taken for wrongly taking Cenvat credit for the aforesaid items. Hence, the present two writ petitions.

POINTS FOR DETERMINATION

We have heard, Shri Kartik Kurmy and Shri S.B. Sharma for the Petitioner; Shri Manish Sharma for the Excise department; and Shri Vivek Shrivastava for Union of India and its officers. The following points arise for determination:

(i) Whether Rule 3 of the 2002 Rules is legal;

(ii) Whether the Officers had jurisdiction to issue the Notices;

(iii) Whether special audit u/s 14-AA of the Central Excise Act, 1944 (the Act) is a condition precedent before issuing the Notice.

1ST POINT : RULE 3 IS VALID

Section 37 of the Act is titled ''Power of Central Government to make rules''. It confers power on the Central Government to made rules. The 2002 Rules have been framed under this section.

Rule 3 of the 2002 Rules is titled as ''Appointment and jurisdiction of Central Excise Officers''. Rule 3(2) of the Rules 2002 empowers the Central Board of Excise and Customs (the Board) to specify the jurisdiction of, apart from the other officers, the commissioners.

Under Rule 3(2) of the 2002 Rules, the Board published a notification dated 13-11-2001 (the 2001 Notification) in the official gazette specifying the territorial jurisdiction of different commissioners. The Commissioner, Raipur was entrusted with the jurisdiction over the entire State of Chhattisgarh.

The Government of India, Ministry of Finance has issued two office'' orders dated 28-1-2011 (the 2011 GO) 25-6-2012 (the 2012 GO) [referred to as ''the GOs''] by which certain officers were promoted. Shri Pramod Kumar and Shri Pradeep Kumar, who have issued the Notices in the cases, were also promoted as Commissioners by the GOs. The GOs were not published in the official gazette.

Shri Pramod Kumar was promoted earlier and has issued notice dated 1-11-2011. Shri Pradeep Kumar was subsequently promoted and has issued notice dated 7-8-2012.

The counsel for the Petitioner places reliance on Coca Cola India Pvt. Ltd. Vs. The Commissioner of Central Excise, (the Coca-Cola case) and Section 37(2)(ib) as well as Section 37(2)(xx) and submits that:

� u/s 37(2)(xx) of the Act, the Board could issue instruction for supplemental matters arising out the rule framed by the Central Government;

� It was Central Government that could define jurisdiction;

� The Central Government cannot delegate its power to the Board.

Sections 37(2)(ib) and 37(2)(xx) (see below)1 provide making rules for purposes other than defining jurisdiction of the officers. They provide as follows:

� u/s 37(2)(ib), the rules may be made to provide for assessment and collection of duties, the authorities by whom to be performed, and the manner in which the duties shall be payable. Admittedly, this does not relate the defining jurisdiction of the officers.

� u/s 37(2)(xx) (see fn-1) provides that the Board or the commissioners may be authorised to issue written instructions for supplemental matters arising out of any rule made by the Central Government u/s 37 of the Act.

Nevertheless, different sub-sections of Section 37 of the Act do not restrict the power conferred upon the Central Government to make rules u/s 37(1) of the Act. This is also clear from the opening words of Section 37(2) itself.

Section 37(2) of the Act states that, the rules may be made in respect of subjects mentioned under different clauses of the Section 37(2). This power is without generality of the power conferred on the Central Government u/s 37(1) of the Act. This is to say that power conferred u/s. 37(1) of the Act is not effected.

u/s 37(1) of the Act, the Central Government can make rules to carry into effect the purposes of the Act. Neither the excise duty can be collected nor the Act can be given effect to, unless the jurisdiction of different officers under the Act is specified. A rule in this respect can be made u/s 37(1) of the Act.

The Board has been constituted u/s 3 of the Central Board of Revenue Act, 1963 (the Constituting Act). Section 3 of the Act is titled ''Constitution of Separate Central Boards for Direct Taxes and for Excise and Customs''. It provides that Central Government may constitute the Board and subject to control of the Central Government, it will perform such duties as may be entrusted to it.

The duty to specify jurisdiction can be entrusted to the Board not only u/s 3 of the Constituting Act but, also by making a rule u/s 37(1) of the Act.

The question involved in this writ petition was not involved in the Coca Cola case. In that case, interpretation of the words ''input services'' was involved. The question was whether the advertisements or sales promotion of aerated water undertaken by the manufacturer was covered in the definition of ''input service'' or net. The Coca Cola case has no application in this case.

In our opinion:

� The power to specify jurisdiction of different officers could be entrusted to the Board u/s 3 of the Constituting Act read with Section 37(1) of the Act: Sections 37(2)(ib) and 37(2)(xx) do not prohibit framing of such rules;

� Rule 3(2) of the 2002 Rules is not illegal.

2ND POINT: NOTICES ARE VALID

Rule 3(2) of the 2002 Rules mandates that jurisdiction of different officers including that of Commissioners should be specified by a notification. The word ''notification'' has also been defined in Rule 2(f) of the 2002 Rules. It means notification in the official gazette. However, it nowhere mandates that promotion orders should be by a notification.

The Commissioner, Raipur was conferred jurisdiction over State of Chhattisgarh by the 2001 Notification. It was admittedly published in the official gazette. By the GOs, the Officers were not conferred jurisdiction over State of Chhattisgarh : they were merely promoted. Rule 3(2) of the 2002 Rules is not applicable to the GOs.

The counsel for the Petitioner has cited Union of India Vs. Kothari Products Ltd., However, it does not apply to the facts of this case.

In the Kothari case, the Commissioner Calcutta did not have jurisdiction over Shillong. He was being conferred jurisdiction over Shillong also. It is for this reason that the Gauhati High Court held that it could only be done by notification in the official gazette. In the present case, no jurisdiction is conferred on Shri Pramod Kumar or Shri Pradeep Kumar : they were merely promoted by the GOs. In any case, the Kothari case merely has a persuasive value rather than a binding one.

In our opinion:

� It was not necessary to notify the order dated 25-6-2012 in the official gazette;

� The Notices issued by the Officers are valid.

3RD POINT: NOT NECESSARY TO DECIDE

The counsel for the Petitioners submit that:

� Section 14AA of the Act provides for special audit;

� It is to be done before prima facie view can be taken to issue notice;

� In this case, the special audit was not done and the initiation of proceeding is illegal.

The counsel for the respondent submits that:

� Section 14AA of the Act uses the word ''may'';

� It merely confers discretionary power with the Commissioner to get special audit done;

� The Commissioner may get it done or may not get it done;

� The Special audit could be done before issuing the notice or even when the proceedings are going on before the Commissioner.

It is not necessary for us to deal with the point. The writ petitions are merely against the show cause notices. It is always open to the Petitioner to raise this objection in its reply and in case it is taken, it may be decided in accordance with law.

CONCLUSIONS

Our conclusions are as follows:

(a) Rule 3(2) of the Rules 2002 is valid;

(b) The Commissioner, Raipur was given jurisdiction over State of Chhattisgarh by the 2001 Notification and not by the GOs. The 2001 Notification was published in official gazette. There is no illegality in the same;

(c) Shri Pradeep Kumar and Shri Pramod Kumar were merely promoted by the GOs. There was no necessity to publish the GOs in the official gazette. They had jurisdiction to issue notice;

(d) It is not necessary to decide the third point. The writ petitions are against the show cause notices. It is always open to the Petitioner to raise this objection in its reply.

With the aforesaid observations, the writ petitions are dismissed.

The relevant part of Section 37 of the Act is as follows:

Section 37. Power of Central Government to make rules. - (1) The Central Government may make rules to carry into effect the purpose of this Act.

(2) In particular, and without prejudice to the generality of the foregoing power, such rules may-

....

(ib) provide for the assessment and collection of duties of excise, the authorities, by whom functions under this Act are to be discharged, the issue of notices requiring payment, the manner in which the duties shall be payable, and the recovery of duty not paid;

(xx) authorise the Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963 (54 of 1963) or Commissioners of Central Excise appointed for the purpose of this Act to provide, by written instructions, for supplemental matters arising out of any rule made by the Central Government under this section;