Holding

Section 3A(2) and Rule 5 embody only a presumption, not a legal fiction, and are intra vires, but the vires of Rule 96ZP(3) and its compatibility with earlier case law must be examined by a larger bench.

Summary

The Supreme Court examined whether Rule 5 of the Hot‑Re‑rolling Steel Mills Annual Capacity Determination Rules, 1997, which allows the annual capacity of production (ACP) to be deemed equal to actual production for the 1996‑97 year, creates a legal fiction and is ultra vires Section 3A of the Central Excise Act, 1944. The Court held that both Section 3A(2) and Rule 5 merely embody a presumption (a rule of evidence) and not a legal fiction, and therefore are intra vires. It further considered whether an assessee who opts for the concessional rate under Rule 96ZP(3) can be compelled to continue paying duty based on the deemed ACP irrespective of actual output, and whether earlier judgments in Venus Castings and Supreme Steels settle the issue. Finding that the earlier cases dealt with Rule 96ZO(3) and not with Rule 96ZP(3), the Court concluded that the question of the vires of Rule 96ZP(3) requires a larger bench and referred the matter accordingly.

Issues considered

The validity of Rule 5 of the 1997 Rules under Section 3A of the Central Excise Act, 1944.
Whether Rule 5 creates a legal fiction or merely a presumption.
Whether an assessee who opts for Rule 96ZP(3) can be forced to continue paying duty based on the deemed ACP despite lower actual production.
The applicability of Venus Castings and Supreme Steels judgments to Rule 96ZP(3).
The denial of the benefit of Section 3A(4) to assessees under Rule 96ZP(3).
Whether the matter should be referred to a larger bench.

Legislation cited

Central Excise Act, 1944s. 3, s. 3A
Central Excise Rules, 1944s. Rule 96ZO(3), s. Rule 96ZP(3)
Hot Re‑rolling Steel Mills Annual Capacity Determination Rules, 1997s. Rule 3, s. Rule 5
Indian Evidence Act, 1872s. 114

Subjects

Central ExciseSection 3ALegal fictionPresumptionAnnual capacity of productionRule 96ZP(3)Rule 5Ultra viresSubordinate legislationExcise dutyLarger bench

Judgment

[2017] 2 S.C.R. 993

MIS. BHUWALKA STEEL INDUSTRIES LTD. & ANO!HER A
v.
UNION OF IND!A & OTHERS
(Civil Appeal No.7823 of2014)
MARCH 24, 2017 B
[J. CHELAMESWAR AND ABHAY MANOHAR SAPRE, JJ.]
Central Excise Act, 1944 - s.3A - Purpose of inco11Jorailng
s. 3A - Discussed.
Central Excise Rules. 1944 - rr. 96ZP(3) and 96Z0(3) -
Whether an assessee who chooses once to pay duty in terms of
c
r. 96ZP(3) can be compelled to pay duty calculated in accordance
with the said rule for all times to come without any regard to actual
production - Department relied on Venus Castings and Supre~1e Steel
case rendered by Supreme Court to stale that the assessee who makes
a choice once to avail the scheme under r. 96ZP(3) cannot go beyond D
his choice - However, in both these cases, Supreme Court was
dealing with 1: 96Z0(3) - In Venus Castings, a r~ference was made
to r. 96ZP and it was observed that r. 96ZO and 1: 96ZP provide for
procedure to be followed by the mamifacll/rer of ingots and billets
and hot re-rolled products and the scheme envisaged tlv1t these
E
provisions was identical - Held: There are broad similarities between
these rules but they are not identical - The only similarity between
r. 96Z0(3) and r. 96ZP(3) is that both the Rules seek to eliminate
the benefit of the procedure u!s.3A(4) of the Act in cases of those
assessees who choose to opt for levy and collection of excise duty
in accordance with the sub-rules (3) which are exceptions to the F
general Rules of levy and collection of duties provided u/n: 96ZO
and 96ZP - Therefore, it is difficult to accept the submission of the
Department that the issue is covered by the judgments of t/:is Court
rendered in Venus Castings and Supreme Steels - These two
;udgments require a ji1rther examination - Apart from that, these
;udgments did not deal with vires of r. 96ZP(3} - However. in view G
of the fact that Supreme Steels is a decision rendered by a Bench of
three Judges, it is deemed appropriate that the question of law be
settled by a Bench of an appropriate strength - Matter referred to
larger bench - Hot re-rolling Steel Mills Annual Capacity
Determination Rules, 1997 - 1:5 - Central Excise Act, 1944 - H
993
994 SUPREME COURT REPORTS [2017] 2 S.C.R.

A s. 3A - Reference to larger bench.
Interpretation qf statutes:
Legal fiction and presumption - Distinction between - Held:
A fiction assumes somethilig which is known to be false, while
presumption assumes something which may possibly be true.
B
Legal fiction - Only sovereign legislative bodies can create
legal fiction but not a subordinate /'!"' making body.
Referring the matter to larger bench, the Court
HELD: 1. Parliament from time to time took notice f!f the
c fact that some of the manufacturers/producers of excisable goods
are evading duty by suppressing the information of the q11a•1tum
of actual production/manufacture of goods undertaken by them.
Therefore, Sectio113A was introduced which authorised a diff~rent
mode of levy, assessment and collection of excise duty on notified
D
goods. Under the Scheme of Section 3A, the need to constantly
monitor the actual quantum of notified goods produced/
manufactured is obviated by declaring that the ACP of factory is
deemed to be the annual production of the factory for the purpose
of levy and collection of excise duty. [Para 24] [1010-B-C)
2. llot re-rolling Steel Mills Annual Capacity Determination
E
Rules, 1997 prescribed the procedure by which the ACP is to be
determined. Rule 3 prescribed a formula based 011 various factors
mentioned therein for the determination of the ACP. The
grievance of appellant is against Rule 5 which mandates that the
ACP determined in accordance with Rule 3 be discarded i:t the
F circumstances mentioned under Ruic 5. Rule 5 stipulated that if
the ACP determined in accordance with the preceding four Rules
is less than the actual production of a particular assessee for the
financial year 1996-1997, the authority determining the ACP is
required to abandon the figure of ACP arrived at by employing
the procedure contained in Rules 1 to 4 and adopt the actual
G
production achieved by the assessce for the financial year 1_996-
97 to be the ACP of that assessce. The words "sflal/ be deemed
to be" occurring in both Section 3A(2) and Ruic 5 appear to c;eate
a fiction. But on a true and proper construction they do not create
a legal fiction. Section 3A(2) only embodies a rule of evidence
H which command the department to presume certain facts. Such
MIS. BHUWALKA STEEL INDUSTRIES LTD. v. UNIGN OF 995
INDIA

presumptions are not unknown to law. Section 114 of the Indian A - ---
Evidence Act, 1872 enacts a rule of evidence which re11uires a
court to presume the existence of any fact which the Con rt thinks
likely to have happened regard being bad to common course of
natural events etc. The presumption created under Rule 5 is
similar to the one contained in illustration (d) to Section 114 of
B
the Evidence Act.There is a clear distinction in law between a
legal fiction and presumption. A fiction assumes something which
is known to be false; a presumption (whether conclusive or
rebuttable) assumes something which may possibly be true. This
distinction is regarded as being reinforced, as it were, in the case
of the rebuttable presumption because such a presumption c
assumes a fact which prob11bly is true." "Presumptions are closely
related to legal fictions .•. but they operate differently". "l<'ictions
always conflict with reality, whereas presumptions may prove to
be true''. Legal fictions create an artificial state of affairs by a
mandate of the legislature. They compel everybody concerned
D
including the courts to believe the existence of an artificial state
of facts contrary to the real state of facts. When a fiction is created
by law, it is not open to anybody to plead or argue that the artificial
state of facts created by law is not true, barring the only possible
course if at all available is to question the constitutionality of the
fiction. It is settled law that only sovereign legislative bodies E
can create legal fictions but not a subordinate law making body.
{Paras 25, 30, 31 and 32] [1010-C-D; 1012-B-D; 1013-A-D;
1014-A-B)
3. Rules of evidence are the principles of law which
command the courts or other bodies whose duty is to determine F
the existence or otherwise of certain facts. The A11gfo stixo11 legal
system recognises that facts could be established either by direct
or circumstantial evidence. Presuming certain facts, if they are
so commanded by law has always been recognised by our legal
system to be one of the accepted processes for those bodies
c_harged with the duty of collecting evidence. Therefore, law G
making bodies make provisions incorporating presumptions
wherever they believe it a11propriate. But such practices have
well recognised qualifications and limitation. Section 114 of the
Evidence Act embodies some of the basic principles of the law of
presumptions and the limitations thereon. Technica"lly, the H
996 SUPREME COURT REPORTS [2017] 2 S.C.R.

A Evidence Act may or may not be applicable to every body charged
with the responsibility of collecting evidence. But the principles
underlying the provisions do constitute valuable guides. They
are based on sound principles of jurisprudence deduced from
the observation of human conduct, natural course of event• and
logic etc. (Para 34] (1014-E; 1015-A-BJ
B
4. Under the scheme of the Act, the actual quantli"m of
production of an industry (manufacturer) is one of the essential
factors for determining the tax liability of the manufacturer. Both
Section 3A(2) and Rule 5 deal with the procedure for the
determination of the quantum of production of a.factory producing
c notified goods. Section 3A of the Act authorises the Governruent
to make rules for determining the ACP of the manufacturers. It
further declares that the ACP so determined "shall be deemed
to he the annual production of such goods by such factory". In
other words, sub-section (2) commands that a factory whose ACP
is determined in accordance with the rules made thereunder must
be befo:ved to produce the same quantum of goods equal to the
ACP for every succeeding year. By definition a "fiction always
conflicts with the reality whereas presum11tion may be proved to
be true". It, therefore, follows that there is no possibility of a
fiction being rebutted by evidence. The belief flowing from Section
E 3A(2) regarding the annual production of a 111anufacturcr ~ould
be rebutted by adducing evidence. Section 3A(4) provides for
such rebuttal. Therefore, Section 3A(2) embodies only a rule of
evidence (pres11111ption) hut does not create a legal fiction. The
language employed by the draftsman is likely to mislead to a
conclusion that a fiction is created. But on a true and proper
construction of the entire Scdion 3A the only possible conclusion
is that Section 3A(2) embodies only a presumption (rule of
evidence). (Paras 36-38] (1015-D, H; 1016-A-DJ
5. Under the Scheme of the Rules of 1997, the first four
rules stipulated the procedure for determining the ACP of the ·
G
manufacturers of the class to which the ap11ellants belong, by
drawing an appropriate presum11tion having regard to the
tcchincal data relating to the machinery employed by the
manufacturer etc. The lawmaker was conscious of the fact that
the actual quantum of goods that can be manufactured in a factory
H docs not solely depend on the ACI' of the factory. It depends
M/S. BHUWALKA STEEL INDUSTRIES LTD. v. UNICN OF 997
INDIA

upon a number of other variable factors too ..For example, though A
the machinery employed by a manufacturer has the technical
capacity to produce a certain quantum (maximum produ~tion) of
goods, in a given interval of time, the manufacturer may not always
achieve the maximum production because of the non-availability
of either the requisite energy to operate the factory or finance or
B
raw-material etc. The first four rules of the Rule of 1997 create
a scheme of evidence by which a presumption (based on the
technical specification of the manufacturers' machinery) of the
possibility of a certain quantum of production is to be made.
However, the lawmaker visualized that in certain cases such a
process may lead to a conclusion that the ACP of a manufacturer c
is less than the actual production that was achieved by employing
the same machinery at an earlier point of time - a conclusion
inconsistent with the established factual data. Therefore, it is
stipulated under Rule 5 that in such circumstances the ACP of
the factory must be "deemed to be" equivalent to the actual
D
production achieved in the financial year prior to the coming into
force the Rules of 1997. Rule 5 recognises the possibility of an
error in arriving at the ACP by applying the formula contained in
Rule 3. Because the formula itself is based on certain
assumptions. Therefore, Rule 5 provides that the determination
of the ACP made in accordance with the procedure conbtined in E
Rule 3 is liable for correction in some cases, in the circumstances
indicated therein. But the benefit of Section 3A(4) i.e. U1e right
to rebut the presumption regarding the annual production is
denied to a sub-class of manufacturers falling under Rule 96ZP(3))
who are also a part of a larger class falling under the Scheme of
F
Rule 96ZP of the Central l<:xcise Rules, 1944. But for the
declaration of sub-rule (3) of Rule 96ZP, an assessee whcse ACP
is determined in accordance with the Rule 3 of the Rules of 1997
would be entitled under sub-section (4) of Section 3A of the Act,
to s~ek the determination of his actual 11roduction and the tax
liability thereon. [Paras 39-411 [1016-E-II; 1017-A-D] G
6. The determination of the ACP is a one time affair. It
ap11ears from the factors indicated in the Rule 3 that the ACP
would remain unaltered so long as there is no change in the
machinery employed and the 'number of utilized hours" of the
machinery remains constant. But the "number of utilized hours" H
998 SUPREME COURT REPORTS [2017] 2 S.C.R.

A could vary from time to time depending upon various factors,
such as, the availability of electric power, capital or labour etc.
Such variations could result in a situation that the actual production
of the factory for any given interval of time is less than the ACP.
Therefore, it is declared under Section 3A(4) that an assessee is
entitled to seek determination of the actual production of his
B
factory if it is less than the ACP. Such an opportunity provided
under Section 3A(4) is a recurring opportunity available to the
assessee from time to time. The determination of amount of
dnty payable by the assessee is not a one time affair. Such a
determination is· to be made periodically. Therefore, the
c 011portunity of placing evidence for the establishment of actual
production for a, period relevant for the assessment mn~t 'be
available to the assessee from time to time. (Paras 42, 431 11017-
E-IJ; 1018-A]
7. Rule 96ZP(3) is relevant in the context of the assessment
D of duty for those assessees who choose to opt for the payment of
the excise duty on a monthly basis. The duty payable by such
assessees would be Rs.300 x ACP in metric tonnes. Rule 96ZP(3)
stipulates that an assessee seeking to avail the sct.eme
(concessional rate of duty) under Rule 96ZP(3) is required to
make application in the prescribed format. The Rule is silent
E about the point of time at which such an ap11licalio11 is requircti"to
be made. But sub-rule (3) stipulates the time within which the
duty is ret1uircd to be paid, i.e.,h1 the "beginning of each month"
and "latest by the tenth of each month". It is possible that in a
given case an assessee choosing at a given point of time to make
F payment of duty on monthly basis calculated in terms of sub-rule
(3) but a few months later (for that luatter even a month later),
for various legitimate reasons, production may fall considerably
below the ACP (of the assessees factory). It is possible, in some
cases there can be total cessation of the manufacturing activity
for reasons beyond the control of the assessee. If the option
G exercised by an assessce under Rule 96ZP(3) is held to be good
for eternity it would not only lead to illogical consequences but
also to an unconstitutional collection of taxes without there ~eing
a taxable event. Rule does not prevent the asscssec from opting
out of the Scheme of Rule 96ZP(3). After availing the scheme for
H a month by paying the duty in advance, if the assessee ends up in
MIS. BHUWALKA STEEL INDUSTRIES LTD. v. UNICN OF 999
INDIA

a situation of not being able to produce the quantum of goods A
equivalent to 1/12 of his ACP, the Rule does not compel the
assessee to continue the availment of concessional rate of duty
(for the next month) on a quantum of production which he is unable
to achieve. The assessee must have an option to make the
payment of duty in accordance with Rule 96ZP(l) at a higher rate
B
but on the actual production; For those assessees who chose to
pay the duty at higher rate in accordance with sub-rule (1) the
benefit of section 3A(4) is available. {Paras 44-47] {1018-B-H;
1019-A-B]
8. It is argued for the respondent in view of the two
judgments of this Court in Ve11us Casti11gs mu/ Supre1112 Steels, c
the question regarding the vires of sub-rule (3) of Rule 96ZP of
the Central Excise Rules, 1944 is no more res-i11tegm. It is also
submitted by the respondent that this Court has already declared
that the assessee who makes a choice once to avail the scheme
under sub-rule (3) cannot go back on his choice. In I?oth the . D
abovcmentioned cases,'this Court was dealing with R.ule 96Z0(3)
of the Central Excise Rules, 1944. Neither the vires of Rule
96ZP(3) nor its interpretation actually fell for consideration of
this Court in either of the these cases. However, in Ve11us Casti11gs,
at para 9, a reference was made to Rule 96ZP and this Court
observed that "Rules 96ZO and 96ZP provide for procedure to E
be followed by the manufacturer of ingots and billets and hot re-
rolled products respectively. The scheme envisaged under these
provisions is identical". The finding that the scheme of both the
Rules is identical cannot be acce11ted. There are broad similarities
between the Rules but they are not identical. [Paras 48-51!] [1019- F
C-F]
9. In Ve11us Casti11gs; this Court held that both the
abovementioned Rules contain scheme of "two alternative
procedures to be adopted at the option of the assessee" and
concluded that "the manufacturers, if they have availed the
procedure under Rule 96Z0(3) at their option, cannot claim the G
benefit of determination of production capacity umler Section
3A(4) of the Act.which is specifically excluded". This Court only
dealt with Rule 96Z0(3) but not Rule 96ZP(3). Seco11dly, Section
3A( 4) of the Act docs not deal with the determination of the
production capacity of the factory. It only deals with the right of H
1000 SUPREME COURT REPORTS (2017] 2 S.C.R.

A the assessee to establish that notwithstanding the determin-.tion
of the ACP, the actual production achieved is less than the ACP
determined. The Court concluded "that if the entire enactment
is read as a whole indicates the purpose and that purpose is
carried out by the Rules, the same cannot be stated to be ultra
vires of the provisions of the enactment." Such a statement of
B
law has no basis either in precedent or on any settled principles
of interpretation of statutes. On the other hand, it is in conflict
with a long settled line of authorities that subordinate legislation
which is in conflict with the parent enactment is unsustait.able.
[Paras 51, 52] [1020-A-B, J<'-H; 1021-A]
c 1O. The decision in Supreme Steels was rendered by a Bench
of three learned Judges. The vires of Rule 96ZO was directly in
issue in Supreme Steels. This Court in Venus Cll»tiiigs noted that
"in these proceedings the validity of the provisions of the Rules
is not in challenge but only their interpretation and application
have to be examined". However, the Judges i11 Supreme Steels
D
opined that the controversy was finally settled by the judgment
of this Court in Vt!nus Cllsti11gs. Apart from the various problems
in the abovementioned two judgments, there are marked
differences in the language employed under Rule 96ZP(3) and
the scheme appears to be different from the one adopted under
E the scheme of Rule 96Z0(3). [Paras 53, 54] [1021-B-CJ
11. Rule 96ZO deals with levy, assessment and colle~tion
of excise duty on the manufacture of non-alloy steel ingots and
billets. Duty on such goods is payable at the rate of Rs. 750/- per
metric tonne. Sub-rule (3) prescribes levy and collection of a
F lump sum ofRs.5 lakhs per month in cases of those manufacturers
who have a total furnace capacity of three metric tonnes installed
iii their factories. However, such a scheme is available at ' the
option of the assessee. ln other words, a manufacturer has a choice
to make a lump sum payment of Rs.5 lakhs, irrespective of his
actual production for that month, in two instalments instead of
G paying the duty at the rate of Rs.750/- per metric tonne of the
actual production of the manufacturer. Whether the capacity of
three metric tonnes in the said sub-rule is the capacity of the
factory per day or per month or per annum is not very clear from
the language of the Rule •. The expression does not appear to he
H defined under the Rules. [Para 55] [1021-D-E; 1022-AJ
MIS. BHUWALKA STEEL INDUSTRIES LTD. v. UNION OF 1001
INDIA

12. Coming to Rule 96ZP(3), it also provides an option to A
the assessee falling under the Rule to pay the duty at the
concessional rate of Rs.300 per metric tonne contrary to the
liability of the assessees who do not opt to avail the procedure
under sub-rule (3) to pay Rs.400 per metric tonne. But both the
classes of assessees are required to pay the total duty calculated
B
on the ACP of the factory. While those who choose to pay the
lower rate of tax under sub-rule (3) pay the tax every month and
those who do not opt to avail the scheme under sub-rule (3) are
required to pay tax long after duty actually falls due as indicated
under sub-rule (1) and (2). The only similarity between Roles
96Z0(3) and 96ZP(3) is that both the Rules seek to eliminate c
the benefit of the procedure under Section 3A(4) of the Act in
cases of those assessees who choose to opt for levy and collection
of excise duty in accordance with the sub-rules (3) which are
exceptions to the general Rules of levy and collection of duties
provided under Rules 96ZO and 96ZP. Therefore, it is difficult
D
to accept that the issue is covered by the judgments of this Court
in Ve11us Ctu·ti11gs and Supreme Steels. These two .ilidgments
require a further examination. In view of the fact that Supreme
Steels is a decision rendered by a llcnch of three Judges, it is
deemed appropriate that the question oflaw be settled by a Bench
of an appropriate strength. [Paras 56-58] [1022-ll-J<') E
Commissioner of Central Excise & Customs v. Venus Castings
(P) Ltd. (2000) 4 SCC 206 : [2000) 2 SCR 988;Union of
India & Others v. Supreme Steels and General Mills & Others
(2001) 9 SCC 645; Consolidated Coffee Ltd. & Another v.
Coffee Board, Bangalore (1980) 3 SCC 358 : [1980) 3 SCR F
625; Agricultural Market Commillee v. Shalimar Chemical
Works Ltd. (1997) 5 SCC 516 : [1997) l Suppl. SCR 164 -
referred to.
Case Law Uefcrcncc
(1997) 1 Suppl. SCR 164 referred to Para 19 G
[1~80] 3 SCR 625 referred to · Para31
[2000] 2 SCR 988 referred to Para 48
(2001) 9 SCC 645 referred to Para 48
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 7823
of2014. . H
1002 SUPREME COURT REPORTS [2017] 2 S.C.R.

A From the Judgment and Order dated 27.09.2013 of the High Court
of Karnataka at Bangalore, in W.A. No. 315 of 2006
WITH
C. A. Nos. 7825 and 7824 of2014.
Mrs. Nalini Chidambaram, Sr. Adv., Abhishek Anand, Aditya
B Bhattacharya, Anandh K., Victor Das, M. P. Devanath, Yogendra, Vikas
Mehta, Ms. Anushree Menon, Advs. for the Appellants.
K. Radhakrishnan, Sr. Adv., Mrs. Nisha Bagchi, H. R. Rao,
Ms. Pooja Sharma, B. Krishna Prasad, Advs. for the Respondents.
The Judgment of the Court was delivered by
c CHELAMESWAR, J. l. These three appeals are factually
interconnected and also raise a common question oflaw.
2. The appellants in Civil Appeal No.7823/2014 M/s. Bhuwalka
Steel Industries Ltd. originally owned three (3) industrial units (Hot Re-
rolling Steel Mills) located in the State of Kamataka. Subsequently, two
D of those units came to be acquired by the appellants in the othe~ two
appeals in this batch. Further details of the acquisition may not be relevant
for the purpose of this judgment.
3. The production activity carried on by the three industrial units
of these appellants is subject to levy of excise duty under the Central
E Excise & Salt Act, 1944 (hereafter 'THE ACT'). Section 3 1 of THE
ACT is the basic charging section.
4. However, by the Finance Act, 1997, Section 3A' came to be
introduced in THE ACT.
"Section 3A. Determination of annual capacity of
production of the factory for levy of Excise duty.-
F
1 Section 3 insofar as it is relevant' for the purpose of this judgment read at the relevant
point of tin1e:
·'Section 3. Duties specified in the First Schedule and the Second Schedule to
the Central Excise Tariff Ac~ 1985 to be levied.- (I) There shall be levied and
collected in such 1nanner as may be prescribed, -
(ri.) a duty ofexcise on all excisable goods which are produced or manufc.cturcd
G -·'in India as. and at the rates. set forth in the First Schedule to the Central
Bxcise TariffAct. 1985;"
'Ins. By Act 18 of2008, sec. 79 (w.e.f. I0-5-2008). Earlier section 3Awas inserted
by Act 81 of 1956. sec. 2 (w.c.f. 22-12-1956) and was omitted by Act 58 of"1960, sec.
2 and Sch. I (w.e.f. 26-12-1960) and was again inserted by Act 26 of 1997, sec. 81
(w.e.t: 14-5-1997) and was amended by Act IO of 2000, sec. 93 (w.e.f. 1-4-2000) and
11as again omitted by Act 14 of 2001, sec. 121 (w.e.f. 11-5-200 I).
H
MIS. BHUWALKA STEEL INDUSTRIES LTD. v. UNION OF 1003
INDIA [CHELAMESWAR, J.]

(I) Notwithstanding anything contained in Section 3, where the A
Central Government, having regard to the nature of the process
of manufacture or production of excisable goods of any specified
description, the extent of evasion of duty in regard to such goods
or such other factors as may be relevant, is of the opinion that it
is necessary to safeguard the interest of revenue, specify, by
B
notification in the Official Gazette, .such goods as notified goods
and there shall be levied and collected duty of excise on such
goods in accordance with the provisions of this section.
(2) Where a notification is issued under sub-section (I), the
Central Government may, by rules, provide for determination of
the annual ca11acity of production, or such factor or factors c
relevant to the annual capacity of production of the factory in
which such goods are produced, by the Commissioner of Central
Excise and such annual capacity of production shall be deemed
to be the annual production of such goods by such factory:
Provided that where a factory pioducing notified goods is in D
operation only during a part of the year, the production thereof
shall be calculated on proportionate basis of the annual capacity
of production.
(3) The duty of excise on notified goods shall be levied, at
such rate as the Central Government may by notification in the
E
Official Gazette specify, and collected in such manner as may
be prescribed:
Provided that, where a factory producing notified goods did
not produce the notified goods during any continuous period of
not less than seven days, duty calculated on a proportionate basis
shall be abated in respect of such period ifthe manufacturer of F
such goods fulfils such conditions as may be prescribed.
(4) Where an assessee claims that the actual production of
notified goods in his factory is lower than the pn:,duction
determined under sub-section (2), the Commissioner of Central
Excise shall, after giving an opportunity to the assessee to produce G
evidence in support of his claim, determine the actual production
and redetermine the amount of duty payable by the assessee
with reference to such actual production at the rate specified
in sub-section (3 ).
(5) Where the Commissioner of Central Excise determines
H
1004 SUPREME COURT REPORTS [20 I 7] 2 S.C.R.

A the actual production under sub-section (4 ), the amount of duty
already paid, if any, shall be adjusted against the duty so
redetennined and if the duty already paid falls short of, Oi is in
excess of, the duty so redetermined, the assessee shall pay the
deficiency or be entitled to a refund, as the case may be.
(6) The provisions of this section shall not apply to goods
B
produced or manufactured,-
(i) in a free-trade zone and brought to any od1er place in India;
or
(ii) by a hundred per cent export-oriented undertaking and alkiwed
to be sold in India.
c Explanation I. - For the removal of doubts, it is hereby
clarified that for the purposes of Section 3 of the Customs Tariff
Act, 1975 (51 of 1975), the duty of excise leviable on the notified
goods shall be deemed to be the duty of excise leviable on such
goods under the Schedule to the Central Excise TariffAct, 1985
D (5of1986), read with any notification for the time being in force.
Explanation 2. - For the purposes of this section the
expressions "free trade zone" and "hundred per cent export-
oriented undertaking" shall have the meanings assigned to them
in section 3."
[emphasis supplied]
E
Section 3A authorised the identification of a certain class of goods
and levy and collection of excise duty on such goods otherwise ttan in
accordance with the scheme of levy and collection contemplated under
Section 3 of THE ACT. It appears from the language of Section 3A,
Parliament believed that manufacturers of certain classes of goods are
F evading payment of excise duty. It authorised the Government of India
to identify the goods, the manufacturers of which are resorting to evasion
of excise duty. Section 3A( I) stipulated that such identified goods are to
be notified in the Official Gazette (hereafter "NOTIFIED GOO!)S").
Section 3A(3) as it stood at the relevant point of time stipulated that the
Central Government may by a notification in.the official gazette specify
G
the rate of duty to be levied on NOTIFIED GOODS and the method
and manner of the collection thereof.
In other words, notwithstanding the prescription of the rates of
duty pursuant to Section 3 and the procedure for the assessment of duty
liability and the mode of collection of such assessed duty, Goven~ment
H oflndia is authorised under Section JA to prescribe different rates of
MIS. BHUWALKA STEEL INDUSTRIES LTD. v. UNION OF 1005
INDIA [CHELAMESWAR, J.]

duty and different modes of assessment and collection of duty on the A
NOTIFIED GOODS.
Under sub-section (2), the Government of India was at:thorised
to make rules providing for either the determination of the "annual
capacity of production" (hereafter ACP) or 'the factors relevant to the
ACP' of the factory in which NOTIFIED GOODS are produced. The B
determination of the ACP is required to be made by the "Commissioner
of Central Excise". It further declared that a factory where ACP is
determined shall be presumed to annually produce the NOTIFIED
GOODS equivalent in quantum to its ACP.
Sub-section (4) stipulates that in a case where an assessee "claims
that the actual production of his factory is lower than" the ACP, the
c
assessee is entitled to seek the determination of the actual production
of the NOTIFIED GOODS in "his factory" by adducing appropriate
evidence. Upon such claim being made, the Commissioner of Central
Excise is required to determine the actual production of the assessee's
factory and also "redetermine the amount of duty payable by the assessee D
with reference to such actual production".
5. Admittedly, the goods manufactured by the three appellants fall
under the same class and described under the Excise Tariff Act as "non-
alloy steel hot re-rolled products" and they were NOTIFIED GOOQS
at the relevant point of time.
E
6. In exercise of the powers conferred under Section 3A(2) of
THE ACT, a set of Rules came to be framed by the Goven•ment of
India w.r.t. the goods manufactured by the appellants before us known
as the Hot Re-Rolling Steel Mills Annual Capacity Determination Rules,
1997 (hereafter "RULES of 1997") undera notification dated 1.8.1997.
Initially, the said notification contained four Rules for "determining the F
annual capacity of production of a factory" with the aid of ''hot-Re-
RollingMill".
7. A month later, on 30.8.1997, Rule 5 which is the bone of
contention in the present case came to be inserted in the said rules:
"5. In case, the annual capacity determined by the formula in G
sub-rule (3) of rule 3 in respect of a mill, is less than the actual
production of the mill during the financial year 1996-97, then
the annual capacity so determined shall be deemed to be equal
to the actual production of the mill during the financial year
1996-97." [emphasis supplied]
H
1006 SUPREME COURT REPORTS (2017] 2 S.C.R.

A The true meaning and purport of the rule shall be examined later.
8. It is also necessary to take note of the fact that a set of Rules
known as Central Excise Rules, 1944 were framed by the Government
oflndia in exercise of the power conferred under various provisi0ns of
the Central Excise Act, 1944. Rule 96ZPofthe said rules prescribes an
B elaborate procedure to be followed by the manufacturers of 'Non-.\lloy
Steel Hot Re-rolled products" falling under various heads of the Excise
Tariff Act, 1985. The said Rule occurs in Chapter Xl of the Rules of
1944. Chapter XI was inserted in the Rules w.e.f. 01.08.1997.
9. Section 3A(3) authorised the Central Government to specify
c the rate at which the central excise duty is Jeviable on NOTl"IED
GOODS by notification. Obviously, it is in exercise of the power under
Section 3A(3), Rule 96ZP was made prescribing a fixed rate of du<y per
metric tonne on the goods manufactured by the appellant. It provides for
the levy of excise duty at different rates on the goods falling under the
same description at Rs.400/-.and Rs.300/- per metric tonne respectively
D under Rule 96ZP(I) and (3) depending upon the assessee's choice
regarding the time of the payment of duty. Rule 96ZP seeks to levy the
excise duty at a concessional rate of Rs.300/- per metric tonne.
I 0. Rule 96ZP prescribes a levy not on the basis of the value of
the specified goods but on the quantum of production. It further authorises
E the levy and collection of duty at different rates depending upon the
mode of payment of the duty chosen by the manufacturer. In other words,
Rule 96ZP creates two classes of manufacturers of the goods falling
within the sweep of the Rule, though both the classes of manufacturers
produce goods of the same description. One class who choose to pay
the duty on monthly basis (falling under sub-rule (3)) and the other class
F
paying duty in a manner otherwise specified under the various other
sub-rules of Rule 96ZP.
l I. Undisputedly, Rule 96ZP is applicable to the products of the
appellants herein. It is sufficient for our purpose to note that under Rule
96ZP(1 )',the manufacturer of the goods falling under the ambit of Rule
G 96ZP is required to debit an amount calculated at the rate of Rs.400/-
3
Rule 96ZP( I) A manufacturer of non-alloy steel hot re-rolled products falling under
sub-heading Nos ................ of the Schedule to the Central Excise Tariff Act. 1985 (5
of 1986),' shall debit an amount calculated at the rate of Rs. 400/- per metric tonne at the
thne of clearance of .... products .... fron1 his factory .... subject to the condition that
H the total amount of duty liability shall be calculated and paid in the follo\ving manner:-
MIS. BHUWALKA STEEL INDUSTRIES LTD. v. UNION OF 1007
INDIA [CHELAMESWAR, J.]

per metric tonne on the "non-alloy steel hot re-rolled products:' at the A
time of the clearance of the goods from his factory. Under paragraphs
land II of Rule 96ZP(l ), the manner of payment of the duty sc debited
is stipulated. For example, for the period commencing from l" September,
1997 to 31" March, 1998, a manufacturer is required to pay by 31"
March 1998 a total amount calculated at the rate of Rs.400/- per metric
B
tonne on the ACP of his factory. The full details of the other paragraphs
of sub-rule (I) may not be necessary for the purpose of this judgment.
12. Under sub-Rule (3)', a manufacturer is given an option to pay
the duty in 12 equal monthly instalments. It further stipulates that if a
manufacturer chooses to pay the duty on monthly basis, the same shall
be calculated at the rate ofRs.300/- per metric tonne multiplied by the c
ACP of the factory. Each instalment is payable on or before the 10'' of
each succeeding month. In other words, sub-rule (3) provides for the
levy of a concessional rate of excise duty on manufacturers who are
willing to opt for a scheme of making the payment of tax on a monthly
basis instead of postponing the payment till the end of the year as D
prescribed under sub-rule (1). However, sub-rule (3) also imposes a
limitation on those manufacturers who opt for the benefit of a reduced
rate of duty by disabling them from availing the benefit of the procedure
contemplated in sub-section (4) of Section 3A of THE ACT- that is
disputing the correctness of the determination of theACP of the factory
made under the RULES of 1997. E
13. It is in this background of the provisions oflaw, these appeals
are required to be decided.
14. In all these appeals, the ACP of the concerned factories was
detenn.ined by different orders. Obvi~usly the ACP so determined was
less than the actual 1iroduction of each one of the factories for the F

.i Rule 96ZP(3) Nohvithstanding anything contained else\\·here in these rules. a
manufacturer rnay, in the beginning of each month from 1st day of September, 1997 to
. the 31st day of March, 1998 or any other financial year, as the case may be. and latest
by the tenth of each 1nonth, pay a sun1 equivalent to one-twelllh of the ainount calculated
at the rate ofRs.300/- multiplied by the annual capacity in metric tonnes, as determined G
under sub-rule (3) of rule 3 of the Hot Re-rolling Mills Annual Capacity Determination
Rules, 1997, and the amount so paid shall be deemed to be full and final discharge of his
duty liability for the period from the I st day of September, 1997 to the 3 Ist day of
March, 1998, or any other financial year, as the case may be, subject to tht: condition
that the manufacturer shall not avail of the benefit, if any, under the proviso to sub-
section (3) or under sub-section (4) or the section 3A of the Central Excise Ar:t, 1944 (I
of\944). H
1008 SUPREME COURT REPORTS (2017) 2 S.C.R.

A financial year 1996-97. Therefore, the ACP was "deemed" to be the
same as the actual production for the financial year 1996-1997 in view
of the mandate contained under Rule 5 of the RULES of 1997.
15. Aggrieved by the determination of the ACP each of the
appellants pursued multiple legal proceedings:
B I. They appealed to the CESTAT;
2. They invoked the authority of the Commissioner of Central
Excise under sub-section (4) of Section 3A; and
3. Simultaneously, they filed writ petitions challenging the validity
of the abovementioned Rule 5 in the Karnataka High Court.
c 16. The writ petitions came to be dismissed by the judgment :lated
07 .12 .2005 of the learned Single Judge of the Karnataka High Court.
Aggrieved, the appellants herein carried the matter by way of an intra-
court appeal to a Division Bench of the Karnataka High Court. By the
judgment under appeal, a Division Bench of the Karnataka High Court
dismissed the appeals. Hence these appeals.
D 17. The validity of Rule 5 of the RULES of 1997 is challenged
both before the High Court and before us on two grounds:
I. That the Rule is ultra vires the authority conferred under
Section 3A of THE ACT; and
2. That the Rule is violative of Article 14 of the Constitution of
E India.
Because the Rule creates two classes of manufacturers:-
(i) whose ACP is determined to be more than their actual
production in the financial year 1996-97.
(ii) Whose ACP is determined to be less than their actual
F production for the financial year 1996-97; and
imposes an irrational tax burden on the 2"' of the abovementioned
two classes of manufacturers falling within the ambit of the
RULES of 1997.
18. We shall first deal with the submission that Rule 5 of the
G RULES of 1997 is ultra vires Section 3A of THE ACT.
It is argued that Rule 5 creates a fiction when it stipulates:
" ... the annual capacity so determined shall be deemed to be
equal to the actual production of the mill during the financial
year 1996-97."
[emphasis supplied]
H
MIS. BHUWALKA STEEL INDUSTRIES LTD. v. UNION OF 1009
INDIA [CHELAMESWAR, J.]

I 9. According to the appellants, Section 3A(2) of THE ACT itself A
creates a fiction for the purpose of determining the ACP while authorizing
the Government of India to make rules for the determination of ACP.
Therefore, the RULES cannot prescribe a further fiction. The appellants
placed heavy reliance for this proposition on a judgment of this Court
reported in A;:ricu/tuml Market Committee v. Slwlinu1r Cftemical
B
Works Ltd., ( 1997) 5 SCC 516.
20. On the other hand, it is argued by the respondent that Rule 5
though textually appears to be creating a fiction, in substance, it only
stipulates a factor relevant for determination of ACP and, the•efore, is
clearly intra vires.
21. To determine the issue, it is required to examine the scheme c
of Section 3A of THE ACT, the relevant Rules framed thereunder and
the mischief which Parliament sought to control while enacting Section
3A .. In the context, we must keep in mind the general scheme of THE
ACT.
22. Section 3 of THE ACT, as it existed at the relevant point of D
time authorised the levy and collection of a duty of excise on all excisable
goods which are produced or manufactured in India. The expression
"excisable goods" is defined under Section 2(d) of THE ACT. At the
relevant point of time, it read as follows:
"Section 2(d). "excisable goods" means goods specifi~d in the E
First Schedule and the Second Schedule to the Central Excise
Tariff Act, I 985 (5 of I 986) as being subject to a duty of excise
and includes salt;"
The rates of duty for the various classes of goods are stipulated from
time to time under the Central Excise Tariff Act, 1985. Section 4 of
F
THE ACT stipulated the method and manner of determination of the
value of the goods for the purpose of the determination of the duty liability
of the manufacturers who manufacture or produce goods which are
chargeable to duty w.r.t. their value.
23. Determination of the quantum of the goods manufactured is
an essential exercise for collecting the excise duty, because the taxable G
event for levy and collection of excise duty is the manufacture or
production of goods. Therefore, the need to determine the actual quantum
of the goods manufactured. The Act and the Rules made thereunder
prescribe different methods for the determination of the quantum of
production/manufacture of excisable goods undertaken by any person
H
JOJO SUPREME COURT REPORTS [2017] 2 S.C.R.

A (manufacturer) for the purpose of determining the tax liabilitY of such a
person.
24. Parliament from time to time took notice of the fact that some
of the manufacturers/producers of excisable goods are evading duty by
suppressing the information of the quantum of actual production/
B manufacture of goods undertaken by them. Therefore, Section 3A was
introduced which authorised a different mode of levy, assessment and
collection of excise duty on NOTIFIED GOODS. Under the Scheme of
Section 3A, the need to constantly monitor the actual quantum of
NOTIFIED GOODS produced/manufactured is obviated by declaring
that the ACP of factory is deemed to be the annual production of the
C factory for the purpose of levy and collection of excise duty.
25. RULES of 1997 prescribed the procedure by which the ACP
is to be detennined. Rule 3 prescribed a fonnula based on various factors
mentioned therein for the determination of the ACP. The appellants
have no grievance regarding the procedure stipulated for the
D determination oftheACP. Theironly grievance is against Rule 5 which
mandates that the ACP determined in accordance with Rule 3 be
discarded in the circumstances mentioned under Rule 5.
26. The appellant submitted that Section 3A(2) creates a legal
fiction by declaring that the annual production of factory in which
NOTIFJED GOODS are produced is the same as that of the ACP of
E
that factory. Rule 5 creates a further fiction which is not either authorised
by Section 3A or pem1issible for a non-sovereign law making body making
subordinate legislation in exercise of the delegated power conferred under
a statute. We must make it clear that the appellants did not challenge
the constitutionality of Section 3A(2).
F 27. The appellants placed heavy reliance on paragraph 28 of
Agricultural Market Committee.
"28. The Government to whom the power to make rules was
given under Section 33 and the committee to whom power to
make bye-laws was given under Section 34 widened the 'cope
G of"presumption" by providing further that if a notified agricultural
produce is weighed, measured or counted within the notified area,
it shall be deemed "to have been sold or purchased in that area.
The creation oflegal fiction is thus beyond the legislative policy.
Such legal fiction could be created only by the legislature and
not by a delegate in exercise of the rule-making power. We are,
H
MIS. BHUWALKA STEEL INDUSTRIES LTD. v. UNION OF 1011
INDIA [CHELAMESWAR, J.]

therefore, in full agreement with the High Court that Rule 74(2) A
and Bye-law 24( 5) are beyond the scope of the Act and, therefore,
ultra vires. The reliance placed by the assessing authority as
also by the appellate and revisional authority on these provisions
was wholly misplaced and they are not justified in holding, merely
on the basis of weighment of "copra" within the notified area
B
committee that the transaction of sale took place in that market
area."
28. The argument of the appellants with respect to Rule 5 appears
to be two-fold: (i) a legal fiction (deeming provision) can only be created
by legislation but not by subordinate legislation; and (ii) even otherwise a
fiction created by the subordinate legislation cannot be in contravention c
of the provisions of the parent enactment'. ·
29. We are in total agreement with the principle laid down by this
Court in paragraph 28 of Avicu/tuud Market Committee.
s Rule 5 was challenged on the following grounds: ("Written Subn1issions of the appellant)
M

A . Section 3A (2) deems the annual production capacity as the actual production and the D
manufacturer has to pay duty on the annual production capacity without reference to
actual production.
But Ruh:: 5 introduces a further deeming that the 1996-97 production shall be deemed to be
actual production if the l 996M97 production is higher than the production capacity
detennined as per rule 3.
A subordinate legislation cannot i.ntroduce a deeming provision and that too contrary to
the dee1ning provision in the plenary legislation. The statutory presumption under Section
3A is of a limited character and being a fiscal legislation has to be strictly construed in the
·E
sense that any factory which is not conten1plated by the Act cannot be taken into
consideration to raise a presumption tor levy of excise duty. Bdng a delcgatcc! legislation
the delegate which has been authorised to make subsidiary rules has to work within the
scope of the Act or the policy laid thereunder. The delegate under the grab of making rules
cannot legislate on the field covered by the Act and has to reslrict itself to the mode of
implen1entation of the Act''. The creation of the legal fiction under Rule 5 is beyond
scope of the legislative policy to levy excise duty on certain notified goods on the F
capacity of production determined under the formula specified in rule 3. Such legal fiction
can be created only by a legislature and not by a delegate in exercise of rule making power.
Also Section 3A (2) only authorises the Central government to n1ake rules providing for
detem1ination of the annual capacity of production or such factor relevant to the annual
capacity of production. The section 3A(2) does not authorize the Central government to
create further legal fiction on the annual capacity of production which is exclusively
within the domain ot' the legislature. Thus the legal fiction created in rule 5 that in case
the annual capacity determined by the formula in sub rule 3 of rule 3 in respect of a tnill, G
is Jess than the actual production of the mill during the financial year 1996-97, then the
, annual capacity so detem1ined shall be deemed to be equal to the actual production of the
mill during the financial year 1996-97 is beyond the scope of the delegate and is therefore
liable to be declared ultra vires, arbitrary violative of article 14, unconstitutio1~al and bad
in law. ·

Reference may be made to (1997) 5 SCC 516
H
1012 SUPREME COURT REPORTS [2017] 2 S.C.R.

A 30. However, the question in this case is-whether Section 3A(2)
and/or Ru le 5 really create fictions. To understand the same, the context
and purpose of Section 3A and Rule 5 is required to be examined. The
Scheme and purpose of Section 3A is already examined at para 20.
Rule 5 stipulated that if the ACP determined in accordance with the
preceding four Rules is less than the actual production ofa pait'cular
B
asscssee for the financial year 1996-1997, the authority determining the
ACP is required to abandon the figure of ACP arrived at by employing
the procedure contained in Rules I to 4 and adopt the actual production
achieved by the assessee for the financial year l 996-97 6 to be the ACP
of that assessee.
c 31. The words "shall be deemed to be" occurring in both Section
3A(2) and Rule 5 appear to create a fiction. But in our opinion, on d true
and proper construction (as rightly argued by the respondent) they do
not create a legal fiction. In Co11solidt1led Coffee L/(l · & A11otl1er v.
Coffee Bot1rd, Bt111galore, ( 1980) 3 SCC 358, it was held: (page 371,
D para 11)
" ... the word "deemed" is used a great deal in modern legislation
in different senses and it is not that a deeming provision is every
time made for the purpose of creating a fiction. A deeming
provision might be made to include what is obvious or what is
E uncertain or to impose for the purpose of a statute an artificial
construction of a word or phrase that would not otherwise
prevail, but in each case it would be a question as to with what
object the legislature has made such a deeming provisio1i. In St.
A11by11 E Atlomey-Ge11er11/, ] 952 AC 15, 53 : ( 1951) 2 All ER
4 73, 498, Lord Radcliffe observed thus:
F "The word "deemed" is used a great deal in modern legislation.
Sometimes it is used to impose for the purposes of a statute an
artificial construction of a word or phrase that would not
otherwise prevail. Sometimes it is used to put beyond doubt a
particular construction that might otherwise be uncertain.
G Sometimes it is used to give a comprehensive description that
includes what is obvious, what is uncertain and what is, m the
ordinary sense, impossible."
6
The relevance of the financial year 1996-97 in the context of the RULES is that the
RULES are made and brought-into force wilh etfect frorn the 1st of August, 1997. The
financial year 1996-1997 is the financial year immediately preceding the 1naking of the
H RULES of 1997.
·-

MIS. BHUWALKA STEEL INDUSTRIES LTD. v. UNION OF 1013
INDIA [CHELAMESWAR. J.]

In our opinion, Section 3A(2) only embodies a rule of evidence A
which command the department to presume certain facts. Such
presumptions are not unknown to law. Section 114' of the Indian Evidence
Act, 1872 enacts a rule of evidence which requires a court to presume
the existence ofany fact which the Court thinks likely to have happened
regard being had to common course of natural events etc. The
B
presumption created under Rule 5 is similar to the one contained in
illustration (d)8 to Section 114 of the Evidence Act.
32. There is a clear distinction in law between a legal fiction and
presumption'. "A distinction commonly taken between the fiction and
the legal presumption runs something as follows: A fiction assumes
something which is known to be false; a presumption (whether cc~1clusive c
or rebuttable) assumes something which may possibly be true. This
distinction is regarded as being rei11forced, as it were, in the case of the
rebuttable presumption because such. a presumption assumes a fact
which probably is true." 10 "Presumptions are closely related to legal
fictions ... but they operate differently"". "Fictions always conflict with D
reality, whereas presumptions may prove to be true"". Legal fictions
create an artificial state of affairs by a mandate of the legislat11re.
" ... an assumption of fact deliberately, lawfully and irrebuttably
made contrary to the facts proven or probable ....... with the
object of bringing a particular legal rule into operation ... the E
assumption being permitted by law ... "
1
Section 114. Court may presume existence of certain acts:- The court may presume
the existence ofany fact which it thinks likely to have happened. regard being had to
the common course of natural events, human condt1ct and public and privat~ business,
in their relation to the facts of the particular case.
8
Illustration (d) - That a thing or state of things \vhich has been sho\vn to be in F
existence \Vithin a period shorter than that \Vithin \.\'hich such things or state of things
usually cease to exist. is still in existence.
'Nand/a/ Wasudeo Badwaik v. Lata Nandlal Badwaik & Another. (2014) 2 SCC 576.
'"We must understand the distinction bet\!Jeen a legal fiction and the presumption of a
fact. Legal fiction assumes existence of a fact which may not really exist. Ho\vever, a
presumption of a fact depends on satisfaction of cenain circumstances. Those
.. circumstances logically \Vould lead to the fact sought to be presumed. Section 112 of G
the Evidence Act does not create a legal fiction but provides for presumption." (Para
18)
'" Fullet, L.L., Legal Fiction,·. Illinois Law ReYirn (Vol. XXV No.4. December 1930)
11
Del Mar, Maksymilian, Legal Fictions and Legal Change. International Journal of
Law in Context (2013)
12
Vermeer-KUnzli, Annemarieke, As If· The legal f-iction in Dip/0111atic Protection.
European Journal of International Law (2007) H
1014 SUPREME COURT REPORTS [2017] 2 S.C.R.

A They compel everybody concerned including the courts to believe
the existence of an m1ificial state of facts contrary to the real state of
facts. When a fiction is created by law, it is not open to anybody to plead
or argue that the artificial state of facts created by law is not true, barring
the only possible course if at all available is to question tl1e constitutionality
of the fiction. It is settled law that only sovereign legislative bodies can
B
create legal fictions but not a subordinate Jaw making body.
33. Whereas presumptions are rules of evidence for determining
the existence or otherwise of certain facts in issue in a litigation.
"Presumptions" were inferences which the judges were directed to draw
from certain states of facts· in. certain cases, and these presumptions
c were allowed a certain amount of weight in the scale of proof; such a
presumption and such evidence amounted to full proof, such another to
halffull, and so on."'" Nothing is brought to our notice to say that~ non-
sovereign law making body can not make a rule of evidence containing
a presumption. Jn our opinion, Af(ricultural Market Committee :snot
D an authority for the proposition that a presumption cannot be created by
subordinate legislation.
34. Rules of evidence are the principles of Jaw which command
the courts or other bodies whose duty is to determine the existence or
otherwise of certain facts. The Anglo saxon legal system reco1,nises
E that facts cou Id be es tab Iished either by direct or circumstantial evidence.
Presuming certain facts, if they are so commanded by law has always
been recognised by our legal system to be one of the accepted processes
for those bodies charged with the duty ofcollecting evidence. Therefore,
13
Presumptions are of four kinds according to English la\v.
I. Conclusive presun1ptions. These arc rare. but \vhen they occur they provide
F that certain modes of proof shall not be liable to contradiction.
2. Presumptions \\hi<:h atTect the ordinary rule us to the burden of proof that he
"'ho atlinns n1ust prove. He \\·ho al1irrns that a 1nan is dead n1ust usually prove
it, but if he sho\\'S that the 1nan has not been heard of for seven years, he shifts
the burden of proof on his adversary.
3. There are certain prcsw11ptions which, though liable to be rebutted, are regarded
by English la\'r' as being something more than mere maxims. though it is by no
G means easy to say hO\V much more. An instance of such a presumption is to be
found in the rule that recent possession of stolen goods unexplained raises a
presu111ption that the possessor is either the thief or a receiver.
4. Bare presumptions of fact, \\'hich are nothing but arguments to \\'hich the
Court attaches \\'hatever value it pleases.
14
Stephen, Jan1es Fitzjarr1es, The Indian Evidence .-let lli'th .-ln !nrroduction on the
Principles ofJudicial Evidence. (Calcutta. Thacker. Spink & Co.) Chapter JV p. 132
H
MIS. BHUWALKA STEEL INDUSTRIES LTD. v. UNION OF 1015
INDIA [CHELAMESWAR, J.]

law making bodies make provisions incorporating presumptions wherever A
they believe it appropriate. But such practices have well recognised
qualifications and limitation. Section 114 of the Evidence Act embodies
some of the basic principles of the law of presumptions and the limitations
thereon. Technically, the Evidence Act may or may not be applicable to
every body charged with the responsibility of collecting evide.1ce. But
B
the principles underlying the provisions do constitute valuable guides.
They are based on sound principles of jurisprudence deduced from the
observation of human conduct, natural course of events and logic etc.
35. Presumptions are of two kinds, rebuttable and irrebuttable.
Normally any presumption is rebuttable unless the legislature c;·eates an
irrebuttable presumption. It is a different question - whether an
c
irrebuttable presumption could be created by a non-sovereign law-making
body? That question has not been argued before us and, therefore, we
do not examine that proposition.
36. Under the scheme of THE ACT, the actual quantum of
production of an industry (manufacturer) is one of the essential factors D
for determining the tax liability of the manufacturer. Both Section 3A(2)
and Rule 5 deal with the procedure forthe determination of the quantum
of production of a factory producing NOTIFIED GOODS. To determine
the exact quantum of goods produced by any manufacturer, there are
various possible ways: E
1. Constant manual observation or account keeping is the most
basic process by which the quantum of goods manufactured
could be determined;
2. Adoption ofa statistical measure for establishing the quantum
of goods: F
The statistical method could be based on the consumption
factors of either the raw material required for the production
of the goods or the quantum of electrical or other energy
utilized by the industry for manufacturing the goods etc.; and
G
3. By drawing an appropriate presumption having reg:ud to the
technical data relating to the machinery employed by the
manufacturer etc.
37. Section 3A of THE ACT authorises the Government to make
rules for determining the ACP of the manufacturers. It further declares
H
1016 SUPREME COURT REPORTS (2017] 2 S.C.R.

A that theACP so deiermined "shall be deemed to be the annnal production
of such goods by such factory". In other words, sub-section (2)
commands that a factory whose ACP is determined in accordanct> with
the rules made thereunder must be believed to produce the same quantum
of goods equal to the ACP for every succeeding year. The question is -
whether such a declaration creates a legal fiction or only a presumption
B
(rule of evidence)?
38. We have already noticed that by definition a "fiction always
conflicts with the reality whereas presumption may be proved to be
true''. It therefore follows that there is no possibility of a fiction being
rebutted by evidence. The belief flowing from Section 3A(2) regarding
c the annual production ofa manufacturer could be rebutted by adducing
evidence. Section 3 A(4) provides for such rebuttal. Therefore, in our
opinion, Section 3A(2) embodies only a rule of evidence (presumption)
but does not create a legal fiction. The language employed by the
draftsman is likely to mislead to a conclusion that a fiction is created.
D But on a true and proper construction of the entire Section 3A the only
possible conclusion is that Section 3A(2) embodies only a presumption
(rule of evidence).
39. Under the Scheme of the RULES OF 1997, the first four
rules stipulated the procedure for determining the ACP of the
E manufacturers of the class to which the appellants belong, by adcpting
the third of the abovementioned three procedures (mentioned in para 36
supra). The lawmaker was conscious of the fact that the actual quantum
of goods that can be manufactured in a factory does not solely depend
on the ACP of the factory. It depends upon a number of other variable
factors too. For example, though the machinery employed by a
F manufacturer has the technical capacity to produce a certain quantum
(maximum production) of goods, in a given interval of tim~. the
manufacturer may not always achieve the maximum production because
of the non-availability ofeithertlte requisite energy to operate the factory
or finance or raw-material etc. The first four rules of the RULE OF
G 1997 create a scheme of evidence by which a presumption (based on
the technical specification of the manufacturers' machinery) of the
possibility of a certain quantum of production is to be made. However,
the lawmaker visualized that in certain cases such a process may lead to
a conclusion that the ACP of a manufacturer is less than the actual
prod~ction that was achieved by employing the same machinery at an
H
MIS. BHUWALKA STEEL INDUSTRIES LTD. v. UNION OF 1017
INDIA [CHELAMESWAR, J.]

earlier point of time- a conclusion inconsistent with the established factual A
data. Therefore, it is stipulated under Rule 5 that in such circumstances
the ACP of the factory must be "deemed to be" equivalent to the actual
production achieved in the financial year prior to the coming into force
the RULES OF 1997. Rule 5 recognises the possibility of an error in
arriving at the ACP by applying the formula contained in Rule 3. Because
B
the formula itself is based on ce1tain assumptions. Therefore, Rule 5
provides that the determination of the ACP made in accordance vvith the
procedµre contained in Rule 3 is liable for correction in some cases, in
the circumstances indicated therein.
40. But the benefit of Section 3A(4) i.e. the right to rebut the
presumption regarding the annual production is denied to a sub-class c
of manufacturers falling under Rule 96ZP(3)) who are also a part ofa
larger class falling under the Scheme of Rule 96ZP of the Central Excise
Rules, 1944.
41. But forthe declaration of sub-rule (3) of Rule 96ZP, an assessee
whose ACP is determined in accordance with the Rule 3 of the RULES D
of 1997 would be entitled under sub-section (4) of Section 3A of THE
ACT, to seek the determination of his actual production an<! the tax
liability thereon.
42. The determination of the ACP is a one time affair. It appears
from the factors indicated in the Rule 3 that the ACP would remain E
unaltered so long as there is no change in the machinery employed and
the 'number ofutilized hours" of the machinery remains constant. But
the "number of utilized hours" could vary from time to time depending
upon various factors, such as, the availability of electric powec, capital
or labour etc. Such variations could result in a situation that the actual F
production of the factory for any given interval of time is less than the
ACP. Therefore, it is declared under Section 3A(4) that an assessee is
entitled to seek determination of the actual production of his facto1y if
it is less than the ACP.
43. Jn our opinion, such an opportunity provided under Section G
3A(4) is a recurring opportunity available to the assessee from time to
time. We reach this conclusion in view of the language of sub-section
(4) more particularly "the Commissioner of Central Excise shall ...
determine the amount of duty payable by the assessee with reference to
such actual production at the rate specified under Section 3".
H
1018 SUPREME COURT REPORTS (2017] 2 S.C.R.

A Obviously, the detennination ofamount of duty payable by the assessee
is not a one time affair. Such a determination is to be made periodically.
Therefore, the opportunity of placing evidence for the establishment of
actual production for a period relevant for the assessment must be
available to the assessee from time to time.
B 44. Whether such a statutory right is in any way curtailed by Rule
96ZP{3) of the Rules of 1944 is required to be examined. Rule 96ZP{3)
is relevant in the context of the assessment of duty for those assessees
who choose to opt for the payment of the excise duty on a monthly
basis. The duty payable by such assessees would be Rs.300 x ACP in
metric tonnes. Rule 96ZP(3) stipulates that an assessee seeking to avail
c the scheme (concessional rate of duty) under Rule 96ZP(3) is required
to make application in the prescribed format. The Rule is silent about
the point of time at which such an application is required to be made.
But sub-rule (3) stipulates the time within which the duty is required to
be paid, i.e., in the "beginning of each month" and "latest by the tenth of
D each month".
45. Whether an assessee who chooses once to pay duty in terms
of Rule 96ZP(3) can be compelled to pay duty calculated in accordance
with the said rule for all times to come without any regard to the actual
production? is a question which requires examination.
E 46. It is possible that in a given case an assessee choosing at a
given point of time to make payment of duty on monthly basis calculated
in terms of sub-rule (3) but a few months later (for that matter even a
month later), for various legitimate reasons, production may fall
considerably below the ACP (of the assessees factory). lt is possible, in
F some cases there can be total cessation of the manufacturing activity
for reasons beyond the control of the assessee. lfthe option exercised
by an assessee under Rule 96ZP(3) is held to be good for eterriity it
would not only lead to illogical consequences but also to an
unconstitutional collection of taxes without there being a taxable event.
We do not see anything in Rule which prevents the assessee from opting
G out of the Scheme of Rule 96ZP(3).
47. After availing the scheme for a month by paying the duty in
advance, if the assessee ends up in a situation ofnot being able to produce
the quantum of goods equivalent to 1/12 of his ACP, we see no reason
which compels the assessee to continue the availment of concessional
H rate of duty (for the next month) on a quantum of production which he is
MIS. BHUWALKA STEEL INDUSTRIES LTD. v. UNION OF 1019
INDIA [CHELAMESWAR, J.]

unable to achieve. In our opinion the assessee must have an option to A
make the payment of duty in accordance with Rule 96ZP( 1) at a higher
rate but on the actual productiou. For those assessees who chose to
pay the duty at higher rate in accordance with sub-rule ( 1) the benefit of
section 3A(4) is available. The rule does not bar it. However the question
remains how frequently the assessee is entitled to exercise such an option;
B
whether it is. annual or monthly is a matter which requires a further
examination.
48. It is argued by the learned counsel for the respondent in view
of the two judgments of this Court reported in Commissioner ofCentral
Excise & Customs v. Venus Castings (P) Ltd., (2000) 4 SCC 206,
Union of Jmlia & Others v. Supreme Steels mid General Mills & c
Other~; (2001) 9 SCC 645, the question regarding the vires of sub-rule
(3) of R,l11e 96ZP of the Central Excise Rule~. 1944 is no more res-
integra. It is also submitted by the respondent that this Court has already
declared that the assessee who makes a choice once to avail the scheme
under sub-rule (3) cannot go back on his choice". D
49. In both the abovementioned cases, this Court wa~ dealing
with Rule 96Z0(3) of the Central Excise Rules, 1944. Neither the vires
of Rule 96ZP(3) nor its interpretation actually fell for consideration of
this Court in either of the abovementioned cases. However, in Venus
Castings, at para 9, a reference was made to Rule 96ZP and this Court E
observed that "Rules 96ZO and 96ZP provide for procedure to be
followed by the manufacturer of ingots and billets and hot re-rolled
products respectively. The scheme envisaged under t_hese provisions is
identical". '
50. With utmost respect to the learned Judges, we find it difficult F
to accept the finding that the scheme of both the Rules is identical.
There are broad similarities between the Rules but they are not identical
and we shall point out and deal with the difference later. ·
" Union of India & Others v. Supreme Steels and General Mills & Others. (200 l) 9
SCC645,
"Para 3... The manufacturer cannot opt twice during one fin·ancial year first G
choosing to pay in accordance \\'ith sub-rule 3 of Rule 96ZO and thereafter to
switch over to actual production basis under Section 3A(4) of the Act, in case it
is less than the duty payable under sub-rule 3 of Rule 96ZO. The said sub rule
is quite clear that the option under it is available subject to the condition that
once having opted for it, benefit if any under .sub-s. (4) of Section 3A of the
Central Excise Ac~ l 944 shall not be available.... "
H

'--1-· -===--
1020 SUPREME COURT REPORTS [2017] 2 S.C.R.

A 51. In Venus Castings, this Court held that both the
abovementioned Rules contain scheme of"two alternative procedures
to be adopted at the option of the assessee" and concluded that "the
manufacturers, if they have availed the procedure under Rule 96ZO(J)
at their option, cannot claim the benefit of determination of prod uctioo
capacity under Section JA(4) of the Act which is specifically excluded".
"11 .... What can be seen is that the charge under the Section is
clearly on production of the goods but the measure of tax is
dependent on either actual production of goods or on some other
basis. The incidence of tax is, therefore, on the production of
goods. It cannot be said that collection of tax based on the
c annual furnace capacity is not relatable to the production of goods
and does not carry the purpose of the Act. In holding whether a
relevant rule to be ultra vires it becomes necessary to take into
consideration the purpose of the enactment as a whole, starting
from the preamble to the last provision thereto. If the entire
D enactment is read as a whole indicates the purpose and that
purpose is carried out by the rules, the same cannot be stated to
be ultra vires of the provisions of the enactment. Therefore, it
is made clear that the manufacturers, if they have availed of
the procedure under Rule 96Z0(3) at their OJ>tion, cannot
claim the benefit of determination of Jlroduction caJlacity
E under Section 3A(4) of the Act which is SJ>ecifically
excluded."
Two things are required to be noticed from the above. This Court made
references to Rule 96ZP in the earlier paragraphs of the judgment but
when it came to the conclusion, it only dealt with Rule 96ZO(J) but not
F Rule 96ZP(J). Secondly, Section JA(4) of THE ACT does not deal.
with the determination of the production capacity of the factory. It only
deals with the right of the assessee to establish that notwithstanding the
determination of the ACP, the actual Jlroduction achieved is less than
theACP determined. The Court concluded "that ifthe entire enactment
G is read as a whole indicates the purpose and that purpose is carried out
by the Rules, the same cannot be stated to be ultra vires of the provisions
of the enactment."
52. With respect, we are of the opinion that such a statem,,nt of
law has no basis either in precedent or on any settled principles of
H interpretation of statutes. On the other hand, it is in conflict with r. long
MIS. BHUWALKA STEEL INDUSTRIES LTD. v. UNION OF 1021
INDIA [CHELAMESWAR, J.]

settled line of authorities that subordinate legislation which is in conflict A
with the parent enactment is unsustainable 16 •
53. The decisiOn in Supreme Steels was rendered by a Bench of
three learned Judges. The vires of Rule 96ZO was directly in issue in
Supreme Steels". This Court in Venus Cllstings noted 18 that "in these
proceedings the validity of the provisions of the Rule~ is not in challenge B
but only their interpretation and application have to be examined".
However, the learned Judges in Supreme Siee/s opined that the
controversy was finally settled by thejudginent of this Court in Vi!nus
Cllstings.
54. Apart from the various problems noticed by us i~ the c
abovementioned two judgments, there are marked differences in the -;-<-
language employed under Rule 96ZP(3) and the scheme appears to be
different from the one adopted under the scheme of Rule 96Z0(3). ·
55. Rule 96ZO deals with levy, assessment and collection of excise
duty on the manufacture of non-alloy steel ingots and billets. Duty on D
such goods is payable atthe rate ofRs.750/- per metric tonne. Sub-rule
(3) prescribes levy and collection ofa lump sum ofRs.5 lakhs per month
in cases of those manufacturers who have a total furnace capacity of
three metric tonnes installed in their factories. However, such a scheme
is available at the option of the assessee. In other words, a manufacturer
a
has choice to make a lump sum payment ofRs.5 lakhs, irrespective of E
his actual production for that month, in two instalments instead of paying·
the duty at the rate ofRs.750/- per metric tonne of the actual production

" Hukam Chand Etc. v. Union of India&. Others. AIR 1972 SC 2427 : ( 1972) 2 SCC
601,
F
Para 8 ... ....The underlying principle is that Unlik~ Sovereign Legislature which
has power to enact laws with retrospective operation, authority vested with the _,
power of making subordinate legislation has to act within the limits of its power
and cannot transgress the same. The initial difference bet\\·een subordinate
legislation and the statute laws ties in the fact that a subordinate law making body
is bound by the terms of its delegated or derived authority and that court of law,
as a general rule, "'·ill not give effect to the rule~ thus made. unless satisfied that G
all the conditions precedent to the validity of the rules have been fulfilled (see
Craies on Statute Law, p. 297, Sixth Edition). ·
Also See: Godde Venkateswara Rao Y. Go,·emment of Andhra Pradesh & Others. AIR
1966 s~ 828, para 1o
17
Vires of Rule 96ZO of the Central Excise Rules has also been challenged on the
ground that it is inconsistent \vith the provisions of the Act. - Para I
11
In para 7 H
1022 • SUPREME COURT REPORTS [2017] 2 S.C.R.

A of the manufacturer. Whether the capacity of three metric tonnes in the·
said sub-rule is the capacity of the factory per day or per month or per
annum is not very clear from the language of the Rule. The expression
does not appear to be defined under the Rules.
56. Coming tocRule 96ZP(3), it also provides an option to the
B assessee falling under the Rule to pay the duty at the concessional rate
ofRs.300 per metric tonne contrary to the liability of the assessees who
do not opt to' avail the procedure under sub-rule (3) to pay Rs.400 per
metric tonne. But both the classes of assessees ar~ required to pay the
total duty calculated on the ACP of the factory. While those who choose
to pay the lower rate of tax under sub-rule (3) pay the tax every month
c and those who do not opt to avail the scheme under sub-rule (3) are
required to pay tax long after duty actually falls due as indicated under
sub-rule (l) and (2). ·
57. The only similarity between Rules 96Z0(3) and 96ZP(3) is
that both the Rules seek to eliminate the benefit of the procedure under
D Section 3A(4) of THE ACT in cases of those assessees who choose to
opt for levy and collection of excise duty in accordance with the sub-
rules (3) which are exceptions to the general Rules oflevy and collection
of duties provided under Rules 96ZO and 96ZP.
58. Therefore, we find it difficult to accept the submission of the
E respondent that the issue is covered by the judgments of this Court in
Venus Castings and Supreme Steels. In our opinion, for the reasons
mentioned above, these two judgments require a further examination.
Apart from that, these judgments did not deal with vires of Rule 96ZP(3 ).
However, in view of the fact that Supreme Steels is a decision rendered
F by a Bench of three learned Judges, we deem it appropriate that the
question of law be settled by aBench of an appropriate strength. We,
therefore, direct the Registry to place the matter before Hon'ble the
Chief Justice of India for further orders. ''

Devika Gujral Matter referred to larger bench.