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2018 (9) TMI 1579 - HC - Central ExciseValidity of Rule 96ZO of the Central Excise Rules, 1994 - Imposition of penalty - Whether the Tribunal was correct in holding that Rule 96ZO of the Central Excise Rules, 1994 as ultra vires and holding that the penalty is not imposable on respondent, when the Rule 96ZO has been formulated under Section 37 of the Central Excise Act, 1044 vide N/N. 33/97-CE(NT) dated 01.08.1997, when as per the Section 37(4)(a) of the Central Excise Act, the Government of India has the powers to make the Rules with regard to penalty of an amount equivalent to the duty involved? Held that - The issue for consideration in the present appeal was decided by the Hon ble the Apex Court in the matter of Shree Bhagwati Steel Rolling Mills vs. Commissioner of Central Excise and others 2015 (11) TMI 1172 - SUPREME COURT , where it was held that A penalty can only be levied by authority of statutory law, and Section 37 of the Act, 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. Appeal dismissed - decided against Revenue.
Issues Involved:
1. Validity of Rule 96ZO of the Central Excise Rules, 1994. 2. Imposition of penalty under Rule 96ZO. 3. The impact of the omission of the compounded levy scheme in 2001. 4. Demand for interest due to delayed payment of central excise duty. Issue-wise Detailed Analysis: 1. Validity of Rule 96ZO of the Central Excise Rules, 1994: The appellant challenged the order of the Central, Excise & Service Tax Appellate Tribunal (CESTAT), Mumbai, which held Rule 96ZO as ultra vires. The Tribunal's decision was based on the judgment of the Punjab and Haryana High Court in Bansal Alloys & Metals P. Ltd., where Rule 96ZO was declared ultra vires. The Supreme Court, in the case of Shree Bhagwati Steel Rolling Mills, upheld this view, stating that since Section 3A of the Central Excise Act does not provide for the levying of interest, the rules formulated under it, including Rule 96ZO, cannot impose such penalties. The Court found these rules to be arbitrary, excessive, and violative of Articles 14 and 19(1)(g) of the Constitution. 2. Imposition of Penalty under Rule 96ZO: The Tribunal dropped the penalty proposed under Rule 96ZO, following the precedent set by the Punjab and Haryana High Court. The Supreme Court further elaborated that the penalty provisions under Rules 96ZO, 96ZP, and 96ZQ were inflexible and mandatory in nature, leading to arbitrary results. For instance, a delay of even one day in payment would attract a penalty equivalent to the duty amount, treating unequals as equals, thus violating Article 14. The Court emphasized that penalties should be proportional and discretionary, not mandatory and excessive. 3. The Impact of the Omission of the Compounded Levy Scheme in 2001: The Supreme Court addressed whether the omission of the compounded levy scheme in 2001 nullified the liability of the assessee for the period when the scheme was operational. The Court held that the omission did not wipe out the liability for the period during which the scheme was in force. The compounded levy scheme was a separate mechanism from the normal excise duty collection, and its rules included specific provisions for payment methods, interest, and penalties. 4. Demand for Interest Due to Delayed Payment of Central Excise Duty: The Supreme Court considered the demand for interest on delayed payments under Section 3A of the Central Excise Act. The Court concluded that since Section 3A does not explicitly authorize the levying of interest, the rules under it, including Rule 96ZO, cannot impose such interest. The Court reiterated that any penalty or interest must be backed by statutory authority, which was lacking in this case. Conclusion: The Bombay High Court dismissed the appeal, aligning with the Supreme Court's judgment in Shree Bhagwati Steel Rolling Mills. The Court declared the interest and penalty provisions under Rules 96ZO, 96ZP, and 96ZQ invalid, thus dismissing the revenue's appeal and allowing the assessees' appeals. The decision emphasized the need for proportional and discretionary penalties, consistent with statutory provisions and constitutional safeguards.
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