2014 (10) TMI 598 - HC - Central Excise

Imposition of penalty - Failure to pay tax by due date - Held that - provision for minimum mandatory penalty equal to the amount of duty even for slightest bonafide delay without any element of discretion is beyond the purpose of legislation. The object of the rule is to safeguard the revenue against loss if any. The penalty has been provided in addition to interest. Mere fact that without mens rea an can be punished or a penalty could be imposed is not a blanket power without providing for any justification. In the Indian Constitutional scheme power of legislature is circumscribed by fundamental rights. Judicial review of legislation is permissible on the ground of excessive restriction as against reasonable restriction which is also described as proportionality test. impugned provision to the extent of providing for mandatory minimum penalty without any mens rea and without any element of discretion is excessive and unreasonable restriction on fundamental rights and is arbitrary. Moreover exercise of such power by way of subordinate legislation is not permissible when rule making authority for levying penalty is limited to default with intent to evade duty - no substantial question of law arises - Following decision of Bansal Alloys & Metals (P.) Ltd. s case 2010 (11) TMI 83 - PUNJAB & HARYANA HIGH COURT - Decided against Revenue.

Summary

Issues:
1. Interpretation of compounded levy scheme under Section 3A of the Central Excise Act, 1944.
2. Legality of penalty imposition under Rule 96ZO(3) of the Central Excise Rules, 1944.
3. Applicability of Section 38A of the Central Excise Act, 1944 to obligations under Rule 96ZO before its omission.

Issue 1: Interpretation of Compounded Levy Scheme under Section 3A:
The appellant, engaged in manufacturing Non-alloy Steel Ingots, operated under the compounded levy scheme under Section 3A of the Act. The scheme required payment of duty liability in two installments, with penalties for delays. The Tribunal allowed the appeal against the penalty, citing a previous judgment holding certain provisions as ultra vires the Act and the Constitution due to excessive penalties without discretion. The High Court upheld this decision, emphasizing that penalties without mens rea and discretion were arbitrary and unreasonable restrictions on fundamental rights.

Issue 2: Legality of Penalty Imposition under Rule 96ZO(3):
The appellant failed to pay duty amounting to Rs. 1,00,00,000 within the prescribed time, leading to a penalty equal to the outstanding duty under Rule 96ZO(3). The High Court referred to previous judgments declaring provisions for mandatory penalties without discretion as ultra vires the Act and the Constitution. The Court reiterated that penalties without mens rea and discretion were excessive and unreasonable, emphasizing that penalties should be reasonable and imposed based on individual circumstances.

Issue 3: Applicability of Section 38A to Obligations under Rule 96ZO:
The High Court addressed the applicability of Section 38A, inserted by the Finance Act, 2001, to obligations under Rule 96ZO before its omission. The Court referred to the judgment in Bansal Alloys & Metals (P.) Ltd.'s case, where penalties without discretion were deemed excessive and unreasonable. The Court emphasized that penalties should be imposed based on intent to evade duty, with reasonable considerations for each case's unique circumstances. The Court dismissed the appeal, stating that no substantial question of law arose in this case.

In conclusion, the High Court dismissed the appeal, upholding the Tribunal's decision based on previous judgments declaring penalties without discretion as ultra vires the Act and the Constitution. The Court emphasized the importance of considering individual circumstances and intent when imposing penalties under the Central Excise Rules, highlighting the need for reasonableness and proportionality in penalty imposition.