2012 (9) TMI 458 - HC - Central Excise

Whether Excise Tribunal right in holding that minimum penalty should have been 100% of the excise duty leviable Held that - Exercise of such power by way of subordinate legislation is not permissible when rule making authority for levying penalty is limited to default with intent to evade duty - Section 37, which is the rule making power, is clear that penalty can be imposed only when the assessee is guilty of intending to evade the payment of duty, the penalty cannot be imposed without such intention. Furthermore, even when intention may be there, the penalty must be reasonable and cannot, in all cases, be fixed at 100% of the excise leviable against revenue Provisions of Section 96ZO permitting the minimum penalty for delay in payment without any discretion and without having regard to extent and circumstances for delay are held to be ultra vires of the Act

Summary

Issues:
1. Challenge to the reduction of penalty by the revenue in Central Excise Appeal No. 3 of 2006.
2. Challenge to the ultra vires of Rule 96ZO in CWP No. 4531 of 2009.

Analysis:

Issue 1: Challenge to the reduction of penalty
In Central Excise Appeal No. 3 of 2006, the revenue contested the Customs, Excise and Service Tax Appellate Tribunal's decision to reduce the penalty to one lac. The Tribunal referred to Rule 96ZO of the Central Excise Rules, stating that the minimum penalty should have been 100% of the excise duty leviable. The contention raised was that the penalty imposed should be proportionate to the offense committed, considering the circumstances of each case. The Court emphasized that penalty imposition must be reasonable and cannot be fixed arbitrarily at 100% of the excise duty in all cases. The Tribunal's decision to impose a penalty of one lac was deemed reasonable and not illegal.

Issue 2: Challenge to the ultra vires of Rule 96ZO
In CWP No. 4531 of 2009, the assessee challenged the validity of Rule 96ZO, arguing that it was ultra vires. The assessee relied on a judgment from the Punjab and Haryana High Court, which highlighted the importance of mens rea in penalty provisions. The Court agreed with the previous judgment, stating that penalty imposition without the intention to evade duty is excessive and unreasonable. The Court held that the rule providing for a mandatory minimum penalty without mens rea and discretion was arbitrary and violated fundamental rights. Consequently, the Court declared the provisions of Rule 96ZO allowing for a minimum penalty without discretion and regard to the circumstances of the delay as ultra vires of the Act and the Constitution of India.

In conclusion, the Court allowed CWP No. 4531 of 2009, declaring Rule 96ZO ultra vires, while dismissing Central Excise Appeal No. 3 of 2006 filed by the revenue. The judgment emphasized the importance of proportionality in penalty imposition and the need for discretion based on individual case circumstances.