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2015 (11) TMI 1172 - SC - Central ExciseDelayed payment of central excise duty under Section 3A of the Central Excise Act, 1944 - Demand of Interest and penalty - Rules 96ZO, 96 ZP and 96 ZQ of the Central Excise Rules, 1994 - violative of Articles 14 and 19(1)(g) of the Constitution - Held that - When Section 6 speaks of the repeal of any enactment, it refers not merely to the enactment as a whole but also to any provision contained in any Act. Thus, it is clear that if a part of a statute is deleted, Section 6 would nonetheless apply. Secondly, it is clear, as has been stated by referring to a passage in Halsbury s Laws of England in the Fibre Board s judgment, that the expression omission is nothing but a particular form of words evincing an intention to abrogate an enactment or portion thereof. A delay of even one day would straightaway, without more, attract a penalty of an equivalent amount of duty, which may be in crores of rupees. It is clear that as has been held by this Court, penalty imposable under the aforesaid three Rules is inflexible and mandatory in nature. The High Court is, therefore, correct in saying that an assessee who pays the delayed amount of duty after 100 days is to be on the same footing as an assessee who pays the duty only after one day s delay and that therefore such rule treats unequals as equals and would, therefore, violate Article 14 of the Constitution of India. It is also correct in saying that there may be circumstances of force majeure which may prevent a bonafide assessee from paying the duty in time, and on certain given factual circumstances, despite there being no fault on the part of the assessee in making the deposit of duty in time, a mandatory penalty of an equivalent amount of duty would be compulsorily leviable and recoverable from such assessee. This would be extremely arbitrary and violative of Article 14 for this reason as well. Even where clandestine removal and intent to evade duty are present, yet the authorities are given a discretion to levy a penalty higher than ₹ 10,000/- but not exceeding the duty leviable. In a given case, therefore, even where there is willful intent to evade duty and the duty amount comes to say a crore of rupees, the authorities can in the facts and circumstances of a given case, levy a penalty of say ₹ 25,00,000/- or ₹ 50,00,000/-. This being the position, it is clear that when contrasted with the provisions of the Central Excise Act itself, the penalty provisions contained in Rules 96ZO, 96 ZP and 96 ZQ are both arbitrary and excessive. - A penalty can only be levied by authority of statutory law, and Section 37 of the Act, as has been extracted above does not expressly authorize the Government to levy penalty higher than ₹ 5,000/-. This further shows that imposition of a mandatory penalty equal to the amount of duty not being by statute would itself make rules 96ZO, 96 ZP and 96 ZQ without authority of law. We, therefore, uphold the contention of the assessees in all these cases and strike down rules 96ZO, 96 ZP and 96 ZQ insofar as they impose a mandatory penalty equivalent to the amount of duty on the ground that these provisions are violative of Article 14, 19(1)(g) and are ultra vires the Central Excise Act. Load capacity of an induction furnace unit is certainly relevant material referred to in Rule 3(2) to determine the capacity of the furnace installed. It is obvious that it is not necessary to state such load capacity in terms for it to be included in Rule 3(2). - interest and penalty provisions under the Rules 96ZO, ZP, and ZQ of the Central Excise Rules, 1994 are invalid for the reasons assigned in the judgment. - Appeal disposed of.
Issues Involved
1. Demand for interest and penalty under Rules 96ZO, 96ZP, and 96ZQ of the Central Excise Rules, 1994. 2. Validity of the compounded levy scheme under Section 3A of the Central Excise Act, 1944. 3. The effect of the "omission" of the compounded levy scheme on the liability of the assessee. 4. The legality of the demand for interest for delayed payment of central excise duty. 5. Constitutionality of the penalty provisions under the Central Excise Rules. 6. Relevance of sanctioned electrical load in determining the capacity of induction furnaces. Detailed Analysis 1. Demand for Interest and Penalty under Rules 96ZO, 96ZP, and 96ZQ The Supreme Court addressed the demand for interest and penalty under Rules 96ZO, 96ZP, and 96ZQ of the Central Excise Rules, 1994. The rules were framed to effectuate the provisions of Section 3A of the Central Excise Act, 1944. Several High Courts had struck down these rules as being ultra vires the parent provision and violative of Articles 14 and 19(1)(g) of the Constitution. The Supreme Court upheld the contention that these rules were unconstitutional and invalid. 2. Validity of the Compounded Levy Scheme The compounded levy scheme was introduced under Section 3A of the Central Excise Act, 1944, and the appellant had opted for this scheme under Rule 96ZP. The appellant argued that the omission of the compounded levy scheme in 2001 should wipe out the liability for the period during which the scheme was in operation. However, the Court held that the liability of the assessee was not wiped out by the omission of Section 3A, relying on the recent judgment in M/s Fibre Boards (P) Ltd., Bangalore v. Commissioner of Income Tax, Bangalore. 3. Effect of "Omission" of the Compounded Levy Scheme The Court clarified that an "omission" would amount to a "repeal" for the purpose of Section 6 of the General Clauses Act. This interpretation was supported by the judgment in Fibre Board's case, which held that an omission would be treated as a repeal, thus saving the liability incurred under the omitted provision. 4. Legality of Demand for Interest The appellant contended that the demand for interest for delayed payment of central excise duty was invalid because Section 3A of the Act did not provide for the payment of interest. The Court agreed, citing the Constitution Bench decision in VVS Sugars v. Government of A.P., which held that interest could only be levied if the statute expressly provided for it. Consequently, the rules providing for the payment of interest were declared ultra vires. 5. Constitutionality of Penalty Provisions The penalty provisions under Rules 96ZO, 96ZP, and 96ZQ were challenged for being inflexible and mandatory, treating unequals as equals, and being violative of Articles 14 and 19(1)(g). The Court upheld the High Court's judgment that these provisions were arbitrary and excessive, and therefore unconstitutional. The Court noted that penalties should be proportionate and should take into account the circumstances of each case. 6. Relevance of Sanctioned Electrical Load In SLP (civil) No.22134 of 2000, the Court addressed the issue of whether the sanctioned electrical load was a relevant factor in determining the capacity of induction furnaces. The Court agreed with the Karnataka High Court's view that the load capacity of an induction furnace unit is relevant material for determining the capacity of the furnace installed. The Court set aside the judgment of the Punjab and Haryana High Court and declared that a Chartered Engineer Certificate dealing with the sanctioned electrical load is a relevant consideration. Conclusion The Supreme Court declared the interest and penalty provisions under Rules 96ZO, 96ZP, and 96ZQ of the Central Excise Rules, 1994, invalid. The appeals filed by the Revenue were dismissed, and the appeals filed by the assessees were allowed to the extent indicated. The Court also clarified the relevance of sanctioned electrical load in determining the capacity of induction furnaces.
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