2011 (3) TMI 296 - AT - Central Excise

Penalty - Classification - Compounded levy scheme - As there is no material on record to establish any mens rea or wilful default in payment of duty by the respondents, the Commissioner (Appeals) while observing that there was nominal delay in payment of duty in his discretion has reduced the total penalty to the tune of Rs.8 lakhs - Accordingly the appeal is dismissed

Issues Involved:
1. Legality of the reduction of penalty by the Commissioner (Appeals).
2. Discretion of authorities in imposing penalties under Rule 96ZP(3) of the Central Excise Rules, 1944.
3. Requirement of mens rea for imposing penalties.
4. Consistency of penalty provisions with Articles 14, 19, and 21 of the Constitution.

Issue-wise Detailed Analysis:

1. Legality of the Reduction of Penalty by the Commissioner (Appeals):
The appeals arose from a common order dated 19.4.2005 passed by the Commissioner (Appeals), Jaipur-I, which reduced the penalties imposed by the adjudicating authority. The adjudicating authority had imposed penalties of Rs.1,14,24,930/- and Rs.17,16,340/- in two separate cases. The Commissioner (Appeals) reduced these penalties to a total amount of Rs.8 lakhs, considering that the respondents had already deposited the duty with interest before the issuance of show cause notices. The Tribunal upheld this reduction, finding no arbitrariness in the exercise of discretion by the Commissioner (Appeals).

2. Discretion of Authorities in Imposing Penalties under Rule 96ZP(3) of the Central Excise Rules, 1944:
The Departmental Representative argued that, based on the Supreme Court's decision in Dharamendra Textile Processors, no discretion is available to Excise officers, and the penalty imposable should be equivalent to the defaulted duty amount or Rs.5,000/-, whichever is greater. However, the Tribunal noted that the Punjab & Haryana High Court in Bansal Alloys & Metals Pvt. Ltd. held that the provision for minimum mandatory penalty without discretion is excessive and unreasonable. Therefore, the authorities do have discretion in quantifying the penalty amount, provided it is exercised judiciously.

3. Requirement of Mens Rea for Imposing Penalties:
The Tribunal highlighted that the Commissioner (Appeals) found no mens rea or wilful default established by the Department, as the respondents had deposited the duty with interest before the issuance of show cause notices. The Punjab & Haryana High Court in Bansal Alloys & Metals Pvt. Ltd. ruled that penalties without establishing mens rea are excessive and unreasonable. Thus, in the absence of mens rea, the authorities have the discretion to impose lesser penalties.

4. Consistency of Penalty Provisions with Articles 14, 19, and 21 of the Constitution:
The Tribunal referred to the Punjab & Haryana High Court's decision, which held that mandatory minimum penalties without discretion violate fundamental rights and are arbitrary. The Court emphasized that legislative power is circumscribed by fundamental rights, and judicial review is permissible on the grounds of excessive restriction. The Tribunal agreed that the quantification of penalties should be discretionary and based on the facts and circumstances of each case.

Conclusion:
The Tribunal dismissed the appeals, affirming that the Commissioner (Appeals) acted within his discretion by reducing the penalties. The Tribunal emphasized that penalties should not be imposed as a matter of course without considering the presence of mens rea and the specific facts of each case. The discretion exercised by the Commissioner (Appeals) was found to be judicious and reasonable, consistent with the legal principles established by higher courts.

← Previous Next →