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Commissioner Central Excise Commissioner v. M/S KC Alloys & Steel Castings, Ludhiana - CEA-77-2005  RD-P&H 5276 (7 August 2006)
IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH
CEA No.77 of 2005
Date of decision: 3.8.2006
Commissioner Central Excise Commissionerate, Ludhiana ...Appellant
M/S KC Alloys & Steel Castings, Ludhiana ...Respondent
CORAM: HON'BLE MR. JUSTICE ADARSH KUMAR GOEL
HON'BLE MR. JUSTICE RAJESH BINDAL
Present: Mr. M.S.Guglani, Central Govt. Counsel.
Mr. Deepak Bajaj, Advocate for Mr. Balbir Singh, Advocate.
This appeal has been preferred proposing following substantial questions of law:-
"(a) Whether Commissioner/Tribunal has discretion to reduce the mandatory penalty under the provisions of Rule 96 ZO (3)?"
(b) Whether penalty imposed under Rule 96ZO(3) upon a manufacturer of non-alloy steel ingots falling under Chapter 72 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) and who opted to pay duty under Section 3A of the Central Excise Act, 1944 read with Induction Furnace Annual Capacity Determination Rules, 1997 but failed to pay the whole of the amount payable for any month by the 15th
day or the last day of such
month, as the case may be, is mandatory or discretionary in nature?"
The respondent-assessee is engaged in manufacture of non- CEA No.77 of 2005 2
alloy steel ingots falling under Chapter 72 of the Schedule to the Central Excise Tariff Act, 1985 which were chargeable to duty upto 31.3.2000 in terms of Section 3A of the Central Excise Act, 1944 (in short, 'the Act') read with Notification No.30/97-CE(NT) dated 1.8.1997. The assessee opted to pay duty on lump sum basis in terms of Rule 96ZO(3) of the Central Excise Rules, 1944 (in short, 'the Rules'). Monthly liability of the assessee was determined at Rs.5 lacs, which was to be discharged into two instalments, first instalment by 15th
of the month and second instalment by the last day of the month. During the month of December 1997, the assessee failed to discharge its liability. Show cause notice for recovery of Rs.1,12,903/- with interest and penalty under Rule 96ZO(3) of the Rules was issued. After considering the defence of the assessee, the duty alongwith interest and penalty of Rs.1,12,903/- was confirmed. The assessee preferred an appeal.
The Commissioner (Appeals) reduced the penalty to Rs.30000/-. The Tribunal dismissed the appeal of the revenue following judgment of the Allahabad High Court in Pee Aar Steels (P) Ltd. v. Commissioner of Central Excise, Merrut, 2004(170) ELT 406, observing that imposition of penalty being discretionary, no interference was called for.
Learned counsel for the revenue submitted that there was no element of discretion and once assessee defaulted in making the deposit, penalty equal to the amount of duty was liable to be paid. It was submitted that language of the rule was clear and there was no warrant for reading the penalty laid down as maximum or discretionary.
Learned counsel for the assessee appearing in bunch of cases which were heard together, submitted that having regard to the settled principle of interpretation that penalty could be imposed only if there was element of mens rea and if there were aggravating or mitigating circumstances, element of discretion had to be read and the quantum of penalty ought to be read to be discretionary.
We have considered the rival submissions and perused the record.
Relevant provisions of Rule 96ZO(3) of the Rules are as under:-
"Notwithstanding anything contained elsewhere in these rules, if CEA No.77 of 2005 3
a manufacturer having a total furnace capacity of 3 metric tonnes installed in his factory so desires, he may, from the Ist day of September, 1997 to the 31st
day of March, 1998 or any other
financial year, as the case may be, pay a sum of rupees five lakhs per month in two equal installments, the first installment latest by the 15th
day of each month and the second installment latest by the last day of each month, and the amounts so paid shall be deemed to be full and final discharge of his duty liability for the period from the Ist day of September, 1997 to the 31st day of
March, 1998, or any other financial year, as the case may be, subject to the condition that the manufacturer shall not avail of the benefit, if any, under sub-section (4) of the section 3A of the Central Excise Act, 1944 (1) of 1944:
Provided that for the month of September, 1997, the Commissioner may allow a manufacturer to pay the sum of rupees five lakhs by the 30th
day of September, 1997:
Provided further that if the capacity of the furnaces installed in a factory is more than or less than 3 metric tonnes, or there is any change, in the total capacity, the manufacturer shall pay the amount, calculated pro rata:
2] Provided also that where a manufacturer fails to pay the whole of the amount payable for any month by the 15th day of
the last day of such month, as the case may be, he shall be liable to ,---
(i)Pay the outstanding amount of duty along with interest thereon at the rate of eighteen per cent per annum, calculated for the period from the 16th
day of such month or the 1st
next month, as the case may be, till the date of actual payment of the outstanding amount; and
(ii)a penalty equal to such outstanding amount of duty or five thousand rupees, whichever is greater:
Provided that if the manufacturer fails to pay the total amount of duty payable for each of the months from September, 1997 to March, 1988 by the 30th
day of April, 1998, he shall also
CEA No.77 of 2005 4
be liable to pay a penalty equal to the outstanding amount of duty as on 30th
day of April, 1998 or five thousand rupees, whichever is greater. "
A bare perusal of the rule shows that the amount of compounded duty of Rs.5,00,000/- per month determined under the Rules is to be paid into two equal instalments i.e. first instalment latest by 15th of the
month and the second instalment latest by the last day of each month.
Proviso of Sub-rule 3 of Rule 96ZO provides that in case a manufacturer fails to pay the whole of the amount of the duty as required above, he shall also be liable to pay interest for the delayed payment @ 18% per annum from 16th
of such month or first day of next month, for two instalments respectively, till the date of actual payment of the outstanding amount. In addition to this, it is provided that a penalty equal to the outstanding amount of duty or Rs.5 lakh, whichever is greater, is also leviable.
We have considered the concept of penalty in judgment delivered on 21.7.2006 in CEA No.56 of 2005 (Commissioner of Central Excise, Delhi-IV, New CGO Complex, NH-IV, Faridabad v. M/s Illpea Paramount Pvt. Ltd.), which case was also heard alongwith the present case.
In the above judgment, we have considered the following principles:-
(i) As held by Hon'ble the Supreme Court in Hindustan Steel Ltd. v. State of Orissa, AIR 1970 SC 253, penalty will not ordinarily be imposed unless the concerned party acted deliberately in defiance of law or was guilty of contumacious conduct.
(ii) Prescription of mandatory minimum penalty of sentence was not per se prohibited.
(iii) Mandatory minimum sentence was provided in several statutes which have been noticed by Hon'ble the Supreme Court in several decisions, the same being:- CEA No.77 of 2005 5
(a) Durand Dilier v. Chief Secretary, Union Territory of Goa, AIR 1989 SC 1966 (under NDPS Act).
(b) Keshabhai Malabhai Vankar v. State of Gujarat, 1995 Supp (3) SCC 704.
(Under the Essential Commodities Act, 1955).
(c) State of Andhra Pradesh v.
S.R.Rangadamappa, AIR 1982 SC 1492
(Under the Andhra Pradesh Excise Act).
(d)Narpal Singh v. State of Haryana, AIR 1977 SC 1066
Tarlok Singh v. State of Punjab, AIR 1977 SC Santa Singh v. The State of Punajb, AIR 1976 SC 2386. (Need for giving hearing where sentence imposed was minimum prescribed)
(e) Hem Chand v. State of Haryana, AIR 1995 SC 120
(Under Section 304-B IPC).
(f)State of Madhya Pradesh v. Babbu Barkare alias Dalap Singh, AIR 2005 SC 2846
State of MP v. Bala alias Balaram, AIR 2005 SC State of MP v. Sheshrao, AIR 2005 SC 4417.
( Under section 376 IPC).
(g)In Madhukar Bhaskarrao Joshi v. State of Maharashtra, AIR 2001 SC 147.
(h) Jagdish Prasad and another v. State of UP, AIR 1999 SC 1539
( Under PFA Act, 1954).
i) State of J& K v. Vinay Nanda,AIR 2001 SC 611.
(Under Corruption Act).
(iv) Normally, awarding sentence was judicial function, where minimum sentence was not laid down (Dadu alias Tulsidas etc. v. State of Maharashtra, AIR 2000 SC CEA No.77 of 2005 6
(v) In a given case, minimum sentence could be held to be arbitrary and violative of Article 21 of the Constitution.
(Mithu v. State of Punjab, AIR 1983 SC 473, Maneka Gandhi v. Union of India, AIR 1978 SC 597 and Sunil Batra v. Delhi Administration, AIR 1978 SC 1675).
(vi) Reference was also made to judgments of Hon'ble the Supreme Court in Zunjarrao Bhikaji Nagarkar v. Union of India, 1999 (112) ELT 772 and Sony India limited v.
Commissioner of Central Excise, Delhi , 2004(167) ELT 385, wherein penalty equal to the duty was held to be minimum.
(vii) Judgment of Hon'ble the Supreme Court in State of Madhya Pradesh v. Bharat Heavy Electricals, 1998(99) ELT 33 was distinguished which was based on concession and which laid down ten times penalty. Judgment of Gujarat High Court in Ambuja Synthetics Mills v. Union of India, 2004(175) ELT 85 was held to be distinguishable in its application to section 11AC of the Act, the same having been rendered in the context of Rule 96ZQ(5) of the Rules.
Having regard to language of Section 11AC which provided for penalty only in cases of evasion, which was result of fraud, collusion or wilful misstatement or suppression of facts or contravention of any of the provisions of the Act or the Rules with intent to evade payment of duty, it was held that laying down of minimum penalty equal to duty could not be held to be arbitrary and there was no justification to read the said provision as maximum penalty.
We have considered it necessary to deal with the issue of penalty under Rule 96ZO separately from penalty under Section 11AC of the Act on account of difference in the language of the two provisions.
Language of Section 11AC to the effect "where any duty of excise has not CEA No.77 of 2005 7
been levied or paid or has been short-levied or short-paid or erroneously refunded by reasons of fraud, collusion or any willful misstatement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, the person who is liable to pay duty as determined under sub-section (2) of section 11A, shall also be liable to pay a penalty equal to the duty so determined", especially the words underlined, is not found in Rule 96ZO.
There can be no difference in the concept of penalty in the two provisions, if the conditions mentioned in Section 11AC are also read in Rule 96ZO.
Wherever on facts, the said conditions do not exist, there will be qualitative difference in the power of levy of penalty. Though, language of the operative part providing for penalty equal to the amount of duty is similar, situations in which penalty is imposed, are different.
Thus, penalty prescribed under Rule 96ZO(3) equal to the amount of duty would be treated as mandatory minimum, if it can be held in a given case that duty had not been paid by reason of fraud, collusion, wilful misstatement or suppression of facts or in contravention of any of the provisions of the Act and the rules with intent to evade payment of duty. In other cases, penalty equal to duty cannot be held to be mandatory. Take a situation where there is one day delay in making the deposit and instead of paying the instalment by the 15th
of the month, the instalment is paid on
16.7.2006. In such a case, if it is to be held that penalty equal to duty must be imposed, such an interpretation will be contrary to the very concept of penalty requiring mens rea, which will also be arbitrary and against the principle of fairness.
It may also be noticed that though, normally, element of mens rea is mandatory requirement before penalty can be imposed but it is not always so required. Reference may be made to the provisions of Section 271 (1)(a) of the Income Tax Act, 1961, prior to amendment in the year 1988, wherein penalty was provided for failure to furnish return. Considering the question of requirement of mens rea, the Hon'ble Supreme Court in Gujarat Travancore Agency v. Commissioner of Income-tax, Kerala, 1989 (177) ITR 455 observed:-
".....In the case of a proceeding under section 271(1)(a), however, it seems that the intention of the Legislature is CEA No.77 of 2005 8
to emphasise the fact of loss of revenue and to provide a remedy for such loss, although no doubt an element of coercion is present in the penalty. In this connection, the terms in which the penalty falls to be measured are significant. Unless there is something in the language of the statute indicating the need to establish the element of mens rea, it is generally sufficient to prove that a default in complying with the statute has occurred. In our opinion, there is nothing in section 271(1)(a) which requires that mens rea must be proved before penalty can be levied under that provision. We are supported by the statement in Corpus Juris Secundum, Volume 85 page 580, paragraph 1023:
"A penalty imposed for a tax delinquency is a civil obligation, remedial and coercive in its nature, and is far different from the penalty for a crime or a fine or forfeiture provided as punishment for the violation of criminal or penal laws."
We, thus, hold that except where there is element of mens rea and intention to evade duty, mandatory minimum penalty equal to the amount of duty in question is not intended to be provided under Rule 96ZO (3) of the rules but the authority concerned will be entitled to impose penalty in its discretion depending upon period of delay in deposit and other circumstances.
We may, however, observe that discretion to levy penalty like any other discretion has to be exercised judiciously having regard to a given fact situation and the object for which provision of penalty has been made.
Amount of duty involved, extent of delay, reasons for delay and other relevant circumstances may have to be kept in view for exercising discretion for determining the quantum of penalty.
Principles for exercise of discretion are well-settled. In criminal cases, discretion has been given to impose sentence having regard to circumstances of a case as it is not possible to lay down any strict formula as to how much sentence may be just in a given facts situation. In CEA No.77 of 2005 9
State of Karnataka v. Puttaraja, AIR 2004 SC 433, Para 10, it was observed:-
"10....It has been very aptly indicated in Dannis Councle MCGDautha v. State of Callifornia, 402 US 183 : 28 LD 2d 711, that no formula of a foolproof nature is possible that would provide a reasonable criterion in determining a just and appropriate punishment in the infinite variety of circumstances that may affect the gravity of the crime. In the absence of any foolproof formula which may provide any basis for reasonable criteria to correctly assess various circumstances germane to the consideration of gravity of crime, the discretionary judgment in the facts of each case, is the only way in which such judgment may be equitable distinguished."
In Administrative law, the principles of exercise of discretion to ensure that a particular action is consistent with Article 14 of the Constitution, have been laid down. Referring to the principle of proportionality, it was held in Om Kumar and others v. Union of India, (2001(2) SCC 386, Para 28:-
"28.....Under the principle, the court will see that the legislature and the administrative authority "maintain a proper balance between the adverse effects which the legislation or the administrative order may have on the rights, liberties or interests of persons keeping in mind the purpose which they were intended to serve". The legislature and the administrative authority are, however, given an area of discretion or a range of choices but as to whether the choice made infringes the rights excessively or not is for the court. That is what is meant by proportionality."
In E.P.Royappa v. state of Tamil Nadu, (1974) 4 SCC 3, it was held that any action of administrative authority will be liable to be CEA No.77 of 2005 10
struck down if the same is arbitrary. Arbitrary action is described as one that is irrational and not based on sound reasons.
It is well-known that discretionary authority may be conferred without express guidelines. In such a situation, guideline is to be collected from the purpose for which the law is enacted.
In State of Mysore etc. v.M.L.Nagade and Gadag and others, AIR 1983 SC 762, Para 11, it was observed:- "11.....A legislation or statute is enacted to achieve some public purpose and, the policy of law and the object sought to be achieved can furnish reliable guidelines for the exercise of discretionary power. Prof. Wills in his Constitutional law, p.587 observes as under:- "If a statute declares a definite policy, there is a sufficiently definite standard for the rule against the delegation of legislative power, and also for equality if the standard is reasonable. If no standard is set up, to avoid the violation of equality, those exercising the power must act as though they were administering a valid standard." The questions of law raised in the appeal are answered accordingly as indicated above.
We have also perused the facts of the case. Though, normally, the matter may have been remanded back to the original authority for going into the question of penalty afresh, in the light of principles indicated above but we refrain from doing so. The original authority imposed the maximum penalty assuming the same to be minimum de hors the reasons for delay in paying the duty. The Commissioner held, in the facts and circumstances of the case that interests of justice will be met by reducing the penalty to Rs.30,000/-, which view has been upheld by the Tribunal. Having regard to the concurrent view taken on the question of quantum of penalty and in absence of any other material warranting interference, we do not find any ground to interfere with the imposition of lesser penalty having regard to the facts of the present case.
CEA No.77 of 2005 11
We may summarise our conclusions as under:- (i) Scheme of levy of penalty under Rule 96ZO of the Rules is different from scheme of penalty under Section 11AC of the Act, in as much as there is no requirement of proving fraud, collusion, wilful mis-statement or suppression of facts or intention to evade payment of duty. The object of penalty under Rule 96ZO appears to be to emphasise loss of revenue on account of delay in deposit.
(ii) Since element of mens rea is not required to be proved for exercise of jurisdiction under Rule 96ZO, quantum of penalty prescribed therein has to be read to be maximum and discretionary.
(iii) Where element of mens rea of the nature specified in Section 11AC is shown to exist, the quantum of penalty will be read as minimum.
(iv) Discretion to levy penalty under Rule 96ZO has to be exercised judiciously having regard to fact situation of a given case. Amount of duty involved, extent of delay, reasons for delay and other relevant circumstances may have to be kept in view for exercising discretion for determining the quantum of penalty.
(v) Interference by this court in appeal which is provided only on a substantial question of law, will be only where exercise of jurisdiction by the authorities is shown to be perverse or arbitrary, which has not been shown in the present case.
Accordingly, the appeal is disposed of in the manner indicated above.
(Adarsh Kumar Goel)
August 3, 2006 (Rajesh Bindal)
CEA No.77 of 2005 12
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