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2015 (10) TMI 911 - AT - Central ExcisePenalty under Rule 173GG of Central Excise Rules, 1944 - Mens Rea - Held that - Without foundation in the original show cause notice to levy penalty under Rule 173GG, right to defense cannot be denied. No one can be held deterrently violating the principles of natural justice. The most interesting feature of this appeal is that there was disproportionate penalty of ₹ 1,70,000/- for the default of payment of duty of ₹ 7,235/-. It is settled principle of law that the object of the rule is certainly to safeguard Revenue, but mens-rea is basic element to judge imposition of penalty to prevent disproportionality taking into the gravity of the breach committed into consideration. Blanket levy of penalty of ₹ 1,70,000/- is therefore considered to be disproportionate looking to the gravity of the matter since duty default was ₹ 7,235 - Without mens rea, if penalty is levied that becomes arbitrary and it affects the fundamental rights. Therefore, rule making authority being subordinate to legislation no scope is provided to that authority to prescribe any disproportionate penalty. This ground is alone enough to set aside the penalty imposed. - element of mens rea was also recognized by the Hon ble Kerala High Court in the case of Superintendent of Central Excise Vs. Sance Pharmaceuticals 2009 (1) TMI 288 - HIGH COURT OF KERALA AT ERNAKULAM - Decided in favour of assessee.
Issues Involved:
1. Imposition of penalty under Rule 173GG of Central Excise Rules, 1944 without proper show-cause notice. 2. Disproportionate penalty imposed compared to the gravity of the matter. 3. Consideration of mens rea in penalty imposition. 4. Judicial review of legislation on the ground of excessive restriction. Analysis: Issue 1: Imposition of penalty under Rule 173GG without proper show-cause notice The appellant argued that the show-cause notice issued initially proposed a penalty under Rule 173Q of Central Excise Rules, 1944. However, a subsequent corrigendum was issued proposing a penalty under Rule 173GG without any available record of the original show-cause notice. The appellate authority acknowledged the lack of proposal for penalty under Rule 173GG in the original notice, emphasizing the importance of proper notice for defense. The absence of foundation in the original notice was deemed a violation of natural justice, leading to the denial of the right to defense. Issue 2: Disproportionate penalty The appellant highlighted the disproportionate penalty of Rs. 1,70,000 imposed for a duty default amounting to only Rs. 7,235. The tribunal recognized the principle that penalty imposition should consider mens rea and the gravity of the breach. Citing a judgment from the Hon'ble High Court of Punjab & Haryana, it emphasized that penalties without mens rea could be arbitrary and a violation of fundamental rights. The tribunal deemed the blanket levy of Rs. 1,70,000 as disproportionate given the gravity of the default, leading to the setting aside of the penalty. Issue 3: Consideration of mens rea in penalty imposition The tribunal referred to a judgment by the Hon'ble Kerala High Court recognizing the importance of mens rea in penalty imposition. It emphasized that mens rea is a fundamental element in judging the imposition of penalties to prevent disproportionality. The tribunal considered the lack of mens rea in the penalty imposition as a significant factor in setting aside the penalty. Issue 4: Judicial review of legislation on the ground of excessive restriction The tribunal discussed the concept of judicial review of legislation based on the proportionality test. It highlighted that the power of legislation is circumscribed by fundamental rights, and penalties imposed without mens rea could be considered arbitrary and in violation of fundamental rights. The tribunal emphasized that rule-making authorities cannot prescribe disproportionate penalties, and excessive restrictions could be subject to judicial review. In conclusion, the tribunal allowed the appeal based on the disproportionate penalty, lack of mens rea, and the violation of natural justice due to the absence of a proper show-cause notice proposing the penalty under consideration.
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