2010 (2) TMI 243 - HC - Central Excise

Penalty- The order passed by the Tribunal has confirmed the order passed by the Commissioner imposing interest and penalty against the firm M/s. LD Textile Industries Ltd. has also confirmed the imposition of penalty upon the three appellants. However, the penalty on the three appellants who are directors or managers of the firm M/s. L.D. Textile Industries Ltd., is modified from Rs.2 crores to Rs.20 lakhs, which is sought to be challenged in the present appeals mainly on the ground that the order passed by the Tribunal is not a speaking order and no reasons are recorded for modifying or reducing the penalty from Rs.2 crores to Rs.20 lakhs on the individual appellants. Held that- considering the doctrine of proportionality, though it cannot be strictly applied in such cases, one has to consider that it has to be commensurate with the nature of the offence or the wrong done and imposing the penalty of Rs.20 lakhs on an individual cannot be said to be erroneous. The appeals are dismissed

Issues Involved:
1. Whether the Tribunal committed a substantial error of law in reducing the penalty on the respondent from Rs. 2 crores to Rs. 20 lakhs.

Issue-wise Detailed Analysis:

1. Tribunal's Reduction of Penalty:
The primary issue raised by the Commissioner of Central Excise & Customs, Surat-II was whether the Tribunal committed a substantial error of law by reducing the penalty imposed on the respondents from Rs. 2 crores to Rs. 20 lakhs. The Tribunal had confirmed the order passed by the Commissioner imposing interest and penalty on the firm M/s. L.D. Textile Industries Ltd. but modified the penalty on the individual directors/managers from Rs. 2 crores to Rs. 20 lakhs.

2. Lack of Reasons in Tribunal's Order:
The appellant argued that the Tribunal's order was not a speaking order as it did not provide reasons for reducing the penalty. The appellant cited various judicial pronouncements emphasizing the necessity of recording reasons in any order, including those imposing penalties. The appellant referred to multiple judgments, including those from the Hon'ble Apex Court, to support the argument that orders without reasons are liable to be set aside.

3. Tribunal's Discretion:
The court acknowledged that the Tribunal has discretion under Rule 209A of the Central Excise Rules, 1944, to impose penalties. Rule 209A allows for a penalty not exceeding three times the value of the goods or five thousand rupees, whichever is greater. The court noted that the Tribunal had sustained the order passed by the Commissioner and only modified the penalty on the individual directors/managers. The court emphasized that the Tribunal's discretion, if exercised reasonably, cannot be deemed arbitrary or perverse.

4. Judicial Precedents and Need for Reasons:
The court discussed the importance of recording reasons in judicial orders, citing various judgments. However, it noted that in the present case, the Tribunal had not differed from the lower authority's order but had sustained and confirmed it. The court observed that reasons are essential when a higher authority takes a different view from a lower authority, but in this case, the Tribunal had merely modified the penalty while confirming the lower authority's order.

5. Proportionality of Penalty:
The court considered the doctrine of proportionality, stating that penalties should be commensurate with the nature of the offense. It noted that imposing a penalty of Rs. 20 lakhs on individual directors/managers, who are salaried employees, cannot be deemed erroneous or disproportionate.

Conclusion:
The court concluded that the Tribunal's order could not be said to be without reasons regarding the merits or issues involved. The Tribunal had exercised its discretion reasonably in modifying the penalty on the individual directors/managers. The court found no substantial question of law in the appellant's submissions and dismissed the appeals in limine. The appeals were accordingly dismissed.

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