2026-VIL-261-CAL-CE
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CENTRAL EXCISE High Court Cases

Central Excise – Production-based Levy - Challenge to Notification No. 04/2025-Central Excise, Notification No. 04/2025-Central Excise (N.T.), and Notification No. 05/2025-Central Excise (N.T.) dated December 31, 2025 - Petitioners challenged said Notifications and “Chewing Tobacco, Jarda Scented Tobacco and Gutkha Packing Machines (Capacity Determination and Collection Duty) Rules imposing a production-based levy on manufacturers of chewing tobacco, jarda scented tobacco and gutkha. The petitioners argued that the notifications and rules are ultra vires the parent statute and the Constitution as they fail to consider various factors such as labour laws, machine capacity, work shifts etc. and result in excessive taxation – HELD - The Notifications and Rules are prima facie consistent with the provisions of Section 3A of Central Excise Act, 1944 which empowers the Central Government to impose capacity-based taxation to curb tax evasion - The Section 3A allows the Government to specify relevant factors for production and the manner of determining annual production capacity, which has been done through the impugned rules. The Court is not persuaded by the petitioners' arguments that the figures and formulae prescribed in the rules are arbitrary, as the objective of the provision is to prevent tax evasion and some harsh conditions may be necessary to achieve that – The Notifications and the Rules are prima facie within the legislative mandate of Section 3A and not manifestly ultra vires on the ground that they determine capacity by the factors and manner prescribed – There is no prima facie case of the Notifications and Rules being beyond the legislative mandate or manifestly arbitrary, and grant of any interim relief is declined – Ordered accordingly - Validity of mechanistic capacity formulas - HELD - The correct test is not actual production but conformity with the legislative objective to curb tax evasion under Section 3A. The petitioners did not demonstrate that the figures were impossible; conditions appearing harsh do not render the rule irrational when justified by revenue protection. Consequently, the prima facie view was that the mechanistic formula does not invalidate the Rules. The mechanistic capacity formula in Rule 5 is not prima facie arbitrary or irrational so as to warrant interim relief - Compliance measures including CCTV - Legality of mandating CCTV installation under Rule 16 as a compliance and anti-evasion measure - HELD – There is no unreasonableness in mandating CCTV installation as such a requirement aids enforcement and compliance in the context of Section 3A's objective to curb tax evasion - Requirement of CCTV installation under the Rules is prima facie reasonable and permissible - Capacity-based duty rate specification - HELD - The Section 3A(3) authorises levying duty at a rate on the unit of production or other specified production factor, and the second notification prescribing rates of duty relates to the factor relevant to production and is prima facie consistent with that provision of Section 3A(3).
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