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2016 (10) TMI 956 - HC - 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 - Whether, mandatory quantum of penalty equal to the amount of duty prescribed under Rule 96ZO (3) (ii) of erstwhile Central Excise Rules, 1944, can be reduced? - Section 35-G of Central Excise Act, 1944 - Held that - Reliance placed on the decision of case of Shree Bhagwati Steel Rolling Mills vs. Commissioner of Central Excise 2015 (11) TMI 1172 - SUPREME COURT where it was held that when contrasted with the provisions of the Central Excise Act itself, the penalty provisions contained in Rules 96ZO, 96ZP and 96ZQ 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 authorise the Government to levy penalty higher than ₹ 5,000/-. 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. The sole question of law in this appeal is answered against the department and in favor of the assessee - appeal dismissed.
Issues:
Challenge to the reduction of mandatory penalty under Rule 96ZO (3) (ii) of Central Excise Rules, 1944. Analysis: The judgment pertains to a Central Excise Appeal challenging the reduction of a mandatory penalty equal to the amount of duty under Rule 96ZO (3) (ii) of the erstwhile Central Excise Rules, 1944. The key question addressed is whether such a mandatory quantum of penalty can be reduced. The court referred to a previous ruling by the Apex Court in the case of Shree Bhagwati Steel Rolling Mills vs. Commissioner of Central Excise, where it was held that penalty provisions in Rules 96ZO, 96ZP, and 96ZQ were arbitrary and excessive. The Apex Court emphasized that penalties must be levied based on statutory law, and Section 37 of the Central Excise Act does not expressly authorize penalties higher than ?5,000. The court highlighted that imposing a mandatory penalty equivalent to the duty amount violates Article 14 and 19(1)(g) of the Constitution, deeming the provisions ultra vires the Central Excise Act. The court further delved into specific paragraphs of the aforementioned judgment, emphasizing the unexceptionable nature of the High Court's reasoning. It was noted that the penalty provisions were inflexible and mandatory, treating unequals as equals, thus violating constitutional principles. The court highlighted the potential impact on fundamental rights and the need for a less drastic restraint to achieve deterrence. Comparisons were drawn with Section 37 of the Act, showcasing the excessive and arbitrary nature of the penalty provisions in Rules 96ZO, 96ZP, and 96ZQ. Section 37(3) and (4) were cited to demonstrate the statutory limitations on penalties, reinforcing the argument against the mandatory penalty under the impugned rules. Ultimately, the court upheld the contention of the Assessees, striking down Rules 96ZO, 96ZP, and 96ZQ for imposing a mandatory penalty equivalent to the duty amount. The judgment concluded by answering the sole question of law in favor of the assessee, resulting in the dismissal of the appeal without costs.
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