Supreme Court Refers Rule 5 Validity Challenge Back to Division Bench: M/S Bhuwalka Steel Industries Ltd vs. Union of India (2019) INSC 1234 (05 December 2019)

Date of the Judgment: 05 December 2019
Citation: (2019) INSC 1234
Judges: R.F. Nariman, J., Aniruddha Bose, J., V. Ramasubramanian, J.

When a case is referred to a larger bench, is it always necessary for the larger bench to answer the questions referred? The Supreme Court of India recently addressed this question in a case concerning the validity of Rule 5 of the Central Excise Rules, 1997. The Court clarified that if the core issue is not in dispute, the matter should be sent back to the original bench. This case highlights the importance of focusing on the actual disputes between parties and not addressing hypothetical questions.

The Supreme Court bench comprised of Justice R.F. Nariman, Justice Aniruddha Bose, and Justice V. Ramasubramanian.

Case Background

M/S Bhuwalka Steel Industries Ltd. and another party (referred to as “the appellant-assessee”) challenged the validity of Rule 5 of the Central Excise Rules, 1997. The challenge was based on two grounds: first, that the rule was beyond the scope of the authority granted under Section 3A of the Central Excise Act; and second, that the rule violated Article 14 of the Constitution of India by creating an irrational tax burden on certain manufacturers.

The core issue was whether Rule 5 of the 1997 Rules was unconstitutional. The appellants argued that the rule created two classes of manufacturers and imposed an irrational tax burden on one of them.

Timeline

Course of Proceedings

The Division Bench, instead of addressing the validity of Rule 5, focused on a different question: whether an assessee who chooses to pay duty under Rule 96-ZP(3) can be compelled to pay duty calculated under that rule indefinitely, regardless of actual production. This question was referred to a larger bench because the Division Bench felt that previous judgments of the Supreme Court needed further examination.

The Division Bench noted that the previous judgments did not deal with the validity of Rule 96-ZP(3). Therefore, they directed the matter to be placed before the Chief Justice of India to constitute a larger bench.

Legal Framework

The case revolves around Section 3A of the Central Excise Act, which deals with the charging of excise duty based on capacity of production, and Rule 5 of the Central Excise Rules, 1997.

Section 3A(4) of the Central Excise Act states that an assessee can be compelled to pay duty in terms of Rule 96-ZP(3) without regard to actual production.

The appellant-assessee challenged the validity of Rule 5 of the Central Excise Rules, 1997, arguing that it was ultra vires the authority conferred under Section 3A of the Central Excise Act and that it violated Article 14 of the Constitution of India.

Arguments

The appellant-assessee’s main argument was that Rule 5 of the Central Excise Rules, 1997, was invalid. The challenge was based on two grounds:

• ✓ That the Rule is ultra vires the authority conferred under Section 3-A of the Central Excise Act.
• ✓ That the Rule is violative of Article 14 of the Constitution of India.

The appellant-assessee argued that Rule 5 creates two classes of manufacturers:

• ✓ Those whose Assessed Capacity of Production (ACP) is more than their actual production in the Financial Year 1996-97.
• ✓ Those whose ACP is less than their actual production for the Financial Year 1996-97.

The appellant-assessee contended that the rule imposes an irrational tax burden on the second class of manufacturers.

The appellant-assessee clarified that they were not challenging the fact that an assessee can be compelled to pay duty in terms of Rule 96-ZP(3) without regard to actual production, as laid down in Section 3A(4) of the Central Excise Act.

The innovativeness of the argument lies in the specific challenge to Rule 5 based on its alleged discriminatory impact on certain manufacturers, while not contesting the broader principle of duty payment regardless of actual production.

Issues Framed by the Supreme Court

The Supreme Court did not frame any new issues. Instead, it noted that the original issues raised by the appellant-assessee were:

1. That the Rule is ultra vires the authority conferred under Section 3-A of the Act; and
2. That the Rule is violative of Article 14 of the Constitution of India.

The Court also noted that the Division Bench had framed a different issue, which was not the subject of dispute by the appellant-assessee.

Treatment of the Issue by the Court

Authorities

The Supreme Court did not delve into the merits of the case or the validity of Rule 5. Therefore, it did not discuss any authorities. However, the Division Bench had previously mentioned the following cases:

• ✓ Venus Castings (2000) 4 SCC 206 – Supreme Court of India
• ✓ Supreme Steels (2001) 9 SCC 645 – Supreme Court of India

The Division Bench had stated that these judgments required further examination, which was why the matter was referred to a larger bench.

Judgment

What weighed in the mind of the Court?

The Supreme Court’s primary concern was that the core issue raised by the appellant-assessee was not addressed by the Division Bench. Instead, a different question was framed and referred to a larger bench. The Court emphasized that the appellant-assessee was not disputing the issue referred to the larger bench. Therefore, the Court decided that the matter should be sent back to the Division Bench to address the actual dispute.

“This being the case, we answer this reference by stating that the question posed before us did not arise at all on facts and the question which has been referred is not something which the assessee disputes.”

The Court’s decision was based on the fact that the question referred to the larger bench was not in dispute by the appellant-assessee. The Court emphasized that the original issue raised by the appellant-assessee, i.e., the validity of Rule 5, should be addressed by the Division Bench.

“Accordingly, the matter is sent back to a Division Bench to decide the questions stated in para 20 of Bhuwalka Steel Industries Limited and Another (supra) .”

The Court did not delve into the merits of the case or the validity of Rule 5. The Court’s decision was based on the procedural aspect of the case.

“The issues other than the issue raised in para 51 of the judgment in Bhuwalka Steel Industries Limited and Another (supra) may also be decided in the other tagged matters by the Division Bench.”

Key Takeaways

• ✓ When a matter is referred to a larger bench, the larger bench must ensure that the core issue in dispute is addressed.
• ✓ If the referred question is not in dispute, the matter should be sent back to the original bench to address the actual dispute.
• ✓ The Supreme Court emphasized the importance of focusing on the actual disputes between parties and not addressing hypothetical questions.

Directions

The Supreme Court directed that the appeals and the tagged matters be placed before a Division Bench of the Court.

Development of Law

The ratio decidendi of this case is that a larger bench should only address the questions that are in dispute between the parties. If the question referred to the larger bench is not in dispute, the matter should be sent back to the original bench to address the actual dispute. This case emphasizes the importance of focusing on the core issues in dispute and not addressing hypothetical questions.

Conclusion

In this case, the Supreme Court did not address the validity of Rule 5 of the Central Excise Rules, 1997. Instead, it sent the matter back to the Division Bench to address the core issue raised by the appellant-assessee. The Court emphasized that the larger bench should only address questions that are in dispute between the parties. This case highlights the importance of focusing on the actual disputes in a case.