2014 (5) TMI 300 - HC - Central Excise

Levy of penalty - Whether on the facts and circumstances of the case, the Tribunal was justified in reducing the penalty levied on the assessee under Rule 96ZO(3) (ii) of the Central Excise Rules, 1944? - Held that - when Section 37, which is the rule making power, is clear that penalty can be imposed only when the assessee is guilty of intending to evade the payment of duty, the penalty cannot be imposed without such intention. Furthermore, even when intention may be there, the penalty must be reasonable and cannot, in all cases, be fixed at 100% of the excise leviable. Each case must be decided on its own facts and circumstances. - Following the decision in Bansal Alloys & Metals Pvt. Ltd s case 2010 (11) TMI 83 - PUNJAB & HARYANA HIGH COURT , decided against the revenue.

Summary

Issues:
- Interpretation of Rule 96ZO(3) of the Central Excise Rules, 1944 regarding penalty imposition.
- Validity of mandatory minimum penalty without mens rea and discretion.
- Judicial review of legislation on excessive restriction and proportionality test.
- Discretion of authorities in imposing penalties based on facts and circumstances.

Interpretation of Rule 96ZO(3):
The judgment addressed a bunch of appeals concerning the interpretation of Rule 96ZO(3) of the Central Excise Rules, 1944. The appeals questioned the reduction of penalties imposed on the assessee for failure to discharge full duty liability. The issue revolved around whether the Tribunal was justified in reducing the penalty levied under Rule 96ZO(3)(ii) of the Rules.

Validity of Mandatory Minimum Penalty:
The Court examined the validity of the provision for a mandatory minimum penalty without mens rea and discretion. Referring to previous judgments, the Court held that such provisions were excessive and unreasonable restrictions on fundamental rights. The Court emphasized that penalties should not be imposed without intent to evade duty and must be reasonable, considering the circumstances of each case.

Judicial Review and Proportionality Test:
The judgment highlighted the importance of judicial review in assessing legislation for excessive restrictions. The Court emphasized that legislative powers are limited by fundamental rights and must adhere to the proportionality test. It declared the provisions of Rules 96ZO, 96ZP, and 96ZQ permitting penalties without discretion and mens rea as ultra vires the Act and the Constitution.

Discretion in Penalty Imposition:
The Court emphasized the need for authorities to exercise discretion in imposing penalties based on the facts and circumstances of each case. It stated that penalties should be proportionate to the default and not fixed at 100% of the excise leviable in all cases. The judgment underscored that penalties should only be imposed when there is an intent to evade duty and must be reasonable.

In conclusion, the Court dismissed all the appeals based on the interpretation of Rule 96ZO(3), the validity of mandatory minimum penalties, the principles of judicial review, and the necessity for authorities to exercise discretion in penalty imposition based on individual case circumstances.