2011 (10) TMI 51 - HC - Central Excise

Mandatory penalty - the Supreme Court in the case of Dharamendra Textile Processors (2008 (9) TMI 52 - SUPREME COURT ) had left the issue of the vires of Rule 96ZO open to be dealt with by the High Court which was eventually decided by the Punjab and Haryana High Court in Bansal Alloys & Metals Pvt. Ltd. (2010 -TMI - 202136 - PUNJAB & HARYANA HIGH COURT ), in which, it was held that there can not be any equal amount of penalty without mens rea being established. We have gone through the judgment of Punjab and Haryana High Court in Bansal Alloys & Metals Pvt. Ltd. (2010 -TMI - 202136 - PUNJAB & HARYANA HIGH COURT ) and find that Rule 96ZO imposes an unreasonable restriction and is violative of Section 37 of the Act which clearly provides that a Rule can be framed only to the extent that it contravenes the provision of any such rule with intent to evade payment on duty. - Commissioner (Appeals) was justified in reducing the penalty which was rightly upheld by the Tribunal.

Summary

Issues:
1. Interpretation of Rule 96ZO (3) of the Central Excise Rules, 1944 regarding imposition of penalty for non-payment of duty.
2. Discretionary power of the authority to reduce penalty under Rule 96ZO (3) (ii).
3. Comparison of conflicting judgments regarding the imposition of penalty without mens rea.
4. Consideration of mens rea as an essential element for imposing penalty under Rule 96ZO.

Analysis:
1. The case involved an appeal under Section 35G of the Central Excise Act, 1944, where the respondent company, engaged in manufacturing M.S. Ingots, failed to pay central excise duty within the stipulated period, leading to the imposition of interest and penalty by the Deputy Commissioner Central Excise.
2. The appellant contended that Rule 96ZO (3) (ii) did not grant discretionary power to reduce the penalty, citing a Supreme Court decision emphasizing the mandatory nature of penalties without considering mens rea. In contrast, the respondent referred to a Punjab and Haryana High Court judgment stating that penalties without mens rea were excessive and unreasonable restrictions, arguing for the authority's discretion in considering mens rea.
3. The High Court noted the conflicting views and highlighted the decision in the Bansal Alloys & Metals Pvt. Ltd. case, where the Court held that Rule 96ZO's mandatory penalties without mens rea were violative of the Act and the Constitution. The Court emphasized the importance of establishing mens rea before imposing penalties.
4. Ultimately, the High Court agreed with the decision in the Bansal Alloys & Metals Pvt. Ltd. case, asserting that mens rea was an essential element to be considered for penalty imposition under Rule 96ZO. Consequently, the Court upheld the Commissioner (Appeals)'s decision to reduce the penalty, as affirmed by the Tribunal, finding no error in the impugned order and dismissing the appeal.